Pandelis & Pandelis
[2018] FamCAFC 66
•11 April 2018
FAMILY COURT OF AUSTRALIA
| PANDELIS & PANDELIS | [2018] FamCAFC 66 |
| FAMILY LAW – APPEAL – PROPERTY SETTLEMENT – Primary judge adopted a “two pool” approach – Husband argued the determination of contributions in relation to the main “pool” was against the weight of the evidence – Proper approach to assessment of contributions – Zyk and Zyk (1995) FLC 92-644 and Dickons v Dickons (2012) 50 Fam LR 244 considered – Husband contended the primary judge gave insufficient weight to his pre-separation contributions – Held primary judge erred in principle in assessing a particular contribution, but appellate interference was not warranted – Wife received a 10 per cent adjustment on account of s 75(2) factors – Held adjustment was not manifestly excessive – Primary judge understood the real impact of the assessment made – Clauson and Clauson (1995) FLC 92-595 considered – Inconsistency in reasons regarding husband’s tax liability – Found the primary judge erred by leaving the husband entirely responsible for the tax debt – Primary judge inappropriately differentiated between “matrimonial” and “non-matrimonial” debts – Miller and Miller (1984) FLC 91-542 considered – Appeal allowed – No order as to costs – Costs certificates issued. FAMILY LAW – APPEAL – PROPERTY SETTLEMENT – Superannuation – Form of orders – Neither party sought a superannuation splitting order at trial – Primary judge ordered an “equal division of superannuation” – No appeal against this decision or the form of the splitting order – Held the order does not achieve the outcome intended and does not comply with s 90MT(4) of the Family Law Act 1975 (Cth) – Procedural fairness appears not to have been given to the trustee – Necessary to afford the parties an opportunity to consider the form of orders the Full Court considers appropriate and to ensure notice is given to the trustee. FAMILY LAW – APPEAL – Re-exercise of discretion – Primary judge’s orders set aside and timetable set out for the filing of minutes regarding the re-exercise of the discretion. |
| Family Law Act 1975 (Cth) ss 79, 75(2), 90ME(2), 90MT(4), 90MZD Family Law (Superannuation) Regulations 2001 (Cth) reg 12 |
| Babett & Falconer (2015) FLC 98-067; [2015] FamCAFC 124 Calvin & McTier (2017) FLC 93-785; [2017] FamCAFC 125 Clauson and Clauson (1995) FLC 92-595; [1995] FamCA 10 Dickons v Dickons (2012) 50 Fam LR 244; [2012] FamCAFC 154 Elford & Elford (2016) FLC 93-695; [2016] FamCAFC 45 G & G [2004] FamCA 1179 Hickey and Hickey and Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93-143; [2003] FamCA 395 Lovine & Connor and Anor (2012) FLC 93-515; [2012] FamCAFC 168 Miller and Miller (1984) FLC 91-542; [1984] FamCA 31 Norman & Norman [2010] FamCAFC 66 Prince and Prince (1984) FLC 91-501; [1984] FamCA 7 Zyk and Zyk (1995) FLC 92-644; [1995] FamCA 135 |
| APPELLANT: | Mr Pandelis |
| RESPONDENT: | Ms Pandelis |
| FILE NUMBER: | SYC | 6905 | of | 2013 |
| APPEAL NUMBER: | EA | 186 | of | 2016 |
| DATE DELIVERED: | 11 April 2018 |
| PLACE DELIVERED: | Newman |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Thackray, Murphy & Watts JJ |
| HEARING DATE: | 16 October 2017 and 7 December 2017 |
| LOWER COURT JURISDICTION: | Federal Circuit Court of Australia |
| LOWER COURT JUDGMENT DATE: | 10 October 2016 |
| LOWER COURT MNC: | [2016] FCCA 2530 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Page QC (16 October 2017) and Mr Lloyd SC (7 December 2017) |
| SOLICITOR FOR THE APPELLANT: | Slater & Gordon Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr Othen |
Orders
The appeal be allowed.
The orders of Judge Henderson made on 10 October 2016 be set aside.
There be no order as to costs.
The Court grants to the appellant husband a costs certificate pursuant to the provisions of s 9 of the Federal Proceedings (Costs) Act 1981 (Cth) 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 appellant husband in respect of the costs incurred by him in relation to the appeal.
The Court grants to the respondent wife a costs certificate pursuant to the provisions of s 6 of the Federal Proceedings (Costs) Act 1981 (Cth) being a certificate that, in the opinion of the court, it would be appropriate for the Attorney-General to authorise a payment under the Act to the respondent wife in respect of the costs incurred by her in relation to the appeal.
The pronouncement of orders of this Full Court in substitution for the orders of Judge Henderson be adjourned to a date to be fixed being a date not later than 28 days after the parties comply with Order 7.
Within 28 days of the date of these orders, the appellant husband and respondent wife provide to the Eastern Appeals Registry:
(a)A minute of order containing the orders foreshadowed at [81] of the reasons for judgment delivered herewith; and
(b)Evidence of compliance with s 90MZD(1)(a) of the Family Law Act 1975 (Cth).
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Pandelis & Pandelis has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EA 186 of 2016
File Number: SYC 6905 of 2013
| Mr Pandelis |
Appellant
And
| Ms Pandelis |
Respondent
REASONS FOR JUDGMENT
The husband appeals orders for property settlement made by Judge Henderson in the Federal Circuit Court on 10 October 2016.
The Primary Judge’s Decision
Her Honour adopted a “two pool” approach. One pool, comprising assets worth $1,867,438,[1] was divided 65:35 in favour of the wife. This reflected findings challenged in this appeal that contributions should be assessed 55:45 in the wife’s favour and that there should be an adjustment of 10 per cent in her favour based on the factors in s 75(2) of the Family Law Act 1975 (Cth) (“the Act”).
[1]Her Honour excluded from this “pool” the husband’s $125,000 interest in a property in Europe and also did not bring to account the husband’s post-separation tax liability.
The second pool comprised superannuation entitlements, which were valued at $437,357. Her Honour made a “splitting order” designed to divide these entitlements equally. Although this order is not the subject of the appeal, we propose to say something about its form later.
Importantly, the orders provided for the sale of a property in Suburb C registered in the husband’s name. It is common ground that Property C has since been sold for $1,660,000, and that the proceeds have been used to discharge a variety of obligations in accordance with her Honour’s orders. The husband retained the balance of the proceeds and will, unless the appeal is allowed, be responsible for the capital gains tax that will arise from the sale.
Whilst not acknowledging she was adopting the four stage approach identified in Hickey and Hickey and Attorney-General for the Commonwealth of Australia (Intervener) (2003) FLC 93‑143, the primary judge referred in her reasons to the “balance sheet”, the parties’ contributions, the s 75(2) factors and the question of whether the orders were “just and equitable”. However, some difficulty arises from the fact that her Honour’s findings about these discrete matters are sprinkled throughout the judgment, with findings relevant to one part of the reasoning process being mentioned only after a conclusion has seemingly been made in relation to that part of the reasoning process.
Grounds of Appeal
There are four grounds of appeal which we summarise as follows:
1.The orders are incapable of being performed and are inoperable;
2.The determination of contributions was wrong and against the weight of evidence;
3.The assessment of the s 75(2) factors was wrong and excessive in all the circumstances; and
4.The primary judge failed to have regard to the totality of the assets and liabilities and further failed to explain adequately or provide reasons for omitting assets and liabilities from the net pool in determining the respective entitlements.
During oral argument, the fourth ground was reduced to a complaint that the primary judge had erred by failing to give reasons as to why tax liabilities the husband incurred after separation were not included in the “balance sheet” and not otherwise taken into consideration in the husband’s favour.
Ground 1 – errors in the formulation of the orders
It was common ground that there were difficulties with the form and content of her Honour’s orders, but it is sufficient to mention only the following:
·The orders purported to bring about the proposed division by giving the husband $624,033 from the sale of Property C when the primary judge had acknowledged that, on values agreed at trial, there would only be about $50,000 available following the payment of obligations her Honour ordered to be discharged from those proceeds (at [157]).
·The order stating that the husband was entitled to $624,033 was not made “in personam” and did not require the wife to pay anything to the husband.
·Although the primary judge stated at [119] that each party would be “liable for” the capital gains tax that would arise upon sale of Property C, the orders contain no provision for the wife to make any contribution to that obligation.
·The primary judge made an order requiring the proceeds of Property C to be used to “discharge the current line of credit”. Read literally, this would have required $200,000 to be deducted from the proceeds, whereas her Honour had stated at [62] that she proposed to “reduce this debt ... to $147,000”.
At the outset of the oral argument, we were advised that counsel anticipated being able to deal with the agreed errors by providing to us a minute of orders to give effect to her Honour’s apparent intention. This did not transpire and it became necessary to reconvene the appeal hearing, at which time counsel each provided a minute of orders. Whilst the minutes differed to some extent, they both provide a basis for resolving what we perceive to be the merit in Ground 1.
We will return to the terms of the proposed minutes later.
Ground 2 – error in the assessment of contributions
In order to appreciate the gravamen of this ground it is necessary to provide some background, which may now be taken to be uncontroversial.
The parties commenced cohabitation in 1990 and separated in 2012. They had two children who were 17 and 14 at the time of trial in 2016.
For the first five years of their marriage,[2] the husband and wife lived rent free in a property at Suburb S owned by the wife’s parents. Thereafter, they lived in a home they purchased in Suburb H, save for five months when they lived with the wife’s parents while Property H was being renovated. The wife and children remained in the home after the separation.
[2]Her Honour gave the date of purchase of Property H as “late 1996” at [32], although referring at [17] to the purchase having occurred in 1995. The evidence indicates it was acquired in late 1995 although the parties did not move in until January 1996 (see Annexure A to the wife’s affidavit filed 20 May 2016).
The wife’s parents had advanced the parties $200,000 prior to the purchase of Property H, of which only $60,000 was repaid. Her Honour proceeded on the basis that the wife’s parents had made her a gift of $140,000. Her Honour accepted that the husband had made some contribution to this “advancement” but found that the wife’s contribution was “clearly” greater, and that “the wife may feel morally obligated to repay [the money advanced by her parents]” (at [34], [37] and [38]).
Her Honour also recorded two important contributions the husband made:
·An inheritance in 1995 which her Honour accepted was likely to have “netted” the husband in excess of $84,000, and which she found assisted the parties to purchase Property H (at [31]);
·The proceeds of a block at Suburb W which the husband owned before cohabitation and which was sold in 1997, netting nearly $44,000, which her Honour found had been overwhelmingly contributed by the husband (at [86]).
It is also important to record that prior to her Honour making her assessment of contributions she recorded that the husband had received $200,000 in 2002 when he was made redundant, while also noting that he had quickly returned to work. She accepted that the $200,000 was used to reduce the Property H mortgage.
Her Honour’s assessment of contributions was divided into a consideration of those that had been made before the parties separated and those made after that time.
In dealing with the pre-separation contributions, her Honour made findings which had the result of the two significant contributions made by the husband mentioned above (the inheritance and the Suburb W block) being treated as of equivalent value to the $140,000 gift from the wife’s parents. Importantly, though, when making these findings, her Honour foreshadowed her intention to treat the rent-free accommodation provided by the wife’s parents as “a contribution by the wife over and above that of the husband” (at [92]).
The weight her Honour attributed to this contribution by the wife was revealed in the following passage in which the pre-separation contributions were assessed:
93.Generally in a marriage of 26 years as at today’s date and 22 years as at separation there is an equality of contribution as at the date of separation. However the 5 years rent free accommodation the wife’s parents provided at [Suburb S], the 5 months accommodation rent free whilst [Property H] was renovated and the assistance given to the parents by the wife’s own parents and sister in caring for their children when the husband was studying for his [degree] favours the wife and I assess that at 5% as at the date of separation.
The opening sentence of this paragraph might give rise to concern that her Honour proceeded on the impermissible basis of assuming equality of contributions in a long marriage. An argument in these terms was not advanced on appeal, properly so given that her Honour considered all the various contributions of both parties in a marriage which had been arranged on what she called “traditional” lines, where “the wife remained at home to care for the children and the husband earnt income and earnt significant income” (at [100]).
Although the finding about the parties’ roles appeared in the reasons in the context of her Honour’s assessment of post-separation contributions, it could not be suggested that it did not also inform her assessment of pre-separation contributions. Her Honour also recognised that the division of roles had varied during the marriage, as shown in the following paragraph:
40.For a year from April 1999 to November 2000 the husband finished his [degree] and the wife worked and earned a substantial income … The wife earned a very good income during that period and it was her income that supported the family at that time. The husband completed his [degree] while caring for the child. The wife’s final salary, when she left in November 2000, was $123,000. The wife clearly is a woman of capacity and ability.
Her Honour dealt with the post-separation contributions in a wide-ranging discussion before concluding at [141] that the contributions in that period were of equivalent value. In the process, her Honour recognised that the husband had received another redundancy of $108,000 in 2013 and that this had been used “for his support and that of the family including paying the mortgages” (at [110]).
In her discussion, the primary judge repeated findings already made about post‑separation contributions, although this time there was no reference to the childcare assistance given by the wife’s family while the husband was studying:
125.Looking back I find that the wife has made a superior contribution during the marriage to that of the husband by the provision rent free of the property at [Suburb S] for 5 years and at her parents’ home for 5 months during renovations. This contribution enabled the parties to save a substantial sum of money which assisted them to purchase [Property H]. I assess that contribution to be 5%.
We think it important to record that in Zyk and Zyk (1995) FLC 92-644, the Full Court said it is somewhat artificial to purport to assign a percentage to a particular category of contributions. Further, in Dickons v Dickons (2012) 50 Fam LR 244,[3] another Full Court said:
26.The necessarily imprecise “wide discretion” inherent in what is required by the section is made no more precise or coherent by attributing percentage figures to arbitrary time frames or categorisations of contributions within the relationship. Indeed, we consider that doing so is contrary to the holistic analysis required by the section and, in the usual course of events, should be avoided.
[3]See also Lovine & Connor and Anor (2012) FLC 93-515 at [42].
Notwithstanding our unease at the way the primary judge went about assessing contributions, the effect of her Honour’s overall assessment was that the wife received 10 per cent more of the non-superannuation assets than did the husband. In dollar terms, this outcome represents $186,000, which the husband now complains was outside a proper exercise of discretion.
In his Summary of Argument, the husband argued, as he did at trial, that the “additional contributions” he had made during the marriage outweighed or were at least equal to the wife’s contribution of the rent-free accommodation. It was said that these contributions made by the husband included:
·his inheritance;
·the manual work done around Property S;
·the proceeds of Property W;
·the $200,000 redundancy;
·caring for one of the children while studying for his degree; and
·the second redundancy of $108,000.
In his oral submissions on appeal, senior counsel for the husband advised that there was no challenge to the finding of equality of post-separation contributions. These included the second redundancy payment.
As for the pre-separation “additional contributions”, it was conceded by the husband that each of these had been referred to in her Honour’s reasons. In other words, the challenge comes down to the weight her Honour gave to these contributions. The authorities[4] are clear that an appellate court should be very slow to overturn a discretionary decision on grounds which only involve conflicting assessments of matters of weight. It is not sufficient that we, left to ourselves, would have made a different assessment, and we are not persuaded that any basis has been demonstrated here for appellate interference.
[4]These are collected in G & G [2004] FamCA 1179 per Warnick J. See also Babett & Falconer (2015) FLC 98-067 at 96,728–96,730 and Elford & Elford (2016) FLC 93-695 at 81,122–81,124.
However, in addition to his propositions concerning the weight given to these “additional contributions”, the husband’s Summary of Argument drew attention to the fact that the wife’s “parents enjoyed the benefit of the improvements made to [Property S] at the expense of the parties substantially, however, emanating from the [husband]”. It was argued that these improvements effectively offset the value of the rent-free accommodation.
The primary judge dealt with this topic in the following paragraphs:
20.The parties moved into a home that the wife’s parents owned in [Suburb S]. The wife’s case is it needed some work and they spent between $4,000 and $6,000 renovating. The husband’s case is it required substantial work and the parties spent between $30,000 and $40,000 and I will deal with that issue later.
21.The husband conceded they did not pay rent for this property and only paid outgoings, that the wife’s father was wonderful in helping the parties renovate the property, that the wife’s sister was wonderful in helping the parties renovate the property, that the wife’s mother was wonderful in assisting the parties and the husband’s concession throughout this hearing was that the wife’s parents and family, including her sister, were absolutely wonderful and assisted he and the wife to acquire the assets they did, care for their children and maximise their lifestyle.
…
23.The wife ultimately agreed that the parties did undertake extensive renovations…
After discussing and accepting the husband’s “detailed description” of the work done in renovating Property S, her Honour went on:
28.However the reality is whether these renovations cost $2,000 to $4,000, as the wife asserts, which I reject, or $30,000 to $40,000 which the husband asserts, which I reject, matters not for the parties made that contribution from their income. Additionally the husband’s concession at the end of the day that he, his wife and the wife’s family carried out the work is an agreed fact. There was no claim that the wife’s parents had been unjustly enriched by the husband’s labour and expenditure of funds and I failed to see why the wife made such an issue of this matter…
29.The wife could not see that if the husband said, as he did in his 2013 Affidavit material, at paragraph 26:
“…To the best of my recollection [Ms Pandelis] and I spent the sum of approximately thirty to forty thousand dollars ($30,000-$40,000) on the renovations.”
30. That this was her contribution as well as his and it mattered not a jot at the end of the day as the husband conceded they lived at the property rent free. Her family’s contribution to the parties’ life has always been accepted by the husband.
With respect to her Honour, we have difficulty in accepting the premise that it was irrelevant how much money the parties expended, or how much work they did, on the parents’ property. For example, if the combined value of the work done and the money expended was equivalent to the rental value of the property, and such work was done with the agreement of the wife’s parents, as it appears to have been, then it might reasonably be argued that the wife did not make any “additional” contribution at all by virtue of the fact that periodic rent was not paid to her parents for the occupation of their property.
It therefore seems to us that it was important, if possible, for her Honour to make a finding at least about the extent of the funds expended by the parties on the property. Her Honour ended up making no finding other than rejecting the wife’s assertion that the renovations cost between $2,000 and $4,000, while also rejecting the husband’s assertion that the cost was between $30,000 and $40,000. In other words, there was no finding save for the logical inference that the cost of the renovations was somewhere between $4,000 and $30,000.
We were not taken to any evidence of the cost of the renovations other than that recited at [29] of the reasons. If that was the sum total of the evidence it is unsurprising her Honour was unable to make any finding about the expenditure. Therefore, while her Honour may have erred in principle in dealing with the renovations, that error does not advance the appeal since there was insufficient evidence for a court to determine how much money was expended on the property. While it was the case that the husband also did considerable unpaid work during the renovations, her Honour recognised this in her reasons, while also recognising that the wife’s family had been “absolutely wonderful” in providing help to the parties and their children (at [21]–[22]).
For these reasons, this ground fails.
Ground 3 – the s 75(2) assessment
The wife contended at trial that there should be an adjustment of 10 per cent in her favour on account of s 75(2) factors, whereas the husband contended that the adjustment should be “no more ... than five per cent”.[5]
[5]Transcript, 16 August 2016, pp 206 and 219.
The primary judge decided the adjustment should be 10 per cent which, as the husband stresses, resulted in a differential of 20 per cent, thereby bringing about a settlement whereby the wife received about double the value of assets the husband received.[6] Once again, without identifying any specific error in the exercise of the discretion, the husband asserts that this adjustment was wrong.
[6]Excluding for this purpose of course the superannuation entitlements.
The primary judge’s treatment of the s 75(2) adjustment was very brief, restricted as it was to just the three paragraphs recited below:
142.[X]’s[[7]] health is fragile at the moment and his prognosis is unknown. That is something that the husband and wife will each share the care of and I see no difference between them on this issue given [X] is 17. I do not see [X]’s needs as a factor for one parent over the other. The father is capable, willing and able to assist in his care of and recovery to health of his son and this is not a task that only the mother can do. I am satisfied [X] and his father have a good relationship and once these proceedings are over [X] and his father will spend the time together as they determine.
143.However, the wife does not have the capacity to earn the income that the husband does and that he exercised throughout the marriage or the skills or contacts he has in his area of expertise. The wife wishes to complete her [degree] to further her career and thus has some way to go to reach even the husbands’ current income level.
144.I find that having regard to the matters under section 75(2) of the Act I ought to give the wife an adjustment of 10% due to her inferior capacity for some time to support herself to an adequate level. That would then equate to a 65/35 division of property in the wife’s favour of the liquid assets.
[7]X is the parties’ eldest child and was in a health facility at the time of the trial.
It will be observed that, surprisingly, no mention was made in this discussion of the parties’ younger child who was in the primary care of the wife, as can be gleaned from the finding at [95] that “since he has moved into [Property C the husband] has spent regular time with his children”. The reason her Honour did not refer to what otherwise would be a factor favouring the wife might possibly be found in two earlier paragraphs dealing with contributions:
101.While parenting was not at large in this issue, it is relevant for the following. I have formed the view, consistent with the husband’s view, that the wife was adverse to the father spending time with the children, particularly given the circumstances of separation where the father was already involved in a relationship. The wife has been deeply hurt by the separation and appeared to me to have not yet recovered from her hurt and disappointment in her husband’s behaviour. This has had an impact upon her children, particularly [X].
102.The wife may not have been able to protect him from her hurt. The husband became very upset when it was asserted he and his children did not have a good relationship. The wife’s case that she alone will parent the children into the future is not supported on the evidence. There is no reason why the husband is unable to share in the day to day care of the children given their ages and thus assist the wife other than resistance from the wife.
Given the absence of an application by the husband for parenting orders, we do not read these two paragraphs as indicating that her Honour anticipated that the wife would cease to have the primary care of the youngest child. On the contrary, when again discussing contributions, her Honour said:
124.The wife is now working ... as a consultant and I accept her gross income is about $25,800 and that she needs to fit her work around the children’s needs, particularly [X].
Apart from having the primary care of the youngest child, there were other matters potentially relevant to the s 75(2) adjustment that were mentioned elsewhere in the reasons, both before and after the discussion of the s 75(2) factors. Her Honour’s failure to mention these matters in her brief discussion of s 75(2) creates potential for doubt as to whether she had them in mind when making the adjustment. Examples of matters that might ordinarily be considered relevant include:
·The property that each party would receive after the primary judge had made an assessment of contributions to the main pool of assets;
·The proposed “splitting order” which would result in each party receiving an equal amount of superannuation;
·The amount of child support arrears;
·Future arrangements for child support and education expenses; and
·The fact that the husband owned an interest in a property in Europe which her Honour decided to leave off the “balance sheet” as it had been inherited and thus “not a matrimonial asset” (at [58]).
The ground of appeal does not in terms engage with these deficiencies in the reasons, but senior counsel for the husband in his oral submissions argued that matters such as these ought to have been taken into account. He relied in particular on the fact that the husband was left with the tax debt and also on the alleged failure to have regard to the disparity in entitlements arising as a result of the contribution assessment. Any merit in the submission about the taxation debt becomes moot as a result of our decision, explained below, that there is merit in Ground 4 and that the parties should therefore share the taxation liability.
As for the disparity in entitlements arising from the contribution assessment, we accept that it would have been desirable for her Honour to have identified the practical effect of that assessment when considering the s 75(2) adjustment; however it must not be overlooked that the only requirement laid down by the statute is that the orders overall should be just and equitable. The primary judge, at [154] – [165] conducted a careful examination of the practical effect of the orders she proposed to make with a view to answering the question her Honour correctly posed as to whether they were just and equitable. Having done so, she answered the question in the affirmative. At the outset of her discussion, her Honour set out the precise dollar effect of her findings and must therefore be presumed to have understood the disparity in real terms created by the component parts of her decision. It is not suggested there was an error in this part of her Honour’s analysis[8] or that she failed to record some material fact in her reasons that could have impacted on the exercise of her discretion.
[8]Save for the misunderstanding mentioned earlier in discussing Ground 1 that the adjusting figure to bring about the desired outcome could be paid from the proceeds of sale of Property C.
The husband primarily takes issue with the size of the adjustment made on account of what her Honour found was a discrepancy in the parties’ income earning capacities. Her Honour had drawn attention to this issue earlier in her reasons when discussing the post-separation contributions:
99.The wife has now returned to work in sales part time and she has a skill in that area. However it is many years since she has worked and she does not have a demonstrated income earning capacity as does the husband. The wife had a skill base last demonstrated some 20 years ago. The wife is hoping to get back into the workforce and complete her [degree] but [X]’s … health issues, understandably, have put a spanner in the works and it will take her some time to retrain and be in a position to support herself to the level she had become accustomed to. The husband conceded she may never achieve the income she could have achieved had she continued to work and not care for the children as she did.
Given these findings, there was little point in the husband seeking to place emphasis in the appeal on the finding at [40] where the primary judge recorded that the wife had an earning capacity of $123,000 in 2000 and “clearly is a woman of capacity and ability”. It is also noteworthy in this context that her Honour found that the husband had earned as much as $407,000 in one year (2007) and had earned $228,141 as recently as 2013 (at [98]).
Her Honour recognised at [121] that the husband, “despite his best efforts”, had not been earning as much income as he once did before he became redundant in 2013, but she was of the view that he had the potential to earn more in his business, given the experience and contacts he had acquired:[9]
109.His evidence was that his business is growing, his cash flow is growing and he believes in the next few years he will cement his business and be successful. However, there have been times when the business was first operating in 2014 when there was no income being generated.
[9]At [98], [99], [108] – [111], [143], [166].
In our view, the finding about the likely future discrepancy in incomes was open to her Honour on the evidence and we are not persuaded that the resulting 10 per cent adjustment was manifestly excessive.
We should also say that we were not persuaded by the argument advanced in oral submissions that her Honour erred as a result of her failure to record the monetary effect of the adjustment of 10 per cent for s 75(2) factors. We accept what the Full Court said in Clauson and Clauson (1995) FLC 92-595 that “in many of these cases reference only to percentages can be misleading; the reality is to be found in the actual figures”.[10] While her Honour did not quantify in dollar terms the effect of the 10 per cent adjustment, in the paragraph we have set out below she did quantify in dollar terms the overall effect of her findings. It therefore cannot be said that her Honour did not appreciate the real impact of the assessment she had made:
155.65% the assets [sic] for division is $1,213,834 to the wife and $653,603 to the husband. Less his car at $29,400 is a payment to him of $624,033.
[10]At 81,909.
There is therefore no merit in Ground 3.
Ground 4 – the post-separation tax debt
There was an inconsistency in the reasons at [77] and [162] as to the total of the husband’s tax liability at the time of trial. The parties ultimately agreed we should adopt the finding at [162] that the husband had $98,000 in tax debts (apart from the capital gains tax in respect of an investment property the parties owned in Suburb N).
The primary judge found at [78] that the capital gains tax on Property N was “a matrimonial tax debt” but concluded that the remaining $98,000 tax liability was “the husband’s debts” and thus was not included as a liability on the “balance sheet”. Nor was that liability otherwise taken into account.
Putting to one side her Honour’s unorthodox treatment of assets and debts as being either “matrimonial” or “not matrimonial”, the approach she adopted in leaving the husband entirely responsible for the debt was potentially justified. In Prince and Prince (1984) FLC 91-501 at 79,077 the Full Court stated:
Of course, the Court cannot ignore the fact that there is or may be a liability; the effect is simply that it does not consider that the other spouse should be called upon to in effect “contribute” to the liability by having that spouse’s fair share in the parties’ property reduced by virtue of its existence. The effect may be that the party who has incurred the liability will be left to meet it out of whatever funds remain to that party after satisfying the property order made under sec. 79.
(Reference omitted)
However the gravamen of Ground 4 (as it was agitated before us) is that the primary judge failed to explain why the $98,000 tax debt was excluded when calculating the net assets and left entirely with the husband.
In dealing with this complaint it is important to recognise that the primary judge made a large number of unchallenged findings about the way in which the husband disposed of the second redundancy payment received in 2013, the money drawn down on the line of credit and other funds available to him, including income generated in his new business. We do not propose to set out all of these findings but in summary it can be said that the primary judge accepted all of the husband’s evidence and found that he had struggled to pay all the mortgages, while meeting his own expenses and supporting the family including making significant monthly payments to the wife and paying large amounts in private school fees, health insurance, tax liabilities, as well as meeting a significant shortfall on the sale of Property N (at [55], [62], [96], [97], [110], [112], [113], [116], [132]–[134]). Importantly, the husband also expended funds in the development of his new business which he had established in 2013. It was the latter which was the foundation for the s 75(2) adjustment in the wife’s favour.
Her Honour accepted that the husband also used the funds drawn on the line of credit to pay legal fees in the sum of $53,262; however, as discussed below, her Honour’s reasons make clear that her intention was to leave that part of the liability with the husband.
At paragraphs [81] and [82] her Honour said:
81.In the light of this evidence I do not find that the husband has been anything other than truthful and honest about his tax or income position post separation.
82.The parties have been living beyond their income since separation and the payment of the children’s school fees and legal fees is a significant reason for this however these are the choices that they made.
Given all of the findings made about the legitimate expenditure of the husband post-separation, we are unable to discern from the reasons any legitimate reason for excluding the $98,000 tax debt when determining the net value of the assets to be divided between the parties. It seems to us that her Honour led herself into error by seeking to differentiate between “matrimonial” and “non-matrimonial” debts in the same way she did when categorising the assets. As the Full Court said in Miller and Miller (1984) FLC 91-542 at 79,391 “the use of labels to categorize assets tends to inhibit the discretion of the trial Judge which should only be limited by the statute itself”. See also Norman & Norman [2010] FamCAFC 66 at [38] and Calvin & McTier (2017) FLC 93-785.
Thus her Honour treated the capital gains tax on Property N as a “matrimonial liability” presumably because the property was acquired during the marriage but treated the $98,000 in tax liabilities as “not matrimonial” because they were incurred after the parties separated. This inappropriate characterisation led her Honour to overlook the fact that the husband had insufficient funds to pay his tax debts because he was expending the funds available to him in meeting all the many, entirely appropriate, payments her Honour accepted he had made.
As we are unable to discern any principled basis for “excluding” the tax debt, Ground 4 (in the form it was argued) must succeed.
Conclusion
Given the merit in Grounds 1 and 4, the appeal should be allowed.
Re-exercise of Discretion
In the event the appeal was upheld, both parties invited the Court to re-exercise the discretion pursuant to s 79 of the Act. For that purpose each party provided submissions in respect of the form of order to be made.
There was controversy as to which figures should be adopted on a revised balance sheet for the first and second mortgages on Property C and the amount owing on the line of credit. We will deal with these in turn.
The Property C Mortgages
It will be recalled that although the husband owned Property C at the time of the hearing, it has since been sold. It is an agreed fact that when the first and second mortgages were discharged the payout figures were $881,015 and $95,159 respectively. The primary judge at paragraph [150] had adopted $846,000 as being the amount owing in respect of the first mortgage and $92,000 in respect of the second mortgage.
In dealing with the increased amounts owing on the Property C mortgages, the husband makes a similar argument to the one made in relation to Ground 4, namely that we should infer that the increase in the amounts owing was the result of the non-payment of mortgages by both parties arising from their respective financial positions. Senior counsel for the husband points out that based on the evidence provided at trial neither party had the capacity to continue to make mortgage payments and accordingly on the re-exercise of discretion it would be appropriate to adopt the actual discharge figures at settlement of the sale.
Counsel for the wife argues that on a re-exercise we should use the figures adopted by the primary judge when she calculated the amount of $624,033 to be paid by the wife to the husband to enable her to retain Property H.
We accept the husband’s argument. The fact is that the primary judge’s balance sheet records the value of Property C at $1,325,000, when in fact it was sold for $1,660,000. Given that the parties agree to adopt the actual sale price we consider it appropriate to adopt the actual mortgage discharge figures.
The Line of Credit
Property C was registered in the husband’s name and the sale proceeds came to him. He used those to discharge the line of credit. It is an agreed fact that the discharge figure of the line of credit at the time of settlement of the sale was $208,359. The husband submits that when re-exercising discretion, that figure should be adopted for the purposes of calculating the necessary payment pursuant to the redrafted orders. The wife says that the figure should be $147,000 as found by the primary judge at [150].
The primary judge clearly and correctly relieved the wife from having any liability in relation to the legal fees that the husband paid in the approximate sum of $53,000 using the line of credit. At a time when the line of credit was $200,000 her Honour decided that the wife would therefore only share in $147,000 of that liability (at [150]). We intend to adopt the same approach in re‑exercising the discretion save that, consistent with our earlier reasoning, we consider the actual discharge figure for the line of credit should be used, notwithstanding there was no evidence of what had caused the modest increase in the debt. Presumably part of it would have been accounted for by the interest accruing. Therefore rather than adopting the $147,000 figure used by the primary judge, we will adopt $155,097 (i.e. 208,359 less $53,262).
The Balance Sheet
Both parties agree that the balance sheet should be recast in accordance with agreed values and taking into account determinations made in the appeal in respect of the disagreement in relation to values to be placed upon the first and second mortgages and the line of credit. Consequently, the balance sheet for the main pool of assets should be as follows:
| Assets | ||
| Title | Description | Value |
| H | Sale of Property C | $1,660,000 |
| H | Car | $29,400 |
| J | Property H | $1,800,000 |
| W | Shares | $1,886 |
| Total Assets | $3,491,286 | |
| Liabilities | ||
| Title | Description | Value |
| H | Agent’s commission and marketing expenses | $33,880 |
| H | Other costs of sale | $913 |
| H | Solicitors costs on sale | $2,294 |
| H | Mortgage 1 | $881,015 |
| H | Mortgage 2 | $95,159 |
| H | CGT on sale of Property N | $57,906 |
| W | HELP | $7,922 |
| W | Portion of loan from wife’s sister | $87,000 |
| H | Portion of line of credit | $155,097 |
| H | Husband’s personal tax | $98,000 |
| Total liabilities | $1,419,186 | |
| Total net assets | $2,072,100 | |
Not included in the above balance sheet is a provision for capital gains tax on the sale of Property C. The parties have agreed that an order should be made that will see the wife responsible for 65 per cent of that liability when it is calculated and a machinery provision to achieve that result.
The Distribution Table
In the event that only Grounds 1 and 4 were successful the parties invited us to adopt the primary judge’s findings in relation to an appropriate percentage division of the overall assets in the primary pool. We find such an outcome would be appropriate and just and equitable.
The net assets should be divided so that the wife receives a 65:35 division of the primary pool. In order to achieve such a division and to give the wife an opportunity to retain Property H upon a payment to the husband, the following table provides how the assets should be distributed and the amount to be paid by the wife:
| Wife gets 65% | |
| Assets | |
| Description | Value |
| Property H | $1,800,000 |
| Shares | $1,886 |
| Wife pays Husband | $455,021 |
| Net Assets to Wife | $1,346,865 |
| Husband gets 35% | |
| Assets | |
| Description | Value |
| Sale of Property C | $1,660,000 |
| Car | $29,400 |
| Liabilities | |
| Description | Value |
| Agent’s commission and marketing expenses | $33,880 |
| Other costs of sale | $913 |
| Solicitors costs on sale | $2,294 |
| Mortgage 1 | $881,015 |
| Mortgage 2 | $95,159 |
| CGT on sale of Property N | $57,906 |
| HELP | $7,922 |
| Portion of loan from wife’s sister | $87,000 |
| Portion of line of credit | $155,097 |
| Husband’s personal tax | $98,000 |
| Husband receives | $455,021 |
| Net Assets to Husband | $725,235 |
Form of Orders
In the event that the wife does not pay the sum of $455,021 within the time allowed for payment, Property H will be sold and the proceeds divided so as to bring about the 65:35 division of the assets (other than the superannuation entitlements).
There was no substantial difference in the machinery orders proposed by each party. The wife wanted 60 days to be able to raise finance to acquire Property H. The husband wanted an order for an immediate sale but should the wife wish to retain the property she could elect to do so within 21 days, with a payment to be made within a further 35 days. We find the wife’s proposal to be the more appropriate.
Costs
Neither party sought an order for costs in the event the appeal succeeded at least in part on the basis of Ground 4. In that event both parties sought costs certificates. Given that the appeal has been upheld as a result of an error of law, we consider it appropriate that both parties be given costs certificates.
The Form of the Superannuation Order
We frame our comments on this issue subject to the caveat that the issue was not agitated before us and we accept we may have overlooked some relevant part of the record. However, it seems to us that neither party sought a superannuation splitting order at trial. Indeed, it was common ground at trial that the parties should retain their respective superannuation entitlements.[11]
[11]Transcript, 15 August 2016, pp 5 and 6; 16 August 2016, p 214.
Her Honour, without giving any reasons, said “there will be an equal division of superannuation”. There was no appeal against this decision, or against the form of the splitting order. However, we feel obliged to point out with respect that the order does not achieve the outcome intended and does not comply with s 90MT(4) of the Act in that it fails to allocate a “base amount” to the wife and instead simply provides for a lump sum amount that the wife is to receive “whenever a payment of the husband’s … Superannuation becomes payable”.
Further, and without wishing to be overly pedantic, the husband may become entitled to a payment from his superannuation which is not a “splittable payment” and therefore, to comply with the Act, her Honour’s order ought not only to have provided for a “base amount” but also to have provided that the payment to be received by the wife becomes payable only when the husband receives a “splittable payment” (see s 90ME(2) of the Act; reg 12 of the Family Law (Superannuation) Regulations 2001 (Cth)).
Given that neither party apparently sought a splitting order, it would seem that no notice was given to the relevant fund of the intention to make the order and hence procedural fairness was not accorded to the trustee. The order should not have been made at all until procedural fairness had been afforded (s 90MZD).
As we did not raise this issue with counsel it is necessary we afford them an opportunity to consider the form of orders which we consider to be appropriate and also to ensure that notice is given to the trustee of the superannuation fund.
Proposed Form of Orders
We will allow the appeal and set aside her Honour’s orders, and otherwise will lay down a timetable for the filing of minutes setting out the orders to be made in the re-exercise of the discretion. As presently advised, we consider the appropriate form of orders to give effect to our reasons would be as follows:
1.Within 60 days the wife pay to the husband the sum of $455,021.
2.Contemporaneously with the payment referred to in paragraph 1 the husband shall do all acts and things and sign all documents necessary to transfer to the wife all his right, title and interest in the property in Suburb H (“Property H”).
3.If the wife fails to comply with her obligations under paragraphs 1 and 5 within the time stipulated then the husband’s obligation under paragraph 2 is discharged and the parties shall forthwith sign all documents and do all things necessary to cause Property H to be sold by public auction and:
3.1.Appoint an agent and auctioneer responsible for the sale within 14 days and in the absence of agreement they shall instruct the President of the Real Estate Institute of New South Wales to appoint an agent and auctioneer on their behalf;
3.2.Engage a solicitor to act on their behalf and in the absence of agreement they shall instruct the President of the Law Society of New South Wales to appoint a solicitor;
3.3.Cause Property H to be sold by public auction at a time and place nominated by the agent;
3.4.Agree upon a reserve price at auction and failing agreement within 7 days of the date for auction instruct the agent to nominate the reserve price on their behalf;
3.5.Attend the auction and do all things and acts necessary and give all instructions required to complete the sale and execute a contract for sale;
3.6.In the event that the property does not sell at auction then:
3.6.1.List the property for a further auction at a date and time to be advised by the agent;
3.6.2.Set a reserve price at 5 per cent below the reserve price set at the immediate preceding auction; and
3.6.3.Continue with the same process until such time as the property has been sold at auction.
3.7.Upon completion of the sale of Property H, the proceeds of sale shall be paid out in the following order of priority:
3.7.1.Agent’s commission and other costs of sale;
3.7.2.Legal costs and fees arising from the conveyance;
3.7.3.The husband receive $455,021;
3.7.4.The wife receive the balance provided that:
3.7.4.1In the event that the balance she receives exceeds $1,344,979, the wife shall pay to the husband 35 per cent of that excess; and
3.7.4.2In the event that the balance received is less than $1,344,979 the husband shall pay the wife 65 per cent of that shortfall.
4.The parties shall forthwith instruct Mr K jointly in writing to prepare the husband’s taxation return for the financial year ending 30 June 2017 and a calculation sheet demonstrating how much of the husband’s taxation liability is referable to any capital gain on the sale of Property C, and to provide copies of the same to the parties.
5.Within 60 days of receipt by her of the tax return and calculation sheet referred to in paragraph 4 and subject to the husband’s compliance with paragraph 2 the wife shall pay or cause to be paid to the husband a sum equal to 65 per cent of the capital gains tax as calculated by Mr K.
6.Whenever a splittable payment is payable in respect of the husband’s superannuation interest in the superannuation fund:
6.1.1.The wife is entitled to be paid an amount calculated in accordance with the Family Law (Superannuation) Regulations 2001 (Cth), using a base amount in the sum of $122,922.50 from the date of the operation of this order; and
6.1.2.There is to be a corresponding reduction in the husband’s entitlement.
7.Paragraph 6 operates from the fourth business day after the trustee is served with a sealed copy of the order.
8.Paragraph 6 binds the trustee and any subsequent trustee of the superannuation fund.
9.The trustee is to calculate the wife’s entitlement pursuant to paragraph 6 in accordance with the Family Law (Superannuation) Regulations 2001 (Cth) and pay that entitlement whenever the trustee makes a splittable payment to the husband.
10.Otherwise both parties retain all assets in their name or control and be liable for all debts in their respective names.
11.The husband do all acts and things to cash in his Qantas Frequent Flyer points into Woolworths’ vouchers and the parties are to divide those vouchers equally.
I certify that the preceding eighty-one (81) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Thackray, Murphy & Watts JJ) delivered on 11 April 2018.
Associate:
Date: 11/4/18
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