Miller & Miller
[2009] FamCAFC 121
•14 May 2009
FAMILY COURT OF AUSTRALIA
| MILLER & MILLER | [2009] FamCAFC 121 |
| FAMILY LAW - APPEAL – APPEAL FROM FEDERAL MAGISTRATE – PROPERTY SETTLEMENT - whether the Federal Magistrate erred in the treatment of the husband’s motor vehicles and related debts where vehicle was purchased after separation – whether Federal Magistrate erred in the amount of the husband’s taxation liability considered to be a matrimonial debt – whether Federal Magistrate erred in adjustment on s75(2) factors. FAMILY LAW - PROPERTY SETTLEMENT – add backs - whether Federal Magistrate erred in failing to add back whole of insurance payout – if proceeds were still intact they would be included in asset pool – premature distribution of an asset of the parties – amount should notionally have been added back unless husband was able to demonstrate the amount was used to meet reasonably incurred living expenses – payment not windfall and parties did not equally contribute to this payout – appeal allowed on this ground – re-exercise of discretion. |
| Bonnici and Bonnici (1992) FLC 92-272 |
| Family Law Act 1975 (Cth), ss75, 79 |
| APPELLANT: | MS MILLER |
| RESPONDENT: | MR MILLER |
| FILE NUMBER: | ADC | 508 | of | 2007 |
| APPEAL NUMBER: | SA | 15 | of | 2008 |
| DATE DELIVERED: | 14 May 2009 |
| PLACE DELIVERED: | Adelaide |
| PLACE HEARD: | Adelaide |
| JUDGMENT OF: | Strickland |
| HEARING DATE: | 20 August 2008 |
| LOWER COURT JURISDICTION: | Federal Magistrates Court |
| LOWER COURT JUDGMENT DATE: | 27 February 2008 |
| LOWER COURT MNC: | [2008] FMCAfam 370 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mrs V West |
| SOLICITOR FOR THE APPELLANT: | Ann Bills & Associates |
| COUNSEL FOR THE RESPONDENT: | Mr D Berman |
| SOLICITOR FOR THE RESPONDENT: | David De Sciscio & Associates |
Orders
That the appeal be allowed.
That order 1(b) of the orders made by Federal Magistrate Kelly on 27 February 2008 be varied to read as follows:
“(b)pay to the wife as she directs the sum of ONE HUNDRED AND THREE THOUSAND FIVE HUNDRED AND SIXTY ONE DOLLARS [$103,561.00].”
IT IS NOTED that publication of this judgment under the pseudonym Miller & Miller is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| IN THE APPELLATE JURISDICTION OF THE FAMILY COURT OF AUSTRALIA AT ADELAIDE |
Appeal Number: SA 15 of 2008
File Number: ADC 508 of 2007
| MS MILLER |
Appellant
And
| MR MILLER |
Respondent
REASONS FOR JUDGMENT
Introduction
By her Amended Notice of Appeal filed 7 May 2008, the wife appeals against order 1(b) of the orders made by Federal Magistrate Kelly on 27 February 2008. That order provides:
1Within 56 days of the date of these orders, the husband do all things necessary to:
(a)…
(b) pay to the wife as she directs the sum of NINETY ONE THOUSAND EIGHT HUNDRED AND SIXTY DOLLARS ($91,860.00)
…
The husband seeks that the appeal be dismissed.
This appeal is being determined by me as a single Judge, following a direction by the Chief Justice pursuant to s 94AAA(3) of the Family Law Act 1975 (Cth).
Background
The husband was born in May 1961 and was aged 46 years at the time of the trial.
The wife was born in December 1963 and was aged 44 years at the time of trial.
The parties commenced cohabitation in 1984 and married in November 1985.
There are two adult children of the marriage, S and R, aged 21 and 19 years respectively at the time of trial.
The husband worked as a bricklayer during the marriage and after separation.
After taking on the role of primary parent and homemaker the wife returned to paid employment in about 1995. She was working full time at a vineyard at separation but at the time of the trial she was working part time at a general store.
During the marriage the parties acquired insurance policies for income protection in the event of ill health or injury. The premiums were paid from the parties’ joint bank account. Following separation the premiums continued to be paid from the parties’ joint account.
The parties separated on 4 September 2005. At separation the parties were living in a property at S, which the parties had commenced to renovate prior to separation. The husband remained in the former matrimonial home following separation.
In early 2006 the husband suffered a minor heart attack. Following the heart attack, the husband was off work for a few weeks but he was then able to resume full time work.
Approximately 6 weeks after the husband’s heart attack he received an insurance payout in the amount of $90,200. At trial the husband’s evidence was that there was $700 remaining of these insurance monies.
The wife filed an Application for Final Orders on 1 February 2007 seeking orders with respect to property settlement.
At the time of trial the husband continued to live in the former matrimonial home with the parties’ son, R, and R’s partner. The wife lived in rental accommodation.
The trial was heard by Federal Magistrate Kelly on 15 February 2008. Her Honour delivered her reasons for judgment on 19 February 2008 and made final orders.
At the request of counsel for the wife, the matter was re-listed for further consideration, and on 27 February 2008 the Federal Magistrate delivered further reasons for judgment and made an order amending the final orders and made an order for costs. The amended final orders were as follows:
1.Within 56 days of the date of these orders, the husband do all things necessary to:
1 discharge the existing mortgage secured over the former matrimonial home being the property known as Lot 1 H Road, S, being the whole of the land comprised in Certificate of Title Register Book Volume … Folio …;
2 pay to the wife as she directs the sum of NINETY ONE THOUSAND EIGHT HUNDRED AND SIXTY DOLLARS ($91,680).
2.Contemporaneously with paragraph herein [sic] the wife do forthwith sign all documents necessary to transfer her interest in the former matrimonial home to the husband.
3.In the event the husband fails to comply with paragraph 1 hereof, then the property shall be forthwith placed on the market for sale and upon sale of the property the proceeds of sale shall be paid in the following manner:
(a) payment of agent’s commission, legal expenses and auction expenses (if any);
(b) discharge of mortgage owing to the Australia & New Zealand Banking Group;
(c) payment of any outstanding liability for water rates and Council rates;
(d) payment of the sum of $91,860 to the wife;
(e) payment of the balance remaining to the husband.
4.That the wife do retain, free from any claim by the husband, the following:
(a) her Holden Commodore motor vehicle;
(b) her household contents and effects including any antiques or guns within her possession;
(c) any moneys standing to her credit in any bank or financial institution;
(d) her superannuation entitlements.
5.That the husband do retain, free from any claim by the wife, the following:
(a) the Ford utility;
(b) the Harley Davidson motor cycle;
(c) the dune buggy;
(d) his household contents and effects including any antiques and guns within his possession;
(e) any moneys standing to his credit in any bank or financial institution;
(f) his superannuation entitlements.
6.The husband indemnify the wife with respect to all liability which may be outstanding in his sole name.
7.The wife indemnify the husband with respect to all liability which may be outstanding in her sole name.
8.The husband and wife shall execute each and every document necessary to put into effect the terms of these orders within 14 days of presentation of such document to their solicitors.
9.If either party fails to take any necessary step in accordance with these orders a Registrar of the Federal Magistrates Court at Adelaide is appointed and empowered pursuant to s.106A of the Family Law Act 1975 to execute all documents and perform all acts necessary to implement the terms of these orders.
The wife filed a Notice of Appeal on 26 March 2008 and an Amended Notice of Appeal on 7 May 2008.
On 18 April 2008 the husband filed an Application in a Case seeking that the orders made on 27 February 2008 be stayed pursuant to Rule 13.10 until further order. Federal Magistrate Kelly dismissed this application on 21 May 2008.
Reasons for judgment of the Federal Magistrate
As mentioned previously there are two judgments of the Federal Magistrate relevant to the final orders. The Federal Magistrate delivered her initial reasons for judgment on 19 February 2008, and her Honour delivered further reasons on 27 February 2008.
Reasons for judgment delivered 19 February 2008
After outlining the relevant background information, the Federal Magistrate referred to the applicable legal principles arising from s 79 of the Act and various Full Court decisions. Her Honour outlined the discrete steps the Court is required to take in determining an application for property settlement.
With respect to the parties’ assets and liabilities, her Honour noted that the parties had agreed the value of many of the assets, but disagreed about whether specific assets and/or liabilities should be included. Her Honour also recorded the parties’ disagreement regarding how the husband’s insurance payout should be treated. Her Honour concluded she was satisfied that it was appropriate to add back the portion of the insurance payout used to discharge debts, but she would consider further whether it was appropriate to add back the full amount.
On the issue of contributions, the parties conceded during the hearing that their respective contributions during the marriage were equal. Her Honour noted though that the parties disagreed about how any post-separation contribution by the husband was to be treated, and in particular in relation to the insurance payout.
In relation to s 75(2) of the Act, the Federal Magistrate recorded that each party sought an adjustment in their favour on account of relevant factors arising under this sub-section.
Having outlined the steps to be taken in determining competing applications for property settlement, the Federal Magistrate firstly determined the amount of the asset pool to be distributed. Her Honour assessed the value of the asset pool as at the time of the hearing, save for the parties’ bank balances. The Federal Magistrate considered it appropriate to include the bank account balances as at separation in the asset pool.
Turning to the husband’s insurance payout, the Federal Magistrate noted that assets acquired after separation can be treated as “matrimonial property” and cited the authorities of BONNICI and BONNICI (1992) FLC 92-272 and FARMER and BRAMLEY (2000) FLC 93-060. Her Honour stated that all of the insurance proceeds had been spent and found that “aside from those matrimonial debts that the parties agree were paid out, the husband failed to produce bank records to show how the balance” had been spent.
The Federal Magistrate said, “[t]here is no doubt that this payout represents a significant post-separation contribution by the husband”. Her Honour again concluded that to the extent that the monies were used to repay matrimonial debts, it was appropriate to include those funds in the asset pool.
Despite the absence of documentary evidence regarding how the balance of the funds were spent by the husband, the Federal Magistrate declined to add back the balance of the payout, stating:
The reality is that the insurance was a ‘recovery insurance policy’ designed to assist the husband after a serious health incident. I consider that the husband was entitled to utilise those funds to assist with his recovery and to assist with his living expenses across that time.
The Federal Magistrate found that while it was “unlikely” the husband had spent the remaining $26,000 during the few weeks he was unable to work, his return to work may have been “gradual, with an associated impact on his income”. Her Honour was not “prepared to be overly critical of the husband”.
Her Honour noted that while she would not add the balance of the funds to the asset pool, “this approach will affect my assessment of the husband’s post-separation contribution”.
The Federal Magistrate then turned to consider the other assets in dispute, and her Honour included the husband’s Ford utility motor vehicle and its associated debt in the asset pool.
Her Honour agreed with the proposal of the parties’ that their superannuation interests be included in the pool of assets and indicated she would take the parties’ post-separation purchases of household items into account as a “very minor post separation contribution”.
The Federal Magistrate therefore found the assets of the parties to be as follows (at paragraph 29):
Former matrimonial home (agreed) $440,000 Husband’s Ford utility vehicle (agreed) $13,750 Husband’s Harley Davidson (agreed) $18,500 Husband’s household contents including dune buggy (agreed) $15,435 Wife’s Commodore vehicle (agreed) $3,250 Wife’s household contents (agreed) $2,840 Wife’s antique glass collection (agreed) $1,540 Bank accounts retained by husband $6,862 + $252 Bank account retained by wife $952 Husband’s superannuation (agreed) $18,741 Wife’s superannuation (agreed) $17,876 TOTAL $539,998
After adding back the relevant portion of the husband’s insurance payout ($64,000), her Honour found the total “notional” asset pool to be $603,998.
The Federal Magistrate then determined the relevant “matrimonial liabilities”. With respect to the credit card debts, her Honour found the pre-separation debts had been “well and truly extinguished” by payments made by the husband, and that the husband had subsequently used the credit cards for his personal expenditure and business- related expenses. Her Honour excluded the existing credit card debts and assessed the credit card debts at separation at $7,475 and $3,048 respectively.
The Federal Magistrate was also required to determine the amount owing to the Australian Taxation Office at the time of separation. The husband contended the amount was $22,387. The wife claimed at separation the parties only owed $12,040. After referring to the relevant Australian Taxation Office statement (Exhibit “W7”) her Honour concluded “[g]iven the level of uncertainty I am inclined to include the full amount paid by the husband to the ATO of $22,387 as a matrimonial debt.”
The Federal Magistrate noted the husband had repaid the loan in relation to his Harley Davidson in the amount of $24,900, and after reviewing the evidence found that he had paid $6,500 to discharge the Adelaide Bank loan with respect to his Toyota Hilux.
The Federal Magistrate declined to include the husband’s current Australian Taxation Office debt as a matrimonial debt. Her Honour found the debt related to the husband’s business activities post-separation and it would not be just and equitable to include it.
The Federal Magistrate thus determined the “matrimonial liabilities” as follows (at paragraph 39):
Mortgage (agreed figure) $246,000 ANZ Visacard (at separation) $3,045 ANZ Mastercard (at separation) $7,475 St George Bank loan $19,651 Adelaide Bank loan $6,500 CT Finance loan $24,903 ATO liability $22,387 Total liabilities $329,961
The net asset pool as determined by her Honour was therefore $274,037.
The Federal Magistrate then proceeded to assess the parties’ contributions. Her Honour again noted that the parties had conceded that their financial and non-financial “efforts and contributions” during the marriage “should be treated as equal”, but the parties’ post-separation contributions remained to be “assessed and weighed up”.
The Federal Magistrate did not consider the assistance provided by the wife to the husband following his heart attack justified any adjustment in her favour.
With respect to the husband’s renovations to the former matrimonial home and the money he had expended on the property, her Honour noted the wife’s criticism of these renovations and submission that the husband has “undermined rather than increased” the value of the property. Her Honour concluded:
45.While I accept the husband has expended money on the property, I am not satisfied that his work in progress has actually added to the likely sale price or that it has done so in a significant way. … it is difficult to accept that he could not afford to buy the necessary bricks at some stage in the period post-separation to complete the rear wall around the back door of the home, especially given he had access to the balance of his insurance payout. Frankly, his evidence on this topic was difficult to accept. This is relevant to my assessment of any adjustment in his favour on account of his post separation “improvements” to the former matrimonial home.
46.I consider it more likely that any increase in value since the parties separated in 2005 is attributable to market forces. Having said that, I am not prepared to find that the husband has actively or deliberately gone out of his way to reduce or undermine the value of the property, nor to assess his efforts as being a negative contribution to the matrimonial asset pool.
The Federal Magistrate again noted that the “most significant post-separation contribution” was the husband’s insurance payout, although her Honour recognised that the insurance was only there due to the parties’ joint decision to take out the policy and to that extent both parties had contributed to the availability of the payment. The Federal Magistrate indicated that the weight to be given to the husband’s contribution would be affected in light of her Honour’s decision not to add back the whole amount of the insurance payout.
Her Honour concluded as follows:
49. The husband's greater direct financial contribution from that insurance payout should be acknowledged, and to that extend [sic] his contribution has been greater than that of the wife. I assess the husband's contribution to the nett matrimonial asset pool at 62.5 per cent. This takes into account that the debts repaid by the husband have significantly increased the asset pool available for distribution between the parties.
50. I take into account the ongoing renovations would have slowed down the potential increase in the property value, particularly the unfinished state of the external brickwork. I do not consider the husband was deliberately attempting to undermine the value of the home, but there is no doubt that when this work is completed it will ultimately be to the husband's advantage, assuming he does retain the property. That, of course, is the order that he is seeking.
Her Honour then turned to consider the relevant s 75(2) factors.
The Federal Magistrate had regard to the health of the husband.
Her Honour found there to be a substantial income differential between the parties which her Honour considered to be a significant factor in the assessment of the parties’ future needs.
Her Honour noted the husband wished to retain the former matrimonial home and had retained the bulk of the parties’ furniture and household effects. The Federal Magistrate acknowledged that the wife will incur significant expense in re-furnishing once she re-establishes her own home, and these are expenses the husband will not have.
The Federal Magistrate did not consider that either party had suffered a negative impact on their earning capacity due to the marriage.
Finally, her Honour had regard to the parties’ current living arrangements and then concluded with respect to the s 75(2) factors:
62.When I take into account my discussion of all of these factors I find that an adjustment in the wife's favour is appropriate. Notwithstanding the husband's potential health problems in the future, his immediate income earning capacity is substantially greater than that of the wife's. Neither party is earning a dramatically large income, but there is a significant difference between the income that I estimate the husband will be able to achieve and that which the wife is likely to be able to achieve with full-time work.
63. I have already referred to the fact that once the family home is properly renovated the value will increase substantially and give the husband access to a substantially more valuable asset and resource. When I take these factors into account together with the length of the parties' marriage, I consider that an adjustment of 5% in favour of the wife is appropriate.”
The assets were therefore to be divided 57.5% to the husband and 42.5% to the wife. On this calculation the wife would retain assets to the value of $116,465, requiring a payment of $90,000 to her. The Federal Magistrate found that that would still leave the husband with net assets of greater value than the wife will have. Despite this, her Honour was satisfied that this outcome was “just and equitable as between the parties”.
Reasons for judgment delivered on 27 February 2008
At the commencement of the reasons, the Federal Magistrate explained that the hearing arose due to a request by counsel for the wife. Her Honour did not consider that she was “functus officio” in the matter as the orders had not yet been sealed or entered upon the court record.
The Federal Magistrate outlined the concerns of counsel for the wife regarding her Honour’s adjustment of 25% between the parties’ respective contributions. The issue was whether her Honour in fact only intended an adjustment of 12.5%.
The Federal Magistrate discussed her calculation of the asset pool and her treatment of the sum of $64,000 from the insurance payout, and her Honour said this:
8. In looking back over my calculations it seems that, in the course of considering the various permutations on the figures, I considered various asset pools, including a net asset pool without any amount added back from the husband’s insurance payout, which would therefore be valued at $210,000. The sum of $64,000, when expressed as a percentage of this smaller net asset pool, equals approximately 30% of that figure.
9. Ultimately I concluded it was appropriate to add back that amount of $64,000 into the net matrimonial asset pool. However it seems I failed to then adjust my calculations to assess $64,000 as a percentage of $274,000, but carried over the 30% figure, in error. In ultimately assessing the parties’ contribution differential to 25%, this was a reduced allocation of the husband’s contribution based on the $64,000 as a percentage of a notional net asset pool valued at $210,000 which of course was not the figure I ultimately relied upon in my judgment.
10. I apologise to the parties for this error. If I had set out all of my calculations in my judgment, no doubt I would have avoided this confusion. However I wish to make it clear that a 12.5% adjustment as queried by Ms West does not appropriately reflect the extent of the husband’s post separation contribution and was not contemplated by me. Nowhere in my calculations did I base my assessment on an adjustment of 12.5% in favour of the husband. I consider that would be far too modest an adjustment, given the significance of the husband's post-separation contribution.
11. In light of this error, I must now calculate the sum of $64,000 as a percentage of the notional net asset pool as determined by me, in the sum of $274,000. The sum of $64,000 equals approximately 23% of the net asset pool.
12. On my previous calculations, based on the other post separation factors discussed in my earlier judgment, I effectively reduced the husband’s contribution by one sixth, from 30% down to 25%. Insofar as the error came about in my calculations rather than my assessment of the facts before me, I consider it is appropriate to apply the same variation to the correct figures.
13. Therefore the calculations that I previously relied upon to rule on this matter need to be varied. The husband’s identifiable post separation contribution in the sum of $64,000 represents 23% of the notional net asset pool and it remains appropriate to reduce the weight to be allocated to that post-separation contribution by a factor of one sixth. A reduction of one‑sixth of 23% equals approximately 20% and I conclude this is the appropriate adjustment in the husband's favour. I had previously reduced the weight to be attached to his post separation contribution on account of the other factors I briefly outlined in my original reasons, and I maintain that conclusion.
Her Honour therefore concluded that a 20% adjustment in favour of the husband was appropriate, resulting in the husband’s contributions being assessed at 60% and the wife’s at 40%.
The Federal Magistrate did not see any basis for revisiting her previous discussion of the relevant s 75(2) factors and maintained the adjustment in the wife’s favour of 5% in accordance with the earlier judgment. The asset pool was therefore to be divided 55%/45% in favour of the husband.
Her Honour calculated, taking into account assets retained by the wife, that a payment of $96,860 was due to the wife, less an adjustment of $5,000 which her Honour indicated was conceded by the wife at trial but which her Honour had overlooked in her earlier judgment. The husband was therefore to pay to the wife $91,860.
Finally, the Federal Magistrate turned to consider the wife’s application for costs relating to an interim application filed in December 2007. However, this part of her Honour’s judgment is not relevant to this appeal and I do not need to refer to it.
Grounds of appeal
In the Amended Notice of Appeal the wife set out the following grounds of appeal:
A. That the learned Federal Magistrate erred in:
1(a) determining that the sum of $26,000.00 should not be brought to account (as being the husband’s living expenses) and there was no or no sufficient evidence to justify such a finding;
(b)determining that the payment to the wife should be reduced by $5,000 on account of monies received by the wife when the said sum had not been included in the net asset pool.
2 including the husband’s current motor vehicle and related debt in the pool of assets or alternatively failing to bring into account the expenditure by the husband as to the purchase of a motor vehicle after separation and the consequential loss in value as a negative contribution by the husband;
3 failing to include the value of the husband’s motor vehicle (at separation) in the asset pool but including the debt thereto.
4 including the husband’s taxation liability at $22,000.00 in lieu of $12,000.00 (incurred post separation and arising from his post separation earnings).
5 finding that the value of the husband’s household contents (including dune buggy) was $15,435 when:
(a) such figure was not agreed; and
(b)such figure was inconsistent with the only evidence before the Court which was the valuations of the parties joint expert contained in Annexures G and H to the wife’s trial affidavit;
6 attributing a 20% loading on contribution in respect to insurance monies received by the husband following separation without taking into account any indirect contribution made by the wife in respect of the maintenance or conservation of the insurance policies or in assessing that contribution as against all other contributions;
B.As a consequence of the foregoing errors in assessment of the value of the pool of assets and the respective contribution of the parties the learned Federal Magistrate failed to make an appropriate adjustment pursuant to Section 79(4)(d)(2) [sic] (that is section 75(2) factors);
1 in omitting any reference to the $26,000.00 retained by the husband;
2 by giving insufficient weight to the discrepancy in the parties earning capacity;
3 by not considering or in the alternative giving insufficient weight to the discrepancy in the parties respective capital positions
and in determining a further adjustment to be made such adjustment was manifestly unjust.”
The appellant did not proceed with ground A5 at the hearing of the appeal.
The appellant sought the following orders:
1.That in lieu of paragraph 1(b) of the Order made by the Federal Magistrates Court on 27th February 2008 the following order be inserted:
‘1. (b) pay to the wife as she directs the sum of $142,731.40.’
1That the respondent husband do pay the appellant wife’s costs of and incidental to this.
…
The respondent sought that the appeal be dismissed.
Appellate principles
This is an appeal challenging the exercise of discretion by the Federal Magistrate and the principles relevant to such a challenge are well settled, as outlined in GRONOW v GRONOW (1979) FLC 90-716 and HOUSE v THE KING (1936) 55 CLR 499.
In GRONOW v GRONOW (supra) Stephen J stated at 78,848:
The constant emphasis of the cases is that before reversal an appellate court must be well satisfied that the primary judge was plainly wrong, his decision being no proper exercise of his judicial discretion. While authority teaches that error in the proper weight to be given to particular matters may justify reversal on appeal, it is also well established that it is never enough that an appellate court, left to itself, would have arrived at a different conclusion. When no error of law or mistake of fact is present, to arrive at a different conclusion which does not of itself justify reversal can be due to little else but a difference of view as to weight: it follows that disagreement only on matters of weight by no means necessarily justifies a reversal of the trial judge. Because of this and because the assessment of weight is particularly liable to be affected by seeing and hearing the parties, which only the trial judge can do, an appellate court should be slow to overturn a primary judge's discretionary decision on grounds which only involve conflicting assessments of matters of weight.
In HOUSE v THE KING (supra), Dixon, Evatt and McTiernan JJ said at 504:
The manner in which an appeal against an exercise of discretion should be determined is governed by established principles. It is not enough that the judges composing the appellate court consider that, if they had been in the position of the primary judge, they would have taken a different course. It must appear that some error has been made in exercising the discretion. If the judge acts upon a wrong principle, if he allows extraneous or irrelevant matters to guide or affect him, if he mistakes the facts, if he does not take into account some material consideration, then his determination should be reviewed and the appellate court may exercise its own discretion in substitution for his if it has the materials for doing so. It may not appear how the primary judge has reached the result embodied in his order, but if upon the facts it is unreasonable or plainly unjust, the appellate court may infer that in some way there has been a failure properly to exercise the discretion which the law reposes in the court of first instance. In such a case, although the nature of the error may not be discoverable, the exercise of discretion is reviewed on the ground that a substantial wrong has in fact occurred.
Ground A1(a)
The appellant wife submitted that the full amount of the insurance payout ($90,200) should have been added back to the asset pool. She said it was the joint decision of the parties to take out income insurance protection and the premiums were paid jointly in effect up until the husband suffered his heart attack.
She said that there was no evidence to substantiate the husband’s claimed expenditure of the money remaining after the payment of certain of the debts of the parties as at the date of separation, and thus that amount should not have been excluded. The Federal Magistrate found that that amount was $26,000, but it was submitted on behalf of the wife that the amount the husband had not accounted for was in fact $36,221. This amount was calculated on the basis that the amount of the husband’s taxation liability at separation was $12,040 and not $22,387. This issue is the subject of ground A4 of the notice of appeal and I will leave any discussion of it until I consider that ground.
In determining whether the full amount of the payout should be added back, the Federal Magistrate made the following findings in the first judgment:
20.All of the funds from the husband’s insurance payout have been spent. Counsel for the wife was rightly critical of the husband’s failure to provide proper discovery. Aside from those matrimonial debts that the parties agree were paid out, the husband failed to produce any bank records to show how the balance of the insurance payout was spent.
21.There is no doubt that this payout represents a significant post‑separation contribution by the husband. It was the source of funds used by the husband to discharge certain debts of the marriage… To the extent that the insurance monies were used to repay matrimonial debts, I consider it is appropriate to include those funds within the assessment of the asset pool.
22.The question then is whether the full amount should be included in the asset pool, as the wife seeks. The husband argues that it is not appropriate to add back the full $90,200 into the asset pool. He says the balance of those funds (approximately $26,000) was spent on appropriate personal expenditure and towards the ongoing home renovations. In that sense the husband says that he has not deliberately disposed of or ‘wasted’ those funds.
23 There is no documentation from the husband to support this claim. His affidavit refers to using the insurance funds to support himself whilst he was unable to work after the heart attack, but of course the evidence before the Court is that he was able to return to work within a few weeks. The reality is the Court has no documentary information about how or where those funds were expended.
24.I take into account the absence of documentary evidence on this issue, but at the end of the day I decline to add back in the balance of the insurance payout. The reality is that the insurance was a “recovery insurance policy” designed to assist the husband after a serious health incident. I consider that the husband was entitled to utilise those funds to assist with his recovery and to assist with his living expenses across that time.
25.While it is unlikely that he spent the remaining $26,000 across the few weeks he was unable to work, his return to work may well have been gradual, with an associated impact on his income. I am not prepared to be overly critical of the husband, particularly given that a substantial portion of the insurance payout was used to discharge matrimonial debts. While I will not include the balance of those funds as an add-back to the asset pool, this approach will affect my assessment of the husband's post‑separation contribution.” [Emphasis added]
The wife referred this Court to the authorities of OMACINI and OMACINI (2005) FLC 92-218 and M and M (1998) FamCA 42 in support of the ground of appeal.
In OMACINI the court identified the following circumstances in which it is appropriate to notionally add back assets to the pool, at 79,617:
(a) Where the parties have expended money on legal fees.
…
(b) Where there has been a premature distribution of matrimonial assets.
…
(c) In the circumstances outlined by Baker J in Kowaliw and Kowaliw (1981) FLC ¶ 91-092 at 76,644:
“As a statement of general principle, I am firmly of the view that financial losses incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:
(a) where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or
(b) where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.
Conduct of the kind referred to in para. (a) and (b) above having economic consequences is clearly in my view relevant under sec 75(2)(o) to applications for settlement of property instituted under the provisions of sec 79.
The principle emanating from M and M is that as a general rule funds reasonably expended on living expenses are not added back. The Full Court said:
2.11There seems to be no appropriate basis for notionally adding back moneys that existed at separation but which have been subsequently spent on meeting reasonably incurred necessary living expenses. Neither the Family Law Act nor the case law require that parties go into a state of suspended economic animation once their marriage breaks down pending the resolution of their financial arrangements. Parties are entitled to continue to provide for their own support. Whether any expenditure so incurred is reasonable or extravagant is a matter that can be determined by the trial Judge.
There is no doubt that if all of the proceeds of the insurance policy were still intact they would have been included in the asset pool, and the fact that the money was received after separation does not change this consequence (e.g. see FARMER and BRAMLEY (2000) FLC 93-060 and CAVANAUGH and THRUM (2002) FamCA 196). That fact though becomes highly relevant when assessing the respective contributions of the parties. Here the money had all been spent and thus the initial question for the Federal Magistrate was should any of that money be added back?
The husband of course chose to use some of that money to pay off certain debts of the parties in existence at separation, and the Federal Magistrate determined to add back the amount paid out as a notional asset and include the liabilities paid out. Now in fact the Federal Magistrate did not need to do this. In assessing the net asset pool for the purposes of the hearing the Federal Magistrate could have simply proceeded on the basis that the husband used money received by him after separation to pay out debts of the parties and left out both amounts from the calculation. However, the wife does not quibble with the approach in fact taken by the Federal Magistrate in this regard, and nor does the husband.
The real issue though relates to the balance of the money received, whether that was $26,000 or $36,221, and the question is should that amount be added back as a notional asset?
Although it is not entirely clear from the reasons of the Federal Magistrate, it seems to me that in the end result her Honour did not add back that amount because she did not consider that it was an amount that it was appropriate to add back under the principles referred to by the Full Court in OMACINI. Her Honour treated the insurance as “a ‘recovery insurance policy’ designed to assist the husband after a serious health incident” and considered “that the husband was entitled to utilise those funds to assist with his recovery and to assist with his living expenses across that time”. Thus, for her Honour’s purposes the husband’s failure to present documentary evidence of how he spent the money was not to the point.
However, in my view, the Federal Magistrate has erred in this regard. I consider that given that if that money had still been there it would have been included in the net asset pool, the husband’s use of it was a “premature distribution” of an asset of the parties (OMACINI, supra). It is in that category because both parties have contributed to it and it would have otherwise been available for distribution and it is not to the point for this purpose that the event which actually led to the amount was the husband’s heart attack suffered after separation.
Thus the amount should have notionally been added back to the asset pool unless the husband could satisfy the Federal Magistrate that it was spent for example “on meeting reasonably incurred necessary living expenses”. However, the husband clearly did not satisfy that onus and in effect the Federal Magistrate so found. Thus instead of making assumptions about what the money could have been used for in the absence of proper evidence the Federal Magistrate should have proceeded to notionally add it back.
Accordingly I find that there is merit in this ground of appeal..
Ground A1(b)
As noted by the Federal Magistrate in the judgment of 27 February 2008, the wife concedes she withdrew $5,000 from the parties’ joint bank account after the insurance monies were paid into that account.
It was submitted on behalf of the wife, however, that this $5,000 came from the amount of $26,000 of the insurance monies which the Federal Magistrate did not add back to the asset pool. Thus, the wife says that the Federal Magistrate erred in deducting the amount of $5,000 from the wife’s entitlement as these funds were never included in the asset pool. She submits that either the $26,000 should have been added to the pool, as discussed above, or the $5,000 adjustment should not have been made by her Honour.
For the husband’s part, his counsel submitted that this amount of $5,000 should have been added back to the asset pool, and that was technically an error by the Federal Magistrate but the “effect” of doing that miscalculation is “modest” and it does not warrant interference.
In the circumstances there is no doubt that the Federal Magistrate erred in at least not adding back the amount of $5,000. However I do not agree that this error does not warrant interference and I would have allowed the appeal on this ground alone, but given that I have found that her Honour should have added back the entire balance of the insurance monies that result overtakes and deals with this error as well.
Grounds A2 and A3
Both of these grounds address the Federal Magistrate’s treatment of the husband’s motor vehicles and related debts. The Federal Magistrate made the following findings in the judgment delivered on 19 February 2008:
26 The wife argued that the Ford utility purchased by the husband post-separation should be excluded, along with the associated debt. Again, I refer to the approach endorsed by the Full Court, which is to assess the matrimonial assets at the time of trial. The Ford utility was purchased in an associated deal where the Toyota Hilux (owned by the parties during the marriage) was sold. The parties disagree about how the proceeds of sale from the Hilux vehicle were utilised, but it was clearly part of the deal to purchase the Ford utility. I see no reason not to include the Ford utility and its associated debt within my assessment of the asset pool.
…
36. The husband has paid out the Adelaide Bank loan with respect to the Toyota Hilux. That vehicle, as we know, has been traded in. There is a dispute about the amount the husband repaid on the Adelaide Bank loan. The husband says he paid off approximately $9,500 by way of a cash repayment, or a repayment made up of cash and the trade-in of the Hilux. In paragraph 62 of his affidavit, however, the husband says that he repaid the sum of $6,500 with respect to that debt.
37.I then heard evidence about whether the $3,000 trade-in on the Hilux was directed to a deduction on the price of the husband’s new Ford utility or off the Adelaide bank debt. The husband was cross‑examined in this regard, but his evidence was uncertain and unclear. In the absence of any documentation to the contrary I will rely on the figure contained in his affidavit and conclude that the husband paid the sum of $6,500 to discharge the Adelaide Bank loan.
…
39. … The St George loan, of course, is still outstanding. It relates to the vehicle the husband’s Ford utility. Having included that vehicle as an asset, I include the debt also.
The wife submitted the Federal Magistrate should not have included the husband’s new car and the associated debt, or alternatively that it should have been treated as a “negative contribution” by the husband. The wife states she was not consulted regarding the purchase and that the purchase has decreased the net value of the asset pool as the debt now exceeds the vehicle’s value. The wife asserted that this is analogous to the situation in CHORN and HOPKINS (2004) FLC 93-204, where the husband purchased an engagement ring after separation and borrowed the entire amount. The wife also submitted that her Honour erred in not including the value of the Toyota Hilux, but including the debt with respect to this vehicle.
There is no question that the Federal Magistrate was correct in including in the net pool of assets the value of the motor vehicle and the associated liability. They were in existence at the date of the hearing and it does not matter for this purpose that the motor vehicle was purchased and the liability incurred after separation. Again I refer to the Full Court decisions in FARMER and BRAMLEY (supra) and CAVANAUGH and THRUM (supra) as authority for this proposition.
I also do not consider that this situation is analogous to how the Full Court in CHORN and HOPKINS dealt with the engagement ring. That was purchased on credit by the husband after separation for his partner, and the partner ultimately provided the husband with the funds. In these circumstances the Full Court found that the ring should not be included in the asset pool, and this is easily distinguishable from the case at hand.
The alternative complaint by the wife is that the Federal Magistrate should have taken the “decrease” in the net value of the asset pool into account as a “negative contribution”. Again I do not consider that there is any merit in this criticism. Firstly what the wife can only be referring to is that the principles of KOWALIW (supra) apply in that the husband has allegedly acted in a way “designed to reduce or minimise the effective value of worth of matrimonial assets”, and the Federal Magistrate should have taken that into account.
Here the “reduction” of the value of the asset pool is an increase in the net liability relating to motor vehicles from that applying at separation of $8,900, taking into account the Adelaide Bank loan of $6,500. However, there was either no or at least insufficient evidence to establish that the husband “has embarked upon a course of conduct designed to reduce or minimise the effective value of the pool of assets, or has acted recklessly, negligently or wantonly with matrimonial assets” (per Baker J in KOWALIW, supra). The husband’s comments to the wife to the effect that she will “pay half the debts as well” do not go near to satisfying the requirements of the authorities, and thus there was nothing for the Federal Magistrate to take into account in this regard.
In relation to the complaint about the Toyota Hilux I agree with the submission of the counsel for the husband that the wife must have misunderstood the approach taken by the Federal Magistrate. In the paragraphs of the judgment quoted above her Honour found that the proceeds of sale of the utility were clearly part of “the deal to purchase the Ford utility”, and that those proceeds were paid off the loan leaving $6,500 owing. The value of the Toyota is represented in the inclusion of the Ford utility in the assets, the associated debt of $19,651 and the Adelaide Bank loan of $6,500.
I find that there is no merit in either of these grounds of appeal.
Ground A4
The Federal Magistrate made the following findings in the judgment delivered on 19 February 2008 with respect to the amount of the husband’s taxation liability at separation:
34.The husband has paid the sum of $22,387 to the ATO since separation. The husband says this was the amount owing at separation. The wife claims that the parties owed only $12,040 at separation. In that regard she relies upon the ATO statement of 26 November 2005 (exhibit “W7”). This Statement indicates that the debt outstanding on 26 November 2005 was $22,387 but that the previous amount outstanding as at 30 October 2005 was only $12,040.
35.However the ATO statement sets out the further items added to the husband's indebtedness, under a heading, "Details of Transactions relating to prior periods not listed on previous RBA statements." This heading suggests that there may well be portions of the overall amount of $22,387 owing at 26 November 2005 that include pre-separation liabilities not properly entered on earlier ATO statements. Given that level of uncertainty I am inclined to include the full amount paid by the husband to the ATO of $22,387 as a matrimonial debt.” [Emphasis added]
This finding was clearly open to her Honour on the evidence before the court, and in particular on the basis of the statement from the Australian Taxation Office. That statement identified that the additional amounts were for the period up to 30 September 2005, and that they were not listed on previous statements. Separation in this case occurred on 4 September 2005. Thus, I do not consider that there is any merit in this ground.
The wife criticised the husband for failing to provide documentation to support his claim that the amount of $22,387 was in fact the amount owing at separation. However, in her affidavit of evidence in chief the wife conceded that that was the correct amount and only changed her mind and disputed the same just before trial. In those circumstances the husband was only able to present the Australian Taxation Office statement and it was entirely inappropriate for the wife to complain about lack of any other documentation.
I note that the effect of finding the amount to be $22,837 is that the balance of the insurance monies is $26,000 and not $36,221.
Ground A6
The Federal Magistrate set out her assessment of the husband’s contribution by way of the insurance payout in paragraphs 47 to 49 of the judgment delivered on 19 February 2008:
47.Clearly, the most significant post-separation contribution relates to the husband's insurance payout and he must receive some adjustment in that regard in my view. The insurance was only there, of course, by virtue of the parties' joint decision to take out the insurance during the marriage, and to that extent both parties have contributed to the availability of that payment and the reality of that payment coming into the family finances, even after separation.
48 A significant portion of this sum was used to reduce the parties' debt, and that has significantly increased the asset pool available for distribution between the parties. In light of my decision not to add back into the asset pool the amount over and above the $64,000 used by the husband in reduction of debt, this affects the weight that should be added to the husband's contributions by virtue of this insurance payout.
49.The husband's greater direct financial contribution from that insurance payout should be acknowledged, and to that extend [sic] his contribution has been greater than that of the wife. I assess the husband's contribution to the nett matrimonial asset pool at 62.5 per cent. This takes into account that the debts repaid by the husband have significantly increased the asset pool available for distribution between the parties.
In the judgment of 27 February 2009 the Federal Magistrate altered her assessment of the husband’s contributions to 60% in lieu of 62.5%. I do not need to delve into the detail of why the Federal Magistrate made this change. It is not the subject of any ground of appeal and it does not impact on the ground of appeal that I am now considering. Nevertheless, it is quite apparent that the Federal Magistrate determined that there should be a 20% differential between the assessment of the respective contributions of the parties primarily because of the husband paying out the debts of the parties from the insurance proceeds.
The wife’s counsel initially submitted that the Federal Magistrate erred in that:
iThe learned Federal Magistrate treated the receipt of the insurance payment as a contribution;
iiThe learned Federal Magistrate did not properly take into account that the payment was the result of a contractual relationship contributed to equally by the parties rather than by the husband;
iiiThe learned Federal Magistrate treated the insurance payment as though it were damages or compensation payment received by the husband on account of some loss or damage rather than as a windfall;
ivThe learned Federal Magistrate failed to characterise such payment as a windfall given the husband’s prompt return to work and recovery.
In relation to “i” there was nothing in the reasons for judgment of either 19 February 2008 or 27 February 2008 that indicates that this was the case. Indeed, the Federal Magistrate made it quite clear in paragraph 49 for example that the contribution was a direct financial contribution by way of the payment of debts.
In relation to “ii” there is no doubt that the Federal Magistrate was alive to this issue and that is apparent from paragraph 47. Thus the complaint can only be framed as the Federal Magistrate did not “properly take this into account”. However, as is apparent from what Stephen J said in GRONOW (supra) it is extremely difficult to succeed “in overturning a primary judge’s discretionary decision on grounds which only involve conflicting assessments of matters of weight”. Here, I do not consider that the wife has done enough to succeed. The Federal Magistrate indicated that she reduced the “weight to be allocated” to the husband’s post-separation contributions “on account of the other factors” outlined in her reasons. These other factors included what her Honour recognised in paragraph 47. Thus there is no error in this regard.
In relation to “iii” and “iv”, this indicates the misguided premise on which the wife has pursued this ground of appeal. This payment was not a windfall. It was a payment received by the husband because he suffered a heart attack. It matters not that it was a minor attack from which he recovered. Despite the husband’s good fortune in this regard, his health into the future is “significantly compromised” as a result according to the evidence of his cardiologist. Thus, although the fact that it was a joint decision to take out the insurance and the fact that the premiums were maintained out of the parties’ joint funds can be treated as contributions by each of the parties, there still needed to be a life-threatening event before a payment could be made. It is simply not open to the wife to argue that the parties have contributed equally to this payout. It is the husband’s money to which the wife has made an indirect contribution of a relatively minor nature. Thus again there is no error by the Federal Magistrate here.
The wife then submits that the Federal Magistrate made an error in suggesting that the debts repaid by the husband have significantly increased the asset pool available for distribution between the parties by failing to take into account that the purchase by the husband of a second motor vehicle diminished the pool of assets. I have dealt with this under an earlier ground of appeal and I do not need to say anything further in relation to it.
Finally, the wife also complains in this ground of appeal that the Federal Magistrate failed to assess the husband’s contribution of the insurance monies against “all other contributions”. As appears in her counsel’s written outline, it seems that the wife is here suggesting that the Federal Magistrate failed to take into account such things as the husband having the use of the former matrimonial home on 10 hectares of land, the use of the vast majority of the furniture and effects, the motor vehicle, motor bike and dune buggy, the entire proceeds of the parties’ joint bank account and the credit cards.
Now the wife is correct, the Federal Magistrate did not refer to these matters, but her Honour did not need to. They are not contribution issues. At best they are either s 75(2) factors or matters which may affect the justice and equity of the proposed orders. Thus there is no error here by the Federal Magistrate.
The wife also seems to be suggesting that the Federal Magistrate did not take into account in assessing what weight to give to the husband’s contributions post-separation the retention by him of the amount of $26,000. However, that is simply not correct. The Federal Magistrate specifically referred to this in paragraph 48. Thus again I can find no error on the part of the Federal Magistrate in this regard.
In these circumstances I find that this ground of appeal has no merit.
Ground B
This is a confusing ground of appeal. It is suggested that as a result of the errors complained of by the wife in the assessment of the value of the pool of assets and the respective contributions of the parties the Federal Magistrate failed to make an appropriate adjustment pursuant to s 75(2). However, in fact the complaint appears to be that with the asset pool and the contributions as found by the Federal Magistrate there should be a greater adjustment than the 5% adjustment applied by the Federal Magistrate, namely an adjustment of between 10% and 15%. Alternatively, if the alleged errors as to the assessment of contributions are remedied then the wife says a 5% adjustment is appropriate.
The Federal Magistrate addressed the relevant s 75(2) factors in paragraph 51 to 63 inclusive of the judgment delivered on 19 February 2008. It is a detailed and extensive consideration covering s 75(2)(a) – the parties’ age and state of health, s 75(2)(b) – the parties’ income, property and financial resources, s 75(2)(k) – the duration of the marriage, and s 75(2)(n) – the circumstances of either parties’ cohabitation.
There are three specific areas of complaint by the wife set out in the ground itself, and dealing with each in turn:
109.1True it is that the Federal Magistrate did not “refer” to the $26,000 retained and spent by the husband from the insurance monies that he received but it is unclear on what basis it is suggested that her Honour should have referred to it. The Federal Magistrate took this circumstance into account when assessing husband’s contributions, and there is no obvious basis on which it should be referred to again.
109.2The Federal Magistrate spent a good deal of time in discussing and making findings as to the respective incomes of the parties and their potential earnings, and her Honour then said this:
“55.There is clearly a substantial income differential between the parties. This is a significant factor in my assessment of the parties' future needs and any adjustment that should flow from the section 75(2) factors.”
The challenge is to the weight attached to the income differential by the Federal Magistrate, but as I have said already that is a difficult submission to make in light of what Stephen J said in GRONOW (supra) and again I am not satisfied that the Federal Magistrate erred in this regard.
109.3The ground of appeal is that the Federal Magistrate did not consider or have sufficient regard to the parties’ respective “capital positions”, but in fact the complaint appears to be that the Federal Magistrate did not take into account that on the basis of their respective contributions the assets were to be divided 60%/40% in favour of the husband. Again, the Federal Magistrate did not refer specifically to this discrepancy, but there is no doubt that the Federal Magistrate was well aware of that circumstance, and what her Honour did specifically refer to was the fact that the husband would be retaining the former matrimonial home and the furniture and household effects, and that the value of the home will appreciate once certain renovations were completed. Thus again it just becomes a matter of weight.
Although I might consider that a 5% adjustment is less than what I would have determined, that is not the test. It is certainly at the lower end of the scale but it cannot be said that it is manifestly unjust or so unreasonable that it can be implied that the exercise of discretion has miscarried. Thus this ground of appeal also fails.
Conclusion
In the end result I have found that the only error made by the Federal Magistrate was in failing to notionally add back to the net asset pool the balance of the insurance monies received by the husband after the payment of certain debts of the parties.
As a result of that error the appeal should be allowed, but in the circumstances it is unnecessary to remit the matter to the Federal Magistrates Court, and I propose to in effect re-exercise the discretion by notionally adding back the amount of $26,000 to the asset pool and then recalculating the figures using the same percentage division as found by the Federal Magistrate.
Adding back $26,000 to the net asset pool increases it to $300,037. 55% of that is $165,020, and 45% is $135,017. The wife still retains assets to the value of $26,456 and she has received $5,000 from the monies retained by the husband. Thus the amount to be paid to the wife by the husband is $103,561.
I certify that the preceding 113 paragraphs are a true copy of the reasons for judgment of the Honourable Justice Strickland delivered 14 May 2009.
Associate
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