GELLEDGE & GELLEDGE

[2012] FamCA 641

FAMILY COURT OF AUSTRALIA

GELLEDGE & GELLEDGE [2012] FamCA 641

FAMILY LAW – PROPERTY – Where the value of a business is in dispute – Where the business is a health care facility catering to a niche market - Where the expert reports apply different business models – Where the valuation applying the current business model is preferred - Consideration of the nature and value of the wife’s interest in her father’s estate – Where the wife’s interest in the estate of her late father is accepted as a financial resource of the parties - Whether the balance sheet should include a tax liability on account of dividends declared to facilitate a lump sum payment to the wife – Where such potential liability is likely to be divided equally and is not included in the balance sheet – Where the contributions of the parties are considered to be equal.

Family Law Act 1975 (Cth): ss 79(4); 75(2)

APPLICANT: Ms Gelledge

RESPONDENT: Mr Gelledge

FILE NUMBER: SYC 3293 of 2008

DATE DELIVERED: 3 August 2012

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Stevenson J

HEARING DATE: 16 March 2011, 3 May 2011, 28 November 2011, 14,15,16 May 2012

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Lloyd SC and Mr Phillips

SOLICITOR FOR THE APPLICANT: Diamond Conway Lawyers

COUNSEL FOR THE RESPONDENT: Mr Kelly SC & Mr Harper

SOLICITOR FOR THE RESPONDENT: PJ Ellis

Orders

1. That within three months of the date of these Orders the husband shall do all acts and things and execute all documents necessary to:

   1.1.effect the transfer of all of the husband’s right title and interest in the fomer matrimonial home known as and situate at … NSW to the wife, and

   1.2.      cause the wife to be paid the sum of $13,600,000.

2. That contemporaneously with the husband’s compliance with Order 1 hereof the wife shall do all acts and things execute all documents necessary to:

   2.1.effect the immediate transfer of all shares held by the wife in M Pty Ltd to the husband,

   2.2.effect the immediate transfer of all shares held by the wife in C Pty Ltd to the husband,

   2.3.effect her immediate resignation from any position she may hold with N Pty Ltd, C Pty Ltd or M Pty Ltd,

   2.4.assign to the husband or his nominee any money standing to her credit in any beneficiary loan account with the G Family Trust,

   2.5.relinquish any power (at law or at equity) that she holds (if any) with the G Family Trust and further renounce all of her interest (if any) as a beneficiary of the said Trust.

3. That upon the wife’s compliance with paragraph 2 hereof the husband shall indemnify her against all debts and liabilities of M Pty Ltd, N Pty Ltd, J Pty Ltd, B Pty Ltd, C Pty Ltd and/or the G Family Trust or other liabilities and any loans she may have from any of those entities.

4. That in the event that the husband fails to comply with Order 1.2 the parties do all acts and things necessary to:

   4.1.effect the sale of such assets of the G Family Trust and/or M Pty Ltd as are necessary to effect a payment to the wife of a sum of $13,600,000 and the balance to the husband.

5. Subject to these orders each party is solely entitled to the exclusion of the other to all items or property of whatsoever kind which are in the possession or control of each of the parties at that date of the making of these orders, including but not limited to all or any monies standing to the credit of either of the parties in any bank, or buildings society, shareholdings, motor vehicles, real property, business, employment and/or superannuation entitlements.

6. That the parties do all things necessary to assign to the executors of the estate of the late Mr F the whole of their right title to and interest in the property situate at and known as Property G in the State of New South Wales.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Gelledge & Gelledge has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYC3293 of 2008

Ms Gelledge

Applicant

And

Mr Gelledge

Respondent

REASONS FOR JUDGMENT

the proceedings  

1. Mr Gelledge and Ms Gelledge are parties to proceedings for settlement of property, arising from the breakdown of their marriage of 40 years.  Ultimately there were three principal issues in the proceedings:

   (1)the value of a  health care facility known as N Pty Ltd

   (2)the nature and value of the wife’s interest in the estate of her late father Mr F

   (3)whether the balance sheet should include a tax liability on account of dividends declared to facilitate a lump sum payment to the wife.

Background

1. The husband was born in 1945 in Northern Europe and is now 67 years old.  He came to Australia in 1946.  In 1964 he completed a degree in the health sciences and began employment in that field.

2. The wife was born in 1947 in Central Europe and is now 65 years old.  She came to Australia in 1956.  She graduated from a technical college with qualifications in commercial services in 1967. 

3. The parties met in 1966 and married in 1967.  The wife worked at a commercial services organisation until mid-1968 and has since been out of the paid workforce. 

4. There were two children of the parties’ marriage namely, B who was born on in 1969 and O who was born in 1972.  The wife devoted herself to the role of homemaker and parent and the husband was the breadwinner for the family throughout their relationship. 

5. In 1968 the parties purchased jointly a home at Property R for $18,800.  The husband injected savings of $10,300 and the parties completed the purchase with a bank loan of $8,500.  They sold this property for $32,000 in 1971 and purchased a home at Property E for $42,500.  They borrowed $25,000 from the Commonwealth Bank to meet the shortfall in the purchase price and to carry out renovations to the property.

6. In the late 1960’s the husband purchased a business in eastern Sydney. He sold this business in 1972 and purchased a business in Suburb A on the lower North Shore of Sydney.  In 1974 he and a business partner, Mr S, took over the lease of a business in a new shopping centre at Suburb A.  The husband and Mr S each held a 50 per cent interest in the two Suburb A pharmacies.

7. In August 1977 the husband’s mother established the G Family Trust.  The trustee was a company known as C Pty Ltd of which the husband was a director and shareholder.  He was also the principal beneficiary of the trust.  The main assets of the trust were the husband’s mother’s apartment at Property D and a block of residential units at Suburb L.

8. In November 1977 the parties sold the Property E for $114,000 and purchased the former matrimonial home for $149,000.  They borrowed $50,000 and injected cash savings of about $10,000, in addition to the proceeds of sale of the Property E. 

9. The husband’s mother died in 1979 and he inherited the whole of her estate.  C Pty Ltd sold Property D for $90,000 in September 1979 and the Suburb L units for $360,000 in September 1980.

10. In November 1980 C Pty Ltd purchased the shares in a company known as N Pty Ltd.  This company operated a health care facility at Property H.  The purchase price was $550,000, which came from the husband’s inheritance and vendor finance of $180,000.

11. In June/July 1981 the husband transferred his interest in the pharmacy at Suburb A to Mr S.  Thereafter he was fully occupied with the administration of N Pty Ltd.

12. In 1984 the parties and the wife’s parents purchased a town house at Property K in the lower North Shore of Sydney for $75,000.  There was some confusion about a transaction in 1987, when the parties executed an acknowledgement of debt in the sum of $112,000.00 in favour of the wife’s parents.  For present purposes, the relevance of this matter is that the parties are still registered proprietors of the property, although they both deposed that they believed that they sold their interest to the wife’s parents in 1987.  Both parties proposed that they transfer their interest in this property to the estate of the wife’s late father.

13. In 1984 the husband invested in a shopping centre joint venture at Suburb P in Western Sydney.  This enterprise was a financial failure for the parties, with the husband ultimately being required to pay $845,000 to CG to extricate himself from the venture. 

14. In 1985 the husband decided to expand his business interests in the health and health care sector.  For that purpose, he entered into various commercial arrangements with Mr T.  They incorporated a company known as B Pty Ltd, of which they are directors.

15. In 1985 B Pty Ltd purchased a property at Property U and acquired 50 licences from a similar business in Sydney.  They constructed a new facility known as Business V, which began to trade in August 1987.  The husband funded this venture with bank borrowings.

16. In June 1998 a company known as TC Pty Ltd purchased a property in eastern Sydney for $2,300,000.  The husband was the director of TC Pty Ltd and he, Mr W and Mr X were shareholders.  TC Pty Ltd borrowed $2,000,000 to develop this property, which was sold for $3,200,000.  The husband incurred a loss of approximately $500,000 on this venture.

17. In 1997 B Pty Ltd acquired land and a health care facility at Property AB in south eastern Sydney.  The company also purchased additional licences from the vendor.  The company funded these acquisitions by bank borrowings of approximately $3,200,000.

18. In 1999 the Property AB was closed and its licences were transferred to Business V.  That facility was expanded to accommodate 170 clients, including the clients from the Property AB facility.

19. In December 2000 the clients of N Pty Ltd moved to J Pty Ltd.  The N Pty Ltd building was demolished and a new facility constructed at Property H.  N Pty Ltd reopened in August 2002.

20. In May 2000 B Pty Ltd purchased land in south eastern Sydney, Property AC, for $1,200,000.  The purchase was wholly funded by bank borrowings.

21. In November 2000 the husband and Mr T acquired a property in south eastern Sydney, Property DR, in the names of their children.  The purchase price was $1,000,000, all of which consisted of bank borrowings.

22. The husband and Mr T acquired the Property DR with a view to development of a complex of units, incorporating the contiguous Property AC site.  They failed to agree on management arrangements for the development.  In September 2001 Mr T acquired the interest of the husband for a cash payment of $950,000 and the assumption of all liabilities associated with the project.

23. In October 2004 the parties purchased an apartment, Unit RB in the name of their daughter O for $485,000.  There is a registered mortgage over the title equivalent to the purchase price, which is to be repaid at call.  The husband’s undisputed evidence was that this step was taken because of concerns as to O’s capacity for financial management. 

24. In June 2007 the husband purchased an investment property, the EC Road Property – lower North Short of Sydney for $335,000.  He sold this property for $347,500 in November 2007.

25. On 28 January 2005 the parties suffered the tragic loss of their daughter B.  She had been diagnosed with a brain tumour in 1999.

26. In 2006 the husband purchased a motor boat for $730,000.  He sold this vessel for $609,200 in May 2008.  He applied the sale proceeds to the purchase of a holiday home in the Blue Mountains (“the holiday home”), for $700,000.

27. In August 2007 the husband and his current partner, Ms KA, jointly purchased an apartment in the lower North Shore of Sydney, Apartment BN for $905,000.  The husband provided the totality of the purchase money.  The parties separated when the husband moved into this property on 31 August 2007.

28. On 12 July 2009 the wife’s father Mr F died.  Probate of his estate was granted in October 2009.  Mr F’s Will created a discretionary trust, of which the wife is one of several beneficiaries.  The nature and value of the wife’s interest in this testamentary trust was an issue in these proceedings.

29. In May 2011 the husband and Ms KA purchased jointly a residential property in the lower North Shore of Sydney, Property MR  for $4,000,000.  He initially borrowed the purchase money from N Pty Ltd.  Ultimately, the purchase money came from approximately $951,000 from the sale of Apartment BN together with a term deposit of $305,000 in the husband’s name and bank borrowings of $3,000,000.

30. Since 17 October 2007 the wife has received $1,970 per week as spouse maintenance.  These payments came from N Pty Ltd and were lodged into the wife’s bank account by direct debit.

Approach To These Proceedings

1. According to guidelines established through a series of leading decisions, the Court is required to determine the following matters on the evidence:

   ·firstly, the assets, liabilities and financial resources of the parties to the marriage are to be determined

   ·secondly, all relevant contributions of each of the parties, within the meaning of paragraphs (a) to (c) of section 79(4) must be identified and weighed against each other

   ·thirdly, the matters in paragraphs (d) to (g) of section 79(4), particularly paragraph (e) which takes up by reference the provisions of section 75(2) must be considered and a determination made as to what, if any, alteration should be made to the entitlements of the parties earlier assessed on account of contribution

   ·finally, an order under section 79 must not be made unless the Court is satisfied that, in all the circumstances, it is just and equitable to make the order.

The Assets, Superannuation, Liabilities and Financial Resources

1. In closing submissions senior counsel for the parties provided an agreed balance sheet in the following terms:

Assets
Ownership				Description		Wife/de facto partner’s value	Husband/de facto partner’s value	Value Agreed ?
1	Joint			The former matrimonial home		$5,750,000	$5,750,000	Yes
2	Husband			Property MR		$2,000,000	$2,000,000	Yes
3	Husband			The holiday home		$650,000	$650,000	Yes
4	Joint			St George Bank Account …869		$-	Yes
5	Husband			Westpac Account		$-	Yes
6	Husband			BMW 2009		$159,000	$159,000	Yes
7	Wife			BMW 2009		$80,000	$80,000	Yes
8	Wife			Toyota		$16,000	$16,000	Yes
9	Husband			N Pty Ltd		$23,850,000	$13,000,000	No
10	Joint			M Pty Ltd		$5,000,000	$5,000,000	Yes
11	Husband			Balance of G Family Trust Assets including interests in B Pty Ltd and J Pty Ltd		$13,320,000	$13,320,000	Yes
12	Wife			Wife’s Jewellery		$53,478	$53,478	Yes
13	Wife			Household Contents – Wife		$-	$-	Yes
14	Husband			Household Contents – Husband		$-	$-	Yes
15	Husband			Husband’s Long Service Leave		$113,444	$113,444	Yes
16	Wife			Wife’s CBA Account …973		$83,019	$83,019	Yes
17	Husband			Husband’s Term Deposit		$200,000	$200,000	Yes
18	Husband			Mortgage Unit RB		$-	$-	Yes
19	Wife			Wife’s interest in her father’s estate		$-	$4,211,950	No
Total				$51,274,941	$44,636,891
Addbacks
20	Husband			Husband’s Contribution to purchase Property MR		$617,668	$617,668	Yes
Total				$617,668	$617,668
Liabilities
21	Husband			Loan payable by husband to N Pty Ltd		$80,528	$80,528	Yes
22	Wife			Loan payable by wife to N Pty Ltd		$66,980	$66,980	Yes
23	Husband			Loan re 7/48-50 Property MR		$1,500,000	$1,500,000	Yes
24	Husband			Tax payable on distribution to husband for payment to wife		$1,355,357	No
25	Wife			Tax payable by wife on distribution		$1,355,357	No
26	Husband			Tax payable on long service leave		$52,751	$52,751	NK
27	Wife			Debt payable by wife to her brother		$200,000	$200,000	Yes
Total				$1,900,259	$4,610,973
SUPERANNUATION
Member				Name of Fund	Type of Interest	Wife/de facto partner’s value	Husband/de facto partner’s value	Value Agreed ?
28	Wife			Ms Gelledge SF		$902,934	$902,934	Yes
29	Wife			Hesta		$131,204	$131,204	Yes
30	Husband			Hesta		$518,571	$518,571	Yes
Total				$1,552,709	$1,552,709
FINANCIAL RESOURCES
Ownership				Description		Wife/de facto partner’s value	Husband/de facto partner’s value	Value Agreed ?
31	Wife			Wife’s interest in her father’s estate total value of $8,423,900 (wife says resource not asset)
Total				$-	$-
SUMMARY – Total Pool (Excluding Resources)
Wife/de facto partner asserts	Husband/de facto partner asserts
32	Property (non superannuation)					$51,274,941	$44,636,891
33	Add backs					$617,668	$617,668
34	Liabilities					$1,900,259	$4,610,973
35	Net property excluding superannuation					$49,992,350	$40,643,586
36	Superannuation					$1,552,709	$1,552,709
37	Net property including superannuation					$51,545,059	$42,196,295
38	Superannuation as % of total pool					3%	4%

1. In relation to the balance sheet the remaining issues were thus:

   ·the value of the N Pty Ltd

   ·the nature and value of the wife’s interest in the estate of the late Mr F

   ·whether a liability of $1,355,357 should be attributed to each of the parties on account of distribution of retained profits to enable a lump sum payment to the wife.

The Value of N Pty Ltd

1. A jointly instructed expert, Mr DV, valued N Pty Ltd at $13,000,000 as at 26 March 2012.  The wife instructed Mr BT to prepare a “critique” of Mr DV’s valuation.  Mr BT at no stage prepared a formal valuation but gave oral evidence that he would be prepared to adopt a figure of $23,850,000.  In a letter of 17 April 2012 to the wife’s solicitor, Mr BT assessed the value of N Pty Ltd at $24,850,000.  The two valuers agreed that $1,000,000 should be deducted from each of their assessments to reflect recent payments of accommodation bonds by three N Pty Ltd clients.  I will thus consider the issue of the value of N Pty Ltd on the basis that Mr DV and Mr BT valued the facility at $13,000,000 and $23,850,000 respectively.

2. It is necessary to have regard to the nature of the N Pty Ltd facility for the purposes of assessing its value.  Mr DV offered this description:

   The subject facility comprises a ‘purpose built’ 64 funded place ‘extra services’ status facility situated over two main levels plus basement services and car parking.  The building was erected in early 2000 as part of a redevelopment and as a result shared en suite style bathrooms were built given the need to maintain maximum number of places.

   The accommodation provided comprises mostly single bed rooms, with four twin bed rooms.  The internal finishes are of a high standard reflective of an ‘extra services’ facility.  One additional room has been converted to provide 64 places in total. 

   The subject is within a high socio-economic area which is considered to be an appropriate location for an ‘extra services’ facility.

3. Mr DV and Mr BT agreed that the husband has adopted an unusual business model for N Pty Ltd.  There was no issue that the normal operating model for an extra services facility incorporates payment of an accommodation bond  by clients.  The husband has elected to fix accommodation bonds for N Pty Ltd notionally in the sum of $410,000 requires lodgement only of $10,000.  The balance of $400,000 is treated as an interest only loan during the resident’s stay at the facility.  Payment is made so as to preserve a daily rate of $150, having regard to the current Commonwealth government interest rate.  The effect of the husband’s business model for N Pty Ltd is to maximise income, at the expense of availability of cash in the form of accommodation bonds.

1. The substantial point of disagreement between Mr DV and Mr BT was whether the husband’s business model should be altered so as to require clients to pay accommodation bonds.  Mr DV was of the view that the husband has sound commercial reasons for continuing with the current model, having regard to the unique nature of the facility.

2. The parties jointly appointed Mr GN to value their various corporate and trust interests.  In his report of 8 May 2012 Mr GN observed:

   I understand that Mr [BT] has valued the [business] on the basis that a purchaser would change the manner in which the facility has been operated.  My understanding is that this would result in reduced annual earnings by charging accommodation bonds to [clients] instead of interest charges.  The lower annual earnings results in the lower going concern value but also results in the purchaser receiving accommodation bonds in the future from new incoming [clients].

3. In his oral evidence Mr DV spelt out very clearly the reasons why he disagreed with Mr BT’s valuation approach.  Mr DV said inter alia:

   I think what continues to be missed is that the ability to attract bonds depends on the standard of the accommodation. 

   The quantity of the bond depends on the quality of the facility. 

   It makes perfect sense to have lump sum bonds if you have the right accommodation. 

   [N Pty Ltd]’s model is unusual but it has a niche market and has been successful.

   I know of no other extra services facility which does not offer en suites.  This is a very unusual facility.

   The market has moved on significantly in the last eight years in terms of what people expect.

   I know of no facility that is directly comparable to [N Pty Ltd]. 

   Probably all but two of the comparables are vastly superior to [N Pty Ltd].

   [N Pty Ltd] is a one-off in the extra services market.

4. In his oral evidence Mr BT said:

   My figure of $23,850,000 includes the value of potential bonds.  My criticism of Mr [DV] is that he did not look at that potential.

   It is correct that my figure of $23,000,000 assumes that the business model is changed before a sale, from $10,000 entry payment to $410,000.  Yes my model assumes that there will be future bonds.

   Yes it appears correct that the husband’s success is that he has successfully operated his business model for decades with almost 100% occupancy rate and that it is a [reasonably well rated] facility occupied by people who are not too fussed about having small rooms and not having their own toilet.

   Yes my core figure of $23,850,000 assumes that all of these changes have been made.

   I am assuming that a hypothetical purchaser would make the changes I suggest.

5. Mr BT noted that the husband told him that he had been approached by an Insurance Company with an offer to purchase his facility “at a premium with the intent of then increasing the bond levels” (Mr BT’s words).  The husband explained that the Insurance Company’s offer was made in about 2004 and was for a figure of approximately $12,700,000 “after renovations”.  Mr DV made his observation of an increase in market expectations for extra service facilities during the last eight years in the context of that offer from Insurance Company.

6. In his oral evidence the husband said “if I changed my business model as Mr [BT] suggests, my business would leak like a boat.  We sought this market and never competed with more lavish facilities.”

7. It seems to me that there is considerable force in these written submissions of senior counsel for the husband: 

   In a nutshell, Mr [BT]’s valuation is misconceived because it does not value the business, as it is, where it is, or at the same time as Mr DV; it values a different business, as at some future date upon the assumption that the purchaser would alter the fundamentals of the business.  That approach values the wrong property, on the wrong date and on the wrong terms.

   Seen in that light, it is not surprising that Mr [BT]’s approach produces a result that is wildly different from a valuation of the business, as it is and how it has been for many years.  Mr [BT] has not done a valuation.  All he has done is to erect a theoretical construct which is divorced from the real world.  As Mr [DV] said in cross examination, anyone can do a theoretical reconstruction, taking whatever numbers you like, but the result is not a valuation of the business; it is a valuation of the construct.

   Moreover, Mr [BT]’s approach has the surprising and altogether un-commercial consequence that the reward for the taking the risk involved in changing the fundamentals is gifted by the theoretical purchaser to the vendor.  That is not the way the real world operates.

8. I accept the submission of senior counsel for the husband that the exercise carried out by Mr BT does not conform to the principles enunciated by the High Court of Australia in Spencer v The Commonwealth [1907] HCA 82;(1907) 5CLR 418. The written submissions of senior counsel for the husband summarised these principles as follows:

   11.  The most elementary proposition in the law of valuation in Australia is that the value of a property is the price a willing but not anxious purchaser would be prepared to pay, and a willing but not anxious vendor would be prepared to accept, for that property at the time in question (not some other property or that property at some other time).

9. In my view it is significant that Mr BT’s valuation of $23,850,000 equates to $372,656 for each of the 64 beds at N Pty Ltd.  In his report Mr DV set out an analysis of “mixed high and low care with bonds and/or part ESS on a gross value dollar per bed” in respect of twelve market transactions between March 2010 to September 2011.  The gross values per bed were as follows:

   ·$300,000

   ·$191,669

   ·$115,000

   ·$241,758

   ·$107,143

   ·$264,285

   ·$102,500

   ·$268,182

   ·$250,000

   ·$259,000

   ·$186,200

   ·$155,600.

   It thus appears that Mr BT’s figure of $372,656 per bed for N Pty Ltd is well out of alignment with these figures.In his oral evidence Mr DV said “there is not a sale in Australia at $388,000 per bed.” That figure was set out in Mr BT’s letter and based on his original valuation assessment of $24,850,000 prior to the agreed adjustment of $1,000,000 on account of recently paid accommodation bonds N Pty Ltd.

10. There was no issue that N Pty Ltd offers relatively small rooms with no ensuite toilet facilities.  I find it difficult to see why the comparatively modest N Pty Ltd facility would yield a per bed value so far in excess of all of the sales listed in Mr DV’s report.  That fact gives me cause for concern as to the reliability of DV’s valuation. 

11. I am also concerned that Mr BT’s valuation approach rests on a number of assumptions, including:

    ·that a purchaser would automatically wish to sacrifice a larger annual turnover for the availability of cash by way of accommodation bonds

    ·that a purchaser would necessarily wish to abandon a business model which has operated successfully for the past 12 years

    ·that the process of conversion to an accommodation bond model would necessarily be achieved in the manner and time frame postulated by Mr BT

    ·that the current 99-100% occupancy rate at N Pty Ltd would be sustainable under the accommodation bond model.

12. For all of these reasons I am persuaded that Mr DV’s evidence as to the value of N Pty Ltd is to be preferred to that of Mr BT.  I find that N Pty Ltd has a value of $13,000,000.

The Nature and Value of the Wife’s Interest in the Estate of the Late Mr F

1. By a Will dated … May 2008 the wife’s father created a discretionary trust in respect of his estate.  The trustees are the wife’s brother, Mr NM and an accountant,Mr WY.  The appointor is Mr NM and the will provided that, if he dies during the existence of the trust without having nominated a successor, the wife will assume this role.

2. The beneficiaries of the trust are defined in the will as:

   (a)  the Principal

   (b)  the Issue of the Principal

   (c)  any person in respect of whom the principal or any of the persons mentioned in the sub-clause (b) above is, in the opinion of the trustee, acting as a parent

   (d)  a Beneficiary Corporation

   (e)  a Beneficiary Trustee

   (f)  a Charity

   (g)  the deceased estate of the Beneficiary up to the time of final administration of the estate.

   The term “principal” is defined as “[Mr NM], [Ms Gelledge], [O] and [Mr NM]’s children”, who are the wife and the parties’ daughter O, the wife’s brother Mr NM and his children.

3. It was common ground that the assets of the trust have a value of $8,423,900.  Senior counsel for the wife conceded that “her interest in the estate is a financial resource which is potentially available for her at some time in the future”.  In his written submissions senior counsel for the husband asserted: 

   It is clear from the decision of the High Court in Kennon v Spry [2008] HCA 56 that a spouse beneficiary’s rights to due administration of a discretionary trust and to due consideration as a beneficiary is property and can be valued (as distinct from the assets of such a trust, which are not property within the definition of ‘property’ in s41(1) of the Family Law Act: In the Marriage of Kelly (No. 2) (1981) 7 Fam LR 762 at 768).

4. The written submissions on behalf of the husband developed this proposition as follows:

   “Spry was, of course, a case in which the husband established a discretionary trust which fell foul of s106B of the Act but there is no reason in principle why a discretionary trust established by a third party (in this case, the wife’s father) should be treated any differently when it comes to identifying the wife’s rights to due administration and to due consideration of such a trust as ‘property of the parties or either of them’ for the purpose of s79(1)(a):  the nature of those rights, as rights, and therefore as ‘property’, are identical;  the fact that the settler of the trust (in this case, the wife’s father) or its trustees (the wife’s brother and her accountant, Mr [WY]) are third parties is immaterial;  the property is the same Clause 7(a) of the trust (at page 54 of the affidavit of [Mr NM] sworn on 4 May 2012 empowers the trustees to ‘pay…any part of the Trust Fund for one…of the Principals’;  the wife is one of those people (clause 4, page 52);  and that trust power could have been exercised by appointing the whole of the trust assets to the wife during the marriage because the trust arose by operation of law on 18 July 2009 when the late [Mr F] and it remained on foot up to and including 2 December 2010 when the husband and the wife were divorced.  See Spry at [126] per Gummow and Hayne JJ.”

5. Exhibit 1 was a memorandum in respect of a meeting held on 23 September 2009 between Mr NM and Mr WY, in relation to the distribution of the assets of the trust.  This meeting took place approximately two months after the death of the wife’s father and almost two years following the separation of the parties to these proceedings.

6. This memorandum stated inter alia:

   Subject to her current matrimonial dispute, transfer of [Property G] from [Mr F] to [the wife]’s interest, an adjustment will then have to be made between [Mr NM] and [the wife] in respect to differential of the above…

   The memorandum read further:

   In order to be equitable to [the wife], there would have to be a square-up after setting aside the $450,000 i.e. $150,000 per child, as bequeathed by your dad.

7. In his oral evidence Mr [NM] said of this memorandum:

   One possibility being discussed was the transfer of [Property FD] to my three children and a square-up – this was what [Mr WY] suggested.  We were throwing around ideas

   It has to be fair.”

8. It seems to me that I cannot conclude that the wife’s interest in the estate of her late father has a value of $4,211,950 as was contended on behalf of the husband.  It is true that the wife has a right, as a beneficiary, to due administration of the trust.  The inescapable fact, however, is that it is entirely a matter within the discretion of Mr NM and Mr WY whether she obtains any benefit from the trust at all.  Depending completely on the exercise of their discretion, the wife may receive any amount between zero and $8,423,900 from the assets of the trust.  Nothing can alter that fundamental proposition.

9. In my view, a strong inference is available that Mr NM will take steps to ensure that the assets of the trust are distributed equally between the wife and himself.  He gave evidence that he has held no further discussions with Mr WY since the meeting on 23 September 2009.  In my view, it can thus be inferred that he has not changed his intention to effect a “squaring up” with the wife since that date. 

10. In these circumstances I find that the wife’s interest in the estate of her late father is a financial resource.

Tax Payable on Distributions to the Husband and the Wife

1. Senior counsel for the husband sought to include in the balance sheet a liability of each party in the sum of $1,355,357, being “tax payable on distribution to husband for payment to wife” and “tax payable by wife on distribution”.The issue is whether the husband can and/or will make a lump sum payment to the wife without resort to retained profits of the corporate entities, the distribution of which will create a tax liability.  On the husband’s behalf it was submitted that “the inescapable conclusion is that to meet an order for payment of $11,500,000 the husband must turn to the [M Pty Ltd] and the [G] Family Trust.”

2. In a letter dated 14 May 2012 to the parties’ solicitors (Exhibit 6), Mr Gaudion calculated the tax which would be incurred on the distribution of the accumulated profits from N Pty Ltd, M Pty Ltd, J Pty Ltd and B Pty Ltd.  Adopting these figures, senior counsel for the husband made these calculations:

   40.      Using Mr Gaudion’s reasoning set out in exhibit 6:

   40.1If a payment of $11,500,000 is to be met from franked dividends there must be franking credits of $4,928,571.

   40.2The total franking credits in [N] Pty Ltd and [M Pty Ltd] are $6,646,039.

   40.3The total payment to the wife may therefore be met from franked dividends.

   40.4The taxable income from the dividend will be $11,500,000 plus $4,928,571 = $16,428,571.

   40.5The total tax payable on that dividend will be $7,639,286.

   40.6The additional tax payable by the parties will be $7,639,286 less franking credits of $4,928,571 = $2,710,714.

   40.7If the distribution of $11,500,000 is paid by way of equal distribution to the parties so that the wife receives a distribution of $5,750,000 and the husband receives $5,750,000 (who then pays his share to the wife) each party will incur a tax liability of $1,355,357.

1. Senior counsel for the wife offered no challenge to these calculations.  His submission was as follows:

   The first point to make is that there is no evidence that the husband intends to fully distribute the retained profits in the entities identified to these proceedings.  Indeed, the evidence of [the husband] is to the contrary, namely, that he is unaware as to the quantum of any distributions he might make, and is equally unaware as to the quantum of any borrowing he might take from his bankers.  His evidence was, that he did approach Westpac to “make preliminary enquiries” as to potential borrowing but gave no indication to the Bank of any sum certain he might wish to borrow.  The figures suggested by the husband in the proceedings are figures recognising a complete distribution of his entitlement and the wife’s entitlement from the various entities when such contention is not available to him given his evidence.

2. In his oral evidence the husband said that he had consulted staff of the Westpac Bank within the previous two weeks but did not make enquiries about a specific amount. He said that he believed that he has the capacity to pay $11,700,000 to the wife within three months.  He said further that, if he were required to pay a sum greater than $11,700,000 to the wife, “I would need to borrow some funds from Westpac and the rest would come from undistributed profits.”

3. In my view the husband’s own evidence militates against a necessary inference that a lump sum payment by him to the wife will inevitably result in a tax impost to the parties in any particular amount.  His oral evidence suggested that he may make a lump sum payment to the wife from a combination of bank borrowings and dividends.  In those circumstances, I cannot be certain about the amount of tax which would accrue to the each of the parties as a result of a lump sum payment to the wife.

4. The fact is that it was common ground that the wife will receive a lump sum and the husband will become solely entitled to the parties’ corporate interests.  He will have the opportunity to structure the distribution of retained profits in the most tax-advantageous manner from time to time.  He will receive the ongoing benefit of income from these commercial operations, which in the past has been of a level sufficient to allow accumulation of substantial retained profits.

5. In these circumstances it seems to me to be more appropriate to take into account the tax debts on distribution of retained profits as a section 75(2) factor, rather than to attribute to each party a liability in the balance sheet.  Accordingly, I will consider payment of tax on declaration of dividends in that context of any appropriate adjustment pursuant to section 75(2).

6. I thus find the assets, superannuation, liabilities and financial resources of the parties to be as follows, omitting those items which the parties agreed in the final balance sheet to exclude or assign a nil value:

Assets
Ownership				Description	Value
1	Joint			The former matrimonial home	$5,750,000
2	Husband			Property MR	$2,000,000
3	Husband			The holiday home	$650,000
4	Husband			BMW	$159,000
5	Wife			BMW	$80,000
6	Wife			Toyota	$16,000
7	Husband			N Pty Ltd (asset of G Family Trust)	$13,000,000
8	Joint			M Pty Ltd	$5,000,000
9	Husband			Balance of Family Trust Assets including interests in B Pty Ltd and J Pty Ltd	$13,320,000
10	Wife			Wife’s Jewellery	$53,478
11	Husband			Husband’s Long Service Leave	$113,444
12	Wife			Wife’s CBA Account …973	$83,019
13	Husband			Husband’s Term Deposit	$200,000
14	Husband			Husband’s contribution to purchase price of Property MR	$617,668
Total				$41,042,609
Liabilities
15	Husband			Loan payable by husband to G Family Trust	$80,528
16	Wife			Loan payable by wife to G Family Trust	$66,980
17	Husband			Loan in relation to Property MR	$1,500,000
18	Husband			Tax payable on long service leave	$52,751
19	Wife			Debt payable by wife to her brother	$200,000
Total				$1,900,259
SUPERANNUATION
Member				Name of Fund	Value
20	Wife			Ms Gelledge Self-Managed Fund	$902,934
21	Wife			Hesta	$131,204
22	Husband			Hesta	$518,571
Total				$1,552,709
FINANCIAL RESOURCES
Ownership				Description
23	Wife			Wife’s interest in her father’s estate with total value of $8,423,900

The contributions of the parties

1. On behalf of the wife it was submitted that contributions should be found to be equal as at the date of the trial.  On behalf of the husband it was submitted that there should be a five per cent adjustment in his favour, on account of his introduction of the assets of the G Family Trust in 1979.  The original assets of the trust were realised in a total amount of $450,000 in 1979/1980.

2. It was suggested on behalf of the husband that his introduction of the assets of the G Family Trust is “a compelling seed capital scenario”, in that the availability of these funds ultimately generated the parties’ present day wealth.  In my view, however, the situation is not so clear cut in light of the husband’s unsuccessful business ventures with the Suburb P shopping centre and the Eastern Sydney development.  In 1984 he was required to pay $845,000 to CG in order to extricate himself from involvement in the shopping centre project.  He made a loss of $500,000 in respect of the Eastern Sydney development.  These sums were significant amounts of money in 1984 and 1998.

1. As set out above, bank borrowings funded the acquisition of the parties’ interests in J Pty Ltd; the Property AB facility and 53 licences and the purchase of Property DR.  The original acquisition by C Pty Ltd of the shares in N Pty Ltd was funded as to approximately 33 per cent by way of vendor finance.

2. In light of these substantial borrowings to fund the parties’ acquisition of assets and the husband’s significant financial losses in respect of the Suburb P shopping centre and the Eastern Sydney development, I am not persuaded that he can sustain a “seed capital” submission.  With respect to the losses on the two development projects, I am mindful of the wife’s uncontradicted evidence that she played no role in the financial decision making of the family.  I am also conscious that the husband received the inheritance from his mother some 34 years ago and some 30 years prior to the parties’ separation.

3. Neither party advanced any other contention in support of a contribution finding in his or her favour.  I am persuaded, and I find, that the contributions of the parties were equal as at the date of trial.

Section 75(2) factors

1. In considering s 75(2) factors I have found that the wife’s interest in the estate of her late father is a financial resource and that there are sound reasons to believe that she will probably share the assets equally with her brother.  That factor must be taken into account in favour of the husband in the context of s 75(2).

2. The husband will incur tax liabilities when retained profits from the corporate entities are distributed, at whatever time he elects to declare dividends.  As I have observed above, he will have the opportunity to make the most tax effective arrangements in terms of declaration of dividends from time to time.

3. As also observed above, the husband will receive the ongoing benefit of substantial income generated by N Pty Ltd and J Pty Ltd.  These enterprises have achieved commercial success, as demonstrated by the fact that there are significant retained profits after long-term provision of an income stream for the parties.

4. In all of the circumstances, I can identify no basis for an adjustment in favour of either party pursuant to s 75(2). In fact, neither party contended for any such adjustment in his or her favour.

Result

1. I thus find that the parties’ net assets of $40,695,059 should be divided equally.  Accordingly, they will each take net assets and superannuation to the value of $20,347,529.

2. The scheme of the orders sought by each of the parties will result in the husband becoming solely entitled to the corporate entities and the wife taking the former matrimonial home.  The husband will pay a lump sum to the wife and they will otherwise retain all assets and superannuation in their respective possession.  It was common ground that the parties will transfer their interest in the Property G  to the estate of the late Mr F.

3. The wife will take the following assets and superannuation:

1. The former matrimonial home	$5,750,000
2.BMW Motor Vehicle	$80,000
3.Toyota Motor Vehicle	$16,000
4. Jewellery	$53,478
5.CBA Account	$83,019
6.Hesta Superannuation	$902,934
7.Self-Managed Superannuation Fund	$131,204
$7,016,635

She will have the following liabilities:

1. Loan payable to G Family Trust	$66,980
2.Loan payable to Mr NM	$200,000
$266,980

The wife will thus hold net assets and superannuation to the value of $6,749,655 which falls short of the entitlement of $20,347,529 by $13,597,874.

1. The husband will take the following assets and superannuation.

1. Property MR	$2,000,000
2. The holiday home	$650,000
3. BMW Motor Vehicle	$159,000
4.N Pty Ltd	$13,000,000
5. M Pty Ltd	$5,000,000
6. Balance of G Family Trust Assets Including Interests in B Pty Ltd and J Pty Ltd	$13,320,000
7. Long Service Leave	$113,444
8. Term Deposit	$200,000
9. Funds contributed to purchase of Property MR	$617,668
10. Hesta Superannuation	$518,571
$33,945,404

He will have the following liabilities:

1. Loan payable to G Family Trust	$80,528
2. Loan in relation to Property MR	$1,500,000
3. Tax Payable on Long Service Leave	$52,751
$1,633,279

1. The husband will thus hold net assets and superannuation to the value of $33,945,404 which exceeds his entitlement of $20,347,529 by $13,597,825.  I will order that the husband cause payment to the wife of a rounded-off sum of $13,600,000.  This payment will be made within three months of the date of these orders.

2. The wife will have an unencumbered home worth $5,750,000, two motor vehicles which are free of debt; superannuation to a total value of approximately $1,034,000 and cash reserves of around $13,800,000.  She is of course at liberty to arrange her asset base as she sees fit, with a view to generation of an income stream.

3. The husband will take the parties’ income-producing assets and absorb the tax payable on distribution of accumulated profits.  He will have control of the manner and time of declaration of dividends.  He will continue to receive the substantial income generated by the corporate entities.  His partner Ms KA receives a gross income of $2,179 per week.  In all of the circumstances I regard this outcome as just and equitable.

I certify that the preceding eighty-three (83) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Stevenson delivered on 3 August 2012.

Associate:     

Date:              3 August 2012