Omacini & Omacini
[2005] FamCA 195
•23 March 2005
[2005] FamCA 195
FAMILY LAW ACT 1975
IN THE FULL COURT
OF THE FAMILY COURT OF AUSTRALIA
AT PERTH
Appeal No. WA 20 of 2003
File No. PT 5677 of 2001
IN THE MATTER OF:
AJO
Appellant
- and -
GRO
Respondent
REASONS FOR JUDGMENT
BEFORE: Holden, Warnick & Le Poer Trench JJ
HEARD: 7th & 8th day of July 2004
JUDGMENT: 23rd day of March 2005
FAMILY LAW – APPEALS – Property – Value of property – Date of valuation – Whether the trial judge ought to have taken the value of the rent roll as at the date of the trial and then considered contributions to that value between separation and the date of trial
FAMILY LAW – APPEALS – Property Settlement – Categories of cases where it is appropriate to add back funds to the asset pool available for division - Whether the trial judge correctly added back money spent purchasing shares and investments that resulted in a loss of money - Whether the expenditure of money realised from the disposition of assets that existed as at the date of separation were correctly added back to the pool of assets
This is an appeal and a cross appeal against orders made by Martin J on 26 September 2003, dividing the property of the parties between them and which ordered that the appellant husband contribute to the respondent wife’s costs in the sum of $20,000.
Background
As at the date of trial, the appellant husband was 51 years of age and was unemployed. The respondent wife was 48 years of age and a proprietor of a real estate business. The parties married on October 1974. There are two children of the marriage, C, who at the date of trial was 27 and A, who at the date of trial was 25. The parties had a short separation in late 1993 and separated again from March 1997 until early 1999. They finally separated on March 2000.
Because this appeal revolves around a number of discrete issues, it is unnecessary for us to set out in any detail the history of the acquisition, conservation and improvement of assets. It will suffice to summarise the position as did her Honour as follows:
“They started with virtually nothing and, at trial, had nett assets in excess of $3,000,000 which is quite an achievement, since neither had any professional qualifications, or family assistance, apart from some modest assistance received from the wife’s parents in the early years of the marriage.”
The judgment of the trial Judge
Notwithstanding that there were ten grounds of appeal, which are set out later in these reasons for judgment, it is self-evident from the written submissions of counsel for the appellant husband that his attack against the orders made by her Honour concentrated on three areas as follows:
(a)her Honour’s finding as to the valuation of the respondent wife’s business;
(b)the “add backs” that her Honour included in the asset pool available for distribution to the detriment of the appellant husband; and
(c)her Honour’s making allowance for future capital gains tax on properties left in the hands of the respondent wife.
In our view, the issues raised on this appeal are sufficiently well-defined to make it necessary to only refer to those parts of her Honour’s reasons for judgment which touch on the three issues above.
Her Honour’s findings with respect to the acquisition of the real estate business, were as follows:
“15In 1988, the wife commenced her career in real estate…
16In 1991, the wife purchased a 50% share of a real estate business in Fremantle, which she sold in January 1994, for $130,000, making a profit. She then, in April 1994, purchased a rundown real estate business with another business partner, for $8,000, joining the [FN Group] and changed the name to [PCFN]. In September 1994, she bought out her business partner for $19,706.
17Her evidence is that their business was not going well in 2000 with the impact of capital gains tax. She also had some problems with her property manager and released him. There had been about a $55,000 reduction in the rent roll.
18In July 2001, the wife withdrew from the [FN Group] and formed a new company, [PC Pty Ltd], with [RR]. The appellant husband points out this was done without his consent as a director of the company which owned the previous business.
19The wife and [RR] have purchased their own premises at [Fremantle], and in July 2002, purchased a neighbouring shop. The wife now runs the property management side of the business, and [RR], the sales office.”
Insofar as the value of the respondent wife’s business was concerned, her Honour said:
“89.At final separation, the wife was in a business of [PCFN] conducted by [A Pty Ltd]. The wife's position is that the value of her share in the business should be included at $114,077. It was agreed that as at 30 June 2000, the then rent roll of the business had a value of $255,000.
90The wife commenced the business of [PC] Real Estate, with her business partner, in July 2001. The evidence was that the goodwill of the business is now worth $334,000. Almost all of this, apart from plant and equipment of $8,000, is represented by the current rent roll. For the wife it was asserted that the extra value the wife has retained is $109,962, being the difference between $334,000, minus $114,077, divided by two. The wife does not propose to include the sum of $109,962 as part of the assets to be divided between the parties.
91The wife had contended that the rent roll should be valued on the basis of those properties that have remained as part of the [PCFN] rent roll and not been lost or added to since the demise of [PCFN] and the establishment of [PC] Real Estate.
92Another issue which arose during the course of the trial, was that although the wife has been in partnership with her present partner since July 2001, it transpired that the partner has yet paid her nothing for his share of the good will. The husband was under the impression she had given away a share of the goodwill, but apparently the issue of payment was to be addressed after these proceedings concluded. The wife is therefore likely to receive some additional funds.”
Her Honour’s reasons for judgment are silent as to why she included the business at a value of $114,077. However, it is clear that she did so as that is the value she ascribed to the business in her summary of assets and liabilities as at the date of trial.
Insofar as the “add-backs” were concerned, her Honour in her reasons for judgment said as follows:
“110The wife claimed the sum of $502,012 should be added back as monies lost by the husband, or monies he has received which should be brought to account. This sum was comprised as follows:-
(1)
25/1/99-25/5/00
Husband's withdrawals from BP Credit Union joint account
$ 99,660
(2)
25/1/00-25/5/00
Husband's withdrawals from NAB flexiplus joint account
$126,429
(3)
18/4/01 & 17/7/00
BP shares sold (2,000 shares)
$ 31,904
(4)
May 2001
Proceeds of [the BC property]
$ 94,935
(5)
31/10/02
Profit of [the PG property]
$ 71,000
(6)
Isuzu truck
$ 8,000
(7)
[T company] investment
$ 15,000
(8)
Macquarie Link bonds
$ 4,306
(9)
Wife's deposit to reduce the joint debt incurred by the husband
$ 30,779
(10)
Share dividends received by the husband
$ 1,800
111(1) The wife itemised all these expenditures as being for share purchases from over that period, only approximately $15,000 of the purchases being while the parties were living together. These included expenditures for an investment in [a promotions company] of $7,000, which was promoting attractions at [a Theatre], the [A company] shares, ITC, [T company], [P Wines] and some others.
112(2) The wife itemised these expenditures as being further share purchases, including some [A company] shares and the investment in [ITC] and [P Wines]. This expenditure also included the monies spent on the purchase of the BMW which was sold, making a loss of approximately $7,000. The amount the husband had spent on the vehicle was $17,425.
113(3) The wife claims that add backs are appropriately included for these shares as they were sold by the husband and he retained the net proceeds. They had been acquired during the marriage.
114(4) The wife claims that this sum should be included as being the net proceeds the husband received from the sale of [the BC property], which had been an investment acquired by the husband well prior to separation.
115(5) The husband purchased the [PG property] in early 2001 and sold it during 2002. He did considerable work on the property and the wife said he made a profit of $65,000, although the figure varied from document to document. The husband initially claimed his profit after expenses was $34,000, but was eventually prepared to accept a greater figure, because it seems that mortgage payments claimed as being made were not actually met. For the wife it was said to be between $40,000 to $60,000. The wife claims that this should be included in the assets available for division.
116(6) The wife claims the husband allowed this to deteriorate and that he should bear the responsibility for this. It was apparently sold for $1,500 after the wife had paid for its re-licensing. The husband said A and a friend had cooked the motor, and it was not worth repairing.
117(7) The wife claims this was an unwise investment, for which she should not be responsible.
118(8) The wife also claims this was an unwise investment by the husband.
119(9) This sum was the payment made by the wife in late 1999, to reduce the parties' overdraft. She said the husband agreed to match this, but did not.
120(10) The wife claimed the share dividends should be brought to account.
121The wife also claimed the loss of rent on [the AD property], from 22 July 2002 to 16 September 2002. I am not prepared to include this because of the work the husband did on the property.
122She had claimed $20,000 as a tax loss on the [O Family Trust], but it is not clear what her position on this was in closing, as the total claimed had originally been $524,010.
123Overall, the wife's position was that the husband had invested foolishly since the parties' second separation, and should bear the responsibility for this. She claims that all her income, including her income from joint investments, has been brought to account. She points out that the husband has not worked much since separation, using up sick leave and holiday pay, and has not really sought employment since being made redundant.
124In the alternative, she proposed that she receive 60% of the property by way of contribution.
125For the husband it was asserted that, although he made losses on the shares, this was just in the course of trading and not of great significance. In any event, the wife had agreed to some of the purchases. He had acted appropriately in other respects, and the shares at current value, were being included in the net assets for division. The husband had been earning his usual substantial income until July 2002.
126I have concluded that the husband should be required to bear the responsibility for his share purchases and investments. While the wife may have accepted some minor purchases, having regard to the nature of her other investments and, particularly, the care with which she has husbanded her assets, I accept that the shares and investments chosen by the husband were anathema to her, and she should not have to bear the losses incurred, particularly since they were nearly all purchased during a separation of the parties.
127In this, I include the money wasted on the BMW venture which did not get off the ground, as being a folly of the husband's for which she should not have to bear responsibility.
128The monies received from the BP shares, and the proceeds of [the BC property], are add backs which should be included in the usual way, as being joint assets of the parties now realised, but held by one party.
129However, I am not prepared to include any profit from the husband's [PG property] venture as an add back. It was acquired after separation and the husband made the major contribution, although the wife made some lesser indirect financial contributions. The wife has not had the increase in value of her business, through her efforts since separation, brought to account, nor its after acquired asset.
130Therefore, I do not propose to add back the [PG property] profit, whatever it may be.
131I am also not prepared to add back the Isuzu truck loss, accepting the husband's explanation in this regard.
132As to the wife's deposit to reduce the joint debt incurred by the husband, this was done while the parties were living together. I have decided to not add back this sum, because the husband is being brought to account for the share expenditure in any event.
133The husband can retain the share dividends unless they relate to BP shares, in which event they should be brought to account. The wife specifically claimed the BP dividend under a separate heading
134It was agreed that legal and valuation fees paid by the wife of $57,000, and legal fees paid by the husband of $67,000, should be added back.”
According to her summary of assets and liabilities contained in paragraph 142 of her judgment, her Honour added back the following:
Husband
Wife
Legal and valuation fees paid
$67,000
57,000
Shares and investments purchased by husband
245,395
BP Shares sold
31,904
Proceeds of [the BC property]
94,935
Total
$439,234
$57,000
Insofar as capital gains tax was concerned, her Honour said:
“Capital Gains Tax
140The wife seeks an allowance for capital gains tax for the properties retained by her on the principle in Rosati and Rosati (1998) FLC 92-804, in which the Full Court of the Family Court of Australia discussed the incidences in which capital gains tax should be taken into account in valuing an asset. The Court said, at p 85,043:-.
"If the Court orders the sale of an asset, or is satisfied that a sale of it is inevitable, or would probably occur in the near future, or if the asset is one which was acquired solely as an investment, and with a view to its ultimate sale for profit, then, generally, allowance should be made for any capital gains tax payable upon such a sale in determining the value of that asset for the purpose of the proceedings."
141There was no evidence challenging the capital gains tax calculations by the wife's accountant. Senior counsel for the husband, in closing, did not pursue this issue, other than to seek a similar allowance for the husband, as, on her instructions, he proposes to sell [the AD property] in about a year. This would seem appropriate as the property was purchased as an investment. However, there was no evidence as to what the husband would be likely to pay, but as the husband does not have a high income, it is likely to be modest.”
The only other aspect of her Honour’s reasons that we consider may have some relevance to a determination of this appeal, relates to her conclusion with respect to contributions which was as follows:
“161The wife sought a division on the basis of a contribution as to 60% to the wife and 40% to the husband, but in the event of the recognition of the husband's wastage and the add backs at $502,012, the wife accepted a 50% division was appropriate.
162The husband initially claimed that he should be entitled to 60% of the assets on the basis of contribution, but this was not really pursued.
163Overall, he claimed there should be an equal division of the parties' assets, but he retain separately his redundancy and long service leave payments.
164I have accepted a large proportion of the wife's claim for add backs. I do accept that this issue could have been addressed through contributions rather than add backs, but I have concluded add backs were more appropriate because of the nature of the shares expenditure, and the fact that pre-owned assets were realised. Otherwise, I have concluded that the parties should be regarded as having made an equal contribution overall, by working very hard over a lengthy marriage. While the husband has done little in the last year, the inclusion of his redundancy pay balances the position out, as although the wife has contributed very substantially to this, the receipt of the monies recompenses for the lost income.”
The grounds of appeal
By a substituted Notice of Appeal filed 18 November 2003, the appellant husband relied upon the following grounds:
“1.The decision of the learned trial judge to allow a specific sum for prospective capital gains tax on 2 properties to be retained by the wife was unjust and contrary to law in that:
a. sales of the properties was not certain;
b. the amount of any gain was not certain;
c. the tax payable on any gain was not certain;
2.The order made by the learned trial judge in providing for an open-ended liberty to apply in respect of capital gains tax on properties retained by the husband is contrary to law in that;
a. it amounts to a failure to determine the property claim;
b. it is contrary to section 81 of the Act.
3.The finding of the learned trial judge that the appropriate value to include in the asset pool for the wife’s real estate agency business was $114,077 was against the evidence and wrong in law in that:
a. The value of the business at separation was $260,000;
b. the value of the wife’s present business was $334,000;
c. the wife had disposed of a half interest in the business after separation for no payment;
d. the learned trial judge failed to take into account monies standing in Bank accounts of the business at the time of separation and controlled by the wife.
4.The finding of an adjustment against the husband of $242,479 was against the weight of evidence and wrong in law in that:
a. The shares actually held by the husband had a value of $110,514 excluding shares to be divided equally;
b. The “losses” claimed by the wife did not allow for the husband’s reasonable expenses and costs spent by him in purchasing assets included in the pool for division.
5.The finding of the learned trial judge that there should be adjustment made on account of financial matters occurring subsequent to separation which would result in the husband receiving less than 50% of the value of the asset pool at trial was against the evidence and the weight of the evidence and wrong in law in that:
a. Post separation the husband had made a very significant contribution by obtaining a redundancy payment;
b. The husband had made sound commercial decisions in respect of the purchase, renovation and sale of real estate which at least balanced any poor decisions in respect of share purchases;
c. The wife had retained a business of which she had disposed of an effective 50% interest without consultation with the husband and without payment;
d. The parties had a long marriage during which they both made significant financial and non-financial contributions and the findings of equality of contribution and no adjustment for other factors should be followed by a result of equal division.
6.The finding of the learned trial judge that it was appropriate to deal with the complaints of the wife concerning alleged waste by a complex mixture of “add-back”, exclusion of some assets and inclusion of others as at separation or some other notional figure was contrary to law in that:
a. The learned trial judge failed to make findings as to the exact nature and value of the asset pool as at the date of trial;
b. The learned trial judge failed to make orders as to the contributions of the parties to the asset pool as existed at the date of trial;
c. The learned trial judge failed to make orders dividing the assets of the parties at the date of trial;
d. The learned trial judge failed to give any, or any adequate reasons as to why she determined to approach the matter in the manner that she did and to make the adjustments that she did.
7.The finding of the learned trial judge to “add-back” $31,904 for BP shares sold against the evidence and wrong in law in that the bulk of the proceeds were applied towards tax on the sale and the acquisition of other shares included in the asset pool.
8.The finding of the learned trial judge to “add-back” $94,935 in respect of the sale of [the BC property] was against the evidence and contrary to law in that a significant portion of the proceeds were used to pay the husband’s legal costs which were elsewhere “added back”.
9.The allowance of the wife’s personal liabilities and of her paid legal costs was against the evidence in that the costs actually paid by the wife were $103,714.
10.The finding that the appellant husband should make any contribution towards the legal costs of the wife was against the evidence and the weight of the evidence and contrary to law in that:
a. None of the factors set out in section 117(2) were made out by the wife;
b. The conduct of the proceedings by the wife was also subject to criticism;
c. The finding that the offers made by the wife were closer to the end result than were the offers made by the husband was contrary to the evidence;
d. The fact that one party was closer to the end result in offers than was the other is not, of itself, a ground for the granting of an order for costs.”
Insofar as the cross appeal was concerned, by a Notice of Cross Appeal filed 27 October 2003, the respondent wife relied upon the following grounds:
“1.The decision of the learned trial judge to require the transfer of [the KP property] by the wife to the husband was against the evidence and the weight of the evidence and wrong in law in that:
(a) at all material times during the trial, the husband had agreed to the said property being transferred to the wife;
(b) the wife had accepted this proposal and on the basis of it had agreed to split the difference on disputed property values between herself and the husband;
(c) the wife had taken steps to procure the strata titling of the said property against the wishes of the husband in order to ensure that she was able to take advantage of any increased value by reason of strata titling and had been obliged to obtain an order that the husband give his consent to this strata titling;
(d) the wife had successfully strata titled the property without any support or assistance from the husband;
(e) the husband had already retained and sold three properties to which the parties to the marriage had contributed, namely [the BC property], [the PG property] and [the SC property].
2.The finding that the allowance for add backs should be $201,739 was against the evidence and the weight of the evidence and wrong in law in that:
(a) the evidence before the learned trial judge was that the husband had disposed of $731,870 since separation during which period he had received earnings of only $112,326;
(b) the conclusion that the learned trial judge should have drawn was that the husband had wasted or disposed of, or had access to, or alternatively had received in advance of the property settlement the sum of $530,131; and
(c) this is the sum that the learned trial judge should have added back into the pool.
3.The learned trial judge’s allowance of costs to the wife of $20,000 was contrary to the provisions of section 117 of the Act in that:
(a) it did not take adequate account of the conduct of the husband during the course of the trial;
(b) it did not take adequate account of the offers that the wife had made to settle the matter; and
(c) the learned trial judge should have made an order that the husband pay the wife’s costs of the proceedings to be taxed.”
The respondent wife, through her senior counsel, advised that ground 2 was no longer being pursued and that its purpose now was to be used as a shield in the event that the appeal was allowed and we determined that we could re-exercise the discretion.
We turn first to consider the valuation of the wife’s “rent roll” adopted by her Honour. The starting point is that ordinarily in proceedings under s 79 of the Family Law Act 1975 (Cth) (“the Act”) the property and financial resources of the parties are valued as at the date of trial. See for example Williams and Williams (1984) FLC 91-541 and Hauff and Hauff (1986) FLC 91-747.
We accept that in a particular case there may be reasons which justify the selection by the trial judge of another date and that in some cases that may be the date of separation of the parties. It was common ground that the value of the rent roll, as at the date of separation, was $255,000 and as at the date of trial, was $334,000.
Her Honour did not, however, adopt either of those values. This is because she accepted the argument advanced on behalf of the wife that what ought to be valued was only the rental from those properties which were on the rent roll as at the date of separation, and remained on the rent roll as at the date of trial, which resulted in the valuation figure of $114,077.
Senior counsel for the wife argued before us (in his written submissions) that “The two Valuers and Counsel for the husband finally agreed that the rent roll was valued at $114,077. There was no basis therefore for any dispute as to the value of the wife’s business.”
We do not agree with that submission. It seems clear to us that all that was agreed was that the calculation, on the basis urged by the wife, would produce a result of $114,077. This was not a concession that that was the correct approach to adopt. So much is clear when one reads the evidence of the wife’s valuer, Mr T, in its entirety.
The difficulty with the approach accepted by her Honour is that the value she adopted does not represent the value of any asset that the wife held at any time, but rather is an entirely notional calculation unconnected with the reality of the price at which the wife might have sold the rent roll at any particular point in time.
Further, this approach does not appear to be consistent with the agreed methodology adopted by the two valuers of multiplying the dollar value of the rent roll by $2.60 to arrive at a figure that an “arm’s length” buyer would pay for the rent roll.
Counsel for the appellant husband argues that her Honour ought to have taken the value of the respondent wife’s rent roll as at the date of trial, and then consider contributions to that value between separation and the date of trial. We agree that this would be the correct approach. It would have the advantage of determining whether replacement properties were added to the rent roll because of:
(a)The reputation of the business (albeit under different names) acquired during the marriage; or
(b)solely as a result of a personal endeavour of the respondent wife since separation; or
(c)a combination of the two.
In our view, the “valuation” adopted by her Honour is a notional or perhaps even fictitious valuation of an asset the wife never had at any point of time. Whilst it may be (and we express no concluded view) that this third calculation may arguably be of some use in assessing the contributions of the wife post separation, that is not the purpose for which it was used.
In any event, even if there was validity to the approach adopted by her Honour, there is a further difficulty. It transpired during the course of the trial that approximately 12 months after separation, the wife had sold one half of the business and at some future date she was to receive between $100,000 and $120,000. The calculation adopted by her Honour does not take into account that properties lost after July 2001 (the date of sale) but existing at separation may have contributed to the sale price of half the business. This is particularly so as the sale price was not included in the list of assets.
Another difficulty is that the valuation adopted by her Honour does not in any way recognise that the respondent wife had the benefit of the rent roll income until each property was lost. We are of the view that her Honour clearly erred in accepting the proposition put forward on behalf of the respondent wife, fraught with difficulties as it was, and that she ought to have found that the respondent wife’s interest in the rent roll was 50% of the valuation at trial, $171,000 plus proceeds of sale of 50% not less than $100,000 totalling $271,000.
The final difficulty that we identify with respect to the valuation figure adopted by her Honour is, that even if the approach was correct, the reality is that at the date of trial the wife held an asset that had considerably more value than found by her Honour. This, in our view, would be a factor that her Honour was obliged to take into account under s 79(4)(e) which she did not do.
We now turn to the issue of add backs. Her Honour added back to the appellant husband’s assets the following:
Legal and valuation fees paid
$67,000
Shares and investments purchased by husband
245,395
BP shares sold
31,904
Proceeds BC property
94,935
Total
$439,234
As is apparent from the figures contained within ground 4, her Honour did not write back into the asset pool the actual value of shares retained by the husband, but that value was less than half the amount added back to the asset pool on account of "shares and investments purchased by the husband".
To date, three clear categories of cases have emerged where the Court has determined that it is appropriate to notionally add back to the pool of assets, that is, assets that no longer exist. They are:
(a)Where the parties have expended money on legal fees. In DJM and JLM (1998) FLC 92-816 the Full Court said at 85,262:
“11.6 For reasons set out in Farnell, s 117 provides that each party to proceedings under the Family Law Act shall bear their own costs unless the Court otherwise orders. Failing to add back monies expended by parties on costs frequently has the effect of defeating the policy of s 117 by permitting the pool of available assets for distribution between the parties to be diminished by any monies that either of the parties have managed to spend on their costs up to the date of trial. We are of the view that the normal approach ought be to add costs already paid back into the pool. Whilst there may be cases where that approach is inappropriate, the reasons why it is not taken ought normally be spelt out.”
(b)Where there has been a premature distribution of matrimonial assets. In Townsend and Townsend (1995) FLC 92-569 Nicholson CJ as he then was with whom Fogarty and Jordan JJ agreed, said at 81,654:
“In my view, what occurred in this case, as I said during the course of argument was, in fact, a premature distribution of a proportion of the matrimonial assets. What the husband did was to distribute to himself an asset in which the wife had a legitimate interest. In such circumstances I consider that it would be unjust in the extreme to simply treat such conduct by the husband as a matter to which regard should be had under section 75(2). It seems to me that the husband has had the benefit of that money. Had he retained, for example, the taxi licence instead of selling it, that would have been brought into account as an item of property which would have been dealt with in the same way as the remaining items of property in this case. Accordingly, I am of the view that the correct way in which to deal with the husband’s receipt of those moneys is to bring them into the pool of assets on a notional basis and make a distribution accordingly.”
(c)In the circumstances outlined by Baker J in Kowaliw and Kowaliw (1981) FLC 91-092 at 76,644:
“As a statement of general principle, I am firmly of the view that financial losses incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:
(a)where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or
(b)where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.
Conduct of the kind referred to in para. (a) and (b) above having economic consequences is clearly in my view relevant under sec.75(2)(o) to applications for settlement of property instituted under the provisions of sec.79.”
As the Full Court said in Browne and Green (1999) FLC 92-873 at 86,360:
“44. We agree with her Honour that the principles stated by Baker J in Kowaliw certainly do not constitute any form of fixed code. They are no more than guidelines for use in the exercise of the discretionary jurisdiction conferred by s 79 of the Family Law Act 1975. Nevertheless, they have over the considerable period of time since they were enunciated, become a well accepted guideline in this jurisdiction – a guideline the use of which assists in the achievement of the important goal of consistency within the jurisdiction.”
The appellant husband in his written submissions, does not contest that it was appropriate to add back money spent by the parties on legal fees. His position is, however, that there ought be no other add backs.
It seems to us that there are a number of difficulties with her Honour’s treatment of the add backs. It is not possible to discern from her reasons for judgment why she added back the money spent on shares and investments or the proceeds of sale of the BC property and the BHP shares. She does not state anywhere that she is adding back these as assets because they fall into any of the categories we have set out above.
True it is, that early in her judgment her Honour noted that the respondent wife’s position was that the appellant husband had after June 1998 started taking financial risks and made a number of foolish investments and that she was claiming that by November 1999 it was clear that the appellant husband had spent, and lost, an inordinate amount of money.
Later in her judgment she summarises the case for each of the parties as follows:
“123Overall, the wife's position was that the husband had invested foolishly since the parties' second separation, and should bear the responsibility for this. She claims that all her income, including her income from joint investments, has been brought to account. She points out that the husband has not worked much since separation, using up sick leave and holiday pay, and has not really sought employment since being made redundant.
…
125For the husband it was asserted that, although he made losses on the shares, this was just in the course of trading and not of great significance. In any event, the wife had agreed to some of the purchases. He had acted appropriately in other respects, and the shares at current value, were being included in the net assets for division. The husband had been earning his usual substantial income until July 2002.”
She then concludes:
“126I have concluded that the husband should be required to bear the responsibility for his share purchases and investments. While the wife may have accepted some minor purchases, having regard to the nature of her other investments and, particularly, the care with which she has husbanded her assets, I accept that the shares and investments chosen by the husband were anathema to her, and she should not have to bear the losses incurred, particularly since they were nearly all purchased during a separation of the parties.”
Save and except for the BMW venture, which she regarded as being a folly of the appellant husband for which the wife should not have to bear responsibility, she makes no finding that any of the appellant husband’s investment activities were wanton or reckless.
Insofar as the monies received from the BP shares and sale of the BC property are concerned, she added these back on the basis that they “should be included in the usual way, as being joint assets of the parties now realised, but held by one party.”
Her Honour seems to be saying that the mere fact that a party has expended money realised from the disposition of assets that existed as at the date of separation, will result in that expenditure being added back “in the usual way” as a premature distribution of assets with nothing more. If that is what her Honour is saying, in our view, she is being unduly simplistic. In our opinion, it was a necessary requirement for her Honour to examine and make some assessment of the reasonableness or otherwise of the expenditure. The need to satisfy that requirement was particularly critical in a case such as this because:
(a)The appellant husband had at least prima facie provided a full explanation and accounting as to how the money had been expended; and
(b)much of the expenditure was incurred after the appellant husband had accepted a redundancy package on 18 June 2002 which has not been available to him, it being frozen by court order. The amounts frozen were substantial and amounted to $234,000 together with a small amount of accrued interest. The appellant husband has not been in paid employment since accepting that redundancy. The respondent wife was critical of that fact, however, her Honour makes no findings critical of the appellant husband.
As her Honour noted a redundancy package is intended to make up for future loss of earnings. Given that the package was frozen, the appellant husband had to meet expenditure from somewhere, which is a matter that needed to be examined, particularly, in view of the fact that his redundancy package was fully included in the asset pool available for distribution.
It is, in our view, inconsistent for her Honour to recognise that the redundancy pay recompenses for lost income, but not to address the question of the husband's legitimate support of himself from that income.
It is implicit in that statement by her Honour that she accepts that at least some of the appellant husband’s expenditure was reasonable.
A further problem arises as a result of her Honour’s failure to scrutinise the manner in which the appellant husband expended money and that it could lead to “double dipping”. It appears to have happened in this case. If one looks at Exhibit E1, one sees that, according to the appellant husband, he deposited the proceeds of sale of the BC property into his National Australia Bank Flexi Plus Mortgage account. From that account he spent, inter alia, the following:`
Legal expenses
$49,836
Caravan
10,700
Nissan
14,000
All of these items appear in her Honour’s list of assets available for distribution between the parties.
In a similar vein the proceeds of sale of the BP shares were paid into his BP Credit Union Account from which accounts he paid a further $10,026 in legal fees which was also brought to account in the list of assets.
The four important steps to be taken in determining a property dispute are well defined (see for example Ferraro and Ferraro (1993) FLC 92-335 at 79,560) and they are:
(a)To identify and value the net property of the parties (usually as at the date of trial);
(b)to consider the contributions of the parties within paragraphs (a)-(c) of s 79(4);
(c)to consider the s 75(2) factors; and
(d)to consider whether the order proposed is just and equitable.
Her Honour clearly recognised the first three of those steps in paragraph 50 of her reasons for judgment.
It seems to us that all of the difficulties that we have identified with respect to her Honour’s reasons for judgment to date arise because her Honour departed from the approach that she identified. Her Honour did not make findings with respect to the asset pool as at the date of trial, nor did she consider the contribution of the parties to that pool. Rather, she attempted to resolve the dispute by relying upon a complex mixture of add backs, the exclusion of some assets and the inclusion of others and notional valuations. This is demonstrated by the following passage from her Honour’s judgment:
“I have accepted that a large proportion of the wife’s claim for add backs. I do accept that this issue could have been addressed through contributions rather than add backs, but I have concluded add backs were more appropriate because of the nature of the shares expenditure, and the fact that pre-owned assets were realised.”
In adopting the approach that she did, her Honour created the opportunity to fall into error not only in the ways we have identified but also there arises a considerable risk that relevant considerations have been overlooked in the assessment of contributions. We are of the view, that the reasons given by her Honour for adopting the approach that she did, which, in our view, is a novel approach does not justify the way she approached the resolution of the property dispute.
It is our opinion, that because of the difficulties with her Honour’s judgment, which we have already identified, it would be unsafe to allow the judgment to stand. It therefore, becomes unnecessary for us to consider other aspects raised by the grounds of appeal or the cross appeal, unless we intended to re-exercise the discretion.
The cost to each of the parties to date are considerable. We have given consideration as to whether it would be possible to re-exercise the discretion after consideration of the other grounds of appeal and the cross appeal, thereby saving the parties further expense. Regrettably we have concluded that there is no option but to order a retrial, primarily because:
(a)These orders were made on September 2003 and were based on values that are now two years old. Many of the significant assets may have changed in value to a considerable extent; and
(b)The way in which her Honour approached the matter which she expressly acknowledged was not based on an assessment of contributions, results in our having insufficient findings on the issue of contributions upon which to base a re-exercise of discretion.
In the instant case, though the trial Judge seemed to place some reliance on arguments of the wife that the conduct of the husband had increased the cost to the wife, it also seems that the trial Judge placed some weight on the comparative degree of success of the wife, as against that of the husband. She may also have placed some weight on an offer made by the wife and possibly on the success of the wife in relation to "addbacks", a matter about which we have found her to have been in error. In the circumstances, we consider that the costs order ought also be set aside.
Though the appeal and cross-appeal only challenged specific orders, the orders sought in both appeal and cross-appeal were founded on the proposition that we would re-exercise the discretion. It seems to us that once we have decided we are not in a position to do this, that the entirety of the property orders ought be set aside. This conclusion is reinforced by the observations in Hickey and Hickey and AG for the Commonwealth of Australia (Intervenor 2003) FLC 93-143 at 78,387 where it was said:
"Although there may be partial or interim orders (s79(6)) of the Act, ultimately there is only one exercise of power under s 79 in respect of the property of the parties, even though that single exercise of power may be reflected in a complex order of many paragraphs or clauses, each dealing with a different item of property and some dealing with questions of implementation."
Orders
1.That the appeal be allowed.
2.That the order of September 2003 be set aside.
3.That the matter be remitted for rehearing before a judge of the Family Court of Western Australia other than Martin J.
4.That the parties be at liberty to file written submissions with regard to the appeal against the order for costs of September 2003 and the costs of this appeal in accordance with the following timetable:
(a)on behalf of the appellant husband within twenty one days of the date hereof;
(b)on behalf of the respondent wife in response thereto within twenty one days thereafter; and
(c)on behalf of the appellant husband in reply thereto within seven days thereafter.
5.That each submission have endorsed on the cover sheet the date on which a copy of that submission was served on the other party.
I certify that the preceding 53 paragraphs are a true copy of the reasons for judgment delivered by this Honourable Court
Associate
141
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