Tolarno & Tolarno
[2021] FedCFamC1F 232
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)Tolarno & Tolarno [2021] FedCFamC1F 232
File number(s): MLC 4394 of 2018 Judgment of: WILLIAMS J Date of judgment: 30 November 2021 Catchwords: FAMILY LAW – PROPERTY – Application to vary Final Orders made by consent – Application made under s 79A of the Family Law Act 1975 (Cth) – Where the husband seeks to vary final orders so that the wife will be liable for taxation and other liabilities – Where the husband now seeks to retain the property rather than transferring to the wife – Consideration of s 79A(1) and machinery or consequential orders – Where the application should be summarily dismissed. Legislation: Family Law Act 1975 (Cth) ss 45A, 79A
Family Law Rules 2004 (Cth) r 10.12
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) r 10.09
Cases cited: Bray & Bray (1988) FLC 91-968
Ebner & Pappas [2014] FamCAFC 229
Friar & Friar [2011] FamCAFC 71
Gamser v Nominal Defendant (1977) 136 CLR 145
Gebert & Gebert (1990) FLC 92-137
Grier & Malphas [2016] FamCAFC 84
In the marriage of Kokl (1981) FLC 91-078
Kaljo & Kaljo (1978) FLC 90-445
Karlsson & Karlsson [2020] FamCAFC 207
Lancer & Lancer [2008] FamCAFC 112
Lindon v Commonwealth of Australia (No. 2) (1996) 136 ALR 251
Lysaght Building Solutions Pty Ltd (t/as Highline Commercial Construction) v Blanalko Pty Ltd [2013] VSCA 158
Molier & Van Wyk (1980) FLC 90-911
Phillips v Walsh [1990] 20 NSWLR 206
Public Trustee v Gilbert (1991) FLC 92-211
Ravasini & Ravasini (1983) FLC 91-312
Rohde & Rohde (1984) FLC 91-592
Scribe & Scribe [2006] FamCA 1378
Taylor & Taylor (1979) 143 CLR 1
Division: Division 1 First Instance Number of paragraphs: 90 Date of hearing: 20 October 2021 Place: Melbourne Counsel for the Applicant: Mr Puckey QC Solicitor for the Applicant: Pearsons Lawyers Counsel for the Respondent: Mr Williams QC with Mr Dunlop Solicitor for the Respondent: Nicholes Family Law ORDERS
MLC 4394 of 2018 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR TOLARNO
Applicant
AND: MS TOLARNO
Respondent
ORDER MADE BY:
WILLIAMS J
DATE OF ORDER:
30 NOVEMBER 2021
THE COURT ORDERS THAT:
1.The husband’s Amended Application filed 15 December 2020 is dismissed.
2.Within 7 days of the date of these Orders, the wife provide to the husband’s solicitors a Minute of Order of proposed amendments, pursuant to the slip rule, of the final property orders.
3.Within 7 days of receipt of the Minute of Order referred to in paragraph 2 hereof, the husband provide a response to the proposed amendments.
4.Any party seeking to make an application to the Court to amend the final property orders pursuant to the slip rule, file and serve such application within 21 days of service on the husband of the Minute of Orders referred to in paragraphs 2 and 3 hereof.
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 Tolarno & Tolarno has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
Williams J
Introduction
The matter for determination by the Court is the wife’s application for summary dismissal of the husband’s Amended Application filed 15 December 2020.
The husband’s application seeks to vary final property orders made by consent by Macmillan J on 16 July 2020 and further amended on 23 February 2021 (“the final property orders”).
Paragraphs 3 and 4 of the husband’s application seeks to vary the final property orders so that the wife will be jointly liable for taxation and various other liabilities, which were previously the husband’s responsibility.
The relief sought by the husband in his Outline of Argument and espoused by his Queen’s Counsel during the hearing, differs from his extant application. He now seeks to retain a property known as the 1 N Property, rather than transferring it to the wife, and to pay the wife the sum of $1.3 million, which was the value attributed to the property by a single expert during the primary proceedings.
The husband contends the final property orders may be varied as either consequential or machinery orders: (Ravasini & Ravasini (1983) FLC 91-312 (“Ravasini”)). Alternatively, the orders should be set aside pursuant to s 79A(1)(a) of the Family Law Act 1975 (Cth) (“the Act”).
The wife opposes any variation to the orders and seeks that the husband’s application is summarily dismissed and that the husband pay her costs of the application.
Background
On 14 July 2020, a four day trial was listed to commence before Macmillan J for determination of the parties competing property applications. Both parties were represented by Queen’s Counsel.
On 16 July 2020, after 3 days of negotiations, the parties reached agreement and between 4.14 pm and 4.21 pm, final orders were made by her Honour in accordance with a Minute of Order submitted by the parties, with some minor amendments.
The effect of the final property orders is:
(a)the husband to pay to the wife cash of $4 million;
(b)the wife retain a property known as the 1 N Property;
(c)the husband retain the parties’ corporate interests, business and other real properties;
(d)the husband indemnify the wife against liabilities arising from various business entities including a company, Tolarno Pty Ltd.
During the substantive proceedings both parties were aware that:
(a)Tolarno Pty Ltd, which is the trustee of the parties’ family trust, is the registered proprietor of the 1 N Property; and
(b)During the marriage the 1 N Property was included as an asset in the financial records of the TS Super Fund, their self-managed superannuation fund.
The final property orders address the inconsistency between the registered proprietor and the historical treatment of the 1 N Property, as an asset of the superannuation fund. Paragraph 3 of the Orders provides for the parties to engage an expert, Mr AA, to advise whether the 1 N Property should be treated as an asset of the superannuation fund or an asset of the family trust, prior to transfer to the wife of her nominated superannuation fund.
Subsequent to the orders, the wife unilaterally engaged Mr AA, whose preliminary advice was the regulatory authorities would likely determine the 1 N Property was an asset of Tolarno Pty Ltd. The husband disputed that advice and obtained independent advice from another expert, Mr BB. Mr BB’s preliminary advice was the 1 N Property may be treated as an asset of the Super Fund.
In order to resolve the controversy, the wife compromised her position and ultimately agreed for the 1 N Property, in accordance with Mr BB’s advice, to be treated as an asset of the Super Fund.
The husband contends the wife’s compromised position does not resolve the outstanding issue. He submits whichever approach is adopted to transfer the property out of the existing family structures to the wife, will trigger consequences which were unknown to the parties at the time of the orders.
Documents relied upon
The wife relied upon the following documents:
(a)Outline of Argument filed 19 October 2021;
(b)Further Amended Response to Initiating Application filed 19 March 2021;
(c)Affidavits of the wife filed:
(i)11 November 2020; and
(ii)19 March 2021.
(d)Orders made by Macmillan J on 16 July 2020 and further amended on 23 February 2021;
(e)Transcript of proceedings on 16 July 2020;
(f)Wife’s trial affidavit filed 12 June 2020, paras 20(d), 33(d), 85–97, 121, 125–131, 137, 140, 142, 147, 152, 153, 161, 171, 176–181;
(g)Husband’s trial affidavit filed 30 June 2020, paras 78–82 and 138–141;
(h)Affidavit of Mr CC filed 10 July 2020;
(i)Affidavits of Mr DD filed 7 July 2020, paras 9 and 22;
(j)Husband’s Outline of Argument for trial filed 10 July 2020, Parts B, I.
The husband relied upon the following documents:
(a)Amended Initiating Application filed 15 December 2020;
(b)Affidavit of the husband filed 14 October 2020;
(c)Affidavit of the husband filed 10 August 2021;
(d)Affidavit of Mr BB filed 5 October 2021;
(e)Affidavit of Mr BB filed 15 December 2020;
(f)Outline of Argument filed 23 March 2021;
(g)Orders made by Hartnett J on 19 April 2021.
RELEVANT LEGAL PRINCIPLES – SUMMARY DISMISSAL
Section 45A of the Act relevantly provides:
Summary decrees
No reasonable prospect of successfully defending proceedings
(1)The court may make a decree for one party against another in relation to the whole or any part of proceedings if:
(a)the first party is prosecuting the proceedings or that part of the proceedings; and
(b)the court is satisfied that the other party has no reasonable prospect of successfully defending the proceedings or that part of the proceedings.
No reasonable prospect of successfully prosecuting proceedings
(2)The court may make a decree for one party against another in relation to the whole or any part of a proceedings if:
(a)the first party is defending the proceedings or that part of the proceedings; and
(b)the court is satisfied that the other party has no reasonable prospect of successfully prosecuting the proceedings or that part of the proceedings.
When there is no reasonable prospect of success
(3)For the purposes of this section, a defence or proceedings or part of proceedings need not be:
(a) hopeless; or
(b) bound to fail;
to have no reasonable prospect of success.
Rule 10.09 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) provides:
10.09 Application for summary orders
(1)A party may apply for summary orders after a response has been filed if the party claims, in relation to the application or response, that:
(a) the court has no jurisdiction; or
(b) the other party has no legal capacity to apply for the orders sought; or
(c) it is frivolous, vexatious or an abuse of process; or
(d) there is no reasonable likelihood of success.
Rule 10.09 is identical to Rule 10.12 of the Family Law Rules 2004 (Cth), the Rules applicable prior to 1 September 2021.
The principles to be applied in determining whether summary dismissal should be granted are set out by Kirby J in Lindon v Commonwealth of Australia (No. 2) (1996) 136 ALR 251 (“Lindon”) at 255–256, as follows:
The approach to be taken by the court to the Commonwealth's application for summary relief is not in doubt:
1.It is a serious matter to deprive a person of access to the courts of law for it is there that the rule of law is upheld, including against government and other powerful interests. This is why relief, whether under O 26, r 18 or in the inherent jurisdiction of the court, is rarely and sparingly provided.
2.To secure such relief, the party seeking it must show that it is clear, on the face of the opponent's documents, that the opponent lacks a reasonable cause of action or is advancing a claim that is clearly frivolous or vexatious.
3.An opinion of the court that a case appears weak and such that it is unlikely to succeed is not, alone, sufficient to warrant summary termination. Even a weak case is entitled to the time of a court. Experience teaches that the concentration of attention, elaborated evidence and argument and extended time for reflection will sometimes turn an apparently unpromising cause into a successful judgment.
4.Summary relief of the kind provided for by O 26, r 18, for absence of a reasonable cause of action, is not a substitute for proceeding by way of demurrer. If there is a serious legal question to be determined, it should ordinarily be determined at a trial for the proof of facts may sometimes assist the judicial mind to understand and apply the law that is invoked and to do so in circumstances more conducive to deciding a real case involving actual litigants rather than one determined on imagined or assumed facts.
5.If, notwithstanding the defects of pleadings, it appears that a party may have a reasonable cause of action which it has failed to put in proper form, a court will ordinarily allow that party to reframe its pleading. A question has arisen as to whether O 26, r 18 applies to part only of a pleading. However, it is unnecessary in this case to consider that question because the Commonwealth's attack was upon the entirety of Mr Lindon's statement of claim.
6.The guiding principle is, as stated in O 26, r 18(2), doing what is just. If it is clear that proceedings within the concept of the pleading under scrutiny are doomed to fail, the court should dismiss the action to protect the defendant from being further troubled, to save the plaintiff from further costs and disappointment and to relieve the court of the burden of further wasted time which could be devoted to the determination of claims which have legal merit.
(Citations omitted)
In relation to the rules the Full Court of this Court in Friar & Friar [2011] FamCAFC 71 at [49]–[50] said:
49.Rules 10.12(c) and (d) of the Family Law Rules 2004 (“the Rules”) relevantly provide that a respondent may apply for “summary orders” in relation to an application on the basis that it is “frivolous, vexatious or an abuse of process” or has “no reasonable likelihood of success”.
50.The Rules are properly read as supplementing the power of the Court to dismiss frivolous or vexatious proceedings pursuant to s 118(1) of the Act. The Rules are also to be read in the context of the many cases confirming the Court’s inherent power to dismiss or permanently stay an application which cannot succeed, as to which see the authorities discussed in Bigg v Suzi (1998) FLC 92-799 at 84,974.
In Ebner & Pappas [2014] FamCAFC 229, at [60]–[63] the Full Court considered the phrase “no reasonable likelihood of success” as referred to in the Rules. The test is more liberal than hopeless or bound to fail.
Wife’s Submissions
The central premise of the husband’s application, notwithstanding the wife’s compromised position, is that taxation consequences may arise on a transfer of the 1 N Property to the wife or her nominated superannuation fund because of the manner in which income derived from the property has been historically reported to the Australian Taxation Office (ATO).
The husband proposes that rectification of the orders may be achieved on two alternate bases namely:
(a)a variation of the existing orders to include further orders necessary to give effect to, or implement, the intention of the final orders, in circumstances where the orders failed to cover the consequences of the alternate eventualities imposed by the ATO upon one or both parties and which were not understood by the parties or the court when orders were made; or
(b)if further orders are not necessary, then the combination of circumstances amounts to a miscarriage of justice.
The submissions of Queen’s Counsel for the wife relevant to variation of the orders are as follows:
(a)the applicable law:
(i)subject to recognised exceptions, once perfected by being entered into the court record, an order finalising a proceeding is beyond recall (Gamser v Nominal Defendant (1977) 136 CLR 145);
(ii)exceptions to that principle encompasses matters with the orders sought to be varied is a consequential or machinery order as opposed to being substantive in its effect (Phillips v Walsh [1990] 20 NSWLR 206 at 209–210);
(iii)the distinction between an order of a consequential or machinery nature as opposed to an order affecting substantive rights was considered by the Full Court in Ravasini (at 78,127);
(iv)whether a particular part of an order is a substantive order or a consequential or machinery order, is to be determined by the construction of the entire order and not by reference to part only of the order: see Bray & Bray (1988) FLC 91-968.
(b)the contention that the orders may be varied as machinery provisions, so that the wife provide an indemnity to the husband, is contrary to legal principle for the following reasons:
(i)the relief is inconsistent with and contrary to the indemnities in favour of the wife, provided in Orders 11(a) and (b), which reflected a negotiated compromise of the primary proceeding (see transcript of 16 July 2020);
(ii)the relief sought has a potential (if such a liability crystallised) to materially affect the substantive rights of the wife pursuant to the final orders because of the erosion of the effect of the indemnities provided by the husband;
(iii)the relief is not necessary to give the final orders operation, given the terms of Order 11, and is necessary for the implementation of the orders;
(iv)the prospect of taxation liabilities was well-known to each party at the time when the final orders were made.
The evidence of the parties in anticipation of the trial which supports the contention in paragraph 27(b)(iv) is as follows:
(a)while the wife contended in her trial affidavit (at paragraph 127) that the ownership of the 1 N Property was uncertain, she recognised the property was owned by the super fund;
(b)the husband contended in his trial affidavit (at paragraph 79–82) that there was “no issue”, the property was held by the super fund although the registered proprietor was Tolarno Pty Ltd;
(c)the affidavit of Mr CC filed on behalf of the wife on 10 July 2020 referred to:
(i)rectification of the title was necessary to reflect the 1 N Property as an asset of the super fund;
(ii)stamp duty would arise on the transfer, but exemptions may be available. In the absence of the of an exemption, the estimated stamp duty was $85,250;
(iii)there was potential for taxes and penalties to be levied by the ATO but such issues could be mitigated by making a voluntary disclosure to any identified issues.
(d)the husband relied on affidavit of Mr DD, accountant filed on 7 July 2020 as to the necessary steps to rectify the title to 1 N Property including identification of other tax liabilities;
(e)the husband’s Case Outline filed 10 July 2020 for the trial identified:
(i)all the needs of the court to consider rectification to a number of properties, into entity loans and “the consequences” arising from the division of assets; and
(ii)the poor management of the parties financial affairs, complicated property interests and “there are a number of issues embedded within the asset pool” requiring the need for further engagement of experts to “assist with” the parties complicated financial orders. For that reason these orders maintain the property portfolio and affect a cash payment to the wife.
Notwithstanding to the issues referred to in the preceding paragraph, which had been identified by both parties, the husband, after three days of negotiation consented to orders providing for a cash payment to the wife and a transfer of the 1 N Property to the wife or her nominated superannuation fund, dependent upon resolution of the outstanding issues in the various agreed entities.
Furthermore, as identified by Queen’s Counsel for the husband at the trial, who retained which asset was a “red hot topic”. The husband’s application is an attempt to change the indemnities he agreed to during the settlement negotiations, which were embodied in the orders made on 16 July 2020. The husband does not swear in any affidavit in support of the current application that there were no tax issues at the time the orders were approved by the court, nor that the transfer of 1 N Property would have had no tax implications.
Section 79A(1)(a) of the Act provides:
79A Setting aside of orders altering property interests
(1)Where, on application by a person affected by an order made by a court under section 79 in property settlement proceedings, the court is satisfied that:
(a)there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence (including failure to disclose relevant information), the giving of false evidence or any other circumstance;
The submissions of Queen’s Counsel for the wife relevant to the husband’s application pursuant to s 79A(1)(a) of the Act are as follows:
(a)the knowledge of both parties referred to in the previous paragraphs refutes the contention that a “ miscarriage of justice” has occurred by reason of “any other circumstance”;
(b)s 79(A)(1)(a) only applies to circumstances occurring before or at the time of the orders, and it must be those circumstances which give rise to the “miscarriage of justice” (Molier & Van Wyk (1980) FLC 90-911 (“Molier & Van Wyk”); Public Trustee v Gilbert (1991) FLC 92-211);
(c)the words miscarriage of justice are not to be construed restrictively, particularly when coupled with “any other circumstance” and justice means justice according to law as it relates to the integrity of the judicial process: see Gebert & Gebert (1990) FLC 92-137 at 77,935;
(d)the latter phraseology connotes words without limitation and it is to be given an ordinary, wide meaning: see In the marriage of Kokl (1981) FLC 91-078.
Section 79A(1)(a) requires a two-step process. First, to establish whether there has been a miscarriage of justice by reason of the matters referred to in that section, and secondly, if that threshold is satisfied, whether the court should exercise its discretion: see Lancer & Lancer [2008] FamCAFC 112.
According to Queen’s Counsel for the wife, the following matters put an end to the husband’s reliance on s 79A(1)(a):
(a)the issue of the correct legal owner of the 1 N Property was an issue at the trial;
(b)Mr CC’s opinion annexed to his affidavit filed 10 July 2020, and relied upon by the wife at trial clearly stated:
(i)stamp duty would arise on rectification of the title to the 1 N Property as an asset of the super fund, subject to any exemptions which may be available;
(ii)there was potential for taxes and penalties to be levied by the ATO, although the quantum could be mitigated by making a voluntary disclosure to the ATO;
(c)despite being aware of the possible consequence of rectification of the 1 N Property title, the husband did not adduce any evidence at trial of any taxation consequences which he now contends may arise;
(d)despite filing many affidavits in this application, the husband does not depose to not having received advice about the possible tax and penalty implications of rectification of the 1 N Property title;
(e)the proceeding was settled by consent in terms of the final orders which included the indemnities in favour of the wife;
(f)the exchange between the Judge and Queen’s Counsel for the husband in the transcript of 16 July 2020 identifies that “who gets what” was a significant issue between the parties and that there was an issue about “whether 1 N Property is in fact owned by the super fund or is in fact owned by the family trust”.
The final submission of Queen’s Counsel for the wife was that the husband’s application is so devoid of merit and supporting evidence that there is no reasonable likelihood of success. The litigation should be brought to an end and the wife has been deprived of the fruits of final orders which were made by consent between the parties and in excess of a year ago.
Husband’s Submissions
I will address the two bases of the husband’s application to vary the final orders.
First, I will address the submission that the orders may be varied by additional orders which would address the problem asserted by the husband.
Queen’s Counsel for the husband submitted machinery as opposed to substantive provisions of orders were capable of variation. That uncontroversial principle was capable of extension, to enable applications for further orders to implement a substantive order, even though liberty to apply is not expressly reserved, if the orders are necessary to give effect to the order or to work it out to cover unforeseen circumstances: see Kaljo & Kaljo (1978) FLC 90-445 and Molier & Van Wyk.
In this case, further orders are necessary to give effect to and/or implement the clear intention of the original order, where it has failed to cover the consequences of alternative eventualities which it is now clear will be imposed by the ATO upon one or both of the parties, which were not understood by the parties or the court when the final orders were made.
Secondly, I will address the husband’s submissions seeking to set aside the orders, or part thereof, pursuant to s 79A(1)(a) of the Act. The husband does not assert that fraud or duress, but rather relevant information concerning the financial consequences of the “alternative means of effecting the $1.3 million component of the wife’s settlement” was not available to the court or the parties when the final orders were made and the orders failed to achieve the outcome which was found to be just and equitable.
It was submitted that the evidence relied upon by the parties in anticipation of the trial did not address a transfer of the 1 N Property to the wife or to her nominated superannuation fund. The financial evidence of the accountants of both parties was predicated on the husband retaining the 1 N Property, rather than a transfer to the wife. There was no evidence addressing the liabilities which would flow following the wife’s retention of the 1 N Property.
In order to determine if the parties were aware of the possible taxation and financial consequences of a transfer of 1 N Property to the wife, it is necessary to look at the evidence before the Court.
On 10 July 2020, the wife filed an affidavit of Mr CC as an expert witness. In his report annexed to the affidavit, at paragraph 13, 14 and 15, he identifies a stamp duty assessment will be triggered upon lodging the transfer of land to rectify ownership of the 1 N Property, unless an exemption applies. At paragraph 36 of his report he identifies the estimated stamp duty ($82,250) based on a valuation of the property at $1,550,000 and at paragraphs 38 to 40 he identifies exposing the parties to an SRO audit, potential land tax assessment, penalties and interest, and ATO audit on income tax, superannuation and GST obligations. In his opinion, subsequent to the consent orders, Mr CC opined the 1 N Property would be treated as an asset of the superannuation fund.
Queen’s Counsel for the husband sought to impugn that advance on the basis that his opinion expressed was heavily qualified and suggested that further enquiries should be made.
On 7 July 2020, the husband filed an affidavit of Mr DD, the parties’ accountant. Paragraph 9 of that affidavit Mr DD qualifies his advice on the basis of action required in order for the husband to retain the parties’ entity structures and properties by way of his final property settlement. It did not contemplate a transfer of the property to the wife.
The Husband’s Case Outline filed 10 July 2020 identifies the historical poor management of the parties’ financial affairs, due substantially to their previous accountant and that it will be necessary to engage various professionals to assist with their financial affairs. The third last paragraph refers to the husband’s proposal relieving the wife of any responsibility and difficulties she may have had in relation to the parties outstanding and projected taxation liabilities and rectification of titles. The statements in the Case Outline must be read in the context of the husband’s then proposal, which was to retain all of the properties and entities and not in the context of what eventually transpired with the 1 N Property.
In relation to the evidence which was not available to the parties at the time of trial, the husband relies on the affidavits of Mr BB filed 15 December 2020 and 15 October 2021 in support of the current application. Mr BB is an expert engaged by the husband to prepare a report supporting the husband’s current application. The report annexed to the October affidavit opines the 1 N Property should be treated as an asset of the superannuation fund and not an asset of the family trust.
The report annexed to the October affidavit identifies a number of potential liabilities which would attract if the 1 N Property is transferred to another entity including capital gains tax. It also identifies, in the absence of information, that there is a “risk that the ATO might render the TS Super Fund noncomplying; and/or take a view that the cost base is incorrect and apply the non-arm’s length income provisions. Either of those eventualities could cause the income tax liability to significantly increase.” The report also identifies changes necessary to secure rollover relief, in the event of a transfer of the property from the super fund to another complying superannuation. The estimate of capital gains tax provided by Mr BB varies between $82,295 and $246,885, depending on which rate of taxation is applied to a capital gain because of the increase in value of the property.
The issue of stamp duty and possible relief is referred to at paragraph 4.3 of the report. In broad terms it concurs with the estimate of stamp duty of Mr CC, payable upon transfer of the property from the registered proprietor to the wife or her super fund. Mr BB repeatedly refers to the need for further information to provide a precise opinion.
Queen’s Counsel for the husband submitted that the issues identified by Mr BB in his report about possible capital gains tax provides an answer to why the wife’s solution of a transfer from super fund to her, is not the panacea to the problem.
None of the issues identified by subsequent expert evidence were apparent at the time of the consent orders and therefore could not have been taken into account. The husband’s application should not be dismissed and the difficulties should be addressed, including providing additional information to the relevant experts to obtain certainty about the extent of the possible taxation and stamp duty liabilities.
The absence of evidence of the extent of the possible liabilities is sufficient to revisit the orders made on 16 July 2020.
As to a miscarriage of justice, Queen’s Counsel for the husband submitted that if the quantification of liabilities as identified by Mr BB were taken into account, the division of property as contemplated by the final property orders might not be just and equitable. The potential liabilities referred to by Mr BB could amount to 3–5 per cent of the parties divisible assets.
In response to the submissions of the husband, Queen’s Counsel for the wife submitted:
(a)at the commencement of the trial all parties knew about the rectification of title to the 1 N Property;
(b)the report of Mr CC of 10 July 2020 at paragraph 38, in addition to the stamp duty liability, identifies other issues including a SRO audit, land tax and that the SRO may share information with the ATO which could expose the parties and entities to an ATO audit;
(c)notwithstanding the issues identified by Mr CC, the husband proceeded to negotiate orders, which were contrary to his stated position with the knowledge of the potential liabilities, even if such liabilities were not precisely quantified and he was prepared to take a chance on the quantum of potential liabilities.
Discussion
Machinery or Consequential orders
I will firstly address the husband’s contention that the orders are machinery or consequential orders which are capable of variation, or additional orders to achieve the result sought by the husband.
It is difficult to accept the proposition that either proposal for the husband would not result in affecting the wife’s substantive rights conferred by the final orders.
The relief sought in the husband’s Outline of Argument, namely the wife receive a payment of $1.3 million in lieu of a transfer of the 1 N Property, either to her or her nominated superannuation fund, is a significant impost on the wife’s substantive rights. There are a myriad of obvious distinctions between owning a property and receiving a cash sum equivalent to a valuation of the property, particularly when the valuation relied upon was carried out over 12 months ago. The rights attaching to ownership of property, to name a few, include actual use and enjoyment of the property, the right to lease and receive rent and to encumber the property. The comments of Queen’s Counsel for the husband on 16 July 2020, as referred to earlier, about “who gets what” is a hotly contested issue, are also relevant in this regard.
In response to a question from the Court about how such a proposal could only be regarded as affecting the wife’s substantive rights, unsurprisingly, Queen’s Counsel for the husband was unable to provide a convincing response. He most appropriately conceded that was not his strongest submission and proceeded to focus on his s 79A(1)(a) submissions.
I will also briefly refer to the relief sought by the husband in his application before the Court. The relief seeks to impose on the wife various liabilities, notwithstanding that the final property orders provide the husband indemnify her in relation to any such liabilities. Whilst that proposal was subsequently abandoned by the husband, it warrants mention because the imposition of additional liabilities on a party to litigation cannot be anything other than affecting substantive rights of that party.
I agree with and accept the submissions of Queen’s Counsel for the wife and cannot possibly consider the husband’s proposed amendment to the final property orders could be characterised as machinery or consequential provisions which are capable of variation to give effect to, or implement the intention of the final property orders. The unequivocal intention of the final property orders was to transfer the 1 N Property to the wife or her nominee, not for the husband to retain the property and pay her cash. The claim by the husband in this regard has no reasonable likelihood of success.
S 79A(1)(a) of the Act
I will secondly address the husband’s s 79A(1)(a) submissions. According to the authorities, the provisions of this section only apply to circumstances in existence at the time or before the original orders were made. It does not refer to circumstances occurring subsequent to the making of the orders: Molier & Van Wyk.
The process under s 79A(1)(a) of the Act is a three part enquiry. The court is required to determine:
(a)whether facts have been established to prove that fraud, duress etc, or any other circumstance occurred;
(b)if the facts are established, it must be determined whether that amounts to a miscarriage of justice;
(c)if there was a miscarriage of justice, should the discretion to set aside the orders be exercised.
The gravemente of the submission of Queen’s Counsel for the husband is that the relevant information concerning the financial sequences of the transfer of the 1 N Property to the wife or her nominated superannuation fund, was not available to the Court or the parties at the time the final orders were made and that the orders failed to achieve the outcome which was found by the Court to be just and equitable.
I agree with the submissions of Queen’s Counsel for the wife that in order to establish whether the parties were aware of the possible consequences of the transfer of the 1 N Property to the wife, it is necessary to look to the documentation prepared and filed on behalf of each party prior to the trial. Indeed, that was the focus of both counsel, although each sought to reach a different conclusion.
I accept that orders sought by both parties prior to trial contemplated the wife would receive a cash settlement and the husband would retain the properties and business interests, whilst providing a general indemnity to the wife.
The report annexed to the affidavit of Mr CC, filed by the wife prior to trial, clearly identifies the possible consequences of rectification of title of the 1 N Property.
The relevant parts of the report are:
RECTIFICATION PROPOSAL
13.Assuming the properties are not sold, it is the parties wish to rectify the registrations of title, so that the intended owners are recorded on title.
14.If that were to occur the titles of the properties would be recorded as follows:
14.1 1 N Property – Ms Tolarno and Mr EE (as trustees of the Super Fund).
…
15.In order to effect the rectification is transfers of land need to be lodged. In order to lodge the transfers of land, transfers need to be submitted to the State Revenue Office (SRO) for duty assessment. Unless an exemption applies, the transfers of the legal title will trigger land transfer (stamp) duty at ad valorem rates based on the market value of the properties.
…
OTHER ISSUES
38.As noted above, the scope of our engagement is limited to land transfer (stamp) duty consequences of the rectification.
39.It should be noted that our recommendation could have other consequences. For example:
39.1The land tax notifications may be incorrect, therefore, exposing the parties to an SRO audit and potential land tax assessments, penalties and interest.
39.2The information may be shared by the SRO with other authorities, such as the Australian taxation office (ATO), therefore, exposing the parties to an ATO audit on income tax, superannuation or GST obligations.
40.These issues could be mitigated by making a voluntary disclosure to the SRO and/or ATO in relation to any issues identified.
Additionally at paragraph 36 of the report, Mr CC identified that if the property were valued at $1,550,000, the estimated stamp duty payable would be $85,250.
It is notable that at paragraph 39 of his report, Mr CC refers to other consequences which may arise from the rectification of title including exposing the parties to an ATO audit on a range of taxation obligations. The report also provides advice about rectification of title of two other properties, which the husband ultimately retained.
The report annexed to the affidavit of Mr DD, accountant, filed by the husband prior to trial on 7 July 2020, also identifies the necessary steps to rectify the title to the 1 N Property. The report also refers to other tax liabilities of Tolarno Pty Ltd, including Division 7A tax liabilities, a primary tax liability of $720,953.48 and general interest charges of $376,322.21.
Even though the reports were obtained by each party when it was contemplated that the husband would retain 1 N Property, both experts identify stamp duty and State Revenue Office problems as well as potential ATO taxes and penalties. Both reports are qualified to the extent that further information is required to accurately advise the quantum and extent of the future liabilities which would arise from rectification of the 1 N Property.
The husband could not be under any misapprehension that future unquantified liabilities would arise resulting from rectification of the title to the property. It cannot possibly be said that the issue of the potential liabilities arising from the rectification of title of the 1 N Property was not known to the husband at the time of the final property orders or that it arose subsequent to the making of the final property orders. The only difference is that the husband has now sought to more precisely quantify the extent of those liabilities, and to that end has sought to rely on the report of Mr BB.
The husband’s ultimate backflip of agreeing to transfer the 1 N Property to the wife, after three solid days of negotiation, and agreeing to provide an unqualified indemnity to the wife, must be seen in the context of both parties being unequivocally aware of potential stamp duty, land tax and ATO liabilities. It was also available to the husband during the course of negotiations to seek further clarification of the extent of the liabilities which he would be facing as a result of the agreement he ultimately entered into. I do not accept that the husband would have made the decision to transfer 1 N Property to the wife and provide the indemnity to her without being acutely aware of what that would entail and the ultimate financial and personal consequences. That is particularly so when he was represented by highly esteemed Queen’s Counsel, the negotiations continued over a three day period and according to his Queen’s Counsel, the issue of which party received which properties and assets was hotly contested. Furthermore, the husband has not sworn an affidavit in this proceeding that he did not know of the possible financial consequences of the agreement reached. It would be difficult to accept that in the context of those circumstances, the husband made an ill-informed and ignorant decision about the implications of the orders he consented to.
I agree with and accept the submissions of Queen’s Counsel for the wife, referred to in these reasons. It is obvious that the husband must have been aware from both the report of Mr CC and his own accountant, Mr DD that there was much uncertainty about the eventual liabilities he would be facing as a result of rectification of the 1 N Property title. Whether or not the property was to be ultimately transferred to the wife, the husband, or the super fund, title rectification would involve stamp duty, potential SRO taxes and penalties and might result in an ATO audit with consequential taxes and penalties. Notwithstanding that he was armed with all that knowledge, the husband consented to the final property orders and assumed the risk of unquantified potential liabilities and provided an indemnity to the wife for those unquantified liabilities. The fact that the husband has now sought to obtain advice to quantify the extent of the liabilities, does not impact on him voluntarily assuming that risk.
Even if I am wrong in assessing that the husband was well aware of the financial consequences of the final property orders, the arguments of the husband that the failure to be aware the consequences would result in a miscarriage of justice are similarly not persuasive.
Queen’s Counsel for the husband submitted that the consideration of whether the final property orders are just and equitable, would be affected by the potential liability for additional tax, in particular CGT, as identified by Mr BB. The effect of the additional liabilities to be assumed by the husband would equate roughly to 3–5 per cent of the overall pool which may mean that the adjustment of property between the parties would not be in accordance with what was submitted to the Court on 16 July 2020 and would distort the justice and equity of the settlement. That must be seen in the context of an asset pool in excess of $10 million.
I do not consider there is merit in that submission for the following reasons. First, the comments of the husband’s Queen’s Counsel when the orders were submitted for approval including that “there was some flexibility in some of the figures”, the final settlement took into account the risks for the husband “on some of the issues in terms of add backs and post-separation income and so on”, that “the percentage wasn’t the only issue by any means between the parties” and that “the wife is getting close to 50%”. Those statements demonstrate that there were obviously concessions on both sides about the assets comprising the pool and the division ultimately agreed upon was not based on a precise and exact calculation of assets and liabilities. Additionally, the statement of the husband’s Queen’s Counsel that “the justice and equity, we would say, doesn’t just fall in the figures” was also a relevant consideration in reaching the agreement.
Secondly, the worst case scenario identified by Mr BB may not eventuate, as all expert reports refer to a discretion to waive fees and penalties and Mr BB repeatedly states that the amounts of possible liabilities referred to in his report must not be relied upon.
Thirdly, the approach to property settlement under s 79 of the Act is not an accounting exercise (Grier & Malphas [2016] FamCAFC 84 at [129]), as to what is just and equitable is an exercise of discretion, which inevitably falls within a range of possible outcomes. That is so particularly in the context of the husband’s voluntary assumption of the risk of the liabilities, which he knew about and no doubt would have considered, in reaching the decision to agree to the final property orders.
Even if the husband were a successful in persuading a court that there was a miscarriage of justice, he would face another hurdle, that is, to persuade the court that it should exercise its ultimate discretion. What is required in exercising the discretion to set aside orders was considered by the Full Court of the Family Court in Scribe & Scribe [2006] FamCA 1378 (“Scribe”). In Scribe, the court referred to the statement of Mason J, (with whom Aickin J agreed) in Taylor & Taylor (1979) 143 CLR 1, at 14, in the context of false evidence which procured the making of an order:
What s. 79A(1) does is to give the court a discretion to set aside an order when it has been obtained by false evidence. In such a case the court will be extremely reluctant to exercise its discretion in favour of setting aside the order unless something more appears than that false evidence has been given and has procured the making of the order. The importance of bringing an end to litigation and the evil of allowing cases to be retried on the same evidence are powerful deterrents against setting aside a judgment whenever it appears that it has been obtained by false evidence without more.
In Scribe, the Full Court at [83] quoted Gee J in Rohde & Rohde (1984) FLC 91-592, at 79,770 who said:
It is in the public interest, that parties who have been the primary contributors to their own financial troubles in the way the husband has been in the case, should not be allowed to relitigate matters with a view to getting themselves out of those troubles.
Amongst other deficiencies in his case, the husband has not provided any evidence why he did not obtain more specific financial advice during the three days of negotiations leading up to the agreement reached between the parties. The failure to do so, is if that is what occurred, may be regarded as the husband being the architect of his own financial troubles, and would render it extremely difficult to persuade a court to exercise its ultimate decision to set aside the orders.
Queen’s Counsel for the wife submitted, and I agree, that if the husband’s application were not summarily dismissed, there is nothing of substance which would occupy a fresh final hearing. Both the experts reports have been filed with the court, and there is no necessity for any conference of experts, the wife has adopted the husband’s position that the property should be treated as an asset of the superannuation fund, and it is highly unlikely that the wife would be subjected to any further cross-examination. The issue of rectification was clearly before the Court at the time the consent orders were entered into. There can be no misunderstanding that everyone knew about potential rectification, stamp duty, land tax and other taxation issues which were embedded throughout the business structure of the parties.
In response to the Court’s question why the husband would not incur all of the costs of rectification, if he were to retain the property, as the title to the 1 N Property would still need to be rectified, Queen’s Counsel for the husband was unable to provide any response other than some consequences would only be enlivened if the property is extracted.
As stated by Kirby J in Lindon, the guiding principle in exercising discretion to summarily dismiss a proceeding is doing what is just. That principle must be considered in the context that applications for summary dismissal are sparingly and rarely granted and that the party seeking such relief must show that it is clear on the face of the opponent’s documents that the opponent lacks a reasonable cause of action.
In this matter, I have considered both grounds relied upon by the husband and am not persuaded that his ‘machinery’ provision argument has any reasonable likelihood of success. I have also reached the conclusion that the husband’s arguments to set aside the final property orders pursuant to s 79A(1) are without merit, are of his own making, would have little likelihood of success and demonstrate that there is no real question to be tried (Lysaght Building Solutions Pty Ltd (t/as Highline Commercial Construction) v Blanalko Pty Ltd [2013] VSCA 158). The wife has satisfied the requisite onus in seeking summary dismissal.
To permit the husband to proceed with his application would require the wife to expend considerable time, effort and legal fees to resist the application. I accept that if the husband were ultimately unsuccessful, the wife would likely seek an order for her costs, but unless she were successful in obtaining an order for indemnity costs, she would still be financially disadvantaged. She would also have to endure the stress and inconvenience of further proceedings, when she had rightly assumed the final property orders would have concluded the property dispute between the parties.
If the husband is unsuccessful, he will also incur further costs, which will no doubt be substantial, as both parties have engaged senior counsel, and he will also experience stress and disappointment at the end result. It would also relieve the court of the burden of further wasted time which could be devoted to the determination of claims which have legal merit (Lindon).
I have considered and weighed the submissions of both parties and for the preceding reasons, I cannot see any utility in the husband being permitted to pursue his current application and it would not be just to permit him to do so. The husband’s current application has a flavour of settlement remorse. The husband’s application should be summarily dismissed and I will make the appropriate orders.
There was one further issue raised by Queen’s Counsel for the husband which arises from the report of Mr BB. At paragraph 4.1 of his report annexed to his affidavit of October 2021, Mr BB purports to identify a deficiency in the orders as drafted, despite his expertise not being in family law. Queen’s Counsel for the husband attempted to link that rectification to his application both for variation of orders and the setting aside of the orders, despite his concession that there was no controversy that the orders required amendment to enliven rollover relief.
Queen’s Counsel for the wife submitted that the relevant orders could be amended pursuant to the slip rule, to make the amendment agreed by both parties and had no bearing on the husband’s applications before the court. I agree with that submission.
He foreshadowed an application under the slip rule, if the parties could not agree on the wording of a proposed minute, and that it would be appropriate to make directions to the lawyers to do so, if the husband’s application is summarily dismissed. I will therefore make orders directing the wife to provide an amended minute to the husband’s solicitors, within 7 days, with the husband to provide a response within a further 7 days of receipt of the proposed minute. If no agreement is reached, the party seeking to pursue the slip rule application will be required to make the application within a further 21 days from the date of service on the husband of the wife’s proposed minute.
I certify that the preceding ninety (90) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Williams. Associate:
Dated: 30 November 2021
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