P and P - [2001] FMCAfam 145

FEDERAL MAGISTRATES COURT OF AUSTRALIA

P & P

[2001] FMCAfam 145

FAMILY LAW – Property – contributions – gambling losses – obligation to make full and frank disclosure of material facts – effect of non-disclosure on valuation of company.

Applicant:

E P

Respondent:

S J P

File No:

ZP1654 of 2000

Delivered on:

2 August 2001

Delivered at:

Parramatta

Hearing Dates:

25 & 26 July 2001

Judgment of:

Ryan FM

REPRESENTATION

Counsel for the Applicant:

Mr Kearney

Solicitors for the Applicant:

Matthews Folbigg, Level 1,
80 Phillip Street, Parramatta 2124.
DX 8233 PARRAMATTA

Respondent:	The respondent appeared on his own behalf.
Respondent’s Address:	3/133 North Rocks Road, North Rocks

ORDERS

That the Husband pay to the Wife the sum of Twenty Thousand Two Hundred and Fifty Two Dollars ($20,252.00) within two months of the date of these orders.
That the Husband pay the Wife’s costs for 26 July 2001 in the sum of $2666.00. Such costs to be paid within twenty-eight (28) days of agreement or taxation.
Unless otherwise specified in these orders;
(a)Each party be solely entitled to the exclusion of the other, of all other property and chattels of whatsoever nature and kind in the possession of such party as at the date of these orders and for this purpose bank accounts are deemed to be in the possession of the person whose name appears on the bank’s record thereof, insurance policies are deemed to be in the possession of the beneficiary thereof, superannuation entitlements are deemed to be in the possession of the person who is named as the worker whose age or working future provides the conditions of payment out of such entitlements;
(b)Each party is solely liable for and indemnifies the other against any liability encumbering any item of property to which that party is entitled pursuant to these orders.
In the event that either party fails, refuses or neglects to execute any deed, document or instrument necessary to give effect to these orders, then pursuant to Section 106A, a Registrar or Deputy Registrar of the Federal Magistrates Court of Australia is hereby appointed to execute all deeds, documents and instruments in the name of the defaulting party and to do all such acts and things necessary to give validity and operation to such deeds, documents and instruments.
That all outstanding applications are otherwise dismissed.
That all exhibits are to be returned at the expiration of one calender month unless an Appeal is lodged.
That the solicitor or party who issued any subpoena collects that subpoenaed material and returns it to the owner within 7 days.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
PARRAMATTA

ZP1654 of 2000

E P

Applicant

And

S J P

Respondent

REASONS FOR JUDGMENT (Ex Tempore

The proceedings

These proceedings comprise an application for financial orders, in particular the adjustment of property.

The applications

E P commenced the proceedings on 14 June 2000 when she filed an application for final orders in the Family Court. The orders sought by her were as follows:
"That the Husband pay to the Wife the sum of $100,000 within 28 days of the date of these orders."
The respondent husband opposed the orders sought by the wife. He filed a response to her application on 5 October 2000. He sought an order as follows:
"That the applicant’s application be dismissed."
These were the orders sought by each of the parties respectively at the final hearing.
On 9 October 2000 the Family Court transferred these proceedings to the Federal Magistrates Court for hearing. The matter was identified as a one day matter.

Short history

E P, the applicant wife (“the wife”) was born on 8 November 1955. She is 45 years old.
S J P, the respondent husband (“the husband”) was born on 9 April 1957 and he is 44 years old.
The parties met on 24 June 1992.
They commenced cohabitation in July 1994.
On 1 October 1994 the parties married.
Their first son, N, was born on 27 March 1995. He is 6 years old. Their second child, T, was born on 24 April 1996. He is 5 years old.
The parties separated for the first time in January 1998.
On 28 February 1998 the husband assumed the full-time care of the children.
The parties resumed cohabitation in December 1998 and finally separated on 28 February 1999. The husband assumed the full time care of the children after separation.
In April 1999 a parenting plan was registered with the Family Court in Sydney.
The marriage still subsists.

The evidence

The wife relied on the following evidence:
·Her affidavit sworn and filed on 30 March 2001 and her oral testimony.
·Her financial statement sworn 23 May 2001 and filed on 14 June 2001.
·Valuer, Mathew Gwynne’s affidavit sworn and filed 11 July 2001 and his oral testimony.
The husband relied on the following evidence:
·His affidavit sworn and filed 8 June 2001 together with his oral testimony.
·His affidavit sworn and filed on 21 June 2001.
·His affidavit sworn and filed on 24 July 2001.
·His financial statement filed on 5 October 2000.
Both parties complemented the material with documents tendered that became exhibits in the proceedings.

The husband’s current circumstances

The husband and the two children live in rented accommodation at 3/133 N R Road, N R. He is a qualified medical practitioner who is the sole proprietor of a medical supply company. The company is known as M Medical Pty Limited ("the company").
The husband does not receive any child support from the wife and has not done so since separation. The company provides the husband’s income. In the last financial year he drew benefits in the approximate sum of $92,865.07.[1]
[1] Annexure E to husbands affidavit filed on 24 July 2001

The wife’s current circumstances

The wife lives in rented Department of Housing accommodation at 6/17 B Street, H P. She has the care of the children one night each week and during part of each school holidays. She exercises additional contact from time to time.
The wife receives $360 per fortnight from Centrelink and a family allowance of $114.44 a fortnight. Her income is thus approximately $237.22 a week. She has not worked other than in the husband’s business, since she gave up a clerical position with the Land Titles Office shortly prior to N’s birth.

Credit

A significant issue in these proceedings was the credit findings that the court should make in relation to each of the parties. Both parties had a clear obligation to make full and frank disclosure. They were required to disclose all material facts. Black and Kellner.[2] I am satisfied that neither of them did so.
[2] 1992 FLC 92-287
The husband’s case in relation to the wife is that she is chronically addicted to gambling and that throughout the course of the marriage she spent large sums of money gambling on poker machines, accruing significant losses. As will become apparent from these reasons, he made out his case in that regard. The wife’s affidavit was silent in relation to the moneys spent by her on gambling. During cross-examination she was forced to concede losses and expenditure from playing poker machines. In her evidence in chief[3], she purports to identify the assets that she brought into the marriage. No mention is made of her indebtedness. The wife conceded that she had a debt of $7,000 at the start of cohabitation. The husband alleged it was $8,000. It was her obligation to disclose to the court moneys spent by her on gambling and her indebtedness at cohabitation. She did not do so. I am satisfied that as a consequence, in relation to matters relating to gambling and the extent of her initial indebtedness, where there is a conflict in the parties evidence I accept the husband’s evidence in preference to the wife’s.
[3] paragraph 5 of her affidavit
The husband, similarly, had an obligation to make full and frank disclosure, importantly in relation to the business. This is because he has total control of its documentation. His presentation of the material for the business to the court was manifestly inadequate. He compounded this by presenting records to Mr Gwynne prepared in March 2000 and which were otherwise in disarray. As a consequence, the task that Mr Gwynne was presented with, and the exercise that now falls to me valuing M Medical Pty Limited, has been made that much more difficult because of the manner in which the husband has approached or more correctly disregarded his obligations to make full and frank disclosure. The company had not filed a tax return since 1998. At different times during the course of the proceedings the husband asserted that he had present in court relevant financial documents that when called for he said he could produce. When a call was persisted with by the wife's counsel no documents were produced. Throughout the proceedings the husband displayed intelligence and a detailed knowledge of the company. I am not satisfied that he was repeatedly mistaken that he could produce documents called for. Rather he engaged in subterfuge, continuing a pattern of non-disclosure throughout the hearing.
After Mr Gwynne's had completed his valuation the husband reworked the company’s 1998 financial documents with the help of M and P Pty Ltd[4]. He then reworked M and P's financials[5]. He identified for the first time slow-moving stock that he said should be deducted from the inventory valuation summary. He failed to provide financial documents relating to Amazon web design, he did not disclose his income from share trading and he did not provide documents that dealt with the sale of shares acquired during the course of the marriage. There are other instances of non disclosure.
[4] Paragraph 5(a) husbands affidavit 21 June 2001
[5] Husbands affidavit filed 21 June 2001
The husband was cavalier in many respects in the way he presented or withheld important material from the court. Because of this I have determined that I should treat with caution his evidence that challenges the facts relied upon and presented to Mr Gwynne. This includes the additional matters that went to the bringing forward or taking into account of identified losses and the identification of additional old or slow-moving stock. They are matters that could have been corroborated by another person but were not. Because these matters were uncorroborated, I am satisfied that I should accept the findings made by Mr Gwynne as to the operation of the business and his opinion of its value.

Background facts

The husband and his first wife established a medical supply company. He founded this business utilising a company S P Pty Limited. The business was based in Victoria. In 1988 a new business entity, M Medical Pty Limited, was established. The husband was the majority shareholder, owning 60 per cent of the issued shares.
In about 1991 the husband acquired his first wife's 40 per cent share holding and merged the companies S P Pty Limited and M Medical Pty Limited, (“the company”). Thus he became the beneficial owner of all issued shares in the company.
The company’s core business is the sale of T E N S (TENS) equipment. These are used for the relief and management of pain. The company’s key customers are hospitals, insurance companies and minor distributors. The company acquires the machines from several sources. It does not have an exclusive agency agreement with its suppliers due to lack of sales volume. Additional revenue is derived from the sale of accessories for these machines such as replacement batteries and electrodes.
After they met in 1992 the parties quickly established a romantic relationship. Although there were periods where they spent time at one another’s homes, cohabitation did not commence until July 1994. On 10 June 1993 the husband executed a lease for rental property at C Parade, C.[6] I am satisfied that he commenced living in those premises at that time. He lived alone.
[6] Exhibit B
At the commencement of cohabitation the wife was employed as a clerk with the Land Titles Office. She was living in rented accommodation at R which accommodation was leased from the Department of Housing. She owned a quantity of household furniture. She had no savings. The wife had debts totalling $8,000. This included credit card debts and a liability of some $4000 to Household Finance. At the time of commencement of cohabitation the wife was receiving counselling from Creditline. This related to her addiction to gambling. With the help of her counsellors the parties agreed on a strategy to alleviate the effects of the wife's gambling. They agreed that the husband would pay out the wife's debts and he did so. Thereafter her salary would be paid into the husband’s account. Her salary would be used to repay the husband for paying out her debts and a controlled source of personal funds. The Reliance Credit Union account discloses that that agreement was implemented in about September 1994.[7] From that time onwards the salary payments that had been made from her employer stopped. The husband then paid the wife weekly drawings, initially about $225 a week increasing to about $600 a week in April of 1995.
[7] Exhibit C
Prior to the commencement of cohabitation the husband and his former wife effected a property settlement. As a consequence their home at M was sold and the husband moved into rented premises at C. The husband was running the business and brought into the marriage M Medical Pty Limited. The husband had approximately $12,000 savings. He had a 1992 Holden Calais; he had household furniture, a piano and personal effects. The husband had a private superannuation fund with AMP. His membership of the AMP scheme was the reason for the subsequent allocation to him of shares on the de-mutualisation of the company at no cost.
Upon cohabitation the wife relinquished he Department of Housing unit and moved into the husband's rented premises at C. She sold her furniture for about $1,000. The parties spent these monies on living expenses.
From cohabitation until 1997 the wife's son F, a child by her former husband, lived with the parties. F's father paid $160 child support to the wife and otherwise the parties supported the child. The wife spent about 40% of F's child support gambling.
On 26 February 1995 the wife took maternity leave from the Land Titles Office. I accept, although the wife denies it, that she received her maternity leave entitlement and that she did not contribute those monies to matrimonial purposes. Rather it was withheld by her and spent gambling.
In about April 1995 the wife was placed on the company payroll. The husband established a home office and after N’s birth the wife was involved in a very small way in the conduct of the business. The husband and wife split the income earned from the company, with the wife receiving a salary of about $44,000 a year. This undoubtedly had taxation advantages and maximised the income that was earned from the company. The wife did not personally receive this salary, some being managed by the husband.
From the time of N’s birth until their first separation I am satisfied that the wife was the children’s primary care-giver. She was also primarily responsible for and attended to the majority of the household chores. She shopped, cleaned, cooked and generally cared for the children and family. The husband was actively and diligently engaged in the company, working hard to maximise its success. Until separation he travelled regularly, most frequently to Melbourne. The wife remained at home caring for the children.
In 1995 the parties established a joint account with Westpac. That was done in an attempt to control the wife’s expenditure. The tension that arose in this marriage as a consequence of the wife’s gambling and the husband’s attempt to manage the cost of her gambling wreaked havoc in many respects on their relationship. I was struck by the air of desperation that both displayed when giving their evidence about the toll this had taken, not only financially but also personally.
In 1995 the wife and N travelled to Poland, which trip cost $5000. It was paid for by the husband.
In December 1995 the wife employed a house cleaner who attended for six months, twice a week. Although the wife asserts that she paid the cleaner, I am satisfied that source of funds was the company.
In 1996 the company acquired the business S Healthcare which was a distributor of medical supplies. S Healthcare had several agencies and a customer base. The husband hoped the company would retain the customer base and that M Medical Pty Limited would thereby increase its operations. S Healthcare was acquired by loan funding from the Commonwealth Bank. The previous owner of S Healthcare was retained by the company as the general manager until the end of 1999.
Between 1 June 1996 and 26 April 1997 the wife’s sister came to Australia. The husband paid her air fares. She lived with the parties. She assisted the wife in the care of the children. The wife claims that she financially supported her sister. I am satisfied that the sole source of funds used to support her sister derived from the business.
Although she had not returned to the Land Titles Office, on 17 July 1996 the wife received $3,318.54 maternity leave from it. This was because she took additional maternity leave prior to T’s birth. I am satisfied that the wife spent $3,320, slightly more than she received, gambling and that none of the money was spent for the betterment of the family. Her sister cared for the children while the wife was at clubs gambling.
In August 1997 the husband paid $5,500 for 500 Coles Myers shares. The share purchase was funded from his drawings from the business. The parties established an MLC Cash Management Account which account was intended to provide savings for a family home. The husband received 200 AMP shares on the de-mutualisation of AMP at no cost to him. This was because he held an AMP superannuation fund.
On 21 January 1998 the parties argued after the husband had searched the wife's clothes and handbag. The husband in attempting to control her gambling habitually inspected the wife’s purse, inspected her clothing, quizzed her and looked for any signs that moneys she had received were being spent on gambling. A titanic struggle developed between the parties as the wife sought to have financial independence hence the capacity to pursue her gambling. The husband tried to protect her from gambling for her own sake as well as trying to prevent it wreaking havoc on the family finances. This behaviour was the genesis of the dispute that day. The argument became violent and the police were called. The wife left the unit with the police, returning the next morning.
On 23 January 1998 the wife received a payment of $2774.43. This was a resignation benefit from the LTO that may have included a superannuation component. Of that she spent $2544.93 in nine consecutive transactions all of which were gambling. None of the money was spent for the betterment of the family.
On 30 June 1998 the company prepared its last set of accounts that were prepared by an external accountant. This is the last occasion upon which the company filed tax returns.
During 1999 the husband earned $80,000 gross from share trading. The amount that it is attributable to the net benefit of the share trading is not in evidence.
Some time during 1998 or 1999 the husband sold his Coles Myers shares for about $3000. The AMP shares were also sold, the husband said at a list price of between $19 and $20. Because of the husband's lack of candour I find that they were sold for the higher figure. This means that the husband earned approximately $4000 on sale of the AMP shares.
When the parties reconciled in December 1998 the husband and children moved into the wife's rented premises at H P. The reconciliation was tumultuous and on 11 January 1999 the police were again called to the unit. The police asked the husband to leave the unit and he did so. He returned to live in the unit on 16 January 1999. Separation occurred on a final basis as I have subsequently found.

During 1999 the husband made extensive use of personal credit cards to pay company debts. His credit card debt reached $63,000 some $34,000 over the credit limit. He consulted a liquidator, Mr Dunne in relation to the company.
The husband earned $18,000 from A Design in the 1999/2000 financial year. A Design is a webmaster enterprise of which the husband is the sole proprietor.
At separation the MLC account was distributed. The husband took $9500 and the wife took $1500. Although the husband claims the wife received $2000, nothing turns on the distinction.
The husband has had the care of the children during the first period of separation and since final separation. The wife had the care of the children during the first few weeks of their initial separation, was primarily responsible for their care during their reconciliation and thereafter during periods of contact.

Assets and liabilities as at the date of the hearing

I find that the parties assets, liabilities and financial resources at the date of hearing are as identified in the following table.

Assets	$
Westpac account (H)	$991.77
Colonial account – A Web Designs (h)	$3,252.35
M Medical (H)	$220,879.00
NRMA shares (H)	$500.00
Household effects (H)	$5,000.00
Savings (W)	$50.00
Furniture and Household effects (W)	$3,000.00
Jewellery (W)	$1,000.00
TOTAL:	$233,772.35
Liabilities
American Express (H)	$3,795.62
Visa Card (H)	$9,955.08
Mastercard (H)	$18,000.00
Legal fees (H)	$4,883.10
Australian Taxation Office (H)	$7,000.00
Legal fees (W)	Not known
TOTAL	$43,633.80
NET ASSETS	$195,021.65
Financial Resources
AMP superannuation (H)	36,879.00

I now turn to the valuation of the company. This is an issue that because of the manner in which the husband presented his material is complex. However, although the wife retained a valuer to provide a valuation of the company as at the date of the hearing, the valuer was not asked to express an opinion at to its value at the date of commencement of cohabitation. Given that this a marriage where the period of cohabitation is roughly four years that is a significant omission in the presentation of the wife’s case.
The husband did not provide any independent evidence for the valuation of the company.
I carefully considered myself whether their was sufficient evidence to enable the court to make findings as to the value of the company at the commencement of cohabitation, even in the absence of an expert opinion. I looked at the evidence that related to the profits earned and considered whether it could be analysed on the basis of future maintainable earnings. It could not be. I can do no more than find that at the commencement of cohabitation the company was a valuable business producing a proper return to the husband for his efforts.
I am satisfied that the husband intends that the company will continue to trade. There was evidence in relation to the company’s solvency. The husband intimated that the valuation exercise should be conducted using a liquidation methodology. I am satisfied it is intended that the husband will continue to operate the business and there is no suggestion it is about to be wound up. In any event, the asset backing method applied by Mr Gwynne is to the same effect and the distinction attempted to be drawn by the husband is in fact a distinction without a distinction.
The difficulty associated with the valuation of the business was highlighted in paragraphs 2.1 and 2.2 of Mr Gwynne’s valuation.[8] He indicates that in the early years, from 1995 until 1998, the material that he viewed namely the profit and loss statements, income tax returns, were apparently well-prepared. Even so he challenged their accuracy. He highlights his concerns for the early years as follows:

"For example, the 1994 income tax return of the company indicates an operating profit (prior to income tax adjustments) of $40,977, with shareholder funds of $224,449. This is consistent with a copy of the accounts received for the year that ended. In the subsequent financial year, the ITR indicates an operating profit of $3,445, and shareholder funds of $191,155. There appears to be a discrepancy of $35,969. "
[8] Annexure A to his affidavit
That example highlights the difficulties that Mr Gwynne identified in attempting to value the company. His concerns increase significantly after about 1998.
What is clear though when one looks at the material attached to Mr Gwynne’s valuation is that during 1995 to 1997 the company experienced strong sales growth. The business was able to take on additional borrowing's associated with the acquisition of S Healthcare and to meet those additional borrowing's. Because of the increase in operating costs the increased sales growth did not materially improve the companies profitability. There is no suggestion from the wife that the husband at that time or indeed subsequently was attempting to run the company down.
During 1998, sales diminished, although they were still strong. From a high of $816,221 they fell to $486,274 in 2000. There was a time when the business employed seven people. It has reduced to three staff. Mr Gwynne, because of the concerns identified in his report, determined that a method of future maintainable earnings valuation, was not a proper method. I agree with him. He accordingly concluded that the proper method of valuation was the net assets method that he conducted. I agree.
The husband challenged the valuation provided by Mr Gwynne. He adduced evidence prepared after Mr Gwynne completed his valuation that the husband submitted should be taken into account. It included accrued losses of $75,911.73; that he should take into account that the stock report that was used by Mr Gwynne was dated March 2000; and that subsequently the husband had identified additional slow moving or obsolete stock. This stock included the Responcell items and the PALS foam 5 x 8's of which there were 131. The Responcell and PALS foam stock has a value of $8807. Because of the valuation method used by Mr Gwynne, slow moving or obsolete stock could artificially inflate the value of the company. The factors that Mr Gwynne was pressed by the husband to take into account are matters that are presented by the husband and are uncorroborated. They are matters, in my view, that were capable of corroboration from employees of the business or by the presentation of material from the accountants that the husband has now retained. Because of the concerns I have about the husband non disclosure I am satisfied that I should not make an adjustment to Mr Gwynne’s valuation as a consequence of material that is recently sourced only from the husband.
The other factor that I take into account is that the company has significantly reduced its working capital deficit whilst at the same time it has increased the drawings taken from it by the husband. True it is that he has personally raised borrowing's on credit cards to meet company indebtedness but he has also, it would seem, been able to simultaneously reduce his personal indebtedness[9].
[9] Page 2 Annexure E Husbands affidavit sworn 24 July 2001
For the reasons I have already given, I find that the company has a value at the date of hearing of $220,979.
Counsel for the wife submitted that the court should add back into the assets the value of the Coles Myer shares and the moneys distributed from the MLC account. Those moneys have been spent on ordinary living expenses and there is no basis for adding them back into the notional assets.
Both parties have outstanding legal fees. Each is personally responsible for these.
The precise details of the husbands interest in his AMP superannuation fund is not in evidence before me. His financial statement identifies the amount that was current at the date he swore the financial statement.
After separation that wife drew down against her superannuation fund, receiving $5,000. She used this money to purchase furniture and household goods.

Relevant law

The approach to the determination of an application under Section 79 is well established by authority (In the Marriage of Lee Steere and Lee Steere[10]; In the Marriage of Ferraro[11]; In the Marriage of Clauson[12]) the process ordinarily involves a multiple part procedure. Firstly, identifying the property, liabilities and financial resources of the parties at the time of the hearing. Secondly, evaluating the contributions made by the parties as defined in section 79(4)(a) to (c) and the effect of any proposed order upon the earning capacity of either party. I must then evaluate the matters contained in section 75(2) insofar as they are relevant, any other Order made under the Act affecting a party or child and any child support under the Child Support (Assessment) Act 1989 that a party to the marriage is to provide, or might be liable to provide in the future, for a child to the marriage.
[10] (1985) FLC 91-626
[11] (1993) FLC 92-335
[12] (1995) FLC 92-595
In determining what order the court should made under section 79 the court must be satisfied in all the circumstances that it is just and equitable to do so. It is the justice and equity of the actual orders that the court must consider. See Russell v Russell[13].
[13] (1999) FLC 92-877

Section 79(4) contributions

The wife, I am satisfied, made no initial financial contribution, her indebtedness exceeded her assets. The husband, by comparison, made a very significant initial financial contribution. These included the company and the assets identified in paragraph 34. Thereafter, the husband made direct financial contributions in that he earned the overwhelming majority of the income that supported the family. I am satisfied that he applied all of his income to matrimonial purposes and the betterment of the family. This includes splitting his income with the wife and thereby maximising its value. During the marriage he acquired the AMP shares and the NRMA shares.
Between 1995 and until February 1998, the wife did some work for the company. She took approximately ten phone calls a day, did some paper work including filing which work contributed to the value of the business.
Between September 1994 and the February 1995 the wife's salary was paid into a joint account and after repayments for the $8,000 paid by the husband her salary provided some income for the family. Given that she stopped working in early 1995, and did not contribute any long-service leave or maternity leave to the benefit of the family, I am satisfied that she did not fully repay the $8000 that the husband had paid out for her at the beginning of cohabitation. Otherwise she contributed $1,000 from the sale of her furniture.
Throughout cohabitation the wife was primarily responsible for the care of the children and her contribution to the welfare of the family in her role as homemaker and parent was a significant one.
Similarly the husband made a contribution to the welfare of the family, in that although the wife was the prime care-giver of the children, he complemented her care of the children when he was able to do so. Since separation he has been the prime care-giver of the children and he has made a significant post-separation contribution as the children’s care-giver.
I propose to take into account the wife's gambling activities differentially. In the treatment I give it I have been very careful to ensure that I do not doubly penalise the wife for the financial consequences of her gambling. There are aspects that should be addressed during the contribution phase whilst others should be considered during the s75 (2) phase.
There are some areas where the evidence enables me to make specific findings about amounts of money that were thrown away by her gambling. These will be dealt with pursuant to s79 (4). The wife lost the sum of $9,092.97 being her superannuation and maternity leave payments, gambling. Throughout the marriage, the husband dealt with the financial consequences of the wife’s gambling. He retrieved, I am satisfied, time and again matrimonial property that had been pawned by the wife. This included her wedding rings, eternity ring and video cameras. Although the wife gave evidence as to the value that she received when she pawned the items she did not give evidence on all cases about how much it cost to retrieve the items from the pawnbrokers. I am satisfied that his contribution to the welfare of the family has a particular quality about it because of the financial burden that he carried that arose from the wife's gambling.
The orders I make will not affect the earning capacity of either party to the marriage. The parties have entered a parenting agreement. The wife does not provide child support and there is no evidence that she will ever do so.
When evaluated comparatively I am satisfied that the parties’ contributions should be evaluated as to 80 per cent to the husband as compared to the wife’s 20 per cent. He made a significant initial contribution, which carries considerable weight because of the period of cohabitation. His overall financial contributions significantly exceed those made by the wife. His contributions to the welfare of the family are enhanced because of the wife's gambling. Her contribution to the welfare of the family is also significant but must be balanced with the husbands significant post separation contribution to the care of the children.

Section 75(2) factors

I will now deal with the section 75(2) factors.
a)The husband is 44 years old and is apparently in good health. The wife is 45 years old. She alleged that she suffers from depression, which depression is debilitating and interferes with her capacity to work. The husband conceded that during 1999 there was a period when the wife was depressed and receiving assistance from a psychiatrist. That she experienced that depression in 1999 does not satisfy me that as at the date of the hearing the wife is depressed in a way that her health is impaired to any significant degree. I am satisfied that the wife, like the husband, is in good health. I make no adjustment pursuant to the subsection.
b)I have already made findings (paragraphs 21, 23 and 57) about the parties’ income, property and financial resources and do not repeat them. The next part of the subparagraph relates to the physical and mental capacity for each of the parties for appropriate gainful employment. The husband has the capacity to continue to work, as he intends to do, in the operation of his business. He is medically qualified and although absent from his profession in a direct sense for approximately 12 years , perhaps with a period of some re-training or updating, I am satisfied that he could return to practise as a medical practitioner. The wife worked until 1995 as a clerk with the Land Titles Office. She maintained her skills to some degree by working in the husband’s business, as I have already found. She has been absent from the external paid work-force for some six years but at 45 years old I am satisfied that she has the physical and mental capacity to return to work in a clerical or some other office skilled position. The income that she would derive from her profession and employment is in all likelihood significantly less than that which the husband can earn. I make an adjustment in the wife’s favour pursuant to the subsection.
c)The husband has the care of the two children aged 6 and 5. I make an adjustment in his favour pursuant to the subsection. It is not moderated in my view by the fact that the wife has the care of the children one day a week.
d)Both parties have the commitments identified in their financial statements and oral testimony. The husband’s commitments are significantly greater than the wife’s as a consequence of his care of the children. He draws a significantly larger income than the wife has. I am satisfied that the commitments he has identified in both his financial statement and his recent affidavit do not demonstrate waste and/or extravagance but rather are appropriate to the circumstances of his care of the two children. The wife’s commitments are modest, as is her style of living. There can be no suggestion that she engages in any extravagance, she does not have the income to do so. I make an adjustment in the wife’s favour pursuant to this subsection.
e)Other than the children neither party has the responsibility to support any other person. I make no adjustment pursuant to the subsection.
f)The wife is in receipt of a pension entitlement. The husband is the beneficiary of a superannuation scheme. He is 44 years old and it will be many years before he is entitled to draw down against the superannuation fund. The amount he is entitled to is small. I make no adjustment pursuant to the subsection.
g)Both of these parties have suffered a reduction in their standard of living since separation. The process of the reducing standard of living had started prior to separation and they both now live in modest circumstances. The wife is in the position that she was in immediately prior to the commencement of cohabitation, that is she is living in Department of Housing accommodation that it is provided pursuant to a secure lease. The husband is living in rented accommodation as he was when the parties commenced cohabitation. Each is living in circumstances that are reasonable given the outcome of this marriage. I make no adjustment pursuant to the subsection.
h)This subsection does not arise.
j)This subsection does not arise.
k)This subsection does not arise.
l)This subsection does not arise.
m)This subsection does not arise .
n)I take into account the form of order that I propose to make. Its effect will be that the husband must raise a modest sum which I am satisfied will mean he must increase his borrowings rather than use any available funds, this will increase the level of debt that he personally will carry and he must service. The wife will receive a very small amount of money from which she will need to make payments to her legal representatives. The amount of money that she will receive as a consequence of these proceedings is very small indeed. I make no adjustment pursuant to subparagraph (n).
na)The wife has not paid any child support to the husband. Although I am satisfied she has the capacity to return to paid employment she has not done so. The likelihood is, based on the events since separation, that the wife will not contribute in any meaningful way to the payment of child support. The husband will, in all likelihood, support the children for the next 12 and 13 years respectively with little or no contribution from the wife. I make an adjustment in husband's favour pursuant to the subsection.
o)It is under this subsection that I will deal with the remaining consequences of the wife's gambling. I have already taken into account in the section 79(4) contribution phase the loss of the moneys identified (paragraph 81) and the extra quality of the contribution made by the husband. However, I am satisfied that the amounts that I have identified under the contribution phase do not exhaust the amounts in fact lost by the wife gambling. When I examined the Reliance Credit Union account I saw a pattern that reinforced the magnitude of the problem that the wife endured. This account was operated solely by the wife. The sums of money withdrawn by her from that account were substantial. Where the account disclosed repeat withdrawals on the one day the wife said that they were her gambling days. The account created a picture of a gambling problem that was out of control throughout the entirety of the marriage. The wife’s evidence, to the extent that she conceded she had a gambling problem, gave scant regard to its magnitude. The wife was questioned by the husband about why it was on particular occasions the accounts disclosed withdrawals from the W Park Hotel. Her evidence was that that was a convenient place to withdraw money as it was close to home. I do not accept her evidence. It is inconsistent with the pattern of withdrawals that one sees in the accounts. Deductions were made at City Tattersall’s Club, Mandarin Club, Bondi Junction Hotel, Coogee/Randwick RSL, Bondi Junction RSL, Maroubra RSL, The Castelorizian Club, The NSW Leagues Club, Billy the Pigs - a wine bar, South Sydney Juniors, Wiley Park Hotel, Sydney Harbour Casino, Granville Hotel, Pendle Hill Hotel, The Commercial Hotel. These were places that I am satisfied that the wife gambled at and the deductions identified in the Reliance Credit Union accounts that are attributable to those places are withdrawals made by her gambling on poker machines. Withdrawals were also made at places not associated with gambling. For example, the Moore Park Supacentre, Flemings, Coles and Handiway at C. The magnitude of the wife’s problem cannot on the evidence be minimised as she would have the court do. It is reinforced by the sad spectre disclosed in the accounts of the repeat attendances on days, sometimes as many twelve on a day, where she repeatedly attempted to withdraw from an account that had insufficient funds. These are the patterns apparent, for example, at a place called Luck Lil’s. It is apparent at City Tattersall’s, at the Argyle Street Hotel and the Commercial Hotel. To the extent that I have not already addressed the wife's gambling under s79(4) it must be addressed under section 75(2)(o). Clearly significant extra funds were wasted, the amounts of which cannot be quantified specifically. In accordance with the line of authorities established in Kowaliw and Kowaliw[14] I am satisfied that the wife acted recklessly in gambling and the waste is an important factor in these proceedings. It moderates in a very significant degree the adjustment that might otherwise have been made pursuant to the section 75(2) exercise. I make an adjustment in the husband’s favour pursuant to the subsection.
[14] (1981) FLC 01-092
p)This subsection does not arise.

When I stand back and look at the outcome of the application of section 75(2), on the one hand I take into account in a material way the husband’s greater earning capacity and his more secure financial future than the wife’s. I take into account, as I have already indicated, the fact that the husband has the care of the two small children of the marriage and that he will not receive in all likelihood any financial assistance from the wife. I take into account, as I have already indicated, the waste under section 75(2)(o).
Having regard to all of the section 75(2) factors I find it appropriate that there should be an adjustment in the husband's favour having regard to sub-section 75(2)(c)(na) and (o) as moderated by the section 75(2(b) and (d) findings that favour the wife. The appropriate adjustment to make in the husbands favour is 8 per cent.

Section 79(2) — Is this a just and equitable outcome?

The outcome of the section 79(4) and section 75(2) exercise will be that I assess the husband as entitled to 88 per cent of the assets as compared to the wife’s entitlement of 12 per cent. I am satisfied that this is an outcome that is just and equitable within the meaning of the Act. That is because I must value in a material way the significantly greater initial contribution made by the husband.
The duration of the marriage was only four years. The husband has the care of the two children of the marriage and the wife has wasted significant moneys during the course of the marriage. She has the capacity to return to paid employment albeit in a capacity that will produce less income than the husband has available to him. Nonetheless, the outcome is one that I am satisfied is a proper one to order in the circumstances of this case.
At the outset I indicated the probable outcome was that the husband would pay to the wife $20,279. The sum I will order in fact is $20,252. That reflects the 88%/12% outcome and takes into account the assets that the wife already has in her possession worth, as I have found, some $3150.

Costs

Finally, there is the issue of costs to be addressed. I was asked at the end of the proceedings to make an order for costs against the husband in relation to the second day of the hearing on an indemnity basis. The authorities that relate to the ordering of indemnity costs do not in my view justify an order for costs on an indemnity basis. The court "should not depart lightly from the ordinary rules relating to costs between party and party and the circumstances justifying the departure should be of an exceptional kind". Kohan and Kohan.[15]
[15] (1993) FLC 92-340 at 79,614
The matters to which I must have regard, of course, are those set out in section 117. This is matter in relation to which the primary rule that each party pays their own costs should be departed from. In making that finding I have taken into account the financial circumstances of the parties as I have found them to be. Neither party is in receipt of legal aid. Importantly, I emphasise the conduct of the husband in relation to the necessity for the matter to go into a second day. The second day of the hearing was, in my view, an unnecessary day and it came about purely as a consequence of the husband’s wasting time and lack of preparation on the first day of the hearing. For example, on the first day of the hearing when we attempted to start the proceedings the husband did not have any of the affidavit material, the matter was stood in the list while he went home to get it. It would have taken longer for the court to provide duplicate documents.
On the second day of the hearing the hearing lost half an hour because the husband disappeared without prior explanation. He later said he was feeling unwell. That may or may not be so but it wasn’t apparent to the court. On the first day of the hearing the husband conducted his cross-examination without reference to any notes and as a consequence the proceedings moved at a snail’s pace. This is particularly so when compared to the manner in which he conducted his case on the second day. Had he prepared himself properly on the first day, as he did for the second day, these proceedings could well have been completed in one day.
Neither party has been wholly unsuccessful in the proceedings.
I take into account the terms of the offer made by the husband prior to the commencement of the hearing. The husband transfer to the wife 20 per cent of his shares in M Medical Pty Limited. That offer was rejected. While on the face of it that offer by dollar value may be equivalent to or better than the order made, it did not sever the financial relationship between the husband and the wife. It required the wife to attempt to realise a minority shareholding in a privately owned company. I am not satisfied that I should treat the offer made by the husband as comparable to the orders made.
The reason the costs are ordered against the husband on the second day of the hearing is I can see no reason why the wife should have to meet the costs of the second day. They were incurred, in my view, wastefully and unnecessarily.
I do not make an order for indemnity costs. The matter does not, in my view, come within that category of case. I will order that the husband pay the wife’s costs of the second day of the hearing on a party-party basis. Because of the financial circumstances of the parties, I do not propose to allow this matter to go on any longer vis taxation. The prospect of agreement as to quantum is small, the costs of taxation are high and it would be unjust, in my view, to allow this issue to continue beyond today. The costs I will order for counsel are in accordance with the lower end of the scale, this is because the matter did not proceed for the entire day. Solicitors costs will be awarded at $154 an hour, scale costs and I will apply an amount of $800 for Mr Gwynne. The total sum that the husband is ordered to pay by way of costs is $2666 which costs are to be paid within

28 days.

I certify that the preceding ninety-five (95) paragraphs are a true copy of the reasons for judgment of Ryan FM

Associate:

Date: 16 October 2001