G and G
[2008] FCWA 17
•3 APRIL 2008
[2008] FCWA 17
| JURISDICTION | : | FAMILY COURT OF WESTERN AUSTRALIA |
| ACT | : | FAMILY LAW ACT 1975 |
| LOCATION | : | PERTH |
| CITATION | : | G and G [2008] FCWA 17 |
| CORAM | : | CRISFORD J |
| HEARD | : | 10-12 DECEMBER 2007, 6 MARCH 2008 |
| DELIVERED | : | 3 APRIL 2008 |
| FILE NO/S | : | PT 3376 of 2004 |
| BETWEEN | : | G |
| Applicant/Wife | ||
| AND | ||
| G Respondent/Husband | ||
| Catchwords: |
Property settlement - valuation of shares - post separation contributions - s 75(2) adjustments
Legislation:
Family Law Act 1975, s 79, s 75(2), s 117(2A)
Category: Not Reportable
[2008] FCWA 17
Representation:
Counsel:
| Applicant | : | Mr G Page SC (10-12 December 2007) |
| Mr M Rynne (6 March 2008) | ||
| Respondent | : | Mr P Dowding SC |
Solicitors:
| Applicant | : | Leach Legal |
| Respondent | : | Paterson & Dowding |
Case(s) referred to in judgment(s):
Cerini & Cerini [1998] FamCA 143
Chorn and Hopkins (2004) FLC 93-204
Ferraro and Ferraro (1993) FLC 92-335
Kowaliw and Kowaliw (1981) FLC 91-092
Lenehan and Lenehan (1987) FLC 91-814
Marker & Marker [1998] FamCA 42
Omacini and Omacini (2005) FLC 93-218
Smith and Smith (1991) FLC 92-261
Townsend and Townsend (1995) FLC 92-569
[2008] FCWA 17
1 The Court is to determine how the property of [the wife] and [the husband]
should be divided. The parties commenced a relationship in the early 1980s and
separated some 20 years later on 26 December, 2000.2 The main issue in dispute is the value of their shareholding in [BPL], a company
established by the husband in 1981. In that respect the parties are some $1.8 million
apart.
Principles
3 The task the Court undertakes is to arrive at a just and equitable distribution of
the property the parties accumulated during the course of their marriage in accordance with s 79 of the Family Law Act 1975. This involves a number of steps which are set out in s 79(4) of that Act:
• The identification of their property and its value • An evaluation of their contribution to that property having regard to a number of factors set out in s 79(4)(a) - (c) • Consideration of any adjustment to that assessment taking into account the primarily prospective factors in s 75(2) • A review of the outcome against the just and equitable requirement (see for example Ferraro and Ferraro (1993) FLC 92-335).
The orders sought by the parties at trial
4 The wife seeks 40% of the parties’ assets. She says 35% of this is due to her contribution to those assets and a further 5% is for s 75(2) factors.
5 The husband seeks a division of 65% in his favour. He does not see it as
appropriate or necessary, in the circumstances of this case, to delineate between his contributions and any primarily prospective factors. However, his counsel’s comments suggest the nub of the husband’s position rests on his contributions.
6 The wife seeks to retain the assets she currently has in her possession and
a further cash payment from the husband to bring her entitlement to 40%. She does not wish to retain any interest in [BPL] or any other entity in which the husband is involved.
7 The husband seeks the wife retain the property in her possession including her
shares in [BPL] and that he pays her any further amount required to ensure she receives 35% of assets. In his closing his Counsel said the 35% was based on the husband’s values being accepted. If they were not, then the husband’s [hills] home acquired after separation, should be excluded from the pool.
Observations of the parties
8 This is a matter that turns to some extent on the believability of the parties.
[2008] FCWA 17
9 The most glaring point of departure between the parties centres around the
recollection of the dates of certain events. Not unusually, neither had a perfect recollection. It was necessary for the husband to seek leave to amend his affidavit to reflect the correct date of separation. Both parties were unclear and they were often up to a year apart in their evidence on when events took place.
10 There was a period of time when the wife struggled with alcoholism. I accept
this was an unfortunate period in which her life was badly affected in many ways. As
a result, and on her own admission, her memory generally is less than perfect.11 Where there was a conflict in recollection about events or dates about their
relationship I prefer the evidence of the husband. However, this aspect has little effect
on the overall orders I intend to make.12 What is of concern is the timing of some of the husband’s financial transactions.
He has repaid money allegedly loaned to him and caused the parties shareholding in [BPL] to be redistributed in the context of hotly contested court proceedings. At first blush this appears imprudent. Where his timing is an issue it will be specifically discussed in the judgment.
Trial path
13 It has taken some time for this matter to come to trial. The wife filed an
Application for Final Orders, out of time, on 12 January 2006. A trial was originally listed to commence in early May 2007 but the Court was unable to deal with it at that time. The matter was relisted in August 2007 but, at the husband’s request and without opposition by the wife, the matter was adjourned. The basis of the adjournment stemmed from the husband’s change in employment. The matter finally came before the Court in December 2007.
14 Despite the length of time each party has had to marshal evidence, for one
reason or another, the experts of both parties were providing reports to the Court in
a singularly ad hoc fashion almost to the conclusion of trial.15 [Ms B] a chartered accountant [from a large firm] had initially provided a
valuation of the interests held by the husband and wife in [BPL] on 17 April 2007. A review and commentary on this report was provided to the husband by [Ms L] a chartered accountant of [a second firm] on 26 April 2007. This report referred to financial statements not available to [Ms B]. As a result of what can only be described as a fairly radical change in the financial landscape [Ms B] was commissioned to do a further report. For a number of reasons her report was not available until half an hour after the trial commenced on 10 December 2007. This report was dated 9 December 2007.
16 During the course of the trial the husband’s counsel sought and was granted
leave to issue a subpoena to auditors who were conducting investigations of [BPL]. As a result of the evidence of the [firm of auditors], it was necessary, once again, for [Ms B] to reassess her figures. Predicably, [Ms L] wished a further opportunity to comment.
[2008] FCWA 17
17 The valuation evidence is crucial in terms of the worth of the asset pool.
18 [Ms B] having, it could be surmised, spent most of her Sunday,
9 December 2007 in New South Wales preparing her second report, was not available in a timely fashion to give evidence on 10 December 2007 in Perth. She was the last witness for the wife. The wife’s counsel was unwilling to allow the husband to be interposed so his case could start even on largely uncontentious issues without any delay and loss of time. This then necessitated an adjournment of the case until the following day. The husband seeks his costs thrown away for the time lost as a result of [Ms B]’s unavailability.
19 Both counsel made brief oral submissions. The husband’s counsel provided the
Court with written submissions the following day. Without more, the husband’s position persuades me that this is a discreet issue in which, in the exercise of my discretion taking into account s 117 (2A) of the Act, a costs order should be made. However in order to allow the wife procedural fairness I intend to give her an opportunity to respond to the written submissions of the husband dated 10 December 2007.
20 By an application in a case filed 27 February 2008 the husband sought leave to
adduce fresh evidence in the form of the profit and loss statement for [BPL] for January 2008 and a further commentary by [Ms L] on the management profit and loss statement for the business for the seven months to 31 January 2008. This was the extent of the new evidence.
21 Over objection I granted leave. It was also agreed a letter from [Ms B] to the
wife’s solicitors of 27 February 2008 be accepted by the Court as evidence in
determining the application.
Asset pool
22 The major point of departure between the parties in this matter is the value of some items in the asset pool. I will deal with the matters in dispute.
(i) assets
• [BPL] 23 [BPL], trading as [FRG], was incorporated on 30 July 1981. It was started by the husband and [Mr R]. [Mr R] continues to work as managing director.
24 The principle activity of the company is the design, fabrication and installation
of [types of systems], and the manufacture of high performance [storage systems]. It
operates from leased premises [in the suburbs].25 The value of the interests held by the husband and the wife in the company is in
dispute.
| 26 | When the parties commenced cohabitation the husband had a beneficial 50% interest in [BPL]. In or about September 2003 [Mr R] transferred 25 shares each to the husband and wife. He retained 50 shares himself. This was done at the instigation |
[2008] FCWA 17
of the husband on the basis it formed part of an intended property settlement with his wife. In a document setting out a “settlement suggestion” dated 17 March 2002 one of the “significant assets” of the parties was:
“3……
“4. equity in [FRG] (which has a deficiency of funds of approximately
$800,000).”
27 In early 2004 following a rights issue of a further 75 shares, to which the wife did not contribute, the husband held a 28.57% interest and the wife held a 14.29% interest. I am satisfied the wife was never given any real opportunity to participate in this issue. However, at the time she was drinking to the extent that it is impossible to determine what she would have done had she been aware of the rights issue.
28 The rights issue ostensibly related to unpaid wages owed to [Mr R] and unpaid
director’s fees owed to the husband, the latter in an amount of $7,500. He could not
recall the amount of the former.29 On the 26 July 2006 the husband entered into an agreement to sell 19% of his
shareholding, as a result of which he presently holds an 8.57% interest. The wife continues to hold a 14.29% interest in the company. The shares were sold to [Mr O] a long time acquaintance of the husband. The shareholding was sold for $50,000 and three times any dividends that might be paid over the three years following the agreement.
30 The wife seeks to include the value of the company in the asset pool at
$4 million, consistent with [Ms B]’s second report dated 9 December 2007. She says
the parties hold 50% of the shares.31 The husband says the total value of the parties’ interests based on their present
shareholding in [BPL] should be included at $40,012, being his 8.57% interest at
$15,000 and the wife’s 14.29% interest at $25,012.32 Given the three quite discreet movement of shares after separation [Ms B]
provided three separate scenarios based on the various shareholdings at different
times. She described the three share positions as A, B, and C respectively.33 She also provided the three different valuations, already mentioned. They all
employ the same methodology. She initially assessed the company’s value at $6.6 million, it was then reduced to $4 million in her second report, and finally on the second day of the trial, after the auditor produced the finalised trial balances for 2006 and 2007, she reassessed the company’s value at $3.6 million.
34 [Ms L] did not provide any particular valuation to the Court but rather provided
commentary on the valuations obtained by the wife and substituted figures, that she
believed to be correct, into the calculations devised by [Ms B].35 The husband and [Ms L] raise a number of criticisms of [Ms B]’s valuations. In
assessing the criticisms it is necessary to address the valuation methodology employed
by [Ms B] and the justifications she gives for it.
[2008] FCWA 17
First Valuation (17 April 2007)
36 The valuation methodology is set out in [Ms B]’s first report. It was further
explained at trial. She adopted a capitalisation of future maintainable earnings approach. She said this is the appropriate methodology to apply here as the company conducts an actively trading business. This approach requires the application of a multiple, which is applied to the determined future maintainable earnings and reflects both the expected future returns and the expected risk involved. It also requires a minority discount which has the effect of reducing the overall valuation and is generally based on the relationship between the interest being valued and the total enterprise, relevantly here, the control of the minority interest and the alleged lack of marketability of the interest. She applied a discount of 10% to scenario A and 20% to B and C. It is necessary to address these aspects of the valuation as the husband directed criticism towards [Ms B]’s application of them.
37 In the first report [Ms B] assessed the future maintainable earnings to be $1.7 million. She based this figure on the actual results for 2005 and 2006, and the draft results to 12 March 2007. She considered an appropriate multiple to apply to the future maintainable earnings to be 4.0, being a 25% return and resulting in a valuation of the business at $6.8 million. Based on this valuation, [Ms B] assessed the goodwill of the company at $4.18 million. This goodwill, together with an adjustment for future income tax benefits and for investments, was then added to the net assets of the company as at 30 June 2006 to achieve a valuation of $6.6 million.
38 In response to [Ms B]’s report, [Ms L] published a commentary on 26 April
2007. In preparing her report [Ms L] was privy to updated financial results of the company to 31 March 2007. The actual March 2007 figures indicated a loss of $323,419. She stated in her report that through discussions with the company’s director, [Mr V] and the husband it appeared that there would be further losses totalling $700,000 for the months April to June 2007. [Ms L] incorporated these “expected” losses in the projected profit for 2007 using the same methodology as [Ms B]. Based on a revised estimated future maintainable earnings figure of $1.1 million [Ms L] calculated the value of the company at $4.26 million.
39 She was critical of the discount rate applied to the parties’ interest by [Ms B] in
scenarios B and C. She said that the husband “advised” her that in his opinion there were currently no existing shareholder willing to acquire additional shares in the company. [Ms L] said that if [Ms B] accepts the husband’s advice that any sale of the share would have to be to an outside, third party, then this may cause her to upwardly adjust the discount rate applied.
Second Valuation (10 December 2007)
40 After the publication of [Ms B]’s first report and [Ms L]’s response, the
company’s management accounts for 2007 were finalised. The results for the year ending 30 June 2007 show an operating loss before tax of $1.3 million. With the updated financials available [Ms B] published a second report. This report covered the company results for the year ended 30 June 2007 and the budgeted results for the year ended 30 June 2008. Assuming the same methodology, [Ms B] valued the company at $4 million as at 30 June 2007. Despite the inclusion of the updated 2007 reports, an
[2008] FCWA 17
earnings multiple of 4.0 was maintained. At trial she gave evidence that she
considered an earnings multiple of 4.0 to be conservative. She based this on:
• the company’s five year plan, • the growth of the company, • the $40 million worth of current work, and • the expectation of a good profit in 2008. 41 [Ms B] expressed her dismay at the lack of information provided to her by the
company in order for her to do her report despite her numerous requests. She said she contacted the wife’s solicitors on 18 July 2007 to obtain further financial documents from the company for her valuation. After not receiving a response she sent a facsimile to [Mr V] on 30 July 2007. After again receiving no response she informed the company on 7 August 2007 that she intended to attend the company’s premises for an on-site inspection of documents on 17 September 2007. Once again she received no response and accordingly sent a further facsimile of her intentions on 13 August 2007. She was later advised on 6 September 2007 that [the firm] was to conduct an independent audit of the company. [Ms B] noted numerous times in her evidence that she had not received an explanation, despite requests to the company, as to what occurred in 2007 to cause a $1.3 million loss.
42 [Ms L] published a second responding commentary on 11 December 2007. Her commentary directed three main criticisms towards [Ms B]’s second report:
• the adjustments made to the actual operating loss for 2007, • the assessed earnings multiple applied, and • the minority discount applied. 43 In relation to the latter two, [Ms L] says that due to the poor actual results for
2007 she considered an earnings multiple of 3.0 to be more appropriate and a minority discount of 30% to 35% to apply. [Ms B] said she considered the minority discount she applied to be appropriate because of the company’s activity level and the forecast profits. She said that although the company suffered a poor 2007, this does not cause additional saleability constraints on the shares held by the parties.
44 In relation to the first criticism, [Ms L] queried the adjustments that were made
by [Ms B] to, firstly the gross profit and secondly the marketing, selling and advertising component of the 2007 actual results. The effect of the adjustments was to convert an operating loss before tax of $1.3 million into a profit of $2.4 million for 2007. [Ms L] argued there is a lack of justification for making the adjustments. She said at paragraphs 3.16 to 3.19 of her commentary:
“The combined effect of the two adjustments appears to be the assumption that the 2007 results should have been much better and those better results should have been achieved with a dramatically reduced marketing, selling and advertising cost.
As a result of these two adjustments to the operating loss, while the actual 2007 results were dramatically worse than the estimated 2007 results in the
[2008] FCWA 17
first [of the accountants firm] report, the valuation of the business in the second [of their firm]’s report ($7.6 million) is higher than the valuation in the first [of their reports] ($6.8 million).
If the two adjustments are not made to the 2007 results, the adjusted maintainable earnings figure for 2007 would be a loss of $854,993.
In such circumstances, I believe it would be very difficult to argue that any corporate goodwill existed and indeed any possible sale of the business would be unlikely until the profitability of the business was restored.”
45 During [Ms B]’s cross-examination it was put that the adjustments remove the
results from reality. She disagreed. In relation to the adjustment to the gross profit she considered that if the company retained its current activity level on a go forward basis and had proper project management then it was likely to continue to achieve the present 30% margin.
46 She considered the historical earnings and the forecast for the future. She said
she considered the amount achieved in earlier years, the volume of activity the company had participated in during those years and the 2008 budget. The budget had been provided to the new management accountant and the auditor and apparently they had not revised it at all. She considered the 2008 budget as a fair representation of what the company believed it was capable of achieving on a go forward basis. She says it was then necessary to examine the past results and consider the gross profit percentage that the company could achieve and the effect it will have on the earnings that are achieved.
47 In relation to the other criticism of the adjustment for selling, marketing and
advertising, [Ms B] says that in the course of assessing the company’s profit and loss statements, an amount of $964,000 for 2007 for selling, marketing and advertising “jumped out at her” in comparison to an amount of $182,177 in 2006 and a forecast of $101,800 in 2008. Without more, she applied an adjustment to the 2007 figure. She acknowledged that the adjustment resulted in an increase in the company’s valuation of $1.2 million. She agreed that this is a significant adjustment. She conceded that the adjustment was not made with reference to any document or any knowledge of why the figure was so high. She says that she made the adjustment with reference to the 2006 results and the 2008 budget, in conjunction with her knowledge of companies within the mining industry. She said there were no other items in the profit and loss statement that had gone down dramatically thus suggesting a reallocation of costs from another expense item. On the face of it this expense was an anomaly. She agreed that if the Court determined the adjustment should not have been made it would reduce her valuation by $1.2 million.
48 The husband later gave evidence that the marketing figure for 2007 was so high
because it included the associated costs of the marketing team itself. This was a result of a change in the company’s accounting policy. However, he agreed that the budgeted figure for the next year for that item was $101,800, and that this was a similar figure to the expenses incurred in 2006, which was $182,177. This was the only evidence from the husband or [BPL] about this issue.
[2008] FCWA 17
49 Another particularly significant criticism directed at [Ms B]’s report was the
value she attributed to goodwill. In her second report [Ms B] assessed the goodwill of the company at $3.81 million, being 95% of the company’s value. [Ms L] said in her commentary that on the basis the company reported a significant loss for 2007 she considers it unlikely that a purchaser would expend such a sum for largely intangible goodwill. [Ms L] concluded that if the company is considered to have no goodwill then the value would be the net tangible assets as at 30 June 2007, being $180,380.
Third Valuation (end of trial)
50 On the second day of the trial the company’s auditor, [Mr B] produced
a finalised trial balance for the company for the years ended 30 June 2006 and 30 June 2007. [Ms B] subsequently produced, during the trial, a revised hand-written version of the valuation of the company as at 30 June 2007. With the adjusted figures provided by the auditor for 2007 she valued the company at $3.6 million. The valuation did not include any of the auditor’s amendments to the 2006 results as she said during her examination that she was not afforded the time to do these calculations.
51 [Ms L] then published a further commentary on 12 December 2007. [Ms L]
reiterated her concerns above and in particular, the treatment of goodwill. In this valuation [Ms B]’s includes goodwill at $3.617 million. Her final calculation overall is $3.6 million.
52 [Ms L] said that in light of the loss in 2007, she remains of the opinion that it is
likely that any potential purchaser would consider there was little or no goodwill in the business. She emphasises the company’s profit for the last eight years, which she describes as showing little consistency and a large degree of volatility. She says that as the company is in a loss-making position, with no direct evidence of a return to profitability, she considers it inappropriate to conclude that the company has goodwill and therefore the value of the company is the value of its net tangible assets, which at 30 June 2007 on [Ms B]’s revised calculations, is -$12,647. Accordingly, she considers the parties’ shareholding in the company of no value.
53 [Ms B] acknowledges that a potential purchaser would want to know what
happened in 2007 to cause a loss, however they would also consider the contracts on foot, the project managers in place and the margins that the company is expecting to achieve. She says if the potential purchaser considered this information to be reasonable then they would purchase the company based on that information. She said it did not seem odd to her that the value of the goodwill was greater than the value of the company. She said there had never been any valuation of goodwill, and that such a valuation is important for a company such as [BPL]. She said that if the value of the company is the net value of the tangible assets, as [Ms L] concluded, then the amount of work-in-progress, plant and equipment, and stock becomes of great importance. Accordingly, it is necessary to ensure they are valued properly, if there is no goodwill component, in order to capture any unbooked value in those other items in the balance sheet.
[2008] FCWA 17
54 If there is no goodwill in the company there needs to be an independent
assessment, inter alia, of the work in progress. The wife argues the company has
a wealth of work in progress.55 An issue that was not raised in any valuation reports was that the auditor had
informed [Ms B] there was an issue with the company being a going concern. [Ms B] accepted this information is important to valuing a company, particularly in relation to the sustainability of the company’s profit. However she said that the premise of a going concern from an auditor’s point of view is different from a valuer’s point of view. She spoke to the auditor about this and he had not reached his conclusion on the issue. She stressed that the issue of going concern raised by the auditor could not be considered in isolation of a proper analysis of the budget for the next year and all of the information given to the auditor in relation to the reasons for the company’s loss and its future viability. She said she considered the issue in light of all the information provided to her, including that the auditor informed her that there was no pressure on the company from financiers.
Post trial evidence of value (6 March 2008)
56 The husband now says that the first seven months of the financial year have
elapsed and it is very apparent that the 2008 budget figures relied upon by [Ms B] “are
simply not true and correct not relevant to the actual position of the company” (sic).57 The accountants and the Court were still not provided with any explanation or information by the business as to the reasons for the loss it experienced in 2007. [Ms B] said she was also not provided with relevant management accounts to enable actual against budget performance to be assessed. She felt what had been provided was manifestly inadequate in helping to determine the value of the company as at 31 January 2008 or the husband’s interest in the company.
58 [Ms L] considered what had been provided as fresh evidence may (my emphasis) cause [Ms B] to revise her valuation. 59 The comments by [Ms B] in her correspondence do not indicate she is at all
inclined, on the information provided to the Court as fresh evidence, to change her
view.60 The husband has consistently provided information on a “too little too late” basis
in the hope that finally he will get the outcome in terms of a valuation of the business
that he considers he should.61 The information provided to the Court is of little assistance and the information provided during the trial will form the basis upon which a value is arrived at.
Conclusion
62 The husband argues [Ms B]’s whole methodology is flawed. He believes that
the valuation is virtually ‘blue sky’, being goodwill. He says this makes it less likely that a willing but not anxious purchaser will pay the asking price. He says the error
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arises from creating a value from a predictive figure (2008) rather than reviewing actual figures from past years. [Ms B] rejects this. She says that it is the valuation process to adjust actual results and take into account historical profits. She said she did this in that she considered the actual results for 2005, 2006 and 2007 and also the 2008 budget.
63 While the wife accepts the company suffered a genuine loss in 2007, she says it
is an aberration in a long period. She considers the forecast to be good. She points to
the present activity.64 The Court had one valuation before it. It was the only valuation of [BPL] and
thus the value of the parties shareholding. [Ms L] had published responses to [Ms B]’s reports but they were commentaries and reassessments of the valuations. They were not independent valuations based on proven facts. It was generally accepted that if the Court did not accept the valuation then a sale is likely to be the appropriate method to determine value (Smith and Smith (1991) FLC 92-261). Here the Court has one valuation rather than “wide differences between legitimate valuations”. Although I accept the course of [BPL] Pty Ltd’s dealings has been fairly volatile over the years, I am not convinced that necessarily means [Ms B]’s valuation is unrealistic.
65 Despite robust challenge, she was capable of explaining and justifying her
methodology. She referred appropriately to acknowledged texts on the valuation of shares and businesses. Any criticism of a failure to consider all financial information and explanations from the company must be considered in the context of her continuous attempts to obtain information upon which to base her valuation. Each time [Ms B] was presented with updated financial information she reassessed her valuation resulting in the variance from an original valuation of $6.6 million to the most recent valuation of $3.6 million.
66 I accept the methodology applied by [Ms B] to be appropriate in the
circumstances.
67 Evidence that may have assisted the Court was not provided by the husband.
[Mr V] provided [BPL] with accounting and financial services. He swore an affidavit in the proceedings which gave an historical context to the company but did not address any matters of a financial nature, for example the significant difference in the marketing, selling and advertising component for the company in 2007 and an explanation for the 2007 loss. There was no attempt to have him update his evidence in the light of [Ms B]’s valuation and [Ms L]’s commentary on that valuation. Although this was touched upon briefly by the husband in his evidence, he does not work in the company as an employee and he pursues other interests and employment outside the company. He has input at the level of a director only.
68 [BPL] is a company that has had considerable fluctuations in fortune. When the
parties were discussing possible settlement of their property in 2002, the husband identified equity in [FRG] as a “significant asset” despite the fact it then had a deficiency of funds of approximately $800,000. The husband sees [BPL] as an entity that may well assist him in making a considerable amount of money.
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69 When he transferred 19% of his own shareholding to [Mr O] he deposes to
taking up a very good opportunity to sell the shares in what he considered to be a
lucrative arrangement.70 He said the sale took place in the context of his long-time involvement in the
sale and purchase of various mining and exploration interests, shares and opportunities. He saw it as being in the normal course of business, something he had done for most of his working life – the Court presumes with the making of money to be the desired result.
71 His very actions in this regard and his ability to sell shares to outsiders suggest the discount applied by [Ms B] to be realistic.
72 A Court’s responsibility in relation to determining values has been described frequently. The Full Court in Lenehan and Lenehan (1987) FLC 91-814 said at p76, 142:
“A trial Judge, as part of his ultimate responsibility under sec. 79 or otherwise, is normally required to determine a number of issues. Some of those issues may properly attract the evidence of expert witnesses. In appropriate circumstances their opinions are admissible to assist in the determination of such an issue. It is the responsibility of the trial Judge to take into account the opinions of such witnesses; however the ultimate duty of the Judge is to determine the issue on the whole of the material before him including such opinions. The expert evidence is called to enable the Judge to form his own independent judgment on the matter by the application of the appropriate principles.”
73 On a consideration of all the evidence before the Court I intend to include the valuation of [BPL] at $3.6 million. determine the value of the parties interests.
74 It is now necessary to apply this valuation to the appropriate scenario to
75 I intend to adopt scenario C in determining the value of the interest held by the
husband and the wife at the present time. Thus, the husband’s present shareholding is
8.57% and the wife’s is 14.29%.76 The initial allocation of 25% to the wife took place in around 2002/2003. Any
transactions since then involve unrelated parties not a part of the proceedings. It is speculation about whether the wife would have involved herself in the 2004 rights issue.
77 There is also nothing to suggest that the agreement executed on 26 July 2006 between the husband and [Mr O] was other than a legitimate business transaction carried out in accordance with the terms of the agreement. It shows the marketability of the shares to outsiders. The husband had hoped to make a considerable amount of money from it. To date, given the varied fortunes of the company in 2007 this had not eventuated. There is no evidence [Mr O] is holding the shares for the husband or the sale price at the time was low given the likelihood of the dividends.
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78 The wife advanced various arguments about the sale of these shares, one being
that the husband had prematurely distributed assets of the parties such that they should
now be added back to the pool (Townsend and Townsend (1995) FLC 92-569).79 In Kowaliw and Kowaliw (1981) FLC 91-092 Baker J said that financial losses incurred by parties or either of them in the course of a marriage should be shared unless:
(a) one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or (b) one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.
80 I am not satisfied that any of the arguments advanced applies to this case. The
timing of the transaction alone does not satisfy me any such adverse inference can be
drawn against the husband.81 As a minority shareholder he was able to secure what on the face of it appeared
to be a lucrative sale. The cross-examination suggested nothing more. On that basis
I find their combined interest to be $658,368.• The value of the husband’s other shares
82 The husband’s evidence in relation to his shareholdings is contained in his
financial statement of 22 November, 2007. The wife disputes some of the values attached to various holdings. I will deal with what she identifies as being in the issues in contention.
83 The husband received a shareholding in [DDL] as a result of his employment
with that company as CEO in about November 2003. His position was terminated on 30 October 2007. He remains a consultant with that company. He said he had notified the company secretary to sell his shares. Secured against the shares is a personal loan. The husband said the loan exceeded the value of the shares.
84 In a financial statement he swore on 23 April 2007 the husband did identify
these shares but did not allocate a value to them given the extent of the loan. In his financial statement of 22 November 2007 he does not identify them at all. In the face of little meaningful challenge to his sworn evidence and no other evidence I accept the shares from [DDL] are of no real value.
85 I also accept that the total value of all the shareholdings is reflected in the
husband’s financial statement. He is no longer entitled to the benefits he previously
had with [two other resources]. Again there was no other evidence.• Tax refund due to husband
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86 The wife seeks to include in the asset pool $148,000 she says is a tax refund due
to the husband. The evidence in this regard was unsatisfactory and it is certainly not
clear to the Court that such a tax credit exists. I do not intend to include it.• [GUTC] and [AVE]
87 The husband deposes that:
“(a) The [GUTC] which includes [the wife], myself and [AVE] beneficial holders ends up with a trust deficiency of $3,584.60. [The wife], myself and [AVE] are beneficial holders.”
88 In evidence he said the Trust was in the process of being wound up. This was nearly complete. The Court was again hampered by a paucity of evidence at trial.
89 The wife says the [GUTC] is worth $205,204. This, according to the November
2007 financial statements reflects the combined value of the loan accounts of the parties being the husband’s loan account of $142,536.17 and the wife’s of $62,667.59.
90 The husband, on the other hand, says its value is $174,954. This reflects the wife’s loan account of $62,667.59 and what he says his interest is of $112,286. $62,667.59. The parties depart on the value of the husband’s interest.
91 There is consistency about what the parties say the wife’s loan account is -
92 The amount of $142,536.17 is traced directly to the November 2007 financial
documents. The amount of $112,286 is, however, unexplained. The husband’s financial statement states that value, but there is no explanation as to how that value is arrived at vis-a-vis the financial statements of November 2007.
93 I will adopt the figures in the source documents in this regard. The husband has
provided no detail for his figure of $112,286, thus explaining the departure from
$142,536.17 in the accounting documents.94 The husband’s evidence is any debt of [AVE] has been rolled into what is owed
to the parties by the [GUTC]. This is corroborated to some extent by the financial statements of November 2007 and the earlier June statements and his evidence about the process of winding up the Trust.
95 I find that the consolidated figure for those entities to be $205,204.
• Wife’s motor vehicle 96 The wife has a motor vehicle she purchased for $10,000 and which is now worth
$7,000. During the course of the proceedings and in order to fund her legal fees and living expenses the wife arranged a loan of approximately $200,000 from [a firm]. I accept that the money for the purchase of the car came from the loan [from that firm]. As I intend to exclude the [the firm] loan from the pool I also intend to exclude the assets and addbacks associated with that debt. This is dealt with further in relation to addbacks.
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(ii) Addbacks
• [Ms N] loan 97 The wife seeks to addback into the pool of assets an amount of $179,500 which she says is “property provided to [Ms N] by husband”.
98 In his trial affidavit sworn 15 November 2006 the husband deposes that one of
his liabilities is a loan from [Ms N] of approximately $231,824. At trial he gave evidence that this money had been repaid. It had mostly been repaid recently. He accepted the repayment was not as a result of any demand from [Ms N]. [Ms N] gave no evidence. She was present during some of the trial. Detail about the circumstances of the loan was scant.
99 In early 2004 the husband purchased a property at [an address in the hills] in his
sole name. He resides there with [Ms N]. The financial statement filed by the husband on 22 November, 2007 reveals that he has a 100% interest in the property and pays 100% of the mortgage. [Ms N], with an average weekly income of $510, pays $50 a week to the husband’s benefit for “household consumables”.
100 The husband provided the Court with a document entitled “financial movements
between the husband and his partner [Ms N]” and additionally a breakdown of money apparently loaned set out in a document entitled “financial input by [Ms N] to [the hills property]”.
101 The first document shows that $30,000 was advanced by [Ms N] to the husband
for the purchase of the [hills] house, a further $175,990 was advanced for renovations to the house up to February 2006 and another $24,010 was advanced for renovations between February 2006 and July 2006. The husband accepted that the last figure of $24,010 had simply been an estimate and there was no supporting source documents for that figure. It simply rounded the amount owing to $230,000.
102 The second document shows a total advanced as at 28 February 2006 of
$175,898.89. This figure includes the $30,000 separately identified in the first document. This document suggests the renovations to February 2006 were only $145,898.89. The renovations itemise a variety of goods and services including artwork and bedding.
103 The money allegedly loaned has been repaid to [Ms N] in various ways. The
husband paid a legal settlement on her behalf of $48,000 in November 2006. Since then he has paid for her to exercise some [resources] options in an amount of $40,000 in September 2007. He has also transferred to her some [other resources] stock and options in an amount of $130,323. Additionally, some interest has been paid on the loan.
104 The husband was asked why [Ms N] had failed to provide an affidavit
corroborating the existence and subsequent repayment of the loan. Cryptically he indicated he had raised the issue of her swearing an affidavit but she said she preferred to be subpoenaed. She was not. It may well be she was not called because she may not have been in a position to assist the husband.
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105 The evidence in relation to this aspect of the case was entirely unsatisfactory.
106 As the Full Court said in Omacini and Omacini (2005) FLC 93-218 there are three clear categories of cases which have emerged where the Court has determined that it is appropriate to notionally addback to the pool of assets, assets that no longer exist. They are:
(a) where the parties have expended money on legal fees; (b) where there has been a premature distribution of matrimonial assets; and (c) in circumstances where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective worth or value of matrimonial assets or has acted recklessly, negligently or wantonly with matrimonial assets such they are reduced or have a minimised value.
107 In the husband’s closing address his Counsel said the money sought to be added
back was clearly a loan and it had been repaid. He said it had been accounted for in full and referred the Court to the two documents tendered by the husband. Unfortunately, those documents are, without more, inconsistent and unconvincing.
108 I am aware that these parties separated seven years ago. The property at
[the hills address] was purchased three and a half years ago. The husband’s
involvement with [the two resources operations] has all been after mid 2002.109 The Full Court has said that there is no appropriate basis for adding back monies
that had been subsequently spent on meeting reasonably incurred necessary living expenses and that the concept of adding monies reasonably disposed of back into the pool ought to be the exception rather than the rule (Marker & Marker [1998] FamCA 42, Cerini & Cerini [1998] FamCA 143).
110 The matter was never argued on this basis. In any event, the detail about [Ms N]
and the husband’s financial relationship is such that I am not satisfied the Court should
speculate about matters that were not put squarely to it.111 Although I accept some money may have been contributed by [Ms N] to
[the hills property] I am not satisfied money, in whatever amount, was a loan requiring
repayment. I do not accept the husband’s evidence in this regard.112 It was premature to distribute those funds and I intend to add $230,000 back into
the pool of assets. I intend to include the whole amount given the shares and options directed to [Ms N] are benefits the husband was entitled to participate in as a result of his employment.
• Paid legal fees 113 The wife seeks to addback the husband’s paid legal fees. Included in her
schedule is the husband’s paid legal fees of $60,080. However it appears from the costs notification provided to the Court by the husband’s solicitors that an amount of
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$75,176.00 has been paid in legal and accounting fees and disbursements. Additionally $26,000 remains in his solicitor’s trust account. The husband has paid all these fees himself. However there is no evidence as to how they had been funded. Given the time since separation I am satisfied they are likely to have come from post separation earnings generated by the husband.
114 The wife has spent $123,000 on her legal fees. I understood there to be a further
amount of $22,000 in her solicitor’s trust account. The fees have been paid from the [firm name] loan. The loan attracts a very high interest rate. She, according to her Counsel, has also paid $10,000 for her present motor vehicle.
115 Unfortunately the evidence provided in relation to this loan and its use was again
lacking in detail. The Court was left without any real breakdown of how the money had been expended. Given an amount of $10,000 was apparently used to buy the wife’s motor vehicle the schedules provided by both the husband and the wife failed to take this into account.
116 In Chorn and Hopkins (2004) FLC 93-204 the Full Court of the Family Court of Australia considered the issue of adding back into the pool of assets any paid legal fees. The Court reviewed the authorities and said:
“56. In summary, we consider that the above mentioned decisions of the Full Court establish that, while the treatment of funds used to pay legal costs remains ultimately a matter for the discretion of the trial Judge, in determining how to exercise that discretion, regard should be had to the source of the funds.
57. If the funds used existed at separation, and are such that both parties can be seen as having an interest in them (on account, for example, of contributions), then such funds should be added back as a notional asset of the party, who has had the benefit of them.
58. If funds used to pay legal fees have been generated by a party post- separation from his or her own endeavours or received in his or her own right (for example, by way of gift or inheritance), they would generally not be added back as a notional asset; nor would any borrowing undertaken by a party post- separation to pay legal fees be taken into account as a liability in the calculation of the net property of the parties. Funds generated from assets or businesses to which the other party had made a significant contribution or has an actual legal entitlement may need to be looked at differently from other post-separation income or acquisitions.
59. Outstanding legal fees themselves are generally not taken into account
as a liability.60. If in the exercise of the discretion, it is determined that legal fees already paid should be taken into account as a notional asset, then normally any liability associated with the acquisition of the monies used to pay the legal fees should also be taken into account”.
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117 In all the circumstances I do not intend to include any paid legal fees in the pool
of assets. The wife has paid a considerable amount and has a debt in relation to that. The husband has paid a lesser amount and I am satisfied on balance those funds are likely to be from his post separation earnings.
(iii) liabilities
• Husband’s deferred tax liability. 118 The husband, in his financial statement of 22 November 2007, has sought to
include an amount of $154,581 he estimates, as of December 2007, he will be required to pay in tax. That amount includes $52,068 relating to tax to be paid on money “distributed” to the wife. She did not receive the money. The husband was not cross- examined on these figures and I do intend to include them in the pool on the basis he is responsible for the wife’s deferred liability in relation to the trust distribution.
119 The distribution and the liability are allocated to the husband. The [GUTC] was
used by the husband as his main income sourcing entity. I accept he operated the Trust in the most tax effective manner. It was an entity to which the wife made minimal contributions.
• Husband’s credit cards. 120 The husband seeks to include four credit card debts in the asset pool. As of
October 2007 he had around $29,000 owing on various cards. There is no evidence about the debts – when they were incurred and to what they relate. I do not intend to include them but will take the fact the husband has outstanding debts into account in a general sense pursuant to s 75(2).
121 I find the pool of assets and liabilities to be:
| Assets | Ownership | Value |
| [Former matrimonial home] (husband to retain) | Joint | $ 1,550,000 |
| [Hills property] | Husband | 625,000 |
| Bank accounts | Husband | 960 |
| [ERUT] | Husband | 95,064 |
| Husband’s shares | Husband | 284,056 |
| [Motor vehicle] | Husband | 25,000 |
| Chattels | Husband | 15,000 |
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| Consulting fees owned by [BPL] | Husband | 2,000 |
| [GUTC (inc AVE)] | Husband | 205,204 |
| [BPL] | Joint | 658,368 |
| Chattels | Wife | 10,000 |
| Jewellery | Wife | 2,000 |
| Bank account | Wife | 4,795 |
| Shares in [TH] | Wife | 12,832 |
| Total assets | 3,490,279 |
| Addbacks |
| Debt to [Ms N] | Husband | 230,000 |
| Total addbacks and assets | 3,720,279 |
| Liabilities |
| [Former matrimonial] mortgage | Joint | 260,000 |
| [Hills property] mortgage | Husband | 328,000 |
| Deferred tax liability | Husband | 154,581 |
| Total liabilities | 742,581 |
| Total net assets | 2,977,698 |
| Superannuation assets |
| Global Super Fund | Husband | 98,514 |
| GFR Super Fund | Husband | 210,298 |
| GESB and AMP | Wife | 100,850 |
| Total superannuation | 409,662 |
| Total net assets including superannuation | 3,387,360 |
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Contributions
(i) Initial contributions
122 The parties met in the early 1980s in [the Eastern states]. Their relationship
started in 1983 but it was not until the end of the 1986 [school year] that they lived together on a regular basis. Although the evidence about the timing of events during the 1980s was somewhat unclear I accept that the husband had greater assets than the wife in the early days of their relationship and at the time they commenced cohabitation. He had been in a position to purchase a [light plane], a [4 wheel drive] and he had his 50% beneficial interest in [BPL]. He was also in a position to provide some funds for the purchase of their first property at [a suburban address]. These funds included his cashed in superannuation interests at that time. The wife had minimal assets.
123 The aircraft was sold into the [GUTC] in 2000. Approximately $112,000 of the
proceeds of sale was used to reduce the mortgage on the former matrimonial home at
[the suburban address].124 The home at [the suburban address] was purchased in 1990. That purchase was funded, in part, from the net proceeds of sale of [their first suburban property].
125 I am satisfied that the husband has made a greater initial contribution than the
wife. I am also satisfied that his initial assets have assisted the parties in arriving at their present position. I also take into account this was a long relationship and during the time the parties were living together each worked hard in order to advance their joint position.
(ii) Contributions during the relationship
126 After the parties married and moved from [an outlying area] to Perth they both
worked in their chosen areas. The husband worked in the [resources industry]. The wife worked as a [teacher] and was employed continuously until she was made redundant at the end of the school year in 1999. She received a small redundancy payment. The parties travelled overseas in October 2000 and separated on 26 December, 2000. I accept during the course of the marriage the parties contributions were equal. Each contributed financially as best each was able during this period of time.
127 There is no evidence to suggest that during this period of time either party made any contribution that outstripped the contribution made by the other.
(iii) Post separation contributions
128 After the parties separated they continued to reside at [the former matrimonial home] albeit separately and apart. The husband left the home approximately a year after separation. After June 2002 he has been solely responsible for payment of the mortgage, rates and insurance for that property. He also, for a time, made other payments which include the monitored alarm and the wife’s mobile phone. The wife has had the sole use and occupation since the husband left the property. She has made little contribution to any upkeep.
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129 A distribution from the [GUTC] to the wife of $50,000 was credited towards the
mortgage on [the former matrimonial home] in about March, 2003. The source of the
funds were from the husband’s trading activity and personal exertion.130 The [hills] property was purchased in or around early 2004. It is not suggested
that the wife has made any contribution to this property. It has been acquired solely by the husband and [Ms N]. They have made all the contributions to that property. That property represents approximately 8.75% of the present net asset position. The husband has acquired shares and options as a result of his employment.
131 The husband belongs to two Superannuation Funds. The GFR fund was set up on 27 June 1996. At separation the husband had a beneficial entitlement of $2,719. There have been no contributions since the end of 2006. The Global Superannuation Fund was established on 26 January 2006. The contributions arise out of his employment arrangements.
132 There was no detail about the wife’s superannuation but no doubt, at least the Westate Superannuation scheme relates to her employment.
133 Although the wife has retained her shares in [BPL], her shareholding has
increased and decreased at the will of the husband. The husband has made the sole
input into [BPL] and other entities since separation.134 I accept that the business assets have been acquired, directly, by the husband.
This is not to say that at times the wife has not had made some indirect contribution but in the main it has been the husband who has instigated, planned and executed all required to obtain those assets.
(iv) Assessment on contributions
135 The wife’s counsel appropriately conceded in his opening that an adjustment in
favour of the husband to take into account both his initial and post separation contributions should be reflected in a division of 65% of the assets to him before moving to consider the primarily prospective s 75(2) factors.
136 The husband’s counsel originally included the [hills] property in the schedule of
assets and liabilities. However, having heard the evidence of [Ms B] he indicated that if the Court accepted a value of [BPL] higher than that put forward by the husband then the [hills] property should be quarantined from the global pool and treated separately. Given the way the husband chose to run his case I do not intend to now adopt an asset by asset approach. The husband was aware of [Ms B]’s valuation as early as April 2007. Be that as it may, I cannot ignore the fact the husband made a greater initial contribution and a greater post separation contribution to the [former matrimonial home] and the business assets. He made the sole contribution to the [hills] property. It is appropriate to assess the contributions in the husband’s favour at 72.5%.
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Section 75(2) considerations
137 The wife is now aged 48 years. The husband is aged 53 years. Both are
presently employed. The wife is a [teacher] and there is nothing to suggest she will not continue with this employment into the future. She presently earns less than the husband who says his usual occupation is a geologist and company director.
138 The wife is an alcoholic. She has not drunk since October 2003 but the husband
accepts that it is a potential issue for her. It could put her health and employment at
risk, as it did in the past.139 The husband deposes to being in reasonable health. There is no evidence to suggest otherwise.
140 Both parties have superannuation interests. Neither party sought a splitting
order. In any event I do not consider it appropriate. The husband’s interests are greater than the wife’s and although both will continue to accumulate entitlements it is likely the husband will be in a better position to increase his entitlements in the future. He is presently managing director for [a resources company] where he is paid $40,000 direct into his superannuation fund each year. He says he will finish his involvement with [that company] in “the near future”. However, I consider it likely he will always be able to increase his superannuation to a greater extent than the wife. He said future employment is likely to be along the same lines as his present employment.
141 Both parties have debts. Significantly, in order to fund her legal and accounting
fees the wife entered into a high interest loan. She will need to repay this loan and has not been in a position to do so to date. On the other hand the husband has been able to acquire property and increase his asset base. He is able to access money or its equivalent in stocks and options, it appears, quite readily.
142 Taking into account the wife’s potential health difficulties related to her
alcoholism and what I find to be a lesser earning capacity and ability to acquire and
access resources I intend to make an adjustment of 5% in her favour.
143 The overall division of property is 67.5% to the husband and 32.5% to the wife.
The impact of the proposed orders
144 On the basis of the orders I intend to make the husband will receive $2,286,468. He presently has total assets worth $3,256,883. This includes all the [BPL] shares and [the former matrimonial home] which he wishes to retain.
145 I do not see it appropriate the wife retain her shares in [BPL]. The husband has
dealt with her shares, and his own, without reference to her. He can retain this asset
over which he has always effectively exercised control.146 He will be required to pay the wife $970,415. She will receive total assets of $1,100,892. She has $130,477 at present.
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147 In all the circumstances I consider these orders to be just and equitable to both
parties.
Orders
148 Subject to any submissions from Counsel the orders I intend to make are:
1.
The husband shall pay or cause to be paid to the wife within 60 days of the date of this order the sum of $970,415.
2.
Upon payment to the wife of the sum of $970,415 referred to in paragraph 1 hereof, the wife will:
(a) transfer to the husband all her right, title and interest in and to the property and improvements situated at [the address of the former matrimonial home] being more particularly described as Lot xxx on Deposited Plan xxxxx being the whole of the land comprised in Certificate of Title Volume xxxx Folioxxx; (b) transfer to the husband all her share and interest in [BPL]; (c) transfer to the husband any units and interest held by her in the [GUTC]t; and (d) transfer to the husband any share or interest held by her in [AVE], [BI] Pty Ltd and [MM] Pty Ltd.
3. The wife shall vacate the property at [the address of the former matrimonial home] within 28 days of the date of the payment and transfer referred to in paragraphs 1 and 2 hereof and shall leave the property clean and in good order and repair.
4. The husband shall indemnify the wife and hold her indemnified in relation to:
(a)
any liability of the wife relating to the property situated at [the address of the former matrimonial home] including, in particular, any liability of the wife to Citibank Pty Ltd;
(b) any liability of the wife to the [GUTC]; (c)
any liability of the wife for taxation payable in relation to any income attributed to her by the [GUTC]; and
(d)
any duties and costs relevant to the transfers of shares and interest referred to in this paragraph, including any taxation upon such transfers.
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5. The husband shall within 28 days of the transfer to him of the property situated at [the address of the former matrimonial home] use his best endeavours to refinance the said property so as to exclude the wife from any liability relating to the said property.
6. Save as is specifically provided for in this order, each of the parties shall be the sole owners of the furniture, bank accounts, jewellery, shares, interest in superannuation funds, motor vehicles and other personalty presently in their possession and more particularly the wife shall be the sole owner of the contents and furniture of the property of [the address of the former matrimonial home], excluding the contents of the office which the husband shall retain.
7. Each party shall have liberty to apply in relation to the operation of this order upon the giving of seven days notice to the other.
I certify that the preceding [148] paragraphs are a true copy of the reasons for
judgment delivered by this Honourable Court
Associate
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