Pavlic & Pavlic
[2023] FedCFamC1A 54
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1) APPELLATE JURISDICTION
Pavlic & Pavlic [2023] FedCFamC1A 54
Appeal from: Pavlic & Pavlic (No 2) [2022] FedCFamC2F 1453 Appeal number: NAA 255 of 2022 File number: MLC 6470 of 2020 Judgment of: AUSTIN, WILLIAMS & HOWARD JJ Date of judgment: 4 May 2023 Catchwords: FAMILY LAW – APPEAL – PROPERTY – Majority decision – Appeal from final property settlement orders –Error of law – Where the primary judge did not draw clear distinctions between the corporation, the parties and their respective assets and liabilities – Where the primary judge failed to take into account the liabilities the appellant would be exclusively liable for – Inadequacy of reasons – Where there are inconsistencies within the reasons – Lack of reasons given for findings – Appeal allowed – Where despite the appeal being brought from only a few selected orders, all orders should be set aside – Where any re-exercise of discretion on the current evidence would be exceedingly difficult, if not impossible – Matter remitted for rehearing – Costs reserved for the determination on the papers in chambers.
FAMILY LAW – APPLICATION IN AN APPEAL – Further evidence – Where both parties sought to adduce further evidence – Where the appeal was allowed without the need for further evidence – Where the evidence sought to be adduced by the respondent could not validate the decision of the primary judge – Application dismissed.
Legislation: Evidence Act 1995 (Cth) s 79
Family Law Act 1975 (Cth) Pt VIII, ss 75, 79, 81, 117
Federal Circuit and Family Court of Australia Act 2021 (Cth) ss 35, 36
Income Tax Assessment Act 1936 (Cth) Pt III, Div 7A
Cases cited: Allesch v Maunz (2000) 203 CLR 172; [2000] HCA 40
Bennett & Bennett (1991) FLC 92-191; [1990] FamCA 148
CDJ v VAJ (1998) 197 CLR 172; [1998] HCA 67
Minister for Immigration and Border Protection v SZVFW (2018) 264 CLR 541; [2018] HCA 30
Rodgers & Rodgers (No 2) (2016) FLC 93-712; [2016] FamCAFC 104
Stanford v Stanford (2012) 247 CLR 108; [2012] HCA 52
Sun Alliance Insurance Ltd v Massoud [1989] VR 8
Victorian Stevedoring & General Contracting Co Pty Ltd v Dignam (1931) 46 CLR 73; [1931] HCA 34
Number of paragraphs: 83 Date of hearing: 1 March 2023 Place: Heard in Melbourne, delivered in Sydney Counsel for the Appellant: Ms Renwick Solicitor for the Appellant: Coote Family Lawyers The Respondent: Litigant in person ORDERS
NAA 255 of 2022
MLC 6470 of 2020FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
DIVISION 1 APPELLATE JURISDICTIONBETWEEN: MR PAVLIC
Appellant
AND: MS PAVLIC
Respondent
order made by:
AUSTIN, WILLIAMS & HOWARD JJ
DATE OF ORDER:
4 May 2023
THE COURT ORDERS THAT:
1.The Application in an Appeal filed on 2 February 2023 is dismissed.
2.The Application in an Appeal filed on 17 February 2023 is dismissed.
3.The appeal is allowed.
4.The orders made on 28 October 2022 are set aside.
5.The proceedings are remitted for re-hearing by another judge of the Federal Circuit and Family Court of Australia (Division 2).
6.The costs of the appeal are reserved for determination on the papers in chambers, for which purpose:
(a)The appellant shall file and serve any evidence and submissions upon which he relies within 14 days;
(b)The respondent shall file and serve any evidence and submissions upon which she relies within 21 days; and
(c)The appellant shall file and serve any submissions in reply within 28 days.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
IT IS NOTED that publication of this judgment by this Court under a pseudonym Pavlic & Pavlic has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
AUSTIN & WILLIAMS JJ:
By an Amended Notice of Appeal filed on 2 February 2023, the husband appeals from property settlement orders made under Pt VIII of the Family Law Act 1975 (Cth) (“the Act”) on 28 October 2022 by a judge of the Federal Circuit and Family Court of Australia (Division 2).
The appeal should succeed. Although the appeal is brought from only a few selected orders, all orders should be set aside and the proceedings remitted for re-hearing.
BACKGROUND
The parties separated in November 2018 after a long relationship, at which time they owned numerous parcels of real property and equal shareholdings in a corporation. The husband was the sole director of the corporation, which owned and conducted a building business.
Property settlement proceedings were commenced by the husband in June 2020.
During the proceedings, several real properties were sold and the sale proceeds used to retire debt. Those of the real properties retained by the parties were valued by single expert witnesses and there was no contest over such valuation evidence.
Although a procedural order was consensually made in August 2020 requiring the parties to procure an “indicative short form valuation” of the corporation from an identified expert, there was no formal expert valuation evidence before the Court in respect of the corporation at the time of trial in April 2022 (at [3] and [62]), even though the parties remained in dispute over its value (at [62]–[63]). In the circumstances, his Honour considered the only viable option was to sell the corporation to realise its true market value (at [64]–[65]).
However, as will become evident, no clear distinctions were drawn between the corporation, the parties, and their respective assets and liabilities. The corporation’s assets (which included its building business and the parties’ shareholder debit loan accounts) were not the parties’ personal assets and the corporation’s liabilities were not the parties’ personal liabilities.
The primary judge determined to divide the parties’ property interests as to 57 per cent to the wife and 43 per cent to the husband. There is no challenge in the appeal as to that outcome.
To implement that result, the primary judge made orders to:
(a)compel the sale of the corporation’s assets (including its business) and, subject to the husband bearing exclusive personal responsibility for the corporate tax debt, split the net proceeds of sale between the parties in 57/43 per cent shares (Orders 1–5 and 18);
(b)enable the wife to procure sole ownership of the real property at Suburb D (“the Suburb D property”) by paying to the husband the sum of $287,632 (Orders 6–8);
(c)in the event of the wife being unable to buy-out the husband’s interest in the Suburb D property, enabling him to instead acquire sole ownership of the Suburb D property upon his payment to the wife of $1,332,286 (Orders 9–11);
(d)in the event the husband does not acquire the Suburb D property from the wife, the sale of the property and the division of the net sale proceeds between the parties in 57/43 per cent shares (Orders 12–15);
(e)vest in each party sole ownership of one other parcel of real property (Order 16);
(f)finalise the affairs of a family partnership, with the husband to indemnify the wife against partnership liabilities (Order 23); and
(g)distribute items of personal property between the parties and require them to bear their own liabilities (Orders 17, 19–22 and 24).
The appealed orders were not stayed. In January 2023, the wife paid the husband the stipulated sum of $287,632 and he transferred to her all of his right, title and interest in the Suburb D property, thereby executing Orders 6–8 and rendering Orders 9–15 obsolete.
The appeal proceeds on five separate grounds of appeal, but they are all directed to the same error. It is contended that, in quantifying the sum of $287,632 payable by the wife to the husband so she may acquire sole proprietorship of the Suburb D property, his Honour erroneously failed to take into account the liabilities for which the husband would be exclusively liable and therefore reached an artificially low buy-out figure. The complaint is valid, though it was not the only error.
The Application in an Appeal filed by the husband on 2 February 2023, seeking to adduce further evidence in the appeal, should be dismissed because appealable error is demonstrated without the need for such evidence and he finally conceded that remitter of the proceedings for re-hearing was the only pragmatic option. Fresh evidence may be adduced by both parties at the re-hearing.
The Application in an Appeal filed by the wife on 17 February 2023, seeking to adduce further evidence in the appeal, should also be dismissed because such evidence could not validate the primary judge’s judgment, which is to say nothing of the lateness of the application or the likely inadmissibility of the subject evidence.
THE PARTIES’ ASSETS AND LIABILITIES
As was required (Stanford v Stanford (2012) 247 CLR 108 at [37]–[40] and [50]), the primary judge set out to identify the parties’ existing legal and equitable property interests, which were tabulated in the reasons for judgment (at [89]).
Relevantly, the husband was found to be either exclusively or jointly liable for his credit card debt of $20,037, his personal tax debt of $103,288, the family partnership tax debt of $11,502, and the corporate tax debt of $185,255. Each of those liabilities was the subject of separate discussion and findings earlier in the reasons for judgment (at [82]–[85]).
Several observations need be made at this point.
First, the whole of the corporate tax debt was transposed to the table of the parties’ assets and liabilities as a joint liability (at [89]), even though neither party bore any personal legal liability for it. There was no conceivable basis upon which the wife, as merely a shareholder in the corporation, could bear liability for its tax debt or any penalty associated with its non-payment. It is possible that, as the sole director, the husband could be penalised for any failure by the corporation to remit assessed tax on time, but that is different from derivative liability for the corporate tax debt, neither of which form of liability was mentioned before the primary judge. It is quite unclear why the parties wanted the corporate tax debt included among their personal debts.
Secondly, while the primary judge determined that the husband would only bear personal responsibility for any residual portion of the corporation’s liabilities left unsatisfied by the proceeds realised on the sale of corporation assets (at [3], [64] and [65]), his Honour brought the whole of the corporate tax debt to account in the table of the parties’ liabilities.
Thirdly, while the primary judge explained why the parties’ shareholdings in the corporation were not included within the table of their assets (at [65]), no explanation was given for why the parties’ shareholder debit loan accounts with the corporation, totalling $268,000 (at [63]), were not included within the table of their personal liabilities.
Each of those errors or omissions distorted the identification and calculation of the value of the parties’ net assets and superannuation at $3,361,303 (at [89] and [156]), from which figure the primary judge subsequently worked to apportion assets and liabilities between them.
Those errors were not the subject of express complaint in the appeal, as they were induced by the manner in which the parties conducted their cases at trial. Nonetheless, an appeal by way of re-hearing must entail a genuine evaluation of the first-instance decision and not be an illusion. Error, if it is identified, must be corrected (Minister for Immigration and Border Protection v SZVFW (2018) 264 CLR 541 at [30]–[32]).
THE APPORTIONMENT
As mentioned, there is no challenge by the husband to the finding that he should receive 43 per cent of the net assets and superannuation.
When calculating the quantum of the sum the wife would need to pay to the husband to enable her to acquire sole proprietorship of the Suburb D property, his Honour took into account the assets and superannuation the husband would retain as part of his 43 per cent overall share of the property (at [158]–[162]), but failed to account for the liabilities he would bear.
The husband was to bear exclusive liability for, and indemnify the wife against, liabilities which could total well over $300,000, including his credit card debt of $20,037, his personal tax debt of $103,288, the partnership tax debt of $11,502, and any portion of the corporate tax debt of $185,255 not discharged by the proceeds realised on the sale of the corporation’s assets. Without taking those liabilities into account, the wife’s payment to the husband was calculated by reference to the gross value rather than the net value of the property he was to retain.
It necessarily follows that the sum which the wife was ordered to pay to the husband was much less than was correctly payable. How much more she needed to pay him cannot be accurately calculated on the evidence currently available, which problem is addressed below in respect of the need to remit the proceedings for re-hearing.
THE ADJUSTMENT ORDERS
As was determined, the property settlement orders provided for the husband to bear sole liability for, and to indemnify the wife against, his credit card debt, his personal tax debt, and the family partnership tax debt (Orders 20 and 23).
Although his Honour explained that the husband would only bear responsibility for whatever portion of the corporate tax debt was not discharged by the funds realised on the sale of the corporation’s assets (at [3], [64] and [65]), the primary judge actually inconsistently ordered that the husband would bear exclusive responsibility for the whole of the corporate tax debt (Orders 5(b) and 18). Consequently, the orders do not match the reasons for judgment.
The orders require the parties to sell the corporation’s business and other assets, whereas the reasons for judgment discuss the need to sell the corporation itself, so the orders and reasons do not match in that respect either. The orders then oblige the parties to divide between them any surplus proceeds realised on the sale of the corporation’s assets in respective shares of 57 and 43 per cent (Orders 1–5). The corporation will remain a separate viable entity because no order was made compelling the parties to liquidate it. Nor was any order made compelling one party to transfer his or her shareholding in the corporation to the other, so they will retain their equal shareholdings in it, despite the statutory imperative under s 81 of the Act to sever the parties’ financial relationships wherever possible.
It follows from those orders that the funds realised on the sale of corporate assets will remain the property of the corporation. The primary judge was not empowered to make an order either compelling or authorising the parties to strip the corporation of its assets by distributing its money between them, particularly in proportions which do not match their equal shareholdings. Moreover, if the existing orders are implemented, the distribution of corporate funds to the parties in that way would likely trigger unanticipated personal tax liabilities under Pt III, Div 7A of the Income Tax Assessment Act 1936 (Cth), which nobody envisaged and which would likely upset the intended proportional division of net assets.
DISPOSITION
The appeal should be allowed.
The appellant sought to set aside only a selection of the orders dealing with the Suburb D property (Orders 6, 7, 10 and 15(c)), but all orders are tainted by the errors identified and all should be set aside, which course is permissible (s 36(1)(c) of the Federal Circuit and Family Court of Australia Act 2021 (Cth)).
Eventually, despite his desire to see an end to the proceedings, the husband conceded the only option was to remit the proceedings for re-hearing. In the event of the appeal succeeding, the wife indicated her strong desire to adduce update evidence on the re-hearing, as is her entitlement (Allesch v Maunz (2000) 203 CLR 172 at 183 and 191–192). The husband grudgingly conceded he would also need to adduce update evidence.
It would be exceedingly difficult, if not impossible, to calculate the proper sum payable by the wife to the husband for her to acquire sole proprietorship of the Suburb D property in any re-exercise of discretion on the current evidence. It would be necessary to know, for example: whether the corporation or its assets have yet been sold; if so, the sale price and how the sale proceeds were applied to meet the corporation’s debts; how much corporate debt is still presently outstanding; whether the parties’ shareholder loan accounts with the corporation have been repaid or forgiven; if the corporation or its assets have not been sold, whether it is still trading profitably and what might be its current market value.
The husband proposed that the question of costs be deferred because written offers of settlement may become relevant pursuant to s 117(2A)(f) of the Act. Procedural orders will enable the question of costs to be determined on the papers.
HOWARD J:
By an Amended Notice of Appeal filed 2 February 2023, the husband appeals against orders made on 28 October 2022 by a judge sitting in Division 2 of the Federal Circuit and Family Court of Australia. The orders were made by the primary judge by way of property settlement under s 79 of the Family Law Act 1975 (Cth) (“the Act”) after a three day trial that took place in Melbourne in April 2022.
By reference to the reasons for judgment and the final order made by the primary judge, it is apparent that it was his Honour’s intention to effect an adjustment of the parties’ property interests so that the wife would receive 57 per cent of the determined pool and the husband would receive 43 per cent.
The husband contends that the primary judge made a mathematical error in calculating the amount of a payment due from the wife to the husband. It is said that this error came about because the primary judge failed to subtract certain liabilities that the husband was liable to pay (Grounds 2 and 3). There is a further ground of appeal (Ground 5), whereby the husband maintains that the primary judge provided inadequate reasons to explain why he took this approach.
As a result of the failure to subtract those liabilities, it is submitted (by the husband) that the orders do not produce an outcome of 57 per cent to 43 per cent in favour of the wife (Ground 1) but rather, produce an outcome where the wife would receive 67 per cent and the husband 33 per cent (paragraph 28 of the husband’s Summary of Argument filed 2 February 2023). It is also submitted that such an outcome is neither just nor equitable (Ground 4).
For the following reasons, I have determined that the appeal must be allowed and the matter remitted to Division 2 of the Federal Circuit and Family Court of Australia to be heard by a Judge other than the primary judge.
BACKGROUND
It is helpful to set out some of the relevant facts in order to give context to this appeal. The facts are extracted largely from the primary judge’s reasons and are uncontroversial. At the time of the trial, the husband was aged 47 and the wife was aged 48.
The parties commenced a relationship in 1994 and were married in 1999. The parties separated on a final basis in 2018. The parties have two adult children.
Throughout the time of the relationship, the husband worked as a tradesman. From February 2004, the business was operated through a private company, B Pty Ltd. The husband was the sole director of B Pty Ltd and each of the husband and the wife owned one share in the company. At times, both the husband and the wife worked in the business – each deriving an income. The husband made most of the financial contributions throughout the relationship and his Honour found that the husband continues to have a higher earning capacity. The wife provided the majority of the homemaking contributions for the family.
The parties acquired a number of investment properties, most of which were sold by June 2021 to pay down cross collateral mortgages with ANZ Bank and Bank AD. From the net proceeds of sale of those investment properties, the parties were able to repay approximately $3,173,676 in respect of the mortgages.
By the time of the trial, the remaining properties were situated at:
(a)C Street, Suburb D, Victoria (the former matrimonial home – referred to as “C Street”);
(b)E Street, Suburb F, Victoria (referred to as “E Street”); and
(c)A 50% interest in a property at G Street, Town H, Victoria (referred to as “Town H”).
At the time of the trial, the husband continued to work in the building industry and the wife was employed as a transport worker for a major transport company.
APPLICATIONS TO ADDUCE FURTHER EVIDENCE
This Court has the discretion to receive further evidence pursuant to s 35(b) of the Federal Circuit and Family Court of Australia Act 2021 (Cth) (“the FCFCOA Act”). Both the husband and the wife filed applications to adduce further evidence. For the reasons that follow – both of those applications must be dismissed.
The husband’s Application in an Appeal was filed on 2 February 2023 and by this application the husband sought to put before the Court the reasons for judgment of the primary judge on the hearing of an application under the slip rule. His Honour’s judgment in that regard is dated 10 November 2022. That judgment, of course, forms part of the Court record and this Court can have regard to it if necessary. Hence there is no need to receive into evidence a copy of those reasons for judgment on the hearing of this appeal. Further, the husband sought to put before the Court evidence as to what has occurred since the final orders were made – particularly in relation to the payment by the wife of the amount ordered pursuant to Order 6 of the final orders ($287,632) and the transfer by the husband to the wife of his interest in the C Street property. Firstly, I note that the wife did not contest these facts (relating to the payment of money and the transfer of the title) and, in any event, for reasons which will become apparent – this Court, in the exercise of its appellate jurisdiction, is not in a position in this case to re-exercise the discretion and hence, there is no utility in this Court acceding to the husband’s application to receive further evidence relating to those limited issues.
In the wife’s application pursuant to s 35(b) of the FCFCOA Act, she seeks to put before this Court an “indicative opinion” (a valuation) prepared by Company AN in relation to B Pty Ltd, dated 5 October 2020. The wife sought to tender this valuation (or a similar valuation) at the trial – but the primary judge excluded that evidence and provided reasons for doing so. The balance of the wife’s affidavit (filed 1 March 2023 in support of her Application in an Appeal filed 17 February 2023) contains evidence which was available or could have been obtained at the time of the trial. There is no adequate explanation as to why that evidence was not put before the primary judge. In CDJ v VAJ (1998) 197 CLR 172 (“CDJ v VAJ”),[1] the High Court laid down clear guidelines which must be applied in relation to the reception of further evidence on the hearing of an appeal. The evidence sought to be adduced by the wife does not come within the principles stated in CDJ v VAJ and the wife’s application must also be dismissed.
GROUNDS OF APPEAL
[1] Especially between [104] and [116].
Failing to deduct certain liabilities when calculating payments to be made (Grounds 2, 3 and 5)
It is convenient to deal with three of the grounds of appeal under this heading. In Grounds 2 and 3, the husband contends that the primary judge made errors of fact by failing to deduct certain liabilities:
(a)When calculating the percentage adjustment between the parties; and
(b)When calculating the amount to be paid in order to retain C Street.
The wife was given the first opportunity to retain C Street by making a payment to the husband in the amount of $287,632. In the event that the wife was unable to comply with that order (Order 6), the husband was given a chance to retain C Street by paying to the wife the sum of $1,332,286 (Order 10).
It is further contended by the husband (Ground 5) that the primary judge provided inadequate reasons to explain why (in particular) the husband's liabilities were not deducted when calculating the amount to be paid by the wife to the husband in accordance with Order 6.
Orders relating to the parties’ liabilities
By the final order dated 28 October 2022, his Honour allocated responsibility for the payment of various liabilities as follows:
(a)by Order 18, the husband became responsible for the payment of debts in relation to B Pty Ltd – including the B Pty Ltd tax debt;
(b)the husband became responsible for the payment of the horse liabilities (Order 20 (a));
(c)the husband became responsible for the Westpac Credit Card (#..57) (Order 20(b));
(d)the husband became responsible for the payment of his personal taxation liability (Order 20(c));
(e)the husband became responsible for the payment of a director's loan to L Pty Ltd (Order 20 (d));
(f)the husband became responsible for the parties’ partnership tax debt (Mr Pavlic and Ms Pavlic (ABN #.........03)) (Order 23); and
(g)the wife became responsible for the payment of her personal taxation liability (Order 22).
The Balance Sheet
In accordance with the usual practice, the primary judge prepared a table setting out a list of the parties’ assets and liabilities available for division ([89]). His Honour refers to the table as "the balance sheet". For convenience, I will use the same expression. The use of the balance sheet is merely a convenient way to marshal the evidence.
B Pty Ltd
There was a dispute between the parties concerning the value of B Pty Ltd. Company AN provided an “indicative opinion” valuing B Pty Ltd at $595,000. His Honour concluded that it was not an "expert report" (s 79 Evidence Act 1995 (Cth)) and excluded that evidence. The husband maintained that the business had little or no value. His Honour concluded that there ought be no value included in the balance sheet for B Pty Ltd. Because neither party wished to retain B Pty Ltd, his Honour decided that B Pty Ltd should be sold. If the B Pty Ltd sale failed to raise sufficient funds to cover the liabilities of B Pty Ltd – his Honour decided that the husband would assume responsibility for the payment of any outstanding B Pty Ltd liabilities – including the B Pty Ltd tax debt.
Some, but not all, of the liabilities listed in paragraph 52 above were brought to account by his Honour in the balance sheet. The inclusion or exclusion of a liability from the balance sheet is a matter of discretion for the primary judge. As the Full Court stated in Rodgers & Rodgers (No 2) (2016) FLC 93-712 (“Rodgers & Rodgers”) at [40]:
…The manner in which a particular liability should be treated is, ultimately, dependent upon the nature of the liability, the circumstances surrounding the liability and the dictates of justice and equity shaped by each.
His Honour included the B Pty Ltd tax debt in the balance sheet. It is, of course, the debt of a private company, it is not a debt of the parties. A good practice to adopt is for this fact to be explained in the judgment and reasons provided as to why this debt appears in the balance sheet. But such a debt cannot be ignored. The family’s wealth in this case was generated through the family business that was operated by B Pty Ltd. Both the husband and the wife benefited to a substantial degree from the earnings of B Pty Ltd and a significant amount of money is owed to the Commissioner of Taxation.
The treatment of a taxation liability in respect of a third party corporation controlled by one or both of the parties to a marriage remains within the discretion of the trial judge. In some cases (such as this case) a liability of this kind will be included in the balance sheet. On some occasions, it may be appropriate for a trial judge to exclude such a liability from the balance sheet. In those circumstances, it would then be incumbent upon a trial judge to deal with such a liability in some other manner.
It may be appropriate to deal with such a liability as matter pursuant to s 75(2) of the Act. But, as was pointed out by this Court in Rodgers & Rodgers[2] – dealing with a liability in this manner has the potential to effect injustice.
[2] At [49]. Rodgers & Rodgers was a case involving a potential future taxation liability of a corporation controlled by the husband and the wife.
Another way to deal with this kind of liability would be, for instance, to consider a separate pool which could, conceivably, contain the liabilities of the third party entity.[3] Having a second pool is a helpful way to delineate the difference between the assets and liabilities of the husband and the wife from, for instance, the taxation liability of a corporation controlled by the parties. Whatever way one looks at the problem – after a long marriage where the parties’ wealth has been built via a business owned by a corporation controlled by the parties – one way to ensure a just and equitable outcome is for a trial judge to deduct any outstanding taxation liability of that corporation from the net total of assets and liabilities of the parties and that approach can occur whether the corporation’s taxation liability is contained in the balance sheet or in a separate pool. Such a liability may not be (in strict legal terms) a liability of either the husband or the wife. But the impost needs to be paid and the economic pain should be borne by both parties in the appropriate proportions according to justice and equity.
[3] A separate pool could also, if appropriate, and depending upon the shareholding in the corporation – include the assets of the corporation.
When dealing with such a liability – the possibilities are numerous and remain within the discretion of the trial judge and all that is required is an acceptable approach combined with an adequate explanation contained in the reasons for judgment. I do not consider that any of the possible approaches outlined run counter to the principles outlined in Stanford & Stanford (2012) 247 CLR 108.
This case highlights the benefit of a single expert valuation. In addition to providing a valuation of the business conducted by the corporation, all manner of questions can be answered by such an expert – including questions relating to current and future taxation liabilities of the corporation and of the parties; as well as evidence concerning Division 7A loans[4] etc.
[4] Income Tax Assessment Act 1936 (Cth) (“ITA Act”)”.
The primary judge (in the case currently before the Court) included the B Pty Ltd tax liability in the balance sheet. His Honour has correctly named the liability as a liability of the corporation – but the designation in the balance sheet that the liability is “jointly owned” should merely have stated “liability of B Pty Ltd”. The primary judge’s inclusion of the B Pty Ltd tax debt in the balance sheet led to his Honour, effectively, deducting that debt from the total of the net assets and liabilities of the parties. Neither party argued for a different approach. In the context of this appeal, I do not consider it necessary to add anything further in relation to the approach adopted by the primary judge on this point. The history of this family and the running of their family business through the corporation leads us to conclude that the outcome achieved by the primary judge (up to this point) in calculating the net sum of money to be apportioned between the parties – was appropriate and was within his Honour’s discretion.
The effect of inclusion or exclusion of a liability from the balance sheet
It is necessary now to consider the effect of the inclusion or the exclusion of a liability from the balance sheet and the approach taken by his Honour relating to the payment of the liabilities and the mathematical calculations relating thereto. In order to do this, it is helpful to look at the way his Honour treated certain liabilities.
The Horses
The husband owned two horses. His Honour held that the value of the horses was $83,975. The total liabilities owed in respect of the horses was found to be $337,393. In the exercise of his discretion, his Honour excluded from the balance sheet both the value of the horses and the liabilities in respect of those horses. I note his Honour’s reasons in relation to the horses at [60], [61] and [81]. At [61], his Honour explained that the exclusion from the balance sheet of the liabilities in respect of the horses:
…has the effect that the husband is solely responsible for meeting those liabilities from his own funds and resources. [5]
[5] [61] in fact makes reference to the exclusion of both the value of the horses and the liabilities in respect of those horses – but for present purposes the only relevant point to note relates to the liabilities.
If the exclusion from the balance sheet of the liabilities relating to the horses has the effect explained by his Honour at [61] – the converse must be true, namely, the inclusion of a liability in the balance sheet has the effect that the parties will be jointly responsible for meeting that liability from joint funds and resources. For instance, in relation to the wife’s personal taxation liability ($60,000) – that liability was included in the balance sheet and his Honour subsequently ordered that the wife be responsible for the payment of that debt.[6] On the other hand, the horse liabilities were excluded from the balance sheet and the husband was ordered to pay those liabilities.[7] The difference is – inclusion in the balance sheet means that the debt can be paid from joint funds and resources (such as the wife’s personal tax debt) whereas exclusion from the balance sheet means that a party must pay that debt from their own personal funds and resources (such as the husband’s obligation to pay the horse liabilities). It is always possible for a trial judge to explain some different intention or some different approach.
[6] [89] of the reasons for judgment and Order 22.
[7] [61] of the reasons for judgment and Order 20(a).
Other matters relating to Grounds 2, 3 and 5
All of the liabilities listed in paragraph 18 above were included in the balance sheet, except for the horse liabilities and the director's loan to L Pty Ltd. Quite correctly, the orders issued by his Honour designated which party is to be responsible for the payment of the various liabilities.
The husband submits that, having included certain liabilities in the balance sheet and then making orders designating which party should be responsible for the payment of each respective liability – his Honour should have deducted those liabilities when calculating the total net assets each party would retain. By failing to do so, it is submitted by the husband that his Honour did not properly calculate the amount of money to be paid by the parties in the event that either party took up the opportunity to retain C Street.
At [158] and [162], the primary judge listed the property to be retained by the husband. That list is as follows:
(a)Superannuation – $213,708
(b)Westpac equities account ending in #..07 – $17,729
(c)Household furniture and effects – $30,000
(d)ANZ Account #..25 – $191
(e)E Street property – $850,000
(f)Funds in Coote Family Lawyers trust account – $44,500
(g)ANZ one offset account – $1,600
Total: $1,157,728
At [162], the primary judge stated that he had totalled the property to be retained by the husband "(for) the purpose of assessing the adjustment which will be required to enable the wife to acquire the C Street property”.
At [157], his Honour had earlier calculated that the husband was entitled to receive property to the value of $1,445,360. His Honour calculated the wife’s entitlement at $1,915,943.
At [163] of the judgment, his Honour stated:
Therefore, in order to make the necessary cash adjustment to the husband to acquire the C Street property, the wife will be required to make a payment to the husband calculated by subtracting, from the sum of $1,445,360, the sum of $1,157,728. This gives a balance of $287,632.
The difficulty with [163] of the reasons for judgment is that the calculation failed to take into account the liabilities that the husband was required to pay pursuant to the order of 28 October 2022 and which had specifically been included in the balance sheet (“the balance sheet liabilities”) by his Honour. Those balance sheet liabilities are as follows:
(a)the B Pty Ltd tax debt $185,255;
(b)the Partnership tax debt $11,502;
(c)the Westpac credit card $20,037; and
(d)the Husband's Personal taxation liability $103,288.
Total: $320,082
The husband's argument is that the sum of $320,082 should have been deducted from the amount of the assets the husband was to retain ($1,157,728) – leaving a total that the husband was to retain as $837,646. The husband submits that his Honour fell into error by not deducting the husband's balance sheet liabilities. Of itself, the failure to deduct any particular liability (whether or not it has been included in the balance sheet) does not indicate error on the part of a trial judge. However, in this instance, his Honour did not provide adequate reasons to explain why the husband's balance sheet liabilities were not deducted from the husband's assets when his Honour was calculating the percentage adjustment between the parties and when his Honour was calculating the amount of any payments to be made – particularly in relation to the retention of C Street.
In the circumstances, I agree with the submission made on behalf of the husband. The primary judge has made errors of fact by not deducting the husband’s balance sheet liabilities when calculating the percentage adjustment and when calculating the payments to be made in accordance with the orders. Our view in this regard is strengthened by the manner in which his Honour treated the non-balance sheet liabilities relating to the horses. In our view, the primary judge ought to have deducted all of the balance sheet liabilities of the parties from the value of the assets each party was to retain when his Honour was calculating the amount of the payments to be made in order to retain C Street.
The failure by the primary judge to provide adequate reasons to explain his approach in relation to the balance sheet liabilities amounts to an error of law. As was stated by Gray J in Sun Alliance Insurance Ltd v Massoud [1989] VR 8 (“Sun Alliance”) at [18]:
The adequacy of the reasons will depend upon the circumstances of the case. But the reasons will, in my opinion, be inadequate if: -
(a) the appeal court is unable to ascertain the reasoning upon which the decision is based; or
(b) justice is not seen to have been done.
The two above stated criteria of inadequacy will frequently overlap. If the primary Judge does not sufficiently disclose his or her reasoning, the appeal court is denied the opportunity to detect error and the losing party is denied knowledge of why his or her case was rejected.[8]
[8] In Bennett & Bennett (1991) FLC 92-191 at 78,266 - the Full Court of the Family Court of Australia adopted the same approach.
The failure to deduct the balance sheet liabilities – coupled with inadequate reasons to explain this approach – leads to the conclusion that there is merit in Grounds 2, 3 and 5 of the Amended Notice of Appeal filed 2 February 2023.
Ground 1
The primary judge’s stated intention was to divide the property of the parties 57/43 in favour of the wife.[9] The failure to deduct the balance sheet liabilities results in a significantly different division of the net asset pool. The amount of money involved is significant in the context of this case – $320,082 is the amount of the husband’s balance sheet liabilities which were not deducted. There are inadequate reasons to explain the approach taken by the primary judge and there are inadequate reasons to explain whether the actual outcome achieved by the orders was just and equitable. In the circumstances, I agree with the submission made on behalf of the husband.[10] There is merit in Ground 1.
[9] The property listed in the balance sheet at [89].
[10] Paragraph 38 of the Appellant’s Summary of Argument.
Ground 4
There was one more challenge to the final orders – the just and equitable challenge contained in Ground 4 of the Amended Notice of Appeal. Given that there is merit in Grounds 1, 2, 3 and 5 – Ground 4 is irrelevant to the disposition of this appeal. The monetary difference resulting from the failure to deduct the balance sheet liabilities is substantial. I am not in a position (in the circumstances of this case, where so many facts remain in dispute)[11] to undertake the task of ascertaining whether or not the final orders actually made were just and equitable. For the reasons stated, and in the interests of judicial economy, I do not intend to address Ground 4.
[11] For instance, the wife maintains that B Pty Ltd has a value of approximately $600,000 and, further, the wife maintains that her personal taxation liability is $120,000 (not $60,000).
DISPOSITION OF THE APPEAL
Prior to filing a Notice of Appeal, the husband made an application to the primary judge and sought that his Honour amend the final orders by deducting the balance sheet liabilities and altering the amount of the payments to be made in relation to C Street (Order 6 and Order 10). The primary judge dismissed that application on 10 November 2022.
The husband now seeks that this Court allow the appeal, deduct the balance sheet liabilities and amend the final orders in the manner outlined in the Amended Notice of Appeal filed 2 February 2023.[12] The difficulty with that approach is that the appeal to this Court is an appeal by way of rehearing.[13] This Court does have the power to re-exercise the discretion – but it must do so by deciding “the rights of the parties upon the facts and in accordance with the law as it exists at the time of hearing the appeal”.[14] The High Court made it abundantly clear in Allesch v Maunz[15] that:
If on an appeal by way of rehearing from a discretionary judgment an appellate court is minded to exercise the discretion in question by reference to circumstances as they exist at the time of the appeal, it is necessary that the parties be given an opportunity to adduce evidence as to those circumstances.
[12] Paragraph 12.
[13] CDJ v VAJ at [111].
[14] CDJ v VAJ at [111]; Victorian Stevedoring & General Contracting Co Pty Ltdv Dignan (1931) 46 CLR 73 at 107.
[15] (2000) 203 CLR 172 at [31].
It must be said that I would have looked favourably on the request to re-exercise the discretion if the parties had, for instance, provided a list of agreed facts; or if the parties had both provided the Court with affidavits containing sufficient updating evidence – that did not require cross-examination. That did not occur. The wife, who was self-represented, informed the Court that she wanted to adduce further evidence – but she did not have that further evidence available at the hearing of the appeal on 1 March 2023. The wife submits that B Pty Ltd has a value of approximately $600,000 and the wife also (by way of example) submits that her personal taxation liability is $120,000 – not $60,000. The value of B Pty Ltd remains hotly contested between the parties.
Some of the evidence sought to be adduced by the husband in the application pursuant to s 35 of the FCFCOA Act was in the nature of updating evidence but it was not adequate to enable this Court to re-exercise the discretion. In order to re-exercise the discretion, this Court would need to have been provided with uncontested updating evidence including, for instance, whether or not there has been an attempt to sell B Pty Ltd; evidence as to whether the B Pty Ltd tax debt has been paid; evidence as to whether or not the B Pty Ltd business is still being conducted and, if so, whether it is profitable. I do not have the benefit of any such evidence and, accordingly, this is not an appropriate case for this Court to re-exercise the discretion.
Appealable errors of fact and of law have been identified. As noted, there is merit in Grounds 1, 2, 3 and 5 in the Amended Notice of Appeal. Given the nature of the errors identified and noting that this Court is not in a position to re-exercise the discretion – the only viable option is to set aside all of the orders made on 28 October 2022 by the primary judge and remit the entire proceedings (being each party’s application for property settlement orders under s 79 of the Act) to the Federal Circuit and Family Court of Australia (Division 2) for hearing and determination by a judge other than the primary judge.
I certify that the preceding eighty-three (83) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Austin, Williams & Howard. Associate:
Dated: 4 May 2023
3
6
0