Kane & Kane
[2013] FamCAFC 205
FAMILY COURT OF AUSTRALIA
| KANE & KANE | [2013] FamCAFC 205 |
FAMILY LAW – APPEAL – PROPERTY SETTLEMENT – Appeal against trial judge’s findings on contributions – Where the parties had agreed that their contributions were equal save for the contributions to a superannuation fund – Where the superannuation fund was dealt with in isolation – Where the trial judge found the husband’s contributions to the superannuation fund were substantially greater than that of the wife due to his acumen and successful investment – Where the contributions to the superannuation fund were apportioned two thirds to the husband and one third to the wife – Where the increase in value of the superannuation fund was largely attributable to one investment – Where the trial judge found that the increase in value bore no relationship to ordinary market forces – Where the husband had invested funds in which the parties had an equal interest – Where the result was not just and equitable as the trial judge had placed excessive weight on the husband’s contribution to the superannuation assets – Where the notion of “special contributions” was found to predispose an outcome – Appeal allowed – Property application remitted for rehearing.
| Family Law Act 1975 (Cth) |
| Ferraro & Ferraro (1993) FLC 92-335 |
| APPELLANT/CROSS-RESPONDENT: | Ms Kane |
| RESPONDENT/CROSS-APPELLANT: | Mr Kane |
| FILE NUMBER: | SYC 1097 of 2010 |
| APPEAL NUMBER: | EA 83 of 2011 |
| DATE DELIVERED: | 18 December 2013 |
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Faulks DCJ, May and Johnston JJ |
| HEARING DATE: | 3 June 2013 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 22 June 2011 |
| LOWER COURT MNC: | [2011] FamCA 480 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Kearney SC |
| SOLICITOR FOR THE APPELLANT: | Gayle Meredith & Associates |
| COUNSEL FOR THE RESPONDENT: | Mr Lethbridge SC with Mr Bateman |
| SOLICITOR FOR THE RESPONDENT: | Stacks The Law Firm |
Orders
The wife’s application in an appeal filed on 3 May 2013 be dismissed.
The husband’s application in an appeal filed on 27 May 2013 be allowed.
The appeal be allowed.
The amended cross-appeal be allowed.
The order contained in paragraph 7 of the orders made on 22 June 2011 be set aside.
The application filed 30 April 2010 and the response filed 23 March 2011 be remitted for rehearing before a judge other than Austin J.
There be no order as to costs.
The Court grants to the appellant/cross-respondent a costs certificate pursuant to the provisions of s 9 of the Federal Proceedings (Costs) Act 1981 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 in respect of the costs incurred in relation to the appeal.
The Court grants to the respondent/cross-appellant a costs certificate pursuant to the provisions of s 6 of the Federal Proceedings (Costs) Act 1981 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 in respect of the costs incurred in relation to the appeal and cross-appeal.
The Court grants to each of the parties a costs certificate pursuant to the provisions of s 8 of the Federal Proceedings (Costs) Act1981 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 each of the parties in respect of the costs incurred by the appellant and respondent in relation to the rehearing.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Kane & Kane 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 83 of 2011
File Number: SYC 1097 of 2010
| Ms Kane |
Appellant
And
| Mr Kane |
Respondent
REASONS FOR JUDGMENT
Faulks DCJ
I agree with the Orders proposed by, May and Johnston JJ and, with respect, adopt their analysis of the appeal and their setting out of the issues to be determined as it appears in paragraphs 26 to 113 of their reasons. I wish however to add some comments of my own while agreeing in a broad sense with the conclusions they reach in the subsequent paragraphs of their reasons for judgment.
Each party in this matter sought an alteration to their joint and respective interests in property and, as a preliminary determination in my opinion, it is just and equitable to alter the interests of the parties to effect a division of property between them in accordance with s 79 of the Family Law Act1975 (“the Act”). The nature of such division is of course another question.
Nothing in s 79 requires a trial judge (or for that matter the parties) to allocate a percentage entitlement of the property to each party in applying the criteria and requirements of s 79. (And because of s 79(4)(e) s 75(2)). The articulation of such percentages is a practical tool whereby the parties and ultimately the trial judge indicate the weight and evaluation given to any contribution (or contributions in combination) or to any factor under s 75(2) (or all factors in combination). While the allocation of percentages is a sensible and valuable tool, (particularly to promote consistency and predictability) it cannot be an objective in its self. Section 79 imposes no obligation on a Court to divide property or interests in property in accordance with some determined percentage.
That having been said the evaluation and comparison of contributions (and also factors pursuant to s 75(2)) is necessarily a difficult task because contributions of one sort, in one “sphere” of contribution, may be significantly different in kind from contributions in another.
Murphy J (at first instance) in Smith & Fields [2012] FamCA 510 analysed some of these difficulties with particular clarity by reference to the relevant authorities[1] and I respectfully agree with and adopt his analysis.[2] His Honour concludes that part of his judgment with a quotation from Coleman J in Steinbrenner & Steinbrenner [2008] Fam CAFC 193 at [234] which I reproduce:
Given the evaluation of contribution based entitlements inevitably moves from qualitative evaluation of contributions to a quantitative reflection of such evaluation, there will inevitably be a “leap” from words to figures. That is the nature of the exercise of discretion, whether it be in the assessment of contributions in the matrimonial cause, assessment of damages in a personal injuries case, or determination of compensation in a land resumption case…
[1] In paragraphs 8 to 30 of his judgment.
[2] I should perhaps indicate that I would not necessarily agree with his Honour’s application of that analysis in that particular matter.
This analysis highlights the problems that faced the trial judge in this matter but does not necessarily provide answers to those problems.
To the extent that the trial judge believed himself to be obliged by authority to determine the division of the property of the parties by reference to some doctrine acknowledging “special skills” in my opinion, for the reasons set out above, he was mistaken. The Act does not require and in my opinion the authorities do not mandate, any such doctrine and if judgments of the Full Court of this Court might be thought to have espoused such a principle in my opinion, they should no longer be regarded as binding.
It is difficult to correlate effort or skill (even if special) with result. Frequently, the financial result of a contribution (whether by physical or intellectual labour or imagination foresight and perspicacity) will be influenced by external factors beyond the control of the party contributing. In this matter for instance, while in no way diminishing the skill and hard work of the husband in identifying, analysing and researching the Company 1, that work (contribution) may have come to nought if because of the malfeasance of an employee, the company’s stability was affected.
The husband’s skills did not prevent losses in other investments which he appears to have allocated not only to his superannuation fund but also to that of his wife.[3]
[3] See judgment of Austin J at [110].
Also “special skills” (unless that phrase is confined to “special skills in business/financial matters”) will not always produce significant financial results. An academic may be brilliant and possess exceptional or special skills which require much work and effort to apply, but which may nevertheless not reflect in the “acquisition, conservation or improvement of any of the property of the parties”. A range of highly specialised practical skills may not produce an economic return equivalent to the return produced by the entrepreneurial skills of a newspaper magnate.
The injection of sums of money or assets acquired by windfall or otherwise than by personal effort (such as inheritances) may be considered properly in my opinion, as “contributions” which may require in a particular case, specific and substantial acknowledgement. As Murphy J suggested in Smith & Fields [30] the Trial Judge’s function is to determine in the exercise of his or her discretion how the various contributions by each of the parties should be identified, evaluated and considered in the determination of what division of the property of the parties would be just and equitable (not disregarding the factors in s 75(2)).
This exercise does not necessarily depend upon the impact which any particular contribution may have had on the property of the parties in itself or for that matter, on whether there is a large or small amount of property to be divided. (Although the amount of the property itself may validly influence adjustments which might be made under s 75(2)).
In the present case the learned trial judge identified his pathway to decision in [117]
That leaves for consideration the assertion of the husband that the application of his acumen to investment decisions, which caused the superannuation fund to prosper, was a contribution of significance which differentiates his contributions from those of the wife and entitles him to a much greater share of the superannuation interests.
And he concluded in [138] as follows
I am satisfied that, without the husband’s skill in selecting and pursuing the investment in [Company 1] shares, the parties’ superannuation interests within [R] Investments would currently be worth substantially less. It follows that the husband’s contributions to those superannuation interests were substantially greater than those of the wife. I reject the wife’s submission that her contributions were equal to those of the husband. The real difficulty is evaluating the parties’ contribution in mathematical terms.
He reflected on that task in [139]
The task of moving from a qualitative assessment of the parties’ contributions is a difficult one, but that is the nature of the exercise of discretion (see Mallett v Mallett (1984) 156 CLR 605 at 625; Teal v Teal [2010] FamCAFC 120 at [36]; Van der Linden & Kordell [2010] Fam CAFC 157 at [90]).
He then concluded in [140]:
The parties jointly contributed to [R] Investments, through [K Company], funds now totalling $1,060,400. The investments within the superannuation fund are now worth more than treble that amount. Without the wife’s joint contribution of those funds, and her acquiescence to the husband’s inclination to invest them the husband would not have had the funds available to demonstrate his investment prowess. Other share purchases by the husband on behalf of [K Company] did not enjoy the same spectacular success as the [Company 1] shares, and some even realised a loss.
[141] I conclude that the parties’ contributions to the accumulation of wealth within [R] Investments should reflect entitlements of two-thirds to the husband and one-third to the wife. Such apportionment reflects equal credit for the parties’ joint introduction of funds to [R] Investments for the purpose of investment, and an equal measure of credit to the husband for his acumen in the successful investment in those funds. The husbands’ contention is that his contributions were quadruple that of the wife is unsustainable.
While accepting that the exercise of discretion by a trial judge is often (and in this case was) a task beset with difficulty I cannot accept that his Honour’s exercise of that discretion in this case fell within the “generous ambit of reasonable disagreement [which] marks the area of immunity from appellate interference.”[4]
[4] Norbis v Norbis (1986) 161 CLR 513,540 per Brennan J.
It appears that his Honour may in the context of what he saw the law to be, have given an unacceptable weight to the “special skills” of the husband as he saw them to be.
Ultimately the task of evaluating the contributions of the parties in their different “spheres” of contributions is a subjective one although carried out in the context of and in accordance with the prescriptions of s 79 of the Act. I accept also that at some point comparison, consideration and evaluation of contributions must “leap” (Steinbrunner) from words to figures (loc.cit.).
However his Honour did not, in my opinion, effectively evaluate all the contributions of both parties.
The reason for attributing (or not) special weight to the contributions of the husband in this case may be tested by asking whether, if the parties (before the husband invested what the learned trial judge found were joint funds) had been asked if they agreed that while losses would be shared equally between them, any gain would be disproportionally acquired by the husband there would have been agreement by the wife or the husband to proceed.
It is noted that if post-separation particularly (but not definitively) the parties to a marriage formally or informally agree to some separate investment of their funds so that each, in effect, chooses his or her own investment strategy, a different result may pertain.
An Appeal Court should be reluctant to interfere with a trial judge’s exercise of discretion - absent a failure to take relevant matters into account or the taking of irrelevant matters into account.
For my part in conformity with the opinions of my colleagues in this matter, the trial judge’s discretion miscarried because he took into account the “special skills” of the husband in accordance with what he might reasonably have thought was authority binding on him, but which in my opinion should not have been.
For my part even without the application of the “special skills” consideration, the disproportionate division of the property in favour of the husband arrived at by the trial judge could not be justified.
The matter must be remitted for rehearing and the new trial judge will exercise his or her own discretion in the evaluation of these matters.
May and Johnston JJ
In a notice of appeal filed 15 July 2011 the wife appeals from two orders made by Austin J on 22 June 2011. Those orders, by way of property settlement are as follows:
(6)Each party shall forthwith do all such acts and things and sign all such documents as may be necessary so as to direct [K Company], as trustee of [R] Investments (ABN …), pursuant to Part 7A of the Superannuation Industry (Supervision) Regulations 1994, to roll-over or transfer the benefits to which the wife is entitled in [R] Investments to another regulated superannuation fund, approved deposit fund, exempt public sector superannuation scheme, or retirement savings account, as nominated by the wife in writing.
(7)Within 7 days of these orders, the husband shall pay to the wife, or at her direction, the sum of $719,723.
It is asked in the notice of appeal that this Court re-exercise the discretion and order that the sum payable by the husband be increased to $1,289,771.
On 5 August 2011 the husband filed a notice of cross-appeal, an amended notice was filed on 27 May 2013. The cross-appeal is also against order (7), being the money order. The husband seeks that he pay the wife a lesser sum on the basis of a mathematical error.
Apart from the parties’ various contributions to the family about which there was ultimately no issue for the judge to decide, the trial was concerned with the parties’ business and superannuation interests and in particular an investment made by the husband.
At the outset of the appeal hearing both counsel acknowledged that should the appeal be allowed, the matter would inevitably need to be remitted for rehearing.
Background
The parties began living together in September 1980, they married in October 1981 and separated, as found by the trial judge, on 21 June 2009. Thus the relationship spanned almost 30 years.
There are four children of the marriage. The youngest was aged almost 18 years and in the last year of high-school at the time of trial. When the wife left the former matrimonial home on 21 June 2009 that child was still living in the home with the husband.
In 1993 the parties established a company described as “K Company” in the proceedings. They were its sole shareholders and directors. It was common ground that the operation of K Company involved a number of successful business ventures. These included establishment and operation of private businesses, which was particularly profitable. When the trustee of the unit trust holding K Company sold the assets in 2008 the proceeds of sale were some $2,100,000. The net amount received was $1,650,000. After that sale the parties established a family superannuation fund called R Investments. K Company became the trustee of R Investments. Of the $1,650,000 proceeds of sale, $979,400 was paid into the superannuation fund, R Investments.
The husband considered a number of investment possibilities and after extensive research, decided he should invest a large proportion of the superannuation funds in purchasing shares in a company called Company 1. The wife did not agree but despite her objection the husband purchased the shares. This occurred during the last year of the marriage. The husband paid $539,500 for the shares; their value at trial was $1,850,000.
Notwithstanding the fact that the major part of the funds used to purchase the shares came from the sale of property in which the parties had an equal proprietary interest, the parties’ respective superannuation accounts were far from equal. As at 30 June 2009, the year the shares were purchased, the husband’s account was in the amount of $626,391 and the wife’s account was $434,009. We explain the historical reason for this allocation later in these reasons (at [51]).
The parties had other assets largely held within K Company. In the days after separation the wife withdrew the sum of $350,000 from the bank accounts of K Company after discussion with the accountant but not the husband.
On 26 May 2010, the parties reached agreement about interim property adjustment orders. The trial judge in [17] described those arrangements. It had been expected by the parties that those orders would resolve any dispute about the settlement of property with the exception of the superannuation interests.
The parties unfortunately did not implement the interim orders in totality. For example, the parties owned a house and despite an agreement that upon the husband making a payment to the wife she would transfer her interest in the property to him, the wife did not and retained the husband’s payment to her of $145,000 representing a one half share of the value of the property. Secondly, the wife failed to resign her directorship of K Company and did not transfer her shareholding in K Company to the husband despite other payments of the husband to the wife. The expected arrangements in relation to the wife’s superannuation within R Investments being rolled into another fund likewise did not occur. It seems that the wife received cheques totalling approximately $100,000 but these were banked by her into her own superannuation fund called W Investments. Of particular significance, the interim orders required the wife to repay $350,000 to the bank account of K Company, she did not do so. These matters presented some difficulties for the trial judge who said:
21.The apparent inconsistency between the literal meaning of the interim orders and the parties' mutual perception of consummated equality was not satisfactorily explained by either the evidence or the parties' submissions, but I proceed to determine the proceedings on the basis jointly promulgated by the parties. I assume that they each overlooked the need to fully explain the circumstances.
22.After the interim orders were made in May 2010 the parties' financial positions remained in hiatus. The matter proceeded to trial on 10 May 2011 and judgment was reserved at the conclusion of the trial on 12 May 2011.
As his Honour observed, the process of establishing what might be described as the matrimonial pool proved to be remarkably difficult. The difficulties included the parties being unable to agree even upon how the issues should be presented until after the trial commenced. It seems that the judge was provided with various so called joint balance sheets, revised from time to time. Even the final balance sheet [Exhibit A] presented to the judge on the first day of the trial contained calculations which were incorrect.
Reasons for judgment
Before discussing the grounds of appeal it is necessary to consider the reasons of the trial judge. Although pertinent to the issues raised at trial, some of the reasons involve matters that are now uncontentious, so that it is not necessary for us to refer to the reasons at length.
His Honour correctly first dealt with the issues between the parties necessary to identify their current assets and liabilities, “the balance sheet”.
As it emerged, apart from the issue raised in the cross-appeal these issues were not significant in the appeal. To facilitate understanding though, it is useful to include his Honour’s final conclusions in relation to the parties’ overall financial position, which was as follows:
No. Asset Party Value Total 1 [M St, Town 1] H 290,000 2 St George Acc […] H 576 3 St George Acc […] H (8,500) 4 Mitsubishi H 12,000 5 100% shareholding in [K Company] H 230,073 6 [Company 3] shares W 4,640 7 Hyundai W 15,000 8 Household contents H 3,000 9 Household contents W 3,000 10 [omitted] 11 Dividend from [K Company] H 120,640 12 Dividend from [K Company] W 120,640 13 Payment by husband to wife pursuant to Orders 26/5/10 W 84,360 Sub-total 875,429 875,429 Add-backs 14 Legal costs W nil 15 Legal costs H nil 15a Interest accrued on the money borrowed by wife from [K Company] W nil 15b Unexplained/unjustified withdrawals by husband from [R Investments] H 155,300 Sub-total 155,300 1,030,729 Liabilities 16 Debt due to [K Company] by husband H 224,551 17 [omitted] 18 Loan interest paid by husband H 20,200 19 Bank overdraft debt, reducing value of husband’s interest in [K Company] H 18,756 20 Potential tax debt on unfranked dividends payable by [K Company] H nil 21 [omitted] 22 Debt born by husband to pay out wife under Orders 26/5/10 H nil 23 [omitted] 24 [omitted] Sub-total 263,507 767,222 Superannuation 26 [B Pty Ltd ATF W Investments] W 92,524 27 [K Company] ATF [R Investments] (No 2 account) W 484,887 28 [K Company] ATF [R Investments] (No 1 account) H 2,842,883 28a [Super 1] W 7,199 28b [Super 1] H 10,298 28c [Company 1] Super W 970 Sub-total 3,438,761 3,438,761 Net assets and resources 4,205,983
The judge decided to deal with the property in two pools – one, the superannuation and the other all other assets and resources. The reason for this approach was explained in [83]:
Firstly, the parties agreed that the interim orders they solicited from the Court on 26 May 2010 successfully divided all assets and resources between them, save for superannuation interests. Secondly, the parties’ disagreement about the assessment of their contributions essentially related only to the contributions they made to the superannuation interests held within [R] Investments.
As his Honour had earlier said at [43]:
The parties mutually conducted the trial on the basis that the interim orders upon which they agreed on 26 May 2010 achieved equivalence in the distribution of all assets other than superannuation interests between them. The evidence discloses that the value of [K Company] as at 30 June 2010 reflects intended implementation of the parties’ agreement, and is therefore the appropriate valuation of the shareholding in [K Company] to adopt for present purposes.
Findings of the trial judge in relation to contributions
The focus of the appeal is his Honour’s findings about the parties’ contributions, namely how they should be characterised and assessed. The parties agreed the Court should find, save for their contributions to the superannuation fund, R Investments, that their respective contributions to the date of separation were equal. There was no agreement about their contributions from separation to the date of trial.
The issue was correctly summarised by the trial judge as follows at [84]:
In the early stages of the trial the parties commendably agreed that, save for one exception, their contributions recognised under s 79(4)(a)-(c) of the Act were equal up until the time of separation. The single exception related to the husband’s contention that the parties’ contributions to their superannuation interests were disparate, in that they made individual investment choices about their own allocated superannuation interests held within [R] Investments.
The parties have remained directors and equal shareholders in K Company although the wife played no active role after separation on 21 June 2009.
As mentioned earlier, K Company received $1,650,000 in 2008. From those proceeds the sum of $979,400 was paid to R Investments, the parties’ superannuation fund.
At the time the money was paid into the fund the husband had an opening balance of $70,850. The sums paid into the superannuation fund were characterised differently and were described in the K Company balance sheet as follows:
a)The entirety of the “superannuation contribution” of $45,391; and
b)$934,009 described as “superannuation contributions CGT rollover”.
Only $434,009 from the “superannuation contributions CGT rollover” of $934,009 was allocated to the wife’s superannuation account, the husband received the balance in his super fund.
On the advice of their accountant, it was decided that two separate accounts within the superannuation fund should be established. The husband’s is described as “portfolio 1” and the wife’s as “portfolio 2”. Although this decision was not made until April 2009 the accounts were compiled with effect from 1 July 2008. The member statements therefore retrospectively categorised the allocation of superannuation funds in the manner that was previously described. It can thus be seen that the husband was allocated $626,391 and the wife $434,009. The judge found, and it was doubtless correct, that despite this difference of allocation of funds the contributions all originated from K Company in which company the parties enjoyed an equal interest. In [116] of the reasons his Honour said:
I am comfortably satisfied that the financial contributions made by [K Company] to [R] Investments on behalf of the parties should be regarded as contributions by the parties equally…That [the] equal contribution of funds to [R] Investments is a significant feature, because the contributions resulted in the existence of a solid financial platform for the accumulation of greater wealth.
His Honour said this left him to consider [117]:
… [T]he assertion of the husband that the application of his acumen to investment decisions, which caused the superannuation fund to prosper, was a contribution of significance which differentiates his contributions from those of the wife and entitles him to a much greater share of the superannuation interests.
As his Honour found, one investment in particular was a “spectacular success” [101]. This was the purchase of shares in Company 1. The parties agreed that the capital gain achieved is largely responsible for the increased value of the superannuation fund. As mentioned, the total contribution made to R Investments was $1,060,400. The value of the superannuation interests at the date of trial was $3,420,294. That growth occurred within a period of less than two years.
There were two issues for his Honour. The first was the husband’s assertion that it had been the parties’ agreement to allocate the investments between their portfolios differently and secondly, that it was the husband’s ability solely that resulted in the substantial growth of the investment. The judge accepted the wife’s submission about the first issue, which was (at [105]):
…[E]ven if there was an agreement about the allocation of specific investments to the parties’ individual superannuation portfolios, that agreement would not bind the Court in the assessment of their contributions or in the determination as to the division of the interests between them.
His Honour observed that because of the parties’ age difference, there was a benefit to be derived through allocating more of the K Company contributions to the husband than to the wife. In any event we have already referred to his Honour’s decision that the contributions made by K Company to the superannuation funds on behalf of parties should be regarded as contributions by the parties equally.
“Special” contributions
The remaining question for the judge was the husband’s assertion that he made a special contribution by his decision alone to purchase the Company 1 shares. It is this issue which was central to the wife’s appeal.
The husband made the decisions and effected the share purchases for R Investments irrespective of the member portfolio to which the shares were allocated.
His Honour considered that the central question was whether the growth in value of the Company 1 shares was due to the investment skill of the husband, his “acumen” or mere market forces [117]. His Honour was careful not to describe this enquiry in terms of whether the husband made a “special contribution” as described in some authorities to which he referred.
We agree with his Honour that the husband’s investment in Company 1 was not akin to the purchase of a lottery ticket. The husband did considerable research in relation to the company. The wife was less than enthusiastic [123] about the husband’s wish to invest so much of their funds in these shares and even objected to this. Despite the wife’s views the husband made the purchase.
His Honour acknowledged the skill of the husband in identifying the shares as a worthy investment and also proceeding without the wife’s support [123]. Of significance to the appeal his Honour said at [126]: “the law does presently recognise a principle in which weight is attributed to the special skill of a spouse”.
Counsel for the appellant conceded that there is no challenge to the summary of the law as provided in his Honour’s decision in this respect. Reference was made by his Honour to a number of well-known decisions commencing with Ferraro & Ferraro (1993) FLC 92-335, McLay & McLay (1996) FLC 92-667 and Stay & Stay (1997) FLC 92-751. His Honour then no doubt correctly observed in [130]:
A different attitude is evident from the Full Court judgment in JEL v DDF (2001) FLC 93-075, in which it was observed (at 88,331) that comments of the Full Court in Stay v Stay did “not appear to sit well” with comments of the Full Court in In the Marriage of McLay. The Full Court went on to say (at 88,331):
…the determination of such a [“special” or “extra”] contribution is not necessarily dependent upon the size of the asset pool or the “financial product” achieved by the parties.
This view would seem to be more compatible with what the Full Court said in Ferraro…The concept of a “special” or “extraordinary” skill or factor cannot, without more, be rendered nugatory by the fact that the assets accumulated by the parties did not reach the magnitude of many millions. To suggest otherwise would seem, in our view, to defy the proper jurisprudential development of this area of Family Law and fail to meet the relevant provisions of the Act.
[131]The Full Court then extrapolated principles from earlier authorities, including the following (at 88,334-88,335):
(d) In qualitatively evaluating the roles performed by marriage partners, there may arise special factors attaching to the performance of the particular role of one of them.
(e) The Court will recognise any such special factors as taking the contribution outside the “normal range” in the sense that that phrase was understood by the Full Court in McLay.
(f) The determination of an issue of whether or not a “special” or “extra” contribution is made by a party to a marriage is not necessarily dependent upon the size of the asset pool or the “financial product”. When considering such an issue, care must be taken to recognise and distinguish a “windfall” gain.
[132]The Full Court’s decision in JEL v DDF was the subject of an unsuccessful application to the High Court for special leave to appeal, permitting an inference that the High Court perceived no error of principle in the judgment of the Full Court.
His Honour correctly observed that the issue was back again before the Full Court in Figgins & Figgins (2002) FLC 93-122, where, after referring to JEL v DDF, Nicholson CJ and Buckley J said [at 89,295]:
We are troubled that in the absence of specific legislative direction, courts consider they should make subjective assessments of whether the quality of a party’s contributions was “outstanding”. It is almost impossible to determine questions such as: Was he a good businessman/artist/surgeon or just lucky? Was she a good cook/housekeeper/entertainer or just an attractive personality? We think it invidious for a judge to in effect give “marks” to a wife or husband during a marriage. We think that this doctrine of “special contribution” should, in an appropriate case, be reconsidered.
(emphasis added)
The trial judge made two significant findings about this aspect of the case. The first at [136] was that “the enormous growth bears no relationship to ordinary market forces” and the second at [137] was that:
The husband’s diligent research of that corporation and his decision to invest the parties’ funds in it was an inspired investment decision, manifesting considerable expertise. His decision is all the more remarkable given that he knew he was making that investment decision without the support of the wife.
In [138] his Honour said:
I am satisfied that, without the husband’s skill in selecting and pursuing the investment in [Company 1] shares, the parties’ superannuation interests within [R] Investments would currently be worth substantially less. It follows that the husband’s contributions to those superannuation interests were substantially greater than those of the wife. I reject the wife’s submission that her contributions were equal to those of the husband. The real difficulty is evaluating the parties’ contributions in mathematical terms.
His Honour did appreciate that without the wife’s albeit involuntary contribution of the funds the husband would not have had the money available to purchase the shares. His Honour also noted at [140] that other share purchases by the husband “did not enjoy the same spectacular success as the [Company 1] shares, and some even realised a loss”.
Having acknowledged the husband’s “skill in selecting and pursuing the investment in [Company 1] shares”, the trial judge decided that the contribution to R Investments should reflect entitlements of two thirds to the husband and one third to the wife. His Honour noted at [141] that this apportionment reflected “equal credit for the parties’ joint introduction of funds…and an equal measure of credit to the husband for his acumen in the successful investment of those funds”.
The judge rejected the husband’s submission that he had made a greater contribution since separation and found that the contribution by the husband to caring for the youngest child since separation did not “disturb the equilibrium between the parties’ contributions”.
Section 75(2)
His Honour found that there is a significant age disparity between the parties; the husband at the time of trial was 61 and the wife 48. The husband was retired and ineligible for any Centrelink pension. He will depend for income on his substantial superannuation interests which he alone manages.
The wife has not worked for some years but in evidence said she regarded herself as employable. The wife has lived with a Mr R since separation, although she did not expect to marry him but intended to continue to live together.
The judge accepted that there was no evidence that the wife and Mr R intermingle their financial affairs. In our view he justifiably concluded that Mr R’s financial circumstances should be considered and concluded that they should be seen as a resource of the wife “given their mutual intention to reside together indefinitely as domestic partners”. [150] Mr R has an income of approximately $20,000 per month from an income protection insurance policy. On a voluntary basis he assists his adult children.
The youngest child of the parties turned 18 in June 2011 and has continued to live with the husband in the former matrimonial home. It was accepted that the wife voluntarily provided funds to the child for her use.
The husband submitted that there should be no adjustment by reason of s 75(2) factors and the judge accepted that submission. The submissions on behalf of the wife at trial were rather confused and bear repeating because of the arguments before us on the appeal. As his Honour said [158]:
The wife agreed that there should be no adjustment at the third stage of the property adjustment process, provided the Court reached a conclusion consistently with her earlier submission that the parties’ contribution-based entitlements were equal. In the event of the Court finding that the husband’s contributions entitled him to a greater share of the property at the second stage of the property adjustment process, the wife submitted that the differential should be nullified by a comparable third stage adjustment in her favour. I reject that submission as contrary to the evidence, law, and logic. Perhaps revealingly, no authority was cited in support of the submission. Either the relevant third stage considerations justify an adjustment or they do not, and they do not, as the wife’s primary submission recognised.
In considering whether the proposed orders were just and equitable the trial judge explained that the result would divide the superannuation interests held in R Investments and the wife’s separate superannuation in W Investments as to two thirds to the husband and one third to the wife. The value of those assets was $3,420,294. All the other assets were to be divided equally. The value of those assets was $785,689.
As it is complained in the appeal that the orders were not just and equitable and that his Honour failed to properly consider the effect of the orders, it is appropriate to refer to the table provided by his Honour [163]. The value of the wife’s overall entitlement was calculated at $1,532,943 and the husband’s $2,673,041. This was a differential of $1,140,098. For the wife to receive the entitlement as calculated by the trial judge she was to be paid a further sum of $719,723 which the husband was able to access from his superannuation due to his age. The husband would retain the former matrimonial home, K Company and superannuation of $2,123,160 less his payment to the wife of $719,723.
Applications in an Appeal
Both the husband and wife filed applications in their respective appeals. The wife filed an application on 3 May 2013 and the husband on 27 May 2013. The application of the wife was directed to further evidence on appeal should the appeal be allowed. As it was conceded that should the appeal be allowed it would be necessary for this Court to order a rehearing we would not allow that application.
As to the application of the husband that leave be granted to file and rely on an amended notice of cross-appeal we understand that there was no opposition and thus it is not necessary for us to consider the matter more directly. In this case the affidavit of the husband does refer to factual matters which again can be agitated at the rehearing where they do not relate to those matters directly associated with the cross-appeal. Thus we will refuse the application in an appeal filed on behalf of the wife and allow the application filed on behalf of the husband and take into account only those factual matters annexed to his affidavit that are in support of the cross-appeal.
grounds of appeal
The appellant raises two main issues. First, the findings of the trial judge in relation to the husband’s contribution to the increased value of the superannuation fund and whether that contribution could be described as reflecting special skills attributing greater contributions by the husband. Secondly, the finding that there should be no adjustment in favour of the wife pursuant to s 75(2) of the Family Law Act 1975 (Cth) (“the Act”) after reflecting on the disparities between the parties and the likely financial benefit from her cohabitation with Mr R.
The notice of appeal contains five grounds. In summary they can be described as asserting error on the part of the trial judge as follows:
Ground 1 – The contributions of each of the parties to the assets of R Investments, in particular:
1.1the finding that the husband had exercised special skill and/or acumen in the purchase of the Company 1 shares; and
1.2in isolating the purchase of the shares and in failing to consider the whole of the investment activities of R Investments;
1.3in placing weight upon the apparent financial result of the investment in the Company 1 shares;
1.4in recognising as a contribution of the husband the apparent growth in value of the Company 1 shares in isolation;
1.5in failing to find that that the growth in Company 1 was due to ordinary market forces;
1.6the relevance of any absence of support of the wife; and
1.7the husband being assessed as having made a greater contribution than the wife to the superannuation assets by reason of the Company 1 shares;
such that the discretion miscarried.
Ground 2 – In finding that there is a doctrine of special contributions.
Ground 3 – In relation to s 75(2), in particular:
31.inadequate reasons;
3.2failing to have proper regard to the disparity of earnings and earning capacity and failure to quantify the same;
3.3in failing to consider the disparity in the financial position of the parties as a result of the financial contribution finding; and
3.4in considering the wife’s partner to be a financial resource;
such that the exercise of discretion miscarried.
Counsel for the wife explained that the ground in relation to s 75(2) would only be relied on should we not find merit in grounds 1 and 2.
The other two grounds are as follows:
Ground 4 – Failing to consider or properly consider the effect of the proposed orders.
Ground 5 – That the orders were entirely outside the range of discretion and manifestly inadequate.
To appreciate all the matters with which this appeal is concerned we add at this point a reference to the amended notice of cross-appeal. The ground ultimately upon which there is reliance was ground 3 which argued that there was an omission of $145,000 in the balance sheet being the money received by the wife from the husband. It was contended that this matter either be dealt with pursuant to the slip rule, alternately that the trial judge had mistakenly failed to take it into account and that therefore the mathematics needs to be corrected. It is asked that order 7 be amended so that the amount of $647,223 be substituted for $719,723 which is an adjustment of one half of $145,000. We agree this was an error made by the trial judge, largely due to the manner the balance sheet was presented to him.
As will be seen we intend to allow the appeal and consequently order a rehearing. We see no good purpose in amending the order in response to the cross-appeal in isolation.
Submissions – Appellant wife
As mentioned earlier the submissions on behalf of the wife focussed on grounds 1, 2 and 5 including the challenge to the finding that the husband by reason of “special skills” had made a greater contribution. In grounds 4 and 5 it is complained that the orders are manifestly unjust.
In relation to grounds 1, 2 and 5 it is submitted that it cannot be correct that the husband should receive $1,000,000 more than the wife by way of his alleged business acumen as found by the trial judge.
It is emphasised that the funds used for the purchase of the shares were moneys in which the parties had an equal interest and that the husband had not demonstrated any particular skill.
In the written submissions on behalf of the wife [21]:
…[T]he question is posed as to the proper basis upon which a Court can properly assess one party’s contribution as greater than that of the other solely by reference to the financial product of one decision made over the course of a 29 year relationship with all of the disparate contributions otherwise involved?
In addition, leaving to one side the various authorities in relation to “special contributions” it is submitted that the facts and circumstances in this matter do not warrant the contribution assessment as made by his Honour (wife’s submissions at [23]).
In oral submissions there were challenges to the findings of fact leading to the conclusion that the husband had made a greater contribution than the wife. For example, it was submitted that there was no evidence that the husband had “considerable expertise” [reasons 137].
As to the grounds related to s 75(2) it is submitted that in view of the contribution conclusion made by his Honour, which so heavily favoured the husband, there should have been some further adjustment in favour of the wife.
In our view it is correct that any such adjustment would depend on the conclusions in relation to contribution and as we have determined to allow the appeal there is no productive reason for us to deal with this ground any further.
Submissions – Respondent husband
In responding to the submissions in relation to the trial judge’s conclusions on the facts it was submitted that the husband’s affidavit set out in detail the research he did into possible investments and that there was no challenge to this evidence.
Counsel submitted that we should be mindful of the principles related to appellate intervention and that we should not interfere with the wide discretion available to the trial judge.
principles
In view of that submission, which is correct, we refer briefly to the well-known principles in that respect.
It was clearly enunciated in House v The King (1936) 55 CLR 499, at 504-505 that:
It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance.
In the case of discretionary decisions, it is only where the effect of the orders exceeds the generous ambit within which reasonable disagreement is possible, and is, in fact, plainly wrong, that an appellate body is entitled to interfere, per Brennan J in Norbis v Norbis (1986) 161 CLR 513 at p 539-40.
conclusion
In this case both parties sought orders varying their present holding of property and superannuation interests. The central question remains, whether the orders were just and equitable.
The power conferred by s 79 is a discretionary one and any decision necessarily involves value judgments. This has been recognised since Norbis v Norbis at p 518. After referring to the well-known quotation in House v The King to which we have referred, their Honours Mason and Deane JJ said as follows:
The sense in which the terms “discretion” and “principle” are used in these remarks needs some explanation. “Discretion” signifies a number of different legal concepts…Here the order is discretionary because it depends on the application of a very general standard – what is “just and equitable” – which calls for an overall assessment in the light of the factors mentioned in s. 79(4), each of which in turn calls for an assessment of circumstances. Because these assessments call for value judgments in respect of which there is room for reasonable differences of opinion, no particular opinion being uniquely right, the making of the order involves the exercise of a judicial discretion. The contrast is with an order the making of which is dictated by the application of a fixed rule to the facts on which its operation depends.
The decision of the trial judge, it appears, was wrongly influenced by his assessment of the husband’s contribution to the superannuation assets and thus could not be said to have been just and equitable.
The effect of his Honour’s orders is that the husband receives $1,140,098 more than the wife. The combined value of the superannuation interests held in R Investments and W Investments was $3,420,294 of which the husband was to receive $2,280,196 and the wife $1,140,098.
The combined value of all other property was relatively small - $785,689 which was to be divided equally.
Although s 79 does not require that a percentage of the property be allocated to each party, it can be seen in this case that an overall percentage would have revealed that the excessive weight given to the superannuation assets did not lead to orders being made that were just and equitable.
The result in percentage terms, under his Honour’s orders, was that the husband would enjoy 63.55 per cent of the parties’ available property and superannuation, and the wife 36.45 per cent thereof.
In our view this demonstrates in very clear terms that excessive weight given to the husband’s contribution to the superannuation has brought about orders that are not just and equitable in all the circumstances of this case. Unfortunately, in our view, the error has come about partly as a consequence of the superannuation having been dealt with by the Court in isolation from the other contributions made by the husband and wife. This of course was the manner in which the parties asked his Honour to determine the case.
We accept that his Honour was entitled, as part of the overall process, to conclude that the husband’s contributions to the superannuation fund were greater than those of the wife by reason of his diligence, effort and judgment in the purchase of the shares.
We would pause here to observe the obvious, that had this investment decision caused the loss of a substantial part of the parties’ superannuation funds it is unlikely that the husband would have been claiming such a contribution. It is also notable that the husband did not have any professional qualifications nor did he have any special knowledge of the business in which he had invested although it must be acknowledged, the husband had been a successful business man. The husband took a calculated risk with the parties’ money, which fortunately proved correct.
In this case his Honour’s conclusions about “skill” and “acumen” together with a finding that the husband demonstrated “considerable expertise” led him to a result where the husband would receive two thirds of an asset which had been acquired as a result of the investment of money which had been produced from the sale of property in which the parties had an equal interest.
This result is suggestive of the concerns expressed by Murphy J in Smith & Fields [2012] FamCA 510 at [26]:
The real danger lies in the promulgation of a notion that, by establishing “special contribution” or “special skills” – whatever the expression, or the indicia comprising any such expression might be said to be – a result of a particular type, or a particular range, should follow. That is an improper fetter on an “extraordinarily wide” discretion. It smacks of a presumption antithetical to what the section requires.
We agree with Murphy J that the notion of “special contributions” necessarily predisposes matters to an outcome that may not otherwise be available upon a proper assessment of all the contributions.
Although no issue was taken by counsel for the appellant with the description and analysis of a number of authorities in the reasons, it should be observed that s 79(4) itself does not contain words like “special” or “extraordinary”. No doubt in any particular case a judge might find that there is a contribution by one party (being financial or other than a financial contribution) which outweighs the others but it is essential that such conclusions reflect what the legislation demands.
In this case, the trial judge made an error in attributing to the husband skills or acumen at a level which caused his Honour’s finding about contributions to be disproportionately in the husband’s favour. It was open to the judge to decide that by reason of the factors referred to in [137] of his reasons, the husband’s contribution was greater than that of the wife. We note however, in the context of a marriage of nearly 30 years, that the contributions made by the husband to the superannuation fund, albeit successful, were not made over a long period of time.
In giving such emphasis to the husband’s skill [138 & 141] in respect of one aspect of the parties’ financial and non-financial contributions over this long marriage, his Honour fell into error and made orders which did not correctly reflect each party’s contributions overall.
For these reasons, in our view, the discretion reposed in his Honour has miscarried and the wife’s appeal will be allowed. As indicated above, it was agreed between the parties that in the event that the wife’s appeal would be allowed, the proceedings would have to be remitted for rehearing. We propose such a course.
Costs
In the event that the wife’s appeal was successful, each party sought a costs certificate pursuant to the Federal Proceedings (Costs) Act 1981 (Cth). In these circumstances, where the appeal is to be allowed due to an error on the part of the trial judge, it is appropriate that there be no order as to costs between the parties, and that costs certificates be awarded to each party in respect of the wife’s appeal, to the husband for the cross-appeal, and each party for the rehearing.
I certify that the preceding one hundred and thirteen (113) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court delivered on 18 December 2013.
Associate:
Date: 18 December 2013
Key Legal Topics
Areas of Law
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Family Law
Legal Concepts
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Appeal
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Contributions
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Superannuation
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Property Settlement
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Judicial Review
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