Jarrott & Jarrott - [2012] FamCAFC 29

FAMILY COURT OF AUSTRALIA

JARROTT & JARROTT

[2012] FamCAFC 29

FAMILY LAW ─ APPEAL ─ PROPERTY SETTLEMENT ─ Where it was established that having properly determined the overall entitlements of the parties in percentage terms, the trial Judge failed when making her orders, to express those orders in percentage terms ─ Where this was potentially to the detriment of the husband and contrary to the authorities ─ Where it was established that Her Honour was correct in finding that in complying with the orders she would make with respect to the wife’s entitlement “could” give rise to a Capital Gains Tax (“CGT”) liability of the husband arising from, or associated with the husband’s financing of a substantial part of the wife’s entitlement ─ Where the Full Court found that an “all or nothing” approach of either including CGT or not including it but trying to take it into account under s 75(2) had the potential to visit an injustice upon one of the parties ─ Where the appropriate course would have been that her Honour make a contingent order, which would operate if and when, a CGT liability arose ─ Where it was established that her Honour made a mathematical error in relation to the sum that the husband was to pay the wife in relation to her entitlement ─ Appellate intervention enlivened ─ Appeal allowed

FAMILY LAW ─ APPEAL ─ CHILD SUPPORT ─ Not established that her Honour erred in ordering as she did with respect to the husband’s child support departure application

FAMILY LAW ─ APPEAL ─ JUDGMENTS ─ Insufficient reasons ─ Established that the trial Judge inadequately revealed the reasoning process which led her to conclude as her Honour did in relation to the parties’ contributions made between the commencement and conclusion of cohabitation – Where the Court was unable to determine whether or not such a division fell within the ambit of a reasonable exercise of discretion ─ Appellate intervention enlivened ─ Full Court to re-exercise the trial Judge’s discretion.

FAMILY LAW ─ APPEAL ─ COSTS ─ Where the circumstances justified an order for the parties to receive costs certificates with respect to the appeal to this Court

Child Support (Assessment) Act 1989 (Cth) s 116
Family Law Act 1975 (Cth) s 75(2)
Federal Proceedings (Costs) Act 1981 (Cth) ss 6, 9

Brett-Hall & Brett-Hall (2006) FLC 93-276
Coghlan & Coghlan (2005) FLC 93-220
De Winter & De Winter (1979) FLC 90-605
Docters Van Leeuwen & Docters Van Leeuwen (1990) FLC 92-148
Kardos v Sarbutt (2006) 34 Fam LR 550
Norbis v Norbis (1986) 161 CLR 513
Pierce v Pierce (1999) FLC 92-844
Rosati & Rosati (1998) FLC 92-804
Smith & Smith (1991) FLC 92-261
Waters & Waters (1981) FLC 91-019
Wen & Thom [2010] FamCAFC 81

APPELLANT:

Mr Jarrott

RESPONDENT:

Ms Jarrott

FILE NUMBER:

SYC

1134

2009

APPEAL NUMBER:

EAA

104

2011

DATE DELIVERED:

2 March 2012

PLACE DELIVERED:

Hobart

PLACE HEARD:

Sydney

JUDGMENT OF:

Coleman, May & Thackray JJ

HEARING DATE:

3 February 2012

LOWER COURT JURISDICTION:

Family Court of Australia

LOWER COURT JUDGMENT DATE:

12 August 2011

LOWER COURT MNC:

[2011] FamCA 819

REPRESENTATION

COUNSEL FOR THE APPELLANT:

Mr Lethbridge of Senior Counsel

SOLICITOR FOR THE APPELLANT:

McDonell Milne Toltz Family Lawyers

SOLICITOR FOR THE RESPONDENT:

Self Represented

Orders

That the appeal is allowed.
That orders 13, 14, 15, 16 and 17 of the trial Judge dated 12 August 2011 are set aside.
That within 21 days the appellant husband shall file and serve written submissions and a minute of the orders sought in relation to the re-exercise of the trial Judge’s discretion.
That within 21 days thereafter the respondent wife shall file and serve written submissions and a minute of the orders sought in relation to the re-exercise of the trial Judge’s discretion.
That within 14 days thereafter the appellant husband shall file and serve any submissions in response to the submissions on behalf of the respondent wife.
That the Court grants to the appellant husband a costs certificate pursuant to the provisions of s 9 of the Federal Proceedings (Costs) Act 1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the appellant husband in respect of the costs incurred by the appellant husband in relation to the appeal.
That the Court grants to the respondent wife a costs certificate pursuant to the provisions of s 6 of the Federal Proceedings (Costs) Act 1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the respondent wife in respect of the costs incurred by the respondent wife in relation to the appeal.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Jarrott & Jarrott has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY

Appeal Number: EAA 104 of 2011

File Number: SYC 1134 of 2009

Mr Jarrott

Appellant

And

Ms Jarrott

Respondent

REASONS FOR JUDGMENT

Introduction

By Amended Notice of Appeal filed 8 November 2011 Mr Jarrott (“the husband”) appealed against orders made by Cleary J on 12 August 2011 in financial proceedings between himself and Ms Jarrott (“the wife”).
The substance of the trial Judge’s orders was that the net assets of the parties, as quantified by her Honour, be shared as to 65 per cent to the husband and 35 per cent to the wife. Her Honour also ordered the husband’s application for a child support departure order be dismissed.
In lieu of the trial Judge’s orders, the husband sought that a differently quantified asset pool be divided as to 70 per cent to himself and 30 per cent to the wife. The husband sought an order in relation to child support in the terms sought by him before the trial Judge, or that the child support application be remitted for determination by a court at first instance.
The wife opposed the husband’s appeal and sought to maintain the trial Judge’s orders.
The husband sought leave to file in Court an Application in an Appeal to adduce further evidence out of time. The wife did not oppose such Application, but contended, correctly in our view, that correspondence between real estate agents, the husband and others did not constitute evidence of the value of the parties’ former matrimonial home. As will be seen, the fate of the appeal is not impacted by the husband’s further evidence.
It was common ground that, if the husband’s appeal was upheld, this Court should re-exercise the trial Judge’s discretion. Neither party sought to adduce further evidence for that purpose, but both adopted the suggestion of the Court that if the appeal be allowed, each party have the opportunity to make written submissions in relation to such re-exercise of discretion.

background

The parties commenced cohabitation in 1999, and separated in 2008.
There are two children of the marriage, who are currently aged 8 and 5 years.
As a result of orders made by the trial Judge in parenting proceedings between the parties, the children continue to primarily reside with the wife.
The net assets of the parties were found by the trial Judge to have been worth $2,182,917. How the trial Judge evaluated that fund is controversial in a number of respects.
Largely by reason of greater initial contributions, which the trial Judge uncontroversially identified and quantified, the husband’s contributions to the date of the parties’ separation was determined to favour the husband by 70 per cent to the wife’s 30 per cent.
By reference to the post separation period, the trial Judge increased the husband’s contribution based entitlement to 75 per cent.
Pursuant to section 75(2) of the Family Law Act 1975 (Cth) (“the Act”), the trial Judge increased the wife’s entitlement by 10 per cent, her ultimate entitlement thus becoming 35 per cent, and that of the husband 65 per cent.
The issues in the appeal relate to each of the foregoing determinations.

the grounds of appeal

Ground 1

Ground 1 of the Amended Notice of Appeal provided:
1.That the learned Trial Judge erred in determining that the Respondent Wife should receive the proceeds of sale of the former matrimonial home in circumstances where there was no mechanism within her Orders to adjust for any price variation on sale from the agreed value.
The form of her Honour’s orders was asserted to fail to ensure that an overall division of the assets of the parties in shares of 65 per cent to the husband and 35 per cent to the wife would result, as it did not provide the percentage division of the proceeds of the sale of the former matrimonial home which was necessary to secure that outcome. The trial Judge was submitted to have thus erred in law.
The further evidence adduced by the husband in the appeal sought to illustrate the extent to which the trial Judge’s orders failed to achieve for the husband the 65 per cent of the parties’ net assets which it was submitted that her Honour had intended.
The wife disputed that the trial Judge erred in making the orders in the manner in which she did. The wife submitted:
4.Her honour has ordered the sale of the matrimonial home. Control of the sale was left with the Husband due to the property being in his name only. Her honour has exercised her discretion in leaving the settlement sum payable to me unaffected by the sale price of the [U] property. The absence of a mechanism affecting the settlement sum payable to me should not be interpreted as an appellable error but rather the intention of the judgment.
The wife further submitted:
5.Item 13 of the current orders provides for the sale price, in lieu of agreement, to be set by the President of the Real Estate Institute of NSW. A valuation was conducted in September 2011. A value of $1.1M was determined. In late 2011, the Husband changed the asking price of the property from $1,100,000 to $1,050,000. Cleary J. provided for me to receive the proceeds of the sale of the home. By arbitrarily reducing the asking price the Husband has diminished the settlement sum payable to me. (Footnotes omitted)
In oral submissions, the wife reiterated her contention that the trial Judge intended that she receive not less than $765,000 and that such sum not be diminished in the event that the former matrimonial home was sold for less than the value which the parties agreed it had at the trial ($1.1M). The wife reiterated that the trial Judge’s criticisms of the financial disclosures of the husband and his business partner Mr C were instrumental in her Honour having formed that intention.
As is not in doubt, and the authorities to which Senior Counsel for the husband referred confirm, the Court has consistently held that orders involving the realisation of assets for their implementation should be expressed in percentage terms so that the outcome of the realisation of such assets does not alter the overall percentage entitlements of the parties in the event of the asset, or assets, being realised for significantly more or less than the values relied upon at trial (see Waters & Waters (1981) FLC 91-019, Smith & Smith (1991) FLC 92-261 at page 78,759 and Docters Van Leeuwen & Docters Van Leeuwen (1990) FLC 92-148 at page 78,024).
As is not in doubt, the trial Judge’s orders provided that the wife receive the net proceeds of sale, if any, of the parties’ former matrimonial home together with the sum of $765,000. It was not expected that there would be any proceeds of sale. It is clear beyond doubt that, if, contrary to the parties’ and the trial Judge’s expectations, the sale of the former matrimonial home in fact generated a surplus after payment of agent’s commission, legal expenses and the mortgage secured over the property, the wife would be entitled to such surplus, and retain her entitlement to receive $765,000. Such an outcome would increase the wife’s entitlement above 35 per cent with a corresponding decrease in the husband’s entitlement.
The former matrimonial home was registered solely in the name of the husband. The wife had no obligation or capacity to contribute to any shortfall, in the event of the former matrimonial home failing to achieve a price sufficient to discharge the mortgage secured over it, and pay agent’s commission and legal expenses. The husband would be obliged to pay the balance required, to do so, notwithstanding which the wife’s entitlement to receive $765,000 from him would remain undiminished. Such an outcome would increase the wife’s entitlement above 35 per cent with a corresponding decrease in the husband’s entitlement.
Unless it were accepted, as the wife submitted, that the trial Judge’s intention was to provide the wife with a guaranteed minimum entitlement of $765,000, this complaint would be entitled to succeed.
With respect to the wife, and whilst the trial Judge undoubtedly did record a number of criticisms of the quality of the financial disclosures made by the husband and his business partner, we are unable to accept that her Honour intended that the wife receive an assured minimum settlement of not less than $765,000.
For the reasons which were indicated throughout her Reasons for Judgment, the trial Judge concluded that an “overall percentage position of 65/35 in favour of the husband” was just and equitable. Her Honour then applied those percentages to the “revised asset pool” of $2,182,917. So doing produced an entitlement of $765,000 to the wife.
With respect to the wife, it is clear that, having properly determined the overall entitlements of the parties in percentage terms, the trial Judge failed when making her orders, to express those orders in percentage terms. So doing was potentially to the detriment of the husband in the ways we have suggested above, and contrary to the authorities to which we have referred.
Appellate intervention is thus enlivened. If no other ground of appeal found favour, or if ground 10 also found favour, it would be a relatively simple matter for this Court to re-cast her Honour’s orders so as to preserve the overall percentage entitlements which her Honour had determined to be just and equitable.

Ground 2

Ground 2 of the Amended Notice of Appeal provided:
2.That the learned Trial Judge failed to take into account the cost of the disposal of assets to enable the Appellant Husband to comply with the Order for a lump sum payment by way of property settlement given the nature and extent of the parties’ assets.
Senior Counsel for the husband submitted that the evidence before the trial Judge established that, in order to meet the wife’s entitlement pursuant to her Honour’s orders, the husband would have to either borrow from or through the company in which he held a majority shareholding (the D Group) or sell some shares in it. Senior Counsel for the husband also submitted that the evidence did not reveal, and the trial Judge did not suggest, any other way by which the husband could meet his obligations to the wife pursuant to the trial Judge’s orders for settlement of property.
It was also submitted on behalf of the husband that the evidence before the trial Judge established that facilitating payment of the wife’s entitlement would, on balance, give rise to a Capital Gains Tax (“CGT”) liability of $80,000 - $90,000 if the husband chose to sell shares in order to generate funds for payment to the wife.
There was submitted to have been no evidence of any method whereby the husband could secure funds through the D Group which did not involve taxation implications. It thus was submitted on behalf of the husband that her Honour erred when determining the net assets of the parties by failing to include as a liability of the husband CGT of $80,000 - $90,000.
To the extent that the trial Judge accepted in the context of her consideration of s 75(2) factors:
165.The Court accepts that there could be a tax debt arising from the sale of shares, although it is indeterminate; approximately $80,000 - $90,000 on the sale of $500,000 worth of shares
it was submitted by Senior Counsel for the husband that her Honour erred in principle by so doing, and that the exercise of her discretion pursuant to s 75(2) failed to adequately reflect the possible CGT liability to which she there referred, in the light of the other s 75(2) factors upon which her Honour relied.
In her written submissions, the wife disputed that the trial Judge had erred in failing to include as a liability of the parties any potential CGT liability. The crux of the wife’s comprehensive written submissions was that the husband had failed to establish that he was unable, by a variety of means, to raise the funds necessary to satisfy his entitlement to her in ways which did not involve any liability for capital gains, or other taxation.
The wife submitted in that regard:
8.The single expert confirmed that, in the event the Husband repaid a loan within 12 months, there would not be financial disadvantage to the Husband. As in the case with the loan liability between the [D] Property Trust and [D] Management Services, another entity within the group can repay a loan on behalf of another entity/individual thereby diminishing or negating tax implications. (Footnotes omitted)
With respect to the wife, the evidence of the single expert, Ms Y, to which she referred related to the $350,991 which the husband owed the D Group at the date of trial. The CGT to which Ms Y and Mr C, the husband’s business partner and accountant referred, related to a future borrowing of $500,000 or more to satisfy the wife’s entitlement to a settlement of property.
We have not been referred to any evidence as to the capacity of the husband and/or the D Group to repay a $500,000 loan within 12 months. Nor have we been referred to any finding of fact by the trial Judge, or any evidence in reliance upon which her Honour found, or ought to have found that the husband and/or Mr C had the capacity, through inter-entity loans, to generate funds in the sum of $500,000, or more, for the husband’s benefit with no taxation implications.
As the evidence before the trial Judge confirms, the common law, statutory and revenue provisions governing corporations, suggested two ways by which the husband might obtain funds to satisfy the wife’s entitlement. Once the matrimonial home, in which the husband had no equity in any event, was sold, the only “asset” the husband could potentially use to raise a substantial sum was his interest in the D Group.
The first was by a transfer or sale of his shares in the D Group. The evidence before the trial Judge established on the balance of probabilities that a share sale would generate a CGT liability of $80,000 - $90,000.
The other way in which the husband might obtain funds sufficient to discharge his obligation to the wife, was by borrowing through the D Group, whether that be by way of loan or distribution. The evidence of Ms Y established that a loan, unless repaid within 12 months, would attract a tax liability. So would a payment through the trust, which holds shares in the Y Group, by way of distribution.
In support of her opposition to this challenge the wife submitted that:
9.Final payment to me by the Husband is not required until 42 days after the sale of the [U] property. Considering the financial relief the Husband will receive from the closure of the mortgage account it is reasonable to assume the Husband will then be in a position to raise a loan to make payment to me. As in Ground 1, it should not be regarded as a failure by her honour to consider the costs of the disposal of assets (which are by no means a foregone conclusion) when the Husband potentially has resources to raise further funds from within the [D] group or from an external lender without incurring a CGT liability. (Footnotes omitted)

With respect to the wife, the Court must proceed by reference to the findings of the trial Judge and the evidence before her, rather than on the basis of what is submitted to be “reasonable to assume”. Objectively, whilst the sale of the former matrimonial home would increase the husband’s capacity to service a borrowing, by relieving him of the obligation to pay approximately $8,000 per month with respect to that property, we have not been referred to any evidence which established that the means by which the husband could secure funds to meet the wife’s entitlement would thereby be enhanced, or that he would necessarily then be able to do so.
The trial Judge clearly accepted, and permissibly so having regard to the evidence to which we have been referred, that the husband’s ability to satisfy the wife’s entitlement was dependent entirely upon his securing either a loan from or through the D Group, or by transferring or selling some of his interest in it.
The wife made a number of submissions as to other ways in which the husband might raise funds from, within, or through the D Group, such as by selling assets, or franchise sales. With respect to her, we were not referred to, nor have found for ourselves, any evidence establishing on the balance of probabilities such possible avenues of generating funds to satisfy the wife’s entitlement, or the taxation implication of doing so.
The wife further submitted:
10.The likelihood of a third party (outside Mr [C] or a family member) buying into the business given the manner in which the finances are conducted makes the likelihood of the Husband paying out the settlement sum through a share sale less likely than simply drawing a loan. (Footnotes omitted)
During the course of examination in chief Ms Y gave the following evidence:
“So his interest in the [D] Group, if we can term it that, are held through the [Jarrott] Discretionary Trust, of which he is – he controls that trust and he is a discretionary beneficiary. So I think, therefore, in order to achieve a pool of funds that might be available for distribution to the wife, it would be necessary for the [Jarrott] Discretionary Trust to realise its interests, as opposed to the husband.”

We have not been referred to any evidence that such a disposition would avoid liability for taxation.

In her oral submissions, the wife asserted that the financial disclosures of the husband and Mr C were so unreliable as to render reliance upon them unsafe. Whilst the trial Judge was critical of aspects of the husband and Mr C’s financial disclosures, her Honour did not find that the husband had financial resources which he had not disclosed or had under-disclosed. Nor have we been referred to any evidence in which Ms Y suggested that it was unsafe to rely upon the financial disclosures of the husband and Mr C.
The trial Judge did not find, and we have been referred to no evidence which establishes that she should have, that the husband had means of raising funds other than in the ways which were revealed by the evidence of Ms Y.
The wife submitted that:
11.The evidence of the single expert confirms the interests of the Husband in the [D] Group are held via the [Jarrott] Discretionary Trust and therefore the sale of the Trust’s interests to raise funds payable to me would be a transaction (and potentially a tax liability) for the Trust as opposed to the Husband. (Footnotes omitted)
In the passage to which the wife there referred, Ms Y gave evidence:
“So if we look through that, for example – and I think we probably should assume if shares were issued versus shares were sold, you would have to have an assumption that they would be sold for the same value, that the cash generated by him would be the same. There is no disadvantage from issuing shares, versus the trust disposing of an interest to somebody else. As to whether he might achieve full value, for example, would depend on who the purchaser of those shares was. Because the husband has a controlling interest in all of these entities I have not considered the effect of any minority interest discount that an incoming shareholder might require. So, therefore, on the assumption that from a pro rata value there is no discount off my valuation, the – because a discretionary trust is a discretionary trust structure, any gain would have to be distributed to the shareholders.”
Ms Y also gave evidence:
“In a percentage term, on the assumption that the husband only had available to him the 50 per cent general discount, because he has held the shares – or the shares have been held for longer than 12 months, so the capital gain– assuming he’s on the highest marginal tax rate, the capital gain would be 23.25 per cent of the amount of the gross proceeds. And that’s again assuming that the gain – as we have this distribution to [Ms D Jarrott] in the 2010 year, that’s assuming that those sorts of tax planning wasn’t employed to make sure the gain was taxed most effectively.”
With respect to the wife, this submission [at par 49] overlooks the reality that, it would appear likely that the funds would have to be paid to the husband by way of distribution from the trust, thereby attracting liability for income tax in his hands. If taxation was payable by the trust, the value of the assets of the trust would be reduced to that extent. We have not been referred to any evidence which establishes that the husband could obtain funds through the trust in the tax free manner suggested by the wife.
With respect to the wife, her submission that:
12.Much of the single expert’s evidence traded on “assumptions” which ultimately left her “unable to predict” what any particular outcome might be. The estimate of the single expert’s tax rate of 23.25 per cent also relies on assumptions and is not based on determined evidence. It is, at best, a guess (Footnotes omitted)
in part misconceives the evidence of Ms Y, and is in part reliant upon findings of fact which the trial Judge did not make. The tax rate of 23.25 per cent suggested by Ms Y emerged from her expert opinion evidence, which does not appear to have been challenged at trial. Nothing to which we have been referred establishes that it should not be accepted.
As we have earlier recorded, whilst the trial Judge, and possibly Ms Y, had misgivings about aspects of the financial records of the D Group which were made available to Ms Y, we have not been referred to any finding by the trial Judge, or evidence which obliged the making of such a finding, that the records were unreliable, or that the husband had undisclosed financial resources.
None of the matters raised by the wife in paragraph 13 of her written submissions alters the position which we have indicated.
The trial Judge accurately summarised the evidence before her when finding [at par 165] that there “could” be a tax liability arising from, or associated with the husband’s financing of a substantial part of the wife’s entitlement through his interest in the D Group. Failing to include that possible liability in the balance sheet was not erroneous, but, having not done so, her Honour was obliged in the circumstances to have regard to it in the context of her consideration of s 75(2). This her Honour did.
It is necessary to consider the trial Judge’s consideration of the possible CGT liability in the context of the s 75(2) factors. As we have earlier noted, the trial Judge accepted in that context that there “could be” a CGT liability of approximately $80,000 - $90,000 on the sale of $500,000 worth of shares in the D Group.
It is reasonably clear that some part of the 10 per cent adjustment in the wife’s favour pursuant to s 75(2) was referrable to the possibility of the husband incurring a taxation liability in order to comply with the trial Judge’s order. What is less clear is how that was taken into account, in a quantitative sense, although it can be inferred that it operated to the husband’s advantage, by reducing the magnitude of the s 75(2) adjustment which would otherwise have been made in the wife’s favour.
The trial Judge, properly, referred to a number of other s 75(2) factors in her Reason for Judgment and recorded:
159.The parties are in their early forties and are in good health. The husband has a wife who is both employed by him and independently self-employed. They are expecting a child together.
160.The mother does not have a new partner, is not in the paid workforce and has the majority care of the two children. She will need to refresh her skills to be able to return to her former employment as an interior designer, or to carry out the kind of work she was doing in the family business. She will probably have to take up lower paid employment initially.
161.The mother expects to earn $20 to $25 per hour. She would like to return to interior design work and to develop a business in that regard, but expects that she is more likely to take up contract administration which will be more remunerative.
162.As has been discussed, the mother indicated that she had put in hours and hours of unremunerated work to the father’s business when the marriage was still in tact. She designed websites and undertook specific projects. She created valuable intellectual property which is still in use by the father and now by his wife. However, it is not unreasonable that the mother will need time to update her skills before she is able to generate anything like the kind of income received by the father from his businesses. The mother said this:
I was very invested in [D]. We act, lived and slept [D]. It was our life. It was just as much mine as his. We spent every weekend at cafes looking to see what worked. Its success has a lot to do with what I did.
163.On balance the mother is likely to develop a business of her own in due course if proper arrangements can be made for the children.
Her Honour also recorded that:
164.The father has the capacity to go on developing his business in a variety of ways, some of which were illuminated during the hearing. The father will have the benefit of the financial partnership of his new wife, whose business interests are similar to his own and who I have found will be a benefit to him financially in that regard. The father will have to raise the money to pay out the interest of the mother. He may sell shares or raise a further debt once he has been relieved of repayment of the mortgage on the family home.
Although the trial Judge could perhaps have revealed more clearly how the potential CGT liability of the husband impacted upon her determination of the appropriate s 75(2) adjustment to be made, we are not persuaded that the adjustment determined by her Honour could not reasonably accommodate the factors which comprised it. That however is not the end of this challenge.
Her Honour was correct in finding [at par 165], that in complying with the orders she would make there “could” give rise to a CGT liability of the husband. As such, an “all or nothing” approach of either including CGT or not including it but trying to take it into account under s 75(2) had the potential to visit an injustice upon one of the parties. If allowance were made for CGT, either in the balance sheet, or pursuant to s 75(2), and no CGT liability materialised, the wife would be disadvantaged. Although the risk was less, the husband could be disadvantaged if CGT of $80,000 - $90,000 materialised, and the trial Judge had discounted that figure significantly in her conclusion with respect to s 75(2) because its incidence was only a possibility.
The appropriate course would have been, although no one seems to have urged this upon her Honour, and we have not been referred to any submission in which it was, to have made a contingent order, which would operate if and when, a CGT liability arose, because it was not inevitable (see Rosati & Rosati (1998) FLC 92-804 and Brett-Hall & Brett-Hall (2006) FLC 93-276) that it would, and as the wife asserted, there were some unsatisfactory aspects of the company’s financial disclosures.
Albeit not strictly for the reasons asserted on behalf of the husband we are persuaded that this ground is accordingly made out.

Ground 3

Ground 3 was not pressed.

Ground 4

Ground 4 of the Amended Notice of Appeal provided:
4.That Her Honour failed to determine the Appellant Husband’s departure application.
In support of this ground it was submitted on behalf of the husband that:
3.14…in the circumstances of this case, Her Honour fell into appellable error in declining to deal with the application for child support for the reasons outlined.
On behalf of the wife it was relevantly submitted that:
18.The CSA has within its normal protocols a means by which any individual unsatisfied with a Change of Assessment decision may appeal to the Social Security Appeals Tribunal (SSAT). The Husband has failed to follow normal protocol. He has not lodged an appeal with the SSAT. One of the mechanisms of an appeal to the tribunal is full disclosure to both parties of all financial material sourced and relied upon by the CSA in forming their decision. The CSA has vast powers of investigation including (but not limited to) bank accounts, international money transfers, tax returns and ASIC records.
In the course of oral submissions, Senior Counsel for the husband acknowledged that the order of the trial Judge dismissing the child support departure application did not preclude him from pursuing the matter in the ways identified in the submission of the wife to which we have referred.
Senior Counsel for the husband fairly conceded that the trial Judge’s order would give rise to no res judicata issue estoppel having regard to the terms of s 116 of the Child Support (Assessment) Act 1989 (Cth).
This ground involves no challenge to the findings of fact of the trial Judge that:
170.The circumstances of both parties will change more than once over the next six to 12 months. Accordingly either or both parties may make an application for a reassessment of child support. The orders cover the parties’ position until payment out to the mother of a cash sum. At that point there can be a reassessment of child support. Accordingly the application for child support has been dismissed.
We agree with the thrust of the submission of the wife which we have recorded above. It has not been established that her Honour erred in ordering as she did with respect to the husband’s child support departure application. This challenge accordingly fails.

Ground 5

Ground 5 of the Amended Notice of Appeal provided:
5.That the learned Trial Judge erred in bringing to account as an asset available to the Appellant Husband as at the date of hearing his entitlement to the estate of his late mother.
In support of this challenge it was submitted on behalf of the husband:
3.15The Husband’s mother’s death post-dated the parties’ separation. The Husband was entitled to an interest in her estate and at the trial that was yet to be received as its agreed value of $110,000.
3.16The Husband’s case was that the entitlement should not be treated as an asset but rather as a resource and considered under s.75(2)(o). If considered as an asset, the case was that the Wife made no contribution to it.
3.17The trial judge dealt with the issue at Judgment ¶ 158. If this is the only issue thought to account in post-separation contributions, then it is submitted that the trial judge’s approach fails to give sufficient weight to the contribution in adjusting for only 5% in respect of post-separation contribution made by the Husband. (Footnotes omitted)
The wife submitted that:
20.Her honour gave sufficient weight to the Husband’s entitlement from his late mother’s estate. (Footnotes omitted)
In her oral submissions to the Court, the wife contended that the trial Judge had, [at par 158] in her Reasons for Judgment, in the context of assessing the husband’s contributions, fully recognised and reflected the impact of the husband’s contribution of his inheritance. In effect, it was thus submitted that, even if the trial Judge ought to have either considered the $110,000 as a financial resource of the husband pursuant to s 75(2), or considered it in a separate pool to the other assets of the parties, a different outcome would not or should not have resulted.
We are not satisfied that the trial Judge erred by including in the assets of the parties the $110,000 inherited by the husband after separation rather than considering it via a “separate pool” (see Coghlan & Coghlan (2005) FLC 93-220), or pursuant to s 75(2). The issue turns ultimately on whether the manner in which the trial Judge treated the $110,000 inheritance caused her discretion to miscarry. Given her Honour’s inclusion of the sum of $110,000 in the asset pool, the primary focus of inquiry in that regard is the trial Judge’s conclusion with respect to the parties’ contributions to its acquisition.
In the context of her assessment of post separation contributions, the trial Judge recorded:
156.Between separation and hearing the father was entirely responsible for the repayment of the mortgage on the property in the order of $8,500 per month. He also paid child support and spouse maintenance and was responsible for certain other expenses including home maintenance. The mother provided the majority of the care of the children who were very young at the date of separation.
For reasons which her Honour advanced, and which have not been challenged [par 157], the trial Judge allowed as a liability of the husband the sum of $350,991 which he had incurred to the D Group, in part “in order to meet the mortgage and spouse maintenance expenses” in the post separation period.
So doing, albeit to an extent which her Honour did not quantify, and may not have been able to have quantified, must have reduced any potential enhancement of the husband’s post separation entitlement by virtue of the contributions to which her Honour referred in paragraph 156 of her Reasons.
The other factor which her Honour took into account in the post separation period was the inheritance of the husband:
158.The father inherited money post separation from his late mother. This was a contribution made on behalf of the father. The percentage adjustment by five per cent takes the ultimate ratio to 75/25.
As is not in doubt, on the asset pool determined by the trial Judge, the adjustment in the husband’s favour by reference to post separation contributions represented a disparity of approximately $200,000 [10 per cent] in favour of the husband.
We are not persuaded that her Honour erred in relation to the husband’s inheritance, either as a matter of principle or of discretion.
The trial Judge could have excluded the $110,000 from the asset pool, and regarded it as a financial resource of the husband. That may have been the preferable course, given that it was received by the husband after separation, and that there was no evidence that the wife had contributed to its acquisition. However, including the inheritance in the balance sheet was not erroneous. It was “property”, and her Honour had a discretion in relation to a “global” or “asset by asset” approach to the property of the parties (see Norbis v Norbis (1986) 161 CLR 513).
It has not been established that the trial Judge’s finding with respect to post separation contributions inadequately reflected the reality that the inheritance was referable solely to contributions by or on behalf of the husband. In the circumstances, it cannot be successfully asserted that $90,000 inadequately reflected the post separation factors (other than the $110,000 inheritance) which it was inferentially intended to encompass.

Grounds 6 & 7

Grounds 6 and 7 of the Amended Notice of Appeal were argued conjointly and provided:
6.That Her Honour erred in determining that the Respondent Wife’s entitlement on a contribution bases [sic] was 30% of the existing assets given:
(a)The nature and extent of the agreed assets the Appellant Husband had at the commencement of cohabitation, and the valuations of the Appellant Husband’s business as determined by the joint expert as at November 2009 and the date of hearing.
7.That the learned Trial Judge failed to have proper regard to the conduct of the Respondent Wife during the course of the proceedings in relation to the sale and/or retention of the matrimonial home and its ultimate decrease in value.

As paragraph 3.20 of Senior Counsel for the husband’s written submissions makes clear, a significant part of these complaints was in the nature of an “adequacy of reasons” challenge:
3.20As to that first period, the trial judge found that the Husband’s introduced assets amounted to $450,000 in value and represented 95% of the parties’ assets at the date cohabitation commenced. The trial judge fails to analyse and explain how disparate percentage was reduced to 70% / 30% by separation where she found the contributions during the cohabitation to be equal. That is, that the Wife’s contribution increased 25% over the 9 years the parties lived together. It is submitted that that conclusion cannot stand as a proper exercise of discretion or analysis.
As articulated before us by Senior Counsel for the husband, the reference to “analysis” in the foregoing submission, and, the real thrust of ground 6 was that the trial Judge inadequately revealed the reasoning process which led her to conclude as her Honour did in relation to the parties’ contributions. The asserted failure to engage with the wife’s conduct referred to in ground 7 was submitted to have exacerbated the inadequacy of the trial Judge’s revelation of her reasoning process.
It was further submitted by Senior Counsel for the husband in support of these challenges:
3.21As to the second period, there were four (4) elements which it was argued went to the relevant contribution of the parties in the Husband’s case. They were:
(a)The significant increase in the value of his business interest from about $1.46 million to over $2 million;
(b)The payment of mortgage payments of $295,000;
(c)The Husband’s inheritance; and
(d)The Wife’s conduct in declining to sell [the U property] which dropped in value by at least $100,000 in the period.
3.22The trial judge did deal with the amount paid by the Husband’s mortgage repayments at Judgment ¶ 157. However, in referring to the matter, she erred in finding that disregarding the debt as she did would fully compensate the Husband for his payments. This is because the borrowings from the company reflected only approximately $161,000 worth of those payments. The balance were [sic] paid from his income.
3.23It is submitted therefore that the 5% additional adjustment cannot adequately reflect the whole of the Husband’s contributions made post-separation. (Footnotes omitted)
In responding to ground 6, which provided in part that the trial Judge “erred in determining that the Respondent Wife’s entitlement on a contribution bases [sic] was 30% of the existing assets”, the wife in her written submissions disputed that the trial Judge had erred given the nature and extent of the agreed assets. The wife submitted in that regard:
21.The single expert described Mr [C] and the Husband as running the business to “suit themselves” and she did not consider the implication of the accounts being prepared by someone with a conflict of interest in terms of diminishing my claim on the asset pool. It is reasonable, therefore, to assume the financials would have been constructed to advantage the Husband and Mr [C]. The expert acknowledged shortfalls in the financial material requiring “assumptions” to be made. The single expert concluded her report was only as reliable as the information she was provided and, in the absence of an audit, could not be conclusive on the correctness of the valuation. The valuation by the single expert was constructed without any regard for reconciling banking records. The single expert’s appraisal of the Husband’s net interests ─ which was not an audit and did not test the information provided to her nor reconcile any banking records – cost us (collectively) over $70,000.
22.Little or no evidence was provided by the Husband as to details of his business and its borrowings at the commencement of the relationship. In 2001 the [D] Office Manager, [Ms L], informed me the company was in financial difficulty struggling to pay its invoices and cover its payroll. Consistent with this, the Husband ‘sold’ a 10% shareholding in his company to Mr [C] in return for working as the Company Accountant without a consideration being paid. All aspects of Mr [C’s] shareholding in the company were formalised post separation. The company did not show a profit until 2006. (Footnotes omitted)
The wife also disputed that the trial Judge had failed “to have proper regard to the conduct of the Respondent Wife during the course of the proceedings in relation to the sale and/or retention of the matrimonial home and its ultimate decrease in value.” The wife submitted in that regard:
1.… The Husband’s ongoing resistance to my relocation has been the sole reason why agreement on the sale of [the U] property has been at an impasse.
…
6.In September 2011 the Husband rejected an offer on the [U] property of $955,000. In the same month the Husband appeared before Cleary J. in Newcastle and offered me $60,000 to immediately vacate the [U] property (albeit to remain living within a 10km radius of the [U] address). $955,000 plus $60,000 totals $1,015,000. The husband has, of his own free will, resolved to retain the property and continue making the mortgage repayments. The Husband is exercising his own discretion to reject offers that would otherwise conclude the sale of the property and cause him to owe me the final settlement sum of $765,000.
Having detailed as she did, the disparity of the initial contributions of the parties and the contributions of the parties which intervened between the commencement and cessation of cohabitation [par 154], the basis of her Honour’s conclusion that the parties’ contributions at separation should be regarded as favouring the husband by 70/30, a disparity of approximately $800,000 was expressed in the following terms in her Reasons for Judgment:
153.Accordingly, the initial contributions were made almost entirely by the father, certainly 95 per cent or more; significantly, his property in [Northern Sydney] provided a home for the family and space for a home office. This type of contribution must be given substantial recognition.
154.During the course of the relationship each of the parties worked to their capacity. The mother also reduced her working hours around the needs of the children, whilst continuing to devote herself to the father’s business. The father is a resourceful and successful business man and the business expanded over the 9 years of the relationship.
155.I consider that the contributions had been equal during the course of the marriage causing an adjustment to the contributions to the point of separation of 70/30 in favour of the father. (Footnote omitted)
Although it could arguably be inferred that her Honour concluded that the husband’s initial capital contributions were “eroded” (see Pierce v Pierce (1999) FLC 92-844 and Kardos v Sarbutt (2006) 34 Fam LR 550) by the contributions the parties made between the commencement and conclusion of cohabitation, that does not arise by necessary implication from her Honour’s Reasons (see Wen & Thom [2010] FamCAFC 81). In the absence of such exposition, this Court is unable to determine whether or not such a division fell within the ambit of a reasonable exercise of discretion. Appellate intervention is thus enlivened.
As the submissions of the parties to this Court reveal, each raised issues which, if resolved, would have potentially impacted upon the assessment of the contribution of the parties. How the trial Judge resolved those issues is unclear from her Honour’s reasons.
As is not unusual when challenges to the adequacy of judicial reasons are successful, we are not able to determine whether the trial Judge’s conclusion with respect to the contributions of the parties fell outside the ambit of a reasonable exercise of discretion. The fact that her Honour’s conclusion may well have been “within the range” does not disentitle the husband to succeed with this complaint (see De Winter & De Winter (1979) FLC 90-605).
Given that the Court will need to re-exercise the trial Judge’s discretion, and on an asset pool the composition and quantum of which differs to some extent from that determined by the trial Judge, it is unnecessary and unhelpful to say more about these grounds.

Ground 8

Ground 8 was abandoned.

Grounds 9 & 10

Leave was sought by Senior Counsel for the husband in his written submissions to Amend the Notice of Appeal to include grounds 9 and 10 which provided:
“(9)That the learned trial judge erred on 18 November 2011 in dismissing the Husband’s application to amend the amount payable by the Husband to the Wife in Order 15 of her Orders made on 12 August 2011 from the amount of $765,000 to the amount of $716,211.
(10)That the learned trial judge erred in her judgment in incorrectly determining the amount payable by the Husband to the wife to be $765,000 when consistent with her findings, the amount should have been $715,211.
It was submitted on behalf of the husband that:
3.26At Judgment ¶ 168 […], the trial judge includes the $16,564 in the Wife’s liabilities. It is submitted that this is an error and does not fully compensate the Husband for his payment. Secondly, she fails to deduct the value of the Wife’s assets from the total amount of her entitlement as found by the trial judge to be $765,000. Accordingly, the proper amount to be deducted from the $765,000 is $48,789.
As is not in doubt, the inclusion of this sum as a liability of the wife, and as an asset of hers in a corresponding sum, was in accordance with the balance sheets submitted to the trial Judge by both parties [par 103]. Her Honour was invited through those balance sheets to include the sum of $16,564 in the ways in which she did.
Senior Counsel for the husband conceded that at no time was the trial Judge requested to do anything other than treat the sums in the way the parties had requested via the joint balance sheet which became Exhibit HW2.
In those circumstances, as Senior Counsel for the husband tacitly acknowledged, this Court could not find that the trial Judge erred. However, the Court endeavoured to make clear to the wife that whether the Court would necessarily take the same approach in re-exercising the trial Judge’s discretion is a different question.
Ground 10 entailed an asserted “arithmetical error by the trial Judge”.
Having determined that the wife’s entitlement to the “revised asset pool” of $2,182,917 should be 35 per cent, which translated as the sum of $765,000 in round figures [par 166], the trial Judge proceeded to determine by reference to what the wife already had, the sum to which she was entitled from the husband. This her Honour did:
168.The mother will receive the net proceeds of the sale of the home. Commission for the real estate agent and legal costs on the conveyance and bank fees will be payable. There will be just sufficient to form a small contingency fund for the mother to live on until she has moved into new accommodation. She may have to move twice. For that reason I have excluded the proceeds of the sale of the home from the asset pool in considering the overall outcome. The net sum of $41,168 which is the difference between the agreed value and the mortgage outstanding is artificial in the circumstances. …
Regrettably, having determined correctly, that the wife had net assets of $32,225, instead of deducting that sum from the figure of $765,000 which she had earlier, and correctly, calculated as the wife’s 35 per cent entitlement, the trial Judge failed to credit the husband with that sum, and order that he pay $732,775 [$765,000 - $32,225 = $732,775]. On the face of it, the trial Judge made a clear and simple error of arithmetic.
The mother submitted that the trial Judge had not made such an error and that the “intention of her judgment” was that the wife would receive $765,000 in addition to what she already had.
We have earlier, in relation to ground 1, referred to the wife’s submissions in support of her contention that the trial Judge intended that she receive no less than $765,000 from the husband. For the reasons we have earlier recorded, we cannot accept this to have been the case. The trial Judge clearly derived the figure to which the wife was entitled after determining, correctly, the wife’s entitlement in percentage terms.
The sum to which the wife was entitled was a result of that exercise, albeit her Honour made a mathematical error. This challenge is made out.

CONCLUSION

For the reasons we have articulated, the husband’s appeal should be allowed.
It is common ground that this Court should re-exercise the trial Judge’s discretion on the evidence which was before her Honour.
As foreshadowed at the conclusion of the hearing of the appeal, and as agreed by both parties, each party should have the opportunity to make brief submissions as to the orders this Court should make in re-exercising the trial Judge’s discretion.
Such submissions will be considered by this Court in conjunction with the submissions which were made to the trial Judge.
Having regard to the legal expenses which the parties have already incurred, the cost of remitting the proceedings for re-hearing would be disproportionate to the utility of doing so.

COSTS

It is common ground that the parties should receive costs certificates with respect to the appeal to this Court and we will so order.

I certify that the preceding on hundred and fourteen (114) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Coleman, May & Thackray JJ) delivered on 2 March 2012.

Associate:

Date: 02.03.2012