Aitken & Aitken
[2023] FedCFamC1A 69
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1) APPELLATE JURISDICTION
Aitken & Aitken [2023] FedCFamC1A 69
Appeal from: Aitken & Aitken (No 3) [2022] FedCFamC1F 496
Aitken & Aitken (No 4) [2022] FedCFamC1F 646
Aitken & Aitken (No 5) [2022] FedCFamC1F 856
Appeal number(s): NAA 272 of 2022 File number(s): SYC 5021 of 2019 Judgment of: MCCLELLAND DCJ, AUSTIN & ALTOBELLI JJ Date of judgment: 12 May 2023 Catchwords: FAMILY LAW – APPEAL – PROPERTY – Appeal from order requiring husband to pay the wife a lump sum amount to acquire her interest in the parties’ company – Whether the primary judge considered the husband’s capacity to pay the lump sum amount – Whether adequate reasons were given for rejecting husband’s proposal for sale of the company – Multiple judgments delivered – Inappropriateness of delegating responsibility for drafting the nature and form of final orders to the parties – Husband’s capacity to pay was a fundamental and obvious issue requiring consideration – Error established – Matter remitted – No order as to costs as both parties well resourced. Legislation: Family Law Act 1975 (Cth) Pt VIII, ss 74, 79, 80, 81
Federal Proceedings (Costs) Act 1981 (Cth)
Cases cited: Australian Coal and Shale Employees’ Federation v The Commonwealth (1953) 94 CLR 621; [1953] HCA 25
Ball v State of Queensland (Department of Justice and Attorney-General, Queensland Corrective Services) [2019] ICQ 23
Bennett and Bennett (1991) FLC 92-191; [1990] FamCA 148
Commonwealth v Bank of NSW (1949) 79 CLR 497
Driclad Pty Ltd v Federal Commissioner of Taxation (1968) 121 CLR 45; [1968] HCA 91
House v The King (1936) 55 CLR 499; [1936] HCA 40
Housing Commission (NSW) v Tatmar Pastoral Co Pty Ltd [1983] 3 NSWLR 378
Jones v Bradley [2003] NSWCA 81
Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66; [2008] HCA 42
Masters Home Improvement Australia Pty Ltd v North East Solutions Pty Ltd [2017] VSCA 88
Monte & Monte (1986) FLC 91-757; [1986] FamCA 1
Norbis v Norbis (1986) 161 CLR 513; [1986] HCA 17
Rigby & Olsen [2021] FedCFamC1A 46
Shan & Prasad [2018] FamCAFC 12
The Owners - Strata Plan No 66375 v King [2018] NSWCA 170
Wilson and Ors v Minister for Aboriginal and Torres Strait Islander Affairs and Anor (1996) 189 CLR 1; [1996] HCA 18
Yavuz & Yavuz and Anor [2017] FamCAFC 74
Zao & Lee [2019] FamCAFC 169
Number of paragraphs: 90 Date of hearing: 30 March 2023 Place: Sydney Counsel for the Appellant: Mr Looney KC & Mr Stapleton Solicitor for the Appellant: Avondale Lawyers Counsel for the Respondent: Mr Newlinds SC, Ms Jeliba & Mr Ford Solicitor for the Respondent: Nolans Lawyers ORDERS
NAA 272 of 2022
SYC 5021 of 2019FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
DIVISION 1 APPELLATE JURISDICTIONBETWEEN: MR AITKEN
Appellant
AND: MS AITKEN
Respondent
order made by:
MCCLELLAND DCJ, AUSTIN & ALTOBELLI JJ
DATE OF ORDER:
12 May 2023
THE COURT ORDERS THAT:
1.The appeal is allowed.
2.The matter is remitted for hearing before a judge of the Federal Circuit and Family Court of Australia (Division 1) other than the primary judge.
3.The appellant’s application for costs certificates to be issued pursuant to ss 6, 8 and 9 of the Federal Proceedings (Costs) Act 1981 (Cth) be dismissed.
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 Aitken & Aitken has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
MCCLELLAND DCJ, AUSTIN & ALTOBELLI JJ:
INTRODUCTION
By way of Further Amended Notice of Appeal filed 22 February 2023, the appellant husband appeals from orders made by a judge of the Federal Circuit and Family Court of Australia (Division 1) effecting an adjustment of the parties’ property.
Although the parties reached agreement in that adjusting their property interests equally between themselves was a just and equitable outcome, the identification of the parties’ respective interests in property and the manner in which the equal distribution was to be achieved remained an issue to be determined by the Court.
The husband appeals from a single order requiring the husband to pay the wife a fixed sum to acquire her equal shareholding in a trading corporation D Pty Ltd (“D Pty Ltd”). We have allowed the appeal, primarily on the basis that the primary judge failed to consider the husband’s capacity to pay the lump sum amount and, as a related issue, failed to provide adequate reasons for rejecting the husband’s proposal that the corporation be sold, with the net proceeds to be divided equally between the parties.
BACKGROUND
The parties agreed on a number of factual matters, which the primary judge set out as agreed facts from [4] to [14] of his Honour’s reasons published 15 July 2022. In those circumstances, we do not propose to re-canvas the background of this matter, save to note the following:
·The parties married and commenced living together in April 1990 and separated after 28 years together, divorcing in 2020;
·There are three adult children of the marriage;
·Together, the parties are directors and equal shareholders of D Pty Ltd, which was incorporated in April 1995 and conducts the manufacture and repair of equipment from six properties located in Suburb H;
·Through hard work, sound management and astute investments, primarily in real property, the parties have amassed considerable wealth together, with their combined assets being in the order of $80 million; and
·To their credit, both parties have acknowledged that they have each made an equal contribution to the accumulation of their combined property, with Rees J noting a concession made by the parties in her Honour’s orders of 23 March 2021 that “each party [had] a contribution based entitlement of one half of their net assets”;
On 15 March 2022, the parties particularised the issues that remained in dispute, which encompassed the values attributed to certain parcels of real property, taxation issues and, relevantly, how the parties’ interests in D Pty Ltd were to be valued and subsequently dealt with to effect an equal adjustment between the parties.
SUBSTANTIVE PROCEEDINGS
Following the final hearing of the substantive proceedings from 8 to 17 March 2022, the primary judge delivered reasons for judgment on 15 July 2022 (“the first reasons”), which were accompanied by a direction that the parties were to “bring in a minute that gives effect to these reasons” by 27 July 2022.
At [18] of the first reasons, his Honour set out an agreed list of assets and liabilities provided by the parties, which records the value of D Pty Ltd as being $45,514,742. That figure was based on a valuation by JJ Group dated 4 March 2022, but was acknowledged not to include some cash at bank and issues of indebtedness, including potential taxation liability for Fringe Benefits Tax and Capital Gains Tax in the event of the business being sold.
There was some discussion in the substantive proceedings and in the appeal as to what constituted the relevant asset for division between the parties: either their shareholdings in D Pty Ltd or D Pty Ltd’s business and other assets. Ultimately, the wife’s submissions that the husband should buy out her shareholding in the business found favour with the primary judge who, relevantly, held that once the proper value of D Pty Ltd was ascertained, the husband was to pay the wife for her shareholding in D Pty Ltd (first reasons at [158]–[159]). Accordingly, when reference is made to the wife’s interest in the business, it can be taken that the reference is to the wife’s shareholding.
In deciding that the husband should buy the wife’s shareholding, the primary judge rejected the husband’s submission that D Pty Ltd should be sold and the net proceeds of sale be divided equally between the parties.
The primary judge provided a number of reasons for favouring the wife’s proposal, which can broadly be summarised as reflecting concern that the husband would not act in good faith in attending to all necessary arrangements to effect the sale that he proposed. That concern extended to the identification of the shares, business and/or assets to be sold and whether the husband would agree to a limited noncompetition clause in favour of a potential purchaser in the event that D Pty Ltd were to be sold (first reasons at [161]–[163]).
Additionally, the primary judge found the husband’s proposal to sell D Pty Ltd to be “bewilderingly underdeveloped” (first reasons at [162]).
As events transpired, the parties were unable to provide a joint minute, as directed in the orders made on 15 July 2022, and instead provided separate minutes of proposed orders. This required further adjudication and resulted in a further listing of the matter that occurred on 16 August 2022. Following that listing, on 7 September 2022, the primary judge delivered a further judgment in which he reflected upon the merits of the parties’ respective proposals and identified which of the proposals that he favoured (“the second reasons”).
In the second reasons, his Honour expressly rejected the husband’s new proposal that D Pty Ltd, rather than the husband personally, engage in a buy back of the shares held by the wife (second reasons at [47]–[54]). In so rejecting the husband’s proposal, the primary judge noted that it was inconsistent with the directions he made to give effect to his first reasons, which required the husband to buy out the wife’s interest in D Pty Ltd.
Significantly, the orders accompanying the second reasons directed the parties to again “bring in a minute giving effect to these reasons” by 28 September 2022.
It is not entirely clear, from the documents contained in the appeal book, as to whether the husband complied with that timetable, as orders were made on 3 October 2022 noting that, as at that date, “the husband had not produced a proposed minute pursuant to the 7 September 2022 order” and directing the husband to provide submissions regarding the issue on or before 4 pm on the following day, being 4 October 2022.
In any event, the parties remained unable to reach agreement on orders to give effect to the primary judge’s second reasons of 7 September 2022 which, in turn, cross-referenced his first reasons dated 15 July 2022.
Consequently, on 8 November 2022, the primary judge handed down further reasons for judgment (“the third reasons”), considering the parties’ further proposed minutes of orders that they had respectively filed subsequent to the 7 September 2022 orders.
In the third reasons, the primary judge observed how the parties “persist[ed] in their disagreements even over the form of wording of orders” (at [1]). His Honour introduced this set of reasons by saying:
4. It is my intention to stipulate in these reasons the form of final orders to be made in this litigation following trial.
However, his Honour did not do that. The third reasons concluded with this paragraph:
107.I order (and this is not a gentle request) that the parties reconfigure the minutes submitted to reflect the orders made herein within seven days by 4:00pm.
As such, the order then made in conjunction with the third reasons again provided only that the parties “bring in a final minute to reflect the orders made herein”. Self-evidently, the third reasons contained no operable ‘orders’; the reasons were essentially only commentary upon the respective minutes of proposed orders filed by the parties.
Regardless, for a third time, the parties did not bring in a joint minute of orders. As before, they each produced separate minutes of orders, for which they respectively advocated.
On the occasion of publishing the third reasons, the primary judge stated:
I will hand down 25 pages, 107 paragraphs, and more reasons, which resolve hopefully most of the contested issues about the form of orders. But it – sorry, these reasons set out the orders that I am willing to make in most of the contested areas; not all. And I’ve said in there, it’s not my job to draft the orders; it’s the representatives’ jobs. So I will give the parties yet another seven days to incorporate the orders that I pronounce and those that I’ve provided guidance for, and I will allow a further but hopefully final mention at 1.15 pm on 16 November, which is a bit over a week away.
(Transcript 8 November 2022, p.2 lines 2–9) (Emphasis added)
Relevantly, from [48] to [50] in the third reasons, the primary judge set out his reasons for again rejecting the husband’s proposal for there to be a share buyback of the wife’s interest in D Pty Ltd, rather than for the husband himself to fund the purchase of the wife’s interest in the company. In doing so, the primary judge noted that the husband’s proposal was, in substance, the same as that which he had proposed prior to the orders of 7 September 2022. Consequently, the primary judge referred to and reaffirmed his previous reasons for rejecting the husband’s proposal as set out from [66]–[68] of the second reasons.
Significantly, in the third reasons, the primary judge stated that he favoured the wife’s “dollar precise and date specific” proposal that “the Husband pay to the Wife the sum of $26,751,023 within 60 days of the date of these Orders” (at [48]). In so doing, the primary judge found at [50] that “the wife’s proposal is less likely to create ongoing disputation”.
On 16 November 2022, the primary judge made final orders in the proceedings, of which Order 23 replicated the wife’s proposed order as follows:
23.The husband must pay to the wife the sum of $26,751,023 within 60 days of the date of these orders.
More generally, the orders of 16 November 2022 provided that, contemporaneously with the payment required by Order 23, the wife would resign as director of D Pty Ltd, along with a number of other family entities, and transfer her shareholdings and entitlements in that respect to the husband (Order 17).
It is common ground that the primary judge did not include, in his orders of 16 November 2022, a default order that would be triggered in the event of the husband failing to comply with the orders including, relevantly, by making the payment required in Order 23.
MULTIPLE REASONS
The approach of the primary judge in delivering multiple sets of reasons before making final orders was problematic. The three sets of reasons, to which we have referred, all run to many pages in length and, with respect to the primary judge, cloud rather than clarify his reasoning process.
From the start of the trial in March 2022, the parties were in agreement that their net assets should be divided between them in equal shares. So much was recorded in the first paragraph of the first reasons.
The essential issues for the primary judge were the identification and valuation of the parties’ assets and liabilities and, in the adjustment process, whether D Pty Ltd (or its assets) should be sold or, instead, acquired by the husband from the wife. As already explained, his Honour determined that the husband should buy-out the wife’s shareholding in D Pty Ltd.
The transcript of proceedings on 16 November 2022 reflects an unfortunate tension between counsel and the primary judge. Senior counsel for the wife contended that the primary judge had discharged his judicial function and was functus officio, despite not having made final orders. Senior counsel for the husband, however, voiced concern that the primary judge had failed to discharge his judicial function by delegating the responsibility of drafting orders that reflected his initial decision to the parties. This was in circumstances where the husband contended that compliance with the orders was beyond his capacity and, as acknowledged by senior counsel for the wife in this appeal, potentially exposed the husband to bankruptcy proceedings or even a possible finding of contempt.[1]
[1] Transcript of appeal proceedings 30 March 2023, p.6 lines 38–44.
There was, in our view, merit to the concerns expressed to the primary judge by senior counsel for the husband about his Honour’s insistence upon having the parties agree upon the property settlement orders that should be made. In Wilson and Ors v Minister for Aboriginal and Torres Strait Islander Affairs and Anor (1996) 189 CLR 1 at 11, the High Court described the function of Commonwealth judicial power in the following terms:
The function of the federal judicial branch is the quelling of justiciable controversies, whether between citizens (individual or corporate), between citizens and executive government (in civil and criminal matters) and between the various polities in the federation (21). This is discharged by ascertainment of facts, application of legal criteria and the exercise, where appropriate, of judicial discretion (Fencott v Muller (1983) 152 CLR 570 at 608). The result is promulgated in public and implemented by binding orders.
(Emphasis added)
The “judgment” required of his Honour was that embodied in the orders made to determine the cause of action under Pt VIII of the Family Law Act 1975 (Cth) (“the Act”), not the multiple sets of reasons published to explain findings made about contentious issues (Driclad Pty Ltd v Federal Commissioner of Taxation (1968) 121 CLR 45 at 64; Commonwealth v Bank of NSW (1949) 79 CLR 497 at 625).
In this case, his Honour was bound to make orders that were appropriate, just and equitable to adjust the parties’ property interests and, as far as was practicable, finally end their financial relationships: ss 79 and 81 of the Act. To achieve that end, the primary judge was already equipped with the amended suites of orders proposed by the parties within the context of an agreement that they should share their wealth equally.
Repeatedly delegating responsibility to the parties to conceive the nature and form of the orders required to quell the controversy between them arguably amounted to an abdication of judicial duty. In that respect, we respectfully disagree with the statement made by the primary judge during the course of the proceedings that “it’s not [his Honour’s] job to draft the orders; it’s the representatives’ jobs”.[2]
[2] Transcript 8 November 2022, p.2 lines 5–6.
Other than in limited and exceptional circumstances, we caution against the practice of delegating to parties the responsibility to agree upon the nature and form of orders required to give effect to views expressed by a trial judge in reasons for judgment. This is particularly the case where a party asserts that they lack the capacity to comply with such orders, the making of which exposes them to potential penalty.
Additionally, as we will now explain, the approach of the primary judge significantly increased the challenge for the parties and the appellate Court to fathom his Honour’s reasons for making the impugned order.
THE APPEAL
By way of Further, Further Amended Notice of Appeal handed up at the outset of the appeal hearing on 30 March 2023, the husband abandons all but his first ground of appeal, which was expressed in two parts as follows:
1.The Trial Judge erred in the making of Order 23 of the orders made 16th November 2022 in that :-
a.His Honour failed to articulate the reasons why he rejected the Husband’s proposal for a sale of [D Pty Ltd] insofar as the Trial Judge failed to address the capacity of the Husband to make the additional payment to the Wife necessitated by that rejection
evidence of a possible sale of the business having regard to the Husband’s evidence of his health both current and past.b.Having rejected the Husband’s application for a sale of the Business his Honour failed thereafter to pronounce Orders that reflected an equal division of the parties’ assets as agreed.c.His Honour did not have any evidence before him that the Husband had the capacity to pay the wife the sum required.
d.The Trial Judge failed to afford the husband procedural fairness when pronouncing Order 23 in the form he did.(As per the original)
As can be seen, there are two complaints: the legal error of inadequate reasons and the discretionary error of failing to take a material consideration into account. Both are directed to the husband’s asserted incapacity to comply with Order 23.
RELEVANT APPELLATE PRINCIPLES
There is a strong presumption that the primary judgment is correct and free of error: Australian Coal and Shale Employees’ Federation v The Commonwealth (1953) 94 CLR 621 at 627. However, as set out in House v The King (1936) 55 CLR 499 at 504–505 and Norbis v Norbis (1986) 161 CLR 513 at 539–540, appellate intervention may be required where, in the exercise of a discretionary power, the primary judge:
·Acts upon a wrong principle;
·Allows extraneous or irrelevant matters to guide or affect the decision;
·Mistakes the facts;
·Fails to take into account some material consideration; or
·Makes a decision that, upon the facts, is unreasonable or plainly unjust.
An appeal may also succeed on the basis of an inadequacy of reasons. In that respect, in Rigby & Olsen [2021] FedCFamC1A 46, the Full Court stated at [38] that:
The requirement for the giving of reasons is a fundamental requirement of the exercise of the judicial function, as it both demonstrates that justice has been done, and enables the proper challenge of a decision. The content required varies depending upon the circumstances of the case, but is that which makes apparent how the decision was arrived at (see Bennett and Bennett (1991) FLC 92-191 at 78,266). It is not required to give reasons regarding every argument, nor to perform a microscopic analysis “if, in all the circumstances, it is clear that the trial judge has considered and evaluated the relevant evidence, taken into account all relevant factors …” (A v J (1995) FLC 92-619 at 82,230).
In considering the adequacy of reasons, it has been determined that a trial judge is not required “to make an explicit finding on each disputed piece of evidence. It will be sufficient, if the inference as to what is found is appropriately clear”: Housing Commission (NSW) v Tatmar Pastoral Co Pty Ltd [1983] 3 NSWLR 378 at [386]. Reasons may, however, be inadequate if they fail to refer to “cogent evidence that is relevant to an issue that is of significance in the proceedings”: Ball v State of Queensland (Department of Justice and Attorney-General, Queensland Corrective Services) [2019] ICQ 23 at [15].
GROUNDS OF APPEAL
It was accepted in the appeal that sub-grounds 1(a) and (c) of the husband’s Notice of Appeal overlap. It is convenient to consider them together. In substance, it is submitted that in ordering the husband to pay $26,751,023 (“the lump sum amount”) to the wife within the 60 day period specified in Order 23, the primary judge fell into error in failing to have regard to the husband’s lack of capacity to comply with that order and, as a related matter, failing to explain why, in light of that lack of capacity, his Honour rejected the husband’s proposal that D Pty Ltd be sold.
In that respect, it is contended by the husband that:
·The evidence before the Court was that the property in the possession of the husband (as opposed to being jointly held or held through corporate entities) that was capable of being applied to acquire the wife’s interest in D Pty Ltd was considerably less than the lump sum amount;
·There was no cogent evidence that enabled the primary judge to properly draw an inference that the husband had access to funds, through borrowing or otherwise, to pay the lump sum at all or, at the least, within the prescribed time of 60 days;
·In failing to engage with the issue of the husband’s capacity to pay the lump sum amount, the primary judge failed to provide any or adequate reasons explaining his finding, implicit or otherwise, that the husband had the capacity to pay the lump sum amount to the wife;
·Having regard to that failure to recognise the husband’s incapacity to pay the lump sum, the primary judge failed to adequately explain why he rejected the husband’s proposal for D Pty Ltd to be sold and the net proceeds divided equally.
Comparatively, the wife contends that:
·The issue of the husband’s capacity to acquire the wife’s interest in D Pty Ltd was not an issue of controversy in the proceedings;
·In that respect, the husband has failed to establish that he drew the attention of the primary judge to his inability to pay the lump sum amount, with reference being made to the decision of the High Court of Australia in Macedonian Orthodox Community Church St Petka Inc v His Eminence Petar The Diocesan Bishop of Macedonian Orthodox Diocese of Australia and New Zealand (2008) 237 CLR 66 (“Macedonian Orthodox Community Church”) at [120];
·The capacity to pay issue was not one that was “fundamental and obvious” such that it required the primary judge’s consideration (by reference to Macedonian Orthodox Community Church at [120]). To the contrary, it was contended that various proposed orders advanced by the husband during the course of the proceedings, including in the period subsequent to the close of evidence, conceded that he had such an ability;
·In any event, it is contended that, based on a reading of the three sets of reasons of the primary judge, it can reasonably be inferred that the primary judge concluded the husband has the capacity to pay the lump sum amount to the wife within the prescribed period;
·Insofar as it is submitted that the primary judge failed to provide adequate reasons for arriving at the conclusion that the husband had the capacity to pay the lump sum amount, it was contended that the adequacy of reasons are to be considered in the context of issues joined by the parties to the proceedings. It is contended that there was no dispute in respect to the husband’s capacity to pay the lump sum amount in accordance with Order 23, therefore no reasons were required in respect to that issue.
CONSIDERATION
For the following reasons, we are of the opinion that the appeal has merit. In so finding, we explain why we reject each of the wife’s propositions.
The husband’s capacity to acquire the wife’s interest in D Pty Ltd was an issue of controversy in the proceedings
It cannot be doubted the husband’s proposal evolved as the litigation progressed. In October 2019, he proposed acquiring the wife’s shareholding in D Pty Ltd. In December 2021, he proposed that D Pty Ltd be sold and the sale proceeds shared equally between the parties. In March 2022, he proposed that D Pty Ltd sell its assets, including its business.
Nonetheless, despite the primary judge conflating the sale of D Pty Ltd with the sale of its assets instead, the husband’s proposal at trial was treated as being one for the sale of D Pty Ltd (first reasons at [72], [132a], [138] and [150]).
Despite the possible sale of D Pty Ltd being squarely acknowledged as an issue in dispute, the wife contends that the capacity to acquire her interest in D Pty Ltd was never in dispute. In support of that submission, the wife provided a detailed aide memoire setting out various times during the course of the proceedings where the husband had proposed that he acquire the wife’s interest in D Pty Ltd.
It is not necessary to consider the detail of that document because it is agreed to be the case that the husband had considered the feasibility of him acquiring the wife’s interest in D Pty Ltd. Indeed, the husband conceded that he had contemplated that possibility in response to a question from senior counsel for the wife during the course of the hearing, in which the husband said:
…at first, I obviously thought I wanted to retain the business. But I don’t know what amount. I honestly don’t know.
(Transcript 15 March 2022, p.175 lines 35–36)
It was not suggested that any concession made by the husband, subsequent to the filing of his Response, was an estoppel or in any other way precluded him from pressing for the orders he sought in his Response.
The husband continued to press for the order for D Pty Ltd to be sold in paragraph 298 of his trial affidavit, which was filed on 4 February 2022. The reasons for which he advanced his proposal were stated to be the result of health concerns and, also, his son ceasing to be involved in the business. As a result, the husband contended at paragraph 110 that “[t]he management of [D Pty Ltd] has become intolerable for me” and stated he was “no longer in a position to continue the operations of [D Pty Ltd]. I simply cannot continue to operate the company on my own, without [his son]”.
It is true that the husband did not, in his trial affidavit, assert that he lacked the financial capacity to acquire the wife’s interest in D Pty Ltd. This was in circumstances where, contrary to his express desire for D Pty Ltd to be sold, the husband expressed the desire to acquire the wife’s interest in certain parcels of real property owned by D Pty Ltd. Relevantly, at paragraph 302 of his trial affidavit, the husband acknowledged that his ability to achieve that outcome was dependent upon the state of his finances.
Subsequent to the husband filing his trial affidavit, on 4 March 2022, the parties obtained a valuation of D Pty Ltd which, for the purpose of the hearing, was adjusted to include an additional bank deposit. That adjusted value, as agreed by the parties, was $45,514,742 (first reasons at [16]).
It is entirely understandable that the husband would reflect on his capacity to acquire the wife’s interest in the company when it had been valued at such a substantial amount.
The conclusion that he lacked the financial capacity to personally acquire the wife’s interest in D Pty Ltd was confirmed by senior counsel for the appellant at the commencement of the proceedings.[3] It was also confirmed at the conclusion of the proceedings before final orders were made. In that respect, the transcript recorded counsel for the husband submitting that the wife’s proposal for the husband to acquire her interest in D Pty Ltd was not a viable proposition for reasons not only of the husband’s health, but also because “he can’t financially do it”.[4]
[3]Transcript 8 March 2022, p.6 lines 19–22.
[4] Transcript 17 March 2022, p.349 lines 15–18.
We are therefore satisfied that the husband did draw the attention of the primary judge to his contention that he lacked the ability to pay the lump sum amount to the wife in order to acquire her interest in D Pty Ltd. It was clearly an issue of significance in the proceedings that required consideration by the primary judge.
The issue of the husband’s capacity to pay was a fundamental and obvious issue that required consideration
Further, the husband’s capacity to pay was a fundamental and obvious issue that required consideration by the primary judge, having regard to the relevant legislative criteria that the primary judge was duty bound to apply.
In that respect, in making orders for the adjustment of the parties’ property pursuant to s 79 of the Act, the primary judge was empowered to make an order for the husband to pay the lump sum amount to the wife by s 80(1)(a) of the Act. There was no question, in this case, that the just and equitable requirement set out in s 79(2) of the Act was satisfied. That being the case, the primary judge was required to make orders that were “appropriate, just and equitable” (emphasis added), having regard to the language of both s 79(1) and s 79(2) of the Act (Zao & Lee [2019] FamCAFC 169 at [48]).
In this case, the primary judge appropriately noted that a fundamental task of the Court in making orders under s 79 is to “identify the legal and equitable interests of the parties in property” (first reasons at [16]). The primary judge engaged in that exercise, setting out his findings in a detailed balance sheet listing the parties’ individual, joint and corporate assets, liabilities and superannuation. The primary judge noted, as best his Honour could determine on the information provided to him by the parties, that the parties’ net assets and superannuation was between $79,925,966 and $82,522,809, with the qualification that the larger sum was subject to taxation liabilities which required assessment by an expert.
Relevantly, the primary judge recorded the assets of the husband, as opposed to assets that were jointly owned or held through a corporate structure, to be as follows (taken at their agreed or highest value):
·Loan payable by Aitken Unit Trust to the husband: $812,017
·Westpac Bank account #405611 as at 18 February 2022: $231,778
·Westpac Bank account #644333 as at 24 February 2022: $29,830
·1984 Motor Vehicle 4: $500
·Household contents: $5,000
·Other personal property: $25,300
·Husband’s leave entitlements as at 30 June 2021: $23,763
·Total: $1,128,188
Nowhere did the primary judge find that the husband had assets, in his sole name, available to satisfy the requirement of Order 23 that he pay the wife the sum of $26,751,023 within 60 days of the date of the final orders.
In this case, there can be no question that, subject to the apportionment of 50 per cent of the parties’ joint property interests to the husband and him having the opportunity to liquidate property so transferred to him, the husband would have the capacity to pay the lump sum amount to the wife. Indeed, the husband sought the sale of D Pty Ltd for that very purpose. However, that property was not to be acquired by the husband until such time as he paid the lump sum amount to the wife, which was required within a 60 day time frame pursuant to Order 23.
In other words, Order 23 is problematic because the evidence was that, as at the date of the orders, the husband had insufficient property in his own name that would enable him to comply with the orders without access to property in which he did not enjoy exclusive title: see Monte & Monte (1986) FLC 91-757 at [37] and [40] and Shan & Prasad [2018] FamCAFC 12 at [130].
He did not, and would not, receive adequate property that was capable of being liquidated to raise sufficient funds to pay the lump sum amount required by Order 23 until he paid that lump sum amount to the wife. To make that payment, the husband necessarily had to access funds that did not exist as either his own property or jointly owned property. Nor was there any satisfactory evidence that he could borrow the funds to pay out the wife under Order 23.
The point was well made in Yavuz & Yavuz and Anor [2017] FamCAFC 74 where, at [180], the Full Court stated:
In our judgment there is merit in the complaints that the trial judge was bound to consider, but did not properly consider, the prospect of real properties having to be sold for the husband to secure funds and the relevant consequences. Those included potential realisation costs on property sales and capital gains taxation. In addition, taxation on distributions to the husband via his partnership might be incurred or via “top up tax” on dividends from TT or via distributions from HH, in order to place funds in the husband’s hands sufficient to make the ordered payment to the wife.
That is not to say that, where circumstances justify, the Court will often provide a party with what is, in effect, a first right of purchase of the other party’s interest in property for an identified fixed amount. This may be in circumstances where it is contemplated that the acquiring party will be required to borrow funds to exercise that right of acquisition. However, even in those circumstances, to ensure that the matter is finalised, in the event that sufficient funds cannot be raised, the Court will usually include a default order that provides for the subject property to be sold, with the net sale proceeds being divided between the parties according to the percentage adjustment determined to be appropriate in the proceedings. No such default order was made in this case.
In summary on this issue, having regard to the parameters of s 79 of the Act, as explained in the Full Court authorities to which we have referred, we are satisfied that the capacity of the husband to pay the lump sum amount to the wife within the specified 60 day time period was a “fundamental and obvious” issue that required, but did not receive, adequate consideration in the proceedings (Macedonian Orthodox Community Church at [120]).
It cannot reasonably be inferred that the primary judge concluded that the husband has the capacity to pay the lump sum amount to the wife within the prescribed period
As an alternative submission, senior counsel for the wife contended that, having regard to the totality of the parties’ property, at least 50 per cent of which would come to the husband by virtue of the orders, it can be concluded that the primary judge inferred that the husband had the capacity to borrow such funds as were necessary for him to comply with the requirements of Order 23.
For reasons which we explain, even leaving aside the question as to whether the primary judge would have been in error in making an order on the basis of that assumption, the wife’s submission is without merit.
In that respect, reference was made by senior counsel for the wife to the concession made by the husband during cross examination at the final hearing that he had engaged in discussions with a financial institution and “there [had] been some indication from a bank that [he] might be able to borrow something over $20 million”.[5]
[5] Transcript 15 March 2022, p.175 line 30 to p.176 line 14.
The first difficulty with that argument is that, even if that inference was reasonably available, the total figure arrived at by adding to that amount of $20 million the assets that were solely in the husband’s possession did not equate to the required lump sum amount. In other words, there was still a significant shortfall between the husband’s assets, including the evidence as to his potential borrowing capacity, and the obligation imposed upon him by Order 23.
The second difficulty with the wife’s argument is that there is no indication, in any of the three sets of reasons delivered, that his Honour considered the capacity of the husband to comply with Order 23, including by referring to any evidence regarding the husband’s borrowing capacity.
Thirdly, we respectfully agree with the submission of senior counsel for the husband that, even if the wife had established that the primary judge had considered and determined that the husband had the capacity, through borrowings, to pay the amount as required in Order 23, there was an inadequate evidentiary basis for the making of such an inference.
The principles relating to the drawing of inferences in civil cases, such as family law proceedings are well-established and can be summarised as follows:[6]
·First, any inference must be based on facts established by admissible evidence;
·Second, the process of reasoning must constitute a valid inference, as distinct from speculation or guesswork; and
·Third, where the inference is drawn in favour of the party which bears the burden of proof in the case, the conclusion must be ‘the more probable inference’ from those facts.
[6] The Owners - Strata Plan No 66375 v King [2018] NSWCA 170 at [219] citing Masters Home Improvement Australia Pty Ltd v North East Solutions Pty Ltd [2017] VSCA 88.
The answer provided by the husband to counsel for the wife, during the course of cross examination, was that he had had discussions with a financial institution in circumstances where, at the time, he did not know the value of D Pty Ltd.[7] Further, the husband clarified his concession regarding his potential to borrow $20 million by stating “I have got a problem” in respect to so doing.[8] The nature of the problem was not, however, clarified during the course of the hearing, with senior counsel for the wife not further pursuing that issue with the husband.
[7] Transcript 15 March 2022, p.175 lines 1–45.
[8] Transcript 15 March 2022, p.176 lines 1–14.
Additionally, it was necessarily the case that any discussions that the husband had with financial institutions regarding his potential to borrow $20 million occurred prior to there being a reduction in the value of D Pty Ltd as a result of the orders by the primary judge, including Order 16 which required the parties to do “all things necessary to cause [D Pty Ltd] to declare a fully franked dividend so as to cause a cash payment to the wife the sum of $8,693,345.66”.
In other words, the concession made by the husband that he potentially had the capacity to borrow $20 million was made without context. That is, without the context of the valuation of D Pty Ltd being available and, also, without the context of the diminution in the value of property that the husband was able to offer, by way of security, as a result of the impact of the orders themselves, including the requirement for the husband to facilitate the additional cash payment of $8,693,345.66 to the wife from the company’s profits.
Accordingly, we reject the submission of senior counsel for the wife that, insofar as the primary judge made an order requiring the husband to pay the required lump sum amount to the wife within 60 days, the primary judge necessarily inferred that he had the capacity to do so. Moreover, there was no evidentiary basis available for the making of such an inference.
Adequacy of reasons
Finally, insofar as it is contended that the primary judge failed to provide adequate reasons for arriving at the conclusion that the husband had the capacity to pay the lump sum, it was submitted by the wife that the adequacy of reasons is to be considered in the context of issues joined by the parties to the proceedings.
This submission is circular insofar as it returns to the first proposition advanced by the wife that it was never in issue in the proceedings that the husband had the capacity to acquire the wife’s interest in D Pty Ltd, including in accordance with the obligations imposed upon him by Order 23.
For the reasons which we have earlier explained, we reject that contention. Specifically, we have found that the husband’s capacity to pay the wife the sum required to acquire her interest in D Pty Ltd was clearly an issue in the proceedings.
The adequacy of the reasons is to be assessed in the context of issues joined in the proceedings, with the primary judge being required to “ʻenter into’ the issues canvassed and explain why one case is preferred over the other” (emphasis added): Jones v Bradley [2003] NSWCA 81 at [129] and Bennett and Bennett (1991) FLC 92-191 at 78,266.
In the circumstances of this case, the primary judge had an obligation to clearly explain why, despite the submission by the husband that he lacked the capacity to pay the required sum to the wife, the primary judge made Order 23 which required the husband to do just that. As a related issue, the primary judge also had a corresponding obligation to explain why he rejected the husband’s submission that, as an alternative to the wife’s proposal, an order be made for D Pty Ltd to be sold in order to raise sufficient funds to pay the wife the amount of $26,751,023. The primary judge did not provide reasons addressing the capacity to pay issue in that context.
DISPOSITION
For the reasons articulated above, we find merit in the appeal, which we uphold.
REMITTAL
Senior counsel for the wife submitted that, in the event that we find error on the part of the primary judge, the Full Court should re-exercise discretion by, for instance, extending the 60 day time period set out in Order 23 to 90 days. This, it was contended, would provide additional time to enable the husband to raise sufficient funds, by way of borrowing, to pay the required lump sum amount to the wife. While not entirely clear, it also appeared to be conceded that a default order would be required in the event that the husband was unwilling or unsuccessful in raising the required sum.
Comparatively, senior counsel for the husband submitted that, in circumstances where the payment prescribed in Order 23 was the final piece required to give effect to the transactions specified in the orders, it was not possible for the Full Court to re-exercise discretion in respect to only Order 23 without receiving evidence and submissions regarding the operation of the orders as a whole. We respectfully agree with that submission.
Additionally, in light of the issues that we have identified in this appeal, the re-exercise of discretion would necessarily require the Full Court to consider the question as to whether other assets of the parties, including possibly D Pty Ltd, should be sold to enable the husband to raise the required funds to pay the lump sum amount to the wife. The evidence presented in these proceedings is not such that we are in a positon to determine that issue.
Accordingly, the matter must be remitted for hearing by a judge other than the primary judge.
COSTS
Despite finding error on the part of the primary judge, in circumstances where both parties are well resourced, we are not satisfied that it is appropriate to issue costs certificates pursuant to the provisions of the Federal Proceedings (Costs) Act 1981 (Cth).
I certify that the preceding ninety (90) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Deputy Chief Justice McClelland and Justices Austin & Altobelli. Associate:
Dated: 12 May 2023
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