BAIRD & REYNOLD - [2017] FamCAFC 16

FAMILY COURT OF AUSTRALIA

BAIRD & REYNOLD

[2017] FamCAFC 16

FAMILY LAW – APPEAL – PROPERTY – Where the application to adduce further evidence is dismissed – Where there is a material error in the adequacy of the reasons – Where there is a failure to have regard to relevant evidence – Where the trial judge fell into error – Where some grounds of appeal did not succeed but the principal grounds of appeal all succeeded – Where the orders appealed against are set aside and the matter is remitted for rehearing.

FAMILY LAW – APPEAL – COSTS – Where there is an order for costs in favour of the wife.

Family Law Act 1975 (Cth) – ss 75(2)
Federal Proceedings (Costs) Act 1981 (Cth)

AMS v AIF (1999) 199 CLR 160
Bennett and Bennett (1991) FLC 92-191
CDJ v VAJ (1998) 197 CLR 172
Housing Commission of New South Wales v Tatmar Pastoral Co Pty Ltd [1983] 3 NSWLR 378
Jones v Dunkel (1959) 101 CLR 298

APPELLANT:

Ms Baird

RESPONDENT:

Mr Reynold

FILE NUMBER:

MLC

1004

2012

APPEAL NUMBER:

SOA

2016

DATE DELIVERED:

16 February 2017

PLACE DELIVERED:

Adelaide

PLACE HEARD:

Melbourne

JUDGMENT OF:

Strickland J

HEARING DATE:

17 May 2016

LOWER COURT JURISDICTION:

Federal Circuit Court of Australia

LOWER COURT JUDGMENT DATE:

23 December 2015

LOWER COURT MNC:

[2015] FCCA 3461

REPRESENTATION

COUNSEL FOR THE APPELLANT:

Mr North SC with Ms Stoikovska

SOLICITOR FOR THE APPELLANT:

Mills Oakley Lawyers

COUNSEL FOR THE RESPONDENT:

Mr Wilson

SOLICITOR FOR THE RESPONDENT:

Bowlen Dunstan & Associates Pty

Orders

The Application in an Appeal filed on 26 April 2016 be dismissed.
The appeal be allowed.
Paragraphs 1, 2 and 4 of the order made on 23 December 2015 be set aside.
The proceedings, save and except in relation to the matters dealt with in paragraphs 3, 5, 6, 7, 8, 9, 10, 11, 12 and 13 of the said order, be remitted for rehearing by the Federal Circuit Court of Australia before a judge other than Judge Newbrun.
The husband pay the costs of the wife of and incidental to the appeal such costs to be assessed in default of agreement.

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

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

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

THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT MELBOURNE

Appeal Number: SOA 6 of 2016
File Number: MLC 1004 of 2012

Ms Baird

Appellant

And

Mr Reynold

Respondent

REASONS FOR JUDGMENT

Introduction

By Amended Notice of Appeal filed on 26 April 2016, Ms Baird (“the wife”) appeals against certain of the property settlement orders made by Judge Newbrun on 23 December 2015.
The orders appealed provided for the wife to pay to Mr Reynold (“the husband”) the sum of $286,359, for the husband to transfer to the wife all his interest in the former matrimonial home, for the wife to pay her mother the sum of $20,000 by way of repayment of a loan, and for the husband to retain for his sole use and benefit the Mazda motor vehicle, the motorcycle, the C shares and cash and the balance of his superannuation entitlements after the superannuation split made in favour of the wife.
The appeal is opposed by the husband.

Brief Background

The wife was born in 1971.
The husband was born in 1964.
The parties commenced cohabitation in 1998 and married in 2001. They separated under the one roof in March 2009 and the husband left the former matrimonial home in July 2009.
Both parties have repartnered.
There are two children of the marriage who have lived with the parties on a shared care basis since separation.
In November 2006 the parties purchased a business called R (“the business”) operated by R Pty Ltd for $567,000. This sum was formally loaned by the parties to the business and this loan appeared on the business’ financial statements.
The wife filed an initiating application seeking orders for property settlement in the Federal Circuit Court of Australia on 14 December 2012.
On 1 September 2014 a company called P Pty Ltd (“the company”) was incorporated with the husband’s uncle and mother named as directors and his mother named as the sole shareholder. The husband’s uncle was the business’ accountant.
On 5 September 2014 the husband placed the business in voluntary administration and on 10 September 2014 the business was placed into liquidation by resolution of its creditors.
After the business was placed in liquidation, the husband became employed as a consultant for the company. The company took over employees and the premises of the business, and used some of its suppliers.
At trial, the wife asserted that the husband had taken undeclared cash sums from the business, that the business was of substantial value before being placed into liquidation, that the company is a sham, and that the husband’s mother, as sole shareholder of the company, held the equity in the company on trust for the husband.

Trial Judge’s Reasons for Judgment

After the trial judge outlined the background to the matter and the proposals of each of the parties, his Honour turned to the evidence and examined this in detail. This included the evidence of the joint valuer of the business, Mr N, who was unable to test the allegations of the wife as to the husband taking undeclared cash from the business due to the unavailability of certain financial documents enabling him to do so.
His Honour then set out the assets and liabilities of the parties, including superannuation entitlements. As to the business, his Honour referred to the wife’s contention that the business had a significant value prior to administration and explained that, as it was placed into liquidation on or about 10 October 2014, and therefore had no value after that date, it was “not appropriate to place any amount for the valuation of the business in the balance sheet”. His Honour noted that this contention of the wife would be considered under s 75(2)(o) of the Family Law Act 1975 (Cth) (“the Act”).
As to the loans alleged to be owed to the wife’s mother of $20,000 for use in the business and $13,753 for preparation of the house for auction, his Honour noted that the quantum of these advances was admitted by the husband, but he contended that they should be treated as gifts or contributions.
In relation to the $20,000 loan, His Honour referred to the documentary evidence of the loan and the evidence of the wife on this issue and accepted “that the monies were loaned by the wife’s mother to the parties, as owners of the business, and that the loan of $20,000 should go into the balance sheet”. On the other hand, his Honour considered the loan of $13,753 should not, as there was no documentary evidence of the loan and the wife’s mother’s affidavit contained the first reference to this amount.
Regarding the husband’s C shares, his Honour adopted the value contended for by the wife as there was no opposing method of calculation or evidence tendered by the husband as to their value.
Having considered the contentious aspects of the parties’ assets and liabilities, his Honour found that the parties’ assets were valued at $1,378,439 and their liabilities were $620,000, thus amounting to net assets of $758,439 excluding superannuation. His Honour then found that the superannuation entitlements of the parties were valued at $212,851 as to the wife and $314,000 as to the husband.
His Honour then found that it was appropriate to alter the property interests of the parties due to the breakdown of their marriage, in circumstances where they both sought property adjustment orders and because “the continuance of the current legal ownership of the property would not afford them justice and equity” (at [182]).
Next, his Honour assessed the contributions of the parties at the commencement of the relationship, during the relationship and post separation and found that the wife had contributed 57.5 per cent and the husband 42.5 per cent.
As to s 75(2) factors, his Honour discussed the income earning capacity of the parties and noted that the “husband last earned $180,000 per annum with [C] some 10 years ago” and that there was an age difference between the parties. His Honour found that there was “a significant disparity in the income earning capacity of the parties which should be taken into account” (at [207]).
His Honour then turned to s 75(2)(o) and the wife’s assertions that the husband took undeclared cash from the business. His Honour set out the wife’s submissions in this regard (at [218]) and found that the “husband did not take undeclared cash from the business”. Given the thrust of the appeal, it is convenient to set out the entirety of his Honour’s reasons for so finding (at [219]):
a)The wife’s analyses, contained within both her initial written submission to Mr [N] of 2014 and later amended analysis referred to in her Affidavit filed 23 April 2015, were inconsistent and misleading; see, for example, the wife’s initial figures provided to Mr [N] (page 166, 180 of her trial Affidavit) and her later analysis (paragraph 41 and Annexure MGR 15 in the wife’s affidavit filed 23 April 2015).
The wife stated, in re-examination on 7 May 2015, that having reviewed her initial written submission (following her earlier oral evidence to the Court in February 2015) she had understated the amount of undeclared cash. The Court notes that the husband had not been earlier cross-examined or confronted with these revised figures for alleged undeclared cash. The Court is not persuaded that the wife’s analyses are reliable. The wife failed to provide evidence of an appropriate audit of her analyses from an expert, such as a forensic accountant, or from Mr [N].
b)The business experienced consistent trading losses since the parties purchased it. As at 2008/2009 the business had accumulated trading losses of some $206,000. It experienced a fire in 2008, in relation to which the wife’s mother made a contribution to the business of $20,000. The turnover of the business was negatively affected by the global financial crisis. The husband had only produced a net profit in the business of $5,660 in the financial year 2012/2013 after prior consistent years of trading losses.
c)The business’s financial state, as reflected in the financial statements of the business, including its trading losses, was consistent with the business being unable to meet interest payments on the mortgage, and assist in funding the children’s attendance at a private school. The wife’s taking over responsibility for the mortgage, and agreement to try and sell the home and removal of the children from the private school, was inconsistent with any belief on the wife’s part that the business had a capacity to pay these expenses.
d)Following the separation, the husband had told the wife that the business was struggling and he had doubts as to its continued viability (e.g. see email from the husband to the wife of 9 February 2012 in Exhibit 5).
e)The husband had applied for employment positions at a time when he was operating the business, with an application as late as 5 August 2014 (Exhibit 12), which applications were inconsistent with operating a successful business and taking undeclared cash out of it.
f)A significant part of the wife’s thesis, pointing to what she alleged was undeclared cash being removed from the business by the husband, was that the husband was leading a lifestyle inconsistent with what was portrayed in the financial accounts of the business. For example, she referred to the husband’s overseas trips. However the evidence of the husband’s partner Ms [T] revealed that she was funding these aspects of the husband’s lifestyle from her own monies. The Court accepts the evidence of Ms [T], including her evidence that she paid for numerous holidays for herself and the husband and children.
g)Ms [T’s] evidence relating to her financial support of the business; Ms [T] had lent the husband money to meet business debts totalling some $50,000.
h)There is no persuasive evidence that [the company] has any relevant value, other than the equipment purchased from the liquidator. The Court is not persuaded that [the company] is the alter ego of the business. The Court finds that the husband’s mother is the owner of [the company], and that she and Mr [M] are its directors.
i)The wife adduced no evidence that the husband is hiding undisclosed assets or financial resources (apart from the allegations that the husband took undeclared cash from the business and that [the company] is the alter ego of the business and has a substantial value, which allegations the Court rejects)
j)The wife was the bookkeeper and accountant who prepared the financial accounts of the business up to and including 2008-9; the accounts that she prepared indicated in those two years after they had purchased the business it was running at a loss.
k)The Court accepts the evidence of the husband that by about August 2014 he felt the business could no longer continue to trade in its current financial circumstances.
l)The Court accepts the evidence of Mr [M], accountant, including his evidence that he was of the view that the business was trading insolvent in August 2014.
m)The Court accepts the evidence of Mr [S], chartered accountant, that the business was insolvent and was placed into liquidation
n)The wife seeks to criticise the husband for failing to respond in a timely and comprehensive fashion to Mr [N’s] request to the husband’s lawyer that the husband respond to the wife’s material provided to Mr [N] in about early July 2014. However, the Court finds that it was not unreasonable for the husband to have failed to so respond, and that there were understandable reasons why the husband did not provide a detailed response to the wife’s undeclared cash contentions, as requested by Mr [N]. The Court notes, inter alia:
i)Mr [N’s] preliminary scoping report had stated that the business was of no value, which matched the husband’s belief in that respect.
ii)the husband believed that the business was trading insolvently and he was in a state of stress. This belief was confirmed by Mr [S], the administrator and later liquidator of the business, that the business was insolvent.
iii)the husband’s concerns as to the likely significant fees of Mr [N] in conducting an exercise akin to an audit of the wife’s contentions. He had already paid $10,000 to Mr [N] for his share of his fees.
iv)the proximity of Mr [N’s] request to the husband to the liquidation of the business.
o)The Court does not accept that the husband relevantly failed to make financial disclosure to the wife. The Court notes, inter alia, that:
i)the husband provided documents to Mr [N], through his lawyers;
ii)the husband engaged Mr [M], the business’s accountant, on his behalf, to liaise with Mr [N] and documents were provided by Mr [M] to Mr [N]. Further, Mr [M] provided his complete tax file to Mr [S], liquidator of the business: see Exhibit 8.
iii)following the husband’s actions in causing the business to be placed into voluntary administration, which actions were not unreasonable in the circumstances facing the husband, documents of the business were made available to Mr [S] as administrator and later as liquidator
iv)not unreasonably, the husband did not keep hard copies of his personal financial records
v)the husband frankly acknowledged that at times there were delays in producing some documents
vi)the wife admitted in cross examination that the husband had made adequate disclosure
vii)there is no persuasive evidence before the Court to indicate that the husband was at any time hiding assets, or financial resources, whether of himself or of the business.
Having made these findings, his Honour noted that even if it was assumed that the husband had taken undeclared cash from the business, “any resulting positive valuation of the business would need to address the parties’ loan account with the business, which stood at $627,717 in their favour as at 30 June 2013”. On this basis, his Honour was “not persuaded that the business would have had a positive value in any event” (at [220]).
In concluding his consideration of s 75(2) factors, his Honour found that an adjustment of 2.5 per cent should be made in favour of the husband which, when combined with his Honour’s findings as to contributions, would result in a property settlement of 55 per cent in favour of the wife and 45 per cent in favour of the husband.
Finally, his Honour considered whether the orders proposed would be just and equitable and in doing so considered the financial circumstances of the parties, including their superannuation entitlements. In relation to these entitlements, his Honour found that, despite the disparity in the income of the parties, it “would be just and equitable that there be an equalisation of superannuation” which would be achieved by making a superannuation split of $50,800 in favour of the wife (at [231]). His Honour then set out his calculations to arrive at the proposed property adjustment and explained that the wife would be “required to pay the husband the difference being $286,359” (at [232]). His Honour found that these orders would produce a just and equitable result for the parties.

Application in an Appeal

The wife filed an application in an appeal on 26 April 2016 seeking to adduce further evidence in the appeal which related to “the changes of ownership of [the business]”. That further evidence was comprised in and annexed to the affidavit of Olga Lapchine, solicitor, filed on 26 April 2016.
In response to this application, the husband filed three affidavits; two on 9 May 2016 being an affidavit of his current partner and one of his solicitor, Mr Wayne Richard Dunstan, and another on 10 May 2016 sworn by Mr Dustan. The affidavit of the husband’s partner provides an explanation for how she came to have an interest in the company, and directly responds to the further evidence sought to be adduced by the wife. As to the affidavits of Mr Dunstan, these go to the value of the former matrimonial home, and plainly, as explained by the husband’s counsel, that evidence could only be admitted if the appeal is allowed, if the orders are set aside, and if this court re-exercised the discretion rather than remitted the matter for rehearing by the Federal Circuit Court.

Discussion

Ground 1

1.His Honour’s finding at [219] of his reasons that the Husband did not take undeclared cash from the business was erroneous and/or one for which his Honour failed to provide adequate reasons in that numerous findings made at [219(a) to (o) of the reasons and said by his Honour to support that conclusion are themselves erroneous or expressed in terms that make it impossible to discern his Honour’s process of reasoning and in particular:
1.1.at [219] (a) his Honour made an error in fact or acted under a misapprehension as to the Wife’s evidence in concluding that the Wife’s initial written submissions to Mr [N] in 2014 and later amended analysis in her 2015 affidavit were inconsistent and misleading. Further, his Honour does not set out any reason as to what in the material, and/or the Wife’s oral evidence about the material led him to such a conclusion, or, whether His Honour had regard to the Wife’s oral evidence, and if he did have regard to it, he has failed anywhere to identify what regard he had to it in reaching his conclusion;

1.2.at [219](a) his honour found the Wife’s analysis was unreliable and she failed to provide evidence of an appropriate audit of her analyses from an expert or from Mr [N]. His Honour erred in that he failed to have regard to, or if he did have regard, has failed to identify what regard he had to the following matters in reaching his conclusions:
1.2.1.Mr [N’s] evidence as summarised at [83] to [86 inclusive;
1.2.2.Mr [N’s] opinion (not recorded in the reasons):
1.2.2.1.that the process undertaken by the Wife in her analysis was “prima facie rigorous and logical” but that in the absence of access to the source documents or any detailed response from the Husband, Mr [N] was not able to investigate the Wife’s proposition that there were unrecorded sales and the gross margin had been misstated;
1.2.2.2.in the absence of primary source material the Wife was limited in what she could do;

1.2.3.oral evidence that both the Husband and Mr [M], his accountant uncle, understood that Mr [N] required further documents including supplier statements, that after 2013 the Husband continued to generate such documents but has never produced them, yet Mr [M] annexed examples of them to his filed affidavit (not recorded in the reasons);

1.3.at [219] (b) and (c):
1.3.1.His Honour took into account that the business had consistent trade losses, experienced a fire and turnover was affected by the global financial crisis, however he has failed to indicate that he had regard to other evidence as to these matters, including the Husband’s oral evidence that even as the financial records of [the business] stood, he agreed they showed that the business was making a modest profit, had turned around and was in an improving position. If his Honour has had regard to these matters, he has failed to provide any or any adequate reason setting out what regard if any he had;
1.3.2.In the face of the Wife’s assertion that the recorded financials of [the business] did not accurately reflect the value of the business, his Honour fell into error in that nowhere in his reasons does he made a finding that the financial accounts were accurate or that he had sufficient evidence to make that finding;
1.3.3.having made no finding as referred to in 1.3.2, his Honour erroneously assumed the accuracy of the financial accounts and erroneously concluded that the Husband’s assertion that the business could not meet the mortgage or his share of the private school fees was “consistent as reflected in the financial statements”;
1.3.4.to the extent that it may be implied in the reasons that his Honour did make a finding the financial accounts were indeed accurate, given the evidence of Mr [N] as recorded at [83], [85] and [86], his Honour does not give reasons as to how he came to such a conclusion, or what pathway was followed to reach such conclusion;
1.3.5.Further, his Honour concluded the Wife taking over the mortgage and removing the children from private school was inconsistent with any belief she had that the business had a capacity to pay but his Honour does not render to her oral evidence on this issue, and if he has had regard to her evidence he has failed to identify what regard, if any , he gave it;

1.4.at [219](d) His Honour erred in placing reliance upon the Husband’s doubts as to the continued viability of the business expressed after separation, as being supportive of the conclusion that the Husband did not take undeclared cash and in particular when the Husband has also and inconsistently asserted the business had a value of $120,000;
1.5.at [219](h) his Honour erred in finding there was no persuasive evidence that [the company] has any relevant value and [the company] is the alter ego of the business [sic]. He found that the Husband’s mother is the owner of the business. In coming to those conclusions, His Honour does not take into account at all, or if he had done so, he does not identify what regard he gave to the relevant evidence and erred in law;
1.6.His Honour erred at [219](1) in accepting the evidence of the Husband’s uncle Mr [M] and in doing so his Honour has failed to have regard or failed to demonstrate that he had regard to the following:
1.6.1.Mr [M’s] affidavit was filed with the Court’s leave given after objection by counsel for the Wife at day four of the hearing, and, after the Husband and Mr [S] had concluded their evidence (not recorded in the reasons);
1.6.2.in oral evidence Mr [M] admitted after the adjourned date but prior to preparing his affidavit, he spoke to the Husband who advised him what evidence was required for the preparation of the affidavit;
1.6.3.Mr [N’s] oral evidence that he was unable to conclude “there was no reason to doubt the financials” because he never tested how Mr [M] accounted for transactions (not recorded in the reasons);

1.7.at [219](m) his Honour erroneously accepted the evidence of Mr [S] that the business was insolvent;
1.8.at [219](n) notwithstanding the Husband’s obligation to disclose and orders for disclosure, and Order 4(c) of Orders made on 30 May 2013, his Honour erred in law and fact in finding at [219](n) that it was not unreasonable for the Husband to fail to respond to Mr [N’s] request to respond to the Wife’s contentions and the material she provided by taking into account irrelevant considerations, and further, not having any regard to the following relevant considerations:
1.8.1.the facts as set out at [83], [85] and [86] Mr [N] was never able to test the Wife’s contentions or complete his valuation of [the company];
1.8.2.Mr [N’s] evidence that it would have taken the Husband less than one week to respond;
1.8.3.five months elapsed from the date of liquidation and the date of final hearing and no analysis contradicting that of the Wife was provided by the Husband or put in evidence by him;
1.8.4.His Honour’s concern expressed during the hearing about the Husband’s evidence on this issue;
1.8.5.if His Honour did have regard to these matters, he has failed to identify what regard he had to them, or any of them;
1.8.6.further, the finding in (n)(i) that Mr [N’s] preliminary report stated the business was of no value is an erroneous finding in that it does not identify that Mr [N’s] preliminary report was qualified by the necessity for further information and documents; the preliminary report was based on the very business financials and the veracity of which the Wife challenged, and, Mr [N] had no opportunity to test;

1.9.at [219](o) His Honour erred in finding that the Husband had not relevantly failed to make financial disclosure to the Wife as:
1.9.1.the finding is contrary to the totality of the evidence including but not limited to the summary as set out by His Honour at [55], [60], [62], [63], [64], [66], [67], [69] and [71];
1.9.2.His Honour’s finding at (o)(iv) that it is reasonable the Husband did not keep hard copies of his personal financial records is an irrelevant consideration in assessing whether the Husband had in fact complied or attempted to comply with his legal obligation to provide relevant discovery and His Honour did not take into account the Husband as an accountant by training and director of a company knew of his obligations to retain records;
1.9.3.His Honour has had no regard and if he has, has not set out what regard he had to admissions by the Husband and Mr [M] as to the extensive list of documents that neither produced pursuant to subpoenas filed on behalf of the Wife in December 2014 including but not limited to matters necessary for Mr [N’s] valuation;

1.10.at [219](o)(vi) His Honour erred in that he placed inappropriate reliance on one answer in a series in the Wife’s oral evidence, in the context where she was clearly confused and the question is partly in any event a question of law;

As can be seen, this ground challenges his Honour’s conclusion that the husband did not take undeclared cash from the business.
As identified above, his Honour set out his reasons for this finding at [219], and most of the subparagraphs thereof are the subject of specific complaints in this ground.

Paragraphs 1.1 and 1.2

His Honour found the wife’s analyses inconsistent and misleading, but this court accepts that his Honour failed to provide adequate reasons for that finding. The pathway his Honour took to arrive at his conclusion needs to be apparent (Bennett and Bennett (1991) FLC 92-191). His Honour refers to the wife’s affidavit material containing her amended analysis, but does not identify what evidence is “inconsistent or misleading”.
Further, the wife gave oral evidence explaining her analyses including in response to questions from his Honour (transcript 7.5.15 page 571 line 6 – page 572 line 14), but his Honour makes no reference to this evidence, and it is impossible to know whether his Honour had regard to it or not. It was also not put to the wife in cross-examination that this evidence was “inconsistent or misleading”.
His Honour was not persuaded “that the wife’s analyses were reliable” and justified that on the basis that she had in effect failed to provide expert evidence from a forensic accountant or from Mr N, the single expert witness engaged in the proceedings. However, although his Honour set out the evidence of Mr N commencing at [83], his Honour failed to refer to that part of that evidence where Mr N explained what information and documents he needed to examine, that the source material would be at the husband’s premises, that he was unable to undertake a valuation, and that he could not test the wife’s allegations because at no stage did he receive from the husband the necessary information or documents.
Further, his Honour made no reference to the opinion of Mr N that the process undertaken by the wife in her analysis was “prima facie rigorous and logical” (transcript 7.5.15 page 578 line 16), but that in the absence of source material she was limited in what she could do (transcript 8.5.15 page 590 lines 15-30, page 635 lines 20-35). This evidence was given in the context of the husband and Mr M, the husband’s uncle and accountant, stating that they understood that Mr N required further documents (transcript 26.2.15 page 290 lines 1-15, page 292 line 15, page 295 line 35, page 296 line 25, 7.5.15 pages 494-501), there being no issue that the husband generated these documents (transcript 26.2.15 page 304 line 15 – page 305 line 35), but never produced them despite Mr M annexing some of those documents to his affidavit that the husband was given leave to file during the trial (transcript 7.5.15 page 499 lines 1-40).
Even more troubling though is that during the trial his Honour expressed certain preliminary views which militate against his subsequent finding. His Honour said that nothing had been shown to indicate the wife’s calculations were incorrect, that the husband had not responded in a timely fashion and, given the wife’s lack of access to documents there was little she could do. Further, his Honour commented that the husband had just ignored Mr N’s request (transcript 7.5.15 pages 528, 529, 531, 590 and 8.5.15 pages 657, 658, 659, 661, 664, 666, 667). Nowhere in his Honour’s reasons does he indicate what evidence otherwise he has relied on to make the finding he ultimately did.
In these circumstances these grounds have merit.

Paragraph 1.3

Here his Honour has again failed to refer to relevant evidence, and has failed to explain why. Specifically, as to the health of the business and its prospects his Honour failed to refer to the husband’s evidence that the business was making a modest profit, it had turned around and was heading in an improving direction (transcript 27.2.15 page 352 lines 5-10, page 353 lines 26-48), and the husband had signed as guarantor for a new lease for the business premises.
As to the wife’s actions, the trial judge failed to refer to the wife’s evidence explaining those actions, namely that she had not accepted the husband’s assertions and she was acting on her own legal advice not to raise issues about cash (transcript 25.2.15 pages 133, 134, 143-146).
In these circumstances it is impossible to discern from his Honour’s reasons what regard if any his Honour had to this evidence in arriving at his findings.
The accuracy or otherwise of the financial accounts of the business was a fact in issue that was necessary for the trial judge to determine or attempt to determine, but it is not apparent that his Honour did this. Indeed, his Honour relied on the accuracy of the accounts to find that there was no undeclared cash, but that was clearly not open to his Honour given that the allegation of undeclared cash necessarily raised the question of the accuracy of the accounts.
Having made no findings as to this, this court agrees that his Honour fell into error by assuming the accuracy of the accounts when accepting the husband’s assertions as to the inability of the business to pay the mortgage interest, or to pay a share of the school fees, and that the business had no value.
Thus, again there is merit in this ground of appeal.

Paragraph 1.4

In a similar vein to the previous grounds, the complaint here is the failure by the trial judge to refer to all of the relevant evidence, leaving his reasons inadequate. Certainly, it is not necessary for a trial judge to refer to every piece of evidence that is presented, disputed or otherwise (Housing Commission of New South Wales v Tatmar Pastoral Co Pty Ltd [1983] 3 NSWLR 378), and an appeal court will avoid “an overly critical, or pernickety, analysis of the primary judge’s reasons” (AMS v AIF (1999) 199 CLR 160 per Kirby J at [150]), but where failure to detail evidence reveals a material error in the adequacy of the reasons then this court must act on that error, and particularly where it is just one of many instances of a lack of adequate reasons as a result of a failure to have regard to relevant evidence.
Here, in relying on the email from the husband to the wife his Honour failed to have regard to the husband’s financial statement filed in February 2013 that the business was valued at $120,000 (also see transcript 26.2.15 pages 271-272). Further, it is not made clear in his Honour’s reasons how the husband’s belief about the viability and value of the business is probative of a conclusion that he did not take undeclared cash.
There is also merit in this ground of appeal.

Paragraph 1.5

In making his findings as to the value of, and the ownership of, the company his Honour failed to identify the evidence to which he had regard, and thus it is impossible by looking solely at [219(h)] to discern the path that his Honour took to reach those conclusions. However, as submitted by the husband it is necessary to consider the reasons as a whole before concluding that his Honour has erred. In this regard the husband points to the fact that “his Honour accepted the (husband’s) evidence at [96] and Mr [M’s] evidence at [139] and [140], which is confirmed at [219(l)]”. Further, the husband submits that there was “no direct evidence that [the company] had any value as no one had purported to value it”, and “[t]here was no evidence to suggest that the husband’s mother was not the owner of [the company]”. It is said that the wife’s case in relation to these matters relied upon “contentious conjectures” and “contentious inferences”, and in that regard the evidence and finding at [219(f)] militates against any inference being drawn from the husband’s lifestyle that he has taken undeclared cash from the business.
However, even after considering the reasons as a whole this court is not persuaded that his Honour’s reasons are adequate. In relation to the question of value of the business, the central issue there is the lack of financial disclosure by the husband and as I will explain later in these reasons, his Honour’s treatment of that issue is flawed.
As to the question of the ownership of the company, and its relationship with the business, his Honour has failed to have regard to the evidence as well as to draw the available inferences.
First, it is concerning that despite [13] and [218(f)] his Honour fails to demonstrate an appreciation of the concept of “sham” and “alter ego” in his findings, and mistakes the wife’s case. His Honour says he is not persuaded that “[the company] is the alter ego of the business”, whereas the wife’s contention was that the company was the husband’s alter ego and that the others involved in that entity acted at his direction and/or on his behalf. Further, apart from his Honour failing to address the wife’s case, his Honour did not explain why the evidence presented by the wife in support of her claim was not at least persuasive, and why he ultimately rejected his own view expressed to the husband’s counsel during the trial, that “it was quite clear that the husband, in reality, controls this new entity and that, in reality, he will, in due course, assume the legal interest in the company” (transcript 8.5.15 page 664).
Secondly, despite filing an affidavit of his mother the husband failed to call her as a witness, and the obvious Jones v Dunkel (1959) 101 CLR 298 submission was made by the wife (transcript 8.5.15 pages 692 and 693). However, his Honour failed to deal with this submission in his reasons.
Thirdly, there was evidence that the husband authorised the transfer of $10,000 held by the liquidator on behalf of the husband in part purchase by the new entity of the assets of the business. This was not disclosed in any of the affidavits relied on by the husband. Similarly, there was evidence of personal expenditure of $1000 paid for by the new entity on behalf of the husband’s new partner, expenditure that the husband could not explain (transcript 26.2.15 pages 259-260). Further, Mr M, the husband’s uncle, accountant, and director of the new entity, deposited money properly belonging to the liquidated company into the account of the new entity (transcript 7.5.15 pages 515-517). No explanation was given for this, and his Honour did not refer to it in his reasons. The husband also “borrowed” money from the new entity without the knowledge of Mr M (transcript 7.5.15 page 522). Plainly, the cumulative effect of all this evidence was an inference that the company was the alter ego of the husband.
Finally, there were the similar characteristics of the two businesses. At [112] his Honour briefly records two similar characteristics but makes no reference to the fact that the business’ website remains accessible, but the new entity has no website, and that the new entity discharged almost all of the amounts owed by the business to its suppliers (transcript 26.2.15 page 282 line 35 – page 283 line 15, 27.2.15 page 357 line 35 – page 358 line 35).
It is also here where the wife seeks to rely on the further evidence, but in my view it does not demonstrate error by the trial judge, and the principles emanating from the High Court decision of CDJ v VAJ (1998) 197 CLR 172 do not permit the receipt of that evidence.
That evidence reveals that following the conclusion of the trial an entity, B Pty Ltd effectively took over the assets and business name of the company. B Pty Ltd was a shelf company of which the husband was the sole director and shareholder, and in June 2015 the husband’s partner became the sole director and shareholder, although she is not the beneficial owner of her one share. In an affidavit filed by the husband’s partner on 9 May 2016 she explained this transaction and the circumstances surrounding it. This evidence is unchallenged, and demonstrates that the further evidence in relation to the change of ownership of the assets and the business name does not expose any error by the trial judge. Indeed, the evidence sought to be adduced per se failed to do that in any event.

His Honour has plainly erred in the way complained of in this ground of appeal.

Paragraph 1.6

This is a ground that cannot succeed.
The issue is whether it was open to his Honour to accept the evidence of Mr M.
There were reasonable bases to object to the receipt of the affidavit evidence of Mr M, and, if received, to its reliability, but those bases were all put to his Honour and his Honour determined to both receive and accept the evidence. It has not been established that his Honour erred in doing so, and perhaps the complaint might have been better addressed to how his Honour took that evidence into account in reaching his decision. In other words, his Honour’s acceptance of Mr M’s evidence, and as will be seen, Mr S, the liquidator’s evidence that the business was insolvent was partly relied on by his Honour to find that the husband had not taken undeclared cash from the business. However, that does not necessarily follow, and overlooks that the real issue here was the failure by the husband to make the necessary financial disclosure to enable the single expert to test the financial statements, and ultimately to ascertain whether the husband had taken undeclared cash from the business. These issues arise in other grounds of appeal which I will address shortly.

Paragraph 1.7

This is a similar ground to the last one, and once again I am not persuaded that his Honour has erred in accepting the evidence of Mr S, the liquidator, that the business was insolvent.
The liquidator relied on the information that he had, namely the books and records provided to him, the material provided by creditors, and the financial statements of the business [116], and on that basis it was open to him to conclude as he did. However, again, the issue is the failure by the husband to provide full and complete financial disclosure to enable the necessary testing of the wife’s allegations as to undeclared cash. In evidence Mr S acknowledged that the books delivered to him were incomplete and did not include cash invoice books, and that there were other documents he had required from the husband but which were not provided (transcript 27.2.15 pages 415-421). Further, he was unable to resolve the conflict about whether the funds had been misappropriated by the husband.

Paragraphs 1.8 and 1.9

As explained by the wife’s senior counsel these grounds are the key grounds in this appeal.
The order made on 30 May 2013 not only appointed Mr N as joint valuer, but provided for the parties to “do all such acts and things and provide all necessary documents to him to enable the valuation to be completed”, and further provided for the financial statements and other data to be “supplemented by separate written instructions… by each party… in relation to the trading history of the business and the treatment and application of funds received by the business since 1 July 2009”. The husband acknowledged in evidence that the order was drawn in that way because of the wife’s allegations about undeclared cash removed by him (transcript 26.2.15 pages 278-279).
It must also not be forgotten that in any event the Family Law Rules 2004 (Cth) imposed on the husband a requirement for full and frank disclosure of all financial information (Chapter 13). Further, it is important to note that the husband cannot delegate his responsibilities in this regard to his agents, namely his solicitor and his accountant. If they fail to provide the required disclosure then it is still the husband who has failed to carry out his responsibilities.
It is plain from the evidence that the husband failed to comply with the specific order made. As a result “his Honour erred in law and in fact in finding at [219(n)] that it was not unreasonable for the husband to have failed to respond (in a timely and comprehensive fashion to Mr [N’s] request to the husband’s lawyer that the husband respond to the wife’s material provided to Mr [N] in about early July 2014)”.
It was not open to his Honour to find that “there were understandable reasons why the husband did not provide a detailed (or indeed any) response”. ([219(m)].
First, his Honour’s reference to Mr N’s preliminary scoping report fails to identify that it was qualified by the necessity for further information and documents, the absence of which did not enable Mr N to test the wife’s allegations or to complete the valuation process.
Secondly, any opinion expressed by the liquidator must also be seen as based on incomplete information.
Thirdly, the cost of complying with an order of the court and the requirements for full and frank disclosure cannot be treated as a valid reason for non-compliance, particularly given the circumstances.
Fourthly, the liquidation of the business says nothing about whether the husband had taken undeclared cash from the business; indeed, it may even be indirect evidence of that having occurred.
Thus, his Honour had regard to irrelevant considerations and failed to have regard to the following relevant considerations (taken from the husband’s written summary of argument and paragraph 1.8 of the grounds of appeal):
a)the facts as set out at [83], [85] and [86] as to why Mr [N] could not complete the valuation;
b)Mr [N’s] unchallenged evidence that it would have taken the husband less than one week to respond (transcript 8.5.15 page 639);
c)no analysis contradicting the allegations of the wife was provided by the husband or put in evidence by him.
It is also plain from the evidence that the husband failed to make financial disclosure to the wife, and that his Honour erred in not accepting that claim. Indeed, his Honour failed to address the submission of the wife in support of her claim of material non-disclosure by the husband.
The conciliation conference was not able to proceed in May 2013 because the husband had not made full disclosure. Orders were made by the Registrar directing the husband to provide disclosure.
The final hearing set for 29 January 2014 could not proceed because the husband had not provided the financial information to enable Mr N to complete the valuation, and further orders had to be made requiring the husband to produce documents.
On 8 July 2014 Mr N requested a further list of documents, and a site visit, but neither request was complied with.
The second trial listing on 25 August 2014 then could not proceed because of the husband’s continuing lack of disclosure (transcript 26.2.15 page 296).
In September and October 2014, and January 2015 the wife resorted to subpoenas to obtain documents. However, various of the documents sought were not produced, the husband’s accountant Mr M objecting on account of relevance and that he did not have the material because “it had all gone to the liquidator”. Importantly though, he made no effort to retrieve it in order to comply with the subpoena.
His Honour concluded that it was not unreasonable for the husband not to keep “hard copies of his personal financial records”, however this does not sit well with the husband’s evidence that as an accountant by training and a director of a company he well knew of his obligation to retain records.
There is merit in both of these grounds of appeal.

Paragraph 1.10

This court considers that it was not open to his Honour to rely on an answer given by the wife in cross examination as to the adequacy of the husband’s disclosure in support of his finding that he did not accept that the husband failed to make financial disclosure to the wife. As submitted by the wife, the answer came at the end of a series of questions where the wife repeatedly denied the husband had provided sufficient disclosure, and in the context where she had queried the “definition of disclosure” (transcript 25.2.15 pages 200-203). She was clearly confused, and that can be seen by the inconsistency of that one answer with all of her previous answers, and of course with the ample evidence of non-disclosure.
There is merit in this ground of appeal.

Ground 2

At [220] His Honour erred in finding that even if the Husband had taken undeclared cash the business would not have had a positive value in any event. The finding is inconsistent with the evidence of the single expert Mr [N]

This ground is not made out. As pointed out by the husband, what his Honour said at [220] was not necessarily inconsistent with the evidence of Mr N, as alleged by the wife. Mr N’s evidence in effect was that if it could be said that there are future maintainable earnings of $157,000 as a result of there being undeclared cash to that level, then the business would be valued at $314,000, but then one would need to take into account the loan account when assessing what the value to the husband was (transcript 8.5.15 pages 604-610).
Thus, in [220] his Honour clearly had in mind that to provide a positive value, the value of the business resulting from the maintainable earnings being greater if there was undeclared cash, needed to be more than the party’s loan account of $627,717, and there was insufficient clarity from Mr N’s evidence that that loan account would be fully extinguished as a result of writing back the level of undeclared cash alleged by the wife.

Ground 3

His Honour erred at [207] in finding that there is presently a significant income earning disparity in the income earning capacity of the parties, in that His Honour has failed to have any regard to the Husband’s oral evidence that he was currently not in the business of looking for employment but remained indefinitely as a consultant at [the company] for no income.

This is also a ground of appeal that cannot succeed.
His Honour was quite correct to find that “there is presently a significant disparity in the income earning capacity of the parties”.
At the time of the hearing the wife was earning “$160,000 (gross) plus superannuation” ([203]) and the husband had “minimal income”.
The complaint of the wife is that his Honour failed to have regard to the fact that the husband had chosen to remain working for the company as a consultant for no or minimal income for an indefinite period. However, the evidence did not establish that the husband had available to him alternative employment at the same or greater income as the wife. As his Honour said, the husband’s last salaried position as a chief financial officer was in December 2005, and he had “made applications for similar positions without success” ([205]).
There is no error here by the trial judge.

Ground 4

His Honour erred at law in failing to consider the Jones v Dunkel (1959) 101 CLR 298 submission on behalf of the Wife. as a consequence of the withdrawal by the Husband during the hearing of the affidavit of Mrs [F], the Husband’s mother and apparently legal owner of the new entity.

I briefly dealt with the challenge raised here when addressing paragraph 1.4. In the circumstances, it was appropriate for the wife to submit that an adverse inference should be drawn based on the principles in Jones v Dunkel. The error by his Honour was in failing to consider and rule on that submission, and thus this ground is made out.

Conclusion

I have found merit in grounds 1.1, 1.2, 1.3, 1.4, 1.5, 1.8, 1.9, 1.10, and 4. Thus the appeal must be allowed.
Plainly, given the errors made by the trial judge, I have no alternative but to set aside the orders appealed against and remit the matter to the Federal Circuit Court for rehearing by a judge other than Judge Newbrun. That also means that the evidence as to the value of the former matrimonial home will not be admitted in this court.

Costs

At the conclusion of the hearing of the appeal I sought submissions from the parties as to the question of costs depending on the result of the appeal.
In the event the appeal was successful the wife sought an order for costs, but if no order was made then she sought a costs certificate pursuant to the Federal Proceedings (Costs) Act 1981 (Cth). For his part the husband opposed an order for costs but sought a costs certificate.
There should be an order for costs in favour of the wife. Although there were some grounds of appeal that did not succeed, the principal grounds of appeal all succeeded, and the errors made by the trial judge in that regard should have been obvious to the husband.

I certify that the preceding ninety four (94) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Strickland delivered on 16 February 2017.

Associate:

Date: 16 February 2017