KEYES & KEYES
[2019] FCCA 927
•10 April 2019
FEDERAL CIRCUIT COURT OF AUSTRALIA
| KEYES & KEYES | [2019] FCCA 927 |
| Catchwords: FAMILY LAW – Property – Division 7A loan – conduct of the parties in relation to the loan – business – contributions – future needs – justice and equity. |
| Legislation: Family Law Act 1975 (Cth), ss.75(2), 79, 81 Income Tax Assessment Act1936 (Cth), pt III, div 7A |
| Cases cited: Stanford v Stanford (2012) 247 CLR 108 A and the A Group (2006) FLC 93-271 Weir & Weir (1992) 110 FLR 403 Black & Kellner (1992) 106 FLR 154 |
| Applicant: | MS KEYES |
| Respondent: | MR KEYES |
| File Number: | BRC 12415 of 2017 |
| Judgment of: | Judge Howard |
| Hearing dates: | 11 & 12 March 2019 |
| Date of Last Submission: | 12 March 2019 |
| Delivered at: | Brisbane |
| Delivered on: | 10 April 2019 |
REPRESENTATION
| Counsel for the Applicant: | Dr Brasch QC |
| Solicitors for the Applicant: | Ogge Law |
| The Respondent attending as a self-represented litigant. |
ORDERS
That each party shall provide a copy of a proposed Final Order reflecting the Reasons for Judgment to each other party by no later than 4:00pm on 17 April 2019.
That the parties shall attempt to reach an agreed position in relation to the wording of the Final Order (reflecting the Reasons for Judgment) and shall send a copy of same to the Court by no later than 4:00pm on 1 May 2019.
That in the event the parties are unable to reach an agreed position in relation to the wording of the Final Order (and send a copy of same to the Court) within the time frame stated in paragraph 2 – each party shall forward a copy of their proposed wording of the Final Order to [email protected] by no later than 4:00pm on 1 May 2019.
That the Court shall issue a Final Order from Chambers or re-list the matter for Mention for the finalisation of the wording of the Final Orders, whichever it deems appropriate upon review of the drafts forwarded to the Court pursuant to the abovementioned orders.
IT IS NOTED that publication of this judgment under the pseudonym Keyes & Keyes is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT BRISBANE |
BRC 12415 of 2017
| MS KEYES |
Applicant
And
| MR KEYES |
Respondent
REASONS FOR JUDGMENT
Background
The Applicant wife was born on … 1963.
The Respondent husband was born on … 1963.
The parties commenced cohabitation in 2007. They married on … 2009.
For a short period of time they were separated during 2014. Final separation occurred in … 2016. They were together for approximately 8 and a half years.
The parties have been unable to agree on how to divide their property.
The parties no longer live together, and it is just and equitable for the Court to make an order adjusting the existing property interests between the parties (note section 79(2) of the Family Law Act 1975 (Cth) (“the Act”) and, Stanford v Stanford (2012) 247 CLR 108.
The Pool
The first step in the process (having come to the conclusion that it is just and equitable that an order be made in this application), is for the Court to ascertain the pool. This is an appropriate case for the superannuation interests of the parties to be included in the same property pool as the non-superannuation interests.
Exhibit 9 will be the property pool handed to the Court by the husband during submissions on 12 March 2019. Exhibit 10 will be the Applicant wife’s short form submissions which include her submissions relating to the pool. This document was also handed to the Court on 12 March 2019.
The former matrimonial home is situated at Property A. The home is valued in the amount of $1,350,000. This appears to be agreed between the parties and it will be included in the pool in this amount. In fact the property is now in the possession of the mortgagee. The husband had been ordered (in fact, by means of a consent order made 12 June 2018) to pay the mortgage on the property. He failed to do so. The property is held by the parties as tenants in common – 90% in favour of the husband, and 10% in favour of the wife. The wife had filed an application for contravention on 28 September 2018 in respect of the non-payment of the mortgage by the husband. The final hearing proceeded on the assumption that the contravention application was not being pursued. That contravention application is dismissed.
The wife’s furniture is to be included in the pool in the sum of $5,000. The wife is not challenged in her evidence in this regard by the husband in cross examination.
The husband’s furniture will be included in the pool in the sum of $40,000. This is the amount included by the husband in his financial statement filed 26 February 2019 (at paragraph 42).
The wife has in her bank account $400. The wife was not challenged on her evidence in this regard by the husband during cross-examination.
The husband has $1,625 in his bank account and he was not challenged on that evidence (which is actually contained at paragraph 37 of the husband’s financial statement). The husband has an investment worth $3,791 in crypto currencies (note paragraph 38 of husband’s financial statement).
The wife has superannuation in the amount of $5,770.
In the husband’s financial statement (filed 26 February 2019) the husband included the total gross value of his superannuation at $48,185. In his property pool the husband contends a similar amount ($48,188). It is submitted by Dr Brasch QC, on behalf of the wife, that the husband’s superannuation should be included in the property pool in the sum of $187,572, because this is the total of two amounts contained in Exhibits 3 and 4 being NAB bank statements in respect of a Self-Managed Super Fund (SMSF) account number ending in [account B] (in the amount of $161,598) and another bank account ending in numbers [account C] (in the amount of $25,974). These 2 bank accounts total $187,572.
The husband gave evidence in the witness box on 11 March 2019 that he is only entitled to approximately one third of the amounts in those bank accounts. This is because the other two thirds of the Self-Managed Super Fund (SMSF) are held by the husband’s daughter, Ms D, and the husband’s son, Mr E. The submission made on behalf of the wife is that the entire amount of $187,572 should be included in the pool as the husband’s superannuation. This is because the husband has not produced any documentary evidence to confirm that his two adult children are members of the superannuation fund. The husband gave oral testimony about this on Monday, 11 March 2019.
I note that a further submission was forwarded to the Court on Tuesday, 12 March 2019 at 4:17p.m. by email by Dr Brasch QC on behalf of the wife. The husband baldly asserted from the witness box on 11 March 2019 that he was only entitled to 1/3 of the total of the money contained in Exhibits 3 and 4. That total is $187,572. The only documents provided by the husband were the bank statements which comprise Exhibits 3 and 4. Despite his duty of disclosure, the husband failed to provide to the wife or the Court, any documents evidencing his bald assertion. The wife has referred to a decision of Chief Justice Bryant in A and the A Group (2006) FLC 93-271 especially at pages 29 and 30 (paragraphs 50, 53 and 56). I agree with the submission made on behalf of the wife in this regard. The husband has control of the relevant documentation for the superannuation fund. He had a duty to disclose documents. He failed in that duty. He made a bald assertion from the witness box and failed to produce documents – by way of documentary evidence – to confirm the truth of what he was saying. I do not accept his assertions in this regard. Further, the decision of the Full Court of the Family Court of Australia in Weir & Weir (1992) 110 FLR 403 supports the conclusion reached by the Court in relation to this question. In that case the Full Court confirmed that it is the duty of a party involved in property proceedings to make a full disclosure of their financial affairs. In that respect, the Full Court followed an earlier decision in Black & Kellner (1992) 106 FLR 154. In Weir & Weir (supra) at 407, the Full Court stated, inter-alia:-
407. “It seems to us that once it has been established that there has been a deliberate nondisclosure…then the Court should not be unduly cautious about making findings in favour of the innocent party.”
In Weir & Weir (supra) it was alleged that one of the parties had engaged in fraud. But nondisclosure is nondisclosure and, in my view, the principle in Weir & Weir (supra) is applicable in the present circumstances.
The wife’s jewellery should be included in the pool in the sum of $4,000.
The husband’s jewellery will be included in the pool in the amount of $3,000 as per paragraph 43 of his financial statement.
In 2005, the husband bought Property F. That property was registered in the husband’s name. The purchase price was $325,000 and the husband borrowed $310,000 to complete the purchase. He also gave evidence that he spent $40,000 by way renovations on the property. The property was sold post separation by the husband. This was a unilateral decision by the husband and he did not account in any way to the wife in respect of the net proceeds of sale. The wife contends that this amounts to a premature distribution of property and the amount of $219,291 should be included in the property pool as an asset of the husband. The husband maintains that the net proceeds of the sale were only approximately $165,000 and that he deposited those monies into the business. The husband has not provided any documents to verify any of that evidence. In the absence of any documentary evidence to verify the husband’s assertion (made in the witness box on 11 March 2019) the wife maintains her submission.
I have reached a conclusion that the submission made on behalf of the wife in relation to this item in the property pool is also correct. Once again, in the witness box, the husband made a bald assertion that the net proceeds of sale of Property F totalled $165,000 (approximately) not $219,291. The husband produced no documentary evidence to prove his assertion. He has a duty of disclosure and he failed to comply with that duty. Furthermore, the husband says that he deposited the net proceeds of sale into the business. He is the only person with control of those documents to prove that assertion. He has failed to make disclosure. Once again I rely upon the principles referred to in A and the A Group (supra at the paragraphs referred to) and Weir & Weir (supra). The proceeds of sale from Property F should be included in the property pool as a premature distribution from the property pool to the husband in the amount of $219,291.
My view in this regard is strengthened by the husband’s own admissions. In evidence, he confirmed that he has essentially lived out of the business. He has paid all outgoings including rates, mortgage repayments, household running expenses, private school fees, overseas holidays, and private entertainment expenses etc. All of these items the husband admitted were paid from the business. That is, the division 7A loan (now totalling $1,927,592) was, of course, increased each time the husband paid an amount for personal expenses. The loan by the company was made to the husband and the wife. Queens Counsel for the wife is correct when she submits that the net result of the way the husband was operating the loan account means that the husband and the wife were both contributing financially to the running of the family and to the acquisition, conservation or improvement of the property of the parties to the marriage. I infer from the available evidence that, in respect of the mortgage repayments made by the husband for Property F (during the course of the relationship and after it) that he made those payments from the loan account. There is absolutely no evidence from the husband to the contrary. In fact, all the evidence of the husband leads to that conclusion. This is a further reason why I have come to the conclusion that the approach submitted on behalf of the wife on this issue is the correct approach.
The wife submits that the husband’s vehicle J should be included in the property pool in the sum of $40,000 because this is the amount contained in the Redbook (Exhibit 5). However, the husband does not accept that evidence and gave evidence that he in fact bought the motor vehicle second-hand for approximately $33,000. The husband (in his property pool) includes the vehicle J as one of his assets in the amount of $26,700. In the circumstances, I note the husband’s admission that the motor vehicle is worth $26,700. That is the amount that it will be included in the pool.
Mr G, Chartered Accountant, gave evidence on 12 March 2019. Mr G had provided a valuation of the husband’s interest in H Pty Ltd. That company is ultimately owned by Keyes Pty Ltd as trustee for the “Keyes Trust”. The husband has control of all relevant entities. He does not contend otherwise. H Pty Ltd conducts a business. Its other business activities include sales and the provision of advice. The company also runs other business. Mr G was cross-examined by the husband. The Court granted leave to the husband (essentially) for Mr G to be cross-examined – notwithstanding the fact that the opinion of Mr G had, by operation of rule 15 of the Federal Circuit Court Rules 2001 (Cth) already been admitted into evidence – the husband having failed to dispute the Notice to Admit Facts (Exhibit 7).
In his valuation dated 3 May 2018 (annexed to an affidavit filed 11 February 2019) Mr G states his opinion that the value of the husband’s interest in the company is $2,957,870. Mr G did not change his opinion as to the value of the husband’s interest in the company during his oral testimony to the Court on 12 March 2019. The value of the business should therefore be included in the property pool in the amount of $2,957,870.
I accept the submission on behalf of the wife that vehicle K is valued at $14,000 – but it is included in the valuation of the business. This was in fact also accepted by the husband in cross examination. The vehicle K, therefore, need not be included separately in the property pool.
Superannuation should be included in the pool with the non-superannuation assets. The amounts are not contested.
The liabilities include a loan made by Mr L to the wife. The amount of that loan is $140,000. Mr L is the wife’s brother. He gave evidence by telephone on 11 March 2019. The quantum of the loan was not challenged by the husband in cross examination. In Exhibit 9 (the husband’s typed asset pool) the husband includes the loan in the earlier amount of $110,000. The husband does not appear to make any submission against the approach sought by the wife. I agree that the amount should be in the property pool as stated. Mr L has sworn an affidavit confirming that the wife is to repay him. I accept his evidence.
The husband had originally contended that he is required to repay various loans to Ms M, Ms N, and Ms J Keyes (his mother). No affidavits were provided by any of these persons. The husband appeared, by (Exhibit 9) to only pursue the loan from Ms M in the sum of $3,519. In the absence of an affidavit from Ms M I am not prepared to accept that submission on behalf the husband.
In any event, I note the submissions made on behalf of the wife concerning these loans. Those submissions are contained in paragraph 9 of Exhibit 10 (the applicant wife’s short form submissions). Reference is made therein to the decisions in Af Petersens & Af Petersens (1981) FLC 91-095 and Biltoft & Biltoft (1995) 126 FLR 385. As noted, in this case, there is no evidence from the persons who apparently lent the husband money. There is no documentary evidence to prove the existence of the loans. The husband’s mother (Ms J Keyes) in fact lent (or gave) $191,000 to the husband when the husband’s Company Q and Company P were in financial difficulty. Those companies went into liquidation. That was surely the end of that debt. There is no legal obligation on the husband to repay that debt. This is another reason why it will not be included in the pool.
There is, I note, already an amount of $275,000 apparently lent by Ms O to the company (H Pty Ltd). That money was borrowed by the company after separation and without reference to the wife. The husband has the benefit of that loan – because it has been taken into account in the valuation (page 29 of 86 of the affidavit of Mr G, filed 11 February 2019).
The loan from the company to the parties should also be included in the pool in the sum of $1,927,592. This is the submission made on behalf of the wife and I consider that it is correct. It should be noted that the loan was initially for an amount of $400,000 to enable the purchase by the parties of the property at Property A (the former matrimonial home). In addition, it was also to enable some renovations. The wife gave evidence (and I accept her evidence in this regard) that she did not know that the parties were having their lifestyle funded from the loan account.
The parties did sign a loan agreement with a limit of approximately $1,137,000. At the time of separation the loan account was (apparently) in the amount of approximately $1,000,000. Now the loan account, as noted, is in the amount of $1,927,592. I infer from the husband’s evidence that he continues to fund his lifestyle from the loan account. This, essentially, means that the husband, since separation has increased the amount of the loan more than $900,000 to fund his lifestyle. It no longer funds the wife’s lifestyle. Indeed, the husband had been paying the wife $1,000 per week out of the loan account (I accept his evidence in that regard) and the wife used that money to pay for groceries and other outgoings for the family and the household. At separation, the husband ceased making those payments to the wife.
I do not agree with the husband’s submission (contained in his schedule, Exhibit 9) that his credit card should be included in some of $71,236. The credit card expenses of the husband (and, I infer, of the wife) were incurred post separation. In my view the correct approach is not to include those amounts.
The final item in the pool is the mortgage on the property situated at Property A. That mortgage is in the sum of $816,726.
I therefore find the net pool is as follows:
| ASSETS | OWNERSHIP | VALUE/BALANCE |
| Property A | Joint | $1,350,000 |
| Furniture | Wife | $5,000 |
| Furniture | Husband | $40,000 |
| Bank Accounts | Wife | $400 |
| Bank Accounts | Husband | $1,625 |
| Investments | Husband | $3,791 |
| Superannuation | Wife | $5,770 |
| Superannuation | Husband | $187,572 |
| Jewellery | Wife | $4,000 |
| Jewellery | Husband | $3,000 |
| Property F – Sale Proceeds | Premature property distribution to the husband | $219,291 |
| Vehicle Jvehicle J | Husband | $26,700 |
| Businesses | Husband | $2,957,870 |
| Total Assets (including superannuation): $4,805,019 | ||
| LIABILITIES | OWNERSHIP | VALUE/BALANCE |
| Loan from Mr L (Living Expenses) | Wife | ($140,000) |
| Mortgage – Property A | Joint | ($816,726) |
| K & K Loan | Monies borrowed by both parties from the company | ($1,927,592) |
| Total liabilities: ($2,884,318) | ||
NET TOTAL: $1,920,701
Contributions
The parties commenced cohabitation in mid-2007. The husband had two businesses. The “Company P” and the “Company Q”. Both of those companies (or groups of companies) went into liquidation in 2008. There was, therefore, no initial financial contribution made by the husband of any substance so far as his then two businesses were concerned.
The husband also had Property R. This particular property was owned by the husband at the commencement of cohabitation. However, the evidence discloses that the husband had no equity in the property at that time.
In addition, the husband owned Property F. However, also, at the time of the commencement of cohabitation with the wife, the husband had no equity in that property.
To all intents and purposes the husband made no financial contribution of any substance at the commencement of cohabitation with the wife in mid-2007.
On the other hand, at the commencement of cohabitation, the wife had $80,000 in cash. The wife had this money from the sale of a previous property. In addition, the wife had a motor vehicle worth $23,000. The wife had furniture. The wife had a credit card debt, possibly in the order of $9,000.
The wife’s initial contributions were therefore slightly greater than the husband’s.
It is to be noted that when the husband’s “Company P” businesses ran into financial difficulty in 2007 – the wife lent to the husband $80,000 to assist him. That money was repaid, but, as noted, the Company P of companies went into liquidation in any event.
There is evidence from Mr L (when asked in cross examination) to the effect that at the commencement of the husband’s relationship with the wife Mr L was still providing some financial assistance to the wife. This, of course, counts as a contribution on the wife’s behalf.
The husband’s two children, Ms D and Mr E lived with the parties for the first two years of the relationship. The wife cared for those children. They are now adults. Living in the household at that time were also (on and off) three of the wife’s children. The wife provided the homemaking contributions. This does not appear to be disputed.
The husband (as noted earlier) made it clear that during the relationship outgoings for the family were paid from the loan account. The loan account is in the name of the husband and the wife. I agree with the submission made on behalf of the wife that, this therefore means that the financial contribution required in order to pay mortgages, utilities, rates, travel, entertainment expenses, and private school fees, etc. – in effect, all of these matters were paid for from the loan account and hence count as a contribution by the husband and the wife jointly.
There is no doubt that the husband worked during the relationship. After the collapse of the “Company P” – the husband kick-started his career with Company S – trading as Company S. That business, of course, was owned by H Pty Ltd and has been the subject of the valuation evidence of Mr G. Whilst it is the case that the husband and the wife were both responsible for the loan account (certainly up to the limit of the agreement signed by the wife and within the bounds of the relationship) – nonetheless, it was through the efforts and the contributions made by the husband that the loan account could actually be supported or maintained. That is, the Company S business was successful enough to ensure that the company maintained the confidence and support of its bankers to the extent sufficient to fund the parties’ lifestyle out of the loan account.
In the conduct of his business the husband travelled extensively. The fact that the wife stayed at home and maintained the household was, of course, of assistance to the husband in that regard (note section 79(4)(c)). I also note the Robb & Robb (1995) FLC 92-555 contribution made by the wife – at least in the first two years of the relationship, while the husband’s children, Ms D and Mr E, were living in the family household.
The parties separated in … 2016. Proceedings were commenced in the Federal Circuit Court of Australia in November 2017. An order was made by consent (as noted previously) in June 2018 whereby the husband agreed to continue to pay the mortgage for the former matrimonial home at Property A. The husband ceased paying that mortgage – in breach of the order of the Court. The mortgagee is now in possession of that property.
Since separation the loan account has increased from approximately $1,000,000, up to the current level of $1,927,592. As noted earlier, I have come to the conclusion that the husband continues to maintain his own lifestyle from the loan account. He has, thus, significantly increased the wife’s indebtedness since the time of separation.
The husband maintains that since separation the business conducted by H Pty Ltd has declined. The husband has not provided any cogent reasons by way of clear evidence as to why this is the case. He told the Court (although this precise comment does not appear actually in evidence but was a comment from the Bar table) that he had fired 14 staff since mid-2018. There is no clear explanation in the sworn evidence by the husband as to why this occurred. He states in his affidavit filed 8 February 2019, inter-alia, that the business and the industry have gone through significant changes since 31 December 2017. He says that at the time of Mr G’s report, the business had 287 active clients. Those clients were “…”. I’m not certain what that means and there is no explanation by the husband. The husband states (in paragraph 37(a)(ii)) that “we now have 129 active clients …”. There is no explanation as to why this reduction has occurred.
There has, of course, been a recent Royal Commission into the banking industry.[1] Mr G gave evidence that there is uncertainty at the moment, in relation to what types of commissions firms (such as the husband’s company) will be able to receive in the future. Within one arm of his business the husband currently receives two types of commissions. There is uncertainty in relation to what types of commissions will be permitted in the future. The Royal Commissioner was, apparently, somewhat critical of some forms of commissions. There was no evidence that there is any clear indication as to what the Commonwealth Parliament will or will not legislate in relation to commissions of firms. Further, I do not consider that there is anything that this Court could, reasonably, take judicial notice of in that regard.
[1] Royal Commission into Misconduct in the Banking, Superannuation and Financial Services Industry, (Final Report, February 2019) vol 1.
In any event, I do note the evidence from Mr G to the effect that the abovementioned arm only comprises one quarter to one third of the husband’s business. At paragraph 28 of his report, Mr G describes the business activities of the husband’s company as follows:-
“28. The Business undertakes services from lease-hold premises located at location T.”
On the evidence of Mr G the majority of the revenue generated by the husband’s business therefore comes from sources other than the abovementioned arm of the business. Such sources, obviously, include other services.
On the morning of Monday, 11 March 2019 at the commencement of the final hearing – Counsel on behalf of the wife objected to the first two lines of paragraph 37 of the husband’s affidavit filed 8 February 2019 and the annexures (referred to in that part of the affidavit) which contained a report from Mr U. Mr U had provided an alternate valuation in respect of the husband’s business. The Court ruled that the evidence of Mr U should be excluded. Reasons for that decision were provided on 11 March 2019.
The husband’s complaints (mainly in the form of submissions) in relation to the valuation prepared by Mr G should not be taken seriously. The husband, in this case, had every opportunity to address any issues that he had with the report of Mr G. The husband’s former lawyer, Mr V had in fact written the initial letter of engagement for Mr G. This letter of engagement was, of course, supported by the lawyer for the wife, Ms Ogge. In mid-2018 the husband’s lawyer wrote to Mr G setting out a series of queries and concerns in relation to Mr G’s report. Mr G was happy to review the situation and asked for materials to be provided to him. He also, very reasonably, sought to be paid for the proposed extra work – noting that the report had been finalised in May 2018. Exhibit 8 contains copies of correspondence from Mr G’s file. On 20 July 2018 Mr V wrote to Mr G in the following terms:-
“Dear Mr G,
My client instructs that he no longer requires you to review your report dated 3 May 2018 to take account of the matters raised by W Accountants in that firm’s letter of 5 June 2018.
Would you please render your account for the time spent reviewing the W Accountants letter and its enclosures.”
That email sent by Mr V directly to Mr G was also cc’d to Ms Rebecca Ogge (the Solicitor on behalf of the wife) as well as to Mr Keyes and to his daughter, Ms D. The evidence from Mr G was that “W Accountants” were the husband’s own accountants.
It is apparent from the evidence of Mr G and from Exhibit 8 that it was the husband who put a stop to further consideration by Mr G of his report dated May 2018. It is most unreasonable on the part of the husband to now complain about some of the conclusions reached by Mr G. The husband had every opportunity as long ago as mid-2018 to have his issues and concerns considered carefully by the expert witness, Mr G. Mr G is, of course, a joint expert appointed by the parties. I had the opportunity of listening to Mr G’s evidence on 12 March 2019. I accept his evidence. As noted earlier, I accept his opinions including his opinions in relation to the value of the husband’s business.
The wife continued to live in the former matrimonial home until quite recently. I infer from the available evidence that the wife maintained the property. She did so at her own expense. The husband paid the mortgage for about two years (or perhaps over two years) after separation. As noted earlier, in breach of a Court order, he ceased to pay the mortgage during 2018 and there is a mortgagee in possession. The wife has been receiving financial assistance from her brother, Mr L. The wife also now works part-time or as a casual at employer X.
I have come to the conclusion that the contributions based entitlements of the parties as at the date of the final hearing are equal. I do note that the initial contributions favoured the wife – but, overall, I would have to say that, a consideration of all the evidence leads me to conclude that the contributions are equal.
Future Needs
As noted earlier in these reasons for judgment the husband has failed in his obligation to make proper disclosure. Except for the trust deed, the husband has failed to disclose any documents in relation to Keyes Pty Ltd as trustee for Keyes Trust. The husband had maintained that the trust was dormant. There were no documents to confirm this assertion. Under cross examination the husband conceded that he had received $427,586 in dividends as a result of his interest in this trust. No documents were disclosed in this regard.
The husband, as noted, did sell Property F post separation without the knowledge or consent of the wife. He has used the money for his own purposes.
Since separation, and despite maintaining a drop in his income/business – the Notice to Admit Facts (Exhibit 7) reveals that the husband has been able to buy a diamond ring and he has been able to enjoy extensive travel since separation. There was no evidence as to the value of the ring or the cost of the travel.
The husband ceased all financial support for the wife following separation. Luckily for the wife, her brother, Mr L, has provided (by way of a loan to be repaid) the sum of up to $140,000 to support the wife.
The wife is still responsible for her child [Y] who is only aged 15.
As noted earlier, the wife was not aware that the families’ lifestyle was funded out of the loan account. The wife, obviously, would have been aware that she signed a deed in respect of the loan account which provided for a limit of $1,137,000. However, the wife was only aware that the facility had been drawn down to the extent of $400,000 – an amount used to assist with the purchase of and the renovations of the family home. The husband did not keep the wife informed of the extent of the loan account. The husband did not tell the wife that all of the family outgoings were paid from the loan account including the mortgages, the rates, the private school fees, overseas travel, and entertainment expenses etc. – all were paid from the loan account. The husband did not tell the wife this fact. The husband did not keep the wife informed in relation to the amount of the loan. Nor did he keep her informed as to the level of her indebtedness.
The husband’s former partner is named Ms Z. Ms Z was previously known as Ms ZZ. Ms Z was the husband’s partner prior to the husband’s relationship with the wife in these proceedings. In an extraordinary admission by the husband – Ms Z has been paid $1,500 per fortnight (presumably as some form of spousal maintenance) by the husband – however the husband in fact draws down this money each fortnight from the loan account. This is the same loan account that the wife is, prima facie, jointly responsible to repay.
As noted earlier, there is no explanation from the husband as to how it could be that in the two years since the final separation the loan account has increased from approximately $1,000,000 to approximately $2,000,000. The husband has not kept the wife informed of the significant increase in debt. This type of conduct by the husband can only be described as egregious.
In the 2017 financial year the husband’s business declared franked dividends of $310,000 – leading to a total income for the husband of more than $560,000.
The husband continues to work in his business. As noted, he maintains that there has been a downturn in the business, but he did state in evidence that he now works mainly in Sydney as “Sydney has proven to be the most lucrative source of business”. The only financial information from the husband – by way of disclosure – is a tax return in 2017.
The husband’s ability and capacity to generate significant revenue within the business is confirmed by the analysis prepared by Mr G and contained within his report.
On the other hand, the wife works, as noted, casual or part time at employer X. The wife also receives some form of Centrelink entitlement.
I agree with the submission made on behalf of the wife that the section 75(2) factors favour the wife.
I have come to the conclusion that there should be an adjustment in the wife’s favour of 5%.
Justice and Equity
This leads to an outcome whereby the wife would receive from the net pool 55% and the husband would receive 45%. The net pool as found totals $1,920,701. 55% of the net pool would see the wife receive $1,056,385. The husband would receive 45% of the net pool and this would total – $864,315.
However, there are complicating factors in this case which require the Court to take a different approach.
Section 81 of the Family Law Act 1975 (Cth) (“the Act”) provides:-
“Duty of court to end financial relations
In proceedings under this Part, other than proceedings under section 78 or proceedings with respect to maintenance payable during the subsistence of a marriage, the court shall, as far as practicable, make such orders as will finally determine the financial relationships between the parties to the marriage and avoid further proceedings between them.”
Noting the obligation on the Court pursuant to section 81 of the Act – the only way that there can be orders which will finally determine the financial relationship between the parties to the marriage and avoid further proceedings between them is for the Court to adopt orders which will both:-
i)allow the husband to continue to run his business; and
ii)disentangle the wife from the husband’s business affairs by ending her obligations concerning the loan account.
Along with the duty of the Court to end the financial relationship between the parties (section 81) – the Court also, under section 79(2) shall not make an order unless it is satisfied that, in all the circumstances, it is just and equitable to make the order. The husband maintained in submissions that the wife should be responsible for one half of the loan account. This is an extraordinary submission. He did not appear to make any concession for the fact that, at the time of separation the loan account had been drawn down in the amount of approximately $1,000,000. (This seems to have been accepted by both parties). The husband makes no concession that the loan account has increased by approximately $927,000 since the final separation. The husband still maintained a submission that the wife should be responsible for half of the loan account.
The wife is prepared to receive 35% of the pool (and not 55% of the pool) provided there is an order made whereby the husband is responsible for the loan account and he is required to provide an indemnity to the wife in relation to the loan account. I have come to the conclusion that the making of such an order is the only way in which the Court can comply with its duty as mandated in section 81 and the Court’s concurrent duty stipulated in section 79(2).
It is appropriate that the Court make an order requiring the husband to indemnify the wife in respect of the loan account for the following reasons:
i.The wife trusted the husband;
ii.The husband never told the wife that the family was having their lifestyle funded directly from the loan account;
iii.The wife understood that the loan account was used to assist with the purchase of the former matrimonial home at Property A and also that it was used to assist in the payment of renovations on that property. Apart from these matters – the wife was not made aware by the husband that the loan account was used for any other purpose;
iv.On the husband’s admissions – all payments for the benefit of the family were funded from the loan account including mortgage repayments, rates, utilities, other outgoings, private school fees, groceries, food, travelling expenses, and entertainment expenses etc.;
v.The husband has not provided detailed documentary evidence as to items paid for from the loan account;
vi.The husband gave evidence (while under cross-examination) that the loan account is the source of the husband continuing to pay a former partner (Ms Z) $1,500 per fortnight. I infer from this evidence from the husband that he has, in fact, been making fortnightly payments to Ms Z from the loan account from the time that the loan account was established. This is a finding which is reasonably open to the Court. In the absence of any evidence or disclosure that would refute such a finding – such a finding should stand. The wife, of course, had no knowledge of this payment;
vii.The husband controlled all of the families’ finances and did not keep the wife informed in relation to those finances;
viii.The husband did not keep the wife informed of the level of the debt contained within the loan account;
ix.The wife and the husband signed a loan agreement in August 2010, which provided for a facility of up to $1.137 million. However, I accept the wife’s evidence that beyond the commencement when $400,000 was drawn down on the loan account – the wife had no knowledge of any indebtedness beyond that point because the husband did not tell her;
x.The husband did not provide the wife with any bank statements or any other documentary material confirming the level of the indebtedness for the loan account;
xi.The wife has only become aware of the fact that the loan account indebtedness is greater than $400,000 during the course of these family law proceedings;
xii.As at the date of separation (February 2016) the loan account was in the amount of approximately $1,000,000;
xiii.By January 2018 the loan account had increased to $1.6 million;
xiv.As at the date of the final hearing the loan account was in the amount of $1,927,592;
xv.There is no or no adequate explanation from the husband to explain what expenditure was made between the date of separation and the date of the final hearing to increase the loan account to $1,927,592 (this is $750,000 in excess of the loan account);
xvi.Indeed, there is no or no adequate evidence from the husband to explain and/or to detail what payments have been made from the loan account since it was first established. The husband has provided bald assertions and made various admissions;
xvii.After the date of final separation, the husband ceased paying $1,000 per week from the loan account to the wife;
xviii.Exhibit 7 (the Notice to Admit Facts) confirms that, notwithstanding the husband’s assertions of a decline in his business and income – he has been able to purchase a diamond ring and take extensive holidays since separation;
xix.Post separation, the husband (in 2017) refused to pay the registration for vehicle K driven by the wife from the loan account (or any other source). At the same time, I infer from the available evidence, that the husband did maintain two motor vehicles himself – from the loan account. These motor vehicles are Vehicle AA and vehicle J;
xx.Notwithstanding a Court order to the contrary, the husband stopped paying the mortgage on the former matrimonial home at Property A and that property is now in the possession of the mortgagee;
xxi.If the wife is required to be responsible for a payment of half or even some of the loan account this will, inevitably, mean that the financial relationship between the parties to the marriage will continue indefinitely and is highly likely that it will lead to further proceedings between them;
xxii.Notwithstanding the fact that the wife’s name is on the deed in respect of the loan account – the husband has, from the very commencement of the loan account, controlled the operation of the loan account completely and at his sole discretion without reference to the wife;
xxiii.The loan account is, of course, a loan from the company controlled by the husband, H Pty Ltd. That company is completely within the control of the husband not the wife. The husband controls how the company runs, and what work it does and does not do. In the husband’s affidavit filed 8 February 2019 there is included at annexure K12 a copy of the deed of loan agreement between H Pty Ltd (as the Lender) and Mr Keyes and Ms Keyes (referred to collectively as the Borrower). In schedule 3 there is a specified interest rate of 8% and a reduced interest rate of 6% per annum. It is stated that the interest is to be paid monthly and the maturity date is 25 years from the date of the deed. The deed was signed by the husband and the wife (as the Borrowers). The deed appears to have been executed by H Pty Ltd by the husband as Director/Secretary. There is no evidence to the contrary. The maturity date of the loan will therefore be 2 August 2035. It would be unjust and inequitable to require that the wife, in these circumstances, be responsible for repaying any of the loan account in circumstances where she cannot control how that business operates. It is solely a matter for the husband as to whether or not he exercises his obvious earning capacity. That earning capacity is obvious because of the evidence as to the ability of the husband, through his control of the business, to generate significant revenue and profit. Furthermore, the wife is not relieved of the obligation to repay the loan account –the wife and the husband will continue to be bound together because of an ongoing financial obligation until 2035.
xxiv.The Court is far from satisfied that the husband has diligently continued to run the business known as Company S. The husband has failed to provide any or any adequate evidence to explain the slowdown or downturn in the operation and/or revenue generated by the business;
xxv.It is only the husband (and not the wife) who has the capacity, through the diligent operation of the business, to structure the financial affairs of the company and attend to the repayment of the loan account and pay any taxation amounts deemed payable by operation of division 7A of the Income Tax Assessment Act 1936 (Cth), or any other taxation legislation (including, for instance, the Income Tax Assessment Act 1997 (Cth));
xxvi.Because the husband controls the business he will be able to regulate the timing of the repayment of the loan and regulate the timing of the declaration and payment of dividends by the company (such dividends will be paid to entities controlled by the husband);
xxvii.The Court is not satisfied that the husband has complied with his obligations to provide proper and complete disclosure of documents and the Court, on the authority of Weir & Weir (Supra), is satisfied that it ought to take a robust approach – certainly in relation to this issue of whether or not the wife should in any way be responsible for repayment of the loan account.
For the reasons stated above, I have come to the conclusion that the husband should indemnify the wife in respect of the loan account. I have come to the conclusion that it would be unjust and inequitable to make the wife responsible for the repayment of any part of the loan account.
The husband’s oral submission at the conclusion of the trial was that the wife should be entitled to 20% of the net pool in the amount of $259,000. But he also made a submission that the wife should be responsible for one half of the loan account. Presumably the husband’s submission is that the amount obtained by the wife ($259,000) should then be paid by her towards the repayment of the loan. Such an outcome would not be just and nor would it be equitable.
I have also come to the conclusion that, taking this into account, the wife ought not then be entitled to 55% of the remaining pool. Rather, the wife should be entitled to a significantly smaller percentage. I consider that the submission made on behalf of the wife is just and equitable – namely that she receive the 35% of the net pool.
Conclusion
For the reasons stated, the indemnity sought by the wife from the husband in respect of “the K and K loan” (the loan account) is just and equitable. A result whereby the wife then receives 35% of the net pool and the husband 65% of the pool is also just and equitable. I will allow the parties time to prepare orders which reflect the reasons for judgment.
I certify that the preceding eighty-six (86) paragraphs are a true copy of the reasons for judgment of Judge Howard
Date: 10 April 2019
Key Legal Topics
Areas of Law
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Family Law
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Equity & Trusts
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