FAMILY COURT OF AUSTRALIA
| MCILLROY & MCILLROY | [2011] FamCA 506 |
| FAMILY LAW - PROPERTY SETTLEMENT – Assessment of post separation contributions - Amount of adjustment, if any, which should be made in favour of the wife - Value of the husband’s interest in the Business 1 corporations - Expert opinion evidence and admissibility - Inclusion or otherwise of balance sheet items |
| Family Law Act 1975 (Cth) Family Law Rules 2004 (Cth) Evidence Act 1995 (Cth) |
| Dasreef Pty Limited v Hawchar [2011] HCA 21 (22 June 2011) Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705 Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd [2002] FCAFC 157; (2002) 55 IPR 354 Quick v Stoland Pty Ltd (1998) 87 FCR 371 Neowarra v Western Australia(No 1) (2006) FCR 208 Jango v Northern Territory (No 4)(2004) 214 ALR 608 Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (2007) 159 FCR 397 Re NHC and RCH [2005] 32 Fam LR 518 Gollings and Scott [2007] 37 Fam LR 428 Noetel and Quealey [2005] FamCA 677; (2005) FLC 93-230. Carpenter and Lunn [2008] FamCAFC 128 |
| APPLICANT: | Mr McIllroy |
| RESPONDENT: | Ms McIllroy |
| FILE NUMBER: | SYC | 8317 | of | 2007 |
| DATE DELIVERED: | 1 July 2011 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Le Poer Trench J |
| HEARING DATE: | 28 February 2011 1, 2 & 3 March 2011 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Watkins |
| SOLICITOR FOR THE APPLICANT: | Conditsis & Associates |
| COUNSEL FOR THE RESPONDENT: | Ms Rees |
| SOLICITOR FOR THE RESPONDENT: | Peter Blackwell & Associates |
Orders
That the Husband be responsible to pay any costs incurred by the reason of Mr R being required to attend at court for the purpose of a conference at the husband’s request and the husband’s requirement that Mr R be available for cross-examination.
That the husband pay to the wife the sum of $75,393 within 60 days of the date of these orders.
Pending the husband making the payment to the wife as required in order 2 hereof, he is restrained from selling, charging or further encumbering any of the properties in which he has an interest, except for the purpose of raising the funds necessary to make the said payment.
In the event of the husband failing to make the payment referred to in order 2 hereof, in the time specified, then interest is to accrue on any unpaid portion of that sum at the rate prescribed in the Family Law Rules 2004 (Cth).
In the event of the husband having failed to pay to the wife all monies due to her pursuant to orders 2 and 4 hereof, within 90 days from the date hereof, then the wife has leave to apply to the court for orders requiring the sale of assets of the husband’s to meet the order together with any other enforcement orders which may be required.
The husband is to forthwith execute all and any documents presented to him by the wife as may be necessary to transfer to her all his right, title and interest in the property known as … S Street, Town 1 being Folio Identifier Lot … in DP … (“Town 1” property). The husband is to cause any mortgage or charge registered or held against the Town 1 property to be discharged within 28 days of the date of these orders.
In exchange for the payment required by orders 2 and 4 hereof, the wife shall do all things and sign all documents necessary to transfer to the husband all her right, title and interest in the following properties:
(a) … K Street, Town 2 being Lot … in DP …;
(b) … B Street, Town 3 being Lot … in DP …;
(c) … C Street, Town 3 being Lot … in DP …; and
(d) … B Street, Town 4 being Lot … in SP ….
The wife is to forthwith do all acts, things and sign all documents necessary to transfer to the husband or the husband’s nominee any and all her right, title and interest in the company known as Business 2, Business 1 and/or related entities or associated companies.
The wife is to forthwith do all acts, things and sign all documents necessary to resign as director and/or secretary of the company Business 2 and any related and/or associated companies.
The husband is to indemnify the wife against any requirement to meet any liability or payment associated with the properties specified in order 7 hereof.
The husband is to indemnify the wife against any claim made against her by the companies specified in order 8 hereof, or any claim made against her arising from her former office holding or employment in any of those companies.
The wife is to be declared the owner of the following property:
(a) Contents of the house at … S Street, Town 1;
(b) Sporting memorabilia;
(c) Wall-hangings;
(d) Nissan vehicle;
(e) Stock trailer;
(f) All other items of personal possession in her custody or control;
(g)All bank accounts and other deposits with financial institutions presently standing in her name;
(h)The sum of $76,855 held in trust by Conditsis & Associates, Solicitors being the net proceeds of sale of the Town 5 Showroom;
(i) The wife’s superannuation entitlement; and
(j)The sum of $6,482 standing to the credit of the N bank account.
The husband is to be declared the owner of and the wife is to have no claim upon the following property:
(a) All items of personal possession in his custody or control;
(b)The sum of $220 being the parties share of the McIllroy and Gear … “Factory Loan Account”; and
(c)All bank accounts and other deposits with financial institutions presently standing in his name.
Should there be any interest accrued to the Conditsis & Associates Trust account funds (being the balance of sale proceeds of the Town 5 property) or should the parties entitlement to funds in either the New Factory account exceed $6,482, or their entitlement in the McIllroy and Gear … “Factory Loan Account” exceed $220 then the parties are to divide any surplus in the proportion 55% to the wife and 45% to the husband.
The husband is to be responsible to pay the whole of the fees for the single expert Mr T as and from 16 September 2010. The parties are otherwise to be bound by the court order (or parties agreement whichever be applicable) in place relative to the payment of Mr T’s fees as single expert.
In the event that payment of any fees to Mr T relative to work performed on or after 16 September 2010 have been paid from the funds held in the Conditsis & Associates Trust account or any other joint fund of monies then the husband is to pay to the wife, within 28 days, 55% of the sum so paid.
IT IS NOTED that publication of this judgment under the pseudonym McIllroy & McIllroy is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 8317 of 2007
| Mr McIllroy |
Applicant
And
| Ms McIllroy |
Respondent
REASONS FOR JUDGMENT
Introduction
Mr McIllroy (“the husband”) and Ms McIllroy (“the wife”) were married for 17 years. They have two children who are now over the age of 18 years, although they were aged 16 and 13 at the date of separation in about August 2005. There has been a significant amount of time that has transpired since separation.
At the time of the hearing the husband was 48 years of age and the wife was 50 years of age.
In about early 1991 the husband and wife commenced to trade a business called Business 1. The business was incorporated in 1992 when the husband was the sole shareholder. In 1993 the husband sold 50% of the shareholding in the company to Mr Gear. This business was the stepping stone which generated most of the parties’ wealth.
Background Facts
The wife was born in 1960 and the husband was born in 1962. The parties married and commenced their cohabitation in 1988. In June 1989 the parties’ first child, Z, was born.
In July 1989 the parties commenced a manufacturing business in partnership.
In November 1991 the parties purchased the former matrimonial home at S Street, Town 1 (“the Town 1 property”) in their joint names following the sale of an earlier property owned by them.
On 1 October 1992 the parties’ business was incorporated under the name Business 1.
In October 1992 the parties’ second child J was born.
In about 1998 the husband and wife purchased an investment property at P Street, Town 6 and that property was sold in 1999.
On 26 May 1999 Business 2 was incorporated.
In May 1999 the parties, through the vehicle of Business 2, purchased a one half share in a property at M Street, Town 5. This property became known as the Town 5 Showroom. The property was acquired with another corporation Gear Enterprises Pty Limited which was ostensibly owned by Mr Gear, the husband’s co shareholder in Business 1. The property cost $475,000 and was funded by a mortgage from the National Australia Bank.
In 2001 the husband and wife acquired a 50% interest in vacant land at Lot … K Street, Town 2. In 2002 the parties commenced the construction of the factory unit on that land. The balance of the ownership of the land was held by Mr Gear. Business 1 continues to conduct its manufacturing operation from that factory.
In July 2002 the husband and wife purchased two adjoining properties at B Street, Town 4. The properties were purchased in partnership with three other persons. The husband and wife collectively acquired a one third interest in the property. The dwellings on those properties were demolished and six town houses were erected. The husband, wife and Ms S purchased Unit … in that strata plan. The husband and wife each hold a one third interest in that property.
In November 2003 the husband and wife together with Ms S purchased a property at C Street, Town 3. The purchase price was $430,000. The husband and wife collectively own 50% of that property. The existing dwellings were demolished and two villa homes were erected. The properties were rented out. The husband rented one of the villas post separation. He paid $270 per week rent for the property.
In approximately 2003 the husband purchased a 205 acre farm at H Street, Town 7 for $717,000. That property was ultimately sold for $1.1 million on 10 June 2008. The parties received net $652,409 which was paid in reduction of the Citibank line of credit secured against the former matrimonial home.
In August 2005 the parties separated.
Between August 2005 and 23 March 2007 the wife continued to work as an employee of Business 1 through a separate labour hire entity Business 3. The husband has continued to work in the Business 1 corporate group since that time.
In March 2007 the husband and wife sold their one third interest in B Street, Town 4 with the net funds being paid to each of the parties. They each received $62,000 in September 2007.
In June 2007 the parties’ eldest child Z turned 18 years of age.
In July 2007 the wife commenced to operate a part time clerical business under the name Business 4.
Between 26 November 2007 and 19 December 2007 the wife withdrew $140,000 from the Citibank line of credit secured against the home.
On 27 December 2007 the wife withdrew $7,800 from the Town 5 Showroom account. On 31 December 2007 the wife withdrew $11,900 from the factory account and later repaid $900.
The amounts withdrawn from the accounts by the wife as set out in the last two paragraphs are set out differently in the wife’s affidavits and stated to be either about $164,000 or $155,000. On my calculation it was about $155,000 and is dealt with later in these reasons.
In August 2007 and January 2008 the husband paid a total of $85,000 into Business 1 by way of capital injection. Those funds have subsequently been repaid.
In June 2008 the husband sold a tractor for which he received a net sum of $12,230.
Post separation, the husband continued to run the farming business. The business consisted predominately of raising stock. Following separation the husband sold stock from time to time.
In June 2008 the Town 7 property was sold and the net proceeds paid in reduction of the Citibank line of credit.
In June 2008 the husband withdrew from the parties’ funds $11,000 and paid it into the Business 1 account to refund the rental which had been withdrawn by the wife in December 2007.
In August 2008 Business 2 together with Gear Enterprise Holdings Pty Limited sold the Town 5 Showroom. The sale price was $630,000. The sale was subject to a lease back to Business 1 for 3 years with a 3 year option. The company Business 2 received as its net share of the sale $226,103.83. Those funds were paid to the trust account of Conditsis & Associates, Solicitors.
Credit
It was submitted by the husband that this is a case where the parties’ credit is not called into question. No submission was made on behalf of the wife in relation to credit of the parties.
The husband gave oral evidence. He gave his evidence in a very straight forward and apparently honest manner. I did not detect any of his evidence as raising a suspicion as to its veracity.
The wife gave her oral evidence in a straight forward and apparently honest manner. I had no cause to consider any of her oral evidence was given dishonestly.
Issues to be Determined
The parties legal representatives identified the following issues at the commencement of the trial:
The assessment of post separation contributions;
The amount of adjustment, if any, which should be made in favour of the wife;
The value of the husband’s interest in the Business 1 corporations; and
Inclusion or otherwise of balance sheet items.
Relevant Law
property: general principles
Section 79 of the Family Law Act 1975 (“the Act”) enables the court to make orders with respect to the property of the parties to the marriage. In considering what order, if any, should be made the court is required to take into account the matters under section 79(4).
It is now well established that the determination of a section 79 application requires a four step process (Ferraro and Ferraro (1993) FLC 92-335; McLay and McLay (1996) FLC 92-667; Hickey and Hickey (2003) FLC 93-143). The Court is required to:
a)Firstly, identify and value the net property, liabilities and financial resources of the parties at the date of the hearing;
b)Assess the contributions of the parties pursuant to section 79(4);
c)Consider the relevant section 75(2) factors; and
d)Lastly, consider whether such an order, in all the circumstances, is just and equitable. The final consideration is a reflection of the requirement under section 79(2).
Assessment of the s 79(4) contributions
In considering the alteration of property interests I am required to consider the contributions made by the parties in accordance with the matters outlined under s 79(4). Section 79(4) provides:
(4) In considering what order (if any) should be made under this section in property settlement proceedings, the court shall take into account:
(a) the financial contribution made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last‑mentioned property, whether or not that last‑mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(b) the contribution (other than a financial contribution) made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last‑mentioned property, whether or not that last‑mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(c) the contribution made by a party to the marriage to the welfare of the family constituted by the parties to the marriage and any children of the marriage, including any contribution made in the capacity of homemaker or parent; and
(d) the effect of any proposed order upon the earning capacity of either party to the marriage; and
(e) the matters referred to in subsection 75(2) so far as they are relevant; and
(f) any other order made under this Act affecting a party to the marriage or a child of the marriage; and
(g) any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage.
Section 75(2)
In making a decision in relation to property, s 79(4)(e) requires a consideration of relevant s 75(2) matters. I here incorporate the provisions of section 75(2).
The first step I must undertake is to identify the property of the parties or either of them available for division between them.
Consideration of the Balance Sheet
Exhibit “X2” is a joint balance sheet prepared by the parties and tendered to the court. That document formed the template against which the parties made their submissions and lead their evidence.
The following issues required determination:
Item No 6 on the Balance Sheet – Valuation of Business 1
Expert Evidence
The parties had appointed Mr T as the single expert to value the corporate interests of the parties. Following the provision of his report the wife sought leave to call evidence from another expert who she wished to engage in the same exercise. She was granted that leave and she engaged Ms D who gave evidence in the case. Ultimately the experts could not agree (see exhibit “X1” the joint statement of experts) and it became necessary to hear oral evidence from both experts.
The evidence of Mr T, the single expert appointed by the parties, is contained in an affidavit sworn by him on 8 March 2010. Additionally, exhibit “H3” is his curriculum vitae. The evidence of the wife’s expert, Ms D, is contained in an affidavit sworn by her on 27 January 2011.
In his affidavit, Mr T attests to the conclusion that the most appropriate method of valuing the husband’s interests in the company Business 1 is by approaching the valuation on a notation realisation of net assets basis. Mr T excluded the approach of valuing the husband’s interests on a capitalisation of future maintainable earnings basis.
Ms D valued the husband’s interests in three companies and she adopted a valuation based on capitalised future maintainable earnings.
If the capitalisation of future maintainable earnings basis was appropriate to value the husband’s interest in the relevant corporations, then there is a dispute between the valuers as to the adjustments to formulate a future maintainable earnings calculation and the multiplier for the purpose of capitalisation.
Those differences are highlighted and specified in exhibit “X1” the joint statement by the experts.
The first area of adjustment is “related party remuneration.” Under that heading the following appears (inter alia):
[Mr T] has made no adjustment to the remuneration recorded in the financial accounts, however, agrees that the valuation should take into account the appropriate level of remuneration payable in the circumstances. [Mr T] and [Ms D] have been provided with varying factual information as to the hours worked in the business by the husband and [Mr Gear]. And both have stated in their reports that they are not experts on remuneration. This is a matter which may be best referred to a remuneration expert.
Ms D made adjustments in relation to this expense and the joint statement notes “the effect of these adjustments on the valuation prepared by [Ms D] is to increase the enterprise valuation of the company by $47,852 (being the average adjustment of $11,963 times a multiple of 4).”
Note 15 on page 22 of Ms D’s report deals with her adjustment of salary for the principals being the husband and Mr Gear. In forming the opinion as to adjustment Ms D relied on a publication titled “Australian Institute of National Salary Surveys” for 2007 to 2010 for small companies. She chose the trades/workshop foreperson data to base her calculation upon. In making the adjustments she acknowledged that she was not an expert in remuneration matters.
Given that caveat, there may be some doubt as to the ability of the court to give weight to that particular determination of adjustment by Ms D. I will return to this matter when I come to deal with the parties submissions. Ultimately, no specific submission was made by the husband in relation to the method in which Ms D adjusted the husband’s and Mr Gear’s salaries.
The second area of adjustment which raises controversy is an adjustment made by Ms D to administration costs. The reasons for the adjustment are set out at note 16 on page 22 of Ms D’s valuation. The effect of the adjustments to the administration staff salaries on the valuation prepared by Ms D is to increase the enterprise valuation of the company by $107, 630.
Note 16 on page 22 of Ms D’s report reads as follows:
I have reviewed the cost of administration staff incurred by [Business 3] over the three years to 30 June 2010 and note that the costs incurred appear excessive. The wife has informed me that until 2007 the administration requirements of the business were adequately met with 1.5 full time equivalent employees. I note that the turnover of the business is no higher subsequent to this and accordingly I have assumed that the administration staff requirement remains the same. I understand that an appropriate commercial salary for a qualified book keeper is a package of $55,000 per annum inclusive of superannuation and the general administration assistant is $40,000 per annum including superannuation (with 0.5 being 20,000 per annum). I have therefore made an adjustment to the level of remuneration paid to administration staff as follows.
A further adjustment made by Ms D in her valuation was to motor vehicle expenses. In the joint statement the following appears:
[Mr T] has made no adjustment to motor vehicle expense, however, acknowledges that an adjustment might be required if the vehicles disposed off were surplused to the operating requirements of the company or will be surplus in an ongoing sense. There is no evidence that the current level of motor vehicle expenses represents a dynamic business cycle as suggested by [Ms D]. However, it is possible with a future up turn in business that further vehicles will be required.
The joint statement details that Ms D’s adjustment for motor vehicle expenses appeared at note 12 on page 21 of her valuation. The experts agree that the effect of the adjustments of motor vehicle expense on the valuation prepared by Ms D is to increase the enterprise value of the company by $76,405.
Note 12 on page 21 of Ms D’s report is as follows:
I have been advised by the husband that the motor vehicle expenses have reduced from the 2008 year to 2010 due to disposal of several vehicles over the same period. It appears that the motor vehicles disposed of in this period were surplus to what is required by the company in the ordinary course of business. On this basis I have reduced the motor vehicle expenses in 2008 and 2009 years to a level in line with 2010 year (being $40,000).
In the joint statement the following further note appears:
[Ms D] notes further that her understanding that part of the costs related to a vehicle driven by [Mr Gear’s] wife, which represents a cost outside of that which is associated with the conduct of the business regardless of the activity level.
I note that there is no evidence before the court of the fact that Mr Gear’s wife has part or some of the costs related to a vehicle driven by her met by the company. The source of knowledge for the statement made by Ms D about Mr Gear’s wife is not stated and on the face of it would be inappropriate to be relied upon.
The joint statement also attributes differences between the experts in relation to the EBIT multiple.
Mr T gave oral evidence. In his oral evidence Mr T told me that in the calculation of his valuation he had not applied the discount described as “a minority discount or an uncontrolled discount” so far as the husband’s interest in the corporate entities is concerned. He told me he would apply a discount of between 10% and 15% to the figure which has been calculated by both himself and Ms D as the value of the husband’s interest in the various entities.
Mr T was asked about the valuation of plant and equipment and tangible assets prepared by Mr R. The valuation was prepared on a “GST inclusive” basis. Mr T said that a “GST inclusive” basis would not be appropriate to be considered when considering the sale of shares in the company as there is no GST payable on sale of shares. Clearly if the company were wound up or the company sold the assets and not the shares then GST would be payable.
Mr T confirmed that in considering a capitalisation of future maintainable profits basis for valuation of the corporation in his report in July 2007 he considered a multiple between 3.5 and 4 was appropriate. In his report dated 18 May 2009 he considered a multiple of between 3 and 3.5 to be appropriate. He had calculated a figure of $250,000 as the future maintainable EBIT. A calculation of 3.25 as a multiple of that figure produced a value of $812,500. He confirmed that capitalisation of future maintainable earnings approach, which he had taken, produced a lesser value than the $1,082,348 which he calculated for the value of the corporation based on notational realisable asset value.
In his oral evidence Mr T was asked to explain why he had revised the multiplier between the date of his first report and that of his second. His evidence was as follows:
Your Honour, my first report was prepared some years prior to the current valuation date. And having regard to the economy the capitalisation rates of business presently compared to then, I had regard to what I considered was appropriate for the current valuation date. So I revised the multiplier, if we can use that terminology, down to 3.5.
Mr T was asked: “What is it about the present financial climate that makes you consider that a lower multiplier is applicable? Is it experience? Is it gut feeling? Is it concrete evidence? What is it?” Mr T replied:
It is a mixture of all those things, Your Honour. Having regard to financial press which is commonly available, my own experience in dealing with businesses that are for sale, both in distressed state and also in viable state, and the general economic conditions as they exist today, lead me to believe that 3 to 3.5 is appropriate for this style of business in this industry, at this point in time. And some years ago I had regard to the economic conditions that existed then, and I had a view that it was a business that would command a multiple in the order of 4 times. But I think 4 times is a little over the top at the moment, and that is one of the major points of discussion or non alignment between myself and [Ms D]. It is at the end of the day a matter of opinion, but in my opinion it should be 3 to 3.5.
Mr T was asked “Has the change in the profitability of the company over the three years from the financial year ended 2005 up until the present time had any impact on your consideration of the multiplier?” Mr T replied ‘It shows a trend in terms of the economic conditions that currently exist. However, the mere fact that the future maintainable earnings is now a lower figure than it was before is already, if you like, calculated into the equation, so it hasn’t had a direct bearing on my consideration of the 3.5 otherwise there would be a duplication, as in fact [Ms D] suggests may have done.”
Mr T further says:
My understanding of the EBIT multipliers that are being commanded by businesses in sales at the moment, and I have worked out that rate having regard to a risk-free rate, a rate that has regard to the industry risk, the specific business risk, and I come to a figure again of around three to 3.5 as a multiplier, and I can’t get to four.
Mr T told me that his professional engagement provides him with hands on experience of the market place for the sale of businesses. He told me he is an official liquidator of the Supreme Court of New South Wales. He said that involves him in business turn around and grooming businesses for sale and also dealing with businesses that are insolvent or in a distressed state. He said:
So I feel as though I have the broad spectrum of experience on what businesses sell for and what the key drivers are to maximise a return for the sale of a business. And I see, anecdotally, in that position as an official liquidator what businesses sell for in the financial press. So I feel as though I have some authority in that area.
Thus Mr T relied on his experience as the main influence in the choice of multiplier.
Mr T was cross-examined by the wife’s counsel. He agreed that in calculating a capitalisation of future maintainable earnings valuation it was necessary to make adjustments to expenses. He agreed that non-commercial salaries and non-commercial rents should be adjusted. He said that he had made those adjustments where he considered appropriate. Mr T said that in his earlier report he set out in annexure “E” his calculation of future maintainable earnings and he made adjustments for interest and leasing expenses.
In his second report Mr T said he considered the nature of employee remuneration and made a comment that it was a matter for an expert in remuneration. He did have regard to the “Michael Page Survey” which he referred to in annexure “G” to his second report. Having regard to that document he felt that the wages were about right. His second report was dated 11 May 2009 and valued the business as at 31 December 2008.
I need to point out at this time that the only report of Mr T in evidence was his latest report contained in an affidavit filed 29 March 2010.
Mr T did not agree with the proposition “that in the management of a business of the nature of this one, one would aim to see wages as 25 per cent of turnover?” He said; “I think it depends on the circumstances of the company and the people who are actually managing the organisation.” He said it “depends on the qualifications of the people involved, the work that they do, the hours they work, the nature of the business that they do, the management team structure. There are too many variables to say it should be a particular percentage.”
Mr T was asked about the current salary paid to Ms S. It was suggested to him that her salary is $73,718 per year plus petrol. It was suggested that there should be an adjustment for that remuneration on the basis that it was excess. Mr T said “Well, maybe. Again, I don’t know what she actually does and I don’t understand the extent of the duties of the administrative staff. They were there and they were paid. If there is evidence to suggest that they were excessive for one reason or another then, yes, I would agree with an adjustment, but I have seen nothing in that regard and, indeed, I haven’t made that inquiry.”
Mr T further said that he had seen no evidence to warrant an adjustment to the motor vehicle expenses. He did not know that Mr Gear’s wife was provided with a benefit in the nature of a motor vehicle. He knew that Mr Gear’s wife was on the payroll. But he did not know what work she did for the company.
Mr T was cross-examined about his opinion in relation to the multiplier. He was asked “Is it not the case that those risks are already represented in the earnings of the company?” He replied “I don’t agree that they are represented. I think a better word is “reflected.” I think the analysis of turnover and operating profit gives some indicia of how the economic climate is and how it has affected this company, but I think the selection of an EBIT rate is a separate issue to the calculation of EBIT, and I tried to make that point clear…I think you need to have regard to the future earning power of the business, but have regard to the current economic conditions when determining an appropriate EBIT multiple.”
It was then put to Mr T that the downturn in economic conditions are already reflected in the earnings of the company. It was put that it is double counting to reflect it again in the multiple. Mr T disagreed. He said “the current economic climate is what gives you a perception of what EBIT multiples will be reinforced by how businesses are bought and sold and for what EBIT values. The operating profits which are then reflected by adjustment to the future maintainable earnings is a separate calculation, to which you apply the EBIT multiple.” It was put to Mr T that in the circumstances of this case where it is not suggested the entity being valued is to be sold, and where the husband neither has a controlling or minority shareholding that it is inappropriate to discount the value of that holding because of a minority share. He agreed that was the case.
Mr T was cross-examined about his role as the single expert. It was suggested to him that he had corresponded only with the husband at a particular time. He denied that. He said that he had received correspondence from the husband’s solicitors which he provided Ms D when they had a meeting and which he understood should have been provided to Mr Blackwell but which he omitted to do. There was only one document provided by the husband on 9 February 2011 which had not been provided to Mr Blackwell. It was received by Mr T at the time when his further retainer had not been put on a proper basis, namely agreement as to costs. He had not actioned any of the information provided. He gave a copy of the information provided to Ms D and now agrees he overlooked providing a copy of it to Mr B at the same time. It is noted however that Ms D was instructed directly by Mr Blackwell on behalf of the wife. Mr T confirmed that he had always considered himself to be acting impartially as a single expert.
Mr T acknowledged that, in the preparation of his reports, information was obtained from Mr McIllroy. He acknowledged that there was information provided additional to the information which he had sought. Mr T said “where [Mr McIllroy] provided material which was relevant to the valuation, I have noted that in my report that I had been advised by [Mr McIllroy] in each case.” Mr T acknowledged that the husband had provided him with the benefit of his opinions about the business. He denied that he had been asked to value the business low. Mr T denied that since February 2011 he had been acting as the husband’s valuer. He agreed that he had a telephone conference with the husband’s counsel albeit “a quick conference to find out about the instructions and appearance today.”
Exhibit “W5” was then tendered as an agreed schedule of fees paid to Mr T. The amount unpaid is $7,425.
Ms D gave oral evidence.
Ms D was asked by the wife’s counsel about the disparity in the multiplier selected by her and Mr T. She referred to paragraph 2.3.1 of the joint statement. Ms D maintains that matters such as downturn in the construction industry, the loss of key sale staff to competitors and the loss of revenue is already reflected in the calculation of future maintainable profits. She maintained that the elements of risk associated with the business are already reflected in the earnings.
To arrive at a future maintainable profits figure Ms D had averaged four years of income. That is from 2007 to 2010.
Ms D agreed with Mr T when he said that opining as to an EBIT multiple, “some of it is gut feel, some of it is experience, some of it is knowledge of other transactions that we may have been involved with.” Ms D then described the processes she goes through to check her determination of a multiple to apply to EBIT in the valuation of the business. Ms D was asked where the information came from to suggest that Mr McIllroy worked 38 hours per week. She said there were two sources. “We, as we always do, send out a list of information required for evaluation, and we received a written response by Mr Blackwell, and I am presuming that came from the husband’s lawyers as to the hours worked by [Mr Gear] and [Mr McIllroy] and that information was also – when we visited the premises at [Town 2], we talked to [Mr McIllroy] and he confirmed that the factory was open four days a week and he worked 38 hours a week.” She confirmed that the wife had told her that the husband worked at least 38 hours a week (I note the wife’s evidence in her affidavits as to the hours the husband worked in the business during cohabitation).
Ms D was asked about her assertion as to wages expense as a percentage of turn over and the relevance of such a calculation in the valuation of a business. She said it was essential where there has been such a significant increase in a cost in a business, as a percentage of sales, and also relevant to the activity level that has been happening in the business. It is necessary to establish whether that might be reasonable or not. In this case the total salaries including the principals Mr McIllroy and Mr Gear are 39.75 % of revenue. She said that is very significant in this business given the nature of the business. Ms D spoke of her experience in valuing professional practices. She noted that the ambition in such practices is to have a third of the cost of production as staff payment, a third for overhead costs and a third is profit. She said “So when I look at this business and the wages costs is approximately 40% and it is not only supplying people’s time it is supplying [raw materials], which presumably has a mark up on it, that seems really excessive to me and it is of concern given its increased so much since 2007.” She had regard to a publication titled “CCH Benchmarks” and in particular to the particular industry. She had regard to the survey for a specific occupation in that industry and she was aware that the subject business was not making …, she understood it was making …. However, that publication said that from the size of the business similar to the one under consideration the percentage of wages was 23.99%.
Ms D was cross examined. She was asked questions about her various appendices to her report and her source material. She said she did not have regard to the benchmarking service at the time she prepared her report. She had only looked at that on the day of the hearing. She denied she had been instructed by the wife to enlarge or enhance the value of the business as much as possible.
Ms D was asked about adjustment number (10) which appears at the top of page 21 of her valuation report. This was an adjustment to the cost of advertising and promotion. She agreed that the adjustment over four years which she was contending for was an adjustment that could only be $1. She nonetheless asserted that it was a worthwhile exercise. She also agreed that the adjustments which appeared on page 21 for item number (11) were de minimis. She asserted however, it had value.
Ms D was taken to the adjustment in paragraph (16) which appears on page 22. This is an adjustment made by her for administration staff. She was asked particularly about the statement “The wife has informed me that until 2007 the administrative requirements of the business were adequately met with 1.5 full time equivalent employees.”
Ms D denied she had obtained her information in relation to that asserted fact and her conclusion about administrative staff requirements, exclusively from the wife. She admitted that “in terms of the comment that the wife asserts that 1.5 full time equivalent employees were what was needed, I did not seek to confirm that with the husband.”
Review of the Law on Expert Opinion Evidence
It was submitted on behalf of the husband that I should accept the valuation of Mr T as opposed to that of Ms D because the later was said to have been based upon unproved fact. It was submitted that part of the underlying calculation carried out by Ms D was based on allegations by the wife which had not been substantiated by acceptable evidence.
I here need to consider the principals which apply to the determination of contested valuation evidence and the acceptance of expert evidence generally.
In determining the admissibility of expert opinion evidence I turn first to the requirements of the Evidence Act 1995(Cth) (“the Evidence Act”). Section 76(1) of the Evidence Act provides that “evidence of an opinion is not admissible to prove the existence of a fact about the existence of which the opinion was expressed”. However, section 79(1) provides one of several exceptions that “if a person has specialised knowledge based on the person’s training, study or experience, the opinion rule does not apply to evidence of an opinion of that person that is wholly or substantially based on that knowledge”. 135 is also important as it grants the court discretion to exclude otherwise admissible material “if its probative value is substantially outweighed by the danger that the evidence might ... be unfairly prejudicial to a party”.
In addition to the legislation, an additional rule at common law, called the “basis rule”, has developed. It is “a rule by which opinion evidence is to be excluded unless the factual bases upon which the opinion is proffered are established by other evidence.” Dasreef Pty Limited v Hawchar [2011] HCA 21 (22 June 2011) at [41].
An interim report on evidence[1] by the Law Reform Commission denied the existence of such a common law rule, and it was later omitted from the Evidence Act 1995 (Cth) and the Evidence Act 1995 (NSW). Since then, views have been sharply divided in relation to whether a basis rule exists. In state courts it is generally held that this rule applies as outlined by Heydon JA (as he then was) in Makita (Australia) Pty Ltd v Sprowles(2001) 52 NSWLR 705. However, the Federal Court generally denies its existence as outlined in Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd[2002] FCAFC 157; (2002) 55 IPR 354: see also Quick v Stoland Pty Ltd (1998) 87 FCR 371 at 373–4; Neowarra v Western Australia(No 1) (2006) FCR 208 at [16], [21] – [27]; Jango v Northern Territory (No 4)(2004) 214 ALR 608 at [19]; Cadbury Schweppes Pty Ltd v Darrell Lea Chocolate Shops Pty Ltd (2007) 159 FCR 397 at [108].
i)[1] Australia, The Law Reform Commission, Evidence, Report No 26, (1985) vol 1 at 417 [750].
The case of Neowarra v Western Australia(No 1) (2006) FCR 208 provides a concise summary of the main arguments from the leading cases:
[24] In Makitaat [85], speaking of s 79 of the Evidence Act 1995 (NSW) (which is in the same terms as s 79 of the Commonwealth Act), Heydon JA said:
[…] so far as the opinion is based on "assumed” or "accepted” facts, they must be identified and proved in some other way; it must be established that the facts on which the opinion is based form a proper foundation for it; and the opinion of an expert requires demonstration or examination of the scientific or other intellectual basis of the conclusions reached: that is, the expert’s evidence must explain how the field of "specialised knowledge” in which the witness is expert by reason of "training, study or experience”, and on which the opinion is "wholly or substantially based”, applies to the facts assumed or observed so as to produce the opinion propounded. If all these matters are not made explicit, it is not possible to be sure whether the opinion is based wholly or substantially on the expert’s specialised knowledge. If the court cannot be sure of that, the evidence is strictly speaking not admissible, and, so far as it is admissible, of diminished weight. And an attempt to make the basis of the opinion explicit may reveal that it is not based on specialised expert knowledge, but, to use Gleeson CJ’s characterisation of the evidence in HG v R (at CLR 428 [41]), on "a combination of speculation, inference, personal and second-hand views as to the credibility of the complainant, and a process of reasoning which went well beyond the field of expertise.”
[26] In Sydneywide Distributors, after quoting the passage from Makita set out in [24], Weinberg and Dowsett JJ said (at [87]):
[Heydon JA’s] use of the phrase "strictly speaking” in the last sentence should not be overlooked. It may well be correct to say that such evidence is not strictly admissible unless it is shown to have all of the qualities discussed by Heydon JA. However many of those qualities involve questions of degree, requiring the exercise of judgment. For this reason it would be very rare indeed for a court at first instance to reach a decision as to whether tendered expert evidence satisfied all of his Honour’s requirements before receiving it as evidence in the proceedings. More commonly, once the witness’s claim to expertise is made out and the relevance and admissibility of opinion evidence demonstrated, such evidence is received. The various qualities described by Heydon JA are then assessed in the course of determining the weight to be given to the evidence.
[27] Branson J was of substantially the same opinion. At [16] her Honour said:
Further, the requirement that an expert opinion be wholly or substantially based on the witness’s specialised knowledge is not, in my view, intended to require a trial judge to give meticulous consideration, before ruling on the admissibility of the evidence of the opinion, to whether the facts on which the opinion is based form a proper (in the sense of logically or scientifically or intellectually proper) base for the opinion. Were the position otherwise the smooth running of trials involving expert evidence could be expected to be interrupted by the need to explore in detail, in the context of admissibility, matters more properly considered at the end of the trial in the context of the weight to be attributed to the evidence. It is sufficient for admissibility, in my view, that the trial judge is satisfied on the balance of probabilities on the evidence and other material then before the judge that the expert has drawn his or her opinion from known or assumed facts by reference wholly or substantially to his or her specialised knowledge.
See also at [7] where her Honour expressed the view that Heydon JA’s approach should be “understood as a counsel of perfection”, and that a reading of his reasons as a whole revealed that he recognised that in the context of an actual trial.
Further in Neowarra the court agreed with the position in Sydneywide Distributors, stating:
[22] The "basis rule” does not feature in s 79. The Australian Law Reform Commission explained why. That the legislation does not include any common law "basis” requirement is now established by the cases: see Quick v Stoland Pty Ltd (1998) 87 FCR 371 at 373–4 ; 157 ALR 615 at 616–18 and Sydneywide Distributors Pty Ltd v Red Bull Australia Pty Ltd(2002) 55 IPR 354 at [10]; see also Guide Dog Owners’ & Friends’ Association Inc v Guide Dog Association of New South Wales(1998) 154 ALR 527 at 531.
The position in Neowarra v Western Australia was supported in the case of Jango v Northern Territory (No 4)(2004) 214 ALR 608, which stated at [19] “that in this Court it has been held that s 79 of the Evidence Act does not incorporate a ‘basis rule.”
Bryant CJ and Boland J discussed these authorities and their application to family law matters in Noetel and Quealey [2005] FamCA 677; (2005) FLC 93-230. They acknowledged the utility of Makita in facilitating timely hearings at (105), but ultimately agreed with Sydneywide Distributors (at 106) that:
In the context of trials in courts such as this Court when such evidence must be adduced in accordance with the principles and duties laid down in the Rules, that generally questions of admissibility of expert evidence, based on conclusions in written reports or affidavits, should not be the prime determinant of the admissibility of that evidence, but rather the relevance of the evidence to the issue in dispute, the specialized skill and knowledge of the expert and whether the report is based on such skill and knowledge. Often the answer to those questions will not be readily apparent at the commencement of the hearing, but will require careful assessment after the testing of the expert’s evidence in cross examination. Special circumstances may require evidence to be admitted conditionally.
In Carpenter and Lunn [2008] FamCAFC 128, the Full Court of the Family Court again stated that whilst the Makita principles have been frequently adopted, they respectfully agreed with the observations of Branson, Weinberg and Dowsett JJ in Sydneywide Distributors Pty Ltd.
Submissions of the husband
The husband’s further submissions on the valuation evidence are as follows.
On page 22 of the valuation by Ms D note (16) relates to a review of the administration staff costs incurred by Business 3 over 3 years from 30 June 2010. Ms D opines that the costs incurred appear excessive. The following information then appears:
The wife has informed me that until 2007 the administration requirements of the business were adequately met with 1.5 full time equivalent employees. I note that the turn over of the business is no higher subsequent to this and accordingly I have assumed that the administration staff requirement remains the same. I understand that an appropriate commercial salary for a qualified bookkeeper is a package of $55,000 per annum inclusive of superannuation and a general administration assistant is $40,000 per annum including superannuation (with 0.5 being $20,000 per annum). I have therefore made an adjustment to the level of remuneration paid to the administration staff.
The effect of the adjustment in 2010 was to reduce the salaries by $59,198, in 2009 to reduce the salaries by $48,726 and in 2008 to add an additional $294.
It was submitted on behalf of the husband that the wife’s information supplied to Ms D was never confirmed by the husband either directly to Ms D or in the evidence in the proceedings. It is submitted that in the cross-examination of the husband it was put to him that there are 2.5 staff currently employed by the corporate entities and that was the same number that were employed in 2007 before the wife’s employment with the company group was terminated.
I pause here to record my note of the cross-examination of the husband in relation to the number of employees and their remuneration.
[Ms S] is your partner? Yes
She is employed by [Business 1] full time? Yes
In 2007 She was working full time and earning $47,000? Yes
In 2008 after the wife was dismissed from the business Ms B was hired? Yes
And then Ms C was hired? YesYou have the same number of staff and yet Ms S in 2010 was paid 73,000 ? Yes
How many staff at the office now? 2.5.
Despite the turnover is going down Ms S’s wages has increased? Yes
Ms S works 4.5 days a week? Yes
She has her petrol paid? Yes
Ms S is paid that money as a way of getting income to you? No.
As can be seen the husband’s recollection of the cross-examination is not in accord with mine. I have no note of the wife putting to the husband that there were 2.5 staff at the time the wife’s employment was terminated. I also note that nowhere in the wife’s two affidavits which she swore is there evidence as to the office staff numbers at the time she had her employment terminated in 2007. The wife’s evidence is that she worked 2 days per week at Business 1 from 9 a.m. to 3 p.m. She carried out bookkeeping and office management duties. The first time mention is made of administrative staff numbers being 1.5 at the time of the wife’s dismissal is seen in the report of Ms D where she attributes that information to the wife. In her oral evidence she says the husband confirmed to her that at the time the wife left the business there were 1.5 administrative staff. She agreed in cross-examination that she had not verified with the husband that 1.5 administrative staff at that time were sufficient to meet the companies’ needs.
It is submitted on behalf of the wife that Ms D was not cross examined in relation to this particular adjustment and therefore is not open for any submission to the contrary to now be made by the husband. Again, as can be seen from my summation of the evidence of the experts this submission is not entirely correct.
The wife further submitted that the husband had an opportunity to file and or give evidence in relation of adjustment of administration costs as asserted by Ms D. It is submitted that he did not give any evidence to refute the assertion attributed to the wife namely that at the time she was dismissed from her employment there were 1.5 administrative staff employed by the corporate group. It was submitted that the wife did give evidence about those matters, however, that was given as evidence in chief and not as part of the cross-examination. Again I have no note of such evidence, however, the actual number of administrative staff at the stated time does not appear to be an issue. The complaint relates to whether that number were at that time sufficient. It was for the husband to assert by production of proper evidence any proposition to the contrary.
On page 21 of the report by Ms D there appears note (12). This note relates to an adjustment for motor vehicle expenses. The note is as follows:
I have been advised by the husband that the motor vehicle expenses have reduced from the 2008 year to 2010 due to the disposal of several vehicles over the same period. It appears that the motor vehicles disposed of in this period were surplus to what is required by the company in the ordinary course of business. On this basis, I have reduced the motor vehicle expenses in the 2008 and 2009 years to a level in line with the 2010 year ( being 40,000) as follows: the adjustments produce a reduction in motor vehicle expenses for the 2007 year of $41,125, for the 2008 year $22,469 and the 2009 of $12,811.
In relation to that adjustment it is submitted by the husband that in cross-examination of Mr T it was put that an adjustment to the motor vehicles was required. It is submitted that he denied such an adjustment was required. It was submitted that it was not put to the husband that the vehicles were surplus to requirement and therefore there is no evidence of the basis of Ms D’s assumption that the vehicles are surplus to requirement.
The wife submits that Ms D was not challenged in relation to this adjustment. Consequently it is submitted that it is not open now for the husband to criticise the adjustment. It is further submitted that the husband had an opportunity to file and/or give evidence in relation to this area of adjustment. It was open to him to explain why the vehicle numbers had been reduced and why it was inappropriate to make any adjustment. No such evidence was given and therefore it is submitted no challenge can now be made.
The transcript of the evidence of Ms D reveals the correctness of the submission that she was not cross-examined on the matter of her adjustment of motor vehicle expenses.
No submission was made by the husband in relation to the adjustment of the husband’s salary as performed by Ms D.
The Multiplier
The husband submits that the multiplier adopted by Mr T for the purposes of calculating goodwill is 3.25. It is submitted that multiplier should be preferred to the multiplier adopted by Ms D, namely 4.
The husband submits that Mr T has set out specifically reasons why he came to the conclusion that 3.25 was the appropriate multiplier. It is conceded that Ms D gave oral evidence about how she reached her figure of a multiplier of 4. It is submitted that she relied upon research and benchmarks not shown to Mr T or to the Court. The multiplier chosen by Mr T was, it is submitted, not upset by cross-examination. It is submitted that based on his stated experience in a broad range of activities associated with corporate interests, his assessment ought be preferred to that of Ms D.
In response to that submission the wife submitted that Ms D gave evidence that she carried out a checking calculation to confirm her proposed multiplier of 4. She told the Court that she had the calculation at the Court and she was not asked to produce that by the husband. She said her calculations had concluded that a multiplier of 4.3 was an appropriate figure and therefore her check had confirmed her original determination that a multiplier of 4 should be applied.
It was further submitted that Mr T, in cross-examination, said he had valued the business on a future maintainable earnings capitalisation and come to the conclusion that such value was less than a value based on a net tangible assets calculation. However, it is submitted by the wife that he at no stage produced the details of his calculations and in particular what adjustments if any he made in order to carry out the exercise of determining value based on future maintainable earnings capitalisation. Again it is submitted by the wife that in cross examination, Mr T agreed it would be appropriate to make adjustments for extraordinary or non-commercial based expenses such as lease payments and administrative costs. Ms D in her evidence, it is submitted, claimed she had been unable to find in Mr T’s report evidence of adjustments he had made to achieve a future maintainable earnings capitalisation figure.
The wife submits that in cross-examination Mr T said that in his first report he deducted interest and leasing and carried out an averaging exercise. In relation to his second report where he arrived at a figure of $250,000 as his future maintainable earnings figure it is submitted that he was unable to point to any calculation which showed any adjustments being made to the companies’ expenses to achieve the figure of $250,000. It is submitted that there is no calculation in the report before this report (the only one in evidence) which shows how Mr T established that the capitalisation of the future maintainable earnings achieves a result which eliminates it as an appropriate method of valuation.
The wife submits that Mr T’s evidence should be rejected because he could not have determined net tangible assets, liabilities, superannuation and resources basis was the best approach without having first carried out a proper analysis of the capitalisation of future maintainable earnings approach in order to determine that it was not appropriate.
The wife says that in relation to the difference between the experts as to the multiple which should be applied to the future maintainable earnings calculation, Ms D sets out in paragraph 2.3.2 in the joint statement of experts that Mr T has essentially “double dipped” in selecting the multiplier he has chosen. She points out that the multiplier chosen by Mr T is calculated or determined by him having regard to a number of matters including the reduction in the earnings of the corporate entities over a four year period together with information about the specific industry in which the corporations trade and general experience in the sale of businesses in the current economic climate. She says that by averaging the last four years of income that exercise alone takes into account the down turn in business and no further discount is warranted. The specific wording of paragraph 2.3.2 of the expert’s joint statement is as follows;
[Ms D] has selected an EBIT multiple of four times for reasons set out at note 18 on page 23 of her valuation. [Ms D] is of the opinion that the assessment of the maintainable earnings by reference to a period that includes the global financial crisis, down turn in the construction sector, variable consumer confidence and increased competition due to the loss of staff, already takes into the account the factors detailed by [Mr T] of influencing his assessment of the EBIT multiple. [Ms D] is of the opinion that [Mr T] has double counted the business risk and uncertainty in both the assessment and then the earnings multiple and has made no allowance for the recovery of the economy and construction sector over the short to medium term. [Mr T] disagrees.
Conclusion in Relation to Valuation of Parties Corporate Interests
I prefer the evidence of Ms D in relation to the choice of multiple to apply to the EBIT. I agree with her logic in determining that the risk factor associated with the business conducted by the company can be calculated on the averaging of profit of the company over a series of years (in this case 4) after making appropriate adjustment to the figures. I accept that any additional risk factor has been considered by her and represented in the reduction in the multiple from 4.3, as calculated by her through a set of calculations, to 4.
I do not accept the adjustment to the expenses of the company made by Ms D in relation to administrative salaries and motor vehicle expenses. The evidence upon which she relied to make those adjustments is not clear and predominantly not before the court. On her own admission she relied on an assertion by the wife that the staff of 1.5 in administration at the time she ceased her employment with the company in mid 2007 was adequate to service the then needs of the company. There is no other evidence except matters of statistic from a published document which has been relied upon. None of the documents referred to by Ms D is in evidence before the court.
I do not accept the adjustment made by Ms D to the motor vehicle expenses. She has reached a conclusion that there were vehicles surplus to requirement at particular times between the 2007 financial year and the 2010 financial year. The evidence relied upon by her to form that conclusion or assumption is not before the court and therefore that calculation is not capable of being tested and is prima facie unreliable.
In all other respects I accept the approach taken by Ms D to the valuation.
Mr T said he had calculated the value of the company on a capitalisation of future maintainable profits basis. I was not shown that calculation. The oral evidence of Mr T and Ms D revealed that Mr T had provided earlier valuations of the subject company however, none of those valuations were placed before the court.
Ms D was asked to value additional companies associated with the Business 1 group. Those companies are Business 5 and Business 3. Mr T was not asked to value those companies. In any event paragraph 1.7 on page two of exhibit X1 shows agreement between the valuers in relation to those valuations.
If I remove the two adjustments which I do not accept from Ms D’s valuation (i.e. for motor vehicle expenses and administration wages) and substitute the non adjusted figure the following table appears:
In Appendix D of the report the “Adjusted maintainable earnings” become $165,426 for 2010; $191,454 for 2009; $257,952 for 2008 and $344,712 for 2007. The “Aggregated maintainable earnings” becomes $239,886 (approximately $240,000) and the “Enterprise value” becomes $960,000.
Moving then to Appendix E the goodwill figure is calculated by deducting $979,483 from the $960,000 figure to give a result of nil goodwill.
Transposing that calculation to appendix C the “NON-CURRENT” assets become $998,007. The “TOTAL ASSETS” become $1,641,331. The net assets become $1,113,664 (say $1,114,000). The value to the husband of his interest in the company is $557,000.
The value of the husband’s interests in Business 5 at $31,000 and his interest in Business 3 at $ 85,000 also need to be added to the Business 1valuation to produce a total value of $673,000 less related loans of $17,963 to give a final figure for the balance sheet of $655,037 (approximately $655,000).
Having carried out that exercise it can be seen that the value arrived at is less than the value calculated by Mr T of $673,000 as can be seen in exhibit “X1”. Mr T had only valued the company Business 1 as part of his brief. In the joint statement of the experts he agreed with Ms D’s valuation of $62,000 for Business 5 and $170,000 for Business 3. When those two figures were added to his valuation of Business 1 his valuation was $1,346,000 for the whole enterprise and therefore the husband’s interest was $673,000.
Therefore, at the end of the day, Mr T’s method of calculating the value of the husband’s interest in Business 1 must be seen as the valuation which provides the highest value and it is appropriate that figure be adopted for the purpose of the parties’ balance sheet. Mr T conceded in cross-examination that there was no proper basis to discount that figure in this case as the husband’s shareholding in the company was not proposed to be sold.
Item 23 On The Balance Sheet – The Inclusion Of Each Party’s Paid Legal Costs
There was considerable debate and submission in relation to this entry in the balance sheet. Ultimately it was conceded by both parties that it would be open to me to exclude paid legal costs from the balance sheet and take same into account under section 75(2) together with all of the relevant circumstances surrounding the payment of legal costs by the parties and the liability still outstanding for payment of legal costs. The circumstances which need to be taken into account under section 75(2) include the following:
The evidence contained in exhibit “W1” is that the wife’s costs, inclusive of the trial costs are $188,250. Of that sum the wife has paid $96,841.43. Of that sum $20,545 was sourced in borrowings by the wife through her credit card. In the wife’s financial statement sworn 11 February 2011 she discloses a liability to NAB Visa Card of $6,000. There is no evidence to link the payment of the $20,545 in legal fees drawn from the credit card with the balance now outstanding. The net effect of exhibit “W1” for the wife is that she will still be required to make payment to her lawyers of $91,409. Additionally, the balance of $6,000 owing on her NAB credit card may be attributable to the payment of legal costs. I also need to recall that the source of some of the payments of legal costs by the wife is a gift from her father of $15,000. The balance of her payments have probably come from either interim distributions of capital to her following the sale of assets ($62,000 following a sale of property) or from the drawings she made on the Line of Credit account which was ultimately discharged following the sale of assets of the parties.
The husband has made total payments of $178,193 towards legal costs and disbursements. There is outstanding $30,853. This evidence is retrieved from exhibit “H1”. Exhibit “H1” does not disclose the costs the husband incurs for the four day hearing held in this matter. The payment made by the husband most probably was sourced from his income, borrowings or interim distribution of capital following sale of assets of the parties ($62,000 following the sale of an asset).
On the husband side, he has drawn a substantial income from the parties’ joint enterprise, namely, the Business 1 corporate group. His income has been far greater than that earned by the wife. He has also received other benefits through that employment. It is submitted on behalf of the wife that the husband’s income, as demonstrated by the evidence, has been approximately $800,000 post separation and the wife’s during the same comparable period has been $130,000.
Exhibit “W4” sets out assets sold by the husband post separation, some of which were required to be included in his tax returns but others probably were not.
It is not possible and it is inappropriate, in my view, to carry out an exercise of tracing each dollar from the monies withdrawn by the wife from the parties’ accounts to determine whether they found their way into any of the costs paid to her solicitors.
Having regard to the above, I conclude that the approach which is most likely to give rise to a fair and just determination is to have regard to the above matters when considering section 75(2) of the Act rather than including in the balance sheet all of the parties paid legal fees.
Although the Full Court decision in Re NHC and RCH [2005] 32 Fam LR 518 would support the inclusion of almost all of the wife’s paid legal costs and at least some of the husband’s paid legal costs as entries in the balance sheet, in the special circumstances of this case, where the husbands’ income has been derived from what is clearly a joint asset of the parties, I consider such an approach has the potential to give rise to an injustice which would be particularly felt by the wife.
Add Backs
The husband caused to be filed a minute which set out the add backs sought by him together with his written submission in support of same. That document was marked as exhibit “H8”.
Submissions on behalf of the wife in relation to add backs sought by the husband were that all of the circumstances surrounding the payments referred to in exhibit “H8" should properly be taken into account under section 75(2) of the Act and such an approach is authorised by decisions such as Re NHC and RCH and Gollings and Scott [2007] 37 Fam LR 428.
It was submitted on behalf of the wife that in considering the adjustment under section 75(2) of the Act, the matters set out in exhibit “W4” and in particular the short fall in the payment of rent pursuant to orders of 18 March 2008, which the wife has calculated at $63,000, need to be considered. I have noted elsewhere in these reasons that ultimately the wife conceded that she knew from her own research of the companies and parties’ banking records that the husband did not use those funds for his own use but rather applied the funds in reduction of debt.
Exhibit “X2” included as item 22 an item for “interest foregone on Conditsis trust account”. No figure was included for that item and no submission made in relation to the entry.
As can be seen from exhibit “X2" most of the items on the balance sheet were the subject of agreement between the parties both as to the inclusion of same and as to value.
Having determined the disputes between the parties as to the balance sheet I find it to be as follows:
| Description | Husband’s Value | Agreed/Wife’s value ($) |
| 1. | [S Street, Town 1] Joint | 970,000 |
| 2. | [K Street, Town 2] Joint as to 50% | 650,000 (parties ½) |
| 3. | [B Street, Town 3] Joint to 50% | 160,000 (parties share) |
| 4. | [C Street, Town 3] Joint to 50% | 165,000 (parties share) |
| 5. | [B Street, Town 4] Joint 2/3rds | 246,000 (parties share) |
| 6. | H interest in [Business 1] group | 673,000 |
| 7. | W furniture at [Town 1] | 20,443 |
| 8. | H furniture | 3,500 |
| 9. | W sporting memorabilia | 2,600 |
| 10. | W Wall Hangings | 3,860 |
| 11. | ||
| 12. | ||
| 13. | ||
| 14. | [McIllroy and Gear … “Factory Loan account”] Parties half share | 220 (Parties Share) |
| 15. | New Factory account (Wife says “New Showroom account) Joint | 6,482 |
| 16. | W Nissan […]l | 8,500 |
| 17. | ||
| 18. | ||
| 19. | ||
| 20. | ||
| 21. | ||
| 22. | Conditsis trust account Joint funds from [Town 5] | 76,855 |
| 22A. | Interest forgone on Condtisis trust account | |
| 23. | W Legal fees paid (Now considered in s.75(2)) Husband’s paid Legal Fees. (now considered in s.75(2)) | |
| TOTAL | 2,986,460 | |
| LESS AGREED LIABILITIES. These are liabilities for mortgages on the [Town 2, Town 4 and Town 3] properties and includes 17,963 referred to by [Ms D] H’s liability to [Business 1] | 910,963 | |
| NET ASSETS | 2,075,497 | |
| 24. | H Superannuation – self managed fund | 163,012 |
| 25. | H Superannuation | 15,421 |
| 26. | W Superannuation – self managed fund | 167,842 |
| TOTAL (NET INCLUDING SUPERANNUATION) | 2,421,772 |
The balance sheet refers to an agreed amount of liabilities being $910,963. That sum is made up of the following:
·The husband’s liability to Business 1 of $17,963; and
·The mortgages owing on the Town 2, Town 3 and Town 4 properties.
Section 79(4) Contributions
As will be seen later in these reasons the parties agreed that their contributions should be assessed as equal as at the date of the separation. In order to put perspective on the post separation contributions, about which there is no agreement as to weighting, it is helpful to set out in dot point form what the contributions of the parties were during the cohabitation.
Initial Contributions of the Parties
I find the husband made the following initial contributions.
Savings of about $10,000; and
Half interest in an investment property at Sydney Suburb 1.
I find the wife made the following initial contributions.
There is no evidence as to the initial contributions of the wife. Given what is set out above this is of no real consequence.
Financial Contributions During The Cohabitation
I find the husband made the following financial contributions during the cohabitation:
The husband applied the income earned by him to the support of the family and the parties’ investments;
With the wife the husband invested in a property at P Street, Town 6 in 1998;
In May 1999 the husband and wife incorporated Business 2. That company then acquired a half interest in a showroom property at M Street, Town 5. The property was sold in August 2008 realising $226,103.83 for the company;
In 2001 the wife with the husband acquired a half interest in a property at K Street, Town 2. The wife’s stated share was 35% and the husband’s 15%. A factory to accommodate the Business 1 company requirements was built on the land;
In July 2002 the husband and wife acquired a one third interest in properties at B Street, Town 4. These properties were developed to provide 6 town houses. The husband, the wife and Ms S each acquired a one third interest in unit … in the development. The property was rented; and
In September 2003 the parties acquired in the husband’s name a farm property at H Street, Town 7.
I find the wife made the following financial contributions during the cohabitation:
At the time of the commencement of cohabitation the wife held employment in the UK;
When the wife first arrived in Australia she gained employment with a security firm and continued with that employment until the first child was born in June 1989;
The wife did some clerical work to assist the husband when he was working as a contractor;
From about 1992 the wife worked in Business 1. She paid the wages and did banking. She also did manual work in the factory. She did deliveries;
In about 1992 the wife established a retail business with a friend. The business sold goods at a Sunday market and through private parties. Although not generating significant income it did provide goods for the children;
The wife undertook further education, paid for by the Business 1 company to gain skills with computer accounting packages such as MYOB and PAYG;
From 2002 the wife worked 10 to 12 hours per week in the Business 1 company. That work involved attending to the book keeping and accounts aspect of Business 1;
I find the wife contributed her income for the use of the parties and their family;
With the husband the wife invested in a property at P Street, Town 6 in 1998;
In May 1999 the husband and wife incorporated Business 2. That company then acquired a half interest in a showroom property at M Street, Town 5. The property was sold in August 2008 realising $226,103.83 for the company;
In 2001 the wife with the husband acquired a half interest in a property at K Street, Town 2. The wife’s stated share was 35% and the husband’s 15%. A factory to accommodate the Business 1 company requirements was built on the land;
In July 2002 the husband and wife acquired a one third interest in properties at B Street, Town 4. These properties were developed to provide 6 town houses. The husband, the wife and Ms S each acquired a one third interest in unit … in the development. The property was rented;
In November 2003 the husband and wife acquired collectively a 50% interest in a property at C Street, Town 3. A duplex building was then built on the property. The properties are rented out. In August 2005 the husband rented one of the properties for his own use;
The wife was responsible for the management and book keeping associated with the parties’ rental investment properties until separation;
In September 2003 the parties acquired in the husband’s name a farm property at H Street, Town 7; and
Following the acquisition of the Town 7 property the wife was solely responsible for the financial management of and the book keeping for the farm.
Non Financial Contributions During The Cohabitation
I find the husband made the following non financial contributions during the cohabitation:
The husband attended the farm property on average twice per week during the period he owned it from 2004. The farm was sold in June 2008.
I find the wife made the following non financial contributions during the cohabitation:
The wife assisted the husband in various tasks on the rural property. This included laying pipes, drenching stock, mulching paddocks, helping with fencing, cleaning the shed.
Contributions as Home Maker And Parent During Cohabitation
I find the husband made the following contributions as a home maker and parent during the cohabitation:
The husband acknowledges that the wife was primarily responsible for the care of the children. In 1992 and following the husband was working 60 to 70 hours per week; and
In 2002 a cleaner was employed one day a week by the parties to do cleaning work in the house.
I find the wife made the following contributions as a home maker and parent during the cohabitation:
The wife contributed to the domestic chore of cleaning the home. The home consists of, five bedrooms, three bathrooms, and other rooms. It has a pool. It is contained in three and a half acres of land. The cleaning of the house takes about an hour.
Parties Agreement on Pre-Separation Contributions
I note the parties agreed that at the date of separation their contributions should be assessed to be equal.
Post Separation Contributions
I find the husband has made the following contributions post separation:
Following the wife ceasing her role in the financial management and book keeping for the parties’ investment properties the husband has managed or paid for such services himself;
From the date of separation the husband has continued to be employed by the Business 1 companies. I accept he has continued a management role in that business along with other people;
The husband’s income post separation is set out in exhibit “W3”;
Between separation in August 2005 and March 2007 when the wife ceased her employment with the company, the wife drew the husband’s money from the enterprise each week and paid it into the parties’ joint account. She additionally paid any dividends he received to the same account. That account was drawn on by the wife to meet the expenses of the former matrimonial home and for the support of the wife and the children. The husband also drew on the account to meet other expenses of the parties including his own. I accept the wife’s evidence that he deposited some of his income to a private account as did she. The husband established the account in November 2006;
Post separation the husband controlled the parties’ income earning enterprises. He used the income obtained from same to meet outgoings associated with same. The outgoings included mortgage payments. On 26 July 2007 the husband withdrew $9,000 from the line of credit account and paid it on the farm mortgage. On 7 August 2007 the husband withdrew $12,000 from the line of credit account and paid it on the farm mortgage;
From January 2008 until the Line of Credit was discharged following the sale of the Town 5 show room, the wife paid the instalments due on that debt by drawing further against the line of credit. As the husband was a joint contributor with the wife to the funds which discharged the line of credit he has made a contribution to the servicing of that loan;
Between 6 September 2005 and 2 July 2007 the husband identified a total of $125,767 withdrawn by the wife from the party’s joint account. This was an account into which each party deposited their incomes until November 2006 when the husband opened a personal account of his own and paid between $350 and $786 per week from his income into that private account;
It is submitted the most the wife has earned from her occupation as a contract clerk since being dismissed from Business 1 is $30,967 as disclosed in her annual tax return. The wife discloses an income in her financial statement relied on for the purpose of the hearing at $985 per week. If she worked a maximum of 52 weeks in a year that would provide her with an income of $51,220. It is unreasonable to expect that the wife does work 52 weeks of the year and it is submitted that realistically her annual income anticipated during the next few years ought to be about $45,000. In relation to the husband’s income it is determined only by the limit on the husband’s drawing capacity on the company. In the year 2010 his taxable income was $129,429. In the 2011 the husband has already conceded that he has received a dividend of $30,000.
Prospectively the wife will not be in the same position as the husband to increase her superannuation entitlement. Her earning capacity will be such that the majority of her income will be soaked up by everyday living expenses.
It is submitted that the Court ought to take into account the responsibility the wife still maintains to support the former children of the marriage. It is submitted that sections 75(2)(e) and or 75(2)(d) empowers to court to consider such a responsibility under section 75(2).
It is submitted further that in addition to the income earned by the husband he has a resource in his partner Ms S. She earns $73,000 per annum from the Business 1 corporations and also the evidence shows she is a joint property owner with the parties in investment properties. Although the husband does not reside with Ms S there is no issue that she is his partner.
It is submitted on behalf of the wife that after taking into account all the matters referred in her submissions on section 75(2) that an adjustment in favour of the wife of 10% is warranted.
The husband submits that one of the matters which would be taken into account to counter any adjustment in favour of the wife is her continued occupation of the former matrimonial home since the separation in 2005. The husband has also had occupation of the property at Town 4 for a period of time far less than that of the wife’s occupation of the former matrimonial home in circumstances where he was required to take up occupation in order to repair substantial damage caused to that property by a tenant. The husband has paid a rent for the occupation of that property as he did in relation to the parties unit which he occupied immediately post separation.
Matters Taken Into Account Under Section 75(2)
I take the following matters into account in considering any adjustment under section 75(2).
The parties lived a reasonable standard of living during the cohabitation. They lived in a large house on rural acreage. They had many holidays both in Australia and overseas. They ate out at restaurants at least once per week. They paid private school fees for the children. They had a ski boat. Each of the parties had the use of company funded vehicles. The wife in her affidavit of 11 February 2011 sets out evidence relating to the husband’s lifestyle. That evidence illustrates that the husband’s greater income than the wife’s allows him to live at a standard of living which is higher than that which can presently be enjoyed by the wife. I accept that is likely to be the case into the foreseeable future.
In December 2007 the wife withdrew $140,000 (said to be $164,600 in the wife’s later affidavit sworn 11 February 2011 and about $155,000 elsewhere) from the Line of Credit account with Citibank. She did this because she believed the husband was withdrawing funds from the account without consulting her. Part of this money was used to effect improvements to the matrimonial home as referred to earlier. It was otherwise used by the wife for support for herself and the children. She paid her legal fees of $20,075.19. She also paid the interest payments on the Line of Credit of about $44,099. She paid a fee for valuation of the contents of the matrimonial home of $1,415. Although she had set out detail of how these funds were expended in her earlier affidavit read in these proceedings, she provided further detail of the expenditure of $154,219.66 in her affidavit sworn 11 February 2011. The wife further explains that the $11,000 taken by her from the factory rent money account, the $7,800 taken from the showroom account and the $5,800 taken from the rent account she expended by using $20,000 to acquire a car for herself, $13,000 she used to acquire a car for the parties child Z and $5,000 to buy a car for J.
The wife has her own clerical business. Her taxable income for the 2010 financial year was $30,590. In her Financial Statement sworn 11 February 2011 the wife attests to having an average weekly income of $E985. That translates to an annual income of $51,220. I appreciate that is a figure which the wife estimates she may earn over a period of 12 months and that her income on a weekly basis may fluctuate. I also accept that it is unreasonable to take into account an income figure which provides for no holiday or illness period when the wife would receive no income. I consider that an allowance of not less than six weeks per year as a nil income figure for the wife should be considered. The wife says Z has a weekly income of $696 and pays board to her of $70 per week.
I take into account that post separation and particularly post mid 2007 when the wife ceased to work in the Business 1 companies the husband has received a much higher income than the wife. The comparative incomes of the parties over the relevant period are in evidence (exhibit W3). The money received by the husband was sourced in the parties’ assets and represented a benefit which he received which the wife did not.
The parties’ son J is working in Western Australia and may return to NSW in 2012 and attend at university.
Given that the figure ultimately accepted by me for the valuation of the Business 1 companies was that calculated on an assets realisation basis the income figure I will have regard to, when considering section 75(2)(b) of the Act, will be his actual income and not a discounted or adjusted figure which Ms D had calculated. The husband is likely to have an income at least that received by him for the 2010 tax year. His taxable income for the 2010 year was $129,429. He also receives the use of a fully maintained and fuelled motor vehicle and superannuation contributions. It is reasonable to predict the husband will have the opportunity to earn an income of that magnitude for the foreseeable future.
Between April 2008 and December 2010 the bank account, number … conducted by the parties, received from Business 1 deposits to it of $77,017 from rental received pursuant to order 14 of the court orders of 18 March 2008. That order provided the company was to pay $4,250 per month to that account. The wife says that the payment was $63,233 short and the husband either has the benefit of those money’s or will be entitled to same at some time in the future. The husband in his oral evidence said he ceased making the payment to the rent account in the parties name (pursuant to the court order) because the wife had refused to sign cheques on the account which he sent her to meet expenses associated with the properties. The husband said the rental monies received by him were paid in reduction of the line of credit debt. The wife in cross-examination conceded she had seen bank statements which established that the husband had caused the rent payments to be paid to a bank account. I accept the husband’s evidence on this point. I repeat this material at this point to show I will not be required to consider any adjustment based on the husband’s failure to make the payments to the subject account pursuant to court order.
Each of the parties has paid legal fees and has a liability for legal fees incurred in this hearing. The husband’s total legal cost of the proceeding is $209,046. He has paid $178,183 and owes $30,853. The wife’s total legal cost is $188,250. She has paid $96,841. She borrowed $20,545 to pay legal costs. Post separation the wife received a gift from her father of $15,000 to fund further proceedings against the husband.
The wife seeks to retain the former matrimonial home. She intends to reside there for the time being. She acknowledged in her oral evidence that she could sell the property and acquire a smaller property which would provide her with an investment fund as well as suitable accommodation. The property consists of a large residence on acreage. The upkeep is considerable as deposed to by the wife in her evidence. Z currently lives with her and J may do so if he returns to NSW to attend university in 2012. It is reasonable to assume that at some time in the foreseeable future (perhaps when the adult children no longer reside with her) she will down size and in that process gain an investment sum.
The husband has a resource in his partner Ms S who earns an income of $73,000. She also has an interest with the parties in investment properties.
Having regard to the division of assets based upon assessment of contribution the husband and the wife will each receive $1,210,886 in net assets.
At the conclusion of the submissions each party acknowledged that the wife’s occupation of the former matrimonial home from the date of separation to the date of trial is a matter that needs to be considered under section 75(2) of the Act. She pays the rates and insurance on the property. Likewise the husband’s occupation of the Town 4 property since the damage caused by the tenant is a matter to be taken into account. However in relation to the husband’s occupation of that property he has paid rental. He shares the property with Mr Y and together they pay the rent of $300 (page 14 Husband’s Financial Statement).
Conclusion In Relation To Section 75(2) Matters
Having considered all the above I have determined that an adjustment is warranted in favour of the wife. I consider an adjustment of 5% in her favour should be made. The standout matters in this determination in favour of the wife are the disparity in the parties’ incomes and resources. The standout matter as against an adjustment is the wife’s occupation of the matrimonial home for 7 years. The remainder of the matters swing the pendulum backwards and forwards between the parties.
The division should be therefore 55% to the wife and 45% to the husband. The net pool is $2,421,772. That will mean the wife will receive $1,331,975 in net assets and the husband will receive $1,089,797. The consequence is that the wife receives an additional $242,178 to that of the husband.
Just and Equitable Requirement
If the wife receives total net assets of $1,331,975 she will be able to retain the former matrimonial home which is what she wishes to do, at least in the short term. That property has a value of $970,000. That would leave the wife to receive another $361,975.
The wife will retain the following assets from the balance sheet as her own property:
Wife’s furniture $20,443
Wife’s sporting memorabilia $ 2,600
Wife’s wall hangings $ 3,860
Wife’s Nissan vehicle $ 8,500
Wife’s superannuation $167,842
TOTAL $203,245
The consequence of the above is that the wife will need to receive $158,730 in cash from the pool of assets or from the husband. The only cash funds in the balance sheet of consequence is the $76,855 in the Conditsis trust account and $6,482 in the New Factory account. There may be some interest earned on that sum since it was invested and that interest should be divided between the parties in the proportion I ultimately determine should apply to the distribution of their assets.
If the wife is paid both the $76,855 in the Conditsis trust account and the $6,482 in the New Factory account (totalling $83,337) then an order will be required for the husband to pay the wife $75,393.
The husband would retain his superannuation and the balance of the assets and liabilities on the balance sheet. The liabilities are for the mortgages on the Town 2, Town 3 and Town 4 properties together with the husband’s loan account.
The husband will receive the following assets and superannuation and be responsible for the following liabilities including the payment to the wife.
K Street, Town 2 $650,000
B Street, Town 3 $160,000
C Street, Town 3 $165,000
B Street, Town 4 $246,000
Husband’s interest in Business 1 group $673,000
Husband’s furniture $ 3,500
McIllroy & Gear “Factory Loan Acc” $ 220
Husband’s superannuation $178,433
Total assets $2,076,153
LIABILITIES
The husband retains the liabilities $910,963
The husband also is to pay the wife $ 75,393
TOTAL LIABILITIES $986,356
NET ASSETS RETAINED BY THE HUSBAND $1,089,797
Having regard to all those matters I consider that the result calculated above would give rise to a just and equitable distribution of the parties’ assets and resources.
Fees Payable To Mr T The Single Expert Appointed By The Parties
Mr T’s Fees
The wife tendered a minute of the order she sought in relation to the single expert’s fees. That document was marked as exhibit W6. In broad terms she seeks that the husband be solely responsible for payment of Mr T’s fee as and from 1 June 2010.
Exhibit “W5” is an agreed schedule of the fees paid to and owing to Mr T.
It is submitted on behalf of the wife that following the end of May 2010 Mr T did not act in a way that a single expert should. It is submitted that he corresponded with the husband and he met with the husband without the consent or knowledge of the wife. The wife acknowledged in submissions that Mr T in cross-examination had denied that was the case. It was submitted that Mr T did agree that he had attended at the joint conference with Ms D carrying documents provided to him by the husband.
It was acknowledged by the wife that no application had been made to discharge Mr T as a joint expert at any time in the proceedings, notwithstanding that an order had been made on the application of the wife, allowing the wife to rely on evidence from an adversarial expert witness, namely Ms D. That order was on 16 September 2010.
It is further submitted in relation to Mr T’s fees that he had failed to perform the exercise to which he was engaged in a proper and workmanlike manner. It is submitted that Mr T did not ever do a calculation of future maintainable earnings. Consequently it was submitted that his report is flawed and therefore the wife should not be required to pay any part of his fees.
In response to those submissions the husband submits that Mr T was cross-examined as to his partiality and methodology in relation to the preparation of his report. It was submitted that he withstood all scrutiny as to his behaviour. It was submitted that Mr T’s evidence is that all correspondence he had with either solicitor or party was forwarded to the other.
The husband submits the court should have regard to Rule 15.49(2) sub rules (a) (b) (c) of the Family Court Rules 2004 (Cth) (“the Rule”). These are the provisions of the Rules which specify the circumstances in which an adversarial expert might be appointed. It was submitted that the court can revisit the determination to allow an adversarial witness for the purpose of determining whether or not ultimately it was necessary or appropriate. The husband submits that if that exercise is carried out then the Court should conclude that it was never necessary to allow the wife to rely on an adversarial witness.
The husband submits that the wife’s application in relation to the costs of Mr T should be dismissed.
I note that at the time the wife was granted leave to adduce evidence from an adversarial expert the husband was asked by the court whether he proposed to seek his own independent expert or whether he was proposing to rely on the evidence of Mr T. The court was advised that the husband would be relying on the evidence of Mr T.
It appears to me that after the orders of 16 September 2010, which permitted the wife to engage an adversarial expert, the wife ceased to have any involvement in the instruction of Mr T and the husband assumed the role of instructing Mr T as his own witness. I accept that Mr T was not aware of that arrangement and continued to regard himself as having been appointed by both parties and continued to perform his task on that basis.
Mr T’s evidence in relation to his involvement as a single expert post 16 September 2010 perhaps explains some of the circumstances about which the wife now complains. Mr T was not in a position to do any further work on the matter until appropriate arrangements had been made in respect of his fees. I accept his evidence in relation to communication with the husband’s legal team between 16 September 2010 and the date of the joint conference between the experts.
I would not be prepared to make either of the orders sought by the wife for the reasons submitted on behalf of the wife, however, I do consider that it is appropriate that the husband is responsible for the fees of Mr T as and from 16 September 2010 because at that time he in reality adopted Mr T as his own witness in the proceedings. I accept that Mr T is a witness of the upmost integrity and that he would have given the same evidence to this court whether he understood he was representing the husband solely or whether he was acting as a single expert. I nonetheless determine in the circumstances of this case it is appropriate that the husband be responsible for Mr T’s fees from 16 September 2010 and that he be required to pay to the wife 55% of any funds paid to Mr T in respect of fees incurred post that date and where the payment was sourced from the funds held by Conditsis and Co on behalf of the parties.
Orders to be Made
There was an issue between the parties as to the payment of fees incurred as a result of the husband requiring the single expert, Mr R to give evidence in the hearing. That issue was resolved by the parties entering into terms of settlement of that issue as set out in exhibit “X3”. I will make an order in the terms sought.
It was submitted that if it is necessary to sell assets in order to satisfy an order in favour of the wife then the last asset to be sold should be the husband’s interest in the Business 1 enterprise. It was conceded on behalf of the husband that should it transpire following the determination of division of assets between the parties that the wife is required to pay the husband the sum of $10,000 or less then such payment should be regarded as de minimis and no order made.
There is no issue that the wife should be able to retain the matrimonial home. There will be an order accordingly.
The husband will be required to make a payment of $75,393 to the wife. He should be allowed a reasonable time to do so. In the circumstances 60 days would be reasonable.
Should the husband fail to make the payment within 90 days the wife should be permitted to seek orders for sale of the husband’s property which is the husband’s by this determination.
Assuming the husband is able to make the payment to the wife then the wife should transfer all her interest in the investment properties and any interest she might have (if any) in the Business 1companies to him together with the liabilities attached thereto. The husband should give appropriate indemnities.
The parties should otherwise retain the property in their possession including superannuation.
If there has been any interest accrue on the Conditsis Trust account deposit it should be divided 55% to the wife and 45% to the husband.
Orders should be made in relation to Mr T’s fees as set out earlier.
I consider the division of the parties’ assets as reflected in the proposed orders to be just and equitable.
I certify that the preceding two hundred and twenty-four (224) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Le Poer Trench.
Associate:
Date: 1 July 2011
- AGLC
- MCILLROY & MCILLROY [2011] FamCA 506
- Case
- [2011] FamCA 506
- Decision Date
CaseChat Overview and Summary
The primary legal issues before the court were the extent to which an adjustment should be made in favour of the wife, the accurate valuation of the husband's interest in the Business 1 corporations, and the proper treatment of various balance sheet items in the overall property settlement. The court was also required to determine the admissibility and weight of expert evidence presented on these matters.
The court's reasoning involved a detailed examination of the evidence presented, including expert reports, to arrive at a just and equitable distribution of the parties' assets. The principles applied would have encompassed the relevant provisions of the *Family Law Act 1975* (Cth) concerning property division, including considerations of contributions, financial resources, and future needs. The court's orders reflect a comprehensive division of assets and liabilities, including specific monetary payments, property transfers, and indemnities between the parties. The orders also address the ownership of various personal possessions, bank accounts, and superannuation entitlements, as well as the division of surplus funds from specific accounts.
Orders
Orders of the court
1.
That the Husband be responsible to pay any costs incurred by the reason of Mr R being required to attend at court for the purpose of a conference at the husband’s request and the husband’s requirement that Mr R be available for cross-examination.
2.
That the husband pay to the wife the sum of $75,393 within 60 days of the date of these orders.
3.
Pending the husband making the payment to the wife as required in order 2 hereof, he is restrained from selling, charging or further encumbering any of the properties in which he has an interest, except for the purpose of raising the funds necessary to make the said payment.
4.
In the event of the husband failing to make the payment referred to in order 2 hereof, in the time specified, then interest is to accrue on any unpaid portion of that sum at the rate prescribed in the Family Law Rules 2004 (Cth).
5.
In the event of the husband having failed to pay to the wife all monies due to her pursuant to orders 2 and 4 hereof, within 90 days from the date hereof, then the wife has leave to apply to the court for orders requiring the sale of assets of the husband’s to meet the order together with any other enforcement orders which may be required.
6.
The husband is to forthwith execute all and any documents presented to him by the wife as may be necessary to transfer to her all his right, title and interest in the property known as … S Street, Town 1 being Folio Identifier Lot … in DP … (“Town 1” property). The husband is to cause any mortgage or charge registered or held against the Town 1 property to be discharged within 28 days of the date of these orders.
7.
In exchange for the payment required by orders 2 and 4 hereof, the wife shall do all things and sign all documents necessary to transfer to the husband all her right, title and interest in the following properties:
(a) … K Street, Town 2 being Lot … in DP …;
(b) … B Street, Town 3 being Lot … in DP …;
(c) … C Street, Town 3 being Lot … in DP …; and
(d) … B Street, Town 4 being Lot … in SP ….
8.
The wife is to forthwith do all acts, things and sign all documents necessary to transfer to the husband or the husband’s nominee any and all her right, title and interest in the company known as Business 2, Business 1 and/or related entities or associated companies.
9.
The wife is to forthwith do all acts, things and sign all documents necessary to resign as director and/or secretary of the company Business 2 and any related and/or associated companies.
10.
The husband is to indemnify the wife against any requirement to meet any liability or payment associated with the properties specified in order 7 hereof.
11.
The husband is to indemnify the wife against any claim made against her by the companies specified in order 8 hereof, or any claim made against her arising from her former office holding or employment in any of those companies.
12.
The wife is to be declared the owner of the following property:
(a) Contents of the house at … S Street, Town 1;
(b) Sporting memorabilia;
(c) Wall-hangings;
(d) Nissan vehicle;
(e) Stock trailer;
(f) All other items of personal possession in her custody or control;
(g) All bank accounts and other deposits with financial institutions presently standing in her name;
(h) The sum of $76,855 held in trust by Conditsis & Associates, Solicitors being the net proceeds of sale of the Town 5 Showroom;
(i) The wife’s superannuation entitlement; and
(j) The sum of $6,482 standing to the credit of the N bank account.
13.
The husband is to be declared the owner of and the wife is to have no claim upon the following property:
(a) All items of personal possession in his custody or control;
(b) The sum of $220 being the parties share of the McIllroy and Gear … “Factory Loan Account”; and
(c) All bank accounts and other deposits with financial institutions presently standing in his name.
14.
Should there be any interest accrued to the Conditsis & Associates Trust account funds (being the balance of sale proceeds of the Town 5 property) or should the parties entitlement to funds in either the New Factory account exceed $6,482, or their entitlement in the McIllroy and Gear … “Factory Loan Account” exceed $220 then the parties are to divide any surplus in the proportion 55% to the wife and 45% to the husband.
15.
The husband is to be responsible to pay the whole of the fees for the single expert Mr T as and from 16 September 2010. The parties are otherwise to be bound by the court order (or parties agreement whichever be applicable) in place relative to the payment of Mr T’s fees as single expert.
16.
In the event that payment of any fees to Mr T relative to work performed on or after 16 September 2010 have been paid from the funds held in the Conditsis & Associates Trust account or any other joint fund of monies then the husband is to pay to the wife, within 28 days, 55% of the sum so paid.
Background
Background to the litigation
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Evidence
Evidence Before The Court
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Decision
Reasons for decision
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Ratio Decidendi
Legal Principle Established
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