Pitte and Pitte

FAMILY COURT OF AUSTRALIA

PITTE & PITTE

[2009] FamCA 147

FAMILY LAW – PROPERTY SETTLEMENT – Major asset was a motel or set of 10 leased flats valued by joint experts on the basis of rental potential but parties agree wife to retain one unit as her residence – Two leased units were occupied by commercial business operators who wanted to buy them and had signed conditional contracts for significantly higher values than the discrete amounts fixed by the joint valuers – Determination of the appropriate amount to be put into the pool of assets – Wife had been in control of the financial affairs of the motel and had not paid various liabilities from income in circumstances where she used funds for her own purposes – Wife to bear responsibility for some of the liability – Wife’s desire to retain all of the motel and pay husband a fixed sum – Orders made for circumstances where wife is able and unable to buy the motel – Long marriage with arguments about non-financial contributions – Parties found to have contributed equally – Consideration of s 75(2) factors where both parties in their 70’s – Costs

Evidence Act 1995 (Cth)
Family Law Act 1975 (Cth)

Chorn v Hopkins (2004) FLC 93-204
Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd (1980) 146 CLR 336
Flotilla Nominees Pty Ltd v Western Australian Land Authority and Anor (2003) 129 LGERA 65
GWR and VAR [2006] FamCA 894
Hickey & Hickey & Attorney-General for the Commonwealth of Australia (2003) FLC 93-143
Spencer v the Commonwealth (1907) 4 CLR 418
Townsend (1995) FLC 92-569

APPLICANT:

Mr Pitte

RESPONDENT:

Ms Pitte

FILE NUMBER:

MLF

1141

2006

DATE DELIVERED:

5 March 2009

PLACE DELIVERED:

Melbourne

PLACE HEARD:

Melbourne

JUDGMENT OF:

THE HONOURABLE JUSTICE CRONIN

HEARING DATE:

18, 19 June 2008

REPRESENTATION

COUNSEL FOR THE APPLICANT:

MS DELLIDIS

SOLICITOR FOR THE APPLICANT:

MARK SHENKEN

COUNSEL FOR THE RESPONDENT:

MR JAMES

Orders

That paragraph 6 of the orders made on 15 February 2008 is discharged.
That by 4.00pm on 14 April 2009 (“the due date”):
(a) The wife pay to the husband $360,558;
(b)The wife produce to the husband a release of the husband from the mortgage to Bank West encumbering the real property at L (“the motel”);
(c)Indemnify the husband in respect of and also pay, the following liabilities:
(i)Outstanding council rates and fees, $2486;
(ii)Outstanding water rates, $2064; and
(iii)Outstanding council legal fees, $18,000.
(d)Contemporaneously with the compliance by the wife with (a), (b) and (c), the husband relinquish any interest in H Pty Ltd (“the company”) and sign any necessary document requested by the wife to give effect to the transfer to the wife of any such interest including signing any resignation as officer holder in the company.
Pending either the transfer to the wife referred to in paragraph 2(d) or the completion of all sales referred to in paragraph 4 and 5 hereof, the rentals from the motel be applied according to paragraph 3 of the orders made on 15 February 2008.
Upon the transfer to the wife referred to in paragraph 2(d) or the completion of all sales referred to in paragraphs 4 and 5, any funds held by the solicitor for the wife not so disbursed according to the orders made on 15 February 2008 shall be divided equally between the husband and the wife.
In default of payment of the sum referred to in paragraph 2(a) or the production of the documents required to establish the matters in 2(b) or 2(c) by the due date, each party do all acts and things and sign all necessary documents to facilitate the sale by H Pty Ltd of Unit 5 and accessory Unit 27 and Unit 6 and accessory Unit 28 of L property according to the contracts of sale dated 19 June 2008 and 21 April 2008 respectively.
In default of payment of the sum referred to in paragraph 2(a) or the production of the documents required to establish the matters in paragraph 2(b) or 2(c) by the due date, then immediately thereafter, each party do all things and sign all necessary documents to facilitate the sale initially by private treaty of the Units 1, 2, 3, 4, 7, 8 and 9 together with the associated accessory units at the L property.
If the units are not sold by private treaty within three months of them going on the market, unless the parties agree otherwise, the units be placed on the market for sale by public auction.
The parties jointly in their capacities as directors of the company be responsible for the conduct of the sale of the units and the reserve price be fixed in accordance with the values attributed to each unit other than Units 5 and 6 as set out in the joint statement of the two valuers Mr C and Mr N.
Upon the settlement of the sale of the said units and each of them, the proceeds of sale be applied:
(a) First, to pay all costs, commissions and expenses of the sale;
(b)Secondly, to discharge the mortgage to Bank West encumbering the L property;
(c)Thirdly, to pay all outstanding rates, owners’ corporation fees, insurance and income tax of the company;
(d)Fourthly, to pay into the trust account for the solicitor for the husband, such sum as is necessary to pay the capital gains tax arising from the sale of the various units; and
(e)Fifthly, to add the balance to the pool of assets set out in paragraph 10 hereof.
For the purposes of the division of assets as between husband and wife, the pool shall comprise the following:
(a)       The net sum referred to in paragraph 9(e);
(b)       Unit 10 of the motel at $190,000;
(c)       The L land at $4000;
(d)       The R property at $44,444;
(e)       The wife’s Indonesian property at $20,800;
(f)       The wife’s cars at $6000;
(g)       The rent retained by the wife at $4840; and
(h)       The wife’s jewellery at $7500.
The pool referred to in paragraph 9 shall be divided equally.
From the pool, the wife retain and the husband relinquish any interest in:
(a) The L land;
(b) The wife’s Indonesian property;
(c)The wife’s cars, the accrued rental referred to in paragraph 10(g) and the jewellery referred to in 10(h); and
(d)The balance up to 50 per cent in cash.
From the pool, the husband retain and the wife relinquish any interest in the following:
(a) R property, $44,444; and
(b)The balance in cash to make up 50 per cent of the pool referred to in paragraph 10.
From the wife’s share referred to in paragraph 11(d), there shall paid to the husband:
(a) $6050 for costs thrown away on 15 February 2008;
(b) $2160 for costs thrown away on 18 November 2008; and
(c)$11,275 being the adjustment for rates and council legal fees for which the wife shall be solely responsible.
That the wife retain and the husband relinquish any interest in Unit 10 of the said motel noting that it is currently owned as registered proprietor by the company.
That each party otherwise retain and the other relinquish any interest in, any interest in any property in that party’s possession or control as at the date of these orders.
That all proceedings be otherwise dismissed.
That all proceedings be removed from the list of cases awaiting a hearing.
That any material produced under subpoenae be returned to the recipient of the subpoena.

IT IS NOTED that publication of this judgment under the pseudonym Pitte & Pitte is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLF 1141 of 2006

MR PITTE

Applicant

And

MS PITTE

Respondent

REASONS FOR JUDGMENT

Before commencing my reasons for the orders I make, it is necessary for me to say that I heard the evidence in this case in June 2008 and after all sides closed their cases, I adjourned to allow them to obtain evidence about capital gains tax consequences and also to make written final addresses. It has taken the parties almost eight months to do those exercises. If there has been any movement in property value, and in this case the valuer expressed concern about the time over which his valuation would be valid, it is not something that was raised by either party. I have endeavoured to assist the parties by extending deadlines for doing things. It is now time to put the matter to rest.
Mr Pitte and Ms Pitte lived together for 37 years. Out of this lengthy relationship with each party now over 70 years of age, has sprung a property dispute of modest financial proportions in which the major asset is a motel. Whilst called a motel, the building is a series of flats all of which are leased on various terms but each of which could be sold off separately.
The wife wants to retain all of the flats. She says that she will buy out the husband for an amount determined by me albeit that she has offered to pay $150,000. The calculations from the wife’s perspective are based on sworn values of two valuers.
The husband wants the flats sold. He says the sale values will be higher than the sworn valuations. He points to evidence of signed, but conditional, contracts of sale to prove that.
The one uncontentious issue is that the wife is to retain one flat to live in. She says that notwithstanding the overall equity is modest and her debt level would be high, she only knows this way of life and is dependent upon the modest profit.
The husband lives in R in Indonesia when not living with the parties’ daughter in Australia.
As will become apparent, the first issue is what is available for division. Despite the longevity of their relationship, the parties could not agree on contribution. Whilst there was evidence about, indeed cross-examination upon, disparity of contribution during the relationship, the major argument centred on the period after separation when the condition of the primary asset is said to have deteriorated substantially.
Also, despite their ages, the parties litigated over an adjustment under s 75(2) asserting that each had a different economic future.
The evidence in this case was vague at best. I attribute many of the problems in determining what happened, to the wife’s lack of co-operation in respect of the provision of information.
I am very conscious that the parties have had a long marriage which ended in unhappy circumstances, however, the wife’s explanations about the financial position was less than satisfactory.
The husband’s evidence was given concisely and his recollection of events seemed clear. There were few incidents in cross-examination where his version of things was challenged as being completely at odds with that of the wife. The husband’s version was not only plausible, it generally had a ring of reality about it. I find that he did his best to be helpful and candid and in that sense, I found him to be honest.
The wife’s evidence was vague. Her attempts to brush aside questions by giving imprecise answers did little to assist. For example, she was not able to tell me how often she travelled overseas. That became important because of issues relating to the loss on the sale of an Indonesian property. The money owed by the purchaser will apparently not eventuate because the purchaser had “run away”. What happened to the house so sold remains a mystery. The wife brushed aside questions about the sale of jewellery. I shall return to that subject but I did not think that she was endeavouring to be responsive. Her view was that the husband’s concerns and allegations about jewellery was something that I need not worry about. In respect of the jewellery, I am satisfied that she knew exactly what the issue was and that she lied about it.
The wife conceded that notwithstanding profits were “improving” since separation, she had not applied rents to maintain the business because she was having “trouble” with the court.
Her attitude about a local council prosecution arising out of the state of the motel was dismissive. She said that she could do all of these things in a day yet the prosecution had been dragged through the Magistrates’ Court over months and her indication about whether she had intended to plead guilty or not to the charges was unclear.
There is unchallenged evidence that the wife removed the husband from a corporate position of their company H Pty. Ltd. Her reasons remain a mystery. In her affidavit of evidence in chief filed on 28 September 2007, she responded to other matters alleged by the husband in the same paragraph but did not mention why she had done what she had.
In 2008, as is evidenced by witnesses who lived in the motel, the wife adopted an autocratic position about rental monies and became threatening. That indication of her desire to control the monies that came from the parties’ motel business strongly suggests that she was unco-operative in respect of her obligation to be frank and candid in respect of financial matters.
Generally therefore, I found the wife’s evidence unreliable. If there is a dispute about what happened on a factual issue, I prefer the evidence of the husband.
The final submissions of the wife were something she prepared herself. The document was very large and it canvassed matters that were not put in evidence. It covered issues including the difficulties she had in getting counsel who appeared for her to draw the final submission, details of her dispute with her various solicitors and what appeared to be evidence from her son reinforcing that the son had money immediately available to pay the husband what the wife said was the appropriate settlement sum. I have ignored the irrelevant matters. In essence, the wife’s submission was simply a sad plea to me to allow her to retain her life’s work in the form of the motel.
The husband’s submission was drawn by his counsel. It argued that the net assets amounted to $675,468 taking into account significant add-backs and various liabilities. I shall deal with the pool and in particular, the add-backs below. In respect of liabilities, the husband’s position was that as a result of the orders I made before the trial began, he had collected rentals and paid the various ongoing liabilities. The position of the indebtedness of the parties therefore changed for the better. There is still however the fact that there are some liabilities which, although reduced, were not paid by the wife. The husband urged me to leave the responsibility for those with the wife. In respect of contribution, the husband argued that apart from a post-separation dispute, I should find the parties contributed equally.
By way of background, the husband is a retired teacher of the Indonesian language. For the majority of his adult working life, he was employed teaching that language. In the course of his career, he obtained degrees in linguistics. He is now retired and lives on a pension from the Australian government. He seems to enjoy good health. He has remarried and now has a two year old son in R in Indonesia. It will be obvious that his retirement in R required him to maintain his wife and infant child. He was travelling backwards and forwards to Australia to maintain his relationship with his daughter and her children.
The wife was, until 15 February 2008, engaged predominantly in running the motel under a corporate structure. Because of the long term leases, the management is different from what one would expect of the daily activities of a motel manager.
On 15 February 2008, I removed the wife from the administrator’s role because of what I perceived as her incapacity to protect the assets of the parties. I shall set out the dilemma that the parties face with local council complaints about health and safety standards. Worse still, the physical deterioration of such standards has led to a council prosecution which is still pending. Both of these problems have led to significant increases in liabilities that have to be met whichever of the proposals of the parties I consider.
The wife is clearly dependent upon the modest income from the flats. What was evident was that the flats had been a building project predominantly undertaken by her during the marriage.
The parties have two adult children.
The parties separated on 1 August 2004 and were divorced from each other on 31 October 2005.
At the proceedings, the husband relied on a number of his own affidavits filed over the years since separation. He had a variety of witnesses. Their evidence mostly went to the issues of post-separation problems and values relating to the flats.
The wife relied upon her affidavit evidence and that of the parties’ son who perhaps sadly, has aligned himself with his mother alone.
The husband was the applicant. He filed his application on 29 March 2006. The wife was the respondent. She filed her response on 19 May 2006.
In pre-trial hearings, I directed the parties to focus on just what issues were in dispute and what orders they were seeking.
The husband sought the following orders:
(a)that the husband transfer to the wife Unit 10 of the flats;
(b)that all other flats be sold by public auction;
(c)that the husband have the conduct of the sales;
(d)that the wife be restrained from interfering with the husband’s execution of the sales;
(e)that the proceeds of the sale of the flats be divided as to 60 per cent to the husband and 40 per cent to the wife after taking into account:
(i)sale costs;
(ii)the mortgage to Bank West;
(iii)various liabilities;
(iv)capital gains tax;
(v)any adjustment for the fact that the wife had retained the proceeds from the sale of a shop and some rents.
(f)The wife retain
(i)a strip of land at L,
(ii)a property in Indonesia; and
(iii)two motor vehicles.
Because the wife’s case was confusing until her solicitors took over, it was difficult to understand what she was pursuing. Her solicitors made her position clearer in paragraph 78 of her trial affidavit filed 30 April 2008. She sought that she retain the motel complex, some land in Indonesia, the strip of land in L and in return, she pay the husband $150,000. She sought that she would take over all of the liabilities.
One of the difficult issues to arise out of the dilemma about the sale or transfer of the flats is the impact of capital gains tax. I propose to deal with that in these reasons.
What was common ground was that I should follow the four step process. I propose to do that.
The four step process was set out by the Full Court in Hickey & Hickey & Attorney-General for the Commonwealth of Australia (2003) FLC 93-143 at 78,386 where the Full Court said:
Firstly, the Court should make findings as to the identity and value of the property, liabilities and financial resources of the parties at the date of the hearing. Secondly, the Court should identify and assess the contributions of the parties within the meaning of ss.79(4)(a), (b) and (c) and determine the contribution based entitlements of the parties expressed as a percentage of the net value of the property of the parties. Thirdly, the Court should identify and assess the relevant matters referred to in ss.79(4)(d), (e), (f) and (g), (“the other factors”) including, because of s.79(4)(e), the matters referred to in s.75(2) so far as they are relevant and determine the adjustment (if any) that should be made to the contribution based entitlements of the parties established at step two. Fourthly, the Court should consider the effect of those findings and determination and resolve what order is just and equitable in all the circumstances of the case.
Before addressing the first step of determining the pool, I propose to deal with the facts many of which are not controversial.
At the time of the marriage, the parties were university students. The husband was studying for his Masters Degree in English and the wife was studying for her Bachelor Degree in English. Both were studying in Indonesia.

The husband said that neither party had any assets of significance. The wife said the same. However in cross-examination, the wife maintained that she had jewellery. I shall return to the issue of jewellery again. On the balance of probabilities, I find that the wife did not have any jewellery at the commencement of the relationship that would make any difference to the outcome of these proceedings.
In 1967, the husband began teaching in Indonesia and the parties’ first child was born.
In 1969 the parties came to Australia and the husband obtained a position teaching in New South Wales. The following year, the parties’ second child was born.
In 1971, the parties relocated to Melbourne and the husband took up a position teaching the Indonesian language. This was a position he held until retirement. His employer provided accommodation in which the parties lived.
Soon after the second child was born, the wife commenced working night shift at a factory. The husband cared for the children although there was some limited assistance from a niece of the wife.
In 1973, the parties purchased their first house but having regard to the fact that they had accommodation provided by the husband’s employer, that property was leased.
To this point in time, the evidence showed that both parties were contributing financially and non-financially to the best of their respective abilities. I would not distinguish between them.
In 1975, the parties bought land in Indonesia.
In the late 1970s, the parties sold both the home that they had bought which was tenanted as well as the land in Indonesia. Considerable profit was apparently made on the sales.
In 1980, the parties purchased vacant land at L and shortly thereafter, bought two small vacant blocks of land adjoining it. This became the property that is now the subject of the dispute.
At that same time, the wife undertook a building course.
The husband was working full-time and the wife otherwise part-time. The wife’s part-time employment was for about four hours per week teaching the Indonesian language. Her income was used for family purposes as was that of the husband.
During this same period, the wife was predominantly responsible for all of the household tasks and domestic chores. I accept that during the infancy and early teenage years of the two children, it was the wife who undertook the greater parenting role.
In 1984, the parties bought a vacant block of land at V and the following year built a house upon it. That house became the family home.
During the relationship, in addition to working full-time as a teacher, the husband undertook further tertiary studies.
Thus, by the middle of the 1980s, both parties had not only worked and cared for the children but each had provided the necessary support for the other to obtain skills and qualifications.
In about 1985, the parties established the corporate entity H Pty Ltd. The purpose of this was to develop the L land. Various arrangements were made for the land to be transferred to the company. Both parties were shareholders and directors of the company. Accordingly I find that the parties to that point in time were working diligently towards their joint goal of improving their financial position. Again, I find that to this point in time, there is no distinguishable difference in their overall contributions.
Over the ensuing two years, the parties through the corporate entity and with significant borrowed funds, constructed a shopping complex and motel upon the vacant land. This was a large undertaking and ambitious project. The shopping complex consisted of nine shops at street level and the motel had ten separately strata titled units. Having constructed the building and set the legal structure the way they had, the parties were able to sell off all of the various components of the complex and motel.
The construction was expensive and most of the finance was raised from the State Bank of Victoria.
With her qualification to which I have referred, the wife supervised and arranged much of the work although there is no dispute that the physical development was undertaken by contractors. At a time which was unspecified on the evidence, the parties acquired four blocks of land in T. That land ran parallel to the V home.
The wife asserted that the husband had little involvement in the development of the project at a physical level. Importantly for my purposes, the husband was working full-time and earning more than that of the wife. That was significant for the purposes of securing the borrowings that enabled the development project to proceed. The wife was working part-time and used her building qualifications and skills to participate in the project. Those skills and qualifications however could only have come about from the husband providing his income and support during the earlier part of the marriage. Accordingly, I find that there is little point in pursuing the minutiae of what each party did at that time in respect of the development of the L property. To the point at which the development was completed, I assess the contributions that each has made as I have just described and in terms of weight, they are indistinguishable.
Upon the completion of the project some of the shops were immediately sold off and the funds used to repay the mortgagee.
The parties retained one of the shops and commenced to operate a small shop business. It is at this point that the parties’ views diverge as to contribution.
In addition to conducting the shop, that shop was used as the motel reception. However it needs to be remembered that the units were occupied by long term tenants. That reduced the intensity of the management of the units on a daily basis. The husband asserted, and it was not challenged, the wife employed a casual cleaning lady and from time to time, he assisted in the cleaning of the motel rooms if he was required.
Importantly, the husband said that upon the completion of his day, he worked from 6.00pm to 9.00pm in the shop. In cross-examination, he conceded that it was embarrassing to be serving things like take away food to the students that he was teaching during the day but he otherwise had no difficulty participating in the shop business. The wife asserted that over a period of the ten years that the shop business was conducted, she worked 18 hours a day. To do that, she resigned from her employment as an Indonesian language teacher as well as the part-time position she had at the factory. The shop required attendance seven days each week.
The shop business ceased operation a long time ago. It was sold in 1998 for $175,000 and the proceeds were used to acquire a property in Jakarta Indonesia.
The husband’s evidence was that the cheque from the sale of the shop was made payable to the parties’ son without the husband’s knowledge.
Here, the husband’s evidence blurred the boundary between what happened to the $175,000 and his directorship in H Pty. Ltd. He said he investigated the situation about the company to find that he had been removed as a director of H Pty Ltd and his son had been substituted. In his affidavit evidence, the husband said that having found this out, he “rectified” the position. This evidence was not challenged. I know nothing more about what occurred other than an inference that the wife had advised ASIC in some way inappropriately. I do not take that into account on any issue relating to credit nor does it seem to me to affect any other issue in this case. It is important to note that the son was not cross-examined about the issue either.
Importantly though, there is some dispute about exactly what happened to the funds.
The wife’s version was that the proceeds were used to acquire the property in Jakarta. The wife said it was a joint enterprise:
It was our intention to rent out the property with the expectation that we would receive a greater investment return than that which we were deriving from the operation of the [shop].
That evidence was not challenged.
The husband’s version was marginally different. He said that the wife gave him $2,000 from the shop sale which in turn, he sent to his brother in Indonesia. His brother then purchased the R land for him.
The husband then said that the balance of the funds was used to purchase the house at Jakarta.
It will be evident from what I have underlined in the quote from the wife above that she was referring to a joint enterprise.
She said that to enable her to complete the purchase of the Jakarta property, she went to K Finance and borrowed $100,000. She said the husband was aware of the proposed borrowings and authorised her to sign the documentation on his behalf. It seems that the borrowing was by the corporate entity.
The husband’s version of this was that the wife forged his signature. He said he was away in Indonesia when the loan was obtained. Attached to his affidavit, he annexed a copy of the mortgage document and deposed to the fact that the signature was not his. He said that the wife later conceded that that was what she did. The wife’s version was that it was a family “habit” to sign for absent others if it was urgent to execute a document. Importantly, she added that there was “mutual trust” about money and no-one was thought to be cheating the other.
The allegation by the husband of forgery is a serious one to make and one to which section 140(2) of the Evidence Act 1995 would apply. No evidence was called of an expert nature nor was any person a witness from K Finance. Accordingly, I do not propose to make any finding of any illegal or improper conduct on behalf of the wife.
The funds were apparently borrowed and the Indonesian property purchase completed. The significance of the husband’s complaint is that the money from the sale of the shop was made out to the parties’ son but that becomes irrelevant because the whole of the shop proceeds were not then available to the parties to acquire the Jakarta house. The evidence is so unclear and the parties respective versions mainly unchallenged that I could not make any finding that there was any money paid to the parties’ son in that transaction or that if there was, there was no apparent sinister motive .
The wife said that about two or three years after the purchase of the Jakarta property, the Australian Taxation Office made a demand for $175,000 arrears of taxation.
She said that the Jakarta property was then sold for $175,000. It seems that this sale was by some form of instalment plan. The purchaser was a Mrs D. According to the wife, Mrs D failed to make the final payment of $110,000 and despite persistence by the wife, that sum has never been recovered. The wife’s version is that Mrs D is a bankrupt. There being no other plausible explanation, I accept the wife’s version.
The parties seem to have reluctantly accepted that position as neither requested that I put that sum into the pool of assets as a potential asset. Accordingly, I propose to ignore it.
Of that money that was received from Mrs D however, the wife said that it went towards the arrears of taxation owed to the Australian Taxation Office. That evidence is something that I accept. There is no evidence to the contrary.
Since the sale of the shop business, the parties have conducted only the motel business. The wife said that she undertook the reception duties at the motel which included arranging bookings, advertising, cleaning, bookkeeping and general upkeep and maintenance. In addition, she liaised with clients and accountants.
Two important things need to be said about the dispute between the parties over exactly who did what during this period. The first is that the husband was engaged in a full-time position of employment and earning a significant salary. The second is that notwithstanding the long hours and hard work, the wife’s evidence is that the business never made any money. I accept that.
Thus the large portion of the wife’s evidence, supported by the parties’ son, adds little assistance in assessing the respective contributions and giving them weight. In reality, the parties determined to live a particular way and it made little difference to the financial pool now left.
The wife’s complaint was that the husband failed to provide any meaningful assistance and he was distracted by his obligations towards things such as his religious observances. When questioned about that, the husband pointed to the fact that he held a position in the church and that his obligations occurred once every four to five weeks and that that required about a half an hour’s preparation. Once a month, there was Bible study but the parties closed the shop and the wife went with him.
The son of the parties gave evidence. He filed an affidavit on 19 October 2007. He made his view of the husband very clear. It was one in which he was very critical of the husband’s morality. There is no relationship between father and son.
He referred to his “pre-school years”. He remembered seeing his mother only in the morning and then various activities followed. This evidence relates to the period that I have already referred to in which I have found that the parties’ contributions were equal. The son gave evidence of his recollection after he began secondary school in 1983. This is the period of time in which the development in L began. His evidence related specifically to the various activities of his mother but it was from recollection and general in detail. In a similar way, he made the observation that his father never made any substantive contribution to the investment activities, “only insisting that my mother clear any final investment decision by him”. In the son’s eyes, the husband adopted a consistent passive attitude permitting the wife to undertake these activities. That evidence must be seen through the eyes of someone who is strongly critical of his father and ignores the significant contribution made by the husband in terms of income over many years.
In respect of the development and the shop, there was little difference between father and son. However, the son’s view was that his father would not look after the shop at night insisting that he, the son, do so.
The son also referred to the religious activities. He recalled his mother attending the Bible study. All of these were activities that occurred between 1989 until 1992. There are undoubtedly differences between the version of the father and the son over exactly what happened. Having regard to the disaffected position of the son towards his father, I accept the husband’s evidence.
The next issue concerns the sale of one of the shops in the complex. This arose in the year after the parties separated. There is no doubt that the shop at that point in time was owned by the son.
The husband’s evidence was that when the parties had completed the shop and motel complex, they had a significant mortgage. To ease the burden of the mortgage, they sold Shop 9 to their son for approximately $120,000. Their son had accumulated about $60,000 in savings and he raised the balance by way of a loan from the Bank of Melbourne. According to the husband, it was he and the wife rather than the son, who paid the mortgage instalments on the $60,000 owing. The $60,000 savings together with the $60,000 borrowed were then paid into the mortgage over the recently completed complex. To all intents and purposes, one might conclude that not only did the son then own the property but that he had benevolent parents who were making payments to assist him in respect of the mortgage.
However, subsequent to separation in March 2005, the son sold Shop 9 for $150,000. According to the husband, $60,000 was retained by the son, $26,000 was applied to the mortgage of the husband and the wife because of the assistance that they had provided the son in making the repayments. According to the husband, the son then gave to the wife the sum of $64,000 “on account of the fact that we had made those contributions to his mortgage after he purchased from us the shop front No 9 in 1989”.
The husband’s evidence was that the wife retained the $64,000 and had refused to account to him for it. He conceded he did not know what she had done with those monies.
In reply by the wife, there was agreement about the initial sale of the shop property to the parties’ son. She conceded that husband and wife assisted their son in the payment of the mortgage. She said nothing more in the affidavit filed 30 April 2008. However in the trial affidavit filed 28 September 2007 which was settled by her then lawyer, she said that upon the sale subsequent to separation:
The money used to pay mortgage, [the son’s] money, settlement, all rates that are behind, and the rest to fix the problem in the business when he run away to Indonesia.
Although the affidavit was settled by her then lawyer, it is quite apparent that the wife drafted the document herself and there was clearly a language problem. I have concluded however that the wife was endeavouring to explain that she did not receive the funds from the son as asserted by the husband.
In opening the case for the wife, Mr James of counsel said that the $64,000 should not be added back because it fitted into the same category as the husband’s superannuation. He said it should be treated as having been used for living expenses. That however seems inconsistent with the quote from the wife to which I have just referred. More importantly, the wife gave no evidence about how that money could have been spent. She was collecting the rents and in her evidence, she was living frugally.
The parties’ was asked about the money he had lent to his mother subsequent to separation and he said he could not be specific. He added that it was far more than she had given him. Counsel for the husband asked whether his mother had given him $50,000 plus purchase costs and he said he could not recall. When asked about all of this, his “best guess” was that he thought that $50,000 was “pretty close”.
That is the state of the evidence. The husband says that the wife received the money as a repayment by their son. Their son led no evidence about it. The cross-examination of the son was limited to what I have just referred to. There was a tacit acknowledgment by the wife’s counsel in his opening remarks that the proceeds of Shop 9 had been received. It was not a concession and it was certainly not evidence.
In Townsend (1995) FLC 92-569, the Full Court referred to the disposal of a taxi licence and the retention of the proceeds as a “premature distribution”. Nicholson CJ with whom Fogarty and Jordan JJ agreed said at 81,654:
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.
In this case, there is no evidence of the receipt of the $64,000 by the wife. Even if there was, there is no clear evidence of whether the son of the parties repaid the sum as a loan or made some form of gift or advance. There is no evidence to support the husband’s contention that the money if paid, was “on account” of the husband and wife making the contributions to “his mortgage” after he bought the shops. The best the husband could say was that he believed that the wife got it but he knew nothing about how she spent it. There is no clear evidence of what happened to the money even if the wife did receive it. I am not prepared to guess. I will not add back the $64,000.

In 1999, the husband sent the $2,000 to his brother in Indonesia from the sale of the shop to which I have referred, to buy land at R. There is no dispute that the husband purchased the land including through his brother and that he commenced to build a home upon the property. That property is incomplete. A matter of significant dispute however between the parties relates to the fact that there is another parcel of land at R which is registered to either the husband or his brother.
The husband’s version about the second parcel of land at R was that when he obtained a land valuation, the issue of his ownership was raised. It was raised by the wife. He said he contacted his brother who confirmed that the land belonged to the brother not the husband. The brother bears the same name as the husband although he is not called that. The wife’s version was that when she was in Indonesia, she went to the land registry office and saw a document showing that the husband’s name again appeared in relation to a second parcel of land. When cross-examined about this, she said she did not have a copy of the document. As for the fact that the husband’s brother bears the same name as the husband, she said she was never aware of that.
The husband’s brother was to be called as a witness for the husband. Unfortunately, it could not take place because an interpreter had not been arranged. Ultimately, the matter was not pursued by any party. The brother had sworn an affidavit consistent with the husband’s evidence.
Having regard to the limited amount that the wife could say about the land, the specific denial of the husband and the affidavit evidence of the brother, I accept that the husband does not own the second parcel of land at R.
In 1999, the wife bought an incomplete home in W in Indonesia. That cost $9000 and she used accumulated savings to pay for it. That property is still in the pool of assets.
In 1993, the parties subdivided the V property and sold the home keeping a small strip of land. They were then living in the unit at the motel.
After the closure of the shop, the wife earned income from the tenants in the other units at the motel. Considerable income was earned on a monthly basis from the tenants, however, it seems common ground that little, if any, profit was made from that business. The mortgage on the property after the sale of the shops was still significant. Much of the rental money from the tenants went towards the payment of interest on the mortgage.
In cross-examination, the wife made the observation that prior to separation, the motel never made a profit but that after the husband left, she began to concentrate on conducting the business. She pointed to the fact that in 2006, she earned $7000 and in 2007, $9000. She said that it was “improving”. Having regard to the earnings that the husband was making and the wife’s own concession that the business never made a profit, it is hard to see how even if the wife did make a significant non-financial contribution towards the development of the motel business and its subsequent maintenance, there could be any real difference between the parties in terms of contribution.
There is a significant dispute between the parties about what happened after separation and in particular to the question of the use of the tenants’ rental money and the diminution of the value of the property.
There is no evidence of what has happened to the money other than it went towards mortgage payments and the wife’s living expenses. It would appear that maintenance was not done on the motel. I could not conclude that money was ferreted away to the detriment of the property’s value. I would not find that the wife has diminished the value deliberately wantonly or recklessly.
Another dispute between the parties relates to jewellery. The husband asserted that throughout the marriage and certainly subsequent to separation, the wife bought and sold diamonds and jewellery. She bought them and sold them both here and in Indonesia. The husband maintained that he knew little about that. It is important to note that the wife said that she had no jewellery and that it had all been sold to be used for living purposes. The assertion of the husband was not simply about minimal items of jewellery. He asserted that there was a significant trafficking in jewellery. He said that in about 2000, the wife gave $250,000 worth of jewellery to a woman for her to sell. There was no evidence as to exactly what the jewellery was or how, having regard to the circumstances of the parties’ financial positions, they could possibly have had $250,000 worth of jewellery. There was no evidence as to any valuation or even insurance documents indicating the existence of the jewellery. The husband referred to the fact that the woman did not honour her part of the agreement to sell the jewellery nor did she return it. He said that at the request of the wife, he accompanied her to the store and to the woman’s home on a number of occasions but they were not successful in recovering the jewellery or any money. The husband simply said that he did not know what happened to the jewellery or the proceeds of any sale.
There was no evidence upon which I could make any finding that the wife still had money from any jewellery sale nor that she could collect that money.
The husband said that in 2002, the wife sold a diamond ring for $7,000 to a woman in Jakarta. He said the money also was never able to be collected notwithstanding a promise that it would be made available. The husband said that he believed the wife had received and retained those funds but there was no evidence of that nor was it seriously put to the wife in cross-examination.
The evidence does not permit a finding that the wife still has any such monies as are not identifiable.
In early 2004, the husband retired from teaching at the age of 67. At that time, he was on a significant salary of $72,000. As a result of his retirement, he received $65,467 lump sum superannuation and long service leave of $26,293. The wife’s evidence was she did not know what happened to this money. The husband said that he put $45,000 into building the house at R. He said the balance of the funds that he had were used for airfares, legal costs for the divorce which was granted in Indonesia and then medical and living expenses.
The unchallenged evidence of the husband was that for some period of time subsequent to separation, he was not in receipt of any social security benefits which now form the basis of his income. In addition, the husband was not receiving any of the funds from the motel business. I am satisfied that the money from the husband’s retirement is largely reflected in the value in the pool of the home at R. It will be seen from the pool to which I shall turn, the value does not reflect the sum that the husband has spent. However that is an economic fact of life. I do not accept that it has been wasted. The house still has much to be done on it and the husband has not had the funds available to enable him to complete it. I am also satisfied that the husband has every reason to be living at R and to be able to travel back to Australia to continue his relationship with the parties’ daughter and her children. With airfares and living expenses, I am satisfied that the husband has adequately explained what happened to his superannuation and long service leave funds and there is no basis to add those back to the pool.

The pool of assets now

There was disagreement between the parties about what value to place on the motel property for the purposes of the pool. That is because of a number of reasons.
Mr N is a valuer with 40 years experience. He filed an affidavit on 16 June 2008. He was instructed by the husband’s lawyer to provide a sworn valuation of Units 1-10 of the motel complex. It was correctly pointed out to him that each unit was separately strata titled. Mr N was told that the valuation arose because of a large discrepancy between another sworn valuation of $930,000 (obtained by the wife from a Mr C) and two estate agent appraisals valuing the “block” at $1.6 million and $1.89 million to $2.02 million respectively. Mr N was told that one of the estate agent appraisals was “backed up” by a contract of sale of one of the units for $191,000. In the sworn valuation, that unit had been valued at $100,000.
The proposed purchaser of the unit was not strictly speaking disclosed to Mr N but as I understand it, although the contract of sale was provided showing a corporate purchaser, the corporate entity was in fact the agent who had done the appraisal.
Mr N dated his letter of valuation 22 May 2008. In it, he said he carried out the valuation according to the information provided. He qualified the valuation by saying he could not accept responsibility if the valuation was relied upon more than three months after it was done.
Mr N described “market valuation” in the usual way as the estimated amount for which an exchange should occur between a willing buyer and a willing seller in an arm’s length transaction after proper marketing wherein the parties had each acted knowledgably, prudently and without compulsion.
Because of the involvement of Mr C, a meeting took place with Mr N. Mr N had valued hypothetically, the gross realisation of the motel units at $1.821 million less $51,000 for sale costs as well as other reductions including $120,000 for renovations. When all of the expenses were taken out, he said there was a net valuation of $1.150 million.
Mr N pointed out that if the capitalisation method was used, in other words, valuing the whole of the units as a single sale prospect based on rental opportunities, again with appropriate reductions, the value came out at $1.114 million.
Unrealistic as it sounds, the wife wants to buy the husband out. It is agreed that she will take Unit 10 regardless. Unit 10 was valued by Mr N in May 2008 at $370,000 but that was part of his total value of $1.821 million. Mr N did his formal valuation on a rentals basis and excluded Unit 10 as “owner occupied”.
When Mr N met Mr C on 16 June 2008, a joint statement was prepared. The valuers noted that they had different instructions. Mr C was to value the motel as a “going concern” rather than as I have set out earlier for Mr N. However, they agreed that the purported sales of two units could not be anymore than a guide because they were not “arm’s lengths proposals”. This was a specific reference to the contracts of sale proposed by the estate agent who was renting one of the units for his business.
The valuers agreed that the sale of one unit would be detrimental to the sale of the whole lot if the purchaser was a developer who wanted to redevelop the entire block.
Ultimately, agreement was reached between the valuers at $1.050 million.
After Mr N met Mr C, an agreement was reached about Unit 10 as being worth $190,000. That is the unchallenged evidence I have but it is also consistent with the evidence about the total value of the motel including Unit 10 being $1,050,000.
That in turn leads to the question of how to treat the value of units other than No 10 if the wife intends to buy the whole lot. As best I can see, having regard to the way the wife put her case and her final submissions, she does not have the capacity to buy out the husband. If she cannot, market forces will take their natural course. However I have to factor in the remote possibility that the wife can buy the husband out. The husband says there is a prospective buyer for Units 5 and 6 at $180,000 and $191,000 respectively. That has to be contrasted with the experts’ agreement that the values should be $85,000 and $120,000 respectively. If a sale of the whole motel save for Unit 10 occurs, the husband’s position is that the prospective purchasers should be approached and that may make the sale of the motel as a whole difficult. Having regard to the agreement that the wife retain Unit 10, the sale of the whole building to a developer would appear unlikely.
How then to treat Units 5 and 6 if the wife buys all the units? The husband tendered contracts executed by both he on behalf of the parties’ company as the registered proprietor and a purchaser. The contracts are conditional upon this Court allowing the sales to proceed. This evidence was not disputed. I am satisfied it is not a sham.
Although in the husband’s pool of assets, he set the value of all of the units at a total of $1,050,000, he argued that the units numbers 5 and 6 should be sold according to the contracts to permit the parties to reap the higher rewards offered by the willing purchaser. The wife was silent on the subject.
In Spencer v the Commonwealth (1907) 4 CLR 418, the proper test of value was described as:
An estimate of the price for the property which would have been agreed upon in a voluntary bargain between a vendor and purchaser each willing to trade but neither of whom was so anxious to do so that he would overlook any ordinary business considerations.
Here in considering the question of the value on the basis of the wife retaining the units, she would point to the value as a whole agreed between Mr C and Mr N because she is not contemplating any voluntary bargain between vendor and purchaser. However, there is a marked difference between the two values.
In Federal Commissioner of Taxation v St Helens Farm (ACT) Pty Ltd (1980) 146 CLR 336, Mason J observed:
As with the assessment of damages, especially in personal injury cases, the valuation of property by a court has many of the characteristics of a discretionary judgment. Valuation is a matter of estimation, not of precise mathematical calculation. It certainly involves the making of a value judgment in the metaphorical as well as the literal sense.
Thus, for the purposes of the pool, I must decide which of the two values is appropriate in the exercise of discretion.
In GWR and VAR (2006) FamCA 894, the Full Court approved the “principle” widely known as “valuation for highest and best use”. That principle was devised by learned authors Rost R O and Collins H G in Land Valuation and Compensation in Australia. The learned authors said:
Recognition of the willing-seller – willing-buyer concept necessarily involves valuation for the highest and best use for which the land is adapted. The prudent and well-informed vendor (whose existence must be assumed) would not willingly part with his land for a price less than that appropriate to its highest and best use; and the well-informed buyer would not expect to be able to purchase it for less. Each party would take into account “not only the best purpose to which the land is applied, but also any more beneficial purpose to which, in the course of events that no remote period it may be applied, just as an owner might do if he were bargaining with a purchaser in the market. This is the mode in which the land would be valued.
The latter words taken from Issacs J in the Spencer case.
The Full Court in GWR and VAR noted that the principle of “highest and best use” found repeated expression throughout a number of authorities. One of those was Flotilla Nominees Pty Ltd v Western Australian Land Authority and Anor (2003) 129 LGERA 65 at paragraphs 18 and 19 where Pullen J said that regard should be had to the highest and best use of the subject land “meaning the most advantageous use of the subject land having regard to planning and all other relevant factors affecting its present and future potential.”.
Even if the wife were in a position to be able to retain all of the units it is conceivable that in the foreseeable future she could dispose of the property giving rise to a considerably different value to that which the sworn valuers achieve. I take into account also that the valuation by the valuers was determined on the basis of the return of rent. In the case of units 5 and 6, the tenants have a specific interest in acquiring those units for their own commercial purposes and therefore presumably are not looking at the return on an investment basis.
I find therefore that the highest and best use of units 5 and 6 is for their sale rather than for their rental and as such, the appropriate values to place in the pool of assets should the wife desire to purchase the whole of the units is $180,000 and $191,000 respectively.
In respect of the motel property, there is general agreement that the existing liability encumbering the units is $510,000. That was substantially in arrears but since February 2008, the husband’s management has significantly reduced that. It is still $15,574 in arrears.
The motel units have also been subject of much scrutiny by the local council. In an interim hearing I conducted on 15 February 2008, I made the following observations:
3. …For me, on the evidence, the situation is not only urgent but also dire. Nothing could be more indicative than the fact that on 12 February 2008, [the] Council filed prosecution charges against the company, [H] Pty Ltd, returnable at the [State] Magistrates' Court on 9 April 2008. The charges, if true and proved, support what the husband says about the state of the financial position of the business.
4. The charges are: first, that on 13 November 2007 the company, as the proprietor of a prescribed accommodation premises failed to maintain that accommodation and/or bedrooms, toilets, bathrooms, laundries, kitchens, living rooms and any common area in good working order. Nothing really stands out about that until one reads the particulars. They include –
loose wiring to airconditioning units in units number 7 and 9; electrical power point in disrepair in units 8 and 9; oven not operational in unit 9; fan missing cover in bathroom in unit 9; and damaged phone socket in unit 4.
One might say that that is probably not all that serious until one goes to a second charge, and I will not read out the precise wording, save that the particulars include -
accumulated dirt between the oven and bench; unclean surfaces in the bathroom; accumulated dirt in the kitchen; mouldy and deteriorated double bowl sink; and a dirty vent to the airconditioner.
Now, again, one might not get too excited about that, having regard to the fact that that describes a particular unit or units in the motel, but it gets worse because further charges include -
unstable curtain awnings on walls; broken and damaged kitchen drawers; mouldy and deteriorated double bowl sink and wall joint seals; water damage to the bases of doors and carpet areas; kitchen drawers in disrepair; toilet bowls in disrepair; no hot water in the laundry -
and then, down to things like -
disused furniture, blankets, building materials, carpets, and other waste scattered underneath and about the property.
Even that might not necessarily be a basis for this court to interfere but when I found charge number 6, it reads:
That on 14 December, the company -
presumably meaning in reality, the wife, in her role as a director of that company -
had refused to give the council's authorised officer access to two of the units when he required her to do so.
She has been charged on two occasions with that. Those matters mean potentially significant fines, but leaving that aside, the description, if true - and as I have indicated that very much depends on what view one takes of the husband's evidence as well - means that the motel is in a deteriorating condition. I also have the benefit in this case of reading the sworn valuation report which is not much more pleasant.
5.There are three other troubling issues which add to my concerns. The first is that the wife seeks an order for the involvement of her son in the management of the business and, in my view, that is somewhat telling; secondly, the state of the wife's material for final hearing is nothing short of appalling; thirdly, the wife has not complied with a consent order made on 28 November - and I digress here to point out that that was after the matter was to be listed for trial - for the payment of a valuer's fee. I am told by the solicitor for the wife today that it will be paid in two weeks' time, somewhat three months late.

On 15 February 2008, I made the following orders:
1.That until further order the husband be solely responsible for the administration of the [motel] at [L] being Units 11-19 on Strata Plan […].
2.That until further order, the husband authorise a real estate agent to manage the tenancies of Units 11-19.
3.The husband authorise his solicitor to receive the rental income from Units 11-19 and, provided there is sufficient monies to do so, the:
(a)pay all mortgage instalments as they fall due;
(b)pay to the wife the sum of $200 per week;
(c)pay all other outgoings and liabilities associated with the property at [L];
(d)pay all costs associated with rectifications works as identified in the charge and summons from […] Council and all costs associated with complying with any requirements of any other statutory body.
4.The husband, his servants and agents be and are hereby restrained from interfering with the wife’s occupation of Unit 10 at [L].
5.The wife, her servants and agents be and are hereby restrained from interfering with the husband’s administration of the [Motel].
6.The wife do all things and sign all documents necessary to resign as director of [H] Pty Ltd until further order of the Court.
There are liabilities to be met to the Council of $2,486 for council rates and legal fees associated with the collection of those rates and specific legal fees of $18,000 associated with the council prosecution of H Pty Ltd. Responsibility for those sums becomes an issue later in these reasons.
The parties indicated that there were rectification works of $10,000 to be included as a liability. However, Mr N and Mr C factored into their valuation the necessary rectification works. If the wife is to retain the property as a whole upon the payment of the lump sum to the husband, there is no basis then to include the rectification costs. If the property is to be sold pursuant to the default provisions that I intend to make under these orders, the rectification works will no doubt be contemplated by a prospective purchaser. I do not think that it is appropriate to include any allowance for that as the parties have not led evidence about what sale process would follow from the orders.
There are also outstanding water rates and charges of $2486.
All of these liabilities affect the pool of assets and I shall show them below.
In addition to the motel, the parties have the strip of land at L which has an agreed nominal value of $4000.
The husband’s land at R in Indonesia has already been mentioned. The valuation obtained after much dispute between the parties was $43,538. The wife does not accept that valuation but it is the only evidence that I have that has any objectivity. In final submission for the husband, counsel put the figure at $44,444. As that is an admission against his interest, I propose to use that figure.
The wife has a property at W in Indonesia. Its agreed value is $20,800.
The wife also has a number of motor cars the total value of which amounts to $6000 and about which there is no dispute.
There are some contentious “add-back” issues. The first is the adding back of some of the wife’s legal fees. The second is the wife’s retention of the proceeds of sale of Shop 9 of the building complex. The third relates to rental monies collected by the wife from tenants around the time that I made orders on 15 February 2008. The husband asserts that that sum should be included in the pool at $9768.

Legal Fees

The husband sought to have the wife add back to the pool $13,596 in legal fees paid by her from the business account. In opening the case for the husband, Ms Delides said that $13,596 did not include any amount incurred beyond February 2008. Mr James for the wife said her legal fees should not be added back because they were not paid from any joint fund but were lent to her or gifted to her.
In her evidence in chief, the wife said she had paid her previous solicitor $13,000. That sum had been given to her by her son. She said she paid her current solicitors $45,000 in three payments. All of this she said, came from her son. She said she had not used her own money. However a different picture emerged when she was cross-examined. She conceded that of the $13,596, some payments were made at the rate of $500 per month. These payments came from the motel business. She said her son provided some but not all of the money. In between that solicitor and her current practitioner, she had spoken to another and paid $1000 from the motel money. Her son provided $10,000 which went from one solicitor’s trust account to her current solicitor’s and she then added a nominal sum herself. The wife otherwise obtained subsequent sums from the parties’ son.
The wife conceded that she paid legal fees rather than the mortgage which, as I have set out, is in arrears. Her approach was that although rental money was collected from tenants, it was not directed to the primary liabilities. When asked why that happened, the wife said that all of the money received after the orders that I made in February 2008 was “reserved” for her case. The son gave evidence about this issue. He said he gave various sums to the wife. He thought it was $19,350 from his savings and $25,000 that he had borrowed. The payments were also in small sums of $1000 “here or there”. He could not recall obtaining a bank cheque payable to the wife’s immediate lawyer although he did remember money being paid to that lawyer in February or March as his best guess.
Having regard to the vagueness of the wife’s evidence but the more precise evidence of her son, the only area of contention relates to payments made from the motel which as best I can tell, were made periodically.
The Full Court dealt with this issue in Chorn v Hopkins (2004) FLC 93-204 and said after reviewing all of the previous authorities of earlier Full Courts:
56.In summary, we consider that the above mentioned decisions of the Full Court establish that, while the treatment of funds used to pay legal costs remains ultimately a matter for the discretion of the trial Judge, in determining how to exercise that discretion, regard should be had to the source of the funds.
57.If the funds used existed at separation, and are such that both parties can be seen as having an interest in them (on account, for example, of contributions), then such funds should be added back as a notional asset of the party, who has had the benefit of them.
58.If funds used to pay legal fees have been generated by a party post-separation from his or her own endeavours or received in his or her own right (for example, by way of gift or inheritance), they would generally not be added back as a notional asset; nor would any borrowing undertaken by a party post-separation to pay legal fees be taken into account as a liability in the calculation of the net property of the parties. Funds generated from assets or businesses to which the other party had made a significant contribution or has an actual legal entitlement may need to be looked at differently from other post-separation income or acquisitions.
Here I could not find that there was a fund at separation from which those funds of the wife were drawn. The Full Court raised the question of whether post-separation endeavours should be distinguished from funds generated from a business to which the parties had made a significant contribution or had a legal entitlement. That question raises all sorts of issues about the viability of the business and whether the income or funds drawn from it were equivalent to reasonable remuneration for maintaining the asset. Ultimately, it is a discretionary issue and the Full Court has simply suggested guidelines as to what should be taken into account.
I find that the legal fees have been paid from post-separation earnings and the wife must be allowed some entitlement to that notwithstanding her failure to meet other liabilities. I propose not to add the legal fees back here because the other liabilities have now largely been paid from income and those that have not been so paid will be visited upon the wife. I also propose to add back the rentals she retained after the period from my February 2008 orders. In fairness to the husband, I propose to ignore the legal fees he has paid.
Before I made orders on 15 February 2008, the wife collected and retained rents from the motel occupants. Many tenants paid in advance. In paragraph 71 of her affidavit, the wife acknowledged having received rental payments totalling $4840 “for the period” beyond my order. Having regard to the unpaid liabilities, the onus was on the wife to show where that money went. That was particularly so where, at around the same time, the wife was borrowing from friends who were not called as witnesses. Furthermore, the wife was involved in overseas travel. She had travelled to Indonesia on four occasions between the end of October 2007 and the end of December 2007. During that period, she was away from Australia for 33 days. Having said that, it was also clear as I have pointed out, the motel was her only source of income and support. It must follow that some of that rental money should be set aside for her living expenses. Although it is arbitrary, I propose to add to the pool, the rental paid in advance from the date of my February order, that is, $4840 which is 50 per cent of the gross rental collected from just before the orders were made.
The wife said that instead of paying her mortgage obligations, she paid her legal fees. That was in addition to travelling to Indonesia. Initially, she endeavoured to say that she had only gone to Indonesia on a couple of occasions. It took the production of the immigration department records to convince her otherwise. The trips were all paid in cash and the outlay was between $900 and $1100 depending upon the season. As for why she went, the wife said that after the husband left, she felt lonely so she just went when she felt like it. It was put to her that she had used the money for travel rather than pay the mortgage. Her response was that it was used for her solicitor and for her health.
The difficulty with this evidence is that the nine units were collecting various rents and if fully occupied and fully paid, those units would have collected about $122,000 per annum. In her 2007 taxation return, the wife showed a receipt of $74,580. The mortgage interest commitment according to the annexure to the wife’s affidavit was $41,650 in that year. It was much the same picture in 2006. The wife claimed that the mortgage had fallen into arrears because she did not have enough money to pay for it. I reject that notion. She brought the arrears up to date by 14 February 2008. To do so, she borrowed $9000 from a friend in January 2008 and a further $12,500 in February. At this same time, council and water rates remained unpaid. No plausible explanation was given as to why tax deductible payments including insurances, rates, mortgage interest payments which were shown in the annexure to the wife’s affidavit would not have been paid having regard to the rents collected.
I do not accept therefore that the wife has given any satisfactory explanation as to why liabilities of the magnitude I have mentioned remained unpaid in circumstances where they were her responsibility to pay from the corporate monies then being received. In final submission, counsel for the husband pointed to the fact that the party’s debts have been repaid and the pool available for distribution has been enlarged. Although in the husband’s pool of assets there is a figure of $15,573.93 for the arrears of mortgage, I have concluded that that has in fact been reduced on the basis of the assertion of the husband’s counsel that all that now remains outstanding are the various arrears of rates and the legal fees associated with the Hobson Bay Council prosecution. Even if I am wrong about that, the only evidence which is abundantly clear about liabilities relates to the rates and the costs associated with the council prosecution. As I pointed out, the wife chose not to pay those sums on the basis that she prioritised the rental monies for her own purposes. She did however borrow funds from private sources and I have not allowed those expenses even if they are still outstanding. As it will be some time before the properties sell, if that is to be the case, the mortgage can be further reduced by the ongoing rentals. Doing the best I can, I propose to include the other liabilities in the pool but to treat them as the responsibilities of the wife.
In a hearing subsequent to the close of the evidence, both parties raised a dispute about a claim by a Mr P. Both canvassed it in final written submissions. It would seem that the debt is old and disputed and it is not at all clear just who is the debtor. Notwithstanding the provisions of s 79(10) of the Act and bearing in mind a suggestion of the husband that Mr P has legal advisors, I think the creditor has had ample time not only to pursue his debt but also to seek to intervene if there was a risk of him being disadvantaged. It would also be clear that each party will have property from my orders. Mr P may choose to take his own action.
In respect of the money borrowed in January and February 2008, I do not propose to include them at all for the reasons I have set out.
Before leaving the loans claimed to have been obtained by the wife in January and February, I must make an observation which was not the subject of any cross-examination or comment. On 17 February 2008, the wife borrowed $12,500. The acknowledgment of the debt was in writing. It showed that the debt was repayable as a total payment of $15,000. However, the following words appear in the document:
Security held against loan being jewellery to the approximately value of $7500.
The wife made no reference otherwise to this security nor to the disposal of such a property in her financial statement filed on 30 April 2008. In that document, the wife said she had no other personal property. At paragraph 61 of her affidavit of evidence, no mention was made of the jewellery held at the time of separation. It may be that she intended it to fall within the description of “effects” but she said they were of “minimal” value. When cross-examined about jewellery, the wife said that there was nothing left. She made no mention of the security.
I have excluded the loans as being the personal responsibility of the wife on the basis that she has not given any reasonable explanation as to why what appears to be the available funds were not used to cover the necessary expenses. In an admission against interest, the wife herself says she sold jewellery worth $7500, and that indicates that she had assets that she was not otherwise prepared to disclose to the Court. I also conclude that she had intended to repay that money so that she could reclaim her jewellery. Thus there is a very good reason to add back $7500 in jewellery.
An issue about which there was considerable dispute was the wife’s trip to Indonesia in April 2005. The husband said that he was running out of money with which to complete the construction of his house at R. It would appear that the wife was present for the purposes of contemplating a reconciliation. He said upon her arrival, the wife agreed to pay for some timber and bags of cement and that they totalled not more that $650. The husband was cross-examined about this visit. It was put to him that the wife sold jewellery and gave him $5000 to complete the roof on the house. He denied that saying that the money went to a timber merchant and it totalled about $600.
The wife gave oral evidence that she went to Indonesia in 2005. She said she took $7000 in a money bag and met up with the husband who took her to the house he was building. She said that the husband asked for money and she agreed that she would buy the materials rather than give him the cash but she ultimately gave him the money to give to the shop owner. She said they went to the building supplies company to do that. When asked about what amount was paid, she said she did not know. She went on to say that he then asked for more money and they went to a Chinese shop where she received $6000 for her jewellery. She said she gave the husband that money. When the husband was cross-examined about this particular issue, counsel for the wife put to him that the wife gave him $5000 to complete the roof. He denied that. It was not suggested to him that the wife sold her jewellery at a Chinese shop.
The evidence of the husband about the wife’s trip was in his affidavit. To that evidence, the wife replied in her affidavit filed on 28 September 2007 and with reference to the Chinese jeweller, said:
I proof (sic) it from Bank Indonesia where we changed the dollar into rupiah and at the same date they sold all the jewelry (sic) that took off from her body worth $8000.
The wife was clearly on notice in respect of the husband’s allegation and having raised the subject of the taking of money to Indonesia and the sale of jewellery, she had every opportunity to call evidence but failed to do so. Accordingly, I reject the wife’s version.
On this particular issue, it seems to make very little difference to the outcome of the proceedings. However, as with matters to which I have earlier referred, where there is a conflict on the evidence, I accept the version of the husband. This is one of those cases. I find that the wife did provide some amount of cash for the purposes of the purchase of materials but not to the extent as she suggested and certainly not on the basis of the sale of her jewellery. I accept she brought money to Indonesia from Australia but it emanated from the motel business.
The first step therefore is to determine the pool of assets.

The Pool

Accordingly, I find the pool to be:
Unit 10  $190,000
Unit 5  180,000
Unit 6  191,000
The balance of the units  655,000
Sub-total  $1,216,000
Less mortgage  510,000
Net value of units  706,000
L land  4,000
R property in Indonesia  44,444
Wife’s Indonesian property  20,800
Wife’s Cars   6,000
Rent collected by wife  4,840
Jewellery  7,500
Total  793,584
Less liabilities
Outstanding council rates and fees 2,486
Outstanding water rates  2,064
Outstanding council legal fees  18,000
Net  $771,034
In the event that all units except Unit 10 have to be sold, and based upon the projected sale figures, there will be a capital gains tax liability of $3306. That cannot be included as a liability until the properties sell. I propose to include the capital gains tax liability in the orders. On the other hand, if the motel is retained by the wife, she will carry the capital gains tax liability unless she in turn sells. The wife says she would not do so and I have no evidence of the likelihood of a sale if she did retain the property.

Contributions

The task is now to assess and give weight to each of the contributions of the parties.
As a general proposition, the husband has been the major financial contributor throughout this very long marriage. As I have found, his income was contributed for the benefit of the family notwithstanding the assertions by the wife about money being used for religious tithes. In respect of financial contributions, there can be no doubt that the husband has made a greater contribution than the wife. That is not to say that the wife did not contribute her income from teaching and working long hours in a factory, the milk bar and more recently in a collection of the rents. This assessment cannot be done on a mathematical basis using a calculator. Different financial contributions are effective in so many different ways as each party fulfils their roles in the marriage. Notwithstanding the assertions of the wife, I am satisfied that both contributed financially to the best of their ability.

The wife however has made a significant non-financial contribution not only in her role as a homemaker and parent over the many years but she also had a significant role in the development of what is the only real asset of the parties. The husband too contributed in a non-financial way but perhaps not in the same way as the wife. The distinction lies in the fact that the husband was earning an income whilst the wife was fulfilling homemaker and parenting roles and working on the building site. It is impossible on the evidence despite the different versions, to say that either party’s non-financial role should be given greater weight than the other. Like the financial contributions, each fulfilled his and her chosen role. It is only now in the throes of litigation that the wife is desiring to distinguish those roles over the very many years of this marriage. I reject that concept.
I have contemplated the contributions by each party subsequent to separation. The post-separation period creates its own peculiar problems. The husband contributed directly and hence the wife indirectly, during the marriage to the husband’s superannuation. After separation, the husband accessed and has spent that superannuation money. His money went on living expenses and the other assets in the pool. His contribution subsequent to separation was to protect the assets which are now in the pool. The wife too after separation had the control of the motel. She too has contributed to the existing pool but I am satisfied she has not contributed appropriately to the same extent as the husband because she has not adequately explained what happened to the rentals giving rise to the liabilities. However, as I propose to make the wife responsible for the relevant liabilities, it would be inappropriate to distinguish between the parties otherwise as to their contributions. I have already dealt with the argument about the loss of capital values.
Apart from the adjustment in respect of liabilities which has entirely arisen as a result of the post-separation behaviour of the wife, I cannot find any distinction of any substance between the parties. Accordingly, I assess the respective contributions otherwise as being equal.

Section 75(2) factors

Each party in this case is over 70 years of age. Each seems to enjoy good health.
Neither party has prospects of earning any income having regard to their respective ages. There is no prospect in my view of the motel being retained by the wife and generating any income of any substance. Accordingly, I find that neither party has prospects of gainful employment.
Each party has lived a frugal life. The husband is now living in Indonesia and has responsibilities for a wife and child. Those responsibilities will be ongoing but his expenses will be modest and he will have some money upon which to support himself and his new family. The wife for her part however has no-one to support other than herself. The child of the marriage, the parties’ son, gave considerable evidence about his financial assistance to the wife and I draw some comfort from the fact that if the wife has a financial dilemma in the future, she will be able to fall back on her son.
Neither party is in receipt of any state or federal financial benefits of any substance nor should they be until now.
I have taken into account the fact that the orders I propose will enable the creditors of the corporate entity to be paid. I propose to order that.
I have taken into account also that the pool of assets in this case is already modest and once divided, will leave the parties with very little money to fulfil their hopes and dreams. That is unfortunate having regard to the way in which the litigation has been conducted.
I do not see any distinction between the parties even though the husband has remarried and has a child, that would warrant any adjustment. Whilst the husband may have that financial obligation, having regard to the age of the wife, she too will need to fall back on limited resources for her future support. It take notice that the husband is endeavouring to complete a home but on the basis of what he will receive, he should be able to undertake that.
Accordingly, I make no adjustment between the parties for the matters set out in s 75(2) of the Act.

The fourth step

Ultimately, it is the underlying value of what each party receives out of the settlement rather than the percentages which must be just and equitable. The wife in this case has a desire to keep the motel property. I have no difficulty in her so doing providing she can fund all of the payments that now need to be made pursuant to these orders. In the event that she unable to find the necessary money to pay out the husband, pay the relevant liabilities together with an order for costs which I now propose to make, the property will have to be sold and accordingly, I shall make default provisions in the orders.
The net pool is $771,034 but I have already indicated that $22,550 is the responsibility of the wife in terms of liabilities. The divisible pool therefore should be increased to $793,584 of which the husband is entitled to $396,792. The husband retains only the R land at $44,444 which means he is entitled to a further cash payment from the wife of $352,348. Below, I refer to the fact that the wife will be responsible for the husband’s costs of $6050 from the 15 February 2008 and $2160 on account of costs thrown away on 18 November 2008.
Accordingly, the wife must pay the husband $360,558 if she intends to keep the motel units as a whole.
For her part, if the wife retains the motel, she will have its value at $1,216,000 which includes her residence, the L strip of land at $4000, the Indonesian property at $20,800, the cars at $6000, the money she collected from the rent of $4840 and her jewellery at $7500. All of that totals $1,259,140 but she will also have the liabilities as follows:
(a)      the mortgage   $510,000
(b)      the husband  360,558
(c)      the outstanding liabilities   22,550
The wife will therefore have in reality, $366,032 worth of assets.
In my view, that division is just and equitable in the circumstances.
If the wife cannot raise the $360,558 within six weeks, I doubt she will ever raise it. Such has been made clear from her son’s offer to assist which has been limited to $160,000.
In the event that the money is not paid by Tuesday 14 April 2009, the property (save for Unit 10) will be sold. The sale terms will include the contracts to the prospective purchasers of Units 5 and 6. The balance will be sold initially by private treaty and then by auction if private treaty does not work.

Section 106A order

I was urged to make orders pursuant to s 106A of the Act taking away the role of the wife. In my view, there is not sufficient evidence to confirm that the wife does not understand the seriousness of the situation and will not cooperate. If I am wrong about that, an urgent application can be made and the cost consequences will be obvious.

Costs order

On 15 February 2008, I fixed the husband’s costs of $6050 and reserved them to determine whether the wife should pay them. I accept two things. First, the husband’s action in seeking to take over the financial management has been vindicated. Secondly, the husband’s post-February 2008 management has meant the assets of the parties are greater than they would have otherwise been and to that extent, the wife has benefited as has the husband. There can be no doubt in my mind, the wife should pay those costs.
I have already mentioned the fact that I heard this case in 2008 and its ultimate conclusion was delayed not only by valuations problems but also the final submissions of the parties. In an interlocutory hearing brought on as a result of the inability of the parties to complete the relevant exercises, I made an order for the husband’s costs thrown away. The wife at that time blamed the lawyers who had been acting for her and whose services she had terminated. I asked the lawyers based on the wife’s affidavit to show cause why they should not be made personally responsible for the costs thrown away.
On 13 February 2009, Mr Schetzer, the principal of the firm appeared to show cause. He said he had sent a number of letters to the wife as a result of being served with the orders that I made in December. He requested that the wife waive privilege so that he could explain what had happened. I endeavoured to have the wife waive the privilege but she would not do so. I asked her whether she intended to seek legal advice about the matter and she said she had not and she would not. Although there is a language disadvantage in this case, I am quite satisfied that the wife knew exactly what I was talking about. The appropriate course of action in those circumstances is to place the lawyers in a position where they do not have to show cause and accordingly I then discharge the order that I had earlier made. I am satisfied that the husband was put to the inconvenience of having to issue the application and that gave rise to the necessary costs order. I have contemplated all of the matters set out in s 117(2A) for the purposes of making the order and in the circumstances was satisfied that it was just to do so. In so far as the wife may have some complaint about the conduct of her lawyers, my view is that that is a matter she can take up with another professional body on the basis that she had not made my task any easier by refusing to allow the lawyers to give explanations as to what had happened. In fairness to Mr Schetzer, he also indicated that he was reluctant to tell me what had occurred having regard to the fact that I had not delivered this judgment. He said it may be adverse to the wife for him to make statements and he did not want that to prejudice the outcome of the proceedings. In those circumstances, any complaint between the wife and Mr Schetzer is a matter that can be taken up with the local professional body.
In the circumstances, the costs thrown away will also be adjusted in the ultimate settlement.

I certify that the preceding One Hundred and Ninety Eight (198) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin

Associate:

Date: 5 March 2009

[2009] FamCA 147

5 March 2009

Key Legal Topics

Areas of Law

Family Law

Equity & Trusts

Property Law

Legal Concepts

Costs

Remedies

Injunction

Procedural Fairness

Res Judicata

Stay of Proceedings