Lacey and Lacey (No.3)
[2018] FCCA 1551
•5 October 2018
FEDERAL CIRCUIT COURT OF AUSTRALIA
| LACEY & LACEY (No.3) | [2018] FCCA 1551 |
| Catchwords: FAMILY LAW – Property – 37 year marriage with five children – pool of $10m – where throughout their relationship the parties devoted their efforts to improving and conserving property owned by a company set up by the husband’s parents – where the husband was gifted 25% of the shares in the company prior to the parties marriage and ultimately received his parents’ shares by way of inheritance – where the husband proposed that his contributions by way of gift and inheritance be elevated in importance to the point where the wife would receive only 17.5% of the pool – where this is not just and equitable – where the wife sought 43% of the pool but where this involved a 3% adjustment largely for costs which is not permissible – where a 40/60 assessment of contributions is just and equitable – where there are no s.75(2) matters requiring any further adjustment. |
| Legislation: Family Law Act 1975 (Cth), ss.75, 79 |
| Cases cited: Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 Norbis & Norbis (1986) FLC 91-712 Vass & Vass (2015) 53 FamLR 373 |
| Applicant: | MS LACEY |
| Respondent: | MR LACEY |
| File Number: | NCC 1128 of 2011 |
| Judgment of: | Judge Terry |
| Hearing dates: | 20, 21 and 22 March 2017 |
| Date of Last Submission: | 19 June 2017 |
| Delivered at: | Newcastle |
| Delivered on: | 5 October 2018 |
REPRESENTATION
| Counsel for the Applicant: | Mr Boyd |
| Solicitors for the Applicant: | Bell & Johnson Solicitors |
| Counsel for the Respondent: | Mr Murr and Mr Heazlewood |
| Solicitors for the Respondent: | Palmers Solicitors |
ORDERS
By no later than 4.00pm on 5 February 2019 the husband shall pay to the solicitors for the wife or alternatively do all acts and things and sign all documents to cause Company A Pty Ltd to pay to the solicitors for the wife the sum of $2,980,639.28.
Upon this order being carried into effect each party is declared the owner to the exclusion of the other of all property and superannuation in the possession of or standing in the name of the other party.
IT IS NOTED that publication of this judgment under the pseudonym Lacey & Lacey (No.3) is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT NEWCASTLE |
NCC 1128 of 2011
| MS LACEY |
Applicant
And
| MR LACEY |
Respondent
REASONS FOR JUDGMENT
Introduction
These are property settlement proceedings arising out of 37 year marriage.
The wife commenced the proceedings in May 2011 and the matter took a long time to come to trial. This was partly due to ongoing issues within the husband’s family which inhibited the determination of the asset pool but it was mainly due to the fact that the parties argued endlessly about valuation issues.
The major asset in the pool is the husband’s shareholding in Company A Pty Ltd and at the time of trial a valuation of Company A had still not been completed.
At the end of the trial the parties jointly tendered a balance sheet which contained assets worth net $10,005,218.00.[1] However the wife’s counsel submitted that the agreed pool should be augmented first by adding back money which was missing or had been unilaterally disposed of by the husband and second, by adding an amount to take account of the fact that the husband had thwarted all attempts to obtain an up-to-date valuation of Company A. [2]
[1] This is slightly different to the total the parties arrived at due to my findings about treatment of household contents
[2] The wife’s alternative submission was that the uncertainty about the valuation should be dealt with as a s. 75(2) matter and I will consider this later in the judgment.
The wife’s counsel submitted that the pool should be found to be worth not less than $12,841,857.70 and that the wife should receive 40% on the basis of contributions (which made due allowance for the husband’s contributions by way of inheritance and gift) and an additional 3% to compensate her for costs.[3]
[3] The argument for the 3% was not entirely clear but seemed largely to revolve around a claim for costs
This would entitle the wife to $5,521,999.00 and taking into account the assets already in her possession, would require the husband to pay her $4,186,497.00.
The husband’s counsel submitted that add-backs were impermissible post-Stanford & Stanford[4] and that the husband could not be blamed for the absence of a valuation. He submitted that the court must find that the pool was worth $10,005,218.00.
[4] Stanford & Stanford (2012) FLC 93-518
The submissions made by the husband’s counsel about how the wife’s entitlement to this pool should be calculated were complex but he said that the court must place considerable weight on the fact that the majority of the Company A shares had come to the husband by way of inheritance and he proposed that the wife receive assets which equated in value to about 17.5% of the pool.
Taking into account the assets already in the wife’s possession, this would require the husband to pay her $429,422.00 and he proposed that the husband be ordered to sell the Business N in Town 1 and that this amount be paid to the wife from the proceeds of sale.
The evidence
The wife relied on her initiating application filed on 12 June 2014, her financial statement filed on 30 July 2015 and her affidavit filed on 3 March 2017.
The husband relied on his amended response filed on 10 November 2011, his affidavit filed on 9 March 2017 and the affidavits of the parties’ surviving children Mr J, Ms A and Ms B all filed on 9 March 2017.
The husband filed a financial statement on 6 September 2011 but never filed another one. He did not seek to rely his 2011 financial statement at trial and no issue was taken with the absence of an updated financial statement.
The husband also filed an affidavit by Ms J who gave evidence about seeing Mr C at a property in Town 1 where the wife lived and about overhearing some conversations involving Mr C.
Ms J was not required for cross-examination and for reasons which will become clear when s. 75(2) matters are discussed, her evidence does not assist me.
The husband also relied on the evidence of Dr M and Dr D as to his health but for reasons which will also become clear when s.75(2) matters are discussed, this evidence also does not assist me.
All of the other witnesses were cross-examined.
The parties were ordered to file written submissions. The last of them, the wife’s submissions in reply, were filed on 19 June 2017.
This decision has not been delivered in a timely fashion following the filing of those submissions. I could offer an excuse based on workload in this registry in 2017 as a result of an unexpected reduction in judicial resources which continued for most of the year but I cannot expect the parties to be happy that the delivery of other decisions has been prioritised over the delivery of their decision. However, I can do no more than apologise for the delay.
Background
The parties commenced a relationship in about 1971 and married on 1973. They separated on 10 January 2010 and were thus married for 37 years.
During cross-examination the wife was asked about an incident in 2006 where the husband formed the view that she had gone away on a pretext and met a male friend. The following exchange then occurred:
Would you agree that after the year 2006 relations between you and Mr Lacey were tense?
Yes.
And they were tense because of this incident. Is that right?
Yes.
Would it be fair to say that in 2006 your marriage was virtually over?
Yes.[5]
[5] Lines 41 – 46 of the transcript of proceedings of 20 March 2017.
The husband’s counsel referred to this exchange several times in submissions as if 2006 was a watershed year which diminished the length of time during which the wife made contributions. However until 10 January 2010, the parties continued to live together at the business N cottage, continued to operate a joint account and continued to devote their energies to the same tasks as they had previously, in other words whatever the emotional state of their marriage after 2006, they did not separate or change their roles in the marriage and the husband did not see the marriage as over. The highest his evidence went was as follows:
From the time of the events in paragraphs 239 and 240 until our separation on 10 January, 2010, relations between Ms Lacey and me were tense. There were intermittent arguments between us.[6]
[6] Paragraph 242 of the husband’s affidavit.
It is interesting to note that while the husband’s counsel asked the court to place weight on the exchange between the wife and counsel for the husband which occurred during cross-examination, he had no hesitation in dealing with one of the add-back arguments by asking the court to place weight on the following passage in the husband’s affidavit (although the wife of course denied that the conversation occurred):
Sometime after the Estate litigation was finished, probably early in the year 2008, Ms Lacey and I had a conversation to the following effect:
Ms Lacey said: “The case over your father’s estate is finished. We need to consider giving the kids some money now from the super fund.”
I said:“I agree with that, but I don’t think we can draw on the Fund immediately. I will need to speak to the accountants about that.”
Ms Lacey said: “You had better discuss that with the children so they know what will happen.”
In about the year 2008, I spoke separately with each of our four (4) children. I said to each of them words to this effect:
“Mum and I have decided to give each of you $100,000 out of my superannuation fund when we have sorted out the Court cases with Ms O and Mr B.”[7]
[7] Paragraphs 131 and 132 of the husband’s affidavit.
This evidence hardly suggests that in the husband’s mind the marriage was over in 2006.
Neither the husband’s evidence nor the wife’s evidence supports a finding that from 2006 onwards there was a difference in the parties’ marriage which is relevant to the assessment of contributions.
The parties had five children. (omitted) died in infancy and Mr E committed suicide as an adult. Mr J, Ms A and Ms B are adults and at the time of trial they were all working in the family business in Town 1.
When the parties married the wife was 20 and she had no assets of significance. The husband was 25 and he had a 25% shareholding in Company A Pty Ltd.
Company A was incorporated by the husband’s father Mr D and his mother Ms S in 1960 when the husband was 13. The capital in the company was issued as to 25% to Mr D, 25% to Ms S, 25% to Mr D and Ms S upon trust for the husband’s sister Ms O (later Ms O) and 25% to Mr D and Ms S upon trust for the husband.
Company A initially took over a business which Mr D and Ms S were operating but in about 1969 it constructed the Business N at Town 1 and from that point on the operation of the business became its principal business.
The husband commenced work for Company A when he was 14 and by the time of the parties’ marriage he was working at the business. Upon their marriage the parties moved into a cottage in Property A adjacent to the business which was also owned by Company A and they continued to occupy it for the next 37 years.
The husband worked for Company A throughout the marriage. At the time of the marriage he was a general hand who managed the boiler system in the laundry, tended the gardens, did repairs and maintenance and did occasional (omitted) work although the work was limited because the husband has literacy problems.
After a kitchen and restaurant was constructed at the business in 1981 the husband began assisting with kitchen duties.
Between 1973 and 1983 the husband’s parents also lived on site and Company A made management decisions. In 1983 Mr Lacey went into semi-retirement and moved away and the husband became the manager of the business on a day to day basis although he consulted with his father about some matters. After Mr D died in 2004 the husband was the sole decision maker.
The wife did some work at the business during the marriage and was the primary homemaker and parent. Toward the end of the marriage she did some work in a (employer omitted).
The husband alleged that for the last 17 years of the marriage the wife had a severe alcohol problem combined with an addiction to Panadeine Forte and as a result her contributions to the family and the business during this period were either non-existent or limited. I will examine this claim in more detail when discussing contributions.
The parties never acquired any assets in their own name save for minor items like a Motor Vehicle 1 which the wife purchased on finance. The profits of Company A (and they were substantial) were either retained in the company or used to acquire further property in the name of Company A or make improvements to the business.
In the 1980’s Company A bought land on the outskirts of Town 1 on which it constructed a Business O. In the 1990’s it purchased the Property B building in Town 1 which it leased to (tenant) and the Property C Building in Town 2 which it also leased to (tenant). In 2008 it purchased a home unit variously described as being in Property D in Queensland. It also put money into building more (businesses) and constructing a kitchen and bar.
The husband said that his father promised him when he was still in his teens that “one day all this will be yours” [my rephrasing] and by the time of trial in 2017, the husband was indeed the sole shareholder in Company A. He inherited his father’s shares following his father’s death in 2004. In 2009 a settlement was reached with his sister Ms O which saw her bought out of the company and also saw the husband become assured of inheriting his mother’s shares upon her death and in 2014 his mother died.
The wife continued to live in the business cottage after separation and for two months she continued to receive wages. However in 2010 the husband terminated her employment with Company A and/or the Business N. She had to apply for Centrelink benefits and she was obliged to cash in her Super Fund H superannuation worth $21,206.20[8] and borrow money from her mother to help meet expenses.
[8] Wife’s affidavit paragraph 148
In February 2011, Company A sold the Business O for $3,159,675.00. Then on 27 April 2011 the husband commenced proceedings in the Supreme Court to compel the executor of his father’s estate to carry out his duties. The husband was entitled to his father’s estate pursuant to a Supreme Court order made on 19 July 2007 but the executor named in the will had never administered the estate.
On 6 May 2011 the wife filed an application for property settlement. This was rapidly followed by the husband distributing $320,000.00 to Mr E, Mr J, Ms A and Ms B from funds in the Company A Superannuation Fund. It was the husband’s case that he did so pursuant to an earlier agreement with the wife and I will examine the evidence about that later.
In September 2011 the husband purchased a luxury boat for $450,000.00.
On 8 October 2011 the wife filed an application in a case seeking interim property orders. She said that she wished to obtain funds for living expenses and to purchase a unit so that she could live away from the business.
On 24 November 2011 it was agreed that the husband would pay the wife the following by way of interim property settlement:
a)$375,000.00 within 7 days of her vacating the Property A property.
b)$50,000.00 by instalments of $500.00 per week commencing within 7 days of her vacating the Property A property.
The wife used the $375,000.00 to purchase Property E which became her home.
In December 2011 the Supreme Court of NSW made an order removing the executor of Mr D’s estate and appointing the husband administrator of the estate. However, at or about the same time the husband’s nephew Mr S filed an application in the Guardianship Tribunal for the appointment of a guardian for the husband’s mother, alleging among other things, that she needed a capital sum to move into an aged care facility and that the husband had not complied with the terms of his settlement with her.
The Guardianship Tribunal proceedings lingered on for several years but were dismissed by consent after the husband’s mother died on 2014. Upon his mother’s death, the husband inherited the remaining 33.3% of the Company A shares and became the beneficial owner of 100% of the shares.
The husband paid the wife $500.00 per week pursuant to the order made in December 2011 until December 2013, by which time the $50,000.00 was paid in full. He then began to pay her $500.00 per week voluntarily upon her solicitor agreeing that these payments would also be treated as an interim property settlement.
After proceedings were commenced in this court, the wife pressed for her entitlement in the Company A Superannuation Fund to be clarified and paid to her. This was eventually done; on 2 December 2014 the husband arranged for the wife’s entitlement in the Company A No. 2 Superannuation Fund[9] in the amount of $106,386.00 to be paid to her.
[9] The name of the fund is a curiosity. There has never been a Company A No. 1 Superannuation Fund.
The property proceedings dragged on because of a dispute about the valuation of Company A and the Company A Superannuation Fund and on 17 October 2014, the wife filed an amended application in a case seeking a further interim property settlement. This was contested by the husband but on 19 January 2016 I determined that the wife should be paid $1m.[10]
[10] Lacey & Lacey [2016] FCCA38
The husband appealed this decision but then withdrew his appeal and in July 2016 this amount was paid to the wife. There was a dispute about whether interest should be paid and after a contested hearing, I ordered that the wife be paid interest from 27 February 2016 to 6 June 2016 fixed in the sum of $22,076.50. [11]
[11] Lacey & Lacey (No. 2) (2016) FCCA 1719
In the husband’s trial affidavit and impliedly in the written submissions filed on his behalf it was suggested that this interest payment should be treated as something the wife had already received by way of property settlement and should be deducted from her percentage entitlement.[12] However the husband was ordered to pay this amount because of his default in paying the wife. It is a loss he has to bear.
[12] Husband’s affidavit paragraph 272, Submissions 7.4
The wife used some of the $1m to purchase an investment property in Town 3 and invested some of it with Super Fund I to generate an income. She also purchased a new car. The investment unit, the car and the Super Fund I are in the pool and I presume, although it was not clearly spelt out by the parties, that the money in the wife’s Bank 1 account and the money in her solicitors trust account derive from this payment.
The parties’ disputes about the valuation of Company A and the Company A Superannuation Fund were frustrating and prolonged. However in April 2015 they jointly instructed Forensic Accountants to provide valuations and on 15 September 2016, I listed the matter for trial in March 2017 by which date the parties expected the valuations to be completed.
However, shortly prior to trial Ms D informed the parties that she was unable to complete the valuation of Company A because the husband had failed to comply with requests to supply information and on 2 March 2017 the wife’s solicitors terminated the wife’s retainer of Ms D.
Notwithstanding this, the parties did not want the trial put off and it was commenced and concluded prior to lunch on the third day.
At the time of trial the husband was still in control of Company A and involved in the operation of the Business N in Town 1 but was spending a good deal of his time in the Property D unit. The wife was still living in Town 1.
The assets and liabilities and superannuation
On 22 March 2017, the parties tendered an agreed balance sheet. I say agreed but the wife’s counsel’s case was that it was not so much agreed as that it was the best that could be done on the state of the evidence. He submitted that the court could not be sure of the value of the husband’s shareholding in Company A because the husband had successfully thwarted the valuation process.
I will consider that argument later but the assets in the agreed balance sheet are as follows:
Description
Ownership
Value
Husband’s shares in Company A Husband $8,281,854.00 W Shares Husband $5,000.00 Household contents Husband $2,000.00 (husband) $16,500.00 (wife) X Shares Husband Nil, part of Company A (husband) $8,870.00 (wife) Bank 1 Cheque Account Husband 7,671.00 Solicitor’s Trust Fund Husband $177,719.00 Motor Vehicle 2 Husband $50,000.00 Motor Vehicle 3 Husband $30,000.00 Director’s loan to Company A Pty. Ltd. Husband $387,698.00 Mortgage debt (Mr E) Husband $137,000.00 Jet Ski Husband $13,500.00 Superannuation Husband $579,274.00 Property E Wife $310,000.00 Property F Wife $355,000.00 Household contents Wife $2,000.00 Bank 1 Wife $56,000.00 Motor Vehicle 1 Wife $25,000.00 Bequest from mother Wife $94,392.00 Solicitor’s Trust Account Wife $147,405.00 Super Fund I Account Wife 347,705.00 Total $11,009,218.00 (husband)
$11,032,588.00 (wife)
Only one liability was included namely:
Description
Ownership
Value
Liability to Company A Pty. Ltd.
Husband
$1,000,000.00
Total
$1,000,000.00
The husband’s counsel submitted that the husband’s shares in Company A should be broken down into three parcels designated as:
33.3% (Mr Lacey) $2,760,618.00
33.3% (Mr D) $2,760,618.00
33.3% (Ms S) $2,760,618.00
This breakdown is relevant to the argument the husband’s counsel wishes to run about the assessment of contributions and I will refer to it in that context but there is only one shareholding in Company A, the husband’s, and I agree with the submission by the wife’s counsel that it should be included in the pool as a single item.
There was a dispute about the value of the husband’s household contents; the wife alleged that they were worth $16,500.00 and the husband $2,000.00. I intend to deal with that by taking the household contents of both parties out of the balance sheet. I have no means of resolving the dispute about the value of the husband’s contents and either amount is de minimis given the size of the pool and in fairness I also intend to take out the household contents worth $2,000.00 attributed to the wife.
The wife sought to have a parcel of X Shares worth $8,870.00 included as a separate asset of the husband. The husband had nil next to this item. The balance sheet for Company A dated 31 December 2016[13] from which the agreed asset pool derives records these shares as being owned by the company so I intend to take them out.
[13] Exhibit L-1 page 436
Both parties are past the age necessary for them to be able to access their superannuation and by agreement, their superannuation was included as an asset in one composite pool.
The assets after the omission of the household contents and the X shares are worth $10,005,218.00.
The value of the Company A shares
The parties made numerous attempts over the years at resolving the issue of the value of Company A and the Company A Superannuation Fund. The history of their agreements and disagreements about the appointment of valuers and the obtaining of valuations are set out in detail in the wife’s affidavit but relevantly, for the purposes of this decision, Ms D of Forensic Accounting was jointly instructed in April 2015 to provide a valuation. However her instructions were terminated in March 2017 after she made it clear that she could not finalise a valuation prior to trial because the husband had failed to provide financial documents.
The figure of $8,821,854.00 ascribed the Company A shares in the agreed balance sheet is derived from the company balance sheet for 31 December 2016 prepared by (name omitted) Financial. As set out in that balance sheet the major items which go to make up the figure of $8,821,854.00 are as follows:
Business N (from the 3 February 2014 valuation)
$1,975,000.00
Property A cottage (from a 13 June 2014 valuation)
$290,000.00
Property B building (as at 31 December 2016)
$1,300,000.00
Property C Building (as at 31 December 2016)
$1,500,000.00
Property D (as at 31 December 2016)
$1,400,000.00
Bank 1 Term Deposit …26852
$442,733.00
Super Fund I Portfolio Service at market value
$699,503.00
Total
$7,607,236.00
The wife’s counsel did not accept that using the 31 December 2016 balance sheet figures gave a true picture of the value of the Company A shares.
He submitted that one problem was that when (name omitted) Valuations valued the business in 2014, they only valued the land and buildings. However this is not correct; (name omitted) Valuations were asked to consider and did consider the market value of the property as a going concern. They were provided with four years of profit and loss data, adopted a particular occupancy rate and used industry standard expenses. They considered comparable sales for (businesses) and came to the view that the value of the Business N as a going concern was $1,975,000.00.
As far as it goes the (name omitted) valuation dated 2014 is valid but the problem is that it is out-dated and for reasons which will now be explained no fresh valuation of the Business N was ever completed.
On 22 April 2015, the parties jointly instructed Forensic Accounting to value Company A and the Company A Superannuation Fund. In respect of Company A, the firm was asked to value the husband’s interest in it as at 1973 (the date of the marriage), 2004 (the date of the husband’s father’s death), 2009 (the date a deed of settlement was entered into between the husband and his mother), January 2010 (the date of separation), 2014 (the date the husband’s mother died) and “the present day”.
Ms D was informed that the significant assets of Company A at the present day (in terms of identity but not of value) were those set out in paragraph 67 above together with an investment in (name omitted) Property Trust which no longer exists.[14]
[14] Exhibit No. 86 to the wife’s affidavit
Ms D told the parties that before she could perform her task they needed to either agree on or obtain a valuation of each of the relevant real properties at each of the relevant dates. She also told them that she needed to be provided with financial documents in respect of Company A including profit and loss statements.
After a good deal of correspondence the parties managed to agree on some valuations including the valuation of the Property A cottage at various times and in due course Valuations prepared updated valuations of the Property B & C Buildings in Town 1 and Town 2 and of the Property D property on the joint instructions of the parties.
By 9 April 2016, nine valuations still needed to be obtained however, and three of those were valuations of the Business N at 1973, 2004 and the present day.
The parties wrote to Valuations on 19 April 2016 requesting a quote to prepare a valuation of the Business N on the three dates in question. Valuations responded on 21 April 2016 saying that it was not possible to do a valuation as at 1973 and quoting $8,000.00 plus GST to do valuations as at 2004 and the present date, although they asked for clarification of what the parties meant by “the present date”.
There was a broad general agreement that the parties were to pay half of the cost of any valuations which were required but upon receiving Valuation’s quote the wife, to avoid further delay because the husband had previously argued about the amounts quoted to do work, instructed her solicitors to pay the entire amount of $8,800.00 to Valuations forthwith.
Valuations arranged for the Business N to be inspected on the same day the wife paid this amount but no valuation was ever completed because Valuations never received the additional information from the husband which they required to complete it.
On 12 May 2016, Valuations sent a letter to both solicitors requesting confirmation of the valuation date, three years profit and loss statements prior to that date, occupancy data for the same period, a brief commentary on any upgrades work undertaking (sic) through the 5 year period prior to the valuation date and any contracts in place at the valuation date.
Save for confirmation of the valuation date, only the husband was in a position to supply this information and despite seven letters sent by the wife’s solicitor to his solicitor between 1 September 2016 and 12 January 2017, he failed to provide it.
Finally on 17 January 2017 the husband’s solicitors wrote to the wife’s solicitors as follows:
As we see it, the only outstanding task for Valuations is to value the Business N and the Property D Unit at the present date. In that regard, we have asked the husband to provide the material requested by the valuer by return. [15]
[15] Wife’s affidavit paragraph 278
On 6 February 2017, Ms D sent a letter to the parties’ solicitors which included the following:
In reference to our information request dated 6 January 2016, I advise that to date we have received only a minimal response. I have attached a revised schedule, confirming the information that is still outstanding. I have included an updated ‘Schedule A’ confirming the valuations of various properties as per the attachment to the joint letter of instruction dated 20 April 2016, received by us on 23 November 2016, and as per the attachment to Bell and Johnson Solicitors letter dated 4 October 2016. Please provide the remaining valuation reports when available, or otherwise joint instructions as to the agreed value of the remaining real properties.
In addition I am yet to receive a response to our correspondence dated 12 October 2016 requesting joint confirmation that the present date valuation should now be 30 June 2016, given the time that has elapsed since 30 June 2015. If the valuation date to be adopted is 30 June 2016, please provide the information requested for items 6.1 to 6.5 and 7.1, 7.3 and 7.4 as at 30 June 2016 (instead of 30 June 2015).[16]
[16] See tab 106 of Exhibit 1, Volume 4 of the wife’s affidavit sworn 2 March 2017.
On 9 February 2017, Valuations advised that they had still not received any of the information they required to complete a valuation of the Business N and on 13 February 2017, they wrote to the solicitors requesting again the information referred to in their letter of 12 May 2016.
The information was still not provided and Valuations were unable to complete a valuation of the Business N.
On 2 March 2017, the wife’s solicitors wrote to Ms D terminating the wife’s retainer of Ms D.
Curiously, given his failure to provide the necessary documents to Valuations or Ms D, the husband in his trial affidavit filed on 7 March 2017 for the trial which was due to commence on 20 March 2017, said as follows:
I am the beneficial owner of all of the issued shares in the capital of the family company. Ms D, Forensic Accounting (sic) has been retained by the parties to establish the present day value of my shareholding in the family company.[17]
[17] Husband’s affidavit paragraph 323
In written submissions the husband’s counsel said that the wife could not complain about the valuations not being completed because she terminated the retainer but there is no merit in that submission. The valuations were not completed because the husband successfully thwarted the process by not providing the necessary information. The wife’s decision to terminate Ms D’s retainer and get on with the trial with the best evidence available given that she had waited years for these issues to be resolved was sensible and appropriate and I have to decide what to do with the fact that there is uncertainty about the value of the husband’s shares in Company A.
The fact that no up-to-date valuation of the Business N was obtained undermines the validity of the value of Company A as a whole; it means that the figures in the 2016 balance sheet are not reliable. However the wife’s counsel submitted that the problem went beyond that. He submitted that Ms D would not simply have used the balance sheet to value the company but would very likely have valued the husband’s shareholding in Company A on the basis of “value to owner”.
The wife’s counsel referred me to a number of reported cases in which courts had endorsed the decision of a trial judge to place a value on a shareholding on the basis of its value to the owner rather than relying on a value calculated by strict application of Corporations Law and its impact on the amount which the owner might receive if he wanted to dispose of the shares.
However, the cases he referred to involved situations where the husband/shareholder or wife/shareholder was restricted as to what they could do with the shares because they were part of a family structure and where the shares were valued accordingly by accountants but where the trial judge formed the view that the shares were in reality much more valuable to the husband/wife/shareholder than such valuations suggested.[18]
[18] Vasek & Vasek (2012) FamCAFC 206, Turnbull & Turnbull (1990) 15 FamLR 81
In Sapir & Sapir (No. 2) for example the wife had a minority shareholding in a family company. The Supreme Court adopted the valuation of the shares put forward by the husband that is, the value of the shares to the wife and not their commercial value or their value to a hypothetical purchaser.[19]
[19] Sapir & Sapir (No. 2) (1989) FLC 92-047
However the husband in the case before me has complete control of his shares and those cases are not analogous.
The case the wife’s counsel wished to promote seemed to be more along of the lines of the old adage “you can live well out a company” but this seems to stray into the realm of suggesting that the husband is obtaining benefits from the company which are not being properly being accounted for to the ATO and I cannot make that assumption.
Ms D was asked to value the company, not to conduct a forensic inquiry into its accounting practices and I do not accept that I can assume that Ms D would have adopted a “value to owner” approach in valuing the shares. Moreover, even if I could make such an assumption, it would be impossible for me on the state of the evidence to form any view about what the shares might alternatively be worth.
The fact that the Business N valuation is out of date and that no later valuation exists because of the husband’s conduct, is an issue I need to deal with but I cannot deal with it by way of add-back. I will have to return to it when considering s.75(2) matters and in particular, in considering s.75(2) (o) which requires me to take into account any matter which the justice of the case requires me to take into account.
The husband’s counsel took the curious approach in submissions of maintaining that the court should accept that the value of the Company A shares deriving from the 2016 balance sheet was accurate but at the same time, asserting that the Business N was worth less today than it was in 2014 because it faced increased competition and had lower occupancy rates.
Not only does this not sit with his insistence that the 2016 balance sheet value of Company A should be accepted, it is an untenable submission in the face of the husband’s failure to co-operate with the valuation of the business but I will return to that issue also when discussing s.75(2) matters.
Issues with the composition of the pool
The wife’s counsel submitted that there should be add-backs to pool arising out of:
a)The husband’s alleged failure to account for $849,000.00 of the Business O sale proceeds.
b)The husband making gifts to the parties’ children totalling $340,000.00 shortly after the wife filed her application for a property settlement.
c)The husband making gifts totalling $60,000.00 to the parties’ grandchildren post-separation.
d)The husband being unable to explain why his superannuation account had declined in value by $1m post-separation.
The husband’s counsel made an overarching submission that add-backs were impermissible in a post-Stanford & Stanford[20] environment but I do not accept this submission.
[20] Stanford & Stanford (2012) FLC 93-518
Add-backs involve including in the pool as a notional asset something which has been disposed of by one party without consultation with the other or has been lost due to waste committed by one party. Add-backs have long had a valuable place in ensuring that the outcome of property matters is just and equitable; one only has to consider the difference in the outcome for the wife in Townsend & Townsend of the trial judge dealing with the husband’s disposal of a taxi as a s. 75(2) matter and the Full Court dealing with it by way of add-back to see that.[21]
[21] Townsend & Townsend (1995) FLC 92-569
The Full Court in the 2015 case of Vass & Vass did not accept that add-backs were no longer permissible and said as follows:
There is no error committed per se in adjusting the parties’ actual property interests by a calculation involving notionally adding back into the pool sums which have been dissipated by the parties. We reject any suggestion that the decision of Bevan & Bevan (2013) FLC 93-545 – or, more particularly, the decision of the High Court in Stanford & Stanford (2012) 247 CLR 108 - is authority for any necessary contrary solution. Some statements made by the High Court may lead to the conclusion that references to “notional property” as have been referred to in decisions of this court and at first instance may need to be reconsidered.[22]
[22] Vass & Vass (2015) 53FamLR 373 see also Trevi & Trevi [2018]FamCAFC173
In light of Stanford & Stanford it may in many cases be prudent for the court to defer consideration of whether the pool should be augmented by add-backs until after it determines whether it is just and equitable to consider making property settlement orders based on its findings about the assets which actually exist. However, in the case before me the pool is substantial without add-backs and there was no dispute about whether it was just and equitable to consider making property settlement orders and it is convenient to deal with the add-back arguments at this stage.
Whether amounts are added back to the pool is a matter for the court’s discretion. In the recent case of Trevi & Trevi Murphy J said as follows about the concept of add-backs under the heading “Dissipation of Property and Expenditure Other Than On Legal Fees:”
The Full Court held in Omacini and Omacini[23] that addbacks fall into “three clear categories”: where the parties have expended money on legal fees; where there has been a premature distribution of matrimonial assets; and “waste” or wanton, negligent, or reckless dissipation of assets.[24]
However, the Full Court also made it clear that an addback does not necessarily occur whenever “a party has expended money realised from the disposition of assets that existed as at the date of separation”, the Full Court describing such a proposition as “unduly simplistic”.[25] An earlier Full Court made the same point, saying that adding back is “the exception rather than the rule”.[26]
The fundamental precept that addbacks are exceptional, reflected in the decisions just referred to, also mirrors what has been said in earlier decisions of the Full Court that, for example, “the Family Court must take the property of a party to the marriage as it finds it”[27] at trial. An important parallel proposition is that the parties do not “go into a state of suspended economic animation” after separation.[28] Thus, reasonably incurred expenditure does not usually come within accepted categories of addback.
Two fundamental premises emerge from Omacini and the authorities preceding it. First, “adding back” is a discretionary exercise. When the discretion is exercised in favour of adding back, it reflects a decision that, exceptionally, in the particular circumstances of a case, justice and equity requires it. The second premise is its corollary: in cases that are not “exceptional” justice and equity can be achieved, not by adding back, but by the exercise of a different discretion – usually by taking up the same as a relevant s 75(2) factor. Indeed, it has been said that the latter is “a course which is, perhaps, technically more correct” than adding back to the list of existing interests in property.[29]
[23] Omacini & Omacini (2005) FLC 93-218
[24]Omacini at 79,617 [30], referencing in particular Kowaliw and Kowaliw (1981) FLC 91-092 (“Kowaliw”); Townsend and Townsend (1995) FLC 92-569 (“Townsend”).
[25] Omacini at 79,619 [39].
[26] Cerini & Cerini sub nom C & C [1998] FamCA 143 (“Cerini”) at [46].
[27] Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 at 355. See also, Stanford v Stanford (2012) 247 CLR 108.
[28] Marker & Marker sub nom M & M [1998] FamCA 42 at [2.11].
[29] Trevi & Trevi (supra)
Against that background I must consider the wife’s arguments about add-backs.
The Business O sale proceeds
The Business O was sold for $3,159,675.00 about a year after separation. Some of this money is in the pool because it was accepted that $1m was used to pay the wife the interim property settlement. However, the evidence the husband gave at trial about what happened to the sale proceeds as a whole was unsatisfactory.
In his affidavit the husband said that part of the proceeds of $3,159m were used to repay the amounts borrowed to pay out Ms O in 2009 but he did not specify the amount repaid. He went on to say that part of the proceeds were applied toward outstanding legal costs and that the balance was invested in an interest bearing deposit with Bank 1. He alleged that page numbers 500 to 509 of exhibit -1 to his affidavit were a true copy of documents he had caused to be sent to the wife’s solicitors on 26 May 2014 explaining what had happened to this money.
Only pages 500 to 505 of the exhibit are in fact relevant to the Business O sale and they consist of a settlement statement and evidence of payment of legal fees to Palmers Solicitors in the total amount of $306,088.70. Some of the legal fees relate to the sale and what appear to be business issues but also paid were legal fees incurred in respect of the Guardianship Tribunal proceedings ($25,960.61), the litigation involving the executor Mr B and husband’s sister Ms O ($125,838.74), the proceedings in the Supreme Court probate list involving Mr B ($12,957.35) and a complaint against Mr B ($5,138.10).
There is nothing in those pages to indicate what happened to the remaining $2,852,680.41 other than to say that $2,839,019.11 was deposited into a Company A Bank 1 Account.
The wife’s counsel seemed to accept in submissions that $1,140,000.00 had been used to discharge the Bank 1 loan taken out to pay Ms O which would leave $1,712,930.41 unaccounted for.
The husband asserted that $575,000.00 was paid back to the Company A Super Fund which had partially funded the settlement with Ms O and that the balance was placed on term deposit where it would have earned interest and ultimately the wife got $1,375,000.00 being $375,000.00 in December 2011 and $1m in June 2015.
This if correct, would roughly account for the Business O proceeds. The wife’s counsel submitted however, that the court should not accept this because the wife provided statements for the superannuation fund for the period 2010 onwards and was no evidence in those statements that $575,000.00 was ever paid to the superannuation fund.
The wife’s counsel went further and submitted that $849,000.00 in all was unaccounted for.
The husband’s counsel did not address the unsatisfactory state of the documents the husband provided to account for what happened to this money or the unsatisfactory nature of his evidence generally about the issue. The tack the husband’s counsel took was to submit that there was evidence that $2,839,019.11 was deposited into the Company A bank account (the sale proceeds less the payment of the legal costs) and no evidence of any unexplained or unusual withdrawals from the account at the same time or shortly after or in some way related to the deposit.
He further submitted that it was not open to the wife to submit that the husband had failed to account for not less than $849,000.00 of the Business O proceeds when this was not put to the husband either as to suggesting there was any discrepancy or as to putting a specific amount to him.
I do not accept that submission and the husband’s evidence about what happened to the proceeds of sale was most unsatisfactory but if I go back to the evidence about how Ms O was paid, there may be a solution or at least evidence, which means that I cannot be comfortably satisfied that any of the money is missing.
Ms O was paid $2,338,079.00 when she was bought out of the company. The husband said that this was funded by a loan from Bank 1 and funds borrowed by way of a commercial loan from the Company A No. 2 Superannuation Fund. He said that Company A paid commercial rates of interest on those borrowings (plural) until about March 2011.
In his affidavit, he said that the Business O proceeds were used to repay the borrowings to fund the payment to Ms O. He referred to $1,140,000.00 going to Bank 1 and in addition, between 1 July 2011 and 30 June 2010, an item called “Loans to Associated Entities (In house loans)” in the amount of $886,463.00 disappeared from the Company A Superannuation Fund accounts.[30]
[30] Exhibit -1 page 532
This does not entirely solve the problem as there would then have been insufficient funds to meet both payments to the wife if they in fact came from the Business O sale proceeds. However, there would have been sufficient funds to meet a large part of the payments.
It is highly regrettable that the husband provided such unsatisfactory evidence about exactly what happened to such a large sum of money. However, I cannot be satisfied that $849,000.00 or $575,000.00 is missing and in those circumstances, the evidence simply does not support an add-back argument.
I could return to this issue again when considering s.75 (2) matters and reflect on whether the husband’s inadequate evidence on this topic should cause me to make some adjustment in the wife’s favour based on s. 75(2) (o) but for the following reasons I do not intend to do so.
The husband has a fixed belief that the wife is undeserving of anything other than a meagre property settlement and that raises a suspicion that he might be inclined to hide assets. However, a possible reason for the husband’s unsatisfactory evidence about the Business O proceeds and other financial matters is that his bookkeeping practices and record keeping seem to have left a lot to be desired. It took the husband several years to sufficiently reconstruct the Company A Superannuation fund so that he could determine the wife’s member balance and his evidence about the way he dipped into his self-managed superannuation fund makes one wonder how he has escaped scrutiny by the ATO.
Nothing was raised about the husband’s lifestyle or about unexplained bank entries or anything of that sort to suggest that he had hidden assets and not only can I not find that an add-back is appropriate in respect of the Business O funds, I also cannot be satisfied that a s.75(2) adjustment should be made in respect of this issue.
The payments of $340,000.00 to the children
Just after the husband was served with the wife’s application for a property settlement, he paid Mr E, Mr J, Ms A and Ms B $80,000.00 each using money in his superannuation fund. He later made a further payment of $20,000.00 to one of them from the same source diminishing his superannuation by a total of $340,000.00.
The husband claimed that he made these payments because he and the wife had agreed prior to separation that they would give each of their children $100,000.00. He said that they had a discussion in 2006 during which the wife said:
We will have more money than you and I need. The children all need to establish their own households. Why don’t we give them each $100,000.00 out of your superannuation fund? There will be enough money left for us.[31]
[31] Husband’s affidavit paragraph 130
He said that he agreed to do that once the litigation over his father’s estate was finished.
He said that in early 2008 after the litigation finished, he had another discussion with the wife during which she said that they needed to give the children the money now the litigation was over. He said that he told her that needed speak to the accountants about it. He said that the wife suggested that he needed to speak to the children about it and that he told each of the children separately that he and the wife had decided to give them $100,000.00 each out of the superannuation fund when they had sorted the court cases with his sister and the executor of his father’s estate.
He said that further litigation was then commenced by his sister and his mother. He said that in 2009 the wife asked if he would give Ms B the $100,000.00 they had promised her because she needed money to finish her house and he said that they needed to sort out the litigation first.
Those proceedings finished in December 2009 and the husband said that from December 2009 to early 2011, the wife would say to him words to the effect: What about giving that money to the kids now? He said that he responded that they needed to get the Guardianship proceedings concluded first.
The husband then said as follows:
On or about 20 May 2011, I was aware that each of the children had purchased their family homes in Town 1. I knew that they had borrowed money to make those purchases. On that day, in order to fulfil the promise that I made to our children, I paid to each of the children Mr J, Ms A, Ms B and Mr E a sum of $80,000.00. I drew that amount from my account in the Company A No. 2 Superannuation Fund.[32]
[32] Husband’s affidavit paragraph 137
In or about September 2014, the husband paid a further sum of $20,000.00 to Mr J.
All three children gave similar evidence along the lines that their mother said to them:
Dad and I are going to pay $100,000.00 to each of you children. The money will come out of the superannuation fund. Dad has to speak to the accountants before any payments will be made
The children’s evidence about when these conversations allegedly occurred differed. Mr J said that it was when he bought his house which was in 2005 or 2006. Ms A said that it was prior to separation and tentatively suggested 12 months to 2 years prior then four to six years before her 2014 affidavit i.e. in 2008 to 2010
Ms B suggested that it was in about 2008.
The wife denied that these conversations occurred and said that at no point had she agreed to give each of the children $100,000.00. She pointed out that the three older children had not recently purchased homes. Mr J purchased a property in 2006, Ms B in 2004, Ms A in 2003 and Mr E on 2009 being a purchase from Ms A and her husband of the property they had purchased in 2003.
For a number of reasons I cannot be satisfied on the balance of probabilities that the conversations between the husband, the wife and children occurred.
First, if they occurred, they occurred up to ten years prior to the trial. It is somewhat remarkable in those circumstances that the children would recall very similar conversations and this raises a distinct possibility that their evidence has been tainted by discussions about the issue. It is not a matter of accusing the children of lying; it is possible that as a result of discussions, they have convinced themselves that the conversations occurred.
Second, the husband’s assertion that he and the wife had amicable discussions between December 2009 and early 2011 during which the wife pressed him about when he was going to make the payments is highly improbable. The separation between the parties in early 2010 was acrimonious. The wife obtained an ADVO against the husband on 17 February 2010. On 22 March 2010 there was an incident at the golf course where the husband punched the wife’s friend Mr C in the face.
On 8 April 2010, the husband’s solicitors wrote to the wife informing her that her employment at the Business N had been terminated. The letter includes the following:
Mr Lacey feels unable to be in the vicinity of Ms Lacey now, lest further allegations of intimidation be made.[33]
[33] Wife’s affidavit paragraph 136
The parties’ relationship never improved after that time.
Third, if the promises were made years earlier as the husband and the children contended, why did the husband suddenly choose to make the payments within a month of the wife filing her application? It has a flavour of the husband wishing to ensure that the wife could not interfere with payments he was determined to make given that property proceedings had commenced which, in turn, suggests that he did not think she would agree rather than the flavour of the husband making good on a promise to the children made years before with the wife’s consent.
Fourth, the husband’s assertion that he discussed making these payments with the wife and that she agreed that “they” would make the payments is at odds with all his other behaviour in treating the assets of Company A as his alone and all his assertions during the course of these proceedings about the way the parties conducted their affairs.
However, even if the payments were discussed by the parties years earlier and the wife agreed that they be should made and has forgotten about it, the fact is that they were not made at the time and it does not follow that the husband was entitled years later, and after property proceedings had commenced, to suddenly make payments without any notice to the wife which he had no legal obligation to make.
In his affidavit the husband gave another reason for making the payments. He said that he believed “both Ms Lacey and I” had a moral obligation to reimburse the children for their work at the Business N by paying the amounts “we both promised them”.[34] However, he had no right once proceedings commenced to unilaterally diminish the pool simply because he felt a moral obligation to the children.
[34] Husband’s affidavit paragraph 119
There is a strong argument for adding the amount of $340,000.00 back to the pool and I intend to do so. It was a unilateral diminution of the pool by the husband and it is not an insignificant amount of money even with a pool of $10m.
The trust funds for the grandchildren
The husband has set up trust accounts for each of his grandchildren and he pays money into those accounts weekly. At the time of trial the accounts held just under $60,000.00 and the wife’s counsel submitted that this constituted a unilateral distribution of matrimonial assets and that the amount in the trust accounts should be included in the pool as a notional asset.
The husband said that the amounts were accumulated from small payments from his income. The wife was not able to point to any large capital amount that had been paid into these accounts and there was no evidence that the husband was making these weekly payments to deprive the wife of her entitlement to a property settlement.
The husband’s intention has been to benefit his grandchildren, not to disadvantage the wife and the amount in the trust funds equals .6% of the asset pool. I do not intend to add the amount of $60,000.00 to the pool as a notional asset.
The husband’s superannuation
The husband’s evidence was that he had a member balance of $1,254,500.00 in his superannuation account at separation although “at 30 June 2010” would be a more accurate statement.[35]
[35] Husband’s affidavit paragraph 258 (e) and Tab 31 Exhibits to wife’s affidavit.
The husband’s case was that he currently had $579,274.00 in his superannuation fund and that this was made up of a boat purchased with money from the fund which was now worth $350,000.00 and cash of $229,274.00. The figure of $579,274.00 was used in the agreed balance sheet for the husband superannuation.
However, the evidence the husband provided to explain what was in is fund now and what had happened to the remainder of the money since separation was confusing and unsatisfactory.
During the trial the husband’s counsel tendered two documents which were marked Exhibit G.
One was a position statement for the husband’s superannuation as at 11 January 2017 prepared by Superannuation Fund. It referred to an original investment amount of $400,000.00 in Super Fund J in 2007 and an amount under the heading “Original Present Value” of $473,639.64 although this was crossed through and the figure “$400,000.00” handwritten above it.
The other was a Bank 1 cheque account statement showing a balance of $29,274.07 as at 17 March 2017.
The cheque account shows an opening balance of $210.22, deposits from Super Fund J of $73,000.00 on 16 January 2017 and $200,000.00 on 16 February 2017 (total $273,000.00) and withdrawals of $50,000.00 on 13 February 2017 and $180,000.00 on 23 February 2017 (total $230,000.00) and various other withdrawals including by cheques drawn totalling almost $14,000.00 leaving a balance of $29,274.07 in the account. [36]
[36] Exhibit G
Presumably the deposits on 16 January and 16 February are from the amount of $473,639.64 referred to in the position statement. This would leave $200,000.00 in Super Fund J investment and combined with cheque account balance, it totals the $229,274.00 claimed to be in the superannuation fund.
However, Exhibit G does nothing to explain what happened to the $1,254,500.00 which the husband had in the fund at separation.
The husband said that he used $450,000.00 to buy the boat (although that is not apparent from the fund statements) and $340,000.00 to make the payments to the children. That would leave a potential balance in the fund of $460,000.00. However, the account balance as at 30 June 2011 was $283,944.00.[37]
[37] Exhibit E
The husband’s account balance as at 2014 was $492,068.00 and if the reduction from $1,254,500.00 in June 2010 to $283,944.00 in June 2011 is partially explained by the purchase of the boat and the balance of $492,068.00 in 2014 is explained by the husband’s share of deposits totalling $370,516.00, then the total of $492,068 cannot include the boat and there would appear to be $262,794.00 unaccounted for.
The husband was unhelpful in cross-examination in clarifying the issue of what happened to this money. In answer to a question about what happened to the money in his superannuation fund, he said that he had spent it.
The submissions by the husband’s counsel about the husband’s superannuation balance are not helpful and add to the confusion.
In his written submissions the husband’s counsel said that the diminution of the fund could be explained by the drawings totalling $741,270.47 set out at page 741 of Exhibit L-1. However these drawings include the withdrawal of the wife’s superannuation interest of $106.836.00 which does not explain a diminution in the husband’s superannuation.
To add further to the confusion, in the agreed balance sheet the superannuation was assigned a figure of $579,274.00 which supposedly included the value of the boat. However, in submissions the husband’s counsel asserted that
The current value of the superannuation, as at the date of the documents in exhibit “G” (17 January 2017) is $502,914.00.[38]
[38]Husband’s submissions 15.1(d)
This figure is an adding together of the figure of $473,639.64 which has been crossed out on Exhibit G and the balance of $29,274.07 in the cheque account and if I am to use that figure, should I also be adding $350,000.00 for the boat?
The wife’s counsel submitted that the husband be deemed to have a notional $1,502,914.00 in his superannuation fund. This would appear to be based on the amount which was there in 2010 plus contributions made by Company A in the following years.
However, the $340,000.00 paid to the children came from this fund and I intend to add that back as a notional asset so that has to come off. If that is removed, what I am being asked to do is to add back as a notional asset an amount of $583,640.00 to the husband’s declared superannuation.
The closest I can get to justifying the husband’s position that the money is all explained, is that his member balance as at 30 June 2014 shown in documents provided by the wife was $492,069.00. After that date he withdrew a total of $271,304 to pay legal fees which would leave a member balance of $220,765.00 in the fund which, if the boat is added at a value of $350,000.00, gives a balance of $570,065.00.
The drawings to pay the children ($340,000.00), the agreed paid legal fees ($177,719.00), the loss of $100,000.00 on the boat and the additional $100,000.00 drawn to pay legal fees take the total up to $1,287,784.00.
This does not explain what might have happened to amounts paid into the fund after separation and I am frankly left in a state of confusion about the husband’s superannuation but I do not intend to add anything back for missing superannuation money.
As with the money from the sale of the Business O, I incline to the view that the problem arises from sloppy accounting practices and lack of financial literacy rather than from devious disposal of assets. I cannot safely fix on a figure to add back and I cannot be satisfied that there is an issue which needs to be addressed pursuant to 75(2).
However an examination of the husband’s evidence about the superannuation fund throws up a separate issue and that is whether an amount should be added back to the pool for the husband’s paid legal fees.
On page 741 of Exhibit L-1, the husband lists drawings from his superannuation fund between 18 March 2016 and 15 February 2017 totalling $271,304.32 which he used to pay legal costs in respect of these proceedings.
In his written submissions, the husband’s counsel said that $180,000.00 of this was included in the agreed balance sheet as an asset of the husband’s. There is no such amount in the balance sheet but from consulting other documents it is apparent that the husband’s counsel was referring to the amount called “Solicitor’s Trust Fund” which is given a value of $177,719.00. At the date of trial the husband’s solicitors were holding $177,719.12 in their trust account on account of costs.[39]
[39] Exhibit F
However the husband admitted that he withdrew $271,304.32 from his superannuation fund to pay legal fees.[40] There is $177,719.12 in his solicitors trust account leaving an amount of $93,585.20 unaccounted for.
[40] Exhibit L-1 page 741
In line with Omacini & Omacini[41] and later cases $271,304.32 and not the amount of $177,719.12 which happens to still exist in the husband’s solicitors trust account should be included in the pool being legal fees paid by the husband utilising a matrimonial asset. This requires an add-back to the pool of $93,585.20.
[41] Omacini & Omacini (2015) FLC 93-215
There is yet another issue in that the husband’s paid legal fees for the period 22 August 2012 and 16 November 2016 total $136,635.54 not $93,585.20.
I have considered whether I should add back the entire paid legal fees of $136,635.54 rather than just the $93,585.20 but this issue was not explored at trial and the husband was not given an opportunity to explain the source of the funds he used to pay the difference between $93,585.20 and $136,635.54 and I have therefore decided not to do so.
Conclusion about the pool
The pool of assets available for division between the parties therefore consists of:
Agreed balance sheet items $10,005,218.00
Add gifts to children $340,000.00
Add paid legal fees $93,585.20
Total assets $10,438,803.20
The applicable law
S.79 (1) of the Family Law Act 1975 empowers the court to make such orders as it considers appropriate altering the parties’ interests in property.
S.79 (2) provides that the court shall not make an order under this section unless it considers that it would be just and equitable to do so.
In Stanford & Stanford the High Court stressed that when an application for a property settlement was made the court must first identify the parties interests in property and then consider whether it was just and equitable to make an order altering those interests. It stressed that this question could not be answered simply by considering whether a party had made contributions as set out in s. 79(4) of the Family Law Act.
The bulk of the assets deriving from the parties 37 year relationship are in the husband’s name and there was no dispute that it was just and equitable for the court to consider making property settlement orders. The parties have separated and the matter clearly comes within the following situation referred to in Stanford:
In many cases where an application is made for a property settlement order, the just and equitable requirement is readily satisfied by observing that, as the result of a choice made by one or both of the parties, the husband and wife are no longer living in a marital relationship. It will be just and equitable to make a property settlement order in such a case because there is not and will not thereafter be the common use of property by the husband and wife. No less importantly, the express and implicit assumptions that underpinned the existing property arrangements have been brought to an end by the voluntary severance of the mutuality of the marital relationship. That is, any express or implicit assumption that the parties may have made to the effect that existing arrangements of marital property interests were sufficient or appropriate during the continuance of their marital relationship is brought to an end with the ending of the marital relationship and the assumption that any adjustment to those interests could be effected consensually as needed or desired is also brought to an end. Hence it will be just and equitable that the court make a property settlement order. What order, if any, should then be made is determined by applying s 79(4).
I intend to take the usual steps to resolve the question of what particular alteration of interests would be just and equitable and those steps are:
a)to assess the contributions of the parties under s79(4)(a), (b) and (c) and to express those contributions as a percentage;
b)to consider the matters in s.79(4)(d), (e), (f) and (g), which includes the matters in s.75(2) so far as they are relevant, and determine whether any adjustment should be made as a result to the contribution based entitlements;
c)to consider the effect of those findings and resolve what orders are just and equitable in all the circumstances of the case.
Contributions
Basis of the assessment of contributions
The wife’s counsel proposed that contributions be assessed globally to one pool of assets and he submitted that at a 40/60 assessment was appropriate.
The husband’s counsel advocated for a separate pools approach. He asserted that the husband’s shares in Company A had three distinct characters namely:
a)A 25% shareholding which became a 33% stake in 2009 which was brought into the marriage by the husband and which “had largely lost significance with the passing of time”;[42]
b)A 33.3% shareholding inherited by the husband upon his father’s death in 2004;
c)A 33.3% shareholding inherited by the husband upon his mother’s death in 2014.
[42] Husband’s submissions paragraph 11.5
He submitted that the wife was entitled to 50% of the shares the husband brought into the marriage (ultimately 33.3% of the Company A shares).
He submitted that the wife was entitled to 20% of the shares the husband inherited from his father.
He submitted that the wife was not entitled to any part of the 33.3% of the Company A shares which the husband inherited from his mother. He proposed that those shares and the value of the wife’s inheritance from her mother ($94,392.00) be excluded from consideration and remain with the party who presently owned them, on the basis that neither party had made a contribution to the other parties post-separation inheritance.
He submitted that the parties entitlements to remainder of the pool ($7,154,208.00) be assessed as 25% by the wife and 75% by the husband.
It is permissible to assess contributions on an asset by asset or separate pools basis[43] but while this can be useful in some cases to ensure that the importance of gifts and inheritances is not overlooked it is not an approach which is warranted in this case and indeed there would be considerable danger in adopting it.
[43] Norbis & Norbis (1986) FLC 91-712
The fact that the husband owned some Company A shares at the beginning and inherited others is a relevant consideration when it comes to assessing contributions but the shares the husband inherited cannot be quarantined as the husband’s counsel suggested; they were not shares in some separate business in which the husband had no involvement. The husband devoted all of his time and effort during the marriage to the conservation and improvement of Company A as a whole.
There is force in the following submission by the wife’s counsel:
To suggest that the husband was making a contribution only to his own share, and not to the shares of each of his parents, ignores his own evidence. There is no dispute that after about 1983 the husband had the day to day management of the company, with Mr D living elsewhere. The husband also gives evidence, and it is not controversial, that his mother’s contribution to the company was at best minimal, and at times positively negative (he gives evidence of his mother’s threats to Business N staff, and other misdemeanours). It is submitted that it simply ignores the reality of the situation to submit (as the husband does for example at para 11.6) that somehow the husband’s efforts and contributions can somehow be quarantined to only benefitting his own one-third share. Put simply, every hour the husband was at work he was contributing to the value of his parents’ shares of the company, not just his own.[44]
[44] Applicant wife’s submissions in reply paragraph 2 page 2
I will need to carefully consider all of the submissions made by the husband’s counsel relevant to the assessment of contributions but I do not accept that it would be appropriate to adopt a separate pools approach. In the context of this case it is an approach so artificial that it would inevitably result in the wife’s contributions over 37 year marriage not being properly recognised.
Initial contributions
The wife had no assets at the commencement of cohabitation.
The husband had a 25% shareholding in Company A.
There was no evidence of the value of those shares in 1973. The company owned the Business N which the wife agreed had a value of $270,000.00 and the Property A cottage which the wife agreed was worth $16,000.00. The husband said that it also owned a quantity of civil construction and earthmoving equipment, the commercial premises of the former Company B in Town 1 which were sold shortly after the marriage for $38,396.00, an unspecified amount of cash and a quantity of tools and small items of plant and equipment. He asserted that Company A did not have any significant liabilities. That may be correct but I have no means of checking that assertion.
Contributions during the marriage
Upon marrying, the husband the wife implicitly accepted that the parties’ efforts would be bent toward conserving and improving the assets of Company A; save for minor items like furniture and a Motor Vehicle 1 purchased by the wife on finance toward the end of the marriage the parties never acquired any assets in their own names.
The husband worked extremely hard at the Business N and on other projects undertaken by Company A throughout the marriage. His affidavit is replete with references to him working from early morning to 10pm at night often seven days a week. He rarely took holidays and does not seem to have had any interests outside work save that when his youngest son Mr E took up (hobby) he took him to (hobby) meetings including interstate.
The husband not only did day to day chores to keep the business running, he was also involved in the construction work (omitted), and he worked as a labourer on the construction of the Business O in 1985.[45]
[45] See for example husband’s affidavit paragraphs 29, 56, 59, 60, 67, 79 and there are many other examples
On the husband’s evidence from 1986 onwards (although there is no evidence of it doing so earlier either), Company A did not declare dividends and thus distribute profits, indeed the issue which later caused Ms O to bring winding up proceedings against Company A was that there was no profit distribution.
The profit retained within the company was immense. The husband said that the additional (works omitted) in 1978 were paid for out of profits. The (works omitted) built in 1981 were partly paid for from profits and partly from a loan which was repaid in two or three years.
In 1990 the Business N, was renovated at a cost of $10,000.00 to $15,000.00 per unit and the costs were paid for out of profits. A coal fired boiler/heating system was purchased in the 1990’s at the husband’s instigation and was purchased out of profits and the husband’s evidence was that this is turn augmented the profits made by the business.
The husband said that the Property B building in Town 1 and the Property C building in Town 2 which were purchased in the 1990’s were both paid for out of profits.
In 2008 Company A purchased a unit at Property D on the Region 1 for $1.4m. $1m of the purchase price was paid from retained profits and $400,000.00 was paid using funds from the Company A Superannuation Fund.
Not only were profits not distributed, the income the parties received for their employment at the business was modest. The husband said as follows in his affidavit:
My father told me shortly after I commenced employment with the family company [in 1963]:”you have a 25% interest in the company. You will not get a share of the profits. You are only getting a small wage, but you are building up the value of your shares for your future.”[46]
[46] Husband’s affidavit paragraph 26
Later he said as follows, referring to the period prior to 1973 when the business was being constructed:
I worked seven (7) days a week. I generally worked long hours, starting work at daybreak and finishing well after dark. The family company paid a small salary. During the construction my father said to me:
The company will be all yours when your mother and I die. You will be rewarded. All the work that you are doing now will be building up the value of your shares for the future.[47]
[47] Husband’s affidavit paragraph 69
When the husband’s father died in 2004, he was required to put some effort into ensuring that he received the inheritance from his father which he had been promised namely his father’s interest in Company A. Mr D made a last will in 2004 in which he left the husband only half of these shares. The other half were left to Ms O and she was appointed governing director.[48]
[48]This was not the entirety of Ms O’s entitlement under that will (see paragraph 5.2 of the husband’s counsel’s submissions) but there is a limit to how much fine detail about peripheral matters assists me
The husband successfully contested this will and obtained probate of his father’s second last will but this occurred within the context of the marriage. The time he devoted to it was not some additional time he found from somewhere, it was part of how he used his day during that period and the legal costs of the litigation were not paid from his personal savings. The litigation commenced and concluded while the marriage was intact and insofar as the costs diminished the asset pool the wife as well as the husband contributed to the cost of the litigation.
This was followed by his sister and mother bringing an action claiming that they were oppressed minority shareholders.
The husband’s counsel’s submissions suggest that the husband successfully fought off an attack by his sister and should be given credit for preserving the Company A assets but this is not what happened. The end result of the litigation was that Ms O proved that she was a shareholder of Company A, something the husband initially tried to deny, and she was bought out of the company for $2m. It could be argued that the husband’s initial stance in regard to his sister cost either Company A or the parties’ money in that he incurred unnecessary legal fees.
The costs the husband incurred with his solicitor in respect of this litigation were paid in 2011 from the proceeds of sale of the Business N.
In November or December 2009 at or about the time he settled with Ms O the husband brokered the deal with his mother which was to the effect that in exchange for paying her $400.00 per week and providing her with accommodation he became entitled to her shares in Company A upon her death.
The husband’s counsel submitted that the contributions of Mr D and Ms S to the business had to be factored in as matters which favoured the husband.
As the wife’s counsel rightly pointed out the husband’s evidence suggests that Ms S was more often a hindrance than a help. There is also no evidence to support the sweeping assertion by the husband’s counsel that much of the value of the shares in Company A was due to the husband’s father being just as hard a worker as the husband, maintaining a continuing overseeing role in the company after 1983, playing a major part in acquiring the two buildings or being a person whose vision and skill was essential to the establishment and success of the company.
However it is relevant to the assessment of contributions that the shares the husband owns are not an asset which existed when the parties married and grew in value either through market forces or the efforts of the parties alone. The husband’s father was actively involved in Company A from 1971 to 1983, a period during which the business expanded, the Business O land was acquired and the Business O was built and the husband must receive credit for his father’s efforts because it was a contribution by his family. I cannot put a dollar value on it but I accept that the husband’s father was a very hard worker and a good businessman and his efforts do have to be taken into account.
The husband’s counsel asserted that the parties also benefitted from the efforts of Mr J, Ms A and Ms B from 1995 onwards because they did not receive high remuneration for their work.
There is limited evidence to support that latter proposition but even if it could be established it is not a factor which favours one party over the other: the children are the children of both.
The wife was the primary carer of the parties’ children and she was the primary homemaker. She worked in the Business N until pregnant with the parties’ first child in 1976 and she did some occasional and on-call work from that point on while the children needed her attention. When that need passed she did more work in the business although she was never employed there full time. She accrued superannuation and other employee entitlements.
Late in the marriage the wife obtained some qualifications and earned some income working in a (employment omitted).
The husband seemed to regard it as a badge of honour that he was a workaholic throughout the parties’ relationship and that he usually worked 7 days a week from early morning until very late at night. It is it is quite sad that he felt the need to attempt to marginalise the wife’s contributions as a parent which began upon Mr J’s birth in 1976 and continued until the youngest child Mr E left home in 2002, 26 years later.
The husband was also disparaging of the wife’s contribution as homemaker, relying on broad assertions about her being lazy when he was simply not at home to see what was happening.
The husband’s counsel asked the court to take into account that at various junctures Company A paid a housekeeper to assist with cleaning, washing, supervising the children and cooking meals, as if this somehow diminished the wife’s contribution as homemaker and parent. It is an argument devoid of merit when the efforts of both the husband and wife were devoted to improving and conserving the assets of Company A which in turn paid for the home help services.
I do not accept the husband’s evidence about the wife’s efforts. He was content for her to take on the role of homemaker and parent during the marriage. It is likely that there is a considerable element of reconstruction in the evidence he now gives about her efforts and as the wife’s counsel pointed out while he was quick to remind the court that Company A provided the funds to pay for some home-help to assist the wife he failed to mention that the wife’s mother sometimes provided cost-free assistance.
The husband emphasised that as the children grew older they became more self-sufficient and would look after some of their own domestic needs, that they would come and visit him around the business after they got home from school and that he dropped into the home for cups of tea during the working day and had some fleeting involvement with them. He noted that the eldest child Mr J went to boarding school in Year 8 and Mr E commenced boarding school when he was 15. He has never paused to reflect that throughout the marriage, when the children were there and when they were not, the wife carried out her agreed role in the marriage. She kept the arrangements within the home ticking along in the background, doing what was required of her while he carried out his self-assigned role as the hard-worker around the business and in the other Company A enterprises.
Put another way, the husband’s case was not that the wife refused to help but that there was little or nothing for her to help with after the children moved out and that her contribution within the marriage as his support and helpmeet should be given a reduced value as a result. That is not a tenable submission.
The wife did have issues in the 1990’s. The husband said that it was due to her drinking too much and crushing Panadeine forte up and drinking it with wine. He said that the wife was slow to get out of bed in the morning; unlike him she did not get up until 8.00am or 9.00am. He complained that during the day she would laze around writing letters or reading novels although another of his complaints was that she would go out and play golf several days a week. He said that in the evening she would start drinking again. He alleged that the wife had several falls due to drinking wine with paracetamol and that he would often return home late at night to find her either unconscious or heavily intoxicated.
The husband said that the wife was still able to work in the business when required as long as she was given an afternoon shift.
The wife’s evidence was that she was diagnosed with Crohn’s disease in 1998 and had to attend hospital eight times with complications between 1999 and 2001. She admitted that her use of Panadeine forte increased and that she would crush it into wine. She admitted that in 2000 she ingested a double dose of Panadeine, once at home and again at hospital when the hospital gave her more were unaware that she had previously ingested it and that the she to be flown to Hospital for treatment. She admitted that she remained in hospital for two months and then went to Clinic for a period for rehabilitation.
The wife’s evidence was that around this time she was suffering from depression arising out (baby) loss through cot death and Mr E’s difficult teenage years.
There was no medical evidence about the wife’s health but the husband did not challenge her assertion about Crohn’s disease. She may have had a greater problem with alcohol than she is now willing to admit but notwithstanding her difficulties whatever they were, she still did some work in the business, she retrained herself and did some work in a (employer omitted) and on the husband’s own evidence was of considerable support to him after he began feeling ill in about 1998 and was diagnosed with bowel cancer in 2000.
The husband had surgery in 2002 followed by six months of chemotherapy and he was obliged for two or three months to do what he called “light duties” before resuming work from early in the morning to late at night. He admitted in his affidavit that the wife was of considerable support to him when he was ill. Among other things she stayed in Town 4 throughout the time that he was undergoing and then recuperating from surgery.
In terms of effort within their chosen/agreed spheres, I am satisfied that the parties contributed equally during their long marriage.
Post separation matters
The husband’s counsel submitted that the husband’s inheritance of his mother’s shares was a post-separation event and that the wife made no contribution to this part of his shareholding but this is not correct. It is true that the husband’s mother died in 2014 but he was assured of inheriting her shares as a result of the agreement made in November or December 2009 and the shares were valuable partly because of the efforts the husband and wife put into their respective roles in the marriage over a period of 37 years.
It is however a relevant post-separation matter that as part of the settlement with his mother the husband was obliged to pay her $400.00 per week. The husband’s counsel submitted and I have no reason to doubt that the husband paid this out of his own income from the business. He made the payments between September 2009 and his mother’s death in 2014 and said that the amount totalled $88,000.00.
Upon his mother’s death, the husband also inherited the residue of her estate which consisted of some personal items such as jewellery. The residue of her estate was of little monetary value and there is nothing in the pool attributable to this inheritance.[49]
[49] Husband’s counsel’s submissions paragraph 11.29
The husband’s counsel submitted that the husband should receive credit for conducting two pieces of litigation after separation.
One was the litigation conducted between February 2011 and December 2011 which ensured that husband’s father’s estate was administered. Legal costs of $34,296.06 were incurred in respect of that litigation.
The husband was then involved in further litigation between December 2011 and April 2014 following his nephew commencing proceedings in the Guardianship Tribunal seeking the appointment of a guardian for the husband’s mother. The husband contested these proceedings until they became otiose as a result of the death of his mother in 2014.
I accept that the husband devoted time to these litigations but the costs associated with them were paid by Company A, not by the husband from his after tax earnings, and there was no suggestion that either of the litigations were particularly onerous or time-consuming.
The husband’s counsel asserted that the “litigated outcomes” (and I am not sure what litigated outcomes he was referring to but presume he was referring to the settlements with the husband’s mother and sister in 2009) permitted the company to flourish post-separation so that its capital value grew from $4,972,091.00 in June 2010 to $7,600,000.00 on 31 December 2016. He submitted that the wife made no contribution to the litigations, to the cost thereof, or to the post-separation capital growth of the company.
Put another way he asserted that:
A fair and equitable outcome requires the quarantining of assets to which the Wife made no direct or indirect contribution. Those assets are the shares inherited from the husband’s mother and the post separation increased (sic) in the value of the Company. [50]
[50] Husband’s counsel’s submissions paragraph 11.14
However this submission has no merit, first because there is no evidence that the company increased in value to anything like the extent claimed, and second because there is no evidence that anything other than market forces led to such increase in value as did occur.
The figures of $4,972,091.00 and $7,600,000.00 on which the claim about an increase in value are based are taken from the 30 June 2010 and 31 December 2016 balance sheets.[51] However some of the values assigned to assets in the 30 June 2010 balance sheet are clearly wrong.
[51] Pages 418 and 434 of Exhibit L-1
The Property A cottage is assigned a value of $9,051.00 in the 2010 balance sheet but in April 2016, for the purposes of trying to move matter along so that Ms D could get on with her valuation of Company A, the parties agreed that at the time of separation in January 2010 the cottage was worth $200,000.00.[52]
[52] Wife’s affidavit paragraph 303
Property A is included in the 31 December 2016 balance sheet at a value of $290,000.00 but the husband did no work on Property A between 2010 and 2016 which contributed to the increase in its value and certainly none of the litigations did so.
The item “land and improvements – Business O” is assigned a value of $492,207.00 in the June 2010 balance sheet. However there was no evidence that this figure was based on a professional valuation and the Business O was sold for $3,159,675.00 in February 2011.
These are just some examples; I will not go on to comment on the values assigned to the Property B & C buildings and the Business N in the 2010 balance sheet.
The husband’s counsel suggested that husband provided a benefit to the wife by allowing her to remain in the business for nearly two years post-separation. However it was a benefit provided by Company A which had been the centre of the parties’ existence for 37 years.
The wife’s mother died post separation and the wife inherited $94,392.00. This amount is in the agreed pool of assets.
In summary, I take into account that after separation the husband devoted effort to ensuring that his father’s estate was administered and the Guardianship proceedings were fended off (although Company A paid the costs) and that he paid his mother $400.00 per week for about four years (which he said totalled $88,000.00). However the husband failed to pay the wife her employee entitlements following separation, allowing him to retain within the company an amount of least $18,000.00 and the wife’s post-separation inheritance of $94,392.00 is in the pool.
The post-separation matters do not favour one party over the other.
Conclusion about contributions
Assessing contributions is always challenging because it is not a mathematical exercise; the court has to weigh and balance contributions which have a monetary value and contributions on which no monetary value can be placed.
I cannot place a monetary value on the wife’s contributions as homemaker, parent and helpmeet and support of the husband or on the husband’s efforts in running the Business N or being involved in the conservation and improvement of other assets owned by Company A. I cannot place a monetary value on the shares in Company A in 1983 when the parties married, in 2004 when the husband’s father died or in 2009 when the family agreement involving the husband’s mother and sister was reached.
What I do know is that the husband had a 25% interest in Company A in 1983 when the parties married and was assured of inheriting a further interest in the company from his parents although at that stage his sister’s future entitlement would have been unclear. As a result he devoted all his time and effort during the marriage to Company A. He and the wife never looked anywhere else or attempted to acquire any other property and this can only be because the husband was confident that working hard in the company would deliver a financial benefit to the parties.
Careful reflection on this aspect of the matter reinforces why it would be quite wrong to treat the three separate shareholdings in Company A differently. The husband did not simply bring into the marriage a 25% shareholding in Company A; he brought in a 25% shareholding and a belief which turned out to be correct that one day the entire shareholding in the company would be his. He was not entitled to the other shares at the commencement of the marriage but this belief shaped the way the parties contributed during the marriage and the way they acquired or did not acquire other assets.
There is considerable force in the following from the wife’s case outline document:
Apart from their children, it is clear that all of the fruits of the parties’ long labour and commitment ended up in one place – the family company. [53]
[53] Wife’s case outline document point 5 page 9
I take into account the husband’s contributions by way of inheritance and gift and I also take into account the benefit to the parties, which must be treated as a contribution by the husband, of his father’s continuing involvement in Company A until his death (although principally until 1983).
However the wife’s contributions as parent, homemaker, worker in the Business N and elsewhere and as the husband’s support and partner were significant and the suggestion that the wife should receive the equivalent of about 17.5% of the pool, creating a differential of about $6,889,610.00 between the parties’ entitlements, is untenable.
This then leads to the difficult situation where the court must take an intuitive leap and assess contributions overall.
The wife’s counsel submitted that contributions should be assessed as 40% by the wife and 60% by the husband. If that assessment is adopted then there will be a differential of $2m in the parties’ entitlements.
This submission sits entirely comfortably with me. I am conscious of the fact that in the light of the delay in the delivery of the decision the husband may react with suspicion if I adopt the wife’s proposal, as if I have taken the easy way out, but I am not prepared, simply for the sake of ensuring that I demonstrate independence of mind, to reject the submission by the wife’s counsel and fix on some other proximate figure when I consider the wife’s submission appropriate.
I assess contributions as 40% by the wife and 60% by the husband. This entitles the wife to $4,175,521.28 and the husband to $6,263,281.92. It creates a differential of $2,087,760.64 between the parties’ entitlements which more than adequately gives weight to the contributions of the husband’s family in terms of gifting him the initial parcel of shares, leaving him the remainder and being involved in Company A during the marriage.
S. 79(4) (d) (e) (f) and (g) matters
I am required to consider the matters in s. 79(4) (d) (e) (f) and (g) of the Family Law Act.
The only relevant sub-section is (e) which directs the court to consider the matters in s. 75(2) so far as they are relevant.
S. 75(2) matters
The wife is 65. She is not employed and given her age that cannot be held against her. She invested $340,000.00 in an Super Fund I Superannuation Account following the husband paying the interim property settlement amount of $1m in 2016 and she receives income of $1,833.00 per fortnight from this.
The wife also used the interim property settlement to purchase Property F on 2016. It is tenanted and the wife receives rent of $640.00 per fortnight from which is deducted $180.00 per fortnight to pay the real estate agent.
The husband is obsessed with the idea that the wife is in a relationship with Mr C. His counsel submitted that it was incumbent on the wife to provide evidence about Mr C’s financial circumstance and that as she had not the court should draw a Jones & Dunkel[54] inference. The inference he seemed to want me to draw was that Mr C was a person of substantial means and it seemed to be his case that if this was established, it would affect the wife’s entitlement to a property settlement.
[54] Jones & Dunkel (1959) 101 CLR 98
Even if the wife was in a relationship with Mr C, this submission would be misconceived.
In Pates & Pates[55] the Full Court dealt with an appeal in which one of the grounds of appeal was that a Jones & Dunkel inference should be drawn against the husband because he failed to make adequate disclosure about his current wife’s financial position. The Full Court said as follows:
The husband’s failure to call his current wife to give evidence about her financial circumstances, without any explanation for the failure, enabled the trial judge to infer the evidence she could have given would not have assisted the husband’s case (see Jones v Dunkel at 308, 312, 320-321; Kuhl v Zurich Financial Services (2011) 243 CLR 361 at 385). But that is all. There was no other inference available or open.
[55] Pates & Pates [2018]FamCAFC 171
…………..
The trial judge remarked upon the husband’s failure to call relevant evidence and therefore rejected, for lack of evidence, his submission for an adjustment in his favour by reason of his asserted obligation to support his current wife and their children (at [195]-[197], [216]). Thus, his Honour drew precisely the inference permitted by Jones v Dunkel, which was the only one properly available.
The wife in the case before me is not seeking spousal maintenance nor is she seeking a s.75 (2) adjustment for any reason to do with her personal circumstances. She is simply seeking a just and equitable share of property acquired during a 37 year relationship on the basis of contributions.
In any event the wife denied that Mr C was anything other than a friend and she denied any financial dependence or co-ownership of property with him. She was generally a witness of credit; she provided meticulous evidence for the trial and was not shown to have any propensity for attempting to deceive or mislead the court and I have no reason to disbelieve her about the nature of her relationship with Mr C.
The husband is almost 71. He is not in good health and suffers from Parkinson’s disease. He provided some medical evidence about his health but it was otiose when he is past retirement age and when the size of the pool is such that even on the wife’s proposed division, it could not be argued that the husband needed an adjustment in his favour to meet future medical costs.
The husband has substantially retired from running the Business N and is living in the Property D unit in Queensland as much as possible. He said at trial that he wished to sell the Business N without delay but it was not on the market at the time of trial and he has never made any interim application for this to occur. Whether the husband sells the Business N is a matter for him but there was no evidence that there was any pressing need for this to occur.
The husband said that he was causing Company A to pay him $1,100.00 per week which gave him $700.00 net. He said that he was paying $500.00 per week to the company to reduce his loan account.
The husband referred to other benefits he received from the company. When he is in Town 1, he stays in the Property A cottage, eats in the business restaurant or kitchen and drink two stubbies of beer from the business bar. When he is in Property D, he lives in the unit owned by the company.
If the husband sells the Business N, this income and those benefits will cease. However on the basis of contributions, the husband is entitled to $6,263,281.92. If he retains the Property D unit he will still have assets and cash to the value of $4,429,696.92 (if the notional assets are also deducted) which is more than sufficient to generate a very reasonable income.
The husband is not in another relationship.
Nothing in the parties’ comparative circumstances suggests that an adjustment should be made in favour of either of them for s. 75(2) matters. However both parties raised matters which need to be considered pursuant to s. 75(2) (o) which requires the court to take into account any fact or circumstance which, in the opinion of the court, the justice of the case requires be taken into account.
The wife’s counsel submitted that the court should consider here any missing money or unilateral disposition of money arguments if they had not been dealt with by way of add back; the husband’s thwarting of the company valuation which meant that there was uncertainty about the value of the husband’s shares; the fact that the wife did not receive her employee entitlements of at least $18,000.00 upon the termination of her employment in 2010; and the husband’s conduct during the proceedings which had greatly added to the cost of the proceedings and caused the delay in the matter being finalised.
I have already indicated that I am not going to consider the issue of the alleged missing Business O money or the alleged missing superannuation money here and I referred to the non-payment of the wife’s entitlements when considering post-separation contributions but I do need to consider here the husband’s failure to cooperate in the valuation process which led to the Business N not being re-valued and which in turn, means that I cannot be sure that the value assigned to the husband’s Company A shares in the 2016 balance sheet is correct.
The wife’s counsel urged me to make an adjustment in the wife’s favour because of that uncertainty. He relied on cases such as Black & Kellner[56] and Weir & Weir[57] in which the Full Court said that where it was clear that there had been deliberate non-disclosure (by extension in this case deliberate failure to comply with disclosure requirements which would allow an updated valuation to occur) the court should not be unduly cautious about making findings in favour of the innocent party.
[56][56] Black &Kellner (1992) FLC 92-287, Weir & Weir (1993) FLC 92-338
The adjustment the wife’s counsel sought was $1m but this was based on a misunderstanding of the 2014 valuation and a belief that it was only a valuation of the realty.
I cannot justify an adjustment of that size but something needs to be done about the husband’s failure to co-operate in the valuation process and the approach I consider reasonable is this.
The two Property B & C buildings and the Property D unit combined appreciated by an average of 17.8% in value between the date of their earlier valuation and December 2016. 17.8% of the value of $1,975,000.00 assigned to the Business N is $351,550.00. I intend to make a s.75(2) adjustment in the wife’s favour to the value of 40% of this amount or $140,620.00. The husband’s contribution based entitlement will be reduced by the same amount.
If the husband considers this rough justice he has only himself to blame for failing to cooperate in the valuation process.
The husband’s counsel also raised an issue about the value of the Business N although in light of the husband’s failure to co-operate with the valuation process it was a cheeky submission. He submitted that the Business N was no longer a profitable business and was losing up to $200,000.00 per annum. He asserted that:
Common sense is that this will, in all probability, have a negative impact on the Business N’s sale value, and the overall value of the asset pool.[58]
[58]Husband’s submissions 11.13
The husband’s counsel submitted that I must accept the husband’s assertion that the business was losing money because the wife did not challenge it at trial. The wife did not however accept it either and a bare assertion by the husband does not gain strength because the wife fails to mount a case to disprove it, especially in circumstances where husband has control of the business and possession of all the relevant documents.
If the husband had wanted to dispute the value of the business in the 2016 balance sheet or suggest that it was losing money, he should have co-operated in an updated valuation of the business being prepared by Valuers by supplying them with necessary documents. In February 2017 the husband had still not provided this data and Valuers were unable to complete their valuation prior to the trial. I can place absolutely no weight on his assertion that the Business N is worth less than the figure in the agreed balance sheet.
Another way in which the husband could have dealt with the value of the Business N if he genuinely believed that it was worth less than the 2016 balance sheet figure, would have been by proposing that as part of the property settlement the business be sold and that the parties entitlements be calculated by applying percentages to a pool which included the actual net amount received for the business. However, the husband’s counsel did not ask me to proceed in this way. The order he proposed was that the husband cause the business to be sold for the best price reasonably obtainable and that he cause the wife to be paid from the net sale proceeds the sum of $429,442.00.
I cannot go behind the 2014 valuation of the Business N for the reason the husband advanced and speculate about what it might sell for or what it might be worth now.
The wife’s counsel’s submitted that there should be a 3% adjustment in the wife’s favour arising out the husband’s conduct of the proceedings but the submission was a little confused. He identified four matters which he said justified the wife receiving an adjustment but ended by submitting that the wife should receive a 3% adjustment as a “cushion” against the legal costs she had incurred which were much greater than they should have been because of the way the husband dragged the proceedings out.
3% of the pool equates to $385,256.00 and the wife’s counsel submitted that in light of the fact that the wife’s costs by the end of the trial were $417,009.00 this was a reasonable adjustment.
He submitted that if this adjustment was made, an order should also be made that each party bear their own costs of and incidental to the litigation.
I agree with the submission of the husband’s counsel that it is impermissible to proceed in this way. To determine whether costs should be awarded, I must have regard to all of the matters in s. 117 of the Family Law Act, which include other matters besides conduct, and if I determine that costs should be awarded, I must make a determination of the basis on which costs are awarded (indemnity or party party) and the husband is entitled to be heard about these matters.
If the wife wishes to seek costs, she will need to make an application within 28 days of the decision as permitted by the Federal Circuit Court Rules.
A matter referred to by the husband’s counsel in submissions which is appropriately considered as a s. 75(2) (o) matter is the information in the section of the husband’s affidavit headed “Financial Waste by the Wife.”
The husband said that he had added up the amounts the family company had paid into the parties’ joint account between 1 July 2001 and January 2010 and they totalled $531,243.00. He said that at separation there was only $7,000.00 in the joint bank account. He said that he seldom drew money from the account, the parties paid no rent for the Property A cottage, the family company provided his meals and the parties food costs were small and by implication said that if all this money was gone the wife must have wasted a substantial proportion of it.
There is no merit in this submission and the fact that it was made is evidence of the husband either being extremely parsimonious by nature or being extremely unwilling to reflect on the realities of life or a combination of both.
$531,243.00 divided by 9 ½ years equates to expenditure of $55,920.00 per annum or $1,075.00 per week for two people, people who required clothes, hairdressing or haircuts, the right to some entertainment including buying novels and playing golf if that was the wife’s choice and the right to buy gifts for others just to name a few.
It is beyond comprehension that the husband would complain in these proceedings about $531,243.00 being spent over the course of 9 ½ years when in less than 9 ½ minutes in June 2011 he parted with $450,000.00 to buy a luxury boat, a boat which lost $100,000.00 in value after its purchase and for which he admitted that he had bought $20,000.00 worth of fuel in one period of 18 months.
The only relevant s. 75(2) matter is the husband’s failure to co-operate in the valuation process and I intend to make an adjustment of $140,620.00 in the wife’s favour for this issue. As a result the husband will be entitled to $6,122,661.92 and the wife to $4,316,141.28.
I am satisfied that this outcome is just and equitable. It will leave each party with substantial assets which will provide them with both housing and access to income.
Conclusion
One remaining issue is something raised by the husband’s counsel toward the end of his submissions.
The husband paid the wife $50,000.00 by instalments of $500.00 per week pursuant to a court order made in December 2011 which stated that the payments were to be treated as an interim property settlement and following this he paid her $500.00 per week until 6 June 2016 on the basis that the wife’s solicitor agreed that this also would be treated as an interim property settlement, a total of $116,000.00.[59]
[59] Husband’s affidavit paragraph 272(ii)
The husband’s counsel proposed that this be deducted from the wife’s share of the pool. However he did not propose that this amount be included in the pool as a notional asset, the appropriate way to deal with it if the wife was to be called to account for it as this would mean that her entitlement to a share of it by way of property settlement would be recognised. This money has long gone and was used by the wife for living expenses indeed she had no other income between December 2011 and June 2016 when she received the settlement of $1m. I do not intend to deduct this amount from the wife’s entitlement to a property settlement.
The wife is entitled to $4,316,141.28 made up of:
Description
Value
Property E
$310,000.00
Property F
$355,000.00
Bank 1
$56,000.00
Motor Vehicle 1
$25,000.00
Bequest from mother
$94,392.00
Solicitor’s Trust Account
$147,405.00
Super Fund 1
$347,705.00
Payment from the husband
$2,980,639.28
Total
$4,316,141.28
The husband is entitled to $6,184,281.92 made up of:
Description
Ownership
Value
Husband’s shares in Company A
Husband
$8,281,854.00
Shares W
Husband
$5,000.00
Bank 1 Cheque Account
Husband
$7,671.00
Solicitor’s Trust Fund
Husband
$177,719.00
Motor Vehicle 2
Husband
$50,000.00
Motor Vehicle 3
Husband
$30,000.00
Director’s loan to Company A Pty. Ltd.
Husband
$387,698.00
Mortgage debt (Mr E)
Husband
$137,000.00
Jet Ski
Husband
$13,500.00
Superannuation
Husband
$579,274.00
Add back payments to children
$340,000.00
Add back paid legal fees
$93,585.20
Liability to Company A
($1,000.000.00)
Payment to wife
($2,980,639.28)
Total
$6,122,661.92
As can be seen $2,724,019.28 will need to move from the husband to the wife and the orders proposed by the parties are not helpful in terms of dealing with that outcome.
The husband proposed that he be required to sell the Business N and that he pay the wife from the sale proceeds. However even if the amount to which the wife is entitled would be safely covered by the sale of the Business N, I would not make that order.
As a result of successful interim applications, the wife has a residence and income but she has a much more substantial entitlement and these proceedings have taken far too long to reach finality. The husband did not propose a time frame for sale nor did he put forward any evidence about how long the Business N might take to sell and the wife is entitled to receive her share of the fruits of the parties 37 year relationship sooner rather than later and to not be entirely dependent on the husband as to the time frame in which those entitlements are received.
The husband can sell the business if he wishes but there are other assets in the pool which could be realised to allow payment to the wife and there is also the possibility of a loan.
That leads into a time frame for payment. The wife’s solicitor proposed a simple order that the husband pay the wife the required sum within 56 days but the husband needs time to think about how he will meet his obligation under the orders and if I make an order for payment within that time frame and the husband does not pay then considerable interest may become payable.
Balancing the needs of both parties in circumstances where I was not given much to work with I intend to order that the husband make a payment to the wife within 4 months.
I finally note that I was provided with absolutely no evidence about any taxation consequences of assets owned by Company A being disposed of and I cannot take into account matters about which the parties provided no evidence.
For all of the above reasons the orders of the court will be as set out at the beginning of this judgment.
I certify that the preceding three hundred and fourteen (314) paragraphs are a true copy of the reasons for judgment of Judge Terry
Date: 5 October 2018
Key Legal Topics
Areas of Law
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Family Law
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Civil Procedure
Legal Concepts
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Remedies
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Costs
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Injunction
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