Zouh and Gorbold and Anor

[2019] FamCA 377

FAMILY COURT OF AUSTRALIA

ZOUH & GORBOLD AND ANOR [2019] FamCA 377

FAMILY LAW – PROPERTY – Where the wife seeks to set aside a transfer of property under s 106B of the Family Law Act 1975 (Cth) – Where neither the husband nor the wife has any property of significant value – Where the wife contends that the transfer defeated her ability to seek a property settlement under s 79 of the Family Law Act 1975 (Cth) – Where the husband transferred his interest in the property to his daughter for a nominal amount – Where the husband and daughter contend that the transfer was for the purpose of satisfying significant debts incurred by the husband to the daughter – Where the husband and daughter seek to have the wife’s application dismissed – Where the Court was not satisfied that the transfer was made in anticipation of a property order being made in favour of the wife – Wife’s application dismissed.

Family Law Act 1975 (Cth) ss 75, 79, 106B
Legal Profession Act 2004 (NSW) ss 309, 319

Commissioner of Taxation & Worsnop & Anor (2009) FLC 93-392
Heath & Heath; Westpac Banking Corporation (Intervenor) (1983) FLC 91–362
Heath & Heath (No. 2) (1984) FLC 91–517
In the Marriage of Pflugradt (1981) FLC 91–052

APPLICANT: Ms Zouh

FIRST RESPONDENT: Mr Gorbold

SECOND RESPONDENT: Ms Gorbold

FILE NUMBER: SYC 1569 of 2015

DATE DELIVERED: 7 June 2019

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Johnston J

HEARING DATES:                 7 and 8 February 2018

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Jackson

SOLICITOR FOR THE APPLICANT: M J Woods & Co

FOR THE FIRST RESPONDENT: Ms Gorbold in person

COUNSEL FOR THE SECOND RESPONDENT: Mr Lethbridge SC

SOLICITOR FOR THE SECOND RESPONDENT: Pearson Emerson Meyer Family Lawyers

Orders

1. That the Amended Initiating Application filed by Ms Zouh on 26 February 2016 be dismissed.  

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

IT IS NOTED that publication of this judgment by this Court under the pseudonym Zouh & Gorbold and Anor has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

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

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER:  SYC1569 of 2015

Ms Zouh

Applicant

And

Mr Gorbold
First Respondent

And

Ms Gorbold

Second Respondent

REASONS FOR JUDGMENT

Introduction

1. Mr Gorbold (“the husband”) and Ms Zouh (“the wife”) met in 2004, were married in Sydney in 2007, commenced cohabiting in 2005 and separated on a final basis on 3 November 2012.

2. The husband has children from a previous relationship, of whom Ms Gorbold was born in 1985 and is currently 34 years of age.

3. There is one child of the marriage, Y born in 2007 and currently aged 11 years.  On 5 September 2014 final orders were made in respect of parenting arrangements for Y.

4. On 12 March 2015 the wife commenced property proceedings in the Federal Circuit Court.  Ms Gorbold was joined to the proceedings as the second respondent.  On 29 August 2016 the matter was listed for hearing in the Federal Circuit Court but could not proceed due to the illness of counsel for the wife.  The proceedings were transferred to this Court.

5. The matter primarily concerns whether the wife is able to achieve a property settlement.  The husband and wife have no property of significant value.  But the husband has previously owned real estate as will be seen below.  In mid-2009 the husband and Ms Gorbold purchased the property at J Street, Suburb G NSW, Folio Identifier … (“J Street”) as tenants in common in equal shares.  On 10 June 2014 the husband transferred his interest in J Street to Ms Gorbold for $1.  The husband and Ms Gorbold contend that this was in repayment of monies owed by the husband to Ms Gorbold.

Applications

1. The wife is seeking an order that the J Street transfer be set aside pursuant to s 106B(1) of the Family Law Act 1975 (Cth) (“the Act”).

2. The husband is self-represented.  He has not filed a response or case outline in these proceedings.  But it is clear that he seeks an order that the wife’s application be dismissed.

3. Ms Gorbold seeks orders for the wife’s application to be dismissed and for the wife to pay her costs.

Background

1. The husband was born in 1956 and is therefore 63 years of age.  The wife was born in 1978 at K Region in China and is therefore 40 years of age. 

2. In October 2004 the husband and the wife met at a party in City L, China.

3. In March 2005 they began living together in China.

4. In May 2005 they became engaged.  At the time of the engagement the husband was the owner of H Pty Ltd and the managing director of M Pty Ltd in City L.  The businesses were involved in the supply of health products.  The wife did not own any property of significant value.

5. In mid-2006 the husband purchased the property at N Street, City R, Queensland.

6. In 2007 the husband and the wife were married in Sydney.

7. In 2007 Y was born.

8. From 22 September 2008 to 15 December 2008 the husband paid to Ms Gorbold a series of payments that totalled $32,400.  In September 2004 Ms Gorbold had undertaken a one year exchange program at Q University as part of her study for her Degree.  She said that her father had agreed to pay for her accommodation and living costs but did not have the funds available to do so at the time but promised to pay later.  So Ms Gorbold took out a loan for this purpose with the National Australia Bank (“the NAB”).  There was an issue about this matter.  Ms Gorbold was cross-examined about the circumstances of the loan.  It is true that there is no evidence in written form before the Court about this arrangement.  But I regard Ms Gorbold to have been an impressive witness and accept her oral evidence about this matter.  I accept that these payments were to reimburse Ms Gorbold for the loan she had taken out with interest when studying at Q University in 2004.  I also accept that Ms Gorbold’s loan with the NAB was repaid in the context of her arranging F Street, Suburb G.

9. From November 2008 to February 2010 the husband paid to Ms Gorbold payments which totalled $8,490.30.  I accept Ms Gorbold’s contention that these payments were to reimburse her for payments she had made on the husband’s behalf.

10. In late 2008 Ms Gorbold purchased Suburb G for $435,000.  The wife asserted that the husband purchased this property.  I am satisfied that the husband has never owned an interest in this property.  Ms Gorbold took out a home loan of $425,000 with the Commonwealth Bank of Australia (“CBA”) to finance the purchase.  She also received the First Home Owner Grant of $7,000 and used a Deposit Power Guarantee for the deposit of $43,500.

11. On 4 December 2008 Ms Gorbold became a director of H Pty Ltd.  She was a director until 9 December 2009.

12. On 15 January 2009 the husband purchased the property located at  F Street, Suburb G (“Suburb G”) for $950,000.

13. On 25 March 2009 Ms Gorbold arranged with the CBA to borrow a “top up” amount of $60,000 on her home loan on Suburb G.  These funds were used for renovations on Suburb G.

14. In March 2009, J Street was purchased for $965,000 by the husband and Ms Gorbold as tenants in common in equal shares.  The purchase was financed through a Deposit Power Guarantee Bond for the deposit, a loan with CBA for $985,000 and $22,084.30 provided by the husband for stamp duty and other settlement expenses.  This property was rented out to third parties from the time of purchase until June 2011.  Then the husband and the wife moved into the property in July 2011.  The husband paid rent of $3,476.20 per month direct to the joint account of his daughter and himself over the period from 23 August 2011 to 30 April 2012.

15. The rental payments received for J Street were less than the mortgage repayments.  The husband and Ms Gorbold paid the shortfall in equal shares.

16. On 11 August 2009 the husband and Ms Gorbold entered into a Deed of Acknowledgment of Ownership of Property setting out their agreement that expenses would be shared equally and that they would be entitled in equal shares to all rent and income derived from the property.

17. On 8 December 2010 Ms Gorbold borrowed $5,000 from a joint CBA account she had with the husband for financial management of J Street.  On 21 April 2011 she repaid $2,500 to this account.

18. On 9 December 2010 Ms Gorbold borrowed $4,812.50 from the husband for renovations to Suburb G.  On 5 January 2011 Ms Gorbold repaid $2,000.  On 3 February 2011 Ms Gorbold repaid a further $2,800 to the husband.

19. In 2011 the husband began paying the wife $5,000 per month for work she performed for H Pty Ltd.

20. In early 2011 the wife travelled to China at the request of the husband to assist in H Pty Ltd’s operation.  There was a difficulty with certain products not having cleared Customs.  The wife was able to achieve the release of the products from Customs.  But shortly thereafter, H Pty Ltd lost its main source of revenue.

21. On 23 April 2012 the wife travelled with Y to China to make arrangements to close down H Pty Ltd. 

22. In May 2012 H Pty Ltd ceased to operate and the husband lost his source of income.  The wife no longer received the income she had been receiving from H Pty Ltd.

23. From May 2012 to April 2013 the husband did not pay the monthly rent of $3,476.20 for residing in J Street.

24. In June 2012 the wife began working as an allied health provider four days per week and received about $100 per week.

25. In July 2012 the mortgage on J Street went into arrears.  The husband applied, and was successful in arranging, for the CBA to reduce the repayments on this mortgage due to his financial hardship.  I accept that Ms Gorbold was unaware of this application and the change occurred without her consent.  The only mortgage payments made between May and December 2012 were made by Ms Gorbold.

26. In October 2012 V Company commenced proceedings against H Pty Ltd in the District Court of New South Wales (“the H Pty Ltd proceedings”) to recover an alleged debt of EUR132,221.  At the time the husband was the sole director and shareholder of H Pty Ltd.  The husband initially retained W Lawyers to represent him and H Pty Ltd in those proceedings.  He paid some of their invoices.  But from approximately July 2013 Ms Gorbold’s legal firm B Pty Ltd commenced to act for H Pty Ltd.  Subsequently H Pty Ltd was represented by T Lawyers.

27. On 3 November 2012 the parties separated on a final basis.

28. On 23 November 2012 the City R property was sold for $300,000.  The home loan of $249,403.38 was discharged.

29. In November or December 2012 the wife left J Street with Y.  The husband remained living at J Street.

30. In December 2012 the wife ceased working as an allied health provider.

31. At approximately this time the husband and Ms Gorbold put J Street on the market for sale. A couple of offers were received but Ms Gorbold and the husband considered them too low to accept.

32. In February 2013 a default notice was sent to the husband and Ms Gorbold in relation to the mortgage on J Street.  At the time the arrears of the loan were $40,681.06.

33. In February 2013 Ms Gorbold made a complaint to the Financial Ombudsman Service in relation to the changes that were made to the mortgage on J Street in July 2012 without her consent.

34. In April 2013 the husband vacated J Street.  Ms Gorbold paid for the painting and cleaning of the property prior to new tenants moving in.

35. On 13 April 2013 an independent third party tenant commenced renting J Street for $3,900 per month for a one year term.  The rent was paid into the joint account with the CBA in the names of the husband and Ms Gorbold.

36. On 3 June 2013 the husband sold Suburb G for $1,102,600.  The wife had asserted that the husband received $110,260 from the proceeds of sale but I am satisfied this was incorrect.  Following the sale the sum of approximately $43,000 was used by the husband to pay outstanding tax liabilities, accountants’ and lawyers’ fees and enabled him to move into rental accommodation.  The sum of $137,621.15 was applied to the mortgage on J Street.

37. Ms Gorbold calculated that in order to meet her obligations under the co-ownership agreement she needed to contribute the equivalent funds to the mortgage on J Street.  As the outstanding rent that the husband was required to pay was $41,714.40 at the time, Ms Gorbold considered that she would be required to pay $95,906.75 ($137,621.15 - $41,714.40 = $95,906.75).  Ms Gorbold agreed to pay some of the husband’s expenses as part of this payment.  This included legal expenses to Ms Gorbold’s legal firm, B Pty Ltd.  Ms Gorbold is the owner and director of B Pty Ltd.  

38. On 10 July 2013 B Pty Ltd began to act for the husband in the proceedings between V Company and H Pty Ltd.  Ms Gorbold contends that from 17 July 2013 to 31 August 2015 the professional fees and expenses incurred by the husband for work completed by B Pty Ltd amounted to $221,193.16.

39. On 19 December 2013 the dispute with the CBA relating to the Financial Ombudsman Service complaint was settled.  The settlement resulted in some rebates to the mortgage, refund of interest and refund of monthly fees.

40. In December 2013 the wife commenced to cohabit with Mr S.

41. In approximately February/March 2014 Ms Gorbold informed the husband that the cost of the legal services which her firm had been providing to him, together with personal expenses she had paid on his behalf, were getting close to the $95,906.75 adjustment which she regarded was required to meet her obligations under the co-ownership agreement.  She informed the husband that if he wanted her and her firm to continue to represent him she would continue to invoice him and whatever was owing by him would be applied against his equity in J Street.  The husband agreed.

42. A draft Funding Agreement was prepared between Ms Gorbold and her firm on the one hand and the husband and H Pty Ltd on the other hand setting out this agreement.  I am not sure when this was prepared but, in any event, it was never signed.

43. It is the case, however, that Ms Gorbold prepared regular spreadsheets setting out legal fees and other expenses incurred by her and her firm which she and the husband agreed would be applied against the husband’s equity in J Street.

44. In May 2014 the CBA obtained a valuation of J Street for the purposes of refinancing the mortgage.  This valuation was $1,200,000.

45. As indicated above, on 10 June 2014 the husband transferred his interest in J Street to Ms Gorbold for $1.  At the time the property was transferred the home loan was $898,851.76.  The equity in the property was $301,148.24 based on the previous valuation by CBA.  The husband’s equity in the property was one half of this amount and therefore $150,574.12.

46. Sometime between April and August 2014 during a conversation with the husband Ms Gorbold referred to the fact that his equity in J Street was diminishing quickly and she asked him what he wanted her to do about J Street.  He informed her that he wanted her to continue to act for him in the H Pty Ltd proceedings and his family law matter.  He agreed to transfer his interest in J Street for nothing on the basis that she would continue to act for him and H Pty Ltd.

47. Ms Gorbold contends that on 11 August 2014 she calculated that the husband owed $54,971.69 to her and $172,485.48 to B Pty Ltd for assistance in the H Pty Ltd proceedings.  Ms Gorbold states that subtracting the amount of $95,906.75 (which she owed on the mortgage as referred to above), the husband owed $131,550.42.  On this basis the husband’s equity in J Street was $19,023.70 at the time of the transfer.  But Ms Gorbold said that she subsequently realised that she had omitted some invoices which had not been included in the spreadsheets she used to arrive at the amount of $172,485.48 which she said had been owing by the husband to B Pty Ltd.  She said that the actual amount was $190,471.06 and that this had the effect of reducing his equity in J Street at the time of transferring his interest to her, this being $1,038.12.

48. On 11 August 2014 Ms Gorbold paid $27,450 in stamp duty on the husband’s 50 per cent interest in J Street.

49. As indicated above, on 5 September 2014 final orders were made in respect of the parenting arrangements for Y.  Under these orders the parents have equal shared parental responsibility for Y and have an equal time shared residence arrangement.

50. On 17 October 2014 the wife became an Australian citizen.

51. In June 2015 T Lawyers began representing the husband in the H Pty Ltd proceedings which had been transferred from the District Court to the Supreme Court of New South Wales.  B Pty Ltd has paid all fees on behalf of the husband and H Pty Ltd.  T Lawyers’ fees were $78,751.99, including counsel’s fees.  B Pty Ltd’s additional fees were said to be $48,713.89.  This is a total of $127,465.88 which Ms Gorbold said she has provided to the husband since the transfer of his interest in J Street in June 2014.

52. In October 2015 the H Pty Ltd proceedings were settled.

53. On 21 December 2015 the wife leased a property at X Street, Sydney NSW 2000.

54. In January 2016 the wife was on a Centrelink Newstart Allowance receiving approximately $710 each fortnight.

55. On 19 March 2016 H Pty Ltd was deregistered.

Credit

The wife

1. The wife was not always responsive to questions during cross-examination.  English is her second language and she had the assistance of an interpreter.  Even allowing for this, the wife was somewhat vague in her responses.  But to be fair, she said that the husband was the person responsible for financial matters during the marriage.

2. I have reservations about the reliability of her evidence.

The husband

1. The husband was reasonably responsive to questions.  But he demonstrated a poor recollection for details, including financial details, which I would have expected him to be familiar with as the person who had operated the business and been involved in numerous significant financial transactions.

Ms Gorbold

1. Ms Gorbold is the husband’s daughter and the second respondent.  She is a practising lawyer.  She was forthright and articulate.  Ms Gorbold demonstrated an excellent recollection for details.  Her affidavit was supported by several volumes of annexed documents.

2. I have no hesitation in regarding Ms Gorbold as a witness of the truth.

The wife’s case

1. The submissions on behalf of the wife were to the following effect.

2. The husband and Ms Gorbold exchanged monies between them on numerous occasions.  For example, in 2010, Ms Gorbold sought $4,600 from the husband for renovations to Suburb G notwithstanding that she had resigned as a fee earning director of H Pty Ltd because she did not need the money anymore.

3. There is no issue that the transfer in 2014 of the husband’s interest in J Street was conducted unilaterally and secretly by the husband away from the wife’s knowledge.

4. It is not clear what the husband’s indebtedness was at the time of the transfer and the evidence about this was not in satisfactory form.  The wife was denied any input to determine what the husband’s equity in J Street was.  The wife had no opportunity to ascertain the value of the property and does not have the means to obtain a historical valuation.

5. The wife has been presented with the situation where there is no property left in relation to which a s 79 order could be made in her favour. So there is no doubt that the transfer has had the effect of defeating any interest the wife had in an anticipated property order because there is now no property left.

6. The rights of a legitimate third party creditor do not necessarily “trump” the rights of the wife.  There is no question that prima facie the wife was entitled to share in the property that remained.

7. In determining whether the wife could establish that she anticipated an order the Court would apply common sense.  True it is that at the time of transfer the parties were embroiled in parenting proceedings, no divorce order had been made so there was no question about the need for leave to file property proceedings out of time.  But the wife knew that the husband owned property so she would have a reasonable expectation that she would have a right to some property.

1. Ms Gorbold knew upon the husband transferring his interest in J Street that there would not be any property in respect of which an order could be made in favour of the wife. Accordingly, there was an intention on her part and that of the husband that by the husband transferring his interest in the property, this would defeat an anticipated property order. This weakens Ms Gorbold’s position pursuant to s 106B(3).

2. There is uncertainty about how much was owed to Ms Gorbold by the husband and whether the claimed liability to her by the husband was properly enforceable, particularly bearing in mind the requirements of the Legal  Profession Act 2004 (NSW). Ms Gorbold said that she provided a costs disclosure document to the husband although this was not clear from the evidence. Ms Gorbold has not complied with the requirements of ss 309 and 319 of the Legal Profession Act 2004 (NSW) although this might be more relevant to the s 79 proceedings.

3. In any event, caution must be exercised in assessing whether alleged debts between family members are enforceable.  Ms Gorbold has engaged in “cherry picking” alleged liabilities and these are “all over the shop” in terms of what might be legitimate debts.  These are matters for trial.

4. When the Court comes to consider s 75(2)(ha), that is, “the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt, so far as that effect is relevant” the Court would not elevate the position of the creditor over that of a spouse.  Ultimately the Court is to make an order which is just and equitable.  As the Full Court said in Commissioner of Taxation & Worsnop & Anor (2009) FLC 93-392 the requirement in s 79(2) that an order not be made unless it is just and equitable to do so does not mean that an intervening third party creditor acquires by intervention some rights based on s 79(2) for a just and equitable remedy that are additional to the creditor’s other rights at law.

5. What has occurred in this case is that because of the transfer, the wife’s ability to obtain a property order has gone and this is most unfair.

The second respondent’s case

1. The submissions on behalf of the second respondent were to the following effect.

2. If the wife is unsuccessful in these proceedings, she is of such modest means that she has no prospects of meeting her legal fees or any costs order in the event that she shall fail in her application.  Her lawyers are representing her on a speculative basis which is highly inappropriate because there can be no case which would ever generate a single dollar for her.

3. The husband, along with some assistance by the wife, had developed the successful H Pty Ltd business.  This provided the parties with a reasonably affluent lifestyle which included the acquisition of three properties.  In April/May 2012, the H Pty Ltd business failed and ceased to operate.  The husband lost his income source.  In November 2012 the City R property was sold and almost the entirety of the sale proceeds were paid to the CBA to discharge the mortgage leaving approximately $5,000 to the husband.  The husband endeavoured to find employment but only worked for a period of between one month to six weeks.  He made numerous other job applications but was unsuccessful.  He undertook some casual work.  He appears to have no assets, his income includes government benefits and he is a major carer for the parties’ daughter, Y.  Accordingly, neither the wife nor the husband appear to have any capacity for meeting any legal fees if the matter were to go forward.

4. In June 2013 the husband sold Suburb G after paying the mortgage and applying the $137,621 to the J Street mortgage, the husband applied the modest balance to pay debts.

5. It was not contended by the wife that the H Pty Ltd litigation was other than properly engaged in.  At approximately the time of separation H Pty Ltd was subject to a claim for approximately EUR132,000.  What choice did the husband have other than to endeavour to defend the claim.  The defence involved significant cost.

6. Legal fees owed by the husband to the second respondent in respect of the H Pty Ltd litigation are $318,111 and his outstanding family law fees to the second respondent are $35,154.  In addition the second respondent contends that the husband owes her $41,714 for net rental loss in respect of the J Street property.  The second respondent also contends that the husband owes her a total of $111,591 in respect of H Pty Ltd debts she has paid on his behalf and $43,118 being rental/mortgage loss paid by her on the husband’s behalf.  The second respondent contends that the husband owes her total outstanding liabilities of $515,971.  And in the event that the transfer was set aside she would contend that these debts would be required to be brought into account as against whatever equity there was in the J Street property.

7. The wife asserts that the J Street property has a higher value than the $1.2 million valuation by the CBA at the time of transfer.  The proper time for any such valuation is now.  There is nothing to indicate that either party has the funds to obtain a valuation.

8. In relation to the requirements of s 106B(1) Ms Gorbold concedes that there are proceedings under the Act and that there has been a disposition. The wife cannot satisfy the requirement for an anticipated order in the proceedings. This is because there had to be clear evidence at the time of the transfer that there was property which could form the basis of an anticipated order. The only property at the time was the husband’s interest in J Street but the level of his liabilities was such as to result in there being no net property. The wife knew about this situation because the parties had been involved in parenting proceedings. The wife knew of the sale of the City R property, the fact that the H Pty Ltd business had failed and she was well aware of the financial difficulties of the husband.

9. Accordingly the wife’s case falls at the first hurdle.

10. However if the Court takes a different view and is satisfied about the requirement for an anticipated order, the issue then becomes whether there is any utility in making the s 106B(1) order, particularly taking into account the interests of Ms Gorbold pursuant to s 106B(3) of the Act.

11. It might be tempting to speculate that the J Street property might now have a higher value than at the time of transfer.  However the Court cannot make findings on the basis of speculation and can only do so on proper evidence. There is no such evidence.

12. Simply because the second respondent is the husband’s daughter does not mean her character as a third party is somehow lost.  The Court is required to have regard to the interests of Ms Gorbold and cannot ignore the liabilities of the husband to Ms Gorbold.

Discussion and Conclusion

1. Subsection 106B(1) of the Act provides as follows:

   In proceedings under this Act, the court may set aside or restrain the making of an instrument or disposition by or on behalf of, or by direction or in the interest of, a party, which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.

1. Subsection 106B(3) of the Act provides as follows:

   The court must have regard to the interests of, and shall make any order proper for the protection of, a bona fide purchaser or other person interested.

2. There is no issue that the transfer by the husband of his interest in J Street to Ms Gorbold is a disposition which would be capable of being set aside pursuant to s 106B(1) if the Court considered it appropriate to do so.

3. The next question which arises is whether the disposition was made to defeat an existing or anticipated order or which, irrespective of intention, is likely to defeat any such order.

4. As indicated above, it was submitted on behalf of the wife that the Court could conclude that the transfer was made to defeat an anticipated order. This was on the basis that both the husband and Ms Gorbold had reason to think that the wife would file an application seeking a property settlement against the husband. It was submitted that in those circumstances the Court would be less inclined to treat the second respondent favourably when it came to consider the position under s 106B(3).

5. It is the case that at the time of the disposition, Ms Gorbold was acting for the husband as his lawyer in his family law parenting proceedings in the Federal Circuit Court and in the H Pty Ltd proceedings in the District Court of New South Wales.  There were no property proceedings on foot at that time but Ms Gorbold had a detailed knowledge of the husband’s financial circumstances, particularly because, at least to some extent, their financial affairs were enmeshed and she said he owed her a lot of money.

6. For reasons which will become clear, I propose to move on and consider whether or not the second respondent and the husband might have anticipated the making of a property order in favour of the wife.

7. As indicated above, it was submitted on behalf of the second respondent that the requirement for an anticipated order has not been satisfied in this case. 

8. Both counsel referred to the decision of Elliott J in In the Marriage of Pflugradt (1981) FLC 91–052 where his Honour said that the section requires an order to be anticipated, not merely a claim. His Honour gave some detailed consideration to the meaning of “anticipated” in this context, albeit in relation to the earlier form of s 106B which was s 85. At p 76, 430 his Honour said:

   …it is not a question of whether (the person making the disposition) expected or foresaw a subsequent property application by (the applicant) and “anticipated” an order being made, but whether considering all of the circumstances at the time of the disposition such an application by (the applicant) at some time, with a consequent order, was objectively to be foreseen or to be expected by (the person making the disposition) as being likely or reasonably probable.

9. In the present case, at the time of the disposition, the husband and the wife had cohabited for approximately nine years and they had a daughter, then approximately six years of age.  The husband had conducted business and the wife had undertaken work in the business and outside.  The husband owned an interest in the J Street property.

10. In my view, if these were the only relevant facts, the husband and Ms Gorbold, looking at such circumstances objectively, would consider it likely or reasonably probable that a property application would be made.  But in my view, the wife’s case falls at the next requirement.  This is that not only is it necessary for her to demonstrate it to be likely or reasonably probable that a property application would be made but also the wife as applicant, must demonstrate that it is likely or reasonably probable that a consequent order would be made.  Otherwise there would be no point to s 106(B)(1).

11. I must say I am far from persuaded that a property order would be made in favour of the wife.  As indicated above, true it is that the husband has owned a half-share in J Street as tenant in common with Ms Gorbold.  But he has significant liabilities and was embroiled in litigation in respect of which it is clear that he was incurring considerable legal costs.

12. What has happened in this case, in my view, is that the source of income for the husband and the wife was brought abruptly to an end with the loss of H Pty Ltd’s main stream of income.  There is no question that the wife knew this because she was involved in the shutting down of its business operation in City L.  Within a short space of time, as I have said, the husband did not have the funds to pay the rent on J Street and either the entirety of the mortgage repayments would have to be serviced by the second respondent or inevitably the bank would foreclose.  In my view, it was quite reasonable for the second respondent to continue to have the expectation that the husband would continue to pay rent which would be available to service the mortgage and outgoings on J Street.  On this basis, in my view, the rental arrears must be regarded as a legitimate liability.

13. It is clear that the husband was drawn into the H Pty Ltd litigation and the claim against it appears to have been substantial.  As submitted on behalf of the second respondent what choice did the husband have other than to endeavour to defend the claim.  The alternative would have been a judgment in the amount sought and the only source to fulfil any judgment would have been the husband’s interest in J Street.  Attack was made on the quality and reasonableness of the legal services provided to the husband and H Pty Ltd by the second respondent.  In my view, there can be no question that the second respondent sustained costs in representing the husband and H Pty Ltd.  She also paid what appeared to be most of the costs of the other solicitors involved in the proceedings.

14. As indicated above, a few weeks prior to the transfer of the husband’s interest in J Street, a valuation obtained by the CBA placed the value at $1.2 million.  The outstanding mortgage balance was $898,851 leaving an equity of $301,149.  The husband’s one half share would come to $150,575.  But this does not take into account money owed by the husband to Ms Gorbold.  As I have said he incurred rental arrears in excess of $41,000.  I accept that, in addition, he owed money to Ms Gorbold’s legal practice arising from costs of the practice in acting for him in the litigation between V Company and H Pty Ltd.

15. What the actual amount of legal costs owing at the time of the transfer was, is not entirely clear to me.  Ms Gorbold contends that between July 2013 and August 2015 her professional fees and expenses for work performed in the litigation came to a total of $221,193.  Ms Gorbold annexed to her affidavit a copy of invoices and time sheets for the period from 17 July 2013 to 8 June 2014 prepared by her legal practice and addressed to H Pty Ltd in relation to the V Company proceedings.  The total legal costs and disbursements reflected for the period is $166,619.62.

16. As indicated above, counsel for the wife is critical of Ms Gorbold’s contentions about her claimed legal costs and other alleged liabilities.  He submitted that there are questions about the enforceability of the alleged liabilities and, that in any event, the Court would be cautious to accept alleged liabilities between family members.

17. As I have said, I regard Ms Gorbold to have been an impressive witness.  She has also supported her depositions with a multitude of detailed relevant documents.  In relation to her legal costs claimed, it might be that on a taxation of costs, the total claimed might be reduced.  I note however, that the hourly rate claimed, namely $242, appears to be modest by comparison with amounts which this Court sees commonly.  In addition, Ms Gorbold claims to have financially contributed in relation to the husband or Y amounts totalling $9762.60 over the period between July and December 2013.

18. In all these circumstances, my clear view is that it is more probable than not that as at June 2014 when the transfer of the husband’s one half interest in J Street to Ms Gorbold took place the value of his interest, taking account of money he owed to Ms Gorbold, would have been negligible or less.  And in my view, in circumstances where proceedings had been instituted against H Pty Ltd seeking a significant amount it was reasonable for the husband to engage lawyers, including Ms Gorbold’s firm, to defend the claim against H Pty Ltd.

19. Accordingly, in my view, it has not been established by the wife that the said transfer was likely to defeat an order.  Taking account of the liabilities, I am not satisfied that there was, in reality, any property of the husband in respect of which an order could be made.

20. If I am wrong in my view and the transfer was in fact likely to defeat a property order, it would become necessary to consider the requirement of s 106(B)(3).  As indicated above this requires the Court to have regard to the interests of, and to make any order proper for the protection of, a bona fide purchaser or other person interested. 

21. It was submitted on behalf of the wife that the second respondent was not a bona fide purchaser.  This was on the basis that Ms Gorbold was acting as the husband’s lawyer. As such she would have known what his financial position was and that if his interest in J Street was transferred there would be no property against which a property order could be made in favour of the wife.

22. Counsel for the wife referred to the decision of the Full Court in Heath & Heath; Westpac Banking Corporation (Intervenor) (1983) FLC 91–362. In that case Nygh J was considering an application to set aside an unregistered second mortgage to a Bank pursuant to s 85 of the Act, the earlier version of s 106(B). Nygh J considered the meaning of “bona fide purchaser” in the context at p 78, 425 and said as follows:

    The term “bona fide purchaser” therefore implies two separate conditions: (a) the acquisition of an interest for valuable consideration and (b) without notice of what might at this stage be described neutrally as “the disabling condition.

    At p 78, 426 His Honour explained what he meant by “the disabling condition” saying as follows:

    …the test of bona fides is whether the Bank at the time of the making of the instrument was aware or should have been aware by making due enquiry that the disposition would defeat the claim of Mrs Heath.

    This test was upheld by the Full Court in Heath & Heath (No. 2) (1984) FLC 91–517 at page 79, 195.

23. I must say that I am inclined to regard Ms Gorbold as a bona fide purchaser because she was fully aware of the husband’s financial position and, presumably, regarded him as not having any equity in the J Street property. But in my view, it is unnecessary to dwell on this particular aspect of the matter, because, suffice to say that there is no question that Ms Gorbold falls within the description in s 106B(3) of “other person interested”. There can be no question that she is a person interested because she is the person to whom the husband’s interest in the property was transferred. So the legal effect is that since that time she has become the owner of the entirety of the legal interest in the property. Clearly if the transfer was set aside this would affect her interest.

24. It is not clear to me how it is suggested that her interest would be protected.

25. If the Court was to set aside the transfer it is clear that the second respondent would be claiming her costs of providing the legal services and in paying the accounts of the other legal firms involved, as well as the rent which she said the husband ought to have paid in respect of J Street.  The second respondent asserts that the amount owing to her by the husband is a total of $515,971.  I am not certain at this stage that the amount is so high.  But in my view, it is more probable than not that the husband owes Ms Gorbold at least several hundred thousand dollars. 

26. There is no evidence before the Court of the current value of J Street, the only evidence being the $1.2 million as valued by the CBA in May 2014.  Both the second respondent and the wife have sustained considerable legal costs in these proceedings.

27. In circumstances where it is unclear whether J Street has a higher value than the $1.2 million at the time of transfer, where it is clear that there is no property of the husband or the wife which could be used to fulfil any costs order against them, and where it is clear that the husband had substantial indebtedness to the second respondent at the time of transfer which has almost certainly increased since that time, in all these circumstances, it is far from clear that there would be some utility in setting the order aside.

28. In all these circumstances, in my view, the application by the wife to set aside the transfer of the husband’s interest in J Street must fail.

I certify that the preceding one hundred and twenty-one (121) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Johnston delivered on 7 June 2019.

Associate: 

Date:  7 June 2019