P & W

[2005] FamCA 1303

FAMILY LAW ACT 1975

IN THE FAMILY COURT OF AUSTRALIA
AT BRISBANE No. NA46 of 2005

(No. BRM 4991 of 2003)

BETWEEN:
P

Appellant Husband

AND:
W

Respondent Wife

BEFORE THE HONOURABLE JUSTICE WARNICK

REASONS FOR JUDGMENT

Dates of Hearing: 22 September 2005

Date of Judgment: 29 November 2005

Appearances: Mr Baston of Counsel, instructed by Mitchell Lawyers, appeared on behalf of the Applicant Husband

Ms Carew of Counsel, instructed by Hunt & Hunt Lawyers, appeared on behalf of the Respondent Wife

P and W NA46 of 2005 (BRM4991 of 2003)

Heard: 22 September 2005
Delivered: 29 November 2005

APPEAL FROM FEDERAL MAGISTRATES COURT – SPOUSAL MAINTENANCE – RECOGNITION OF FOREIGN ORDERS – REGISTRABLE MAINTENANCE LIABILITY – The parties were married and divorced in Holland – Orders for spousal maintenance were made by the Court of Roermund in Holland obliging the husband to pay the wife about A$6,385 per month - The husband subsequently move to Australia – He ceased payments of maintenance in July 2001 - The wife obtained registration of the order in Australia - The husband applied to discharge the order, from the date when he ceased payment – At the time of the trial before the FM the monthly payment required was nearly A$9,000 per month due to changes in the Consumer Price Index – The trial Magistrate retrospectively varied the order and ordered the husband to pay the wife the resulting arrears by way of a lump sum, and the further sum of A$300,000.00, being the capitalisation of payments between hearing and the date of expiry of the order on 30 April 2009.

CAPACITY TO PAY – ERROR OF FACT – The Federal Magistrate made an error of fact in relation to the husband’s income and expenses – The Federal Magistrate was in error in saying that the living expenses of the husband’s partner were included in the claim for expenses by the husband – The husband actually had a surplus of $220/week from which he could support the wife – While the husband could pay from assets the lump sum ordered and meet from capital the weekly shortfall between his income and his needs, it would be overly simplistic to approach the question of spousal maintenance in this case by looking only at the wife’s unmet needs and the asset position of the husband – The Federal Magistrate made no findings about what the husband’s income from the remaining capital would be.

SECTION 75(2)(m) – FINANCIAL CIRCUMSTANCES RELATING TO COHABITATION – While the term in the Act is broad enough to support recognition of the financial circumstances of the person with whom a party is cohabiting, of itself it would not support regarding those financial circumstances as entirely at the disposal of the party – Some attempt must be made on the evidence to deduce the circumstances relating to the cohabitation.

Gwatkin and Gwatkin (1978) FLC 90-474

F and F (1982) FLC 91-214

Patterson and Patterson (1979) 90-705

De Winter & De Winter (1979) FLC 90-605

Appeal upheld. The application be remitted for rehearing. A costs certificate is granted to the wife.

The parties married in Holland in 1976, but the marriage ended in divorce granted in 1997. The parties negotiated the resolution of property and spousal maintenance issues and that settlement was approved by the court of Roermund in Holland and was the basis for consequential orders made by that court in February 1997. Among other obligations, the orders required payment of spousal maintenance by the husband, at a rate then (according to the submission of counsel for the husband) of about A$6,385 per month maintenance to be paid until April 2009.
At the time the order was made, the husband was the Chief Executive Officer of a corporate group and was earning a total remuneration package of about A$500,000.00 per annum.
The husband contended that in 1998 he became ill and as a result ceased his employment in April of that year. In July 2000, he moved to Australia with his new partner, Ms F, and they have cohabited here since. In July 2001, the husband stopped paying maintenance to the wife.
In January 2003, as a result of steps taken by the wife, the order of the Dutch court for spousal maintenance was registered with the Australian Child Support Agency and entered on their register as a “registrable maintenance liability”.
In February 2005, the husband filed an application in the Federal Magistrates Court of Australia, seeking in effect, the discharge of “…the liability of the applicant to pay spouse maintenance to the respondent, including the payment of arrears…”. The wife filed a response, effectively seeking dismissal of the husband’s application, an order for payment of arrears and a continuation of the maintenance liability.
On 19 May 2005, Federal Magistrate Rimmer made orders varying the Dutch order (by then, apparently because of adjustments similar to Consumer Price Index increases, nearly A$9,000 per month) downwards, so that the husband was required to pay the wife maintenance at the rate of $6,300.00 Australian per calendar month, as and from 1 July 2001, resulting arrears to be paid within seven days and further, by way of $300,000.00 lump sum maintenance for the period from the date of the hearing until 30 April 2009, such payment to be made within 28 days of the order.
Against these orders, the husband has appealed. He again seeks that the order for spousal maintenance be discharged, to the effect that all arrears are expunged.
The Notice of Appeal contained seven grounds. The first ground asserted that the Federal Magistrate failed to give adequate reasons for her decision, but the deficiencies in reasons asserted really amount to alleged failures to address relevant matters.
The written and oral submissions on the husband’s behalf identified the main arguments to be that the Federal Magistrate:
·   failed to properly assess the husband’s capacity to pay periodic maintenance, particularly in failing to address his reasonable weekly needs.
·   mistakenly had regard to the income and assets of the husband’s partner as if they were at the disposal of the husband.
·   wrongly accepted that the needs of the wife were as the wife claimed at $1,461 per week.
·   failed to have regard to the difference that lump sums, for arrears and for future maintenance would make to
(a)the capacity of the wife to meet her own needs and
(b)the capacity of the husband to meet his needs and any remaining capacity to meet the needs of the wife.
·   failed to properly address the factors relevant to capitalisation of a liability for future spousal maintenance and in any event, to apply a discount in calculating a lump sum.
I will return to discussion of the arguments on appeal, conclusions following that discussion, and the consequences of these conclusions, after a brief background and summary of the reasons of the Federal Magistrate.

Background and summary of reasons of the Federal Magistrate

The parties have two children, the older born in April 1981 and the other in March 1986.
The Federal Magistrate said of the husband that he was 53 years old, he had been a very successful businessman in Holland and he had significant qualifications, including an engineering degree and a doctorate of economics with honours, from Prague.
The wife, who was 52 years of age, had not worked for much of the duration of the marriage, but had been mother and homemaker. She had no formal qualifications for employment.
Upon leaving his position as CEO in 1998, the husband was able to sell his shares at a price well beyond what had been anticipated at the time of the financial settlement between the parties (this was conceded by counsel for the husband, in argument on the appeal).
At trial, the husband had a half interest in a residential property with his partner, his half interest being estimated at $625,000 and unencumbered. He also had approximately A$2.2 million in cash and investments, at least a half interest in a new Mercedes Benz motor vehicle, other vehicles and household contents of considerable worth. The learned Magistrate said:
“14. …He earns income from his investments through his company of $1,870.00 a week. He says that his weekly expenses amount to $3,574.00 a week.
15. His partner [Ms F] also has significant assets and income. She earns approximately $1,240.00 a week. Her expenses are included in the husband’s weekly expenses as set out above. She has assets in cash investments of approximately A$1.5 million and her half interest in the home jointly owned with the husband of $625,000.00.”
In paragraph 19 of her reasons, the learned Magistrate said:
“19. …The best evidence is that now, in conjunction with his partner, he has access to household income of approximately $130,000.00 per annum.…
As to the wife’s position, the Federal Magistrate recorded that the wife had received maintenance until July 2001 and had been able to live on that sum. However, following the husband ceasing to pay maintenance, she was ultimately forced to sell the house that she had received in the property settlement. She purchased a property of lesser value, but by trial had virtually spent the capital freed up by the change of residence, mainly on living expenses, but including $90,000 in legal fees in pursuit of payment of maintenance.
The learned Magistrate rejected a claim by the husband that the wife was operating a viable business, making and selling dolls via the internet. She accepted that the wife had suffered a significant depressive illness over the past five years and was not a competitive prospective employee nor possessed business skills to run a successful business.
The learned Magistrate recorded the submission on behalf of the husband that, at the very least, the periodic amount of spousal maintenance should be varied so that it reflected an amount to provide for no more than the wife’s current stated weekly needs.
At paragraph 25, the learned Magistrate noted another submission on the husband’s behalf, namely that to pay the arrears and to continue to pay at the amount ordered, the husband would have to use his capital and thereby reduce the income he earned from it.
As to the respondent’s submissions, Rimmer FM noted the assertion that the husband bore a significant onus which he was not able to discharge and, having regard to his financial circumstances, particularly contrasted with those of the wife, he could not demonstrate that there was just cause to discharge or vary the order.
The learned Magistrate then addressed “The Law”, noting the parties’ agreement that the overseas maintenance order had been validly registered in Australia, the provisions of the Child Support (Registration and Collection) (Overseas – Related Maintenance Obligations) Regulations 2000 (Cth) and the provisions of section 83 of the Family Law Act 1975.
Her Honour expressed herself satisfied that the nature of the husband’s financial position had changed dramatically since the time the order was made. Her Honour said:
“40. Whilst he does not work, and may not work again, he still has available to he and to his partner, significant income such that he and she live a very affluent lifestyle. Between them they have cash and other assets of close to A$5,000.000.00.…”
Of the wife, her Honour said:
“41. I accept that the wife is not able to support herself. She has reasonable needs in the sum of $1,461.00 a week. She is and has diminished her capital in a significant manner in the past 2 to 3 years since she has not received spouse maintenance.…”
However, the learned Magistrate said:
“43. I do not accept that on the available evidence of the wife that her current needs are the amount provided by the existing order. The husband should not be required to pay the wife spouse maintenance far exceeding her reasonable needs each month. However I do not accept given the husband’s financial position as a whole that the husband has demonstrated just cause for the orders and arrears to be discharged completely.”
She said of the husband:
“44. …He does have the capacity, in my view, to meet adequately the wife’s present weekly needs. He has had that capacity since July 2001 when he stopped paying the wife her proper and regular payments under the order.
45. I am satisfied that the overseas maintenance order should be varied as and from 1 July 2001 to the sum of $6,300.00.…”
Her Honour then turned to consider the question of payment in a lump sum. She said:
“45. …There is no doubt that the husband has the ability to pay a lump sum to the wife.
46. I have considered the principle applicable to making a lump sum order for maintenance. In this matter it is significant that the husband ceased payment without reference to the wife and in circumstances where she was living in another country to him. It has made the process of endeavouring to enforce her rights significantly more difficult and expensive for her. The order only operates for another 4 years. It is therefore for a defined period of time. These parties have been divorced now since 1997 and they should be in a position to get on with their separate lives. The husband has the capacity to pay the lump sum and the periodic maintenance will need to be adjusted by the CPI if it remains a periodic order for that period. That creates difficulties for the parties in calculating the future liability.
47. For all of these reasons, I am satisfied that the Court should order that the remaining maintenance payable until April 2009 should be paid as a capitalised lump sum.”

Arguments on appeal

A mistake of fact

In the course of submissions about the failure of the learned Magistrate to properly address the husband’s capacity to pay and in particular, his needs and consequently, the extent of surplus income available to pay the wife, it became apparent that her Honour had mistaken the facts.
As earlier indicated, the learned Magistrate made the following findings of fact about the husband’s income, Ms F’s income and the husband’s expenses:
14.    …He earns income from his investments through his company of $1,870.00 a week. He says that his weekly expenses amount to $3,574.00 a week.
15.    His partner [Ms F] also has significant assets and income. She earns approximately $1,240.00 a week. Her expenses are included in the husband’s weekly expenses as set out above. She has assets in cash investments of approximately A$1.5 million and her half interest in the home jointly owned with the husband of $625,000.00.
…
19.    …The best evidence is that now, in conjunction with his partner, he has access to household income of approximately $130,000.00 per annum.…”
In fact, the statement of financial circumstances filed by the husband on 22 April 2005 showed his total personal expenditure at $3,574.23. The detail set out in Part G of that expenditure was:
Average weekly amount
Income tax  $570.00
Rates/Unit levies  20.00
Home, cars and health insurance  245.00
Motor vehicle registration  28.00
Total of all other expenditure (Item 60)  813.00
Payment of spousal maintenance  1,926.23
In respect of the second last item on the list, which refers to “Item 60”, that item detailed the living expenses for the husband, totalling the amount of $813 as included in part G. Ms F’s living expenses were shown at item 60 as $572 and were quite separate from the expenses of the husband. The learned Magistrate was thus in error in saying that the living expenses of Ms F were included in the claim for expenses by the husband.
Of course, the weekly outgoings of the husband included the sum of $1,926.23 which he was liable to pay by way of maintenance to the wife, but was not actually paying. However, leaving that aside, his expenses claimed were $1,648 per week. On the face of his figures therefore, he had a surplus of income over expenses of about $220 per week, from which he could pay support to the wife.
This modest surplus would be $572 less than that calculated on her Honour’s findings.
Notwithstanding this error, the orders might stand if, in any event, they were plainly right (see Gibbs J in De Winter v De Winter (1979) FLC 90-605 at 78,092). However, it is difficult to see how the error could not have affected the result, unless the husband’s capacity to meet his needs from income was of no relevance to the necessary deliberations.
True it is that mathematically, the husband could pay from assets the lump sum ordered and meet from capital the weekly shortfall between his income and his needs (though that shortfall would ever increase), but in my view it would be unduly simplistic to approach the question of spousal maintenance in this case by looking only at the wife’s unmet needs and the asset position of the husband. Such an approach would also be inconsistent with the examination of all of the financial circumstances of each party, required by sections 83, 72 and 75 of the Family Law Act 1975.
Under section 72, dealing with the right of a spouse to maintenance, regard is to be had to any relevant matter referred to in subsection 75(2). Subsection (1) of section 75 is as follows:
“(1) In exercising jurisdiction under section 74, the Court shall take into account only the matters referred to in subsection (2).”
Section 74 deals with the powers of the court in maintenance proceedings.
Subsection (2) of section 75 specifies the matters to be taken into account, which include:
“(b)   the income, property and financial resources of each of the parties and the physical and mental capacity of each of them for appropriate gainful employment;
…
(d)     commitments of each of the parties that are necessary to enable the party to support:
(i)himself or herself;…
…
(h)     the extent to which the payment of maintenance to the party whose maintenance is under consideration would increase the earning capacity of that party…to obtain an adequate income.”
Notwithstanding these observations, I do not suggest that the learned Magistrate took the simplistic approach of looking only at the wife’s unmet needs and the husband’s assets. She did address the husband’s income and outgoings, though not closely. She acknowledged that his capital would be diminished, but made no findings about what his income from remaining capital would be. This may be because she erroneously thought he had such an income surplus over needs that, though it would diminish, it would remain significant.
Had she appreciated the “narrowness” of the gap, and a possible reverse of the equation if the husband’s capital diminished, her Honour may well have paid greater attention to the effect on the husband’s income of an order for lump sum payment of arrears.
Though there was no ground of appeal specifically directed to this error, it is as to a basic financial circumstance of the husband and so is fundamental to the consideration of the applications before the learned Magistrate.
The error and its significance were the subject of submissions before me.
I am of the view that the mistake is likely to have affected the outcome, or would have, had consideration been given to all necessary factors.

Other arguments on appeal

Having so concluded, it is not strictly necessary to decide the other arguments on appeal, but, as some are, in at least one sense, related to the approach to determination of maintenance just referred to, I think it appropriate to say something of them. As indicated, this interrelation of arguments, which refer to different aspects of the financial circumstances of the parties, whether before or after orders as anticipated, arises from the relevant provisions of the Act, pursuant to which all aspects of the financial circumstances of each party must be considered.
One further argument, the validity of which I accept, was that the learned Magistrate, in addressing maintenance post-hearing, whether paid periodically or in a lump sum, failed to consider the increase in the wife’s capacity to support herself that would or might follow from a receipt of the lump sum constituted by the arrears which would be created by the “back-dating” of the order. That sum amounted to approximately $285,000.

This was a point quite severable from the question of any future lump sum, relating as it did to a liability of the husband already accrued and the need to address it follows from the terms of section 75.
As to the argument that the learned Magistrate had wrongly had regard to the income and assets of the husband’s partner as if they were at the husband’s disposal, certain statements by the learned Magistrate in her reasons give support to the validity of this argument. Those statements include, as previously seen:
“15. His partner [Ms F] also has significant assets and income. She earns approximately $1,240.00 a week. Her expenses are included in the husband’s weekly expenses as set out above. She has assets in cash investments of approximately A$1.5 million and her half interest in the home jointly owned with the husband of $625,000.00.
19. …The best evidence is that now, in conjunction with his partner, he has access to household income of approximately $130,000.00 per annum.…
…
40. Whilst he does not work, and may not work again, he still has available to he and to his partner, significant income such that he and she live a very affluent lifestyle. Between them they have cash and other assets of close to A$5,000.000.00.…”
Section 75(2)(m) provides that a matter to be taken into account in exercising jurisdiction with regard to the maintenance of a party to a marriage is “…if either party is cohabiting with another person – the financial circumstances relating to the cohabitation;”. “The financial circumstances relating to the cohabitation” is a reasonably broad term but is certainly not the same as “the financial circumstances of the person with whom the party is cohabiting”. While I would consider that the term in the Act is certainly broad enough to support recognition of the financial circumstances of the person with whom the party is cohabiting, of itself it would not support, in my view, regarding those financial circumstances as entirely at the disposal of the party. In my view, some attempt must be made on the evidence to deduce the benefits derived by the party from the financial circumstances relating to the cohabitation. This is consistent with observations such as those of Evatt CJ (which whom Emery SJ and Hogan J agreed) in Gwatkin and Gwatkin (1978) FLC 90-474 at 77,442:
“One cannot really look at her situation on the basis of a strict mathematical calculation because of the nature of the pooling arrangement which she has with Mr Mutch. She does not under that arrangement have total control over each and every item of the outgoings of the household. She gets some benefits and some disadvantages, but the overall picture is one which the Court has to look at.…”
In my view it follows from such comments about the approach under paragraph (m) that some examination of the relevant evidence must be made and conclusions reached about the financial significance for the party of the cohabitation.
It is not necessary that this significance be based on actual financial arrangements, at least in the view of Fogarty J in F and F (1982) FLC 91-214. At 77,148, his Honour said:
“…It was the evidence of both the wife and Mr T that Mr T makes no financial contribution to the wife or to her household.…
No doubt the wife and Mr T are entitled to make any personal or financial arrangements between which is suitable to both of them. That however does not mean that the wife may continue to impose upon her husband the responsibility for her support in those circumstances.
Section 75(2)(m) provides that the court may take into account the following:
“If the party whose maintenance is under consideration is cohabiting with another person – the financial circumstances relating to the cohabitation.”
In my view, in a specific case such as this the term “The financial circumstances relating to the cohabitation” is not confined to any actual financial arrangements between the relevant person. It may also include financial arrangements which would be appropriate in those circumstances. That is, the court is entitled to take “the potential into account” as Wood SJ pointed out in Patterson and Patterson (1979) FLC 90-705 at p 78,759.”
It is noted, however, that the observations that Fogarty J made related to a claimant for maintenance rather than a payer. Nonetheless, for present purposes, even accepting the validity of his Honour’s interpretation of the width of paragraph (m), it will remain necessary to go beyond merely a statement of the financial circumstances of the person with whom the party is cohabiting, to give some consideration to the manner and extent of any potential for benefit to the party.
The case referred to by Fogarty J is a good example. In Patterson, the person with whom the husband (from whom maintenance was sought) was cohabiting had an income, but she made no contribution to rental. Wood SJ took into account, not the income of the husband’s partner, but a payment (notionally) of half the rent.
In my view, the learned Magistrate can be seen to have had regard to the financial circumstances of Ms F but not to the financial benefits/detriments of cohabitation to the husband. Accordingly, there is merit in this argument on behalf of the husband.

Conclusion following discussion of arguments on appeal

I do not mean to suggest that, even on the correct figures, the learned Magistrate, properly considering all relevant matters, might not still have come to the same results, particularly in circumstances where there was an existing order and, though the husband’s income had substantially diminished, his assets had greatly increased.
But that her Honour might have reached the same results on a correct approach does not mean that the appeal should not succeed. As was also said in De Winter and De Winter (at 78,091):
“It is apparent from this statement and is clear law that a discretionary judgment which is based on a mistake of fact will not be upheld merely because the result reached in itself does not appear unreasonable or unjust.”
For the reasons stated, I am of the view that the appeal must succeed.

Consequential orders

Both parties sought that, in the event merit was found in any ground, I re-exercise the discretion and re-hear the applications that were before the Federal Magistrate.
There are however, a number of difficulties facing the court in relation to a re-exercise of discretion. Questions of the structure of the husband’s investments and a restructure of those investments after payment of any lump sum that might be ordered are unanswered, as are similar questions relating to the use to which the wife might put a lump sum on account of arrears, and the effect any such use might have both on her earning capacity and her income from capital.
A further consideration arises. As indicated, there are no findings about the ways in which the husband receives or might receive benefits from cohabitation with Ms F.
In the circumstances, I consider that the matter must be remitted for rehearing.

Costs

I do not consider that, notwithstanding the success of the husband’s appeal, the wife should pay his costs. The merits of his application are yet to be determined. He is a wealthy man.
The wife sought a certificate under the Federal Proceedings (Costs) Act 1981, if the appeal, as it has, succeeded. I consider it appropriate to grant a certificate.
Counsel for the wife also raised the matter of the wife’s costs of the trial before Rimmer FM, in the event the appeal was dismissed. I doubt my power to deal with those costs even in such circumstances but, in any event, the appeal has succeeded.

ORDERS

That the appeal be allowed.
That the application of the husband filed 21 February 2005 be remitted to the Federal Magistrates Court for rehearing by a Magistrate other than Rimmer FM.
That the court grants to the respondent wife a costs certificate pursuant to the provisions of section 6 of the Federal Proceedings (Costs) Act 1981 being a certificate that, in the opinion of the court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the respondent wife in respect of the costs incurred by the respondent wife in relation to the appeal.
I certify that the preceding 63 paragraphs
are a true copy of the Reasons for Judgment
herein of the Honourable Justice Warnick.
………………………………….
Associate
Date: 29 November 2005

[2005] FamCA 1303

29 November 2005

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