Apostolidis v Kalenik (No 2)

SUPREME COURT OF VICTORIA

COURT OF APPEAL

S APCI 2009 3882
IOANNIS (JOHN) APOSTOLIDIS	First Appellant
DSK HOLDINGS PTY LTD (ACN 007 416 257)	Second Appellant
AZURA PTY LTD (ACN 063 939 720)	Third Appellant
YARRABEE INVESTMENTS PTY LTD (ACN 093 518 275)	Fourth Appellant
v
ZORICA KALENIK	First Respondent
and
DEPUTY COMMISSIONER OF TAXATION	Second Respondent
AND BETWEEN:
ZORICA KALENIK	Cross-Appellant
v
IOANNIS (JOHN) APOSTOLIDIS	First Cross-Respondent
DSK HOLDINGS PTY LTD (ACN 007 416 257)	Second Cross-Respondent
AZURA PTY LTD (ACN 063 939 720)	Third Cross-Respondent
YARRABEE INVESTMENTS PTY LTD (ACN 093 518 275)	Fourth Cross-Respondent
and
DEPUTY COMMISSIONER OF TAXATION	Fifth Cross-Respondent

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JUDGES	NETTLE, ASHLEY and TATE JJA
WHERE HELD	MELBOURNE
DATES OF HEARING	8 and 9 September 2011
DATE OF JUDGMENT	13 October 2011
MEDIUM NEUTRAL CITATION	[2011] VSCA 307
JUDGMENT APPEALED FROM	[2009] VSC 208 (Hargrave J)

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PROPERTY – De facto partners – Adjustment of property interests under Part IX of Property Law Act 1958 – Appellant grew successful business during relationship – Respondent made contributions to business and as homemaker – Appeal and cross-appeal as to quantum of adjustment sum – Whether adjustment sum just and equitable – Appeal and cross-appeal allowed – Discretion re-exercised – Giller v Procopets (2008) 24 VR 1, Kardos v Sarbutt (2006) 34 Fam L R 550, discussed.

EVIDENCE – Fresh evidence – Appellant’s tax evasion disclosed and relied upon by respondent at trial – Amended taxation assessments and freezing orders greatly affected worth of business – Assumption at trial that assets sufficient to satisfy adjustment order in favour of respondent and judgment debt in favour of Deputy Commissioner of Taxation – Whether evidence of new asset position could be adduced as fresh evidence.

COURTS AND JUDGES – Jurisdiction – Whether Court had jurisdiction to make adjustment order if apparent to court that there are insufficient assets to meet third party creditors – Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337; Official Trustee in Bankruptcy v Mateo (2003) 127 FCR 217, considered.

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Appearances:	Counsel	Solicitors
For the Appellants/Cross-Respondents (First to Fourth)	Mr S K Wilson QC and Mr P G Little	David Tonkin & Associates
For the First Respondent/Cross-Appellant	Mr P H Solomon SC and Ms M Wilkening-Le Brun	Dimos Lawyers
For the Second Respondent/Fifth Cross-Respondent	Mr C Young	Australian Government Solicitor

NETTLE JA:

ASHLEY JA:
TATE JA:

Introduction

This is an appeal from three judgments given in the Common Law Division. The principal judgment determined the amount to be paid by the appellant, Ioannis Apostolidis, (‘A’) to the respondent, Zorica Kalenik (‘K’), pursuant to Part IX of the Property Law Act 1958 (‘PLA’), by way of an adjustment of interests in relation to the property of A, his companies, namely, DSK Holdings Pty Ltd (‘DSK’), Yarrabee Investments Pty Ltd (‘Yarrabee’), and Azura Pty Ltd (‘Azura’), and the property of K, after the ending of a de facto relationship of a number of years’ duration between A and K. The parties agreed that the adjustment sum should be based on the valuation of property as at the date of separation, 31 March 2000, together with interest. The second judgment determined the interest payable on the adjustment sum from the date of the issue of the Writ to the date of judgment. The third judgment resolved the question of costs.

There is also a cross-appeal by K against what she contends is the insufficiency of the amount awarded to her by way of adjustment, and an application by A to adduce fresh evidence.

The Deputy Commissioner of Taxation (‘the Deputy Commissioner’) was given leave to be joined as a respondent in the appeal and cross-appeal. He is an unsecured creditor of A, having obtained judgment this year against A personally in the sum of $12,406,887.03 and against DSK in the sum of $1,798,817.36. The Deputy Commissioner had earlier obtained freezing orders over property of A, DSK, and Yarrabee.

The parties were in agreement that, if this Court determined that the trial judge was in error in arriving at the adjustment sum he awarded, the discretion under Part IX would need to be exercised afresh, and this Court ought to re-exercise the discretion rather than remit the matter to the trial judge for a further determination.

Questions for determination

At the heart of the appeal and cross-appeal there is this principal question:

1) Was the adjustment sum awarded to K just and equitable?

If the answer to 1) is ‘No’, there are three further questions:

2) On a re-exercise of the discretion, what adjustment order ought be made?

3) Is this Court prohibited, as a matter of jurisdiction, from making an adjustment order if it is apparent on the evidence before the Court that A has insufficient assets to meet the claims of his existing third party creditors; or, if the Court does have jurisdiction to make an order in favour of K, should the pool of assets be calculated as it is at present, on a net asset basis, which is to say, after deduction of existing liabilities with the result that, perhaps, no order should be made?

4) Should interest be allowed on the adjustment sum awarded?

(1) Was the adjustment sum awarded just and equitable?
(a) Adjustment of property interests under the PLA

An order for the adjustment of property interests is provided for under s 285 of the PLA. The order must be one that seems to the court to be just and equitable. The terms of s 285 invite a consideration of the financial and non-financial contribution of the domestic partners in a relationship in arriving at the adjustment sum:[1]
[1]The terms of the relevant sections of the PLA are expressed as they applied at the time of the separation, in March 2000.

(1)A court may make an order adjusting the interests of the defacto partners in the property of one or both of them that seems just and equitable to it having regard to –
(a)the financial and non-financial contributions made directly or indirectly by or on behalf the defacto partners to the acquisition, conservation or improvement of any of the property or to the financial resources of one or both of the partners; and
(b)the contributions, including any contributions made in the capacity of homemaker or parent, made by either of the defacto partners to the welfare of the other defacto partner or to the welfare of the family constituted by the partners and one or more of the following –
(i)a child of the partners;
(ii)a child accepted by one or both of the partners into their household, whether or not the child is a child of either of the partners; and

(c) any written agreement entered into by the defacto partners.

Under the PLA, a ‘defacto partner’ of a person means:

(a) in relation to a man, a woman who is living or has lived with the man as if she were his wife although not married to him; and

(b) in relation to a woman, a man who is living or has lived with the woman as if he were her husband although not married to her;

A ‘defacto relationship’ relevantly means ‘the relationship between de facto partners of living or having lived together as if they were husband and wife although not married to each other’. Before an order for the adjustment of property interests can be made, the court must be satisfied that the domestic partners have lived together in a domestic relationship for a period of at least two years and that the application was made within two years after the day on which the relationship ended. Neither of these prerequisites was in dispute in this proceeding.

When Part IX of the PLA was introduced, the Minister made it plain that the purpose of Part IX was to assimilate the rights and obligations of the parties to a de facto relationship to those of the parties to a marriage, with respect to the distribution of assets upon the dissolution of the relationship. He said:

The approach reflected in the Bill is in line with that followed by the Family Court in disputes between married partners. It discards the traditional approach of the common law which was to treat disputes over property of de facto partners as though they were strangers simply involved in commercial acquisitions.[2]

[2]J H Kennan (Attorney General), and the Hon E H Walker (Minister for Agricultural and Rural Affairs), Second Reading Speech, Property Law (Amendment) Bill, Legislative Council (12 August 1987), 112.

He also explained that Part IX was intended to avoid treating parties to a de facto relationship as though their entitlement to assets was dependent upon proof of a legal or equitable claim, rather than an entitlement which flowed from the existence of the relationship:

The adoption of these criteria [in Part IX] by the courts will overcome the significant injustice which has afflicted de facto partners, usually deserted de facto wives, seeking a fair apportionment of property after the end of the relationships. Under the traditional criteria applied by Victorian courts in dealing with these disputes, regard was given only to whether the applicant de facto partner had a legal or recognised equitable interest in the real property which had been brought into the relationship or accumulated in the course of the relationship. This meant that the partner, in whom the title to the property was vested, could leave the relationship without being required to recognise the contribution of the other partner, usually the de facto wife. The de facto wife usually has made a significant contribution both as a homemaker and indirectly to the other partner’s capacity to acquire the property.[3]

[3]Ibid. The Bill was supported by the Liberal Party and the National Party (then both in opposition). (See Hansard, Debates, 13 November 1987, 2513, 2514).

The contributions of a de facto partner as homemaker and parent are not to be regarded as lesser or lower in status to the corresponding contributions of a lawful wife or husband.[4]
[4]See Giller v Procopets (2008) 24 VR 1, 77 [330]. There were occasions during oral submissions when it appeared that the appellant denied this proposition.

The court has a broad discretion in making an adjustment order under s 285. A three-step approach has been adopted to guide the court in arriving at a just and equitable order in the circumstances of each individual case. In Giller v Procopets,[5] Neave JA approved and applied the following description of the three‑step process by the New South Wales Court of Appeal in Kardos v Sarbutt:[6]

The first is the identification and valuation of the property of the parties, which determines ‘the divisible pool of property’ — that is ‘the property of the parties to the relationship or either of them’ … which may be the subject of an adjustive property order … The second is the evaluation and balancing of the respective contributions of the parties of the types referred to in [s 285], and typically though not invariably results in an apportionment between the parties on a percentage basis of the overall contributions of the types referred to in [the legislation] of each of them, made to the date of hearing. The third is the determination of what order is required sufficiently to recognise and compensate the applicant’s contributions, and typically results in an order which leaves the applicant with that percentage identified in the second step of the divisible property identified in the first step.[7]

[5](2008) 24 VR 1, 72 [314].

[6](2006) 34 Fam LR 550, 558 [29].

[7]Ibid 558.

This approach substantially reflects the kind of global approach which is adopted in the Family Court under s 79 of the Family Law Act 1975 (Cth). It consists of identifying the asset pool; taking account of liabilities; placing a net value on the pool; and then calculating the respective financial[8] and non-financial[9] contributions of the parties made directly or indirectly to the acquisition, conservation or improvement of the pool, and contributions made to the welfare of the family, including any contribution made in the capacity of homemaker or parent.[10] Entitlements are expressed as a percentage of the net value of the pool.[11] The Family Court then considers the effects of the findings and determinations and resolves upon what order is just and equitable in the circumstances of the case.[12]
[8]Family Law Act, s 79(4)(a).
[9]Family Law Act, s 79(4)(b).
[10]Family Law Act, s 79(4)(c). There are other factors which the Family Court takes into account, listed in s 79(4)(d), (e), (f), and (g), which are not reflected in s 285 of the PLA. These are, respectively, the effect of any proposed order upon the earning capacity of either party, in general the future needs of the parties, other orders made under the Family Law Act respecting a party or a child of the marriage, and any child support.
[11]In the Marriage of Hickey (2003) 30 Fam LR 355, 370 [39].
[12]Ibid.

(b) The pool as at the date of separation

Ordinarily, ‘the divisible pool of property’ is determined as at the date of trial. Sometimes, however, the task of evaluating the respective contributions of the parties is facilitated by adopting the date of separation and valuing the pool of assets as at that point; particularly where one party has not made contributions to the benefit of the other since the date of separation.[13]
[13]Omacini v Omacini (2005) 191 FLR 317; Kardos v Sarbutt (2006) 34 Fam LR 550, 575 [98].

In this case, the parties were agreed at trial that the divisible pool and the parties’ contributions should be valued at the date of separation, and the judge proceeded on that basis. We summarise the trial judge’s findings on the nature of the relationship and the pool of property interests as at the date of separation in this way:

(1) The relationship began in May 1993, when A and K began cohabiting as de facto or domestic partners at A’s then home in Dowling Road, Oakleigh.

(2) The relationship ended in March 2000, when A, in substance, ejected K from the home in Yarrabee Court, Mt Waverley where they were then living. When the relationship came to an end, A gave K $10,000 cash and a motor car valued at $8,000.

(3) Each of A and K were born in 1961. When their relationship began, A was aged 31 and K was aged 32. Each of them had previously been married. A had a son, David, born in September 1982, by his previous marriage.

(4) When the relationship began, K was unemployed, and in receipt of unemployment benefits. She and her mother jointly owned and lived in a modest property in Reservoir. At that time A was living in the Dowling Road, Oakleigh, home, which he had purchased in January 1992. The home was subject to a loan secured by a mortgage.

(5) At that time, A was operating two furniture retail shops in Oakleigh from leased premises. The judge described the enterprise as ‘a fledgling business of modest value’.[14] The shops were run by A with the assistance of two brothers, one of whom was more involved than the other. The business was conducted through DSK, in which A then held 99 per cent of the shares.
[14]Kalenik v Apostolidis [2009] VSC 208, ‘Reasons’ [3].

(6) Although the relationship spanned the years 1993 to 2000, A had a relationship with another woman, Meghan Courtney, in 1995 and 1996. A child was born of that relationship on 11 October 1996. There was a dispute at trial, and before us, whether the relationship between A and K was interrupted in 1995 and 1996. The judge found that the relationship was not interrupted. That finding is challenged by A, and we deal with it later in these reasons.

(7) K received unemployment benefits, improperly, between May 1993 and about April 1995. Then, she did about two months’ work at Myer Chadstone. In August 1997, she undertook, for a short period, a part-time floristry course. Between February and November 1999 she undertook a full time beauty therapy course. For most of that period (between April and November) she received Austudy payments. That was, the judge found, another instance of K ‘engaging in deliberate dishonest conduct for the purpose of stealing money from the Commonwealth Government’.[15]
[15]Reasons [194].

(8) A was complicit in the two instances of dishonesty of K that we have just described.[16]
[16]Reasons [149] and [195].

(9) Apart from the short-lived Myer Chadstone job, K did no work for wages during the period of co-habitation.

(10) In 1993, A gave to K a ring that she wore on the ring finger of her left hand.[17]
[17]Reasons [269].

(11) During the period of the relationship, A’s business ventures (it will generally be convenient to personalise them, although they were effected through companies) greatly expanded:

a) On 20 April 1994, Azura entered into a contract to purchase 1/200 Princes Highway, Dandenong for $580,000. In order partly to fund the purchase, A sold his Oakleigh home. He and K moved into rented premises at Banksia Street, Clayton. It was also necessary for A to obtain a substantial bank loan in order to complete the purchase.

b) In January 1995, A began importing containers of furniture manufactured in Malaysia. This marked a distinct change in his business activities. The profit margins were apparently considerable. At the beginning, A dealt with two particular manufacturers, making purchases through an importing company which he set up.

c) In April 1996, A opened another shop in rented premises at the Forest Hill Shopping Centre. By that stage, he was operating his business from at least three sites – an original leased premises in Oakleigh,[18] the premises at 1/200 Princes Highway, Dandenong, and the Forest Hill shop.
[18]As we understand it, one of the original leased premises in Oakleigh was given up in 1997.

d) To reflect the nature of the business carried on at the Dandenong shop, in 1997 its name was changed to ‘Leather Lounges Direct’.

e) To facilitate supplies from Malaysia, A took an interest in a Malaysian Company, Dalcy (M) Sdn Bhd. This interest continued until 2000. In that period, A’s business bought all of Dalcy’s production. It also bought stock from other overseas sources.

f) The Forest Hill shop closed in late March 1999. A opened a shop on the Frankston/Dandenong Road, which operated under the name ‘Salotti Italia’. That shop only ceased operating after A and K had separated.

(12) In the period of the relationship, the turnover and profitability of A’s business increased greatly. The extent of the improvement was obscured to an extent because, as the judge found, A took large amounts in cash out of the business between 1996 and 2000.

(13) The best estimate of the value of A’s business at the commencement of the relationship was $75,000.[19] Overall, the value of his assets at that time was about $220,000.[20]
[19]Reasons [361].
[20]Reasons [347].

(14) The separation date value of A’s business was, in accordance with the judge’s conclusion, about $10 million.[21] But that figure did not take account of unpaid tax, interest and penalties, or of the contingent liability constituted by a claim brought against A and DSK by A’s brother, Ken. As to the impact of those matters, see [16] below.
[21]Reasons [423]–[426].

(15) In accordance with the judge’s finding[22] A took out of the business between 1996 and 2000, in cash, a net amount of $4.5 million. The judge described it as a net amount because it reflected the fact that cash had been spent on living expenses, purchase of the Yarrabee

Court home,[23] purchase of a Mercedes-Benz, estimated ‘lifestyle’ expenditure and gambling losses, and a notional increase in the uncommercial salary which A was shown to have paid according to the books of the business.

[22]Reasons [445].

[23]The contract of sale was dated 13 December 1997. The purchase price was $290,400. A mortgage loan of $150,000 was obtained so that the purchase could be completed.

The gross separation date value of the business – see [14](14) above – was arrived at this way: the judge adopted a net projected profit of $2,335,000 per annum and a capitalization rate midway between 3.5 and 4 times (chosen because the business had been experiencing solid sales growth and good profitability over the relevant three years leading up to that point). That yielded a capitalised future maintainable profits valuation of $8,756,250, to which his Honour added $1,267,000 (representing surplus disclosed assets of the business). That produced a value of $10,023,250, which his Honour rounded down to $10,000,000.

In the course of the trial, it emerged that A, with K’s knowledge and approbation, had engaged in systematic income tax evasion to such an extent that, on the best estimates available to his Honour, there was a contingent unpaid tax liability at March 2000 of $3,271,098 and penalties of $688,289. His Honour thus deducted the total amount of $3,959,387 from the assessed value of the business of $10,000,000 in order to reach an assessed net business value of $6,040,613. He then allowed a further contingency of $500,000 to take account of a claim made by A’s brother, Ken. This yielded a final result of $5,540,613, which his Honour rounded down to $5,500,00.

All in all, in accordance with the judge’s conclusion,[24] A’s assets at date of separation were approximately $11.2 million – comprising net value of business $5.5 million, adjusted cash or undisclosed assets $4.5 million, and other assets $1.178 million.
[24]Reasons [452].

In contrast, K’s assets at date of separation were very modest. They did not exceed $75,000. They comprised cash of $60,000 (it included $10,000 which A paid K when they separated) and a motor car valued at $8000 which A gave her.[25]
[25]Reasons [453].

(c) The respective contributions

The contribution made by A to the pool of property was plain. The large growth in the value of his business during the period of the relationship was attributable to business decisions that he made, risks which he took, and his hard work for seven days each week. His input was both intellectual and physical. It did not deny that he worked tirelessly in the business that he also regularly attended Crown Casino and gambled large amounts.

In all, a business worth $75,000 at the outset had a net worth of $5.5 million at the end. Allowing for cash taken out of the business, and the acquisition of other assets, A’s ‘worth’ at the end of the relationship was over $11 million, whereas at the beginning of the relationship it had been, as the judge found, $220,000.

K’s contribution was more nuanced. Nonetheless, the judge concluded that, throughout the period of the relationship, K made significant contributions in four respects:

1) First, she performed the homemaker role with competence. She made a significant contribution to preparing the Dowling Road home for sale, to searching for a new home, to the acquisition and renovation of the Yarrabee Court home, and to the maintenance of its garden.[26] She was ‘solely responsible for performing the homemaker role, and that she did well’. Her ‘contributions in this regard were not token, and require[d] recognition’.[27] Her domestic duties included shopping, cooking, cleaning, laundry, ironing and like matters in the homes which they shared. The judge said that:
[26]Reasons [547], [548].
[27]Reasons [552].

These contributions by [K] were beneficial to the welfare of [A] and, in addition, constituted non-financial contributions to the acquisition of assets by [A] by ensuring that he could focus on [his furniture] business seven days a week.[28]
[28]Reasons [677].

2) Secondly, K made significant and regular contributions to the welfare of A’s son, David, thereby relieving A of parental responsibilities and enabling A to rely on K providing a caring environment for his son during those times when he was A’s responsibility. Contact reduced as the boy grew older. But broadly the position was as follows:

[A] was a poor father and, while David was in his custody, he cast his care principally upon [K] while he attended to his work commitments and gambling activities … [K’s] role in caring for David was significant in contributing to [A’s] ability to work without fulfilling his parental responsibilities. Further, [K] ensured that David had some family life by taking him to ceremonial and celebratory occasions in both [K’s] family and [A’s] family. Taking the evidence as a whole and considering the probabilities … David spent a significant proportion of most weekends, and some time during school holidays, with [K] and [A].[29]
[29]Reasons [566].

3) Thirdly, K sold her own house at Reservoir[30] and made her net proceeds of the sale, $50,000, available to A at his request, at a critical time in the development of A’s business, thus affording him an ability to borrow money during 1994 which gave him confidence in committing to capital items such as two large electric signs at one of his shops.[31] The judge found that loans made by K, amounting to about $36,000, were substantially repaid by A within the period of the relationship; and as to the balance, by the amount of $10,000 which A gave her when the relationship ended; but that A paid no interest on moneys lent.[32]
[30]Reasons [156].
[31]Reasons [679].
[32]Reasons [680]. See further below at paragraph [47].

4) Fourthly, K contributed by working in the business, although not to the extent she claimed, in a fashion that was useful and unpaid. In the period of the relationship:

(a) K attended A’s business premises, on average, two to three days per week. When there –

[S]he made herself useful by performing whatever tasks were requested by [the appellant] or which she became accustomed to performing. It is likely that these tasks included cleaning to varying degrees (including cleaning toilets when necessary), running errands as requested, buying or making coffee, lunches and snacks for [the appellant] and his staff, bringing in fresh flowers on some occasions and greeting customers to put them at ease.[33]
K was not involved in making sales. But in all, her physical contributions were not ‘wholly insignificant.[34] When present, she ‘performed a useful role’.[35]
(b)In the period of the relationship K did not ‘[participate] in any meaningful way in the making of significant business decisions concerning A’s business’. It was ‘extremely improbable that [K] provided any meaningful intellectual input into the rapid growth of [A’s] business during the period of their cohabitation’.[36]

[33]Reasons [529].

[34]Reasons [532].

[35]Ibid.

[36]Reasons [542], [543].

We pause to note that, before us, senior counsel for A challenged the judge’s finding as to the extent of K’s physical involvement in the business. He submitted that K could not have been present during the period of about 10 months when she engaged in the beauty therapy course in 1999 and during the period of the relationship that he claimed was interrupted during 1995 and 1996. He also seemed to suggest that the judge’s finding as to the extent of K’s homemaker contribution could not be reconciled with his finding as to the amount of time which she spent in the business.

The last-mentioned submission lacked force. The earlier submissions were, however, correct as a matter of logic. But we take the judge to have adopted a broad brush approach; and we think that his findings on the amount of time spent in the business, so approached, were appropriate, subject to the question of the duration of the relationship.

(d)The judge’s conclusion as to what adjustment order was required

The judge concluded that the payment of $10,000 and the gift of the car worth $8,000 were insufficient recognition and compensation to K for her contributions to the relationship and the acquisition of profit during its existence.

In order to determine the amount which A should pay K to provide her with fair compensation for her contributions, his Honour adopted a ‘global’ approach, as opposed to an ‘asset by asset approach’, because, he said, he considered that K’s contributions were not readily capable of evaluation in monetary terms. According to that method, the judge held that the amount that needed to be paid as an adjustment sum was $500,000.

As a cross-check, the judge:

(a) valued K’s contribution as homemaker, at $130,000, representing half the value of the Yarrabee Court home;

(b) valued K’s contribution to A’s business at $70,000, which his Honour calculated on the basis of part-time unpaid work over seven years, where the wage for full time employees performing comparable duties was $505 per week;

(c) subtracted that $200,000 from the total figure of $500,000 to which his Honour had come by way of the ‘global’ approach, and thus valued the amount to be paid as compensation in respect of K’s direct and indirect contribution to A’s business at $300,000.

(e) Alleged errors made by the judge

Both parties submitted that the judge erred in determining that an adjustment order should be made in an amount of $500,000.[37]
[37]K the respondent in her cross-appeal and the appellant A in his notice of contention.

Counsel for A submitted that:

i. The judge erred in finding that there was an uninterrupted relationship for seven years. Counsel contended that the judge ought to have found that the relationship was interrupted by A’s relationship with Megan Courtney in 1995 and 1996, and consequently that it lasted only six years;

ii. The judge erred in finding that K sold the Reservoir home which she jointly owned with her mother in order to have a resource available to A. Counsel contended that there was no basis so to find;

iii. The judge erred in finding that, early in their relationship, K had lent A a sum of approximately $36,000. Counsel contended that there was not a sufficient basis so to find;

iv. The judge erred in his assessment of K’s role in the business, or her contribution as a homemaker. In counsel’s submission, the judge seriously overestimated both contributions;

v. The judge erred in excluding from consideration, in the valuation of the pool of assets, the interest payable to the Deputy Commissioner in respect of 1999 and 2000 years of income; and

vi. The judge erred in allowing interest on the adjustment sum, or alternatively erred in calculating interest at the penal rate.

Counsel for A also contended that the judge erred by failing to take account at the time of trial of the tax penalties incurred by his client with respect to the years after the date of separation. It was partly in this context that the application for admission of fresh evidence was pursued. Counsel attacked the judge’s assumption that A would have sufficient assets with which to pay both the Deputy Commissioner and K,[38] and the related assumption, which he argued was mistaken, that K and the Deputy Commissioner would not be in competition in the share of A’s assets.[39]
[38]Reasons [428].
[39]Reasons [429].

In view of the latter argument, we ordered, pursuant to Rule 50.1 of the Supreme Court (General Civil Procedure) Rules 2005, that Paul Lom be appointed as special referee[40] to determine the value, at the present time, of DSK, Azura and Yarrabee. The special referee provided a report the accuracy of which the parties did not dispute, and upon which we have relied.
[40]The appellant A nominated Paul Lom as special referee to whom the respondent K had no objection. However, K objected to the need for any current valuation to be taken as an aspect of her resistance to the fresh evidence application.

For her part, K, by her cross-appeal, argued that the judge erred in his estimate of the contribution she had made to the pool.

We consider each of the alleged errors below.

(i)Did the trial judge err in his conclusion as to the duration of the relationship?

Counsel for A attacked the judge’s finding of fact that the relationship between his client and K was an uninterrupted one that lasted seven years. He submitted that his Honour ought to have found that the parties separated between May/June 1995 and February 1996 (a period of about eight to nine months) and again between May/June 1996 and September 1996 (a period of about four months) during which time, as mentioned above, A was involved in a relationship with Meghan Courtney, with whom he had a child.

Meghan Courtney gave evidence at the trial, under subpoena, to the effect that she had had a sexual relationship with A between May/June 1995 and February 1996. Their relationship did not involve the two of them living together, but A would stay over at Ms Courtney’s house, and Ms Courtney would stay over at the Banksia Street unit, in all about four or five nights a week. We infer that the relationship which she described was incompatible with A continuing to cohabit with K.

She said that, in or about November 1995, she and A spent a week on Hamilton Island, followed by a few days on the Gold Coast. Then in late January/early February 1996, they spent five days in Sydney together, during which time a child was conceived. Soon after that trip, she terminated her relationship with A. They reconciled some months later, he being made aware that Ms Courtney was pregnant. Her evidence, consistent with that given by A, was that she moved into the Banksia Street unit from about May/June 1996 ‘to give it a go [as] we had a child coming into the world’. She bought a pram, toys, baby cot, bric a brac for the baby and decorated the walls of a nursery. During this time she sometimes visited A, at random, during the day at one or other of the Dandenong or Forest Hill shops. She never saw K there. Her relationship with A lasted until about September 1996, when she decided again to terminate their relationship recognising that they were ‘not compatible at all’. Their baby was born in October 1996.

She said that her mother and sister assisted her to move out of the Banksia Street unit and they did not take all the baby items on that day. After the birth of her baby, she said, she made three attempts to collect the pram and baby equipment from the Banksia Street property. On two of those occasions she was confronted by K and there was a heated argument on the doorstep. She explained that her relationship with A was over and she just wanted to collect her baby things. But, she said, she was met with aggression and hostility from K.

K’s evidence as to these meetings involved the allegation that Ms Courtney had announced that she was A’s mistress and that her brother had stalked K to hunt her down. After this, K said, she rang A who warned her that Ms Courtney was trying to blackmail him.

The judge found that Meghan Courtney’s evidence was direct, articulate and unaffected by material inconsistency, and that there were good reasons for her positive recollection.[41] He considered that ‘there was nothing about her demeanour as a witness that indicated that she was not endeavouring to tell the truth to the best of her recollection’.[42] She was unshakeable in cross-examination.[43]
[41]Reasons [288], [313].
[42]Reasons [288].
[43]Reasons [332].

By contrast, the trial judge found, quite generally, that K was not a credible witness,[44] that she was prepared to lie for the purpose of financial gain when it suited her,[45] that she bore ‘an extraordinary level of bitterness and hatred’[46] towards A, that the presentation of her case had the flavour of being scripted, that her credibility was undermined by an agreement into which she entered with A’s brother, Ken, to share the proceeds of any judgment obtained in the proceeding, which he found to be improper,[47] and was further undermined by the role of her current partner who, amongst other things, had paid a witness, Mr Nedelcu, to give favourable evidence.[48]
[44]Reasons [25].
[45]Reasons [32].
[46]Reasons [36].
[47]Reasons [43].
[48]Reasons [52]–[54].

Despite these findings, the judge rejected the evidence of Ms Courtney, which necessarily implied that K had ceased living with A during the two periods alleged. He found that the relationship between A and K had been a continuous one lasting seven years. He based this finding upon four factors: (1) the failure of A to call Ms Courtney’s mother or sister to corroborate her evidence; (2) the existence of a credible motive for Ms Courtney to lie; (3) the history of the pleadings; and (4) the lack of any significant withdrawals from K’s passbook account during the two relevant times. He considered the last factor to be of most, if not decisive, significance.

In our view, the judge erred in rejecting Ms Courtney’s evidence. A’s failure to call the mother and sister (on the basis of which the trial judge drew an inference based on Jones v Dunkel[49] that the evidence would not have assisted A) was sufficiently explained by the reason proffered by Ms Courtney for refusing to give A’s solicitor the names and contact details of her mother and sister, namely, that her relations with them had become strained after the police spoke to her sister in relation to allegations concerning the attempted murder of a man named Bill Edwards. In that connection, it appears that a criminal investigation was reactivated shortly before trial – some evidence suggested that it was at K’s instigation – and that both Ms Courtney and A were subjects of the investigation. A’s solicitor also gave evidence that a search of the White Pages and the electoral roll had been unsuccessful in locating the mother or sister.
[49](1959) 101 CLR 298; Reasons [331].

Next, we do not consider that the fact that A was at the time being more generous than he had earlier been in relation to child support arrangements provided Ms Courtney with a credible motive to lie. Ms Courtney was always entitled to child support under the usual statutory grounds and the observation that the increase in child support provided ‘a motive to lie if disposed to do so’[50] did not sit well with his Honour’s acceptance of Ms Courtney as an apparent witness of truth.[51]
[50]Reasons [326].
[51]Reasons [288].

Again, A’s pleadings were prepared upon the basis of his instructions and recollections and were not initially specific as to periods of separation. It was not until his amended defence filed 30 November 2007 that he committed himself to the two periods of separation for which he ultimately contended. The judge acknowledged that this was explicable on the basis that it was not until Ms Courtney was prepared to co-operate with A, towards the end of 2007, that specific dates would have been provided to A’s solicitors, Ms Courtney having good reason to recall the specific dates, including the date of her child’s conception and birth and other personal events in her life.[52]
[52]Reasons [313].

It is understandable that his Honour would resort to K’s bank passbook as the source of objective credible evidence bearing upon the question of co-habitation during the disputed periods. For he had found that neither A nor K was a credible witness and that the evidence of each of them was a ‘tangled web of truths, half-truths, mistaken recollections, inconsistencies, exaggeration, understatement, evasion, dissembling, concoction and deliberate lies’.[53] Nevertheless, the absence of withdrawals in the passbook during the alleged separation periods could not be decisive when there was no clear pattern of withdrawals, K withdrawing moneys from the passbook during periods when she indisputably lived with A; and, more importantly, when it could not be discounted that during the periods of separation she lived, and was supported by, her mother and stepfather. As the alleged significance of the passbook was not raised by the judge until the conclusion of evidence, the issue of whether K’s mother and stepfather had sufficient financial capacity to support K, or whether she had obtained money through casual employment, or from other family members to whom she had previously lent money, was not put to K or her mother in cross-examination. In those circumstances, we consider that the passbook could not bear the evidentiary weight which the judge placed upon it.
[53]Reasons [25].

The judge rejected the contradictory accounts given by Ms Courtney and K as to the meetings between them after Ms Courtney had terminated her relationship with A. He rejected K’s evidence because it was ‘either total concoction or a mixture of truth and concoction to such an extent that it is impossible to disentangle the two.’[54] He rejected Ms Courtney’s account because he had already found that K had continued to reside at Banksia Street throughout, which excluded the possibility of baby items being on the premises. Plainly, if the judge had made a finding consistent with the recognition of Ms Courtney as a credible witness, a different result would have been arrived at.
[54]Reasons [333].

It follows, in our view, that it was not open to his Honour to find that the relationship between A and K had been continuous for seven years. We conclude that there was an interruption in the relationship, for periods totalling about 12 to 13 months over 1995 and 1996. In total, then, the relationship between A and K occupied a period of about six years.

(ii)Did the judge err in finding that K sold the Reservoir home and lent $36,000 to A?

We reject the contention that the judge was wrong in holding that K sold the Reservoir home which she jointly owned with her mother in order to have a resource available to A, and that, early in their relationship, K lent A a sum of approximately $36,000. We consider that the first of those findings was well supported by the evidence, most particularly the coincidence in the timing of the sale of the home that K had shared with her mother in Reservoir at the time A was in need of funds for the growth of the business.[55] We further consider that the judge was entitled to conclude that some of the larger withdrawals from K’s bank account were indicative of loans which she made to A.
[55]See Reasons [458].

(iii) Did the judge overestimate K’s contribution?

We reject also the submission that the judge over-estimated K’s role in the business, or her contribution as a homemaker. As to the former, his Honour’s reasons were a fair resolution of conflicting evidence. As to the latter, the complaint was only one of emphasis, and we cannot fault his Honour’s approach. We discuss the value the judge placed on K’s contribution below.

(iv) Did the trial judge err in failing to take into account the interest payable for 1999/2000?

In calculating the asset pool as at the date of separation, the judge accepted the joint opinion of the experts called by the parties as to their estimate of unpaid tax for the years of income ended 30 June 1996, 1997, 1998, 1999 and 2000. As his Honour explained:

The experts have provided the Court with an agreed spreadsheet setting out the amount of unpaid tax for the financial years ending 30 June 1996, 1997, 1998, 1999 and 2000. The spreadsheet also calculates the interest payable on that unpaid tax and the likely penalties. The spreadsheet assumes acceptance of Mr Sincock’s evidence as to the likely amount of undeclared income in those financial years. For the reasons stated above, I accept that evidence. Further, I accept the joint opinion of the experts that the unpaid tax is likely to be assessed against the defendant personally, and not just DSK, and thus to attract a taxation rate of 48.5 % and not the company tax rate payable by DSK. I also accept the experts’ opinion as to the likely level of penalties.[56]

[56]Reasons [431].

On that basis, his Honour determined that A’s contingent liability to tax was to be calculated as follows: [57]
[57]Reasons [432].

1996 Unpaid tax and interest $379,738

1997 Unpaid tax and interest $615,086

1998 Unpaid tax and interest $691,848

1999 Unpaid tax $733,470

2000 Unpaid tax $967,256

Total $3,387,398

The judge said, however, that he excluded interest on unpaid tax in respect of the 1999 and 2000 years of income:

because the final date for DSK to pay its tax in each of those years was 15 May 2000 and 2001 respectively. Each of these dates is after the 31 March 2000 date which has been adopted for calculations. In my opinion, the unpaid tax for these two years should be discounted back to 31 March 2000, at an interest rate of 10 %. This results in an adjustment of $8,450 in respect of the unpaid tax for the 1999 year and $107,850 for the unpaid tax in respect of the 2000 year, making a total adjustment of $116,300. Accordingly, I find that the amount of unpaid tax and interest to be adjusted at 31 March 2000 was $3,271,098 ($3,387,398 minus $116,300).[58]

[58]Reasons [433].

In our view, the judge was in error in excluding the interest payable in respect of the 1999 and 2000 years. The interest is payable because taxable income was under-declared in each of those years. The judge took that under-declared income – that is, cash which he found was taken by A out of his business – into account in calculating the value of the asset pool. It had the effect, in favour of K, of adding to the asset pool. Since the judge thereby gave K the benefit of the under-declared income up to the date of separation, justice and equity required that K also bear the burden of the under-declared income up to the date of separation. That necessitated that so much of the interest for the 1999 and 2000 years as related to the period up to the date of separation be brought to account.

(v) Did the judge err in the award of interest?

For reasons to which we shall come, it is unnecessary to decide whether the judge erred in the award of interest on the adjustment sum.

(vi)Tax penalties, sufficiency of assets and fresh evidence application

After the judge determined the case, on or around 12 August 2010, the Deputy Commissioner issued amended assessments for the period 1 July 1995 to 30 June 2003 in the sum of $14,948,410, of which counsel for A contended that $12,690,988 was ‘relevant to the de facto relationship’. Counsel for A contended that the amended assessments should be received as fresh evidence because they were not something which could have been discovered by reasonable diligence at the time of trial and are so large as in effect to vitiate the assumed basis of assessment. In counsel’s submission:

i. There could be no doubt that the evidence of the amended assessments could not have been obtained by reasonable diligence at the time of trial. Counsel for A requested the judge to stay the trial until the amended assessments issued and the judge refused to do so. What more could A have done in those circumstances than adduce the expert evidence which he did?

ii. There was no reason to doubt that the evidence proposed to be adduced is reasonably credible.

iii. There could be no doubt that the result at trial would have been a different result if the amended assessments had been available. The assessed figure of almost $12.7 million was so large compared to the contingent tax liability of only $3,959,387[59] for which the judge allowed as, in effect, to destroy the judge’s assumed basis of assessment and to deny the judge’s assumption that A would have sufficient assets with which to pay both the Deputy Commissioner and K.

iv. Therefore, the evidence of the amended assessments met all of the requirements for the adducing of fresh evidence adumbrated by this Court in Clarke v Stingel[60] and Foody v Horewood.[61]

[59]Referred to in paragraph [16] above.

[60][2007] VSCA 292, [25].

[61][2007] VSCA 130, [60]–[62].

K resisted the fresh evidence application. Counsel for K submitted that:

i. The amounts of tax and penalties assessed in respect of the period up to the date of separation in March 2000 were much less than $12,690,988.

ii. A had appealed against the amended assessments and there was no way of saying how likely it was and to what extent the appeals might succeed.

iii. It was always understood at trial that the amounts of the amended assessments might differ from the estimates which formed the basis of the judge’s assessment, and the issue was fairly decided once and for all on that basis. In those circumstances, it did not now lie in the mouth of A to say that a basic and common assumption upon the basis of which the litigation was conducted had been falsified.

iv. There would be nothing exceptional or unusual in holding A to the basis on which the judge approached the matter. It was not an affront to common sense to refuse the admission of this new evidence. Rather, it would render the administration of justice unworkable if the actuality of events were allowed to found a basis of itself for the admission of further evidence on appeal.

As Chernov JA observed in Foody v Horewood,[62] the question of whether to admit fresh evidence is largely one of discretion and degree bearing in mind the public interest in finality of litigation and, at the same time, the requirements of justice of the case in hand. Generally speaking, fresh evidence ought not to be admitted when it bears upon matters falling within the field or area of uncertainty in which the trial judge’s estimate has previously been made. Exceptionally, however, it may be admitted, if some basic assumption, common to both sides, has been falsified by a subsequent event. More precisely, as Lord Wilberforce observed in Mulholland v Mitchell,[63] courts will allow fresh evidence where to refuse it would affront common sense, or a sense of justice, always keeping in mind that it should be an exceptional event.
[62]Ibid [62].
[63][1971] AC 666, 680.

In our view, the evidence of the amended assessments which A sought to adduce satisfies that test. The starting point is what A says is the difference between the tax liabilities as estimated by the judge and the tax liabilities as since assessed in respect of the period to date of separation. There are five years of income in question and, in summary, the position in relation to each of them is as follows:[64]
[64]We take these figures from a document entitled, ‘Summary of Taxation Assessments’ annexed to A’s Submissions in response to K’s Supplementary Submissions, dated 6 April 2011. The affidavit of Mr Khouri, filed on behalf of the Deputy Commissioner, sworn 30 August 2011 exhibited Tables of liabilities for penalties and interest which sought, in some instances, to refine these figures but any discrepancies were not material in assessing whether the fresh evidence was of such significance that it ought to be admitted.

31 Mar 00 Actual Estimated Difference Major

Tax payable $456,040 $859,406 (-) $403,366

Interest $970,455 $970,455 $970,455

Penalties $342,030 $342,030 $342,030

Total $1,768,525 $859,406 $909,119

30 Jun 99 Actual Estimated Difference Major

Tax payable $754,203 $725,020 $29,183

Interest $1,832,024 $1,832,024 $1,832,024

Penalties $565,652 $565,652 $565,652

Total $3,151,880 $725,020 $2,426,860

30 Jun 98 Actual Estimated Difference Major

Tax payable $657,620 $621,175 $36,445

Interest $1,736,514 $70,673 $1,665,841 $1,665,841

Penalties $493,215 $493,215 $493,215

Total $2,887,349 $691,848 $2,195,501

30 Jun 97 Actual Estimated Difference Major

Tax payable $447,658 $490,424 (-) $42,766

Interest $1,209,825 $124,662 $1,085,163 $1,085,163

Penalties $335,744 $335,744 $335,744

Total $1,993,227 $615,086 $1,378,141

30 Jun 96 Actual Estimated Difference Major

Tax payable $215,765 $264,982 (-) $49,217

Interest $613,955 $114,756 $499,199 $499,199

Penalties $161,824 $161,824 $161,824

Total $991,543 $379,738 $611,805

TOTALS $10,792,524 $3,271,098 $7,521,426

Lump sum for the penalties in the estimate for 1996, 1997 and 1998 $688,289 (-) $688,289 (-) $688,289

Tax for DSK Holdings Pty Ltd $1,898,464 No allowance $1,898,464 $1,898,464

Results $12,690,988 $3,959,387 $8,731,601 $9,161,322

As a result of the judge determining the position as at the date of separation in March 2000, his Honour’s calculations proceeded on the basis that any interest and penalties incurred in respect of the period after that date should not be taken into account in determining the value of assets as that date. Adopting his Honour’s methodology, it is necessary to remove from the assessed amounts so much of the additional interest and penalties assessed with respect to those five years as relate to the period after March 2000.

Taking each year in turn, that appears to us to require that:

a) We exclude the additional interest and penalties assessed in respect of the period of income ended 30 March 2000. Although, as we have explained, we think that the judge was in error in not bringing it to account, the significance of the fresh evidence is to be assessed by reference to the way in which the judge approached the matter.

b) For the year of income ended 30 June 1999, the only additional interest and penalties which should be brought to account are so much of them assessed as relate to the period up to the date of separation in March 2000. On the available evidence, it is impossible to make a precise calculation of that amount. Very roughly speaking, however, we estimate that it would be in the order of one tenth of the total (assuming that interest and penalties accrued linearly over the period between the end of the year of income and the date of assessment in 2010). Thus, for the year of income ended 30 June 1999, one should reduce available assets at the date of separation by $183,202.40 for interest and a further $56,565.20 for penalties.

c) Similarly, for the year of income ended 30 June 1998, the only additional interest and penalties which should be brought to account are so much of them as relate to the period up to the date of separation in March 2000. Once again, on the available evidence, it is impossible to make a precise calculation of the amount. Again, however, very roughly speaking, we estimate that it would be in the order of one tenth of the total (assuming that interest and penalties accrued linearly over the period between the end of the year of income and the date of assessment in 2010). Thus, for the year of income ended 30 June 1998, one should reduce available assets at the date of separation by $166,584.10 for interest and a further $49,321.50 for penalties.

d) So too for the year of income ended 30 June 1997, one should reduce available assets at the date of separation by one tenth of the additional interest and penalties assessed, which is to say by $108,516.30 for interest and $33,574.40 for penalties.

e) Finally, for the year of income ended 30 June 1996, one should reduce available assets at the date of separation by one tenth of the additional interest and penalties assessed, which is to say by $49,919.90 for interest and $16,182.40 for penalties.

It follows that, confining the adjustment for additional interest and penalties for the five years of income in question to the period preceding the date of separation in March 2000, the change in tax, penalties and interest would be:

· $183,202.40 + $56,565.20 + $166,584.10 + $49,321.50 + $108,516.30 + $33,574.40 + $49,919.90 + $16,182.40 = $663,866.20; or

· allowing for the fact that primary tax payable as assessed was actually less than primary tax payable as estimated by the judge,[65] $620,894.10.[66]

That equates to approximately one sixth of tax of $3,959,387 as estimated by the judge and approximately one sixteenth of the total value of assets of $11,177,933[67] as assessed by the judge.

[65] As can be seen from the table above, the reduction in primary tax payable was:

[66] $663,866.20 – $ 42,972.10 = $620,894.10.

[67]Reasons [452].

We doubt that would be enough in itself to falsify the basic assumption of the parties and thus render it an affront to common sense or sense of justice not to admit evidence of it. In addition to that, however, it is also necessary to take into account that the judge proceeded on the assumption that there was no risk of A being unable to pay both the adjustment and the estimated tax liabilities, whereas now the fresh evidence implies a different result.

Counsel for A did not suggest that the judge was necessarily wrong in making the assumption he did; although, as he pointed out, the judge was warned of the possibility that tax liabilities could be greater than were estimated and, if so, that it could wipe out A’s business completely. Counsel submitted, however, that in view of the amended assessments which have now issued, it is clear that A does not have sufficient assets to meet both the Deputy Commissioner’s claim and to pay K any amount by way of property adjustment. Thus, in counsel’s submission, one of the principal basic assumptions on which the judge’s analysis was premised is now revealed to have been false and it would be an affront to common sense and justice if that were excluded from consideration.

We agree. The magnitude of the change from the assumed position, of sufficient assets to meet both the Deputy Commissioner’s demands and the amount awarded in favour of K, to the position demonstrated by the amended assessments, of a net asset deficiency of close to $14 million, is of such a magnitude that it cannot realistically be supposed that the parties would have agreed to the judge valuing assets at the date of separation if they had known there was a realistic chance of what has now occurred, or that the judge would have thought it appropriate in those circumstances to value the pool of assets as he did. It would be an affront to common sense and justice to validate a valuation made on the basis of a supposed substantial surplus of assets when, on the evidence now available, it is apparent that there is a profound deficiency of assets.

(vii)Did the trial judge err in the way in which he estimated K’s contribution?

Counsel for K argued, in support of her cross-appeal, that the sum awarded in her favour was not a just and equitable adjustment of property interests in that the judge erred in failing to evaluate and balance the respective contributions of the parties; and, in particular, that he grossly undervalued K’s contribution to the business assets on a global basis and by the cross-check of an asset-by-asset approach.

Counsel submitted that the judge erred in principle by assessing K’s role as homemaker and carer of David as no more than an incidental, token and inferior contribution to that made by A in applying his assets, skills and talents to the growth of the business. He argued that this error was particularly revealed by his Honour’s cross-check where, in effect, the contribution made by K’s home-maker role was considered to be sufficiently reflected by an award of 50 per cent of the value of one house, the Yarrabee Court home. Similarly, the sum of $70,000 for unpaid work arrived at through the cross-check was argued to bespeak error.

There is force in that contention. This Court has made it clear that homemaker contributions are not to be treated as inferior to other forms of contribution. As Maxwell P, Redlich JA and Forrest AJA said in Kenyon v Akeroyd:

In our view, the entire endeavour to attribute a dollar figure to … [the] parent/homemaker contribution is misconceived. Not only is such a contribution, by its nature, insusceptible of valuation in money terms, but the very attempt to compute such a value ignores the critical fact that many – perhaps most – domestic relationships operate as a shared undertaking where the maintenance of the family unit depends in equal measure on each contribution. Typically, one partner bears a disproportionate share of the burdens of homemaker and (where there are children) parent; the other partner is thus left free to earn a disproportionate share – if not the entirety – of the household income.

Neave JA, with whom Maxwell P agreed, observed in Giller v Procopets:
As discussed earlier, s 285(1)(b) required the Court to assess the homemaker or parent contributions made by either of the de facto partners to the welfare of the other de facto partner or to the welfare of the family. This provision must be given a beneficial construction. Contributions to the welfare of the family must be recognised ‘not in a token way but in a substantial way’. The contributions of a de facto partner as homemaker and parent should not be regarded as inferior to the corresponding contributions of a spouse.[68]

[68][2008] VSCA 277, [26]–[27].

The judge acknowledged that K’s homemaker role was not readily capable of evaluation in monetary terms, and his Honour did not commit the mistake of valuing that role on the basis of commercial cleaning rates or the like. But in his application of the global approach to the formulation of an appropriate adjustment order, he distinguished sharply between, on the one hand, K’s homemaker role and, on the other hand, any contribution she made to the business, treating them as though they were unrelated and could be considered in isolation from each other rather than as both being drawn from the context of the relationship.[69] There was no clear recognition that K assisted in the business in the way she did – helping out however she could – because she was in a relationship with A. This came close to the reductionist approach rejected by this Court in Giller v Procopets[70] and by the New South Wales Court of Appeal in Kardos v Sarbutt:

[T]he court is not required to undertake a reductionist process analogous to the taking of partnership accounts by examining every alleged ‘contribution’ of the kinds described in the section with a view to putting a monetary value on each in order to reach an accounting balance one way or the other, then to be eliminated by the requisite financial adjustment; rather the court is required to make a holistic value judgment in the exercise of a discretionary power of a very general kind: Davey v Lee (1990) 13 Fam LR 688 (McLelland J).[71]

[69]See Reasons [694]–[695].

[70](2008) 24 VR 1, 78 [331].

[71](2006) 34 Fam LR 550, 561.

Counsel for K argued that, in any event, the adjustment sum was manifestly inadequate and as such emblamatic of error within the last category recognized in House v The King:

It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance.[72]

[72](1936) 55 CLR 499, 505.

We also accept that the adjustment sum was manifestly inadequate in that sense. A mere five per cent of the pool was grossly inadequate. And although no reason for such inadequacy need be identified, it appears to us to be the product of the judge’s failure to give sufficient recognition to K’s contribution in discharging the bulk of the domestic and parental obligations leaving A free to focus his talents upon the growth of the business. While the judge described K’s sole responsibility for the domestic sphere as freeing up A and making it ‘easier for him to focus upon his work commitments seven days a week’,[73] the calculations which his Honour made in determining a just and equitable adjustment sum implicitly treated K’s contribution as in truth a contribution solely to the domestic life of her and A, and not genuinely as a direct or indirect non-financial contribution to the growth of the business, or as insignificantly so.
[73]Reasons [552].

So to approach the task of assessment echoed the mistake of treating the partners in a de facto relationship as if they were strangers simply involved in commercial acquisitions whose entitlement to assets was dependent upon proof of a legal or equitable claim, rather than an entitlement which flowed from the existence of the relationship. That was aggravated in the cross-check. The choice of unpaid wages as a benchmark, albeit considered with respect to K’s non-financial contribution to the business and not with respect to her homemaker role, reinforces a sense that the calculations were based upon an action for work and labour done removed from the context of an enduring de facto relationship. Possibly, it is to be explained by the desire of the judge to find a suitably objective foundation in the face of the obviously unsatisfactory testimony of almost all of the witnesses. But, with respect, it was an error.

Conclusion – Appeal and Cross-Appeal should be allowed and discretion must be re-exercised

In our view, the errors which we have identified in the judge’s reasoning vitiate his Honour’s decision. It follows, in our opinion, that both the appeal and the cross-appeal should be allowed, with the consequence that the award of the adjustment sum should be set aside and the discretion re-exercised. We note for completeness that A relied on the errors with respect to the interest payable for the years 1999 and 2000 and that relating to the duration of the relationship, not as grounds of appeal but as part of his notice of contention; the aim of which was to affirm the judgment below on other grounds. Nonetheless, in the context of the error as to contribution, and most particularly the effect of the fresh evidence, they assist in the conclusion that the discretion must be re-exercised.

We also observe that, for the reasons given when dealing with the fresh evidence application, the revaluation in the exercise of our discretion should be made as at the date of judgment of this Court rather than as at date of separation. Accordingly, even if the evidence of the amended assessments were not admissible as fresh evidence as such, it would still be necessary to take it into account.

As we mentioned earlier in these reasons, it is unnecessary to consider the alleged errors in the judgment on interest. Since the discretion must be re-exercised and on a basis different to that which the judge adopted, there is no point in considering the reasons in support of the judge’s award of interest accruing with respect to an adjustment sum assessed on the basis which his Honour adopted.

Finally, on this aspect of the matter, we add that, despite the few instances in which we think his Honour is shown to have erred, in the circumstances of the case, faced with a host of witnesses who could not be believed, his Honour’s judgment was in our opinion not only careful and considered but exemplary in its attention to detail.

(2) On a re-exercise of the discretion, what adjustment order ought be made?
(a) The pool as at the present time

The first step in the required analysis is to value the pool of assets as at the present time. That requires consideration of the assets of each of A, DSK, Azura, Yarrabee and K.

The assets of A, DSK and Yarrabee should reflect their respective tax liabilities, if any, as at the date of separation, but not thereafter. The former were a matter in which K was, colloquially, complicit. The latter were outside her control. We have already discussed the effect of that on the inclusion in the calculation of the value of the pool of the interest obligations in respect of the years 1999 and 2000. For that and other reasons, the Deputy Commissioner should not be permitted to rely upon unpaid tax liabilities so as to defeat K’s claim. We discuss this further below.

Apostolidis

A’s position, as disclosed by his affidavits sworn 29 and 30 August 2011 and by the affidavit of the taxation officer, Mr Khouri, sworn 30 August 2011 is as follows: His assets are (1) his home at 11 Yarrabee Court, Mt Waverley; (2) two Mercedes-Benz vehicles; (3) furniture; and (4) personal effects. He has no personal bank account.

The home was valued on 5 May 2011 at between $800-900,000. It was not a formal valuation, but was of the kind accepted, in the absence of other evidence, by the special referee, Mr Lom, with respect to the adjoining property. The lower valuation should be used – we follow the course adopted by the special referee – in order to reflect a general decline in property values since 5 May. As at 29 August 2011 there was $21,345.62 owing on a loan secured by a mortgage. The net value of the asset should be assessed at $778,654.38.

By affidavit sworn 29 August 2011, A deposed that the realisable value of the motor vehicles, furniture and personal effects was, in all, $58,000. That seems low but, even if it were too low, it would not be too low to anything like the extent necessary to affect his overall financial position when account is had of his tax liabilities up to the date of separation.

According to Mr Khouri’s affidavit of 30 August 2011 – which was based upon notices of amended assessment issued for the years ending 30 June 1996 to 30 June 2003, and which included a general interest change calculated up to 9 August 2011 – A’s tax liability up to date of separation was $4,648,531.89, and for the period thereafter to 9 August 2011, $9,104,910.71 – a total of $13,753,442.60. On 10 August 2011, however, judgment was entered by the Deputy Commissioner against A in an amount of $12,406,887.03. It follows, we think, that we should treat A’s liability in respect of the period to date of separation as being somewhat less than Mr Khouri deposed.

Given the qualifications which we have mentioned, it is nonetheless clear, on the material before us, that, adjusted to reflect his tax liability only up to date of separation, A’s liabilities greatly exceed his assets.

We refer to ‘the material before us’ for two reasons: first, to emphasise that we have no basis for concluding that any part of the net amount of $4,500,000 which the judge found A had taken out of his business in cash between 1996 and 2000 now remains; and, secondly, because it would be wrong to speculate as to the fate of any aspect of what we have been told is a challenge by A to the amended tax assessments. The certainty is, as matters stand, that the Deputy Commissioner has judgment against A – based upon, no doubt, certificates which set a significant hurdle which A must clear if his challenge is to get anywhere.

DSK

According to the special referee’s report, DSK’s net assets as at 6 September 2011[74] were $2,561,518.[75] No reason was advanced why we should not accept that valuation.
[74]The date of the report.
[75]This amount assumed liability for $26,474 in respect of superannuation guarantee payments.

Mr Khouri’s affidavit of 30 August 2011 calculated DSK’s tax liability at the separation date to be $1,501,606, and its tax liability thereafter up to 9 August 2011 to be $271,685.73 – a total of $1,773,291.73. The judgment entered in favour of the Deputy Commissioner against DSK on 10 August 2011 was for $1,798,817.36. The difference is unlikely to alter much the liability calculated by Mr Khouri in respect of the pre-separation period. We will act upon that calculation.

For the reasons described when we considered A’s financial position, we will not speculate upon the fate of DSK’s challenge to the assessments. In the event, we conclude that the value of DSK, relevant to our task, is $1,059,912.[76]
[76]That is, $2,561,518 less $1,501,606.

Azura

The special referee valued Azura at $423,530. Its one substantial asset[77] was worth much more. But there was an apparently genuine loan from Yarrabee, shown in the accounts of each company, of some $1.2 million. It related to the cost of rebuilding the premises after they were fire-damaged in 2007.
[77]The building and improvements at 1/200 Princes Highway, Dandenong.

Azura was not subject to any relevant taxation liability Its value should be accepted at $423,530.

Yarrabee

The special referee valued Yarrabee, by net asset value methodology, at $2,335,178.[78] He did so after concluding that the company could not be valued by capitalisation of maintainable earnings methodology because its business had contracted greatly and it had recorded losses in both 2009/10 and 2010/11.
[78]This amount assumed liability for $93,802 in respect of superannuation guarantee payments – albeit that Yarrabee apparently disputes that there is such liability. The affidavit of Mr Khouri sworn 8 September 2011 does not disclose whether the objections which were allowed in part related to the superannuation guarantee payment.

In our opinion, the referee’s analysis is compelling, and we will act upon it. It explains, inter alia, why the business contracted, why the gross profit margin decreased, and what became of some of the $4 million which was deposited to the company’s credit with the Bank of Cyprus in 2007.

According to Mr Khouri’s affidavit of 8 September, based upon the amended assessments issued in 2010 and recalculations made in the light of objections, Yarrabee’s tax liability as at 25 August 2010 was $652,772.95. This related entirely to the post separation date period. It appears, however, that on 16 August 2010 the Deputy Commissioner was paid $463,885 by Yarrabee out of its Bank of Cyprus account.[79] In his affidavit sworn 29 August 2011, A deposed that –

The original assessment against Yarrabee … was not sued upon by the Deputy Commissioner as the sum had been satisfied by simply garnisheeing Yarrabee[‘s] … bank account.

Consistently with that assertion, the Deputy Commissioner did not obtain judgment against Yarrabee on 10 August 2011. In his affidavit sworn 8 September 2011, Mr Khouri deposed that the amounts disclosed in the notices and assessments, together with the general interest charge, have been paid in full.

[79]Or perhaps the Deputy Commissioner garnisheed that sum from that account.

Because the amount of $463,885 relates entirely to the period since separation, it should be added back to the value of Yarrabee as assessed by the special referee. The value which results is $2,799,063.

Conclusion as to present value of the pool

The assets on what may be called A’s side of the ledger total $4,282,505 – although that apparent precision must be taken with a large grain of salt. That calculation excludes the tax liabilities of A, DSK and Yarrabee for the period between the date of separation and date of judgment. Those liabilities are in the order of $9.84 million – of which about $9.1 million is referable to A personally. We have excluded those liabilities from our assessment because, as we said earlier, they were A’s doing, uninfluenced by K; and also because we have concluded that the Deputy Commissioner should not be permitted to call them in aid so as wholly to defeat K’s claim. The pool should not be diminished on their account.

The calculation also excludes any allowance for a continuing lease liability borne by Yarrabee. On the other hand, it makes no provision for the possibility that Yarrabee will succeed in sub-letting the particular premises.

K’s current asset position was not disclosed. It was not suggested for A, however, that it was materially different to her position at time of separation. There being no other evidence, we assess the value of K’s assets at $75,000 – that is, their value as assessed by the judge at date of separation.

Thus, the pool should now be treated as being comprised of A’s assets in an amount of $4,282,505 and K’s assets in an amount of $75,000. The former amount, repeating what we have already said, includes the tax liabilities of A and DSK up to the date of separation, but not the tax liabilities of A, DSK or Yarrabee thereafter. The pool thus has a value of $4,357,505.

(b) The respective contributions

With respect to the contributions of the parties, we reiterate that A, by his own intellectual and physical contributions, built up the business enormously in the period of the relationship. Something worth $75,000 at the outset had a net worth of $5.5 million at the end. Allowing for cash taken out of the business, and the acquisition of other assets, A’s ‘worth’ at the end of the relationship was over $11 million, whereas at the beginning of the relationship it had been, as the judge found, $220,000.

At the same time, however, it is apparent that K’s contribution was substantial. We are mindful of the more limited duration of the relationship, as we have found it to be, namely, a de facto relationship of six years. But in that time, K –

i. Undertook the homemaker role throughout the period of the relationship, and did so competently. This was not only a contribution to A’s welfare, and, when present, the welfare of his son, it was also, in the language of s 285(1)(a) of the PLA, a non-financial contribution to the ‘acquisition, conservation or improvement of … [A’s] property [and] financial resources’, for it permitted A to concentrate on building up his business and was a significant contribution in that regard.

ii. Undertook the care of the A’s son when he was in A’s custody, that being a contribution both to ‘the welfare of the family constituted by the partners and … a child accepted by them into their household’, and a non-financial contribution of the kind which we mentioned above.

iii. Performed some work of some value in the business over a period of years by reason of the relationship.

iv. Made some, though small, financial contributions to the business, and thus facilitated its growth.

Certainly, A’s money provided the wherewithal for the couple’s upkeep throughout the period of the relationship and it put a roof over K’s head for the duration of that period. It must also be allowed that K was the beneficiary of some overseas travel when she accompanied A on business trips and generally was afforded a not undesirable life style. But, in the circumstances we described above, it would be wrong not to treat K’s contributions as being proportionately substantial; and, taking into account the interrupted nature of the relationship, K’s contributions spanned a period of about six years, which cannot be described as short-lived. Subject to considering the impact of the Deputy Commissioner’s position, we are of the view that a substantial order for adjustment would need to be made in K’s favour.

(3)(a) Does the Court have jurisdiction to make an order that would prejudice the Deputy Commissioner?

That brings us to the position of the Deputy Commissioner. Assuming that judgments in his favour are sustained, neither he nor K, as unsecured creditors, could hope to recover in full against A or the companies.[80] The amount which the Deputy Commissioner would recover might be the less, however, to the extent that K also had a claim on the available funds.[81]
[80]Although the Deputy Commissioner does not have judgments against Azura or Yarrabee, A was the sole shareholder in those companies at date of trial; in his bankruptcy, they would doubtless be wound-up.
[81]We put to one side the possibility, flagged in argument, that the respondent might later obtain an order converting a money adjustment order into an order for the transfer of real property, thereby making her a secured creditor.

Counsel for the Deputy Commissioner advanced two arguments on behalf of the revenue. The first, which counsel described as a jurisdictional argument, was that the court has no jurisdiction to make a property adjustment order against a party under s 285 of the PLA if it is apparent on the evidence before the court that the party has insufficient assets to meet the claims of his or her existing third party creditors.

Counsel submitted that the argument found support in the judgment of Gibbs J in Ascot Investments Pty Ltd v Harper[82] and in observations of Branson and Merkel JJ in Official Trustee in Bankruptcy v Mateo.[83] In our view, it does not.
[82](1981) 148 CLR 337.
[83](2003) 127 FCR 217.

The question in Ascot Investments was whether the Family Court had power under s 79 of the Family Law Act 1974 (Cth) to compel third party directors of a company to register a transfer of shares in the company from a husband to his wife. By majority, the High Court held that it did not. Gibbs J delivered the leading judgment among the majority. In it, his Honour said that:

The authorities to which I have referred establish that in some circumstances the Family Court has power to make an order or injunction which is directed to a third party or which will indirectly affect the position of a third party. They do not establish that any such order may be made if its effect will be to deprive a third party of an existing right or to impose on a third party a duty which the party would not otherwise be liable to perform. The general words of ss 80 and 114 must be understood in the context of the Act, which confers jurisdiction on the Family Court in matrimonial causes and associated matters, and in that context it would be unreasonable to impute to the Parliament an intention to give power to the Family Court to extinguish the rights, and enlarge the obligations, of third parties, in the absence of clear and unambiguous words. It can safely be assumed that the Parliament intended that the powers of the Family Court should be wide enough to prevent either of the parties to a marriage from evading his or her obligations to the other party, but it does not follow that the Parliament intended that the legitimate interests of third parties should be subordinated to the interests of a party to a marriage, or that the Family Court should be able to make orders that would operate to the detriment of third parties. There is nothing in the words of the sections that suggests that the Family Court is intended to have power to defeat or prejudice the rights, or nullify the powers, of third parties, or to require them to perform duties which they were not previously liable to perform. It is one thing to order a party to a marriage to do whatever is within his power to comply with an order of the court, even if what he does may have some effect on the position of third parties, but it is quite another to order third parties to do what they are not legally bound to do. If the sections had been intended to prejudice the interests of third parties in this way, it would have been necessary to consider their constitutional validity.[84]

[84](1981) 148 CLR 337, 354 (emphasis added).

Contrary to counsel’s argument, we see nothing in that which supports the proposition for which the Deputy Commissioner contends. Rather it appears to us that the way in which Gibbs J contrasted ordering a party to a marriage to do whatever is within his power to comply with an order, ‘even if what he does has an effect on the position of third parties’, with making orders which would defeat or prejudice the rights or nullify the powers of third parties, implies that Gibbs J recognized that the court does have power to make an order requiring a husband to pay moneys to his wife, even if that had an effect on the position of third party creditors.

In Official Trustee in Bankruptcy v Mateo[85] the question was whether a consent order of the Family Court made under s 79 of the Family Law Act, that a husband transfer his half interest in real property to his wife, was defeated by s 121 of the Bankruptcy Act 1966 (Cth).[86] At the time the order was made, the husband knew, but did not disclose to the court, that the effect of the transfer would be to leave him unable to pay his creditors. The court nevertheless upheld the order on the basis that a transfer pursuant to order made under s 79 of the Family Law Act is not a transfer of property within the meaning of s 121 of the Bankruptcy Act. More to the point for present purposes, Branson J said three things of significance:
[85](2003) 127 FCR 217.
[86]Which as against a trustee in bankruptcy avoids a transfer of property made with an intention to defeat creditors.

First, that Ascot Investments did not prevent the court making an order under s 79 of the Family Law Act notwithstanding that it may affect a third party unsecured creditor by reducing the pool of property available to unsecured creditors in any subsequent bankruptcy. As her Honour explained:

In my view, Ascot Investments is authority for the proposition that the Family Court has the power to make an order which reflects the obligations of the parties to a marriage, the one to the other and to the children of the marriage, notwithstanding that such order may affect the position of a third party (for example, by reducing the property available to unsecured creditors should a sequestration order be later made against the estate of one of the parties to the marriage). This is not to say that, in making an order under s 79 of the Family Law Act, the Family Court may disregard the interests of third party creditors. Indeed, in an ordinary case, the Family Court may be expected to be astute to prevent the claims of an unsecured creditor from being defeated by a s 79 order. However, it seems to me that the Family Court has the power, having considered both the legitimate interests of an unsecured creditor of one of the parties to the marriage and the legitimate interests of the other party to the marriage, whose interests may incorporate or reflect the interests of a child of the marriage, to make an order the indirect or consequential effect of which will be to reduce the assets to which the unsecured creditor may look should its debt not otherwise be satisfied.[87]
[87](2003) 127 FCR 217, [93].

Secondly, although the court has that power, it is required to satisfy itself that the order which it makes is just and equitable in all the circumstances, and they include liabilities and the position of third party unsecured creditors:

In summary, even where the parties to a marriage seek an order by consent in the Family Court under s 79 altering their interests in property, the court has a duty to satisfy itself that the order sought is just and equitable in all of the circumstances. The relevant circumstances include the liabilities, including the unsecured liabilities, of each of the parties to the marriage. A failure to give notice to a significant unsecured creditor of either of the parties to the marriage of the application for the order would be likely to constitute a ground for an application under s 79A to vary or set aside any order made. A disregard by the court of the proper interests of an unsecured creditor who appeared on an application under s 79 would be likely to constitute a ground of appeal against any order made. For these reasons it would be wrong to see s 79 of the Family Law Act as providing a means whereby the parties to a marriage, or either one of them, can defraud their creditors or the creditors of either of them.[88]
[88]Ibid [99].

Thirdly, nothing in the Family Law Act or the Bankruptcy Act suggests that, in determining what is just and equitable, the court must prefer (as opposed to weighing in the balance) the interests of third party unsecured creditors:

… an order under s 79 cannot defeat the interests of a secured creditor as to do so would deprive a third party of an existing right, namely, the right to look to his or her security in the event of non-payment (see [90] above). However, nothing in the Family Law Act, or indeed the [Bankruptcy] Act, suggests that in determining what is ‘just and equitable’ within the meaning of s 79(2) of the Family Law Act the Family Court must as a matter of law prefer (as opposed to weigh in the balance) the interests of an unsecured creditor of one of the parties to the marriage to the interests of the other party and any children of the marriage.[89]

[89]Ibid [101].

Merkel J largely agreed with Branson J although emphasizing to a greater extent than her Honour the need to weigh the interests of third party unsecured creditors in the balance:

As was made clear in Ascot Investments Pty Ltd v Harper (Ascot Investments),[90] the Family Court, in exercising its jurisdiction and power in relation to the property interests of the parties to a marriage, is not to ignore the interests of third parties. I agree with the observation of Branson J at [93] that Ascot Investments is authority for the proposition that the Family Court has the power to make an order which affects the obligations of the parties to a marriage, the one to the other and to the children of the marriage, notwithstanding that such an order may affect the position of the third party (for example, by reducing the property available to unsecured creditors should a sequestration order be later made against the estate of one of the parties to the marriage). However, it does not follow that, ordinarily, it would be a proper exercise of the power for the Family Court to make orders under s 79 altering property interests if, on the material before the court, the orders would result in the transferor having insufficient assets to discharge his or her liabilities to arms length creditors. There must be a real issue as to whether such orders are just and equitable if their inevitable consequence would be to defeat the claims of those creditors. That issue, however, is a matter for the Family Court.
In that regard, in Ascot Investments when Gibbs J stated[91] that in a s 79 application ‘the Family Court must take the property of a party to the marriage as it finds it’, his Honour appears to have been referring to the qualitative, rather than quantative, aspects of the property in question. However, it is consistent with the general principles enunciated by his Honour, and also with the ‘just and equitable’ requirement in s 79, for the Family Court when exercising its power to alter property interests under s 79 to have regard to the net value of the property available to be shared.[92]

[90](1981) 148 CLR 337, 342 and 354–5.

[91]Ibid 355.

[92](2003) 127 FCR 217, [144] and [145] (original emphasis).

So far from supporting the Deputy Commissioner’s jurisdictional argument, the observations of Branson and Merkel JJ appear to us to render it untenable.

(3)(b) Should the Deputy Commissioner’s interest be taken into account, in the re-exercise of the discretion?

The second argument advanced on behalf of the Deputy Commissioner was that, if the Court does have jurisdiction to make an order in favour of K, the pool of assets should be calculated as it is at present, on a net asset basis, which is to say, after deduction of existing liabilities. It would follow, it was contended, that there would be no property in respect of which an order could be made in favour of K and thus that no order should be made

We accept that argument up to a point. As Branson and Merkel JJ observed in Mateo, when the Family Court exercises power under s 79 of the Family Law Act, it should have regard to the interests of third party unsecured creditors. We accept that the same applies to the exercise of power under s 285 of the PLA.

We also accept, as we discussed above, that the asset pool should be re-valued as at the present time. As a general rule, the value of an asset pool for the purposes of s 285 should be determined as at the time of judgment rather than at some earlier date. It is only where there are good reasons to adopt another date that it should be chosen,[93] and here there are not any good reasons to adopt another date.
[93]Kardos v Sarbutt (2006) 34 Fam LR 550, 559 [31] (Brereton J)

Admittedly, when the judge dealt with the matter, it seemed as though there were good reasons to value the pool as at the date of separation. The parties were agreed on it as the appropriate date and, to the extent that contingent liabilities were than capable of estimation, it appeared that A would have sufficient assets to satisfy third party creditors and K’s entitlement if the pool were valued on that basis. Now, however, that has changed. In light of the fresh evidence, it can be seen that A’s tax liability[94] and his obligations to other third party creditors substantially exceed his existing assets. In those circumstances, it would be unrealistic and unsatisfactory to value assets as if the facts were as they were believed to be in the past.
[94]Assuming the amended assessments are not reduced on appeal.

We do not accept, however, that so to value the pool must result in the conclusion that there are no assets in respect of which an order may be made in favour of K. Although a practice has grown up of valuing assts on a net basis, the law recognizes that, in some cases, the court may take the view that, because of the circumstances surrounding the incurrence of a liability, it should be excluded in whole or part from the calculation of net assets. In this case, we consider that a significant part of the tax debt should be excluded from the calculation because of the circumstances in which it was incurred.

In the Marriage of Prince,[95] Evatt CJ of the Family Court summarized the position under s 79 of the Family Law Act as follows:

… the outcome of the wife's application will depend upon findings made by the court as to the parties’ assets and liabilities, their contributions and their respective financial resources, means and needs. It would be necessary for the court to determine so far as is possible the value of the property held by each party. In accordance with the usual practice this would be done by deducting the value of outstanding mortgages, debts, and other liabilities (eg Albany).[96] The court may have to determine, as between the parties, the existence of a particular liability (A-f Petersens,[97]).
The assessment of debts and liabilities is not necessarily arrived at by a strictly mathematical or accountancy approach in all cases … In some cases there are sufficient uncertainties as to the alleged liability to lead the court to disregard it entirely or partly eg a loan from a parent of the party not likely to be enforced: A-f Petersens, supra Quirk (1983) unreported). In other cases, the court may take the view that because of the circumstances surrounding the incurring of the liability it ought in justice and equity to be wholly or partly disregarded in determining the appropriate order to make under s 79 as between the parties to the marriage. Such a result could be reached where a spouse had incurred a liability in deliberate or reckless disregard of the other party's potential entitlement under s 79.[98]
Complex issues can arise in regard to liabilities to third parties: see eg Pockran and Crewes.[99]
Of course, the court cannot ignore the fact that there is or may be a liability; the effect is simply that it does not consider that the other spouse should be called upon to in effect ‘contribute’ to the liability by having that spouse’s fair share in the parties’ property reduced by virtue of its existence. The effect may be that the party who has incurred the liability will be left to meet it out of whatever funds remain to that party after satisfying the property order made under s 79: A-f Petersens, supra.

[95](1984) 9 Fam LR 481, 486 (emphasis added).

[96](1980) 6 Fam LR 461, 466; [1980] FLC 90-905, 75,717.

[97](1981) 7 Fam LR 402; [1981] FLC 91-095.

[98]Kimber (1981) 7 Fam LR 483; [1981] FLC 91-085; Kowaliw [1981] FLC 91-092; Antmann (1980) 6 Fam LR 560; [1980] FLC 90-908; Af Petersens, supra.

[99](1983) 8 Fam LR 893; [1983] FLC 91-311.

Her Honour continued:[100]

It is, of course, possible that a party may in the end be unable to meet all his or her liabilities including those arising under s 79. If this results in insolvency, the question of priorities between the spouse and other parties will then be determined by the law of bankruptcy.[101]

[100](1984) 9 Fam LR 481, 487.

[101]See also In the Marriage of Biltoft (1995) 19 Fam LR 82, 92–94.

Parity of reasoning implies that the same holds true under s 285 of the PLA. There is a general practice of valuing the asset pool on a net basis, but it is within the discretion of the court to disregard a liability which ought in justice and equity to be wholly or partly disregarded in determining the appropriate order; and the court may do so, in among other circumstances, where the liability has been incurred in deliberate or reckless disregard of the other party's potential entitlement under s 285.

For the reasons earlier stated, we accept that K should share the burden of so much of the tax debt as relates to the period up to the date of separation. But because of the circumstances in which the remainder of the tax debt was incurred, we do not think it just or equitable that K should have to share fully in the burden of the remainder. After all, following separation, all of the assets were under the control of A; and, as the judge said, A could have regularised the tax position at any time and so stopped penalties and interest accruing. He chose instead to continue to evade tax, for his own benefit, and thus fraudulently to expose the asset pool to ever increasing tax liabilities. K had no say in or control over that.

Additionally, after the Deputy Commissioner issued amended assessments, he obtained freezing orders which, according to the fresh evidence, to a very large degree hampered the ability of A to continue to carry on business, leading to the destruction of the bulk of its value. It has had the effect of virtually obliterating the value of the asset pool, such that it is now worth only a tiny fraction of its worth at the date of separation. Unfortunately for K, she must share in that reduction, because her entitlement is to be calculated on the basis of the value of assets as they are now. But it would not be fair to expose her to the effects of that and then further reduce her entitlement by reference to the effects of the tax burden relating to the period after the date of separation. To do so would be tantamount to granting priority to the Deputy Commissioner in relation to a liability from which K did not benefit and over the incurrence of which she had no control, in circumstances where the way in which, according to the evidence before us, the Deputy Commissioner has gone about securing the tax debt, by freezing the business cash flow, has resulted in the destruction of most of the value of the assets from which not only he and K but also any other third party creditors might otherwise have recovered their entitlements. There is no reason in justice or equity to do that.

In the event, it appears to us that, to make an order adjusting the interests of A and K which is just and equitable, we should moderate the adjustment which we were otherwise minded to make in her favour to take account of the Deputy Commissioner’s position. We have decided that an order should be made in her favour for $1,175,000, that being about 27 per cent of the pool of $4,357,505.

(4) Should interest be awarded on a revised adjustment sum awarded in re-exercise of discretion?

At the trial the parties were agreed that the assets should be valued at the separation date and any adjustment order made accordingly; and that, as a quid pro quo, A would pay interest on the amount of the order from date of issue of the writ.

For the reasons already given, however, it has become necessary to redetermine K’s entitlement to an adjustment order, and the amount of such order, as at the present time. The agreement between the parties could not sensibly be held to apply as to interest when the parties’ rationale for the award of interest is no longer operative.

The question which then arises is whether any interest should be awarded on the adjustment sum. That question is not answered by reference to s 58 or s 60 of the Supreme Court Act 1986, neither of which applies in a case such as this.[102]
[102]Manns v Kennedy (2007) 37 Fam LR 489, 514 [136]; Giller v Procopets (No 2) (2009) 24 VR 1, 126, [28]. At least, that is so unless the parties were to agree, as they did here, that interest should be payable under s 60 – an agreement which was productive of discord, and the like of which should in our view be avoided.

The inapplicability of the statutory provisions does not mean that interest, or something to the same effect, might not be ordered in a particular case. In Kardos v Sarbutt,[103] the ‘relatively uncommon course’ was adopted of valuing the property at a date earlier than the date of hearing, and determining the parties’ entitlements according to that pool. Brereton J, with whom Basten JA and Hunt AJA agreed, said that in such a case -

… it will ordinarily be appropriate to award interest from the date at which the entitlement is struck. That is because the adjustment is calculated at the date of valuation, and the award of interest reflects the fact that the applicant has been kept out of his or her money, the benefit of which the respondent has enjoyed, during the period from then until to judgment. When the property is ascertained and valued as at the date of hearing, then the judgment will strike the entitlements according to current values, and in that way take into account appreciation of property since separation. But if the values used are as at separation, an award of interest will be appropriate. Ultimately, [counsel] did not argue to the contrary.[104]

His Honour said nothing about how interest should be calculated in such a case.

[103](2006) 34 Fam LR 550.

[104]Ibid 575 [98].

The distinction between ascertainment and valuation of property at (1) date of hearing, and (2) at an earlier date, was discussed in Manns v Kennedy.[105] There, the trial judge had determined entitlements by reference to valuations made well before trial. He had allowed statutory interest. Campbell JA, with whom Santow JA and Bryson AJA agreed, concluded that the judge had been wrong to hold that the ‘Supreme Court rates of interest’ – the foundation for the award of which was s 100 of the Civil Procedure Act 2005 (NSW) – could apply to an order made under the equivalent of Part IX of the PLA. In Giller v Procopets(No 2),[106] those conclusions were held to be equally applicable to ss 58 and 60 of the Supreme Court Act 1986.
[105](2007) 37 Fam LR 489.
[106](2009) 24 VR 1, 125–126, [26]–[27].

The basis upon which interest might be awarded in a case of valuation and determination of entitlements at a date before the hearing did not arise in either Manns or Giller. In the former case, the appeal was allowed, and assets were valued, and the appropriate adjustment was determined, as at the date of the appeal hearing. No interest of any kind was allowed. In Giller, where there was an adjustment at date of trial, again no order for interest was made.[107]
[107]Interest was allowed on other amounts awarded upon different causes of action. That is not to the point.

Each of Manns (in the New South Wales Court of Appeal) and Giller was the factual converse of Sarbutt. The reasoning which supported a grant of interest in Sarbutt told against an award of interest in those other two cases.

In Manns, Campbell JA postulated that in some cases it might be permissible to allow for something in the nature of interest in determining what adjustment of interests seemed just and equitable.[108] But he warned against too ready a resort to an allowance for interest, particularly in the context of proceedings in which it is commonly the situation that some contributions can only be proved in an ‘extremely broad brush manner.’[109] He also pointed out how an award of interest might ‘distort the proportions that have otherwise been determined.’[110]
[108]Manns v Kennedy (2007) 37 Fam LR 489, 514 [136].
[109]Ibid 514 [140].
[110]Ibid 516 [146].

Despite what Brereton J said in Kardos in the passage cited above, it may not be strictly correct to say, of an order made under Part IX of the PLA, that the plaintiff is kept out of her (or his) money in the period commencing when the adjustment is struck and ending when the order is made. As Campbell JA pointed out in Manns, although in one sense the right to approach the court arises as soon as the relationship ends, a monetary order ‘speaks in the money of the day the order is made’. It was –

[N]ot as though an applicant had, even in chrysalis form, at the time the relationship ended any sort of right to obtain the particular order that the court might have made.[111]

And

...an applicant… has no legal right, before the court makes its order, to be paid any particular sum of money or receive any particular item of property.[112]

[111]Ibid 513 [131].

[112]Ibid 514 [137].

Even so, this would not deny that something like interest might be built into a case of the Kardos kind, or even in a case where the adjustment order was made as at the date of hearing. But, in the latter class of case, such an order with such an effect appears to be at least an extremely rare bird. In other state cases which we have examined,[113] no interest was awarded nor was the amount of an adjustment order apparently varied to provide a kind of de facto interest. That appears also to be the position under the Family Law Act 1974.[114]
[113]Black v Black (1991) 15 Fam LR 109 (Court of Appeal, New South Wales), Baker v Towle (2008) 39 Fam LR 323 (Court of Appeal, New South Wales), Robertson v Fox [2008] VSC 199 (Cummins J) and Kenyon v Akeroyd [2008] VSCA 277.
[114]We have been unable to find any Family Law Act case in which interest has been awarded on a property adjustment. The orthodox approach is to value the pool at the date of hearing: In the Marriage of Wardman and Hudson (1973) 5 Fam LR 889, 891–2.

In the present case, even if it were open conceptually, we would not adjust upwards the amount which we have considered to be just and equitable in order to provide de facto interest. It is true that, with the passage of time, and by the behaviour of both A and the Deputy Commissioner, the pool of assets has decreased, to K’s disadvantage. So she has lost the cushioning effect which will exist when the value of assets increases between separation and hearing, and valuation is made as at the date of hearing. But there is no general rule that assets not only survive, but prosper. Moreover, what we have considered to be a just and equitable order in K’s favour has been influenced, to an extent, by the reduced asset pool.

Conclusion and orders

We grant leave to A to adduce fresh evidence. We allow the appeal and cross-appeal. In the re-exercise of the discretion under s 285 of the PLA, we adjust the interests of A and K by awarding to K a sum broadly representing 27 per cent of the pool of property interests of the parties, valued as at the present time at $1,175,000.

It is a consequence of our conclusions that there is no utility in hearing and determining the appeal in respect of the third judgment at trial, the judgment on costs. We will hear counsel on any orders as to costs to be made in light of our conclusions on the substantive issues.

- - -

$403,366 – $29,183 – $36,445 + $42,766 + $49,217 = 429,721.00, one tenth of which = $42,972.10.

1996	Unpaid tax and interest	$379,738
1997	Unpaid tax and interest	$615,086
1998	Unpaid tax and interest	$691,848
1999	Unpaid tax	$733,470
2000	Unpaid tax	$967,256
Total	$3,387,398

31 Mar 00	Actual	Estimated	Difference	Major
Tax payable	$456,040	$859,406	(-) $403,366
Interest	$970,455	$970,455	$970,455
Penalties	$342,030	$342,030	$342,030
Total	$1,768,525	$859,406	$909,119

30 Jun 99	Actual	Estimated	Difference	Major
Tax payable	$754,203	$725,020	$29,183
Interest	$1,832,024	$1,832,024	$1,832,024
Penalties	$565,652	$565,652	$565,652
Total	$3,151,880	$725,020	$2,426,860

30 Jun 98	Actual	Estimated	Difference	Major
Tax payable	$657,620	$621,175	$36,445
Interest	$1,736,514	$70,673	$1,665,841	$1,665,841
Penalties	$493,215	$493,215	$493,215
Total	$2,887,349	$691,848	$2,195,501

30 Jun 97	Actual	Estimated	Difference	Major
Tax payable	$447,658	$490,424	(-) $42,766
Interest	$1,209,825	$124,662	$1,085,163	$1,085,163
Penalties	$335,744	$335,744	$335,744
Total	$1,993,227	$615,086	$1,378,141

30 Jun 96	Actual	Estimated	Difference	Major
Tax payable	$215,765	$264,982	(-) $49,217
Interest	$613,955	$114,756	$499,199	$499,199
Penalties	$161,824	$161,824	$161,824
Total	$991,543	$379,738	$611,805

Lump sum for the penalties in the estimate for 1996, 1997 and 1998	$688,289	(-) $688,289	(-) $688,289
Tax for DSK Holdings Pty Ltd	$1,898,464	No allowance	$1,898,464	$1,898,464

[2011] VSCA 307

13 October 2011