Pandolous and Pandolous
[2007] FamCA 282
•30 March 2007
FAMILY COURT OF AUSTRALIA
| PANDOLOUS & PANDOLOUS | [2007] FamCA 282 |
| FAMILY LAW - PROPERTY SETTLEMENT – Valuation of business interest |
| Family Law Act 1975 (Cth), Section 79(1),(4), Section 75(2) |
Zalewski (2005) FLC 93-241
Way and Way (1996) FLC 92-702
Kowaliw and Kowaliw (1981) FLC 91-092
Browne and Green (1999) FLC 92-873
Hickey and Hickey and A-G for the Commonwealth of Australia (Intervener) (2003) FLC 93-143.
Phillips and Phillips (2002) FLC 93-104
Omacini and Omacini (2005) FLC 93-218
Reichstein and Reichstein current citation [2006] FamCA 1422
HDM & MM & SJM [2006] FamCA 47
Barker v Barker Appeal Judgment delivered in March 2007 – [2007] FamCA 153
Lee Steere and Lee Steere (1985) FLC 91-626
Clauson and Clauson (1995) FLC 92-595
Pierce and Pierce (1999) 92-844
| APPLICANT: | Mr Pandolous |
| RESPONDENT: | Mrs Pandolous |
| FILE NUMBER: | ADF | 2833 | of | 2003 |
| DATE DELIVERED: | 30 March 2007 |
| PLACE DELIVERED: | Adelaide |
| JUDGMENT OF: | Dawe J |
| HEARING DATE: | 3-6 October 2006 11-13 October 2006 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | N/A |
| SOLICITOR FOR THE APPLICANT: | Self-Represented |
| COUNSEL FOR THE RESPONDENT: | Mr McQuade |
| SOLICITOR FOR THE RESPONDENT: | Robinson & Mason |
IT IS NOTED IN CONNECTION WITH THESE ORDERS that the judgment of the Court delivered this day will for all publication and reporting purposes be referred to as Pandolous & Pandolous
Orders
The wife gave evidence that she was prepared to return to the husband his jewellery, personal items, wines and tools.
In full and final settlement of all claims either party may have or hereafter have against the other for settlement of property or variation of property interests that:
1.Within 21 days from today the wife do forward to the husband for his execution all necessary documents to effect the transfer of the whole of his interest both at law and in equity in respect to the former matrimonial home at M in the State of South Australia (the former matrimonial home) being the whole of the land comprised and described in Certificate of Title Registrable Volume … Folio … .
2.Within 7 days of the date of receipt of the said documents the husband do execute and return the documents to the wife’s solicitors to effect the transfer of his interest in the said property to the wife who shall hereafter retain the property for her sole use and benefit absolutely.
3.Until such time as the transfer is completed the husband shall hold his interest in the property at M on trust for the wife.
4.Upon transfer of the husband’s interest in the former matrimonial home the wife do all things necessary to cause the mortgages registered over the former matrimonial home to be discharged and the husband released from any liability relating thereto.
5.The monies currently held in the wife’s solicitor’s Trust Account (representing the proceeds of sale of the business to Mr J) be forthwith paid to the wife’s solicitors on behalf of the wife.
6.The monies currently held in Mr C’s Trust Account (representing monies from the husband’s mother’s estate) be forthwith paid to the wife’s solicitors on behalf of the wife.
7.Within three calendar months from this date the husband do pay to the wife the sum equal to the difference between the $129,268 and the sums transferred to the wife or her solicitors from the wife’s solicitors’ Trust Account and C Trust Account in accordance with paragraphs 4 and 5 hereof.
8.Upon transfer of the former matrimonial home to the wife all interim injunctions or orders be discharged.
9.The husband do all things necessary to ensure that the wife is forthwith released from any debts, guarantees and indemnities in relation to any of the husband’s business interests including:
(a)X Pty Ltd
(b)Z Home Loans;
(c)Z Real Estate Pty Ltd;
(d)B Pty Ltd;
(e)U Trust;
(f)P Family Trust;
(g)M Pty Ltd;
(h)V Trust.
10.Upon transfer of the former matrimonial home and payment of the monies due pursuant to paragraphs 5, 6 and 7 at the cost of the husband the wife transfer to the husband or his nominee the whole of her interest both at law and in equity in any shareholding loan account or other interest or entitlement the wife may have in any business entity operated by the husband including:
(a)X Pty Ltd;
(b)Z Home Loans;
(c)Z Real Estate Pty Ltd;
(d)B Pty Ltd;
(e)U Trust;
(f)P Trust;
(g)M Pty Ltd;
(h)V Trust.
11.The husband do indemnify the wife of and in relation to any liability in relation to any office holding, shareholding or interest in any of the said entities.
12.Within 21 days from the date hereof the wife permit the husband to collect from a location agreed in writing by the parties the following items:
(a)The husband’s wines;
(b)The husband’s hand tools and power tools;
(c)The husband’s golf equipment;
(d)The husband’s clothes;
(e)The husband’s jewellery;
(f)all items of personal adornment of the husband.
13.Subject to the within orders the husband shall retain as his sole and absolute property free of any claim whatsoever by the wife:
(a)all and any motor vehicle currently in his possession;
(b)all monies standing to his credit in any financial institution;
(c)all insurance and life assurance policies currently in his name together with any entitlement or expectation to superannuation benefits;
(d)all items of furniture and household goods currently in his possession;
(e)any other item of property whether real or personal of whatsoever nature and from whatsoever source currently in his possession.
14.Subject to the within orders the wife shall retain as her sole and absolute property free of any claim whatsoever by the husband:
(a)all and any motor vehicle currently in her possession;
(b)any monies standing to her credit in any financial institution;
(c)all insurance and life assurance policies currently in her name together with any entitlement or expectation to superannuation benefits;
(d)subject to the within orders all items of furniture and household goods currently in her possession;
(e)any other item of property whether real or personal of whatsoever nature and from whatsoever source currently in her possession;
15.Each of the parties do execute all documents and do all such things as shall be necessary to give effect to the within orders provided, that if the husband or wife refuse, neglect or omit to execute any document or memorandum of transfer after the same has been forwarded to him or her for a period of seven [7] days then and in such case a Registrar upon proof by affidavit of such refusal, neglect or omission is hereby appointed to execute and in his or her opinion if it shall be necessary to do so to settle and to do all such other acts and things and to execute all such other documents that shall be necessary to give full force and effect thereto and shall execute and do the same accordingly.
16.L Company to apply for consequential orders.
17.The question of costs reserved.
| FAMILY COURT OF AUSTRALIA AT ADELAIDE |
FILE NUMBER: ADF 2833 of 2003
| Mr Pandolous |
Applicant
And
| Mrs Pandolous |
Respondent
REASONS FOR JUDGMENT
Introduction
The proceedings for property settlement are between the husband and the wife.
Trial
At the trial the wife was represented by Mr McQuade of counsel. The husband was unrepresented. The trial commenced before me on the 3 October 2006. At that time it was anticipated that the trial would occupy four days available that week in October 2006. The trial however proceeded on the 3, 4, 5 and 6 October 2006; 11, 12 and 13 October 2006; 2 and 3 November 2006; 20, 21, 22 and 23 November 2006; 27 and 28 November 2006 and 1 December 2006. The trial resumed on the 12 February 2007, continued on the 13 February 2007 and concluded on Wednesday 14 February 2007 when I reserved judgment.
The wife gave evidence and was cross-examined. The wife called Mr N, a former business partner of the husband, Mr H, the single expert who had been appointed to value the business interests of the husband and Mr D, a Real Estate Valuer who had valued the P property.
The husband gave evidence and was extensively cross-examined by Mr McQuade. The husband called his accountant, Mr Y, a former business associate, Mr J, his business associate Mr M and former staff member or contractor, Mr R.
There were 133 exhibits tendered in evidence.
Background and Chronology
The husband was born in August 1969 and is now aged 37. The wife was born in December 1970 and is now aged 36. The parties commenced cohabitation in 1993 and were married in April 1997.
At the time of commencement of cohabitation the wife was working as a beautician employed full time. The wife continued to work as a beautician. She now works part-time as a shop assistant.
The husband was employed as a manager at the time the parties commenced cohabitation. He continued in that role save and except for a short time working as a sales representative and a cleaner until he set up the businesses in 1997.
Since 1997 the husband has been employed as a consultant and manager in the various businesses he has established either on his own or with the wife or Mr N.
There are two children of the relationship, a daughter, who was born in August 1998 (who is now aged 8) and son who was born in July 2002 (who is now aged 4).
The final separation of the parties took place on the 9 February 2003. Since then the children have resided primarily with the wife.
Proceedings for property settlement were commenced by the wife in November 2003. Subsequently there have been many interim hearings and procedural orders made both in this Court and the Federal Magistrates Court.
In September 2006 a consent order was made which provided that the children live with the wife and spend time with the husband each alternate weekend, from the conclusion of school on Wednesday until 7.00 pm during the school terms, extending to the commencement of school on Thursday from the third term of 2007. The orders also making provision for school holiday time and special occasions.
There is a dispute about the savings and assets of the husband at the time of cohabitation.
Shortly after the parties commenced cohabitation they purchased a house at T. The wife says that this was purchased with monies borrowed on security of mortgage and the savings which she had transferred to the joint names of the parties.
In 1995 the wife set up a business as a beautician in a salon known as “[H]”. This business was operated until it was sold in December 2000 for net proceeds of $30,000.
In 1997 the husband established companies with the wife also as Director and shareholder. The P Family Trust was also established. In 1997 the parties sold the T property and purchased a house in S. This home was sold in December 2000 (when the wife’s business was also sold) and the parties purchased the former matrimonial home at M.
In the period 1999 to 2002 the husband was also instrumental in setting up further companies, unit trusts and trusts, including B Pty Ltd which was incorporated in September 2002. The Directors and shareholders are the husband and Mr N.
B Pty Ltd (B) as Trustee of the U Trust purchased commercial premises at P in December 2002 for $495,000. The Trust borrowed $725,000 and carried out significant improvements to the property.
In January 2003 the husband purchased a unit at the I Apartments at E without the knowledge or consent of the wife. The husband extended the mortgage registered over the former matrimonial home with Bank SA and borrowed further sums from L to purchase this property.
Following the proceedings instituted by the wife for property settlement orders were made in November 2003 which included:
“1.That until further order the husband be restrained and an injunction be granted restraining the husband from assigning, transferring, selling, disposing of, mortgaging, encumbering or wilfully diminishing or in any way wilfully affecting his or the wife’s interest either at law or in equity in any and all assets in his sole name or under his control without the written consent of the wife or an order of this Honourable Court including the property being [I Apartments], [E] being the whole of the land comprised in Certificate of Title Register Book Volume […] Folio […] without the wife’s (consent) first had and obtained or Order of this Honourable Court.
2.That until further Order the husband be restrained and an injunction be granted restraining the husband from assigning, transferring, selling, disposing of, mortgaging encumbering or wilfully diminishing or in any way wilfully affecting any of the assets of the [V] Trust, [Z] Real Estate Pty Ltd, [U] Trust, [P] Family Trust, [B] Pty Ltd, [X] Pty Ltd, [Z] Real Estate Pty Ltd and [M] Pty Ltd except in the ordinary course of business without the written consent of the wife or an Order of this Honourable Court.
3.………
4.……….
5.That in relation to paragraph 3.3 of the said application the husband do provide a copy of the Financial Statements and profit and loss statements for the year ending 30th June 2003 in relation to the [U] Corporation Trust (or the drafts thereof) as soon as practicable.
6.That in relation to paragraph 3.2 of the said application the husband do provide a copy of the Financial Statements and profit and loss statements for [Z] Real Estate Pty Ltd 2001 and 2002 within twenty eight days.
7.That in relation to paragraph 3.1 of the said application that the copies of the Financial Statements and the profit and loss statements for the [V] Unit Trust for 2002 be provided by the husband within twenty eight days or as soon as prepared by the Trust’s accountants whichever first occurs.
8.That the husband give discovery of all commissions and trailing commissions received by him through [X] Pty Ltd since separation and any other benefits received by him from [X] Pty Ltd or from any other source within twenty eight days and all commissions and trailing commissions received by [X] Pty Ltd.
9.………
10.……….
11.………...”
In December 2003 an order was made in the Family Court which required the husband to pay mortgage payments on the Bank SA loan of $815 per month. On review of that order the amount was reduced to $695 per month in early March 2004.
The husband alleges that in or about March 2004 Mr M lent X Pty Ltd (one of the companies which the husband and Mr N operated) $80,000. The monies in fact were allegedly provided by associates of Mr M in four lots of $20,000. The evidence concerning which entity borrowed the money and used the money was one of the matters in dispute. However, it is acknowledged that unregistered mortgages from B Pty Ltd were executed for each of the four loans of $20,000.
In early April 2004 the husband and Mr N signed the Heads of Agreement, splitting the businesses between them with the husband retaining control of Z Real Estate Pty Ltd, B Pty Ltd and the U Trust. Mr N took sole control of X Pty Ltd and the V Trust.
At a time when the proceedings were in the Federal Magistrates Court various orders were made for the valuation of the husband’s business entities, including an order in October 2004 noting that the single expert, Mr H, had been instructed to prepare a valuation of the husband’s various business interests. Subsequently in March 2005 orders were made that information required by Mr H be provided. Further orders were made in April 2005 requiring the parties to cooperate with Mr H’s request for information and documents.
The proceedings were transferred back to the Family Court in April 2005.
The provision of necessary information and documents to Mr H was one of the significant issues during the trial.
In October 2004 the husband had discussions with one of his employees, Mr J, about purchasing the real estate business and the rent roll owned by Z Real Estate Pty Ltd. An agreement was reached in November 2004 between the husband and Mr J that Mr J would purchase the business and rent roll from the company for $68,000. The evidence indicates that Mr J operated the business as his own from November 2004. The husband was to retain the other assets and liabilities of Z Real Estate Pty Ltd. No monies were paid until after the order of JR Forbes on 15 June 2006 which provided:
“1.That paragraph 2 of the Order made herein on 25 November 2003 be varied to provide that the husband proceed to settlement of his interest in [Z] Real Estate Pty Ltd with [A] Pty Ltd pursuant to a certain contract executed by the husband and [Mr J] which contract is filed herewith by the husband on the basis that the net proceeds of sale less deductions (with such deductions to be agreed with the wife before settlement) and the net proceeds to be paid to [R & M]Trust Account.”
After adjustments the amount payable was apparently $52,000 which was paid into the Trust Account of the wife’s solicitors. There was $50,688 in the Trust Account in February 2007.
Since the signing of the Heads of Agreement in April 2004 with, Mr N has operated the businesses of X Pty Ltd and the V Trusts and the husband has operated, as his own businesses the operations of the B Pty Ltd, the U Trust, Z Real Estate Pty Ltd and Z Home Loans.
The agreement with Mr N provided for trail incomes to be paid by Mr N to the husband.
The agreement also provided for Mr N to pay the husband a lump sum of $37,000.
Subsequently the husband’s commercial solicitors wrote to the solicitors for Mr N asserting that the debts retained by the husband were greater than originally assessed and that the husband should therefore be paid $60,250 to equalise the split. (Exhibit 32).
The evidence of Mr N indicates that the amount was adjusted by agreement to approximately $47,000.
Payments have been made by Mr N either directly to the husband or in payment of amounts due to be paid by the husband, such as income tax and child support. No monies are now due under this part of the agreement.
The husband’s mother died in April 2002. The husband received $15,000 in cash which he said he used to pay a former employee, Mr R, monies that Mr R had lent him to purchase the property at E. He also used the funds to pay lawyer’s fees.
On the sale of real estate owned by his late mother, the husband was entitled to approximately $40,000. Some accountants and valuation fees were paid from this money. In May 2006 there was approximately $31,600 remaining in the husband’s solicitor’s Trust Account. At the time of the trial the husband informed the Court that $26,167 remained in the Trust Account.
The husband maintained that his inability to access the funds due from Mr N, the monies paid by Mr J and the money payable to him from his late mother’s estate, prevented him from operating his businesses properly.
Notwithstanding various orders made in the Federal Magistrates Court and directions made concerning the preparation of the valuation of the businesses by Mr H, this did not occur.
On the 6 February 2006 an order was made in the Family Court of Australia:
“1.That the wife has leave to proceed with her application for property settlement notwithstanding the absence of a formal valuation of the husband’s business interests AND IT IS NOTED that if the husband provides [Mr H] with all necessary information and security for his costs the husband may seek to rely on a formal valuation if given leave to do so by the Trial Judge.”
In his affidavit sworn and filed in February 2006 (document 59) the husband refers to the monies which he owed to his former accountants, K Financial, who were previously called O. He referred to monies owing to them and to his present accountant, Mr Y, from W.
On the 28 March 2006 an interim order was made in relation to W Accountants:
“1.That the sum of THREE THOUSAND THREE HUNDRED AND THIRTY THREE DOLLARS [$3,333.00] be released by [Mr C’s] Trust Account direct to [W] Accountants, [...] in payment of their account on the understanding and condition that the husband forthwith instruct [W] Accountants to prepare all Financial Statements for himself and his associated companies and trusts providing the same to the wife’s solicitors as a matter of urgency.”
During the trial evidence was given that the husband had not paid the registration fees for B Pty Ltd due to be paid to ASIC. Originally the notice was forwarded to the wife’s address. (The husband had not changed the address of B Pty Ltd from the former matrimonial home). When the husband became aware of the registration fee of $759 he did not pay it. His evidence was that he could not afford the payment. As a consequence B Pty Ltd has been de-registered.
When the matter was adjourned part-heard in December 2006 interim orders were made as follows:
1.The wife’s solicitors to release the sum of SEVEN HUNDRED AND FIFTY NINE DOLLARS [$759.00] or such other sum required by Australian Securities & Investments Commission for registration fees of the company [B] Pty Ltd upon receipt by the wife’s solicitors of confirmation that the registration of the company can be re-instated upon payment of that sum.”
When the matter returned to the Court in February 2007 the husband indicated that he was hopeful that B Pty Ltd would again be registered.
The evidence was re-opened in March 2007. By consent I received the affidavit of the wife’s solicitors with documents annexed showing that the company has been re-registered after payment of $1,512.
Main Issues
Initial Contributions
The wife’s evidence was that at the commencement of the cohabitation of the parties in 1993 she had savings and investments of $24,274. Full particulars of the savings were set out in her affidavit in paragraphs 14 to 18. She was not challenged in cross-examination about these funds.
The wife produced Exhibit 5 showing a balance in her account at July 1993 of $17,322 and Exhibit 8, a form completed by the parties setting out their assets and liabilities at June 1993. The wife maintained that the savings disclosed in this form were her savings which existed at the commencement of cohabitation and that this indicates that the husband did not have other significant savings.
The wife also owned a 1982 Toyota Corolla motor vehicle.
In the husband’s affidavit of evidence in chief he says that the wife had approximately $20,000 to $24,000 in bank accounts at the time of cohabitation.
The husband gave evidence that he owned a 1969 Holden and a Nissan Bluebird motor vehicles. He said in his affidavit of evidence in chief that the savings held by him at the commencement of the relationship was “about $35,000”. The wife disputed that. She said that the husband owed money.
Applying the appropriate standard of proof on the balance of probabilities I am satisfied that the wife had substantial savings at the time of cohabitation. I am not satisfied that the husband had the funds he claims.
Value of husband’s business interests
At the time of the trial the husband continued to hold shares in X Pty Ltd and was notionally a Director. X Pty Ltd is the trustee of the V Trust, the unit holders were the husband and Mr N.
Since the Heads of Agreement entered into between Mr N and the husband in early April 2004, Mr N and his associated companies have been the sole operators of X Pty Ltd and the V Trust and the associated businesses.
B Pty Ltd is another company in which the husband and Mr N are the Directors and shareholders. B Pty Ltd is the trustee of the U Trust. This trust is the owner of the commercial premises at P property which has an agreed value of $1,000,000. The premises are leased to various tenants and are subject to a substantial mortgage to the St George Bank.
Since the Heads of Agreement entered into between Mr N and the husband in April 2004, the husband has been the sole operator of the B Company and the associated trust. Mr N has not participated in any of the business dealings of B Pty Ltd or the P property.
Z Real Estate Pty Ltd is another company in which the husband and Mr N are Directors. The shareholder of that company is X Pty Ltd. This company operated a general real estate business and collected the Rent Roll. Since the Heads of Agreement were entered into between the husband and Mr N in April 2004, the husband operated this company without any input from Mr N. An employee, Mr J, continued to manage the business. Notwithstanding the injunctions made in the Family Court in November 2003 the husband purported to sell the businesses owned by Z Real Estate Pty Ltd to his manager Mr J for $68,000 less adjustments. Subsequently with the consent of the wife the business was transferred to Mr J for the sum of $52,000 which was paid to the Trust account of the wife’s solicitors. The husband did not sell the shares in Z Real Estate Pty Ltd and retained the responsibility for the liabilities of the company.
M Pty Ltd was a company incorporated in 1997 in which the shareholders are the husband and the wife. At one time the wife was a Director, but ceased to hold that position following the separation. M Pty Ltd is a trustee of the P Family Trust and was one of the Unit holders in the V Trust receiving income from the monies generated through X Pty Ltd. Since the Heads of Agreement signed by the husband and Mr N in April 2004 the assets of and benefits accruing to the V Trust have been treated as the sole property of Mr N.
M Pty Ltd has since commenced trading as Z Home Loans as a mortgage broker. This business was established in May 2004 by the husband.
The husband maintained that he had been unable to pay debts and maintain the businesses in the way he would have wished because the wife had not allowed him to receive and deal with as he wished the monies paid by Mr N, his mother’s estate and the Mr J money.
The wife maintained that the husband had recklessly or deliberately allowed the businesses to run into debt. She did not accept the accuracy of the records produced by the husband.
The wife maintained that the husband had failed to cooperate and provide all necessary information to the single expert valuer appointed to value the husband’s business interests. The wife therefore maintained that the value to be placed upon these interests should be the value indicated by the Heads of Agreement reached between the husband and Mr N when the businesses were split in April 2004.
The wife maintained that the alleged debts of the business incurred since separation should not be brought into account because of the unsatisfactory standard of the evidence of the husband concerning the finances since separation and because she alleged the husband had recklessly managed the businesses and the finances since that time.
The husband asserted that he had cooperated as much as he could with the provision of information to Mr H, the single expert valuer, but had been hampered by the inability to pay his former accountants their outstanding fees. He claimed to have managed the businesses well and to have only been hampered in continuing to operate the businesses successfully by the wife’s refusal to allow him access to the capital funds payable by Mr N, Mr J and his mother’s estate.
Since the Heads of Agreement were signed Mr N has paid the trail income due to the husband, either to the husband, or on account of the husband.
The lump sum that was payable by Mr N to the husband in accordance with the terms of the Heads of Agreement has been paid to the husband or in payment of the husband’s debts.
The inter-entity loans due to the companies and associated persons have been treated as released in accordance with the Heads of Agreement.
Both Mr N and the husband have treated the separate entities as having been split in accordance with the terms of the Heads of Agreement.
The only steps that have not been carried out to bring about completion of the transactions required by the Heads of Agreement are the transfer of the necessary shares.
The husband maintains however that the settlement in accordance with the Heads of Agreement has not proceeded because he says the wife would not allow the settlement to proceed. The husband’s evidence was that Mr M is an essential participant in bringing the agreement with Mr N to conclusion.
The wife says that she did agree to vary the injunction granted in November 2003 to allow the transaction with Mr N to proceed. The wife has not however agreed to transferring shares in B Pty Ltd to Mr M, his company or associates.
The husband asserts that the debts of the group of companies was greater than those brought into account by Mr N when the Heads of Agreement were signed.
In October 2004 an order was made appointing Mr H the single expert for the purpose of valuing the husband’s business interests.
Mr H gave evidence. He is a well-qualified and experienced Chartered Accountant with experience in forensic accounting.
Further orders were made in April 2005 that each party cooperate with Mr H’s reasonable requests. A further order was made in October 2005 that the husband cause certain information to be forwarded to the single expert.
Where his evidence conflicts with that of the husband or the husband’s accountant, Mr Y, I prefer the evidence of the independent single expert, Mr H.
During his oral evidence, Mr H confirmed the facts set out in his email of the 21 November 2005 to the parties’ solicitors. (Exhibit 31).
Mr H confirmed that two of his main concerns were certain differences in a Balance Sheet including changes to the real estate entities and his concern that appropriate records were not provided to convince him that all of the rent received had been disclosed. His evidence was that he was not confident that all income had been declared in the Financial Statements which had been produced, nor that all of the expenses were genuine.
His oral evidence confirmed that he had still not been supplied with the complete list of documents that he required and as a result he was unable to satisfy himself that the information which he had been given was reliable.
Whilst Mr H had been given some Financial Statements, he had not been provided with all of the appropriate Financial Statements for each of the entities.
Mr H raised issues about the accounts of B Pty Ltd. One of the queries was that one Balance Sheet which had been provided, showed the value of land and buildings owned by B Pty Ltd reduced from $808,552 to $252,833. Mr H had also raised questions about bad debts which totalled $54,336 which had been written off and the consultancy fees claimed of $59,369. He did not receive satisfactory answers in relation to these queries. He also sought an explanation for a bad debt of $82,000 written off in 2003 and raised questions about the losses of Z Real Estate Pty Ltd which had not been answered.
Mr H swore an affidavit in March 2006 which was filed on the 22 March 2006 (document 71). Annexure B to the affidavit filed in March 2006 is a letter dated 20 January 2006 written by Mr H to Mr A, solicitor for the wife. That letter sets out certain information and initial assessments of Mr H, but significantly concludes that:
“Summary
Prima facie, there appears to be little value in the entities on an earnings based assessment. However, I have been provided with information that suggests the actual circumstances may vary materially from that presented by the Financial Statements.
More work would be required to investigate same. The husband purports to have little understanding of the group activities and is unable to reconcile what is presented via the Financial Statements.
I have experienced considerable difficulties in obtaining information and what has been provided cannot easily be understood or reconciled to supporting information made available. No-one is able to provide me with satisfactory explanations about the operations of the group.
It appears to me that the Financial Statements cannot be relied upon and do not accurately reflect the underlying transactions and/or transactions are not commercial in nature.”
Mr H confirmed in his oral evidence that since his letter of the 20 January 2006 he had not been provided with any other written response. He had received a telephone call from the husband’s accountant Mr Y. He asked for any information to be supplied in writing which had not been forthcoming.
Mr H conceded that the husband had told him that he was having difficulty getting the cooperation of his previous accountants, O Company because of the outstanding debt due to them.
During cross-examination, Mr H confirmed that based on the information that had been provided to him, he was unable to conduct a reliable valuation.
I am satisfied that Mr H was not supplied with sufficient information to enable him to conduct the appropriate valuation of the husband’s business interests.
Exhibit 28 was tendered by the husband on the 6 October 2006, the fourth day of the trial as the “updated” trading accounts for the year ended 30 June 2004 for B Pty Ltd. It shows a “Profit on Rental Operations” of $59,471 and expenses of $89,566 resulting in an Operating Loss before income tax of $30,095.
This document was apparently prepared after Exhibit 33.
When cross-examined about the debts due by him or to him in Exhibit 28 and Exhibit 33, the husband said he did not know the explanation for the entries. He was unable to explain the reference to “undeposited funds” of $20,000 described as a “current asset” in Exhibit 28 and Exhibit 33.
Exhibit 33 was tendered by the wife on the 6 October 2006 at the end of evidence of the single expert Mr H. These are the Financial Statements about which Mr H raised issues in his email of 21 November 2005 and his letter of 20 January 2006.
Exhibit 34, also tendered during Mr H’s evidence by the wife, is a copy of the tax return for 2004 for the U Trust disclosing a net income of $4,185.
Exhibit 33 is the document to which Mr H referred when raising his queries in his email of November 2005. The Balance Sheet as at the 30 June 2004 shows items for Land and Buildings for the previous year 2003 at $516,723 which then reduces for the 2004 year to $118,951.52. Similarly, the item headed “Property Improvements” is disclosed as $279,747 for 2003, but at $124,216.08 for the year 2004.
In Exhibit 28, the Land and Buildings figure is shown for both 2003 and 2004 at $516,723 and the Property Improvements figure is $279,747 for 2003 and $324,469 for 2004.
When the husband was cross-examined about these changes he was unable to explain why the changes were made. His evidence was that he did not recall why it happened but “it was very silly on the part of [W]”. He then specifically said it was an error which had been corrected.
Exhibit 31, the email from Mr H to the husband’s and wife’s solicitors reads in part:
“When I spoke to the husband, I asked him about the change in Land and Buildings. He was unable to explain exactly what has happened but did confirm that there had been no sale, per se. He did state however, that there was some arrangement to introduce some other ‘Partners’ into the ownership of the Building although this had been ‘Blocked’?? The other ‘Partners’ are [F], [Q] and [G].
The husband advised that the Accountant [Mr Y] from [W] would not know anything about it but the staff member “[L]” would.”
Notwithstanding this assertion the Balance Sheets in Exhibit 33 and Exhibit 28 both contain specific liabilities referred to as loans for $20,000 each to Mr and Mrs Q, Ms F, F Trust and Mr and Mrs G.
The Balance Sheet in Exhibit 33 shows the debt due to Bank SA as a loan which stood at $720,738 as at 30 June 2003, but was reduced to $263,223.87 as at 30 June 2004. Exhibit 28 however, shows the loan at $720,738 in 2003 but increased to $861,248 in 2004.
During the husband’s evidence he referred to the Balance Sheets and volunteered that both Exhibit 28 and Exhibit 33 were incorrect to the extent that they referred to a loan due to N Pty Ltd of $66,009 because the Heads of Agreement provided that the Trust be released from this loan payable to one of the companies associated with Mr N.
Exhibit 33 (the document available to Mr H initially) disclosed under “Current Liabilities” an item “[B] Loans – [Mr Pandolous]” ($21,426.75) indicating that the husband owed the Trust that sum. Exhibit 28 however, had the same named item but the figure of $12,853 indicating the Trust owed the husband that money. Both Balance Sheets showed other trade creditors at $36,876.
During the husband’s evidence he acknowledged that both sets of accounts had been prepared using information provided by him, but was unable to explain the differences other than that Exhibit 33 had been a mistake.
Exhibit 53 is a large bundle of documents relating to the accounts of Z Real Estate Pty Ltd and includes a Balance Sheet as at the 30 June 2004 which asserts an asset of Z Real Estate Pty Ltd being a loan due by B Pty Ltd of $20,108 as at the 30 June 2004. Exhibit 28, being the U Trust (of which B Pty Ltd is the Trustee) Balance Sheet as at the 30 June 2004 shows under “Non Current Liabilities” a loan – Z Real Estate Pty Ltd, but the figure is $11,099 and it is in brackets, suggesting that Z Real Estate owed money to the Trust operated by B Pty Ltd and not the other way around. The Balance Sheet for Z Real Estate Pty Ltd (Exhibit 53) also shows a liability, being a loan due to B Pty Ltd of $6,100 as at 30 June 2004.
When questioned about the expenses included in the Profit and Loss Account contained in Exhibit 53 for Z Real Estate Pty Ltd, and in particular asked about accounting fees, the husband said “a lot of these figures are wrong”.
Some of the husband’s evidence about the accounts was confused, suggesting at first that the expenses related to amounts which had been paid, but then suggesting that they may not have been paid but just incurred.
Later during cross-examination when asked about the payment for accounts referred to in the Profit and Loss Statements for the year ended 30 June 2005, the husband conceded that it was possible that the accounts reflected in the Profit and Loss Statements referred to accounts which had not been paid.
The husband’s accountant, Mr Y, gave evidence that the error in the preparation of the B Pty Ltd and U Trust accounts included an error by overstating income to include GST. Later this had been corrected. He also gave evidence that the expenses included for Z Real Estate Pty Ltd for the year ended 30 June 2004 and specifically in Exhibit 53 were expenses which were included on an accruals basis (namely when the invoice was received and not when the debt was paid).
He was unable to explain what the item “undeposited funds $20,000” represented.
During cross-examination by Mr McQuade, Mr Y confirmed that he had not prepared Exhibit 53, but a worker from his office had (Z Real Estate accounts). He also said that the Tax Returns had been prepared by his office, but not himself. His evidence was that the accounts and Tax Returns were prepared from the MYOB documents which were entries by the bookkeeper L or the accountant Ms S based on source material provided by the husband.
When cross-examined by Mr McQuade about specific entries in the Financial Statements for the year ended 30 June 2004 (Exhibit 28) the accountant was unable to provide any information relating to several of the significant entries.
Mr Y was asked in cross-examination whether the entry in the Profit and Loss Accounts for the 30 June 2004, which showed a debt of more than $62,000 due to X Pty Ltd should still be included when the Heads of Agreement provided for that liability to be forgiven. He said that he could not answer that question.
The husband’s oral evidence was that he tried to get his accountants to provide the answers for Mr H, but none would assist. When cross-examined by Mr McQuade, the husband maintained that he did not have enough money to pay for preparation of the Financial Statements and tax returns. He was also unable to explain the changes in the figures in the Balance Sheet. He conceded that a debt described as “a loan to [Mr N] for $66,000” should not have been in the accounts because the debt had been forgiven as a result of the Heads of Agreement.
In Exhibits 70 to 75 the husband conceded that the debts referred to may not have been paid, but had just been incurred. He was unsure whether some debts had been paid. In relation to rent paid by Z Real Estate Pty Ltd and Z Home Loans he gave confusing evidence about the payments. His explanation was that if there was any shortfall in the mortgage, he would often pay the shortfall of the mortgage and call it “rent”.
When asked by Mr McQuade why the tax returns and Financial Statements for B Pty Ltd had not been prepared, Mr Y said that was because the company had been deregistered by ASIC in about November 2005 because ASIC registration fees had not been paid.
The husband maintained that his business interests should be included by considering the assets of the business interests to be the real estate at P valued at a $1,000,000 (agreed value) and the monies he received from Mr J on the sale of the Rent Roll of Z Real Estate Pty Ltd (approximately $52,000), together with the trail income of Z Home Loans valued at a figure provided by the husband of $30,240 this being a calculation of the husband. There was also $1500 standing to the credit of Z Home Loans trading account. The husband offset against these assets the liabilities which he said should be brought into account when valuing his business interests, including the mortgage registered over the P property of $848,000 or $850,000, debts he claimed owing to Mr M (together with interest) $143,000 and a large number of other debts including outstanding general debts of B Pty Ltd $57,759 and a telephone system debt of $17,000, photocopier, $16,000, tax office, $37,000, Z Real Estate Pty Ltd creditors, $66,000, BAS Payroll, $14,500, outstanding commissions from Z $38,800.
The husband’s case was based on total assets of $1,910,940 not including monies from his late mother’s estate. He said the liabilities totalled $1,766,562 of which $257,000 was the mortgage over the E Unit and $848,000 mortgage on P property Apart from $200,000 owing on the former matrimonial home the rest were debts the husband said were outstanding business debts.
In contrast the wife asserts that the best available evidence of the value of the husband’s interests is the deal struck with Mr N, which resulted in the Heads of Agreement in April 2004 when the businesses were split.
The husband refers in his affidavit of evidence in chief to the negotiations between himself and Mr N. Annexed to the affidavit of the husband was Annexure “A” (now Exhibit 15) which is a note referring to the assets and liabilities of the group prepared by Mr N. The husband gave evidence that he did not accept the figures as accurate. Mr N agreed in evidence that the figures were “rubbery”.
Following upon the preparation of the list and meetings between the husband and Mr N, the Heads of Agreement were prepared and signed. The Heads of Agreement are provided as an Annexure to the husband’s affidavit. The Heads of Agreement dated the 1 April 2004 provide that the group would be split such that the husband owned 100 per cent of Z Real Estate Pty Ltd, B Pty Ltd and the U Corporation Trust. Mr N was to retain 100 per cent of X Pty Ltd and the V Trust.
Paragraph 2(e) of the Heads of the Agreement provided:
“2.(e)[B Pty Ltd] takes over (to the extent that it does not already have it) the liability to repay the sum of $80,000 lent by [Mr M];
(f)If [N] pays to [P] the sum of $37,000;
(g)All amounts of inter-entity indebtedness as at the date of the HOA will be released;”
The Heads of Agreement also set out other ancillary arrangements, including that:
“settlement of the various transfers will be effected on the 20 May 2004 or such other date as the parties agree.”
As previously indicated the transfer of shares to bring about the final settlement has not taken place. Many parts of the agreement have however been put into effect, including the payment of trail commissions to the husband and the division of the entities, such that the husband treats Z Real Estate Pty Ltd, B Pty Ltd and Z Home Loans as his, whilst Mr N treats X Pty Ltd and V Trust as his property.
The husband maintained that he could not complete the transactions required in the Heads of Agreement because he had always proposed that Mr M be his partner and that the company set up by Mr M, B Pty Ltd, C Pty Ltd become an owner of equity in the real estate at P. The husband emphasised that Mr M’s participation would be on the basis that the husband did not have to pay significant stamp duty in relation to the transfers contemplated by the Heads of Agreement, but that Mr M would pay the stamp duty.
During his oral evidence, Mr N, confirmed that he had complied with the obligation to pay trail commissions to the husband, including payment of amounts to the Child Support Agency when the husband was in arrears. He also confirmed that he had paid the amount due under the contract indicating that now, at the time of the trial, none of the amount of $37,000 remained outstanding.
Mr N’s evidence was that between the 1 April 2004 and the 18 August 2006 payments have been made to the husband of $162,228.78 of which $7,000 have been paid to the Child Support Agency on the husband’s behalf. Mr N had resigned as Director and Secretary of B Pty Ltd and the husband had resigned from his position at X Pty Ltd.
The shares had not been transferred. When asked if there was any reason that the shares had not been transferred, he replied “not that I know of”. Mr N had been released as a guarantor of the bank finance for B Pty Ltd.
Mr N’s evidence was that during discussions which took place prior to the Heads of Agreement being entered into, there were suggestions one party buy the other out for $300,000. There were also discussions about Mr M buying out Mr N’s interest for $300,000 of which $200,000 would be “on the books” and a $100,000 in cash. He confirmed however that he did not proceed with this proposal because he was unhappy with the arrangements for the cash payment and Mr M wanted an indemnity in relation to the pending litigation concerning the D tenant of P property.
Mr N specifically confirmed, during his oral evidence, that the amount of the payment from Mr N to the husband of $37,000, referred to in the Heads of Agreement, was based on figures which provided that each party retained assets worth $301,500 (or half of the value of the group at $603,000).
When the husband gave oral evidence he again asserted as he had in his affidavit, the figures provided by Mr N were not accurate and were used only as a guide. He pointed to Z Real Estate Pty Ltd debts, that he said were $95,000 at the time and not $57,000. He claimed also to have been misled by Mr N concerning the tax which was owing.
When asked in cross-examination whether the figure of $37,000 was in the Heads of Agreement because it was the figure that the parties had agreed upon on the basis that the husband’s share would come up to a total of $301,500, the husband replied “it could be true, yes”.
The husband called Mr M. Mr M’s company had been one of the tenants of the P building. He had been responsible for arranging the loans, being the four loans of $20,000 each to B Pty Ltd on behalf of other lenders. Mr M maintained that he had an agreement with the husband that the company which he and his investors controlled namely, BC Pty Ltd would become “half owners” of the building at P. Although the evidence was sometimes confused, Mr M’s evidence suggested that BC Pty Ltd would become a shareholder in B Pty Ltd having an equal interest in that company (and the Trust which it controlled) and an equal interest in Z Real Estate Pty Ltd and Z Home Loans. The husband and Mr M maintained that this transfer of equity in the real estate and associated businesses would take place in consideration of the loans made by Mr M’s associates (being the $80,000) and subsequent monies allegedly lent by Mr M to the husband’s businesses to maintain them.
The debts due to Mr M were not agreed by the wife at the commencement of the trial.
Mr M was questioned in detail about the funds provided by him and his associates.
Mr N confirmed the sum of $80,000 was provided by Mr M’s associates before the split with Mr N in April 2004. (The sum of $80,000 is one of the debts taken into account when the calculations were done, which resulted in the Heads of Agreement between Mr N and the husband).
During Mr M’s evidence he produced accounts and cheque butts and gave evidence about further loans made by him to the husband and his associated companies. Some of the monies were paid by cheque, some monies were advanced by way of cash. Other payments, for example, the alleged payment to the D Business owner of $23,000 were paid by Mr M “on behalf of [B Pty Ltd]”.
The record keeping of both the husband and Mr M was poor. For example the cheque butts do not always provide specific details as to the actual recipient of the funds, nor the purpose of the payment of monies.
The standard of the documentary evidence was poor. The wife was not unreasonable to require the husband to provide proof of the debts allegedly due to Mr M and his associates.
After hearing the evidence of Mr M and Mr N I am satisfied that the loans of $80,000 were made and that it is probable that Mr M paid $23,000 to settle the dispute in relation to the D Business.
Mr M maintained that he had an agreement with the husband that he would become a half owner of the building and other businesses and that is why he lent the money. It was also maintained that Mr M was going to acquire a share of the real estate and businesses because the husband could not afford to pay the stamp duty on the transfer of shares from Mr N to the husband.
It was put to Mr M in cross-examination that there had been negotiations but they had fallen through and there was no agreement. Mr M maintained that there still was an agreement and that “we will have equity in the building”.
The evidence of the husband and Mr M did not clarify precisely how they intended to proceed. During evidence in chief, Mr M said that he and the husband would have to have some agreement about what they would do in the future, but he expected there to be a transfer of shares in B Pty Ltd to BC Pty Ltd.
The husband gave evidence that he had sought legal advice in relation to the Heads of Agreement with Mr N and incurred substantial legal costs in relation to the same. Mr N appeared willing to effect the final transfer of shares required. Both Mr N and the husband had carried on their businesses since April 2004 as if the Heads of Agreement had been put into effect.
The husband’s oral evidence was that the debt to Mr M’s associates of $80,000 had incurred $20,000 interest. There was the debt of $23,000 paid by Mr M to the owner of the D Business and various debts (of about $20,000) paid by Mr M to help the husband pay the mortgage and “help him trade”.
One of the significant issues during the trial was the question of accounting for the rent paid or due in relation to the P property. Mr H’s evidence indicated that he was not satisfied that all rental payments had been accounted for. The receipt of the necessary rent in relation to P Property obviously affects the financial situation of the businesses, it being alleged by the husband that he did not have sufficient money to pay certain accumulated debts which had arisen since the separation of the husband and wife and further debts which had arisen since the split arrangement with Mr N.
The wife’s position is that she does not accept that the husband has fully accounted for all income and therefore will not agree to bring into account all of the debts the husband now alleges are due by the various entities.
There was an issue about the rent payable by Mr M and his associated companies.
The husband’s evidence was inconsistent. He said that he always intended to have Mr M as a partner and that if that had occurred Mr M would have paid half the debts and “he would have paid rent”. The husband’s evidence was that Mr M and his associated entities (other than the O area) stopped paying rent when the husband alleged the wife would not let Mr M have an equity in the building. The husband’s evidence was that he had received no rent for the Q Computers area (which was a business operated by Mr M) since either July 2004 or November 2004. During part of his evidence the husband said:
“I am sure he will pay rent, when he comes on board he will pay rent ……….”
When asked would that include back rent, he said “I hope so”. He was then asked if that was rent for the last two years and he said “I hope so”. He was again asked if there was an agreement that Mr M would pay rent “when all of this was sorted out” and the husband replied again “I hope so”.
That same day, after the luncheon adjournment the cross-examination continued and the husband then said that Q Computers had moved out in November 2004 and “he is not a tenant so why should he pay rent”.
When Mr M gave evidence he said that he did not pay any rent to the husband or his companies after “the split” (with Mr N) on 4 April 2004 because he had given the husband money and assumed he was a part owner of the building. He agreed that he paid rent due for December 2003 in July 2004. He denied owing any rent. He denied that the rent had been offset against the debts.
Mr J had been managing the collection of part of the rent for the husband and the exhibits produced suggest that rent was payable but unpaid by O Business to F Pty Ltd (Mr M’s company which operated Q Computers).
The wife called Mr D, a real estate valuer to give evidence. He carried out the inspection of the P building in November 2004. His evidence, which I accept, was that when he inspected the premises he was told by the husband that the area designated for Q Computers was an owner/occupier area for which rent was not paid. Mr D confirmed that the person using the premises on that day was not the husband.
The evidence before me therefore strongly suggest that premises occupied by Mr M’s businesses (apart from O Company) continued to use the areas of the P property and benefited from that use occupying those premises up until at least November 2004, but did not pay rent after December 2003.
The alleged debts due by the husband’s businesses to Mr M and his associated investors need to be seen in context of the unsatisfactory standard of the records and the occupation of part of the premises by Mr M’s business without paying rent.
The husband produced evidence of other debts due by the business. These included debts owing in relation to the Commander Telephone system and a Cannon photocopier, the Australian Tax Office, outstanding commissions and legal and accounting expenses. He called Mr R (who gave evidence by telephone link) who confirmed the husband owed him money for commissions.
Annexure “J” to the husband’s affidavit filed on the 10 February 2006 (document 59) is a letter written by the husband on the 4 March 2004 to the ATO seeking a ruling in relation to certain matters. The letter states that the company proposed to lease premises at the I Apartment, E from “an individual”. The letter contains the following:
“Due to a saving of travelling time, convenience of the central location and image it portrays, The Company will be putting an employee of The Company at this location full time; he will be residing on these premises.
We will pay rent monthly which is below market rent plus also pay other expenses as they become due, that is (a) gas, (b) electricity, (c) telephone, (d) car park”
The letter refers to the employee also receiving a fully maintained company vehicle and sets out duties to be conducted at the premises. The letter then concludes:
“We understand that due to the employee living away from home there has to be a declaration stating that he is to be conveniently located to the southern area (please supply the appropriate form).”
The letter then requests certain advice from the Taxation Department.
The husband’s evidence is that the property owned by him at E was then rented by one of his companies. That company paid him rent. The husband also claimed a “living away from home” allowance. He continued to live in the apartment and was “the employee”. When asked how the premises at I Apartments, E could be described as “living away from home” he said that he was really expecting to go back (referring to the relationship with the wife and the home at M). He then reluctantly admitted that it was a year after the parties had separated and that the wife had already filed for a divorce. His evidence was unconvincing.
The weight to be given to his evidence was seriously reduced when he initially said that at the time he did not know where his home was. After persistent questioning he was asked “whether he knew it was a lie to get a financial advantage”, he replied, “could be so, yes”.
The husband was unable to produce a full set of Financial Statements for each of the entities up to the end of the last financial year, 30 June 2006. In particular, he was not able to produce the Financial Statements for B Pty Ltd up to the 30 June 2006. He said he could not produce these accounts because he could not afford to have them prepared by his accountants who were owed money. In relation to B Pty Ltd the husband’s accountant said the accounts had not been prepared because the company had been de-registered.
Whilst it appears that the debts are probably outstanding in the amounts that the husband asserts, it is not clear that the income of the businesses would not have been sufficient to pay the debts because the question remains whether all of the income has been completely and accurately disclosed and whether the businesses were operated appropriately.
The husband admitted that debts in the Profit and Loss statements may not have been paid, just incurred. He also agreed that the accounts as prepared disclosed debts due to X Pty Ltd and Mr N’s associated entities, which had in fact been released. He was unable to explain the reference to “undeposited funds” of $20,000.
The evidence of the husband, Mr H, Mr J and Mr M when combined all indicate that there was a reasonable basis for the wife to be unsure about the accuracy of the records kept by the husband and the associated companies. In particular, the evidence indicated that the record-keeping was so unsatisfactory and unreliable as to raise questions about many of the entries in the various accounts.
Counsel for the wife referred to Zalewski (2005) FLC 93-241 a decision of the Full Court of the Family Court of Australia dealing with the approach to be taken to liabilities incurred after separation. That authority is not strictly applicable to the present case, although it indicates the discretion to be exercised when determining the assets and liabilities to be brought into account. He also referred to the Full Court decision of Way and Way (1996) FLC 92-702 in which the Full Court upheld the decision of the trial Judge who had not brought into account post-separation liabilities of both parties, in particular, substantial debts incurred by the husband. The Full Court said:
“We consider that such a course was open to Her Honour in the circumstances of this case where the parties had since separation conducted their financial affairs separately.”
Counsel for the wife also asserted that because of the husband’s reckless behaviour in the conduct of his financial affairs the authorities of Kowaliw and Kowaliw (1981) FLC 91-092 and Browne and Green (1999) FLC 92-873 are relevant. The husband asserted that the debts were all due and payable and that he was unable to make payment of those debts from the income of the businesses.
I accept the submissions of counsel for the wife that the husband did not provide up to date Financial Statements in relation to all of the businesses he has conducted and that therefore the Court is not able to determine with appropriate satisfaction whether the debts remain unpaid because the husband could not pay them, or whether the debts remain unpaid because he has chosen not to pay them.
The husband says that the Financial Statements have not been prepared because he could not afford to pay the accountants. There is insufficient evidence before the Court to conclude that the husband was reckless or deliberately incurred the debts or left them unpaid. I am satisfied however that the evidence indicates that the management of the accounting and financial affairs of the businesses is such that it is not appropriate to assess the assets and liabilities of the parties on the basis of the limited and unreliable information provided by the husband.
The husband has not established to the required standard of proof that the assets and liabilities of the businesses are as he now asserts. In particular, the documents provided by the husband, although numerous in relation to alleged debts outstanding, do not reliably cover the field of income (such as rent and commissions received) for the period since the separation of the husband and wife and the split with Mr N.
The authorities frequently emphasise that it is appropriate to bring into account the assets and liabilities of the parties at the time of trial Hickey and Hickey and A-G for the Commonwealth of Australia (Intervener) (2003) FLC 93-143.
The Full Court decision of Browne and Green (Supra) considered the principles discussed in Kowaliw and Kowaliw (Supra) and said:
“49.While care should probably be taken (in light of the statements by the High Court in Norbis to which we will shortly refer) not to elevate Baker J's statement to ''a principle'' , we are nonetheless satisfied that it certainly is a well-accepted guideline within the jurisdiction which has received the endorsement of successive Full Courts.
50.Such a guideline can of course be departed from if a trial judge considers such a departure is warranted on the facts of a particular case. And such a departure by a trial Judge will be immune from appellate interference unless the trial Judge's order is beyond the range of a just and equitable order - although it would also seem to be incumbent on a trial judge to explain his or her reasons for departing from an established guideline. In support of these propositions, we have regard to what was said by certain members of the High Court in Norbis v Norbis (1986) FLC ¶ 91-712; (1986) 161 CLR 513 concerning the need for guidelines in the discretionary jurisdiction conferred by s 79 and the scope for appellate interference where such a guideline is departed from.”
The Full Court said in Phillips and Phillips (2002) FLC 93-104:
“43.In proceedings pursuant to s.79 of the Act the first step is to identify and value the financial circumstances of the parties being property, liabilities and financial resources. In undertaking this task the Court is frequently confronted with issues of identification and valuation of assets. In Lenehan and Lenehan (1987) FLC 91-814 the Full Court said at p.76,142:
A trial Judge, as part of his ultimate responsibility under sec. 79 or otherwise, is normally required to determine a number of issues. Some of those issues may properly attract the evidence of expert witnesses. In appropriate circumstances their opinions are admissible to assist in the determination of such an issue. It is the responsibility of the trial Judge to take into account the opinions of such witnesses; however the ultimate duty of the Judge is to determine the issue on the whole of the material before him including such opinions. The expert evidence is called to enable the Judge to form his own independent judgment on the matter by the application of the appropriate principles.”
44.In The Commonwealth v Milledge (1953) 90 C.L.R. 157 the High Court at pp.161-162 said that the correct approach to be applied to the resolution of a valuation dispute should be a common sense endeavour after consideration of all material to fix a value satisfactory to the mind of the Court as representing the value.
45.As to ‘appropriate principles’ there is no fixed rule as to the proper method of valuation and the preferred methodology depends upon the facts of the case: Mallet v Mallet (1984) FLC 91-507 at p.79,121 per Mason J and Georgeson and Georgeson (1995) FLC 92-618 at p.82,218. However, the Court cannot adopt a valuation methodology that is fundamentally flawed and not applicable to the facts of the case: Elsey v Elsey (1997) FLC 92-727. “
In the Full Court decision of Omacini and Omacini (2005) FLC 93-218 at paragraph 17 the Full Court said:
“17.We accept that in a particular case there may be reasons which justify the selection by the trial judge of another date and that in some cases that may be the date of separation of the parties.”
This paragraph was quoted with approval in the more recent Full Court decision of Reichstein and Reichstein delivered in November 2006 current citation [2006] FamCA 1422 at paragraph 33.
In paragraph 17 of the recent Full Court decision of HDM and MM and SJM [2006] FamCA 47 the Full court summarised the authorities as follows:
“17.In Omacini v Omacini (2005) FLC 93-218; (2005) 33 Fam LR 134 the Full Court (Holden, Warnick and Le Poer Trench JJ) examined and discussed the cases where it had been held that it was appropriate to notionally add back to the pool of assets an asset that was said to no longer exist. We accept as an accurate statement of the law the following passage:
“30.To date, three clear categories of cases have emerged where the Court has determined that it is appropriate to notionally add back to the pool of assets, that is, assets that no longer exist. They are:
(a)Where the parties have expended money on legal fees. In DJM and JLM (1998) FLC 92-816 the Full Court said at 85,262:
“11.6For reasons set out in Farnell, s 117 provides that each party to proceedings under the Family Law Act shall bear their own costs unless the Court otherwise orders. Failing to add back monies expended by parties on costs frequently has the effect of defeating the policy of s 117 by permitting the pool of available assets for distribution between the parties to be diminished by any monies that either of the parties have managed to spend on their costs up to the date of trial. We are of the view that the normal approach ought be to add costs already paid back into the pool. Whilst there may be cases where that approach is inappropriate, the reasons why it is not taken ought normally be spelt out.”
(b)Where there has been a premature distribution of matrimonial assets. In Townsend and Townsend (1995) FLC 92-569 Nicholson CJ as he then was with whom Fogarty and Jordan JJ agreed, said at 81,654:
“In my view, what occurred in this case, as I said during the course of argument was, in fact, a premature distribution of a proportion of the matrimonial assets. What the husband did was to distribute to himself an asset in which the wife had a legitimate interest. In such circumstances I consider that it would be unjust in the extreme to simply treat such conduct by the husband as a matter to which regard should be had under section 75(2). It seems to me that the husband has had the benefit of that money. Had he retained, for example, the taxi licence instead of selling it, that would have been brought into account as an item of property which would have been dealt with in the same way as the remaining items of property in this case. Accordingly, I am of the view that the correct way in which to deal with the husband’s receipt of those moneys is to bring them into the pool of assets on a notional basis and make a distribution accordingly.”
(c)In the circumstances outlined by Baker J in Kowaliw and Kowaliw (1981) FLC 91-092 at 76,644:
“As a statement of general principle, I am firmly of the view that financial losses incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:
(a) where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or
(b) where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.
Conduct of the kind referred to in para. (a) and (b) above having economic consequences is clearly in my view relevant under sec.75(2)(o) to applications for settlement of property instituted under the provisions of sec.79.”
31. As the Full Court said in Browne and Green (1999) FLC 92-873 at 86,360:
“44.We agree with her Honour that the principles stated by Baker J in Kowaliw certainly do not constitute any form of fixed code. They are no more than guidelines for use in the exercise of the discretionary jurisdiction conferred by s 79 of the Family Law Act 1975. Nevertheless, they have over the considerable period of time since they were enunciated, become a well accepted guideline in this jurisdiction – a guideline the use of which assists in the achievement of the important goal of consistency within the jurisdiction.””
Recently the Full Court said in the decision of Barker v Barker Appeal Judgment delivered in March 2007 – [2007] FamCA 153:
“85.We accept that on occasions a trial Judge, in a case of non disclosure, will have difficulty in identifying with precision the pool of assets available for division, and it may be appropriate, having identified the lack of appropriate disclosure, to rely on such evidence as is available to identify the assets in respect of which a global or asset by asset assessment of contribution is evaluated (see Chang v Su (2002) FLC 93-117 at paragraphs 67 – 70).”
Conclusion on the value of the husband’s business interests
The evidence of Mr H confirms the contents of the email sent on 21 November 2005 (Exhibit 31) and the letter of 20 January 2006. I accept that Mr H’s evidence generally raises concerns about the willingness or ability of the husband to provide reliable, accurate records upon which Mr H could make an appropriate assessment of the value of the business entities retained by the husband, after the split with Mr N.
I am satisfied that Mr H was not provided with sufficient accurate and reliable information to enable him to carry out an appropriate valuation as the single expert. This evidence is confirmed by the husband’s inability to provide reliable, accurate information about his financial circumstances and his inability on many occasions to explain entries in the various accounts and statements.
The husband denied that he had operated the businesses negligently or recklessly since the time of the separation. He maintained that he had worked conscientiously in operating the businesses and that the difficulties, if any, were created by the wife’s refusal to allow him access to various funds.
The husband’s evidence concerning the current status of the various business entities which he has retained was fragmented and unreliable. His accountant, Mr Y, was unable to explain some factors in the accounts. The Financial Statements were prepared by his firm, but not by him.
Due to the unsatisfactory nature of the evidence provided, I am not satisfied that the amounts claimed by the husband to represent the assets and liabilities of the various entities can be relied upon to establish the current net value of the various business entities.
The husband’s evidence confirmed that the Heads of Agreement between himself and Mr N had been reached on the basis that the payment of $37,000 referred to in the Heads of Agreement would be a payment by Mr N to the husband to bring the assets retained by the husband up to a net figure of $301,500. Although the husband disputes the accuracy of the figures which Mr N set out in the negotiations for the Heads of Agreement, and although Mr N accepted the figures were “rubbery”, both Mr N and the husband have substantially carried into effect the terms of the Heads of Agreement with only the transfer of shares remaining to be effected.
In an affidavit of the husband received by me on the 1 December 2006 the husband gave evidence that on the 22 September 2006, Mr N paid for and on behalf of the husband the sum of $33,878 owing to the Australian Taxation Office. This amount represented the balance of the settlement monies owed by Mr N to the husband (at that time $27,001) together with trail payments otherwise payable by Mr N to the husband of $6,876.
Mr N has proceeded since April 2004 to treat the entities that he retained as his and the husband has treated the entities retained by him (B Pty Ltd; ZReal Estate Pty Ltd and Z Home Loans) as his. Indeed, the husband has sold one of the businesses to Mr J, being the business operated by Z Real Estate Pty Ltd.
The evidence is clear that the wife was not participating in any business decisions after separation in February 2003. She was not aware of the income or expenses of the businesses and did not participate in any of the decisions which resulted in the debts being incurred by the husband and his businesses.
Taking into account all of the evidence, I am satisfied that the only information sufficiently independent and reliable upon which to base the value of the husband’s business entities, is the value attributed in the negotiations for the Agreement between the husband and Mr N, even though that was in April 2004. I propose therefore to bring into account the business entities retained by the husband at a value of $301,500.
The Law
Section 79(1) states:
“(1)In proceedings with respect to the property of the parties to a marriage or either of them, the court may make such order as it considers appropriate altering the interests of the parties in the property, including an order for a settlement of property in substitution for any interest in the property and including an order requiring either or both of the parties to make, for the benefit of either or both of the parties or a child of the marriage, such settlement or transfer of property as the court determines.”
The established cases have developed a preferred approach when considering the provisions of Section 79 of the Family Law Act (including Section 75). The general direction is that a four step process is appropriate. The following steps are suggested in appropriate cases.
A.Identify and value the property liabilities and financial resources at the time of the trial;
B.Identify and assess the contributions in accordance with the provisions of section 79(4) (a), (b) and (c), thereafter determining as appropriate the contribution based entitlements of each party expressed as percentages;
C.Assess the relevant factors under section 75(2) and section 79(4) (d), (f) and (g) determining whether any alteration should be made to the conclusions reached at step B.
D.Consider by way of overview whether the conclusion reached and any proposed order are just and equitable in the circumstances of the particular case. (See Hickey and Hickey (2003) FLC 93-143; Lee Steere and Lee Steere (1985) FLC 91-626; Clauson and Clauson (1995) FLC 92-595).
Assets and Liabilities
The parties reached agreement for the purposes of these proceedings on the value of certain assets and liabilities. The parties agreed upon the value of the M home in which the wife was residing (the former matrimonial home) and the I Apartment in which the husband was residing.
As previously indicated I proposed to bring into account the value of the business entities at the net value attributed to it by the husband and Mr N when they reached agreement about the split in April 2004. This takes into account the value of the P real estate, the Z Real Estate Pty Ltd business sold to Mr J and remaining Z Home Loans trail income business. This specifically included the debts due to Mr M’s investors.
The assets and liabilities to be brought into account are therefore:
Assets Value
Former matrimonial home at M $400,000.00
Unit 504 The I Apartments, E $300,000.00
The wife’s furniture $2,000.00
The wife’s savings $1,353.00
The wife’s car $5,000.00
The wife’s jewellery $1,500.00
The husband’s jewellery $200.00
The wife’s superannuation … $11,486.00
Husband’s superannuation … $22,959.00
Husband’s wine collection, golf clubs and antiques $500.00The husband’s business interests including V Trust,
Z Real Estate Pty Ltd U Trust,
P Family Trust, B Pty Ltd,
X Pty Ltd and
M Pty Ltd $301,500.00Gross $1,046,498.00
Liabilities Value
First Mortgage registered over the parties former
matrimonial home at M to Bank SA $160,000.00
Mortgage registered upon I Apartment to
L Company $250,000.00
Mortgage upon M to Bank SA as security
For I Apartment $39,967.00
Husband’s Income Tax due at separation $12,131.00
Total: $462,098.00
Net value of assets and liabilities $584,400.00
The monies received by the husband from his mother’s estate and the money held in trust from the husband’s mother’s estate are not included, nor is the amount held in trust representing the monies paid by Mr J for the Z Real Estate Pty Ltd business. Similarly, the monies paid by Mr N to the husband and his business entities pursuant to the Heads of Agreement have not been brought into account as these are all subsumed by the valuation of the husband’s business interests at $301,500.
As previously discussed the alleged current debts of the husband and his businesses are not brought into account because of the doubts about the accuracy of the accounts and the income received.
Contributions
As previously indicated I find that the wife had savings of approximately $24,000 in 1993 at the commencement of the parties’ cohabitation. Her initial contribution was greater than that of the husband.
The evidence of both parties was that during the period of cohabitation they both worked and contributed the earnings from the businesses and employment to the family finances.
Both parties have contributed to the care of the children, the daughter and son, who have remained primarily with the wife since the parties separated in February 2003.
Since the separation the husband has been making substantial payments on the mortgage of the former matrimonial home in which the wife and children had been residing. He has also been assessed to pay child support.
For some time the husband has paid $1,000 a month mortgage payments. The wife concedes that $800 per month relates to the former matrimonial home. The balance relates to the loan secured over the former matrimonial home but used to purchase the I Apartment, E.
When assessing contributions of the parties it is also necessary to take into account the contribution of the husband towards the establishment and maintenance of the businesses included in the list of assets at $301,500. I accept the evidence of the husband that the mortgage loan businesses and real estate businesses were established and maintained by him. In particular, I accept that the husband was instrumental, together with Mr N, in purchasing the P property, carrying out substantial improvements to the property and participating in the management of the businesses and maintenance of the real estate.
In the Full Court decision of Pierce and Pierce (1999) 92-844 the Full Court said at paragraph 28:
“28. In our opinion it is not so much a matter of erosion of contribution but a question of what weight is to be attached, in all the circumstances, to the initial contribution. It is necessary to weigh the initial contributions by a party with all other relevant contributions of both the husband and the wife. In considering the weight to be attached to the initial contribution, in this case of the husband, regard must be had to the use made by the parties of that contribution. In the present case that use was a substantial contribution to the purchase price of the matrimonial home: See also Campo and Campo (unreported, Full Court (Ellis, Lindenmayer and Finn JJ), Sydney, delivered 19 May 1995 at pages 21 and 22 of the joint judgment) and Zahra and Zahra (unreported, Full Court Sydney, delivered 3 October 1996, per Ellis J at page 10).”
In this matter the parties commenced cohabitation in 1993 and separated in February 2003. Contributions by both parties have continued since 2003.
The initial financial contribution of the wife was used directly towards the purchase of the first matrimonial home. The husband’s efforts and expertise were directed towards the establishment and maintenance of the businesses.
Both parties have contributed to the welfare of the family when undertaking their various roles. Since separation the wife has had the primary care of the infant children of the marriage with some assistance from the husband. The husband has provided financially, and in particular, made the mortgage payments enabling the wife and children to continue to reside in the former matrimonial home.
Taking into account the initial contribution of the wife, but also taking into account the ongoing financial support provided by the husband following the separation of the parties, I am satisfied that the contributions of the parties, both financial and otherwise should be considered as 52.5 per cent in favour of the wife and 47.5 per cent to the husband.
The earning capacity of the parties is unlikely to be affected by any order for alteration of interest in property.
The child support likely to be paid by the husband to the wife for the children of the marriage will be determined by the assessment based on the parties’ future incomes and arrangements in relation to the children.
Section 75(2) Factors
(a) the age and state of health of each of the parties
The parties are of similar age and are in good health.
(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
The husband has the capacity to earn an income as a real estate agent or mortgage loan agent and from the rental of the P property which is owned by the Trust which he controls. His Statement of Financial Circumstances filed in February 2006 disclosed a weekly income of $750.
The husband maintained that he had taken steps to improve the tenancy of the P property. He said he was working hard in all of his businesses. The details of his income from the business however were not reliable.
The wife presently works two days a week permanent part-time as a shop assistant. Her Statement of Financial Circumstances disclosed a weekly wage of $248. She also receives parenting benefits, family tax benefits and child support. The husband asserted that the wife could return to her occupation as a hairdresser. The wife conceded that she did do hairdressing work for family members, but asserted that she could not work as a hairdresser because of dermatitis.
The wife has the care of the two infant children, a daughter who is aged 8 and a son who is now 4. The son will be 5 in July 2007. When both children are attending school full time the wife will have more opportunity to increase her working hours. The consent order already provides for the children to live with the wife and spend time with the husband.
The wife will therefore continue to be primarily responsible for the care and control of the two children of the marriage and have the responsibility to support them both financially and otherwise. The husband will remain liable for an assessment of child support.
Neither party has an obligation to support any other persons.
The husband alleges that he has now substantial debts remaining unpaid. The status of his ongoing relationship with Mr M is not clear. The evidence was that the husband and Mr M were waiting for these proceedings to be concluded before finalising their arrangements.
I take into account the findings I have made about the unreliability of the husband’s evidence and the insufficient evidence about the current financial circumstances of the husband and his business entities.
The most significant factor to be brought into account under section 75(2) is the wife’s ongoing responsibility for the two infant children of the marriage.
In the short term at least the husband’s greater earning capacity is offset by the uncertainty of his outstanding debts.
Considering all of the factors in section 75(2) it is appropriate to make further adjustment of 7.5 per cent in the wife’s favour.
This will bring the overall proposed adjustment to 60 per cent for the wife and 40 per cent to the husband.
Overall Assessment
It is appropriate to consider the overall effect of the proposed adjustment to determine whether in all the circumstances of this particular case it is just and equitable. The total net assets of the parties as determined in this judgment are $584,400.
60 per cent is $350,640. The wife will retain:
the former matrimonial home $400,000.00
furniture $2,000.00
savings $1,353.00
wife’s motor vehicle $5,000.00
wife’s jewellery $1,500.00
wife’s superannuation $11,486.00
Total: $421,339.00
Liabilities
Mortgage over former matrimonial home $160,000.00
Security to purchase the I Apartment, E $39,967.00
Total liabilities (secured over the former matrimonial home) $199,967.00Net assets retained by the wife $221,372.00
The amount remaining to be paid to the wife by the husband is therefore $129,268.
The husband would retain:
Business interest valued at $301,500.00
I Apartment, E $300,000.00
Husband’s jewellery $200.00
Husband’s superannuation $22,959.00
Wine collection & golf clubs & antiques $500.00
Total: $625,159.00Less the L Company Mortgage over the
I Apartment, E ($250,000.00)
Husband’s Income Tax ($12,131.00)
Net: $363,028.00
Less the payment due to the wife of ($129,268.00)
Net Assets $233,760.00
The husband has available to him the monies standing in the wife’s solicitors Trust Account representing the balance of the monies paid by Mr J (about $50,000) and the monies in his former solicitor’s Trust Account representing the balance of the monies from his late mother’s estate (approximately $30,000).
The wife has significant sums of money owing to her barrister and solicitors. The husband also has significant sums due to his former legal representative.
It is possible that the husband will need time to arrange his financial affairs in order to make the further payment due to the wife.
Looking at the overall situation of the financial circumstances of the parties (and taking into account the lack of reliable evidence about the husband’s financial circumstances) I consider the proposed orders to be just and equitable in all the circumstances.
I certify that the preceding two hundred and twenty five paragraphs (225) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Dawe
Associate:
Date: 30 March 2007
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