Baldwin & Baldwin

[2010] FamCAFC 227

FAMILY COURT OF AUSTRALIA

BALDWIN & BALDWIN [2010] FamCAFC 227

FAMILY LAW - APPEAL – PROPERTY – Adequacy of reasons – whether the trial Judge erred in including as an asset of the husband a debt owed to the husband by his family’s trust – where the Full Court found that the trial Judge had failed to provide sufficient reasons for his decision – ground of appeal successful – re-determination.

FAMILY LAW - APPEAL – PROPERTY – whether the trial Judge erred in his finding that the husband and wife had no personal liability for debts owed by the corporate trustee for their family trust to the husband’s family’s trust – where the Full Court found that the debts owed to the trust were legally the responsibility of the company – where the Full Court further found that it could not be satisfied that the company did not have the funds to pay the debt at least in part.

FAMILY LAW - APPEAL – PROPERTY – whether the trial Judge erred in his failure to include in his calculation of the parties’ assets and liabilities the husband’s liability to the ATO – where it was found that the trial Judge had erred in not accepting the evidence of the accountant, who had not been required for cross-examination – re-determination - husband’s liability to the ATO included in the calculation of the parties’ net assets and liabilities.

FAMILY LAW - APPEAL – PROPERTY – whether the trial Judge erred in taking into account a liability of the wife to her former partner – where the Full Court found that there was no merit in this ground of appeal – liability of the wife to her former partner included in the calculation of the parties’ net assets and liabilities.

FAMILY LAW - APPEAL – PROPERTY – on re-determination of the property pool the Full Court also re-determined the contribution assessment and s 75(2) adjustment made by the trial Judge.

FAMILY LAW - COSTS – orders made for the filing of submissions in relation to the appeal against the order made by the trial Judge, which provided that there be no order for costs, and in relation to the costs of the appeal against the orders with respect to property settlement.

Family Law Act 1975 (Cth) s 75(2)

Af Petersens and  Af Petersens (1981) FLC 91-095
Biltoft and Biltoft (1995) FLC 92-614
Cypressvale Pty Ltd v Retail Shop Lease Tribunal [1996] 2 Qd R 462
Dicosta & Dicosta [2008] FamCAFC 161
Gronow v Gronow (1979) 144 CLR 513
Kennon v Kennon (1997) FLC 92-757
Parshen v Parshen (1996) FLC 92-720

Prince and Prince (1984) FLC 91-501

APPELLANT: Mr Baldwin

RESPONDENT: Ms Baldwin

FILE NUMBER: BRC 6089 of 2007

APPEAL NUMBER: NA 16 of 2009

DATE DELIVERED: 11 November 2010

PLACE DELIVERED: Sydney

PLACE HEARD: Brisbane

JUDGMENT OF: Finn, Boland and Thackray JJ

HEARING DATE: 4 November 2009

LOWER COURT JURISDICTION: Family Court of Australia

LOWER COURT JUDGMENT DATE: 26 February 2009

LOWER COURT MNC: [2009] FamCA 207

REPRESENTATION

COUNSEL FOR THE APPELLANT: Mr Kirk SC

SOLICITOR FOR THE APPELLANT: Charles Cooper Lawyers

COUNSEL FOR THE RESPONDENT: Mr North SC and Ms Brasch

SOLICITOR FOR THE RESPONDENT: Hopgood Ganim Lawyers

Orders

1. The appeal against Orders 1 and 3 of the orders made by the Honourable Justice Bell on 26 February 2009 be allowed.

2. Order 1 of the orders made on 26 February 2009 be set aside and in its place the following order be made:

   “That both the husband and the wife do all things necessary to arrange for the payment to the husband of the sum of $687,007.00 and to the wife of the sum of $617,410.00 out of the proceeds (not to date distributed) of the sales of the land at … [E property] Queensland, and of the business conducted by [S Company] on that land; and that the balance of any such proceeds after provision is made for the payment of the liabilities identified in the schedule contained in paragraph 95 of the reasons for judgment of the Full Court delivered this day, and of any part of the proceeds due to [S Company] on account of the sale of the business conducted by that company on the land (earlier identified in this order), be divided between the parties in the proportions of 55 per cent to the husband and 45 per cent to the wife.”

3. The wife file and serve any written submissions in relation to the appeal against the order made by the Honourable Justice Bell on 26 February 2009, which provided that there be no order for costs in relation to the proceedings for property settlement, and in relation to the costs of the appeal against the orders with respect to property settlement, within 21 days of the date hereof.

4. The husband have a further 21 days in which to file and serve any written submissions in response thereto.

5. The wife have a further 14 days in which to file and serve any written submissions in reply thereto.

6. That each submission have endorsed on the cover sheet the date on which a copy of that submission was served on the other party.

IT IS NOTED that publication of this judgment under the pseudonym Baldwin & Baldwin is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT BRISBANE

Appeal Number: NA 16 of 2009
File Number: BRC 6089 of 2007

Mr Baldwin

Appellant Husband

And

Ms Baldwin

Respondent Wife

REASONS FOR JUDGMENT

1. This is an appeal by the husband against orders for property settlement made by Bell J on 26 February 2009, in proceedings between Mr Baldwin (“the husband”) and Ms Baldwin (“the wife”). The orders appealed provided that the wife should receive the sum of $1,331,981.00 which had been held in trust following the sale of certain property (Order 1), and that otherwise each party retain the property in his or her possession (Order 3).

2. The intended effect of the orders was to divide equally between the husband and the wife property which his Honour apparently determined to have a value of $2,716,000.00. That equal division was arrived at on the basis of an assessment of the parties’ contributions at 60 per cent/40 per cent in favour of the husband with a 10 per cent adjustment then being made in favour of the wife on account of matters contained in s 75(2) of the Family Law Act 1975 (Cth) (“the Act”).

3. The grounds of appeal (as contained in an amended notice of appeal on which the husband was permitted to rely at the hearing of the appeal) asserted a failure on his Honour’s part to give adequate reasons, as well as other errors in relation to his calculation of the value of the parties’ property, his assessment of the parties’ contributions at 60 per cent/40 per cent in favour of the husband, and his 10 per cent adjustment in favour of the wife on account of the s 75(2) matters.

Background

1. The relevant factual background to this appeal (as it is found in his Honour’s reasons for judgment and in other material in the appeal book) is as follows.

2. The husband (an Australian born in 1956) and the wife (a Canadian born in England in 1963) commenced a relationship in early 1989. They married in October 1989 and lived until 1991 in the United States of America where the husband worked in the airline industry and the wife was unable to work. They moved to Australia in 1991 where the husband continued to work for a short time in the airline industry.

3. From 1992-1995 they engaged in property developments in Queensland, apparently made possible by the sale for approximately $400,000.00 of an unencumbered property in Victoria which the husband had owned prior to their relationship. They apparently made neither a profit nor loss out of such property developments.

4. In 1995 they acquired a property in a rural area of south east Queensland.  The freehold of that property was acquired in their own names. On that property they developed a wedding reception and winery business, which commenced operation in 1999-2000. That business was conducted by their family trust, the D Baldwin Family Trust (“D Baldwin Trust”).  The trustee of that trust was S Company Pty Ltd (“S Company”), with the husband and the wife being the directors of, and shareholders in, that company.

5. After making a small profit in the first year of operation, the business suffered increasingly substantial losses.

6. Apparently in an endeavour to alleviate the financial difficulties of the business, the husband obtained significant advances of money from a discretionary trust controlled by his mother and from another discretionary trust controlled by his brother. The husband was a beneficiary of both of those trusts.  Bell J determined that these advances, which were in fact made to S Company (the trustee of the parties’ family trust), were loans rather than distributions; no issue arises on this appeal concerning that determination.

7. The trust controlled by the husband’s mother is known as the A Baldwin Family Trust (“A Baldwin Trust”).  Its trustee is AA Pty Ltd. The directors of that company are the husband, his mother and his brother. The mother is the sole shareholder. It appears undisputed that the total amount of the loans from this trust to S Company was $1,753,660.00 (as at the time of the trial before Bell J).

8. The trust controlled by the husband’s brother is known as the YP Trust.  Its trustee is Y Pty Ltd. The directors of that company are, again, the husband, his mother and his brother. The shareholders are the husband’s mother and his brother. Again, it appears undisputed that the amount of the loans from this trust to S Company was $225,512.00 (at the time of the trial before Bell J).

9. In addition to these loans to the parties’ company from the trusts controlled by the husband’s mother and brother, it appears common ground, first, that the husband and the wife personally owe the YP Trust $691,505.00 on account of moneys borrowed in connection with the acquisition of the land on which their wedding reception and winery business was conducted. Secondly, the A Baldwin Trust owes the husband $943,319.00 on account, at least principally, of monies paid by the husband to that trust, apparently mistakenly, in an endeavour to discharge the loan of $691,505.00 from the YP Trust.

10. The parties separated in late 2005. Their two sons, born respectively in 1991 and 1995, remained living with the wife.

11. The husband continued to operate the business after separation. Both the business and the land on which it was conducted were sold in 2007. The total purchase price of $3,600,000.00 was apportioned as to $1,260,000.00 (35 per cent) for the business (which was owned by S Company as trustees of the parties’ family trust) and $2,340,000.00 (65 per cent) for the land (which was owned by the parties personally).

12. It appears that the wife commenced proceedings for property settlement in the first half of 2007. The proceedings were ultimately heard by Bell J on 23, 24 and 25 February 2009. The oral evidence concluded on the morning of 25 February 2009, and after an adjournment of about three hours, his Honour received both written and oral submissions on behalf of both parties.

13. On the afternoon of the following day (26 February 2009) his Honour delivered an oral judgment and made the orders which are now appealed.

14. In seeking to resist the appeal and uphold his Honour’s orders, Mr North SC for the respondent wife submitted that any perceived inadequacies in his Honour’s reasoning could be overcome if his ex-tempore reasons were read in the context of the detailed written and oral submissions which had been made to him on behalf of the parties on the day immediately preceding the delivery of the judgment. In this regard, Mr North SC, relied on authorities such as Cypressvale Pty Ltd v Retail Shop Lease Tribunal [1996] 2 Qd R 462 [491] and Dicosta & Dicosta [2008] FamCAFC 161.

15. Notwithstanding the various authorities on which Mr North SC relied and which establish that reasons need not be as extensive in a judgment which is delivered almost immediately following final addresses, and as will later emerge from these reasons, his Honour’s reasons in relation to a number of significant issues in the present case particularly relating to the calculation of the value of the property available for distribution have to be regarded as inadequate.  They are inadequate to the extent, as will later be seen, that our intervention is required.

16. It is, however, clear that there were significant inadequacies in the material before his Honour, causing him to observe at paragraph 41 of his reasons:

    41.Much was made by North of the fact that discovery was not, as he says, full and frank in this matter and that Mr [H] who was the accountant, the single expert appointed by the parties, frequently in his three reports complained that his was only a preliminary report.  I have done the best I can on the material before me.  It is quite clear that so much costs have been expended in this case that any adjournment would only increase the amount of costs and I doubt very much whether anything would be advanced by our adjourning the matter for further and better discovery.

17. Having regard to these observations by his Honour, and also to our own consideration of the material which was before his Honour and of the conduct of the case before him as it emerges from that material, we have decided that we should re-determine this matter on the basis of the material which was before his Honour.  To order a re-trial would provide the parties, particularly the husband, with the opportunity to repair what was an inadequate case below.  It is to be noted in this regard, that neither party opposed a re-determination of the matter by us and ultimately on the basis of the material which was before his Honour.

The identification and valuation of the parties’ property

1. In relation to the issues raised on the appeal concerning his Honour’s identification and valuation of the parties’ property, it needs to be explained at the outset that his Honour did not include in his judgment a schedule or even a comprehensive general description of the parties’ assets and liabilities.

2. At paragraph 24 of his judgment, his Honour first referred to “the pool … which is set out in Mr North’s aide memoir”, and in paragraph 25 identified it as being a pool of $2.719 million.  His Honour then indicated that he would deduct from that amount the sum of $5,395.00 which he was satisfied that the wife had already received.

3. His Honour then returned to this matter in paragraph 42, saying “it appears to me that there is available for distribution an amount of 2.716 [million dollars] rounded off …”.

4. It was common ground before us that the “aide memoir” from Mr North SC to which his Honour referred, and which it might be said he impliedly incorporated by reference into his reasons, was a schedule of assets which appears at pages 620-622 of the appeal book.  That schedule showed, or purported to show, the values which each party would have his Honour ascribe to their various assets and liabilities. 

5. In the case of the wife, the values for which she contended were put forward on two bases, the first being if his Honour found the monies advanced by the entities controlled by the husband’s family were distributions to him, and the second if those advances were loans to the parties’ company, S Company.  As we have earlier indicated, his Honour concluded that such advances were loans. That conclusion was not challenged before us, and nor would we interfere with it in re-determining the matter. Therefore, in setting out below Mr North SC’s schedule, we will only include the values contended for by the wife on the basis that the advances were loans. 

6. Furthermore, in an endeavour to simplify the schedule as much as possible, we will omit from it items the value of which was apparently accepted by both parties to be “Not known” or of no value (“$0.00”):

Description	Wife’s value if transfers to [S Company] are loan[s]	Husband’s value
Proceeds of sale of land and buildings at …[E property] (held in interest bearing trust account) less partial property settlements	$2,109,956.09	$2,823,222.00
Plus: deposit paid	$30,000.00	Refer above
Less: costs of sale (see below)	-$68,254.93	Refer above
Interest earned on proceeds of sale of land and buildings	$133,093.09	Refer above
Partial property settlement received by [the husband]	$100,000.00	$100,000.00
Partial property settlement received by [the wife]	$100,000.00	$100,000.00
Proceeds of sale of [car]	$40,000.00	$40,000.00
1991 … motor vehicle	$7,550.00	$7,550.00
1996 … motor vehicle	$7,000.00	$7,000.00
1995 … motor vehicle	$3,200.00	$3,200.00
Jet ski	$8,000.00	$8,000.00
MLC policy (as at 28.12.08)	$24,827.00	$24,827.00
AXA policy	$14,967.00	$14,967.00
…
Jewellery (wife)	$5,000.00	$10,000.00
[Husband’s] credit loan account in [AA Pty Ltd]	$943,319.00	$943,319.00
[Husband’s] credit loan account in [YP Trust]	$13,850.00	$0.00
…
Liabilities:
…
Loan owing by parties re purchase [E property] (per [H] report) [to YP Trust]	-$691,505.00	-$691,505.00
Loan owing to [Mr C] (total debt is $176,615.00 (sic) plus interest, of which $111,905.00 has been used for legal expenses)	-$75,710.00	$0.00
Interest on advance from [Mr C]	-$15,750.00	$0.00
Less: alleged tax debt by husband on drawings	$0.00	-$117,412.18
Superannuation:
Canada Life Retirement Savings	$192.97	$192.97
Macquarie superannuation	$17,322.00	$17,322.00
AMP Wyndham Superannuation	$4,662.67	$4,662.67
Corporate/trust entity:
[S Company] as trustee of [D Baldwin Trust]	$0.00	-$1,959,097.00
Add backs:
...
[The wife’s] withdrawal from [S Company] account	$0.00	$5,366.00
Total	$2,711,719.89	$1,336,248.46

1. As already indicated, it is the wife’s figure of $2,711,719.89, but with the additional sum of $5,366.00 (on account of a withdrawal by the wife from the S Company account), which his Honour apparently accepted as the net value of the parties’ property. This resulted in a “rounded off” figure of  $2,716,000.00.

2. The assets and/or liabilities which were included in the table adopted by his Honour and which remain disputed on this appeal are:

   ·the husband’s credit loan account with AA Pty Ltd which has an agreed value of $943,319.00 (Ground 1.1); and

   ·the liability to Mr C of $75,710.00 plus interest of $15,750.00 (Ground 1.4).

3. The husband also asserts on this appeal that his Honour erred:

   ·in excluding from his calculation of the net value of the parties’ property, the husband’s taxation liability of $117,412.18 (Ground 1.2); and

   ·in finding that the parties had no personal liability for the debts (totalling approximately $1,753,600.00) owed by S Company (the corporate trustee of their family trust) to the A Baldwin Trust (Ground 1.3).

4. In relation to that last mentioned matter of the debts owed by the parties’ company, S Company, we note that there was brief reference at paragraph 1.3(b) of the husband’s written outline of argument, to a debt (of $255,512.00) owed by that company to the YP Trust which is controlled by the husband’s brother. This debt was also not taken into account by his Honour. However, as no ground of appeal was directed to that matter, it need not be considered.

5. A further issue which arose on the grounds of appeal as contained in the amended notice of appeal, concerned the amount of the proceeds of the sale of the rural land (which were held in an interest bearing trust account). The husband contended for an amount of $2,823,222.00 and the wife contended for amounts totalling $2,204,794.25, which comprised $2,109,956.09 + $30,000.00 (deposit) + $133,093.09 (interest) - $68,254.93 (costs of sale). His Honour apparently accepted, but without explanation, the wife’s figure. We will return later to this matter.

6. We propose to consider first the somewhat related issues concerning the companies and trusts of the parties and of the husband’s family of origin before considering the somewhat discrete matters of the husband’s tax liability which his Honour refused to take into account as a liability, the wife’s liability to Mr C which his Honour was prepared to take into account, and the amount of the proceeds of the sale of the land.

The husband’s credit loan account of $943,319.00 with the A Baldwin Trust

1. The husband’s first ground of appeal (Ground 1.1) asserts that his Honour erred in including in the assets available for distribution between the parties an amount of $943,319.00, which was owed to the husband by AA Pty Ltd as trustee for the A Baldwin Trust, in circumstances where the evidence of the single expert was that if loans owed to that trust were not paid in full, it was unlikely that the husband would receive the full balance of the loan owed to him.

2. The circumstances in which AA Pty Ltd came to owe the husband this sum of $943,319.00 were explained by the husband in the following paragraph of his affidavit filed 14 January 2009:

   33. Subsequently when I settled the sale of the property at [R] in September 1997, I thought that I paid $700,000.00 back to [Y Pty Ltd] to discharge the debt I owed to the [YP Trust]. Unfortunately through an error by me the money was in fact paid to [AA Pty Ltd] as Trustee of The [A Baldwin Trust]. That only came to light during the course of these proceedings when the single expert accountant, … has examined the financial statements. Thus, as a result of that error [AA Pty Ltd] as Trustee of The [A Baldwin Trust] owes me something in excess of $900,000.00 and I still owe something in the vicinity of $700,000.00 to [Y Pty Ltd] as Trustee of The [YP Trust] in respect of the loan.

3. In his written submissions to his Honour, the solicitor for the husband included in his “balance sheet” the amount of $943,319.00 owed by AA Pty Ltd and the A Baldwin Trust to the husband. However, in the net pool of assets for division between the parties, which was contended for later in those written submissions (at paragraph 10), the amount of $943,319.00 was not included, in reliance (it emerges from paragraph 34 of the written submissions) on the contents of the report of the single expert Mr H.

4. It needs to be explained that Mr H produced two reports concerning liabilities owed by the parties to “family entities” and the husband’s interest in “family entities”. The first report dated 26 February 2008 was described as a “preliminary report” and the second dated 9 February 2009 was described as a “further preliminary report”. There was also a letter dated 18 February 2009 in which Mr H responded to certain questions asked by the husband’s solicitors in relation to the report dated 9 February 2009.

5. Mr H’s second report contained the following presently relevant paragraphs:

   3.2The [D Baldwin Trust]

   owed

   The [A Baldwin Trust]

   $1,753,660 as at 30 June 2006

   3.2.1This constitutes a liability of an entity controlled by the Parties. As 30 June 2005 (being the latest available balance sheet of that entity) the [D Baldwin Trust] had a deficiency of net assets as per the book values recorded on the balance sheet of $1,572,153. If the book values are correct and the Parties do not make up the shortfall from their personal assets the [A Baldwin Trust] may not have its loan repaid in full.

   …

   3.3 The [A Baldwin Trust]

   owed

   The Husband

   $943,319 as at 30 June 2006

   3.3.1 This constitutes an asset of the Husband. Two of the major assets of the [A Baldwin Family Trust], as per its balance sheet, are loans made to the [D Baldwin Trust] and the [YP Trust]. If those loans are not repaid in full (refer comments at paragraph 3.2 and 3.5) then it is unlikely the Husband will receive the full balance of the loan owing to him.

   …

   3.4        The Husband

   owed

   The [YP Trust]

   $691,505 as at 30 June 1997

   3.4.1 This constitutes a liability of the Husband.

   3.4.2 There have been no complete financial statements prepared for the [YP Trust] since those for the year ended 30 June 1997. I am unable to determine how the Husband calculated the balance of the loan disclosed on his Form 13 Financial Statement (i.e. 50% of $250,000 = $125,000).

   3.5        The [YP Trust]

   owed

   The [D Baldwin Trust]

   $13,850 as at 30 June 1997

   3.5.1This constitutes an asset of an entity controlled by the Parties. At 30 June 1997 (being the latest available final balance sheet) the [YP Trust] had a deficiency of net assets as per the book values recorded on the balance sheet of $716,158. If the book values are correct the [D Baldwin Trust] may not have its loan repaid in full.

   3.5.2From the limited information made available to me I have attempted to determine the current balance of the loan between The [YP Trust] and The [D Baldwin Trust]. What limited information I have been able to review does not reconcile. I am unable to explain the differences in the books of the respective entities since 1997.

   ...

   3.9To assist the Court I have attempted to determine the current value of net assets of the [A Baldwin Trust] as a basis for the Court to determine the Husband’s interest, if any. As at 30 June 2006, being the latest available balance sheet, the Trust had net assets, at book value of $4,845,787 (refer Annexure 3 of my report of 26 February 2008 for details). That value of $4,845,787 included listed shares, which appear to be shown on the balance sheet at their cost price. I have not been provided with information, including the number of each share on hand, to determine the current value of the shareholdings. I have reviewed the balance sheet of the [A Baldwin Trust] and expect that all other assets and liabilities as at 30 June 2006 would have an adopted value equal to their book value, assuming all loans made to related parties are recoverable.

   3.10I note that the liabilities of the Trust include a Beneficiary’s Loan of $943,319 owing to the Husband, which constitutes a personal asset of his (refer paragraph 3.3 above).

6. Virtually identical statements were made in Mr H’s earlier report of February 2008 although paragraphs 3.3, 3.4 and 3.5 above were numbered 3.2, 3.3 and 3.4 in the first report.

7. In the written submissions on behalf of the wife at trial, no argument was put for or against the inclusion of the amount of $943,319.00 as an asset of the parties although it is shown as an asset in the attached schedule to those submissions (which was the schedule of assets adopted by his Honour). It was, however, asserted in paragraph 1.5 of those submissions that the reports of the single expert “remain preliminary for lack of disclosure” and that the husband’s responses in cross-examination reveal “the husband’s unsatisfactory attitude to disclosure”.

8. During the course of final submissions the following discussion occurred between his Honour and the legal representatives of both parties concerning the debt of $943,319.00 owed to the husband:

   HIS HONOUR: Next point, Mr North.

   MR NORTH [Senior Counsel for the wife]: Yes, your Honour, paragraph 34 [of the husband’s written submissions].

   HIS HONOUR: Thirty four. Just a minute. Yes.

   MR NORTH: About a little over halfway down it’s there said:

   Furthermore there would be insufficient assets returned to the [A Baldwin Trust] to enable it to pay the husband the sum of 942---

   HIS HONOUR: Yes.

   MR NORTH: Your Honour, there’s no evidence to support that. When your Honour has regard to the fact that there will be a partial repayment of debt by [S Company] (indistinct) remain in any proceeds of sale, that the [A Baldwin Trust] has assets, that people were unable to provide your Honour with a value of, that [Mr H] – you may recall the evidence – you were taken to [Mr H’s] report yesterday when [Mr H] said, “Doing the best I can on insufficient information, the book values would appear to show that the [A Baldwin Trust] is worth at book value $4,000,000,” but he hasn’t been provided with sufficient information to perform the valuation. There is not evidence before the Court to indicate anything to suggest that the husband will not recover his $943,000 from the [A Baldwin Trust]. Your Honour, the next point---

   HIS HONOUR: Who owes him that?

   MR NORTH: The [A Baldwin Trust]. He missed---

   HIS HONOUR: He paid the wrong person or something.

   MR NORTH: There was money he borrowed from [YP Trust]---

   HIS HONOUR: [YP Trust].

   MR NORTH: ---and he paid it by mistake back to [AA Pty Ltd] and there were other moneys standing to his credit in [AA Pty Ltd] as well, and so that’s what the 900 represents. About 700 of that he was to repay to [YP Trust].

   MR COOPER: Your Honour, my friend is addressing you in respect of something that’s incorrect. If one looks at the report of Vincent’s of 9 February 2009, paragraph 3.31, [Mr H] clearly says:

   In respect of the 943319 this constitutes an asset of the husband (indistinct) are the major assets of the [A Baldwin Trust] as per his balance sheets are loans made to the [D Baldwin Trust] and the [YP Trust]. If those loans are not repaid in full then it’s unlikely the husband will receive the full balance of the loans owing  to him.

   That’s the evidence of [Mr H].

   HIS HONOUR: Thank you. Yes, Mr North.

   MR NORTH: Well, your Honour, I’d ask you to consider that evidence in light of what he – the general qualifications on his report and what he also says in paragraph 3.9 of his report of 28 February 2008.

   HIS HONOUR: Where is that amount of money which he either owes or is owed set out in your [Baldwin] matrimonial document, schedule of assets?

   MR NORTH: Your Honour, it’s---

   MR COOPER: It’s on the first page, you Honour, halfway down the right hand column.

   HIS HONOUR: 943.

   MR NORTH: Is your Honour addressing me or my friend, I’m sorry?

   HIS HONOUR: Thank you, Mr Cooper. Yes, Mr North.

   MR NORTH: Your Honour---

   HIS HONOUR: Where else is it referred to?

   MR NORTH: Your Honour, we refer to it in---

   HIS HONOUR: The first page there, I see, the schedule of assets.

   MR NORTH: ---the first page. [Mr Baldwin’s] credit loan account with AA Pty Ltd].

   HIS HONOUR: Yes, I have that.

   MR NORTH: [Mr Baldwin’s] credit loan account in [YP Trust].

   HIS HONOUR: Which is nought.

   MR NORTH: Well, the husband says nought.

   HIS HONOUR: Well, that's what you say in this document.

   MR NORTH: Yes. Yes, sorry, thank you, your Honour. Yes, that's - I.m

   forgetting that I- - -

   HIS HONOUR: Where is that picked up in your distribution, if I might use that word in inverted commas, click click. There it is, 943. [Mr Baldwin’s] credit loan and [AA Pty Ltd].

   MR NORTH: Yes, your Honour.

   HIS HONOUR: And over the next page, that's owed by [AA Pty Ltd]. There's no suggestion that [AA Pty Ltd] is unable to pay that amount, is it, or is that the oneyou're referring to- - -

   MR COOPER: [Mr H] says- - -

   HIS HONOUR: - - -Mr Cooper?

   MR COOPER: Yes, that's the one [Mr H] says in his report, your Honour.

   MR NORTH: Well, your Honour, it's not a complete statement of what
   [Mr H] says. [Mr H] says he doesn't have enough records- - -

   HIS HONOUR: Yes, I know that.

   MR NORTH: - - -to really know, and at 3.9 of that report, the same report to which my friend has taken you:

   To assist the Court I've attempted to determine the current value of the net assets of the [A Baldwin Trust] as at 30 June 2006. In the latest available balance sheet, the net assets at book value of $4,845,000. Now, I've not been provided with the information, including the number of each share on hand to determine the current value of the shareholdings. I've reviewed the balance sheet of the [A Baldwin Trust] and accept that all other assets and liabilities as at 30 June would've adopted book value assuming all loans made to related parties.

   Your Honour, then he says:

   I note that the liabilities of the trust include 943,000. Refer to paragraph 3.3 above.

   And he then - after saying - he says:

   Then it is unlikely -

   He then says at 3.3.2:

   I've not been provided sufficient information to verify the balance

   of this loan.

   So, your Honour, the unlikelihood is he really doesn't know. And it was in the hands of the husband, his mother and his brother to present [Mr H
   ] in the Court with sufficient evidence. What your Honour does know is that one of the witnesses this morning mentioned by way of a guess, really---

   HIS HONOUR: I'm sorry, mentioned?

   MR NORTH: Mentioned, but by way of a guess in response to a question from your Honour, what are the shares.

9. In his reasons for judgment his Honour made only the following single reference to the debt of $943,319.00 (although he did, of course, include that debt as an asset of the parties in the schedule of assets which he adopted):

   17. Here is really the lynchpin of the whole problem, enormous amounts of money were advanced that the wife says by way of distributions and/or gifts and/or drawings from these entities and they amount to, according to [Mr H] in his report, something like 1.9 total owing to [AA Pty Ltd] and [Y Pty Ltd]- - -

   RECORDED  :  NOT TRANSCRIBED

   18. - - - 1.727 that is after certain moneys came into the hands of [Y Pty Ptd] by way of a mistake which is set out in para 33 of the husband’s affidavit.  That now amounts to something like $943,000 owing by that company to the husband. 

10. In challenging his Honour’s inclusion of the debt of $943,319.00 as an asset of the parties, Senior Counsel for the husband continued to rely on the single expert’s evidence that if loans owed to the debtor A Baldwin Trust were not repaid then the debt owed by that trust to the husband was unlikely to be paid. Senior Counsel was also able to rely on the fact that his Honour had not been prepared to take into account as a liability of the parties the debt of $1,753,600.00 which their trust owed to the A Baldwin Trust (and which we will shortly discuss), with it being submitted that his Honour should have explained in his reasons this apparently inconsistent approach. Further, Senior Counsel rejected any suggestion that his Honour had adopted the approach which he did to the loans owed to, and by, the A Baldwin Trust because of non-disclosure on the part of the husband and of his mother and brother.

11. For his part Senior Counsel for the wife continued to rely on the preliminary nature of the single expert’s report given the limited material which had been provided to him. In further submitting that the issues concerning the recoverability of the debt owed to the husband by the A Baldwin Trust could not have been resolved on the evidence, Senior Counsel drew attention to paragraph 41 of his Honour’s reasons which we have earlier set out, but will here for convenience repeat:

    41.Much was made by North of the fact that discovery was not, as he says, full and frank in this matter and that [Mr H] who was the accountant, the single expert appointed by the parties, frequently in his three reports complained that his was only a preliminary report.  I have done the best I can on the material before me.  It is quite clear that so much costs have been expended in this case that any adjournment would only increase the amount of costs and I doubt very much whether anything would be advanced by our adjourning the matter for further and better discovery.

12. Notwithstanding the limited material before him, it was, in our view, incumbent on his Honour to give some explanation as to why he decided to include as an asset of the husband the debt of $943,319.00 in circumstances where the expert’s evidence was that it might not be paid in full. His Honour’s failure to provide any reasons in relation to this significant issue means that the appeal must succeed on the basis of this complaint.

13. However, having determined that the appeal must succeed, for us then to remit the matter for retrial would only be doing what his Honour was clearly trying to avoid by his comments in paragraph 41 of his reasons, that is, to provide the husband with an opportunity to repair his case. In these circumstances, we consider that the appropriate course for us is to reconsider the matter on the basis of the limited material which was before his Honour and which has been referred to above. We propose however to defer our re-determination of this matter until we have considered the husband’s next complaint which concerns what can be regarded as a related matter, being the debt owed to the A Baldwin Trust by the parties’ company.

The debt owed by S Company to the A Baldwin Trust

1. By a further ground of appeal (Ground 1.3) the husband claims that his Honour erred in finding that the husband and the wife had no personal liability for debts totalling $1,753,600.00 which S Company (as trustee of their family trust) owed to AA Pty Ltd (as trustee of the A Baldwin Trust).

2. Having determined (in paragraph 20 of his reasons) that the amounts in question were loans owing to the A Baldwin Trust by S Company, his Honour went on to determine that the husband and the wife had no personal liability for those loans for the following reasons:

   21. This Court has heard for years, the difficulties in relation to family companies, companies which are normally run by the parties as their own personal bailiwick and yet when it is necessary, they will immediately rush around and refer strongly to the question of the corporate personality and that there should not be any lifting of the corporate veil.  In this case, I make it quite clear that there is owing to those two entities to which I have referred, the amount of $1,727,358 [sic].

   RECORDED  :  NOT TRANSCRIBED

   22.Should the parties or either of them have the assets which are available to this Court to distribute between the parties lessened as a result of that amount on Mr Cooper’s submissions?  Mr Cooper appears on behalf of the respondent and has said everything he possibly could but in his behalf says that whilst I do not think he says legally that the assets of the parties should be diminished by that amount, he points to two authorities which says I can in circumstances, Biltoft and Lemnos, I can ignore, in certain circumstances, moneys owing to a third party by another entity. 

   23.I must say I find it very difficult to say in this case that the assets of the parties, notwithstanding that the moneys were lent, clearly lent by the entities to which I have referred [AA Pty Ltd] and [Y Pty Ltd].  They have a claim only against [S Company].  It is the debtor.  It may be that they have another claim against the directors for working the company when it was in debt.  Mr Cooper also says that morally it would be wrong if, in fact, I allow the parties to gain an advantage by hiding behind a family company.  I do not accept this is a Court of morals.  This is a Court of law.  It must apply the law as it sees it, modified to a certain extent by an exercise of discretion.  If I had that discretion, I doubt, with respect, Biltoft and Lemnos, is in fact they say that I can ignore the rights of third parties and interfere with their rights in certain circumstances.  I doubt if that is the case. 

   24.Mr North of senior counsel has submitted that notwithstanding if he is found against, he proposes that the debt was drawings or a distribution.  He says notwithstanding, if in fact, it is found that they are a loan and that it is owned [sic], it is owned [sic] only by [S Company].  He further says that if in fact the other entities being run, in effect, by the paternal grandmother and his brother and, to a certain extent, himself, they have every right under s 79(10) to apply to be joined in this case to protect their interests.  They have shown no interest in it whatsoever in that they have not, in any way, attempted to call upon the Court’s jurisdiction to protect their interest and consequently I feel that the general rule must apply and that the moneys owing are owed by [S Company] …

3. Thus, his Honour can be seen as having refused to include the debts owed by S Company to AA Pty Ltd as a liability of the husband and wife apparently because they were liabilities of the company for which the parties as its directors (or shareholders) would not be responsible, unless the company had been trading while insolvent. His Honour can also be seen as refusing to accept that there was any moral obligation on the part of the parties to re-pay the debts such as would justify the debts being taken into account as a liability of the parties in their property proceedings.

1. It would also seem that in refusing to include this debt his Honour also relied on the submission made by Mr North SC that the husband’s mother and brother as directors of AA Pty Ltd had not sought to intervene in the proceedings in order to protect the debts owed to that company.

2. In challenging his Honour’s refusal to include these debts totalling $1,753,600.00 owed by the parties’ company to the A Baldwin Trust, Senior Counsel for the husband sought to rely on the moral or family obligation which the husband and wife had to ensure that the debt was repaid, an obligation which, it was submitted, the wife had acknowledged in a hand-written document. In this regard Senior Counsel, whilst conceding that he had not been able to find any authority exactly on point, nevertheless sought to rely on decisions such as Af Petersens and Af Petersens (1981) FLC 91-095; Prince and Prince (1984) FLC 91-501; and Biltoft and Biltoft (1995) FLC 92-614. These decisions are concerned with the discretion either to include or ignore in property proceedings, debts owed by one or both parties to a member of his or her family of origin on the basis of whether or not such debts are likely to be enforced. The distinction in this present case is, of course, that the debtor it is not the parties, but rather the corporate trustee of their family trust.

3. Senior Counsel for the husband also submitted that for his Honour to have accepted Mr North’s submission that the husband’s mother and brother had, by not intervening in the proceedings shown no interest in protecting the debts owed to their trust, was an error because those persons had given evidence in the proceedings that the debts were re-payable, and it was therefore unnecessary for them to have sought to become parties to protect their trust’s debts.

4. We agree with Senior Counsel for the husband that it was unnecessary for the husband’s mother and brother to have intervened in the proceedings to protect the debts owed to their trust, and that it was an error for his Honour to have taken this consideration into account as he appears to have done when determining not to include the debts in question in his calculation of the net value of the parties’ property. To this extent therefore there is merit in the ground of appeal directed to his Honour’s refusal to take this liability into account.

5. It has to be acknowledged, however, that it would have been open to his Honour, in the exercise of his discretion, to refuse to include those debts on the basis that the debts were owed by their company rather than by the parties themselves. But once a decision has been made not to take into account the liability owed by the parties’ company to the A Baldwin Trust, some regard should have been had by his Honour to the effect that this decision would have on the capacity of that trust to repay the debt of $943,319.00 that it owed to the husband.

Re-determination of the issues relating to the debts owed to and by the A Baldwin Trust

1. As we have just indicated, there is at least on the limited evidence available a significant connection between the debt which the parties owe through their company to the A Baldwin Trust and the debt which that trust owes to the husband. This relationship emerges from the following passages of the expert’s report which although earlier set out we here repeat:

   3.2        The [D Baldwin Trust]

   owed

   The [A Baldwin Trust]

   $1,753,660 as at 30 June 2006

   3.2.1 This constitutes a liability of an entity controlled by the Parties. As 30 June 2005 (being the latest available balance sheet) the [D Baldwin Trust] had a deficiency of net assets as per the book values recorded on the balance sheet of $1,572,153. If the book values are correct and the Parties do not make up the shortfall from their personal assets the [A Baldwin Trust] may not have its loan repaid in full.

   3.3The [A Baldwin Trust]

   owed

   The Husband

   $943,319 as at 30 June 2006

   3.3.1 This constitutes an asset of the Husband. Two of the major assets of the [A Baldwin Trust], as per its balance sheet, are loans made to the [D Baldwin Trust] and the [YP Trust]. If those loans are not repaid in full (refer comments at paragraph 3.1 and 3.5) then it is unlikely the Husband will receive the full balance of the loan owing to him.

2. On the basis of this evidence, limited though it is, we do not consider that it would be either just or equitable to include the debt owed to the husband by the trust as an asset of the parties, but at the same time to disregard (as the trial Judge did) the debt which the parties’ company owes to the trust. This is particularly so when it is remembered that it is apparently uncontroversial that the monies now owed to the trust were advanced by the trust to the parties (albeit through their company) to assist the parties in their business enterprise.

3. We do not consider that such failure as there may have been on the part of the husband or his family to make adequate financial disclosure (and in any event we do not understand the trial Judge to have made a finding of deliberate non-disclosure), nor the opinion expressed by the expert in paragraph 3.9 of his report (earlier set out) that the A Baldwin Trust had net assets at a book value of over $4.8 million, would justify including the husband’s loan account with the trust as an asset, but at the same time disregarding the debt that the parties through their company owed to the trust.

4. Accordingly, if the loan account is to be included as an asset of the parties, the debt of the parties’ company to the trust should also be included as a liability, or if that debt is to be disregarded then the asset constituted by the loan account should also be disregarded.

5. While we recognise that there are good arguments for taking into account in the calculation of the net value of the parties’ property both the husband’s loan account with the A Baldwin Trust and the debts owed to that trust by the parties’ company, nevertheless, we propose in the exercise of our discretion not to do so in our re-determination of this case.

6. This is not only because the debts to the trust are legally the responsibility of the company and not of the parties personally, but also, more importantly, because we cannot be satisfied that the company may not have some capacity itself to repay some of the debts. We note in this regard that in the document prepared by the wife’s counsel, Mr North SC, which contained the schedule of the parties’ assets (which is Honour adopted), there is also included a schedule of the company’s assets and liabilities. That schedule (which we do not consider necessary to set out) indicates that the company may have funds in the order of $685,000.00 which could be used to satisfy part of its liability to the trust.

7. Moreover, we consider that if in determining the value of the parties’ property we were to take into account a liability of the company, it would also be necessary to take into account any assets it has. While there is some indication of such assets in Mr North SC’s schedule of the company assets and liabilities, we do not consider that we have the necessary supporting evidence to allow us to do this. Furthermore, we understood from our discussion with counsel at the hearing of the appeal, that the case was not run at trial on the basis that the company structure could be completely ignored, in the sense that all its assets and liabilities could simply be regarded as the assets and liabilities of the parties.

8. Once we have determined that we cannot safely take into account the liability of the company to the trust, it follows from what we have said earlier, that we cannot take into account as an asset of the parties, the husband’s loan account with the trust. However, given that the expert’s evidence was that if loans to the trust (including the company’s loan) were not repaid in full, then it was unlikely the husband would receive the full - and we emphasise “the full” - balance of the loan owing to him, and given also the expert’s evidence concerning the book values of the trust at over $4.5 million, we would be prepared to take into account in our consideration of the s 75(2) matters, the likelihood that the husband will receive at least some of his loan account at some time.

The husband’s liability to the Australian Taxation Office

1. We turn then to the ground of appeal (Ground 1.2), which is directed to his Honour’s exclusion of the husband’s tax liability as a liability to be taken into account in calculating the net value of the parties’ assets. The precise assertion in that ground, is that his Honour erred in omitting from “his calculation of the property pool the husband’s liability to the [ATO] in the sum of $117,412.18 notwithstanding the Affidavit evidence of the husband’s accountant … who was not required for cross-examination in respect of his Affidavit”.

2. The evidence of the accountant (who was, as the ground of appeal asserts, not required for cross-examination) was that he estimated that the income tax payable by the husband on distributions of income to him from the A Baldwin Trust in the period 30 June 2000 to 30 June 2007 was together with interest (at an average rate of 12 per cent on outstanding tax) $117,412.18. The accountant provided a schedule showing how this amount was calculated each year from 2000 to 2007.

3. It should also be noted that the husband’s evidence in this affidavit (filed 14 January 2009) on which he was not cross-examined was:  

   125. … However, the distributions [from the A Baldwin Trust] were often just book distributions and we did not receive the money. It was done for the purpose of getting the profits out of the trusts to avoid penalty taxes. Those distributions were disclosed in our tax returns insofar as we filed tax returns. In fact, my last tax return was filed in the year ending 30^th June 2002. I have instructed my accountants to bring my tax returns up to date and I am still waiting for that to happen. I have now been informed by my accountants … of HLB Mann Judd that I will have a tax bill, inclusive of interest, for the period from the year ending 30^th June 2000 to the year ending 30^th June 2007 of $117,412.18 …

4. Apart from being claimed as a liability in the list of liabilities included in the husband’s written submissions to his Honour, the tax liability was not addressed in those written submissions.

5. However, in the course of the oral submissions of the husband’s solicitor, his Honour queried why the tax liability should be deducted in the calculation of the net value of the parties’ property. The husband’s solicitor responded that it was because it had been incurred “while the parties were together”. His Honour responded that it was the husband’s “personal tax”, and he can be read as enquiring as to why the wife should be responsible for the interest and penalties which arose because the tax was not paid. The husband’s solicitor responded that his client had not been in a position to lodge a tax return as he never had the money to pay the tax. (Transcript 25 February 2009, pp 234-5)

6. In his oral submissions to his Honour, Senior Counsel for the wife challenged the claimed tax liability on the grounds that the husband had given affidavit evidence that his last tax return had been lodged in the year ended 30 June 2002 and that the accountant’s calculation had an estimate for that year and for the two previous years. In addition Senior Counsel relied on the fact that the accountant’s calculation also covered a period after separation (which was in late 2005) being a period of about one and a half years (to 30 June 2007). (Transcript 25 February 2009, pp 1341-2)

7. When his Honour came to deal with this matter in his reasons for judgment, at a point after he had determined upon an equal distribution of the assets, he said:

   38. … But I must say in passing, there is another claim by the husband in an amount of some $117,000 for unpaid tax. I do not believe, in the circumstances of this case, that I will take that into consideration. It is his own responsibility that the he failed to pay tax and also as has been quite properly pointed out by North that this tax was mainly incurred---

   RECORDED : NOT TRANSCRIBED

   39. ---subsequent to separation; I do not accept that but, however, I have decided in the exercise my discretion that I will not allow that to be removed from the assets of the parties.

8. Before us Senior Counsel for the husband conceded that there was an apparent inconsistency in relation to this issue of the tax liability in that in his affidavit (sworn 13 January 2009) the husband had given evidence that his last tax return was filed in the year ended 30 June 2002, but that his accountant’s evidence was that the tax bill of $117,412.00 would be for the period of 30 June 2000 to 30 June 2007. Nevertheless, Senior Counsel maintained his submission that his Honour had erred in failing to include this liability in circumstances where the monies on which the tax was owed had been used for the benefit of the family, at least up until late 2005, and to assist in the running of the business up until its sale in 2007. (Transcript 16 November 2009, pp 24-26)

9. In response Senior Counsel for the wife continued to rely on the husband’s evidence that his last lodged tax return was for the year to 30 June 2002 and that this would cover the period of the first three years of the liabilities shown in the accountant’s estimate. Further, Senior Counsel relied on the fact that the liabilities for those three years totalled $115,918.00, which was only $1,494.00 less than the total liability of $117,412.00 claimed by the husband for the entire 2000 to 2007 period.

10. His Honour’s reason for refusing to include the estimated tax liability in his calculation of the net value of the parties’ property was that it was the husband’s responsibility alone to pay the tax on the income (which was received from his family trust). We do not accept that that conclusion was open to his Honour in circumstances where there is no suggestion that any income actually received by the husband was used for the purposes other than the parties’ family and/or business (cf Parshen v Parshen (1996) FLC 92-720). To the extent that distributions from the A Baldwin Trust were not actually paid to the husband, these would now be represented in the husband’s loan account with the trust (which we have earlier discussed).

11. Furthermore, we consider that his Honour was in error (as asserted by the relevant ground of appeal) in not accepting the evidence of the accountant when he was not required for cross-examination.

12. As to the submissions of Senior Counsel for the wife made to the trial Judge and to us concerning the apparent inconsistency between the husband’s evidence that he last lodged a tax return in 2002 and the accountant’s evidence of an estimated tax liability dating from 2000, we now note that there was no evidence from the husband that tax had actually been paid in respect of the 2000, 2001 and 2002 year (as opposed to lodging returns for those years). It is therefore possible that tax remains to be paid for those years. But as we have already observed, the opportunity was not taken to explore this matter in cross-examination with either the accountant or the husband.

13. On our re-determination of this matter, we would accept the unchallenged evidence of the accountant in relation to the husband’s estimated tax liability. Thus we would take that liability into account in calculating the net value of the parties’ property for distribution between them.

The wife’s liability to Mr C

1. As will have been seen from the schedule earlier set out, which had been prepared on behalf of the wife, and which was for the most part accepted by his Honour, the wife sought (successfully) that his Honour include in his calculation of the net value of the parties’ property a liability of $75,710.00 which was explained in the schedule as “loan owing to [Mr C] (total debt is $176,615.00 plus interest, of which $111,905.00 has been used for legal expenses)”. The wife also sought (successfully) that interest of $15,750.00 on that loan should also be deducted as a liability of the parties.

2. The only explanation provided by his Honour for accepting these liabilities was as follows:

   27. There are other matters which I have to refer to – [Mr C]. [Mr  C] and the mother had a relationship for a period of something like 18 to 20 months, and during that period as well as subsequent to the cessation of their relationship that [sic] he advanced to her as appears by one of the exhibits in this case an amount of $185,000-odd. She says, and I accept this, that in fact part of that to an extent of about 111,000 was used by way of payment of legal expenses and taking into consideration the authorities, I follow those authorities. That is referred to in the last but three on page 1 of the [Baldwin] aide memoir which was put before me.

3. The husband’s ground of appeal which challenged his Honour’s acceptance of these liabilities asserts only that his Honour “erred in including in the liabilities to be taken into consideration … the wife’s liability to [Mr C] of $75,710.00 and interest of $15,750.00” (Ground 1.4). There are no particulars provided in the ground of the asserted error or errors in relation to the inclusion of these liabilities.

4. In an affidavit sworn on 12 December 2008 the wife provided the following evidence regarding her relationship with, and her alleged debt to, Mr C:

   87. When the lease on my … rental house became due for renewal at the end of October 2006 [the husband] discontinued my $500.00 per week income and refused to co-sign a new lease stating “Let you new man look after you”, referring to [Mr C] whom I had been dating for 3 months. He also refused to sign a bond release which would have permitted me to sign the lease in my own name, stating that the bond money belonged to him, when it had been paid from our joint account in May 2006.

   88. With no income and no money for a bond I was left with no choice but to vacate the … rental home and the children and I temporarily resided with [Mr C] at his [D Home]. I did light housekeeping, business administration and babysitting for [Mr C] in return for a reduced rent of $250.00 per week. This rent was not actually paid but accrued in a “loan account”, a copy of which is annexed hereto marked “JBB12”. I could not afford to actually pay the rent.

   89. Following the sale of his home in February 2007, [Mr C] and I shared a rental property, with his children and mine, in [V]. My share of the rent was $250.00 per week which again accrued in the abovementioned loan.

   90. In total, I presently owe [Mr C] the sum of $186,000.00 plus interest. This is made up of $111,000.00 [Mr C] advanced me for legal bills, along with $75,000.00 in general living expenses over the 18 months we were together including share of rent, electricity and other utilities and food totalling approximately $960.00 per week

   …

   92.In February 2008, [Mr C] and his children vacated the [V house] to return to live at [D Home]. Shortly after, in May 2007 [sic] I rented a house for the children and myself in … to be near their school and my work.

5. The annexure “JBB12” referred to in paragraph 88 of the wife’s affidavit is a one page spread sheet of figures.

6. In an affidavit sworn on 15 December 2008, Mr C gave evidence that he was in a relationship with the wife “from July 2006 until February 2008”; that during that time he lent the wife $187,615.00 “on account of her living and general expenses”; that he and the wife separated on or about 3 April 2008; and that “on or about” that date they signed a loan agreement in respect of the funds which he had advanced to the wife. A copy of the loan agreement, which appears on its face to have been prepared by solicitors, was annexed to Mr C’s affidavit. The agreement provides for the payment of interest.

1. Both the wife and Mr C were cross-examined regarding their household expenses and some aspects of the alleged loan. But importantly it was never put to either of them that the loan would not have to be repaid.

2. In his written submissions and also in his final address to his Honour, the solicitor for the husband pointed out the following alleged inconsistencies between the evidence of the wife and the evidence of Mr C:

   ·The wife’s evidence was that when she lived with Mr C they had a housekeeper some of the time, no gardener and no other help; while Mr C’s evidence was that they had a housekeeper, gardener and pool man and they paid for the expenses jointly.

   ·The wife had said, according to the husband’s solicitor, that she gave back “a chunk of money” to Mr C, some $100,000.00 and Mr C said she gave back $10,000.00 to $12,000.00. However on our reading of the transcript the wife stated on several occasions when the husband’s solicitor asked the same question, that she gave Mr C $10,000.00.

   ·The wife said that the loan agreement with Mr C was signed in the house where she lived, and that the only available witness was her 16 year old son, L, while Mr C said that the agreement was signed at the lawyer’s office in Nerang.

   ·The wife said, according to the husband’s solicitor, that she has to reimburse Mr C for the monies he spent; but Mr C said he does not expect reimbursement for the day to day expenses. (We do not consider that the transcript necessarily supports this interpretation.)

3. Leaving to one side our reservations (which we do not consider necessary to detail) as to the extent of any alleged inconsistencies between the evidence of the wife and Mr C, it is unclear from either the written or the oral submissions made on behalf of the husband at trial as to what part of the wife’s case these asserted inconsistencies were directed. In other words, it is unclear whether the husband was seeking a finding that the debt did not exist, that it would not have to be repaid, or some other finding or findings.

4. In his written submissions at trial, and in addition to including the alleged loan and the interest claimed in his schedule of assets and liabilities, and also in addition to asserting that both the wife and Mr C were honest witnesses, Senior Counsel for the wife said only:

   5.17The wife has borrowed in excess of $200,000 from [Mr C], with almost $112,000 of that referrable to legal fees. Consistent with authorities such as Omacini v Omacini (2005) FLC 93-218 at para 30 and Chorn and Hopkins (2004) FLC 93-204 at pp 79,322-3, that portion of her loan referrable to legal fees has been excluded from the pool.

5. There was no further discussion of this matter by Senior Counsel for the wife in his final submissions to his Honour, other than briefly to draw to his Honour’s attention the items in his schedule of assets and liabilities for the balance of the loan outstanding and the interest component.

6. It is perhaps not surprising that his Honour dealt so cursorily in his reasons for judgment with the liability to Mr C given how little emphasis was placed on that matter in the final submissions of both parties. But however that may be, before us Senior Counsel for the husband continued in both his written and oral submissions to emphasise the inconsistencies in the evidence of the wife and Mr C (which were referred to above), but again without demonstrating where the inconsistencies led, other than apparently to a conclusion that the debt to Mr C should not have been taken into account.

7. Furthermore, in the husband’s written submissions to us, there were attempts to raise issues regarding the wife’s capacity for self-support, and thus the question of whether she had any need for assistance from Mr C. These were not matters which, at least as far as we understand it, were raised before his Honour, and they cannot therefore now be agitated.

8. In summary therefore, the wife’s claim at trial was that Mr C assisted her with her living expenses after separation to the extent of some $75,000.00 and that interest was payable on this amount pursuant to a loan agreement executed at the time when she separated from Mr C. On the material before his Honour that claim can be seen as having been established and, in our view, not successfully challenged by the husband. We emphasise again that it was never put to the wife or to Mr C that the loan would not have to be repaid.

9. It would, of course, have been desirable had his Honour discussed this issue more fully, but we are not persuaded that he erred in accepting the wife’s claim having regard to the evidence before him. Having regard to the evidence which we have canvassed above and the lack of any challenge to the claim that the loan was re-payable (with interest), we consider that we have no option but to take the loan into account in our re-determination of the matter. We note however that there is some inconsistency between the figures for the loan in the wife’s affidavit and spread sheet and the figures in her Counsel’s schedule (which was adopted by his Honour). However, we are satisfied that in the schedule the figure of $176,615.00 should in fact be $187,615.00. On that basis the figure of $75,710.00 shown in the schedule as the amount of the debt, is correct.

Sale of land proceeds

1. As will have been seen from the schedule prepared by the wife’s Counsel at trial, and which is set out much earlier in these reasons, there was a difference in the figure put forward by each party for the proceeds of the sale of the land on which the parties conducted their business, with the husband contending for a figure of $2,823,000.00 and the wife contending for an overall amount of $2,204,794.25 (constituted by the figures shown in the schedule for the proceeds plus deposit and interest earned less costs of sale).

2. As we also earlier pointed out, his Honour apparently adopted the figure for which the wife contended, but without giving any reasons for so doing (although it does appear at paragraph 32 of his reasons he may have intended to accept the husband’s figure).

3. We are reasonably satisfied having regard to the oral submissions made to us by both Senior Counsel, that the difference in the figures came about not only because the parties used statements for the trust account at different dates (and thus with different amounts for interest), but also, and more significantly, because the husband’s figures included not only the proceeds of the sale of the land but also some of the proceeds for the sale of the business (in the order it would seem of $600,000.00 to $700,000.00) whereas the wife’s representatives had used only the proceeds of the land and had endeavoured to apportion the interest and other costs between both sales.

4. We consider that in our re-determination of the matter, we should adopt the figure used by the wife as this course should ensure (as will our orders) that we do not bring funds which belong to the company into our calculations. (Care must be taken about this particular matter because of the approach we have taken to the company’s debts to the A Baldwin Trust.)

5. It is, of course, likely that further interest will have accrued on the funds held in trust. Our orders will provide for any additional interest attributable to the proceeds of the land to be shared between the parties in the proportions in which we determine that their property should be shared. 

Re-determination of the value of the property pool

1. It will be convenient at this point to set out in schedule form our re-determination of the net value of the parties’ property available for distribution (and in rounded figures):

ASSETS	$	$
Agreed or non controversial assets held by the parties
Wife
Partial property settlement	100,000.00
1995 motor vehicle	3,200.00
Jewellery	5,000.00
Canada Life Retirement fund	193.00
AMP Super	4,663.00
Add back of [S Company] funds withdrawn	5,366.00
Sub total	118,422.00
Husband
Partial property settlement	100,000.00
Proceeds of car sale	40,000.00
1991 motor vehicle	7,550.00
1996 motor vehicle	7,000.00
Jet ski	8,000.00
Credit loan with [YP Trust]	13,850.00
Macquarie Super	17,322.00
MLC policy	3,925.00
AXA policy	14,697.00
Sub total	212,344.00
Sale of land proceeds held in trust (including deposit and interest less sale costs)	2,204,794.00
ASSETS TOTAL	2,535,560.00
LIABILITIES
Agreed loan owed on rural property now sold	691,505.00
Debt to ATO	117,412.00
Loan from [Mr C]	75,710.00
Interest on loan from [Mr C]	15,750.00
LIABILITIES TOTAL	900,377.00
NET TOTAL	1,635,183.00

1. We turn now to consider how the property should be divided between the parties.

The contribution assessment

1. Bell J made the following findings in relation to the parties’ contributions:

   28. I now deal with the contributions in an endeavour to ascertain what the wife’s entitlement would be pursuant to the provisions of s 79.  She has financially contributed to the assets of the parties virtually nothing.  She did receive an inheritance of some 66,000 English pounds, $50,000 of which she says was forwarded to England for the use and endeavour in a business which failed miserably.  She used the balance of the moneys generally around the parties themselves. 

   29. She relies on three other matters: one is the amount of work she put into the creation of [E property] and the improvements therein.  She particularises those in her affidavits; her work with the children and also a difficulty which she had with the respondent’s admitted alcohol problem.  So far as alcohol problems are concerned, I am more than satisfied the evidence before me that the husband had a bad alcohol problem.  I accept the evidence of the wife that, on occasions, his conduct became quite reprehensible, that he exhibited signs of bad temper, that he was uncontrollable and I refer, in particular, to her paras 31 and 38.

   30. He, on two occasions, has entered into private clinics for detoxification in 2002 and 2005/6.  The first of them was brought about as a result of the wife leaving him and he went into this clinic in an endeavour, perhaps, to control his drinking and subsequently he entered that clinic after the wife left again.  The parties reconciled in 2002. 

   31. The business was struggling financially.  Generally it was accepted particularly well winning awards, in 2002, 2003 and 2004 and regrettably this was not transferred into income producing material.  The respondent, as well as the applicant, found it extremely difficult the enormous amount of work being done, and they endeavoured to sell it.  If in fact they had a conditional contract on it for 7.2 or in excess of seven million, they would have been out of a lot of trouble.  Unfortunately, they did not and subsequently, it was sold in 2007 something in excess of $3 million.  Out of that amount an amount was paid to the ANZ Bank.  It was 500,000‑odd and I will be able to indicate at a later stage that there is available McPhee Spiro and Curlewis Trust Account an amount of something like - - -

   …

   33. It appears to me that the pressure that was brought to bear by the business going bad upon the husband exacerbated his weakness towards alcoholic liquors and he became almost uncontrollable.  The wife has put forward an argument which is based, to a certain extent, on the Kennon principle to the extent that his conduct was such, if I might use that word “conduct” was such that it made any contribution she was attempting to make towards her home-making ability even more difficult than it would otherwise be.  I am satisfied, on the evidence before me, that that is, in fact, the case, to the extent on one occasion, he lost control of himself, perhaps he was provoked but he lost control when he had a physical fight with [L] causing injuries to him …

   34. However, the wife’s health has been affected and she says that it has been affected even further by what has taken place subsequent to the cessation of cohabitation which was in November 2005.  I refer to para 38 and further that her fears in relation to her employment have, in fact, come to fruit and that she was made redundant in December of last year.  There is evidence before me by a psychologist that she is not the woman that she was some two or three years ago, that she has lost confidence in herself, she has a fear for the future and I can fully appreciate that.  I do not believe that her condition was brought about solely as a result of the respondent’s conduct but partially as a result thereof.  I think that sounds, in contribution, under the Kennon principle.

   35. What then can she say that she is entitled to.  It has been put forward by Mr Cooper that the husband’s financial contribution (it must be conceded), was overwhelming and it is.  It is overwhelming, however, it was submitted by North of senior counsel that the principles are that these contributions erode over a period of time.  Well, they did not insofar as the payments, loans from the other entities to which I have referred.  In his paragraphs, which I have already referred, he sets out that moneys from 1999 to 2003, enormous amounts of money were forthcoming, 2004, 2005.  It seems like it slowed down then and I would have thought it is because [N Baldwin], his brother, became aware of how much moneys were being lost to the trustees and to the companies and I think he put his foot down.

   36. I must say in passing which I have not before, the moneys that were in these trusts mainly consisted of shares and, obviously [Mr Baldwin], the respondent, could not have done this on his own.  He would have had to have at least one of the others involved and he has had and that is his mother.  [Ms Baldwin], who is 85 years of age who gave evidence by phone.  She gives me the impression of being a very feisty woman but she allowed, unfortunately, her son perhaps to run awry and it may have been that she was hoping that by the injection of funds which perhaps [N] did not know about, [E property] might have been saved.  It could not be saved and it went down eventually as I have said.

   37. It is extremely difficult for me to ascertain or to estimate what the contribution of the wife would be.  It has been said on frequent occasions that the starting point could be 50:50.  It’s not 50:50 in this case.  I would have thought that the best that the wife could hope for, and I will find that she is entitled to is 40 per cent …

2. In his amended notice of appeal and in addition to the general assertions that the 40 per cent assessment of the wife’s contributions was “a manifestly unjust result” and that his Honour had failed to give adequate reasons for that assessment, the husband also asserted that his Honour had failed to give proper (or appropriate) weight to:

   ·    the ongoing financial contributions of the husband and his family in the absence of any substantial financial contributions by the wife;

   ·    the value of the interest free loans made by the husband’s family and their associated trusts to the parties or their company (S Company); and

   ·    the husband’s welfare contributions to the family.

3. It was also asserted by the husband that his Honour had given too much weight to “the alleged welfare contributions” of the wife, and that he had erred in failing to find that the parties’ home-maker and parent contributions were equal.

4. It will thus be seen that these challenges directed to specific contributions are all challenges directed to weight, and therefore must face the difficulties inherent in such challenges (as explained in decisions such as Gronow v Gronow (1979) 144 CLR 513).

5. The only specific challenge, which was a more substantial challenge than one of mere weight, is the assertion (in Ground 2.5) that the trial Judge “erred in accepting the wife’s argument that some additional contribution should be attributed on a so-called Kennon basis, in her favour as a result of the husband’s alleged alcohol dependency”.

6. As we indicated during the hearing of the appeal, we have considerable reservations as to the utility of endeavouring in this very fact specific and discretionary jurisdiction, to elevate the result arrived at in a particular case on the particular facts of that case into a principle or factor to be applied in another case, which is seen to be in some way factually analogous. With or without the earlier decision in Kennon v Kennon (1997) FLC 92-757, all that was necessary in that case was for his Honour to find, as he did, that the husband’s problems with alcohol had made the wife’s contributions to the welfare of the family more difficult, and hence deserving of some greater recognition than that which they might otherwise have received.

7. Overall, we consider that his Honour’s reasoning in relation to his contribution assessment was at least in the context of an ex-tempore judgment, adequate, and his assessment of the wife’s contributions at 40 per cent, although generous to her, not beyond the broad range within which reasonable disagreement is possible.

8. However, given our earlier interference with his Honour’s determination, and our own re-determination, of the value of the property available for distribution, we are not in any way bound by his Honour’s contribution assessment and we must exercise our own discretion in relation to that matter.

9. In re-determining this matter we would have regard to the following contributions of the parties:

   ·    the husband’s contribution early in the marriage of the proceeds of his land in Victoria amounting to approximately $400,000 (- the wife’s initial contributions would be of no significance compared with the contributions of the husband);

   ·    the interest free loans which were made by the husband’s family entities to assist in the purchase of the land on which the wedding and winery business was conducted and then subsequently to assist in trying to maintain the business;

   ·    the contributions of both parties in the running of their business; and

   ·    the contributions of both parties as home-maker and parent.

10. We would place somewhat greater weight on the wife’s contributions in the last two mentioned categories on account of the burden that it can be inferred was placed on her both in the running of the business and the care of the family because of the husband’s problems with alcohol.

11. Overall we would assess the husband’s contributions at 65 per cent and the wife’s at 35 per cent. On a net pool of $1,635,183.00 this would entitle them to share that pool as to $1,062,869.00 to the husband and $572,314.00 to the wife.

The s 75(2) adjustment

1. His Honour’s findings and reasoning in relation to the 10 per cent adjustment which he made in the wife’s favour on account of the s 75(2) matters were as follows:

   37. … What then or is the wife’s entitlement increased by anything under s 75(2) of the Act. It appears to me that there are two areas in which she could consider to have some support. That is the boys, in particular, the younger of the two who is still with her and will be for some three or four years, he’s 14 in May. She will still have emotional responsibility for the elder boy. She has the difficulty, at this stage, of getting employment. Her health is not the best.

   38. On the other hand, it is said that the respondent still has a financial resource if I can put it way of these trusts behind him.  I do not know how much the trusts are going to be worth but I would think that that is not particularly high.  His health now, as he says, he is no longer an alcoholic which is regrettable his saying that because it does tend to concern me.  He does not recognise it.  The only way to beat it is to recognise it and he still drinks on occasions.  He is running a lawnmower business and, I must say, he looks very well and fit and consequently that there is a margin in favour of the wife there of 10 per cent.  I would therefore apportion the assets of the parties 50:50 …

1. Again in his amended notice of appeal the husband challenges this 10 per cent “s 75(2)” adjustment made in favour of the wife on the basis that it was “unreasonable” and “manifestly unjust” and that inadequate reasons had been given for it. There is also a specific challenge to the finding that “the family trusts controlled by the husband’s brother and mother provided a financial resource for the husband for the future”, with it being asserted that finding was against the weight of the evidence.

2. Again it is unnecessary for us to say very much regarding his Honour’s s 75(2) adjustment given that we must re-exercise that discretion for ourselves. However, it is clear to us that it was made on the basis that the wife has health problems which will impede her capacity for work and that she has some continuing responsibility for the two teenage sons of the marriage, while the husband has the financial resource of his family’s trust. We consider that these findings were open to his Honour and the 10 per cent adjustment “within the range” although again perhaps somewhat generous to the wife.

3. Specifically, in relation to the finding that his family’s trusts constituted a financial resource for the husband, we consider that this finding was open given the history of the assistance which had been provided to the parties from that source and the state of the evidence from the accountant (which has been earlier set out).

4. In our re-consideration of the s 75(2) matters we take into account that, after a long marriage, the husband will have more property than the wife as a result of our contribution assessment. We are also prepared to accept, as we have already indicated that there is some likelihood of continuing assistance to him from his family trusts, and also that his loan account with the A Baldwin Trust may be paid out at least in part. He also has some employment although it may not be very lucrative. On the other hand the wife, though seven years younger than the husband, currently has health problems and despite her qualifications and experience is not currently in employment. She also has the care of the parties’ child who is under 18. In these circumstances we consider that a ten per cent adjustment in her favour on account of these matters, appropriate.

Result on re-determination of the matter

1. Overall therefore the parties’ net property should be divided 55 per cent/45 per cent in the husband’s favour.

2. This percentage division is to be applied in relation to property with a net value of $,1,635,183.00 (as calculated in the schedule at paragraph 95 of these reasons). 55 per cent/45 per cent division of that figure would result in the husband being entitled to property to the value of $899,351.00 and the wife to property to the value of $735,832.00.

3. The husband currently has, or has had property to the value of $212,344.00 and the wife to the value of $118,422.00 (again as shown in our schedule).

4. This would mean that on the basis that the known value of the proceeds of the land, which have not yet been distributed to the parties, is $2,204,794.00, the husband should receive out of those proceeds the amount of $687,007.00 and the wife $617,410.00, and our orders will so provide.

5. Further our orders will be drafted on the basis:

   ·that the balance of the known proceeds of the sale of the land will be available to the parties to repay the loan on the rural property, and to pay the husband’s debt to the ATO and the wife’s debt (including interest) to Mr C (which total $900,377.00);

   ·that any proceeds of the sale of the business which was conducted on the rural property by S Company will be credited to that company; and

   ·that any remaining balance of the proceeds of the sale of the land will be divided between the parties according to their percentage entitlements.

6. We are satisfied that the outcome embodied in our orders is a just and equitable outcome for each party in the complex circumstances of this case.

Costs

1. We were informed at the conclusion of the hearing of the appeal that there is an appeal pending by the wife against Bell J’s refusal to make an order for costs in respect of the property settlement proceedings, and that that appeal could be conveniently determined by us by way of written submissions.

2. We will therefore make directions for the filing of such written submissions. Those submissions should also be directed to the costs of the appeal against the property settlement proceeds. It will be necessary that the timetable for the filing of such submissions be of short duration because of the retirement from the Court of one of the members of this bench early in the New Year.

I certify that the preceding one hundred and twenty (120) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court delivered on 11 November 2010.

Associate: 

Date:  11 November 2010