M v P
[2008] SADC 169
•15 December 2008
DISTRICT COURT OF SOUTH AUSTRALIA
(Civil)
M, DA v P, N
[2008] SADC 169
Judgment of His Honour Judge Beazley
15 December 2008
FAMILY LAW AND CHILD WELFARE - DE FACTO RELATIONSHIPS
De facto relationship of fourteen years duration ending 13 March 2004 - plaintiff ceased self-employment in fashion store - two children from relationship now aged respectively 13 and 16 years - plaintiff in full time role as homemaker and parent - both plaintiff and defendant previously married - defendant has a daughter from previous marriage - the defendant effectively exclusively the sole income earner during the relationship - defendant a well established restauranteur with significant assets prior to commencement of relationship - plaintiff effectively unable to re-enter the work force during currency of the relationship save for periods in which she earned modest sums - after termination of the relationship the plaintiff obtained a Diploma in Counselling in April 2007 - age of plaintiff and absence from the work force affecting her ability to successfully compete for counselling work - age and health of the defendant - defendant acknowledges that plaintiff entitled to a substantial lump sum.
DIVISION OF PROPERTY
Approach to property adjustment - evaluation of contributions – application of principles in section 11 of the De Facto Relationships Act 1996 – valuation of property – property to be valued for the purpose of formulating orders as at the date of hearing - "asset by asset" basis or "global" basis to the division of assets. As at the date of hearing the defendant was the beneficial owner of all of the relevant assets.
Held: It is just and equitable that orders be made adjusting the property of the defendant in favour of the plaintiff. Those orders are that the defendant do:
1. Pay to the plaintiff a lump sum of $650,000.
2. Transfer the ownership of the Honda CRV vehicle presently in the possession of the plaintiff.
3. Cause the company to transfer the sum of $6,270 standing to the credit of the plaintiff in its Superannuation Fund to a Superannuation Fund to be nominated by the plaintiff.
De Facto Relationships Act 1996 ss9, 10, 11, 12, referred to.
H v D (2005) 34 Fam LR 35; Hogg v Roberts (2003) 87 SASR 248; Arnold v Dalton (2002) 84 SASR 482; Bilous v Mudaliar (2006) 65 NSWLR 615; Manns v Kennedy [2007] 37 Fam LR 489; Baker v Towle (2008) NSWCA 73; Karpathiou v Clemente [2008] SASC 316; Norbis v Norbis (1986) 161 CLR 513; Kardos v Sarbutt (2006) 34 Fam LR 550; Paino v Paino [2008] NSWLR 276; Hayes v Marquis [2008] NSWCA 10; Mallett v Mallett (1984) 156 CLR 605, considered.
EVIDENCE
Expert valuers gave evidence as to the market value of business assets. That evidence highly relevant even if party does not intend to sell the assets. Query whether valuation methods which have been developed for commercial purposes appropriate for the purpose of determining whether it is just and equitable to adjust property rights in a de facto relationship.
Dearth of evidence as to the market value of certain assets of the defendant at the commencement of the relationship. The plaintiff submitted that either a nil or alternatively a negligible sum be ascribed to those assets for which the defendant could have proved a value precisely, but chose not to do so.
Held: It is necessary for the court "to do its best", even if the evidence does not enable precise quantification, because it would not be possible to achieve a "just and equitable" division without determining a reasonable value of such assets as at the commencement of the de facto relationship.
Blatch v Archer (1774) 98 ER 969 at 970; Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] 77 ALJR 768; Paino v Paino [2008] NSWCA 276; Fink v Fink (1946) 74 CLR 127 at 143; Ramsay v Ramsay (1997) 137 FLR 40; Sapir v Sapir [No2] (1989) 13 Fam LR 362, referred to.
M, DA v P, N
[2008] SADC 169Introduction
This is an application brought by M, DA (“the plaintiff”) against P, N (“the defendant”) seeking orders pursuant to s 10 of the De Facto Relationships Act 1996 (“the Act”)[1] for a division as between them of the property of the parties in a way that is just and equitable.
[1] Now the Domestic Partners Relationships Act 1996, as from 1 June 2007. The provisions of the De Facto Relationships Act 1996, continue to apply to the subject proceedings, pursuant to the transitional provisions in the Statutes Amendment (Courts and Judicial Administration) Act 2001.
The pleadings
The pleadings were filed at an early time following the termination of the relationship, and prior to the exchange of relevant documents.
In his defence, the defendant had sought orders that the plaintiff’s claim be dismissed. However at the trial it was conceded by him that the parties had lived together on a genuine domestic basis as husband and wife, although not legally married to each other. Given the manner in which the parties conducted the trial, the pleadings can largely be ignored.
The defendant acknowledged at the trial that the plaintiff is entitled to a substantial lump sum payment. In both opening and final addresses, the defendant’s counsel submitted that an order for the payment of a lump sum of $500,000 to the plaintiff was appropriate in the circumstances.
The principal disputes
The disputes between the parties were confined to the following:
·the respective dates of the commencement and termination of the de facto relationship.
·the quantum of the assets of the parties as at the date of the commencement of the de facto relationship in July 1989;
·the quantum of the assets in the name of principally the defendant or corporate entities controlled by him as at the date of trial;
·the assessment of the financial and non-financial contributions by the parties to the financial resources of the parties and to the conservation and the improvement of property acquired by the defendant;
·the assessment of the respective party’s residual earning capacity in light of the plaintiff’s long absence from paid employment and the state of the defendant’s health;
·the application of settled principles of law as to the assessment of what is a just and equitable distribution of the asset pool of the parties, and in particular:
·the relevance of the significant assets acquired by the defendant prior to the commencement of the relationship.
·whether the Court should adopt a “global or “asset by asset” approach to the division of the property.
The major assets as at trial were the “family home” at 60 Le Fevre Terrace, North Adelaide, and the restaurant/function centre business owned by the defendant through corporate entities controlled by him. Expert valuers gave evidence as to the value of the real estate as at the date of the trial. Chartered accountants engaged by the respective parties prepared a joint statement identifying the principal assets of the parties as at 30 June 1989 and to some extent as at 30 June 2006.[2] The plaintiff’s counsel was critical of the failure of the defendant to provide financial records updated to the date of trial. It is trite that parties to proceedings under the Act are obliged to make full and frank disclosure of all relevant financial circumstances. See Hayes v Marquis [2008] NSWCA 10. The defendant’s lap top computer containing some financial information was stolen before trial. I am satisfied that the defendant has used his best endeavours to provide all relevant financial records to the date of trial. Ultimately, financial records for the year ending 30 June 2007, in a somewhat limited form, were provided. I am satisfied that the value of the business in the 2006 figures represented generally the value as at the date of trial. Certainly the turnover of the business had remained relatively constant for several years. The evidence at various stages descended into minutia as to the value of certain items of plant and equipment; cash on hand in the corporate entities and the current state of any loans. Such changes in equipment and the finances of an ongoing business are to be expected. I have found it neither necessary nor desirable to detail many of the minor disputed matters. Had I done so these reasons would have been even more prolix.
[2] The joint statement of Luciana Larkin and Hugh McPharlin dated 27 August 2007 being exhibit P2.
The parties
The plaintiff is now aged 48 years. When she first met the defendant in 1988, she was aged 28 years; and was a self-employed proprietor of a retail fashion business at Blackwood. She was, at that time, separated from her former husband, and residing in rented accommodation in North Adelaide. Over time the de facto relationship, as defined in the Act, commenced. There are two children of the relationship, both sons, born respectively on 13 October 1992, and 14 September 1995. Shortly after the sale of her fashion business in December 1991, she fell pregnant with the parties’ first child. Save for some periods during which she earned modest sums working in fashion shops or selling clothes from home, the plaintiff was effectively unable to re-enter the paid workforce during the currency of the relationship. She filled the role of homemaker, principally responsible for raising the two children of the relationship and managing the household while the defendant worked long hours in a restaurant/function centre business. The plaintiff continued to have the principal caring role for the children after leaving the family home, together with the children, on 13 March 2004. In April 2007 she obtained a Diploma in Counselling, and intends to find paid work providing counselling services. At the commencement of the relationship she had assets of about $40,000 which were quickly dissipated. She acquired no property of any consequence during the currency of the relationship, nor after its termination.
The defendant is now aged 62 years. He was, well prior to the commencement of the de facto relationship, a successful restaurateur, possessed of significant assets and earning capacity. When he met the plaintiff, he was divorced with a daughter from that previous marriage. He had purchased the freehold of a restaurant at Kent Town, and following renovations, had successfully operated that business since 1986. From late 1991 after the sale of the plaintiff’s fashion business, the defendant has effectively been the sole income earner for the family during the currency of the de facto relationship. He paid all of the expenses and outgoings of the family. He has worked long hours in the restaurant business, expanding the same by developing, between 2000 and 2002, a function centre adjoining the original restaurant premises. He has continued to work long hours in these businesses since the termination of the relationship. He has continued to provide for the children; to contribute to the weekly expenses of the plaintiff; and to share in the care of the children. The defendant has been diagnosed with significant health problems which will require him in the future to reduce his workload.[3]
[3] See Exhibit D25 - Report of Dr Pedler, 4/8/06.
The credibility of the parties
Before turning to the facts relevant to the issues between the parties it is appropriate to give a brief overview of their respective credibility as witnesses.
The plaintiff’s counsel was critical of some of the evidence of the defendant in so far as it related to the value of certain assets in 1989. The valuation of assets acquired by the defendant at various times was the major focus of the trial. The plaintiff’s counsel submitted that the defendant had embellished both his qualifications as a chef, and the value of his wine collection; and had failed to produce source documents to prove asserted asset values. In particular he criticised the defendant’s assertion that he had a wine collection of the value of approximately $300,000 in July 1989. The plaintiff submitted that as the defendant had produced no documentation to evidence the value, and had deliberately under valued the wine collection in his defence as at the date of separation; the Court ought to conclude that it had a nil value or alternatively a negligible value as at the commencement of the relationship. He alternatively submitted that I fix the value at $100,000, being the undervalued figure pleaded by the defendant as to the value of his wine collection as at the date of termination. See Blatch v Archer (1774) 98 ER 969 at 970, and Placer (Granny Smith) Pty Ltd v Thiess Contractors Pty Ltd [2003] 77 ALJR 768 and Hayes v Marquis [2008] NSWCA 10.
I will refer to the value of the wine collection when I discuss the assets held by the parties at the date of the commencement of the de facto relationship, however I reject the submission that the defendant was untruthful on that or any other matters in his evidence, notwithstanding his deliberate under-valuing in the pleadings. Indeed I am satisfied that both the plaintiff and the defendant were patently honest witnesses. They were respectively asked to recall events which had occurred over a 20 year period. They both did their best to accurately recall and relate events relevant to the issues. The defendant was quite expansive in his praise of the endeavours of the plaintiff in her role of homemaker and parent. Any differences in their respective recollections was minor.
Other witnesses
As I have indicated the major focus of the trial was the value of the assets of the parties. The other witnesses were generally expert valuers.
The parties called three highly experienced real estate valuers, respectively James Robert Pledge, Robert Harold Brooke and Janet Hawkes.
All three gave expert opinions as to the current value of the “C” Restaurant and Function Centre. The latter two also expressed opinions as to the current value of the Le Fevre Terrace property. I accept that each of them did their best to assist the Court. There were, however, marked differences in their respective valuations. The purpose of the valuation evidence is to assist the Court to determine the value for itself in the context of whether it is just and equitable, as between these parties, for there to be an adjustment of property rights. While the evidence of market value is highly relevant, I query whether valuation methods developed for commercial purposes are helpful for that exercise. See Ramsay v Ramsay (1997) 137 FLR 40, and Sapir v Sapir (No2) (1989) 13 Fam LR 362
The chartered accountants Luciana Larkin and Hugh McPharlin, the authors of the joint statement in Exhibit P2, both gave evidence. Their joint statement was of great assistance in identifying the issues relevant to the value of the businesses. Ultimately the differences in their respective opinions related to their acceptance of one or other of the valuations provided by the real estate and other valuers.
Graham Wright, a valuer from Oddbins Wine Auctions, gave largely uncontroversial evidence as to the value of the defendant’s wine collection as at trial in the event that it was auctioned in the secondary market.
Steven Kincaid, a valuer, gave uncontroversial evidence as to the value of plant and equipment on the bases of market value in situ, as well as auction realisation.
Pauline Morgan, a director of training in counselling courses, gave evidence as to the employment opportunities available to those such as the plaintiff who obtain a Diploma in Counselling. She described the age group of those who undertake the course as being between 35 and 65 years. The employment opportunities are to be found in private practice charging between $40 and $90 per hour; or alternatively in community centres.
The Background
The facts for the most part were not in dispute. The narrative of the facts in the following chronology reflects my findings as to the relevant history of the parties. It was common ground that irrespective of whether assets were acquired by the defendant in his own name or in entities controlled by him, all such assets were to be treated for the purposes of the subject application as assets owned beneficially by him.
The defendant was born in Greece on 23 November 1946. He first worked part time in the hospitality industry at age 12 years, eventually leaving school at age 18 years. He was given some 300 shares in a ferry business in Greece by his father. It appears that he has a contingent one third interest in his mother’s house in Crete. There has been no evidence as to the value of those shares, nor of the contingent interest in the house. Neither party suggested that I should take them into account for the purpose of determining whether it was just and equitable to make orders adjusting the property of the parties. The defendant married shortly after his arrival in Australia in 1970. Thereafter, for many years, he was employed as a manager of various licensed premises. The defendant has a daughter born in 1975 from that marriage. He separated from his wife in 1976, and the “L” Restaurant at Medindie in or about March 1977. Minoan Investments Pty Ltd (“the company”) was incorporated in 1978, as the corporate vehicle to operate that and subsequent restaurants. It is the trustee of the Minoan Trust which is a discretionary trust established in February 1982. The defendant purchased the freehold of the residential property at 20 Mann Terrace, North Adelaide on 10 December 1980. He sold the “L” restaurant in 1983. Over many years he acquired large stocks of wine including super premium wine.
The company was also appointed the trustee of the Minoan Property Trust established in July 1989; and the Minoan Investments Superannuation Fund. The defendant is the sole director and shareholder of the company; the primary beneficiary of the Minoan Trust, and the holder of all but one unit in the Minoan Property Trust.
On 4 October 1984 the defendant caused the company to purchase the freehold of what was to become “C” Restaurant at Kent Town, for the sum of approximately $262,000. The company thereafter expended the sum of $230,000 on renovations. In addition antique furniture and art works were purchased by the defendant for use in the restaurant, prior to its opening to the public in 1986, as a fine wine and food restaurant. It is ultimately that business which has been the sole source of income of the defendant, and subsequently the parties.
There is no dispute as to the value of $200,000 for the property at 20 Mann Terrace, North Adelaide, as at the month of July 1989. It was ultimately sold by the defendant in September 1991 for the sum of $228,500.
The plaintiff was born on 9 February 1960 in England. She was educated to year 11. She was immediately employed as a sales assistant and subsequently in a management position in various fashion stores. She was married in 1982 and two years later purchased with finance from Esanda, the business of a fashion store at Blackwood for the sum of $50,000 together with stock of approximately $60,000. The plaintiff separated from her husband in 1988. She rented residential premises in Childers Street North Adelaide, and first met the defendant in 1988. Initially the plaintiff resided at Childers Street while the defendant resided at 20 Mann Terrace, North Adelaide. In about July 1989 the plaintiff rented residential premises in Sussex Street North Adelaide, and the defendant on an increasing basis, resided with her at that address. There was a sharing of rent, and ultimately, a reimbursement by the defendant to the plaintiff of rental payments.
In or about July 1989 the defendant caused the company to contract to purchase the freehold of a warehouse property abutting the “C” Restaurant on Fullarton Road for the sum of $430,000. Settlement took place in September 1989. It was rented out by the company until it was redeveloped between 2000-2002 as a Function Centre. It was common ground that this asset ought not be included as part of the nett assets owned by the defendant as at the commencement of the relationship.
In December 1989 the plaintiff accompanied the defendant and his daughter on a holiday to visit the defendant’s family in Crete. At that time they were in a close and permanent relationship.
It took some time for the relationship to develop into a de facto relationship, as defined in the Act. The plaintiff asserted that it commenced in mid 1989. The defendant initially suggested that it occurred in late 1991, early 1992. The defendant partially fixed the commencement date of the de facto relationship by reference to the Crete holiday which he thought had occurred much later than I have found. I am satisfied that he was simply mistaken as to the date of that holiday. The plaintiff made no contributions of either a financial or non-financial nature until December 1991, when she sold her business. I am however satisfied that the de facto relationship (as defined) commenced in or about December 1989.
The defendant purchased the residential property at 60 Le Fevre Terrace, North Adelaide, in June 1991 for the sum of $355,000. I infer that the bulk of the purchase price was funded from the sale of the Mann Terrace property for the sum of $228,500 later in September 1991.
The plaintiff’s business did not make an adequate profit and she sold it in December 1991. After payment of the debts of the business the plaintiff received about $40,000 in addition to some of the stock. Of that sum of $40,000, the plaintiff purchased a Honda Civic motor vehicle for the sum of $19,900 replacing an old vehicle which she had at that time. In December 1991 she became pregnant with her first child. The balance was spent on child clothes, equipment and probably some personal furniture. The plaintiff continued to work for a time at various fashion stores, and sold clothes from home. Initially the clothes were the residue from her Blackwood business, however later she sold clothes from other manufacturers earning about $100 per week. She ceased selling clothes in about 2001. She did not receive sufficient income in any year to file a tax return. All expenses and outgoings were paid by the defendant during the currency of the relationship. The parties remained in the rented accommodation at Sussex Street until late December 1994. Substantial renovations to the Le Fevre Terrace property costing at least $350,000 were undertaken. In addition to caring for the defendant and her first child, the plaintiff also assisted in the care of the defendant’s ill brother who moved in with them at the Sussex Street premises in 1993. Throughout their relationship the plaintiff and the defendant lived comfortably but modestly. There is a dearth of evidence about the income and drawings taken by the defendant in the early years. I infer that notwithstanding what was recorded in the books of the company as to the notional income of the defendant, the majority of such income was retained in the business to pay the purchase and renovation costs of the Le Fevre Terrace property between 1991 and 1994, and the function centre between 2000 and 2002. In addition to the payment of all of the outgoings the defendant paid the plaintiff the sum of $50 per week in the early years, increasing to $100 towards the end of the relationship, for her personal use. When the parties moved into 60 Le Fevre Terrace in late December 1994, the plaintiff was directly involved in the establishment of the garden over a six-month period, and thereafter in the general maintenance of the property.
In 2000 to 2002 the defendant caused the company to spend approximately $626,000 in redeveloping the warehouse into a function centre.
The plant and equipment in the restaurant was also upgraded. The plaintiff generally assisted with advice as to the décor of the Function Centre. The redevelopment was both costly and stressful for the defendant causing him to work even longer hours at the restaurant and function centre. I accept the evidence of Ms Larkin, combined with the evidence of the real estate valuers that the function centre land has been overcapitalized. The total costs of purchase and renovation of over $1.1 million significantly exceeds any reasonable current valuation of those premises. The plaintiff continued to fill the role of homemaker and parent to the two children. Although the plaintiff attended at the restaurant/function centre from time to time, she made no direct contribution to the operation of that business.
In 2001 the relationship between the parties dramatically altered. Thereafter, the plaintiff suffered from depression and was admitted to hospital in 2002. At this time the defendant was engaged in the redevelopment of the function centre. The plaintiff initially sought a settlement from the defendant in 2001. There was some dispute at trial about whether the relationship had been terminated at that time. I am satisfied that both parties attempted to maintain the relationship after the difficulties in 2001. In 2003 the plaintiff commenced the Diploma Course in Counselling. She obtained some unpaid work while engaged in work experience in that field. The defendant paid for that course during the currency of the relationship. In December 2003 the plaintiff sold her Honda Civic vehicle and retained the proceeds of $4,000. The defendant purchased a new Honda CRV for the sum of $41,000 which was used exclusively by the plaintiff, and retained by her at the termination of the relationship. The defendant continues to pay for its registration and insurance. It has an agreed value of $24,500 as at the date of trial. On 13 March 2004 the plaintiff and the two children left the family home at Le Fevre Terrace with the two children and moved into rental accommodation. The defendant has continued to contribute voluntarily to the plaintiff for her personal needs. He provided rental assistance initially in the sum of $200 per week but increased it subsequently to $275 per week. He has also paid for her health cover; the children’s school fees approximating $25,000 per annum, and ongoing child support of $15,000 per annum. In the year ending 30 June 2006 the defendant drew the sum of approximately $135,000 as actual income and drawings from which those expenses are met. The plaintiff has monthly expenses of approximately $1,560. She has borrowed the respective sums of $15,000 from her parents, and $25,000 from a commercial lender to meet her ongoing expenses.
The Act
The relevant provisions of the Act are sections 9, 10, 11 and 12 which provide as follows:
9—Property adjustment order
(1)After a domestic partnership ends, either of the domestic partners may apply to a court for the division of property.
(2) However, an application for the division of property may only be made if—
(a) the applicant or respondent is resident in the State when the application is made; and
(b) the applicant and respondent were resident in the State for the whole or a substantial part of the period of the relationship; and
(c) the domestic partnership existed for at least 3 years or there is a child of the domestic partners.
(3)An application for the division of property must be made within one year after the end of the domestic relationship unless the court, after considering the interests of both domestic partners, is satisfied that extension of this period of limitation is necessary to avoid serious injustice to the applicant.
(4)An application for the division of property may be made or continued by or against the legal personal representative of a deceased domestic partner.
(5)However, an application against the legal personal representative of a deceased domestic partner may only relate to property that is undistributed at the date of the application.
10—Power to make orders for division of property
(1)On an application for the division of property after the end of a domestic partnership, the court may make such orders as it considers necessary to divide between the domestic partners the property of either or both partners in a way that is just and equitable.
(2) For example, the court may make orders for—
(a) the transfer of property from one domestic partner to the other; or
(b) the sale of property and the division of the net proceeds between the domestic partners in proportions decided by the court; or
(c) the payment by one domestic partner of a lump sum to the other.
11—Matters for consideration by court
(1)In deciding whether to make an order for the division of property under this Part, and if so the terms of the order, the court—
(a) must consider the financial and non-financial contributions made directly or indirectly by or on behalf of the domestic partners to—
(i)the acquisition, conservation or improvement of property of either or both partners; or
(ii)the financial resources of either or both partners; and
(b) must consider the contributions (including homemaking or parenting contributions) made by either of the domestic partners to the other partner or to children of the partners or either of them; and
(c) must have regard to the terms of any relevant domestic partnership agreement; and
(d) may have regard to other relevant matters.
(2) If a relevant domestic partnership agreement—
(a) is a certified domestic partnership agreement; and
(b) provides for the exclusion of the court's power to set aside or vary the agreement, an order for the division of property under this Part must be consistent with the terms of the agreement.
12—Duty of court to resolve all outstanding questions
In proceedings under this Part, the court must (as far as practicable) finally resolve questions about the division of property between the domestic partners and avoid further proceedings between them.
It was common ground that the parties fell within the jurisdictional requirements in s 9(2) of the Act and that they had not entered into a domestic partnership agreement.
The relevant principles of law
The scheme of the Act has been the subject of various decisions of the Full Court of the Supreme Court.[4]
[4] See Karpathious v Clemente [2008] SASC 316; H v D (2005) 34 Fam LR 35; Hogg v Roberts (2003) 87 SASR 248 and Arnold v Dalton (2002) 84 SASR 482.
General principles
In Karpathiou v Clemente, supra, in a case where ultimately there was found to be no de facto relationship, and where the trial judge had given insufficient weight to the substantial assets owned by one party at the commencement of such relationship, Gray J warned of the need to take care when considering interstate judgments because of the different wording in otherwise comparable statutes. In referring to s 11(1)(d) of the Act, His Honour said at [29]-[31]:
Section 11 of the De Facto Relationships Act specifies the matters to be considered by the Court when deciding whether to make an order for division of property. However, section 11(1)(d) provides that the Court “may have regard to other relevant matters”. Other relevant matters, it may be inferred, are matters that the Court considers relevant to a determination of what is just and equitable. Plainly, other relevant matters may encompass a wide range of considerations.
Section 11 does not identify the remedying of grievances or the addressing of disappointments or expectations. However, it is possible to envisage circumstances in which these matters may have some relevance to what may be considered just and equitable in all of the circumstances.
In Hogg v Roberts,[3] Doyle CJ made a number of observations about section 11, and the approach to be taken under that section. The Chief Justice spoke of the focus of the section and observed that its purpose appeared to be narrower than, for example, the similar tasks to be undertaken under the Family Law Act 1975 (Cth). However, Doyle CJ cautioned about the danger of trying to draw “a line ... in the abstract” and then continued:
I go no further than to say that the focus is on the just and equitable division of property and not on an order that is fair having regard to all the circumstances surrounding, and everything that happened during, a relationship.
Doyle CJ then drew on decisions in other States, and in particular observed:
In Parker v Parker (1993) 16 Fam LR 863 Young J suggested a four-stage approach which will often be helpful. The four stages he suggested (at 870) are:
(i) to identify and value the assets of the parties;
(ii) to determine whether any, and if so what, contributions of type A or type B had been made by each partner;
(iii) to determine whether in the circumstances the contributions of the applicant had already been sufficiently recognised and compensated for;
(iv) to make the appropriate adjustment.”
Once again, he was concerned with different legislation, but the process he suggested is likely to prove helpful under the Act. However, I emphasise that this is simply one approach. In some cases a broader approach will work better. There is no need to take what might be called a narrow approach involving a careful tracking of income and expenditure, contributions made and benefits received. The legislation requires a reasonably broad and practical approach.
Between stages (iii) and (iv) it will be necessary to consider whether there are "other relevant matters" to be considered. It will also be necessary to bear in mind that the object is to divide property in a "way that is just and equitable". As I have said, I do not treat that expression as opening up all aspects of the relationship, but it appears to me that the matters identified in s 11(1) of the Act do not alone dictate the order to be made under s 10(1). They are matters to be considered, they are important, but they will not necessarily be decisive.
What I have just said does not provide any solutions. Difficult questions will arise along the way. I have done no more than identify what seems to be the appropriate process of reasoning.
In Hogg v Roberts, supra, Doyle CJ discussed the relevant principles in the context of one asset only, which asset had been purchased almost entirely from funds held by one party prior to the commencement of the relationship.
His Honour stressed that it is not the role of the Court to remedy grievances or compensate for disappointed expectations, nor is it to be concerned with attributing fault for the breakdown of the relationship.
His Honour referred to the following additional principles:
·Relevant matters include the length of the relationship and the immediate needs of the parties. However it was not the role of the Court to provide continuing maintenance of the parties or their future financial prospects.
·Contributions as homemaker and parent are not to be treated as inferior to material or financial contributions, but as to be accounted for in a substantial way.
·There is no need to take what might be called a narrow approach involving a careful tracking of income and expenditure, or contributions made and benefits received.
·The Act requires a reasonably broad and practical approach.
In H v G, supra, Layton J referred to the decision of the Full Court in Arnold v Dalton (2002) 84 SASR 482, to the effect that while the court cannot order maintenance payments, it is necessary for it to take account of contributions made to a party or the children during the relationship, and after termination. Her Honour’s remarks were made in the factual context of one party having provided the full purchase price of the significant asset of the parties. That party had also made all of the financial contributions during the relationship. The other party had made non-financial contributions assessed to be of equal value to the financial contributions made by that first party.
Her Honour referring to the concept of the “immediate needs” of the parties in the factual context of a party who had lost the opportunity of a well-paid career including the prospect of deriving superannuation benefits, said:
This approach appears apposite given the fundamental aim of the Act as expressed in s 10(1) of the Act, which is to bring a "just and equitable" division of property in relation to de facto cases. It is not a unique situation that a de facto partner gives up employment opportunities in order to rear children who are the product of such a de facto relationship. The effect of this contribution made during the period of the relationship may continue beyond any date of judgment and is a direct sequelae of the de facto relationship. It therefore seems appropriate and within the objectives of the legislation to have regard to these matters. In the majority of cases this is more likely to affect a female partner who gives up employment to care for a child or children and who is likely as a consequence to suffer increasing difficulties after the relationship has ceased. This is exacerbated by workforce impediments of increasing age and difficulties of re-engaging in employment.
…
However, this approach does not mean that where one party, as a consequence of the de facto relationship between the parties, makes a contribution to the relationship which has a long term affect on her future needs and means, the Court should not take this matter into account. For example, the Act itself contemplates that regard be had to parenting and homemaking. The contribution of a party to either or both of those activities, particularly if the contribution occurs over a long period of time with increasing age of the contributor, may have an effect which continues beyond the date of a judgment. It would seem unjust and inequitable if this consequence of a de facto relationship were ignored, so that the Court’s consideration of "needs and means" is frozen in time at the date of an order of the Court. Further, I note "needs and means" are not static and they incorporate an aspect of futurity. It would limit their ordinary meaning to restrict consideration to matters past and current. It would seem far more in keeping with the provisions of the Act and its objectives to not so limit consideration. If, in making a "once and for all" order at the time of judgment, a Court may have regard to the longer-term effects of the contributions made during the relationship, on the parties’ "needs and means", the purposes of the Act will be implemented.
Finally, it is pertinent to note that the Chief Justice in Hogg stated in [45], at 254:
If Ms Roberts had other assets, or other sources of income, Mr Hogg’s position might be a relevant matter, leading to the making of a lesser award in favour of Ms Roberts. But in the circumstances it seems to me that, as the Goolwa house is the only available asset, the approach that the Judge took is correct...
Contrary to the defendant's present argument, this passage would seem to suggest that circumstances operating beyond the date of judgment are relevant to the order that should be made at the time of judgment.
In summary on this point, the provisions in ss 10, 11 and 12 of the Act contemplate that not only is the Court required to consider the financial and non-financial contributions either direct or indirect as well as the contributions made by one partner to another or to the children of partners; the Court may have regard to the "means and needs" of the parties insofar as they relate to the circumstances of the de facto relationship. This may in turn allow the Court to consider the longer term effect of such contributions when making an order which is "just and equitable".
…
I have already concluded that a Court may have regard to the "means and needs" of parties insofar as they relate to the circumstances of the de facto relationship, which may in turn allow a Court to consider the longer term effect of contributions when making an order which is "just and equitable". In addition to that reasoning, there are other cases which support that it is appropriate for a Court to have regard to the loss of career and restricted capacity for employment.
The adoption of a “global” or “asset by asset” approach
One of the issues between the parties is whether the Court should adopt a “global” or “asset – by – asset” approach to the division of property. Whatever approach is adopted, it is necessary to know how such assets were acquired. In Norbis v Norbis (1986) 161 CLR 513, referring to the approach under the Family Law Act 1975 (Cth), Mason and Deane JJ at p523 said:
For ease of comparison and calculation it will be convenient in assessing the overall contributions of the parties at some stage to place the two types of contribution on the same basis, i.e. on a global or, alternatively, on an "asset-by-asset" basis. Which of the two approaches is the more convenient will depend on the circumstances of the particular case. However, there is much to be said for the view that in most cases the global approach is the more convenient. It follows that the Full Court is quite entitled to prescribe that approach as a guideline in order to promote uniformity of approach within the Court. In saying this we are not to be understood as denying the legitimacy of the trial judge's ascertainment in the first instance of the financial contributions of the parties by reference to particular assets. It is difficult to conceive how the trial judge in many cases could otherwise take account of such contributions as he is required to by s.79(4)(a) of the Act. In this respect we agree with the comment of Nygh J. in G and G that, although mathematical precision is certainly not required, there is ordinarily a need to know the circumstances in which assets were acquired and the general extent of each party's contribution to them.
In other jurisdictions there has been some debate as to whether “an asset-by-asset” approach or alternatively a “global” approach ought be adopted in a case, as in the subject case, where there has been a marked difference in the value of the assets initially contributed by one party.
Various methods have been employed to ensure that those initial assets are not undervalued at least in a relationship of short duration. In Howlett v Neilson (2005) 33 Fam LR 304 the Court determined that it would be just and equitable to return to each party his or her initial contribution valued as at the date of commencement of the relationship, and divide the balance equally. In Paino v Paino, supra, at [99] the Court of Appeal did not regard as inappropriate the use of CPI figures to calculate the current value of the price paid for assets held by a party at the commencement of the relationship. In the subject case the accountant, Ms Larkin, expressed the opinion, which I accept, that the value of $1 in 1989 was worth $1.654 at the date of trial.
On other occasions Courts have quarantined certain commercial assets to which the homemaker has made no contribution. In Mallet v Mallet (1984) 156 CLR 605, at 625, Mason J. in weighing factors under the Family Law Act (Cth) expressed, obiter, that equality of contribution may not be so obvious where business assets have been acquired through the ability and energy of one party; and the other party’s roles does not extend beyond homemaker and parent.
There has also been a debate as to whether an increase in the value of assets initially contributed by one party and attributable to no more than increasing property values, should be regarded as a contribution solely in favour of the party who contributed those assets. See Kardos v Sarbutt (2006) 34 Fam LR 550; Paino v Paino [2008] NSWCA 276, and White v Patterson [2008] NSWSC 226. However in Bilous v Mudaliar (2006) 65 NSWLR 615 and Baker v Towle [2008] NSWCA 73 respective Courts of Appeal in NSW have cast doubt on any general rule.
I acknowledge that care must be taken in respect of applying principles expressed in the New South Wales case law, and pursuant to the Family Law Act (Cth) for the reasons expressed by Gray J in Karpathiou v Clemente. In addition care must be taken if either alternative approach is solely adopted. In Bilous v Mudaliar, supra, Ipp JA, at [43], expressed the concern that an asset by asset approach may have the effect of under-valuing the domestic and non-financial contributions of a party, particularly in the case of a long relationship. The New South Wales case law establishes that both methods may be used as a means of cross-checking the results achieved.
I approach the subject case on the basis that the parenting and other non-financial contributions by the plaintiff had been made over a very long period. At the least the contributions were extensive since December 1991 and have continued since the termination of the relationship. These non-financial contributions were made in the context of the raising of the two children of that relationship. The unexpressed arrangement between the parties was that the plaintiff would remain as the full time homemaker and parent freeing up the defendant to work full time in growing his assets and income. See Arnold v Dalton (2002) 84 SASR 482.
With that factual background in mind, I turn to the application of those legal principles.
The length of the subject relationship
I am satisfied that the de facto relationship, as defined, commenced in or about December 1989 and ceased on 13 March 2004.
Identification and valuation of the parties’ assets
An overview
I have already referred to the joint statement prepared by the expert accountants, Luciana Larkin on behalf of the defendant and Hugh McPharlin, on behalf of the plaintiff. Both parties restricted their submissions to the assets identified in that joint report as at 30 June 1989 and 30 June 2006.
(a) The assets of the parties in 1989
As I have already indicated the plaintiff’s assets as at the commencement of the relationship, were the total of her nett interest in the fashion shop at Blackwood, some furniture and an old vehicle. I value her assets at that time at $40,000. None of that money was invested in or converted to any assets, so that it had effectively dissipated at the time of termination, or in any event, at trial.
There were considerable difficulties in valuing the defendant’s assets as at 1989. The plaintiff counsel criticised the values ascribed to the wine collection and the “C” Restaurant site.
The wine collection in 1989
I have already referred to this issue when discussing the defendant’s credit. I do not find it surprising that the defendant did not have source documents or even a stock list from 1989. At that time he was effectively a sole operator. While the business was operated through a corporate entity, the wine collection had been his personal asset – and indeed, a form of currency to him. Some of it had been given to his former wife as part settlement following the divorce. Some of it, from time to time, had been transferred notionally into the Company’s Superannuation Fund. There would have been little or no reason for him to keep records updating the value of wine that he had acquired over many years in previous businesses. It could not be disputed that he had established highly successful fine wine and food restaurants at “L” restaurant at Medindie in 1980, and at the subject “C” restaurant at Kent Town from 1986. He was able to speak with undoubted expertise about the changing manner in which restaurants had traded over the years.
The plaintiff had called evidence from an experienced wine valuer, Graham Wright, to establish that much later on 26 September 2005. The defendant’s wine collection was valued at somewhere between $449,495 and $573,552.
The defendant’s estimate of $300,000 as at July 1989 was based upon his recollection of the range of wine; the higher percentage of the super premium component in July 1989 and the general stock levels maintained by him over the years. He referred to some 22,000 bottles at an average of $14 per bottle. I accept that it would have been better had source documents been located and provided.
I repeat that I accept that the defendant was a witness of truth. I am satisfied that he did not deliberately fail to disclose relevant source documents. I reject the submission of the plaintiff’s counsel that the Court ought ascribe a nil, negligible or otherwise minimal value to the wine collection held by the defendant as at July 1989.
In my opinion it is necessary for the Court “to do its best” even if the evidence does not enable precise quantification, because it would not be possible to achieve a “just and equitable” division of property without determining a reasonable value for an asset such as the wine collection as at the commencement of the de facto relationship. See Paino v Paino [2008] NSWCA 276, and Fink v Fink (1946) 74 CLR 127 at 143.
I am satisfied on the evidence of the defendant that the wine collection as described by him was in his possession as at the commencement of the relationship. He had mentioned in a contemporaneous article written about his restaurant that his wine stock was worth $300,000. I readily accept that this has little or no weight on its own and is subject to the criticism of embellishment. However, it is some evidence that the defendant had a wine collection at that time, and that he had asserted its value at that time. The defendant does not rely upon the article. It simply confirmed his recollection of the wine collection in 1989. His expertise as to wine quality and market price could not be in doubt, given his long experience in quality restaurants. All of these matters and the criticisms expressed by the plaintiff’s counsel must be weighed together with the general evidence he gave as to the manner in which he built that collection over the years; and the current value of wine stocks. However, having regard to the defendant’s evidence, which I accept on this point, I am satisfied that the value of $300,000 for the wine stock as at the commencement of the relationship is a reasonable estimate.
If I were not satisfied as to the value of the wine collection I would have given consideration to excluding the value of the wine collection at both the commencement date and at trial. In Manns v Kennedy [2007] 37 Fam LR 489 the Court did exclude the stock values at both dates because they were used in the business which produced the income for the family. I do not adopt this approach here as it would under-value the assets as at the date of trial. Including both will assist in the assessment of what is just and equitable.
Other assets in 1989
As to other assets the accountant, Ms Larkin prepared a table which was essentially based upon book values, in some cases at cost, in others at cost less depreciation. In contrast, when fixing the value of assets as at the date of trial, the Court was presented with valuations prepared by independent valuers, based upon market values. This has the consequence that in real terms, the 1989 assets are under-valued, when compared to the values ascribed to assets at the date of trial.
Three examples illustrate the point. The plant and equipment in 1989, just three years after the restaurant opened, had a negligible value in the books. It would have had a greater value if it had been valued at market value in situ. When valued as at trial the market value of the then plant and equipment was $97,500 in situ. The book value was $13,396. The book value of “C” Restaurant was $288,508 even though it had been purchased five years earlier for $262,000 and was renovated by expenditure of the sum of $230,000. The valuations of the real estate as at trial were based upon a higher market value being the property’s highest and best use – irrespective of the intention of the defendant to continue to operate his business of a restaurant/function centre.
The table does not give any value to the capacity of the defendant in 1989 to borrow funds. While the purchase price of $430,000 for the warehouse property in July 1989 has been excluded, the very fact of the purchase establishes that the defendant had, by the time of the commencement of the relationship the capacity to borrow significant sums.
Finally the parties and the accountants chose to include the value of the Mann Terrace property as part of the assets of the defendant at the commencement of the relationship. While this approach is technically correct, the fact remains that in June 1991 the defendant paid the sum of $355,000 for the Le Fevre Terrace property. I have found that the plaintiff had made no financial nor non-financial contributions until December 1991. In those circumstances the defendant might have been credited with that greater sum rather than the $200,000 value ascribed to the Mann Terrace property. Despite this being another potential undervalue of the defendant’s initial assets, I will not adjust the initial contributions of the defendant as there is a dearth of information as to his borrowings at that time.
The value of the Restaurant site in 1989
Ms Larkin’s table of nett value was based upon the financial statements of the corporate entities as at 30 June 1989 coupled with valuations prepared on behalf of the defendant by the valuer Janet Hawkes. Ms Hawkes valued, as at July 1989, the “C” Restaurant site, and the defendant’s residential premises at 20 Mann Terrace, North Adelaide.
The plaintiff’s counsel was critical of the value fixed by Ms Hawkes with respect to the “C” Restaurant site. In her report of 15 June 2005, Ms Hawkes had valued that site at $750,000 as at 30 June 1989.
When she was cross-examined about that valuation by reference to the site’s value at trial, Ms Hawkes conceded that the valuation of $750,000 in 1989 could not be correct. She initially suggested that it must have been the composite value for both the original restaurant site and the function centre site acquired for $430,000 in September 1989. She was, however, uncertain as to how she had fixed the value of $750,000, and conceded that it could not be used as a reliable value of the “C” Restaurant site as at 1989. No other independent valuation was undertaken as at 1989.
The evidence of value of the restaurant site in 1989 is therefore unsatisfactory. The book value of the property, being the cost price less depreciation, as at 30 June 1989 was $288,508.
The plaintiff’s counsel submitted that I should, nevertheless, approach the value as if the $750,000 was a composite value and delete the sum of $430,000 being the purchase price of the function centre site in September 1989. Alternatively, it was suggested that I should adopt and use the book value.
For the reasons I have already expressed either approach would unreasonably devalue the assets of the defendant as at July 1989, and would not assist in determining whether it is just and equitable to make a property adjustment order. Doing the best that I can, however, I will use as a guide, the purchase price of $430,000 paid by the defendant contemporaneously and on an arms length basis, for what was a warehouse on a smaller allotment abutting the original restaurant. In my opinion, having regard to the fact that the restaurant was then already established, and operating successfully as at the commencement of the relationship, a reasonable, if somewhat low value, is the sum of $500,000 as at that time.
Mr McPharlin was unable to independently establish the values as at 1989 because of the absence of financial information. He acknowledged that it would have been fairer had there been a consistent approach to the valuation of the assets in 1989 and at trial respectively.
Ms Larkin set out the table of assets in 1989 at paragraph 4.2 of the joint report. Neither party suggested any other assets should be included.
During the evidence it was accepted by both parties that various art works, antiques and other items had been excluded from the table in error. I have added the value of those items, to the table. I accept that there is no need to be precise as to values, although I have endeavoured to determine reasonable values. I find that the assets of the defendant as at the commencement of the relationship were as follows:
The Minoan Trust
Reported net assets as at June 1989 $114,032
Beneficiaries Loan Account ($17,826)
Book Value of 36 College Road Kent Town ($288,508)
Adjusted Hawkes valuation of 36 College
Road premises $500,000Total $307,698
Minoan Pty Ltd
Reported net assets as at June 1989 $56,496
20 Mann Terrace North Adelaide
Hawkes Valuation $200,000
Collectables
Antiques – at cost$38,200
Art work – at cost $31,340
$69,540
Wine Stocks on hand
Broad indicative value$300,000
Estimated income tax on value in excess of costs ($75,000)
$225,000
$858,734
Summary of assets at the date of commencement
I find that the value of the assets of the plaintiff at that time was $40,000. I repeat that those funds were not converted into relevant assets, and had no value as at the date of trial. The nett assets of the defendant at the commencement date totalled $858,734
By applying the CPI figure opined by Ms Larkin of $1.654 to the value of the assets in 1989, the value of those assets in current money terms at trial would be $1,420,346. In so far as it is relevant the current value of the plaintiff’s assets of $40,000 in 1989 is $66,160.
The assets of the parties at trial
The only “asset” of the plaintiff at the date of trial is a superannuation allocation in the books of the Company in the sum of $6,270. No explanation was given as to how she was allocated that sum. She is indebted in respect of some loans totalling approximately $40,000. The vehicle which she drives is valued at $24,500, however, it remains in the company’s name.
The defendant’s assets are detailed in a spreadsheet, being Appendix 13 to the joint report of the accountants. Included as an “asset” is the large sum of $359,730 ascribed to the defendant in the Minoan Investments Superannuation Fund. There was no dispute about how that “asset” ought be treated. The parties accepted that all items credited to the defendant or contained in the entities and all debits have been brought into account in that spreadsheet. I do not propose to detail the figures in the spreadsheet. The plaintiff submitted that the loans referred to therein ought be reduced by the sum of $90,000 to reflect three annual payments of $30,000 made to 30 June 2007. Ms Larkin gave evidence that this simply represents a transfer within the consolidated accounts. Having regard to the later bank statements I am satisfied that the adjustment is warranted. The plaintiff’s counsel referred to additional cash in the sum of $60,000. I repeat that this relates to receipts in an ongoing business. There will be changes from week to week. There is no need to adjust the figures in that respect. Included in the assets at a value of $28,000 is the Honda motor vehicle in the possession of the defendant. I will adjust the figures in the spreadsheet to delete the sum of $28,000. Both parties agree that ownership in the motor vehicle is now valued at $24,500 should pass to the plaintiff.
There were marked differences between the respective values opined by the accountants Ms Larkin and Mr McPharlin. Indeed the plaintiff’s counsel submitted that the value ought be even higher than that opined by Mr McPharlin.
These differences in value related to the valuations of:
·the wine stocks of the defendant.
·the value of plant and equipment of the restaurant/function centre business.
·the value of the Le Fevre Terrace property.
·the value of the business premises.
As I have previously indicated there is no need to engage in a precise valuation of such assets. Evidence of the market value is admitted to assist the Court to determine whether it is just and equitable to adjust the assets of the parties. See Mallet v Mallet (1984) 156 CLR 605. I accordingly give very brief reasons for my conclusions as to the disputed market value of the assets as at the date of trial.
The wine stocks
Graham Wright, a valuer from Oddbins Wine Auctions, valued the wine stocks as at September 2005 at between an auction low of $449,495 and an auction high of $573,552.
The valuation was based upon Mr Wright’s assessment of what the wine would bring in the “secondary” wine market. He conceded that this was a very large collection of wine and would have to be sold over a three-month period. His firm would charge a percentage on the sale. He discounted the total value by 10% to reflect losses due to all risks. The defendant’s counsel criticised the methodology employed by Mr Wright on the basis that 10% could not reasonably cover all contingencies. The plaintiff’s counsel pressed for the value at the high point, submitting that it was expected that the defendant would continue to trade at the premises, and recover marked up prices.
Mr Wright referred to the mid point of the respective values. I had some reservations about the likely recovery by the defendant if the wine were to be sold on the secondary market. Allowing for those concerns and aided by his valuation I fix the value of the wine stocks at the mid point of $511,524 as at the date of the trial.
The plant and equipment
An experienced valuer, Steven Kincaid valued the plant and equipment at the restaurant/function centre on a market value in situ basis, as being the sum of $97,500. I have already referred to the fact that the depreciated book value of the assets is $13,396. Mr Kincaid also assessed the value on an auction realisation basis as $47,435. He was cross-examined about many particular items in that list on an auction basis. The plaintiff’s counsel pressed for the higher market in situ value. The defendant’s counsel pressed for the depreciated book value as it provides a direct comparison with the 1989 values. In my opinion the auction realisation basis is the appropriate basis for valuation as it is consistent with the values upon sale adopted by the valuers in respect of other assets. Aided by his opinion I fix the value of the plant and equipment as at the date of trial, at $47,435.
The value of the restaurant/function centre business
I have already referred to the three real estate valuers James Pledge, Robert Brooke and Janet Hawkes. They each expressed their opinions as to the value of the restaurant/function centre business premises as at the date of trial. The marked difference in their respective valuations was the consequence of the different methodology employed by them. Unfortunately I found the evidence of all three valuers on this issue to be ultimately unhelpful.
Mr Pledge, in adopting the market value approach, chose what he regarded as a higher and better use for the subject land other than its current or existing use as a restaurant/function centre.
He valued the restaurant and function centre properties as at 31 October 2006 at $1.7 million. By updated valuation on 30 July 2007, Mr Pledge opined that no change to that value had occurred in the interim. His valuation was predicated upon its alternative use as office space. The defendant criticised that approach because of the unusual triangular shape of the heritage-listed portion of the property, and the lack of detail provided by Mr Pledge as to the costs involved in, and other impediments to, establishing that alternative use. I was not persuaded that the methodology adopted by Mr Pledge was appropriate. I am satisfied that the highest and best use is that of a restaurant/function centre.
Although Mr Pledge referred in his report to the properties having a value of $925,000 in their current use, it is clear from his evidence that he felt that a more competitive rental at arms length was justified. He indicated that if he had applied the methodology suggested by Ms Hawkes with such an increased rental, then it would produce a value of $1.6 million, which he described as being “close to the value that he had assessed”.[5]
[5] T.178
Mr Brooke produced valuations using different methods at different times. By report dated 8 August 2007, he employed a redevelopment approach of the highest and best use of the land being as office space. He suggested that but for local heritage listing the property would be valued at $2.5 million. He valued it for redevelopment at $2 million.
However two years earlier on 14 September 2005 Mr Brooke had proceeded on the basis that its current use was the highest and best use, and had valued the property at $2.05 million. When giving evidence Mr Brooke ultimately said that the highest and best use was that of its current use as a restaurant/function centre. Although I have accepted the highest and best use adopted by Mr Brooke, I was not persuaded that the restaurants chosen by him were in any way comparable. In my opinion the methodology employed by Mr Brooke in his report of 8 August 2007 was unrealistic. Both valuations by him were well out of the range suggested by the other valuers. I do not accept that his valuations represent the reasonable market value of the property.
Ms Hawkes valued the subject property in 2004, 2005 & 2006 at $1.3 million. This was based upon its highest and best use as a restaurant/function centre. I infer that in purporting to fix a market value, she in fact fixed a value based entirely upon the operation conducted by the defendant. In other words she appears to have fixed a “market” value by reference to its value to the defendant. While this is helpful in the context of what is just and equitable as between these parties, it does not evidence the true market value. She employed the actual turnover of the business of approximately $1 million per annum with a notional rental of $100,000 based upon the average 7.5% return in the industry.
Counsel for the plaintiff criticised the methodology employed by Ms Hawkes. He also submitted that she was unduly pessimistic about the prospects of higher and better use for the property.
I have already discussed the erroneous valuation provided by Mr Hawkes as to the original restaurant site of $750,000 as at July 1989. In her evidence as to the current value, she had allocated the sum of $800,000 to the restaurant portion, and $500,000 to the function centre portion. While it is correct to say that the function centre portion of the property has been overcapitalised since 2000-2002, an increase of only $70,000 over the many years to 2007 on its purchase price of $430,000 in 1989 appears too low. Ultimately I do not accept any one of the valuers as persuasive. As to Mr Pledge I do not accept that the highest and best use is anything other than its current use. I have already referred to the evidence of Mr Brooke and Ms Hawkes.
Doing the best that I can with the evidence, I adopt the middle ground referred to in passing by Mr Pledge. In my opinion the market value for the business premises at trial is $1.6 million.
The Le Fevre Terrace property
Both Ms Hawkes and Mr Brooke also gave evidence as to the value of the family home at 60 Le Fevre Terrace North Adelaide. Ms Hawkes assessed the current value at $1.5 million. Mr Brooke fixed a value of $1.725 million. The latter had fixed a value of $1.525 million in August 2006 and expressed the opinion that it had increased by $200,000 in 12 months. Both valuations were based upon much the same comparative sales. Mr Brooke quite properly conceded that a valuation is not a precise science. Ultimately the question of values is to be resolved by me considering the respective comparisons made by the valuers and being aided by their opinions. Mr Brooke referred to the fact that the adjacent property at 58 Le Fevre Terrace had been sold in November 2004 for $1.4 million. He referred, inter alia to other sales at 70 Le Fevre Terrace, 44 and 155 Mills Street, and 48 Barnard Street. The last mentioned property sold for $1.68 million in July 2007.
Ms Hawkes regarded the 58 Le Fevre Terrace sale as an anomaly. I ignore the conversations that she had with the owner. She did however contrast that sale with other sales at the time to confirm her views. She referred to sales at 93 Gover Street for $1.53 million in March 2007; and at 78 Hill Street for $1.395 million in July 2007. She explained that both the Gover Street and the Barnard Street properties were superior to the subject property. The details of all of the allegedly comparative sales were tendered.
I accept the evidence of Ms Hawkes as to the relevance of these “comparable” properties. I do not accept the opinion of Mr Brooke that there had been a $200,000 increase in the value of the subject property in such a short time. In my opinion aided by the valuation of Ms Hawkes I fix the market value of the 60 Le Fevre Terrace property at the date of trial as $1.5 million. This accords with the valuation of Ms Hawkes.
In the joint report, the accountants reduced the value of the assets by a fee of 2.2% of the sale price of the Le Fevre Terrace property. The plaintiff’s counsel quite correctly submitted that the defendant did not give evidence that the property would have to be sold. The accountants however assumed that the sale would be necessary to enable the defendant to meet a substantial award to the plaintiff. It is plain from an examination of the defendant’s financial position that the Le Fevre Terrace property will eventually have to be sold.
As to the assets of the defendant at trial I adopt the table set out by Mr McPharlin and Ms Larkin at paragraph 3.4 of the joint report; as modified in accordance with my findings. I treat them as being the same as at the date of trial, notwithstanding the date of the joint report.
The Table of Assets as at the date of trial
·Agreed net (liabilities)
(Which excludes the motor vehicle. The loans
are reduced by $90,000) ($691,792)
·Value of wine stocks in company $511,524
(mid point of odd bins valuation)
Less income tax on unrealised gain on sale ($127,855)
$383,669
·Value of business premises $1,600,000
·Value of 60 Le Fevre Terrace $1,500,000
(Less 2.2% cost of sale) ($33,000)
$1,467,000
·Value of plant and equipment $47,435
(Evans & Clarke auction realisation value) $2,806,312
Summary of the assets as at trial
The plaintiff had no relevant assets as at the date of trial save for the superannuation credit of $6,270.
I have assessed the value of the assets of the defendant as at the date of trial as being the sum of $2,806,312.
The financial contributions during the relationship excluding the assets at commencement
I refer to the findings of fact. The financial contributions to the property and resources of the parties have almost exclusively been made by the defendant. During the currency of the relationship, he paid all of the expenses of the parties, met the expenses of the businesses, the costs of purchase and renovating the family home and the redevelopment of the function centre. Apart from the initial payment for child clothes in 1991 the plaintiff made no financial contributions at all.
The non-financial contributions during the relationship
During the period December 1991 to 13 March 2004 in particular the plaintiff was almost exclusively responsible for raising the two children of the relationship and managing the household. This unexpressed agreement with the defendant to remain in that full time role enabled the defendant to work long hours and build up income and assets. When she undertook that homemaker role she was effectively unable to re-enter the workforce during what may have been her most productive years from age 30 to 44 years. The defendant was generally unable to contribute in a non-financial way as his hours did not permit him to do so. During the plaintiff’s illness in 2001-2002 he did contribute to a greater degree in a non-financial sense. If one were to notionally put to one side the assets contributed by the defendant at the commencement of the relationship, the ongoing financial contributions of the defendant and the non-financial contributions of the plaintiff would generally appear to be equal, during the relationship. I say generally, because in respect of the business assets, the “ability and energy” of the defendant must not be overlooked.
The contributions generally made by either party after termination
Since 13 March 2004 the plaintiff has continued to provide for the principal care of the two children. That role has lessened as the children grow older. The defendant has taken a more active role with non-financial contributions in sharing the care of the children. The older child has worked on a part-time basis at the restaurant business. The financial contributions continue to be made exclusively by the defendant. He has contributed a weekly sum to assist with the plaintiff’s rent. The total over the 3 years to trial exceeds $39,000. He pays for the plaintiff’s health insurance and has met the cost of registration and insurance for the Honda motor vehicle used by the plaintiff. He pays school fees and child support totalling $40,000 per annum.
During the period since termination the defendant’s contribution in a combined financial and non-financial sense now outweighs the non-financial contribution of the plaintiff.
The needs and means of the parties
The defendant continues to enjoy a high earning capacity even though he lives a modest lifestyle. He is however aged 62 years and in relatively poor health. The defendant gave evidence that he intends to continue the restaurant/function centre business. It is indeed a business which has been established solely by “the energy and ability” of the defendant. See Mallet v Mallet (1984) 156 CLR 605 at 625. I am however satisfied on the evidence contained in the report of Dr Pedler that the defendant will be forced to work reduced hours, and that this will adversely affect his future earning capacity. The plaintiff is reliant on the receipt of continuing voluntary payments from the defendant. Although living modestly her outgoings exceed her income and she is indebted to others in the sum of $40,000. She lives in rented accommodation. She has no assets. She has the prospect of earning income in counselling in the future. Having regard to the evidence of the plaintiff and that of Pauline Morgan, I am satisfied that in the next few years, as the children become even more independent the plaintiff will be able to support herself in her counselling career.
The submissions of counsel
(a) The plaintiff
Mr Livesey QC who appeared with Mr Duggan for the plaintiff, submitted that a global approach to the division of property should be adopted. He submitted that any attempt to quarantine that part of the assets comprising the restaurant business would be inconsistent with authority and would under-value the non-financial contributions of the plaintiff. He referred to Bilous v Mudaliar, supra.
He submitted that the defendant’s assets at the start of the relationship were “quite modest”. While it is correct say that the properties had changed substantially over the years, it is not correct to say that the assets were other than substantial in 1989.
He stressed that the length of the relationship and the arrangement between the parties that the plaintiff would contribute by her role as homemaker in freeing up the defendant to work long hours. These he submitted pointed to their respective non-financial and financial contributions being of equal value. He submitted that this equality had continued after termination with the plaintiff having the principal caring role and the defendant paying a contribution to the plaintiff’s personal expenses and the children’s expenses.
As to the future, Mr Livesey QC stressed the fact that it will be some time before the plaintiff can expect any meaningful income from counselling; while the defendant maintains his established earning capacity.
He referred to the plaintiff’s indebtedness and lack of assets. This, he said, was to be contrasted with the defendant’s ongoing earning capacity and now large assets. He conceded that it was not the role of the court to provide continuing maintenance for a party nor to allow otherwise for their future financial prospects.
As to the question of what was “just and equitable”, he submitted that a broad approach should be taken which gives due weight to the assets initially contributed by the defendant and the financial and non-financial contributions thereafter. In assessing the weight of the initial assets, little weight should be given, as they had been eroded over time.
He submitted that the assets held by the defendant at the commencement of the relationship had changed significantly during the fourteen-year relationship.
He submitted, and I accept, that the fact that the parties did not discuss marriage is of little or no significance.
He submitted that the proper approach, having regard to the authorities was to treat the contributions of the parties – that is to say the financial contributions of the defendant on the one hand, and the non-financial contributions of the plaintiff in her role as homemaker and parent principally responsible for the care of the children, as equal. A broad percentage ought be apportioned between the parties for all of the assets, on a global basis.
Whether this be on an asset by asset basis with the plaintiff receiving 50% of the nett value of 60 Le Fevre Terrace, North Adelaide, or on a reduced percentage of all assets on global basis does not matter. He referred to various authorities disclosing percentages of 30% or more, on a global basis. The reference to other cases in respect of percentages is unhelpful because of obvious factual differences in each case. The same may be said in respect of the reduced percentages which were applied in cases where the parties’ pre-relationship assets were markedly disproportionate. See Paino v Paino, supra, Mallet v Mallet, supra; and Love v Chidley (2002) 219 LSJS 287. He submitted that in addition to whatever lump sum was assessed in favour of the plaintiff, the defendant ought be directed to assign the superannuation credit of $6,270 or its value in cash, as well as the legal ownership of the Honda CRV motor vehicle, the value of which has been agreed at $24,500.
(b) The defendant
Mr Heywood-Smith QC and Mr Birchall, who appeared for the defendant, submitted that a “global” approach under-valued the significant assets owned by the defendant at the date of commencement.
He referred implicitly to the debate in the Court of Appeal in New South Wales as to the way in which such a marked difference in the value of assets contributed by one party ought to be approached.[6] He referred to the evidence of the accountant, Ms Larkin, that even on a CPI index basis, one dollar in 1989 is now worth $1.654[7], and that this places in context the true value in today’s terms of the defendant’s assets at 1989. To not take account of the true value of these assets, would be to under-value the contribution of the defendant.
[6] Kardos v Sorbutt (2006) 34 Fam LR 550; Bilous v Mudaliar (2006) 65 NSWLR 615; Baker v Towle [2008] NSWCA 73; Paino v Paino [2008] NSWCA 276 and Manns v Kennedy (2007) 37 Fam LR 489.
[7] T449.
At the commencement of the relationship the plaintiff had assets of only $40,000, all of which had been dissipated. He submitted that the CPI approach is simply a guide and one quite favourable to the plaintiff. The evidence of the values generally disclosed increases of greater value in respect of the Le Fevre Terrace property, and the restaurant/function centre properties.
He submitted that the defendant is now approaching the end of his working life because of his age and his ill health. The plaintiff is now about to embark upon a new career at age 48 years.
He submitted that one approach would be to deduct the current CPI value of the assets initially contributed by the defendant from the current nett value of the assets. Whatever pool was left could be the subject of an assessment as to the relative financial contributions of the defendant on the one hand, and the non-financial contributions of both the plaintiff and the defendant on the other. He intimated that this was the basis for the figure of $500,000 referred to by him during the trial. Counsel conceded that the figure of $500,000 was predicated upon the acceptance by the court of the values deposed to by Ms Hawkes, and not the higher values deposed to by the other valuers.
Discussion
In Hogg v Roberts, supra Doyle CJ said that the determination of what is just and equitable requires a reasonably broad and practical approach.
Putting to one side the value of the initial assets “contributed” by the defendant, the parties clearly worked together, at least between late 1992 and 13 March 2004, upon the understanding that the defendant would be free to work long hours – indeed increasingly longer hours in 2000 – to earn income for the family, while the plaintiff maintained the family, and the family home on a full time basis.
When the relationship ended the plaintiff was financially vulnerable with no assets, save for the sum of $6,270 as superannuation, and no income. She has incurred debts of $40,000. The defendant clearly worked extremely hard to increase the income from the restaurant business, and meet all of the expenses of the family during those years.
As I have found the financial contributions of the defendant until termination, and the non-financial contributions of the plaintiff until termination should generally be regarded as equal contributions. The role of homemaker must not be undervalued in a case like this. It is an equal contribution save for some allowance to the defendant for his “ability and energy” in the establishment of the restaurant.
I have no doubt that it was the defendant’s long history in the hospitality industry and “his ability and energy” which enabled the restaurant business to grow.
I refer again to the dicta of Mason J. in Mallet v Mallet (1984) 156 CLR 605 at 625 when considering section 79 of the Family Law Act (Cth):
No doubt a conclusion in favour of equality of contribution will be more readily reached where the property in issue is the matrimonial home or superannuation benefits or pension entitlements and the marriage is of longstanding. It will be otherwise when the property in issue consists of assets acquired by one party whose ability and energy has enabled the establishment or conduct of an extensive business enterprise to which the other party has made no financial contribution and where that other party’s role does not extend beyond that of homemaker and parent. (my emphasis)
The financial and non-financial contributions of the defendant since termination and until trial clearly outweigh the non-financial contributions of the plaintiff. I was not invited by the defendant’s counsel to make any allowance notionally in favour of the defendant in respect of the rental assistance provided to the plaintiff to trial, and have not done so.
In my opinion it is just and equitable that an order be made adjusting the assets of the parties, by awarding a substantial lump sum to the plaintiff. I have in the exercise of my discretion concluded that the defendant should pay to the plaintiff the sum of $650,000. In addition the defendant must cause the company to transfer the ownership of the Honda motor vehicle valued at $24,500 to the plaintiff, and transfer the superannuation credit of $6,270 to a fund to be nominated by the plaintiff. I have taken account of all of the respective contributions of the parties, without engaging in an accounting exercise. In my opinion it does not matter whether one applies a “global approach” or “an asset by asset” approach. The adjustment represents slightly less than 25% of the total net assets of the parties.
I have cross-checked both approaches to compare the adjustment that I have determined.
I turn briefly to the nature of the pool of assets. Broadly they are the house property on the one hand and the business assets on the other.
While it is undoubtedly true to say that the plaintiff contributed in a non-financial way to the maintenance and improvement of both types of assets, her direct role was confined to the house property.
The house property represents slightly more than 40% of the total pool of assets, with the balance represented by the business assets. One approach would have been to treat notionally the parties contributions to the net house asset equally while ascribing a higher percentage to the defendant in respect of the business assets.
Another approach is to treat the assets globally with a slight percentage allowance in favour of the defendant. Ultimately as I say, which ever method is adopted, an adjustment in favour of the plaintiff in a sum similar to that fixed by me would be achieved.
Despite Mr Livesey’s submission that the overwhelming initial contributions of the defendant ought be discounted, in my opinion great weight should be given to that initial contribution. I have referred to my view that the value of these assets was, if anything understated. In order to properly allow for those initial assets regard should be had to their value with CPI increases; and not merely their 1989 value. If one deducts from the market value of the assets at trial – namely $2,806,312 the CPI value of the assets initially contributed by the defendant of $1,420,346, it leaves a pool of slightly less than $1.4 million. I have not overlooked the plaintiff’s CPI asset of $66,160. Those assets were quickly dissipated. This is to be contrasted with the defendant’s initial contribution. It can be ignored in this process. An equal division of this sum of $700,000 is, in my view favourable to the plaintiff both because of the undervalue of the 1989 assets, and the need to recognise the ability and energy of the defendant in the business. By contrast a 55/45% split in favour of the defendant using this method results in a figure of $630,000.
Clearly no mathematical approach can properly account for the contributions by both parties. The adjustment determined by me has the effect of the plaintiff obtaining the lump sum of $650,000 and ownership of a vehicle valued at $24,500. These are in addition to her superannuation entitlement.
Conclusion and orders
Both counsel submitted that in the event that I concluded that it was “just and equitable” to make orders for the adjustment of property, then I should pronounce a lump sum figure to be payable to the plaintiff and then permit the parties time to determine whether there was a need for specific assets to be sold.
I will hear from the parties as to whether the plaintiff is entitled to interest on this award from the date of trial having regard to the voluntary contributions to rent paid to the plaintiff by the defendant. Any such interest must allow also for the continuing rental contributions made by the defendant since trial.
It having been determined that it is just and equitable to adjust the property of the parties –
I order:
1. That the defendant pay to the plaintiff the sum of $650,000.
2.That the defendant cause the company Minoan Investments Pty Ltd or any of the corporate entities controlled by him to:
2.1 transfer to the plaintiff therein encumbered legal ownership of the Honda motor vehicle presently in her possession.
2.2 transfer to a superannuation fund to be nominated by the plaintiff the sum of $6,270 standing to the credit of the plaintiff in the Minoan Investments Superannuation Fund.
I will hear the parties as to the questions of interest and the costs of action.
5
17
1