Gerber & Bradley (Formerly Gerber) & Ors
[2012] FamCAFC 211
•12 December 2012
FAMILY COURT OF AUSTRALIA
| GERBER & BRADLEY (FORMERLY GERBER) AND ORS | [2012] FamCAFC 211 |
| FAMILY LAW – APPEAL – PROPERTY– where the trial Judge divided identifiable property found to have a net value of $1,541,792 together with an amount of $500,000 being his assessment of the value of the husband’s beneficial half interest in a company, in which all shares were held by the husband’s brother, as to 56 per cent to the husband and 44 per cent to the wife – where the Full Court found there was no substance in the challenges by the husband to the trial Judge’s findings that there had been non disclosure by the husband, particularly in relation to the husband’s interest in the company owned by his brother and to the value of that interest, and that the husband had wasted funds by permitting himself to be declared bankrupt and in pursuing proceedings in the District Court against the wife in relation to a debt owed by her to a company in which both the husband and the wife were shareholders – where the Full Court found error in the trial Judge’s calculation of the amount of the funds wasted by the husband in pursuing the District Court proceedings against the wife and recalculated the parties’ entitlements to correct that error –appeal allowed –orders amended – no order for costs – certificates issued to both parties. |
| Corporations Act 2001 (Cth) Family Law Act 1975 (Cth) Federal Proceedings (Costs) Act 1981 (Cth) |
| Black v Kellner (l992) FLC 92-287 Weir v Weir (1993) FLC 92-338 |
| APPELLANT: | Mr Gerber |
| 1ST RESPONDENT: | Ms Bradley (formerly Gerber) |
| 2ND RESPONDENT: | A Pty Ltd |
| 3RD RESPONDENT: | B Pty Ltd |
| 4TH RESPONDENT: | R Gerber |
| FILE NUMBER: | (P) PAF | 2087 | of | 2004 |
| APPEAL NUMBER: | EA | 145 | of | 2010 |
| DATE DELIVERED: | 12 December 2012 |
| PLACE DELIVERED: | Canberra |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Finn, May and Thackray JJ |
| HEARING DATE: | 1 May 2012 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 24 September 2010 |
| LOWER COURT MNC: | [2010] FamCA 861 |
REPRESENTATION
| APPELLANT: | In person |
| COUNSEL FOR 1ST RESPONDENT: | Mr Othen |
| SOLICITOR FOR 1ST RESPONDENT: | Champion Legal |
| 2ND RESPONDENT: | No appearance |
| 3RD RESPONDENT: | No appearance |
| 4TH RESPONDENT: | No appearance |
Orders
The appeal be allowed.
Order 3 of the orders made on 24 September 2010 (as amended pursuant to “the slip rule” on 17 November 2010) be amended by the substitution of the figure “53” for the figure “63” and the substitution of the figure “47” for the figure “37” in that order.
There be no order for costs in relation to the appeal.
The Court grants to the appellant husband a costs certificate pursuant to the provisions of s 9 of the Federal Proceedings (Costs) Act 1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the appellant husband in respect of the costs incurred by him in relation to the appeal.
The Court grants to the respondent wife a costs certificate pursuant to the provisions of s 6 of the Federal Proceedings (Costs) Act 1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the respondent wife in respect of the costs incurred by her in relation to the appeal.
The order made by the Full Court on 21 October 2011 which required that the sum of $10,000.00 in the “controlled money account” (being Commonwealth Bank Account Number…) be held as security for the wife’s costs in the appeal pending further order of the Full Court, be discharged.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Gerber & Bradley (formerly Gerber) and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EA 145 of 2010
File Number: (P) PAF 2087 of 2004
| Mr Gerber |
Appellant
And
| Ms Bradley (formerly Gerber) |
Respondent
REASONS FOR JUDGMENT
Introduction
This is an appeal by Mr Gerber (“the husband”) against all orders made by Coleman J on 24 September 2010 in property settlement proceedings under
s 79 of the Family Law Act 1975 (Cth) (“the Act”) between the husband and Ms Bradley (formerly Gerber) (“the wife”).
The orders appealed were subsequently amended pursuant to “the slip rule” on 17 November 2010 but only for the purposes of identifying more correctly certain properties and amending the name of a bank.
As will emerge from what follows, this is a somewhat complex matter. But suffice it to say by way of introduction that his Honour divided the net value of the parties’ assets identified by him at $1,541,792 (exclusive of their superannuation interests which totalled $65,607), together with an amount of $500,000 being his Honour’s assessment of the value of the husband’s interest in a company, B Pty Ltd, in the proportions, according to his Honour (Reasons [382]), of 56 per cent to the husband and 44 per cent to the wife.
Before explaining more precisely the orders made by his Honour and the issues raised by the grounds of appeal, it will be useful to refer to the history of the parties’ financial affairs as found by his Honour, and to their assets and liabilities as found by him.
Background history
Coleman J found the following facts as “background to the proceedings” (Reasons [153] – [184]). His Honour explained (at [154]) that where such facts were “controversial” and could not be sourced in documents, and that having regard to his findings with respect to credibility, such facts were based on the wife’s assertions rather than on those of the husband (at [30] – [152]):
· The wife was born in 1964 and the husband in 1961. They commenced cohabitation in 1986, married in June 1990 and separated under the one roof in March 2003, with the husband vacating the former matrimonial home in June 2004. (Reasons [155] – [158]).
· There are two children of the marriage, L born in July 1992 and J born in December 1995. (Reasons [159]).
· The parties initially commenced their cohabitation at a property at V, owned by the husband on which there may have been a small mortgage. (Reasons [160]).
· In 1992 Gerber Industries Pty Limited was incorporated and commenced business. One half of the shares in the company were held by the husband and wife, and the other half by the husband’s brother. (Reasons [161]).
· In 1993 the husband and wife purchased M property in their joint names. A mortgage was acquired to complete that purchase. (Reasons [162]).
· In 1995 Gerber Industries Pty Limited purchased a factory unit at Y. A mortgage was acquired to complete that purchase. (Reasons [163]).
· In about 1995 the husband and wife purchased P property in their joint names. A mortgage was acquired to complete that purchase. The parties then vacated the V property and occupied the P property. The V property was rented out. (Reasons [164]).
· In 2001 and 2002 a superannuation fund was established, with its members including the husband, the wife and the husband’s brother, R Gerber (who is hereafter referred to as “the husband’s brother”). (Reasons [165]).
· In August 2002 Gerber Industries Pty Limited became A Pty Limited (“A”). (Reasons [166]).
· In November 2002 the husband and wife purchased K property in their joint names. A mortgage was acquired to complete that purchase. (Reasons [167]).
·
The parties separated under the one roof, at the P property, on
28 March 2003. (Reasons [168]).
· In April 2004 B Pty Limited (“B”) was incorporated. The registered office of the corporation was the Y factory unit owned by A Pty Ltd. The husband’s brother was the sole shareholder and director of B. (Reasons [169]).
· On 26 and 27 April 2004 the wife withdrew $50,000 from the bank account of A Pty Ltd. In addition shortly thereafter the wife received approximately $80,000 as a result of the realisation of investments which the parties had by that time accumulated. (Reasons [170]).
· In May 2005 the husband and his brother resigned as directors of A. (Reasons [171]).
· In June 2005 A Pty Ltd was placed into liquidation. (Reasons [172]).
·
In October 2005 the Supreme Court ordered that the winding up of
A Pty Ltd be terminated pursuant to s 482 of the Corporations Act 2001 (Cth). (Reasons [173]).
· On 19 October 2005 the husband was reappointed as a director of A Pty Ltd. (Reasons [174]).
· During 2006, the husband caused a Volvo motor vehicle, previously in the wife’s possession, to be removed and thereafter used by Ms N with whom the husband commenced a de facto relationship in April 2006. (Reasons [175]).
· During 2006, the husband converted an existing shed structure on the K property to provide accommodation for himself, Ms N and others. (Reasons [176]).
· In July 2008 the Owners Corporation of the M unit obtained judgment against both the husband and the wife in the Local Court in the sum of $29,158.30 relating to unpaid unit levies with respect to that unit. Either party could have paid the arrears. (Reasons [177]).
· In July 2008 a bankruptcy notice issued against both parties in reliance upon the Local Court judgment against them in favour of the Owners Corporation. In August 2008 the husband was declared bankrupt. (Reasons [178]).
· In September 2008 A Pty Ltd obtained default judgment against the wife in the sum of $211,219.69. The statement of claim upon which it was based issued on 5 June 2008. The basis of the claim was the $50,000 allegedly “stolen” by the wife from A Pty Ltd’s bank account in April 2004. (Reasons [179]).
· On 26 February 2009 the husband’s trustee in bankruptcy sold V property to Ms N’s son. Surplus funds remaining after payment out of the husband’s bankruptcy totalling $31,330.93 were paid into a controlled money account in trust for the parties. (Reasons [180]).
· On 20 March 2009 interim orders were made by consent in this court, including an order that the wife appoint a manager of M property. (Reasons [182]).
· Following those orders the wife was responsible for collecting rental from M property and applying it for the payment of mortgage and outgoings on the property. (Reasons [184]).
· The husband’s bankruptcy was annulled in June 2009. (Reasons [183]).
His Honour concluded his background findings with findings (at [184] – [190]) in relation to B Pty Ltd which, it will be recalled, was the company incorporated in April 2004, some twelve months after the husband and the wife had separated, with the husband’s brother as the sole director and shareholder. We will record those findings when we consider the grounds of appeal directed to the affairs of B Pty Ltd.
It is not entirely clear from his Honour’s reasons or from any other material before us, as to when the property settlement proceedings between the husband and the wife were commenced. There is before us a document entitled Amended Response to an Application for Final Orders which was filed on behalf of the husband on 15 July 2004, and thus it can be assumed that the wife had instituted proceedings prior to that date.
It is, however, clear from the second paragraph of his Honour’s reasons that by the time the trial commenced before him on 11 November 2009, A Pty Ltd, B Pty Ltd and the husband’s brother had been joined in the proceedings as the result of the wife seeking relief against those parties, although it also emerges from [18] of the reasons, that the husband’s brother also sought, at least initially, relief which included a declaration that he held the “sole right title and interest” in B Pty Ltd and in C Pty Ltd. But as was explained by his Honour at [21] to [26], the husband’s brother withdrew from the proceedings on 23 August 2010 at a time when his cross examination had not been concluded, and he did so without indicating what orders, if any, he would continue to seek.
The assets and liabilities of the parties
At [191] to [326] of his reasons his Honour examined in great depth the claims of the husband and wife in relation to various assets and liabilities. We will in due course explain his Honour’s findings and conclusions made in the course of his examination so far as that will be necessary for our consideration of the grounds of appeal.
At this point it need only be said that his Honour concluded at [327] that “[t]he assets and liabilities of the parties which can safely be identified and quantified” were as they appear in the following table (on which we have identified where necessary the legal owner of an asset, being either the husband (“H”), the wife (“W”), or the husband’s brother, R Gerber, (“RG”):
Assets & Liabilities
Debit
Credit
K property [H & W]
$800,000
M property [H & W]
$1,200,00
P property [H & W]
$325,000
Wife’s bank account
$2,471
Wife’s car
$12,850
Interest in A Pty Ltd [H & W & RG]
$128,221
A Pty Ltd debt to husband
$103,558
Wife’s funds at separation
$80,774
Funds lent to wife by A Pty Ltd
$50,000
Funds wasted by husband pursuing $50,000 claim against wife
$160,000
Sub Total
$2,862,874
Mortgages on M & K
$1,133,586
$53,334
GST on M sale
$134,162
Sub Total
$1,321,082
$1,321,082
Net
$1,541,792
Wife’s superannuation $16,607
Husband’s superannuation $49,000
Later in his reasons after concluding at [360] that the parties’ contributions could not be quantified in isolation from the relevant s 75(2) factors, his Honour noted that the “balance sheet” or table of assets and liabilities earlier provided (and as set out in the previous paragraph of our reasons) did “not include any sum in relation to the husband’s half share of [B Pty Ltd]”. His Honour went on to value that half share at no less than $500,000, saying:
380.… To regard the husband’s interest in [B Pty Ltd] as being worth no less than $500,000, whilst not being unduly cautious, can be supported by reference to the evidence of the benefits which [B Pty Ltd] has provided to him over the last six years. If having regard to that sum is excessive, the husband cannot complain. It was always open to the husband to “come clean”. To the end, he deliberately failed to do so.
His Honour’s conclusion that the husband has, or was entitled to, a half share in B Pty Ltd is apparently based on the position of the husband’s brother prior to his withdrawal from the proceedings, and which was recorded by his Honour early in his reasons in the following way:
27.Significantly, on the fifth day of the trial, 23 February 2010, when present in court, and represented by competent counsel, the husband’s brother amended his application “so that it would read that [R Gerber] be declared to hold 50 per cent right, title and interest in [B] Pty Ltd”. The husband’s brother has historically always held 100 per cent of the issued share capital of [B Pty Ltd]. Although not expressly stated, the concession thus made was that the husband was entitled to the other 50 per cent “right, title and interest” in [B Pty Ltd]. By the time the husband’s brother thus amended his application, the husband had been extensively cross examined. The husband’s brother had not been cross examined by that time.
The distribution of property made by the trial judge
His Honour’s conclusion as to the proportions in which the parties’ property, which he had thus identified, was to be divided in light of their contributions and following a consideration of the s 75(2) matters (but in relation to which his Honour appears to have concluded at [374] to [379] that no adjustment was necessary) was then as follows:
382.To regard the entitlements of the parties to the net assets as found, plus an additional sum of $500,000 as 56 per cent to the husband and 44 per cent to the wife would in the Court’s view reasonably reflect the factors discussed throughout the reasons. So doing would result in the husband being entitled to receive $1,143,404 and the wife to receive $898,388. The husband would accordingly receive $245,016 more than the wife would receive. In the exercise of an undoubtedly broad discretion, such a disparity is considered to fairly reflect the various factors to which the Court has referred.
The orders to give effect to this division were then in summary as follows (our numbering follows that in the trial Judge’s orders):
(1)The husband was to transfer his interest in the jointly owned P property to the wife free of encumbrance.
(2)The husband and wife were to sell the M and K properties.
(3)The proceeds of sale of M property and K property remaining after payment of the mortgages, agents’ commission, selling expenses and Capital Gains Tax were to be divided in shares of 63 per cent to the wife and 37 per cent to the husband.
[Orders (4) to (7) provided for a contingency fund for Capital Gains Tax in the sum of $134,000, and Orders (8) to (10) provided for matters such as the occupation and management of the properties pending sale].
(11)In the event that M property or K property was not subject to an exchanged contract for sale on or before 29 October 2010, it/they were to be offered for sale by public auction as soon as practicable after 10 December 2010.
(12)In the event that the provisions of Order 11 were enlivened,
Mr S was appointed as trustee for sale of M/K properties.
[Orders (13) and (14) related to the variation of the appointment of and the powers of the trustee for sale].
(15)The wife was to transfer to the husband her shareholding in
A Pty Ltd together with any rights against A Pty Ltd and/or entitlements from A Pty Ltd.
(16)The husband was to indemnify the wife with respect to any liability to A Pty Ltd, and with respect to any liability arising out of the wife’s shareholding in, and/or directorship of A Pty Ltd, including any taxation liability.
(17)The husband was to cause the default judgment obtained by
A Pty Ltd against the wife in the District Court to be set aside, and the action against the wife by A Pty Ltd was to be discontinued.
(18)In the event that the husband failed to comply with Order 16 within 28 days, a Registrar of the Family Court was to be appointed to execute such documents pursuant to s 106A of the Act.
(19)Any interest in, entitlement to, or claims against B Pty Ltd arising or asserted by the wife were assigned to the husband, or his nominee.
(20)It was declared that the wife was not indebted to the husband’s brother and/or B Pty Ltd.
(21)It was declared that the husband’s brother holds one half of the issued share capital of B Pty Ltd on trust for the husband.
(22)All claims against the wife by or on behalf of the husband’s brother and/or B Pty Ltd were dismissed.
(23)The wife’s interest in the Gerber Superannuation Fund was to be assigned to the husband or his nominee.
(24)Save as provided for by these orders, each of the parties and third parties was to retain all property and superannuation interests in the ownership of him, her, it or them.
(25)Costs were reserved.
His Honour did not provide a schedule or table showing how each party was to receive his or her entitlement to share in the net value of their assets (excluding superannuation) being $1,541,792 plus $500,000 (on account of the interest attributed to the husband in B Pty Ltd), leading to a total of $2,041,792. However as will have been seen from [382] of his reasons, he calculated that the husband was entitled to receive or retain (if in part only notionally) property to the value of $1,143,404 and the wife property to the value of $898,388.
Having regard to the identification of ownership in the table of assets and liabilities earlier set out and to the matters canvassed in [383] to [395] of his Honour’s reasons, we are able to construct the following tables:
Husband
Interest in B Pty Ltd
$500,000
Funds wasted in District Court claim against the wife
$160,000
Interest in A Pty Ltd
$128,221
A Pty Ltd debt to husband
$103,558
37 per cent share of net proceeds of K property and M property (calculated at Reasons [393]):
$251,625
$1,143,404
Wife
P property
$325,000
Bank Account
$2,471
Car
$12,850
Funds lent at separation
$80,774
Funds lent by A Pty Ltd
$50,000
63 per cent share of net proceeds of K property and M property (calculated at Reasons [392]):
$427,293
$898,388
The grounds of appeal
There were initially eight grounds of appeal, but Ground 3 was abandoned in the written summary of argument prepared on behalf of the husband by his solicitor. The essence of the remaining seven grounds was that his Honour had erred in his conclusion or in finding that:
·
the husband had embarked on wastage of assets post separation
(Ground 1);
· there was “a failure of financial disclosure” by the husband (including with respect to monies from B Pty Ltd used to reduce joint debts) (Ground 2);
· the husband was prepared to go bankrupt in order to reduce his equity in entities which he owned (Ground 4);
·
$920,280 (or “in excess of $1 million”) was paid from money generated from B Pty Ltd to the husband and/or A Pty Ltd between 1 April 2004 and
30 December 2009 (Ground 5(a)); or in the alternative, if that finding was correct, then the assessment of the husband’s contribution which only took into account the amount of $393,460 being post-separation payments by B Pty Ltd to the K property mortgage, was in error (Ground 5(b));
· A Pty Ltd had incurred $160,000 in expenses in recovering $50,000 from the wife or that the husband recklessly or wantonly alienated the sum of $160,000 in pursuit of the $50,000, and thus it was an error to add back the sum of $160,000 against the husband (Ground 6);
· the husband wasted $37,000 which was paid to his trustee in bankruptcy as this is inconsistent with his Honour’s conclusion that neither party could be held more liable than the other in relation to the loss occasioned through non-payment of the M property strata levies (Ground 7);
· the husband’s interest in B Pty Ltd was “not less than $500,000” as such finding is not supported by the evidence (Ground 8).
It emerged from the written summary of argument prepared by the husband’s solicitor that:
· Grounds 1, 4, 6 and 7 are related in that they are directed to the issue of waste by the husband; and
· Grounds 2, 5 and 8 are related in that they are directed to the issue of non-disclosure by the husband.
This categorisation of the grounds was adopted by Counsel for the wife in his oral submissions, and we will also adopt it in the discussion which follows.
We mention at this point that the Notice of Appeal (including the grounds appearing therein) and the husband’s written summary of argument in support of the grounds had been drafted by a solicitor, Mr Brown, who had appeared for the husband at trial. This was of considerable benefit to the husband and also to us because at the hearing of the appeal the husband appeared without legal representation, and although he was able to give us some assistance with figures, he was not able to provide us with great assistance with what might be termed, the technical legal aspects of this somewhat complicated matter.
Grounds directed to findings of waste
Early in his reasons at the commencement of his discussion of credit issues, his Honour observed:
33.The evidence reveals that, in the post separation period, the husband has embarked upon a course involving deliberate or reckless wasting of assets, and conscious attempts to obscure his true financial position in an attempt to persuade the court that he has little, if anything, in the way of net assets. …
It can be assumed that by his use of the expression “a course involving deliberate or reckless wasting of assets”, his Honour was referring to the following principles enunciated by Baker J in Kowaliw and Kowaliw (1981) FLC 91-092 at 76,644:
As a statement of general principle. I am firmly of the view that financial losses incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:
(a) where 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) where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.
Conduct of the kind referred to in para. (a) and (b) above having economic consequences is clearly in my view relevant under sec. 75(2)(o) to applications for settlement of property instituted under the provisions of sec. 79.
It was subsequently made clear by both Nicholson CJ and Fogarty J in their judgments in Townsend and Townsend (1995) FLC 92-569 at 81,654 and
81,656) that an adjustment under s 75(2)(o) is not the only approach that a Court may use in property proceedings where a finding of “waste” in the sense used by Baker J in Kowaliw has been made. (See also the discussion and approval of Kowaliw by the Full Court (Lindenmayer, Finn and Holden JJ) in Browne v Green (1999) FLC 92-873).
As explained in the written submissions on behalf of the husband, the wife had alleged at trial that the liquidation of A Pty Ltd, the proceedings against the wife in the NSW District Court, and the husband’s bankruptcy, should all be found to constitute waste on the husband’s part and treated accordingly.
As will later be noted, his Honour ultimately concluded at [297] and [301] that he was not able to find that the husband had acted recklessly in relation to the winding up of A Pty Ltd, nor that it was unreasonable for him to seek the discharge of the winding up.
However, his Honour did treat the husband as responsible in relation to the District Court proceedings and in relation to his bankruptcy. These two matters are respectively the subject of Ground 6 and of Grounds 4 and 7. We now turn to those grounds.
Ground 6: The amount of $160,000 wasted by the husband in pursuing the $50,000 claim against the wife
It will be recalled that in his Honour’s table of assets there was an item which read “Funds wasted by husband pursuing $50,000 claim against wife” and with an amount shown of $160,000.
This amount was then taken into account as part of the husband’s entitlement in his Honour’s distribution of property as is clear from [383] of his reasons where he said:
… To the extent that the husband might complain that his entitlement is significantly represented by a sum which is not available to him ($160,000), his own reckless or vindictive actions have brought that about. …
As will be seen from the following paragraphs of his Honour’s reasons, the genesis of this particular matter was the wife’s withdrawal in April 2004 of $50,000 from the bank account of A Pty Ltd, with A Pty Ltd subsequently commencing District Court proceedings against her in 2008 for the recovery of that amount:
59.… The cross examination of the husband enables the court to conclude that he knew, well prior to taking any steps to seek to obtain a judgment against the wife for the sum of $50,000, that the parties accountants were treating the receipt by the wife of those monies as a loan to her by [A Pty Ltd]. He certainly knew that to be the case long before the District Court summons was issued against the wife on 5 June 2008.
…
61.The husband’s attempts in cross examination to assert that the wife’s withdrawal of $50,000 precluded [A Pty Ltd] from continuing to trade, or forced it into liquidation, were patently unsustainable having regard to the evidence, particularly in the light of the later evidence given by the husband himself.
…
280.Controversy surrounds the judgment debt obtained against the wife by [A Pty Ltd] in the District Court of New South Wales [in] September 2008. As is not in doubt, $50,000 of that sum is referrable to the monies which the wife obtained from [A Pty Ltd] by way of loan in the financial year of 30 June 2004. The accounts of [A Pty Ltd] as at 30 June 2004, which are attached to the husband’s affidavit of October 2009 reveal [note 7] the $50,000 referable to “shareholders loans at call unsecured”. ...
281.The husband seeks to have the judgment debt of the wife included as an asset. For his part, counsel for the wife seeks to have the whole of the judgment debt added back as a notional asset of the husband, asserting that pursuing the $50,000 was in the circumstances a vindictive, or reckless or wanton waste of funds.
282.In reality, the add back claimed by counsel for the wife could only be for the sum of $161,220, the $50,000 lent by the wife being included, either as an add back as suggested by counsel for the wife or as a loan as suggested by counsel for the husband. The court has preferred the latter approach, for reasons suggested earlier. The linchpin in the husband’s claim in relation to this matter is that he had at all material times believed that the wife had “stolen” the $50,000 from [A Pty Ltd], and that he was properly and justifiably pursuing its recovery on behalf of [A Pty Ltd].
283.As the statement of claim reveals, the husband claimed in the District Court that the wife’s removal of $50,000 from [A Pty Ltd] (four years earlier) had led to [A Pty Ltd] going into liquidation, albeit that liquidation had been terminated more than two years prior to the issue of the Statement of Claim. Costs associated with the liquidation and its termination, of $88,000 were claimed against the wife. Legal fees and, presumably, interest, made up the balance of the $161,220. As earlier recorded, the evidence before this court does not establish that the wife’s removal of $50,000 from [A Pty Ltd] caused or contributed to its being placed in liquidation.
284.The wife denies ever having been served with the District Court summons, failure to respond to which presumably led to the entry of default judgment against her. It is inconceivable, given the animosity which has existed between the husband and wife in this case since 2004, and which appears to continue unabated to this day, that, had the District Court default summons come to her notice, the wife would not have defended it vigorously.
285.The court need not speculate about how the husband managed to secure the entry of default judgment against the wife, it being sufficient to record that the court is satisfied that the wife had no knowledge of the proceedings prior to the entry of judgment against her.
286.The court does not accept the husband’s repeated assertions that he was unaware of how the parties’ accountants had treated the $50,000 obtained by the wife from [A Pty Ltd]. Even if the husband was ignorant of how the accountant had treated the receipt by the wife of the $50,000 that would change nothing.
287.The parties were embroiled, or always likely to be embroiled in litigation from shortly after they separated. The proceedings in this court commenced in 2004. Four years later, the District Court summons issued against the wife. To incur $160,000 in the pursuit of the sum of $50,000, when it was always going to be taken into account in the proceedings in this court was, on the most charitable view one could take of the husband’s conduct, reckless in the extreme.
288.Having seen and heard the husband give evidence, and having regard to the court’s findings with respect to a wide range of matters, many of which have been referred to earlier in these reasons in relation to credibility and other issues, the court has no doubt that the reckless incurring of legal fees in pursuit of a sum which paled into insignificance by comparison with those legal fees, and which never needed to be thus pursued in any event, was part of his strategy to erode the net assets of the parties to the marriage to the fullest possible extent.
289.In the circumstances, the wife should not be regarded as indebted to [A Pty Ltd], or to the husband, to the extent of the judgment debt. The court will order that the husband and/or [A Pty Ltd] indemnify the wife with respect to the judgment debt, and have it set aside in the District Court.
290.There should however be added back as funds recklessly or wantonly alienated, the sum of $160,000 paid by the husband in pursuit of the $50,000. …
Thus his Honour “added back” the sum of $160,000 and treated it as an asset of the husband. By Ground 6 it is asserted that his Honour erred in so doing and that he “erred in finding that [A Pty Ltd] “incurred” $160,000 in expenses in recovering $50,000 from the wife or that the husband recklessly or wantonly alienated the sum of $160,000 in pursuit of the $50,000.”
The written submissions in support of Ground 6 assert that there was no evidence that actual money was paid or lost; the only evidence being that a default judgment was made. The submissions also purport to explain that the figure of $160,000 was (at least approximately) the difference between the judgment debt figure of $211,220 and the amount of $50,000 received by the wife from A Pty Ltd.
However at the hearing before us, it emerged both from the submissions of Counsel for the wife and from the husband that the calculations in relation to this matter were in fact far more complicated than initially appeared. Given the ultimate concession by Counsel for the wife that a figure of only $7,232 should be substituted for the figure of $160,000 (appeal transcript, page 51) we need only deal briefly with this matter.
In its Statement of Claim in the District Court (Exhibit A10 at trial) A Pty Ltd had claimed against the wife not only the sum of $50,000 which she had withdrawn from its bank account but also the sum of $88,000 being the costs of the liquidation and reinstatement of that company, resulting in a total of $138,000. The difference between that sum and the amount of the default judgment of $211,220 was represented by interest (which we were told was just under $72,000) and possibly filing fees. Legal fees of $7,232 (which appeared in a solicitor’s account which was exhibited before us) were not included.
Counsel for the wife very properly drew our attention to [297] of his Honour’s reasons which, when read with the preceding paragraph [296], makes it clear that Coleman J refused to add back against the husband the costs of the company liquidation:
296.Counsel for the wife asserted at various times during the trial that monies “wasted” by the husband on securing the discharge of the winding up order made against [A Pty Ltd] should be notionally added back although his final balance sheet does not appear to have sought the inclusion of such an entry. It is not in doubt that counsel for the husband opposed any add back in relation to the winding up order with respect to [A Pty Ltd].
297.The Court does not propose adding anything back in relation to the winding up of [A Pty Ltd]. Whilst the husband’s version of how a winding up order was able to be obtained against [A Pty Ltd] is difficult to accept, the evidence does not enable findings to be made, on the balance of probabilities, that the husband either caused, acquiesced in or otherwise conducted himself recklessly in relation to the events which led to the winding up order being made.
This conclusion was repeated by his Honour at [301] when he said:
301.Accepting as the court does, that the evidence fell short of providing a sufficient basis for finding the husband liable for [A Pty Ltd] being placed in liquidation, it follows that taking steps to secure the discharge of the winding up order was not unreasonable, and may even have been to the advantage of the wife. It is unnecessary to speculate about that however, and sufficient to reiterate that the evidence does not establish conduct on the part of the husband which renders adding back or otherwise visiting upon him any of the costs associated with the liquidation of [A Pty Ltd] reasonable in all the circumstances. …
Thus if the husband had wasted monies by pursuing the wife in the District Court, it was only the legal fees of $7,232 for which he could now consistently with his Honour’s overall reasoning, be held responsible. We have not been persuaded that it was not open to his Honour to treat such legal fees as “waste” by the husband. Thus, as was conceded by Counsel for the wife should we come to re-determine this matter, we should substitute the figure of $7,232 for $160,000 as an asset of the husband. Accordingly, Ground 6 has been established.
Grounds 4 and 7: The husband’s bankruptcy arising out of the failure to pay the M property unit levies
Ground 4 asserts that his Honour erred “in concluding that the husband was content to go bankrupt as part of his ongoing attempt to reduce his equity in entities in his legal ownership”.
Ground 7 then asserts that his Honour erred “in finding that the husband wasted $37,000.00 which was paid to his trustee in bankruptcy, in that this is inconsistent with His Honour’s conclusion that neither party could be held more liable than the other in relation to the loss occasioned through non payment of the M property strata levies, from which the bankruptcy arose.”
We will consider these two grounds together because the written submissions in support of Ground 7 simply refer to the “submissions under Ground 4”, and the submissions in support of that ground refer only to the issue of the unpaid levies on the M property which became the subject of a judgment debt which then resulted in the husband’s bankruptcy.
The complaint in Ground 4 can be seen as particularly directed to his Honour’s observations in [122] which were as follows:
122.The husband’s cross examination of the circumstances surrounding his bankruptcy is relevant to his credibility. Whilst the unwillingness of the wife to pay the outstanding [M property] levies at a time when she had the capacity to do so limits the impact of the husband’s failure to pay them when he was able to, the losses resulting from his bankruptcy remain relevant. The husband’s attempts to explain why he became bankrupt were unconvincing. The court is in little doubt that the husband was quite content to be made bankrupt as part of his ongoing attempt to reduce the equity in entities in his legal ownership.
In relation to the matters raised by Ground 7, his Honour said as follows in the context of considering the composition of the parties’ property:
291.Counsel for the wife sought to have the further sum of $100,000 added back in relation to bankruptcy proceedings taken against the husband as a result of his failure to pay the [M property] unit levies. As noted earlier, the unpaid unit levies of $26,000 resulted in the husband being made bankrupt, and to his ultimate discharge from bankruptcy, at a cost considerably in excess of $26,000.
292.The evidence of both parties in relation to the payment of outgoings for [the M property], and receipt of rent from it, prior to the court making orders in that regard long after the parties separated, was less than satisfactory. The court is not comfortable about making findings of fact in relation to issues in respect of which there is no clear or reliable circumstantial evidence.
293.What is not in doubt is that both parties had the capacity to discharge the $26,000 arrears of levies with respect to [the M property] at all material times. It is equally clear that both parties knew, or were able to know, that the unit levies were not being paid, and their quantum. Both parties could and should have paid the unit levies from funds which they clearly had at the time, and argued in the financial proceedings that would inevitably follow, what significance such payment should assume.
294.It is difficult to uphold the wife’s claim without adopting a double standard having regard to the court’s approach to the husband’s reckless incurring of legal fees in the pursuit of $50,000 [A Pty Ltd] lent the wife. The Court will not add back the further $100,000 urged upon it by counsel for the wife.
However, later when considering the contributions of the parties, his Honour said:
341.Some matters of contribution are difficult to evaluate. The husband’s failure to fully or truthfully disclose his finances has caused, or contributed to that difficulty. Probably the most difficult aspect of evaluating the post separation period relates to the husband’s utilisation of a significant part of the proceeds of sale of [the V property], it being apparent that the proceeds of sale which would otherwise have been available were greatly reduced by the cost of the husband securing the discharge of his bankruptcy.
342.The court has earlier concluded that the husband and wife both had the capacity, from funds available to them, to have paid out the unpaid levies with respect to [the M property], the non-payment of which led to judgment being obtained against both parties and the husband being bankrupted.
343.Whilst the court does not consider that either party should be seen as less culpable in relation to the judgments which were entered against them in relation to [M property] levies, the evidence of the availability of funds to the husband suggests that he should, when presented with a bankruptcy notice, have paid the judgment debt and costs associated with it, and prevented further losses from being incurred. This the husband failed to do. To the extent that his failure resulted in an expense in excess of the judgment debt, the husband’s actions can be seen as financially reckless or wanton.
344.Counsel for the husband submitted that the losses referable to the husband’s bankruptcy, which should be added back against the wife, total $68,096.61. The itemisation of those monies appearing in the submissions of counsel for the husband suggest that, exclusive of the monies repaid to the strata management body ($66,000) out of the proceeds of sale of [V property], school fees of $10,966, and child support, substantial other funds paid were paid to the husband’s trustee in bankruptcy. Those payments approximate $37,000. That sum should, in the circumstances, be regarded as having been wasted by the husband and such waste should be taken into consideration when assessing contributions. The disbursement of the bulk of the [V property] proceeds, and reasons why they were so disbursed, reduce the impact which they would otherwise have on the husband’s contributions.
At first glance there would certainly seem to be some inconsistency as is asserted by Ground 7, in his Honour’s approach in that he concluded that both parties were responsible for the unpaid levies on the M property and the resulting judgment debt, but that only the husband should bear responsibility for the losses that resulted from his bankruptcy which followed the failure of both parties to satisfy the judgment debt. However, a close reading of [342] and [343] of his reasons indicates that while his Honour was apparently aware of such potential inconsistency in his approach, the distinction which he was able to draw in [343] was that when the husband was “presented with a bankruptcy notice”, he should have paid the judgment debt because there was evidence that he had funds available to do so. Because of his failure to do so, and the consequent loss to the parties, his Honour reduced the weight that he would otherwise have given to the husband’s initial contribution of the V property which was sold by the husband’s trustee in bankruptcy.
We have not been persuaded that it was not within his Honour’s discretion to adopt this perhaps somewhat subtle distinction which his Honour was clearly aware he was making. In reaching this conclusion we take into account that his Honour is likely to have had a greater insight into the husband’s financial affairs at the relevant time than we have. We also cannot discount that even though the bankruptcy notice may have been issued against both parties, that it was only the husband who was ultimately pursued by the judgment creditor. As we have indicated we are not persuaded that it would be open to us to interfere with his Honour’s exercise of discretion in relation to this matter.
Given what we have said in relation to Grounds 4, 6 and 7, it is unnecessary to say anything further regarding the general complaint in Ground 1 concerning the findings of waste.
The grounds of appeal directed to non-disclosure by the husband
As with the grounds directed to the findings of waste, the first of the grounds of appeal (Ground 2) which is directed to the findings of non-disclosure on the part of the husband, contains what is essentially a general challenge to such findings. (Although the second paragraph of Ground 2 does take issue with his Honour’s use of the expression “disappearing act” in [37] and [80], we would regard that expression as available to his Honour given the assumption of
A Pty Ltd’s assets and business by B Pty Ltd following the parties’ separation). The general challenge in Ground 2 then becomes more explicable by the challenges to specific findings contained in Grounds 5 and 8.
It was also in [33] of his Honour’s reasons where, after making this adverse finding against the husband in relation to waste, that his Honour went on to make an adverse finding regarding the husband’s credibility, which finding in turn led to the finding of non-disclosure on the part of the husband in [34]:
33.… Cross examination of him revealed the husband to be a man whose evidence in relation to controversial topics could only be accepted where it was supported by other evidence which was entitled to be accepted.
34.The court’s conclusions with respect to the husband’s absence of credibility, and the nature, extent and quality of his financial disclosures brings the husband squarely within the ambit of decisions of the Full Court such as Weir v Weir (1993) FLC 92-338, Black v Kellner (l992) FLC 92-287 and Oriolo v Oriolo, (1985) FLC 91-653.
Those authorities cited by his Honour essentially permit a court not to be overly cautious in its approach to the financial affairs of a person whom the court is satisfied has not made full disclosure to the court.
Again as was usefully explained in the written submission on behalf of the husband, his Honour found a failure to disclose, or fully disclose, by the husband in relation to a number of matters, including the operation of
C Pty Ltd, his relationship with Ms N, and matters to do with the operation of B Pty Ltd. But again as was submitted on behalf of the husband, it was only issues to do with B Pty Ltd which had impact on his Honour’s decision, and thus have relevance in the appeal.
There appeared to be no challenge in the appeal to his Honour’s conclusion that the husband’s brother held half his shareholding beneficially for the husband, although it is difficult to see how there could have been, given the concessions by Counsel for the husband’s brother in relation to the shareholding in that company. Rather the challenges on appeal were to his Honour’s attribution of a value of “not less” than $500,000 to the husband’s half-shareholding
(Ground 8) and to his Honour’s conclusion as to the value of the benefits which the husband (and also to an extent the wife) had received from B Pty Ltd in the separation period which appear to have impacted on his Honour’s determination of the value of the husband’s interest in the company
(Ground 5).
The precise terms of Ground 5 are that his Honour erred:
(a)… in finding that $920,280.00 (or in the alternative “in excess of $1 million”) was paid from money generated by [B Pty Ltd] to the husband and/or [A Pty Ltd] between 1 April 2004 and 30 December 2009.
(b)In the alternative, if His Honour was correct in this finding, then His Honour erred in the assessment of the husband’s financial contribution which only takes account of the amount of $393,460.00 in relation to payments made by [B Pty Ltd] to the [K property] mortgage post separation.
Ground 8 then asserts that his Honour erred in finding:
… that the husband’s interest in [B] Pty Ltd was “not less than $500,000.00” in that such finding cannot be supported by reference to evidence.
In order to assess whether there is merit in either of these grounds, it will be necessary for us to set out – notwithstanding their length – his Honour’s many findings or conclusions made, and on occasions repeated, in various contexts in his reasons regarding the affairs of B Pty Ltd which, it can safely be said, took over the business of the parties’ company, A Pty Ltd, following their separation.
In the context of the extensive credit findings which he made early in his reasons (at [30] to [152]), his Honour said:
53.The husband subsequently reiterated his assertion that [A Pty Ltd] ceased trading one week after April 2004, there being no further sales or purchases after that date. The husband had agreed that he had “no idea” as to how, apart from the $103,558 workers’ compensation payment, the sum $400,000 came to be paid into
[A Pty Ltd’s] account over the period of a little over 12 months from April 2004 to June 2005.54.When shown the deposits, and invited to suggest where the money may have come from, the husband suggested that it could have come from [B Pty Ltd]. The husband’s explanation of why that might have been, by reference to the provision of [A Pty Ltd’s] credit card facilities for use by [B Pty Ltd], was neither commercially nor logically convincing. Nor was it supported by any documentation advanced by the husband. The husband repeatedly suggested to counsel for the wife in relation to this topic that he failed to “understand what’s happened”. The husband’s evidence leaves the court in the same position. Whatever view one ultimately takes of these transactions provides little comfort for the husband. The husband’s version of events provides support for concluding, as was repeatedly suggested to the husband, that all that changed after separation was the name of the entity through which the husband and his brother conducted their […] business.
…
65.Cross examination of the husband revealed that, in addition to the mortgage payments for [the K property], [B Pty Ltd] pays for his fuel as well as personal expenses such as “visits to the bottle shop”. As later evidence revealed, [B Pty Ltd] pays for a variety of other expenses which, on their face, do not bear any connection with
[B Pty Ltd’s] business activities. Some, but by no means all of these benefits are reflected in loan accounts in [B Pty Ltd].…
72.In cross examination on the fourth day of the trial, the husband’s assertion as to the nature of the arrangement between himself and his brother, or [B Pty Ltd], pursuant to which monies from [B Pty Ltd] were applied for his benefit was revisited. The husband asserted that if he was “unable to pay the money back, then he [the husband’s brother] would assume that same value in the properties”.
73.The husband reiterated that to have been his brother’s understanding also, and suggested that the arrangement had been “concluded”, “initially in ‘04”. In the course of that evidence, the husband asserted that his brother “started” [B Pty Ltd] in April 2004. On no view of the evidence of anyone can it seriously be suggested that the business of [B Pty Ltd] started on that date although it is clear beyond doubt that on or about that date [B Pty Ltd] acquired the business previously conducted by [A Pty Ltd]. In reality, the only significant difference was that, whereas the parties to the marriage held half the issued shares in [A Pty Ltd], they held none in
[B Pty Ltd].…
111.[B Pty Ltd] arose Phoenix-like from the ashes of [A Pty Ltd] before they were cold. The husband’s claim, which his brother was unable to bring himself to support during his oral evidence, that [A Pty Ltd] ceased to trade (save to the extent of honourably doing warranty work for years thereafter) on one day, and on the very same day [B Pty Ltd] “started” and was immediately successful is demonstrably untrue. As everyone in these proceedings, other than the husband acknowledged, [A Pty Ltd] metamorphosed into [B Pty Ltd] on that day in 2004.
112.The husband’s attempts to explain why his name appeared on invoices for [B Pty Ltd] was unconvincing, as was his explanation for his mobile phone number appearing, and the same stationery as [A Pty Ltd] used being used by [B Pty Ltd]. The husband’s evidence in relation to the day-to-day operations of [B Pty Ltd], and his version of his involvement was unconvincing, and at variance with anything resembling normal commercial practice.
…
143.Careful, detailed and scrupulously fair cross examination of the husband’s brother by counsel for the wife, largely by reference to paragraphs 22, 24, 25, 29 and 33 of the husband’s brother’s own affidavit evidence revealed that not less than $920,280 had been paid from monies generated by [B Pty Ltd] on behalf of the husband and/or [A Pty Ltd] between 1 April 2004 and 30 December 2009. None of this was paid to or for the husband in a taxable way.
Then at the conclusion of his findings of the “material facts [which] provide[d] background to the proceedings” his Honour made the following findings in relation to the affairs of B Pty Ltd:
· In the period subsequent to April 2004 B Pty Ltd had paid outgoings in relation to a variety of the liabilities of the parties and/or their mortgages or the assets of A Pty Ltd. (Reasons [185]).
· Between 1 April 2004 and the discharge of the mortgage over the factory unit in 2008, B Pty Ltd paid approximately $156,000. Rental of approximately $14,400 was received during that period, the net payments accordingly being $141,600. (Reasons [186]).
· In 2008 B Pty Ltd paid a credit card debt of A Pty Ltd which was in debit in the sum of $82,000 as at April 2004. Interest on the account over the period from 1 April 2004 to 1 April 2009 was in the order of $70,000. (Reasons [187]).
· B Pty Ltd also paid, between May 2004 and November 2009, approximately $50,000 for personal expenses of the husband and Ms N; approximately $10,000 for rates, taxes and other outgoings on the V property, the Y property and the K and M properties; and approximately $50,000 to the husband for the purported sale of a business known as “C Pty Ltd” (“C”). (Reasons [188]).
· The rental from the V property was also paid to B Pty Ltd until the sale of that property in February 2009. (Reasons [184]).
· Between 1 April 2004 and 2 November 2009 B Pty Ltd was paying approximately $2,500 per week in relation to mortgages over the properties of the husband and wife, a total of $725,000 which, after allowing for the rental from the V property from 2006 to February 2009, approximated $690,680. (Reasons [189]).
· B Pty Ltd also paid a further $6,000 in the form of $500 monthly instalments during this period for the benefit of the interests of the husband and wife. In total, B Pty Ltd paid in excess of $1,000,000 with respect to the expenses to which reference has been made. (Reasons [190]).
When considering the assets and liabilities of the parties for the purpose of compiling the schedule, which appears at [327] of his reasons (and which we have earlier set out), his Honour made the following findings in relation to the value of B Pty Ltd, having noted at [222] that it had been valued by the single expert, Mr U, at $189,221 (although neither B Pty Ltd nor its value appeared in his Honour’s schedule):
225.As the cross examination of the husband’s brother on the day prior to his withdrawal from the proceedings graphically demonstrated, [B Pty Ltd] has, since its acquisition of [A Pty Ltd’s] business, generated very substantial funds (to choose a neutral term to describe them). Just what, over and above the $3,000 monthly drawings he obtains from [B Pty Ltd], the husband’s brother has derived from the business since April 2004 remains unexplored territory in the light of the husband’s brother’s withdrawal from the proceedings, and unwillingness to subject himself to further cross examination.
226.The evidence before the court leaves little room for doubt that the recorded income of [B Pty Ltd] does not represent the totality of the monies which are and have been generated by that business. [Mr X], the accountant who proposed amended financial statements in August 2010 carefully distanced himself from any responsibility for the accuracy of the contents of those statements. [Mr X] made clear his reliance upon information supplied by [Mr Z]. He, of course, did not give evidence.
227.[Mr X] recorded a number of deficiencies in the records with which he was presented in 2010:
…
2.We have not been provided with a schedule of assets that represents motor vehicles and plant & equipment, and can express no opinion on their existence or value.
3.No detailed listing of debtors or creditors has been provided in respect of any year reviewed.
228.The court is unable, and has not been invited in any event to speculate as to the probable real value of [B Pty Ltd]. Pursuant to section 75(2)(o), and without being unduly cautious, the court will have regard to the “benefits” associated with the ongoing ownership of [B Pty Ltd] which are obtained in what the evidence suggests is a most tax effective manner.
229.The reasons for rejecting the husband’s assertion that he has no equitable interest in [B Pty Ltd] are supportive of also rejecting the contention of counsel for the wife that the husband beneficially owns the whole of [B Pty Ltd]. The court could accordingly include as an asset of the parties one half of the value of [B Pty Ltd], a figure of $94,610. That is half the value determined by [Mr U], albeit in reliance upon figures which considerably understated the true earnings of [B Pty Ltd]. [Mr X’s] figures do not change that situation in the light of the evidence of the husband’s brother.
A little later his Honour returned to the evidence of the expert, Mr U:
239.In the course of his cross examination, the single expert who valued the business interests of the parties, [Mr U], gave evidence consistent with [B Pty Ltd] having taken over the business previously conducted by [A Pty Ltd]. A reading of that evidence leaves little scope for doubt that [B Pty Ltd] “somehow or other acquired the business of [A Pty Ltd]” in about April 2004 as [Mr U] suggested.
240.It also emerged from [Mr U’s] evidence that, whereas as at April 2004 [A Pty Ltd] had no goodwill, [B Pty Ltd] at the date of [Mr U’s] valuation five years later had acquired goodwill of $58,328. As will be seen, that has significance in the context of an evaluation of the contributions of the husband and wife.
241.In the course of his evidence, [Mr U] referred to the written down value of plant and equipment, exclusive of motor vehicles of [A Pty Ltd] as at 30 June 2004, as being $48,636 together with $8,000 in the bank. The former was undoubtedly acquired by [B Pty Ltd] for no payment. Whether the latter was acquired or not [Mr U] was unable to say. The evidence of [Mr U] provides further support for concluding that it was “business as usual” after April 2004, and that all that changed at that time was the name of the entity through which that “business as usual” was conducted.
…
245.In the course of his evidence, [Mr U] explained why he notionally adjusted the husband’s brother’s salary from [B Pty Ltd] by increasing it from the figure of $31,860 which the record suggested that was actually paid to the sum of $61,724 which [Mr U] considered to reflect a more appropriate salary level for the activities undertaking by the husband’s brother. The evidence, which the court accepts, suggests that the husband would have been similarly entitled to be remunerated at approximately that level. As is not in doubt, the benefit [B Pty Ltd] has been able to provide in monetary terms over the past five years is far in excess of salaries of $60,000 per annum for each of its owners.
…
260.In determining the valuation of [B Pty Ltd] at $189,221, [Mr U] included as an asset a loan of $251,556 said to be owed to [B Pty Ltd] by the husband and wife. [Mr U] suggested, undoubtedly correctly, that inclusion of that sum required a corresponding liability of the husband and wife personally of $251,556 to be raised in the court’s balance sheet.
261.Interestingly, the balance sheet for [B Pty Ltd] as at 30 June 2008 included as an asset “[K] property share $251566.64”.
262.[Mr U] recorded that he was “advised” by the husband’s brother’s solicitor that “this represents loan payments made on behalf of the husband and wife on the [K] property”.
263.The court is not persuaded that, save for the purpose of creating the liability in the balance sheet of [B Pty Ltd] for the purposes of the present litigation, that the parties to the marriage, or either of them, is indebted to [B Pty Ltd].
264.The absence of any evidence establishing that the payments were by way of loan, the unreliability of the evidence of the husband and his brother in relation to this topic, the reality that the husband has at all material times beneficially owned one half of [B Pty Ltd], and that his financial benefit from [B Pty Ltd] have, in part, taken the form of loan repayments with respect to [the K property] require that this, for the purposes of the proceedings in this court, that sum be disregarded. Neither counsel has included this personal liability of the parties in the balance sheets urged upon the court by them.
265.If, as the court finds the reality to be, the parties will not repay $251,566 to [B Pty Ltd], to continue to regard [B Pty Ltd] as being worth $306,000 is thus somewhat illusory. [Mr U’s] working papers [Annexure “B” page 67] showing net surplus business assets of $96,471 in reality becomes a deficit if the recast loan to the husband of $251,566.64 is excluded from the assets of the company. [Mr U’s] value of the company of $189,221 inclusive of goodwill of $58,328 accordingly becomes a modest deficit when that is taken out, the husband’s share being arguably $40,000. The evidence before the court reveals that such a figure would very substantially undervalue the husband’s interest in [B Pty Ltd].
266.The court will not rely upon [Mr U’s] evidence of the value of [B Pty Ltd]. That is no reflection on [Mr U] but recognition of the fact that the figures upon which he was obliged to rely did not fully or accurately reveal the true worth of [B Pty Ltd]. Whilst this conclusion may appear inconsistent with the approaches of the parties, the issue cannot be viewed in isolation from the court’s other findings in relation to the topic. Given however that any calculation of the goodwill of [B Pty Ltd], were the actual earnings of [B Pty Ltd] able to be reliably determined, the valuation of the true goodwill of [B Pty Ltd] would undoubtedly be a greater figure than [Mr U] has relied upon, the issue requires addressing pursuant to section 75(2)(o).
As we have mentioned earlier, his Honour did not then include an item in respect of B Pty Ltd in his schedule of assets and liabilities. However, in his discussion of the parties’ contributions to their property, his Honour returned to the issue of B Pty Ltd saying:
348.The wife has made no direct contribution to the business of [A Pty Ltd], or [B Pty Ltd] after [A Pty Ltd] metamorphosed. The wife has made a substantial indirect contribution however to [B Pty Ltd] by reason of her having received none of her entitlement to [A Pty Ltd] in the post separation period, nor to any benefit from the [Y] factory unit.
349.The husband’s contributions in the post separation period require careful consideration. The substantial monies which the husband has been able to generate from [B Pty Ltd] arise from efforts made by him, or on his behalf, albeit utilising assets in which the wife had a significant interest.
350.The [Y] factory unit was encumbered as at the date of separation in the sum of approximately $111,872. In whatever manner, the husband and/or his brother has/have caused that mortgage to be paid out since separation. The husband’s efforts have accordingly increased the parties’ equity in the [Y] factory unit by approximately $56,000.
…
352.The payments are not in serious doubt. Prior to its discharge, $156,000 was paid by or on behalf of the husband with respect to the ANZ mortgage over the [Y] factory unit. After allowing for $14,400 of rental received between January 2008 and July 2009, $141,600 was thus paid by or on behalf of [A Pty Ltd]. One half of that, approximately $70,000 was referrable to the interest in the [Y] factory unit of the husband and wife. $82,000 was paid out on [A Pty Ltd’s] credit cards in the post separation period by or on behalf of the husband. $41,000 of that liability can be regarded as referrable to the interests of the husband and wife as 50 per cent owners of [A Pty Ltd].
353.The mortgage payments with respect to [K property] approximating, as counsel for the husband submitted, at least $393,460.75.were paid by or on behalf of the husband and wife in the post separation period. In addition, a further $10,000 approximately was paid with respect to rates, taxes and other outgoings on the [K], [M] and [V] premises and the [Y] factory unit.
354.What the husband has earned in the post separation period cannot be determined. The husband has chosen to so obscure his finances in the post separation period as to preclude the court from making any finding in that regard with confidence. It can however be concluded that the husband has had very substantial funds available to him since separation and that the source of such funds has been [A Pty Ltd] and/or [B Pty Ltd].
355.The evidence establishing that [A Pty Ltd] metamorphosed into [B Pty Ltd] means that, although the direct contributions to the monies generated by [B Pty Ltd] do not include any contributions by the wife, the wife’s indirect contributions are entitled to recognition.
356.As noted earlier, apart from the inflationary increase in the value of the [Y] factory unit since separation, the increase in the value of the parties’ interest in [A Pty Ltd] since separation approximates $56,000 as a result of payments of approximately $70,000 being made with respect to the mortgage which was previously secured over that property. The interest of the parties in [B Pty Ltd], which can be seen as having resulted from the metamorphosis of [A Pty Ltd] into [B Pty Ltd] in 2004, is not able to be determined with confidence in the light of the inadequacies in the integrity of the financial accounts of [B Pty Ltd]. The evidence does not enable the court to find with confidence what reduction in the mortgages over the parties’ other properties have occurred in the post separation period.
357.On balance, given that the husband had a substantially greater capacity to generate and utilise funds than did the wife, and having regard to the respective add backs to the balance sheet, and the quantum of the increase in the assets of the parties, and how it arose in the post separation period, the court does not consider that the post separation period should in the circumstances result in a change to the contribution based entitlements of the parties as at the date of separation. So concluding does not however encompass any component referrable to the likely worth of [B Pty Ltd].
When considering the s 75(2) matters, his Honour made the following observations:
373.Pursuant to section 75(2)(o) and in reliance upon the eight dot points there referred to, counsel for the wife sought to enhance her section 75(2) entitlement. Whilst the court has made negative findings with respect to the husband’s credibility and standard of financial disclosures, and concluded that undue caution is not required in relation to the husband’s position, care must be taken not to impermissibly utilise section 75(2)(o) to punish the husband for such indiscretions. The husband does thereby not forfeit his entitlement to justice and equity pursuant to section 79(2). Section 75(2)(o) is remedial in nature in a case such as this.
374. Having notionally added back significant sums to the husband’s detriment, and made the findings it has with respect to the post separation period, and rejected the husband’s contentions as to the beneficial ownership of the entity which generated the funds which were able to be thus utilised, there remains limited scope for the operation of section 75(2)(o).
375.The submission of counsel for the husband that the likely extent of the undisclosed resources of the husband has to be estimated by reference to the general circumstances of the case resonates with the court. There has to be an air of reality about the likely extent of undisclosed financial resources. Conversely, as the authorities confirm, undue caution in that regard is not required.
376.Objectively, the only way in which section 75(2) might fairly be invoked having regard to the court’s findings and conclusions with respect to the balance sheet and contributions is by reference to the income available to the husband from [C Pty Ltd] and, in an ongoing sense, to [B Pty Ltd]. The former is dependent upon the husband being able to retain [K property]. ... Even if the husband does not retain [K property], he will have ongoing, and very substantial benefits available through [B Pty Ltd].
377.Given the years which have past since the husband and wife separated, and the reality that, in both the balance sheet and the court’s conclusions with respect to contributions, the wife has effectively been “compensated” with respect to the business which [B Pty Ltd] acquired from [A Pty Ltd] for no consideration, and the reality that, contrary to the husband’s assertions in that regard, [B Pty Ltd] is a trading entity which continues to operate and generate income only as a result of personal exertion, the scope for fairly increasing the wife’s entitlement by reason of the husband’s failure to make full and frank disclosures is limited.
378.The court is conscious of the reality that [B Pty Ltd] generates for the husband far in excess of the $60,000 approximately which [Mr U] considered to be appropriate remuneration for what appeared to be the husband’s brother’s efforts for and on behalf of [B Pty Ltd].
379.To decline to make any adjustment in the wife’s favour pursuant to section 75(2)(o), would be to condone what has been found to be the husband’s comprehensive and deliberate failure to fully and frankly disclose his finances. The court is necessarily unable to quantify the extent of the husband’s undisclosed assets or resources. The husband has brought about that state of affairs. He ought not benefit from his blatant disregard of his disclosure obligations. As noted earlier, the husband’s undisclosed, or under disclosed resources are valuable. Evidence from the husband’s brother in cross examination provides as close to some indication of the likely worth of those resources as there is. The husband deliberately avoided enabling the court to attempt to quantify his undisclosed resources.
380.The balance sheet provided earlier in these reasons does not include any sum in relation to the husband’s half share of [B Pty Ltd]. To regard the husband’s interest in [B Pty Ltd] as being worth no less than $500,000, whilst not being unduly cautious, can be supported by reference to the evidence of the benefits which [B Pty Ltd] has provided to him over the last six years. If having regard to that sum is excessive, the husband cannot complain. It was always open to the husband to “come clean”. To the end, he deliberately failed to do so.
381.To apply the contribution finding considered appropriate for the property of the parties previously discussed to the figure of $500,000 referrable to [B Pty Ltd] would not be just or equitable, as it would unfairly reflect the very disparate contributions made by the husband and, the wife by or on behalf of [B Pty Ltd] over a period which now exceeds six years. It would also unfairly discount the payments which the evidence reveals [B Pty Ltd] to have made by or on behalf of the parties to the marriage. As noted earlier, the wife has made no direct contribution by or on behalf of [B Pty Ltd]. Her indirect contributions, although limited having regard to the findings recorded earlier, require recognition. Albeit he has gone to considerable lengths to down play it, the husband’s role in [B Pty Ltd’s] survival, and, the Court has found, significant profitability, over a period of six years, requires recognition.
382.To regard the entitlements of the parties to the net assets as found, plus an additional sum of $500,000 as 56 per cent to the husband and 44 per cent to the wife would in the Court’s view reasonably reflect the factors discussed throughout the reasons. So doing would result in the husband being entitled to receive $1,143,404 and the wife to receive $898,388. The husband would accordingly receive $245,016 more than the wife would receive. In the exercise of an undoubtedly broad discretion, such a disparity is considered to fairly reflect the various factors to which the Court has referred.
It will have been seen that the finding that the sum of $920,280 was paid from money generated by B Pty Ltd to (or more correctly “on behalf of”) the husband and/or A Pty Ltd between 1 April 2004 and 30 December 2009, which is now challenged by Ground 5(a), was contained in [143], and that in making that finding his Honour relied on the cross examination by Counsel for the wife of the husband’s brother in relation to paragraphs 22, 24, 25 and 33 of his affidavit. That cross examination is to be found in the transcript of
24 February 2010 at pages 91 to 98.
We do not consider it necessary to set out the paragraphs in question from the affidavit of the husband’s brother, nor the transcript passage. It is sufficient to note that the husband’s brother agreed on 24 February 2010 that he or B Pty Ltd had paid “an absolute minimum of $920,280” (at transcript page 98 lines 7-8). It should also be noted that when cross examination of the husband’s brother resumed on 12 March 2010 and this issue was re-canvassed in somewhat confusing circumstances, his Honour observed (at transcript page 25 lines 15 – 17) that he had a note of the brother’s acceptance of “the proposition that 920K paid from [B, B Pty Ltd]”.
It emerges from the transcript of cross examination of the husband’s brother, and it was accepted before us, that Counsel for the wife had prepared his own aide-memoir (or aides-memoir) of the evidence which supported the figure $920,280. Considerable issue was taken in the written submissions on behalf of the husband that aides-memoir cannot of themselves contribute evidence. That is certainly true. But in the present case his Honour was entitled to rely on the husband’s brother’s clear acceptance of the figure of $920,280. There is thus no substance Ground 5(a).
The conclusion just reached concerning the first complaint in Ground 5 makes it necessary for us to consider the alternative complaint in that ground, being that in assessing the husband’s financial contributions his Honour only took into account the amount of $393,460 which was in relation to payments made by B Pty Ltd to the K property mortgage.
In support of Ground 5(b) it was said in the written submissions on behalf of the husband that:
It cannot be correct that a far greater amount than that was taken into account against the husband as evidence of nondisclosure under
section 75 (2) (o); but an amount equal to less than half of that sum is taken into account when assessing his contribution.Although his Honour’s discussion of the parties’ contributions and of the application of s 75(2) in relation to the husband’s non-disclosure concerning the affairs of B Pty Ltd is not always easy to follow, we think it is plain enough from the paragraphs set out above, notably [349], [350], and [352] to [357], that in assessing the contributions of the husband made through B Pty Ltd, his Honour had regard to other contributions in addition to the amount of $393,460.75 made in relation to the K property mortgage. Accordingly,
Ground 5(b)has also not been established.
Similarly, we do not consider that there is substance in the complaint in Ground 8 that the figure of “no less than $500,000” for the husband’s half interest in B Pty Ltd cannot be supported on the evidence.
Although it is true, as was submitted in the written submissions on behalf of the husband, that his Honour did much earlier in his reasons (at [228]) say that the Court is unable “to speculate on the probable real value of [B Pty Ltd]”, and that, as also submitted, the figure of $500,000 may have a somewhat arbitrary character, we consider that it was open to his Honour to adopt that figure. We consider that this is so because of the undoubted benefits which the husband has received from B Pty Ltd in the period between the creation of that company and the trial, which was the matter relied on by his Honour.
We acknowledge that it may have been preferable, given that his Honour was not able “to quantify the extent of the husband’s undisclosed assets or resources” (as he recognised in [379]), for him not to have fixed upon a figure which was then taken into account notionally in the division of the assets between the parties, but rather to have used the valuation for B Pty Ltd put forward by Mr U and then to have made a very substantial adjustment in the wife’s favour under s 75(2) on account of the husband’s non-disclosure. But such an approach is unlikely to have resulted in any better ultimate outcome for the husband.
For these reasons, we find no substance in Ground 8, and thus would not interfere with his Honour’s orders on account of the grounds directed to the findings of non-disclosure by the husband.
Conclusion in relation to grounds of appeal and future course of the matter
For the reasons we have given, only Ground 6 has succeeded. But because of its success the appeal must be allowed.
As mentioned in our discussion of Ground 6 it was accepted by Counsel for the wife that if this was the only ground to succeed, then we should substitute the figure of $7,232 for $160,000 as an asset of the husband being, as described in the trial Judge’s table of assets, “Funds wasted by the husband pursuing $50,000 claim against the wife”. We did not understand the husband to disagree with that course and so we propose to adopt it.
Re-calculation of the parties’ entitlements to take account of the success of Ground 6
If the sum of $160,000 is reduced to $7,232 and that sum is rounded down to $7,000 (as it seems was the original sum of $160,000) then the net value of the parties’ assets (excluding their superannuation) reduces from $1,541,792 to $1,388,792, although to that last mentioned figure must be added $500,000 (as determined by his Honour at [380] of his reasons and in relation to which we would not be justified in interfering). This results in a revised total value of $1,888,792.
When his Honour’s percentage division of 56 per cent to the husband and 44 per cent to the wife is applied to this revised figure (and again there would be no basis for us to interfere with those percentages given the relatively modest alteration of $153,000 to the value of the property), the husband’s entitlement would be $1,057,723.50 and the wife’s $831,068.50.
The revised distribution of the value of the property between the parties will then be:
Husband
Interest in B Pty Ltd
$500,000
Funds wasted in District Court claim against the wife
$7,000
Interest in A Pty Ltd
$128,221
A Pty Ltd debt to husband
$103,558
47 per cent share of net proceeds of K property and M property
$318,944
$1,057,723
Wife
P property
$325,000
Bank Account
$2,471
Car
$12,850
Funds lent at separation
$80,774
Funds lent by A Pty Ltd
$50,000
53 per cent share of net proceeds of K property and M property
$359,972
$831,068
The above figures have been calculated on the basis of his Honour’s finding in [394] that the net proceeds of K property and M property would be approximately $678,918. To achieve his entitlement of $1,057,723 the husband would require a sum of $318,944, and for the wife to receive her entitlement of $831,068 she would need a sum of $359,972. These figures would respectively represent 47 per cent and 53 per cent of the net proceeds of the sale of the properties as calculated by the trial Judge.
It will therefore be necessary for us to amend the percentages in Order 3 of his Honour’s orders to provide that the net proceeds of sale of the properties be divided as to 53 per cent to the wife and 47 per cent to the husband.
Costs of the Appeal
Having regard to the submissions made to us at the conclusion of the appeal, the issues raised in the appeal and the outcome of the appeal, we consider that each party should bear their own costs of the appeal, and that in those circumstances it is appropriate to grant to each party the appropriate certificate under the Federal Proceedings (Costs) Act 1981 (Cth) in respect of their costs of the appeal.
We are aware that on 21 October 2011 an order was made by a Full Court that a sum of $10,000.00 in a “controlled money account” be held as security for the wife’s costs in this appeal pending further order of the Full Court. It was also ordered that the costs of the application for security be reserved as costs in the appeal. Given that we have determined that each party should bear their own costs in the appeal, we will in our orders discharge the order for security, and each party will bear their own costs of the security application as part of their costs of the appeal.
I certify that the preceding seventy eight (78) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court delivered on 12 December 2012.
Associate:
Date: 12 December 2012
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