CARROLL & CARROLL
[2014] FamCAFC 118
FAMILY COURT OF AUSTRALIA
| CARROLL & CARROLL | [2014] FamCAFC 118 |
| FAMILY LAW – APPEAL – NOTICE OF APPEAL – PROPERTY – where the husband appeals final property settlement orders – where the appeal is opposed by the wife – where as a result of findings on contribution the Federal Magistrate determined that the property of the parties be divided as to 75 per cent to the wife and 25 per cent to the husband – where the husband asserts that the Federal Magistrate’s assessment of his contributions was manifestly inadequate – where the principal challenge appears to be that the Federal Magistrate’s reasons for her finding on contributions were inadequate – where there is a wide discretion reposed in the court pursuant to s 79 of the Family Law Act 1975 (Cth) – where the wife says the complaint can only be as to weight – where it is not apparent from the findings how the Federal Magistrate arrived at the percentage division that she did – where the Federal Magistrate erred – appeal allowed. FAMILY LAW – APPEAL – NOTICE OF APPEAL – REMIT OR RE-EXERCISE DISCRETION – where there is a need for further evidence which may be controversial – where the Appeal Court is not equipped to hear cross-examination and to determine disputed issues of fact – where if the Appeal Court re-exercised the discretion the only avenue of appeal open to the parties would be to seek special leave to appeal to the High Court of Australia – where the appropriate course is to remit the proceedings to the Federal Circuit Court of Australia for rehearing by a Judge other than Judge Baker – proceedings remitted for rehearing. FAMILY LAW – APPEAL – NOTICE OF APPEAL – COSTS – where both parties seeks costs certificates pursuant to the Federal Proceedings (Costs) Act 1981 (Cth) – where the appeal has been allowed on a question of law and there is no order for costs – costs certificates granted to the parties as sought. |
| Family Law Act 1975 (Cth)- s 75(2) (b) and (o) Federal Proceedings (Costs) Act 1981 (Cth) – ss 6, 8 and 9 |
| Bennett & Bennett (1991) FLC 92-191 Farmer & Bramley (2000) FLC 93-060 House v The King (1936) 55 CLR 499 Kowaliw & Kowaliw (1981) FLC 91-092 Kuru v NSW (2008) 236 CLR 1 Norbis v Norbis (1986) 161 CLR 513 Steinbrenner & Steinbrenner [2008] FamCAFC 193 |
| APPELLANT: | Mr Carroll |
| RESPONDENT: | Ms Carroll |
| FILE NUMBER: | DGC | 2391 | of | 2008 |
| APPEAL NUMBER: | SOA | 80 | of | 2012 |
| DATE DELIVERED: | 8 July 2014 |
| PLACE DELIVERED: | Adelaide |
| PLACE HEARD: | Adelaide by video link to Hobart |
| JUDGMENT OF: | Strickland J |
| HEARING DATE: | 29 August 2013 |
| LOWER COURT JURISDICTION: | Federal Magistrates Court of Australia |
| LOWER COURT JUDGMENT DATE: | 11 October 2012 |
| LOWER COURT MNC: | [2012] FMCAfam 1100 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Ayliffe |
| SOLICITORS FOR THE APPELLANT: | Ogilvie Jennings |
| COUNSEL FOR THE RESPONDENT: | Mr Foster |
| SOLICITORS FOR THE RESPONDENT: | Murdoch Clarke |
Orders
The appeal be allowed.
Orders 1 to 4 made on 11 October 2012 be set aside.
The proceedings be remitted to the Federal Circuit Court of Australia to be reheard by a Judge other than Judge Baker.
The Court grants to the appellant husband a costs certificate pursuant to the provisions of 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 the appellant husband in relation to the appeal.
The Court grants to the respondent wife a costs certificate pursuant to the provisions of 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 the respondent wife in relation to the appeal.
The Court grants to each of the parties a costs certificate pursuant to the provisions of s 8 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 each of the parties in respect of the costs incurred by the appellant husband and the respondent wife in relation to the rehearing.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Carroll & Carroll has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| IN THE APPELLATE JURISDICTION OF THE FAMILY COURT OF AUSTRALIA AT ADELAIDE |
Appeal Number: SOA 80 of 2012
File Number: DGC 2391 of 2008
| Mr Carroll |
Appellant
And
| Ms Carroll |
Respondent
REASONS FOR JUDGMENT
Introduction
By Notice of Appeal filed on 9 November 2012 Mr Carroll (“the husband”) appeals final property orders made by Federal Magistrate Baker (as her Honour then was) on 11 October 2012.
The appeal is opposed by Ms Carroll (“the wife”).
The only order challenged in the appeal is that the wife pay the husband the sum of $91,531 (Order 1).
Relevant Factual Background
The husband was aged 63 years at trial and was unemployed. He lives in Tasmania with his new partner Ms M, and assists her with the operation of her business. The husband does not receive a wage or government benefits; he is financially supported by Ms M.
The wife was aged 59 years at trial. During the marriage she was employed with a company called A as a representative, and that continues. She also supplemented her income by hairdressing. She lives in Victoria with her new partner Mr R, who also works for A.
The parties commenced cohabitation in March 1974, were married in 1976 and separated in June 2007.
There are two adult children of the marriage, and the husband has another adult child from a previous relationship.
At the commencement of the relationship, the wife owned a block of land and held savings in Commonwealth bonds valued in total at approximately $15,000. The husband owned a motor vehicle.
During the early years of the marriage, the parties acquired and disposed of properties in Tasmania including the wife’s block of land.
In 1979 the parties purchased a house in Victoria subject to a mortgage, and shortly thereafter, on the birth of the parties’ daughter, the wife commenced her business working from home.
In 1987 Property E (“the matrimonial home”) was purchased after the sale of the property in Victoria.
In late 1992 the parties purchased several units in South Australia for approximately $260,000. These purchases were financed by increasing the mortgage on the matrimonial home to $380,000, obtaining loans from the husband’s mother of $60,000, and from Ms G (“the husband’s sister”) of $41,000. These units were then sold between 2000 and 2001.
In 1997 the husband received a termination payout from his employer of approximately $220,000.
Relevant to this appeal, in 1998 the parties purchased a retail business, including stock and gaming licence (“the business”) for the sum of $420,000.
A company, H Pty Ltd (“the company”), was incorporated to operate the business. The husband became a director, and the husband and wife each held 45 per cent of the shares, with the remaining 10 per cent being held by the husband’s sister.
The business was purchased by the husband lending money to the company, and a loan was obtained from the National Australia Bank (“NAB”). The husband’s sister’s farm was used as security for the loan from the NAB. Further, the sum of $70,000 was borrowed from the firm, Moores Legal. The husband’s mother’s home was used as collateral for this loan.
The husband also accessed his superannuation entitlements which, by 2007, were all paid into the business.
The business encountered financial difficulties. The wife obtained a $36,000 bank guarantee to ensure that the gaming licence was not revoked. The wife met the costs of that bank guarantee, and financially contributed to the business by taking out cash advances.
In 2003 the wife paid over $20,000 towards the arrears of the mortgage repayments.
In January 2004, the husband transferred the matrimonial home to the wife, who assumed responsibility for payment of the rates, taxes and the mortgage repayments.
In 2005, the wife received an inheritance of $96,200 from her late mother’s estate. She purchased a Mercedes Benz motor vehicle for $77,000, and maintenance was undertaken at the matrimonial home at a cost of $10,122. The wife further loaned to the business the sum of $7,368.
The parties separated briefly in 2004, they reconciled in 2005, and final separation occurred in 2007. At that time the husband vacated the matrimonial home.
In around 2008 the wife received a further inheritance of $56,591.20.
Her Honour found that during the marriage, the wife was the principal homemaker and parent. She was also self-employed as a hairdresser and worked with the husband in the retail business, and in his separate administrative business.
The husband, the wife, the husband’s sister, and the parties’ daughter all worked in the business during its operation.
Following separation, the wife remained at the former matrimonial home, and she spent $30,417 on repairs and maintenance in the years leading up to trial. She also spent $7,442 on improvements. She further used the proceeds of an insurance policy of $8,000 to service the debt at the matrimonial home. She otherwise retained all chattels from the matrimonial home.
The business was sold in around March 2008 for $285,000; it was on the market since prior to separation in February 2007. The company ceased trading in 2008, and at the time of trial was being wound up.
Orders made by the Federal Magistrate
The Federal Magistrate made the following orders on 11 October 2012:
(1)Within 45 days from the date of this order the wife shall pay to the husband the sum of $91,531.00.
(2)In the event that the wife is not able to obtain finance to pay the husband to sum referred to in order 1:
(a)The property situated at [E] shall be listed for sale.
(b)The listing price shall be agreed between the parties and failing agreement as determined by a valuer nominated by the Present of the Real Estate Institute of Victoria.
(c)The property shall be sold by such means as auction or private treaty as agreed and failing agreement as determined by an agent nominated by the President of the Real Estate Institute of Victoria.
(d)The husband and wife both forthwith do all acts and things and sign all necessary documents to effect the sale of the property.
(e)The proceeds of sale of the property be distributed as follows:
(i)To discharge the mortgage and any other encumbrances effecting the property;
(ii)To pay all real estate agent’s costs, commissions and expenses of the sale of the property;
(iii)To pay any council fees and rates outstanding in the respect of the property;
(iv)To pay the solicitor’s costs in relation to the property;
(v)The balance to be divided between the husband and wife so as to ensure that the husband receives a sum equal to 25% of the net asset pool.
(f)Pending completion of the sale of the property the wife shall be solely responsible for the payments of principal and interest of the mortgage secured over the property and shall make all payments in relation to it.
(g)Pending completion of the sale of the property the wife will be liable for and indemnify the husband against all payments and liabilities in respect of the [E] property including but not limited to all rates, taxes and outgoings of whatsoever nature and kind and indemnify and keep the husband indemnified in respect thereof.
(3) Unless otherwise specified in this order;
(i)Each party will be solely entitled to the exclusion of the other to all property in the possession of that party as at this date.
(ii)Each party will be solely liable for and indemnify the other party against any liability encumbering any form of property to which that party is entitled pursuant to this order.
(iii)Each party will remain solely liable for their respective debts.
(iv)Each party sign all such documents and do all such things as may be required to impellent the terms of this order.
(4)The wife’s application for costs be adjourned to 23 November 2012 at 10.00am for hearing.
(5)Pursuant to rule 21.15 of the Federal Magistrates Court Rules 2001, the Court certified that it was reasonable for the parties to employ an advocate.
Reasons for judgment delivered on 11 October 2012
The Federal Magistrate commenced the reasons for judgment by outlining the relevant background and history of the parties, as referred to above.
Her Honour then set out the competing proposals of the parties, noting that the husband sought an equal division of the asset pool “on the basis of contributions and s 75(2) factors”, and the wife sought that each party retain all assets and liabilities in their respective names and that there be no further adjustment.
Relevantly, her Honour noted that the proposal by the husband would be achieved by a cash payment of $173,522 to him from the wife. The wife’s proposal would result in the wife, “receiving assets to a value of $387,323.00 or 98% of the pool and the husband retaining his superannuation or 2% of the pool” (at [27]).
The principal issue in dispute before her Honour was why the business had failed, and “the approach the court should take in assessing the parties’ contributions in respect of it” (at [28]).
Credit
The Federal Magistrate then turned to issues of credit, as counsel for the wife asked the court to make an adverse finding of credit against the husband and his sister. At trial, the husband sought to make “what he asserted were candid admissions to the Court” in order to “ameliorate” the credit issue (at [32]).
The husband had a long standing interest and involvement in horse racing and gambling. The husband also owned and operated an administrative business during the marriage.
The Federal Magistrate recorded that a condition of licencing and registration under the Racing Regulation Act 2004 (Tas) is that periodic statements of assets and liabilities must be filed with the relevant authority. In the husband’s affidavit and oral evidence, he admitted that his statements were false.
Her Honour recorded that these false statements to the relevant authority may constitute an offence under the Racing Regulation Act 2004 (Tas). However, the relevant issue before the court was whether “the husband can be believed on oath” (at [40]).
Her Honour also noted that the husband failed to disclose a timeshare, and did not disclose the “receipt of instalments of vendor finance from the purchaser of the [business] or the receipt of funds from debtors upon the sale” (at [40]).
The Federal Magistrate also found that whilst the husband was candid about his shortfalls as a manager of the business and made admissions about his gambling and alcohol consumption, he was otherwise “unimpressive and unreliable” (at [41]).
Turning to the wife, the Federal Magistrate concluded that the wife was “highly critical” of the husband and blamed him solely for the failure of the business. The Federal Magistrate found these claims to be “exaggerated” and that the wife was unwilling to make concessions and, “put a slant favourable to her case” (at [42]).
The wife asserted that the husband gave conflicting accounts of how he financed the purchase of the business. Her Honour also found that in this regard “the wife exaggerated the husband’s conduct and painted a picture of him which is not all accurate” (at [50]).
Her Honour then concluded as follows:
51.Overall, neither the husband nor the wife were impressive witnesses. This is not a matter where I am able to make a finding that I prefer one party’s evidence to that of the other party wherever it conflicts on the disputed issues. Instead, I shall consider and make findings on the facts in relation to disputed issues.
The relevant law
The Federal Magistrate then considered the law as it applies to a property settlement. Her Honour had regard to ss 79(2), and 79(4) of the Family Law Act 1975 (Cth) (“the Act”). Relevantly, her Honour considered the “four step exercise” enunciated in Hickey & Hickey (2003) FLC 93-141, and Ferraro & Ferraro (1993) FLC 92-335 (at [53]). Her Honour considered that the “court is not required to assess the contribution of parties with mathematical precision” (at [54]).
The property pool
The Federal Magistrate recorded the asset pool of the parties at [55], and the disputed liabilities of the parties at [59].
Her Honour then considered the evidence of the disputed liabilities of the parties at [61] to [64] and concluded that these would not be included in the asset pool for division. Thus her Honour found that the net asset pool totalled $387,723 (at [55]).
Her Honour found that a global approach was appropriate in relation to the parties’ property pool. Her Honour also found a one pool approach was appropriate as neither party sought a splitting order in relation to their respective superannuation entitlements.
Contributions
The Federal Magistrate then turned to the issue of the husband’s gambling losses and failure of the business, and how these should be treated.
Her Honour considered s 79(4)(e) of the Act, and the relevant authorities, concluding as follows:
78.Economic losses should ordinarily be shared between the parties in the same way as economic gains in the division of property. If a party to a marriage incurs a financial loss in circumstances not involving recklessness, negligence or other blameworthy conduct, this loss should already ordinarily be disregarded. If there has been destruction or diminution or dissipation of assets, the question of whether it is unreasonable depends on the circumstances of the case.
(Footnote omitted)
The Federal Magistrate then considered the evidence in relation to the business. Relevantly, the Federal Magistrate recorded that the wife initially worked in the business on a part time basis, but after two years ceased working there.
The Federal Magistrate noted that the husband worked long hours in the business. However, it was the wife’s case that “the husband pursued his gambling and [racing activities] to the detriment of the business, spending less time at work and devoting less attention to it” (at [82]). The husband denied this and asserted that there were many setbacks suffered by the business which caused it to struggle.
The wife was also critical of the husband’s business practices, much of which the husband conceded, but explained that they were necessary in order to maintain the business.
The Federal Magistrate also noted that, as the business struggled, the husband and his sister borrowed money to pay its debts. The wife submitted that the nature of these loans were “unclear” as “the financial arrangements for the husband and sister were linked” (at [95]).
The Federal Magistrate recorded the husband’s admission that he intermingled business and personal funds. The husband further admitted that there was no way of knowing the amount of “leakage” from the business funds (at [96]).
The Federal Magistrate noted that upon sale of the business in June 2008, the wife was not notified, and that according to the wife the sale price of $258,000 was “extremely low” (at [97]). However, there was no evidence of any offers made to purchase, or other evidence pertaining to the value of the business.
The evidence of the husband’s sister
The husband’s sister held a 10 per cent shareholding in the company and worked four to five days per week in the business, and when the husband was not present she acted as the “manager in charge”.
The Federal Magistrate found that in November 2007 she took over the financial side of the business, securing an overdraft against her property for $60,000, and upon cessation of trading she retained a debt of $3,683.11.
Her Honour then had regard to the setbacks to the business as detailed by the husband’s sister. This evidence canvassed thefts, robberies, construction works, and other factors that were said to impact the business.
Upon the sale of the business in March 2008, the Federal Magistrate recorded that a ledger entry report for the business indicated that from the sale proceeds payments of $130,000, $964.66 and $2,831.36 were made to “Moores Legal–Mortgage Discharge” (at [104]).
The husband’s sister could not explain why her mother’s loan of $5,000 in 2007 had increased to around $82,000 in 2008, why Moores Legal had sought payment of $130,000, and why more than $80,000 was paid to them.
Her Honour concluded as follows in relation to the evidence of the husband’s sister:
115.I consider that [the husband’s sister] gave evidence in a forthright manner. I did not consider her to be untruthful, although her evidence was coloured by her loyalty to her brother. I consider that it is probable that she saw or heard the husband place bets at the [business]. I also consider that her evidence about the sale proceeds of the business was unsatisfactory. She was not able to explain why the sum of over $80,000.00 was paid to Moores Legal. She was not able to explain satisfactorily the increase of the loan account of her mother from $5,000.00 to $82,966.00 in one year.
The husband’s gambling losses
The Federal Magistrate found that the husband’s gambling was a form of entertainment shared by the wife and him. Both the husband and wife participated in the husband’s administrative business, and both were interested in racing; it “formed part of their social life” (at [120]). The Federal Magistrate thus found that there was no wastage in accordance with the principles in Kowaliw & Kowaliw (1981) FLC 91-092 (at [121]).
The failure of the business and sale proceeds of the business
The Federal Magistrate noted that there was no expert evidence before the court regarding the profitability of the business, or about the accounting and business practices utilised by the husband.
The Federal Magistrate found, upon examination of the financial statements of the company, that “very little profit was made over the life of the business” (at [125]).
The Federal Magistrate then found “that the husband had not embarked on a course of conduct designed to reduce or minimise the effective value or worth of the [business]”, and was not persuaded “that he had acted recklessly, negligently or wantonly which has had the effect of reducing the value of assets”, in accordance with the principles in Kowaliw (at [129]).
The Federal Magistrate found that the demise of the business “can be partly explained by the numerous setbacks and the declining sales over the years” (at [130]). However, the Federal Magistrate considered that “the husband adopted poor business practices and was a poor manager” in failing to keep adequate records, and failing to arrange for financial statements to be completed.
Her Honour went on and found that he spent time betting and drinking at a Hotel, and that he lost interest in the business such that his sister assumed full responsibility for its management (at [131]).
Importantly, the Federal Magistrate found that the husband’s drawing of a director’s fee of $13,000 per annum, without any accounts or reconciliations of the cash he took for that fee, was not sufficient to find that this contributed to the level of indebtedness of the business or to its demise. Thus, her Honour did not consider that this conduct was sufficient to make a finding of waste against the husband.
Turning to the sale proceeds of the business, her Honour opined that the issue was what happened to the sum of $130,000, being part of the amount of $188,065.03 received upon the sale of the business.
The Federal Magistrate found that the onus was on the husband, as a director of the company, to explain to the wife how proceeds were disbursed, and the husband did not produce any evidence to this effect to the court.
The husband admitted during cross-examination that he had received several payments in respect of a sum of $35,000 being vendor finance for the sale of the business. He said that he used these funds for living expenses. He also admitted that he had received payments from debtors which he also retained and used for living expenses of around $2,000-$3,000.
The Federal Magistrate then concluded as follows:
145.I infer from the husbands’ (sic) lack of satisfactory explanation about the funds paid to Moores Legal and from his failure to disclose in his affidavit that he had received payments from the vendor, that it is likely that he received some further benefit of these funds. I consider that it is appropriate to take this into account under s.75(2)(o) of the Act.
Conclusion in relation to contributions
Although lengthy, I consider it necessary to set out in full her Honour’s conclusions in this regard:
147.The husband’s Counsel submitted that the marriage was a long one and both parties made a joint effort and made joint contributions. They should share the losses equally and there should therefore be an equal division of the assets.
148.The wife’s Counsel conceded that the wife acknowledged that when the husband was a wage earner until 1998, he made a proper contribution to the acquisition of the assets. It was submitted that the Court should give full weight to his contributions until 1998 and give them no weight thereafter and the wife should therefore retain the home.
149.I do not accept either of these submissions entirely and the consequent conclusions.
150.I take into account that this was a marriage of long duration of over 30 years. The parties have been separated since 2007, some five years ago.
151.The wife owned more assets than the husband at the commencement of cohabitation, although I do not place weight upon this due to the passage of time and the subsequent contributions of the parties.
152.The husband earned income in his employment for many years until he was made redundant in 1998. The husband was the main financial contributor until the purchase of the business. His termination payment and superannuation received by him in 1998 was used in the business. It is no longer available for division between the parties, due to the demise of the business.
153.During the marriage the wife was the main homemaker and parent. She earned income as a self-employed hairdresser. She also worked with the husband in his various business ventures, in the [racing activities] business and in the [retail] business. She earned income and built up her business with [A] during the marriage.
154.Both parties made financial contributions to the business. The wife worked in it for a few years after its purchase. There was no evidence which persuaded me that the wife was involved in the day-to-day running of it after this time or that there was joint decision making about the running of it. The husband worked long hours in it for many years, but had lost interest in it after separation. He adopted poor management practices in respect of its operation.
155.The husband supported the wife with her vocation, so she could develop her [A] business. From around 2003 she was taking overseas trips on a regular basis and building up her business.
156.The wife’s shares were gifts from her father, to which the husband made no contribution. Most of her jewellery were gifts prior to marriage or inherited by her.
157.The Mercedes motor vehicle was purchased by the wife from her inheritance, and the husband has not made any contribution to it.
158.Following separation in 2007, the wife remained living in [Property E]. She paid the rates and outgoings since around 2004. She has made the mortgage payments, although the amount of the mortgage liability has not reduced to any extent. Since separation the wife has conserved the home by making repairs and maintaining it. She has spent funds to renovate it. I place weight upon these contributions of the wife in respect of the home.
159.The husband has not made any financial contribution to [Property E] since 2004, when he transferred his interest in it to the wife. The wife did not involve the husband with any decisions about the house, including the renovations she made.
160.Assessing all their respective contributions there needs to be a significant weighting in favour of the wife. I assess her contributions as 75% and those of the husband as 25%.
The s 75(2) factors
Her Honour outlined the ages of the parties and found there was no issue around the health of either of them.
After recording their current employment and earnings her Honour said this:
166.There is an income disparity between the parties; however it is the husband's choice not to work. There was no evidence that he has made attempts to obtain employment. There is a small disparity between the parties’ superannuation entitlements.
Turning to the effect of the contribution findings, the Federal Magistrate found that the husband would receive assets valued at $96,931 and the wife $290,792, and the “large disparity” between these figures suggested an adjustment to the husband pursuant to s 79(2)(b) of the Act, but this was “balanced” by the adjustment to the wife pursuant to s 75(2)(o) (at [167]). In that regard the Federal Magistrate took into account the fact that the husband had received between $3,000 and $4,000 from the sale proceeds of the business, that funds were retained from debtors after sale, and that it was “probable” that he received further funds from the proceeds of sale of the [business] (at [168]).
Her Honour then concluded that, “[h]aving regard to these factors I do not intend to make any further adjustment” (at [171]).
As to whether the orders were just and equitable, her Honour outlined the assets retained by the parties, and noted that the wife may need to obtain finance.
Her Honour proposed to allow her time to do this, and averred to the fact that if finance was not obtained, the matrimonial home may need to be sold.
Her Honour found that, based on the circumstances of the parties, the orders proposed were just and equitable.
Grounds of Appeal
The husband set out the following grounds of appeal in his Notice of Appeal filed on 9 November 2012:
1. Her Honour erred in fact and law in awarding the Appellant 25% of the asset pool in that:
i.Such an award was manifestly inadequate; and/or
ii.Such and award was contrary to the preponderance of the evidence and the findings of fact made by Her Honour.
iii.Her Honour failed to provide adequate reasons in finding that the Husband’s contributions for the purposes of s. 79(4)(a)(b) and (c) amounted to 25%.
2. Her Honour erred in fact and law in taking into account at [154] and [131] of her assessment of respective contributions that the husband lost interest in the [business] after separation and adopted poor management practices because:
i.Such a finding was contradictory of and inconsistent with the Court’s finding at [129] that the Court was not satisfied that the conduct of the husband had recklessly, negligently or wantonly reduced the value of the assets; and
ii.Such a finding was contradictory of and inconsistent with the Court’s finding at [78] that economic losses should ordinarily be shared between the parties in the same way as economic gains are shared in the division of property.
3. Her Honour erred in fact and law in taking into account at [131] in her assessment of respective contribution that the husband spent time betting and drinking at the Hotel because:
i.Such a finding was contradictory of and inconsistent with the Court finding at [121] that the husband’s gambling was a form of entertainment and the evidence was not sufficient to establish wastage “in accordance with the principles in Kowaliw”; and
ii.Such a finding was contradictory of and inconsistent with the Court’s finding at [129] that the evidence did not establish that the husband had acted recklessly, negligently or wantonly in reducing the value of the assets.
4. Her Honour erred in law in applying s.75(2)(o) of the Act whilst assessing contribution in breach of the principles identified in Hickey and Ferraro in that:
i.At [145] whilst assessing contributions Her Honour took account pursuant to s.75(2)(o) of a failure to disclose payments received from the vendor; and
ii.At [154] whilst assessing contributions Her Honour took account that after separation the husband lost interest in the [business] and adopted poor management practices when such matters (if relevant) were relevant pursuant to s.75(2).
5. Her Honour erred in fact and in law in taking into account twice both at the stage of evaluating contributions:[145] and at the stage of evaluating the matters in s.75(2):[168] the fact that the husband had received repayments of vendor finance on the sale of the [business].
6. Her Honour erred in fact and law in failing to take into account or give adequate weight to the husband’s substantial contribution of a lump sum termination payment and superannuation payment towards the purchase of the business when such contribution even though not productive of financial gain ought to have been recognised in accordance with the mandate in s. 79(4)(a) and (b) Family Law Act 1975 and as stipulated by the Full Court of the Family Court of Australia in Browne & Greene [1999] FamCA 1483 at [39].
7. Her Honour erred in fact and law in failing to find that the wife was a director of [H] Pty Ltd and not just and equal shareholder with the husband.
8. Her Honour erred in law in failing to take account of the fact that the wife was a director and therefore had control and access to the company records when she applied at [142] an inference against the husband in accordance with the principles outlined in G v H (1994) 181 CLR 387 and Jones v Dunkel (1959) 101 CLR 298.
9. By reason of the matters referred to in grounds 7 and 8 hereof. Her Honour erred in fact and in law in making the finding she did at [145] and [168] as to receipt of a vendor payment.
10. Her Honour erred in fact and law in failing to make an adjustment in favour of the husband pursuant to s.75(2) on the basis of:
i.The disparity in income, property and financial resources of the parties; and
ii.The age and employment status of the husband.
Ultimately the husband abandoned Grounds 4, 7, 8 and 9.
Order Sought
The husband seeks the following order:
1. THAT Paragraph 1 of the Final Order dated 12 October 2012 be varied by deleting the figure of $93,531.00 and replacing it with the figure of $188,461.50.
Discussion
Ground 1
As can be seen the Federal Magistrate determined that the contributions of the wife should be assessed at 75 per cent and those of the husband assessed at
25 per cent. This percentage division then became the overall result when
her Honour determined to make no adjustment for any s 75(2) factors.
In this ground the husband complains that in arriving at that percentage division her Honour erred. This is pitched on a number of levels, including that the assessment of the husband’s contributions was manifestly inadequate, but the principal challenge appears to be that her Honour failed to provide adequate reasons for this finding. In other words, it is said that it cannot be discerned from her Honour’s reasons on what basis her Honour concluded that this was the appropriate percentage division.
In his written and oral submissions the husband’s counsel has taken the court on a journey through her Honour’s reasons searching for that basis. I am persuaded that that basis cannot be found and the reasons are inadequate.
The law with respect to the need to provide adequate reasons is well settled, and is often repeated by this Court. For example, in Bennett & Bennett (1991) FLC 92-191, the Full Court said (at 78,266):
In Sun Alliance Insurance Ltd v Massoud (1989) VR 8, the Full Court of the Supreme Court of Victoria, consisting of Fullagar, Gray and Tadgell JJ, followed the principles established by the New South Wales Court of Appeal. Gray J, who delivered the principal judgment, said, at 18:
The adequacy of the reasons will depend upon the circumstances of the case. But the reasons will, in my opinion, be inadequate if: --
(a)the appeal court is unable to ascertain the reasoning upon which the decision is based; or
(b) justice is not seen to have been done.
The two above stated criteria of inadequacy will frequently overlap. If the primary Judge does not sufficiently disclose his or her reasoning, the appeal court is denied the opportunity to detect error and the losing party is denied knowledge of why his or her case was rejected.
We think that the test propounded by Gray J is a particularly useful one, and one which also applies to discretionary judgments. In Maday and Maday (1985) FLC ¶91-636, Fogarty J, in a judgment with which the other members of the Court (Emery and Murray JJ) agreed, took the view that these principles clearly did apply to discretionary judgments …
Their Honours continued (at 78,267):
In the absence of adequate reasons, the Full Court is not obliged to uphold a judgment merely because the result may be said to fall within the wide ambit of the Judge's discretion. In general, the appellate Court should be able to discern either expressly or by implication the path by which the result has been reached.
We stress that we are not suggesting that reasons must be extensive. Their adequacy must frequently be judged by reference to the issues raised by the parties at trial.
…
We would not, for example, wish to discourage the giving of ex tempore judgments (although this judgment was not an ex tempore judgment). There is no reason why, in an ex tempore judgment in a custody matter, a Judge cannot shortly examine the various factors set out in sec 64(1)(bb) and other relevant matters, and set out the process of reasoning leading to a conclusion as to custody or access as the case may be.
The important thing is that the appellate court must be placed in the position of being able to follow the trial Judge's line of reasoning, as must the parties, if they are to be satisfied that justice has been done.
It is sometimes said that given the wide discretion reposed in the court under
s 79 of the Act, and given that contributions in particular are never calculated with mathematical precision, no amount of exposition can ever explain exactly why a particular percentage is arrived at (e.g., per Finn J in Farmer & Bramley (2000) FLC 93-060, at [49]). However, as Coleman J, sitting as the Full Court, said in Steinbrenner & Steinbrenner [2008] FamCAFC 193 (at [234]), sometimes “the leap (from words to figures) is so great and so unheralded by the discussion that precedes it, as to render the reasoning process defective.” I consider that that is the case here.
The wife’s counsel submits, correctly, that it is not alleged that the Federal Magistrate “failed to take account of any relevant considerations or that she took account of any irrelevant considerations”, and thus the complaint can only be as to weight. However, there is ample authority that despite no obvious appellate error, if “upon the facts (the result) 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” (House v The King (1936) 55 CLR 499, at 504).
In a similar vein, Brennan J said this in Norbis v Norbis (1986) 161 CLR 513, at 539-540:
The difficulties in the way of developing guidelines beset an appellate review of the exercise of discretion under s.79. Unless the primary judge reveals an error in his reasoning, the Full Court can intervene only if the order made is not just and equitable. How does the Full Court arrive at that conclusion? In Bellenden (formerly Satterthwaite) v Satterthwaite [1948]
1 All ER 343 at p. 345 Asquith L.J. stated the rationale of an appellate court’s approach:“It is, of course, not enough for the wife to establish that this court might, or would, have made a different order. We are here concerned with a judicial discretion, and it is of the essence of such a discretion that on the same evidence two different minds might reach widely different decisions without either being appealable. It is only where the decision exceeds the generous ambit within which reasonable disagreement is possible, and is, in fact, plainly wrong, that an appellate body is entitled to interfere.”
The “generous ambit within which reasonable disagreement is possible” is wide indeed when there are a number of factors to be taken into account and the comparative weight to be attributed to those factors is not clearly indicated by uniform standards and values of the community. The generous ambit of reasonable disagreement marks the area of immunity from appellate interference.
Here, in my view, “the decision exceeds the generous ambit within which reasonable disagreement is possible, and is, in fact, plainly wrong”.
In assessing the respective contributions of the parties her Honour found as follows:
a.The marriage was of long duration, spanning over 30 years.
b.The marriage produced two children, both of whom are now adults.
c.The wife had more assets than the husband at the commencement of cohabitation but no weight was placed on this “due to the passage of time and the subsequent contributions of the parties” (at [151]). There is no challenge to this finding.
d.“The husband earned an income in his employment for many years until he was made redundant in 1988”, and he was “the main financial contributor until the purchase of the business” in 1998 (at [152]).
e.The husband’s termination payment from his employment and his superannuation were used in the purchase of the business, and loans were obtained from the husband’s mother and his sister. The wife also contributed financially to the business but that was minimal by comparison to the husband’s contribution and those made on his behalf.
f.“During the marriage the wife was the main homemaker and parent” (at [153]). She also earned income as a self-employed hairdresser, and through her involvement with A.
g.The husband worked long hours in the business but after separation “lost interest in it” (at [154]). He also “adopted poor management practices in respect of its operation”. Significantly though, her Honour rejected the wife’s claims that the husband “pursued his gambling and [racing activities] to the detriment of the business”, and that his “drinking” also had a negative effect on the business. In relation to the husband’s gambling, her Honour specifically found that it was a form of entertainment in which the wife was also involved, and “the evidence was not sufficient for [her Honour] to find that there was wastage in accordance with the Kowaliw principles” (at [121]).
h.Importantly, her Honour found in relation to the husband’s conduct generally, “that the husband had not embarked upon a course of conduct designed to reduce or minimise the effective value or worth of the [business]”. Her Honour was “not persuaded that he has acted recklessly, negligently or wantonly which has had the effect of reducing the value of assets, in accordance with the principles in Kowaliw” (at [129]).
i.
The husband drew a director’s fee from the business in cash. However,
her Honour was “not persuaded that there was evidence sufficient to find that he was taking amounts of cash to contribute to the level of indebtedness of the business or to its demise” (at [132]). Her Honour did not “consider that this conduct was sufficient to make a finding of waste against the husband”.
j.
After the purchase of the business the wife began working there for three days each week, but after six to 12 months that was scaled back to only one day each week. Then, after two years, the wife ceased working there altogether. The husband was assisted by his sister who was a
10 per cent shareholder in the company that operated the business, and she was the manager in charge when the husband was unable to be present. Approximately four months before the sale of the business, in March 2008, the husband’s sister “took over the financial side of the business” (at [100]).
k.The husband supported the wife in her hairdressing and A businesses, particularly allowing her to develop the latter.
l.The wife received gifts of shares from her father, and the husband did not contribute to these assets. The wife also purchased a Mercedes Benz motor vehicle from an inheritance, and plainly the husband made no contribution to that asset either.
m.In 2004 the husband transferred to the wife his interest in the matrimonial home, and thereafter the husband made no financial contribution to it. The wife paid the outgoings and the mortgage repayments. Following separation in 2007 the wife remained living in that home, and she “conserved” it by undertaking any necessary repairs and maintenance. She also paid for any renovations that she required.
n.Although the wife continued to make mortgage repayments in relation to the matrimonial home after separation, her Honour chose to use the debit balance of that mortgage at separation in the assets and liabilities schedule rather than the amount outstanding at the date of the hearing.
As submitted by the husband’s counsel, it is not apparent from those findings on what basis her Honour concluded that the appropriate percentage division should be 75 per cent / 25 per cent in the wife’s favour.
Importantly, it cannot be because of any finding of waste by the husband in relation to the business or how he operated it because her Honour specifically found that the evidence of his conduct did not support such a finding.
There was an issue raised by the wife as to whether all the proceeds of the sale of the business were accounted for including queries as to some of the payments made out of those proceeds. Her Honour was not satisfied with the evidence of the husband in this regard and his failure to disclose in his affidavit material that he had received several payments by way of repayment of vendor finance of $35,000 for the sale of the business, and that he retained money paid by debtors of the business. Her Honour though, correctly in my view, did not take this into account in assessing the respective contributions of the parties, and instead took it into account under s 75(2)(o) of the Act. To repeat, her Honour said this at [145]:
I infer from the husbands’ (sic) lack of satisfactory explanation about the funds paid to Moores Legal and from his failure to disclose in his affidavit that he had received payments from the vendor, that it is likely that he received some further benefit of these funds. I consider that it is appropriate to take this into account under s.75(2)(o) of the Act.
Thus, this cannot be a basis for her Honour’s findings on contributions.
From her Honour’s reasons it is plain that her Honour found the husband “lost interest” in the business after separation, and that “[h]e adopted poor management practices in respect of its operation” (at [154]).
It is unclear precisely what her Honour was including in the latter description. At [85] her Honour recorded the wife’s complaints in this regard, and they were the practice of carrying cash in his pocket from the till to the safe, and depositing money from the business in another bank account when the bank used by the business was unavailable. However, at [131] her Honour said this:
Nevertheless, I consider that the husband adopted poor business practices and was a poor manager. He did not ensure that adequate records were kept. He did not arrange for financial statements of the business to be completed for a period of six years. He spent time betting, drinking and at the Hotel. He lost interest in the [business] to the extent that his sister assumed full responsibility for its management
I agree with the submission of the husband’s counsel that having made her finding that the husband’s gambling was not excessive, and then not finding that the husband’s drinking was excessive, culminating in her Honour concluding that the evidence was insufficient to establish wastage “in accordance with the principles in Kowaliw” at [129], it was not then open to her Honour to take those matters into account in assessing the respective contributions of the parties.
Given her Honour’s findings at [129], it is difficult to understand how the “poor business practices” could be relevant to an assessment of contributions, and, even if they were relevant, how that could result in the conclusion reached by
her Honour. I also note that her Honour’s comment in the last sentence at [131] clearly overstated the position, and was not in accordance with the evidence. As her Honour herself recorded at [100], in November 2007 the husband’s sister “took over the financial side of the business”.
Outside of these issues, it is clear that her Honour gave credit to the wife for her financial and non-financial contributions to the former matrimonial home after 2004. However, it must be remembered that after separation the wife enjoyed sole use and occupation of that property, and that by only taking into account the outstanding balance of the mortgage as at separation, her Honour did not take account of what was done in relation to that mortgage after separation. Thus it would not seem that this factor, either coupled with what I have referred to in the previous paragraph if relevant, or alone, could be a basis for concluding as her Honour has done.
In summary then, whether it is treated as a lack of adequate reasons, or as a result that “exceeds the generous ambit within which reasonable disagreement is possible, and is, in fact, wrong”, I find that her Honour has erred and there is merit in this ground of appeal.
That is sufficient to dispose of this appeal, but the question then becomes whether it is necessary to still address the remaining grounds of appeal. The High Court, in Kuru v NSW (2008) 236 CLR 1, at 6, has suggested that it is necessary. However, given that I propose to remit the proceedings to the Federal Circuit Court of Australia for rehearing, it may restrict the exercise of discretion by the judge who hears the matter if I now address any grounds of appeal apart from those that relate to the issue of contributions or those in respect of which there can be no controversy. Thus, I propose to address Grounds 2, 3, 5, and 6, but not Ground 10. That ground challenges her Honour’s treatment of the relevant factors under s 75(2) of the Act.
Grounds 2 and 3
These two grounds were argued together by the husband’s counsel. Plainly, given what I have said above in relation to Ground 1, there is merit in these two grounds and I need say no more about them.
Ground 5
In his written submissions the husband’s counsel sought to amend this ground by deleting the words “taking into account twice” and substituting the words “in the way she assessed”. Apart from the fact that this amendment renders the wording of the ground of appeal unclear, there can be no merit at all in this ground. Indeed, the complaint seems to be based on a misconception of what her Honour did; her Honour did not take the husband’s non-disclosure into account “at the stage of valuation and contributions”. Her Honour took that into account under s 75(2)(o) (at [168]), as her Honour said at [145] that she would be doing.
That disposes of this ground. However, in the summary of argument, the husband’s counsel introduced a completely different point than expressed in the ground of appeal, namely that her Honour erred in dealing with non-disclosure under s 75(2)(o) of the Act. He suggests “that her Honour confused the principles of non-disclosure with the principles of wastage”. He says that “non-disclosure justifies an add-back or an additional award at the contribution stage”.
The further complaint is made here, again not the subject of the ground of appeal, that her Honour erred in offsetting the consequences of the disparity in the respective asset positions of the parties (s 75(2)(b)) by the non-disclosure of the husband (s 75(2)(o)).
In my view these submissions are groundless, and I reject them. Although non-disclosure by a party can lead to a notional add-back to the asset pool, or can be taken into account in assessing the contributions of the parties, it is not limited to that. It is conduct by a party and thus can plainly be taken into account under s 75(2)(o). Further, that is not prevented (as suggested by the husband’s counsel) by the inability of a court to “quantify” an amount to be taken into account under s 75(2)(o). Indeed, it is more often than not that the non-disclosure itself prevents the assessment of quantum.
Finally, the consideration of relevant factors under s 75(2) often entails a balancing process between those relevant factors informing the conclusion that the court arrives at in making an adjustment or not.
Ground 6
This is a challenge which I consider is also caught up in Ground 1. In other words, this issue is just one aspect of how her Honour reached her conclusion on the respective contributions of the parties. She clearly recognised that the husband used his lump sum termination payment, and his superannuation payout in purchasing the business, but how she took it into account, or what weight she gave it, is unclear, in the context of the conclusion that she reached.
The wife submits that on the evidence these contributions should not be treated as sole contributions by the husband, and that would appear to be correct given that the relevant period of the husband’s employment coincided with the length of the marriage to the point that he received his termination payment and his superannuation payout. However, that did not feature at all in her Honour’s reasons and thus this does not resolve the lack of adequate reasons by
her Honour.
Conclusion
Having found merit in Grounds 1, 2, 3 and 6, the appeal must be allowed. The next question though is whether the discretion should be re-exercised or the proceedings remitted for rehearing.
The husband’s counsel submitted that this court should re-exercise the discretion, but the wife’s counsel submitted that the proceedings should be remitted for rehearing.
Given the lack of challenge to her Honour’s findings on the facts, it is tempting to re-exercise the discretion. However, it is apparent that there would be the need for further evidence, and at least some of that evidence may be controversial. This court of course is not equipped to hear cross-examination and to determine disputed issues of fact. Further, if this court re-exercised the discretion and made new orders, the only avenue to appeal those orders would be to seek special leave to appeal to the High Court of Australia. On the other hand, if the proceedings are remitted to the Federal Circuit Court of Australia for rehearing, if either party is unsatisfied with the result of that rehearing then an appeal could be brought to this court.
In all the circumstances I consider that the appropriate course is to remit the proceedings to the Federal Circuit Court of Australia for rehearing by a judge other than Judge Baker.
As to what orders made by her Honour should be set aside, although it is plain that Order 1 is in that category, it seems to me that Orders 2, 3 and 4 should also be set aside. Although Order 2 is a default order, the calculation that is to be made pursuant to that order is based on the husband’s entitlement only being
25 per cent.
With Order 3, although that might seem to be an order unaffected by
her Honour’s findings on contributions, it is not possible to predict whether it will be an appropriate order in the context of the findings and orders that may be made upon the rehearing.
Finally, in relation to Order 4, obviously the issue of the costs of the hearing will need to await the terms of any orders made on a rehearing.
Costs
At the conclusion of the hearing the Court received submissions on the question of costs.
If the appeal is allowed both parties sought the issue of costs certificates pursuant to the Federal Proceedings (Costs) Act 1981 (Cth) (“the Costs Act”). Further, in the event that there was to be a rehearing then both parties also sought costs certificates for that rehearing pursuant to the Costs Act.
Plainly the appeal is being allowed as a result of an error of law by the Federal Magistrate. Thus given that in my view there should be no order for costs, it is appropriate for costs certificates to issue as sought by both parties.
I certify that the preceding one hundred and sixteen (116) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Strickland delivered on 8 July 2014.
Associate:
Date: 8 July 2014
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