Cooper and Smith
[2008] FMCAfam 1301
•2 December 2008
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| COOPER & SMITH | [2008] FMCAfam 1301 |
| FAMILY LAW – Property – credit issues – forensic accountant reports. |
| Family Law Act 1975, s.75(2) |
| C & C [2005] FamCA 429 Farnell (1996) FLC 92-681 Hickey and Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143 In the marriage of Hill (2005) 32 FLR 552 Pierce (1998) FamCA 74 |
| Applicant: | MR COOPER |
| Respondent: | MS SMITH |
| File Number: | BRC 2549 of 2007 |
| Judgment of: | Baumann FM |
| Hearing dates: | 25 – 28 February 2008 |
| Delivered at: | Brisbane |
| Delivered on: | 2 December 2008 |
REPRESENTATION
| Counsel for the Applicant: | Ms Carew |
| Solicitors for the Applicant: | DA Family Lawyers |
| Counsel for the Respondent: | Mr Burridge |
| Solicitors for the Respondent: | J Wilson Lawyers |
ORDERS
That the Wife in her capacity as sole director of [2] Pty Ltd ACN [0] sign all documents and do all acts to cause the 25% interest in the property located at Property P, [R - suburb omitted] and more particularly described as Lot [omitted], title reference [omitted] owned by [3] Pty Ltd ACN [0] to be transferred to the Husband, free of encumbrance within sixty (60) days.
That the Wife in her capacity as sole director of [1] Pty Ltd ACN [omitted] sign all documents and do all acts to provide a release of mortgage number [omitted] to [2] Pty Ltd ACN [0], within sixty (60) days.
That the Wife pay to the Husband the sum of $153,291.00 within sixty (60) days.
That pending payment to the Husband of the entire amount required to be paid pursuant to paragraph 3 hereof the Wife will be restrained and injunction will issue restraining her from further encumbering the property located at Property S or redrawing funds in relation to the existing loan secured by mortgage over that property without the Husband’s written consent.
That should payment of the sum referred to at paragraph 3 not be received by the Husband within sixty (60) days, then the Wife will sign all documents and do all acts to effect the sale of Property S more particularly described as Lot [omitted], Title Reference [omitted] as follows:-
(i) List the property for sale with a real estate agent agreed between the parties and failing agreement with a real estate agent nominated by the President of the REIQ;
(ii) List the property for sale with a list price as agreed between the parties and failing agreement at a list price as suggested by the appointed real estate agent;
(iii) Should the property not be sold within thirty (30) days of it being listed for sale, then it will be auctioned within a further six (6) weeks with the reserve price to be as agreed between the parties and failing agreement as recommended by the appointed real estate agent.
That the proceeds of the sale of the property referred to above will be distributed as follows:-
(a)to any registered mortgagee to secure a release of mortgage;
(b)to any real estate agent in payment of their commission and fees;
(c)an amount to the Husband up to the amount of $153,291.00 together with any interest payable under the Family Law Rules after the period specified in paragraph 3 hereof; and
(d)the balance to the Wife.
That the Wife sign all documents and take all steps within ninety (90) days to secure the release of the Husband from any liability to the Westpac Bank in relation to the real property located at Property W.
That in default of the parties or either of them doing all acts and things and executing all such documents as are necessary to give effect to these Orders, within seven (7) days of the service of a demand upon him or her to execute such document or to do such thing, a Register of the Family Court of Australia at Brisbane is hereby appointed pursuant to section 106A to execute all such documents in the name of the party in default and to do all such acts and things necessary to give validity and operation to the said orders, and evidence of such default will be by Affidavit of the Solicitor for the non-defaulting party.
That unless otherwise specified in this order:-
(a)The Husband and Wife are entitled to be the sole legal and beneficial owners of all items of property including money, motor vehicles, insurances, equities, superannuation entitlements and personal effects currently in the possession or control of each of them respectively; and
(b)Each party be solely liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled pursuant to these Orders.
That the Husband:
(a)take all steps or cause all steps to be taken to correct the transfer of a 25% interest in Property P in the State of Queensland to [11] Pty Ltd as trustee for [C] Trust incorrectly transferred to [16] Pty Ltd;
(b)That the husband as between the parties to this litigation, pay all such expenses, costs and liabilities arising as a result of the incorrect naming of [16] Pty Ltd as the trustee of the [Smith Cooper] Superannuation Fund and transfer of a 25% interest in the property situated at Property P; and
(c)That the husband indemnify and keep indemnified the Wife in relation to all or any liabilities, costs, charges, taxes, interest, penalties and fines that may be incurred in relation to the said correction and any resulting additional costs, charges, taxes, interest, penalties and fines that may be levied or incurred as a result of [16] Pty Ltd not being a compliant self managed superannuation fund for the purposes of the Income Tax Assessment Act as may be incurred by the wife either in her name or as a Director of [11] Pty Ltd as trustee of the [C] Trust including any additional costs, charges, taxes, interest, penalties and fines levied against the wife before or after her purported resignation as Director dated 11 October 2002.
IT IS NOTED that publication of this judgment under the pseudonym Cooper & Smith is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT BRISBANE |
BRC 2549 of 2007
| MR COOPER |
Applicant
And
| MS SMITH |
Respondent
REASONS FOR JUDGMENT
(As Corrected)
Introduction
In early 2002 the parties in this dispute, the Applicant husband
Mr Cooper and the Respondent wife Ms Smith, separated after seven years of marriage. They were blessed with two children who were aged five and a half and four at separation.
The husband, who is over 16 years older than the wife, had for some years been involved in the building industry whilst the wife was heavily associated in marketing of house/land packages. The combination of their unique skills and energy for improving their financial security saw them involved in a number of property and building transactions.
As the reasons which follow show, there were many interesting events along the way and although the parents were able to resolve parenting orders on a final basis in February 2008, despite numerous attempts; four forensic accountant reports; and a multitude of applications the parties were unable to resolve property proceedings.
The husband had launched proceedings in the Family Court of Australia in March 2003 and the proceedings were transferred to this Court nearly four years later, finally (after one attempt) proceeding to trial in late February 2008. I apologise to the parties for the delay in finalising and delivering these reasons.
In the final analysis, the pool is largely agreed, and the husband sought a division as to 45/55 in the wife’s favour. The wife says an order where she secures 75% of the pool will do justice and equity to both.
The reasons which follow explain why neither of the parties’ positions found favour with the Court.
Principles
The preferred or usual approach to determining property proceedings under s.79 of the Act was the subject of a succinct summary by the
Full Court in Hickey and Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143) at [39] where the Court said:-
“39. The case law reveals that there is a preferred approach to the determination of an application brought pursuant to the provisions of s79. That approach involves four inter-related steps. Firstly, the Court should make findings as to the identity and value of the property, liabilities and financial resources of the parties at the date of the hearing. Secondly, the Court should identify and assess the contributions for the parties within the meaning of ss79(4)(a), (b) and (c) and determine the contribution based entitlements of the parties expressed as a percentage of the net value of the property of the parties. Thirdly, the Court should identify and assess the relevant matters referred to in ss.79(4)(d), (e), (f) and (g), (“the other factors”) including, because of s79(4)(e), the matters referred to in s75(2) so far as they are relevant and determine the adjustment (if any) that should be made to the contribution based entitlements of the parties established at step two. Fourthly, the Court should consider the effect of those findings and determination and resolve what order is just and equitable in all the circumstances of the case: Lee Steere and Lee Steere (1085) FLC 92-626; Ferraro and Ferraro (1993) FLC 92-335; Davut and Raif (1994) FLC 92-503; Prpic and Prpic (1995) FLC 92-574; Clauson and Clauson (1995) FLC 92-595; Townsend and Townsend (1995) FLC 92-569; Biltoft and Biltoft (1995) FLC 92-614; McLay and McLay (1996) FLC 92-667; JEL and DDR (2001) FLC 92-075 and Phillips and Phillips (2002) FLC 9.-104.”
Before undertaking this analysis, I deal with some particular issues which provide a context to my ultimate conclusions.
Credit
Counsel for the wife made a strong and considered submission that I should have concerns about the husband’s “reliability and credit worthiness” for a multitude of reasons including:-
a)His late disclosure/concession in respect of the interest held by his daughter Ms G in the Property P property;
b)The purpose for changing the name of a company under his control to [18] Pty Ltd;
c)The manner in which he “orchestrated” his bankruptcy on a creditor’s petition;
d)The lack of corroboration associated with the claimed funds provided to the husband by his parents to secure his annulment from Bankruptcy in August 1999;
e)The lack of disclosure about the transactions (if any) associated with [9] Pty Ltd and [6] Pty Ltd and the [N] Trust and [F] Trust (Exhibits 3, 4, 5 and 6).
Ms Carew for the husband responded by saying the husband’s explanation for non disclosure of the transaction with Ms G that it was “because he didn’t think it was relevant because it was family property” should be accepted. I regard such an explanation as implausible considering the commercial experience the husband has had.
I must say, at times, in their demeanour and evasive responses, both parties gave me the impression they only wanted to tell the Court as much as they had to. This is a case where there have been hundreds (perhaps thousands) of commercial transactions.
Mr H has been preparing valuations since his first report dated 10 May 2003. As I set out in the following reasons, in circumstances where the parties agreed at the hearing to:-
·Not seek further adjournments to enable the wife’s corporate entities to produce, as she ought to have done, financial statements to 30 June 2007;
·The husband, although producing financial statements to 30 June 2007, the wife still somewhat surprisingly (considering her lack of recent financial statements) alleged significant non disclosure; and
·Importantly, the parties ran their cases with those limitations and accepted and jointly adopted Mr H’s valuations as summarised in his final report dated October, 2007.
I am as comfortable as I can be, that the assets at the hearing have been properly identified in the pool and, apart from perspectives on contributions, no issue of credit arises in determining major issues in this case.
Evidence of Mr H
Mr H is a well qualified and respected forensic accountant who was initially retained by the wife to provide evidence about the financial state of the building company [2] Pty Ltd in the quest of the wife to oppose the husband’s application for extensive injunctive relief, heard, on an interlocutory basis by the Family Court of Australia on 12 May 2003.
The initial report is dated 10 May 2003 (“the first report”) and was before the Court in evidence at the final hearing. As the reports subsequently identify, Mr H thoroughly considered over the next nearly five years the changing corporate vehicles of both parties and the financial performance from time to time.
Those further reports are dated:-
a)1 October 2003 – dealing with the entities in which the wife had an interest described as:
i)[2] Pty Ltd;
ii)[3] Pty Ltd;
iii)[1] Pty Ltd;
iv)[19] Pty Ltd
v)[14] Pty Ltd
vi)[15] Pty Ltd
essentially based on available financial information to at least
31 July 2003. On this assessment, Mr H found the wife’s interest to be an excess of liabilities over assets of over $1,627,817.
b)13 May 2005 – being a further valuation of entities controlled by the wife. As Mr H observed the wife “has an indirect interest in the following entities through her direct interest in [19] Pty Ltd as Trustee of the [S] Trust”. The report, in addition to the interest set out in the report dated 1 October 2003 also identified the indirect interest in a variety of trusts, including the [D] Trust but, perhaps more importantly, the “Benchmark Group of Entities” (described as paragraph 2.8).
Mr H opined, based on the latest available financial information (seemingly to 31 December 2004) that the wife’s direct interests were valued at $2,523,060.
The valuation at that time did not include any value for the 50% interest in the Benchmark Group of Entities for which Mr H had not been provided any financial statements, however he had noted a number of the other entities controlled by the wife at that time had made loans to the Benchmark Group and that he had been advised that:-
“… whilst the Benchmark [W] Trust, the Benchmark [R] Trust and the Benchmark [H] Trust have entered into contracts to acquire development sites those contracts have not settled and are subject to conditions before settlement can occur. If those contracts do not settle or the developments are not successful Ms Smith’s other entities may be unable to recover funds totalling $1,550,029 which have been outlaid on behalf of the Benchmark Group of Entities.”
c)28 June 2005 – a valuation of entities controlled by the husband at that time, described as:-
i)[11] Pty Ltd as Trustee for the [C] Trust including the value of the business it conducts;
ii)The [Smith Cooper] Superannuation Fund;
iii)[18] Pty Ltd;
iv)[4] Pty Ltd.
Mr H opined the total value to the husband of these entities was $792,709 (which included a 25% interest held in the Property P property based on an independent valuation provided of $700,000 at 3 November 2003 – see Annexure 7). This computed to a 25% interest being worth $175,000. The valuation I have included in this description was on the basis that the SMSF was a “complying fund” – an issue I refer to later in these reasons.
d)11 October 2007 – (“the final report”) – an updated valuation of the parties’ interest in various entities controlled by each of them. It was the position of each of the parties that at the hearing they both accepted and adopted Mr H’s estimate of value. Certainly, by this time, it is reasonable to assume the parties had confidence that Mr H knew fairly intimately, their very complex financial web of entities. Both the husband and wife had significant intermingling amongst their individual entities – each “finding” other entities from within as cash flow and projects were either beginning to generate income or were coming to the end of their commercial life. In particular, as an example of the interrelationship between the entities controlled by Ms Smith, the diagram at page 93 of this report is helpful.
Although the first trial set by this Court after the matter was transferred by the Family Court of Australia in February 2007 could not proceed as scheduled because of the delay in receiving and considering the last report of Mr H, it is noted by
Mr H that the latest financial statements made available to him were:-
i)Cooper Entities – year ended 30 June 2007;
ii)Smith Entities – year ended 30 June 2006
In short therefore, as at the trial in February 2008, the valuation of the wife’s interest was based on information then some 20 months old. The wife provided an Affidavit filed 14 February 2008 with 370 pages of annexures, but curiously no updated financials.
I have decided that little point is served in incorporating in these reasons a detailed chronology of the numerous and extensive history of complex dealings undertaken since separation, although a careful examination of the five separate reports of Mr H do reveal the journey taken based on what he was told.
One might have anticipated Mr H would have been the subject to cross examination for days – such was the wealth of information and data in his reports, but as the transcript evidences, that was not the case. It is clear that Mr H’ overall assessments were generally accepted and the parties agreed to run their cases, with the limitations identified by Mr H – I suspect so that there was an end to the litigation after five years of investigations in this way. In fact Mr H was not even cross examined by Counsel for the Husband, and the brief cross examination by Counsel for the wife elicited that:-
a)At the time of his initial report in May 2003, the companies controlled by the wife were “nearly insolvent”;
b)Since then [2] Pty Ltd had become profitable and the wife’s interests now are “quite significant”;
c)Whilst certain of the wife’s land developments have become successful “you are only as good as your last project” and that one “bad project can throw a spanner in the works”;
d)It is difficult to estimate the wife’s borrowing capacity because of the lack of up to date financial information from her but based on the 2006 figures provided, possibly $250,000 could be raised without significantly affecting the wife’s operations;
In the absence of any challenge to Mr H’s numerous comprehensive reports, and where the parties accept, for the purpose of the establishment of the pool of assets his valuations, it is reasonable to make a finding that:-
·At the time of the first report, the business interests of the parties was “teetering” and the building company was seriously in debt and operating on a limited builders licence with 46 homes in various stages of construction;
·The “lifeline” from [12] Pty Ltd through [23] Funding in the order of $750,000 was critical to the companies’ survival. This was arranged by the wife;
·The budgeted profit from the proposed development of 84 lots of land which the wife’s company [1] Pty Ltd had an interest in at [U - suburb omitted] would be between $1,350,000 and $1,650,000. As it transpired, the “deal was done” with [22] exercising the call option contained in the Put and Call Option Agreement between [7] Pty Ltd and [22] dated 16 April 2002. The funding from [12] enabled the development to proceed. It was profitable and provided the impetus – together with very buoyant conditions in south east Queensland for property development, to move the interest of the company and entities controlled by the wife into a significantly positive position at the hearing.
As the later reasons demonstrate the manner in which I ought to assess, as a contribution factor, the “turn around” achieved by the wife over this post separation period was at the heart of the dispute as to the contribution based entitlements.
Property P, [R - suburb omitted]
The ownership and value of this property occupied a significant amount of the cross examination at the hearing. The value of the whole property is dealt with later in these reasons.
In respect of the ownership of the property the Court makes the following findings which shape the ultimate conclusion in respect of certain issues in dispute. The Court finds:-
a)The property comprises approximately 1.6 hectares and was originally acquired in 1972 for $20,000 and vested in the names of the husband and his then wife Ms L (as to one half) and the parents of the husband as to the other half interest. Although the husband says 25% each it is not clear whether the married couples owned their half interest as joint tenants or not. Nothing turns of that issue.
b)The husband’s parents lived on the property where grapes were grown. A small home and some sheds remain on the property.
c)In or about 1993 during property negotiations between the husband and his first wife Ms L, the husband claims a valuation of the farm was undertaken. No reliable evidence of the valuation was offered to the Court although the husband asserts, without corroboration, that it was valued at $176,000. Ms L’s interest in the property was to be acquired by the husband’s self managed superannuation fund, but as was discovered during the course of these proceedings a effective legal vesting of that interest has not occurred. I say more about this issue later in these reasons. I am satisfied however it was the husband’s intention that his former wife’s interest be vested in his SMSF.
d)Prior to cohabitation with the wife in these proceedings, the husband caused to transfer his 25% interest in the property to his building company then known as [8] Pty Ltd which he had set up in 1994. For [8] Pty Ltd to hold a building licence, the Building Services Authority (BSA) required a bond to be provided or at least a certain level of unencumbered assets. The husband says he transferred his interest to “comply with the requirements of the BSA”. I accept the husband did transfer his interest in the property for the reason he claims, however the value of the interest at the time is not the subject of any probative evidence, although the husband claims the consideration was $41,250. It may have been about the same value as paid by the SMSF.
e)At the time of marriage/cohabitation therefore this property was vested (or meant to be vested) as follows:-
· 50% to the husband’s parents;
· 25% to [8] Pty Ltd;
· 25% to the husband’s superannuation fund;
f)
In September 2001 the husband’s father passed away and I infer his interest in the property passed to his wife Mrs C.
On 1 November 2004, Mrs C executed her Last Will and Testament (see Exhibit “DAS 40”) and by clause 4 thereof she gave her interest “in the farm property situated at Property P in the State of Queensland to my granddaughter Ms G for her own use”. This bequest was an alteration to the Will, presumably made at the time of execution, as previously clause 4 provided the beneficiary to be “the trustee at the time of my death of the [Cooper] (sic) Truste (sic)”.
g)Mrs C died on 26 June 2005. It is clear that the will was executed after proceedings had been commenced by the husband for property settlement and that his mother was alert, he says, to her concerns about the half interest in the farm property being “attacked” by either the wife (or other future partners) or creditors. In view of the husband’s history if those were concerns of the late Mrs C they had some foundation.
h)Sometime after the death of his mother, the husband entered into a trust arrangement with his daughter Ms G whereby purportedly, as a compromise against he husband contesting his mother’s will under Part IV of the Succession Act (Qld) – Ms G agreed with her father “to hold upon trust for the benefit” of her father the property bequeathed by clause 4. Although an unsigned copy of the deed was produced to the Court, Exhibit 2 is said by the husband to be a true copy. No evidence from Ms G was offered to the Court.
At the beginning of the trial, the Counsel for the husband conceded that Ms G held the interest for her father and that therefore the property should be treated as his current property. Presumably, and in the absence of any evidence to the contrary, I infer that upon demand the husband’s daughter Ms G will transfer the full legal interest in half the property to her father. I have the strong impression that this whole scheme was devised by the husband from the time of his father’s death, although the husband says his mother knew “he couldn’t be trusted with women”.
Counsel for the husband contended that the late “inheritance” should be excluded from the pool (at step one of the analysis) but of course not ignored. I do not believe that is the correct approach to be adopted on the facts in this case, and prefer to proceed on the usual “global approach” including the interest in the pool at the time of hearing, but with appropriate weighting given to the source of the benefit as a late contribution by the husband.
Superannuation Fund
At some stage during the course of these proceedings it came to the attention of the husband that a quarter interest in the property at Property P was incorrectly registered in the name of [16] Pty Ltd when the true trustee of the [C] Trust was [11] Pty Ltd.
As Mr H sets out at paragraph 4.1.1 of his October 2007 report, the [Smith Cooper] Superannuation Fund (of which the husband is the sole trustee and member) owns 100% of the issued units in the [C] Trust. A major asset of this Unit Trust is the claimed interest in 25% of the [R - suburb omitted] farm property.
Two issues can arise from the acknowledged error:-
a)Firstly, can the error be corrected. The husband’s commercial lawyer for over 20 years Mr S says it can be rectified and he says how that is to be achieved in his Affidavit sworn 22 February 2008. Mr S was the subject of cross examination. His firm has an interest in ensuring the rectification of the title record, as his firm effected the original transaction. I accept Mr S’s evidence that it can be achieved, the steps made more difficult because of the deregistration of the company [16] Pty Ltd – which was never connected with the husband or his family and that it was a “mere coincidence” that the name of the deregistered company was similar to the intended [5] Pty Ltd.
b)
Secondly, for reasons initially identified in the October 2007 report of Mr H, and based on his review on the funds’ financial statements from 2001, Mr H opined at that time the fund may be “non-complying” with significant adverse tax implications which would affect the value of the fund. By the time of the hearing
Mr H had discussed some of his concerns with the funds auditor Mr F and swore to the following opinion (see Affidavit being Exhibit 9, sworn 27 February 2008) namely:-
“… I am of the opinion that the fund is more likely to be a complying fund. However, given the grey nature of the sole purpose test the only way to be definitive in my answer is if a Private Ruling is sought from the Australian Tax Office or they conduct an audit of this fund.”
The husband, as trustee, has given no indication of a desire to seek a Private Ruling. In circumstances where the full value (as determined by Mr H) for the husband’s interest as a member of the fund is to be included in the pool, the husband quite properly takes all the risks of a dimunition in value.
The wife raises concerns about her potential liability as a trustee for any consequences arising from the fund being found not to comply. This is because, on the evidence of the husband, the wife was a Trustee of the [Smith Cooper] Superannuation Fund until her purported resignation or discharge of her role as trustee under a deed made 14 October 2002 (see Exhibit 8). The wife said she has no recollection of signing the said deed, which seems to have been stamped on 11 February 20003. She claims she does not recognise the signature as her signature. Counsel for the wife asserts the evidence justifies a conclusion of the wife’s signature being a “forgery”. Such a finding has serious consequences and, adopting the Briginshaw standard of proof, should only in my view be made if the evidence supports such a finding and such a finding needs to be made. Although the wife’s evidence is concerning, I am not able to be satisfied that he husband (as was inferred) either forged the wife’s signature or caused someone else to do so.
Clearly the deed came into existence post separation but before the commencement of proceedings. The evidence is that he husband continued to work for the business until around November 2002. Many business documents would have been signed during this period by the wife.
The other parties, it seems, regard the deed as valid and therefore the indemnity from the “new trustee” (named as Mr J) under clause 4 applies. The husband also offers an indemnity in any final order made. The wife seeks the retention of funds (or an unspecified amount) to cover any contingent liability however I have taken the view that the indemnity under the deed together with an indemnity in an order binding the husband, offer sufficient and appropriate protection to the wife.
Pool
Having chosen to deal with the only expert evidence available to the Court about the business interests of the wife, with the reservations arising from that discussion identified, the remaining areas of dispute as to the pool of assets at the time of the hearing in February 2008, are narrow and I deal with them sequentially.
Funds Received by the Husband from the sale of the Property L
Post separation, in March 2003, the husband commenced proceedings in the Family Court of Australia for property settlement. Subsequently, by Application filed 15 April 2003, the husband sought an order, inter alia, that “the wife cause an amount of $30,000 to be paid to the husband’s solicitors to defray the costs of the husband to be incurred relative to the conduct of the husband’s application for property settlement within 14 days and that these monies be taken into account in the final determination of proceedings for property settlement” (Order 4 sought). This application also sought interim injunctive relief.
It is common ground that the Family Court of Australia heard the application, opposed in part by the wife, on 12 Mary 2003. The wife says, at paragraph 126 of her Affidavit, that the net proceeds of sale ($77,000) of the property at Property L were disbursed:-
a)As a result of a consent order, $30,000 to the husband’s then lawyers;
b)The balance “was used to pay [2] Pty Ltd trade creditors”.
The husband (at paragraph 73.6 of his Affidavit), acknowledges he received some funds from this source saying he received:-
“an amount of approximately $30,000 from these sale proceeds as a result of an interim application I brought…”
No sealed order can be located on the Court file and neither party has a copy of any such order. However, in the circumstances, I regard it as proper to “add back” such funds consistent with authorities such as Farnell (1996) FLC 92-681. In the scheme of things, this sum is small, however I regard it as likely the Court did make the order sought in the husband’s application and the parties ought not to be able to retreat from the nature of that order because of subsequent events. I accept the wife used the balance of funds as she says she did.
Valuation of Property P
The earlier part of these reasons deals with the history of the ownership of this property. The wife, at the commencement of the trial sought to adduce further evidence about the Value of the property, and for reasons which are set out in the transcript; I would not allow the wife to do so.
It follows therefore, that the only expert evidence the Court had at the hearing as to the Value of the property is that of Mr E. Mr E was retained as a single expert and was asked to assess the market value of this 1.623 hectare property. Mr E’s qualifications to provide expert evidence were accepted by the Court – as it seems they were by the parties who chose him for the task.
The main aspects of Mr E’s valuation include that:-
a)He incorrectly showed the “Registered Owner” as “[2] Pty Ltd”, in circumstances where even his own attached title search reveals it has only a quarter interest in the property.
b)The land, which has minimal ground improvements and a small dwelling in fair condition; is within an “emerging community” classification and designated for Urban Use under the South East Queensland Regional Plan.
c)The “highest and best use” for the site is as a site with “development potential” and he indicated that there has been strong demand in that area for large land holdings such as the subject site.
d)Accordingly, he assessed the market value “using a Hypothetical Subdivision Analysis, as well as through the forum of direct comparison with recent sales of other properties with similar characteristics.” He provided “notes” or elements of his basis of analysis including, importantly adopting a “net profit figure” of approximately 20%; average retail site values “from local sales” evidence of $175,000. In respect of “Sales Evidence” he identified four comparison sites at:-
·Property R (17800m2);
·Property L (32420m2);
·Property C (15992m2);
·Property G (15700m2).
I observed that the date of valuation was 20 March 2007 (nearly
12 months before trial) and that the sales evidence was for sales between March 2006 and November 2006.
The valuation which he opined was appropriate was $1,430,000 which, on the development feasibility for 22 lots (at $175,000 a lot) would generate a net profit of $736,000 (19.62%). The primary assessment of $65.000 a lot (undeveloped) for 22 lots, Mr E opines is comparable to the sites identified for the reasons given.
Ms Carew, Counsel for the husband, contended not surprisingly, that I should accept the evidence of Mr E.
Mr Burridge, Counsel for the wife, in circumstances where he had no other evidence of value to rely upon, vigorously and competently cross examined the witness, in an endeavour to support his final submission that the Court should find that Mr early was confused; his evidence was as a result confusing and that I could not be satisfied in accepting the evidence. In particular the areas most strenuously put to Mr E about his opinion included:
a)His agreement that the adjacent property has a town house development or higher density usage but he still regarded the identified sales evidence as most relevant to his view that the “highest and best use” was as a “residential development”.
b)He relied upon discussions with an (unnamed Town Planner) in coming to his view that a residential development was the most likely approval to be obtained and did not consider, for example, the possibility of an industrial development. He did not discount that a development application for a medical centre could be made, but was still of the view that a “residential development” represented its “highest and best” use.
c)He accepted that his feasibility exercise is of course hypothetical and includes some inherent assumptions (such as a developer regarding a 20% return as adequate for the risk).
I had the advantage of seeing Mr E give evidence and being tested. I accept his evidence as to the assessment of value at the time of inspection. It must be said, of course, that the parties ran their cases with valuations that were not always current, however by deciding to run their cases in that way (hoping it seems to avoid substantial further valuation fees), it would be impermissibly hypothetical and speculative to try and predict what the real property values were at the time of hearing.
It follows from the valuation of Mr E, that the respective interests from that property for the various interest (the site being unencumbered by any mortgage) should be:-
[2] Pty Ltd
$357,500
[C] Trust
$357,500
Husband
$715,000
Mr H’s report prepared 11 October 2007 (although as previously noted relying on financial information to 30 June 2006 from the wife only) incorporated the valuation of Mr E for this property (see for example paragraphs 3.2.2 and 5.2.6).
Property M
The husband, unlike the wife, provided the single expert business valuer Mr H with financial information to 30 June 2007. Subsequent to that date, the husband disclosed to the Court a joint venture with his girlfriend at the time Ms D in respect of a home at Property M. The husband said he has had two joint ventures with Ms D, where she purchases the land and he builds a home on it as a speculative building enterprise. He says that he has undertaken a similar venture with his personal trainer Ms C. He estimated that he hopes the joint venture will secure a net return of between $40,000 to $50,000 with his share being around $20,000 to $50,000 (which is the entitlement of
[10] Pty Ltd). The Counsel for the wife says this interest should be included in the valuation of the company. However in circumstances where the wife’s corporate building operations have not been updated since her disclosed financials for the year ended 30 June 2006, I do not regard it as fair to isolate this one small transaction in the way the wife invites me to do so.
Other small pool issues
The partners have been separated at the time of the hearing for nearly six years, and in a pool of over $5 million it becomes somewhat finicky to include small bank accounts, livestock and the like. I am not required (nor was the Court invited) to conduct an audit of the use of funds available to the parties post separation. The decision I have made about the sum of $30,000 is different for the reasons given.
Similarly why the parties currently have personal credit card liabilities - the wife’s total $29,716 and the husband’s total $30,500 – has a lot to do with their lifestyle and not what liabilities existed six years ago. As can be seen, they are almost equal and in such circumstances I ignore them. I raised this approach in final submissions.
There are a number of corporate interests (be they trusts or companies) where the valuation by Mr H was either nil or virtually nil. It is a curiosity (earlier alluded to_ why there was a need for so many entities), however I do not include them in the list (most were included in the Aide Memoire from the husband’s Counsel which I have marked Exhibit 10), for that reason. It is not to be assumed that I ignore their existence.
On the basis of these findings, I assess the pool at the date of hearing as follows:-
Asset
Owner
Net Value
[S] Trust
Wife
$3,858,030
Property N (half interest)
Wife
$157,471
Property S
Wife
$216,000
Property E
Wife
$183,742
Property W
Wife
$233,252
Property T (half interest)
$46
Contents – husband
$2,000
Contents – wife
$10,000
[10] Pty Ltd
Husband
$249,307
Half interest in Property P
Husband
$715,000
ADD BACK legals paid
$30,000
$5,654,848
Superannuation Interests
Husband via [Smith Cooper] Superannuation Fund
$830,364
Wife – Sun Super
$99,188
Total Superannuation
$929,552
Total Pool
$6,584,400
Notwithstanding the direction by the Full Court in C & C [2005] FamCA 429 of the preferred “two pool” approach, both Counsel contended for a pool where superannuation interest were combined with non-superannuation interests and I agree, in this case, considering the husband’s interest in his superannuation is almost entirely the quarter share in the Property P property; coupled with the fact that superannuation interests represent less than 30 % of the combined pool – that one pool is appropriate.
Contributions
Apart from the initial contributions of the husband arising from his interest (however vested) in 50% of the Property P property and allowing for:-
a)Other initial contributions of the parties. In that regard the wife claims net assets of about $62,000 together with furniture and a small bank account. Her claim of $60,000 is based on what she says was the materialised value of her interest in [17] Pty Ltd trading as [21] some two years later ($40,000) and the equity in Property W ($20,000). Ignoring for the moment the husband’s initial contributions from the Property P property, I would assess the wife’s initial contributions as slightly higher/superior. Although the husband had a number of corporate interests (particularly [8] Pty Ltd and [13] Pty Ltd – an automotive spare parts business),the husband did not attribute significant value to those interests (see paragraphs 15 & 16). I accept he husband was drawing an income from these pursuits.
b)Shortly after marriage the husband transferred to the wife 50% of the shares in his building company and from that point until separation, the parties worked hard in the pursuit of a strong financial future utilising the sales/marketing expertise of the wife and the building experience of the husband. Both acknowledged they worked hard as a joint endeavour.
c)The wife commenced another business [20] in 1998 and the wife formally became a Director of [8] Pty Ltd just prior to the husband being declared Bankrupt in February 1999. I am satisfied that the husband’s bankruptcy stemmed from the operations of the business [13]. The husband’s former wife Ms L was also declared bankrupt.
d)
The husband was at least aware, it seems clear, of the prospect of his bankruptcy with [13] being put into receivership. The wife had also received some wages from this business. However, when he went into Bankruptcy, and with the support of his trustee, the wife secured the husband’s 50% shareholding in [8] Pty Ltd (which subsequently changed its name to [2] Pty Ltd) and to purchase the husband’s half share of a property at Property S. The husband alleges his parents provided cash to fund the purchase whilst the wife says company funds were used.
No corroboration for either version was available. The effect of the husband’s bankruptcy was that the wife then became the legal controller of all the family corporate enterprises – other than the superannuation fund. This became, as history shows, a defining event.
e)
The husband arranged an annulment of his bankruptcy on
23 August 2001with creditors accepting a composition proposal. The funds required for the composition are not revealed to the Court, but the husband says his parents lent the monies to set up the composition. Following the annulment the husband requested the wife to “transfer 50% of all assets back to me”, but the wife refused.
f)In January 2002, the wife incorporated a company [1] Pty Ltd for the purpose of acquiring vacant land for building projects for the construction company. The husband says this company purchased a “put and call option” on land at [U - suburb omitted] funded by a cheque drawn on [2] Pty Ltd. The husband says the cheque was for $48,000 ($500 a block). It was this holding which was available to support the [23] Funding by [12] earlier referred to in these reasons.
g)With the construction operations and land acquisition gathering momentum under the wife’s control a number of other joint ventures and separate corporate activities (as detailed by Mr H in his first report) were created and were in their embryonic stage, when the parties separated in February 2002.
h)The wife, in her Affidavit effectively “blames” the husband for the perilous position of the construction company for a range of conduct issues arising with quoting for jobs; management of construction staff and the like. At paragraphs 53 to 62 of his trial Affidavit he deposes to his response to these allegations. It seems to me that the wife cannot have it both ways – she was “in control” from early 1999 and allowed the husband, who had the building reputation and expertise to act as construction manager. I am satisfied he did so, whilst the wife was engaged, not only in the care of the children but considering plans for future venues.
i)I do not ignore the efforts of both parties to the care of their children [X] (born July 1996) and [Y] (born November 1997). Although the wife was the primary caregiver and homemaker when the children were young, as they got older a more equal sharing of their care occurred, such as to accommodate busy work schedules. A nanny was employed in early 2002.
I have not attempted to detail all of the transactions – some of which were profitable and some less profitable. However, when I weigh all these contributions one against the other to the time of separation (and again for the purpose of this analysis, excluding the husband’s interest in Property P), I would assess the contributions as roughly equal for the seven years involved.
Post Separation Contributions
Not surprisingly Counsel for the wife relies upon the evidence of Mr H to support a submission that the wife’s post separation contributions to the pool of assets, as I have found it to be are overwhelming – and represents a turnaround in the financial position of the entities controlled by the wife from a deficit of over $1,200,000 to the current agreed position of $3,858,000. Even if I were to remove the company [2] Pty Ltd’s passive interest in the 25% share of the Property P property ($357,500) then the wife’s corporate interests have a value of around $3,500,000.
This contribution (which would also include her 50% interest with her current husband Mr J in Property N) totalling $3,600,000 represents over 55% of the current assessed pool. Additionally, since separation the wife has carried the majority of responsibility and care of the children. She has, I accept on her own evidence, generated taxable personal income superior to the husband from his business pursuits and even though the husband’s contributions by way of child support was modest the wife has clearly been in a stronger position to meet the children’s financial needs.
Whilst the husband contends a small adjustment in the wife’s favour for the post separation contributions is arguable, he asserts that:-
a)Proper weight needs to be given to the late “inheritance” of the remaining half interest in Property P of $715,000 (or nearly 11% of the pool);
b)The contributions, although inferior to those of the wife, as parent to the two children;
c)He made a contribution through the wife having full and unfettered control of the building company which had its source in his reputation and expertise as well as the security (for BSA licence requirements) of a 25% share in Property P;
d)Some of the ventures, which proved quite profitable (for example the [U - suburb omitted] development), were identified and secured prior to separation but the fruits of the enterprise were not received until after separation.
In coming to an assessment of the contribution based entitlements I, in summary, weigh up the:-
a)Initial contribution by the husband of his 50% interest in Property P (with 25% in the building company and 25% in the super fund) and, in accordance look to both the amount of that contribution and the use made of that contribution by still being retained today (see Pierce (1998) FamCA 74);
b)The assessed otherwise equal contributions in the seven years of the marriage until separation;
c)The wife’s overwhelming additional contributions post separation reduced, to some degree by the husband’s introduction of his inheritance in the period post separation.
Counsel for the wife Mr Burridge referred me to the Full Court decision In the marriage of Hill (2005) 32 FLR 552 where the Court (Kay, Holden and Boland JJ) considered the doctrine of “special contributions” (see paragraphs [54] to [59]). In that case, the husband and wife had net assets of over $10 million, and the husband alleged the doubling of the pool was as a result of his special stock broking skills rather than as a result of “market forces”. In this case I accept the wife was “in the right place at the right time”, and whilst an astute dealmaker and good networker, I do not see her contributions as “special” although her efforts in maintaining the corporate structures and protecting them from insolvency are matters which I attributed mostly to her efforts. It does seem that at the critical time in the parties’ corporate life, the [U - suburb omitted] transaction was available; commercially attractive sufficient to obtain the [23] funding; and ultimately profitable.
The husband says that an overall adjustment of 5% to the wife is appropriate, whilst the wife says an adjustment of 80/20 is fair.
I assess the appropriate contribution based entitlements at the time of hearing be 67.5% to the wife and 32.5% to the husband.
Section 75(2) Factors
The husband is now aged 59 and the wife is aged 42 and although both in good health, clearly the wife has a significantly longer working life in front of herself. Health issues are not thankfully relevant.
The wife will have the majority of care responsibilities for the two children, now aged 11 ([Y]) and 12 ([X]) although by working essentially for herself she is capable of having some flexibility and the evidence does not support that the children’s needs impact on the wife’s capacity to earn. The husband does pay modest child support.
The wife’s earning capacity is superior to that of the husband, and with the larger share of the pool (after the contribution based assessment made above) she has a business platform which enables her to continue to seek to “do deals” and maximise profits. I do not, of course minimise the higher risks associated at these times of global economic uncertainty with large land and construction activities. The success the wife has enjoyed post separation may not be repeated with the same results in the future. Certainly the wife, in her evidence, gave me the strong impression she is an extremely resourceful and a confident business woman who has the energy and dedication to continue to improve her business empire.
The husband, older and less energetic on my appraisal, feels he was essentially “kicked out” of his company just at a stage when things were going to improve. Although he continues to work hard in the building industry and in speculative building enterprises at a much lower scale than the wife, his financial future is, I assess, tied to the use he makes of the former family farm at Property P. By any order I make he is entitled to have full control of that site – requiring
[2] Pty Ltd to transfer its interest to the husband or as he may direct.
It of course is not, at present, an income producing asset. Also, most of the husband’s “eggs” will be in the one basket. Nonetheless it has development potential (according to Mr E). As the husband is soon to reach the age of 60, the fact that a 25% share of the property is owned by the superannuation fund does not create a substantial impediment with his capacity to “retire” available at his discretion.
Overall, my view is that these factors justify an adjustment in the husband’s favour of 3% of the pool – or the equivalent to the husband obtaining the first 6% or nearly $400,000. I regard such an adjustment as proper in this case.
Just and Equitable
On the analysis that has been undertaken a division of the available pool as to 64.5% to the wife ($4,246,938) and 35.5% to the husband ($2,337,462) may, depending on the effect of the final order do justice and equity to both parties.
Such a division would require the wife to pay to the husband the sum of $153,291 calculated as follows:-
Husband’s superannuation
$830,364
Half share in the Property P property
$715,000
Transfer of quarter hare in Property P property
$357,500
[10] Pty Ltd
$249,307
Contents
$2,000
ADD BACK – Legals
$30,000
$2,184,171
Payment by wife
$153,291
$2,337,462
In circumstances where the hearing took place over nine months ago and where neither party sought to reopen the hearing, I am not able to be confident that the wife, through her corporate entities is able to secure a release of the quarter share of Property P held by [2] Pty Ltd and the payment of the sum calculated.
In those circumstances, I regard it as proper and fair to both parties to give them an opportunity to make further submissions to the Court on the form of the order.
I certify that the preceding sixty-eight (68) paragraphs are a true copy of the reasons for judgment of Baumann FM
Associate: L Parke
Date: 2 December 2008
CORRECTIONS
Paragraph 66, line two – delete “$107,097” and insert “$153,291”.
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