Mr G and MS G

[2004] FamCA 593

THE FAMILY LAW ACT 1975

IN THE COURT OF

THE FAMILY COURT OF AUSTRALIA No. SY8335 of 1993

AT SYDNEY

IN THE MARRIAGE OF:

Mr g (Husband)

AND

MS G (Wife)

CORAM: The Honourable Justice M.J.M. Lawrie

Date of Hearing: 29 and 30 April 2002 and 1, 2, 3 and 29 May 2002 and 6 June 2002

Date of Judgment: 22 June 2004

JUDGMENT OF THE COURT

Appearances:

Mr Broun QC of Counsel, instructed by Dribbus & Kovacevic, appeared for and on behalf of the applicant/wife.

Mr Lloyd of Counsel, instructed by Stuart Fowler & Associates, appeared for and on behalf of the respondent/husband.

This matter concerned a rehearing of a property matter in which judgement was given on 21 July 2000. The orders were complied with, but on appeal the matter was referred for rehearing.
In any property application there are four steps. The first is to identify and quantify the matrimonial property.
The second is to look at the contributions which each of the parties has made to the acquisition, maintenance and improvement of that property. This may be made in a variety of ways. It may be though financial contribution both directly by a party or indirectly by a contribution made on behalf of a party by another person. It may be made through the contribution of effort. It may be made by contribution to the welfare of the family.
This matter proceeded on the basis that neither party disputed that the parties had contributed equally up to the date of separation.
The third is to see whether, after the proportions of the contributions which each of the parties has made, there should be an adjustment to take into account the matters which are listed in section 75(2) they being:
(a)     the age and state of health of each of the parties;
(b)     the income, property and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment;
(c)     whether either party has the care or control of a child of the marriage who has not attained the age of 18 years;
(d)     commitments of each of the parties that are necessary to enable the party to support:
(i)himself or herself; and
(ii)a child or another person that the party has a duty to maintain;
(e)     the responsibilities of either party to support any other person;
(f)     subject to subsection (3), the eligibility of either party for a pension, allowance or benefit under:
(i)any law of the Commonwealth, of a State or Territory or of another country; or
(ii)any superannuation fund or scheme, whether the fund or scheme was established, or operates, within or outside Australia,
and the rate of any such pension, allowance or benefit being paid to either party;
(g)     where the parties have separated or the marriage has been dissolved, a standard of living that in all the circumstances is reasonable;
(h)    the extent to which the payment of maintenance to the party whose maintenance is under consideration would increase the earning capacity of that party by enabling that party to undertake a course of education or training or to establish himself or herself in a business or otherwise to obtain an adequate income;
(j)     the extent to which the party whose maintenance is under consideration has contributed to the income, earning capacity, property and financial resources of the other party;
(k)     the duration of the marriage and the extent to which it has affected the earning capacity of the party whose maintenance is under consideration;
(l)     the need to protect a party who wishes to continue that party’s role as a parent;
(m)    if either party is cohabiting with another person - the financial circumstances relating to the cohabitation;
(n)    the terms of any order made or proposed to be made under section 79 in relation to the property of the parties;
(na) any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage; and
(o)     any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account; and
(p)     the terms of any financial agreement that is binding on the parties.”
The last step is to look at the result and see if it is just and equitable and make any necessary adjustments.

History

The husband was born in 1949 and the wife was born in 1951. Both were qualified as medical practitioners. They migrated to Australia in June 1981. Both were admitted to practice in Australia in the next couple of years thereafter.
There are three children of the marriage: E born … 1980 now studying at university and living at home; M born … 1982 now studying at university and living in Canberra; and C born … 1989, living at home.
The parties had been employed in salaried positions (the husband full time and the wife doing locum work) until 1987 when the husband purchased a medical practice. The following year this was merged with another larger practice L Pty Ltd to form a practice called “B Group”. The husband held 25% of the shareholding. During 1990 the practice purchased a property at P Town through a company called T Pty Limited of which the husband held 25%.
In October 1997 the major partner in the practice indicated that he wanted to sell the B Group. A month later, the husband incorporated C Pty Limited of which he is the sole Director and shareholder.[1] This followed advice from accountants G Firm, that there would be a saving of about $400,000 if a company tax rate was used to calculate the tax on capital gains as opposed to the rate the husband would have had to pay personally. Another month later the husband transferred his shares in B Group to C Pty Ltd and C sold its shares to D Limited for $3,375,000. Some $51,000 went in sale expenses. $100,000 was put into an IMB building society account, and the remaining $3,223,849.60 was put into another account.
[1] The husband described the purpose of C Pty Ltd “ C Pty Ltd was to save tax and make long term investments. Otherwise, there was no value to creating the company.” Transcript 1.5.02 p 143.
On 2 March 1998 C Pty Ltd invested $1,480,750 in E Limited, a mixture of various investments, with the expectation that the funds would be used to pay for Capital Gains Tax and Sales Tax arising from the sale. In October 1999 $1,277,161.59 was paid from the account to the Australian Tax Office. A further payment of $5,592 was paid to the Commissioner in January 2000.
On the same day, 2 March 1998 C Pty Ltd also invested in wine[2]: $584,705 in H Pty Ltd Portfolio No. 1, and $1,120,439 in H Portfolio No 2. It was the consequences of that investment that led to the appeal from the first judgment and the present proceedings.
[2] The actual payments were made over the following months

Identification of the pool of assets.

In the usual course the identification and quantification of property in accordance with the four-step approach taken above is identification and value as at the date of the hearing. There are some circumstances when it may be appropriate to consider different times.
In this case the wife argued that the pool should include the C Pty Ltd funds before the investment in wine. As at both the hearings of the matter the current value of the wine holdings was lower than the sums invested, because of the nature of the investment[3]. It was the wife’s contention that the difference between the two amounts ought to have been notionally added back to the asset pool by taking the value of C Pty Ltd before it made the wine investment.
[3] The full court said
“It appears to be common ground that the respective values were $2,079,119 and $1,220,739 (as set out in paragraph 14 of these reasons) or a difference of $858,380. We observe at the outset that this calculation of the difference is unduly simplistic in that it ignores important taxation considerations … the difference however remains very significant.”
At the time of the investment the husband was 49, and the wife was 47. It would not be unreasonable in that circumstance to be looking at investments which would have a long-term yield.
In broad terms the plan for the investment was that wine was purchased to be stored in the expectation that there would be a significant increase in its price both through the rise of the market and also by the maturing of the wine by the time it was sold, yielding a profit. The fees for some of the cellarage of the wine and a one off fee for the management of the investment were however paid “up front”. If the wine had to be sold before there was an opportunity for it to appreciate as it was expected there would be a significant loss. In the long term the expectation was that the appreciation would more than cover the holding expenses. It was expected that the wines would be sold at different periods according to the different rates of maturation to optimum condition, some in the short term, some medium and some in the long term, up to ten years after it was purchased.
It was the wife’s case that this investment was done deliberately by the husband to advantage himself in the family law proceedings by minimising the value of the investment at the hearing, or that alternatively it was a reckless, negligent investment of the funds by the husband who should therefore be the only one to suffer the consequences.
It was the wife’s contention that these investments were made without her agreement and without consulting her. The husband’s contention is that he endeavoured to tell her everything about the financial matters[4] but there were communication problems as there had been throughout the relationship.
[4] Transcript 30 April 2002 page 125
The wife does not deny that the husband invited her to attend the investment adviser with him. The investment adviser was in Canberra, where the wife’s brother, who had referred the husband to him, also lived. The husband said that the wife’s brother had “done significant research into the expertise of the various financial advisers” including going to a financial adviser’s expo in Canberra[5]. The wife’s contention was that they were then separated and so she did not want to go on a trip to Canberra with him.
[5] Transcript 30.April 02 page 123
The date of separation was in dispute at the hearing.

The circumstances of the parties’ separation.

The Full Court noted that in the first hearing the court had found that the investment in the wine had been made after the date of separation and that after the parties had each consulted solicitors seeking advice on property settlement. It noted that: “To deny the wife the right to share in nearly $580,000 which she would have done but for the wine investment, whilst at the same time denying her the opportunity to participate in the investment cannot be said to be just and equitable”.
The husband said that he did not believe that they were separated until November 1998 when he was served with the wife’s application for property settlement. The wife said that they had separated in November 1997.
There are three elements to a separation: intention, action and communication.
An early statement of the meaning of “separation” was:
“Separation means more than physical separation - it involves the breakdown of the marital relationship (the consortium vitae). Separation can only occur in the sense used by the Act where one or both of the spouses form the intention to sever or not to resume the marital relationship and act on that intention, or alternatively act as if the marital relationship has been severed. What comprises the marital relationship for each couple will vary. Marriage involves many elements some or all of which may be present in a particular marriage – elements such as dwelling under the same roof, sexual intercourse, mutual society and protection, recognition of the existence of the marriage by both spouses in public and private relationships and; the nurture and support of the children of the marriage[6]”
[6] Watson J, in Todd and Todd (No 2) 1976 FLC 90-008 at page 75,079
In Falk and Falk (1977) FLC 90-274 the Full Court adopted this but added further refinements. The need for communication of intention was addressed as follows:
“The attitudes and intentions of the parties may be spoken or unspoken; where both parties withdraw from recognition of the marriage the surrounding circumstances would often make it easier to establish separation. Where one party only has formed the relevant attitude and intention they should have been communicated to the other party directly or indirectly. Where other aspects of the relationship continue a party should not be heard to claim separation on the basis of a secret intention unknown to the other party. There are many ways of communicating an intention or change of attitude.”
The authorities speak of unequivocal conduct by one party being enough to provide effective communication of an intention to separate[7].
[7] see Lane and Lane (No 1) (1976) FLC 90-055at 75,225
To determine whether parties have in fact separated the court “should examine and contrast the state of the marital relationship before and after the alleged separation”[8] and bear in mind that “If, during the marriage, the parties treat as of little importance something which may ordinarily be a significant part of the marital relationship, then that aspect of their life may be of little importance in determining whether they have separated.”[9]
[8] Pavey and Pavey (1976) FLC 90-051 at 75,214
[9] ibid at 75,212.
In relation to matters of dissolution of marriage as a rule sharing the same bed would be an indication that they are not living separately and apart.[10] The wife claims that the parties were living separately and apart under the one roof from November 1997, but the parties were continuing to share the marital bed until November 1998. The husband then was mainly travelling overseas before he finally moved out of the matrimonial home in early 1999, sharing his marital bed to the last.
[10] See Caretti and Caretti (1977) FLC 90-270
There was a history of difficulties within the marriage which led to a number of symptoms of marriage breakdown over the years. The husband made certain claims in his affidavit, some of which the wife did not recall but these seem to be agreed:
·the parties attending marriage counselling in 1983
·the wife informing her husband that she had been to see solicitors in K Town for advice about Family Law in 1985
·the husband and wife sleeping apart for about six weeks in 1990 while the wife’s mother was visiting
·the wife taking proceedings against the husband and obtaining exclusive occupation of the matrimonial home together with maintenance and child support in April 1993 (the children then ranged between twelve and four)
·having counselling in 1994 which led to a reconciliation in October 1994.
There had thus been two previous episodes of physical separation. The parties did not continue to sleep in the same house, let alone in the same bedroom in the same bed. This feature of separation was absent during the period from November 1997 to November 1998. Not only did the parties continue to share the marital bed in the matrimonial home until November 1998 (and indeed until the husband left the matrimonial home in early 1999 although the husband spent time away travelling), but there were occasions when they were sleeping outside the home in hotels when again they shared the same bedroom with one bed. These included the night at a Sydney Hotel before the sale of the practice, a trip to Melbourne for the Annual meeting of a Professional Society in November 1997 and at a Guest House on 24 January 1998. When they were at the Guest House they made a booking for the same time in the following year (January 1989) which was only cancelled in August 1988.
In his affidavit of 11 April 2002 the husband said[11]:
“During these periods of separation or trouble in the marriage, the wife often changed her mind and our relationship resumed quite amicably. I did not therefore consider the period between November 1997 and November 1998 to be a final separation. In May 1998 the wife said words to the effect of “We should stay together until after E finishes her HSC exams.” I expected that our marriage would resume as it had in the past. It was not until I was served with the wife’s application for property settlement which initiated these proceedings, that I understood the marriage to be finally over.”
[11] paragraph 8
I accept the husband’s evidence in this regard. If the test is comparing the “before” and “after” then he had the right to believe that they were not then separated.
There is reference in the Full Court judgment to the fact that the investment was made “after the parties had each consulted solicitors seeking advice on property settlement”. When analysed, the “consultations seeking advice on property settlement”, in a marriage with a history of what the husband saw as chronic [12]threats to leave, are in fact less significant than that statement makes them appear, and I would see that description as suggesting a much more likely separation than the evidence before me indicates.
[12] for example Mr F remembered him saying that “she was always threatening to leave.”
The husband, together with his professional partner Dr V, had consulted D Solicitors in relation to the sale of the practice on about 19 November 1997. He had told D Solicitors that he had some matrimonial problems and they had suggested that he see the same “family law” solicitors who had acted for him previously in the 1993 proceedings whose office was “on the floor above”, since he was aware that the wife had been to see her solicitor the previous week.
The instruction sheet of the wife’s solicitor for the appointment on 14 November 1997 which was tendered[13] noted:
“Separation: date of separation Not yet
Circumstances of separation (ie. who left the family home?) Marital relationship has broken down.”
[13] exhibit E
On a sheet annexed to the instruction sheet the assets are set out:
1.house $500,000 unencumbered
2.cars $40,000each x 2 unencumbered
3.Superannuation ? W $3,000, H 45,000 5 years ago $80-90 now
4.Trust/term investment 100,000
5.Shares ([ ? ] co) 20,000
3 children 16,15 &7, [16,17 ] boarding school – H pays
Business - offer made to buy $13.5 million, has ¼ share $3.375 million –H remain employed and get approx $250,000 pa. salary.
On 20 September 1997 the husband’s “family law” solicitor wrote a letter to the wife’s solicitor in the following terms[14]:
“Dear Madam,
G and G
We act for Dr G and understand that you have previously been consulted by Dr G his wife.
We not that in our recent telephone call you indicated that your instructions had been somewhat fleeting.
Please be advised that should you be instructed on a formal basis that correspondence should in the first instance be addressed to us.”
Yours faithfully,”
[14] document 5 in the wife’s affidavit. Letter of 20 November 1997.
The response to that letter came only eight months later, and well after the investment in wine had been made, six months before the parties stopped sleeping in the same bed, by a letter of 1 June 1998 which said:
“We refer to your letter of 20 November 1997 and advise we have now received more comprehensive instructions from Mrs G. Our client wishes to state at the outset that she wishes a property settlement to proceed on the basis of an amicable resolution between the parties and would be more than willing to attend mediation either with the Family Court or privately arranged in order to achieve a settlement between the parties with the least amount of litigation and legal fees.
In order to facilitate a negotiation of the division of the parties’ property we would be requesting that your client provide details of his financial affairs and in particular:
1.    Your clients estimate of the value of the former matrimonial home at Suburb Z
2.    Details of the sale of your client’s share in B Group Practice
3.    Details of your client’s current share holding with D Limited, Woolworths and any other companies in which your client has a shareholding
4.    The valuation of your client’s Pajero motor vehicle and a valuation of the Mazda 626 motor vehicle
5.    Details of your client’s superannuation entitlements and other financial resources held by him.
Looking forward to receiving this information in order for discussions to commence.”

The response was that the husband was getting the information from his accountants. A valuer had looked at the house by 24 September 1998, and the wife’s solicitor was writing to the husband’s solicitor to say that if the information was not forthcoming that property proceedings would be started.
In her own evidence the wife said that the husband would not accept that the marriage was over, and said that it had been over and that they had been separated since September (sic) 1997. She was not consistent in the date she ascribed. In cross examination the wife said she formed the intention to separate in November/December 1997[15] at other times she said she had told her parents and a friend in December 1997 and only told the children in May 1998 after her housekeeping was reduced.
[15] Transcript 42
Given that they remained physically in the same bed, I would have seen the earliest communication of an intention to separate was contained in the letter of 1 June 1998, but it is difficult to see this as “unequivocal” when the parties continued to sleep in the same bed, and things continued as they were. The wife herself gave evidence that the husband did not believe it was happening, which is consistent with his claim that because of the history of the marriage he only thought it was serious when he received the application and statement of financial circumstances.[16]
[16] On the evidence before me the husband saw the wife in much the same light as the villagers saw the boy who cried wolf. The husband said, “I didn’t realise it was incredibly serious until November 1998. When I get a form 17 I think it is serious.”
The wife agreed that she had not been interested in money matters and that she had let the husband attend to the moneymaking activities. My impression from seeing her in the witness box was she saw this as rather crass and unprofessional.
She was asked about the sale of the practice:
“Did you make complaint of Dr G when you learnt that he had sold his interest in B Group?---Complaint?
Yes?---No.
Did you object in any way to the sale of his interest in that?---No.
What detailed knowledge did you have of the practice in terms of its value when you learnt of its sale?---No detail at all, we weren’t talking.
And did the price in any way, shape or form cause any alarm to you?---No.
And you had at that time, had you not, formed the view that he was a person capable of making a decision as to whether it was an appropriate figure to sell his interest ?---I don’t think he had much say in it.
Did you form the view that what he was doing at that time in respect of the sale of his interests in B Group was appropriate ?---Yes
And reasonable ?---Yes.
And you based that upon your knowledge of him as opposed to any knowledge of the practice itself; isn’t that right?---My knowledge of him and Dr V.
Yes. And you knew him [the husband][17], did you not, throughout your entire life- well that is the time that you knew him obviously – he to be a person of – who exercised responsibility in terms of matters financial?---Yes.
At all times you had formed the view during your relationship with Dr G that he had acted responsibly in matters financial ?---Yes.
[17] See transcript 43 at 35
The wife portrayed herself as someone who was kept in the dark whilst the husband made arrangements to suit himself only. She claimed the husband had a history of not informing her of his financial arrangements and pointed to an earlier sale of a property at O Town which she said he had sold without her being aware of it. From a letter which was tendered[18] it would appear however that the wife’s recollection was faulty. She was clearly aware of and explicitly agreed to the listing of the property for sale, but she was at odds over the proposed sale price. Similarly the notes of her conference with her solicitor suggests that the husband’s version of events, namely, that he had tried to keep her informed but she was not interested, but knew in broad terms what was happening, was correct.
[18] Exhibit “U”
I thought that the husband’s evidence both as to the final separation and as to the way that financial matters and communications about them were handled in the marriage was more reliable, and where there is a conflict between his evidence and that of the wife, I prefer the evidence of the husband.
In those circumstances where the wife did not choose to avail herself of opportunities to have input into the investment, she cannot complain about the way in which the money was invested by the husband in the belief that the marriage was ongoing. This is not a situation where matters were done “behind her back”. She turned her back when the husband told her he was going to see the investment adviser for discussions about the investment of the proceeds of the sale of the practice. It is difficult to imagine that if the wife did consider that she and the husband were separated and that she had begun proceedings by instructing a solicitor, that she would take no action when the husband told her he was going to consult someone about investing the money.
It is the wife’s contention that “the only apparent advantage it had to him over many other types of investment was the advantage of showing his assets at a lower figure by the time the family law proceedings were heard with the potentiality of the figure rising in the future.”
As to the last of these contentions I am not satisfied that that is so. Mr F was used by the husband after his discussions with the wife’s brother over Christmas 1997. The husband’s brother had made an investment of a more modest sum of money in wine on Mr F’s advice and he had been pleased with it.
The husband was looking for advice. The wife’s brother had undertaken extensive enquiries about financial planners, had chosen Mr F, and had been pleased with his investments.
Mr F took clients on introduction only. He was aware that the husband had been introduced by the wife’s brother. He had asked whether the wife would be coming and the husband had said she was “not all that interested in investing”. Given that it was her brother who had introduced the client I do not see it as sinister that the investment proceeded in her absence.
While he had been working as a partner in the practice the husband had been giving the wife, herself working as a medical practitioner, $1,000 per week in housekeeping, as well as paying the majority of the bills. On Mr F’s advice this was reduced. This was portrayed as an indication of the husband’s adjustment to separation, and his desire to disadvantage the wife, but on the evidence before me I do not believe that that was so.
Part of the sale of the practice agreement provided for the husband to have a service agreement by which he would earn $250,000 for a year. This was a very much reduced sum compared with what the husband had earned as a partner in the practice: $583,849 and $575,666 in the last two years. It was appropriate for the investment adviser to go through these matters, and to point out that $1,000 per week was a substantial proportion of the new income of the husband and that “he was going to have a cash flow problem in the foreseeable future if he kept it up." I do not see the adjustment, which was proportionate to the drop there had been in the husband’s income, made as a result of that “advice” was an indication that the husband believed they had separated.
Mr F set out in his affidavit[19] his experience as a financial planner. He had a particular interest in wine which stretched back over twenty-five years.
[19] 23 April 2002
Mr F set out and gave oral evidence about, the matters which he discussed with the husband, which included the advantages and disadvantages associated with various investments, including investing in wine through H Pty Ltd. Mr F was the sole director and shareholder of the company H Pty Ltd and it might be that unconsciously or otherwise he was more enthusiastic about such an investment than investments in other forms. Mr F’s affidavit attached examples of magazine and press articles which were positive about wine as an investment, and his explanation of the advantages of such an investment through H Pty Ltd. seemed plausible. Although the company title refers to “Futures” in actual fact the investment was in actual wine, not in futures.
The husband and Mr F had discussions for most of 11 February 1998, and Mr F discussed the matter with the husband’s accountant on
20 February 1988. There was a further long meeting on 21 February 1998 before the investment was decided on.
A husband was interested in wine, he was a member of a Wine Society and attended meetings. In her affidavit the wife said that the last social event she attended with the husband was a Wine Society Christmas Party. Involvement in the world of wine I think had its own appeal for “lifestyle” reasons for the husband apart from monetary ones. I would certainly not agree that the fact that the investment showed his assets at a lower figure by the time of the proceedings was the “only apparent advantage it had to him over many other types of investments”.
I thought that the husband was genuine in his evidence that he did not enter the transaction of investing money in wine with the purpose of reducing his apparent assets for Family Law proceedings, and that the possibility of future family law proceedings did not have any influence one way or another upon his choice of wine as an investment. On the evidence before me I do not find that this investment was contrived to minimise the outcome of any application by the wife.

Valuation of C Pty Ltd.

The husband had no intention of winding up C. He saw it as a financial vehicle that might be useful to him for some years to come. He said[20] he did not want to wind up C as there will have to be a fire sale of the wine which will mean there would be a considerable loss on investment.” There would also be significant tax payable in the event of any transfer of any C assets to the husband, or to another person at his direction.
[20] transcript 224
The Order 30 A joint statement of the experts Ms N (on behalf of the wife) and Mr Ellison (on behalf of the husband)[21] noted under the heading Matters Not agreed:
“The experts are in disagreement as to the appropriate method of valuing the husband’s interests in this company. Ellison [H] has valued C Pty Limited on a net cash position basis if (the husband) were to cash out his investments as at 31 December 2001. In doing so he has calculated the income tax implications arising from the effective liquidation of the company. He has adopted this method in accordance with his instructions.
In contrast Ms N has determined the value of the company (and the underlying shares in the company) on the basis that the company can continue to be used as an investment and or trading vehicle of the husband. Ms N has not seen any evidence of the husband’s intention to either liquidate or realise all of the assets of the company and considers that it is unlikely that the husband would voluntarily cause the company to be effectively liquidated, thereby immediately crystallising a significant income tax debt of between $246,963 and $343,707.”
[21] Exhibit F
Given the husband’s evidence the approach of Ms N appears to be the more appropriate.
The significant element in the valuation of C Pty Ltd is the valuation of the wine investment.

Valuation of the wine investment.

Two witnesses offered evidence in relation to the wine investment.
Mr S was called to give evidence on behalf of the wife. He is a licensed valuer, but has no particular expertise in wine. He had consulted with a number of people who have expertise with wine.
Mr T was called to give evidence on behalf of the husband. He is not a licensed valuer but is an auctioneer who regularly conducts wine auctions and does have expertise in wine.
The Rule 30A Statement [22]said in part:
“Both valuers agreed that the differences in values probably reflected the different valuation approaches: Mr T on an auction realisation basis and Mr S on an investment basis at whole sale prices:
·        Mr T agreed that the range of values ascribed by Mr S on his bases were in the range he would expect when he compared Mr S’s totals with his own
·        Mr S agreed that the range of values ascribed by Mr T on his basis were in the range he would expect when he compared Mr T’s totals with his own
·        Both valuers agreed that one could only comment in general terms based on where one might expect one value to fall (ie. auction value) in relation to another value (ie. Wholesale value) because neither had assessed values on the same basis as the other.
Mr S’s valuation was carried out “net of tax’ in the expectation that all the wines would be exported in accordance with H proposal and that therefore Wine Equalisation Tax and GST would not be applicable.
Mr T’s valuation was carried out net of Wine Equalisation Tax in the expectation that the wine would be sold locally and the purchaser would then become liable for this tax. Mr T assumed the wine would be sold inclusive of GST and that therefore the GST liability would lie with C Pty Limited, the vendor. The return to C Pty Limited would therefore be less 9.09% GST (1/11^th) and less commission of 6-11% with both amounts calculated on the gross selling price.
The net return to C Pty Limited would be less a total of 15.9% and 20.09% depending on the commission rate that could be negotiated.”
[22] Exhibit M
The difference in approach was that Mr T asked those he consulted in the industry about how they would deal with the wine to achieve its best outcome.
The valuation of the wine is quite complex because of the special taxation aspects of the wine industry. There is a 29% Wine Equalisation Tax[23] as well as GST[24]. There is also the need for a licensed entity[25] to do the actual sale of the wine with the possibility of GST having to be paid when the wine was transferred to it being a somewhat unknown quantity. There was also the question of commissions to be paid above and beyond the management and cellarage charges in the event that the wine was sold outside the control of H, and the question of commission in the event of the sale by auction.
[23] referred to hereafter as WET
[24] whose introduction in the middle of this saga caused difficulties for the H Pty Ltd bookkeeping systems
[25] U Pty Ltd of which Mr F was a 37% owner
The wine purchased fell into different categories as far as the tax was concerned. $101,687 worth was wine held overseas which therefore did not attract the GST or WET, [26], $157,309 was for wine on which the tax had been paid in Australia, and $845,675 was for wine intended for export on which the WET and GST had not been paid.
[26] since liquidated to pay the wife the cash component of the first lot of orders
There were some differences in the lists of the wine which the two experts used they each used, but both agreed the discrepancy would represent 1.8% of the total and that the discrepancy was “not material” in the comparative exercise and in the context of the overall size of the valuation[27]. I accept their evaluation on that issue.
[27] Rule 30A Statement, exhibit M
It is suggested by the wife that the court might have doubts that there is wine actually held on behalf of C Pty Ltd by Mr F. I accept the evidence of Mr F as to the way in which the wine has been purchased and stored and I do not doubt that there is actual wine which has been purchased for and held on behalf of C Pty Ltd.
Without doubting Mr T’s undoubted expertise in wine (which Mr S had in fact used by consulting his book) I considered that the valuation of Mr S is to be preferred as having more fully considered the various alternatives, and having a better appreciation of the significant differences that different types of disposal would have in terms of tax and commission.
Ms N, the accountant whose approach I prefer, also based her valuation on the S report, and I consider that the Valuation of the husband’s interest after taking account of the loan account of $1,030,008, is the appropriate figure for the husband’s interest in C Pty Limited.
On the evidence before me I would not see this as a reckless or negligent investment, or a case of waste. The investment was made bona fide by the husband after advice from a carefully chosen financial adviser who had been recommended to him.
I am satisfied on the evidence before me that the husband particularly given the ages of himself and his wife, was reasonable in believing that a long term investment was an appropriate one, and that the wife had an opportunity to have input into the investment process but chose not to exercise it. It was not a unilateral act of the husband other than through the actions of the wife.
The Full Court said (starting at paragraph 43)
“The money has not in all likelihood been lost. The whole idea of the investment was that it would be returned with a significant profit in the long term. Whether or not the removal of nearly $580,000 from the asset pool was a deliberate plan or an unintended consequence of the investment seems to us to be irrelevant. …
To deny the wife the right to share in nearly $580,000 which she would have done but for the wine investment whilst at the same time denying her the opportunity to participate in that investment cannot, in our opinion, be said to be just and equitable.
The facts of this case are to some extent unique. This is not a case about sharing financial losses. Whether or not there are gains or losses will not be known until the investment has run its course.
We are of the view that this is one of those, admittedly fairly rare, cases where the economic consequences of the husband’s conduct[28] ought to have been taken into account in order to achieve a just and equitable result.
They could have been taken into account in a number of ways, for example (according to the Townsend guidelines, or upon a consideration of the 75(2) factors … alternatively it was open to his Honour to adjourn the proceedings pursuant to s 79(5).”
[28] emphasis supplied. The Full Court also said:
“Whether or not the removal of nearly $580,000 from the asset pool was a deliberate plan or an unintended consequence of the investment seems to us to be irrelevant.”
In Townsend and Townsend (1995) FLC 92-569, a case where the husband spent all the money from the sale of a taxi licence which had been owned during the marriage before the trial, the Full Court (per Nicholson CJ) said this:
“In my view, what occurred in this case … was in fact a premature distribution of a proportion of the matrimonial assets. What the husband did was to distribute to himself an asset in which the wife had a legitimate interest. In such circumstances I consider that it would be unjust in the extreme to simply treat such conduct by the husband as a matter to which regard should be had under section 75(2). It seems to me that the husband has had the benefit of that money. Had he retained for example, the taxi licence instead of selling it[29], that would have been brought into account as an item of property which would have been dealt with in the same way as the remaining items of property in this case. Accordingly I am of the view that the correct way in which to deal with the husband’s receipt of those moneys is to bring them into the pool of assets on a notional basis and make a distribution accordingly.”[30]
[29] Emphasis supplied
[30] at 81,654
I do not see this case as coming within the Townsend guidelines in the sense that the husband has not “spent” or disposed of a proportion of the assets, in fact his investment would be more analogous with the “retention of the taxi license” which the Full Court said would have made it a different matter.
The wife sought to have the matter adjourned under Section 79(5)[31] during the first hearing until 2009 or until the investments in H Pty Limited matured, or until the husband became entitled to receive his superannuation benefits. She sought in the interim to have the home transferred to her, and the payment to her of a lump sum. The first trial judge did not find that the grounds for such an adjournment were available.
[31] S.79(5) [Adjournment of proceedings] Without limiting the power of any court to grant an adjournment in proceedings under this Act, where, in proceedings with respect to the property of the parties to a marriage or either of them, a court is of the opinion -

It does not appear that there has ever been an application for the wife to receive shares in C, or for C to hold a certain percentage of the H wine on behalf of the wife. This may be related to taxation liabilities that would accrue on any transfer from the company.
There are different views on the likely outcome of the investment which may not complete its course until 2008 or even later. Mr S, whose valuation I have adopted, is not sanguine about the wine appreciating at such a rate that it will justify the management and holding expenses[32], whilst Mr F and the husband are still hopeful. Mr F, who presented as a “true believer” in the investment, went so far as to say[33] “The wonderful thing with this investment, it doesn’t matter how bad you make it look it is going to work.”
[32] These are significant being $660,000 at least. The husband’s expert agreed that “In general terms one has to be careful about the balance of costs of holding stock and selling stock.” Transcript 284
[33] transcript 385
As was the judge in the first hearing, I am unable to find that it is “likely”, only “possible” that there will be a significant change in the future, given that it would be necessary to offset against any improvement in the value of the wine the costs associated with holding and sale, and I do not propose to adjourn the proceedings.
I do not see that this investment, and the husband’s “conduct” in making it, is in principle different from other investments made by a party or parties who considered the marriage was ongoing who invested in something that it was expected would take some time to bear fruit. There are no “good and substantial reasons”[34] to depart from the principle that where there are economic losses incurred in a marriage, those losses should be shared, absent any negligence, recklessness or deliberate dissipation of assets by one party.”
[34] to use the words of Browne and Green 25 Fam LR 482
The wife also contends that the husband had “dissipated” for his own benefit, another $335,000 worth of assets which had been in existence as at November 1997. It was the wife’s contention that these should be brought to account, either having regard to Section 75(2)(o) or on the Townsend principle.
The husband says that these funds were pooled with his income in the same account and used for the same sort of expenses as were customary in the family such as school fees, and for various “one off” matters, for example payment of school fees, payments of tax, an investment in Tree Tops which was disallowed by on an extension to the house which the parties had decided to build in December 1996, purchase of a car for E. From January 99 funds were used for payment of some legal expenses and for furniture for his post separation premises.
This matter was the subject of extensive oral evidence and the tender of statements and other financial records. The conclusions which I have reached on the evidence about the husband’s belief about the time of the separation, and the evidence of the expenditure are consistent. I am not satisfied that the husband has “dissipated” the sums which the wife claims should be added back.
The orders which were made on 27 March 2001 provided for the transfer to the wife of the former matrimonial home at Suburb Z (then valued at $564,000) and the payment to the wife of $547,213, together with her car ($13,000) her furniture ($15,000) and her domestic wine cellar of $1,000. This totalled $1,140,213. This was done. The husband declared a dividend payable to himself after C sold the wine held overseas. The husband incurred a tax liability of $87,158 as a result.
In all of those circumstances I find that the pool of assets to be divided is as follows:
Wife
·        House at Suburb Z  $660,000
·        Household effects[35]  $30,000
[35] this includes musical instruments and items of the children
·        Mazda vehicle[36]  $20,000
[36] There is another Ford vehicle in the wife’s name but I am satisfied it is really the vehicle of M and should not be included in the pool
·        ANZ account  $2,980
·        St George  $300
·        Asgard  $97,648
·        Jewellery  $2,000             $812,928
Less Wife’s debts:
·        Mastercard  ($10,133)
·        Gold Visa  ($6,900)
·        Telstra Visa  ($1,500)              $18,533
Total             $794,395
Husband
·        Mazda vehicle (H)  $5,000
·        Unit at K Town (H)  $0 nett
·        Household effects (H)  $3,000
·        Shares in C Pty Ltd. (H)  $1,030,008
·        ANZ account  $10,000
·        IMB account  $1,800            1,049,808
Less Husband’s debts
·        Tax  ($128,499)          ($128,499)
Total             $921,309
TOTAL          $1,715,704
Both the parties have superannuation: the husband’s $338,861 to the wife’s $320,222.
I am satisfied that the contributions which were made by the parties were equal up to the date of separation, and have been equal since. The husband has made a greater financial contribution and the wife a greater homemaker and parent contribution which I see as balancing themselves out.
In terms of the section 75(2) factors these favour the wife:
·Most importantly she has the ongoing care of the child of the marriage.
·She has a lower income earning capacity than the husband who is a specialist, experienced pathologist.
·She has fewer financial resources in the form of superannuation, and although she is a couple of years younger than the husband and may have a slightly longer work life ahead of her she could not catch up.
·The marriage and the raising of the children have had a greater impact on her financial position than those of the husband. In particular attention to her children makes her part time, sessional type of employment more appropriate.
On the other hand the wife’s assets are more certain and more readily realised with less risk as to tax if she requires access to them. The husband’s principle asset does carry risks, and there will be significant tax payments if he requires access to the funds on any order for payment of a sum to the wife.
In all of the circumstances I would consider that there should be a 5% adjustment in favour of the wife to take these matters into account.
The wife should therefore receive 55%of the pool of $1,715,704, being $943,637.20, and the husband should receive 45% of the pool being $772,066.
At present the share of the pool held by the wife is $794,395 and by the husband $921,309. The husband should therefore pay to the wife the sum of $149,242.
The orders of the court will therefore be:
1. That the husband pay to the wife the sum of $149,242.
2.That each of the parties is otherwise declared to be the sole owner of any property in their name or control
3.That exhibits may be returned and any party issuing subpoenas is to uplift any material produced in response to such subpoenas and return it to the party who produced it.
4.The matter is removed from the pending cases list.

I certify that this page and the previous 29 pages is a true copy

of the judgment handed down by Justice M.J.M Lawrie

dated 22 June 2004.

Associate to Lawrie J.

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

(b) that an order that the court could make with respect to the property of the parties to the marriage or either of them if that significant change in financial circumstances occurs is more likely to do justice as between the parties to the marriage than an order that the court could make immediately with respect to the property of the parties to the marriage or either of them, the court may, if so requested by either party[31] to the marriage, adjourn the proceedings until such time, before the expiration of a period specified by the court, as that party to the marriage applies for the proceedings to be determined, but nothing in this sub-section requires the court to adjourn any proceedings in any particular circumstances.
(c)

[2004] FamCA 593

22 June 2004

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