DI SALVO & DI SALVO
[2009] FamCAFC 232
•18 December 2009
FAMILY COURT OF AUSTRALIA
| DI SALVO & DI SALVO | [2009] FamCAFC 232 |
| FAMILY LAW - APPEAL – PROPERTY – where the Federal Magistrate divided property in the proportions of 64 per cent to the wife and 36 per cent to the husband – whether there were errors in the calculation of the pool in relation to add-backs and in relation to the valuation of the husband’s building business, where there had been significant non-disclosure on the husband’s part – whether the Federal Magistrate’s orders were outside the range of a just and equitable distribution – whether the Federal Magistrate erred in making orders relating to the sale of the former matrimonial home – appeal allowed – Full Court re-determined property orders – property pool reduced – property divided as to 60 per cent to the wife and 40 per cent to the husband. FAMILY LAW - CROSS-APPEAL – PROPERTY – where the Federal Magistrate added back the husband’s legal fees to pool – where the wife’s solicitors made an error in the amount of legal fees to be added back to the pool – where the Federal Magistrate adopted this figure – cross-appeal dismissed. |
| Family Law Act 1975 (Cth) |
| CDJ v VAJ (1998) 197 CLR 172 Chorn & Hopkins (2004) FLC 93-204 J & J [2006] FamCA 951 M & M [1998] FamCA 42 Omacini & Omacini (2005) FLC 93-218 Weir & Weir (1993) FLC 92-338 |
| APPELLANT: | Mr Di Salvo |
| RESPONDENT: | Ms Di Salvo |
| FILE NUMBER: | BRC | 11458 | of | 2007 |
| APPEAL NUMBER: | NA | 99 | of | 2008 |
| DATE DELIVERED: | 18 December 2009 |
| PLACE DELIVERED: | Canberra |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | Bryant CJ, Finn and Jordan JJ |
| HEARING DATE: | 19 May 2009 |
| LOWER COURT JURISDICTION: | Federal Magistrates Court |
| LOWER COURT JUDGMENT DATE: | 7 October 2008 |
| LOWER COURT MNC: | [2008] FMCAfam 1086 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Kirk SC |
| SOLICITOR FOR THE APPELLANT: | HopgoodGanim Lawyers |
| COUNSEL FOR THE RESPONDENT: | Ms McDiarmid |
| SOLICITOR FOR THE RESPONDENT: | Anthony Black Family Law Services |
Orders
That the appeal against the orders made by Federal Magistrate Cassidy on 7 October 2008 (and subsequently amended on 9 October 2008 pursuant to rule 16.05(2)(e) of the Federal Magistrates Court Rules 2001 (the slip rule)) be allowed, and those orders varied as follows:
to substitute in Order 1(b) the figure of $1,185,574.00 for the figure of $1,373,000.00 as “the settlement sum”;
to substitute in Order 4(b) the figure of $456,675.00 for the figure of $620,440.00 as the “net property of the husband”;
to substitute in Order 5 “60%” and “40%” for “64%” and “36%”;
to delete Order 5(b).
That the appellant’s application to adduce further evidence filed 5 May 2009 be dismissed.
That the cross-appeal against the orders made by Federal Magistrate Cassidy on 7 October 2008 (and subsequently amended on 9 October 2008 pursuant to rule 16.05(2)(e) of the Federal Magistrates Court Rules 2001 (the slip rule)) be dismissed.
That there be no order for costs in relation to the appeal or the cross-appeal.
(a) That the Court grants to the appellant husband a costs certificate pursuant to the provisions of s 9 of the Federal Proceedings (Costs) Act1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the appellant husband in respect of the costs incurred by the appellant husband in relation to the appeal.
(b) That the Court grants to the respondent wife a costs certificate pursuant to the provisions of s 6 of the Federal Proceedings (Costs) Act1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the respondent wife in respect of the costs incurred by the respondent wife in relation to the appeal.
IT IS NOTED that publication of this judgment under the pseudonym Di Salvo & Di Salvo is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT BRISBANE |
Appeal Number: NA 99 of 2008
File Number: BRC 11458 of 2007
| Mr Di Salvo |
Appellant
And
| Ms Di Salvo |
Respondent
REASONS FOR JUDGMENT
Introduction
This is an appeal by the husband, Mr Di Salvo, and a cross-appeal by the wife, Ms Di Salvo, against orders for property settlement and interim spousal maintenance made by Cassidy FM on 7 October 2008 in proceedings between the parties. The orders were subsequently amended on 9 October 2008 pursuant to rule 16.05(2)(e) of the Federal Magistrates Court Rules 2001 (the slip rule).
The effect of the orders was to divide property which the Federal Magistrate found to have a net value of $2,230,936.23 in the proportions of 64 per cent to the wife ($1,427,799.19) and 36 per cent to the husband ($803,137.05). That division was arrived at on the basis of an assessment of equality of contributions under s 79(4)(a), (b) and (c) of the Family Law Act 1975 (Cth) (“the Act”), with an adjustment of 14 per cent in favour of the wife on account of the matters referred to in s 75(2) of the Act.
Apart from the general complaint that the Federal Magistrate’s orders “fell outside the range of a just and equitable distribution of the property pool”, the husband’s appeal is, in summary, directed to her Honour’s calculation of that pool, to her 14 per cent adjustment in favour of the wife on account of the s 75(2) matters, and to the provisions of her orders concerning the sale of the former matrimonial home.
Her Honour also continued an interim order for spousal maintenance of $500 per week in favour of the wife, with such maintenance to cease when the wife receives payment from the husband or from the sale of the matrimonial home, pursuant to her Honour’s property settlement orders. Although it is stated in the husband’s notice of appeal that the interim maintenance order (Order 19) is appealed, no ground of appeal was expressly addressed to that order, nor were any submissions directed to it by senior counsel for the husband.
The wife’s cross-appeal is directed to an asserted error on her Honour’s part in relation to the amount of legal fees paid by the husband.
Factual background in summary
By way of background, it need only be said at this point, that the husband (born in 1959) and the wife (born in 1957) were married in December 1980 and separated in May 2007, with two short separations during the course of the marriage. The parties had two children, a daughter, born in November 1989 and a son, born in August 1991. Both children currently live with the wife.
Since the marriage the husband has worked in the construction industry, starting his own company, D Company, in 1984. The wife is qualified as a teacher, but has not worked at least to any significant extent outside the home since the birth of the children. It is apparently common ground that since about 1990 the wife has suffered from a disorder which has required psychiatric treatment. During the course of their marriage the parties bought, renovated, and sold a number of residential properties.
Proceedings for property settlement were instituted by the wife on 28 September 2007 and heard by Cassidy FM on 4, 5 and 6 August 2008. After receiving final submissions on 14 August 2008, her Honour delivered reasons for judgment and made the orders now appealed on 7 October 2008.
Issues relating to the value of the property
Before considering the various complaints raised by the appeal and the cross‑appeal in relation to her Honour’s calculation of the value of the parties’ property, we will set out the schedules of assets and liabilities ultimately arrived at by her Honour either on the basis of the parties’ agreement, or by her Honour’s determination in relation to disputed issues. The schedules are to be found in paragraph 80 of her reasons for judgment:
Schedule of Assets:
Asset
Ownership
Value
2001 … motor vehicle
Husband
$2,500.00
Real Property:
31 [B Street]
Wife
$2,050,000.00
[Lot 2, G Street]
Husband
$390,000.00
Furniture and personal effects:
Furniture – wife’s possession
Joint
$15,360.00
Furniture – husband’s possession
Joint
$4,620.00
Artwork – wife’s possession
Joint
$14,000.00
Cash and bank accounts:
NAB joint flexi account
Joint
$46.00
Westpac Choice account …
Husband
$166.00
Westpac Business … account …
[D Company]
Nil
Bank of Queensland account …
Husband
$13.00
NAB … account
Husband
$382.00
Bank of Queensland account …
Wife
$103.00
Superannuation:
Westpac Simple Super
Husband
$8,891.00
Westpac Simple Super
Wife
$5,644.00
…Super
Wife
$5,591.00
Business:
[D Company]
Joint (but total control exercised by Husband)
Unable to be valued
Shareholdings:
Tabcorp
Husband
$134.00
Lend Lease
Husband
$1,362.00
MLC Policies:
MLC Whole of Life Insurance (termination benefit)
Husband
$18,135.00
MLC Whole of Life Insurance (surrender value)
Wife
$15,120.00
MLC Whole of Life Insurance (surrender value)
Joint
$8,735.00
Other:
Rental bond
Wife
$2,820.00
Deposit on motor vehicle (funded through [I] Capital)
Wife
$5,000.00
Jet ski
Husband
NIL
Add-backs:
Partial property settlement payment
Wife
$20,000.00
Legal fees paid by Wife using increase in [B Street property] mortgage funds
Wife
$40,000.00
Legal fees paid by husband
Husband
$209,012.00
Monies expended by Husband from cashing in and closing [his daughter’s] MLC trust fund
Husband
$9,635.82
Monies expended by Husband from cashing in and closing [his son’s] MLC trust fund
Husband
$9,635.82
Total Assets
$2,836,905.64
Liabilities
Ownership
Balance
NAB Visa Gold
Husband
$400.00
NAB Gold Rewards Visa
Husband
$3,262.00
Westpac … credit card
Husband
$8,344.10
David Jones credit card
Wife
$5,194.00
National Australia Bank Flexi-Plus Mortgage over [B Street] property
Husband
$494,232.00
Loan from MLC
Wife
$14,148.00
Payment of [Dr C’s] report
Joint
$3,170.00
Loan from wife’s parents
Wife
$20,000.00
[I] Capital – legal assessment fee for litigation funding
Wife
$4,750.00
Interest payable by wife on account of the terms of the litigation funding arrangements
Wife
$2,623.30
Monies advanced to the wife for living expenses and deposit on motor vehicle by [I] Capital
Wife
$25,000.00
Contingent Liabilities:
[Lot 2, G Street] – anticipated costs of sale
Husband
$24,846.00
Total Liabilities:
$605,969.40
Net assets:
$2,230,936.24
The items in the above schedules which are the subject of challenge by the husband in his appeal are:
·the value of the husband’s business, D Company (Ground 1.1);
·the liabilities of the wife constituted by the loans from MLC, her parents, and I Capital (Grounds 1.2 and 1.3);
·the “add back” of the monies expended by the husband in closing the children’s trusts (Ground 1.6).
In addition the husband asserts that the value of certain Lend Lease shares which had been transferred by the husband to the wife in June 2008 should have been “added back” into the pool (Ground 1.4) and that a contingent tax liability in respect of the sale of the G Street property should have been taken into account (Grounds 1.7 and 1.8). A further ground which was directed to her Honour’s refusal to add back a liability of $250,000 to National Australia Bank (Ground 1.5) would not, as we understood it, be pressed in the event that the ground directed to the value of the husband’s business was to succeed.
By the sole ground of her cross-appeal the wife asserts that the “add back” of the legal fees for the husband should have been $235,775.57 rather than the figure of $209,012 which appears in the above schedules.
It will be convenient to dispose first of the cross-appeal.
The cross-appeal: the husband’s legal fees
The situation in relation to the husband’s legal fees was as follows. The husband had conceded before the Federal Magistrate that a figure of $190,087 should be added back on account of his legal fees for family law proceedings. The wife sought that a higher amount which included legal fees spent by him on domestic violence proceedings should be added back; that higher amount as finally put to her Honour during the trial was $235,775.57.
In her reasons for judgment at paragraph 72 her Honour determined that the higher figure should be added back. However, it appears that in the first version of her reasons for judgment, her Honour did not include in the schedule of assets and liabilities any item or amount for the husband’s legal fees.
Following the delivery of her reasons, the solicitors for the wife wrote to her Honour’s Associate pointing out the omission and requesting that an amount of $209,012 be included on account of the husband’s legal fees and that her Honour’s calculations then be amended to take account of that figure. Her Honour then published amended reasons for judgment which included the figure requested by the wife’s solicitors of $209,012 in the schedule of assets and liabilities and which also included a consequent amendment to her calculations. A “slip rule” order was issued to take account of the amended calculations.
As we indicated to the wife’s counsel during the hearing of the appeal, the wife cannot now complain that her Honour erred in using the figure of $209,012 because it was the figure provided to her Honour by the wife’s solicitors. The cross-appeal must therefore be dismissed.
We turn now to the matters raised by the husband’s appeal in relation to the property pool.
Appeal Ground 1.1: the valuation of the parties’ business, D Company, and the husband’s application to adduce further evidence
By Ground 1.1, the husband asserts that the Federal Magistrate erred in finding that there had been deliberate non-disclosure by the husband and also erred in attributing no value to D Company.
Her Honour began her consideration of the value of D Company by explaining each party’s case in relation to that matter in the following way (emphasis added):
18.The husband seeks to include the value of the business at minus $264,494.00. The wife submits I should include the value of the business at nil because the husband has failed to disclose source documents to enable the valuer, [Mr H], to properly value the business. In the alternative she submits that the value should be as per her schedule of assets at minus $144,494.00.
She then explained that it was the husband’s evidence that much of the business of D Company is done without written contracts (which, she noted, was potentially in breach of the Domestic Building Contracts Act 2000 (Qld)).
Her Honour then stated (at paragraph 21) that the husband had “disclosed limited source documents in relation to current building projects”. She then referred to an affidavit (filed 20 June 2008) from the wife’s solicitor in which the solicitor stated that from “the limited trade receipts disclosed by the husband” she had been able to ascertain that the husband and D Company had work on foot at the following sites:
·[37 M Street]
·[33 M Street]
·[Y Street]
·[A Street]
·[62-64 H Road]
·[49 K Road]
·[15a C Road]
·[E Street]
Her Honour then set out the paragraph from the solicitor’s affidavit which immediately followed the solicitor’s identification of the above-mentioned sites:
8.The respondent husband has disclosed a building contract for only one of the eight construction jobs detailed above for the work at [49 K Road]. For four of the eight jobs detailed above he has disclosed no documents whatsoever indicating the terms of the agreement with the client or requests for progress payments and the like.
Her Honour then recorded that the husband (through his solicitors in a letter dated 24 June 2008) “says he has never held any documents evidencing the terms of a contract for:
· [15a C Road]
· [37 M Street]
· [33 M Street].”
Immediately thereafter (in paragraph 24 of her reasons) her Honour made a finding “that written contracts did exist for the first three of these building projects and they were not disclosed to the wife”.
Her Honour then provided her reasons for this finding, saying:
25.I make this finding because [of] the following documents disclosed by the husband contained in Exhibit 16:
·[15a C Road] Progress claim No 3 (11.1.08)
· [37 M Street] NAB payment advice (19.6.08)
· [33 M Street] Letter from [D Company] to Mr and Mrs [R] (15.9.07), Progress Claim No 5 (19.12.07)
26.These documents are consistent with progress payments made under a written contract. It defies logic that [the husband] would not set down in writing the obligations of the contracting parties. He is required to do so by legislation. The contract would enable him to make progress claims consistent with the above documents. His evidence that there are no written contracts is not consistent with the above documents.
27.Furthermore, in relation to [15a C Road] and [33 M Street], [the husband’s] accountant sent an email to National Australia Bank (13 December 2007) … copied to [the husband] (Exhibit 12):
Current Building Work
[33 M St] – [The husband] will finish a $380K renovation before Christmas 2007. $280K has been claimed with the balance $100K due in January 2008
[62 H Road] – Work has started 3 weeks ago on the construction of a new house at a contract value of $1148849 for [B]. 50K has been paid and progress claim 2 for $82723 is due 21 December 2007
[15a C Road] – Work has started on a renovation 2 weeks ago for [AM] at a contract value of $356598. An amount of $35659 has been paid and the next progress claim of $30407 is due 14 December 2007
[4 Y Street] – [The husband] has billed [RM] $62062 for project management fees to design and get approval for the construction of a new residence. When plans have been approved construction will commence in March/April 2008. The estimated contract price is $2010500
[A Street] – [The husband] is doing a similar project management contract for this project for approximate $60K. When approved construction should start mid 2008. The estimated contract price is $3M
There appears to be no slowdown in building activity or in new enquiries so the next year plus looks to be a productive time
We estimate that the profit on the above contracts will be approx 10-15% on the contract price and will work with [the husband] to ensure that these figures are achievable
The cash flow going forward would support a housing loan for $800K as well as his current loan and overdraft facilities
28.This document suggests the work on [33 M Street], and [15a C Road], was well advanced on 13 December 2007 and the progress payments defined. This is consistent with a written contract.
At this point in her reasons her Honour can be seen as moving to consider the position in relation to other building projects being undertaken by the husband or D Company (that is, other than the three projects for which she had found that there were written contracts, being 15a C Road and 33 and 37 M Street):
29.[A Street], was a $3million project according to [the husband] (Transcript page 57 (14.08.08)). The only document produced for that project is a tax invoice relating to [A Street] (Ms [Y’s] affidavit Exhibit 17, Annexure C). The invoice, dated 28 January 2008, was to
Strip and palletise terra cotta roof in [Y Street] and transport to [A Street] - $1,200.00 - 10.00%
30.[The husband] says in answer to a question from Ms McDiarmid
I’ve just told you, last Friday I lost a $3,000,000.00 project, the [A Street] project. Do you understand that?
31.I have difficulty accepting there were no other source documents relating to this $3million project.
32.[The husband’s] evidence is that [Y] Street did not go ahead for $2,010,500.00. The current value of the project is $1.4million. He has performed some work but has not provided any source documents in relation to these payments at [Y] Street.
33.In the subpoenaed National Australia Bank documents (Exhibit 12) there were source documents relating to building projects that the husband has not provided to the wife. These documents were:
a. Fax 26.05.07 re 48 [K Road]
b. Fax 24.05.07 re 15 [H Street]
c. Letter 18.09.07 re 4 [Y Street]
d. Letter 22.09.07 re 4 [Y Street]
e. No 9 Progress Claim 1.06.08 re 15a [C Road]
34.The expert, Mr [H], sought a meeting with [the husband].
[The husband] refused to meet with him until after the trial dates.
His reason was he was busy running a business.
Her Honour then returned to the issue of the value of D Company, saying:
35.The wife’s counsel submits (page 3) I should value the company at nil because
a. [Mr H’s] report comes after a history of non-disclosure and non-cooperation and he is not satisfied he has been properly appraised of all the creditors and debtors.
b. The husband has failed to disclose information in relation to building contracts.
c. The budget [the husband] put to the National Australia Bank for 2008-09 puts the company in a very positive position.
d. The husband has deliberately concealed the true value of the company.
36.The husband’s counsel submits (page 48) that the wife has wholly failed to establish that there has been any deliberate non-disclosure of property.
37.I do not accept [that] submission. I find that the husband has failed to disclose source documents including building contracts and progress payments in relation to his building projects that would have assisted [Mr H] to value the company.
Then having set out the principles contained in the Full Court decision of Weir & Weir (1993) FLC 92-338 (as stated in the headnote to the Family Law Cases reports), her Honour concluded:
39.[The husband] had a duty to disclose from 20 June 2008 pursuant to the Consent Order:
9. That the husband continue to provide the wife through her solicitors on the 25th day of each month following all updated bank statements and other financial documents received in connection with [D Company] including without limitation MYOB records, source documents, copies of income and expenditure statements, updated balance sheets and business activity statements, employee and wage records of the company and copies of all building contracts entered into by [D Company].
40.In particular financial source documents had to be disclosed. This duty predated this order because in property proceedings a party must make full disclosure of his or her financial affairs. The order is restating that requirement.
41.I am satisfied that [the husband] did not [make full disclosure of his financial affairs] in that he did not provide source documents in relation to his building projects in particular building contracts and progress payment invoices.
42.I am satisfied the failure to disclose was deliberate because there was extensive correspondence seeking disclosure (Exhibit 16). There was an affidavit filed by the wife’s solicitor setting out the deficiencies in disclosure (Exhibit 17) and there was a Consent Order that ordered the husband to provide source documents. This is something the husband ought to have done already in the matter. I am fortified in this conclusion that the husband’s non-disclosure was deliberate in noting the husband refused to meet with the expert [Mr H].
43.I am therefore satisfied it is appropriate in this case to place no value on the company [D Company] because I am not satisfied [Mr H] had sufficient source documents in particular the building contracts and the progress payment documents to accurately value the company.
44.As a consequence the finding I have made in relation to D Company I do not need to further consider Mr [W’s] submissions in relation to the defects in Mr [H’s] report.
In seeking to establish that the Federal Magistrate had erred in finding that there had been deliberate non-disclosure by the husband and in attributing no value to D Company, senior counsel for the husband first challenged her Honour’s findings (in paragraph 24 of her reasons) that written contracts did exist for 15a C Road and for 33 and 37 M Street and that they were not disclosed to the wife. In support of this challenge an application was made on behalf of the appellant husband that he be permitted to adduce further evidence, being affidavits from the registered proprietors of 33 and 37 M Street and from the occupant of 15a C Road. Both deponents claimed that D Company had carried out building work on their respective properties and that there had been no written contract for that work. The purpose of this further evidence was to establish that her Honour was in error in finding that written contracts did exist for the work done on the three properties in question.
The application to adduce this further evidence was opposed on behalf of the respondent wife. However, her position was that in the event that the further evidence was admitted, she would want to cross-examine in relation to it. Having heard submissions in support of, and in opposition to, the further evidence application, we reserved our decision on it.
Ultimately, we have determined that we should not receive the further evidence sought to be adduced by the husband. This is because we agree with the submission of senior counsel for the husband made in support of Ground 1.1 that it cannot be said that any of the documents relating to the three properties in question listed by her Honour in paragraph 25 of her reasons “are consistent with progress payments made under a written contract” (as was said by her Honour in paragraph 26 of her reasons). The documents in question could well support a conclusion that there was in each case a contract, but not that such contract had been reduced to writing, that is, a written contract (which could be produced by the husband).
Thus we can be satisfied on the basis of the material relied upon by her Honour, that she was in error in finding that there were written contracts for the work done on 15a C Road and 33 and 37 M Street. There would, therefore, be no good purpose served by our admission of the further evidence (cf the observations of McHugh, Gummow and Callinan JJ in CDJ v VAJ (1998) 197 CLR 172 [109] and [113]). Accordingly, we propose to dismiss the husband’s application to adduce further evidence.
However, it does not necessarily follow that because her Honour was in error in concluding that written contracts did exist in relation to the work done on the three properties in question, that she was also in error in finding in paragraph 37 of her reasons that the husband had “failed to disclose source documents including building contracts and progress payments in relation to his building projects that would have assisted Mr [H] to value the company”, nor that she was in error in making a similar finding in paragraph 41. We acknowledge of course that the findings in paragraphs 37 and 41 must now be read against the background of our conclusion that it was not open to her Honour (at least on the evidence which she identified in paragraph 25 of her reasons) to conclude that there were written contracts for the C Road and M Street properties and that these written contracts had not been disclosed.
But if the issue of the existence or otherwise of written contracts is put to one side, there were other findings by her Honour which would support her conclusion of non-disclosure on the husband’s part. We refer here to her findings in paragraphs 31 and 32 of her reasons regarding a lack of source documentation in relation to the $3 million A Street project (albeit that project was not proceeded with) and to a project in Y Street valued at $1.4 million, and also to the findings in paragraph 33 regarding documents which the wife only obtained through a subpoena to a bank.
Also significant was her Honour’s finding in paragraph 34 that the husband had refused to meet with Mr H, who it must be explained was the wife’s expert, until after the trial. We note in this regard the submissions of senior counsel for the husband that the husband made his accountant available to assist Mr H. But we do not consider that this excuses the husband.
Nothing put to us on behalf of the husband has persuaded us that these findings in paragraphs 31, 32, 33 and 34 of her Honour’s reasons were not open to her; or that such findings could not support her finding of non-disclosure on the part of the husband. Similarly, we are not persuaded that it was not open to her Honour to conclude that such non-disclosure was deliberate given the existence of the consent order (referred to by her Honour in paragraphs 39 and 42 of her reasons) and the husband’s refusal to meet with the wife’s expert, Mr H.
Finally in relation to the finding of deliberate non-disclosure on the part of the husband, we draw attention to the following exchange during the cross-examination of the husband:
[COUNSEL FOR THE WIFE]: Do you want to look at what you said in your affidavit. Do you agree that that’s what you told the Court?--- What I told the Court and what you do in a commercial situation are two different things. (Transcript 14/08/08 page 16)
However, the real issue for determination in relation to Ground 1.1 is whether her Honour was in error in placing no value on the husband’s company, rather than a significant negative value, when calculating the value of the parties’ property.
The position in relation to the valuation of the company was, as we understand it, as follows. The accountant, Mr H, had been engaged on behalf of the wife to prepare a valuation of D Company. He prepared a report dated 28 July 2008, on the basis as stated in paragraph 1.7 of his report of “data contained in [D Company’s] internal MYOB accounting records [to 30 May 2008] and financial statements to 30 June 2007 prepared by [D Company’s] external accountant”.
[Mr H] concluded in his report that he was unable to value the business of the company, and thus the company, but provided the following explanations and observations:
1.8I have reviewed the MYOB data file containing transactions to 30 May 2008 and note that it appears to only contain entries which have passed through the company’s cheque account. A balance sheet produced from the MYOB data file does not contain many assets and liabilities which were contained on the company’s balance sheet at 30 June 2007 produced by the company’s external accountant. I have constructed a balance sheet as at 30 May 2008 from the information made available to me. I have based my determination of the current value of [D Company] on that constructed balance sheet.
…
2.2.1 I have not been able to determine the value of Work in Progress, Debtors or Creditors as at 30 May 2008 and are [sic] therefore unable to determine the value of the company. Adopting a minimum value of Work in Progress of $101,879 I have determined a value of the company of $(285,640), excluding Debtors and Creditors...
On 4 August 2008 (which was the first day of the hearing before the Federal Magistrate) the wife’s solicitors asked Mr H (by email) to prepare a short addendum to his report clarifying certain issues and seeking a revised valuation figure in light of additional information then recently received.
Mr H responded by letter the same day (4 August 2008). In that letter he stated that “…without reference to source documentation and details of all transactions I am unable to conclude that my determination of creditors and debtors at 30 May 2008 are correct”. He also said that if the value of the G Street property, and a mortgage over the former matrimonial home in B Street were excluded, the net asset value for the company would be $(144,494).
There is nothing in Mr H’s oral evidence (including cross-examination) which assists us in determining whether her Honour was in error in ultimately attributing a nil value to the company rather than at least accepting Mr H’s reduced negative value of $144,494.
In both his final written and oral submissions to the Federal Magistrate, counsel then appearing for the husband contended for a negative value for the company of $264,494. Exactly how this figure was arrived at is not clear, but it appears to have been arrived at on the basis of certain alleged errors in Mr H’s valuations.
Importantly, counsel for the wife in her final written submissions at trial conceded that “[t]he only reliable and acceptable evidence before the court as to the value of [the] company is that of Mr [H]…who valued it at $(144,954)”. However, counsel then proceeded to contend that the court should find the value of the company to be “nil”, and she then provided reasons why a nil valuation was appropriate. She repeated those reasons in her oral submissions. It is unnecessary for us to set out these arguments made on behalf of the wife for a nil valuation because they are adequately recorded in summary form by her Honour in paragraph 35 of her reasons, which we set out earlier.
We have also earlier set out paragraphs 39 to 45 of her Honour’s reasons where she concluded that it was appropriate as she said in paragraph 43 to place “no value” on D Company (although she used the expression “unable to be valued” when referring to D Company in her schedule of assets). The reasons for this conclusion can be seen to have essentially been that the husband had not disclosed sufficient source documents, particularly building contracts and progress payments, to enable Mr H to accurately value the company.
We are at a loss to understand why it was that the husband did not put his own expert valuation before her Honour; or why it was that his counsel at trial did not seek to have the then latest set of company accounts, being those to 30 June 2007, used as the basis of its valuation – this was an approach contended for before us by senior counsel for the husband, but who also properly conceded that it was now not open to the husband to seek to rely on the 2007 accounts.
We mention here that notwithstanding his criticisms of Mr H’s attempt to construct a set of accounts as at 30 May 2008 (that is, other than for a full financial year), senior counsel for the husband was prepared to have us substitute Mr H’s revised valuation of $(144,494) for her Honour’s nil valuation in the interests of avoiding a re-trial (should we find that her Honour erred in adopting the nil valuation).
Notwithstanding her Honour’s findings regarding the husband’s failure to disclose sufficient source documents to enable Mr H to prepare a comprehensive valuation – which were findings which could certainly justify a robust approach to the case – and notwithstanding our own concerns as to the manner in which the husband’s case in relation to the valuation of D Company was conducted at trial, we consider that her Honour was in error in failing to provide an explanation as to why she rejected Mr H’s revised valuation of $(144,494) and as to why she then adopted a “nil” valuation as opposed to any significant value in excess of the negative value of $144,494. This failure is of particular concern given the submission of counsel for the wife that the “only reliable and acceptable evidence” before the court of the value of the company was Mr H’s valuation of $(144,494). It is true, of course, that having made this submission, counsel for the wife then argued that the value should be nil, essentially because of the husband’s failure to disclose source documents. But a “nil” valuation is still a valuation, and it is a valuation which affects the overall value of the parties’ property. In this instance, the effect was to ignore apparently genuine liabilities of the company, in particular the $250,000 liability for the NAB market facility discussed further in paragraphs 53-55. It may well be that her Honour accepted that submission of counsel for the wife, reasoning that because of the husband’s failure to disclose source documents, it was impossible to put any value on the company, and that this would result in a nil valuation, which would, of course, have an impact on the overall value of the parties’ assets.
But however that may be, the nil valuation has an arbitrary quality in a situation in which there was another valuation available, being a valuation which counsel for the wife had described as “reliable and acceptable”. Mr H’s revised valuation was a valuation some $120,000 higher than the negative value of $264,494 contended for by the husband, and was thus available to be, in effect, used against the husband because of his non-disclosure. In our view her Honour needed to deal with the liabilities in some way especially as Mr H had taken account of them.
Accordingly, and notwithstanding her findings concerning the husband’s non-disclosure, we are not satisfied that it was open to her Honour to adopt a nil valuation, at least without far greater explanation, when Mr H’s valuation was available (albeit with some shortcomings due to the lack of source documents). Were we to re-determine this matter, we would substitute the negative value of $144,494 for the nil value as the value of D Company.
Appeal Ground 1.5: the $250,000 liability to NAB
A related matter to the valuation of D Company is the issue of a liability of $250,000 to the NAB which the husband sought should be taken into account as a liability of the parties in calculating the overall value of their property. Her Honour refused to do so on the basis, as she explained in paragraph 68 of her reasons, that it was the facility used by the husband to run his business, and had been taken into account in the valuation of the business by Mr H (but which her Honour did not accept). Her Honour further explained that she would not include this liability in the pool because it related to the valuation of the business.
Although the evidence regarding the liability is confused (the husband described it as a liability of D Company), there would appear to have been a good case for taking it into account as a liability of the parties as it appears to have been related to the costs of the G Street property project which was taken into account as an asset of the parties. However, it was the position of senior counsel before us that if he succeeded in persuading us that the negative value of $144,494 should be adopted for D Company, then he would abandon the complaint in Ground 1.5 concerning the omission of the $250,000 NAB liability as a liability of the parties.
In view of our conclusion that in a re-determination of this matter we would adopt the negative value of $144,494 for D Company and in view also of the concession of senior counsel for the husband as explained in the last paragraph, we would not in re-determining the matter, take into account the $250,000 liability to the NAB.
Appeal Grounds 1.2 and 1.3: the wife’s debts for living and legal expenses
It will be recalled that in her schedule of liabilities to be taken into account in calculating the net value of the parties’ property, her Honour included the following liabilities of the following amounts:
Loan from MLC - $14,148
Loan from wife’s parents - $20,000
I Capital - assessment fee for litigation funding - $4,750
Interest payable by wife on litigant funding arrangements
Monies advanced to the wife for living expenses and deposit on motor vehicle by I Capital - $25,000
In her reasons for judgment her Honour explained her inclusion of these liabilities in the following way (emphasis added):
57.…The wife seeks to include [a loan of] $25,000.00 from [I] Capital and $14,148.00 a loan from MLC. The wife says she used these monies for living expenses. The husband opposes including these liabilities in the pool…
58.The wife’s sworn evidence is “My finance amount is $150,000.00 including $80,000.00 for my legal expenses and $20,000.00 for my living expenses”. I will allow the $20,000.00 she seeks in her outline of case. I will also allow the $5,000.00 to offset the $5,000.00 listed as a deposit for a motor vehicle set out in the asset table. The total is $25,000.00. I will also allow the MLC loan.
…
60.In the present case the husband’s basis for excluding the debt is that it was unreasonably incurred. The wife deposes to significant expenses for herself and her children of $2,386.65 per week. She was not challenged about these. The husband pays $600.00 each week. The wife funds the remainder of these expenses. The $34,148.00 from the loans she says has been used for living expenses. I was not shown any expenses that were unreasonable in her list of expenses. The medical expenses are high but they are explained in her affidavit. I will therefore include these liabilities in the pool.
61.I will also allow the [I] Capital legal assessment fee and the interest the wife claims because the husband has funded his litigation through the overdraft the parties have. Hence, the parties will be jointly liable for an interest incurred due to the husband’s legal fees. The parties are both liable for that interest. The interest the wife has incurred and the fee to set up the loan should be included. This is so particularly because the wife sought to increase the mortgage on the former matrimonial home rather than incur the more expensive finance from Impact Capital. The husband would agree to this approach.
The wife’s debt to her parents
62.The wife alleges she owes her parents $32,833.00. The husband concedes $2,833.17 of that sum. Mrs [Di Salvo’s] mother swore two affidavits in the proceedings. She particularises the expenses she paid on behalf of the wife and the two children at annexure “A” of the first affidavit. The sum particularised is $22,347.15. The wife’s mother did not keep records of all the monies spent. Their daughter and grandchildren lived with her for 7.5 months. She said that she and her husband exhausted their life savings ($20,000.00). Mr [Di Salvo] reimbursed them $10,000.00 after one of the … properties [in G Street] sold. However these reimbursed funds were spent supporting their daughter and grandchildren.
63.Mrs [J] also cashed in the funeral benefit she held with her husband. She obtained $10,000.00 and this was spent on her daughter and grandchildren.
64.Both Mrs [Di Salvo] and Mrs [J] conceded that Mr and Mrs [J] ate some of the food purchased to feed her daughter and grand children. She also concedes some of the petrol may have been for her use or that of her husband’s.
…
66.Counsel for the husband submits that the wife’s spending after separation was out of control. I agree she certainly spent considerable sums in the period after separation. He did not challenge that Mrs [J] and her husband provided sums to the wife from time to time. He submits:
Cross examination of [Mrs J] identified in respect of the grocery receipts and to a lesser extent, fuel receipts that [Mrs J] and her husband also benefited from that expenditure.
67.The wife’s parents are pensioners. It is important they be given some funds to partially restore their life savings of $20,000.000 and the funeral benefit of $10,000.00 they have cashed in. I accept
[Mr W’s] submission that they benefited from some of the food and petrol expenses. I will therefore partially disregard this debt and allow only $20,000.00 of the $32,833.00 claimed by the wife.
By Ground 1.2 the husband asserts that her Honour erred in finding (in paragraph 60 of her reasons) that the wife’s weekly expenses were not the subject of challenge, and by Ground 1.3 the husband asserts, in effect, that her Honour erred in not finding the wife solely responsible for:
the $25,000.00 loan from I Capital including the legal assessment fee for litigation funding ($4,750) and the interest payable by the wife thereon ($2,623.30);
the $14,148.00 loan from MLC; and
the monies advanced by the wife’s parents ($20,000).
There is substance in the assertion in Ground 1.2 that her Honour erred in finding the wife’s weekly expenses were not challenged. The transcript of the hearing before her Honour shows that the wife was in fact cross-examined at considerable length regarding her expenditure. (See, for example, transcript 4/8/08 pages 43-58 and 5/8/08 pages 87-93; 118-123). But this apparent mistake on her Honour’s part as to the wife’s expenses being unchallenged, does not necessarily mean that her Honour then erred in taking into account the liabilities incurred by the wife for living and legal expenses.
The real question is whether the wife’s expenditure was shown to be unreasonable. It will have been seen that in paragraphs 60-67 of her reasons her Honour carried out an examination of the wife’s expenses and of the borrowings by her to fund those expenses, or at least part of those expenses. It should be noted that her Honour disallowed some of the claimed liability to the wife’s parents.
Furthermore, senior counsel for the husband was unable to demonstrate on the material before us that the challenged borrowings by the wife, which were in the order of $60,000, were unreasonable given that they were in relation to the living expenses for an adult and two almost adult children over a period of well over a year and notwithstanding some apparently significant support from the husband in the period in question.
Accordingly, Grounds 1.2 and 1.3 cannot succeed.
Ground 1.4: the Lend Lease shares sold by the wife
In an affidavit sworn on 17 June 2008 the wife provided the following explanation of how she had received certain Lend Lease shares from the husband and then sold them to fund her living expenses:
212. On 14 March 2008 when this matter was before Her Honour Federal Magistrate Cassidy, my Counsel raised my pressing need for funds as I was struggling to pay rent and put food on the table. The Husband asserted through his Senior Counsel that he had no cash available to him to make any further lump sum payments to me. At this time the Husband agreed to transfer to me his Lend Lease shareholding so that I could access funds for my living expenses.
213.On or about 8 May 2008 I received $5,517.60 from the sale of the Lend Lease shares. Annexed hereto and marked “S” is a true copy of the ABN AMRO Morgans Sell Confirmation confirming the sale of the shares and the amount I received.
214.I have applied these funds to the financial support of myself and the children…
In the husband’s final written submissions to her Honour it was contended (at paragraph 2.9) that the proceeds of the Lend Lease shares should be the subject of an “add-back”. An amount of $5,518 was then shown in the husband’s attached list of assets as a “Notional Adjustment” on account of the Lend Lease shares. The husband’s list of assets also showed 147 Lend Lease shares valued at $9.27 per share as at 14 August 2008.
In his final address the husband’s senior counsel reminded her Honour that she had earlier decided that the classification of the proceeds of the Lend Lease shares would be determined at the final hearing. (See transcript 14/8/08 page 135).
In the wife’s original list of assets put before her Honour there was no reference to any Lend Lease shares or proceeds of sale of such shares. In her final written submissions to her Honour, it was stated that her original list should be changed to include “the Lend Lease shares at $1822 … as an asset (from the husband’s schedule)”. But there was no reference in the wife’s final written submissions to the proceeds of sale of the Lend Lease shares which had been transferred to the wife.
In her final address to her Honour, counsel for the wife submitted:
…Well our starting position was the asset pool which we had filed with our outline and which you have, your Honour, and I have identified at paragraph 3 of the outline some changes that should be made to that and that is the inclusion of the Lend Lease shares which the husband apparently discovered. (Transcript 14/8/08 page 140)
However, her Honour unfortunately did not make any reference to this matter in her reasons; nor did she include the value of the proceeds of the shares in her schedule of assets. This omission is the subject of Ground 1.4 of the husband’s appeal.
In her written outline of argument in opposition to the appeal, counsel for the wife submitted that the value of the Lend Lease shares should not be added back because their proceeds had been used by the wife for living expenses.
Although we indicated to counsel for the wife during the hearing of the appeal that there appeared to have been a concession made on the wife’s behalf at trial, being that the value of the Lend Lease shares should be treated as an “add back”, on further consideration of the submissions of both parties at trial, we do not think that the concession made by counsel for the wife related to the proceeds of the sale of the transferred Lend Lease shares, but rather only to the shares still in the husband’s possession.
The husband’s claim that the proceeds of the Lend Lease shares should have been added back should have been considered by her Honour in her reasons, and an explanation provided as to why she was presumably not prepared to accept that claim. However, we do not consider that it would be safe for us to attempt to decide this matter. This is particularly so given our earlier conclusion regarding the wife’s expenditure in the post-separation period. Before us senior counsel for the husband submitted that should this be the only complaint upheld, it would not warrant a new trial. Thus if we were to re-determine the matter, we would not take the proceeds of the Lend Lease shares into account.
Appeal Ground 1.6: Monies from the children’s MLC Trust Funds
It will also be recalled that in her schedules of the parties’ assets and liabilities, her Honour added back “Monies expended by the husband from cashing in and closing” the MLC trust fund for each child of the marriage. The amounts added back were $9,635.82 from each child’s trust fund.
The husband’s evidence had been that he had used the monies from these trust funds to pay school fees, spouse and adult child maintenance and rates on the former matrimonial home. Her Honour acknowledged this evidence in paragraphs 76 and 77 of her reasons. However, she went on to say:
…I am not satisfied given the findings I have made about non-disclosure about the business that it was necessary to use these funds rather than funds from [D Company] which the parties have used in the past to fund their living expenses. I will therefore include these monies as an add back in the pool.
We have difficulty in understanding what relationship the husband’s use of the children’s trust funds for the purposes of school fees, maintenance payments and rates on the family home, had to her Honour’s findings of non-disclosure in relation to the business of [D Company]. But whatever reservations we may have in that regard, we do not consider that such valid expenses should be the subject of so-called “add backs”.
The practice of adding back notional assets to the pool of property to be distributed in proceedings under s 79 of the Family Law Act 1975 (Cth) should be employed with caution, at least where such “add-backs” involve living expenses, as was held by the Full Court in M & M [1998] FamCA 42 (see also Chorn & Hopkins (2004) FLC 93-204 and Omacini & Omacini (2005) FLC 93-218).
Accordingly, Ground 1.6 must succeed. If we were to re-determine this matter, we would delete the trust proceeds in question from the “Add-backs” in her Honour’s schedules.
Appeal Grounds 1.7 and 1.8: the property at Lot 2, G
By Ground 1.7 the husband asserts that her Honour erred “in failing to include as a liability of the parties the income tax payable upon the sale of Lot 2, G, in circumstances where the evidence before her had already brought to account the profit to be realised upon such sale”.
Her Honour explained her reasons for not including a potential liability for tax on the sale of the property at Lot 2, G Street in the following way:
79.The husband seeks to include income tax upon the sale of Lot 2,
[G Street]. [Mr H] (the accountant) in re-examination by
Ms McDiarmid confirmed that [D Company] has not paid Capital Gains Tax on the other lots [in G Street] that were previously sold. Mr [H] gave evidence that from the years he saw the company had not paid income tax. I will not include a liability for income tax in relation to the sale of Lot 2 because on past history it seems unlikely that it will be incurred.In his submissions in support of Ground 1.7 senior counsel for the husband endeavoured to persuade us that her Honour’s conclusion that income tax would be unlikely to be incurred on the sale of the property in question was inconsistent with her Honour’s approach to the valuation of D Company elsewhere in her reasons, being essentially that it was a profitable business.
Given the uncertainties surrounding the future profitability of D Company and the uncertainties which always surround the issue of tax on a property yet to be sold (see, for example, J & J [2006] FamCA 951), we consider that it was well within her Honour’s discretion – indeed a proper exercise of it – not to take into account any future tax liability on the sale of the property in G Street in her calculation of the value of the property to be distributed between the parties. Accordingly, Ground 1.7 has not been established.
By Ground 1.8, the husband asserts that the Federal Magistrate erred “in finding that the husband should retain the property in G Street, in circumstances where the evidence before her was that neither party sought to retain the property and it had been listed for sale since before separation”.
No oral submissions were made in support of Ground 1.8. However, in the written submissions on the husband’s behalf reference was made to his oral evidence (Transcript 14/8/08 pages 94-95) where he had explained the difficulties then so far experienced in selling the property in G Street, but, importantly, where he also said that he wanted the wife to receive the property as part of her property settlement. It was then submitted that her Honour had erred in not making an order in relation to the property in question, but rather leaving it with the husband (which was the effect of her orders).
The difficulty for the husband with regard to this matter is that, notwithstanding what he said in oral evidence, in the orders which he apparently finally sought from her Honour, and also in the orders that he would apparently have us make if we re-determine the matter, he sought (and now seeks) that the property in G Street be sold and the net proceeds divided between the parties in the proportions in which their property overall is to be divided.
Thus the husband’s position in relation to the future of the property in G Street was, and remains, unclear. While it may have been preferable for her Honour to have made some reference to this matter in her reasons, we would not regard her as having erred in the appellate sense in not doing so given the uncertainty surrounding the husband’s position.
As we have already indicated, we were not assisted by any oral submissions on this matter, and thus on a re-determination of the matter we would adopt the same approach as her Honour.
Appeal Ground 1.9: the sale price for 31 B Street
The final ground of appeal in the group of grounds said to be directed to the property pool is directed to Order 5(b) of her Honour’s orders, which provided that in the event of a sale of the former matrimonial home at B Street, the calculation of the wife’s entitlement to a share in the proceeds of sale “is to be no less than $2,050,000.00 with the husband to bear the shortfall (if any)”.
Her Honour explained the reasons for this order at the conclusion of her judgment in the following way:
106.The husband seeks to retain the former matrimonial home. I consider it appropriate to give the husband an opportunity to buy out the wife. I will give him 42 days to obtain the finance necessary to buy the wife out.
107.If the husband is unable to purchase the former matrimonial home it will have to be sold. The wife produced a signed contract for the sale of the matrimonial home prior to the trial. The husband would not agree to the sale. The contract was for $2,050,000.00 I accept the wife’s submission that if the property sells for less than that price the husband should carry the loss. The reason for this is the wife had a signed contract with a willing purchaser. The husband refused to agree to the sale because he wishes to purchase the home. He should be responsible for any loss that follows as a consequence of his refusal to agree to the sale.
By Ground 1.9 the husband asserts that her Honour “erred on the evidence before her in finding that in the event that the husband is unable to retain the home, that the value of the property is $2,050,000.00 and that the shortfall between the value of $2,050,000.00 and any sale price be borne by the husband solely, in circumstances where her Honour found any increase in the sale price be shared between the parties”.
In his submissions in support of this ground, senior counsel focussed on the asserted unfairness of this order to the husband given his genuine desire to be able to purchase the home for himself once the property settlement proceedings were concluded, and the fact that both parties would share any increase in the sale price, but only the husband would bear the consequences of any reduction in that price.
We consider this to be a finely balanced matter. While it is difficult to conclude that her Honour’s discretion could be said to have miscarried when she made the order, it is not an order that we would be prepared to make in our re-determination of the matter. This is because we would not want to encourage a practice whereby a party to property settlement proceedings might solicit offers from third parties to the ultimate disadvantage of the other party who may wish to retain the property.
Conclusion in relation to pool issues
In summary, therefore, our consideration of the issues raised by the appeal and the cross-appeal in relation to the valuation of the parties’ property has led us to conclude that our interference with her Honour’s decision would only be required in relation to her Honour’s valuation of D Company and to her inclusion of the value of the children’s MLC trust funds as notional assets.
We understood that both parties would want us to re-determine the matter in the event we found substance in the appeal or the cross-appeal, rather than subject them to the expense and stress of a new trial.
Accordingly, on a re-determination of the proceedings, we would reduce the net asset figure of $2,230,936.24 arrived at by her Honour by a figure of $144,494 on account of the value of D Company and by a further figure of $19,271.64 ($9,635.82 x 2) on account of the removal of the notional assets of the children’s trust funds.
Thus the new and reduced net asset figure on the basis of which we would re‑determine the matter would be $2,067,170.60 (being $2,230,936.24 - $144,494 - $19,271.64).
On the basis of this revised net asset figure and on the basis of the Federal Magistrate’s unchallenged assessment of equality of contribution, each parties’ entitlement on the basis of their contributions would be property to the value of $1,033,585.30 (being $2,067,170.60 ÷ 2).
The next issue which we would be required to address is what adjustment, if any, should be made to the parties’ contribution entitlements on account of the other matters under s 79(4) of the Act, being in this case only the relevant s 75(2) matters. In this context then we turn to the husband’s challenges to her Honour’s 14 per cent adjustment in favour of the wife on account of the relevant s 75(2) matters.
The s 75(2) adjustment
In her Honour’s consideration of what she termed “the other factors”, being certain of the s 75(2) factors, which followed her assessment of an equality of contributions, she determined that there should be a 14 per cent adjustment in the wife’s favour.
This assessment can be seen as having been made on the basis of her Honour’s findings that the husband could work for another 14 years, continuing to earn “a good income ($50,000)” and being able to draw funds from D Company, while the wife would be unlikely to work again (a conclusion reached on the basis of medical evidence), but would have to house herself and the two children and be responsible for the one child who would not turn 18 until August 2009 (and for whom the husband contributed $100 per week). In considering the s 75(2) matters, her Honour refused to take into account certain contingent liabilities claimed by the husband for the reason that at that stage they were, according to her Honour, too vague and uncertain.
In his grounds of appeal challenging her Honour’s 14 per cent adjustment in favour of the wife, the husband asserts that that adjustment was outside “the reasonable ambit of the exercise of her discretion such as to produce a manifestly unjust result” (Ground 2.1) and that her Honour failed to provide adequate reasons for “her calculations of a 14% weighting in favour of the wife” (Ground 2.3). More specifically, the husband claims that her Honour erred in finding on the evidence that the husband had an earning capacity of $50,000 and in failing to take into account the contingent liabilities of the company, D Corporation.
We do not consider that her Honour was in error in refusing to take into account the various contingent liabilities of the company claimed by the husband. We agree with her Honour that such liabilities were too vague and uncertain. Such uncertainty is increased by the fact that the liabilities in question are company liabilities, although we appreciate that the husband’s future financial situation will be dependent on the success or otherwise of his company’s operations.
We do, however, consider that there is some force in the husband’s complaints regarding her Honour’s finding that the husband has the capacity to earn “a good income” of $50,000. How that figure was arrived at by her Honour is not clear to us. We also do not consider that in this day and age $50,000 per year can be described as a “good” income.
Our chief concern regarding her Honour’s 14 per cent adjustment in favour of the wife is that it appears to have been made without regard to the fact that as a result of a division made on the basis of the contribution assessment alone, the wife would have property to the same value as the husband, being $1,115,468 each ($2,230,936 ÷ 2). In the absence of any reasons on the basis of which we can be satisfied that her Honour did take into account the position of the parties based on their contribution entitlements, the award of 14 per cent to the wife appears to be outside a reasonable exercise of the discretion. An adjustment of 14 per cent of the pool as assessed by the Federal Magistrate represented an adjustment of $312,331 in the wife’s favour. That sum appears excessive in our view, particularly when it is measured against the husband’s modest income of $50,000 per year gross and when that adjustment is made without reference to the capital distributions pursuant to the parties’ contribution entitlements.What can be termed the capital base of each party, particularly the husband, is important in this case because of their past history of property acquisition, renovation and disposal to fund the comfortable lifestyle which they were able to maintain.
The challenge to her Honour’s 14 per cent adjustment in favour of the wife must therefore succeed, essentially on the basis of a lack of reasons, in the sense that her Honour’s reasons do not disclose that the very relevant matter of the parties’ entitlements on the basis of their contributions was taken into account in the determination of the 14 per cent adjustment.
In our re-determination of the matter on the basis of the reduced value of the property whereby each party would receive property to the value of $1,033,585 on the basis of their contributions, we consider that an adjustment of 10 per cent (or some $206,717) in favour of the wife on account of her lack of income-earning capacity would be a just and equitable result. We have reached this conclusion having regard not only to the parties’ contribution based entitlements and the wife’s lack of income earning capacity but also to the fact that while the husband’s income has been assessed at a modest figure, he has demonstrated business acumen in the building and construction industry and in the purchase, renovation/development and sale of properties. We have also taken into account that in August this year the parties’ youngest child turned 18.
Re-determined entitlements of the parties
On the basis of a 60-40 per cent division of the revised pool of $2,067,170, the wife would be entitled to property to the value of $1,240,302 and the husband property to the value of $826,868.
Orders to give effect to such a division are complex to draft because of the uncertainty surrounding the B Street property which the husband wishes to purchase. The best way to avoid unnecessary confusion would seem to be for us to follow as far as possible the structure used by her Honour but making any amendment necessary on account of our revised figures.
We would thus:
amend Order 1(b) to substitute a “settlement sum” of $1,185,574 (being the difference between the wife’s 60 per cent entitlement to the revised pool and the net assets of $54,728 (excluding the home at A) which, according to the table at paragraph 109 of her Honour’s judgment the wife has);
amend Order 4(b) to provide the figure of $456,675 as the revised net property of the husband (being the figure of $620,440 shown as his net property (excluding the home at A) in the table at paragraph 109 of her Honour’s reasons less $163,765 ($144,494 + $19,271), being the revised value of D Corporation and the deletion of the children’s trusts “add-backs”);
amend Order 5 to replace the percentages of 64 per cent and 36 per cent with 60 per cent and 40 per cent to reflect our re-determination of the parties’ entitlements;
delete Order 5(b) in accordance with our decision that we would not require the husband to bear any shortfall in the sale price of the A property.
We regard the division which would be achieved as a result of our amended orders as a just and equitable outcome having regard to the value of the parties’ property, their contributions and their likely future financial positions.
Costs of the appeal
Having regard to the reasons for the success of the appeal and to the brief submissions made to us in relation to costs at the conclusion of the hearing before us, we propose to order that there should be no order for costs and that each party receive the appropriate certificate under the Federal Proceedings (Costs) Act 1981 (Cth) in relation to the successful appeal.
I certify that the preceding one hundred and nine (109) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court
Associate:
Date: 18 December 2009
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