Gristwood & Gristwood
[2022] FedCFamC1F 725
•27 September 2022
Federal Circuit and Family Court of Australia
(DIVISION 1)
Gristwood & Gristwood [2022] FedCFamC1F 725
File number(s): BRC 4166 of 2017 Judgment of: HOWARD J Date of judgment: 27 September 2022 Catchwords: FAMILY LAW – PROPERTY – 17 year marriage – 19 years of cohabitation – where the parties built up a substantial property pool – where the valuation of business entities and the valuation of a Call Option were in dispute – adversarial witness evidence – assessment of contributions – future needs – a consideration of “double counting” or “double dipping” – justice and equity. Legislation: Evidence Act 1995 (Cth) s 140
Family Law Act 1975 (Cth) ss 4, 66L, 75, 79
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) rule 7.06, 7.18
Cases cited: Baghti & Baghti and Ors [2015] FamCAFC 71
Briginshaw v Briginshaw (1938) 60 CLR 336
C & C [2005] FamCA 159
Clauson & Clauson (1995) FLC 92-595
Eagle & Scarlett (No 2) [2020] FamCAFC 291
Fields & Smith (2015) FLC 93-638
GBT & BJT [2005] FamCA 683
Gollings & Scott (2007) FLC 93-319
Housing Commission of New South Wales v Tatmar Pastoral Company Pty Ltd [1983] 3 NSWLR 378
Hurst v Weber (2009) 233 FLR 337
Johanson & Johanson [2022] FedCFamC1A 74
McFMcF & McF [2004] FamCA 1309
Rodgers & Rodgers No 2 (2016) FLC 93-712
Rosati v Rosati (1998) FLC 92-804
S & S [2000] FamCA 262
Stanford v Stanford (2012) 247 CLR 108
Trevi & Trevi [2019] FamCAFC 51
Whisprun v Dixon Pty Ltd (2003) 200 ALR 447
Division: Division 1 First Instance Number of paragraphs: 146 Date of hearing: 26, 27, 28 & 29 April 2022 Date of last submission/s: 8 July 2022 Delivered at: Brisbane Counsel for the Applicant: Mr Kirk QC Solicitor for the Applicant: Hopgood Ganim Lawyers Counsel for the Respondent: Mr Dickson QC Solicitor for the Respondent: Barry.Nilsson Lawyers ORDERS
BRC4166 of 2017 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS GRISTWOOD
Applicant
AND: MR GRISTWOOD
Respondent
order made by:
HOWARD J
DATE OF ORDER:
27 September 2022
THE COURT ORDERS:
1.That by no later than 4:00pm on 21 October 2022, the Applicant shall provide a copy of a proposed Final Order (reflecting the Reasons for Judgment) to the Respondent and a copy of the same to the Court at …@fcfcoa.gov.au.
2.That by no later than 4:00pm on 28 October 2022, the Respondent shall provide any reply to the proposed Final Order to the Applicant and a copy of the same to the Court at …@fcfcoa.gov.au.
3.That the parties shall attempt to reach an agreed position in relation to the wording of the Final Order (reflecting the Reasons for Judgment) and shall send a copy of same to the Court by no later than 4:00pm on 11 November 2022.
4.That in the event the parties are unable to reach an agreed position in relation to the wording of the Final Order (and send a copy of same to the Court) within the time frame stated in paragraph 3 above herein – the matter shall be listed for Mention and each party shall attend personally along with their legal representative (if any) on a date to be fixed by the Court.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Gristwood & Gristwood has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
HOWARD J:
background
This is an application for property settlement under Part VIII of the Family Law Act 1975 (Cth) (“the Act”).
The applicant in this matter is Ms Gristwood (“the wife”). The wife was born in 1970.
The respondent is Mr Gristwood (“the husband”). He was born in 1970.
The parties commenced cohabitation in 1997 and were married in 2002. The parties separated on a final basis on 26 October 2016. A divorce order was made and the order became absolute in mid-2019.
There is one adult child of the relationship – Ms B, born in 2001. Ms B lives with the wife.
The husband is a professional. In his trial affidavit filed 13 April 2022 (‘the husband’s trial affidavit’), the husband states that he has an interest in a number of entities (‘the Gristwood Group’). The Gristwood Group owns shares in residential and commercial real estate and the group also has an interest in a number of retail stores in New South Wales, the Australian Capital Territory, Tasmania and Queensland. The husband’s evidence is that his main source of income is derived via the Gristwood Group. The husband points out that in the majority of the retail stores – his interest is a minority one – ranging from 6% to 12.5% in the relevant entities. The husband states that despite being “hands on” in the day-to-day operation of the retail stores – he receives no salary. His income is by way of franked dividends. In his financial statement of 13 April 2022, the husband states his total average weekly income is $8,683. However, the husband’s income declared in his tax return for the financial year ended 30 June 2021 was $1,158,000. This equates to a weekly income of $22,269. I do note that the husband’s evidence (which I accept) is that he has not been receiving or drawing a weekly income of $22,269. His evidence is that he has been leaving that money in the business. To put it another way, I infer that he is reinvesting the money in the business.
The wife has a son from a previous relationship. His name is Mr C and he was born in 1992. Mr C was a member of the family’s household when the wife and the husband lived together. The wife was the primary carer for Mr C and Ms B. The wife was also the primary homemaker. The wife worked up until she was approximately 7 months pregnant with the child Ms B. She does seem to have returned to work after Ms B’s birth – but continued her role as the primary homemaker and parent. This was obviously by agreement between the husband and the wife. In her financial statement filed 19 April 2022, the wife states her average weekly income as $2,884.63. This income is derived solely from the spousal maintenance paid to her by the husband. The wife has no other source of income.
The husband was born in Western Australia but came to Queensland to pursue a retail business opportunity. When the parties commenced cohabitation in 1997 they had very little by way of assets. The husband had a minor interest in three retail stores (the husband’s trial affidavit, p.14 paragraph 47). It was during the course of the relationship from 1997 to 2016 that the husband and the wife built a substantial property pool.
The parties have not been able to agree on how to divide their property. Both parties seek orders pursuant to s 79 of the Act.
Just and EQUITABLE to make an order
As noted, the parties separated on a final basis in October 2016. Section 79(2) of the Act provides that the Court shall not make an order under s 79 unless the Court is satisfied that, in all the circumstances, it is just and equitable to make the order. In Stanford v Stanford (2012) 247 CLR 108 (“Stanford”) at [42], the High Court stated (inter alia):-
“…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. 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.”
Such a situation exists in the current proceedings. There remains in existence joint property of the parties. However, because of their circumstances – there will no longer be the common use of the property by the husband and wife.
The High Court stated further in Stanford (at [42]) as follows:-
“…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.”
In this case, the just and equitable requirement is readily satisfied. In deciding what order the Court should make under s 79 – the Court is to apply s 79(4) of the Act.
THE POOL
The valuation of the Gristwood Group was prepared by Mr D of E Accountants and annexed to an affidavit filed 22 April 2022 (‘the Mr D affidavit’). Mr D is the single expert. He valued the Gristwood Group at $10,453,540.
In addition to providing a valuation in respect of the Gristwood Group – Mr D also provided a valuation in respect of a Call Option (held by the husband) in a company known as F Pty Ltd. Mr D valued the Call Option at $2,497,659.
On the first morning of the trial, the wife sought and obtained the leave of the Court (pursuant to rule 7.06 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)) to rely upon an adversarial expert’s report prepared by Mr G from H Accountants. Ex tempore reasons for that decision were provided at that time. Leave was granted to the wife to rely upon Mr G’s report as to the value of the retail stores and the interest of the Gristwood Group in those stores. Leave was also granted to the wife to rely upon the report of Mr G in relation to the value of the Call Option. At the commencement of the trial the wife was not willing to accept Mr D’s valuation in respect of the retail stores and hence, the wife was not willing to accept Mr D’s valuation in respect of the Gristwood Group ($10,453,540). In relation to the value of the Gristwood Group – Mr G’s report is contained in a letter dated 21 April 2022. This letter is annexed to Mr G’s affidavit filed by leave on 26 April 2022. The relevant conclusion is contained at page 3 of that report. In the affidavit of Mr G – the affidavit page number is 50 (bottom right hand corner). Mr G’s opinion was that the Gristwood Group’s interest in the retail stores had been understated by Mr D in the amount of $1,349,348. For various reasons (the detail of which I do not intend to recount here) the wife has subsequently accepted that Mr D’s valuation of the Gristwood Group is correct.
The Gristwood Group now has an interest in 22 retail stores around Australia. The Gristwood Group in fact consists of 38 entities, comprising (note p.194 of the Mr D affidavit):
(a)Four (4) “holding entities”;
(b)Twelve (12) “trading entities”;
(c)Nineteen (19) “property holding entities”; and
(d)Three (3) “dormant entities”.
The name of the entity and the location of the retail stores in which the Gristwood Group holds an interest are listed at page 194 of the Mr D affidavit and the convenient summary prepared by Mr D is as follows:-
ENTITY
STORE LOCATION
STORE TYPE
J Pty Ltd
City K, QLD
Category 1
Suburb L, QLD
Category 2
Suburb M, QLD
Category 1
City N, QLD
Category 2
O Pty Ltd
Suburb P, QLD
Category 2
Suburb Q, QLD (closed)
Category 2
S Unit Trust
Suburb R, ACT
Category 2
Suburb U, ACT
Category 2
Suburb T, ACT
Category 1
Suburb V, NSW
Category 1
City W, NSW
Category 2
Suburb Y, NSW
Category 2
City Z, NSW
Category 2
Suburb X, NSW
Category 2
City AA, NSW
Category 2
Suburb BB, TAS
Category 2
Suburb CC, TAS
Category 1
DD Pty Ltd
Suburb EE, QLD
Category 2
Suburb FF, QLD
Category 1
GG Pty Ltd
City HH, QLD
Category 2
JJ Pty Ltd
City KK, QLD
Category 2
LL Pty Ltd
Suburb MM, QLD
Category 2
The husband has business partners (including Mr TT, Mr SS, Mr RR, Mr QQ, Mr PP and Mr OO). The husband and his business partners are currently negotiating with NN Company regarding a potential sale of retail franchises in Queensland. From paragraph 26 of the husband’s trial affidavit it appears that the Gristwood Group has an interest in several of those stores.
The husband is also attempting to sell retail stores (in which he has an interest) in New South Wales. The potential purchaser is a Mr UU.
So far as the sale of the retail stores in Queensland is concerned – during the course of the trial, a business meeting took place between NN Company and some of the husband’s business partners. The husband was in attendance at Court and so therefore could not be present at the business meeting. The information conveyed to the Court by the husband’s legal representatives was that the business meeting had been positive – although there was no evidence in relation to the precise outcome of the meeting.
It will be noted that there are two categories of operations in respect of the stores. A "Category 1" store offers retail goods – along with other trade services. The "Category 2" centres offer trade services only. Those stores still accept stock, however, the items are transferred to other "Category 1” stores for sale.
In addition to those retail stores – the Gristwood Group also holds an interest in a number of properties within the 19 "property holding" entities (note p.197 of the Mr D affidavit). Mr D notes (paragraph 4.9) that the majority of the properties contained in the table on page 197 of his affidavit (p.27 of his report) are the premises from which the retail stores operate. In addition to those stores are a number of further development properties or development sites and these have been referred to by Mr D. Most sites have either been developed or are in the process of being developed. I understand, from the evidence, that some of the properties contained at page 197 of the Mr D affidavit have subsequently been sold – including certain properties situated at Suburb VV and Suburb WW.
It can be seen then that the Gristwood Group holds interests in a large number of different entities. Those entities own the retail stores and various other properties. I agree with the submission made (on behalf the husband) that the company and trust structures appear to be unnecessarily complicated. However, it was because of the minority shareholding in a large number of different entities that this particular family (the Gristwood family) have been able to build substantial wealth. In the context of the breakdown of this marriage – unscrambling the egg (i.e. the family’s business interests) will take some time. There is no quick fix.
It will become apparent from these reasons for judgment that I have come to the conclusion that the husband’s proposal in relation to the sale of the Gristwood Group’s interests in the retail stores should take place. Once the interests have been realised, the husband and the wife can be paid whatever may then be owing to them in accordance with these reasons and the eventual orders. I note that the written submissions on behalf of the husband urge the Court not to include a value for the Gristwood Group in the property pool at this point in time – pending the sale of the stores. For the following reasons, I consider that this is the correct approach to take in the circumstances of this case.
The amount to be realised upon the sale of the various aspects of the Gristwood Group (including the interests in the retail stores) may exceed $10,453,540. On the other hand, the amount to be obtained may be less than that figure. To adopt any other approach would – it seems to me – have the very real potential of producing an unjust outcome – either to the wife or to the husband. I agree with the submission made by Mr Dickson QC (at paragraph 6.1.2 of the husband's written submissions (‘HWS’)) to the effect that it is, indeed, not an easy task to "cash in" the Gristwood family’s interests. The Court is not dealing with a piece of real estate which is owned outright by the parties to the litigation. Nor is the Court dealing with a portfolio of blue-chip shares owned by the parties. There is both force and equity in the argument put forward by Mr Dickson QC. The family lived very comfortably from the income derived from the various business interests. The family’s wealth was held in minority shareholdings in a number of companies and/or trusts. I agree with the submission that it is neither just nor equitable to now say that it is the husband who should wear all of the risk or the possible downside given that there is to be an alteration of property interests pursuant to s 79 of the Act.
The husband does not wish to retain the family’s interests in the retail stores and, I apprehend, to the extent that there are interests in any other assets or businesses owned by the Gristwood Group – the husband does not wish to retain all of those.
In S & S [2000] FamCA 262 (‘S ’) the Full Court of the Family Court of Australia noted from paragraph 108:
“108.A long line of authority in this Court (Waters and Waters (1981) FLC 91-019 at 76,208; Williams and Williams (1988) FLC 91-959 at 76,940; Docters van Leeuwen and Docters van Leeuwen (1990) FLC 92-148 at 78,024; Little and Little (1990) FLC 92-147 at 78,020; Smith and Smith (1991) FLC 92-261 at 78,759; and Bell and Bell (1993) FLC 92-347 at 79,683) establishes as a clear guideline for the exercise of discretion under s.79 of the Act, that, absent some special consideration (such as a desire by one spouse to retain a particular piece of property, in specie), and particularly where the value of an asset is contentious, or even where it is not but the market for the property is volatile, or there is likely to be a significant time lapse between judgment and sale, and where the value of the asset is to be divided between the parties, the Court should order its sale and the apportionment of the proceeds between the parties rather than order one party to pay to the other a fixed sum representing a notional proportion of its assessed value.
109.Moreover, in Docters van Leeuwin (supra) at 78,025, the Full Court (Fogarty, Nygh & Rowlands JJ), after citing a passage from the judgment of Mason and Deane JJ in Norbis v Norbis (1986) FLC 91-712 at 75,165-6, said this:-
“In our view the time has come to regard a departure from a long-standing guideline, such as the one given in Waters, without adequate explanation as a ground for finding that the exercise of discretion has miscarried.”
110.In Bell and Bell (supra) at 79,763, the Full Court (Ellis, Baker & Purvis JJ), after referring to the earlier decisions in Docters van Leeuwin, Little, and Waters (all supra) said this:-
“We see no reason to depart from the line of authority referred to above. There is always uncertainty in relation to the amount which will ultimately be obtained in respect of the sale of matrimonial property and, in particular, matrimonial real estate.
…
Although the order which the trial judge made was essentially discretionary in nature, in our opinion the authorities above referred to clearly establish that where a sale of property is necessary to satisfy a lump sum order for settlement of property and the calculation of any lump sum payable arises from a finding as to the value of the property to be sold, then the amount to be paid to one or other of the parties following any such sale should be expressed in percentage terms, rather than by way of lump sum payment, unless good and sufficient reasons are given for doing so.
The trial judge gave no reasons for departing from the above principle and, given the facts of the case, we are unable to perceive that there was any justification in law for doing so. For this reason therefore, we consider the trial judge has erred in the proper exercise of his discretion and we would allow the appeal to this extent.”
It is clear from his Honour's judgment (at AB p36-37) that he appreciated that his orders would necessitate the sale of Kia-Ora, and in assessing the value of the trust, for the purposes of his calculations, he accordingly deducted the estimated realisation costs in respect of the sale of the property, the plant and equipment, and the livestock, and he also adopted the “realisable auction value” for the plant and equipment rather than the “going concern” value. The effect of those two adjustments was to deduct $131,039 from the value of the trust for which the wife had contended based, inter alia, upon Mr Knight’s valuation. Never-the-less, the underlying assumption of his adoption of the figure of $1,394,816 for the trust was that Kia-Ora would sell for the $1.77 million (gross) at which it was valued by Mr Knight.”
Many of the considerations mentioned in S are applicable in this case currently before the Court. The value of the asset is contentious; there is likely to be a time lag between judgment and sale; and neither party wishes to retain the family’s interest in the retail stores. I do not consider (having regard to the facts of this case) that it is just and equitable to force a party (in this case the husband) to retain a particular asset. Nor is it just and equitable that the husband should carry all the risk on the potential sale prices. I note paragraph 3.1.1 of the wife’s written submissions in reply (filed 8 July 2022). That written submission appears to misinterpret one aspect of the decision in S. S is authority for the proposition (amongst other things) that – where it is likely that there will be a significant time lapse between judgment and sale – that is a particular reason why the "Court should order its [i.e. the relevant asset] sale and the apportionment of the proceeds between the parties rather than order one party to pay to the other a fixed sum representing a notional proportion of its assessed value".
Furthermore, I note the submissions contained in the HWS at paragraphs 6.1.26, 6.1.27 and 6.1.28. Indeed, I accept all those submissions. It is helpful to include all of the HWS paragraphs 6.1.26, 6.1.27 and 6.1.28 at this point. In those paragraphs, the husband has submitted:
“6.1.26 It is simply wrong to say that the husband could “retain the company/trusts with the retained earnings which could be used by those entities for further investments without the need to liquidate (WWS 3.4.2). It is important to recognise that the wife seeks a cash payment to be made to her personally. That requires effectively (and ironically) a form of “currency conversion” from interests that are held by corporate entities and trusts of the [Gristwood] family in asset holding entities with others into effectively after tax dollars. It is important to compare apples with apples. For the purpose of ascertaining the payment to the wife (in after tax dollars), proper recognition needs to be given to the fact that there are very few funds lying outside of the corporate and trust structures.
6.1.27There is no basis upon which it could be seen to be just and equitable to leave the husband with the problem of the “top-up tax” (see evidence of [Mr D] at TR 270l5) for entities that he does not seek to retain, and which, after the sales have been effected, will cease to have any purpose and be of no utility to the husband.
6.1.28Adopting the husband’s proposal gives the parties an equal incentive to manage the sales - whether that be by way of sales in shares in the relevant entity, or by a sale of the asset owned by the entity and the winding up of that entity after it has ceased to have any utility, remains to be seen. Much will depend on the prospective purchaser(s). Some may wish to purchase the asset out of the current holding entity. Others may wish to purchase the shares in the holding entity. However, if the parties share equally the after tax benefit of the funds, then the husband has just as much incentive as does the Wife to conduct the crystallisation of the family interests in the most (legitimately) tax effective manner that he can.”
The process of this litigation and the trial itself have made it abundantly clear that there is no certainty when it comes to the valuation of the various business interests. There are so many variables. The wife’s own submission in relation to the value of the Gristwood Group was reduced by more than $1.3 million from the date of the commencement of the trial until the date of the written submission received on behalf of the wife.
The wife’s argument that there should be an upfront payment to her within 90 days of the date of the final order is unrealistic. I note the submission put forward on behalf of the wife in paragraph 6.3.1 of the wife’s written submissions (‘WWS’). I am not persuaded that there is sufficient evidence to convince the Court of the correctness of the wife’s submission in relation to the apparent indebtedness of various entities to the parties as at 31 December 2020. The submission was made in the context of attempting to convince the Court that the husband should be in a position to make a cash payment to the wife – so that the wife did not have to wait for the sale of the various retail store interests.
Were the Court persuaded that it ought to make an order for an upfront payment (which it is not), it seems to me that it would be likely to create a situation whereby the husband was unable to meet his obligations. In the absence of some evidence that would convince the Court that the husband would have the ability to raise such a large amount of money at such short notice – it seems to me likely that the husband would be “bound to fail” and the matter would be back before the Court for some further adjudication – probably in relation to an enforcement application. Indeed, the wife (at WWS paragraph 6.3.2) seems to in fact indicate that (in her view) the husband would not be likely to comply with the orders sought by her. Orders granting to the wife a "means of enforcement" are sought on her behalf. Those submissions on behalf of the wife strengthen the Court's conclusion that the husband's orders (to sell the retail stores first) are more appropriate – and more likely to avoid future litigation.
The fact that the Gristwood Group only holds minority interests in the retail stores is another reason to adopt the approach submitted on behalf of the husband. The market would have to be limited. The fellow investors in the stores in question (including Mr TT, Mr SS and Mr QQ) are not interested in buying the Gristwood family interests. They also prefer to sell the stores outright. There are currently ongoing negotiations for the Queensland retail interests to be possibly sold to NN Company. As to the retail interests held in other States (apart from Queensland) the husband's proposal to attempt to sell those interests to the other existing stakeholder (Mr UU) seems sensible.
Such an approach (the sale of the interests) removes the uncertainty from the equation in relation to the proper value of the pool. Contentious issues such as a minority discount to be applied in respect of the Gristwood Group retail interests – or the amount of tax to be allocated/paid – will disappear.
It is also important to note that unless and until all of the Gristwood Group’s interests in the retail stores are sold – the Call Option in relation to F Pty Ltd cannot be exercised.
The Gristwood family have indeed received significant benefits over the years as a result of the investments in the retail stores. As noted, those minority interests are difficult to turn into cash. They are minority shareholdings. The market is limited – but I do note that it is the intention of the other minority shareholders to join with Mr Gristwood in selling their interests – so that the retail stores can in fact be sold. The parties will be able to share in the uplift secured in respect of the properties situated at Suburb VV and Suburb WW. In the same way, the parties should be able to share in any uplift achieved upon the sale of the interests in the retail stores. Similarly, though, the parties should also bear any disappointment that may be achieved in the sale of those interests. It is also important to note that the wife does in fact accept that the husband will have to sell “some of the [retail] businesses to fund the wife’s entitlement…” (note WWS 3.4.1).
Both sides provided detailed submissions in relation to potential tax liabilities. As noted, I have accepted the submission made on behalf of the husband that the proposed orders – which will require the sale of the family’s interests in the retail stores – will mean that the "guesswork" will disappear in relation to potential tax liabilities. Those liabilities will crystallise in due course. The wife’s submissions (including paragraphs 3.4.5 and 3.4.6 of WWS) relating to cases such as Rosati v Rosati (1998) FLC 92-804 and Rodgers & Rodgers No 2 (2016) FLC 93-712 – become irrelevant. I accept the husband's submissions in relation to those cases in any event. The Court's conclusion that the just and equitable way to proceed is by ordering the sale deals with those issues. The guesswork disappears.
It is worth highlighting (again) the submission (which I agree with) made on behalf of the husband (paragraph 6.1.28 HWS) where it was stated that:
“6.1.28… if the parties share equally the after tax benefit of the funds, then the husband has just as much incentive as does the Wife to conduct the crystallisation of the family interests in the most (legitimately) tax effective manner that he can.”
In relation to the joint balance sheet (‘JBS’) many of the items which are contentious disappear – because of the conclusion by the Court that the fairest way to proceed for this family is to order the sale of the interests in the retail stores – as submitted on behalf of the husband.
THE CALL OPTION
The value of the Call Option remains in dispute.
The parties agree that the Call Option is a chose in action and should be regarded as property for the purposes of the Act (s 4) and that the value of the Call Option should be included in the property pool available for division in this case. This conclusion is not inconsistent with authority – including the decision of O’Ryan J in Hurst v Weber (2009) 233 FLR 337.
Exhibit 3 is a Call Option deed dated early 2017 between XX Pty Ltd, the husband personally, and F Pty Ltd. The Call Option grants to the husband the right to acquire 45 ordinary shares (a 22.5% interest) in F Pty Ltd. F Pty Ltd is the ultimate holding company of YY Pty Ltd. The husband has the right to acquire those shares at $1 per ordinary share – i.e. $45.
Paragraph 3.1 of the Call Option states –
“3.1 The Offerror irrevocably grants to the Offerree the right to require that the Offerror sell to the Offerree, free from any Encumbrance, the Option Shares, in consideration of the Offerree paying the Aggregate Exercise Price to the Offerror and otherwise on the terms of this deed (such right granted by the Offerror being the Call Option).”
Mr D stated in the introduction to his report as follows –
“2.7For the purposes of my Report, in order to determine the value of the Call Option I have first undertaken a valuation of [YY Pty Ltd] (including the business operated by it) at 31 December 2020, and have determined the value of same to be $13,876,085.
2.8As the Call Option grants the Husband the right to acquire 45 ordinary shares (or a 22.5% interest) in [F Pty Ltd] (and in the absence of being provided with any information for [F Pty Ltd]), I have assumed that this option is materially equivalent to acquiring a 22.5% interest in [YY Pty Ltd].
2.9I note that the terms of the Deed do not allow for the issuing of further shares during the offer period.
2.10From my discussions with the Husband, I understand that the individual franchise agreements held for each of the [retail stores] with [NN Company Limited] prohibit the Husband and other investors from holding an interest in any business offering personal finance solutions.
2.11Accordingly, based on my understanding of the franchise agreements and restrictions in place, the Husband is not currently able to exercise the Call Option, and will not be able to do so until he divests his interest (both direct and indirect) in each of the [retail stores].
2.12As a result, I have applied a 20% discount to the value of the Call Option to account for this lack of liquidity, marketability, and control (associated with the ultimate underlying shareholding), and have determined the value of the Call Option for the purposes of my Report to be $2,497,659, (calculated as follows)…”
In the above quoted paragraphs, Mr D succinctly summarises how it is that he determined a value of $2,497,659 for the Call Option.
Of particular note is the fact that the husband is not able to exercise the Call Option unless and until he divests his interests in the retail stores. As noted by Mr D, the applicable retail franchise agreements prohibit the husband from holding an interest in any business offering personal finance solutions.
It is also important to note, at this stage, that the existence of the Call Option has been known to the wife for a significant period of time. The wife knew the husband’s hopes concerning the F Company business (the wife’s affidavit filed 19 April 2022, p.13 at paragraph 42) (‘the wife’s trial affidavit’).
Mr D’s valuation report is annexed to an affidavit filed 22 April 2022 (the report itself is dated 8 April 2022). A draft of Mr D’s report was made available to the parties in December 2021.
Depending upon various considerations – Mr G has provided two estimates of the value of the Call Option – being $3,949,494 and, using an alternate approach, Mr G estimates a value of $4,905,744. Mr G’s primary approach produced the lower figure. In the JBS, the wife has adopted the higher figure as representing the value of the Call Option – namely $4,905,744.
The report of Mr G relating to the Call Option is annexed to an affidavit that was filed by leave on 26 April 2022. In the report of Mr G, I note the following comments which appear under the heading “Approach” on page 5 of the report:
“24.In preparing my assessment of the value of the Call Option, I have been provided with the Valuation Report of [Mr D] dated 8 April 2022 and an earlier draft report.
25.I have also been provided with questions asked of [Mr D] in relation to his assessment of the call option's value and his responses as well as a copy of files notes detailing [Mr D's] discussions with [Mr ZZ] who operates [F Pty Ltd] as well as further additional information provided by [Mr ZZ] to [Mr D] for the valuation.
26.Based on this, it is my understanding that I have been provided with all the information that was provided to [Mr D]. I have reviewed this information and I have also conducted my own research.
27.Based on my review of the information provided and my own investigations, I substantially agree with the conclusions reached by [Mr D], but for the adjustment he has made in relation to the business' bad debts and the discount for minority interest.
28.[Mr D's] adjustment in relation to bad debts is flawed, is not supported by any financial information provided by the business and results in the Call Option being significantly undervalued.
29.The nature of the flaw and its impact are detailed in the body of the report below.”
(Emphasis added)
Mr G provides a convenient explanation of the F Pty Ltd business. In paragraphs 35 and 36 of his report, Mr G states –
“35.YY Pty Ltd trades as "[F Company]" [F Pty Ltd] which is a provider of [financial services] via its website […]. [F Company] writes via this online platform only. [F Company] was originally established in […] […]. [Mr ZZ] is the current managing director and has a history in the financial services industry.
36.[F Company] provides same day [financial services].”
(Emphasis added)
F Company lends to customers amounts between $… and $…. There is a standard establishment fee in the amount of $… (with one other fee ($…) included in the loan). The length of the loan is 12 months and repayments can be made weekly, fortnightly or monthly. The interest rate charged by F Company on the loans is an eye-watering …%. Apparently, Sydney is the main market.
In paragraph 69 of his report, Mr G states that he does in fact substantially agree with Mr D’s calculation of future maintainable earnings – “but for the adjustment made to bad debts” (this was also noted at the outset of his report).
Mr G states that Mr D, when calculating the future maintainable earnings of the business – has included an adjustment to increase the amount of bad debts “relative to what has been incurred historically” (paragraph 70, Mr G).
From paragraph 70 of his report, Mr G continues:
“70…This adjustment which is significant, as noted in [Mr D’s] Report is based on his discussions with [Mr ZZ]. As part of his discussion with [Mr ZZ], certain information was provided to [Mr D] in relation to the business’ current bad debt position…
71.Based on the advice of [Mr ZZ], [Mr D] has included in his calculation of the business’ future maintainable earnings, annual bad debts in the amount of $2,769,791. This amount is greater than the bad debts expensed by the business in the three previous years combined. It has a profound impact on the assessment of earnings.”
Mr G goes on to state (in paragraph 72) that, in his opinion, the adjustment made by Mr D for bad debts is flawed. He goes on to provide reasons as to why he holds that opinion.
Once the trial had commenced, the Court issued an order requiring that the two experts – Mr D (the single expert) and Mr G (the expert engaged by the wife):
“1(a)Confer in relation to the valuation of the Call Option as set forth in the Report of [Mr D] dated 8 April 2022 at $2,497,659 and set forth in the Report by [Mr G] dated 21 April 2022 at $3,949,494 and $4,905,744 (see paragraphs 106 and 107 of [the G Report]):
1(b)Confer in relation to the value of the [retail stores] and the interest of the [Gristwood Group] in those stores as assessed by [Mr D] in his Report of 8 April 2022 and by [Mr G] in his Report of 21 April 2022;
1(c)Identify in a joint report the areas of agreement/disagreement in respect of the matters referred to in paragraphs 1(a) and 1(b) hereof and if disagreement, the precise reasons therefore, and provide that report to the parties by no later than 10:00am on Thursday 28 April 2022.”
Paragraph 6 of the Joint Experts’ Report (Exhibit 10) stated, in relation to the valuation of the Call Option:
“6The Experts substantially agree in relation to the approach adopted and the adjustments made in relation to the valuation of the Husband's call option in [F Pty Ltd], with the exception of the following items:
(a) The allowance made in the valuation for bad debts;
(b)The underlying business valuation relying on trading results to 30 June 2020;
(c)The discount applied for the minority interest.”
I note the following written submissions from Mr Dickson QC (on behalf of the husband) in relation to the differences between Mr D and Mr G concerning the valuation of the Call Option. At paragraphs 6.2.7, 6.2.8 and 6.2.9 of the HWS, I note the following:
“6.2.7On the face of their respective reports, the difference between [Mr D] and [Mr G] appeared to be that [Mr D] had accepted what [Mr ZZ] (the sole director and secretary of both [YY Pty Ltd] and [F Pty Ltd]) had estimated in terms of a proper rate of converting doubtful debts to bad debts. [Mr ZZ] (it was common ground) had said that bad debts should be at the rate of 1.1% per month or 13.2% per year.
6.2.8Upon receipt of the JER, it emerged that there was a Table of the “bad debts to be written off”. That Table appeared at paragraph 9 of the JER and is footnoted as being based on the Excel spreadsheet provided by [Mr ZZ] “detailing the aged trial balance at 31 December 2020 and 30 June 2021, bad debts with Mercantile Agent and bad debts to be written off”.
6.2.9What that Table demonstrated was that, despite the principle of “matching” (being that expenses and revenue should match in terms of timing), the reality was that there was often a lag between periods of greater revenue and periods where the bad debt write off figure increased. The failure to “match” had been one of [Mr G’s] criticisms of [Mr D], yet he accepted it was not a valid criticism.”
I accept these submissions made by Mr Dickson QC on behalf of the husband. These submissions point out that one of the criticisms levelled by Mr G at Mr D (concerning the alleged mismatching of expenses and revenue) – was not in fact a valid criticism. I note that Mr G was cross-examined in relation to this issue. I note the following evidence (Transcript 29 April 2022, p.304 from line 1):
“Mr Dickson QC: So that it’s not always possible that the periods match, as you might ordinarily expect expenses to match income because the debt might click over in the following financial year from being doubtful to being bad, mightn’t it?
[Mr G]:Yes
Mr Dickson QC: So the concept of fluctuations between the level of bad debt expense as compared to the top line revenue would not be unexpected in a business of this nature?
[Mr G]:It would fluctuate, yes. I don’t disagree.”
The so-called ‘mismatching’ of revenue and expenses was one of the matters pressed on behalf of the wife in urging the Court to grant leave for Mr G’s report to be relied upon. The cross-examination conducted by Mr Dickson QC on this issue leads the Court to conclude that the so-called ‘mismatching’ is not an issue at all.
Mr Dickson QC continued his cross-examination (Transcript 29 April 2022, p.304 from line 32) and referred Mr G to paragraph 72 of his report, where Mr G stated his opinion that the bad debts adjustment made by Mr D was “flawed”:
“Mr Dickson QC: Isn’t the bottom line this: the bottom line between you when it comes to a bad debt component is that [Mr D] has accepted both the data from [Mr ZZ] that’s reflected in table A on paragraph 9, and he has also accepted the 1.1 per cent per month expected future write offs. He has accepted those two things, hasn’t he?
[Mr G]: I guess he has, yes
Mr Dickson QC: And you haven’t accepted the 1.1 per cent a month; that’s right, isn’t it?
[Mr G]:I’m saying the data doesn’t support the 1.1 per cent, so yes, no, I don’t accept the 1.1 per cent a month.
Mr Dickson QC: And when you say the data doesn’t support the 1.1 per cent a month, do you mean the data that’s reflected in table A doesn’t support?
[Mr G]:Yes.
Mr Dickson QC: What does it support? If the data in table A is accurate, what does it support in terms of a rate of bad debts per year or per month, if it’s accepted?
[Mr G]: Well, it’s – it’s only one part of the question.
Mr Dickson QC: No. No?
[Mr G]:So in itself I can tell us how much of those loans is going to written off and what the quantum of that is, and that’s the problem that I’ve got with it. We – it’s – these are the amounts that we consider to be bad at this particular point in time. We accept that some of this amount is going to be recovered. We can’t tell you how much, so therefore we can’t tell you how much we’re going to write off or how much is ultimately going to be bad. That’s why I’ve got a problem with that table, is that I think ultimately it’s overstating the situation as to what is the actual bad debt of the business.
Mr Dickson QC: Okay. So you say, effectively, it’s not that the data supports something else; it’s just that the whole data is so reliant on [Mr ZZ’s] opinion to not be data at all; is that a fair summary of what you say?
[Mr G]: It’s only part of the picture.
Mr Dickson QC: And so you say, “There’s no reliable data to use. I can’t or I don’t accept what [Mr ZZ] says about 1.1 per cent a month.” Am I right so far?
[Mr G]:I’m saying, yes, I don’t accept the 1.1 per cent a month. That’s right.
Mr Dickson QC: And you say there’s no reliable data?
[Mr G]:The data by itself doesn’t support the 1.1 per cent, no.
Mr Dickson QC: And so on what data do you rely to come up with your seven and a half per cent, which is what you get to, seven and a half per cent a year, rather than 13.2 per cent a year. And what data do you rely to do that?
[Mr G]:I just rely upon what’s contained in the financial accounts of – of the business.
Mr Dickson QC: For ’18 and ’19?
[Mr G]:That’s right. Yes.”
The Joint Experts’ Report (Exhibit 10) contains (inter alia) Mr D’s opinions, or his additional explanation and opinions, concerning the amount of bad debts. It is helpful to include paragraphs 7 – 12 of the Joint Experts’ Report (contained under this heading). Those paragraphs read as follows:
“[Mr D]
7.[Mr D] was provided with limited financial information and breakdowns, which included:
(a) Financial statements for the years ended 30 June 2018 to 2020;
(b)Management prepared headline monthly results (totals only for gross profit, expenses and net profit) were provided for the period January 2019 to September 2021. However, there results did not reconcile to the financial statements for the FY2020; and
(c)Excel spreadsheet detailing the Aged Trial Balance at 31 December 2020 and 30 June 2021, bad debts with Mercantile Agent and Bad Debts to be written off.
8.[Mr ZZ] (the managing director of [YY Pty Ltd]), advised that the operating system […] and the accounting system […] at that time were not integrating and as such, providing detailed accounting breakdowns was not possible. The management prepared headline monthly results provided by [Mr ZZ] were manually extracted by him.
9.Given the data available, in his report [Mr D] relied upon the representation of [Mr ZZ], that the ongoing monthly bad debt level was about 1.1 % of the loan book. The quantum determined was supported by data included in the Excel spreadsheet, namely that at the time of discussions (October 2021), the following amounts remained outstanding to be written off:
Table A1
10. Following [Mr D's] review of the [Mr G] Call Option Report, further consideration of the information available and discussions with [Mr G], [Mr D] notes the following:
(a)The financial statements detail the following amounts expensed as bad debts in the respective years:
FY2018$889,896
FY2019$1,471,031
FY2020$312,711
(b)It is [Mr D's] recall that [Mr ZZ] advised that the bad debts expensed in the financial statements do not represent the total of the expected bad debts for each of the years;
(c)Ordinarily, only known bad debts are written off in a financial year. Doubtful debts are only written off when the debt is known to be unable to be repaid;
(d)Table A above details the bad debts remaining to be written off that relate to loans advanced in each of the financial years. The above amounts are after amounts already referred to Mercantile for debt collection;
(e)The average term of a loan was / is 12 months. As such, amounts advanced may take up to 12 months to be considered bad, i.e., a significant portion of bad/ doubtful debts will occur in financial years following the advance of the respective loans;
(f)In relation to the FY2020, the bad debt of $3,008,419 detailed at Table A relates to principal amounts advanced in FY2020 that have subsequently defaulted. It includes the principal amount advanced, plus interest and penalties, less repayments made. It was advised that interest and penalties cease to be accrued 90 days after the loan amount comes into arrears;
(g)In considering the bad debts allowance, in [Mr D's] view, it is appropriate to consider, on a loan by loan basis, what the average collectability percentage would be taking into account interest, penalties and repayments. This exercise should be undertaken across the recent life of the business. This would allow a robust bad debts percentage to be applied to the loans advanced in a year. However, [Mr D] does not have the data to undertake this exercise;
(h)[Mr D] noted the reduction in the bad debts relating to FY2021 to be written off ($2,029,401) compared to the FY2020 ($3,008,419). In the absence of other information, [Mr D] has assumed the lower level in FY2021 reflects:
(i) Loan terms are 12 months;
(ii) In Excel spreadsheet was provided in October 2021; and
(iii)With the minimum passage of time, certain loans outstanding that will ultimately be considered bad debts had not been classified as such at that time.
(i)Given the above, as a proxy for the expected bad debts to be incurred in any year, the bad debts for the prior year could be adopted. In the case of the FY2020, this would be $2,934,812 as detailed in Table A above.
(j)[Mr D] notes that [Mr ZZ] advised2 that of the $8,996,9073 of bad debts to be written off, there would be collectability of the bad debt of 15% to 20% over 5 years.
(k)In addition to the bad debt to be written off, there is the debt with Mercantile Agent $3,796,984 with a collectability of less than 2%4. In considering the appropriate level of bad debts, bad debts to be written off (less potential collections) plus Mercantile Agent debts should be considered.
11.Based on the above, and the absence of alternative information, it is [Mr D's] view that the allowance made in his calculations on page 468 of the [Mr D] Report (page 638 of his affidavit) of $2,769,791 is reasonable.
12.[Mr D] disagrees with the bad debt expense adopted by [Mr G] of 7 .5% of the loan book, or $1,573,745 for FY2020.
1Source of this summary is the Excel spreadsheet provided by [Mr ZZ] detailing the Aged Trial Balance at 31 December2020 and 30 June 2021, bad debts with Mercantile Agent and Bad Debts to be written off.
2 Email from [Mr ZZ] of [YY Pty Ltd] to [Mr AK] of [E Accountants] at 12 .06pm, on 27October 2021.
3Reconciles to Table A.
4Email from [Mr ZZ] of [YY Pty Ltd] to [Mr AK] of [E Accountants] at 12.06pm, on 27 October 2021.”
(Emphasis added)
The opinion of Mr G (contained in the Joint Experts’ Report) on the same issue (the bad debts) is included (at least in part) in paragraphs 13 – 18 as follows:
“[Mr G]
13.The data referred to by [Mr D] does not support the representation made by [Mr ZZ]. The information provided does not detail the actual amounts written off from what has been classified as bad nor does it detail the extent of recoveries. [Mr D's] adjustment is solely based on [Mr ZZ's] representations.
14.There is an absence of reliable data upon which to base an amount of bad debts. [Mr G] understands that more recent financial data of the business was requested from the Husband that in his view may have assisted with consideration of these issues but this information has not been provided.
15.But [Mr D's] bad debts is overstated even where [Mr ZZ's] representations are accepted. In his email to [E Accountants] dated 27 October 2021, [Mr ZZ] indicated the collectability of this bad debt was 15-20% over a 5 year period. Discounting the FY20 bad debts to be written off by 17 .5% (midpoint of 15-20%) would reduce the write off to $2,481,946.
16.If the bad debts expenses was assessed relying upon [Mr ZZ 's] expected recovery and the FY21 bad debts to be written off as noted by [Mr D] above of $2,029,401, the expected amount to be written off would be $1,674,256.
17.It is also evident from the table of bad debts to be written off, detailed above, that the extent of bad debts to be written off decreased in FY21, notwithstanding an increase in the loan book advanced and this decrease should have been known at [Mr D's] valuation date of December 2020.
18.While I have applied the discount without considering the issue of the timing of collection, the maturity of the business would mean that the collection of the previous year's bad debts would offset any further discount that would arise from considering the timing of the current year’s bad debts.”
Mr G made the point (in paragraph 13 quoted above) that “[Mr D’s] adjustment is solely based on [Mr ZZ’s] representations.”
The draft report of the single expert in this case (Mr D) was made available to the parties in December 2021. The content relating to the bad debts did not change between the draft report and Mr D’s final report. Mr G has been advising the wife since at least 2019 (Transcript 29 April 2022, p.295 from line 1). The difference in the approaches adopted by the two experts (in relation to this issue of bad debts) has, of course, resulted in a significant difference in the value ascribed to the value of the Call Option. There are certain matters that require closer consideration. The loan book in respect of F Pty Ltd has increased significantly. I note that between 30 June 2018 and 30 June 2020, the loan book increased from $11,597,902 to $20,983,000 (approximately). Further, I note that by September 2021 – the loan book value was nearly $30 million (D Report, paragraph 44.8). From paragraph 44.9 of Mr D’s report (and following) I note:
“44.9From my discussions with [Mr ZZ], I understand that although the business has experienced significant growth, it has also seen a significant increase in the level of bad debts within the loan book balance, with approximately 30% of the loan book held at September 2021 unlikely to be recovered.
44.10[Mr ZZ] has advised that although security is held over customers’ ... for the loans, the business does not actively engage in ..., and rather holds the encumbrance until the customer wishes to deal with the ... in the future (and hence requiring the repay the debt to release the encumbrance).
44.11Similar to [the retail stores], I understand that the operations of [F Company] have been impacted with the ongoing regulatory changes, particularly in relation to pay-day lending. As a result, there are limits on the interest and fees that can be charged by the business.”
The significant increase in the level of bad debts within the loan book balance for F Company was highlighted by Mr D in the above quoted paragraphs. The wife had this information in the draft D Report provided to the wife (and her advisers) in December 2021. Further, at paragraph 44.38 of his report Mr D had detailed various adjustments which he considered were necessary to “‘normalise’ the net profit before tax of the business” (paragraph 44.37, D Report). At paragraph 44.38(d), Mr D details the necessary adjustment in relation to bad debts stating:
“44.38(d)Bad debts - From my review of the financial information provided and my discussions with [Mr ZZ], I understand that the historical bad debt expense for the business has not been representative of the true ongoing level of expenditure expected to be incurred by the business moving forward. From my discussions with [Mr ZZ], I have been advised that he expects to write off approximately 1.1% of the loan book value per month. Accordingly, for the purposes of my FME calculations, I have adopted $2,769,791, being 13.2% of the loan book value at 30 June 2021 as representative of the ongoing level of bad debt expense for the business;”
(Emphasis added)
Once again, it could not have been clearer – the wife was well aware by December 2021 that the managing director (Mr ZZ) of F Pty Ltd had advised Mr D that the true level of bad debts in respect of the business was 1.1% per month.
The inference that is available and the inference that I do in fact draw is that Mr ZZ, the person who is actually running the business of F Pty Ltd, is a person who has full knowledge of the ins and outs of the business. Mr ZZ is the managing director of the business and he has a history in the financial service industry. He has the relevant expertise to run this significant enterprise.
There is nothing to suggest that the information provided by Mr ZZ to Mr D in relation to the rate of bad debts (1.1% per month) is wrong or inaccurate. Mr G has not accepted the 1.1% per month rate of bad debts in respect of F. Mr G says that he relies upon historical figures from the records of the business. Mr ZZ, however, has the day-to-day running of the business and is much more likely to be in a position to provide a proper reflection of what the rate of bad debts per month actually is. Mr D made the point at paragraph 44.38(d) of his report and again in paragraphs 10(b), (c) and (d) of the Joint Experts’ Report.
Even after conferring with Mr D (as ordered by the Court) and even after noting Mr D’s opinion – restated (for instance) in paragraphs 10(b), 10(c) and 10(d) of the Joint Experts’ Report – Mr G maintained his opinion on behalf of the wife. One has to wonder – what exactly is the suggestion made here on behalf of the wife? Is the suggestion on behalf of the wife that Mr ZZ has provided false information? If that were the suggestion then, in the interests of fairness – it should have been squarely put to Mr D and to the husband. It was not so put. Indeed, it should have been raised by the wife’s side at the earliest possible stage. The wife had received Mr D’s draft report in December 2021. The highest Mr Kirk QC stated the wife’s “suspicion” during the cross examination of Mr D can be seen at p. 241 of the transcript (28 April 2022 from about line 35). Mr Kirk QC, having referred to the relationship between Mr ZZ and the husband (Mr Gristwood) asked Mr D whether he is “circumspect, in those circumstances, in accepting the opinions of somebody like [Mr ZZ]?” Mr D confirmed that when he is conducting a (financial) investigation he will “absolutely consider the information that’s there for any level of bias that might be involved, but also in relation to their acumen in being able to answer the questions that we were asking.” I accept this evidence from Mr D.
In the WWS I note that on page 19 (in paragraph 3.3.2) it was stated, inter alia, that: -“For reasons expressed elsewhere, [Mr ZZ] is highly unlikely to provide information that would increase the future profitability of [F Company] and you will note that notwithstanding the issues taken with the information provided to [Mr D], [Mr ZZ] was not called to give evidence in this case.” It is an interesting submission made on behalf of the wife. There is not sufficient evidence to support such a submission. It is, in fact, a very serious allegation made on behalf of the wife. Such an allegation should have been formulated distinctly and with some particularity. Such an allegation would also need to be clearly proved. The seriousness of the allegation means that “indirect inferences” or “suspicion” will not suffice. In this regard, I note s 140(2)(c) of the Evidence Act 1995 (Cth) and the comments of Dixon J in Briginshaw v Briginshaw (1938) 60 CLR 336 (especially at 362). I do note the words “for reasons expressed elsewhere” included in paragraph 3.3.2 of the WWS. I am not satisfied that there are any or any adequate reasons “expressed elsewhere” to support the submission in question. Certainly my attention has not been drawn to such a submission. Nor has my attention been drawn to any particular evidence that would show that the wife put the husband (or, indeed the single expert Mr D) on notice (at an appropriately early stage) that the wife considered that Mr ZZ had made false representations to Mr D in relation to the bad debts. For that is the upshot of the allegation – although the wife has attempted to dance around the issue rather than clearly state the allegation. It really comes down to a question of fairness. If one party to litigation (in this instance, the wife) wants to allege that false representations have been made to a single expert and that the single expert has erroneously acted upon those representations – it seems to me that such a serious allegation should be put directly and in plain language to the single expert to give him a chance to respond. The allegation ought also have been put directly to the husband. I have made my positon clear in this regard. Mr Kirk QC, basically stated the wife’s suspicions – but went no further. Mr D’s response (as quoted above) was appropriate and was precisely what I would expect from a professional appointed as the single expert – noting (as I do) his duty to the Court (rule 7.18, Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)). There simply is not sufficient evidence to support the suggestion made in the wife’s counsel’s written submissions (WWS paragraph 3.3.2 quoted above).
Historical figures contained in financial statements are one thing – but what actually might be occurring on a month to month basis is another thing altogether. Mr ZZ’s advice is that the bad debts expensed in the financial statements do not represent the total of the expected bad debts for each of the years (note paragraph 44.38(d) of the D Report and paragraph 10(b) Joint Experts’ Report). It should not come as a surprise to anyone that individuals who are in such straitened circumstances that they are willing to sign up to a loan contract whereby they agree to pay annual interest of …% – may not always be in a position to repay their loans in a timely manner. One would expect “bad debts” to loom large in this business model. If Mr G doubted the accuracy of the 1.1% per month – he ought to have contacted Mr ZZ – as suggested by Mr Dickson QC. There was plenty of time for this to occur. The draft report of Mr D was provided to the wife and her advisers in December 2021 and contained paragraph 44.38. The evidence is – the D Report did not change between December 2021 (the draft report) and the final report (dated 8 April 2022) – at least in relation to the question of the bad debts and the value of the Call Option. If necessary, the wife could have brought an application to the Court seeking an appropriate order. Noting that the Court granted leave to the wife to rely upon the evidence of Mr G (even though such leave was only sought on the morning of the trial) – it seems to me there would have been a good likelihood of success if the wife needed to seek an order from the Court to permit her expert (Mr G) to sit down and discuss matters with Mr ZZ. No such application was brought. There seems to have been a deliberate decision made by the wife’s advisers – to avoid a direct discussion with Mr ZZ. To put it another way, they knew that ZZ had the view that the actual rate of bad debts was 1.1% per month. In those circumstances (I can only surmise) they concluded there was no benefit to their side in having a direct discussion with ZZ. The rate of bad debts actually used by Mr G in his report (7.5% per year) results in a significantly higher value being ascribed to the F Company business and hence to the Call Option.
The best that Mr G could do was seek to rely upon the so-called historical data. The evidence of Mr D is that the managing director’s advice (Mr ZZ’s advice) is that the bad debts expensed in the financial statements do not represent the total of the expected bad debts for each of the years. Mr ZZ’s advice is that the actual rate of bad debt is 1.1% per month.
In the absence of any clear and cogent evidence or reason as to why the Court would not accept that the information provided by Mr ZZ was accurate – I have no hesitation in accepting the accuracy of the information provided by Mr ZZ. I accept that the proper rate of bad debts in respect of F Pty Ltd is 1.1% per month. This leads me to the conclusion that Mr D’s opinion should be preferred by the Court in this particular case.
There was some discussion and evidence as to whether or not the amount of bad debts calculated by Mr D (on the advice of Mr ZZ) required some further reduction (figures of 15-20% were referred to) because of possible future recoveries. There was no alteration to the valuation of the Call Option by the single expert (Mr D). Nor would I expect there to be such an alteration. Mr D is the only person to have direct discussions with Mr ZZ and Mr D’s opinion is that the valuation of the Call Option is $2,497,659. It is not the Court’s role to try to hunt through the evidence and perform any type of recalculation in respect of the Call Option. It would have needed to be the subject of clear evidence and a matter for submissions. If Mr D had considered that there needed to be some further discounting in respect of his valuation of the Call Option (having regard to possible future recoveries relating to the bad debts) – then I am certain that Mr D would have made reference to this in his written report – such report having been prepared by him as the single expert in this case. It is clear from the transcript (Transcript 28 April 2022, in and around p.242) that Mr D did in fact consider this question of future recoverability of bad debts. There is no alteration to Mr D’s opinion and, hence, the value of the Call Option to be included in the property pool in this case is the amount stated in Mr D’s report, namely $2,497,659.
I would point out here that in relation both to the valuation of the Gristwood Group and the valuation of the Call Option - there was no dispute between the parties in relation to the date of those valuations.
It is worth noting, at this point, that the Court is not required to refer to every fact or argument relied upon by the losing party – in relation to any particular issue. I note what was stated by the High Court in Whisprun v Dixon Pty Ltd (2003) 200 ALR 447 (“Whisprun”) at [62]. At that paragraph, Gleeson CJ, McHugh and Gummow JJ stated (inter alia):
“A judge's reasons are not required to mention every fact or argument relied on by the losing party as relevant to an issue. Judgments of trial judges would soon become longer than they already are if a judge's failure to mention such facts and arguments would be evidence that he or she had not properly considered the losing party's case.”
The Full Court of the Family Court of Australia has, of course, supported this approach from Whisprun. In particular I note – Eagle & Scarlett (No 2) [2020] FamCAFC 291 at [103] and also note Johanson & Johanson [2022] FedCFamC1A 74 at [43].
I also note what Mahoney JA stated in Housing Commission of New South Wales v Tatmar Pastoral Company Pty Ltd [1983] 3 NSWLR 378 (“Tatmar Pastoral”). At pages 385 and 386, His Honour stated (inter alia):
“It is not the duty of the judge to decide every matter which is raised in argument. He may decide a case in a way which does not require the determination of a particular submission: in such a case he may put it aside or, as Lord Scarman said, merely salute it in passing…”
(Citations omitted)
These comments by Mahoney JA in the Tatmar Pastoral decision were supported by the Full Court of the Family Court in Baghti & Baghti and Ors [2015] FamCAFC 71 at [64].
In relation to this disputed issue of the value of the Call Option – it will be apparent that I have not referred to each and every argument or fact put forward or referred to on behalf of the wife. As noted from the above authorities, the Court is not required to do so. I will, however, refer to some of the arguments put forward on behalf of the wife.
In the written submissions of Mr Kirk QC (on behalf of the wife) I note from page 19 that Mr G apparently did request some more recent data via an email sent by Hopgood Ganim (the wife’s solicitors) dated 4 April 2022. This email is Exhibit 11. The email was sent to Barry.Nilsson lawyers (the husband’s solicitors). The husband’s solicitors, apparently, did not reply to the email. The wife was seeking various documents ‘as a matter of urgency’. This begs the question – what had been occurring between December 2021 when Mr D’s draft report was made available to the parties and the email of 4 April 2022 (sent two to three weeks before the commencement of the trial)? The husband’s side is criticised in the submission made by Mr Kirk QC. I reject that criticism. Having had a chance to consider the evidence of the two experts in detail and now with a full and complete grasp of the facts and of the timing of the various events which occurred in the lead up to the trial – the email of 4 April 2022 was too little too late. As I have noted – if some timely action had been taken on behalf of the wife a proper request could have been made – with a reasonable time to respond and in the absence of an acceptable (to the wife) response – an application could have been brought to the Court. As noted, none of this occurred.
I also reject the criticism of Mr D – to the effect that he was apparently prepared to accept some representations made by Mr ZZ but not others. These types of expert reports require both discernment and discretion on the part of the expert. At each stage in the process, the expert must decide whether or not to accept a representation or a piece of information or some particular data. Mr D must have been satisfied that Mr ZZ’s advice concerning the bad debts was a piece of information that he ought to accept and factor into his valuation of the Call Option. I accept his approach.
Further, I reject any criticism of the husband for not calling Mr ZZ. In good faith, Mr D (the single expert) conferred with Mr ZZ and obtained information and advice from him. Mr ZZ is the managing director of the relevant company. He has the necessary years of experience in the industry. It is not the type of case where some sort of adverse inference or adverse finding should be made against the husband because Mr ZZ was not called to give evidence. The wife’s side had ample opportunity (as I have already noted) to hold their own conference with Mr ZZ (with the involvement of Mr G who had been advising the wife for many years). As I’ve already noted several times, the wife could have filed an application. By avoiding a direct discussion with Mr ZZ – any strength in the argument put forward by the wife is, in my view, significantly diminished. Without speaking directly with Mr ZZ – the wife’s expert (Mr G) is not in a position (in my view) to criticise the advice given – namely that the historical bad debt expense for the business had not been representative of the true ongoing level of bad debts expected to be incurred by the business moving forward (note paragraph 44.38(d) of Mr D’s report). Furthermore, the failure by the wife to plainly state the allegation (that Mr ZZ made false representations) distinctly and with particularity further diminishes the wife’s argument that Mr ZZ should have been called.
I agree with the submission put forward by Mr Dickson QC (in paragraph 5.2.1.1 of the HWS) that it is unfortunate that the current iteration of the Call Option was not provided until 2021 – but I do note that Exhibit 7 (the earlier version of the Call Option) had been provided by the husband to the wife many years previously. I accept that evidence on behalf of the husband. In any event, I also note (once again) the wife’s own evidence that the husband’s hopes in respect of the F Company business were not kept secret from the wife. He had discussed the F Company matters with her during the relationship. Indeed, the wife’s own evidence confirms that she was involved in the running of the husband’s business. The husband would discuss business matters with the wife. I note the following evidence from the wife’s trial affidavit:
“139.[Mr Gristwood] would discuss his work issues with the business and the [Gristwood Group] with me on a daily basis. [Mr Gristwood] and I would sit down and have a coffee together every morning before he would leave for work. We would discuss issues such as the sale and acquisition of businesses; the forming of [F Company]; staff performance; plans for the future (for both the [Gristwood Group] and [Mr Gristwood] and me); general business discussions and trading figures.
140.I was on many occasions present for discussions between [Mr Gristwood] and his business partners. [Mr Gristwood] would often say to the other partners words to the effect of, “[Ms Gristwood] understands... we talk about business... she knows about [F Company]” or words to that effect. The other partners’ wives were not usually involved in these discussions when I was.
141.In relation to the running of the businesses, [Mr Gristwood] would actively discourage me from assisting with the day-to-day activities. I would assist by monitoring and attending to [work machinery]; including [machine maintenance]. In approximately ([Ms Gristwood] to confirm) I would also assist by working [in the retail stores]. I would [assist] and deal directly with clients.”
This evidence confirms the view that I have formed of the husband. The husband was not being secretive in relation to the business. He discussed everything with the wife – on a daily basis.
The wife has also criticised the husband in respect of his failure to comply with disclosure orders etc. As became apparent during the course of the trial, the husband has had his own demons. The wife has highlighted many of these issues – including his illicit drug taking – leading to other anti-social behaviour – which eventually saw him charged , convicted and imprisoned. I specifically questioned the husband about that aspect of the evidence (Transcript 27 April 2022, p.173-175). I accept his testimony. There is no doubt that his life had run off the rails. The consumption of illicit drugs was at the heart of the problem. If there were delays in complying with Court orders relating to disclosure – that is unfortunate. But the parties had engaged a single expert who provided a report. The wife had engaged Mr G to provide her with separate and independent advice. The parties (in their submissions) acknowledge that there is really only one major difference between the single expert and Mr G. That related to the value of the Call Option. I have already addressed those issues above and have concluded that the Court should accept the opinion of Mr D (the single expert) in that regard. It seems to me that no amount of additional or earlier disclosure of documents would have bridged the gap between the opinions of the two experts in relation to the bad debts issue. The conclusion of the Court is that the difference came down to Mr D’s acceptance of Mr ZZ’s advice and representations – whereas, on the other hand, Mr G (who neither met with nor communicated with Mr ZZ as far as I am aware) was not prepared to accept Mr ZZ’s advice concerning the bad debts. As noted earlier, if the wife was suggesting that ZZ had made false representations in respect of the treatment of the bad debts – there would need to have been clear and cogent evidence before the Court to prove any such suggestion (Evidence Act 1995 (Cth) s 140(2)(c)) (Briginshaw, especially at 362). There is no such evidence.
As noted, the value of the Call Option to be included in the property pool is $2,497,659.
OTHER POOL ISSUES
One of the disputes between the parties (raised by the wife) relates to the loan accounts. I note paragraph 3.2.3 of the WWS. The wife contends that – because she is "totally confused" by the transactions (in relation to the loan accounts) – she is concerned that if such transactions were applied to individual entities – the wife will be kept in the Court for years unless she receives a final payment as per her proposed orders and is not required to await the sale of the family’s interests in the retail stores. I reject that submission on behalf of the wife. I note what was said on behalf of the husband in paragraph 6.1.34 of the HWS. It was noted (by the husband) that the wife has not contended that there should be a further add back or adjustment in respect of the loan account. The wife’s submissions (WWS paragraph 3.2.3) do seem to be put forward as a reason to resist the sale which is proposed by the husband. I agree with the submission made on behalf of the husband that the fact that a loan account owing to one Gristwood entity (i.e. the husband) was transferred so that it was owed to another Gristwood entity (i.e. Gristwood Consulting) does not lead to a conclusion that it has disappeared from the asset pool. Nor does it mean that it will not be part of the wash-up when the sales are completed. The Court’s intention in ordering the sale sought by the husband is that all the Gristwood interests in the retail entities (whether that be by way of shareholding, unit holdings or loan accounts owing to either of the parties or to any of the Gristwood entities) should be collected, accounted for, banked and divided in a just and equitable way. It seems to me that the loan accounts can be addressed and dealt with in the wash-up of the sales. The submissions made by the husband and his proposed approach (which the Court will be adopting) that there be a sale of the various interests in the retail stores etc. will therefore mean that the issue raised by item 1(c) of the JBS will disappear.
I note the inclusion in the JBS of item 1(b) referred to as "adjustment for recent sales". I have had regard to the submissions made by both sides in relation to this issue. The view that I have formed is that the argument put on behalf of the husband is correct. It would amount to an error if there was an adjustment to the value of the Gristwood Group to take into account the higher sale prices received in respect of the Suburb VV and Suburb VV properties. The Gristwood family is not entitled to the whole of that uplift. The Gristwood family only owns a percentage (it seems to be 25%) in respect of each of the properties (through various entities). There are other "partners" (for want of a better term) in those investments. In any event, I note the submission on behalf of the husband (which I have accepted) that the course proposed by the husband (i.e. the sale of the Gristwood Group's interests in the retail stores) will enable this Court to put in place orders that will lead to a just and equitable outcome. Arguments (or, at least, problems highlighted) such as those raised by the wife in 3.2.1 of the WWS will disappear.
As noted, the tax and realisation costs to be allowed will also disappear as an argument. I note this was referred to in item 1(f) of the JBS. The tax and realisation costs will no longer need to be the subject of guesswork.
The same goes (of course) in relation to item 1(d) of the JBS relating to any necessary adjustment in respect of the sale of the Gristwood Group's interests in the retail stores.
I note that items 11 through to 14 (inclusive) in the JBS (all of which relate to add backs) have been agreed between the parties.
The parties also agreed (items 6 and 7 relating to add backs in the JBS) that there ought be no adding back in respect of partial property settlements received by the wife and the husband.
Item 10 in the JBS (relating to Australian Tax Office credits retained by the wife) is now no longer an issue (in this regard I note paragraph 6.3.3 of the HWS).
I note that the husband no longer presses for an add back in respect of item 9 in the JBS. This related to payments made to the wife since separation totalling $260,539. It is said (on behalf of the husband) that the effect of that concession is that the husband "has at all times since separation met his maintenance obligations". The husband has put quite a spin on the submission. It is the case that (effectively) he has paid maintenance at the rate agreed in an Order of 26 November 2018. But he has made lump sum payments on the way – indeed, on many occasions. There comes with that a certain unfairness to the wife – in that she was required to wait while the husband got his act together. In any event, for present purposes, the husband seeks no add back in respect of the entry listed in item 9 of the JBS.
I also agree with the submission made on behalf of the husband at paragraph 6.3.9 of the HWS. The fact that the husband said in cross-examination that a certain figure should be added back (in particular relating to item 8 in the JBS) – is not evidence that he actually knew what an add back is. I note what was said by the Full Court in Gollings & Scott (2007) FLC 93-319 especially at paragraph 68 where the Court stated (inter alia):-
“68.As a general rule once the parties have separated, subject to obligations of maintenance and support, and subject to the type of considerations described in Kowaliw (1981) FLC ¶91-092 relating to waste, each party is entitled to get on with his or her life independent of the other. The husband would be free to go about spending money he earned post-separation in the furtherance of his relationship with Ms Y if he chose to do so providing that at the same time he properly met his obligations towards his wife and children for their due support. It would not normally be appropriate some years after separation to require each of the parties to account for any monies they had spent post-separation so as to determine whether or not that expenditure was reasonably necessary for their own self-support, and to the extent that it was not, to determine whether it would be proper to add it back into the pool of assets available for division between the parties…”
I agree with the submission made on behalf of the husband that Gollings & Scott is an authority which supports the husband's argument that withdrawals made by him during the five years since separation should not be "added back” – simply because the husband is not able to explain in detail what he did with the money. The effect of the husband's current position (late as it is) in relation to item 9 of the JBS is enough (in my view) to convince the Court of the correctness of the husband's argument in relation to Gollings & Scott and item 8 of the JBS. There should be no adding back in respect of the sum of $230,897 (currently contained in item 8 of the JBS and sought as an add back by the wife).
In relation to item 16 in the JBS – there are three components to this item. As to the tax payable on the sale of the Suburb VV property and the tax relevant to the Suburb VV sale (being the tax on the sale of units by the AB Trust) – both parties concede those amounts should be included as a liability for the husband. I note paragraph 6.4.1 of the HWS and I note paragraph 3.2.1 of the WWS in this regard.
There is another tax liability contained in the JBS item 16. The sum is $259,874. The wife does not agree that such amount should be included as a liability. In relation to this item, I note paragraph 6.4.2 of the HWS as follows:
“6.4.2As to the first of the items in Item 16 of the Balance Sheet, tax is an ongoing issue. The husband gave evidence of a very significant tax bill in existence at separation arising from the deferral of the earlier sale of the [AL Company] interest. It is hardly surprising that he continues to have a tax liability. Importantly, he has reduced the family’s tax liability in the period post-separation.”
I accept this submission on behalf the husband. I also accept his evidence in relation to this issue. The tax liabilities totalling $259,874 and included in item 16 of the JBS should be allowed as a liability.
In relation to item 17 of the JBS – the wife seeks the amount of $14,500 as a liability – being a debt that the wife owes to the parties’ daughter, Ms B. I can see no reason to doubt the veracity of the wife’s testimony in this regard. The husband failed to pay spousal maintenance at regular intervals. In those circumstances, I will include the sum sought by the wife as a liability in the amount of $14,500.
In item 18 of the JBS, there is a reference to accounting fees owed by the husband to AM Company. The wife has allowed nothing in respect of that entry. The husband has written, "TBA – see husband's written submissions". In the HWS – I have not been able to identify any relevant submission. In those circumstances, I do not propose to allow those fees.
There do not appear to be any other disputes in respect of the pool. The pool then – subject to the inclusion of the sale price achieved in respect of the retail interests (and subject to any submission made by the parties at the time of the provision of draft final orders to reflect the reasons for judgment – that the Court may have inadvertently omitted an item from the pool) – is as follows:
ITEM
OWNERSHIP
VALUE
NON-SUPERANNUATION ASSETS
The Call Option (re. F Pty Ltd)
Joint (but agreed that the husband shall retain it)
$2,497,659
The wife’s residence
Wife
$920,000
Personal bank accounts
Wife
$512
Personal bank accounts
Husband
$2,593
Money held in trust account of Barry.Nilsson solicitors
Joint
$1,665,712
Legal fees paid by husband (for his criminal matter)
Husband
$33,306
Legal fees paid by the wife (in these proceedings)
Wife
$685,912
Legal fees paid by the husband (in these proceedings)
Husband
$551,414
Total non-superannuation assets
$6,357,108*
*PLUS THE SALE PRICES TO BE INCLUDED UPON THE COMPLETION OF THE SALE OF THE FAMILY’S INTERESTS IN THE RETAIL STORES (AND ANY OTHER RELEVANT INTERESTS AGREED BETWEEN THE PARTIES TO BE SOLD)
SUPERANNUATION ASSETS
Super Fund 1 / Super Fund 2
Husband
$85,415
Super Fund 3
Wife
$99,390
Total superannuation assets
$184,805
LIABILITIES
Tax liabilities on behalf of the husband and Gristwood Consulting
Husband
$259,874
Tax in respect of the Suburb VV sale
Joint – or Husband (subject to further submission)
$45,627
Tax in respect of the sale of the Suburb WW property (by AB Trust)
Joint – or Husband (subject to further submission)
$56,135
Wife’s debt to Ms B
Wife
$14,500
Total liabilities
$376,136
n.b. I note that this table of assets and liabilities does not contain or explain all of the items which the parties might seek to receive or retain. For instance, I note that the husband intends retaining AC Company and the AE Town development. In compiling this table of assets and liabilities (the pool), the Court has been guided by the JBS provided on 20 May 2022 by the parties. The parties, for instance, have agreed that certain items (such as the partial property settlements) will no longer be the subject of an add back.
Contributions
At the commencement of cohabitation both parties were 27 years old. The wife was a health professional. She had worked as a sales representative – earning approximately $80,000 per annum. The wife had some minor savings ($10,000) and some superannuation.
The husband was working in retail. He had a minor interest in three retail franchises. The husband had part ownership of a retail store located in Country AD. He eventually sold his interest in the Country AD store at a loss. I am not certain whether or not the husband has included the Country AD store in his “three retail franchises”. It makes little difference either way.
The husband had a motor vehicle that was leased via the retail business and the husband had a 50% share in a property at Suburb AG with his former girlfriend.
The parties started with very little by way of assets. By dint of hard work the parties, together, built up a significant asset pool. The wife provided the primary care for the children and took care of the homemaking duties. The husband worked in the businesses and this involved hands-on work in the various retail stores in Queensland. His work also involved a relatively significant amount of travelling to the other stores in which the husband had an interest.
Since separation, the husband has continued to be involved in the day-to-day running of the retail businesses. The wife continued her role as homemaker and parent. Ms B was only aged 15 years when the parties separated. Ms B has continued to live with the mother since separation.
Both parties agree that the contributions-based entitlement should be assessed at 50% each. There are references in the WWS to the fact that the wife made her post-separation contributions in a state of fear due to the husband's behaviour. A domestic violence order was made in 2017.
In her oral testimony, the wife agreed that throughout the time that the parties lived together there was never any suggestion of family violence. The wife seemed to say though, in hindsight, she considers that the husband had engaged in coercive control. I am not persuaded by such an argument. The wife’s own evidence confirms that the husband did not keep her in the dark. He kept her informed about all of the business decisions. They had a cup of coffee and a talk each morning in relation to business matters. The husband kept the wife informed. He was not secretive. The family did not appear to lack for anything. The husband was a good provider and the family lived well. The family took expensive holidays. I do not accept that the wife's movements or actions were directed or controlled by the husband. He seems to have had something of an obsessive personality. It is the case that at the time the marriage broke down the husband ran off the rails. He readily admits this. The husband got involved with the wrong crowd. The husband indulged in illicit drug taking. The husband was, at one stage, a victim of crime. He was able to make his way to the former matrimonial home at AJ Town. In paragraph 21(e) of the wife’s trial affidavit the wife states that:-
“21(e)[Mr Gristwood] sending me an email […] at 6.55am saying ‘Can you call me on […] please. It is a matter of urgency. I have just been held up at gun point. Don’t call the police. Just call me please. This is not a stunt. They have smashed my phone as well. They have gone now.’ Moments later, [Mr Gristwood] was standing at the front gate of our property, trembling, crying and hunched over and repeatedly calling me on the intercom…”
The husband (as noted) admits that he had been mixing with the wrong people. He was obviously in quite a state when he presented at the AJ Town property that evening. This would have been very worrying for the wife. I can readily see that the wife would have been extremely concerned when the husband presented in the state that he did. The fact that he had been “held up at gunpoint” and the fact that he had asked the wife not to call the police – would have been matters of particular concern to the wife.
I also note the evidence of the wife in paragraph 21(f) where she stated:-
“21(f)around the same time, [Mr Gristwood] communicated to me that he had been “mixing with the wrong people”, that we were “being targeted”, that they “know about and have threatened [AJ]” [as in the [AJ Town] property] and that whoever these people were, were also “keeping an eye on” me. I was very confused and was not sure whether [Mr Gristwood’s] stories were true”
It is not at all clear whether the husband’s “stories” were true. I suspect that the wife did not believe that the stories were true. My conclusion in that regard is based upon a close reading of the wife’s evidence in paragraphs 21(e)–(f). The husband apparently told the wife that “they” (presumably the family) were “being targeted”. The wife says that this occurred around the same time as the 2017 incident. But I note that the wife did not actually vacate the AJ Town property until two years later. It was in late 2019 that the wife and Ms B left the AJ Town property. The wife decided to leave AJ Town after she became aware of the assault charge brought against the husband. That charge was subsequently withdrawn. I have had regard to all the wife’s evidence in relation to these issues. I have had regard to her concerns for her safety and the safety of Ms B post separation. Primarily, the issues all seem closely related to the husband’s use of illicit drugs. The argument for some contributions weighting in favour of the wife because of her state of fear was referred to in the wife’s case outline. The argument appeared to be abandoned in the WWS (with some hedging).
I do not consider that the evidence in the present case is such that there should be a special weighting provided to the wife in respect of her post-separation contributions. Admittedly, the husband’s behaviour has been bizarre and worrying. Indeed, he has engaged in criminal conduct that led to his incarceration. I accept that the wife felt somewhat fearful and the Court has respected her requests that her address and Ms B’s address remain confidential. The Court has also accepted (and indeed directed during the course of the hearing) that the wife was not required to disclose the precise nature of the course that she is studying and nor was the wife required to state the name of the institution at which she is studying. Furthermore, the Court did not require the wife to disclose Ms B’s course or the name of Ms B's university. These directions were given by the Court at the time – for the wife’s peace of mind. I do not consider that the wife should be required to disclose her address or details of her study or working life. Nor should the wife be required to provide details in relation to Ms B’s address, study or working life. Ms B is an adult and will be able to communicate with her father if and when she pleases.
It is one thing to conclude that the wife ought not be required to disclose the information as outlined – it is quite another thing for the Court to decide that there is sufficient evidence to conclude that the wife’s post-separation contributions were made in circumstances which would lead the Court to grant her a special weighting in the assessment of contributions. I do not accept the wife’s (earlier) arguments in this regard.
In relation to the husband’s contributions – I do not consider that they require any special weighting. The husband does not seek any special weighting on account of any special skill or special talent. The husband submits (in the HWS) that the contributions based entitlement of the parties should be equal.
Taking the relevant evidence and submissions into account, the conclusion that I have reached is that the contributions-based entitlements of the parties as at the date of the final hearing should be assessed at 50–50.
Future needs - section 75(2)
Section 79(4)(e) requires that the Court consider the matters referred to in s 75(2) of the Act.
Both the wife and the husband are aged 52 years. Both enjoy reasonably good health. I note that the husband states in paragraph 190 of his trial affidavit that he does enjoy good physical health. He has been seeing a psychologist. The wife has also seen a psychologist. However, there is no medical evidence that would persuade the Court that either the wife or the husband will have their future earning capacity impacted by ill-health.
At the conclusion of these proceedings the wife will have her house (valued at $920,000). In addition, it is my intention that the wife will receive the cash currently sitting in the Barry.Nilsson trust account. I will discuss that aspect further under the heading Justice and Equity.
The wife is currently studying a course in the community services sector. She anticipates that her future salary in this field could range between $20,000 - $80,000 per annum. The wife was a qualified health professional but has been substantially out of the workforce for more than 20 years.
In a Financial Statement sworn by the husband and filed on 13 April 2022 – the husband included his average weekly income in the amount of $8,683. I know that there is evidence (primarily from the husband's own tax return) that the franked dividend received by him (in respect of his interests in the retail stores) in fact entitles him to an income of approximately $22,000 per week. The husband has said (I infer from his evidence) that he does not take all of that money out of the business – but reinvests the money. Accordingly, for present purposes, I will only take account of the weekly income sworn to by the husband in April 2022 of $8,683. For the reasons which follow – my view on the s 75(2) issue would not have been any different if I had relied on the higher figure.
I had the benefit of observing the husband in the witness box for a reasonably significant period of time. I have noted the evidence of the husband's incredible success that he has enjoyed with his numerous business ventures – over a long period of time. This leads me to conclude that the husband's earning capacity has been and will continue to be significantly higher than the earning capacity of the wife. I agree with the submission made by Mr Kirk QC on behalf the wife (at least in this limited respect) that the husband's income/wealth creation ability is undoubted. The husband, in fact, possesses a remarkable skill set. The husband has a proven track record in the commercial world. The husband has the ability to identify a likely successful business project and then he also has the experience and the willingness to pursue such projects. Despite his best endeavours, Mr Dickson QC has not been able to avoid this fact. The fact that the husband wants to retain AC Company and the AE Town development indicates that he has no intention of slowing down in respect of his business career. I accept that every business venture carries with it risk. However, the husband does appear to have an uncanny ability to succeed in business.
The form of orders that will be made in this case are particularly relevant in relation to the question of whether there should be an uplift in favour of the wife pursuant to s 75(2) (including, in particular, s 75(2)(b)) of the Act. The husband argued that a just and equitable outcome demanded that there be no upfront payment to the wife. For the reasons stated – the Court has agreed with that argument. But that does mean there will be a delay. There will be a delay because of the time it will take to sell the various interests currently owned by the Gristwood Group. Whilst there was a meeting during the course of the trial between some of the husband's business partners and NN Company – there was (as noted elsewhere) no actual evidence put before the Court as to the outcome of that meeting. I note, further, that there is evidence that the husband (and, I infer, his business partners) have been somewhat keen to sell their interests in the retail businesses for some years. Whilst it is the case that the conclusion of these s 79 proceedings and the orders that will be made will (undoubtedly) provide further and more urgent incentive to achieve the sales required – it is nonetheless the case that there will be a delay. In the period of time which elapses between judgment and the completion of the sales of the retail stores, the husband will continue to have the benefit of his income from the retail stores. The husband has said that the income he has received from the retail stores is $8,683 per week.
The fact of the matter is that there could be a reasonably substantial delay between judgment and the completion of the sales in respect of the retail stores. The disparity in income earning capacities between the husband and wife in that period is an important factor I have taken into account in relation to future needs. I would point out that the husband has not provided any estimate of the length of time that it will take to achieve completion of the sales in respect of the stores. At least – my attention has not been drawn to any such evidence. There are no fewer than … stores to be sold. It seems to me, taking these matters into account, that these factors alone are sufficient to justify an adjustment under s 75(2) in favour of the wife. I must say that in the event the husband had been both able and willing to raise some finance to make an upfront payment to the wife – my view concerning an uplift under s 75(2) in favour of the wife – might possibly have been different.
When I combine the obvious disparity in the earning capacities between the husband and the wife in the period that will ensue between judgment and the completion of the sale of the retail stores – with the Court’s findings concerning the husband's experience and skill set – and his likely continued utilisation of those attributes after the completion of the sale of the retail stores – I am led to conclude that, both before and after the completion of the sale of the retail stores – the husband will possess an earning capacity significantly greater than the earning capacity of the wife.
I am well aware of the pitfalls involved in the so-called "double counting" or "double dipping" that can sometimes occur in business valuation cases. The problem arises when a valuation of the business occurs through the utilisation of a capitalisation rate in respect of the future maintainable earnings of the business. In McF & McF [2004] FamCA 1309 (‘McF’) at paragraph 18 the Full Court (per Kay J – with Bryant CJ and Holden J agreeing) stated that:
“16.Of more concern is the issue of the s 75(2) adjustment. The trial Judge said he recognised the husband had the child, B, but having regard to the fact that he is only one of three children and the younger ones being shared between the parties, and that he was already 15 years old, his Honour was of the view it was not appropriate to place significant weight on that factor. He then went on to say that the wife had the shop which was a functioning and profitable business and would continue to be so. The husband would improve his earnings significantly with the finalisation of the case. In a modest adjustment of 10 per cent, a variation would only be $47,000, and that he thought such an adjustment was appropriate on account of these factors.
17.Whilst his Honour was correct to suggest the adjustment meant that arithmetically there was $47,000 from the wife's half share to be transferred to the husband's share, the reality is that this creates an outcome where the husband gets half again as much as the wife, that is the ratio of six parts to four. I am of the view that the trial Judge fell into error at this point in the process and that he failed to actually stand back and see whether it was fair in the circumstances where the wife's share of assets, based on contribution, was about $225,000, to require her to give the husband $47,000 when the factors that remained between them were of fairly small compass, namely the full time care of the 15 year old, who will be capable of being supported to some degree by appropriate child support orders or assessments, and the fact that the wife retained the business, which was producing for her wages of $44,000 plus profits of another $38,000 in circumstances where the trial Judge had found the husband will improve his earnings significantly on the conclusion of the case.
18.The profit making capacity of the business was already factored into the valuation, and I perceive there is an element of double dipping, paying attention to the income it earnt. If the wife sold the business, she lost her greater earning capacity. Accordingly, whilst its value was appropriately included in the pool of divisible assets, the fact that she will be required to buy out the husband's half share immediately compensates him for that difference, while increasing her outgoings by borrowings necessary to finance the purchase. Once that factor is recognised, there is really very little difference between the parties' positions.”
Cases (such as McF) are relevant for consideration here, of course, because the value of the F Company business (or at least the husband’s interest in that business) has been included in the pool in the sum of $2,497,659. That valuation has been achieved by utilising a capitalisation rate in respect of the future maintainable earnings of the F Company business. It is important to note that the conclusions of the Court (in the present case) concerning the justice and equity of an uplift pursuant to s 75(2) in favour of the wife on account of a disparity in earning capacities – does not rely upon the profitability of the F Company business and nor does it rely upon the husband's possible income from F Company (which is in fact not known). However, I would point out that, unlike McF, in the present case there is no finding by this Court that the wife (the person not retaining the business) is likely to improve her earning capacity significantly at the conclusion of the case. The wife is still studying and has not been in the workforce for more than 20 years. In McF, Kay J observed in paragraph 18 that if the wife (in McF the wife was taking the business after the marriage breakdown) sold the business in question – "she lost her greater earning capacity". That is not the case with the Gristwood family. If the husband (Mr Gristwood) at some stage in the future decides to sell his interest in F Company – it could not be said that he has "lost" his greater earning capacity. That will be apparent because of the reasons that I have outlined above. His skill set and experience across a broad range of business ventures is undoubted. In addition, there is a further point to distinguish the current case before the Court with the decision of McF. In that case, the wife (who was retaining the relevant business) needed to borrow money in order to finance the "purchase" of the business from the husband as part of the property settlement. That is not the case with the Gristwood family. There is no evidence that the husband will need to borrow any money for the property adjustment contemplated pursuant to s 79.
McF was decided on 25 October 2004. Not long thereafter there were two further decisions, namely C & C [2005] FamCA 159 (‘C ’) and GBT & BJT [2005] FamCA 683. C was decided in March 2005 and GBT & BJT was decided in July 2005. Both of those cases confirmed the correctness of the reasoning (on this point) in McF. Indeed, the trial judge (Warnick J), whose decision had been overturned in McF, joined Kay J in confirming the correctness of McF (relating to this s 75(2) issue) in both C and GBT & BJT.
I do accept that it may be considered the case that the husband has to keep invested a certain proportion of his share of the assets – in the business of F Company (at least at some stage in the future once he’s able to take up the Call Option). On the other hand, the wife will have available her share of the assets which she would be able to invest and seek a return – thus diminishing the gap between the parties’ income earning capacities. It is not a factor that I have overlooked. It is a matter I have taken into account. I still come to the view that – because of the particular circumstances of this case and the husband's undoubtedly significant business acumen – there will remain a disparity in earning capacities as I have outlined. In addition, of course, there is an important factor in this case (not present in the other cases to which I have referred) – that there will be a delay and quite possibly a reasonably significant delay between judgment and the completion of the sale of the retail stores – during which time the husband will continue to receive an income (stated by him to be $8,683 per week) – far exceeding the wife’s income.
In my view, the adjustment should be 5% in favour of the wife. I have also noted that Ms B continues to live with the wife and I have taken this into account in this assessment. Indeed, I have had regard to all of the various subsections of s 75(2). I have only specifically referred to the subject matter of some of the subsections in s 75(2). I should point out that in reaching this conclusion (of a 5% adjustment in favour of the wife) I have also taken into account that once the final order is pronounced the wife will not be in receipt of any further spousal maintenance. In this regard, see later in these reasons for judgment.
I am aware of those cases which require the Court to have regard to the actual outcome in dollar terms – without (necessarily) having reference to the percentages. Because the Court has come to the conclusion that a just and equitable outcome requires the sale of the family’s interests in the retail stores – the actual capital sums to be received are not yet known. It makes the kind of assessment contemplated in cases such as Clauson & Clauson (1995) FLC 92-595 at 81,911 and Trevi & Trevi [2019] FamFACF 51 at [48] somewhat difficult. It will be apparent that the view which I have formed is that an adjustment in favour of the wife of 5% (pursuant to s 75(2)) is just and equitable in the circumstances. It will also be apparent that I consider the amount sought on behalf of the wife by way of an adjustment (by Mr Kirk QC) is not justified. This is primarily because of the (likely) size of the pool and the net impact of a 5% adjustment.
Justice and equity
In many parts of these reasons for judgment I have already canvassed the justice and equity requirement. For instance, the fact that I have concluded that the retail stores need to be sold is a significant consideration in relation to the just and equitable requirement. It is apparent from these reasons that I have concluded that requiring the husband to pay the wife a large capital sum within 90 days would not be just and equitable. The husband would (as I have stated) most likely be left in a predicament where he is bound to fail.
Any possible windfall or possible detriment from the sale of the retail stores should be shared (in the amounts determined by the Court) by the husband and the wife. Both parties benefited significantly during the course of the relationship through the income derived from the Gristwood Group. The complex web of companies, trusts and minority shareholdings held by the Gristwood Group (in particular the husband) in those various companies – is simply a fact of life. As I stated earlier in these reasons, it will take some time to unscramble the egg.
I do consider that the wife should receive all of the money currently sitting in the Barry.Nilsson trust account. This aspect of the order is sought by the wife – and, it seems, is agreed to by the husband. Even if the husband did not agree to this approach – I do consider that it will be just and equitable. It will assist the wife – because there will be some delay in the sale of the retail stores. The husband will continue to receive (or at least be entitled to) franked dividends from the retail stores in the meantime.
I note that the husband intends to retain the interests in AC Company and he intends to develop the AE Town property – in addition to taking up the shares in F Company once the retail store sales are finalised and he is able to exercise the Call Option. I note that neither the value of AC Company nor the value of the AE Town development were the subject of any challenge and the figures assessed by Mr D should (as submitted on behalf the husband) be included on the husband's side of the ledger. In this regard I note paragraph 8.1.3 of the HWS. The calculation relating to the “the husband’s side of the ledger” – and, for that matter, the “wife’s side of the ledger” – I will leave to the parties. They will have a chance when they submit draft orders reflecting the reasons for judgment to formulate orders which will take into account what they wish to retain and what they have already received etc.
I note that each party seems to have in mind precisely what it is that they wish to retain. The wife included her list at note 3 to her earlier version of the proposed balance sheet. The husband made some reference to the interests in AC Company and the AE Town property in paragraphs 8.12 and 8.13 of the HWS. To the extent that there are other particular items of property which the parties wish to retain – that is a matter for the parties. For instance, I note that the husband (in schedule B attached to the HWS) indicates (in item 2) that the value of property he wishes to retain is $1,673,166. It is said under the heading “Description” in schedule B:
“Being the figure of $10,453,540 per [E Accountants] report, less the [E Accountants] attributed value of the interests being sold on the basis of the husband's submissions being $8,780,374”.
What is not immediately apparent to the Court (in the HWS) is precisely what property the husband seeks to retain to the value of $1,673,166. That will need to be made somewhat clearer in the draft orders to be sent to the Court. I will state again - in submitting draft orders to the Court to reflect these reasons for judgment the parties will, obviously, be required to take into account any other items of property which they wish to retain or receive. In the event there is required to be some argument concerning those matters – time will be allocated for such argument.
Having regard to the length of this marriage, the complex nature of the family’s business interests and the contributions made by both of these parties over a long period (and the matters relevant pursuant to s 75(2)) – the conclusion of the Court is that an outcome whereby the wife receives 55% of the net pool and the husband receives 45% of the net pool is a just and equitable outcome. Even though there is uncertainty in relation to the sale price of the retail stores – there is nonetheless a baseline situation for the wife, including the fact that she will have her home unencumbered plus approximately $1.6 million in cash (from the Barry.Nilsson trust account), as well as the other property that the wife is seeking to retain. This, of course, is pending her receipt of further significant capital sums upon the sale of the retail stores and any other interests owned by the Gristwood Group which, by necessary implication of these reasons for judgment (or by agreement between the parties), will also need to be sold. I am willing to hear a further submission from the parties, for instance, as to whether or not there ought be a payment made to the wife and the husband upon the completion of the sale of each retail store or other asset. It may be that there is no disagreement in that regard.
Noting that the wife will receive the entirety of the sum retained in the Barry.Nilsson trust account – I do not consider that it is necessary for the Court to further consider the question of spousal maintenance. Given the receipt of that large sum and noting that the wife will be returning to the workforce – there will be no maintainable claim for any further spousal maintenance. I have not overlooked the fact that the wife may have to utilise some of the money from the Barry.Nilsson trust account to assist with living expenses – pending obtaining employment and pending the receipt of further capital sums from the sale of the retail stores. I have taken that aspect into account. It is in fact an aspect I have factored into my deliberations relating to s 75(2). The wife is to receive the uplift of 5% pursuant to s 75(2). This, of course, translates to a 10% differential between the wife and the husband on quite a sizeable property pool. Noting that I have already considered these matters (in my deliberations) in relation to s 75(2) and for the other reasons stated – I do not consider that the wife will (continue to) be unable to support herself adequately.
Adult child maintenance
As to the question of adult child maintenance for Ms B – I do not consider that the evidence is sufficient to satisfy the requirements of s 66L of the Act. I accept the submissions made on behalf of the husband in relation to this issue and I adopt those submissions for the purpose of these reasons (HWS paragraph 11.1). However, I note paragraph 8.2.3 of the HWS – where the husband agrees to make certain payments to Ms B. The submission states (inter alia):
“8.2.3…the Husband nevertheless has commenced to, and agrees to continue to,
I note that in the wife’s written submissions in reply – the wife does not seem to agree with these conditions. I’m not sure what to make of that submission. It seems to me that in relation to this issue – the ball is in the wife’s court and when the draft orders are submitted by the parties – I will turn my mind to this question once again.
I will give the parties time to draft orders to reflect these reasons for judgment. I am willing to hear submissions from both sides in relation to the wording of the final orders sought if the parties are not able to agree on the wording. In particular, I am willing to hear further from the parties in relation to whether or not there should be payments made to the wife and the husband upon the completion of the sale of each individual retail store – if it transpires that all are sold separately.
I certify that the preceding one hundred and forty-six (146) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Howard. Associate:
Dated: 27 September 2022
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