Kendrick and Barnwell

[2019] FamCA 603

FAMILY COURT OF AUSTRALIA

KENDRICK & BARNWELL [2019] FamCA 603

FAMILY LAW – PRACTICE AND PROCEDURE – Where final judgment is reserved – Where an application is made to re-open property proceedings – Where the husband sold a property owned by him that was included in the property interests of the parties and the sale price is greater than that attributed to it in the joint balance sheet of the parties at the end of the trial – Where the interests of justice will not be better served by granting leave to re-open the case – Where the application is dismissed and no order is made for costs.

Income Assessment Act 1997 (Cth)

EB v CT (No. 2) [2008] QSC 306
Rennie & Rennie [2017] FamCA 329
Smith v NSW Bar Association (1992) 176 CLR 256;
Summitt & Summitt and Ors (Re-opening) [2009] FamCA 365
Urban Transport Authority of NSW v Nweiser (1992) 28 NSWLR 471

APPLICANT: Mr Kendrick

RESPONDENT: Ms Barnwell

FILE NUMBER: BRC 2650 of 2016

DATE DELIVERED: 28 August 2019

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Forrest J

HEARING DATE: 22 August 2019

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Kirk QC

SOLICITOR FOR THE APPLICANT: Hirst & Co Family Lawyers

COUNSEL FOR THE RESPONDENT: Dr Brasch QC

SOLICITOR FOR THE RESPONDENT: O’Reilly & Sochacki Lawyers

Orders

1. That the Application in a Case filed on 23 July 2019 is dismissed.

Note: The form of the order is subject to the entry of the order in the Court’s records.

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

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: BRC 2650 of 2016

Mr Kendrick

Applicant

And

Ms Barnwell

Respondent

REASONS FOR JUDGMENT

1. A trial of a contested application for property adjustment Orders between two parties who were formerly in a de facto relationship took place in this Court over four days in mid-April 2018. Because it did not finish in the four days originally allocated for its hearing, it was adjourned part-heard to conclude over two days in late November 2018. Even then, it did not conclude in those two days, with oral submissions being heard on 5 December 2018. Judgment was reserved at the end of that trial.

2. On 23 July 2019, whilst judgment remained reserved, the Respondent (who I shall, for simplicity of understanding, call “the wife”) to the original application filed an Application in a Case seeking to re-open the proceedings and leave to adduce further evidence in the proceedings.

3. That application was heard by me on Thursday, 22 August 2019.

4. The essence of the evidence that the wife seeks leave to adduce on a re-opening of the trial is evidence of the fact that the husband has, since the trial concluded, sold a real property that he solely owned that was, by agreement, included in the balance sheet of property interests provided by the parties to the Court for the trial at a value of $1,175,000, but which he sold for the sum of $1,500,000. In short, the argument, in the wife’s own words, is that the difference in the two figures “may have a significant impact on the justice and equity on any proposed adjustment between” the two parties.

5. The husband’s (I shall call him that, again for simplicity’s sake) position was one of opposition to the wife’s application. His argument against giving the wife leave to adduce the evidence was effectively two pronged. Firstly, he asserted that after consideration of costs of sale, an increased mortgage debt payout (increased from the debt in the trial balance sheet), costs of some renovations he had undertaken to the house on the property after it had been valued, and the capital gains tax (“CGT”) an accountant had advised him he will have to pay, that he will be barely better off than had he kept the property at the value of $1,175,000. Secondly, he argued that it would be unfair to allow evidence of the sale of that property to be adduced so long after the trial and even longer after the single expert valuation had been obtained and agreed upon, without at the same time permitting updated valuation evidence relating to nine other real properties and the wife’s business to be adduced. The latter point he made against his own assertion of opinion, proffered as an experienced real estate professional in the relevant region, of increased property values over that same time.

The applicable principles

1. There was no dispute between the two Queen’s Counsel who appeared before me as to the applicable principles by which this application is to be determined. The granting of leave to re-open is discretionary and guided by the interests of justice with the essential question being whether the court is more able to do justice in the facts and circumstances of the particular case if the application is granted.[1] Other matters to be considered in determining such an application are whether the further evidence sought to be adduced is so material that the interests of justice require its admission; whether, if accepted it would most probably affect the result; whether it could have been discovered earlier; whether prejudice to the other party might ensue. Account of the strain that litigation imposes on litigants is also to be taken and consideration given to the fact that the interests of justice are served by finality in litigation.

   [1] Smith v NSW Bar Association (1992) 176 CLR 256; Urban Transport Authority of NSW v Nweiser (1992) 28 NSWLR 471, 478; EB v CT (No. 2) [2008] QSC 306; Summitt & Summitt and Ors (Re-opening) [2009] FamCA 365; Rennie & Rennie [2017] FamCA 329.

The course the application took and the respective positions of the parties

1. The evidence adduced in this application satisfied me of the following:

   (i)The wife learned that the husband had sold his property for $1,500,000 and, in July this year, she caused her solicitors (new solicitors, not the same ones who acted for her at the trial) to write to the husband’s solicitors asking for the husband’s consent to a joint letter to be written to the Court requesting that the sale price be taken into account in the proceedings rather than the previously agreed value of $1,175,000;

   (ii)The husband’s solicitors wrote to the wife’s solicitors pointing out that the valuations of all the real properties owned by the parties which were relied upon by the parties at the trial were all done in about March 2018 and advised them of their client’s opinion that the increase in the value of his property reflected in the sale price was likely also reflected in the current value of all of the properties of the parties or either of them;

   (iii)The husband’s solicitors also pointed out that the mortgage liability secured by the husband’s property had increased from the amount relied upon for the trial and that the husband would also have a CGT liability to pay because of the sale of the property. For the husband it was asserted that the net effect of the sale of the husband’s property would be “negligible”;

   (iv)The husband’s solicitors pointed out that it was not appropriate to request the Court take into account the sale value of the property without also putting evidence of updated valuations of all the other property of the parties or either of them to the Court;

   (v)The wife’s solicitors did not respond to the husband’s solicitors and filed the application now being determined;

   (vi)The husband filed his affidavit in which he deposed to undertaking renovation work on the property before he sold it, such work costing him about $30,000;

   (vii)The property sold for $1,500,000 and the costs associated with the sale totalled $43,640 and the secured debt at discharge of mortgage was $1,203,619.73;

   (viii)The net proceeds of sale after all those payments amounted to $252,220.69;

   (ix)The husband had an accountant prepare an estimate of his CGT liability attributable to the receipt of the capital gain on the sale of the property as $208,806.07. It appears that the accountant has been instructed that the husband has determined to treat the property as his main residence for five years and two months;

   (x)On those figures, the net difference between the value agreed upon for the trial and the amount now received by the husband is $43,414;

   (xi)The husband deposed to some research he had done to support his contention that the values of the other properties, particularly properties in which the wife has interests and he does not, would also have increased in the period since the valuations were agreed upon. He also opined that the wife’s real estate business would likely have increased in value, too, in the same time;

   (xii)The wife filed an affidavit of an accountant she had retained to review the CGT calculations the husband had adduced into evidence. This accountant disagreed with the calculation done by the accountant engaged by the husband on the basis that “it does not take into consideration the tax concessions of the Capital Gains Tax Main Residence Exemption allowable under the Income Tax Assessment Act 1997”. The accountant, using the husband’s tax returns (disclosed during the proceedings) and other information provided to her, determined that the husband’s ability to utilise the “main residence exemption” in respect of the subject property began in May 1995. She said “[f]rom the tax return information available to [her]” there is no evidence that the husband maintains another main residence property throughout the period of ownership of the subject property and no evidence that the property was used to produce income. She said that “from the tax return information available to [her]” the husband’s home address during 2011-2014 was given as a different address (the one he lived in with the wife in a different town). Nevertheless, she said that the husband could rely upon a section of the Income Assessment Act 1997 (Cth) to choose to continue to treat the subject property as his main residence, even though it apparently stopped being his main residence, “indefinitely if not used for income producing purposes, and for up to 6 years if income producing”;

   (xiii)The wife’s accountant then did calculations based on two different scenarios of cohabitation and maintenance of main residences – December 2003 to December 2015 and December 2007 to August 2015 (disputed factual assertions that remain to be determined from the trial) and arrived at her own estimates of the husband’s CGT liability of $47,066 or $28,527, depending upon which of those scenarios is correct;

   (xiv)The husband then filed an affidavit of his solicitor exhibiting a letter that the husband’s accountant had, on the husband’s instructions, sent to the Deputy Commissioner of Taxation on 11 October last year (before the conclusion of the trial) and which was copied to the wife’s then solicitors, in which the Australian Taxation Office (“ATO”) was notified of disclosures the husband was making about errors in the husband’s tax returns. Those included disclosure that he had been using the subject property to produce income from 2000 to 2013 and had not included income or expenses associated with the property in any of his lodged tax returns. They included disclosure that whilst he had included the wife as his de facto spouse for part of the 2016 financial year in his tax return lodged for that year, he had failed to include her in his tax return lodged for the 2004 financial year when he said their de facto relationship started or in the tax returns he had lodged after that year. They also included disclosure that he had changed his home address in the 2004 financial year from the subject property to the home he shared in a different town with the wife until December 2014;

   (xv)The wife’s current solicitors and barrister had not seen the letter to the Deputy Commissioner of Taxation before the morning of the hearing and written submissions and a draft of the orders prepared for the wife appear to have been prepared without awareness of the letter written by the husband’s accountant to the ATO on 11 October last year;

   (xvi)The valuations of all the real properties that had been relied upon by the parties for the trial had been obtained in March 2018 before the trial started and were relied upon by them at the end of the trial in December 2018;

   (xvii)The values of other interests in property held by the parties, including bank account balances, shares in listed companies, furniture and chattels, and superannuation interests relied upon by the parties for the trial when it started in March 2018 continued to be relied upon when the trial concluded later in the year.

The competing submissions

1. For the wife, it was submitted, on the basis of the calculations of the accountant relied upon by her, that without leave for the new evidence to be adduced the husband “will “pocket” a considerable bonus over and above the values which are currently before the Court”. It was submitted that the evidence of the sale at the greater value than had been agreed at trial was such “cogent” evidence as would support an exercise of the discretion in favour of the re-opening and admission of the evidence. It was submitted that the difference in amounts was “material” and would “plainly increase the pool bottom line” and, therefore, justice would be more able to be done if the evidence was allowed to be adduced now than if the application was refused.

2. For the husband, it was submitted, that the letter written by the husband’s accountant and the disclosures it contained, cast the opinions and calculations of the wife’s accountant in a completely different light – in that, effectively, the husband’s ability to make the decisions about the main residence exemption referred to by the accountant did not appear to be as open to him as the accountant concluded having regard only to the information contained in the tax returns he had historically lodged, making the husband’s own accountant’s calculations still credible. Consequently, it was submitted, the first point of the husband’s opposition to the re-opening remains on a firm footing, namely, that the net result of the sale makes such a negligible difference to the overall pool which is over $6,000,000, that the interests of justice do not demand a re-opening of the case.

3. For the husband it was also submitted that the discretion should not be exercised in favour of re-opening and adducing the evidence of the post-trial/pre-judgment sale of one property where there are so many other properties that were also valued 18 months ago and they are not also sought to be revalued. He submits that this point is given evidentiary support by the evidence of the husband who is an experienced real estate agent in the relevant area and who gives opinion based on some sales evidence that some, if not all, of the other properties would also have increased in value.

4. Queen’s Counsel for the husband particularly relied on the decision of Applegarth J of the Queensland Supreme Court in EB v CT (No. 2) [2008] QSC 306 (“EB v CT (No. 2)”) in which his Honour said at [6]:

   The application to re-open is not to overcome a technical defect in the evidence or to tender evidence that is omitted by inadvertence. The application seeks to raise a new issue, namely the current value of certain assets of one of the parties, whereas the issue litigated at the hearing was the assets, financial resources and liabilities of the parties at the date of the hearing. It is impossible to see how the respondent could be permitted to call evidence of the current value of some of his assets without, in fairness, opening up the general issue of the current value of the parties’ assets. To do otherwise would be to fall into error. It would be wrong to determine the matter on the basis of the current value of some of assets and the value as at the date of the hearing of the balance of the assets.

My determination

1. The wife does not just seek to re-open and adduce the evidence of the sale of the husband’s property. She also wants leave to adduce evidence of the costs of the sale of the property and the calculation of the CGT payable by the husband limited to the evidence he has already given in the proceedings about what he represented to the ATO was his place of residence – that is, as calculated by the wife’s accountant. The wife proposes further hearing time for cross-examination of the accountant that might be considered necessary by the husband. Additionally, the Court was told that if the Court is minded, then further valuations of all the properties could be obtained and adduced into evidence.

2. Procedural fairness would probably now require, if I was to allow the evidence to be adduced, evidence of the husband’s accountant’s calculations of the CGT to be adduced along with evidence of the basis of the instructions given to him in calculating it and evidence of the letter written to the ATO by him for the husband last year. Further provision for cross-examination of that accountant would probably also need to be made. Potentially, considerably more of the Court’s time would be required to be allocated to this matter and that would not be available for months to come, given the current state of the Court’s list.

3. In determining not to grant the re-opening the wife seeks, I give particular consideration to the fact that this matter has been before the Court since 2016 and that the trial took place over two distinct periods of time separated by around eight months in time last year and has now, regrettably, been reserved for nearly nine months. I am aware, from what I observed of the parties giving evidence at the trial and sitting through the balance of the trial, of the impact upon them of this dispute. I am conscious of the amount of money each of them has spent on the litigation to this time. I am conscious that the interests of justice, in so far as these two parties are concerned, but also in so far as the hundreds of other litigants who are awaiting judgments and trials in this Court are concerned, are best served by finality of this litigation as soon as practicable.

4. I accept that there may have been some misapprehension by the wife’s accountant of the position being represented by the husband to the ATO in respect of how he may be able to deal with the subject property in respect of his capacity to claim main residence exemption in respect of the assessment of his CGT liability. I am not persuaded that the net outcome of the sale of this property will not be negligible in the end. Therefore, I am not convinced that admission of the new evidence is so “material” that it would make such a difference to the outcome that the interests of justice demand it be admitted in a re-opened trial. I also accept the merit of the position expressed by Applegarth J in EB v CT (No. 2) in respect of an application to re-open a trial in de facto property adjustment proceedings sometime after judgment is reserved to adduce evidence of a change in value of one property as opposed to fresh evidence of value of all the property of the parties as being “wrong”. I am not persuaded that the interests of justice in this case would be best served by re-opening the trial and requiring fresh evidence of valuation of all of the parties’ interests in property to be adduced. I will not be ordering that.

5. Accordingly, I dismiss the wife’s Application in a Case.

Costs

1. Mr Kirk QC submitted that costs should follow the event and that if the husband succeeded in having the wife’s application dismissed he should be entitled to an order that the wife pay his costs. Essentially, that submission is based on the fact that the wife has been wholly unsuccessful in her application and that the letter from the husband’s solicitors raised the matters with the wife’s solicitors that the husband ultimately relied upon to cause the wife’s application to be dismissed.

1. Dr Brasch QC for the wife submitted that whichever way the application was determined, there were no circumstances justifying departure from the general provision that each party bears their own costs.

2. I am not of the opinion that there are circumstances that justify making an order for costs. I accept that the wife was wholly unsuccessful in the application and that the husband’s solicitors wrote to the wife’s new solicitors and informed them that the husband opposed the proposed course, as well as expressing some reasons why that course was opposed. Nevertheless, there was no evidence that the husband notified the wife of his intention to sell the property or the amount it was selling for, before he sold it. There was no evidence that the husband informed the wife of the actual costs of sale or the estimated CGT liability he faced even after she let him know she knew of the property’s sale. It was simply asserted that the net effect of the sale would be “negligible”. There was no reference by the husband’s solicitors to the letter sent to the ATO last year that presented contrary information to that which had been disclosed in tax returns lodged by the husband year in year out that were in evidence in the trial, even though that letter had been sent to a different set of solicitors who formerly acted for the wife. It was the information in the tax returns that caused the wife to obtain accounting advice herself about the estimated CGT liability that was contrary to the position the husband presented.

3. I gained an impression that the positions taken by both parties were fundamentally and unnecessarily adversarial rather than conciliatory, as they were at the trial. In such circumstances, I am not convinced that ordering the wife to pay the husband’s costs is now justified. I will not make an order that the wife pay the husband’s costs.

I certify that the preceding twenty (20) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Forrest delivered on 28 August 2019.

Associate: 

Date:  28 August 2019