Hunt and Atkins and Ors
[2014] FamCA 1076
•4 December 2014
FAMILY COURT OF AUSTRALIA
| HUNT & ATKINS AND ORS | [2014] FamCA 1076 |
| FAMILY LAW – PROPERTY – final property application – where husband seeks a property adjustment against his former wife – where the husband contributed more financially during the course of the relationship – where there are disputes as to the value of the husband’s business interests – where third parties are joined to the proceedings to protect their business interests – where the wife alleges the husband has not made a proper disclosure of income and expenditure – where there is a dispute as to the value of the husband’s shares – where the experts cannot agree on a valuation method – where the wife made non-financial contributions – where the parties have significant debt – where it is just and equitable to make orders altering the parties’ property interests. |
| Family Law Act 1975 (Cth) ss 75(2), 79(4), 90AE Bevan and Bevan [2013] FamCAFC 116 |
| APPLICANT: | Mr Hunt |
| 1ST RESPONDENT: | Ms Atkins |
| 2ND RESPONDENT: | N Pty Limited |
| 3RD RESPONDENT: | T Pty Limited |
| 4TH RESPONDENT: | H Pty Limited |
| 5TH RESPONDENT: | Mr D |
| 6TH RESPONDENT: | Mr J |
FILE NUMBER: DATE DELIVERED: | SYC 425 of 2012 4 December 2014 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Aldridge J |
| HEARING DATE: | 15-18 July 2013; 17-18 March 2014; 24-25 March 2014; 23-24 June 2014; |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Lethbridge SC |
| SOLICITOR FOR THE APPLICANT: | Robyn Sexton & Associates |
| COUNSEL FOR THE 1ST RESPONDENT: | Mr Cummings SC |
| SOLICITOR FOR THE 1ST RESPONDENT: | Paltos Briggs Family Lawyers |
| COUNSEL FOR THE 2ND – 6TH RESPONDENTS: | Mr Gray Counsel |
| SOLICITOR FOR THE 2ND -6TH RESPONDENTS: | HWL Ebsworth Solicitors |
Orders
(1)That the husband is to pay to the wife, within twenty-eight (28) days from the date of these Orders, the sum of $174,747.
(2)That the parties are forthwith to take all necessary steps to sell the property at B Street, Town M (“the B Street property”) (folio identifier …) and for the purpose of implementing that sale the parties shall do the following:
(a)List the property for sale by public auction, such auction is to occur within four (4) months of the making of these orders at a price to be agreed between the parties and failing such agreement at a price, or at a reserve price, nominated by the President of the New South Wales Division of the Australian Property Institute and his/her nominee;
(b)Forthwith appoint such real estate agent and auctioneer, as the parties may agree and failing agreement within fourteen (14) days, list the property with such agent and auctioneer nominated by the President of the New South Wales Division of the Australian Property Institute (“the Agent”), the costs of and incidental to such appointment to be borne equally by the parties as and when they fall due.
(c)The parties shall each co-operate in every way with the Agent including (without limiting the generality the foregoing):
(i)making the keys available to the Agent;
(ii)allowing inspection of the property at all reasonable times as required by the Agent;
(iii)not do or say anything to hinder or prevent a sale being effected;
(iv)ensuring that the property including the grounds are in a neat, fit state of repair and tidy condition at the time of the inspection by the Agent and prospective purchasers;
(v)sign all documents as requested by the Agent in relation to the listing for sale of the property except contracts or agreements for sale which have not been authorised by the parties’ solicitors;
(vi)the parties shall each execute contracts for sale on the forms prepared by the solicitors having the conduct of the sale at a price or reserve price agreed upon by the parties or in the absence of any agreement at or above the price nominated by the President of New South Wales Division of the Australian Property Institute;
(vii)the parties shall do all things and sign all documents necessary to instruct a solicitor or licensed conveyancer within seven (7) days of the date of these orders to have the primary conduct of the sale on behalf of both parties and, failing agreement, such solicitor or conveyancer as nominated by the President of the New South Wales Division of the Australian Property Institute.
(d)That any costs payable to the solicitors will be and form part of the legal costs of the sale to be deducted from the proceeds of sale.
(e)Neither party may confer upon any agent without the consent of the other party any right, or sole or exclusive agency in respect to the property or to any commission.
(f)That the wife is to vacate the B Street property at least seven (7) days prior to settlement.
(g) The proceeds of the sale shall be disbursed as follows:
(i)in payment of the usual costs associated with such sale including Agent’s commission, legal costs and disbursements;
(ii)in discharge of any mortgage or other encumbrances held over the property;
(iii)in discharge of any capital gains tax liability incurred on the sale of the property (and for the purpose of effecting such a payment the solicitor acting on the conveyance for the parties shall calculate and retain a sum sufficient for payment of the Capital Gains Tax);
(iv)the balance is to be paid into an interest bearing bank account in the joint names of the parties or their instructing solicitors.
(3)That upon the proceeds of sale from the B Street property being received into the joint bank account pursuant to Order 2(g)(iv) the funds in that bank account are to be distributed, if there is any surplus, as to twenty (20) per cent to the wife and eighty (80) per cent to the husband.
(4)In the event of there being a shortfall in the sale of the B Street property, the husband is to bear the liabilities for that shortfall and indemnify the wife against any obligation to meet the liability comprising the shortfall.
(5)That each party shall otherwise retain such other property as is in their possession or their power and control at the date of the making of these Orders as their own property absolutely, including any bank accounts, superannuation, motor vehicles, furniture, furnishings and the like.
(6)That upon the completion of the sale of the B Street property all existing orders in relation to that property and for spousal maintenance are discharged.
(7)That N Pty Limited substitute the husband for the wife in respect of any debt owed by her to it or recorded in its books as being owed to it by the wife and to take all steps necessary to release her from any liability to it in respect of those debts.
(8)That all applications and cross applications be and are hereby dismissed.
(9)That all issues be removed from the Active Pending Cases List.
(10)That all material produced on subpoena shall be returned to the persons or institutions from which they emanated and all exhibits are returned to the person or persons who tendered the same not before fifty-six (56) days from the date of these Orders.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Hunt & Atkins and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
CORRIGENDUM
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC425 of 2012
| Mr Hunt |
Applicant
And
| Ms Atkins |
1st Respondent
And
| N Pty Limited |
2nd Respondent
And
| T Pty Limited |
3rd Respondent
And
| H Pty Limited |
4th Respondent
And
| Mr D |
5th Respondent
And
| Mr J |
6th Respondent
CORAM: Aldridge J
DATE OF ORDERS: 4 December 2014
WHERE MADE: Sydney
CORRIGENDUM 5 December 2014
1.The Reasons for Judgment delivered on 4 December 2014 are amended by the deletion of paragraph three hundred and thirty six (336) as attached.
I certify that the preceding one (1) paragraph is a true copy of the Corrigendum of the Reasons for Judgment of the Honourable Justice Aldridge herein.
Associate:
Date: 5 December 2014
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC425 of 2012
| Mr Hunt |
Applicant
And
| Ms Atkins |
1st Respondent
And
| N Pty Limited |
2nd Respondent
And
| T Pty Limited |
3rd Respondent
And
| H Pty Limited |
4th Respondent
And
| Mr D |
5th Respondent
And
| Mr J |
6th Respondent
REASONS FOR JUDGMENT
Introduction
1.These are proceedings between Mr Hunt (“the husband”) who seeks orders for property adjustment against Ms Atkins (“the wife”).
2.The husband’s position was that, because of “the paucity of her contributions, the amounts of money that have already been paid to or on her behalf since separation and his far superior pre-cohabitation assets”, a just and equitable outcome would see no adjustment being made in the wife’s favour. The husband accepted that he would indemnify the wife against a large debt that she owed to N Pty Ltd.
3.The wife’s position is that she should receive the equivalent of 40 per cent of the net assets, including superannuation. She sought an order that N Pty Ltd assign the entire balance of her loan account with N Pty Ltd to the husband and for it to release her from any claim it might make on her.
4.A significant dispute between the parties was the value of the Hunt Group. For present purposes it is sufficient to note that three of the companies forming part of that group, N Pty Ltd, T Pty Ltd and H Pty Ltd sought to be, and were joined to the proceedings. Additionally two of the husband’s sons, Mr D and Mr J, who are the directors, with the husband, of these three companies also sought to be and were joined as respondents. All of them asserted that their joinder to the proceedings was necessary to protect their interests and to oppose the making of orders they considered to be oppressive of their interests. In the event, the additional respondents’ submissions were limited to N Pty Ltd opposing an order sought by the wife pursuant to s 90AE of the Family Law Act 1975 (Cth) (“the Act”) to have her loan account with it transferred to the husband.
5.Each of the husband and the wife launched a substantial attack upon the credit of the other. I shall deal with the submissions in relation to credit if and when they become relevant to any of the issues that require determination.
Background Facts
6.The husband was born in 1935 and is thus 79 years of age. Prior to his marriage to the wife he was previously married on three occasions. He has eight children as a result of those marriages.
7.In late 1967 the husband commenced his retail business with the business being operated by Hunt Pty Ltd. At some stage in 1970 or 1971 the husband purchased land from which the business could operate.
8.On 1 December 1972 the husband acquired a Company 1 retail franchise. This franchise remains the major source of income for the Hunt Group.
9.On 12 September 1973 N Pty Ltd was registered and was established to own real property investments. Land that had been acquired by the husband was transferred to the company.
10.In 1978 the Hunt Group Staff Superannuation Plan was established. The husband is the only member.
11.On 13 December 1982 F Pty Ltd was incorporated and became the manager of the Hunt Group Staff Superannuation Plan.
12.On 8 April 1983 H Pty Ltd was registered. It became, and remains, the operating company of the group.
13.On 6 May 1986 T Pty Ltd was registered. T Pty Ltd owns shares in N Pty Ltd. It is owned as to 99 per cent by the husband and 1 per cent by Mr D, his son.
14.In June 2000 the husband suffered a heart attack and underwent triple by-pass surgery.
15.The wife was born in 1955 and is thus 59 years of age. She has a son Mr L who was born on 8 June 1991.
16.The parties met in 1998 when the wife commenced working at the Company 1 franchise selling after sale products and services.
17.In 2000 the wife commenced seeing Dr CC to help her with a grief reaction from a sudden death of her former de facto husband.
18.In February 2000 the husband and wife commenced a personal relationship.
19.In September 2000 the husband purchased a property at S Street, Town M (“the S Street property”) for $765,000. Following extensive renovations the parties commenced cohabitation at the S Street property in April 2001. From that time until 2004 the wife’s son Mr L occupied the ground level of the home.
20.In April 2001 the wife commenced working as a sales trainer with the Hunt Group. This involved her doing preparation work at home and attending the showrooms at Town O and Town P to give presentations to the staff. Precisely what was involved in such work was an issue of some controversy and will be discussed in due course.
21.On 26 June 2001 the S Street property was sold to N Pty Ltd for $1,750,000 and the husband’s loan account with N Pty Ltd reduced accordingly.
22.The husband and wife married in April 2003.
23.In January 2004 a property at B Street, Town M (“the B Street property”) was purchased in the wife’s name for $2,000,000 plus stamp duty. $1,500,000 was borrowed from the Westpac Banking Corporation. The balance of the purchase price was obtained as a loan from N Pty Ltd.
24.After extensive planning, renovation work commenced on the B Street property in March 2007.
25.In November 2007 the parties borrowed $500,000 from Westpac Banking Corporation (“the rocket home loan”). The proceeds of the loan were applied to the costs of the re-development of the B Street property and secured over it by way of a mortgage.
26.The parties moved into the B Street property in March 2008.
27.In 2009 the wife and Mr Q established a retail business (“Business E”) in X Street, Suburb U. Business E was owned by Business Z Pty Ltd. The wife purchased her shares in that company for the sum of $16,000. The wife applied $24,000 towards the fit out of Business E. This sum of $40,000 was acquired by her by borrowing it from the Commonwealth Bank of Australia. The loan was secured over a property at Town C which the wife had acquired prior to meeting the husband.
28.In March 2009 the wife entered into a banker’s undertaking to provide security for the lease of Business E. The undertakings were secured over the B Street property. Two facilities were established. The first was in the sum of $117,333 and expired on 30 August 2010. The second was for $88,000 and has been, or is likely to be called upon.
29.In September 2009 the wife secured the overdraft facility, which had a limit of $50,000, over the B Street property. At some stage in early 2009 the husband provided $50,000 to the wife to be used as working capital in Business E.
30.It is the wife’s evidence that since the acquisition of Business E, she has attended it every business day. The circumstances of her employment at this business are again controversial and will be discussed in due course.
31.The husband and the wife separated on 21 March 2010. Since separation the wife has continued to reside in the B Street property.
32.In August 2011 the wife’s employment with the Hunt Group was terminated.
33.On 7 May 2012 Ryan J made the following orders:
PENDING FURTHER ORDER OR UNTIL 5.00PM ON 31 MAY 2012 WHICHEVER FIRST OCCURS
1.That the husband continue to pay to the wife the sum of $1,288.77 per week which payment is to be made in accordance her direction in writing, the first payment to be made on the first Tuesday immediately following the date of these orders and on the same day each week thereafter.
2.That the husband pay or cause to be paid as and when they fall due for payment in respect of the motor vehicle:
a.registration and 3rd party insurance; and
b.maintenance and repair costs.
3.That the wife have the sole use of the motor vehicle.
4.Within 7 days the solicitor for the wife shall serve on the solicitor for the husband a request for answers to questions in relation to the drawdown and application of funds by him from the Westpac “Line of Credit” secured against the home.
5.The husband shall provide a written response to questions asked pursuant to Order 4 by 4.00 pm on 28 May 2012.
6.That the husband do all things required to discharge all arrears of the Rocket Home Loan Westpac Account No …82, in particular, pay the sum of $11,476.86 by 11 May 2012.
7.That the husband do all acts and things and sign all documents necessary so as to pay or cause to be paid the following:
a.The mortgage payments as and when they fall due for payment to Westpac Banking Corporation with respect of the following accounts:
i.The Rocket Home Loan;
ii.The Line of Credit.
8.That the husband be and hereby is restrained from further encumbering or otherwise dealing with the property known as [B Street, Town M].
9.The Court Notes that Order 8 is conditional upon the wife filing her undertaking as to damages.
10.That the husband pay or cause to be paid the following for the [B Street] property as and when they fall due for payment:
a.Council rates;
b.Water rates; and
c.Home and contents insurance with CGU Insurance Limited policy number ….
IT IS FURTHER ORDERED
11.The wife’s interim application filed 13 April 2012 is listed for hearing before Ryan J at 10.00 am on 31 May 2012.
12.That the respondent file a response to the application in a case filed by the wife on 13 April 2012 and any affidavit in support by 4.00 pm on 21 May 2012.
13.Within 7 days the solicitor for the wife provide to the solicitor for the husband the documents requested in the husband’s solicitor’s letter of 24 October 2011 and BAS statement to the end of March 2012 in relation to the business.
34.On 15 June 2012 Ryan J made the following orders:
PENDING FURTHER ORDER
THE COURT ORDERS
(1)Orders 1, 2, 7, 8 and 10 of the orders made in these proceedings dated 7 May 2012 continue.
(2)That the wife is restrained from further encumbering or otherwise dealing with the property known as [B Street, Town M].
(3)That by way of interim property settlement in favour of the wife, the husband shall pay to Paltos Briggs Family Lawyers Trust Account the sum of $200,000.00 as follows:
(a) $100,000.00 within eight (8) weeks of the date of these orders;
(b) $100,000.00 within sixteen (16) weeks of the date of these orders.
(4)That by way of interim spousal maintenance for the wife the husband shall make the following payments as and when they fall due:
(a) AGL electricity account (including arrears);
(b) home telephone account;
(c) Foxtel account; and
(d) medical and hospital insurance at the highest level with HCF.
(5)That the husband be responsible in the first instance for the payment of all costs for any single expert appointed in these proceedings as and when they fall due for payment and the apportionment of the same as between the husband and the wife to be determined by the trial Judge.
(6)Unless the husband has given the wife twenty one (21) days notice in writing, he is restrained from by himself, his servants and/or agents doing and/or causing or permitting to be done, any of the following in relation to the superannuation fund:
(a) alienating or encumbering any of the assets of the superannuation fund;
(b) drawing on any of the funds of the superannuation fund
save and except that the husband is permitted to make the following drawings from the superannuation fund:
(c)payment to the husband of the amount $4,000.00 per week;
(d)his legal expenses; and
(e) otherwise for the purpose of compliance with these orders.
(7)That the husband cause to be undertaken the following being maintenance in respect of the [Town M] property every twenty one (21) days and pay or cause to be paid as and when they fall due for payment the cost for undertaking such maintenance:
(a) the cleaning of the swimming pool;
(b)necessary repairs and maintenance to the home (approved by him), including the lawn and gardens.
(8)That [N] Pty Ltd (ACN …), [T] Pty Ltd (ACN …) and [H] Pty Ltd (ACN …) (“the entities”) is joined as a party to the Application in a Case filed by the wife on 13 April 2012.
(9)In relation to [N] Pty Ltd, [T] Pty Ltd and [H] Pty Ltd other than for the purpose of compliance with orders made in these proceedings, the husband is restrained from by himself, his servants and/or agents doing and/or causing or permitting to be done, any of the following:
(a)alienating or further encumbering any of the assets, income or undertaking of any of the entities or any of the subsidiaries save for operating the entities in the usual course of business;
(b)alienating or further encumbering any of shares which he has a legal or beneficial interest in any of the entities or the subsidiaries;
(c)issuing any new shares or otherwise altering the shareholding (including any rights and entitlements attaching to or any other incident of the same) in any of the entities or subsidiaries;
(d)removing, replacing or appointing any director or other officeholder of any of the entities or subsidiaries.
(10)The Court Notes the undertaking given by the entities that they will not interfere with the wife’s continued use and possession of the motor vehicle currently in her possession.
(11)That the oral application that the entities to be otherwise joined as a party to the proceedings commenced by the husband on 30 January 2012 is refused.
(12)That the husband forthwith notify the wife in writing upon the receipt by him of any notice of and/or upon otherwise becoming aware of any intention by any other person or entity to take any action so as to permit or cause any of the matters subject to paragraphs 6 and 9 above to occur.
(13)Orders 1, 3, 6, 7 and 9 are made subject to the wife’s undertaking as to damages, which is to be filed and served within seven (7) days.
(14)That Order 8 of the orders dated 7 May 2012 is continued on the basis of the wife’s undertaking given that day to this Court.
(15)That the final hearing of the husband’s application filed 30 January 2012 is expedited.
Applicable Principles
35.According to guidelines established through a series of leading decisions the court is required to determine the following matters:
·The assets, liabilities and financial resources of the parties to the marriage.
·Having regard to the breakdown of the marriage if any, is it just and equitable to consider whether the alteration of the parties’ interests in their properties is just and equal.
·All relevant contributions of each of the parties.
·The matters in paragraphs (a) – (c) of s 79(4), must be identified and weighed against each other.
·The matters in paragraphs (d)-(g) of s 79(4), particularly paragraph (e) which takes up, by reference, the provisions of s 75(2) must be considered and a determination made as to what, if any, alterations should be made to the entitlements of the parties earlier assessed on account of their contributions.
·An order under s 79 must not be made unless the Court is satisfied in all of the circumstances; it is just and equitable to make the order.
the husband’s corporate structure
36.The Hunt Group is a substantial business. For the financial year ended 2013 the sales revenue of the group was $148,044,234.00.
N Pty Ltd
37.Since its incorporation in 1973, N Pty Ltd has operated as an investment company. Its directors are the husband and his son Mr D.
38.There are a number of shareholders of N Pty Ltd. T Pty Ltd owns five (5) A class shares and ten (10) B class shares. The husband owns five (5) A class shares and ten (10) C class shares. Each of the husband’s eight children own shares as follows:
Mr DD 10 C class
Mr EE 10 C class
Mr J 10 C class
Ms FF 10 D class
Ms GG 10 E class
Mr D 10 F class
Ms HH 10 G class
Mr JJ 10 H class
39.The B, C, D, E, F, G and H class shares do not carry any voting rights. They entitle the holder to receive dividends and to participate in any surplus assets upon the winding up of the company.
40.The A class shares carry voting rights but the holders are not entitled to a dividend or to share in a surplus on a winding up of the company.
41.Thus, T Pty Ltd and the husband hold all of the voting shares in N Pty Ltd. As the husband owns 99 per cent of the shares in T Pty Ltd, for all practical purposes, the husband controls all of the voting shares in N JPty Ltd.
42.Most unusually (neither of the experts who gave evidence in this matter were aware of any other company where this had been done) when paying dividends, N Pty Ltd did not necessarily treat all members of a class equally. In some years, holders of C class shares received different dividends to other holders of C class shares.
43.The dividends paid by N Pty Ltd assume some importance in the valuation of the husband’s shares in this company. Dividends paid by N Pty Ltd were as outlined in the table on the following two pages.
| [N] PTY LIMITED - DIVIDENDS DECLARED- HISTORY OVER 13 YEARS INCLUDING 2013 | ||||||||||||||
| Actual Dividends Declared & Paid | 2001 $ | 2002 $ | 2003 $ | 2004 $ | 2005 $ | 2006 $ | 2007 $ | 2008 $ | 2009 $ | 2010 $ | 2011 $ | 2012 $ | 2013 $ | Total $ |
| Net Profit After Tax of [N Pty Ltd] | 110,524 | 22,729 | 276,312 | 313,688 | 4,825,522 | 63,378 | 49,636 | (838,825) | (452,586) | 228,969 | (83,786) | 216,534 | 199,129 | 4,931,224 |
| [T Pty Ltd] | - | - | - | - | - | - | - | - | 412,500 | - | - | - | - | |
| The Husband | - | - | 100,000 | - | - | - | 90,000 | 150,000 | 412,500 | 50,000 | 275,000 | 74,300 | 87,000 | |
| [Mr DD] | - | - | - | 10,000 | 46,144 | 23,348 | 58,000 | 75,000 | 50,000 | - | 40,420 | 45,000 | - | |
| [Mr EE] | - | - | - | 15,000 | 22,499 | 25,000 | 27,250 | 32,704 | 32,802 | 38,499 | 36,792 | 41,859 | 43,724 | |
| [Mr J] | - | - | 30,000 | 20,000 | 5,361 | 16,500 | 3,935 | - | 50,000 | 3,000 | 36,005 | 25,000 | 8,778 | |
| [Ms FF] | - | - | 4,000 | - | - | - | 30,472 | - | - | 25,000 | - | 1,501 | ||
| [Ms GG] | - | - | - | - | 5,000 | - | - | 5,000 | - | 5,000 | - | 5,000 | - | |
| [Mr D] | - | - | 10,000 | 15,000 | 9,300 | - | 20,000 | 22,500 | - | 120 | 38,500 | 21,601 | 6,320 | |
| [Ms HH] | - | - | - | - | - | - | - | - | - | - | 25,000 | - | - | |
| [Mr JJ] | - | - | - | - | - | - | - | - | - | - | - | 25,000 | 25,000 | |
| Total Dividend Declared [A] Source: Affidavit of [Mr KK] affirmed 17 June 2013 | - | - | 144,000 | 60,000 | 88,304 | 64,848 | 199,185 | 315,676 | 957,802 | 96,619 | 476,717 | 237,760 | 172,322 | 2,813,233 57% |
| Actual Declared to Husband & [T Pty Ltd] (99%) [B] | - | - | 100,000 | - | - | - | 90,000 | 150,000 | 820,875 | 50,000 | 275,000 | 74,300 | 87,000 | |
| ACTUAL % OF DIVIDENDS RECEIVED | ||||||||||||||
| Husband’s share as a % of Total * *Including 99% of [T Pty Ltd] = [B]/[A] | 0% | 0% | 69.4% | 0% | 0% | 0% | 45.2% | 47.5% | 85.7% | 51.7% | 57.7% | 31.3% | 50.5% | |
| Average Declared – 2001-2012 (12 years) | 32% | |||||||||||||
| Average Declared – 2001-2013 (13 years) | 34% | |||||||||||||
| DIVIDENDS RECEIVED EXCLUDING AMOUNTS FOR BENEFIT OF WIFE PER AFFIDAVIT OF [MR KK] AFFIRMED 17 JUNE 2013 | ||||||||||||||
| Amount assigned to Wife’s loan account (capped at dividend paid) [C] | - | - | - | - | - | - | - | 55,000 | 250,000 | 50,000 | 221,000 | - | 79,614 | |
| Balance [B]-[C]=[D] | - | - | 100,000 | - | - | - | 90,000 | 95,000 | 570,875 | - | 54,000 | 74,300 | 7,386 | |
| Husband’s Share as a % of Total including 99% of [T Pty Ltd] =[D]/[A] | 0% | 0% | 69.4% | 0% | 0% | 0% | 45.2% | 30.1% | 59.6% | 0.0% | 11.3% | 31.3% | 4.3% | |
| Adjusted Average – 2001 to 2012 (12 years) | 21% | |||||||||||||
| Adjusted Average – 2001 to 2013 (13 years) | 19% | |||||||||||||
44.In October 2012 Ms LL was appointed by the parties as a single expert to value the husband’s corporate entities. Subsequently the wife sought and obtained leave to adduce expert evidence from Mr MM who followed a different valuation methodology for valuing the husband’s interests.
45.At the conclusion of the hearing the experts agreed that N Pty Ltd had a value of $11,147,860. This valuation includes the agreed value of H Pty Ltd.
46.They disagreed about the value of the husband’s shares of N Pty Ltd and I will return to that issue after dealing with the other companies in the group.
T Pty Ltd
47.T Pty Ltd acts as an investment company. Its directors are the husband and Mr D. Its shareholders are the husband as to 99 shares and Mr D as to one. T Pty Ltd’s only investment is the shares it holds in N Pty Ltd. Thus its value depends upon a consideration of the value of the N Pty Ltd’s shares.
H Pty Ltd
48.H Pty Ltd is the operating vehicle and trades as “The Hunt Group”. Its shareholders are N Pty Ltd (80,000 ordinary shares) and I Pty Ltd (20,000 ordinary shares). N Pty Ltd also holds 800,000 preference shares in H Pty Ltd. I Pty Ltd is wholly owned by NN Pty Ltd which is wholly owned by Mr J.
49.I Pty Ltd acquired its shares in August 2010. As it was not suggested by the husband that the purchase price paid for those shares should be relied upon in aid of valuation of the N Pty Ltd shares it is unnecessary to say anything more about that transaction.
50.H Pty Ltd conducts the following businesses :
Hunt Company 1 Franchise
Hunt Company 2 Franchise
Hunt Company 3 Franchise
Hunt Company 4 Franchise
Hunt Used Goods
51.The Company 1 franchise currently accounts for approximately 70 per cent of the sales of the group and the Company 2 franchise approximately 20 per cent.
52.The business operated by H Pty Ltd is clearly substantial. In 2013 it was the twenty-third largest Company 1 franchise in Australia. It is the largest Company 2 franchise in New South Wales.
53.As part of the commonplace arrangements between a franchisee and the franchisor there is a requirement that there be, as part of the overall contractual package, an agreement between the franchisor and an individual known as the “principal”. The agreement casts significant obligations upon the individual.
54.In a document tendered by the applicant husband, Mr J described the role of a principal thus:
a. Communicating with the manufacturer in relation to franchise requirements. This includes liaising with the Regional Manager, the regional sales manager, the Regional [after sales service] manager and the Manager of franchise development from time to time.
b. Ensuring that the [franchise] complies with the terms of the franchise agreement generally.
c. Overseeing the day to day running of the [franchise]
d. Ensuring that the proper data and information is collated so that an end of the month report can be sent to [Company 1] in accordance with the franchise arrangements.
e. Ensuring that the end of the month data is sent to [Company 1]
f. Liaising with [Company 1] if they have any concerns about the end of month financial figures. These figures include details of [unit] sales for that month, details of [after sales service] for the month, details of profit per [unit], expenses in all area, details of gross profits and details of the estimated operating profits.
g. Ensuring that the customer facilities are in accordance with [Company 1’s] requirements.
h. Ensuring that [Company 1’s] processes in relation to the keeping of records in the sales and [after sales service] areas are adhered to.
i. Ensuring that signage representation is kept in accordance with [Company 1’s] requirements.
j. Ensuring that any inspections that are required by [Company 1] (and this occurs at least each 6 months) are carried out.
k. Liaising with the [Company 1] Regional Department managers, Franchise Development about the outcome of any inspections.
[As per original]
55.The role of the principal is therefore a significant one.
56.The husband said that, in 2007, he was told by a representative of Company 1 that: “If you drop dead today, we will move in and the [franchise] will be gone”. It was this conversation, the husband said, that lead him to arrange for one of his sons to succeed him as principal.
57.The husband was originally the principal in respect of the above five franchises.
58.On 1 November 2011 Mr J became the principal for Company 4. On 1 December 2011 Mr J became the principal for Company 2. On 13 March 2012 Mr J became the principal for Company 3. The husband remains the principal for Company 1.
59.It was the case of the husband that he had effectively retired from the business so that Mr J, with the acquiescence of Company 1, had also become the de facto principal of the Company 1 franchise.
60.I will return to that issue later.
F Pty Ltd
61.F Pty Ltd acts as the trustee for the Hunt Superannuation Fund and does not trade in its own right. Consequently, its two shares are valued at the par value of $1 each.
62.The Hunt Superannuation Fund is a self-managed superannuation fund of which the husband is the sole member.
63.Since its establishment the Hunt Superannuation Fund has made the following payments to the husband:
·30 June 2007 - $135,499
·30 June 2008 - $99,385
·30 June 2009 - $171,318
·30 June 2010 - $1,101,820
·30 June 2011 - $149,100
·30 June 2012 - $242,051
·30 June 2013 –$318,798
64.As at the date of the hearing the experts agreed that the Hunt Superannuation Fund had a value of $1,032,005.
valuation of the husband’s interest in n pty ltd
65.This is the most significant issue in the proceedings.
66.The issue between the experts centred upon the premium that should be applied in valuing the shares held in N Pty Ltd by T Pty Ltd and the husband. This is because T Pty Ltd and the husband own all of the voting shares and each holds shares entitling them to receive a dividend. Thus, T Pty Ltd and the husband can pay such dividends to themselves as they determine (provided they act properly in so doing). They can also control the company through the appointment and removal of directors or by passing a resolution for the winding-up of N Pty Ltd.
67.As the husband, for all practical purposes, controls T Pty Ltd, he also controls the payment of dividends from N Pty Ltd and controls appointments to its board of directors.
68.The question is how to account for this control in the valuation of the shares.
69.It was recognised and accepted by both experts that minority shares in a company should be valued by first identifying the overall value of the company. Each share parcel then has a preliminary value arrived at by taking the percentage of that parcel to the total share parcel and applying that percentage to the overall value of the company. It is then necessary to apply a discount to the value so obtained to recognise the fact that the minority shareholder is not in a position to control or influence the management of the company. This makes them less valuable. The expert’s joint memorandum quoted the International Glossary of Business Valuation Terms 2001 as defining “control”, as being “the power to direct the management and policies of a business enterprise”.
70.Both experts agreed that in a company where no shareholder has a controlling interest, all parcels of shares would be minority shareholdings and thus subject to a minority discount. In that case, the total value of the shares would be less than the total value of the company.
71.By applying the same reasoning, shares in a company that enable the shareholder to control the company have a value in excess of their proportionate value of the company. In valuing such shares, a premium is to be applied to the proportionate value of the shares to recognise that such shares are more valuable than shares which do not confer control. However, in that case, the value of the controlling shares and the value of the minority shares when added together can never exceed the value of the company as a whole. So much was agreed between the experts.
72.They disagreed as to the approach to be taken to value the premium to be applied to the controlling shares in N Pty Ltd. Neither regarded the valuation arrived at by the other as being within an acceptable range of valuations that could be arrived at by competent valuers.
73.It will be recalled that there are ten parcels of shares entitled to receive dividends and any surplus in the case of a winding up, each parcel consisting of ten shares.
74.Ms LL who was appointed as the single expert in this matter offered two approaches to the valuation. The first approach is found in her report of 4 April 2014. Ms LL opined that each of the ten (10) A class shares had a value limited to the value of the paid up share capital of $1 each because they carried voting rights only. As to the C class shares, Ms LL said in her affidavit affirmed 10 April 2013:
[7.30] As the husband is one of two directors of both [T Pty Ltd] and [N Pty Ltd] and has 100% of the voting rights in [N Pty Ltd], I am of the opinion that the Husband has a substantial degree of control of [N Pty Ltd]. I am aware that this control is not unfettered, there being other directors in both [T Pty Ltd] and [N Pty Ltd] who could vote against the Husband. I am also aware that the bulk of the dividends declared by [N Pty Ltd] have been paid to the Husband (refer Table 2 above).
[7.31]In these circumstances, I consider that some allowance should be made for lack of control and marketability factors but that this should be no more than 5%. For the purpose of this report, I consider that a discount for these factors of 2.5% is reasonable.
75.This approach was criticised by counsel for the wife for not including a premium for control. Ms LL’s response was that, in the circumstances of this case, the absence of a minority discount meant that there was a control premium.
76.The cross examination continued:
MR CUMMINGS: But, you will have to forgive me, from reading that one must assume that what you have done is to incorporate some allowance for lack of control, haven’t you?
MS [LL]:Well – well, perhaps you might come to that conclusion, but if I was to value a minority interest discount without any control, then the discount that I would have applied would have been significantly higher than two and a half per cent.
[As per original] (Transcript, 23 June 2014, page 323)
77.Ms LL’s second approach was adopted by her to be considered “if the court considers that greater allowance should be made for the control factors then my conclusions provide”.
78.Pursuant to this approach Ms LL applied a control premium of 25 per cent.
79.Until well into the joint cross-examination of both experts it seemed to be agreed by them that 25 per cent was the appropriate control premium to be applied. It then emerged that, although both experts used a 25 per cent figure in their valuations, they did so for different purposes such that it would be difficult to assert that there was a common approach or indeed, a consensus, that there should be a “control premium” of 25 per cent.
80.Ms LL’s approach was that the control premium is the amount by which the value of the controlling parcel of shares exceeds the value of the minority shares. In cross examination she described the methodology thus:
MS [LL]:…So a minority share parcel value when multiplied by 1.25 gives you the majority share parcel value.
MR CUMMINGS: And when you do that, where do you get the value of the minority share parcel from?
MS [LL]:Well, you have to determine from the value of the company what is the value of the minority share parcel such that eight minority share parcels, when multiplied by 1.25 give you the value for the two controlling parcels, and they come to the value of the company. These values are inclusive of the control premium or discounts for lack of control, but they are before the marketability discount.
[As per original] (Transcript, 23 June 2014, page 327)
81.When it was suggested to Ms LL that before she could apply the 25 per cent premium to a minority parcel, the value of the minority parcel must be first determined, Ms LL replied:
MS [LL]:It’s a circular argument. So you have to work out what is the value of the minority share such that when it’s multiplied by a premium of 25 per cent, you get the value of two controlling share parcels, such that the sum of all ten of those 10 parcels is the value of the company.
[As per original] (Transcript, 23 June 2014, page 327)
82.In doing so Ms LL relied upon the definition of a control premium in the International Glossary of Business Valuation Terms 2001 as being “an amount or a percentage by which the pro rata of a controlling interest exceeds the pro rata value of a non-controlling interest in a business to reflect the power of control”.
83.The agreed value of N Pty Ltd at the time of the hearing was $11,147,860.
84.On her first approach, as outlined in the Second Joint Expert Report, Ms LL valued the shares held by the husband and T Pty Ltd, as at the date of the hearing, as $1,086,920 each.
85.On her second approach, Ms LL valued the shares held by T Pty Ltd and by the husband as being each worth $1,327,126, or a total for the two parcels of shares of $2,645,252. The eight minority share parcels were thus valued by her at $1,061,701 each. The controlling shares have a value of 1.25 per cent of an equivalent minority parcel reflecting the 25 per cent control premium.
86.It was not suggested to Ms LL that, using her second approach, a premium of other than 25 per cent was the appropriate premium to apply.
87.Ms LL made it quite clear that her method of valuation was based upon the capital rights of the shares in a winding up which is a known value. Part of her criticism of Mr MM’s approach was, that it was essentially speculative. This was because he relied upon past payment of dividends as an indication of what was to occur in the future.
88.Mr MM took a completely different approach. His valuation is based upon the payment of dividends as set out in the table recorded at paragraph 43 hereof.
89.Mr MM looked at the dividends that had been paid by N Pty Ltd. He found that between the years ending 2006 to 2012 inclusive the average dividend paid on the share parcels held by the husband and T Pty Ltd was 46 per cent of the total dividends paid by N Pty Ltd. In the Joint Experts Report of 15 July 2013, Mr MM said:
[37] In calculating the value of the husband and [T Pty Ltd’s] interests in [N Pty Ltd] [Mr MM] assumes the husband has the ability to distribute 46 per cent of the net assets to himself (either directly or via [T Pty Ltd]) and applies a twenty-five per cent premium for control. This gives a combined interest for the shares held by the husband and [T Pty Ltd] of 57.5% which [Mr Mm] believes to be reasonable given the husband could still declare and pay himself up to 99% of the dividends in any income year (s 254T of the Corporations Act 2001 as amended).
90.On the value of N Pty Ltd at the hearing, as agreed by the experts, Mr MM arrived at a figure of $6,066,148 for the shares held by the husband in N Pty Ltd and in T Pty Ltd.
91.As the total value of the shares cannot exceed the value of the company the value of the remaining share parcels could not be more than the difference between the value of N Pty Ltd and the value of the shares held by T Pty Ltd and the husband. The difference between $11,147,860 and $6,066,148 is $5,081,712 which when divided by eight gives the value of each of the share parcels held by the other shareholders of $635,214. Thus, if one were to use the methodology of Ms LL, the control premium is 441 per cent.
92.Mr MM then “cross-checked” this valuation by valuing the minority interests. From the minority share parcels nominal value he deducted a minority interest discount, a marketability discount and a discount for the shares being non-voting shares arriving at a total percentage discount of 56.2 percent. In his Second Report this “cross-check” was said to confirm his “upper range” valuation of the two controlling share parcels of N Pty Ltd of 65 per cent of its value.
93.In cross examination Mr MM said at page 331:
MR [MM]:…I do believe that having regard to the allocation of value of the company, you do have to do a cross check as to what is left on the table for the majority shareholders, which I’ve done. And if you want to take it a step further, you then need to say well, whatever that minority value is, absent voting power, which we know exists, what return could those minority shareholders in fact receive on whatever value you attribute to them. This is simply a cross check, having had regard to what you – what allocation you’ve given to the controlling shareholder. And in my report, I think I did the cross check, from memory, that I had set up a box which showed how much if I deduct the controlling shareholding, what’s left for the eight remaining minorities.
[As per original] (Transcript, 23 June 2014, page 331)
94.In undertaking that exercise Mr MM used a figure of 37 per cent for the minority interest discount and 20 per cent for the marketability discount. As is clear from his cross examination, Mr MM took the figure directly from a valuation undertaken by OO Valuers in the decision of the United States Tax Court of February 2000, Estate of Etta H. Weinberg, Deceased, Mellon Bank, Donald H. Herman and Louise W. Albert, Executors, v. Commissioner of Internal Revenue. Mr MM had included a table based on this case just prior to the “cross-check” table referred to and headed it “Composite Discount Example”
95.Ms LL accepted that Mr PP was a highly regarded valuer and author. She did not accept that the table had any utility. This was because it was an example of a valuation of a minority interest and not a majority interest and because Mr MM had simply, and uncritically, adopted the figure of 37 per cent he used in his “cross check” from that example.
96.As to the first Mr MM in cross-examination at page 340 of the transcript:
MR [MM]:This is an illustrative table. It’s not meant to be used for the purpose of – of saying, “Well, you know, how do you then go about valuing the majority?” I’m valuing a minority interest, looking at the different levels of lack of control. So I – I have not looked at the Weinberg case. I do not know whether he was a controlling shareholder, but to say there are no votes at all would be rare, I think. There’s some where there’s votes
[As per original] (Transcript, 23 June 2014, page 340)
97.Thus Ms LL’s first criticism would appear to be well made.
98.As to the second criticism of Ms LL, Mr MM agreed that the figure of 37 per cent came straight out of the Weinberg case. Given that there is no evidence to suggest that that case was remotely similar to the present the figure of 37 per cent carries no weight at all. I find that the “cross-check” proffered by Mr MM is of no assistance in determining the value of the N Pty Ltd shares. In cross-examination Mr MM said that other than demonstrating how it works from top down, the table has no relevance because he does not know if there is a controlling shareholder. He said it was an example of how discounts flow through from a control value. It is simply demonstrating a methodology.
99.I return then to the methodology used by Mr MM. Ms LL said that she did not understand the logic of it. Mr MM sought to explain his methodology in cross-examination thus:
MR [MM]The control premium is to value the business as a whole. Because you’re saying, I want to value a hundred per cent of this company and I’ve got to look at the control that that gives, and then I’ve got to work out from that how I allocate the value. Now, the allocation of value is different to determining the value, step one. So step one is determining the value. The allocation of that value is to work from the top back down and say, how do I allocate that value between what is, on the one hand, a controlling shareholder, which we have in this case as I understand it, and on the other hand the eight minority shareholders. So that’s the way I’ve done it. I’ve valued the controlling shareholders interest and determined a control premium, and I’ve based it on the past dividend history. That’s the way I’ve done it, and then applied that percentage to the whole. And what is left, in effect, I’m saying that is the cross-check, by dividing that number by eight is my minority share value. In my case it’s about $635,000 compared to the control value of a 10 per cent parcel of 3.3 million. So that’s how I’ve determined it.
[Emphasis added] (Transcript June 23 2014, page 329)
100.I also do not understand the logic of that valuation method.
101.The premise on which both valuers are valuing the shares is that the holders of the A class shares have all of the voting rights in N Pty Ltd. They can cause the company to pay all of the dividends to one shareholder, which may or may not be the husband or T Pty Ltd, or otherwise divide them as they see fit. I do not see how that control is referrable to or can be valued by the actual dividends received by them. The control remains the same regardless of what dividends are paid and to whom they are paid.
102.Further difficulties arise. Mr MM accepted that you can use as a guide the history of dividend payments to determine a likely course of future events. This was so notwithstanding that both experts expressly agreed that there was no pattern about the manner in which dividends had been paid in the past.
103.That is obvious when one looks at the table at paragraph 43. There is no link between the profit or loss made in each year and the dividends paid.
104.There is no correlation between the payment of dividends and the profit that was earned. For example in 2009 N Pty Ltd made a loss but still declared a dividend of $957,802. The distribution of the dividends amongst the shareholders likewise shows no pattern at all.
105.As has earlier been described, Mr MM used the dividends paid from 2007 to 2013 to calculate the dividend stream he used in determining the valuation. It was suggested to him that the determination of that period was entirely arbitrary. He said that he did not agree. He said it was the most recent years that he had adopted. To use all 13 years of available data was, in his opinion, going back too far in time.
106.When Mr MM was asked why he went back to 2007 as opposed to just using the last three or four years the following exchange occurred at page 348 of the transcript:
MR [MM]:Well, if I use more recent years, it would in fact bias towards a higher percentage allocation rather than a lower allocation, I believe.
HIS HONOUR: Well, wouldn’t that depend on whether you include 2009 or not?
MR [MM]:Correct, your Honour. That’s 85.7 per cent. I agree. Look, I agree that the period adopted will have some bearing on what percentage you adopt, but, generally speaking, out of the years that I did adopt, four out of those years were over 50 per cent, and some of them well over, and I think four were below 50 per cent if you include 2006, as far as the husband’s share is concerned.
[As per original] (Transcript, 23 June 2014, page 348)
107.The reference to 2009 is a reference to the dividend of $957,802 that was paid in that year.
108.The importance of this exchange is to highlight that the value that Mr MM’s approach gives to the husband’s shares varies depending upon the years selected for identifying the dividend stream. As the husband’s control has remained the same for that period I do not understand why the value of that control should be affected by the size of the dividends paid and the selection of the years in which dividends were paid.
109.There was available to the valuers a dividend payment history for 13 years. Ms LL opined that if one were to use historical data one should use all 13 years (whilst making it clear that she did not accept the use of the dividend history, in this case, was of any utility). When it was suggested to her that it is “commonplace to weight more recent data, or more recent conduct, favourably, in terms of forecasting the future, because it is evidence of the most recent course of conduct”, Ms LL said at page 308:
MS [LL]No. That doesn’t follow. It does follow when you are – when you are looking at historical information for one particular purpose. So, for example, the more recent trading performance of a business is more likely to be representative of the future – immediate future trading results of a business. But when you’re looking at the pattern of – a decision in relation to dividends which is at the discretion of – of the people with the voting shares, I would look at – I would always and have always looked at the longest period of information that’s available, because that is a decision which is the result of the discretion of the directors.
[As per original] (Transcript, 23 June 2014, page 356)
110.I accept that opinion. In the absence of a pattern as to the payment of dividends it is difficult to see how the past can be used to predict the future.
111.Mr MM’s valuation was premised on his view that, as the husband controlled the company, at least 50 per cent of the value of the company must be ascribed to that control. Mr MM said at page 356:
MR [MM]I’ve said that the bottom threshold for me was more than 50 per cent for the fact that that, in my mind, is control, and in this case that is control, but here we have a husband who has close to 100 per cent control and so my upper range was 65 per cent, which is very clear, as we’ve just gone through, in the second report. The 57.5 per cent on the one hand can be arrived at by looking at the dividends in the past. On the other hand, it can be dealt with by looking at the allocation of the value between the minority shareholders and the controlling shareholder, being the husband. So 57.5 is – is my mid point of the range.
[As per original] (Transcript 23 June 2014, page 356)
112.When asked why the upper range of 65 per cent was chosen, Mr MM said:
MR [MM]:Because on a value of 575,990, it gave me a dividend return to the minority shareholders based on the last seven years of just under five per cent for – five per cent. So each shareholder could have an expectation of a grossed-up dividend of just under five per cent. So that was my cross-check. It’s saying if I ended up with a value of 575,990 for each of the eight minority shareholders, what would have been their expectation of fully franked dividends based on the past seven years? And that was my cross-check. If that figure had been a million dollars, for example, your Honour, it would halve the return to the minority shareholders, and would that have been fair and reasonable?
[As per original] (Transcript 23 June 2014, page 357)
113.When it was then suggested to Mr MM that his judgment call was in fact just a guess he replied:
MR [MM]No, it’s not a guess. I believe that there are a lot of subjective issues that valuers have to – have to make a call on, and this is one of them, is the factor of what do you attribute to control; what value, what percentage do you attribute to control?
[As per original] (Transcript, 23 June 2014, page 357)
114.Ms LL said that she was not aware of any valuation principle that says control is to have such influence that the value of an asset or at least 50 per cent of the value of an asset must be ascribed to the person that holds control.
115.Mr MM did not direct the court to any authoritative valuation material that supports his approach and none was put to Ms LL by the wife’s counsel. I am not satisfied, therefore that the valuation principle which requires a share parcel capable of controlling a company to be valued at at least 50 per cent of the value of the company espoused by Mr MM is a generally held valuation principle.
116.Mr MM’s valuation ascribes a value to the husband’s shares as over four times higher than the value of each minority shareholding. Ms LL calculated, without objection, Mr MM’s value of the husband’s shares in T Pty Ltd to be 440 per cent higher than the value of the minority shares. This, she opined, was therefore a control premium of 441 per cent which was well outside the accepted range of 20-40 per cent adopted by her and adopted, at least at times and in some ways, by Mr MM.
117.I have already referred to the definition of control premium relied upon by Ms LL. It was not suggested to her that there was some other relevant definition established by the valuation literature. Mr MM did not assert one. In those circumstances I accept Ms LL’s evidence as the appropriate definition of a control premium. On that approach the valuation of Mr MM of T Pty Ltd and the husband’s shares seems excessive.
118.For these reasons I prefer the evidence of Ms LL to that of Mr MM. I have to say that I found much of Mr MM’s evidence difficult to follow and could not see the logic in the steps used by him to value the shares.
119.It then remains to determine which of the two approaches by Ms LL should be adopted.
120.Through his shareholding in T Pty Ltd and his own shareholdings the husband completely controls the voting in general meetings of N Pty Ltd. He can appoint the directors he chooses. He has sufficient votes to wind the company up if he chooses. He has, in his complete discretion, determined the payment of dividends from N Pty Ltd. He alone has determined the amount of the dividends that have been paid and to whom they have been paid.
121.All these matters indicate a substantial degree of control. This control over the company remains notwithstanding his assertions that he has stepped back from the business for at least the last three years. Even accepting for the present purpose that he is no longer involved in the day to day running of the business his position of control remains unaltered.
122.Section 254T of the Corporations Act 2001 (Cth) provides:
Circumstances in which a dividend may be paid
(1) A company must not pay a dividend unless:
(a) the company's assets exceed its liabilities immediately before the dividend is declared and the excess is sufficient for the payment of the dividend; and
(b) the payment of the dividend is fair and reasonable to the company's shareholders as a whole; and
(c) the payment of the dividend does not materially prejudice the company's ability to pay its creditors.
Note 1: As an example, the payment of a dividend would materially prejudice the company's ability to pay its creditors if the company would become insolvent as a result of the payment.
Note 2: For a director's duty to prevent insolvent trading on payment of dividends, see section 588G.
(2) Assets and liabilities are to be calculated for the purposes of this section in accordance with accounting standards in force at the relevant time (even if the standard does not otherwise apply to the financial year of some or all of the companies concerned).
123.The husband’s ability to control the payment of dividends is fettered to some degree by this section.
124.For these reasons I am satisfied that it is appropriate to use the second methodology of Ms LL. Accordingly, a ten per cent parcel of shares with control is valued by her as being $1,327,126. The value of the husband’s interests held through T Pty Ltd is 99 per cent of that figure namely $1,313,855 but the practical effect is that he has the benefit of both shareholdings.
the principal franchise
125.It is the husband’s case that he has effectively removed himself from the management of the Hunt Group. Mr J has become the principal for the Company 2 franchise, the Company 4 franchise and the Company 3 franchise. The husband however remains the principal for the Company 1 franchise, which is the major component of the business. It was his case that although that remains the legal position, Mr J is, and is recognised by Commpany 1 to be, the de facto principal.
126.It was not submitted by the wife that, leaving aside the acquisition of the Company 5 franchise, that the Hunt Group was being mismanaged or managed in a way that improperly diminished her entitlements.
127.The husband remains in control of the group by virtue of his shareholdings. That control remains whosoever the principal may be. In those circumstances the issue of the direct control of the day to day operations of the group seems to have little relevance.
128.In 2000 the husband had suffered a heart attack. He was then 65 years old. This was followed by a triple by-pass heart surgery. He was cared for by the wife as he recuperated.
129.After that time the husband said that he decided to scale back his involvement in the business and in particular work fewer hours.
130.At about the time when the parties commenced to live with each other in April 2001 the husband talked about retiring. The wife told Dr CC that the husband would work for another three years and then retire. A general manager was appointed who conducted the day to day operations of the business until 2005. Another general manager was employed between 2006 and 2009.
131.During that time the husband’s son Mr DD commenced the Company 1 principal course but he did not complete it. Subsequently Mr D did complete the Company 1 principal course but he was never taken up by Company 1 as the principal.
132.In February 2004 the wife told Dr CC that the husband intended to sell the franchise and had discussed the sale for 12 months or so.
133.In February 2005 the wife told Dr CC about the husband passing the franchise over to his sons but that she felt that she could, herself, be the principal. At this time she knew that Company 1 was having concerns about the age of the husband and his role as principal.
134.In October 2005 the husband told the wife that Company 1 wanted him to sell because of his age.
135.The wife agreed that the husband had told her that he wanted to “transition the business to his sons” but that he had said this before and she was not sure that he was serious. The wife thought that he might transfer the business to her and that she might become the principal.
136.In March 2008 the wife told Dr CC that Company 1 was apparently giving the husband three years to resolve the issue of the principal and that the husband was concerned about them not renewing the agreement. In late 2008 the husband informed the wife of his intention for Mr J to become the principal.
137.The wife said sometime after 2009 she came across a document of the husband’s headed ‘Simple Idea’ which she photocopied. In summary, it proposes a plan for the husband to sell his N Pty Ltd shares to clear his loan accounts thus having no assets save other than his superannuation fund. The document goes on to note in that event, the husband would continue to owe Westpac Banking Corporation $1.5 million on the B Street property and that the wife would still owe N Pty Ltd $1 million on her loan account.
138.The wife said she challenged the husband on this document. He told her that it was written by one of his accountant’s assistants. The wife said to the husband:
Is that about owning nothing and having nothing?
The wife said that the husband replied:
No it’s to do with the line of succession for [Company 1] and the business. [Mr J] has to have some shares to become [principal] when he does.
139.In July 2009 the wife became aware of a proposal by the husband to sell Mr J some shares which would enable him to become the principal.
140.In 2009 Mr J commenced the Company 1 principal course and completed it.
141.It was asserted by the husband and by Mr J that Mr J is regarded by Company 1 as the de facto principal. There is no objective evidence of this. The fact that Mr J was invited to particular events does not prove it. The fact remains that pursuant to the relevant agreements with Company 1 the husband remains the principal of the Company 1 franchise and has personal obligations cast upon him pursuant to that agreement. Nonetheless, his evidence that he has lived in Thailand for the last three years and has left the operation of the business largely to his sons seems to be a fair summary of the actual position. That is because that evidence is consistent with the history of the husband’s attitude to the business, and his role in it, since 2000.
142.It is to be recalled that Mr J, Mr D, N Pty Ltd and H Pty Ltd intervened in the proceedings to protect their interests. They were concerned that the orders as sought by the wife requiring the husband to take certain steps would involve him in engaging in oppressive conduct. In the event those submissions were not proceeded with, those parties limited their role to submissions about the loan accounts in the parties’ names.
143.Nonetheless the wife submitted at paragraph 3.22 of her written submissions:
[3.22]Suffice to say that the Wife submits that the whole saga of the intervention is an elaborate sham designed to attempt to persuade this Court that the Husband’s so called “succession planning” has taken effect and that his assets are now, in effect beyond reach of this Court, or else are so devalued by his relinquishment of effective control as to be of little value to him, and thus to the parties.
144.This submission cannot be accepted. Firstly the “succession planning”, if it be that, has, to the knowledge of the wife, on her own evidence, been undertaken for some considerable time. It can hardly be a device to assist the husband in this case because the husband has, to the knowledge of the wife, been reducing his day to day control of the business since 2001.
145.Secondly, and more importantly, whilst the “succession planning” appears to have given Mr J and Mr D day to day control of the Hunt Group the husband has retained all of his shares including, importantly, all of the A class shares. He remains in a position of control of N Pty Ltd. That position of control has been reflected in the valuation accepted by this court. The relinquishment of the day to day control to his sons has therefore not resulted in a diminution of the assets available to the wife.
THE ACQUISITION OF THE COMPANY 5 FRANCHISE
146.In July 2013, that is, during the hearing which occupied a number of days during April 2013, July 2013, March 2014 and June 2014, the Company 5 franchise in Town O was purchased. The land upon which the franchise operates was acquired by QQ Pty Ltd. The Company 5 franchise was acquired by RR Pty Ltd. The shareholders and directors of both companies are Mr D and Mr J. The two companies have established trusts known as the QQ Unit Trust and the RR Unit Trust respectively. The initial unit holders in the QQ Unit Trust are companies associated with Mr J and Mr D.
147.The purchase was largely funded by advances from Company 1 Finance Ltd. In a statement tendered on 18 July 2013 Mr J said:
[22]At one point in the negotiations to purchase the [Company 5 franchise] I am aware that [Company 1 Finance Ltd] forwarded to me (and [Mr D]) a guarantee documents and security document in relation to the purchase those documents required [N Pty Ltd], [H Pty Ltd], [T Pty Ltd] and my father to guarantee the finance. The companies did not sign those documents. My father did not sign those documents.
148.At some time, probably in early August (which is the date of the agreement according to the schedule), the husband executed a document called ‘Capital Loan Agreement’ in the capacity as guarantor and security provider. On the same day he executed a document described as an ‘Interlocking Deed of Guarantee and Indemnity’ in relation to the advance from Company 1. The Interlocking Deed of Guarantee and Indemnity was also executed by T Pty Ltd in its personal capacity and its capacity as trustee of the Hunt Family Trust and by N Pty Ltd. In effect, the loan used to buy the Company 5 franchise was cross collateralised and secured over the assets of the Hunt Group.
149.None of this was disclosed to the wife prior to it taking place.
150.As can be seen, the evidence given by Mr J on 18 July 2013, whilst perhaps correct at the time, was clearly overtaken by later events.
151.Conflicting evidence was given by Mr J, Mr D and the husband as to the husband’s knowledge of the proposed acquisition and the need for him to sign a guarantee. The wife submits that I should resolve this conflict by finding that the husband was deliberately dishonest in his answers when he denied any knowledge of the purchase until after it had taken place. I would then, it was submitted, find that this was evidence of non-disclosure by the husband which would enable me to take a more robust approach to adjustments under s 75(2) of the Act.
152.The husband is not a named beneficiary of the QQ Unit Trust or RR Unit Trust but, as a parent of Mr J and Mr D, he is a beneficiary of the two unit trusts. Thus, if the trusts were ever in a position to distribute funds, if the trustee exercised its discretion so to do, they could make a distribution to the husband.
153.This was, according to the wife, sufficient to give the husband a financial interest in the Company 5 franchise. This, it was said, was confirmed by T Pty Ltd and N Pty Ltd guaranteeing the advance from Company 1 Finance Ltd. It was submitted that the husband had lied about the acquisition of the business because he had a “considerable and ongoing financial resource in the form of a newly expanded … group”.
154.There was no evidence as to the value of the Company 5 franchise. It was not suggested that any sum representing the husband’s interest in companies and trusts owning the Company 5 franchise should be taken into account as an asset of his. It is possible that at some time the husband could receive a distribution from that trust. To that extent it is a financial resource. Such a distribution would, of course, depend on the discretion of the trustees even assuming that the business was sufficiently profitable to generate enough funds for the trusts to be in a position to make such a distribution. It is therefore a resource of an unknown value.
155.This is particularly so given that, on any version of the acquisition of this property, it seems to have been an acquisition that was organised by Mr D and Mr J with no input of any substance whatsoever from the husband. It was not suggested to them that it was anything other than their business. In those circumstances it is difficult to place any great weight, or any weight at all, on this as a financial resource of the husband.
156.A considerable attack was made by the wife on the credit of the husband and Mr J on this issue. Mr J’s demeanour was submitted to be “cagey” and his evidence “entirely unsatisfactory and blatantly dishonest”. The husband’s evidence was described as a tissue of lies.
157.It was submitted by the wife in her outline of submissions that the husband had not disclosed his assets and financial resources and that:
[5.26]The Court would find that in all probability, if it were not for this case, the [Company 5 franchise] would have been acquired within the corporate structure owned and controlled by the Husband, the reputation, trading history, security and the guarantee of which was apparently necessary in order for the transaction to proceed.
….
[5.28]To the extent that the Husband’s manipulation of the assets to disadvantage the Wife either devalues the assets, or deprives the wife of establishing a value then a generous allowance to her under s 75(2)(o) should be made having regard to the Husband’s conduct.
158.If the husband lied on this issue, as the wife submits he did, the effect would be that his evidence, at least on this issue, would be disregarded. It would not permit, of itself, a positive finding being made that he had an interest in the Company 5 franchise.
159.There is no evidence that the value of N Pty Ltd or T Pty Ltd has been diminished by the transaction. It was not submitted, that the acquisition of the Company 5 franchise was actually undertaken by the husband or N Pty Ltd and that its acquisition by other entities was a sham. The above submission cannot be sustained.
160.Even if there was a deliberate failure by the husband to disclose the acquisition of the Company 5 franchise it was a failure to disclose the acquisition of an asset in which he had no real and direct financial interest and of an asset to which the wife did not seek to ascribe any value.
The number plate …2
161.The wife sought to have included as an asset of the husband the number plate “…2”.
162.The husband said, without challenge, that it was affixed to one of the cars registered in the name of H Pty Ltd. He said it had been a gift from his Company 6 distributor, at a time when the business included Company 6 units.
163.In July 2010 the husband made a handwritten note which he described as “recording thoughts”. The note appears to be, in the main, a note of instructions to give or suggestions to raise with Mr KK, the husband’s and the Hunt Group’s accountant. Towards the bottom of the note appears an entry for the …2 number plate and golf carts. A figure of $75,000 appears next to the number plate and the figure $6,500 next to golf carts. When it was suggested to the husband that he had written $6,500 because he thought the golf cart was worth $6,500 he replied:
Yes. I guess, as I say, they are figures – doodling, you know, helps put you to sleep at night.
164.The husband was then questioned about the number plate at page 72 of the transcript of 17 July 2013 as follows:
Can I suggest to you that in 2010 you thought the number plate was worth $75 000?---I might have dreamed of it, yes.
If you – why would you dream of that future for that number plate, Mr [Hunt]?---Like I dream of many things, I suppose. I don’t know why. I don’t know the basis of your question.
Well, my question is a simple one. Did you consider in July 2010 at any time that that number plate was worth $75 000?---Yes, I thought at one stage that it was of that sort of value but I didn’t make any professional enquiry on it, ever.
Okay. So, you based it on some idea as to its rarity and how much someone might be prepared to pay to get hold of it?---No, I would say it would be more on a hope.
Why would you pick that figure?---I don’t know.
[As per original] (Transcript, 17 July 2013, page 72)
165.On another note, written at least after sometime in 2007, the words “self no. plate …2” appear with the words “share [B Street]” immediately below. When it was suggested that this note indicated that the number plates were personally owned by the husband he said:
Well, I could also I could just be thinking that it’s on my car at that time, but I mean …
It could be but it could be just where I started things for Self, you know. I mean, the legal fact is I never owned that and I normally would never have ever registered the car in my name and the number plate, I think we’ve answered regularly, is used by [a spelling close to H Pty Ltd] on cards and by [a spelling close to H Pty Ltd].
[As per original] (Transcript, 17 July 2013, page 76)
166.The husband tendered a Roads and Transport Authority letter which indicated that the registration plate number …2 had not been transferred in or out of the name of the husband.
167.Notwithstanding the cavalier nature of the husband’s evidence, the weight of the evidence clearly favours a finding that the number plate is not held by the husband personally but by one of the companies, probably H Pty Ltd. As such its value will be assumed into the valuation of that company.
168.Rejection of the husband’s evidence, of itself, does not establish he owned the plate. Accordingly, it will not appear in the list of the parties’ assets.
loan to mr j
169.On 14 March 2009 the sum of $150,000 was withdrawn from the Westpac line of credit secured over the B Street property. In a schedule annexed to his affidavit affirmed on 25 March 2013, the husband deposed to those funds being paid to N Pty Ltd. In the course of cross-examination bank records indicating that the payee was Mr J were shown to the husband. That document did not assist his recall but the husband agreed the funds could have gone to Mr J.
170.The husband was unable to recall why those funds were paid to Mr J. He suggested:
I think there could be a circumstance that have been loaned to him for arguments sake.
[As per original] (Transcript, 17 July 2013, page 65)
171.I Pty Ltd acquired its shares in H Pty Ltd on 27 August 2010 borrowing the purchase price of $114,978 from N Pty Ltd. This loan has not been repaid. Given the dates and amounts, it is unlikely that this transaction has any relation to the $150,000 withdrawn from the Westpac line of credit.
172.The evidence does not establish the nature of the payment to Mr J or that there is an obligation on him to repay this sum to the husband or to the husband and the wife.
173.The submission of the husband that this and similar loans would be reflected in the valuation of that entity making the loan cannot be accepted as applying to this payment because there was no evidence it was a loan, let alone by an entity that recorded the advance in its books.
174.The appropriate course is to recognise this as a payment to the husband’s son from an account for which the husband and the wife are liable and to take it into account, if appropriate, pursuant to s 75(2)(o) of the Act.
funds withdrawn by the husband
175.On 28 October 2009 the husband withdrew $50,000 from the Westpac line of credit.
176.On 9 March 2010 the husband withdrew a further sum of $60,000 from the Westpac line of credit.
177.In his affidavit the husband said that these two sums were deposited to the N Pty Ltd account. The deposits were, however, unable to be located in N Pty Ltd’s bank account. The husband was asked if he had any other record that would confirm that the money was in fact paid to N Pty Ltd’s account and he replied “not here, no”. A call was made for any such document and none was ultimately tendered. When asked by the counsel for the wife that, if these sums had not in fact gone to N Pty Ltd did the husband have any idea where they went, he replied “Not at this point in time, no”. He thought there was no reason, however why he could not find out.
240.The husband sought to have added back the fees paid to Ms LL, the single expert in this matter, in the sum of $196,116 and also sought an order that, in due course, the wife reimburse him one half of those fees.
241.Ms LL was originally appointed as the single expert to value the companies associated with the husband. Upon receipt of her first report the wife sought and was granted leave to rely upon Mr MM as an adversarial expert. The wife has incurred a liability of $151,967 to WW Accountants for the provision of his services. She seeks to have those costs taken into account in the parties’ list of assets and liabilities.
242.As Chorn & Hopkins indicates, the source of funds to pay legal fees is a major determinant as to whether those fees should be added back. For the same reasons, the costs of valuations should be treated in the same way.
243.The source of the funds used by the husband to pay Ms LL’s fees is not clear. He may have paid them from dividends received post separation or he may have paid them from matrimonial assets to which the wife might be said to have a claim.
244.Ms LL, although appointed the single expert, had her evidence adopted in its entirety by the husband. Although she formally remained the court’s single expert, in reality there was a significant contest between Ms LL’s views on the one hand and Mr MM’s on the other.
245.For these two reasons the better course is to treat the costs of the experts as the costs of each of the parties. Thus, an order will not be made that the wife reimburse the husband for one half of Ms LL’s fees. It was suggested by the husband that she should, at least, reimburse one half of the expert’s fees up until the time of the order being made for Mr MM to give evidence. The quantum of such fees is not known.
246.The choice then is to include both Mr MM’s fees and Ms LL’s fees as liabilities of each of the parties or exclude them both. I propose to do the latter. Given that Mr MM’s fees have not yet been paid, that approach would seem to be more consistent with the principles set out in Chorn & Hopkins. Thus the husband will bear the liability for Ms LL’s fees and the wife for Mr MM’s and neither will appear in the list of assets and liabilities. This seems to be to me, in the circumstances, the approach that is more just.
247.The wife sought to have included as a liability a loan for legal fees in the sum of $157,000 and outstanding legal fees owed to her lawyers of $173,192. Ultimately the inclusion of those liabilities was, sensibly, in the light of Chorn & Hopkins not pressed but it was submitted that they were “real liabilities that my client has to meet going forward”.
the property, liabilities and financial resources of the parties
Assets and Liabilities
248.The assets and liabilities of the husband and the wife at the time of the hearing were:
BALANCE SHEET
Assets
Joint
Wife
Husband
NAB account …32 3,985 Siam Commercial Bank Public Company Ltd account 28,996 Shares in N Pty Ltd 1,327,126 Shares in T Pty Ltd 1,313,855 B Street, Town M 1,800,000 Town C property 350,000 St George Bank Account 518 Golf carts 4,000 Assets Sub Total 2,154,518 2,673,962 Total assets $4,828,480
Addbacks
Joint
Wife
Husband
Legal fees paid by the wife 469,104 Legal fees paid by the husband 344,679 Total Addbacks $813,783
Liabilities
Joint
Wife
Husband
WBC Rocket Home Loan secured over B Street Property
497,097
CBA Loan secured over Town C property
342,288
WBC Line of Credit secured over B Street property
1,493,020
N Pty Ltd Loan
805,190
N Pty Ltd Loan
588,178
H Pty Ltd loan
139,526
American Express Card
6,064
Loans for Business Z Pty Ltd secured over B Street property
140,000
Liabilities Sub-Total
497,097
1,287,478
2,226,788
Total Liabilities
$4,011,363
Wife’s superannuation
Husband’s superannuation: Hunt Group Staff Superannuation
1,032,005
Total superannuation
$1,032,005
Total Addbacks
$ 813,783
Total Assets
$4,828,480
Less Total Liabilities
$4,011,363
Net Assets
$2,662,905
subsection 79(2) of the act
249.I must first determine whether it is just and equitable that there be an alteration of the property rights of the parties. This must be done by consideration of the relationship, its breakdown, if any, the property held by the parties and the basis on which it was held and used by them. The determination is not to be inflated with the consideration of matters arising under s 79(4).
250.In the present case I am satisfied that it is just and equitable to make orders altering the interests of the parties to the marriage to the property held by them. They are no longer living in a marital relationship. The basis on which the ownership of their property and the use of it, by reason of them being in a married relationship and living together, has ended and it is appropriate that their property interests are altered so as to meet their new needs and circumstances.
Consideration of s 79(4) factors
Financial Contributions
251.At the time the relationship between the parties commenced the wife owned a property in Town C which was then subject to a mortgage in the sum of approximately $79,370. The Town C property is presently valued at $350,000 and is subject to a mortgage of $342,288. The wife owned furniture and contents within that property and had an interest in a superannuation fund. From the commencement of the relationship until 2009, she received wages from the Hunt Group.
252.At the commencement of the relationship the husband owned his interest in the various companies discussed earlier in the judgment. There is no suggestion that they changed substantially during the period of the relationship. In addition he owned S Street, Town M which was subject to a mortgage to Westpac Banking Corporation.
253.The B Street property was funded by borrowings from banking institutions. The repayments to those facilities were funded out of the husband’s businesses. The extensive renovations to the B Street property were funded by funds advanced by N Pty Ltd.
254.The husband and the wife met when she commenced work at Hunt Company 1 franchise in May 1998. The wife was engaged in selling aftermarket products.
255.In April 2001, when the husband and the wife commenced living together, the wife started work as a sales trainer. That work, according to the wife, involved her preparing for training sessions at home. She held training sessions for an hour at each of the three showrooms. She also said she spent other time training individual members of staff. Although she said that her training greatly increased the profitability of the business there was no evidence at all of such an effect.
256.It was the case of the husband that the continued engagement of the wife was an indulgence and she contributed nothing of substance to the business. She was however paid a considerable wage by the franchise for this work. In his affidavit of 25 March 2013 the husband said of this work:
[17]She usually attended to talk with the sales staff 3 or 4 times each week for around half an hour, and did preparation associated with those talks. Despite the reduction in her hours, she continued to receive the full time salary. [The wife] worked satisfactorily and in my view was good at her job.
257.Presumably, the husband thought there were sufficient cogent business or other reasons for continuing to employ the wife.
258.I do not accept however that that employment made a substantial or demonstrable contribution to the fortunes of the Hunt Group. In any event the wife received a substantial salary for her endeavours.
259.Although it appears that the wife’s income was applied to the expenses of the parties, the husband made the overwhelming financial contribution to the assets that are the subject of these proceedings.
The Contribution Other Than A Financial Contribution To The Acquisition, Conservation And Improvement Of Any Of The Properties Of The Parties
260.Extensive renovations were made to both the S Street property and the B Street property. Whilst the wife concedes that the husband dealt with the builders in relation to the financial side of the renovations and did whatever was necessary to organise the funds for the renovations she was responsible for dealing with the builders for much of the construction and design work. She said that she attended the building sites daily and discussed the renovations with the builder.
261.It is true that she does not have building qualifications or similar experience but most home owners do not and they are often closely involved in the renovations and supervising the renovations to their home.
262.Both parties therefore made a non-financial contribution to the development of those properties.
263.Unfortunately, those renovations led to the B Street property being remarkably over capitalised. It was purchased for $1.8m and the renovations cost approximately $1.5m. It was valued for these proceedings at $1.8m. That there was not an increase in value does not mean that the parties contributions should be ignored.
The Contribution Made By A Party To The Welfare Of The Family Including Any Contribution Made In The Capacity Of Homemaker And Parent
264.There were no children of the relationship.
265.The wife carried out the role of homemaker including cooking for the husband. She cared for him after his illness in 2000. At times during the relationship the wife had the benefit of a cleaner, a gardener and a pool cleaner.
266.Notwithstanding, the wife clearly made a contribution to the welfare of the family in that it was she who principally maintained the home, cared for the husband and cooked and cleaned.
267.The wife’s son from a previous relationship lived with the parties until 2004 and lived in one of the properties rent free until 2006. This represents a contribution by the husband.
268.The wife submitted that an appropriate order was that she receives 40 per cent of the net asset pool including superannuation.
269.In the wife’s written submissions it was noted that:
[9.5]This would accord with 20% for contributions across ten years of the relationship and a further allowance of 20% to reflect the matters referred to above in respect to s 75(2) including the adjustment under s 75(2)(o) for the Husband’s undisclosed assets and resources.
270.The length of the relationship was 11 years.
271.Having regard to the above contributions, the length of the relationship and in particular to the husband’s overwhelming financial contribution, I am of the view that the finding as to the financial and the non-financial contributions of the parties to their property and to the welfare of a family is 85 per cent to the husband and 15 per cent to the wife.
The Effect Of Any Proposed Order Upon The Earning Capacity Of Either Party To The Marriage
272.I do not see that any of the orders proposed by the parties or the order I propose making in these matters will have any effect upon the earning capacity of either party to the marriage.
The Matters Referred To In S 75(2)
273.The husband is presently 79 years old and in good health.
274.The wife is 59 years old and her health is questionable. Dr CC finds that she has an adjustment disorder with anxious and depressed mood which fluctuates in intensity. He said that the prognosis of the wife’s health is uncertain and will be influenced by the extent to which her uncertainties are alleviated by the termination of current uncertainties. I take that to mean the outcome of this case.
275.As has been observed, earlier Dr CC has described the wife as suffering from episodes of an anxiety disorder in 2000 and 2006.
276.Dr CC said that the disorder he first diagnosed in 2000 resolved in about six months. There was a relapse in 2006.
277.Between 1998 and April 2001 (when the parties commenced to live together) the wife worked 11 days a fortnight as a sales person selling aftermarket products for the Hunt Group. Thus, it may be inferred, although the anxiety disorder may have made her work more difficult for her, it did not prevent her from working.
278.Similarly although she was working vastly different hours and providing vastly different services, the anxiety disorder did not substantially prevent her from working, although she said that on some days as a result of this she cancelled training sessions.
279.In 2009 the wife voluntarily ceased working at the Hunt Group to start working as a receptionist in Business E. She has done so and continues to do so. It is true that it is a business in which she has an interest so her continued attendance there may not be a sound guide as to her employability. She did not, however give any evidence as to what her work there entailed or that it was a mere sinecure.
280.Nonetheless, having regard to the disorder diagnosed by Dr CC, the limited work she has undertaken since 2001, her age and her lack of qualifications an adjustment in her favour needs to be made for this factor.
281.On the other hand the husband, although significantly older than the wife, has the benefit of his interests in the Hunt Group and, importantly retains his control over, all of the voting shares in N Pty Ltd. He says that he pays dividends as he wishes. Notwithstanding what the husband describes as the business transitioning to his children, there was no suggestion that his control of the group through his shareholdings would not continue. There was a suggestion that his ability to pay such dividends as he chooses to himself in the future is restricted by s 245T of the Corporations Act and the growing involvement of his sons in the business. That has not yet been the case, however.
The Commitments Of Each Of The Parties That Are Necessary To Enable The Party To Support His Or Herself
282.Since the marriage the wife has increased the mortgage on the Town C property to its present value of approximately $351,000. That property is rented. The rent is not sufficient to pay the mortgage. She has, at least according to the husband, an obligation to pay N Pty Ltd $808,190. That liability however will be ameliorated by the orders proposed by either party in these proceedings.
Where The Parties Have Separated Or Divorced, A Standard Of Living That In All The Circumstances Is Reasonable
283.There is no doubt that whilst the parties were living together they each had access to and spent large sums of money. Whatever orders are made in these proceedings the standard of living of the wife is likely to be significantly less than she presently enjoys. This is inevitable.
284.The wife presently resides in the B Street property. It is a large home and, presumably, given that renovations of $1.5 million were conducted on it, a very comfortable home. It will of necessity need to be sold. That will reduce the wife’s standard of living.
Any Fact Or Circumstances Which In The Opinion Of The Court The Justice Of The Case Requires To Be Taken Into Account
Family Violence
285.The wife asserted that on occasions from 2003 the husband was physically violent to her. She also alleged that he spoke to her in a threatening and intimidating manner on many other occasions. She adduced photographs of bruising that she said was caused by one of the assaults. Of this violence the wife said at [184] – [185] of her affidavit sworn 5 April 2013:
[184]After February 2006 and following the assaults there were days when I just did not feel comfortable anywhere. I was so sad that I remained at home as much as possible and the more withdrawn I became the more I did not want to leave the house.
[185]I became so anxious as a result of the verbal abuse and assaults that I had panic attacks the night before I had to go to a training session at the Showrooms or to travel to Sydney to see Dr [CC] or go to [Business E]. I would have to force myself to get dressed and go.
286.It is to be recalled it was early in 2009 that the wife commenced working four days a week at Business E. That was a business in which the husband had no interest and the wife has a 49 per cent shareholding.
287.Dr CC is a medical practitioner with a diploma in psychology and describes himself as a specialist in “psychological medicine”. He does not purport to be a psychologist or a psychiatrist. Dr CC has an impressive curriculum vitae as to practical experience in his field.
288.I have already referred to the anxiety disorder suffered by the wife in 2000. Dr CC said the wife suffered a major relapse in May 2006 when she informed him of the alleged assault by her husband and again in late 2009. Dr CC said that her moods were seriously affected by marital issues particularly her suspicions about the husband’s activities in Thailand.
289.Dr CC noted in Annexure E of his affidavit sworn 5 April 2013:
[3]….the diagnosis was Adjustment Disorder with anxious mood. This Reaction was related to the continued marital issues that were associated with the long absences of the husband overseas and other related relationship issues. These absences by her spouse increased in frequency and duration with an escalation of her insecurity reaction. The appropriate diagnosis at this point would be Acute Stress Disorder (DSMIV).
[As per original]
290.In Kennon & Kennon (1997) FLC 92-757 at page 82,294 Fogerty and Lindenmeyer JJ said:
[82,294]Put shortly, our view is that where there is a course of violence conduct by one party towards the other during the marriage which is demonstrated to have had a significant adverse impact upon that party’s contributions to the marriage, or, put the other way, to have made his or her contribution significantly more arduous than they ought to have been, that is a fact which a trial Judge is entitled to take into account in assessing the parties’ respective contributions within s 79.
…
It is essential to bear in mind that relatively narrow band of cases to which these considerations apply. To be relevant, it would be necessary to show, that the conduct occurred during the course of the marriage and had a discernable impact upon the contributions of the other party. It is not direct to conduct which does not have that effect …
291.Accepting, for present purposes, the evidence of the wife and Dr CC at its highest, I am not satisfied that that evidence establishes the wife’s contributions were rendered more onerous by any family violence. Apart from the few training days that she cancelled the wife managed to continue her employment at Hunt Company 1 franchise and at Business E. She continues to do so today. Although her contributions to the home are said to have been rendered unpleasant and she took some days off work her evidence does not satisfy the test posed in Kennon for taking into account family violence. The authorities establish that such adjustments are to occur only in exceptional cases of which this is not one. Accordingly it is not necessary for me to determine whether or not the assaults and intimidation alleged by the wife occurred in the manner which she said they did.
The parties’ spending
292.Each of the parties was critical of the other for what was described as their profligate spending during the relationship.
293.The wife points to the payment of $150,000 to Mr J, the withdrawal of $50,000 on 28 October 2009 and $60,000 on 9 March 2010 from the Westpac line of credit and the payments to Ms TT. The husband points to the further encumbrance of the Town C property by borrowings of $272,000 (the proceeds of which were given away largely to her son).
294.Neither party suggested that the actions of the other party constituted waste within the meaning of Kowaliw & Kowaliw (1981) FLC 91-092. There is, of course, no such thing as a negative contribution.
295.In those circumstances it is difficult to make anything of the above submissions.
296.Further, it is not the court’s role to revisit every transaction that a party to a marriage conducts with a view to determining whether that transaction was beneficial or not. The parties to a relationship are entitled, generally speaking and in the absence of consideration such as waste, to spend and to deal with their income and property during the marriage as they see fit. Both parties, it seems, provided considerable sums to their children. That being the way they conducted their relationship I do not see how one can now criticise the other.
297.All of these matters are part of the vagaries of married life and the fact that, because the parties had access to substantial property and income, the figures are larger than they might be otherwise does not alter that conclusion.
298.The husband also sought to have taken into account as part of the wife’s profligacy her insistence of remaining in the B Street property after she became aware that its value was substantially less than the amounts secured upon it. The husband, pursuant to the orders of Ryan J, has been meeting the mortgage repayments. To the extent that the husband has funded those liabilities from capital there is force in that submission.
299.There are no other factors under s 75(2) I consider that are relevant to the issues before the court.
300.Taking all of these matters into account I am of the view that there should be a five per cent adjustment in the wife’s favour so that she will receive 20 per cent of the net assets. This is an appropriate division which reflects the parties’ contributions, particularly the husband’s financial contribution and takes into account the matters just mentioned. I also take into account in determining the division the partial property settlement of $200,000 received in 2012, the extensive spousal maintenance the wife has received and the wife’s use of the B Street property which required substantial mortgage repayments. I also take into account that any liability that the wife may have to N Pty Ltd will be borne not by her, but by the husband.
form of orders
301.The wife will retain and be liable for the following assets and liabilities:
Town C property 350,000
St George Bank Account 518
Golf Cart4,000
Paid Legal fees 469,104
Sub- total 823,622
Less
CBA Loan Town C 342,288
Business Z Pty Ltd Loans 140,000
Sub-total482,288
Net Assets$341,334
302.The husband will retain and be liable for the following assets and liabilities:
NAB Account 3,985
Siam Commercial Bank account 28,996
N Pty Ltd shares 1,327,126
T Pty Ltd shares 1,313,855
2,673,962
Legal Fees 344,679
3,018,641
Superannuation 1,032,005
Sub-total 4,050,646
Less
N Pty Ltd loan Wife 805,190
N Pty Ltd loan Husband 588,178
H Pty Ltd loan 139,526
American Express 6,064
Sub-total 1,538,958
Net Assets $2,511,680
303.That leaves:
Assets – B Street 1,800,000
Liabilities – Rocket loan 497,097
WBC loan1,493,020
Totalliabilities $1,990,117
Net($190,117)
304.The net assets of the parties are $2,662,905. Therefore 20 per cent is $532,581. For the wife to receive 20 per cent of the net assets of the parties, having regard to the net assets that she will retain, there needs to be a payment to her of $191,247 ($532,581 less the net assets retained by her of $341,334). This ignores, for the moment, the shortfall on B Street. From this there will need to be a deduction of one half of Mr VV’s fees, as discussed earlier. When $16,500 is deducted the sum the husband is to pay the wife is $174,747.
305.Both parties submitted that paid legal fees should be added back as discussed earlier. This means that of the assets being retained by the wife over half consist of paid legal fees. This represents an asset that no longer exists. Thus, although they are notionally being distributed they have been spent. The reality is that the assets that will actually be available to the wife will be the cash adjustment of $191,247. From this she will need to pay the balance of her legal fees. At the conclusion of the hearing these totalled $844,109 of which $375,005 remains unpaid. Those fees include some, but not all, of Mr MM’s fees.
306.The wife submitted that the appropriate division of the property was that she receive 40 per cent of the net assets (20 per cent on contributions and 20 per cent pursuant to s 75(2) which was to take into account the family violence and non-disclosure alleged by her as well as the other s 75(2) factors). As has been seen I did not accept her submissions.
307.The wife, therefore, does not have any significant capacity to contribute to the shortfall in the B Street property. The 20 per cent share of the shortfall is $38,023. There will, of course, be costs of sale taken into account which will increase any shortfall.
308.The burden of having to bear part of the shortfall will affect her disproportionately more than the husband. The appropriate course to follow is that, by way of an additional adjustment under s 75(2) the husband is to bear any shortfall in the sale of B Street. Any surplus will be divided between them as to 20 per cent to the wife and 80 per cent to the husband.
the n pty ltd loan accounts
309.It is to be recalled that the wife sought an order that her liability in respect to the loan account be assigned to the husband and that any residual liability of hers be extinguished.
310.In addition to that order, the interveners, as well as the husband, opposed that order. Because the order sought by the wife affects the rights of a third party, N Pty Ltd, it can only be made under s 90AE of the Act. Section 90AE provides as follows:
(1) In proceedings under section 79, the court may make any of the following orders:
(a) an order directed to a creditor of the parties to the marriage to substitute one party for both parties in relation to the debt owed to the creditor;
(b) an order directed to a creditor of one party to a marriage to substitute the other party, or both parties, to the marriage for that party in relation to the debt owed to the creditor;
(c) an order directed to a creditor of the parties to the marriage that the parties be liable for a different proportion of the debt owed to the creditor than the proportion the parties are liable to before the order is made;
(d) an order directed to a director of a company or to a company to register a transfer of shares from one party to the marriage to the other party.
(2) In proceedings under section 79, the court may make any other order that:
(a) directs a third party to do a thing in relation to the property of a party to the marriage; or
(b) alters the rights, liabilities or property interests of a third party in relation to the marriage.
(3) The court may only make an order under subsection (1) or (2) if:
(a) the making of the order is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage; and
(b) if the order concerns a debt of a party to the marriage--it is not foreseeable at the time that the order is made that to make the order would result in the debt not being paid in full; and
(c) the third party has been accorded procedural fairness in relation to the making of the order; and
(d) the court is satisfied that, in all the circumstances, it is just and equitable to make the order; and
(e) the court is satisfied that the order takes into account the matters mentioned in subsection (4).
(4) The matters are as follows:
(a) the taxation effect (if any) of the order on the parties to the marriage;
(b) the taxation effect (if any) of the order on the third party;
(c) the social security effect (if any) of the order on the parties to the marriage;
(d) the third party's administrative costs in relation to the order;
(e) if the order concerns a debt of a party to the marriage--the capacity of a party to the marriage to repay the debt after the order is made;
Note: See paragraph (3)(b) for requirements for making the order in these circumstances.
Example: The capacity of a party to the marriage to repay the debt would be affected by that party's ability to repay the debt without undue hardship.
(f) the economic, legal or other capacity of the third party to comply with the order;
Example: The legal capacity of the third party to comply with the order could be affected by the terms of a trust deed. However, after taking the third party's legal capacity into account, the court may make the order despite the terms of the trust deed. If the court does so, the order will have effect despite those terms (see section 90AC).
(g) if, as a result of the third party being accorded procedural fairness in relation to the making of the order, the third party raises any other matters--those matters;
Note: See paragraph (3)(c) for the requirement to accord procedural fairness to the third party.
(h) any other matter that the court considers relevant.
311.The order sought by the wife is an order under s 90AE(1)(a). In those circumstances the court may only make that order if all of the matters provided for by s 90AE(3) are satisfied.
312.The court must first determine that the order is reasonably necessary or reasonably appropriate and adapted to effect a division of the property between the parties to a marriage.
313.In this case the debt said to be owed by the wife of $808,190 is a large and substantial debt. It is a debt that arose from the common decision of the husband and the wife to renovate the B Street property to the extent that it was renovated and to fund that by borrowings from N Pty Ltd. It is clear that it was the accountant for N Pty Ltd who raised the question of there being a loan account to the wife because the funds that had been advanced by the company had been used for renovations on a property which was owned by her. There is no doubt, however, that the property was anything other than the matrimonial home in which both parties were intending to reside. The borrowings were clearly for the benefit of the husband and the wife. The husband has a similar loan account, used substantially for the same purposes, but in a lesser sum.
314.The loan is a substantial burden. Assuming, for a moment, that even if the orders otherwise sought by the wife were made and that she received the B Street property unencumbered, that order would be of no benefit to her if she remained obliged to pay N Pty Ltd the amount of the loan account in her name because the only means by which she could do so would be to sell the B Street property.
315.It is apparent from the orders that I otherwise propose making in this matter that the wife will not have the means to repay this debt. She will not receive the B Street property which will have to be sold to repay the mortgage. There is likely to be a shortfall on its sale.
316.As the borrowings were made for the benefit of both the husband and the wife, as both accept that the husband should bear the burden of the debt and as the wife could never repay it, it is reasonably necessary that this debt be dealt with in a way that resolves any obligation of the wife to repay it. This is recognised by the husband in that he proposes that he provide an indemnity to N Pty Ltd in respect of any liability she might have. Thus it is accepted by him, at least, that the ultimate burden of any indebtedness of the wife to N Pty Ltd should be borne by him. This is an important factor in the determination of what are the appropriate property division orders to be made in this matter. The proposed order, therefore, is part of the property division of the parties and adapted to that effect.
317.The court must next consider that, given the proposed order concerns a debt of a party to the marriage, whether or not it is foreseeable at the time the order is made that the order would result in the debt not being paid in full.
318.As a result of the orders being made in these proceedings the husband will retain his superannuation entitlements and his shares in N Pty Ltd and T Pty Ltd. He will have net assets of $2,511,680, less any shortfall on the sale of B Street (and recognising that $344,679 is an addback). Thus even taking into account the further $808,190 of the loan account in the wife’s name he will still have a significant assets.
319.The husband is also in a position to declare dividends to himself or to T Pty Ltd as he sees fit, provided it is otherwise proper to do so.
320.It was submitted by the interveners that “whilst, historically [N Pty Ltd] may have taken a particular approach about calling in any debts owing to it this was a decision based on the circumstances facing it at the time”. There was a suggestion that the directors of N Pty Ltd would exercise their fiduciary and statutory obligation to act in the best interests of the company when it comes to determine how to treat the outstanding loans in the future. Presumably these are veiled threats to limit the control of the husband in paying dividends as he sees fit and to limit or prevent a dividend being paid to reduce the loan accounts.
321.Firstly, there is no suggestion that the fiduciary and statutory obligations of the directors would compel them to seek the immediate repayment of the loan account from the husband. He may be in a position properly to declare dividends to enable that debt to be paid easily and in any event he could remove the directors at will if they chose to take that course.
322.The interveners however said this in their written submissions:
[17]… the Interveners would not oppose orders in terms whereby both the Husband and the Wife were liable for the Wife’s obligations and that [N Pty Ltd] would not be able to enforce its rights against the Wife until it had exhausted its liability to recover from the husband any monies owing to it on the Wife’s account. If the Husband has sufficient assets to meet the debt (following the outcome of the proceedings) then the Wife will not be troubled by such orders. If not, then the orders proposed by [N Pty Ltd] should be made for that very reason.
323.As I have already indicated the husband will have sufficient assets to meet the debt.
324.So much seems to be conceded by the interveners. Accordingly, it is not foreseeable at this time that if the orders sought by the wife are made that order would result in the debt to N Pty Ltd not being paid in full. Indeed, as there is no prospect of the wife having sufficient assets or income to repay this debt the proposed order would, if anything, enhance the prospect of N Pty Ltd being repaid.
325.The interveners were joined to the proceedings at their request to preserve their interests. Part of those interests were dealing with the orders proposed by the wife. They have been accordingly conceded procedural fairness. So much was considered by their counsel during oral submissions.
326.I am required to take into account the matters raised by s 90AE(4). There was no evidence expressly directed to the taxation effect, if any, on either of the parties to the marriage. It is apparent from the evidence of Mr KK that there is a risk that a large loan account in the name of one of the shareholders or directors will be regarded as a deemed dividend by the Australian Taxation Office and tax will be levied accordingly.
327.That does not seem to be a reason for not making the orders sought by the wife given the capacity of the husband to meet the debt in one of the ways outlined earlier.
328.There is no evidence as to the taxation effect of any of the proposed order on the third parties.
329.There is no evidence as to the social security effect of the proposed order to the parties to the marriage.
330.No doubt N Pty Ltd would have some administrative costs in attending to an assignment of the debt and passing resolutions releasing the wife from liability. There is no evidence as to what that would be but they would not appear to be at all substantial. Section 90AE(4)(e) requires the court to take into account the capacity of a party to a marriage to repay the debt after the order is made. I have already dealt with that issue and am satisfied that the husband has that capacity.
331.It would be most unfair in this case if the wife was left exposed to the debt to N Pty Ltd. It has been regarded by me as a debt owned by the parties and is one that should be taken into account by the court in this property settlement. I am satisfied that the orders sought by the wife will not have an adverse effect on N Pty Ltd.
332.I take into account that N Pty Ltd has, knowing the hearing of these proceedings was imminent, sent the wife a letter of demand requiring repayment of the loan account in her name. They did so knowing these proceedings were looming and knowing that the wife then had no capacity to make the payment sought. If an order is not made protecting the wife there is every reason to think that a similar course will be adopted in the future.
333.Accordingly, I am satisfied that it is appropriate to make the order under s 90AE sought by the wife.
SUMMARY
334.Taking all of the above matters into account, I am satisfied that the orders I propose to make are appropriate, that is to say, just and equitable taking into account all of the matters I have discussed under the heading s 79(4) as set out above. The orders meet, as best they can in the circumstances, the obligation under s 81 finally to determine the financial relationship between the parties and avoid further proceedings between them to the extent possible.
335.I am fully conscious that the amount to be received by the wife is small and is less than her outstanding legal costs. That result flows partly from the way the parties approached the case in agreeing to add back substantial paid legal fees and from the facts of the case themselves. The amount of the net assets was heavily influenced by the findings as to the value of the husband’s shares but it is to be noted that the wife’s valuer had originally proposed higher valuations for the companies which were ultimately not pressed by him.
I certify that the preceding three hundred and thirty five (335) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Aldridge delivered on 4 December 2014.
Associate:
Date: 4 December 2014
Key Legal Topics
Areas of Law
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Family Law
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Property Law
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Civil Procedure
Legal Concepts
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Remedies
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Costs
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Injunction
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Jurisdiction
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Res Judicata
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Procedural Fairness