CHAN & CHIH
[2020] FamCAFC 31
•14 February 2020
FAMILY COURT OF AUSTRALIA
| CHAN & CHIH | [2020] FamCAFC 31 |
| FAMILY LAW – APPEAL – PROPERTY – Where the husband appeals against final property settlement orders – Where the primary judge categorised the property into two pools – Where the primary judge erred in his understanding of the husband’s position in relation to the s 75(2) Family Law Act 1975 (Cth) adjustment – Where the primary judge failed to determine what, if any, adjustment there should be pursuant to s 75(2) – Where there was insufficient reasons for making a five per cent adjustment in the wife’s favour – Where the primary judge did not take into account all relevant s 75(2) factors – Where the five per cent adjustment for s 75(2) factors was outside the reasonable range – Appeal allowed – Where the discretion is re-exercised – Where there should be no adjustment pursuant to s 75(2) – Where the orders are varied to allow for no s 75(2) adjustment – Costs certificates issued. |
| Family Law Act 1975 (Cth) s 75(2) and s 79 Federal Proceedings (Costs) Act 1981 (Cth) s 6 and s 9 |
| Clauson and Clauson (1995) FLC 92-595; [1995] FamCA 10 Steinbrenner & Steinbrenner [2008] FamCAFC 193 |
| APPELLANT: | Mr Chan |
| RESPONDENT: | Ms Chih |
| FILE NUMBER: | SYC | 3511 | of | 2014 |
| APPEAL NUMBER: | EAA | 147 | of | 2018 |
| DATE DELIVERED: | 14 February 2020 |
| PLACE DELIVERED: | Adelaide |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Strickland, Ryan & Tree JJ |
| HEARING DATE: | 23 May 2019 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 11 October 2018 |
| LOWER COURT MNC: | [2018] FamCA 822 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Cummings SC |
| SOLICITOR FOR THE APPELLANT: | Kim & Associates |
| COUNSEL FOR THE RESPONDENT: | Mr Sansom SC |
| SOLICITOR FOR THE RESPONDENT: | Cominos Family Lawyers |
Orders
The appeal be allowed.
Paragraph 2 of the order made on 11 October 2018 be varied to provide that the sum of $194,239 be substituted for the sum of $665,166 noting that in January 2019 the husband paid to the wife the sum of $267,500, which sum is to be retained by the wife.
Sub-paragraph 4.8.6 of the said order be varied to provide the amount of $461,739 be substituted for the amount of $665,166 and 68.9 per cent be substituted for 73.9 per cent wherever that percentage appears.
The Court grants to the appellant husband 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 this appeal.
The Court grants to the respondent wife 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 this appeal.
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 Chan & Chih 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: EAA 147 of 2018
File Number: SYC 3511 of 2014
| Mr Chan |
Appellant
And
| Ms Chih |
Respondent
REASONS FOR JUDGMENT
Introduction
By way of Notice of Appeal filed on 8 November 2018, Mr Chan (“the husband”) appeals against paragraphs 2, 4 and 5 of the final property settlement order made by a Family Court of Australia judge on 11 October 2018 in proceedings between the husband and Ms Chih (“the wife”).
The orders appealed from require the husband to pay the wife the sum of $665,166 within 42 days from the date of the order (order 2) and, in the event that the husband fails to comply with that order, the orders provide for the sale of a property situated at D Street, Suburb C (“the Suburb C property”), with the proceeds to be applied to discharge a line of credit with the Commonwealth bank, the mortgage over the property and, after the costs of sale, payment of the above sum to the wife and the balance to be paid to the husband (order 4). The orders provide that until the Suburb C property is sold, the husband is to maintain that property and meet all of the outgoings, and is to make all payments in respect of the line of credit with the Commonwealth Bank and the mortgage (order 5).
The wife opposes the appeal.
Relevant Background of the Parties
The husband was born in 1969 and is currently 50 years of age.
The wife was born in 1974 and is currently 45 years of age.
The parties were married in 1999 and moved from South Korea to Australia in 2000. They separated in June 2013.
There are two children of the marriage, X and Y, aged 16 and 13 years respectively at trial.
The husband was unemployed from the beginning of the marriage until December 2003 when he commenced work as an engineer.
In May 1998 the husband received an apartment in City G as a gift from his father (“the N apartment”).
Between 1999 and 2005 the husband’s parents made gifts to the parties worth $100,000 which the parties used to pay for living expenses.
The N apartment block was demolished in 2005 and the S apartment block built in its place. The husband purchased one of the new apartments for $270,000 (“the S apartment”) and the husband’s parents became the tenants.
In 2005 the husband’s parents paid the husband the first Jeonse of the S apartment in the sum of $530,000, and made a gift of $55,000 to the parties.
Jeonse is a tenanting system used in South Korea. Instead of paying periodic rent, a tenant will pay a significant lump sum deposit, the average deposit amounting to approximately 70 per cent of the market value of the property. Upon the termination of the tenancy, the Jeonse is repaid to the tenant but the landlord has the use of the lump sum for the duration of the tenancy.
On 10 July 2006 the parties purchased the Suburb C property for $615,000. On the husband’s case the property was acquired with a cash payment of $530,000 and a mortgage of $150,000 from Commonwealth Bank. On the wife’s case the cash payment was $510,000, in addition to the mortgage.
In 2008 the husband’s parents gifted the parties the sum of $98,000 which was used for mortgage repayments.
On 2 August 2010 the husband received a second Jeonse of $462,000 which was paid by an incoming tenant. From that, $46,000 was used to pay the mortgage, with the remainder used to discharge the first Jeonse.
On 28 July 2012 the husband received a third Jeonse of $442,000 from a further incoming tenant. From that, $26,520 was used to pay the mortgage, with the remainder used to discharge the second Jeonse.
On 27 June 2013 the husband received a redundancy payment of $24,201.11.
The parties separated on 30 June 2013.
In 2014 the wife’s father died without a will. The wife received $60,000 from her mother shortly after his death.
The wife commenced proceedings for property settlement in the Federal Circuit Court on 10 June 2014.
On 15 July 2014, the wife’s late father’s commercial property (“the J Property”) was divided. The wife received a 5/14th share.
On 26 August 2014 the husband received a fourth Jeonse worth $634,000 which was deposited into a Korean bank account.
In October 2015 the wife and children moved into rental accommodation costing the wife $530 per week.
On 4 August 2016 the husband received a fifth Jeonse of $882,500 which was deposited into a Korean bank account.
At the time of trial the Jeonse was in the sum of $889,654.
The Appeal
The husband’s Notice of Appeal comprised eight grounds of appeal. However, at the commencement of the appeal, Grounds 2, 3 and 8 were abandoned, and that left Grounds 1, 4, 5, 6 and 7 in place. Those grounds are all concerned with the adjustment that his Honour made pursuant to s 75(2) of the Family Law Act 1975 (Cth) (“the Act”). Thus it is convenient to address the grounds together, but initially focusing on Grounds 1 and 7, then moving to Grounds 4 and 6, and finally to Ground 5. Grounds 1 and 7 are as follows:
That His Honour erred in making an adjustment of 5% to the wife pursuant to s.79(4)(d)-(g). [Ground 1]
That His Honour erred in law in making Orders that were outside of a reasonable range of the wife’s entitlement. [Ground 7]
The husband submits that his Honour should not have made any adjustment pursuant to s 75(2) in favour of the wife.
First, it is said that his Honour erred in his understanding of the husband’s position in relation to what adjustment, if any, should be made pursuant to s 75(2) of the Act.
In both the husband’s case outline document and his final submissions (Transcript 23 February 2018, p.302-303 and p.305), the husband was propounding that there should be three pools for the assets of the parties, namely one pool for the wife’s Korean assets, one pool for the husband’s Korean assets, and one pool for the parties’ Australian assets. As to the respective contributions of the parties, he submitted that the contributions in relation to the first pool should be assessed at 100 per cent in favour of the wife, in relation to the second pool, 100 per cent in favour of the husband, and in relation to the third pool 75 per cent/25 per cent in the husband’s favour. He then put that the s 75(2) adjustment should be in the range of 0 – 5 per cent, but only in relation to the third pool.
His Honour determined that there should be two pools rather than three, one comprising the wife’s Korean assets, and the other comprising all other property. His Honour then assessed the contributions in relation to the first pool at 100 per cent in the wife’s favour, and in relation to the second pool at 70 per cent/30 per cent in favour of the husband.
However, when his Honour came to address the s 75(2) factors, he proceeded on the basis that the husband was conceding an adjustment of 0 – 5 per cent across both pools. Yet this concession was only made by the husband if there was to be three pools, and the adjustment was only in relation to the third pool.
The husband submits that that error by his Honour derailed the adjudicative process. The wife was seeking an adjustment of 15 – 20 per cent, and it seems that his Honour proceeded on the basis that he had to decide on what adjustment there should be between 5 per cent (the husband’s maximum) and 20 per cent (the wife’s maximum).
His Honour found (at [159]), that there should be an adjustment of 5 per cent “calculated upon the combined value of both pools”.
It is argued, correctly in our view, that what his Honour should have done, is after making his assessment of the respective contributions of the parties, consider whether there should be a s 75(2) adjustment, and if so, what that adjustment should be. It is apparent that his Honour did not do that, and thus his Honour has erred as a result of his misunderstanding of the husband’s position in relation to the application of s 75(2).
Given that, the question to be answered is whether his Honour erred in any event in finding that the appropriate adjustment was 5 per cent across the two pools (Ground 7).
The husband argues that no adjustment should have been made, but if there was to be one, it should only apply to the second pool. The former argument brings into play not only Ground 7, but also grounds 4 and 6 which are as follows:
That His Honour failed to have regard to the future income that would flow to the wife from the commercial property after allowance for the funds held by the wife’s mother. [Ground 4]
That the 5% adjustment to the wife pursuant to s.79(4)(d)-(g) were not supported by the evidence or the findings of His Honour as to the parties future circumstances. [Ground 6]
His Honour identified and addressed the relevant s 75(2) factors, commencing at [149] as follows:
SECTION 79(4)(d) - (g) MATTERS
149.The wife asks for an adjustment to her of between 15 to 20 per cent.
150.The husband asks for an adjustment to the wife between zero to five per cent.
151.When considering the prospective factors, the conclusions reached for pools one and two need to be taken into account. The overall net assets in both pools are in the sum of $4,071,375. As indicated above, based on contributions, the wife would receive $2,805,036 (68.9 per cent) of the combined assets in both pools and the husband would receive $1,266,339 (31.1 per cent).
152.Having said that, as indicated earlier, I am mindful that the figure ascribed to the wife of $2,262,319, being the value of her legal interest in the J Property, needs to be balanced against the possible practical/moral/cultural requirements for the wife to not have the benefit of the capital of the property during her mother’s life and to not have the full benefit, on a regular ongoing basis, of precisely 5/14th of the income stream of the J Property. Nonetheless, even taking that into account, I find that the wife has greater assets than the husband after a division based on contributions.
153.As earlier indicated, I find on balance that the wife is likely to be entitled to $69,239 of the $355,871 the wife’s mother holds in savings, subject to the payment of inheritance tax as earlier discussed. The wife can expect a greater regular payment from the rent on the J Property after the final tax instalment is paid in October 2019.
154.Independently of the wife’s entitlement to an income stream from her legal interest in the J Property, there is an additional question as to what, if any, financial resource the wife’s mother is to the wife. The mother’s parents (before the death of her father) gifted the wife $60,000 at the time of the separation of the parties. As already mentioned, since the father has passed away the wife has received amounts from her mother totalling $90,000 ($60,000 lump sum and $30,000 in various amounts when the wife travelled to Korea and the wife’s mother came to Australia). It is important not to double count this consideration but if I am incorrect about the wife’s right to an income from the J Property then, alternatively, I can take into account the history of financial support that the wife’s mother has otherwise provided the wife. As indicated, I do not have the complete details of the wife’s mother’s financial circumstances but she has the surplus funds that are referred to in the discussion about item 13 in pool one.
155.As already indicated, I have not placed on the pool two balance sheet any debt that the wife may owe to her mother because I found that it is unlikely to be called upon, notwithstanding that, the wife will receive a capital sum as a result of these proceedings.
156.The wife is 43 years old and the husband is 48 years old. Both parties are in good health.
157.As mentioned above, the husband is employed as a general manager on a gross weekly wage of $1,327 and the wife is employed as a casual preschool assistant and estimates that her average weekly wage is $598.
158.The wife asserts that the husband pays child support in the total sum of $138 per week. The husband’s evidence is that the assessment is $141 per week but he pays additional monies for tuitions and medicals and estimates his payment to the wife by way of child support averages $216 per week. The difference in these figures was not the subject of any testing at the hearing. The wife has the main care for the two children aged 13 and 16. As indicated, the younger child is estranged from her father and it is probable that she will not have anything to do with him from this time until at least her 18th birthday. The substantial burden of the costs of caring for the children in the future will fall upon the wife.
Conclusion in relation to s 79(4)(d)-(g) adjustment
159.Taking all the above considerations into account, and particularly having regard to the real nature of the wife’s interest in the J property which is subject to the restrictions earlier discussed and the wife’s future responsibilities of the costs of the children, I find that a five per cent adjustment should be made in the wife’s favour for s 79(4)(d) – (g) considerations calculated upon the combined value of both pools.
The husband submits in paragraph 4 of his summary of argument filed on 17 April 2019, that the evidence before his Honour should have led him to find:
a)“That the financial resources available to each of the parties offset each other”, and the fact (as found by his Honour) that the wife’s mother “is a resource that can be called upon to provide funds to the [wife] more than compensates the gap between the income of the parties”;
b)“That both parties have since separation enjoyed a standard of living that is in all circumstances reasonable and will continue to be reasonable”; and
c)The wife’s care of the children under the age of 18 years is offset by the wife retaining the whole of the first pool of assets.
These submissions are plainly relevant, and highlight a difficulty with his Honour’s reasons, namely it is not possible to discern how his Honour arrived at his conclusion. In [159] his Honour fails to identify why and how the considerations set out in the previous 10 paragraphs led him to that conclusion. Indeed, it cannot be said that his Honour took into account all relevant s 75(2) factors in arriving at the figure of 5 per cent across the two pools. At the very least, the factors referred to by the husband above are not to be found in his Honour’s reasons.
The wife seeks to justify the conclusion and the reasoning leading to it, by suggesting that this is an example of the inevitable leap from words to figures famously expounded by Coleman J in Steinbrenner & Steinbrenner [2008] FamCAFC 193 at [234]. However, as is well known, there is the rider employed by Coleman J that “[i]n some cases, the “leap” is so great, and so unheralded by the discussion which precedes it as to render the reasoning process defective” (at [234]).
We find that that is the case here, and there is merit in Ground 5 which asserts as follows:
That His Honour gave insufficient reasons for making a 5% adjustment to the wife pursuant to s.79(4)(d)-(g). [Ground 5]
It is also argued that the particular factors identified in [159] cannot justify a 5 per cent adjustment. Certainly, the financial responsibilities for the children are a highly relevant factor, but the children were aged 16 and 13 years respectively, and the husband was paying child support as well as providing additional funds. In relation to the “real nature” of the wife’s interest in the J property, that can only refer to the issues identified by his Honour at [89], but his Honour made no findings as to the restrictions on the wife’s enjoyment of her interest in that property being significant enough to justify an adjustment of 5 per cent.
Further, it is significant that his Honour only referred in percentage terms to the extent of the adjustment. There is no dollar figure discussed, and no analysis by his Honour of the real effect in money terms of the adjustment. The adjustment of 5 per cent represented $203,568, and created a differential of approximately $407,000. To not take that into account flies in the face of authorities such as Clauson and Clauson (1995) FLC 92-595 (“Clauson”).
Thus, Ground 7 has merit.
With Ground 4, that asserts a failure by his Honour to have regard to the future income that would flow from the commercial property in Korea and which comprises the first pool. However, we consider that there is no merit in this ground.
His Honour adequately addressed this commercial property, not only as to its value (at [90]), but also the need for the rental income to be primarily available to meet the needs of the wife’s mother (at [91]), and the fact that that would not exhaust that income (at [92]). His Honour then said:
93.Whilst I could have adopted the approach of treating the value of the wife’s interest in the J property as not being known on the basis that some discount (of which there is no actuary evidence) should be applied to the face value of the wife’s interest in the property, it is more convenient if I simply adopt the value of the wife’s legal interest in the property for the purposes of the balance sheet and take into account, when considering s 79(4)(d) – (g) considerations, the fact that the wife does not have the capital in this property immediately available to her, that in the short term she will not have available to her the full income stream flowing from her interest in the property and that, in the medium to long term, some of that income may need to be retained by her mother for her living expenses.
(Emphasis as per the original)
At [94] and [95], his Honour dealt with the funds saved by the wife’s mother from the rental income, and found that those funds “might be available to the wife to call upon”.
Importantly, with this background, his Honour included the prospect of the wife receiving at least some of the rental income in the future in the factors that his Honour found were relevant pursuant to s75(2).
With Ground 6, it is unclear what the “evidence” is, or what “the findings” of his Honour are as to the parties’ future circumstances, that the husband says does not support an adjustment of 5 per cent. At its highest, the argument of the husband seems to repeat the issue that is the subject of Ground 4, namely, the wife’s future entitlements from the commercial property in Korea. However, to repeat, we are not persuaded that his Honour erred in that regard. Thus, we cannot find any merit in Ground 6.
That leaves the issue raised under the umbrella of Grounds 1 and 7, namely, did his Honour err in applying the 5 per cent adjustment across the two pools. However, that is not what his Honour in fact did. His Honour did not apply an adjustment of 5 per cent to the first pool, and an adjustment of 5 per cent to the second pool. For a start, it is not possible to increase the wife’s 100 per cent entitlement to the first pool, but his Honour, after making his contributions assessment, combined the two pools, which resulted in a total asset pool of $4,071,375, in respect of which the wife was entitled to 68.9 per cent, and the husband 31.1 per cent. It was then that his Honour applied the 5 per cent adjustment in favour of the wife, and it is not apparent how his Honour has erred in doing do; it is not “double-counting” and it is not “inflating” the finding of a 5 per cent adjustment as alleged by the husband. Indeed, at least one of the major factors relevant to the s 75(2) consideration relates entirely to the commercial property which comprised the first pool, namely, the prospect of the wife receiving rental income from that property into the future. Thus, there is no merit in this aspect of Grounds 1 and 7.
Conclusion
His Honour erred in his understanding of the husband’s case in proceeding, as his Honour did, on the basis that the husband was conceding a s 75(2) adjustment in favour of the wife of a maximum of 5 per cent, and adopting that as the outcome. As a result, his Honour failed to actually determine what, if any, adjustment there should be.
Allied to that is a lack of adequate reasons for concluding that there should be a 5 per cent adjustment in the wife’s favour.
As we have found, there is merit in Grounds 1, 5 and 7, and the appeal must be allowed.
In that event, both parties request that the discretion be re-exercised confined to what, if any, adjustment should be made pursuant to s 75(2). Further, neither party seeks to adduce further evidence for the purpose of that re-exercise.
On that re-exercise the husband contends that there be no adjustment for any s 75(2) factors, and the orders be amended on the basis of the adjustment made by his Honour being removed. The wife contended that there should be no change to the adjustment as found by his Honour, and thus no change to the orders.
The relevant factors to be taken into account are as follows:
a)The husband is 50 years of age, and the wife 45. They are both in good health;
b)The husband is employed as a general manager with a gross weekly wage of $1,327, and the wife is employed as a casual pre-school assistant with an estimated weekly wage of $598. However, that difference is overcome by the fact that the wife’s mother is a resource that can be called upon by the wife to provide funds to her. There is also the circumstance that the wife will receive more income over time from the rental income for the J property, and it is the case that the payments the wife has been receiving from her mother are sourced from that income;
c)The wife has the primary responsibility to care for the two children of the marriage. Indeed, the younger child is estranged from her father;
d)The husband pays child support, he says of $141 per week (the wife says it is $138 per week), as well as additional money for various expenses totalling $75 per week. That evidence was not challenged below;
e)Since separation both parties have enjoyed a standard of living that is reasonable, and will continue to do so;
f)Although the wife holds a legal interest in the J property, she does not have immediate access to her share of the capital of that property, and her mother has the first call on the rental income to meet her ordinary living expenses. However, not all of the income has been, nor will be needed for that purpose, and thus not only does the wife have the prospect of receiving a proportion of that income in the future in any event, but in due course she will receive all of it;
g)The wife’s mother holds an amount of $69,239 on behalf of the wife, being the wife’s share of the rental income from the J property that has been able to be saved by her mother. Those funds are available to the wife, but they are being managed by her mother, and there was inheritance tax payable by the wife in relation to the J property, although the final tax instalment was anticipated to be paid in October 2019; and
h)Of the overall net assets of $4,071,375 the respective contribution entitlements of the parties are 68.9 per cent to the wife and 31.1 per cent to the husband.
There is no doubt that the wife has greater assets than the husband, but of course, there are the limitations just mentioned. Those limitations though are ameliorated by the knowledge that the wife eventually will have those benefits in full, and in the meantime the wife’s mother will continue to be a financial resource for the wife.
Importantly, the wife has the responsibility and the care for the two children of the marriage, and although the husband does pay child support, and additional amounts towards their expenses, that cannot offset all the tasks that fall upon the wife in not only attending to the children’s financial needs, but also their emotional and physical needs. As the Full Court said in Clauson, s 75(2)(c) recognises “the restriction on an independent lifestyle which the obligation to care for children usually entails” (at 89,911). These matters are significant because the younger child is estranged from the husband.
These are the factors that clearly need to be given prominence in considering the application of s 75(2). It seems to us that despite the immediate limitations on the wife’s enjoyment of her share of the capital value of the J property, and the income from it, she still has by far the greater assets, and that, together with the resource that her mother represents, offsets the wife having the responsibility and care for the children.
Thus, we find that there should be no adjustment for any relevant s 75(2) factors.
That leaves the wife’s entitlement to the net assets at 68.9 per cent, namely $2,805,177, and the husband’s entitlement at 31.1 per cent, namely $1,266,198. We note that his Honour’s calculations were slightly incorrect in this regard.
In any event, the wife has net assets of $2,343,438, and thus the husband will have to pay to her the sum of $461,739. However, he has already paid the sum of $267,500 in January 2019 pursuant to an order made by his Honour, as a condition of being granted a stay of the order the subject of this appeal. Accordingly, the further amount that the husband will be required to pay to the wife is $194,239.
As a result, paragraph 2 of the order made by his Honour will be varied to provide for a payment in this sum within 42 days of the orders that this Court makes, instead of the sum of $665,166.
In addition, there will need to be consequential changes to sub-paragraph 4.8.6 of the order made by his Honour, substituting the amount of $461,739 for the amount of $665,166, and substituting 68.9 per cent for 73.9 per cent, wherever that percentage appears.
Costs
At the conclusion of the hearing, submissions were sought as to the question of costs, depending upon the result.
In the event of the appeal being allowed, both parties sought costs certificates pursuant to the provisions of the Federal Proceedings (Costs) Act 1981 (Cth). In the circumstances, it is appropriate to grant those certificates.
I certify that the preceding sixty-seven (67) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Strickland, Ryan & Tree JJ) delivered on 14 February 2020.
Legal Associate:
Date: 14 February 2020