Nickson and Nickson
[2013] FCCA 1798
•14 November 2013
FEDERAL CIRCUIT COURT OF AUSTRALIA
| NICKSON & NICKSON | [2013] FCCA 1798 |
| Catchwords: FAMILY LAW – Property settlement – farming property – valuation issues – status of farm debts – Contributions – Section 75(2) factors. |
| Legislation: Family Law Act 1975 Federal Circuit Court Act 1999 Federal Circuit Court Rules 2001 |
| Stanford & Stanford [2012] HCA 52 Kowaliw & Kowaliw (1981) FLC 91-092 |
| Applicant: | MS NICKSON |
| Respondent: | MR NICKSON |
| File Number: | MLC 2467 of 2012 |
| Judgment of: | Judge McGuire |
| Hearing dates: | 17 July 2013 in Melbourne 6 August 2013 in Shepparton |
| Date of Last Submission: | 6 August 2013 |
| Delivered at: | Shepparton |
| Delivered on: | 14 November 2013 |
REPRESENTATION
| Counsel for the Applicant: | Mr T Puckey |
| Solicitors for the Applicant: | Morrison & Sawers, Echuca |
| Counsel for the Respondent: | Mr J Werner |
| Solicitors for the Respondent: | Barbayannis Lawyers |
ORDERS
Within sixty days (60) of the date of these Orders the husband pay to the wife a lump sum of $224,723.
Contemporaneously with the payment referred to in paragraph 1 herein, the husband refinance the mortgage registered on the real property (“the mortgage”) and the (omitted) Bank Agri Line of Credit (“the overdraft”) and indemnify the wife against any liability pursuant to the rates, taxes and outgoings of or with respect to the real properties of whatsoever nature and kind including an amount of $41,000 owing by the parties to Mr A.
In the event that the whole of the payment has not been made by the date or the mortgage and overdraft are not refinanced pursuant to paragraph 2 herein, then the husband take all necessary steps and execute all necessary documents to cause the following properties:
(a)Property A;
(b)Property O;
(c)Property B;
(“the farming properties”) being the whole of the land in certificate of title, volume (omitted) folio (omitted), volume (omitted) folio (omitted), volume (omitted) folio (omitted), volume (omitted) folio (omitted), volume (omitted) folio (omitted) to be sold by auction by (omitted) Real Estate (“the sale of the farming properties”) or such other agent as the parties agree at the earliest possible date at a reserve to be agreed upon between the husband and the wife and failing such agreement to be determined by the proper officer of the Real Estate Institute or his nominee.
The proceeds of the said sale of the farming properties be disbursed as follows:
(a)Payment of the agent’s commission and advertising expenses and legal expenses of the sale;
(b)Payment of any monies due and owing to the mortgagee;
(c)The sum of $41,000 to Mr A;
(d)The balance to be divided between the parties so as to give effect to a 55 per cent distribution of net property (inclusive of superannuation) to the wife and 45 per cent to the husband.
In the event that the sale of the farming properties is insufficient to provide the wife’s entitlement, the parties do all things necessary to appoint Mr B of (omitted) Real Estate to effect the sale of the plant and equipment (“sale of plant and equipment”) and the proceeds of the sale be applied as follows:
(a)Payment of agent’s commission and advertising expenses and legal expenses of the sale;
(b)Payment of any monies due and owing with respect to any item of plant and equipment;
(c)The balance to be divided between the parties so as to effect a 55 per cent distribution of net property (inclusive of superannuation) to the wife and 45 per cent to the husband.
Pending completion of the sale of the farming properties and the plant and equipment:
(a)The husband have the sole right to occupy the farming properties. During such right of occupation the husband pay all instalments pursuant to the mortgage and overdraft and all rates and like apportionable outgoings of the farming properties as they fall due and pay forthwith any arrears in respect of the said instalments;
(b)The husband have the sole right and use of the plant and equipment and during such right of use the husband pay all instalments pursuant to any equipment finance and shall keep the plant and equipment in good condition and repair;
(c)The parties hold their respective interests in the real property and plant and equipment upon trust pursuant to these Orders;
(d)Neither party further encumber the farming properties or the plant and equipment without the consent in writing of the other party.
Pending the completion of sale of the farming properties and plant and equipment the husband account to the wife’s solicitors and provide copies of documents upon request in respect of the ongoing financial operation and management of the farming properties including but not limited to the sale of stock and crops and that the wife have liberty to apply on short notice in respect of these matters.
The husband be responsible for and indemnify the wife absolutely with respect to all trade creditors of the farming enterprise including but not limited to (omitted).
In the event that the husband fails to do all acts and things and refuses or neglects to execute all such documents as are necessary to give effect to these Orders within fourteen days of an obligation to do so as required under these Orders and on the Registrar being satisfied of such failure or neglect or default by the husband by way of an affidavit of evidence only, the registrar of the Family Court of Australia at Melbourne is appointed pursuant to section 106A of the Family Law Act 1975, to execute all such documents in the name of the party and to do all acts and things necessary to give validity to the operation of the Orders and the defaulting party pay the wife’s costs and disbursements on an indemnity basis, with such costs to be paid from the husband’s share of the sale proceeds.
The wife retain for her sole use and benefit:
(a)(omitted) Bank Account;
(b)The (omitted) Bank of Australia accounts;
(c)(omitted) shares;
(d)(omitted) Shares and Protected Shares;
(e)(omitted) Retirement Savings Account;
(f)The Commodore Motor Vehicle.
The husband retain for his sole use and benefit but subject to these Orders:
(a)The Toyota (model omitted);
(b)The Farming properties;
(c)The plant and equipment.
Unless otherwise specified in these Orders and except for the purposes of enforcing the payment of any moneys under these or any subsequent Orders:
(a)Each party be solely entitled to the exclusion of the other to all property (including choses-in-action) in the possession of such party as at the date of these Orders;
(b)Any money standing to the credit of the parties in a bank account are to be retained by the party in whose name the account appears;
(c)Any money standing to the credit of the parties in joint bank accounts be divided equally between the parties;
(d)Each party hereby forgoes any claim they may have to any superannuation benefit that is belonging to or owned by the other save as provided for in these Orders;
(e)All insurance policies are to become the sole property of the owner named herein;
(f)Each party be solely liable for and indemnify the other against any liability encumbering any items of property to which that party is entitled pursuant to these Orders; and
(g)Any joint tenancy of the husband and wife in any real or personal estate is hereby expressly severed.
That the parties or either of them have liberty to apply in respect of the sale of the farming properties and/or the plant and equipment.
IT IS NOTED that publication of this judgment under the pseudonym Nickson & Nickson is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT MELBOURNE |
MLC 2467 of 2012
| MS NICKSON |
Applicant
And
| MR NICKSON |
Respondent
REASONS FOR JUDGMENT
These are proceedings for property settlement on the wife’s application filed 8 October 2012.
The parties have been farmers near (omitted). The marriage has been a long one. They have three children who are no longer dependent.
The issues between the parties can be isolated as follows:
(1)What is the value of the farming property, with particular reference to a commercial (omitted) operation on that property;
(2)The costs of reclamation of the land occupied by the (omitted);
(3)The status of various creditors of the farming enterprise, and whether or not the wife should be responsible for any or all of those debts?
(4)Whether the husband has “wasted” the value of the farm by his conduct post-separation?
(5)A consideration of the various relevant matters under section 75(2) of the Family Law Act 1975 (“the Act”) in respect of each of the parties.
(6)Issues of costs in respect of the conduct of the proceedings.
The applicant wife’s case
The wife seeks a distribution of the net property of the parties as to 60 per cent to her and 40 per cent to the husband. She says that the husband is responsible for an erosion of equity in the farming property and that a consideration of the evidence in respect of the section 75(2) factors favours a further small adjustment to her.
The wife argues that a number of debts claimed by the husband should not be brought into account as being either “seasonal” in their nature and not properly indicative of the financial nature of a farming enterprise and/or alleged liabilities that are not, in any event, being pursued or enforced. Importantly, the wife argues that the major asset, being the farming property, should be valued “as is”, and that any claimed costs of reclamation of the commercial (omitted) should be disregarded in that any obligation to reclaim the land has not and will not crystallise. She says that the husband has an onus of proof in respect of the claimed costs of rectification and that he has not adduced evidence in proper form or of sufficient probity in this regard.
The husband’s case
The husband seeks a 50/50 division of the property of the parties. He argues for no adjustment on either a consideration of contributions or section 75(2) factors.
The focus of the husband’s argument is on the contents of and value of the property pool. He argues for a discounted value in respect of the farming property on account of the following:
(1)Costs of reclamation of the land in relation to the (omitted) of $165,000;
(2)A 15/20 per cent discount on the valuation of the property because of the financial position of the parties generally which would result in a “forced sale”.
The husband argues that all of the current liabilities of the parties be brought to account in the property pool in that they are legitimate debts and that the wife was a party to increased borrowings from banks post separation, made necessary by a general downturn in the profitability of farming.
The husband denies any “wastage” argument proffered by the wife. He says that he has disposed of parcels of land prudently and so as to consolidate the farming business in order to remain afloat.
The husband says that he is generally in poor health and has no other relevant skills or experience which would allow him easy alternative employment. He points to the wife having employment and having re-partnered and with financial benefits accordingly.
The husband says that he has a borrowing capacity of $180,000 to meet any payment to the wife and that otherwise the farm will need to be sold and hence his argument as to a discount for reason of “forced sale”.
Background
The husband is 56 years old. The wife is 54 years. They married in 1982 and separated in September 2010. A final divorce order was made in June 2012.
There are three children of the marriage, namely X who is now 29 years of age and twins, Y and Z, who are 25 years old.
Upon their marriage the parties lived on the husband’s parents family farm. The husband and his brother worked on the farm. In about 1990 ownership of the farm was divided, and the husband and his brother received parcels of similar value. The parties were required to take over a liability of approximately $100,000.
The land retained by the husband contained commercial (omitted). Income from this enterprise was initially paid to the husband’s father, but upon his death then shared equally between the husband and his brother. (omitted) was extracted from the (omitted) on the property by way of licence. The husband’s brother protected his interest by lodgement of a caveat over the relevant titles.
The husband’s brother, Mr A, was adjoined as a party to these proceedings given his alleged interest in the (omitted). He was later removed as a party upon there being an agreement that his interest in the (omitted) was valued at $41,000 and that he would be paid out accordingly. It was anticipated that and proposed by the husband that Mr A would be a witness in these proceedings. This did not eventuate.
Following separation the husband disposed of a number of parcels of land comprising a portion of the total farming property and with the proceeds put to the reduction of debt.
The wife has re-partnered with Mr K, although she says that she retains financial independence. Mr K did not give evidence. There is no evidence that the husband has re-partnered. He remains resident on the remaining farming property.
The wife was represented by solicitors and by counsel at the trial. The husband initially had solicitors acting for him but for a long period was self-represented. He had the benefit of counsel at the trial.
Relevant law
Until recently it was generally accepted that the process for the court in determining property settlement matters was by way of a multi-step process as follows:
(1)To identify and attribute value to the property of the parties, including their assets, liabilities and financial resources, and with superannuation to be “treated as property” for this exercise;
(2)To consider and give weight to the various contributions of the parties, including direct and indirect contributions, and those as homemaker and parent;
(3)After making a determination altering the parties’ property interest on the basis of contributions and usually on a percentage basis, the court would consider the relevant matters under section 75(2) of the Act and then make any further adjustment accordingly in favour of one or other of the parties thereby distributing the property and often but not necessarily on a percentage basis;
(4)Finally, and arguably, there was a fourth step whereby the court stands back and considers whether its proposed orders are just and equitable pursuant to section 79(2) of the Act. It is the orders themselves which were the subject of consideration, not just the percentage distribution.
However, recent judgments of the High Court in Stanford & Stanford[1] and the Full Court in Bevan & Bevan[2] has caused a rethink for trial judges of their statutory and intellectual process and the general jurisprudence. The Court in Bevan suggests that a trial judge could in fact fall into error by applying the strict four-step process and agrees with the High Court in Stanford that it is proper pursuant to section 79(2) to consider the justice and equity altering the parties’ interest and property at all stages of the process. It seems that the proper process for the court is now:
i)To identify, according to ordinary common law and equitable principles, the existing legal and equitable interests of the parties in property;
ii)To then consider whether it is just and equitable to alter those property interests given the particular circumstances of the parties and their property. Nevertheless, the factual platform in Stanford was somewhat unusual and the Court noted that it would generally be appropriate to alter a property interest given that parties would no longer enjoy common usage of their joint property following separation from a relationship. Importantly, however, consideration of whether or not it is just and equitable to alter the property interest is not to be conflated with a simple consideration of the parties’ contributions and the relevant section 75(2) factors;
iii)The Court is to consider and attribute weight to the various contributions of the parties pursuant to section 79(4)(a) – (c) and then to consider those further matters under section 79(d) – (g) including the relevant factors under section 75(2) of the Act.
[1] [2012] HCA 52
[2] [2013] FamCAFC 116
The High Court in Stanford has provided three “fundamental propositions” as useful guidance for trial judges in dealing with matters under section 79 of the Act. And they can be summarised as follows[3]:
(1) for determination of a just and equitable outcome in an application under section 79 of the Act begins with the identification of the existing legal and equitable interests of the parties or either of them in property and as determined by common law and equity;
(2) the discretion conferred by the statute must be exercised in accordance with legal principles and must not proceed on an assumption that the parties’ interests in the property are or should be different from those determined by common law and equity;
(3) a determination to the party has a right to a division of property fixed by reference only for the matters in s 79(4), and without separate consideration of s 79(2), would erroneously conflate what are distinct statutory requirements.
[3] See Bevan & Bevan (supra) at paragraph 73
A further consideration following these judgments is in respect of the previous common practice of making a notional “add backs” to a property pool where a party may have disposed of or had the benefit of assets usually post separation. The Court in Bevan observed at paragraph 79:
We observed that “notional property”, which are sometimes “added back” to a list of assets to account for the unilateral disposal of assets, is unlikely to constitute “property of the parties to the marriage or either of them”, and thus is not amenable to alteration under section 79.
It is important to deal with such disposals carefully, recognising the assets no longer exist, but that the disposal of them forms part of the history of the marriage – and potentially an important part. As the question does not arise here, we need say nothing more on this topic, save to note that s 79(4) and in particular s 75(2)(o) gives ample scope to ensure a just and equitable outcome when dealing with the unilateral disposal of property.
The evidence
The wife relies on her trial affidavit and sworn financial statement both filed 8 May 2013. She relies on an affidavit of Mr B, valuer, filed 22 May 2013 and annexing a report and valuation in respect of plant and equipment dated 7 January 2013.
The wife also relies on an affidavit of Mr P, real estate valuer, filed 27 May 2013. Mr P is a joint expert and was cross-examined by counsel for each of the parties. He provided a valuation in respect of the farming property and including the (omitted).
The husband relied on his two affidavits filed 19 November 2012 and 27 June 2013, with the latter annexing his financial statement. Mr Nickson also relied on the affidavit of Mr B and that of Mr P, but subject to his counsel’s cross-examination of Mr P. Finally, the husband caused an affidavit to be filed by Mr W, agricultural contractor. That affidavit was filed 25 July 2013. Mr W was cross-examined on his evidence which was effectively a quote in a sum of $165,000 for reclamation or rectification of two (omitted) on the farming property and known as “Nickson's (omitted)” and “the Property O”. Mr W was cross-examined.
The property pool
The property situated at Property L
Mr P provides a valuation for the farm being “market value with vacant possession” at $1,382,000. Included in this value is an amount of $82,000 attributed to the (omitted). At page 23 of his report, Mr P states in respect of the (omitted):
Added value of (omitted) to the farm or what premium a buyer would pay over and above the value of the farm for the (omitted) operations. Basis of assessment:
·The (omitted) is located within the context of a (omitted) cropping farm.
·Most likely purchaser would be a farmer who would regard the (omitted) income as only a sideline.
·(omitted) not on separate title.
·The (omitted) is close to the front of farm and near the buildings with consequent noise, dust and privacy problems. This detracts from the appeal of the entire holding.
·(omitted) extraction is common in the area with 4 – 5 (omitted) operating.
·The depleted (omitted) area has minimal added value.
·The existing overburdened soil is considered stock on-hand, or “trade stock”, and is not included in this property valuation.
This assessment is for use in the marital settlement proceeding only. Any more detailed assessment may require a valuer expert in the field of extractive industry. But being mindful that the (omitted) is only part of a larger agricultural enterprise, we are comfortable to assess and “added value” components.
The estimated added value or premium a prudent buyer would pay for the (omitted) in the context of the whole farm is assessed at $82,000.
Apart from the (omitted) encompassed in the existing licence, the further estimated reserves are considered too remote and speculative to have any added value for a purchaser who would be mostly focussed on the agricultural merits of the holding.
Mr P was challenged vigorously and intrusively as to his valuation, and in respect of collateral evidence that reclamation of the (omitted) would cost $165,000 (on the basis of the evidence of Mr W). Counsel for the husband urged Mr P to therefore discount his valuation by $165,000 accordingly. Mr P conceded that his valuation on an “as is” basis did not factor in the costs of the reclamation because, on his reasoning the lessee or operator of the (omitted) would be required to make good such a reclamation. There was some confusion in Mr P’s evidence as to his understanding of the reclamation and it is now clear that he factored in a small consideration for an aesthetic detriment but separate from the reclamation costs.
Counsel for the husband also put to Mr P that it would be appropriate to discount the market valuation if the property was to be disposed of by way of “forced sale” or “distressed sale”. Mr P agreed that a discount of 15-20 per cent would be appropriate and in accordance with accepted valuation principles.
After a consideration of Mr P’s evidence, I am satisfied that:
(1)He provided a market valuation of $1,382,000;
(2)That his valuation includes an amount of $82,000 specific to the (omitted);
(3)that his valuation does not factor in any costs for reclamation on his assumption that such reclamation would be carried out at the cost of the operator prior to a purchaser taking possession. It follows, therefore, that if the Court was to determine a cost for reclamation and such not to be completed prior to sale, then a prudent purchaser would reduce his offer accordingly and that, for all practical purposes, the market value would be decreased by the same quantum;
(4)a “forced sale” would bring a decrease in market value by 15-20 per cent.
I find the market value of the farm inclusive of the (omitted) to be $1,382,000. I will deal with the issue of reclamation separately as the wife argues that there is no proper or probative evidence as to the need for costs of reclamation.
I reject the argument of counsel for the husband that the value should be decreased by 15-20 per cent on account of a forced or distressed sale. It is true that the wife seeks a sale of the property should the husband be either unwilling or unable to retain it. The thrust of the evidence, however, is that the husband has a preference to retain the property. Final submissions on behalf of the wife suggested that she would allow proper marketing of the property to elicit the prudent purchaser. Alternatively, she is willing to assist the husband in retaining the farm by way of instalment or delayed payment to her.
These courts dealing with family law matters are confronted daily with a proposed or necessary sale of property. This does not ordinarily result in a reduced value on account of “forced sale”. The orders of the courts contemplate a reasonable time for sale on the open market and so as to attract a ready, able and willing purchaser at market value. I do not propose therefore to reduce the valuation. Obviously, however, if a sale of the farm is necessary then there will be attendant costs of sale but, as emphasised by counsel for the wife, the market will then determine the value in any event. It follows that the rationale of the exercise was to determine market value on the assumption, or even possibility, of the husband retaining the property.
Reclamation costs
The husband says simply that the requirements of the licence to (omitted) include that there be reclamation of the land at the cost of the licensee or operator. He holds the licence. He emphasises that Mr P’s market valuation anticipates that reclamation occurring prior to transfer to a purchaser and says that this is a proper liability to be included in the property pool. The husband relies on the affidavit of Mr W, the agricultural contractor, and his quote of $165,000.
It is pertinent to note at this stage that a party asserting a fact which is not conceded bears an onus of proof. The standard of proof is that set out at section 140 of the Commonwealth Evidence Act as follows:
(1) In a civil proceeding, the Court must find the case of a party proved if it is satisfied that the case has been proved on the balance of probabilities.
(2) Without limiting the matters that the Court may take into account in deciding whether it is so satisfied, it is to take into account:
(a) the nature of the cause of action or defence; and
(b) the nature of the subject-matter of the proceeding; and
(c) the gravity of the matters alleged.
The wife concedes neither the requirement for nor the alleged quantum of reclamation costs.
The evidence is that the (omitted) is done pursuant to licences which oblige inter alia for reclamation of the licensed area. The husband has been the beneficiary of such licences. Annexures to his affidavit suggest that there is a current licence in his favour. From the material provided to me, it seems that the current licence will expire in 2015. There is provision for ongoing renewal. Under the heading “Reclamation” at clause 22, the current licence provides:
Progressive and final reclamation shall be carried out in accordance with the provisions of the Approved Working Plan. Notwithstanding the above –
(a) Terminal faces are to be progressively reclaimed by battering or backfilling to a slope not exceeding one Vertical to three Horizontal, covering with a minimum of 100mm of soil and planting with vegetation.
(b) worked out areas of the (omitted) floor and other hard surface areas, above watertable are to be progressively reclaimed by covering with a minimum of 0.5m of overburden, 100mm of soil and planted with vegetation.
22.2: Planting schedules, species distribution, and maintenance schedules shall be in accordance with directions issued by an Inspector in consultation with the Area Manager..
And then, 22.3:
Within 90 days of being so requested in writing by the Secretary to the Department of Agriculture, Energy and Minerals, the licensee shall lodge a satisfactory proposal for the final reclamation of the licensed area. The final proposal shall include timetables and programs of any proposed landfill operations and for final removal of all plant, buildings, equipment, stockpiles and rubbish from the site in order to leave the area in a neat and tidy condition.
22.4:
On completion of operations, all equipment not required for final reclamation works and all plant and rubbish shall be removed from the site and the area left in a neat and tidy condition to the satisfaction of an Inspector.
It seems, therefore, that the obligation of the licensee is for both progressive and final reclamation. The licensee has an obligation to lodge a satisfactory proposal for final reclamation of the licensed area within 90 days of a request by the Department. At least one of the two (omitted) on this farm remains operational. It is clear that no request has yet been made for final reclamation. It is also clear on the evidence that little or no scrutiny has been made by the Department in the twenty five or so years that Mr Nickson and his brother have been operating these licences. Mr Nickson concedes that there has been no visit from any departmental officer for twelve years. No directions have been issued by the Department. I can infer, however, that such a (omitted) has a limited lifespan and indeed one of the (omitted) now seems functionally redundant.
The difficulty for the Court, however, is to attribute a cost for a liability which has not yet crystallised but is apparent from the face of the licences? To this end, counsel for the wife argues that I should disregard altogether or give little weight to the evidence of Mr W. His quote is prepared without reference to any required working plan and without directions from the Department. Mr W’s quote is prepared solely on instructions from Mr Nickson. Mr W has no qualifications in environmental land management. He divides his quote as to $95,000 in respect to the 56 acres of the “(omitted)” and $58,000 in respect to the 38 acres of the “(omitted)”. He quotes at $270 per hour per machine and says that he quotes at competitive industry rates.
Mr Puckey for the wife argues that the whole issue of reclamation is irrelevant. He says that the liabilities has not yet crystallised over decades, although it is conceded that Mr Nickson has completed some progressive reclamation. Counsel argues that this is a contingent liability only with an element of uncertainty as to whether it will ever crystallise. I do not accept this submission. The licences have finite terms, albeit capable of renewal. I accept that the (omitted) have finite lifespans. Final reclamation obligations will not occur until the (omitted) no longer produce. However, that obligation is anticipated in the licence. The particular requirements are set out in the licence agreements. Mr W’s quotation addresses like work to be undertaken. The acreage is substantial and, in fact, the legitimacy and quantum of the quotation was not seriously challenged in cross-examination. Whilst a cost of $165,000 in respect of an enterprise that might, at best, bring some $35,000 per annum in income seems economically questionable the cost must be seen within the context of a (omitted) which has already operated for some twenty-five years. On the balance of probabilities and considering the totality of evidence before me, I am satisfied that there is a liability yet to crystalise in respect of the (omitted). I am satisfied that the cost of reclamation will be $165,000. That liability sits with the land whether or not the husband retains the farm. On Mr P’s valuation evidence, that liability would need to be factored into a purchase price and would effectively reduce market value accordingly if the property were to be truly valued today “as is” which after all is the market value.
The Creditors
The husband claims $161,195 in trade creditors. This amount can be broken down on the evidence to approximately $17,000 for unpaid home insurance and rates, and a sum of $143,000E owing to agricultural suppliers, (omitted). There is no evidence that (omitted) has ceased to supply the husband. The wife argues that the nature of farming enterprises is that goods are provided on credit and satisfied from the proceeds of harvest or the sale of stock, as the case may be. I find some merit in this argument. The husband has had the use and benefit of the farming property exclusively since separation save and except for a short period where he contributed to the wife’s rent. He has had the responsibility for the management of the farm. There have been seasonal harvests. He has sold parcels of land. I accept the submission of counsel for the wife that to simply attribute a debt to the supplier in such a quantum fails to take into account the “seasonal” nature of farming. That is, should the application have been heard at another time of year then the debt may well have been satisfied from the recent proceeds of harvest or sale of stock. In all of those circumstances and given the ongoing benefit to the husband of the farm, I am of the view that justice and equity would not be served on the wife by including this liability in the pool of property. To do so would impose on her an ongoing debt but not give her the benefit of “crops in the ground” or “fattening stock”.
The wife says that the husband’s liability of $17,000 for rates and insurance should be set off against the husband having paid $23,000 to his own legal costs of these proceedings. After some confusion, on the evidence, the husband agreed that those costs have been paid. They were clearly met from his income from the farm which could otherwise have been put to these rates and insurances. To put this argument in context, the wife has also paid $10,000 towards her legal costs from an asset being cash at bank in her possession at the date of separation. And whilst that asset appears in the property pool, it has actually been expended by the wife. It follows, therefore, that the husband’s “paid legal costs” should also be included and do so in generally setting them off against the $17,000 and in part, the (omitted) debt.
Farm Mortgages
The wife deposes that at separation there was an (omitted) Bank mortgage ($492,380), a line of credit with a liability of ($705,797) and a loan liability with (omitted) Bank ($175,000), being a total liability to the bank of $1,373,177. She concedes that the husband has since sold assets to a value of $685,000 but that the liabilities have been reduced only by $370,000E and currently sit at $1,003,000, resulting in an amount of at least $300,000 from the assets sold not being reflected in the reduction of debt or, to put it another way, Mr Nickson accruing further liabilities to the bank since separation of $300,000. The wife says that she should not be responsible for that element of $300,000. She argues that the husband has had the use and benefit of the farm income including that of the (omitted). He has made decisions, contrary to her expressed wishes, to continue farming the property through difficult climatic and economic times. Her counsel puts this as a “negative contribution” or “a wastage” argument. In this sense the wife concedes that financial windfalls and losses should generally be shared, excepting where one of the parties has embarked on a course of conduct designed to reduce or minimise the value of assets or where one of the parties has acted recklessly, negligently or wantonly with those assets, resulting in a reduction of the value of the property pool.[4] Her argument is that the husband has recklessly continued to borrow and put money into the farm without proper and objective regard to commercial reality and to the stated preferences of the wife for the sale of the property. The wife’s case, put simply, is that the husband should have sold the totality of the farm, as other owners in the district did or attempted to do, having regard to commercial reality. She argues that this was a reckless course of conduct and that she should not bear the responsibility and ramifications most obviously manifested in further debt to the banks of $300,000.
[4] Kowaliw & Kowaliw (1981) FLC 91-092
The husband says that he has acted professionally and prudently. He points to the fact that he did sell parcels of land so as to retire debt. He says that the wife has been signatory to the applications for loan increases. He points to drought and other cyclic factors which have impacted on the profitability of the farm. He says that he has not acted wantonly or irresponsibly. There is evidence that he has managed to sell hay, which arguably was of little value, and for $15,000, and with those proceeds being put directly into the loan account. I must consider that Mr Nickson has been a farmer for all of his working life and that this has been a productive and at times successful family farm for generations. I repeat my earlier comments in respect of the seasonal nature of farming when I determined not to include the current debt to the agricultural supplier.
The wife does not seek not to include the debts to the bank as liabilities. Rather, she urges that I consider this as a matter under section 75(2)(o) of the Act as negligent, reckless or wanton behaviour by the husband. I do not accept this submission. On the balance of the evidence, I accept that the husband has worked hard on the family farm. He has not recently come to farming. The farm has been in his family for many years. I accept the evidence as to the seasonal factors and that this is traditionally a gamble and endurance for the farmer. There are good times. There are times that are not so good. There are times that are simply disastrous. This is the life of a farmer. He borrows to survive. He repays when the harvest is bountiful. Arguably it would be reckless or negligent for him to walk off his property simply on one or even more bad years. I have no evidence of the fruits for the parties even if the husband had acceded to the wife’s request to sell all of the farming property, particularly during the time when she says numerous other farms were for sale. Notably I have included the farm in the property pool at a value of $1,300,000. The nature and the quantum of the pool would inevitably have looked very different if the husband had acceded to the wife’s preference. I cannot find on the evidence that the husband has acted wantonly, negligently or recklessly in retaining the majority of the farming land. In all of the circumstances, I intend to include the liabilities to the (omitted) Bank as they currently stand and do not intend to make an adjustment in favour of the wife for or under section 75(2) as she urges me to do.
Consequently, considering the findings above together with the items agreed by the parties, the property pool for my consideration comprises the following:
Farms (Property A, Property O, Property B and including (omitted)) but with provision for reclamation
$1,217,000
Plant and equipment (agreed)
$278,535
Wife’s shareholdings (agreed)
$10,000,
Wife’s savings
$16,500,
Commodore motor vehicle (wife)
$4000
TOTAL
$1,526,035
Superannuation
Wife's (omitted) superannuation
$21,176
Total gross property (inclusive of superannuation)
$1,547,211
Liabilities
(omitted) Bank loan
$271,000
(omitted) Bank line of credit
$732,668
liability to Mr G ((omitted))
$41,000
Total Liabilities
$1,044,668
Total net property inclusive of superannuation
$502,543
This marriage was a long one.The wife’s superannuation entitlement is not substantial. It seems clear that the majority of her entitlement was accrued during the marriage. As such, I see no reason to treat superannuation differently than the tangible assets.
Contributions
The husband’s Counsel in final submissions confirmed that he sought no loading in his favour on account of contributions. I infer, therefore, that the husband accepts the wife’s argument as follows:
i)that although the farming property came into the hands of the parties from the husband’s late father, the parties themselves had for some time previously lived on and worked the farm;
ii)that the parties also assumed liabilities when taking title to the farm;
iii)that the wife had also worked “off the farm”, contributing to the benefit of the family;
iv)that the wife worked on the farm together with the husband for the benefit of the family;
v)that the wife contributed significantly by way of homemaker and parent.
The wife’s Counsel opened by arguing a “negative contribution” by the husband and that she should therefore receive a 10 per cent loading on account of contributions. I have rejected this argument above. I do not find on the evidence that the husband has acted negligently, recklessly or wantonly in accruing increased bank loans or by rejecting the wife’s proposal to sell the entirety of the farming property. To the contrary, he has attempted to manage debt and retain the farm by selling small parcels of land.
I generally accept the submission of counsel for the husband in his final submissions in respect of the evidence as follows:
The wife’s case, as it was opened, was that she should receive a 10 per cent loading because of the husband’s negative contributions. In my submission, your Honour, that cannot stand, in light of the wife’s own evidence. She expressly disavowed any criticisms of the husband’s sale of land assets or livestock to reduce debt. She readily accepted that that was orthodox, responsible farming practice. She agreed to every mortgage increase post-separation, and as far as the husband’s conduct post-separation, she accepted that the life of the farm was all about managing debt. Your income is seasonal, you borrow to pay your expenses and you pay back debt when the crops or livestock is sold.
In practice, your ability to manage debt turns entirely on the weather and the crop markets and when the weather is – whether all the markets are unkind, you go through financially hard times and you’ve got no choice but just to ride out the bad times, if you can. She acknowledged that throughout the marriage, the joint farming debts fluctuated the entire time. They went through hard times together; the drought from 1998 to 2008 was one of the worst in living memory. Everyone in the district was struggling to keep their farms afloat. Truth is, if Mr Nickson had had a couple of good seasons, contrast 2010 when he had his wet harvest and had $500,000 of profit wiped over a week – if he had had a few good seasons and he had been able to reduce his farm debts by two thirds, the wife would be asking to share in that as well today; good times and bad.
In accepting this argument on behalf of the husband, I repeat that I have not allowed what I find to be “seasonal debt” such as owing to the agricultural suppliers, (omitted). The distinction between it and the bank loans might seem moot but, in my view, is a real one. The loans owing to the banks attach to the land whereas that to the supplier is more an extension of credit with an expectation of satisfaction as a priority when the “harvest is reaped”.
I am of the view that there should be no adjustment to either of the parties on account of the contributions pursuant to section 79(4)(a) – (c).
Section 79(4)(d) – (e) factors
The wife ultimately seeks a sale of the remaining farming property, although her counsel’s final submissions were clear that she would allow some grace for a cash settlement thereby giving the husband the option to retain the farming property. A sale of the property will, of course, bring with it costs of sale. Importantly, however, the evidence is that the husband’s adult work history has been primarily as a farmer, and on this particular property. Economic factors together with his age would impact on his ability to find gainful alternative employment. If he retains the farm then he has the benefit of an ongoing income.
The wife says that she is financially independent, despite re-partnering. She would however have some financial advantage from her current domestic arrangements be they only the sharing of household expenses. Her income is less than $20,000 per annum. This would be increased slightly, but not substantially, by prudent investment of any award under section 79 of the Act.
On the evidence before me together with my findings, I am of the view that the husband has a realistic option to retain the farming property. Whilst I am mindful of the evidence as to his current economic woes, the fact remains, as I have said consistently throughout these reasons, that farming is a season-by-season prospect. A good season can produce a financial windfall which will not be an opportunity available to the wife. Simply by reason of him having retained the greater part of the farm and wanting to keep it now, I infer that the husband has a realistic expectation of years of good income from the property. In addition, the husband has the ongoing income of the (omitted) for at least another six years, which in itself provides remuneration greater than that of the wife and in a quantum of about $35,000 per annum. The husband has the advantages of being a self-employed farmer which are commonly known and which I need not detail. In all of those circumstances, I am of the view that there should be an adjustment to the wife on account of the discrepancy in earning capacity of five per cent. Consequently, I am satisfied that there should be orders whereby the wife receives 55 per cent of the property pool, as I have determined above. The husband will receive 45 per cent.
I have found the net property of the parties inclusive of superannuation to be $502,543. The wife’s entitlement of 55 per cent gives her $276,399. She has retained:
(i)Shareholdings $10,000
(ii)Savings $16,500
(iii)Commodore Motor Vehicle $4,000
(iv)Her superannuation $21,176
Totalling $51,676
The husband will therefore make a cash adjustment on the wife of $224,723.
I note the husband’s evidence as to his borrowing capacity of $220,000 inclusive of the amount owing to his brother of $41,000 leaving $180,000E only to meet any order in the wife’s favour. However, I found this evidence of the husband to be of little assistance and even opportunistic. When pressed it seems that his enquiries have been limited and that his potential financier is a friend. I am confident that the husband would be able to meet an Order in the above terms given his previous borrowing capacity, the income from the (omitted) and him retaining the farming property. If I am mistaken in this regard then there will be a default Order accordingly providing for the sale of the farm.
I will hear Counsel as to any issues of costs arising from these reasons or previous interlocutory hearings.
I certify that the preceding fifty-nine (59) paragraphs are a true copy of the reasons for judgment of Judge McGuire
Date: 14 November 2013
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