MANX & JENNER

Case [2009] FamCA 1264

FAMILY COURT OF AUSTRALIA

MANX & JENNER [2009] FamCA 1264

FAMILY LAW – PROPERTY – valuation of property – where the husband has a minority interest in a family company – whether the maintainable dividend or net tangible asset valuation approach to be adopted – discussion of the valuation of minority shareholdings – determination of the appropriate discount rate on account of the husband’s minority shareholding

FAMILY LAW – PROPERTY SETTLEMENT – alteration of property interests – where the husband inherited shares after the parties’ separation – whether the global or asset by asset approach is to be adopted – treatment of potential inheritance – 10% adjustment in favour of the wife on account of s 75(2) factors – net assets to be divided 55%/45% in favour of the wife – whether proposed orders are just and equitable – where the wife is to retain the former matrimonial home – where the husband has no assets from which to pay the wife the balance due to her – where the wife did not seek any additional payment to her – order just and equitable
Family Law Act 1975 (Cth) ss 75(2) & 79
Wilde and Wilde [2007] FamCA 1044
Mallett and Mallett (1984) FLC 91-507
Harrison and Harrison (1996) FLC 92-682
Georgeson and Georgeson (1995) FLC 92-618
Reynolds and Reynolds (1985) FLC 91-362
Sapir and Sapir (No 2) FLC 92-047
Turnbull and Turnbull (1991) FLC 92-258
M and M (unreported, delivered 12 November 1992, Baker J)
Ramsay and Ramsay (1997) FLC 92-742
W and W (unreported, delivered 11 March 1998, Warnick J)
W and W (unreported delivered 30 November 1998, Ellis, Finn and O’Ryan JJ)
T and T and T [2000] FamCA 308
T and T [2001] FamCA 230
M and M [2002] FamCA 349
Faraday and McKenzie [2007] FamCA 1626
Clarkson and Clarkson [2008] FamCA 1098
Jones v Dunkel (1959) 101 CLR 298
R and R [2006] FamCA 894
M and M [2005] FamCA 1211
H and H [2001] FamCA 374
Zyk and Zyk (1995) FLC 92-644
White and Tulloch v White (1995) FLC 92-640
De Angelis and De Angelis (2003) FLC 93-133
Milankov and Milankov (2002) FLC 93-095
APPLICANT: Mr Manx
RESPONDENT: Ms Jenner
FILE NUMBER: ADF 249 of 2006
DATE DELIVERED: 9 DECEMBER 2009
PLACE DELIVERED: Adelaide
PLACE HEARD: Adelaide
JUDGMENT OF: BURR J
HEARING DATE: 8 SEPTEMBER , 5-7 & 12,13 NOVEMBER 2008, 25, 26 FEBRUARY, 26 & 30 JUNE, 1 & 20 JULY 2009

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr J BOWLER
SOLICITOR FOR THE APPLICANT: MELLOR OLSSON
COUNSEL FOR THE RESPONDENT: MS T LEWIS
SOLICITOR FOR THE RESPONDENT: MARK MUDRI & ASSOC

Orders

  1. That in full and final settlement of any claim that either party may have against the other by way of settlement of property or variation of settlement of property:-

    (a)    on or before Friday 9 April 2010 the husband do:-

    (i)vacate the property situated at F in the State of South Australia (“the former matrimonial home”);

    (ii)transfer to the wife at…

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AGLC
MANX & JENNER [2009] FamCA 1264
Case
[2009] FamCA 1264
Decision Date

CaseChat Overview and Summary

In this matter before Burr J of the Family Court of Australia, the parties, referred to as the husband and wife, were engaged in a property settlement dispute. The core of the disagreement involved the valuation of the husband's minority interest in a family company, J Pty Ltd, and the appropriate method for valuing this shareholding, particularly in light of the husband having inherited these shares after the parties' separation. The court was also required to determine whether to adopt a global or asset-by-asset approach to the property settlement and to consider the treatment of a potential inheritance.

The legal issues before the court included determining the appropriate valuation method for the husband's minority shareholding in J Pty Ltd, specifically whether to apply a maintainable dividend or net tangible asset valuation approach, and the extent of any discount to be applied to reflect the minority nature of his interest. Furthermore, the court had to decide whether to treat the inherited shares as part of the asset pool for division or to adopt an asset-by-asset approach, and how to account for potential inheritances. The court was also tasked with considering the application of section 75(2) factors of the Family Law Act 1975 (Cth) and whether the proposed property orders were just and equitable.

Burr J considered the valuation of minority shareholdings, noting that the market value of such an interest in a private company is typically less than its pro rata share of the company's overall value, necessitating a discount. This discount usually comprises elements for lack of control and lack of marketability. The court referenced various Australian family law cases and commentary, highlighting that discounts can range significantly and must be carefully considered in light of the specific facts of the entity and its operation. His Honour ultimately found that the wife's proposed orders, which primarily involved the transfer of the former matrimonial home to her and her retention of her existing assets and future superannuation entitlements, were just and equitable. This outcome was achieved despite a potential 45% discount on the husband's shares, as the wife's retained assets and the equity in the former matrimonial home adequately met her entitlement. The court also noted the established principle that orders for payment can only be made if there is presently available property from which the sum can be paid, and that the husband's J Company shares were not considered accessible property for this purpose.

The court made final orders for the full and final settlement of property claims. These orders included the husband vacating the former matrimonial home and transferring his interest to the wife, with the wife discharging the mortgage. The wife was to receive the Daewoo motor vehicle, and the husband was to discharge the associated liability. Various personal effects, furniture, and specific assets were vested in each party as detailed in the orders. The parties were to indemnify each other against existing debts and liabilities, and henceforth, each party was to discharge their own debts and liabilities.

Orders

Orders of the court

1.

That in full and final settlement of any claim that either party may have against the other by way of settlement of property or variation of settlement of property:-

(a) on or before Friday 9 April 2010 the husband do:-

(i) vacate the property situated at F in the State of South Australia (“the former matrimonial home”);

(ii) transfer to the wife at the wife’s expense in all respects all that his right, title, estate and interest both at law and in equity in the former matrimonial home being the whole of the land comprised and described in Certificate of Title Register Book Volume … Folio … to the intent that the wife shall be the sole registered proprietor thereof;

(b) pending occupation of the former matrimonial home by the wife the husband shall:-

(i) keep the former matrimonial home in a good and proper state of repair and presentation;

(ii) pay and discharge as and when they fall due to the exoneration of the wife all mortgage instalments, rates and taxes, utility accounts and other outgoings in relation to the former matrimonial home and do indemnify the wife in relation to any such payments.

(c) contemporaneously with paragraph 1(a)(ii) of these Orders, the wife do discharge to the exoneration of the husband the registered mortgage in respect of the former matrimonial home and do indemnify the husband in relation thereto;

(d) upon occupation of the former matrimonial home by the wife the wife do thereafter duly pay and discharge to the exoneration of the husband all mortgage instalments, rates, taxes, utility accounts and other outgoings in relation to the former matrimonial home and do indemnify the husband against any liability in relation to any such payments;

(e) the wife do all things necessary to transfer to the husband for his sole use and enjoyment absolutely the Daewoo motor vehicle;

(f) contemporaneously with paragraph 1(e) hereof the husband do pay and discharge the liability to the Satisfac Credit Union in respect of the Daewoo motor vehicle to the exoneration of the wife and do indemnify the wife against any liability in relation thereto;

(g) the wife’s estate and interest (if any) both at law and in equity in the following be and the same are hereby vested in the husband:-

(i) the husband’s personal effects, clothing and jewellery;

(ii) the furniture and household effects in the husband’s possession (including the furniture and household effects situate in the former matrimonial home at the date of the husband’s vacation of the property);

(iii) the aforesaid Daewoo motor vehicle;

(iv) the husband’s savings and investments;

(v) the husband’s superannuation benefits and entitlements;

(vi) the husband’s AMP shares;

(vii) the husband’s AMP life insurance;

(viii) the husband’s artistic equipment;

(ix) the husband’s entitlements in respect of J Pty Ltd.

(h) the husband’s estate and interest (if any) both at law and in equity in the following be and the same are hereby vested in the wife:-

(i) the wife’s personal effects, clothing and jewellery;

(ii) the furniture and household effects in the wife’s possession;

(iii) the Chrysler motor vehicle;

(iv) the wife’s savings and investments;

(v) the wife’s superannuation benefits and entitlements.

(i) the husband do indemnify the wife and keep her forever indemnified with respect to all debts and liabilities of the husband including personal loans, credit card and store account debts and any debts due and owing to the Australian Taxation Office in the sole name of the husband or in respect of J Pty Ltd or any other entity or severally with others;

(j) the wife do indemnify the husband and keep him forever indemnified with respect to all debts and liabilities of the wife including personal loans, credit card and store account debts in the sole name of the wife or severally with others;

(k) henceforth each party shall discharge without calling upon the other to contribute thereto the debts and liabilities contracted by them and henceforth each party is restrained and an injunction is hereby granted restraining the parties and each of them from pledging the credit of the other;

(l) each party do all such acts and things and sign all such documents as are necessary to give effect to the terms of these Orders PROVIDED THAT if the parties or either of them shall refuse or neglect to execute any transfer or other documentation pursuant to the terms of these Orders within seven [7] days after the same shall have been tendered to him or her by or on behalf of the other party for that purpose then and in such case a Registrar of the Family Court of Australia upon proof by affidavit of such refusal or neglect is hereby appointed to execute and if in his / her opinion it shall be necessary so to do to settle the same and to do all such other acts and things and to execute such other documents as shall be necessary to give full force and effect thereto and shall execute and do the same accordingly.

2.

That all applications be otherwise dismissed and removed from the pending list.

Background

Background to the litigation

Faraday and McKenzie [2007] FamCA 1626 (O’Ryan J). The value of the husband’s shares in a company were in issue. The husband held a 14.28% minority interest. Evidence with respect to valuation was given at trial by a single expert and by an expert called by the husband. The single expert said a net assets valuation should be adopted because the value of the shares rested in the value of assets comprising of cash, a rural property and loans to directors. He considered a discount should be applied, however, on account of the husband’s minority interest and the fact he could not control decisions as to management or realisation of assets, dividend policy nor effect distribution of assets or force a liquidation. A discount of 5% was proposed. The husband’s valuer also prepared a report, in which he took into account significant discounts to reflect the deferred receipt of any capital value and lack of dividend income in the meantime and the minority nature of the investment, as well a further 25% discount for lack of negotiability. The experts then prepared a joint statement outlining their areas of agreement and disagreement. Turning to consider the issue of the quantum of discount for the husband’s minority shareholding:219.In his report Mr L identified various cases where he said the value of a minority shareholders pro rata interest in the value of a company as a whole was reduced by a flat percentage discount rate and that the rates have “varied from 5% to 65%”. I note that in CCH, Australian Family Law and Practice at [36-370] under the heading “Family Court Discounts for Lack of Control and Negotiability” it is said that “Australian court cases have shown that the discounts to net asset backing for lack of control and negotiability range from 5% up to 65%”. A schedule is then provided of some Australian family law cases namely; Ramsay v Ramsay (1997) FLC 92-742; Sapir v Sapir (No 2) (1989) FLC 92-047; Georgeson and Georgeson (1995) FLC 92-618; Hull and Hull (1983) FLC 91-360; Turnbull and Turnbull (1991) FLC 92-258; M & M (unreported No CA1542 of 1990); M & M (unreported No S2132 of 1992); W & W (unreported No BR9107 of 1995) and Reynolds and Reynolds (1985) FLC 91-632. The commentary concludes “It is evident that discounts vary widely. It is imperative to carefully consider the facts of the particular entity and family under consideration. In particular, the articles or other such document must be examined as must the manner in which the entity has been operated”. 220.None of the cases identified were referred to in submissions however I have considered what was said in those cases and others including M & M [2005] FamCA 1211 (Cohen J); Larmar v Larmar; SL v EHL [2005] FamCA 132 (Warnick J); V & H [2005] FamCA 191 (Moore J); T & D [2004] FamCA 1160 (Strickland J); M & M (supra); T & T [2001] FamCA 230 (Ellis, Coleman and O’Ryan JJ); Harrison v Harrison (1996) FLC 92-682 (Ellis, Baker and Warnick JJ); Mopeke Pty Ltd and Ors v Airport Fine Foods Pty Ltd and Ors (supra); MMAL Rentals Pty Ltd v Bruning (supra); Orrong Strategies Pty Ltd v Village Roadshow Ltd [2007] VSC 1 (unreported, Supreme Court of Victoria) (Habersberger J); Surf Road Nominees Pty Limited and Ors v Tass James and Ors [2004] NSWSC 61 (Einstein J); Hosking v Ipex Software Services Pty Ltd [2004] VSC 299 (unreported, Supreme Court of Victoria) (Habersberger J); Dismin Investments Pty Ltd v Commissioner of Taxation [2000] FCA 1703 (Heerey J) and Holt & Anor v Cox (unreported, New South Wales Court of Appeal) (Mason P, Priestley JA and Cole JA). 221.There were no submissions made of behalf of either party in relation to the cases referred to or any matters of principle. For these and other reasons I am not going to enter into any detailed consideration of the cases and relevant principles. There are however some well established matters about which there should be no issue. Some of these matters were identified in the joint statement of experts. The market value of a minority interest in a private company is less than the pro rata share of the value of the whole company. In order to determine the value of a minority interest a discount is usually applied. The discount applied will normally have two elements which may be considered individually or collectively. The first element is the lack of control discount. The discount may be derived from empirical stock market evidence of takeovers and the average controlled premium paid in public company takeovers. The second element is the lack of marketability discount. In some cases, such as a number of those I have identified, there may be a composite discount for both elements. In other cases as suggested by Mr L in the joint statement there is a separate discount for each element. 222.As to the first element the discount is dependent upon the circumstances that prevail in each particular case. The quantum of the discount will depend on the facts and circumstances in each case although Mr L contended that the discount is generally around 25 per cent to pro rata value. This appears to be the range of discount that Mr L ordinarily applies.223.In M & M (supra) Moore J said at pa 62, and I agree, that: “The point is more that discount is not automatically applied without regard to the facts surrounding the particular holder’s circumstances. Its application should be justified on the facts, or so it seems to me”. (Emphasis added)In this case, his Honour preferred the approach of the single expert to the husband’s valuer as he was unable to ascertain how the husband’s valuer had considered the circumstances of this case. He was satisfied that the single expert had given consideration to the facts of this case and was therefore persuaded his opinion was to be preferred.

Evidence

Evidence Before The Court

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Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

It is well established that a Court cannot make an order for the payment of a sum of money under Section 79 if there is presently no property or insufficient property from which the sum can be paid. An order can be made under Section 79 only if there is property presently in existence. In Milankov and Milankov (2002) FLC 93-095 Kay J said:-“In my view, the law is well settled. The Court cannot make an order for the alteration of property interests that extends beyond the available assets of the parties (see Walters and Walters (1986) FLC 91-733, 10 FLR 1006; Evans and Public Trustee (1991) FLC 92-223, 14 FLR 646; and Grace v Grace (1998) FLC 92-792, 22 FLR 442. However, this restriction does not require the Court to be able to clearly identify those assets (see Briese and Briese (1986) FLC 91-713, 10 FLR 642; Weir and Weir (1993) FLC 92-338, 16 FLR 154; Giunti and Giunti (1986) FLC 91-759, 11 FLR 160; Mezzacappa and Mezzacappa (1987) FLC 91-853, 11 FLR 957; Black and Kellner (1992) FLC 92-287, 15 FLR 343; and Monte and Monte (1986) FLC 91-757.” (Emphasis added). Here, whilst there is property, namely the husband’s J Company shares, it is not property which can be accessed or sold and hence is not available to satisfy any balance of payment due. Significantly though, the wife has not sought any orders for an additional payment to be made to her. She has indicated in the document handed to me on 20 July 2009 entitled “Property Orders Sought by the Wife” that she seeks essentially only the transfer of the former matrimonial home property to her and that she retain what she has or that to which she is entitled in the future (superannuation). As the parties have already divided their furniture and agreed figures to represent the value of same in each other’s possession, the husband is entitled to remove his furniture from the former matrimonial home when he vacates same. Earlier in these reasons I indicated that the ultimate outcome, after consideration of what is a just and equitable outcome for the parties, would not be affected even if I adopted a discount rate to the valuation of the husband’s shares of 45%. By application of that discount rate the total asset pool amounts to $1,133,706 (paragraph 84). If the wife received 55% of same her entitlement would be represented by a figure of $623,538. What she is to retain (worth $60,563) and the equity in the former matrimonial home ($553,164) total $613,727. Thus even on those figures the wife would still achieve what she seeks and justice and equity is effected between the parties. The husband will still need accommodation to continue his significant role in the care of the children. I am satisfied that he has ready access to one of the houses owned by J Company at C Street or A Street. Again, the husband did not call his parents to rebut that inference. Prior to his death, his brother occupied the property at C Street. Under cross-examination by the Independent Children’s Lawyer the husband said that the C Street property was not suitable for himself and the children. He acknowledged that it was suitable for a professional couple but not so for children.