COWAN & COWAN
[2019] FCCA 720
•22 March 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| COWAN & COWAN | [2019] FCCA 720 |
| Catchwords: PRACTICE AND PROCEDURE – Application in a case part way through trial – disputes about non-disclosure – potential joinder of third parties – costs of proposed third party. |
| Legislation: Family Law Act1975 (Cth), ss.75(2), 75(2)(b), 75(2)(o), 78, 79, 79(2), 79(4), 90XT(1)(a), 106A |
| Cases cited: Hall & Hall [2016] HCA 23 |
| Applicant: | MR COWAN |
| Respondent: | MS COWAN |
| File Number: | MLC 5967 of 2016 |
| Judgment of: | Judge Harland |
| Hearing dates: | 1 and 2 February 2018, 23 and 27 April 2018, 12 October 2018 and 21 and 22 January 2019 |
| Date of Last Submission: | 22 January 2019 |
| Delivered at: | Melbourne |
| Delivered on: | 22 March 2019 |
REPRESENTATION
| Counsel for the Applicant: | Mr Trim |
| Solicitors for the Applicant: | Whyte Just & Moore |
| Counsel for the Respondent: | Mr Whitchurch |
| Solicitors for the Respondent: | Harwood Andrews Lawyers |
ORDERS
That the Husband pay the Wife the sum of $151,037 (“the payment”) within 90 days of these Orders (“the Date”).
That contemporaneously with the payment:
(a)The Husband do all acts and things and sign all documents as required to transfer to the Wife at the expense of the Wife all of his right title and interest in the real property situated at and known as Property A, Victoria (“the Property A property”).
(b)The Wife do all acts and things to refinance the mortgage registered over the Property A property to remove the Husband’s name from it, and release and forever indemnify the Husband from the said mortgage together with all apportionable rates, taxes and outgoings of or with respect to the Property A property of whatsoever nature and kind.
(c)The Wife do all acts and things and sign all documents required to transfer to the Husband at the expense of the Husband all of her right title and interest in the real property situated at and known as Property B, Victoria, (the Property B property”).
(d)The Husband do all acts and things to refinance the mortgage registered over the Property B property to remove the Wife’s name from it, and indemnify the Wife from the said mortgage and all apportionable rates, taxes and outgoings of or with respect to the Property B property of whatsoever nature and kind.
That in the event that the Wife is unable or unwilling to comply with Order 2(b) by the payment date, the Husband and Wife do all things necessary to enable the Property A property to be listed on the market for sale (“the sale”) and upon completion of the sale, the proceeds be applied:
(a)Firstly, to pay all costs, commissions and expenses of the sale;
(b)Secondly, to discharge the mortgage and any other encumbrance affecting the Property A property;
(c)Thirdly, an amount that enables a payment to the Wife such that she receives 60% of the total realisable assets of the parties to the wife; and
(d)Fourthly, the balance to the Husband.
That in the event that the whole of the payment has not been made by the Date, the Husband and Wife do all things necessary to enable the Property B Property to be listed on the market for sale and upon completion of the sale, the proceeds be applied:
(a)Firstly, to pay all costs, commissions and expenses of the Sale;
(b)Secondly, to discharge the mortgage and any other encumbrance affecting the Property B property;
(c)Thirdly, an amount that enables a payment to the Wife such that she receives 60% of the total realisable assets of the parties; and
(d)Fourthly, the balance to the Husband.
For the purpose of calculating the payments to the parties pursuant to Orders (3 and 4) herein, the total realisable assets (excluding superannuation) of the parties consists of:
(a)The business – Business C Pty Ltd with an agreed value of $100,000;
(b)If sold, the net proceeds of sale of the property at Property A and if not sold its equity valued at $210,000;
(c)If sold, the net proceeds of sale of the property at Property B and if not sold, its equity valued at $285,000;
(d)the Motor Vehicle D valued at $25,000;
(e)the proceeds of sale of the Motor Vehicle E of $15,000;
(f)the Motorcycle valued at $1,000;
(g)the proceeds of sale of the jetski pf $12,500;
(h)the Motor Vehicle F valued at $20,000;
(i)the car hoist valued at $2,000;
(j)proceeds of sale of the ride on lawn mower $2,500.
That pending the payment being made or completion of the sale:
(a)The Wife have sole right to occupy the Property A property and the Husband have sole right to occupy the Property B property and during such right of occupation the Wife pay all instalments pursuant to the mortgage and all apportionable rates, taxes and outgoings of the Property A property as they fall due, and the Husband pay all instalments pursuant to the mortgage and all apportionable rates, taxes and outgoings of the Property B property as they fall due, and they shall indemnify each other with respect to these payments;
(b)The parties hold their respective interests in the Property A property and the Property B property on trust pursuant to the Orders; and
(c)Neither party further encumber the Property A property or the Property B property without the consent in writing of the other party (save in the ordinary course of the Husband’s business, and for the purpose of him complying with these Orders).
That within 7 days of the date of these Orders the Husband forthwith do all necessary acts and things and sign all necessary documents to transfer to the Wife at the expense of the Wife all of his right, title, and interest in the Motor Vehicle D motor vehicle registration number ….
That the Husband retain and the Wife make no claim in respect of the Business C Pty Ltd.
That the Husband indemnify the Wife in relation to any debts, mortgages, taxes or other liabilities with respect to the business Direct Business C Pty Ltd.
Contemporaneously with the transfers as referred to in paragraph 8 hereof, the Wife at the parties’ joint expense transfer and assign to the Husband or his nominee, for the Husband or his nominee’s own use and benefit, all and any right title, interest or beneficial entitlement including as nominated beneficiary or appointor, she may have in the Cowan Family Trust, including any funds standing to her credit in any beneficiary or loan account/s.
That unless otherwise specified in these Orders and save for the purposes of enforcing any monies due under these or any subsequent Orders:
(a)Each party shall be solely entitled to the exclusion of the other to all other property (including choses-in-action) in the possession of such party as at the date of these Orders.
(b)Insurance policies remain the sole property of the owner/beneficiary named thereon/in.
(c)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 having been accorded procedural fairness, paragraphs 11 to 14 of these Orders are binding upon the Trustee of … Investment Ltd in respect of the Husband, Mr Cowan’s (date of birth: … 1973), Super Fund G Personal Super - Account No. … (“the Fund”).
That the base amount of $44,063.75 be allocated to the Wife from the Husband's interest in the Fund.
Pursuant to s.90XT(1)(a) of the Family Law Act1975 (Cth) (“the Act”), whenever a splittable payment becomes payable in respect of the Husband's interest in the Fund, the Wife shall be entitled to be paid an amount calculated in accordance with Pt.6 of the Family Law (Superannuation) Regulations2001 (“the Regulations”), using the base amount, and there be a corresponding reduction in the entitlement the Husband would have had but for these Orders.
That Order 13 has effect from the operative time.
The operative time for the purposes of Order 15 of these Orders is four business days after the date of service of these Orders upon the Trustee of the Fund.
That all previous Orders in this proceeding be discharged.
That pursuant to s.78 of the Act that each of the husband and the wife shall be and hereby are declared to be the sole and absolute owners at law and in equity of:
(a)all items of furniture, furnishings, personalty, chattels and jewellery;
(b)all monies (whether held in cash or in deposit with any financial institution);
(c)any motor vehicle;
(d)all contributions to or benefits or entitlements arising from membership of any fund of insurance or superannuation whether such interest be present, contingent or expectant;
in the possession, custody or control in which either has an interest which are not otherwise dealt with in these orders.
That in the event that either party should fail, neglect or refuse to sign or execute any deed, document or instrument required by or to give effect to these Orders then pursuant to s.106A of the Act that the Registrar of the Federal Circuit Court of Australia, Melbourne Registry shall be and is hereby authorised, empowered and directed to sign and execute such deed, document or instrument in the place and instead of such party and to thereafter do all things and acts as are necessary to give validity and operation to same.
IT IS NOTED that publication of this judgment under the pseudonym Cowan & Cowan is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLC 5967 of 2016
| MR COWAN |
Applicant
And
| MS COWAN |
Respondent
REASONS FOR JUDGMENT
It is clear to me, having observed both parties give evidence that both parties have entrenched negative impressions of the other. Both have taken unrealistic and unreasonable positions with respect to various aspects of these proceedings. Both remain bitter about the breakdown of their relationship. I have no doubt that the stress of proceedings has contributed to this as well as their eldest daughter’s significant mental health issues. The bitterness between the parties has been much worse given the developments during the trial which I will refer to below.
The applicant husband was born on … 1973 and is 44 years of age. The respondent wife was born on … 1976 and is 41 years of age.
The parties commenced living together in or around 1992 and married on … 2000. They separated on 17 April 2015.
The wife says that they started living together in about 1995. Nothing turns on this and neither party raised it at the hearing.
The parties have two children, [X] born … 2001, aged 17 and [Y] born … 2003, aged 15.
Applications in a case during the part-heard trial
The first part of the trial took place on 1 and 2 February 2018. It was adjourned part-heard to 23 April 2018. The wife made an application in a case on 20 April 2018 necessitating the adjournment of the trial. There were further listings for 23 and 27 April 2018 and 12 October 2018. The trial resumed on 21 and 22 January 2019. Due to the gap in hearing dates, it was necessary to accept updated evidence with respect to the value of the properties and the parties’ personal circumstances.
Ms H (“Ms H”) was called as a witness in support of the husband’s case. She has been a friend of the husband for over 20 years. The wife alleged that Ms H was in a de facto relationship with the husband. She also worked for the husband initially as a contractor and then as an employee. Her evidence became significant particularly after the wife discovered that Ms H also had a business carrying out the same work as the husband.
On 20 April 2018 the wife filed an application in a case seeking urgent ex parte orders that Ms H and the company Company J Ltd be joined as parties and that injunctions be urgently made. The wife made the application after her solicitors conducted a company search and found that Ms H was a sole director and shareholder of Company J which was registered on 29 September 2015. The wife complains that neither the husband nor Ms H made any mention of this in their affidavits or when they were cross-examined. She also refers to bank statements showing significant deposits into Company J accounts from major contractors of the husband’s company. The husband’s company is called Business C Pty Ltd. The husband and Ms H used the same firm of accountants.
The wife amended her response on 24 May 2018 seeking orders that Ms H and Business C be joined and also seeking orders that, in effect, the assets of Business C are held on trust for the parties. Essentially, she argued that the husband, in his personal capacity or as sole director of Company J, had been transferring and passing off business operations of Business C to Ms H’s company, Company J.
These allegations resulted in the trial being adjourned. Ms H had to be personally served in order to be heard with respect to the wife’s application. The wife’s joinder application was adjourned for contested hearing on 31 July 2018. The wife was directed to file and serve any amended application with respect to the joinder issue and an affidavit in support by 28 May 2018. Ms H, as the proposed second respondent, was to file and serve any material that she sought to rely on by 16 July 2018. I also ordered that parties file written submissions with respect to the joinder issue by 28 July 2018.
The wife issued numerous subpoenas to various organisations including clients of the husband’s companies, his accountants, and his family lawyers. Both the husband and Ms H lodged objections to several of the subpoenas. Some of the subpoena recipients were clients of Business C and were required to attend court and give evidence.
The husband opposed the wife’s application and complained that by subpoenaing several of the major clients of Business C, those clients were no longer willing to give their business to Business C. The husband did not provide supporting evidence with respect to this during the trial.
The subpoena objections were listed for hearing on 17 July 2018. I required written submissions filed in advance. The wife was granted leave to withdraw several of the subpoenas. The wife was also ordered to file and serve contentions as to fact and law dealing with the cause of action the wife claimed against the proposed respondents, the material facts and particulars supporting the identified course of action, the relief sought against the respondent and the contention of law with respect to those claims by 14 August 2018. The husband and the proposed respondents were to file any contentions of fact and law in reply. Counsel for Ms H quite properly sought these particulars and made the point that Ms H was simply not in a position to respond to the wife’s application without knowing precisely what case she had to meet.
The wife did not file written contentions of fact and law. On 12 October 2018 she was granted leave to withdraw her application in a case and was granted leave to recall the husband, Ms H and Mr K with respect to the issues of the business relations between the two companies and issuing of invoices to primary and secondary contractors. The wife’s contention was essentially that the costs of pursuing the joinder application, which if successful would have necessarily resulted in the trial being aborted with a fresh trial being ordered would have been prohibitive. Ms H sought an order for costs which were quantified in the amount of $19,200. Neither party disputed the quantum. The issue of who should be responsible for those costs and in what proportions was adjourned to the trial. I will address this issue at the end of my reasons.
The issues I am asked to determine
As indicated in the discussion about the application in a case, during the course of the trial the nature of the issues in dispute expanded. The issues I need to determine are:
a)The assessment of the husband’s post-separation contributions;
b)Whether or not the sum of $162,000 or a portion of that sum should be added back;
c)Whether or not the proceeds of sale for the Motor Vehicle E should be added back;
d)Whether or not the Motor Vehicle D should be included with a value of $25,000 or $12,500;
e)The assessment of the wife’s s.75(2) factors;
f)Whether or not part of the adjustment for s.75(2) factors should include an adjustment under s.75(2)(o) due to the non-disclosure and interrelationship of the Business C and Company J;
g)Who should be responsible for Ms H’s costs fixed in the sum of $19,200.
Contributions during the relationship
The husband says that neither party had any assets of significance when they started living together and that during that time he was employed as a tradesman and the wife was employed as a retail assistant. The husband says he continued to be employed in various positions throughout the marriage when the wife stopped full-time work to look after the children.
The husband says that in 1997 he had a motor vehicle accident and was unable to work for a period of time. During the period he could not work he received weekly TAC payments.
In March 2000 the parties purchased the property at Property L (“the Property L property”) from the husband’s late grandmother’s estate. They used savings and a mortgage to purchase the property. The husband says that they used the $125,000 sum he received from TAC as compensation for his injuries to pay down the mortgage and to carry out renovations on the property. They also purchased a new car.
In … 2002 the parties purchased an investment property at Property M (“the Property M property”).
The parties purchased the former matrimonial home at Property B (“the Property B property”) in … 2003 for $289,000 and the parties carried out renovations on the property.
The parties sold the property at Property L in … 2000 for $480,000 and applied the net proceeds to reduce the mortgage on the Property B property.
They sold the Property M property on … 2003 and applied the funds to reduce the mortgage on the Property B property.
The wife says she made significant financial contributions during the relationship from her employment as well as her roles as the primary parent and homemaker. She says the husband was frequently away from home for business.
In 2011 the husband established his business Business C. The Cowan Family Trust owns the business. The wife never worked in the business.
The parties experienced relationship difficulties after the husband’s shoulder injury in January 2015. In his trial affidavit the husband says that the wife told him that she was going to move out and rent a property. He says they talked about buying a property, which if they reconciled could be an investment property. They purchased the property at Property A (“the Property A property”). When the purchase settled on … 2015 the wife and children moved into that property. The parties increased their mortgage on the Property B property to assist with the purchase of the Property A property. As a result of this purchase the parties have two mortgages. The mortgage over the former matrimonial home is with the Bank of Melbourne. The husband’s business bank account is also with the Bank of Melbourne. The Property A property mortgage is with the Commonwealth Bank of Australia.
By October 2015 the Property B mortgage had reached its maximum limit. The husband had been treating the mortgage account as an overdraft for the business. The husband used the business account for business and personal expenses. It is not unusual for sole traders and small businesses to operate this way.
Post separation care of the children
The wife says for the first 18 months after the parties separated the husband spent sporadic time with the children. The wife says that from September 2016 to January 2017 [X] lived with the father. From January 2017 to May 2017 [X] lived equally with both parties.
[X] has been diagnosed with attention deficit hyperactivity disorder and high functioning autism spectrum disorder. She is suffering from severe depression and has had significant episodes of self harm. She is on medication prescribed by her psychiatrist. She is provided with caseworker supports funded through the National Disability Insurance Scheme (“NDIS”).
[X] self-harmed on Mother’s Day 14 May 2017. The mother took paid leave to look after her at home and took her to her doctor. [X] spent two nights in hospital and since then has been living with the mother full-time. [X] did not return to school and the mother says that this decision was made by herself, the husband, [X] and her support coordinator.
From May 2017 until February 2018 [X] did not spent time with the father. [X] lived with her father again for some months throughout 2018.
During the first part of the trial the wife gave evidence when cross-examined that she was providing significant support to [X] and that [X] is rebellious at times as she is a teenage girl with many issues. She says she needs structure and routine and that to provide this is a lot of hard work. [X] was receiving some support from the NDIS which the mother organised. The mother said her obligations to care for [X] restrict her ability to work.
[Y] has anxiety and takes medication and receives counselling support. Since separation she has lived with the mother and spent alternate weekends and part of the school holidays with the father. There is no suggestion by either party that this arrangement is likely to change.
It appears that [X]’s accommodation has been unstable since February 2018. There have been instances where she has run away and has couch surfed at friends’ places. It has clearly been difficult for both parents.
[X]’s circumstances have changed since the first part of the hearing. Currently she is living with the maternal grandfather having done so since 5 January 2019.
Post separation relationships
Both parties allege that the other is in a de facto relationship.
At the time of the first part of the hearing, the wife was not living with her partner, Mr N (“Mr N”). By the end of the trial the wife was living with him in his property at Suburb O. When cross-examined at the first part of the hearing she said she would not ask a boyfriend to co-sign a loan to enable her to refinance the mortgage on the Property A property when they have only been dating for five months. The wife says she has no idea what her partner earns. They keep their finances completely separate.
Mr N owns his Suburb O property subject to a mortgage. The wife has been in a relationship with him for 18 months.
The wife conceded that [X] calls Mr N “dad”. She said she asked his permission. She says he stays over on Saturday nights and on other nights he comes over and cooks and goes home.
The wife gave somewhat varying evidence about when she moved into Mr N’s property at Suburb O. It is a 5 bedroom house. She says she has no idea what the property is worth. She left the Property A property at the end of November 2018. The husband’s Counsel suggested to the wife that she was lying as the husband’s evidence was that [X] told him that the wife showed her her bedroom there a couple of days after the court event on 12 October 2018. The wife said the room was not completely set up yet, it just had her bed in it. The wife said it took a long time to move because she had to do it herself. She denied starting to move in June 2018. She denied that she started moving into the house in August 2018. She said she started moving in October and finished at the end of December 2018. She then said that she still has some belongings in the Property A property as that has not been her priority since she has been dealing with the court case and the children.
The husband’s criticism is that the house has been vacant for some three months with him continuing to pay the mortgage not being aware that the property was vacant. The husband’s Counsel put to the wife that there had been a lot of correspondence between the parties’ lawyers in November, December 2018 and January 2019 but no reference to the house being vacant. The wife said she emailed her lawyer and her counsel to tell them and then said she is still in the process of moving and that the holes in the wall [X] made when punching them, need repair, the walls need painting and there is other minor work that needs to be done. The wife should have informed the husband that she was vacating the property both because he is paying the mortgage but also because he is entitled to know where [Y] is living. She was also somewhat defensive and avoidant when giving evidence about this.
The wife agreed that her case had been that she wanted to retain the Property A property and have the husband pay out the mortgage but that her situation has changed dramatically since then. However, during final submissions and in the minute of orders handed up at the end of the trial she sought orders that she retain Property A. She can then decide whether or not to sell it. There is no dispute between the parties that the husband should keep the Property B property and the business.
She also agreed that part of her case was that there needed to be a s.75(2) adjustment in her favour because of her having the ongoing care of [X]. She said she plans to have her return home soon, as soon as it is safe. She said that [X] is keen to move into Mr N’s home but the wife told her there needed to be a transition plan so that [Y] would be safe and that there could not be any drugs. Currently [X] is not living with either parent, she has been living with the maternal grandfather since 5 January 2019. The wife says she sees [X] most days.
The wife alleges that the husband is in a de facto relationship with Ms H. Ms H swore an affidavit in these proceedings and was cross-examined during the first part of the trial and was re-called when the trial resumed. The husband denied being in a de facto relationship with Ms H. They have had a sexual relationship.
The wife says she is civil with Ms H but they are not friends and that she last spoke to her just after she and the husband separated.
When Ms H was cross-examined during the first part of the trial she and the husband had been friends for more than 20 years. They are close friends and have gone on three holidays together since he and the wife separated. She said that one holiday was to Town P. The holiday to Town P was just the two of them for about four days. She says they paid for it equally. They went to Tasmania with some other friends to see a concert and also went to Queensland with her daughter and with his daughters as well. She says they shared the costs of the holidays. She says he may have paid more for airfares as there were three of them versus two for her.
The husband said he and the wife always go on holidays. The wife says she is not critical of the husband for going on holiday to Queensland with his family. She says she has also gone on holidays to Adelaide.
In her affidavits the wife alleges that the husband and Ms H live in Ms H’s property in Town Q and have done so since 2015. Ms H denied this and said that she did not even own that property until 2016. She says the husband has never lived there.
Ms H says she has been in another relationship since April 2017 which became serious in October 2017. She also gave evidence that she did not own the property in Town Q in 2015 when the wife says she saw the husband’s car parked there.
The wife denied that her allegation that the husband and Ms H living together in Town Q was reckless as she says she has seen the husband’s car there several times.
Ms H gave evidence during the first part of the trial that she worked for the husband part-time. She does invoicing for the business but does not deal with his personal expenses as she does not want to get involved.
She said she is friends with the husband and he trusts her with finances. She says she does not influence his decisions.
Ms H worked for the husband as a labourer and also did some cleaning work for him. She was initially employed as a contractor and later as an employee. In January 2019, when she was recalled to give further evidence, she said she no longer worked for him as she has had enough of the proceedings and the strain this has placed on her.
In his trial affidavit the husband says Ms H lent him $25,000 which she transferred in two parts, the first being on 30 May 2017 for $20,000 and the second being on 1 June 2017 for $5,000. The husband said he needed those funds to keep the business afloat. He has not repaid those sums. Ms H confirmed this. Ms H suggests that loan was for the Motor Vehicle F.
Ms H gave evidence that she has loaned money to the husband at various times post separation. Their evidence about the loans was confusing.
Ms H made credit card payments on the husband’s behalf on 6 occasions. Both the husband and Ms H gave evidence that on 6 occasions she paid his credit card for him. She provided the following details of those payments:
a)April 2016 $6,966
b)June 2016 $5,250
c)7 July 2017 $5,591
d)8 August 2017 $2,090
e)31 August 2017 $6,439
f)21 November 2017 $9,487
She annexes the bpay receipts showing payments to an ANZ credit card. She also annexes bank statements from Business C Bank of Melbourne bank statement. Significantly, she does not annex her own bank statement. The husband has repaid these 6 amounts.
The husband repaid the loan to Ms H in total in January 2018. She said she thought that the payments were made in lots.
Ms H agreed that in April 2017 she became an employee and started receiving wages having previously been a contractor through her business. She said she wanted to wind up her business because it was stressful and wanted to go on to wages. She said she is a good staff member.
I am not satisfied that the husband and Ms H are in a de facto relationship. The wife’s Counsel did not make any submissions about this. It is clear the wife is now living with her partner.
Post separation financial contributions
There is no dispute that since October 2015 the husband has been solely responsible for both mortgages. There have been mortgage arrears from time to time.
The wife says that she transferred the monthly mortgage payments to the mortgage account from the family living expenses account for a few months post separation until October 2015. She says she put her family tax benefits into the joint account and was therefore making a contribution to the family expenses. Since separation the husband has been paying the Property B and Property A mortgage.
The wife says she made two transfers from the bank accounts to pay the mortgage until she was cut off in October 2015. She was shown Exhibit B and asked about those transactions and she said they were family expenses and that that is what they always did. Exhibit B is the list of transactions and bank statements which the wife seeks to be added back.
She says the husband does not pay the rates on the house and they are in arrears.
She does not see how the husband has been generous in paying the mortgages on both houses. She sees him as having the capacity to do so and has control of their assets. There is no dispute that the husband also pays child support.
The wife gave updated evidence on 22 January 2019. She says she is now earning $200 a week and receives child support of $152 a week for [Y]. She says she no longer receives any Centrelink benefits.
The husband conceded that he has bought and sold belongings as he did before separation. One example is that he bought a $5,000 hifi system on 23 January 2018. He then said he goes through tough times as well but it appears that he has not adjusted his expenditure post separation, yet complains about the wife’s expenditure. The husband says he has since reduced his spending.
The parties’ legal and equitable interests
The wife seeks to include $40,000 which she says she owes her father. Her affidavit contains a bald statement about this. She provides no particulars and most importantly her father has not sworn an affidavit about this alleged loan. Given the fact that the wife has not provided any evidence about this, there is no basis for taking it into account and the wife should not have included it in her balance sheet. In closing submissions the husband’s Counsel submitted that the wife’s father should be considered a financial resource for the wife. He did not expand on this submission and did not refer to any case law on the topic. It is unhelpful to make such submissions. In Hall & Hall [2016] HCA 23 the High Court described financial resource at [54 – 55].
54. The reference to "financial resources" in the context of s 75(2)(b) has long been correctly interpreted by the Family Court to refer to "a source of financial support which a party can reasonably expect will be available to him or her to supply a financial need or deficiency"[19]. The requirement that the financial resource be that "of" a party no doubt implies that the source of financial support be one on which the party is capable of drawing. It must involve something more than an expectation of benevolence on the part of another. But it goes too far to suggest that the party must control the source of financial support. Thus, it has long correctly been recognised that a nominated beneficiary of a discretionary trust, who has no control over the trustee but who has a reasonable expectation that the trustee's discretion will be exercised in his or her favour, has a financial resource to the extent of that expectation[20].
55. Whether a potential source of financial support amounts to a financial resource of a party turns in most cases on a factual inquiry as to whether or not support from that source could reasonably be expected to be forthcoming were the party to call on it.
This was in the context of spousal maintenance but the comments are applicable here.
The evidence falls well short of the Court being able to be satisfied that the wife’s father is a financial resource for her.[1]
[1] For a useful example of where a parent could be considered such see Bond v Child Support Registrar and Anor [2018] FCCA 422.
She was asked why the loan the husband took from Ms H post separation should not be included in the pool when she was seeking to include the $40,000 she says her father lent her post separation. She said she did not know. The husband’s Counsel suggested to her that it was inconsistent to include that loan but not include the loan Ms H made to the husband.
The wife also makes complaints about assets the husband sold post separation where he retained the proceeds.
The husband sold a Jetski the parties owned pre-separation for $12,500 on 8 May 2017. He withdrew that sum a few days later. He said he gave $3,000 each to his contractors and had to pay $2,000 for a failed compressor and for other expenses. When asked why the Jetski proceeds of sale should not be included in the pool he said he has spent a lot on it to get it to that price and then said he was not denying that it should be part of the pool. I will add this amount back to the pool.
On 22 July 2017 the husband sold the parties ride on mower for $2,500. Again, the husband says this was because of cash flow concerns.
There is no valuation of the parties’ jewellery. The husband refers to an advertisement the wife placed on Ebay seeking to sell some jewellery for $11,000. I do not have any evidence of value. The wife says she was unable to sell it. I will not include jewellery in the pool. Sensibly, it was not referred to by either Counsel by the time of closing submissions.
There was a dispute between the parties as to who took what furniture when they separated. There is no valuation of the furniture and by the end of the trial neither party sought to include furniture in the pool.
It was put to the wife that the husband says the bike he has is worth $1,000 where she says it is worth $10,000. She said he used to race the bike around Town R and that it is a race bike. She said that the husband is always buying and selling cars and bikes and she has some idea that there is value. I am not satisfied that it is worth as much as the wife says. She does not provide any supporting evidence for her contention. I will include the motorbike in the pool at $1,000.
Motor Vehicle E
One of the husband’s hobbies is buying and working on cars. He bought the Motor Vehicle E in 2013. The wife claims that the husband spent $40,000 on parts.
The husband says it was included in the business valuation with a value of $15,000. The husband says he sold it for $15,000 and used the proceeds on various living expenses.
During the first part of the hearing the wife sought to have the value of the Motor Vehicle E added back with a value of $65,000. This figure was to reflect the significant expenditure the husband made on the car.
The wife did not accept the proposition that the expenditure of $40,000 on the Motor Vehicle E did not increase its value. She said the husband put brand-new engines and bought expensive panels for it.
The husband says he had to sell the Motor Vehicle E because of the bank loans. The difficulty is the significant expenditure he incurred for parts. He accepted there was a loss. He conceded that he did not tell the wife what he was planning to do because the wife does not speak to him. The husband said the car was valued at $15,000 and that is what he sold it for. The husband conceded that in the 12 months before selling the car, he spent money sandblasting it back and bought expensive panels. He said he sold the panels as part of the $15,000 price. He said that restoring cars is a personal hobby of his and what may have value to him may not have value to others.
The wife says the husband sold the Motor Vehicle E to a good friend of theirs that they have known for 20 years. She denies the husband’s claim that he was just an acquaintance and said that he attended their engagement party as his good friend. By the end of the trial the wife sought to include it in the pool at $15,000. The husband sought to exclude it. I will include it in the pool at $15,000. It was a pre-separation asset. It is in the same category as the Jetski.
Motor Vehicle D
The Motor Vehicle D is owned by the business. It is driven by the wife. It has been valued at $25,000. It was included as part of the business valuation.
Interim orders were made in August 2017 requiring the wife to take over the payments on the car. She complains that despite asking the husband for the details to enable her to make the payments, he did not provide them. She then said she was given the husband’s credit card details but she refused to pay money to his credit card. She then said via lawyers she had asked for the necessary information to enable her to pay it. She says she does not know if this is a loan or not.
The wife said she tried to get the details from the husband so that she could make payments on the Motor Vehicle D. As previously said, she asked that the account and BSB number be provided over several emails. The wife says she has not been unwilling to make the payments for the Motor Vehicle D but has not been able to because the husband has not provided her with the necessary details. This is an example of the parties’ animosity towards each other. It would have been a simple thing for the husband to instruct his lawyers to provide the details. It appears this was not done.
The argument about this was completely unnecessary. Surely it is a simple thing to provide copies of a car loan contract and the loan repayment statements. By closing submissions the parties agreed that the figure the wife needs to reimburse to the husband for the payments made by him on the Motor Vehicle D loan was $4913.68.
Motor Vehicle F
The husband purchased a Motor Vehicle F on 6 October 2017 for $20,000. In his affidavit he annexes the sale receipt and bank statement which shows a $20,000 withdrawal. It was a private sale. The husband denied borrowing money from Ms H to buy the Motor Vehicle F.
The husband conceded that at the time he bought the Motor Vehicle F he had the work ute. He said he bought the Motor Vehicle F for the girls benefit, and to pick up friends and for going on day trips etc. The significance of the purchase is that it was at the same time the husband says that the business had not been doing well, requiring him to seek a 3 month suspension of the mortgage repayments. The husband referred to $60,000 coming into the business and that sporadic payments are received from suppliers. The husband also paid bonuses to staff whilst also complaining about financial pressures. His conduct in this regard is inconsistent.
When asked why he did not take the opportunity to bring the mortgage arrears up to date he said he has always paid $1,200 a month and that the wife has not paid anything toward the mortgage since the parties separated.
The husband says of the $60,000 he received from a job, he used $20,000 to buy the Motor Vehicle F and can’t recall what he used the other $40,000 for within the business. He believes that he has provided documents with respect to that.
Ms H recalls the $60,000 coming into the business. She said she believed that the husband paid cash for the Motor Vehicle F. She said she does not send out all the accounts. The husband sends out some accounts as well.
The wife’s Counsel suggested to the husband that he had plenty of money to pay the mortgage arrears. The husband said that the arrears increased before the court Order was made requiring him to pay the mortgage. The Orders referred to mortgage instalments and rates. The husband argued that the Motor Vehicle F should not be included in the asset pool. If the husband had also brought the mortgage up to date he would have a good argument for excluding it.
Allegations in relation to addbacks
Part of the wife’s case is that the husband has had the benefit of two redraws of the mortgage being $88,000 withdrawn prior to separation and $74,000 post separation amounting to a total of $162,000. She only received $10,000 that the husband transferred her in October 2015. She seeks an order that these sums be added back to the pool of assets available for division.
The husband paid the wife $10,000 in October 2015 when he told her he would no longer be providing her financial support. He started paying child support in November 2015 and has paid that to date. The parties have had disputes about what the proper amount of child support should be which has been determined through the administrative process of the Department of Human Services Child Support Program. Initially, the husband paid the assessed amount of child support directly to the wife. The Department of Human Services Child Support Program now collects the child support from the husband on the wife’s behalf. By the time of closing submissions the husband no longer sought that this amount be added back to the pool.
At times during his evidence the husband was defensive and rigid in his attitudes. This included when he gave evidence before the wife found out about Company J. His evidence was that once the wife told him there was no prospect of their reconciling, he transferred $10,000 to the wife’s account and stopped her access to the joint bank account and credit card.
The husband said that he deposited $40,000 in the Business C account so that there was a buffer for the business. Whilst the husband still had access to the mortgage account at the time he deposited the $40,000, he felt that the wife was using the money “willy nilly” and was afraid that he would not be able to run the business. The husband’s attitude to the wife in this regard was somewhat hypocritical given his own expenditure. Indeed his evidence about being under financial pressure is inconsistent with his expenditure.
On the same day the husband transferred $10,000 to the wife from the mortgage account he transferred $40,000 from the mortgage account to his transactional account. He said prior to this he used the mortgage as an overdraft for the business and was just continuing that arrangement.
In arguing in favour of adding back the $10,000 the wife received and the $40,000 husband received, the wife’s Counsel contends that the husband used the mortgage not just for an overdraft for the business but also to pay for substantial personal expenses which appear to have increased the parties liabilities. The wife’s Counsel then submitted that $162,000 should be added back which includes the $40,000 that the husband took. The difficulty with that submission is that much of the $162,000 relates to the period pre-separation.
The wife complains that the husband has not provided adequate disclosure with respect to his use of the funds he withdrew and complains that his withdrawal of those funds increased the mortgage on the Property B property.
Exhibit B is a schedule of withdrawals with supporting bank statements totalling $162,122.56 for the period 2 October 2014 to 29 October 2015.
The wife’s Counsel did not give any explanation as to why a significant portion of the addbacks contended for related to a period before the parties separated and what the justification was for seeking those pre-separation amounts be added back. A significant amount of time was directed to this issue including in the accountant’s affidavits.
The husband conceded that on the same day he transferred $10,000 from the mortgage account to the wife, he transferred $40,000 into his account ending in …. He says he used this one account for business and personal expenses. He says he took the $40,000 to run the business and used it as an overdraft. He says prior to that he used the mortgage as an overdraft. He gave evidence that he did not talk to the wife or their accountant about this saying it was 7 months after the parties separated. He says the $40,000 should not be added back as he used those funds for the business. Whilst it is not clear to me that all of it was used for business expenses, I am not satisfied that this amount should be added back as the husband has made payments post-separation for the Property A mortgage. I also have regard to the fact that I am adding back proceeds of sale for the items the husband sold post-separation.
The husband says that his accountant Mr S has accounted for all the expenses. He also said he has paid income tax on his personal expenses.
Initially the husband’s position was that the $10,000 he provided the wife should be included in the pool because he has been paying the mortgage and child support since the parties separated. Sensibly he did not pursue this when the hearing resumed. However, conversely the wife’s Counsel did seek for it to be added back on the basis that the $162,000 should be added back.
The wife’s Counsel put to the husband that he has increased the mortgage post separation thereby diminishing the equity available to the parties. The husband said since he hurt his shoulder he has had to cover a lot of expenses for subcontractors and is also dealing with the separation. He says he has always used the mortgage account as an overdraft. He says since separation the business has had a downturn and that is what has affected the equity. However, his later evidence was that the turnover was relatively consistent. Certainly, the business expenses increased significantly in 2016 because the husband had to pay contractors for work he was previously able to do himself. This is reflected in the business valuation.
The husband had to concede that when he received $60,000 in to the business he did not apply any funds to reduce the mortgage but purchased the Motor Vehicle F. In those circumstances it is difficult to see why the Motor Vehicle F should be excluded from the asset pool.
I find that the asset pool is as follows:
Assets Value Business – Business C Pty Ltd $100,000 Motor Vehicle D $25,000 Property –Property A $520,000 Property and Factory –Property B $725,000 Motor Vehicle E (proceeds of sale) $15,000 Motorcycle $1,000 Jetski (proceeds of sale) $12,500 Motor Vehicle F $20,000 Car Hoist $2,000 Ride on mower $2,500 Subtotal of assets 1,423,000 Liabilities Mortgage –Property A $310,000 Mortgage –Property B $440,000 Subtotal of liabilities 750,000 Net assets 673,000 Superannuation Super Fund – Husband $115,000 Super Fund – Wife $36,500 Subtotal of superannuation 151,500
The wife must reimburse the husband the sum of $4,913.68 for the Motor Vehicle D repayments the husband made on her behalf and $3,250 being her share of the valuation fees the husband paid. These amounts will be deducted from the cash payment the husband must make to her.
The business “Business C”
The parties had the business valued and agree that its value is $100,000. There is a significant dispute between the parties as to what are legitimate business expenses and what are personal expenses. The wife claims that the business included two assets which were not related to the business being the Motor Vehicle E and a car hoist. The Motor Vehicle D driven by the wife was also registered in the business name. …, which valued the business as at 30 June 2016, valued the business at $100,000. Neither party sought that the valuation should be updated. By the end of the trial the husband conceded that the value of the Motor Vehicle D at $25,000 was in addition to the $100,000 figure. The valuer notes that the car hoist and the Motor Vehicle E are not trust assets and as such do not form part of the business valuation. They were valued by a car valuer the parties arranged. The hoist has a value of $2,000. The parties obtained and agreed on updated values for the two pieces of real estate.
The husband says that there is no goodwill in the business and that the valuation is based on plant and equipment. The husband suffered a serious right shoulder injury in January 2015 where he suffered a grade 5 AC tear in his shoulder. He has had two operations on his shoulder but has significant limitations to the use of his shoulder. The husband has been receiving income protection insurance payments of approximately $1500 a week since that injury. The husband says that since his injury he has had to hire contractors to carry out the physical labour which he can no longer perform. This has had an impact on the profitability of the business. The turnover of the business has remained reasonably consistent.
The husband has a few contractors. Ms H was previously a contractor and was paid through her business Business T. She became an employee in 2017.
Ms H’s work for the husband and Company J
The husband said that he made no mention of Company J in his many affidavits or when cross-examined during the first part of the trial because “I wasn’t asked the question then so I didn’t find the relevance.” At page 48 of the transcript on 1 February 2018 the following exchange took place between the wife’s Counsel and the husband:
COUNSEL FOR THE WIFE: Her contract company’s name is what?
THE HUSBAND: Sorry?
COUNSEL FOR THE WIFE: The company that she uses, or the business name she uses is what?
THE HUSBAND: She’s on wages now.
COUNSEL FOR THE WIFE: What was it before? What was the business?
THE HUSBAND: Business T.
COUNSEL FOR THE WIFE: Sorry?
THE HUSBAND: Business T.
COUNSEL FOR THE WIFE: Business T?
THE HUSBAND: Yes.
COUNSEL FOR THE WIFE: And was she Business T?
THE HUSBAND: Yes.
COUNSEL FOR THE WIFE: She was – that was her business name – company that she operated and ‑ ‑ ‑?
THE HUSBAND: Yes.
COUNSEL FOR THE WIFE: she would invoice – she would invoice for work done for your company; correct?
THE HUSBAND: For labour for me. Yes.
COUNSEL FOR THE WIFE: Labour for you. And would she – so she was, in effect, dealing with – when she was doing bookkeeping for you, was she dealing with her own invoices sent to the company – your business?
THE HUSBAND: She would – she would do an invoice to me. Yes.
COUNSEL FOR THE WIFE: Yes. So she’s sitting there at the table sort of helping you out and there’s her invoice, Business T?
THE HUSBAND: Yes.
COUNSEL FOR THE WIFE: And you would pay that as a top priority, wouldn’t you – or she would?
THE HUSBAND: I pay all – all my contractors and – and people as best I could.
COUNSEL FOR THE WIFE: Okay. So if Ms H is – it’s a different sort of relationship though, isn’t it, because she – Business T is her, which is – was a company but it’s now not in existence ‑ ‑ ‑?
THE HUSBAND: Yes.
COUNSEL FOR THE WIFE: ‑ ‑ ‑ but she still uses that name, doesn’t she?
THE HUSBAND: I don’t know. I don’t believe so. No.
COUNSEL FOR THE WIFE: Well, there was some – I will come to this. I think I will – may ask her, as well, but there is – there’s an issue about when her business became – Business T became a deregistered business, I think. Anyway, do – when you paid her for Business T, did you pay GST on her accounts, as well – the subcontractors’ accounts?
THE HUSBAND: Yes.
The husband is specifically asked about Ms H’s business but makes no mention of Company J.
The husband was questioned further about this and the fact that the companies operated side-by-side at the same time Ms H was employed by him working for his company. I find his evidence in this regard highly unsatisfactory. The relevance is obvious. Much of the delay and additional expense that both parties incurred could have been reduced if he had been full and frank in his disclosure.
In her affidavit sworn 12 January 2018 Ms H says at [1] that since March 2017 she has been employed by Business C on a permanent part-time basis carrying on physical labour, book keeping and office administration.
At [7] she says the following:
That in March 2017 Mr Cowan agreed to employ me on a permanent part time basis doing … work as well as office work, book keeping, account management and physical cleaning at the address of the business and at Property B. My rate of pay is approximately $254.00 per day. I also now receive pro rata holiday pay and sick pay. On the days that I don’t work for Mr Cowan I have other part time employment.
When cross-examined on 2 February 2018 the following exchange took place between Ms H and the husband’s Counsel:
COUNSEL FOR THE HUSBAND: And where do you live?
MS H: I live at Town Q.
COUNSEL FOR THE HUSBAND: And again, what do you do for a living?
MS H: I’m a labourer.
COUNSEL FOR THE HUSBAND: And who do you do that for?
MS H: I do that for Mr Cowan.
Significantly she made no mention of … duties for her own company as well.
COUNSEL FOR THE HUSBAND: Okay. So you’re all from usually – so how many days a week are you involved?
MS H: Five days a week.
COUNSEL FOR THE HUSBAND: Five days a week?
MS H: But that does change, being permanent part time. If it changes, well, I’ve got the opportunity to do my work.
COUNSEL FOR THE HUSBAND: So what’s your work?
MS H: trade work.
COUNSEL FOR THE HUSBAND: When you say you’ve got the opportunity to do your work, are you talking about work for Mr Cowan, Business C, helping with places around the – things around the property?
MS H: Yes.
COUNSEL FOR THE HUSBAND: You’re saying that. Helping around the property which you’ve talked about in your ‑ ‑ ‑?
MS H: Yes.
COUNSEL FOR THE HUSBAND: In your – which includes ‑ ‑ ‑?
MS H: Office work.
COUNSEL FOR THE HUSBAND: ‑ ‑ ‑ making sure the house is nice and keeping things tidy as best you can outside the house?
MS H: Yes. And – well, I don’t change his bedsheets if that’s what you’re asking, but I do ‑ ‑ ‑
COUNSEL FOR THE HUSBAND: I’m not – I didn’t ask you that, did I? I’m just asking you what sort of – what you do, not what you don’t do. Okay. So outside and around the house. Do you – what do you do?
MS H:-I can do gardening and helping out spreading of gravel. I’m – I can do anything.
...
COUNSEL FOR THE HUSBAND: So why was it changed to wages?
MS H: I was actually going through a lot of stress and I wanted to finish up my Business T business and it was beneficial to me to go to the – to go on the books to Mr Cowan.
COUNSEL FOR THE HUSBAND: Was it beneficial to him, do you know?
MS H: I’m a good staff member. You’re only – your business is only as good as your members of staff, so I would – I would put it that I’m a good staff member. So ‑ ‑ ‑
COUNSEL FOR THE HUSBAND: So you – it was your idea, you wanted to go onto wages as opposed to running it under the banner of your business?
MS H: I put it to Mr Cowan as a – as an – as an opportunity for myself, yes.
Again, it is significant that she does not refer to having her own company.
COUNSEL FOR THE HUSBAND: Okay. And so – and were you – after Ms Cowan and the children left, did you assist with the, sort of, bookkeeping and management issues that Mr Cowan had to confront in his operation of the business?
MS H: Not so much the bookkeeping. It was more on the – on the tools because he was unable to do work.
COUNSEL FOR THE HUSBAND: Okay?
MS H: Physical work.
COUNSEL FOR THE HUSBAND: So when did you start having a – getting more involved in it in terms of the bookkeeping?
MS H: When did he ask me to help me in the office? Well, it’s – I don’t know. Probably three or four months after that. I got more involved as the time went on.
COUNSEL FOR THE HUSBAND: Yes. Okay?
MS H: And he’s – yes, that was it.
COUNSEL FOR THE HUSBAND: Okay. So you were aware, were you not, as you got more involved, you know, in ’15 that he was – that the business or – even though they were separated, the income into the business was being divested in various ways to assist the running of the business for his personal spending and also to assist the – his family as well?
MS H: I was doing more the – the invoicing.
…
COUNSEL FOR THE HUSBAND: And the business is still functioning, in a sense, as the way it has been always, save for the fact of Mr Cowan not – Mr Cowan not doing heavy lifting and stuff?
MS H: No. It’s – it’s not as, like, it used to be. It’s dwindling away a bit.
Ms H failed to mention Company J carrying out the same work.
COUNSEL FOR THE HUSBAND: No. All right. Just one other issue going back to your business, if I could call it that, Business T was your business?
MS H: Yes, that was my business.
COUNSEL FOR THE HUSBAND: Yes. That was your business. And these Business T accounts were submitted weekly by you and they were paid weekly, weren’t they?
MS H: Yes.
As can be seen, she is asked about her business referring to Business T. At that stage the wife and her legal representatives were unaware of the existence of Company J. Whether deliberate or inadvertent, bearing in mind Ms H’s status as a witness in the proceedings, not a party, the omission is significant. The wife’s suspicions and concerns about the interrelation of Business C and Company J are understandable.
COUNSEL FOR THE HUSBAND: In – when was it that your business was deregistered?
MS H: I think it was just before I started with Mr Cowan in – was it March – late March.
COUNSEL FOR THE HUSBAND: Which year?
MS H: ’17.
COUNSEL FOR THE HUSBAND: So when you say, “Just before I started with Mr Cowan,” are you saying is that ‑ ‑ ‑?
MS H: As ‑ ‑ ‑
COUNSEL FOR THE HUSBAND: ‑ ‑ ‑ when you went onto wages?
MS H: Yes, I went to wages and there was no need for me to have that business any more.
COUNSEL FOR THE HUSBAND: Well, when was it deregistered? Do you have a date?
MS H: It would have been March ’17, I think.
COUNSEL FOR THE HUSBAND: You’re not sure?
MS H: No.
The husband was cross-examined about a series of invoices which appear at Exhibit P. His evidence is that those were jobs that he could not do and that he recommended that they be given to Ms H. They were jobs for Company U which was one of the husband’s clients. His evidence is that there was a mistake made in the invoices where they incorrectly referred to his company instead of Ms H’s. He said the mistake occurred when the invoices were generated but this was later picked up and rectified when he was trying to settle his general ledger. The original invoices referred to account numbers for the wrong companies. The invoices also referred to his phone number rather than Ms H’s. These errors would also have further heightened the wife’s concerns. The husband makes no acknowledgement of this.
The husband denied that Ms H used his equipment when working for her own company and said she had her own vehicle and equipment but that she used his trailer a couple of times when she had to pick up fibre.
The husband agreed he was aware that she had generated over $500,000 in revenue in the first couple of years and said that he did roughly the same when he started.
The husband says there was an influx of work which he could not do. He was turning down work which was going to other contractors. He said that Ms H was aware of this and approached him and asked if she took on some jobs would he mind and he told her to go for it. He says he has not worked on those jobs with her but has given her advice from time to time when she has not been sure how to do things.
The husband was also cross-examined about a series of Australian Tax Office payments and bank account statements for Company J which were annexed to the wife’s affidavit filed on 19 September 2018 with respect to the subpoenas and third-party issue. Those statements show a number of instances where Company J paid tax owing by Business C. The husband says it happened five times when he didn’t have the money and asked for her help. He says when this is all over and he refinances he will fix that up. The bundle of documents was tendered and marked as Exhibit S.
The husband says that Ms H uses her own paper for the printer from time to time and he has no difficulty with her using his computer and printer in the office or borrowing the trailer from time to time. The husband explained that the suppliers have their own equipment. He allows Ms H to store equipment from her suppliers at his home.
The wife’s Counsel asked the husband where he draws the line between what he says is his business, Ms H’s business, when she is working for him as a contractor and through Business T and then as an employee.
The husband rejected the suggestion that he needed to limit his work in order to continue to receive the compensation payments as income protection. He pointed out that the turnover has remained roughly the same for the company. The profitability has reduced because he has had to pay contractors to do the physical labour that he used to do himself. This makes perfect sense. He agreed that Ms H learnt how to do a lot of the work from him but denies being the overseer of all the work done by both companies. He said that Company V and Company U are the only two contractors in common with the two companies and that Ms H has been working for other companies that he has no relationship with.
The husband says that he set up Business C because he has a friend who had a business and the friend had more work than he could handle. That is how he got his start in the business and in turn it is how Ms H got her start.
When the husband was recalled to give further evidence he said Ms H no longer worked for him.
When Ms H was cross-examined for the second time she was highly defensive. She said when she was cross-examined previously she mentioned working part time but did not mention Company J. She said she didn’t mention it because she didn’t think she was on trial. She was very defensive. It was a significant omission by her.
The wife’s Counsel challenged her about her not thinking it was relevant that there was a close connection between her company and the husband’s company working out of the same location. She said she was told to answer the questions as truthfully and correctly as she could and that is what she did. She agreed that she prepared and sent invoices for both companies. She said that when she set up Company J in … 2015 it was at her own initiative and not at the husband’s encouragement. It is significant that this company was in operation for over two years when Ms H swore her affidavit. She said she saw an opportunity to make good money and improve her and her daughter’s life. She said that Mr S who is also the husband’s accountant was her accountant for Company J since about 2014.
Ms H said early on she did make some mistakes with invoicing and put the wrong company on the invoice. As she said, she generated invoices on the wrong screen but rectified the mistakes. She said that the husband had an overflow of work and was not doing well so she thought ‘why shouldn’t I pick up that work?’ She was the husband’s employee at the time. She agreed that initially the expenses for Company J were run through Business T. She said it became too hard to keep up with both so she closed Business T. The payments the husband made to her through Business T were for cleaning work, office administration, and labouring.
Ms H said she has ceased working since August 2018 because of the trial and having ‘had enough’. She denied that her company took work that Company J otherwise would have done because she said it was overflow work that the husband was not able to do. She has also used the same contractors the husband employed to work in her business when she has needed additional help.
The husband’s Counsel cross-examined Ms H about the transcript of her earlier evidence in the trial where she was asked about Business T being her business and that that business submitted accounts weekly that were paid weekly. She said that the company was deregistered in March 2017 and she went on to wages. It was suggested to her that during her earlier cross examination she made no mention of the fact that she received substantial payments from Company V which had been one of the husband’s clients for the same type of work that the husband was doing. She says she did not mention it because she was not asked. The problem of course was that the wife and her counsel were not aware of this arrangement as the husband also failed to mention it in any of his evidence. I have the impression that the husband and Ms H were aware that questions would be raised if they disclosed the existence of Company J.
Cowan Family Trust
Business C is the trustee for the Cowan Family Trust. Neither party alleges that the trust has any value that is not already accounted for with the business valuation and it is not necessary to refer to it further.
The wife says that she does not know who the trustees of the Cowan Family Trust are and that she did not understand the trust until Mr W explained it to her. She understands it was used for income splitting purposes for tax.
Evidence of the accountants
The wife engaged accountant Mr W to provide a forensic evaluation of the transactions with respect to Business C and the husband. In his first affidavit he refers to the report as being “a forensic analysis of the transactions” and the husband’s conduct through bank accounts for himself and Business C. He also makes it clear from his retainer that he is not conducting an audit.
It is clear too that he was asked to analyse transactions from October 2014. What the wife’s Counsel failed to address is the justification for seeking to add back amounts spent pre-separation. This should have been addressed by the wife’s Counsel rather than just glossed over.
Some of the pre-separation amounts that Mr W’s queries were with respect to car parts including gearbox rebuilds, truck turbo repairs and other car expenses which did not appear to be related to the business.
With respect to Mr W’s affidavit affirmed and filed on 29 January 2018 he raises queries with respect to the fact that the husband claims that the business was struggling and he needed to borrow funds from Ms H to pay expenses but then paid $10,000 in staff bonuses. He also raises the issues of the purchase of the Motor Vehicle F in those circumstances. These are not unreasonable questions to raise. He also notes in point 7.3 of his report annexed to his affidavit that subpoenas were issued to two major customers of Business C to investigate the possibility that services provided by Business C are being provided by another entity. As it turns out Company J has two clients in common with Business C. He was addressing the advice that Mr S provided in his affidavit sworn on 15 January 2018 filed 16 January 2018 that the business is not sustainable. These concerns about the business not being sustainable have not been made out.
Mr S
Mr S was cross-examined at some length by the wife’s Counsel. What is clear from his evidence is that as is the usual practice for accounting firms not engaged in forensic exercises, Mr S relied on information provided by his clients. The husband would input entries from his bank statements in the accounting system used and allocate items as business or personal expenses. Mr S relies on that information being accurate and only queries an entry if it seems unusual. From time to time clients also ask whether or not a particular expense can be allocated as a business expense.
It is also clear from documents tendered that Mr S’s son, Mr X, worked on both the husband and Ms H’s accounts. To the extent that there is any suggestion that there is some conflict-of-interest in doing this, I reject that.
As with the cross-examination of Mr W by the husband’s Counsel, much of the cross-examination of Mr S and the documents tendered did not advance matters.
Mr S said he was aware that the husband’s company and Ms H’s company were conducting the same type of business.
Mr S agreed that the profit and loss statements for Ms H’s company showed little expenses in 2016 and 2017 for things such as accountancy fees and telephone expenses. Mr S said he believed most of the expenses were claimed under her other business at that time.
The wife’s Counsel cross-examined Mr S about the series of invoices which are Exhibit P. As Mr S had never received these invoices, unsurprisingly cross-examining him about the invoices did not advance matters.
Mr S was cross-examined about Exhibit Q which is a letter from him to Ms H dated 18 June 2018. In that letter he apologises to her for the mistake he made in her draft financial statements where the husband is referred to as a director. In that letter he states that Mr Cowan does not have any association with Company J and says the error occurred because of the miscommunication with an administrative staff member due to the time constraints on providing the material. When cross-examined about this it is clear that Mr S was quite distressed about the error which he took responsibility for. He referred to the time pressures he was under and the fact that he checked the figures in the draft financial statements before they were sent to Ms H but not the attached documents which referred to the husband as a director of the company in error. I accept his explanation. Unfortunately this would have, understandably, increased the wife’s suspicions.
Conclusions with respect to the accountants’ evidence
The criticisms the husband’s Counsel made of Mr W are misconceived. He referred to Mr W as a hopeless witness and was highly critical of him not having spoken to the husband, Mr S or Ms H despite being a “purported expert” and that he cherry picked transactions.
It must be pointed out that the Family Law Rules 2004 with respect to single experts do not apply to Federal Circuit Court matters. Each party is entitled to brief their own expert. Whilst is it common for parties to appoint a joint expert, particularly for real estate valuations, there is no obligation to. There was also no obligation on Mr W to speak to Mr S or the husband. He was providing an expert opinion on the financial documents provided. He was not conducting an audit which is an entirely different and far more expensive exercise. The husband’s Counsel complained about Mr W cherry picking transactions and not referring to significant transactions for the purchase of the Property A property. Again, these submissions are misconceived. There is no dispute that funds from the Property B mortgage account were used to purchase the Property A property. The transactions that he queries are the ones that did not appear to be business expenses.
Mr W’s evidence was also very clear that he was not challenging the value of the Motor Vehicle E but rather was saying that from the financial statements a significant sum of $40,000 was spent on the car, yet the car was sold for $15,000.
The husband’s Counsel argued that the $15,000 for the sale of the Motor Vehicle E should not be included in the pool because it was spent on legitimate expenses. The difficulty with this argument is the excessive sums spent by the husband on parts and improvements for the vehicle that was then sold for that lower sum. The husband’s Counsel submitted that the husband has spent far in excess of $15,000 on various expenses for the benefit of the family including the mortgages on both properties and under that reasoning it should not be added back.
The wife’s Counsel argued that the Motor Vehicle E should be added back into the pool as it was a family asset that existed pre-separation and it should be added back the same way that husband conceded that the sale of the Jetski and the motorcycle should also be included in the pool.
It is not unusual in a case where one party has control of a business and the other has little knowledge and understanding of the day to day running of the business that the party who is not involved in the business will be suspicious and concerned not to be taken advantage of. This is all the more so when the break is bitter as this one clearly was. In many such cases a party will engage their own expert to be a shadow expert and the other party will never know about it. The purpose of a shadow expert can be to assist the party and their lawyer to understand the nature of the business and to understand the basis of any valuation. If they are able to be satisfied then there may not be any controversy about the value of the business. Indeed in this case the parties agreed to a joint valuer and that business valuation itself is not controversial.
What was clear is that Mr S was not an expert and he did not hold himself out to be one. He was called because he is the husband’s accountant. The wife’s Counsel argued that the Motor Vehicle D should be in the pool at $12,500 being the residual value rather than $25,000 attributed to it in the … business valuation. The difficulty with that argument is that the husband’s Counsel pointed out, the business valuation also includes valuations of the other motor vehicles located at the Property B property and there is no evidence as to the current value of those vehicles which also would have decreased since the preparation of the … report.[2] It would be unfair to the husband to discount the Motor Vehicle D without discounting the other vehicles referred to in that business valuation which, unlike the Motor Vehicle D, make up part of the $100,000 value for the business.
[2] … arranged for valuers to value the cars, car hoist and chattels which appear at appendix 5 of that report.
Legal principles
The principles with respect to addbacks are well-known. The Court has a discretion as to whether or not to addback items to the pool and take them into account under s.75(2)(o) of the Act.[3] The evidence does not support the addback in the sum of $162,000 or any portion of it that the wife seeks.
[3] See Bevan v Bevan [2013] FamCAFC 116
Until the High Court decision in Stanford & Stanford (2012) 247 CLR 108, the position in respect of the process to be applied to the resolution of matrimonial property cases was said to be well settled with a preferred approach as set out by the Full Court in Hickey & Hickey & Attorney-General (Intervener) (2003) FLC 93-143 at 78,386 [39].
The High Court considered the operation of s.79 of the Act in the matter of Stanford. In this case, the majority stated at [35]-[36] that:
“It will be recalled that s 79(2) provides that "[t]he 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. Section 79(4) prescribes matters that must be taken into account in considering what order (if any) should be made under the section. The requirements of the two sub-sections are not to be conflated. In every case in which a property settlement order under s 79 is sought, it is necessary to satisfy the court that, in all the circumstances, it is just and equitable to make the order.”
The expression “just and equitable” is a qualitative description of a conclusion reached after examination of a range of potentially competing considerations. It does not admit of exhaustive definition. It is not possible to chart its metes and bounds.” [Footnotes omitted]
The High Court found three fundamental propositions with respect to the application of s.79, which can be summarised as follows:
1. Firstly, in order to ascertain whether it is just and equitable to make a property settlement order, it is necessary to identify the existing legal and equitable interests of the parties in the property. The High Court emphasised the word ‘existing’.
2. Secondly, although s.79 gives the court a broad power to make property settlement orders it may not be exercised in an unprincipled fashion. There must be no assumption that the parties’ interests are or should be different to their existing interests.
3. Thirdly, when considering whether making a property settlement order is just and equitable the court must not assume that one or the other party has the right to a property adjustment order. The court must give separate consideration to s.79(2) in addition to the matters referred to in s.79(4).
In Stanford the High Court indicated that, in the vast majority of matrimonial property cases, the requirements of s.79(2) will be readily satisfied, largely as a result of a consideration of the circumstances of the parties concerned, particularly the nature of their separation.
The High Court also pointed out that what is just and equitable is different in every case.
I am satisfied that it is just and equitable to make property adjustment orders.
Section 75(2) factors
In addition to the dispute between the parties about what should and should not be included in the pool available for division, there is also a dispute between the parties about any adjustment for s.75(2) factors.
Both parties concede to having mental health issues. I have no doubt that the proceedings have taken a toll on the parties and once the proceedings have finalised the situation should improve for both parties.
The husband argues that the wife is not exercising her full earning capacity. He says she could work in the business she had set up in her home and could work more hours as a tradesperson.
The husband believes that the wife continues to work part-time as a tradesperson from home and that she also works part time for a local business.
The wife says the home work room is now a junk room. She said she only had a few clients. She said she stopped doing any work for clients in 2016.
The wife was cross-examined about the valuation photographs of the home and said that it was a picture of her work room in the home. She says she stopped working in the home in 2016. She claims she could not fit in that work with her other responsibilities.
She has been undertaking studies and works a few hours a week. She says she is studying. She is not a qualified tradesperson.
I accept the husband’s evidence that he is unable to do heavy hauling work after injuring his shoulder. He continues to receive income insurance protection and has to hire contractors. The husband says he is not paying the premium on the income insurance anymore and will continue to receive it even if he sells the business.
The mother receives income of approximately $156 gross per week from casual employment and child support payments.
During the first part of the hearing the wife said her income earning capacity was restricted by the responsibilities she has in relation to the children’s care and particularly [X]’s care given her health issues.
During the marriage the wife worked casually in retail positions, and providing trade work. She says she does not have any qualifications as a tradesperson. She says she is not providing services currently and is working approximately four hours a week with a local business.
The husband’s position is that the wife could get a job and that it was her choice to study. He conceded that the wife’s mother died last year. He also conceded that there have been challenging issues with respect to the children.
It is clear that the wife’s living arrangements have changed such that she now has the assistance of a partner. There also does not appear to be any reason why the wife cannot increase her earning capacity by working more hours. [Y] is 15 and [X] is not living at home. I do not have medical evidence that indicates either party’s working capacity is reduced because of these issues.
Whilst I am not satisfied that the wife is exercising her earning capacity fully, I do not know what additional work she could obtain. I am satisfied that the husband does have a higher earning capacity than the wife.
Closing submissions
At the end of the trial the husband’s Counsel submitted that there should be an equal division of the parties’ assets. He referred to the fact that the wife was now living with her partner and that [X] was no longer living with either parent and no one could predict where she would stay in the future.
The parties agreed that the orders should provide for the Property A property to be transferred to the wife and the Property B property to the husband.
The husband was critical of the wife for not disclosing the fact that she had moved in with her partner. More serious criticisms with respect to the non-disclosure of material information can be directed to the husband and to a lesser extent (given she is not a party) Ms H.
The wife’s Counsel submitted that the parties contributions were equal but that there should be an adjustment of 20% in the wife’s favour for s.75(2) factors. He submitted that it was wrong to say that there was no disparity between the parties’ incomes. He further submitted the wife has the care of [Y] who still has a few more years at high school.
The wife’s Counsel further submitted that whilst the husband’s Counsel emphasised the payments the husband was making post separation for the home the wife was living in he also was not paying the wife maintenance.
The wife’s Counsel further submitted that part of the 20% adjustment is because of the interrelationship between Business C and Company J. He argued it was not a good enough answer for Ms H, and indeed the husband, to say they were not asked about it. He submitted that the intermingling of the activities of the two companies was such that it was more likely than not that they were really operating as one business.
It was not until April 2018 that the wife discovered the existence of the second company because of bank statements that were produced pursuant to subpoenas. The subpoenas were issued during the part heard trial. No explanation has been given as to why subpoenas were issued after the trial began and not earlier.
The wife’s Counsel submitted that issuing the subpoenas was not a fishing expedition and that the inspection of the bank statements raises real concerns about non-disclosure by the husband and concerns that the husband may be transferring funds to Ms H’s company. It is not surprising that the wife was concerned about transfers of funds between Company J and Business C. These suspicions were all the more heightened given that the wife discovered the existence of Business C after both the husband and Ms H were examined. Her suspicions would have been increased by the large amount of income Company J earned.
The reference in the tax return to the Property B address being the business address and the reference to the husband being a director of Company J in addition to the errors with the invoices all compounded the wife’s concerns quite justifiably. In these circumstances, the husband’s criticisms of the wife in this regard are unjustified and he must take some responsibility for the increase in his costs.
Having said this, there was somewhat of a scattergun approach to the way the wife’s case was run. Her Counsel tendered a significant number of exhibits, primarily various financial records which he did not refer to in closing submissions. Documents should not be tendered simply because questions were asked about them.
One example is Exhibit T which is a large bundle of Bank of Melbourne Statements in the name of Business C Pty Ltd as trustee for Cowan Family Trust. Some of these statements date back to mid-2013 – well before the parties separated.
There were other orders sought in the minute handed up by the husband’s Counsel during closing submissions which were not addressed. This includes an injunction against the wife from contacting any known or prospective clients of Business C and/or Company J. Whilst the husband complains of a loss of business because of the subpoenas the wife issued I am not satisfied that there is a proper basis for the injunction. If the husband had been upfront about Company J many of these subpoenas would have been avoided.
He also seeks an order that the parties be responsible for 50% each of any outstanding school fees. That is not an issue that is properly before the Court.
He also seeks an order that a costs order be made against the wife ‘as the court deems appropriate’. This is not a proper Order. If either party seeks to make a costs application they can do so in the proper form.
Conclusion
I am satisfied that in all of the circumstances the parties’ contributions should be assessed as equal. I acknowledge that the husband continued to pay the mortgage on both properties post separation but he also had access to significant funds which he used as he wished.
I am satisfied that there should be an adjustment for s.75(2) factors in the wife’s favour: she does have the primary care of [Y]. There is also a disparity in the parties earning capacities though the wife does have some capacity to work more. The wife is now living with her partner but the financial arrangements are unknown.
There should also be an adjustment under s.75(2)(o) due to the husband’s failure to disclose the connections with Ms H’s business. If the husband had been upfront about that then this could have avoided much of the delay and lengthening of the trial. I find there should be an adjustment of 10% in the wife’s favour for these factors.
Ms H’s costs
Ms H’s costs were quantified at $19,200. The parties do not dispute the quantum or the fact that her costs should be paid. Each party argued that the other should be responsible for her costs. They agreed that in terms of the mechanics of the orders the husband will pay the sum to Ms H.
Both parties should bear some responsibility for Ms H’s costs. The wife’s suspicions were understandable, particularly given the lack of candour of the husband and Ms H when first cross-examined. However, the wife ultimately decided not to pursue her applications to join Ms H to the proceedings. I find the parties should be equally responsible for Ms H’s costs.
Effect of the Orders
In order to receive 60% of the net non-superannuation assets the wife needs to receive $403,800.
The husband has possession of or had:
Motor Vehicle F
$20,000
Motorbike
$1,000
Car Hoist
$2,000
Motor Vehicle E sale proceeds
$15,000
Jetski sale proceeds
$12,500
Ride on mower proceeds
$2,500
Business C
$100,000
The Property B property
$285,000
TOTAL:
$438,000
The wife has possession of or had:
Motor Vehicle D
$25,000
The Property A property
$210,000
TOTAL:
$235,000
In order to receive her entitlement the husband will need to pay to the wife the sum of $168,800. As the wife owes the husband $4,913 for the Motor Vehicle D payments he made on her behalf, $3,250 for her share of the valuation fees and $9,600 for her share of Ms H’s costs, the amount the husband must pay the wife will be reduced by $17,763 to $151,037.
I certify that the preceding two hundred (200) paragraphs are a true copy of the reasons for judgment of Judge Harland
Date: 22 March 2019
CORRECTIONS
1. MR COWAN changed to Applicant on the coversheet and first page of reasons
2. MS COWAN changed to Respondent on the coversheet and first page of reasons.
3. Counsel for the Applicant changed to Mr Trim
4. Counsel for the Respondent changed to Mr Whitchurch
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