HINKLEY & MORGAN
[2009] FamCAFC 135
•31 July 2009
FAMILY COURT OF AUSTRALIA
| HINKLEY & MORGAN | [2009] FamCAFC 135 |
| FAMILY LAW - APPEAL – PROPERTY – Whether the orders of the Federal Magistrate were just and equitable – Where the Federal Magistrate did not explain how the husband’s contribution entitlement was determined – Where the Federal Magistrate did not explain how apportionment of net proceeds of sale was just and equitable – Where the figure used by the Federal Magistrate to calculated parties’ entitlements did not properly reflect the actual contributions of the parties –Whether the Federal Magistrate fell into appealable error in determination of the husband’s percentage entitlement – Whether the Federal Magistrate fell into appealable error by not providing adequate reasons – Where analysis was limited by the material provided by the parties – Where difference between sum awarded by the Federal Magistrate and sum which should have been awarded requires appeal should be dismissed. FAMILY LAW - APPEAL – Appeal dismissed. FAMILY LAW - COSTS – Wife to pay the husband’s cost of and incidental to the appeal as agreed. |
| Family Law Act 1975 (Cth) – s 75(2) |
| Bennett & Bennett (1991) FLC 92-191 Hickey & Hickey & the Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143 House v The King (1936) 55 CLR 499 Housing Commission of NSW v Tatmar PastoralCo Pty Ltd (1983) 3 NSWLR 378 JEL & DDF (2001) FLC 93-075 Norbis v Norbis (1986) 161 CLR 513; (1986) FLC 91-712 Pettitt v Dunkley (1971) 1 NSWLR 376 Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 Russell & Russell (1999) FLC 92-877 |
| APPELLANT: | Ms Hinkley |
| RESPONDENT: | Mr Morgan |
| FILE NUMBER: | SYC | 4561 | of | 2007 |
| APPEAL NUMBER: | EA | 145 | of | 2008 |
DATE DELIVERED: | 31 July 2009 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Boland J |
| HEARING DATE: | 16 March 2009 |
| LOWER COURT JURISDICTION: | Federal Magistrates Court |
| LOWER COURT JUDGMENT DATE: | 5 December 2008 |
| LOWER COURT MNC: | [2008] FMCAfam1290 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Anderson |
| SOLICITOR FOR THE APPELLANT: | McLaughlin & Riordan |
| COUNSEL FOR THE RESPONDENT: | Mr Foster |
| SOLICITOR FOR THE RESPONDENT: | McDonell Milne Toltz |
Orders
That the appeal against Order 1 of the orders of Federal Magistrate Dunkley of 5 December 2008 is dismissed.
That the wife pay the husband’s costs of and incidental to the appeal as agreed and failing agreement as assessed.
IT IS NOTED that publication of this judgment under the pseudonym Hinkley & Morgan is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| IN THE APPELLATE JURISDICTION OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EA 145 of 2008
File Number: SYC 4561 of 2007
| Ms Hinkley |
Appellant
And
| Mr Morgan |
Respondent
REASONS FOR JUDGMENT
Introduction
At the end of their short term marriage Mr Morgan (“the husband”) and Ms Hinkley (“the wife”) were unable to resolve matters relating to property adjustment. While they agreed each should retain assets they owned prior to their marriage, they remained in dispute over their respective interests in two properties acquired during the marriage. Ultimately, when the husband’s application for property adjustment came before Federal Magistrate Dunkley for determination, there was no issue that the husband would transfer his one-fifth interest in a property on the New South Wales coast (“the M property”) to the wife subject to her making a payment to him of $109,000.00. What remained in dispute was how proceeds of the sale of a property in a northern Sydney suburb (the “R property”) should be divided.
This is the wife’s appeal against orders made by Federal Magistrate Dunkley on 5 December 2008. The Federal Magistrate ordered the wife pay to the husband $284,269.00 – thus the sum received by the husband for his share proceeds of the R property was $175,269.00. The wife asserted his Honour failed to make orders which were just and equitable in that the adjusting amount did not apportion losses incurred by the parties on the sale of the R property equitably.
Although the Notice of Appeal relied on five grounds of appeal, the single issue in the appeal was whether his Honour erred by failing to apportion the losses incurred on the sale of the R property equally between the parties. The Federal Magistrate ordered the husband receive 41.7 per cent of the net proceeds of sale, but the wife asserted this calculation did not include a significant liability, namely a “margin loan” used to acquire the R property.
Background
Facts referred to by the Federal Magistrate
The non-controversial facts recited in the Federal Magistrate’s reasons were:-
(a) The wife was born in March 1944 and was aged 64 years at the date of the hearing. The husband was born in May 1946 and was aged 62 years at the date of the hearing.
(b)The parties became engaged in late February 2004. They were married in November 2004 and they separated on 30 August 2006.
At the date of the marriage the husband:
- had a beneficial interest in a trust known as the Morgan Family Trust. An asset of the trust was a property on the upper North Shore (“the L property”);
- owned a rural property in the New South Wales Hunter Valley region;
- owned jointly with his sister a property on the Central Coast (“the B property”);
- had an interest in a self-managed superannuation fund; and
- had savings in various accounts, a Land Rover motor vehicle and furniture.
At the date of the marriage the wife:
- owned a property on the New South Wales mid north coast;
- owned a second property on the New South Wales mid north coast;
-owned a unit on the lower North Shore;
- owned a share portfolio;
-owned a car parking space in inner Sydney;
- had funds on deposits with banks, a motor vehicle, furniture and household contents, and artworks; and
-superannuation.
(Husband’s affidavit filed 16 October 2008)
The wife asserted error by the Federal Magistrate in respect a number of background facts recorded in his reasons. Counsel for the husband at the hearing of the appeal conceded:
· the M property was purchased in January 2004 with settlement of the sale occurring in April 2004 (not just prior to the marriage as recorded by the Federal Magistrate);
· the wife was in part time employment for part of the marriage (not full time employment for the majority of the marriage as recorded by the Federal Magistrate); and
· the wife did not own the third property on the New South Wales mid north coast at the time of the marriage (as recorded by the Federal Magistrate) This property was purchased approximately 16 months after the parties’ separation.
None of the factual errors have any relevance to the issue agitated in the appeal.
Unchallenged facts set out in the parties’ affidavits and the exhibits
In April 2004 the parties’ purchase of the M property was settled. The property was purchased by the parties as tenants in common as to one fifth by the husband and four-fifths by the wife for a purchase price of $658,000.00. The wife provided the whole of the purchase price, and the parties entered into an agreement that the husband would pay the wife $131,600.00 plus interest when he had funds available to him.
In June 2004 the parties purchased as joint tenants the R property for a purchase price of $1,645,000.00. The wife was the sole contributor to the R property at the time of its purchase. She asserted she contributed the deposit of $1,645,00.00 and stamp duty of $75,965.00.
To enable the parties to complete the purchase they jointly obtained a mortgage advance of $987,000.00 from Suncorp Metway and the wife borrowed by way of a mortgage over her share portfolio a loan of $600,000.00 (“the margin loan”).
In December 2004 the Morgan Family Trust sold a property and the husband paid the wife funds totalling $380,000.00.
The R property was sold in April 2006 at a sale price of $1,460,000.00 and the whole of the net proceeds of sale of $420,309.17 were paid to the wife.
In April 2006 the wife applied from the settlement proceeds $420,309.43 to reduce the margin loan indebtedness.
On or about 19 June 2006 the husband paid to the wife the sum of $100,000.00 and on or about 20 June 2006 he paid her a further $10,000.00. The wife applied $110,000.00 received from the husband to reduce the margin loan balance so that at 30 June 2006 the balance due and outstanding was $173,593.56. The margin loan was discharged in its entirety by the wife on 18 August 2006. The amount required to discharge the margin loan at that time was $175,591.38.
The proceedings before the Federal Magistrate
The husband’s Amended Application for property settlement was listed before Federal Magistrate Dunkley for a two day hearing commencing 3 November 2008. A further matter was interposed during the hearing which resulted in the hearing being dealt with in a truncated fashion with counsel for the wife only briefly cross-examining the husband. This cross-examination was followed by short cross-examination of the wife and brief submissions by each party’s counsel.
The Federal Magistrate’s reasons for judgment
Having set out the brief background history, his Honour under the heading “Opening Address”, noted both parties contended he should regard the marriage as a short marriage and then said:
… That I should focus on the parties [sic] respective contributions to the [R] property and the [M] property when making an assessment of the parties’ contributions. Both parties contended that their non-financial contributions were equal. (paragraph 16)
His Honour then went on to note that the parties both asserted that a cash payment should be made to the husband by way of property settlement, and that “the other assets of the parties should remain in the ownership and possession of the partes [sic] respectively”. His Honour then explained “[t]he husband’s counsel argued for a cash adjustment of $350,000. The wife’s counsel argued for a cash adjustment of $74, 722.50” (paragraph 17).
His Honour then referred to matters in dispute at paragraph 18 of his reasons and explained:
In dispute was the question of the adjustment to be paid by the wife to the husband. In dispute was whether there should be paid to the husband by the wife as part of the payment an amount determined having regard to s.75(2)(o), arising because the husband had sold one and [sic] his pre marriage assets to fund this contribution to the purchase of the [R] and the [M] property and the wife had not similarly sold a property despite an agreement between them that she would.
Having discussed the parties’ competing assertions about whether the sum of $380,000.00 paid by the husband should be treated as a capital contribution (as asserted by the husband) or whether the sum should be treated as part capital and part interest, his Honour recorded:
… in closing submissions [the wife’s] counsel conceded that the notional interest could not be considered as income and could only be considered as a contribution by the husband. (paragraph 21)
No point arose in the appeal about his Honour’s rejection of the wife’s contention that the sum of $380,000.00 contained an interest component, although it was not in dispute included in this sum was an amount representing repayment to the wife for the advance to purchase the M property, including interest.
At paragraph 24 of his reasons the Federal Magistrate under the heading “Submissions”, again explained that counsel for the husband had submitted an adjustment should be made in the husband’s favour under s 75(2)(o) of the Family Law Act 1975 (Cth) by reason of the fact that notwithstanding the agreement of the parties that the would each sell property to contribute to the purchase price of the R property, the husband alone had sold a property. His Honour went on to note the wife rejected this contention referring to other contributions it was asserted by the wife she had made, and her assertion that the husband had residential accommodation. His Honour, at paragraph 26, recorded that the husband had conceded he had residential accommodation, but asserted he had lost an income stream received from tenants of the B property.
His Honour then set out the assets and liabilities of the parties as at the date of separation. His Honour recorded the contributions of the parties and made findings that the husband had contributed the sum of $380,000.00 to the acquisition and maintenance of the parties’ property (paragraph 28). He also found the husband had contributed $143,603.00 to the purchase of the M property (paragraph 29) and repaid a loan of $40,143.00 to the wife (paragraph 30). Before me it was conceded these findings were in error, or at least misleading, and it was not asserted that the husband had made three separate contributions ($380,000.00, $143,603.00 and $40,143.00). Rather it was submitted that the husband had made total payments to the wife of $490,000.00, which payments included $143,603.00 for his one-fifth share of the M property, together with interest, and repayment of a loan advanced to him by the wife to undertake renovations to the L property prior to its sale and a contribution to the R property of $306,254.00.
His Honour set out his contribution assessment at paragraph 31 of his reasons as follows:
I find that the husband has made a contribution to the [R] property and to the [M] property and in repayment of a loan in the sum of $490,000. He made a contribution of 20% to the [M] property and of 41.7% to the [R] property. The wife contributed the balance.
His Honour then explained it was appropriate to deal with the matrimonial pool on an asset by asset basis.
Thereafter, his Honour turned his attention to relevant matters under s 75(2), although it was conceded before him by the husband’s counsel that there were no matters requiring adjustment under s 75(2) except for an asserted adjustment in the husband’s favour under s 75(2)(o) (see transcript, 3 November 2008, p 14). His Honour rejected the submissions made on behalf of the husband that there should be “a compensatory payment to him because he sold a property and the wife did not” (paragraph 41).
At paragraph 42 of his reasons, his Honour said “[t]here is no further adjustment that needs to be made having regard to the orders I propose to make for the purpose of justice and equity”. He then went on to explain, at paragraph 43, that the parties sold the R property for a loss “and will share this loss”. His Honour then found that the husband should receive an amount equivalent to 20 per cent of the current value of the M property.
There is no challenge raised to his Honour’s assessment in respect of the husband’s entitlement in the M property, and in December 2008, orders were made for the wife to transfer to the husband’s solicitor’s trust account the sum of $109,000.00 and the husband’s solicitor was restrained from disbursing the monies so received until such time as a memorandum of transfer signed by the husband was provided to the wife’s solicitor. The orders provide that the wife’s solicitor hold the transfer in escrow pending determination of this appeal.
At paragraph 45 of his reasons, his Honour concluded his property adjustment determination and said:
The husband contributed 41.7% of the cost of the [R] property. On [sic] the nett sale amount of $420,309.17 he should receive $175,269 being 41.7% of the nett sale amount.
Grounds of appeal
The wife relied on six grounds of appeal as follows:
1.That His Honour Federal Magistrate Dunkley erred in failing to apportion the liability after sale of the property at … (“the [R] property”) so that the husband contributed to the loss sustained by the parties in relation to that property on a proper, or just and equitable basis.
2.That His Honour Federal Magistrate Dunkley erred in finding that the husband contributed 41.7% of the purchase costs of the [R] property by failing to take into account that the wife borrowed the balance of the purchase price (excluding the joint mortgage) by means of a loan which had to be repaid after the property was sold at a loss 22 months after its purchase.
3.That His Honour Federal Magistrate Dunkley erred at law in finding that the husband was entitled to any amount referable to the sale of the [R] property particularly when the property was later sold at a loss, and the liabilities incurred by the husband and wife in the purchase of the property exceeded the proceeds of sale.
4.That His Honour Federal Magistrate Dunkley erred in the exercise of his discretion to award the husband any monies referable to the sale of [R] by failing to have sufficient or any regard to the fact that the husband had not initially paid any monies to assist in its purchase, and the statement showing the extent of the wife’s debt incurred in its purchase and still in existence after its sale was in evidence before the learned Federal Magistrate Dunkley.
5.That His Honour Federal Magistrate Dunkley erred in the exercise of his discretion by failing to make an adjustment from the amount to be paid by the wife for transfer of the husband’s interest in the [M Property], for the debt owed after sale of the [R] property.
6.That His Honour Federal Magistrate Dunkley erred in failing to make an adjustment to the parties’ property interests which was just and equitable.
In her Notice of Appeal the wife sought orders that the appeal be allowed, the orders of the Federal Magistrate be set aside, and that by way of property settlement the husband pay the wife $34,277.50.
At the hearing of the appeal counsel for each party focused on his Honour’s apportionment of the loss arising from the sale of the R property.
Counsel for the wife submitted that the evidence disclosed that during the marriage the properties purchased by the parties were held in proportionate shares to reflect the parties’ legal entitlements to those properties – in the case of the M property as tenants in common as to four-fifths to the wife and one-fifth to the husband, and in respect of the R property as joint tenants, or tenants in common in equal shares (the legal title to the property was not in evidence). He submitted that the wife, after applying the funds received from the husband of $110,000.00 to the margin loan and discharging that loan (after applying the whole of the proceeds of sale to the loan), was “out of pocket” and that the Federal Magistrate in order to apportion losses equally, should have required the husband to make a payment to the wife of $32,795.69. He sought to amend the orders sought in the wife’s Notice of Appeal accordingly.
In support of the wife’s contention her counsel provided a schedule which he asserted supported the wife’s contentions. I will set out that schedule later in these reasons.
Counsel for the husband referred to the figures supplied by the wife as “smoke and mirrors”. He referred to the fact that the husband had paid to the wife $306,245.00 in respect of the R property, and if the wife’s position was adopted he would receive nothing to reflect his payments and the wife would receive the whole of the net proceeds of sale of the R property.
Before me, counsel for the husband conceded that the effect of his Honour’s adjustment, if correct, was that the husband bore 41.7 per cent of the losses occasioned on the sale of the R property rather than 50 per cent of those losses. He submitted that if both parties had contributed equally to the R property and equally shared the losses that the adjustment made in the husband’s favour was approximately $22,000.00 more than his entitlement. But this he said was de minimis. Counsel further submitted that whilst other judges may have apportioned the losses equally, the fact that his Honour apportioned losses as to 41.7 per cent to the husband and the balance to the wife was within the reasonable ambit of his discretion.
Both parties agreed that the exercise conducted by the Federal Magistrate was a discretionary exercise and referred to the well known limits on appellate interference with such discretion (see House v The King (1936) 55 CLR 499). They also agreed that it was appropriate for his Honour to have dealt with the matter on an asset by asset basis (see Norbis v Norbis (1986) 161 CLR 513; (1986) FLC 91-712). However, counsel for the wife noted the necessity, whether dealing with property on a global or asset by asset basis, to consider the whole of the property of the parties. He referred to Hickey & Hickey & the Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143 at paragraph 40 where the Full Court said:
Section 79, unlike s. 78, requires the Court to consider the whole of the property of the parties, however and whenever acquired, notwithstanding that the parties may only seek an alteration of interest in some of that property. …
In dealing with the justice and equity of the orders, counsel for the wife referred to the submissions of the Full Court in Russell & Russell (1999) FLC 92-877 (at 86,439) where the Full Court said:
In our view, because of the impact which the amended orders would have on the wife’s financial position, the making of those orders must be said to have required an independent exercise of discretion. Furthermore, it must be remembered in this regard that under s 79(2) of the Act, the Court is required to be satisfied that it is the order to be made which is just and equitable, not just the underlying percentage division of the net value of the parties’ assets. Indeed we take the opportunity to emphasise that in what his Honour has termed “the fourth stage”, that is, the consideration of whether the result is just and equitable, it is the justice and equity of the actual orders not of the percentage distribution which must be considered. (original emphasis)
The wife’s counsel also referred to the decision of the majority in JEL & DDF (2001) FLC 93-075 (at 88,332) where Holden and Guest JJ said:
This is why the “fourth step”, namely whether the result is just and equitable, becomes important. In Clauson and Clauson (1995) FLC ¶92-595 the Full Court (Barblett DCJ, Fogarty and Mushin JJ) recognised, albeit in a discussion of the s 75(2) factors, that the application of percentages does not necessarily result in a just and equitable result, when it said at 81,911:
“There is, we think, at times a tendency to assess s 75(2) factors in percentage terms without considering its real impact, and we think there is legitimacy in the views expressed in more recent times that the Court has tended to operate in this area within artificially delineated boundaries. That is, it appears almost to be inevitable that the s 75(2) factors will be assessed in a range between 10% and 20%. A number of cases will justify an assessment outside those parameters and in any event it is the real impact in money terms which is ultimately the critical issue.” (emphasis of wife’s counsel) (wife’s submissions, p 6)
Discussion
I commence my discussion of the principal issue agitated at the hearing of the appeal, and particularly whether the Federal Magistrate failed to consider the overall effect of his orders, by examining how the matter proceeded before his Honour. At the commencement of the hearing both parties provided Outline of Case documents to the Federal Magistrate. The matter did not effectively commence before his Honour until 2.55 pm when counsel for the husband noted the legal representatives’ proposal was the matter would be dealt with substantially on the basis of submissions (Transcript, 3 November 2008, p 6).
At that time the parties agreed the sum to be paid by the wife to the husband in consideration of his interest in the M property was $109,000.00. Counsel sought that his Honour make a discrete order about the payment for the M property.
While the husband’s counsel submitted that the wife contributed $733,695.00 to the R property and the husband paid $306,245.00 as a cash contribution to that property, he acknowledged that these matters were not agreed by the wife’s counsel.
The husband’s counsel submitted the parties’ marriage was of short duration and said “[p]robably not even a percentage case. It’s more just a monetary figure” (Transcript, 3 November 2008, p 1).
Later the following exchange took place between counsel for the husband and his Honour:
MR FOSTER: And the husband says in relation to that that he should receive 41.7 per cent of that sum [the sum of $420,309.00, which the husband’s counsel submitted was the proceeds of sale on settlement plus deposit less agent’s commission] being the pro rata that was put in the year or two earlier to the purchase.
FEDERAL MAGISTRATE: Even though it’s a loss?
MR FOSTER: Well, both party’s [sic] have to bear the loss. You will see - - -
FEDERAL MAGISTRATE: And so that’s bearing it under the percentages that they put it in?
MR FOSTER: Yes.
FEDERAL MAGISTRAE: 41.7 per cent?
MR FOSTER: Yes. And that would mean that he would receive, I think the 41.7 per cent would be $175,268.
FEDERAL MAGISTRATE: 175,268. (Transcript, 3 November 2008, p 8)
At the commencement of his submissions before the Federal Magistrate, counsel for the wife referred to the difference in approach between himself and the husband’s counsel and said:
MR ANDERSON: Points of difference I think if I can narrow it down, your Honour, is that the [R] property was purchased by the parties as a joint venture prior to their marriage.
FEDERAL MAGISTRATE: Yes.
MR ANDERSON: Just prior to the marriage and when it became apparent that neither of the party’s properties were selling prior to the purchase of that property my client entered into an equity loan of $600,000 in addition to the party’s joint loan of $987,000 and the wife provided the deposit and stamp duty costs and also paid all the other expenses in relation to the purchase of the property from her funds. But relevantly there was an agreement between the parties prior to their marriage that the husband would pay to the wife sums that she lent to him.
He paid to her a sum – a number of sums. What he is saying is that he contributed a certain amount to the purchase price of the [R] property which in fact represented some funds considerably less than the amount he says is $306,000 on his figures and I think on our figures the most you can say he contributed to that purchase and there was some documentary evidence about that is about – I will write this figure down – it’s about $224,000 I think at the most.
But in any event the wife says what occurred was that the parties were to share in the purchase price as well as the expenses. The parties on sale of that property made a loss.
FEDERAL MAGISTRATE: Yes. (Transcript, 3 November 2008, pp10-11)
Later the wife’s counsel said:
MR ANDERSON: But the parties – she says that in the end result that he owes her, if it was a 50/50 deal, something in the order of $34,000 which is set out in her response.
FEDERAL MAGISTRATE: I saw that in the case outline.
…
FEDERAL MAGISTRATE: So I put them back where they started; everyone agrees on that.
MR ANDERSON: It’s essential what we’re saying: it’s just how you calculate the figures. And we say the [R] property was a joint venture which ultimately resulted in a loss which the wife has borne the greater burden because of the amount of money that she had to borrow secured over her shares.
FEDERAL MAGISTRATE: Yes. (Transcript, 3 November 2008, pp 11-13)
In his cross-examination the husband conceded that he had signed a loan agreement, that he had executed a Will in which he directed his executors to pay to the wife $350,000.00 in satisfaction of the money lent to him and recorded in the deed (in the event that that sum was not repaid as provided in the deed).
In respect of the margin loan obtained by the wife, the husband said:
MR ANDERSON: Now, in order to purchase the property at [R] you’re aware aren’t you that [Ms Hinkley] entered into a margin loan agreement on shares that she owned?---Yes. My accountant suggested that was the easiest way of doing it rather than taking mortgage over a number of other properties and it was the simplest way of going about the transaction.
In fact you’d made several applications for a second mortgage but couldn’t obtain any approval. Is that right?---There was one went through the total amount, I think, which was declined. And then we came back to this other alternative which was a simpler way - - -
And what I want to suggest to you, sir. Sorry, had you finished? What I want to suggest to you is that you didn’t offer to mortgage any of your properties to bridge the gap between the amount that you were able to borrow jointly, the $987,000, and the purchase property of $1,645,000?---We were dealing with a settlement and to then go and take other mortgages over properties then going through the process of valuation of everything else and we were in a marriage and that was the simplest suggestion made by my accountant of dealing with the matter.
So is the answer - - -?---So I took someone else’s professional advice and – in dealing with it, and the other would’ve involved taking mortgages over a number of other properties and – well, in terms of you know what the proceedings are from doing that.
So if you – if the wife hadn’t had a bundle of shares upon which she could obtain some moneys by way of loan then you would’ve had to mortgage other properties. Isn’t that correct?---Yes. (Transcript, 3 November 2008, p 21)
The husband also conceded in cross-examination that, other than the joint mortgage advance from Suncorp Metway of $987,000.00, that the deposit, stamp duty, legal costs and/or other expenses for the purchase of the R property were paid by the wife.
The closing submissions to his Honour were brief and focussed on the fact that the wife had “double-dipped” in respect of an interest component she asserted was owed by the husband, and which she included in her calculation of her loss. As the wife conceded the interest calculation was erroneous that issue is not relevant to this appeal.
The wife’s affidavit evidence was substantially unchallenged. The wife annexed to her affidavit the settlement statements for the purchase of the R property and the settlement statement relative to its sale. Her counsel also tendered, as Exhibit 5, a number of pages of the statements for the wife’s margin loan. The statements show that the wife borrowed $600,000.00 and was charged a variable interest loan at the rate of 8.15 per cent so that the total funds borrowed were $626,079.40, being prepaid interest for the period 1 June 2004 to 31 December 2004. The statement for April 2006 (that is, the month the R property sold) shows that by that date the loan had increased to $695,864.16 accruing interest for the month of April at 8.40 per cent (and presumably interest at a similar amount for each other month). On 26 April 2006 the wife paid the balance of proceeds of sale ($391,292.03) and the deposit, less agent’s commission, ($29,017.40), that is, a total sum of $420,309.43 to reduce the indebtedness on the margin loan.
In June 2006 the indebtedness on the margin loan stood at $281,925.80. The wife applied the sum of $110,000.00 (which she had received from the husband that month) to the margin loan reducing it to $171,925.80. However, interest was charged for June 2006 at the rate of 8.65 per cent in August, so that at the time of its final discharge that month the margin loan balance was $175,591.38. It was discharged in full by the wife.
The wife’s counsel also relied on a document (Exhibit 4) prepared by the wife and sent to the husband dated 20 December 2004 in which she set out her contributions to the R property, and a claim for the husband to reimburse her for one half of her contributions. She calculated her half of the contributions to the R property to be $134.275.92.
Whilst his Honour’s, albeit brief reasoning in paragraphs 28 to 31, is that the husband made a contribution of 41.7 per cent to the R property, his Honour does not explain how he determined the husband’s contribution entitlement in the R property, or how the receipt of 41.7 per cent of the net profits, excluding the balance of the margin loan of $175,591.38, resulted in the parties’ losses being apportioned fairly. Nor does he explain how the ultimate result is just and equitable, particularly having regard to the evidence concerning the acquisition of the R property, and the husband’s concession in cross-examination as to why the margin loan was obtained, rather than a second mortgage over the parties’ respective pre marriage real property interests.
Although the wife’s written submissions addressed to ground 6 asserted his Honour had failed, in effect, to “step back” and look at the overall effect of his orders by taking into account each party’s pre and post marriage assets, and this failure to do so constituted appealable error, this ground was narrowed in oral submission to the justice and equity of the order in respect of the R property. I accept the submissions made on behalf of the husband’s counsel that the wife’s written submissions on this ground do not reflect the stance taken by either party before the Federal Magistrate. Further, his Honour clearly had regard to all of the assets of each of the parties which he set out in paragraph 27 of his reasons, and at paragraph 42 he said “[t]here is no further adjustment that needs to be made having regard to the orders I propose to make for the purpose of justice and equity”.
This brings my focus to the main issue, namely, the apportionment of the loss on sale of the R property. Two considerations, which are intertwined, arise – does 41.7 per cent of the net proceeds calculated by reference to the conveyancing settlement statement represent a proper sharing of the loss? – and are the Federal Magistrate’s reasons adequate to explain how he reached the sum ordered to be paid by the wife?
As both parties’ counsel noted this was an appeal against a discretionary judgment. The limits on appellate interference in such circumstances are well known and do not require expansion (see House v The King). The principles underlying the necessity for a judicial officer to given adequate reasons are also well known. (see Bennett & Bennett (1991) FLC 92-191, Pettitt v Dunkley (1971) 1 NSWLR 376, Housing Commission of NSW v Tatmar PastoralCo Pty Ltd (1983) 3 NSWLR 378 and Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247).
It is not in doubt that the so called “net sale proceeds”, which are based on the conveyancing settlement statement, do not reflect the necessity for the parties to acquire the margin loan in order to be able to complete the purchase of the R property, or that the net proceeds of sale, which the wife applied in their entirety, were used in partial discharge of that loan. Neither does the settlement statement reflect the fact the wife retained the sum of $196,254.00 paid by the husband to her in December 2004 and which sum was not applied to reduce the mortgage or the margin loan. I will shortly explain in greater detail my conclusions in respect of the husband’s contributions, including the sum of $196,254.00.
His Honour does not explain how the receipt by the husband of $175,269.00 reflects an appropriate sharing of the losses or, if that sum did represent 41.7 per cent of the losses incurred, as submitted by his counsel, what sum the wife retained, nor did he then assess if the apportionment of the net proceeds reflected in the orders was “just and equitable”. As I will shortly explain, I do not accept that the net proceeds of sale were in fact $420,309.00.
The lack of analysis is more readily apparent when reference is had to the uncontested affidavit material, including the settlement statements, and Exhibit 4 (the wife’s calculations of contributions) and Exhibit 5 (the margin loan statements).
It assists understanding of the issue of contributions to, and losses incurred on, the sale of the R property if I set out in a table form from the documents before his Honour the relevant figures for the R property on its acquisition and sale, together with an examination of Exhibit 4 and Exhibit 5. Before I do so, however, it is necessary I reproduce paragraphs 17 and 18 of the husband’s affidavit where he sets out payments made by him to the wife and a breakdown of those payments. Those paragraphs are as follows:
17.From the net proceeds of sale of [the L property] distributed to me through the [Morgan] Family Trust I made the following payments to the Wife:-
Date Detail Amount
22 December 2004 Payment to Wife (as evidenced in
Annexure “E” hereto) $380,000.0019 June 2006 Transfer to Wife by transfer to her
[margin loan] account $100,000.00
20 June 2006 Transfer to Wife by transfer to her
[margin loan] account $10,000.00
TOTAL $490,000.00
Annexed hereto and marked with the letter “F” are copies of account for [Morgan] Family Trust business Investment Account number … for the period 22 December 2004 to 30 November 2006.
18.The payments to the Wife deposed above totalled $490,000. This sum included:-
(a)Repayment of a loan to me of $40,143 by the Wife for the cost of bathroom renovations for [the B property] to prepare the property for sale and insurances for the property.
(b)Repayment to the Wife of the sum provided by her for acquisition of my 1/5th share of the [M] property plus interest totalling $143,603.
(c)My contribution towards the acquisition costs of the [R] property, being the sum of $306,254.
(Husband’s affidavit filed 16 October 2008)
It appears his Honour accepted the husband’s evidence that his contribution to the R property was $306,254.00 although some confusion arises by his Honour’s reference in paragraph 28 to a contribution to the wife of $380,000.00, and then in paragraphs 29 and 30 of his reasons to the husband also contributing $143,603.00 and $40,143.00. The husband’s affidavit puts beyond doubt that he did not contribute $563,746.00 ($380,000.00 + $143,603.00 + $40,143.00). Exhibit 4 and the husband’s affidavit reveal the husband paid $380,000.00 in December 2004 which included $143,603.00 (repayment for the M property including interest), $40,143.00 (repayment of bathroom renovations for the B property) leaving a balance of $196,254.00 retained by the wife. The wife’s affidavit was silent on the question of where or how she used these funds. The mortgage payout and margin loan statements show this sum was not applied in reduction of the mortgage on the margin loan.
The settlement statement for the purchase of the R property, the parties’ affidavits, together with Exhibit 4 and Exhibit 5 permit a general “reconstruction” of the capital contributions to the R property.
(a) Contributions to the purchase of the R property in June 2004
Amount due on settlement
$1,480,481.31
Plus Deposit
$164,500.00
Plus Stamp Duty
$75,965.00
Total costs of purchase
$1,720,946.31
Funded (as per settlement sheet and parties’ affidavits)
(i) Mortgage (Suncorp Metway)
$982,569.00
(ii) Stamp duty (wife)
$75,965.00
(iii) Deposit (wife)
$164,500.00
(iv) Balance (margin loan)
$497,912.31
Total
$1,720,946.31
There is no explanation as to the difference in the draw down of the margin loan of $600,000.00 and the sum of $497,912.31 applied to the purchase. However, in Exhibit 4 the wife asserts her actual expenditure was $134,275.92. I drew the inference that she applied the remaining sum of the loan facility to reimburse herself for part of the deposit, legal costs and stamp duty, or otherwise retained the difference.
(b) The husband’s contribution to the R property
On 22 December 2004 the husband paid the wife $380,000.00 of which, as I have noted above, $196,254.00 a contribution by the husband to the R property.
In June 2006 the husband contributed $110,000
(c) Loss on sale of R property
Sale price as per settlement statement after adjustment rates
$1,387,182.00
Deposit (less agent’s commission)
$29,017.40
Total net proceeds
$1,416,199.40
Less:
Suncorp Metway
$991,500.00
Council rates
$334.00
Less Sydney water rates
$112.47
Legal costs
$3,943.50
Margin loan
$695,864.16
$1,691,754.13
- loss on sale of R property
($275,554.73)
(d) Adjustment of contributions and loss
(i) Husband
Contribution – December 2004
$196,254.00
Contribution – June 2006
$110,000.00
$306,254.00
Less half share of loss
($137,777.36)
Husband’s entitlements from proceeds
$168,476.64
(ii) Wife
Contribution (Exhibit 4) 2004
$134,275.92
Discharge of margin loan
$175,591.38
$309,867.30
Less half share of loss
($137,777.36)
$172,089.94
The wife’s share of profit ($172,089.94) exceeds that of husband ($168,476.64) to reflect her additional capital contribution ($309,867.30 - $306,254.00 = $3,613.30)
However, in the schedule prepared by the wife’s counsel (now reproduced below) the figures relied on adopt a “broad brush” approach. It does not include the husband’s contribution of $196,254.00 in December 2004.
Appellant’s Figures
Amount
Reference
Purchase price of [R property]
$1,645,000
Agreed
Joint mortgage
$987,000
Agreed
Wife’s loan
$626,079.40
Exhibit 5
Stamp duty paid by wife
$75,965
Agreed
Sale price of [R Property] (2006)
$1,460,000
Agreed
Joint mortgage discharge
$991,500
Agreed
Wife’s loan on deposit of proceeds and deposit (26.04.06)
$279,875.33
Exhibit 5
Husband’s additional contributions on 18 and 19 June 2006
$100,000
$10,000
Exhibit 5
Balance of wife’s loan on discharge (18.08.06)
$175,591.38
Exhibit 5
Balance owing after notional reduction by $110,000
$65,591.38
Husband and wife share in total loss equally (0.5x65,591.38)
$32,795.69
$32,795.69
The submissions of the husband counsel, which were adopted by the Federal Magistrate, lead to a result of the wife be required to make a payment to the husband $175,260.00 in respect of the R property.
The submissions based on calculations of the actual settlement statement, demonstrate that the figure used by the Federal Magistrate to calculate entitlements did not properly reflect the actual contributions of the parties to the R property, nor did the conveyancing settlement statement reflect the true of the proceeds of sale. There was a loss to be apportioned between the parties, and an adjustment for funds paid by the husband in 2004, but retained by the wife, adjustment to reflect the difference between the margin loan obtained and the sum applied to the purchase, and further adjustment to include the husband and wife’s post conveyancing settlement payments to the margin loan.
It is unfortunate, no doubt due to the difficult circumstances in which his Honour heard this matter, coupled with the fact that without some detailed analysis of the figures, it would not have been readily apparent to him that the sum, which the husband agreed was borrowed by way of mortgage against the wife’s shares to enable the parties to jointly acquire the R property, was overlooked in determining the proceeds of that property on its sale. Nor did either party in their submissions present any real analysis of the actual contributions made by the husband to the R property in 2004 revealed by his affidavit and Exhibit 4. Given the narrow issue in dispute it is regrettable the parties did not agree to instruct an independent accountant to carry out a calculation of the adjusted profit on sale of the R property.
I agree given the opening statements of the husband’s counsel that his Honour was not in error in the case of this short marriage in carrying out what was essentially an accounting exercise. The husband conceded the margin loan was obtained as a matter of convenience to acquire the R property jointly by the parties rather than borrowings against other real property of the parties. He also asserted his payment of $306,254.00 was a contribution to the R property.
I am satisfied however that the Federal Magistrate fell into appealable error by simply dividing the net proceeds of sale disclosed in the settlement statement as to 41.7 per cent to the husband, but more significantly because it is impossible to discern from his Honour’s reasons why he determined that sum represented a just and equitable of adjustment of the losses from the R property.
However if the position was, as appears established from the evidence, that the parties intended the R property should be purchased jointly with equal contributions, and that the losses sustained be shared equally, then as the figures which I have set out above, based on the disclosed evidence, reveal, the adjustment which should have been made by the wife in the husband’s favour was approximately $168,476.64 not $175,629.00 as found by his Honour. The analysis of the figures is limited to a degree by the material provided by the parties. The difference between the sum awarded and the calculation set out me is de minimus. In these circumstances, it would not be appropriate to allow the appeal. The appeal therefore will be dismissed.
Costs
At the completion of the hearing I sought submissions from each party about costs of the appeal. The husband sought in the event the appeal was dismissed that the wife should pay his costs of and incidental to the appeal. For the reasons I have given the appeal will be dismissed. In these circumstances I am satisfied it would be appropriate to make an order the wife pay the husband’s costs of and incidental to the appeal.
I certify that the preceding seventy-two (72) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Boland.
Associate:
Date: 31 July 2009
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