Keskin & Keskin and Anor
[2019] FamCAFC 236
•10 December 2019
FAMILY COURT OF AUSTRALIA
| KESKIN & KESKIN AND ANOR | [2019] FamCAFC 236 |
| FAMILY LAW – APPEAL – APPLICATION IN AN APPEAL – Where the husband sought leave to adduce further evidence – Where the uncontested evidence available at trial is enough to demonstrate appealable error – Where it is not necessary to grant leave – Application dismissed. FAMILY LAW – APPEAL – PROPERTY – Where the primary judge determined the wife’s overall entitlement to be 60 per cent of the spouses’ property – Where the primary judge’s orders to divide the spouses’ property did not reflect a division of 60/40 – Where the husband appealed from all but one of the property settlement orders – Where the second respondent did not participate in the appeal – Where the orders are vitiated due to errors made by the primary judge which were intrinsic to the findings about the identity and value of the spouses’ property interests – Where the primary judge erred by ordering the husband to pay the wife a sum equal to 60 per cent of the net value of the land owned by the private corporation in which the husband was a minority shareholder – Where the primary judge erred in the treatment of the spouses’ receipt of net proceeds of sale – Where appealable error is demonstrated – Where there is material mistake of fact – Where the primary judge’s reasons are inadequate – Appeal succeeds on multiple grounds – Appealed orders set aside and matter remitted – Costs certificates granted. |
| Corporations Act 2001 (Cth) Family Law Act 1975 (Cth) ss 75, 79 Federal Proceedings (Costs) Act 1981 (Cth) ss 8, 9 |
| Bennett and Bennett (1991) FLC 92-191; [1990] FamCA 148 Bevan & Bevan (2013) FLC 93-545; [2013] FamCAFC 116 Fatimi Pty Ltd v Bryant [2002] NSWSC 750 Hickey and Hickey and Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143; [2003] FamCA 395 House v The King (1936) 55 CLR 499; [1936] HCA 40 Klewer v Official Trustee in Bankruptcy (No.2) [2010] NSWCA 258 Millar and Millar (1983) FLC 91-326; [1983] FamCA 21 Trevi & Trevi (2018) FLC 93-858; [2018] FamCAFC 173 Watson & Ling (2013) FLC 93-527; [2013] FamCA 57 |
| APPELLANT: | Mr Keskin |
| FIRST RESPONDENT: | Ms Keskin |
| SECOND RESPONDENT: | Mr R |
| FILE NUMBER: | MLC | 9445 | of | 2014 |
| APPEAL NUMBER: | SOA | 34 | of | 2019 |
| DATE DELIVERED: | 10 December 2019 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Strickland, Kent & Austin JJ |
| HEARING DATE: | 27 November 2019 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 19 June 2019 |
| LOWER COURT MNC: | [2019] FamCA 384 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Puckey |
| SOLICITOR FOR THE APPELLANT: | Pearsons Lawyers |
| THE FIRST RESPONDENT: | In person (with McKenzie friend) |
| THE SECOND RESPONDENT: | No appearance |
Orders made 27 November 2019
The Application in an Appeal filed on 1 October 2019 be dismissed.
The appeal be allowed.
Orders 2-7 inclusive made on 19 June 2019 be set aside.
The parties’ applications for property settlement be remitted to the Family Court of Australia for rehearing by a judge other than the primary judge.
The Court grants to the appellant husband a costs certificate pursuant to the provisions of s 9 of the Federal Proceedings (Costs) Act 1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the appellant husband in respect of the costs incurred by the appellant husband in relation to the appeal.
The Court grants to the appellant husband and the first respondent wife costs certificates pursuant to s 8 of the Federal Proceedings (Costs) Act 1981 (Cth) being certificates that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the appellant husband and the first respondent wife in respect of the costs incurred by them in relation to the rehearing.
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 Keskin & Keskin and Anor 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).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT MELBOURNE |
Appeal Number: SOA 34 of 2019
File Number: MLC 9445 of 2014
| Mr Keskin |
Appellant
And
| Ms Keskin |
First Respondent
And
| Mr R |
Second Respondent
REASONS FOR JUDGMENT
By an Amended Notice of Appeal filed on 1 August 2019, the appellant husband appeals from all but one of the property settlement orders made between him and the first respondent wife by a judge of the Family Court of Australia (“the Family Court”) on 19 June 2019.
We delayed the commencement of the hearing of the appeal on 27 November 2019 at the wife’s request, on the basis that she wished to consider her position with respect to the appeal and, for that purpose, was receiving legal advice from counsel. Having received that advice, at the commencement of the hearing the wife indicated that she “withdrew” her Summary of Argument filed on 20 November 2019 and she did not wish to make any oral submissions. We then heard submissions on behalf of the husband and made the orders outlined herein. We indicated we would provide our reasons for judgment subsequently, and the following are those reasons.
Background
The spouses were married for 22 years and, over the course of their marriage, they together built up a large business which sustained the family. The business was conducted through a variety of corporations in which they held ill-defined proprietary interests.
The wife commenced proceedings for property settlement in October 2014, shortly after the spouses’ separation. Numerous interim orders were made by the Federal Circuit Court of Australia (“Federal Circuit Court”) before the proceedings were transferred to the Family Court in December 2015, due to the Federal Circuit Court lacking jurisdiction to make orders which were then sought by the spouses under the Corporations Act 2001 (Cth) in respect of their corporate interests.
The second respondent, who is the husband’s father, held a proprietary interest in one of the corporations and he was eventually joined to the proceedings as a party, though he did not appear at the trial. He did file an affidavit, but was not required for cross-examination. Although a party to the appeal, he did not participate in the appeal either.
At some stage during the first-instance proceedings, both spouses lost the benefit of legal representation and so their efforts to ready the case for trial were tardy and their conduct of the trial was, in large part, misguided and unhelpful to the primary judge. Although some single expert valuation evidence was procured, the spouses were at odds over the identification of their proprietary interests, the value of those interests, and the sufficiency of their compliance with the obligation of financial disclosure.
The proceedings were heard in May 2019. The appealed orders were pronounced and the reasons for judgment were delivered in June 2019.
The primary judge determined the wife’s overall entitlement to be 60 per cent of the property, which result coincided with her submission. The husband had accepted the wife was entitled to 55 per cent of the property, though the primary judge erroneously recorded he had submitted for an equal division of the property (at [171]).
The property which the primary judge found was available for division between the spouses comprised some land in Country O, the husband’s 30 per cent shareholding in a private corporation, and rolling stock (at [185]). The term “rolling stock” was used to describe a fleet of vehicles used by the parties in the business conducted through their corporations.
The appealed orders made provision for the wife to receive 65 (not 60) per cent of the net sale proceeds of the land in Country O (Orders 1 to 2), the wife’s receipt of 60 per cent of the net value of land owned by the private corporation in which the husband and second respondent held shares (Orders 3 to 5), and the husband’s payment to the wife of a fixed sum representing 60 per cent of the value of the rolling stock (Order 6). Any and all other outstanding applications were dismissed (Order 7).
The husband appealed from all orders, save Order 1 which required the prompt sale of the land in Country O.
The appeal
Ground 1
This ground of appeal contended that the primary judge erred in calculating the value of the existing legal and equitable interests of the parties. The error results from the primary judge treating plant and equipment (referred to as “rolling stock”) of a corporate business, already accounted for within expert valuations, as a separate and unencumbered asset to be divided between the parties, when the rolling stock was indisputably a corporate asset, as valued, to which substantial liabilities attached.
The wife did not contend, before the primary judge, that the rolling stock was an asset of the parties, though the primary judge mistakenly recorded she did so (at [151(f)]). The husband cross-examined the wife contending the rolling stock was a corporate asset and the debt encumbering it was a corporate liability, though his evidence-in-chief and his final submissions on the issue were less than entirely clear.
Regardless, the expert evidence proceeded upon financial statements and other documents demonstrating that the rolling stock was an asset of one or another of the corporations in which the spouses hold shares and the primary judge found the asset “formed part of the [husband’s] corporate operations” (at [136]). The relevant corporate businesses were found by the primary judge, in reliance upon the evidence of two experts, to have no commercial value (at [102], [108], [155] and [156]) and so the value of the rolling stock was already factored into that calculation. Consequently, the rolling stock was double-counted by identifying it at its gross value among the spouses’ personal assets (at [174], [185] and [188]). Neither spouse submitted for the rolling stock to be identified as a personal asset nor did either spouse contend that there were no substantial liabilities referable to the rolling stock.
Even if the rolling stock had been a personal asset of the spouses, another error was made by the primary judge in failing to discount its value by the amount of debt encumbering it. At trial, the husband deposed to “vehicle liabilities” of $913,619.91, about which he cross-examined the wife. She admitted that amount was “roughly” the overall quantum of the liability, having earlier deposed to the current existence of multiple “hire purchase leases” for corporate vehicles, which she allegedly guaranteed. The husband’s Application in an Appeal, filed on 1 October 2019, sought leave to address the issue by adducing further evidence in the appeal of the corporate liabilities related to the vehicles, but that application will be dismissed because it is unnecessary to grant leave. The uncontested evidence available at trial, some of which duplicates the proposed additional evidence, is enough to demonstrate appealable error. As the expert evidence at trial plainly revealed, the primary reason the corporate businesses had no commercial value on either a future maintainable earnings basis or on a net asset backing basis was because of the existence of the substantial liabilities.
Although not the subject of any ground of appeal, another error was also made as to the precise value of the rolling stock. The primary judge found its gross value was $778,000 (at [136]), but the figure of $788,000 was later transposed to compute the payment due to the wife under Order 6 (at [160], [188]). In isolation, that error could have been rectified under the slip rule.
These errors were intrinsic to the findings about the identity and value of the spouses’ property interests, which therefore vitiate the orders.
Ground 2
This ground of appeal contended the primary judge erred by ordering the husband to pay to the wife the sum equal to 60 per cent of the net value of land owned by a private corporation. This ground must also succeed.
In respect of the corporation which owned the land, the husband was found to hold 30 per cent of its shares and the second respondent was found to own the residual 70 per cent of the shares (at [114], [119], [121], [157]). Apparently, the only realisable assets of the corporation were two parcels of land in Suburb G. The spouses adduced discrepant evidence about the net values of the land, the reliability of which troubled the primary judge (at [113], [122]). Nevertheless, the aggregated net value of the land was assumed to represent the net value of the corporation’s shareholding (at [122]).
Significantly, because the husband was found to only own 30 per cent of the shareholding, the primary judge understandably found “only 30 [per cent] of the net shareholder’s equity was relevant” to the dispute between the spouses (at [121], [122]). The primary judge then went on to find the wife was entitled to 60 per cent of the spouses’ property (at [173]), which property included the husband’s minority shareholding in the corporation.
Despite those findings, the primary judge ordered the husband to pay to the wife the sum equal to 60 per cent of the net value of the land (Orders 3 to 5); not merely 60 per cent of the net value of the husband’s minority shareholding in the corporation, which would equate to only 18 per cent of the net value of the land (being the product of 60 per cent x 30 per cent of the net value). The error was obviously material to the orders because the 12 per cent differential amounted to $93,840 according to the husband and $118,740 according to the wife.
In this regard, it is noteworthy that at [187] his Honour said this:
187.The [husband] must obtain the net valuation of the two properties in Suburb G owned by D Pty Ltd within 60 days of this order. Within 90 days of this order, the [husband] must pay the [wife] the monetary amount corresponding to 60 [per cent] of the [husband]’s 40 [per cent] interest in that value.
Albeit his Honour recorded the husband’s interest incorrectly and indicates his Honour’s intention, such intention was not carried through to the orders made by his Honour. Again, in isolation, the text of the order might have been amended under the slip rule but the error can be corrected in the appeal.
Ground 3
This ground of appeal contended the primary judge erred in the treatment of the spouses’ receipt of the net sale proceeds of the former matrimonial home, and in addition, how the net sale proceeds of the land in Country O would be distributed between them. This ground of appeal also succeeds.
Dealing first with the former matrimonial home, it was sold by the spouses in December 2015 with the sale settling in March 2016. Interim consent orders were made in October 2015 requiring the sale proceeds to be disbursed in certain ways, including the payment of $255,000 to the wife and $150,000 to the husband by way of “partial property settlement”. The primary judge found the spouses received those payments as ordered (at [134]), but the finding was inconsistent with uncontroversial evidence. The parties agreed the wife received $255,000, but they also agreed the husband only received $55,878, which was the entire residual balance of the net sale proceeds.
The primary judge’s reasons therefore manifest two errors in respect of the former matrimonial home. There was a material mistake of fact about the actual distribution of its net sale proceeds (at [134]) and the spouses’ receipt of those quite disparate capital sums were not then taken into account in the determination of their respective entitlements to the remaining assets (at [173], [174]).
As for the land in Country O, the primary judge ordered that it be sold and the net proceeds of sale divided in proportions of 65 per cent to the wife and 35 per cent to the husband, despite the overall finding that the wife and husband were respectively entitled to 60 and 40 per cent of their assets.
The wife was found to own the land in Country O (at [26(a)], [125]) and, although the spouses disagreed over its net value, both agreed it should be sold (at [127]). The primary judge recorded (at [131]) that interim orders were previously made by the Federal Circuit Court in September 2015 requiring the land in Country O to be sold and for 65 per cent of the net proceeds to be paid to the wife. As the husband pointed out in the appeal, that is not an assiduously accurate description of the effect of the interim orders. Although they required an amount equivalent to 65 per cent of the net sale proceeds to be paid to the wife, only 60 per cent was to be paid from the sale proceeds, while the other 5 per cent was to be paid from corporate funds under the effective control of the husband.
Even if the primary judge’s interpretation of the interim orders is accepted as being correct, for other reasons, appealable error is demonstrated.
It was common ground that the interim orders had still not been implemented at the time of trial and so the primary judge was left with no alternative but to craft final orders for the sale of the land and the percentage split of the net proceeds (at [129]). Although initially implying acknowledgement that the discretion to do so was unfettered, the primary judge concluded the discussion of the land in Country O thus:
131.On 30 September 2015 consent orders were made for the division of the sale proceeds of the Country O property to be applied as to 65 [per cent] of the [wife] and 35 [per cent] to the[husband].
…
186.Accordingly, when the Country O property is sold, the net proceeds must be disbursed as to 65 [per cent] to the [wife] and 35 [per cent] to the [husband]…
The orders made by the primary judge required the land in Country O to be sold and its net sale proceeds divided in the same proportions specified by the interim order.
To the extent the primary judge felt constrained from making orders which departed from the terms of the interim orders, his Honour would have fallen into error, because the discretion to make property adjustment orders in respect of the land in Country O was unconfined. His Honour was not obliged to make an order replicating the interim order. Any interlocutory orders, such as the unfulfilled order made in September 2015 governing the sale of the land in Country O and the distribution of its sale proceeds, would be ipso facto discharged by the final orders determining the proceedings (see Klewer v Official Trustee in Bankruptcy (No.2) [2010] NSWCA 258 at [6]; Fatimi Pty Ltd v Bryant [2002] NSWSC 750 at [226]-[232]; Millar and Millar (1983) FLC 91-326 at 78,220-78,221).
If, alternatively, the primary judge did not feel so constrained to make an order in respect of the land in Country O replicating the interim order, then his Honour fell into error by ordering the asset to be divided between the spouses in different proportions to those his Honour found just and equitable. His Honour found the wife was entitled to 60 per cent of the available assets (at [173]), but ordered she receive 65 per cent of the proceeds realised on the sale of the land in Country O without explaining the five per cent differential.
Ground 4
By this ground of appeal, it was contended the primary judge’s findings that the husband failed to comply with his obligation of financial disclosure and as to his conduct of the business were “unsafe” and the approach therefore taken to the discretionary exercise was also “unsafe”.
It is undesirable for appellants to use the epithet “unsafe” in grounds of appeal or in submissions made in support of them to describe a primary judge’s findings. It is not a description which accurately reflects the available grounds of appeal in respect of discretionary judgments (see House v The King (1936) 55 CLR 499 at 504-505). Having said that, there was no error evident in the primary judge’s findings about the husband’s delinquent approach to financial disclosure or as to his conduct of the business, including, in particular, subsequent to separation.
The primary judge found the husband’s financial disclosure in the proceedings “fell short” of his obligations (at [81], [109], [149]), which finding flowed from the nature and volume of the documentary material he failed to furnish to the single expert appointed to value the spouses’ corporate interests (at [83], [84], [102], [104]). We are quite satisfied the primary judge’s finding in that regard was open. The evidence of the husband’s failure was abundant. While the primary judge found the wife had primary responsibility for managing the corporate records during their cohabitation (at [61], [161]), it was commonly accepted the husband had managerial control of the corporations after the spouses’ separation in 2014 and so he bore principal responsibility for the lack of records when the corporations were valued for the litigation years later.
The primary judge also found, in reliance upon the evidence of the single expert, that the husband took “large sums of money” from the spouses’ corporations and applied those sums, at least in part, for his personal gain or for purposes that were “not proper corporate purposes” (at [110]-[112], [164]). We are quite satisfied the primary judge’s finding in that regard was also open. The strong evidence given to that effect by the single expert was not challenged.
The husband submitted in the appeal that the primary judge determined to inflate the wife’s share of the spouses’ property on account of the two findings made about his deficient disclosure and his personal expenditure of corporate funds, when it was not open for the primary judge to find that he alone did this, at least insofar as it relates to the period up to separation.
The primary judge accepted the wife’s submission that she was disadvantaged by the husband’s deficient disclosure and his personal use of corporate funds (at [109], [110]), but his Honour determined to reflect only the husband’s personal use of corporate funds in the ultimate division of assets (at [110]-[112], [163]-[164]).
It was open to the primary judge to increase the wife’s proportional share of the spouses’ property on account of the husband’s dissipation of assets, as it was relevant to the discretionary exercise entrusted to the judge. Although the spent funds belonged to corporations, the dissipation diminished the value of the husband’s shareholdings in the corporations, which shares formed part of his existing legal and equitable property interests amenable to adjustment under s 79 of the Family LawAct 1975 (Cth) (“the Act”). The discretionary increase in the wife’s proportional share of the spouses’ property due to such dissipation could properly find expression in either the overall comparison of their contributions under s 79(4)(a)-(c) of the Act or as a factor under s 75(2) of the Act (see Trevi & Trevi (2018) FLC 93-858 at [27]-[30]; Watson & Ling (2013) FLC 93-527 at [30]-[33]). It follows that the complaint in this ground of appeal fails.
However, having determined to increase the wife’s share of assets on account of the husband’s dissipation of assets, the reasons for judgment are silent about how the husband’s use of the corporate funds influenced the ultimate determination about the spouses’ proportional entitlements to their property. Evidently, it would have been difficult to explain the weight given to that factor, as there was no attendant finding about just how much corporate money was misused by the husband. Those defects reflect themselves in the lack of sufficient reasons, which is the discrete complaint within Ground 5.
Ground 5
This ground of appeal contended the primary judge’s reasons were inadequate to explain the ultimate division of the spouses’ property in proportions of 60 per cent to the wife and 40 per cent to the husband.
The ground is sustained, both because the primary judge did not adequately explain the weight accorded to the husband’s misuse of corporate funds and, more generally, failed to satisfactorily elucidate how the 60/40 division eventuated.
The primary judge found the spouses’ initial contributions were “largely equal” (at [63]), but then made no finding about the comparison of their contributions up until the time of trial. The primary judge said “[a]djustments must be made” to reflect the husband’s “substantial” expenditure of corporate funds (at [164], [173]), but the adjustment was not quantified. Nor was there any specific finding made in respect of an adjustment pursuant to s 75(2) of the Act (at [165]-[170]). The spouses’ interim property distributions, which resulted in the wife receiving nearly $200,000 more than the husband, were not taken into account and no explanation was proffered for why the wife was ordered to receive a higher proportion of the land in Country O than the other assets.
In Hickey and Hickey and Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143 at [39] the Full Court, in setting out what the case law revealed as the “preferred approach” to the determination of an application under s 79 of the Act, referred to four inter-related steps, including that “the Court should identify and assess the contributions of the parties within the meaning of ss. 79(4)(a), (b) and (c) and determine the contribution based entitlements of the parties expressed as a percentage of the net value of the property of the parties”. The Full Court did not purport to elevate the preferred approach as being mandatory, as was observed by a later Full Court in Bevan & Bevan (2013) FLC 93-545 at [61]-[63], [72]. However, adoption of that preferred approach is a means by which many of the mandatory factors in s 75(2) of the Act, in particular paragraph (b) – the income, property and financial resources of each of the parties; paragraph (ha) – ability of a creditor to recover debt; paragraph (n) – the terms of any proposed order under s 79 of the Act; can be considered, as these must be considered, in determining any adjustment pursuant to s 75(2) of the Act. Conversely, if the preferred approach is not adopted there must be a means discernible from the reasons to identify that these relevant mandatory s 75(2) factors have been considered, and how they have been brought into account, in the making of any s 75(2) adjustment. The reasons of the primary judge do not explain these matters.
The primary judge’s conclusions about just and equitable orders were expressed thus:
171.The [husband] submitted that the assets should be divided on a 50/50 basis.
172.Conversely, the [wife] submitted that the assets should be divided on a 60/40 basis in view of the disproportionate contributions.
173.I agree, the division should favour the applicant. I say that mainly because she has the ongoing responsibility for the children, her future earning potential is bleak and the respondent, during the marriage, withdrew substantial funds from the operating businesses that may well have been valuable whereas those businesses are now both valueless. In my view, the assets should be divided on the basis of 60 [per cent] to the [wife] and 40 [per cent] to the [husband].
The juxtaposition between what the primary judge recorded at [172] as to the basis upon which the wife submitted for a 60/40 division and the primary judge’s expressed agreement to that at [173], but then what follows, leaves it open to speculation as to what extent the ultimate conclusion is driven by the primary judge’s assessment of contributions or the primary judge’s application of s 75(2) factors. That this is entirely speculative establishes that the conclusion expressed by the primary judge is not sufficiently supported by reasoning so as to satisfy the well-known test of adequacy of reasons set out in Bennett and Bennett (1991) FLC 92-191.
Conclusion and costs
The appeal succeeds, the appealed property settlement orders will be set aside, and the spouses’ applications for property settlement will be remitted for re- hearing, as was sought.
Order 1, which was not the subject of appeal, is not set aside. It requires the parties to attend to the sale of the land in Country O. The net proceeds realised on that sale will, no doubt, be taken into account in the re-hearing.
Given that the appeal succeeded due to errors of law, costs certificates under the Federal Proceedings (Costs) Act 1981 (Cth) were appropriately sought and granted. The husband was granted certificates for both the appeal and the
re-hearing, but the wife was only granted a certificate for the re-hearing because she was without legal representation in the appeal and had no costs to recoup.
I certify that the preceding forty-nine (49) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Strickland, Kent & Austin JJ) delivered on 10 December 2019.
Associate:
Date: 10 December 2019
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