Ms G - and - Mr G

[2001] FamCA 1138

[2001] FamCA 1138

FAMILY LAW ACT 1975

IN THE FULL COURT
OF THE FAMILY COURT OF AUSTRALIA
AT SYDNEY

Appeal No. EA 28 of 2001
  File No. SY 8335 of 1993

IN THE MATTER OF:

Ms G

Appellant/Wife

- and -

Mr G

Respondent/Husband

REASONS FOR JUDGMENT

BEFORE:                  Finn, Holden and Warnick JJ
HEARD:  30th and 31st days of July 2001
JUDGMENT:           25^th day of October 2001

APPEARANCES:              Mr Broun of Queen’s Counsel (instructed by Harrison and Associates, Solicitors) appeared on behalf of the appellant/wife

Mr Kirk of Senior Counsel (instructed by Stuart Fowler & Partners, Solicitors) appeared on behalf of the respondent/husband

PROPERTY SETTLEMENT – husband made an investment in wine after the date of separation – effect of investment was to reduce the assets available for distribution in the short term - expectation that the short-term losses would be significantly outweighed by longer term gains - whether economic consequences of the husband’s actions ought to have been taken into account – whether decision of trial Judge was just and equitable

This was an appeal by the wife against orders made by his Honour Justice Rose on 27 March 2001 whereby his Honour divided the property of the parties’ of just over $2,000,000, 55:45 in favour of the wife. 

At trial, his Honour concluded that the parties’ respective financial and non-financial contributions during and since separation were equal. This conclusion was not the subject of any of the grounds of appeal. The grounds of appeal are mainly directed to financial transactions that took place subsequent to separation and his Honour’s assessment of the s 75(2) factors.

As at the date of separation, the parties had significant assets primarily made up of the former matrimonial home and the husband’s 25% interest in the “B Group”.  At about the time of separation the husband disposed of that interest through a series of transactions.  The husband caused a company, C Pty Ltd, which was wholly owned by him and of which he was the sole director, to be incorporated.  The husband sold his shares in the B Group to C Pty Ltd.  C Pty Ltd then sold the shares to D Limited for a consideration of $3,375,000.  The transactions were organised in this way in order to reduce the incidence of capital gains tax upon the sale of the husband’s interest in the B Group – savings which amounted to approximately $400,000.  The money received by C Pty Ltd from the B Group was invested between March and May 1998 as follows:

a)$1,480,750 invested with E Limited;

b)$584,705 invested with H Pty Limited for the acquisition of “Wine Parcel No. 1”; and

c)$1,120,439 invested with H Pty Limited for the acquisition of “Wine Parcel No. 2”.

The money invested with E Limited was set aside to meet an expected assessment of capital gains tax in respect of C Pty Ltd’s sale of shares in the B Group.  The money invested in H Pty Ltd became the major focus of this appeal.

On Appeal the wife contended inter alia that:

His Honour erred in the exercise of his discretion in that he failed to take into account the husband’s conduct in respect of financial matters after the parties’ separation.  The conduct complained of fell into three distinct categories, namely: the manner in which the husband invested the proceeds of sale of his interest in B; the expenditures of moneys received by the husband post-separation; and the husband’s use of financial resources, including long service leave and annual leave, after separation. 

Held – allowing the appeal:

• It was only necessary to consider the first category of the husband’s conduct identified by the wife.  The wife asserted that the value of the husband’s interest in C Pty Ltd should be taken into account as at the date of separation ($2,079,119) and not the date of trial ($1,220,739), a difference of $858,380.  The calculation of the difference is unduly simplistic as it ignores important taxation considerations that would occur in the event that it was necessary to wind up C Pty Ltd.  The difference, however, remains significant.  There is no merit in the argument that but for the conduct of the husband in placing his assets in C Pty Ltd, the taxation implications would not have arisen. 

• The submission that all of the money that C Pty Ltd once had, which was not spent on capital gains tax, was spent on wine investments was rejected.  However, the fact remains that the husband did invest $1.8 million in wine, which investment at trial had a value of $1,220,739.

• Counsel for the wife argued that at lest the difference between the two amounts ought to have been added back to the asset pool under the “Townsend principle”: Townsend v Townsend (1995) FLC 92-569.

• The wine investment had about it some particular features.  The investment was made: after the date of separation; after the parties’ had each consulted solicitors seeking advice on property settlement; and on the advice of a financial adviser, part of that advice being that there would be an immediate decrease in the value of the investment.  In addition, the husband was well aware that in the short term there would be a significant decrease in the value of the investment and that he was investing for the long term.  Whilst no one can confidently predict the future, the expectation was that the short-term losses would be significantly outweighed by longer term gains.  The effect of the investment was to reduce the asset pool by $579,261.

• After his Honour dealt with the question of waste and concluded that the investment was appropriate ie not reckless or irresponsible, his Honour seemed to consider that the particular features of the investment were of no further relevance.  His Honour appears to have treated the guidelines in Kowaliw v Kowaliw (1981) FLC 91-092 as being a complete code as to when conduct having economic consequences will be relevant to applications for property settlement. To do so is contrary to what was said by the Full Court in Browne v Greene (1999) FLC 92-873.

• This case is not about “waste”.  The money in all likelihood has not been lost.  The whole idea of the investment was that it would be returned with a significant profit it in the long term.  Whether or not the removal of $580,000 from the asset pool was a deliberate plan or an unintended consequence of the investment is 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 the investment cannot be said to be just and equitable.

• This is one of those, admittedly fairly rare cases, where the economic consequences of the husband’s conduct, which, although not characterised as reckless or irresponsible, 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 s 75(2) factors. Alternatively it was open to his Honour to adjourn the proceedings pursuant to s 79(5).

• The failure of the trial Judge to take into account the particular features of the wine investment led the wife to suffer a significant injustice, and amounts to an appealable error.    

Appeal allowed.
Matter remitted for hearing before a single Judge.

Parties to file written submissions in relation to costs.

Not reportable.

Introduction

1. This is an appeal by the wife against orders made by Rose J on 27 March 2001, the effect of which was to divide the property of the parties of just over $2,000,000, 55% to the wife and 45% to the husband.

Background

1. The husband was born in 1949 and was therefore 51 years of age as at the date of the trial.  He is an experienced medical professional.  The wife was born in 1951 and was 49 years of age.  She is an experienced medical practitioner in general practice.

1. The parties were married in 1976.  They did not cohabit prior to the marriage.  According to a finding made by his Honour, they separated in November 1997 when “the wife, at least, if not both of the parties, formed the intention to sever the marital relationship between them and acted on that intention”. 

1. There are three children of the marriage.  E was born in 1980 and is a full-time student studying at the University of Sydney, residing on campus.  M was born in 1982 and at the date of trial had recently completed her final year of secondary education.  The youngest child, C, was in 1989 and she is a pupil at a public school.  M and C were living with the wife in the former matrimonial home. 

1. It is unnecessary for us to set out the financial history of the marriage up to the date of separation.  It is unnecessary for two reasons:

   (i)his Honour, having considered the financial history and the contributions made by each of the parties, concluded that the parties’ respective financial and non-financial contributions during and since the periods of their cohabitation should be assessed as equal.  It was not suggested that the conclusion was not open to him; and

   (ii)the grounds of appeal are primarily directed to financial transactions that took place subsequent to separation and his Honour’s assessment of the s 75(2) factors.

2. Suffice it to say that as at the date of separation, the parties had significant assets primarily made up of the former matrimonial home and the husband’s 25% interest in the “B Group”.  At about the time of separation the husband disposed of that interest through a series of transactions which we understand to be broadly as follows.

Financial transactions subsequent to separation

1. At or about the time of separation, the husband caused a company, C Pty Ltd to be incorporated.  It was a wholly owned company of the husband who is the sole director.  On 20 December 1997, the husband sold his shares in the B Group to C Pty Ltd.  C Pty Ltd then sold those shares to D Limited for a consideration of $3,375,000.

1. The transactions were organized in this way on the advice of the husband’s accountants in order to reduce the incidence of capital gains tax upon the sale of the husband’s interest in the B Group.  The net effect was that capital gains tax was assessed at the rate of 36% being the company tax rate, rather than the rate that would have been assessed had the husband’s held his share personally.  This resulted in savings of $400,000.

2. The money received by C Pty Ltd from the sale of the B Group was invested as follows:

   (a)      2 March 1998, $1,480,750 invested with E Limited;

   (b)on the same date, $584,705 invested with H Pty Limited for the acquisition of “Wine Parcel No. 1”;

   (c)on 13 May 1998, $1,120,439 invested with H Pty Limited for the acquisition of “Wine Parcel No. 2”.

3. The money invested with E Limited was set aside to meet an expected assessment of capital gains tax in respect of C Pty Ltd’s sale of shares in the B Group.  Ultimately, on 26 October 1999, E Limited paid $1,277,161.59 to the Australian Tax Office in satisfaction of C Pty Ltd’s capital gains tax liability and penalty interest thereon.

1. Subsequent to the date of separation, the husband received a number of other sums of money.  His Honour declined to take the majority of these into account as notional property.  A number of grounds of appeal were directed to his Honour’s failure to take them into account.  For reasons that will become apparent, it is unnecessary for us to consider these grounds.

The judgment of the trial Judge

1. Having set out the financial history of the marriage, his Honour turned to the task of ascertaining the property of the parties.  The identity of the parties’ assets, liabilities and financial resources was agreed.  His Honour noted that certain property and liabilities of the husband were disputed in terms of value or, alternatively, whether they ought to be included as the parties’ property. 

1. His Honour then turned to resolve the disputed items.  The first of these was the value of the husband’s share in C Pty Ltd.  His Honour found that the husband’s shareholding “reflects the realisable value of C Pty Ltd’s investments in wine stocks”.  He found the realisable value of the wine stocks and thus the value of the husband’s shares to be $1,220,739.  It is unnecessary to set out the reasons why his Honour arrived at that finding as no ground of appeal is directed to it.

1. His Honour noted:

   “55.     In the event that it was necessary to wind up C Pty Ltd, then a tax liability will be incurred on retained earnings of:

   (a)$406, 234 based on the realisation of underlying assets at cost;

   (b)$238,406 based on realisation of the wine stocks at Mr Langton’s lowest value; or

   (c)$325,182 based on realisation of the wine stocks at Mr Langton’s highest value.”

1. His Honour then turned to resolve the disputed issues with respect to the other sums of money received by the husband post separation.

1. His Honour then concluded, after factoring in his various findings, that the parties had property with a net value of $2,082,522 consisting of the following:

Assets
J	Former matrimonial home	$564,000
H	Mazda motor vehicle	$19,000
H	Pajero motor vehicle	$13,000
H	Laser motor vehicle	$16,000
J	Wine cellar	$1,000
H	C Pty Ltd	$1,220,739
H	ANZ Access Account	$6,348
H	IMB Management Account	$48,575
W	Furniture	$15,000
H	Furniture	$2,000
H	Legal fees paid by the husband	$41,955
W	Legal fees paid by the wife	$8,074
H	Monies owed by C Pty Ltd to the husband	$145,952
G & G Pty Ltd	$10.00
Gross property	$2,101,653
Liabilities
H	Langton’s Fine Wine Auctions	$5,500
H	Amex card	$10,731
H	ANZ Visacard	$1,000
W	David Jones	$900
W	H	$1,000
Gross liabilities	$19,131
Net property of the parties	$2,082,522

1. Having found the contributions of the parties to have been equal, his Honour then turned to a consideration of the relevant matters set out in s 75(2). It was during this consideration that his Honour turned his mind to what he termed the “waste” of property by the husband in terms of the use of the funds received by him from the sale of C Pty Ltd’s interest in the B Group by investing the same in wine stocks. His Honour said this:

“138.It was submitted on behalf of the wife that a further relevant matter to take into account pursuant to s75(2) was the “waste” of property by the husband in terms of the use of the funds received by him from the sale of C Pty Ltd’s interest in The B Group by investing the same in wine stocks. That is illustrated by the volatility of their value and the short-term tax implications of such an investment being realised. The only expert evidence given in relation to the consideration of other alternative forms of investment and the rationale that led to the investment that was made was given by Mr F, financial adviser. I consider that the evidence that he gave, both in his affidavit and orally, regarding the appropriateness of the investment made by the husband on his advice through the husband’s corporate vehicle, C Pty Ltd was not shaken. I do not find that there is anything of substance in the husband’s personal evidence which would lead me to a conclusion that the investment made by C Pty Ltd was reckless or irresponsible as referred to in Townsend.[1]. (sic)  This aspect of the wife’s case was rather curious given that she had retained an experienced investigative accountant Ms N, a principal of a national firm of chartered accountants, J Firm.  The Order 30A Rule 9 statement (Exhibit 1) does not contain any material which supports the submissions made on behalf of the wife.  Yet, Ms N was ideally placed to provide a report and evidence of alleged “waste” should she have come to that conclusion assuming that she had instructions so to investigate.  Consequently, I do not accept the submissions made on behalf of the wife that there has been “waste” of property by the husband.”

[1] Townsend, ibid

1. His Honour’s overall assessment of the relevant s 75(2) matters was as follows:

“141.I consider that there should be an adjustment in favour of the wife pursuant to these matters.

142.The husband’s current income and his capacity to earn an income are significantly greater than those of the wife.

143.Whilst they both are employed in medical practice, the husband’s income on a part-time basis is greater than the wife.

144.He will have the option to continue in part-time practice earning approximately $120,000 per annum gross or return to practice of four to five days per week, albeit as an employed medical practitioner.  I accept that the effect of the restraint on trade clause, to which earlier reference has been made, is a material factor when considering his opportunity to be re-engaged in practice on his own account in the K Town area where he had practised for many years.  As a result, it is unlikely that he has the potential to earn income even approximating the levels earned in recent years.  I do not find that the evidence is satisfactory enough for me to conclude that he is likely to be able to re-establish practice as a pathologist in a different area with the potential to earn similar levels of income.

145.The wife’s capability to earn income is at a similar level engaged in part-time practice as currently applies.

146.The wife also has the daily care of the youngest child who is 10 years of age and that is likely to continue for several years.  I accept that the wife prefers to continue with her current work commitments in order to provide care and supervision for that child.

147.The wife will have the benefit of the former matrimonial home.

148.It is reasonable to expect and take into account that the husband will seek to acquire suitable premises of his own with the financial commitment that that will involve.

149.In the circumstances, I propose to make an adjustment in favour of the wife of a further 5% of the parties’ net property.”

1. There was a not insignificant passage of time between the hearing of this matter and the date of his Honour’s judgment on 21 July 2000.  His Honour therefore concluded:

“153.In view of the time that has elapsed since the completion of the evidence I do not propose to make orders at this stage, but rather to give the parties through their legal representatives an opportunity to submit proposed Minutes of Orders and/or make further submissions in relation to the wife’s application for orders pursuant to ss79(5), 79(6) and 66L. In that regard, counsel may fix an appropriate time for that purpose during next week by discussion with my Associate.”

1. For the sake of completeness, we observe that the matter finally came back before his Honour on 25 October 2000.  As the form of orders that ought to be made could not be agreed between the parties, his Honour delivered further reasons for judgment on 27 March 2001 and made orders.  We do not, at this stage, intend to refer to the subsequent reasons for judgment as we are of the view that it is sufficient for us to do so if required when dealing with the grounds of appeal.

Grounds of Appeal

1. The wife’s grounds of appeal are as contained in her Notice of Appeal filed 23 April 2001:

“1.That His Honour’s decision was against the evidence and the weight of the evidence and outside the proper range of His Honour’s discretion.

2.        His Honour erred in:

(a)Failing to include in the list of assets the sum of $90,000.00 being an income tax refund of the husband for the 1997-1998 financial year.

(b)Failing to include in the list of assets the sum of $32,500.00 being the proceed (sic) of the sale of the husband’s interest in real property at Nowra.

(c)Failing to include in the list of assets the sum of $100,000.00 being invested in M Limited and redeemed by and used by the husband.

(d)Failing to include in the list of assets the sum of $21,610.00 being the payment after separation to the husband of a loan from L Pty Ltd which funds were prematurely distributed to the husband.

(e)Failing to give any or any adequate reasons for his exclusion from the parties’ pool of assets the funds listed in paragraphs (a) to (d) hereof.

3.His Honour erred in that he failed properly to take into account the factors pursuant to s 75(2) of the Family Law Act in so far as the adjustment of 5% in favour of the wife was manifestly inadequate and against the evidence and the weight of the evidence, and outside the proper range of His Honour’s discretion, having regard to:

(a)The husband’s greater earning capacity and the wife’s limited capacity for employment.

(b)The husband’s greater financial resources including superannuation.

(c)The husband’s use of the capital funds of the parties after separation,

(d)The husband’s use of the Funds (sic) from the sale of the interest in B by way of an investment in Wine Futures,

(e)The wife’s continuing care of the parties’ children and in particular, [C] who was born …, 1989.

(f)The wife’s contribution during the marriage to the husband’s earning capacity.

4.That His Honour erred in the exercise of his discretion in that he failed to take into account the husband’s conduct in relation to financial matters after the parties’ separation and in particular:

(a)The husband’s use of the capital funds of the parties after separation,

(b)The husband’s use of the Funds from the sale of the interest in B by way of an investment in Wine Futures,

(c)The husband’s use of financial resources including Long Service leave and annual leave after separation.

5.[Abandoned]  That His Honour erred in the exercise of his discretion in that he failed to take into account the significant change in the husband’s financial circumstances that was likely to take place and he failed (sic) adjourn the final hearing of the proceedings under s 79(5) of the Family Law Act and that His Honour’s failure to so adjourn the proceedings was against the evidence and the weight of the evidence, and was not a proper exercise of His Honour’s discretion.

6.[Abandoned]  That His Honour’s decision in relation to the possible future value of the wine held by H Pty Ltd was against the evidence and the weight of the evidence.

7.[Abandoned]  That His Honour’s decision to dismiss the wife’s Application for spouse maintenance was against the evidence and the weight of the evidence, and was not a proper exercise of His Honour’s discretion.

8.That the Wife have leave to amend this Notice of Appeal, the Grounds of Appeal and the Orders sought following receipt of the transcript of evidence of the proceedings.”

1. No application was made for leave to amend the Notice of Appeal as was foreshadowed in “Ground” 8.

Submissions on Appeal

1. The main attack against his Honour’s reasons for judgment is contained in Ground 4.  The contention is that his Honour erred in the exercise of his discretion in that he failed to take into account the husband’s conduct in respect of financial matters after the parties’ separation.  It is appropriate that we consider this ground first as, if we are of the view that it has merit, it will not be necessary to consider the other grounds.

1. The conduct complained of falls into three distinct categories, namely:

(i)the manner in which the husband invested the proceeds of sale of his interest in B; 

(ii)the expenditures of moneys received by the husband post-separation; and

(iii)the husband’s use of financial resources, including long service leave and annual leave, after separation.

1. It is only necessary for us to deal with the first category.  The wife’s contention is that the value of the husband’s interest in C Pty Ltd should be taken into account as at the date of separation and not the date of trial.  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.

1. We observe at the outset that this calculation of the difference is unduly simplistic in that it ignores important taxation considerations.  His Honour observed in his reasons for judgment:

“55.In the event that it was necessary to wind up C Pty Ltd, then a tax liability will be incurred on retained earnings of:

(a)$406, 234 based on the realisation of underlying assets at cost;

(b)$238,406 based on realisation of the wine stocks at Mr Langton’s lowest value; or

(c)$325,182 based on realisation of the wine stocks at Mr Langton’s highest value.

56.A transfer of any part of the assets of C Pty Ltd to the husband or at his direction will constitute an accessible dividend in his hand.

57.Any dividend paid by C Pty Ltd to the husband will attract tax in his hands at the rate of 19.53 cents of every dollar distributed on the basis that such dividends are fully franked and the husband is absent of dividend in the top marginal tax bracket.”

1. The difference, however, remains very significant.  Some attempt was made to argue that but for the conduct of the husband in placing assets in C Pty Ltd, these taxation implications would not have arisen.  We do not see merit in that argument because if the husband’s interest in B had not been sold in the manner in which it was, then the capital gains tax ultimately payable upon the sale proceeding would have been excess of $400,000 more than it was.

1. It is clear that C Pty Ltd paid $1,705,144 in respect of its wine investment (see paragraph 9(b) and (c)).  It was conceded by counsel for the husband that there was a further $94,000 placed in an account to cover future cellaring and management costs bringing the total investment to approximately $1.8 million.  What is not clear is what happened to the other $280,000 worth of assets C Pty Ltd had as at 30 June 1999 according to its balance sheet.

1. Notwithstanding that in the grounds of appeal there was no challenge to any finding of fact nor any asserted failure to find facts in connection with the cost of the wine investment, counsel for the wife endeavoured to persuade us that this money had also been expended on the wine investment. 

1. This proposition was not argued by counsel for the wife at trial.  We therefore reject the submission that we ought to conclude that all of the money that C Pty Ltd once had, which was not spent on capital gains tax, was spent on the wine investments, notwithstanding that what became of the other monies secured by C Pty Ltd is unexplained.  The fact nevertheless remains that the husband did invest $1.8 million in wine, which investment at trial had a value of $1,220,739.

1. Counsel for the wife argues that at least the difference between the two amounts ought to have been notionally added back to the asset pool under the “Townsend principle”.  This is a reference to Townsend and Townsend (1995) FLC 92-569. The most contentious issue in that case related to the treatment by the trial Judge of the moneys received by the husband from a sale of a taxi. The evidence was that the husband had spent all of the money. The wife claimed that the trial Judge had not taken account of, or had failed to deal with the money.

1. Nicholson CJ, with whom Fogarty and Jordan JJ agreed, said in that case at 81,654:

   “It was argued by counsel for the husband that it would be inappropriate to bring those moneys into account, and in support of that proposition he relied upon the remarks of Baker J in Kowaliw and Kowaliw (1981) FLC 91-092 at 76,645. In that case his Honour commented as follows:

   ‘If a party has acted in the manner to which I have referred earlier either by:

   (a)      embarking upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or

   (b)      acting recklessly, negligently or wantonly with matrimonial assets the overall effect of which has reduced or minimised their value,

   then such conduct in my view and the economic consequences which flow therefrom are clearly matters to which the Court may have regard pursuant to the provisions of sec. 75(2)(o).

   If, on the other hand, losses of a financial kind have been suffered by the parties to a marriage in the course of the pursuit of matrimonial objectives, such as the gaining of income or the acquisition of assets whether the liability for such losses be joint or several then, in my view, such losses should be shared by the parties (although not necessarily equally) and taken into account when altering property interests.’

   Although that statement by his Honour correctly crystallised the legal position so far as the case that his Honour was dealing with was concerned, it should not, in my view, be taken as meaning that in a case such as the present one, it is not appropriate to take the fact that a party has received funds into account simply because they had been expended in a way which does not fit within the categories described by his Honour.

   In my view, what occurred in this case, as I said during the course of argument 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, 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.”

2. Fogarty J added:

   “…I think that at times the judgment of Baker J in Kowaliw and Kowaliw (supra) has been misunderstood.  The decision of his Honour is correct as to the principles to which it was directed but it should not be taken as marking out the parameters of the considerations to be applied in cases where the property of a party has been reduced or disposed of prior to trial.”

3. At trial, counsel for the wife strenuously argued that his Honour ought to have concluded that the husband made the wine investment with the deliberate intention of significantly reducing the value of the asset pool.  Such a finding it was submitted would bring the case squarely within the Townsend guidelines.

1. A difficulty facing counsel for the wife in this regard is that, although ground 4 challenged the exercise of his Honour’s discretion in that he failed to take into account the husband’s conduct in relation to financial matters after the parties separated and, in particular, his use of capital funds after separation, we doubt that enables counsel to challenge a finding of fact or, more particularly, argue that a finding of fact about the husband’s conduct that was not made, should have been made.

1. In response, counsel for the husband submitted that the trial Judge determined the issue of intention, but in favour of the husband.  His Honour dealt with this issue at paragraph 138 of his judgment, which we have previously set out in full in paragraph 17 of these reasons.

1. Counsel for the husband refers, in particular, to the following passage:

“The only expert evidence given in relation to the consideration of other alternative forms of investment and the rationale that led to the investment that was made was given by Mr F, financial adviser.  I consider that the evidence that he gave, both in his affidavit and orally, regarding the appropriateness of the investment made by the husband on his advice through the husband’s corporate vehicle C Pty Ltd, was not shaken.”  (underlining added)

1. Counsel submitted that the underlined words carry the necessary implication that his Honour found that the husband had not had an intention of deliberately reducing the asset pool.

1. We do not accept that it is obvious from the passage quoted above, or on the balance of paragraph 138, the question of intention on the part of the husband in respect of the investment beyond the questions of recklessness or irresponsibility, has been determined.

1. However, in view of our conclusions later discussed, and in the absence of a ground of appeal challenging findings of the trial Judge or absence thereof in respect of this question, we think it unnecessary to discuss it further.

1. There is, however, another aspect of this matter to be considered.  The wine investment had about it some particular features.  We understand that there is no dispute about the following in respect of the wine investment:

(a)The investment was made after the date of separation, as found by the trial Judge.  In fixing the date of separation, his Honour said:

“3.      The parties cohabited for a period of 20 years on the wife’s case, or 21 years on the husband’s case.  There is a dispute between them as to whether they in fact separated in November 1997 so far as the wife is concerned or November 1998 on the case for the husband.  The evidence of both the husband and the wife is that the counselling which they had been engaged in following their reconciliation in mid-1994 ceased in November 1997.  The husband did not contradict the wife’s evidence that sexual relations between them ceased in October 1997.  Each of the parties sought legal advice in November 1997 regarding their matrimonial issues and indeed there was communication between their respective solicitors in November 1997 with a view to establishing a formal channel for further communication between them on behalf of their respective parties.  The husband during November 1997 had sought legal advice in relation to his separation from the wife and property settlement.  That advice was sought following earlier advice that he had received in the same month from other solicitors as demonstrated by Exhibit 7 and confirmed by the husband in his oral evidence.  Shortly after November 1997 the husband conceded that the wife did discuss property settlement with him.  In December 1997 the parties and their children stayed in a Sydney city hotel during the night prior to the signing of the documentation relating to the sale by C Pty Ltd of its shares in the B Group.  The parties spent Christmas with the wife’s brother and his family and the wife’s evidence was that Christmas period was a very stressful one.  The year 1998 saw an acceleration of the communications between the solicitors for the parties in relation to property settlement and seeking of financial information which finally led to the wife’s application for orders for property settlement being filed on 3 November 1998.  I find that the events that I have described in this paragraph did so occur based on a combination of the evidence of the wife individually and the common ground between the parties reflected in their evidence so described.  I conclude that they separated in November 1997 in that the wife, at least, if not both of the parties, formed the intention to sever the marital relationship between them and acted on that intention.[2]  That is demonstrated by the cessation of counselling, termination of sexual relationship, seeking of legal advice in relation to the marriage, discussions in relation to property settlement with the husband and subsequent retention of solicitors by each of them.”

[2] Pavey and Pavey (1976) FLC 90-051 at 75,211-75,213

There is no attack on any of the above findings made by his Honour. 

(b)The investment was made after the parties had each consulted solicitors seeking advice on (perhaps among other things) property settlement, and after communication about that, between solicitors.

(c)The investment was made on the advice of a financial adviser.  Part of that advice was that there would be an immediate decrease in the value of the investment.

(d)The husband was well aware that in the short term there would be a significant decrease in the value of the investment and that he was investing for the long term.  During the course of his cross-examination the following exchange took place:

“And did he give you any advice as to what the prospects of the wine market were?---Yes.

And did he suggest that if you purchased this wine that it would drop in value?---In the short term, yes.

And did he tell you that it would drop in value substantially?---Yes.  If it was sold shortly after purchase it would drop substantially, yes.

Well, what did he say was substantial?---What did he say was substantial?

MM?---He didn’t actually give a figure.

Well, did that concern you?---No, because this is a long term investment.

What did you mean by “long term”?---I meant for – in 10 years.

Mr F doesn’t mention 10 years?---Well, that’s what I was thinking of.

That’s what you were thinking of?---Yes.

Did he mention 10 years in his discussions with you?---It was certainly mentioned six to eight to 10 years, yes, it was a long term investment which I assume was about 10 years.

And in the short term did he mention what he meant by “short term”?---Short term was in the first year or two.

The first year or two?---After purchase, yes.  Up to six years.”

(e)Although no-one can confidently predict the future, the expectation was that the short-term losses would be significantly outweighed by longer term gains.

(f)The effect of the investment was to reduce the value of the pool of assets available for distribution by $579,261.

1. After his Honour dealt with the question of waste in paragraph 138 and concluded that the investment was appropriate ie not reckless or irresponsible, his Honour seemed to consider that the particular features of the investment were of no further relevance.  His Honour appears to have treated the guidelines in Kowaliw and Kowaliw (supra) as being a complete code as to when conduct having economic consequences will be relevant to applications for settlement of property instituted under the provisions of s 79 of the Family Law Act 1975. To do so is contrary to what the Full Court said in Browne v Green (1999) FLC 92-873.

1. This case is not about “waste”.  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.

1. Section 79(2) provides that the Court shall not make an order under s 79 unless satisfied, that in all the circumstances, it is just and equitable to do so.

1. 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. 

1. 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. 

1. We are of the view that this is one of those, admittedly fairly rare, cases where the economic consequences of the husband’s conduct ought to have been taken into account in order to achieve a just and equitable result.

1. They could have been taken into account in a number of ways, for example:

(a)      according to the Townsend guidelines;  or
(b) upon a consideration of the s 75(2) factors.

1. Alternatively, it was open to his Honour to adjourn the proceedings pursuant to s 79(5). Although his Honour’s failure to do so was not pursued on appeal, in the event that there is a re-trial that still remains an option. We express no opinion, nor should we, as to the preferable approach which may well depend upon the findings of a subsequent trial Judge.

1. We are, therefore, of the view that the failure of the trial Judge to take into account the particular features of the wine investment led the wife to suffer a significant injustice, and amounts to an appealable error.  We are thus of the view that we should allow the appeal.

1. For the sake of completeness, it is necessary for us to consider some aspects of the respondent’s submissions.  The first of these is that the wife was aware that the husband was investing the proceeds of sale of the pathology practice and that “for reasons that are unexplained, she took no interest and sought no involvement”.

1. His Honour made no finding as to the wife’s knowledge and given the contradictory nature of the evidence we are not in a position to determine this issue.  In any event, we are doubtful that even if the wife had knowledge of the husband’s intentions in general, or his intention to invest in wine in particular, that this would have cast any onus upon her.

1. The next submission is that the wife ought to have sought to share in the investment “by the simple expedient of having part of it transferred to her”.  We can see no bar to the wife presenting her case in the way that she did.  It was equally open for the husband to argue that if the diminution in assets was a factor that his Honour intended to take into account, it would be appropriate to do so by allowing her to participate in the investment.

1. Finally, the respondent asserts that “it is of critical importance to note that in the asset pool, the Trial (sic) Judge made no allowance for the tax which the Husband will inevitably incur to access the assets sitting in C PTY LTD.”

1. At paragraph 14 of these reasons, we have set out the potential taxation liability.  We were not pointed to any evidence that suggested that all of the assets of C Pty Ltd were going to have to be realised.  Furthermore, we were not pointed to any evidence as to the taxation advantages, if any, if the wine investment was allowed to run its course.  The husband’s outline of case document did not seek that any notional taxation liability be deducted.  No reference to these taxation liabilities was contained in the Schedule of Assets and Liabilities tendered to his Honour during the course of closing submissions.  Counsel for the husband made no reference to these liabilities during his closing submissions.

1. If potential taxation liabilities had been raised before his Honour then his Honour would have had to consider the principles that emerge from Rosati v Rosati (1998) FLC 92-804. These matters were not raised before the trial Judge and, in our view, cannot now be raised in the context of this appeal.

Re-exercise of discretion?

1. Counsel for each of the parties indicated that they were anxious to avoid a re-trial.  Each, particularly counsel for the husband, acknowledged that there were not insignificant difficulties facing this Court if it were to attempt to resolve the matter finally.

1. In his written submissions, counsel for the husband stated:

“If this Full Court is to re-exercise the discretion of the trial Judge, the husband would seek to be heard on this issue and have the opportunity to lead evidence as to the circumstances existing at this time.”

1. In oral submissions, he flagged problems, including:

(a)there would be problems with the issue of transfer of shares in C Pty Ltd to the wife as he has mixed post-separation moneys with the assets existing at the time of trial;

(b)      a new valuation of the wine.

1. The difficulty facing us is that the evidence in this matter was given in mid-December 1999.  In excess of 18 months has now passed and we could not be confident that we could now made orders based on such outdated evidence without running the risk of working a serious injustice on one of the parties.  We reluctantly conclude therefore that a re-trial is the only safe option.

Orders

1.        That the appeal be allowed.

2.That the orders of Rose J of 27 March 2001 be and are hereby set aside.

3.That the matter be remitted for hearing before a single Judge of the Family Court of Australia in Sydney, other than Rose J.

4.That the parties be at liberty to file written submissions with regard to the costs of the appeal in accordance with the following timetable:

(a)on behalf of the appellant wife within twenty-one days of the date hereof;

(b)on behalf of the respondent husband in response thereto within twenty-one days thereafter; and

(c)on behalf of the appellant wife in reply thereto within seven days thereafter.

5.That each submission have endorsed on the cover sheet the date on which a copy of that submission was served on the other party.

I certify that the preceding 60 paragraphs are a true copy of the reasons for judgment delivered by this Honourable Court

Associate