Wellman and Wellman

[2014] FamCA 389

FAMILY COURT OF AUSTRALIA

WELLMAN & WELLMAN [2014] FamCA 389

FAMILY LAW – PROPERTY – Interim property settlement – Application pursuant to Section 80(1)(h) of the Family Law Act 1975 (Cth) – Husband seeks that the realisation of investment funds be equally divided between the parties – Consideration of the two-step approach in respect of interim property applications – Court satisfied just and equitable to make an order – Characterisation of funds to be paid or retained reserved

Family Law Act 1975 (Cth) ss 75(2), 79, 80(1)(h), 117(2)

Paris King Investments Pty Ltd v Rayhill [2006] NSWSC 578
Poletti & Poletti (unreported, Family Court of Australia, Nygh J, 2 March 1990)
Strahan & Strahan [2009] FamCAFC 166
Wilson & Wilson (1989) FLC 92-033
Zschokke & Zschokke (1996) FLC 92-693

APPLICANT: Mr Wellman

RESPONDENT: Ms Wellman

FILE NUMBER: SYC 4737 of 2013

DATE DELIVERED: 12 June 2014

PLACE DELIVERED: Parramatta

PLACE HEARD: Sydney

JUDGMENT OF: Hannam J

HEARING DATE: 2 June 2014

REPRESENTATION

COUNSEL FOR THE APPLICANT: Ms Clifford

SOLICITOR FOR THE APPLICANT: Barkus Doolan

COUNSEL FOR THE RESPONDENT: Mr Dura

SOLICITOR FOR THE RESPONDENT: York Law

Orders

1. Forthwith and by no later than seven (7) days upon receipt by the wife (or any other person or entity acting on the wife’s behalf) of any and all principal and interest payments by or through C Pty Ltd (or any associated entity in respect of the B development project), the wife shall pay to the husband such sum or sums which equal one half of all principal and interest repayments received by her, and the wife shall retain the balance.

2. In the event that the wife or any other person or entity acting on the wife’s behalf has already received repayment of any principal and/or any interest in respect of the investment made in her sole name with or through C Pty Ltd (or any associated entity in respect of the B development project), then within seven (7) days from the date of these Orders the wife shall pay to the husband, by way of cleared funds, such sum that is equal to one half of the total of all payments received by her (or any other person or entity acting on her behalf), and the wife shall retain the balance.

3. The characterisation of the sums to be received and/or retained by each party pursuant to Orders 1 and 2 be reserved to agreement between the parties or determination by the trial judge in the event of no agreement.

4. The wife shall notify, and keep the husband’s solicitors notified, in writing of the date upon which she is likely to receive and/or has received repayment of all principal and interest by or through C Pty Ltd (or any associated entity in respect of the B development project).

5. The wife shall provide to the husband’s solicitors, within two (2) business days of her receipt of the same, copies of all documents in relation to repayment to her of any and all principal and interest by or through C Pty Ltd (or any associated entity in respect of the B development project), including but not limited to such documents which verify the quantum of all funds to which the wife is, or has, become entitled.

6. The costs of and incidental to these proceedings be reserved.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Wellman & Wellman 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 SYDNEY

FILE NUMBER: SYC 4737 of 2013

Mr Wellman

Applicant

And

Ms Wellman

Respondent

REASONS FOR JUDGMENT

Introduction

1. The husband in proceedings with his former wife for a property settlement under s 79 of the Family Law Act 1975 (Cth) (“the Act”) seeks interim property orders as part of his respective entitlement at the time of the final hearing.

2. In particular, the husband seeks half of the principal and interest repayments related to an investment which was made in the wife’s sole name, over which the wife has sole control.

3. The wife opposes the order sought by the husband.

4. Being an interim application, the matter is determined on the basis of the uncontested facts alone.

The Uncontested Facts

1. The husband, who is 52, and the wife, who is 49, were married in November 1989 and had four children.  Two of the children are now adults and the other two are ten year old twins, who live with the wife and spend time with the husband.

2. The parties separated on a final basis in September 2011 on the husband’s case or July 2012 on the wife’s case, after a 22 year marriage.  In January 2013 the parties physically separated and began living in two separate households.

3. The wife commenced property settlement proceedings in August 2013.  The matter has been unable to be resolved by conciliation and is currently in a pool of cases awaiting allocation for a trial, which is estimated to take two to three days.

4. Prior to the conciliation conference the parties filed an agreed joint balance sheet of assets, liabilities and financial resources.  There is only one item, a boat, which is yet to be valued.  On the basis of the joint balance sheet the wife contends that the value of the net assets including superannuation of the parties is about $6,830,000, whilst the husband contends the net value is about $5,850,000.

5. The wife seeks a final property settlement that would have the effect of dividing the net matrimonial asset pool with 65 per cent to herself and 35 per cent to the husband.  The husband seeks a final property settlement that would have the effect of dividing the asset pool with 55 percent to the wife and 45 per cent to himself.

6. During the marriage the parties participated in lending investment schemes through a funds management company.  Together they lent $204,000 to the manager of the investment scheme and it is expected that their capital investment and interest will soon become repayable.  The investment funds were borrowed by the husband alone but the investment was made in the wife’s sole name for tax minimisation purposes.  Interest has accrued on the funds and it is anticipated that the wife will receive approximately $61,726 in interest payments when the investment matures.  In other words, the wife will receive a total of approximately $265,726, which will be available to her alone.

7. The funds used to raise the capital sum of $204,000 for the investment came entirely from a draw-down on a home loan/mortgage facility registered in the husband’s name, secured by way of a mortgage on the former matrimonial home, which is occupied by the wife and two minor children.  Since the date of separation the husband has been servicing all periodic payments in relation to the home loan account, which was the source of the investment funds.

8. The investment is included as an asset in the joint balance sheet prepared by the parties.

9. The wife brought an application for spousal maintenance, which was heard and dismissed in September 2013.

The Husband’s Application

1. The husband seeks orders that would see each of the parties receive an equal share in the investment funds by way of interim property settlement.  In his Application in the Case, the husband contended that he had concerns that the wife may dissipate the funds, though in submission the main argument was that he had insufficient funds to pay for his legal expenses and required access to the investment for that purpose.

2. So far as the husband’s financial position is concerned, it is his case that his average weekly expenses exceed his gross income from all sources by about $1,086 per week and that he funds the shortfall through draw-downs on lines of credit and loan facilities secured by way of mortgages on property owned by himself or both of the parties.  The wife disputes that there is a shortfall between the husband’s expenses and income and that he relies on credit.

3. The husband says that in addition to the outgoings he is required to meet by borrowings he must also pay his legal fees from borrowed funds, though this is also disputed by the wife.

4. The purpose of the interim property settlement sought by the husband is to pay the ongoing legal fees in the proceedings.  It is estimated by the husband’s legal representative that if the matter proceeds to hearing fees will be in the order of $65,000 to $85,000.  The crux of the husband’s case is that the investment, which is soon to mature, is the only significant cash resource that either party can use and that, without the orders, only the wife can access it.  It is his case that it would be a significant injustice to him if he were not able to access this money and that through this application he is seeking an equal opportunity to present his case.

5. The wife opposes the application essentially on the basis that she says she requires all of the investment funds for her current liabilities, including repayments of loans to family members, payment of tax and also as she experiences a shortfall between her weekly expenses and income.  The wife says she currently lives on child support and a Centrelink benefit and uses credit cards to meet her weekly expenses.  She also says she has borrowed money from family members to meet legal fees and that she also relies upon the residual of monies she withdrew from the parties’ offset account and prior savings.  The amount the wife withdrew from the offset account and the way in which it has been utilised is disputed by the husband.

6. So far as the wife’s legal fees are concerned, the cost disclosure letter of her  former solicitors dated 10 March 2014 indicated that it was estimated that the wife would likely incur further costs of around $75,000.  As I understand it, she now asserts that her costs will be in the order of $110,000.  The husband’s contention about the amount that has been utilised by the wife for the payment of her legal expenses is also a matter of dispute.

The Law and Discussion

1. It was observed in Paris King Investments Pty Ltd v Rayhill[1] that there are a number of juridical bases for an order.  The Full Court in Zschokke & Zschokke[2] had observed that there was some uncertainty as to the source of jurisdiction to make the orders of the type sought but were of the opinion that the decisions in Wilson & Wilson[3] and Poletti & Poletti[4] established that where there are pending proceedings under s 79 of the Act for property settlement, and order for funds for litigation expenses may be made pursuant to s 80(1)(h) or s 117(2).

   [1] [2006] NSWSC 578

   [2] (1996) FLC 92-693

   [3] (1989) FLC 92-033

   [4] (Unreported, Family Court of Australia, Nygh J, 2 March 1990)

2. In Strahan & Strahan[5] at [84] the Full Court said:

   In Paris King Investments Brereton J, with whom on this point we agree, at [30] said that Zschokke “establishes that it is important, when contemplating an order for interim provision for litigation expenses, to identify the relevant source of power because it is the source of power that determines the necessary preconditions and relevant considerations for making the order”.

   The Full Court went on to say at [86]:

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

   [5] [2009] FamCAFC 166

3. This application is based upon s 80(1)(h) utilising s 79 or alternatively s 117.

At two-step process

1. According to Strahan (supra) where the power is to be exercised pursuant to s 80(1)(h) a two-stage approach is to be taken to the hearing of an application. The Full Court said at [118]:

   … This is recognised by the fact that although the power under s 79 should ordinarily be exercised on a once only basis, “circumstances may arise before there can be a final hearing” where the power is exercised. 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.

2. So far as the first step is concerned, it is settled in Strahan (supra) that the Applicant is not required to establish that there are compelling circumstances at the time for making an order for interim property settlement.  The test so far as the exercise of the power is concerned is that it be an appropriate case in order to do justice.

3. In this case it is submitted that as the husband requires the funds to pay the costs of the litigation it would be an injustice to him if he did not have equal opportunity to access the available funds.

4. Further, it is not in dispute that the order sought (that each party receive $130,000) would not result in the Applicant receiving “more than [he] would be indubitably entitled to on a final hearing”.[6]  This was observed to be a relevant matter in Strahan (supra) at [136] when the Court said:

   … We accept the submission and observe that this matter is relevant because the discretion conferred by the power in s 79 is to make such order as the Court considers appropriate provided it is just and equitable to make the order in circumstances where the power will not be exhausted by the interim order. As Bryant CJ and Coleman J observed in Gabel v Yardley at [69] and [72] the interim order must be capable of variation or reversal without resort to s 79A of the Act or appeal. …

   [6] Strahan (supra) at [136], as identified by the Full Court in Harris & Harris (1993) FLC 92-378.

Is it appropriate to exercise the power to do justice between the parties?

1. So far as the first step is concerned, other relevant matters relied upon by the Applicant are that the wife only will soon receive the proceeds of the investment, that the source of the funds for the investment was a loan obtained by the husband alone and that there is no dispute that the investment is an asset of the parties.  It is submitted that a significant injustice would arise for this money to remain in the pool until the final hearing when it could be accessed to give the parties an equal opportunity to present their respective cases.

2. In opposing the making of an order it was submitted on behalf of the wife that, although the Applicant need not establish compelling circumstances for the making of an order, the Applicant must still convince the Court to exercise the discretion.  In opposing the exercise of the discretion, submissions were made on behalf of the wife concerning the husband’s contentions about the extent to which he has been required to borrow funds and pay additional interest, and casting doubt upon the husband’s evidence concerning his financial position generally.

3. In particular, it is submitted by the wife that the husband has significant other funds available to him for the payment of legal fees and that he should utilise those funds rather than use the investment funds for that purpose.  However, whether or not these funds are available to the husband and whether they are themselves borrowed funds, is a matter of dispute between the parties.

4. Central to the husband’s contention that he requires access to the investment funds for the purpose of paying legal fees is that his expenses exceed his income, that he is required to borrow funds to meet the shortfall and that he should not need to borrow further funds to pay his legal expenses when the investment funds are available. 

5. The wife also contends that she does not have sufficient capital to meet her expenses and that she should be able to retain the whole of the investment funds to pay tax on the interest, a loan to her sister, debts from former solicitors for legal fees, credit card bills and everyday expenses which exceed her income.

6. One of the difficulties with each of the parties’ positions is that many of these submissions are based upon disputed facts.  In particular, the relative financial positions of each of the parties and whether the husband has access to income other than borrowed funds are matters of significant dispute.

7. This is not a matter which may be typically encountered when the discretion is sought to be exercised, where the Respondent controls the bulk of the assets and funds of the parties and the order may be needed to ensure that the Applicant, who does not control the funds, has at least an equal or near equal opportunity to present his or her case.  In this matter, although it could not be said that the Applicant wife controls the bulk of the assets of the parties on the uncontested facts, the wife alone will shortly come to control a significant cash resource.

8. It is also undisputed that each of the parties will incur significant further costs in the proceedings.  Further, as indicated, there is no dispute that the amount sought will not exhaust the assets of the parties.  There is also no doubt that the Respondent will be able to meet her own litigation costs from the $130,000 that will be available to her if the orders are made.

9. Finally, so far as the legal costs are concerned, the husband has annexed the costs agreement with his solicitors and there is no suggestion that his application lacks bona fides in the sense of being used as a means to obtain funds for some other purpose.

10. On the basis of each of these undisputed facts, in my view it is appropriate for the power to be exercised in order that a just and equitable result may be achieved before the final hearing of the matter.

The second step

1. Having determined that the jurisdiction under s 79 should be exercised, I am required to undertake a consideration of the matters in s 79(4), including the s 75(2) matters. However, in Strahan (supra) it was observed at [137] that:

   … consideration of such matters may be brief and if it is established that “it seems likely to the Court that … the applicant … will be likely receive (sic) by way of property settlement a sum sufficient to cover the advance, that would seem to be sufficient to enable the order sought to be made”. …

2. In this matter, it is the wife’s contention that the husband is entitled to 35 per cent of the net assets including superannuation. She sets out her submissions in relation to the s 79(4) and s 75(2) factors which would support a division in these proportions. As noted, the husband contends that he should receive 45 per cent of the net assets including superannuation.

3. Taking the wife’s case at its highest, the husband’s share (35 per cent of the net assets) would still greatly exceed the sum he seeks by way of interim payment. 

4. Being satisfied on the undisputed facts that the husband is required to meet ongoing legal costs, that there is a significant cash resource soon to become available to the wife only, that the wife will be able to meet her legal costs from the sum to be paid to her under the order and that the amount to be paid will not exceed the final settlement, in my view, it is just and equitable to make the order sought.

5. The orders that I make are in the terms of the husband’s application with two exceptions. I have declined to characterise the sums to be paid to the parties as part of each party’s respective entitlement to property settlement as in the circumstances of an interim application, I am of the view that this characterisation should be reserved to later agreement or determination by the trial judge.  I have also reserved the application for costs to later agreement or at trial.

6. Accordingly, the orders I make are those set out at the forefront of these reasons for Judgment.

I certify that the preceding forty-two (42) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Hannam delivered on 12 June 2014.

Legal Associate:      

Date:   12 June 2014