Leeming & Estrada
[2023] FedCFamC2F 729
•16 June 2023
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Leeming & Estrada [2023] FedCFamC2F 729
File number(s): ACD 754 of 2019 Judgment of: JUDGE PARKER Date of judgment: 16 June 2023 Catchwords: FAMILY LAW – PROPERTY – where farming land and farming enterprise is contributed by one party – where other party makes significant contributions – where in the event of inability to refinance, farming land must be sold to achieve a just and equitable outcome – liquidation of company through which business operated – treatment of associated liabilities Legislation: Evidence Act 1995 (Cth) ss 128, 140
Family Law Act 1975 (Cth) ss 79, 75, 106A
Cases cited: af Petersens & af Petersens [1981] FamCA 50; (1981) FLC ¶91-095
Aleksovski & Aleksovski [1996] FamCA 111; (1996) FLC ¶92-705
Antmann & Antmann [1980] FamCA 64; (1980) FLC ¶90-908
Aroney & Aroney (1979)FLC ¶90-709
Bolger & Headon [2014]FamCAFC 27; (2014) FLC ¶93-575
Browne & Green [1999] FamCA 1483; (1999) FLC ¶92-873
NHC & RCH [2004] FamCA 633; (2004) FLC ¶93-204
Clauson & Clauson [1995] FamCA 10; (1995) FLC ¶92-595
Fields & Smith [2015] FamCAFC 57; (2015) FLC ¶93-638
Harris & Harris [1993] FamCA 49; (1993) FLC ¶92-378
Jabour & Jabour [2019] FamCAFC 78; (2019) FLC ¶93–898
Johnson & Johnson [1999] FamCA 369; (2000) FLC ¶93-039
Keating & Keating [2019] FamCAFC 46; (2019) FLC ¶93-894
Kowaliw & Kowaliw [1981] FamCA 70; (1981) FLC ¶91-092
Lee Steere & Lee Steere [1985] FamCA 57; (1985) FLC ¶91-626
Magas & Magas [1980] FamCA 67; (1980) FLC ¶90-885
Mallet & Mallet [1984] HCA 21; (1984) 156 CLR 605
Marker & Marker [1998] FamCA 42
AJO & GRO [2005] FamCA 195; (2005) FLC ¶93-218
Pierce & Pierce [1998] FamCA 74; (1999) FLC ¶92-844
Prince & Prince [1984] FamCA 7; (1984) FLC ¶91-501
Russell & Russell [1999] FamCA 1875; (1999) FLC ¶92-877
Trustee of the Property of Lemnos (A Bankrupt) & Lemnos & Anor [2009] FamCAFC 20; (2009) FLC ¶93-394
Watson & Ling [2013] FamCA 57; (2013) FLC ¶93-527
Williams & Williams [2007] FamCA 313
Zalewski & Zalewski [2005] FamCA 996; (2005) FLC ¶93-241Division: Division 2 Family Law Number of paragraphs: 245 Date of last submission/s: 9 June 2023 Date of hearing: 8-11 August 2022, 22-23 November 2022, 3 February 2023 and 9 June 2023 Place: Adelaide Counsel for the Applicant: Ms Smith Solicitor for the Applicant: Alan Oxenham Barrister & Solicitor Counsel for the Respondent: Ms Pangallo Solicitor for the Respondent: Bartel and Hall Lawyers & Conveyancers ORDERS
ADC 754 of 2019 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: MR LEEMING
Applicant
AND: MS ESTRADA
Respondent
ORDER MADE BY:
JUDGE PARKER
DATE OF ORDER:
16 JUNE 2023
THE COURT ORDERS THAT:
Transfer of Property, Refinance and Payment
1.Within thirty (30) days of the date of these orders (‘the settlement date’) the Wife transfer to the Husband all of her right, title and interest in the real property situate at and known as B Street, Town C in the State of South Australia (‘the B Street property’), more particularly described in Certificate of Title Volume … Folio …, at the Husband's sole expense and the parties shall each do all acts and things and sign all documents necessary to give effect to the transfer contained herein.
2.Contemporaneously with the Wife’s compliance with order 1 hereof:
2.1The Husband shall, at his sole expense:
2.1.1Refinance into his sole name the ANZ Bank loan account numbers including but not limited to …97, …23, …57, …47 and ANZ Bank Account number …67 secured by:
2.1.1.1The B Street property; and
2.1.1.2The properties at D Street, Town C in the State of South Australia, more particularly described in Certificate of Title Volume … Folio …; Lot 1 E Street, Town C, in the State of South Australia, more particularly described in Certificate of Title Volume … Folio …; and Lot 2 E Street, Town C in the State of South Australia, more particularly described in Certificate of Title Volume … Folio … (collectively ‘the farming properties’).
2.1.2Discharge and release any and all mortgages registered over the B Street property and the farming properties in favour of ANZ Bank;
2.1.3Release and indemnify the Wife and keep her indemnified in relation to the ANZ Bank loan account numbers referred to in order 2.1.1 hereof and any other that may exist; and
2.1.4Pay or cause to be paid to the trust account of Bartel and Hall on behalf of the Wife the sum of $608,895.84.
Default Provisions
3.In the event that the Husband fails to comply with orders 1 and 2 herein and on the condition the Wife has not defaulted in any of her obligations pursuant to these orders:
3.1The Husband shall pay default interest to the Wife on the balance outstanding of the payment required by order 2.1.4 from the date of default to the date of payment in accordance with the Federal Circuit and Family Court of Australia (Family Law) Rules 2021; and
3.2In the event that any said default has not been remedied within 60 days of the settlement date, the Wife and the Husband shall do all acts and things and sign all necessary documents required to list for sale by auction the B Street property and for that purpose the following shall apply:
3.2.1The listing shall be with such real estate agent as is agreed between the parties and failing agreement as follows:
3.2.1.1Within seven (7) days of one party advising the other in writing that there is no agreement the Wife provide to the Husband, via his representatives, a panel of three (3) real estate agents;
3.2.1.2Within seven (7) days of receiving the panel referred to in the preceding order, the Husband shall select one real estate agent from the panel, and advise the Wife, via her representatives, of his selection;
3.2.1.3In the event that the Husband fails to advise of his selection in accordance with the preceding order, the Wife is free to choose from the panel of proposed real estate agents; and
3.2.1.4Regardless of the manner of selection, the parties shall jointly appoint the nominated real estate agent for the purposes of marketing and taking the property to auction SAVE THAT if the Husband fails or refuses to participate in the instruction process the Wife shall be at liberty to appoint the agent solely.
3.2.2The list price of the B Street property shall be such amount as is agreed between the parties and failing agreement within fourteen (14) days of engagement of the real estate agent the list price will be as nominated by the real estate agent;
3.2.3The parties shall each co-operate in every way with the real estate agent in relation to the marketing of the B Street property for sale including making the key readily available, allowing inspection of the B Street property at all times reasonably requested by the agent and ensuring that the B Street property is clean, neat and in good order at the time of inspection by any prospective buyer;
3.2.4The Husband shall pay to the real estate agent any sums requested for advertising or auction expenses;
3.2.5The reserve price of the B Street property shall be such amount as is agreed between the parties and failing agreement any offer to buy the property that is at least 90 percent of the list price shall be accepted by the parties as the sale price;
3.2.6The parties shall engage a conveyancer using the same method of selection and appointment as outlined in relation to the real estate agent at order 3.2.1 hereof;
3.2.7The contract of sale shall provide for completion within 30 days after the date of the contract or any other time period as recommended by the real estate agent;
3.2.8The proceeds of sale of the B Street property shall be paid in the following manner and priority:
3.2.8.1To discharge any registered mortgage(s) against the B Street property;
3.2.8.2To discharge any other encumbrance affecting the property including rates, taxes and other reasonable expenses;
3.2.8.3To meet all reasonable costs of sale, including payment of the agent's commission and advertising or other expense, if any, payable on the sale;
3.2.8.4Payment of the conveyancer's costs and outlays relating to the sale;
3.2.8.5Payment of $608,895.84, along with interest from the date of default, with such interest to be calculated in accordance with the Federal Circuit and Family Court of Australia (Family Law) Rules 2021, to Bartel and Hall Trust Account on behalf of the Wife; and
3.2.8.6The balance to the Husband.
3.2.9In the event that the B Street property is not sold at the auction pursuant to the preceding order or within fourteen (14) days after the date of the auction by further negotiation, then the Husband and the Wife shall cause a further auction of the property to be held within two (2) months after the date of the first auction and for that purpose the preceding subprovisions of this order shall apply in relation to the sale and disbursement of proceeds.
Interim Use of Property
4.Pending the transfer, or sale, of the B Street property pursuant to these orders:
4.1The parties each be and are hereby restrained by injunction from encumbering or borrowing further against any existing encumbrance affecting the B Street property without the prior written consent of the other;
4.2The parties each be and are hereby restrained by injunction from giving any notice or seeking or consenting to any order that affects the B Street property;
4.3The parties each be and are hereby restrained by injunction from making any agreement affecting the B Street property;
4.4The parties each provide to the other any notice, proceeding or other order received by them that affects or requires work on the B Street property;
4.5The Husband maintain (at his sole cost) building insurance for the B Street property at the current value and provide to the Wife a certificate of currency evidencing same within two (2) business days of any request being made;
4.6The Husband shall have the sole right to use and occupy the B Street property to the exclusion of the Wife;
4.7The Husband shall be responsible for the day to day maintenance and care of the B Street property and must keep the B Street property in a reasonable state of repair;
4.8The Husband shall be solely liable for and indemnifies the Wife against the following outgoings in relation to the B Street property:
4.8.1Instalments and money due under any mortgage;
4.8.2Rates and water;
4.8.3Any land tax assessed;
4.8.4The cost of all reasonably necessary repairs and maintenance to the structures and or buildings located on the B Street property;
4.8.5The premiums for the continuation of current insurance policies on the house and contents located on the real property; and
4.8.6Utility expenses including but not limited to gas, electricity and telephone usage.
F Pty Ltd and G Pty Ltd
5.Within ninety (90) days of the date of this order (or such other date as agreed in writing between the parties), the parties shall, at their joint and equal expense, do all acts and things and sign all documents necessary to wind up F Pty Ltd, including jointly instructing a suitably qualified accountant to prepare and attend to the winding up referred to herein with such appointment being made within thirty (30) days of the date of this order.
6.All outstanding liabilities owing upon the winding up of F Pty Ltd, including but not limited to any capital gains taxation, income taxation, GST and accounting fees will be met equally between the parties.
7.All outstanding liabilities owing with respect to G Pty Ltd. These liabilities will be met equally between the parties.
Retention of Assets and Liabilities
8.Save as otherwise provided for in these orders or as required the purpose of enforcing these orders, the Husband retain as his absolute property to the exclusion of the Wife, the title and possession to and of the following:
8.1the B Street property;
8.2the farming properties;
8.3his stock;
8.4his plant and equipment;
8.5the funds held in all bank accounts in his sole name;
8.6the furniture and household contents and tools in the possession of the Husband and at the B Street property;
8.7his life insurance policies;
8.8all shares and investments held in his sole name; and
8.9all other proprietary interests of whatsoever nature currently in the Husband's possession and/or control.
9.The Husband retain sole liability for and indemnify the Wife with respect to any loan, liability, lease or credit card liability held or registered in his sole name.
10.Save as otherwise provided for in these orders or as required for the purpose of enforcing these orders, the Wife retain as her absolute property to the exclusion of the Husband, the title and possession to and of the following:
10.1the loan owed to her by Mr H;
10.2the funds held in all bank accounts in her sole name;
10.3the furniture and household contents and tools in the possession of the Wife;
10.4her superannuation entitlements; and
10.5all other proprietary interests of whatsoever nature in the Wife's current possession and/or control.
11.The Wife retain sole liability for and indemnify the Husband with respect to any loan, liability, lease or credit card liability held or registered in her sole name.
12.Other than as is specifically provided for in these orders, the parties are solely entitled to the exclusion of the other to all other property and chattels of whatsoever nature and kind in the possession of each of the parties as at the date of the making of these orders.
13.The Husband and the Wife each be and are hereby restrained from obtaining or attempting to obtain credit by the use of any credit card held in the other's name, and shall within fourteen (14) days from the date of these orders, deliver up any secondary credit card that either may hold to the other party.
Miscellaneous
14.The parties execute all deeds or instruments and do all acts and things necessary to give validity and operation to the deed or instrument to give effect to these orders.
15.If either party refuses, fails or neglects to execute any document necessary to put these orders into effect fourteen (14) days after being requested to do so, and any such refusal, failure or neglect is proved by Affidavits filed and served by or on behalf of the party alleging this, a Registrar of the Federal Circuit and Family Court of Australia (Division 2) be and is hereby appointed pursuant to section 106A of the Family Law Act 1975 (Cth) to execute such document in the name of such party.
16.Save as otherwise provided herein the transferee spouse or the spouse receiving the benefit of any transaction pursuant to these orders prepare the documentation necessary to give effect to the provision of these orders at their cost and further be responsible for the payment of registration fees and any other fees in relation to the transfer of property into their name.
17.Any duty payable on any transaction arising out of these orders be paid by the transferee spouse or the spouse receiving the benefit of such transfer or transaction.
18.The parties each have liberty to apply for consequential orders.
19.All extant application be and are hereby dismissed without prejudice to the right of each of the parties to make further application in relation to costs.
Applications as to Costs
20.Any application as to costs in relation to these proceedings (save for any costs application arising from any subsequent default) must:
20.1Be made in proper form, by way of an Application in a Proceeding or Response to Application in a Proceeding as applicable;
20.2Be made within 28 days of the date of these orders;
20.3Set out with particularity the precise orders sought;
20.4Be accompanied by an affidavit setting out:
20.4.1The evidence relied upon in support of the application;
20.4.2The means by which the costs sought have been calculated; and
20.4.3Irrespective of the basis upon which the costs are sought, a calculation of the costs sought in accordance with the scale set out in Schedule 1 to the Federal Circuit and Family Court of Australia (Division 2)(Family Law) Rules 2021.
21.The Applicant in relation to any application for costs shall be at liberty to file one affidavit in reply to an affidavit filed by the Respondent in accordance with the preceding order within 14 days of service of such affidavit.
22.No later than 7 days prior to the date upon which any costs application filed is listed for hearing, the parties each file and serve a Case Outline document setting out a summary of argument in relation to the issue of costs.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
JUDGE PARKER
INTRODUCTION
The applications before the Court relate to property settlement proceedings between the Applicant Husband, MR LEEMING (‘the Husband’), and the Respondent Wife, MS ESTRADA (‘the Wife’). Each of the parties sought orders dividing their property between them pursuant to section 79 of the Family Law Act 1975 (Cth) (‘the Act’).
The Husband relied on the following documents:
(a)Amended Initiating Application filed 16 May 2022;
(b)Trial Affidavit filed 18 June 2022;
(c)Affidavit in Reply filed 25 June 2022;
(d)Financial Statement filed 16 May 2022;
(e)Case Outline filed 24 June 2022; and
(f)Written submissions filed 25 January 2023.
The Wife relied on the following documents:
(a)Amended Response to Initiating Application filed 24 November 2022;
(b)Trial Affidavit filed 20 June 2022;
(c)Financial Statement filed 22 June 2022;
(d)Case Outline filed 24 June 2022; and
(e)Written submissions filed 23 December 2022.
BACKGROUND
The Applicant Husband was born in 1958 and was aged 65 at the time of the conclusion of the trial. He works as a self-employed farmer in Town C, South Australia. The Wife was born in 1962 and was aged 61 at the date of conclusion of the trial. She is employed as a professional for a business in Town J, South Australia.
The parties commenced cohabitation in approximately 2005 and were married in 2006. There are no children of the marriage. Both parties have independent adult children from previous marriages.
The parties separated in November 2014 and engaged in proceedings in what was then the Federal Circuit Court of Australia, which were discontinued upon their reconciliation in 2015. They separated on a final basis on 12 March 2018. Their relationship spanned a period of approximately 12 and a half years, save for their brief period of separation.
PROPOSALS
The Husband sought that the net value of the parties’ assets and liabilities be divided in proportions of 80 percent to him and 20 percent to the Wife. Neither his Amended Initiating Application nor his Case Outline set out with precision the orders he sought. It was implicit in the manner in which he conducted his case that he sought that the Wife transfer to him her interest in the property at B Street, Town C, South Australia (‘the B Street property’) and that he opposed the making of any order, including any default order, for the sale of the B Street property. He also opposed the sale of any of the other parcels of real estate held in his name from which, together with the B Street property, he operates a farming enterprise as a sole trader, being the properties at D Street, Town C, and Lots 1 and 2 E Street, Town C (collectively ‘the farming properties’ or ‘the farming land’). Counsel for the Husband indicated during closing submissions that the Husband sought orders providing that he make a payment to the Wife of $114,000 upon transfer to him of the Wife’s interest in the B Street property.
The Wife sought that the net value of the property of the parties’ relationship including superannuation be divided so as to effect an overall settlement of 70 percent to the Husband and 30 percent to the Wife. To effect such an outcome, she sought, in summary, orders providing for her to transfer to the Husband her interest in the B Street property, for the Husband to retain the farming properties held in his sole name, for the Husband to refinance and discharge all borrowings secured by the farming properties, and for the Husband to pay her the sum of $800,000. In the event of default, the Wife sought a sale of the B Street property.
In addition, the Wife sought orders providing for the wind up of F Pty Ltd, being a company controlled by the parties, and joint responsibility for any liabilities associated with that wind up and with G Pty Ltd, being another company previously controlled by the parties, which was placed into liquidation in 2018. The Husband did not oppose the wind up of F Pty Ltd but opposed any orders imposing on him liability for any costs or liabilities associated with that wind up or with G Pty Ltd.
The Wife otherwise sought largely uncontroversial orders pertaining to the use to be made of the B Street property pending the payment to her (or, on the Wife’s case but not the Husband’s, the sale of the property), and that the parties each otherwise retain the assets and liabilities in their respective possession.
Each of the parties also sought orders as to costs incurred in relation to these proceedings as part of their respective applications. It was agreed at the commencement of the trial that all applications as to costs would be heard and determined separately, following delivery of the reasons in the substantive applications. The orders made contemporaneously with these reasons include procedural orders to facilitate the determination of the parties’ competing costs applications should one or both of them be pursued.
THE PARTIES AND THEIR EVIDENCE
The Wife gave her evidence in a calm and straightforward manner. The answers she gave under cross-examination were responsive to the questions asked of her and she impressed as a witness who was genuinely endeavouring to give honest and accurate evidence. I formed the impression that minor inaccuracies in her evidence resulted from genuine mistakes rather than any lack of honesty. As submitted by her Counsel, her evidence was largely unchallenged and was not seriously undermined in cross-examination.
The Husband complained of deficiencies in the disclosure made by the Wife and sought that an adverse inference be drawn against her as a result. However, as Counsel for the Wife submitted, there was no call made by Counsel for the Husband for any specific document and it was not put to the Wife that she had been asked for any particular document that could reasonably be expected to be in her possession, power or control and had failed to produce it. The Wife credibly explained that when she had left the former matrimonial home at the time of the parties’ separation in unhappy circumstances, she had left many of her documents behind such that they remained in the Husband’s possession, and that she had been unable to obtain documents more than seven years old from banks and other financial institutions. I accept this evidence and draw no general inferences from lack of disclosure on behalf of the Wife.
The Husband was a significantly less impressive witness. His answers were frequently not responsive to the questions asked of him, and he often gave evasive answers which required the question asked of him to be repeated numerous times. At times, he answered questions with questions of his own. I was required to intervene on a number of occasions to ask him to respond to the questions he was asked. At times, he gave non-responsive answers such as ‘no comment’. At one point, he outright refused to answer a question that was put to him. On the second day of the trial, the Husband’s son was asked to leave the courtroom as a result of concerns that the Husband was communicating or attempting to communicate with him while giving his evidence.
At times, the Husband was belligerent and combative while giving his evidence. His manner was frequently smug, and on more than one occasion, rather than answering questions, he made facetious comments. One example of this was offering to give Counsel a new calculator. At some points, the Husband’s evidence was fanciful. An example of this was an assertion that the parties’ accountant was not in fact an accountant but a tradesperson, an assertion which he subsequently resiled from. He frequently blamed his solicitor (who was not called to give evidence) for his failure to provide documents or engage properly with correspondence received from the Wife’s solicitor. Aspects of the Husband’s evidence given under cross-examination revealed that evidence given in his affidavit had been either cavalier or wilfully wrong.[1] I gained the impression that the Husband’s primary purpose in giving much of his evidence was to promote his case rather than to provide the Court with accurate and truthful information.
[1] Examples of this included his evidence that the liabilities of the company F & G Pty Ltd had been $700,000 at the time it went into liquidation, which the Husband subsequently admitted that he did not know and evidence that a quotation to undertake a valuation had been $18,000, when it had in fact been $2,750. Each of these issues is considered separately later in these reasons.
Counsel for the Husband sought to excuse his presentation in the witness box by explaining that he is not well versed in public speaking, is very passionate and knew that ‘his family property [was] at risk.’ I accept that giving evidence and being cross-examined would have been a stressful and unfamiliar experience for the Husband, just as it would have been for the Wife. This does not, however, detract from my observations as to the manner in which he conducted himself. I note that the Husband suffers from a mental health disorder, but there was no evidence before the Court to suggest that this could be expected to have any impact on his demeanour as a witness. Indeed, his evidence was that he was under the regular care of a psychiatrist, taking medication and progressing well.
As a result of my observations of the parties in the witness box, wherever their evidence conflicts, in the absence of independent evidence or a basis for doing otherwise, I shall prefer the evidence of the Wife. I also accept all of the unchallenged evidence given by the Wife, save where the contrary is specifically indicated in these reasons.
THE LEGAL FRAMEWORK
Orders under section 79 of the Act altering the property interests of parties may only be made if the Court is first satisfied, pursuant to section 79(2), that it is just and equitable to make such orders.[2] If the Court determines that it is just and equitable for the property interests of the parties to be altered, section 79(4) sets the matters the Court must take into account in considering what order, if any, should be made. The Court must identify and assess the parties' contributions within the meaning of sections 79(4)(a)-(c) and then take account of the relevant matters referred to in sections 79(4)(d)-(g) and 75(2).
[2] Stanford & Stanford [2012] HCA 52; (2012) 247 CLR 108.
In accordance with section 140 of the Evidence Act 1995 (Cth), all findings of fact in this judgment are made on the balance of probabilities.
Whether it is Just and Equitable that Orders be Made
The parties agree that it is just and equitable that orders be made altering their interests in their property. However, that alone is insufficient, and I must be satisfied that it is just and equitable that an order be made.
In Stanford & Stanford (‘Stanford’)[3], the High Court of Australia made it clear that I must not conflate my determination pursuant to section 79(2) of the Act with my determination pursuant to section 79(4) of the Act. These are separate enquiries, and I must not start with an assumption that one party or the other has the right to have their property divided between them.
[3] [2012] HCA 52; (2012) 247 CLR 108.
The parties no longer live together. If there were no adjustment to the legal ownership of their property interests, they would continue in joint ownership of assets not withstanding their separation and there would be no justice and equity to the parties in that regard.
This is clearly one of the ‘vast majority of cases’ referred to by the plurality in Stanford, in which the requirements of section 79(2) of the Act are readily satisfied. It is plainly just and equitable to make an order pursuant to section 79(4) of the Act in these proceedings for a division of property between the parties.
MAJOR AREAS OF DISPUTE
The vast majority of the issues in dispute between the parties arise from two major areas of contention:
(a)The events and circumstances surrounding the parties’ interests in G Pty Ltd and F Pty Ltd (collectively the F & G Pty Ltd companies) and the business known as K Company; and
(b)Assertions made by the Wife that the Husband engaged in conduct in relation to two mediations and broader attempts to resolve the matter, which led to her incurring significant losses.
The parties’ positions in relation to these two issues permeated the manner in which they each presented their cases in relation to each of the steps required to be undertaken by the Court, and as such, they will be considered early in these reasons.
G Pty Ltd and F Pty Ltd
At the time of the parties’ separation, they were both directors and equal shareholders of each of the F & G Pty Ltd companies. G Pty Ltd was the owner of a business known as K Company which was operated by the Wife. F Pty Ltd was the owner of the commercial premises from which the business operated, being factory premises at L Street, Town C (‘the L Street property’).
Each of the parties alleged that the other had caused a significant diminution in the value of the assets and liabilities available for distribution between them by reason of their conduct concerning the F & G Pty Ltd companies. Many of the disputes between the parties as to the inclusion of certain liabilities in the list of assets and liabilities to be distributed between them stemmed from their dispute in relation to the F & G Pty Ltd companies.
In summary, the factual history as it pertains to this issue is as follows:
(a)G Pty Ltd and F Pty Ltd were incorporated in 2015 for the purpose of operating K Company, which was purchased by G Pty Ltd as an established business for the sum of $190,000. Prior to the purchase, the Wife had been working as an employee of K Company.
(b)At around the same time, F Pty Ltd purchased the commercial property from which the K Company business was operating, being the L Street property, for $630,000 ($572,272.27 plus GST).
(c)Both purchases were funded by borrowings from ANZ Bank secured by the farming properties. At the same time, the parties refinanced all of their personal and business borrowings from the Commonwealth Bank to ANZ. The parties both gave personal guarantees to ANZ Bank with respect to the borrowings.
(d)The parties obtained an overdraft with a limit of $200,000 and a credit card with a balance of $50,000 for the purpose of the operation of the business. They also entered into a credit contract with a supplier, M Company, with a limit of $100,000, pursuant to which they each gave personal guarantees in late 2015.
(e)The Wife managed the K Company business from the time of its purchase.
(f)According to the Wife’s evidence, in 2016 and 2017, K Company experienced significant and unexpected growth and did not have sufficient capital available to handle that growth, resulting in an inability to pay suppliers in a timely manner, which led to delay in the provision of materials, which in turn affected the ability of the business to fulfil its orders. The Husband alleged that the growth resulted from the Wife irresponsibly slashing profit margins. This was credibly denied by the Wife, who gave evidence that both she and the former owners had operated at a margin of approximately 20 percent, although she admitted that she was overwhelmed by the sudden growth of the business and could have made better management decisions such as refusing contracts. Under cross-examination, it was put to the Husband that there had been a significant increase in gross income. He evaded the question. He acknowledged that he had been aware that the number of employees had increased and that the business was growing. Noting that the Husband’s evidence was that he was told nothing about the operation of the business and that he denied having seen the books for the business, it is not possible to accept his evidence as to the manner in which it was operated or the reasons for its financial difficulties. I accept the evidence of the Wife in this regard.
(g)In mid-2017, the K Company overdraft was extended from $200,000 to $300,000.[4] The Husband’s evidence was that the Wife procured this extension without his consent. The Wife’s evidence was that she had made the application prior to discussing the matter with the Husband, the bank had erroneously extended the limit without the Husband’s consent, and when the Husband refused to sign the necessary documents, the original limit had been restored. The Wife was not challenged on her evidence that the original limit had been restored shortly after the extension, but this fact was not disclosed by the Husband, whose evidence gave the impression that the Wife had had the benefit of an extension of the overdraft which had occurred without his consent. This reflects poorly on his credibility. I accept the evidence of the Wife.
[4] The Wife initially deposed that the increase was to $250,000 but corrected this evidence in the witness box, indicating that the initial figure had been an error.
(h)It is not a matter of contention that by early 2018, cash flow for K Company had become a major concern. The Wife commenced lending funds from the partnership through which she and the Husband operated the farming enterprise (for which she was undertaking the bookkeeping) to G Pty Ltd, largely for the purpose of making payments of wages, in order to assist with the cash flow difficulties experienced by G Pty Ltd. She admitted that she had not informed the Husband of this and that he had not become aware of these transactions until after the parties had separated. The Wife’s unchallenged evidence was that the funds had all been repaid within a matter of days and that as at 30 June 2018, G Pty Ltd did not owe any funds to the partnership. The Husband alleged that further funds were taken from the partnership by the Wife after 30 June 2018 and were not repaid. This allegation was not particularised and no independent evidence was adduced to support it. I reject this evidence. I accept the submission of Counsel for the Wife that there is no evidence or even suggestion that the Wife applied the funds for her personal use or used them for purposes other than to assist the operation of the K Company business. Counsel for the Husband confirmed during closing submissions that the Husband did not press for a finding that any debt owed by G Pty Ltd to the farming partnership was carried forward after 30 June 2018 and did not seek that the Wife’s conduct in this regard have any consequential effect on the orders of the Court.
(i)In early 2018, the Wife caused G Pty Ltd to enter into a contract with a supplier, N Company and gave a personal guarantee. This occurred without the Husband’s knowledge or consent.
(j)The parties separated on 12 March 2018.
(k)The Wife’s evidence was that in approximately mid-2018, the parties met with Mr O, the accountant for the F & G Pty Ltd companies and K Company, who advised them that a cash injection would be required to enable G Pty Ltd to trade out of its cash flow difficulties. The Husband deposed that he met with Mr O in early 2018 but denied the Wife was present. I accept the Wife’s evidence. The parties agree that the Husband was not prepared to secure any further funding against the farming properties by agreeing to an extension of the K Company overdraft.
(l)In late 2018, the Wife met with Mr O and representatives of P Company, a partner of which firm was ultimately appointed as liquidator of G Pty Ltd. The Wife did not inform the Husband of this meeting.
(m)In late 2018, Mr O wrote to the parties[5] and indicated, inter alia, that there was very little prospect of the company trading out of its cash flow difficulties, that it was likely to be trading insolvent shortly if it was not already, and that without an injection of funds in the order of $200,000 to $250,000, it would likely be forced into liquidation.
[5] Wife’s trial affidavit, annexure 14.
(n)In late 2018, the Husband, his accountant and his solicitor met with Mr O. Mr O acted as the Wife’s proxy. The Husband’s evidence was that Mr O advised them that G Pty Ltd was insolvent. The Wife disputed this and deposed that the advice given by Mr O was that without a further injection of funds the company was at risk of becoming insolvent.[6] Although the parties disagree as to quantum, it is agreed that Mr O advised them that G Pty Ltd required more capital in order to purchase the materials required to fulfil its contracts, and that it would otherwise need to be placed into liquidation. I accept the Wife’s evidence, which is consistent with a letter from the accountant dated late 2018[7] that the further injection of funds required was in the vicinity of $200-250,000. It is not a matter of dispute that the Husband was not prepared to inject further funds into G Pty Ltd, and as a result, it was resolved (with Mr O voting as the Wife’s proxy) that the company would be placed into liquidation.
[6] The Liquidator’s Report to Creditors produced on 26 May 2021 suggested that G Pty Ltd may have been insolvent from as early as 2018. The liquidator was not called to give evidence and I accept the submission of Counsel for the Wife that the evidence does not enable a finding of insolvent trading. The Wife sought and was granted a certificate pursuant to section 128 of the Evidence Act 1995 (Cth) in relation to evidence given by her pertaining to any potential insolvent trading. The Husband freely deposed in his affidavit to his belief that the company had been trading while insolvent without the benefit of a certificate despite having been a director of the company at the relevant time.
[7] Wife’s trial affidavit, annexure 14.
(o)G Pty Ltd was placed into voluntary liquidation in late 2018. At the time of the liquidation, the overdraft balance was $192,873.14. The company also owed funds to suppliers. The Wife’s evidence was that the total debt owed by G Pty Ltd as at the time it went into liquidation was approximately $575,000, which included the sum of $190,000 initially applied to the purchase of the K Company business. The Husband asserted that the debt at the time of the liquidation was approximately $700,000 but conceded under cross-examination that he did not know whether that was correct or not. I accept the evidence of the Wife, which is consistent with the letter sent by Mr O in late 2018.[8]
[8] Wife’s trial affidavit, annexure 14.
(p)From the time G Pty Ltd was placed into liquidation, K Company ceased operating from the L Street property, and F Pty Ltd ceased receiving rental income in relation to that property. The Wife’s evidence was that this led to an increase of $70,000 in the balance of the loan held by F Pty Ltd in relation to that property. This was conceded by the Husband under cross-examination.
(q)In late 2018, the parties received a letter of demand from solicitors known as Q Firm on behalf of M Company demanding payment of the sum of $124,214 of a debt owed by G Pty Ltd to M Company, pursuant to the personal guarantees that had been given by the parties. M Company had lodged caveats over the titles to the B Street property and the properties at D Street, Town C and Lots 1 and 2, E Street in late 2018.
(r)The Wife’s unchallenged evidence was that following the liquidation, she was approached by a Mr R, who proposed that she be involved in the purchase of K Company from the liquidator. In 2018, a company known as S Pty Ltd was incorporated for the purpose of the proposed purchase of K Company. Mr R was the sole director. The Wife was the secretary. Initially, the Wife and Mr R were equal shareholders, holding five shares each. The proposal for the purchase involved Mr R providing the sum of $150,000 by way of loan to S Pty Ltd for the purpose of providing capital to the business. It is common ground that the Wife did not inform the Husband of this proposal.
(s)On or around 6 November 2018, the Wife sent an email to the Husband proposing that F Pty Ltd lease the L Street property to S Pty Ltd at rent of $5,500 per month plus outgoings. The Husband did not agree. It is not a matter of contention between the parties that the Wife had not informed the Husband of her involvement with S Pty Ltd or her intention to acquire the K Company business from the liquidator prior to sending this email. In subsequent correspondence and communications between their respective solicitors, the Wife outlined details of the proposed purchase of K Company by S Pty Ltd, together with her concerns that refusal of the lease would jeopardise both the purchase and the ability of F Pty Ltd to make the required repayments towards the loan secured by the L Street property. The Husband persisted in his refusal, and expressed a preference that the L Street property be sold and the proceeds applied to the loan secured by the property, with any remaining balance being used to extinguish any remaining debts associated with K Company and otherwise held on trust for the parties pending resolution of these proceedings. The Wife sought to retain the L Street property in order to continue operating the K Company business and did not consent to its sale. The Husband was put on notice that if he did not consent to the lease, any consequent losses would be sought against him by the Wife. The Husband did not consent.
(t)Shortly after G Pty Ltd was placed into liquidation, the majority of the plant and equipment and stock of K Company were purchased from the liquidator by T Pty Ltd, a company of which a Mr U was the sole director and shareholder. Mr U was also a director of M Company. The Wife’s evidence, which was not successfully challenged, was that this purchase was at market value and that she was not involved in the associated negotiations. T Pty Ltd then sold the business assets to S Pty Ltd for the price of $150,000, upon the provision of vendor finance. The Wife’s unchallenged evidence was that Mr R continued to hold five shares in S Pty Ltd, while the Wife held two shares and T Pty Ltd three shares, with the agreement being that the three shares held by T Pty Ltd would be transferred back to the Wife upon repayment of the vendor finance. The Wife and Mr R were the managers of K Company following the purchase. The Wife drew an income of $85,000 per annum in that role.
(u)In late 2018, the Wife received a letter from law firm V Law Firm on behalf of N Company demanding the sum of $55,814.51 pursuant to the personal guarantee she had given in March 2018. N Company had lodged a caveat over the Wife’s interest in the B Street property in late 2018. The Wife’s unchallenged evidence was that the Husband refused to allow her to apply matrimonial funds to the repayment of this debt, with the consequence that it increased.
(v)In late 2018, S Pty Ltd entered into a lease with a third party for alternative premises from which to operate K Company and relocated the business operations, plant and equipment. The Wife’s evidence, which was not undermined in cross-examination, was that the move incurred expenses and losses of approximately $20,000-$30,000. In late 2018, the Wife gave a further personal guarantee to M Company in order to continue the operation of K Company.
(w)In early 2019, each of the parties claimed to have entered into negotiations with M Company in relation to repayment of the debt owed to them. The Husband alleged that the Wife did not do so. The Wife’s evidence was that she not only had she engaged in negotiations with both M Company and N Company via her solicitors, but she had kept the Husband informed of her negotiations, and had not been informed by the Husband of his negotiation attempts. The Husband conceded under cross-examination that he had not kept her informed. I accept the evidence of the Wife.
(x)In early 2019, the Husband was served with a claim brought in the Magistrates Court by M Company in the sum of $98,083.60. In mid-2019, the Husband settled the Magistrates Court claim by way of a payment in the sum of $75,000. The Husband applied funds from the income of the farming enterprise to meet this payment.
(y)In mid-2019, the Wife received a letter from Q Law Firm on behalf of M Company demanding the sum of $43,628.19 (including interest and penalties) pursuant to the personal guarantee she had given in 2015.
(z)In mid-2020, the Husband belatedly proposed that a lease be offered to S Pty Ltd in respect of the L Street property. His proposal included terms which were not acceptable to the Wife, including a rental amount that she considered excessive and payment of the rent into his solicitor’s trust account rather than into the loan encumbering the L Street property. The Wife did not agree to this proposal.
(aa)In late 2020, the K Company business was moved back into the L Street property and further relocation costs were incurred. In late 2020, the Wife caused F Pty Ltd to grant a lease in relation to the L Street property in favour of S Pty Ltd, for a term of 5 years, with an option to renew for a further period of 2 years. From around late 2020, F Pty Ltd resumed receiving rental income in relation to the L Street property. It is common ground that the Husband was not consulted about this lease. The Husband alleged that there was a separate agreement, the details of which he was unaware, between M Company and S Pty Ltd. He did not explain how he came to ‘understand’ that such an agreement existed and did not establish this allegation.
(bb)In late 2020, N Company issued proceedings against the Wife in the Magistrates Court claiming $65,777 including costs and interest.
(cc)In late 2021, S Pty Ltd went into voluntary administration.
(dd)The liquidation of G Pty Ltd was completed in 2021.
(ee)In or around late 2021, the Wife discharged the N Company debt using funds she borrowed as detailed later in these reasons.
(ff)In early 2022, the Wife settled the M Company claim against her in the sum of $65,346.82. Of this amount, $45,908.45 related to the guarantee given by her in 2015 and the balance to the guarantee given by her in late 2018.[9] In mid-2022, the Wife paid the sum owed to M Company using funds she borrowed from family, as detailed later in these reasons, together with the sum of $10,000 withdrawn from her superannuation on hardship grounds, and the caveats lodged by M Company were removed. Under cross-examination, the Husband variously alleged that the Wife may not have paid this debt, that she had paid it unnecessarily as M Company had not in fact pursued her for the payment, and that M Company had only pursued her because she had fallen out with them in the context of the S Pty Ltd endeavour. None of the these allegations appeared in his affidavit material, despite the fact that he filed an affidavit in reply to the Wife’s trial affidavit. They contradicted each other and lacked credibility. I accept the evidence of the Wife.
(gg)In early 2022, the L Street property was sold for $1,150,000 plus GST. Settlement of the sale took place in mid-2022. F Pty Ltd received net sale proceeds of $53,581 after reimbursement of sale costs paid by the Husband, funds applied to the reduction of loans by the ANZ Bank, and funds set aside for payment of the GST. These funds were deposited into the overdraft associated with the farming enterprise. The Wife alleged that this deposit occurred at the Husband’s insistence and that it may have given rise to a Division 7A taxation liability. There is no expert evidence before the Court to establish that such a liability exists or the quantum of such liability and I note that neither party sought that it be included in the list of assets and liabilities available for distribution. The capital gains taxation liability arising from the sale has been calculated as $172,500.[10] The Husband conceded under cross-examination that the sale of the L Street property had yielded significantly greater proceeds than it would have done at the time he had initially sought to sell it.
[9] Wife’s trial affidavit, paragraphs [272]-[273].
[10] Exhibit H3.
Husband’s Allegation of Exclusion from Management of F & G Pty Ltd Companies
It is not a matter of contention that it was agreed between the parties that the Wife would be primarily responsible for the management of the F & G Pty Ltd companies and the K Company business, and that that is what occurred. The Husband alleged that the Wife managed the business without any input from him and that she refused to provide him with information pertaining to the financial position of the business. He complained that the accountant and bank manager dealt exclusively with the Wife, but gave no evidence of any attempts he had made to obtain information about the operation of the business, being information to which he was entitled to obtain in his capacity as a director. He also gave no evidence of any examples of occasions upon which he requested information or access to the business premises or accountant and was refused or obstructed by the Wife.
The Wife acknowledged that she had been primarily responsible for the running of the business, but gave evidence that there had been day-to-day discussions between the parties as to its operation, the contracts that were coming in and the bills that needed to be paid. Her evidence was also that the Husband had been free to, and to her knowledge had, regularly discussed business matters with the accountant. The Wife’s evidence was consistent with the Husband’s evidence to the effect that he had offered the Wife advice from time to time (advice which he alleged she had not taken). I accept the Wife’s evidence that she discussed aspects of the operation of the business with the Husband and that she did not ‘refuse’ to keep him informed, but rather he was content to leave the operations of the business to her.
Wife’s Allegation that Husband Unilaterally Placed G Pty Ltd into Liquidation
The Wife alleged in her trial affidavit that the Husband had placed G Pty Ltd into liquidation unilaterally and without her consent. Her evidence was that it had been the Husband’s conduct in placing G Pty Ltd into liquidation unnecessarily and thereby causing the personal guarantees given by the parties to crystalise, together with what she asserted had been his refusal in the face of pleading from her to resolve their matrimonial dispute on terms which would have allowed her to retain the F & G Pty Ltd companies and obtain finance to continue the operation of the K Company business, which had led to the significant financial difficulties which then ensued.
The Wife’s unchallenged evidence was that the liquidation had been financially devastating for her, in that it had resulted in her being unemployed and without access to resources for a period of 13 weeks and had caused her the loss of both ongoing wages totalling approximately $16,000 and accrued leave entitlements totalling approximately $27,000. The Wife was cross-examined about the lack of source documents to verify these figures, and she responded that they were her own calculations based on her payslips. It was not put to her that the calculations were not accurate. I accept her evidence.
I accept that the Wife was opposed to the company being placed into liquidation, that she desperately wanted to save the K Company business and that she did not freely consent to the liquidation. I also accept that the Husband’s refusal to agree to the injection of funds was the cause of the Wife’s (extremely reluctant) acceptance of the need for the liquidation, in that it left her with no alternative. Her evidence was that she had told Mr O ‘I have no choice here. So just do what you have to do.’ I do not accept, however, that the circumstances, which included Mr O voting as the Wife’s proxy can properly be described as the Husband ‘unilaterally’ placing the company into liquidation.
The Husband deposed that the basis for his refusal to agree to extend the overdraft in order to inject further funds into G Pty Ltd had been a concern that so doing would be ‘throwing good money after bad’. It was put to the Husband that he had been happy to see G Pty Ltd placed into liquidation and that he had had no interest in trying to save the business because the parties had separated, he knew the Wife wanted to retain the business, and he no longer cared for the Wife. He evaded the question. I accept that the Husband felt he had no incentive to attempt to salvage the business. In re-examination, the Husband asserted that he would not, in any event, have been able to raise the required funds. This evidence was at odds with the evidence of both parties that the bank had not only approved the required extension of the overdraft but had in fact granted the extension prior to becoming aware that the Husband had not consented. I do not accept the Husband’s evidence in this regard.
It was submitted on behalf of the Wife that the Husband had demonstrated a cavalier attitude in allowing G Pty Ltd to be liquidated in circumstances in which a modest injection of funds could have saved it, he was aware that the Wife sought to retain it, and he accepted that the Wife was entitled to a property settlement. She attributed many of the debts that were subsequently incurred by her to the Husband’s conduct in this regard.
In light of the advice that had been given by the entities’ accountant, Mr O, the request made by the Wife for an extension of the overdraft to enable the G Pty Ltd to continue to operate the K Company business was entirely sensible and reasonable, and her disappointment and frustration with the Husband’s refusal of her request are quite understandable.
However, given that the parties had separated, that trust and communication between them were poor, and that what was being asked of the Husband was to further encumber land which his family has owned for many decades and from which he derives his livelihood, his hesitancy in injecting further funds into a business in which he played no management role and which appeared, from his perspective, to be being managed poorly, is also understandable.
Furthermore, it cannot be disputed that the Husband ought to have been told that funds from the farming partnership were being accessed for the benefit of G Pty Ltd and that the Wife had given a guarantee which had been secured by the title to a property of which he was an owner. He should also have been informed of the Wife’s meeting with P Company in late 2018. The Wife is rightly critical of unilateral actions taken by the Husband in relation to the parties’ finances, such as his post-separation dissolution of the partnership through which the farming enterprise had been operated during their marriage, but her own actions in failing to consult with the Husband and keep him informed undoubtedly contributed to some of the mistrust between the parties in relation to the F & G Pty Ltd companies and the Husband’s reluctance to extend the overdraft.
Husband’s Refusal of Lease
The Wife alleged that the Husband had significantly compounded the losses associated with the F & G Pty Ltd companies by his refusal to agree to a lease being granted in favour of S Pty Ltd by F Pty Ltd in relation to the L Street property. Her evidence was that the Husband’s refusal had resulted in the property being vacant from late 2018 to late 2020, leading to losses totalling $132,000 (calculated as $5,500 per month, being the proposed lease amount, for 24 months) in lost rent arising from the vacancy of the L Street property, in addition to loss of the cost of outgoings which would have been met by the tenant. The Wife’s evidence, which I accept, was that these funds would not only have covered the required repayments on the mortgage loan held by F Pty Ltd and prevented an increase in its balance but would in fact have continued an existing practice of reducing the loan balance by way of advance payments. The Wife also deposed that the Husband’s conduct in relation to the lease had led to the loss of the further sum of approximately $50,000-$60,000 in expenses associated with K Company having been relocated twice. I also accept this evidence, which was not undermined in cross-examination.
The Husband’s evidence was that the property had only been vacant from late 2019 to late 2020. He gave no evidence of any tenant having been in the property between the liquidation of G Pty Ltd in late 2018 and late 2019, nor any other explanation for this assertion. I accept the Wife’s evidence and find that the period of vacancy commenced in late 2018.
The primary reason proffered by the Husband for his refusal to agree to a lease in relation to the L Street property was that he wanted it sold. Although he admitted having expressed a view that the property would have greater potential sale value if untenanted, he adduced no evidence to support that view and ultimately conceded that it was not correct. The Husband’s desire to sell the property did not justify his conduct in refusing to enter into a lease, resulting in it remaining vacant. The Wife sought to retain the L Street property as part of her overall property settlement and as a result, understandably did not agree to its sale. The Husband sought, but did not obtain, interim orders for the sale of the L Street property as part of his Initiating Application filed on 27 February 2019, and despite this lack of success, persisted in his refusal to enter into a lease. The Husband agreed that the losses asserted by the Wife had been incurred but attributed them to the Wife’s refusal to agree to the sale of the L Street property.
The Husband’s oral evidence in relation to this issue was given in a particularly belligerent manner. He persistently refused to accept the plainly correct proposition that with G Pty Ltd in liquidation, the rent in relation to the L Street property was not being paid. Instead, he repeatedly asserted that he had not made the company go into liquidation, an assertion that was entirely unrelated to the proposition being put to him. He also refused to accept that it would have made commercial and financial sense to have a tenant in the property pending the resolution of the parties’ financial dispute, responding ‘no comment’.
Under cross-examination, the Husband sought to explain his refusal to agree to F Pty Ltd entering into the lease as proposed by the Wife by asking rhetorically ‘why would I have my equity tied up to have some other dog in the kennel?’. The obvious answer to this question is so that income would be generated for F Pty Ltd rather than having that company incur losses by having the property remain empty, which is what occurred as a result of the position taken by the Husband. I gained the distinct impression that the Husband’s position in this regard had been and remained borne of pure stubbornness rather than any considered assessment of the merits of the Wife’s proposal. The Husband’s position in this regard was described in submissions made on his behalf as ‘a commercial decision made by the Husband.’ In my view, it was an unjustifiable and decidedly uncommercial decision.
The Husband asserted that because he had made the offer to agree to F Pty Ltd entering into a lease with S Pty Ltd in mid-2020, and that offer had not been accepted by the Wife, any loss arising from failure to lease the L Street property had been caused by the Wife. Irrespective of the merits of the proposal itself, this suggestion is nonsensical in circumstances in which his proposal had not been put until after the property had stood vacant for a period of approximately 18 months, during which time the Wife had been attempting to obtain the Husband’s consent to a lease. This is especially so in circumstances in which the Husband had been put on clear notice of the entirely foreseeable consequence of the vacancy that the loan encumbering the L Street property would not be paid and the equity held by F Pty Ltd in that property would be eroded.
Under cross-examination, the Husband asserted that the reason for his insistence that the rent be paid into his solicitor’s trust account rather than in reduction of the loan held by F Pty Ltd in relation to the L Street property was so that ‘we would at least know that it was coming in’ and he ‘wouldn’t have to subpoena the solicitor’ to find out whether the rent was being paid. This reasoning was difficult to follow in circumstances in which the Husband has at all material times been a director of F Pty Ltd and it was his proposal, and not that of the Wife, which called for the involvement of a solicitor. Although preferable to a vacancy, the Husband’s proposal would not have addressed the non-payment of the F Pty Ltd loan, and merely represented a belated acceptance of the obvious merit of the Wife’s proposal to lease the L Street property to the company through which the K Company business was then being operated.
The Wife’s evidence was that she had ultimately caused F Pty Ltd to enter into the lease with S Pty Ltd notwithstanding the Husband’s obstructive position as a commercial decision taken to prevent further losses. It is clear that both parties benefited from the resumption of payment of rent for the L Street property.
The Husband alleged that the Wife had intended to resurrect the K Company business using S Pty Ltd as a vehicle to do so, with the intention of offloading the debt she accrued via G Pty Ltd onto the Husband and starting afresh. The tenor of the Husband’s evidence in this regard was that he was highly suspicious of the Wife’s actions and considered that there was something underhanded about her efforts to resume the operations of K Company. Noting that the question of whether the G Pty Ltd debt would be considered as part of the assets and liabilities to be divided between the parties would be unaffected by any subsequent purchase of the K Company business by S Pty Ltd, the Husband’s theory in this regard is difficult to follow.
The Wife (rightly) pointed out that the debts owed by G Pty Ltd had been extinguished in the liquidation and the personal guarantees given by the parties were unaffected by the establishment of S Pty Ltd or its purchase of K Company. Under cross-examination, the Wife’s evidence was that continuing to operate K Company had been her dream, and that she had been devastated by its closure. Her evidence of having made legitimate efforts to salvage the business appeared genuine and I accept it. I am not satisfied that there was anything underhanded or dishonest in the Wife’s attempts to revive K Company through S Pty Ltd.
In circumstances in which the parties had separated and the trust and communication between them were both at a low point, some initial caution from the Husband in relation to this issue is understandable. This is even more so in light of the Wife’s failure to disclose her association with S Pty Ltd or her intentions to revive the K Company business at the time she first proposed that F Pty Ltd lease the L Street property to S Pty Ltd. However, the Husband’s refusal to enter into the lease persisted well beyond what would have been a reasonable amount of time to enable him to make proper enquiries, and although his evidence was that ‘you could have put any tenant in it to pay the bill’, he adduced no evidence of any alternative tenant having been available or of having made any effort at all to find such a tenant.
I accept the Wife’s submission that the Husband unnecessarily caused losses to be incurred by the entities operated by the parties by his refusal to permit a lease to be granted in favour of S Pty Ltd, which resulted in the L Street property remaining untenanted for a period of approximately two years and that he caused further expense to the Wife via S Pty Ltd, associated with moving K Company.
Parties’ Positions Regarding Debts Relating to F & G Pty Ltd Companies
The Husband sought to attribute various liabilities associated with the F & G Pty Ltd companies to the Wife alone. In support of that position, he asserted that he had received no financial benefit from the F & G Pty Ltd companies. I reject that assertion on the basis that, as submitted by Counsel for the Wife, it is clear from both parties’ evidence that the income derived by the Wife from the K Company business was applied to the parties’ living expenses and for their joint benefit.
The Husband sought to characterise the debt owed and subsequently repaid to N Company as a liability of the Wife alone, on the basis that it had been entered into very shortly prior to the parties’ separation and without his knowledge or consent. The Wife’s evidence was that incurring this liability had been part of the normal trading of the K Company business, being a subject matter about which she had always made the majority of the decisions, and about which the Husband had shown little interest. Noting that there is no suggestion that the dealing with N Company was for the Wife’s personal gain or was for purposes other than the operation of the business, I accept the evidence of the Wife. The Wife was critical of the Husband for his failure to offer to assist her to meet the N Company liability at an early stage by using matrimonial assets but adduced no evidence of any requests she had made that he do so.
The Husband also sought to characterise much of the debt owed and subsequently repaid to M Company as having been a liability solely attributable to the Wife. He asserted that the debt to M Company should have been limited to the sum of $100,000 because that was the total amount of the guarantee jointly and severally given by the parties, and the amount paid by the Wife had not been properly recoverable by M Company and had therefore not been required to be paid. He asserted that only a total of $100,000 of the funds owed and subsequently paid to M Company could therefore properly be characterised as having been a liability of the marriage. A copy of the guarantee given by the parties to M Company was annexed to the Wife’s trial affidavit.[11] It does not support the Husband’s assertion. The only reference in that document to the sum of $100,000 is the credit limit initially extended to the parties.
[11] As part of annexure 26.
It was submitted on behalf of the Husband that ‘it remains unclear as to why the Wife claims she also had a debt to M Company. I do not agree. The evidence reveals clearly that the Wife, like the Husband, had given a personal guarantee and that M Company pursued her for funds owed to them, just as they had done with the Husband. It is entirely clear why the Wife claimed that she owed a debt to M Company.
The Wife was critical of the Husband for having resolved only his share of the debt owed to M Company. I accept the Wife’s evidence that the Husband did not keep her informed of his negotiations in this regard. He should have done so. However, there is insufficient evidence before the Court to support a finding that the Husband’s conduct led to the Wife’s liability to M Company being greater than it would otherwise have been beyond the mere fact that if the entirety of the debt had been repaid earlier, it would not have attracted interest and costs to the extent which occurred. As with the N Company liability, the Wife was critical of the Husband for his failure to offer to assist her to meet her share of the M Company liability at an early stage by using matrimonial assets but she adduced no evidence of any requests she had made that he do so.
The Husband accused the Wife of ‘financial mismanagement’, which he alleged had led to the failure of K Company and in turn, significant liabilities being incurred by G Pty Ltd and the parties personally. The Wife’s evidence that the business had experienced significant growth and would have been able to meet its commitments with a further injection of funds is both credible and supported by independent documentary evidence as to the advice of the company’s accountant,[12] and I accept it. The evidence before the Court does not support a finding that the Wife caused a diminution of the assets available for distribution between the parties by way of ‘financial mismanagement’. It was submitted on behalf of the Husband that ‘[t]he fact that it appears the Wife continued to trade whilst F & G Pty Ltd [sic] was insolvent, and took on more debt on the cusp of the breakdown of the marriage, and soon after, does not bode well for her business acumen.’ Regardless of whether this is accurate, a mere absence of sound business acumen is, without more, insufficient to found an adjustment in favour of the other party to a marriage.
[12] Wife’s trial affidavit, annexure 14.
It is well established that in cases where a liability has been incurred in deliberate or reckless disregard of the other party’s potential entitlement, that liability may be wholly or partly disregarded.[13] Liabilities incurred after separation may also, in appropriate circumstances, be disregarded.[14]
[13] Prince & Prince [1984] FamCA 7; (1984) FLC ¶91-501; Antmann & Antmann [1980] FamCA 64; (1980) FLC ¶90-908; af Petersens & af Petersens [1981] FamCA 50; (1981) FLC ¶91-095; Zalewski & Zalewski [2005] FamCA 996; (2005) FLC ¶93-241; Keating & Keating [2019] FamCAFC 46; (2019) FLC ¶93-894.
[14] af Petersens & af Petersens [1981] FamCA 50; (1981) FLC ¶91-095; NHC & RCH [2004] FamCA 633; (2004) FLC ¶93-204.
However, just as they expect to share in the economic profits of a marriage, in the absence of compelling reasons, such as reckless, negligent or wanton conduct, or evidence that a party was on a ‘frolic of their own’ or acting contrary to the other’s wishes, parties are ordinarily expected to ‘take the good with the bad’ and share in losses as well as gains. As such, liabilities arising from investment or business endeavours undertaken during the course of a relationship will not ordinarily be excluded from consideration merely because one party attributes responsibility for bad decision-making to the other.[15]
[15] Browne & Green [1999] FamCA 1483; (1999) FLC ¶92-873; Johnson & Johnson [1999] FamCA 369; (2000) FLC ¶93-039; Kowaliw & Kowaliw [1981] FamCA 70; (1981) FLC ¶91-092; Trustee of the Property of Lemnos (A Bankrupt) & Lemnos & Anor [2009] FamCAFC 20; (2009) FLC ¶93-394.
In the present case, as submitted by Counsel for the Wife, there is no evidence of any wrongdoing or malfeasance on the Wife’s behalf having led to any of the losses sustained with respect to the K Company business. It is not a matter of dispute that the Husband was actively involved in and supportive of the purchase of the K Company business by G Pty Ltd and that he supported its subsequent operation by the Wife.
The Husband agreed under cross-examination that the acquisition of K Company and the associated transactions had been a joint plan to provide the parties with an additional income stream and ultimately provide retirement security for them both, and that he had been happy to go ahead with it. He said, in response to the proposition that the K Company business was designed to provide for the Wife’s superannuation, ‘our superannuation. It was going to be ours. It was going to be something we journeyed on together’ and ‘it was always a joint venture’, and ‘at the end of the relationship it was still a joint venture’. The Wife submits, and I accept, that the various endeavours undertaken by the parties during the course of their relationship were intended to be for their mutual benefit and not merely that of the Wife. There would appear to be little doubt that had the K Company business flourished, the Husband would (rightly) have expected that it be included in the assets available for distribution between the parties.
In these circumstances, I accept the submission made on behalf of the Wife that there is no basis for treating the debts arising upon the liquidation of G Pty Ltd, including the debts owed both to N Company and to M Company, as other than debts arising from the circumstances of the parties’ marriage. Although the debts to M Company and N Company are no longer in existence, their characterisation is relevant to consideration of the treatment of various debts sought by the Wife to be included as part of the assets and liabilities to be divided between the parties, as considered below.
Husband’s Conduct Pertaining to Resolution and Mediations
It is common ground that the parties have entered into final settlement agreements at mediations on two previous occasions; being at a private mediation on 5 February 2020, and at a judicial settlement conference with a judge of this Court on 25 June 2020. It is not a matter of dispute that on both occasions, the parties agreed to a settlement which involved the Wife retaining the F & G Pty Ltd companies and their assets including K Company and the L Street property, and on both occasions, the Husband subsequently refused to enter into orders reflecting the agreement that had been reached.
The agreement reached at the first mediation was expressed to be subject to the parties securing the requisite finance, while the agreement reached at the second mediation was in similar terms but was not subject to finance and included provision for the sale of the B Street property in the event that finance could not be obtained. Nothing was signed at the conclusion of the second mediation. Draft orders reflecting the agreement reached were subsequently prepared by the parties’ solicitors and were signed by the Wife but not by the Husband.
The Husband deposed that he had tried but had been unable to obtain finance in order to make the payment to the Wife required by the agreement reached at each of the mediations. The Wife disputed this and alleged that the Husband had made inadequate disclosure of any efforts he had made to obtain finance.
It is common ground that:
(a)throughout the course of the proceedings, the Wife made numerous requests of the Husband to make disclosure as to his ability to obtain finance;
(b)following the first mediation, a period of approximately three months passed before the Husband advised the Wife that he was no longer prepared to enter into the agreement they had reached, during which period the Husband continued to represent to the Wife that he was prepared to enter into the agreement they had reached and the Wife repeatedly sought information as to the Husband’s ability to obtain finance;
(c)following the second mediation, the Husband, via his solicitors, engaged in correspondence and representations which led both the Wife and the Court to believe that he would enter into orders in terms of the agreement reached at the mediation, including negotiating upon and sending a minute of proposed consent orders to the Court and representing to both the Wife and the Court that he intended to sign it;
(d)the Wife received no documentary evidence from the Husband of any attempts to obtain finance other than a single application made to W Bank dated 15 January 2020 (being a date prior to the first mediation).[16]
[16] Wife’s trial affidavit, annexure 24.
The Husband deposed that in addition to having made the W Bank application, he had approached a further eight potential lenders, of which three were banks, and that his approaches had been ‘in the main restricted to telephone calls’. Under cross-examination, his evidence was that he had applied to seven banks, and when it was put to him that he had not produced any of those applications other than the W Bank application, he asserted that he had produced ‘a pile that thick’ of bank applications to his solicitor. This inconsistent evidence did nothing to assist the Husband’s credibility, and had the result that I am unable to accept not only his evidence in relation to this issue but any of the numerous assertions made by the Husband to the effect that documents that had not been produced by him had been supplied to his lawyer.
The evidence before the Court suggests that the Husband made no serious effort to obtain finance at any time between the making of the W Bank application in January 2020 and the trial. I am therefore unable to accept the submission made on behalf of the Husband that his failure to follow through with the agreement reached between the parties at the first mediation was a result of that agreement having been subject to finance ‘which could not be obtained’.
In any event, it is not in dispute that the agreement reached at the second mediation included a default clause providing for the sale of the B Street property in the event that finance could not be obtained, and as such, it is difficult to see how inability to obtain finance could justify the Husband’s refusal to enter into orders in accordance with the agreement reached. This is particularly so in circumstances in which, on the Husband’s evidence, he had entered into the agreement at the second mediation in the full knowledge that attempts made by him to obtain finance following the first mediation had been unsuccessful. The Husband’s evidence was that he would have adhered to the agreement had he succeeded in obtaining finance, but in his opinion, his failure to do so rendered the agreement ‘null and void’. This attitude was inconsistent with the terms of the agreement itself.
The Husband sought to attribute his failure to obtain finance to the existence of the caveats lodged by N Company and M Company over the titles to the farming properties, and, somewhat remarkably, extrapolated from this that his failure to obtain finance was the fault of the Wife. This explanation is inadequate. Not only did the Husband adduce no independent evidence to support this assertion, any arrangement for finance could, in accordance with standard practice, have been made subject to the removal of the caveats as part of the parties’ overall settlement.
When this reality was put to the Husband under cross-examination, he responded, unhelpfully, ‘you go and tell the bank that, and I would love to see what they tell you’. When it was put to him that he had not explained to the bank that the caveats would be removed as part of the settlement, he was initially evasive and ultimately said that he had told the banks that but they had ‘take[n] no notice’. This evidence was not credible. Ultimately, despite acknowledging that the orders proposed to be entered into between the parties had made express provision for the removal of the caveats, the Husband insisted that the banks would ‘accept nothing’ without court orders. The Husband’s evidence in relation to this issue was circular and did not assist him.
Furthermore, the N Company liability, being a liability guaranteed by the Wife alone, was secured by caveat only in relation to the B Street property, and not the remainder of the farming properties in which the Husband had an interest. Likewise, as was put to the Husband under cross-examination, once his share of the M Company liability had been discharged, M Company no longer held a caveatable interest in any of the land other than the property in which the Wife held an interest. The Husband gave no plausible explanation for his failure to procure the removal of the M Company caveats encumbering the remaining properties at that point. In addition, as submitted by Counsel for the Wife, although the Husband’s own evidence was that the N Company caveat was removed in late 2021 and the M Company caveat in early 2022 (well over a year prior to the commencement of the trial), the Husband adduced no evidence of any attempts made by him to obtain finance approval following their removal.
A further excuse proffered by the Husband with respect to his failure to obtain finance was the absence of a liquidator’s report in relation to G Pty Ltd. He adduced no independent evidence to support his assertion that this had been a barrier to obtaining finance, nor any evidence of any efforts to obtain finance following receipt of the liquidator’s report on 26 May 2021, well over a year prior to the commencement of the trial. In any event, this does not explain his failure to enter into orders which contained a default sale provision and thereby catered for the potential for finance to be refused.
The Husband’s evidence of the caveats and the liquidator’s report having posed a barrier to obtaining finance directly contradicted the evidence in his trial affidavit to the effect that in July 2020, prior to either removal of the caveats and receipt of the liquidator’s report, W Bank had offered him finance but that the amount of their offer had been insufficient to enable him to meet the obligations that would have been imposed on him had he continued with the agreements reached at either the first or second mediation.
It emerged approximately two years after the event that the judge who had conducted the second mediation had represented the Wife on one occasion during the earlier proceedings between the parties in 2015, prior to their reconciliation and approximately 5 years prior to the second mediation. The Wife’s evidence given under cross-examination was that at the time of the second mediation in June 2020, she had not recognised her former barrister and had not realised that she had previously acted for her. This evidence appeared genuine and I accept it.
The Husband sought to explain his conduct in negotiating the terms of proposed consent orders only to resile from them by saying that he did not believe that the Court had power to make the orders as a result of the conflict of interest and because of his view that ‘the judge that sat that day was not allowed to sit’. The Husband, however, acknowledged under cross-examination that the fact that the judge conducting the mediation had previously appeared on behalf of the Wife was not known to him either at the time of the mediation or when he subsequently reneged on the agreement reached at the mediation, and he accepted that had he been aware of the conflict, he would have raised it at the time. As submitted by Counsel for the Wife, the Husband gave no evidence to suggest that he had any complaint about the manner in which the judge had conducted the mediation or any conduct on her Honour’s behalf that had led or influenced him to resolve the matter in the manner in which it was resolved or otherwise caused him any detriment. I reject any suggestion that the identity of the mediator had any bearing on the Husband’s failure to follow through with the agreement that had been reached.
The Husband sought to justify his decision to resile from each of the earlier agreements by saying ‘it wasn’t a written said, finished, signed, sealed thing.’ This justification was circular, noting that the criticism levelled at the husband was that having entered into the agreements, he had failed to take the steps necessary to make either of them ‘a written said, finished, signed, sealed thing.’ When asked why he had not signed the minute of orders that had been agreed upon between the parties following the second mediation, the Husband responded ‘obviously there was a reason and I can’t recall what it was’. This explanation is wholly inadequate. It was put to the Husband that he had failed to sign the proposed orders because he had not wanted them to be made because he had no intention of obtaining finance or of selling the B Street property if he was unable to obtain finance. He responded ‘why should I sell my farm?’ and ‘why would you sign it?’. The Husband ultimately admitted that he had held no intention of signing the orders unless he obtained finance and no intention to sell the B Street property, despite his agreement to a proposed set of orders which included a default sale provision.
The Wife submitted, and I accept, that the logical inference to be drawn from the Husband’s conduct and his evidence is that he had no intention of obtaining finance or of following through with the agreements reached at either of the mediations and that his actions in representing to the Wife and to the Court that agreement had been reached were disingenuous. The submission made on behalf of the Husband that the agreement reached at the second mediation ‘was not signed by the Applicant as he did not agree with it’ supports that inference and renders his conduct in expressly communicating to both the Wife and the Court that an agreement had been reached inexcusable.
The Wife further alleged that following each of the mediations, the Husband had engaged in conduct that was designed to create in the Wife an understanding that the matter had resolved, leading her to act to her significant detriment and leading her into severe financial hardship. The Husband did not deny this, but rather asked, while under cross-examination, ‘what has it got to do with me how she has to find money?’. He expressed the view that ‘she’s nothing to do with me anymore. She filed the divorce’ and ‘as of 2019 she’s not my wife anymore, so why should I worry?’.
The Wife alleged that the Husband’s conduct in reneging on the agreements reached at the two mediations was part of a broader pattern of unwillingness on the Husband’s part to resolve the proceedings by agreeing either to refinance or to what she asserted was the inevitable sale of the B Street property in the event of inability to refinance. She deposed that from as early as May 2018, she had attempted to facilitate resolution of the property settlement matters by arranging mediation and valuations and the Husband had refused to engage in any meaningful way. This was put to the Husband, who did not deny the allegation but merely responded ‘that’s your opinion’. I accept the evidence of the Wife.
The Husband was cross-examined about his refusal to engage valuers to value the B Street and L Street properties when the Wife had attempted to obtain valuations as early as June 2018. He sought to excuse his refusal by alleging that the valuer had quoted $18,000 to undertake the valuation. When he was taken to the valuer’s quotation, which was $2,750 including GST and disbursements,[17] he responded ‘they weren’t even valued. They weren’t even to be valued yet. There was no instructions from the lawyers to value them’ and was otherwise argumentative. When it was put to him that the real reason he had resisted the Wife’s attempts to instruct valuers was that he had not wanted to engage in negotiations with her because he had not wanted to part with any of the farming properties, he responded ‘why would I want to lose my own land?’. This evidence was consistent with the Wife’s allegations as to the Husband’s resistance to efforts she had made to progress the resolution of the matter at an early stage, including at a time when she may have been able to retain the K Company business.
[17] Wife’s trial affidavit, annexure 22.
The Wife’s evidence was that in March 2019, within weeks of the commencement of the proceedings, she had flagged with the Husband that the sale of the B Street property was inevitable given the Husband’s likely limited borrowing capacity, and that in March and July 2019, through her solicitors, she had requested information as to how the Husband proposed to finance a property settlement and received no response. The Wife further deposed that in March and April 2020, following the agreement reached at the second mediation, she had continued to seek clarification as to the Husband’s efforts to obtain finance, to no avail. It is an agreed fact that the Wife made several proposals that would have involved her retaining the F & G Pty Ltd companies and their assets, including the business and the L Street property, but the Husband did not accept those proposals and made no counterproposals.
The Wife alleged that the Husband’s conduct in this regard contributed significantly to the ultimate loss of the K Company business, because while her financial affairs remained intertwined with the Husband’s, and while she remained liable for the liabilities associated with the farming enterprise, she was unable to raise the funds required to save the business.
The Husband alleged that the Wife could have used her interest in the property at X Street, Town Y (‘the Town Y property’) as security and raised the funds required to save G Pty Ltd from liquidation herself. The Wife acknowledged that she had not attempted to do so, but gave evidence that this was because she would not have been able borrow against her half-interest in that property without the other owner, being her late mother-in-law guaranteeing the loan. I accept the Wife’s evidence in this regard.
I accept the evidence of the Wife that the Husband was resistant to entering into settlement negotiations and obstructive in relation to her efforts to do so and that this likely contributed to losses subsequently incurred by her.
ASSETS AND LIABILITIES
I have found that the Husband did not in fact unilaterally place G Pty Ltd into liquidation and that his hesitancy in relation to the request for a further extension on the overdraft secured by the farming properties, although unfortunate for the Wife, was not unreasonable in the circumstances in which it occurred. Although I accept that the Wife suffered significant losses associated with the failure of K Company and that the liquidation of G Pty Ltd occurred against her strong wishes and in circumstances in which it may not have been strictly necessary, I do not accept the submission that this can be attributed to conduct on behalf of the Husband that can properly be described as reckless, negligent or wanton.
I am also unable to find that the Husband was directly responsible for the interest and costs associated with the M Company and N Company liabilities or that his conduct in this regard was reckless, negligent or wanton in circumstances in which there is no evidence before the Court to suggest that the Wife approached him and sought his assistance with the early repayment of these debts from the matrimonial funds within his control.
The evidence before the Court does not support a finding that the Husband’s conduct in resisting attempts made by the Wife to facilitate an early resolution of the matter rises to the level of reckless, negligent or wanton, even though I accept that the Wife’s ability to avoid financial losses was heavily impacted by her inability to access what would ultimately become her share of the matrimonial assets. Such conduct will, however, likely be relevant to the costs applications which have not yet been determined.
The Husband’s conduct in reneging on the agreements reached at the parties’ mediations likewise cannot, in my view, properly be characterised as reckless, negligent or wanton in the relevant sense, noting in particular that had the parties simply been unable to agree to the settlements in the first place, the consequences in terms of long term outcomes for the Wife would not likely have been materially different, save to the extent that her own decision to purchase the Town Z property contributed to her losses. This conduct on the part of the Husband, however, when combined with the extremely limited efforts made by him to obtain finance and his conduct in leading both the Wife and the Court to believe that the matter had been resolved, is likely to be highly relevant to any subsequent application in relation to costs. This is particularly so in circumstances in which the second agreement included a default sale clause and was not subject to finance but the Husband’s asserted reason for having resiled from it was an inability to obtain finance.
I do, however, consider that the Husband’s conduct in refusing to agree to the lease of the L Street property, causing that property to remain vacant for approximately two years, the liabilities of F Pty Ltd to increase substantially, and unnecessary relocation costs to be incurred, can properly be described as negligent, wanton and reckless. Indeed, this conduct is not dissimilar to the conduct engaged in by the Husband in Kowaliw, which involved allowing a prospective purchaser to live in a property owned by the parties without payment of rent or outgoings.
I have given consideration to the fact that some of the losses sustained by the Wife arose, at least to some extent, from her own conduct and decisions, most notably her decision to enter into a contract to purchase the Town Z property prior to final orders having been made reflecting the agreement that had been reached between the parties.
I have also had regard to the fact that the ultimate failure of the K Company business was acknowledged by the Wife to have occurred in part for reasons which were unrelated to the Husband’s conduct, such as the COVID-19 pandemic and associated labour shortages, and to the fact that by virtue of inclusion of the loan owed to Mr AA and Ms BB, the costs paid to Bartel and Hall and the capital gains tax in the table of assets and liabilities to be divided between the parties, a portion of the losses incurred will, irrespective of any further adjustment, be shared between the parties.
Nonetheless, I consider that the Husband’s conduct with respect to F Pty Ltd and the L Street property, to the extent that it has led to unnecessary losses which have been borne disproportionately by the Wife, warrants consideration in the Wife’s favour pursuant to section 75(2)(o).
Another issue of potential relevance to be considered under s 75(2)(o) is an allegation made by the Husband that in addition to transferring funds out of the farming partnership to meet expenses associated with K Company, the Wife made transfers out of the farming partnership and into her personal accounts. Under cross-examination, the Wife admitted having done so, and said that this had been for the purpose of paying joint personal expenses associated with the marriage and not for her own personal use. That evidence was credible and I accept it. It was submitted on behalf of the Husband that the Wife was ‘quick to withdraw money from the farming accounts and use it for herself, her family and the businesses.’ This assertion was not supported by the evidence.
Assessment of Section 75(2) Factors
The Husband sought that there be no adjustment pursuant to section 75(2). It was submitted on behalf of the Wife that there should be no adjustment in favour of either party on account of ‘financial resources and needs.’ I agree with that submission.
However, in my view, consideration of the additional factors considered under s 75(2)(o) renders a 3 percent adjustment in favour of the Wife just and equitable. I note in this regard that 3 percent of the parties’ net assets and liabilities is $97,088.34, being a sum that is significantly lower than the total quantum of the losses claimed by the Wife to have arisen from the Husband’s conduct and by no means represents a dollar-for-dollar adjustment for those losses. It is, however, in my view, sufficient to give due recognition to the losses the Wife has incurred including but not limited to losses sustained by way of diminution of the assets available for distribution, to the extent that I have found that such losses can be attributed to reckless, negligent and wanton conduct on the Husband’s behalf.
As such, the overall distribution of the parties’ assets and liabilities will be in proportions of 72 percent to the Husband and 28 percent to the Wife, being an outcome which I find to be just and equitable in all the circumstances.
TERMS OF THE ORDERS TO BE MADE
The requirement that the Court shall not make an order under the section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order is the ‘overriding requirement’ of the section 79 process.[45] This requirement includes consideration of the type of order, including the form and structure of the order, to be made. The Court is required to be satisfied that the actual order made (and not just the underlying percentage division) is just and equitable.[46]
[45] Mallet & Mallet [1984] HCA 21; (1984) 156 CLR 605 per Dawson J at [10].
[46] Russell & Russell [1999] FamCA 1875; (1999) FLC ¶92-877, Clauson & Clauson [1995] FamCA 10; (1995) FLC ¶92-595.
Quantum of Payment to be Made to Wife
Having regard to the overall assets and liabilities of the parties, which have a net total of $3,236,278, as set out in the table above, to receive 28 percent, the Wife must end up with a net total of $906,157.84. Excluding her interest in the B Street property, which will be transferred to the Husband (or sold), and her share of the liabilities encumbering the farming properties, which will be extinguished, the Wife presently has in her possession assets with a total value of $490,561 and liabilities with a total value of $104,349, being a net total of $386,212. She will also be responsible for meeting 50 percent of the capital gains tax liability associated with the sale of the L Street property and the ATO liability associated with G Pty Ltd, meaning that she will retain additional liabilities of $88,950, leaving her with a net total of $297,262 prior to any adjustment. As such, the payment to be made from the Husband to the Wife to effect a division of the parties’ net assets and liabilities in proportions of 72 percent to the Husband and 28 percent to the Wife shall be $608,895.84.
Default Sale Order
Although the Husband did not particularise the orders he sought, it was evident from the manner in which he presented his case that the major point of difference between the parties as to the structure of the orders to be made related to whether there should be a default order providing for the sale of the B Street property. As outlined earlier in these reasons, the Husband owned the land prior to the commencement of the parties’ relationship, and the parties jointly built the former matrimonial home on that land, using the proceeds of sale of a property that had been owned by the Wife together with borrowings, at which time the property was transferred into the parties’ joint names.
The Husband deposed to being unable to obtain finance up until the date of swearing of his trial affidavit. The Husband’s evidence was also that he is presently unable to access any bank facility to assist with the running of the farming business due to the indebtedness of the parties to the ANZ Bank. Notwithstanding this evidence, he asserted confidently under cross-examination that he would be able to refinance once orders were made.
It would appear, on the basis of the Husband’s evidence, somewhat unlikely that without the benefit of the Wife, who is in paid employment, as a co-borrower, the Husband will be able to borrow sufficient funds to take over all of the current debt and make a payment to the Wife without the sale of real property.
Despite the inconsistencies in the Husband’s evidence in this regard and the Wife’s justified reservations as to the Husband’s ability to obtain finance, it was agreed between the parties that the orders made by the Court should provide that the Wife is to transfer to the Husband her interest in the property within 30 days of the orders being made. The parties also agreed that the orders should provide that contemporaneously with the transfer, the Husband would pay to the Wife the sum to which she is entitled pursuant to the orders, refinance into his sole name the farm loan and overdraft which are secured by the B Street property, and discharge all existing mortgages encumbering the titles to the farming properties. In default of compliance with those requirements, the Wife sought the sale of the B Street property.
The Husband opposed any order that would provide for the sale of the B Street property, though he adduced no evidence that would enable a finding as to the quantum of any payment he could make to the Wife without the property being sold, and offered no alternative proposal for how the Wife’s entitlements may be secured in the event on non-payment.
The Husband’s evidence was that his livelihood as a farmer, an occupation he has held for approximately 45 years, is tied to the retention of the farming enterprise and the farming land from which it operates and that he will not be able to continue to earn an income if he does not retain the farming land.
The Husband further asserted that the farming land has been owned by his family for many decades and he has a strong family connection to it and wishes to retain it for future generations of his family. It is not in dispute that the Husband has been working on the farm for many years, when he was approximately 17 years old, and that he purchased the farm (including land, stock and plant and equipment) from his parents in 1998. From the time of its purchase, the Husband operated the farm in partnership with his then-wife. He commenced operating as a sole trader in 2004, following their separation. His unchallenged evidence was that he had grown the farming enterprise over more than 30 years.
The Husband’s evidence given under cross-examination was that he leases acres at SS Street, Town C, which he uses for the operation of the farming enterprise. This is in addition to the land he owns, which is a total of 245 acres, of which the B Street property comprises 20 acres. The B Street property therefore represents 25 out of a total of approximately 950 acres used by the Husband to operate the farming enterprise. The Husband’s evidence, given for the first time under cross-examination, was that he would be impeded in his ability to run stock for the purpose of operating the balance of his farming land (including the leased land), which is adjacent to the B Street property, because the B Street property ‘links’ the properties and without it he could not ‘go from A to B’. The Wife’s evidence was to the effect that it would be less convenient but still possible and not overly burdensome for the Husband to make full use of the remaining land without access to the B Street property, and that the parties had moved stock in the manner that would be required many times in the past.
When it was put to the Husband in cross-examination that there was an alternative way that he could move his livestock in the absence of access to the B Street property, he answered facetiously ‘you tell me’. He adduced no evidence to suggest that the sale of the B Street property would have any appreciable impact on his ability to earn an income. It is inconceivable to suggest that the Wife’s proposal, which involves the sale of the B Street property in default of a payment made by the Husband, would have the practical effect of preventing the Husband from operating the farming business from the remainder of the land, yet he would not have included any evidence to this effect in his affidavit material, including his affidavit in reply. I prefer the evidence of the Wife in this regard. It was submitted on behalf of the Wife that the evidence suggests that any impact of the sale of the B Street property on the Husband’s ability to operate the farming enterprise would be limited. I accept that submission. I am not satisfied that a sale of the B Street property would deprive the Husband of his livelihood.
The Husband resides in the former matrimonial home, which is on the B Street property. He asserted that if the B Street property were to be sold, he would be ‘left without a home’. The Wife’s evidence was that the Husband could reside in the homestead at D Street. The Husband asserted under cross-examination that his mother, who does not reside in the property and is in a nursing home, had a ‘right of interest’ to live in that property for $1 per week. This assertion was not made in either of his affidavits, no independent evidence was adduced to support it and it did not sit well with either of the different versions of the Husband’s evidence as to the rental income he receives from that property. I reject it.
Despite giving evidence that he would like to choose which property was to be sold in the event of a default, the Husband made no alternative proposal for the sale of any other property held by him in the event that he is unable to obtain sufficient finance to make any payment he is ordered to make to the Wife. There is no evidence before the Court as to the comparative impact on the operation of the farming enterprise or feasibility of the sale of any of the other farming properties held by the Husband. Indeed, under cross-examination, the Husband conceded, in relation to the prospect of sale of the B Street property, that if the Court determined the Wife’s entitlements required it, ‘that’s what has to happen’.
As discussed earlier in these reasons, the Husband deposed that he had been unable to obtain finance in order to make a settlement payment to the Wife, and he adduced no evidence to demonstrate that he presently has the capacity to do so. He also adduced no evidence and made no proposal to suggest that there was any alternative means by which the Wife could be paid her entitlements, or even the sum to which she would be entitled on the Husband’s case, in the seemingly likely event that he was unsuccessful in obtaining sufficient finance. The Wife’s position is that if the Husband is unable to obtain finance, the only way that a just and equitable settlement can be achieved is by way of sale of the B Street property.
It is well established that although a party having owned land prior to cohabitation is a relevant and important factor, particularly in the case of farming land that has been worked by that party, and owned by their family over an extended period of time, where there is no other way to achieve justice and equity between the parties, that land must be sold.
In Magas & Magas,[47] Asche J (with whom Marshall SJ and Dovey J agreed) held as follows:
12. …Counsel for the husband has referred us to the judgment of Demack J. in Scott and Scott (1977) FLC ¶90-251. He refers us particularly to this passage where his Honour says (at p. 76,353):
“In my view land which is used for farming purposes and which is essential to the production of an income is in quite a different category from land which simply provides a place for the family home. If the continued availability of the land is essential to one spouse as a place on which to work and produce income, in my opinion, any property order affecting such land should not affect its production capacity or seriously reduce its income producing potential.”
13. I would agree, with respect, with what his Honour there says but with this rider: If arrangements can be made which would relieve the spouse who is working a farm as a farmer, from selling the farm but at the same time doing proper justice to the claim of the spouse who is not living on the farm, then of course those arrangements should be made. His Honour, the learned trial judge in this case, has arranged things so far as he can to that end. I appreciate that it is not an ideal situation but few of the cases which come before this court are.
[47] [1980] FamCA 67; (1980) FLC ¶90-885.
In Lee Steere & Lee Steere,[48] the Full Court of the Family Court of Australia held as follows:
[48] [1985] FamCA 57; (1985) FLC ¶91-626.
If inherited or donated property was acquired before marriage, and especially where it was worked and developed by the party who received it before marriage, that is an important consideration. By bringing pre-marital assets, however acquired, into the pool, that party is to that extent making a contribution which cannot be matched by the party who brings few, if any, assets into the marriage. If on top of that there is a history of working the property before the marriage, whether as owner or as heir-expectant: James and James (1978) FLC ¶90-487, the contribution is likely to become all the more important.
[…]
In our view, the correct principle was laid down by Asche J. in Magas and Magas (1980) FLC ¶90-885, a decision of the Full Court on appeal from the Family Court of Western Australia. His Honour said there at p. 75,591:
"If arrangements can be made which would relieve the spouse who is working a farm as a farmer, from selling the farm but at the same time doing proper justice to the claim of the spouse who is not living on the farm, then of course those arrangements should be made."
However, his Honour then went on to say:
"If there is no other way to do that which is just and equitable then a sale must take place. It becomes an incident of the sad fact that, when two persons separate, property which might have given them together a reasonable competence will not be sufficient for each when divided. That is an inescapable situation and cannot be used as an argument to deprive one party of that to which he or she is otherwise properly entitled."
The fact that the subject of property proceedings under sec. 79 is a farm may give rise to considerations as to the way and means by which property division should be effectuated, a matter which will be discussed later, but there is no “farming case'' exception to the ordinary principles applicable under sec. 79 of the Act.[49]
[49] See also Aroney & Aroney (1979) FLC ¶90-709; Kowaliw & Kowaliw (1981) FLC ¶91-092.
In the present case, having regard to the contributions made by the Wife to the assets available for distribution, the relevant section 75(2) factors and the considerations of justice and equity outlined above, I am satisfied that, in the event that the Husband is unwilling or unable to comply with an order providing for the payment to the Wife of the required sum, undertake the necessary refinance and procure the necessary mortgage discharges, there will be no other way to do justice and equity between the parties, and the B Street property will need to be sold. The Husband offered no proposal as to the terms of any alternative default sale order in the event that he was unsuccessful in opposing the making of such an order. As such, I shall make the default sale order as sought by the Wife.
Default Interest Clause
The Wife sought an order that in the event that the Husband failed to comply with his obligations with respect to refinancing and discharging the parties’ loans and making the required cash payment to her, he pay default interest to the Wife at the rate set out in the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (‘the Rules’). This was opposed by the Husband, but no evidence or submission was advanced to explain why interest should not be payable as provided for in the Rules or why the Wife should bear the loss associated with any default or delay on the part of the Husband in meeting his obligations pursuant to the orders.
Noting that there are very real reasons for caution surrounding the Husband’s willingness and ability to refinance and make a payment to the Wife in light of the history of the Husband’s conduct in this regard, it is necessary to ensure that the Wife’s interests are protected by the provision of an incentive for timely compliance by the Husband with his obligations and by the provision of means by which she can recoup any loss sustained by her as a result of any default on the Husband’s part. I am therefore satisfied that justice and equity requires a default interest provision as sought by the Wife.
Treatment of Any Further Liabilities Incurred with Respect to the F & G Pty Ltd Companies
As outlined earlier in these reasons, the parties agreed that F Pty Ltd should be wound up. The Wife proposed that all liabilities associated with the wind up (including capital gains taxation, income taxation, GST and accounting fees), together with any outstanding liabilities owing with respect to G Pty Ltd, be borne equally between the parties.
The Husband opposed this and sought (for the first time in his closing submissions) that any such liabilities be borne solely by the Wife. The basis for the Husband’s opposition to the orders sought by the Wife was that he was unaware of the quantum of such liabilities. It is noted that two such liabilities, being the capital gains tax arising from the sale of the L Street property and that ATO debt relating to G Pty Ltd are in fact known liabilities and have been included in the table of assets and liabilities set out above.
Counsel for the Husband was unable to point to any evidence that the Husband had sought any information that might shed light on the likely existence or quantum of any additional liabilities which had not been provided. As Counsel for the Wife submitted, the evidence before the Court makes clear that the Husband, who was at all material times a director of both companies, has had full access to the relevant financial information and both the accountant engaged in respect of the F & G Pty Ltd companies and the liquidator associated with G Pty Ltd. There is no basis for any finding that the Wife has within her knowledge any information relevant to any further liabilities that has not been made available to the Husband. Rather, the evidence before the Court suggests quantum of such further liabilities as may arise (if any) in addition to those which are known and have been included in the list of assets and liabilities is not presently known by either party. This weighs in favour of them being shared between the parties, rather than one party bearing the entirety of the risk. It does not support the Wife bearing sole liability for any such costs which may arise.
The Husband also opposed the proposed sharing of such liabilities on the basis that the Wife had been the one operating the K Company business. In light of my finding that the K Company business and the associated establishment of the F & G Pty Ltd companies was a joint endeavour of the parties and my rejection of the Husband’s assertion that the Wife caused the losses associated with that endeavour by way of ‘financial mismanagement’, for the same reasons given with respect to past liabilities associated with the F & G Pty Ltd companies, there is no basis for attributing sole responsibility for any further liabilities or expenses associated with the F & G Pty Ltd entities to the Wife. As such, I shall make the orders as sought by the Wife in this regard, though the wording of such orders will be varied slightly to reflect the fact that the quantum of some of these liabilities is in fact known at the time of the making of the orders.
Other Matters
The Wife sought an order that a liability for costs flow automatically from any application required to be made under s 106A of the Act. I have declined to make that order as it was vague and therefore unenforceable, and I do not consider it appropriate to make an order for costs in the abstract without details as to quantum or the surrounding circumstances. That is not to say, however, that any application for costs that was made arising from the need for either party to invoke the process provided for in s 106A would not enjoy considerable prospects of success.
Aside from the matters specifically addressed earlier in these reasons, there was no dispute between the parties as to the balance of the orders to be made by the Court. As such, I have made orders largely in the form sought by the Wife and not opposed by the Husband, having assessed those proposed orders as being suitable to achieve the balance of the outcomes otherwise jointly sought by the parties, being the complete separation of their respective financial positions, and therefore just and equitable.
Neither party sought that the superannuation interest held by the Wife be dealt with as a separate pool. Given its modest quantum in the context of the parties’ overall assets and liabilities and the parties’ ages, I consider it just and equitable that the parties’ assets and liabilities, including superannuation, be treated as a single pool.
For the reasons outlined above, I make the orders as set out at the commencement of these reasons.
I certify that the preceding two hundred and forty-five (245) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Parker. Associate:
Dated: 16 June 2023
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