Kelby & Kelby
[2021] FedCFamC1A 34
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1) APPELLATE JURISDICTION
Kelby & Kelby [2021] FedCFamC1A 34
Appeal from: Kelby & Kelby (No. 2) [2020] FamCA 816 Appeal number(s): EAA 149 of 2020 File number: SYC 8071 of 2014 Judgment of: ALDRIDGE, TREE & GILL JJ Date of judgment: 8 October 2021 Catchwords: FAMILY LAW – APPEAL – PROPERTY – Where the appellant asserts errors in the findings of fact affected the overall property distribution – Where the primary judge did err in findings of fact – Correcting the findings of fact did not lead to a different result – The effect of the errors were negligible and relatively unimportant – Not material to the outcome – Challenges to weight were not made out – Appeal dismissed – No order as to costs. Legislation: Family Law Act 1975 (Cth) s 79 Cases cited: De Winter and De Winter (1979) FLC 90-605
Gronow v Gronow (1979) 144 CLR 513; [1979] HCA 63
House v The King (1936) 55 CLR 499; [1936] HCA 40
Mallett v Mallett (1984) 156 CLR 605; [1984] HCA 21
Zyk and Zyk (1995) FLC 92-644; [1995] FamCA 135
Number of paragraphs: 68 Date of hearing: 27 July 2021 Place: Sydney (via video link) Counsel for the Appellant: Mr Fernon SC Solicitor for the Appellant: Yates Beaggi Lawyers Counsel for the Respondent: Mr Harper Solicitor for the Respondent: McGirr Lawyers ORDERS
EAA 149 of 2020
SYC 8071 of 2014FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
DIVISION 1 APPELLATE JURISDICTIONBETWEEN: MS KELBY
Appellant
AND: MR KELBY
Respondent
ORDER MADE BY:
ALDRIDGE, TREE & GILL JJ J
DATE OF ORDER:
8 OCTOBER 2021
THE COURT ORDERS THAT:
1.The appeal be dismissed.
2.There be no orders as to costs.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
IT IS NOTED that publication of this judgment by this Court under the pseudonym Kelby & Kelby has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
ALDRIDGE, TREE & GILL JJ:
INTRODUCTION
This is an appeal from property settlement orders made by a judge of the Family Court of Australia on 25 September 2020 in proceedings between Ms Kelby (“the wife”) and Mr Kelby (“the husband”).
The primary judge found that the parties had total net assets of $7,425,796. Their contributions to those assets were assessed at being 60 per cent by the husband and 40 per cent by the wife (at [193]). After consideration of the matters raised by s 79(4)(d)–(g) of the Family Law Act 1975 (Cth) (“the Act”) his Honour concluded that an adjustment of 5 per cent in favour of the wife was appropriate. Thus, the property was divided so that the husband received 55 per cent and the wife 45 per cent.
The appeal is from the exercise of a discretion and is therefore subject to the principles set out in House v The King (1936) 55 CLR 499. The wife’s appeal raises 12 grounds for consideration. All but two concerned the findings as to contributions. As these reasons for judgment will explain, whilst we are satisfied that the primary judge did err in some of the matters that were taken into account, we consider that these errors were not material to the outcome and that the appeal should be dismissed.
THE APPEAL
Did the primary judge err in findings of fact and that the husband contributed 60 per cent and the wife 40 per cent to the matrimonial assets? (Grounds 1 to 8)
Before turning to our discussion of his Honour’s reasons, it is helpful to place them in the relevant factual context. This will also cover the wife’s grounds as to the primary judge’s mistaken findings of fact.
The parties met in 1972 and married in September 1975. They separated in November 1999 but have not yet divorced. The parties have three children who were born in 1982, 1983 and 1985.
The parties conducted a business of a used car dealership through J Pty Ltd (“JPL”), in which the husband held three quarters of the shares and the wife one quarter.
It is a feature of this matter that the husband and the primary judge, at times, referred to the husband acquiring property or borrowing funds when, in truth, the purchaser or borrower was JPL. The wife’s contention is that such steps taken by the company, but which were recorded as being taken by the husband and counted as contributions by him should, properly have been treated as contributions by both parties. There is force in this proposition but care must be taken to identify the precise nature of the contribution and also to take into account all other relevant contributions.
In November 1982, JPL purchased a property on T Street, Suburb S (“the Suburb S property”) for $160,000, the bulk of which was borrowed from a bank.
In 1985 the husband won $168,863.67 on Lotto. He used $150,000 of those funds to purchase a property at GG Street, Suburb HH which was registered in the name of JPL. That property was sold in 1987 and the proceeds were then used to acquire a property at Suburb H (“Property I”) in September 1988 which became the family home. That property was registered in the joint names of the parties.
There was no challenge to the primary judge’s finding that the Lotto win should be regarded as a joint contribution (Zyk and Zyk (1995) FLC 92-644).
In 1987 the husband acquired a two thirds interest in a property at Suburb MM (“the Suburb MM property”) for $235,200 which was registered in his name. The source of the funds was said to be a windfall from a horse race and $5,000 from his savings. The husband later borrowed funds from a bank, first for an unknown purpose, and secondly to enable him to acquire the remaining one third interest in this property.
In 1995 the parties started a car dealership in SS Town through PP Pty Ltd. Again, the husband and the wife were shareholders and directors of this company. The husband spent much of his time in SS Town and the wife worked full-time in Suburb S for JPL between 1995 and 1998.
The business at SS Town did not go well. The primary judge found that “the dealership [was] placed into liquidation owing $3.5 million” (at [55]) which accorded with the wife’s assertion as to the extent of the shortfall. His Honour may have erred in the amount that PP Pty Ltd owed, as the husband confirmed this amount to be $1.3 million in cross-examination (Transcript 28 May 2020, p.179 lines 1–12 and p.187 line 1). However, the extent of the shortfall is irrelevant as is any possible misdescription of it.
A loan of $50,000 was also obtained from the wife’s mother which was not repaid. In 1998, the parties sold the Suburb MM property to raise money to assist in the repayment of debts owed by PP Pty Ltd. Later that year, the husband borrowed $110,000 from his father which was effectively repaid when his parents gave $100,000 to each of their other children, but only $12,000 to the husband. This was not sufficient to deal with the debts of PP Pty Ltd. The primary judge recorded:
166.In January 1999, the husband borrowed two amounts from his father $550,000 secured against Property I and $333,000 secured against Suburb S. Interest was payable under the terms of those loans, but the husband did not pay that interest at the times provided in the mortgages. In January 2000, the loans were rolled over and the amounts were increased to $580,000 and $350,000. The new mortgages to secure those amounts were interest free.
167.So by January 2000 the husband had borrowed $930,000 from his father interest free. The January 2000 mortgages required a total principal repayment at a rate of $4,640 each month with a requirement that they be discharged by December 2005.
168.The wife conceded that had it not been for the loans provided by the husband’s father, both Property I and Suburb S properties would have been lost by the time of separation and would not be part of the property pool today.
Unfortunately, these paragraphs are not entirely correct. The borrower was not the husband.
The first loan was advanced in two tranches. The sum of $550,000 was advanced to both the husband and the wife and the borrowing was secured over Property I. JPL borrowed $330,000 and that advance was secured over the company’s Suburb S property.
The second loans followed the same pattern with $580,000 being borrowed by the parties and $350,000 by JPL.
In 2000, the husband bought a property at UU Street, Suburb S (“the UU Street property”) for $159,000. He borrowed $140,000 from his parents who took a mortgage over the property to secure repayment. The registered proprietor was, however, JPL. This property was sold in 2003 and the proceeds of sale were used to acquire properties at Suburb C (“Property D”) and Suburb F (“the Suburb F property”) which were registered in the husband’s name. The husband also used funds from JPL for these purchases.
In 2008, the husband received $110,000 as workers compensation and in 2013 the wife received $66,424.68 as damages for personal injury.
The husband received $71,600 from his sister’s estate in 2013, which he lent to JPL. In that same year and in 2014 the husband received distributions from his father’s estate in the total sum of $1,011,022. The first distribution was $293,156.70 less than what it otherwise would have been because this was the amount remaining outstanding from the husband’s loans from his father. The loans were thereby fully repaid at that time.
As to the loans made to the parties and JPL by the husband’s parents, the primary judge said:
180.… It is important however to observe that between January 2000 and 27 March 2013, it appears that the husband had been able to pay back approximately $637,000 of the $930,000 borrowed from his father. Some of that money is accounted for in the net proceeds of the sale of Suburb MM and UU Street but I infer part of it was as a result of income generated through JPL. The evidence does not allow anything resembling a precise accounting.
Property D was sold in 2016 and the husband received $206,155. The Suburb F property was sold in February 2017 for $1,550,000 and a property at O Town (“the O Town property”) was purchased which was registered in the names of the husband and Ms V, his de facto partner.
JPL was placed into administration in 2017 from which it was released after a payment of $370,000 was made by the husband.
The significant assets to be divided at the hearing were Property I and the O Town property (which was taken to be owned by the husband alone), the shares in JPL and some $626,000 in cash as well as sundry assets and superannuation.
After recording the contributions made to JPL by the parties (since the wife worked for the company in varying capacities until 2000, while the husband continued after that time and conducted its business as if the wife had no interest in it) and the parties’ non-financial contributions, the primary judge said:
190.The receipt by the husband in 2013 and 2014 of about $1 million from his father’s estate is a very significant contribution to the current assets of the parties held by them jointly, individually and through JPL. In raw terms, $1 million is 13.5 per cent of the current net pool (including items notionally added back to that pool $1,000,000/$7,425,796) and if accounted for mathematically, would lead to an adjustment of 6.75 per cent in the husband’s favour. The interest free loans that the husband obtained from his father shortly before separation are also significant in the sense that had it not been for those loans, it is likely that the current asset pool would be significantly less.
This led to the following conclusions:
191.Had it not been for the interest free loans in excess of $1 million provided by the husband’s father, both Property I and [the Suburb S property] would have been lost. That borrowing was discharged as a result of contribution by the husband from a number of sources, including:
·An amount of $293,156 from an inheritance the husband received from his father’s estate;
·The sale of [the Suburb MM property] that had been acquired prior to the separation;
·The sale of [the UU Street property] which had been acquired by the husband after separation; and
·Income generated from JPL which, whilst based on the business that existed as at the date of separation, relied upon the husband’s personal exertions to generate profit after separation.
192.In addition, the remaining part of the husband’s inheritance of about $700,000 along with the husband’s sales of [the Suburb F property] and [Property D] which he acquired after separation, provided the basis for the assets that are on the balance sheet and item 2 (the O Town property), items 9 and 10 (cash at bank) and items 11 and 12 (the two proceeds of the wife’s partial property settlement orders).
193.Taking into account the myriad of contributions that both parties made in the 25 years that they were together and the contributions that particularly the husband has made since the separation, including the introduction of an inheritance of $1 million, and the contributions made on the husband’s behalf by way of interest free loans provided by the husband’s father, I assess that the contributions of the parties to the assets as set out on the balance sheet should be assessed as being 60 per cent to the husband and 40 per cent to the wife.
Unfortunately, as the husband properly accepted, neither the Suburb MM property nor the UU Street property could be the source of funds for repayments of the parent’s loan. As we have recorded, the Suburb MM property was sold in 1998 and the proceeds were used to pay debts of PP Pty Ltd. The UU Street property was sold in 2003 and the proceeds used to acquire other properties. The primary judge therefore erred in finding that proceeds of these sales were used to repay the loans and that they were contributions by the husband which should be taken into account.
In any event, the use of the proceeds of sale from the Suburb MM property could have only been regarded as a joint contribution because it was acquired by way of a joint contribution, namely the horse race win. The husband submitted that the primary judge recognised this in the above passages by using the words “acquired prior to the separation” (at [191]) to describe this property and thereby recognised this as a joint contribution. The first part of the sentence, however, identifies this as a contribution by the husband and the submission cannot be accepted.
The wife also submitted that the Court’s finding that the funds of JPL which were used to repay the loan to the husband’s parents are to be taken as contribution by the husband alone was also erroneous. There is some merit to this point but, as we shall shortly explain, the primary judge gave particular weight to the fact that after 2000, the earnings of JPL were due solely to the exertions of the husband.
The first and larger of the two loans was borrowed by both the husband and the wife themselves, so that the entry into the loan agreement and the subsequent repayment should be seen as contribution by the wife as well as the husband. The second loan was undertaken by JPL and the entry into the loan and its repayment can be seen as an indirect contribution by both of the husband and the wife as shareholders. However, as the wife recognised, the entry into the loans actually improved their financial position by removing pressure from arm’s length creditors.
After discussing the loans from the husband’s father in the passage we have already quoted, his Honour said:
169.The wife claims that these loans were provided for the benefit of both parties and their family and should therefore be seen as a joint contribution by the husband and wife. However without more, I find the advances that were interest free to be contributions made by the husband’s father on behalf of the husband (Gosper v Gosper (1987) FLC 91-810; Kessey v Kessey (1994) FLC 92-495).
The wife submitted that when the true nature of the advances made by the husband’s parents is taken into account, this passage is erroneous. We consider, however that his Honour is discussing is a slightly different point. It can easily be seen that without the paternal relationship, the advances would not have been made. Consistently with the authorities referred to by the primary judge, it was open to his Honour to find that the husband’s father’s intention was to benefit his son and not both of the parties.
This is not the end of the matter. It remained the fact that the wife was a party to an agreement to borrow first $550,000 and then $580,000, and that her indebtedness and that of the husband was secured over a property jointly owned by them. She was thus exposed to a personal liability and the possible loss of the family home.
Further, the borrowing by JPL, to the extent it remained unpaid, had the effect of reducing its net value and hence that of the shares held by the wife in it.
There are contributions by the wife that were not taken into account by the primary judge.
Thus, we have found that the primary judge erred by:
(1)Regarding the borrowings from the husband’s father and their repayment as contributions by the husband alone;
(2)Finding that the proceeds of sale of the Suburb MM property and the UU Street property were used to repay that debt and were contributions by the husband;
(3)Failing to recognise the wife’s contribution as a shareholder and director of JPL to the repayment of the loans.
It follows that the errors asserted by Grounds 1, 2, 4, 5, 6 and 7 have been established. However, not every error requires a retrial – the errors must be material to the outcome.
What then is the effect of a trial judge mistaking the facts?
In De Winter and De Winter (1979) FLC 90-605, Gibbs J, with whom Aickin J agreed, said, in an often quoted passage at 78,091–78,092:
It is apparent from this statement, and is clear law, that a discretionary judgment which is based on a mistake of fact will not be upheld merely because the result reached in itself does not appear unreasonable or unjust. In Storie v. Storie (1945) 80 C.L.R. 597, both Latham C.J., at p. 600, and Rich J., at p. 604, cited from the judgment of Viscount Simon L.C. in Blunt v. Blunt (1943) A.C. 517, at p. 526:
“If it can be shown that the court acted under a misapprehension of fact in that it either gave weight to irrelevant or unproved matters or omitted to take into account matters that are relevant, there would, in my opinion, be ground for an appeal. In such a case the exercise of discretion might be impeached, because the court's discretion will have been exercised on wrong or inadequate materials…”
There are many other authorities, from Young v. Thomas (1892) 2 Ch. 134, at p. 137, to Australian Coal and Shale Employees' Federation v. The Commonwealth (1953) 94 C.L.R. 621, at p. 627, that recognize that a mistake of fact is a ground for overruling a decision involving discretionary judgment. It may in some cases appear that the mistake of fact has not affected the final result, or that its effect has been negligible, or that in any case the conclusion reached was correct, notwithstanding the error. But it is not right to say, as the majority of the Full Court appear to have said in the present case, that a discretionary judgment which has proceeded upon a mistake of fact should be upheld simply because the order was well within the range of the discretion of the primary judge.
(Emphasis added)
Their Honours were of the opinion that the errors in that matter were material to the outcome.
Justice Mason, with whom Barwick CJ agreed, was of the opinion that the errors made by the trial judge did not vitiate the exercise of discretion. One of the errors, as to whether a signature to a document was fraudulently obtained, was one which may have played a part in the trial judge rejecting a party as a witness of truth. Mason J said at 78,097:
But where an adverse conclusion as to the credit of a witness is based, as it was here, upon a number of considerations, it is not enough to show that the primary judge was mistaken in one of the considerations upon which his conclusion as to credit is based. A conclusion as to the reliability of the evidence of a witness is inevitably based on a variety of factors.
Another error was described as “a relatively unimportant matter” (at 78,098).
It can therefore be seen that there was not a significant difference in approach by the members of the Court as a matter of principle and that they differed on its application.
The relevant issue in this matter is the weight to be given to the respective contributions of the parties to the obtaining and the repayment of loans from the husband’s father. It was not disputed that it was those advances which ensured that Property I and the Suburb S property were not lost. The Suburb S property was valued at $1,380,000 which was reflected in the value given to JPL, which owned it, of $814,000. Property I was valued at $3 million.
At the appeal, much was made of the fact that the loans from the husband’s father were said by the primary judge to be interest free. This was true only of the second advance in 2000; the loans made in 1999, for a period of one year carried interest.
We consider that little turns on this. The reality is that the parties were unable to borrow from commercial lenders and, but for the loans from the husband’s father, on whatever terms, Property I and the Suburb S property would have been lost to the parties.
As recorded by the primary judge, the inheritance that the husband received from his father was a direct and substantial contribution which fed directly to the value to be given to Property I and the O Town property as well as to the repayment of the loan from him.
The wife stopped working for JPL in 2000 and thereafter the husband operated the business as if he was the only shareholder and director. Thus, all income received by JPL after that time was due solely to his exertions. It was those exertions alone that led to the repayment of most of the loans to his father. The balance, of course, was deducted from an inheritance he received.
Thus, in a practical sense, the husband was responsible for the entirety of the repayments of the loans obtained in 1999 and 2000. This was a very significant contribution by him.
We have found that the wife made a contribution by entering into the loan agreement and mortgages, and thereby acquired a liability and a risk of losing the mortgaged property. She took a similar course in permitting JPL to enter into loans and mortgages.
The wife did not repay any of the funds nor was any repayment due to her efforts.
In those circumstances, any effect of the errors of the primary judge we have identified earlier can only be described as negligible or relatively unimportant. As recognised by the primary judgment, the significant difference between the parties’ contributions was the obtaining and repayment of the loans by the husband, which was in substance, overwhelmingly his contribution and the receipt of the inheritance. Those two matters alone easily justify the 60/40 per cent contributions based entitlement arrived at by his Honour in favour of the husband. Ground 8 has not been established.
Indeed, even taking the matters now correctly raised by the wife into account, we do not see that they are of such a magnitude to lead to a different result, and on any re-exercise of discretion for the above reasons we would come to the same conclusion.
It follows that as the errors were not material to the outcome, this aspect of the appeal does not succeed.
Did the Court err in finding that Ms V may have an equitable claim against the O Town property? (Ground 9)
As we have recorded, the husband purchased the O Town property with his funds but it was registered in both his name and in Ms V’s name as the registered owners. The primary judge found, without challenge, Ms V held her interest on a resulting trust for the husband.
In considering what, if any, adjustment should be made under s 79(4)(d)–(g) of the Act, his Honour said:
207.… It is likely that Ms V may have some equitable claim in respect of the O Town property, but as I have said, there is insufficient evidence upon which to make any precise finding about that.
The wife submitted that the “trial judge erred in a clear and substantial way”, and that his Honour was wrong to take into account the possibility of an equitable claim (Wife’s Summary of Argument filed on 6 July 2021, paragraph 80). We do not agree and consider that this passage indicates that very little weight, if any, would be given to the possibility of a claim. This is confirmed when his Honour’s reasons for judgment are read as a whole.
Once again, it is difficult to see what material effect this passage had on the outcome of the case, if any. If any error is involved, it is of no materiality.
This ground does not succeed.
Did the primary judge err in dividing the property of the parties so that the wife received 45 per cent and the husband 55 per cent, and failing to make orders favouring the wife in relation to Property I? (Grounds 10 to 12)
These grounds proceed, in part, on the basis that the earlier grounds succeed. They have not which, of itself, makes this challenge a difficult one.
The wife also submitted in her Summary of Argument filed on 6 July 2021, that the primary judge gave little consideration, and hence insufficient weight to:
(a)The potentially substantial benefits the husband received from JPL to the exclusion of the wife, which could not be quantified in the absence of financial records (at paragraph 85);
(b)The non-disclosure of records by the husband (at paragraphs 86–87);
(c)The fact that the husband gave evidence that the records of JPL from 2000–2007 had been destroyed even though, as he subsequently admitted, he knew that his accountant had copies (at paragraphs 88–89); and
(d)Substantial rent was received from the Suburb S property (owned by JPL) for 2–3 years from 2007 at $9,000 per month and 3–4 years from 2014 at $7,000 per month, despite no trading having occurred (at paragraph 90).
The primary judge discussed the husband’s non-disclosure in detail at [209]–[228] and said:
229.I conclude that the husband has not fully disclosed the extent of his continuing involvement in the trading of motor vehicles nor what exactly the situation is in relation to him receiving some benefits from Mr AB’s occupancy of the Suburb S property. I conclude that I do not need to be unduly cautious when assessing the benefits that JPL still provide to the husband today. JPL would not have existed as a trading entity without the continued personal exertion of the husband post-separation.
It is clear that his Honour gave this issue consideration and substantial weight.
Accepting this to be so, the wife submitted that the inability to assess the profitability of JPL and the husband’s non-disclosure “should have resulted in a more significant adjustment in the [w]ife’s favour” (Wife’s Summary of Argument filed on 6 July 2021, paragraph 93).
Challenges to weight face a high bar (Gronow v Gronow (1979) 144 CLR 513; Mallet v Mallet (1984) 156 CLR 605). We are not satisfied that the primary judge’s approach to this issue was unreasonable or plainly unjust.
These grounds have not been made out.
It follows that the appeal will be dismissed.
COSTS
The wife was successful in establishing some errors on the part of the primary judge, but we did not consider any of them to be material. However, taking this into account the appropriate order is that there shall be no order as to costs.
I certify that the preceding sixty-eight (68) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Aldridge, Tree & Gill. Associate:
Dated: 8 October 2021
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