MORROW & STEELE (No.2)
[2015] FCCA 1259
•20 May 2015
FEDERAL CIRCUIT COURT OF AUSTRALIA
| MORROW & STEELE (No.2) | [2015] FCCA 1259 |
| Catchwords: FAMILY LAW – Property dispute – draft orders published – parties to confer – parties wholly failing to confer – both parties seeking to revisit earlier judgment and/or to re-open their case – whether court has power to reconsider earlier judgment when orders not yet entered – court revising outcome in light of further submissions – orders made in an endeavour to produce a workable just and equitable outcome. |
| Legislation: Federal Circuit Court Rules 2001, r.16.05(1) |
| IABH & HRBH [2010] FamCA 110 Rosati v Rosati (1998) FLC 92-804 Ashby v Slipper (No.2) [2014] FCAFC 67 Blank v Commissioner of Taxation (No.2) [2014] FCA 517 |
| Applicant: | MS MORROW |
| Respondent: | MR STEELE |
| File Number: | MLC 4205 of 2013 |
| Judgment of: | Judge Burchardt |
| Hearing date: | 25 March 2015 |
| Date of Last Submission: | 25 March 2015 |
| Delivered at: | Melbourne |
| Delivered on: | 20 May 2015 |
REPRESENTATION
| Counsel for the Applicant: | Mr Sweeney |
| Solicitors for the Applicant: | Pearsons Lawyers Pty Ltd |
| Counsel for the Respondent: | Mr Robinson |
| Solicitors for the Respondent: | Blackwood Family Lawyers |
ORDERS
The husband and wife forthwith do all acts and things required of them to instruct Tisher Liner, solicitors, to pay the following sums from the funds held on trust for the parties:
(a)The sum of $143,267 to (omitted) accountants, to be held on trust for the parties to be applied in the following priority:
(i)To pay to the Commissioner of Taxation any unpaid tax of the wife related to the years ended 30 June 2013;
(ii)To pay to the Commissioner of Taxation any personal taxation of the husband and the wife assessed as payable by her or him on any distributions or payments from the (omitted) Trust.
(iii)The balance to be paid to the husband, or at his direction, to meet any taxation liability incurred in his name.
(b)The balance to be paid to the wife.
The husband sign all documents and do all acts and things required of him personally and his capacity as a director, to transfer to the wife at the expense of the transferring entity, the whole of his right, title and interest in the BMW motor vehicle currently driven by the wife.
That the husband pay to the wife the sum of $500,000 (“the payment”) on or before 31 July 2015 (“the date”).
Contemporaneously with the payment in paragraph 3 hereof, the wife relinquish any and all interest she has or may have had in:
(i)The (omitted) Trust;
(ii)(omitted) Pty Ltd;
(iii)(omitted) Pty Ltd;
(iv)(omitted) Unit Trust;
(v)(omitted) Pty Ltd;
(vi)The (omitted) Trust;
(vii)(omitted) Pty Ltd;
(viii)(omitted) Pty Ltd;
(ix)(omitted) Partnership;
(x)(omitted) Pty Ltd;
(xi)(omitted) Pty Ltd;
(xii)(omitted) Pty Ltd;
(xiii)(omitted) Investment Trust;
(xiv)Steele Investments Pty Ltd –
(“the Steele Group”).
The husband pay and indemnify the wife against any and all liabilities of whatsoever nature and kind of the Steele Group and including any liability of the parties personally howsoever arising from their involvement in the Steele Group including but not limited to any taxation arising in the name of the wife or on her behalf.
Pursuant to s.90MT(1) of the Family Law Act 1975, there be the sum of $67,481 shall be “split” from the superannuation interest held by the husband in the (omitted) Retirement Fund and paid to the Trustee of a fund nominated in writing by the wife and there shall be a corresponding reduction in the entitlement that the husband would have had in the said Fund and which he would have received but for this Order;
That this Order binds the Trustee of the Fund and takes effect from the operative time being the fourth business day after the date of service of these Orders on the Trustee;
That the Trustee of the Fund in accordance with the obligations set out under the Family Law Act 1975 and Family Law (Superannuation) Regulations 2001, shall do all such acts and things and sign all such documents as are necessary to make payments to the wife in accordance with this Order.
The Trustee of the Fund be forthwith served with a sealed copy of this Order.
That until the happening of any of:
(a)The split and transfer referred to in paragraph 8 hereof;
(b)The transfer or “rolling over” into another superannuation fund of the payment split created by this Order hereof; or
(c)The wife satisfied a condition of release and is paid the payment slip which is created by this Order hereof; or
(d)The wife executes a waiver of rights within the meaning of the s.90MZA of the Family Law Act 1975 in relation to the payment split created by paragraph 8 hereof; the husband nominate the wife as the sole beneficiary of the entitlements payable by the Fund in the event of his premature death and he be and is hereby restrained by himself, his servants and/or agents from executing a death benefit nomination in favour of any person or from nominating any beneficiary under the fund other than the wife or doing any other acts or things which would render any part of his interest in the Fund a “non-splittable payment” within the meaning of Regulations 12 or 13 of the Family Law (Superannuation) Regulations 2001 including executing any death benefit nomination in favour of any child or other person.
Each party shall be equally liable to pay the costs of Mr F for the preparation of his report to the Court and for his attendance at the Court to give evidence.
Unless otherwise specified in these Orders:
(a)Each party be solely entitled to the exclusion of the other to all property (including choses-in-action) in the possession of such party as at this date.
(b)Monies standing to the credit of the parties in any bank account are to become the property of the owner of the bank account;
(c)Each party hereby forgoes any claim they may have to any superannuation benefits belonging to or earned by the other, save as is provided herein;
(d)All insurance policies to become the sole property of the beneficiary named therein;
(e)Each party be solely liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled pursuant to this Agreement;
(f)Any joint tenancy of the parties in any real or personal property to be otherwise expressly severed.
IT IS NOTED that publication of this judgment under the pseudonym Morrow & Steele (No.2) is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT AT MELBOURNE |
MLC 4205 of 2013
| MS MORROW |
Applicant
And
| MR STEELE |
Respondent
REASONS FOR JUDGMENT
Introductory
This judgment does the best I am able to resolve the outstanding aspects of a long-running and bitterly contested dispute, (as I have observed before), between the parties. On 13 February 2015
I delivered Reasons for Judgment in which I did my best to define the pool (the subject of conflicting expert opinion) and the proportions in which the pool should be distributed between the parties. I observed at paragraph 148:
“As I indicated at the outset it is not possible to contemplate making final orders without hearing further from the parties. The pool needs to be calculated in the light of my findings. Once that is done thought needs to be given to how the orders are to be effected given the practical problems associated with realising any, let alone all, of the Steele Group. I will give the parties the necessary opportunity to study these Reasons for Judgment and will list the matter for further hearing thereafter.”
When the matter returned before the Court on 25 March 2015
it became clear the parties had not, as I had anticipated, conferred and reduced any difficulties between them. Rather, both parties sought, in effect, and notwithstanding the objections on the part of the respondent husband in any event, to reopen their cases.
In the circumstances it is appropriate to set out something of the history of the matter, then deal with the issues the parties raised on 25 March 2015, examine the law in relation to the reopening of cases, and to endeavour finally to determine the case.
The history of the matter
This matter commenced with the wife's application filed on 28 May 2013. It has since exfoliated into materials that occupy two boxes and 67 items over five files. My description of it as a long-running and bitterly-contested dispute is entirely apposite.
On 16 and 17 June 2014, at the earnest entreaty of the parties, I heard parenting issues as a discrete matter. I delivered reasons for judgment in relation to those matters on 13 August 2014. No application by way of appeal or leave to appeal has been filed against the orders that
I ultimately made.
The property component of the matter, which had been delayed by valuation and various other matters, was heard on 26, 27, 28 November and 1 December 2014. On 13 February 2015 I handed down my Reasons for Judgment, as earlier indicated.
I note that in my first judgment (the parenting judgment citation [2014] FCCA 1738) I observed at paragraph 1:
“This is a parenting and property dispute between two parties who have all the appearance, at least for present purposes, of being well financially resourced. The property pool is asserted to be in excess of $10 million.”
As things have transpired, the property pool is nowhere near as large as that.
My Reasons for Judgment in the property matter (citation [2015] FCCA 251)
I noted at paragraph 4 of my second judgment the disparity between the parties' positions. The wife's proposal was that the husband receive 30 per cent of the property and the husband's best case was that he receive 80 per cent. As I observed, disparities of this enormity in projected outcomes are not commonplace in family law proceedings. I decided that a just and equitable division of the parties' property interests would be 45 per cent to the wife and 55 per cent to the husband (paragraph 5).
I observed at paragraphs 6-9 that the nature of the husband's business as a (omitted) presented significant forensic difficulties (“almost insuperable” - paragraph 7). I further noted that a forced sale of the husband's properties gave rise to yet a further difficulty, in that he was only a minority shareholder in various premises and neither expert had valued the husband's business on a forced-sale basis. At paragraph 9 I observed:
“Accordingly, what I propose to do is to resolve the controversy that the parties have presented on the evidence that has been put forward by them. This will enable me to produce a defined property pool, to assess the parties' relative contributions, and to deal with the future needs issues. Once that exercise is done, it will be necessary to revisit further the mechanics whereby this just and equitable outcome may be achieved bearing in the mind the sort of problems that I have indicated already, and which
I will deal with in greater detail in due course.”
Relevantly for these purposes, I dealt with the interrelationship between the husband and certain of his business partners, a matter which had influenced the independent valuer Mr F. At paragraphs 62-63 I noted:
“62. This goes very much to buttress, in my view, the findings made by Mr F that the parties involved in the developments with which the Steele Group has been, and remains, involved involve parties who are not acting wholly in a commercial fashion. As Mr A said, from time to time people run short of funds and they are assisted, and it is clear from Mr T's evidence that that continues to be the case.
63. Although there are clearly tensions within the various investor groups who have different plans, at least from time to time, about how properties should be dealt with and obviously there are vicissitudes in terms of financial immediate resources, the picture that emerges is one of a group of individuals who - as Mr F, in my view, rightly opined - have been doing business together in a mutually supportive way (at least most of the time) for many, many years.”
At paragraphs 78-79 I said:
“78. There is another facet on the valuation of the Steele Group with which it is necessary to deal. As I have already made clear, Mr F has not done a valuation on a liquidation basis. That would be the basis that would, in fact, occur if the Court were to make an order that Mr Steele was not able to satisfy from other sources. There is a very real risk, in my view, that were a liquidation sale to occur, the other investors would
- either through friendship (a proven matter in Mr A's case and a very possible one in respect to the others)
or opportunism (as Mr T indicated would be the case) - buy these interests at a very substantial discount and then, possibly, sell them back to Mr Steele for something close to the purchase price.
79. I am positively satisfied that Mr A would assist
Mr Steele in this way, and there must be a very real prospect that the same would happen with other investors. Thus, not only do I not have the valuation that would actually be effected in the event that the Steele Group is sold but there is, in my view,
a risk - more probable than otherwise - that Mr Steele and his colleagues would connive to produce a more beneficent result
to Mr Steele, in any event. This represents a significant practical difficulty.”
It should be noted that in addition to numerous other matters in the dispute with which I dealt, I found at paragraphs 105-106 that the sums extracted by the husband to repay his mother, together with an additional $250,000 which I found to be a gift, should all be
re-included in the pool.
At paragraph 138, under the heading of ‘Future Needs’, I noted the fact that the loans repaid to the mother would be available to the husband should he need them again. I noted at paragraph 139 that it was important to avoid an element of double counting but that it was important to also acknowledge the realities which included that the husband would have at least some $455,000 available to him from his mother, should he so require it.
I also dealt with the question of contribution and came to the conclusion that the husband should receive a 20 per cent adjustment in his favour in the light of all the relevant considerations.
The matters asserted at Court on 25 March 2015
It should be noted that most regrettably the conduct of the proceeding on 25 March 2015 was marked by palpable interpersonal tension between counsel. Objection was taken to the handing up of written submissions prepared by counsel for the wife. I upheld the submission simply to avoid further loss of time. This is just one instance of the total failure of cooperation between the parties and their representatives which has only made what was already a difficult task yet more problematic.
Counsel for the wife did, however, hand up a document which was marked as MFI7, being a tabulation of the assets of the parties and a document, MFI6, "Effect of the orders to be pronounced".
Counsel took the Court through the list of assets on the first page of MFI7 and pointed to paragraphs of the judgment which were said to sustain the values there set out. I will return to these aspects of the matter in due course.
Counsel for the wife then sought, over objection from counsel for the husband, that I clarify an aspect of my reasons for judgment. I was asked to confirm, as I understood it, that the conclusion I had set out as to contribution between the parties, in which I had set out my conclusion that there should be a 20 per cent loading in favour of the husband, did not commence from an assumption of a 50/50 division. I confirmed that although my decision had resulted in a conclusion as to a percentage adjustment, this reflected the totality of the parties' contributions including their contributions throughout the relationship and did not reflect any assumption on my part that a starting point, so to speak, was a 50/50 division.
Counsel for the husband had submitted that it was inappropriate for the Court seek, as it were, to protect itself against appeal, but in the particular circumstances of this case that was not an appropriate submission. All parties, including the husband, had urged upon the Court certain percentage findings as to contribution. The Court simply adopted the same shorthand expression as the parties themselves.
The next matter dealt with by counsel for the wife was the question of tax. It was submitted that there was a lack of evidence about tax and that only actual taxation paid should be taken off. It was submitted that if there was tax on the sale of any parts of the Steele Group, then this should be divided. Counsel referred to what he described as the Rosati principle. He handed to the Court part of his written submissions containing an extract from IABH & HRBH [2010] FamCA 110. The relevant text of the judgment at [199] and following was set out as follows:
“199. Everybody agreed that the statement made by the Full Court on Rosati & Rosati provides the basis upon which a capital gains tax and selling expenses should be dealt with in this case.
200. The general principles from Rosati at para 6.36 are as follows:-
“(1) Whether the incidence of capital gains tax should be taken into account in valuing a particular asset varies according to the circumstances of the case, including the method of valuation applied to the particular asset, the likelihood or otherwise of that asset being realised in the foreseeable future, the circumstances of its acquisition and the evidence of the parties as to their intentions in relation to that asset.
(2) If the Court orders the sale of an asset, or is satisfied that a sale of it is inevitable, or would probably occur in the near future, or if the asset is one which was acquired solely as an investment and with a view to its ultimate sale for profit, then, generally, allowance should be made for any capital gains tax payable upon such a sale in determining the value of that asset for the purpose of the proceedings.
(3) If none of the circumstances referred to in (2) applies to a particular asset, but the Court is satisfied that there is a significant risk that the asset will have to be sold in the short to mid term, then the court, whilst no making allowance for the capital gains tax payable on such a sale in determining the value of the asset, may take that risk into account as a relevant s.75(2) factor, the weight to be attributed to that factor varying according to the degree of the risk and the length of the period within which the sale may occur.
(4) There may be special circumstances in a particular case which, despite the absence of any certainty or even likelihood of a sale of an asset in the foreseeable future, make it appropriate to take the incidence of capital gains tax into account in valuing that asset. In such a case, it may be appropriate to take the capital gains tax into account at its full rate, or at some discounted rate, having regard to the degree of risk of a sale occurring and/or the length of time which is likely to elapse before that occurs.””
Counsel submitted that to the extent tax would arise consequent upon the Court's orders, it should be shared between the parties. It was put that tax payable in the future was only at best a s.75(2) factor.
The matters raised by counsel for the husband
Counsel for the husband submitted that the issue of the calls for funds had not been addressed in the judgment. He submitted that the husband had wanted them taken into account but that they had not been addressed.
He went on to say that, as to taxation, any properties sold would attract tax. He submitted that the total that would be occasioned if the Steele Group was sold would amount to $673,000 in round figures. He said that the husband would not have available funds to pay the sums required and that accordingly, tax should be taken from the total.
Additionally, as indicated, counsel submitted that the $207,000 calls for funds should also be included.
Counsel further submitted that (omitted) accounting fees should be included. These fees were accounting fees and included fees for tax returns undertaken during the marriage. It was additionally submitted that there were assessments of tax payable for the 2014 year to be prepared. The resultant total of fees was approximately $36,000.
Turning to the orders sought by the wife (MFI6), counsel submitted that the personal tax payable should be paid by the husband together with the Division 7A payments presently outstanding.
Counsel for the husband further submitted that the sum of $759,331, being the amount sought in order 3 proposed by the wife, should be reduced by the tax liability and the calls for funds.
He further submitted that order 5 interacted with order 6(c) of the wife’s orders.
The reply by counsel for the wife
Counsel repeated that if tax was to be paid it should be shared, referring to the liabilities on the part of the wife to the year 30 June 2013 and the Division 7A payments.
Counsel for the wife submitted that the (omitted) fees were matters of legal costs and there was no evidence as to how much had been paid for advice. He referred to the affidavit of Mr K in this regard.
The Court's power to entertain the arguments now sought to be put
It should be noted that neither counsel addressed the Court in even the most tangential way as to what the applicable law governing these circumstances might be said to be. In substance, in my view, both parties were seeking to reopen their cases.
I note that in Rosati v Rosati (1998) FLC 92-804 at paragraph [6.26] the Full Court appears to have readily accepted that it was open to a judge to revise a judgment (and materially alter his conclusions) where a proposed order had not been “formally issued by the Court”. That is the position in this matter.
Although this Court's Rules are silent as to permitting a party to reopen their case, this being a matter of practice it would seem to me dealt with from time to time during the currency of a proceeding, I think that the better view is that this matter falls to be considered against the power of the Court in r.16.05 of this Court's Rules. That relevantly provides that:
“(1) The Court may vary or set aside its judgment or order before it has been entered.”
That power is not circumscribed in any way according to its terms but the equivalent Rule in the Federal Court Rules has been the subject of two recent judgments which provide, in my respectful view, assistance.
In Ashby v Slipper (No.2) [2014] FCAFC 67 the Full Court of the Federal Court said at [12] and following:
“[12] Rule 39.04 provides that the court “may vary or set aside a judgment or order before it has been entered.” The power is discretionary.
[13] The exercise of the discretion to vary or set aside orders, including under r 39.04 FCR, is a power to be used only sparingly, with great caution and rarely, having regard to the public interest in the finality of litigation: Autodesk Inc.
v Dyason [No 2] (1993) 176 CLR 300 at 302; Grimaldi
v Chameleon Mining NL (No 2) (2012) 200 FCR 296 at [772]; and see generally Wenkart v Pantzer (No 3) [2013] FCAFC 162.[14]
The discretion is exercised to cure injustice, particularly where it would otherwise be irremediable: see, e.g., De L
v Director-General, New South Wales Department of Community Services (1997) 190 CLR 207 at 215. Grounds upon which a variation can be made are varied: see, e.g., Maritime Union of Australia v Geraldton Port Authority (2001) 111 FCR 434 at [20]. They include error, oversight, a misapprehension of the law, or a decision given in ignorance or forgetfulness ofa statutory provision.
[15] As Kenny J stated in Inspector-General in Bankruptcy
v Bradshaw [2006] FCA 22 at [24]: “[i]n every case the overriding principle to be applied is whether the interests of justice are better served by allowing or rejecting the application for leave to re-open””In Blank v Commissioner of Taxation (No.2) [2014] FCA 517, Edmonds J said at [9]:
“[9] In De L v Director-General, New South Wales Dept of Community Services (No 2) (1997) 190 CLR 207 at 215, Toohey, Gaudron, McHugh, Gummow and Kirby JJ said:
“The power of this Court to reopen its judgments or orders is not in doubt. The Court may do so if it is convinced that, in its earlier consideration of the point, it has proceeded “on a misapprehension as to the facts or the law“, where “there is some matter calling for review” or where “the interests of justice so require“. It has been said repeatedly that a heavy burden is cast upon the applicant for reopening to show that such an exceptional course is required “without fault on his part”, ie without the attribution of neglect or default to the party seeking reopening. By such expressions of the power to reopen final orders, courts seek to recognise competing objectives of the law. On the one hand, there is the principle of finality of litigation which reinforces the respect that should be shown to orders, final on their face, addressed to the world at large and upon which conduct may be ordered reliant upon their binding authority. On the other hand, courts recognise that accidents and oversights can sometimes occur which, unrepaired, will occasion an injustice. In the case of a final court of appeal, such as this Court, that injustice may be irremediable, unless the Court itself, acting promptly, is persuaded to reopen its orders so as to afford relief in the exceptional circumstances of the case.”
Edmonds J continued at [12]:
“It is generally appropriate in the interests of justice to allow a party to re-open his or her case if it is clear that the court has proceeded on a misapprehension as to the facts or the law where (a) the misapprehension was the result of accident or oversight not the fault of the party seeking to re-open, and (b) the re-opening does not involve the re-agitation of arguments already put and dealt with: Wenkart v Pantzer (No 3) [2013] FCAFC 162 at [17]–[22].”
In the face of this authority, all of which as far as I can see has transpired in circumstances where orders have actually already been entered, the result in my view is clear. My reasons for judgment earlier given were on any view of the matter intended to be, and on their face were, a halfway house at best. There was work yet to be done properly to quantify the pool and to produce appropriate orders to give effect to my conclusions.
To the extent that the parties have sought now to agitate further matters the failure of the Court adequately perhaps to have dealt with them is that of the Court alone. While any errors would not be irremediable in the sense that an appellate intervention could rectify any mistakes thus made, it is transparently obvious that it is in the parties' best interests that any errors be now corrected and a just outcome thereby produced. This is not a course of conduct upon which, as the authorities make clear, the Court should often embark, but the fact is any omissions are those of the Court and should not be allowed to occasion an injustice to the parties in circumstances where it is clearly so readily possible to endeavour to avoid doing so (notwithstanding the reservations I have as to whether a meaningful result can be produced in this case, given the nature of the husband’s business).
I turn to the specific matters raised.
The calls for funds
It is true that, at least arguably in error, I did not set them out as a specific subheading in my property judgment. To the extent that I may have omitted to do so, I should make it clear that I have not accepted the evidence of Mr T and Mr A and, more particularly, the husband insofar as it touches on these issues. The fact is that while there was evidence that some of the husband’s business partners were contemplating legal proceedings against Mr Steele (or more accurately part of the Steele Group) in respect of unpaid calls for funds, the fact is that, as I find, the various investors in these various property purchases have been helping one another out over a very extended period of time. The calls for funds are not a liability of the husband that will be enforced. It is inappropriate to include these sums in the pool.
Further, and in any event, any moneys invested by Mr Steele, were such calls to be placed upon him (in an effective way) would be met out of moneys advanced to him by his mother and would constitute in any event tax-deductible sums. There is no evidence before me of course as to quite how these matters might be treated in Mr Steele's affairs. As I have said all too often Mr Steele conducts his affairs in a fashion that makes working out what would really happen very difficult.
In my view the sums will not be called for and even if I am wrong in this regard the resultant adjustment would not be dollar for dollar but would rather be dealt in some tax-minimising way to Mr Steele's benefit.
I repeat it is inappropriate to include these calls for funds in the property pool.
The fees to (omitted)
The affidavit of Mr K, who was not required for cross examination, shows that there are fees outstanding, as counsel asserts, in the total of approximately $36,000. These all relate directly to the parties affairs during the marriage. They should be included in the pool.
The pool
I propose to delineate the pool in the same manner as that set out in MFI7, and set out the reasons for these figures thereafter (to the extent necessary given that some have already been dealt with in my earlier judgment).
ASSETS
PROPERTY
OWNERSHIP
VALUE
1.
Interests in the Steele Group
Husband
$2,779,432
2.
Proceeds of sale of Property M, (“the former matrimonial home”) ** Held by Tisher Liner
Joint
$1,191,558
(Note: $100,000 advanced to wife 23 April 2015)
3.
Interim Distribution of proceeds of sale in accordance with Orders made on 3/10/2013 and 23/04/2015
Husband
Wife
$250,000
$310,000
4.
Bank Accounts & Savings
Wife
$10,599
5.
Bank Accounts & Savings
Husband
Nil
6.
Amount removed from I saver Acc 21st June 2013
Husband
Nil
7.
Amount alleged to be paid to (omitted) Pty Ltd 21st June 2013
Husband
$125,000
8.
Cash taken from safe by Husband
Husband
$11,000
9.
Inheritance from the Husband's Uncle Mr J
Husband
$50,000
10.
Moneys unilaterally paid to the Husband’s Mother after separation
Husband
$459,250
11.
(omitted) Jeep Vehicle
Husband
$30,000
12.
BMW Motor Vehicle
Wife
$55,000
13.
Jewellery
Wife
$10,000
GROSS POOL (excluding superannuation):
LIABILITIES
$5,281,839
14.
Personal Tax Liabilities arising from management of untaxed transfers from (omitted) Trust in 2010 financial year for private purposes (reduction of mortgage on Property M) – Division 7A tax
Husband and Wife
($92,205)
15.
Unpaid 30 June 2013 tax assessment (plus penalty interest) Final notice received from Dunn & Bradstreet due 28/11/2014
Husband
($34,876)
16.
Unpaid 30 June 2013 tax assuming can record distributions to both Husband and Wife. Otherwise tax liability will be approximately $24,000
Wife
($16,186)
LIABILITIES SUB TOTAL:
$143,267
TOTAL ASSET POOL (excluding superannuation):
$5,138,572
SUPERANNUATION
17.
Wife
$80,975
18.
Husband
$213,938
TOTAL
$294,913
TOTAL ASSETS:
$5,433,485
The parties agree that their superannuation should be equalised.
Interests in the Steele Group
The figure arrived at by counsel for the wife represents the $2,816,732 set out by Mr F in exhibit AR1 less the figure of $260,000 mentioned in paragraph 81 of my reasons for judgment. That figure was expressly stated to be an approximate one.
On re-examining the figures in exhibit AR1 in greater detail it is apparent that my assertion was wildly inaccurate. An examination of the table set out on page 6 of exhibit AR1 shows that what both
Mr F and Mr L apparently did was to ascertain the direct interest as a percentage of the entire entity value and then to multiply the resultant figure by the minority discount (and additionally the market discount asserted by Mr L). It should be noted that having checked some of the figures there have clearly been some figures rounded off and some of the arithmetic seems to me to be slightly inaccurate. Nonetheless, in the case of (omitted) Investments it is clear that the Steele Group's 20 per cent is worth $746,000 (20 per cent of $3,730,000) and when a 12.5 per cent divisor is used the total by which the $746,000 is reduced increases to $93,250 (12.5 per cent of $746,000). This is a figure $37,300 more than the $55,950 represented by a 7.5 per cent discount.
Accordingly, the overall reduction caused by the increase to the 12.5 per cent minority discount that I have established above reduces the total pool by $37,300 from the figure of $2,816,732 posited by
Mr F. This means that the total value ascribed to the Steele Group is $2,779,432.
Proceeds of sale of former matrimonial home $1,191,558 (as noted, a further $100,000 has been distributed to the wife).
Interim distributions
Husband:$250,000
Wife:$ 210,000
+$100,000 pursuant to orders made 23 April 2015.
These should clearly now be characterised as part property settlement.
Bank accounts and savings
The husband's bank accounts, as also disclosed by his Financial Statement filed 14 November 2014, are said to be $33,000. Given, however, that no value is allotted to his bank accounts in either his Outline of Case document or in the wife's proposed MFI7, I will take the wife's position as a concession against interest.
The wife's bank accounts are not nominal, contrary to the assertion in MFI7. Her most recent Financial Statement shows funds in banks in the applicant wife's name amounting to some $10,599. I accept that the other funds therein described are held on trust for the children. Given that the wife seeks the inclusion of the $11,000 taken in cash by the husband it is clear that a sum of this order should be included.
Jeep vehicle
This item was not the subject of any detailed submissions and does not appear in MFI4, being the schedule put forward by the wife at trial.
The husband's Jeep vehicle is allotted a value of $30,000 in his most recent Financial Statement filed 14 November 2014 and I will treat that as an admission against interest.
Wife's car
The husband has not asserted in his materials that the wife's vehicle is worth anything but the wife’s schedule MFI7 allots a value of $55,000. I will treat this as a concession against interest.
Jewellery
The wife's jewellery is worth $10,000.
Liabilities
There seems to be agreement that the parties have a liability of $92,205 in respect of Division 7A tax (see MFI7 item number 14 and husband's Outline of Case document item number 11).
Unpaid tax for the year to June 2013
Once again there seems to be agreement that the husband will have to pay $34,876 in this regard.
Likewise, it appears to be agreed that the wife has a tax liability of $16,186.
The husband proposes that the amounts referred to in paragraphs [58]-[60] not be paid now from the net funds available but rather be paid by him over time. This is of course a matter of mechanics rather than an adjustment of property interests. This proposal would require an indemnity in the wife’s favour and would, presumably, not bind the Australian Taxation Office. In my view, it has all the hallmarks of being unworkable given the nature of the relationship between the parties. It is evidently preferable, so far as it can be done, to bring the dispute between them to a final and definite conclusion.
Tax on the sale of the Steele Group
Here the ongoing battle ground can be stated shortly. Counsel for the husband sought that the value of the Steele Group be reduced by $673,000 to reflect what he asserted (see transcript P-13) was (omitted)’s calculation of tax payable on the sale of the Steele Group for the value that I established in my earlier judgment. In fact the calculations are not on affidavit. They were merely asserted by counsel from the bar table. (Since dictating this paragraph the husband has sought an affidavit sworn on 4 May 2015 by Mr K. No leave was sought or granted for the filing of such an affidavit and I do not propose to deal with it).
Counsel for the wife resisted this proposal. Counsel submitted that only such taxes as truth might eventuate in due course should be taken off the pool and that effectively each party should bear such liability as might arise therefrom in due course.
Both sides referred the Court to what was referred to as the Rosati principle an extract of which has already been set out. In that decision at paragraph [6.36] the Full Court said:
“It appears to us that although there is a degree of confusion, and possibly conflict, in the reported cases as to the proper approach to be adopted by a court in proceedings under s 79 of the Act in relation to the effect of potential capital gains tax, which would be payable upon the sale of an asset, the following general principles may be said to emerge from those cases:
(a) Whether the incidence of capital gains tax should be taken into account in valuing a particular asset varies according to the circumstances of the case, including the method of valuation applied to the particular asset, the likelihood or otherwise of that asset being realised in the foreseeable future, the circumstances of its acquisition and the evidence of the parties as to their intentions in relation to that asset.
(b) If the court orders the sale of an asset, or is satisfied that a sale of it is inevitable, or would probably occur in the near future, or if the asset is one which was acquired solely as an investment and with a view to its ultimate sale for profit, then, generally, allowance should be made for any capital gains tax payable upon such a sale in determining the value of that asset for the purpose of the proceedings.
(c) If none of the circumstances referred to in (b) applies to a particular asset, but the court is satisfied that there is a significant risk that the asset will have to be sold in the short to mid term, then the court, while not making allowance for the capital gains tax payable on such a sale in determining the value of the asset, may take that risk into account as a relevant s 75(2) factor, the weight to be attributed to that factor varying according to the degree of the risk and the length of the period within which the sale may occur.
(d) There may be special circumstances in a particular case which, despite the absence of any certainty or even likelihood of a sale of an asset in the foreseeable future, make it appropriate to take the incidence of capital gains tax into account in valuing that asset. In such a case, it may be appropriate to take the capital gains tax into account at its full rate, or at some discounted rate, having regard to the degree of risk of a sale occurring and/or the length of time which is likely to elapse before that occurs.”
I note that in that case inter alia the trial judge was held to have erred by adjusting the percentage figures allotted to the husband and wife to ensure that the wife obtained the matrimonial home, her car and certain other assets. I bear the Full Court’s view of that outcome in mind.
Here it is possible but by no means certain that at one level of analysis the orders I propose to make may cause some subparts of the Steele Group to be sold. What complicates that matter, which would otherwise ordinarily give rise to an adjustment in terms of capital gains tax under the second subparagraph in paragraph [6.26] of Rosati is the fact that as I have already, I hope, made clear Mr Steele is likely in the event of any forced sale of the Steele Group effectively to ensure an outcome beneficial to himself and damaging to the wife. If the whole of the Steele Group were sold I think it is far more probable than otherwise there would be a fire sale price, possibly even negligible. This is, in my experience so far, a unique set of circumstances and one that requires an outcome tailored to the practical realities with which the Court is confronted.
As I propose to make clear, I do not intend to include any adjustment for tax, because I do not anticipate that the assets of the Steele Group will ultimately be sold.
An attempt to make orders that will both be just and equitable and which will actually work in practice
As was correctly posited by the wife's MFI7, it was my intention that the tax liabilities of the parties, which are all pre-separation liabilities (notwithstanding that separation took place on 21 April 2013 in my view the entire tax year liabilities should be seen in this light) and these figures should be paid out before funds are otherwise distributed.
The figure payable to the wife as 45 per cent of $5,138,572 would be $2,312,357.
In the circumstances a payment to the wife of the proceeds of sale of the former matrimonial home ($1,191,558) less the taxation amount already paid ($143,267) will be $1,048,291.
The wife will receive the following:
(i)The balance of the matrimonial home $1,048,291
(ii)Bank account $ 10,599
(iii)BMW Motor vehicle $ 55,000
(iv)Jewellery $ 10,000
(v)Interim property division $ 310,000
(vi)Cash$ 500,000
(vii)Tax paid (half Division 7A) $ 46,102
(viii)Personal tax paid $ 16,186
(ix)Superannuation addition $ 67,481
Total $2,063,659
The wife seeks that enough of the Steele Group be sold to ensure that she obtains the shortfall but for the reasons I have described that is in my view, most unlikely ever to occur.
The parties have agreed up until now that their superannuation should be equalised. That of the wife is $80,975 and that of the husband $213,938. The outcome would give the wife a figure of $147,456, an increase to her of $67,481.
Having given the matter earnest further consideration, I am of the view that I should order that the husband pay additionally to the sums set out above a further $500,000. This sum will, on the findings I have made, be readily available to him (if from nowhere else, from the $459,250 forwarded to his mother and the $50,000 inheritance from his uncle, although my order gives him until 31 July 2015 to pay it). The total of the pool thus allotted to the wife will be $2,063,659 or 38 per cent (rounded off) of the total pool.
This outcome has the advantage that Mr Steele retains the entirety of the Steele Group in its present form at whatever worth it has and avoids the fire sale that seems to me all too probable. Whether the fire sale would occur because of the collusion I find would occur between Mr Steele and his business partners or, as is otherwise entirely probable, through a fire-sale process in any event, bearing in mind the position of Mr T and possibly other investors and the general difficulties of selling in such a restricted market, the fact is that this is a better outcome in the ultimate for all concerned. It sets wholly to one side the various tax problems that the parties would otherwise wish to agitate at some length.
This does not of course produce a figure of the 45 per cent of the total share of the pool that I regarded as just and equitable when I have considered the matter. It effectively sets aside my earlier conclusions about the value of the Steele Group.
Nonetheless, it is the Court's business to try and produce an order that is just and equitable and workable. These reasons for judgment will effectively give the wife all available cash and a substantial proportion of the superannuation (bearing in mind that Mr Steele is substantially older than she is in any event).
Both parties deserve in my view a measure of criticism for the way they have conducted this case. Every effort has been made by both sides to obscure and obfuscate the materials and the facts and have made the Court's deliberations excessively difficult. I said in my earlier judgment that the parties' affairs have all but defeated me and I repeat that that remains the case.
I have prepared orders which I will not give the parties an opportunity to further consider although in a world in which some measure of cooperation was taking place it would be desirable to do so. I will simply make orders and leave the parties to such further course of conduct as they may be advised. I have not adopted the wife’s proposed default orders. Either party is entitled to enforce the orders made pursuant to this Court’s Rules if it be necessary.
I certify that the preceding seventy-nine (79) paragraphs are a true copy of the reasons for judgment of Judge Burchardt
Associate:
Date: 20 May 2015
0
10
0