Sullivan and Sullivan

[2015] FamCA 827

FAMILY COURT OF AUSTRALIA

SULLIVAN & SULLIVAN [2015] FamCA 827

FAMILY LAW – PROPERTY – Interim – Where property adjustment Orders were made by consent in 2012 – Where the wife commenced proceedings pursuant to s 79A seeking to set those Orders aside on the basis that there was a miscarriage of justice by reason of the husband’s failure to disclose matters of relevance prior to the making of those Orders and by reason of the husband’s fraud – Where the transactions required by the 2012 Order were not completed – Where interim Orders were made in December 2014 to effect the completion of those transactions by other means in circumstances where the mortgagee of significant assets was intending to act to realise its security and in circumstances where there were risks of non-compliance with superannuation law – Where the wife continues to refuse to provide her consent to the completion of the transactions on the basis that it is not practical or lawful to implement the Orders without creating further substantial breaches of superannuation law – Where the evidence demonstrates that the obligations the Orders create should not be carried out having regard to the interests of justice pending determination of the s 79A application – Order that the husband take no further steps to enforce the Orders without first obtaining the written consent of the wife – Order restraining the husband from incurring further debt or further encumbering any interests on his or any third party’s behalf without first obtaining the consent of the wife.

Family Law Act 1975 (Cth)
Superannuation Industry (Supervision) Act 1993(Cth)

Mullen and De Bry (2006) FLC 93-293
Waugh and Waugh (2000) FLC 93-052

APPLICANT: Ms Sullivan

RESPONDENT: Mr Sullivan

FILE NUMBER: BRC 3630 of 2013

DATE DELIVERED: 6 October 2015

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Forrest J

HEARING DATE: 21 and 23 September 2015

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Cameron
(on 23 September only)

SOLICITOR FOR THE APPLICANT: Mr Love
Matthew Love Family Lawyers

COUNSEL FOR THE RESPONDENT: Mr Kirk QC

SOLICITOR FOR THE RESPONDENT: Ryan Kruger

Orders

1. That the husband shall take no further steps to enforce paragraphs 4 and 6 of the property adjustment Orders of the Suburb C Magistrates Court of 13 December 2012 or paragraphs 1 and 2 of the Orders of this Court of 24 December 2014 without first obtaining the written consent of the wife or a further order of this Court.

2. That until further order of this Court, save in respect of a loan of $420,000 from the NAB already arranged, the husband is restrained from incurring any further debt on his own behalf, causing I Pty Ltd (or any other company the husband might be a shareholder or director of) to incur further debt to any third party, including J Pty Ltd, causing J Pty Ltd to incur further debt, causing any real property in which he has a legal or beneficial interest to be further encumbered and from personally guaranteeing any further debt of any third party without first obtaining the written consent of the wife.

3. That all other interim applications are dismissed.

4. That the determination of each party’s application for costs of and incidental to the determination of these interim applications be reserved to the trial judge.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Sullivan & Sullivan has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: BRC 3630 of 2013

Ms Sullivan

Applicant

And

Mr Sullivan

Respondent

REASONS FOR JUDGMENT

1. In this matter, the wife is an applicant for orders pursuant to s 79A of the Family Law Act 1975 (Cth) (“the Act”) that is awaiting listing for trial in this Court. The property adjustment order that the wife seeks to have set aside was made, with the parties’ consent, in the Magistrates Court of Queensland at Suburb C on 13 December 2012.

2. The matter has been before the Court on an interim basis before. On 24 December 2014, I determined competing interim applications in the matter. As I set out in my December 2014 judgment, the relevant provisions of the December 2012 property adjustment Order were:

   4.The Wife as owner of a one-half share in the properties described as [Lots 1 & 2 in Building Unit Plan … County of E Parish of F] contained in Titles References … and … (“Units [1 & 2]”), and the Husband as Trustee for [G] Family Trust as owner of the remaining one-half shares in the said properties, shall by the date falling forty-five (45) days from the date of these Orders (“settlement date”), transfer all of their right, title and interest in and to Units [1 & 2] to the transferee [Sullivan] Super Holdings Pty Ltd ACN 161 444 604 as Trustee for [Sullivan] Trust (for and on behalf of the [H] Super Fund) for the sum of $1,500,000.00 as a going concern (exempt from GST).

   5.That in order to provide a deposit for the transferee [sic] referred to in Order 4 to complete the [Units 1 & 2] transaction referred to therein, the Husband shall sign all necessary documents and do all necessary acts and things to roll in to the [H] Super Fund from the [Sullivan] Superannuation Fund the sum of $688,000.

   6.The Husband and Wife shall sign all necessary documents and do all necessary acts and things to complete the transfer of [Units 1 & 2] in accordance with Order 4 hereof.

   7.The Husband and Wife shall sign all necessary documents and do all necessary acts and things to borrow the sum of $812,000 from the National Australia Bank (or from an alternate agreed Lender) to enable [Sullivan] Super Pty Ltd ACN … as Trustee for [G] Trust to complete the [Units 1 & 2] transaction referred to in Order 3 hereof, which borrowings shall be secured against [Units 1 & 2], and the Wife shall not be required to give any personal guarantees or securities in respect of such borrowings.

   8.That upon completion of the [Units 1 & 2] transaction referred to in Order 4 hereof, the Husband as member of the [H] Super Fund shall hold an interest equivalent to 53 per cent of the equity held in Units 1 & 2, and the Wife shall hold an interest equivalent to 47 per cent of the equity held in [Units 1 & 2].

   9.The proceeds of sale ($1,500,000) of [Units 1 & 2] paid at settlement date shall be applied by the Transferors as follows (subject to adjustment, as to interest payable, between the parties on a 56 per cent to Wife and 44 per cent to Husband basis, either credit or debit, if settlement occurs before or after the settlement date):-

   [Then is set out a list of payments to various named creditors including an amount of $827,485 owed to the NAB secured against [Units 1& 2].] 

   10.After completion of the [Units 1 & 2] transaction referred to in Order 4, the parties shall cause the transferee referred to in Order 4 to sell [Units 1 & 2], and upon sale, the sale proceeds shall be applied in meeting costs of sale, usual adjustments and the Loan taken out by the parties pursuant to Order 7, and the Wife’s 47 per cent share of the net proceeds of sale shall then be transferred out of The [H] Superannuation Fund into a Fund of the Wife’s choice, and the Wife shall immediately cease to be a member and/or Trustee of The [H] Superannuation Fund (and shall sign all necessary documents to do so).

3. Although a formal transfer form, transferring the transferors’ relevant interests in Units 1 & 2 to Sullivan Super Pty Ltd as trustee (for a bare trust, the beneficiaries of which were the husband and wife as trustees for the H Superannuation Fund) was executed by the parties on 24 January 2013, settlement of the transaction was never actually effected and that transfer has not ever been registered in the Queensland Freehold Land Register.

4. As I observed in my December 2014 judgment, the husband asserts that $688,000 was rolled over into the H Super Fund as required by paragraph 5 of the Order of December 2012 and that a week later three cheques totalling $687,193 were drawn on that Super Fund. He further asserts that money was “distributed” as required by the December 2012 Order. He asserts that distribution of funds was, effectively, the payment to the vendors of Units 1 & 2 of the deposit for the units. He asserts that the parties were then unable to secure the ANZ Bank finance the Order provided for, or any alternative financing, and that the wife, intent on prosecuting her application pursuant to s 79A of the Act, would not then co-operate with him to secure funding to complete all of the transactions in accordance with the December 2012 Order.

5. The husband asserted before me in November last year that the mortgagee of Units 1 & 2 was about to act to realise its security but that such an outcome could be adverted by another means. He asserted that the Sullivan Superannuation Fund sold a property asset in January 2014 and that his member entitlements in that fund (represented mostly by the proceeds of sale of that property held in the trust account of a Brisbane firm of solicitors) could be rolled over into the H Superannuation Fund, and that the money could then be used to complete the purchase of Units 1 & 2 so that the debt secured by the mortgages on those units could be discharged, thus saving the parties a significant amount of interest and default interest that was accruing each day.

6. As I observed in my December 2014 judgment, the wife opposed that course being taken and favoured letting the mortgagee take possession to realise its security. The husband asserted that the consequences of non-completion of the transaction were potentially seriously prejudicial for him and the wife in that the H Superannuation Fund would be deemed to be a “non-compliant fund” under superannuation regulatory law, thus attracting serious financial penalties imposed by the ATO. Although the wife sought to cast doubt on the reliability of the husband’s assertion about that, I accepted it and, for all of the reasons I gave in my judgment, I made an Order that included, relevantly, the  following provision:

   (1)That, in so far as it is still practicably possible, the husband and the wife shall do all things necessary, including signing all necessary documents (including Trust Account authorities directed at [B Solicitors] in respect of funds being held on trust for the parties, either of them or any self-managed superannuation fund run by them or either of them), to comply with paragraphs 4 and 6 of the Orders of the [Suburb C] Magistrates Court of 13 December 2012 forthwith, such that the purchase of Units 1 & 2 (as described in paragraph 4 of those Orders) is completed with the existing debt to the NAB secured by mortgage over those units being discharged. 

7. Relying upon his assertion that the “deposit” of $688,000 had already been paid by the H Super Fund, the husband asserts that only $812,000 needed to be paid by the H Super Fund to complete the transaction. He says that was achieved, effectively, in the following way:

   (a)He rolled over a further $100,000 from his member entitlements in the Sullivan Super Fund into the H Superannuation Fund on 6 January 2015 out of which he then transferred $98,016 to the NAB as payment towards discharging the debt secured by mortgages held by the bank over Units 1 & 2; and

   (b)The sum of $713,983 that was held in the trust account of B Solicitors, that was part of his member entitlement in the Sullivan Super Fund (being the proceeds of the sale of a real property asset held by that fund in January 2014), was then also paid, at the direction of the wife and her solicitors (with which direction the husband acquiesced), directly to the NAB to discharge the mortgages held by the bank over Units 1 & 2.

8. The wife’s direction to B Solicitors to pay the money directly to the NAB and not firstly into the H Superannuation Fund reflected the wife’s lack of trust in the husband and her belief that he might not cause the debt to be discharged if the money had first gone into the H Superannuation Fund.

9. The husband says all that needed to happen then to effect compliance with paragraphs 4 and 6 of the December 2012 Order and paragraph 1 of my December 2014 Order was the registration of the transfer document, transferring Units 1 & 2 from the current registered owners (the wife and the husband as trustee for the Sullivan Family Trust) to “the H Superannuation Fund”.

10. The husband says that cannot be done unless the wife signs a document called a “General Consent as Caveator” allowing the registration of the transfer to be completed despite the existence of caveats registered on the titles to Units 1 & 2 which the wife caused to be lodged as long ago as September 2013.

11. Early in January this year, not long after my December 2014 judgment was delivered, the wife’s solicitors advised the husband that the wife would:

    …be providing consent to the registration of such instruments as are necessary to give effect to the orders 4 and 6 of 13 December 2012, however will not be removing the Caveats, as she claims an interest in those properties which is yet to be determined by a Court.

    And further:

    Once the NAB Mortgage is paid out then we consider there should be no hinderance [sic] in respect of the transfer of the properties.

12. However, notwithstanding that information provided by the wife’s solicitors to the husband, the wife has since continually refused to provide her consent to the registration of the executed Transfer of Units 1 & 2, even though that registration would be subject to the continuing prior registration of her caveats. After being pressed by solicitors now acting for the husband to do something, having regard to my December 2014 Orders, the wife filed an Application in a Case for an order that those Orders be stayed pending further order or, alternatively, they be stayed for 28 days to enable the wife to bring an Appeal against them. 

13. That Application in a Case was listed for hearing by me in the Judicial Duty List on Monday, 21 September 2015. At that hearing, the husband, represented by Queen’s Counsel, opposed a stay being granted. The wife, represented by her solicitor, sought an adjournment of the stay application for a short while because the expert’s report commissioned by him for the wife from the solicitor who had provided advice to the wife about compliance issues in respect of the superannuation funds and the various transactions that I have discussed had only been received by him that morning and he had not had sufficient opportunity to consider it properly and to prepare his submissions.

14. For reasons I gave orally at the time, I adjourned the hearing of the application for the stay for two days to Wednesday 23 September 2015.

15. At the hearing on that Wednesday, the wife was represented by counsel and the husband was again represented by Queen’s Counsel.

The Arguments

For the wife

1. At the hearing of the Application in a Case, counsel for the wife submitted:-

   Whilst the wife’s application is couched in terms of a stay application, in reality, the Court is concerned with the enforcement of the order made on 24 December 2014.

2. He submitted, correctly in my view, that pursuant to s 105 of the Act, the Court has a discretion as to whether it will enforce one of its own earlier orders. He went on to submit, using the argument that the immediate issue is one of enforcement and not really a question of whether to stay the previous Orders that the Court would now be satisfied that the transactions required to be completed by the 2012 final property adjustment Order and my Orders of December 2014 enforcing that Order, should not now be required to be completed.

3. Counsel referred to a passage from my December 2014 judgment where I said:

   Prima facie, I consider, at such a stage in these proceedings, the Court must regard the Orders as valid and act to ensure compliance with them whilst they remain valid unless the evidence demonstrates that the obligations they create cannot be carried out or should not be carried out, having regard to the interests of justice, pending determination of the s 79A application. Questions of prejudice to each of the parties caused by not enforcing the orders pending determination of the s 79A application or, alternatively, by enforcing the orders prior to the hearing of the s 79A application are, in my view, very relevant considerations in the discretionary exercise.

4. For the wife, it was then submitted that the wife has received expert advice to the effect that it is “neither practical nor lawful to implement paragraphs 4 & 6 of the orders made by consent on 13 December 2012.”

5. By affidavit, the wife sets out the matters about which she says she has been so advised. Those include, relevantly, the following:

   (a)The transfer of the funds from the B Solicitors Trust Account into payment of the NAB loan in respect of Units 1 & 2 is a step contrary to superannuation law, and as those funds have been transferred it has created a situation where there are now two superannuation funds with substantial compliance issues;

   (b)There is some likelihood that the ATO will require the wife and/or the Sullivan Family Trust to repay to the Sullivan Super Fund the amount from the B Solicitors Trust Account as reimbursement;

   (c)if Units 1 & 2 are transferred into the H Superannuation Fund it would no longer be possible to remove those assets from the fund; and

   (d)The transfer of assets being Units 1 & 2 cannot lawfully occur without the process provided for with the purchase to occur through the G Trust – those steps not being able to occur because the funds required to make those steps occur were dissipated by the husband.

6. The wife then deposed to having been advised that the transfer of Units 1 & 2 “cannot lawfully occur without creating further substantial breaches of the superannuation law”.

7. Relying on these evidentiary circumstances, counsel for the wife then submitted that this Court would exercise its discretion not to enforce the Orders it made in December 2014 that required transactions provided for in the 2012 property adjustment Order to be completed as completion might expose the parties “to serious consequences and a potential for a significant diminution in the amount of property available for distribution between them pursuant to s 79 of the Act in the event that the wife’s application under s 79A is established”.

For the husband

1. Queen’s Counsel for the husband, submitted that the wife’s application is a stay application and that there is no source of power for the Court to stay its own Orders in the absence of a filed appeal. He went on to submit that even if there was power the evidence does not support the wife’s application. On point, he submitted that the evidence adduced by the wife did not actually support a finding that the registration of the transfer of the two units to the H Superannuation Fund would itself constitute a breach of superannuation regulatory law and, therefore, it should not be stopped.

My determination

1. If the husband was not actually seeking a further order from the Court, as he is, there would, in my view, probably be merit in the argument that the wife’s application is an application for a stay of previous orders as opposed to an application about enforcement. The wife’s Application in a Case actually seeks a stay of my December 2014 Orders, but the husband, in response, just does not seek to have that application dismissed but rather also asks for an Order that the wife now execute a General Consent to the registration of the transfers of the units so those can be registered in accordance with my December 2014 Orders. However, he also seeks a declaration pursuant to s 78 of the Act that the rightful owner of the two units is the Trustee of the H Superannuation Fund.

1. In my view, the husband’s Response is seeking positive enforcement of the previous Orders and not just the dismissal of a stay application, and, in doing so, the submission of counsel for the wife that this is now an enforcement issue and not just about whether the Court has jurisdiction to stay its own orders in the absence of an appeal against those orders has some merit and the discretion conferred by s 105 of the Act appears to be enlivened.

2. In the exercise of this discretion in the immediate context of this dispute, I hold no less to the views that I expressed in my December 2014 judgment that I have quoted in paragraph 18 hereof.

3. Accordingly, I consider the matter against the principle of treating my previous Orders and the Orders of 2012 as valid and that the Court must act to ensure compliance with them whilst they remain valid unless the evidence demonstrates that the obligations they create cannot be carried out or should not be carried out, having regard to the interests of justice, pending determination of the s 79A application. I also remain of the view that questions of prejudice to the parties are relevant considerations in the discretionary exercise.

4. In support of her case, the wife filed two affidavits of Ms K, solicitor, who specialises in superannuation law. Ms K was briefed to provide an opinion on a number of matters that included, relevantly in my view, the following:

   ·Identification of possible breaches of the Superannuation Industry (Supervision) Act 1993 (Cth) (“SISA”) and the regulations made under SISA (“SISR”) in the conduct of the two relevant superannuation funds and the actions available to the ATO in that respect;

   ·Identification of impediments under the SISA and SISR, if any, to compliance by the parties with Orders 4 and 6 of the 2012 Orders as required pursuant to my December 2014 Orders;

   ·Detailing reasonably possible consequences in the event that the parties comply with the Orders where there have been breaches of the SISA or the SISR in the past conduct of the relevant superannuation funds; and

   ·Recommendation of what steps, if any, ought to be taken in respect of any compliance issue identified.

5. In her report, Ms K did identify a number of matters that might constitute breaches of SISA an SISR in respect to the transactions that have occurred to date and also observed that the ATO could, if it was satisfied that breaches had occurred, impose penalties that could have serious financial consequences for the funds and or the parties or either of them.

6. Specifically, in responding to the second of the four matters set out by me in paragraph 28 hereof, Ms K observed that the parties were no longer relying on a “limited recourse borrowing arrangement” for the H Superannuation Fund to acquire the two units as originally planned and provided for in the 2012 Order. She went on, in these circumstances, to set out the following as her considered impediments to compliance with paragraphs 4 and 6 of the 2012 Order (which required transfer by the parties of their interests in the units to Sullivan Super Pty Ltd to be held, on trust for the trustees of the H Superannuation Fund):

   (a)That there was no written agreement for the transaction thus potentially presenting problems in respect of the arms-length nature of the transaction;

   (b)That there was no evidence as to the market value of the two units at the time of the consent Order being made in 2012 thus also potentially presenting problems in respect of the arms-length nature of the transaction;

   (c)That there was no agreement between the parties now as to the treatment of the money said to be used as the deposit for the purchase of the units;

   (d)The possibility, arising out of the matters relating to the dispute just referred to in (c) that the H Superannuation Fund has not, in fact, paid any deposit to the vendors, which would necessitate that fund “finding” the additional moneys for the purchase and expose that fund to various actions as to the payment of the deposit money;

   (e)A possible finding by the ATO that the proceeds of sale of the husband’s other superannuation fund’s real property asset have not been paid by the H Superannuation Fund to the vendors;

   (f)A possible determination by the ATO that the husband’s other superannuation fund be made non-complying;

   (g)A possible determination by the ATO that the H Superannuation Fund be made non-complying;

   (h)A possible determination by the ATO that either or both of the husband and the wife be disqualified from acting as a trustee of a self-managed superannuation fund (or a director of a corporate trustee), which would at a practical level require that the two units, if in the H Superannuation Fund, be sold.

7. Ms K went on immediately to observe that the matters noted at (g) and (h) are not “impediments to the sale”, but, rather, are reasons why the wife “may consider that the sale was imprudent at this point in time”.

8. As to the third of the four matters set out in paragraph 28 hereof, upon which Ms K was asked to provide her opinion, she observed that reasonably possible consequences for breaches of SISA and SISR in respect of past conduct of the relevant funds could not be stated with any certainty without knowledge as to what possible breaches, if any, are made out and the provision of further details such as would be revealed by a full audit prepared by an independent and experienced auditor on each of the relevant superannuation funds.

9. As to recommendations as to what steps, if any, should be taken in respect of any compliance issue identified, Ms K observed that the ATO has expressed the view in the past that it is in the best interests of fund trustees to “fix” issues of non-compliance before being asked to do so by the ATO. Ms K said she did not think this presently possible and that it could not properly be considered until a Court has determined the character of the deposit monies said to have been paid and whether there has been any impropriety with respect to the debts said to have been paid with the deposit monies. She considered that those matters should be “put to a Court for settling as a matter of urgency”. Ms K further recommended independent audit of the relevant funds and, whilst acknowledging that the wife has already approached the ATO with her concerns about “the conduct of the Husband’s Fund and actions required by the Court with respect to the Second Fund”, and she recommended no further action with respect to the transfer of the two units be taken until those audits are completed and the ATO has advised whether it intends to take any action with respect to any of the funds or trustees of the funds.

10. For his case, the husband relied on two affidavits of another solicitor with expertise in superannuation law, Mr L. The first affidavit included some opinions of Mr L about the matters that he offered without having seen Ms K’s report. The second affidavit offered some further opinions about the matters after having read Ms K’s report.

11. In his first affidavit Mr L expressed less concern that already concluded actions might constitute contraventions of SISA and SISR. He did though observe that the husband’s actions, even as asserted by the husband, in respect of the payment of the deposit for the purchase of the units could be considered to be “irregular” and could attract compliance concerns. As to this particular issue, Mr L expressed the opinion, said to be based on experience, that the contravention is “not at the most serious end of the spectrum of non-compliance”. He said nothing more about potential consequences and certainly did not say that the last step in the process of compliance with paragraphs 4 and 6 of the 2012 Order, the registration of the transfer of the units to Sullivan Super Pty Ltd as trustee for the Sullivan Bare Trust, the beneficiary of which is the Trustee of the H Superannuation Fund, would constitute a breach of SISA and/or SISR.

12. However, Mr L did say that the limited recourse borrowing provisions of SISA prevented the two unit properties being held by the one bare trust, but then he went on to say that was no longer an issue as the limited recourse borrowing arrangement was not actually put in place. On this issue, he went on to express the opinion that the trustee of the bare trust could still be the registered proprietor of the properties and that would not be in and of itself a contravention. In support of that opinion, he pointed out that when a limited recourse borrowing arrangement is in place and the loan is discharged, the title may remain registered in the name of the bare trustee. That would though, in my view, having regard to the provisions of s 67A(1)(c) of SISA, be dependent upon the trustee of the superannuation fund who has the beneficial interest in the property of the bare trust having the right to acquire legal ownership of that property from the trustee of the bare trust and then holding it as trustee for the superannuation fund.

13. In his second affidavit, Mr L took issue with some of Ms K’s opinions that previous actions might constitute breaches of the SISA and/or SISR. He clearly disagreed with her view that steps to cause the transfer of the units to finally be registered should not be taken, expressing the view that registration of the transfers would, in the current circumstances, result in the H Superannuation Fund having the two units as part of its investment property at their current market value “thus ensuring that the monies have not been dissipated as a result of the transactions in this matter”. He went on to point out then that in the event that the ATO were to make a finding that any of the transactions were of the order that a finding of non-compliance ought to be made then a penalty could be imposed against the superannuation fund with the value of the units being treated as income of the superannuation fund rather than an investment asset, then to be taxed at 45 per cent rather than at the usual rate of 15 per cent. He said that in this matter that would result in a penalty of $675,000 (on a market value of $1,500,000 for the units).

14. Ms K’s second affidavit included some comments and opinions expressed by her in response to the matters raised by Mr L in his first affidavit. There is, in my view, little that Mr L said that Ms K really took issue with, save for, importantly in my view, his opinion that transfer to Sullivan Super Holdings Pty Ltd as Trustee for Sullivan Bare Trust which would leave the bare trust as the registered proprietor of the units without a limited recourse borrowing arrangement having been put in place, was not in and of itself a contravention of SISA and/or SISR. On that point, Ms K simply says that the relief from the in-house asset rules in SISA which allows an asset to remain in a bare trust arrangement after the loan against that property has been paid does not apply where the property has not in the first place been the subject of a limited recourse borrowing arrangement.

15. Without knowing the exact statutory or regulatory provision that Ms K relies on to support that opinion, I do note that in the “in-house asset” provisions of SISA, s 71(8) relevantly provides:

    If, at a time:

    (a)an asset (the investment asset) of a superannuation fund is an investment in a related trust of the fund;

    (b)the related trust is one described in paragraph 67A(1)(b) in connection with a borrowing, by the trustee of the fund, that is covered by subsection 67A(1); and

    (c)the only property of the related trust is the acquirable asset mentioned in that paragraph;

    the investment asset is an in-house asset of the fund at the time only if the acquirable asset mentioned in that paragraph would be an in-house asset of the fund if it were an asset of the fund at the time.

16. That provision, in my view, clearly provides relief from the in-house asset rules in respect of a superannuation fund’s investment in a related (bare) trust of the fund where the conditions provided for in (b) and (c) are met. In my judgment, it is apparent, therefore, that the related trust must be one “in connection with a borrowing, by the trustee of the fund, that is covered by subsection 67A(1)” and the only property of the related trust is “the acquirable asset mentioned in that paragraph” that both experts agree must be a single asset.

17. I have to say that it is this aspect of the factual matrix that now presents the most concern to me. Whilst, with respect to Ms K, I am not entirely persuaded that the matters she raises as “impediments” listed in (a) – (f) of paragraph 30 hereof, are necessarily matters that demand the registration of the existing signed transfer actually now not to be effected, it does seem to me, on the evidence now before me, that the registration of a transfer of two “acquirable” assets to one bare trust that is a related fund of the H Superannuation Fund in circumstances where no limited recourse borrowing arrangements have actually been put in place, prima facie, presents immediate SISA and SISR compliance concerns.

18. Accordingly, in circumstances where:

    (i)the wife has already notified the Australian Tax Office of her own concerns about compliance issues, likely giving rise to an ATO investigation of some sort;

    (ii) all of the steps in the various transactions that have taken place to date have been set out by the husband in a manner that seemingly permits consideration of compliance issues by any independent auditor and/or the ATO;

    (iii)as Queen’s Counsel for the husband submitted, the beneficial interest in the units has, arguably, more than likely already been acquired, ultimately, by the H Superannuation Fund, in any event, by way of the circumstances that have transpired, including the execution of the transfer in early 2013;

    (iv) the serious concerns of default by the parties and their related entities that were immediate at the time of my 2014 determination in this matter that, in my view, presented real prospects of ‘non-compliance’ for the H Superannuation Fund in a manner that would not be able to be remedied, with the reasonable probability of that resulting in serious financial loss to the parties, are no longer of such immediate concern (ie, the bank did not foreclose on its mortgages and sell the units to third parties);

    (v) the parties have agreed to accept a third party’s offer to lease the subject units commencing shortly, that will provide much needed return on the capital investment the units represent, with there being no evidence before me that such lease arrangements will not be able to go ahead without the registration of the existing executed transfer being effected;

    (vi)I am of the view that should any ATO investigation and/or audit determine that the only further remedial step that must be taken to ensure satisfactory compliance with SISA and SISR obligations and requirements, so as to avoid serious financial consequences for the parties, is for title to the units to actually be registered in the names of the husband and the wife as trustees for the H Superannuation Fund (as opposed to in the name of Sullivan Super Holdings Pty Ltd as trustee), such an outcome is readily able to be achieved, even if a further Order of this Court is required; and

    (vii)I am not at this point in time persuaded that refusal to make further Orders that effect immediate registration of the existing executed transfer of the units will actually cause any further prejudice to the husband than might already exist because of issues of non-compliance to this point in time;

    I am satisfied that I should not at this point in time make the Order that the husband seeks from the Court requiring the wife to sign the General Consent of a Caveator to register the existing executed transfer and I will not do so.

19. Similarly, I am not persuaded that the Declaration sought by the husband that the rightful owner of the units is the Trustee of the H Superannuation Fund is necessary to make at this point in the proceedings. I am, absent any evidence that persuades me otherwise, also satisfied that any ATO investigation that is currently under way or pending should now be allowed to run its course before further consideration is given to the enforcement of registration of title to the units and before the wife’s application for orders pursuant to s 79A of the Act proceeds to trial. In my view, the conclusion of an ATO investigation should precede any determination by this Court of the factual issues surrounding the ultimate disbursement of the money the husband asserts was the deposit money. Those issues are, in my judgment, far more relevant to the determination of the wife’s application for orders pursuant to s 79A than SISA and SISR compliance issues.

20. I will not grant a stay of any of the previous Orders as the wife seeks, but I will order that the husband take no steps, without the written consent of the wife or further order of the Court to enforce compliance with paragraphs 4 and 6 of the 2012 Order or paragraphs 1 and 2 of my December 2014 Orders.

The Wife’s other Application in a Case

1. At the hearing on Monday 21 September 2015, when the competing applications just dealt with were adjourned to Wednesday 23 September 2015, the wife had another Application in a Case before the Court. That application was heard that day and judgment was reserved.  

2. The wife sought the following Order:

   1.That the husband, … shall not:

   (a)Incur any further indebtedness on his own behalf or on behalf of any company, business or trust in which he or [the wife] hold an interest legally or beneficially;

   (b)Encumber any property in which he or [the wife] hold any interest legally or beneficially;

   (c)Encumber any property on behalf of any company in which he holds any office or any trust in which he is trustee;

   (d)Give any guarantees on his own behalf or on behalf of any company in which he holds any office or any trust in which he is trustee;

   Without first

   (e)Giving the wife reasonable notice as to the proposed liability;

   (f)Providing the wife with all documents and information pertaining to the proposed liability which she may reasonably request; and

   (g)Obtaining the consent of the wife in writing to the said indebtedness or encumbrance.

3. This application of the wife’s arises also in the context of her substantive application for orders pursuant to s 79A of the Act to set aside the 2012 property adjustment Order and for a fresh property adjustment Order pursuant to s 79 of the Act.

4. In July this year, through the disclosure process, the wife learned that the husband was arranging borrowings from the NAB in the order of $1,290,000 which he would personally guarantee. The wife asserts that she sought information and relevant documents to be disclosed and that the husband was slow in providing them. She asserts that the disclosure was, in any event, deficient and that she sought an undertaking be given by the husband to the Court in the same terms as the Order now sought, which the husband refused to give. She then filed the Application in a Case.

5. The husband’s evidence is that he operates a financial planning and life insurance business through a company, J Pty Ltd (“J Pty Ltd”). He asserts he holds a 50.5 per cent shareholding in that company via another company known as I Pty Ltd (“I Pty Ltd”) that he describes as “my company” (although in an asset and liability schedule dated 10 September 2015 exhibited to his affidavit filed 17 September 2015 he does list a $900,000 interest in J Pty Ltd he does not actually list ownership of shares in I Pty Ltd). The evidence establishes that the company, I Pty Ltd, acquired that interest from the husband himself in recent times – in or around April this year. The husband asserts that the other 49.5 per cent of J Pty Ltd is owned by a 100 per cent fully owned subsidiary of the ANZ Banking Corporation, M Pty Ltd (“M Pty Ltd”).  

1. The husband’s evidence is that earlier this year the business was indebted to the ANZ Bank in the sum of $870,000 which was the balance of a debt greater than that that was in existence at the time of the 2012 property adjustment Order between the parties. The husband asserts that the debt was being refinanced through the NAB so as to extend the length of the loan and to reduce the monthly repayments, thereby increasing the cash flow of the business, which he asserts is necessary having regard to his current precarious financial position.

2. The husband’s evidence was that he also had a loan account with J Pty Ltd with a debit balance of $860,000, representing a debt of around $361,000 that existed at the time the 2012 property adjustment Order was made but which had been steadily increased since then through the husband’s need for funds to meet liabilities and ongoing living expenses, including the ongoing support of the wife and their children in circumstances where his income from the business was insufficient to meet all of his needs. He says that the $860,000 is actually now owed to J Pty Ltd by I Pty Ltd.

3. The evidence establishes that the husband asserts that I Pty Ltd acquired his interest in J Pty Ltd via a round robin transaction which commenced with an initial borrowing by I Pty Ltd of $220,000 sourced from Ms K. These transactions saw I Pty Ltd acquire all of the husband’s interest in J Pty Ltd, the husband’s personal loan account with J Pty Ltd being paid out and I Pty Ltd then owing J Pty Ltd $860,000 and Ms N $220,000.

4. The husband’s evidence is also that J Pty Ltd has agreed to purchase the financial planning business operated by Mr O for the sum of $420,000. The husband asserts that Mr O has been operating this business under the licence of J Pty Ltd and now wishes to sell his business and move into retirement and that J Pty Ltd has agreed to purchase and continue to operate it, servicing Mr O’s customers. The husband has presented evidence asserting that the price agreed to be paid is a reasonable price for that sort of business in the market place.

5. The husband has adduced evidence from Mr P, a co-director of J Pty Ltd, who says he represents the interests of M Pty Ltd. Mr P confirms that J Pty Ltd has recently refinanced an existing business loan from the ANZ Bank to the NAB in the amount of $870,000. He confirms that I Pty Ltd also owes J Pty Ltd $860,000.

6. Mr P asserts that as a director of J Pty Ltd he requested I Pty Ltd, through the husband, to repay $420,000 of its outstanding liability to J Pty Ltd so that J Pty Ltd could use that money to purchase the financial planning business of Mr O.

7. The evidence of the husband and Mr P is that I Pty Ltd has also arranged to borrow that amount of $420,000 from the NAB to repay J Pty Ltd that much of its indebtedness to that company so that the company can acquire Mr O’s business. The husband asserts that the refinancing from ANZ to NAB of the $870,000 loan has already taken place but that the borrowing by I Pty Ltd of the amount of $420,000, though approved, has not taken place yet. He asserts that he has awaited the determination of this application but that if I Pty Ltd does not draw down on the loan by 7 October 2015 a fresh application will have to be made.

8. Mr P asserts that J Pty Ltd and ANZ’s wholly owned subsidiary would be financially disadvantaged if the O purchase cannot go ahead.   

9. Clearly, on the evidence, if the $420,000 loan is drawn down by I Pty Ltd, that company will owe $220,000 on Ms N’s loan, $420,000 to the NAB and $440,000 to J Pty Ltd, a total of $1,080,000. J Pty Ltd has already incurred the debt of $870,000 to NAB as well.

10. In an affidavit filed 17 September 2015, the husband deposes to an estimated value of his interest in J Pty Ltd (through I Pty Ltd) of $900,000 and includes that amount in the exhibited asset schedule. I do not know if that includes his share of any added value brought to the business by the acquisition of the business of Mr O.  The document made exhibit 1 in the application on Monday, 21 September 2015 suggests that it probably does, as, in that document, the husband apparently asserted his interest in J Pty Ltd was worth $680,000 in November last year.

11. There is no evidence as to any security provided to the NAB for the $1,290,000 being borrowed save for the wife’s evidence, not disputed by the husband, that he is providing a personal guarantee for the debt. As I remarked during the hearing, I doubt very much that a personal guarantee would be the only security the NAB would require to advance a total of $1,290,000. One would expect perhaps charges over shares of the husband in I Pty Ltd and also of I Pty Ltd in J Pty Ltd. One would even expect mortgage security. In this regard, on the exhibited asset schedule the husband asserts that he has $400,000 equity in a property at Suburb Q.

12. The husband asserted that he was not actually increasing his indebtedness by these fresh borrowings but simply refinancing them. On the evidence before me, that appears to be correct. Whilst the wife’s solicitor submitted that simply cannot be true, with respect to him, he did not persuade me by reference to any evidence that he is right about that. 

13. For the wife, it is submitted that the husband is “financially stressed” as a result of unreasonable expenditure by the husband and is reducing the value of his net assets by about $200,000 per annum at the moment by his continued borrowings. The evidence before me certainly establishes that in the last couple of years the husband’s loan from J Pty Ltd increased by at least $400,000 and as much as around $500,000 since the 2012 property adjustment Order was made. The husband does not dispute this. His evidence is that $90,000 of that was for part of the deposit on his current residence and home office, $130,000 was to repay a debt to his sister, $60,000 was to pay default interest on the loan relating to the two units now said to be owned by the H Superannuation Fund, $45,000 to meet the shortfall in that loan when it was repaid and money for the running costs of two households in the first year after separation.

14. For the wife, it was submitted that these current borrowings from the NAB will “simply allow [the husband] to resume borrowing from the business with a consequent further reduction in value of his net assets against which any adjustment orders might be able to be made if the wife is successful in her s 79A application. On the evidence, particularly as to the husband’s past practice, it seems to me there might be merit in that submission.

15. It was further submitted that the wife has “a substantial claim under s 79A” and because the wife’s concerns about the dissipation of assets on the part of the husband are real it is just and convenient to permit the injunctions.

16. For the husband, it was not contended that the Court does not have the jurisdiction to grant injunctions in support of the wife’s application under s 79A, but it was submitted that the “circumstances of this case must make it almost impossible for the wife to demonstrate that her entitlement to property settlement is at risk.”

17. Mr Kirk QC submitted that the principles to be applied (as discerned in the Full Court decisions of Waugh and Waugh (2000) FLC 93-052 and Mullen and De Bry (2006) FLC 93-293) show that the wife must establish that she has an entitlement to an order under s 79 and the likely quantum of it, that unless the injunctions she seeks are granted, there is a real risk that her entitlement may be prejudiced and that the balance of convenience favours the orders she seeks.

18. I observe that in Mullen and De Bry the Full Court said:

    A court … may grant an injunction … in any case in which it is just or convenient to do so … each case will involve an overall assessment of a number of factors to determine the just or convenient result.

    …

    Moreover, while ultimately a particular factor may overwhelm others, it is generally unwise to commence with a rigid focus on finding, to a particular standard of proof, one or more of a number of factors relevant only at a discretionary level and subsidiary to the ultimate question.

19. The wife has deposed in her affidavit evidence relied upon to matters of alleged material non-disclosure by the husband at the time they entered into the 2012 property adjustment Order by consent. I am also aware from the previous hearing and the expert evidence relied upon by the wife in this matter that she is also alleging matters of “fraud” on the part of the husband in respect of debts he alleged existed at the time of the 2012 Order that she also relies upon to ground her application pursuant to s 79A for that Order to be set aside. Whilst I am also aware that the husband denies the wife’s allegations and is defending the s 79A application, of course, I cannot determine those factual issues at this stage. I am, however, satisfied that there is a serious issue to be tried in respect of the s 79A application and that, prima facie, the wife has a case that must be answered by the husband. In my judgment, that satisfies the first part of my determination. I do not accept that the wife must demonstrate conclusively that she has an entitlement to an order under s 79 to support an injunction.

20. Is it just or convenient to grant the injunction she seeks? It is the case that the wife did not, through her solicitor, seek to make any case at the hearing of the application as to what she might be entitled to in a just and equitable property adjustment order if her application under s 79A is successful. I am also aware that there are now two unencumbered commercial property units estimated, by the husband, to be worth $1,250,000 in a pool of net property and superannuation interests that he estimates is worth, in total, $1,347,600. However, I am also conscious of the circumstance that those could very well be determined to be property of the parties’ superannuation fund, making it, prima facie, difficult for the wife, if successful in her substantive application, to access that property. In addition, the compliance issues and potential financial consequences on established non-compliance with the superannuation regulatory regime present, in my view, further potential difficulties to the making of orders pursuant to s 106B of the Act setting aside the sale of those units to the superannuation fund on any successful s 79A application, thus leaving the wife looking mostly to superannuation for the provision of any “just and equitable” entitlement to adjustment orders.

21. The evidence satisfies me that the husband has been drawing funds out of the business at a very significant rate over the last two years and that he has significantly reduced the value of his net interests in property in that time. If he continues to incur debt at the same rate, the value of his net property interests, particularly his non-superannuation property interests, will continue to diminish to the potential prejudice of the wife in her substantive proceedings. Unless restrained, I am satisfied that there is a substantial risk that the husband will simply continue to incur debt, either personally or through the company, I Pty Ltd.  

22. The current directors of J Pty Ltd (including the husband) have determined to take a certain course of acquiring the business of Mr O for $420,000. I am not persuaded that is a commercially imprudent decision. The money to complete that transaction is to be sourced from a repayment of that much of I Pty Ltd’s debt to J Pty Ltd and that is to be sourced by I Pty Ltd through borrowings from the NAB, for which arrangements have already been put in place. I am not satisfied that these transactions will result in increased debt of the husband. Accordingly, I am not persuaded that they should be stopped and I will not grant an injunction in terms that prevent the drawdown by I Pty Ltd of that loan and the payment of the sum to J Pty Ltd for payment to Mr O. 

23. On the other hand, the husband has given no evidence of any currently foreseeable need to borrow further in the future or of any other matter that establishes prejudice to him if he is restrained, until further order, from incurring further debt without the written consent of the wife.

24. In the circumstances of the case, I am satisfied that it is just and convenient for the husband to be restrained, until further order, from incurring any further debt on his own behalf, causing I Pty Ltd to incur further debt to any third party, including J Pty Ltd, causing J Pty Ltd to incur further debt, from causing any real property in which he has a legal or beneficial interest to be further encumbered and from personally guaranteeing any further debt of any third party without first obtaining the written consent of the wife or a further order of this Court. I will grant such an injunction.

As to Costs

1. I am satisfied that the issue as to who, if anyone, of the parties should pay costs to the other in respect of these interim applications is a matter best reserved to the trial judge.

I certify that the preceding seventy-four (74) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Forrest delivered on 6 October 2015.

Associate: 

Date:  6 October 2015