Kirby & Kirby

[2004] FamCA 387

[2004] FamCA 387

FAMILY LAW ACT 1975

IN THE FULL COURT       
OF THE FAMILY COURT OF AUSTRALIA                   Appeal No EA82 of 2003
AT SYDNEY  File No SY5271 of 2002

BETWEEN:

JOHN PHILLIP KIRBY
Appellant Husband
- and -

ELAINE MARY KIRBY
Respondent Wife

REASONS FOR JUDGMENT

CORAM:  Finn, Kay & Dawe JJ
DATE OF HEARING:                 29 March 2004
DATE OF JUDGMENT:             7 May 2004

APPEARANCES:  Mr Schonell of Counsel, instructed by Newnhams, Solicitors, 122 Castlereagh Street, Sydney NSW 2000, appeared on behalf

of the Appellant Husband.

The Respondent Wife in person.

KIRBY and KIRBY EA82 of 2003

CORAM: Finn, Kay & Dawe JJ
DATE OF HEARING: 29 March 2004
DATE OF JUDGMENT: 7 May 2004

Catchwords:          APPEAL — PROPERTY – Contributions – Extra-Agency payments made by husband post-separation towards the support of the children treated by trial Judge as full and sufficient discharge of child support liability – whether trial Judge erred in concluding payments ought not also be brought into account as contributions by husband for purpose of division of property – the issues of whether husband should be left with child support liability and whether he should be given credit for post-separation contributions to family are to be seen as entirely separate issues – the trial Judge’s failure to take into account husband’s contributions for support of the children and to the welfare of family constituted an appealable error – Family Law Act s79(4)(c) and (g)

1. This is the husband's appeal against orders for alteration of property interests made by Coleman J on 29 August 2003.  The intent of his Honour's orders was to divide a pool of assets found to be worth about $511,000 as to 70 per cent in favour of the wife and 30 per cent in favour of the husband.  By his appeal the husband seeks to increase his share of the pool of assets to 40 per cent.

Background

1. The husband was born in 1950 and the wife in 1958.  They commenced cohabitation in March 1979, were married in April 1982 and separated in December 1997.  Although their marriage was dissolved in 2003 it is convenient to still refer to them as “the husband” and “the wife”. 

1. There are three children of the marriage, G born in November 1985, N born in April 1987 and M born in January 1989.  All three children remained living with the wife after separation. 

1. Although the trial Judge set out at some length the role that each party played during the course of the relationship and the economic history of the marriage, we think that at least until the date of separation the only matters identified by the trial Judge to which attention needs to be drawn for purposes of this appeal were

·    At the time that the relationship commenced the husband owned a property at Tulse Hill, London.  It was sold in about 1980 or 1981 and produced a sum of not less than $23,547 which monies were then applied for joint purposes. 

·    The husband received $6,800 in 1984 for compensation for damages he suffered in a motor cycle accident in 1980. 

·    He received a further sum in 1992 of $11,500 as compensation for an injury sustained by him in about 1986. 

·    In September 1998 he received $49,320 from his mother's estate.  That inheritance, as well as the injury monies, were applied generally for family purposes.

1. After separation the wife and children continued to reside in the former matrimonial home.  The husband paid the rates on the home for about two years post separation, the insurances for about four years and the mortgage payments for four and a half years.

1. The husband prepared a list of monies that he had paid towards the family from separation until June 2002.  The list included monies spent by the husband on the children during contact periods.  He claimed all told to have spent $224,512.  That expenditure was not challenged by the wife.  At the same time the trial Judge found that in the post-separation years the wife claimed to have expended about $30,000 on maintenance work in and about the home.

The child support assessments

1. In June 2000 the wife lodged an application for child support.  Several assessments issued.  The husband made no payments directly under the assessments but sought credit for extra-agency payments. 

1. At the time of his Honour's judgment in August 2003 his Honour found that there were approximately $49,000 owing for child support arrears.

1. His Honour concluded that given the amount of support that had been provided by the husband post-separation, it would be inappropriate for him to have to make any formal child support payments.  He held that it was appropriate in the circumstances to discharge any arrears of child support.  He concluded that the best method to mechanically achieve that result was to reduce the husband's child support liability to nil dollars for each child support assessment creating obligations up to 15 January 2003.

The judgment

1. His Honour's judgment, inclusive of orders, occupies 106 numbered paragraphs.  Much of the judgment is concerned with establishing the size of the pool of assets and as those matters are not in dispute before us it is unnecessary for us to now provide the detail of his Honour's findings.

1. The pool of assets as agreed for our purposes varies slightly from that reached by his Honour.  It is common ground that his Honour added into the pool of assets a liability of approximately $7,000 which the parties agree ought not have been there.  For our purposes there is an agreed pool of assets which is as follows:

ASSETS

The former matrimonial home  $ 680,000.00
           Funds at Westpac (H)  $        500.00
           IAG shares (H)   $     3,847.00
           Household contents (H)   $     1,500.00
           Camera and personal possessions (H)   $     3,000.00
           Household effects (W)   $     4,000.00
           Personal possessions (W)   $        500.00
           Funds at Commonwealth Bank (W)   $        198.00
           Superannuation Fund (W)   $    24,749.00
           ING Integra Superannuation Fund (H)   $    50,214.00
           Addback Volvo - sale proceeds  $     6,000.00
           Gross pool  $ 774.508.00

LIABILITIES
           Husband's debt to John Kirby Pty Ltd (H)   $    25,576.00
           Bankcard (W)   $     3,141.00
           Outstanding income tax (H)   $    64,000.00
           Bankcard (H)   $     3,000.00
           Mastercard (H)   $     3,000.00
           Debt to SM (H)   $     2,200.00
           Citibank  $ 150,000.00
           Superannuation contribution surcharge (H)   $     4,789.00
           Medicare surcharge levy (H)   $     1,415.00
  $ 257.121.00

NET ASSETS  $ 517,387.00

1. That table does not include the sum of $18,000 owed by the husband for fines, late payment and interest on unpaid income tax.  The husband had failed to file tax returns for a number of years.  He owed the Taxation Office $64,000 for back taxes and $18,000 for fines for late payments, interest and the like.  The wife sought to have responsibility for the whole sum visited upon the husband.  The trial Judge concluded that only the fines, late payments, interest and the like should be the husband's obligation as the other monies had been used for family purposes.  The husband did not seek to challenge that approach in any of his grounds of appeal, nor did the wife file any cross-appeal dealing with it.

1. One of the major liabilities of the parties was a debt to Citibank in the sum of $150,000.  Those borrowings were made in 1991 when the existing mortgage on the former matrimonial home was refinanced.  His Honour noted (para 29) without any critical comment that the monies from Citibank were:

"in part applied as to about $75,000 to pay out existing mortgages, credit card debts, the balance being used from time to time for personal expenditure and business expenses."

At the trial the wife sought to visit much of that liability entirely upon the husband asserting that it had arisen as a result of some failed business ventures of his.  His Honour, after making reference to Kowaliw and Kowaliw (1981) FLC 91-092 said:

“77.The reality of the situation here is that whilst the business failed to profit, and indeed failed full stop, it has not been demonstrated that it failed by reason of any want of diligence or endeavour on the husband's part.  Objectively, what is required of the parties is that they contribute to the best of their respective abilities.  This is not a Court of strict liability, and the authorities have long established that where one proceeds diligently in the absence of any clear evidence to suggest that doing so is foolish, or likely to result in loss, and loss is sustained, that loss will not ordinarily be visited solely upon that party.

…

79.Unfortunately for her, the wife has not demonstrated that the husband, by his recklessness or otherwise, has been responsible for the failure to reduce the 1991 facility to Citibank in ways that should be visited upon him disproportionately to her.  It is not without significance that the liability was contracted some six years before separation.  Notionally, it can be inferred that approximately half of the original debt which stands at pretty much its current balance was referable to non-business expenses and the re-financing of a mortgage.   Whilst, therefore, the debt is substantial, the reality is that it has only marginally increased.  In all the circumstances, the parties should bear that debt as if it were a mortgage in the strict sense.”

1. Having established the pool for division his Honour went on to examine the parties' contributions.  He noted that the husband had asserted an equality of contribution "on the basis that such a conclusion was somewhat advantageous to the wife".  The wife had claimed 60 per cent of the pool based on contribution relying significantly on her claims that some of the losses should be entirely the husband's.  His Honour noted that she did however rely on four other matters being:

• An assertion that her income had been greater than that of the husband over the years in which they worked;

• The increased burden of contribution she carried because of the husband's failure to make the contribution reasonably expected of him as a result of business losses and debts;

• Her contributions to the home post-separation;

• Her role as primary homemaker and carer for the children.

1. His Honour dealt with those assertions as follows (emphasis added):

“85.So far as the comparative earnings are concerned, it is evident that if one takes a limited view of financial contributions, there is force in the wife's contention.  However, if one looks at the totality of earnings of the parties, it is apparent that the foundation for an adjustment in her favour is not established.

86.Her second point, 1.2 in her submissions, really involves a consideration of what the husband paid in the post-separation period.  Reference has been made to most of those matters, but it is necessary to refer, to complete the picture, to Annexure C to the husband's affidavit of evidence-in-chief where he set out a list of payments which he had made, and they totalled for the years in question some $224,512.02. Annexure C to the husband's June 2003 affidavit sets out what he paid in each of the years, and in 30 June 1998, 1999, 2000, 2001 and 2002, which is an average of about $40,000 or $44,000 per annum for each of those years. 

87.The making of those payments is not in issue, it is however, the question of their adequacy or their significance in the context of child support, which is the primary focus of inquiry.  …

88.It will be remembered that the wife asserts that in the post-separation period she has expended significant sums of money on the matrimonial home.  This is undoubtedly correct, but as against that she has, for a period which is now approaching six years, had exclusive occupancy of the matrimonial home, albeit with the parties' children.  The wife was undoubtedly the primary homemaker and carer of the children, both pre and post separation.

89.The Court is persuaded in all the circumstances of this case that a 55 per cent contribution finding in the wife's favour is justified.  It makes that finding notwithstanding the husband's capital contributions as previously discussed, and it does so mindful of the fact that…the effect of the Court concluding the $224,000 contributed by the husband should, in the circumstances, be a full and sufficient discharge of his child support obligations, does have the effect of exhausting those payments for all practical purposes.  That is to say, the same payments cannot be properly brought into account twice. If they were to be brought into account in the context of contributions, then they could not be brought into account in the context of child support, and vice versa.

90.The parties have been separated for a long time.  The wife has a modest income, an income less than that of the husband since he resumed paid employment as an employee, has maintained the home and expended significant sums as were referred to at the commencement of these reasons in the material facts.  It is a long period of time to have been the primary carer of the children.  For almost six years there have been children under 18, and the wife has been overwhelmingly their primary homemaker and carer.  In those circumstances a 55/45 adjustment of contributions is appropriate.

91.The Court, in saying that, is of course mindful of the decision of the Full Court in Pierce v Pierce (1999) FLC 92-844, and it would be apparent that a substantial recognition of the husband's contributions is implicit in coming to the conclusion, the conclusion being closer to 60 per cent had he not made those contributions.”

1. Having dealt with contributions his Honour then moved to the third step that is usual in the process, namely to determine whether any further adjustments were warranted by reason of the matters set out in s 75(2) of the Family Law Act.  He said:

“93.The husband has a higher earning capacity than does the wife.  His capacity is about 50 per cent greater than is that of the wife on the evidence before the Court.  Both parties have comparatively modest incomes, but objectively, albeit child support will eat into the husband's after tax earnings by about $1,640 a month until November of this year, the husband has a greater income and fewer people to support from it than does the wife.

94.Now the wife has the primary care of three children, and whilst one of those will turn 18 in a few months time, the youngest of the parties' children, that is, their third child M, will not attain 18 years of age until January 2007.  Their second child, N, will attain 18 years of age in April 2005.  It is thus apparent that for a significant period into the future, the wife will have at least two children under 18 years of age.  Realistically, when one looks at the ages of the children and the stages of education that they have reached, it is not exaggerating to suggest that although they are children they will, for financial purposes, be young adults in terms of what they wear, what they eat, and their educational and related expenses.  In other words, although the period is not inordinately long, the needs of the children would be substantial, far more substantial than with very young children.”

1. His Honour concluded that a further 15 per cent adjustment was warranted by those two factors even though he was mindful that the capital distribution made on contribution basis had seen the wife receive about  $50,000 more than the husband.

1. His Honour then took what is the recommended fourth step, to stand back from the exercise and to determine overall whether the result was appropriate when he said:

“98.The Court is persuaded that a 70/30 division in the circumstances of this case is just and equitable.  To the extent that it represents, as it does, a substantially greater entitlement on the part of the wife than the husband, the disparity in their respective positions justifies the outcome. At the end of the case the wife will either have to rehouse herself and three children under 18 or, as would be the case then, two children under 18 or, will have to undertake, given that she must have to take over the $150,000 mortgage, a very substantial debt in addition to raising a substantial capital sum to pay the husband his entitlement.

99.For his part, the husband will, after clearing the balance of his tax debt, not taken into account under s 79(4) but taken into account within the context of s 79(2) and s 75(2), of some $18,000, be free of debt, and all of the debts to which reference has been made having been taken into account. He will retain a substantial superannuation entitlement, have a lump sum and a significant income with which to re-establish himself.”

The appeal

1. At the hearing before us counsel on behalf of the husband sought to rely on five grounds of appeal.  He abandoned one ground relating to chattels.  The remaining grounds were as follows:

"1.That His Honour erred in determining that the husband's contributions found to be made between $40,000.00 and $45,000.00 per annum for each of the years 1998 to 2002 inclusive for the benefit of the wife and her household be exclusively credited against the husband's obligation for child support.

2.That his Honour failed to have regard to the evidence concerning the parties' second child, N, in determining Section 75(2) Factors.

3.That His Honour identified two factors only which gave rise to an adjustment of 15% in favour of the wife pursuant to the provisions of Section 75(2), failing in those circumstances to have regard to the debt position of the husband and, in particular, moneys due by him to the ATO.

4.That His Honour failed to have proper regard to the wife's earning capacity and abilities for employment, not only now but in the future, having regard to the ages of the children.

5.That His Honour’s finding that the parties’ contributions were 55% in favour of the wife and 45% in favour of the husband was against the weight of the evidence."

1. As we think there is substance in the first ground by reason of the matters appearing hereunder, it becomes unnecessary for us to delve deeply into the other grounds.  There are however some aspects of them that we wish to note.

1. The evidence at the trial in August 2003 was that the child N desired to join the RAAF.  Whether her plans would ever come to fruition was entirely speculative.  The extent to which her enlistment in the RAAF would relieve the wife of having to continue to contribute towards her care was not a matter that was established on the evidence.

1. The trial Judge was correctly anxious to ensure that the husband remained solely responsible for so much of the ATO debt that arose by reason of his failure to file tax returns on time. His Honour was correct in refusing to add the $18,000 attributable to that behaviour back into the liabilities to be taken into account when establishing a pool of assets for division. We think it would be equally inappropriate for the trial Judge to have brought that sum into calculation under s 75(2) considerations. The justice and equity of the situation was such that it would have been inappropriate to in any way diminish the wife's entitlements by reason of the existence of that debt. We see no substance in ground three.

1. Whilst the trial Judge makes no actual finding as to the amount of the earning capacity of either party, his finding was that the husband's was about 50 per cent greater than that of the wife.  In her joint case summary the wife asserted that as June 2003 her salary was approximately $50,000 per annum and the husband's $80,000 per annum.  Those figures were relied upon in argument before us without any disputation.  They would see the wife with a post-tax income of slightly less than $39,000 and the husband with a post-tax income of slightly less than $56,000.  Expressed in percentage terms the husband has a little over 40 per cent more than the wife, but in dollar terms it is about $17,000 per annum.  We see no substance in the ground as argued that the trial Judge failed to have proper regard to the wife’s earning capacity and abilities for employment.  His Honour identified a disparity in their earning capacity and nothing was demonstrated to us that would indicate that such a finding was not either open or proper in the circumstances.

The husband’s contributions after separation

1. Returning to the main basis for this appeal we are of the view that when his Honour dealt with the manner in which he should give weight to the post-separation payments made by the husband, his Honour unfortunately confused two separate issues.  We view the issue as to whether or not the husband should have been left with a child support liability as an entirely separate issue as to whether or not the husband should have been given credit for post-separation contributions to the family. 

1. The child support question involves determining whether or not the husband should be given credit for extra-agency payments pursuant to the provisions of Part V of the Child Support (Registration and Collection) Act 1988, in particular paragraphs 71 and 71A, or alternatively whether a departure order should be made under s 117 of the Child Support (Assessment) Act 1989, relying particularly on s 117(2)(c)(ii) which enables the Court to take into account in determining whether or not to make a departure order:

"any payments made by the liable parent to the child, to the carer entitled to child support or to any other person for the benefit of the child." 

(see the observations of Kay J in Kornacki and Lynch (1998) FLC 98-000, 23 Fam LR 99).

1. It was abundantly clear that the correct result in respect of the child support liability was reached by his Honour.  The husband had more than adequately met his child support obligations post-separation by providing money directly to the wife or meeting accounts incurred by or on behalf of the children.

1. His Honour appeared concerned that in giving the husband credit which was able to be off-set against child support arrears, that he might be double-dipping if he also allowed the husband credit for contributions made under the Family Law Act. We think that this concern was misconceived. The power to make an order altering a spouse’s interest in property is to be found in s 79 of the Family Law Act.  Sub-section 4 specifically required his Honour to give consideration to the matters therein set out which are as follows (emphasis added):

“In considering what order (if any) should be made under this section in proceedings with respect to any property of the parties to a marriage or either of them, the court shall take into account:

(a)the financial contribution made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them;

(b)the contribution (other than a financial contribution) made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last-mentioned property, whether or not that last-mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them;

(c)the contribution made by a party to the marriage to the welfare of the family constituted by the parties to the marriage and any children of the marriage, including any contribution made in the capacity of homemaker or parent;

(d)the effect of any proposed order upon the earning capacity of either party to the marriage;

(e)the matters referred to in subsection 75(2) so far as they are relevant;

(f)any other order made under this Act affecting a party to the marriage or a child of the marriage; and

(g)any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage.”

1. It was, in our view, essential the trial Judge give the husband appropriate credit for having provided significant amounts of support to the family during the post-separation period. That support exceeded $224,000 albeit that part of those monies related to debts that had been incurred during the course of cohabitation. In addition, the evidence disclosed that the husband was having regular contact with the children throughout that period. By treating the payment of monies by or on behalf of the children post-separation as merely a discharge of child support obligations, in our view the trial Judge erred in failing to properly make an assessment of those contributions by the husband under s 79. It should be remembered that had the husband actually made the payments strictly as child support payments, that such payments would have been taken into account as a contribution or as a matter under s 79(4)(g)

1. This is an appeal from a discretionary judgment.  An appellate court can only interfere if there has been an error of principle or a finding of fact was not sustainable on the evidence or the result was manifestly unjust.  Given that we are of the view that his Honour erred as a matter of principle it is appropriate that his orders now be set aside and the matter re-evaluated. 

The discretion re-exercised

1. The parties have invited us to determine the matter ourselves rather than remit it for a re-hearing and have invited us to make that determination on the material that was before the trial Judge and upon the findings of the trial Judge.  There has been no application for the introduction of any further evidence.

1. Counsel on behalf of the husband has asserted that an appropriate assessment of contributions should be one of equality notwithstanding the capital contributions that were made by the husband during the course of the marriage either from initial capital, his inheritance or his damages awards.  He recognises that even though the husband had generously supported the family post-separation the wife for many years took on the major burden of parenting the children in a single parent household.  We agree with his submission that in all of those circumstances an outcome of an assessment of contribution on behalf of the parties should be seen as one of equality.  In other words, each party should be entitled to assets to the value of approximately $258,000.

1. Counsel then urged us to make a further adjustment in favour of the wife of no greater than 10 per cent.  It was acknowledged that there was a disparity in the future earning capacity of the parties and that there were obligations that needed to be met in respect of the housing and education of the children albeit that the eldest had just turned 18 and the second eldest was hoping to join the defence forces.  Experience demonstrates that the responsibilities of a parent to contribute towards the maintenance of a child do not end when the child turns 18.  Frequently children need support through tertiary education and beyond.  The reality that the wife will have to find housing for herself and at least one, if not more, of the children for many years to come needs to be recognised.  At the same time, this is a modest pool of assets which is unlikely to provide either of the parties with a very large base with which to re-establish themselves.  In all of the circumstances, we think that an adjustment is merited in favour of the wife and that she should receive 62.5 per cent of the pool of assets.

1. Given the pool of assets of $517,387 the wife is entitled in round terms to receive $323,367.  The wife already holds household effects $4,000, personal possessions $500, cash at bank $198 and superannuation $24,749, less her Bankcard liability of $3,141, her net holdings are $26,306.  On the basis that if the house is sold and the net proceeds equal $530,000 she is entitled to receive a further $297,061. This is the equivalent of 56.05 per cent of the net value of the house.  The husband's entitlement from the proceeds of sale of the house would thus be 43.95 per cent or $232,939 which we round off to $233,000.

Costs

1. In the event the Court granted the appeal each party indicated that they would seek a certificate pursuant to the Federal Proceedings (Costs) Act 1981. Given that this appeal has succeeded on a question of law we think it appropriate that the certificates be granted.

Orders

1. In our view the appeal should be allowed and the following orders made:

1.      The appeal be allowed.

2.      That Order 1 of the orders made 29 August 2003 be varied by inserting the figure "56.05%" in place of the figure "62.54%" and by inserting the figure "43.95%" in place of the figure "37.45%"

3.      That Order 2 be varied by discharging the order and in its stead ordering

"In the event of the wife within one month of the date of these orders tendering payment to the husband of the sum of $233,000 the husband shall transfer and assign to the wife absolutely and beneficially the whole of his right, title and interest in the former matrimonial home."

4       That Order 4 be varied by substituting for the words

"in shares of 62.54% (331,500/530,000) to the wife, as to 37.45% (198,500/530,000) to the husband as tenants in common"

the words:

"56.05% of so much of the net proceeds of sale as equal $530,000 to the wife plus or minus 62.5% of the amount by which the net proceeds of sale either exceed or fail to reach $530,000, with the balance to the husband."

5 The Court grants to the appellant a costs certificate pursuant to the provisions of s.9 of the Federal Proceedings (Costs) Act 1981 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 in respect of the costs incurred by the appellant in relation to the appeal.

6 The Court grants to the respondent a costs certificate pursuant to the provisions of s.6 of the Federal Proceedings (Costs) Act 1981 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 respondent in respect of the costs incurred by the respondent in relation to the appeal.

I certify that the  preceding 35
 paragraphs
are a true copy of the reasons
for judgment delivered by this
Honourable Full Court.

G. Kelada
Associate