Jong & Yeng
[2014] FamCAFC 156
•18 August 2014
FAMILY COURT OF AUSTRALIA
| JONG & YENG | [2014] FamCAFC 156 |
| FAMILY LAW – APPEAL – PROPERTY –Where the primary judge did not make orders finalising the financial relationship between the parties – Where further litigation contemplated between the parties and other entities in another court – Appeal dismissed. FAMILY LAW – APPEAL – Cross-appeal – Add back of legal costs – Where moneys applied to legal fees had no connection with the marriage - Cross-appeal dismissed. |
| Family Law Act 1975 (Cth) |
| Boulos & Boulos [2003] FamCA 1185 Chorn & Hopkins (2004) FLC 93-204 |
| APPELLANT AND CROSS-RESPONDENT: | Ms Jong |
| FIRST RESPONDENT AND CROSS-APPELLANT: | Ms Yeng |
| FILE NUMBER: | SYC | 3007 | of | 2008 |
| APPEAL NUMBER: | EA | 107 | of | 2012 |
| DATE DELIVERED: | 18 August 2014 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Finn, May & Ainslie -Wallace JJ |
| HEARING DATE: | 4 February 2014 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATES: | 26 July and 17 August 2012 |
| LOWER COURT MNC: | [2012] FamCA 585 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT AND CROSS-RESPONDENT: | Mr Richard Bell |
| SOLICITOR FOR THE APPELLANT AND CROSS-RESPONDENT: | James Lee Solicitors |
| COUNSEL FOR THE FIRST RESPONDENT AND CROSS-APPELLANT: | Mr Jonathan Cohen |
| SOLICITOR FOR THE FIRST RESPONDENT AND CROSS-APPELLANT: | Cambridge Lawyers |
Orders
The Appeal filed 20 August 2012 be dismissed.
The Cross-appeal filed 9 November 2012 be dismissed.
There be no orders as to costs.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Jong & Yeng & Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EA 107 of 2012
File Number: SYC 3007 of 2008
| Ms Jong |
Appellant and Cross-Respondent
and
| Mr Yeng |
First Respondent and Cross-Appellant
REASONS FOR JUDGMENT
This is an appeal by the wife and cross-appeal by the husband against orders made by Johnston J on 26 July 2012 in property proceedings between them. One of the orders (Order 3) was subsequently amended by an order made by his Honour on 17 August 2012.
In summary, the effect of the orders is that the wife is to pay the husband the sum of $66,500 and discharge the mortgage on a property. That property is in the wife’s sole name. Orders were made should the wife fail to comply providing for the sale of the property and the division of the net proceeds between the parties. The parties were otherwise declared to be the sole owners of other property in their possession or control. The order (as amended) provided that should the property be sold the wife would receive 43.16 per cent of the net proceeds and the husband 56.84 per cent.
The issue in the appeal is a narrow one; whether the primary judge erred in law in making final property orders that did not entirely sever the financial relationship between the parties.
The cross-appeal too has a narrow focus, asserting that his Honour erred in failing to include two sums of money into the assets of the parties for division by way of “add back”.
None of his Honour’s findings of fact, nor his assessment of the parties’ contributions nor his conclusions in relation to matters in s 75(2) of the Family Law Act 1975 (Cth) (‘the Act’) was challenged in the appeal or cross-appeal.
Background
The parties married in 1982 and separated in late 2006. From a period shortly after separation, the husband has lived in Korea. The wife remained in Australia and cared for the parties’ four children, all of whom were adults at the date of the hearing before the primary judge.
During the marriage the parties bought and developed properties both personally and through a company B Pty Ltd of which the parties were the sole shareholders and directors. In about 1993 the parties purchased land on which W Holdings Pty Ltd (“W Holdings”) constructed houses. The wife’s parents were the directors and shareholders of W Holdings. Thereafter B Pty Ltd and W Holdings conducted other property developments. In 1998 K Enterprises Pty Ltd, a company of which the wife’s brother and sister-in-law were directors and shareholders, entered into a development project with B Pty Ltd and W Holdings.
B Pty Ltd and W Holdings purchased in September 1995, as tenants in common in equal shares, two properties. Five townhouses were built on the properties, four of which were later sold. Only one townhouse is retained.
In September 1998 K Enterprises Pty Limited, (the company owned by the wife’s brother Mr A Jong and his wife Ms G Jong), B Pty Ltd and W Holdings purchased properties for $355 000 and $270 000, respectively. Each company held a third share of the properties.
The principal assets available for division in the proceedings between the husband and wife were four properties; one owned personally by the wife, E and the other three owned by B Pty Ltd with W Holdings and/or with K Enterprises Pty Ltd.
When the proceedings were commenced W Holdings, K Enterprises Pty Ltd, B Pty Ltd and the wife’s father, Mr H Jong, were named as parties. As the primary judge’s reasons indicate, the husband sought to withdraw his claims against the wife’s father and his Honour made that order by consent on 15 February 2012 (which was the first day of the trial).
The basis for the joinder of the other parties was the husband’s claim that they had debts to B Pty Ltd arising from joint developments with W Holdings and/or K Enterprises Pty Ltd. The husband contended that these claims against the companies should be heard in the property settlement proceedings using the accrued jurisdiction of the Family Court.
W Holdings and K Enterprises Pty Ltd sought summary dismissal of the husband’s claims against them. The application for summary dismissal was heard and the primary judge ordered the claims be dismissed on 16 February 2012 (the second day of the trial). His Honour’s reasons for making the order assume some importance in the issue to be determined on appeal.
His Honour found that the husband’s claims against the companies did not have the necessary connection to fall within the accrued jurisdiction of the Family Court. His Honour considered at [16] and [17] that the claims against the other companies could only be relevant in the property hearing as to the valuation of B Pty Ltd.
His Honour made no finding as to the merits of the husband’s claims. He dismissed the husband’s application on the basis that he was not the proper plaintiff because the debts were asserted to be owed to B Pty Ltd and not the husband personally. Thus the husband’s application against the other respondents was summarily dismissed.
There was no appeal brought from his Honour’s determination of the husband’s application. At the commencement of the hearing of this appeal and cross appeal the solicitors for the other respondents appeared and asked to be excused.
Primary judge’s reasons
The primary judge set out the property of the parties at [98] of his reasons in relation to the orders now appealed, observing that the identification and value of the assets had been agreed between the parties.
98. The property available for division between the parties is as follows:-
$
1. [Property E1] registered in the wife’s name
645,0002. Property owned by [B] Pty Limited [Property D] (one half interest)
217,5003. One third interest in [Property CB], owned by B Pty Limited
205,0004. One third interest in [Property CA], owned by B] Pty Limited
208,3005. Wife’s Toyota Corolla motor vehicle
15,000
6. Wife’s Toyota Yaris motor vehicle
15,000
_____________
$1,305,800
His Honour determined the parties’ liabilities at [100] and [101]. They comprised a mortgage over Property E of $500,000 and $28,000 that would be taken into account referable to the wife’s credit card. The judge also found that the husband had an interest in the AMP Retirement Savings Account of $14,000. At [103], the judge calculated the net assets of the parties as having a value of $781,800.
It is apposite to make a number of observations at this point. At the commencement of the trial, the parties placed a joint balance sheet before his Honour. The balance sheet treated the various pieces of real estate as if they were the property of the parties rather than that of B Pty Ltd. That approach is reflected in his Honour’s articulation of the assets and liabilities in the reasons.
Secondly, under the heading “Liabilities” at items 23 and 24 in that balance sheet were the following entries, asserted to be joint liabilities of the parties:
23. Unpaid construction costs owed to 2nd Respondent including $250,000 for [Property T] and $17,000 for [Property E]
The total of this asserted liability was $267,000
24. Monies owed to the wife’s parents and brother as listed in Wife’s first affidavit paragraphs 7, 16, 24, 25, 32, 38 & 39.
This liability was said to total $237,020.
The notes to the balance sheet in respect of these two items say:
Asserted by Wife and 2nd-4th Respondents but disputed by Husband in its entirety
Before setting out the assets of the parties and determining their liabilities, his Honour had considered the claim that the parties owed money to the wife’s parents and W Holdings. He said:
89. A further issue was the extent to which the wife’s parents have given assistance to the parties and to the children.
90. There were various limbs to this. The wife said that between May 1998 and December 1999, a period of approximately 82 weeks, her mother gave her $300 per week, which would amount to a total of more than $24,000. The wife also asserted that her parents had contributed in various ways to the development of the parties’ home…, the overall value of their contributions having been approximately $250,000. The wife also said that in approximately October 2001 she and the husband borrowed $60,000 from the wife’s parents to purchase a motor vehicle and that this loan has never been repaid.
91. In my view, these matters bring into focus some of the difficulties in this case which arise from the fact that the financial affairs of the husband, the wife and the wife’s parents have been enmeshed. As I have indicated above, the wife’s parents did not file affidavits in these proceedings and they have chosen not to be parties. And as I have also said, in my view, it is more probable than not that benefits have been flowing both ways between the families. It is impossible to do an accounting of these matters and endeavour to arrive at who owes whom what in respect of their enmeshed affairs.
92. The final issue was really a part of the last issue but with a difference. The wife asserted that the husband and wife owe her parents $80,000 and her brother $20,000. This was said to be as a consequence of them having had to re-finance their original borrowing of $100,000 from [SH Jong]. It is common ground that the parties’ corporation [B] Pty Limited was to contribute $175,000 towards the joint venture with [W Holdings] to purchase and develop the properties [Suburb D] which it did. The parties used $75,000 of their own funds and borrowed $100,000 from [SH Jong]. When he asked for his loan to be repaid, the wife said that she and the husband borrowed the above-mentioned funds from her family and still owe the money.
93. My view about this is that any indebtedness by the corporation of the husband and the wife to the wife’s relatives or their corporations is a matter within the broader dispute. For the reasons already given I do not propose to mix matters in dispute in the broader area with these proceedings. I shall refer to the difficulties in this area again below.
After consideration of the contributions of the parties and noting the difficulties in the proceedings his Honour decided to take a “broad view” at [119] and concluded that their contributions were equal. Reference was then made to the relevant facts associated with s 75(2) considerations and it was decided that there should be no adjustment.
His Honour then turned to a consideration of the orders to be made, particularly referring to the provisions of s 81 of the Act. He said:
141. There was a strong submission on behalf of the wife that the Court should make an order to the effect that the husband transfer his interest in the parties’ corporation [B] Pty Limited to the wife. It was submitted that firstly this would be just and equitable but secondly that there was an additional virtue in such an order. This was said to be that this would in effect close off any possibility of further litigation between the parties along the lines of that which the husband endeavoured to bring in these proceedings involving the claim he asserted against the companies of the wife’s parents and brother. It was submitted that such an order would serve the interests of s 81 of the Act, namely to make such orders as would finally determine the financial relationships between the parties and avoid further proceedings between them.
142. I just pause to make the observation that s 81 of the Act is a duty not a head of power. Obviously the Court strives as far as practicable to endeavour to fulfil such duty. But there are some cases where the Court is unable to fulfil this duty.
143. There are a couple of reasons why I find myself unable to make an order to the effect that the husband transfer his interest in the corporation [B] Pty Limited to the wife. Firstly, the value of the company’s assets being the properties identified in the pool of available property above, is well in excess of 50 percent of the value of the total property and superannuation in the pool. But there is another reason. This is that, in my view, if the Court was to order the husband to transfer his interest in the corporation to the wife, this would have the effect of either removing from him, or making it very difficult for him, to bring any claim he might have in equity against the corporations of the wife’s parents and brother. In my view, such a result would be unfair to him.
144.And I would not consider it fair to require the wife to transfer her interest in the corporation to the husband for the first part of the above reasons.
145.There was also no evidence before me about what the taxation implications might be, if any, of requiring the parties to transfer their interests in the corporation [B] Pty Limited or its assets to one or other of them.
146. So far as making any other orders which might have the effect of resulting in the parties enjoying other than their legal interests in the corporation [B] Pty Limited I am most reluctant to do so. As I have observed above, the parties managed their financial affairs in a manner which involved enmeshment of their affairs with those of the wife’s parents. In my view, in these circumstances, they cannot reasonably expect this Court, given its jurisdiction in respect of matrimonial causes, to unwind as it were, the entirety of the consequences of such enmeshment.
147. Doing the best that I can in these difficult circumstances, in my view the appropriate, just and equitable order is to leave the parties with their interests and rights as shareholders of their corporation [B] Pty Limited. Having said this, it is to be hoped that once the disputation about the matrimonial property is brought to an end by the orders which I propose to make in these proceedings, the parties might see the good sense of not becoming involved in further litigation between themselves and others. If necessary they will have to cause their corporations to be wound up.
His Honour then turned to consider how what he termed “the available property and superannuation” might be equally shared. His final determination of this matter following his amending orders and reasons for judgment of 17 August 2012, would read as follows:
148.As I have said, the parties are to share equally the available property and superannuation. Half of this ($791 800) is $395 000.
149.The corporation [B] Pty Limited has a value of $630 800. This value is reflected in its interests in the properties at [Suburb D] and [C Suburb]. One half of this is $315 400.
150.On the basis that the wife is to retain her half interest in the corporation the value of this to her would be $315 400. She has other property in the form of the two motor vehicles which is another $30 000. Accordingly, she will have property with a value of $345 400 ($315 400 + $30 000 = $345 400). The wife also has a liability in the form of her credit card debt of $28 000. But this would be part of the total indebtedness on the [property in the wife’s name]. In order to achieve property with a value of $395 900 the wife would need an additional payment of $50 500 ($395 900 - $345 400 = $50 500). Such a payment could only come from the sale of the property at [the property in the wife’s name], or the wife would retain such value in it if she was to pay the husband for his interest therein.
151.On the other hand the husband is to have property with a value of $395 900. On the basis that he would retain his interest in the corporation [B] Pty Limited, this would be $315 400. But the husband also has superannuation with a value of $14 000. He would then have property and superannuation with a value of $329 400. In order to achieve property with a value of $395 900 he would need additional property with a value of $66 500 ($395 900 - $329 400 = $66 500). This would come from the net proceeds of sale of [the property in the wife’s name], or a payment from the wife.
152.As indicated above [the property in the wife’s name] has a value of $645 000. But it also has a mortgage secured upon it of $500 000 and the wife’s credit card liability should be paid from it. Accordingly the equity is $117 000 ($645 000 - $500 000 - $28 000 = $117 000).
153.A payment of $50 500 to the wife would represent 43.16 percent of the equity. A payment of $66 500 to the husband would represent 56.84 percent of the equity.
The appeal
The notice of appeal filed by the wife contains six substantive grounds of appeal.
The essence of the appeal was that the primary judge erred in failing to make findings on the wife’s claim that she and the husband owed significant amounts of money to her family and to W Holdings. Thus, it was argued, in failing to make findings on these debts, his Honour’s orders were based on an undetermined pool of assets and so his subsequent consideration of each party’s contribution and relative entitlements and ultimate orders rested on an unsound foundation.
Further, it was argued that in not considering this issue and leaving it to be determined in subsequent litigation between the various corporations, his Honour, in accordance with s 81 of the Act, failed to bring the required finality to the financial relationship of the parties.
Determination of the parties’ debts
Dealing first with the submission that the primary judge declined to investigate and determine the issue of the debts, in our view, this submission is flawed. We have earlier described the wife’s claims regarding the debts and we have set out his Honour’s consideration of those claims. As is clear from his Honour’s reasons following [89], his Honour considered the wife’s claim that she and the husband owed money to her parents and found that he could not, on the evidence before him, conclude that the debts were indeed owed.
We were not taken to any evidence on which he could have come to any other conclusion. It seems that the only evidence before him was the wife’s assertion that the debts existed and the husband’s denial that they did not. As his Honour observed, the wife’s parents gave no evidence and took no part in the proceedings.
Not only was there scant evidence before his Honour on the issue of the debts owed to the wife’s parents or to W Holdings, we observe that his Honour had significant concerns as to both the credibility and the adequacy of the financial disclosure made by both parties. In concluding his consideration of the parties’ credit, his Honour said at [73]:
Although I have reservations about the reliability of the wife’s evidence I have been even less impressed with that of the husband. This has left me in a state of considerable uncertainty about significant areas of the evidence.
In those circumstances, we do not see how his Honour could have reached a conclusion on the claimed debts or resolved the dispute other than as he did.
As to so much of the asserted debt that the wife said was owed to her parents’ company by B Pty Ltd, his Honour concluded that it was appropriate for that issue to be determined in any subsequent litigation. Bearing in mind the husband’s position that B Pty Ltd had a claim against the other companies and that he had attempted to include that action in the family law proceedings, the primary judge could reasonably anticipate that the asserted claim would be pursued in another court. Given that the other companies were not actively involved in the proceedings once the order for summary dismissal was made, and that the wife did not seek to call any representatives of the companies for the purposes of proving the wife’s claim of inter-company debts, it is difficult to see how his Honour could have determined the issue of the debts owed to the companies.
Finality of proceedings and s 81
Section 81 is in the following terms:
In proceedings under this Part, other than proceedings under section 78 or proceedings with respect to maintenance payable during the subsistence of a marriage, the court shall, as far as practicable, make such orders as will finally determine the financial relationships between the parties to the marriage and avoid further proceedings between them.
As his Honour correctly observed, s 81 is not a separate head of power but an exhortation to the court.
In Boulos and Boulos [2003] FamCA 1185 the Full Court (Ellis ACJ, Holden and Brown JJ) said, referring to s 81:
35… The references to s 81 or the "clean break" principle in each case is, in our view, nothing more than a recognition by the Court of the tension that exists between the two discernible policies of the Family Law Act 1975 relevant to an application such as the one with which we are dealing.
36.The first is to ensure that when a marriage ends the assets of the parties are divided between them on a basis that is just and equitable. The second is an aspiration to bring to an end, once and for all, the financial relationship between the parties.
The case presented to the primary judge was one of the exceptional cases in which orders which brought the parties’ financial relationship were not possible particularly if orders which were otherwise just and equitable were to be made.
It was not argued that his Honour was unmindful of the section or the desirability of making orders which sever the financial relationship of the parties. During submissions, when faced with competing applications by both parties that the shares in B Pty Ltd be transferred to him or her, his Honour said:
HIS HONOUR: Maybe I simply declare that each of the parties to be the owners of their respective shares. Is that open to me to do that? It would be a nice neat way out of it for me. And they can take it themselves. They can work out with the wife’s family who owes what. They can go up to the Supreme Court if they want to.
Transcript of 20 February 2012 page 244 line 23 to line 26.
Counsel for the wife submitted that this course was not open to his Honour and urged him to make an order transferring all of the shares to her. His Honour said:
HIS HONOUR: What else do I do? If I give the shares to one or other of the parties I’m giving them the shares with the potential or with the – well, it’s not (sic) chose in action, but with, I suppose, the possibility that they could go up the road and then argue it out with the wife’s – with [W Holdings] and all the rest of it, yes. How else would I do it?
Transcript of 20 February 2012 page 244 line 40 to line 44.
After further discussion counsel for the wife said:
MR BELL: Then the difficulty is, though, which satisfied section 81 better than the husband has shareholdings---
HIS HONOUR: Well, no, that’s a matter for them. I can’t satisfy section 81 because of this other aspect that I have already indicated and I didn’t think it was appropriate to do.
Transcript of 20 February 2012 page 245 line 18 to line 23.
Counsel for the wife in further submissions to the primary judge expanded upon the difficulties for the wife if the husband had the shareholding of B Pty Ltd and he proceeded with the anticipated action against W Holdings arguing that if there is to be a second proceeding, she would want an accounting to her.
His Honour then said:
HIS HONOUR: Or I just leave them with their existing shareholdings in [B Pty Ltd]. Maybe that’s the fairest way and they can fight on.
MR BELL: If they were to fight on then that would be a fairer version of it, but not ideal.
Transcript of 20 February 2012 page 247 line7
Counsel also argued that if the husband was indeed contemplating further litigation it could lead to what he termed “inconsistent findings” and said:
MR BELL: Well, your Honour can potentially make findings in this case---
HIS HONOUR: Not about the dealings between the parents and the - I mean, I have already said that’s up the road. I’m not touching that….
---
And we have run this on the basis of the family law proceedings; not the other proceedings. So how would it be making findings about that? I would have thought I would be being fairly careful not to make findings about that. I mean, it’s just, you know, an unsatisfactory aspect of the case, but there it is, it has been dogging the litigation for ever.
Transcript of 20 February 2012 page 247 line 38 to page 248 line 3.
Finally, his Honour said:
HIS HONOUR: I will just leave them – you know, give them half each, they can just have them. They can just have half each or I will just declare that they have got their interests in the shares in [B Pty Ltd] and on they go.
---
HIS HONOUR: Well, what else can I do? I mean, in justice and equity and making an appropriate order, as I have to do under 79(2) , what else can I do?
MR BELL: Well, your Honour, I can only put those matters as to why your Honour would better sever the relationship by the shares being transferred to the wife. That’s all I can put.
HIS HONOUR: If I do that, whichever way I go with that I know that there is a potential for the parties bringing this action in equity against the other corporations.
MR BELL: Only if the husband has those shares, because, your Honour, it’s not put to the wife that she would then go and sue family members on this abstract claim….
Transcript of 20 February 2012 page 248 line11 to line 27.
His Honour said:
141.There was a strong submission on behalf of the wife that the Court should make an order to the effect that the husband transfer his interest in the parties’ corporation [B] Pty Limited to the wife. It was submitted that firstly this would be just and equitable but secondly that there was an additional virtue in such an order. This was said to be that this would in effect close off any possibility of further litigation between the parties along the lines of that which the husband endeavoured to bring in these proceedings involving the claim he asserted against the companies of the wife’s parents and brother. It was submitted that such an order would serve the interests of s 81 of the Act, namely to make such orders as would finally determine the financial relationships between the parties and avoid further proceedings between them.
142.I just pause to make the observation that s 81 of the Act is a duty not a head of power. Obviously the Court strives as far as practicable to endeavour to fulfil such duty. But there are some cases where the Court is unable to fulfil this duty.
143.There are a couple of reasons why I find myself unable to make an order to the effect that the husband transfer his interest in the corporation [B] Pty Limited to the wife. Firstly, the value of the company’s assets being the properties identified in the pool of available property above, is well in excess of 50 percent of the value of the total property and superannuation in the pool. But there is also another reason. This is that, in my view, if the Court was to order the husband to transfer his interest in the corporation to the wife, this would have the effect of either removing from him, or making it very difficult for him, to bring any claim he might have in equity against the corporations of the wife’s parents and brother. In my view, such a result would be unfair to him.
144.And I would not consider it fair to require the wife to transfer her interest in the corporation to the husband for the first part of the above reasons.
145.There was also no evidence before me about what the taxation implications might be, if any, of requiring the parties to transfer their interests in the corporation [B] Pty Limited or its assets to one or other of them.
146.So far as making any other orders which might have the effect of resulting in the parties enjoying other than their legal interests in the corporation [B] Pty Limited I am most reluctant to do so. As I have observed above, the parties managed their financial affairs in a manner which involved enmeshment of their affairs with those of the wife’s parents. In my view, in these circumstances, they cannot reasonably expect this Court, given its jurisdiction in respect of matrimonial causes, to unwind as it were, the entirety of the consequences of such enmeshment.
147.Doing the best that I can in these difficult circumstances, in my view the appropriate, just and equitable order is to leave the parties with their interests and rights as shareholders of their corporation [B] Pty Limited. Having said this, it is to be hoped that once the disputation about the matrimonial property is brought to an end by the orders which I propose to make in these proceedings, the parties might see the good sense of not becoming involved in further litigation between themselves and others. If necessary they will have to cause their corporation to be wound up.
The hearing before his Honour had been conducted with the spectre of continuing litigation in another court. The husband’s attempted joinder of the secondary litigation had failed and the third parties had departed the case. No attempt by the wife or indeed the husband was made to include them in the family law proceedings in any other way.
His Honour was left with little choice it seems to us but to leave that litigation to be argued in another court. As his remarks to counsel for the wife make clear, there was no evidence in the family law proceedings that permitted any findings about that dispute. The submission on behalf of the wife to the effect that if she had the shares there would be no litigation with her parents’ company was clearly unfair to the husband as his Honour’s reasons at [143] demonstrate. In those circumstances, it was entirely sensible for his Honour to also leave the related question of debts said to be owed by B & L or the parties to W Holdings or K Enterprises Pty Ltd to be included in the litigation to be conducted in another court.
In leaving the shareholdings intact, both parties, as equal shareholders, and B Pty Ltd received either the benefit from litigation by B Pty Ltd against the other companies and equally shared the burden of the responsibility for the debts. In the circumstances of this case, his Honour’s decision was not only driven by the way the case was run but resulted in orders that were just and equitable.
No error asserted in the appeal has been established in his Honour’s orders. The appeal will be dismissed.
Husband’s cross appeal
The cross appeal contains two grounds each asserting that his Honour erred in his determination of the assets to be divided between the parties.
Ground 1 relates to an amount of $84,000 held in an account of the wife.
1. His Honour erred by not including the amount of $84,000 held by the appellant as “trustee” as part of the marital assets.
It seems that it was not until after counsel for the husband had finished his cross examination of the wife that the existence of this bank account was revealed. The wife was recalled for further cross examination. She maintained that the account was not hers but held as trustee for a young Korean person who was boarding with her.
His Honour considered this issue at [88] and accepted the wife’s evidence that the money was held in trust for the student and that the wife had no beneficial interest in that account.
It is, however, unnecessary that we say more about this ground because we understood counsel for the husband to submit that he was not able to pursue it further (apparently because it was a matter that had arisen late in the trial and thus could only be satisfactorily explored in the context of a new trial).
Ground 2 concerns part of the wife’s legal costs. The ground of appeal is:
2. His Honour erred by failing to determine the appellants [sic] legal costs as an “add back”.
At the end of the hearing before the primary judge, counsel for the wife handed to the judge a schedule of the wife’s costs, both paid and anticipated. The letter which became Exhibit 9 in the proceedings showed that the wife’s solicitors were holding some $19,960 in trust for the wife on account of their costs and disbursements.
Counsel for the husband argued that the whole of the wife’s legal costs, by which we understand him to mean that the sums paid by the wife to her solicitors for costs and the amount held by them on trust, should be “added back” to the pool of assets for division between the parties.
His Honour said:
HIS HONOUR: I would have thought I would just leave the legal expenses with each party.
MR COHEN: The problem is that his legal expenses are contingent on – or at least, they’re a debt afterwards which is – so they would be ignored because they’re a debt.
HIS HONOUR: Well, so are the wife’s. She has got a fair bit unpaid.
MR COHEN: They’re partly a debt, but I think if it’s in trust, that’s actually assets of both.
HIS HONOUR: You will just have to leave that with me, I think.
MR COHEN: All Right.
Transcript of 20 February 2012 page 280 line 12 to 25.
In the result, the primary judge made no order in relation to the wife’s paid legal costs nor in relation to the money held in trust on account of costs, neither did he make any order in respect of any legal fees paid by the husband.
Of particular relevance the Full Court in Chorn & Hopkins (2004) FLC 93-204 held at 79-322:
56.In summary, we consider that the above mentioned decisions of the Full Court establish that, while the treatment of funds used to pay legal costs remains ultimately a matter for the discretion of the trial Judge, in determining how to exercise that discretion, regard should be had to the source of the funds.
57.If the funds used existed at separation, and are such that both parties can be seen as having an interest in them (on account, for example, of contributions), then such funds should be added back as a notional asset of the party, who has had the benefit of them.
58.If funds used to pay legal fees have been generated by a party post-separation from his or her own endeavours or received in his or her own right (for example, by way of gift or inheritance), they would generally not be added back as a notional asset…
The parties in this matter separated in late 2006 and for some time after that the husband moved to Korea and was living there at the time of the trial. As his Honour’s reasons make clear, in that time the husband did not provide any financial support for the wife and their children. The wife was at the time of the hearing before the primary judge working as a driving instructor.
Fundamental to a consideration of whether expenditure is “added back” into the assets of the parties for division is the source of those moneys. In circumstances such as in this case where a party has been earning an income since separation, it would be necessary to demonstrate that the source of the funds in question was connected to the marriage in some way. Counsel for the husband was unable to point us to any evidence in the trial which could possibly have supported his contention that the funds used by the wife to pay her costs and in the solicitor’s trust account had that necessary connection.
This ground has not been made out.
It follows that the cross appeal will fail.
Costs
At the conclusion of the hearing we sought submissions on the question of the costs of the appeal to save the time and expense of the parties making submissions at another time.
Both counsel submitted that if both appeals failed, there should be no orders as to cost.
In our view that is a sensible approach and we will make no order for costs.
I certify that the preceding sixty nine (69) are a true copy of the reasons for judgment of the Honourable Full Court (Finn, May & Ainslie-Wallace JJ) delivered 18 August 2014.
Associate:
Date: 18 August 2014
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