FEDERAL COURT OF AUSTRALIA Brennan v McGuire (No 4) [2011] FCA 702 Citation: Brennan v McGuire (No 4) [2011] FCA 702 Parties: ROBERT GEORGE BRENNAN v GLENYS FREYA MCGUIRE File number: NSD 1147 of 2010 Judge: RARES J Date of judgment: 10 June 2011 Legislation: Domestic Relationships Act 1994 (ACT) s 14 Federal Court of Australia Act 1976 (Cth) s 51A Cases cited: Brennan v McGuire (No 3) [2011] FCA 505 referred to Brennan v McGuire [2010] FCA 1443 referred to Date of hearing: 10 June 2011 Date of last submissions: 10 June 2011 Place: Sydney (via video link to Canberra) Division: GENERAL DIVISION Category: No catchwords Number of paragraphs: 18 Solicitor for the Applicant: Ms M Reid of Phelps Reid Counsel for the Respondent: Respondent appeared in person IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1147 of 2010 BETWEEN: ROBERT GEORGE BRENNAN Applicant AND: GLENYS FREYA MCGUIRE Respondent JUDGE: RARES J DATE OF ORDER: 10 JUNE 2011 WHERE MADE: SYDNEY (VIA VIDEO LINK TO CANBERRA) THE COURT ORDERS THAT: 1. The orders made on 24 February 2011 and entered on 2 March 2011 be varied by: (a) in Order 1 deleting "31 March 2011" and substituting "17 June 2011"; (b) deleting orders 2 and 3(b) and inserting the following: (a) as Order 2: 2. At the settlement appointment Ms McGuire shall deliver to Mr Brennan: (a) bank cheques: (1) in favour of Frank Lopilato as liquidator of the company in the sum of $205,000; (2) in favour of Mr Brennan (or as he may direct in writing not later than 2 working days before the settlement appointment) in the sum of $613,500; (b) an executed mortgage over the property in registrable form settled by the Registrar securing the interest of Mr Brennan in the fund up to the date on which the last of the following occurs: (1) the company in liquidation pays a final dividend to the fund in respect of its proof of debt; (2) the fund's 2009 and 2010 tax returns are signed, and any tax payable or refundable has been paid by or credited to the fund (as the case requires); (3) the fund pays Mr Kaufline the whole of his member balance represented by 30.55% of the total members' funds after the steps in (1) and (2) have occurred; (4) Mr Kaufline and all persons other than Mr Brennan have signed and delivered to Mr Brennan resignations as members of the fund and as trustees. (b) as Orders 2B and 2C: 2B Ms McGuire be and is hereby removed as a member and trustee of the fund and her former interest therein be credited to Mr Brennan absolutely. 2C Ms McGuire by herself her servants and agents be restrained from communicating directly or indirectly with: (a) any accountants or other persons appointed to act for the fund in respect of the fund, its accounts, taxation position or its affairs; (b) the company or the liquidator in respect of the liquidation of the company or its affairs except and only to the extent that any such person, without solicitation, directly or indirectly, by her or on her behalf, seeks to communicate with her. (c) in Order 6, adding after "proceedings": "up to 17 February 2011 and that thereafter Ms McGuire pay Mr Brennan's costs as taxed other than the costs of attending to the obligations he had to perform to settle on 31 March 2011, and the taxed costs payable by each party may be set off against the other to produce a net amount owed by one of them". Note: Settlement and entry of orders is dealt with in Order 36 of the Federal Court Rules. The text of entered orders can be located using Federal Law Search on the Court's website. IN THE FEDERAL COURT OF AUSTRALIA NEW SOUTH WALES DISTRICT REGISTRY GENERAL DIVISION NSD 1147 of 2010 BETWEEN: ROBERT GEORGE BRENNAN Applicant AND: GLENYS FREYA MCGUIRE Respondent JUDGE: RARES J DATE: 10 JUNE 2011 PLACE: SYDNEY (VIA VIDEO LINK TO CANBERRA) REASONS FOR JUDGMENT (REVISED FROM TRANSCRIPT) 1 Following the orders that I made on 16 May 2011, the respondent and Mr Kaufline filed affidavits that have partly clarified the position with respect to those persons' interests in the superannuation fund that affects each of those persons: Brennan v McGuire (No 3) [2011] FCA 505. I will continue to use the same terms to describe persons and other matters that I have used in my earlier reasons in these proceedings. The position as to superannuation 2 Mr Brennan now accepts that Mr Kaufline remains a member of the fund because he reserved his rights in August 2009 to receive, as a member, his proportionate share of the recovery by the fund of the $100,000 loan he had made to the company. The liquidator estimates that the fund will receive a dividend of about $36,000 in respect of the $134,645.20 owed to it by the company at the date of the liquidation. There is evidence that the fund has received, and may be entitled to, taxation refunds. Accountants are preparing tax returns and accounts for the fund to enable accurate member balances to be calculated. 3 I structured the final orders made on 24 February 2011 on the basis that, once Mr Kaufline was paid out his entitlement, Mr Brennan would be entitled to retain control of the fund including whatever residuary interest remained in it that would otherwise have belonged to Ms McGuire. I am satisfied that Ms McGuire has caused her son and Mr Peter Lyons to become trustees to interfere with Mr Brennan's right to the control of the fund that I intended he have, once Mr Kaufline was paid his entitlements. 4 Ms McGuire has asserted that her brother, Mr Kaufline, does not want to participate in any mediation or come to Court. That is unfortunate. Mr Kaufline is not a party, and he appears to have, as Mr Brennan now concedes, an interest in the fund. Mr Kaufline is entitled to be paid what is due to him. He affirmed an affidavit on 24 May 2011 that said that he supported and trusted his sister in her attempts to resolve issues to do with the fund. Ms McGuire removed over $26,000 from the ordinary bank account of the fund, that she was aware from the terms of my principal reasons I intended should have been paid to Mr Brennan: see Brennan v McGuire [2010] FCA 1443 at [91], [125]-[130]. Yet, she said in Court today: "There is not one piece of evidence that can support Mr Brennan's claim that that … $26,000 that that was his money. Not one piece of evidence." 5 She also caused new trustees to be appointed to the fund for no discernible purpose: see Brennan (No 3) [2011] FCA 505 at [21]. I am satisfied that unless I restrain her from interfering further, Ms McGuire will continue to seek to control the activities of the fund and its accountants and advisers. What adjustments should be made to the earlier final orders? 6 The parties have not been able to agree on the mechanics of arranging adjustments to my final orders, despite my having referred them to a mediation before the Registrar that occurred and failed earlier this month. Both parties seek to have further adjustments made to those final orders. Ms McGuire asks that I reopen the whole of the valuation exercises. She now seeks a revaluation of the property at Forrest that my final orders provided she become the sole beneficial owner of. She based this on a marketing appraisal by a real estate agent dated 23 May 2010. That gave the agent's initial opinion that a sale price could be achieved in the current market of between $1,800,000 and $1,850,000, but a higher price was not out of the question. Mr Brennan also seeks an adjustment because, in arriving at my final apportionment of the parties' interests in their property, I had attributed a value of $150,000 to the company and whatever interest the superannuation fund had in receiving repayment of the loan that I credited to Mr Brennan's side of the assets when I made my apportionment. However, on the latest evidence the company will only be worth, at best, $85,000. Consideration - Superannuation 7 I am satisfied that in order to bring about finality of the kind contemplated by s14 of the Domestic Relationships Act 1994 (ACT), it is necessary to make some adjustments to the final orders: see Brennan (No 3) [2011] FCA 505 at [30]-[31]. It is impossible to estimate what the quantum of Mr Kaufline's 30.55% interest and Mr Brennan's remaining 69.45% interest in the fund will be because no accounts have been finalised. Ms McGuire has shown a determination to micromanage this process. Some of her efforts have been appropriate and constructive, such as her drawing to the fund advisers' attention their error in treating her and her brother as having been paid rollovers prior to, rather than after, 30 June 2009. Nonetheless, I am satisfied that the professional advisers are now able to complete the 2009 and 2010 tax returns and other accounting work to provide final figures for current member balances without any further input from Ms McGuire. Her further input will not be relevant since she will have no entitlement in the fund as a result of my final orders. 8 It is necessary to adjust my final orders to protect Mr Brennan's entitlements to the fund because Ms McGuire has exercised powers to take significant money out of the fund and appoint strangers who are allied to her to be trustees. I propose to order that when the final member balances are ascertained, after the liquidator pays a final distribution, Mr Brennan should cause Mr Kaufline to be paid his full, then, member balance. 9 Given Ms McGuire's conduct in frustrating the effect of my final orders, including that to which I referred in Brennan (No 3) [2011] FCA 505 at [21], [27], [33]-[34], I have considered two possible mechanisms to protect Mr Brennan's interests from any further attempts by her to frustrate the finalisation of the superannuation fund accounts and the resolution of these proceedings by those final orders. The first possible means to achieve that compliance could be to require Ms McGuire to pay security in the order of $100,000 into Court to be held on trust so as to ensure that Mr Brennan will receive his full entitlement to and control of the fund. Once the liquidator makes his final distribution and Mr Kaufline is paid his full member balance, that amount would be used to compensate Mr Brennan for any deficiency in the sum held by the fund representing his 69.45% share plus any interest on it that had accrued. Any balance would be returned to Ms McGuire with any remaining pro rata share of the interest earned. The second mechanism is that Ms McGuire grant a mortgage over the property at Forrest, securing such compliance. That mortgage would be discharged on Mr Kaufline being paid out, Mr Brennan having his entitlement fully provided for in the fund and he being given control of the fund. On balance, I have chosen the second alternative because it does not immediately require Ms McGuire to pay money that she may not be able to afford. Mr Kaufline and Mr Brennan will have to resolve any issues outstanding between them. Mr Kaufline has relied on Ms McGuire to deal with and pursue those issues and I am satisfied that she will continue to do so, hence further the need for her to give the mortgage. This will guard against her protracting or exacerbating the issues, if any, that really remain between her brother and Mr Brennan. Consideration – Adjustment of SUM PAYABLE TO Mr Brennan 10 Ms McGuire asserts that the value of the house has declined and that I should revalue all of the property. That would only prolong the proceedings. There is no evidence beyond the selling agent appraised to which I have referred to invalidate the parties' agreed value of $1,900,000 for the property. I am not satisfied that it would cause any injustice to maintain the other values that were arrived at, mainly by agreement, for the final hearing. The asset that is the real property will be able to be realised as and when Ms McGuire wishes and I am not satisfied that there is any reason to revalue it for the purposes of these orders. 11 However, in light of the delay in implementing my final orders and the reduction in the likely value of the company to Mr Brennan as appears from the liquidator's latest estimated dividends, I must also adjust the payment Ms McGuire should make to Mr Brennan. In my principal reasons I attributed a value of $150,000 for the interests of Mr Brennan and Ms McGuire in the company, which included the liability of the company to the superannuation fund in respect of the loan, as I explained earlier in these reasons. 12 The liquidator's estimate as at 4 May 2011 is that Mr Brennan will receive a dividend of about $58,350 and Ms McGuire one of about $2,600. In addition, the liquidator estimates that Mr Brennan will also benefit by about $25,000 from the dividend of about $36,200 that will be paid to the fund. I treated that latter entitlement as being part of the $150,000 value I gave to the company. Thus, on the evidence now available, the company is worth only about $85,000 based on the same premises that I used in arriving at my final adjustments of the parties' rights to their property. I had intended that Mr Brennan retain 47.5% of the notional asset pool. In order to maintain the overall adjustment of the parties' interests that 47.5% reflected, a further monetary adjustment must be made, as appears in the following table, because the pool is now about $65,000 less than the $4,555,000 I had found in December 2010: Brennan [2010] FCA 1443 at [129]: Mr Brennan Ms McGuire Previous pool: $4,555,000 (Brennan [2010] FCA 1143 at [129]) $2,160,000 $2,395,000 Current pool: $4,490,000 $2,095,000 $2,395,000 Current value of 47.5%-52.5% split: $2,132,750 $2,375,250 Adjustment to Mr Brennan: $37,750 Accordingly, it appears just to vary my earlier orders by requiring Ms McGuire to pay a further $37,500 (which I have rounded down slightly), in addition to the sum of $775,000 that I had intended she pay at settlement. Should there be an adjustment for interest? 13 Mr Brennan seeks an order for interest on the amount that Ms McGuire should have paid if settlement had occurred at either of the earlier two appointments on 31 March 2011 and 18 April 2011. The delay in settlement will have kept Mr Brennan from receiving his cash for about three months. Ms McGuire points out that some of that delay may be attributable to his having maintained a claim on the superannuation fund for legal fees and expenses that he did not substantiate and has only recently withdrawn. 14 In the order of about $14,500 interest would have been earned on $775,000 pursuant to s 51A of the Federal Court of Australia Act 1976 (Cth) at Court rates in the period between 31 March 2011 and the new date I propose for settlement to occur, 17 June 2011. In my opinion, some adjustment should be made to compensate Mr Brennan for being held out of his entitlement to be paid his money for a period of time. But, I am satisfied that it would not be appropriate to require Ms McGuire to bear the full amount of that interest. Doing the best I can, I think I should award a lump sum of interest of $6000 to be added to the payment Ms McGuire should make, being a total of $818,500 (i.e. $37,500 + $6000 + $775,000). Other relief 15 Mr Brennan seeks orders that Ms McGuire not communicate with the liquidator and the fund's accountants and advisers. That is based on the delay and increased costs that Ms McGuire's history of communications with them has occasioned and is likely to continue to occasion. 16 Today the solicitor for Mr Brennan has informed me that the liquidator seeks further material from Ms McGuire. Ms McGuire informed me that the liquidator already has all that material. I am not in a position to deal with that application and have taken no account of it, but it may be that there will be further communications from the liquidator to Ms McGuire which would entitle her to discuss or communicate matters with him. 17 I am satisfied that Ms McGuire will continue to criticise Mr Brennan to the fund's professional advisers and the liquidator. As a result of my final orders she has no continuing interest in either the fund or the company. It is appropriate that she not continue her criticisms. The evidence before me at and following the trial demonstrates that Ms McGuire continues to feel very deeply that Mr Brennan merits criticism and she expresses that criticism to others. I am satisfied that she will seek to continue this hostile conduct wherever she can. She should be restrained from doing so in the liquidation and the administration of the fund, since that conduct can only lead to unnecessary expense and delay. In any event, she is likely to have informed the liquidator of anything relevant by now and the orders I contemplate making will permit him to seek and receive her input if he wishes to do so. Conclusion 18 I propose to exercise the power to vary the final orders that I made on 24 February 2011 and entered on 2 March 2011 for the reasons above and pursuant to the powers and reasons that I identified in Brennan (No 3) [2011] FCA 505 at [27]-[28] and [33]. I certify that the preceding eighteen (18) numbered paragraphs are a true copy of the Reasons for Judgment herein of the Honourable Justice Rares. Associate: Dated: 22 June 2011