Dalziel & Weinstein
[2008] FamCA 777
•4 September 2008
FAMILY COURT OF AUSTRALIA
| DALZIEL & WEINSTEIN | [2008] FamCA 777 |
| FAMILY LAW – PROPERTY SETTLEMENT – CONTRIBUTIONS – Contributions considered by reference to a period during which the parties were cohabiting and contributing to a business, a period during which the parties had separated but continued to contribute to the business and a period during which the parties were separated and only one party was contributing to the business. Contributions equal in first and second periods. Contributions in final period favoured wife, referrable to the wife’s running of the business, and to funds received by the husband early in the third period, making due allowance for husband’s greater contributions as homemaker and parent, as wife financially supported child in period, and husband not pursued gainful employment. PROPERTY SETTLEMENT – SECTION 75(2) MATTERS – No s 75(2) adjustment in favour of husband despite wife having secure and remunerative employment from the business, and having received greater superannuation entitlements in recent years, in view of the husband’s failure to pursue gainful employment. PROPERTY SETTLEMENT – VALUATION OF BUSINESS – not established that business ‘run dead’. Not established that full disclosure of financial affairs of business not made. Effects of accounting errors in business records and tax implications taken into account. |
| Family Law Act 1975 (Cth) s 75(2) Weir v Weir (1993) FLC 92-338 Black v Kellner (l992) FLC 92-287 Oriolo v Oriolo, (1985) FLC 91-653 |
| APPLICANT: | Ms Dalziel |
| RESPONDENT: | Mr Weinstein |
| FILE NUMBER: | SYF | 3826 | of | 1999 |
| DATE DELIVERED: | 4 September 2008 |
| PLACE DELIVERED: | Parramatta |
| JUDGMENT OF: | Coleman J |
| HEARING DATE: | 18, 19, 20 & 21 August 2008 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Thos Hodgson |
| SOLICITOR FOR THE APPLICANT: |
| COUNSEL FOR THE RESPONDENT: | Self Represented |
| SOLICITOR FOR THE RESPONDENT: |
Orders
1. That the husband forthwith do all acts and things and sign and execute all documents necessary:
(i) to transfer to the wife or her nominee, all his right title and interest in the company, S Pty Limited;
(ii) to resign as a director and secretary of S Pty Limited.
2. That subject to Order 4 hereof, upon the husband’s compliance with Order 1 herein, the wife indemnify and keep indemnified the husband in relation to all liabilities of herself and S Pty Limited other than in relation to the liability for income tax of the company and/or the husband up to the sum of $25 000, arising out of the payment to the husband of $1 000.00 per week pursuant to the interim orders made by Judicial Registrar Johnston on 29 May 2002.
3. That the husband forthwith do all acts and things necessary to assign to the wife his present entitlements to annual leave and long service leave from the company S Pty Limited.
4. That in relation to the $1 000.00 weekly payments made to the husband by S Pty Limited pursuant to the interim Orders made by Judicial Registrar Johnston on 29 May 2002, the husband be responsible for any income tax thereon in excess of the sum of $25 000, for which the wife is potentially liable pursuant to Order 2 hereof, and that he indemnify and keep indemnified S Pty Limited and the wife in relation to the payment of such income tax.
5. That subject to these orders, the wife do all acts and things necessary to assign to the husband any right title and interest, which she may have in any asset in his possession or under his control.
6. That subject to these orders, the husband do all acts and things necessary to assign to the wife any right title and interest, which he may have in any asset in her possession or under her control.
7. That within 90 days the husband file personal tax returns for the 2002, 2003, 2004 income tax years and include in such returns payments totalling the sum of $85 000 made to him by S Pty Limited in such years.
8. That within 90 days the wife cause amended tax returns to be filed on behalf of S Pty Limited for each year in which the company has claimed but not paid director’s fees to the wife.
9. That costs be reserved.
IT IS NOTED that publication of this judgment under the pseudonym Dalziel & Weinstein is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT PARRAMATTA |
FILE NUMBER: SYF 3826 OF 1999
| MS DALZIEL |
Applicant
And
| MR WEINSTEIN |
Respondent
REASONS FOR JUDGMENT
The proceedings before the Court relate to settlement of property.
Ms Dalziel (“the wife”) seeks orders in the following terms:
1. That the husband forthwith do all acts and things and sign and execute all documents necessary:
(i) to transfer to the wife or her nominee, all his right title and interest in the company, S Pty Limited;
(ii) to resign as a director and secretary of S Pty Limited.
2. That upon the husband’s compliance with Order 1 herein, the wife indemnify and keep indemnified the husband in relation to all liabilities of herself and S Pty Limited other than in relation to any taxation liability of the company arising out of the payment to the husband of $1 000.00 per week pursuant to the interim orders made by Judicial Registrar Johnston on 29 May 2002.
3. That the husband forthwith do all acts and things necessary to assign to the wife his present entitlements to annual leave and long service leave from the company S Pty Limited.
4. That in relation to the $1 000.00 weekly payments made to the husband by S Pty Limited pursuant to the interim Orders made by Judicial Registrar Johnston on 29 May 2002, the husband be responsible for 100% of any income tax thereon and that he indemnify and keep indemnified S Pty Limited and the wife in relation to the payment of such income tax.
5. That subject to these orders, the wife do all acts and things necessary to assign to the husband any right title and interest, which she may have in any asset in his possession or under his control.
6. That subject to these orders, the husband do all acts and things necessary to assign to the wife any right title and interest, which he may have in any asset in her possession or under her control.
7. That the husband pay the wife’s costs or and incidental to:-
(i) the husband’s interlocutory Applications filed 29 September 2003 and 14 November 2003;
(ii) the husband’s Contravention Application filed 24 December 2003, which was withdrawn and dismissed by order of Justice Steele on 18 March 2004l
(iii) the proceedings for property settlement, including all of the wife’s costs in the proceedings before Judicial Registrar Johnston.
Mr Weinstein (“the husband”) opposes the granting of relief in the terms sought by the wife and in lieu thereof seeks orders in the following terms:
21.That the husband be granted all the lost income from being removed forcefully on false pretences from his position and work in the company and that he be compensated in full for loss of earnings (corresponding to his salary and benefits enjoyed as at September 2001) including interest and adjusted to the CPI increases since October 2001.
22.That the husband’s earnings from the company be calculated from October 2001 to the present date to be at least equitable to the value of the wife’s total earnings and benefits (including salary, directors fees, superannuation, motor vehicle benefits, profit share dividends and all fringe benefits) from the company, and that the balance of the due amount be paid to the husband in full, including interest.
23.That the wife cause the husband to be paid the total amount owed to him according to orders 17 (vi), 21 and 22 in full within 21 days of the final orders being made.
24.That failing to comply with the above orders 23, that the court appoints an officer of the court to do all things and acts necessary to transfer the wife’s right title and interest in the business including 50% shares of the company to the husband and that this order to be authorized to take place on the 28th day from de [sic] date of the final orders.
25.That the wife resigns as a director of [S] Pty Ltd and that an officer of the court be appointed to authorize and sign any document or thing necessary to enforce this, and that this order to be authorized to take place on the 28th day from de [sic] date of the final orders.
26.That upon complying with orders 23, 24 and 25 above the husband will credit the wife for the full amount owed to him according to the full amount calculated and decided by the court corresponding to the issues related to in order 17 (vi), 21 and 22 in full exchange for her right title and interest in the business including 50% shares of the company [S] Pty Ltd.
27.That the wife transfer to the husband all things in her possession owned by the company, including but not limited to vehicle, keys, documents, records, equipment and all security and computer access codes and software.
28.That the wife indemnifies the husband from any responsibility for any act or thing occasioned as a result of the exclusive management held by the wife from October 2001 until the date the husband assumes the managerial role of the business.
29.That failing to implement orders 23 to 28 that both parties be allowed to make offers to purchase the other party’s right title and interest in the business including 50% shares of the company in a closed auction format.
30.The bidding should be conducted in writing via email and started within 7 days from the orders, the applicant should start with the first bid, and the bids should be emailed to each other within business hours, and at the same time a copy of each email be sent to an officer of the court. A response to a bid must be made within 48 hours; failure to respond will result in the last and highest bidder irrevocably winning the right to purchase the other bidder’s right title and interest in the business including 50% shares of the company [S] Pty Ltd.
31.The highest bidder will be allowed a settlement period of 90 days for full payments. On the 90th day the total amount must be paid in full by the end of the business day at 6pm.
32.That in case that the highest bidder fails to settle the full amount at the end of the 90 days time, that the lower bidder be able to purchase and settle in full for the other bidder’s right title and interest in the business including 50% shares of the company within 30 days from the due date (counting from the 91st day) to the highest bidder, at the lower bidder’s highest and last offer. On the 30th day the total amount must be paid in full by the end of the business day at 6pm.
33.That failure by both parties at the end of the agreed settlement dates to purchase and settle, that the company appoint an officer of the court who will be empowered to commence this action (in advance by the final orders), on the 7th day after the last 30 day deadline of order 32 above, to assist the parties in engaging a Business Broker and do all acts and things to place the company on the open market for sale, and that the officer of the court be empowered to do all acts and sign any documents and release and authorize any funds required for the advertisement and all costs relating to the company’s sale from the company’s account.
34.That if order 33 is applicable, that the husband provide the wife with a list with 3 names of Business Brokers listed on the current Yellow Pages and that the wife chooses one of the brokers from that list and that he be appointed to manage the sale of the business.
35.That if order 33 is applicable, that either party be allowed to actively promote and assist in the sale of the company and seek to achieve a favourable sale, by giving access 7 days to either party on a 24 hours notice to be able to meet with a prospective buyer in the factory premises, without the other party being present anywhere near or in sight of the factory premises. The visiting party must be given all keys to all locks and security devices access coded or anything that is required for a full access to all areas of the company’s factory premises.
36.That the husband be paid in full from the proceeds of the sale the total amount owed to him as calculated by the court according to order 23 above and the remainder if any of proceeds from the sale are to be divided equally between the parties.
37.That if the total amount of the sale does not cover the total amount owed to the husband that the wife pays the remainder amount to the husband within 21 days.
38.That the Court enforces, or assists the husband to enforce its orders in light of the wife’s track record of flagrant challenge to the Court’s authority by failing to comply with numerous court orders issued since May 2002 causing the husband and his family a great deal of financial hardship and distress since October 2003.
39.That all the enforceable orders be reliant on an officer of the court enforcing the order in case the wife fails to do so within a time limit without the requirement of further hearings.
40.That the wife pay the husband’s costs of and incidental to these proceedings.
The monies referred to in paragraph 23 of the husband’s application by reference to Orders 17(vi) relate to a claim based on the sum of $253 000 together with almost five year’s interest on such sum.
Credit
The wife has been represented by Counsel throughout the proceedings.
The husband has represented himself since at least 2004. Unsurprisingly, the forensic advantage enjoyed by the wife by being legally represented has impacted on the trial, and on the findings of fact which the Court will make. Had the husband been represented different findings may have been made. Short of the Court exceeding its function as adjudicator and becoming an interrogator, it was probably always likely that the husband would struggle to prove what he needed to in order to succeed with his claim.
It is not in doubt that, to be successful, the husband needs to persuade the Court that the evidence of the wife is untruthful and unreliable in a number of respects. Successfully impugning the credibility of the wife is accordingly necessary for the husband to materially advance his case.
With respect to him, despite the husband’s years of experience in this Court, representing himself at trial and appeal level, the husband’s cross-examination of the wife does not provide a basis for rejecting the evidence of the wife in any material respect, or for preferring his claims to those of the wife where the two are in conflict. The husband’s failure to effectively cross-examine the wife is influential in so concluding. So is the absence of any circumstantial evidence consistent with the husband’s assertions that the wife has, in any of the various ways alleged by him, either failed to honestly disclose financial matters, or sought to conceal the truth in relation to them.
Whilst Lawrie J, for reasons which she detailed in reliance upon the evidence before her, reached a different conclusion, particularly with respect to the credibility of the wife, this Court is not bound by her Honour’s conclusion with respect to the credibility of the husband and the wife and must make its own determination in that regard.
As will be seen, the issue does not ultimately become one critically involving the preference of the evidence of one party over that of the other, but rather whether, on balance, the wife’s evidence should not be accepted.
Whilst the husband seeks to impugn the honesty and reliability of the wife’s evidence, not surprisingly, the husband has presented no affirmative evidence in relation to the matters which he disputes with respect to the critical period subsequent to 2002. The wife having had total effective control of the business to the exclusion of the husband since 2002, the husband ought not be criticised for failing to adduce evidence on his own behalf of mendacity or skulduggery on the part of the wife. Realistically, however, that practical reality limits the means by which the husband may succeed in relation to key factual issues.
As the husband appeared to accept at the commencement of the trial, given that he was never likely to be able to establish the true figures if he demonstrated that the evidence of the wife with respect to financial matters could not safely be accepted, the husband’s case necessarily required that he be able to establish a basis for the Court invoking the statements of principle emerging from cases such as Weir v Weir(1993) FLC 92-338, Black v Kellner (l992) FLC 92-287 and Oriolo v Oriolo, (1985) FLC 91-653.
Whilst, for reasons which will be briefly detailed in the context of the Court’s consideration of the expert opinion evidence of Mr. B, the Court has some reservations about a number of aspects of the wife’s financial disclosures, the Court is not persuaded on the balance of probabilities that the wife has made less than adequate disclosures with respect to relevant financial matters, or that such disclosures have been untruthful or deceitful. Nor does the evidence establish that the wife has “run dead” in the conduct of the parties’ business since 2002 in order to endeavour to reduce its apparent value. The evidence falls well short of enabling findings of fact which would enliven Black & Kellner (supra), Weir & Weir (supra).
Given that the husband has presented no real evidence, or evidence capable of impacting upon the probabilities, with respect to the past six years, which are the focus of forensic interest, it is probably not realistic or necessary to make findings about his credibility in relation to contribution issues. The highest finding which the Court can record is that the husband undoubtedly genuinely believes that he has been hard done by, that the wife has manipulated her financial affairs, and those of the corporation to which reference will in due course be made, and has otherwise endeavoured to present her financial circumstances as being far inferior to what they really are in order to deny him his just entitlement.
As the Court made clear to the husband when refusing his several adjournment applications during the course of the trial, the husband has in reality had six years in which to marshal evidence in support of his assertions with respect to the wife’s finances and those of the corporation, or to marshal material which would enable him to demonstrate the inadequacy and/or unreliability of the wife’s performance and/or disclosures in relation to those matters.
Despite his complaints that the wife has failed to disclose relevant documentation, in circumstances where the husband has not sought to avail himself of the Court’s processes to compel such production, the husband’s consistent inability to identify the documents, or kinds of document, to which he says he has been denied access suggests that, beyond suspicion, the husband has no real forensic basis for seeking to impugn the adequacy and accuracy of the wife’s financial disclosures.
As a reading of the transcript of the trial would confirm, the husband, perhaps unsurprisingly given the duration and course which litigation in this Court has taken over the past six years, struggles to view the proceedings with any measure of objectivity. Whilst that does not necessarily impact upon the credibility of his evidence in the sense of honesty, the case presented by the husband, and the manner in which he has presented it, does not advance the numerous and sweeping assertions which he maintains.
Whilst it may be understandable, in view of the husband’s apparent inability to distinguish allegations he has persistently made from the evidence or other means by which those allegations might be advanced, the reality is that the husband’s case remains largely one of allegation and assertion unsupported either by affirmative evidence or a demonstrated basis for rejection of the evidence of the wife in relation to such matters.
The transcripts of prior proceedings, in 2002 and 2004, which the Court has read at the invitation of the parties, reveal that the husband has had ample opportunity both to realise the nature of the material he has needed to advance his claims and/or to seek to obtain such material.
Whilst the Court need not find that it prefers the evidence of the wife to that of the husband where the evidence is in conflict, were it necessary to do so, the Court would, essentially on the basis that the wife was not shown by cross-examination to be other than an essentially reliable recounter of fact nor so revealed by the circumstantial evidence. The existence of circumstantial evidence not inconsistent with the wife’s version of events, and the absence of circumstantial evidence supporting the husband’s version of events, provides further support for so concluding. So does the absence of complaint by the forensic accountant who valued the parties’ business interests in relation to the wife’s disclosures to him.
In cross-examination, particularly with respect to his activities since 2002, the husband gave a number of answers which taxed credulity, both in relation to his attempts to obtain employment, and his financial arrangements with his partner since 2004 and his son.
The husband’s claims with respect to some alleged debts in that period, his claims with respect to the conduct of the business formerly conducted by himself and the wife, and his evidence in relation to his intended future all revealed a degree of detachment from reality as it emerges from the totality of the evidence.
Material Facts
The husband was born in October 1955 and is thus aged 52.
The wife was born in November 1957 and is thus aged 50.
The parties’ commenced cohabitation in 1979, married in 1981 and separated in 1989. They were then divorced.
There is one child of the marriage, a son, who was born in April 1988 and is 20 years of age.
After their separation in 1989, and until March 2002, the parties continued to operate a business in which they had been engaged from at least 1991. That business was known as P Business and was conducted through a corporation, S Pty Ltd in which the parties each held and continue to hold, one issued share. The parties were and continue to be the directors of S Pty Ltd. It is clear that the parties’ shareholdings in S Pty Ltd to this day prevent either party from acquiring the interest of the other, or causing the other to be removed as a director, other than by agreement. The parties agree about little.
The business conducted by S Pty Ltd was, and continues to be, the manufacture and supply of products for the hospitality industry, including caterers, restaurants and hotels.
Despite the parties having separated in the late 1980s, they continued to operate the business together until March 2002, by which time their relationship had become unworkable.
On 2 May 2002 the wife was granted leave pursuant to Section 44(3) of the Family Law Act 1975 (“the Act”) to commence proceedings for settlement of property.
On 29 May 2002 Judicial Registrar Johnson made interim orders, inter alia providing that the wife pay to the husband $10 000 by way of partial property settlement and further that she cause to be paid to the husband an amount of $1 000 per week thereafter.
The learned Judicial Registrar’s orders provided that the $1000 per week payments “be taken into account at the hearing of the substantive proceedings in such manner as considered appropriate”. It is clear from the transcript of proceedings before him that the learned Judicial Registrar regarded the $1000 per week payments to the husband to be more in the nature of income than capital and contemplated that the husband would be responsible for the payment of taxation in relation to such payments.
The wife caused S Pty Ltd to pay the husband the $10 000 and, for 75 weeks the sum of $1000. Those payments have been claimed by S Pty Ltd as director’s fees but never returned as income for taxation purposes by the husband.
The orders of the Judicial Registrar permitted the wife to continue to operate S Pty Ltd’s business and restrained the husband from attending the business premises unless expressly invited by the wife to do so. The wife has not since invited the husband to do so.
The husband remarried in approximately 2001 and separated from his second wife in 2003.
Since 2004 the husband has lived with his present de facto partner.
Since the orders of the Judicial Registrar, the wife has continued to operate S Pty Ltd’s business and to be remunerated by the company. The husband has not contributed directly or indirectly to the business activities of S Pty Ltd since the May 2002 orders. The evidence suggests that the husband has since that time received benefits in total in the sum of $85 000 from S Pty Ltd, pursuant to the Court orders referred to above.
Judicial Registrar Johnson made orders for settlement of property on 8 August 2003, those orders in essence providing that the wife pay the husband the sum of $90 880 and, upon payment, that the husband transfer to the wife all his right, title and interest in S Pty Ltd. A default sale order was also then made.
The wife applied to review that decision on 8 September 2003. The wife asserted that S Pty Ltd had been unable to afford to continue to pay the husband $1000 per week after October 2003.
In 2004 Lawrie J heard the wife’s review application and delivered judgment with respect to the proceedings in August 2006. Her Honour ordered that the wife pay $155 000 and that, after certain other events transpired and S Pty Ltd was re-valued, the wife pay the husband one half of the valuation so determined.
The Full Court allowed the wife’s appeal against Lawrie J’s decision on 20 August 2007, set aside her orders and remitted the matter for rehearing.
On 2 April 2008 the matter was set down for hearing before this Court on 18 August 2008. Directions were then made for the matter to be ready for trial. Not one of the directions made in April 2008 was complied with prior to 18 August 2008. Neither party ever re-listed the matter pursuant to the liberty reserved on 2 April 2008 in relation to the absence of compliance with the directions made on that date.
On 18 August 2008, the joint expert’s report, which has been expected prior to the end of April 2008, became available. Receipt on the first day of the trial of the joint expert’s report, which was more supportive of the case for the wife than the case for the husband, gave rise to the first of a series of applications by the husband to adjourn the hearing of the proceedings, on the basis that he could not reasonably be expected to deal with the expert’s report given the lateness of its receipt. The Court refused the husband’s adjournment application. The Court also refused the husband’s subsequent adjournment applications: the transcript would reveal the reasons for such rejections.
The property of the parties
Consistent with authority, the Court proposes determining the entitlement of the parties by reference to their current assets.
Given that the parties’ ceased to have a marital relationship 19 years ago, and to have any dealings with each other more than 6½ years ago, and that the only asset of significance of the parties is a trading enterprise involving considerable personal exertion for its continued existence, it will be readily apparent that determining the parties’ entitlements by reference to their current assets requires considerable caution.
Counsel for the wife provided at the commencement of the trial a Schedule of Assets and Liabilities which he updated on the fourth and final day of the trial. Those schedules have been helpful working documents, particularly as the husband does not appear to have provided a consolidated balance sheet.
The parties’ interests in S Pty Ltd have been determined by the joint expert Mr B to be worth $185 126. Given the controversy surrounding Mr B’s valuation report, his oral evidence and the husband’s challenges, the validity of Mr B’s conclusions will be discussed at some length later in these Reasons. So will the components of Mr B’s report. For present purposes however it is sufficient to record the Court’s acceptance of the figure of $185 126 as being the value of the parties’ interests in S Pty Ltd and its business, P Business.
The wife has modest savings which have not been shown to bear any nexus with the marital relationship, or indeed the post marital pre-March 2002 relationship of the parties. Those circumstances, combined with their quantum, disincline the Court to include them in the asset pool.
Similar observations apply to the household effects of both parties and the husband’s computer equipment, in respect of none of which items the Court has reliable or admissible evidence of value.
On behalf of the wife the Court was urged to add back a lump sum of $10 000 received by the husband by way of partial property settlement together with the 75 payments each of $1 000 made by the wife to the husband between May 2002 and October 2003 pursuant to orders made by the learned Judicial Registrar.
The Court does not propose simply adding back these funds. There is no suggestion that they continue to exist. The Court prefers, when assessing the contributions of the parties, as it foreshadowed at the commencement of the trial, to evaluate contributions by reference to three periods, they being the period of the parties’ martial cohabitation, the period of the post-marital period of contributions to and on behalf of S Pty LTd, and the period subsequent to the termination of that relationship in March 2002. It is appropriate to consider the husband’s receipt of $85 000 in the third mentioned period.
The parties have unvested superannuation interests, the wife’s being worth $105 153 and the husband’s $20 840. It is reasonably apparent that these contributions were referrable to the parties’ employment by S Pty Ltd.
The Court proposes considering the superannuation interests in a separate “pool” to the parties’ interests in S Pty Ltd and, consistent with the majority decision in Coghlan and Coghlan (2005) FLC 93-220, having regard to the contributions to those interests.
Neither party has sought a splitting order in relation to the superannuation interests of the parties. The figures referred to are not, and thus do not need to be, valuations pursuant to the regulations.
There are no other assets of relevance or significance. The wife has credit card liabilities of $26 554 and personal loans from the Commonwealth Bank of $33 218. The Court does not propose having regard to those liabilities for present purposes, a sufficient nexus with the marital relationship of the parties having not been established on the evidence. Moreover, although bearing no direct, or necessary nexus, the Court is mindful of the evidence before Lawrie J in 2004 that the wife had some $30 000 in an account in respect of which both her disclosures and explanations were less than satisfactory. The wife has also had the income from P Business during this period. A similar approach will be taken to debts of the husband which are proved to exist and have been incurred since March 2002.
The wife owes Mr G $122 495 with respect to legal fees. Given however that the wife has, with those borrowed funds, paid legal fees to that value, to allow this liability would, in the circumstances of this case, necessarily be accompanied by notionally adding back precisely the same amount. Whichever approach is taken, the balance sheet is unchanged. The Court prefers to leave out both the debt to Mr G and the corresponding payment of legal fees of $122 495.
The husband asserts that he has a personal loan to the Commonwealth Bank in the sum of $4 183. The husband’s evidence in relation to that debt at trial was uncorroborated and unsupported in any material respect. The husband had no documentation evidencing either the existence of the loan or the likelihood of his being required to discharge it.
As with a number of alleged liabilities to which reference will shortly be made, at the conclusion of the trial the husband was allowed a short period in which to tender any source documents supporting his allegations.
Pursuant to the leave reserved to him, the husband submitted a letter headed “Notice of Intention to Commence Legal Proceedings” from Credit Corp Services Pty Ltd, dated 20 November 2007. The letter refers to a sum of $4 182.55 outstanding on a Commonwealth Bank account, which the husband refers to as a personal loan account. The letter demanded payment by the end of 2007. There is no evidence that any further attempt has been made to pursue the recovery of the alleged debt. To what it is alleged to relate is not evident. The Court does not propose taking the alleged debt into account, partly as it has not been proved, partly because of the absence of a demonstrated nexus with the marital relationship, and partly because of the husband’s unsatisfactory evidence in relation to his attempts to support himself in the post March 2002 period.
The husband claimed that he owed his son $15 000. That assertion was unsupported by any documentation and otherwise uncorroborated. The parties’ son, who sat in Court to “assist” the husband for part of the trial did not give evidence in relation to this alleged debt, nor was there any explanation for his failure to do so. The husband has not proved this debt.
The husband also claimed to owe Ms R, the husband’s de facto wife since 2004, some $65 000. That allegation was unsupported by any documentation and not corroborated in any other material respect. Ms R did not give evidence. There was no explanation for her failure to do so. The husband confirmed in oral evidence that he was staying in Ms R’s house during the trial. The Court finds that this allegation is unproved.
The husband claimed that he owed $13 000 to his former landlord with respect to premises previously occupied by the husband. Despite the husband’s suggestion that there was a “court order” for payment of that sum, at trial the husband’s claim was unsupported by any documentation and otherwise uncorroborated. The husband was afforded the opportunity to tender source documentation in relation to this alleged liability within a short period of the completion of the trial.
The husband submitted documentation pursuant to the leave reserved to him in the form of a “Notice of Order” from the Consumer, Trader and Tenancy Tribunal, dated 3 March 2004. The notice reveals a debt of $9 180, payable by instalments of $400 per fortnight commencing 1 March 2004.
Also provided was a letter apparently written by the husband to a firm of solicitors advising them of the “Notice of Order” in the tribunal to which reference has been made and stating that:
In consideration of Ms [T] not executing against me and allowing me to stay in the premises until 18 November 2004, I HEREBY IRREVOCABLY ASSIGN to [Ms T] all arrears of rental of $9,180.00 plus rental of $400.00 per week less any instalments of arrears paid by me from any moneys received by you on my behalf including moneys received from Family Court proceedings No. (P) SYF.3826 of 1999. (original emphasis)
Precisely what that means, or is intended to mean, is less than entirely clear, although it does seem that the husband purported to charge whatever he recovers in this litigation with the payment of rental arrears.
No other documentation has been provided in support of the husband’s claim that he owes $13 000 or any other amount. Neither Mr nor Ms T gave evidence before this Court. Whilst the husband may have had, and possibly continue to have a debt in the sum of $9 180, the evidence does not establish on the balance of probabilities that he is currently being required to, or will in the future be required, to repay any of these monies. Moreover, given the husband’s unsatisfactory evidence in relation to his attempts to support himself during the period in which the arrears of rental accrued, the Court would not be disposed to have regard to it to his advantage in any event.
The husband claimed to have unpaid legal fees of $100 000. The husband’s evidence at trial was this liability had been incurred over more than four years prior to the trial but that he had received no communication from his former solicitors in relation to it during that time. The husband was afforded the opportunity to produce source documentation with respect to the alleged liability within a short period of the conclusion of the trial.
The only source document supplied by the husband in support of this assertion was an invoice dated 13 July 2004 of some $6 305.20 on behalf of “Moloney Lawyers”. The other documentation supplied by the husband pursuant to leave reserved to him and headed “Settlement Statement” totalling $94 060.34 is not authenticated, or otherwise able to be seen as having been issued by any of the entities referred to in it. With respect to him, the husband could have created this document at any time.
Save to the extent that the husband’s claim to have owed his former lawyers $6 305.20 four years ago has been corroborated, nothing provided by the husband provides a rational basis for finding either that the husband owes his former lawyers an additional $95 000 or that the husband has been pursued for any monies with respect to legal fees for over four years. Whilst benevolence on the part of the lawyers involved might provide an explanation for this state of affairs, a more realistic explanation is that, not surprisingly perhaps, the solicitors have written off whatever they may have been owed by the husband. The improbability of the lawyers having remained silent for more than four years yet expecting to be paid is readily apparent.
The husband claimed to owe Centrelink $9 568. At trial that allegation was unsupported by any documentation and otherwise uncorroborated. The husband was afforded the opportunity within a short time after the trial concluded to tender source documentation with respect to the alleged liability.
The husband did lodge two Centrelink documents, one dated 3 December 2007 claiming $6 320.55 by way of overpayment of Family Tax Benefit, seemingly in 2005 and 2006, the other dated 6 November 2007 claiming $3 378.03, apparently for Family Tax Benefit for what appears to be the same period as that claimed in the later notice. No other documentation makes clear either how the husband’s liability arose, or whether in fact the $6 320.55 includes the $3 378.03, as the source documentation appears to suggest is likely, or is a separate amount. The husband having not filed income tax returns or otherwise applied for Centrelink benefits, it is perhaps unsurprising that Centrelink has not to date recovered, or sought to recover, whatever it claims the husband owes.
The husband has established that, on the balance of probabilities, he owes Centrelink $6 320.55. He has given no evidence as to how that arose. The husband’s unsatisfactory evidence in relation to his attempts to support himself in the post 2002, during which he has received $85 000, would disincline the Court to take into account whatever the husband actually owes Centrelink in any event.
The husband also claimed to have a liability of $4 613 with respect to a HSBC Visa card through a friend, Mr A. At trial the husband’s allegations were unsupported by any documentation and otherwise uncorroborated. Mr A gave no evidence and no explanation for his failure to do so was advanced by the husband. The husband was afforded the opportunity to tender source documentation in relation to the liability within a short time after the trial concluded.
The husband provided to the Court a recent statement of Mr A’s account with HSBC evidencing a balance of $4 979.67, and indicating a number of repayments. Perhaps unsurprisingly, save to the extent that Mr A’s address is the same as that of the husband, there is nothing on the documentation to link the liability with the husband. Ms R appears to have made two payments on the account earlier this year, and the husband one payment. The husband has not proved either that he has the debt he alleges or that it bears any relevant nexus to the marital relationship of himself and the wife in these proceedings. Moreover, the husband’s unsatisfactory evidence with respect to his attempts to support himself in the period since March 2002 would disincline the Court to take into account any indebtedness the husband may have to Mr A or HSBC by virtue of this account.
On 26 August 2008, the husband, when forwarding the documentation to which reference has been made, referred to a Commonwealth Bank Mastercard account which had “accumulated” a debit balance of $24 163.49. The husband suggested that he had overlooked referring to this at trial because of his “unfavourable and distressed mental condition brought about by these protracted proceedings”. The documentation supplied by the husband does suggest that, as recently as 25 August 2008, a mercantile agent on behalf of the Commonwealth Bank demanded a payment of $24 163.49 from him.
Not surprisingly, the husband having not mentioned this alleged debt at trial, there is no evidence before the Court as to how the alleged debt arose. Whilst the husband may owe the Commonwealth Bank the sum claimed by the mercantile agency in its letter, the absence of any evidence establishing a nexus with the marriage of the parties to these proceedings, combined with the husband’s unsatisfactory evidence in relation to his own support since March 2002, precludes the Court from either finding the debt exists or taking it into account to the husband’s advantage in the proceedings. Whilst no clue was provided as to the antiquity of the debt, it is difficult to understand on the husband’s own evidence, how he could have secured any substantial credit from a financial institution in the period subsequent to March 2002.
The husband also provided a document in the form of a “Notice of Complaint” from the Magistrate’s Court of Victoria dated 4 May 2004 with respect to alleged arrears of school fees for the parties’ son in the sum of $1 325.76. Nothing subsequent to that date was provided. Given the emphasis the husband placed at trial on the son’s welfare after March 2002 and the wife’s alleged dereliction of duty towards him in that period, it is surprising that this sum was not raised. The evidence precludes a finding that the husband owes any money with respect to the son’s schooling, or that if he does, that such liability should be taken into account for present purposes.
For the reasons which have been mentioned, and others which will become apparent, proof of some or all of these liabilities would not in the Court’s view impact upon the determination of the proceedings between the parties, particularly having regard to the husband’s quite unsatisfactory evidence with respect to his attempts to support himself since his exclusion from P Business in May 2002.
The evidence leaves little room for doubt that, for the past 6½ years, the husband has made little or no attempt to support himself and, on his own admission, has not since mid 2006 made any attempt to obtain employment. Those circumstances, combined with the husband’s failure to adduce any evidence from Ms R, who on his evidence has “kept” him since at least 2006, militates against allowing the husband to rely upon these liabilities.
The Court has, through Mr B’s report, evidence of the value of the parties’ interests in S Pty Ltd in October 2001. That is some months earlier than the husband’s departure from the day-to-day operations of S Pty Ltd but remains of considerable assistance for present purposes, particularly as the husband has not disputed Mr B’s valuation of the parties’ interests in S Pty Ltd at that time.
It is to be remembered that the husband’s own case, variously articulated, has been that, until March 2002, both he and the wife liberally utilised undisclosed income from P Business. On the husband’s own evidence, to the extent that, through no fault of Mr B’s, his October 2001 valuation may not have been entirely accurate and reliable, it is difficult to see on what basis the husband could complain, quite apart from the fact that he has not challenged Mr B’s October 2001 valuation.
Mr B valued the parties’ interests in S Pty Ltd at $174 490 as at October 2001. The components of that valuation were the value of the shares of $145 032, the parties’ debit loan accounts in S Pty Ltd of ($12 587), ($12 874) of which was referrable to the husband’s drawings, superannuation accrued on the part of the wife of $14 033 and annual and long service leave entitlements of the parties (husband $10 706, wife $17 306) totalling $28 012.
The parties’ interests in S Pty Ltd were accordingly at that time, twelve years after they had ceased to have a marital relationship, $70 348 on the part of the husband and $104 142 on the part of the wife. These figures will assume significance later in the Court’s Reasons for Judgment, in ways which will be articulated.
The current net asset pools are accordingly $185 126 with respect to S Pty Ltd and $125 993 with respect to the parties’ superannuation interests.
The S Pty Ltd interests have to be considered in the light of at least two matters raised by Mr B in his report. The first arises from the reality that S Pty Ltd has claimed a tax deduction over a number of years for director’s fees accrued but not paid to the wife which total $148 264.
Mr B identified in his report that, although claimed as a deduction by the company, these had not been “taxed at source or returned as income by the wife”. In his oral evidence, Mr B confirmed that this situation would require rectification in one of two ways, the more “technically correct” of which was that the company would file amended tax returns reflecting an increase in profit to the extent that in each of the years these unpaid director’s fees were accrued and deducted, they would be written back into the profit and loss statements and would thus not be deductible in the hands of S Pty Ltd.
Mr B’s expert opinion evidence, which the Court accepts, was that $40 000 in primary tax and some $20 000 in interest would be likely to be levied on the amended returns provided that a prompt voluntary disclosure with explanations was provided to the ATO.
Importantly, Mr B confirmed that, for reasons which he detailed, adding back these monies would not in his view change the value of the S Pty Ltd interests of the parties. By reference to his breakdown of the components of the $185 126 value of the parties’ interests in S Pty Ltd, Mr B confirmed that eliminating the “director’s fees accrued” of $148 264 as an asset of the parties would result in a corresponding increase in the value of the “shares in the company” bringing that figure from nil to $148 264.
The Court accepts the logic of Mr B’s approach to that issue and the reasons which he gave in support of it.
The other matter which requires consideration, but is not as simply or readily able to be determined, relates to the monies totalling at least $85 000 which the husband received pursuant to the Court orders of Judicial Registrar Johnson in May 2002. The husband undoubtedly received those monies, and they were paid by or from the funds of S Pty Ltd. The monies were claimed as deductions by S Pty Ltd in the period of three income tax years, they being the years ending 30 June 2002, 30 June 2003 and 30 June 2004.
The monies were not taxed at source. Nor were they declared as income by the husband. It is unsurprising that this state of affairs resulted. Through no fault of the learned Judicial Registrar, the orders made with respect to these monies left for later determination how they would be treated for revenue and family law purposes. The learned Judicial Registrar could be forgiven for not having anticipated that the final trial of these proceedings would not occur until more than six years after he made his orders.
Mr B’s evidence is that if the husband, who has not filed a tax return since 2001, were to do so, with appropriate explanations and voluntary disclosures, a liability of between $20 000 and $36 000 could be expected to result in the circumstances. The Court accepts Mr B’s logic in relation to this issue and the reasons he advanced in support of his opinion.
Whilst it is clear that if the wife retains S Pty Ltd and P Business, as must inevitably be the outcome of this litigation, she will inherit with it a probable liability of $60 000. On the other hand, adopting a realistic approach to the matter, if the wife thus retains S Pty Ltd and P Business, and no further order is made by the Court, the husband is likely to incur a liability of between $20 000 and $36 000.
It is thus realistic to offset against the $185 126 value of the parties’ interests in S Pty Ltd, contingent liabilities of between $80 000 and $96 000. These contingent liabilities, whatever their ultimate quantum, are almost certain to materialise given the orders the Court will make obliging these revenue anomalies to be rectified.
The third matter identified by Mr B relates to personal expenses of the husband of $17 048 for the year ended 30 June 2001 which were “treated as company expenses and claimed as deductions”. Perhaps more due to the passing of time than anything else, the evidence lacks sufficient clarity or certainty to enable any finding to be made in this regard, either as to the likelihood of a liability for income tax arising or otherwise. The Court does not propose having regard to this item and does not perceive that either party ultimately vigorously urged it to do so. The husband should however be relieved of any liability to repay any such sum to S Pty LTd.
The other relevant liability of the parties, albeit one which currently rests with the wife, relates to Mr B’s expert witness expenses totalling $27 000. The wife had to pay this sum to enable Mr B’s report to be obtained, and to secure Mr B’s attendance at Court to give evidence, as he was required to by the husband. To fail to have regard to this expense, which is real and will be paid by the wife would be unjust to the wife. Had the husband been willing and able to do so, the Court would have ordered that the parties pay one half each of the costs of obtaining Mr B’s report.
Accordingly, the interests of the parties in S Pty Ltd should be seen as being worth between $78 126 and $62 126. Whilst there is little room for doubt as to how the $60 000 contingent tax liability of S Pty Ltd and Mr B’s $27 000 debt will be met, how the more difficult question of how the husband’s $85 000 from S Pty Ltd is to be treated will require further consideration.
The Valuation of the parties’ interests in S Pty Ltd
As the transcript of the trial would confirm, the Court endeavoured to explain to the husband prior to the commencement of evidence the distinction between evidence of the facts, which involved the evidence of the wife, and the expert opinion evidence of Mr B, which involved the application of Mr B’s undisputed expertise to factual information supplied by the wife to S Pty Ltd’s external accountants who in turn produced financial accounts and records in reliance upon such information.
The Court endeavoured to explain, and the husband appeared to understand, that his challenges to Mr B’s conclusions would turn significantly, and potentially conclusively, on the extent to which he was able to impugn the reliability of S Pty Ltd’s records.
The Court endeavoured to explain to the husband that there were, broadly speaking, two ways in which the husband might achieve that objective. The first, and less likely, approach was to point to particular matters which could be quantified and which would result in enhanced profitability of S Pty Ltd. That in turn would translate into an increase in the value of that entity by the application of Mr B’s methodology.
The second, and realistically more probable avenue by which the husband might achieve his objective was by seeking to establish that, although, understandably, the husband could not prove what the true position was, or should have been, the husband might through his cross-examination of the wife demonstrate such unreliability with respect to financial matters as to enable him to invoke decisions of the Court such as Weir v Weir (supra), Black v Kellner (supra) and Oriolo v Oriolo (supra).
With respect to him, the husband’s cross-examination of the wife comprised allegations which the wife denied in respect of which there was no direct or circumstantial evidence by reference to which the scenarios sought to be established by the husband could be accepted as proved, or the wife’s evidence rejected.
The husband complained consistently, without ever identifying what they were, that he had been denied access to the documents which would have enabled him to prove his allegations. With respect to him, quite apart from the fact that the husband has had six years to obtain such documentation, the nature of the challenges he agitated in cross-examination of the wife suggest the improbability, if the challenges had substance, of there being any documentation which would establish the matters of which the husband complained.
As a reading of the issues raised by the husband would confirm, things like failing to take advantage of business opportunities, failing to record and disclose cash takings and failure to accurately record stock inventories, if occurring, were highly unlikely to have been evidenced by documentation.
Nothing emerging from the husband’s cross-examination of the wife provides a rational basis for concluding that S Pty Ltd or the wife has undisclosed assets, income or resources. The husband made a great deal about a practice previously adopted with respect to stock recording and controls which is no longer adopted. The wife and other witnesses whose evidence can be accepted deposed to both the existence of other and adequate stock recording procedures and the reasons why the system to which the husband made reference had not been utilised for some years. Mr B did not suggest anything in relation to stock recording which could advance the husband’s claims.
Albeit the husband’s cross-examination of her was largely ineffective, the wife did not during the course of cross-examination provide any foundation for rejecting or discounting the evidence which she gave. The wife’s evidence, in response to questions from the Court, revealed an absence of the indicia of undisclosed means indicative of a lifestyle inconsistent with the level of income asserted.
Whilst not conclusive of anything, it is also the fact that Justice Lawrie in her 2006 judgment sought to have the ATO investigate the parties. Whatever the outcome of that, it would have been naive for the parties in general and the wife in particular not to have contemplated the possibility at any time in the last two years that the ATO might be probing into the business activities of S Pty Ltd.
Whilst, as the husband suggested, that does not mean that the wife could not and would not have engaged in deception or dishonesty, common sense suggests that this would have militated against rather than in favour of that happening.
Objectively, the only basis upon which the husband’s challenges to the reliability of the wife’s financial information might succeed, given his failure in cross-examination to provide a rational basis for the Court making any of the findings needed by him, is by reference to Mr B’s evidence and it is to that evidence which the Court now turns.
Mr B did not audit S Pty Ltd. He was not required to by the Court’s orders. Nor did anything which emerged during the course of his investigation provide a rational basis upon which he might have sought to do so, assuming, which it cannot, that he would have been paid for doing so.
As noted earlier, Mr B identified the anomalies with respect to the treatment of accrued director’s fees totalling $148 264, monies paid to the husband, suggested by Mr B to total $95 000 of which at least $85 000 has been conceded by the husband, and their possible implications. The Court has earlier referred to Mr B’s oral evidence in relation to those matters.
Mr B’s evidence reveals vigilance in relation to the valuation of S Pty Ltd which is unsurprising given the “qualifications” to his report, which included his awareness of the “various assertions” made by the husband to him during the course of his preparation of the report. Mr B was clearly, as his oral evidence revealed, aware of the areas in which the husband asserted that the records of S Pty Ltd were inaccurate. In the course of his valuation, Mr B reviewed, accurately there is no doubt, the background and nature of S Pty Ltd’s business, its ownership and control.
Although the husband asserts that there was another basis, described by him as “value to the owner”, pursuant to which Mr B could and should have valued S Pty Ltd, nothing to which the husband has referred this Court suggests that Mr B’s methodology was other than acceptable and consistent with the principles which have long been recognised in this and other courts which entertain valuation disputes.
To the extent that there is a distinction between market value and value to the owner, the Court would understand the distinction in practical terms to relate more to minority interests in an entity than to a case such as this. Where there is a minority interest which the evidence does not suggest is likely to be realised, or sought to be realised, there is arguably a degree of unreality in discounting simply because the interest is a minority interest. In those circumstances, the value to the owner is arguably the value of the interest as determined without discounting because of the difficulties associated with realising a minority interest in the market place.
That scenario however does not arise in this case. Mr B, properly in the Court’s view, was not considering minority interests, and valued the business as a whole, and determined its hypothetical valuation by reference to a reasonably willing but not anxious vendor and purchaser situation (see Spencer v Commonwealth (1907) 5 CLR 418; (1907) 14 ALR 253). He did not in any way discount the value of the business in reliance upon any restrictions or limitations in that hypothetical situation.
On the facts of this case, the Court does not perceive that Mr B failed to determine the value of the business to the owner. As suggested to the husband during the trial, the valuation of S Pty Ltd was not the be all and end all of matters given that, in the context of s 75(2), the Court would have to consider the reality that, if she retains the business, as she will, the wife will have the benefit of an established and comparatively secure income stream with ancillary benefits.
Mr B proceeded in his report to apply a capitalisation rate to the future maintainable earnings which he determined by reference to the accounts of S Pty Ltd. Nothing raised by the husband provides a rational basis for concluding that any of Mr B’s calculations, or the basis for them, was erroneous.
The husband appeared to labour under the misapprehension that the nil value determined by Mr B for the shares in S Pty Ltd meant that the business was considered to be worth nothing. That assertion is demonstrably incorrect. Whilst, for reasons which he detailed, Mr B did not find there to be goodwill, he did not conclude that the business was worthless. For reasons which he detailed, Mr B determined the value of future maintainable earnings at $105 000. As Mr B noted, the adjusted net tangible business assets of S Pty Ltd approximated $146 004. As that sum exceeded the capitalised value there was accordingly “no goodwill inherent in the capitalised value in which case it is appropriate to value the company on the basis of its net assets at 30 June 2008”. As “goodwill” is “really the value of the business as a going concern after allowing for the tangible assets” (emphasis added) (Murray, Principles and Practice of Valuation, 5th ed., page 355) that approach was not erroneous in principle.
Mr B’s oral evidence left little room for doubt that he had some misgivings about the reliability of the financial records of S Pty Ltd given his conclusion that it was “highly unusual that the net profits in real terms did not increase by more than they did” between 2001 and 2008. Mr B reiterated that the effect of that circumstance was that goodwill determined by him to be worth $220 000 in October 2001 had been “lost”.
The husband put a series of suggestions to Mr B in relation to how these things could have occurred. Mr B responded that he had found “no evidence that any of the things” asserted by the husband to have been attempted by the wife to reduce the value of the business had accurred. The husband pressed Mr B to agree that he was “suspicious” about the situation. Mr B however would not go beyond the evidence he had given. Although Mr B rejected the word, to say that his evidence revealed that he was “suspicious” about the reliability of S Pty Ltd’s financial records would be an accurate summary of the thrust of his evidence.
Objectively, this Court must proceed on the balance of probabilities. So doing, suspicion cannot be elevated to the status of proof. This is particularly so as there are innocent explanations, some of which Mr B referred to.
It may be that the wife is not a particularly skilful manager. That however is not the test for present purposes. Even if, as some of the authorities suggest, the bar is set low, the evidence here does not establish wilful or reckless stewardship of S Pty Ltd by the wife.
As noted earlier, the evidence does not establish dishonesty or deception on the part of the wife. It may be that the wife has kept on too many employees. Each of the three employees who gave evidence at trial have been in the employ of S Pty Ltd for a long time. It may be that the wife has failed to take up business opportunities or to otherwise seek to expand the business. The evidence does not establish that, if she has, the wife has been reckless or wanton or deliberate in that respect. Moreover, although the husband would not accept that it could be so, it cannot be assumed that having undertaken business opportunities which arose would necessarily have proved successful. The husband would have no doubt been quick to complain had the wife taken steps to promote S Pty Ltd’s business which failed and compromised the business.
Although the husband complained about the figures, nothing raised with Mr B causes the Court disquiet in relation to the figures to which Mr B had regard or his adjustments to them.
Contributions
As noted earlier, the contribution based entitlements of the parties can be viewed by reference to the three periods earlier identified.
Although the evidence is, sensibly, scant at this time, it is reasonably clear that the parties brought no assets of substance to the cohabitation and in various ways, financial and non-financial, direct and indirect, and as homemakers and parents, made substantial contributions to the acquisition, conservation and improvement of their only significant property at the time the marital relationship ended.
Similar observations apply in the second period during which the parties had a financial relationship. During the second period of contributions, the parties both worked in and for P Business. The parties reflected their own efforts in that enterprise as being equal, by virtue of their equal shareholding in S Pty Ltd, by their being the two directors of S Pty Ltd, and by their approximately equal drawings from S Pty Ltd.
The evidence does not provide a rational basis for finding that either party worked harder or more successfully in and for S Pty Ltd than did the other. The evidence is sufficiently vague with respect to the period from 1989 to 2002 to preclude the Court from safely making findings with respect to homemaking and parenting of the parties’ child who, it will be remembered, was approximately 12 months old when the parties separated.
Albeit perhaps somewhat generous to the husband, to regard the parties as equally entitled to S Pty Ltd in March 2002, the date when the parties ceased to make joint contributions, would be a reasonable reflection of what the evidence suggests. Had the parties’ entitlements been determined to be approximately equal at that time, by reference to Mr B’s October 2001 valuation, some quantification of the interests of the parties in S Pty Ltd can be gleaned.
Treating the parties as equally entitled to their interests in S Pty Ltd worth $174 490, each party was entitled to $87 245. The husband’s actual interests at the time, according to the company’s records, the accuracy of which at that time the husband cannot be heard to contend were other than reasonably accurate, was $70 348.
As is not in doubt, the husband received at least $85 000 from S Pty Ltd between March 2002 and October 2003. Had the husband received funds of that magnitude without qualification, it could be asserted that he in fact received the entirety of his one half entitlement to the parties’ interest in S Pty Ltd as at the time he ceased to have any involvement in the day-to-day running of S Pty Ltd. The husband would have thus received approximately $15 000 more than his legal interest in S Pty Ltd. However, the wife would have been able to utilise income generated by S Pty Ltd after March 2002 to satisfy that entitlement.
Whilst there is force in the contention of Counsel for the wife that, in the post March 2002 period the parties’ contributions should be assessed on the basis that the parties continued thereafter, as had been the case since 1989, not to be in a marital relationship, the Court concludes that the husband’s primary obligation to care for the child until he attained 18 years of age in 2006, a period of approximately four years, is a factor to be taken into account in his favour. Despite the husband’s assertions, the evidence does not establish that the wife failed to provide adequate financial support for the child during this period.
Subsequent to March 2002, the husband has made no contribution to the day-to-day running of S Pty Ltd of a direct nature. Having, by October 2003, received approximately half the value of the parties’ interests in S Pty Ltd, the husband cannot complain that he has made an indirect contribution by virtue of his interest in S Pty Ltd remaining unavailable to him. On the contrary, and albeit probably purely by coincidence, the evidence reveals that within approximately 18 months of his ceasing to have any involvement in the day-to-day running of P Business, the husband received more than the value of his legal interest in the entities through which P Business was conducted, being half the value of those interests.
The husband’s evidence suggests that he has not seriously pursued appropriate gainful employment between March 2002 and the middle of 2006. Since the middle of 2006, on his own evidence, the husband has not pursued any employment opportunities.
It is difficult to know what to make of the husband’s failure to seek employment. The husband claimed that he had applied for “hundreds” of jobs but produced nothing to corroborate his assertions. His willingness to be a “kept man” as he conceded he was, combined with his concessions during cross-examination, suggest that the husband was not anxious to have employment of any significant or remunerative kind after March 2002, whether that be out of some misconception that so doing would reduce his chances of being awarded P Business in these proceedings or for some less apparent reason. Whatever the reality, the husband’s own evidence establishes that whatever financial misfortunes he currently labours under have been in no small measure the result of his own failure to genuinely seek to obtain appropriate gainful employment since March 2002.
The husband’s failure to seek to obtain appropriate employment over 6½ years does not sit well with his statement during the trial to the effect that “once this case is over I will have something attractive to offer to investors to start up again in the business”. In context, the husband appeared to be suggesting that once the case was over, were he not to be awarded P Business, he would be able to commence a similar business utilising the skills which he claims to have in that industry.
The husband’s concluding statement that he sought to acquire the wife’s interest in P Business for $500 000, payable within twelve months, also reinforced the impression that, pursuant to some perceived advantage in so doing, the husband has not genuinely sought to support himself during the post separation period.
As is not in doubt, and Mr B’s evidence confirms, P Business is a “hands on” trading enterprise. There can be no suggestion that the Business runs itself. The evidence of the wife, which the Court accepts and which Mr B does not seriously dispute, is that she works long hours, whether it be an average of 75 – 80 hours per week as the wife claims or somewhat less as Mr B suggests.
The evidence does not establish a lack of reasonable diligence and skill on the part of the wife in running P Business from March 2002 to the present time. Nor does it establish any particular skill or ability, whether of a “special contribution” nature or otherwise. The evidence does not establish, as Mr B confirmed, that the wife has been overly remunerated for what she has done in the Business since March 2002. Nor has she been under remunerated even though she has not received the director’s fees accrued to her in the company books.
Although not so expressed, the husband’s case is in reality that, notwithstanding that he was doing nothing in and for the Business over the past 6½ years, or genuinely seeking to otherwise support himself, he had an entitlement to receive $1000 per week right up until the present time, and that such monies should be payable to him. Part of the husband’s own application confirms that to be the husband’s view.
As between the husband and wife, P Business continues to exist solely because of the wife’s efforts. Since 2002, the husband has done nothing in or for the business. Whilst, as the husband asserts, Mr B appears to suspect, although he would not adopt that term, that the business could be more profitable than it has been under the wife’s stewardship since March 2002, the evidence does not establish that its failure to be more profitable is referrable to negligence, recklessness, dereliction of duty or other demonstrable absence of reasonable skill and diligence on the part of the wife.
In the circumstances as revealed by the evidence, it can be asked rhetorically on what basis referrable to contributions should the husband receive more than he already has with respect to his interest in S Pty Ltd. It is difficult to suggest on what basis the husband should receive more than he already has. Implicit in that statement is the recognition that the husband received and retained the benefit of $85 000 by October 2003.
It might be noted that the husband has not adequately explained how he has utilised those funds. There is no suggestion that they currently exist, but given the husband’s failure to make reasonable efforts to support himself since March 2002, and complete absence of effort to support himself in the past two years, the apparent disposal of those funds ought not impact to the wife’s detriment.
On the evidence before the Court, the wife’s contributions with respect to S Pty Ltd since March 2002 totally outweigh those of the husband, after making all due allowance for his greater contributions as homemaker and parent for four years after the parties separated. The totality of that evidence would not in this Court’s view establish a contribution based entitlement on the part of the husband to anything more than the sum of $85 000 which he has previously received and had the use and enjoyment of. The complicating factor is that the $85 000 was received over a period, and in circumstances which enabled the wife to fund its payment out of income and/or resources of S Pty Ltd. Although the wife worked for S Pty Ltd over that period, and the husband did not, it is simplistic to some extent to simply regard the husband as having been paid $85 000 by the wife for his interest in S Pty Ltd.
So far as the parties’ superannuation interests are concerned, the evidence does not suggest a basis upon which the husband has, or could have had superannuation contributions made on his behalf since March 2002. The wife’s entitlement to superannuation over that period appears to have increased in response to superannuation contributions paid by S Pty Ltd on her behalf. To what extent the wife has made contributions of her own is not clear. To the extent that S Pty Ltd has made superannuation contributions for the wife and other employees that has been no doubt in accordance with the legislation from time to time obliging employers to make superannuation contributions on behalf of employees and has been a legitimate tax deduction by S Pty Ltd.
Whilst the wife’s superannuation entitlement greatly exceeds that of the husband, the Court is not persuaded by the evidence that the parties’ contributions over the three periods to which reference has been made should result in any alteration in favour of the husband of the parties’ interest in superannuation. As no splitting order has been sought by the husband, the only way in which superannuation could impact in this case is pursuant to Section 75(2). The Court proposes thus having regard to the respective superannuation positions of the parties in the context of s 75(2).
Section 75(2)
It is not entirely clear what the husband claims in relation to s 75(2), save that he asserts, with some justification, that the wife has the benefit through S Pty Ltd, whatever its value, of secure and remunerative employment.
Other than superannuation, that is the only s 75(2) factor which could impact upon the outcome of the proceedings before the Court.
Whilst the wife undoubtedly has secure employment which Mr B’s evidence suggests provides appropriate and not insignificant income, for which she must work long hours and accept the responsibilities of management, that must be looked at in the context of the husband’s evidence at trial.
As noted earlier, there is a curious dichotomy in that respect. The husband claimed, without substantiation, that he had applied for “hundreds” of jobs between March 2002 and mid 2006. For reasons which are not apparent, other than those discussed earlier, the husband has, in his own evidence, made no attempt to obtain employment of any kind since mid 2006.
Just what the husband’s capacity for employment might be is unclear. That lack of clarity is referrable to the unsatisfactory evidence which the husband has presented to this Court. The position appears, on the husband’s own evidence, to be that he has been content to be a “kept man” as he readily agreed he had since at least the middle of 2006. With due respect to the husband, his assertion that he will have “something attractive” to offer an investor to fund him in another business when this case is over appears unsupported by any evidence to which this Court has been referred.
On balance, to adjust in the husband’s favour by reference to any possible disparity of earning ability would, on the evidence before this Court, be quite unfair to the wife given that, if there be a genuine disparity between the earning abilities of the parties, that would be because one party has applied herself diligently since March 2002 whilst the other has elected not to.
As noted earlier, the husband cohabits with Ms R who earns about $70 000 per annum and “keeps” the husband.
Sensibly, and consistently with the stance he has adopted on behalf of the wife, learned Counsel did not suggest that any aspect of the husband’s cohabitation with Ms R should assume significance pursuant to s 75(2). Having separated almost two decades ago, unless either party was living in very affluent circumstances, which the evidence does not suggest, to have regard to the circumstances of the parties’ current cohabitation would be difficult to justify.
The husband contended in submissions, but not at any time when Mr G was in the witness box and able to be confronted with these allegations, that Mr G and the wife were cohabiting or otherwise in a financial relationship which constituted a relevant financial resource on the part of the wife.
The wife denied that she lives or has ever lived with Mr G. There is no evidence that the wife does live with Mr G or ever has, or will. On the other hand, Mr G has what could best be described on the evidence as a “debt of honour” owing by the wife. The timeframe within which that debt will be repaid, if it is ever repaid, is unknown and clearly of no particular concern to Mr G.
The probabilities are that Mr G will advance further monies to the wife on terms which are commercially favourable to her. Mr G reiterated his expectation that he will be repaid the monies which he is owed. There is no reason not to accept that evidence.
Objectively, to regard Mr G as a financial resource of the wife from which the husband should benefit, to the extent that he might be, almost two decades after the parties separated, would not be realistic or fair.
Whilst making mention of Mr G, it can be recorded that the husband’s assertions that Mr G and the wife have in some way conspired to defeat his claims is not supported by any evidence to which the Court has been referred. Interestingly, as at October 2001, some months before the parties terminated their joint stewardship of S Pty Ltd’s business, Mr G was owed $29 817. That was subsequently repaid. There is no basis for rejecting the interest recorded as being referrable to that sum and Mr B did not do so in his determination of the current valuation of the parties’ interests in S Pty Ltd.
The Court does not propose adjusting in the husband’s favour by virtue of the comparative financial resource which Mr G might represent for the wife and/or Ms R might represent for the husband. To the extent that anything does or could turn on it, the evidence suggests that, albeit in different ways, Ms R is probably a greater financial resource to the husband than is Mr G to the wife.
The superannuation interests of the parties are quite disparate as the figures reveal. The husband can, with justification, complain that having not had the opportunity to be employed in S Pty Ltd’s business since March 2002 he has not had the opportunity to contribute to its superannuation fund or have employer contributions made on his behalf. That, however, arose by order of a Court which has never been disturbed. The reality is that the husband has not worked in S Pty Ltd since March 2002 whilst the wife has.
The husband’s unsatisfactory evidence with respect to his attempts to obtain employment over the past six years has significance in relation to how the wife’s greater superannuation entitlements should be viewed. If the husband had made reasonable attempts to obtain employment, he may well have a significantly greater entitlement to superannuation than is currently the case.
Where the disparity in superannuation entitlements has arisen over the period in which it has, and where the findings with respect to the period since March 2002 are as the Court has noted them, to adjust in favour of the husband by virtue of superannuation would not in the Court’s view be justified.
There being no other s 75(2) factor which could be enlivened, there will accordingly be no s 75(2) adjustment in the husband’s favour.
Section 79(2)
It is necessary to consider whether the division of the assets of the parties tentatively advanced earlier in these reasons is just and equitable. There is no doubt that the wife should receive the husband’s share in S Pty Ltd, and with it the business of P Business. The wife should be responsible for the probable ATO liability of $60 000 with respect to the accrued director’s fees to which Mr B referred, and Mr B’s fees of $27 000. Based upon the figures which the Court has relied upon, the wife would then have approximately $98 000 net. The husband should retain the benefit of the $85 000 which he has previously received. How the latter objective is achieved requires consideration.
Realistically, if the husband were to be visited with a taxation liability of between $20 000 and $36 000 with respect to the $85 000 which he has received, he would be receiving significantly less than his proper entitlement. The figures would accordingly be $185 126 less $87 000 in the case of the wife (exclusive of superannuation interests of $105 153) and either $65 000 or $49 000 (exclusive of superannuation interests of $20 840) in the case of the husband. Such an outcome would not be just and equitable, or consistent with the Court’s reasoning with respect to the contribution based entitlements of the parties.
However, were the wife to be visited with the totality of the husband’s income tax liability with respect to the monies which he has received, the husband would have little incentive to act promptly or diligently in relation to that issue, and might even be inclined to attempt to maximise the burden which would be visited upon the wife. If the liability amounts to, or exceeds, $36 000, the wife’s entitlement would be reduced to $62 000 after it was met. That would be unjust.
A number of possible scenarios suggest themselves.
Were the wife to indemnify the husband with respect to the primary tax estimated by Mr B to be $20 000 with respect to the $85 000 received by the husband, the wife would, after paying Mr B and the $60 000 estimated liability with respect to the write back of the accrued director’s fees in S Pty Ltd, have, exclusive of superannuation interest, approximately $78 000.
Were the husband to be responsible for any liability over and above that sum, which may be as little as zero and as much as $16 000, the husband would have received net between $69 000 and $85 000. If the husband received $85 000 net and the wife $78 000 net, that would be a just and equitable outcome given the wife’s greater financial resources. If the husband received only $69 000 and the wife $78 000 that would not be just or equitable.
Apart from the essential fairness of an approach in which the wife bore part only of the husband’s tax liability, and the husband the balance, it would provide a real incentive for the husband to seek to minimise the potential exposure over and above the amount for which the wife is to be potentially liable. Such an arrangement would in the Court’s view be a just and equitable approach to the matter. If the potential liability of the wife were increased to $25 000 the concerns raised earlier in these reasons would be addressed, or addressed as well as they could be.
On the foregoing basis, the husband would be required to transfer his shareholding in S Pty Ltd to the wife. The wife would be required to indemnify the husband with respect to his debit loan account in the company and the husband would be required to assign to the wife the benefit of his annual leave and long service leave entitlements totalling $10 706. On balance, the Court concludes such an outcome to be just and equitable and will so order.
I certify that the preceding one hundred and seventy two (172) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Coleman
Associate:
Date: 4 September 2008
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