Candle & Falkner
[2021] FedCFamC1A 102
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1) APPELLATE JURISDICTION
Candle & Falkner [2021] FedCFamC1A 102
Appeal from: Falkner & Candle [2021] FamCA 247 Appeal number(s): EAA 49 of 2021 File number(s): PAC 623 of 2018 Judgment of: MCCLELLAND DCJ, BERMAN & HARPER JJ Date of judgment: 23 December 2021 Catchwords: FAMILY LAW – APPEAL – PROPERTY – Where the husband appeals a property settlement order – Husband represented by counsel for two out of three days of trial – Husband represented by Case Guardian for final day of trial for closing submissions – Where husband and wife jointly owned and operated businesses – Where husband’s involvement in businesses became minimal after December 2010 – Treatment of add backs – Where there had been a premature distribution of matrimonial assets – No argument that post-separation expenditure was unreasonable – Husband contended that there was no engagement with the law on add backs – Dispute over whether parties came to an agreement during trial as to treatment of interim distributions as add backs – Husband and Case Guardian should be taken to have received advice as to add backs while legally represented – Primary judge acted on basis of agreement – No error established – Assessment of contributions – No failure to undertake a holistic assessment – Although husband’s involvement in company decreased greatly after December 2010, income produced as a result of his efforts would have continued up to separation – Where primary judge gave no consideration or no weight to husband’s contributions after December 2010 – Error established – Assessment of s 75(2) factors – Adequacy of reasons – Focus in s 75(2) adjustment is on the real impact in money terms, not percentage of overall assets – Court unable to discern how primary judge’s adjustment of 2.5 per cent was appropriate – Appeal allowed – Remitted for rehearing – Costs certificate issued for both parties. Legislation: Family Law Act 1975 (Cth) ss 75(2), 79(4)
Federal Proceedings (Costs) Act 1981 (Cth) ss 6, 9
Cases cited: Adair & Adair [2019] FamCAFC 70
Alexandria Landfill Pty Ltd v Transport for NSW [2020] NSWCA 165
Australian Coal & Shale Employees’ Federation v The Commonwealth (1953) 94 CLR 621; [1953] HCA 25
Babett & Falconer (2015) FLC 98-067; [2015] FamCAFC 124
Beale v Government Insurance Office of New South Wales (1997) 48 NSWLR 430
Bevan & Bevan (2014) FLC 39-572; [2014] FamCAFC 19
Boensch v Pascoe (2019) 268 CLR 593; [2019] HCA 49
Bondelmonte v Bondelmonte (2017) 259 CLR 662; [2017] HCA 8
Chapman & Chapman (2014) FLC 93-592; [2014] FamCAFC 91
Clauson & Clauson (1995) FLC 92-595; [1995] FamCA 10
Dickons & Dickons (2012) 50 Fam LR 244; [2012] FamCAFC 154
Farmer & Bramley (2000) FLC 93-060; [2000] FamCA 1615
Fox v Percy (2003) 214 CLR 118; [2003] HCA 22
Gilligan & Addison [2018] FamCAFC 211
Gronow v Gronow (1979) 144 CLR 513; [1979] HCA 63
Hearne & Hearne (2015) 53 Fam LR 454; [2015] FamCAFC 178
Horrigan & Horrigan [2020] FamCAFC 25
House v The King (1936) 55 CLR 499; [1936] HCA 40
Housing Commission (NSW) v Tatmar Pastoral Co Pty Ltd [1983] 3 NSWLR 378;
Kessey & Kessey (1994) FLC 92-495; [1994] FamCA 162
Kowaliw & Kowaliw (1981) FLC 91-092; [1981] FamCA 70
Laremore & Speidell (2019) 60 Fam LR 250; [2019] FamCAFC 215
Lovine & Connor (2012) FLC 93-515; [2012] FamCAFC 168
Mallet v Mallet (1984) 156 CLR 605; [1984] HCA 21
Minister for Immigration and Border Protection v SZVFW (2018) 264 CLR 541; [2018] HCA 30
Mitchell v Cullingral Pty Ltd [2012] NSWCA 389
Murray & Murray (2020) FLC 94-000; [2020] FamCAFC 293
Norbis v Norbis (1986) 161 CLR 513; [1986] HCA 17
Omacini & Omacini (2005) FLC 93-218; [2005] FamCA 195
Perrin & Perrin (No 2) [2018] FamCAFC 122
Platcher & Joseph [2004] FCAFC 68
Re F: Litigants In Person Guidelines (2001) FLC 93-072; [2001] FamCA 348
Ridehalgh v Horsefield [1994] Ch 205
Rigby & Olsen [2021] FedCFamC1A 46
Simons & Simons [2020] FamCAFC 128
Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247
Stanford v Stanford (2012) 247 CLR 108; [2012] HCA 52
Townsend & Townsend (1995) FLC 92-569; [1994] FamCA 144
Trevi & Trevi (2018) FLC 93-858; [2018] FamCAFC 173
Vass v Vass (2015) 53 Fam LR 373; [2015] FamCAFC 51
Warbrick & Warbrick (2021) FLC 94-016; [2021] FamCAFC 60
Yein & Zihao (2019) FLC 93-889; [2019] FamCAFC 20
Zabarac & Zabarac [2016] FamCAFC 186
Number of paragraphs: 111 Date of hearing: 3 November 2021 Place: Sydney (via video link) Counsel for the Appellant: Mr Othen Solicitor for the Appellant: Jano Family Law Counsel for the Respondent: Mr Gardiner Solicitor for the Respondent: Coleman Greig Lawyers ORDERS
EAA 49 of 2021
PAC 623 of 2018FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
DIVISION 1 APPELLATE JURISDICTIONBETWEEN: MR CANDLE
Appellant
AND: MS FALKNER
Respondent
ORDER MADE BY:
MCCLELLAND DCJ, BERMAN & HARPER JJ
DATE OF ORDER:
23 DECEMBER 2021
THE COURT ORDERS THAT:
1.Appeal EAA 49 of 2021 be allowed.
2.The orders of the Family Court of Australia (as it was then known) dated 29 April 2021 be set aside.
3.The matter be remitted for rehearing by a judge of the Federal Circuit and Family Court of Australia (Division 1).
4.The appellant husband be granted a costs certificate pursuant to s 9 of the Federal Proceedings (Costs) Act1981 (Cth), being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the appellant husband in respect of the costs incurred by him in relation to the appeal.
5.The respondent wife be granted a costs certificate pursuant to s 6 of the Federal Proceedings (Costs) Act1981 (Cth), being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the respondent wife in respect of the costs incurred by her in relation to the appeal.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Candle & Falkner has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
MCCLELLAND DCJ, BERMAN & HARPER JJ:
INTRODUCTION
By Amended Notice Appeal filed on 11 October 2021, Mr Candle (“the husband”) appeals against final property orders made by a judge of the Family Court of Australia (as it was then known) on 29 April 2021. Ms Falkner (“the wife”) opposes the appeal.
As will be explained more fully later in these reasons, the husband challenges the primary judge’s treatment of notional property, or “add backs”, amounting to almost $1,000,000, the assessment of contributions, particularly in relation to the husband’s contributions to several businesses owned and operated by the parties between 2010 and 2017, and his Honour’s consideration of, and adjustment based on, the factors set out in s 75(2) of the Family Law Act 1975 (Cth) (“the Act”).
We cannot pass on without making a further introductory observation. Specious or unsupportable contentions waste time and distract from the real issues. The husband argued, in writing, grounds alleging denial of natural justice and/or procedural fairness, or superficial consideration of evidence and argument, all resulting, so he claimed, from the fact that the primary judge was close to retirement. The suggestion and its associated arguments were baseless. Counsel for the husband in oral argument declined to make any further submissions along these lines, conceding, at least implicitly, that they found no support in the judgment, the transcript, or the evidence.
Nonetheless, the appeal should be allowed for other reasons explained below.
BACKGROUND
In order to understand the appeal, it is necessary to set out some key facts, taken from the reasons of the primary judge and not challenged on appeal.
The parties commenced cohabitation in 2003 and married in 2008. The husband was self-employed. The wife worked in the finance industry, with qualifications in finance.
In 2005, C Pty Ltd was incorporated and commenced trading, and continues to trade, as “F Company” under a franchise agreement with G Pty Ltd. During the relationship, C Pty Ltd generated core revenue by receiving up front and trailing commissions for residential home lending, which it secures between borrowers and financial institutions. It was common ground that the average life of a trailing commission was five to six years after secured home loans were entered into and drawn down.
Upon incorporation, the husband and wife became shareholders and directors of C Pty Ltd, each holding one share. Both worked in the business. However, the husband’s involvement ceased in 2010, when he was removed as a director following litigation between himself and AH Bank. C Pty Ltd predominantly writes home loans for AH Bank, and the husband commenced litigation on behalf of C Pty Ltd against AH Bank in 2009 due to a dispute with the then CEO of G Pty Ltd. The dispute settled in 2010, with the husband receiving a payout on the condition that he resign as director and not be permitted to work or make contact with G Pty Ltd or C Pty Ltd. The wife has been the sole director of C Pty Ltd since 2010.
The husband continued to receive payments from C Pty Ltd following the parties’ separation. This included a salary, superannuation, and use of a motor vehicle. The wife made the decision to cause C Pty Ltd to cease payments to the husband in May 2018.
In 2010, K Pty Ltd was incorporated, with C Pty Ltd as the sole shareholder. C Pty Ltd injected approximately $70,000 in capital. K Pty Ltd was involved in several small business enterprises, for example “AJ business”, which involved the design, sale, and installation of murals, and “AL business”, a marquee hire company. However, none of these enterprises were ultimately successful and none continue to trade. By the time of trial, K Pty Ltd was a non-trading entity with no value.
C Pty Ltd also provided financial support to K Pty Ltd in the form of purchasing stock and equipment for the various business enterprises, as well as paying wages for staff employed to run said enterprises.
Also in 2010, the parties formed a self-managed superfund (“SMSF”). Candle Family Super Pty Ltd was incorporated to become the trustee of the fund, and the parties became directors and equal shareholders of the trustee company. This SMSF acquired and sold a number of investment properties throughout the parties’ relationship. The fund was closed following the parties’ separation, with further funds being rolled into the parties’ commercial super funds.
The parties separated on a final basis in February 2017. At trial, the husband and wife were both aged 56. There are no children of the relationship.
In 2017, the wife was admitted to hospital following a health incident. She had surgery in July and August 2017. In early 2018, she was diagnosed with breast cancer and had a double mastectomy in late 2018.
There was no dispute that the wife’s medical history does not impact her ability to work. There was also no dispute the husband has not worked since separation.
The wife filed an Initiating Application on 15 February 2018, seeking property adjustment orders under s 79 of the Act. The husband filed his response on 29 March 2018.
The wife has re-partnered and has been in this new relationship since 2018. She and her new partner have purchased together a property at AC Street, Town AD (“the Town AD property”).
On 1 November 2018, Ms Mills filed an application seeking to be joined as the Second Respondent. Ms Mills is the husband’s mother. She claimed to have loaned the appellant and his former de facto partner the sum of $98,333 under a signed loan agreement to assist with their purchase of a property at Suburb JJ. Ms Mills was joined to the proceedings by consent.
The husband has a history of mental health challenges. In 2019, he voluntarily admitted himself to H Private Hospital following a panic attack. He was admitted for alcohol and cannabis abuse, and presented with a history of anxiety and depression. He discharged himself the following day.
In 2019, the husband was scheduled under the Mental Health Act 2007 (NSW) following a report of suicidal ideation whilst under the influence of alcohol, and was conveyed to J Hospital.
Interim orders were made on 2 July 2019 for the sale of a property in Town B, which had been purchased by the husband in 2016. The wife was appointed as trustee and for any proceeds of sale to be held on trust by the wife’s solicitors in the parties’ joint names pending further order. The husband was also ordered to pay the wife’s costs arising from the interim application in the sum of $12,500.
On 20 January 2020, further interim orders were made, which disposed of a jointly owned investment property located in Town D. Ms Mills was occupying this property at the time. From the proceeds of sale, the wife was ordered to pay $184,000 to the husband, and $180,000 to Ms Mills, but this latter amount was to be realised by deducting $90,000 from the $184,000 payable to the husband. Those payments were made. Ms Mills was then removed from the proceedings. The husband thus actually received $94,000, rather than $184,000.
On 7 May 2020, Mr AA was appointed as Case Guardian for the husband.
The final hearing was held on 16 and 17 December 2020, and adjourned part-heard to 6 April 2021, the final day of trial.
Both parties were represented by counsel on 16 and 17 December 2020. During those two days, the taking of evidence, including oral evidence and cross examination, was completed. However, on 6 April 2021 when the hearing resumed, the husband’s Case Guardian appeared unrepresented on behalf of the husband. The wife continued to be represented by counsel.
Judgment was delivered on 29 April 2021. On 27 May 2021, the husband filed a Notice of Appeal. This was subsequently amended on 11 October 2021. Both parties have largely complied with the timetable set for the filing of documents.
The appeal was heard on 3 November 2021.
REASONS OF THE PRIMARY JUDGE
After identifying the proposals of the husband and the wife, the primary judge set out the procedural history of the matter, as well as the financial history of the parties during the relationship, post-separation, and up to the matter coming before the Court. His Honour also noted at [6] that there had been difficulties throughout the proceedings created by the husband’s failure to comply with directions and his changing of legal representatives from time to time.
The primary judge then set out the history and the current circumstances of C Pty Ltd. His Honour made findings that the husband was only engaged with C Pty Ltd for a short period of time, and that this involvement was limited to marketing activities and meeting with customers to complete finance applications. The primary judge compared these contributions to the wife’s, who was responsible for structuring and finalising the applications, submitting them, managing the process throughout and managing the ongoing client relationship (at [27]). His Honour then noted that the husband rarely attended the office or client meetings between 2009 and 2010 (at [28]).
The primary judge also set out a brief history and the current circumstances of K Pty Ltd. His Honour did not address the contributions made by the husband and/or the wife during K Pty Ltd’s years of operation, however did state that, following separation in 2017, the husband ceased to have any involvement in K Pty Ltd. The primary judge found that the wife assumed responsibility for the winding down of K Pty Ltd (at [38]).
At [71]–[73], the primary judge then set out the applicable principles for property adjustment, referring to Stanford v Stanford (2012) 247 CLR 108 (“Stanford”), Bevan & Bevan (2014) FLC 93-572 (“Bevan”) and Chapman & Chapman (2014) FLC 93-592. His Honour concluded that a property adjustment order should be made (at [81]).
His Honour set out the asset pool at [82]–[83]. To understand the submissions of the appellant it is necessary to set these paragraphs out in full:
The Asset Pool
82. At the conclusion of evidence the parties tended a working draft balance sheet: Exh “H”.
83. Following submissions in relation to that document the asset pool for consideration comprises the following:
Assets:
Wife
Half share [AC Street Town AD]
$775,000
Joint
Interest in [C Pty Ltd]
$2,425,000
Husband
[Motor vehicle 2]
$35,000
Wife
Interest in [KK Pty Ltd]
$4,490
Wife
Sale proceeds [Suburb SS] property
*$98,000
Husband
Sale proceeds [Suburb SS] property
*$98,000
Wife
Sale proceeds [Suburb NN]
*$221,844
Husband
Sale proceeds [Suburb NN]
*$221,844
Wife
Sale proceeds [Town M]
*$64,641
Husband
Sale proceeds [Town M]
*$64,641
Wife
Refunds rescinded [Town B] property sale
*$17,566
Husband
Refunds rescinded [Town B] property sale
*$17,566
Husband
Interim property order January 2020
*$94,000
Wife
Sale proceeds [Town D]
*$12,475
Wife
[ZZ Super Fund] Superannuation
$653,772
Husband
[ZZ Super Fund] Superannuation
$257,301
$5,061,140
Liabilities
Wife
Mortgage AC Street, Town AD
$870,345
Joint
Shareholders loan due to C Pty Ltd
$477,407
$1,347,752
Net Pool:
$3,713,388
The asterisks (*) included in the table above are additions for the purposes of this judgment. Those items marked with an asterisk (*) are the items included by the primary judge as add backs on the balance sheet. The precise total figure for add backs included in the balance sheet was $910,577.
We note here that in submissions, counsel for the wife gave $982,921 as the total figure for interim distributions. This latter figure appears to be derived from paragraphs [60]–[64] of the reasons for judgment. However, as can be seen, only the lower figure of $910,577 was included by his Honour. It will become apparent that in the view we take, this difference is not material.
We note here that Exhibit “H”, upon which his Honour at least partly based the items and figures in the asset pool set out at [83] of the reasons for judgment, was not included in the appeal papers. Upon inquiry about this exhibit during the appeal, the parties provided a copy of a draft joint balance sheet which they agreed materially replicated Exhibit “H”. We will refer to this document as the “balance sheet” in these reasons.
The primary judge then stated, at [84]–[86], the principles applicable to assessment of contributions in accordance with the Act as follows: All financial and non-financial contributions are to be evaluated relative to that of the other party with such weight as the Court determines, since precise valuation of contributions is impossible: Kessey & Kessey (1994) FLC 92-495 at 81,151; contributions are to be assessed between commencement of the relationship and trial, and measured not only in terms of assets that presently still exist: Farmer & Bramley (2000) FLC 93-060 at [68]–[69]; and finally, contributions are to be assessed in a holistic manner across the course of the relationship and during the post-separation period to the point of assessment: Horrigan & Horrigan [2020] FamCAFC 25 at [35] (“Horrigan”). There was no challenge to this statement of principle.
His Honour expressed his conclusions about the assessment of contributions at [87]–[91] as follows:
87. The assessment of contributions in this matter is distinguished by the evidence that is common ground that since 2010 the husband has made minimal contribution to the accrual of assets by reason of funds available to the parties through the operations of C Pty Ltd.
88. The course of the parties’ contributions from the commencement of cohabitation to final trial is examined in detail above and need not be repeated here.
89. It was contended by counsel for the wife that the wife made significantly greater financial and non-financial contributions particularly in terms of management of the parties’ financial affairs than that of the husband. Otherwise, it is contended that the wife had significant assets to that compared to the husband at the commencement of cohabitation.
90. Complaint was made on behalf of the wife as to the husband’s dissipation of capital payments received by him from the sale of various real estate properties and otherwise. That complaint is addressed by the parties’ agreement that such payments be included in the asset pool for adjustment purposes.
91. Overall, in terms of contributions it was contended on behalf of the wife that contributions should be assessed as to 65 per cent to the wife and as to 35 per cent to the husband.
The primary judge recorded that the husband sought an assessment of contributions as being equal, but his Honour did not consider this to reflect the evidence that from 2010 onwards, he found that the wife overwhelmingly contributed to the evolution of the current asset pool through her ongoing management of C Pty Ltd (at [92]). His Honour upheld the wife’s proposal, being a 65 per cent assessment of contributions in her favour.
It is convenient to pause here to make four observations which will be important to the disposition of the appeal. First, his Honour reasoned on the basis that it was common ground that since 2010, the husband made minimal contributions to the accrual of assets by reason of funds available to the parties through the operations of C Pty Ltd. Secondly, for the purpose of assessing contributions, the primary judge referred back to his factual findings in respect of contributions from the commencement of cohabitation to final trial at [16]–[68] of the reasons for judgment. Thirdly, he noted the submissions of the wife that she had significant assets at cohabitation and had made significantly greater financial and non-financial contributions. Fourthly, it was the wife, not the husband, who made complaint at trial about the manner in which the husband had spent interim property distributions between separation and trial, but his Honour clearly proceeded on the basis that this complaint had been addressed by an agreement between the parties that “add backs” should be included on the balance sheet.
For the purposes of ss 79(4)(e) and 75(2), of the Act, the primary judge considered the following factors:
(a)The wife’s historical health issues and the husband’s ongoing psychological and/or psychiatric circumstances (at [95]);
(b)That the wife would be able to continue to conduct the business of C Pty Ltd, whereas the husband has little capacity for employment and will, in the future, live on available capital and superannuation (at [96]);
(c)That neither party has responsibilities to support any other person (at [97]);
(d)That the husband does not receive government benefits (at [98]);
(e)That the wife is in a new de facto relationship, owning a half share of the property in which she lives with her new partner (at [99]); and
(f)That there was a disparity of $1,114,000 in the parties’ contribution assessments (at [100]).
His Honour concluded there should be an adjustment of 2.5 per cent in the husband’s favour, leading to an overall division of the asset pool with 62.5 per cent to the wife and 37.5 per cent to the husband (at [101]–[102]). This would entitle the husband to $1,392,520.50. After subtracting the add backs, the primary judge ordered the wife to pay the husband the sum of $604,168.
THE APPEAL
The primary judgment was discretionary. An appeal against an exercise of discretion is governed by well-known principles.
The High Court has reiterated many times that orders made in the exercise of a judicial discretion under the Act as to the alteration of property interests can only be set aside on a strictly limited basis in accordance with the principles in House v The King (1936) 55 CLR 499 (“House”): Norbis v Norbis (1986) 161 CLR 513 at 517–518, 534–535; Mallet v Mallet (1984) 156 CLR 605 at 610, 621–622, 634; Bondelmonte v Bondelmonte (2017) 259 CLR 662 at [31]–[32].
In House, the High Court said at 504–505:
It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of discretion is reviewed on the ground that a substantial wrong has in fact occurred.
Austin J in Gilligan & Addison [2018] FamCAFC 211 at [19] pointed out that “unless an appeal can be categorised within those recognised grounds” concerning the appropriate exercise of discretion by a primary judge, the appeal “will be futile.”
Challenges to the weight attributed by a primary judge to relevant matters face significant hurdles. In Gronow v Gronow (1979) 144 CLR 513, Stephen J said at 520 that “an appellate court should be slow to overturn a primary judge’s discretionary decision on grounds which only involve conflicting assessments of matters of weight.”
There is a strong presumption in favour of the judgment appealed from, and we must be satisfied it is clearly wrong before there is any appellate interference: Australian Coal & Shale Employees’ Federation v The Commonwealth (1953) 94 CLR 621 at 627. Nonetheless, the task of this Court is to conduct a “real review.” However, it is well established that there are “natural limitations” that exist in the case of any appellate court proceeding wholly or substantially on the record, which, as the High Court observed in Minister for Immigration and Border Protection v SZVFW (2018) 264 CLR 541 at [33], quoting Fox v Percy (2003) 214 CLR 118 at [41], include the advantages enjoyed by a primary judge in assessing witnesses and the fact that no judgment can express “every feature of the evidence”.
With these principles in mind, we turn then to the specific grounds of appeal.
Ground 1: “The trial Judge erred in the treatment of notional property of nearly $1,000,000 which no longer existed and had been received and spent by the parties after separation in all the circumstances of the case and in particular:
a. By failing to consider whether all of the money should have been added back, and failing to permit this issue to be explored in the oral evidence, His Honour erred at law;
b. By failing to notice let alone consider that the impact of the judgment was the husband received only 32% of the remaining property, not 37.5%, His Honour erred at law;
c. By failing to explore this impact on the husband and making provision for it at section 75(2)(o), His Honour erred at law; and
d. The consequences of these failures are material in that the husband received only 32% of the actual legal and beneficial interests of the parties at trial which amounts to a failure to exercise the discretion entrusted to the Court.”
This ground combined a number of different elements which were not clearly delineated and overlapped with other grounds. As counsel for the husband acknowledged, Grounds 1(b) and (c) overlap with Ground 7. We will defer discussion of these sub-grounds until later in these reasons. Ground 1(d) was a general contention that the ultimate result fell far below a reasonable exercise of discretion.
As we understood the argument of counsel for the husband, Ground 1(a) can be distilled into two propositions: first, that the primary judge prejudged the question of how interim distributions should be treated, and prevented the husband’s counsel from exploring in cross examination the manner in which those distributions had been dissipated or spent by the parties prior to trial; secondly, while it was not an error in itself to include add backs on the balance sheet, there was no engagement with the settled law on add backs, and his Honour erred in not explaining why he added back the interim distributions in this case.
The wife submitted that the primary judge dealt with the add backs in an entirely routine fashion in accordance with authority. Counsel for the wife fairly conceded in argument that his Honour had been reluctant to hear oral evidence about how the parties had spent their interim distributions before trial. However, counsel also pointed out that the husband gave no evidence on this question in his affidavits, contending therefore that there was no occasion for the wife to cross examine the husband on this question.
The treatment of property already distributed and exhausted prior to trial, usually called “add backs”, has been the subject of many authorities in this Court. In Omacini & Omacini (2005) FLC 93-218 at [30] (“Omacini”), following Kowaliw & Kowaliw (1981) FLC 91-092 and Townsend & Townsend (1995) FLC 92-569 (“Townsend”), the Full Court held that addbacks fall into “three clear categories”: where the parties have expended money on legal fees, where there has been a premature distribution of matrimonial assets, and “waste” or wanton, negligent, or reckless dissipation of assets. This latter category indicates that the nature of the expenditure of post-separation or premature distributions can be relevant to the exercise of discretion to add back.
We are concerned here with the second category. No argument was made about legal fees, and there was no item on the balance sheet for legal fees. It should be emphasised that at trial, no case was made nor attempted to the effect that either party’s post-separation expenditure was unreasonable, reckless, or wanton.
With respect to the second category, in Trevi & Trevi (2018) FLC 93-858 at [28]–[30] the Full Court (Murphy J; Alstergren DCJ (as he then was) and Kent J agreeing) explained the decision in Omacini as follows:
28. However, the Full Court also made it clear that an addback does not necessarily occur whenever “a party has expended money realised from the disposition of assets that existed as at the date of separation”, the Full Court describing such a proposition as “unduly simplistic”. An earlier Full Court made the same point, saying that adding back is “the exception rather than the rule”.
29. The fundamental precept that addbacks are exceptional, reflected in the decisions just referred to, also mirrors what has been said in earlier decisions of the Full Court that, for example, “the Family Court must take the property of a party to the marriage as it finds it” at trial. An important parallel proposition is that the parties do not “go into a state of suspended economic animation” after separation. Thus, reasonably incurred expenditure does not usually come within accepted categories of addback.
30. Two fundamental premises emerge from Omacini and the authorities preceding it. First, “adding back” is a discretionary exercise. When the discretion is exercised in favour of adding back, it reflects a decision that, exceptionally, in the particular circumstances of a case, justice and equity requires it. The second premise is its corollary: in cases that are not “exceptional” justice and equity can be achieved, not by adding back, but by the exercise of a different discretion – usually by taking up the same as a relevant s 75(2) factor. Indeed, it has been said that the latter is “a course which is, perhaps, technically more correct” than adding back to the list of existing interests in property.
(Footnotes omitted)
Murphy J continued at [47]:
The essence of a claim for addbacks is that the asserted sum/s should be added to the value of the existing property interests of the parties and, subsequent to the assessment of contributions, credited to the spending party as part of the value of their assessed entitlements. Doing so does not offend what was emphasised by the High Court [in Stanford]. Adding back does not seek to create property interests that do not exist. Rather, doing so emphasises that satisfying the respective requirements of ss 79(2) and (4) of the Act to do justice and equity can require an “accounting” or “balance sheet” exercise for the purposes of s 79(2) and (4), so as to include the value of the dissipated property or expended sums within the total value of the parties’ existing interests in property, and to credit the value of same against the assessed entitlement of the dissipating or spending party.
(Footnotes omitted)
In Vass v Vass (2015) 53 Fam LR 373 (“Vass”), the Full Court considered the interaction between ss 79(2) and (4) in relation to add backs, saying:
138. There is no error committed per se in adjusting the parties’ actual property interests by a calculation involving notionally adding back into the pool sums which have been dissipated by the parties. We reject any suggestion that the decision of Bevan v Bevan (2013) 49 Fam LR 387; [2013] FamCAFC 116 – or, more particularly, the decision of the High Court in Stanford v Stanford (2012) 247 CLR 108; 293 ALR 70; 47 Fam LR 481; [2012] HCA 52 - is authority for any necessary contrary solution. Some statements made by the High Court may lead to the conclusion that references to “notional property” as have been referred to in decisions of this court and at first instance may need to be reconsidered.
139. The decisions referred to seek to remind the Court that, however the exercise of discretion might seek to deal with property that is said to be the subject of “add back”, proper consideration must be given to existing interests in property, and the question posed by s 79(2) as a separate inquiry from any adjustment to property interests by reference to s 79(4) if a consideration of s 79(2) reveals that it is just and equitable to alter existing interests in property.
Recently in Warbrick & Warbrick (2021) FLC 94-016, it was argued that the primary judge had failed to add back $339,487 received by the wife. This amount was the residue of a total and permanent disability payout and some superannuation. The primary judge had rejected the husband’s argument that the wife’s expenditure had been wanton, reckless, or unreasonable. The Full Court held the primary judge made no error in deciding not to include the $339,487 as added back notional property of the wife. Indeed, at [32] the Full Court held that it would have been an error to do so. The Full Court at [30] invited submissions on the above passages in Vass, but rejected an argument to the effect that, in light of Stanford, Vass does not go far enough in reconsidering earlier decisions concerning add backs. Accordingly, we consider Vass represents a correct statement of the law.
In our view, these authorities establish four relevant propositions. First, adding back property which has been distributed and spent is discretionary, and reflects an exceptional exercise of the discretion as an “accounting” or “balance sheet” exercise for the purposes of ss 79(2) and (4) to achieve justice and equity between the parties. Secondly, the nature of the expenditure reflected in add backs is relevant, and reasonably incurred expenditure does not usually come within accepted categories of addback. Thirdly, the decision in Stanford, followed by Bevan, does not necessarily require the conclusion that adding back notional property is per se an error, but proper consideration must be given to existing interests in property. Fourthly, in cases which are not exceptional, expended interim distributions can be taken up under s 75(2) rather than as part of the balance sheet exercise.
The husband argued that the treatment of add backs was an issue from the beginning and throughout the trial. Two details show this is correct. The first is that the husband’s case outline made clear at the start of the trial that the treatment of add backs was in issue. Paragraph 4(3)(d) of the husband’s Case Outline at trial states:
d. The treatment of addbacks is in contention given what the High Court said in Stanford, and subsequently what the Full Court said in Bevan:
i. That the balance sheet is struck as at the date of trial; and
ii. The court should, ordinarily, not apply s 79 of the Act to “notional assets” - that is to say assets that are no longer actually in existence.
The second is that, as set out at [32] above, it is clear from [82] of the reasons for judgment that his Honour drew the table of assets set out at [83] from the joint balance sheet (Exhibit “H”). Exhibit “H” showed clearly that the value of add backs was in dispute, because the husband assigned no value to addbacks on the balance sheet, and their inclusion in the balance sheet was not agreed, at least not at the time Exhibit “H” was tendered.
But equally, it is clear from [90] of the reasons (above at [37]) that, by the end of the trial, and for the purposes of preparing judgment, the primary judge understood that the parties had agreed add backs of the second category should be included on the balance sheet as notional property. These were the interim distributions received post-separation from the sale of various properties, as described above.
The evolution to this final position on adding back the interim distributions can be traced through the transcript. The primary judge had made clear during the course of the oral evidence that he held the view that interim distributions should be included on the balance sheet as notional adjustments. During cross examination of the wife, the following exchange took place between counsel for the husband and the primary judge, when counsel was questioning the wife about sums received between separation and trial:
HIS HONOUR: But isn’t the answer that she has already got a property payout of 160,767? Why do I need to chase the rest of the figures? She got it.
MR BITHREY: Yes, your Honour. Well - - -
HIS HONOUR: What she did with it is a matter for her. Same as your client has got his money as a part property settlement.
MR BITHREY: Well, your Honour, there may be some difficulties in relation to the submission my learned friend, I anticipate, intends to advance about adding back every amount that has been distributed on interim basis to my client.
HIS HONOUR: Why?
MR BITHREY: Well, because since Stanford, and subsequently, Bevan, the position isn’t that there’s an automatic add back for moneys that were - - -
HIS HONOUR: Well, I understand that.
MR BITHREY: That’s right. So - - -
HIS HONOUR: But he has had the use and benefit of it.
MR BITHREY: He has.
HIS HONOUR: Like selling a taxi plate licence.
MR BITHREY: Well, yes. Your Honour’s talking about terms that - - -
HIS HONOUR: You’re probably too young to remember that case.
MR BITHREY: But I have read it, your Honour. That’s the most important thing,
but, your Honour, the - - -
HIS HONOUR: Well, you’re just on notice.
MR BITHREY: Yes. The question is if there’s expenditure on cost, that’s one inflection on what your Honour does with it.
HIS HONOUR: Well, it still stays in.
MR BITHREY: That’s right.
HIS HONOUR: I don’t care what they spend on costs. Whatever they’ve got by way of interim payments, it just goes back in the pool as a notional adjustment. Otherwise, it’s unfair, because some people are working for their money and some aren’t. It’s his choice. If he has spent it, bad luck to him.
MR BITHREY: Well, I’m on notice of that, your Honour.
HIS HONOUR: Well, subject to – you know, there is a discretion, but at the end of the day, you might convince me otherwise, but, you know, she got 160,767. There you go, and that increased – in fact, diminished the equity of the parties’ in the [Town D] property, and on that basis, of course, it’s a pre-distribution of property.
MR BITHREY: We hear that, your Honour.
(Emphasis added) (Transcript 16 December 2020, p. 41, line 25–p. 42, line 33)
Later, counsel for the husband cross examined the wife about post separation drawdowns secured against the Town AD property (referred to at [17] above). The following exchange took place:
HIS HONOUR: Mr Bithrey, does this all go to some argument about her equity in this property?
MR BITHREY: It goes to – yes, that, and the expenditure of - - -
HIS HONOUR: Well, aren’t I really interested in what money came out of other assets from the marriage that might have gone into this property and simply put those funds that came out of the marriage in the pool?
MR BITHREY: Yes, your Honour.
…
HIS HONOUR: Well, I’m not interested in this property at all. I’m interested in what money came out of the matrimonial pool to go towards it. That’s the money I will put in the joint pool, not this property.
MR BITHREY: Yes. Well, I’ve heard what your Honour says on that.
(Transcript 16 December 2020, p. 48 lines 5–14, 41–45)
It can be seen that during the course of the evidence, the primary judge, while expressing a preliminary view about add backs to the husband’s counsel, made clear he was open to being persuaded to a different view. Counsel for the husband made clear that he was aware of his Honour’s view and had taken notice of it. However, counsel did not foreshadow to his Honour any argument that the manner of expenditure was ultimately important to the husband’s case and that he should be permitted to explore this in cross examination.
It should be recalled that final submissions took place on 6 April 2021, when the husband and his Case Guardian no longer had legal representation. The husband’s final argument was conducted by his Case Guardian, who had been present throughout the trial and had heard the oral evidence. It is clear that the primary judge went through the balance sheet items in final submissions in detail. He received submissions from each party. The transcript discloses that there were several exchanges with the Case Guardian about the interim distributions in final submissions as follows:
HIS HONOUR: You understand, [Mr AA], there’s some previous distributions from the sale of [Suburb SS] and the sale of [Suburb NN] and [Town M]?
[MR AA]: Yes, I do, your Honour.
HIS HONOUR: So in lieu of what all the parties have in the bank now – if anything – I will just notionally add back what they’ve already received from the sale of property. And that will be what they’ve already got.
MR CANDLE: And given to solicitors.
HIS HONOUR: Happy with that approach? And if it’s being used to pay lawyers, so what.
[MR AA]: Yes, yes, your Honour. But obviously, this refers to savings held. So unless I’ve got a bank statement in front of me, I can’t really say yay or nay.
HIS HONOUR: But I think by what Mr Gardiner said is there any money the parties may have in the bank – really represents what they got from the proceeds of sale of the properties?
[MR AA]: No.
HIS HONOUR: And on that basis, I will just add them all back.
[MR AA]: Excuse me, your Honour. I think what we’re saying here, your Honour, whilst we respect that assertion, we just cannot be a hundred per cent that that’s basically the moneys from proceeds from the sale of properties.
(Transcript 6 April 2021, p. 49 lines 11–39)
HIS HONOUR: Yes. So all of these little – all these bank accounts should go out, and where they have received money in item 16 through to 23, they just go in as the capital sums they’ve received.
[MR AA]: Yes. Yes.
HIS HONOUR: Now, what they’ve done with the money doesn’t trouble me at all. They’ve - - -
[MR AA]: Yes. Yes. Fair enough.
HIS HONOUR: - - - handed and received - - -
[MR AA]: Fair enough
(Transcript 6 April 2021, p. 50 lines 19 –32)
Subsequently, in dialogue with counsel for the wife, the following exchange took place:
HIS HONOUR: All right. Now, in relation to the addbacks. Now, these are the capital sums that the parties have in fact received. And I don’t really care what they did with then. So 16 through to 23 are all in. Item 24.
MR GARDINER: That was – your Honour might recall the evidence where there was a need for the parties, ultimately, to relinquish the [Town B] property that the husband lived in – was unable to pay the mortgage, and so that property had to be sold. And when it did – when it was, there was a shortfall in what was owing by way of expenses and/or the mortgage. And so - -
(Transcript 6 April 2021, p. 53 lines 23–31)
In our view, the excerpts from the transcript support the contention that the primary judge consistently expressed the view, throughout the giving of oral evidence and final argument, that he should just add back, as notional property, the interim distributions received by the parties. He also made clear that he was not interested in how the parties had spent those distributions. His Honour clearly held the view that the husband had lived off his interim distributions, while the wife continued to work, concluding it would be unfair not to add back the distributions as notional property. For present purposes, both parties must be taken to have been aware of these views expressed by his Honour. It is true that while the husband was legally represented, his counsel did not simply accede to his Honour’s views, but did acknowledge the husband was on notice of them. On the other hand, counsel did not presage any specific contrary argument to be made by the husband, to the effect that the manner in which the interim distributions were spent was a relevant consideration which would lead to the conclusion that the interim distributions should not be added back.
In final submissions, when asked if he was “happy”[1] with his Honour’s approach to add backs, the Case Guardian responded “yes, yes”[2]. The more equivocal response (“I can’t really say yay or nay”[3]) related to the question of whether any amounts remaining in the parties’ bank accounts were the residue of the interim distributions. However, this question is immaterial to the appeal. The Case Guardian responded “Yes. Yes. Fair enough”[4] when his Honour stated “Now, what they’ve done with the money doesn’t trouble me at all”[5].
[1] Transcript 6 April 2021, p.49 line 22.
[2] Transcript 6 April 2021, p.49 line 25.
[3] Transcript 6 April 2021, p.49 lines 26–27.
[4] Transcript 6 April 2021, p.50 line 28.
[5] Transcript 6 April 2021, p.50 line 25.
The husband argued that this last statement by his Honour was but one example demonstrating prejudgment of a “key question”, namely that he decided the husband spent his interim distributions by choice rather than out of necessity. The husband argued this prejudgment was wrong and could not be reconciled with the unchallenged findings that the husband suffered serious mental health problems exacerbated by alcohol and cannabis addiction, had been hospitalised, had little capacity for work, and would have to live on capital and superannuation in the future. The husband argued he had, for these reasons, spent his interim distributions on reasonable living expenses. The husband contended prejudgment led to his Honour failing to give any consideration to whether the interim distributions should exceptionally, in accordance with authority and the exercise of discretion, be included as part of a balance sheet exercise rather than being taken up under ss 79(4)(e) or 75(2)(o) of the Act. It was the tenor of the husband’s submissions that if the primary judge had permitted cross examination about the source of interim distributions, he may have reached a different view, or at least focussed more closely on why the interim distributions should have been included as balance sheet items.
However, in our view, his Honour in the reasons for judgment acted on his understanding that there was agreement between the parties about the treatment of the interim distributions as add backs. As noted, the husband contended his Honour fell into error because there was no agreement. We do not accept that submission. For the reasons given above at [67]–[68], his Honour made clear during the trial that he had a view about how the interim distributions should be treated. But we do not accept that this amounted to prejudgment, in the sense that his Honour was not open to persuasion to a different view.
On the contrary, as the transcript shows, his Honour, during the trial and in final submissions, invited submissions on his proposed manner of dealing with the interim distributions, even if he expressed his preliminary view clearly and consistently. The primary judge then reasonably understood his exchanges with counsel for the husband during the trial and the Case Guardian and counsel for the wife in final submissions, as ultimately constituting an agreement concerning the treatment of the interim distributions, in the manner which his Honour had foreshadowed during the trial. In our view, it was reasonable for his Honour to understand this to be the agreed position in final submissions.
In submissions before us, the husband alluded to the Case Guardian’s lack of legal training. Counsel argued that there was no engagement by his Honour with the relevant law, and options for the treatment of add backs were not explained to the Case Guardian. However, it was not then clarified why his Honour was under an obligation to do so. The Court’s responsibility to an unrepresented litigant are well known. The Court is bound to provide some advice and assistance to an unrepresented litigant, but a judge should not intervene to such an extent that he or she cannot maintain a position of neutrality in the litigation: Re F: Litigants In Person Guidelines (2001) FLC 93-072 at 88,250–88,251; Platcher & Joseph [2004] FCAFC 68 at [104]–[105]; Yein & Zihao (2019) FLC 93-889. However, in the circumstances of this case, such a duty only arose after the husband ceased to have legal representation. It was attenuated because the husband had the benefit of legal representation throughout that part of the trial which involved the taking of evidence.
Counsel for the husband had squarely raised the treatment of notional property as an issue by way of the Case Outline prepared for trial (above at [59]). The husband had been represented throughout the trial. The primary judge had made clear his view about adding back the interim payments while the husband had counsel representing him. Legal practitioners must present their client’s case and advise clients, including providing advice about perceived weaknesses and the risk of failure: Ridehalgh v Horsefield [1994] Ch 205 at 234. The husband on appeal made no suggestion his representatives failed to discharge this duty. Since the husband was represented by counsel for two days of the trial, it can be inferred that counsel, in discharging his ordinary duty to his client, gave advice to the husband and his Case Guardian during the period of representation about interim distributions or the treatment of notional property. One may go as far as to say it is almost inconceivable that counsel did not: Laremore & Speidell (2019) 60 Fam LR 250 at [22]. This is especially since counsel for the husband raised the treatment of notional property as an issue in the Case Outline and heard the primary judge express his view about add backs during the hearing several times, as the transcript excerpts above at [62]–[63] show.
The same considerations lead to the conclusion that the Case Guardian should be understood as being cognisant of the issues regarding add backs when giving responses to the primary judge in final submissions. Again, it would be extraordinary if he was not. The excerpt of the transcript above at [65] supports this inference. His Honour specifically asked the Case Guardian if he was “happy” with the approach to add backs. This was an opportunity for the Case Guardian to make any contrary argument, or even state that he did not understand either what he was being asked or the relevant issues. The Case Guardian did neither. Rather, the Case Guardian responded “Yes, yes” and “Fair enough” to his Honour’s proposed treatment of the interim distributions as add backs (above at [68]). These responses are affirmative and unequivocal.
The husband argued that his Honour failed to engage with the decision in Bevan or any authorities about the care needed in treating notional property. We do not accept this submission. An absence of explicit reference to authority is not necessarily reflective of error: Murray & Murray (2020) FLC 94-000 at [54]. His Honour was highly experienced and clearly had in mind relevant decisions regarding notional property. For example, in the transcript excerpt above at [62], the reference to the “taxi plate licence” case is a reference to the decision in Townsend.
But, more to the point, the reason why his Honour did not make any extensive reference to authority about add backs was because ultimately he understood there was an agreed position about add backs. We are satisfied that understanding was justified. Having reasonably understood that there was agreement between the parties to accept his proposal to include the interim distributions as add backs, the primary judge made no error in acting on that agreement. In other words, he exercised the discretion to include add backs in the balance sheet because the parties embraced that course.
In any event, as the wife submitted, the interim distributions were received equally by the parties, and were included on the balance sheet, partially at least, in lieu of funds actually held in bank accounts at the time of trial. These were also reasons for his Honour to exercise the discretion as he did. Counsel for the husband conceded before us that there would be no error if there was agreement about the treatment of add backs upon which the primary judge acted. It was not argued that, despite agreement, his Honour should have embarked upon a separate and detailed consideration of authorities. It follows also that in the face of agreement, questions of prejudgment and discouragement of cross examination become irrelevant under this ground, although we add that discouragement of cross examination about expenditure of interim distributions by the husband is not surprising where the husband declined to give evidence of that very subject matter.
This ground therefore fails.
Grounds 2, 3, and 4: Whether the primary judge erred in the approach taken to the assessment of contributions by failing to conduct a holistic assessment, and in particular the husband’s contributions to the parties’ business interests between 2010 and 2017
Grounds 2, 3, and 4 all relate, one way or another, to the manner in which his Honour assessed contributions. The husband argued these together.
Ground 2 is a general complaint that his Honour failed to assess contributions holistically. As noted above at [36], his Honour stated the applicable principles finishing with reference to the decision in Horrigan. The husband did not criticise his Honour’s statement of principle. Rather, he argued the principles had been wrongly applied. The specific errors alleged by the husband are taken up in Grounds 3 and 4. These grounds therefore set out the gravamen of the husband’s arguments about assessment of contributions.
We do not accept his Honour failed to undertake a holistic assessment. At [93], his Honour specifically stated his view of what “an appropriate holistic assessment of contributions would be”. We note here that in writing, the husband made submissions to the effect that the primary judge fell into error by, in substance, characterising the wife’s contributions through C Pty Ltd using the discredited notion of “special contributions”. However, counsel did not pursue this argument in oral argument and conceded any reference to “special contributions” was a red herring. The husband’s point was, rather, that the primary judge either failed to consider at all, or gave no weight to the husband’s contributions after 2010, said to be made through C Pty Ltd and K Pty Ltd.
We are, however, persuaded that the primary judge failed to take account of relevant contributions of the husband.
It was common ground that C Pty Ltd was a joint enterprise of the parties from inception until March 2010, when the husband ceased to be a director. The husband’s first point was that the business of C Pty Ltd produced an income stream for the benefit of the parties from trailing commissions, which continued for an average of five to six years. It followed that some trailing commissions continued past 2010, and thus some of the income produced by C Pty Ltd post-2010 must be seen as the result of the parties’ joint efforts in the business before 2010. Although there was no evidence of specific trailing commissions after 2010, logically some may have continued almost to the point of separation in 2017. The husband argued that the primary judge failed to take these into account as part of his contributions.
The husband also submitted that his Honour fell into error by finding that after 2010, the wife was solely responsible for the conduct and management of C Pty Ltd (at [29]), and implicitly found the husband made no further contributions after that date. In cross examination, the husband denied he made no contribution after 2010. He gave oral evidence, which was not ultimately refuted, that he continued to meet and liaise with existing and potential customers, gave his time to discussing issues with the wife and to supporting her in the conduct and management of the business, and who at times directed customers to speak with him about real estate transactions.[6] There was no dispute the husband was paid a wage through C Pty Ltd until 2017. In final submissions, the primary judge seemed to express the view that the mere fact the husband retained his shareholding in C Pty Ltd did not represent his “efforts”[7] in the business. However, the Case Guardian submitted “He was out in 2010, your Honour, so he relinquished his directorship but everything else stayed intact”[8]. This was a submission which asserted that the husband continued to make contributions to C Pty Ltd after 2010.
[6] Transcript 17 December 2020, p. 93 lines 43–47.
[7] Transcript 6 April 2021, p. 66 line 22
[8] Transcript 6 April 2021, p. 66 lines 46–47
As regards K Pty Ltd, there was unchallenged evidence that the husband made contributions to its business through personal exertions between 2010 and 2017. In his affidavit filed 20 May 2020, the husband gave affidavit evidence about the operations of K Pty Ltd as follows:
44. In or around 2010, I established a company called [K Pty Ltd]. I am the sole director. I recall that K Pty Ltd owned a number of small businesses, which had a varying success rate. The most successful was [AJ business], which involved the design, sale and installation of [murals]. There was also [AL business], which hired out a marquee for events. I recall that I purchased the marquee and the associated business for $23,000. Robyn and I operated K Pty Ltd at a loss in order to minimise our income and business tax.
(Emphasis in original)
The wife’s affidavit evidence set out the range of activities in which K Pty Ltd engaged, and she acknowledged that the husband made contributions to these activities (wife’s affidavit filed 29 April 2020 at [37]). The husband argued that these contributions were ignored by his Honour.
The husband argued that the error of his Honour was clearly exposed at [87] of the reasons for judgment:
The assessment of contributions in this matter is distinguished by the evidence that it is common ground that since 2010 the husband has made minimal contribution to the accrual of assets by reason of funds available to the parties through the operations of C Pty Ltd.
In considering these arguments, and in particular the reasons of his Honour at [87], it is important to remember that it was undisputed that C Pty Ltd provided initial capital of $70,000 in 2010, and continued to provide funds for operational expenses and purchases, staff pay and management fees. It was also common ground that the wife made a greater contribution to C Pty Ltd after 2010, and clearly those contributions also supported the operations of K Pty Ltd, even if the husband made contributions to both businesses in the same period. Consequently, it was open to his Honour to find at [92] that between 2010 and separation in 2017:
…the wife has overwhelmingly contributed to the accrual of the present asset pool with her primary role in the ongoing conduct of C Pty Ltd, providing a significant resource in terms of the ability of the parties to invest in real estate and service at times significant debt.
It was also open to his Honour to conclude that a holistic assessment of contributions by the parties between 2003 and 2017 showed the contributions were not equal, as the husband had argued, but that the wife had made the greater contributions.
The husband argued that the ultimate result of 65 per cent to the wife could only be justified by ignoring the husband’s contributions to the business of C Pty Ltd and K Pty Ltd after December 2010. Putting aside unnecessary verbiage, the husband really argued that his Honour, despite acknowledging the existence of those contributions, must be taken in truth to have ignored them or given them no weight.
It is true that in [87] of the reasons, his Honour refers to the “minimal contribution [of the husband] to the accrual of assets by reason of funds available to the parties through the operations of C Pty Ltd”. This shows the primary judge recognised the husband had made some post-2010 contributions in respect of C Pty Ltd or K Pty Ltd, but he viewed the contributions of the wife as much greater.
Even if those contributions by the husband were more modest than those of the wife, there was evidence (above at [83]–[85]), which was not challenged, that the husband continued to make a constructive contribution of his time and skills in the conduct of the business of C Pty Ltd after 2010, although it was not clear how long this continued, and to the business of K Pty Ltd. It was also clear that some of the revenue of C Pty Ltd received after 2010 must have derived in part from loans settled before 2010, during the period when it was undisputed the husband was involved in the business as a director. We pointed out above at [39] that his Honour assessed contributions by reference to his detailed findings about the course of contributions at [16]–[68] of the reasons. The problem is that nowhere in those paragraphs is there any mention of specific contributions by the husband to C Pty Ltd or K Pty Ltd after 2010. Consequently, we are unable to conclude his Honour took those contributions into account, despite, or even because of, the reference to “minimal contributions” in paragraph [87] of the reasons. In that respect, as Basten JA said in Alexandria Landfill Pty Ltd v Transport for NSW [2020] NSWCA 165 at [7]:
Because there is no means of interrogating a judge as to his or her intellectual processes, evidence that issues were not addressed can usually only be demonstrated by reference to the reasons. Thus, on the assumption that the judge addressed in the reasons all material matters, the absence of reference to a particular matter may allow the inference that it was not addressed and determined [citing Waterways Authority v Fitzgibbon [2005] HCA 57; 79 ALJR 1816 at [129]-[130] (Hayne J)].
Once it is accepted that the primary judge failed to take account of contributions by the husband to C Pty Ltd and K Pty Ltd, even if more modest than those of the wife, the percentage assessment of 65 per cent in favour of the wife is unsafe and cannot stand.
These grounds are established. As a result, the appeal must be allowed.
Grounds 1(b) and (c), 7, 8, and 9: Whether the primary judge failed to consider relevant matters in assessment under s 75(2), whether any such assessment was a denial of natural justice and/or procedural fairness, and whether the reasons given were inadequate
These grounds were argued together. Although the conclusion in the preceding paragraph is sufficient to dispose of the appeal, we consider it necessary to determine these grounds as well. In essence, each ground relies upon the distorting effect in the ultimate result of adding back $910,577. The husband argued that the primary judge did not use s 75(2)(o) of the Act “to make the necessarily large adjustment to address the consequences of notionally adding back so much money.”[9] The husband also argued that the s 75(2) factors favoured the husband, making the 2.5 per cent adjustment by his Honour “miserly”.[10]
[9] Husband’s Case Outline filed 11 October 2021 at [51].
[10] Husband’s Case Outline filed 11 October 2021 at [55].
We agree there is merit in the husband’s contentions that his Honour’s reasons were inadequate regarding assessment of the s 75(2) factors.
The principles relevant to the adequacy of reasons are not in doubt. It is well established that, in assessing the adequacy of a primary judge’s reasons, the challenged judgment must be read as a whole: Zabarac & Zabarac [2016] FamCAFC 186 at [64] and [66]; Hearne & Hearne (2015) 53 Fam LR 454 at [78]. A primary judge’s reasons must “as a minimum...be adequate for the exercise of a facility of appeal”: Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 at 260 and 268–269 (“Soulemezis”); see also Beale v Government Insurance Office of New South Wales (1997) 48 NSWLR 430 at 444. A judge is not obliged to spell out every detail of the process of reasoning to a finding, but it is essential that he or she expose the reasons for resolving a point critical to the contest between the parties: Soulemezis at 259 (Kirby P), 270 (Mahoney JA), and 280 (McHugh JA). Discharge of the obligation to provide adequate reasons is necessary to enable the parties to identify the basis of the judge’s decision, and the extent to which their arguments have been understood and accepted: Soulemezis at 279.
Recently in Rigby & Olsen [2021] FedCFamC1A 46 at [38], the Full Court confirmed the importance of adequate reasons:
The requirement for the giving of reasons is a fundamental requirement of the exercise of the judicial function, as it both demonstrates that justice has been done, and enables the proper challenge of a decision. The content required varies depending upon the circumstances of the case, but is that which makes apparent how the decision was arrived at (see Bennett and Bennett (1991) FLC 92-191 at 78,266). It is not required to give reasons regarding every argument, nor to perform a microscopic analysis "if, in all the circumstances, it is clear that the trial judge has considered and evaluated the relevant evidence, taken into account all relevant factors…" (A v J (1995) FLC 92-619 at 82,230).
Allsop P, as he then was, pointed out the need for some truncation in the judicial reasons in Mitchell v Cullingral Pty Ltd [2012] NSWCA 389 at [2]:
…The need for coherent and tolerably workable reasons sometimes requires truncation of reference and expression. Judgment writing should not become a process that is oppressive and that produces unnecessary prolixity. Not every piece of evidence must be referred to. …
In Babett & Falconer (2015) FLC 98-067 at 96,730–96,731, the Full Court embraced the same point, referring to Housing Commission (NSW) v Tatmar Pastoral Co Pty Ltd [1983] 3 NSWLR 378 at 386 to say that the reasons given need not be elaborate:
…an elaborate argument may not require an elaborate answer. Reasons need be given only so far as is necessary to indicate to the parties why the decision was made and to allow them to exercise such rights as may be available to them in respect of it.
See also Perrin & Perrin (No 2) [2018] FamCAFC 122 at [58].
The Full Court has also pointed out that the nature of the inquiry under s 79 of the Act is, in essence, a broad discretionary assessment, which is neither an accounting nor mathematical exercise, and which, effectively as a corollary, requires a “broad-brush approach.” This affects what constitutes adequate reasons: Dickons & Dickons (2012) 50 Fam LR 244 at [25].
When it comes to s 75(2) adjustments in particular, it is well established that the real impact or value of the adjustment in money terms is ultimately the critical issue, not its expression as a fraction or percentage of the overall assets: Clauson & Clauson (1995) FLC 92-595 at 81,911; Adair & Adair [2019] FamCAFC 70 at [66]; Simons & Simons [2020] FamCAFC 128 at [18].
We are satisfied that his Honour did not sufficiently analyse the effect of such an adjustment in real money terms as he was bound to do. That, of itself, establishes that his Honour’s reasons were inadequate and vitiated the exercise of his Honour’s exercise of discretion: Lovine & Connor (2012) FLC 93-515 at [81].
The primary judge addressed the s 75(2) factors at [95]–[101] as follows:
95. Both parties are 56 years of age. The wife historically has had health issues as referred to above and it is accepted that her overall health circumstances are guarded. The husband has had health issues which from the available evidence are indicative of some underlying psychological or psychiatric circumstances exacerbated by alcohol and cannabis addiction.
96. The wife was candid with the Court and evidence is that she anticipates being able into the foreseeable future, to conduct the ongoing business of C Pty Ltd. That business represents a significant financial resource to her in terms of future income. Her more recent taxable income was in excess of $200,000 per annum with, otherwise, retained profits accumulating in the balance sheet of the entity and being available for distribution to her by way of dividend, so as to offset the shareholders loan owed by her to the company. On the other hand, the Court is comfortably satisfied that at least in the circumstances as presented to the Court at trial the husband has little capacity for employment and will live on capital available to him and his superannuation when available.
97. Both parties only have commitments to support themselves and no responsibility to support any other person.
98. It is the husband’s evidence that he is not in receipt of any government pension notwithstanding his employment circumstances.
99. The wife is residing in a de facto relationship and owns a one half share of the property in which she resides with her partner. They contribute jointly to the living expenses.
100. The present entitlements of the party by way of contribution assessment see a disparity between them of about $1,114,000.
101.In all the circumstances, it is considered appropriate that there be an adjustment in favour of the husband by reason of relevant s 75(2) circumstances of 2.5 per cent.
The wife submitted a 2 per cent adjustment was appropriate. We accept the Case Guardian made no submissions to his Honour regarding an adjustment under s 75(2), despite being provided with a copy of s 75(2) and specifically asked whether the husband sought an adjustment. The Case Guardian simply maintained that a “fifty/fifty” split of the asset pool was appropriate.
However, we are unable to divine from the reasons, even by inference, the basis upon which the primary judge determined that, in light of its actual monetary impact, an adjustment of 2.5 per cent under the s 75(2) factors was appropriate. His Honour acknowledged the husband’s poor health at [95], and that he had “little capacity for employment and will live off capital available to him and his superannuation when available” (at [96]). Having recognised the husband would have to live off capital with little prospect of earning income, the principles defining the adequacy of reasons obliged his Honour to give reasons sufficient to enable this Court, and the parties, to identify the basis of his decision to make an adjustment of 2.5 per cent. This is particularly so in light of its actual monetary impact on the ultimate result. It is not articulated anywhere in the reasons how his Honour took account of the 2.5 per cent adjustment in real money terms, having regard to the impact of adding back $910,577 as notional property in the balance sheet, and bearing in mind the importance of existing assets (above at [58]). The husband pointed out that in the ultimate result, the husband received only $768,670, or 27.5 per cent of existing property, while the wife received $2,029.651, or 72.5 per cent.
We are persuaded that his Honour did not provide adequate reasons for an adjustment of 2.5 per cent in favour of the husband for the purposes of s 79(4)(e) of the Act.
This conclusion again means the appeal must be allowed.
CONCLUSION
For the reasons given, the appeal should be upheld. We consider it unnecessary to deal with the remaining arguments and grounds of appeal, including arguments concerning lack of procedural fairness, or denials of natural justice. Our conclusions in respect of the grounds discussed are dispositive of the appeal, and considerations of judicial economy indicate determination of the other issues raised on appeal is not necessary: Boensch v Pascoe (2019) 268 CLR 593 at [7]–[8]. It should, however, be recognised that in allowing the appeal, for the reasons given we implicitly accept the ultimate result was not just and equitable.
The parties accepted that if the appeal was upheld, this Court would not be in a position to re-exercise the discretion exercised by the primary judge. The proceedings must be remitted for further determination.
COSTS
The parties agreed that if the appeal succeeds they should receive a costs certificate. Orders will be made accordingly.
I certify that the preceding one hundred and eleven (111) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Deputy Chief Justice McClelland, and Justices Berman & Harper. Associate:
Dated: 23 December 2021
Key Legal Topics
Areas of Law
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Family Law
Legal Concepts
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Appeal
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Jurisdiction
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Standing
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Contract Formation
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Breach of Contract
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Unjust Enrichment
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Res Judicata
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