Graham & Callan & Anor (No 2)
[2013] FamCA 615
•26 August 2013
FAMILY COURT OF AUSTRALIA
| GRAHAM & CALLAN AND ANOR (NO. 2) | [2013] FamCA 615 |
| FAMILY LAW – PROPERTY – where wife has or has had the benefit of the net proceeds of sale of a property acquired on favourable terms during the marriage to the exclusion of the husband – whether just and equitable to make orders altering the property rights and interests of the parties – identifying and valuing the existing property interests of the parties – whether money provided by the wife’s sister was a gift or a loan and whether if it was a loan there is a genuine expectation of repayment – whether it is appropriate to add back funds retained by the wife to the pool of property for the purposes of determining a just and equitable division of the parties legal and equitable interests in property – assessment of the parties’ contributions and whether a mathematical approach is appropriate for the purposes of assessing those contributions – whether either party is entitled to an adjustment pursuant to s 75(2) and in particular whether there should be an adjustment in the husband’s favour pursuant to s75(2)(o) with respect to funds retained by the wife. |
| Evidence Act 1995 (Cth) Family Law Act 1975 (Cth) |
| Af Petersens and Af Petersens (1981) FLC 91-095 Bevan & Bevan [2013] FamCAFC 116 Garrett & Garrett (1984) FLC 91-539 Hickey and Hickey and Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143 In the Marriage of G and G (1984) FLC 91-582 Norbis v Norbis (1986) 161 CLR 513 Smith & Fields [2012] FamCA 510 Stanford v Stanford [2012] HCA 52 Watson & Ling [2013] FamCA 57 |
| APPLICANT: | Mr Graham |
| RESPONDENT: | Ms Callen |
| INTERVENER: | B Pty Ltd |
| FILE NUMBER: | MLC | 7912 | of | 2010 |
| DATE DELIVERED: | 26 August 2013 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Macmillan J |
| HEARING DATES: | 21 – 23 January 2013 15 April 2013 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | In person |
| SOLICITOR FOR THE APPLICANT: | N/A |
| COUNSEL FOR THE RESPONDENT: | Mr Hammett |
| SOLICITOR FOR THE RESPONDENT: | Sam Holt |
| COUNSEL FOR THE INTERVENER: | Mr Ogge |
| SOLICITOR FOR THE INTERVENER: | Neil Ogge Lawyers |
IT IS ORDERED THAT
The property situated at and known as C Street, Suburb T (“the real property”), be forthwith sold altogether out of Court (“the sale”) upon the following terms:
(a) the real estate agent shall be as agreed between the parties, and in the absence of agreement within 14 days of the date of this order, as determined by the President of the Real Estate Institute of Victoria or his or her nominee; and
(b) upon such terms and conditions and at a reserve price to be agreed and in default of agreement as determined by the agent appointed to act on the sale.
Upon completion of the sale, the proceeds of the sale be applied:
(a) first, to pay all costs, commissions and expenses of the sale;
(b) second, to discharge any encumbrance affecting the real property;
(c) third, the sum of $1,380,000 to be paid to Neil Ogge Lawyers, the solicitors for B Pty Ltd;
(d) the sum of $465,628 to be paid to and held on trust by Neil Ogge Lawyers, the solicitors for B Pty Ltd for payment of the Capital Gains Tax liability (“CGT”) and general interest charges (“GIC”) upon the issue of the assessment by the Australian Tax Office (“ATO”) in respect of the transfer of land dated 26 September 2006 from B Pty Ltd to Ms Callen and thereafter paid to the ATO.
(e) the balance to be distributed:
i.65 per cent to the husband plus the sum $69,903 to be paid to the husband out of the wife’s share
ii.35 per cent to the wife less the sum of $69,903 to be paid to the husband out of her share.
Contemporaneously with settlement of the sale of the real property the husband at his expense deliver to the solicitors acting on the sale a discharge of any caveat lodged over the property by him or on his behalf against the title to the said property.
Pending completion of the sale of the real property:
(a) the wife have the sole right to occupy the property;
(b) the wife pay all rates, taxes and outgoings of the property as they fall due; and
(c) neither party encumber or further encumber the property without the consent in writing of the other party or prior order of the Court.
Mr A Callen in his capacity as the sole director of B Pty Ltd forthwith do all acts and things necessary to complete and lodge the tax returns for the financial year ending 30 June 2007.
Unless otherwise specified in these orders and save for the purposes of enforcing any monies due under these or any subsequent orders:
(a) each party be solely entitled to the exclusion of the other to all other property (including choses-in-action) in the possession of such party as at the date of these orders;
(b) each party forgo any claims they may have to any superannuation benefits belonging to or earned by the other;
(c) insurance policies remain the sole property of the beneficiary named therein;
(d) each party be solely liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled pursuant to these orders; and
(e) any joint tenancy of the parties in any real or personal estate is hereby expressly severed.
All extant applications be otherwise dismissed and the matter removed from the list of cases awaiting a hearing.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Graham & Callen 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 MELBOURNE |
FILE NUMBER: MLC 7912 of 2010
| Mr Graham |
Applicant
And
| Ms Callen |
Respondent
And
| B PTY LTD |
Intervener
REASONS FOR JUDGMENT
The overwhelming focus of this case, as put by both the husband and the wife, was the history and the ramifications of their decision to redevelop the property at C Street, Suburb T (“the T property”). Almost the whole of their marriage was taken up by either the planning or construction for that project.
The T property, in which the wife lived prior to the marriage, was acquired by B Pty Ltd, the corporate trustee of the B Trust (“the Trust”) in February 1997. In September 2006 the property was transferred to the wife for consideration of $1.38 million. Thereafter, the husband and the wife demolished the existing dwelling and over the next two years constructed two townhouses, one of which has since been sold. It is now proposed by the husband, the wife and B Pty Ltd that the other townhouse, in which the wife currently resides, also be sold.
The transfer of the T property to the wife by the Trust gave rise to a significant Capital Gains Tax liability (“CGT”). That liability has not been met, as a result of which general interest charges (“GIC”) have accrued. It was the wife’s case that she and the husband had agreed that they would be responsible for any CGT incurred by B Pty Ltd as trustee of the Trust. This was disputed by the husband, as a result of which B Pty Ltd intervened in the proceedings seeking payment of both the CGT liability and the GIC. The husband’s case was ultimately that, although he conceded that he and the wife should be responsible for the CGT, he disputed that he should be responsible for the GIC after the settlement of the sale of the first of the two townhouses.
The parties had what might be described as a “traditional marriage”, with the husband engaged in full-time employment until May 2008, when he says he devoted himself to the completion of the building project, and the wife as homemaker and, since 2007, engaged in part-time employment for a hospitality company. This is not the subject of significant dispute save and except that the wife did question, but did not ultimately pursue in any real sense, the extent and quality of the husband’s non-financial contributions to the building project.
There is however, a significant dispute between the parties as to their respective financial contributions and, primarily, the husband’s financial contributions to the building project. The husband’s case is that at the commencement of the relationship he owned a property in Suburb D and had a share portfolio and that both the net proceeds of the sale of the D property and his share portfolio were contributed to the building project and to meet living expenses during the marriage. The wife’s case was that the husband controlled their finances and, in particular, the funds with respect to the building project, and that she did not know what assets or funds the husband had or how any funds he did have had been applied. Her case was that the husband has not met his obligation to provide full and frank disclosure and has not established on the balance of probabilities what shares he owned and, in any event, had not established how the net proceeds of the D property nor any shares that he might have owned had been contributed to the building project.
When the proceedings commenced the husband was legally represented, however in February 2012 he terminated the services of his solicitor and he has represented himself in the hearing before me. Both the husband and the wife attempted to demonstrate, using a variety of mathematical calculations as to the cost of the project and the funds that were available and are not the subject of dispute, that for the husband’s part he had contributed the alleged shortfall of funds and that for the wife’s part no additional funds were required to complete the project.
Notwithstanding the various mathematical calculations used by the husband and the wife and their focus on this particular issue, the inquiry I must make is much broader. It largely fell to me to identify the broader issues and to analyse the evidence relevant to those issues.
Legal Principles
It has been the practice of this Court to follow what has been described as the “four step process” described by the Full Court in Hickey and Hickey and Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143 (“Hickey”) at 78,386, at [39] as follows:
The case law reveals that there is a preferred approach to the determination of an application brought pursuant to the provisions of s. 79. That approach involves four inter-related steps. Firstly, the Court should make findings as to the identity and value of the property, liabilities and financial resources of the parties as at the date of the hearing. Secondly, the Court should identify and assess the contributions of the parties within the meaning of ss 79(4)(a), (b) and (c) and determine the contribution based entitlements of the parties expressed as a percentage of the net value of the property of the parties. Thirdly, the Court should identify and assess the relevant matters referred to in ss 79(4)(d),(e),(f) and (g), (“the other factors”) including because of s. 79(4)(e), the matters referred to in s.75(2) so far as they are relevant and determine the adjustment (if any) that should be made to the contribution based entitlements of the parties established at step two. Fourthly the Court should consider the effect of those findings and determinations and resolve what order is just and equitable in all of the circumstances of the case [citations omitted].
The four step process was described in Hickey as “a preferred approach” and is not one that is legislatively mandated.
The High Court has recently considered the operation of s 79 of the Family Law Act 1975 (Cth) (“the Act”) in Stanford v Stanford [2012] HCA 52 (“Stanford”). The Full Court per Bryant CJ and Thackray J in the recent decision of Bevan & Bevan [2013] FamCAFC 116 (“Bevan”), having considered the decision in Stanford, said at [65] and [66] as follows:
Although the High Court did not disapprove the four step process, we accept it was not approved either. Given the way the matter was resolved, there was no requirement for a pronouncement either way. However, the High Court’s decision serves to refocus attention on the obligation not to make an order adjusting property interests unless it is just and equitable to do so.
This obligation was previously described in the High Court as the “overriding requirement”: Mallett v Mallett (1984) 156 CLR 605 at 647 per Dawson J. In the same case at 608, Gibbs CJ aptly described s 79 as conferring on a court “a very wide discretion to make such order as it thinks fit when it is satisfied that it is just and equitable that an order should be made…” (emphasis added).
Bryant CJ and Thackeray J went on to say at [71] and [72] as follows:
Stanford will also serve as a reminder that the four step process “merely illuminates the path to the ultimate result”. Any future restatement of that process should incorporate acceptance of the fact that the power to make any order adjusting property interests is conditioned upon the court finding that it is just and equitable to make an order.
It follows that judges would be well advised to avoid what we consider to be arid discussion of the “stage in the process” at which “adjustments” are permissible. Such discussion tends to elevate the four step process to the status of a statutory edict, when in fact it is no more than a shorthand distillation of the words of a statute which has but one ultimate requirement, namely not to make an order unless it is just and equitable to do so.
In Stanford, French CJ, Hayne, Kiefel and Bell JJ observed at [36] that “while the power given by s 79 is not ‘to be exercised in accordance with fixed rules’, nevertheless, three fundamental propositions must not be obscured.” Those propositions, as described by their Honours, are as follows:
First, it is necessary to begin consideration of whether it is just and equitable to make a property settlement order by identifying, according to ordinary common law and equitable principles, the existing legal and equitable interests of the parties in the property…The question posed by s 79(2) is thus whether, having regard to those existing interests…it is just and equitable to make a property settlement order.
Second, although s 79 confers a broad power on a court exercising jurisdiction under the Act to make a property settlement order, it is not a power that is to be exercised according to an unguided judicial discretion …
Because the power to make a property settlement order is not to be exercised in an unprincipled fashion, whether it is “just and equitable” to make the order is not to be answered by assuming that the parties’ rights to or interests in marital property are or should be different from those that then exist. All the more is that so when it is recognised that s 79 of the Act must be applied keeping in mind that “[c]ommunity of ownership arising from marriage has no place in the common law”. Questions between husband and wife about the ownership of property that may be then, or may have been in the past, enjoyed in common are to be “decided according to the same scheme of legal titles and equitable principles as govern the rights of any two persons who are not spouses”. The question presented by s 79 is whether those rights and interests should be altered.
Third, whether making a property settlement order is “just and equitable” is not to be answered by beginning from the assumption that one or other party has the right to have the property of the parties divided between them or has the right to an interest in marital property which is fixed by reference to the various matters (including financial and other contributions) set out in s 79(4). The power to make a property settlement order must be exercised “in accordance with legal principles, including the principles which the Act itself lays down”. To conclude that making an order is just and equitable” only because of and by reference to various matters in s 79(4), without a separate consideration of s 79(2), would be to conflate the statutory requirements and ignore the principles laid down by the Act.
… The fundamental propositions that have been identified require that a court have a principled reason for interfering with the existing legal and equitable interests of the parties to the marriage and whatever may have been their stated or unstated assumptions and agreements about property interests during the continuance of the marriage.
The plurality went on to say at [42]:
In many cases where an application is made for a property settlement order, the just and equitable requirement is readily satisfied by observing that, as the result of a choice made by one or both of the parties, the husband and wife are no longer living in a marital relationship [and that it] will be just and equitable to make a property settlement order in such a case because there is not and will not thereafter be the common use of property by the husband and wife. No less importantly, the express and implicit assumptions that underpinned the existing property arrangements have been brought to an end by the voluntary severance of the mutuality of the marital relationship. That is, any express or implicit assumption that the parties may have made to the effect that existing arrangements of marital property interests were sufficient or appropriate during the continuance of their marital relationship is brought to an end with the ending of the marital relationship. And the assumption that any adjustment to those interests could be effected consensually as needed or desired is also brought to an end. Hence it will be just and equitable that the court make a property settlement order. What order, if any, should then be made is determined by applying s 79(4).
In Bevan, Bryant CJ and Thackray J expressed the view at [84] to [86] and [89] that:
…it would be a fundamental misunderstanding to read Stanford as suggesting that the matters referred to in s 79(4) should be ignored in coming to that decision. Indeed, such a reading would ignore the plain words of s 79 (4), which make clear that in considering “what order (if any)” to make, the court must take into account the matters referred to in that subsection (emphasis added).
This requirement to consider the s 79(4) matters in determining whether it is just and equitable to make any order provides fertile ground for potential conflation of the two different issues, which the High Court has warned against. However, this potential will not be realised in many cases because of what the plurality said at [42] about the “just and equitable” requirement being “readily satisfied” …
We do not consider it helpful, and indeed it is misleading, to describe this separate enquiry as a “threshold” issue. We say this for two reasons. First, as was emphasised in Stanford, the initial enquiry is to determine the existing legal and equitable interests of the parties. Secondly, although s 79(2) is cast in the negative and amounts to a prohibition against making any order unless it is just and equitable to do so, the corollary is that if the court does make an order, such order itself must be just and equitable: Woollams & Woollams (2004) FLC 93-195 per Thackray J at [53] and Teal v Teal [2010] FamCAFC 120 per Finn, Boland and Dawe JJ at [70]. The just and equitable requirement is therefore not a threshold issue, but rather one permeating the entire process….
In our view, it will be less likely that the separate issues arising under s 79(2) and s 79(4) will be conflated if judges refrain from evaluating contributions and other relevant factors in percentage or monetary terms until they have first determined that it would be just and equitable to make an order. Ultimately, however, appellate error will not be demonstrated if it is possible to ascertain, either by reference to an express finding or by necessary inference, that the trial judge has given separate consideration to the two issues.
The first question is whether pursuant to s 79(2) it is “just and equitable” to make an order and, having determined that an order be made, the Court may make such order as it considers appropriate. The second question is then, having considered the relevant factors in s 79(4), what order is appropriate in all of the circumstances of the case.
Although how the matters identified in s 79(4) should be dealt with was not directly considered in Stanford, arguably as suggested by Murphy J in Watson & Ling [2013] FamCA 57 (“Watson”), the approach may be less compartmentalised and is essentially “holistic”. Given the Act does not identify the order in which the matters should be considered nor attribute any priority to the various matters described in s 79(4), the approach taken by Murphy J in Watson has some appeal.
The approach I propose to adopt in this case is as follows:
i)Firstly, I will identify the parties’ existing legal and equitable interests in property available for division;
ii)Secondly, I will determine whether it is in all of the circumstances of this case just and equitable to make orders which alter those interests;
iii)In the event that I determine that it is just and equitable to make orders altering those interests, I will then take into account the matters in s 79(4) of the Act in order to determine what orders are appropriate; and
iv)Finally, I will consider whether those orders are in all of the circumstances of the case just and equitable.
Documents Relied Upon
During the course of the proceedings the husband had filed numerous affidavits, most of which focussed on the redevelopment of the T property. Although the husband had filed a Trial Affidavit, he also sought leave to rely upon a number of his previous affidavits. The documents the husband was ultimately permitted to rely upon are as follows:
·Summary of Argument dated 18 January 2013;
·Amended Initiating Application filed 29 October 2012;
·his Financial Statement filed 18 January 2013;
·his Affidavit filed 1 August 2011 at paragraphs 10, 17 and 24;
·his Affidavit filed 14 September 2011;
·his Affidavit filed 7 February 2012;
·his Affidavit filed 29 October 2012;
·his Affidavit filed 10 December 2012;
·the Affidavit of Mr J filed 11 January 2013;
·the Affidavit of Mr R filed 18 January 2013;
·the Affidavit of Mr M filed 18 January 2013;
·the Affidavit of Mr W filed 18 January 2013; and
·written submissions dated 13 February 2013.
The respondent wife relied upon the following documents:
·Amended Outline of Case dated 17 January 2013;
·her Response to Amended Initiating Application filed 14 January 2013;
·her Affidavit filed 7 January 2013;
·the Affidavit of Mr H filed 20 June 2011;
·the Affidavits of Mr G filed 20 June 2011, 15 January 2013 and 22 January 2013;
·the Affidavits of Mr O filed 2 August 2011 and 18 December 2012;
·the Affidavit of Mr F filed 18 December 2012;
·the Affidavits of Mr U filed 18 December 2012 and 21 January 2013;
·her Financial Statement filed 14 January 2013; and
·her written submissions as to evidence (undated).
The second respondent relied upon the following documents:
·Outline of Case dated 18 January 2013;
·Amended Response of the Second Named Respondent filed 10 December 2012;
·the Affidavit of Mr A Callen filed 18 January 2013;
·the Affidavit of Mr O filed 18 December 2012;
·the Affidavit of Mr H filed 20 June 2011; and
·the Affidavit of Ms Callen filed 7 January 2013;
Both the husband and wife tendered further documents upon which they relied during the trial and prepared and relied upon several aide memoires which contained their analysis the evidence.
Agreed Valuations
Each of the parties’ appointed experts provided retrospective and current valuations of the T property. During the case their respective experts met and conferred and ultimately agreed upon the following valuations:
(a)as at 4 April 2004, the T property was valued at $1,700,000;
(b)when the T property was transferred to the wife at 6 September 2006, it was valued at $2,000,000;
(c)if the T property had not been redeveloped it would currently be valued in its original form at $2,400,000; and
(d)the redeveloped remaining T property is currently valued at $2,750,000.
The Evidence
The standard of proof in this case is on the balance of probabilities. Section 140 of the Evidence Act 1995 (Cth) provides that, without limiting the matters the Court may taking account in applying that standard of proof, the Court must take into account:
(a)the nature of the cause of action or defence; and
(b)the nature of the subject–matter of the proceeding; and
(c)the gravity of the matters alleged.
I must assess the credit of the parties and their version of events, and consider how my findings in relation to the evidence impact on the issues I must determine. In doing so, I am aware that the truth about a particular event is not always easy to discern. It is possible that even when there are two versions of the same event this is not necessarily because one witness is telling the truth and another is lying. A witness may simply be mistaken, rather than untruthful about what occurred. Memory is not always accurate, especially a long time after the event, and it is possible that each of those witnesses honestly believes their version of the events. Furthermore, even if a witness is not telling the truth or is mistaken about one event, it does not follow that all of their evidence is therefore untruthful, or that they are likely to be similarly mistaken about other aspects of the evidence, although these are matters which I must of course consider in assessing their respective credibility.
Of some significance to my findings in this case is the fact that the wife says she trusted the husband and left the management of their financial affairs and in particular the financing of the construction to him. On that basis, therefore, the wife is not in a position to contradict the husband’s evidence about those financial arrangements. It is for that reason that she says she has had to rely upon a reconstruction of events and an analysis of the documents.
There is for self-represented litigants like the husband in this case a potential disadvantage. As the High Court said in Neil v Nott (1994) 68 ALJR 509 at [510]:
A frequent consequence of self-representation is that the court must assume the burden of endeavouring to ascertain the rights of parties which are obfuscated by their own advocacy.
Although the husband appeared at times to be a little overwhelmed by the vast number of documents he had to manage, he represented himself well. The fact that a party is self-represented also allows the Court to observe that party and to assess their evidence in a way that is not always possible when a party is legally represented. The husband generally conducted himself courteously throughout the proceedings and there was nothing about his conduct that would lead me to conclude that he was not doing his best to give honest evidence. There were however, aspects of the evidence of both of the parties that suggested that they were conscious of what the legal consequences of that evidence might be.
My task in this case has been complicated not so much by the fact that the husband was self-represented or because either of the parties were dishonest witnesses but by the attempts of both parties to establish what must have happened based upon their various calculations, rather than confining their evidence to their knowledge of the events and evidence that might otherwise directly support their version of events. As in most applications pursuant to s 79 of the Act, there is no single party who bears the onus of proof and it is incumbent on each of the parties to prove different aspects of their respective cases relevant to the matters the Court is required to consider.
Background
The husband was born in 1967 and is 45 years of age. The husband has a Masters Degree, however he describes himself as being self-employed in construction. According to the wife, during the marriage the husband earned between $60,000 and $70,000 per annum and this is not disputed by the husband. It is the wife’s case that the husband has a current income earning capacity of $80,000 per annum. The husband has a new partner and he and his partner have a son who is almost two years of age. The husband lives in a house that is owned by his new partner.
The wife was born in 1955 and is 57 years of age. She was previously married and has three adult children of that marriage. Following the sale of what was known after the redevelopment of the T property as 1 C Street, the wife moved into the second of the two properties that had been constructed known as 1A C Street, Suburb T (“1A C Street”) and she has continued to live in that property. The wife has worked part-time in hospitality since 2007 and it was her evidence, which was not challenged, that she earns approximately $20,000 per annum.
The husband and the wife commenced cohabitation in December 2003 and were married in 2004. They separated in April 2008 and a decree nisi was made on 23 November 2010 which became absolute on 24 December 2010.
Although not always well articulated, a fundamental aspect of the husband’s case was what he said he had at the commencement of cohabitation, which was comprised of an interest in the D property, his share portfolio, the motor vehicle which he still owns and is included in the property pool for the purposes of these proceedings and his superannuation entitlements. The husband owned the D property when the parties commenced cohabitation. I am satisfied that they did not live together in that property and that it was sold not long after their marriage for $607,500. Settlement of the sale occurred in December 2004. I am satisfied that the husband received total net proceeds in the sum of $473,383.92. From that amount, the husband paid his father a sum of $106,101 and was left with $367,282.92 in total.
The wife deposed that she and the husband both worked on renovating and improving the D property prior to its sale and that they had paid for the renovations using $14,000 in cash they had received as wedding gifts. The wife deposed that all of this resulted in the husband obtaining a better sale price than he would otherwise have done. The wife did not specify exactly what the money was spent on or what she had personally done by way of renovations and improvements to the property. The husband disputed the wife’s evidence and, although he did concede that he could not answer whether or not some of the wedding gift monies had been used for the renovations, his evidence was that he had savings that he used for the renovation materials and that he did the work himself. The husband was able to provide detailed evidence of what he said he had done to the property, including renovating a bathroom and replacing some windows. I prefer the evidence of the husband in relation to this matter. Ultimately, counsel for the wife did not place any real weight upon this aspect of the evidence and even if the wife did make some contribution to the renovations, I am satisfied that it was likely to be minor and would not amount to a contribution of any real significance in the overall circumstances of this case.
The husband and the wife had the following bank accounts which I am satisfied are relevant for the purposes of my assessment of their respective financial contributions and the financial history generally:
(a)The husband’s bank accounts:
i)ING Savings Maximiser Account No. …338 (“ING account”);
ii)ANZ Access Advantage Account No. …326 (“ANZ account”);
iii)Westpac Classic Account No. …326 (“Westpac Classic account”); and
iv)Westpac Share Trading Account No. …626; and
(b)Joint accounts of both the husband and wife:
v)BankWest Easy Doc Home Loan Account No. …8/6; and
vi)BankWest Easy Doc Offset Account No. …7/5 (“BankWest Offset account”).
The relevant statements for these various bank accounts are either annexed to the affidavits relied upon by the parties in this matter or are exhibits in the case. There is no evidence before me which would suggest that either the husband or the wife have any other accounts that they have failed to disclose or to which they have diverted any funds. The husband also produced online share trading statements for his Westpac Online share trading.
The husband was cross-examined at length by counsel for the wife about what was referred to as his “Ring Around the Rosie” of transactions between his various accounts, in relation to, firstly, the proceeds of sale of the D property and then, secondly, his share trading using those sale proceeds. Although there were many complaints about the husband’s failure to provide full and frank disclosure, extensive affidavit material was filed by both parties and particularly by the husband, and there was lengthy cross-examination about this issue. I am satisfied, and my finding is supported by the bank statements for the various accounts, that the husband transferred the proceeds of sale of the D property between the ANZ account in his name, his ING account, and then to his Westpac Classic account, and that those proceeds of sale were then used for share trading.
The wife engaged a forensic accountant, Mr F, who gave evidence that the husband was actively trading shares and that between 20 September 2006 and 19 July 2009 he withdrew $731,962.03 from his Westpac Classic account to purchase shares and deposited share sale proceeds of $904,640.75 and dividends of $55,980.90 during that same period. This included the shares he owned at the commencement of the relationship but does not appear to include the shares the husband traded off market. Mr F said that he was unable to calculate the husband’s profits or losses for this period but estimated that the husband had some trading losses of between $100,000 and $150,000 during this period.
It is not the case, as submitted by counsel for the wife, that the number of shares the husband said he owned prior to cohabitation were a “guesstimate”. The wife engaged Mr F to investigate the husband’s assertions as to his shareholdings as at 1 March 2004 and 21 September 2011 and prepare a report. The report confirmed, and I find on that basis, that as at 1 March 2004 the husband held the following shares:
Name of Company
No.
Price
Value
Alumina
500
$5.40
$2,700.00
Commonwealth Bank
1,665
$32.50
$54,112.50
Telstra
700
$4.85
$3,395.00
Telstra
2,700
$4.85
$13,095.00
Telstra
400
$4.85
$1,940.00
Woolworths Ltd
2,705
$11.80
$31,919.00
Southcorp
3,037
$4.00
$12,148.00
BHP Billiton
546
$12.25
$6,688.50
News Ltd
500
$18.75
$9,375.00
Total
$135,373.00
In cross-examination by the husband, Mr F conceded that the husband held two additional parcels of shares as at 1 March 2004. Details of those shares are as follows:
Name of Company
No.
Price
Value
Coles Myer
500
$7.55
$3,775.00
Western Mining
500
$9.29
$4,645.00
Total
$8,420.00
The addition of these shares brings the husband’s total shareholding as at 1 March 2004 to $143,793.
Mr F also investigated and ultimately verified the husband’s evidence with respect to the sale of his pre-marriage shares. Subject to one qualification, details of the sale of those shares are as follows:
Name of Company
Date
No
Price
Value
Alumina
Feb 2006
500
$7.64
$3,820.00
Commonwealth Bank
Sept/Nov 2008
1,665
$41.94
$69,834.14
Telstra
Feb 2008
700
$3.71
$2,597.00
Telstra
Feb 2008
2,700
$3.71
$10,017.00
Telstra
Feb 2008
400
$3.71
$1,484.00
Woolworths Ltd
Jan 2008
1,000
$31.96
$31,912.00
Woolworths Ltd
March 2008
2,064
$28.51
$58.776.00
Southcorp
Jan 2005
3,037
$4.17
$12,664.29
BHP Billiton
May 2008
546
$45.05
$24,597.30
News Ltd
Feb 2008
251
$12.30
$3,087.30
Western Mining
Jun 2005
500
$7.85
$3,925.00
Total
$222,714.03
Mr F qualified his concession on the basis that the sale figure for the Woolworths shares was for the sale of 3,064 shares, whereas the husband had only had 2,705 shares as at 1 March 2004. On that basis, Mr F had averaged out the sale price and multiplied that average price by the number of shares the husband had owned as at 1 March 2004. Mr F said on the one hand that the likely explanation, as asserted by the husband, was that the additional shares were the result of dividend reinvestment, but also said that the husband could have purchased the additional shares. It was put to Mr F by the husband that it was clear from his share trading account that he had not purchased any additional Woolworths shares. Mr F’s response was that he had not looked at the share trading account and the husband might have had some other account. Whilst it is possible that the husband does have another share trading account, there is no evidence before me that would suggest that that is the case and in all of the circumstances and on the balance of probabilities I am satisfied that the most likely explanation is that the additional shares were acquired by way of dividend reinvestment, and I find accordingly and have included them on that basis.
Mr F also deposed that the husband had received dividends of $55,980.90 whereas the husband’s figure was $61,579.49. The difference is likely to be explained by the fact that Mr F had calculated dividends for the period from 20 September 2006 to 19 July 2009, whereas the husband had calculated the dividends for the period from 15 April 2004 to 25 September 2009. In any event, the difference between them is not significant in all of the circumstances.
The husband’s tax returns and assessments provided further evidence in support of his evidence with respect to the acquisition and sale of shares and the receipt of dividends, although they had only recently been lodged and copies made available for inspection by the wife’s legal representatives and Mr F, giving the latter in particular only limited time to consider them.
By the time of the hearing, the real issue in this case was not what the husband had at the commencement of the relationship but what he did with that money. Although it may not have been possible for Mr F to calculate the profits and losses on the husband’s share trading it is clear in any event that, by the time of completion of the first of the two townhouses, the husband had sold the last of his shares, including the shares he had owned at the commencement of the relationship. The bank statements support the husband’s case that proceeds of the sale of shares and any dividends, including the proceeds of the sale of his Rinker shares off-market for $92,412, were either transferred from his share trading account or deposited into his Westpac Classic Account and transferred to the other accounts in his name and the BankWest Account in the joint names of the parties. The bank statements for those accounts support the husband’s case generally. Whilst it may not be possible to verify each and every transaction, and I will refer in more detail to Mr F’s analysis of the husband’s application of the funds in the various accounts, I am satisfied that the proceeds of sale of shares and dividends he received were applied to the costs of construction and used to meet living expenses for he and the wife and her children. As I have previously said my inquiry is not limited to the contributions made by the parties to the construction.
At the commencement of cohabitation the husband was employed by ANZ Bank as a project manager. In November 2006 the husband was made redundant and received a termination payout of $25,171, which was deposited into his ANZ Access Account on 25 November 2006. Between November 2006 and May 2008 the husband was employed as a project manager with X Pty Ltd but he left that company shortly after it was placed into voluntary administration. It is the husband’s case that any income he received was used to support he and the wife and the wife’s children and was contributed, when necessary, to the redevelopment of the T property.
The parties’ commenced cohabitation in the T property, which was at that time owned by B Pty Ltd as trustee of the B Trust. B Pty Ltd was incorporated in 1996 and the Trust was settled in July 1997. The Appointor of the Trust is the wife’s sister, Ms E, and the beneficiaries of the Trust are the wife’s children. The wife is not herself a beneficiary of the Trust. The wife’s eldest son was until 30 August 2006 the sole director and secretary of B Pty Ltd.
It is common ground that shortly after their marriage the parties decided to redevelop the T property, albeit that the wife said the decision was made with some reluctance on her part. The parties had the benefit of using building plans that the wife’s sister and brother-in-law had had prepared for land that they owned in Suburb T, although there was some dispute in relation to what, if any, changes were made to “upscale” those plans.
The parties approached a mortgage broker, who recommended a Low Doc Loan from BankWest. In order to secure the borrowings, BankWest required a mortgage to be secured over the T property and that the T property be registered in the name of an individual rather than B Pty Ltd.
The wife was appointed as a director and secretary of B Pty Ltd on 1 August 2006 and the husband was appointed as a director on 7 September 2006. The T property was transferred to the wife by B Pty Ltd on 26 September 2006. Consideration for the transfer of the T property was $1,380,000, which was the value on the then rate certificate which was used for the assessment of stamp duty. The parties agree that the T property was valued at $2,100,000 as at the date of the transfer.
On 8 September 2010 B Pty Ltd held a special meeting of its shareholders and the husband was removed as a director of the company. The wife resigned as a director on 23 May 2011 and her son Mr A Callen became the sole director of the company in her place.
In September 2006, following the transfer of the T property to the wife, the parties obtained approval from BankWest for a loan in their joint names in the amount of $960,000, which was secured by way of a mortgage over the T property. A BankWest loan account in the joint names of the parties was opened on 8 November 2006 and the loan was disbursed as follows:
Gadens Lawyers
$77,368.02
Valuation fee
$860.00
Application fee
$700.00
Bank cheque fees
$20.00
The husband
$50,000.00
The sum of $77,368.02 paid to Gadens Lawyers included stamp duty and other fees arising from the transfer of the T property from B Pty Ltd to the wife. The husband’s case was that the sum of $50,000 was paid to him to reimburse him for the sum of $49,320 that he had spent between 13 May 2005 and 6 October 2006 on planning, design and engineering expenses. The husband annexed various receipts and bank documents to his Affidavit filed 14 September 2011 in support of that claim, including receipts, invoices and bank statements showing payment withdrawals and subsequent reimbursement deposits. The balance of $831,051.98 was then deposited into the parties’ BankWest Offset account.
It is clear from the BankWest statements that by late 2007 the parties had exhausted the balance of the funds advanced by BankWest and in January 2008 the BankWest loan was increased by $299,300, increasing the total sum advanced by BankWest to $1,260,000.
It is also clear from the BankWest Statements of Account and the parties agree that the following additional amounts were paid into the BankWest Offset account:
Date
Amount
Source
30 October 2007
$45,000
Wife’s sister
6 November 2007
$150,000
Wife’s sister
21 April 2008 to
1 June 2009$170,000
Husband’s mother
$14,000
Wife’s son
$15,000
Wife’s son
The wife asserts that the two amounts paid by her sister were loans to pay for her private living expenses and school fees for her son. The husband disputes that the payments were loans, but it is his case that even if they were loans there was no expectation by the wife’s sister of repayment. On that basis, it is the husband’s case that the loans should not be treated as a liability, although he did acknowledge that part of these payments should be treated as contributions made on the wife’s behalf.
It is also agreed by the parties that monies were withdrawn from the BankWest accounts, although the husband says at the request of the wife, for other non-construction purposes as follows:
Date
Amount
Purpose
1 December 2006
$24,250.00
Car for I
22 January 2008
$20,000.00
Gift for the wife’s son Y
5 February 2008
$2,369.00
Purchase of a TV for wife’s son Y
19 February 2008
$3,000.00
Purchase of a couch for Y
4 March 2008
$6,365.00
A’s school fees
30 July 2008
$14,600.00
Gift to Y for deposit on a house
Total
$70,584.00
There were also a number of other payments which were not directly related to construction but which could be said to be for the parties’ benefit, such as the purchase of televisions, health insurance, rates and utilities. There is also an amount of $4,700 for the repayment of the wife’s credit card. These payments total $21,229.40 and make up the balance of the figure of $91,813.40, which is the amount the husband described as the non-building related withdrawals from the BankWest accounts.
The original dwelling on the T property was demolished and construction commenced in late 2006 and the parties moved to a property in Suburb T owned by the wife’s sister, Ms E, and her husband. The parties lived in that property for approximately 12 months, during which time the wife’s sister paid the rates and utilities and for the maintenance of the property, including pool cleaning. The wife’s case is that it was agreed that the parties would pay rent but that it would be discounted by the fact that the parties were house-sitting the property for the wife’s sister before it was sold. Whether there was or was not an agreement to pay rent it is common ground that no rent was paid by the parties.
In or about March 2007, after the sale of the wife’s sister’s property, the parties rented a property in GG Street, Suburb T. The rental for this property was paid for by the wife’s sister and her husband through SS Pty Ltd, a company they controlled, and totalled $95,797. In May 2008 the parties moved to the V serviced apartments in Suburb Z, where they lived for a period of approximately six months. The husband says he paid rent of $34,873.61 and has produced the relevant bank statements to support his case. The wife says that she then moved to the VV serviced apartments in Suburb Z for approximately four months without the husband before moving to 1 C Street, Suburb T.
The first of the two townhouses known as 1 C Street was completed to lock-up stage in or about February 2009 and was subsequently sold for $2,450,000. At settlement on 1 September 2009 the BankWest mortgage was discharged and the wife received $927,534.08 after adjustments, legal costs and disbursements. The wife had previously received the deposit, less the agent’s commission and costs, in the sum of $180,746.64. The total sum received by the wife was $1,108,280 (rounded). From that sum, the wife paid the sum of $170,000 to the husband’s mother, a further sum of $40,000 to BankWest, and repaid an amount of $24,000 advanced by her children to complete the project, leaving a balance of $874,280.
Although the wife paid the sum of $170,000 to the husband’s mother out of the proceeds of sale, there is some suggestion on her part that this was not a loan and that the husband somehow has had the benefit of the money she has repaid to his mother. There is no evidence before me which would lead me to conclude that the husband has had the benefit of the $170,000 which was advanced by his mother and repaid by the wife out of the proceeds of sale of 1 C Street. Although it was clear from the evidence, and in particular the bank statements, that some part of the $170,000 came from an account in the name of the husband’s father rather than his mother, I am satisfied and I find accordingly that the money was advanced by the husband’s mother at his request and I am not satisfied that after it was repaid the husband has had the benefit of that money.
Following these disbursements the wife was left with the sum of $874,280. The wife’s evidence is that she has used those monies for the following purposes:
Purpose
Amount
Rectification of building works
$30,000
Son’s legal fees
$65,200
Her legal fees
$132,697
Her Mercedes
$52,500
Vehicle for son
$21,000
Apartment for son
$20,000
Total
$321,397
The wife’s case is that she has not received any spousal maintenance from the husband and has spent the balance of $552,883 on living expenses. The wife did not give detailed evidence of her expenditure and it is not possible to conclude from her evidence when or if in fact those funds have been exhausted. In her trial Affidavit filed 7 January 2013 the wife deposes that she has used the balance to pay for living expenses, however she also deposes later in that same affidavit that she expects that “the balance [of the] proceeds of sale of [1 C Street] now available to me will be consumed on living expenses and the payment of legal fees.” These two statements appear to be inconsistent. The wife’s evidence is also not consistent with what she describes in her balance sheet as savings of $35,000 which she did not include because they were part of the proceeds of sale of 1 C Street.
The wife deposes that when she moved back into 1 C Street she discovered “more of my husband’s mistakes which had to be fixed, such as air conditioning, floor heating, sewerage system, painting, roof leaks, damage to carpets and American oak parquetry flooring, poor plaster work inside the lift and outside the patio, the pump in the laundry room was prone to flooding the garage full of sewerage water” and that she “spent an estimate of $30,000 in costs to rectify the defects.” Although the wife deposes that she spent $30,000 rectifying those defects, she did not produce any evidence in support of that claim. I am not satisfied on the balance of probabilities on the evidence before me that the sum of $30,000 was used by the wife to rectify alleged defects in the property.
Even if, as the wife deposes to in her trial Affidavit, she has spent the balance of the funds, excluding the $35,000, on living expenses if those funds were not exhausted until the end of 2012, shortly prior to the wife swearing that Affidavit, she would have spent approximately $160,000 per annum on living expenses, in addition to her income. This is at a time when she had the benefit of the occupation of the 1 C Street property, to the exclusion of the husband, without having to make mortgage repayments or pay rent.
The wife deposes “[t]hat from the commencement of our relationship my husband earned $60,000 to $80,00 per year gross, except for the last 12 months prior to separation.” The husband was, until 2007, the sole source of income for the household, which at times also included the wife’s children from a previous marriage. Even after the wife obtained part-time employment, her income was minimal. There are two possible explanations. The first is that the wife has maintained a more expensive lifestyle since separation and in particular since she received the proceeds of sale of the first of the two townhouses. The second is that the parties were spending more than their combined incomes to support their lifestyle, which would be consistent with the evidence of the husband that he was using dividends and the proceeds of the sale of shares to support both their lifestyle and to meet the costs of construction of the T property.
Following settlement of the sale of 1 C Street, the wife moved into 1A C Street with her three children. Her eldest son, Y, left the property in 2010, and the other two children have continued to reside with the wife at that property. The wife concedes that the property must now be sold to repay B Pty Ltd the monies it is owed and, the wife would say, to meet the CGT liability and any GIC and penalties arising from the non-payment of that CGT liability.
The expectation of both parties before they commenced the redevelopment of the T property was that each of the townhouses would be worth in excess of $3 million. Both the wife’s Affidavit filed 7 January 2013 and her counsel’s cross-examination of the husband suggested that there was some failure on the husband’s part to complete the T property building project on time, which resulted in the parties incurring additional interest on the loan and the property being sold at a lesser price as a result of the impact of the Global Financial Crisis. The wife ultimately, however, did not put her case on that basis.
There was also some criticism by the wife of the husband on the basis that his original estimate of the costs of construction was only $900,000. This was similarly not pursued in any real sense by the wife, which is perhaps understandable given the unchallenged evidence of the quantity surveyor as to his assessment of the costs of construction.
These background facts were generally the subject of agreement between the parties, or at least not disputed, and so I have accepted and relied upon these background facts, save and except where I have indicated otherwise and made findings to the contrary.
The Issues
Although the parties focussed almost exclusively on the question of their respective financial contributions to the redevelopment of the T property, that is only one aspect of the issues which I must consider. The issues that I must consider are as follows:
a)First, what are the parties’ legal and/or equitable interests in the divisible property;
b)Second, whether having regard to those legal and equitable interests, justice and equity requires the alteration of those interests; and
c)Finally, having determined that is just and equitable to make an order altering the parties’ interests in the divisible property, determine what order is appropriate having regard to the factors in s 79(4) of the Act.
In that context, I will need to consider various matters, including:
a)What property there is and the value of the property in which the parties have a legal and equitable interest as at the date of the hearing, and for that purpose determine:
(i)What if any add-backs there should be of notional property;
(ii)Whether the sum of $195,000 paid to the wife by her sister was part of the wife’s inheritance, a gift, or a loan to be repaid; and
(iii)Whether the parties should be liable for the payment of both the CGT and the GIC incurred by B Pty Ltd;
b)What assets and financial resources the parties had at the commencement of cohabitation and the value of those assets and financial resources;
c)How and to what extent those assets and financial resources were applied to the redevelopment of the T property or were a contribution to the marriage in a more general sense; and
d)What impact the monies retained by the wife following the sale of 1 C Street should have on the outcome of the case.
The Parties’ Balance Sheets
Initially, none of the parties made submissions by reference to the decision of the High Court in Stanford and so the matter was listed for hearing before me on 15 April 2013 to give them the opportunity to do so and, in particular, how that decision may impact the question of add backs in this case.
In anticipation of that hearing, the husband prepared two lists of the parties’ property upon which he sought to rely. The first of those two documents, made no provision for the payment of the CGT by either he or the wife from the proceeds of sale of 1A C Street. This was not consistent with the way in which the husband had previously put his case, where he had conceded that he and the wife had at least a “moral obligation” to pay the CGT. The second of those lists of property did make provision for the payment of the CGT in accordance with his previous concession, and GIC owing as at 30 September 2009, a total amount of $465,628. This second document is identified as the “Husband’s Aide Memoire No 2 (15.4.2013)”. On the basis of the husband’s acknowledgement of his earlier concession I have relied upon the second of the husband’s lists, which sets out the parties’ property as follows:
Item
Husband
Wife
[B Pty Ltd]
Property
[1A C Street]
$2,750,000.00
Add Backs
Cash received from sale of [1 C Street] – Deposit to wife
$180,746.64
Balance received from sale of [1 C Street] to wife
$927,534.08
Loan from [Mrs Graham]
-$170,000.00
Loan from [A Callen]
-$14,000.00
Loan from [Y Callen]
-$15,000.00
Additional Interest Payment to BW
-$40,000.00
Husband’s Legal Fees
$33,930.00
Net Cash Proceeds
$33,930.00
$869,280.72
Wife
Cash – ANZ
$3,000.00
Mercedes …
$40,000.00
Furniture
$40,000.00
Jewellery
$30,000.00
Shares – Telstra
$10,254.40
Superannuation
Husband
Holden [vehicle]
$8,000.00
Cash
$37,160.28
Tools
$10,000.00
Shares
$108,250.00
Total Assets
$197,340.28
$3,742,535.12
Liabilities
Margin Loan
-$38,094.00
[Husband’s] Tax Debt
-$56,050.00
CGT Debt
-$465,628.00
Debt payable to [B Pty Ltd]
$1,380,000.00
Total Liabilities/Assets
-$94,144.00
-$465,628.00
$1,380,000.00
NET TOTAL (rounded)
$103,196.00
$3,276.907.00
Husband and Wife Combined Net Assets
$3,380,103.40
Joint Liabilities
Debt to [B Pty Ltd]-$1,380,000.00
Net Combined Assets
Husband & Wife$2,000,103.40
Assets of [B Pty Ltd]
$1,380,000.00
TOTAL COMBINED ASSETS OF WIFE, HUSBAND AND [B PTY LTD]
$3,380,103.40
The wife relied upon a balance sheet identified as the “Wife’s Aide Memoire No 1”. She did not update that document for the purposes of the submissions before me on 15 May 2013. That document sets out the parties’ property as follows:
1.
Proceeds of sale of [1 C Street, Suburb T], as subdivided being cheque at settlement and deposit, less agent’s costs
$1,064,340.00
2.
Property at 1A C Street, Suburb T], as subdivided agreed $2,750.00
Less selling costs$2,650,000.00
3.
Total value of real estate
$3,714,340.00
4.
Liabilities
4.1 Capital Gains Tax on sale together with penalties for non-lodgement of tax returns
Note: Mr [O’s] estimate of Capital Gains Tax is $688,553.00$750,000.00
4.2 Debt to husband’s mother
$170,000.00
4.3 Debt to [Ms E] unpaid
$195,000.00
4.4 Debt to wife’s son [A] paid
$14,000.00
4.5 Debt to wife’s son [Y] paid
$10,000.00
4.6 Finishing off costs in respect of the townhouses paid by wife
$30,000.00
4.7 Additional interest paid to BankWest after the principal debt was repaid at settlement of the sale of [1 C Street, Suburb T]
$40,000.00
4.8 Debt to [B] Pty Ltd
$1,380,000.00
5.
Total debt
$2,589,000.00
6.
Total net value of real estate
$1,164,340.00
Other assets and liabilities
7.
Wife’s superannuation benefits
$10,000.00
8.
Husband’s monies on deposit as per amended Financial Statement
$38,202.00
9.
Husband’s shareholdings as per his amended Financial Statement
$94,029.77
10.
Husband’s corporate entity [AB] Pty Ltd as per his amended Financial Statement
$10,000.00
11.
Husband’s superannuation benefits or entitlements as per his amended Financial Statement
$116,109.00
12.
Wife’s savings of $35,000.00 not included as part of the proceeds of sale of [1 C Street]
13.
Wife’s motor vehicle not included as she had a motor vehicle of similar at the start of the relationship
14.
Husband’s motor vehicle not included as he had a motor vehicle at the start of the relationship
15.
Domestic chattels not valued, and divided in specie
16.
Total assets
$1,490,780.00
17.
Husband’s margin loan debt as asserted in his amended Financial Statement
$37,295.00
18.
Husband’s assessed taxation debt in respect of the financial years ending 30 June 2006 to 30 June 2010 inclusive
$56,050.67$56,000.00
19.
Net assets
$1,327,385.00
20.
Assets in the name of the husband
Husband’s monies on deposit as per amended Financial Statement
$38,202.00
Husband’s shareholdings as per his amended Financial Statement
$94,029.77
Husband’s corporate entity [AB] Pty Ltd as per his amended Financial Statement
$10,000.00
Husband’s superannuation benefits or entitlements as per his amended Financial Statement
$116,109.00
Total gross assets
$258,340.00
21.
Less husband’s asserted liabilities
Husband’s margin loan debt as asserted in his amended Financial Statement
$37,295.00
Husband’s assessed taxation debt in respect of the financial years ending 30 June 2006 to 30 June 2010 inclusive
$56,050.67$56,050.67
Total asserted liabilities
$93,345.67
22.
Total asserted net assets in the husband’s name
$64,995.00
Analysis of the Parties’ Respective Balance Sheets
Add Backs
The wife initially put her case on the basis that she had had the benefit of the proceeds of sale of the first of the redeveloped townhouses and conceded that that amount should be notionally added back into the pool. Both parties included those proceeds in their respective balance sheets.
Stanford makes it clear that the Court must begin its consideration of whether it is just and equitable to make an order for property settlement by identifying the existing legal and equitable interests of the parties in the property. Even before the decision in Stanford, it was generally accepted that the first step of what was described as the “four step” process was to identify and value the property of the parties as at the date of hearing, the exception being what are commonly referred to as add backs. Albeit that the Full Court has repeatedly emphasised, even before Stanford, that add backs should be an exception rather than the rule, it seems that there are very few property cases where there is not some argument about potential add backs.
In Bevan, the Full Court (per Bryant CJ and Thackeray J) observed at [79] as follows that:
…“notional property”, which is sometimes “added back” to a list of assets to account for unilateral disposal of assets, is unlikely to constitute “property of the parties to the marriage or either of them”, and thus is not amenable to alteration under s 79. It is important to deal with such disposals carefully, recognising the assets no longer exist, but that the disposal of them forms part of the history of the marriage – and potentially an important part. As the question does not arise here, we need to say nothing more on this topic, save to note that s 79(4) and in particular s 75(2)(o) gives ample scope to ensure a just and equitable outcome when dealing with the unilateral disposal of property.
When given the opportunity to make further submissions and having been directed specifically to the question of add backs, the husband still included the proceeds of sale of 1 C Street in his updated balance sheet and deducted the amounts previously paid out of those monies by the wife. Although the wife did not update her balance sheet, counsel for the wife submitted that both the proceeds of sale and the joint liabilities she had paid out of those monies should be excluded.
I am of the view that it is not appropriate to add back to the property existing at the date of the hearing the funds retained by the wife following the sale of the first of the two townhouses. However, the wife’s retention of those funds is, as the Full Court said in Bevan, part of the history of the marriage and is a matter to which I can have regard pursuant to s 79(4), both by way of the husband’s contributions, notwithstanding that his contribution was to property that is no longer in existence, and pursuant to s 79(4)(e) and in particular 75(2)(o).
Other Property
I have included the wife’s savings of $35,000, the figure referred to in her balance sheet, which she says is part of the proceeds of sale of 1 C Street, rather than the husband’s figure of $3,000, I have also included the husband’s savings in the amount he deposed to in his Financial Statement filed 18 January 2013. The basis upon which the husband asserts that the wife’s savings are only $3,000 is not clear and I am satisfied that in all of the circumstances the wife’s evidence as to her savings is the best evidence available to me.
The wife did not include in her asset pool her jewellery, furniture and chattels. The husband has included them in his pool and has relied upon the wife’s estimate of their value as contained in her Financial Statement filed 14 January 2013. Not only was there no evidence by either party in relation to their acquisition, there was also no evidence as to their exact value other than that contained in the wife’s financial statement. I am satisfied that the appropriate approach is to include these items and at the value attributed to them by the wife. I have included the parties’ respective motor vehicles on that same basis. The husband’s motor vehicle is the vehicle he owned at the commencement of cohabitation. The wife’s vehicle is the vehicle which she purchased using the trade-in value of the vehicle she owned at the commencement of cohabitation and the monies she retained from the proceeds of sale of 1 C Street.
In his balance sheet, the husband included a figure of $10,000 for tools. The wife in her balance sheet included a figure of $10,000 for the husband’s interest in AB Pty Ltd. The husband’s evidence was that the tools referred to in his balance sheet are in fact the only asset of AB Pty Ltd. Although the evidence with respect to this issue is limited, doing the best I can on the evidence I do have I accept the husband’s evidence and I am satisfied that the he owns the shares in AB Pty Ltd and I have included his interest at a figure of $10,000 and have otherwise excluded his tools.
The figure the husband included in his balance sheet for his income tax liability is less than the figure the wife has included in her balance sheet. Although at the commencement of the case the wife objected to the husband’s application for leave to file an affidavit setting out what he said was his income tax liability, and I upheld that objection, as the case was heard the husband produced and tendered, without objection, his income tax returns and assessments. The reason the husband’s figure is less than the wife’s figure is because he did not include the GIC. I am satisfied that it is appropriate to include the husband’s figure.
I have also included $10,254 for the wife’s Telstra shares, based upon the holding statement which was produced by the husband with respect to those shares and conceded by the wife in cross-examination.
Alleged Debt to the Wife’s Sister
The wife’s case is that she owes her sister, Ms E, $195,000. The husband disputes that this amount was a loan, and it is his case that even if it is a loan, the wife’s sister is not likely to require the wife to repay that loan. The alleged loan is not secured over any of the property owned by the wife. The husband asserted that the $195,000 paid to the wife by her sister was part of the wife’s inheritance from the estate of her late parents. This was disputed by the wife. The wife’s evidence, which was not disputed, was that her father died 23 years ago and that her mother died two years ago. Given that the wife’s sister paid the sum of $195,000 to the wife in late-2007, before their mother’s death, and in the absence of any evidence that would otherwise support the husband’s assertion, I am satisfied that the sum of $195,000 was not part of an inheritance.
However, I am not satisfied on the basis of the wife’s evidence that the sum of $195,000 was a loan from her sister or that even if it was a loan, that there is any expectation that the money allegedly advanced by her sister will need to be repaid. The wife’s evidence was that it was a verbal agreement, and that the agreement was that the she would pay her sister back “whenever at my convenience”. The wife was asked in cross-examination whether she had agreed to pay interest on the alleged loan and it was her evidence that it had not been discussed but that she was “sure that she will get something”. When the wife was asked whether it would have been normal to have set a time for repayment, she said “not between families, not between two sisters who are so close together” and that “she felt sorry for me.” I am supported in my view that the wife’s sister is unlikely to require repayment of the alleged loan, if in fact it is a loan, by the fact that there is no evidence of her making any demands or requests for repayment, nor have any repayments actually been made. I note that the wife did not use any of the monies she received from the sale of 1 C Street to make repayments to her sister. If, as the wife said in her evidence, she would honour her obligation to her sister, it is somewhat surprising that when the wife had the funds to do so she made no repayments whatsoever.
The Court may in certain circumstances, commonly referred to as the rule in Jones v Dunkel (1959) 101 CLR 298, draw an inference when a party fails to call a relevant witness that that witness’s evidence would not have assisted that party’s case. The Full Court said in Anderson & Senior (2013) FamCAFC 61 at [49]:
Applications pursuant to s 79 often involve each of the parties seeking to prove different matters relevant to the provisions of that section. There is, in that sense, no single onus of proof. Rather, “the burden of proof upon the different issues may be variously distributed between the parties…” (J D Heydon, Cross on Evidence (LexisNexis Butterworths, 9th ed, 2013) at [7005]). In s 79 cases, it can be particularly important to consider what inference, if any, might be drawn against the interests of a party who fails to call evidence which they are “plainly in a position to give or call” and which is crucial to an issue on which they bear an evidentiary burden. Failure to call that evidence may, in appropriate circumstances, be taken into account “in deciding whether that onus is discharged…(see Ho and Rich and, generally, Cross on Evidence at [1215] and [7015]).
As Nygh J said in Af Petersens and Af Petersens (1981) FLC 91-095 at 76669:
[I]n taking account of the “obligations” of the parties, I must consider how pressing such an obligation is. It is fairly common in this Court to meet a situation where a parent has made a loan to a child which is in all respects legally enforceable, but which is not in fact enforced and would not really be expected to be enforced. It is no doubt an “obligation” but if the obligation is not likely to have to be met, it should not be taken into account.
The wife did not adduce any evidence from her sister and whilst mention was made of her sister living overseas, that would not have precluded her from giving that evidence either initially by affidavit and then electronically if she had been required for cross-examination. The wife’s sister is a witness the wife would naturally have been expected to call in order to meet her onus of proof with respect to the alleged loan and whether the alleged loan was expected to be repaid.
The wife’s failure to adduce evidence from her sister as to the existence of the alleged loan and her obligation to repay the alleged loan gives rise to the inference that her evidence would not have assisted her case and the wife has not met her evidentiary burden as a consequence of her failure to adduce that evidence. I am not satisfied that in this case there is a legally enforceable loan and, even if there were, I am not satisfied that there is any expectation of repayment. On that basis, I have not treated it as a liability of the parties. I will however, take it into account when I consider the parties’ respective contributions.
Other Liabilities
There was no challenge to the husband’s evidence and I am satisfied that the husband’s margin loan has a balance of $37,295.
Orders were made by consent on 21 September 2011 acknowledging the debt of $1,380,000 owing to B Pty Ltd. At the conclusion of the hearing before me, the husband also acknowledged that he and the wife were morally responsible for the payment of the CGT arising as a consequence of B Pty Ltd transferring the T property to the wife, however it was his case that he should only share liability for the GIC with the wife up to the date of settlement of the first of the townhouses and that, thereafter, the wife and/or B Pty Ltd should be liable for payment of the GIC.
Capital Gains Tax and the General Interest Charges
It is agreed by all three parties that the CGT liability is $375,682 and the GIC calculated on that amount is $312,796 as at 14 December 2012. According to the husband, the amount owing as at the date of settlement of the sale of the first of the two townhouses, including the GIC, was $465,628 in total, or CGT of $375,682 and GIC as at the date of settlement of $89,946. The calculation of this figure was not disputed by either counsel for the wife or counsel for B Pty Ltd.
In their Statement of Claim dated 7 December 2012, B Pty Ltd claimed that by an agreement made on or between 22 August 2006 and 27 September 2006 it agreed to transfer the T property to the wife for a purchase price of $1,380,000. The particulars of that agreement were stated to be as follows:
The agreement was partly in writing, partly oral and partly to be implied. To the extent that it was in writing it was constituted by correspondence passing between the parties’ lawyers. To the extent that it was oral it was constituted by and contained in conversations between the parties, the effect of which is as pleaded. To the extent that it is implied, it is implied by law in order to give efficacy to the arrangements set in place and agreed upon between the parties.
It was further pleaded that the agreement referred to contained the following terms:
(a)B Pty Ltd would transfer the property to the wife for the purchase price;
(b)The wife would owe and pay the purchase price to B Pty Ltd;
(c)The wife would indemnify B Pty Ltd and hold B Pty Ltd harmless in respect of any CGT liability, which might arise as a result of the property to the wife; and
(d)The quantum of such indemnity would be ascertained and determined when an assessment in relation to it was received from the ATO.
Further, and/or in the alternative, it was pleaded that B Pty Ltd agreed with the husband and the wife that they would both indemnify B Pty Ltd and hold it harmless in respect of any CGT liability which might arise as a result of the transfer of the property to the wife, the quantum of such indemnity to be ascertained and determined when an assessment in relation to it was received from the ATO.
The wife’s case is that the she and the husband have a legal obligation and, if not a legal obligation, then a moral obligation to reimburse B Pty Ltd for the CGT and any GIC incurred as a result of the failure to pay the CGT arising from the transfer of the T property to the wife in September 2006.
Although it was not until the latter part of the proceedings before me that the husband acknowledged that he and the wife had a moral obligation to pay the CGT incurred by B Pty Ltd, neither the husband nor counsel for the wife took issue with my having jurisdiction to determine B Pty Ltd’s claim. I am satisfied that the claims of the husband, the wife and B Pty Ltd are part of a single justiciable controversy. I am in any event satisfied, particularly in light of the husband’s concession in relation to the CGT, that in order to determine all of the issues between the parties, I have and should exercise the Court’s jurisdiction to determine B Pty Ltd’s claim.
Ultimately, the dispute is now not whether the husband and the wife are liable to pay the CGT, because the husband has now agreed to do so, but whether they are also liable for the GIC that has been incurred as a result of the non-payment of CGT.
Although the husband agreed to pay the sum of $1,380,000 to B Pty Ltd, and ultimately conceded during the hearing that he and the wife had a moral obligation to pay the CGT, it was his case until that time that not only was payment of the CGT never discussed and never agreed to, but that he had assumed that the $1,380,000 that the parties owed B Pty Ltd would never have to be repaid and the Trust would ultimately be wound up. There is some support for the husband’s case in the letter from Mr H, who was then acting on behalf of the husband and the wife, dated 22 August 2006, insofar as he says:
Please note that the transfer will create a debt of $1,380,000 owing by [Ms Callen] to the Trust. In due course the Trust Deed should be amended to include other beneficiaries. The net amount of the debt can then be distributed to various beneficiaries, subject to varying tax situations.
The beneficiaries of the Trust are the wife’s children from her previous marriage and arguably if the assets of the trust were intended to be for their benefit there would have been no need to consider the amendment of the Trust Deed to include additional beneficiaries. It is not clear from the evidence who it was intended might be added as a beneficiary of the Trust but one possibility which would tend to support the husband’s case was that he and/or the wife were to be added allowing the distribution to them of any money paid to B Pty Ltd.
Although I am left in some doubt as to the original intention of the parties and in particular the wife and B Pty Ltd as the husband agrees that the $1,380,000 should be repaid, it is not necessary for me to determine whether or not it was the intention of B Pty Ltd and/or the parties or either of them that it was always intended to be a loan or whether it was intended that it be repaid.
It was submitted on behalf of B Pty Ltd and the wife that there was an agreement that the husband and the wife would pay the CGT. Despite the references in the pleadings to there being an agreement in writing constituted by correspondence passing between the parties’ lawyers, there is no evidence of any correspondence passing between the parties’ lawyers other than in the most general of terms except for the letter from Mr H. Both the wife and B Pty Ltd rely upon Mr H’s letter and it was submitted on behalf of B Pty Ltd that the letter clearly contemplated that the husband and the wife would pay the CGT. In that letter, Mr H advised that “consideration of $1,380,000 (less purchase costs and other costs) will be a Capital Gain and thus 50% will be taxed at 48.5%. Provision should be made for this in due course.” Although one interpretation of that letter is that the husband and the wife needed to make provision for the payment of CGT, it does not make clear who should be responsible for the CGT.
Both counsel for the wife and counsel for B Pty Ltd submitted that the wife had given clear and unambiguous evidence of the agreement between her and the husband to pay the CGT. Counsel for B Pty Ltd submitted that his client should not be disadvantaged by what he said was a breach of the fiduciary duty of the husband and wife as directors of B Pty Ltd to administer the Trust for the benefit of the beneficiaries of the Trust.
I do not agree with the submission that the wife’s evidence was clear and unambiguous. To the contrary, her evidence was vague and lacked any specificity. The wife deposed in her Affidavit filed 7 January 2013 that she had “a moral obligation to pay my children for the loss of their registered interest in the property”. She further deposed that she was obliged to pay her children the sum of $1,380,000, plus an indemnity for CGT, and that she believed that both “legally and morally a debt exists for the benefit of the trust (sic) for the consideration shown in the transfer and for the payment of the capital gains tax liability. A debt exists in favour of the trust (sic) for these sums but has not been paid by reason of the fact that my husband and I separated.”
In cross-examination the wife said that it was agreed by both the husband and the wife that B Pty Ltd would be reimbursed and that they would both pay the CGT. When she was asked when they had reached that agreement, she said before the property was transferred into her name. She also said that it was only a verbal agreement because she did not know that they were going to get a divorce soon after. When the husband asked her about the nature of the agreement, the wife said that they had agreed to reimburse B Pty Ltd once the house was sold. She was then asked why this had not occurred. It was her evidence that the husband was a director and she knew nothing about it.
Both B Pty Ltd and the wife also relied upon the email sent by the husband to the wife’s solicitor on 14 September 2011, annexed to the wife’s trial Affidavit, as evidence that there was an agreement to pay the CGT. The husband said in the email as follows:
I very recently had a meeting a (sic) Chartered accountant re this CGT issue. Amongst other things he mentioned that given the Tax office has not come collecting on this debt, which occurred in 2004’ (sic) they are unlikely now to do so. He also advised that should this issue be brought up in court then the court officer is obliged to bring this matter to the attention of the ATO.
The legal opinion I have also received is that this contingent liability is not really relevant as it’s a debt [B Pty Ltd] has. Taking this into consideration, we recommend not raising this matter in court as we believe it’s not in your clients (sic) best interest. I would appreciate it if you would advise [the wife] about the potential consequences.
The husband adopted the second of these options, which is his calculation of the construction expenses taken from the various accounts. This was also the figure which was used by both the wife’s expert witness, Mr F, and the husband’s expert witness, Mr W, for the purposes of their analysis of their respective positions. The total including the interest is $2,057,569.
It was the husband’s case that the total amount available to meet the costs of construction, excluding the funds, if any, contributed by the husband, and after deduction of those amounts which were used for other purposes not related to the construction, was $1,400,638.58. That would leave a figure of $656,930 and, after adjustment for the amount of $50,000 refunded to the husband but included in the costs of construction, a figure of $606,930.
The Wife’s Method of Calculating Contributions
Counsel for the wife approached the matter from a different direction, relying upon what he said were the verifiable receipts of $1,453,601 and comparing that figure with the agreed sources of funds, which he said were $1,665,000, concluding that there was no need for the husband to have contributed any money to the cost of construction. In fact, it would support her assertion that the husband had had the benefit of money withdrawn from the BankWest account. In the alternative, counsel for the wife submitted that if the total of the verified invoices, a figure of $1,754,159, were used and compared with the agreed sources of funds, then the husband’s contribution would have been approximately $90,000.
Neither of these approaches made any allowance for the interest costs. If the interest is added to each of these scenarios, the husband’s contributions would be either $6,748 based upon the verified receipts or $307,306 based upon the invoices produced by the husband.
Not only did counsel for the wife submit that I should find that the husband had not contributed to the costs of construction, he also submitted that I should find that the husband had not contributed to the parties’ living expenses as it is not known what money the husband may have transferred back to the accounts in his name from which he alleges he met the parties’ living expenses.
Expert Witnesses
At the conclusion of their evidence, the two experts had prepared an updated comparison of their respective positions. This was based upon the amounts paid out of the various accounts to meet the costs of construction, plus interest costs, and an analysis of the source of the funds that were available to meet the costs of construction.
Although there were some differences in their methods, ultimately, as a result of their respective analysis of the figures, the two experts were approximately $100,000 apart. That difference is attributable to the fact that Mr W included in his calculation of the funds available for construction what he called the wife’s contribution of $95,186. This was the sum of $195,000 provided by the wife’s sister less the sum of $99,813 spent on other expenditure, whereas Mr F included the total sum of $195,000 paid by the wife’s sister. It was the husband’s case that, insofar as the money which came from the wife’s sister was a contribution by or on behalf of the wife, the amounts spent by the wife for other purposes, to which I have referred to in paragraph 58 of these reasons, should be deducted from the wife’s side of the ledger. I do not agree with the way in which the husband has treated these payments in terms of the wife’s contributions and I will refer to this in more detail later in my judgment, however I do agree that for the purposes of the exercise being carried out by the two experts the amounts that were not spent on construction must be deducted for the purposes of their consideration of what, if any, other funds are likely to have been necessary to complete the construction.
Mr W concluded on the basis of this analysis that the husband had contributed $582,036 to the construction whereas Mr F using the same analysis came to a figure of $482,222.
Notwithstanding that this was an agreed position, Mr F also questioned the husband’s calculations of the amounts he claimed were spent on the construction and it was submitted on behalf of the wife that the husband had not proven his contribution to the costs of construction and therefore had no entitlement beyond what he already owned or had received.
Mr F referred to the following matters:
(a)That between 1 December 2009 and 14 October 2009, $95,500 was withdrawn from the BankWest Loan Account in cash which the husband said was used to pay for sub-contractors and other expenses, however the total of the cash payments as per the invoices provided by the husband was $37,079, leaving the sum of $58,420 unaccounted for;
(b)There were cheques drawn on the BankWest Account for which the husband had not provided any notation or description;
(c)That between 7 April 2006 and 1 July 2009 there was $6,200 withdrawn in cash from the husband’s Westpac Classic Account but the invoices did not disclose any cash payments; and
(d)That the wife asserted that the husband had been involved in four other building projects during the marriage in other Melbourne suburbs.
In his report, Mr F concluded as follows:
In my opinion [the husband’s] use of the funds from shares held at 1 March 2004 and the sale of his [D] property amounted to no more than $172,136. ([Graham] Contribution $355,936 less Unsubstantiated Construction Costs $183,800)
This conclusion was based upon what he describes in that report as “Conclusion on assumption” as follows:
Therefore it appears that some of the amounts claimed to have been spent on the construction are not substantiated and was not used for the said construction. This comment is made in light of the poor record keeping and the lack of evidence for certain payments that some of the cash withdrawn could have used (sic) for other purposes. Further not all invoices may be related to this project. Along with a reply by [the husband] on the 12th April 2012 at a meeting at Sam Holt’s office when I told him I was relying on his affidavit of 6th February 2012 in which he concluded that his contribution was $512,853.32 he said “you cannot rely on that”. All this leads me to be highly sceptical about the total said construction costs and believe that it would not be unreasonable to assume that between 5% and 10%. Together with the 4% of invoices not accounted of (sic) would mean that 10% of the total construction costs were used for other purposes. This amounts to $183,800 10% of $1,838,000.
The basis upon which Mr F concluded there should be a further 10 per cent adjustment appeared to be based to a significant extent upon an assumption or instructions to the effect that the husband had not provided full and frank disclosure and that he was required to account for or prove every dollar he had spent on the construction. In his affidavit Mr F referred in some detail to the instructions he had received and the basis upon which he had proceeded to prepare his report. Those instructions read like conclusions rather than instructions to an expert to provide an independent opinion.
In cross-examination Mr F had some difficulty making concessions when I consider it was appropriate to do so, and I was left with the clear impression of him as an advocate for the wife’s case rather than an independent expert. Mr W’s evidence, on the other hand, was based primarily on an analysis of the figures which were available to him rather than an interpretation of what lay behind those figures. As I have already said, I prefer the evidence of Mr W in relation to how much of the monies provided by the wife’s sister should be treated as having been contributed to the construction.
I also prefer Mr W’s evidence in relation to the basis upon which Mr F concluded that it was reasonable to assume that 10 per cent of the amount the husband said had been spent on the construction had been used for other purposes. Mr F relied on what he described as the husband’s “poor record keeping”, particularly in relation to such a large project. Mr W, on the other hand, pointed to what he said was his experience of builders being “notoriously bad bookkeepers let alone record keepers”. The husband in this case was not even a professional builder. My observation of the husband, both in the witness box and while conducting his case, was that he did at times struggle with the documentation. He had suitcases full of documents that he would rifle through looking for particular documents and it would not be surprising if his record keeping in relation to the project had not been complete.
I agree with Mr W that Mr F’s conclusion that 10 per cent of the total constructions costs were used for other purposes is unjustified. Although Mr F referred to the wife’s assertions that the husband had been involved in four other building projects during the marriage, it is clear from his own report that he sighted some pages from contracts for two building projects which appear to be outside the relevant timeframe. More importantly, there is no evidence, other than the wife’s assertions to that effect, of any of the funds in question being used for other purposes other than those already identified by the husband. There is no evidence that any of the monies withdrawn from the Bank West Account or for that matter the husband’s Westpac account were used for such projects.
The Mathematical Approach
In the context of the mathematical approach taken by the parties and for the purposes of assessing his contributions, the husband was expected to account for every dollar spent and to provide an explanation for the transfer of funds between the various accounts in the husband’s name and the joint names of the parties.
The difficulty I have with these criticisms of both the husband’s record-keeping with respect to the building project, the conduct of these proceedings and his evidence, is that those criticisms, like the cases of both parties, focus on the costs of construction and are based upon a mathematical approach to the matter, requiring a detailed examination of a significant number of individual transactions. It is, however, well settled that the assessment of the parties’ contributions does not require such a detailed mathematical exercise.
In Garrett & Garrett (1984) FLC 91-539 at 79,372 the Full Court said as follows:
The wide and indefinite terms of para. (a) themselves suggest that where appropriate, and certainly in a case like the present, a broad estimate of the financial contribution of each party must be made. Under sec. 79(4)(b) non-financial contribution of each is to be taken into account. This must of necessity be a matter of judgment and not of computation. Similar indications can be found amongst the relevant matters in sec. 75(2). It is also worth noting that para. (a) and (b) refer to the “contribution” and not to the contributions of each party.
In this case it has been possible to determine with some degree of accuracy what the parties brought into the marriage and what they received during cohabitation from their respective families. However, the long term significance of these contributions is not determined as a mathematical exercise. They enhanced the life style of the parties and their children who all benefited from them.
In Norbis v Norbis (1986) 161 CLR 513, Mason and Deane JJ referred to the decision of Nygh J in In the Marriage of G and G (1984) FLC 91-582. Their Honours stated at 522-523 that:
…Nygh J. expressed his agreement with the proposition ‘that it cannot be required of the Family Court that it assesses contributions with mathematical precision with respect to each item’…
In this respect we agree with the comment of Nygh J…that, although mathematical precision is certainly not required, there is ordinarily a need to know the circumstances in which assets were acquired and the general extent of each party’s contribution to them.
I have not adopted the mathematical approach proposed by either party and have not based my decision on their mathematical calculations. However that being said, if anything, those calculations in my view tend to support the husband’s case that he has made a substantial financial contribution to the construction and to the welfare of the wife and her children during their relationship. The evidence of the quantity surveyor also lends support to the husband’s case.
The husband cannot account for how every dollar he had prior to the commencement of cohabitation nor his income during the relationship, either by way of dividends or from his employment or the proceeds of sale of shares, has been spent or exactly what he spent it on. It is not reasonable to expect such detail and precision. However, I am satisfied on the balance of probabilities on the evidence before me that the husband has applied the proceeds of sale of both the shares he owned prior to the relationship and those he acquired with the proceeds of sale of the D property, his redundancy package, dividend income and his income from employment to the construction of the two townhouses and the support of himself, the wife and her children during the relationship.
Consideration of Section 79(4)
Neither party put their case in any real sense on the basis of a percentage having regard to the totality of their respective contributions or the relevant s 75(2) factors as one would normally expect. However, I have previously made the point that my enquiry is not just limited to what each party contributed to the costs of construction.
The Court, in exercising its discretion, must have regard to the matters in s 79(4). However, as previously discussed, there is some force to the suggestion supported by Stanford that a more holistic approach may be appropriate and that it is not necessary to follow what was described as the four step process by dividing the property of the parties, based upon their respective contributions, and thereafter making an adjustment to take into account the relevant s 75(2) factors.
As pointed out by Murphy J in Smith & Fields [2012] FamCA 510 (which is currently the subject of an appeal) the discretion of the trial judge is extraordinarily wide and:
[h]owever unsatisfactory or uncomfortable an “extraordinarily wide” discretion may feel for a trial judge, it is the exercise of precisely that which the section requires and it is precisely that which confronts a trial court – albeit informed by the mandatory considerations inherit in s 79…The very wide discretion inherent in s 79 requires the Court “... to do justice according to the needs of the individual case, whatever its complications might be.” [Norbis v Norbis (1986) 161 CLR 513 at 520, per Mason and Deanne JJ]. That necessarily involves an acknowledgement that the circumstances of each marriage are different and that it is to those particular circumstances to which the discretion must be applied.
I have considered all of the evidence with respect to the financial and non- financial contributions made by or on behalf of the parties to the acquisition, conservation and improvement of their property or the property of either of them including the property they no longer have and their respective contributions to the welfare of the family.
In addition to my findings with respect to the husband’s contribution of the proceeds of sale of the D property which he used to acquire shares, and thereafter contributed to both the construction and the living expenses of the family, and the shares he owned prior to the relationship, I have also had regard to the fact that when the husband sold the shares he owned prior to the relationship they had increased in value. This was confirmed by Mr F.
I am also satisfied that the husband made a significant non-financial contribution to the construction project. He left his employment in May 2008 and thereafter, although the wife is critical of his lack of professionalism and the end result, was engaged in the completion of the two townhouses. I am not satisfied that I can on the basis of the evidence or that it is necessary to ascribe a monetary value to the husband’s contribution as submitted by the husband.
I am satisfied that the husband also made both a financial and non-financial contribution to the support and welfare of the family generally, including rental payments and housekeeping he paid to the wife. Until May 2008 the husband was in full-time employment and the breadwinner for the household which included the wife’s children from her previous marriage. I have also taken into account the husband’s termination payment of $25,000.
The wife commenced part-time employment in 2007, however her income would not have been sufficient to support the family and it is clear and I find accordingly that the husband was the primary breadwinner until leaving his employment in August 2008.
The most significant contribution by or on behalf of the wife was the value of the T property, which she acquired on what were clearly favourable terms. The husband conceded that the transfer of the property represented a contribution on the wife’s behalf of $620,000 however the parties agree that as at 26 September 2006 the property was valued at $2,100,000 whereas the amount that the parties are to pay B Pty Ltd is only $1,380,000, a difference of $720,000. There is no evidence that the wife was required to pay interest.
Although I have found that there was no formal agreement to that effect, the husband has conceded that he and the wife had a moral obligation to pay the CGT and any general interest incurred prior to settlement of the sale of the first of the two townhouses. Whether there was a legal agreement to pay the CGT and any GIC or a moral obligation, the amount that I have found should be paid reduces the value of the contribution made by or on behalf of the wife. Although the parties now, albeit for different reasons, see the redevelopment of this property as a financial disaster the proceeds of sale of the two townhouses exceed the combined costs of the acquisition of the property and the construction and the transfer of the property to the wife on favourable terms is a significant part of what made it all possible.
In October/November 2007 the wife’s sister paid the wife the sum of $195,000. I have already found that I cannot be satisfied that this was a loan or, even if it was a loan, that it will ever have to be repaid, however it is a contribution on behalf of the wife by her sister. It is the wife’s evidence that this money was lent to her by her sister for private living expenses and school fees for her two sons. It was paid by the wife into the BankWest account in the joint names of the parties. It is common ground that after the sum of $195,000 was paid into that account, a total of $46,334 was withdrawn from that account for purposes other than the construction of the T property and for the benefit of the wife’s children, including the payment of school fees for the wife’s son A and a gift of $20,000, a television and a couch for the wife’s son Y. Although these monies were applied for the benefit of the wife’s children, the payments were made from a joint account controlled by the husband and there is no evidence to suggest that this was not a joint decision.
I am satisfied that in all of the circumstances the whole of the sum of $195,000 paid to the wife by her sister should be treated as a contribution on behalf the wife, whether or not it was applied to the costs of construction, for the benefit of the wife or the benefit of the husband and the wife.
On 1 December 2006, prior to the wife receiving the money from her sister, there was a withdrawal from the BankWest account of $24,250 for the purchase of a car for the wife’s son Y. There were also further withdrawals of $21,229 for what I have described as joint expenses such as the purchase of televisions, health insurance, rates and utilities.
There is similarly no evidence to suggest that any of these withdrawals were made without the consent of the husband and, on the contrary, it is clear from the evidence that these accounts were managed by the husband and I do not consider it appropriate to reduce the value of the contribution made on behalf of the wife by those amounts.
The husband and the wife also had the benefit of free accommodation in the sister’s home and the rental payments of $95,797 paid by SS Pty Ltd. I am satisfied that this was a contribution made on behalf of the wife.
The wife worked part-time after 2007 and although she may have applied her income for the benefit of the husband, the children of her previous marriage were also living with the husband and the wife and were supported by both the husband and the wife. I am satisfied that the wife has made a contribution in her role as homemaker. I am also satisfied that the wife made a contribution to the construction although to a much lesser degree than the husband.
The husband is 12 years younger than the wife and has a greater income earning capacity, although it cannot be said that he is a high income earner. The husband is now 45 years of age. He is self-employed earning approximately $1,200 per week. He has a new partner and they have a son who is almost two. His new partner has not worked since the birth of their son. The husband and his new partner live in a property owned by his partner and acquired by her prior to them having commenced cohabitation.
The wife, who is now 57 years of age, has continued to live and has had the significant benefit of living in the second of the T townhouses although it is common ground that the property is now to be sold. The wife works part-time in hospitality and according to her Financial Statement filed 14 January 2013 earns approximately $500 per week. She has no qualifications. Her capacity to earn income is less than the husband’s although that cannot be directly attributed to the marriage.
The children of her previous marriage are now all adults. I have had regard to the fact that the husband contributed to the support of the children during the marriage by way of his support for the household and the payments to the children or for their benefit out of the BankWest account which might otherwise been available to meet the costs of construction.
The husband’s superannuation entitlements are significantly greater than those of the wife.
The orders I propose to make do not impact upon the income earning capacity of either party.
Section 75(2)(o)
Section 75(2)(o) of the Act provides that I must take into account “any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account.”
It is common ground that that wife has had the benefit of $874,280 that she retained following the sale of 1 C Street.
From those funds the wife paid legal fees of $132,697. It is difficult to see how it could be just and equitable for one party in this case to have access to funds that would be otherwise be part of the property to be divided to the exclusion of the other party to pay their legal fees without some adjustment being made in that parties favour.
The husband initially included a figure of $33,930 by way of an add back to what he said was the property of the parties. Even if I had determined it was appropriate to include add backs, the husband’s legal expenses were paid from his post separation income and I would not have included them in any event.
The wife used $188,700 of the funds she retained for the alleged rectification of the property, legal fees for her son, her motor vehicle and gifts to her children. Both this amount and the $132,697 the wife spent on her legal fees amount to a significant premature distribution of matrimonial property in the wife’s favour.
The wife says she used the balance for living expenses less the sum of $35,000 she says she still has, to meet her living expenses. The wife says that the husband did not pay any maintenance however the wife did not make an application for spousal maintenance and it impossible to find on the basis of the evidence before me whether an application for spousal maintenance would have succeeded.
In M & M [1998] FamCA 42 at [2.11] the Full Court said as follows:
There seems to be no appropriate basis for notionally adding back monies that existed at separation but which had been subsequently spent on meeting reasonably incurred living expenses. Neither the Family Law Act nor the case law require that parties go into a state of suspended economic animation once their marriage breaks down pending the resolution of their financial arrangements. Parties are entitled to continue to provide for their own support. Whether any expenditure so incurred is reasonable or extravagant is a matter that can be determined by the trial judge.
The wife’s evidence is that she has spent over $500,000 on living expenses since settlement of the sale of the first of the two townhouses. Although I accept that some of the money has been spent on “reasonably incurred living expenses” it is difficult given the lack of any detailed evidence as to the wife’s expenditure to make a finding that a specific amount of that expenditure was reasonable or unreasonable however doing the best I can having regard to the evidence of the parties’ incomes and their standard of living during the marriage I am not satisfied that all of her expenditure was for “reasonably incurred living expenses”. There is the added difficulty of dealing with amounts that have already been spent in current dollar terms.
Although I do not consider it appropriate to add back the amount that the wife has had by way of a what I have described as a premature distribution of the matrimonial property or the balance that she says she has spent on living expenses it is a very significant sum particularly in the context of this case and I am satisfied that in order to do justice and equity between the parties it is a matter to which I should give significant weight.
I have evaluated all of the evidence with respect to the parties’ financial and non-financial contributions to both the acquisition, improvement of their property and also considered the s 75(2) factors in so far as they are relevant including the parties’ respective ages and state of health, their income, property, financial resources and income earning capacity, the commitments that are necessary for them to support themselves and, in the case of the husband, his duty to maintain his new partner and their child, their respective superannuation entitlements, the standard of living that is reasonable in all of the circumstances and the duration of their marriage and the effect that it has had on their income earning capacity. I have had regard to the fact that the wife has had the benefit of the proceeds of sale of the first of the two townhouses to the exclusion of the husband. Based upon that evaluation of the evidence and my findings with respect to that evidence and the matters which I am required to have regard pursuant to s 79(4) of the Act I am satisfied that the remaining property of the parties should be divided as to 65 per cent in favour of the husband and the balance to the wife.
If I am wrong and the holistic approach I have adopted is not appropriate upon my assessment of the evidence having weighed up the parties’ respective contributions, I have concluded that the parties’ contributions should be assessed as 60/40 in favour of the wife.
I am satisfied that there should be a 25 per cent adjustment in favour of the husband to take into account the s 75(2) factors which, as a result of the monies retained by the wife from the proceeds of sale of the first of the two townhouses, are weighed heavily in favour of the husband.
Effect of the Proposed Orders
Although the parties agreed upon a valuation of the T property, that property is to be sold and there will be costs arising out of that sale. The wife’s case was that the selling costs would be approximately $100,000 however there was no evidence in relation to those costs. Rather than guess what those costs might be or what price the property might sell for, I propose to make orders which provide for a percentage division of the proceeds of sale and make an adjustment for the other property to be retained by each of the parties.
Assuming a sale price of $2,750,000 based upon the agreed valuation, less estimated sale costs of $100,000, less the sum of $1,845,562 which is made up of the $1,380,000 owing to B Pty Ltd and the sum of $465,628 which I have found should be held in trust for B Pty Ltd on account of the CGT and GIC that has accrued, there will be a balance of $804,372. The husband’s 65 per cent share would amount to $522,841.
The parties’ respective property interests less their liabilities and excluding the value of the remaining townhouse have a net value of $243,859. On the basis of a 65/35 per cent division of those property interests in favour of the husband he is entitled to $158,508 of that other property. He is to retain $88,605 which requires a cash adjustment in favour of the husband in the sum of $69,903 out of the wife’s share of the net proceeds of sale.
The wife’s share of the net proceeds of sale, on the basis that it sells for $2,750,000, will be $281,531 less the payment to the husband of $69,903. I have found that the property she is to otherwise retain has a value of $155,254 giving her a total settlement of $368,881.
Are the Orders Just and Equitable?
Leaving aside the proceeds of sale of the first of the two townhouses, the s 75(2) factors would almost certainly be weighed in favour of the wife. In particular the wife’s age, her lesser income earning capacity and the fact that as a result of these orders she will be required to find alternative accommodation and may, as a result of the orders I propose to make, not have the funds she needs to purchase alternative accommodation.
The 25 per cent adjustment in favour of the husband equates in real terms to approximately $262,057 out of a pool of $1,048,231 allowing for selling costs of $100,000. The disparity between the parties’ respective positions on that basis would be $524,114. Whilst there is a significant differential between the parties respective positions on the basis of the orders I propose to make and whereas I am satisfied that the wife applied some of the funds she retained to her “reasonably incurred living expenses” and not withstanding that the wife may be left with little by way of financial security I cannot disregard the fact that she has had the benefit of in excess of $800,000 and I am satisfied that the adjustment I have made is in all of the circumstances appropriate. Although the adjustment in the husband’s favour is significantly less than the amount the wife retained following the sale of the first of the two townhouses, the husband has many years in which to rebuild his financial position.
In all of the circumstances I am satisfied that the orders I propose to make are just and equitable.
I certify that the preceding one hundred and ninety six (196) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Macmillan delivered on 26 August 2013.
Associate:
Date: 26 August 2013
Key Legal Topics
Areas of Law
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Civil Procedure
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Administrative Law
Legal Concepts
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Judicial Review
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Standing
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Procedural Fairness
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Natural Justice
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Costs
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