IABH & HRBH
[2006] FamCA 379
•18 May 2006
[2006] FamCA 379
JFBHIABH-
FAMILY LAW ACT 1975
IN THE FAMILY COURT OF AUSTRALIA
AT BRISBANE
Appeal No. NA 22 of 2005
NA 27L of 2005
File No. TVF 6 of 2003
IN THE MATTER OF:
IABH
Appellant/Wife
- and -
HRBH
Respondent/Husband
REASONS FOR JUDGMENT
BEFORE: Finn, Coleman & May JJ
DATE OF HEARING: 10th day of August 2005
DATE OF JUDGMENT: 18th day of May 2006
APPEARANCES: Mr Bartfield of Queen’s Counsel, (instructed by William Graham Carman, Solicitors, PO Box 947, Cairns QLD 4870) appeared on behalf of the appellant wife.
Mrs Pagani of Counsel, (instructed by Miller Harris Lawyers, PO Box 7655, Cairns QLD 4870) appeared on behalf of the respondent husband.
Name of Appeal IABH & HRBH
Appeal Number NA22/2005, NA27L/2005
Date of Appeal hearing 10th day of August 2005
Date of Judgment 18th day of May 2006
Coram Finn, Coleman, May JJ
Catchwords: Appeal against orders for property settlement and child support.
Appeal against conclusion that contingent liability should be brought to account in determining net assets of the parties upheld as such conclusion not supported by the evidence, which did not establish either that action had been, or would be taken resulting in the husband being called upon to honour the guarantee he had given – Evidence did not establish that the trading position of the entity in whose favour the husband had given the guarantee would cause the husband to be called upon pursuant to the guarantee.
Challenge to trial Judge’s decision to take into account in determining net assets of the parties Capital Gains Tax and selling expenses with respect to real estate of the parties upheld on the basis that the evidence did not on its face establish that the sale of such entities was “inevitable” and the conclusion was not otherwise supportable by the trial Judge’s reasons – Rosati v Rosati (1998) FLC 85-043 and G and G [2001] FamCA 1453 considered.
Challenge to trial Judge’s decision with respect to child support upheld on the basis that the reasons for such decision were inadequate.
Parties directed to make further submissions as to future course of proceedings in the light of the Court’s intention to allow the appeal.
Costs of the appeal reserved.
By Notice of Appeal filed 18 April 2005 the wife appealed against orders made by Buckley J on 22 March 2005 in proceedings between herself and the husband. The orders of the trial Judge which the wife challenged related to settlement of property and child support. As was clarified by her learned Senior Counsel, the wife sought that, in lieu of the sum awarded to her by the trial Judge, being $2,567,376.80, the wife be awarded $2,918,363.03, rather than the sum of $3,131,340.50 sought in her Notice of Appeal. The wife sought that, in lieu of the sum of $150.00 per week per child for child support determined by the trial Judge, the sum of $300.00 per week per child be ordered. The husband resisted the wife’s appeal and sought to maintain the trial Judge’s orders.
BACKGROUND FACTS
The wife was born in 1952 and was thus 52 years of age at the date of judgment. The husband was born in 1926 and was 78 years of age at the date of judgment.
The parties married on 31 August 1991. The trial Judge found that the parties commenced cohabitation in 1987.
The parties separated on 12 November 2002 after, on the trial Judge’s findings, more than 15 years of cohabitation.
There are two children of the marriage, born November 1989 and April 1993. The children were respectively aged 15 and 11 years at the date of the trial Judge’s judgment.
The trial Judge found the parties to have net total assets of $6,418,442.00. Only three sums taken into account by the trial Judge, one being a guarantee given by the husband and two of his business partners with respect to a corporation known as S Pty Ltd of $210,313.00 and two “contingent liabilities” being property selling expenses of $282,750.00 and Capital Gains Tax of $1,607,594.00, assume significance for the purpose of this appeal. The trial Judge concluded the contribution entitlements of the parties to be 30 per cent to the wife and 70 per cent to the husband which he adjusted by 10 per cent in the wife’s favour by virtue of s 75(2).
THE TRIAL JUDGE’S JUDGMENT
The proceedings before the trial Judge occupied five hearing days. In his published reasons, having recited the background facts to which we have referred, and recorded the orders sought by each of the parties, his Honour identified the “relevant principles” with respect to the property proceedings before him. No part of this appeal turns upon such portion of the judgment.
An issue before the trial Judge was the date upon which the parties commenced cohabitation, the wife asserting a time between August and December 1984, the husband asserting about May 1987. For reasons which he detailed, and which assume no significance in this appeal, the trial Judge concluded that cohabitation commenced in February 1987.
Under the heading “Assets, Liabilities and Financial Resources”, the trial Judge identified the assets and their values which were not in contention, and addressed controversial issues in relation to one major asset and a number of alleged liabilities, including those referred to at the outset of these reasons. It is unnecessary for present purposes to refer to the trial Judge’s reasons for finding the value of the husband’s residence, his villa at Far North QLD, to be $2 million. It is also unnecessary to refer to the trial Judge’s reasons in relation to financial transactions involving Ms W and Ms K, or to monies allegedly owing to Ms PM.
10. The issue in relation to Capital Gains Tax and selling expenses totalling $1,890,344.00 was accurately identified by the trial Judge. The husband sought that “irrespective” of whether the Court ordered the sale of any real estate owned by the parties, the selling expenses and Capital Gains Tax “should be regarded as liabilities and deducted from the total value of the parties’ assets” (Judgment, paragraph 39). The wife opposed any such deductions.
11. His Honour recorded the contention on behalf of the wife as being that the Court should:
40. … first consider the contributions of the respective parties and their competing claims under s.75(2), at least in a general sense, to see whether that consideration enables the Court to better determine, if any and if so, which of the assets attracting this potential liabilities may need to be or are likely to be sold in the foreseeable future.
12. As his Honour also recorded, the husband sought to have taken into account as a liability of the parties, his obligations pursuant to a guarantee given with two other persons in relation to S Pty Ltd, the quantum of which he asserted to be $210,313.00. The wife disputed that such figure, or any other figure, should be taken into account as a liability. The quantification of the liability of the husband and others under the guarantee was not in issue before his Honour or before this Court, being the sum of $210,313.00.
13. Reference was made to the husband’s acceptance during cross-examination “that he incurred the liability at a time when he was restrained from doing so pursuant to the terms of an Order made on 28 May 2003”. The trial Judge accepted the husband’s explanation “that when he did so he did not realise that the signing of a guarantee was restrained by the order, although he now accepted that upon examining its terms that it was clearly covered” (Judgment, paragraph 56).
14. The trial Judge recorded that the “venture was initiated prior to the separation of the parties and was managed by the Husband in the same manner as he has administered all of the parties’ other financial ventures” (Judgment, paragraph 56).
15. The wife’s “very limited involvement in any of these ventures” was found to have been “restricted to inspecting properties with the Husband which he proposed to purchase” (Judgment, paragraph 57).
16. His Honour was referred to the husband’s “buoyant attitude as to the future prospects of the venture” but noted that the single expert, Mr C, was “not cross-examined by either party as to his opinion as set out in Note 3 of his report” (Judgment, paragraph 58). That note, prepared by another accountant, suggested that the venture was “insolvent”. Mr C concluded that the husband was likely to have to meet the entirety of the obligation of the guarantors with respect to the venture in the event of a call being made pursuant to the guarantee. His Honour was thus “satisfied that it is not appropriate to either disregard the liability or bring it to account as against the interest of the Husband only” (Judgment, paragraph 59).
17. Turning to the issue of whether the selling expenses and Capital Gains Tax referrable to the sale of any of the real estate of the parties “should be taken into account in circumstances where I do not order their sale” (Judgment, paragraph 66), his Honour recorded the submissions made in writing to him on behalf of the husband (Judgment, paragraph 67) and the wife (Judgment, paragraph 68). He referred to passages in the judgment of the Full Court in Rosati v Rosati (1998) FLC 85-043, and to the passage in the judgment of the Full Court in G and G [2001] FamCA 1453.
18. The trial Judge concluded that “the entities in question were acquired as investments with a view to their ultimate sale for profit” and that “the sale of the entities are an inevitable consequence of the Husband continuing to conduct his business in the manner in which he has done so for many years” (Judgment, paragraph 74). He thus included the figures to which we earlier referred with respect to each of those items.
19. Having determined the asset pool of the parties, the trial Judge turned to consider the contributions which each of the parties made. For reasons which will become apparent, although the wife challenged the trial Judge’s conclusions with respect to contributions, we need only refer at this stage to the trial Judge’s conclusion, significantly influenced by the undoubtedly superior financial position of the husband compared with that of the wife at the date cohabitation commenced, that contributions should be seen as 70 per cent to the husband and 30 per cent to the wife. His Honour referred to the husband’s “significantly superior contribution to the acquisition and improvement of the various business entities and the other items of property” of the parties (Judgment, paragraph 109).
20. Turning to s 75(2), the trial Judge concluded that an adjustment in the wife’s favour of 10 per cent was appropriate. Although a complaint about the s 75(2) adjustment is contained in the fourth ground of appeal and referred to in the written submissions on behalf of the wife, this was not a matter strongly pressed before us and we do not propose to say more about the matter.
GROUNDS OF APPEAL
21. Ground 1 provided:
1. The learned trial Judge erred in law or in the exercise of his discretion in finding that the sum of $210,313 (being the alleged liability of the husband under a guarantee given by him and two of his partners in respect of the debts of S Pty. Ltd.) should be deducted from the pool of assets or treated as a liability.
Particulars
(a)The finding that the said amount represented a liability which was to be borne by the husband alone was against the evidence and the weight of evidence;
(b)There was no evidence or insufficient evidence of the existence of circumstances giving rise to the guarantee being called up;
(c)The finding was made in the face of evidence that the husband committed himself to the guarantee when prohibited from so doing by an order of the Court;
(d)The finding was made in the absence of any evidence that the partners could not meet their obligations in the event that the guarantee was called up;
(e)The finding was made in the face of the evidence from the husband that the other partners had the capacity to repay their share of any liability;
(f)The finding was made in the face of the husband’s concession during evidence that responsibility for the said amount should not be visited upon the wife;
(g)The learned trial Judge drew adverse inferences against the appellant and/or came to an incorrect conclusion about the future prospects of the S Pty. Ltd. venture from;
(i) The contents of Note 3 of the report of the single joint accounting expert (Mr C).
(ii) The failure of either party to crossexamine Mr C in relation to the said Note 3.
(h)In relying upon the said “Note 3” the learned trial Judge overlooked or failed to take into account Mr C’s qualification to his report contained in the first page of annexure “GC2” to his affidavit sworn on 6 October 2004 and filed 7 October 2004.
(i)The learned trial Judge failed to give sufficient reasons to enable the parties or the Full Court to discern the process by which his Honour made the said findings.
(j)The learned trial Judge failed to explain why he was not prepared to accept and did not accept the husband’s admissions against interest.
22. The trial Judge’s discussion of the S Pty Ltd Guarantee is set out below:
56. As to any liability which may arise from the Husband S Pty Ltd guarantee, the Husband readily accepted during cross-examination that he incurred the liability at a time when he was restrained from doing so pursuant to the terms of an Order made on 28 May 2003. However, I accept his explanation that when he did so he did not realise that the signing of a guarantee was restrained by the order, although he now accepted that upon examining its terms that it was clearly covered. The venture was initiated prior to the separation of the parties and was managed by the Husband in the same manner as he has administered all of the parties’ other financial ventures.
57. The Wife’s very limited involvement in any of these ventures has been restricted to inspecting properties with the Husband which he proposed to purchase.
58. Notwithstanding the Husband’s buoyant attitude as to the future prospects of the venture, Mr C was not cross-examined by either party as to his opinion as set out in Note 3 of his report.
59. Accordingly, I am satisfied that it is not appropriate to either disregard the liability or bring it to account as against the interest of the Husband only.
23. Senior Counsel for the wife referred the Court to the evidence in chief of the husband in relation to the guarantee which he submitted was:
… narrow in its scope, being directed to a finding that the investment is of no value. There is no suggestion by the husband at that point that he alone will be liable for the guarantee on the overdraft. (Appellant Wife’s Summary of Argument, paragraph 7)
24. In his affidavit of evidence in chief, the husband deposed:
110. In July 2002 I received 50 $1 shares in S Pty Ltd (the Company) for $50. A few months later I transferred 25 shares for $25 to a family friend, PH who became a director. Later the same year I loaned the company $50,000 to develop a stainless steel fencing system for swimming pools, balustrades and stairway railings. Mr JV owns the licence for the product and the company has a 10 year lease over the patent right to manufacture the product.
111. In 2003 I arranged an overdraft facility of $200,000.00 in operating capital for the company. This is guaranteed by three directors. The company has however been unable to progress to development and sale of the product. The operating capital has been expended. There is now a dispute as to the ownership of the licence and the responsibility for the debts of the company.
112. I appointed on the recommendation of my bankers GM of SAS Pty Ltd to investigate what steps are required to be taken to resolve outstanding disputes between interested parties. A report has been prepared Mr GM for the purposes of these proceedings to assist KPMG Accountants to assess a value for the my [sic] interest in the Company.
113. In order to secure the repayment of debts of the Company and the right to use the licence Court action may be required. Various rescue packages have not provided PH and I with any return on our investment in the product.
25. The Court was referred to oral evidence given by the husband in relation to the guarantee. It was submitted that the husband’s “uncontradicted evidence” was that the “enterprise has bright prospects in the future and he has great faith in the product”, the husband’s evidence in that regard being:
Bright prospects in the future you believe?---I believe so, yes. I have great faith in the product. (Transcript of 11 November 2004, page 180)
26. It was further submitted that one of the other guarantors had “some substance” in that he had a “very valuable licence”, such submission relying upon evidence given by the husband:
Other guarantors have some substance?---One does. One has a very valuable licence. (Transcript of 11 November 2004, page 182)
27. Reliance was also placed upon the following evidence given by the husband:
And it would be really very unfair to her to have visited upon her in these proceedings that liability for any share of it, wouldn’t you agree?---Yes, I’d agree. (Transcript of 11 November 2004, page 182)
the effect of which was submitted to be that the husband accepted “[t]hat it would be very unfair to [the] wife to have any share of the liability visited upon her in these proceedings” (Appellant Wife’s Summary of Argument, paragraph 10).
28. Reference was made to the evidence of the joint expert, Mr C, a chartered accountant, who swore two affidavits in identical terms. It is apparent that Mr C relied upon a report of another accountant in relation to the husband’s contingent liability under the guarantee. It was submitted that Mr C “was doing no more than recording information which was provided for him” and “made no independent investigation of where (and if) the liability for the guarantee would fall”. His evidence was submitted to be “limited to that extent” (Appellant Wife’s Summary of Argument, paragraph 9).
29. Reliance was placed upon the fact that Mr C gave evidence of requesting a “more accurate and up to date indication” of how the overdraft facility of the venture which the husband and others had guaranteed “might end up”, and upon Mr C’s description of the report of the other accountant upon which he relied as “poorly drafted and structured” and upon the fact that, as Mr C’s affidavit revealed, the amount of the liability to Westpac had reduced during the 7 months preceding the swearing of his second affidavit.
30. It was conceded on behalf of the wife that the trial Judge had been aware of the husband’s evidence in relation to the future of the venture, but relied upon the absence of cross-examination of Mr C as his reasons made clear:
58. Notwithstanding the Husband’s buoyant attitude as to the future prospects of the venture, Mr C was not cross-examined by either party as to his opinion as set out in Note 3 of his report.
It was submitted however that there had been no necessity to cross-examine Mr C on the issue “because it is clear that he expresses no opinion other than to repeat what somebody else wrote and reproduce an amount standing as an overdraft in a bank account” (Appellant Wife’s Summary of Argument, paragraph 12).
31. Senior Counsel for the wife further submitted that:
Once the husband conceded that it was unfair to visit the liability on the wife, there was no issue between the parties to be decided and his Honour should not have proceeded to make findings which were outside the ambit of the dispute as defined by the husband’s evidence.
It was thus submitted that the trial Judge had erred in relation to guarantee and that $210,313.00 should be added back to the asset pool.
32. On behalf of the husband, reliance was placed upon the unchallenged evidence of the husband in relation to disputes with respect to the licences and the possibility of Court action “in respect of debts and the use of the licence” of S Pty Ltd (Respondent Husband’s Summary of Argument, paragraph 2). The evidence of the husband thus relied upon was at paragraphs 110-113 of the husband’s affidavit, as set out earlier.
33. Reliance was placed upon the unchallenged evidence of the joint expert Mr C that:
· The company is insolvent and unable to meet its debts
· The other directors do not have the capacity to meet their shares of the guarantees. The borrowings are secured over the assets of Mr BH [the husband]. It is likely that Mr BH will have to inject more funds or meet the debt due to Westpac. (Respondent Husband’s Summary of Argument, paragraph 3)
34. It was submitted that “read accurately, in context and in its totality”, the husband’s evidence in relation to the prospects of the S Pty Ltd posed no difficulties for the trial Judge’s preference of Mr C’s more pessimistic conclusions. The passages of the husband’s affidavit of evidence in chief referred to earlier were particularly relied upon in this context.
35. The Court was referred to cross-examination of the husband during which he said:
And it’s a very big (indistinct) enterprise to date, would you agree?---(Indistinct) but the future has bright prospects.
Bright prospects in the future you believe?---I believe so, yes. I have great faith in the product.
I beg your pardon?---I have great faith in the product. But the company lacks capital.
The company has an overdraft?---Yes.
It’s fully extended?---Yes.
$200,000?---And its capitalised interest of about $8000 at this time.
Right. And you are a guarantor of that overdraft?---One of three guarantors. (Transcript of 11 November 2004, page 180)
36. In relation to the evidence of the husband regarding the “substance” of one of the other guarantors, it was submitted that such evidence as the husband gave did not materially alter the position to which Mr C referred in his affidavit. Particular reliance was placed upon the following portions of the husband’s evidence to support that contention:
And no call has been made on the guarantee yet? Other guarantors have some substance?---One does. One has a very valuable licence.
Mrs PH, is it?---No, no, that’s JV.
And Mrs PH is the other one?---He’s the inventor and owner of the licence and the collateral, property, but in the licence.
And there’s a (indistinct)? And does he have assets that you’re aware of? Well you don’t know that he does?---Sorry?
You don’t know that the co-guarantors won’t meet their proportion of share, do you?---No, I couldn’t guarantee it.
No, well you don’t know. (Transcript of 11 November 2004, page 182)
37. Counsel for the husband disputed that the husband’s evidence in relation to “visiting” any part of the liability on the wife should be interpreted in the manner asserted on behalf of the wife, submitting that the husband merely signified that no part of the liability should be assumed by the wife, not that it should be disregarded for the purpose of determining the net worth of the parties. It is necessary to consider what the husband actually said and the context in which he said it in order to resolve this issue.
38. In our view, whilst the husband’s evidence clearly acknowledged that the contingent liability for the debt should ultimately rest with him, as clearly it was always going to given that the wife was not party to the guarantee, it is not necessarily the case that the husband was conceding any more than that. Moreover, as was submitted on behalf of the husband, the trial Judge was not obliged to hold the husband to that statement, even if, properly construed, that was what the husband was saying. The obligation of the trial Judge was to determine a just and equitable apportionment of the parties’ assets in accordance with the provisions of Part VIII of the Act.
39. The Court was referred to a submission in those terms made by Senior Counsel then appearing for the wife in support of an objection to cross-examination of her in which not dissimilar admissions were being sought (see Transcript of 9 November 2004, page 11 and following).
40. Mr C said in his report:
S Pty Ltd was incorporated on 3 July 2002. According to unaudited financial statements for the nine months ended 31 March 2004 provided by SAS Pty Ltd, Mr BH’s interest of $45,025 represented a 25% interest in that company. However, those same financial statements show that the company has a net excess of liabilities over assets at that date of $226,837. A report dated 18 August 2004 has been prepared by SAS for the solicitor acting for Mr BH. The report indicates that the writer’s terms of reference were “we have undertaken a review of the documents forwarded by the potential investors, in connection with the proposed changes and in answer to the many questions we have raised re: the groups [sic] operations, the ongoing relationship between the parties, what is it if anything, that the parties are intending to do about the outstanding creditors and overdraft facilities”. The report is poorly drafted and structured. However, what appear to be the findings are:
· There has been some consideration of a restructuring but at the date of the report, that had not occurred.
· The company is insolvent and unable to meet its debts
· The directors including Mr BH have guaranteed amounts owing to Westpac of $211,882 at 31 March 2004. The other directors do not have the capacity to meet their shares of the guarantees. The borrowings are secured over the assets of Mr BH. It is likely that Mr BH will have to inject more funds or meet the debt due to Westpac.
There was no objection to that portion of Mr C’s report, nor any cross-examination of him on it, or any other parts of his report.
41. Whatever the financial status of S Pty Ltd, there was no evidence before the trial Judge that any attempt had been made to place the corporation in liquidation, receivership or otherwise seek to have orders made against it pursuant to the Corporations Act 2001 (Cth) or otherwise. There was no evidence of any demand being made upon the husband in reliance upon the guarantee.
42. In his reasons for judgment, the trial Judge referred to the absence of cross-examination of Mr C in relation to “his opinion as set out in Note 3 of his report” (Judgment, paragraph 58) and said “[a]ccordingly, I am satisfied that it is not appropriate to either disregard the liability or bring it to account as against the interest of the Husband only” (Judgment, paragraph 59). The trial Judge gave no other reason for his conclusion with respect to the guarantee that the husband gave on behalf of S Pty Ltd.
43. As was submitted on behalf of the wife, albeit modest, in the seven months prior to Mr C’s report, there had been a reduction in S Pty Ltd’s overdraft. The trial Judge did not refer to that matter.
44. No reference was made to the husband’s evidence, albeit qualified, that one of the other guarantors was a person of “substance”. We agree with the submission on behalf of the wife that, notwithstanding the absence of challenge to Mr C’s uncritical reporting of what someone else told him and the trial Judge’s entitlement to rely upon it (see Daw v Toyworld (NSW) Pty Ltd [2001] NSWCA 25), the trial Judge was obliged, in the light of the husband’s own evidence with respect to his co-guarantor, to consider the evidence of the husband as to the financial “substance” of one of his co-guarantors, particularly as no claim had been made pursuant to the guarantee. In that context it would also have been appropriate to refer to the evidence of the husband quoted earlier in these reasons (paragraph 36). Nor did his Honour have regard to the reality that there was no evidence before him of action having been taken against S Pty Ltd or against the husband pursuant to the guarantee he had given, or to the absence of evidence that the company was no longer trading.
45. In our view, the failure to have any regard to this evidence precluded the trial Judge from making the finding he did. We thus consider this challenge to have substance. In these uncertain circumstances it may have been open to the trial judge to treat this liability as a matter to be taken into account in considering the positions of the parties pursuant to s.75(2) but not clearly as a liability to be met wholly by the husband and included in the list of assets and liabilities. Although perhaps more directly relevant to the consequences of allowing the wife’s appeal, it is convenient to record at this point that Senior Counsel for the wife, fairly in our view, conceded that, although the sum of $210,313.00 should be added back to the asset pool, it was appropriate to adjust in the husband’s favour with respect to a proportion of that sum pursuant to s 75(2).
46. Ground 2 provided:
2. The learned trial Judge erred in law or in the exercise of his discretion in treating as liabilities and deducting the sums of $1,607,594 on account of the capital gains tax and $282,750 on account of selling expenses (which for convenience will be referred to together as the CGT liabilities) from the pool of assets.
Particulars
(a)The learned trial Judge correctly identified the case of Rosati as representing binding authority and thereafter misapplied the principles to be derived from that case;
(b)The learned trial Judge denied the appellant procedural fairness by relying on an unreported decision of G and G without giving the appellant’s counsel an opportunity to make submissions about the correct principles to be drawn from that decision;
(c)The learned trial Judge incorrectly interpreted the ratio decidendi of G and G and incorrectly applied that decision to the decision under appeal;
(d)The learned trial Judge incorrectly categorised the investment properties owned by the companies for which the CGT liabilities were claimed as assets which were “acquired solely as an investment and with a view to its ultimate sale for profit”;
(e)The learned trial Judge made the finding that that CGT liabilities should be deducted from the asset pool;
(i) In the face of evidence from the husband that it was not his intention to sell the investment properties; and/or
(ii) Without making an order requiring the sale of any of the properties; and/or
(iii) Without making a finding that any or all of the said properties will be sold in the near future or that such sale is inevitable;
(f)The learned trail Judge failed to make orders transferring some of the properties to the wife thereby equitably distributing the CGT liabilities by virtue of the operation of the roll over relief provisions of the Income Tax (Assessment) Act.
(g)The learned trial Judge failed to explain, or adequately explain, why he was not prepared to make an order transferring a part of the investment property to the wife.
(h)The effect of the learned trial Judge’s finding, made in the face of the husbands evidence that he did not intend to sell the investment properties, is to give the husband an unexplained windfall of $1,890,344.00, which was contrary to the intended effect of the orders.
47. The trial Judge’s reasons with respect to this ground are set out below:
69. As to how in proceedings under s.79 the court should deal with capital gains tax the Full Court stated in Rosati and Rosati (1998) FLC 92-804:-
“It appears to us that although there is a degree of confusion, and possibly conflict, in the reported cases as to the proper approach to be adopted by a court in proceedings under s.79 of the Act in relation to the effect of potential capital gains tax, which would be payable upon the sale of an asset, the following general principles may be said to emerge from those cases:-
(1) Whether the incidence of capital gains tax should be taken into account in valuing a particular asset varies according to the circumstances of the case, including the method of valuation applied to the particular asset, the likelihood or otherwise of that asset being realised in the foreseeable future, the circumstances of its acquisition and the evidence of the parties as to their intentions in relation to that asset.
(2) If the Court orders the sale of an asset, or is satisfied that a sale of it is inevitable, or would probably occur in the near future, or if the asset is one which was acquired solely as an investment and with a view to its ultimate sale for profit, then, generally, allowance should be made for any capital gains tax payable upon such a sale in determining the value of that asset for the purpose of the proceedings.
(3) If none of the circumstances referred to in (2) applies to a particular asset, but the Court is satisfied that there is a significant risk that the asset will have to be sold in the short to mid term, then the Court, whilst not making allowance for the capital gains tax payable on such a sale in determining the value of the asset, may take that risk into account as a relevant s.75(2) factor, the weight to be attributed to that factor varying according to the degree of the risk and the length of the period within which the sale may occur.
(4) There may be special circumstances in a particular case which, despite the absence of any certainty or even likelihood of a sale of an asset in the foreseeable future, make it appropriate to take the incidence of capital gains tax into account in valuing that asset. In such a case, it may be appropriate to take the capital gains tax into account at its full rate, or at some discounted rate, having regard to the degree of risk of a sale occurring and/or the length of time which is likely to elapse before that occurs.”
This authority continues to be applied by the Full Court in varying degrees, as shown in Hordern and Hordern and Hordern [1998] FamCA 73; Cerini and Cerini [1998] FamCA 143; Tisdale and Tisdale [2003] FamCA 1066; JEL v DDF (2001) FLC 93-075;
70. In G and G [2001] FamCA 1453 the Full Court said:-
“104.In the course of his oral submissions, senior counsel for the Wife properly conceded that although the court in Rosati (supra) was speaking specifically in relation to Capital Gains Tax, the principles therein stated would extend to ordinary (“mainstream”) income tax. We would perhaps go even further, and say that in our view, where property which is held by a party or the parties to proceedings under s.79 of the Act was acquired as part of a business of acquiring, developing and reselling real property for profit (i.e. essentially, as trading stock of that business) then, in valuing that property for the purpose of the proceeding, the Court should ordinarily take into account both the estimated realization costs and the tax (in that case, “mainstream” income tax) which will ultimately be paid on its sale, even if the Court’s orders leave the property in the hands of one party and the sale of it is not seen as an inevitable or even a likely consequence of those orders. We think that statement falls within the purview of the principle stated in paragraph (2) of the above-quoted extract from Rosati.”
71. The Full Court appeared to apply a wide interpretation of Rosati and allowed for tax to be taken into account even where there was no sale:-
“In valuing that property for the purpose of the proceeding, the Court should ordinarily take into account both the estimated realisation costs and the tax (in that case, “mainstream” income tax) which will ultimately be paid on its sale, even if the Court’s orders leave the property in the hands of one party and the sale of it is not seen as an inevitable or even a likely consequence of those orders.”
72. The first step is to determine whether a particular item of property is a capital gains tax asset. If it is, then the court should thereafter proceed on the basis that if the capital gains tax asset is sold then the capital gain, if any, will be included in the assessable income of the party who retains or receives the capital gains tax asset. The issue thereafter is only what amount of tax, if any, should be allowed or adjusted for.
73. In considering how to deal with the issue of the amount of capital gains tax to be allowed or adjusted for it is necessary to consider the likelihood of a capital gains tax event. In Rosati, the Full Court said that if the court orders the sale of a capital gains tax asset, or it is satisfied that a sale of it is inevitable, or would probably occur in the near future, or if the asset is one which was acquired solely as an investment and with a view to its ultimate sale for profit, then, generally, allowance should be made for any capital gains tax payable upon such a sale in determining the value of that asset for the purpose of the proceedings.
74. In the present case, I am satisfied that the entities in question were acquired as investments with a view to their ultimate sale for profit. Furthermore, I am satisfied that the sale of the entities are an inevitable consequence of the Husband continuing to conduct his business in the manner in which he has done so for many years.
75. Accordingly, I propose to include the sum of $282,750.00 on account of property selling expenses and $1,607,594.00 on account of Capital Gains Tax as the parties’ liabilities.
48. At the commencement of his oral submissions, Senior Counsel for the wife submitted that the trial Judge had “misunderstood or misapplied the principle in Rosati’s case”, by making a “fundamental error” in relation to the nature of the assets which, if realised, would produce the Capital Gains Tax liability calculated by Mr C. As was clear from his written submissions, the accuracy of the calculation of such contingent liability was not disputed by the wife’s Senior Counsel.
49. Alternatively, it was submitted by Senior Counsel for the wife that the trial Judge had erred in failing to have regard to the evidence of the husband in relation to the realisation of a Capital Gains Tax exempt property (his Far North QLD villa), which property the trial Judge found to be worth $2 million. It was submitted on behalf of the wife that:
The husband’s evidence, as it emerged in cross examination, is that none of the income earning properties are likely to be sold in the foreseeable future. The husband’s view is that the strength of a portfolio is the income producing property and it is a last resort to sell such property. (Appellant Wife’s Summary of Argument, paragraph 15)
50. In support of that submission, counsel relied on the following passage in the husband’s evidence at trial:
And we see, don’t we, at the bottom of the first page an observation by the bank, “We acknowledge that customers were to reduce exposure by this time from asset sales and they have not done so. Customer is reluctant to sell any property at this stage mainly due to the good market at [Far North QLD] which is income producing. Customer is however currently in negotiation stages for the sale of vacant land behind the shops at 40-44 M Street”. Is that correct?---Yes.
And those negotiations fell through, didn’t they?---Well, as it says, that reluctant to sell any income producing property.
Yes?---The strength of your portfolio is the income producing property.
Right?---That is a last resort to sell any income producing. You have to hold the portfolio together, that is the strength. You go to the bank with the strength of the portfolio and the income it produces. Vacant land in G Street was disposable in 2000 – the year 2000. When we got further up the track it was too valuable to dispose of, but it was more valuable to develop. The same situation occurred in M Street. (Transcript of 12 November 2004, page 224)
51. It was submitted that the husband “gave evidence that he would not himself develop the vacant land behind the BT property because he would have to demolish half the building and lose income” (Appellant Wife’s Summary of Argument, paragraph 15). That submission was sought to be supported by the following evidence given by the husband:
You regard the valuation of the BT land as conservative, don’t you?---No. Because the land behind is useless unless this guy buys it. Because for us to develop it we’ve got to demolish half the building in the front and we would lose income and I’m not a developer. I don’t build things to a great extent.
Well you have. That’s not strictly true, is it?---Yes, well what I’m saying is that I don’t destroy good property to build other property at great expense. The proposal to develop that by myself is not on the table. (Transcript of 12 November 2004, page 227)
52. Reliance was also placed upon the cross-examination of the husband in which it was suggested that the husband would be unable to service existing debts and pay the sum proposed by him ($1 million) to the wife without selling any real estate, and to the husband’s rejection of that suggestion in relation to income producing property. The evidence relied upon revealed:
Mr BH, your villa at [Far North QLD] is not income producing, is it?---No. And that is the main option for me to deal with.
All right. What do you mean by that?---Well, it’s obviously been one to consider selling. I don’t need a home of that stature. I don’t need a home as luxurious as that. I don’t have a family any more. I don’t need the room for lots of children, other than at times when my grandchildren come. It is also listed as a home and it is capital gains tax free. So I could sell that and find an alternative and pay a substantial part of the debt and pay my wife the million dollars that we’ve offered. And retain all the trust property and all the income. (Transcript of 12 November 2004, page 229-30)
53. That evidence was also relied upon in relation to the husband’s ability to realise a Capital Gains Tax exempt asset, namely his villa at Far North QLD.
54. It was thus submitted that in his evidence, the husband had resisted any suggestion that he would from choice or otherwise have to liquidate any real estate in order to satisfy orders of the Court, but, in either circumstance, could and would contemplate selling his Capital Gains Tax exempt residence at Far North QLD for reasons which he volunteered in cross-examination. The husband was asserted to have thus clearly evidenced the intention of retaining all the trust property and the income generated by it. It was thus submitted:
… that a finding that the properties which attract CGT would be sold any time in the foreseeable future was not open and indeed was not made by the learned trial Judge. His Honour found that the “entities” (presumably meant to be properties) were acquired as investments with a view to their ultimate sale for profit. His Honour also found that a sale was “an inevitable consequence” of the husband continuing to conduct his business in the manner in which he has done so for many years. (Appellant Wife’s Summary of Argument, paragraph 17).
55. .These findings were asserted to have been “[n]ot open to his Honour on the basis of the evidence” to which reference was made and/or “[i]f open, such findings are insufficient in that it was necessary for his Honour to find when and which properties are likely to be sold in order to evaluate the impact of the CGT liabilities” (Appellant Wife’s Summary of Argument, paragraph 18).
56. It was submitted by Senior Counsel for the wife that the trial Judge, having referred to the judgment of the Full Court in Rosati v Rosati and G and G stated the correct principle but applied it incorrectly to the facts in the case before him. The thrust of this submission was that:
However, his Honour was not satisfied that a sale was inevitable – he was satisfied that a sale is an inevitable consequence of the husband continuing to conduct his business. There is a subtle but significant difference between those two propositions. Given the evidence of the husband referred to above that finding was not available to his honour. The inevitability contemplated by the Full Court in Rosati must mean, it is submitted, an inevitability which bears some proximity to the date of the order or the circumstances which exist on that day. (Appellant Wife’s Summary of Argument, paragraph 20)
57. It was further submitted that:
Similarly, the finding that the property was acquired for investment does not fall within part c of the Rosati definition referred to above. That definition requires that the property be acquired solely for the purpose of investment with a view to sale. It is submitted that having regard to the husband’s evidence about the strength of his portfolio being found in the income producing assets, it is clear that the assets were not acquired solely for the purpose of investment and resale. This distinction met with the approval of the Full Court in JEL v DDF (see paragraphs 89 to 103 in the judgment) (Appellant Wife’s Summary of Argument, paragraph 21, footnote omitted)
58. The Court was referred in this context to the husband’s affidavit evidence:
75. During our first visit to [Far North QLD] I noticed a number of commercial properties displaying auction sale sites placed by various estate agents. In October 1991 I observed that not one property had been sold at auction. I then made enquiries from Ray White Real Estate, who was advertising a property known as BT.
76. The property consisted of 2,200 square metres of land on which there was situated a 4 bedroom cottage a the rear and across the entire street front there was a wooden building containing 6 retail shops and one large restaurant. The property was listed with Ray White Real Estate agent for the sum of $1.1 million. The property had been passed in at recent auction. The company in Adelaide was the mortgagee in possession. I made an offer of $400,000 and successfully negotiated a purchase price of $505,000. …
77. The restaurant had been closed for some time. Of the other 6 shops, only 2 had tenants. Neither was on a lease. The Cottage was occupied by a young man who was paying $50 per week rent. Over the period of the next 12 months I did a number of necessary repairs and was successful in leasing the restaurant and the 4 vacant shops. The young man in the cottage left. Today it rents for $400 per week. Today the restaurant is leased for $2,900 per month.
59. On behalf of the wife it was asserted that the trial Judge’s error in concluding that Capital Gains Tax would necessarily be paid in respect of any of the trust properties, or in respect of which properties, and when such liability might arise, was compounded by the trial Judge’s failure to consider the husband’s indication that he would, if needing to sell any property, sell his Far North QLD villa.
60. It was thus submitted that the trial Judge had erred in the light of the evidence before him in concluding that the husband would sell any real estate in order to comply with the Court’s orders or if, contrary to the submissions on behalf of the wife, such a conclusion was reasonably open to him, the trial Judge had erred in failing to consider which property or properties (including the Capital Gains Tax exempt Far North QLD villa) were likely to be sold, and when. As the Capital Gains Tax liability attaches to each of the three trust properties in the amounts calculated and identified by Mr C, the impact of the sale of any of the trust properties on the potential Capital Gains Tax liability was able to be ascertained.
61. On behalf of the husband it was submitted that:
The husband’s evidence not only contemplated the sale of investment property, but such evidence was confirmed during the course of cross-examination, and strengthened by the tender into evidence of the Westpac loan documents requiring reduction of debt in the foreseeable future by sale of investment assets; (Respondent Husband’s Summary of Argument, paragraph 13)
In support of that submission, counsel for the husband relied upon a number of exhibits and the following evidence of the husband in relation to the issue:
Mr BH, your proposal is that you retain all the property other than the home in which my client resides, all the real property?---At the – yes, yes, I do. And all the debt.
And all the debt. And you borrowed?---Yes.
And I suggest to you that by that means there are no – there is no immediate impact of capital gains tax on the pool?---I beg your pardon.
There is no impact of capital gains tax on the pool by that means?---That’s true.
And I suggest to you that the proposal you put amounts to a settlement in my client’s favour of in the order of 25 per cent?---Well, I can’t agree because as a property investor it’s my business. Something has to be sold at some time and capital gains tax (indistinct) have to be paid.
Yes?---So that’s a handicap I have to bear. (Transcript of 12 November 2004, page 197-8)
62. Reliance was also placed upon a number of statements made by the husband later in the course of his cross-examination:
Well I suggest to you that on any view if those figures are in any way accurate, and they have been put up by your counsel, it suggests that your proposal is totally unrealistic?---But surely that’s my problem, not my wife’s.
Well, it’s an overall problem, isn’t it, for us all?---No, I wouldn’t - - -
Certainly a problem for his Honour - - - ?---I wouldn’t be entering into this as I do with all my investments, enterprises, restructuring, that I felt fully confident that it could be done. We also have some vacant land which could be disposed of.
Where is that?---That is at the rear of the BT property.
That involves a subdivision, doesn’t it?---But we have permission from council to subdivide.
So you are contemplating sale, are you?---Well, it’s lying fallow. It’s costing a lot of money in rates, taxes.
…
The bank would not have advanced the money to you, I suggest, unless the bank has been given assurances of asset sale?---They weren’t given any assurances.
Weren’t they?---We had talks with the vendor. I know what you’re going to produce and I agree with everything this bank has written there.
Let’s have a look at it. It’s a – I suggest to you the document I’m putting in front of you is a credit approval summary of 20 March 2000 from Westpac. And you see they advance – this is the credit approval summary relating to your application for an advance or advances in order to pay PM [husband’s daughter]?---Yes.
Okay? We are drawing your attention to the bottom of the first page and the dot point at the bottom where it says, “Ultimate source of clearance is to come from the sale of property”?---Yes.
I suggest to you that when you borrowed the money from Westpac Bank in order to pay out PM, you did so on representations then made of an intention to sell property in order to reduce the debt?---And it’s the block of land that I referred you to just recently.
I would ask you to refer – do you agree that they are the representations you then made to the bank?---Yes, that was the one saleable asset and they had been always aware of that.
Can I - - - ?---It was discussed with them several times. There has been no sale as yet. We have had a contract on it.
Can I ask you, Mr BH - - - ?---The purchaser when into liquidation.
Are you finished?---Yes.
…
Mr BH, you make the observation at the bottom of the second page of that document way out – sale of property – sale of either of the three commercial properties will see the majority of the debt repaid. Residual debt could then easily be serviced P and I from rental income and remaining property. See that?---Yes.
Now there is discussion – if I can take you down to – on the third page to the fourth last paragraph and we see Mr BH has requested finance this way and only for a term of one year as he plans to sell vacant land which adjoins M and G Streets property. If property sells GS’s will be returned and cash paid?---That was an option in the year 2000.
Yes?---For the vacant land which adjoined the G Street shops.
Which has since been redeveloped?---Which has since been developed and producing very good income.
…
You don’t dispute that you were then talking to the bank about selling property?---No. All the time.
…
Now, in 2001, I suggest, the bank was concerned that you had not reduced the level of debt by sale of property?---True.
And we see, don’t we, at the bottom of the first page an observation by the bank, “We acknowledge that customers were to reduce exposure by this time from asset sales and they have not done so. Customer is reluctant to sell any property at this stage mainly due to the good market at [Far North QLD] which is income producing. Customer is however currently in negotiation stages for the sale of vacant land behind the shops at 40-44 M Street”. Is that correct?---Yes.
And those negotiations fell through, didn’t they?---Well, as it says, that reluctant to sell any income producing property.
Yes?---The strength of your portfolio is the income producing property.
Right?---That is a last resort to sell any income producing. You have to hold the portfolio together, that is the strength. You go to the bank with the strength of the portfolio and the income it produces. Vacant land in G Street was disposable in 2000 – the year 2000. When we got further up the track it was too valuable to dispose of, but it was more valuable to develop. The same situation occurred in M Street.
…
It notes that you advised them that you had received an offer for the purchase of the land at BT?---Yes.
For $3.2 million?---Yes, that was subject. It never came to anything.
…
I suggest to you that you are at a level of debt at the moment that really makes it necessary for you seriously to contemplate the sale of assets?---To sell the piece of land, yes.
Or any non income producing - - - ?---I have been – the two options I had in the past few years, is to sell the G Street vacant land, which I held on to and subsequently developed, which is now a very valuable asset. And the land at the rear of BT.
Your Honour, could I - - - ?---I haven’t (indistinct). It’s been on the table for sale for some years. (Transcript of 12 November 2004, page 221-9)
63. The Court was referred to exhibits 20 and 21 being documents from the Westpac Bank in Cairns. Inferentially, the following entries therein appearing were particularly relied upon:
· Income position has remained very stable over the above period. Majority of income derived from rental properties with lease in place. Strong tenancies providing recurring income.
· Coverage ratios have improved slightly. Ultimate source of clearance is to come from sale of property.
· Major movement on balance sheet has been an increase in loans to and from associated companies having a minor impact on surplus position.
· Assets are comprised mainly of commercial properties which we hold as securities. These are also main source of income.
…
Way Out:
Sale of property – Sale of either of the three commercial properties will see majority of bank debt repaid. Residual debt could then easily be serviced P&I from rental income from remaining properties and duty free store.
…
As detailed in valuation on property at M Street all tenancies are due to expire at the end of Feb 2001. Client has intentionally done this so property can be marketed as both an investment commercial property or as a possible development site. He will assess his options as the time approached [sic] and we believe if extended tenancies are offered to existing tenants they will be accepted and business will carry on as is. Property is one of the last undeveloped lots on M street and may be worth more as development site.
…
We acknowledge that customers were to reduce exposure by this time from asset sales and they have not done so. Customer is reluctant to sell any property at this stage [mainly due to the good market in [Far North QLD]] which is income producing. Customer is however currently in negotiation stages for the sale of vacant land behind shops held at M Street (contract being prepared) to the purchaser of the B apartments for approx. $2.0M. {The contract on this sale will be subject to Council approval for the subdivision of land. BH has already spoken to Council and they have indicated that if property is be [sic] amalgamated with land of the B apartments, the council would be happy with the subdivision}. Customer has agreed that $1.5M of these funds will be applied to debt reduction [the other $.5 it [sic] to be utilised to pay expected tax payable on sale of property [condition of approval of extension of facilities].
He has also council approval of G St property to subdivide block from current shops and he has advised that he will proceed with this subdivision/sale if the sale of land behind M Street does not proceed.. Real estate agents have advised that once building is completed for the new 6 shops, and strata titles, they would achieve a sale price of approx. $250 each [based on recent sales of similar properties in [Far North QLD] over the last 6 months].
Therefore we have two options of part debt reduction which we will ensure that the sale of one of these proeprties [sic] is proceeded with over the next 12 months. To be included as a condition of finance.
64. It was submitted on his behalf that the husband had given evidence that:
· there was no immediate CGT impact, but
· “as a property investor it’s my business. Something has to be sold at some time and the capital gains tax have to be paid…so that’s a handicap I have to bear (AB Vol 5 pp 1137-1138)
· if required to make principal and interest repayments his net income after borrowing and commitment, tax and child support on the orders he sought, are massively in arrears, but
· the loans would be restructured at interest only, and
· he had land which could be disposed of (the BT property)
· his high debt levels were a constant worry (AB Vol 5 pp1160-1161)
· the ultimate source of debt clearance is to come from sale of property
· the husband represented to Westpac that he would sell property to reduce the debt (AB Vol 5 p.1162)
· sale of BT is planned
· he talked to the bank about selling property “all the time” (AB Vol 5 p.1163.46)
· the bank repeatedly requested debt reduction, promised from asset sales (AB Vol 5 p.1164)
· he had tried to negotiate a sale of the BT land, without success (AB Vol 5 pp.1165-1169)
· that he hoped to sell the income-earning properties as a last resort (after sale of his home) in order to pay the wife the $M1 he sought in his orders (AB Vol 5 p.1170). (Respondent Husband’s Summary of Argument, paragraph 13, footnotes included in brackets)
65. The husband’s “unchallenged affidavit evidence” was submitted to be that since 1958 he had “made his living buying and selling real estate” and that “his success was due to his buying and selling at the appropriate highs and lows in the market and moving his investment portfolio to different locations accordingly” (Respondent Husband’s Summary of Argument, paragraph 14).
66. The Court was referred to the husband’s affidavit evidence detailing properties bought and sold by him from 1958 to the present (affidavit filed 6 October 2004, paragraphs 11–45) and funds invested and properties, in Far North QLD (paragraphs 67-92).
67. It was further submitted that the husband’s unchallenged evidence was that “he wished to continue” to thus deal in property through the BH Family Trust, having said:
I have my whole business life bought and sold properties in accordance to the fluctuations in the market. Firstly through SP and more recently the BH Family Trust. It is my wish to continue this business with the BH Family Trust being the entity required to do so. (Affidavit filed 6 October 2004, paragraph 105)
68. Thus it was submitted that the husband’s affidavit and oral evidence, and the Westpac documents tendered on behalf of the wife (Exhibits 20, 21 and 22) provided a sufficient evidentiary foundation for the trial Judge’s findings in relation to the properties.
69. Whilst there was no dispute that the husband’s evidence was “to the effect that his preference would be, firstly, to sell his home”, it was submitted that the wife could not productively rely upon that suggestion of the husband as “the husband did not agree that an appropriate replacement home could be purchased in the Far North QLD area for the sum contended by counsel for the wife ($720,000.00)”. Further reliance was placed upon the fact that the husband has “for some years, and continues, to try to sell the BT property to service debts” (Respondent Husband’s Summary of Argument, paragraph 15).
70. Counsel for the husband submitted that “[t]he balance out of this exercise [of selling the Far North QLD villa] could not exceed $M1 on the evidence” and that, having proposed that the wife paid such sum, “there would have been no funds whatsoever” with which to retire, quite apart from the fact that the trial Judge’s orders provided for the wife to receive more than $400,000.00 in excess of the $1 million likely to be the maximum realised on the sale of the Far North QLD villa (Respondent Husband’s Summary of Argument, paragraph 16).
71. It was thus submitted that the trial Judge’s conclusions with respect to Capital Gains Tax and selling expenses were open to him on the evidence and did not involve a misapplication or misinterpretation of what the Full Court said in Rosati’s case.
72. Whilst the trial Judge set out in some detail the principles relevant to the Capital Gains Tax and selling expenses issue, the reasoning underpinning his application of those principles to the facts as found by him was not extensive. There is no suggestion that the trial Judge failed to accurately identify each “particular item of property” which was a “capital gains tax asset” (Judgment, paragraph 72). He correctly identified the question of the “likelihood of a capital gains tax event” (paragraph 73).
73. His Honour said that:
73. … In Rosati, the Full Court said that if the court orders the sale of a capital gains tax asset, or it is satisfied that a sale of it is inevitable, or would probably occur in the near future, or if the asset is one which was acquired solely as an investment and with a view to its ultimate sale for profit, then, generally, allowance should be made for any capital gains tax payable upon such a sale in determining the value of that asset for the purpose of the proceedings.
74. He concluded, without further discussion:
74. In the present case, I am satisfied that the entities in question were acquired as investments with a view to their ultimate sale for profit. Furthermore, I am satisfied that the sale of the entities are [sic] an inevitable consequence of the Husband continuing to conduct his business in the manner in which he has done so for many years.
75. To the extent that the trial Judge’s conclusion was sought to be supported by the passage cited by him (paragraph 70) from the decision of the Full Court in G and G, we do not consider that any assistance is thereby gained. It is clear from its terms that the Full Court, in the paragraph cited by the trial Judge, was dealing with property in the nature of “trading stock” of a business. Neither the husband nor the trust was in the “business of acquiring, developing and re-selling real property for profit” as trading stock.
76. In our view, the Full Court in G and G did not “widen” the ambit of what had been said in Rosati, but rather made clear that expenses referrable to notional realisation of assets in the nature of “trading stock” could appropriately be taken into consideration in cases of that kind. That proposition is neither novel nor surprising.
77. In our view, the trial Judge’s finding that the “sale of the entities are an inevitable consequence of the Husband continuing to conduct his business in the manner in which he has done so for many years” (paragraph 74) was not open to him given his failure to have any apparent regard to the evidence of the husband to which we have referred of his determination to refrain from selling any real property other than the Far North QLD villa. The trial Judge failed to consider the impact of a sale of the Far North QLD villa on the prospects of the husband being able to achieve his stated ambition of retaining the trust properties. Nor did the trial Judge consider the clear absence of need to liquidate all of the trust properties. Capital Gains Tax liability and selling expenses of the magnitude Mr C had calculated were thus not able to be found “probable”.
78. The issue of the likelihood or otherwise of Capital Gains Tax and selling expenses becoming a reality was live and substantial at trial, as the extensive references to the evidence which we have set out above make clear. The quantum of the Capital Gains Tax and selling expenses relative to the net asset pool exclusive of them renders the issue significant. Regrettably, the trial Judge predicated his conclusion on a finding that the sale of the entities was “inevitable”, without explaining why that was so. The evidence to which we have referred did not establish the sale of these properties to have been “inevitable”. We are thus persuaded that this challenge has substance.
79. It was conceded by Senior Counsel for the wife that the trial Judge’s error in deducting notional selling expenses and Capital Gains Tax for the purpose of determining the net assets of the parties, and consequential writing back of those sums, was not the “end of the matter”, and that it remained, as Rosati clearly envisaged, for the possibility of Capital Gains Tax and selling expenses being incurred to be considered within s 75(2) or s 79(2). It was submitted on behalf of the wife that, in the circumstances of this case, the appropriate course would have been for the trial Judge to have had regard to the possibility of those liabilities within the context of either s 75(2) or s 79(2). Had he done so, the trial Judge could, by formulaic orders, have prevented the wife’s entitlement being reduced by reference to substantial expenses which may never materialise, thus providing a “windfall” for the husband, and protected the husband against paying to the wife more than her proper entitlement if, having written back the selling expenses and Capital Gains Tax, a property or properties had to be sold which attracted a Capital Gains Tax liability and selling expenses, thereby providing a “windfall for the wife”.
80. Ground 3 provided:
3. By reason of errors made in relation to the findings of the value of the husband’s assets at the commencement of cohabitation the assessment by the learned trial Judge that the contribution based on entitlements of the parties at 70% to the husband and 30% to the wife is unsafe and erroneous.
Particulars
(a)The learned trial Judge erred in rejecting the wife’s counsel’s submission that the husband was prevented by the operation of the “Elias Principle” from asserting that the value of the assets which he retained as a result of the approval of the Maintenance Agreement between himself and his former wife CMBH under Section 87 of the Family Law Act on 20 December 1984 was substantially greater that the value which was attributed to them at the time of the said approval, at which time the husband was under a duty to make full, frank and honest disclosure to the Court.
(b)The learned trial Judge erred in finding that the husband had available to him assets worth in excess of $3,500.000 [sic] as at 30 June 1990;
(c)The learned trial Judge’s finding that the husband had available to him assets worth in excess $3,500.000 [sic] as at 30 June 1990 was irrelevant to any issue which had to be determined having regard to his Honour’s finding that the parties commenced cohabitation in or about February 1987;
(d)The errors made by the learned trial Judge in relation to the value of property which the husband had on various dates between 20 December 1984 and 30 June 1990 could only have led his Honour into an erroneous assessment of the parties contribution based entitlements;
(e)The quantum of the wife’s contribution based entitlement is so low, having regards to all of the findings of fact, as to justify the Full Court in concluding that the learned trial Judge’s discretion miscarried and the learned trial Judge fell into appealable error;
(f)The learned trial Judge failed to correctly apply the principles to be derived from the decision of the majority of the Full Court in Figgins and Figgins (2002) FLC ¶93-122.
81. In our view, this ground can be swiftly disposed of. It may be that, but for the stance adopted on her behalf in final submissions, the complaints articulated by Senior Counsel for the wife in his summary of argument would warrant serious consideration. The fact however that, in final submissions, whilst represented by Senior Counsel, the wife sought a contribution entitlement of 30-40 per cent, renders almost insurmountable the task which confronts the wife in relation to this ground. Whatever its utility, the evidence to which the trial Judge referred in relation to the husband’s net worth some six years after his property settlement with his first wife was evidence which was not objected to nor cross-examined upon. As such, it was open to the trial Judge to have regard to it. On any view of it, the husband had, as the trial Judge concluded, made a “significantly superior contribution to the acquisition and improvement of the various business entities and the other items of property” (Judgment, paragraph 109) of the parties, whether, as he represented to the Court at the time, his assets were worth $975,000.00 or, as he asserted in the proceedings before the trial Judge, some $3-4 million at that time.
82. Nothing to which we have been referred establishes that the trial Judge undervalued the wife’s contributions. The reality is that, in the circumstances, the trial Judge had a broad discretion in relation to the contribution entitlements of the parties. The ambit of that discretion was defined by counsel representing the parties. As the submissions to the trial Judge by Senior Counsel then representing her confirm, albeit the “bottom of the range”, a contribution entitlement of 30 per cent on the part of the wife was consistent with the case advanced on her behalf. We are thus not persuaded that the trial Judge erred in the exercise of his discretion with respect to the contribution entitlements of the parties.
83. Ground 4 provided:
4. The learned trial Judge erred in the application of the factors contained in Section 75(2).
84. This ground was not pressed.
CHILD SUPPORT
85. Ground 5 provided:
5. In the event that the Full Court accedes to the wife’s application for permission to appeal against the order for departure from a child support assessment it will be submitted that the learned trial Judge erred in fixing the periodic amount of child support at $150 per week for each of the infant children in the marriage.
86. In relation to child support orders it was submitted that the trial Judge had essentially made three fundamental errors. They were that his Honour’s conclusions were “inconsistent with his Honour’s finding that the wife is unlikely to be required to contribute to the children’s support”, that he was “unjustified, having regard to the wife’s unchallenged evidence about the cost of the children and the absence of any explanation for rejecting that evidence” (Appellant Wife’s Summary of Argument, paragraph 41) and that the trial Judge’s reasons do not reveal why the sum of $150.00 per week was fixed by him as the sum appropriate to be paid by the husband.
87. So far as the first complaint is concerned, reliance was placed upon the trial Judge’s statement within the context of his consideration of relevant s 75(2) factors that:
116. The children of the marriage reside with the wife and, being aged 15 and 11 and will require ongoing care and support for some years. The Husband has accepted responsibility for the financial support of the children. Given the extensive orders sought by both parties in respect of the children’s maintenance, the Wife is not likely to be required to make any significant contribution towards their support.
88. Reading the other paragraphs of the trial Judge’s reasons (110 – 115) in relation to s 75(2), it can reasonably be presumed that no component of the wife’s s 75(2) adjustment was predicated upon the wife being “likely to be required to make any significant contribution” (paragraph 116) towards the support of the children in the future. It was submitted that the trial Judge had thus, in circumstances which are not complained of, confined the scope of the wife’s s 75(2) adjustment but, when considering the question of child support, failed to have any regard to having done so. Counsel for the husband did not specifically address this aspect of the challenge to the trial Judge’s orders with respect to child support. With respect, it is difficult to see how one could convincingly point to anything in his Honour’s reasons with respect to child support which would successfully meet the submission of Senior Counsel for the wife on this point.
89. The trial Judge clearly identified what the wife asserted to be her “estimates of the weekly expenses for each child” (paragraph 129) and identified the document in which those figures appeared. The estimates established:
Item Wife Child Child House rates $20 $20 $20 House repairs $32 $32 $32 Food and Household Supplies $100 $100 $100 Electricity $20 $20 $20 Telephone $80 $10 $10 Car - Petrol $30 $30 $30 Car - Maintenance $40 $40 $40 Clothing $30 $20 $20 Pocket Money $20 $20 Medical $10 $5 $5 Entertainment $10 $20 $20 Pharmaceutical $10 $3 $3 Gardening $10 $10 $10 Pool cleaning $10 $10 $10 Pets (including vet fees) $7 $7 $7 Haircuts $5 $5 $5 School bus fees $32 $10 Books and periodicals $5 $10 $5 Sport $50 $40 Education - Tutors $30 $120 Education school fees etc. $100 $100 Holidays $40 $20 $20 Gifts $20 $10 $10 Repairs - furnishings & appliances $5 $5 $5 Clothes repairs $3 $3 $3 Insurance -Medical $13 $13 $13 Insurance - House $22 $22 $22 Insurance - motor vehicle $6 $6 $6 TOTAL $528 $653 $706 (based on Annexure IAB33 to Wife's affidavit sworn 4 October 2004, AB vol 2, 470.)
90. Nowhere did the trial Judge make a finding as to the reasonable weekly expenses for each child. It was submitted on behalf of the husband that, at least inferentially, the trial Judge had accepted the wife’s figures, but nowhere is that stated or, from anything else that is stated, is that necessarily the case.
91. Counsel for the husband relied upon the trial Judge’s reference to the wife’s concession during cross-examination that:
130. … she had been able to invest the sum of $5,000.00 which she had saved over a period of twelve months from the sum of $725.00 per week which had been advanced to her by way of maintenance for herself and both children.
92. As was submitted on behalf of the wife however, those savings were achieved at a time when the husband was paying a variety of expenses which would not be payable in the future. Reliance was placed in this regard on the evidence of the husband (Transcript of 12 November 2004, page 211).
93. Further reliance was placed upon the payments actually being made by the husband for the children pursuant to provisions of other orders, it being submitted that more than $43,000.00 per annum was thus being paid by the husband. That sum was calculated as set out in an aide memoir provided to the Court by counsel for the husband.
94. The trial Judge clearly did not accept or reject the wife’s estimates of the weekly expenses of each child, nor did he make any specific finding with respect to what the husband was or would be paying for the children or its impact on the child support issue. In the absence of any finding as to the reasonable weekly expenses of the children, it is difficult to see on what basis the trial Judge determined the child support proceedings. It is reasonably apparent that the sum determined by the trial Judge as appropriate to be paid was not in reliance upon any finding of incapacity on the part of the husband to pay the sum sought by the wife. As was submitted on behalf of the wife, there is simply no indication of the basis upon which $150.00 per week, as opposed to the $300.00 the wife sought or the $100.00 the husband proposed, was an appropriate level of child support.
95. Having regard to the matters to which we have referred, we are satisfied that the trial Judge erred in his determination of the child support proceedings. Leave to appeal his order with respect to child support should thus be granted and such appeal allowed.
CONCLUSION
96. A number of the grounds to which we have referred having been made out, the appeal is entitled to succeed. On the hearing of the appeal, counsel for both parties submitted that if the appeal was successful in relation to the “pool issues” in relation to the proceedings with respect to property settlement, as has been the case, no further evidence would be sought to be adduced but that submissions would be sought to be made as to the appropriate form of order. The wife’s appeal in relation to the contribution entitlements determined by the trial Judge having been unsuccessful and, to the extent that there was such a challenge, the wife’s challenge to the s 75(2) adjustment made by the trial Judge having been effectively abandoned, applying the percentage entitlements of the parties as determined by the trial Judge to the adjusted asset pool thus appeared the appropriate direction for this Court to take by way of re-exercise of the trial Judge’s discretion. In the circumstances then applying, that approach had considerable attraction, enabling, as it would have, this Court to re-exercise the trial Judge’s discretion and save the parties the cost and uncertainty of a re-hearing.
97. Subsequent to the hearing of the appeal, by application filed 2 May 2006, and supported by an affidavit of the wife’s solicitor filed 2 May 2006, the wife sought to adduce further evidence in the appeal and, in reliance upon the further evidence which she thus sought to file and rely upon, signified that she no longer agreed to the course suggested by her learned Senior Counsel during the hearing of the appeal to which we have just referred. It would appear that the husband opposes both the granting of leave to adduce further evidence in the appeal, and the receipt of such further evidence in the event of the appeal otherwise being allowed. For the reasons we have given, we conclude that the appeal should succeed. It is thus of no utility to consider whether the wife’s application to adduce further evidence in the appeal should be allowed. We are not to be taken however as concluding that the application would have failed, it is simply unnecessary in the circumstances.
98. On the face of it, having regard to the decision of the High Court in Allesch v Maunz (2000) 203 CLR 172, a remission of the proceedings for re-hearing, at least in relation to the issues which have been the subject of successful complaint in the appeal appears unavoidable, and is probably preferable to this Court seeking to re-exercise the trial Judge’s discretion in circumstances where there is a clear likelihood of further contested evidence, potentially including expert opinion evidence. In fairness to both parties however, before allowing the appeal and making an order remitting the proceedings for re-hearing, we propose inviting counsel for the parties to make further submissions as to the course the proceedings should take once, as we propose, we allow the wife’s appeal against the trial Judge’s orders for settlement of property.
99. In relation to the child support appeal, counsel for the husband conceded that if error on the part of the trial Judge was demonstrated, an entitlement to leave to appeal would be established, as would an entitlement to success on the appeal. Having concluded that the trial Judge erred in his determination of the child support proceedings, leave to appeal against his decision in that regard should be granted and the wife’s appeal upheld.
Prior to the wife indicating in May 2006 that an issue concerning the valuation of at least one major asset had arisen, and given what appears to be the thrust of the evidence she wishes to adduce in that regard, questions of Capital Gains Tax and selling expenses, the only matter potentially requiring a re-hearing was the child support application. Whilst the sums involved would appear, relative to the amounts involved in the property settlement proceedings, to be of minor significance, that factor cannot overcome this Court’s inability to re-exercise the trial Judge’s discretion. As our reasons in relation to the application for leave to appeal the child support decision reveal, the trial Judge failed to make the findings necessary to enable him to properly determine that issue. This Court is no better placed than was the trial Judge, and to re-exercise the discretion would, with respect to the trial Judge, be to do more than replace one arbitrary decision with another. The submissions filed by the parties subsequent to the hearing of the appeal, do not assist us to re-determine the matter. Regrettably, in those circumstances, the child support application will need to be remitted for re-hearing, although, if the issue is not resolved, such proceedings would appear capable of being confined within a very narrow compass.
On 13 September 2005, more than a month after the appeal was heard, Senior Counsel for the wife filed written submissions in relation to the “aide memoir” sought to be relied upon by counsel for the husband during the appeal. It was there submitted that counsel for the husband ought not be permitted to rely on the aide memoir, partly in reliance upon a number of the Rules which were identified in the submission, and partly on the basis that to allow the reliance upon the aide memoir would in the circumstances deprive the appellant wife of the opportunity “to make an application to call further evidence on the appeal which, if permitted and accepted, would have informed the Full Court” of a number of facts therein identified (Appellant wife’s further submissions, paragraph 2.e).
It was submitted in the alternative that the aide memoir was of little utility if relied upon, as it did not “paint a true picture of the costs of the children and is flawed” (Appellant wife’s further submissions, paragraph 3.a). It was further submitted that “[b]y attempting to analyse figures which were recorded while there were interim maintenance orders and arrangements in place to the degree of accuracy which counsel for the Respondent does is both misleading and of little assistance” (Appellant wife’s further submissions, paragraph 3.b).
A number of submissions were then made in relation to timing and the like, none of which we need refer to given that the focus of our interest is the potential probative value in the appeal of the aide memoir, and the prejudice which allowing reliance upon it may visit upon the wife.
It is unnecessary to refer to the extensive submissions made on behalf of the husband in relation to what was asserted to have been an attempt to “rely upon further or fresh evidence in support of his [Senior Counsel for the wife’s] argument without first seeking leave of the court so to do” (Respondent husband’s further submissions, paragraph 12). It was submitted on behalf of the husband that the aide memoir was no more than, in effect, a summary of “the wife’s evidence at trial, wherein she admitted to only seeking around $45,000 per year including school costs” and recorded the “expenses then being paid by the respondent [husband]” (Respondent husband’s further submissions, paragraph 15).
As a reading of our reasons for judgment in relation to the child support issue in the appeal confirms, the fate of that challenge is not affected by anything in the aide memoir and would not change, whether or not the aide memoir was allowed to be relied upon. The aide memoir can do no more than did the evidence at trial. As our reasons make clear, the challenge with respect to the determination of child support succeeds by virtue of the failure of the trial Judge to make the various findings which we have identified. The fact that there may have been evidence which would have enabled him to do so cannot, in the circumstances of this case, fill the void created by the trial judge’s failure to provide such reasons. Accordingly, it is unnecessary to either formally allow reliance upon the aide memoir or to allow or refuse counsel for the husband to rely upon the aide memoir, although it is apparent that, having considered its contents, it is probably more realistic to suggest that it has been relied upon by counsel for the husband.
Rather than allow the appeal and remit the child support proceedings at this stage, in the light of the course we propose in relation to the future direction of the property settlement proceedings, our intention being to allow the wife’s appeal, it would be preferable to refrain from making an order for the re-hearing of the child support proceedings until we determine the future course of the Part VIII proceedings, given that it would be highly regrettable for the parties to potentially have two re-hearings when, as we have made clear (paragraph 97), the child support issue should add little time to, and expense of, the re-hearing of the property settlement proceedings.
COSTS
It was sensibly acknowledged by both counsel that the Court could not meaningfully determine, and counsel could not be expected to make submissions, with respect to the question of costs of the appeal until final reasons for judgment in relation to the appeal were published.
ORDERS
That within 21 days of this date each party be at liberty to make further submissions in writing as to the course the proceedings for settlement of property and child support should take as a consequence of the Court’s intention to allow the wife’s appeal in respect of each of those matters for the reasons published this day.
That costs be reserved.
I certify that the preceding
107 paragraphs
are a true copy of the reasons
for judgment delivered by this
Honourable Court.
A.C.
Associate
Date: 17/05/06
13
0
0