Aitken and Murphy
[2013] FamCA 3
FAMILY COURT OF AUSTRALIA
| AITKEN & MURPHY | [2013] FamCA 3 |
| FAMILY LAW – PROPERTY – De Facto – Short relationship – Large asset pool – Significant initial financial contribution by Respondent – Applicant’s non-financial contributions during relationship, including homemaker contributions - Methodology to be adopted for valuation of Respondent’s successful business – Fair market value or value to owner – Applicant’s entitlement to a certificate pursuant to s 128 of the Evidence Act – Applicant’s involvement with allegedly fraudulent activities – Supreme Court judgment debt against Applicant – Supreme Court Freezing Order – Whether Supreme Court judgment debt be included in the asset pool available for distribution – Appropriate date to value asset pool – Whether real property purchased by the Respondent post-separation be included in the asset pool – Whether the Applicant’s taxation liability accrued post-separation, but for monies earnt during the relationship, be included in the asset pool – Responsibility for interest and penalties on Applicant’s taxation debt – Applicant currently unemployed – Respondent’s higher income and future earning capacity – Appropriate s 90SF(3) adjustment – Whether the Applicant’s legal advisors have a priority right to payment from any lump sum received by the Applicant. |
| Family Law Act 1975 (Cth) ss 90SM, 90SF Evidence Act 1995 (Cth) s 128 |
| AJW v JMW (2002) FLC 93-103 Australian Securities & Investments Commission v Rich [2003] FamCA 1114 Martin & Newton (2011) FLC 93-490 Reynolds & Reynolds (1985) FLC 91-632 Scott and Scott [2006] FamCA 1379 Smith & Fields [2012] FamCA 510 Taylor and Taylor and Taylor [2000] FamCA 308 Turnbull & Turnbull (1991) FLC 92-258 |
| APPLICANT: | Mr Aitken |
| RESPONDENT: | Mr Murphy |
| FILE NUMBER: | MLC | 11907 | of | 2010 |
| DATE DELIVERED: | 15 January 2013 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Young J |
| HEARING DATE: | 29, 30, 31 October 2012 and 1 November 2012 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Ackman QC with him Mr Werner |
| SOLICITOR FOR THE APPLICANT: | Barbayannis Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr North SC with him Ms Smallwood |
| SOLICITOR FOR THE RESPONDENT: | T J Mulvany & Co |
INDEX
ORDERS
ISSUES
ORDERS SOUGHT
AFFIDAVITS RELIED UPON
PREVIOUS COURT ORDERS
BACKGROUND FACTS
DATE OF COMMENCEMENT OF RELATIONSHIP
AGREED ASSET POOL
FINANCIAL ISSUES IN DISPUTE
R PTY LTD – SUPREME COURT ORDERS
S 128 CERTIFICATES
STANDARD OF PROOF
OBSERVATION OF PARTIES AND WITNESSES
FAMILY LAW ACT 1975 (CTH) (“THE ACT”)
SECTION 90SF (1), (2) AND (3)
RESPONDENT’S EARLIER PROPERTY ACQUISITIONS
N STREET MELBOURNE SUBURB 1 (“N STREET”)
P STREET MELBOURNE SUBURB 3 (“P STREET)
O STREET MELBOURNE SUBURB 1 (“O STREET”)
3 UNITS AT S STREET MELBOURNE SUBURB 4 (“S STREET”)
D STREET MELBOURNE SUBURB 1 (“D STREET”)
C STREET SYDNEY SUBURB 1 (“SYDNEY SUBURB 1”)
K STREET MELBOURNE SUBURB 3 (“K STREET”)
PARTIES’ PROPERTY / ASSETS AS AT JULY 2005
SUPERANNUATION
BUSINESS G (“THE BUSINESS”)
E PTY LTD
FINDINGS OF CREDIT
APPLICANT’S EVIDENCE
MR MM
MS GG
MS C
RESPONDENT’S EVIDENCE
MR TT
MR X
MR DD
MS AB
MR KK
BUSINESS VALUATION – MR Y
BUSINESS VALUATION FINDING
VALUATION OF BUSINESS AS AT 30 JUNE 2005
R PTY LTD ISSUES – EVIDENCE AND DISCLOSURES
MONIES RECEIVED OR RETAINED BY APPLICANT (“ADD-BACKS”)
PERSONAL LOANS MADE TO APPLICANT
AUSTRALIAN TAXATION OFFICE (“ATO”) - LIABILITIES
PERIODIC OR LUMP SUM MAINTENANCE
BMW MOTOR VEHICLE
PREVIOUS COSTS ORDERS
LEGAL COSTS AND DISBURSEMENTS
VALUATION COSTS PAID BY RESPONDENT
PROPOSED SALE OF D STREET
ASSETS
LIABILITIES
NET ASSET POOL
SHORT RELATIONSHIP CASES
SECTION 90SM CONTRIBUTIONS
SECTION 90SF(3) FACTORS
OVERALL DIVISION
MONETARY VALUE
ADJUSTMENT FOR REQUIRED TAXATION PAYMENT
FOURTH STEP
OUTCOME
PRIORITY OF PAYMENTS ON BEHALF OF APPLICANT
Orders
IT IS ORDERED:
THAT within sixty (60) days the Respondent pay or cause to be paid a lump sum payment of $769,893 (“the lump sum”), strictly in the following order:
(a)first, to the Applicant’s lawyers, $102,000 representing legal costs incurred up to 28 October 2012
(b)secondly, to the Applicant’s lawyers, a further sum of $87,000 (only) representing his legal costs incurred in respect of this defended hearing, and inclusive of Counsel’s agreed fees;
(c)thirdly, to Law Firm 1, $65,000 representing his outstanding legal costs payable to that firm;
(d)fourthly, to the Supreme Court of Victoria, a sum of $450,000 or whatever lesser sum is now required to discharge the current Freezing Orders that are identified within the Reasons for Judgment;
(e)the balance of $65,893 to be paid to the solicitors for the Applicant on trust for their client.
THAT in default of payment of the lump sum within sixty (60) days the Respondent thereafter pay or cause to be paid interest, calculated at the rate prescribed from time to time within the Family Law Rules and to be adjusted and paid quarterly in arrears to the Applicant’s solicitors until the whole of the lump sum, or any remaining part thereof is paid in full.
THAT in default of payment within the period of sixty (60) days the Respondent forthwith do all acts and things, sign all documents and give all necessary and proper instructions to offer for sale the property situate at and known as D Street, Melbourne Suburb 1 (“D Street”) and, from the net proceeds of sale thereof, pay to the Applicant all monies and interest then owing.
THAT the Respondent is to keep the Applicant and his solicitors at all times fully advised and informed of all real estate and legal steps taken to effect the immediate default sale of D Street.
THAT liberty be reserved to each of the Applicant and the Respondent to apply to the Court for any further terms, conditions or requirements of the sale of D Street.
THAT within fourteen (14) days the Respondent do all acts and things and sign all necessary documents to transfer or cause his corporate entity to transfer, at its sole expense, to the Applicant the BMW motor vehicle currently in his possession.
THAT to effect the transfer the Applicant is to obtain at his expense a current Certificate of Roadworthiness for the BMW motor vehicle but otherwise all stamp duty and transfer costs and disbursements are to be paid by or on behalf of the Respondent.
THAT otherwise each of the parties retain all other real property, assets, furniture and personal chattels and possessions as are currently in their ownership or possession and each of them remain solely responsible (subject to these Orders) for all debts or liabilities they currently have now or may incur in the future.
THAT sealed copies of these Orders, and if requested the Reasons for Judgment, be forthwith served by the Applicant’s solicitors upon:
(a)the Australian Taxation Office;
(b)R Corporation; and
(c)Law Firm 1.
THAT otherwise all extant applications, including any application seeking periodic or lump sum maintenance filed by the Applicant, be dismissed and the proceedings be removed from the docket of Young J.
THAT all documents, records and files that have been produced to Court pursuant to an issued subpoena are to be returned, after thirty (30) days, by the Subpoenas Clerk, Family Court, Melbourne Registry to the person or organisation who produced same.
THAT the costs previously reserved by my Order of 12 October 2011 be discharged.
IT IS CERTIFIED
THAT pursuant to Rule 19.50 of the Family Law Rules this matter reasonably required the attendance of Counsel, including Senior Counsel for each of the Applicant and Respondent.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Aitken & Murphy has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLC 11907 of 2010
| Mr Aitken |
Applicant
And
| Mr Murphy |
Respondent
REASONS FOR JUDGMENT
ISSUES
The Court was required to hear and evaluate the evidence and determine a just and equitable division of property in a short relationship case where there was a vast difference between the initial contributions, income, work skills and assets of the Respondent, as against those of the Applicant.
ORDERS SOUGHT
APPLICANT
The Applicant filed his Initiating Application on 22 December 2010 and filed amended versions on 9 November 2011 and 13 March 2012.
On 10 October 2012 the Applicant filed his Further Amended Initiating Application, which is the version relied on by him at the final hearing. In that application the Applicant sought a division of property and superannuation in the proportion of 40 per cent to him and 60 per cent to the Respondent and further sought an order for lump sum or periodic maintenance and other consequential orders.
In his Case Outline document filed by leave of the Court on 29 October 2012, he amended and particularised his proposed orders sought as follows:
(a)the total assets (excluding chattels and personal possessions) and superannuation entitlements of the parties be divided in the proportion 27.5% to the Applicant and 72.5% to the Respondent pursuant to s 90SM of the Family Law Act 1975 (Cth);
(b)the Respondent pay to the Applicant such sum as this Honourable Court deems appropriate by way of lump sum and/or periodic maintenance pursuant to s 90SE of the Act;
(c)within 60 days the Respondent pay to the Applicant such sum as is required in order to give effect to order 1, such payment to be made as follows:
§$450,000 to the Supreme Court of Victoria; and
§the balance to the Applicant’s solicitors;
(d)that within 60 days the Respondent do all such acts and things and sign all such documents as are necessary to transfer to the Applicant, at the expense of the Applicant, the [BMW motor vehicle] presently in the Applicant’s possession; and
(e)such further orders the Court thinks fit.
Senior Counsel for the Applicant, Mr Ackman, explained in his opening to the Court, and as was detailed on page 11 of the Case Outline document that maintenance in a periodic or lump sum was not sought as a separate payment if the Applicant were to receive a property division of 27.5 per cent of the overall net asset pool. It was conceded that such sum would then be sufficient to cover any entitlement that he may have to periodic or lump sum maintenance. Thus I was left with a clear understanding that any lesser division of property in favour of the Applicant would enlighten the maintenance application and thus that would require separate consideration and determination by the Court.
The Applicant’s request for a 27.5 per cent distribution was structured on the basis that the Court should find that it was a just and equitable outcome for 20 per cent of the net assets of the parties to be divided in favour of the Applicant on a contribution based entitlement (s 90SM) and otherwise for there to be a further adjustment of 7.5 per cent in his favour upon the s 90SF(3) considerations.
As an overview Mr Ackman opened that the net assets of the parties, primarily of the Respondent and his entities, had increased by approximately $5,000,000 during the period of cohabitation and the Applicant’s case was that he is entitled to reasonably and properly share in that significant increase in valuation.
Having given proper recognition to the assets and business skills introduced into the relationship by the Respondent, the Applicant thereafter focused upon and structured his division of assets, as to 27.5 per cent in his favour, primarily upon what he said were his financial and non-financial and homemaker contributions, his financial, lifestyle and other future needs as assessed in the s 90SF(3) factors and a sum that represented a just and equitable division of the property.
In his closing address Senior Counsel provided to the Court a minute of final orders sought by the Applicant, which was tendered and marked as exhibit “A1”.
The orders sought by the Applicant were then as follows:
1.Pursuant to Section 90SM, the total assets (excluding chattels and personal possessions) and superannuation entitlements of the parties shall be divided in the proportion 27.5% to the Applicant and 72.5% to the Respondent.
2.Within 60 days, the Respondent pay to the Applicant a total sum of $2,124,894 to be paid strictly as follows:
(a)First, to the Applicant’s lawyers, $102,000 representing the Applicant’s legal costs incurred up to 28 October 2012.
(b)Second, to the Applicant’s lawyers, a further sum of $78,000 representing the Applicant’s legal costs in respect of the trial of this proceeding (inclusive of counsel’s fees).
(c)Third, to [Law Firm 1], $65,000 representing the Applicant’s outstanding legal costs payable to that firm.
(d)Fourth, to the Supreme Court of Victoria, $450,000.
(e)Fifth, the balance to the Applicant’s lawyers, which sum may be released unconditionally to the Applicant.
3.Within 6 days, the Respondent must transfer to the Applicant, at the expense of the Applicant, the BMW motor vehicle presently in the possession of the Applicant.
4.Such further order the Court thinks fit.
RESPONDENT
The Respondent filed his Response on 30 March 2011 and his Amended Response on 10 January 2012.
He filed a Further Amended Response on 22 May 2012, which is the response he relied on at the final hearing. In summary, the orders sought therein were for the BMW motor vehicle in the possession of the Applicant to be forthwith returned to the Respondent and otherwise for each of the parties to retain any asset, entitlement or liability which they then owned or which was then within their possession or control and that otherwise there be no financial adjustment to the benefit of either party.
Additionally the Respondent then sought a costs order on an indemnity basis and opposed any payment of periodic or lump sum maintenance.
On page 13 of his Outline of Case document filed 25 October 2012 the Respondent further refined the orders that he sought in these proceedings.
He discontinued the order that he sought for the return to his possession of the BMW motor vehicle but otherwise sought orders in accordance with paragraphs 2 – 9 (inclusive) of his Further Amended Response filed 22 May 2012.
In that Outline of Case document the Respondent particularised that the Applicant had retained, will retain or has had the benefit of $209,872, the breakdown of which was as follows:
§$48,006 being the sum received post separation by the Applicant as an insurance payout for an alleged burglary at the rented [Q Street, Melbourne Suburb 1] property;
§$50,000 being the payment from the Respondent to the Applicant on 15 September 2008 relating to the Applicant’s role in locating the [D Street] property;
§$32,000 being the value of the BMW [motor vehicle] retained by the Applicant post separation;
§$18,000 being pre-paid rent utilised by the Applicant at [Q Street, Melbourne Suburb 1] post separation;
§$1,760 being fines paid by the Respondent for the Applicant’s traffic offences; and
§$60,106 being the Respondent’s superannuation entitlements.
The Respondent did not seek a return of the $209,872 retained by the Applicant but submitted that it was sufficient to meet his property claim, in support of the Respondent’s position that there be no further financial adjustment between the parties.
Later in the proceedings, in light of the evidence given in chief by the Respondent and exhibit “R11” the prepaid rent adjustment sought by the Respondent was reduced and the actual adjusted sum finally sought was $15,000.
Near to the conclusion of the Respondent’s evidence his Senior Counsel advised the Court that they were no longer pursuing as an add-back the $50,000 payment that had been made to the Applicant for his locating the D Street property. That payment therefore has remained with the Applicant and has not been adjusted in my orders.
The final position of the respondent was therefore that the applicant had retained or would retain a benefit of $156,872, inclusive of his own superannuation entitlements and the BMW motor vehicle and, in the course of these Reasons for Judgment, I have further analysed the insurance payout monies, the pre-paid rent monies and the traffic fines and the appropriateness of these items being brought to account in these property proceedings.
In the summary of the Respondent’s argument filed with leave on 26 October 2012, the position was stated, in paragraph 6 thereof, that the contribution of the Applicant should be assessed as 5 per cent of the net asset pool, as defined by the Respondent and that there should be no loading for any s 90SF(3) factors.
Briefly stated the Respondent’s submission was that the difference in income and earning capacity and the financial circumstances of the parties did not warrant any loading primarily because of the Applicant’s inappropriate financial conduct, his previous ability to earn income, the rejection of any like standard of living and significantly because it was said that any further adjusted payment to the Applicant “would serve no genuine purpose but simply would be a facility to pay off, or to reduce the liabilities owing to his creditors”. Put simply the Respondent’s legal submission was that the Court should pause, reflect on the evidence and likely outcome, and then not award any loading for such s 90SF(3) factors as the Applicant would not and should not receive any financial benefit therefrom.
Additionally, in paragraph 9 of that summary of argument document, it was highlighted that the Applicant owed the Respondent $29,500 in legal costs previously ordered and to be paid upon the determination of these proceedings and a further sum of $14,260 for the Applicant’s share of valuation costs of real property and the business and it was submitted that these sums should be adjusted against any lump sum payment ordered to be paid by the Respondent to the Applicant.
At the conclusion of final submissions Senior Counsel provided to the Court the minute of final order sought by his client and that has been marked as exhibit “R14”. The lump sum payment offered to the Applicant in paragraph 1 thereof of $58,853 was subsequently amended as a result of matters raised during his final address and upon a reconsideration of the contents of the business valuation report of the single expert witness, Mr Y. With my leave that document was amended by way of written submissions to reflect the change and the amended document was provided to the Court and the Applicant after the conclusion of the hearing and has been retained upon the Court file. The final lump sum payment offered within thirty days, as was explained in that amended document, subsequently increased, to $87,753.
Accordingly the final orders sought by the Respondent were:
1.The Respondent pay to the Applicant within 30 days the sum of $87,753.
2.The Applicant and Respondent each retain all superannuation entitlements to which they are respectively entitled or may become entitled.
3.The Respondent cause to be transferred to the Applicant at the expense of the Applicant the BMW … motor vehicle currently in the Applicant’s possession.
4.The Applicant retain for his sole use and benefit the sum of $48,006 received by way of insurance claim proceeds.
5.The Applicant retain for his sole use and benefit any distribution to which he is or may become entitled from the [E Trust].
6.The Respondent retain for his use and benefit to the exclusion of the Applicant all assets of the business [Business G], and the entities associated therewith including the [Murphy Trust], save for the motor vehicle referred to in paragraph 3 herein.
7.The Respondent retain for his sole use and benefit the real estate known as and situate at [C Street, Sydney Suburb 1], NSW ([Sydney Suburb 1]).
8.The Respondent retain for his sole use and benefit the assets of [B Pty Ltd] and [F Pty Ltd] and in particular the real estate known as and situate at [D Street, Melbourne Suburb 1], Victoria and [K Street, Melbourne Suburb 3], Victoria (other real estate).
9.The Respondent remain solely liable for all debts and encumbrances secured against [Sydney Suburb 1] and the other real estate and in particular CBA loans numbered [Loan 1], [Loan 2], [Loan 3], line of credit numbered …71 and bank bill numbered …06.
10.Otherwise each party remain solely responsible for any debts they currently have or may have in the future.
AFFIDAVITS RELIED UPON
APPLICANT
The Applicant relied upon the following affidavits:
(a)his trial affidavit, and annexures thereto, filed 10 October 2012;
(b)his affidavit in reply filed by leave of the Court on 29 October 2012;
(c)his Financial Statement filed 10 October 2012;
(d)the affidavit of Ms GG filed 11 October 2012;
(e)the affidavit of Mr MM filed 9 October 2012; and
(f)the affidavit of Ms C filed 11 August 2011 and the taxation statements, documents and correspondence annexed thereto.
The Applicant’s Case Outline document which updated his proposed orders sought and included a brief chronology and summary of legal argument was also filed on the morning of the commencement of the hearing, 29 October 2012. I have read and evaluated that document.
At the conclusion of the hearing on 1 November 2012 I directed the parties to file written submissions addressing the issue of the order of priority for the disbursement of any monies payable to the applicant. These issues are more fully developed hereafter but I record that the applicant filed:
(a) written submissions of 14 pages; and
(b)a further affidavit of their instructing solicitor, Maria Barbayannis, filed 22 November 2012 exhibiting a costs agreement executed by the respondent which had been prepared on 24 August 2011 but executed by the client on 16 December 2011 together with a detailed print-out of costs, charges and disbursements incurred.
RESPONDENT
The Respondent relied upon the following affidavits:
(a)his trial affidavit filed 17 October 2012 and the 63 annexures thereto which have been compiled in an exhibit book of documents;
(b)his Amended Financial Statement filed 18 October 2012;
(c)the affidavit of Mr X filed 17 October 2012;
(d)the affidavit of Mr DD filed 17 October 2012;
(e)the affidavit of Ms AB filed 17 October 2012;
(f)the affidavit of Mr TT filed 17 October 2012;
(g)the affidavit of Mr KK filed 17 October 2012; and
(h)the affidavit of Mr W, a director of R Pty Ltd sworn 11 October 2011 in the Supreme Court proceedings that had been instituted against the Applicant and his associated corporate entity, which affidavit, but without its annexures, is the document referred to as “JFM-50” to the Respondent’s trial affidavit.
The Respondent also filed pursuant to my case management directions an Outline of Case document on 25 October 2012 which included the net pool of assets sought to be proved and a detailed chronology together with a summary of legal argument filed 26 October 2012 which I have read and carefully evaluated.
An issue arose late on the first day of hearing because the Respondent’s solicitors had filed, as annexures to the trial affidavit of their client, inappropriately marked documents which had endorsed in handwriting thereon assertions or conclusions made by the Respondent or those representing him, presumably as a result of some financial investigation they or others had undertaken. For example, certain of the annexures were endorsed with the word “forgery”.
Whilst there was no application made whereby it was alleged that I had received and read inappropriately filed material, or that such material would or could have had an adverse impact upon my judgment, nevertheless I determined that all of the offending annexures be removed from the Court file.
The original trial affidavit of the Respondent and its 63 annexures had been e-filed on 17 October 2012 and that copy was placed upon the Court file. At my request, the affidavit and its annexures had been compiled into an exhibit book of documents and I was supplied with two working copies of the exhibit book, one for myself and one for my legal associate. All documents, both the original affidavit on file and the two supplementary copies of the exhibit book, were inappropriately marked.
Pursuant to my direction given in open Court, a fresh copy of the affidavit and all annexures was later produced to Court and, by leave, filed on 30 October 2012. One copy was retained on the Court file and I was again provided with two exhibit books. The original e-filed document was placed in a sealed envelope and retained upon the Court file. My working copy of the exhibit book, and that of my legal associate, were returned to the Respondent’s solicitors.
I record that there was no opposition from Senior Counsel for the Applicant to this process. I further record that the immediate intent and action of the Court was to secure and validate the hearing process, to remove the offending documents from the Court file but to secure the original in safe custody if ever it be so needed to be further inspected.
PREVIOUS COURT ORDERS
There have been numerous Court orders made in the case management and interlocutory stages of this matter and those which are of relevance and some importance included, in summary:
29 MARCH 2011
On this day various procedural orders were made by consent before Registrar Lethbridge. A specific order was made requiring the discovery of all documents, by the Applicant, relevant to A Pty Ltd. A notation was made to that order, which became important in the final hearing, stating that “The Applicant saying [sic] that he has no interest in [A Pty Ltd] and that it is a contractor to [R Pty Ltd] only”.
12 OCTOBER 2011
The matter was before me on 15 September 2011 in relation to the Respondent’s Application in a Case filed 26 May 2011 and the Applicant’s Response to that Application filed 24 June 2011. I made orders and delivered a substantial judgment on 12 October 2011.
Amongst other procedural orders I granted a certificate to the Applicant pursuant to s 128 of the Evidence Act 1995 (Cth) for evidence voluntarily given by him in these proceedings, which may prove that he had committed an offence under the Taxation Administration Act 1953 (Cth), the Crimes Act 1914 (Cth) or the Criminal Code 1995 (Cth). The certificate was restricted to evidence given by the Applicant in his current and any future amended Financial Statements or affidavits.
The parties’ costs of the hearing that day were reserved and the parties were given seven days to file written submissions regarding the quantum and basis of costs. That costs issue has not yet been resolved and it remained an outstanding matter for determination in the final hearing.
13 APRIL 2012
The matter was again before me on 13 and 28 March 2012 in relation to an application by the Applicant for an interim property payment. I made orders and delivered a substantial judgment on 13 April 2012.
In summary, I dismissed the Application for interim property orders and reserved the question of costs.
28 MAY 2012
The matter was before me this day to hear and determine the Respondent’s application for the costs that had been reserved on 13 April 2012, in relation to the Applicant’s unsuccessful application for an interim property payment.
I ordered that the Applicant pay the Respondent’s costs and fixed those costs at $29,500. I ordered that the payment of the costs be deferred until the final determination of these proceedings.
I also ordered:
§ the valuation of the Respondent’s business (to be undertaken by Mr Y);
§ the valuation of the real properties in Melbourne Suburb 1 and Melbourne Suburb 3 (to be undertaken by BB Valuers); and
§ the valuation of Sydney Suburb 1 (to be undertaken by CC Valuers).
I ordered that all valuations be undertaken at the joint expense of the parties, with the Respondent to pay for the valuations upfront, to be later reimbursed by the Applicant as to 50 per cent.
It is agreed between the parties that the costs in the sum of $29,500 as well as the Applicant’s 50 per cent share of the valuations remain outstanding, and are to be adjusted accordingly in the final orders.
3 OCTOBER 2012
Amongst various procedural orders made in preparation for final hearing, I ordered that the parties appoint Z Valuers to prepare a retrospective valuation of the Respondent’s business as at 30 June 2005. I again ordered that the valuation be performed at the joint expense of the parties, to be paid initially by the Respondent, to be later reimbursed by the Applicant as to 50 per cent. It is again agreed that the Applicant’s share remains outstanding and must be adjusted accordingly.
I also ordered Mr Y to reconsider the range of valuations that he provided in his report dated 15 August 2012 and, if proper, narrow the range that he had therein provided.
It was noted on those orders that the parties agreed on the valuations for the real properties in Melbourne Suburb 1, Melbourne Suburb 3 and D Street, in accordance with the valuations obtained. It was further noted that an issue to be determined at the final hearing was the date of separation, with the parties remaining in dispute as to the actual date of separation.
BACKGROUND FACTS
The following were agreed facts in the hearing:
… 1980 Date of birth of Respondent
… 1983 Date of birth of Applicant2001Respondent settled purchase of N Street, Melbourne Suburb 1
July 2003Respondent settled purchase of O Street, Melbourne Suburb 1
January and March 2005 Respondent travelled to England in preparation for an exhibition
May 2005Respondent travelled to England to attend the exhibition. Applicant also travelled overseas
31 May 2005 Settlement of Respondent’s purchase of P Street, Melbourne Suburb 3
Late May / July 2005 Parties commenced cohabitation
August 2005 Settlement of sale of N Street, Melbourne Suburb 1
July 2007Purchase of units 1, 2 and 3, S Street, Melbourne Suburb 4
May 2007Settlement of sale of P Street, Melbourne Suburb 3
September 2007 Settlement of sale of units 1, 2 and 3, S Street, Melbourne Suburb 4
October 2008 Settlement of sale of O Street, Melbourne Suburb 1
May 2009Settlement of purchase of C Street, Sydney Suburb 1 NSW
May / June 2009 Parties relocated to live in Sydney
June 2009Settlement of purchase of D Street, Melbourne Suburb 1
15 January 2010 Parties separate
March 2010Settlement of sale of units 1, 2 and 3, S Street, Melbourne Suburb 4
22 December 2010 Applicant issued proceedings in Family Court
April 2011 Purchase of K Street property
October 2011 Supreme Court proceedings commenced against the Applicant by R Pty Ltd
9 November 2011 Applicant enters into Terms of Settlement of Supreme Court proceedings with R Pty Ltd
6 December 2011 Supreme Court Order for Judgment entered against Applicant
7 December 2011 Freezing Order of Supreme Court made against Applicant
16 January 2012 Applicant commenced his then employment with Business L in Sydney
April 2012Applicant’s employment with Business L terminated
DATE OF COMMENCEMENT OF RELATIONSHIP
The Applicant initially asserted that the parties commenced their relationship on 4 December 2004 and that from the commencement of the relationship they shared their respective incomes, assets and resources.
By identifying this commencement date, the Applicant sought to bring into the relationship the timetable of the purchase of P Street, Melbourne Suburb 3, the sale of N Street, Melbourne Suburb 1 and their overseas travel to England, and other European sites, for the exhibition.
The Applicant’s initial evidence was that upon settlement of P Street in late May 2005 the parties moved into that home together and lived in a stable relationship.
The Respondent’s evidence is that it was only from late July 2005 that they commenced a relationship and lived as partners. Prior to that, and from December 2004 they had shared a personal relationship and, whilst they were close friends, they were not partners.
The Respondent further asserted, that at that time, the Applicant had represented that he was a person of substantial independent wealth. I accept the Respondent’s evidence in that regard and find that the Applicant’s then representations were false and unwarranted.
I have read and carefully evaluated the Respondent’s evidence in paragraphs 9 – 19 (inclusive) and paragraph 22 of his trial affidavit, which I have accepted.
The Applicant, in his reply affidavit, identified that:
(a)an intimate relationship commenced in December 2004;
(b)he stayed over at the Respondent’s home 3 – 4 nights per week until May 2005 though he maintained his own residence in Melbourne throughout that period; and
(c)the parties moved together to P Street in May 2005 at which time the relationship commenced.
The Applicant therein changed the commencement date of the relationship to late May 2005 and it became evident in the proceedings that he and his Counsel abandoned the position that the relationship had in fact commenced in December 2004.
I accept the Respondent’s evidence that the initial agreement was that the Applicant would move into P Street on the basis of being a flat mate, and that there would be some independence in their lifestyles. That quickly changed and the parties permanently shared the main bedroom and commenced their relationship as partners from July 2005.
Whilst I accept that there was a regular intimate relationship before, during and after the trip to England, I conclude that their relationship commenced, as the Respondent deposed, in the latter part of July 2005.
AGREED ASSET POOL
The parties agreed that the following assets, and their respective valuations where agreed, should be included in the final pool of assets:
(a)C Street, Sydney Suburb 1, at an agreed value of $5,250,000 (as valued by a single expert valuer);
(b)D Street, Melbourne Suburb 1, at an agreed value of $6,500,000 (as valued by a single expert valuer);
(c)the Respondent’s business, Business G, although the valuation of that business is in dispute; and
The parties also agreed on their respective superannuation entitlements being included in the asset pool, as follows:
(a)Respondent’s Super Fund 1, valued at $44,545;
(b)Applicant’s Super Fund 2, valued at $44,271; and
(c)Applicant’s Super Fund 3, valued at $15,835.
The parties agreed that the following liabilities, and their respective values, should form part of the asset pool:
(a)the secured debt over Sydney Suburb 1 in the amount of $2,000,000;
(b)a Commonwealth Bank line of credit secured over Sydney Suburb 1 in the amount of $325,000; and
(c)a Commonwealth Bank bill regarding D Street in the amount of $4,500,000.
FINANCIAL ISSUES IN DISPUTE
At the commencement of the hearing, and in each of their Case Outline documents, the parties identified the financial issues where either valuations or contributions were in dispute or otherwise where there was an issue as to whether they were relevant to the period of cohabitation or to the Court’s determination of the net pool of assets. These financial issues included:
(a)the valuation of Business G and the Murphy Trust, both as at the date of cohabitation and the date of hearing;
(b)the acquisition, valuation and current encumbrances secured against K Street, Melbourne Suburb 3;
(c)the personal savings of the Respondent which he had disclosed in his Financial Statement to be now $77,000;
(d)the total liability, including interest, costs and penalties owing by the Applicant to the Australian Taxation Office;
(e)any liability or personal loan payable by the Respondent to Business EE;
(f)any capital gains tax that could or would be payable upon a future sale of D Street;
(g)each of the add backs finally sought by the Respondent which were identified as:
§rent said to be paid in advance by the Respondent for the benefit of the Applicant in the sum of $18,000 (later reduced to a claim for $15,000); and
§insurance claim monies received by the Applicant as a result of an alleged second burglary at his former rented residence, in the sum of $48,006;
(h)whether $1,760 in traffic fines paid by the Respondent on the Applicant’s behalf should be brought into account; and
(i)payment of reserved costs and valuation costs.
R PTY LTD – SUPREME COURT ORDERS
R Pty Ltd commenced an action against the Applicant and an investment company of which he was a beneficiary, E Pty Ltd in October 2011. R Pty Ltd claimed that the Applicant had misappropriated funds and engaged in other fraudulent activities, the result of which was a loss to R Pty Ltd of a sum either totalling approximately $566,000 (as deposed to by the Respondent in these proceedings) or a greater sum of up to $745,000, including legal and accounting costs estimated at $100,000 (as provided for in the Terms of Settlement document which is annexure “E” to the Applicant’s affidavit in these proceedings).
As indicated those Supreme Court proceedings were initially settled out of Court and Terms of Settlement were entered into between all parties and dated 9 November 2011. In full settlement of the claims against him, and on the basis of a denial of liability, the Applicant agreed to pay R Pty Ltd a sum of $390,000 within nine days of him executing those Terms of Settlement.
The Applicant defaulted in the payment and enforcement proceedings were instituted on 5 December 2011 seeking orders for judgment in the sum of $390,000 plus interest and costs.
Freezing Orders were then issued by the Supreme Court of Victoria on 7 December 2011 and they are directed both to the Applicant personally and to E Pty Ltd, although they differ in the particular assets which were identified and frozen by Court Order. Those Orders provided for payment of a sum of $450,000 as a priority payment and before the Freezing Orders could be discharged.
Pursuant to paragraph 4(a) of those Freezing Orders both the Applicant and E Pty Ltd were restrained, until further order of that Court, from removing from Australia or in any way disposing of or dealing with or diminishing the value of any of their assets within Australia to the unencumbered value of $450,000. Otherwise the Order restricted any further disposal of, dealing with or diminishing of what is described as ex-Australian assets that would be required to secure the sum of $450,000.
For the Applicant, his identified frozen assets are described in paragraph 5(a)(iii) of the Freezing Order, and included his various Australian and overseas bank accounts and the property owned by E Pty Ltd at I Street, Melbourne Suburb 1. Likewise E Pty Ltd was restrained from dealing with or divesting any asset that it may hold on trust for the Applicant, inclusive of its property interests in the I Street property.
It is important to record that both the Applicant and E Pty Ltd each gave undertakings to the Victorian Supreme Court to submit to the Freezing Orders and the undertakings are annexed to each of the Orders as schedule A thereto and therefore are in evidence before me in this hearing.
The Freezing Order of the Victorian Supreme Court remains alive as against the Applicant and E Pty Ltd.
The final orders sought by the Applicant however argue that the payment pursuant to the Freezing Order of the sum of $450,000 is not a required priority and that there should be first paid out, on behalf of the Applicant, to his past and present lawyers their costs and disbursements with any balance then being paid in discharge of the Orders of the Supreme Court and thereafter with the balance paid to the Applicant, he being responsible to pay and discharge his liability to the Australian Taxation Office and any other personal debts.
The priority of such payments are matters upon which I have received a separate written legal submission and I have considered and determined these issues hereafter in my Reasons for Judgment.
S 128 CERTIFICATES
I heard legal argument on 15 September 2011 upon the issue of granting to the Applicant a Certificate sought pursuant to s 128 of the Evidence Act 1995 (Cth) (“Evidence Act”). I delivered a substantial Judgment on 12 October 2011 and determined that a limited Certificate should be given to the Applicant in respect of particular evidence which was to be given willingly by him in these proceedings and as would be contained within his then current and future affidavits and Financial Statements, and only in relation to these proceedings for division of property of the relationship.
That Certificate is attached to the Court file, and to the previous affidavits of the Applicant and its granting was not the subject of any appeal.
For the purposes of this hearing I have carefully read my considered Reasons for Judgment which provided a substantial factual background to the conduct of the Applicant and the financial and taxation issues that were then in evidence before me.
On the first day of hearing a further issue arose as to the granting of an additional or extended Certificate pursuant to s 128 of the Evidence Act. In the course of his client being cross examined, Mr Ackman rose and addressed the Court on the issue of his client being given a warning against self incrimination and highlighted that the existing Certificate did not cover viva voce evidence given in this defended hearing.
Senior Counsel for the Respondent made no submissions and did not contest the extension of the protection offered by the further s 128 Certificate sought.
In paragraph 130 of my previous Judgment in granting the protection Certificate for affidavits filed in these proceedings I said:
It is unnecessary to now extend the coverage of the s 128 Certificate to oral evidence given by the Applicant in these s 90SM proceedings as he has the right to claim privilege under s 128 at any time he gives oral evidence in relation to questions posed to him in examination-in-chief, cross examination and re-examination at the trial of these proceedings. It is likely, based on these Reasons, that such a claim would be granted.
I therefore delivered brief extempore Reasons for Judgment, without leaving the Bench, extending the protection for the Applicant against self incrimination to any oral evidence given in cross-examination or re-examination in this hearing. I subsequently signed such a Certificate which was issued to the parties and the original has been retained upon the Court file.
STANDARD OF PROOF
The appropriate standard of proof that I have applied is the civil standard, namely the balance of probabilities. The more serious that the matter was, or its importance in this case, then I have more strictly examined the level of proof required.
Section 140(1) of the Evidence Act provides that a Court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities. Sub-paragraph (2) further provides that, without limiting the matters that the Court may take into account in deciding whether it is so satisfied, it is to take into account:
(a) the nature of the cause of action or defence;
(b) the nature of the subject matter of the proceeding; and
(c) the gravity of the matters alleged.While Dixon J’s classic discussion in Briginshaw v Briginshaw (1938) 60 CLR 336 of the operation of the civil standard of proof does express the considerations which s 140(2) of the Evidence Act requires a court to take into account, the correct approach, as recently observed by Branson J (with whom French and Jacobson JJ agreed) in Qantas Airways Ltd v Gama (2008) 167 FLR 537, at para 139 is that :
. . . references to, for example, “the Briginshaw standard” or “the onerous Briginshaw test” . . . have a tendency to lead a trier of facts into error. The correct approach to the standard of proof in a civil proceeding in a federal court is that for which s.140 of the Evidence Act provides.
Similarly, in Johnson & Page (2007) FLC 93-344, at p 81,891, the Full Court of this Court expressly agreed with the “view that reference to the Evidence Act, rather than Briginshaw, is appropriate”.
OBSERVATION OF PARTIES AND WITNESSES
I have had what I consider to be in this case the very real benefit of observing the Applicant, his witnesses and the Respondent in giving evidence on oath and in observing each of them in the courtroom and also when they were cross‑examined. That observation of them has been of assistance in formulating appropriate orders. Those observations are acutely available to a trial judge and the legal authority for such a position is that part of the judgment of Kirby P in Government Insurance Office of New South Wales v Bailey (1992) 27 NSWLR 304 at p 313:
By conventional theory, the observations made by a trial judge of the appearance and demeanour of a witness giving evidence are not only available to be used in the determination of a dispute but amount to important ingredients of the decision-making process. They normally provide the primary decision-maker a distinct advance which controls, and even limits, the exercise by the appellate court of its statutory functions in an appeal by way of re-hearing.
I have had the significant benefit of hearing all of the evidence in its entirety, of reading carefully all of the affidavits, the annexures to the affidavits and the other exhibits in the proceedings. I have reflected upon and have weighed all parts of the individual testimony against the balance of all evidence prior to delivering these Reasons for Judgment. I stress that, in this case, my Court observations of the parties were of real benefit and importance.
The unique role and observations of a trial Judge have been highlighted by the House of Lords, Appellate Committee, in the case of In re J (a child) (FC), judgment delivered 16 June 2005 and I refer to this opinion to support my observations in this case.
In paragraph 4 and paragraphs 10-12 (inclusive) of the Judgment of Baroness Hale of Richmond the role of the trial Judge in the evaluation of oral evidence was considered in paragraph 10 thereof and it was there stated that:
The Court of Appeal appears to have intervened on the basis, first, that the judge’s conclusion on the risk was not justified by the evidence and second, that he had given it too much weight in his overall conclusion. Yet the assessment of the risk depended entirely on the judge’s evaluation of the father’s present intentions and likely future behaviour and its impact upon the child. There was objective evidence of the risk in the fact that the father had made the allegations in writing and then withdrawn them when he saw that they were damaging rather than helping his case. Whether he might do so again depended crucially on the judge’s evaluation of his oral evidence. The judge was the only person who could do this. He concluded that, while the father was sincere in his current intention not to raise such allegations again, there was a serious risk that if disputes arose in future, as they might easily do, he would resurrect them. These were findings of credibility and primary fact with which, for all the reasons explained by Lord Hoffmann in Piglowska v Piglowski [1999] 1 WLR 1360, at pp 1372-3, an appeal court is not entitled to interfere.
I have recorded my observations of the parties and others and made findings on their evidence as part of my evaluation of this case.
FAMILY LAW ACT 1975 (CTH) (“THE ACT”)
The Court’s jurisdiction to make a property order in relation to a de facto relationship arises from Part VIIIAB of the Act. It is agreed between the parties, and I accept, that a de facto relationship existed between the parties at the relevant time for the purposes of the Act. I am therefore satisfied that I have jurisdiction to make property orders in respect of these parties.
Section 90SM of the Act gives the Court the power to alter the property interests of the parties, once jurisdiction is established. Section 90SM is drafted in almost identical terms to s 79 and the s 79 principles that have been established through a long line of case law are therefore also relevant and offer guidance to the application of s 90SM. This was conceded by Senior Counsel for both parties who each supplied a list of case law which highlighted the application of s 79 principles to a s 90SM determination.
The proper approach to determining a s 79 application, and accordingly a s 90SM application, is now well established, both by the Act and by case law (see, for example, Davut and Raif (1994) FLC 92-503; Clauson and Clauson (1995) FLC 92-595; Mallet v Mallet (1984) 156 CLR 605; Hickey & Hickey & Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143; Waters & Jurek (1995) FLC 92-635 and Norbis v Norbis (1986) 161 CLR 513).
Section 90SM(3) requires that any order made by the Court must be just and equitable and provides that:
The court must not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.
Section 90SM(1) of the Act directs a Court to make such an order as it considers appropriate. As has been highlighted by Cronin J in Bulleen & Bulleen (2010) 43 Fam LR 489 at paragraphs 34-45 (inclusive), the process by which the Court determines such an order may appear arbitrary and without any particular arithmetical approach, but that is the way in which the Act was drawn, proclaimed and has served our community from 1975. It is discretionary and it was observed that “it is also not governed by morality but fairness”.
It is therefore a balanced and properly explained assessment by a trial judge having heard and carefully evaluated all of the admissible facts and evidence of what division of property and what other orders are to be made between the parties to achieve a just and equitable result. That is the process which I have carefully undertaken and explained within these Reasons for Judgment.
The “extraordinarily wide” discretion of a trial judge determining a s 79 application, and accordingly a s 90SM application, was recently highlighted by Murphy J in Smith & Fields [2012] FamCA 510, where his Honour said at para 27:
However unsatisfactory or uncomfortable an “extraordinarily wide” discretion may feel for a trial judge, it is the exercise of precisely that which the section requires and it is precisely that which confronts a trial court – albeit informed by the mandatory considerations inherit in s 79…The very wide discretion inherent in s 79 requires the Court “…to do justice according to the needs of the individual case, whatever its complications might be” [Norbis v Norbis (1986) 161 CLR 513 at 520, per Mason and Deane JJ]. That necessarily involves an acknowledgment that the circumstances of each marriage are different and that it is to those particular circumstances to which the discretion must be applied.
In considering the relevance of the percentage distribution in past decisions to the exercise of that judicial discretion, Murphy J in Smith & Fields (supra) went on to say at para 88 that:
In my view, it is appropriate…to take account of earlier decisions so as to inform generally the parameters of the discretion. However, care must be exercised; orders in any given case are about effecting individual justice by reference to individual circumstances and it is imperative that reference to those decisions should not be used as a fetter on the wide discretion inherent in the section.
It is commonly accepted that the preferred approach to s 90SM application involves a four step exercise, which I have undertaken in this judgment, namely:
§the identification of the property of the parties including their assets, financial resources and the net of their liabilities;
§the evaluation of the “contributions” or s 90SM(4)(a), (b) and (c) issues;
§the evaluation of the matters referred to in s 90SM(4)(d), (e), (f) and (g), which includes a consideration of the matters referred to in s 90SF(3); and
§a determination as to whether the result is just and equitable by reference to s 90SM(3) of the Act. In determining whether the outcome is just and equitable it is “the real impact in money terms which is ultimately the critical issues” (JEL v DDF (2001) FLC 93-075, at para 140, citing the Full Court in Clauson & Clauson (supra) at page 81,911).
In considering the alteration of property interests in this case I have identified the net assets of the parties, accepted the agreed equality of contributions during the relationship and then evaluated the other contributions made before the relationship and after separation. I have throughout this judgment identified and evaluated all such issues and findings. The reference point for the just and equitable requirement is clearly emphasised by the decision of the Full Court in Hickey (supra) where it was said at page 78-386 that:
The case law reveals that there is a preferred approach to the determination of an application brought pursuant to the provisions of s. 79. That approach involves four inter- related steps. Firstly, the Court should make findings as to the identity and value of the property, liabilities and financial resources of the parties at the date of the hearing. Secondly, the Court should identify and assess the contributions of the parties within the meaning of ss. 79(4)(a), (b) and (c) and determine the contribution based entitlements of the parties expressed as a percentage of the net value of the property of the parties. Thirdly, the Court should identify and assess the relevant matters referred to in ss. 79(4)(d), (e), (f) and (g), (“the other factors'') including, because of s. 79(4)(e), the matters referred to in s. 75(2) so far as they are relevant and determine the adjustment (if any) that should be made to the contribution based entitlements of the parties established at step two. Fourthly, the Court should consider the effect of those findings and determination and resolve what order is just and equitable in all the circumstances of the case…[references omitted]
Although that case refers to s 79, the principles apply equally to a s 90SM application and the references therein should be read as a reference to the applicable s 90SM reference.
Although the above four step process is commonly accepted as the preferred approach, it is by no means mandated by the Act, as was noted by Bryant CJ and Thackray J in Martin & Newton (2011) FLC 93-490, where at p 86-127 it was said that the four step approach:
…is not legislatively mandated, and as the Full Court said, is simply the preferred approach. This is because it will be sufficient, in most cases, to have regard to the overall justice and equity of the orders after determination of the asset pool, consideration of contributions and assessment of the relevant s 75(2) matters.
But in our view, there is no requirement that the justice and equity of the order as prescribed by s 79(2), must only be considered at the fourth (and last) stage. In our view, the requirement to make an order that is just and equitable permeates the entire decision making process, and it is not impermissible to consider it at an earlier point if the particular case requires it.
In this case I have assessed the s 90SM application using the preferred four step approach. I have nonetheless always had the justice and equity of the orders at the forefront of my mind and that requirement has permeated my “entire decision making process”.
There is a very significant obligation imposed upon the Court, in the exercise of its judicial discretion, to assess, balance and evaluate all contributions under the umbrella of s 90SM(4)(a), (b) and (c) and for the exclusive purpose of concluding a just and equitable order.
The mandatory prescription of the Act is to evaluate contributions. In Pierce v Pierce (1999) FLC 92-844 at p 85-881 the Full Court per Ellis, Baker and O’Ryan JJ said:
There is an obligation on a trial judge not only to identify the relevant contributions but also to assess them.
It is necessary for courts to assess both the “value” and “the quality with which a particular role was performed” and a very helpful assessment of this concept is developed by Warnick J in SL & EHL [2005] FamCA 132, in particular paragraphs 233-190 (inclusive) and by Cronin J in Bulleen (supra).
It is not the purpose of the relevant provisions of the Act to “equalise the financial strengths of the parties” (per Wilson J in Mallet (supra)). I have carefully safeguarded against utilising the provisions of s 90SM(4) of the Act as a “source of social engineering or as a means of evening up the financial positions of the parties” (per the Full Court in Kennon & Kennon (1997) FLC 92-757 at p 84,303).
SECTION 90SF (1), (2) AND (3)
As a maintenance order is sought by the Applicant, the Court must apply the principle that a party to a relationship must maintain the other party:
(a)only to the extent that the first-mentioned party is reasonably able to do so; and
(b)only if the second-mentioned party is unable to support himself or herself adequately whether:
(i)by reason of having the care and control of a child of the de facto relationship who has not attained the age of 18 years; or
(ii)by reason of age or physical or mental incapacity for appropriate gainful employment; or
(iii) or for any other adequate reason.
In applying this principle for maintenance matters, or for the purposes of s 90SM(4)(e), the relevant s 90SF(3) matters to which I had regard are:
(a)the age and state of health of each of the parties to the de facto relationship (the subject de facto relationship); and
(b)the income, property and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment; and
….
(f)subject to subsection (4), the eligibility of either party for a pension, allowance of benefit under:
(i)any law of the Commonwealth, of a State or Territory or of another country; or
(ii)any superannuation fund or scheme, whether the fund or scheme was established, or operates, within or outside Australia;
and the rate of any such pension, allowance or benefit being paid to either party; and
(g)a standard of living that in all the circumstances is reasonable; and
(h)the extent to which the payment of maintenance to the party whose maintenance is under consideration would increase the earning capacity of that party by enabling that party to undertake a course of education or training or to establish himself or herself in a business or otherwise to obtain an adequate income; and
(i)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; and
(j)the extent to which the party whose maintenance is under consideration has contributed to the income, earning capacity, property and financial resources of the other party; and
(k)the duration of the de facto relationship and the extent to which it has affected the earning capacity of the party whose maintenance is under consideration;
…
(n)the terms of any order made or proposed to be made under section 90SM in relation to:
(i)the property of the parties; or
(ii)vested bankruptcy property in relation to a bankrupt party; and
…
(r)any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account and
Significantly in exercising its jurisdiction the Court must disregard any entitlement which the Applicant has to an income tested pension, allowance or benefit and that I have done in concluding my Orders.
RESPONDENT’S EARLIER PROPERTY ACQUISITIONS
In paragraphs 3, 4 and 6 of his trial affidavit the Respondent deposed to purchasing property in Melbourne in the years 1999 – 2003, prior to the commencement of the relationship. I accept his evidence as to the purchases of those properties and the likely profits or losses made therefrom.
I find that this evidence of the purchase of these properties does illustrate the interest that the Respondent then had in real property and that it was then and has remained his preferred source of financial investment and security.
N STREET MELBOURNE SUBURB 1 (“N STREET”)
The Respondent purchased N Street in 2001 and on the basis of his unchallenged affidavit then contributed $180,000 of his own money as equity in that purchase. At the commencement of the relationship his equity had increased to approximately $500,000.
The Applicant may have lived in N Street for a short period, may have placed some of his furniture in the property and may have performed limited maintenance and some cosmetic improvements to the property. I do not accept he contributed any meaningful sum of his own monies thereto. I do not accept that he located a tenant, who later purchased the property.
The Applicant asserted his contributions to the sale of N Street in paragraph 13 of his affidavit involved:
Maintaining [N] Street, furnishing it, decorating it and marketing it with [Business J] and that significantly increased the value of the property.
I do not accept that evidence of the Applicant or his alleged contributions to the sale of the property. He was then an employee with Business J and though he deposed in his oral evidence that his contributions were “over and above my capacity as an employee”, I do not accept that evidence.
I accept the Respondent’s evidence in paragraph 26 of his affidavit though I balance that evidence only with the fact that the Applicant likely co-operated and encouraged the real estate agents in effecting its sale.
I have given no weight whatsoever to the Applicant’s evidence or his alleged contributions to N Street in determining my Orders.
P STREET MELBOURNE SUBURB 3 (“P STREET”)
I find the Applicant made no contribution to locating or purchasing P Street. I accept that evidence of the Respondent, contained in paragraph 18 of his affidavit which the Applicant, in his reply affidavit, did not challenge. I do not accept paragraph 11 of the Applicant’s affidavit.
Likewise I do not accept what the Applicant alleged in paragraph 18 of his affidavit and, to the extent that he visited P Street during the renovation, he did so in a limited manner, and largely out of being supportive. I do not accept that he contributed $28,500 from his Bank of Cyprus account towards the costs of renovation, as he alleged in paragraph 19 of his affidavit. I find he was not responsible for making P Street “our home”.
To the extent that the Applicant deposed to having maintained P Street in a very clean, indeed pristine condition, I have analysed these contributions as part of the homemaker issue and have accepted that he made a contribution in that regard.
I accept the Respondent’s evidence in paragraphs 27 and 30 of his affidavit and I record his evidence is corroborated by some of his witnesses.
I conclude that the profit made on the sale of P Street in March 2007 was entirely due to the financial contributions of the Respondent, the successful renovation and the sales and marketing campaign to which, at the highest, the Applicant may have committed some level of knowledge and energy though I prefer the evidence of the Respondent in paragraphs 34 and 35 of his affidavit.
O STREET MELBOURNE SUBURB 1 (“O STREET”)
The Respondent purchased O Street in July 2003 and his evidence in paragraph 7 of his affidavit is unchallenged in that he contributed $425,000 to the purchase, aside from the mortgage.
I accept the evidence in paragraph 37 of the Respondent’s affidavit as to the transfer of this property to his sole name for use as his principle residence. I accept that it was the Respondent’s decision to renovate O Street and he did so with the professionals that he appointed without any real degree of involvement by the Applicant.
I further accept his evidence in paragraphs 42, 44 and 45 thereof and I reject any evidence raised in response thereto by the Applicant.
Specifically I reject the evidence of the Applicant in paragraphs 27 and 28 of his affidavit where he alleged a significant involvement, including decision making, with the renovations to O Street, though I find that he would likely have been helpful, co-operative and supportive.
To the extent that the Applicant assisted in the furnishing of this property and in his homemaker contributions I have hereafter considered and evaluated such non-financial contributions.
3 UNITS AT S STREET MELBOURNE SUBURB 4 (“S STREET”)
This property was purchased in September 2007 for $3,480,000 and the whole of the purchase price was borrowed.
I accept the Respondent’s evidence in paragraph 41 of his affidavit and record that the Applicant’s contribution, at the highest, was to discuss the property, perhaps to advise against its purchase and thereafter, as part of his employment, to manage the rental of the three units. I do not regard his purported financial contributions in paragraph 30 of his affidavit as being of any significance but merely part of his then employment obligations.
S Street was sold at a modest loss and the sale settled in March 2010.
D STREET MELBOURNE SUBURB 1 (“D STREET”)
This property was purchased by the Respondent in the name of B Pty Ltd and he is the sole director of this entity. The purchase price was $4,500,000 and the settlement was effected in or about early September 2008.
D Street was purchased primarily as an investment property and I accept that the Applicant first discovered the property and suggested its purchase to the Respondent. Thereafter the Respondent, and those professionals whom he engaged, were solely responsible for the financing and purchase thereof.
I do accept that extensive plans were drawn up for the renovation of D Street but that ultimately the costs were substantial and did not warrant such a complete renovation of the numerous collectively owned units. There was only one certificate of title for the whole of this property.
I do not accept that the Applicant personally met the cost of improvements and in maintaining D Street prior to its purchase, it having been acquired on a twelve month purchase contract. I find that any monies so expended were provided for by the Respondent.
I accept that the Respondent paid to the Applicant $50,000 for locating and introducing him to the potential of this property. The Applicant has retained those monies and they are not to be brought to account in these proceedings, by agreement.
Insofar as there was some discussion in the affidavits of the requirement for a Binding Financial Agreement to be drawn evidencing the parties commitment to the D Street property, I have no further evidence on this issue and such an agreement was never prepared or executed. There was an admission in the affidavit of the Respondent that he would additionally pay 10 per cent of any profits of D Street, if and when realised on its sale, to the Applicant though purportedly it was conditional upon entering into a Binding Financial Agreement. This issue was never the subject of cross-examination though, of more interest, is the denial by the Applicant in paragraph 25 of his affidavit in reply that any such proposal was ever offered him by his partner. I simply do not know. It was not an issue of any real importance to the parties or their legal representatives in the trial and thus I have made no findings and this issue has played no part in my final Orders for a division of property.
The Applicant’s primary argument is that D Street had increased in value by $2,000,000 since its acquisition and that, because of his financial and non-financial contributions thereto, he should be entitled to a share of that increase in profit. I do not agree but, that said, the Applicant’s understanding of the local real estate investment market and his discovery of this property are relevant matters in the overview of his contribution made during the relationship. That is therefore one of the factors which have blended together in determining the percentage assessment of the contribution that he made to the relationship.
D Street was always an investment property and thus there are no homemaker or like considerations to this property.
I have assessed the property of the parties as inclusive of that $2,000,000 increase in valuation for this property. Thus it forms part of the assets available for division, subject to my findings of contribution and upon the s 90SF(3) factors. I have not treated this property as an individual asset and given the Applicant any share thereof. I find that would not be a proper approach and I have not followed an asset by asset division, but rather a global approach to the identification and valuation of the available net assets. Such an approach is proper and best facilitates a just outcome.
C STREET SYDNEY SUBURB 1, NSW (“SYDNEY SUBURB 1”)
I accept that there were financial and taxation issues that arose because the Respondent did not have a principal place of residence in his sole name. I accept that the Applicant first identified this Sydney property in about March 2009 and that it was purchased in the following month for $6,150,000 in the sole name of the Respondent. The substantial invested sums which the Respondent had received from the sale of earlier properties, in the combined sum of $4,000,000, was applied towards its purchase.
I find that the Applicant did not make and was not involved in the decision to purchase Sydney Suburb 1, he was not involved in any of the financial negotiations, but that his involvement was limited to researching and sourcing that property and suggesting its purchase to the Respondent. That nevertheless was an important contribution.
Sydney Suburb 1 was the parties’ Sydney residence and they lived there over the period of approximately eight months leading up to their final separation in January 2010.
The Applicant’s non-financial contributions were modest though I do accept that there was a level of homemaker contributions which I have hereafter assessed.
Sydney Suburb 1 was leased post separation and continues to return an attractive rental income to the Respondent.
The property has reduced in value by $900,000 since its purchase, but nevertheless the Respondent was keen to retain ownership because of its unique location with harbour views and what I understood to be high confidence in the premium property market in that exclusive area of Sydney.
K STREET MELBOURNE SUBURB 3 (“K STREET”)
In April 2011, some fifteen months after separation, the Respondent purchased K Street in the name of F Pty Ltd for $2,370,000. The purchase was financed with a loan from the Commonwealth Bank and the assistance of a loan from his father of $750,000, which has been refinanced in the circumstances deposed to by the Respondent in paragraphs 125 and 126 of his trial affidavit.
The Applicant asserted that he had no involvement with K Street and that he should not, in any way, be responsible for the fact that it is said to have decreased the value of the Respondent’s net asset pool. The Applicant asserted that the Respondent “paid more for [K Street] than its current valuation” and objected to that asset and its substantial liabilities being brought to account in the proceedings. That matter is deposed to in paragraph 66 of his reply affidavit.
The current value of K Street is $2,175,000 and its two secured liabilities are said by the Respondent to total $2,377,344. One of the two secured liabilities over the property relates to part of the money loaned to the Respondent by his father, which was subsequently refinanced by the Commonwealth Bank as to $600,000. The total of the secured liabilities over K Street result in a negative sum of approximately $200,000 by way of a downwards adjustment to the pool of assets.
K Street is rented and its net income partly offsets the commercial interest payments required to be made by its registered owner. Given however the respondent’s past history of acquiring real property for commercial reasons and to acquire taxation relief I conclude that it is very likely that this property is negatively geared, though there was no proper focus on this issue in the hearing.
The recent financial statements and taxation returns of F Pty Ltd were not called for or tendered and thus were not cross-examined upon. This matter could have been more carefully prepared and fully explored as it does focus attention upon whether the net liabilities of K Street should be included within the final net asset pool which the Court must determine as the primary step in the evaluation of a just and equitable division of property.
Whilst I have determined that it is proper to value real property, and other assets and liabilities, as at the date of hearing and not as at separation, I nevertheless have a very real concern as to the justice and equity of including, as at the date of hearing, or at all, the following items:
(a) the K Street mortgage/commercial debt; and
(a)the Business EE loan.
Evaluating the evidence concerning K Street I have concluded that a just and proper approach for both its value and its associated liabilities is that they should be excluded from the net pool of assets. The recent commercial / borrowing activities against K Street, any taxation deductions that may be received therefrom to the benefit of the Respondent and the firmly stated intention to retain ownership of the property all support that both its value and its liabilities be excluded from my final consideration and adjustment. Thus the Respondent will retain his ownership and control of the property and be responsible for all of its liabilities and otherwise retain any commercial or taxation benefits arising therefrom.
I have adopted a consistent and like approach to the Business EE loan and I have considered this matter hereafter in my Reasons for Judgment.
BUSINESS EE LOAN
The Respondent also sought to include in the asset pool a personal loan from Business EE, which is an entity of the Respondent’s father and the loan has been colloquially referred to throughout these proceedings as a loan from the Respondent’s father.
The Respondent deposed to the circumstances surrounding the loan in paragraph 126 of his trial affidavit. In summary, an amount of $450,000 in total has been loaned to date. Part of this $450,000 related to the original money advanced by the father to the Respondent for the purchase of K Street. As discussed above, although $600,000 of the original loan from the father was refinanced by the Commonwealth Bank and is now a secured liability over that property, the father had originally advanced $750,000 and that difference now forms part of the Business EE loan. The remaining part of the $450,000 Business EE loan that does not relate to K Street has been applied to various other expenses of the Respondent, all post-separation.
The Respondent originally sought to include the full $450,000 liability in the asset pool. However, a decision was taken by him late in the hearing following the Respondent’s cross-examination to reduce the sum sought to be included in the pool to $350,000. Mr North submitted that this reduction reflected the concession made by his client that $100,000 of the $450,000 loan related to the payment of his legal fees and it was conceded that such payments should not be brought into account in these proceedings.
The Respondent did not file an affidavit of his father and thus there was no corroboration of that alleged debt, notwithstanding that there was no active challenge of him in cross-examination of these amounts.
I have concluded that it is a just and equitable outcome to exclude the sum of $350,000 as a relevant and appropriate liability in these proceedings. I have carefully re-read paragraphs 125 and 126 of the respondent’s affidavit, though I have no further detailed evidence upon the further loan agreement dated 20 June 2011. Why the further $350,000 was then required was never fully explained and I record that the majority of those monies were paid to various bank accounts of the Respondent. Likewise the taxation benefits, if any, accruing to the Respondent, or his associated corporate entity were never explored in relation to these liabilities.
It is likely that the $27,500 paid to the architect would, in whole or in part, be deductible but ultimately I do not have the evidence to draw that final conclusion.
Nevertheless I have concluded that it would not bring about a just and equitable outcome to include this Business EE liability within the final net asset pool and I have therefore wholly and intentionally excluded this liability.
LEGAL PRINCIPLES – INITIAL FINANCIAL CONTRIBUTIONS
One of the important legal issues in this case is the weight to be given to the greater initial financial contributions of the Respondent, in light of the subsequent contributions made by both parties during an approximate four and a half year relationship. The approach to be taken to initial contributions has been considered and developed over the years by the Full Court.
In the past, there was a focus on whether subsequent contributions during a relationship off-set the initial contribution. This approach was taken by the Full Court (Fogarty, Maxwell and Nygh JJ) in In the Marriage of Lee Steere (1985) FLC 91-626, where at page 80,078 it was stated that:
the strength of a contribution made at the inception of a marriage is eroded, not by the passage of time but by the off-setting contribution of the other spouse…
This approach was thereafter followed in the dissenting judgment of Fogarty J in Money and Money (1994) FLC 92-485, where at page 81,054 his Honour stated that:
an initial substantial contribution by one party may be “eroded” to a greater or lesser extent by the later contributions of the other party even though those later contributions do not necessarily at any particular point outstrip those of the other party.
Fogarty J’s statement was subsequently approved by the Full Court in Bremner and Bremner (1995) FLC 92-560 and in Way and Way (1996) FLC 92-702.
A somewhat different approach later emerged in the Full Court decision of Pierce and Pierce (1999) FLC 92-844 (Ellis, Baker and O’Ryan JJ), which moved the focus away from the erosion of the initial contribution and instead placed the emphasis on the weight that should be attached to the initial contribution. At page 85,881 the Full Court made the following, now oft cited, statement:
In our opinion it is not so much a matter of erosion of contribution but a question of what weight is to be attached, in all the circumstances, to the initial contribution. It is necessary to weigh the initial contributions by a party with all other relevant contributions of both the husband and the wife. In considering the weight to be attached to the initial contribution, in this case of the husband, regard must be had to the use made by the parties of that contribution. In the present case that use was a substantial contribution to the purchase price of the matrimonial home…
Pierce (supra) is now accepted and has been cited with approval in many subsequent cases. The Full Court (Finn, Kay and Burr JJ) in the case of Quaresmini and Quaresmini [1999] FamCA 1314 emphasised that initial contributions must be assessed in all of the circumstances of the case. At para 39, the Full Court stated that:
There is no principle that the length of the marriage leads to a likelihood that other contributions will outweigh or weigh equally with ‘a particular contribution’. It is a matter of assessing the contributions of all relevant kinds in each case to arrive at an outcome which is both appropriate and just and equitable. In some cases particular contributions may be outweighed or equaled by other ones. In other cases particular contributions may be so disproportionate to other contributions as to merit special recognition.
It is also clear from Pierce that consideration must be given to the use that the parties made of the initial contribution. This was an important consideration in Verley & Verley (No 2) [2008] FamCA 326 where Cronin J said that the initial contribution by the husband “was clearly the catalyst for a significant portion of the parties’ income and lifestyle as well as the current asset pool”.
Following Pierce I have evaluated the weight and the monetary value that should be attached to the Respondent’s far greater initial contributions. I have also assessed the weight of those contributions in the context of the use that the parties made of that contribution in their acquisition, conservation and improvement of property which now remains available to be divided.
I turn now to assess whether some or all of the additional primary income tax assessed component of the Applicant’s debt to the Australian Taxation Office should be accepted as a joint liability. Separately, the further issue is whether the additional legal and related costs of that debt should also be brought into account. I have previously set out the agreed breakdown of the two separate components which form the total liability being:
§ $233,959.50 for the income tax account, that is, the amended income tax payable; and
§ $101,906.93 for the legal action account, which presumably includes interest accrued and any penalty component.
I find that the legal action account, inclusive of interest accrued and penalties imposed should properly be and remain the sole responsibility of the Applicant. I do appreciate that he has not had the available monies to pay or reduce this indebtedness but it was incurred solely by his wrongful or fraudulent actions, his failure to disclose income and pay appropriate tax in a timely manner. In that circumstance it would not be just, and it would be highly inappropriate, to rest partial responsibility for the payment of these monies upon the Respondent. Thus the sum of $101,906.93, in its increasing sum from time to time, must be paid by the Applicant.
As for the amended primary taxation debt I have considered that sum within the context of the relationship, the date of separation as I have found and my satisfaction that some of the offending income was expended to the benefit of both parties and their relationship and therefore the lifestyle of the Respondent. I have assessed this taxation debt as at the date of hearing.
In the exercise of my discretion, and on the available evidence, I have concluded that a just outcome to both parties is to require the Respondent to make a payment towards the discharge of the Applicant’s primary tax obligation. I find that a just and equitable outcome would be for him to pay 30 per cent of the primary tax, that is a sum of $70,188 (being 30 per cent of $233,959). I emphasise that this division of the taxation payment responsibility is made as a preliminary step and is wholly separate and distinct from the overall property adjustment which I have ordered. They are different percentages and I find that is proper.
I record that I have not adopted a strictly mathematical approach in determining this adjustment but rather have reflected upon all of the evidence and the relationship and reached what I regard as a just, reasonable and proper outcome.
Thus, for the purposes of the orders that I have pronounced I have adjusted the sum of $70,188 in favour of the Applicant and otherwise he is wholly responsible for the payment of the whole of the tax assessment, interest, costs and penalties thereon that has issued in his name and which is continuing to increase with interest payable.
I record that the proper treatment between the parties of this taxation liability was a difficult issue which had to be expressed in a way that achieved the just and equitable purpose that I intended.
The Respondent had sought to exclude the whole of the tax liability from the proceedings, simply on the basis that it was the Applicant’s responsibility and he should pay the entire sum. Conversely the Applicant sought to bring to account the entire tax debt, including the substantial interest costs and penalties thereon, and therefore that was included by him as a liability which would have been paid by the parties if it had been included as a liability. I find that both options as submitted by the parties were flawed and would not have produced a just outcome.
In summary, I have accepted the taxation liability as at the date of hearing and I have ordered that the Respondent pay $70,188 to the Applicant in partial reduction of that primary tax outstanding and otherwise the Applicant is wholly responsible for the repayment of the substantial balance of that liability. I conclude that such an approach does justice and equity between the parties.
PERIODIC OR LUMP SUM MAINTENANCE
On all of the evidence before me, primarily his Financial Statement, I find that the Respondent is reasonably able to pay periodic or lump sum maintenance.
On all of the evidence, primarily his Financial Statement, his present income and his foreseeable employment prospects, I find that the Applicant does have a need for maintenance and at presently he is unable to adequately support himself.
I have disregarded any entitlement of the Applicant to his Newstart Allowance or other pension or benefit as I am required to do by s 90SF(4).
I conclude that it is not appropriate to pronounce a periodic maintenance order. It is proper in the particular circumstances of this case to take account of sub-sections (b), (g), (h), (j) and (k) and balance those considerations in a proper evaluation of the s 90SF(3) factors. This I have done in determining the loading that I have found to be appropriate in adjusting the lump sum payment that I have ordered the Respondent to pay to the Applicant.
BMW MOTOR VEHICLE
I have no evidence of the current market value of this motor vehicle. It was submitted by the Respondent that its value is $32,000, however, there is no objective evidence of this. The Applicant initially submitted a zero value on the basis of no objective evidence, however, during final addresses, Mr Ackman conceded that a $32,000 value be attributed to the car as “the lowest agreed value”. I have therefore accepted a valuation of that car as $32,000.
It is a matter of consent that the Respondent cause to be transferred to the Applicant that motor vehicle which is now and has always been in the Applicant’s possession. Despite that consent, the Respondent does not include the value of the BMW in his asset pool but rather sought that an adjustment be made in the Applicant’s favour in order to recognise the benefit he will obtain from that vehicle. There was a comment made by Mr North in closing addresses that the reason it is not included in the parties’ assets is that it is owned by the Respondent’s business and hence is included in the business valuation and is therefore effectively already accounted for in the net pool of assets.
Given the unchallenged evidence that the vehicle is owned by the Respondent’s business I find that it had likely been included in the valuation of that business. I therefore will not specifically include the BMW as a separate asset in the net asset pool of the parties. This is consistent with the parties’ agreed approach not to specifically account for personal possessions and chattels.
Nonetheless, I find it appropriate to account for the benefit to be obtained by the Applicant in retaining the vehicle, as is the agreed approach of the parties, and will account for the $32,000 benefit to be retained by the Applicant.
PREVIOUS COSTS ORDERS
By my previous Orders of 28 May 2012 I required the Applicant to pay the Respondent’s costs of and incidental to the hearings in this Court on 15 December 2011 and on 13 and 28 March 2012 and I fixed costs in the sum of $29,500 and deferred payment until the settlement or determination of these proceedings.
It is proper that the Applicant pay those costs and I have adjusted that sum of $29,500 against his financial entitlements pursuant to the division of property that I have ordered.
The other outstanding costs order is that, by paragraph 7 of my Order dated 12 October 2011 I reserved the costs of both parties in respect of the Application in a Case filed by the Respondent on 26 May 2011.
I have carefully considered the issues that were before the Court on that day and the Orders pronounced. I have concluded that, pursuant to s 117 of the Act it would not be a just outcome for me to make any orders in respect of that Court hearing. I am mindful of the primary requirement of that section that each party pay their own legal costs and disbursements, save where the factors to be considered pursuant to sub-paragraph (2A) thereof would render such a payment scenario to be just. This position was agreed to by the parties, and neither party sought a costs order pursuant to those outstanding orders.
I have considered all of the financial circumstances of the parties, their conduct and management of the proceedings before me, the issues and outcome that was achieved on 12 October 2011 and all other matters required and my conclusion is that it would not be just to make any costs order on that occasion. Thus I intend to discharge the costs order that I then reserved without further order.
LEGAL COSTS AND DISBURSEMENTS
Both parties were required to provide to the Court a letter in compliance with Rule 19.04 of the Family Law Rules 2004. Those letters disclosed that:
(a)the Applicant had previously incurred legal fees and disbursements owing to his former solicitors of $65,000 and his current solicitors were owed costs and disbursements of $110,000. For the estimated four days of defended hearing, including reasonable preparation time, the total fees for Senior and Junior Counsel were estimated at $55,000 and the instructing solicitor’s fees for the four days attendance at trial were $15,000;
(b)the Applicant deposed that he had secured his legal costs through the generosity of his aunt who had made available a title to property owned by her to be secured by his solicitors to ensure payment of their legal costs and disbursements;
(c)the Respondent’s legal costs and disbursements to 24 October 2012 were $142,000 approximately of which $100,000 has been paid and the balance remains outstanding. His estimated costs for the preparation and running of the trial were approximately $15,000 for solicitors and approximately $11,500 per day for his Senior and Junior Counsel;
(d)the Respondent’s evidence was that his father’s company, Business EE had advanced him a sum of approximately $100,000 and these were the monies used to contribute to his costs and disbursements and this liability was said to be reflected in the claimed liability totalling $450,000 which the Respondent asserted that he owed to his father; and
(e)in his closing address Senior Counsel for the Respondent advised the Court that he had instructions to reduce the claimed liability by the sum of $100,000 and thus the evidence of the Respondent was directed to support a present liability of $350,000 to Business EE, at least for the purposes of this Court hearing.
Thus the legal costs and disbursements are roughly similar for each party, both for past representation and the ongoing preparation and hearing of the case. I therefore have not added back either of the parties’ legal fees and disbursements into the asset pool. This is consistent with the approach taken by both parties and is a just and equitable result, given the near equality of each parties’ fees.
VALUATION COSTS PAID BY RESPONDENT
By paragraph 7 of my Order dated 28 May 2012 I ordered that, for the purposes of all valuations of real property and the business, the Respondent forthwith pay the actual costs of such valuations and later be reimbursed by the Applicant fifty per cent (50 per cent) thereof upon the settlement or determination of the property and financial proceedings before the Court. A like order was again made in my Orders of 3 October 2012, specifically in relation to the valuation of the Respondent’s business as at 2005.
The Respondent identified the various sums that he has paid for valuations in paragraph 127(d) of his trial affidavit and, whilst that evidence is incomplete, his Senior Counsel opened the case and sought payment of a sum of $14,260 and asserted that was the proper debt owing by the Applicant pursuant to my earlier Order.
The Applicant elected not to respond to paragraph 127 in his reply affidavit and thus I have no evidence of his dissent from my earlier Order.
I conclude that it is proper that the Respondent pay the valuation contribution sum of $14,260 and I have adjusted that sum against his division of property. That is a just and equitable outcome.
PROPOSED SALE OF D STREET
The Respondent identified a likely need to sell either D Street or K Street if he was required by Court Order to make a payment to the Applicant, though he did balance paragraph 111 of his affidavit by offering the alternative payment capacity to be by way of further borrowings.
In re-examination the Respondent said that “I am uncomfortable with my present level of debt”. He further added that he needed to reduce his debt load and said that he will be selling a property, preferably D Street, regardless of the final Court Orders. Accordingly I have considered that evidence though it must be assessed against the previous commercial and borrowing standards and financial situations of the Respondent. What the Court was never told was the sum that could, or otherwise could not, be borrowed by the Respondent. His final orders sought was to pay to the Applicant $87,753 within thirty days and clearly both the early payment offered and the modest quantum would not require the sale of either property.
It is therefore somewhat difficult to balance the need to sell a property to the structure of the final Orders submitted on behalf of the Respondent. Likely the scenario offered by the Respondent was that he would be prepared to sell D Street and thus, as a substantial profit would be made, he would financially benefit by bringing likely capital gains tax payments to account within the net asset pool. I am certainly not convinced on the evidence that that was always the intended option of the Respondent and indeed his evidence supporting that outcome was only developed in re-examination to the Court and was not fully explained in his affidavit.
The option of further borrowings to comply with a Court Order would be compatible with the past substantial real property acquisitions by the Respondent which have been funded by very significant borrowings, serviced by his substantial corporate income.
Under cross-examination the Respondent indicated a clear preference, that if any property was to be sold, it be D Street. He strongly resisted any suggestion that Sydney Suburb 1 be sold. At no point of his oral evidence however did he suggest that K Street would be an alternate property to be sold, notwithstanding what he had earlier deposed to in his trial affidavit or that which his uncle, Mr TT, had briefly touched upon in paragraphs 7 or 8 of his affidavit. I observe that no capital gains tax calculation was undertaken by that witness for K Street, but only for D Street. This is likely given the fact that no tax would be payable on K Street given that the current valuation is less than the Respondent paid to acquire the property.
If therefore there were any capital gains tax payable upon the K Street property, if it were to be sold at a future date, I have no evidence of its quantum, or indeed any calculation that there would be such a tax consequence. I do not accept the evidence of the Respondent in paragraph 113 of his trial affidavit.
As to Sydney Suburb 1 the Respondent had nominated that property as his principal residence and that was known to and accepted by the Applicant who had deposed in paragraphs 42 and 43 of his affidavit that:
[Mr Murphy] received further tax advice in order to avoid future capital gains tax that he needed to live in [the Sydney Suburb 1 property]. Accordingly, we took the necessary steps to relocate to Sydney and to live at [the Sydney Suburb 1 property].
That we retained [Q Street] as we were at that time approximately one year into a two year lease. We transferred the lease into my sole name and transferred all utilities to my sole name on the basis that all utilities would be in [Mr Murphy’s] sole name at [the Sydney Suburb 1 property].
Whilst the Respondent challenged the explanation of the transfer of the utility accounts into the name of the Applicant, I accept the Applicant’s evidence, as detailed in paragraph 26 of his reply affidavit that:
The utilities at [Q Street] were placed in my name by mutual agreement between us. We did this for one reason only; that was to ensure that, if [Mr Murphy] was ever audited by the ATO, his claim to having his principal place of residence in Sydney would not appear questionable. It was done to avoid the [Sydney Suburb 1] property ever being assessed for capital gains tax if it were sold within six years of purchase.
I have concluded that the Applicant would only have had the knowledge identified in the above quoted paragraph if it had been discussed with him by the Respondent or others and I accept that there is, on this issue, a substantial truth to the Applicant’s evidence.
The parties separated on 15 January 2010 when they were physically living together in Sydney Suburb 1 and since that date the Respondent has not lived in that harbour view property. It is tenanted. I find therefore that it has not been his principal place of residence since 15 January 2010. On his evidence in these proceedings, and in his new personal relationship, and with his work, business and commitments in Melbourne there was no suggestion made to this Court that the Respondent would relocate to Sydney Suburb 1 at any time in the foreseeable future, though he did give evidence that the lifestyle, work and business opportunities in Sydney may prove very attractive at a later date.
I have no application before me to sell Sydney Suburb 1 and I do not propose to order a sale of that property. Its ownership will be retained by the Respondent. In any event I had no evidence of any capital gains tax applicable to Sydney Suburb 1 which would not qualify for any exempt status as a possible residence. Its valuation however is currently markedly less than the purchase price and no such capital gains tax assessment would likely issue.
Likewise I do not intend to order a sale of D Street. On that basis it can be retained by the Respondent’s corporate entity and there will be no capital gains tax incurred directly as a result of my Orders.
I am satisfied that, with his asset base, the value of his corporate and business holdings and their income and in keeping with his past commercial borrowing activities, the Respondent could and would properly be able to fund the payments required pursuant to the Orders that I have pronounced.
I conclude that it would not be a just and equitable outcome to allow any adjustment for capital gains tax on D Street. I will not make any such adjustment to the net pool of assets. If, by his own choice, the Respondent elected to sell D Street then it is just and proper that he be solely liable to pay the capital gains tax assessed thereon, and which would be assessed in the name of the corporate entity owning that property. It is not a future liability that should in any way be passed on to the Applicant.
ASSETS
I find that the following are the assets of the parties, including their superannuation entitlements:
Sydney Suburb 1 $5,250,000
D Street $6,500,000
The Business $1,871,000
Respondent’s savings $77,105
Respondent’s Super Fund 1 $44,545
Applicant’s Super Fund 2 $44,271
Applicant’s Super Fund 3 $15,835
$13,802,756
LIABILITIES
I find that the following are the liabilities of the parties:
Secured debt on Sydney Suburb 1 $2,000,000
Line of credit on Sydney Suburb 1 $325,000
Commercial bill regarding D Street $4,500,000
$6,825,000
NET ASSET POOL
Thus the net assets available for division between the parties are $6,977,756.
SHORT RELATIONSHIP CASES
During the hearing Senior Counsel for both parties referred to reported decisions and addressed the length of the parties’ relationship and the impact that it should have upon the financial and other contributions made and the property division ordered. My starting point in the evaluation of these cases and the assistance that they offer when determining a just and equitable outcome on the facts of this case now before me is first to record that every case is different on its facts and therefore needs an individual assessment of both contribution and s 90SF factors. That is what I have done.
In Douglas & Douglas (2006) FLC 93-300 the Full Court (Finn, Warnick and May JJ) upheld an appeal and reduced the trial Judge’s award of 15 per cent to the wife to a sum of 8.36 per cent of the asset pool. That was in the context of a five year cohabitation where the wife’s primary role was as a homemaker.
There were particular issues that arose in the judgment of the Full Court, and in their examination of the underlying philosophy of the trial Judge and his taking into account extraneous matters, which they found led to a miscarriage in the exercise of his discretion. It was also found that the trial Judge’s reasons were inadequate to explain the result in that case.
In Figgins & Figgins (2002) FLC 93-122 the Full Court (Nicholson CJ, Ellis and Buckley JJ) increased an award that the trial Judge had made from approximately 5 per cent of the total asset pool to a sum that equated to almost 11 per cent thereof. That again was a somewhat unique case that turned on its own facts. The cohabitation was seven years and there was one child of the parties’ union. Inheritance issues played a significant role in that case and the Full Court found that too much weight had been given by the trial Judge to the inheritance which had undervalued the wife’s contributions.
In GBT v BJT [2005] FamCA 683 the Full Court (Kay, Holden and Warnick JJ) reduced an award of 17.5 per cent which had been made to the wife to an overall 10 per cent based effectively upon 7.5 per cent for contributions and 2.5 per cent on s 75(2) factors.
This case was strongly relied upon by Mr North and in particular the findings of the Full Court that the contribution assessment of 12.5 per cent which the trial Judge had awarded the wife was “manifestly excessive”. In that case the Full Court explained that the trial Judge had, by focusing on the disparity of income earning capacity, given insufficient weight to the shortness of the marriage and the minimal nature of the wife’s contributions. I have carefully considered each of these issues in the present case but, with the unique benefit of being the trial Judge and listening to all of the evidence and observing the parties and their witnesses, I am wholly satisfied that I have reached a just and equitable outcome in the Orders I have pronounced.
In Goodwin and Goodwin (1991) FLC 92-192 the Full Court (Nicholson CJ, Simpson and Finn JJ) retained an award of 10 per cent in favour of the wife in a four year relationship, though there was a detailed consideration of the trial Judge’s evaluation of issues of disparity of financial resources within the contribution stage. Ultimately the Full Court considered that the result of a 10 per cent award would have been the same given the issues and given the applicable s 75(2) factors.
In Lane and Wharton [2010] FamCA 18 Watt J, at paragraphs 150 – 157 (inclusive) examined reported short marriage or relationship cases and I have read and considered each of those cases which were helpfully presented by his Honour in that Judgment.
In summary therefore my obligation is to consider all relevant facts of this case now before me, to evaluate contribution and s 90SF factors and to determine a just and equitable outcome but always being mindful of the framework of previous decided cases and the guidelines established by the Full Court. That I have done.
SECTION 90SM CONTRIBUTIONS
The Applicant sought his contributions to be fixed at a sum which equalled 20 per cent of the net asset pool. In contrast, the Respondent conceded a sum equal to 5 per cent thereof.
I have concluded that a sum equal to nine per cent (9 per cent) of the net property of the parties should properly and justly be awarded to the Applicant for all of his various contributions made throughout the relationship and which I have previously examined in very considerable detail.
As I have found throughout these detailed Reasons for Judgment the Applicant did make various contributions which primarily focused upon his homemaking contribution and the acknowledged high standard of living that he provided to the Respondent, within their relationship. There were further modest financial contributions and his skill in identifying for purchase Sydney Suburb 1 and the financially significant D Street.
SECTION 90SF(3) FACTORS
The Applicant sought an effective loading of 7.5 per cent arising from his present financial and work circumstances, his modest standard of living and his entitlement to periodic or lump sum maintenance support.
In contrast the Respondent firmly and consistently argued that no such loading should apply. I find that to be a somewhat harsh, inappropriate and an unrealistic scenario on all of the facts of this case when properly considered.
I am particularly mindful of the current employment circumstances of the Applicant and the findings that I have made relevant to employment and future income producing work or related activities. The contrast between the income and financial circumstances of the parties is stark and justice and equity required that it be properly addressed. This I have done.
I have assessed that a proper loading which would do justice to the parties should be assessed at three per cent (3 per cent). As a cross check that percentage of the net asset pool of $6,977,756 would equate to almost $210,000 and I conclude that is a proper adjustment sum.
I have decided not to pronounce any order for periodic maintenance. Justice is best achieved by the provision of a lump sum adjustment which is partly reflective of the present lack of income and financial circumstances of the Applicant. This is a factor to be weighed within the reality of the financial circumstances presently confronting the Applicant with his personal liabilities, judgment debt, taxation assessments outstanding and the very substantial costs of litigation confronting him (though likewise confronting the respondent).
Collectively a three per cent (3 per cent) adjustment is proper and just in all of the circumstances of this case and it does afford an equitable outcome to both parties.
OVERALL DIVISION
I therefore conclude that a just and equitable division of the net assets of the parties is twelve per cent (12 per cent) to the Applicant and eighty-eight per cent (88 per cent) to the Respondent.
MONETARY VALUE
In monetary terms that would mean the Applicant would receive or retain $837,331 and the Respondent would receive or retain $6,140,425.
The Applicant will retain his superannuation entitlements of $60,106 and additionally, and though for the reasons explained in the judgment the value of the BMW motor vehicle is not separately included within the assets of the relationship (as it is part of the business valuation) it nevertheless had an agreed value of $32,000 and I have adjusted that sum against the required payment.
The value of the superannuation entitlement and the motor vehicle is $92,106 and as those assets are being retained by the Applicant the payment to him should be reduced accordingly and thus, subject to further adjustments, the required payment would be $745,225.
As I have already found, the respondent’s payment to the applicant must be adjusted to account for the traffic fines paid on his behalf ($1,760), the Court ordered costs owed to the respondent ($29,500) and the valuation costs agreed to be owed to the respondent ($14,260). The payment required will therefore be reduced by $45,520.
Accordingly, and subject to the further adjustment for the taxation sum dealt with in the following paragraph, the payment to the Applicant would now be reduced to a sum of $699,705.
ADJUSTMENT FOR REQUIRED TAXATION PAYMENT
As I have already found and explained the justice of this case required that the Respondent pay a sum of $70,188, to the Applicant. For the purposes of the calculations within these Reasons for Judgment the monies are to be paid to the Applicant’s solicitors on behalf of their client and the adjusted sum would increase by $70,188 and thus total $769,893.
FOURTH STEP
As is required I have taken time to properly reflect on the overall outcome of my orders, the division of property between the parties and the quantum and manner of payment required to be made by the Respondent to the Applicant. I conclude that the orders justly and equitably divide the net property of the parties and that they afford justice to each of them. I have therefore made no further adjustment to my orders.
OUTCOME
I take this opportunity to record that, in the proper exercise of my discretion in determining a just and equitable order pursuant to s 90SM(3) it was not my approach to award to the Applicant a sum sufficient to pay some or all of his liabilities. That he can do so is the outcome of a proper evaluation process and the resulting just and equitable orders that I have pronounced.
PRIORITY OF PAYMENTS ON BEHALF OF APPLICANT
An issue arose late in the hearing as to the way in which the required lump sum payment should be directed. The Applicant sought that the payment be directed strictly as follows:
§first, to the Applicant’s current lawyers, to pay legal fees including counsel’s fees in the sum of $189,000;
§second, to Law Firm 1, the Applicant’s previous lawyers, of which $65,000 remains outstanding; and
§third, $450,000 to the Supreme Court of Victoria to satisfy the R Pty Ltd debt; and
§fourth, any balance be paid to the Applicant’s lawyers to be released unconditionally to the Applicant.
As to the legal fees and disbursements owing to the lawyers who represented the Applicant in these proceedings the Court was originally advised in the final orders sought on behalf of the Applicant that they totalled $180,000 (see “A1”). Subsequently, and in final written submissions filed after the conclusion of the proceedings, those costs were increased by $9,000, as per sub-paragraph 2(b) of that submission. There was a notation to that submission saying that the amount may “vary upwards depending upon what further work the Applicant’s legal advisers are reasonably required to undertake prior to judgment”. I will allow no further sum and the Orders are drafted on the basis of the Applicant’s current lawyers being paid $189,000 (only).
The basis of the Applicant’s submission was that his legal advisers (past and present) have an equitable lien over any sum of money payable to the Applicant and that this entitled them to priority payment over any other creditors, including R Pty Ltd. The Respondent argued that the Applicant’s legal advisors had no such priority for payment of their legal fees and that any money should be paid directly to satisfy the R Pty Ltd debt.
Given time constraints I directed the parties provide written submissions on this point.
The Applicant’s written submissions are dated 19 November 2012 and in summary submitted that the Applicant’s legal advisors (past and present) have priority on the following basis:
§the Applicant’s legal advisors have an equitable lien over the lump sum payment payable to the Applicant, such lien being recognised by long established case law;
§that lien prevails and has priority as against any unsecured creditors;
§R Pty Ltd is an unsecured creditor of the Applicant and the fact that its claim has been reduced to a judgment debt does not alter that position nor does the Freezing Order create any secured interest;
§the equitable lien creates a proprietary interest in favour of the legal advisors, which this Court cannot infringe upon or derogate from; and
§in any event, priority payment to the Applicant’s legal advisors is not inconsistent with the Supreme Court Freezing Order as that Order does not restrain the Applicant from discharging legitimate encumbrances over his assets and payment of reasonable legal expenses is expressly exempted.
I am satisfied that, as a result of my Judgment and Orders the Applicant’s solicitors will receive from the Respondent a payment that is sufficient to pay the legal costs and disbursements that they have incurred, and as Law Firm 1 previously incurred, and also to cover the payment of the $450,000 sum to discharge the Freezing Order of the Victorian Supreme Court or whatever lesser sum is actually required for that purpose. That said the issue of priority is therefore not such a pressing issue as otherwise would have been the case if there had have been insufficient monies to discharge the priority and required payments sought by the Applicant in his structured final orders sought.
Whilst given the opportunity so to do the Respondent elected not to file and serve any further submissions on this issue.
I am satisfied that the Applicant’s solicitors, and his former solicitors, do have a priority entitlement in equity to a sum necessary to pay their professional costs and disbursements of and incidental to these proceedings. That entitlement is established by the various reported cases and legal principles identified in paragraphs 5, 6 and 7 of the further written submissions of the Applicant.
I therefore accept that the Applicant’s solicitors do hold a lien for payment of proper legal costs and disbursements and that they have acquired a right to have those costs paid out of the Court ordered monies now to be paid by the Respondent to the Applicant. I am further satisfied that a solicitor’s lien has been recognised as applicable to the monies provided in proceedings brought pursuant to s 79 of the Act (Twigg v Keady (1996) FLC 21-721 per Kay J), and thus it directly follows that such a recognition flows from an order made pursuant to s 90SM of the Act.
R Pty Ltd is an unsecured creditor of the Applicant notwithstanding that it secured a judgment debt and has obtained a Court Freezing Order which gives to R Pty Ltd no priority entitlement to payment (Australian Securities & Investments Commission v Rich [2003] FamCA 1114).
I accept that the priority payments proposed by the Applicant, and which I have ordered, are not inconsistent with the terms of the Supreme Court Freezing Order as the Applicant is discharging legitimate encumbrances and paying reasonable legal expenses and disbursements which were exempted from the general prohibition. It is therefore not necessary for me to further consider the detailed written submissions of the Applicant but I record my general agreement with the statement of the law and approach recorded within paragraphs 13 – 27 thereof.
Accordingly I have structured the priority of payments, which are binding upon the Respondent and his solicitors, to pay out to the Applicant’s lawyers, past and present, a total sum of $254,000 as part of my lump sum ordered payment. The payment in discharge of the Freezing Order of the Victorian Supreme Court in the sum of $450,000 is then, or otherwise contemporaneously, to be made and that will then leave a balance of $65,893 to be paid to the Applicant’s solicitors on his behalf.
I certify that the preceding Five Hundred and Seventy (570) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Young delivered on 15 January 2013.
Associate:
Date: 15 January 2013.
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