Grier & Malphas
[2016] FamCAFC 84
•24 May 2016
FAMILY COURT OF AUSTRALIA
| GRIER & MALPHAS | [2016] FamCAFC 84 |
| FAMILY LAW – APPEAL – PROPERTY ORDERS – Where the trial judge found that the parties’ assets should be divided as to 60 per cent to 40 per cent in favour of the husband – Where the wife argued on appeal that the trial judge did not give any, or sufficient, weight to the money received by the husband post-separation – Where the Full Court found the evidence disclosed a very significant disparity in the sums expended by the parties and that the trial judge erred in not giving adequate consideration to that disparity or examining the purposes for which the money was used – Where the Full Court found the trial judge could have taken account of those funds either by “adding back” the funds or pursuant to s 75(2)(o) of the Family Law Act 1975 (Cth) – Where the wife also argued on appeal that the trial judge erred in finding the husband’s contributions were of greater value because of a “skill set” he brought into the marriage – Where the Full Court found error in the trial judge’s assessment of contributions – Where the Full Court emphasised it is not a party’s “skill set” that needs to be considered but their contributions in all senses in which that expression is used in s 79 – Appeal allowed – Remitted for rehearing – Costs certificates granted. |
| Family Law Act 1975 (Cth) Federal Proceedings (Costs) Act 1981 (Cth) |
| Allesch v Maunz (2000) 203 CLR 172 Townsend & Townsend (1995) FLC 92-569 |
| APPELLANT: | Ms Grier |
| RESPONDENT: | Mr Malphas |
| FILE NUMBER: | SYC | 2810 | of | 2009 |
| APPEAL NUMBER: | EA | 32 | of | 2013 |
| DATE DELIVERED: | 24 May 2016 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Bryant CJ, Murphy and Kent JJ |
| HEARING DATE: | 1 September 2014 3 September 2014 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT DATE OF ORDERS: | 27 February 2013 |
| LOWER COURT MNC: | [2013] FamCA 324 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Batey |
| SOLICITOR FOR THE APPELLANT: | Broun Abrahams Burreket |
| COUNSEL FOR THE RESPONDENT: | Mr Kearney SC |
| SOLICITOR FOR THE RESPONDENT: | Gayle Meredith & Associates |
Orders
The appeal be allowed.
Orders 1.2 and 5.1 of the orders made by the Honourable Justice Stevenson on 27 February 2013 be set aside.
The matter be remitted for rehearing before a judge of the Family Court of Australia other than Justice Stevenson.
There be no order for costs.
The Court grants to the appellant a costs certificate pursuant to the provisions of s 9 of the Federal Proceedings (Costs) Act1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the appellant in respect of the costs incurred by the appellant in relation to the appeal.
The Court grants to the respondent a costs certificate pursuant to the provisions of s 6 of the Federal Proceedings (Costs) Act1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the respondent in respect of the costs incurred by the respondent in relation to the appeal.
The Court grants to each of the parties a costs certificate pursuant to the provisions of s 8 of the Federal Proceedings (Costs) Act1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to each of the parties in respect of the costs incurred by the appellant and respondent in relation to the rehearing of the application.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Grier & Malphas has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EA 32 of 2013
File Number: SYC 2810 of 2009
| Ms Grier |
Appellant
And
| Mr Malphas |
Respondent
REASONS FOR JUDGMENT
BRYANT CJ
This is an appeal by Ms Grier (“the wife”) against certain property settlement orders made pursuant to s 79 of the Family Law Act 1975 (Cth) (“the Act”) by Stevenson J on 27 February 2013 in proceedings between the wife and
Mr Malphas (“the husband”).In broad terms, the issues before her Honour related to the constitution of the pool of assets in respect of which orders for property settlement were sought (balance sheet issues) and the question of what proportion of the assets each of the parties should receive, having regard to the matters in s 79(4) of the Act (the contribution issues).
The gravamen of the wife’s challenge to the orders appealed is that the trial judge erred in finding that the husband made greater contributions than the wife (finding that the assets should be divided as to 60 per cent in favour of the husband and 40 per cent to the wife on a contribution basis), and rejecting the wife’s arguments about add backs to the asset pool, largely to account for post-separation receipt of funds by the husband as opposed to those received by the wife. The husband opposes the appeal.
The background to the dispute, as found by the trial judge, was not challenged.
The parties met on 31 December 1999 and began living together on 10 June 2000. They married in 2002 and separated on a final basis on either 4 or 6 April 2009. The parties have one child, a daughter, W, who was born in 2007. Final parenting orders were made by consent in November 2011 providing for W to live with the wife and spend time with the husband for two out of three weekends and half the school holidays.
At the time of cohabitation, neither party had significant assets. The wife held a management position in Company A and the husband owned a cleaning business. After cohabitation the husband secured employment with Company Q, a professional services firm. In mid-2001 the husband resigned from that position and established his own professional services business, Company R. In May 2001, the parties incorporated the company, E Pty Ltd. The husband and the wife are directors and each holds one share (albeit of a different class). In late 2001 or early 2002 the husband established a business with Mr S called Company D. Company D was structured as a partnership between E Pty Ltd, under the control of the husband, and T Pty Ltd, under the control of Mr S.
Between 2003 and 2007 the parties purchased, renovated and sold various properties using income generated by Company D.
In September 2006 the husband established Z Pty Ltd as trustee of the Z Trust and from that time the Company D business was conducted by the Z Trust. At the same time the husband established the Malphas Investment Trust and Malphas Pty Ltd. The Malphas Investment Trust held shares in Malphas Pty Ltd, of which the husband and wife were shareholders.
In 2008 the husband and Mr S sold Company D to BB Ltd for $19.5 million plus future potential payments up to December 2013, conditional upon fulfilment of performance criteria. $9.75 million from the sale went to the
Z Trust.The husband entered into a contract of employment with BB Ltd for $200,000 per annum. The contract included a restraint of trade clause up to 30 June 2015. The husband’s contract with BB Ltd ended in June 2011 and he was thereafter unemployed.
The $9.75 million which went to the Z Trust was used for a number of purchases.
In 2008 the husband and Mr S established the AA Unit Trust which purchased a commercial property in Melbourne.
After separation in April 2009, the wife and the child lived in the former matrimonial home in Suburb DD (“the DD property”), until its sale in 2012. A property at Suburb C was retained and used as a rental property by the wife.
Both parties received and used funds after separation and, as the use of some of those funds was part of the controversy between the parties at trial, I will discuss them in more detail when considering the grounds of appeal.
In June 2009 the Australian Taxation Office (“the ATO”) issued tax assessments relating to the sale of Company D, leaving the husband and wife each with liabilities of $1.05 million. Malphas Pty Ltd and E Pty Ltd were assessed as having smaller liabilities. The husband paid his tax debts and the tax debts of the two companies using money drawn from a joint account of the parties post-separation but did not pay the wife’s tax liability.
In October 2009 the husband purchased a property at Suburb GG for $4.3 million. $1.3 million of the funds used to purchase the property came from the repayment of a loan, with interest, by Mr S which the husband had previously loaned him after separation.
In November 2009 and December 2010 the husband received two payments of between $250,000 and $300,000 relating to the sale of Company D. He retained those funds for his own use. In May 2010 the Melbourne commercial property was sold by the AA Unit Trust. The husband received $28,200 which he retained.
In October 2010 the husband purchased a property at Suburb KK for $2.45 million. He sold the Suburb GG property in September 2011, using the funds to make repayments of loans to Mr S.
The parties had, by 2011, commenced property proceedings and consented to orders distributing funds from the sale of the Suburb DD property, with the wife receiving an interim property distribution of $500,000. At the commencement of trial she also agreed to assign her interest in Malphas Pty Ltd, E Pty Ltd, the Z Trust and the Malphas Investment Trust to the husband.
In December 2011 the husband received the final payment from the sale of Company D of $332,955.
Grounds of appeal
By her notice of appeal filed 27 March 2013 the wife raises seven grounds of appeal. However, Grounds 5 and 7 were not pressed. The only orders appealed from were order 1.2 and 5.1 of the orders made by the trial judge on
27 February 2013. Those orders relevantly provided:(1) That each of the parties do all acts and execute all documents required to effect:
…
1.2 to distribute the funds held in the controlled monies account in the parties’ joint names as to $262,763 to the husband and the balance to the wife.
(5)5.1 That otherwise each of the parties is declared to be solely entitled to all items of property and superannuation which are presently in his and her respective possession.
The wife, in lieu of these orders, sought an order for sale of the Suburb KK property and, after payment of costs, expenses and discharge of the mortgage, that the balance be paid to her.
By way of explanation, her Honour found that the parties’ controlled monies account had a balance of $263,645 and the value of the Suburb KK property was $2.45 million with a liability to Westpac of $1.2 million, leaving a net of $1.25 million.
Counsel for the wife grouped the grounds of appeal as follows:
· Contribution challenges – Grounds 1, 2 and 3.
· Failure to give any weight/substantial weight to the husband’s waste of the parties’ assets following separation – Ground 4.
· Contribution findings were not supported by law or evidence and the contribution based entitlements should have been found to be equal – Ground 6.
During the course of the proceedings, counsel for the wife conceded that Ground 6 could not succeed if the other challenges were not made out. It can be seen that, as pleaded, the areas of agitation on appeal relate to:
1. Her Honour’s findings about contributions pursuant to s 79(4); and
2.Failure to place any weight on the husband’s waste of the parties’ assets post-separation. This constituted both a balance sheet item, as it involved items the wife sought to add back at trial, as well as, in the alternative, a relevant matter under s 75(2).
I will deal with the waste ground (balance sheet challenge) before the contributions grounds as I consider there is merit in the argument that the receipt of funds post-separation by the husband was not adequately reflected by her Honour. However, I consider that how that is ultimately taken into account may find better expression in the contribution challenge, with which the facts overlap.
Ground 4 – the waste ground/balance sheet issues
By this ground the wife asserts:
4.That in assessing overall s 79 contributions of the parties [h]er Honour failed to give any weight or any substantial weight to the husband’s waste of the parties assets occasioned by:
a.The interest incurred on the [wife’s] post separation tax liability in circumstances where the [husband] gave no evidence or no persuasive evidence that he was unable to pay the [wife’s] post separation tax liability from joint funds controlled by the [husband] without the need to effect a sale of the matrimonial home
b.The [husband’s] use of not less than $1,793,551 post separation without any clear evidence as to the [husband’s] use of this amount other than freely and irresponsibly for his own needs
c.Incurring capital loss and acquisitions costs on the purchase and subsequent sale of the [Suburb GG] property without any consultation or agreement by the wife
d.Effecting capital improvements to the [Suburb KK] property which overcapitalised the property
Sub-paragraphs (c) and (d) were not addressed in oral argument in any substantial way.
Her Honour’s treatment of the balance sheet issues
At [55] her Honour set out the “joint balance sheet” submitted by the parties. The assets included by each, and their value, were relatively consistent until a section headed “ADDBACKS”. Each asserted the other had received amounts that should be added back to the list of assets which would form the pool that her Honour would divide. A pool which, on either of their cases, would include notional as well as existing assets. The only agreed add backs related to legal fees paid by both parties.
Her Honour determined any credibility issues in favour of the husband and said:
54.Such comments left me with concerns as to the objectivity and balance of the wife’s evidence. Further, I gained the impression that the husband’s recollection as to details of financial transactions was more likely to be reliable and accurate than that of the wife. I had no concerns about the accuracy and reliability of the evidence of Mr [S]. I thus prefer the evidence of the husband over that of the wife wherever there is conflict or inconsistency.
In relation to the assessment of net assets, including superannuation and disputed add backs the position contended for by the husband was that $4,729,729 was available for distribution between the parties. The wife’s position was that there was $6,396,626 available. Where only agreed upon add backs were considered, the husband’s position was that $3,860,292 was available and the wife’s position was that $3,862,592 was available.
Thus, her Honour was called upon to determine a number of balance sheet issues relating to add backs sought by the parties, but particularly by the wife.
After determining the various issues in dispute in relation to the balance sheet, her Honour found the total assets to have a value of $4,936,796, together with superannuation which totalled $175,128 and liabilities of $1,250,000. Her Honour’s findings provided a net pool for distribution of $3,686,796, together with superannuation of $175,128. In essence, apart from adding back the husband’s paid legal fees and disbursements of $200,300 and the wife’s paid legal fees and disbursements of $343,291, her Honour did not add back other amounts as sought by the parties.
In dealing with the question of add backs, her Honour said that all but one of them was in contention ([59]) and noted that a “series of authorities establish that the adding back of notional assets is the exception rather than the rule”. Her Honour then cited the following passages from the Full Court in Mayne & Mayne (2011) FLC 93-479:
72.Parties to proceedings about the division of property before the Family Court (and the Federal Magistrates Court) frequently urge the Court to add-back assets or funds that have been applied by one party or another for allegedly his or her own purposes after separation. The rationale is that one party should not benefit from a premature distribution of the assets. An obvious example is withdrawing and using money from a bank account either joint or owned by one of the parties. It is also the case that the parties may decrease the pool by increasing liabilities. The issue in such cases is whether the liability should be a joint liability or a liability only of the party who created it.
73.The application of the funds removed (or the debt incurred) may have been for a personal purpose (for example, to pay legal fees) or it may have been applied in the sustenance of a party or the children of the parties.
74.If the former is the case this has generally found to be a pre-emptive unilateral division of property. If the latter is the case then the principles enunciated in Marker v Marker [[1998] FamCA 42] and Chorn NH & Hopkins RC [(2004) FLC 93-204] apply. If the money was, or part of the money, was used to meet reasonable living expenses then that money, or that part of the money, is not “added-back” or regarded as a pre-emptive distribution.
In determining the issue of paid legal fees her Honour said:
63.It should be borne in mind that the husband received $2.92million from the parties’ joint account on 9 April 2009 and some $404,720 from the sale of shares after the separation. With this large amount of money available to him, it seems to me to be an artifice to attempt to quarantine his expenditure on legal costs from these funds. I am of the view that it is more probable than not that he intermingled all funds available to him and used money as he saw fit from time to time. Additionally, he received no income from employment after his contract with [BB Ltd] ended in June 2011. For these reasons, I will include the paid legal fees of both parties in the list of assets in amounts of $200,300 for the husband and $343,291 for the wife.
Her Honour then dealt with a number of discrete issues about add backs, rejecting their inclusion before dealing with the major items sought to be added back by the wife. Those major items were:
·proceeds of sale of shares since separation to date $307,636
·monies received from BB Ltd in 2009-2011 $889,915
·refund of investment for AA Unit Trust $298,000
·surplus of sale proceeds from luxury car $42,000
·return on investment in AA Unit Trust $39,617
·monies paid by husband for Suburb KK property improvement $153,159
The total sought to be added back by these items was $1,730,327. In rejecting the inclusion of these amounts in the calculation of the balance sheet, or indeed under any part of the exercise of consideration of s 79(4), her Honour said:
70.… It seems to me that the add-back of any or all of these amounts is fraught with risk of double counting. It should be remembered that the husband injected $1.313million in cash into the purchase price of the [Suburb GG] property. Mr [S] loaned him $1.2million when he purchased the [Suburb KK] property, which he repaid on the sale of the [Suburb GG] residence. He injected $250,000 into the purchase price of the [Suburb KK] property and carried out renovations, using funds from the above sources. I will not add back these amounts.
Her Honour observed that the husband appeared to have “resiled from the submission inherent in the Joint Balance Sheet” that various items should be included as add backs and indicated in final submissions that only the parties’ paid legal fees should be included. The trial judge indicated she thought there was considerable merit in these submissions and said:
73.… I am similarly of the view, however, that the various funds which came into the husband’s hands after the separation likewise should not be added back to the list of assets and treated as premature distributions to him.
Her Honour again highlighted the reason she was not going to add back funds, saying:
74.I am of the view that both parties spent money freely and irresponsibly after their separation. It would be a formidable, and probably impossible, task to trace the fate of each dollar which came into their respective hands after the separation. As noted, there would be a substantial risk of double-counting in any event. In my view the nature and pattern of post-separation expenditure by both parties also militates against the inclusion in the list of assets of most of the proposed add-backs.
After giving some examples of the parties’ post-separation expenditure, her Honour said:
76.… In my view, neither the husband nor the wife displayed any particular financial responsibility after their separation but I can identify no basis upon which either could be regarded as more profligate in that regard than the other.
In relation to the issue of payment of tax liabilities, her Honour adopted a similar view of the parties’ behaviour, saying:
77.In my view, this assessment of the parties’ post-separation behaviour extends to their treatment of the tax liabilities following the sale of [Company D]. It was completely open to the husband to pay all of these tax liabilities from the amount of $2.92million which he withdrew from the parties’ joint account on 9 April 2009. He chose, however, to pay the tax liabilities only of himself and the two corporate entities.
78.On the other hand, the wife refused for two years to join in the sale of the [Suburb DD] property and discharge the remaining tax debts. Ultimately, she consented to orders for sale of the property and payment of the tax debts on 24 June 2011. Equally, the wife made no attempt to apply any part of the sum of $830,000 which she withdrew from the [Suburb C property] mortgage account to reduce her tax liability.
…
81.… In all of the circumstances, I am satisfied that there is no “unfairness” to the wife in concluding that she refused to cooperate in the sale of the [Suburb DD] property and discharge of her tax debt.
82.In these circumstances, it seems to me that both parties contributed to the general interest charges accrued on the tax debts arising from the sale of [Company D]… Having regard to the conduct of both parties in relation to the tax debt, I disagree with the wife’s view and I will add back no amount on account of general interest charges.
(original emphasis)
As I think that there is merit in Ground 4(b), I will deal with that issue first. The argument requires a careful analysis of the amounts received by the husband contrasted with those received by the wife post-separation.
Counsel for the wife submitted that a close examination of the receipt of funds by the husband and wife post-separation which they had subsequently utilised could not reasonably be dealt with in the manner in which her Honour did at [52] where she said:
52.… Essentially it seemed to me that each of the parties spent money freely and irresponsibly after their separation. In my view, it is now neither helpful nor appropriate to attempt to carry out an unwieldy tracing exercise in respect of the funds which came into the hands of each of the parties after their separation.[1]
[1]And at [73], [74] and [76].
The aide-memoire
During the hearing, senior counsel for the husband handed up an aide-memoire which purported to be a reconciliation of funds retained or received by reference to identified net assets. The figures relied on in that reconciliation come from a schedule of funds received by the husband post-separation as set out at [85] of his affidavit filed 14 August 2012. Two amendments to the aide-memoire as originally handed up require consideration.
The first amendment (item 1 of the table below) was raised by counsel for the wife and conceded by the husband in supplementary submissions dated
1 September 2014.The second amendment involves a sum that emerges from the husband’s schedule ([85.70]) which was a further sale payment received from BB Ltd on 2 December 2011 of $332,955.
Her Honour was aware of this amount as she included the totality of the three payments received by the husband between 2009 and 2011 from BB Ltd after the initial payment of $9.75 million. They are referred to as a total of $889,915 appearing at item 40 in the table of assets at [55] of the reasons for judgment as an add back sought by the wife.
The husband noted at the bottom of the table in relation to items including the $889,915 figure that the “[w]ife has included gross figures as add-backs. Husband used funds from 37-43 to pay for improvements to [Suburb KK] property (44) – double counting”.
In fact the evidence indicated the amounts paid for renovations were far less than the amounts received, ($153,159). It appears from the evidence that in any event the renovations were paid for before the last tranche of $332,955 was received by the husband. This is apparent from the husband’s evidence under cross-examination:
And the last payment you received from [BB Ltd], when was that?‑‑‑It was in – I think it was 1 November, or early November, last year, 2011.
And how much was that?‑‑‑$330,000 approximately.
…
So since you received the money from [BB Ltd] in November of last year I take it that has all been spent?‑‑‑Correct.
On living expenses, you would say, and the legal proceedings here?‑‑‑Yes; correct. There has been three court cases since that time.
(Transcript, 18 October 2012, p 111 to 112)
As the wife also had to independently fund her living expenses, it is reasonable to include this sum in the aide-memoire as an amount received exclusively by the husband.
After having completed the hearing of the appeal, it appeared to the bench that this sum had not been included in the aide-memoire and that counsel should be afforded the opportunity to address the question of whether it should. As a result the matter was re-listed for further submissions.
I have included the two amendments just outlined in the table below and the ultimate effect on the totals when these are included. The table otherwise reflects the aide-memoire provided at the hearing of the appeal.
Reconciliation of funds retained/received by reference to identified net assets
| Reasons | Item | Date | Husband | Wife |
| 1. | #20 | Repayment of AA Unit Trust | 9/09/09 14/1/10 & 16/4/10 | $298,000 (conceded) |
| 2. | #23 | Share sales | $404,720* | |
| 3. | #24 | Joint account | 9/4/09 | $2,920,000 |
| 4. | #25 | Suburb C property | $800,000 | |
| 5. | #25 | Joint account | $17,517 | |
| 6. | #26 | Luxury car sale (net) | 25/05/09 | $51,000 |
| 7. | #29 | Luxury car sale (net) | $39,000 | |
| 8. | #32-33 | Company D Further Sale Payments AA Unit Trust | 16/11/09 1/12/10 2/12/11 5/05/10 | $292,740 $263,690 $332,955 $28,200 |
| 9. | #40 | Interim property (Suburb DD proeprty sale) | $500,000 | |
| Sub-total | $4,591,305 | $1,356,517 | ||
| Less | ||||
| 10. | #28 | Tax paid From above | $1,336,435 | |
| 11. | #85 | Paid legal fees in balance sheet | $293,331 | $343,291 |
| 12. | #85 | Suburb KK property (net) | $1,250,000 | |
| Sub-total | $2,825,766 | $343,291 | ||
| Total | $1,765,539 | $1,013,226 |
Senior counsel for the husband sought to support the exclusion of the $332,955 from the aide-memoire, on the basis that there was no evidence of what tax may have become payable in the financial year in which it was received. Two problems arise for the husband from this approach. First, some evidence of a prospective tax liability should have been led at trial if the husband wished to rely on a tax liability. Secondly, even allowing for a substantial tax liability a significant net payment would still have been received by the husband.
Adding the (admittedly gross) sum of $332,955, as well as the conceded sum of $298,000, demonstrates a significant disparity in the amounts received by the parties post-separation and which her Honour did not take into account at all, either by way of add back or by way of some adjustment under s 75(2) for the significantly greater sums that the husband had received ($1,765,539 compared to $1,013,022).
Nor in my view could it be said that her Honour was reflecting this when she dealt with contributions (a matter to which I will return) because, in my view, [52], as set out above, directly eschews any attempt to look at what each of the parties received, with her Honour saying:
52.… In my view, it is now neither helpful nor appropriate to attempt to carry out an unwieldy tracing exercise in respect of the funds which came into the hands of each of the parties after their separation.
With respect to her Honour, I suggest that the exercise is not particularly unwieldy and as has been indicated, was capable of tabulation, relatively simply, as the husband did in his aide-memoire. In my view, the significant disparity between what the parties received and the percentage of the pool to which it equates required some consideration by the trial judge which was absent. I am comfortably satisfied that the husband did receive substantially more of the capital generated and that the trial judge’s findings required consideration and adjustment in favour of the wife by reason of the significantly greater receipt and use of capital by the husband post-separation. It must also be remembered that the husband was also earning an income for a portion of the post-separation period up to June 2011.
In my view there is merit in Ground 4(b). I would not necessarily wish to be seen as endorsing the effect of receipt of these funds as “add backs” to the balance sheet, something which her Honour eschewed. However the receipt of these funds by the husband requires expression in some form, either as a matter to be taken into account under s 75(2)(o), or, as the wife later argues, in relation to contributions. But however expressed, failure to properly account for it leads to the conclusion that the result reached by her Honour was “plainly wrong” (see Norbis & Norbis (1986) 161 CLR 513 per Brennan J at 539)
To be fair to her Honour, had the argument been put in a different way, the point the wife now makes might have been clearer. For example, had an aide memoire similar to the one counsel relied on in the appeal been provided, rather than the exercise being put as a construction of add backs into the balance sheet. However, the relevant evidence was before the trial judge and was unchallenged, and enables the construction of a reconciliation of funds retained or received by each of the parties post-separation to be done.
I now turn to consider the complaint raised by Ground 4(a) as to the trial judge’s treatment of the interest incurred on the wife’s post-separation tax liability. In the wife’s add backs column in the joint balance sheet submitted to the trial judge, the wife allowed the husband the sum of $122,664 for the general interest charge on his tax liability and allowed $358,690 for the general interest charge on her tax liability ([55] at items 45 and 46).
In her reasons the trial judge found:
28.On 4 June 2009 the ATO issued the following tax assessments as a result of the distribution of the sale proceeds of [Company D]:
·the husband: $1,051,354
·the wife: $1,052,228
·[Malphas Pty Ltd] : $275,350
·[E Pty Ltd] : $9,731
…
Her Honour then found that the husband made no contribution in relation to the wife’s tax debts but instead paid approximately $1.35 million in total “from the sum of $2.92 million which he had withdrawn from the parties’ joint account in April 2009”. The wife’s tax debt, which remained outstanding, caused the Commissioner for Taxation to intervene in the proceedings on 1 March 2010 and remain a party until 27 March 2012.
As set out in the wife’s affidavit filed 14 August 2012, upon sale of the Suburb DD property in early 2012, the proceeds of sale were used to satisfy the parties’ respective tax debts. $1,384,081 was required to extinguish the wife’s debt, of which $358,690 was attributable to interest and penalties. The total tax debt discharged in early 2012 was $2,482,488, of which $1,098,406 related to the husband’s tax liabilities.
At [77] of the reasons for judgment her Honour dealt with the wife’s argument that the general interest on the tax liability which the husband did not pay from the $2.92 million he withdrew in April 2009 should be added back to the pool of assets. Having found at [76] in relation to post-separation spending that she could “identify no basis upon which either could be regarded as more profligate in that regard than the other”, her Honour said:
77.In my view, this assessment of the parties’ post-separation behaviour extends to their treatment of the tax liabilities following the sale of [Company D]. It was completely open to the husband to pay all of these tax liabilities from the amount of $2.92million which he withdrew from the parties’ joint account on 9 April 2009. He chose, however, to pay the tax liabilities only of himself and the two corporate entities.
78.On the other hand, the wife refused for two years to join in the sale of the [Suburb DD] property and discharge the remaining tax debts. Ultimately, she consented to orders for sale of the property and payment of the tax debts on 24 June 2011. Equally, the wife made no attempt to apply any part of the sum of $830,000 which she withdrew from the [Suburb C property] mortgage account to reduce her tax liability.
Her Honour noted that it was submitted on behalf of the wife that it was unfair to say that the general interest on her tax debt accrued “because she sat on [the] [Suburb DD]” property. Her Honour also noted that the husband had been seeking a sale of the Suburb DD property since August 2009 and that the wife conceded she resisted the husband’s efforts to have the property sold until April 2011. Her Honour concluded:
81.… In all of the circumstances, I am satisfied that there is no “unfairness” to the wife in concluding that she refused to cooperate in the sale of the [Suburb DD] property and discharge her tax debt.
82.In these circumstances, it seems to me that both parties contributed to the general interest charges accrued on the tax debts arising from the sale of [Company D]. The husband did not seek to add back any amount on account of general interest charges. The wife’s oral evidence left no room for doubt that, in her view, these costs should fall solely at the feet of the husband. Having regard to the conduct of both parties in relation to the tax debt, I disagree with the wife’s view and I will add back no amount on account of general interest charges.
(original emphasis)
It seems from these passages that her Honour took the view that the wife’s tax could be paid from the sale of the Suburb DD property (but did not identify any other source from which it could be paid) but that the wife was resistant to selling the property and therefore had to bear responsibility for the general interest charge that had accrued. In oral argument before us, senior counsel for the husband effectively conceded that the only source from which the wife could have paid the tax (other than the sale of the Suburb DD property) was the $800,000 she drew down on the mortgage secured over the Suburb C property in April 2009. The exchange between the bench and counsel regarding the tax concluded with the following:
KENT J: Well, I suppose, Mr Kearney, all I'm saying is it was a very generous finding to your client, wasn't it, to say, well, the wife could just as easily have applied some or all of the 800,000 versus your client not paying it from the 2.9. What we know is that the husband clearly had the capacity to fully pay the amount and still be left with about 300,000 in his pocket versus the wife never having had the capacity to discharge in full the tax liability. She would have been short by 250,000.
MR KEARNEY: I hear what your Honour is saying. I won't concede in context that it's a generous finding to my client. I will concede that it's a finding undoubtedly from which my client benefited, but as did, we would say, the wife in terms of the contrary finding, and again this doesn't trouble her Honour for appropriate reasons, but certainly the contentions as between the parties, for example, as to sale or available sale of the [Suburb DD] property at the time that approaches were made for sale, would have seen, if accepted, a far greater sale price than that ultimately achieved...
(Appeal Transcript, 1 September 2014 p 37)
What emerges from this exchange is that:
·The husband had the capacity to pay all of the tax from the $2.92 million he withdrew from the joint account and still have approximately $300,000 left over as well as his income from employment.
·Instead, he lent Mr S $1.3 million at a 4 per cent per annum interest rate.
·The wife had only $800,000 available to her and had to use it to meet ongoing living expenses and legal fees.
·In any event, if the wife had expended all of the funds available to her, it would still not have been sufficient to discharge the tax liability.
However, her Honour did not base her decision on the wife’s lack of capacity to pay all of her tax liability. Her Honour instead based her decision on the wife’s failure to agree to sell the Suburb DD property until 2011. That leaves the question of whether her Honour was entitled to find, as she did at [79] to [81] that the husband sought the wife’s consent for the sale of the Suburb DD property and the wife resisted it until April 2011.
Whilst I accept that the evidence enabled her Honour to find that the wife resisted sale between 2009 and 2011, that misses the point raised by the wife both at trial and on appeal that sale for the purposes of paying the wife’s tax would have been unnecessary had the husband met the payment from the funds he withdrew from the joint account. Effectively, by not paying the wife’s liability and then lending the balance of the funds to Mr S, the husband put himself, by his own actions, in a position where there was then no alternative but to sell the Suburb DD property to pay the wife’s tax liability and subsequent tax liabilities which the husband incurred as a result of further payments from Company D.
Had her Honour found, as the evidence suggests, that the husband should have paid all of the tax liabilities from the $2.92 million withdrawn, then the question of further interest charges and the sale of the Suburb DD property would not have arisen and that situation was brought about by the husband, a fact which her Honour appears to have overlooked in her reasons for judgment.
It is important not to lose sight of the fact that the issue engaged, however, was whether the interest accrued on the wife’s tax debt should have been treated as waste by the husband and added back. Once the husband had acted in a way that prevented him from paying the tax, it seems to me her Honour was entitled to find that the wife could have effectively mitigated the amount of interest accruing by agreeing to the sale of the Suburb DD property earlier, and I do not thus consider that her Honour ultimately erred in what was the exercise of her discretion to determine that she would not take into account the general interest as waste by the husband and add it back to the pool as if it were money in the husband’s hands.
Grounds 1, 2 and 3 – the contribution challenge
Grounds 1 and 2 are really directed to the same issue, that is, having regard to “uncontradicted evidence” that the initial contributions of the parties were equal and that “both parties gave their best in business, parenting and all aspects of their relationship”, her Honour’s findings that the husband’s contributions during the marriage were of greater value because of the “skill set” he brought into the marriage were against the evidence and an error in law.
Ground 3 asserts, in essence, that in accepting there was a “skill set” brought into the marriage by the husband, the trial judge failed to give any or sufficient weight to the wife’s role as primary carer of the parties’ child, her substantial role in the renovations of two properties owned by the parties and her role in supporting the husband in business endeavours.
Her Honour’s treatment of contribution issues
The husband’s position before the trial judge was that he should receive 75 per cent of the net assets on account of bringing a “skill set” into the relationship “which he utilised over a five year period and which largely generated the net pool of matrimonial property” ([86]). The wife’s contention was that there should be a finding of equality of contribution. She also contended that if the trial judge determined that the husband’s contribution was greater than hers, then he had “cancelled it out with the money that has gone through his hands” ([87]).
The evidence, which the trial judge accepted as unchallenged, was that Mr S and the husband were “two of the highest performing consultants in the company [Company Q]” ([89]). At [90] her Honour quoted from the husband’s affidavit which she noted was unchallenged. The husband there said:
Over the first six years of its operation, the business of [Company D] grew about 100% each year. The business [was included in a national survey of the most progressive companies on two occasions. It was also recognized for being one of the most progressive companies in NSW and the most progressive in its field.]
Her Honour then detailed the substantial annual income from Company D and the fact that the husband devoted substantial skill, effort and time to the Company D venture. She noted that the sum of $9.75 million was received on sale of the business and the husband’s package from BB Pty Ltd from early 2008 to June 2011. Her Honour also noted that “that the funds generated by [Company D] enabled the parties to make substantial cash injections into the acquisition and improvement of their various real estate holdings”, shares, artworks and the repayment of the mortgage of the Suburb C property.
Her Honour then found:
93.I am comfortably satisfied that the husband’s skills and effort substantially generated the success of [Company D] and produced the bulk of the present net pool of matrimonial property. I am satisfied that the wife attempted to exaggerate her role in the [Company D] business and that the reality was as described by the husband and Mr [S].
94.It seems equally clear, however, that the wife fully supported the husband in his business endeavours. In his oral evidence he readily conceded: “I agree that we both did our best in business, parenting and all aspects of our relationship” and “she gave me support when I set up [Company D]”.
(original emphasis)
Noting the wife’s contributions, her Honour concluded:
98.The reality is that the net pool of property was derived almost entirely from the fruits of the [Company D] business venture. It seems to me, and I find, that the totality of the wife’s contributions cannot match this significant contribution on the part of the husband. I find that the contributions of the parties should be assessed at 60% to the husband and 40% to the wife.
Her Honour’s treatment of section 75(2) factors
The trial judge then considered the matters arising under s 75(2) of the Act and concluded that:
108.The husband conceded that there should be an adjustment in favour of the wife pursuant to section 75(2). Having regard to all of these circumstances I find that there should be an adjustment of 10% in favour of the wife pursuant to s 75(2).
As there is no appeal against this finding there is no need to consider further the basis upon which her Honour made that adjustment, save to say that at [107] her Honour noted that the wife contended that the husband “has engaged in waste” and that that circumstance should have been taken into account in her favour pursuant to s 75(2)(o). Her Honour rejected that submission and repeated her observation to the effect that both parties “spent money freely and irresponsibly after their separation”.
The result of her Honour’s findings on contributions and s 75(2) matters was that each of the parties should receive 50 per cent of the net assets, which her Honour had determined to be $3,686,796, excluding superannuation. Her Honour then considered what assets each of the parties would retain, noting that the husband required an additional $262,763 to raise his entitlement to 50 per cent of the net assets and that the wife required $875,882 to bring up her entitlement. Given that the property at Suburb C had an agreed value of $875,000, her Honour provided for the wife to receive this property. Her Honour also found that the controlled monies account should be distributed as to “$262,763 to the husband and the balance to the wife” and otherwise the other assets would “remain in the sole ownership of the party with present possession and control” ([113]).
Her Honour found at [114] of her reasons that the orders she proposed to make were just and equitable.
The contribution challenge
In dealing with the contributions of the parties at [86] to [98] of the reasons for judgment, her Honour commenced by noting that counsel had agreed that “there is no disparity in initial contributions”.
Her Honour noted that counsel for the husband indicated at the conclusion of the trial that he made no “special skills” submission. Her Honour recorded that a central contention in the husband’s case was that he brought a “skill set” into the marriage “which he utilised over a five year period and which largely generated the net pool of matrimonial property”.
Her Honour noted that counsel for the husband eschewed reliance for the husband’s case on “special contributions”.
At [23] of the husband’s summary of argument filed in the appeal, senior counsel submitted:
Notwithstanding the [wife’s] submissions … the findings made here do not rely upon and are not amenable to attack arising from the line of authority relating to so-called ‘special contributions’. Her Honour’s exercise of discretion was no more than an orthodox application of principle to the facts of this case no more affected by notions of ‘special contributions’ than by presumptions of equality.
The line of authority relating to special contributions referred to by senior counsel for the husband includes Kane & Kane (2013) FLC 93-569, Hoffman & Hoffman (2014) FLC 93-591 and Fields & Smith (2015) FLC 93-638. In Kane & Kane Faulks DCJ said:
7.To the extent that the trial judge believed himself to be obliged by authority to determine the division of the property of the parties by reference to some doctrine acknowledging “special skills” in my opinion, for the reasons set out above, he was mistaken. The Act does not require and in my opinion the authorities do not mandate, any such doctrine and if judgments of the Full Court of this Court might be thought to have espoused such a principle in my opinion, they should no longer be regarded as binding.
8.It is difficult to correlate effort or skill (even if special) with result. Frequently, the financial result of a contribution (whether by physical or intellectual labour or imagination foresight and perspicacity) will be influenced by external factors beyond the control of the party contributing…
In Fields & Smith (2015) FLC 93-638, the Full Court said:
43.If it is necessary to make the point again, and to highlight it for the purpose of this appeal, we add our endorsement to what has been made clear in the authorities referred and to the Full Court’s comments in [52] of Hoffman, that the words of s 79 do not provide endorsement for any category of contribution related to any class of property (for example, high wealth) being, by virtue of that category or class, more valuable or important that another. In each case the contributions made by the parties must be evaluated in the context of the facts particular to that case.
That passage gains some significance when the second thrust of the wife’s argument, that her Honour was not dealing with a significant asset pool, is considered. But before turning to that issue, I return to the husband’s contention at trial that he brought a “skill set” to the relationship. The articulation of this submission is to be found in counsel’s final submissions to her Honour:
MR CAMPTON: … He wasn’t just simply a founding person of this business. He was responsible for the vision, the operations and the strategy. He had the skill set. He had the skill set when he came into the relationship, and that produced not only income, but this fantastic benefit for the pool … And that skill set gave the parties their pool.
(Transcript, 19 October 2012, p 34, line 4)
Although counsel used the term “skill set” to differentiate it from special contribution, if it was intended to be anything other than a “special contribution” by another name, then it has to be considered in a separate and distinct way. Bringing a “skill set” into a relationship, from which it is then asserted that wealth, either through income earned or business assets generated, is a necessary consequence, is self-evidently fraught when other contributions, particularly those of parent and homemaker throughout the duration of the relationship, are then considered.
In the unreported judgment of Doolan & Doolan (20 November 2003, [2003] FamCA1356, unreported) Warnick J said:
61.… what is being counted as a contribution by the husband is not his potential to produce income. All that is being done is recognising that the actual financial contribution of the husband was made in the context of the exercise of a capacity substantially developed prior to cohabitation.
However, an examination of the reality of the parties’ position at the commencement of their cohabitation does not support the argument advanced at trial by counsel for the husband that he brought into the relationship a “skill set” that of itself, and perhaps by implication, inevitably led to significant prosperity, measured in financial terms, during the relationship. It is only with hindsight that such an assertion could be made. A person with the same “skill set” but who was not so fortunate in their financial dealings throughout the marriage may conclude their relationship with a very different financial outcome. The same “skill set” applied in the context of that relationship would therefore be irrelevant. To develop an argument ex post facto that a particular set of skills available at the outset of the marriage is the only or major cause of the parties’ later prosperity is to hypothesise a causal relationship which in most cases will be difficult to reconcile or prove. This was such a case.
In this case, as her Honour records:
5.Neither party held any significant assets at the commencement of their cohabitation. The husband was the proprietor of a [cleaning business] and the wife was employed by [Company A] in a management position. Soon after he moved to Sydney the husband obtained employment in the [professional services] field with a company known as [Company Q].
6.In mid-2001 the husband resigned from his employment with [Company Q] and established his own [professional services] business, known as [Company R]. In late 2001 or early 2002 the husband and Mr [S] jointly established [Company D]…
It is common ground that Company D was a successful business which early in 2008, the husband and Mr S sold to the BB Ltd, yielding an initial payment of $9.75 million to the husband with future potential payments up to December 2013 conditional upon fulfilment of certain performance criteria and the husband entering into a contract of employment with BB Ltd for three years with an annual salary of $200,000. The wife at the initial stages of the relationship was engaged in fulltime employment in a management position with Company A until 2005 and her unchallenged evidence was that in 2002 her salary was $105,000 per annum and that she was provided with a company car. The trial judge found at [95] “I have no doubt the wife made her income available for the joint benefit of the parties”.
It is difficult to see what “skill set” the husband brought into the relationship, he being then the proprietor of a cleaning business. Even his first employment prior to establishing his own professional services business can be seen as a manifestation of the reality that in most ventures there is a modest start in which experience is gained, hard work is applied and sometimes good luck and fortune play a part, rather than an innate set of skills which can only with hindsight be asserted.
The difficulty in overturning a discretionary judgment is well known. It is necessary for the wife to establish that the trial judge has erred in the exercise of her discretion; she has acted upon a wrong principle; she has allowed irrelevant or extraneous matters to guide or affect her judgment; there is a mistake of fact; or a failure to take into account some material consideration (House v The King (1936) 55 CLR 499). Alternatively, the assessment of the respective contributions of the parties fell outside the necessarily wide ambit within which reasonable disagreement is possible and the decision is “plainly wrong” (Norbis & Norbis per Brennan J at 539). The appellate court must be “slow to overturn the primary judge’s discretionary decision on grounds which only involve conflicting assessment of matters of weight” (Gronow & Gronow (1979) 144 CLR 513 per Stephen J at 519-520).
Notwithstanding the way in which the case was presented to her Honour at trial, she did not base her finding of greater contribution by the husband on either “special contributions” or the basis of a “skill set” brought into the marriage by the husband, at least not overtly. As I have said above, her Honour at [86] notes that a “central contention in the husband’s case was that he brought a ‘skill set’ into the relationship, which he utilised over a five year period and which largely generated the net pool of matrimonial property” (original emphasis). Her Honour does not reject that submission, although she does not overtly refer to the husband’s skill set again. The gravamen of her Honour’s determination that the husband made a greater contribution than the wife can be found in [98].
Her Honour found at [91] that there was “no doubt that the husband devoted substantial skill, effort and time to the [Company D] venture” with the result “that the parties received a substantial annual income and a cash sum of $9.75million when the business was sold early in 2008.” Her Honour accepted the husband’s evidence that “the funds generated by [Company D] enabled the parties to make substantial cash injections into the acquisition and improvement of their various real estate holdings” ([92]). Her Honour set out the details of those holdings at [92] and concluded that she was “comfortably satisfied that the husband’s skills and effort substantially generated the success of [Company D] and produced the bulk of the present net pool of matrimonial property” (at [93]).
As far as the wife’s contributions were concerned, her Honour found:
94.It seems equally clear, however, that the wife fully supported the husband in his business endeavours. In his oral evidence he readily conceded: “I agree that we both did our best in business, parenting and all aspects of our relationship” and “she gave me support when I set up [Company D]”.
95.Until 2005 the wife engaged in full time employment in a management position with [Company A]. Her unchallenged evidence was that, in 2002, her salary was $105,000 per annum and that she was provided with a company car. I have no doubt that the wife made her income available for the joint benefit of the parties.
96.I am satisfied that the wife played a substantial role in the renovations to the [Suburb C] and [Suburb Y] properties in 2007. At this time the husband was fully engaged in the activities of [Company D] and would not have been available to participate in these renovations to any great extent.
(original emphasis)
Her Honour applied the same observation to the parenting of the parties’ daughter, finding:
97.… There can be no doubt that the wife was her primary carer, as the husband was engaged with the activities of [Company D] and later his employment with [BB Ltd]. I accept that the husband was also a devoted parent who participated in the care of the child to the extent permitted by his business activities and employment.
Her Honour concluded:
98.The reality is that the net pool of property was derived almost entirely from the fruits of the [Company D] business venture. It seems to me, and I find, that the totality of the wife’s contributions cannot match this significant contribution on the part of the husband. I find that the contributions of the parties should be assessed at 60% to the husband and 40% to the wife.
It can be seen from that conclusion that her Honour found there should be a
20 per cent differential between the parties in favour of the husband.On the basis of the husband’s concession that there should be an adjustment in favour of the wife for s 75(2) factors, her Honour gave the wife an adjustment of 10 per cent.
There can be no doubt that her Honour gave greater weight to the financial contributions of the husband. No “special contribution” argument was advanced and her Honour does not, at least overtly, appear to have placed any weight on the fact that the husband brought into the marriage a “skill set”. By inference, therefore, her Honour was satisfied that the financial contribution made by the husband during the course of the relationship, by virtue of the business he and his partner operated and by virtue of its sale to BB Ltd, were contributions that should be given more weight than:
· the salary earned by the wife in the early stages of the marriage;
· the fact that she left the work force to take on the role of parent and homemaker;
· her contribution as parent and homemaker;
· her contribution to the renovations to their properties; and
· her support of the husband when he set up Company D.
Indeed, in view of the husband’s concession that “we both did our best in business, parenting and all aspects of our relationship” and “she gave me support when I set up [Company D]” it is difficult to see how her Honour might reasonably have come to the 20 per cent differential in the contributions that she did, without attributing simply more value to financial contributions than other contributions.
The nature, form and characteristics of the contributions by the wife were different to those of the husband. She made significant initial contributions when she was working in a well-paid job and then later in the capacity of a parent and homemaker in which, as conceded by the husband, the wife “did her best”. The husband’s role was as a businessman with his partner engaged in the activities of Company D. Absent special contributions and any “skill set” as argued for by the husband at trial, it is difficult to see the basis on which her Honour concluded that the wife’s contributions, made as they were in a different sphere to those of the husband’s, were necessarily inferior. Or, put another way, the husband’s financial contributions were, of themselves, worthy of a significantly greater share of the parties’ net assets, as she found. I agree with counsel’s submission (the wife’s written submissions [31]) that her Honour did not find, nor did the evidence establish, that:
… the success of [Company D] was referrable to anything other than the skill and commitment of the husband and Mr [S], working long hours, and building up a business ‘from scratch’ to the point where it was extremely valuable. Relevant in the context of [Company D] business in its ‘start up’ phase, was the undisputed high income which the [wife] was able to provide for the support of the parties during the early years of the business.
(original emphasis)
But in addition to the greater weight her Honour seemed to place on the financial contributions, I am satisfied there are matters to which her Honour did not apparently give any weight. The first of these was the wife’s acceptance of joint liabilities incurred by the husband, particularly to the ATO in relation to the sale of Company D to BB Ltd. Tax effective structures, in this case in the form of a trust, were used to distribute payments from the Company D sale with the effect that both the husband and the wife incurred significant tax liabilities to the ATO as I have previously described. Despite sharing in, and being responsible for, these significant liabilities, her Honour did not give the wife any credit for her involvement, nor for her acceptance of the liability. Indeed, her Honour was somewhat critical of the wife for not agreeing to sell the Suburb DD property so that her tax liability could be paid.
The second matter that the wife relied upon in asserting error by her Honour was that, in determining the husband’s greater financial contribution should be given much greater weight than the contributions by the wife, her Honour focused upon the point in time at which Company D was sold, rather than the position when the matter came to trial. Company D was sold in 2008 for $9.7 million received at that time, with further payments to come to the husband. The parties did not separate until April 2009. By the time the matter came to trial, in view of transactions by both parties, but more particularly by the husband, significantly less than $9.7 million was available for distribution between the parties. Her Honour found the net pool available for distribution, including superannuation, was $3,861,924. That was the reality of the parties’ financial position that her Honour was dealing with at the time of the hearing.
Whatever the high point of the parties’ financial position had been, it was significantly less than that by the time of trial and her Honour attaches essentially no blame to either party for the diminution of the funds. Her Honour rejected the submission of the wife that the husband had engaged in waste and found that “both parties spent money freely and irresponsibly after their separation” ([107]). In those circumstances, it is difficult to see how the husband’s financial contributions to a net pool of something less than
$4 million when compared with the wife’s equally significant contributions, both to the business in the manner I have described and as parent and homemaker, could find expression in a differential of 20 per cent.The assets available for distribution can also be looked at in another way (ignoring what each party received and spent post-separation) by considering the sums emanating from the sale of Company D less the tax liabilities:
Tax Position Husband $1,051,354 Wife $1,052,228 Malphas Pty Ltd $275,350 E Pty Ltd $9,731 Husband’s income tax 30 June 2009 $182,002.95 General interest charge $41,966.50 Husband’s income tax 30 June 2010 $688,289.85 General interest charge $64,796.01 Husband’s income tax 30 June 2011 $28,973.70 Running balance deficit debt $76,476.00 General interest charge $15,901.29 $3,487,069.10 Plus general interest charge on Wife’s unpaid tax $358,690.49 $3,845,759.50 Therefore $9,750,000 Plus Nov 2009 $292,740 Dec 2010 $263,960 Dec 2011 $332,955 $10,639,955 Less tax: ($3,845,759) $6,793,896 Doing this exercise the sum for distribution can be seen to be $6,793,896 and not the sum of $9.75 million utilised by her Honour to assess the husband’s financial contributions. It must logically follow that when viewed against the wife’s contributions, the imbalance found by her Honour cannot be sustained.
There is also a third matter that her Honour failed to consider which is also integral to the consideration of contributions. It finds expression at [87] of her Honour’s reasons, where she explains the submission of counsel for the wife:
87.Counsel for the wife contended that there should be a finding of equality in the contribution as at the date of trial. It was submitted that, if there was a special contribution on the part of the husband, he “cancelled it out with the money that has gone through his hands”.
(original emphasis)
Her Honour dealt with this as an argument that the wife was pursuing about the husband’s waste. However, a detailed analysis of the uncontroverted evidence of what each of the parties had after separation leads to the conclusion that her Honour’s treatment of funds received by the parties after separation did not engage adequately with the sums that the husband actually received when compared to that which the wife received.[2] If she had, it would be difficult to sustain a finding of greater contributions by the husband, even if her Honour was correct in her finding that the husband’s contributions were greater than the wife’s during the marriage (which I doubt) when the post-separation period and receipt of funds is properly considered.
[2]See also [54] to [58] of these reasons.
Her Honour dealt with this at [76] where she said:
76.I highlight these items of expenditure to illustrate the difficulty in adding back to the list of assets most of the funds received by each of the parties since separation. Other examples could be extracted from the evidence. In my view, neither the husband nor the wife displayed any particular financial responsibility after their separation but I can identify no basis upon which either could be regarded as more profligate in that regard than the other.
In my view, it is not a matter of profligacy, but rather simply an assessment of what each of the parties received. This is reflected in the table at [52] of these reasons.
Although Ground 4, as drafted, focuses upon her Honour’s failure to give weight to the husband’s “waste” of the parties’ assets, Ground 4(b) focuses on the husband’s use of post-separation money of $1,793,551 without any clear evidence as to the husband’s use of this amount, other than freely and irresponsibly for his own needs. The written submission in support of that assertion was:
41.The trial judge found that in November 2009, the [husband] received a further payment of $292,740 together with a further $263,960 in December 2010, all of which funds the [husband] ‘retained for his own use’. Such funds were found to have been referrable to the sale of [Company D]. In May 2010, the [husband] was found to have received a further $28,200 from the [AA Unit Trust]. The trial judge found that the [husband] applied $250,000 ‘withdrawn from the husband’s account’ to the purchase of a property at [Suburb KK] in October 2010…
42.The trial judge’s findings clearly confirm that the [husband] received substantially more of the capital generated by or referrable to the parties’ cohabitation than did the [wife].
43.It is submitted that, even allowing for the deficiencies found by her Honour with respect to the [wife’s] stewardship of funds passing through her hands, the trial judge’s findings required that the contribution entitlements of the parties at the date of separation be adjusted in favour of the [wife] by reason of the significantly greater receipt and use of capital by the [husband], and his significantly greater earnings in the post-separation period.
(original emphasis, footnotes omitted)
However, what is not referred to is a further sum received by the husband on
2 December 2011 of $332,955, being the further payment from the sale of Company D.What then emerges is the fact that the husband received and used post-separation for his benefit the sum of around $752,583 (less perhaps some tax) more than the wife. When this is taken into account, as well as the fact that the assets available to the parties were considerably less than $9.75 million, it is difficult to see how a just and equitable outcome in relation to contributions could have been achieved by provision to the husband of 60 per cent of the assets then available.
It seems demonstrably clear that the husband received a differential of some $700,000 following separation above that received by the wife. Taken as a percentage of the net assets available to the parties at the date of trial that is
18 per cent, or a figure approximating 20 per cent of the parties’ assets at trial.In my view, when regard is had to those figures, it becomes abundantly clear that the assessment of contributions in favour of the husband in percentages of 60 per cent to him 40 per cent to the wife cannot be maintained and is “plainly wrong” (CDJ v VAJ (1998) 197 CLR 172).
For those reasons, I find merit in Grounds 1, 2 and 3 and accordingly the appeal should succeed.
Whether to re-exercise the discretion
There was discussion between the bench and counsel as to whether, having regard to the mandates of Allesch v Maunz (2000) 203 CLR 172, a re-exercise can only be done by reference to the facts and law as at the date of the rehearing, whether there was any realistic expectation that the Court could re-exercise the discretion without the necessity to send this matter back for a rehearing?
Both counsel submitted, perhaps in a somewhat lukewarm way that the Court could re-exercise the discretion but caveated that heavily to the proposition that it could only be done on the basis of the balance sheet as found by her Honour. Both counsel, however, indicated that there would need to be a number of concessions made in relation to the balance sheet and there was no agreement as to the concessions.
In view of the time that had passed since the trial and the hearing of the appeal and the inevitable changes to the financial positions of the parties which, even absent any agreement about the original asset pool, made it clear that despite the desirability of bringing this matter to an end and the costs savings to the parties that would follow, the parties were unable to present an evidentiary basis on which this Court could re-exercise the discretion in light of the mandates of Alleschv Maunz and, in my view, the Court has no alternative but to remit the matter for rehearing.
Costs
Although the wife sought that the husband pay her costs if the appeal was successful, counsel conceded that if the appeal succeeded on an error of law then a certificate pursuant to the Federal Proceedings (Costs) Act 1981 (Cth) would be appropriate. Senior counsel for the husband sought a certificate in the event that the appeal succeeded.
As I have found an error of law, I propose to order that there be no order for costs but certificates for the appeal and for the rehearing.
MURPHY & KENT JJ
We have now received the draft judgment of the Chief Justice.
Her Honour has set out the relevant background and the issues raised by the grounds of appeal. Whilst we agree broadly with her Honour’s reasons, we wish to identify the central reasons for our agreement that the appeal should be allowed and the matter remitted for rehearing.
Cold comfort though it is to the parties, we nevertheless first wish to express our profound regret that this judgment is being published some 20 months after the appeal was heard.
“Waste” and the Balance Sheet
Each of the parties used funds available to them in the approximately four years between separation and trial. Included in purposes for which the sums were used were the reasonable living expenses of each. So-called “addbacks” are the “exception and not the rule”.[3] Further, although always of course a matter of discretion it can be said that, in the usual course of events, amounts spent on reasonable living expenses would not often be added back.[4]
[3] Cerini & Cerini (Sub nom C & C) [1998] FamCA 143, at [46].
[4] See, for example, Browne v Green (1999) FLC 92-873 and Gollings and Scott (2007) FLC 93-319.
As the Chief Justice points out, with those principles in mind, the trial judge adopted a broad-brush approach to the parties’ respective expenditure. No error is established by reason alone of that approach; authority eschews “overly pernickety analysis” and s 79 demands neither an audit nor an exercise in accounting.[5] However, when significant sums of money are said by one party or the other to have been “wasted”[6] or to amount to a unilateral “premature distribution of property”[7] and the evidence is suggestive of either or both, an analysis of the relevant sums and their use is needed.
[5]See, for example, Norbis v Norbis (1986) 161 CLR 513; Brandt & Brandt (1997) FLC 92-758; Ferraro and Ferraro (1993) FLC 92-335.
[6]In the sense in which that expression is used in Kowaliw and Kowaliw (1981) FLC 91-092 and the cases which have followed it.
[7] Townsend and Townsend (1995) FLC 92-569, and the authorities which have followed it.
Here, that process could readily have been undertaken and summarised by reference to the aide-memoire to which the Chief Justice refers in her reasons, noting, as does her Honour, that what was done for us could have very readily been done for the trial judge but was not.
With respect to the experienced trial judge, we agree with the Chief Justice that the evidence discloses a very significant disparity in the sums expended by the parties and that her Honour did not address that disparity or examine the purposes for which the money was used. We repeat that this is a matter of discretion and could have been done either by “adding back” or, as has been suggested as often preferable by decisions of the Full Court, by reference to s 75(2)(o).[8]
[8]See, for example, Browne v Green (above); Shimizu & Tanner [2011] FamCA 271, per Bryant CJ and Kowaliw (above).
In our respectful view, the omissions just referred to led to her Honour’s discretion miscarrying by reason of the failure to take account of a relevant consideration.
We agree, with respect, with what the Chief Justice says in respect of the trial judge’s treatment of the interest on taxation owed by the wife but not paid by the husband from funds available to him at the time of paying his own tax and that of the relevant company. The argument that the husband “wasted” that sum by reason of his actions was available to the wife but rejected by the trial judge. Other judges may have come to a different conclusion, but no error of discretion is demonstrated.
The Contributions Arguments
We respectfully agree with the Chief Justice’s reasons for rejecting the contentions of the husband as to his “skill set” and the asserted role that should play in assessing contributions.
What skill or skills a person brings to a relationship which are said to result in the making of money or accumulation of capital is no more or less relevant than the skill set a person brings to a relationship as a homemaker and parent, or as the performer of two roles as a homemaker and parent and income earner. The “skill set” or “potential” of “talent” a party brings to the role or roles which the parties have determined each will undertake in the relationship is, for s 79’s purposes, relevant only to how those attributes manifest themselves in what s 79 says must be considered.
It is not a party’s “skill set” which must be considered, but their contributions. Contributions are the product of many things: talent, industry, selflessness and, indeed, luck, to name a few. It is the contributions (in all senses in which that expression is used in s 79) that fall for consideration and assessment, not the combination of factors that has created the capacity for the making of those contributions.
As we have earlier said, we do not consider that the trial judge’s finding that, in effect, the parties were equally “profligate” in their use of funds post-separation was reasonably open to her Honour on the evidence before her. That being so, any disparity in “profligacy” would fall to be considered by reference to s 75(2); the concept of “negative contribution” having long been eschewed by well-settled authority.[9] However, no ground challenges her Honour’s s 75(2) finding. Conversely, sub-grounds 4(b), (c) and (d) are redolent of “waste” or “negative contribution” forming the asserted error.
[9]See, for example, JS and GP (2006) 35 Fam LR 88, citing Antmann and Antmann (1980) FLC 90-908; Kennon v Kennon (1997) FLC 92-757 and Spiteri and Spiteri (2005) FLC 93-214.
The question which arises is: do those sub-grounds point to error other than by asserting “waste” or “negative contribution”?
It remains the case that, in many property cases litigated in this Court, differing roles are adopted by the parties, with one of the parties predominating the acquisition of capital and income for the family, with the other predominating care of the home and the parties’ child or children and, often, also taking on a second role of earning (an often subsidiary, or lower) income. Importance must be attached to the role of each by reference to the particular circumstances of the case.
The task of assessing the parties’ respective contributions is notoriously susceptible to results upon which reasonable judicial minds might differ. So much is an axiomatic consequence of the “very wide” discretion inherent within s 79. A troubling disquiet among members of an appeal court bench that a particular assessment is beyond the bounds upon which reasonable disagreement is possible (often referred to as being “outside the range”) is, of itself, insufficient to disturb a trial judge’s assessment; discretionary error must be established.
When the parties to a relationship earn income and derive capital through corporate/trust structures established primarily to lawfully minimise taxation, the indirect contribution of a party who is not involved in the day-to-day operation of those structures is sometimes overlooked. Yet, the “non-active” party can, in truth, be a significant contributor. This Court said more than 30 years ago in Lee Steere and Lee Steere,[10] “it cannot be denied that the splitting of income tax is a direct and immediate financial benefit to the husband and to that extent a direct financial contribution on the part of the wife”. So, too, “the issue of the wife’s personal liability as a director of the companies … is a matter of increasing relevance in recent times … the ‘days of the sleeping, or passive, director are well and truly over’”.[11]
[10](1985) FLC 91-626, at 80,078. See also, Dawes and Dawes (1990) FLC 92-108, at 77,725 and Ferraro (above).
[11]Ferraro (above), at [165], quoting Morley v Statewide Tobacco Services Ltd (1992) 10 ACLC 1233.
The contribution made by the wife, in playing her role within the corporate/trust structure through which the parties earned income; acquired capital and minimised tax in the process, is a significant matter. Quite apart from minimising tax during the course of the relationship, the wife accepted and paid significant taxation emanating from the business and, more specifically, its sale. Her Honour gave no consideration to either of these matters when assessing contributions and, in doing so, we consider respectfully that her Honour failed to take account of a relevant consideration.
More tellingly, as the Chief Justice points out, the husband received some $700,000 more than the wife following separation and the use of that money is not satisfactorily explained. It was within discretion for her Honour to treat that as “waste” and consequently add it back, just as it would have been within discretion for her Honour to treat that expenditure as a matter relevant to
s 75(2)(o). We do not consider, with respect, that it was open to her Honour to do neither – or, at least, not without an analysis of the respective expenditure of the parties and the use to which the money was put and reasons why the differential sounded in neither.
We consider that error is established.
We agree that the matter must, unfortunately, be remitted for rehearing consequent upon the allowing of the appeal. Once it is accepted, as it was, that factual contests of significance would attend any re-exercise, that result is effectively inevitable.
We also agree that, consequent upon a finding that there should be no order for costs and satisfaction otherwise of the conditions of ss 6, 8 and 9 of the Federal Proceedings (Costs) Act 1981 (Cth), each of the parties should have certificates in respect of the appeal and of the rehearing.
I certify that the preceding one hundred and forty-six (146) are a true copy of the reasons for judgment of the Honourable Full Court (Bryant CJ, Murphy and Kent JJ) delivered on 24 May 2016.
Associate:
Date: 24 May 2016
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