Toft & Royce - [2013] FamCA 372

FAMILY COURT OF AUSTRALIA

TOFT & ROYCE

[2013] FamCA 372

FAMILY LAW – PROPERTY – Litigation funding order – Any payment to the husband is opposed – Consideration of the principles in Strahan – Order made.

Family Law Act 1975 (Cth)

Browne & Green (1999) FLC 92-873
Chang and Su [2002] FamCA 156
Gabel v Yardley (2008) 40 FamLR 66; FLC 93-386
Harris and Harris (1993) FLC 92-378
Hickey & Hickey & the Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143
Omacini & Omacini (2005) FLC 93-218
Stanford & Stanford [2012] HCA 52
Strahan v Strahan (Interim Property Orders) [2009] FamCAFC 166
Watson & Ling [2013] FamCA 57

APPLICANT:

Mr Toft

RESPONDENT:

Ms Royce

FILE NUMBER:

MLC

1819

2013

DATE DELIVERED:

28 May 2013

PLACE DELIVERED:

Melbourne

PLACE HEARD:

Melbourne

JUDGMENT OF:

Cronin J

HEARING DATE:

9 May 2013

REPRESENTATION

COUNSEL FOR THE APPLICANT:

Mr Strum

SOLICITOR FOR THE APPLICANT:

Lander & Rogers

COUNSEL FOR THE RESPONDENT:

Ms Stoikovska

SOLICITOR FOR THE RESPONDENT:

Clancy & Triado

Orders

That the husband and wife do all things necessary to release to the husband $400,000 by way of partial distribution of property.
That save as to costs, the interim application and response are otherwise dismissed.

IT IS CERTIFIED:

That pursuant to Order 19.50 of the Family Law Rules 2004 it was reasonable to engage counsel to attend.
That should any party seek costs arising out of these orders, such application be made by written submission and filed and served by no later than 11 June 2013 with such submission being endorsed with the fact that it has been so served on the other party and any recipient of such submission have until 25 June 2013 to file and serve any response and such response be endorsed with the fact that it has been so served on the other party and upon receipt of any such application for costs, it or they be determined in chambers.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Toft & Royce 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 MELBOURNE

FILE NUMBER: MLC 1819 of 2013

Mr Toft

Applicant

And

Ms Royce

Respondent

REASONS FOR JUDGMENT

By application filed 14 March 2013 Mr Toft (“the husband”) seeks $460,000 to be paid to each of he and Ms Royce (“the wife”) by way of a partial distribution of property from the balance of the net proceeds of the sale of their home. There is currently $1.445 million in the husband’s solicitor’s trust account.
By her response filed 9 May 2013, the wife sought that the funds remain in trust until final settlement.
Thus, the wife sought the husband not have any access to those funds and in so doing, rejected the husband’s proposal that she should have a similar amount or any distribution at all. At the conclusion of submissions, counsel for the wife proposed that if the Court was minded to give the husband some funds, bearing in mind that both sides acknowledged that the Court was not bound by either party’s proposal, the wife should be given a similar amount. I indicated I would not do that because it was not the way the case was strongly argued by the wife. If that was a serious proposal and hence a departure from her articulated position, the wife is in a position to negotiate directly with the husband in the future.
In my view, there is a justifiable basis to make an order in the husband’s favour and I find it is just and equitable to do so. The appropriate sum is $400,000 and the reasons for that are set out hereafter.
By way of background, both parties are in their mid-fifties. After their marriage in 1989, they were together until April 2005 and they have adult children. Despite the long period since their separation, they have not been able to resolve their financial dispute but they have also not litigated until recently. In the intervening period, much has happened and each pointed to a variety of facts as a justification for their respective positions.
Unfortunately, because this interim hearing was conducted on the papers and submissions, I am unable to test the evidence and make significant findings of fact. Where I have been able to determine facts, I have done so on the balance of probabilities and my reasons are set out.

Interim Property Orders

It is well-established that the power under s 79 to make an order to alter interests in property can be made on an interim basis (Gabel v Yardley (2008) 40 FamLR 66, FLC 93-386; Strahan v Strahan (Interim Property Orders) [2009] FamCAFC 166 (“Strahan”). The general powers of the court may be exercised under s 80(1)(h) of the Act by making:
a permanent order, an order pending the disposal of proceedings or an order for a fixed term or for life or during joint lives or until further order.
Sub-section 80(1)(h) does not in any way curtail the power of the court in exercising its discretion under s 79, but rather allows the court to make orders at various stages of the proceedings as required by the circumstances of the case (Harris and Harris (1993) FLC 92-378.)
The exercise of power under s 79 remains one single exercise, although it can be made through a succession of orders until the power is exhausted; Gabel v Yardley, per Bryant CJ and Coleman J. The single exercise of power may similarly be effected in a series of clauses in an order relating to particular items of property; Hickey & Hickey & the Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143 at [48].
In a joint judgment, two members of the Full Court in Strahan (Boland and O’Ryan JJ) recognised that although the s 79 power is ordinarily exercised at the final hearing, in appropriate circumstances the power may be exercised at an interim stage;
thus the first step is to resolve whether to exercise the power before a final hearing and if it is resolved to do so then the second step involves the exercise of that power.
Their Honours stated at [132]:
In relation to the first stage, in our view, when considering whether to exercise the power under s 79 and s 80(1)(h) of the Act to make an interim property order the “overarching consideration” is the interests of justice. … All that is required is that in the circumstances it is appropriate to exercise the power. In exercising the wide and unfettered discretion conferred by the power to make such an order, regard should be had to the fact that the usual order pursuant to s 79 is a once and for all order made after final hearing.
In other words, as put by Thackray J in the same case, once the Court has decided to proceed with the interim dispute,
it has no alternative other than to exercise (or decline to exercise) the power to make an interim order by application of the relevant provisions of the legislation. (at [225]).
The High Court decision of Stanford & Stanford [2012] HCA 52 (“Stanford”) provides guidance on how to exercise the power once the decision has been made to do so. The power is discretionary, without formal “metes and bounds” but not so broad as to amount to unguided judicial discretion; Stanford at [38].
The court’s inquiry as to whether to make an interim order is not primarily concerned with the purpose for which the asset is sought. In Strahan, the interim property settlement was sought to provide a party with funds to meet current and anticipated legal expenses. While it may be relevant in certain circumstances, the question before the court in s 79 is not what the party intends to do with the asset if an order is made, but whether, in the circumstances at the time of the hearing, it would be just and equitable to make the order to distribute the property.
An interim order should be capable of variation or reversal without resort to s 79A; Gabel & Yardley (supra). Where there is a chance that the interim order will prejudice the ability of the court to reach a just and equitable result when final orders are made, interim orders will be avoided. Hence, it must be just and equitable to make the order at the interim stage, bearing in mind the need to do justice in the ultimate outcome.

The Stanford approach

The High Court directed in Stanford that the first step in the consideration of whether to exercise the power under s 79 is to identify, according to ordinary legal and equitable principles, the existing legal and equitable interests of each of the parties in the property in dispute (at [37]). The practice of creating notional “add-backs” for assets that have been dissipated has no place in this assessment; however, it does not follow that unilateral behaviours resulting in the dissipation of property or premature distributions are no longer relevant – in appropriate circumstances they may affect the final order by virtue of s 75(2)(o). (See for example Omacini & Omacini (2005) FLC 93-218, Browne & Green (1999) FLC 92-873, and the discussion of Murphy J in Watson & Ling [2013] FamCA 57).
Once the assets have been identified, the Court must evaluate whether it will be just and equitable to alter the existing property interests (79(2)). Stanford emphasised that the starting position is not to assume that an alteration must be made. The power under s 79 is not at large but operates within the realm of the existing legal and equitable interests as identified between the parties. As the Court stated at [39]:
[t]he question presented by s 79 is whether those rights and interests should be altered.
This approach is consistent with that of the Full Court in Strahan as outlined above.
In determining what is just and equitable, it is clear from the words of the provision and the statements of the Stanford Court that the assessments under s 79(2) and s 79(4) are not to be conflated. While some or all of the factors in s 79(4) may be relevant to the just and equitable inquiry under s 79(2), it is not an exhaustive checklist. Therefore, once the Court has decided to use the power under s 79 to make an interim property order as it would be just and equitable to do so (79(2)), the pathway to be followed is that outlined in the legislation, which requires the next consideration to be the form that the order should take with regard to the indicia in s 79(4).
The facts of the case will determine the form the order should take to be just and equitable. In interim proceedings, the just and equitable inquiry encompasses both the circumstances at the time of the hearing and the likely effect on final orders (if any), to avoid the prospect of subsequent proceedings under s 79A.
I now turn to the facts of the present case. The husband relied on two affidavits and a financial statement and the wife relied on one affidavit. From those affidavits I propose only to refer to the matters that are relevant to this determination.
The husband is currently unemployed and living with his partner in rented accommodation. He lives on rental income from an investment property belonging to the parties and the support of his partner. He deposed to having access to just over $49,000 in bank accounts but he shares those with his partner. The wife asserted that she “understood” that the husband was setting up a new business but gave no attribution to the source of her understanding. The husband’s evidence was that he had tried his hand unsuccessfully at various ventures. There was no indication in his evidence as to his future earning capacity.
The wife is engaged in home duties and cares for one of the children who is a disability payment recipient. In that position, the wife receives a carer payment. She lives in rented accommodation too. She deposed to having about $78,000 in the bank.
Each party has had access to cash distributions since separation but how much and what happened is very much a contentious issue. Each party has had significant health problems but those currently seem under control.
In 1989, the husband had an interest in a house in Suburb N and the wife had modest savings and a car. Without testing the evidence, little seems to turn on those issues and neither party would argue for a significant credit for the initial contributions.
During the marriage, both parties worked or fulfilled roles within the family and they moved internationally following the husband’s career. In between the date of cohabitation and the date of separation, they removed the husband’s property that he brought in at the commencement of the relationship and then sold it for a relatively modest profit.
In March 2010, that is, five years after separation, the husband’s employment situation of about 17 years was terminated and as a consequence, he initiated unfair dismissal proceedings. Those proceedings concluded in the same year without the husband receiving anything. Indeed, he incurred a significant cost obligation to his lawyers.
At the time of separation, the parties by way of either legal or equitable interest had a joint interest in their former home and interests in apartments in Suburb B and Suburb C. They had, and still have, superannuation and there still exists a corporate entity which owned assets. They have done little to alter the position that prevailed during their relationship other than the sale of property to which I shall refer in a moment.
The relatively uncontroversial evidence was that in 2005, their home was encumbered but there was equity of $820,000, the apartments had equity of about $170,000 and there was about $190,000 in the self-managed superannuation fund. There was also $25,000 in the bank. It was the events thereafter that highlight the problem.
At the time of separation, the wife knew that the husband had share options with his employer. In December 2009, the husband sold the share options and received $320,000 against which there is currently unpaid and unassessed tax. This tax needs to be taken into consideration but the extent to which it is a responsibility of both parties remains to be seen. The evidence at this stage is vague but the wife’s position arising out of her counsel’s submission was that the husband had failed to lodge his tax returns diligently and thus penalties accrued. Either way, the debt seems to be about $300,000.
The money from the sale of the share options was placed in a Malaysian bank account. The wife said she only became aware of the sale in December 2012 – that is, three years after they were sold – but there seems little dispute that she knew of their existence.
From the Malaysian bank account, the husband said he spent $140,000 on living expenses and $91,000 on legal fees associated with the unfair dismissal claim. He said he gave $50,000 to his partner to repay money she had spent on his behalf including on rental and living expenses bearing in mind that he was without work after 2010. The extent to which those payments are treated as normal and acceptable living payments will be a matter for scrutiny and cross-examination. However, there was no evidence to suggest that the husband had any source of income and it would appear from both parties’ perspectives, they led a relatively affluent lifestyle. On this interim hearing, I would be very cautious about drawing any adverse inference against the husband for that expenditure.
Having said that, the wife complained not only absence of knowledge of the share option sale, but also of unsatisfactory disclosure of the bank account details. She did not accept that the husband had used the funds in the way he asserted and said that she now wants them “added back to the pool”. Leaving aside the question of the appropriateness of so called “add-backs”, the evidence is such that I could not make any determination at this point. To simply add back all of the share options in an interim hearing, would neither be sensible nor appropriate particularly as there are other assets against which any adjustment can ultimately be made.
The wife said she knew nothing about the sale of the options but it seems she took money out of the National Australia Bank account which contained the husband’s termination payment and then later transferred some back. Just what all of that means, I am unsure, but the picture could not have been as simple as painted by the wife. The clear inference from the wife’s affidavit was that the husband was recalcitrant in respect of disclosure. She knew what assets there were but not necessarily what was happening to them and it would seem that there were negotiations going on but certainly not any litigation. She presumably had access to the National Australia Bank account so she would have been aware that the husband had a termination payment and as I have indicated, she was aware of the fact that he had the share options.
It seems uncontroversial that the wife retained about $69,000 out of the termination payment. It must be ultimately significant that this all occurred well after separation so the contribution issue will also become an important exercise.
The wife alleged that the husband had not made disclosure of documents and the husband denied that assertion. The wife said she was only provided with the Malaysian account statements in March 2013 but it was clearly the subject of correspondence as far back as November 2011. At that time, the husband said he did not have the bank statements but just what he was referring to remains unclear. Ironically, the husband’s solicitor was complaining in November 2012 that the wife had not provided disclosure of her bank statements.
The wife asserted that the husband had “undisclosed international accounts” and noted a reference to a 2006 letter about a Swiss bank account. Yet in the husband’s affidavit, he said he provided all information he had and that bank statements were not available. I again face the dilemma of what to do with the untested evidence.
The approach to cases about disclosure including in interim applications is hardly controversial. In Chang and Su [2002] FamCA 156, Kay and Dawe JJ said:
67. The law to be applied and the approach that may be adopted in cases where, through the lack of a full and frank disclosure, the Court is unable to fully ascertain the extent of a party's wealth, is well settled (see Stein v Stein (1986) FLC 91-779; 11 Fam LR 353; Mezzacappa v Mezzacappa (1987) FLC 91-853; 11 Fam LR 957; Black and Kellner (1992) FLC 92-287; 15 Fam LR 343 and Weir v Weir (1993) FLC 92-338; 16 Fam LR 154).
68. In Black and Kellner (supra) the appellant had submitted that, absent findings as to the extent of his wealth, the order made by the trial Judge was plainly unjust. The key finding of the trial Judge was:
“...the failure on the part of the [husband] to disclose his financial position to the court and his attempts to conceal this matter from the court, which has left the court in the position of not knowing what the [husband’s] financial position is, except that he deliberately underestimated it."
An examination of the authorities shows the focus should be on not only an absence of full and frank disclosure but whether there is an element of deliberate evasion. In this case, the evidence at this stage could not be said to satisfy either non-disclosure or deliberate evasion. The wife’s lack of confidence in the husband’s disclosure does not advance the issue much at all.
In 2010, one of the parties’ two apartments was sold and $119,500 was deposited in the husband’s bank account. At that time, the parties were in negotiations and they reached agreement about a distribution of funds but its terms were never completed. The wife was to have received $30,000 but did not do so. In the submissions, she argued that the husband had access to that money and it should be taken into account as an exercise before me.
Between September 2010 and September 2012, the husband used the money and paid a variety of expenses including the wife’s car insurance and finance repayments on the car. He paid expenses for the parties’ children. The wife’s response was that he had paid family expenses and his personal expenses as well, including giving $49,500 to his partner. She therefore said she did not “accept responsibility” for a number of the family expenses which she said he unilaterally made including his choice of their daughter’s car purchase and insurance. Therefore some expenses are accepted but others are not.

In respect of the husband’s expenditure, I am again unable to determine whether or not that was reasonable in the circumstances and there is a considerable dispute between the parties as to whether the wife created the problem such that she was unable to get the $30,000. In my view, to simply take $30,000 out of any entitlement of the husband’s share even at this stage is artificial.
It was partly on the basis of the asserted lack of disclosure that the wife submitted that there should be a division of the “property pool” as to “60/40” in the wife’s favour. How that was calculated remains unclear but the wife’s counsel’s submissions were a departure from that simple proposed order. That becomes apparent when I look at each party’s logic. Before examining that, there are other controversial facts to be considered but about which I cannot make any finding.
It was the husband’s evidence that a variety of agreements had been reached and those led to a distribution of funds as well as the payment of various debts. The husband’s evidence was that the assets of he and the wife consisted largely of the trust funds, the remaining apartment that has now been rented out, cash in banks, a motor car and some superannuation to which I have referred.
The wife’s evidence was much the same although the precise figures varied marginally.
It was common ground that the parties or at least the husband, faced the probability of that $300,000 tax liability to which I have mentioned.
In essence therefore, the husband argued that there was about $2.25 million against which the $300,000 pending tax liability had to be paid. Further, the parties agreed that they have each taken $255,000 as a result of their various agreements along the way. Thus, on the husband’s case, there is a current equity of about $2.47 million net or if the so-called “add-back” is ignored, $1.59 million. However, that includes $435,000 in superannuation so the real net cash position as at today including an additional sum for the investment property is about $1.4 million.
The wife argued that there was about $1.7 million in the trust fund and the apartment leaving aside the superannuation, cars and add-backs against which the $300,000 tax had to be paid. It was submitted that the Court could not have confidence in the husband’s figures because of a lack of discovery. I could not make any such finding at this stage.
It is important to note however that on the wife’s proposed orders as set out in the response which she filed on the day prior to the hearing, the husband would receive 40 per cent of her assessed property pool of $1.4 million which amounted to $560,000.
If the Court was to ignore the wife’s proposed order, it was submitted that the $30,000 she had missed out on had also to be taken from the husband’s share. I have already rejected that as artificial. All of these things including the possible tax on the sale of the apartment if it needs to be sold, means that from the wife’s perspective, she viewed any distribution as what she described as unsafe.
All of the figures described by counsel for the wife as “rubbery” are really much the same. The bottom line is that there is about $1.1 million in trust if the tax is paid and there is significant superannuation as well as the apartment.
There was no agreement about whether the Court would be treating the asset division on the basis of one pool or two but it is important that the superannuation in this case is significant and each party is approaching the statutory retirement age where neither (and particularly the wife) is indicating employment is a real possibility in the future.
I consider therefore that I can safely say that to the extent that it is important to be conservative and to be able to make later adjustments so that a just and equitable outcome can be achieved, there is at least $1 million that is immediately open to be divided at this point in time. The wife conceded that the husband will get 40 per cent of at least that or thereabouts.
In my view, $400,000 is a just and equitable outcome because the husband is at least entitled to that sum. There is no reasonable argument as to why the husband could not have what is effectively his money and I propose to order accordingly.

I certify that the preceding Fifty One (51) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 28 May 2013.

Associate:

Date: 28 May 2013