Cumpton v Cumpton
[2007] FamCA 1007
•31 August 2007
FAMILY COURT OF AUSTRALIA
| CUMPTON & CUMPTON | [2007] FamCA 1007 |
| FAMILY LAW – PROPERTY SETTLEMENT – Application by wife pursuant to s 106B to set aside instruments establishing two trusts – procedural fairness to beneficiaries of trusts – sale by husband of intellectual property – application of elements s 106B and exercise of discretion – evaluation of contributions results in substantial weighting in favour of the husband by reason of special skills and expertise innate and personal to the husband in introducing to the marriage the mainframe of the technology he invented as well as refining and marketing it. |
| Family Law Act 1975 (Cth) |
| Todd v Todd (No 2) (1976) 1 Fam LR 11,186; (1976) FLC 92-008; Ashton (1986) FLC 91-777; Davidson (1991) FLC 92-127; Coventry (2004) FLC 93-184; Halabi and Artillaga & Ors (1994) FLC 92-470; Gould and Gould; Swire Investments Ltd (1993) FLC 92-434; Pflugardt (1981) FLC 91-052 per Elliot J; Johnson (2000) FLC 93-008 per Warnick J; Gelley and Gelley (No 2) (1992) FLC 92-291; Kowaliw (1981) FLC 91-092; Townsend (1995) FLC 92-569; Mallet (1984) FLC 91-507; 156 CLR 605; Ferraro and Ferraro (1993) FLC 92,335; Whiteley(1992) FLC 92-304; McLay (1996) FLC 92-667; Stay (1997) FLC 92-751; JEL v DDF (2001) FLC 93-075; Figgins (2002) FLC 93-122 |
| APPLICANT: | Ms Cumpton |
| RESPONDENT: | Mr Cumpton |
| 2nd RESPONDENT: | XYZ Limited |
| FILE NUMBER: | MLF | 6845 | of | 2003 |
| DATE DELIVERED: | 31 August 2007 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Moore J |
| HEARING DATE: | 19, 20, 21, 22 & 28 February 2007 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr McFarlane (19-22 February 2007) |
| SOLICITOR FOR THE APPLICANT: | Ms Johnson, Maddens Lawyers (appearing without Mr McFarlane on 28 February 2007) |
| COUNSEL FOR THE RESPONDENT: | Mr Spicer |
| SOLICITOR FOR THE RESPONDENT: | Tait Leishman Taylor |
| COUNSEL FOR THE 2ND RESPONDENT: | Mr Crofts |
| SOLICITOR FOR THE 2ND RESPONDENT: | Starnet Legal Pty Ltd |
order
Within seven (7) days from the date of publication of the Reasons for Judgment, the parties have liberty to provide to the chambers of Justice Moore by electronic communication addressed to her Associate at […] a draft form of orders other than the form set out hereunder accompanied by a short written note directed to the proposed form of orders, provided the draft form of orders and note are sent at the same time to the other parties:
“1. On or before two (2) months from the date of these orders, the husband is to pay to the wife the sum of $645,000.
2.The disposition by the husband to the [XYZ] Australia Trust in May 2004 of $1.1 million is set aside to the extent of $645,000 pursuant to s 106B of the Family Law Act 1975 (Cth).
3. The wife forthwith do all things and sign all documents necessary to remove the caveats lodged on the titles to land at [D] and, if applicable, on the title to the property at [L].
4.Subject to these orders, each party is entitled to retain to the exclusion of the other all property of whatsoever kind now owned by and in the control of that party.”
IT IS NOTED IN CONNECTION WITH THESE ORDERS that the judgment of the Honourable Justice Moore delivered this day will for all publication and reporting purposes be referred to as Cumpton & Cumpton
| FAMILY COURT OF AUSTRALIA AT |
FILE NUMBER: MLF6845 of 2003
| MS CUMPTON |
Applicant
And
| MR CUMPTON |
Respondent
And
| XYZ LIMITED |
2nd Respondent
REASONS FOR JUDGMENT
[Though divorced, the parties will be referred to as husband and wife for ease of identification and later editing for anonymity]
Proceedings
The parties resolved parenting proceedings related to the arrangements for their youngest daughter, J (15), by consent orders made at the outset of the hearing. They will have equal shared parental responsibility and she will spend time with each as she determines. Settlement of property remains to be determined and attached to that is an application by the wife pursuant to s 106B of the Act.
Orders sought
Proceedings were commenced by the wife in the Federal Magistrates Court in mid-2003. After transfer to this court she amended her application by seeking certain orders pursuant to s 106B against a company, XYZ Limited which is the trustee of two trusts: the XYZ Australia Trust and the XYZ Trust. The trustee company and its sole director, Mr I, were joined as 2nd and 3rd respondents respectively. Mr Crofts of counsel appeared at the hearing for both and obtained leave, without objection, for the 3rd respondent to withdraw and he advised that the 2nd respondent would abide the decision of the court. The 2nd respondent has asked to be heard on the final form of any orders and on the question of costs [exhibit 22]. The wife’s position was further amended on the first day of hearing [exhibit 1] but the orders she ultimately seeks are to be found in exhibit 7. Essentially that is for the husband to pay her $3,068,400 within 60 days and the setting aside of transfers of certain property to XYZ Limited as trustee of the trusts just mentioned as well as the setting aside of two mortgages in favour of the trustee entered into by the husband pursuant to agreements dated 7 July 2004.
The husband filed a response in the Federal Magistrates Court on 5 November 2003 proposing the wife receive a transfer of property at L and payment of such sum as the court deems fit. That was overtaken by later events and he sought an order at the hearing for the dismissal of her applications.
Procedural fairness
There was a development during the hearing which should be recorded, involving as it does a point of procedural fairness that seems never to have been addressed in the time the case was pending. After the wife’s evidence had concluded, the 2nd respondent tendered without objection copies of the Deeds of Settlement, both dated 11 May 2004 and in identical terms, establishing the two trusts mentioned [exhibit 6]. Counsel for the 2nd respondent gave an outline of their terms when making the tender and there were no submissions by either party about them or their impact, if any, on matters relevant to this determination. What follows is by no means a complete outline, but is sufficient reference to reflect the core of what those settlements achieved:
(a) The settlor is the husband.
(b)The trustee appointed is XYZ Limited - forming part of exhibit 6 is a statement, taken to be common ground, that the company’s sole director is Mr I and the two trusts are ultimately the shareholders.
(c)The property settled on the XYZ Australia Trust was a home at L and $1.1 million; the property settled on the XYZ Trust was 7 parcels of farm land at D.
(d)The trust period is the first of 80 years from the date of the settlement or an earlier day appointed by deed by the trustee.
(e)The beneficiaries, identified in the second schedule, are the parties 3 children or remoter lineal descendants of the settlor, any other ‘relative’ as defined [which identifies a restricted class of persons who are children, parents, siblings, nieces, nephews, aunts and uncles of the settlor], and charitable institutions as defined.
(f)The term ‘excluded person’ means any person who is not a ‘relative’ as defined and who is therefore excluded as a beneficiary pursuant to clauses 9(2) or 19. Clause 9(2) relates to the power of the trustee to remove beneficiaries and clause 19 provides that ‘No trust or power of the Trust shall be exercisable in any manner so as to benefit either directly or indirectly any Excluded Person or other person who is excluded from benefit for any reason’.
(g)As the husband is not a beneficiary according to the schedule and does not fall within the definition of ‘relative’, the husband can be taken to be an ‘excluded person’.
(h)Clause 8 gives to the trustee power of resettlement of all or part of the trust fund during the trust period upon trustees of any trust that includes for the time being among its beneficiaries any one or more of the beneficiaries of the trust. Clause 19 presumably operates to ensure the power of resettlement is not exercised to benefit an excluded person [the husband].
(i)The consent of the Protector [clause 23] is required for the exercise of power under the clauses identified in the fourth schedule [4, 5, 6, 7, 8, 9.2, 10.2, 14.1, 15.2 and 20]. Those clauses are varied but include the discretion related to income and capital, resettlement of the trust fund, removal of a beneficiary, appointment of new or additional trustees, and variation of the trust powers.
(j)The husband’s sister is the Protector.
These Deeds had been discovered by the husband in a list dated 22 March 2006 but they had not been included in any of the filed material and their tender brought to light detail behind the evidence about establishment of the trusts. They revealed that two of the specified beneficiaries are the parties’ adult children, their youngest daughter is also a beneficiary, and plainly there exist other potential beneficiaries by reason of being a ‘relative’ of the husband’s, such as his sister. Yet none of them had been served with the wife’s s 106B application. If that application were successful then the property constituting the trust fund would be returned to the husband who settled it and, it follows, such an order would have the potential to affect the beneficiaries’ interests. Obviously that is not to say the beneficiaries can command the exercise of discretion in their favour, but they do have the right to be considered as potential recipients of income or capital in the exercise of the trustee’s discretion and in my view that is sufficient for them to be given notice of any claim which has the potential to affect that right. Notice of the claim to the trustee company and its sole director, as happened here, is not notice to the beneficiaries who conceivably might assert quite a different and more active response to the application to set aside the transfer of property to the trusts.
The view might be taken that notice ought to have been given to all those identified as beneficiaries, including ‘relatives’ of the husband, not to mention some step to address the position of the parties’ youngest daughter, and allow the opportunity for all to seek independent legal advice and be heard if so advised. But I confined the direction made at that stage in the running of the hearing to notice to the two adult children. That was done and the upshot was they elected not to take any part [exhibit 21]. The limiting of the notice is not ideal, it is recognised, but it went some way at least towards curing a procedural defect which had not been addressed by anyone who knew the terms of the trusts long before. Also, this limit on the requirement to give notice was probably consistent with the practical reality of the situation.
Evidence
Unfortunately the parties’ affidavits tended to allow peripheral issues from several directions to take hold rather than maintain a focus on the core information relevant to the dispute and present it in an ordered way. As well as their evidence and the documents tendered in the course of the hearing there is evidence from two valuers: Mr H who valued land at G in New South Wales and Mr C who valued farming land at D and at L in Victoria. There is no dispute about their opinions.
There is dispute, however, about the reliability of the parties’ evidence, with submissions from each side critical of the credit of the other.
Counsel for the husband submits he should be accepted as a truthful witness and his evidence preferred to the wife’s whenever there is conflict. This is said to be warranted by a number of propositions advanced by the wife which were unsupported and against the weight of the evidence and in some instances contrary to earlier evidence she had given on affidavit. Included in that category is her evidence to the effect that the sustainable agriculture project developed by the husband is a recent invention by him, grain was not an integral part of the project, there was no link between the sale by the husband of the … technology he invented and the sustainable agriculture project, and that he had not worked on the development of the technology prior to the marriage. Moreover, it is submitted that her allegation he ‘doctored’ or ‘tampered’ with a letter she intended to send to her solicitor in late 2003 is unsupported and unsupportable. Being a matter about which the husband gave evidence, it amounts to an allegation of perjury, as counsel pointed out, and is therefore a serious allegation requiring evaluation having regard to s 140(2)(c) or according to the test discussed in Briginshaw (1938) 60 CLR 335. A copy of the letter is annexure G to the husband’s affidavit sworn 29 August 2006.
It is common ground a letter was written by the wife towards the end of 2003 at some stage before the parties signed an agreement on 13 December. On the husband’s version of what occurred, the wife showed him a spirex notebook in which she had written out a letter she intended sending to her solicitor and she permitted him to take a photocopy of the letter. On her version, he snatched it from her hands and did not return it. No original was produced for obvious reasons. Annexure G supports aspects of the husband’s case about the wife’s agreement not to ‘touch’ the D land acquired with the sale of the technology and thus affect the husband’s ability to ‘carry out SAP’, her implicit acknowledgement that the growing of grain was part of the sustainable agriculture project, and it records her positive view about the husband’s proposal of ‘putting all his assets in a SAP trust for the girls’ and she is not ‘pursuing extra property settlement’. If it is her letter, it flies in the face of several strands to her case contrary to those just mentioned. On the other hand, the wife reconstructed the letter she recalls writing [exhibit 2] and that gives quite an opposite attitude to those expressed in annexure G.
Submissions of the husband’s counsel draw attention to the fact the letter has obviously not been torn from the notepad, it is said the content of the disputed passages is illogical when read in context, it is pointed out she has called no evidence from a handwriting expert, she made no suggestion in a letter to her solicitor of ‘snatching’ [exhibit 3], and nor did she make the allegation of snatching or tampering in an affidavit when she had the opportunity to do so, for example in her affidavit sworn on 7 September 2006 which was sworn after the husband’s affidavit annexing a copy of the letter. The submissions for the wife in reply also draw attention to the face of the document and comment is made about spaces and the absence in one spot of a left side bracket, it is said that calling a handwriting expert would have been futile without the original, her September affidavit is not an ‘answering affidavit’ in that there is no response given by her there to anything in the husband’s affidavit, the absence of her version of having the document ‘snatched’ from her is understandable because the husband had stood over or bullied her about documents before, and the terms of the letter she wrote to her solicitor after this [exhibit 3] and the solicitor’s letter of 12 December [exhibit 4] are inconsistent with her having written annexure G.
As I see it, inspection of the copy document could comfortably fit either argument about its physical attributes. And it may be that nothing arises from the fact that the wife makes no mention of the ‘snatching’ incident or the ‘tampering’ claim in the affidavit she swore shortly after the husband’s affidavit annexing the letter – not because it is not an ‘answering’ affidavit but because it is not apparent when his affidavit was served. But with all that was said in her letter to her solicitor [exhibit 3] it might be expected she would have referred to the husband ‘snatching’ from her a handwritten copy of a letter she had intended to send to him. Also, there is no plausible explanation for why he would be interested in snatching and retaining a copy of the letter if its content was as she reproduced. It is recognised that aspects of exhibit 3 [the letter she did write to her solicitor] are consistent with exhibit 2 [her reconstruction of annexure G] and are inconsistent with annexure G; for example, his anger at her suggestion a letter could be written stating she will not affect his ability to keep the land purchased with the XYZ money through a property settlement and her view of the trust ‘emotionally tying the girls to the farm’. But an attitudinal swing in the plainly volatile climate of ongoing settlement discussions at the time is quite conceivable and not telling in itself.
In the final analysis, the wife has not discharged the onus to the requisite standard and therefore I am unable to find annexure G was ‘doctored’ or ‘tampered’ with by the husband or, it follows, that he gave false evidence about it.
The attack on the husband’s credit includes an allegation that he has failed to make a full and frank disclosure of his financial circumstances and allied to that proposition is the contention that he failed continually while the proceedings were pending to adequately disclose documents. To assess the validity of that, and to assess the validity of the wife’s affidavit evidence alleging significant and continual shortcomings [eg. paragraph 80 and onwards in her September 2006 affidavit], correspondence and interlocutory orders located amongst the evidence [including exhibits 8, 9 and 10] has been assembled into chronological order:
·The bundle begins with an order of the Federal Magistrates Court on 19 June 2003 declaring discovery to be appropriate and directing each party to provide it on or before 11 July 2003 with inspection to occur no later than 7 days thereafter. There is no evidence of a list from either party by that date.
·On 6 August 2003 a consent order directed the husband to provide discovery and inspection by 9 September with regard to certain specified documents, including his invention, banking records showing ‘complete trail of all monies received in relation to his invention’, ‘current banking and investments…’, ‘taxation returns for the past 5 years’, and ‘purchase contracts for the [D] properties.’
·On 8 September 2003 the husband provided a list, relatively extensive and grouped under various headings, and the letter from his solicitors requested to be advised about copies required. The list bears examination because there is nothing to suggest on the face of the document that there was any shortcoming in compliance with the order.
·On 12 September 2003 the wife’s then solicitors replied and amongst other things requested copies of all the documents in paragraph 4; that is, copies of all the documents listed. This was met with a response on 26 September 2003 suggesting an appointment be arranged to inspect documents after the wife’s solicitor returns from leave. There is nothing until a letter on 22 October from the wife’s solicitor suggesting inspection the following day, 23 October. It is not apparent from any correspondence whether this occurred, but the case put for the husband is that no one inspected documents he made available until 2006.
·There were developments towards the end of the year and the wife was paid $300,000 around that time. No further steps were taken until her solicitors wrote on 16 February 2004 requesting copies of all discoverable documents, undertaking to pay reasonable photocopy costs and making reference to some other matters related to documents. That is where it lay until 20 September when new solicitors engaged by the wife wrote and amongst other things requested copies of the Trust Deed and the additional third schedule inadvertently omitted from the husband’s affidavit. They wrote again on 28 September alleging failure to provide the necessary affidavit of documents and requested copies of documents mentioned in the letter of 20 September.
·The husband then swore an affidavit of documents and it was filed on 5 October 2004. It sets out a relatively extensive list of documents which again are grouped under various headings and, again, there is nothing on the face of the document to suggest non-compliance with the documents identified in the earlier order made in the Magistrates Court.
·There was then nothing for a year or so until the wife’s solicitors wrote on 5 October 2005. There was a reply on 7 November providing a copy of the husband’s sworn financial statement and responding to information sought.
·The Registrar on 27 January 2006 made directions for each party to serve a request for production of specific lists of documents by 24 February, inspection to be completed by 10 March. New solicitors engaged by the wife wrote on 8 March 2006 referred to a letter from the husband’s solicitors dated 15 February and saying, in part:
‘We note that the documents your client has produced pursuant to his Affidavit of Documents have not previously been inspected by my predecessors. My client also wishes to inspect same. Could you please advise when this would be convenient. It may be that after inspection of such documents, there may be further documents we wish to sight.’
·The letter enclosed a request for production of documents which lists categories of documents, some from specified dates.
·On 22 March 2006 the husband provided a list which, again, is relatively extensive and groups items under various headings.
·On 30 March the wife’s solicitors wrote enquiring whether it is the husband position that he has discovered ‘each and every document sought’ in the request for production of specific documents and adds:
‘It appears that there has been difficulties with discovery from your client in the past and unless he is willing to provide proper discovery forthwith, we will not hesitate to issue proceedings to enforce the order.’
·There was no elaboration on what constituted the difficulties or any foundation for the suggestion that proper discovery had not been forthcoming to that point. This is followed by a lengthy letter of 22 May 2006 from her solicitors. It begins by referring to the letter of 8 March and to their letter of 30 March and goes on to note there had been no response and subsequent to inspection of documents ‘it would seem that the discovery provided by you has been completely deficient.’ There follows 7 paragraphs where alleged shortcomings are set out and details were sought about certain specified matters and copy documents where relevant.
·The husband’s solicitors replied on 29 May 2006. Their letter referred to matters deposed in the husband’s affidavit material and set out other information about the matters mentioned. The suggestion of difficulties about discovery in the past was disputed and said the husband had been willing to deal with the issue of discovery, there had been no attempt to view his documents until 5 May 2006, and there had been no request for any further information until 22 May. Amongst other things, a complaint was made about the refusal to provide the wife’s documents by the ‘numerous’ solicitors she had engaged over several years and the inadequate discovery she had provided. Reference was made to missing bank statements during the period 2000 to 2004 and the husband’s belief that these and other financial records had been removed by the wife and should be returned.
·On 13 June 2006 there was a lengthy reply, the essence of which was to reject the claims against the wife as being without foundation or to deny them and dispute that she had not provided adequate discovery.
·On 20 July 2006 a further request for production of specific documents was served by the wife and this brought forth a lengthy list of documents by the husband, again grouped under various headings, dated 20 July 2006. In part the length is attributable to the separate listing of many documents such as electricity accounts and the like.
·On 7 September 2006 the wife filed an affidavit setting out the relationship history and at paragraph 82 and following she takes up the issue of discovery. This includes reference to the list provided by the husband dated 20 July and inspection which took her and her lawyer six hours to complete. The belief is expressed in paragraph 89 that not all of the documents set out in the list were produced and in paragraph 90 that there were no 2006 bank statements.
·The only indication of what occurred thereafter is through a letter from the wife’s solicitors some months later, dated 3 January 2007, which concludes with reference to ‘numerous Orders made for Discovery’ and despite the orders and discovery they are unaware how he had ‘expended the pool.’ The letter asked for detailed information about how the sum of $5 million was spent by the husband, including information about how any royalty cheques have ‘slimily’ [no doubt a typing error] been expended.
The wife bore the onus of establishing the deficits argued and that was not discharged. The background of itself does not support a finding of failure to disclose documents because on their face the lists the husband provided identified and therefore disclosed and made available numerous documents, including those that were the subject of specific complaint such as bank statements and the wife’s case made no inroads into that. The argument is rejected as unsubstantiated.
Nor can I accept the submission that the husband failed to make a full and frank disclosure of his financial circumstances. It is true that in addition to disclosing documents he might have dealt with the history in his affidavit with more order and clarity, including some detail and precision about what happened to the money he retained from the sale of R and the sale of the technology. That said, it is recognised that the trustee and not the husband was responsible for and had information about how settled funds were used after the trusts were formed in May 2004. In any event, to go from that criticism to a finding of failure to disclose his financial circumstances is an unjustified leap. Again the argument is rejected as unsubstantiated.
It is my assessment there are shortcomings in the evidence from each party. For instance, the wife’s reliability is brought into question by inconsistencies with other evidence she had given as well as unsubstantiated allegations of deliberately false evidence and of non-disclosure. But she also gave the distinct impression at various stages of her evidence of reconstructing history to fit her case - her evidence of the absence of any technology having been developed before their marriage palpably fell into that category. On the other hand, the husband did not impress as entirely objective at all times and so a cautious approach is necessary in evaluating his version of the shared history. Despite these shortcomings, overall there was a solid impression conveyed that on important issues the husband gave the more credible account of what had happened and, while I regard it as necessary to look for corroborative material which in some instances itself has to be assessed for reliability, where there is a conflict unable to be resolved that way I prefer his version of events.
Background
Some of the relevant history is not contentious. What follows are the material facts as I find them, either because they constitute common ground, or they are admitted, or are supported by evidence I accept.
The husband (46) and the wife (52) married in 1986. Over the years they lived in a number of homes. Initially they lived in A in a home the wife had bought prior to the marriage; after a few years they moved to a small farm they bought at G; from there they went to live at R in a home the husband had bought prior to marriage; and finally they moved to a home at L where they were living at the time the marriage broke down and the current proceedings were instituted. They have three children - R (20), S (18) and J (15).
On the husband’s application they were divorced in November 2004 after a delay related to argument about the date of their separation which remains in dispute. It is common ground the wife left the L home in August 2003, several months after she instituted proceedings in the Federal Magistrates Court, but there is argument about whether they separated in 2000 [as the husband maintains] or in December 2002 [the wife’s date].
The date on which their marriage broke down seems to me more relevant to their divorce proceedings than to these proceedings where the more critical history is about the identification of any relevant contributions, but it may be views differ about this and therefore a finding will be made.
The decision of Todd v Todd (No 2) (1976) 1 Fam LR 11,186; (1976) FLC 92-008 is sufficient source of principle on the topic. Watson J noted that separation involves the destruction of the marital relationship, or the consortium vitae, and requires one or both spouses to form the intention to sever the marital relationship and to act on that intention. What comprises the marital relationship may differ between couples because marriage involves many elements, some or all of which may be present in a particular marriage. Whether there has been a separation will be a question of fact, therefore, to be determined in each case, usually by examining and contrasting the state of the marital relationship before and after the alleged separation.
In this case there is no doubt the marriage was in trouble during the disputed period while they lived at R and after they moved to L and there was counselling in more than one direction and talk of reconciliation as well as changes in arrangements over that time within the household, both as to their sleeping arrangements and domestic chores. But the thrust of the evidence supports a finding of separation at the later date of 2002 rather than in 2000. That arises because in the disputed period there was counselling, at least some of it directed to the exploration of a reconciliation, but more importantly in 2001 they acquired a home in L in joint names, a step which on its face is inconsistent with an intention to sever the marital relationship in 2000, and in 2002 they moved to L, initially as a family. Submissions for the wife also relied on the wife’s Will, dated July 2002, and when its contents are reviewed it does seem more probable than not at least from her point of view that the marital relationship had not then been severed entirely at that stage.
When they married the wife owned a property she had purchased the previous year at A for $58,400 using savings of $16,000 and she borrowed the balance. She had done some refurbishment after purchase. She also owned a motor vehicle and she had a superannuation entitlement of around $10,500. She was qualified as a teacher and was working full time as a teacher.
She worked throughout 1986 until she took maternity leave prior to the birth of their oldest child in early 1987. But she resigned instead of returning to work and she received her superannuation entitlement which she used for family purposes. She did not return to work until around 1996 when their youngest child started attending pre-school and they were living at R. She then worked as a teacher initially part time for about two years, full time for the following four years and then she reduced her hours to part time. When she left the family home in August 2003 she had been working part time for about two years. Her circumstances since her departure will be noted later.
For his part, the husband had qualifications as a scientist and he was employed in that capacity in W. At the time of marriage he owned a property at R which he had purchased for $58,000 with a deposit of $7,000 and a loan for the balance. It was rented and the rent was put towards mortgage repayments. He also had a motor vehicle and an unspecified amount of savings and life policies that had been taken out by his family at birth. As will be discussed later, he also brought to the marriage the fundamental structure of an invention which he was later to refine and market for a considerable sum of money. Over the years his work history has taken some turns but he was in full time employment until early 2001 when he contracted to provide consultancy services for 3 years to the purchaser of the intellectual property and since early 2004 he has farmed land at D in circumstances to be discussed.
Different versions are given about responsibility taken for the children’s care and general upbringing over the years before their mother’s departure in August 2003. To support the wife’s case of having taken a predominant role (in effect) in the care of the children, emphasis is given to the husband’s absences from home by reason of work commitments when they lived at A and G, to the hours necessary for him to travel to and from work during the years they lived at R, and to his early departures and late returns home after they moved to L. Added to that are absences while he renovated properties and travelled regularly to the D farm at weekends before the move to L. Despite this, the husband’s account of the roles they each had in relation to the children’s day to day care and general upbringing is the more persuasive. The concession made in his case is to the effect that in the earlier years of the marriage they both took an active role with the children but the wife’s contributions in that arena were greater than his. She was not in paid work for about 10 years from early 1987 until around 1996 when she took up part time work and the husband not only had full time employment but he undertook also substantial renovations during those years and there were regular trips to D to work the farm though that was not always on his own. But in the later years as the marriage was unravelling he took a more significant role in the day to day arrangements for the children. That is not to say the wife had no involvement in their arrangements, it is more that ongoing and unresolved difficulties seemed to have brought about a split within the family that saw the children and their father being more aligned and their care arrangements in these later years reflected that.
There is also dispute about their respective contributions to domestic chores and to the running of the household. Again the husband’s evidence is the more convincing and it is accepted therefore that while the wife contributed over the years to domestic chores and to the running of the household, he also regularly did things on the domestic front and increasingly those chores fell to the him and to the children in the 2 or 3 years before the wife’s departure in August 2003.
They lived initially in the wife’s A property for about three years. There is a dispute about who paid the mortgage instalments though it is not of any real moment because there is no suggestion either did anything with their earnings in that time other than apply it to their common benefit. It is probable that in the first year of marriage while the wife continued to earn income she did put money towards payment of the mortgage. Nonetheless, it is accepted the husband gave her money additional to the household expenses to put towards the mortgage. It is also accepted that he paid a lump sum of $18,000 towards the mortgage debt from savings he brought to the marriage. The only source of income to pay the mortgage after the wife’s resignation in early 1987, apart from her superannuation payout, was the husband’s earnings.
The husband did some work around the A property by building a workshop, paving and landscaping.
Early in the marriage the husband bought and renovated two houses in West A which were later sold and he received $30,000 after tax.
In 1989 or thereabouts a small acreage was purchased at G in the husband’s name for $77,000. The sale proceeds of the two houses at West A were put towards the purchase price and towards renovation of the farmhouse. They moved to live there in 1989 and the A property was rented. The husband continued to renovate the farmhouse after the move. The evidence indicates the renovations and improvements were relatively extensive and included the installation of a new kitchen, bathroom and toilet, cupboards and tiling as well as the construction of a large sunroom.
In 1990 or thereabouts the A property was sold for $90,000 and the wife received $65,000. In 1991 the sale proceeds were paid towards the purchase of the first of several blocks of farming land at D where the husband had lived as a child and where his mother still operated a farm. The husband also cashed in life policies he had brought to the relationship [no amount is specified] and the balance came from a loan from the Commonwealth Bank. The property was registered in the husband’s sole name. It is one of the parcels of land settled on the 2nd respondent in May 2004 and is the first of a number of parcels of adjoining land acquired over later years on 9 titles. Initially the D land ran sheep until the move was made to cattle and there was a crop earlier of sunflowers but in more recent years the crop grown has been grain. I accept it was their intention, consistent with the husband’s views on the topic, to use the land in a way that sustained wildlife and the environment.
After the first block was purchased they travelled there regularly while they lived at G and in the early years they both worked to improve the wetlands and planted a vast number of trees to make it more attractive to birds and animals.
In 1992 or thereabouts they moved to live at the husband’s property at R after he took a job in Melbourne. By this time the mortgage had been paid out. They rented the farm at G and it remains rented to this day. Attempts to sell it have been unsuccessful, though at what price I could not say. The current value is agreed.
During the period at R there were further purchases of land adjoining that already acquired at D. All in the husband’s name, two blocks were purchased October 1992 comprising a total of about 118 acres. The first acquired was settled on the 2nd respondent in May 2004 and the second remains in the husband’s name though now subject to a mortgage in favour of the 2nd respondent registered in July 2004. Another block of some 126 hectares was purchased in October 1995, initially registered in the husband’s name but also settled on the 2nd respondent in May 2004.
The source of funds to purchase these additional blocks is not specifically stated but the only income into the household during this period was the husband’s. The wife had no earnings to contribute directly and the capital realised from the sale of her A property had already been used towards the purchase of the first block at D. The husband’s income was also the source of repayment of the mortgage raised to purchase the first block of D land and to support the retention of the G farm to the extent the rent received did not cover the costs.
During the first four years or so at R the wife was not in paid work but she took up part time work in 1996. Over the nine years or so they lived there, the husband went regularly at the weekends to work on the D land. There is disagreement about the frequency of the wife’s visits there and whether the children remained in her care or accompanied their father. She describes the work she did at the property as assisting with gardening, stock work and shearing, tree planting and domestic chores and child care. It is quite probable she did the sort of things she described, but it is also probable that the husband’s account her attendance at the property is more accurate and therefore over the last few years before they moved to L she did not accompany him very often and there were times he went to D to work on the properties and took the children with him.
When they moved to L in 2002 they went to a home they had acquired in their joint names the previous year. Later that year the R property was sold for $170,000, netting $165,000, and it is accepted the husband retained control of the sale proceeds. During that time the children attended local schools, the wife did some part time work, the husband worked as a consultant for the purchaser of the intellectual property he had sold, and he also worked on the D farm. Before they made the move it is apparent the marriage was in a poor state and difficulties continued until the wife commenced these proceedings and later left the home in August 2003.
The sale of his intellectual property was a significant financial development which made possible the shift away from work using his science qualifications and the move to L near to the D farm land, but the history surrounding it goes back much further. A brief outline of that might serve to put disputes and later evaluations into context:
(a)From an early age, from the time he was growing up on the family farm in the D area, the husband became committed to the preservation of wildlife and flora and to the creation of sustainable agricultural practices so as to achieve harmonious alignment between farming and the environment. Over time he developed a sustainable agricultural project [SAP] based on this commitment and idea.
(b)The farm land acquired at D by the mid-1990’s provided the practical means by which he was able to begin implementing the SAP. By strategic purchase of land, he was able to collect together a series of drained wetlands and remnant native grasslands and he set about protecting endangered species, including birds, by restoring the wetland habitats through re-flooding and regenerating the native grasslands in conjunction with the development of a model of sustainable agriculture which restricts the movement of farm animals without inhibiting the movement of native animals and bird life, mostly with low impact electric fences, and which allows the production of crops in an environmentally sound and sustainable way. In the course of it, there have been a series of conservation projects undertaken with certain government and environment bodies and he sought funding to further the implementation, including a substantial grant from government. While he received some funds from donations, he was not successful in raising sufficient funds for his purposes. However, he did find a way.
(c)In early 2001 he sold for $5 million a technology […] he had invented.
(d)From the time he was a science student in the early 1980’s he developed an interest in …. His thesis in the final year of his science degree was on … and after graduation in 1983 he worked on the development of … technology. ….
(e)The husband was pro-active in the late 1990’s trying to realise the technology commercially. He reached this point, on his evidence, because of the actions of a neighbour at D which prompted his decision to raise money to buy the neighbours land so as to maintain the integrity of the SAP he had been developing there.
(f)He wrote to a Senator in August 1999 [annexure I to his affidavit] and his letter gives some insight into efforts he had been making and the frustration he was experiencing. Amongst other things, he referred to the ‘roundabout ride’ he had been given in trying to market his ‘[…]’ invention over the preceding months. He explained the technology’s merits … and that he had been developing it for the last 15 years…. He sought the Senator’s assistance in achieving the legislative changes necessary to sell the device.
His letter to the Senator is mentioned partly because there is argument about when he developed the technology. His evidence is that he had worked on the concept from the time he was a student and the technology had been all but fully developed prior to marriage …. It sat in a shed and he tinkered with it, making refinements which did not take much time, and he then brought it to the state it was in before sale. This is contrary to the wife’s evidence to the effect that nothing had been done prior to marriage, she rejected as ‘absurd’ his evidence […], and she maintained there was no ‘invention’ until 1999/2000. Submissions on her behalf argued her contribution through support of the husband while he worked on the technology during the marriage and the reference he made in the letter to the Senator about having worked on it for the past 15 years was called in aid in that context. Dismissed by the husband as a marketing letter to a politician, his remark nonetheless dates his involvement as far back as 1984, a couple of years prior to the marriage and following his final year at university, which tends to counter the wife’s argument that nothing had been done prior to marriage.
The wife’s case about when he developed the technology and to what extent work was necessary to bring it to conclusion did not impress as authentic and I am satisfied the husband’s evidence is reliable. It is accepted that the mainframe of the concept, the ideas and a prototype had been developed before the marriage, that he did work on it during the marriage through refinement to bring it to the point of the due diligence that occurred in late 2000, that did not take up much of his time, he made considerable efforts thereafter to realise the technology commercially by bringing about the conditions necessary to sell it, and he successfully marketed it.
The sale was brokered by Mr I and the purchaser was XYZ Pty Limited [XYZ]. After due diligence testing the sale agreement was signed in January 2001 [exhibit 20]. Amongst other things, that provided for the husband to receive $5 million payable $2 million initially and the remaining $3 million in three annual instalments and he was to provide consultancy services over 3 years for $150,000 per annum with CPI increases after the first year. He also became entitled to receive a 2½ % of worldwide royalties ‘upon the commercial exploitation of the technology by [XYZ]’. The agreement imposed other obligations on him, primarily research and development of the … technology and improvements and enhancements to it, and there was a significant restraint of trade in specified industries. He did receive the $5 million as agreed though the final payment was some months late and not paid until mid-2004 by reason of the buyer’s delay. He has never received any worldwide royalties and nor is there any evidence to suggest that is anywhere on the horizon.
It is the husband’s evidence, and accepted, that he paid capital gains tax arising from the sale of intellectual property of a little over $1.141 million and there was also commission paid to the broker, B, in total a sum of $275,000. Invoices related to the charges for commission had been discovered by the husband as far back as the first list of documents he provided on 8 September 2003 and therefore the submission for the wife questioning the validity of commission payments lacks substance. The wife’s case also questioned Mr I’s entitlements out of the sale but, apart from any commission to which he may have become entitled, his equity arrangements in XYZ Pty Limited [if any] are a matter between him and the purchaser.
It is part of the husband’s case that it was agreed with the purchaser before and after the sale that the sale proceeds would be held on trust by him on behalf of the SAP until such time as a trust and trustee company had been formed and he would use the D land he then owned, along with adjoining land it was proposed be purchased with a portion of the sale proceeds, to pursue the SAP, including growing grain to be used in enhancing the technology. As he put it in his affidavit evidence, when the SAP is completed it will provide ‘significant benefits for [XYZ] Pty Ltd., […].’
The wife disputes there was any obligation imposed on him to apply the funds in a particular direction or that there was/is any link between the sale agreement and the use of the D land and SAP.
There is support from several directions suggesting the link between the sale of the technology and the SAP and also the existence of some agreement about it:
(a)The 1999 letter to the Senator reflects it. As the husband comments at one point ‘The environmental side is my real concern, I was intending to finance the environmental research with the sale of […] technology.’
(b)There is also his letter of 14 September 2000 to Mr I when he was trying to sell the technology. He said he had been trying for some time to get a grant to carry out the sustainable agriculture project to demonstrate that ‘agriculture and nature can live side by side if strict guidelines are followed’ before nominating $5 million as the price for his technology, adding:
‘..the grant is to fund the purchase of buffer land on the prevailing wind side of the 1000 acres I already own, I would also need to purchase land on three sides to control drainage lines and the subsequent nutrient and chemical flows …this area of and needing to be purchased would be between 3500 and 4000 acres, would costs a little over $2M. Machinery, shedding, land preparation and earthworks would be close to another $1M…..I would still need outside work for a few years to fund the set up and running costs of the project until the farm could turn a profit on its own. The attached draft of the (SAP) will show in detail what I want to achieve and has running costs outlined.’
He concludes:
‘…I hope your client is willing to pay the $5M so I can start purchasing land, I know several of the properties are coming on to the market and the SAP $5M will take 5 years to complete after I have purchased all the properties. When completed the farm is then available to be used as a practical example to the Universities and other farmers through field days and course extensions.’
(c)Mr I in his reply of 18 September 2000 remarked that SAP is an interesting concept, particularly the sustainable production of grain. In making the offer to pay $5 million on behalf of the purchaser, he put his client’s position this way:
‘My client would be prepared to pay the $5 M you ask, but would like to hold title over the land to ensure the SAP is completed. Alternatively, you assign any SAP outcomes of any value to my client, and submit to financial audits to ensure the money is spent on the SAP. If money was spent on other things, and not paid back prior to an audit, then my client would be justified in recovering what you have been paid.’ He went on to refer to the restraint of trade stipulation for a period of 20 years and employment as a consultant for the first 3 years to ‘help develop the invention to its next level.’
(d)The link is also evident from the husband’s letter to Mr I dated 5 February 2001, just after the receipt of the first payment, seeking permission to use ‘SAP funds’ to purchase a home in L and in July 2003 he sought permission to borrow $300,000 to pay it to the wife as her property settlement. Noted also is Mr I’s response dated 21 July 2003.
(e)Then there is reference to an agreement of some kind in the letter dated 11 November 2003 from the financial controller of XYZ [exhibit 11]: ‘Since the Sustainable Agriculture Project has failed to purchase the land as agreed on the north west boundary and therefore cannot proceed beyond the preparation stage of the project…’.
I have no doubt whatever that the husband in his mind always regarded the sale of the technology as inextricably linked to his ambitions for the SAP he created and to further develop that project - which would include the purchase of more land at D surrounding what was already owned so as to control neighbouring run offs and wind drifts, create and register an organic area, and protect wildlife and their habitats by the erection of vermin proof fencing. But the question is whether any obligation was created with the purchaser, XYZ Pty Limited, to that or similar effect.
In evidence is the head agreement dated 30 November 2000 [annexure C to husband’s affidavit] between the husband as vendor and XYZ as purchaser, the consultancy agreement referred to in Schedule 1 of that document [exhibit 19], and the intellectual property deed of assignment referred to in Schedule 2 [exhibit 20], as well as the terms of payment referred to in Schedule 3. The head agreement itself has no clause of any relevance to the issue and nor does the deed of assignment which relates not only to existing rights in the technology but future rights. As for the consultancy agreement, to cover a period of 3 years from January 2001, this was foreshadowed in the head agreement at 4.3, 4.4 and 4.5 appointing the husband head of research and development of XYZ, XYZ was to make a budget available for that purpose and fund the budget, and XYZ was also to provide appropriate staff/contractors with agreed job specifications to allow him to operate the XYZ research and development/prototype facility. The schedule to the consultancy agreement itself refers to his responsibilities being research and development of the technology and any improvements and enhancements to it and also sets out his various specific responsibilities.
There is nothing in any of those agreements able to be construed as related to any obligation on the husband to use the sale proceeds he was to receive in any particular direction - including the use of the existing D lands and/or the purchase of more adjoining land, whether or not related to research and development on behalf of XYZ, production of grain, or furthering the SAP. That is consistent with the submission for the wife and it is conceded on behalf of the husband. It is also conceded by him that there is no other written agreement but he says there is an ‘understanding’ between him and the purchaser. Be that as it may, the fact remains that while the husband maintained in his mind the link between the sale and the opportunity to further the SAP, he was not bound to use the sale proceeds in any manner other than of his own choosing and he has no contractual obligation along those lines with XYZ.
That said, it does tend to cast parts of the correspondence referred to in 43(b)-(e) above in a rather odd light. However, all that can be said about any incongruity is that whatever the references to agreements or Mr I’s suggestion that either the purchaser would hold title over the land to ensure the SAP is completed or receive an assignment of any SAP outcomes and submit to financial audits to ensure money is spent on SAP, those proposals just did not find their way into the agreements signed in the coming months. As for the requests the husband made for funds to buy the L home in 2001 and to pay the wife $300,000 in 2003, that may be seen as consistent with his own ambition to use the sale proceeds to further the SAP and create a trust to receive the benefit of the sale. They do not support an obligation to use the money in any particular way.
Finally on the arrangement, in his evidence the husband raises the spectre of recovery of the funds by the purchaser. He says in his affidavit: ‘In the event that the technology acquired by [XYZ] Pty Ltd is unable to be used commercially, on the event that the SAP project does not proceed to fruition, then I believe [XYZ] Pty Ltd may seek to recover from me the funds they have paid.’ However, there is no evidence of any action for recovery or, apart from this observation, the prospect of it.
Some of the proceeds of sale of his intellectual property were spent purchasing the home in L in the parties’ joint names for $290,000 and additional money was used to pay stamp duty and associated costs. It was rented throughout 2001 until the family moved there in early 2002.
Some of the proceeds were also spent on acquiring further farm land at D:
·the block known as ‘[BB] was purchased in March 2001 for $344,000 and registered in the parties’ joint names [settled on the 2nd respondent in May 2004];
·the block known as ‘[KK]’ was purchased in April 2001 for $362,000 and registered in the husband’s name [also settled by him on the 2nd respondent in May 2004];
·the block known as ‘[JJ]’ and another block was purchased in August 2001 for $349,000 and registered in the husband’s name [also settled on the 2nd respondent in May 2004];
·another block was purchased in March 2002 for $41,000 and registered in the husband’s name, and it remains registered in his name. It is subject to a registered mortgage in favour of the 2nd respondent granted in July 2004 for $150,000.
It is agreed a total of $1.096 million was spent on acquiring this additional farm land. There was also stamp duty and associated costs to be paid. A house on one of the D blocks [the small block remaining in the husband’s name] burned down in 2006 and the husband has a pending insurance claim which he intends to use to rebuild. As the dates of purchase reflect, all of this additional farm land was acquired before the parties’ separation, assuming that to be the end of 2002, and certainly well before the wife’s departure from the home in August 2003.
The children remained at the home in the care of their father. The relationship between them and their mother in the several years leading up to this time apparently was not good and it seems there was no question of them not remaining with him.
In June 2003, a couple of months before the wife’s departure, she instituted proceedings in the Federal Magistrates Court for property settlement [and parenting orders] and at the time she sought a transfer of the L home, the husband would receive ‘all other real estate’, and he would pay her an amount deemed fit by the court. His response, filed in November, proposed a transfer to her of the L home and payment of a sum of money the court deems fit.
Plainly discussions about a financial settlement were ongoing during the second half of 2003 and in due course an agreement was signed on 13 December 2003 providing for her to accept $300,000 by way of property settlement and for the husband to pay her $250 per week until she starts another de facto or marriage relationship [annexure H to the husband’s affidavit]. She alleges bullying and pressure tactics from the husband to have her agree to a settlement and that she was ‘forced’ to sign this agreement so that she might be permitted to take the children on a holiday to Kangaroo Island. There is little to be gained by going into it in any detail here because while the agreement and its implementation are an integral part of the financial history, it is of no binding effect on the discretion conferred by s 79. It will suffice to say that while the husband impresses as a person of strong convictions and some intensity, there is no credible evidence to support a finding to the effect alleged against him. In particular, the wife had solicitors acting for her at the time and had she been ‘forced’ to sign an agreement it seems highly likely there would have been a letter sent alleging just that. There was not. In fact, apart from a letter from her solicitors in February, the wife took no further step in the proceedings for many months until August after she had engaged other solicitors. As I find, should it be considered relevant, she did not sign it under compulsion.
The money was paid to the wife and she transferred her interest in the realty of which she was a joint owner to the husband. She also retained a car, some furniture, superannuation and jewellery though what it was worth I could not say. I accept the husband believed it to be a final settlement, but he was wrong.
In May 2004 he established the two trusts of which the 2nd respondent is trustee and in due course the L home and $1.1 million were settled on the XYZ Australia Trust and 7 parcels of farm land were settled on the XYZ Trust. He says the cash fund was for the farming operations and development of the SAP and for further capital purchases. He says further a ‘mortgage was granted over the other primary production land to secure the paying out of bank loans and machinery purchases made which were in (his) name.’ There is no question in my mind about his bona fides in transferring the properties to the trusts or, to put it more directly, I do not see his actions as being in any way an attempt to remove property or cash from the wife’s reach.
I have not had the benefit of any analysis of the terms of the trusts and nor were any of the matters now to be mentioned the subject of any submissions, but some potentially available arguments might be raised, if only to reject them.
(a)The husband is not a beneficiary of either trust. He is not specifically named and nor does he fall within any of the classes of beneficiaries identified. And as I read the instruments they do not permit him to be added as a beneficiary at any stage in the future because he is an ‘excluded person’ as defined. Nor, as I also read them, can he the instruments be revoked or varied or other settlements created so as to benefit the husband in the future. In settling the property he then owned on the trusts, what he did was to abandon his rights to that property and he did it in a way so as to not retain for himself any beneficial entitlement or the prospect of receiving it in the future.
(b)Given his sister is the Protector whose consent is required for certain decisions of the trustee, including the distribution of income, it is conceivable he might be in a position to control those decisions by reason of influence arising from family connection. But I regard any such control if that be the case as irrelevant because the terms of the trusts mean he cannot directly benefit from exerting it. Were he in the position of being able to control the appointment of the trustee or control decisions of the trustee and thus secure for himself a benefit, the property of the trusts could be considered his property in proceedings for property settlement in this court, as discussed in a line of authorities such as Ashton (1986) FLC 91-777, Davidson (1991) FLC 92-127, and Coventry (2004) FLC 93-184 to mention just a few.
(c)With the approach in cases such as Coventry not available for the reasons stated, it will be necessary to consider the application of s 106B because the property was the husband’s until he settled it on the trusts at a time when the pending claim for property settlement had not been finalised.
When he transferred property to the trusts there was a balancing process taking into account earlier debt raised to buy L and pay the wife $300,000 as well as paying out the Commonwealth Bank loan. The upshot was that he was left owing the trusts $500,000.
The wife’s case is highly critical of the husband for not setting out in his evidence the particulars of how he used the funds received from early 2001. The argument contending he failed to disclose relevant documents need not be repeated and he ultimately did produce a spreadsheet accounting for the expenditure of money received from a number of sources, including the $5 million, [exhibit 12] and another document setting out the use made of the $1.1 million transferred to one of the trusts [exhibit 13]. He also prepared another document virtually updating his circumstances by setting out his assets and liabilities and those of the trusts [exhibit 14]. Given the dispute about it, in addition to disclosing documents relevant to it, the husband might have quelled the controversy by spelling it all out in his affidavit long before he did, at least in as much as he was able bearing in mind he had no entitlement arising from the trusts after the settlements of May 2004 though that information obviously has been provided to him to prepare these exhibits.
Exhibit 12 begins from July 2000 and concludes in July 2006. It records for each year opening bank balances to which there is added income activity and capital from various sources including engineering work, consulting, rent, the sale proceeds of R, and the whole of the payments from the sale of the intellectual property. From that there is deducted capital purchases which are set out, including the purchase of D land, the L property, vehicles and various plant and equipment related to the working of the D property. Expenditure includes the CGT of $1.14 million paid on the sale of the intellectual property and the commission totalling $275,000, the payment to the wife of the $300,000, expenses obviously related to the operation of the farm, legal fees, as well as living and education expenses for him and the children. There is also recorded and deducted the costs of creating the trusts in 2004 and the transfer of $1.1 million to one of the trusts, the use made of the latter being the subject of exhibit 13.
Exhibit 13 sets out income expenditure and capital payments in the calendar years, not financial years, 2004 – 2006 and therefore takes the history to December 2006. The shortfall after deducting total expenditure from total income during those three years is deducted from the $1.1 million to leave a balance of $695,978 at that date. That is now reflected in loans to Ausco and cash at bank.
I am satisfied the husband has accounted for all sources of income and capital he received and for the application of those funds.
It remains to outline the parties more recent circumstances.
The husband continued with the consultancy that occupied him full time until January 2004. Since then he has undertaken some relatively minor consultancy work using his professional qualifications and he has also run the D farms and cared for the children, two of whom are now being educated in Melbourne. He has charged less than current market rates for the contract work he has undertaken for the trusts because, as he explains, he wishes to undertake particular work on the SAP. There have been various research and development projects undertaken in the drive towards a model of sustainable agriculture and sustainable ecosystem and he has sought and received donations for the SAP totalling $100,000 and more recently in June 2006 the XYZ Australia Trust received a grant of $200,000 from the local Catchment Management Authority. But the land has been afflicted by drought and the operation of the farming enterprise has produced losses.
He currently receives a government benefit of $235 per week. There is also rent received from the G farm and the farmhouse at D which are accounted for in the spreadsheets referred to earlier. His uncontradicted evidence is that there have been no distributions of any kind from the trusts to any beneficiary and therefore he has received no financial assistance from that quarter with the financial support of the children. He has been overwhelmingly responsible for their care and upbringing, financially and in all other ways, these past few years.
As for the wife, after she received the $300,000 under the December 2003 agreement – the periodic weekly sum was never paid – in due course she pursued the property proceedings and at some point she lodged caveats on the titles of the D land held in the XYZ Trust. The husband maintained they have resulted in loss of income and an increase in expenses for the SAP, though he does not elaborate or explain how that came about, and he seeks their removal. Of the $300,000 paid, at the time she swore her affidavit in September last year she said she had $50,000 left. Her financial statement filed the same date, however, reflects a lesser figure of $38,869 in total savings. In a table annexed to her affidavit she sets out how she has spent the balance and, presumably, income available to her. This shows $26,715 spent on the children’s needs, purchase of household items of $38,452, living expenses of $97,449, education expenses [hers] of $39,457 and legal fees of $81,875.
She has not had much contact with the children since August 2003. She has provided financial assistance for the children to the extent just mentioned.
She initially worked part time as a teacher and then in 2004 she commenced study for an advanced diploma of …, supplementing earlier qualifications she had obtained in … in 1999. She completed this course and is undertaking part time study at a theological college towards a Masters in … which she hopes to complete at the end of 2008. It is her ambition to establish her own business … which she considers the Masters course will equip her to do. The husband says she has been a student for about 11 of the last 14 years and has completed courses in drama and acting, but she dismisses this. She rejects the proposition that she could work as a … teacher, explaining that while she has taught at that level in the past, it was related to drama in conjunction with … teaching. She accepts she could work as a teacher but she chooses not to. At times over the past few years she has done some emergency teaching but it has been intermittent, hence the absence of any reference to it in her financial statement. Her current income is around $250 per week from a government benefit.
Section 106B
The submissions on behalf of the wife about the s 106B application were no more than a passing reference to the section and those for the husband were relatively brief.
The relevant provisions of s 106B are:
‘Transactions to defeat claims
(1)In proceedings under this Act, the court may set aside or restrain the making of an instrument or disposition by or on behalf of, or by direction or in the interest of, a party, which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.
(1A)…
(1B) …
(2)…
(3)The court must have regard to the interests of, and shall make any order proper for the protection of, a bona fide purchaser or other person interested.
(4)…
(4AA)….
(4A) In addition to the powers the court has under this section, the court may also do any or all of the things listed in subsection 80(1).
(5) In this section:
"disposition" includes:
(a) a sale or gift; and(b)the issue, grant, creation, transfer or cancellation of, or a variation of the rights attaching to, an interest in a company or a trust.
"interest" :
(a) in a company includes:(i) a share in or debenture of the company; and
(ii)an option over a share in or debenture of the company (whether the share or debenture is issued or not); and
(b) in a trust includes:
(i) a beneficial interest in the trust; and
(ii) the interest of a settlor in property subject to the trust; and
(iii) a power of appointment under the trust; and
(iv)a power to rescind or vary a provision of, or to rescind or vary the effect of the exercise of a power under, the trust; and
(v) an interest that is conditional, contingent or deferred.
Thus s 106B will be considered in circumstances where (i) the application is made in proceedings under the Act; (ii) it relates to an instrument or disposition; (iii) which is made or proposed to be made by or on behalf of a party or at the direction of a party or in the interest of a party; (iv) which is made to defeat an existing or anticipated order or irrespective of intention is likely to defeat such an order; (v) if these elements are satisfied it remains an exercise of discretion whether to make or refuse to make an order; and (vi) in doing so, regard must be had to the interests of a bona fide purchaser or [more relevant here] other person/s interested. The onus is on the applicant to establish its availability and that the discretion should be exercised as sought.
If the elements have been satisfied, the instrument or disposition may be treated initially as not having been made for the purpose of arriving at an appropriate order pursuant to s 79 and from there the determination can be made whether, having regard to the rights of the person/s interested, the discretion should be exercised to set the instrument or disposition aside. That may depend, amongst other considerations, on whether or not there are sufficient funds available to satisfy the order without setting aside the instrument or disposition [per Nicholson CJ in Halabi and Artillaga & Ors (1994) FLC 92-470 and see also Full Court decision of Gould and Gould; Swire Investments Ltd (1993) FLC 92-434].
With reference to the trust instruments here, beyond contention is the application of (i), (ii), and (iii) above. There were no submissions about (iv) and the availability of a finding of ‘anticipated order’ but something should be said about that.
The question whether an order is ‘anticipated’ has to be addressed from an objective rather than subjective standpoint since intent is irrelevant [Pflugardt (1981) FLC 91-052 per Elliot J; Johnson (2000) FLC 93-008 per Warnick J].
Conceivably it might have been argued that at the time he settled the property in May 2004 the husband would not have ‘anticipated’ a property order being made because as a result of the agreement signed on 13 December 2003 he genuinely believed the issue to be at an end and he was free to do as he chose.
Certainly an order could be said to have been anticipated up until the agreement was signed and, when approached from the objective standpoint, it could still have been anticipated thereafter because the agreement did not operate to displace s 79. Whether the anticipated order is ‘defeated' by the instruments or the dispositions of property, however, depends on whether setting them aside is necessary to achieve a just and equitable outcome, which in turn depends on the assessment of the wife’s entitlement and whether it can be satisfied out of other available assets. To evaluate that, however, it will be necessary for the property of the trusts to be considered as notionally available as if the husband had retained the property and not made the dispositions to the trusts created.
There is a submission for the husband to the effect that the wife consented to the disposition of the property to the trusts and therefore she cannot now be heard to assert a claim under s 106B.
The decision of Treyvaud J in Gelley and Gelley (No 2) (1992) FLC 92-291 is cited in support. But I think that case has limited application to the facts here. Without going into the background in any detail, the trusts there, of which the daughters were primary beneficiaries, were established during the marriage well before the separation. As an adjunct to her property claim, the wife brought an application pursuant to s 85 [the precursor to s 106B] to set aside post-separation distributions to the beneficiaries. She was not successful. At 79,156 his Honour determined that the distribution made by the trustee to the parties’ daughters did not have the intended or likely effect of defeating an anticipated order in the property proceedings. Plainly that was a key finding. However, his Honour did go on to consider the exercise of discretion if that be wrong and he enumerated reasons for declining to exercise it in the wife’s favour in any event. They included aspects of the wife’s conduct in that she had taken no steps for almost two years to seek to ascertain what distributions had been made and to whom and she had offered no explanation for the inaction, as well as there being no male fides involved in making the distributions. In declining to exercise the discretion, the observation was made that it remains open to the wife at the property hearing [not then being heard] to argue that the property disposed of by the distributions nevertheless can be taken into account in those proceedings. As I read the case, relating in part to the exercise of discretion if the elements are established, it is but an example of circumstances in which the discretion would not have been exercised had the first finding not been made.
On the issue of the exercise of discretion, highly relevant to that are the interests of ‘person/s interested’. Falling into that category here are the beneficiaries of the trusts, who for all practical purposes involved with this particular litigation, are the parties’ three children. The purchaser of the technology, XYZ Pty Limited, does not qualify because the husband’s case fell short of establishing any obligation related to the use he made of the sale proceeds, including the future use of the D land now held by the trusts.
In this case all of the elements of s 106B are satisfied if the wife’s entitlement cannot be met from assets by means other than setting aside all or part of the disposition to the trusts in May 2004. In that event, it will be necessary to consider whether the discretion should be exercised to do so. As later evaluations record, the wife’s entitlement cannot be met from assets other than from the dispositions made to the trusts. That leads to the discretion but in my view there is nothing to bar the exercise of it here. The adult beneficiaries have elected not to participate in the proceedings. The wife’s ‘consent’ as indicated by annexure G and in the evidence of the husband is a factor for consideration as is her delay in taking steps to bring the proceedings to a conclusion after she received the $300,000 resulting from the agreement. But in the final analysis I regard those matters as insufficient to not exercise the discretion in favour of setting aside that part of the disposition as would achieve access to funds to pay her the entitlement assessed.
That said, it remains to identify the net assets, in this case to include the property of the trusts for reasons discussed, and to record the evaluation of contributions and the impact of any s 75(2) factors to arrive at a just and equitable outcome. From there, further comment will be made as to the application of s 106B to satisfy the order in the wife’s favour.
Assets and liabilities
The property of the husband cannot be separated entirely from the property owned by the trusts because Mr C has valued all the D land with one figure without regard to ownership, thus rolling up into one bundle the land owned by the XYZ Trust and the husband. The distinction was said by counsel for the husband to be irrelevant because the value of the land owned by the husband is de minimus in the value overall. There was nothing from the wife to gainsay this.
The approach proposed by the wife to the identification and value of current assets and liabilities is to include the D land and the L home at their current value along with the G farm, machinery, and superannuation and there would be added back to the husband’s assets the sale proceeds of R he retained in 2002. From that there would be deducted a net figure arrived at by deducting from the $5 million received for the sale of the technology the ‘known’ expenditure for the purchase of realty and the $300,000 paid to the wife. Perhaps it is better explained by illustration [correcting an arithmetical error in the aide memoire provided by the wife’s solicitor]:
Farming land 2,245,000
L property 425,000
G farm 230,000
Machinery 221,681
Superannuation (H) 126,611
Superannuation (W) 12,993
R property 170,000
Invention money 5,000,000
Less
Purchase of farming lands 1,096,500
L property 290,000
Payment to wife 300,000 1,686,500 3,313,500 6,774,785
It was said on behalf of the wife that she was not consulted about what the husband did with the funds available to him, including the running of the farm, and that appears to be so. But on her case the marriage was intact and there was no separation until late December 2002 – by which time $3 million had been received and a further $1 million was expected the following month and was received while she remained living at the home. Nor did she prosecute her claim after the December 2003 agreement in any active way for many months during which time the trusts were established and the settlements made. Whatever else might be said, seen against that background, the absence of consultation, if that be the case, still does not support adoption of this exercise which is more suited (it might be argued) to a successful waste argument or an early disposition argument as discussed in cases such as Kowaliw (1981) FLC 91-092 and Townsend (1995) FLC 92-569 respectively. Neither is available on the facts here.
The concept of ‘add backs’ has its place in an appropriate case but in my opinion adoption of this exercise would be unjust. For example, it brings to account the $5 million received over three years up to 2004 after deducting the purchase price for realty and what was paid to the wife but it gives no recognition to any other costs involved in those transactions, including but not limited to the payment of a hefty sum in CGT of over $1.14 million and commission of $275,000 as well as costs related to the purchase of the realty. In fact, the net amount received by the husband after accounting for payment of CGT and commission alone without any regard to costs of purchase of realty is around $3.584 [see exhibit 14]. Nor does the approach take account of any of the costs involved in operating the farm lands in the intervening years from the time the first $2 million was received in early 2001.
Drawing on the parties’ financial statements [in both instances filed September last year] and their further evidence at the hearing as well as exhibits 12, 13 and 14, not without hazards given the state of the evidence, I find their assets and liabilities and also the assets and liabilities of the two trusts to be as set out below and to the extent comment is required, that will follow by notation:
Wife’s assets:
Commonwealth Bank … 7,933
Commonwealth Cash Management Trust 30,936
Ford motor vehicle 6,000
Household contents 15,000
Superannuation 15,361 75,230
Husband’s assets:
G farm 230,000
Superannuation [Note 1] 126,611
Plant stock and equipment [Note 2] 221,681
Ford motor vehicle 10,000
Furniture [Note 3] 17,000
605,292
Less husband’s liabilities:
Loan – tractor [Note 2] 40,634
Loan – feeder [Note 2] 57,250
Loan – Hume Permanent [Note 4] 15,900
University accommodation 26,000
XYZ Limited [Note 5] 500,000 639,784 (34,492)
Combined assets of two trusts:
D farm land – total [Note 6] 2,245,000
L property 425,000
Loan to Ausco 260,000
Loan to Ausco 350,000
Loan to husband [Note 5] 500,000
Cash at bank (December 2006) [Note 7] 92,610
Moveable plant not valued - cost [Note 8] 200,000 4,072,610
Total net assets: 4,113,348
Notations
I have not added back the $300,000 paid to the wife because I consider that would produce a distortion without also adding back money available to the husband since 2003 from various sources. Rather, what I have attempted to do in compiling the list is to take their current assets and liabilities, as well as those of the trusts, using the best available and more recent evidence, and to have regard to the use made of money received, before and after August 2003, when evaluating their contribution entitlements up to now.
It will be noted that there has not been added back any amount for paid legal fees though obviously huge sums of money have been incurred and some paid. It was said in closing address the wife had incurred fees of over $100,000 and it is known from her schedule she had paid $81,875 by September last year. What the husband has incurred in legal costs has not been stipulated, including in his financial statement where the reference to ‘legal’ is marked ‘NK’. There is reference to payment of legal fees in the spreadsheets [exhibit 12] which he identified at one stage as being the legal costs incurred by the trusts. The topic, in particular their treatment in compiling the list of assets, was not taken up by either side in closing addresses and therefore I have not brought to account whatever amounts have been paid which will be left to lie where they have fallen subject to any later costs claims.
Note 1: The figures given by the husband for the value of his superannuation interest in his financial statement are unexplained. At item 45 he gives a figure of $126,111 though at the bottom of the page this becomes $112,313. I have adopted the higher figure because that is the one he used when setting out his assets in exhibit 14.
Note 2: This is said by the husband to belong to him and it attracts the two debts referred to in his liabilities [exhibit 14].
Note 3: In his financial statement the husband estimated certain specific furniture to be worth $7,000. In exhibit 14 he has offered a figure of $17,000 which is adopted on the assumption that the difference represents furniture separate from the items specified.
Note 4: This debt relates to the G farm.
Note 5: This is the amount left owing by the husband to one or other of the trusts, being the balance achieved when the properties were transferred, but it is also an asset of the trust’s.
Note 6: As already noted, Mr C valued all of the D land, which is on 9 separate titles, at one figure and that is adopted. Having done so, irrespective of ownership, it would not be appropriate to include separately in the husband’s assets an estimate of the value of the blocks retained in his name, however minimal that might be. What is also disregarded is the estimate he gave for the block known as M’s where the house burned down and the insurance claim is pending. Whether it burned down before or after Mr C inspected it in July 2006 I could not say though there is no reference to a cottage on that particular block on page 12 of his report or elsewhere. In any event, given the husband’s evidence that he intends to use the insurance claim when received to reinstate the cottage and the land is already in Mr C’s figure, it is disregarded.
Note 7: The cash at bank held by the trusts is taken from exhibit 14. The husband’s evidence at the time of hearing is that there have been no later deposits of any significance though there had been withdrawals. Nonetheless, the figure given in exhibit 14 is adopted as the best evidence available.
Note 8: This is problematic. The figure also comes from exhibit 14 prepared by the husband. He said it represents ‘predominantly’ the cost of equipment which is not otherwise included in the plant and machinery figure and has not been valued. The items he nominated are to be found as part of the expenditure on capital items set out in exhibit 13. The cost in the 2006 calendar year was just a bit over $120,000 rather than $200,000 but there was a substantial outlay of $49,500 on silos etc the previous year and no doubt that is the predominant source of the $200,000 figure. That said, it is highly unlikely these items would be worth in 2007 what they cost in 2005 and 2006 and so to include them at cost would very likely be to inflate their current value, but the figure involved is not small so they can hardly be ignored. Without a valuation and without any estimate of their current value, I see no real option but to adopt the cost figure as the best available evidence of their current value.
Finally, it remains to be said that the husband had credit card debt amounting to over $7,000 in his September financial statement which has not been included amongst his liabilities. That is because there was no such debt specified when he later prepared exhibit 14. The same explanation applies to the absence of savings included in his earlier financial statement but not in exhibit 14 as well as two other motor vehicles of relatively minimal value.
Evaluation of contributions
It is legitimate to approach the assessment of contributions by adopting a global approach, taking account of all of the assets, or an asset by asset or category of asset approach, taking account of contributions by reference to individual items or groups of items [Norbis (1986) FLC 91-712]. Here the submissions can be taken to have been based upon the global approach and as that is not inappropriate to the case it will be adopted. However, that is not to say contributions to particular items cannot attract emphasis in undertaking the global evaluation.
From the background it is apparent both parties have made contributions to one extent or another of the kind described in s 79(4)(a)–(c). By the end of 2002 their marriage had lasted for almost 17 years, they continued to live in the family home into the following year, and another period of about four years has passed since the wife moved out and established independent circumstances.
They each brought assets of various kinds to the marriage and that included equity in a home they had each acquired beforehand. While the wife had paid a greater deposit when she purchased her home and she had superannuation which she cashed in a year or so after they married, the husband had savings which he paid towards her mortgage. The state of the evidence does not allow any close comparison of their respective property interests at the time but, leaving aside any consideration related to the intellectual property the husband had developed to that point, there is nothing of any substance to elevate one as being in a stronger net asset position than the other.
Over the years to the point of her departure from the home, the wife earned income by continuing her employment for the first year leading up to the birth of their first child and she resumed paid work around 10 years later which she maintained by a mix of part time and full time work. Plainly her earnings were far less than the husband’s but whatever she earned can be taken to have been contributed, either directly or indirectly, towards the family’s needs of one kind or another along with her superannuation entitlement received early in the marriage. Her property at A provided a home for them for the first few years and the net proceeds of sale went towards the purchase of the first of the D farm land. However, as the history shows, by the time it was sold in 1990 the husband had paid a lump sum of $18,000 towards the mortgage as well as periodic mortgage instalments and his contributions are also reflected in the net proceeds of $65,000 ultimately received. Nonetheless, she did contribute directly financially towards the purchase of the first block of farm land at D. She also contributed by assisting with the work undertaken there, more so in the earlier years when she attended more frequently. She made further contributions through her role as parent, as earlier discussed, and with domestic chores and the general running of the household, as also earlier discussed. Throughout she gave indirect support to the husband’s contributions of various kinds at different stages of the marriage and in different directions. That included his efforts in the late 1990’s when he refined the intellectual property he had brought to the marriage with a view to adapting it for sale and his efforts to realise it commercially. Conversely, he gave her support to enable her to make the contributions she did.
Around the end of 2003 she received $300,000 which she applied toward purposes of her own choosing, including some financial contribution towards the children’s needs during those years amounting to $26,700, and she has less than $40,000 represented in cash investment left now. She has some other assets, of relatively minor value, including superannuation which it can be assumed was accumulated from the time she re-entered the workforce in 1996 or thereabouts. She has had a relatively minimal role with the children during these past few years.
Turning to the husband’s contributions, he earned income from full time employment in his profession until early 2001 and he went from there to the consultancy agreement with XYZ Pty Limited. Obviously his earnings were far greater than the wife’s. He applied those earnings for the benefit of the family in one way or another, meeting their living costs and paying financial commitments taken on over time, including the payment of the mortgage on the wife’s home at A until its sale, the mortgage on the G farm purchased, and the mortgage on the D land first acquired. His earnings were also the source of funds to later acquire further land at D in the early to mid 1990’s. He undertook some improvements to the A home before its sale and the lump sum he paid from his pre-marriage savings was a relatively significant contribution to what was ultimately yielded as net sale proceeds which were directed towards the D land. To assist in that purchase he also contributed the proceeds from a life policy though the weight of that cannot be assessed without being given any idea of the amount involved. He contributed further in the early years by acquiring and renovating two homes in A for not insubstantial profit after tax and he also contributed by undertaking considerable work on the G property to improve and extend the residence. The property at R he introduced to the marriage provided a home for the family for about 9 years. From the early 1990’s after the first purchase of the D land he worked regularly at the property to improve it and establish it as a sustainable environment integrated with sustainable grazing and agricultural practices. In his income earning activity or physical efforts to renovate and improve property acquired or in working the D land the wife provided her support through the different contributions she was making. However, the breadth and depth of his activities lend a greater weight to his contributions along the lines discussed.
He has used funds he has received since 2001 as he has chosen, and that has included the purchase of the home at L, the purchase of further farm land, the payment to the wife, the running or operation of the D property as well as living expenses for himself and the children. What remains from capital receipts between 2001 and 2004 and his earnings from the consultancy agreement as well as other work together with rents received is reflected in the net assets set out earlier. As well, over these past years, he has been almost wholly responsible for the children’s arrangements, albeit two have become adults though they remain dependent, as well as their financial support. The latter particularly lends further weight to his contributions.
That said, a significant ingredient to the evaluation of their respective contributions is the intellectual property the husband introduced, refined and marketed, and realised in 2000/2001. There can be no question that it was his skill and acumen, innate and special to him, that produced the product and that is deserving of recognition and substantial weighting in his favour.
The concept of special skills and the weighting it produces has been the subject of discussion at High Court and appellate level in a now rather long line of cases. The commonly accepted starting point is the High Court decision of Mallet (1984) FLC 91-507; 156 CLR 605. That decision rejected the proposition that equality of contributions is a convenient starting point as an unreasonable fetter on the exercise of discretion and the notion of special skills or special contributions in the analysis of contributions was raised and discussed in the various judgments. Gibbs CJ at 79,111:
‘…the respective values of the contributions made by the parties must depend entirely on the facts of the case…’
Mason J at 79,120:
‘No doubt a conclusion in favour of equality of contribution will be more readily reached where the property in issue is the matrimonial home or superannuation benefits or pension entitlements and the marriage is of long standing. It will be otherwise when the property in issue consists of assets acquired by one party whose ability and energy has enabled the establishment or conduct of an extensive business enterprise to which the other party has made no financial contribution and where the other party’s role does not extend beyond that of homemaker and parent.’
Wilson J at 79,126:
‘The contribution must be assessed, not in any merely token way, but in terms of its true worth to the building up of the assets. However, equality will be the measure, other things being equal, only if the quality of the respective contributions of the husband and wife, each adjudged by reference to their own sphere, are equal.’
Dawson J at FLC 79,132:
‘…it does not follow in every case where the husband earns the family income and the wife carries out her responsibilities in the home that the contributions of each to property acquired during cohabitation should be regarded as equal. If, for example, the husband is engaged in conducting a business, the nature of the business, the skills which the husband applies to it, the way in which he applies those skills and the manner in which the business has been built up, are all factors which may indicate that it is inappropriate to assume equality of contribution towards the acquisition, conservation or improvement of property during the subsistence of the marriage.’
The Full court in Ferraro and Ferraro (1993) FLC 92,335 developed the topic further, discussing at some length the difficulties inherent in the evaluation of differing contributions, particularly in the evaluation of the ‘breadwinner’ role against the ‘homemaker’ role but recognised that special skills in the performance of either role ought to be given appropriate weight. At 79,572:
‘…there are cases where the performance of those roles has what may be described as ‘special’ features about it either adding to or detracting from what may be described as the norm. For example, in relation to the homemaker role the evidence may demonstrate the carrying out of responsibilities well beyond the norm as, for example, where the homemaker has the responsibility for the home and children entirely or almost entirely without assistance from the other party for long periods or cases such as the care of a handicapped or special needs child. On the other hand, in the breadwinner role the facts may demonstrate an outstanding application of time and energy to producing income and the application of what some of the cases have referred to as ‘special skills’.’
Before and since Ferraro there are other cases where the concept has been discussed and applied. Without in any way being exhaustive, they include Whiteley (1992) FLC 92-304, McLay (1996) FLC 92-667; Stay (1997) FLC 92-751; and JEL v DDF (2001) FLC 93-075. In the latter case the majority [Holden and Guest JJ], in effect rejecting its application solely to what has been termed ‘big money’ cases, at paragraph. 133 said:
‘The issue of a ‘special’ or ‘extra’ contribution by the husband or wife is a question of fact. In our view, the determination of such contribution is not necessarily dependant upon the size of the asset pool or the ‘financial product’ achieved by the parties.’
And at paragraph 134:
‘…The concept of a ‘special’ or ‘extraordinary’ skill or factor cannot, without more, be rendered nugatory by the fact that the assets accumulated by the parties did not reach the magnitude of many millions.’
At paragraph 152 their Honours summarised principles of general application related to special contributions from the earlier cases:
(a) There is no presumption of equality of contribution or ‘partnership’.
(b)There is a requirement to undertake an evaluation of the respective contributions of the husband and the wife.
(c)Although in many cases the direct financial contribution of one party will equal the indirect contribution of the other as homemaker and parent, that is not necessarily so in every case.
(d)In qualitatively evaluating the roles performed by marriage partners, there may arise special factors attaching to the performance of the particular role of one of them.
(e)The Court will recognise any such special factors as taking the contribution outside the ‘normal range’ in the sense that that phrase was understood by the Full Court in McLay (supra).
(f)The determination of an issue of whether or not a ‘special’ or ‘extra’ contribution is made by a party to a marriage is not necessarily dependant upon the size of the asset pool or the ‘financial product’. When considering such an issue, care must be taken to recognise and distinguish a ‘windfall’ gain.
(g)Whilst decisions in previous cases where special factors were found to exist may provide some guidance to judges at first instance, they are not prescriptive, except to the extent that they purport to lay down general principles.
(h)It is ultimately the exercise of the trial Judge’s own discretion on the particular facts of the case that will regulate the outcome.
(i)In the exercise of that discretion, the trial Judge must be satisfied that the actual orders are just and equitable, and not just the underlying percentage division.
Guest J, in an article published International Journal of Law, Policy and the Family, 19, (2005) 148-162‘Special Contributions in Australia’, reviewed the development of the concept and concluded at 161:
‘The doctrine of special contribution offers a justifiable recognition of a special contribution derived from exceptional skills and effort, acknowledging that in some few cases the production of discrete capital or assets is not really a collective effort at all levels under the philosophical patronage of the partnership of marriage. It validates recognition of an individual’s right to the value of his or her innate skill and intelligence. Such an argument is open as a contribution issue within the framework of s 79 of the Family Law Act 1975. It is a material consideration for assessment. It is not a point scoring exercise. It becomes a fact in issue that should be properly considered and weighed alongside the homemaker-parent contribution, taking into account that the contribution of the latter afforded the other the opportunity to do so. It is both ‘fair’ and ‘just and equitable’ for the court to properly consider such a contribution. …..’
The obiter in the judgement of the majority [Nicholson CJ and Buckley J] in Figgins (2002) FLC 93-122, rejecting as their Honours did the proposition to the effect that being the recipient of an inheritance might be characterized by special skills, does not detract from the soundness of his Honour’s conclusion.
On the facts of this case there could be no question that the arrival of over $3.584 million net [after accounting for payment of CGT and commission] from early 2001 was overwhelmingly referable to the husband’s introduction to the marriage of the fundamental framework of the intellectual property sold, to his refinement of it and to his efforts to market and sell it, all of which in turn is referable to his innate and special skills in inventing it. His contributions must be weighted accordingly in recognition of his special skills and his special contribution. Of course that weight must take into account the indirect contribution by the wife in her support but as the time spent on bringing it to the point of sale was not significant in the scheme of things, that brings about a relatively minor counterbalance.
No two cases are the same and so there is no real assistance to be gained from reviewing the contributions assessments made in other cases. Whiteley, for example, a case indubitably concerned with the innate skills and talent of the artist husband, resulted in a contributions assessment to the wife of 30% but that involved assets in excess of $11 million and, significantly, the wife there had made various contributions during the long marriage and her contributions, directly related to his work, included her roles as model, muse and inspiration. That does not translate in any way to the facts of this case.
To conclude, the introduction by the husband of the fundamental framework of the intellectual property and his other skills in refining it and successfully marketing it is a significant factor which has to be added to his other substantial contributions including those made during the post-separation period. In my assessment contributions would be appropriately recognised by a distribution of current net assets set out earlier as to 12.5% to the wife and 87.5% to the husband. It is recognised this is a large disparity, with the husband’s entitlement being seven times that of the wife’s, but it is one I regard as warranted on the facts of this particular case.
Section 75(2) factors
The wife is older than the husband. She is presently aged 52 years whereas he is aged 46 years. As such, she has fewer years of working life ahead of her. Nothing is said of either having any health problems of any relevance here.
Both are currently in receipt of government benefits as income despite each having a capacity to earn substantially more income by using their professional qualifications. Yet neither chooses to do so. In the wife’s case she wishes to pursue further study to augment her qualifications and eventually establish her own business rather than work as a teacher and the husband plans to continue working the D farm and further his ambitions there rather than work as an scientist in the sort of positions he held up to 2001 other than undertaking occasional consulting work. These decisions are a matter for each of them but in these proceedings it is their earning capacity that is relevant and not simply what income they are receiving by reason of individual life choices.
What the wife could earn from her professional qualifications depends on the level she is teaching. She would not accept the figure put to her by counsel for the husband and maintains it is more in the order of $35,000 per annum. There is no evidence to counter this. What the husband could earn from his professional qualifications is difficult to say. For the 1999/2000 financial year – the last full year before taking on the consultancy – his pre-tax income from salary as a managing supervisor was $87,000 [exhibit 17] - allowance for tax losses of $46,000 gave him a taxable income of around $40,000 – but that was some years ago now and it seems reasonable to assume potential earnings would higher than that now. He was also able to command considerably in excess of that in consulting fees for XYZ though there is nothing to say that sort of work at that level of remuneration would be available to him now. In any event, his earning capacity outstrips the evidence of what the wife could earn by returning to teaching. It is not necessarily a vast disparity but it is by no means insignificant.
Of course the assessment of contributions, with the trust assets included, means the husband would have assets at a far greater value than the wife’s. It includes a component of superannuation which will not be available to him for some years yet, but the current value of that is relatively minor compared to the value of the other assets attributed to him.
Had the approach not been taken of including the trusts’ assets in order to assess entitlements, it may have been necessary to consider the indirect benefit the husband derives from the trusts’ property as being a resource to him. By ‘benefit’ I refer to things such as making accommodation available to him and providing him with secure employment and giving him the opportunity to further his ambitions with sustainable agriculture and so on. There is also the prospect of distributions from the trusts to the remaining dependent beneficiary relieving him to that extent from the obligation to support her [there have been none to date]. However, the notional inclusion of the trusts’ assets prohibits the resource factor from consideration here.
On the topic of resources, the prospect of the husband obtaining any benefit from the entitlement to worldwide royalties arising from the agreement with XYZ Pty Limited can be dismissed as too speculative to warrant consideration here.
The husband will continue to have the overwhelming majority of responsibility for the support, financial and in all other ways, for J who has just turned 16 years of age and therefore there is still two years to go before she attains her majority.
While his responsibility for their youngest child weighs in his favour, the other factors such as his greater earning capacity and his greater assets weigh in favour of the wife. In my assessment, a further 5% of the net assets added to her contribution entitlement would be an appropriate adjustment to account for the different weight.
This would result in an overall entitlement of the wife to 17.5% of net assets and 82.5% to the husband.
Just and equitable
Applied to net assets of $4,113,348, that would entitle the wife to receive assets to the value of $719,835. Of that, she already has assets worth $75,230 and so she will have to be paid a further $644,605. Putting aside her legal costs, this would provide her with sufficient funds, if the value of the L property is any indicator, to acquire a home which was mentioned on her behalf in closing address and she would have money left to invest and derive an income or to put towards the establishment of a business in due course, as she decides.
The husband would be left with assets worth $3,393,513. This is approximately $2.674 million more than the wife, but in the special circumstances discussed that is appropriate. Not to be forgotten, the wife has already received $300,000 and most of that is not to be found in the $75,000 odd in assets she retains. There will have to be found the sum of $644,605 [rounded up to $645,000] to pay the wife, but he will have finality and whatever is not required to pay this amount will be left either with him or in the trusts he established. Whatever his reason for establishing the trusts and putting the property disposed of beyond his reach - more than one occurs - their property will only be diminished to the extent necessary.
I am satisfied in all the circumstances this would achieve a just and equitable outcome.
Form of orders
As noted earlier, I can see no bar to the exercise of discretion under s 106B in so far as an order is necessary to provide to the wife her entitlement.
It was the husband’s application that the wife’s claim be dismissed and his case has not addressed the question of the source of funds if a payment to the wife is ordered. Therefore there is no indication presently where he will raise the money required. That presents something of a problem in the drafting of the final orders. I say that because I can see no need to use s 106B to set aside either of the trust instruments and thus dismantle either or both of them; the section need only be employed in so far as it is necessary to satisfy the order. But I cannot say whether all or only part of the sum to be paid will need to come from the one or other of the trusts. It is conceivable that the G farm could be sold to realise a portion of the money required, but there has been difficulty in selling it in the past and in any event the likely time it will take to achieve that is a barrier.
One option would be to provide the husband with the opportunity to consider his position in the light of the determination and have some input into the drafting of orders to achieve the outcome determined if he wishes. I am conscious also that the 2nd respondent sought an opportunity to be heard about the form of orders. Yet the spectre of further delay in having the matter finalised and any further costs being incurred is a disincentive to taking that up.
Ultimately I have drafted orders which I regard as appropriate to the circumstances and which I propose making, subject to a draft of any other form of order being provided to my chambers and to the other parties on or before seven (7) days from the date of these orders accompanied by short written note addressing the proposed form of order. Should that occur, I will consider whether it is necessary to have the matter mentioned for any elaboration.
In drafting the orders, I have employed s 106B to set aside part of the disposition of the $1.1 million to the XYZ Australia Trust, being the amount necessary to satisfy the order. Otherwise that trust and the XYZ Trust will be left intact. Having said that, it is quite feasible that it is more appropriate the disposition to the XYZ Trust be set aside to the extent of the payment required because that trust is the more appropriate source of payment. There was nothing to indicate that one way or the other. But the source can be considered within the next week and a draft of different orders provided if so advised.
For now, the draft orders will provide for payment to the wife of the sum discussed, there will be a reasonable time extended [two months is reasonable in the circumstances] for the money to be paid, the disposition of $1.1 million by the husband in May 2004 to the XYZ Australia Trust will be set aside to the extent of $645,000, and each party will retain property they now own. The wife will also be required to remove the caveats over the D land and, if it be the case, the L property.
I certify that the preceding one hundred and thirty-six (136) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Moore
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