Lovine & Connor and Anor
[2012] FamCAFC 168
•24 October 2012
FAMILY COURT OF AUSTRALIA
| LOVINE & CONNOR AND ANOR | [2012] FamCAFC 168 |
| FAMILY LAW – APPEAL – PROPERTY – Large asset pool – Where trial judge made errors of fact in relation to child support – Whether errors material and whether errors vitiated exercise of discretion by trial Judge in s 75(2) adjustment. FAMILY LAW – APPEAL – PROPERTY – Adequacy of reasons for the assessment of contribution-based entitlements at 75 per cent / 25 per cent in favour of the husband – Where divisible pool included assets of testamentary trusts and trial Judge found no contribution to those assets by the wife – Whether trial Judge obliged to further explain the extent to which this component affected the 25 per cent apportionment to the wife. FAMILY LAW – APPEAL – PROPERTY – Whether errors in trial Judge’s determination of 15 per cent adjustment for s 75(2) factors – Whether error in failure to consider the effect of such adjustment in real money terms – Whether trial Judge’s s 75(2) adjustment went beyond the bounds of reasonable ambit of discretion. FAMILY LAW – CROSS-APPEAL – Lack of evidentiary basis to deduct fixed amount for realisation costs in determining divisible pool – Orders to effect proportional sharing of capital gains tax or realisation costs. FAMILY LAW – APPEAL AND CROSS-APPEAL – REHEARING – Where Appeal and Cross-Appeal allowed because of trial Judge’s failure to deal on the merits with child support departure proceedings as part of property proceedings – Where disputed issues of fact in those proceedings – other disputed issues of fact necessitating re-hearing. |
| Family Law Act 1975 (Cth) Child Support (Assessment) Act 1989 (Cth) Evidence Act 1995 (Cth) |
| Allesch v Maunz (2000) 203 CLR 172 Bennett & Bennett (1991) FLC 92-191 Brodie & Brodie [2009] FamCAFC 6 Browne & Green (1999) FLC 92-873 Cerini & Cerini [1998] FamCA 143 Chorn & Hopkins (2004) FLC 93-204 Clauson & Clauson (1995) FLC 92-595 de Winter & de Winter [1979] FLC 90-605 DJM & JLM (1998) FLC 92-816 Farmer & Bramley (2000) FLC 93-060 Housing Commission of New South Wales v Tatmar Pastoral Co (1983) 3 NSWLR 378 Jackson & Jackson [2012] FamCAFC 29 Kowaliw & Kowaliw (1981) FLC 91-092 Little & Little (1990) FLC 92-147 Norbis v Norbis (1986) 161 CLR 513 Omacini & Omacini (2005) FLC 93-218 Phipson & Phipson [2009] FamCAFC 28 Polonius & York [2010] FamCAFC 228 Rosati & Rosati (1998) FLC 92-804 Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 24 Steinbrenner & Steinbrenner [2008] FamCAFC 193 Townsend & Townsend (1995) FLC 92-569 Waters & Waters (1981) FLC 91-019 Wayne & Wayne [2010] FamCAFC 33 at [106] Yates Property Corporation Pty Ltd (in liq)v Darling Harbour Authority (1991) 24 NSWLR 156 |
| APPELLANT: | Mr Lovine |
| 1ST RESPONDENT: | Ms Connor |
| 2ND RESPONDENT: | X Investments Pty Ltd |
| FILE NUMBER: | MLC | 9419 | of | 2009 |
| APPEAL NUMBER: | SOA | 44 | of | 2011 |
| DATE DELIVERED: | 24 October 2012 |
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Coleman, Ainslie-Wallace & Kent JJ |
| HEARING DATE: | 17 May 2012 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 10 June 2011 |
| LOWER COURT MNC: | [2011] FamCA 432 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT/ RESPONDENT TO THE CROSS-APPEAL: | Mr Glick SC Ms Vohra |
| SOLICITOR FOR THE APPELLANT/ RESPONDENT TO THE CROSS-APPEAL: | Taussig Cherrie Fildes |
| COUNSEL FOR THE 1ST RESPONDENT/ CROSS-APPELLANT: | Mr St John SC Mr Dickson |
| SOLICITOR FOR THE 1ST RESPONDENT/ CROSS-APPELLANT: | Lander & Rogers |
Orders
The appeal and the cross-appeal each be allowed.
Orders 12 and 16 of the Orders of the Honourable Justice Mushin of 10 June 2011 be set aside.
The applications for property settlement and in respect of child support be remitted for hearing by a Judge in the Melbourne Registry of the Family Court of Australia.
In relation to the appeal:
(a) The Court grants to the appellant husband a costs certificate pursuant to s 9(1) of the Federal Proceedings (Costs) Act 1981 (Cth), being a certificate stating that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the appellant husband in respect of the costs incurred by the appellant in relation to the appeal.
(b) The court grants to the respondent wife a costs certificate pursuant to s 6(1) of the Federal Proceedings (Costs) Act 1981 (Cth), being a certificate stating that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the respondent wife in respect of the costs incurred by her in relation to the appeal.
In relation to the cross-appeal:
(a) The Court grants to the cross-appellant wife a costs certificate pursuant to s 9(1) of the Federal Proceedings (Costs) Act 1981 (Cth), being a certificate stating that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the cross-appellant wife in respect of the costs incurred by the cross-appellant wife in relation to the cross-appeal;
(b) The Court grants to the cross-respondent husband a costs certificate pursuant to s 6(1) of the Federal Proceedings (Costs) Act 1981 (Cth), being a certificate stating that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the cross-respondent husband in respect of the costs incurred by the cross-respondent husband in relation to the cross-appeal.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Lovine & Connor has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT |
Appeal Number: SOA 44 of 2011
File Number: MLC 9419 of 2009
| Mr Lovine |
Appellant
And
| Ms Connor |
First Respondent
And
X Investments Pty Ltd
Second Respondent
REASONS FOR JUDGMENT
By an Amended Notice of Appeal filed on 16 May 2012, Mr Lovine (“the husband”) appealed against Orders with respect to property settlement made by Mushin J on 10 June 2011 in proceedings between the husband and Ms Connor (“the wife”) pursuant to Part VIII of the Family Law Act 1975 (Cth) (“the Act”).
The learned trial judge determined that the net assets of the parties, including superannuation, had a total value of $13,583,962.00. His Honour assessed the contribution-based entitlements of the parties at 75 per cent/25 per cent in favour of the husband, then made a 15 per cent adjustment in favour of the wife for s 75(2) factors, resulting in an overall division of 60 per cent/40 per cent in favour of the husband. His Honour made orders to give effect to that division, which resulted in the wife receiving an unencumbered home (“R suburb property”) valued at $1,800,000.00; the retention of other assets valued at $401,131.00 and cash payments from the husband, and the second respondent, X Investments Pty Ltd (“X”), a company controlled by the husband, totalling $3,232,454.00. X did not participate in these appeals.
Important concessions made by Mr Glick of Senior Counsel for the husband resulted in some aspects of the husband’s appeal as foreshadowed in the Amended Notice of Appeal and the written summaries of argument filed in support not being pursued. Without intending any injury to the carefully constructed oral argument articulated by Mr Glick SC, the essence of the husband’s challenges to the trial judge’s property settlement determination may be paraphrased and summarised as follows:
a)A mistake common to both parties vitiated the parties’ agreement at trial as to the amount required to complete renovations to the R suburb property, agreed at a figure of $90,000.00. The husband sought by application pursuant to s 93A(2) to advance further evidence on the appeal. His evidence was designed to establish that the amount of $90,000.00 as agreed was in error and significantly understated the true liability and that consequently, the learned trial Judge’s determination of the net assets, as already referred to, or at least by the time of the making of the orders giving effect to that determination, was wrong;
b)The learned trial Judge failed to provide adequate reasons for determining that the contribution-based entitlements of the parties were 75 per cent/25 per cent in favour of the husband. Specifically, having regard to the husband’s capital contributions, and in particular, to the contribution of the residuary assets comprised in two testamentary trusts established under the will of the husband’s late father, the learned trial Judge did not demonstrate by reasons an assessment or analysis of the impact of such a contribution on the contributions assessment and thus the process of reasoning is deficient in the appellate sense;
c)Three substantial errors attended the s 75(2) adjustment of 15 per cent in favour of the wife. First, a plain error of fact existed in the finding that over and above education, medical and like needs, the wife was to provide all expenses for the children. It is not in issue that the husband was making, and would continue to make, weekly cash payments over and above the expenses identified. Second, a failure to provide adequate reasons for determining a 15 per cent adjustment, particularly the need to have regard to the effect of such an adjustment, “…in real money terms.” Third, that such adjustment was beyond the ambit of a reasonable exercise of the discretion.
The husband’s ultimate contention on appeal was that there ought to have been an overall determination of property settlement of 70 per cent/30 per cent in favour of the husband, and the husband sought orders on appeal, in lieu of those made by the trial Judge, to give effect to that contention. Alternatively, the husband sought an order for the proceedings to be remitted for rehearing.
The wife resisted the husband’s appeal and the husband’s application for this Court to receive his further evidence. By Notice of Cross-Appeal filed on 26 July 2011, the wife appealed against the orders with respect to property settlement. The wife also made an application to adduce further evidence before this Court relating to a child support issue, discussed further below.
The essence of the wife’s contentions in the cross-appeal concerning the orders with respect to property settlement may be paraphrased and summarised as follows:
a)The learned trial Judge erred in relation to his treatment of distributions made by the husband from income he derived during the marriage to his extended family, totalling $682,000.00. That amount ought to have been notionally added back to the asset pool available for division. The learned trial Judge made an error of law in determining that because the distributions were made from income, it was not appropriate that any amount be notionally added back to the pool. Further, having not notionally added back that total amount or any amount, the learned trial Judge failed to reflect the fact of such distributions in assessing the husband’s financial contribution and in the overall assessment of contribution-based entitlements;
b)The learned trial Judge failed to provide adequate reasons as to either of the above aspects; that is, either as to declining to notionally add back any sum and as to the assessments made;
c)There were errors in the learned trial Judge’s determination that $300,000.00 ought be allowed for asset realisation costs when determining the net pool of assets available for division.
The wife sought orders on appeal adjusting the cash payments she was to receive, arrived at by excluding the $300,000.00 allowance as a liability and increasing her overall entitlement by 2.5 per cent with respect to the distributions of $682,000.00 made by the husband to his extended family.
Importantly, the proceedings below included an issue discrete from the competing applications for orders for property settlement. By her Amended Response filed 15 October 2010, the wife had sought a child support departure order. As appears from the husband’s case outline document filed in advance of the trial, the husband too sought orders in relation to the child support issue. The submissions of both parties at trial, including their respective closing submissions, addressed the child support issue and identified the orders sought by each of them with respect to that issue.
The final orders made by Mushin J, comprising parenting and property settlement orders, otherwise included an order dismissing all extant applications.
There is no issue between the parties on these appeals that his Honour did not deal with the child support issue on its merits and that this failure constitutes appealable error.
Indeed, in reasons for judgment delivered subsequently by Mushin J on 12 July 2011, his Honour acknowledged a “…mistaken…” treatment of the child support issue and also acknowledged his omission to determine that issue. His Honour concluded on that application that it was beyond the scope of the slip rule to correct or address these errors.
It is thus axiomatic that the appeal and the cross-appeal must be allowed with respect to the errors made by the learned trial judge concerning the child support issue.
A question arises as to whether, if it is determined that either appeal succeeds only in respect of the child support issue, this Court should proceed to determine the child support issue, as is the primary contention of the wife, or to remit the issue for re-hearing before a judge in the trial division, as the wife proposes in the alternative, or, as the husband contends, the issue be remitted, “…to the Social Security Appeals Tribunal for determination.”
In the course of argument before us, it appeared to be accepted by both parties that if either the appeal or cross-appeal succeeds with respect to the property settlement orders and we determined that the proceedings ought be remitted for rehearing, it would be appropriate to remit the child support issue as part of that re-hearing and determination.
Background
The following matters extracted from the reasons for judgment of the learned trial Judge provide the relevant context to these appeals. Save as will be discussed with respect to the learned trial Judge’s findings regarding the husband’s initial capital contribution, they are non-controversial.
The husband was 50 years of age at trial and is now 52.
The wife was 40 years of age at trial and is now 42.
The parties commenced cohabitation in late 1999, married in 2000 and separated in 2010, their cohabitation having subsisted for approximately ten years.
There are two children of the marriage, namely W, the older child, born in January 2001, and V, the younger child, born in October 2003.
At the commencement of cohabitation, the husband was a partner in the professional firm, was already earning a large income and had accumulated substantial assets. The wife was employed in her own business which was sold in 2001, not long after the parties’ marriage. Aside from her equity in that business, the wife had equity in a house property at R suburb and a motor vehicle at the commencement of cohabitation.
Whilst the wife disputes the learned trial Judge’s findings to the effect that the husband’s initial contribution was approximately $3,300,000.00, and was more than $3,000,000.00 greater than the initial capital of the wife, that contest appears to be primarily in relation to an approximately $800,000.00 interest-free loan the husband obtained from his family to purchase the former matrimonial home and notional capital gains tax on shares held by the husband, which the wife contends were not accounted for in such findings. Even putting the wife’s case at its highest, it is plain and uncontroversial that the husband had very substantial assets and significantly greater initial capital than the wife.
Throughout the marriage, the husband’s earnings as an equity partner at the professional firm were described by the learned trial Judge as being, “…at the highest levels of the Australian community.” His Honour referred to the husband’s own evidence that his taxable income ranged over the period 2000 to 2007 from approximately $820,000.00 to $1,250,000.00. The learned trial Judge found, having regard to distributions from the Professional Firm Service Trust, that gross income up to $1,250,000.00 in a financial year, “…was only part of the benefits available to him from that partnership.”
The wife was, throughout the parties’ relationship, the primary homemaker and, from the birth of the parties’ first child, the primary parent. The learned trial Judge found that, as a consequence of the wife’s role in those regards, the husband was able to apply himself as well as he did in his role.
The death of the husband’s father in 2001 activated two testamentary trusts, which were administered as one. The residuary property in those trusts is to be treated as the property of the husband and was included in the pool on that basis at the value of $1,392,184.00.
Since separation, the children have lived with the wife for nine nights per fortnight and with the husband for the remaining five nights per fortnight during school terms, with holiday periods being shared. That remains the position as a consequence of the final parenting orders made.
The Grounds of Appeal as Ultimately Argued
Grounds 1, 2, 3 and 4 as expressed do not constitute grounds of appeal. Each state a conclusion unburdened by particulars or specificity. As a result, the errors purportedly asserted in each cannot be discerned. We will not burden these reasons with further discussion of them.
Grounds 6, 7 and 8 express challenges to the learned trial Judge’s assessment of the parties’ contribution-based entitlements. Mr Glick SC frankly conceded that those challenges could not be made out and they are not pursued.
Ground 11 constitutes a challenge to the learned trial Judge’s determination of the net asset pool relating to the parties’ agreement at trial, adopted by the learned trial Judge, as to $90,000.00 being the agreed liability for the amount required to complete renovations to the R suburb property. Mr Glick SC concedes that the fate of this ground rests upon the husband’s application for this Court to receive his further evidence.
Ground 5 was advanced as challenges to the adequacy of the learned trial Judge’s reasons in two respects. First, that his Honour did not provide adequate reasons for determining a 75 per cent/25 per cent apportionment in favour of the husband for contribution-based entitlements, having regard to the husband’s capital contributions and, in particular, once the learned trial Judge determined that the assets of the testamentary trusts were to be included in a single divisible pool. Second, and related to grounds 9 and 10 discussed below, that the learned trial Judge did not provide adequate reasons for a 15 per cent adjustment in favour of the wife for s 75(2) factors when the 15 per cent was applied to a single pool, including the assets of the testamentary trusts, and it was necessary to analyse any such adjustment in real money terms.
As the first aspect of the adequacy of reasons challenge referred to was argued discretely, and the second aspect was argued in conjunction with grounds 9 and 10 in relation to the challenges to the s 75(2) adjustment, we will deal with those respective challenges in that order.
Grounds 9 and 10 are expressed as follows:
9. In assessing factors under Section 75(2) of the Family Law Act 1975 (“the Act”) the learned Trial Judge erred in that:-
(a) in considering the income of the parties the learned Trial Judge failed to give any or any appropriate consideration to the income the respondent was capable of generating:-
(i) from the cash adjustment she was to receive under the order.
(ii) by way of personal exertion.
(b) in considering the respondent’s income earning capacity the learned Trial Judge failed to give any or any appropriate consideration to the respondent’s previous experience in owning or operating her textile business;
(c) in failing to have proper regard to the change in the appellant’s employment to facilitate the appellant’s parenting commitments and the time that the appellant would have care of the children;
(d) in concluding that the respondent would bear all of the periodic expenses for the children.
10. The adjustment of 15 per centum (15%) to the respondent pursuant to Section 75(2) of the Act was outside the reasonable ambit of the learned Trial Judge’s broad discretion.
Ground 9 was also the subject of significant concessions made by Mr Glick SC. In short, the aspects identified in each of subparagraphs (a)(ii), (b) and (c) of ground 9 were not pursued on the appeal. Only two central challenges were pursued. First, the error of fact contended for in sub-paragraph (d) of ground 9, and second, the effect of a 15 per cent adjustment in real money terms, having regard to the overall effect of the orders and the circumstances of the wife. In summary, the challenges to the s 75(2) adjustment of 15 per cent in favour of the wife pursued by the husband are:
a)That there was an error of fact made by the learned trial Judge in finding that the wife would bear all of the periodic expenses for the children, and such error vitiated the exercise of discretion; and
b)That the learned trial Judge did not analyse the 15 per cent adjustment in real money terms, having regard to either the inclusion of the testamentary trust assets and/or the quantum of the overall pool, having regard also to the effect of the orders and the circumstances of the parties including, inter alia, the ongoing financial support to be provided by the husband for the children; and
c)That a 15 per cent adjustment fell outside the ambit of the discretion; and
d)That the reasons of the learned trial Judge did not adequately illuminate or explain the process of reasoning to such a conclusion.
Ground 5 – Reasons challenge re assessment of contribution-based entitlements
The principles applicable to a challenge as to the adequacy of reasons for a discretionary judgment are well-established and are often repeated by this Court (see Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 24, 279 (McHugh JA); Bennett & Bennett (1991) FLC 92-191 at 78,266. See, also, the reference to Sun Alliance Insurance Ltd v Massoud (1989) VR 8 in Bennett at 78,266). They need not be restated here.
It is also important to point out what was said by Finn J in Farmer & Bramley (2000) FLC 93-060 at [49] in relation to s 79 of the Act:
…Given that awards under s 79 are virtually never calculated with mathematical precision, no amount of enumeration of, or indeed of evaluation of, contributions, or of the s 75(2) matters, or indeed of any of the matters listed in s 79(4), can ever explain exactly why a particular figure, or more usually a percentage, is eventually arrived at (other than that it is within the recognised “range”). Absent a strict mathematical approach, the reasons for judgment requirement ultimately becomes impossible of total fulfilment in the jurisdiction under s 79.
A similar point was made in a different form and in a different but analogous context by Coleman J, sitting as the Full Court, in Steinbrenner & Steinbrenner [2008] FamCAFC 193 at [234]:
Given that the evaluation of contribution-based entitlements inevitably moves from qualitative evaluation of contributions to a quantitative reflection of such evaluation, there will inevitably be a “leap” from words to figures. That is the nature of the exercise of discretion, whether it be in the assessment of contributions in the matrimonial cause, assessment of damages in a personal injuries case, or a determination of compensation in a land resumption case. In some cases, the “leap” is so great, and so unheralded by the discussion which precedes it, as to render the reasoning process defective.
In Brodie & Brodie [2009] FamCAFC 6, the Full Court (Boland, Thackray and Watts JJ), in a joint judgment quoted with approval (at paragraph 90) the statement of Coleman J referred to. As the Full Court there observed, assessing contributions involves, “…considering the transposition from evaluation of actual contributions to determination of a monetary sum (or impliedly a sum represented by a percentage of assets).”
Authority to support Coleman J’s observations in the statement cited above concerning discretionary judgments in various contexts includes, for example, Housing Commission of New South Wales v Tatmar Pastoral Co (1983) 3 NSWLR 378, referred to in Bennett, where the appeal and cross-appeal from the Land and Environment Court to the Court of Appeal were confined to a question of law. At page 386, Mahoney JA said:
Nor is it necessary for a judge who is exercising a discretionary judgment to detail each factor which he has found to be relevant or irrelevant, or to itemize, for example, in the assessment of damages for tort, each of the factual matters to which he has had regard: see O’Hara v Evans (Court of Appeal, 23rd September, 1976, unreported); Colacicco v Calcicco (Court of Appeal, 15th March, 1977, unreported). …Nor is a Judge required to make an explicit finding on each disputed piece of evidence. It will be sufficient, if the inference as to what is found is appropriately clear: see Selvanayagam v University of the West Indies [1983] 1 WLR 585, at 587, 588; [1983] 1 All ER 824, at 826.
But, subject to matters such as these, the basis of the decision of a trial judge or of an intermediate Court of Appeal should be made apparent. This does not mean that the reasons given need be elaborate: an elaborate argument may not require an elaborate answer. Reasons need be given only so far as is necessary to indicate to the parties why the decision was made and to allow them to exercise such rights as may be available to them in respect of it.
Yates Property Corporation Pty Ltd (in liq)v Darling Harbour Authority (1991) 24 NSWLR 156 is authority for the proposition that a judge assessing compensation by reference to the value of land, “…is not obliged to explain each step in his reasoning, having regard to the larger scope for intuition, evaluation, judicial impression and guesswork in such decisions.”
The relevant context of the s 79 discretionary exercise involved in the assessment of contribution-based entitlements, and hence the contextual setting to determining whether ‘too great a leap’ has been made in that process, is informed by the categories, nature and characteristics of the statutory considerations expressed. Those considerations include a wide and disparate range of varying kinds of aspects of ‘contribution’. Some are capable of measurement in money terms, and others are not.
Contribution, either direct or indirect and financial or non-financial, to any of acquisition and/or conservation and/or improvement to property (whether or not such property has ceased to be held) or to the welfare of the family or children, falls for consideration. No order of priority is attached to individual elements. The evaluation occurs often, as in this case, with respect to such disparate kinds of contribution made over a substantial period. Such evaluation, having regard to its subject matter, inevitably involves value judgments and matters of impression.
It follows that the assessment involves matters of estimation and is not, and cannot be, a mathematical exercise. No amount of devotion to mathematics is capable of transforming a discretionary exercise involving many component parts, each mostly unamenable to precise computation, into one of aggregating separately finely calculated components to reach an overall outcome.
As part of the process of ultimately determining just and equitable orders under s 79 there is included a complex of discretionary assessments and judgments of many components of contribution, only some of which are capable of measurement in money terms and then often only in historical, rather than present, money terms. Any dictate to the effect that in the course of assessment each disparate component part or kind of contribution must be assigned a discrete and identifiable value or percentage is antithetical to the nature of the discretion involved.
Under the heading “Contributions” (Reasons [154]), the learned trial Judge commenced his discussion of this topic by identifying the categories of contributions to be considered. At [159], the learned trial Judge made reference to the husband’s role as, “…a primary breadwinner for the family…” and the high level of the husband’s earnings. At [168], the learned trial Judge recorded his findings as to the wife’s contribution as the primary homemaker and primary parent. At [169], the learned trial Judge recorded:
…I am satisfied that in all respects, the wife applied herself as diligently and competently in her role as homemaker and parent as did the husband in his role as breadwinner. As a consequence of the wife’s role in those regards, the husband was able to apply himself as well as he did to his agreed role. His application to the role of homemaker and parent was, to a very large degree, secondary to the wife’s role in those regards and to his role as the breadwinner.
Commencing at [110] of the reasons under the heading “The Testamentary Trust”, the learned trial Judge undertook a detailed examination of the creation of the subject testamentary trusts and the, “…issue…” as to, “…the benefit, if any, which the husband might have in those trusts.” In that discussion, the learned trial Judge traced the history of the testamentary trusts and the history of distributions and application of the assets of that trust; discussing in some detail the affidavit evidence. His Honour moved to consider the oral evidence on this topic (Reasons [121]). After referring to relevant authority, the learned trial judge recorded his conclusion at [126] that the residual assets of the trust must be included as an asset in these proceedings. Findings as to value ($1,392,184) were made (Reasons [131]).
It is against that background that his Honour made specific findings that the wife could not be said to have made contribution to the assets of the residuary trust (Reasons [166]):
166. The other aspect of financial contributions is the assets of the testamentary trust which have a value of $1,392,184 and which I have determined should be included as an asset in these proceedings. It cannot be said that the Wife has made any real contribution to that asset.
(emphasis added)
At [170] of his reasons, expressed to be by way of summary, the learned trial Judge repeated his finding that the wife had not made contribution to the assets of the testamentary trusts.
As to disparity of initial capital contributed by the parties, commencing at [96] of the reasons, the learned trial Judge referred to an exhibit to the husband’s trial affidavit prepared by his accountant, asserting the husband’s net position at the commencement of the parties’ cohabitation of $3,334,454. At [97], his Honour referred to the purchase of the matrimonial home and the husband’s evidence into the funding of that purchase. Commencing at [100] of the reasons, the learned trial Judge proceeded to consider the wife’s initial capital. It was against that background that, at [160] of his reasons in his discussion of contributions and their evaluation, the learned trial Judge recorded:
One of the most significant aspects of my consideration of financial contributions is the contribution made by the husband to the parties’ assets at the commencement of their relationship. It is common ground that the husband purchased the matrimonial home for $1,925,000. It is also submitted on behalf of the wife that the (sic) commencement of the parties’ cohabitation, the husband held shares valued in the sum of $1,357,637. Accordingly, at the commencement of cohabitation, the husband contributed $3,282,637 to the parties’ assets. I have already noted that the husband’s accountant calculated his net assets at that time in the sum of $3,334,454. In the circumstances, the difference is of no consequence.
At [161], the learned trial Judge discussed a document tendered at the trial in support of the contention that the then-current worth of the husband’s initial contribution was to be valued at, “…$7,446,394 at today’s money value.” At [162], the learned trial Judge again referred to the wife’s initial capital.
Having recorded a finding in [163] of the reasons as to the extent of the disparity, his Honour thereafter considered the authorities in relation to initial contribution and the use made of initial capital. As already noted, it was at [166] of the reasons in the course of this discussion that the learned trial Judge again referred to the assets of the testamentary trust and his finding that the wife had not contributed to those assets.
It was against the background of all that had preceded it that the learned trial Judge recorded his summary of findings in relation to contributions at [170] and [171] of the reasons as follows:
170. By way of summary, the husband has made a very substantial financial contribution to the parties’ assets, both by way of capital being the purchase price of the matrimonial home, the shares owned by him at the commencement of the parties’ relationship and the testamentary trust to which the wife has not made a contribution. As against that, the wife has made a very substantial contribution as homemaker and parent and a further contribution in a non-financial role but a minimal financial contribution.
171. Considering all aspects of contributions, the contributions of the husband were very significantly greater than those of the wife and must be recognised accordingly. In my view, the husband’s income during the parties’ relationship is balanced equally against the non-financial and primary homemaker and parent contributions of the wife. The differentiating factor is the three items of capital contributions referred to above. In my view, contributions should be apportioned between the parties in the proportions of 75% to the husband and 25% to the wife.
In argument before us, Mr Glick SC confirmed that no challenges were any longer pursued to the effect that the learned trial Judge erred in treating the assets of the residuary trusts as property and that it was property in the control of the husband. It was acknowledged by Mr Glick SC that the logical conclusion or consequence of the husband’s control of the trusts was that the assets be included in the divisible pool.
Mr Glick SC directed our attention to the oral submissions at trial by Senior Counsel for the husband. Whilst those submissions and the exchanges between Counsel and the learned trial Judge appear to us to be somewhat disjointed, it appears that the husband’s primary contention at trial was that the assets of the testamentary trust should not be treated as his and included in the divisible pool. It was primarily contended that they constituted a financial resource. If included as an asset in the divisible pool, the learned trial Judge raised with Senior Counsel for the husband the appropriateness of dealing with that asset on an asset-by-asset approach rather than globally in one pool. Ultimately, Senior Counsel for the husband agitated that if included as an asset, being an asset to which the wife had made no contribution, the wife’s contribution-based entitlement would accordingly reduce.
The gravamen of the challenge ultimately advanced on appeal was that because the testamentary trust assets were assets to which the wife made no contribution, and if included in the divisible pool, constituted, “…about 11%...” of that pool (actually 10.25 per cent), their inclusion must have a diminishing effect upon the percentage assessment of the wife’s contribution-based entitlement and the learned trial Judge’s reasons do not adequately demonstrate how 25 per cent for the wife was arrived at by analysis of this factor.
The 75 per cent/25 per cent apportionment arrived at, as expressed in [171] of the reasons, results in a 50 per cent disparity between the parties. On the net pool as found by his Honour, that is a disparity in real money terms of $6,791,981.00. We have already made reference to the learned trial Judge’s findings that the initial capital disparity in favour of the husband approximated $3,000,000 and that the value of the trust assets was $1,392,184.00.
The learned trial Judge’s evaluation of contribution-based entitlements was preceded by extensive discussion of, and findings about, the relevant elements of contribution and the parties’ competing contentions about them. The evaluation process illuminated in the reasons commencing from [154] must be read also as the context to the summary expressed in [170] and [171]. It is not contended on behalf of the husband that the learned trial Judge erred in erroneously including aspects of contribution or by failing to identify relevant elements of contribution.
When the conclusion expressed in [171] is taken with the findings of fact preceding it, the inescapable inference is that the, “…differentiating factor…” including the testamentary trust assets, resulted in the husband’s entitlements being assessed to exceed those of the wife by almost $6,800,000.
We are not persuaded that his Honour’s transposition from the qualitative evaluation of contributions to a quantitative reflection of that evaluation, the ‘leap’ from words to figures, was so great and unheralded by the discussion preceding it so as to render the reasoning process defective.
Having detailed the provenance of the testamentary trust assets, identifying their value and recording findings that the wife had made no contribution to those assets, we are not persuaded that it was incumbent upon the learned trial Judge to give singular attention to one of many aspects of contribution (the trust assets) in the assessment of the wife’s contribution-based entitlements at 25 per cent.
We therefore find no merit in this ground of appeal.
Section 75(2) Challenges – Grounds 5, 9 and 10
Error of Fact
Paragraph [191] of the reasons is as follows:
191. The wife will move to live with the children in [R Suburb property] when its renovation is completed. That will also constitute high standard accommodation. She will need to provide all the necessary and desirable requirements of herself and the children over and above their education, medical and like needs and also secure her own future. The lump sum payment which the husband will be required to (sic) enable her to achieve that.
There is no issue between the parties that the above statement contains a plain error of fact. Indeed, the error was acknowledged by the learned trial Judge himself in his subsequent reasons already referred to, which include (reasons [11]), after restating the paragraph above, the following:
Again, I was in error in holding that the wife was “to provide all the necessary and desirable requirements…” over and above the items being paid by the husband excluding the weekly payment. I did not take into account the dispute over the weekly payment.
It is contended on behalf of the husband that, as a matter of unimpeachable logic, “…if it is 15%, because of the inclusion of the requirement for the wife to have sufficient income to provide all the necessary and desirable requirements, it must be less than 15% once that requirement is gone.”
In short, it is contended on behalf of the husband, expressed in the language of de Winter & de Winter [1979] FLC 90-605 (“de Winter”), that the learned trial Judge’s exercise of discretion in determining a 15 per cent adjustment for 75(2) factors was vitiated by a material error of fact.
The contention on behalf of the wife is that, acknowledging the error, it was de minimus and not material in a de Winter sense.
In support of the contention that the error was material, Senior Counsel for the husband referred us to the wife’s Case Summary document provided at trial. At paragraph 14 of that document, it can be seen that as and by way of departure from the administrative assessment of child support, the wife was seeking, so far as periodic payment is concerned, the sum of $750.00 per week per child or the sum of $6,500.00 per month, translating to $78,000.00 per annum.
Reference was also made to the following exchange at trial during cross-examination of the wife:
Q: …if he pays you $750 a week per child and he pays all of the – everything you want by way of school fees, college fees, extra-curricular, will that cover most of what the children need?
A: The $750 a week is based on some estimates and some actual, but yes that will cover it.
Q: Yes, so if he does that, then you won’t have to make a direct financial contribution to their welfare. It will be met by the $750, the $1,500 a week would surely cover their expenses before school fees and other things are paid. You would agree with that, wouldn’t you?
A: That sounds correct.
Senior Counsel for the wife contended that the error of fact was de minimis relative to the overall circumstances of the parties and thus not material to the exercise of discretion. Those circumstances included the overall substantial quantum of the asset pool and the parties’ wealth, the husband’s substantial income and earning capacity, and the significance of child support relative to the overall context of this case.
We find substance in the contention that the error was material. Even in the circumstances of the parties as referred to by Senior Counsel for the wife, we consider that in the context of the wife seeking a departure order for periodic payment equating to $78,000.00 per annum in addition to the other expenses being met by the husband for the children, that is of significance. Moreover, we consider the materiality of the error surfaces in the last sentence of paragraph [191] of the reasons because that sentence demonstrates some reflection by his Honour about the lump sum payment by the husband to the wife. That is, after erroneously stating that the wife will have to provide, “…all the necessary and desirable requirements…” the trial Judge considered the lump sum necessary to enable the wife to achieve that position.
We also note that in his consideration of those s 75(2) factors which the learned trial Judge identified as relevant, his Honour repeated, by omission, his error regarding periodic payments when dealing with the topic of child support (Reasons [183]).
In summary, we are of the view that the acknowledged error of fact was material and vitiated the exercise of his Honour’s discretion in determining the 15 per cent adjustment.
Having found that appealable error attended the learned trial Judge’s consideration of s 75(2) factors, and having regard to our conclusion below that the proceedings are to be remitted for re-hearing, it is strictly unnecessary for us to deal with the other s 75(2) challenges made by the husband. Obviously, on a re-exercise of the discretion, the 75(2) factors will be considered afresh. However, in deference to the submissions of Senior Counsel for the parties with respect to them, we shall engage with these complaints.
Other Section 75(2) Challenges
The 25 per cent contribution-based entitlement of the wife represented, in money terms, $3,395,990.00. Mr Glick SC contended that his Honour did not have regard to that as a starting point when assessing the s 75(2) factors.
Whilst his Honour addressed relevant s 75(2) factors commencing at [172] under headings correlating with each factor, his Honour’s consideration of s 75(2)(b), “The income, property and financial resources of each of the parties and the capacity of each of them for appropriate gainful employment” in respect of the wife appears to have been confined to her employability (Reasons [178], [179]).
There is no reference there to potential income from, or the financial resource of, the investment of capital consequent upon the 25 per cent proportion of the pool the wife was to receive.
We note that s 75(2)(n) requires that account be taken of the terms of any proposed s 79 order as a factor to be considered in determining any adjustment. That factor does not appear to have been addressed by his Honour in his reasons addressing the s 75(2) factors.
Given that the learned trial Judge moved from discussion of the s 75(2) factors immediately to the just and equitable requirement, commencing at [188] of his reasons, there is obvious overlap and interplay between these respective parts of the reasons.
However, the 15 per cent adjustment made for s 75(2) factors represented a 30 per cent disparity in favour of the wife in respect of those factors. That translates in real money terms to approximately $4,075,000.
Senior Counsel for the wife, in seeking to emphasise the significance of the undoubtedly high income earning capacity of the husband, drew our attention to evidence that in an approximately eighteen month period between March 2009 and October 2010, the husband had accumulated from his income in excess of $400,000 paid to his lawyers. His Honour recorded a finding consistent with that (Reasons [134]).
However, that is to be considered with his Honour’s reference (Reasons [177]) to the husband’s evidence about the prospects of his partnership at the professional firm coming to an end and his Honour re-visited that (Reasons [185]) when his Honour said:
While I note my finding with respect to the possibility of the husband’s partnership coming to an end in the next few years by virtue of his age, on any view he is in a vastly superior position to that of the wife.
Most importantly, it is to be considered in the light that the 30 per cent disparity produced by a 15 per cent adjustment on the divisible pool was, in real money terms, $4,075,000.
We are satisfied that his Honour did not sufficiently analyse the effect of such an adjustment in real money terms as he was bound to do (Steinbrenner & Steinbrenner [2008] FamCAFC 193; Wayne & Wayne [2010] FamCAFC 33 at [106]; Clauson & Clauson (1995) FLC 92-595; Phipson & Phipson [2009] FamCAFC 28). That, of itself, vitiated the exercise of discretion and establishes that the learned trial Judge’s reasons were inadequate thus enlivening appellate intervention.
We therefore uphold these challenges by the husband on appeal as to the s 75(2) adjustment.
Grounds of Cross-Appeal
Grounds 1 to 3 of the cross-appeal address what we have referred to as the child support issue. We have accepted, for reasons already identified, that the learned trial Judge was in error in the respects identified and that each of the appeal and cross-appeal ought be allowed on that basis.
Grounds 4 to 8 articulate challenges to the treatment by the learned trial Judge of the payments made by the husband from his income over the duration of the marriage to his extended family, totalling $680,000. As these grounds were argued in conjunction, we will likewise deal with them together.
Grounds 9 and 10 articulate challenges to the learned trial Judge’s allowance, in identifying the divisible asset pool, of the sum of $300,000.00 as a liability in respect of asset realisation costs. Again, consistent with them being argued together, we will deal with them together.
Grounds 4 to 8
It is important to note at the outset that, as is expressed in paragraph 9 of the wife’s outline of submissions in support of the cross-appeal (filed 16 March 2012), the issue of payments of $680,000 was put to the learned trial Judge as being properly addressed either by notionally adding back that sum to the divisible pool, or alternatively, “…going to the question of contribution.”
Whilst the former of these alternatives may ultimately have been the wife’s primary submission, it would appear there was some variance from time to time as to which of these alternatives was primarily pressed.
Once it is accepted that the wife pressed alternatives, by necessary implication it was accepted by the wife that it was a matter for the trial Judge’s discretion whether the sum be notionally added back to the divisible pool or, alternatively, taken into account in the assessment of contributions.
The contentions within several of the grounds of cross-appeal to the effect that his Honour failed to take these distributions into account in assessing contributions can be dealt with in short compass.
At [137] of his reasons, his Honour recorded his satisfaction on the evidence that the husband had, during the parties’ marriage, paid $682,000 to members of his family from income to which the husband was entitled as arising out of his partnership in the professional firm.
Then at [159] of his reasons, where his Honour commenced his discussion of the assessment of contributions under the heading, “Financial Contributions”, his Honour, after referring to the husband as the primary breadwinner and the high level of his earnings, recorded:
…In my consideration of the manner in which he has applied his income, I found that he has paid considerable amounts to members of his extended family from which the wife and children might have otherwise benefitted.
In our view, the inescapable conclusion from these clear statements by the learned trial Judge is that his Honour took account of this issue in arriving at his conclusion as to the contributions-based assessment expressed at paragraphs [171] and [172] of his reasons, which we have earlier in these reasons set out in full.
Given those statements, the equally inescapable conclusion, as was discussed in the course of argument in the appeal and ultimately accepted by Senior Counsel for the wife, is that if his Honour had notionally added back the total sum, it would follow that the husband’s direct financial contributions would be greater.
We therefore find no merit in Ground 4 of the cross-appeal, which contends that his Honour failed to take into account the payments from income totalling $682,000 and that the learned trial Judge thereby overestimated the financial contribution of the husband.
Likewise, we find no merit in the contention in Ground 7 that his Honour did not have regard to these payments, or failed to accord such payments proper consideration or weight in assessing the financial contributions of the parties.
Before turning to the balance of the challenges contained within these grounds, we note that in Polonius & York [2010] FamCAFC 228, the Full Court of this Court endorsed several approaches to the way in which relevant financial conduct or financial behaviour can legitimately be taken into account in the s 79 process. Those approaches include, first, including a notional asset in the divisible pool; second, by taking it into account when assessing contributions; and third, in considering s 75(2) factors.
That his Honour was cognisant of the significance of this issue is also borne out by the feature that in paragraphs [175] and [176] of his reasons, the learned trial Judge, in examining s 75(2) factors, again referred to the issue, although we do not purport to suggest that his Honour made an adjustment for it under s 75(2). We simply point out his Honour was obviously mindful of this issue given his Honour’s reference to it at both stages.
Given that the learned trial Judge plainly adopted one of the approaches legitimately open to him, namely, by taking the payment into account when assessing contributions, being one of the alternative approaches urged upon him by the wife, we find no merit in Grounds 5 and 6 containing contentions that his Honour erred by not adopting the alternative approach of including a notional asset in the pool or that the learned trial Judge, “…erred in law.”
Because, in respect of this issue, Ground 6 of the cross-appeal contends an error of law on the part of the learned trial Judge, and Ground 8 contends a failure by the learned trial Judge to give proper reasons for the manner in which his Honour dealt with this issue, we consider it important to highlight the place of this issue, and its determination, in the overall discretionary exercise involved in the s 79 determination.
It can readily be understood from the principles and authorities we have already referred to above with respect to assessing the adequacy of reasons for a discretionary judgment, that critical to the need for, and the requisite content of, reasons, is the context and purpose of the judicial act performed.
The judicial act here was the determination of just and equitable property Orders in the exercise of the discretionary jurisdiction conferred by s 79. Within the exercise of that overall discretion, when an issue of financial conduct conveniently described generically as a notional add-back arises, it is not determined by the application of fixed legal rules. Guidelines have been formulated over time in a number of well-known authorities concerning issues surrounding notional add-backs (see, for example, Omacini & Omacini (2005) FLC 93-218; DJM & JLM (1998) FLC 92-816; Townsend & Townsend (1995) FLC 92-569; Kowaliw & Kowaliw (1981) FLC 91-092; Browne & Green (1999) FLC 92-873; Chorn & Hopkins (2004) FLC 93-204; Cerini & Cerini [1998] FamCA 143; Polonius & York (supra)).
Undoubtedly such guidelines promote uniformity of approach and diminish the risks of inconsistency and capricious and arbitrary adjudication, but as the High Court made clear in Norbis & Norbis (1986) FLC 91-712 (“Norbis”), such guidelines do not constitute binding rules of law. Mason and Deane JJ said in Norbis at 75,166:
The nature of the issues which arise under sec 79 is such that there is either little or no scope for giving guidance in the form of binding rules of law.
Understood in this context, disposition of an issue concerning a potential notional add-back does not involve the application of a fixed rule to the facts on which its operation depends. Rather, the exercise is one of discretion within a discretion. That is, a discretion as to the manner in which the issue of notional add-back is to be treated within the overarching discretion of determining just and equitable orders under s 79.
As the learned trial Judge referred to at [175] of his reasons, the husband’s evidence was that he commenced the practice of distributing some of his profit share from his practice to his mother and sisters in or about 1997 (before the parties’ marriage) and continued that practice during the marriage, albeit reducing the quantum from the time of marriage. There was no issue that the distributions were from income, as referred to by the learned trial Judge at [137] of the reasons in contrast to those cases where an asset existing at separation is disposed of where it can readily be concluded that if that financial conduct had not occurred, that asset would form part of the divisible pool. Relevant also was the total amount of the payments ($682,000) to the findings of the learned trial Judge we have already referred to of the exceedingly high income of the husband over the period in which the distributions were made; as well as the amount of the payments relative to the overall very significant pool of assets.
Having referred at [137] of his reasons to the relevant feature that the payments were made from income, and contrasting that to the position that would obtain if the husband had realised assets, the learned trial Judge did not notionally add back the payments to the divisible pool, but elected to take the approach of taking the payments into account in the assessment of contributions.
We consider that was an approach open to the learned trial Judge; it was an approach consistent with guidelines identified in, for example, Polonius & York (supra); it was an approach pressed as one alternative by the wife, and thus did not, in the circumstances, require any more explanation by way of reasons than those provided by the learned trial Judge.
We therefore find no merit in any of these grounds.
Grounds 9 and 10
As already noted, these grounds are directed to his Honour’s allowance of $300,000.00 as a liability for realisation costs in calculating the divisible pool, having regard to the cash payments the learned trial Judge ordered to be made by the husband and X respectively to the wife.
We also note that the payments as ordered to be made have in fact been paid to the wife.
In relation to these grounds, the only evidence before the learned trial Judge as to the quantum of any potential realisation costs was the husband’s evidence as to the likelihood that he would be required to sell some or all of his shares to fund any property settlement with the wife and that if the latter situation arose, he had calculated that $314,018.00 in capital gains tax would be payable.
At paragraph [141] of his reasons, the learned trial Judge recorded as a disputed liability the capital gains tax payable on the sale of the husband’s shares at an estimated “$331,675.00”. This appears to have been a recording error and, given the evidence before his Honour, we assume that this paragraph ought have referred to the amount of $314,018.00, particularly in circumstances where at paragraph [143], the learned trial judge referred to the amount recorded in paragraph [141] as reflecting the husband’s sworn evidence as to the likely realisation costs of selling his shares.
However, we note that whilst the submissions made in this appeal by Senior Counsel on behalf of the husband emphasised that the husband, as a professional person, was qualified to express an opinion as to the likely amount of capital gains tax that would be incurred by his selling his share portfolio, thus justifying the learned trial Judge’s reliance upon that figure, paragraphs [146] and [147] of the reasons for judgment clearly demonstrate that his Honour rejected the husband’s calculations in this respect as not proven and the quantum of the husband’s claim as not established. There was thus no evidentiary basis for the learned trial Judge to conclude at paragraph [147] that a sum of $300,000.00 ought be included as a liability of the husband to take into account the, “…anticipated costs of realisation of assets to meet his obligations pursuant to the orders,” even if that is capable of being read as referring only to the sale of the share portfolio. For reasons which follow, we do not think it can sensibly be read that way.
At paragraph [144] of his reasons for judgment, the learned trial Judge held:
In my view, the Husband has three possible ways in which he could fulfil his obligations under the orders which I will make the alteration property interests (sic). They are:
osell shares and other property which would be subject to CGT;
oborrow the money which would require the payment of interest from income as well as ultimately having to repay the principal amount; or
osell [K Surburb Property] which is a primary residence and not subject to CGT. However, while not the subject of evidence, it is reasonable to assume that the costs of such a sale together with the costs of the purchase of another primary residence would be substantial and not dissimilar to the amount claimed by the husband by way of CGT.
We note in passing that it is unsurprising that the learned trial Judge had regard to alternatives given the closing submissions of his Senior Counsel at trial. For example, it was submitted below that unless the wife received benefits totalling $7,500,000, when it was contended that all shares would have to be sold, it was, “…impossible to discern…” what shares would be sold and the prospective capital gains tax liabilities were described as, “…unquantifiable…”. We also note that the learned trial Judge’s finding that the husband had not proven his calculated capital gains tax liability was not challenged by the husband on this appeal, nor was it contended on appeal that the learned trial Judge was in error in finding or identifying the alternatives referred to.
We reiterate that the only evidence before the learned trial Judge directed to the question of realisation costs was the husband’s evidence of his own calculation of capital gains tax incurred if the whole of his share portfolio was sold. As already noted, his Honour did not accept the husband’s calculation. Moreover, implicit in paragraph [144] of the reasons, is the conclusion of the learned trial Judge that means other than the sale of his share portfolio might be employed by the husband in meeting his obligations under the Orders.
As to the alternatives identified by the learned trial Judge, there was no evidence as to the capital gains tax that would be incurred if, “…other property…” were sold; no evidence of the cost of the borrowing referred to (even if that was relevant to determining the net divisible pool); no evidence as to the likely or potential costs of realising the K Suburb Property, which as the learned trial Judge found, was not subject to capital gains tax and was found to have a value of $5,000,000.00 and was unencumbered; and no evidence as to, “…the costs of the purchase of another primary residence…” even if that were a consideration relevant to identifying the net divisible pool. There was thus no evidentiary basis for the learned trial Judge’s conclusion that the costs of sale of the K Suburb Property, “…together with the costs of the purchase of another primary residence would be… not dissimilar to the amount claimed by the husband by way of CGT,” even if the, “…costs of the purchase of another primary residence…” could be taken into account in calculating the net divisible pool, which they clearly could not.
We note that it was not suggested by his Honour, and nor do we suggest that it would have been appropriate to do so, that any of these potential costs were matters of ‘common knowledge’ within the meaning of s 144 of the Evidence Act 1995 (Cth).
At paragraph [147] of the reasons, his Honour again referred to the alternatives his Honour had identified as we have discussed and reiterated the conclusion that the husband had not established the quantum of his claim for realisation costs. There thus remained no evidentiary basis for the learned trial Judge’s determination to allow a liability in the fixed amount of $300,000.00 as there expressed in calculating the net divisible pool.
In argument before us, Senior Counsel for the husband referred to the learned trial Judge’s discussion, in paragraph [145] of the reasons of the, “…general principles…” emanating from Rosati & Rosati (1998) FLC 92-804 (“Rosati”) at 85,043 as to the proper approach to be adopted in relation to capital gains tax, enumerated in point form by the Full Court as follows:
(1) Whether the incidence of capital gains tax should be taken into account in valuing a particular asset varies according to the circumstances of the case, including the method of valuation applied to the particular asset, the likelihood or otherwise of that asset being realised in the foreseeable future, the circumstances of its acquisition and the evidence of the parties as to their intentions in relation to that asset.
(2) If the Court orders the sale of an asset, or is satisfied that a sale of it is inevitable, or would probably occur in the near future, or if the asset is one which was acquired solely as an investment and with a view to its ultimate sale for profit, then, generally, allowance should be made for any capital gains tax payable upon such a sale in determining the value of that asset for the purpose of the proceedings.
(3) If none of the circumstances referred to in (2) applies to a particular asset, but the Court is satisfied that there is a significant risk that the asset will have to be sold in the short to mid term, then the Court, whilst not making allowance for the capital gains tax payable on such a sale in determining the value of the asset, may take that risk into account as a relevant s 75(2) factor, the weight to be attributed to that factor varying according to the degree of the risk and the length of the period within which the sale may occur.
(4) There may be special circumstances in a particular case which, despite the absence of any certainty or even likelihood of a sale of an asset in the foreseeable future, make it appropriate to take the incidence of capital gains tax into account in valuing that asset. In such a case, it may be appropriate to take the capital gains tax into account at tis full rate, or at some discounted rate, having regard to the degree of risk of a sale occurring and/or the length of time which is likely to elapse before that occurs.
Senior Counsel for the husband contended before us that the learned trial Judge might have adopted, as one permissible approach, that set out in point (3) of Rosati above; acknowledged that his Honour had not taken that approach; and contended that his Honour had in fact legitimately adopted the approach identified in point (2) of Rosati above.
The fundamental difficulty with that contention is that the approach identified in point (2) in Rosati is plainly referable to the incidence of capital gains tax upon the sale of a particular or specified asset in determining the value of that asset. Here, having identified the alternatives he contemplated, the learned trial Judge did not elevate one as any more likely than another, and his Honour’s discussion of alternatives included potential costs, other than the incidence of capital gains tax or costs of asset realisation, including, inter alia, borrowing costs; the costs of purchasing alternative premises; and the sale of the K Suburb Property, a property not subject to capital gains tax.
With great respect to the learned trial Judge, who was clearly attempting to maximise the prospect of finality for the parties, his conclusion in this respect cannot stand. In the circumstances of the evidence before him and his own expressed dissatisfaction with the manner in which this issue was addressed (Reasons [146]), the learned trial Judge should, consistent with authority including Waters & Waters (1981) FLC 91-019; Little & Little (1990) FLC 92-147; and Jackson & Jackson [2012] FamCAFC 29, have made Orders effecting the result that if the husband incurred a liability or legitimate realisation cost in selling assets to meet his liability under the Orders, the parties would share in that liability in proportion to their beneficial entitlements as determined.
We therefore find that appealable error attended the learned trial Judge’s conclusion that a liability fixed in the amount of $300,000.00 ought be included in determining the divisible pool.
Outcomes and Orders
Notwithstanding the filing of further affidavit material and submissions by each party since the hearing, pursuant to leave we then granted for that purpose, disputed issues of fact remain in relation to the liability of the renovations of the R Suburb property, the evidence about which would need to be received, and the dispute resolved by fact finding, in re-exercising the discretion.
For the reasons we have identified, in any re-exercise of the discretion the question of realisation costs would need to be re-visited and there are disputed issues of fact concerning the child support issue.
We are therefore not prepared to re-exercise the discretion and the proceedings will need to be remitted for rehearing, including hearing of the child support issue.
It is also unnecessary to deal further with each party’s application that we receive further evidence on the appeal. As noted, each party must have the opportunity to adduce evidence on any re-exercise of discretion (Allesch v Maunz (2000) 203 CLR 172).
Costs
Both parties sought costs certificates in the event of the appeal or cross-appeal succeeding. We are satisfied that the bases upon which we have allowed the appeal and cross-appeal entitles the parties to cost certificates.
I certify that the preceding one hundred and twenty-eight (128) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court delivered on 24 October 2012.
Associate:
Date: 24 October 2012
133
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