Malpass & Mayson

[2000] FamCA 1253

[2000] FamCA 1253 

FAMILY LAW ACT 1975

IN THE FULL COURT       
OF THE FAMILY COURT OF AUSTRALIA                   Appeal No EA117 of 1999
AT SYDNEY  Appeal No. EA4L of 2000

File No SY2932 of 1998

BETWEEN:

PETER WILLIAM MALPASS
Appellant Husband
- and -

PENELOPE JANE MAYSON
Respondent Wife

REASONS FOR JUDGMENT OF THE FULL COURT

CORAM:  NICHOLSON CJ, MURRAY & KAY JJ
DATE OF HEARING:                 23 August 2000
DATE OF JUDGMENT:             18 October 2000

APPEARANCES:  Mr Lindsay, Senior Counsel, with Mr Errington of Counsel, instructed by Redmond Partners, 26 Montgomery Street, Kogarah NSW 2217, appeared on behalf of the Appellant Husband.

Mr Maiden of Counsel, instructed by Ashton Stedman, 155 Cathedral Street, Woolloomooloo, NSW 2011, appeared on behalf of the Respondent Wife.

MALPASS and MAYSON

EA 117 of 1999 and EA 4 L of 2000

Coram:Nicholson CJ, Murray & Kay JJ  

Date of hearing:23 August 2000                 

Date of judgment:18 October 2000             

PROPERTY- asset pool - potential liability - procedural fairness - reference to Taxation Commissioner to investigate possible tax fraud - whether trial Judge should have sought submissions on the effect of such a referral - whether any order for property settlement should be made pending outcome of referral

In property proceedings, W contended that H’s assets were worth approximately $7,000,000, whilst H contended that he had a deficit of approximately $640,000. This case involved a short marriage. Cohabitation commenced cohabitation in July 1995, with separation in February 1998.  There were two children born of the marriage.

The husband had extensive real estate and business interests at the time the relationship commenced.  The wife had very modest assets consisting of some linen, crockery and furniture.

Mullane J

-     Found the net value of H's property and liabilities was at least $2,590,894

but even that figure substantially understated H's wealth.

-     Rejected H’s evidence that a number of his financial records were stolen and was not satisfied that the 1997/98 records provided by H were reliable.

-     Ordered that W should retain property and liabilities to a value of  $350,000 additional to what she already held due to her contributions to the marriage.

-     Made a further adjustment of $200,000 in W’s favour under s 75(2).

-     Ordered H pay spousal maintenance of $350 p/w from 9 December 1999 until 31 December 2002.

-     Found that H had significantly understated the income of a number of his companies.

-     Directed that the Commissioner of Taxation be provided with a copy of the judgment.

H raised 31 grounds of appeal. The most significant asserted a denial of procedural fairness in respect of the reference of H's affairs to the Commissioner of Taxation and the ramifications that such a reference may have on H's financial circumstances.  H also alleged inter alia that the trial Judge erred in relation to his findings of H’s lack of credibility on a number of issues.

Held (per curium): in dismissing the appeal

Taxation issues

• It is clear then that once a trial Judge determines that there was a prospect of the pool of assets being diminished because of some contingent liabilities, the Judge should normally invite the parties to address the Court on the effect that such liabilities might have had on the further conduct of the proceedings. 

• Amongst the options would be for the trial Judge to proceed on and make such adjustments to the pool of assets that the trial Judge could best estimate would be appropriate in the circumstances, or alternatively to adjourn the proceedings pursuant to the provisions of s 79(5) of the Family Law Act.

• Given the open ended findings as to the extent of H’s assets, and the significant uncertainties about the extent of any possible taxation liability (including penalties), it would be inappropriate to interfere with the result reached by the trial Judge.

The debt owed to H’s father

• In order to determine what was an appropriate order to be made under s 79, the trial Judge needed to determine, what assets the parties owned. There was an issue as to how much H, either personally or through a company H controlled, was owed to his father.  It was unnecessary to join his father to the proceedings in order to determine the extent of the debt.

Absence of evidence from H's accountant

• H asserted that he was unable to produce accurate books of accounts because the documents had been stolen from Mr Lee (his accountant).  It was not incumbent upon W call Mr Lee as her witness, even though she had secured his attendance at court.  The very failure of H to rely on Mr Lee as a witness was a matter which was appropriate for the trial Judge to rely upon when drawing adverse inferences against H (Jones v Dunkel (1959) 101 CLR 298).

H’s false representations to the financial institutions

• The trial Judge did not find that H had lied to the financial institutions but, rather, that H asserted he had lied to them.  Given the general findings as to H's credit, there is no reason to assume that his Honour accepted that it was the financial institutions to whom H had lied rather than to the court itself.

H’s lack of credit related to assets

• Given H’s lack of creditworthiness, the findings by the trial Judge that the known assets were worth vastly more than H was prepared to concede, and coupled with a necessity in many of the valuations to rely on books of accounts which his Honour concluded were likely to be inaccurate, it was clearly open to the trial Judge to make the finding that the assets as valued "in all probability substantially understates the husband's wealth".

Cash dealings

• W gave first hand evidence of a conversation at which she was present.  The trial Judge was able to accept W's evidence without the necessity for corroboration, especially in circumstances where H's evidence was deemed without credit.  There is no requirement in the law of evidence which would indicate that absent corroboration, the trial Judge was unable to accept the evidence of W on this issue.

• The findings in respect of substantial undisclosed income were based on an acceptance of W's evidence of H's statements, a rejection of the H's denials, H's history in cash dealings, the discrepancy between details provided to the court as compared to the details provided to the lending institution, and the views of H's valuer.  There was clearly evidence upon which his Honour could properly make those findings. 

Onus of proof, adequacy of evidence, and W's non-disclosure

• Each of the valuation findings was open to his Honour based upon the expert evidence before him.  The only finding which fell outside his Honour's analysis of evidence was the generalised finding that H and/or his companies had undisclosed cash income.  This finding was clearly open on the evidence adduced, as slight as it may have been.

• Taking into account the trial Judge’s findings of W’s general credibility, her failure to disclose a small amount of income she received from her parents' trust could be seen as de minimus.  His Honour did not err in doing no more than identifying it, but giving it no weight.

Discretion

• Whilst the property division may be towards the higher end of what could be seen as an appropriate range, it is not such that it is appropriate to interfere.

APPEAL DISMISSED

COSTS SUBMISSIONS INVITED

REPORTABLE IN PART

[This is an edited version of the full judgment in a case where Mullane J

-     Found the net value of H's property and liabilities was at least $2,590,894

but even that figure substantially understated H's wealth.

-     Rejected H’s evidence that a number of his financial records were stolen, and was not satisfied that the 1997/98 records provided by H were reliable.

-     Ordered that W should retain property and liabilities to a value of $350,000 additional to what she already held due to her contributions to the marriage.

-     Made a further adjustment of $200,000 in W’s favour under s 75(2).

-     Ordered H pay spousal maintenance of $350 per week from 9 December 1999 until 31 December 2002.

This report concerns only two of the several grounds raised.  The other grounds relate to evidentiary matters peculiar to the facts of the case and have no general application.]

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1. This is the husband's appeal against orders made by Mullane J on 9 December 1999 in property, maintenance and child support proceedings brought by the wife.  Insofar as the child support orders are being attacked, the proceedings are by way of an application for leave to appeal. 

1. The effect of the orders made by Mullane J was to require the husband to pay the wife $536,000 by way of property settlement and to provide the wife with the title to the motor vehicle she was driving (valued at $14,000).  Spousal maintenance was to be paid at $350 per week for the period from 9 December 1999 to 31 December 2002.  Child support was to be payable at $600 per week for the period from 9 December 1999 to 30 June 2001.

1. In addition, to making some orders to better secure the husband's performance of his obligations to pay monies to the wife under the orders, Mullane J directed:

"That the Registry Manager of Sydney Registry provide the Deputy Commissioner of Taxation at the Australian Taxation Office at Sydney with a copy of the judgment and permit Officers of that office to read and copy documents on the Court file and exhibits and documents produced on subpoenae"

1. By his amended Notice of Appeal the husband seeks to have all of Mullane J's orders set aside and to have the matters remitted for rehearing by another judge. 

1. The major ground urged upon us at the appeal hearing was that the husband had been denied procedural fairness because the Judge, who having resolved to refer the matters to the Tax Office for investigation, made orders:

"without allowing to the Husband an opportunity either to respond to such (if any) investigation as might be undertaken by the Tax Office or to crystallize such liabilities (if any) as he might have for tax and penalties."

There were other matters dealt with by the amended Notice of Appeal which will be referred to later in these reasons for judgment, but the main focus in oral argument before us centred around the effect of the trial Judge's referral of the powers to the Taxation Office.

BACKGROUND

1. This case involves a short marriage.  The husband was born in July 1949 and the wife in April 1964.  They commenced cohabitation in July 1995, married in February 1996 and separated in February 1998.  There were two children born of the marriage, L born 19 February 1997 and A born 27 August 1998.

1. The husband had extensive real estate and business interests at the time the relationship commenced.  The wife had very modest assets consisting of some linen, crockery and furniture.  No findings were made as to the value of the husband's assets at the commencement of cohabitation, although much of the hearing centred around the value of the husband's assets at the time of trial.

1. In her outline of case document, the wife contended that the husband's assets were worth approximately $7million, whilst it was the husband's contention that he had a deficit of approximately $640,000.

…

THE APPEAL

1. As already indicated, the main matter urged upon us at the appeal was an asserted denial of procedural fairness to the husband in respect of the reference of the husband's affairs to the Deputy Commissioner of Taxation and the ramifications that such a reference may have on the husband's financial circumstances.  The additional grounds of appeal were not abandoned, but were not pressed by way of oral argument unless they touched upon the primary contention.  They are dealt with by written submissions…

A PRELIMINARY APPLICATION FOR SUMMARY DISMISSAL

1. The wife filed an application seeking the summary dismissal or a stay of the husband's appeal on the basis that the husband had not complied with the orders for the payment of money and was allegedly in contempt of the Court. 

1. An application for stay of the original orders was heard by Mullane J on 28 July 2000 together with an application by the wife for security for costs of the appeal.   Mullane J ordered the sum of $15,595 be paid to the wife's solicitors as security for costs and otherwise stayed the orders of 9 December 1999 conditional upon the husband paying $300,000 to the wife as partial payment of the property order.  It was common ground that the husband paid the moneys for security for costs but did not pay any part of the $300,000.  The wife issued enforcement proceedings which have been adjourned to a hearing in November 2000. 

1. It was submitted to us that the husband had committed a contempt of the original order of 9 December 1999 and that his appeal should not be heard until he complied with the order in respect of the stay made 28 July 2000.

1. There undoubtedly exists a discretion in a court to refuse to entertain an application by a party who is in contempt.  There is a convenient gathering of the relevant principles in the decision of Fahmi and Fahmi (1995) FLC 92,637. There the court concluded that there was clearly a discretion to be exercised and that discretion needed to be exercised bearing in mind "a strong indication in favour of preserving a litigant's right to appeal (Lord Oliver in X Ltd v Morgan-Grampian (Publishers) Limited and Ors (1991) 1 AC 1).

1. In this case, were the husband to succeed in his appeal the orders would be set aside.  The grounds of appeal on the face of them appear to raise matters of substance which require due consideration by the Court.  The wife has pending enforcement proceedings and the material does not raise the suggestion that the only method of ensuring compliance by the husband with the orders of the court would be to refuse him a right of appeal until such time as he made the payments due.

1. In our view, in all of the circumstances, it was appropriate that we continue to hear the appeal and we advised the parties that the application by the wife for a summary dismissal or stay would be refused.

1. We should add that the mere fact that the husband had not paid the money due did not of itself amount to a contempt.  We were referred to a passage from Borrie and Lowe, The Law of Contempt, 3^rd ed, Butterworths, 1996, which counsel for the wife suggested was authority for the proposition that disobedience of an order directing a person to pay money "amounts to a civil contempt".  The passage actually reads, at p. 582:

"Disobedience...can amount to contempt..."

1. Generally speaking more would be needed than merely asserting that the order has not been complied with to bring into play the exercise of the discretion to refuse to hear an appeal as of right where the contempt asserted is non-payment of money.  There would usually have to be some significant feature that would cause a court to refuse to hear the appeal which might render any enforcement proceedings unnecessary and remove or radically alter the orders which are yet to be obeyed.

1. It is perhaps convenient to add that the application which sought the dismissal or stay of the husband's proceedings also sought orders that in the event that the appeal was dismissed, a receiver of the whole of the husband's right title and interests in law and in equity in his estate should be appointed and that the husband should be restrained from taking any steps to present his own petition to any court of competent jurisdiction pursuant to the Bankruptcy Act 1996.  Counsel indicated that he would refrain from making any submissions in respect of that application until the conclusion of the appeal. 

1. Whilst we invited no further submissions in respect of the application, given the orders that we are ultimately pronouncing in this case, it is appropriate that we give counsel the opportunity to advance such submissions if counsel so desires, but in so doing, we would indicate that at least on the surface it appears that these matters are more appropriate to be dealt with by a judge at first instance rather than an appellate court.

Procedural fairness and the reference to the Tax Office

1. In T. and T. (1984) FLC 91-588 Simpson and Barblett SJJ said at 79,746-79,747:

"In our opinion there can be no doubt (leaving aside any statutory prohibition) that where the evidence or other material discloses breaches of Commonwealth laws a judge of the Family Court of Western Australia exercising jurisdiction under the Family Law Act 1975 is entitled to bring these breaches to the notice of the Commonwealth Attorney-General.

...

It might even be suggested, if his Honour had not brought such blatant tax evasion to the notice of the authorities, that he had failed in his public duty."

1. The tax evasion complained of in T and T was the keeping by the parties in a butchering business of two sets of records: 

"One set, with some significant exceptions, recorded the total of the monies in the cash register at the end of each day's trading;  and the other set - used for income tax purposes - recorded a substantially reduced gross turnover."

1. In the following year, in P and P [Tax Evasion] (1985) FLC 91-605, Lindenmayer J dealt with a case in which the wife had worked for a number of years as a prostitute earning "considerable income" but had failed to file any income tax returns. He found that the husband assisted in her deception of the Commission of Taxation by claiming the wife as a fully dependent spouse in his own income tax return. Having identified the existence of significant tax evasion, his Honour proceeded to assess the parties' respective entitlements pursuant to s 79 of the Act, ignoring any implications arising from their defrauding of the revenue. Having then established a pool of assets, and having determined the manner in which those assets should be divided between the parties, his Honour returned to the issue of the tax evasion and said (at 79,919):

"The first question which this poses for my consideration is whether I have a duty to refer the papers in this matter to the Commonwealth Attorney-General for consideration by him or his officers of whether proceedings should be commenced against either or both parties for the recovery of the income tax avoided and/or any penalties arising therefrom, or whether I should take any other, and what, steps designed to ensure the recovery of the unpaid taxes. The second question is, what effect, if any, should the fact that one or both parties may be liable to prosecution for income tax evasion have upon my determination of these proceedings."

1. His Honour concluded the answer to the first question which he posed was (at 79,925)

"…I am of the opinion that this Court, as a federal court exercising the judicial power of the Commonwealth, has a duty to protect the revenue of the Crown in right of the Commonwealth. That duty extends to requiring this Court to take such steps as it is able to take to ensure that the revenue laws of the Commonwealth are not defrauded or evaded by litigants or others who come before it.

Where, as in this case, the evasion is by a party and has already occurred, the steps which the Court might take in fulfilment of its duty are limited. It might, I suppose, upon becoming aware of the relevant evasion, adjourn or stay the proceedings and refuse to proceed further until satisfied that the party in question has made a full disclosure to the Commissioner of Taxation. Such a course, however, may work an injustice upon the other party. Furthermore, such a course may be seen as putting the offending party in the position of either being obliged to incriminate himself or being denied a hearing of his case by the Court. I think that it would not be appropriate for a court of law to place him in that position.

An alternative course would be to delay judgment in the case until the relevant party gives an undertaking to make proper disclosure to the revenue authority, but that course is subject to the same objections as that last referred to.

In practical terms, the only course available to the Court is, when giving judgment, to order or direct the referral of the papers in the case to the Attorney-General, and that is the course which I propose to take in this case."

1. He then turned to consider the second question posed, namely what effect, if any, should the fact that one or both parties may be liable to prosecution for income tax evasion have upon determination of proceedings.  His Honour said:

"I think it correct in principle to regard each party as being subject to a contingent liability to the Commissioner for Taxation for unpaid taxes and penalties for late payment thereof. The difficulty, of course, is that I have no way of assessing the likely magnitude of their respective liabilities. However, I think it reasonable to infer that the magnitude of the wife’s contingent liability in this respect is considerably greater than the husband’s because she has paid no tax at all on her entire income over the last 7½ years, which income, as I have found, was substantial and significantly greater than the husband’s. The husband, on the other hand, has merely understated his income each year by the amount of the spouse dependency allowance which he falsely claimed.

Counsel for the husband, submitted that even if I decide, as I have done, to direct a referral in this case, I should proceed to deal with the property application without regard to the outcome or likely outcome of any subsequent investigations by the Commissioner of Taxation arising therefrom. Counsel for the wife on the other hand submitted that if I proposed to make a referral I should adjourn these proceedings until the outcome of such referral is known. I do not accept either of those submissions.

As to counsel for the husband’s submission, in my opinion it would be wrong for me to ignore a significant contingent liability of either party in determining proceedings under sec. 79, because such a liability is a relevant matter for consideration under either or both of para. (b) and (d) of sec. 75(2) of the Act to which I am bound to have regard by sec. 79(4)(e) of the Act.

As to counsel for the wife’s submission, whilst it is tempting to adjourn the proceedings to await the outcome of the Commissioner’s investigations, in my opinion it is unnecessary to do so and would subject the parties to further delay, uncertainty and costs. This Court is frequently called upon to make prognostications as to the future economic circumstances of parties to proceedings, and to make allowance for contingencies. In my opinion the task of making such an allowance in this case is no greater than in many other cases, and it does not warrant the adjournment of the proceedings.

On the evidence in this case I am satisfied that, on the balance of probabilities, the wife will find herself, in the not too distant future, subject to a quite substantial liability to the Commissioner of Taxation and that the husband will find himself subject to a significant but much less substantial liability. I propose to take those matters into account in my determination of these proceedings. I also propose to take into account, pursuant to para. (o) of subsec. 75(2) of the Act, the fact that the husband was guilty of complicity in the wife’s evasion of her original income tax liability, and that he has therefore contributed to the imposition upon her of what I am satisfied will be a substantial liability for back taxes and penalties. At the same time he shared with her the benefits of her substantial tax-free income during cohabitation. I do not overlook the fact of the wife’s complicity in the husband’s tax evasion, but as I have said the major burden of their joint efforts at defrauding the revenue will undoubtedly fall upon the wife.

Taking those matters into account, and taking into account also the settlement which the parties themselves arrived at on 13 June 1981, I am of the opinion that there should now be no further adjustment of the parties property entitlements, and that the husband’s application should therefore be dismissed."

1. There has not been entirely universal adoption of the concept that a judge is under a positive duty to report any tax evasion.  In Radwan (1985) FLC 91-755; 11 Fam LR 1 at FLC 75,510; Fam LR 9 Frederico J commented:

"Counsel on behalf of the husband, has drawn my attention to the decision of Lindenmayer J in P and P [Tax evasion](1985) FLC 91-605; 9 Fam LR 1100; relating to the wife’s admitted tax evasion. He submits that the Family Court, as a federal court exercising jurisdictional power of the Commonwealth, has a duty to uphold the law by referring the wife’s admitted tax evasion to the attention of the Attorney-General. Certainly I am entitled to do so(T. and T. (1984) FLC 91-588). But whilst the wife has deceived the Commissioner for Taxation as to a significant amount there are other considerations of public policy to be brought into account, such as the desire of encouraging parties to litigation to be frank and open in their evidence before the Court without fearing that the Judge will automatically report them for any transgression against the revenue laws of he Commonwealth, and that Judges should not be seen as informants for the Taxation Commissioner.

The Taxation Commissioner was entitled to have a representative in Court throughout the hearing. It would be unfortunate were the Taxation Commissioner to rely upon Judges reporting all and sundry transgressions thus absolving him from his duty to protect the revenue. Such a situation would be demeaning to the Court."

1. The proper need for the court to take into account potential fines and tax liabilities was touched on by the various members of the Full Court in Bonisoli v Bonisoli [1998] FamCA 27. That was a property case in which the husband had significant offshore investments. He had failed to pay income tax in respect of his off shore earnings and had received penalty assessments. In addition, he was facing criminal charges which could see the imposition of significant fines. In each of their judgments in the majority Baker and Moss JJ suggested that it would be contrary to public policy to make a diminution in the wife's share of the assets of the parties by reason of the likely imposition of criminal penalties upon the husband [which penalties related to the acquisition of the pool of assets]. Kay J (in dissent) said:

"In my view no such absolute public policy rule exists, although I can easily envisage circumstances where, as a matter of discretion, no such allowance ought to be given (see Re Q (1995) FLC 92-565). Suppose the assets of the parties were accumulated from a small bakery business and the only way to sustain its profitability was to double park the delivery van thereby incurring regular parking fines. It would, in my view, be unconscionable not to make an allowance for such fines in determining the net assets for the parties. Here the existence of much of the parties' assets is inextricably linked to the moneys earned through the husband's foreign exchange dealings in a joint account with the wife. It would be unconscionable not to take into account the penalties which the husband now faces when determining the pool of assets available for distribution."

1. Moss J had said

"In my opinion the s 79 proceedings must be determined having regard to the net pool of assets and completely disregarding the possibility that one of the parties may subsequently be convicted of a serious criminal offence which, assuming such conviction, carried a substantial monetary penalty and which would also, in default, specify a term of imprisonment."

When dealing, however, with tax penalties, as distinct from the fines, his Honour concluded that parties should bear equally any income tax consequences of non-disclosure.

1. Baker J was of the view that the trial Judge had correctly taken into account the fact that the husband was facing substantial penalties in the future but had refused to make any allowance for them because he had other undisclosed funds which they could be set off against.  However, when dealing with the potential fines Baker J said:

"It would not be just and equitable and, in any event, it would be against public policy, if the wife, or indeed anyone else, were subsequently called upon to share in such a criminal fine or impost. In other words, the Family Law Act cannot be used as an instrument whereby the impact of the criminal law can be directed elsewhere. For these reasons therefore, I am of the opinion that his Honour should have ignored the possibility of any such fines and costs being imposed upon the husband."

1. In Durieu and Wiggins (unreported 14 February 1997, PA 6511/95) Halligan JR when considering whether to refer a matter to the Attorney General where there was evidence of tax evasion said:

"The position, as a matter of legal principle, in my view, has been fairly strongly set out not only in a number of authorities - some reported, some not - but also has been dealt with in an article in the current notes of the Australian Law Journal, and in particular I quote from 70 ALJ 889, where, quoting from an unreported New South Wales Court of Appeal decision given on 7 December 1990 of Page v Vanka from the reasons of his Honour Justice Handley, the following appears:

'In recent years the question of the duty of a court which is confronted with evidence of income tax fraud in the course of a hearing between parties other than the revenue authority has been discussed in a number of reported decisions.  See Kelly v Raymor Illawarra Pty Limited (1982) 13 ATR 592 a decision of Wootton J in the Equity Division of this court; In the marriage of P & P (1985) 9 FamLR 1100, a decision of Lindenmeyer J of the Family Court; Petera Pty Limited v EAJ Pty Limited (1985) 7 FCR 375 a decision of Wilcox J, and finally Georginas v Kostrati (1988) 49 SASR 371 a decision of the Full Court of South Australia.  In that case, Von Doussa J, who delivered the principal judgment said at page 376:

"Where a tax fraud or evasion is disclosed in evidence it is the court's duty to draw the evidence to the attention of the executive branch of government for such action as may be appropriate."

In my opinion this court would not be doing its duty to administer the laws of this country if it ignored this evidence and took no effective action to bring it to the attention of the appropriate authorities.  In my opinion the Registrar of this court should be directed to forward to the Deputy Commissioner of Taxation the relevant part of these reasons for judgment together with a copy of the affidavit of Graham Bruce Godby of 26 June 1990.'

In my view that is entirely on point in this particular case, and in my view it is authority that I should follow.  It is consistent with the practice adopted in a variety of superior courts and dealt with in reported decisions referred to.  The evidence, as I say, although I could not find that it is conclusive by any means, in my view provides prima facie evidence of fraudulent tax evasion.  In my view, in the circumstances, to use the words of Handley JA, I would not be doing my duty to administer the laws of this country if I ignored the evidence and took no effective action to bring it to the attention of the appropriate authorities.  I therefore propose to order that the Registrar forward to the Deputy Commissioner of Taxation copies of the mother's affidavits filed in the proceedings, a transcript of her oral evidence and a copy of my reasons just given."

1. Recently, Charles J in the Family Division of the High Court of England in AVA and BVB [2000] 1 FLR 701 extensively discussed the competing interests in matrimonial causes between seeking a full and frank disclosure and at the same time protecting the revenue and not being party to a fraud upon the revenue. His Honour concluded at 728:

"...that in ancillary relief proceedings in assessing the available assets the court has to consider liabilities to the Revenue and if it is satisfied that they exist it would be wrong for it to ignore them or to proceed on the basis that such liabilities will not be, or are unlikely to be, met because the Revenue will not be made aware of the relevant information, unless there is a compelling public interest which leads to the conclusion that to take this course would be in the overall public interest.

...the material that has caused the court to be satisfied that such liabilities or potential liabilities exist, or that there has been evasion or non-payment of tax which should be investigated and quantified by the Revenue, should be disclosed to the Revenue."

Then at 740:

"...it would not be right for a court to regard the public interests in the administration of justice (and thus the resolution of private disputes) as a private or public interest that it can confer over competing public interests in deciding whether or not it should volunteer or instigate disclosure."

1. Despite these authorities we do not think that it necessarily follows that the Court is always under a duty to report the fact of commission of possible offences to relevant authorities including revenue authorities, although it clearly has the power to do so.  Questions of degree must be relevant.  There are many cases where minor irregularities are revealed in relation to taxation, social security and other issues.  We think it unreasonable for the Court to burden itself with a duty to report all of these matters.  Different considerations may apply in relation to more blatant and substantial irregularities.  We leave the determination of this issue to be determined in a case where the point arises directly.  It does not arise here for there is no dispute as to the Court's power to make such a reference, as his Honour did.

1. In support of the submission that the trial Judge should have given consideration to an adjournment of the property proceedings until the outcome of the report to the Taxation Commissioner was known, we were referred to the decisions of the Full Court in Prince and Prince (1984) FLC 91-501 and Re Bailey (1990) FLC 92-117.

1. Prince was a case in which the Family Court had been asked to deal with the property issues between the husband and the wife.  Whilst that case was pending, proceedings were brought against the husband in the Supreme Court of Queensland by General Credits Australia Limited seeking damages in the sum of $9,000,000.  The issue which confronted the Full Court was whether or not the proceedings between the husband and the wife should have been stayed to await the outcome of the Supreme Court proceedings.  Fogarty J at 79,086 said:

"The figures referred to previously indicate the considerable impact that the judgment on that issue would have on the husband's present assets.  I cannot myself envisage how the proceedings in this court under sec. 79 could usefully be heard and determined until that controversy were finalised.  No doubt this Court is accustomed from time to time to take into account prospective liabilities of one party or another;  it was not suggested in this case that proceedings under sec. 79 need to be delayed until all the rights and liabilities of each party in respect of outside claims or debts are determined, but it is a very much different matter from the situation in this case."

1. Pawley J was of the view that on the facts of Prince and Prince the granting of the stay would "assist the Family Court to determine what in fact comprises the property of the parties, an essential part of any exercise of its powers under sec 79 of the Act". (at 79,079).

1. Bailey was a case in which the wife was proceeding against the estate of her deceased former husband.  There were pending actions in the Supreme Court of New South Wales against the estate by persons who it asserted that they had been the victims of the husband's negligence when treating them in his medical practice.  The Medical Defence Union had refused to insure the husband's estate.  All told the total liabilities of the estate could amount to $600,000, whilst the estate itself comprised only $230,000.  The issue then was categorised as a priority issue between the wife's claim and those of the payments in the Supreme Court. 

1. The Full Court (Barblett DCJ, Baker and McCall JJ) first cited portion of the judgment of Evatt CJ in Prince and Prince at 79,076 – 79,077 where her Honour said:

“The assessment of debts and liabilities is not necessarily arrived at by a strictly mathematical or accountancy approach in all cases. While some liabilities are charges upon the property which can be accurately assessed at a certain date, others are at large, or have not been precisely determined, e.g. tax liabilities (Kelly and Kelly (No 2) (1981) FLC 91-108 at 76,801 In some cases the amount of the liability can only be estimated generally (Albany [(1980) FLC 90-905 at 75,717]. The Court can make an allowance for a particular liability if appropriate to do so. In some cases there are sufficient uncertainties as to the alleged liability to lead the Court to disregard it entirely or partly (e.g. a loan from a parent of the party not likely to be enforced; Af Petersens [(1981) [1981] FLC 91-095]; Quirk  (1983) (unreported). In other cases the Court may take the view that because of the circumstances surrounding the incurring of the liability it ought in justice and equity to be wholly or partly disregarded in determining the appropriate order to make under sec. 79 as between the parties to the marriage. Such a result could be reached where a spouse had incurred a liability in deliberate or reckless disregard of the other party’s potential entitlement under sec. 79…”

Their Honour’s commented at 77,773

"For the Family Court when exercising jurisdiction under s 79 to fail to take into account liabilities which term encompasses claims of all sorts as referred to above, would be to ignore and in many cases to defeat the legitimate claims of the third parties in respect of whom the liabilities had been incurred and this, in our view, it is not entitled to do."

1. Their Honours then made reference to the decision of Chemaisse (1997) FLC 91-812 and Rowell (1989) FLC 92-026 where the Commissioner of Taxation was allowed to intervene in proceedings and have orders set aside on the basis that as a known creditor they had not been given an opportunity to be heard. What their Honours concluded is as follows at 77,774:

"The question is simply, what is the property of the parties that the order seeks to effect?  The nature and extent of this property cannot be determined until proper liabilities have been ascertained.  If the liabilities are not presently fully ascertained, then it may be that in the appropriate case the family law proceedings should be stayed until such time as the liabilities are so determined."

1. It is clear that once a trial Judge has determined that there is a prospect of the pool of assets being diminished because of some contingent liabilities, namely, potential arrears of income tax, the trial Judge should normally invite the parties to make submissions on the effect that such liabilities might have in relation to either the future conduct of the proceedings or its outcome.  This is not an invariable rule however and questions of proportion and the remoteness of the risk that such liabilities will be incurred should be taken into account in determining to invite such submissions.  There may be other circumstances, such as those outlined hereafter, when we consider that a trial Judge is not under such a duty.

1. In this case his Honour was unable to determine the perimeters of the pool, which probably was substantially greater than the amount that his Honour was able to identify.  Further, it was the case of the husband that there was no liability on his part to the Taxation Commissioner and that he had not understated his income.  Although his Honour concluded that he had probably done so, we find it difficult to see what purpose would have been served by his Honour seeking such submissions in this case.

1. In cases where it is appropriate to adopt the course of seeking submissions, amongst the options would be for the trial Judge to proceed on and make such adjustments to the pool of assets that the trial Judge could best estimate would be appropriate in the circumstances, or alternatively to adjourn the proceedings pursuant to the provisions of s 79(5) of the Family Law Act, which reads as follows:

"(5)     Without limiting the power of any court to grant an adjournment in proceedings under this Act, where, in proceedings with respect to the property of the parties to a marriage or either of them, a court is of the opinion:

(a)that there is likely to be a significant change in the financial circumstances of the parties to the marriage or either of them and that, having regard to the time when that change is likely to take place, it is reasonable to adjourn the proceedings; and

(b)that an order that the court could make with respect to the property of the parties to the marriage or either of them if that significant change in financial circumstances occurs is more likely to do justice as between the parties to the marriage than an order that the court could make immediately with respect to the property of the parties to the marriage or either of them;

the court may, if so requested by either party to the marriage, adjourn the proceedings until such time, before the expiration of a period specified by the court, as that party to the marriage applies for the proceedings to be determined, but nothing in this subsection requires the court to adjourn any proceedings in any particular circumstances."

and then perhaps make an order under s 79(6), which provides as follows:

"(6)     Where a court proposes to adjourn proceedings as provided by subsection (5), the court may, before so adjourning the proceedings, make such interim order or orders or such other order or orders (if any) as it considers appropriate with respect to any of the property of the parties to the marriage or of either of them."

1. In the course of the proceedings before us, we offered Mr Lindsay SC on behalf of the husband several opportunities to address us on the ramifications of the trial Judge failing to grant the husband the opportunity to address in respect of these matters.  He declined our invitation.  The husband's position was that there had been no reason at all for the trial Judge to remit the matters to the Income Tax Commissioner.  Indeed, the husband said that there had been no tax evasion.  If, of course, this proves to be correct, then there will be no liabilities imposed upon the husband. 

1. On the other hand, the trial Judge thought that the evidence permitted a finding that "the husband has a substantial income by way of black money" although the trial Judge did not endeavour to assess the extent of that income or the number of years that he had been under-declaring his income.

1. The conclusion that the husband had substantial undeclared income appears to come from his Honour's conclusions that the husband:

·    "presents as someone who would and did readily lie in these proceedings where it would assist his financial interests."

·    And then further, from his Honour's acceptance of the wife's evidence (at para 16 of her affidavit) that the husband had told her "There are a number of benefits of running cash businesses like mine" and "I don't believe your father has only one set of books.  Your father has to keep two.  Everybody does in this business". 

·    His Honour's acceptance that on another occasion the husband had said to the wife's father in her presence "Andrew, if you can't take $2,000 in cash out of the business each week, you're a fool". 

·    Finally, his Honour relied on evidence of the husband's valuer Mr O'Connor that caravan park occupancy rates disclosed in the books of accounts of the husband were "less than one would expect to achieve with fair or average management".

1. Were his Honour to have invited the husband to make submissions as to the further course of the proceedings, it would have become evident that:

·    the husband was denying there was any liability

·    there was no direct evidence as to the quantum of understatement

·    it would be likely to be a significant period of time before any tax investigation was concluded

·    it would be impossible for the Court to estimate the duration or extent of the tax investigation

·    were the matter delayed indefinitely there would be hardship to the wife and the children

·    were the matter delayed indefinitely there would be a need to reappraise the size of the property pool when the matter was resumed in what might turn out to be several years time.

1. In those circumstances the trial Judge would no doubt have said in this case that there was an unquantifiable risk that the husband may have to meet a tax liability as a result of the reference of this matter to the Commissioner.  Given, however, the size of the known pool, together with the trial Judge's finding

"the net value of the husband's property and liabilities is thus at least $2,590,894. On the evidence the court is satisfied that this figure in all probability substantially understated the husband's wealth",

it is not appropriate that the matter now be adjourned to await the outcome of any income tax investigation, nor that any adjustment be made in respect of this potential liability.

1. In Weir v Weir (1993) FLC 92-338 the Full Court commented:

"It seems to us that once it has been established that there has been a deliberate non disclosure, which follows from his Honour’s findings in this case, then the Court should not be unduly cautious about making findings in favour of the innocent party. To do otherwise might be thought to provide a charter for fraud in proceedings of this nature."

1. A natural extension of that principle leads us to conclude that where a finding of lack of disclosure leaves the court uncertain as to the extent of the assets controlled by one party, and an issue arises as to potential liabilities which that party may have to meet, then a court might well refuse to adjourn the proceedings or make an adjustment to the pool of assets in favour of the non-disclosing party.

1. The circumstances disclosed in this case would not justify imposing upon the wife an indefinite adjournment of the proceedings to await the uncertain outcome of the tax investigation which may follow the referral of the papers by the trial Judge.  Given the opportunity we afforded the husband in this appeal to indicate how the tax issue might impact upon the outcome, and given the matters we have identified above, the fact that his Honour did not allow the husband an opportunity to be heard on that issue does not affect what might be a soundly based judgment.

1. If, contrary to the view that we have expressed, his Honour was, in the circumstances of this case, under a duty to invite submissions in relation to his proposed referral of the matter to the Commissioner for Taxation, it would have then fallen upon us to consider the effect on the trial that such an error would have had.  As already indicated we do not consider that any such failure would have affected what would otherwise have been a soundly based judgment.

…

Property distribution manifestly unjust

1. The final ground asserts that the s 79 order was manifestly unjust having regard to the short duration of the relationship of the parties and the greater financial contribution by the husband.  This is a challenge to the end result of his Honour's order rather than to the component parts of it.

1. Absent any error of fact or mistake or misapplication of law, the task of an appellate court when reviewing a property alteration decision has been conveniently restated in Sheargold (EA 82 of 1997, unreported, delivered 7 May, 1998) by the Full Court (coram Fogarty, Lindenmayer and O’Ryan JJ) in the following manner:

“7.2     There are several preliminary matters which bear repeating although they are the constant theme of property appeals in this Court based upon these or similar grounds.  They have been identified in a number of cases over the years, including in more recent times the decisions of this Court in Ferraro (1993) FLC 92-335 at 79,565 et seq and Clauson (1995) FLC 92-595 at 81,908 et seq.  They are frequently summarised by reference to the well known passage in the judgment of Brennan J (as he then was) in Norbis (1986) FLC 91-712 at 71,578, (1986) 161 CLR 513 at 540 about the “generous ambit within which reasonable disagreement is possible”.

7.3      In addition, these appeals to this Court are not in the nature of a re-trial in which the members of that Court may substitute their own conclusions on these essentially discretionary matters for those of the trial Judge.  Unless the conclusion of the trial Judge can be characterised as “unreasonable or plainly unjust”, or within other similar terms denoting a conclusion that the decision falls outside a reasonable exercise of the generous discretion in the particular circumstances of that case, then an appeal based upon those grounds necessarily fails.  That is not to say that such a conclusion cannot be demonstrated in an individual case, but it marks out the parameters of the exercise”.

1. In Norbis v Norbis (1986) FLC 91-172; 10 Fam LR 819, Mason and Deane JJ at FLC 75,165; Fam LR 821 referred to the exercise under s 79 in the following terms:

“Here the order is discretionary because it depends on the application of a very general standard — what is ‘just and equitable’ — which calls for an overall assessment in the light of the factors mentioned in s 79(4) each of which in turn calls for an assessment of circumstances. Because these assessments call for value judgments in respect of which there is room for reasonable differences of opinion, no particular opinion being uniquely right, the making of the order involves the exercise of a judicial discretion. The contrast is with an order the making of which is dictated by the application of a fixed rule to the facts on which its operation depends.”

1. Similarly, in that case Brennan J referred to the wide discretion under s 79 and the limits to challenge an appeal, said at FLC 75,178; Fam LR 836;:

"Unless the primary judge reveals an error in his reasoning, the Full Court can intervene only if the order made is not just and equitable. How does the Full Court arrive at that conclusion? In Bellenden (formerly Satterthwaite) v Satterthwaite [1948] 1 All ER 343, at p 345, Asquith LJ stated the rationale of an appellate court’s approach:

'It is, of course, not enough for the wife to establish that this court might, or would, have made a different order. We are here concerned with a judicial discretion, and it is of the essence of such a discretion that on the same evidence two different minds might reach widely different decisions without either being appealable. It is only where the decision exceeds the generous ambit within which reasonable disagreement is possible, and is, in fact, plainly wrong, that an appellate body is entitled to interfere.'

The 'generous ambit within which reasonable disagreement is possible' is wide indeed when there are a number of factors to be taken into account and the comparative weight to be attributed to those factors is not clearly indicated by uniform standards and values of the community. The generous ambit of reasonable disagreement marks the area of immunity from appellate interference."

1. The trial Judge's finding was of a pool of assets of at least $2,590,894 which figure "in all probability substantially understates the husband's wealth".  It is clear from the evidence that the husband's wealth was either brought into the marriage or generated during the marriage by the husband's business prowess. 

1. The wife's contributions were identified by the trial Judge as follows:

"167.   The wife has made the following contributions:

·    an initial contribution of the property listed in paragraph 16 of her affidavit, most or all of which it appears she has retained since separation;

·    performance of most of the home-making chores for the 26 months of cohabitation, including the matters set out in subparagraphs (a) to (e) of paragraph 23 of her affidavit and subject to the qualification that for the last year of the marriage an employed cleaner did cleaning and some washing and ironing at the Sandringham house for one day per week and she also had the assistance of a nappy service for [L] after she was born;

·    wages of $1,430 from the Mason Family Trust in 1996/97;

·    performance of most of the parenting of [L] for nearly 3 years and most of the parenting of [A] for 15 months, further details of which are contained in paragraphs 24 to 27 of her affidavit;

·    her student allowance for about 3 months of the cohabitation;

·    her salary of $300 nett per week from Soon Lee Pty Ltd for about 2 years of cohabitation;

·    a substantial part of the financial support of the children since separation; and

·    extensive work in connection with the design, construction, fitting out and furnishing of the Sandringham home as detailed in paragraphs 19-22 of her affidavit."

1. His Honour's allowance in the circumstances of $350,000 represented 13.5% of the visible pool.  The difficulty in complaining that such sum, together with the further $200,000 that the trial Judge made allowances for under s 75(2) of the Act, was "manifestly unjust" is that there is no finding as to the absolute edges of the pool that is being sub-divided.

1. An open-ended finding is not necessarily fatal to a submission that the end result was manifestly unjust.  In Campbell and Campbell [2000] FCA 366 (unreported 21 March 2000) Chisholm J declined to make any adjustments under s 75(2) in favour of the wife, who had been breeding and showing dogs. His Honour said:

"...I cannot make findings about her income or capacity to earn income.  If this were not so it would be appropriate to make an adjustment in her favour under s 75(2), having regard to the husband's income and financial resources,..."

The Full Court in re-exercising the trial Judge's discretion said:

"31.     True it is, as his Honour says, that because of the wife’s non-disclosure he cannot be sure of her financial position but, in our view, he could be sure that whatever the non-disclosure was in the scheme of this family and the financial circumstances surrounding it, the differential was not so great as to absorb those matters which clearly favoured the wife in respect of s 75(2) factors,..."

1. Here however, the finding is of "substantial" understatement.  The wife's award in such circumstances cannot readily be measured in percentage terms.

1. The exercise to be carried out under s 79 has been well identified as requiring several component steps, (see Pastrikos [1980] FLC 90-897; (1979) 6 Fam LR 497; Lee Steere (1985) FLC 91-626; 10 Fam LR 431: Ferraro (1993) FLC 92-355 at 79,560; (1992) 16 Fam LR 1 at 22-3; Davut v Raif (1994) FLC 92-503 at 81,236 18 Fam LR 237 at 242-3). The ultimate requirement is that the order be just and equitable. In Mallet v Mallet (1984) FLC 91-507 at 79,110 and 79,111, Gibbs C.J. referred to the very wide discretion which s 79 gives and went on to say:

“The Act does not indicate the relevant weight that should be given to different considerations, or how a conflict between opposing considerations should be resolved — those things are left to the Court’s discretion, which must, of course, be exercised judicially.

…

Decisions in particular cases of that kind can, however, do no more than provide a guide; they cannot put fetters on the discretionary power which the Parliament has left largely unfettered. It is necessary for the Court, in each case, after having had regard to the matters which the Act requires it to consider, to do what is just and equitable in the circumstances of the particular case.”

1. The allowance of a sum of $350,000 by way of contribution in this short marriage, which represents 13.5% of the visible pool of assets, is certainly at the extremity of the generous ambit of discretion or maybe outside of that ambit of discretion.  It does on the face of it seem to be an extraordinarily large allowance by way of contribution for such a relatively short marriage in the absence of any accurate evidence of the manner in which assets were acquired, conserved or improved during the course of the marriage. 

1. On the other hand, the final award of $550,000 to the mother of the husband's two very young children in circumstances where the husband was found to be worth substantially more than the visible pool, fits far more comfortably within the bounds of that generous ambit of discretion than just having regard to the contribution element of it.  Whilst it still remains at perhaps towards the higher end of what could be seen as an appropriate range, it is not such that we would conclude that it is appropriate to interfere.  It will provide the wife with an amount to buy a modest house in Sydney and a very small nest egg to provide a capital base for her.

1. As already indicated, the gravamen of the complaint made under this ground of appeal is that the end result is manifestly unjust.  Whilst we might quibble with one of the component parts of the exercise, we do not agree that the result is out of range.

Summary of conclusions

1. The trial Judge erred in failing to give the parties an opportunity to address him on the ramifications of a referral of the matter to the Taxation Commissioner.

1. Given the open ended findings as to the extent of the husband's assets, and the significant uncertainties about the extent of any possible taxation liability (including penalties), in the exercise of this Court's discretion it would be inappropriate to interfere with the result reached by the trial Judge.

1. There is no substance in the remaining grounds of appeal.

Orders

1. The appeal be dismissed.

1. (a)      The respondent be at liberty to file and serve written submissions as to costs of this appeal, and (if still being pressed before the Full Court) the relief sought in paragraphs 2, 3, and 4 of the form 42A application filed 14 August 2000 within fourteen (14) days of this date.

(b)      The appellant be at liberty to file and serve written submissions in answer thereto within fourteen (14) days thereafter.

(c)       The respondent be at liberty to file and serve written submissions in reply thereto within a further seven (7) days.

I certify that the preceding
64 paragraphs
are a true copy of the edited reasons
for judgment delivered by this
Honourable Full Court.

Associate