HIGGINS & HIGGINS
[2016] FamCAFC 32
•4 March 2016
FAMILY COURT OF AUSTRALIA
| HIGGINS & HIGGINS | [2016] FamCAFC 32 |
| FAMILY LAW – PROPERTY SETTLEMENT – APPEAL – Valuation of a business – where there were two competing valuation methodologies leading to significantly different valuations – where one valuation was on the basis of a sale on an open market and the other was on the basis of the capitalisation of maintainable profits – where the trial judge found the latter was appropriate – no error found. FAMILY LAW – PROPERTY SETTLEMENT – APPEAL – “Addbacks” including money taken at separation by the husband to repay a loan to his mother and also the funding of the husband’s legal fees – where there was a concession by the husband’s counsel that the husband unilaterally paid money to his mother after separation from a line of credit – money added back to the list of assets – no error found – where the husband asserted his mother had then repaid him the money he had given her for him to pay his legal fees – no evidence to corroborate such assertion – legal fees added back by the trial judge – no error found. FAMILY LAW – PROPERTY SETTLEMENT – APPEAL – Section 75(2) factors – matter of weight – whether the trial intended the percentage to be added to the wife’s entitlement or to reflect the difference between the parties’ ultimate entitlements – decision of the trial judge unequivocal – no error found. FAMILY LAW – APPEAL – COSTS – circumstances justifying order – where the appeal had been abandoned and subsequently reinstated – where necessity for application to reinstate appeal arose partly due to issues of the appellant’s solicitor ceasing to act without informing him – no order made. FAMILY LAW – APPEAL – COSTS – where appellant wholly unsuccessful – consideration of s 117(2A) – costs ordered against the appellant. |
| Family Law Act 1975 (Cth) |
| Bennett & Bennett (1991) FLC 92-191 Gronow v Gronow (1979) 144 CLR 513 D & D (Costs) (No. 2) (2010) FLC 93-435 |
| APPELLANT: | Mr Higgins |
| RESPONDENT: | Ms Higgins |
| FILE NUMBER: | SYC | 5083 | of | 2010 |
| APPEAL NUMBER: | EA | 106 | of | 2013 |
| DATE DELIVERED:: | 4 March 2016 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Strickland, Aldridge & Cronin JJ |
| HEARING DATE: | 11 November 2015 |
| LOWER COURT JURISDICTION: | Federal Circuit Court of Australia |
| LOWER COURT JUDGMENT DATE: | 18 June 2013 |
| LOWER COURT MNC: | [2013] FCCA 549 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | In Person |
| COUNSEL FOR THE RESPONDENT: | Mr Livingstone |
| SOLICITOR FOR THE RESPONDENT: | Marsdens Law Group |
Orders
The appeal be dismissed.
The husband pay the costs of the wife of and incidental to the appeal as agreed between the parties, or in default of agreement, as assessed.
The wife’s application for costs of the husband’s Application in an Appeal filed on 13 March 2014 be dismissed.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Higgins & Higgins has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EA 106 of 2013
File Number: SYC 5083 of 2010
| Mr Higgins |
Appellant
And
| Ms Higgins |
Respondent
REASONS FOR JUDGMENT
This is an appeal by Mr Higgins (“the husband”) against property settlement orders made by Judge Scarlett on 18 June 2013.
The appeal is opposed by Ms Higgins (“the wife”) who seeks to maintain the orders of the trial judge.
The issues at trial
At trial, it was common ground that the parties’ home was to be sold and there was to be a superannuation splitting order. The dispute was about what each was to receive from the distribution of the sale proceeds of the home, and the terms of the superannuation splitting order. The agreed value of the home was $800,000 but encumbered by a mortgage of almost $140,000. The husband had sought 50 per cent of the expected net sale proceeds (that is, a payment of about $330,000). The wife wanted all of the expected gross sale proceeds of $800,000 and for the husband to discharge the mortgage. There was a modest disagreement about the splitting of the superannuation.
A significant issue at trial was the value to be attributed to a business interest the husband was to retain. For the purposes of determining that value, at trial, the wife relied upon evidence from a forensic accountant Mr L who prepared a comprehensive report, filed an affidavit and was required for cross-examination. The husband relied upon a Mr K who was described by the trial judge as a valuer, and who prepared valuations of each entity, filed three affidavits, and was required for cross-examination.
Another controversial issue was how to treat paid legal fees. The husband argued that his had been paid from his post-separation earnings and from borrowings from his business partner and his mother. There was no controversy about the wife’s legal fees.
The orders of the trial judge
Including superannuation interests, the trial judge found the value of the parties’ net assets to be $1,421,097. His Honour divided that as to 55 per cent to the wife and 45 per cent to the husband.
To give effect to those percentages, the trial judge ordered that at the settlement of the sale of the home, and after the mortgage of $140,000 had been paid, the wife was to receive $622,179. The balance was to be paid to the husband.
Thus, if the house sold for $800,000 and the mortgage was paid (ignoring sale costs and other adjustments), the husband would have received about $38,000.
The trial judge ordered that, of the husband’s superannuation of $107,684,
a base amount of $85,000 was to be allocated to the wife. Other orders were then made which are not controversial.
Although there was no cross-appeal by the wife, and no argument was raised as to it, there is an apparent error in the final calculations of the trial judge.
To achieve the net equity of $1,421,097, his Honour accepted the
non-superannuation assets were valued at $1,285,779 (at [65]) but to that was added “Add-backs” of $286,095 (at [66]), making a total of $1,571,874
(at [67]).
The trial judge then added the parties’ respective superannuation entitlements totalling $143,551 (at [69]).
Liabilities were determined to be $294,328, of which the mortgage was $139,507 (at [68]). The wife’s liabilities totalled $99,821, and the husband’s totalled $55,000.
The trial judge found that the “net total” property for division was $1,421,097 (at [74]).
Having given the wife 55 per cent, and taking into account that she had retained assets, including her superannuation, of $74,424 (at [111]), his Honour calculated that the husband had to pay her $707,179 (at [113]), and as it was unlikely that there would be enough from the net proceeds of the sale of the home to meet this payment, his Honour made the superannuation splitting order of $85,000 (at [116]). Unfortunately, his Honour overlooked his own determination that the wife was responsible for $99,821 of personal liabilities which had been taken into account to calculate the equity to be divided. Whilst the wife was certainly retaining $74,424 of assets, she was also carrying $99,821 of liabilities. Thus, the wife ultimately received almost $100,000 less than she should have on the basis of his Honour’s determination that she was entitled to receive 55 per cent of the “net assets”.
As the issue was not the subject of complaint by the wife by way, for example, of cross-appeal, we cannot take the matter any further. However, it may be open to the wife to make an application to the trial judge to apply the slip-rule and amend the orders, subject to the outcome of this appeal.
Orders sought on appeal
The husband sought the setting aside of the various orders for the distribution of the proceeds of the sale of the home and the splitting of his superannuation interest. He sought that this Court re-exercise the statutory discretion and divide the net proceeds of the sale of the home equally between the parties (the position he had put to the trial judge) and that there be no alteration of his interest in the superannuation fund (which was entirely different from what he argued at trial).
The husband also sought an order that the valuation of the business interests be “re-assessed” and that the orders that he retain the business structural interests be set aside. When questioned about that, he clarified that he wanted to retain those interests albeit that he disputed their values.
Matters preliminary to the appeal
The husband did not file the appeal books by 7 February 2014 as required by orders of the Court made on 21 November 2013, and consequently his appeal was deemed abandoned. By Application in an Appeal filed 13 March 2014 and heard on 25 March 2014, the appeal was reinstated by Ainslie-Wallace J. Her Honour though reserved the question of the respondent’s costs of that application to this Court. We address that costs issue later in these reasons.
The husband, who represented himself throughout the appeal, did not provide any transcript of the proceedings before the trial judge in the appeal books.
By an Application in an Appeal filed 21 May 2014, and which the registrar referred to this Court, the husband sought leave to proceed without that transcript. He acknowledged the difficulties that would arise where there were challenges to findings made by the trial judge on the basis of the evidence before him. He was granted leave nunc pro tunc to proceed without transcript.
The husband also did not file a Summary of Argument, saying that he was content to rely upon his Notice of Appeal as it contained a narrative of his argument. At the hearing before this Court he was given the opportunity to make oral submissions and to address the wife’s written summary of argument filed in the appeal.
Background of the parties’ relationship
The parties lived together for almost 17 years, having commenced cohabitation in 1993 and marrying in 1994. They separated in 2010. There are three children of the marriage, aged 17 years and 10 months, 15 years and 10 months, and 11 years and six months respectively at the time of the decision of the trial judge. The eldest and the youngest lived with the wife and the second eldest lived with the husband at that time.
The husband was 43 years of age at trial and, by profession, a qualified property professional. The trial judge found that the husband earned about $60,000 per year. The business that provided that income was conducted by the husband and a Mr E through a corporate structure and a service partnership made up of the trusts of the respective families.
The wife who was 39 years of age at trial works as a health professional, and throughout the marriage, was primarily responsible for the care of the children and the management of the household.
The wife has re-partnered and from that relationship has a child who was aged almost one year at trial.
The Structure of the business
The husband had conducted his professional practice since 2002 through
a corporate structure. The uncontroversial evidence before the trial judge was that the company V Pty Limited was the trading entity which derived the revenue. That entity used a partnership (called V Partnership) between the husband and Mr E or, it would seem on the evidence of Mr K, by a partnership of their two family trusts as the service vehicle to provide services to V Pty Limited. In turn, the V Partnership charged a management fee to V Pty Limited. The husband and Mr E distributed income and profits from these structures to their respective family trusts.
The husband’s family trust was called the Mr and Ms Higgins Family Trust and, as that held assets, it too was the subject of the valuation process for the purposes of determining what interests the parties had. The trustee of that trust was X Investments Pty Limited.
Grounds of appeal
Grounds 1, 2 and 3
The husband’s grounds 1, 2 and 3 can conveniently be dealt with together. Ground 1 complains that the trial judge was in error in accepting the report of the wife’s expert, Mr L, because, as the husband submitted, there was evidence that the business was in decline. Grounds 2 and 3 simply complain that there were inadequate reasons for preferring the evidence of Mr L and rejecting that of the husband’s expert, Mr K. Before us, the husband repeated his position that the business was just him and there were no maintainable profits.
The two experts took different approaches to the valuation of the business in their respective reports. Mr L was instructed by the wife to value the interests of the husband in the business, whilst Mr K saw his task as valuing what he described as the “husband’s business”.
Mr K approached the valuation on the basis of a sale on an open market while Mr L examined the business on the basis of the capitalization of maintainable profits.
Mr L had the financial statements of the various entities for a number of years ending in 2011 and the draft statements for the 2012 year. In assessing whether there were maintainable profits, Mr L examined the profits over those years, noting that the business had recently lost a significant contract.
To assess the earnings before interest and tax (“EBIT”) Mr L accepted it was reasonable to use the 2012 draft figure. An averaging approach over a number of years based on the financial statements would have produced an average figure higher than the 2012 draft EBIT. Mr L acknowledged the loss of the contract and expressed his subjective view about the income stream.
Mr L explained that there was a consistency in the profits of the business, and he applied a multiplier, which although subjective, took into account various risks. Without the transcript of the hearing before the trial judge, we do not know whether those risks were the subject of challenge. The multiplier range was explained by Mr L as being between 1 and 5, and he chose 2.5. He then determined the mathematical result, applied it to the balance sheet of the company and then applied a further discount to ascertain the value of the husband’s interest. He said he applied that further discount because the husband did not have complete control. Having applied the discount, Mr L valued the husband’s interest at $353,946.
Mr K used the loss of the contract and the uncertainty about its replacement as the basis to argue there were no maintainable profits. Thus it was his opinion that the value of the trading entity could only be assessed on the basis of what it would bring on the “open market”. However, based on the loss that was sustained in the year ended 30 June 2011, he considered that a purchaser would not be interested in buying the business, but merely the assets.
Without the benefit of the transcript of the hearing before the trial judge, we are unable to say how this conflict in the evidence of Mr K and Mr L was argued before the trial judge, other than by reference to the submissions presented by the counsel for each of the parties at the conclusion of the hearing before his Honour.
In those final written submissions the wife argued that in cross-examination the husband had conceded there was no reason why the business could not be successful in the future. It was submitted that there was no evidence that the business was to end and thus, the evidence of Mr L was appropriately directed towards maintainable profits. The trial judge accepted that submission.
In his reasons for judgment, the trial judge set out the evidence of the respective experts and said that he found the evidence of Mr L preferable. His Honour concluded that his evidence was “comprehensive", “well-reasoned”, relied “on information which is properly sourced”, and “his conclusions” are set out “in a way which can be clearly understood”. His Honour accepted Mr L’s methodology which he said “one generally expects to find with profitable businesses that are continuing to operate, namely the Capitalization of Future Maintainable Profits” (at [50]). It can therefore be seen that the trial judge accepted the business was profitable for the owners and rejected the view of Mr K that it had no value.
His Honour then added $353,946 for the business to the list of assets for division between the parties.
Plainly, his Honour had regard to the reports of the two experts and had the benefit of hearing them both give evidence and be cross-examined. We of course do not have the benefit of the transcript of the hearing before his Honour, and thus we are in no position to find error by the trial judge based on anything that may have arisen during the course of the evidence of the valuers. The husband has also not been able to point to anything arising anywhere else in the record that would demonstrate error. Of course the husband does complain that there were inadequate reasons given by his Honour for preferring the evidence of Mr L, but we are not persuaded that that is the case. His Honour provided clear and unequivocal reasons as to why he found as he did, and the pathway to his conclusion is readily apparent (Bennett and Bennett (1991) FLC 92-191).
Thus there is no merit in these grounds of appeal.
In passing, we mention there is also a mathematical error in his Honour’s description of the trust value at $88,520 (at [65]). It is clear from the evidence of Mr Bell, upon which his Honour relied (at [41]), that the correct figure was $88,320. The error was acknowledged by counsel for the wife (it disadvantaging the wife rather than the husband) but we were not asked to rectify the wife’s entitlement.
Grounds 4, 5, 6 and 7
Appeal Grounds 4, 5, 6 and 7 relate to two add-backs by the trial judge to the list of assets for division. The first concerns $100,000 that the husband had paid his mother by unilaterally drawing from a joint Viridian Line of Credit after separation. The second was the husband’s paid legal fees of $153,351.
Ground 4 asserts that the trial judge had double counted because the husband maintained that although he did pay his mother the $100,000 he had borrowed from her in 2007, that money was then given back to him and he used it to pay part of his legal fees.
Ground 5 asserts that the legal fees of $153,351 should not have been added back because they came from post separation “endeavours” of the husband and money borrowed from his mother.
Ground 6 asserts that the trial judge had evidence of money being contributed by his mother and by Mr E albeit without any amount being quantified, and that that evidence should have been accepted because the wife had no evidence to the contrary.
Ground 7 asserted that the trial judge was wrong to include the legal fees as an asset without including the corresponding liabilities of the borrowings from the husband’s mother and Mr E.
All four grounds can be dealt with together because they all depend upon what evidence was before the trial judge and whether the finding he made was open.
It was common ground that in 2007, the husband’s mother provided him with $100,000. After the parties separated, the husband unilaterally extended a Viridian Line of Credit and repaid his mother $100,000. The trial judge noted the concession by the husband’s counsel that the payment of $100,000 in 2007 should not be treated as a debt. There was no dispute that the money was drawn from the parties’ resources and paid to the mother. The dispute lies in what happened thereafter.
Because of the absence of the transcript, it is helpful to look at the documents that were before the trial judge.
In written submissions to the trial judge, counsel for the wife argued that the $100,000 had to be added back because the borrowing by the husband of that amount on the Viridian Line of Credit thereby reduced the parties’ equity in the home. It was then said of the legal fees, directly addressing the husband’s claim about receiving the funds to do so from his mother to meet those fees (at [9]):
7.On the husband’s side, he has managed to pay between June 2010 and July 2011, $153,351.00.
…
9.The husband has not made clear how he paid those funds. He makes broad contradictory statements about his mother lending him back the money he had advanced to her, borrowing from his partner, receiving drawings from the business and borrowing from friends.
10.He has not produced the type of source materials or documents, or given a coherent explanation as to how he has managed to afford that significant cost over a period of twelve months that could enable his evidence to be evaluated.
11.That twelve months in which the fees were paid (June 2010 to
July 2011) coincided with the single most profitable year
(2011 Financial Year) that the [V] business has had.12. He has had the benefit of:
12.1 his income - $50,000.00; and
12.2drawings - $262,200.00 (total $312,200.00) during that same twelve month period.
The trial judge also had the benefit of written submissions from counsel appearing for the husband. Those submissions included a concession that the husband accepted that the payment back to the mother should be the subject of an “add back”. In relation to the paid legal fees, counsel said as follows::
However there is no evidence that the Respondent’s expenditure on legal fees in this case has come from anything other than his earnings post separation and funds from third parties not incurring matrimonial liabilities post separation. There is no evidence of mortgages being increased by drawn down (sic) or the sale or disposal of assets of the marriage by the Respondent.
…
In this case the husband has borrowed funds from his mother (from $100,000.00 that was repaid in 2010) to pay some of his legal costs and disbursements. In addition he has utilised post separation income and borrowing (sic) from his business partner that are not listed as matrimonial liabilities.
To add back the payment of his legal fees from funds that he borrowed from his mother and a further add back for the disputed loan of $100,000 that he repaid to the (sic) his mother in 2007 would be a double add back of the same funds. It can only be one or the other. (emphasis added)
As to the wife’s assertion that there were unexplained drawings that could have accounted for how the legal fees were paid, a submission was put by counsel for the husband that the husband had been cross-examined about those drawings and had maintained in evidence that the business accountant had made the book entries but the funds had not been received. As for the borrowing from the business partner, counsel for the husband pointed to the evidence of Mr E (affidavit filed on 18 September 2012 para 11) which was to the following effect:
11.To date I have lent money to [Mr Higgins] from the company profits to help cover legal costs...
In his reasons for judgment (at [58]), the trial judge rhetorically asked where was the evidence to substantiate the claims that the money came from the mother and the business partner. His Honour made reference to Mr E’s evidence and noted no sums of money were mentioned. It might also be questioned whether this was a loan by Mr E as distinct from borrowings from the company. No evidence was led about any of this. His Honour added that the information about these transactions should have been readily available. In respect of the asserted loan back from the mother, the trial judge found there was not only no evidence from the mother but no explanation for its absence.
In the absence of the transcript, it is again unclear what evidence (if any) there was before the trial judge about the distinct amounts and their sources, but having regard to the reasons of the trial judge, it is obvious that his Honour was conscious of the argument of the husband.
In our view, the findings of his Honour were open on the evidence.
There is therefore no merit in grounds 4, 5, 6 and 7.
Grounds 8, 9 and 10
Grounds 8, 9 and 10 assert that the trial judge failed to give any or any adequate reasons for making an adjustment under s 75(2) of the Act; erred in the application of the 10 per cent adjustment to contributions for s 75(2) factors, resulting in a 20 per cent differential where there should have been a 10 per cent differential; or alternatively erred “in the manner in which he exercised his discretion by making a Section 75(2) adjustment of 10% that resulted in a differential between the parties of 20%...”.
Before us the husband conceded that there were reasons given, so the challenge in ground 8 can only be whether they were adequate.
In respect of this issue, the trial judge at [87] - [103] of his reasons for judgment comprehensively turned his attention to each of the factors, and at [86] - [90], and based on facts that were not the subject of any challenge by the husband, set out why an adjustment was appropriate. Each of those paragraphs reflects consideration by the trial judge of the relevant factors in s 75(2), and his path of reasoning is readily apparent (Bennett and Bennett (supra).
There is therefore no merit in ground 8.
In relation to ground 9, the husband argues that, based on an assessment of the parties’ contributions favouring him as to 55 per cent, an adjustment of 10 per cent should have resulted in a final apportionment of 50 per cent of the “pool” to him. That is, the 10 per cent should be the difference between the parties rather that it being an additional sum to the wife over and above the assessment as to her contribution.
The trial judge at [104] - [105] expressed the adjustment in this way:
104.It appears clear that... an adjustment of 10 [per cent] in favour of the Applicant is appropriate.
105.Thus, I assess the parties’ entitlements at 55 [per cent] to the Applicant and 45% to the Respondent...
The trial judge has unambiguously applied the 10 per cent adjustment to the applicant’s contribution percentage of 45 per cent, rather than applying the adjustment to create a 10 per cent difference between the respective parties’ contributions. There is therefore no merit in ground 9.
Ground 10 asserts that the adjustment of 10 per cent resulting in a 20 per cent differential was “outside the appropriate range”.
This is a challenge to the weight given by the trial judge to the evidence relating to the s 75(2) factors. Such a challenge faces significant hurdles as set out in High Court decisions such as Gronow v Gronow (1979) 144 CLR 513 (per Stephen J at 519 – 520). To succeed the husband must establish that the weight given to particular evidence renders the decision “plainly wrong”, and not a proper exercise of the judicial discretion. However, the husband did not point to anything said by the trial judge in his reasons for judgment that would support such an assertion. Thus, ground 10 has no merit.
Conclusion
Given that we have found no merit in any ground of appeal the appeal must be dismissed.
Costs
The wife sought her costs of the appeal and those of the hearing of the Application in an Appeal filed 13 March 2014 before Ainslie-Wallace J, which were reserved.
As to the latter, the husband’s explanation to this court for what had occurred is consistent with what he submitted to, and which was accepted by, Ainslie-Wallace J. That is, his lawyers had not lodged the appeal books for a variety of reasons and he did not receive their advice that they were not acting for him any longer. In addition, at that time, his solicitor had resigned from the law firm.
Counsel for the wife submitted that the husband had sought an indulgence and should pay the costs.
In our view, and consistent with the reasons of Ainslie-Wallace J, the husband’s problem was compounded by his difficulties with his lawyers at that time. We accept that, to some extent, matters were beyond his control and he thought they were the subject of the lawyers’ attention. Thus, this is not a case where costs should be ordered in relation to that application.
In respect of the costs of the appeal, the husband’s position was that whether he was successful or not, each party should bear their own costs. Counsel for the wife submitted that if the husband was unsuccessful, he should pay the wife’s costs. The husband’s only submission in this regard was that he had no assets and an income of $30,000 per year.
Section 117 of the Act governs an application for costs of an appeal. It provides that subject to certain matters, each party shall bear their own costs. One of the considerations is where an appellant, as here, has been wholly unsuccessful (s 117(2A)(e)).
The husband’s asserted impecuniosity, if that is indeed the true position, is not a bar to making an order for costs if other factors arising out of s 117(2A) are present and justify the making of an order (see D & D (Costs) (No. 2) (2010) FLC 93-435). Costs are not intended as a punishment but rather to compensate the party who has had little choice but to participate in the proceedings. To expect the wife to bear her own costs in those circumstances would be unjust to her.
The husband was wholly unsuccessful and he should pay the wife’s costs of the appeal.
I certify that the preceding Seventy Three (73) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Strickland, Aldridge and Cronin JJ) delivered on 4 March 2016.
Associate:
Date: 4 March 2016
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