DIGGELEN & DIGGELEN
[2014] FamCAFC 160
FAMILY COURT OF AUSTRALIA
| DIGGELEN & DIGGELEN | [2014] FamCAFC 160 |
| FAMILY LAW – APPEAL – PROPERTY SETTLEMENT – Where the appellant was entitled to a hearing of her appeal notwithstanding the respondent’s application for an adjournment and non-appearance on the day – Where the husband was made redundant and given an Employment Termination Payment – Where the trial judge assumed the payment was subject to tax and therefore declined to add the whole amount back into the property pool – Where there was no evidentiary basis for his Honour to conclude that tax had not been paid on that amount – Where the wife was not given the opportunity to address the issue as to the tax consequences of the redundancy payment – Where the husband had shares and share options that were to vest at a future date – Where there was evidence from a forensic accountant in relation to the value of the shares and share options – Where the trial judge failed to take into account certain unvested options –– Appeal allowed. |
| Evidence Act1995 (Cth) s 144 Taxation Administration Act 1953 (Cth) ss 12-85 of Schedule 1 CDJ v VAJ (1998) 197 CLR 172 De Winter & De Winter (1979) FLC 90-605 Zanatta v McCleary [1976] 1 NSWLR 230 |
| APPELLANT: | Ms Diggelen |
| RESPONDENT: | Mr Diggelen |
| FILE NUMBER: | SYC | 3222 | of | 2009 |
| APPEAL NUMBER: | EA | 159 | of | 2012 |
| DATE DELIVERED: | 1 September 2014 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Strickland, Ainslie-Wallace & Ryan JJ |
| HEARING DATE: | 1 May 2014 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 9 November 2012 |
| LOWER COURT MNC: | [2012] FamCA 940 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Batey |
| SOLICITOR FOR THE APPELLANT: | Broun Abrahams Burreket |
| THE RESPONDENT: | No appearance |
Orders
The application in an appeal filed by the wife on 13 January 2014 be dismissed.
The appeal be allowed.
Orders 1 to 8 inclusive of the Orders made on 9 November 2012 be set aside.
The proceedings for property settlement be remitted to the Family Court of Australia for rehearing.
There be no order as to the costs of the appeal.
The Court grants to the appellant wife a costs certificate pursuant to the provisions of s 6 of the Federal Proceedings (Costs) Act 1981 (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 wife in respect of the costs incurred by her in relation to the appeal.
The Court grants to the appellant wife a costs certificate pursuant to the provisions of s 8 of the Federal Proceedings (Costs) Act 1981 (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 wife in respect of the costs incurred by her in relation to the rehearing of the proceedings for property settlement.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Diggelen & Diggelen has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EA 159 of 2012
File Number: SYC 3222 of 2009
| Ms Diggelen |
Appellant
and
| Mr Diggelen |
Respondent
REASONS FOR JUDGMENT
By Notice of Appeal filed 7 December 2012 the wife appeals from orders for property settlement made by Johnston J on 9 November 2012.
The husband did not appear on the appeal hearing on 1 May 2014. By email of 30 April 2014, he notified the Appeals Registrar that he was not able to appear and sought that the hearing of the appeal be deferred for a period of three months. We treated the email as an application for an adjournment. The wife opposed any adjournment of the appeal. The application for adjournment was refused. We indicated that we would give reasons for refusing the adjournment when we delivered our reasons on the appeal.
The wife’s appeal concerned two orders; orders 1 and 3 made by his Honour. By order 1, his Honour ordered the husband to pay the wife $1,016,635. Order 3 provided that in the event the husband failed to comply with order 1, he was to transfer to the wife the balance of the parties’ joint bank account and sign documents and execute transfers necessary to sell certain shareholdings and share options necessary to produce a sum sufficient to satisfy order 1.
We note that his Honour also made orders for spousal maintenance and child support, against which there is no appeal.
The husband’s application for adjournment
It was undisputed that the husband has for some time had a significant cocaine addiction and had made a number of unsuccessful attempts to withdraw from his drug use.
The email sent to the Appeals Registrar on 30 April 2014 said:
…I am unable to attend as I am in the process of being admitted to a psychiatric hospital tonight or tomorrow morning as a result of my ongoing difficulties with depression and addiction; these being well-documented in the court documents thus far.
I was hospitalised at [a] Clinic on 17th February 2014 (shortly after I returned to Sydney from [Africa]) and discharged on 10th March 2014. Despite my intentions to work on my recovery and to respond to the appeal, I was unable to do either. My personal circumstance are difficult at present – I am unemployed, I have no fixed address and have been living with friends and staying at various hotels/apartments relying on the support of friends and family in [Africa]. I also have no family here (other than my estranged ex-wife and son) and, frankly, I was overly optimistic as to my ability to maintain abstinence, recovery and treatment under such circumstances.
I have been booked back into hospital (either [one of the local treatment clinics]) and am awaiting admission to either imminently.
…The email attached a certificate in which a general practitioner certified that the husband “… from 30/4/14 will be in hospital for treatment related to depression and addiction for a month…”.
Given the history of the husband’s non-appearances at court before the
primary judge and the long-standing nature of his addiction, there was in our view no reasonable prospect that an adjournment would find the husband in a better position in which to defend the appeal. Further, procedural fairness is not the husband’s sole preserve. The wife wished the appeal to proceed and, in all of the circumstances, it would not have been fair to her if the matter was to be further attenuated by the adjournment.
Procedural history
The proceedings between the parties, both as to parenting and property issues, were listed for hearing before the primary judge for four days commencing 30 October 2012. On the first day of the hearing the husband did not appear in court. The primary judge was informed that unsuccessful attempts over some days had been made to contact the husband. Eventually his Honour arranged for the Marshall of the Family Court to call at the husband’s house where he was reported to be safe and well.
His Honour, being informed of this fact, proceeded to determine the parenting matters as between the parties in the husband’s absence and made orders in relation to the parties’ child on 30 October 2012.
His Honour then adjourned the property settlement proceedings to commence the following day, 1 November 2012. He directed that the husband be served with a minute of the property orders sought by the wife and that he be told that the proceedings were stood over for hearing on 1 November 2012.
On 1 November 2012 the husband appeared at court and sought that the proceedings be adjourned. The application to adjourn was opposed and the primary judge refused it. However, he allowed the husband until 2.30 pm the following day to prepare himself for the hearing. Shortly before the resumption of the hearing on the next day, the husband informed the wife and the court that he was ill and would not be able to appear and participate in the hearing that afternoon although he suggested that he might be able to attend the next morning.
The primary judge declined to adjourn the proceedings further and the hearing continued in the husband’s absence. His Honour, on the wife’s application, gave the wife “leave to have her application heard that day as an undefended proceedings (sic)” [22]. We observe that the nature of the proceedings was not, strictly, “undefended”. As his Honour noted elsewhere in the reasons, the husband had filed an affidavit and financial statement in the proceedings. At a time when the husband was present in court, his Honour indicated to him that he had read that material. Further, in the husband’s absence, counsel for the wife in submissions addressed the primary judge on parts of the husband’s affidavit to support various contentions about the property of the parties. To that extent then the husband had participated in the hearing, which could not strictly be called “undefended”. However, in this case, nothing turns on the nature of the hearing.
Factual Background
The parties began to live together in 1994 in Africa, married in November 1996 and finally separated in December 2008. There is one child of the marriage who was born in June 2001. He lives with the wife and spends time with the husband.
At the time of the commencement of cohabitation the husband worked in finance for X Bank in Africa and later in Australia. The wife worked during the marriage before and for a short time after the birth of their child. It was accepted that she had principally been engaged in work inside the home.
It was also undisputed that from 2005 the husband was a cocaine user. He had attended rehabilitation programs in 2008 and 2009, but on neither occasion was he successful in remaining abstinent. In 2009 an order was made imposing a condition on the husband spending time with the child, that he undergo urinalysis and that any time the husband spent with the child be supervised.
The husband’s employment
After approximately nine years working for X Bank in Africa, the husband was offered work in Australia for the X Group and the parties moved to live in Sydney.
The husband’s work entitled him to receive share options as part of his remuneration package (“the X Bank shares”). The share options vested at various times.
In 2011 the husband was made redundant and he received a redundancy payment of $469,199. At the same time all but two parcels of share options to which the husband was then entitled, vested.
Despite being made redundant, the husband was re-employed with the same company on a contract basis. At the time of the hearing before the
primary judge, he was still engaged with the company.
Interim orders
In June 2009, an interim order was made that the husband pay the wife spousal maintenance of $2,500 per week. This amount was later reduced to $2,250. Further orders were made in October 2009 which provided for the parties’ marital home to be sold and from the proceeds the wife was to receive
$1 million plus a further sum of $60,000 towards her legal fees. The husband was further required to transfer to the wife 30,784 shares in X PLC. In May 2012 the husband was ordered to pay $51,750 to the wife being arrears of the spousal maintenance payments ordered to be made to her. The husband was also ordered to sell shares and options sufficient to produce $100,000 which was to be divided as to $50,000 to each of the husband and the wife.
The husband complied with all of these orders.
The appeal
The appeal occupies a very narrow compass; namely his Honour’s treatment of the amount received by the husband on his redundancy and his Honour’s asserted failure to include all of the shares and share options held by the husband in property available for distribution.
That being the case, we do not propose to traverse his Honour’s reasons in detail on other matters not relevant to the appeal.
The husband’s redundancy payment
The husband said in his affidavit:
41. On 31 August 2011, my employment position with [X (Australia) Limited] was made redundant and I received a redundancy payment totalling $469,199.29. This amount was made up of accrued annual leave, long service leave, severance payment and ETP. …
(Husband’s affidavit, filed 24 September 2012)
At the hearing of the appeal the wife’s counsel pointed out to us that a typographical error had been made and the correct amount of the redundancy payment in fact totalled $459,199.29. This error also appears in his Honour’s reasons for judgment and even in the Notice of Appeal. Nothing turns on this for the purposes of the appeal.
His Honour considered this payment at [58] and found that the payment included “…payment for accrued leave, severance payment and other remuneration”, and at [78] said:
78. …it was submitted on behalf of the wife that there should be added back against the husband of the $469 199 (sic) which he received as his redundancy payment. I do not, however, propose to bring this back into the property pool at $469 199 (sic). To do so would ignore taxation implications. It must be the case that some of this payment was on account of leave. There was no suggestion that the money paid was tax free. This is a most unsatisfactory aspect of the case. Doing the best I can in difficult circumstances I propose to allow $300 000 of this payment to be added back to the pool of property.
Thus his Honour, when compiling the property pool of the parties, introduced only $300,000 of the redundancy payment.
During submissions counsel for the wife in addressing his Honour on the money received by the parties from various sources, referred to the husband’s receipt of the $459,199.29 redundancy payment and submitted that the sum should be “added back” in the balance sheet (transcript 1 November 2012 page 51 line 24).
Neither then nor at any other time during submissions was it suggested either by counsel for the wife or his Honour that the redundancy payment or any part of it was liable to tax in the husband’s hands. The first and only time this was raised was in his Honour’s reasons for judgment.
We then turn to Ground 1 in the appeal.
Ground 1
That His Honour erred in law by finding against the undisputed evidence that an after tax redundancy payment of $469,199 (sic) received by the husband and being an amount agreed to by the parties, would attract “tax implications”.
In dealing with this amount, as we have indicated, his Honour declined to include the whole of the amount in the balance sheet but rather included $300,000 of it to take into account what he described as the “taxation implications” referable to the payment at [78].
In written submissions on the appeal, counsel for the wife argued that the Full Court, in considering the error asserted in this ground, could consider it “common knowledge” that employers were obliged to deduct tax from redundancy payments before payment to employees. Thus it was argued we would find his Honour erred in reducing the redundancy payment to account for tax.
It is unnecessary for us to determine whether such information is “common knowledge”, if by that term counsel is referring to matters falling under s 144 of the Evidence Act 1995 (Cth). This is because there was no evidentiary basis on which his Honour could have found, as he did, that some part of the redundancy payment received by the husband was subject to tax in his hands and ought to be brought into account at a lesser amount than that received. We also observe that his Honour’s conclusion is at odds with the provisions of ss 12-85 of Schedule 1 Taxation Administration Act1953 (Cth) by reason of which the husband’s employer was obliged to retain PAYG payments on the redundancy/termination of employment payment.
Further, although it was not a ground of appeal, we agree with the submission made by counsel for the wife that his Honour failed to give the wife the opportunity to address this issue before concluding as he did in his reasons for judgment.
In those circumstances we find that his Honour erred in his treatment of this sum and find that this ground has been made out.
Ground 2
That his Honour, erred in law by ignoring the 100,000 LTIP Options (June 2010) for the purpose of calculating the Balance Sheet.
As we have already indicated, the husband’s employment entitled him to receive share options at no cost to him.
In March 2005 the husband received 15,000 share options in X Limited. As a result of a subsequent share split, those options were increased to 75,000. In March 2009, 56,250 of those options vested. Tax was payable on the vested options and 12,500 of the shares were sold to pay that tax, leaving 43,750 shares. The husband held those shares at the date of the hearing before
his Honour [68]-[70].
In March 2010, the 18,750 remaining share options vested and, again, tax accrued on their vesting. One thousand shares were sold to meet that liability. According to the primary judge’s reasons at [71], the balance of vested options (17,750) are held by the X Staff Share Scheme Department on the husband’s behalf pending him lodging the relevant African taxation return.
In May 2012 the husband was ordered to sell sufficient shares to produce a fund of $100,000 of which both he and the wife would receive $50,000 to assist in meeting their legal costs. The primary judge recognised that the husband would be required to pay tax in respect of these shares. We will shortly return to the issue of the husband’s liability for tax in relation to the shares.
Mr R, a forensic accountant was asked to prepare a report as single expert in the matter. He was asked to calculate the potential Australian taxation liability incurred by the husband on shares sold by him pursuant to the
May 2012 orders and, further, to value any share options not vested or exercised at the date of hearing.
Mr R valued the husband’s share options by taking the market value of the options at the date of his report in GBP (3.69 per share) and converting that figure to Australian dollars (.6413). He then assessed the tax payable on those shares and share options already sold and tax payable on those yet to be sold and yet to vest based on the value achieved by his calculations.
Mr R first set out the totality of the husband’s shareholding and options as follows:
1. 104,625 nil cost options over X PLC shares. (item 1)
2. 2,671 EVA shares X PLC shares. (item 2)
3. 3,073 EVA shares X PLC shares. (item 3)
4. 20,375 nil cost options over X PLC shares. (item 4)
5. 75,000 nil cost options over X PLC shares. (item 5)
6. 25,000 nil cost options over X PLC shares. (item 6)
(Report of Mr R, dated 30 October 2012, page 2)The options in item 1 and item 4 were granted to the husband in
December 2007.
Pursuant to the May 2012 order and in order to produce the fund of $100,000, the husband sold 13,065 of the X Bank share options referred to in item 1 above and also sold the EVA shares, items 2 and 3, above. The tax liability associated with the sale of the X Bank share options was assessed by
Mr R at $16,133 and on the EVA share sale, $7,084. Thus Mr R concluded that the husband’s tax liability on the sale of those shares and share options was $23,197.
Mr R then valued the vested and unvested share options held by the husband at the date of hearing as follows:
·Balance remaining of item 1: 91,560 shares - $526,470
·Item 4: 20,375 X Bank options - $117,156
·Item 5: 75,000 options over X Bank shares - $431,250
·Item 6: 25,000 options over X Bank shares - $143,750
(Report of Mr R, dated 30 October 2012, Annexure 2)
The 75,000 and 25,000 options, items 5 and 6, had not vested at the time of the hearing. The balance of the options in item 1 vested on 31 August 2011, and the options in item 4 were due to vest on 5 December 2012.
Mr R thus concluded that the husband retained 211,935 shares and share options at the date of the hearing. This figure plainly included the unvested share options, items 5 and 6. Mr R calculated the value of the 211,935 shares and share options at $1,218,626 once all the options had vested, and on which $283,331 was payable in tax if sold.
When the husband’s employment was terminated by X Bank, he received a letter from the company setting out his share entitlements. This letter was used by Mr R as the basis for the calculations conducted by Mr R.
In relation to the 75,000 “nil cost options over X Bank shares”, the letter from X Bank informed the husband that they would vest on 1 July 2014 and the 25,000 shares would vest on 1 July 2015. The letter continued that the provision of the share options was conditional on the husband complying with certain conditions as to his conduct and future employment. In the event that the husband failed to comply with all of the terms and conditions set out in the letter, it advised that no unvested share options would vest and he would forfeit his rights to exercise the options.
Turning then to the calculation of the property pool, his Honour included 111,935 “shares” in X Bank Share Incentive Scheme 2007 at a value of $643,636 [79 ((9)]. His Honour included the sum of $138,517 in the list of parties’ liabilities referrable to tax on those “shares”.
It is clear that the 111,935 “shares” included by his Honour in the balance sheet were made up of the 91,560 remaining of the 104,652 2007 share options (item 1 in Mr R’s list) and, the 20,375 options (item 4). Their combined value as assessed by Mr R was $643,626 on which $149,643 tax is payable. His Honour made no reference to the 100,000 unvested options (items 5 and 6).
A balance sheet prepared on behalf of the wife was before his Honour (dated
1 November 2012). At item 18, the document refers to 111,935 X Bank Share Incentive 2007 (UK) LPTIS against which is ascribed a value of $642,306.57. Tax on those shares was set out at item 30 and said to be $138,517. These figures were included by his Honour in his setting out of the assets and liabilities of the parties at [79]. We observe that both his Honour and counsel for the wife overlooked Mr R’s unchallenged evidence that tax in the amount of $27,239 was payable in relation to the item 4 options, once vested and when sold.
Also included in the balance sheet, under the heading “Financial resources” was “June 2010 UK LT1Ps (100,000)” to which a value of $573,927.49 was ascribed.
In submissions relating to Mr R’s report, the following exchange took place between his Honour and counsel for the wife:
HIS HONOUR: I just noticed, in the bottom paragraph on the first page, Mr [R] referred – he says:
I calculated the tax payable on the unsold shares will be –
and he says-
211,935
Instead of 111,935.
MR BATEY: That’s correct
HIS HONOUR: 111,935.
MR BATEY: No. If you remember - there was a 100,000. There’s still 100,000 shares which the husband has and comprising – if you go to
Mr [R’s] page 2, there’s 100,000 and the letter from [X Bank] details the 100,000 additional shares that he has. Back at Mr [R’s], the final page, the last two entries are 100,000 shares.HIS HONOUR: So this is annexure 2, is it?
(Transcript, 1 November 2012 page 31 page 32)
Counsel then referred his Honour to the wife’s balance sheet and the section headed “Financial Resources” where the 100,000 shares were accounted for.
His Honour said:
HIS HONOUR: Yes. And I understand, its 111,935 that are referred to your item 17 on the balance sheet.
MR BATEY: That’s correct and ---
HIS HONOUR: Plus the 100,000 you’ve just told me about which you’ve told me is identified at item 31, 100,000 June 2010 UKLPTIS.
MR BATEY: And he retains that.
HIS HONOUR: And that’s – so that’s the 211,000 that Mr [R] is referring to ---
MR BATEY: Yes
HIS HONOUR: ---in respect of which 280,331 tax would be payable on.
MR BATEY: That’s correct. So if he sold the lot, that’s what he’s saying.
(Transcript, 1 November 2012 page 33)
Thus it seems that his Honour’s failure to take account of the 100,000 unvested X Bank options (items 5 and 6) was an oversight by him.
Mr R’s ascribed value of $575,000 to those shares was relevant to
his Honour’s determination of the property of the parties and each of them. The oversight was clearly material to his Honour’s determination and for that reason, his Honour’s exercise of discretion miscarried (see De Winter &De Winter (1979) FLC 90-605 at 78,091).
This ground is thus made out.
The balance of the grounds of appeal relate to Grounds 1 and 2 and assert that as a result of his Honour’s errors as contended in Ground 1 and 2, his discretion otherwise miscarried. In the light of our conclusions on the first two grounds of appeal, it is unnecessary for us to consider the remaining grounds.
Application in an appeal to adduce further evidence on the appeal
It is relevant at this point to refer to the wife’s application in an appeal to adduce further evidence on the appeal. By an application filed
13 January 2014, the wife sought the court’s leave to adduce further evidence on the appeal. The evidence is contained in an affidavit sworn by her but which principally attaches the transcript of proceedings of the slip rule application.
On 27 February 2013, the wife brought an application that the primary judge amend his earlier orders because, it was said, he had made an error that was capable of being ameliorated by application of the “slip rule”.
The application contended that the primary judge overlooked the 100,000 unvested options in determining the property and assets of the parties and it was argued that to take these options into account would produce a further $575,000 which ought to have been taken into account by his Honour. It was further argued that his Honour ought to amend his orders by bringing into account the full amount of the husband’s redundancy payment.
After hearing from counsel on behalf of the wife and from the husband, the primary judge reserved his decision and subsequently dismissed the wife’s application.
It seems that the point of the application in the appeal is to introduce the transcript of the hearing of the application before his Honour on
27 February 2013 as evidence on the appeal. Principally, it was said that the transcript was relevant because it shows his Honour’s apparent acceptance that he had overlooked facts including the 100,000 shares at $575,000.
While a party may, with leave bring further evidence before the Full Court on appeal, the circumstances in which this might be done are circumscribed (see CDJ v VAJ (1998) 197 CLR 172). The power enabling the reception of further evidence “exists to facilitate the avoidance of errors which cannot be otherwise remedied by the application of the conventional appellate procedures” (CDJ at [109]).
We are unable to see how the transcript can be introduced on appeal. Although we accept it probably accurately records his Honour’s comments, it is not evidence. In Zanatta v McCleary [1976] 1 NSWLR 230 at [233] Street CJ said:
…A Judge is remote from the contest and from the parties and his subsequent statements implying error on his part or procedural irregularity have, in general, no evidentiary significance as between the parties themselves...
The application will be dismissed.
Disposition of the matter
Having found merit in Grounds 1 and 2, the appeal must be allowed. The question then becomes whether we should re-exercise the discretion or remit the matter for rehearing.
In relation to this issue, the court was urged by the wife to re-determine the matter rather than remit it for rehearing because of the time and expense incurred in a further hearing. We are not without sympathy for the wife’s position, however, as is clear, the shares were valued by Mr R using a conversion of currency rate then applicable and the then market share price. Given the generally volatile nature of both, to proceed to a re-determination of the matter using Mr R’s evidence may reflect in a financial detriment to both parties.
We will thus remit the matter for rehearing in the Family Court. While not determinative, given the nature of the issues argued on appeal, it is a matter which could be reheard by Johnston J if that course is acceptable to
his Honour and the exigencies of the listing of cases allow it.
As to what is remitted for rehearing, it seems to us that it should be the entirety of the proceedings for property settlement. Although the wife only appealed against orders 1 and 3 of his Honour’s orders, it is apparent that the errors made by his Honour permeated the entirety of the orders for property settlement and thus all property orders including order 8 which, should be set aside. We appreciate that order 8 is a consequential order, however if all of the preceding orders are set aside then it too should also be set aside.
Costs
At the conclusion of the hearing we invited the wife’s counsel to make submissions on the question of costs.
In the event that the appeal was successful the wife’s counsel sought that this court grant costs certificates for the appeal and for any rehearing.
This is a matter in which it is not appropriate to make an order for costs. However, we are allowing the appeal on a question of law, and accordingly it is appropriate to grant the wife a costs certificates pursuant to the Federal Proceedings (Costs) Act 1981 (Cth) for the appeal and the rehearing.
The husband of course did not appear on the appeal, and obviously there is no application by him for a costs certificate for the rehearing. In those circumstances we are not in a position to grant the husband a costs certificate.
I certify that the preceding seventy-seven (77) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court delivered on 1 September 2014.
Associate:
Date: 1 September 2014