Commissioner of Taxation & Worsnop and Anor - [2009] FamCAFC 4

FAMILY COURT OF AUSTRALIA

COMMISSIONER OF TAXATION & WORSNOP AND ANOR

[2009] FamCAFC 4

FAMILY LAW - APPEAL – FROM A DECISION OF A FAMILY COURT JUDGE – Property settlement – Husband had a tax liability well exceeding the value of the matrimonial assets – The only significant asset was the former matrimonial home – Commissioner of Taxation joined as an intervenor – Commissioner sought an order that the proceeds of sale from the matrimonial home be paid in partial satisfaction of the husband’s tax liability – Common ground that the wife had no outstanding taxation liability – Trial Judge ordered that the net proceeds of sale of the matrimonial home be divided equally between the wife and Commissioner – Commissioner appealed arguing that both parties benefited from the tax evasion of the husband, particularly in relation to enabling the purchase of the matrimonial home, and as such the proceeds of sale of that property should be paid to the Commissioner – Commissioner submitted that the trial Judge ought have found that the source of funds used to purchase the matrimonial home was income upon which tax had not been paid – The issue of the source of funds for the purchase of real estate was adequately dealt with in the trial Judge’s broad analysis of the facts – Question of innocence or ignorance of the wife in relation to tax evasion was a factor relevant to whether the tax liability ought be met wholly by the guilty spouse – Commissioner’s status as a party did not create an entitlement to greater justice and equity within the s 79 order than had he been a non-party creditor – Trial Judge appreciated the critical balancing exercise of the wife’s and Commissioner’s claims – Trial Judge’s decision came within the parameters of reasonable exercise of discretion – Appeal dismissed

FAMILY LAW - APPEAL - Wife cross-appealed challenging the factual basis of the judgment – Wife stated that the legal fees paid by the husband should have been added back as a notional asset – Cross-Appeal dismissed

Family Law Act 1975 (Cth) s 75(2); s 79; s 90AE

Bellenden (formerly Satterthwaite) v Satterthwaite [1948] 1 All ER 343
Biltoft and Biltoft (1995) FLC 92-614
Hickey and Hickey and Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143
Bennett and Bennett (1991) FLC 92-191
Johnson and Johnson [1999] FamCA 369
Kowaliw and Kowaliw (1981) FLC 91-092
Norbis v Norbis (1986) 161 CLR 513 at 540; (1986) FLC 91‑712
P and P Tax Evasion (1985) FLC 91-605
Russell v Russell (1999) FLC 92-877

APPELLANT:

COMMISSIONER OF TAXATION

FIRST RESPONDENT:

Ms WORSNOP

SECOND RESPONDENT:

Mr WORSNOP

APPEAL NUMBER:

144

2007

FILE NUMBER:

SYF

2193

2006

DATE DELIVERED:

16 January 2009

PLACE DELIVERED:

Brisbane

PLACE HEARD:

Sydney

JUDGMENT OF:

Bryant CJ, Warnick and Cronin JJ

HEARING DATE:

11 June 2008

LOWER COURT JURISDICTION:

Family Court of Australia

LOWER COURT JUDGMENT DATE:

9 November 2007

LOWER COURT MNC:

[2007] FamCA1315

REPRESENTATION

COUNSEL FOR THE APPELLANT:

Mr Lethbridge SC and Ms Rees

SOLICITOR FOR THE APPELLANT:

Australian Government Solicitor

COUNSEL FOR THE FIRST RESPONDENT:

Mr Hallen SC and Ms Bridger

SOLICITOR FOR THE FIRST RESPONDENT:

Jo-Anna F S Moy Solicitor

COUNSEL FOR THE SECOND RESPONDENT:

Mr Gould

SOLICITOR FOR THE SECOND RESPONDENT:

LAC Lawyers

Orders

That the appeal and cross-appeal be dismissed.
That either party be at liberty to make an application by way of written submissions in respect of costs incurred by him or her in relation to the appeal by filing such submissions at the Sydney Registry of the Family Court and serving them on the other party within 21 days of the date hereof.
That the other party have a further 14 days in which to make written submissions in answer thereto by filing such submissions at the Sydney Registry of the Family Court and serving them on the other party.
That either party be at liberty to reply to an answer by way of written submissions by filing such reply at the Sydney Registry of the Family Court and serving them on the other party within a further 7 days.

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

THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY

Appeal Number: EA 144 of 2007
File Number: SYF 2193 of 2006

COMMISSIONER OF TAXATION

Appellant

And

Ms WORSNOP

First Respondent

And

Mr WORSNOP

Second Respondent

REASONS FOR JUDGMENT

In family law financial proceedings between the first and second respondents, the Commissioner of Taxation intervened. At the trial before Rose J in May 2007, the Commissioner sought:
…that the wife sell the former matrimonial home and that the whole of the net proceeds of sale be paid to the intervener in partial satisfaction of the outstanding tax liabilities of the husband and [C Company]. (Rose J: reasons for judgment)
His Honour found that the only substantial asset of the parties was the former matrimonial home, worth $4,750,000.00. The tax liability of the husband, including interest and penalties was $12,031,124.00 and that of the company “C Company”, $421,756.00. His Honour ordered that the former matrimonial home be sold and that, after costs of sale, proceeds be divided equally between the wife and the Commissioner. These reasons relate to the Commissioner’s appeal against that order.
At times, Mr Lethbridge SC, for the Commissioner, seemed to put the argument on his client’s behalf as highly as that, as a matter of principle, the Commissioner ought receive priority, not only over any other unsecured creditor, but above the claims at family law of the spouse of the debtor spouse. However, the essential argument here was that, both parties to the marriage having received the benefit of the monies upon which tax was unpaid, in particular in respect of the purchase of the former matrimonial home, either as a matter of principle, the Commissioner had to receive that property towards the debt, or, on the facts of this case, any other result would be an error of discretion.
The eight grounds of appeal can mostly be dealt with when addressing the argument so expressed. However, ground 3 asserts error in relation to the fact-finding process, namely that Rose J should have found, but did not, that the source of funds for the acquisition of real estate, including the former matrimonial home, were monies upon which tax was unpaid.
There is also a challenge to the sufficiency of reasons which, however, has little life independent of the arguments relating to principle and error of discretion.
The arguments for the husband in the appeal replicated those for the Commissioner.
A cross-appeal by the wife also challenges the factual basis of the judgment. In this regard, the wife asserts that the trial Judge should have added back, and indeed said he would, as a notional asset to the table of assets for division, legal fees paid by the husband, of $1,040,943.00. Further, following his assessment of contributions as of equal weight, the trial Judge should have notionally halved $150,000.00 approximately, in a controlled monies account, then ordered payment of the entirety to the wife, as partial recompense in respect of the husband’s paid legal fees. This argument attacked Order 8 of Rose J’s orders, by which the controlled monies account was to be paid to the Commissioner. Also, the wife argued, the value of a property held by the husband (“B”), worth $262,000.00, ought have been halved. The wife should have received her share of these assets, notional and real, to the extent she was not otherwise paid, from the husband’s half-share of the sale proceeds of the former matrimonial home.
After a background, including an outline of the approach taken by Rose J, we will deal with the questions that relate to factual conclusions first, as doing so enables us to clarify the factual base to which principle should be applied.

Background

The husband and wife commenced cohabitation in around late 1991 or in 1992. They “married” in late 1993. However, among the orders that Rose J made, was a decree of nullity of that marriage, on the basis that at the time of purported marriage to the wife, a decree nisi in respect of the previous marriage of the husband in England, had not become absolute. The husband and wife finally separated in November 2005. There were four children of the marriage.
At the commencement of the parties’ cohabitation neither had assets of any substantial value. The husband and wife were each employed, the wife by her sister’s company. When he arrived in Australia in about 1992, the husband also was employed by that company. In 1996, the husband commenced his own business, which involved purchasing computer parts and systems from the United States for assembly and ultimately resale in Australia. The business was conducted through a number of different corporations and over the years, the husband came to conduct some activities using offshore bank accounts and stock trading accounts. Tax avoidance started in 1996.
During the marriage the wife was primarily occupied with homemaking and parenting responsibilities, although she assisted the husband in business activities for a period.
The wife made application for property settlement on 3 February 2006. In the same month, the husband instructed his solicitors to make contact with the Australian Taxation Office (“ATO”) in order that the husband might commence the process of making a voluntary disclosure. The Commissioner applied for, and was given, leave to intervene in the Family Court proceedings in May 2006.
The case came before Rose J in May 2007. Apart from the applications for a decree of nullity and for declarations that she owned the former matrimonial home and personalty in her possession, the wife sought orders for $219,544.00 lump sum spousal maintenance and for lump sum child support ($216,800.00) and for a lump sum for school fees ($275,307.00).
By his orders of 7 November 2007, Rose J made property orders, including that appealed, which provided for the payment from the sale proceeds of the former matrimonial home to the Commissioner to be “subject to the order for lump sum child support which may be made in these proceedings”. By the same orders, Rose J continued an interim spousal maintenance order until the sale of the former matrimonial home, but dismissed the application for lump sum spousal maintenance. Though the wife cross-appealed in respect of the dismissal of her application for lump sum spousal maintenance, her counsel conceded that the ground only arose if the appeal succeeded.
On 9 November 2007, Rose J ordered that the wife’s application for a child support departure order be dismissed.
It is common ground that in the trial there was no suggestion that the wife’s taxation affairs were other than in order. The tax debt was the husband’s. In his reasons for judgment, Rose J recorded that it was accepted that C Company was the alter ego of the husband. He would also be responsible for that debt.
The trial Judge set out details of the purchase and sale of seven parcels of real property during the marriage. Among these was the former matrimonial home, purchased in the joint names of the husband and wife for $3,450,000.00 in June 1999. The husband transferred his half-interest to the wife for a consideration of $1.00 in October 2000. The value of the husband’s interest at that time was $1,500,000.00.
One of the properties of the parties in England sold in February 2006. In September that year, orders were made for, among other things, payment from the proceeds of sale of the English property to a bank of approximately $2,000,000.00 in discharge of a mortgage over the former matrimonial home property. Also pursuant to the orders, $1,590,303.15 was paid to the Commissioner.
The wife continued to live in the former matrimonial home with the four children at trial and the husband had lived there as well, albeit separately, as the trial Judge found, since September 2006.
The approach taken by Rose J to the treatment of the debt to the Commissioner emerges from the following passages of his reasons. At that stage when he was identifying the assets and liabilities of the parties, he said:
98.I have determined to consider the treatment of this liability in the course of my conclusion regarding the exercise of discretion in making orders that are just and equitable, given the unusual facts in this case.
99.Therefore, the personal tax liability, quite apart from the tax liability of [C Company] for which the husband will be undoubtedly responsible, will not be included in the net property of the husband and wife. In relative terms, the only significant property is the former matrimonial home which has an agreed value of $4,750,000.00.
…
102.Ultimately, for the purpose of determining the proceedings pursuant to s79, I have a wide discretion to make orders that are just and equitable. Consequently, in the peculiar facts of this case, I have concluded that it is preferable for all relevant findings in respect of the tax liabilities to be considered in the course of my conclusion, rather than on the issue of whether or not the tax liability should be categorised as an “add-back”.
103.I will now proceed to make findings of fact in relation to the circumstances that gave rise to the tax liability of the husband and indeed that of [C Company]. I will also make findings in relation to the issue raised by the intervenor, namely that the wife knew, or ought to have known, of the tax liability or the potential for it at all relevant times.
104.The wife’s case is that the husband did not inform her of his non-disclosure of income for tax purposes, nor was she in possession of knowledge to make her so aware, or that she ought to have been aware.
105.The case for the husband is that he did inform the wife, whether directly or indirectly, that he was not disclosing income or held funds including off shore accounts he was not disclosing for tax purposes.
106.Clearly an issue of credit arises regard [sic] portions of evidence of the parties’ conflict.
107.I have determined to accept the evidence of the wife wherever it conflicts with that of the husband in relation to these factual issues. I accept the evidence that the wife did not know nor ought to have known the husband’s non-disclosure of income or funds held in bank accounts which were not disclosed by him for tax purposes. …
…
121.The wife had given evidence that so far as she was concerned, she understood that the husband had issues with third party commercial creditors and consequently the former matrimonial home and other property had been purchased in her name. However, so far as she was concerned the husband was very successful in his sole control of the business activities. He agreed that the wife had every reason to think that the company was “doing very well” under his leadership.
…
127.I also accept the submission made by senior counsel for the wife that it was not put to the wife in relation to the issue of “knowledge”, that she knew that money should have been paid to meet income tax obligations was used for different purposes.
…
129.Consequently, as I have earlier stated, I find that the wife did not know nor ought to have known that the husband had failed to meet his tax obligations for the periods of time which has resulted in his and [C Company’s] current tax indebtedness.
Under the heading “Assessment of Contributions”, Rose J found:
163.There is no issue that each of the husband and the wife applied himself or herself to the fullest extent in making the various contributions, the subject of my findings.
164.Counsel for the husband and wife submitted that the parties’ respective contributions should be assessed as being equal.
165.My own independent review of those contributions leads me to the same conclusion.
166.Consequently, I find that on a global basis, the financial and non-financial contributions of each of the husband and wife including in the role of homemaker and parent are assessed as equal.
Then, in assessing s 75(2) factors, Rose J said:
188.I have determined that I will not make an adjustment in favour of the wife having regard to relevant matters pursuant to s75(2) for the following reasons.
189.My findings in relation to the wife’s ongoing primary responsibility for the care of the four children of the marriage together with her lack of income and income earning capacity for the foreseeable future represent matters to which significant weight would ordinarily be given.
…
194.Whilst I found that the indebtedness to the ATO did not arise in circumstances of which the wife had knowledge or ought to have known, nonetheless the weight that I am required to attribute to it in the circumstances described lead me to the conclusion that I will not make an adjustment in favour of the wife having regard to my findings in respect of relevant matters pursuant to s75(2).
As, in a passage of his reasons earlier quoted, Rose J had indicated he would do, he returned to the question of treatment of the taxation debt when in his “Conclusion” he considered the justice and equity of proposed orders. Here, he recognised that:
203.An outstanding critical issue for the purpose of consideration of making of orders pursuant to s79 that are just and equitable as between the husband and wife is the treatment of the tax indebtedness of the husband and the rights of the intervenor with the consequential weight to be given to his claim.
…
208.The critical issue that arises is the question of priorities, that is to say, the priority which should be given to satisfaction, so far as it is possible to do so, of intervenor’s claim in relation to the outstanding tax indebtedness of the husband as opposed to claims of the wife.
After considering various authorities bearing on the question of the treatment of debts and/or losses and further deliberation about the case before him, Rose J reached the conclusion earlier adumbrated, namely that the former matrimonial home be sold and the net proceeds be divided between the wife and the Commissioner.

THE CHALLENGES TO FACTUAL CONCLUSIONS

(a) Should the trial Judge have found (although he did not in fact find) that the source of funds for the acquisition of real estate by the husband and wife, including the former matrimonial home, was income upon which tax had not been paid?

This is a different question to that of the wife’s knowledge about tax evasion. It refers to firstly, the source of funds for the purchase of real property and secondly, whether tax should have been, but was not, paid on and from those monies.
At the outset of the hearing of the appeal, Mr Lethbridge handed to us an aide memoire, being a schedule in chronological order, commencing in 1996 (when, as seen, unpaid tax started to accrue), demonstrating the source of funds for the purchases of real estate, together with the unpaid tax relating to each year from 1996 to 2006. Mr Lethbridge submitted that the schedule demonstrated that, apart from borrowings and the rolling over of net profit (sometimes modest) from the sale of one piece of real estate into the purchase of another, large proportions of the purchase price of real estate, particularly in later years, came from funds of the parties when very large amounts, hundreds, thousands, in some cases millions, of dollars of unpaid tax, accrued in the year of purchase. Additionally, in some years, huge repayments of mortgage debt were made.
Mr Hallen SC, for the wife, took some issue with Mr Lethbridge’s aide memoire, not so much the detail of it, but more so with the implications which Mr Lethbridge contended it carried. Mr Hallen pointed to evidence of the husband in which he referred to income from share trading as a source of income outside the business and to the generality, as he termed it, of cross-examination about the source of funds. He pointed out that the parties, apart from purchasing property, were also funding a lifestyle which the trial Judge found to be extravagant in the extreme. Thus, he argued, funds could not be precisely traced. But the main point which Mr Hallen sought to make was that it had not been put to the wife at trial that the source of the funding for real property, in particular the former matrimonial home, was from monies upon which tax had not been paid. He pointed out that the Commissioner’s points of claim relied on at trial did not assert that monies that ought to have been paid to the Commissioner were used to purchase assets.

In considering whether the issue of the source of funds for the acquisition of real estate was raised before Rose J, we turn to the course of the trial. Cross-examination of the wife at trial by Ms Rees for the Commissioner commenced with the question and answer:
MS REECE [sic]: [Ms Worsnop], is it the case that from the time when the business began, money which was generated by the business was the only money that came into the household to support the family?---Pretty much, yes.
Ms Rees then took the wife through the details of purchase of a number of the properties, asking in respect of money supplied by the parties for those purchases, questions such as, and receiving answers such as:
What activities did you think had produced that money?---I thought it was the business.
…
And that left a shortfall, I suggest to you, without taking into account stamp duty and costs, of $132,000?---Okay.
Where did you think that was coming from?---From the business.
…
MS REECE [sic]: I …, [Ms Worsnop], when you purchased [the former matrimonial home] property the purchase price was $3,450,000 do you accept that?---Yes.
And you borrowed from [a bank] an amount of $950,000?---Yes.
You contributed the money from the sale of the [B Avenue] property which was $1,538,687?---Yes.
And you and your husband contributed a further amount of $788,734.26. Do you accept that?---Yes.
…
Did you ever question where the money was coming from, by that I mean to your husband?---Never questioned?
Never questioned?---Well, it was obvious it was coming from the business.
When Ms Rees was cross-examining the husband, she put to him a question about the source of funds to purchase a property in 1998. The husband answered, “It’s my understanding that it was income I hadn’t declared.” Mr Hallen objected that the answer could not bind the wife, nor had it been put to the wife.
Rose J said:
…well it’s common ground between everybody, I think, that money available in terms of capital amounts came from one of two sources, or both, namely proceeds – net proceeds of sale of real estate, and or what is euphemistically referred to as the business, which meant – which included amongst other things various bank accounts. So I just don’t see what the controversy is, and the fact that it wasn’t put to your client, Mr Hanlon (sic), I would have thought is of some comfort to her.
The written submissions for the Commissioner at trial included the following:
11.In considering whether the debt should be satisfied from the property of the parties or either of them, the Court would consider how the assets of the parties have been accumulated.
12.The Wife has conceded that after the inception of the business, the only source of money coming into the marriage was the business activities of the Husband.
13.The Wife has conceded that using those funds, after about February 1996, the family lived a very comfortable if not luxurious lifestyle. She agreed that [the former matrimonial home] was luxurious; that they drove luxury vehicles…the parties and the children had an overseas holiday at least once a year and flew first class (including the children). She said that the family had enjoyed that type of travel since the twins were 6 months old (they were born in May 1996).
…
17.It is submitted that the Wife not only enjoyed the lifestyle funded by the business but, in addition, money from the business was also used for the acquisition of the assets of the parties.
…
20.The Wife has conceded that money from the business was the only source from which the funds provided by the parties for each of the real estate purchases of [B Place], [W] and the successive purchases.
…
22.It is submitted that the court will find that from the business the parties used $5,526,266 to fund the acquisition of real estate assets used by both of them. This sum is in addition to the sums used for “living” expenses which cannot be quantified with accuracy.
…
25.In circumstances where the Court finds that the Wife shared with the Husband in the fruits of the income, it is submitted that she cannot expect, as a matter of discretion, to be relieved from the burden of the tax. To do so would be to unjustly enrich the Wife at the expense of the 2^nd Respondent.
26.In Johnson and Johnson (unreported) 31 March 1999 at para 20.5 to 20.7 the Full court dealt with tax avoidance. The 2^nd Respondent submits that the statements of principle are equally applicable here and that “a just outcome demanded that the wife take the good with the bad”.
In our view, contrary to the submissions for the wife, the question of the source of monies for the purchase of real estate was ultimately squarely before the trial Judge. Whether Rose J adequately dealt with that issue is another matter.
In discussing the contributions of the parties, the trial Judge made findings about contributions by the wife, and then considered those by the husband during which he said:
151.During the period of cohabitation the husband made financial contributions represented by him employment in a computer sales business operated by the wife’s sister and subsequent to 1996 the husband’s own business activities.
152.The husband established and maintained business activities centered upon the purchase from the United States of America of computer parts and systems and then the shipping of those parts and systems to Australia for assembly and re-sale. His conduct of business activities for some years involved the use of offshore bank accounts and stock trading accounts.
153.The husband utilised [C Company] as the commercial entity for those business activities.
154.The husband is also engaged in share dealing.
155.There is no issue that the husband worked very hard in these business activities as was readily conceded by the wife during the course of her oral evidence.
156.The husband purchased real estate jointly with the wife, or in his own name, or otherwise attended to all necessary matters of finance and conveyancing in relation to real estate purchase [sic] by the wife.
157.The net proceeds of sale generated by the sale of such real estate was directed by the husband generally in concert with the wife towards the purchase of other real estate.
158.The husband has applied his income and other funds at his disposal in meeting living expenses, liabilities and lifestyle at a luxurious level.
While we recognise that, in these passages, strictly speaking, the trial Judge was addressing the contributions of the wife and then the husband, we note that at this point his Honour does not recognise the fact that the “husband’s contributions” were to a significant extent from monies upon which tax had not been paid.
However, there are other relevant parts of the judgment:
198.There is little doubt that the husband has been a brilliant businessman in developing business turnover of a magnitude of millions of dollars in a relatively short period of time in circumstances where the business so developed and maintained by him was a start-up business.
199.As a result of the business success enjoyed by the husband, the husband and wife were able to lead a luxurious lifestyle both in England and in Australia featuring high priced real estate, exotic motor vehicles, first class travel and a general lifestyle befitting the “Tales from the Arabian Nights”. (emphasis added) (footnote omitted)
200.Unfortunately, for the husband and wife and their four children of the marriage there has been a fatal flaw in the manner in which the husband has controlled his business activities due to his failure to disclose taxable income over several years. Following the husband’s voluntary disclosure to the ATO early in 2006 a Prudential audit has been carried out. The result has been the tax indebtedness to which I have referred that has plunged the financial affairs of the husband and wife to grim depths. (emphasis added)
…
211.Counsel for the intervenor appropriately referred me to the unreported judgment of the Full Court in Johnson and Johnson. (footnote omitted)
212.The Full Court’s judgment was directed to the consideration that applies to a trial judge in determining not only liability for the penalties as between the parties arising out of a tax avoidance process, but also “the benefits indirectly gained by the wife in having the pool of assets otherwise increased as a result of the availability of funds which would otherwise have been paid out in tax also have to be considered”.
…
225.… I have taken that approach also bearing in mind the matters to which I have referred in paragraphs 218 to 224, but also that the wife unwittingly continued to have the benefits of a lifestyle which for some years was enhanced by the failure of the husband to disclose taxable income to the intervenor. (emphasis added)
In our view, it emerges from the passages quoted that, in deciding the case, Rose J had in mind the issue of the source of funds for the acquisition of real estate.
As to whether he paid sufficient regard to the topic, we think two observations pertinent. Firstly, as seen in the passages of transcript, Rose J said during the trial that he considered that the source of the funds to acquire real estate, as distinct from the wife’s knowledge of any claim upon those funds by the Commissioner, was common ground. Whether or not that was entirely so, we do not think that a factual issue of any significance about the source of funds, emerged during the trial.
Secondly, the degree to which the source of funds for the purchase of real estate was either unpaid tax, or at least income upon which tax should have been paid, was one as to which, on the evidence, no precise finding could be made. The evidence was that the husband and wife directed gross funds to various ends. No-one could say whether the moneys that should have gone to the Commissioner of Taxation went specifically into real estate.
The effect of these two observations is that the issue of the source of funds for the purchase of real estate was one that could adequately be dealt with by recognition of the “broad” facts relating to it, rather than close analysis of evidence relating to it. This, in our view, Rose J did, and accordingly, we find no merit in these arguments.

(b) The cross-appeal.

Should Rose J have divided equally the husband’s paid legal fees, monies in the controlled account and the B property

When identifying assets and liabilities, Rose J started by setting out an agreed schedule of property of the parties and liabilities, in which, however, were some “disputed” items. Three items, the first two of which were undisputed on that list were:
[N Ave, B]  $262,000.00
Balance of funds from sale of boat and sale
of [C] in … controlled moneys a/c …  $150,065.00 …
and the husband’s legal costs paid  $1,040,943.00

As to the husband’s legal fees, the trial Judge later said:
Add-back monies paid by husband for legal costs
86.It is clear from Exhibit 14 that this amount is not a designated disputed item.
87.However, in the event that there is any controversy in respect of this item, I have determined that the amount involved should be added back. It represented substantially the amounts paid by the husband to his lawyers to meet the expense of his tax advice and implicitly the prudential audit. Certain amounts may also have been paid on account of costs in these proceedings. The former was necessitated solely due to the husband’s actions in not disclosing to the ATO his taxable income. Consequently, it should be regarded as the husband’s notional asset. The latter expense will be likewise included in accordance with established principle. (footnote omitted)
After dealing further with disputed items, Rose J set out a table of “REVISED PROPERTY OF THE PARTIES”. This included the controlled account monies and the B property, but not the husband’s legal fees.
While, on what had been said to that stage in Rose J’s reasons, one might have expected legal fees to be included, when, later in his reasons for judgment, Rose J expressed his conclusions, he said:
195.Earlier in this judgment I assessed the respective contributions of the husband and wife as equal.
196.Given the highly unusual circumstances in this particular case the practical result of that assessment is an equal entitlement to the net property of the parties represented by the former matrimonial home. That is in circumstances whereby the only other significant property being the [B] property and the jointly controlled monies account will be applied by the husband in partial satisfaction of the outstanding tax indebtedness. The other exception relates to contents of the former matrimonial home and other items of personalty which are the subject of agreement between the husband and wife in relation to their division.
Thus, in respect of both the monies in the account and the B property, notwithstanding his inclusion of them in the “REVISED PROPERTY” table, Rose J can be seen to have expressly decided not to give the wife one-half of them. In our view, notwithstanding that he said in paragraph 87, earlier set out, that he would add back the husband’s legal costs, the combined circumstances that they were not a current realisable asset, that Rose J omitted them from the “REVISED PROPERTY” table and the manner in which Rose J treated other property apart from the former matrimonial home in his conclusion (paragraph 196 just quoted), make it acceptably clear that he did not intend to divide notional assets equally, to the effect that the wife received greater than an equal share of the major realisable asset.
Contrary to the submission for the wife, we see no inconsistency between the trial Judge’s finding of equality of contribution and his treatment of other assets, realisable or notional.
We find no merit in this argument in support of the cross-appeal.

SUBMISSIONS AS TO THE PRINCIPLES THAT APPLY TO THE EXCLUSION OF LIABILITIES FROM AN “ASSET POOL” GENERALLY, AND TO A DEBT TO THE COMMISSIONER OF TAXATION, IN PARTICULAR

In his written submissions, Mr Lethbridge submitted that:
… the following principles apply when dealing with debt legitimately owing to unsecured third parties (including but not limited to taxation debt), in the course of proceedings pursuant to section 79 of the Family Law Act:
1.That except in exceptional circumstances the Family Court should make orders for property settlement out of the net property of the parties to the marriage.
2.That in considering any adjustment pursuant to section 75(2) the Court must consider the use to which the funds were put and the benefits received by each party from those funds.
3.That a party who has had the benefit of the funds should share the burden of repayment of the debt.
4.That a party to a marriage who has, whether knowingly or not, had the benefit of money or property available only as a consequence of their partner’s dishonesty, should share equally the burden of any debt thereby created.
5.That in order to achieve justice and equity for all parties including the creditor, the Court must consider making an adjustment pursuant to section 75(2)(ha) to benefit the creditor.
6.That the Court cannot ignore the contribution made to the acquisition of assets and the lifestyle of the parties by the creditor.
We do not agree with these propositions without qualification, though they are sound to a large extent. We turn to say something of each of them:

Submission 1: That except in exceptional circumstances the Family Court should make orders for property settlement out of the net property of the parties to the marriage

There being an exception within the proposition itself, even if we thought the proposition sound, the question in this appeal would arise as to whether the circumstances before the trial Judge were exceptional or not.
We further observe that the proposition is expressed in relation to cases in which there is “net property”. The instant case immediately falls outside that category. In the instant case, the critical tension arises precisely because such legitimate claims as the wife has to a share of property cannot be met out of net assets.
In support of the proposition under discussion, in his written summary, Mr Lethbridge firstly referred to cases which discussed the general approach to identifying property for division. He cited:
1. In The Marriage of Rowell; Deputy Commissioner of Taxation (Intervenor) [(1989) FLC 92-026] the Full Court said:
“The first step accordingly in any property proceedings is to ascertain the property of the parties and to ascribe that property a value. In doing so, the Family Court has, in my view quite properly in the past, taken into account liabilities of the parties and made orders which operated on the net value of the property so found. Family Law does not operate in a vacuum. By that I mean that the legitimate rights of third parties are not ignored when determining the rights to property between the husband and the wife inter se…”
Mr Lethbridge also wrote:
2. It is submitted that O’Ryan J. correctly stated the general principle in Australian Securities and Investments Commission and Rich [(2003) FLC 93-171] that:
“34. The first step in determining a s 79 application is to make findings as to the extent and value of the financial circumstances of the parties to the marriage…The first step also involves identifying and if necessary valuing the, the [sic] liabilities of the parties in order to arrive at the net property.”
And at Para 36
“36. …The Court will deduct the amounts owed to unsecured creditors in order to arrive at the net property of the parties”
Next, Mr Lethbridge submitted that the “exclusion” by Rose J from the asset table of the tax debt was not within recognised exceptions to the general approach described in the cases just referred to. Mr Lethbridge referred to Biltoft and Biltoft (1995) FLC 92-614 at 82,125, where the Full Court acknowledged that the general practice might be departed from, where:
…because of the circumstances surrounding the incurring of the liability it ought in justice and equity be wholly or partly disregarded in determining the appropriate order under section 79 as between the parties to the marriage. Such a result could be reached where a spouse has incurred a liability in deliberate or reckless disregard of the other party’s potential entitlement under section 79…
Rose J discussed Biltoft (supra) at some length. Among other passages from it, he quoted from 82,128:
There is no requirement that the rights of an unsecured creditor or a claim by a third party must be considered and dealt with prior to the court making an order under s79, nor is there a rule of priority as between a creditor claimant and a spouse. Those rights, however, cannot be ignored. They must be recognised, taken into account and balanced against the rights of a spouse. (emphasis added)
Mr Lethbridge further submitted:
8. The law in relation to this issue was first definitively stated in Kowaliw and Kowaliw [(1981) FLC 91-092]. There are 2 legs to the test. Firstly where a party has embarked on a course of action designed to reduce or minimise the effective value or worth of the assets. It is submitted that this cannot apply here. In fact, the actions of the husband were intended to increase rather than diminish the assets. Secondly, where one of the parties acted recklessly, negligently or wantonly with the matrimonial assets, the overall effect of which has reduced or minimised their value.
Although as we shall shortly explain, we do not think that Mr Lethbridge’s submission determines the outcome in this appeal, we accept that the results of the actions of the husband here are distinguishable from the results of the actions in Kowaliw. However, some similarity perhaps arises, because Rose J did find:
219.The husband freely conceded during the course of cross-examination by senior counsel for the wife that his conduct of non-disclosure was reckless in the extreme. …

However, of greater significance in our view is that the issue that confronted the courts in Biltoft and Kowaliw, the factors which those courts had to balance, were not the same as those in the instant case. In both Biltoft and Kowaliw, there were sufficient assets to satisfy the alleged or actual debts. The interests competing were those of husband and wife.
Leaving aside the question of whether, on the facts of this case, the result that Rose J reached was open to him, we do not accept that the course that Rose J took was wrong in principle, merely because, arguably, the debt to the Commissioner was not one about which he made findings that put it into the same category as the debts in the cases to which Mr Lethbridge referred.
Beyond saying that, we think it unnecessary to reformulate what has been said in the cases discussed and that it is only necessary to say that in respect of the general approach in s 79 matters we agree with what was there said.

Submission 2: That in considering any adjustment pursuant to section 75(2) the Court must consider the use to which the funds were put and the benefits received by each party from those funds

Submission 6: That the Court cannot ignore the contribution made to the acquisition of assets and the lifestyle of the parties by the creditor

Submission 3: That a party who has had the benefit of the funds should share the burden of repayment of the debt

Our reservations about these propositions are that they couch in mandatory and absolute terms, factors which, though they may often carry great weight, are ultimately ones, usually among numerous others, upon which a discretion might be exercised.
Secondly, in the first of the three propositions under discussion here, there is a reference to an obligation on the Court to consider the benefits received by each party from [a creditor’s] funds, in considering any adjustment pursuant to s 75(2). Here, we are simply concerned to reject any implication that the only stage of the approach to property settlement at which the question of a debt might be considered is when considering s 75(2) factors.
Those things said, we accept that it is highly unlikely that the use to which funds were put and the benefits received by each party from those funds would not be a significant consideration when addressing the position of an unsecured creditor, whose prospects of recovery of debt are uncertain.

Submission 4: That a party to a marriage who has, whether knowingly or not, had the benefit of money or property available only as a consequence of their partner’s dishonesty, should share equally the burden of any primary debt thereby created

Again, we would disagree with the formulation of the proposition as a principle to be mandatorily applied, rather than recognition of the factors as ones highly likely to be powerfully relevant to an exercise of discretion.
As the proposition is expressed, and as part of his argument in support of it, Mr Lethbridge contended that “knowledge” of the debtor spouse’s wrongdoing by the other spouse was irrelevant, in the other circumstances posited. We note that the Commissioner pursued the question of knowledge of the wife at trial, though he ultimately also submitted that the question was irrelevant to the proper outcome. In any event, we do not suggest that Mr Lethbridge is not free to argue as he now does.
We think that in circumstances such as those in the instant case, this argument might carry more weight in respect to a debt for prime tax, than in relation to interest and penalties. An “innocent” spouse might receive benefit from funds which ought to have been paid to tax but will receive no benefit from penalties and interest in relation to unpaid tax. While we recognise an argument that when prime tax is avoided, penalties and interest are consequential liabilities, and thus, connected to the benefit of avoidance, logically the question of innocence or ignorance on the part of the recipient might properly be relevant to the question of whether penalties and interest ought be met entirely by the guilty spouse.
That the matter of “knowledge” was relevant in like circumstances was recognised, at least implicitly, in Johnson and Johnson [1999] FamCA 369 (referred to earlier in a passage quoted from Rose J’s reasons), when the Full Court said:
“20.5 In our view the fact that the wife was or was not involved in the tax avoidance process which may lead to the imposition of penalties was only one consideration that his Honour needed to weigh up when determining liability for the penalties as between the parties. The benefits indirectly gained by the wife in having the pool of assets otherwise increased as a result of the availability of funds which would have otherwise been paid out in tax also have to be considered. (emphasis added)
In Johnson, (supra) there was no argument about the decision of the trial Judge to order that the parties share the prime tax in accordance with the percentage distribution of assets, so the Full Court was concerned only with the trial Judge’s decision that penalties be borne solely by the husband.
Rose J said of what was said in Johnson (supra) as quoted above and of what immediately followed:
213.The Full Court proceeded to also state that “unless there were compelling circumstances to the contrary, a just outcome demanded that the wife take the good with the bad”.(footnote omitted)
214.In my view, those extracts from the Johnson [sic] was directed to the emphasis in the “consideration” that must be given by the trial judge to the claim of the unsecured third party creditor which in that instance was the ATO, as in the present case. Otherwise, the decision was made on the particular facts in that case but did not establish any further matter of principle. …(original emphasis)
We agree. Knowledge of the debtor spouse’s tax avoidance is a factor relevant to the exercise of discretion, as the Full Court in Johnson (supra), in respect of penalties, stated. In our view, though as we said a short time ago, the question of innocence or ignorance in a spouse of the other spouse’s tax avoidance may carry more weight in respect of penalties, we see no reason why that question might not also be relevant to the issue of unpaid prime tax, even if the “innocent spouse” has received benefit from the failure to pay tax. It might be that “knowledge” would be almost irrelevant, where net assets, sufficient to meet reasonable claims under s 79, remained after payment of any debt for prime tax, but “knowledge” might come into much sharper focus where liabilities exceeded assets.

Submission 5: That in order to achieve justice and equity for all parties including the creditor, the Court must consider making an adjustment pursuant to section 75(2)(ha) to benefit the creditor

The wording of this proposition may imply that intervening unsecured creditors gain some right or status from sub-paragraph (ha), additional to that which they otherwise have at law.
Rose J addressed the terms of s 75(2)(ha), when assessing s 75(2) factors. He said:
191.The liability to the ATO cannot be considered merely in terms of the husband’s personal liability.
192.Section 75(2)(ha) refers to a matter which has prominence in these proceedings, namely:
“The effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt, so far as that effect is relevant.”
193.The indebtedness to the ATO will of course be increasingly more difficult to satisfy because of the corresponding increase in the entitlements of the wife so far as orders for property settlement are concerned. That is due to the amounts involved being $12,031,124.00 together with $418,076.00 being the tax liability of [C Company] which is the alter ego of the husband. The husband has been the sole director of that company at all material times and there is no dispute that in that capacity he is also liable for his [sic] debt.
In support of the proposition under discussion, Mr Lethbridge referred also to the requirements of s 79(2), effectively that an order be just and equitable, to suggest that where the creditor was a party, justice and equity to the creditor must be achieved by the court.
Section 79(2) provides:
The court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.
The orders which, under s 79(1) the Court may make are, so far as is relevant:
(a)in the case of proceedings with respect to the property of the parties to the marriage or either of them – altering the interests of the parties to the marriage in the property
In Hickey and Hickey and Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143, the Full Court said (at 78,387):
46.The principle referred to by Nygh J, namely that an order made under s. 79 is a “once and for all proposition”, was recently affirmed in Sommerville and Sommerville (2000) FLC 93-042. …
47.The principle demonstrates that but for the operation of s. 79A, the Court has power to make only one order for property settlement pursuant to the provisions of s. 79. Thus, any such order inherently has the effect of finally disposing of all issues relating to the disclosed property of the parties. This has two significant effects on property orders. … Secondly, an order for property settlement made pursuant to the provisions of s. 79 cannot legally constitute “orders” in the plural sense, but rather is a single order made up of various paragraphs or clauses.
As was pointed out in Russell v Russell (1999) FLC 92-877 (at 86,439):
80. …[in] the consideration of whether the result is just and equitable it is the justice and equity of the actual orders, not of the percentage distribution which must be considered. (original emphasis)
While it is well-established that under s 79 the Court may make orders within a s 79 order, for payment by a spouse, or by both spouses, of a debt to a third party, whether that third party has intervened or not, in our view the s 79(2) requirement that an order under the section not be made unless it is just and equitable to do so, relates to the order made pursuant to s 79(1). Altering the interests of the parties to the marriage in the property does not mean that an intervening third party creditor acquires by intervention some rights based on s 79(2) for a just and equitable remedy, that are additional to the creditor’s other rights at law.
Mr Lethbridge also referred to the terms of s 90AE(3)(d) of the Act, which is one of the conditions which must be met if an order is made changing a third party’s rights under the preceding subsections. Sub-paragraph (d) requires that the Court be satisfied that in all the circumstances, it is just and equitable to make the order. However, this requirement is in respect of the Court’s direct interference with a third party’s rights, for example, in respect of a creditor, rights relating to the person from whom recovery may be sought. In contrast, the aspect of a creditor’s position to which the Court must have regard under s 75(2)(ha) are not rights to recovery but the practical prospects of recovery from a debtor spouse’s property.
For example, one might imagine a circumstance where one spouse’s initial contributions and the shortness of the marriage might mean that the great bulk of property existing at the time of a property settlement trial had belonged to, and does belong to, that spouse and that position ought not be altered under s 79. In the meantime, a creditor might have lent, perhaps unwisely, to the other spouse, who lost the borrowed money and could not repay from his or her own assets. As we have said, we do not think that in such circumstances, either s 79(2) or s 75(2)(ha) has the result that the creditor has some opportunity, on the basis of justice and equity, of improving the position that the creditor would have been in had he pursued the debtor spouse alone. In other words, the creditor who becomes a party does not step up in status to become entitled to greater “justice and equity” than the non-party creditor.
This does not mean that the principles of fairness, justice and equity to a creditor ought not be addressed, where there is in prospect a reduction in the property of the debtor spouse, for the purpose of satisfying the s 79 claim of the other spouse, which reduction might adversely effect the prospects of recovery of the creditor, but this position does not arise because of the application of s 79(2).
In our view Rose J did not err in principle in the manner in which he applied s 75(2)(ha) of the Act.

Was the order made by Rose J outside a reasonable exercise of discretion?

We have earlier outlined the approach that Rose J took to the calculation of assets, identification and assessment of contributions, and the identification and assessment of s 75(2) factors. As also seen, his Honour then arrived at the “Conclusion” of his judgment, at which stage he addressed the Commissioner’s claim. After, as seen, he reviewed authority, the final paragraphs of his judgment were:
218.As previously referred to, I have made findings that the wife was neither complicit in the failure by the husband to disclose taxable income, nor did she have knowledge of it or ought to have had such knowledge.
219.The husband freely conceded during the course of cross-examination by senior counsel for the wife that his conduct of non-disclosure was reckless in the extreme. The husband also agreed that his email to the wife in December 2005 and passing between their respective lawyers in January 2006 dealing with the possible resolution of issues between them did not mention his potential liability to the ATO.
220.Consequently, not only did the husband engaged [sic] in reckless financial conduct but the wife truly was the “innocent” victim of his dealings. Without her realising it, the wife enjoyed the lifestyle created by the financial management by the husband of his business activities which did not involve paying tax. However, the wife was not placed in the position where she could make a choice. It is clear from part of the wife’s evidence, which I have accepted, she was not intoxicated by all aspects of a glamorous lifestyle, in that it was common ground between the husband and the wife that the wife on occasions did suggest to the husband that the purchase of real estate would be a better investment than spending money on further expensive cars and overseas travel. (emphasis added)
221.Consequently, my approach is [sic] to making orders that are just and equitable is to balance the claim by the intervenor against the contributions made by each of the husband and wife as well as my assessment that there should not be an adjustment in favour of the wife having regard to relevant s75(2) matters. The husband implicitly submitted that there should be an adjustment in his favour whereby all of the net proceeds of sale of the former matrimonial home were paid to the intervenor. The husband’s approach on this issue was identical to that of the intervenor.
222.I follow the Full Court’s judgment in Biltoft in that the application of principle does not provide for priority to be given to the intervenor’s claim. Indeed, there is no provision in the Family Law Act which would support such a priority unlike in bankruptcy where a debt to the Crown does have priority.
223.As is made clear by the provisions of s79(2), orders for property settlement should only be made if it is just and equitable to do so.
224.Consequently, my task is to make orders that are just and equitable. That phrase in s79(2) is not given precise definition in the Act, nor in any reported judgments of which I am aware. Rather, it is the weight that a trial judge may determine should be given to particular aspects of s79(4) (incorporating s75(2)) to arrive at the necessary conclusion of “just and equitable” on the basis that such conclusion is within “the generous ambit within which reasonable disagreement is possible”. (footnote omitted)
225.In doing so, I have given much weight to the fact that the outstanding tax indebtedness of the husband is a debt to the Crown and implicitly there is a public interest issue that so far as it is reasonably possible to do so given the terms of s79 and the wide discretionary power that is given to make orders that are just and equitable having regard to other relevant matters pursuant to s79(4), orders should be made that enable partial satisfaction of that indebtedness of the only significant property of the parties. I have taken that approach also bearing in mind the matters to which I have referred in paragraphs 218 to 224, but also that the wife unwittingly continued to have the benefits of a lifestyle which for some years was enhanced by the failure of the husband to disclose taxable income to the intervenor.
In our view, Rose J clearly appreciated the critical features of the exercise he was called upon to carry out; that is, the balancing of the claims of the wife against those of the Commissioner.
As to the wife’s position, during the decade when tax was avoided, she continued to make significant contributions of the nature recognised under s 79, in the context where she was denied the choices that would have been hers, had the husband informed her of his avoidance of tax. On the findings that Rose J made about the wife, her innocence of even any knowledge of the tax evasion, let alone complicity in it, her suggestions to the husband from time to time that they live a less extravagant lifestyle, her equality of contributions to those of the husband and the s 75(2) factors that favoured her significantly, her claims were weighty.
Against this was the position of the Commissioner. In our view, the Commissioner of Taxation is in a position distinguishable from that of a commercial creditor. Commercial creditors have a choice about to whom they extend credit. On the other hand, the position of the Commissioner as a creditor of taxpayers is of a completely different origin. The onus is on taxpayers to make full and proper disclosure to the Commissioner of Taxation. The Commissioner does not extend credit at all, but becomes a creditor by virtue of the conduct of the affairs of the taxpayer. As seen, Rose J gave “…much weight to the fact that the outstanding tax indebtedness of the husband is a debt to the Crown and implicitly there is a public interest issue”, though he also recognised that the Commissioner had no priority over the wife’s claims.
On the “standing” of the Commissioner, Mr Lethbridge pointed to cases, such as the decision of Lindenmayer J in P and P Tax Evasion (1985) FLC 91-605 in which his Honour regarded the Family Court as bound by a duty to protect the revenue of the Commonwealth. But the issue there was the referral of papers to the Attorney-General in respect of a breach of revenue laws, which raises considerations quite different from those that confronted Rose J.
Rose J balanced these competing claims by depriving the wife of an adjustment to which he saw her as otherwise entitled, on account of s 75(2) factors, and of an adjustment for the notional asset represented by the husband’s paid legal costs, and of one-half of the monies in the controlled monies account and the B property.
As seen, Rose J regarded the s 75(2) factors favouring an adjustment to the wife as significant. We agree. She had in her primary care four children, at trial aged between 1¾ years and 13 years. Rose J found that though she had capacity for employment, child care responsibilities prevented her from exercising it. If the wife had been granted a 10 or 15 per cent adjustment on account of s 75(2) factors, applied to the value of the former matrimonial home, she would have received in the order of $500,000.00 more. Had Rose J notionally written back in the husband’s legal fees, and divided the former matrimonial home proceeds to provide one-half of that notional asset to the wife, together with half of the account and B property, she would have received another $700,000.00 approximately. Thus, the wife has been deprived of large entitlements otherwise made out, to reflect the debt to the Commissioner.

Nonetheless, in endeavouring to persuade us that the Commissioner should have received the whole of the former matrimonial home sale proceeds, Mr Lethbridge returned to Johnson and Johnson (supra), in particular where the Full Court said:
20.4    We are of the view that his Honour’s discretion miscarried when he failed to provide for the wife to share in any penalties that may be imposed by the taxation commissioner.
…
20.6    In the context of an examination of twenty years of financial dealings by the parties, which dealings were almost entirely within the province of the husband, in our view, unless there were compelling circumstances to the contrary, a just outcome demanded that the wife take the good with the bad…
20.7    …Absent any suggestion that the husband was on a frolic of his own and acting contrary to the wife’s express wishes, we see no reason for his Honour to have left the husband to shoulder the burden of the tax penalties.
As we earlier indicated, and we noted Rose J found, the decision in Johnson (supra) was no more than the opinion of that Full Court as to the proper exercise of discretion in that case. Moreover, in Johnson, as with Biltoft and Kowaliw, there was no question of the propriety of an “innocent” spouse receiving nothing, to be weighed against the claims of a creditor. The assets of the parties in Johnson were some $30,000,000.00, the debt to the Commissioner $8,000,000.00, of which penalties, the only part with which the Full Court was concerned, were $1,000,000.00.
Mr Lethbridge also submitted that the wife’s knowledge, as transferee of the husband’s half-interest in the former matrimonial home, of the reasons for that transfer had some relevance to the balancing of her claims against those of the Commissioner. Rose J found:
201. … The evidence is that the purpose of the transfer was to protect the property from the potential claims of third party commercial creditors. I have accepted that evidence.
At best, Rose J’s finding can only relate to the wife’s receipt of the husband’s half-interest, which by Rose J’s orders was to go in reduction of the tax debt.
In any event, even if we took up the approach of the Full Court in Johnson, and applied it to the entire tax debt here, Rose J effectively found that the husband was on “a frolic of his own”. As to whether this was contrary to the wife’s express wishes, that could hardly be a fair question where the wife was, as Rose J found, kept uninformed. Thus, the wife’s position would likely fall within the exception that the Court in Johnson, acknowledged.
The authorities relating to the position of an appellate court when addressing an appeal from a discretion are well known. We refer only to what was said in Norbis v Norbis (1986) 161 CLR 513 at 540; (1986) FLC 91‑712 at 75,178:
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.
And in Bellenden (formerly Satterthwaite) v Satterthwaite [1948] 1 All ER 343 at 345:
… 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.
No doubt conscious of such authority, Mr Lethbridge conceded that there could not be one right exercise of discretion and thus a division of available funds from which the wife received some property could not be said to be wrong. However, he continued to urge, not unreasonably on his instructions, that the right result in the instant case was that all available property should have gone in reduction of the debt to the Commissioner.
As earlier seen in Johnson, in relation to penalties owing to the Commissioner, the Full Court said “unless there were compelling reasons to the contrary, a just outcome demanded that the wife take the good with the bad”.
While we have already said that we do not take that statement as one of principle to be applied in every case in which there is a debt to the Commissioner, whether in respect of primary tax or penalties, we think that, in many cases, where the debt is for primary tax, the statement is likely to describe a proper balance between the interests of the debtor party’s spouse and the Commissioner, even where that spouse is “innocent” and the liability to the Commissioner exceeds the assets.
Had the focus before Rose J been more along the lines of identifying (and calculating the monetary representation of) “compelling reasons” for an award to the wife, then apart from the questions of her “innocence” in relation to tax evasion, her contributions relevant under s 79 of the Act and other s 75(2) factors, there may have been closer examination of the needs of the wife for basic housing and sufficient other capital to set up a modest standard of living for herself and the children. The future support of the wife and children might have been seen as properly coming from her earning capacity (when she was able to exercise it), the husband’s earning capacity and, if necessary, social security. We think a decision that the wife receive no more than that might well have been open, when a huge debt resulting from tax evasion, albeit by her husband without her knowledge, would remain. After provision for the wife on the basis stated, the balance of the former matrimonial home sale proceeds could have gone to the Commissioner.
However, as to the wife’s needs, Rose J found:
187.There is an understandable absence of the likely cost of alternative accommodation of the husband, the wife and the four children of the marriage given that an important issue for determination in these proceedings is whether it is just and equitable for there to be an order requiring the wife to sell the former matrimonial home and in the event there is such an order, the amount and proportion of the net proceeds of sale which will be required to be paid to the intervenor in partial satisfaction of the tax indebtedness of the husband and [C Company].
We do not necessarily share his Honour’s opinion of the absence of such evidence as “understandable”, but need say no more of that for present purposes. Later, having concluded what orders he would make under s 79 of the Act, when considering the wife’s application for lump sum spousal maintenance, Rose J added:
239.The wife will be in a position to afford a good standard of living having regard to the amount that she is likely to receive from the proceeds of sale of the former matrimonial home, to which earlier reference has been made.
…
246.The evidence of the wife does not enable me to make findings as to the aspirations that she may have regarding the cost of alternative accommodation or whether she has a preference, at least in the immediate future, to invest the large amount that she will receive as her proportion of the proceeds of sale of the former matrimonial home, prior to considering her options with regard to purchase of alternative accommodation and/or investment of funds to return income. It is understandable that the wife did not give that evidence having regard to the complexities of the property settlement proceedings and the orders sought, by both the intervenor and the husband, that the whole of the net proceeds of sale of the former matrimonial home be paid to the intervenor in partial satisfaction of the husband’s outstanding tax indebtedness. Nonetheless, that does not alter the situation referred herein.
…
253.There is no evidence of proposals, reasonable or otherwise, in relation to the acquisition of alternative accommodation, let alone the estimated range of the cost of such accommodation.
Thus, the parties including the Commissioner, left the trial judge to do what he could with the evidence before him. Perhaps for that reason, but in any event, no ground of appeal addressed this aspect.
We are not satisfied that the result to which Rose J came was outside the parameters of a reasonable exercise of discretion, at least as the case was conducted before him and as the appeal was argued before us.

Are the reasons for judgment sufficient?

As the Full Court said in Bennett and Bennett (1991) FLC 92-191 (at 78,267):
In general, the appellate Court should be able to discern either expressly or by implication the path by which the result has been reached.
In our view, it will be obvious from our examination of the challenges to Rose J’s conclusions that his reasons more than meet this test.

Conclusion

As we have found no merit in any of the arguments on appeal, the appeal should be dismissed.

I certify that the preceding one hundred and seven (107) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court.

Associate:

Date: 16 January 2009