Sullivan and Sullivan

[2014] FamCA 1181

FAMILY COURT OF AUSTRALIA

SULLIVAN & SULLIVAN [2014] FamCA 1181

FAMILY LAW – PROCESS AND PROCEDURE – PROPERTY

Family Law Act 1975 (Cth)

Strahan v Strahan [2009] 42 Fam LR 203 at [79]

APPLICANT: Ms Sullivan

RESPONDENT: Mr Sullivan

FILE NUMBER: BRC 3630 of 2013

DATE DELIVERED: 24 December 2014

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Forrest J

HEARING DATE: 17 November 2014

REPRESENTATION

COUNSEL FOR THE APPLICANT: Ms Pendergast of Counsel

SOLICITOR FOR THE APPLICANT: Matthew Love Family Lawyers

FOR THE RESPONDENT: The Respondent in Person

Orders

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. 

2. That pursuant to s 106A of the Family Law Act, a Registrar of the Brisbane Registry of this Court is appointed to sign in the name of either the husband or the wife any and all documents necessary for this Order to be complied with should either the husband or the wife refuse or fail to sign any such documents upon request by the other party, with the affidavit of the requesting party, or his or her solicitor, deposing to the refusal or failure of the other party to sign such documents on request to be sufficient proof of the refusal or failure upon which the Registrar may act.

3. That the amended Application in a Case filed by the wife on 13 November 2014 is dismissed.

4. That should the National Australia Bank already have sold Units 1 & 2 (as described in paragraph 4 of the Orders of the Suburb C Magistrates Court of 13 December 2012) any net proceeds of sale of those units shall be deposited to the Trust Account of Mathew Love Family Lawyers and held pending further Order of this Court or earlier written agreement of the parties.

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. On 13 December 2012, property adjustment Orders pursuant to s 79 of the Family Law Act were made with the consent of the parties in this matter in the Magistrates Court of Queensland at Suburb C.

1. Those Orders were long and evidence, on their face, a complexity of financial circumstances existing between the parties at that time. By the Orders, those complex financial circumstances were to be gradually disentwined over many years. Many obligations were imposed on both parties, requiring a co-operative approach to the implementation of the Orders. 

1. On 13 May 2013, before many of the matters provided for in those property adjustment Orders had been finalised, the wife filed an Application in the Federal Circuit Court at Brisbane in which she seeks orders setting aside those property adjustment Orders pursuant to s 79A of the FLA. She alleges there has been a miscarriage of justice by reason of the husband’s failure to disclose factual matters of relevance at or prior to the making of the Orders and by his fraud. She also alleges that in the circumstances that have arisen since the Orders were made it is impracticable for a part of the Orders to be carried out.

1. The husband denies the allegations and seeks to sustain the existing Orders.

1. On 19 February 2014, the wife filed an Application in a Case in the Federal Circuit Court seeking interim litigation costs funding orders by which $60,000 was to be paid to her solicitors’ Trust Account. The proceedings were transferred to this Court on 5 May 2014.

2. On 13 November 2014, the wife filed an amended Application in a Case, changing the nature of the orders she was seeking, but still seeking an interim litigation costs funding order for $90,000 to be paid to her solicitors’ Trust Account on account of the costs she anticipates spending in the prosecution of her substantive application pursuant to s 79A of the FLA.  

1. On 17 November 2014, in a judicial duty list in this Court, the wife’s amended Application in a Case was heard. She seeks that the husband pay, or cause his company to pay an amount of $90,000 into her solicitors’ Trust Account and that she be at liberty to apply such funds towards payment of her legal costs and disbursements in these proceedings. She also seeks an order that the parties do all things necessary to allow the NAB to exercise its powers of sale in respect to two unit properties of the parties in Brisbane and for any net proceeds of sale to be paid into the Trust account of her solicitors pending further order of this Court or agreement of the parties. As an alternative to the first order she seeks, she seeks an order that she be at liberty to use an amount of $90,000 from any such funds deposited into her solicitors’ Trust Account from the sale of the two units to pay towards her legal costs and outlays in these proceedings.

1. The wife also seeks an order that any further execution of the Orders of 13 December 2012 be stayed pending further order.

1. By Response to the wife’s amended Application in a Case filed on 5 November 2014, the husband seeks to have the application for an interim litigation costs funding order dismissed and also seeks specific orders in respect to the enforcement of the 2012 property adjustment Orders.

The Orders of 13 December 2012

1. Relevant parts of those Orders are:

   1.   The Husband and Wife shall cause the debtors [D], from whom the sum of $207,500.00 is payable to the parties (“the [D] debt”), to pay to the Wife the sum of $60,000 on or before the date of completion of the “[Units 1 & 2]” transaction referred to in the succeeding Orders.

   2.   In the event that the debtors [D] fail to pay to the Wife the said sum of $60,000 on or before the date specified in Order 1, the Husband shall pay that sum or any shortfall in that sum to the Wife on that date, and the Wife shall be deemed to have assigned to the Husband that portion of the [D] debt.

   …

4.   The Wife as owner of a one-half share in the properties described as [Lots 1 & 2, Building Unit Plan …County of E, Parish of F] contained in Titles References … and … (“[Units 1 & 2]”), and the Husband as Trustee for [Sullivan 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 … as Trustee for [G 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 Holdings 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).

Post – Order events

1. Although paragraph 4 of the Orders provided for the transfer of the two units to Sullivan Super Holdings Pty Ltd within 45 days of the date of the Orders, settlement of that transaction did not happen and has not happened to this date.

2. The husband asserts that the amount of $688,000 was rolled over into the H Super Fund as required by paragraph 5 of the Orders on 20 December 2012. He further asserts that a week later, three cheques totalling $687,193 were drawn on that H Super Fund. He asserts that money was then “distributed” in accordance with the requirements of the December 2012 Orders. He further asserts that he and the wife signed a Transfer Form for the transfer of the two units to the Sullivan Super Fund on 24 January 2013 and that they went to the ANZ Bank and signed an application for finance to comply with paragraph 7 of the Orders. The husband asserts that the ANZ Bank failed to finalise the loan application but that over the time since then, he had proposed to the wife through her solicitors alternative means of funding to allow the discharge of the debt to the NAB secured by mortgage over the units, which she has repeatedly refused to pursue.

3. The husband says that the Sullivan Superannuation fund sold a property asset in January 2014 and has $780,000 in his member account in that fund that could be rolled into the H Superannuation Fund that could then be used to pay out the NAB debt, along with some funds the husband says he could source from borrowings from a business associate, thus then allowing the two units to be transferred unencumbered to the H Superannuation Fund and then to be available for sale pursuant to paragraph 10 of the December 2012 Orders.

4. The husband says the wife has simply refused to co-operate with him in the completion of the transactions provided for in the Orders since she determined to commence proceedings for orders pursuant to s 79A of the FLA. He also says now that the consequences of non-completion are potentially seriously prejudicial for both him and the wife in that the H Superannuation Fund will be deemed to be non-compliant with the assets being taxed at the penalty rate of 45 per cent (presumably because it paid out the $688,000 received from the husband’s superannuation rollover and has got nothing yet in return to show for it) which could make the parties liable for $309,600 in penalty tax. He asserts this could even lead to bankruptcy on his behalf which would result in the loss of his financial planning license.

5. The wife sought to cast doubt on the reliability of the husband’s evidence about this potential problem of non-compliance. However, I accept the husband’s submission that, prima facie, the circumstances currently present the serious risk of regulatory action being taken against the trustees of the self-managed superannuation fund that has disbursed $688,000 as a deposit towards the purchase of the two units that it has not yet lawfully acquired with little prospect of recovery of that money as an alternative.

6. It is common ground between the parties that the NAB has been seeking total repayment of the debt owed to it that is secured by mortgages over units 6 & 7 and that the bank has issued default notices and notices of intention to take action enforce its security over the two units to recover its debt. The bank was said to be seeking vacant possession by or on 17 November 2014 - the same day the matter was before this Court. I do not know the current status of this particular set of circumstances.

7. The wife made it clear to this Court, by her amended Application in a Case, her evidence and the submissions of her counsel, that she supports surrender of the units to the NAB and a sale by the bank to realise its security. However, she says nothing about the fact that the H Superannuation Fund might then be deemed to be non-compliant and required to pay tax at very high penalty rates that would have to be borne by both the parties, with potential serious prejudice to each of them. It is clear the wife sees the equity in those units that might be realised on a forced sale by the NAB to be the source from which $90,000 litigation costs funding could come. She may also see the balance net proceeds of sale as then being available as a source of funds against which any further property adjustment orders pursuant to s 79 of the FLA could be made in her favour if her s 79A application is ultimately successful. Perhaps this is clouding her better judgment in assessing the extent of the prejudice that might eventuate if the H Superannuation Fund is deemed to be a non-compliant superannuation fund in respect of the $688,000 already paid out as deposit on the units, but I am simply not in a position to make any findings about that at this point in time. However, if the units are sold by the NAB, and not acquired by the H Superannuation Fund it appears to me, prima facie, as I have already observed, that the Fund, having already paid over $688,000 as the deposit on the purchase of the units will face serious difficulties with superannuation regulators if it is unable to recover that $688,000. On the evidence, it appears that it will be unlikely to be able to recover that money, the funds having already been disbursed long ago.

Enforcement of the existing Orders

1. The Court has a discretion to enforce orders made under the Family Law Act.[1] Of course, this discretion must be very carefully exercised when one party to the Orders is seeking to avoid having the Orders enforced and is actually seeking to have the Orders set aside or varied pursuant to s 79A because of alleged fraud and non-disclosure on the part of the party that seeks to have them enforced that the first party says caused a miscarriage of justice in respect of the Orders in the first place.

   [1] Section 105 of the Family Law Act

2. Where there is serious factual dispute between the parties about the matters alleged to amount to the fraud and non-disclosure that produced the alleged miscarriage of justice, and further dispute about whether the discretion to vary or set aside would be actually exercised even if enlivened, of course, those matters must go to trial and very little, if any, assessment of the merits of the competing positions can be made on a summary hearing of interim applications. 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.

3. What is sought to be enforced by the husband at this point in the proceedings is specifically the part of the Orders that requires the husband and wife to do all necessary acts and things to complete the transfer of the two units to the H Superannuation Fund. That, I am satisfied, will only be achieved if the debt to the NAB is discharged (or refinanced) and the mortgages released allowing clear title to transfer from the current registered joint proprietors to the H Superannuation Fund. The husband asserts that there are funds now available to the H Superannuation Fund to allow that to happen, namely, superannuation funds he is entitled to in another fund, that can be rolled into the H Superannuation Fund and utilised by that Fund to pay almost all of the balance of the purchase price for the two units, that will then be used to discharge almost all of the debt to the NAB and cause (along with some other funds accessed elsewhere) the release of the mortgages.

4. If the course proposed by the husband is taken, the H Superannuation Fund would then have unencumbered property assets in the form of the two units, whereas the 2012 Orders reflect an expected outcome where the H Superannuation Fund would then have property assets in the form of the two units with debt of around $820,000 secured on them. The wife was to have 47 per cent interest in the equity that would have been held in the units through a superannuation entitlement, the husband the balance.  The wife’s superannuation entitlement in such circumstances was estimated to have been around $230,000. Under the husband’s proposed course of complying with the Orders, he will have a greater interest in the value of the H Superannuation Fund represented by the value of the unencumbered units, having regard to the rollover of the additional member funds of his from another fund. However, the wife would still have a member entitlement with a value of around that same amount of $230,000 that would be expected if the H Superannuation Fund had to borrow the amount to complete the purchase, that would then be used to pay out the NAB debt.

5. If the Court does not enforce the existing Orders in the way sought by the husband, there is a good chance, I am satisfied, that the H Superannuation Fund could be treated as non-compliant and have serious tax penalties imposed. That outcome would have serious consequences on the property and superannuation available to be subject to property adjustment orders in the event that the wife ultimately is successful in her s 79A application and could severely prejudice one or both of the parties in that respect. The husband’s enforcement application, prima facie, appears to be about asset and superannuation preservation. I am not in a position to determine otherwise at this time. Where there is a s 79A application pending, property and superannuation preservation is, in my view, important and should be facilitated by the Court where possible.

6. I have not been persuaded by the evidence that enforcement in the way that the husband seeks, in circumstances where the wife is yet to prove her s 79A case at trial, will prejudice the wife’s position in a way that is irreversible or unable to be remedied with a property adjustment order that is “just and equitable” if she is ultimately successful in her s 79A case and the existing orders set aside.

1. In these circumstances, I will make orders requiring the husband and the wife to do all that is necessary, including signing all necessary documents, to ensure that paragraphs 4 and 6 of the December 2012 Orders are complied with forthwith, if it is still practicably possible, and that the purchase by the H Superannuation Fund of Units 1 & 2 is completed with the NAB debt being discharged. I will also order, pursuant to s 106A of the FLA, that a Registrar of the Court is appointed to sign in the name of either party all documents necessary for the Orders to be complied with, should either party refuse or fail to sign any such documents upon request by the other party, with the affidavit of the requesting party deposing to the refusal or failure of the other party to sign such documents on request being sufficient proof of such refusal or failure.

2. I will not stay any further execution of the existing 2012 Orders at this point in time as I am not persuaded that is the appropriate course. The enforcement or otherwise of other parts of the Orders that remain executory pending the hearing and determination of the wife’s s 79A application should be determined on the merits if and when such issues arise as matters for the Court’s consideration.

The Interim Litigation Costs Funding Application

1. Applications by parties to property adjustment proceedings in this Court for orders providing for funds to be made available to them to enable payment of his or her legal costs of participating in the proceedings are becoming more and more common in this Court. The need has been recognised for many years.[2]

   [2]          See Strahan v Strahan [2009] 42 Fam LR 203 at [79]

2. As Brereton J observed in Paris King Investments Pty Ltd v Rayhill [2006] NSW SC 578 at [29]:

   [t]he juridical bases for an order for preliminary provision for litigation costs in matrimonial proceedings are diverse.

3. Brereton J there pointed out that such an order may be made as a maintenance order under ss 72 and 74 of the FLA or a property settlement order under ss 79 and 80(1)(h) or a costs order under s 117.

4. Boland and O’Ryan JJ said in Strahan at [86]:

   If the source of jurisdiction is s 117(2) then the court may make such order as it considers just provided there are justifying circumstances. If the order is sought under s 79 of the At then the court may make such an order as it considers appropriate provided it is satisfied that it is just and equitable to make the order. If the order is sought under s 74 of the Act then the court may make such order as is proper.

5. As the jurisdiction to make an order under s 79 has been exhausted by the final Orders that were made in December 2012, at least until such time as those Orders are set aside or varied after the hearing and determination of the s 79A application, I am of the view that the Court cannot now, on an interim litigation costs funding application, exercise the power under s 79 and s 80(1)(h) of the FLA and make an order that represents a partial property settlement order. Where there has already been a final property settlement effected by order, I cannot order that the husband pay the wife $90,000 that is to be regarded as partial property settlement against her expectation to receive more than such amount in a final property settlement as is so often how interim litigation costs funding orders are made. 

6. That leaves the costs power or the maintenance power.

7. Section 117(2) empowers the Court to make an order as to costs, whether by way of interlocutory order or otherwise, that it considers just if it is of the opinion that there are circumstances that justify it in doing so. In considering what order, if any, should be made under s 117(2) the Court must have regard to the matters set out in s 117(2A).

8. The evidence is that the wife is unable to meet her legal costs and outlays in the s 79A proceedings from her own income and assets as they fall due. Currently, though, the wife is unable to point to any particular source of the funds that she asks the Court to order the husband to pay to her solicitors’ Trust Account save for the equity in the two units. That will not be available if the NAB has not already sold the properties and the orders I intend to make are complied with. There is no other apparent source of the immediate payment of $90,000 and on the husband’s evidence, he simply has no current financial capacity to borrow any more money or to pay the wife a lesser amount on a periodic basis. In the circumstances of having had no cross-examination of the husband at the hearing of the application, I am simply not in a position to determine that the husband has a source of funds from which to pay an interim costs order of $90,000 or any capacity to go and borrow that amount or to pay the wife a lesser amount on a periodic basis.

9. Whilst I acknowledge that the wife’s case against the husband pursuant to s 79A, prima facie, appears to have some potential points of merit, I simply do not consider that it would, at this interim stage of such proceedings, be just to make an interim costs order against the husband for him to pay the wife $90,000 or some lesser part of that amount. It is difficult to see how it could be just right now to make such an order when it is entirely possible that she might ultimately be unsuccessful in the s 79A application.

10. I will not make an order for interim litigation costs funding using the costs power.

11. A combination of ss 72,74 and 80 empowers the Court to make a lump sum interim spousal maintenance order if it considers that proper for the provision of maintenance in accordance with Part VIII of the FLA.

12. Again though, the single biggest difficulty for the wife in respect to the exercise of this power is the total lack of identification of a source from which the funds could come, either from a bank account, quick sale of an asset or borrowings by the husband, and the Court is required to consider, amongst other things, the income, property and financial resources of each of the parties in exercising jurisdiction under this Part.

13. Without being able to identify an appropriate source of funds, I am not satisfied that making an order for the husband to pay a lump sum of money to the wife at this point to be used by her to pay her legal costs and outlays would be a proper use of the maintenance power contained in Part VIII of the FLA in the circumstances presenting in this case and I will not do so.

14. I expect that the wife and her legal representatives will be disappointed by the outcome of these interim proceedings, but the outcome should not be considered indicative of any assessment of the wife’s prospects of success in respect of her substantive s 79A proceedings having been made by the Court. Indeed, it is to be hoped that both parties to the proceedings will have the benefit of legal representation for the further conduct of the matter, however that might be able to be achieved.

15. I will make the orders set out at the commencement of these reasons.

I certify that the preceding forty (40) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Forrest delivered on 24 December 2014.

Associate: 

Date:  24 December 2014