La Costa & La Costa

[2007] FamCA 1176

FAMILY COURT OF AUSTRALIA

LA COSTA & LA COSTA [2007] FamCA 1176

FAMILY LAW – APPEAL AGAINST DECISION OF FAMILY COURT JUDGE – PROPERTY SETTLEMENT – Appeal from a discretionary judgment - Long marriage – Section 79(2) Family Law Act 1975 - Whether the trial Judge erred in including certain liabilities and monies distributed to the parties in calculating the net asset pool – Meaning of interim order distributing property to the parties – Section 75(2) Family Law Act 1975 – Whether the trial Judge should have made a significant adjustment in the wife’s favour – Husband’s overall financial position superior to the wife’s post-marriage - Appeal allowed.

FAMILY LAW – APPEAL – COSTS – Appellant and respondent granted costs certificates pursuant to the Federal Proceedings (Costs) Act 1981.

Family Law Act 1975 (Cth)

AG & PA Waters (1986) FLC 91-733
Australian Coal and Shale Employees’ Federation v Commonwealth (1953) 94 CLR 621
Chorn & Hopkins (2004) FLC 93-204
House v R (1936) 55 CLR 499
JEL and DDF (2001) FLC 93-075
SMB and MFB [2006] FamCA 46

APPELLANT: MS LA COSTA

RESPONDENT: MR LA COSTA

FILE NUMBER: SYF 5293 of 2003

APPEAL NUMBER: EA 84 of 2006

DATE DELIVERED: 19 September 2007

PLACE DELIVERED: Brisbane

JUDGMENT OF: BRYANT CJ, MAY & BOLAND JJ

HEARING DATE: 2 May 2007

LOWER COURT JURISDICTION: Family Court of Australia

LOWER COURT JUDGMENT DATE: 26 July 2006

LOWER COURT MNC: [2006] FamCA 665

REPRESENTATION

COUNSEL FOR THE APPELLANT: Ms Rees

SOLICITOR FOR THE APPELLANT: Slade Manwaring

COUNSEL FOR THE RESPONDENT: Mr Lloyd

SOLICITOR FOR THE RESPONDENT: Delaney Lawyers

ORDERS

(1)That the appeal against the orders made on 26 July 2006 be allowed.

(2)That the husband pay to the wife the sum of $26,166 within 28 days of today.

(3)That the Court grants to the appellant wife 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 wife in respect of the costs incurred by the appellant wife in relation to the appeal.

(4)That the Court grants to the respondent husband 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 husband in respect of the costs incurred by the respondent husband in relation to the appeal

IT IS NOTED IN CONNECTION WITH THESE ORDERS that the judgment of the Full Court delivered this day will for all publication and reporting purposes be referred to as La Costa and La Costa

FAMILY COURT OF AUSTRALIA AT BRISBANE

Appeal Number: EA 84 of 2006
File Number: SYF 5293 of 2003

MS LA COSTA

Appellant

And

MR LA COSTA

Respondent

REASONS FOR JUDGMENT

INTRODUCTION

1.On 26 July 2006, the Honourable Justice Rose gave judgment and made orders pursuant to s 79 of the Family Law Act (1975) Cth (“the Act”) which had the effect of dividing a net property pool assessed at $744,979.50 on the basis of 51.6 per cent (or $384,044) to the appellant wife and 48.4 per cent (or $360,935) to the respondent husband. His Honour further ordered that the husband pay the wife periodic spousal maintenance of $350 per week. 

2.While the wife initially took issue with his Honour’s order in relation to spousal maintenance, the appeal in this regard was abandoned at the hearing. The wife also applied to adduce further evidence (by application in a case filed 10 March 2007) relevant to the same aspect of the appeal which was abandoned at the hearing of this matter and to a more limited extent going to the argument in relation to s 75(2). We will consider that evidence in the context of our later discussion as to the re-exercise of discretion.

3.The remaining grounds of appeal as reproduced below take issue with his Honour’s division of matrimonial property[1]:

[1] Amended Notice of Appeal filed 1 November 2006.

1.      That the learned trial judge erred in including the following items in the Balance Sheet determined at the conclusion of Stage 1 (Judgment, ¶ 112):

(a)$95,338 distributed to the wife;

(b)The husband’s debt to [the son] - $7,500;

(c)The husband’s Citibank debt - $27,000.

2.      That the learned trial judge having correctly found that there should be “a significant adjustment in [the wife’s] favour” (Judgment, ¶ 174) pursuant to s.75(2) of the Family Law Act erred in ultimately concluding that the wife’s s.75(2) entitlements should be assessed as being equal to an amount of between 2% to 2 ½%.

Brief History

4.The  parties cohabitated for a period of approximately 23 years, marrying on 3 March 1979 and separating in July 2002. There are three adult children of the marriage, aged 26, 23 and 20 at date of trial. The marriage was dissolved by decree nisi made on 21 November 2003.

5.The wife was 48 years of age at date of hearing, and employed as a courier on a part-time basis. The husband was 50 years of age at date of hearing, and is employed as a recruitment consultant. 

6.The parties agreed that their financial and non-financial contributions during the period of their marriage and to the date of trial were equal. After an assessment of the evidence, his Honour reached the same conclusion (at paragraph 123).

7.The learned trial Judge accepted the evidence of the wife and the expert witness, Dr P, about the state of the wife’s mental health (paragraphs 125 to 140).  His Honour concluded (at paragraph 140):

140.I accept the totality of Dr [P’s] evidence and find that the wife has suffered and continues to suffer from severe depression requiring medication and regular psychiatric review from her treating psychiatrist.

8.The wife’s net income was $324 per week at date of trial (paragraph 149), and she was without any other means of financial support. 

The Judgment

9.His Honour found that the wife’s capacity to earn income had been reduced as a result of her serious medical problems. His Honour accepted the opinion of Dr P in her report dated 13 June 2006 as to the wife’s future working capacity being “dubious”, and accepted that there was a prospect of the wife having to move onto the pension in the event that further suicide attempts were to occur (at paragraph 152). His Honour accepted this evidence and found that the “…wife is exercising her capacity at the limit in her current part-time occupation as a [courier] and there is real concern regarding the wife’s capacity to continue beyond the immediate future” (at paragraph 153).

10.His Honour also accepted the evidence of the husband with regard to his future earning potential, and specifically his intention to move to a new employer “for health reasons” where he was likely to be paid a base salary of $205,000 + superannuation (at paras 158 to 159). His Honour concluded (at paragraph 161):

161.I find that the husband has the capacity to earn income as a highly experienced full-time recruitment consultant and researcher subject to ongoing assessment and monitoring of his health, as well as of course the viability of the future consultancy position.

11.His Honour otherwise found relevant to s 75(2) that (at paragraph 168 to 173):

168.Each of the children of the marriage has attained the age of 18 years.

169.Each of the parties has commitments necessary for his or her support and that of their youngest [son] whom the parties had individually assumed some financial responsibility. I accept the evidence contained in the parties’ respective financial statements.

170.Each of the parties has superannuation entitlements …

171.The parties enjoyed a good standard of living during the course of their lengthy cohabitation.

172.The husband cohabits with his current partner in rented premises.  The husband pays the rent and various living expenses are shared between them.

12.His Honour concluded that it was clear that the husband’s overall financial position was “…superior to that of the wife and as a result will mean a significant adjustment in her favour in terms of distribution of the parties’ net property” (paragraph 174).  Further, his Honour found that (at paragraph 177):

177.…the wife’s unsound health which may not improve in the foreseeable future represents a substantial inhibition upon her capacity to earn income. The wife is unlikely to work for longer periods of time or in a more remunerative occupation than is currently the case. …

13.His Honour did not identify a specific percentage adjustment to reflect this disparity.

14.His Honour concluded that the net pool available for distribution between the parties amounted to $744,979.50.  The trial Judge noted the wife retained the following assets, and that she should be responsible for liabilities, including the whole of the liability for a joint loan to the parties from Ms C, the wife’s mother, of $9,700.00 and set out a table of assets and liabilities to be retained by the wife:

Assets
Funds disbursed to wife	$286,000.00
ANZ funds	$891.00
Contents	$10,000.00
Jewellery	$1,000.00
Superannuation 1	$20,500.00
Superannuation 2	$6,350.00
Superannuation 3	$9,870.00
Superannuation 4	$7,073.35
$341,684.35
Less liabilities
ANZ loan	$9,025.00
Amex	$18,131.05
ANZ Visa	$5,396.50
Visa Gold card	$1,717.00
Loan from Ms C	$9,700.00
Loan from family	$33,338.00
Mr B	$1,500.00	$78,807.55
Net	$262,876.80

15.His Honour acknowledged that of the wife’s entitlement, $286,000 represented funds “…which no longer exist as they have been expended upon legal fees, living and other reasonable expenditure” (paragraph 181).

16.The trial Judge identified the assets and liabilities to be retained by the husband  (at paragraph 182):

Assets
Funds disbursed to husband	$50,000.00
Husband’s motor vehicle	$60,000.00
Funds at bank (St George)	$26,166.00
Funds at bank (Westpac)	$24.00
ERS Fund	$197,800.00
Contents	$10,000.00
Superannuation 1	$20,500.00
Superannuation 2	$6,350.00
Superannuation 3	$9,870.00
Loan from TF	$8,112.00
Legal and accounting fees paid by husband	$72,150.00
Funds in trust	$23,530.00
$484,502.00
Less liabilities
ATO debt (CGT)	$19,067.00
Accountant’s fees	$15,000.00
Lease on husband’s motor vehicle	$55,000.00
Debt for son	$7,500.00
Citibank	$27,000.00	$123,567.00
Net	$360,935.00

This distribution of the parties’ net assets omitted the sum of $121,167.70 remaining from the sale proceeds of the former matrimonial home.

17.The most significant asset to be retained by the husband was his interest in the ERS fund. The trial Judge said in relation to this interest (at paragraphs 184 and 185):

184.So far as the husband’s minority interest in [ERS] and other companies is concerned, the evidence does not suggest that the interest is realisable in the immediate future.  No submission was made to the contrary.

185.Presumably, the husband’s interest in those companies would have been explored in more detail should that have not been the case, or otherwise expanded upon in the experts’ joint statement, or at least one of such experts being called to give evidence.

[footnotes omitted]

18.The only immediately accessible asset, in his Honour’s view, was the proceeds of sale of the Sydney property of $121,167.70, which his Honour ultimately determined the wife should receive in its entirety (paragraph 189).

19.The decision appears to have been “driven” by his Honours remarks in paragraph 187:

187.In considering the exercise of that wide discretion, this case in particular is one where consideration must be given to the realistic or practical situation of the parties’ net property, as opposed to a theoretical exercise which ignores practicalities and is driven by mathematical calculations simply based upon percentages.

Appellate Principles

20.The limitation of appellate inference in judgments of a discretionary nature, such as the present case, is governed by established principles (see House v The King (1936) 55 CLR 499 at 504; Australian Coal and Shale Employees’ Federation v The Commonwealth (1953) 94 CLR 621 at 627; Gronow v Gronow (1979) 144 CLR 513 at 519; In the Marriage of Mallet (1984) 156 CLR 605 at 621; In the Marriage of Norbis (1986) 161 CLR 513 at 518; CDJ v VAJ (No 1) (1998) 197 CLR 172 at 230-1)).

21.Kitto J in Australian Coal and Shale Employees’ Federation v Commonwealth (1953) 94 CLR 621 referred to the limited nature of appellate interference in discretionary judgments and said (at page 627-8):

…I shall not repeat the references I made in Lovell v. Lovell (1950) 81 CLR 513, at pp 532-534 to cases of the highest authority which appear to me to establish that the true principle limiting the manner in which appellate jurisdiction is exercised in respect of decisions involving discretionary judgment is that there is a strong presumption in favour of the correctness of the decision appealed from, and that that decision should therefore be affirmed unless the court of appeal is satisfied that it is clearly wrong. A degree of satisfaction sufficient to overcome the strength of the presumption may exist where there has been an error which consists in acting upon a wrong principle, or giving weight to extraneous or irrelevant matters, or failing to give weight or sufficient weight to relevant considerations, or making a mistake as to the facts. Again, the nature of the error may not be discoverable, but even so it is sufficient that the result is so unreasonable or plainly unjust that the appellate court may infer that there has been a failure properly to exercise the discretion which the law reposes in the court of first instance: House v. The King (1936) 55 CLR 499, at pp 504, 505 .

22.In the earlier case of  House v The King (1936) 55 CLR 499, a majority of the High Court said (at 504-5 per Dixon, Evatt and McTiernan JJ):

The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but, if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of the discretion is reviewed on the ground that a substantial wrong has in fact occurred. …

Ground 1

23.Acceding to the husband’s submission, the trial Judge ultimately included a total of $286,000 in the property pool as funds having been previously received by the wife.

24.The wife contended that the amount which should have been written back as a “notational” asset was  $210,662 however as his Honour explained in the judgment:

45.The husband contends that the amount to be taken into account for the purpose of Exhibit 11 is $266,000.00 [semble $286,000].  The wife’s case is that the amount should be $210,662.00 as “$95,338.00 should be regarded as spouse maintenance”.[2]

46.No affidavit evidence was given by either party which precisely relates to the disputed treatment of the amount in question.  The analysis was only provided in the submissions made on behalf of the wife at the conclusion of the evidence.

47.It is submitted on behalf of the wife that those funds were expended by her principally for daily living expenses.  The wife was in need of spousal support and the husband had been making periodic financial provision for her to enable the wife to meet the full range of expenses for herself and such of the children who were living with her in the former matrimonial home.

[2] Exhibit 11

25.His Honour found that the husband had received $50,000 as a result of the order of 8 November 2004 and his expenditure of “funds at his disposal was also reasonable in the circumstances” (paragraph 55). His Honour concluded (at paragraph 56) that there was no basis for:

56..…quarantining the amount of $95,338.00 represented by reasonable expenditure by the wife from funds available to her and yet not taking the same approach for any particular amount of expenditure by the husband.  Each of the parties applied funds at his or her disposal to meet pressing or reasonable liabilities and/or expenses as the case may be.

26.The wife conceded that of the $286,000 expended, $190,662 constituted legal fees that she had paid during the course of the proceedings, and these fees should properly be “added back”. The wife asserts by appeal ground 1(a) that the learned trial Judge erred in including the balance of $95,338 as having been previously distributed to the wife as a partial property order under s 79 where it was submitted it should properly have been categorised as “spousal maintenance”.

27.The wife claims that the balance of funds were expended on daily living expenses, as her needs exceeded that which the husband had been providing to meet the expenses of the wife and the children who remained living in the former matrimonial home after separation.

28.At paragraph 48 of his reasons for judgment, the trial Judge noted that:

48.There is no issue that at least most, if not the whole of the controversial amount (other than $20,000.00 received in April 2006) was traced to the receipt by the wife of $100,000.00 from the proceeds of sale of the former matrimonial home in accordance with the interim orders made by consent on 8 November 2004….

29.The evidence revealed that the wife received the funds as a result of orders made on 8 November 2004 and 12 October 2005. The sum of $20,000 was received by her in April, 2006.

30.An important issue in the appeal is the manner in which his Honour characterised the order of 8 November 2004. The trial Judge in this regard said (at paragraphs 48 to 53):

48.… The notation to those interim orders states as follows:

“1.The Court notes that the parties have agreed to an urgent interim distribution of property to make proper arrangements for the orderly sale of the former matrimonial home prior to the final hearing but that they do so agreeing:

1.1that the question of how the various distributions contemplated in these orders are characterised will be a question for the final hearing.”

49.The interim orders make provision for the sale of the former matrimonial home and the payment from the proceeds of sale of various amounts to discharge a range of indebtedness of the parties as well as for the wife and husband to receive $100,000.00 and $50,000.00 respectively.  The balance of the proceeds of sale was required to be held in a controlled monies account of the parties’ conveyancing solicitor.

50.Accordingly, it is clear that the Court’s power that was exercised for the purpose of making the interim orders which altered the interests of the parties in the former matrimonial home was pursuant to the provisions of sections 79 and 80. The notation in paragraph 1.1 is puzzling given the identification of the Court’s power to which I have referred. The terms of the orders made as well as the notation make it clear that the power exercised was not for the purpose of spousal maintenance, but rather as “an urgent interim distribution of property”. It must be for the Judicial Officer concerned, to identify the power that is being exercised as different principles apply in relation to interim alteration of property interests compared to interim spousal maintenance, rather than for a different judicial officer to do so retrospectively. There was an absence of the transcript in relation to 8 November 2004.

51.Accordingly, I have concluded that the orders that were made were for interim or partial alteration of property interests and not spousal maintenance.

52.Nonetheless, in fairness to the submissions made on behalf of the wife the use of the phrase “spousal maintenance” appeared to me to be employed for the purpose of emphasising that the subject funds were reasonably required by the wife and expended by her as she was otherwise unable to adequately support herself.  I accept that submission.

53.On the evidence before me, it appears that the wife did utilise the funds at her disposal to meet a variety of reasonable expenses for both herself and [their son], to some extent. …

Discussion

31.Significantly, the order of 8 November 2004 followed an earlier application by the wife to Judicial Registrar Johnston for spousal maintenance.  In response to that application, Johnston JR made orders on 16 June 2004 (Appeal Book 302) requiring the parties to jointly make application to the National Australia Bank to increase the mortgage over the former matrimonial home so as to discharge outstanding credit card liabilities, mortgage repayments and provide the sum of $13,000 to each of the parties.  Order 2 of the orders of 16 June 2004, specifically provided “[t]hat the categorisation of all of the above payments as either spousal maintenance or partial property settlement be as determined by the Trial Judge”. The proceedings were otherwise adjourned to a Pre-Trial Conference.  The wife’s application for spousal maintenance was not formally dismissed.

32.The subsequent application made by the parties to the National Australia Bank was unsuccessful, resulting in the husband’s further application to the Court and the order of 8 November 2004 for the sale of the former matrimonial home by consent between the parties.  The later order did not expressly discharge the order of 16 June 2004.

33.His Honour noted at paragraph 46 of his reasons for judgment that neither party adduced evidence which “precisely relates to the disputed treatment of the amount in question”, and that an analysis of the wife’s expenditure was only provided during final submissions. From examination of the transcript it is evident that Counsel for the wife sought to rely upon evidence filed in the proceedings and made the following submissions (commencing at transcript page 108 line 35:

MR LETHBRIDGE: Your Honour, the notational amount, we submit, that should be included is of course the lower of the two amounts [$190,662].

HIS HONOUR: Yes.

MR LETHBRIDGE: And that, your Honour, is because the wife received over the period of time between the sale of the former matrimonial home and today’s trial, payments out of the fund which was held on behalf of the parties and her evidence is, and your Honour, I would ask the Court to accept it, that she had expended those funds to meet her daily living expenses. In other words, they have been used to top up, as it were, her own income which, as your Honour knows, is of the order of $21,000. Plainly, in my submission, the wife has been in need of spousal support and indeed, even on the husband’s case, that was a matter which was admitted until such time as he contended that his financial position had altered and he was no longer in a position to meet those payments.

So we start, your Honour, from two paragraphs, if I may, of the husband’s affidavit.  The first of those is paragraph 168 where he says that from the date of separation in July of 2002 until September 2003 he regularly paid up to $20,000 a month on behalf of the wife and the children and he there particularises various payments. Significantly, and I will return to this in due course, the particularisation does not include any expense for tax which is an expense which he must have been making and paying in addition thereto.  So one is looking at a provision after tax of the equivalent in that period of $240,000 per annum.

HIS HONOUR:  How do you reach that figure?

MR LETHBRIDGE:  Twelve times 20,000, your Honour.

HIS HONOUR:  I see.

MR LETHBRIDGE: It’s of that order. He says up to, and he particularises an amount and just two of the items – your Honour will see that is the mortgage payments and the case amount total $13,600.  The other amounts bring it up to the total he talks of in the first preamble to the paragraph. Moving over if I may, your Honour, to paragraph 171, the husband says that there, from October 2003 until February 2004 he paid, or caused to be paid, approximately $15,000 per month again and for the purposes of the matter I am addressing your Honour on at present we would say plainly it was conceded at that time, and indeed quite properly, that the wife was in need of support and that support was at that time generous.

HIS HONOUR:  When you look at it though you find that that figure included payments for which he was liable anyway, regardless of any feelings of familial support, and that is the mortgage repayment and the same would apply, at least in relation to rates, possibly telephone account, a number of other items went strictly for the children rather than the wife.

MR LETHBRIDGE:  And of course, as your Honour knows from the husband’s evidence, some part of $7000, that is the sum paid into the joint account was accessed by him.  So my submission to your Honour is not that it was $20,000 for the wife exclusively, but it was a very substantial provision which included necessarily provision for the wife which I have characterised as generous.

Your Honour knows that the wife assets [sic] expenditure and needs of around $1800 per week and those appear in her most recent financial statements, that is the particularised, what one might describe as general living expenses together with the fixed item costs, against that she has only her income.  It would be our submission that your Honour would find that the wife’s expenses are reasonable and as such she has since the husband ceased making any direct provision for her had a need and that need has been met, as I said at the outset, by a combination of her own income and the capital funds which she has applied to her living expenses as opposed to expenses which we concede for the purposes of the case should be added back.

34.In the present case, in categorising the amount of $95,388, his Honour considered himself bound by the use of the term “an urgent interim distribution of property”  in the order of 8 November 2004 (at paragraph 50):

50.Accordingly, it is clear that the Court’s power that was exercised for the purpose of making the interim orders which altered the interests of the parties in the former matrimonial home was pursuant to the provisions of sections 79 and 80. The notation in paragraph 1.1 is puzzling given the identification of the Court’s power to which I have referred. The terms of the orders made as well as the notation make it clear that the power exercised was not for the purpose of spousal maintenance, but rather as “an urgent interim distribution of property”. It must be for the Judicial Officer concerned, to identify the power that is being exercised as different principles apply in relation to interim alteration of property interests compared to interim spousal maintenance, rather than for a different judicial officer to do so retrospectively. There was an absence of the transcript in relation to 8 November 2004.

35.It was submitted by Counsel for the appellant wife in her written submissions (at paragraph 2) that:

2.        …the language of the consent Order “interim distribution of property” combined with the wording of clause 1.1 leaves it clear on the face of the consent Order that the parties were not agreeing to an order for property settlement but rather that they were agreeing to a distribution, the character of which would be determined by His Honour. It is not open to the trial Judge to find as he did at Paragraph 50 that “it is clear that the Court’s power was exercised… pursuant to the provisions of sections 79 and 80” in circumstances where the consent order deliberately leaves that issue open.

36.In response, Counsel for the husband submitted that the learned trial Judge had “no option other than to determine, consistent with the terms of the interim orders, that the sum so received namely $95,338.00 was to be regarded as partial distribution of property”. Further, it was submitted that his Honour’s finding that the wife had disbursed the funds received for her reasonable expenses could not “alter the power basis activated for the making of the interim orders from “property” to “maintenance”.   

37.We are of the view that his Honour erred in his categorisation of the order and the decision which flowed from it:

(a)an order was made on 16 June 2004 in response to an application by the wife for spousal maintenance in circumstances where:

(i)the categorisation of the order was reserved to the trial Judge; and

(ii)the wife’s application for spousal maintenance was not dismissed.

(b)the husband made further application to the Court when the parties determined that they would be unable to give effect to the order of 16 June 2004; and

(c)an order was made on 8 November 2004 on the husband’s application, by consent between the parties, which:

(i)did not expressly discharge the earlier order of 16 June 2004;

(ii)does not purport to be made in reliance upon a specific section of the Family Law Act 1975 (Cth); and

(iii)expressly reserved the “question of how the various distributions contemplated in these Orders are characterised” to final hearing.

38.In addition even if his Honour was correct in the characterisation of the payment as property that is not the end of the matter.

39.In Chorn & Hopkins (2004) FLC 93-204 the Full Court considered add-backs in the context of post-separation expenditure and after referring to earlier decisions referred directly to two other Full Court decisions (at paragraph 24):

24.We will refer again later in these reasons to the decision in Townsend, but we would in the present context draw attention to the following observations by later Full Courts:

2.11There seems to be no appropriate basis for notionally adding back moneys that existed at separation but which have been subsequently spent on meeting reasonably incurred necessary living expenses. Neither the Family Law Act nor the case law require that parties go into a state of suspended economic animation once their marriage breaks down pending the resolution of their financial arrangements. Parties are entitled to continue to provide for their own support. Whether any expenditure so incurred is reasonable or extravagant is a matter that can be determined by the trial Judge. (Marker [1998] FamCA 42, 1 May 1998, per Baker, Kay and Chisholm JJ.)

…

46.Whilst not seeking to place a fetter upon the exercise of discretion of a trial judge in individual cases, it seems to us that the concept of adding monies reasonably disposed of back into the pool ought to be the exception rather than the rule. The parties are entitled to reasonably conduct their affairs post-separation in a manner that is consistent with properly getting on with their lives. (Cerini [1998] FamCA 143, 8 October 1998, per Nicholson CJ, Ellis, Kay JJ.)

40.In SMB and MFB [2006] FamCA 46 the wife had benefited from several Court orders to the effect that $102,000 would be made available to her pending trial. As the Full Court explained:

18.The wife filed an application in September 2001 seeking, inter alia, interim orders for spousal maintenance.  By consent, the husband agreed to pay the wife a total of $25,500 in two instalments.  A series of further orders, all made by consent, required the husband to make lump sum payments to the wife.  In all, between September 2001 and June 2002, a total of $102,500 was paid by the husband to the wife. Each order reserved discretion to the judicial officer dealing with the final issues of property settlement and spousal maintenance as to how, and in what proportions to classify the payments (be it spousal maintenance, interim costs or interim property settlement).

41.After making a notional allowance for spousal maintenance, presumably for the period of separation, a balance of $233,000 of all funds expended was added back into the pool by the trial Judge. His Honour had noted that it was “not unreasonable” for the husband to support the wife and children pending the determination of proceedings for property settlement and spousal maintenance, and accordingly (paragraph 29 appeal judgment):

29.…any drawings of the wife and payments made by the husband to her need to be set-off against the wife and children’s reasonable needs post-separation, measured against the husband’s ability to meet those needs.

42.After weighing the benefit enjoyed by the wife both via financial receipts and use of the former matrimonial home, the trial Judge concluded that the $102,000 received by the wife via court order should be categorised as property rather than spousal maintenance.

43.The Full Court decided that the trial Judge’s calculation of the wife’s reasonable expenses was in error. In the process of so concluding they said (commencing at paragraph 67):

67.In approaching the matter in this way his Honour failed to have regard to the evidence about the wife’s needs for the support of herself and the children including their school fees, and how she had spent the funds received, all of which was largely unchallenged. …

68.Even if his Honour had been correct in not categorising the sum of $102,500 as spousal maintenance on the basis that it was essentially paid from capital of the husband rather than income, it is not axiomatic that a sum, even if characterised as property, will be added back to the pool. Here, his Honour did not consider whether the money was available to the wife and how it had been spent.  Having characterised it as property he simply added it back notionally to the pool.  True it was that the wife was “on notice” of a need to account for the funds that she had received, but subject to the comments that we have made, she did so and that evidence was not the subject of any significant challenge.  Nor was there any evidence that she had misapplied the funds in some way.

69.In Chorn and Hopkins (2004) FLC 93-204, the Full Court considered the issue of add- backs to the asset pool, particularly in relation to post-separation expenditure and legal costs. At paragraph 42 and following they cited extensively from Marker [1998] FamCA 42, 1 May 1998, (per Baker, Kay and Chisholm JJ.)

“2.10It is well settled that save in exceptional circumstances a trial Judge should deal with the property as at the date of the hearing and make adjustments taking into account the various matters set out under s.79. (Wells v Wells (1977) FLC 90-285; Wardman v Hudson (1978) FLC 90-466; In the Marriage of Geyl 7 Fam LR 219). However, the particular justice of the case may make it appropriate to notionally add back assets which have been demonstrated to have been dissipated either during the marriage or post-separation. Normally it is necessary to demonstrate an appropriate basis for doing so, for example by wastage such as gambling or extravagant living. (Kowaliw v Kowaliw (1981) FLC 91-092; Fane-Thompson v Fane-Thompson (1981) FLC 91-053; Winnel v Winnel (1984) FLC 91-580; Townsend v Townsend (1995) FLC 92-569; Doherty v Doherty (1996) FLC 92-652) Additionally, because of the requirement for each party to bear their own costs, it is generally appropriate to add back to the pool of assets notionally any legal costs that have been spent on the litigation and to deal with the costs as a separate issue at the end of the litigation. (see Farnell(1996) FLC 92-681).

2.11There seems to be no appropriate basis for notionally adding back moneys that existed at separation but which have been subsequently spent on meeting reasonably incurred necessary living expenses. Neither the Family Law Act nor the case law require that parties go into a state of suspended economic animation once their marriage breaks down pending the resolution of their financial arrangements. Parties are entitled to continue to provide for their own support. Whether any expenditure so incurred is reasonable or extravagant is a matter that can be determined by the trial Judge ([M & M] [1998] FamCA 42, 1 May 1998, Per Barker, Jay and Chisholm JJ).”

…

71.In the present case, no finding was made by the trial Judge that the wife had either embarked on a course of conduct designed to minimise the value of the matrimonial assets, or that her expenditure was reckless, wanton or negligent. 

72.Thus, we think that there is a fundamental flaw in the pool created by the trial Judge which included a notional add back of the monies that the wife had received on account during the hearing. Absent any negative finding about the wife’s expenditure which she had detailed in her affidavit and which she asserted to be her reasonable annual expenses, we cannot see any basis upon which his Honour ought reasonably to have added back the sum of $102,500 to the asset pool.

44.There was no evidence in the present case that the wife had “either embarked on a course of conduct designed to minimise the value of the matrimonial assets, or that her expenditure was reckless, wanton or negligent” (paragraph 71 SMB above).  His Honour expressly concluded that the wife “did utilise the funds at her disposal to meet a variety of reasonable expenses for both herself and the son, to some extent” (at paragraph 53), and he accepted the submission of the wife that the funds were “reasonably required by the wife and expended by her as she was otherwise unable to adequately support herself” (paragraph 52).

45.Having regard to the evidence and his Honour’s findings with regard to the wife’s needs for the period over which she expended the funds received pursuant to the November 2004 and October 2005 orders, and given that their was no evidence of the wife wasting the monies, we consider that his Honour erred in including the component of $95,388.

46.It must follow, in view of the findings made by the trial judge in paragraph 55 that the husband’s expenditure of $50,000 was reasonable and likewise should not be included in the pool.

Debt for the child

47.It was further asserted that the trial Judge erred in including in the property pool the husband’s debt of $7,500 incurred to provide a motor vehicle for the adult child of the marriage, the youngest son. 

48.In the period since separation, the husband had paid expenses for the son’s motor vehicle. In his Financial Statement filed 16 June 2006, the husband refers to a debt to his employer, the HR Group of $16,500 taken out (at Appeal Book 576):

…to enable the husband to pay out a bank loan in [La Costa] Associates name, to protect the son’s car from acquisition by the liquidators of HR Investments, which is half owned by [La Costa] Associates.  The husband has made repayments to reduce this debt.

49.The level of debt referred to in the Financial Statement was $8,100 (AB 570), but appeared as $7,500 in Exhibit 11, the schedule of assets tendered by the parties.

50.The motor vehicle relevant to this debt was held in the husband’s name, but not included in the property pool on the basis that the vehicle was used by the son and for all intents and purposes regarded as his vehicle.

51.His Honour accepted the evidence of the husband, noting that no contrary evidence was given by the wife, and said (at paragraphs 103 and 104):

103.…Each of the parties has provided financial support for [the son] and the parties’ other children both direct and indirect ways since separation.  There is no suggestion on the evidence that the motor vehicle itself or its funding was extravagant or reckless.

104.Accordingly, I find that the amount of indebtedness outstanding is $7,500.00 and will include it in the calculation of the parties’ net property.

52.In written submissions on behalf of the appellant wife in relation to this ground it is asserted that his Honour erred in including the debt having regard to the husband’s oral concession under cross-examination from the wife’s Counsel (Transcript 2 November 2005 page 81 line 28):

Now, in note number 4, which is a reference G27 [in the Husband’s Financial Statement], you refer to registration cost and third party insurance in relation to a number of motor vehicles, don’t you? --- Originally, yes, we do. And then we make the point that some have been sold, I think.

Yes?--- And now we are just left with basically my car and [the son’s] car.

And you don’t suggest, do you, that Mrs [La Costa] should be in any way responsible for meeting the costs of [the son’s] [sic] car? ---[the son]?

[The son’s] car, I am sorry? --- No, absolutely not, no.  I am paying it.

53.Although the husband’s oral concession was most likely not made in relation to the capital purchase of the vehicle, but rather was referrable to the ongoing expenses in relation to the vehicle which the husband was willing to pay it was of some relevance.

54.This issue was the subject of submissions by Counsel for the wife (commencing at transcript 3 November 2005 page 113 line 6):

MR LETHBRIDGE:  Nextly, your Honour, the debt of [the son] is, in our submission, a matter that the husband effectively conceded as being ---

HIS HONOUR: Isn’t there a difference between who in fact should make the payment, that is your client and Mr [La Costa] jointly or severally, as opposed to whether or not it’s a liability that should be included for the purpose of calculation of the parties net property.  They are two separate issues, aren’t they?

MR LETHBRIDGE:  Yes.

HIS HONOUR:  This is the debt for [the son] in relation to the car and the lap top, isn’t it?

MR LETHBRIDGE:  The car and the lap top.

HIS HONOUR:  Is that right?

MR LETHBRIDGE:  Yes.

HIS HONOUR:  I am a little bit puzzled about that quite frankly for this reason that I don’t think your client gave any evidence that this was an extravagance or totally unreasonable for that debt to be incurred for [the son] to have a car and/or a lap top.  Both parties, in their own ways, have been supportive [the son] since separation.  What is the basis of the contention that it shouldn’t be included for the purpose of net property as opposed to the husband having the sole responsibility for paying it.

MR LETHBRIDGE:  The husband’s concession in relation to both of those items in cross-examination that they were and should be treated as personal to him.

HIS HONOUR:  Yes, but he meant that was, I think you put it to him, responsibility for payment.  He agreed with that and he said, “Yes, that is not the wife’s responsibility” that is his.  And that is why I am raising with you the distinction between that and including the amount as a liability to calculate net property which is a different matter.  I can understand the argument, well, look, he was spoiling the child or at least an extravagance in all the circumstances or he has got another car so he didn’t need a second car, or it was the Rolls Royce of lap tops or whatever. None of that was ever suggested.  He is at university.  I know that in years gone by a university student having a car might have been regarded as an extravagance but not any longer I don’t think, depending on the car. It’s not a Ferrari or something.  So, you know, what is the argument about it really.

MR LETHBRIDGE:  Your Honour, the argument is that all these things must be treated as relative.  Mrs [La Costa] doesn’t have a car.

HIS HONOUR:  That is because she has the use of the daughter’s car.

MR LETHBRIDGE:  That is a very different thing to the ownership of a car.

HIS HONOUR:  True.

MR LETHBRIDGE: So that, in our submission, given the circumstances, and I put this to the husband, that he was putting forward that there was no ability to make a provision for Mrs [La Costa]. These provisions for the children were unreasonable in the circumstances and this was one of those provisions. There are, your Honour, of course others that are paid week to week.  Mobile telephones, that sort of thing, that have continued.  There are allowances that have continued.

HIS HONOUR:  So the submission is that it was an expense which was unreasonable in the circumstances?

MR LETHBRIDGE:  Yes.

HIS HONOUR: Yes. 

55.It was further submitted that his Honour’s approach to the debt was inconsistent with his acceptance of the concession of the husband in relation to a debt for a computer purchased for another child, [the daughter’s] benefit. His Honour said in this regard that he had been informed by Counsel for the husband that the husband accepted sole responsibility for the computer debt and accordingly, it would not be included in the calculation of the net property of the parties (paras 105 & 106).

56.In our view his Honour did fail to make a finding as to the reasonableness of the debt having regard to the wife’s position and his inclusion of this debt does appear to be inconsistent with the approach taken by the trial Judge to the expenditure by the parties for the children in the period after separation.

57.The more appropriate course would have been to recognise that the husband had assumed this debt but not to include it as a liability in the pool.

The Citibank Debt

58.The wife’s counsel did not pursue, either in her written or oral submissions, the trial Judge’s treatment of the husband’s Citibank debt and we understood the appeal in respect of his Honour’s treatment of this debt was abandoned.

Ground 2

59.The appellant wife submits that his Honour’s finding pursuant to s 75(2) at paragraph 174, was not ultimately reflected in the manner in which property was divided:

174.…that the husband’s overall financial position is far superior to that of the wife and as a result will mean a significant adjustment in her favour in terms of distribution of the parties’ net property.

60.Whilst his Honour did not equate the effect of his orders with an exact percentage division, on our calculations the adjustment to the wife was 1.6 per cent of the net pool as found by the trial Judge and represented an adjustment of $11,919.67

61.The learned trial Judge said the following in relation to the requirement in s 79(2) of the Act (commencing at paragraph 186):

186.Section 79(2) provides the discretionary power to make orders that are just and equitable having regard to findings in an assessment of the parties’ respective financial and non-financial contributions including contribution to the welfare of the family as homemaker and parent as well as having regard to findings of relevant matters pursuant to section 75(2). The power to make such orders involves the exercise of a wide discretion.[3]

187.In considering the exercise of that wide discretion, this case in particular is one where consideration must be given to the realistic or practical situation of the parties’ net property, as opposed to a theoretical exercise which ignores practicalities and is driven by mathematical calculations simply based upon percentages.

188.The Full Court, on a number of occasions, has emphasised the realistic and pragmatic approach which in a given case should be undertaken.[4]  In addition, alteration of property interests may reflect a value of property rather than simply based on a percentage.[5]

189.This is particularly so in these proceedings, given the analysis of the parties’ prospective retention of net property to which I have referred and the only immediately accessible item of property to which the parties may have access, apart from funds at bank which will need to be utilised to meet liabilities, is the proceeds of sale [(Sydney property)] in the agreed amount of $121,167.70.

[3] Mallet v Mallet (1984) FLC 91-507 at 79,110 per Gibbs CJ

[4] Preece and Preece (1981) FLC 91-048 at 76,404; Elsey (1997) FLC 92-727 at 83,799

[5] Pastrikos and Pastrikos (1980) FLC 90-897 at 75,653 followed in Ferraro and Ferraro (1993) FLC 92-335 at 79,560 Davut and Raif (1994) FLC 92-503 at 81,237; Pripic and Pripic (1995) FLC 92-574 at 81,681; Davies and Davies (1995) FLC 92-646 at 82,533; JEL and DDF (2001) FLC 93-075 at 88,324; and Hickey & A-G for Commonwealth of Australia, ibid at 78,386.

62.His Honour then concluded that it would be just and equitable to order that the wife retain the remaining proceeds of sale of the house in the sum of $121,167.70. His Honour acknowledged that without such an adjustment the net property of the husband exceeded that of the wife by “approximately $100,000.00” and further “the husband’s current income and capacity to earn income having regard to my previous findings are overwhelmingly in his favour by comparison to the wife”. 

63.Counsel for the wife sought to rely upon the concession of Counsel for the husband at trial that the wife was entitled to an adjustment of 15 per cent to reflect s 75(2) factors (at transcript page 136 line 10):

If one then looks at what would happen upon a distribution of that kind of approximately 65/35, the wife would then receive just short of half a million dollars, your Honour.  In fact the precise figure on my calculation is $496,960.

64.The wife asked for an adjustment of 35 to 40 per cent of the pool (excluding superannuation) having regard to s 75(2) considerations (at transcript page 120 line 5-10). We note, as submitted by Counsel for the husband, no ground of appeal was pursued to the effect the trial Judge had departed from a position conceded by the husband’s Counsel in respect of the appropriate adjustment under s 75(2).

65.It was also submitted that his Honour had failed to take the “fourth step” in his analysis of what orders should properly be made. Holden and Guest JJ in JEL and DDF (2001) FLC 93-075 discussed the “fourth step” saying:

140.This is why the 'fourth step', namely whether the result is just and equitable, becomes important. In Clauson and Clauson (1995) FLC 92-595 the Full Court (Barblett DCJ, Fogarty and Mushin JJ) recognised, albeit in a discussion of the s 75(2) factors, that the application of percentages does not necessarily result in a just and equitable result, when it said at 81,911:

'There is, we think, at times a tendency to assess s 75(2) factors in percentage terms without considering its real impact, and we think there is legitimacy in the views expressed in more recent times that the Court has tended to operate in this area within artificially delineated boundaries. That is, it appears almost to be inevitable that the s 75(2) factors will be assessed in a range between 10% and 20%. A number of cases will justify an assessment outside those parameters and in any event it is the real impact in money terms which is ultimately the critical issue.’

Conclusions

66.The trial Judge faced a difficult task in determining how he could construct orders to reflect an appropriate adjustment under s 75(2) in favour of the wife. The wife did not assert that the husband’s minority interest in the ERS fund could be realised to make an adjustment in her favour. She did not seek a splitting order in respect of the husband’s superannuation entitlements, rather she sought the husband assume responsibilities for her ANZ indebtedness, her American Express debt, monies owing to the National Australia Bank in respect of a business debt, the liability to her mother Mrs C, and that he make a cash payment of $400,000 to her (wife’s outline of case document). However, before us the wife’s counsel submitted the trial Judge could have ordered the husband transfer funds in his St George account ($26,166), as well as funds held in the trust fund ($23,530) to the wife, provided for a split of the husband’s superannuation entitlements which totalled $36,720, and to readjust the debts between the parties, to provide an appropriate adjustment in favour of the wife.

67.We have already noted the wife’s counsel’s submissions that his Honour fell into error in that he did not consider the reality of the effect of his orders was that the wife received only a 1.5% adjustment for significant s 75(2) factors, and as such the orders could not be considered “just and equitable”. Whilst there appears to be merit in this submission, in this case his Honour was faced with an asset pool which consisted of a number of “add-backs” and a limited property pool readily available for distribution. Having taken appropriate account of contribution issues, his Honour had little scope for further adjustment in the wife’s favour. In the end as we have already found the wife’s appeal to be successful on the issue of the property pool, it is unnecessary for us to deal with this ground any further.

68.There was no dispute that in the event we determined there was appellable error by the trial Judge we should re-exercise the discretion. Whilst the wife did seek to adduce further evidence in support of the appeal, that material was said to be principally in relation to her challenge to the trial Judge’s spousal maintenance order, which was abandoned.  The wife conceded that her spousal maintenance claim was one which would appropriately be dealt with at first instance as she asserted a change in circumstances. 

69.Whilst at first sight the amount allowed by reason of s75(2) factors appears to be grossly inadequate the viability of extracting a proper entitlement for the wife from the property pool is difficult and was not the subject of extensive submissions (see transcript page 121 and 122).

70.At the hearing of the appeal no further submissions were made that would allow us, should we wish to allow this appeal and re-exercise to find property or moneys that could readily be made available. We are conscious of numerous decisions including AG & PA Waters (1986) FLC 91-733 from which it is obvious that there is no power to make orders for the payment of moneys when there is neither property available from which such a sum could be raised nor any fund of money.

71.We have decided that the sums of $50,000 and $95,388 in the case of the husband and wife respectively should not have been added back into the asset pool. This would lead to the value of the pool being reduced to $599,591.50. If the liability of the debt for the son is then removed the net sum is $592,091.50.

72.The wife will receive assets to the value of $288,656.50 which is less than one half of the net pool.  This demonstrably is not just and equitable.

73.Although there are many reasons (including the matters referred to related to the wife pursuant to s75(2)) which would indicate a much larger sum should be received by the wife no precise submissions were made demonstrating how this could be done.

74.It was submitted that if there were not sufficient assets to distribute to the wife then the debts should be reallocated. In paragraph 3 it was ordered:

3.That the wife indemnify the husband in respect of all claims and demands which may be made upon him by [Ms C] in respect of the parties’ joint indebtedness to her in the sum of $9,700.00.

There can be no purpose in varying that order.

75.Further, it is assumed from paragraphs 180 and 182 that the parties are liable for the debts listed under their names. There does not seem to be any scope for rearrangement of assets or liabilities in circumstances where neither party sought splitting orders in relation to the superannuation entitlements before the trial Judge, no proposed splitting orders were formulated by the wife’s counsel before us, and there was no evidence of procedural fairness afforded to the relevant trustees.

76.Mindful of the outcome for the husband and the nature of the assets held by him the only order we can make in re-exercising the discretion is that the husband pay the wife the sum of $26,166. Whilst recognising that this is not adequate in view of the matters affecting the wife included in s 75(2) there are no other options available.

Costs

77.We have concluded there was an error of law by the trial Judge.  We are satisfied that it is appropriate that both parties receive a certificate pursuant to the Federal Proceedings (Costs) Act 1989 (Cth).

I certify that the preceding seventy-seven (77) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court 

Associate: 

Date:  19 September 2007