Tiraboschi and the Trustees of the Bankrupt Estate of Mr Tiraboschi & Ors

[2017] FamCA 565

FAMILY COURT OF AUSTRALIA

TIRABOSCHI & THE TRUSTEES OF THE BANKRUPT ESTATE OF MR TIRABOSCHI AND ORS [2017] FamCA 565

FAMILY LAW – INTERIM PROPERTY PROCEEDINGS – fragmentation of proceedings – ability to incorporate interim judgement into final orders

Strahan & Strahan (2011) FLC ¶93-466
Trustees of the Property of Cummins (A Bankrupt) v Cummins (2006) 227 CLR 278

Family Law Act 1975 (Cth) ss 79, 79A

APPLICANT: Ms Tiraboschi

RESPONDENT:	Mr Anasis and Mr Carey (as Trustees of the Bankrupt Estate of Mr Tiraboschi)
SECOND RESPONDENT:	Commissioner of Taxation for the Commonwealth of Australia
THIRD RESPONDENT:	Mr Horrigan (in his capacity as Liquidator of A Pty Ltd (in Liquidation) and B Pty Ltd (in Liquidation))

FILE NUMBER: SYC 6584 of 2013

DATE DELIVERED: 4 August 2017

PLACE DELIVERED: Canberra

PLACE HEARD: Sydney

JUDGMENT OF: Gill J

HEARING DATE: 20 July 2017

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Fernon

SOLICITOR FOR THE APPLICANT: Yates Beaggi Lawyers

COUNSEL FOR THE RESPONDENT: Mr Schonell, SC

SOLICITOR FOR THE RESPONDENT:	Grace Lawyers
COUNSEL FOR THE SECOND RESPONDENT:	Mr Kasep
SOLICITOR FOR THE SECOND RESPONDENT:	Australian Taxation Office
COUNSEL FOR THE THIRD RESPONDENT:	Mr Notley
SOLICITOR FOR THE THIRD RESPONDENT:	ERA Legal

Orders

1. The wife’s application in a case filed 7 July 2017 is dismissed;

2. Orders 2 to 9 sought in the trustees’ amended response to an initiating application, and orders 1 to 7 in the minute of orders sought in the trustees’ case outline are dismissed;

3. The liquidator is to file and serve an undertaking in the following terms within two working days:

4. Mr Horrigan (in his capacity as Liquidator of A Pty Ltd (in Liquidation) and B Pty Ltd (in Liquidation) undertakes that he will notify the trustees of the bankrupt estate of Mr Tiraboschi, namely Mr Anasis and Mr Carey, fourteen days prior to taking any steps to enforce the securities over the properties in which the wife has an interest.

5. On filing of the undertaking in (4) above order 10 sought in the trustees’ amended response to an initiating application, and order 8 in the minute of orders sought in the trustees’ case outline is otherwise dismissed;

6. The trustees have leave to seek the urgent relisting of the matter on 48 hours’ notice to each of the parties in the event that the Liquidator gives notice pursuant to the above undertaking.

Note: The form of the order is subject to the entry of the order in the Court’s records.

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

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT CANBERRA

FILE NUMBER: SYC 6584 of 2013

Ms Tiraboschi

Applicant

And

Mr Anasis and Mr Carey (as Trustees of the Bankrupt Estate of Mr Tiraboschi)

Respondent

And

Commissioner of Taxation for the Commonwealth of Australia
Second Respondent

And

Mr Horrigan (in his capacity as Liquidator of A Pty Ltd (in Liquidation) and B Pty Ltd (in Liquidation))
Third Respondent

REASONS FOR JUDGMENT

1. The husband and wife, following the breakdown of their marriage, entered into consent orders for the distribution of property between themselves. These consent orders have been set aside pursuant to s 79A of the Family Law Act 1975 and the matter is now proceeding toward a final hearing.  The proceedings now involve the wife, the trustee in bankruptcy for the husband, the Commissioner of Taxation for the Commonwealth of Australia (the Commissioner) and the liquidator for the various corporate entities related to the marriage. 

2. In general terms, the present interim proceedings involve the wife and the trustee seeking the sale and distribution of proceeds of some of the property of the marriage pending the final determination of the matter. 

3. The trustees also sought orders to restrain the liquidator from dealing with various properties.  This aspect of the proceedings was resolved by consent with the liquidator offering an undertaking to notify the trustees 14 days prior to taking any steps to enforce the securities over the properties in which the wife has an interest.  The Commissioner opposed the application made by the wife and had not had sufficient opportunity to consider the position in relation to the trustee’s application. 

4. By the time the matter came on for hearing, proceedings in the Federal Court involving the liquidator and the wife were resolved on the basis that the wife will pay to the liquidator $750,000, a step which then releases, as far as the liquidator’s proceedings in the Federal Court were concerned, matrimonial property other than corporate assets, from a freezing order which prevented the wife from dealing with the property. 

5. The parties helpfully identified the general scope of the property of the marriage as follows:

   a)C Street, Suburb D, New South Wales (jointly owned) $1.5 million

   b)E Street, Suburb F, New South Wales (jointly owned) $2.8 million

   c)G Street, Suburb H, New South Wales (owed by the wife) $2.5 to $3 million

   d)J Street, Suburb K, New South Wales (owned by the wife) $1.65 million

   e)L Street, Suburb F, New South Wales (held by the husband under company title through shares in M Pty Ltd) $750,000

   f)Proceeds of the sale of N Street, Suburb O, New South Wales currently held by the Supreme Court of New South Wales (jointly owned by the wife and husband) $500,640.21.

6. As against any property that may be attributable to her, the wife accepts that she may be subject to the following potential claims:

   a)$750,000 to the liquidator in relation to the Federal Court proceedings (a debt secured against a number of these properties)

   b)A debt to the Australian Taxation Office of $1 million (although the wife has indicated that she wishes to conduct litigation in respect of this debt there is no litigation on foot at present)

   c)The wife accepted that the trustee has an arguable case for a claim of approximately $2 million as against the wife (incorporating a claim of an equitable charge over J Street, Suburb K at $288,000, proceeds of sale from a property formerly held by the husband at Suburb P used to discharge the wife’s tax liability at $117,000; and proceeds of sale from a property at Suburb Q previously held by the husband paid to the benefit of the wife at $1.6 million).

7. In general terms the wife seeks to have the monies held by the Supreme Court released to her, or at least a portion of those monies to be released to her.  She further seeks that the Suburb D property and the L Street, Suburb F properties be sold and that she receive the proceeds of sale of her interest in each of those properties. 

8. The trustees ask that the wife’s applications be dismissed.  They ask to have the Supreme Court monies released to them, so that they receive 50 per cent of those proceeds, with the balance to be held on trust by the trustees pending final hearing.  They further ask for the sale of the C Street property and to receive 50 per cent of the proceeds of the sale, holding the balance on trust pending final determination of the proceedings.  While their application asks for the wife to be restrained from dealing with any of the properties, during the hearing the trustees identified that this order was not required due to orders previously made by Justice Le Poer Trench on 28 June 2017.  Orally the trustees sought to restrain the wife from continuing proceedings in the Supreme Court of NSW regarding the monies held by that court.

9. The wife’s application was identified as made pursuant to s 79 of the Family Law Act 1975. The preferred approach in respect of division of property under s 79 is that there be a single exercise of the discretion at final hearing as opposed to fragmented exercises of the discretion. Fragmentation carries with it the risk that preliminary discretionary decisions made on the basis of a partial determination of the underlying facts may interfere with an ultimate discretionary decision once all relevant facts are determined. Fragmentation also requires that the final decision be structured in order to incorporate earlier decisions, constraining the scope of the final decision. Fragmentation may also have the effect of changing not only the form but the substance of the subject matter of the discretion. Circumstances may change significantly between the interim and final stage of the proceedings. However, it is also accepted that circumstances may arise where, notwithstanding the benefits of dealing with the discretion on one occasion, the interests of justice require the discretion to be exercised across a number of occasions. [1] In doing so it is essential to bear in mind that ultimately, no matter on how many different occasions the power under s 79 is exercised, they cumulatively constitute the final determination. As was set out in Strahan & Strahan[2] it is necessary to be able to incorporate all interim or partial dispositions into a final overall disposition, or to ensure that interim or partial dispositions are able to be reversed so as not to detract from the final determination.  

   [1] Strahan & Strahan (2011) FLC ¶93-466 per Thackray at [226].

   [2](2011) FLC ¶93-466.

10. This ability to incorporate or to reverse is a fundamental precondition in determining whether orders should be made on an interim or partial basis.  In reaching this determination it is essential that the limitations of the interim proceedings be fully acknowledged.  That is, interim proceedings are not generally capable of resolving contentious matters.  Where there are underlying controversial facts there is an accompanying factual uncertainty.  This is both a strong reason to prefer a single exercise of the discretion and a strong reason to be cautious in the making of the interim or partial orders.  That caution must be directed towards ensuring that an interim or partial distribution does not trample upon the ultimate exercise of the discretion by depriving other parties of what may be their legitimate claims.  

11. In order to satisfy this requirement it is necessary to consider the potential scope of the claims of the other parties to the proceedings or their counterpart, the scope of an unassailable claim by the wife.  

12. In doing this the wife pointed to the fact that while the trustees make claim to certain property, the trustees’ interests may be the subject of alteration pursuant to s 79. However, such alteration will necessarily require consideration of the creditor’s interests that may be affected by such an order. The material in these interim proceedings did not allow such an assessment to take place. Prioritising the claim of the wife over the creditors is a controversial matter that will require the final hearing of the matter to determine. This is a compelling reason not to make any orders that could trespass upon the claims of the creditors.

13. Accordingly, it is necessary to examine the matter on an assessment of property that could not be the subject of claim from the trustees.  The starting point for such an assessment is to identify the wife’s, as opposed to the husband’s, interest in the items of property identified above.  If a portion of the pool could be identified as unequivocally the wife’s, and likewise not the subject of claim from the trustees, then this constitutes a starting point for determining whether an interim or partial order can be made that will not adversely affect the ultimate determination. 

14. For the wife it was urged that I would reckon the following property and values as being unable to be the subject of claim by the creditors:

    a)A half share in C Street, Suburb D, New South Wales – $750,000

    b)A half share in E Street, Suburb F, New South Wales – $1.4 million

    c)A full share of G Street, Suburb H New South Wales – conservatively reckoned at $2.5 million although the wife asserted it may be worth $3 million

    d)A full share of J Street, Suburb K, New South Wales – $2.5 million

    e)A half share in the proceeds of N Street held by the Supreme Court of New South Wales – $250,000.

15. This then would equate to a pool of property attributable to the wife of $7.4 million.  Against this, the wife accepted that the claims of the other parties identified above require consideration, and have the potential to deplete this share by $3.75 million.  Additionally, the E Street, Suburb F property has a mortgage of approximately $1,050,000, the wife’s share being $525,000.  If correct, that would leave a portion of the pool that could not be claimed by the trustee of $3,125,000.

16. However, this is predicated upon those items of property definitively falling outside the reach of the trustees.  The trustees’ position is that there are claims against these items of property. 

17. Firstly, the trustee, by the amended response to initiating application filed 17 July 2017, claims that both G Street, Suburb H and J Street, Suburb K, while held solely in the name of the wife, are held by her subject to an equitable interest on the part of the husband as to half of each property.  Such an interest would be available to claim by the trustees.  This assertion was said to be supported by material contained in the wife’s affidavit that indicated joint contributions being made by the husband and wife to the acquisition of the properties of the marriage.  The trustees relied on Trustees of the Property of Cummins (A Bankrupt) v Cummins[3] as supportive of the proposition that the trustee has such a claim.  This raises the arguable proposition that a safe assessment of the property that may be available to the wife incorporates only a half share of the Suburb H and Suburb K properties.  This would then leave the property unable to be the subject of claim by the trustees to be reckoned as:

    a)A half share of C Street, Suburb D New South Wales, - $750,000

    b)A half share of E Street, Suburb F, New South Wales  - $1.4 million

    c)A half share of G Street, Suburb H, New South Wales  - $1,250,000

    d)A half share of J Street, Suburb K, New South Wales  - $825,000

    e)A half share of the Supreme Court funds  - $250,000

    This leaves a balance of $4,475,000.    

    [3](2006) 227 CLR 278.

18. From this amount the following amounts require deduction: 

    a)The claim by the Australian Taxation Office $1 million

    b)The claim by the liquidator $750,000

    c)The acknowledged arguable claim by the trustee $2 million

    d)The wife’s share of the mortgage to the Commonwealth Bank in respect of E Street, Suburb F, New South Wales $525,000. 

19. This then leaves a sum of approximately $200,000.

20. The trustee pointed to further potential deductions, of an as yet unknown amount.  Firstly, there are any realisation costs that go with the disposal of these properties.  Secondly, there is any Capital Gains Tax and GST liability that attaches to these properties.  Thirdly, there is Land Tax (noting that some of the properties are currently subject to caveats taken out by the Office of State Titles).  These are unknown amounts at present.

21. The effect of this assessment is that it cannot at present be said that any interim or partial adjustment to the wife will be capable of either incorporation into a final determination or reversibility to accommodate a final determination.  This is fatal to the wife’s applications.

22. This leaves two matters outstanding, being the question of restraint of the wife in relation to the Supreme Court proceedings, that mirror these proceedings, to cause the release of the funds held by that court and, secondly the issue of interim payments to the trustees.

23. As to the first of these matters, counsel for the wife asserted that the application to the Supreme Court was facilitative of any orders made by this court, and that absent orders by this court allowing the distribution of funds, would be unlikely to have any prospects. Given that those funds are held as disputed funds, and no order has been made by this court resolving that pending dispute, there is little reason to consider that a positive restraint is necessary to protect the position of the trustees.

24. As to the second matter, while each party sought the sale and distribution of proceeds from the C Street, Suburb D property, in part to the trustees, and each sought distribution of the Supreme Court funds, again in part to the trustees, it cannot be said that there was a consent position for the distribution to the trustees.  The wife’s application contained those provisions within a suite of other orders and it is within that context that the orders regarding payment to the trustees ought to be considered.  The wife does not consent to the payments being made to the trustees absent payment to herself. Further, the Commissioner cannot be said to consent to such a position either.

25. At present the scope of the legitimate claim by the wife against the property in the name of the husband, held by the trustees, has not been determined. At its highest the application by the wife could be seen as tacit acknowledgement that such distributions to the trustees would not compromise her ultimate claim.  However, such a lack of prejudice is not sufficient on its own to justify an interim or partial distribution.

26. There is a requirement for the trustees to establish that it is in the interests of justice to fragment the exercise of the discretion.  Particular factors have not been pointed to in order to demonstrate that it is in the interests of justice for a payment to be made to the trustees at this stage of the proceedings.  The need for, and use of, such a payment has not been articulated. At present the trustees have not demonstrated that it is in the interests of justice that an order be made in advance of the final determination for the payments sought. 

I certify that the preceding twenty-six (26) are a true copy of the reasons for judgment of the Honourable Justice Gill delivered on 4 August 2017.

Associate: 

Date:  4/8/2017