Tiernan & Tiernan
[2023] FedCFamC1F 431
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Tiernan & Tiernan [2023] FedCFamC1F 431
File number(s): TVC 433 of 2020 Judgment of: BAUMANN J Date of judgment: 6 June 2023 Catchwords: FAMILY LAW – PROPERTY – Consideration of s 79(2) as to whether it is just and equitable to make a property adjustment order – Where there is a negative property pool of approximately $400,000 – Orders made for each party to retain all property and personalty they have in their possession to the exclusion of the other party Legislation: Family Law Act 1975 (Cth) Cases cited: Hickey & Hickey (2003) FLC 93-143
Stanford & Stanford (2012) 247 CLR 108
Division: Division 1 First Instance Number of paragraphs: 37 Date of hearing: 18 May 2023 Place: Heard in Townsville, delivered in Brisbane Counsel for the Applicant: Ms R Lyons Solicitor for the Applicant: Farrawell Family Law Counsel for the Respondent: Mr R Pack Solicitor for the Respondent: Stevenson & McNamara Lawyers ORDERS
TVC 433 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS TIERNAN
Applicant
AND: MR TIERNAN
Respondent
order made by:
BAUMANN J
DATE OF ORDER:
6 June 2023
THE COURT ORDERS:
1.That the parties retain any shareholdings or interests they may have in any of the following entities (unless and until deregistered), namely:
(a)B Pty Ltd;
(b)C Unit Trust;
(c)D Pty Ltd;
(d)E Property Trust;
(e)F Discretionary Trust; and
(f)G Pty Ltd.
H Pty Limited ATF The Tiernan Family DFT (“the Tiernan Family Trust”) trading as J Company (collectively “the J entities”)
2.That the wife retain all interest she has in H Pty Limited.
3.That the husband, both personally and in his capacity as sole director of G Pty Ltd (which such entity is a beneficiary of The Tiernan Family DFT) do all acts and things necessary, including signing all necessary documents, at the cost of the wife and with the wife to prepare all relevant documents to give effect to this Order and submit them to the husband for signing, so as to:
(a)resign from, relinquish or transfer and assign to the wife (as the wife may require) any position or power (whether at law or in equity) which he holds, occupies or is entitled to hold or occupy pursuant to the terms of the Trust;
(b)renounce his contingent interest as a discretionary beneficiary of the Trust; and
(c)Transfer to the wife or her nominee:
(i)undistributed profits in the J Entities;
(ii)loan accounts in the J Entities;
(iii)allocated but undistributed profits in the J Entities; and
(iv)undistributed profits in the J Entities
4.That the wife indemnify and keep the husband indemnified in relation to the following:
(a)All liabilities arising in respect of any debit balance in the loan account of the J Entities and in the event that the loan account of the husband has a credit balance then he assign same to the wife; and
(b)Any claim, demand, liabilities or debts of whatsoever nature including any taxation liabilities that may exist or arise in respect of the husband’s involvement as shareholder or otherwise in the J Entities.
5.That the wife retain and have the use of Motor Vehicle 1.
6.That the husband retain the luxury watch.
7.That within two (2) business days from the date of the sale of the property situate at K Street, Suburb L in the State of Queensland (“the Suburb L property”):
(a)the parties do all acts and things, including signing all documents so as to pay joint bank account held by the parties to M Bank at the banks direction; and
(b)both parties shall do all things necessary, including signing all necessary documents, so as to close the joint account.
8.That the wife forthwith retain as her absolute property and the husband forthwith relinquish and/or transfer to the wife all right, title and claim (if any) in and to the following:
(a)Her bank accounts in her name or to which she has an interest in;
(b)Her superannuation accounts;
(c)The motor vehicle currently in the wife’s possession;
(d)Furniture and effects currently in the wife’s possession; and
(e)All other interests in property and financial resources of whatsoever nature that the wife has at the date of these Orders.
9.That the husband forthwith retain as his/her absolute property and the wife forthwith relinquish and/or transfer to the husband all right, title and claim (if any) in and to the following:
(a)His bank accounts in his name or to which he has an interest in;
(b)His superannuation accounts;
(c)The motor vehicle that is currently in the husband’s possession;
(d)Furniture and effects currently in the husband’s possession; and
(e)All other interests in property and financial resources of whatsoever nature that the husband has at the date of these Orders.
10.That the husband and wife each be responsible for liabilities incurred in their name, including all borrowings, personal loans and credit card facilities and shall indemnify and keep indemnified the other against any liability that may occur in respect thereof.
11.That the husband and wife each do all acts and things necessary including signing all necessary documents so as to give full force and effect to the provision of these Orders and in the event that either party refuses or neglects to comply with any provision of these Orders within fourteen (14) days of a written request to do so by the other party, then a Registrar of the Federal Circuit and Family Court of Australia (Division 1), be hereby appointed, pursuant to Section 106A of the Family Law Act 1975 (Cth), to execute all documents in the name of that party and to do all acts and things necessary to give validity and operation to these Orders.
12.That all applications, including as to costs or reserved costs, are dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Tiernan & Tiernan has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
EX TEMPORE REASONS FOR JUDGMENT
(Settled from the oral reasons delivered)BAUMANN J:
When the Applicant wife, now aged 62 years, and the Respondent husband, soon to be 56 years, met online in 1999, I am sure they brought into the relationship the hope that their relationship would create a bright and happy future both financially and emotionally.
The background reveals, and I am satisfied on the limited and, in many ways inadequate material relied upon in these proceedings (for reasons which have been identified by both Ms Lyons of Counsel for the wife and Mr Pack of Counsel for the husband) that, after living for a time in Country N where they were married, they moved to Australia in 2003. The wife pursued then, as she had previously, an interest in health and fitness as an allied health trainer and the like.
Ultimately, in 2008 they moved, as a couple, to City O and opened a business which, for the sake of these Reasons, I will call the “J Company” business. The evidence would suggest that, at times, the business had good cash flow. Certainly, the business cash flow permitted these parties, without any other apparent property, to amass a property portfolio of at least five rental properties between 2008 and 2014.
No doubt, like many Australians, their hope was that, with capital gains and increased equity, their financial future would be preserved. Notwithstanding those properties, I am satisfied that the primary source of income for everything that was purchased and the lifestyle choices that the parties, perhaps in retrospect at times foolishly engaged in, was the business, J Company.
In 2015, notwithstanding, sadly, one of City O’s somewhat regular weather events, the parties, through a unit trust known as the C Unit Trust, purchased a sizeable commercial building in City O from which the business was to operate. A person took a minority interest in the trust through their super fund. It seems, clearly, that that person’s investment has now been lost entirely.
The husband says, in his affidavit filed with my leave today, that in or about 2016, he suffered a serious medical episode, which affected his functioning and has continued to affect his functioning now for over seven years. It is a permanent disability.
Around the time of that injury and as a sad consequence the wife says (and she was not seriously challenged in her cross-examination by Mr Pack) and I accept, the husband was no longer able to effectively undertake any management or significant role in the business, and the husband began to use alcohol excessively. By accessing cash flow from the business, the husband, I accept, used funds for personal lifestyle choices which did not add any value to the property pool.
During this period, they accumulated what I will describe loosely as “toys of wealth”, being a luxury watch; vehicles; jewellery and sporting memorabilia. Again, I make the point that the evidence, I find, establishes clearly that the sole real source of all this largesse was the income of the business, operated by the wife.
There were rentals from properties but they were all heavily mortgaged and, no doubt, went primarily towards the payment of mortgages.
Apart from the wife’s claim that the husband, unbeknownst to her as the person running the business in a very real and intense way, accessed income and did not use it for joint or business expenses, there is evidence, which I accept, that to enable them to continue to support the mortgage on their major commercial investment, the business paid perhaps greater than the market value of rent for that site.
The absence of any detailed financial statements for the periods during this era of the business development makes it impossible to know whether, for example, in addition to rent, other loans were made to the owner of the building to enable it to pay its mortgage, but the balance sheet currently before the Court, attached to the affidavit of Mr P, suggests significant loans were made by the business to related entities. That would be perfectly consistent with those benefits flowing from the only real source of income available.
As if the decaying relationship, no doubt contributed to by the sad medical episode of the husband and the deteriorating relationship was not enough, these people, like many businesses in Australia, were significantly affected by Covid-19 and the restrictions relating to and obligations of citizens to remain isolated from many normal activities.
For businesses like the J Company regime, this was, the wife says and I accept, a significant further detriment to the cash flow of the entities which was the only real source of income keeping these parties afloat.
Some of their City O rental properties also suffered damage by weather events and the parties were required to make claims on insurance policies to complete repairs. The wife says that the husband did not use all of the funds from insurance claims for those repairs. It is impossible, on the evidence before me, to determine to what extent that may or may not be true, but I am generally prepared, on the evidence, having seen the wife in the witness box, to accept her evidence that the husband’s behaviour post his medical episode was somewhat erratic and, at times, he expended and wasted money. It became obvious that the consolidated borrowings with M Bank were more than these parties could bear. The major commercial activity conducted at B Pty Ltd, at one stage, on the evidence, thrived with around 1,000 clients. However, not being able to afford the mortgage with a reduction in income and with the intervention, it seems, of a third party representing the mortgagee, the property was ultimately sold at a significant loss.
So began the crystallisation of a significant debt that these parties, through different entities, owned and which, it seems from a document that has been tendered and marked as Exhibit 4 were supported by personal guarantees by the husband and the wife. Properties at Q Street, Suburb L; S Street, Suburb T; U Street, Suburb V and W Street, Suburb Y, were all sold within two years to try and defray the debt. The parties got no benefit from any of those sales. All nett proceeds were paid to M Bank, and yet a debt, whilst reduced, still remained. Proceedings were commenced in April 2020 in the Federal Circuit Court of Australia (as it then was), and were subsequently transferred to this Court in December 2020, where they have since remained.
Orders have been made which required the vehicles to be sold and various properties to be sold. One vehicle that had been purchased for around $140,000 was ultimately sold in a very perilous condition for more like $20,000. The wife says that the memorabilia amassed at a cost of $100,000 was sold at auction for $1,500. In recording these very sad facts, one cannot help but be struck by the enormous impact losses of this nature have had on these parties, both as a couple and individually; losses from which they are not able to ever recover. With that history, it is worth observing that, since I have been managing this matter after it came into my docket in or about July 2021 – I have been trying to bring a sense of reality to these parties about the utility of these proceedings.
At some stages, to my surprise and almost disbelief, these parties were engaging Senior Counsel to argue over issues which ought to have been resolved easily. My general impression of these proceedings since the time I have been managing it is that the parties, in different ways, at different stages, have been unable to put a line under the dispute and move on with their lives. Rather, they have been engaged, as their material to some degree suggests, in wanting to blame the other party for their terrible financial position now.
The jurisdiction I am being asked to exercise today is an exercise of power under Section 79 of the Family Law Act 1975 (Cth) (“the Act”).
Before a Court makes an order, it is required by authority no less than the High Court in Stanford & Stanford (2012) 247 CLR 108 to satisfy the test of whether it is just and equitable to make an order (s 79(2)). Ms Lyons, on behalf of the wife, says this is a case where the Court would make a finding that it is not just and equitable to make an order. If the Court was to so decide, that would bring all these proceedings to an end. Of course, if the Court does believe it is just and equitable to make the order, it may still make an order that it makes no change to the current interests of the parties. In my view, the most transparent way to deal with this matter is to try and adopt the usual four-stage process that the law identifies for analysis of a property decision (see Hickey & Hickey (2003) FLC 93-143). I do so in a very summary way, bearing in mind the nature of the evidence and the difficulty it is to make findings in many respects.
The first stage of any property matter is to determine the pool of interests that may be capable of adjustment. As Mr Pack, quite properly, has identified on more than one occasion, in a submission not challenged by Ms Lyons, as we sit here today, and only subject to any forgiveness offered by M Bank, there is no property interests that have a positive value that can be adjusted. There are authorities about whether in fact the Court’s jurisdiction is even enlivened when all it is being asked to do is distribute debt. Because the parties are receiving these reasons ex tempore at the end of a long journey for them, I do not need to travel through the authorities in respect of that jurisdictional question. Little is served by doing so, in my view.
Mr Pack says that, at best, the pool of assets consists of the wife’s interests in H Pty Ltd trading as J Company; the luxury watch, being held by a firm of solicitors in City O as some form of security for unpaid legal expenses owed by the husband; claims that each party make that the other party holds jewellery; and the wife’s superannuation interests revealed in her financial statement most recently filed with a value said to be $14,868 held with The Trustee for Super Fund 1.
Against those assets, at this stage is the debt remaining to M Bank. That debt currently exceeds $900,000. However, with the sale of the last remaining former matrimonial home, the subject of a contract due for settlement in mid-2023, the nett proceeds of that sale, when received by M Bank, will reduce the debt at least to something in the region of $400,000. It could be more than that if legal expenses associated with the process were added, but I am comfortable adopting a figure of $400,000 for the sake of the current exercise. Through the hard work of the parties, but from my understanding of the evidence and earlier case management exercises, the wife and, I accept, Mr P, as an insolvency expert, they have negotiated an arrangement with M Bank which, relevantly, at clause 5 of the deed of arrangement tendered and marked Exhibit 4, effectively indicates that upon the settlement of the sale of the K Street property (the last remaining and jointly owned former matrimonial home) and subject to various conditions “the bank is willing to consider releasing [Mr Tiernan], [Ms Tiernan] and/or [H Pty Ltd] from their respective guaranteed obligations in respect of the Facilities”.
If that comes to pass and the conditions are met or are otherwise waived by M Bank, these parties may be able to stave off personal bankruptcy. If not, and this is totally a matter for the bank, bankruptcy seems almost inevitable. It would not be, however, in the circumstances, correct to ignore the contingent liability which currently still exists.
I am satisfied on the evidence of Mr P, that the wife’s interest in the business has no commercial value. Mr Pack, to his great credit and on instructions, explored with Mr P whether there might be some value in things like client numbers or further value in the equipment and the like. None of the cross-examination of Mr P, proper as it was, has in any way persuaded me that his estimate of the interest having no commercial value, nett of debts, should not be accepted and I accept his evidence.
When Mr Pack says that the husband will have nothing, that ignores the reality that he has a luxury watch. It was joint property and because of his decision to engage solicitors in a particular way, he has offered it as security. That is his decision for which he is responsible.
I could make no findings, on the evidence, notwithstanding the attempts to identify the fact that jewellery at one stage existed, which I am prepared to accept did, that either the husband or the wife have any jewellery. I could not totally ignore that these parties may not have told me the complete truth about the whereabouts of the jewellery. An attempt to identify that the wife’s evidence that she does not have it because, at one point, she wore a piece of jewellery at a photographed celebration, was not enough to persuade me that the jewellery exists in the wife’s possession at this stage.
Furthermore, I cannot be satisfied, on the evidence, that the husband has, in some way, or through some event in November 2019, taken possession of the jewellery. Parties have an evidentiary onus to discharge if they wish to have a fact established on the balance of probabilities. The parties have not done so in respect of the jewellery.
The second stage of any property alteration case is to consider contributions (s 79(4)(a)-(d)). These parties came together when they were mature adults building a life together, initially in Country N and then Australia. I would be prepared to accept, until around 2016, the parties continued to make contributions, generally equally, to the acquisition, maintenance and improvement of the assets with a hope to securing a financial future. However, from the time the husband sadly became affected by his medical episode and on the basis of the wife’s evidence, I am prepared to accept that the wife’s contributions exceeded those of the husband from that point. I am not prepared, nor can I quantify, whether the use of company money or resources that the wife claims the husband undertook should be regarded as waste. Little can turn on it. I think it best to say that the husband, from around about 2016, was really not in a position and did not make any other substantial contribution. Having, by that stage, committed to substantial liabilities, any financial survival was totally, it seems to me, reliant upon the wife maintaining the business and, hopefully, the property investments increasing in value so as to increase the parties’ equity.
As indicated, sadly, these parties, and perhaps this is something that rings for many parties in this region, suffered enormous amount of misfortunate, disappointment and, therefore, financial detriment. The third stage of any property alteration case is to consider what has been described but not always properly regarded, as “future needs”. Section 79(4)(e) of the Act requires consideration to the relevant factors in s 75(2) of the Act. Although there is a dearth of medical evidence from the husband (save for Exhibit 1 tendered yesterday in support of, at that stage, the possibility of the trial being adjourned – an application Mr Pack did not press today) who was able to attend through the entirety of the proceedings by electronic means from Sydney, I am prepared to accept his medical situation is as perilous as he describes it. He is reliant upon Centrelink benefits and the prospect of any improvement in his health or income earning capacity is, in my view, non-existent.
The wife is in a superior position in relation to health – no doubt attributable to her 40 years in the health industry and her intention to maintain a healthy lifestyle and a focus on that sort of industry. She has a passion for and a continued involvement in the health industry. I would accept that she has a superior earning capacity to the husband, however because of the debts associated with her business, that earning capacity is not demonstrating a significant available nett income. Even if one was, as she was asked in cross-examination, to take into account the possibility of obtaining some small cash jobs for income, her gross income is very modest and most likely under the tax threshold of approximately $20,000. She says, and I am prepared to accept, that she relies upon, in many ways, the support of her adult children for meals. With the sale of the former matrimonial home, she will need to find accommodation, and how she will afford to do that, in the same way as the husband has difficulty doing so, is something that neither of these parties would have expected would have been their fate at this stage of their life. In my view, the s 75(2) factors favour the husband.
Having made these findings, the final exercise in the Court’s jurisdiction is to determine what orders achieve justice and equity. The husband’s response filed today did not particularise an order, but Mr Pack, having been given an opportunity at the end of the evidence to obtain instructions from his client in Sydney effectively says that it would be fair (a colloquial way of saying just and equitable for which he is not being criticised, of course) that the husband obtain the only asset in liquid form at this stage, namely, a transfer of the wife’s benefits in her superannuation fund, that the wife can keep the business and maintain it.
Mr Pack looked at the proposed order of the wife in her case outline and made helpful submissions in relation to which orders I should not make. In a sense, the wife says through her Counsel Ms Lyons that the orders that are sought – although, perhaps, a bit more prescribed and complex than they need to be, for which, again, I do not criticise the solicitor for the wife – should be made which have the effect of the wife retaining her interests in the business and her superannuation and the husband retaining the luxury watch and each party effectively keeping any personalty they have in their possession to the exclusion of the other party.
Whilst it is a huge disappointment that these parties were not able to reach some settlement in this matter of a more attractive nature for each of them over the history of this litigation, and whilst it is amazing to think that the wife incurred, as she says, over $150,000 in legal expenses as the property pool continued to defray and reduce (an amount which I am prepared to infer may also have been met somehow by the husband), I am satisfied in the circumstances of this case that orders similar to those which the wife contends for do provide justice and equity to the parties. I am not satisfied it would be just and equitable for the husband to obtain a splitting order in respect of 100% of the wife’s superannuation or any share of it.
I reflect that it is now 4.45pm on the last day of my circuit here. I do not propose at this stage to pronounce the form of order that will be consistent with these Reasons nor, I am sure the parties are happy for me to say, do I expect them to prepare the order. I will prepare an order consistent with these Reasons, which will be published as soon as possible. This is not a matter where the Court could or should, notwithstanding the enormous costs incurred, consider any applications for costs, and I do not understand that any such application is in any sense being contended for by either party.
The only reason why these parties have any legal representation today – and I pay tribute to the lawyers for the wife and the husband and the Counsel who they briefed who came to the matter late – is because of the operation of s 102NA of the Act. The parties at least have been able to have their day in Court with competent Counsel and have been able to put their matters before the Court for my consideration. The orders I make, consistent with these Reasons, will be orders that provide justice and equity and, importantly for these parties, as best I can, provide a clean break of their connections financially as sought by s 81 of the Act.
In so doing, I indicate to the parties now that the lack of financial returns, statements and evidence about a number of the entities prevents me from prescribing orders in respect of the detail of various corporate entitlements as identified in the wife’s minute of order. At least some of the companies appear to be deregistered. I cannot, for example, be absolutely satisfied, nor in the circumstances of this case do I believe it is required, that the order I make, which will effectively not deal with each of the corporate interests, might not, at some point in time, attract the attention of other regulatory authorities, but the absence of any evidence in that regard makes it, in my view, impossible to make an order to protect them.
Let me say, at least, in finalisation, that there would not be any utility, notwithstanding the wife’s potentially better income and higher earning capacity, to make any orders for indemnities, one against the other.
I certify that the preceding thirty-seven (37) numbered paragraphs are a true copy of the Ex Tempore Reasons for Judgment of the Honourable Justice Baumann. Associate:
Dated: 6 June 2023
0