Carlson & Carlson
[2019] FamCAFC 245
•17 December 2019
FAMILY COURT OF AUSTRALIA
| CARLSON & CARLSON | [2019] FamCAFC 245 |
| FAMILY LAW – APPEAL – PROPERTY SETTLEMENT – Valuation of the parties’ assets and liabilities – Where there was insufficient disclosure made at the time of final hearing before the trial judge – Where the respondent wife also had access to all financial records with respect to the family trust – Where the trial judge’s reasons do not explain findings about the parties’ respective entitlements – Where the reasons also do not explain whether an adjustment with respect to ss 79(4) and 75(2) of the Family Law Act 1975 (Cth) was appropriate – Where there is no consideration as to whether the orders made were just and equitable – Appeal allowed. FAMILY LAW – APPEAL – COSTS – Where the appeal has succeeded on a point of law – Where no order for costs is appropriate – Costs certificates issued for the appeal and the rehearing. |
| Family Law Act 1975 (Cth) ss 75(2), 79(4) Federal Proceedings (Costs) Act 1981 (Cth) ss 6, 8, 9 |
| Bevan & Bevan (2013) FLC 93-545; [2013] FamCAFC 116 Chapman & Chapman (2014) FLC 93-592; [2014] FamCAFC 91 Coulton v Holcombe (1986) 162 CLR 1; [1986] HCA 33 Stanford v Stanford (2012) 247 CLR 108; [2012] HCA 52 Suttor v Gundowda Pty Ltd (1950) 81 CLR 418; [1950] HCA 35 Water Board v Moustakas (1988) 180 CLR 491; [1988] HCA 12 |
| APPELLANT: | Mr Carlson |
| RESPONDENT: | Mrs Carlson |
INDEPENDENT CHILDREN’S LAWYER: | Legal Aid NSW (did not participate) |
| FILE NUMBER: | NCC | 1538 | of | 2015 |
| APPEAL NUMBER: | EA | 89 | of | 2018 |
| DATE DELIVERED: | 17 December 2019 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Alstergren CJ, Strickland & Austin JJ |
| HEARING DATE: | 8 April 2019 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 7 June 2018 |
| LOWER COURT MNC: | [2018] FamCA 466 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Kearney SC |
| SOLICITOR FOR THE APPELLANT: | Muggletons |
| COUNSEL FOR THE RESPONDENT: | Mr Page QC with Mr Duane of counsel |
| SOLICITOR FOR THE RESPONDENT: | Rankin Ellison Lawyers |
| SOLICITOR FOR THE INDEPENDENT CHILDREN’S LAWYER: | Legal Aid NSW Newcastle Family Law (did not participate) |
Orders
The appeal be allowed.
Orders 17-24 inclusive made on 7 June 2018 be set aside.
The parties’ respective applications for orders pursuant to Part VIII of the Family Law Act 1975 (Cth) be remitted and transferred to the Sydney registry for re-hearing by a judge other than the trial judge.
The appellant husband is granted a costs certificate pursuant to the provisions of s 9 of the Federal Proceedings (Costs) Act 1981 (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.
The respondent wife is granted a costs certificate pursuant to the provisions of
s 6 of the Federal Proceedings (Costs) Act 1981 (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.
The appellant husband and the respondent wife are granted costs certificates pursuant to the provisions of s 8 of the Federal Proceedings (Costs) Act1981 (Cth) being certificates that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise payments under that Act to the parties in respect of the costs incurred by them in relation to the re-hearing.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Carlson & Carlson has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EA 89 of 2018
File Number: NCC 1538 of 2015
| Mr Carlson |
Appellant
And
| Mrs Carlson |
Respondent
And
| Independent Children’s Lawyer |
REASONS FOR JUDGMENT
Mr Carlson (“the husband”) appealed against orders made by a judge of the Family Court of Australia on 7 June 2018, determining the disputes between the husband and Ms Carlson (“the wife”) under Parts VII and VIII of the Family Law Act 1975 (Cth) (“the Act”).
While the appeal was instituted against all orders made by the trial judge under the Act, at the commencement of the appeal the husband informed the Court of his abandonment of the appeal against the parenting orders and the order dismissing the application for the trial judge to disqualify herself. That left the appeal against most of the property settlement orders.
The wife resisted the appeal but, for the reasons which follow, the appeal against those property settlement orders should succeed.
Background
The parties were both aged 46 years at the time of trial. They commenced cohabitation in 2000 and married in 2001.
When cohabitation commenced, the husband owned a corporation through which he operated a business (“the business”). He also had savings of approximately $90,000 and a superannuation entitlement of approximately $50,000. The wife owned a motor vehicle, a modest amount of savings and superannuation of approximately $25,000.
In 2001, the parties purchased a home in suburban Newcastle. In 2002, they demolished the existing house and built a new family home upon the property. The husband’s parents provided the funds for these improvements but the basis for that funding was in dispute; the husband said it was a loan but the wife denied that.
During the relationship, the wife operated her business from the family home and the husband worked as an employed tradesman in the business.
The husband established a self-managed superannuation fund (“the superannuation fund”). He was the sole beneficiary of the superannuation fund and the sole shareholder of its corporate trustee.
The husband also established a family trust (“the family trust”). The parties were the beneficiaries of the family trust and the joint shareholders and directors of its corporate trustee.
At the time of trial, the superannuation fund and the family trust owned parcels of commercial real property. The business was operated from one of those properties.
The parties separated under the one roof in December 2014, both remaining resident in the family home until the wife left on 16 June 2015. The husband then commenced proceedings on 18 June 2015 in the Federal Circuit Court of Australia. The proceedings were later transferred to the Family Court for disposition in July 2015.
Suffice to say, the progress of the proceedings to trial was frustrated by reason of numerous complications, not the least of which was the husband’s persistent failure to assist in procuring expert evidence about the valuation of the business and other assets. The values of the parties’ respective property interests at trial was the focus of intense conflict.
The proceedings were heard in September 2017 but, because it took longer than expected, the trial needed to be completed by the parties filing written submissions. The submissions were not finalised until February 2018 and the orders were not made until June 2018.
The appeal
Allowing for the abandonment of numerous grounds of appeal, the residual grounds entailed challenges to the trial judge’s failure to make relevant findings (Grounds 7, 8 and 9), the failure to take into account an alleged material consideration (Ground 11), the failure of the reasons to reveal her Honour’s satisfaction that the orders were just and equitable (Ground 12), and the failure to give adequate reasons for the orders made (Ground 14).
Ground 7
This ground contended the trial judge erred in that:
…[her Honour] made no findings in relation to the value of the properties of the parties in circumstances where the parties’ “joint balance sheet” identified 20 items in respect of which the parties had no agreement as to value.
During the trial the parties tendered as an exhibit a document which the trial judge described as a “joint balance sheet” (at [157]). While it may have been jointly prepared, it did not represent the parties’ joint position about the identity and value of their assets and liabilities. On the contrary, it revealed many significant differences between the parties and contained their commentary to justify their respective positions about these differences. Indeed, the document illuminated as much disagreement as it did concurrence. The parties’ inexpert opinions about the values of various assets were, of course, inadmissible and objections to that material were sustained.
Relevantly, and without being exhaustive of the many differences of opinion, the parties were in heated dispute about the value of the family trust, the value of the business, the existence and quantification of some large personal liabilities, and some asserted add-backs.
Significantly, the trial proceeded without any expert opinion evidence about the value of either the family trust or the business. The absence of such evidence caused much consternation, not least because the parties’ views about the aggregate value of those two entities alone were over $1 million apart.
In the event, the trial judge made no findings to resolve the factual dispute about the values of any of the contentious items of property. Her Honour said only:
170. The father did not make full disclosure of his financial position in his trial documents. Documents sought to be tendered into evidence and relied on by him were rejected for the reasons given. Accordingly the picture of the financial position of the father and the assets [the trust and corporate entities] he controls was not at all clear.
171.However the father has a business which provided a very comfortable standard of living during the marriage and enabled overseas holidays, cruises, the purchase of a motor cruiser and jet-ski, golf as a recreational sport, and the purchase of a 4WD motor vehicle.
172.His position before the Court is that he retain all assets and make a payment back to the wife of $150,000. His case is that such a payment would simply place him further in debt. On the mother’s case it would represent less than 15 per cent of the asset pool.
In the absence of expert valuation evidence it was hardly surprising her Honour did not make more specific findings, but the crux of this ground is that the absence of such findings deprived the trial judge of any capacity to be satisfied that the orders made to adjust the parties’ property interests were just and equitable.
The appealed orders provided for the husband to effectively retain or acquire exclusive ownership and control of the family trust and the business and for him to indemnify the wife against any liabilities associated with those entities. The risk of the entities having materially lower values than the wife believed therefore fell entirely on the husband’s side of the ledger.
We reject the wife’s contention that this ground of appeal was “factually wrong” and that her Honour’s findings (set out at [170]-[171] of the reasons) were sufficient. Even allowing for the findings of the husband’s failure to make full and frank disclosure and his belligerent refusal to co-operate in obtaining valuation evidence, the trial judge was not relieved of the burden to ensure the orders made were just and equitable.
It must be remembered that the wife was a joint director and shareholder of the corporate trustee of the family trust, which imposed upon her prudential responsibility for the trustee and authorised her access to all financial records related to the family trust. She had as much power and duty in that regard as the husband. The wife also obtained procedural orders during the litigation enabling her procurement of expert valuation evidence in respect of the assets of the family trust but, if such evidence was procured, it was not adduced at trial, and the wife elected to run the trial without it.
As for the electrical business, it rested within the exclusive control of the husband. He alleged the business had deteriorated due to economic factors and his pre-occupation with the litigation and, since the electrical business was his sole source of income, his alleged impecuniosity precluded him from engaging accountants to prepare current financial records for it. Nevertheless, the business activity statements (“BAS”) returns for the business over the last few financial years prior to the trial were tendered as exhibits in the proceedings, but the contents of those documents and how they may have affected any finding as to the current value of the business did not figure in the trial judge’s reasons. In any event, the wife’s ultimate submission about the business was that the husband deliberately caused it to fail and thus, logically, while she maintained her complaint about his non-disclosure of records, she could not then simultaneously maintain the electrical business had substantial real value.
The absence of findings about the value of many other assets and liabilities, which need not be separately addressed, only served to accentuate the error of failing to make findings in relation to the values of the family trust and the business.
It is well established that in considering what, if any, order should be made to alter property interests, the Court is first required to identify and value the parties’ legal and equitable interests (see Stanford v Stanford (2012) 247 CLR 108 (“Stanford”); Bevan & Bevan (2013) FLC 93-545 (“Bevan”); Chapman & Chapman (2014) FLC 93-592). That did not occur in this instance.
The unavailability of valuation evidence, as occurred here, does not necessarily mean the process of adjudicating property settlement becomes impossible. Other options may be available. For example, an order may be made for an unvalued asset to be sold and the net proceeds of sale shared between the parties in specific proportions.
Further, this was not a case in which it was alleged or found that the husband failed to disclose the existence of assets. The allegation of his non-disclosure was confined to his failure to produce current financial records, including in relation to the family trust and business. His non-disclosure therefore bore upon only the value of disclosed assets, not the existence of assets.
Accepting the wife’s evidence at its highest, she contended the overall net value of the parties’ property (excluding superannuation) was about $1.1 million. The parties’ dispute over the values of the family trust and the electrical business alone amounted to over $1 million and, therefore, almost equalled the value of the property over which they were arguing. The absence of any reliable evidence about the values of the family trust and the electrical business deprived the trial judge of any ability to make factual findings about the probable extent of the parties’ property interests and thereby rendered their respective claims for relief almost entirely arbitrary. In the circumstances, there was no rational basis upon which the trial judge could undertake a just and equitable adjustment of the parties’ property interests.
This ground should succeed.
Grounds 8 and 9
These grounds were addressed to the lack of findings made by the trial judge under ss 79(4) and 75(2) of the Act.
Ground 8 contended the trial judge erred in that:
…no findings were made about the contribution-based entitlement of the parties at either the date of separation or the date of trial.
Ground 9 contended the trial judge erred in that:
…no finding is made as to whether an adjustment pursuant to s.75(2) is warranted or is being made within the course of making orders.
The trial judge did find the husband’s position was “stronger financially” than the wife’s position when the parties began cohabitation (at [164]) and that their respective contributions were “equal although different in nature” during the marriage (at [169]), which appears to most probably be an assessment of the parties’ respective contributions during the period of their cohabitation, in which case there was no assessment of the parties’ contributions in the period between their separation in December 2014 and completion of the trial in February 2018.
That is not of itself an error because it is not obligatory for a trial judge to make separate findings as to entitlements by the sequential application to the evidence of s 79(4) and then s 75(2) of the Act, even though that is the preferred approach (see Bevan at [61]-[63], [72]). Nonetheless, at some stage during the assessment process, the reasons must adequately explain findings about the parties’ respective entitlements by reference to ss 79(4) and 75(2) of the Act.
After reciting the parties’ respective contributions at the commencement of cohabitation and up to separation, but without making any assessment in relation to the same, the trial judge moved on to consider the factors prescribed by s 75(2) of the Act and found (at [174]-[189]): both parties were in their mid-forties and in good health; each fulfils their capacity to work; each has legal responsibility to maintain and care for their children for the remainder of their minority; the husband has superior existing superannuation and the prospect of accumulating more; the wife has the primary care of the children; and the husband currently fails to pay any child support, but he will probably pay it once the property settlement is finalised.
Significantly, the trial judge then made no finding as to whether an adjustment under s 75(2) of the Act was warranted in either party’s favour.
However, even more importantly, the trial judge made no finding at all about how the parties’ property should be apportioned overall by reference to the statutory considerations set out within ss 79(4) and 75(2) of the Act.
Her Honour’s ultimate findings are encapsulated in only these reasons:
191.The mother, who has a modest income, retains the house which provides a home for herself and the children.
192.The father, who has the established capacity to earn a substantial income, retains the other assets generated by him in the related entities, including substantial superannuation.
The orders which then flowed from those findings, in summary, provided for:
a)the wife’s retention of exclusive legal title in the family home worth $680,000 (Order 17) and a motor vehicle (Order 19);
b)the husband’s indemnity in favour of the wife against his personal and business liabilities (Orders 18 and 21);
c)the husband’s retention of exclusive legal title in the family trust (Order 20), which he maintained was in deficit with debt exceeding assets by nearly $100,000, but which the wife alleged had net value of more than $440,000; and
d)the husband’s retention of exclusive legal title to the electrical business (Order 22), which he maintained was in deficit with debt exceeding assets by nearly $450,000, but which the wife contended had surplus assets of about $36,000.
The failure to make and explain findings under ss 79(4) and 75(2) of the Act was an error which compounded the initial error in failing to make findings about the identity and value of the parties’ property interests.
The wife’s concessions during the appeal that the absence of expert opinion evidence made it impossible for the trial judge to discern the extent of the parties’ property and therefore impossible to divide such property between them on a percentage basis were, in our view, tantamount to concessions of the merit of Grounds 7, 8 and 9.
Grounds 8 and 9 must succeed.
Ground 11
This ground contended the trial judge erred in that:
…[her Honour] appears to have had no regard to orders made to sell property, including the commercial property from which the Husband runs his business.
The “commercial property” referred to was a property owned as to one-third by the superannuation fund, and as to two-thirds by the family trust.
During the course of the litigation, in July 2017, interim property orders were made requiring the commercial property to be sold. There is no dispute the property was sold pursuant to those orders and so, at the time of trial, the husband was no longer able to conduct the electrical business from those premises.
The husband contended in the appeal that the trial judge did not take into account, as a material consideration, that by reason of the “forced” sale of the commercial premises he was “not able to continue doing the work he had been doing and lost most of his business”. Although the wife conceded that in the appeal the trial judge’s reasons do not reveal if or how the sale of the property was taken into account, we nevertheless reject this ground of appeal for three reasons.
First, the interim orders made in July 2017 for the sale of the commercial property were made with the husband’s consent. When he gave his consent to the sale he must have appreciated the need to relocate the business. The sale was not “forced” as he alleged.
Secondly, the submissions about the sale causing the value of the electrical business to depreciate and the concomitant diminution of his income-earning capacity were not submissions he made at trial. If made at trial, the wife may have been able to address them with more evidence, and thus they are not submissions the husband can now fairly maintain in the appeal (see Water Board v Moustakas (1988) 180 CLR 491 at 497; Coulton v Holcombe (1986) 162 CLR 1 at 7-8; Suttor v Gundowda Pty Ltd (1950) 81 CLR 418 at 438). Indeed, the sale occurred before the trial was completed and neither party made any application to the trial judge to re-open and adduce fresh evidence about the sale or its repercussions.
Thirdly, even if the husband had made such submissions at trial, in the absence of any evidence to support them they would have been, as they are now, mere assertions. His submissions in the appeal proceeded on the footing that these assertions were proven facts, but they are not. Their validity cannot be assumed as the foundation for this ground of appeal.
The trial judge correctly found, on the evidence then available, that the husband had the established capacity to work and earn substantial income (at [175], [192]). No finding was made though about his actual income at that time, and none was sought. The husband’s retention of the business under the orders at least left him in control of the entity which had hitherto generated substantial income for him.
Ground 12
This ground contended the trial judge erred in that:
…[her Honour] makes no analysis of the overall “justice and equity” requirement.
In his written submissions the husband explained that:
…without findings as to values, contributions, and s 75(2) adjustments, it is not possible to evaluate the justice and equity of the orders.
We accept the submission and reject the wife’s contrary submission that the trial judge’s reasons revealed adequate consideration of whether the orders were just and equitable.
In addressing that question her Honour said only:
190. In circumstances where the financial position of the parties and the value of the assets was not clear, despite the best efforts of the mother to understand and put forward as much information as she could, a course has been taken.
Neither party could explain what her Honour meant by observing “a course has been taken”, in which event that portion of her Honour’s reasoning did not assist the wife to defend the appealed orders.
Following Stanford, as the Full Court explained in Bevan (at [59], [60], [86]-[87]), the trial judge was obliged to consider whether the contemplated property settlement orders were just and equitable, because that requirement “permeat[es] the entire process”. The trial judge’s reasons do not reveal any consideration of whether the orders her Honour imposed were just and equitable and, in the absence of such reasons, it cannot be presumed her Honour fulfilled that legal obligation. This ground should succeed.
Ground 14
This ground asserted an insufficiency of reasons for the appealed orders.
Given our discussion in relation to the preceding grounds, this ground of appeal must also succeed, and we need say nothing more.
Conclusion and costs
The appeal should be allowed, the property settlement orders made on 7 June 2018 set aside, and the parties’ respective applications for relief under Part VIII of the Act remitted for re-hearing in the Family Court of Australia.
Senior counsel for both parties agreed, in that event, the remitted applications should be transferred to the Sydney registry for re-hearing and we accede to that joint proposal.
If the appeal was allowed, both parties sought costs certificates pursuant to the Federal Proceedings (Costs) Act 1981 (Cth). Given the appeal will be allowed for reasons of legal error, and there is to be no order for costs, it is appropriate for both parties to be granted costs certificates for the appeal and the rehearing.
I certify that the preceding sixty-two (62) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Alstergren CJ, Strickland & Austin JJ) delivered on 17 December 2019.
Associate:
Date:
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