KAVANAGH & METZGER - [2010] FamCAFC 201

FAMILY COURT OF AUSTRALIA

KAVANAGH & METZGER

[2010] FamCAFC 201

FAMILY LAW - APPEAL – PROPERTY – Whether legal fees should be added back – Where the trial Judge divided an asset pool which notionally existed - Whether the trial Judge failed to have proper regards to the objective of s 75(2) of the Act – Whether the trial Judge failed to have proper regard to the disparity in income earning capacity of the parties – Whether the trial Judge failed to have proper regard to the financial circumstances of the parties – Whether the trial Judge failed to consider the financial position of the parties pre-marriage – Whether there was a miscarriage of justice in the trial Judge’s exercise of discretion.

FAMILY LAW - APPEAL – COSTS – Whether there should be an order for costs.

Family Law Ac t (Cth) 1975 – s 75, s 75(2), s 79(4)(a), s 79(4)(b), s 79(4)(c), s 117, s 117(1), s 117(2), s 117 (2A)

Bellenden (Formerly Satterthwaite) v Satterthwaite [1948] All ER 343
Browne v Greene (1999) FLC 92-873
Chorn & Hopkins (2004) FLC 93-204
DLM v JLM (1998) FLC 92-816
Fitzgerald (as child representative for A (Legal Aid Commission of Tasmania)) v Fish and Another (2005) 33 Fam LR 123
House v The King (1936) 55 CLR 499
Mallet v Mallet (1984) 156 CLR 605
Omacini & Omacini (2005) FLC 93-218

APPELLANT:

Ms Kavanagh

RESPONDENT:

Mr Metzger

FILE NUMBER:

PTW

796

2005

APPEAL NUMBER:

2009

DATE DELIVERED:

12 October 2010

PLACE DELIVERED:

Perth

PLACE HEARD:

Perth

JUDGMENT OF:

Bryant CJ, Coleman & Moncrieff JJ

HEARING DATE:

30 June 2010

LOWER COURT JURISDICTION:

Family Court of Western Australia

LOWER COURT JUDGMENT DATE:

21 May 2008

30 October 2009

LOWER COURT MNC:

[2008] FCWA 59
[2009] FCWA 142

REPRESENTATION

COUNSEL FOR THE APPELLANT:

Mr Page SC

SOLICITOR FOR THE APPELLANT:

Lewis Blyth & Hooper

COUNSEL FOR THE RESPONDENT:

Mr Howard SC with
Mr Hedges

SOLICITOR FOR THE RESPONDENT:

Clement & Co

Orders

The appeal be dismissed.
There be no order as to the costs of the appeal.

IT IS NOTED that publication of this judgment under the pseudonym Kavanagh & Metzger is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT PERTH

Appeal Number: WA 28 of 2009
File Number: PTW 796of 2005

Ms Kavanagh

Appellant

And

Mr Metzger

Respondent

REASONS FOR JUDGMENT

This is an appeal from orders made by Penny J in proceedings between the appellant wife, who was the applicant in proceedings before her Honour, and the respondent husband.
The proceedings were conducted over 11 days in February and May 2007 and on 21 May 2008 her Honour published her Reasons for Judgment (“the 2008 judgment”) wherein her Honour made certain findings as to the ownership by the husband of certain assets.
As her Honour identified in the subsequent judgment of 30 October 2009 (“the 2009 judgment”), with reference to the earlier proceedings:
The main issue to be determined at that time was whether the husband was the true owner of the companies controlled by his father, [C Pty Ltd (“CPL”)] and [M Pty Ltd].
In the 2008 judgment her Honour found that the establishment of CPL was an attempt by the husband, with others, to establish a business and derive an income stream from that business to which the wife would be excluded.
Her Honour found that husband was the true owner of CPL, but found against the wife in connection with her assertion that the husband was the true owner of M Pty Ltd.
Following the findings made by her Honour as to the true ownership of the relative entities, the matter was adjourned for the parties to obtain a valuation of CPL for the purposes of completing the property proceedings before her Honour.
The matter then came before her Honour again on the adjourned trial on 17, 18 and 19 August 2009. On 30 October 2009 her Honour delivered judgment. Orders were made on the basis of a finding by her Honour that the net assets for distribution between the parties amounted to $2,103,423, and her conclusion that the wife’s contribution should be assessed at 35 per cent and the husband’s at 65 per cent.
Her Honour then considered the factors prescribed under s 75(2) of the Family Law Act 1975 (Cth) (“the Act”), concluding that there should be no further apportionment of the assets to take into account the factors enumerated in

s 75(2), or those of them that were relevant to her consideration, concluding, relevant to the appeal:
79.In my opinion, there should be no further apportionment of the assets to take into account the disparity of income and/or income-earning potential of the parties. The nature of the business in which the husband is involved means that he can do well and then find himself in a difficult financial position if there is a downturn in the mining industry. The demise of [CPL] amply demonstrates this point. The wife will leave the marriage with assets greatly exceeding those with which she entered it. She leaves with an earning capacity which is significant and sufficient to support herself in the future. She is 40 years of age, has no children and there is no reason why she cannot work until normal retirement age. The husband is 39 and has a wife and child whom he has an obligation to support.
80.In my opinion, a division of the parties’ assets so that the wife retains 35% and the husband 65%, results in an apportionment of the assets of the parties which is just and equitable given the assets to be retained by each of the parties, their capacity to earn and the husband’s obligation to support his wife and child.
The asset pool, as determined by her Honour in the 2009 judgment, was founded, in part, on a portion of the 2008 judgment where her Honour found that payments made to the wife pursuant to orders of the Court made by consent on 27 May 2005 requiring the husband to pay to the wife the sum of $1,400 per week, should be added back, in part, to the notional pool of assets as funds received by her by way of partial property settlement.
The orders of 27 May 2005 provided as follows:
The husband do [sic] pay to the wife $1,400 per week with provision for the payment to be taken into account by the trial Judge in the final settlement of property between the partiers, the first payment to be due and payable on the first Friday following the making of these orders.
The orders clearly contemplated it being open to her Honour to characterise the nature of the payment, which her Honour did, finding at paragraph 20 of the 2008 judgment:
I am of the opinion that the payments received by the wife after she obtained employment on 1 August 2005 should be added-back to the asset pool as funds received by her by way of partial property settlement. Some of her legal expenses were paid from those funds and they should not be added back to the asset pool.
In her 2009 judgment, her Honour determined the pool of assets available for distribution between the parties to be as follows:

Asset and liabilities of the parties

Wife’s jewellery	$6,860.00
Wife’s superannuation	$36,101.00
Horse float	$270.00
Horse	$150.00
Furniture	$3,000.00
Holden motor vehicle	$24,000.00
Spousal maintenance to be added back as partial property settlement received by wife post August 2005	$205,000.00
Monies paid to wife from Lavan Legal	$30,000.00
Monies in Lavan Legal Trust Account	$73,000.00
CBH shares (husband)	$6,000.00
Monies in husband’s bank account	$980.00
Legal fees added back as per judgment (husband)	$405,620.00
Legal fees added back as paid by [CPL] (husband)	$490,000.00
Legal fees paid by husband after 30 April 2007 (husband)	$189,000.00
Husband’s superannuation	$33,256.00
Husband’s furniture	$5,000.00
Husband’s jet ski	$2,000.00
[N Pty Ltd] to 30 June 2009 ($621,151 - $5,418)	$615,133.00
Refund due to [N Pty Ltd] by [O Pty Ltd]	$5,000.00
Prepaid insurance of [N Pty Ltd]	$23,000.00
Husband’s motor vehicle	$8,000.00
$2,161,370.00
Liabilities
GST tax arising from partnership accounting	$23,947.00
Tax arising from Division 7A loans	$31,000.00
Accounting fees	$3,000.00
Net Assets	$2,103,423.00

In determining the assets and liabilities of the parties her Honour added back, as she had foreshadowed in the 2008 judgment, the sum of $205,000 received by the wife after 1 August 2005.
She added back monies paid to the wife from Lavan Legal of $30,000, previously advanced, and on the husband’s “side of the ledger” she added back legal fees totalling $1,084,620.
Legal fees paid by the wife were not added back to the notional pool of assets by her Honour.
At paragraph 78 of the 2009 judgment her Honour observed that:
The wife, as a result of this judgment, will retain assets of $736,198. $205,000 of that has already been received by her by way of partial property settlement and has been dispersed by her to fund her legal fees. The wife has spent more than $850,000 on legal fees. Whether that has been a wise investment will be ascertained at a later date. Most of that money has been funded by way of a loan from her parents.
As observed, the balance of the legal fees that had been paid by the wife were not added back to the pool of assets, nor did her Honour take into account the liability that the wife had incurred to her parents to fund those legal fees in determining the pool of assets for distribution.
As a consequence of adding back the spent amounts, her Honour was left with the task of dividing an asset pool which only notionally existed, and of which as between the parties, more than $1,332,000 had been expended from the pool to fund the litigation. The remaining net assets from the notional pool, then being $771,423, amounted to some 37 per cent of the assets found by her Honour as comprising the pool to be considered for distribution.
The net effect is that after meeting her obligation to her parents, the wife is then left with nothing in her hands, subject only to the ultimate determination of the issue of costs by her Honour, consideration of which has been adjourned until after the conclusion of this appeal.

Background

In her 2009 judgment under the heading “Contributions” her Honour sets out in some detail the background and evolution of the parties’ relationship as follows:
35.The parties met in 1993. The wife had graduated as a [medical professional] in 1988 and was working in that occupation at the time the parties met. The husband had commenced a share farming arrangement with his father at his wheat farm known as [B Farm]. The husband also worked for other farmers in the area and did some contract carting work.
36.The harvest was good in 1993 and the husband and his father continued with the share farming arrangement in 1994. This was a reasonable year. Through 1993 and 1994 the husband stayed at the wife’s residence when in Perth. From around August 2003 the wife visited the [B Farm] on some weekends.
37.In 1995, the husband leased the farm from his father paying him $25,000 per year or wheat in lieu of cash payment. 1995 was a good year and he made a profit. The wife continued to work as a [medical professional]. In 1995 the husband purchased his first sheep.
38.In 1996, the husband purchased a farm nearby, known as [W Farm]. This was purchased on generous terms for $400,000 with a deposit of $1,000. Payments for the farm were subject to an “unending rainfall” clause. The husband made two payments of interest only in 1997 and 1998 and two payments of principal and interest in 1999 and 2000. These payments were made from monies earned from the farming enterprise. After 2000, further payments in respect of the contract of sale were not paid due to low rainfall conditions. The third payment of principal and interest was due to be paid in March 2006. From 1993 to 1998 the wife continued to work as a [medical professional] earning approximately $60,000 per year. The wife contributed towards some expenses and provided food for the husband when she visited him on the farm.
39.The parties became engaged in 1996. The husband continued to live on the [B Farm] property and in 1997 he moved to the [W Farm]. The wife took a month off her employment in 1997 to help with seeding and was paid by the husband.
40.Shortly before the parties were married, the wife purchased a unit in [Perth] for $103,000. This was sold in January 1999 and the wife made a profit of approximately $18,000 less costs.
41.In 1998, the parties married and the wife moved to live at the [W Farm]. It was the first time the parties had lived as a couple. The wife was taken in as a partner in the farming business for the financial year 1997/1998. The husband estimated that his net assets at the time of marriage were approximately $600,000 made up of his equity in the farm and his equity in plant and equipment, livestock and outstanding wheat pool payments.
42.After the parties married they both worked hard on the farm. They renovated the house on the [W Farm]. The wife was a partner in the business and signed documents and assisted with work around the farm. In 1999, which was another good year, the husband leased another property on a three-year contract. In 2000, the husband leased an additional 2,200 acres and was now cropping around 12,000 acres in total. He decided to buy cattle and fatten them on drought-affected crop areas.
43.The year 2001 was a drought year and the farm made a loss. Around this time, the husband travelled to [K Town] and purchased a blast-hole drilling rig for $25,000. His intention was to supplement the farm income by drilling on contract. He secured his first contract in August 2001 with [B Pty Ltd] in [M Town]. This was the beginning of [ABC]. Initially, this business traded under the partnership name of [Mr & Mrs Metgzer]. [ABC] was eventually incorporated and changed its name to [ABC Pty Ltd]. The husband was the sole director and shareholder of the company. This company operated in [various mining towns] until March 2002 when the husband obtained a drilling blast contract with [TSM] about 50 kms north of [W Farm]. The husband then purchased the first of three bulk explosive mixing trucks. With the drills and trucks he was responsible for all aspects of the drilling and blast operation. The drilling business began to make a profit.
44.While the husband was spending more time on the drilling business, the wife was involved in managing the farm and assisted with some of the administration relating to [ABC]. In November 2002, the office of [ABC] was relocated from the farmhouse to [L Town].
45.2002 was a drought year on the farm. [NG] went into receivership in January 2003 owing [ABC Pty Ltd] $356,000. At this time the partnership was under severe financial stress. During 2003 the husband spent more than half the calendar year in [L Town].
46.In 2003 the parties commenced building a house on the [W Farm] property. Approximately $300,000 was spent on that home which was incomplete at the time the parties separated in 2004.
47.In 2004, the partnership purchased the [L Farm] pursuant to a contract of sale for $700,000 plus $20,000 interest. The wife’s parents gifted her $160,000 and from this sum $150,000 was paid as a deposit on the property. $550,000 was to be paid at settlement. Following separation, the parties did not proceed with the purchase of the property and the contract was terminated. $37,000 of stamp duty was repaid but the balance of the deposit was held by the vendor.
48.The parties purchased two commercial properties in [M Town] during the course of the marriage and they were sold after separation.
49.The parties separated in September 2004.
50.After separation, the husband determined that he did not wish to enrich the wife by continuing to trade and build the business of [ABC Pty Ltd]. Some of the assets of that business were hired out at commercial rates to the drilling contracting company then allegedly controlled by the husband’s father, [CPL]. In my judgment delivered earlier, I determined that [CPL] was in fact an entity controlled by the husband and beneficially owned by him.
51.In August 2005 the wife resumed her employment as a [medical professional], firstly on a part-time basis. She now works full-time and earns approximately $2,200 per week.
52.The husband has remarried. He was the controller of [CPL] and was able to access significant funds through that business to pay legal fees, spousal maintenance to the wife and provide a good lifestyle for himself and his second wife. The fact that he had access to the assets of [ABC] helped in the establishment of the [CPL] business. Some of the assets of [ABC] are still being utilised by the husband now under the name of [N Pty Ltd].

The Appeal

The wife seeks to challenge the outcome reached by her Honour on two grounds. Firstly, that in finding the sum of $205,000 should be added back to the asset pool as partial property settlement received by the wife post August 2005, the trial Judge erred in that she:
(a)Failed to have any or any proper regard to the findings made by her on 21 May 2008 relating to the payments provided to the Wife and the portion of those payments that should not be added back;
And secondly:
That in failing to make an adjustment to the Wife’s entitlement to a property settlement pursuant to the provisions of s 75(2) of the Family Law Act the trial judge erred in that she:
(a)failed to have any or any proper regard to the proper objectives of the section;
(b)failed to have any or any proper regard to the disparity and income earning capacity of the parties;
(c)was mistaken in accepting that the sole basis of the submissions supporting such an adjustment was the disparity in the income earnings of the parties;
(d)failed to have any or any proper regard to the financial circumstances of the parties and more particularly the impost upon the Appellant of considerable borrowings used to meet the costs of prosecuting the proceedings;
(e)failed to take any or any proper account of the considerable benefits in the form of income and other benefits received by the Husband from [CPL] and [M Pty Ltd] to which the wife had made a considerable contribution;
(f)failed to take any or any proper account of the loss occasioned to the parties as a result of the failure to settle the purchase of the [L Farms] which failure was at the hands of the Husband alone;
(g)took into account a determination that the Wife would leave the marriage with assets greatly exceeding those with which she entered it.

Applicable principles

This is an appeal against a discretionary judgment.
As has been frequently observed by this Court, the limits on appellate interference with a discretionary judgment are well known.
In House v The King (1936) 55 CLR 499, Dixon, Evatt and McTiernan JJ said at 504-5:
The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. 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 such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred.

In Bellenden (formerly Satterthwaite) v Satterthwaite [1948] 1 All ER 343 at 345 Asquith LJ said:
It is, of course, not enough for the wife to establish that this court might, or would, have made a different order. We are here concerned with a judicial discretion, and it is of the essence of such a discretion that on the same evidence two different minds might reach widely different decisions without either being appealable. It is only where the decision exceeds the generous ambit within which reasonable disagreement is possible, and is, in fact, plainly wrong, that an appellate body is entitled to interfere.
In Mallet v Mallet (1984) 156 CLR 605 at 621-622 the principles are discussed by Mason J (as his Honour then was) as follows:
It has been accepted, at least since the judgment of Gibbs J in De Winter v De Winter, that a judgment of the Family Court in determining what order should be made under s. 79 of the Family Law Act 1975 (Cth), as amended, is exercising a judicial discretion and that the well settled principle governing an appeal from the exercise of that discretion applies to the Full Court of the Family Court when it hears and determines an appeal from the making of an order under the section. The Full Court, in determining the appeal cannot substitute its opinion for that of the primary judge unless it is shown that he made some error in exercising the discretion, ie., by acting on a wrong principle, by allowing extraneous or irrelevant factors to influence him, by failing to take into account some material consideration or by mistaking the facts: House v the King; Australian Coal and Shale Employees’ Federation v The Commonwealth. And in some case the exercise of the discretion may be vitiated by the primary judge’s failure to give sufficient weight to a relevant factor. However, an appellate court needs to view this ground of appeal with considerable caution, as Stephen J noted in Gronow v Gronow:
The constant emphasis of the cases is that before reversal an appellate court must be well satisfied that the primary judge was plainly wrong, his decision being no proper exercise of his judicial discretion. While authority teaches that error in the proper weight to be given to particular matters may justify reversal on appeal, it is also well established that it is never enough that an appellate court, left to itself, would have arrived at a different conclusion. When no error of law or mistake of fact is present, to arrive at a different conclusion which does not of itself justify reversal can be due to little else but a difference of view as to weight: it follows that disagreement only on matters of weight by no means necessarily justifies a reversal of the trial judge. Because of this and because the assessment of weight is particularly liable to be affected by seeing and hearing the parties, which only the trial judge can do, an appellate court should be shown to overturn a primary judge’s discretionary decision on grounds which only involved conflicting assessments of masters of weight.

Discussion

Ground 1

In the 2008 judgment her Honour gave separate consideration to the characterisation of the payment that the wife received pursuant to the orders of 27 May 2005. Her Honour identified the separate positions of the parties, namely, that the wife sought that the payment be characterised as spousal maintenance and the husband sought to have the sum added back as an asset of the wife, but only as to a portion of the amount paid.
Her Honour considered the application of s 72 the Act which states:
72(1)A party to a marriage is liable to maintain the other party, to the extent that the first-mentioned party is reasonably able to do so, if, and only if, that other party is unable to support herself or himself adequately whether:
(a)by reason of having the care and control of a child of the marriage who has not attained the age of 18 y ears;
(b)by reason of age or physical or mental incapacity for appropriate gainful employment; or
(c)for any other adequate reason;
having regard to any relevant matter referred to in subsection 75(2).
72(2)The liability under subsection (1) of a bankrupt party to a marriage to maintain the other party may be satisfied, in whole or in part, by way of the transfer of vested bankruptcy property in relation to the bankrupt party if the court makes an order under this Part for the transfer.
Her Honour thereafter separately considered the application of s 72 to the wife.
As her Honour observed in paragraph 12 of her reasons:
The wife’s ability to adequately support herself, and her corresponding needs, have varied considerably since separation. There were periods when she was unemployed, employed, living in rented accommodation and living in rent-free accommodation. These matters need to be taken into account when determining the wife’s ability to adequately support herself at a particular time.
At paragraph 13 her Honour considered the application of relevant principle in determining what was an adequate amount of maintenance as follows:
In determining an adequate amount of maintenance I must take into account the matters set out in s 75(2). In Mitchell and Mitchell (1995) FLC 92-601 the Full Court said at 81,995:
“Thus, the question whether the applicant can support herself ‘adequately’ is not to be determined by reference to any fixed or absolute standard but having regard to the matters referred to in s. 75(2) and more specifically the paragraphs of that sub-section identified above.
Nor is that question to be determined upon a “subsistence” level, as earlier cases under State maintenance legislation suggested…
…
It is also necessary in determining this issue to have regard to the standard of living of the parties and the financial circumstances of the other person: s. 75(2)(b) and (g). The days are long gone when it is necessary for an applicant for maintenance to use up all of her assets and capital in order to satisfy the requirement that she is unable to support herself “adequately”. Where the line is to be drawn will depend upon the circumstances of individual cases.”
Her Honour then applied the principles, as expounded by the Full Court, to an analysis of the circumstances of the wife during the relevant periods, having particular regard to the wife’s employment history and length of time that the wife had been absent from employment.
Her Honour considered the expenses being met by the wife, and her sources of funds in the various periods between separation and the time that she commenced employment in August 2005.
In paragraph 18 of the 2008 judgment her Honour states:
The important question is did the wife have the ability to obtain employment to adequately support herself? The only reasons provided by the wife as to why she did not obtain employment until August 2005 was it took her “some time” to find employment and that she was traumatised by the separation causing her to suffer depression. There was no medical evidence to support this. There was no reason provided as to why she could not obtain full-time employment. She was not responsible for caring for children or any other person, besides herself, and there was no evidence that she needed any further training despite her absence from employment for around eight years. Once the wife began working she received a reasonable income. She said in cross-examination that she averaged approximately $800 per week. In her financial circumstances filed on 1 February 2007 her weekly income after tax was approximately $960 per week. If she had worked full-time, I have no doubt that she would have been able to support herself adequately.
Despite her Honour’s reflection as to the absence of evidence as to why the wife did not recommence employment until August 2005, her Honour implicitly, if not expressly, found that the payments received by the wife until August 2005 should be treated as spousal maintenance and not be included in the pool of assets as property received by the wife.
As and from 1 August 2005 however her Honour found the circumstances that prevailed upon the wife were not such that she was entitled to receive the payment as spousal maintenance. Accordingly, her Honour treated the payment as a payment to the wife by way of property, as she was entitled to do in the circumstances then prevailing upon the wife and in an exercise necessarily contemplated by the orders made.
In her conclusion, at paragraph 20, her Honour says:
I’m of the opinion that the payments received by the wife after she obtained employment on 1 August 2005 should be added back to the asset pool as funds received by her by way of partial property settlement. Some of her legal expenses were paid from these funds and should not be added back to the asset pool.
It is the last sentence of that paragraph which causes some concern for the wife. The argument on behalf of the wife would seem to be that meeting legal fees from the funds received by her was a proper expense and her Honour had indicated that the legal expenses paid from those funds should not be added back. Whilst it was conceded by senior counsel for the wife that the wife was able to meet her reasonable living expenses after she returned to employment, it was argued that those living expenses did not include the costs she was obliged to pay to her lawyers from time-to-time and that as a consequence she had to borrow from her parents to meet her legal fees. It was thus argued that if her partial property settlement was to be included, so should the loans to her parents.
The argument on behalf of the wife ignores what was the clear intent of her Honour’s inclusion of the last sentence in paragraph 20, which would appear to have been included simply to ensure that her Honour, in fact, did not “double up” in any add-back.
Once her Honour had determined that the funds received by the wife were by way of property rather than spousal maintenance, she was entitled to treat those funds as if they had been any other proprietary asset of the wife that the wife had retained for her benefit, as her Honour did.
The fact that some of the funds were expended on legal fees is not relevant. What is relevant is the fact that her Honour took steps to avoid, and specifically directed herself against the possibility of doubling up. That was made clear from the exchange with counsel for the husband, Mr Hedges, on 19 August 2009:
HEDGES, MR: Now, I don’t know whether it’s in dispute what your Honour meant by your judgment at paragraph 20 because we bring back 204,400, plus the 25,000 advanced to the wife, all pursuant to the orders of 27 May. They bring back nothing. Your Honour says that (indistinct) the payments received by the wife after she obtained employment on 1 August 2005 should be added back to the asset pool as funds received by her by way of partial property settlement.
HER HONOUR: What I mean is I don’t want double adding back.
HEDGES, MR: Exactly.
HER HONOUR: That’s what I mean. I don’t want the 204,000 to be added back to her and 120,000 in legal fees added back.
HEDGES, MR: That’s ---
HER HONOUR: I want the 204 added back ---
HEDGES, MR: And the 25.
HER HONOUR: Yes.
HEDGES, MR: All right, good. So where they’ve got zero ---
HER HONOUR: I don’t want them both added back.
As is evident from the table of assets and liabilities, none of the portion expended of the $205,000 was separately added back by way of legal fees; indeed, none of the legal fees paid by the wife were added back, notwithstanding the fact the parties had apparently agreed to add back a sum of $25,000 separately advanced to the wife. This appears to have been overlooked by her Honour in her final judgment, despite the exchange quoted above where the $25,000 is referred to. However, no complaint about this was made.
In argument and discussion with the Court, senior counsel for the wife put the argument in another way, namely that her Honour should have exercised her discretion to exclude the partial property payment to the wife from the pool because it had been expended on her legal fees.
Having determined that the sums advanced to the wife were to be treated as property rather than spousal maintenance, a finding not challenged on appeal, to include that sum in the pool of assets was a proper exercise of discretion. The fact that the wife had spent that asset to partially meet her legal fees was a matter of which her Honour was aware. While she could have determined to omit it from the pool, it was within her discretion to include it, particularly as she added back substantial legal fees paid by the husband from the assets. Her Honour was at pains to make it clear that other than to add back the notional asset constituted by the partial property payment, she did not intend to add back the wife’s spent legal fees nor as a consequence did she need to consider monies borrowed to pay legal fees not included. All of the relevant cases, DLM v JLM (1998) FLC 92-816 (at 85262), Browne v Greene (1999) FLC 92-873 (at 86,360), Chorn & Hopkins (2004) FLC 93-204 and Omacini & Omacini (2005) FLC 93-218 recognise the discretionary aspect in determination of this issue.
It has not been established to our satisfaction that her Honour’s exercise of discretion miscarried, and the wife cannot show any error of principle, nor has the wife demonstrated that the findings made by her Honour in relation to the payment to the wife were not reasonably open to her to make.
This ground must fail.

Ground 2(a) - Asserted failure to have any or any proper regard to the proper objectives of the section

Whilst not separately argued before us, this attack upon her Honour’s judgment must fail. In paragraph 76 of the 2009 judgment her Honour gave very specific consideration to the objectives of s 75(2):
76.The Full Court in Waters and Jurek (1995) FLC 92-635 said (at p 82,376):
“The connection between the sec 75(2) factors and a just and equitable property order is more difficult since the criteria are expressed very broadly and are fundamentally prospective in their operation. The provision does not invite a process of social engineering…”
Wilson J in the High Court decision of Mallet v Mallet (1984) FLC 91-507 summarised s 75(2) by saying (at p 79,127):
“The objective of the section is not to equalise the financial strengths of the parties. It is to empower the court, following the dissolution of a marriage, to effect a redistribution of the property of the parties if it be just and equitable to do so.”
Senior counsel for the wife directed argument to the application of the objectives of the section by her Honour, rather than her Honour’s failure to correctly identify the objectives of the section. Her Honour had clearly turned her mind to the objectives of s 75(2) and there is no discernable error in her application of the section as interpreted.

Ground 2(b)- Asserted failure to have any or any proper regard to the disparity or income earning capacity of the parties; and

Ground 2(c) – Asserted error in accepting that the sole basis of the submissions supporting such an adjustment was the disparity in the income earnings of the parties.

These two sub-grounds of appeal are conveniently considered together.
The case as advanced to her Honour by senior counsel for the wife as to s 75(2) is contained in the submissions made on her behalf by senior counsel on 19 August 2009 as follows:
PAGE, MR: Then we come to the 75(2) factors. I’ve already mentioned them in the context of these claims against the voluntary administrator, but there is more. This man has enormous potential by reason of the property which he has in his clutches. Enormous potential to develop it. We hear just this morning that Western Australian mineral resources and no doubt mining are about to boom again because of some deal with the Chinese.
It was all in that context that he was able to develop previously. He has had left intact a huge base of both tangible and intangibles to which my client made a significant contribution and he will be able to develop a very significant income from that. The potential is enormous. We can see that only from the type of work that he does and the type of returns that are established.
As against my client, who is qualified as a [medical professional], who has no property, who has a debt to her parents of some $800,000 associated with the costs incurred in relation to these proceedings, who simply will have no property. That anything she gets in these proceedings will go to her parents to repay them and she’ll still be left with nothing. She’ll still be left as a [medical professional] earning $2200 a week. She has no home. She has very little property, other than a car and a horse and a float.
If section 75(2) is intended to make comparisons, the disparity is huge. I’m not sure that it is. It’s intended really to reflect the position of each of the parties, but not necessarily ---
HER HONOUR: It’s not social engineering.
PAGE, MR: Not necessarily against each other, but there is a huge disparity of property, income earning potential. The husband is in a job from which he gets considerable benefits and they are not necessarily reflected in just what he earns. The 75(2) factors in this case are large.
I said at the outset that I think it was 35 to 40 per cent overall was an appropriate division. That certainly related to the asset pool which I asserted and submit should be accepted. If your Honour diminishes that then the 75(2) factors loom larger. The contributions can’t, but the 75(2) loom large and the smaller the pool gets the larger those factors will assume and hence my submission is that the sum sought in the draft order doesn’t change by reason of necessarily the diminution of the pool to a large extent. I can’t assist you any further.
The other reference by senior counsel for the wife to s 75(2) in the context of the potential claims against the administrator was dealt with separately in the orders made by her Honour dealing with that specific issue and not the subject of the appeal.
The case argued before her Honour was directed to the disparity in the parties’ earning capacity and her Honour specifically turned her mind to a consideration of that argument at paragraphs 73 to 79 of the 2009 judgment, as follows:
73.The wife seeks an adjustment to her entitlement to property settlement pursuant to s 75(2) of the Family Law Act 1975 on the basis of the disparity in the income-earning capacity of the parties.
74.It may well be the fact that, if the husband continues to work hard, that [N Pty Ltd] will do well and the husband’s income in the future will exceed the wife’s. This does not mean, however, that there would automatically be an adjustment to take into account this fact.
75.As I stated in M and I (2009) FCWA 49:
76.The Full Court in Waters and Jurek (1995) FLC 92-635 said (at p 82,376):
“The connection between the sec 75(2) factors and a just and equitable property order is more difficult since the criteria are expressed very broadly and are fundamentally prospective in their operation. The provision does not invite a process of social engineering…”
Wilson J in the High Court decision of Mallet v Mallet (1984) FLC 91-507 summarised s 75(2) by saying (at p 79,127):
“The objective of the section is not to equalise the financial strengths of the parties. It is to empower the court, following the dissolution of a marriage, to effect a redistribution of the property of the parties if it be just and equitable to do so.”
77.The wife came into the marriage with few assets. In August 2005, she resumed her employment as a [medical professional]. She now earns approximately $2,200 per week in full-time employment. The marriage has not affected her ability to earn.
78.The wife, as a result of this judgment, will retain assets of $736,198. $205,000 of that has already been received by her by way of partial property settlement and has been dispersed by her to fund her legal fees. The wife has spent more than $850,000 on legal fees. Whether that was a wise investment will be ascertained at a later date. Most of that money has been funded by way of a loan from her parents.
79.In my opinion, there should be no further apportionment of the assets to take into account the disparity of income and/or income-earning potential of the parties. The nature of the business in which the husband is involved means that he can do well and then find himself in a difficult financial position if there is a downturn in the mining industry. The demise of [CPL] amply demonstrates this point. The wife will leave the marriage with assets greatly exceeding those with which she entered it. She leaves with an earning capacity which is significant and sufficient to support herself in the future. She is 40 years of age, has no children and there is no reason why she cannot work until normal retirement age. The husband is 39 and has a wife and child whom he has an obligation to support.

The thrust of the wife’s outline of argument was again to focus upon the disparity in earning capacity. Her Honour, at paragraph 51, found that the wife earned approximately $2,200 per week. Her Honour did not make a finding about the husband’s income in 2009 but given the trial Judge’s comments in paragraph 74 of her Reasons for Judgment, it is reasonable to infer that he was not earning more than the wife.
It may well be the fact that, if the husband continues to work hard , that [N Pty Ltd] will do well and the husband’s income in the future will exceed the wife’s. This does not mean, however, that there would automatically be an adjustment to take into account this fact.
That there was no disparity in favour of the husband at present also derives support from the written submission on behalf of the wife that “[t]he appellant seeks an adjustment which in dollar terms amounts to $227,811. This sum represents some two years purchase of the earning capacity of the respondent based upon earnings achieved by him in the period after separation of the parties” (our emphasis). As the wife earns $114,400 per annum, there was demonstrably no financial advantage to the husband at the time of the hearing.
As to future potential her Honour acknowledged that there was the possibility of the husband’s position improving but noted the vagaries of his business environment and his obligations to his wife and dependant child.
There was no challenge of substance to the findings of fact by her Honour, nor was it suggested that the conclusions reached by her Honour were not reasonably open to her.
There is no discernable error of principle nor can it be found that her Honour’s treatment of the case before her was plainly wrong and that her discretion miscarried.

Ground 2(d) – Asserted failure to have any or any proper regard to the financial circumstances of the parties and more particularly the impost upon the appellant of considerable borrowings used to meet the costs of prosecuting proceedings.

Apart from the one sentence reference to the impost of debt upon the applicant in the portion of the transcript quoted above, there was no argument agitated or advanced to her Honour beyond that. Indeed, the reference to a disparity of property, having regard to the outcome of the proceedings, appears to receive only passing argument before her Honour. However, her Honour observed that the net benefit to the wife as a result of her Honour’s judgment was the sum of $736,198.
As we noted in paragraph 18 of our Reasons for Judgment, the tangible assets comprised $771,423 when the ‘notional’ assets in the form of add backs are removed. Where factors under s 75(2) such as financial disparity, are being assessed in relation to an asset pool consisting largely of ‘notional’ assets, in our view there is a need for a careful appraisal of the reality of what each party will actually be left with as a result of orders, when considering the justice and equity of the orders proposed. That may particularly be relevant in a case such as this where the wife had a substantial debt to her parents.
Her Honour did not conclude her judgment with an analysis of what each party would be left with in the form of tangible assets. However in our view this does not of itself amount to appellable error. That is because there are other parts of her judgment in which she recognised what the result would mean to the wife. In paragraph 78 noted earlier, she said:
The wife, as a result of this judgment, will retain assets of $736,198. $205,000 of that has already been received by her by way of partial property settlement and has been dispersed by her to fund her legal fees. The wife has spent more than $850,000 on legal fees. Whether that was a wise investment will be ascertained at a later date. Most of that money has been funded by way of a loan from her parents.
Her Honour was clear that what the wife would receive was $531,198 in tangible assets of which $357,817 was to be paid by the husband. The husband’s position, when his add backs representing ‘notional’ assets are removed, and the amount required to pay the wife is deducted, would leave him with tangible assets of $240,225. When the tangible assets available to each party is considered, her Honour’s decision not to allow the wife any further adjustment for s 75(2) factors such as financial disparity, can be seen as a proper exercise of her discretion.
Nor did her Honour disregard the wife’s indebtedness to her parents as can be seen from the passage above. In addition she was alive to the issue of the wife’s overall net position was still open, subject to the ultimate resolution of the question of costs, as a matter yet to be determined by her Honour.
Certainly, her Honour had a discretion available to her under s 75(2) to consider the impact of the wife’s indebtedness to her parents, but in the circumstances, having refused to add back the wife’s expended legal fees, her Honour’s decision to omit the debt attributable to them was consistent with authority and open to her and it could not be said that the exercise of her Honour’s discretion under s 75(2) miscarried by failing to take into account, beyond what she did, the wife’s indebtedness to her parents.
Accordingly, this ground must also fail.

Ground 2(e) – Asserted failure to take any account of the considerable benefits in the form of income and other benefits received by the husband from CPL and M Pty Ltd, to which the wife had made a considerable contribution.

Whilst this sub-ground is advanced under consideration of s 75(2), her Honour made clear and considered findings as to the contributions made by each of the parties for the purposes of her consideration of s 79(4)(a) to (c) of the Act which, for the most part, is set out above and which is unchallenged. However, her Honour also made specific positive findings as to the parties’, more particularly the wife’s, contributions not only throughout the marriage but also post separation. Her Honour found that as a consequence of the wife’s contributions and forbearance in her claims against the assets to the point of judgment, the asset pool had increased from that her Honour found to be extant at separation, and the wife derived benefit from that increase.

Ground 2(f) – Asserted failure to take any or any proper account of the loss occasioned to the parties as a result of the failure to settle the purchase of the L Farm which failure was at the hands of the husband alone.

The argument for the wife proceeded on the assumption that the trial Judge found, or should have found, the “failure” was referrable to the acts or omissions of the husband, in the absence of which the challenge could not succeed.
We were not referred to any evidence which obliged her Honour to make such a finding. Further, her Honour had specific regard to the gift to the wife of $160,000 by her parents during the course of the relationship in the context of her findings as to the parties’ respective contributions.
Her Honour found positively for the wife in terms of that contribution and took that into account in determining the overall percentages on a contribution based determination, which is not the subject of challenge. Her Honour noted that the venture had failed and the funds had been lost. In the context of a consideration of s 75(2), the matter was not separately argued before her Honour as a factor that she should consider. Having considered the same in the context of the contribution made by the wife, it was not necessary for her Honour to address the issue further.
Senior counsel for the husband argued on the appeal, that had funds been applied to complete the purchase of the farm that had been contracted for by the parties, the source of funds could only have been from the assets otherwise available to the parties, and there would have been no definable net benefit in the overall pool of assets. Senior counsel further submitted the “sideways movement” of an asset of the parties causing an increase in borrowings may have had a net negative effect on the overall pool of assets available for distribution between the parties.
Having regard therefore to the matters argued before her Honour and the consideration given the subject matter by her Honour elsewhere in her judgment, the wife cannot demonstrate any error of principle or that the exercise of her Honour’s discretion has miscarried.

Ground 2(g) – Whether her Honour erred in taking into account a determination that the wife would leave the marriage with assets greatly exceeding those with which she entered it.

Her Honour specifically considered the position of each of the parties at the commencement of their relationship at paragraphs 53 and 54 of the judgment:
53.At the time the parties commenced living together the husband was the leaseholder of some farming property, and the owner of [W Farm]. His payments in respect of that property, however, had been minimal. He was also in possession of plant and machinery. He had the ability, with these assets, to earn an income for the parties.
54.The wife owned a townhouse in which she had a small equity which was realised after the parties married. She had, during the course of the relationship, from 1993 to 1998, made some limited financial contribution to the husband and the farming business.
Her Honour concludes, as recorded in paragraph 78 of her judgment, that the wife would receive a sum as a result of the judgment. Her Honour did not ignore, having regard to the level of debt had by the wife, that the settling of assets upon her as a consequence of the judgment may have been notional in the sense that she had had the benefit of assets to that extent, other than having them presently available to be held.
In the exercise of her discretion under s 75(2) factors her Honour identified that one of the benefits that the wife had received was an improvement in her overall asset position. The finding was consistent with the evidence and diminished only by the existence of the debt that the wife had to her parents, which her Honour had separately considered.
It could not be said that the inclusion or exclusion of such a finding by her Honour would cause the exercise of her Honour’s discretion to miscarry. It was a matter properly considered by her Honour in an overall determination of what the wife’s position would be subsequent to the marriage. This ground therefore has no merit.
In conclusion therefore we would dismiss the appeal.

Costs

The husband sought an order for costs if the appeal was dismissed.
Costs under the Act are discretionary and governed by s 117 of the Act. Insofar as this appeal is concerned the relevant provisions are s 117 and s 117(1), (2) and (2A) which provide as follows:
(1)Subject to subsection (2), subsection 70NFB(1) and sections 117AA, 117AB, 117AC and 118, each party to proceedings under this Act shall bear his or her own costs.
(2)If, in proceedings under this Act, the court is of opinion that there are circumstances that justify it in doing so, the court may, subject to subsections (2A), (4) and (5) and the applicable Rules of Court, make such order as to costs and security for costs, whether by way of interlocutory order or otherwise, as the court considers just.
(2A)In considering what order (if any) should be made under subsection (2), the court shall have regard to:
(a)the financial circumstances of each of the parties to the proceedings;
(b)whether any party to the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;
(c)the conduct of the parties to the proceedings in relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;
(d)whether the proceedings were necessitated by the failure of a party to the proceedings to comply with previous orders of the court;
(e)whether any party to the proceedings has been wholly unsuccessful in the proceedings;
(f)whether either party to the proceedings has made an offer in writing to the other party to the proceedings to settle the proceedings and the terms of any such offer; and
(g)such other matters as the court considers relevant.
We accept that s 117(2A) of the Act sets out matters that the Court should take into account in determining whether there should be a departure from the provisions of s 117(1) being, that each party pay their own costs of or incidental to the proceedings.
In Fitzgerald (as child representative for A (Legal Aid Commission of Tasmania)) v Fish and Another (2005) 33 Fam LR 123 the Full Court discussed, at paragraph 41 of their reasons, the effect of s 117(2A) as follows:
A number of factors are then listed in the subparagraphs. The financial circumstances of each of the parties to the proceedings is [sic] the first mentioned factor. Nowhere in subs (2A) or elsewhere in s 117, is there any prescription that more than one factor must be present before an order for costs is made nor of comparative weight of the factors set out in subs (2A). As a consequence, there is nothing to prevent any factor being the sole foundation for an order for costs.
Whilst the wife has been unsuccessful in the appeal, having regard to her financial circumstances, especially having regard to the debt owed to her parents for legal fees, we do not consider that there are circumstances that justify a departure from the position that each party bear their own costs.

I certify that the preceding eighty-one (81) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court delivered on 12 October 2010.

Associate:

Date: 12 October 2010