OKTEM & OKTEM
[2017] FamCA 337
•23 May 2017
FAMILY COURT OF AUSTRALIA
OKTEM & OKTEM [2017] FamCA 337
FAMILY LAW – PROPERTY – Inability to value particular property – Significance of property as source of income – Unvalued property and s 79 factors – Notional add-backs Evidence Act 1995 (Cth) s 144
Family Law Act 1975 (Cth) s 75(2), 79(4)(e), 79ABlatch v Archer (1774) 98 ER 969
Dickons & Dickons [2012] FamCAFC 154
Jones v Dunkel (1959) 101 CLR 298 Grier and Malphas [2016] FamCAFC 84
Ho v Powell (2001) 51 NSWLR 572
Kowaliw and Kowaliw (1981) FLC 91-092
Kuhl v Zurich Financial Services (2010) 243 CLR 361
Masoud & Masoud (2016) FLC 93-689Mallett v Mallett (1984) 156 CLR 605
Vass and Vass [2015] FamCAFC 51
APPLICANT: Ms Oktem
RESPONDENT: Mr Oktem
FILE NUMBER: PAC 2867 of 2013
DATE DELIVERED: 23 May 2017
PLACE DELIVERED: Canberra
PLACE HEARD: Parramatta
JUDGMENT OF: Gill J
HEARING DATE: 12-14 October 2016 REPRESENTATION
COUNSEL FOR THE APPLICANT: Mr Schroder
SOLICITOR FOR THE APPLICANT: Marando Solicitors
COUNSEL FOR THE RESPONDENT: Ms Friedlander
SOLICITOR FOR THE RESPONDENT: Atila Lawyers Orders
(1)Within a period of 60 days of the making of these orders, on the wife paying to the husband the sum of $101,884 the husband will contemporaneously transfer his right and title in the property located at B Street, Suburb C in New South Wales.
(2)In the event that the wife fails to make such payment, or gives notice within the 60 day period that she will not make such payment, then within a period of 28 days from the expiration of the 60 day period, or from the giving of notice by the wife, whichever is earlier, the wife shall, on payment by the husband of the sum of $894,116 to the wife, contemporaneously transfer to the husband all her right, title and interest in the property at B Street, Suburb C in New South Wales.
(3)In the event that neither party makes the payment identified in the above orders, or alternately notifies the other party that they will not take steps to buy out the B Street property, then the parties shall arrange for the sale of the property in the following manner:
(a)The parties shall do all such acts and things and sign all such documents as may be necessary to forthwith list the real property known as B Street, Suburb C in New South Wales (“the property”), for sale by private treaty.
(b) For the purposes of implementing Order (a) above:
i)The listing agent shall be as agreed between the parties, and in default of agreement, with the agent chosen by ballot from the respective choices of the parties.
ii)The listing price for the property shall be as agreed between the parties, and in default of agreement, the price nominated by the listing agent.
(c)In the event of the property not being sold within 3 months from the date of its listing for sale then it shall be put to sale by public auction on the following terms:
i)The auctioneer shall be as agreed between the parties, and in default of agreement, the auctioneer chosen by ballot from the respective choices of the parties.
ii)The auction shall take place within 6 weeks of the deadline date for sale by private treaty.
iii)The reserve price shall be as agreed between the parties, and in default of agreement, the reserve price nominated by the auctioneer.
(4)In the event that the property is not sold by auction, or private negotiation within a further 7 days, then it shall be submitted to successive auctions within further 6 weeks periods until sold, otherwise upon the same terms and conditions as applied to the first auction.
(5)Upon completion of the sale of the property pursuant to Orders 1 and 2 hereof, the proceeds of sale shall be applied as follows:
(a)Firstly, to pay all costs, commissions, and expenses of the sale, and to pay any Council and water rates and maintenance levies outstanding in respect of the property.
(b)Secondly, to discharge any encumbrance registered over or affecting the property.
(c)Thirdly, to pay to the Wife’s solicitors on behalf of the Wife the amount calculated in accordance with Order 6 below.
(d)Fourthly, to pay to the Husband’s solicitors on behalf of the Husband the amount calculated in accordance with order 6 below.
(6)W = 0.575(P + $108,397 + $639,104) - $108,397
H = 0.425(P+ $108,397 + $639,104) - $639,104
Where W = the payment due to the wife from the net proceeds of sale
Where H = the payment due to the husband from the net proceeds of sale
Where P = the net proceeds of sale for B Street after deduction of all costs, commissions, expenses of the sale, Council and water rates and maintenance levies outstanding in respect of the property and after discharge of any encumbrance registered over or affecting the property.
Note that P + $108,397 + $639,104 equates to the total pool except for the ODT.
(7)Save as otherwise provided for in these orders each party is otherwise entitled to and otherwise declared to have the beneficial ownership of the property in that party’s possession, to property held in that party’s name and to the content of all bank accounts held in that party’s name to the exclusion of the other party.
(8)That each party is solely liable for and indemnifies the other party against any liability encumbering any item of property to which that party is entitled pursuant to these orders
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Oktem and Oktem has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
FAMILY COURT OF AUSTRALIA AT CANBERRA FILE NUMBER: PAC 2867 of 2013
Ms Oktem Applicant
And
Mr Oktem Respondent
REASONS FOR JUDGMENT
1.This case concerns the adjustment of property interests between the husband and the wife, whose marriage started in 1994 and ended early in 2013. They have two children together, Mr D, born in 1998 (currently 18 years old), and E, born in 2001 (currently 16 years old). During this long marriage the parties acquired property together.
2.There is a complex inter-relationship between the parties and members of the husband’s family who were involved in the acquisition of property jointly with the parties. The husband and his brother were in business together. The husband and wife cooperated with the husband’s brother and his wife in order to acquire and pay off properties for each of them. Each assisted the others to pay off the mortgages on their homes and on a property at F Street, Suburb C.
3.The bulk of the financial contributions were made by the husband. At the start of the relationship he part-owned a property at F Street with his brother. He and his brother started and ran several businesses. He owner-built the family home at B Street.
4.The bulk of the non-financial contributions were made by the wife. She had the primary care of the children and ran the household as the husband involved himself in the businesses. She worked outside the home and gave some assistance with the business. Until reasonably recently both children lived with her, although E now lives with his father.
5.By the end of the trial a Joint Balance Sheet had been prepared in which the value of the vast majority of the property of the parties was agreed. The areas of the parties’ agreement and dispute as to the value of property are set out below. The bulk of the worth of the property comes from the family home at B Street and from the Oktem Unit Trust (OUT), which owns the property at F Street. Disregarding the add-backs argued for by each of the parties, their net property worth was approximately $1.75 million. Taking into account all of the add-backs claimed by each of the parties, the net property would, in approximate terms, be worth between $1.9 and $2.1 million.
6.The wife initially sought a split of the property between the parties 57 per cent to her and 43 per cent to the husband. This changed to an assertion that there should be an adjustment of the property, without there being any add-backs, of 65 per cent to the wife with a further adjustment in her favour from the husband to reflect a 65 per cent share of the half interest she previously had in the F Street property. She said she had lost this interest by virtue of the conduct of the husband. These adjustments would result in her receiving $1,289,733 out of a pool of $1,584,205 and presumably would be effected by a transfer of the former matrimonial home (B Street) and further payment to her. The justification for this adjustment was an assertion that although the husband had made the higher contributions at the commencement of the relationship, the wife had made higher contributions during the relationship. She pointed to a disparity in the future capacity of the husband to earn income as compared with her future capacity to earn income; that his capacity was greater than hers.
7.The husband sought a 58 or 59 per cent split of property to him. This, he said, was to be effected primarily by the husband receiving B Street and the OUT and paying to the wife the sum of $600,000.
8.The asserted justification for this division was that he had made the higher initial contributions, that he had made the higher non-financial and financial contributions during the relationship, that he would have the future care of their son, that there would be some notional add-backs made and that the disparity between his and the wife’s future income earning capacity meant that the wife was in a better position than he was. He currently operates a business, G Pty Ltd (BG). He said that if this business went into liquidation he would start again, however his prospects were poor because his business was struggling and his brother, his business partner, has cancer.
The balance sheet
9.The parties set out their areas of agreement and disagreement as to the pool of property as follows:
| Ownership | Description | Wife’s value | Husband’s Value | |
| Assets | ||||
| 1 | J | B Street Suburb C Expert valuation | $1,150,000 | $1,150,000 |
| 2 | H | OKTEM UNIT TRUST [50 per cent interest] | Agreed $499,638.00 | $499,638.00 |
| 3 | H | OKTEM DISCRETIONARY TRUST | NK | |
| 4 | H | Superannuation AMP | $44,000.00 | $44000.00 |
| 5 | H | Superannuation ANZ One Path | $15,606.00 | $15,606.00 |
| 6 | H | ANZ Bank | NK | $1,000 |
| 7 | H | Redraw by husband on Citibank -Mortgage unaccounted for | Nil | Nil |
| 8 | H | Redraw by husband of $82,000 on Citibank – Mortgage unaccounted for | Agreed nil | Agreed nil |
| 9 | W | Car | $5,000.00 | $10,000.00 |
| 10 | W | Superannuation AMP | $23,961.00 | NK |
| 11 | W | St George Bank | $150.00 | NK |
| 12 | W | Gold in wife’s possession | Nil | $35,000.00 |
| Total | $1,738,355.00 | $1,755,244.00 | ||
| Addbacks | ||||
| 13 | W | Amount paid to wife from proceeds of sale of H Street, Suburb I [see note 13] | | $83,333.00 H Anx O |
| 14 | W | Increase in mortgage over B Street Suburb C after separation [note 6] | Nil | $18,000.00 |
| 15 | H | Amount paid to husband from proceeds of sale and deposit of H Street, Suburb I | $96,272.00 | $96,272.00 |
| 16 | H | Conveyancing costs for sale of H Street, Suburb I (paid by husband) [note 7] | Nil | $12,010.00 |
| 17 | H | GST costs on sale of H Street, Suburb I (paid by husband) [note 7] | Nil | $16,290.00 |
| 18 | H | CGT cost on sale of H Street, Suburb I (paid by husband) [note 7] | Nil | $6,608.00 |
| 19 | H | Legal costs for defending Supreme Court case against Mr J (paid by husband) [note 8] | Nil | $95,912.00 |
| 20 | W | Accountant's costs for collecting documents for valuation [note 9] | Nil | $14,762.00 |
| Net Total | $159,603.00 | $343,187.00 | ||
| Liabilities | ||||
| Wife's Value | Husband's Value | |||
| 1 | J | Mortgage B Street | $154,000.00 | $154,000.00 |
[1]
[1] Note that the values in items 3 and 13 are dealt with extensively later in the judgment.
The building of the pool of property
10.The affidavit material of the parties set out interactions between the husband and wife and the husband’s family in their financial dealings. The husband and wife cooperated with the husband’s brother (Mr K) and his wife (Ms L) in order to assist them to acquire and renovate a home at M Street in Suburb C. Likewise Mr K and Ms L cooperated with the husband and wife to assist them to acquire and construct a home at B Street in Suburb C. Each couple combined resources to pay off the other couple’s property. The title to the F Street property changed through the relationship, moving from the husband’s name into the husband and wife’s names and then into the husband’s and Mr K’s names. Subsequently, it was acquired by the OUT, a vehicle used by the husband and Mr K to acquire business properties.
11.The circumstances surrounding the changes in ownership of F Street were controversial. In final submissions the wife asserted that she should receive an adjustment specifically in relation to F Street on the basis that her interest had been wrongly transferred to Mr K.
12.Prior to the relationship commencing, the husband’s parents put the F Street property into the husband’s name. The husband asserted that his parents intended for the property to be his and his brother’s. This was supported in the evidence of the husband’s father, Mr U. At the time of transfer to the husband in 1992 there was approximately $97,000 owing on the original purchase price of $145,000. In 1994 both the husband and wife married, and Mr K and Ms L married. The two couples moved into the F Street property and continued to pay the mortgage. By 1996, by virtue of contributions by the husband and wife, and Mr K and Ms L, there was nothing owing on this property held in the husband’s name.
13.Subsequently Mr K and Ms L purchased property at M Street Suburb C which they renovated. The four commenced to pay this off together. In 1998 the husband and Mr K purchased a property in N Street, Suburb C with assistance from the husband’s parents. At this stage there was no property held in the name of the wife despite the contributions that she was making to the acquisition of property in the husband, Mr K and Ms L’s names.
14.The husband changed the title of F Street so that it was held by him and the wife. He says that this was to provide the wife with some security under the circumstances that there was no property in her name.
15.In 2000 the husband and wife purchased a property in B Street in Suburb C in their joint names. This was knocked down and a new house was built. Again the joint resources of the husband, wife, Mr K and Ms L were pooled to pay down the mortgage, with assistance from the profit made from the sale in 2000 of N Street, Suburb C.
16.Subsequently, in 2001 or 2002, the wife executed a transfer to allow the title for F Street to be moved into the husband and Mr K’s names. She says that she had no knowledge that this was what she was doing. She recalled signing a piece of paper but says that she did not know its effect. She says that she signed this while suffering from post-natal depression following the birth of her son.
17.However, the timing of the transfer corresponds with the following circumstances:
a)The wife was then in a position that her family home was in her name as well as her husband’s;
b)Likewise, Mr K and Ms L held their family home in their names;
c)The remaining property, F Street, was a property that had been brought into the relationship by the husband, by virtue of a significant gift from the husband’s parents, said to be referable to both the husband and Mr K. It had been paid off by the joint efforts of both couples by 1996.
18.Later, on 18 December 2002, the wife placed a caveat on the F Street property. She did not tell the husband that she had done this. It was later discovered by him. The wife withdrew the caveat on 19 August 2013 at the request of the husband. Her memory of this was that she had simply allowed it to lapse, although accepted, when presented with the documentation, that she had in fact withdrawn the caveat.
19.F Street was then acquired by the OUT, with the husband and Mr K holding half of the units in OUT each.
20.For the wife it was argued that there should be an adjustment for the share in F Street that she should have had, but for the transfer firstly to Mr K and then to the OUT. No application was made to reverse the transactions to Mr K nor to the OUT pursuant to s 79A. The half-share previously held by the husband, prior to its acquisition by the OUT, is reflected in the value of the OUT units held by him per the balance sheet. The half-share previously held by the wife before her transfer to Mr K is not.
21.I am satisfied that the transfer of the property to Mr K in 2001 or 2002 was a reflection of the joint contributions made by the two couples toward the acquisition of each other’s homes and the F Street property as described in the husband’s affidavit. It is consistent with the evidence of the husband’s father that the F Street property was for the husband and Mr K. It is consistent with the pattern of joint funding of property regardless of title. I t is consistent with the husband’s explanation of how the wife came to be on the title in the first place, being to provide her with assurance where she held no other real property in her name. It follows the acquisition of B Street in the joint names of the husband and wife. It is reinforced by the removal of the caveat by the wife. I do not accept that the wife was deprived of an interest in the F Street property that must now be accounted for by the husband.
22.Early in the relationship the parties benefitted from the generosity of the husband’s parents. This both assisted in the acquisition of the F Street property and in the purchase of the N Street property, proceeds of which assisted in paying for the B Street property.
23.For the husband it was urged that the circumstances of the acquisition of property, with the cooperation of Mr K and Ms L, should be taken to be increased contributions on his part. That is, their contribution should be taken as contributions on his behalf. However, the mutuality of the arrangements with the husband and wife benefitting from the cooperation of Mr K and Ms L is offset by the husband and wife forgoing the use of their resources in order to benefit Mr K and Ms L. This circumstance should not be reckoned as favouring the husband in terms of his contributions, as they balance out.
24.Aside from the family home at B Street, the next most significant item of property identified by the parties is the OUT. This trust was established on 17 February 2004, with O Pty Ltd as the trustee. The OUT has 20 units, half held by the husband, and half held by Mr K. On 31 May 2004 the F Street property was transferred to the OUT. The OUT also owns 2 H Street, Suburb I. The OUT generates income by way of the rent from these two properties. In the expert’s report, OUT was valued based upon the market value and realisable value of assets held. The valuation as of 30 June 2015 was $999,276. The parties agreed that the husband’s interest holds a value of $499,638.
25.A further significant entity is the Oktem Discretionary Trust (ODT). The ODT was established on 27 June 2005. The trustee is G Pty Ltd. There are a number of beneficiaries, including the wife, but the wife asserted at trial, and it was not disputed that that the husband, as sole director and shareholder of the trustee company, had complete control, and could solely decide on the manner in which the income was distributed. The ODT trades as G Pty Ltd (BG). The Single Expert (p 25) asserted that the “business and undertaking owned and operated by the” ODT as at 30 June 2015 had no value. The wife did not accept that the ODT had no value. The position of the husband was less clear. In evidence he stated that he did not accept that the business was of no value, although in closing submissions his counsel urged me to accept that it has no value, rather than unknown value.
26.For the husband it was asserted that, as no questions had been administered to the Single Expert in accordance with the pre-trial mechanisms set out in the Rules, no challenge could now be made of the Expert. This is not correct. The Rules provide a mechanism by which parties are able to administer further questions to an expert. There is no obligation on a party to do so in order to be able to challenge an Expert at trial. The failure to administer such questions does not constitute the waiver of the right to challenge at trial.
27.For the wife, the valuation was criticised on three bases. The first was that the methodology of valuation was indeterminate. The second was that the Expert had not complied with the protocols of communication with the parties’ solicitors. The third was that the Expert was seemingly defensive of the deplorable state of the books of the ODT.
28.As to the first of the criticisms, the Expert asserted that there was insufficient history of net profit to establish future maintainable earnings as a basis for valuation. In particular, it was unable to be established what the 2015 loss position was at the time of the making of the report (p 27). The Expert also assessed that there was a deficiency in the assets as at 30 June 2015 to match projected liabilities (p 29). Rather than evidencing a floating between the valuation based on Future Maintainable Earnings and a valuation based upon the liquidation of assets, the Expert’s point appeared to be that future maintainable earnings was not available as a basis for valuation due to the state of the information available. That left the assessment based on liquidation. To the extent that future maintainable earnings was referred to in this context, it was to indicate that it was not established such as to allow it to be taken into account for a goodwill component on sale of the business.
29.However, for the wife it was urged that the profit and loss statements for BG for 2015-16 (Ex W8) and for the first quarter of the 2016-17 (Ex W9) financial years be taken into account. These were not used by the Expert and were not produced by the husband until the first day of the trial. It was conceded for the wife and asserted for the husband that it was not open for me to attempt a valuation based upon these figures, and I was not equipped with the tools in the valuation evidence to enable me to do so. Unlike the profit and loss statements attached to the Single Expert’s report for 2013 – profit of approximately $14,000, 2014 – profit of approximately $13,000, and 2015 – loss of approximately $156,000 (p 38), Ex W8 showed a Net profit of approximately $182,000 for the year 2015-2016, and Exhibit W9 showed a net operating profit for the first quarter of 2016-2017 of approximately $60,000.
30.This does not allow me to perform a valuation of the BG business. However, the profit and loss figures for 2015-2016 and for the first quarter of 2016-2017 are remarkably different from those provided to the Expert. It could no longer be said to be lacking the capacity to generate income for the husband. The factual basis that underpinned the Expert’s approach has changed. The ODT is not worthless. It is generating significant income for the husband. However, I cannot ascertain its value.
31.As to the second criticism, being the failure to follow the protocols for communication with the parties, while undesirable, did not bear upon the conclusions reached.
32.As to the third criticism, that is a perceived defensiveness of the Single Expert in relation to shoddy book-keeping of the husband, while the comments could give rise to a question of partiality, again they were not such as to impact upon the conclusions made.
33.A further significant, although now defunct entity, is the R Pty Ltd (RPL). It is significant by virtue of add-backs claimed by the wife in respect of it. These are claimed on two bases, firstly by virtue of the wife’s assertion that the husband ran down the value of his business and secondly, by virtue of the wife’s assertion that the entity is not, in reality, defunct.
34.The RPL was incorporated in 2009. It was jointly owned by the husband, Mr K and Mr J. The husband asserted in his affidavit, and at trial that this business failed, in part due to a dispute between the three owners that went to the Supreme Court in 2012. The wife sought disclosure of documents relating to the Supreme Court proceedings. On 6 June 2014 the husband declined to produce documents in relation to the Supreme Court proceedings on the basis that he had resigned as a Director and had no standing in relation to those proceedings. These were later provided. I was not taken to matters contained within this material to either undermine the husband’s explanation for the litigation nor to allow a critique of the conduct of that litigation.
35.The RPL went into voluntary administration on 7 July 2014. Oddly, under circumstances where the husband’s evidence was that he did not call Mr K to give evidence in these proceedings due to his poor health and his desire to shield Mr K from the proceedings, the husband asserted that he did not know about the voluntary administration in advance because he resigned as a director, leaving Mr K to deal with such matters.
36.While the husband said that he was not aware that voluntary administration was to occur and that Mr K, who was running the business, had not alerted him to it, the book-keeper for the husband’s businesses asserted that he was dealing with both brothers regarding the RPL at the time leading up to the voluntary administration. Exhibit W6 showed that at the meeting of RPL creditors, held on 16 July 2014, the husband held the majority of votes either by virtue of his own interests as a creditor or as a proxy for other creditors. He was the proxy for Mr K at this meeting. I do not accept that the husband was unaware of the impending voluntary administration. In 2015 BG took over the business clients of the RPL (p 27 Single Expert Report).
37.Shortly after the resolution of the Supreme Court proceedings with Mr J regarding R Pty Ltd, and the sale on 13 July 2015of the premises at H Street Suburb I from which it operated, a business was registered on 15 July 2015 under the name RPL Pty Ltd by Mr S who, according to the wife, is a close friend of the husband. This business operates from 2 H Street, Suburb I. It appears to use the same employees previously used by R Pty Ltd.
38.The circumstances of the entry of the RPL into voluntary administration, the denials by the husband of his foreknowledge of such, the transfer of clients to BG and the appearance of the business run by Mr S lend fuel to the wife’s concern that there has been a deliberate running down of the husband’s business interests and a connection between the defunct RPL and the Mr S business.
39.Mr K, who has been instrumental in the acquisition and running of businesses with the husband, was involved in the RPL at the time of its demise. He took part in the Supreme Court litigation that related to the RPL against their former partner Mr J. He was not called to give evidence even though it could safely be concluded that he has direct awareness of the circumstances surrounding the end of the RPL.
40.I was asked to draw a Jones v Dunkel[2] inference in relation to the non-calling of Mr K. Absent explanation for his non-calling it would have been difficult to resist such a submission. However, the explanation of Mr K’s severe and advanced illness was sufficient to explain the fact that he was not called. While the above circumstances lead to a suspicion consistent with those concerns expressed by the wife, they do not go so far as to establish any of these concerns.
[2] (1959) 101 CLR 298.
41.Other than item 12, the balance of the assets set out in the balance sheet did not appear to be particularly contentious. There was a dispute about the value of the car held by the wife, but without direct evidence as to its value. In the absence of such evidence I will treat the value as that admitted by the wife, that is, $5,000. Similarly, the amounts admitted by the wife in respect of the St George bank account and AMP superannuation will, in the absence of other evidence, be dealt with in accordance with her admission in the balance sheet.
42.Item 12 related to jewellery said by the husband to be retained by the wife. He asserted that, at the time of their marriage in 1994 the jewellery had a value of $35,000. The bare assertions as to value do not allow a safe conclusion to be drawn as to value. I do not know whether the values were arrived at because the husband was involved in the acquisition, or guessed as to the value, or was told of the value. At paragraph 22 of his affidavit he sets out the circumstances of the acquisition and retention of the jewellery. After asserting that a portion of the jewellery was held by his parents, the husband gave no explanation as to how the wife is supposed to have come into possession of the jewellery. The husband’s father did not give evidence about this aspect of the matter.
43.I was asked to take judicial notice of a fact that if the gold jewellery was worth $35,000 in 1994 it would be worth far more now. Section 144 of the Evidence Act 1995 deals with taking judicial notice of matters of common knowledge, where it is not reasonably open to question, is common knowledge in the locality or capable of verification by reference to a document the authority of which is not reasonably open to question. I do not accept that patterns of change in the value of gold jewellery fall into such categories.
44.The wife’s evidence (paragraph 42) as to the jewellery was that she sold some jewellery in order to meet living expenses for a total of between $5,000 and $6,000. The husband was critical of this evidence, asserting that it was inconsistent. I cannot identify the inconsistency. He asserted that I should make a finding that the wife still has the jewellery. While both parties were vague in their evidence about the movement of the jewellery, I am not prepared to make a findings as to value and possession as sought by the husband. While the wife’s vague evidence about the disposal of the jewellery did not give great confidence as to the circumstances, her situation of having little income available to her after the marriage breakdown renders it likely that the proceeds were used for living expenses. I am prepared to accept that some jewellery was disposed of and used for living expenses. I cannot conclude that the wife still holds jewellery. Under those circumstances it was properly conceded for the husband that there should be no notional add-back.
Add-backs
45.A significant portion of the balance sheet agreed between the parties was dedicated to the issue of notional add-backs. Accepting, as was recently confirmed in Grier and Malphas,[3] that notional add-backs are the exception rather than the rule, and are generally not made where the funds are expended on reasonable living expenses, Vass and Vass[4] makes clear that notional add-backs may be made, provided they pay due regard to the existing property interests of the parties. In any event, the use of a notional add-back is a device to be used where it promotes an outcome which, in all the circumstances of the case, promotes a just and equitable result through a recognition of what the parties have had at their disposal.
[3] [2016] FamCAFC 84.
[4] [2015] FamCAFC 51.
46.In final submissions the wife sought that the items set out at 13 to 20 in the balance sheet above be disregarded. This was on the basis that 13 to 18 balanced each other out, and that the costs of the Supreme Court litigation ought be left at the feet of the husband.
47.For the husband it was suggested that there be adding back. By notation to orders dated 25 May 2015 Foster J noted the proposed sale of the property that was held by OUT at 1 H Street Suburb I, and that the wife would receive a one-sixth share of the proceeds of sale after selling costs, including agents and advertising fees. That is, the parties shared the husband’s share of the proceeds of the sale. The husband was to share the proceeds of the sale with Mr K and with Mr J as a part of the finalisation of the Supreme Court proceedings regarding the RPL.
48.Firstly, it was said that the realisation costs, at items 16 – 18 of the balance sheet, for the sale of the property ought to be borne equally between the parties, those costs being referable to conveyancing, payment of GST, and payment of CGT. This would be consistent with the notation made by Foster J.
49.At paragraphs 50-58 of the husband’s affidavit he sets out payments made in relation to the sale of the property. However, the assertions appear to be internally inconsistent. Dealing firstly with the contention that the wife ought now bear the GST in relation to the sale, at paragraph 50 the husband asserts a sale price of $505,000 plus GST (confirmed in the husband’s affidavit at p 74). That is, the GST amount is not deducted from the $505,000. While evidence from the husband’s accountant was that the GST was distributed rather than remitted to the Australian Taxation Office by the solicitor for the partnership (per Mr T paragraph 33), there is no indication that this GST component was divided with the wife. A one-sixth of the amount exclusive of GST is $84,166.66. One-sixth of the GST inclusive amount of $555,500 is $92,583.33. Yet at paragraph 54 the husband asserts that the wife was paid $83,333.33, although the three cheques he attributes to her total only $79,286.24. That is the amount that she received was not inclusive of the GST for which the husband now seeks an add-back.
50.Turning to the Capital Gains Tax liability, at paragraph 58 he asserts a liability of $6,608.58 attributable to the one-third share that he divided with the wife. This would leave the wife’s share as $3,304.29. A deduction of this amount from the one-third of the GST exclusive amount the wife was entitled to would leave an amount of $80,862.37. This amount is still greater than the cheques identified for the wife.
51.Turning thirdly to the costs of sale, the husband asserts that he paid the sale costs of $12,010 (paragraph 56). At no point is an obligation identified for him to be responsible for the whole costs of sale, particularly where the proceeds were to be divided three ways. Allowing for the wife to pay a one-sixth share (half of the one-third share attributable to the husband) would equate to $2001.67.
52.On those figures, the wife’s ex-GST and ex-capital gains tax share should be $80,862.37. Deducting her share of the sale costs of $2,001.67 left the entitlement to her from the proceeds of sale of $78,860.70. As indicated above, the cheques identified as paid to the wife total $79,286.24. The difference between these two figures, approximately $400.00, is not significant within the overall pool of the property to be adjusted. It forms less than 0.03 per cent of the share of the proceeds divided between the husband and the wife.
53.Complicating this matter further was the wife’s assertion that she received $88,528.79 from the proceeds of the sale. The best evidence of the receipt of the proceeds is the settlement adjustment sheet at page 73 of the husband’s affidavit, which discloses cheques referable to the wife to the total of $79,286.24.
54.If adding back is to occur in relation to the sale proceeds of H Street for the wife it is important to treat like with like in respect of the receipt by the husband. This will be done by adding back the amount he was to receive after GST, CGT and sale costs as calculated above for the wife. That is an amount of $78,860.70.
55.A notional add-back is justified where the interests of justice make it a useful way of assessing what it is that the parties are in truth receiving from the property of the marriage. In this case the minor variance between what was received by the wife as opposed to what would have represented a full deduction for the realisation costs does not justify an adding back on account of this matter. This is not an accounting exercise.
56.The husband also sought the adding back of the increase in the level of indebtedness of the B Street property in which the wife has been living. The wife explained at paragraph 41 that she was unable to make the mortgage payments as she had no sufficient source of income by which to support herself. To that extent it can be seen that the increase in indebtedness related to the living expenses of one of the parties. Those circumstances do not justify a notional adding back in the interests of justice.
57.The husband further sought an adding back of additional expenses incurred with his accountant that he says he incurred in the valuation process for the business, in order to provide the Single Expert with what was required in relation to OUT and ODT. This was a matter raised by the husband in advance of the trial and recorded in a notation by Foster J on 18 November 2015:
The husband today makes complaint of additional fees incurred by him to his accountant in relation to information to be provided to the Single Expert and the ultimate liability for those fees is to be determined at trial with the husband asserting they should be on the balance sheet.
58.At paragraph 34 of his affidavit Mr T, the accountant, gives evidence of invoices issued regarding work in relation to the Family Court proceedings, variously in relation to dealings with the Single Expert, assisting the husband to prepare his affidavit material and otherwise. Even were it to be accepted that increased expenses for the husband in providing material to the Single Expert ought to be on the balance sheet, there is no indication what portion of this related to the Single Expert, nor to what degree such work was additional to any disclosure requirement, nor to what degree such work was additional to the work that may have been necessary for the conduct of the business in any event. There is insufficient evidence to characterise the payments to the accountant as being referable to a joint responsibility to bear the expenses in relation to the Single Expert, even if such a joint responsibility existed.
59.The husband also sought an add-back for expenses incurred in the Supreme Court proceedings conducted between the husband, Mr K and Mr J in relation to the R business. The business was a substantial part of how the parties derived their property during the marriage. For the wife it was urged that the Supreme Court proceedings should be considered as a frolic of the husband. The wife did not take part in the proceedings, was not given options in relation to the conduct of the proceedings, and disclosure regarding the conduct of the proceedings was initially withheld from her. This Court was provided almost no detail about either how or why the proceedings were conducted.
60.However, the general principle set out in Kowaliw[5] is that, other than in cases where financial losses are incurred by reason of a course of conduct designed to reduce the worth of matrimonial assets, or because a party has acted recklessly regarding the property in a manner that has reduced the asset’s value, financial losses are to be shared.
[5] Kowaliw and Kowaliw (1981) FLC 91-092 at 76644.
61.No evidence was led that allowed a conclusion that the litigation was either reckless or designed to reduce the worth of the property of the marriage.
62.Although it was said for the wife that the Supreme Court expenses ought to be disregarded as though they were akin to the husband’s legal expenses in the Family Court proceedings, no authority was provided to support such a proposition. The statutory scheme for the allocation of costs in proceedings before this court is set out in the Family Law Act 1975. It applies to the costs of the proceedings in this Court, not to proceedings in other Courts more properly recognised by the principle set out in Kowaliw.
63.Finally, it appears that the legal fees have already been paid. The evidence did not show how the fees were paid. The arguments advanced in this matter do not identify why it would be in the interests of determining what is just and equitable to add-back such an amount, nor how such an add-back would better identify the real pool of property or better recognise the benefit that a party has individually received from the pool in advance of the trial. Such an add-back would have the effect of giving a false impression of the pool of property available for distribution.
Payment to the husband’s father
64.Although not reflected in an item on the balance sheet, the payment of money by the husband to his father in 2009 was the subject of some dispute during the hearing of the matter. The transfer occurred about the time of a previous separation between the parties. It was suggested that the transfer then was a sham for which the husband ought to account. This was said to be repayment of a loan made by the father. There was no bank statement to evidence the loan. The father says that he was repaid $39,000 by the husband in November 2009, having lent the money to his son in April 2009. There was no evidence of a demand being made for repayment. A bank statement was provided that showed $30,000 of that being paid into the father’s account. He asserted that a further $9,000 was paid in cash. The documents surrounding the loan were in English, which the father could not read and which were signed by him at the request of the husband.
65.However, the wife in her oral evidence accepted that the money that was repaid may have come originally from the husband’s father. In the face of this concession I was unable to conclude that this was a sham transaction for which the husband ought to account to the wife.
Discussion
66.The parties pooled their efforts through their relationship. Each cooperated in acquiring the property of each of them. Each contributed toward the family in areas that did not impact directly on the finances of the parties, but which contributed to the welfare of the family and the ability of the other party to also contribute financially. The pooled efforts and access to pooled resources has now come to an end and it is just and equitable for there to be a division of the property that each owns, and that they own together, in recognition of that change.
67.The assessment of the evidence undertaken above allows for a determination of the pool, subject to a limitation as to the true value of the ODT.
68.Of the add-backs sought to be made, the only matter appropriate to add-back is the distribution to the parties of the proceeds of the sale of the H Street property by the OUT. This was an early partial distribution of the pool. The adding back of this amount allows a full recognition of the total pool distributed and a proper recognition as to how it is being divided in total. The balance of the add-backs sought will not be made for the reasons outlined above.
69.This then leaves a pool comprised as follows:
a.B Street property (less the mortgage): $996,000.00;
b.OUT: $499,638.00;
c.ODT – unknown value;
d.The husband’s superannuation: $59,606.00;
e.Money held at the bank by the husband: $1000.00;
f.The wife’s superannuation: $23,961.00;
g.The wife’s car: $5000.00;
h.Money held at the bank by the wife: $150.00;
i.Add-back to the wife for the proceeds of H Street: $79,286.24;
j.Add-back for the husband for the proceeds of H Street: $78,860.70.
70.This leaves a total pool of $1,743,501.94 including a notional component for the add-backs.
71.Of those the wife currently holds ownership of, or has received $108,397.24.
72.The husband currently holds ownership of, or has received $639,104.70 plus the ODT.
73.A significant difficulty arises due to the uncertainty in the value of the ODT. The material that undermined the Single Expert’s assessment that the ODT was without net value, being the accounts for the 2015-16 financial year and the first quarter of the 2016-17 financial year, were produced by the husband on the second day of the trial.. The Single Expert was the first witness called at the hearing, called on the first day of the trial. The husband was cross-examined about whether the late disclosure was designed to prevent the further financial records being shown to the Single Expert. He denied that this was his objective. It was, however, the result of the failure to disclose. He accepted that he knew that the Single Expert was to be the first witness called. He did not accept that the Single Expert was correct in assessing the business as of nil value.
74.Inadequacy of disclosure on the part of the husband has led to the situation that the Single Expert did not have access to the more recent accounts for the business. He has given no sufficient explanation as to why the material was not produced in a manner that would have allowed the material to be put to the Single Expert. The husband was cross-examined as to the failure to produce those records to allow their use with the Single Expert being a deliberate ploy on his part, putting the failure to produce squarely in issue in the proceedings.
75.While in some circumstances this may lead to an inference as to the value of the property being drawn due to “the inadequacy of disclosure suggest(ing) the likelihood of undisclosed assets of income”[6] in this case the complete lack of evidence taking into account the late disclosed information, renders the drawing of a particular inference as to value dangerous. The evidence of the Single Expert indicated that the ODT did not have value in a liquidated form. Its value stands to be derived from the income the husband derives from it.
[6] Miller & Miller & Miller [2006] FamCA 47 at [27].
76.While it constitutes property that may be subject to adjustment, absent the ability to assign value to the property, its significance in a just and equitable adjustment of the property is best assessed in terms of its meaning for the prospects of the husband deriving an income into the future under s 75(2)(b).
77.An inference is available that the business has the capacity to produce income for the husband, a capacity that while he has control of the business he will be able to benefit from. It was within the power of the husband to have contradicted such an inference (if it were able to be contradicted) by the production of the more recent records to the Single Expert. His failure to do so is a matter “properly to be taken into account as a circumstance in favour of drawing the inference.”[7]
[7] Jones v Dunkel (1959) 101 CLR 298 per Menzies J at 312.
78.For a fuller discussion of the drawing of inferences and the application of Jones v Dunkel see Masoud & Masoud (2016) FLC 93-689 at 81028, where it was noted that “the “rule” is not a substitute for evidence” but accepted that it is an aspect of what was stated by Lord Mansfield[8] in Blatch v Archer (1774) 98 ER 969 at 970 that:
All evidence is to be weighed according to the proof which it was in the power of one side to have produced, and in the power of the other to have contradicted.
[8] As cited by Hodgson JA in Ho v Powell (2001) 51 NSWLR 572 at 576.
79.Particularly relevant to this case, the Full Court in Masoud referred to what the High Court, per Heydon, Crenna and Bell JJ, stated in Kuhl v Zurich Financial Services (2010) 243 CLR 361 at 385:
The failure to call a witness may also permit the court to draw, with greater confidence, any inference unfavourable to the party that failed to call the witness, if that uncalled witness appears to be in a position to cast light on whether the inference should be drawn. These principles have been extended from instances where a witness has not been called at all to instances where a witness has been called but not questioned on particular topics. (emphasis added)
80.The circumstance of the failure on the part of the husband to put the updated financial material to the expert renders more readily available the inference that the recent net profit shown by the business indicates a capacity for the production of income for the husband. It is an inference that I draw.
Assessment of contributions
81.What each party brought to the welfare of the family and the acquisition of the property is different. It was the husband who primarily contributed directly to the acquiring of the property. It was the husband who started and ran the businesses that gave the parties income during the relationship. This involved, at least at the start of the business, the husband working as an employee while also starting the business after working hours.
82.Correspondingly, it can be inferred that the business took the husband’s time away from other contributions to the welfare of the family, leaving the wife to make those contributions.
83.Additionally, the wife had the primary care of both of the children, until the recent past. She worked in the business. She undertook other forms of paid employment.
84.The husband also brought a share of the equity of the F Street property into the relationship at the start in 1994.
85.His family (excluding the efforts shared between the parties and Mr K and Ms L) made significant contributions during the relationship by contributing a part of the purchase price of the N Street property, the proceeds of which went toward the B Street property in about 2000.
86.These contributions occurred relatively early in the relationship. What was brought in through the husband’s family, and through the husband’s efforts prior to the relationship have been, for a considerable period of the relationship, mingled with the ongoing contributions made by each of the parties. Each has been subject to the effects of financial and non-financial contributions to the acquisition of property and to the contributions made by each of the parties to the welfare of the family. While there may be a strong causal link between the financial contributions and the acquisition and retention of the properties at B Street and F Street, which still form the bulk of the underlying value of the property of the parties, such causal connection does not necessarily give a superiority to those contributions as opposed to contributions that do not have that same causal connection.
87.This was one of the matters addressed in Dickons[9] where it was said:
Any and all such contributions, whether or not they sound in, or are directly linked to, the property available for distribution, should be considered and assessed together with the nature, form and extent of all other contributions of all types contemplated otherwise by s 79(4).
That is true of assets or income generated within the relationship and it is equally true of assets or income coming from outside of the relationship (for example, as here, in the form of inheritances). In the same way, s 79(4) specifically requires the Court to take into account contributions made to the welfare of the family (and substantively and “…not in any merely token way…”; see, Mallett v Mallett (1984) 156 CLR 605 at 636 per Wilson J) notwithstanding that those contributions may not be, or cannot be seen to be, directly linked to the available property at trial, or any increase or decrease in the value of the property.
[9] Dickons & Dickons [2012] FamCAFC 154.
88.In this case there is a need for recognition of those contributions brought into the relationship by or on behalf of the husband, to B Street and to F Street. That in turn involves the recognition that as these contributions have been mingled for a substantial period with other contributions, their individual significance has dissipated to some degree. Together they may now be recognised by an assessment that the husband’s contributions should be seen as 5 per cent greater than those of the wife.
Section 75(2)/79(4)(e) factors
89.There are two primary matters raised by the parties in relation to this aspect.
90.The first is the fact that the parties’ sixteen year old son, E, has moved from living with the mother to living with the father. Although I do not know how transitory this arrangement might be, I accept that there is some likelihood that the father will have the care of E for the next two years.
91.The second relates to the capacity of each to derive income, whether by virtue of a capacity for employment or to otherwise derive an income.
92.The wife has a tertiary qualification. The husband does not have a tertiary qualification. However, there is no suggestion that the wife, now aged 44, has ever worked in the field of her qualification. It cannot be expected that the qualification will readily equate to employability, although it may be inferred that the wife has the intellectual capacity, if not the experience to, in due course, obtain skilled employment. There is no certainty that she will be able to secure employment in the field in which she has the tertiary qualification. There is no certainty that she will be able to secure skilled employment. Her lack of experience may undermine her prospects. Her future prospects are highly uncertain, although that uncertainty is tempered by the identified intellectual capacity.
93.The husband has a lengthy history in business. He currently operates a business through the ODT that has in its most recent past generated significant net income. While the husband expressed some uncertainty as to his future prospects, there is reason to infer that his current business interest holds reasonable prospects for an income for him into the future. This combination of business experience and control of a business currently able to supply a strong source of income, places the husband in a significantly superior position to the wife in relation to the s75(2) matters identified by the parties. Even with the care of E, the immediate access to a strong income stream and the ability to fall back upon both his technical expertise and years of business experience contrast sharply with the uncertainty faced by the wife.
94.This disparity calls for an adjustment of ten percent to the wife.
95.The net effect of the two adjustments sees the wife receiving 57.5 per cent of the pool, excluding the ODT, which has been taken into account due to its income earning potential as its value within the pool cannot be assessed, with the husband receiving 42.5 per cent of the same pool and retaining the ODT.
96.This equates to the wife receiving $1,002,513, of which she already holds or has received $108,397. For the husband this equates to him receiving $740,988 plus the ODT, of which he already holds or has received $639,104 plus the ODT.
97.This then requires the wife to receive a further $894,116 and the husband to receive a further $101,884, together corresponding to the remaining value held in the B Street property ($996,000).
98.In the circumstances of the case, particularly where there is a disparity in the parties’ future prospects, this represents a just and equitable division of the property derived during the relationship in which each contributed financially and non-financially to the property and to the welfare of the family.
99.Each of the parties sought to retain the B Street property following the making of orders. The division of property means that neither party could receive the B Street property outright as a consequence of these orders. Nor is there evidence to indicate the capacity of either of the parties to do what is necessary, in the context of this division of the property, to retain that property. I propose to give the parties the opportunity to retain that property should they decide to do so by firstly giving the wife the opportunity to finance a purchase of the interest in that property and to pay out the husband and, if she is unable to do so within a reasonable period of time to give the husband the opportunity to retain the property. It will be necessary to make orders that provide that, if the parties are unable to retain the property, there is a mechanism for the sale of the property.
100.Should that sale of the property result in a net sale price other than the $996,000 currently attributed to the equity in the property, then the proceeds are to be divided to retain the 57.5 per cent - 42.5 per cent split the orders currently cater for. In such a circumstance the proceeds are therefore to be divided, after the payment of the mortgage and relevant expenses, in accordance with the following formula:
101.W = 0.575(P + $108,397 + $639,104) - $108,397
102.H = 0.425(P+ $108,397 + $639,104) - $639,104
Where W = the payment due to the wife from the net proceeds of sale
Where H = the payment due to the husband from the net proceeds of sale
Where P = the net proceeds of sale for B Street after deduction of all costs, commissions, expenses of the sale, Council and water rates and maintenance levies outstanding in respect of the property and after discharge of any encumbrance registered over or affecting the property.
Note P + $108,397 + $639,104 equates to the total pool except for the ODT.
I certify that the preceding one hundred and two (102) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Gill delivered on 23 May 2017.
Associate:
Date: 23 May 2017
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