Rankin & Rankin

[2017] FamCAFC 29

FAMILY COURT OF AUSTRALIA

RANKIN & RANKIN [2017] FamCAFC 29

FAMILY LAW – APPEAL – PROPERTY – Just and equitable – Whether the cumulative effect of the primary judge’s orders led to a just and equitable division of the parties’ assets – Where the husband conceded that he should be responsible for certain debts – Where the primary judge excluded the debts from the table of assets and liabilities – Where the primary judge considered whether the orders were just and equitable – No error established – Whether the primary judge erred in making an order for the payment of the wife’s lawyers prior to the division of the parties’ property – Whether the order was a costs order made under s 117 of the Family Law Act 1975 (Cth) or whether it was a lump sum adjustment made under s 75(2) – Where payment was a lump sum adjustment – No error established.

FAMILY LAW – APPEAL – SPOUSAL MAINTENANCE – Whether the primary judge erred in making an order for capitalised spousal maintenance – Where the husband was liable to pay the children’s school fees and related expenses – Where the primary judge had increased the husband’s child support obligations – Where the primary judge erred in finding that the husband had the capacity to meet the order for spousal maintenance, because she failed to take into account the husband’s debts and other financial obligations – Order for payment of spousal maintenance set aside – Matter remitted for rehearing.

FAMILY LAW – APPEAL – CHILD SUPPORT – Whether the primary judge properly made orders for the husband to pay child support – Where the quantum of child support payable by the husband constituted a sizeable proportion of the husband’s after tax income – Where the primary judge was required to take into account the income, property and financial resources of each party to the proceedings – Where s 125 of the Child Support (Assessment) Act 1989 (Cth), a mandatory provision, was not complied with – Where the primary judge was in error and the orders for child support must be set aside – Matter remitted for rehearing.

FAMILY LAW – APPEAL – SUPERANNUATION – Superannuation splitting order – Where the primary judge made a superannuation splitting order under s 90MT of the Family Law Act at the invitation of the parties – Where the husband submits that, due to the delay between the hearing and the making of orders, the primary judge erred by allocating a base amount to the wife instead of a percentage of the parties’ total superannuation entitlements – Where the husband has consented to the superannuation order – No error established.

FAMILY LAW – APPEAL – COSTS – Where the appeal as to child support and spousal maintenance was allowed on the basis of an error of law – Costs certificates issued under the Federal Proceedings (Costs) Act 1981 (Cth).

Child Support (Assessment) Act 1989 (Cth) ss 117, 125
Family Law Act 1975 (Cth) ss 72(1), 75(2), 79, 117
Federal Proceedings (Costs) Act 1981 (Cth)

Family Law Rules 2004 (Cth) r 19.04

Beklar & Beklar [2013] FamCA 327
Chorn & Hopkins (2004) FLC 93-204
Clauson & Clauson (1995) FLC 92-595
Harris v Caladine (1991) 172 CLR 84
Lee Steere & Lee Steere (1985) FLC 91-626
Metwally v University of Wollongong (1985) 60 ALR 68
Russo & Wylie (2016) FLC 93-747
Spano & Spano (1979) FLC 90-707
Teal & Teal [2010] FamCAFC 120
Vass v Vass (2015) 53 Fam LR 373
Whisprun Pty Ltd v Dixon (2003) 200 ALR 447

APPELLANT: Mr Rankin

RESPONDENT: Ms Rankin

FILE NUMBER: DGC 2859 of 2013

APPEAL NUMBER: SOA 24 of 2016

DATE DELIVERED: 2 March 2017

PLACE DELIVERED: Sydney

PLACE HEARD: Melbourne

JUDGMENT OF: May, Thackray & Aldridge JJ

HEARING DATE: 13 October 2016

LOWER COURT JURISDICTION: Family Court of Australia

LOWER COURT JUDGMENT DATE: 29 February 2016

LOWER COURT MNC: [2016] FamCA 250

REPRESENTATION

COUNSEL FOR THE APPELLANT: Ms Tulloch

SOLICITOR FOR THE APPELLANT: L.Y. Tonge & Co

COUNSEL FOR THE RESPONDENT: Dr Ingleby

SOLICITOR FOR THE RESPONDENT: Goldhirsch & Shnider

Orders

(1)The appeal against Orders 1(a), 1(b)(ii)C, 14 and 15 made by Johns J on 29 February 2016 be allowed.

(2)Orders 1(b)(ii)C, 14 and 15 be set aside.

(3)Order 1(a) be amended by deleting the words “wife’s solicitor in payment of her legal costs and disbursements” and inserting the word “wife” in lieu.

(4)The applications for spousal maintenance and child support are remitted to the Family Court of Australia for rehearing by a judge other than Johns J.

(5)The appeal otherwise be dismissed.

(6)The Application in an Appeal filed on 23 September 2016 be dismissed.

(7)There be no order as to costs.

(8)The Court grants to the appellant husband a costs certificate pursuant to s 9 of the Federal Proceedings (Costs) Act 1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the appellant husband in respect of the costs incurred by him in relation to the appeal.

(9)The Court grants to the respondent wife a costs certificate pursuant to the provisions of s 6 of the Federal Proceedings (Costs) Act 1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the respondent wife in respect of the costs incurred by her in relation to the appeal.

(10)The Court grants to each of the parties a costs certificate pursuant to the provisions of s 8 of the Federal Proceedings (Costs) Act1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to each of the parties in respect of the costs incurred by them in relation to the new trial ordered.

Note: The form of the order is subject to the entry of the order in the Court’s records.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Rankin & Rankin has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT MELBOURNE

Appeal Number: SOA 24 of 2016
File Number: DGC 2859 of 2013

Mr Rankin

Appellant

And

Ms Rankin

Respondent

REASONS FOR JUDGMENT

Introduction

1.On 29 February 2016 Johns J made a suite of property orders in proceedings between Ms Rankin (“the wife”) and Mr Rankin (“the husband”).  The effect of these orders was that there was to be a payment of $170,000 to the wife’s solicitors, with the balance of the parties’ net property divided between them so that the wife received 70 per cent and the husband 30 per cent.  From his share the husband was to pay a number of debts as well as $65,000 to the wife as capitalised spousal maintenance.  By agreement, a superannuation splitting order was made, splitting the parties’ superannuation equally between them. 

2.Her Honour also made orders under the Child Support (Assessment) Act 1989 (Cth) (“the Assessment Act”), the effect of which was that the husband’s child support was to be assessed on the basis that his income was $243,000 per annum.  There was a further order that, in addition to this child support, the husband pay all the tuition fees, extracurricular expenses, and for uniforms and equipment associated with the schooling of the parties’ three children.

3.The husband appeals against each of these orders including the order as to superannuation.

Background

4.Before turning to the grounds of appeal, it is helpful to set out some relevant background taken from the primary judge’s reasons.

5.At the time of the hearing the wife was 46 years old.  She obtained a degree in Country O in 1994.  In 1997 she commenced a professional training program in Country P, but did not complete because she migrated to Australia in November 1999.  Her qualifications are not recognised in Australia.  Apart from some brief periods of basic employment she has not worked since. 

6.The husband was 48 years old at the time of the hearing.  He migrated to Australia in 1991 and works as a professional. 

7.The parties commenced cohabitation when the wife arrived in Australia.  They married in March 2000.  The wife asserted that they separated in July 2010 whilst the husband asserted that it was in July 2013.  The primary judge did not resolve that dispute.

8.The parties had three children who were aged 12, 11 and six at the time of the hearing.  They live with the wife.

9.The primary judge found the parties’ assets and liabilities at the time of the hearing to be (at [111]):

Item	Description	Value
Proceeds of sale of [Suburb C], [H Town] and [L Street]	$802,546.41
Wife’s CBA savings account	$   1,065
Total	$803,611.41
Liabilities
School Fees	$36,872.96
Child Support	$  9,771.96
Total	$46,644.92
Superannuation
Husband	$750,000
Wife	$250,000
Total	$1,000,000

10.Her Honour found that as the husband had accepted that he should be responsible for the unpaid school fees and the child support, they should not be set off against the assets.  This meant that the non‑superannuation assets available for distribution totalled $803,611.41.

11.Her Honour’s orders provided for a payment of $170,000 to the wife’s lawyers.  The balance was then divided so that the wife received 70 per cent and the husband 30 per cent.  The husband was ordered to pay the unpaid school fees ($36,872.96), the arrears of child support ($9,771.96) and lump sum spousal maintenance ($65,000) from his share. 

The appeal

12.The Amended Notice of Appeal contains some nine grounds, but counsel for the husband grouped them into five topics.  We shall follow the same course.

13.By an Application in an Appeal filed 23 September 2016 the husband sought to adduce further evidence on the appeal.  The only evidence that was pressed related to changes to the parties’ superannuation funds, so we shall deal with that application when we deal with the challenge to the superannuation orders.

Was the overall result just and equitable? (Grounds 1, 2 and 5)

14.The essence of the husband’s submissions is that the orders left the husband with a share of the parties’ assets that was so unreasonable or plainly unjust that we should conclude her Honour failed to properly exercise the discretion.

15.In making that submission, the husband’s counsel relied upon the following table, which she had prepared and which purported to demonstrate the cumulative effect of the primary judge’s orders in relation to the parties’ non‑superannuation assets:

Order	Calculation	Wife	Husband	Wife’s Lawyers	School	Belleli King
1. Net sale proceeds held on trust	$802,546.41
1(a) – Firstly, $170,000 to the wife’s solicitors in payment of her legal costs and disbursements	$802,564.41 - $170,000 = $632,546.41	$170,000
1(b) – balance then remaining be divided 70% to the wife and 30% to the husband	$632,546.41 x 70% = $442,782.48 $632,546.41 x 30% = $189,763.93	$442,782.48
1(b)(ii)(A) to the husband 30% less $36,872.96 in unpaid school fees	$189,763.93 - $36,872.96 = $152,890.97	$36,872.96
1(b)(ii)(B) less $9,771.96 to the wife for arrears of child support	$152,890.97 – $9,771.96 = $143,119.01	$9,771.96
1(b)(ii)(C) less $65,000 lump sum spousal maintenance to the wife	$143,119.01 – $65,000 = $78,119.01
Para 2 of Orders – 14 May 2015 – Husband to pay Belleli King	($55,759.29)	$55,759.29
TOTAL	$517,554.44	$22,359.72	$170,000.00	$36,872.96	$55,759.29

16.The column headed “Belleli King” is a reference to a debt owed by the husband to lawyers, which comprised the balance of their fees for appearing for him in the proceedings before the primary judge.  The lawyers intervened in the proceedings to seek payment of the debt. 

17.On 14 May 2015 the husband consented to an order that he pay them $55,759.29. 

18.The husband submits that when this table is compared with the table relied upon by her Honour and reproduced at [9] above, the following three errors are apparent:

·    The primary judge failed to consider the cumulative effect of the orders for the payment of $170,000 to the wife’s lawyers, the 70/30 division of property, the obligation on the husband to pay the unpaid school fees and child support, the order for the payment of spousal maintenance and the order made on 14 May 2015 that the husband pay Belleli King $55,759.29.

·    The primary judge failed to take into account that the husband’s legal fees, which were owed to the solicitors who appeared for him at the hearing, were $130,000.

· The 70/30 division was not just and equitable because it gave excessive weight to the s 75(2) factors in favour of the wife and because the effect of the orders on the husband’s net income was not considered.

19.Thus, the husband submits that the effect of the orders was unjust and unreasonable, as the wife received $517,554.44 or 95.86 per cent of the pool and the husband only $22,359.72 or 4.14 per cent.

20.There are a number of difficulties with these submissions.

21.The table prepared by the husband is somewhat beguiling because it includes three debts, which the husband accepted were his responsibility at the hearing and for which he alone should be liable. Counsel for the husband accepted that the debts were the husband’s responsibility, but nonetheless submitted that the unpaid school fees and child support should have been included as liabilities in the table of assets available for distribution. If the debts had been included as liabilities, the amount of assets available for distribution would have been reduced by $46,644.92 (that is, $36,872.96 for the unpaid school fees plus $9,771.96 owing for child support). If no relevant adjustment was made under s 75(2)(o) of the Family Law Act 1975 (Cth) (“the Family Law Act”) to allow for these debts being solely the husband’s responsibility, this would see the wife bearing 70 per cent of these liabilities, thus rendering the husband’s concession that he should pay these debts nugatory.

22.The same might be said of the husband’s obligation to meet the order to pay Belleli King, his previous lawyers, their outstanding fees.

23.It was for this reason that the primary judge, correctly in our opinion, removed these liabilities from the table of assets and liabilities available for division between the parties.

24.In addition to the outstanding debt owed to Belleli King, the husband submitted that he also had an obligation to pay $130,000 to his current lawyers.  The primary judge did not refer to this obligation and the husband submits that when it is taken into account, the orders of the primary judge cannot be seen to be just and equitable.  This was because the orders had the effect of leaving the husband unable to pay his debts from the property he was to receive pursuant to the orders.

25.It is helpful to look at the approach the parties took to this issue at the hearing.  As we will explain, while the wife clearly raised the issue of the source of the funds the husband used to pay his lawyer, the husband did not raise the issue of the effect of the orders on his ability to pay his lawyers.  However, we consider that this issue is only relevant to whether or not the primary judge should have made the order for spousal maintenance.

26.On 15 May 2015, the second day of the hearing, counsel for the husband handed a “costs letter” to the court, presumably in an attempt to comply with r 19.04 of the Family Law Rules 2004 (Cth). Her Honour pointed out that the letter did not comply with the rule, but nonetheless marked it as an exhibit in the proceedings (as had been done with the wife’s Statement of Costs on the first day of the hearing).

27.The “costs letter” was a letter directed to the husband from his current lawyers, L. Y. Tonge & Co (“L. Y. Tonge”), advising him that his legal costs incurred with them were $100,000 up to 13 May 2015 and $10,000 for each day of hearing.

28.On 18 May 2015 a further Costs Statement was handed to the court by the husband.  Again, it was marked as an exhibit.  It records that the husband’s lawyers in the proceedings up to November 2014 were Belleli King.  The husband had incurred $196,529.47 in fees with that firm, of which he had paid $167,702. 

29.The statement recorded that the husband had paid $59,800 directly to counsel.

30.The various costs statements were not tendered by the parties – rather, they were marked as exhibits on the initiative of the primary judge.  No objection was taken to that course and consequently the documents became part of the evidence.  Her Honour was therefore entitled to take the contents of these documents into account for any purpose in the proceedings.

31.Earlier, in an exchange with counsel for the wife, the husband had given the following evidence: 

[DR INGLEBY:] Right.  That proceeds of sale.  What [Ms Rankin] says is this:  167,000 has gone to Belleli King; correct?---Yes.

60,000 has gone to Tonge & Co, at least?---Yes.

Add those two up, you get to $227,000?---Yes.

Right.  If that $227,000 had not gone to your lawyers, then it would have been available to pay child support and mortgage and rates and would have been represented by credit in your bank accounts, wouldn’t it?---Yes.

32.The only submissions directed to this issue by counsel for the husband concerned the wife’s claim for payment of her legal costs of $170,000, but included the following:

MR McINNIS:   And the current solicitor for my client has not been paid.  This is the past.

HER HONOUR:   I understand that, and up to the same level, I think it said the wife should have the same opportunity effectively.

MR McINNIS:   What I’m putting to your Honour is this.  If you have a small pool, then as a matter of law, your Honour has a discretion about this, and that’s – so much is clear from that lower court decision, and I’m not going to suggest in any form that your Honour is bound by that, but nevertheless, if one looks at paragraph 90 and thereafter, it’s very, very clear that there’s a discretion.  So all I’m inviting your Honour to consider is to exercise your discretion and not make that order      

HER HONOUR:   Yes.

MR McINNIS: - - - because if you don’t make that order, not a lot will happen, but if you do make the order, you will have a significant sum of money that goes from the pool to the wife’s solicitor.  That’s all I’m putting.

33.Thus it was not put to her Honour that the obligation to L. Y. Tonge should be taken into account when dividing the parties’ property. 

34.In any event, the debt owed to L. Y. Tonge was solely the husband’s obligation, since it had been incurred after separation.  There was no proper basis on which it could be suggested that the wife should be liable for any part of this debt, which would be the case if it was included in the parties’ list of assets and liabilities to be divided between them.

35.It was submitted that if the primary judge had decided not to include the husband’s debts in the property pool, her Honour should then have taken them into account under s 75(2) of the Family Law Act, when considering what adjustment, if any, should have been made to the parties’ contributions‑based entitlements.  It is implicit in this submission that had her Honour taken this course, she would have arrived at an adjustment in favour of the wife of less than the 20 per cent she determined was appropriate. 

36.However, yet again, such an approach would have had the effect of the wife contributing to the husband’s debts.  The primary judge found that the husband has “effectively executed self-help with respect to his legal fees” and that in doing so had “disregarded” the court orders to pay school fees and his obligations under the Assessment Act (at [138]).  It cannot be said that the wife had any obligation to contribute to the husband’s legal fees.

37.The husband was also critical of the size of the adjustment of 20 per cent in favour of the wife. In order to put this criticism into context, it is necessary to recognise the way in which the primary judge arrived at her decision in relation to the s 75(2) adjustment.

38.The primary judge first adopted the submissions of the parties that contributions were equal (at [126]). Secondly, she held there should be a “cash adjustment in favour of the wife with respect to her outstanding legal costs” (at [140]). Thirdly, in determining the s 75(2) adjustment, her Honour proceeded on the basis that the “pool” against which the adjustment should be made was worth $633,000 – in other words, the $170,000 for legal fees was deducted (at [165]). Finally, her Honour held that an adjustment of 20 per cent against this reduced pool was appropriate.

39.As her Honour pointed out at [165] the value of the adjustment was $126,600 which “represents a differential between the parties of approximately $253,200, an amount earned by the husband in approximately one year”.  The adjustment arose from the wife’s limited economic capacity and her care of the three children with “little support from the husband with respect to the day-to-day responsibilities for the care of the children” (at [154]).

40.It is sufficient to say that we see no error in the adjustment.

41.Finally, it was submitted that the primary judge erred in her consideration of whether the orders were just and equitable because her Honour made no reference to the fact that the husband would only receive $22,539.72.  

42.Reference was made to Teal & Teal [2010] FamCAFC 120 at [70], where the Full Court said:

By implication however s 79(2) requires if the Court is to make an order under s 79(1) altering the interests of the parties to the marriage in property, such an order must be just and equitable.  This legislative imperative is often described as the requirement that a judicial officer “stand back” and look at the reality of the percentage division at which she or he has arrived.  That requirement requires consideration of the actual assets to be retained by each party, and may include consideration of the effect when one party is to retain the greater proportion of his or her entitlement in superannuation of the nature, form and characteristics of the superannuation. 

(Emphasis added)

43.However, as we have explained, the premise for that submission has not been established, since we do not accept the husband’s assertions as to how the pool of non-superannuation assets ought to have been constituted.

44.Further, we consider that her Honour engaged in the “standing back” step, as this paragraph from her reasons makes clear:

165.Having regard to those circumstances I am satisfied that an adjustment of 20 per cent in favour of the wife is appropriate.  Based on a pool of $633,000 that is an adjustment in her favour of $126,600.  This represents a differential between the parties of approximately $253,200, an amount earned by the husband in approximately one year.  However, in circumstances where I will make provision for lump sum spousal maintenance for the wife and child support payable at a level appropriate to the husband’s current income, I am satisfied that an adjustment of that amount is just and equitable.

45.It follows that no error has been identified in the primary judge’s approach to the property settlement.  These grounds do not succeed. 

Should an order have been made for the payment of $170,000 to the wife’s lawyers prior to the division of the parties’ property?  (Grounds 3 and 4)

46.It is to be recalled that the primary judge determined that the non‑superannuation assets to be divided between the parties totalled $803,611.41.

47.Her Honour made the following order providing that the net proceeds of the sale of properties be applied as follows:

(1)…

(a)Firstly, the sum of $170,000 to the wife’s solicitors in payment of her legal costs and disbursements;

(b)Secondly, the balance then remaining be divided as follows:-

(i)To the wife 70 per cent;

(ii)To the husband 30 per cent less:-

A.The sum of $36,872.96 in unpaid school fees to be paid to [the children’s schools];

B.The sum of $9,771.96 to the wife in respect of arrears of child support.

C.The sum of $65,000 by way of lump sum spousal maintenance to the wife.

48.The husband submits that Order 1(a) was a costs order that could only be made under s 117 of the Family Law Act and that the order was therefore fatally flawed because the primary judge did not have regard to s 117(2A). In doing so he pointed to the form of the order and the primary judge’s finding that “the sum of $170,000 should be paid to the wife’s solicitor on account of her legal costs”.

49.In Lee Steere & Lee Steere (1985) FLC 91-626 the Full Court said at 80,076 – 80,077:

In a realistic assessment of the financial resources of the parties, it is proper to include any legal costs each of the parties may have to pay, subject of course to any reimbursements by way of an order for costs. This should not be seen as a back-door method of awarding costs to a party who has been refused the whole or part of his/her costs. It is one thing to take account of costs in calculating the net assets which are available to each party for the purpose of determining their financial resources. It is quite another thing to award a party a specific amount for the purpose of meeting certain expenditure such as costs. The latter can only be done on an application under sec 117, the former is part of the normal enquiry under sec 75(2).

50.Thus, if her Honour did intend to award a specific sum for the payment of costs, she was in error. Such a course could only be taken under s 117 of the Family Law Act. Her Honour did not purport to act under that section and did not take into account the mandatory s 117(2A) considerations.

51.After her Honour found that the parties’ contributions to their assets and welfare of the family up to the time of the hearing were equal she turned to the issue of the husband’s payment of legal fees.  The wife’s case was that the husband had spent $230,000 of funds that would have otherwise been divisible between the parties.  She sought an order that her solicitors be paid the same amount as the husband had paid his lawyers or, alternatively, the amount owing to her solicitors at the end of the hearing, whichever was the lesser.  The estimate of those costs, taken from the wife’s Costs Statement, was $178,520.90.  The wife limited her claim to $170,000. 

52.Her Honour explained the basis of the claim for the order as follows:

129.Exhibit R3 is the statement provided to the husband by his lawyers in accordance with paragraph 22 of the orders made 7 November 2014.  That statement confirms that the husband has paid to his previous lawyers Messrs Belleli King & Associates the sum of $167,702.  The husband’s evidence is that those payments were made by credit card and the credit card debt was subsequently paid from the business account in the name of his service company.  In addition to that amount, the husband has paid the sum of $59,800 towards counsel’s fees, those fees being paid directly to his barrister’s Clerk. The husband’s evidence is that those funds were also paid from his credit card and business account. 

130.Having regard to that evidence, it was submitted on behalf of the wife that the sum of $230,000 should be taken into account as monies spent by the husband on his legal costs. 

131.Exhibit A1 is a statement of costs filed on behalf of the wife pursuant to paragraph 22 of the orders dated 7 November 2014.  That statement discloses that the wife has paid to her lawyers the sum of $12,700 towards her legal costs which sum was paid from funds received by her by way of child support and Centrelink entitlements.  It also states that the amounts outstanding to the wife’s solicitors and counsel at the commencement of the hearing was $100,670.90 and it was estimated that by the conclusion of the hearing there will be a further $77,850 payable by way of costs and disbursements. In closing submissions Counsel for the wife confirmed that his client sought a payment of $170,000 to be applied to her outstanding legal costs.  Although that order was opposed by the husband there was no challenge to the quantum of the wife’s costs. 

132.The husband was cross-examined as to the source of funds from which he paid his legal fees.  He conceded that the credit card debts with respect to those payments were re-paid from his income. 

133.It was submitted on behalf of the wife that but for his payment of legal costs those funds would be available to the parties for division in these proceedings.  Accordingly, it is on this basis that it is submitted that there should be an adjustment for those payments in favour of the wife.

53.The primary judge referred to Chorn & Hopkins (2004) FLC 93-204 at 79,322 – 79,323:

55.This decision appears to confirm the principle that where the payment of legal costs can be regarded as a premature distribution of funds (in which both parties have an interest), it is appropriate to add back those costs as a notional asset. It also confirms the principle that where funds have been borrowed to pay legal fees, and such liability is still outstanding, neither the payment of the fees nor the liability should be taken into account. The decision also supports the proposition that where it is determined that a payment of legal fees should be taken into account as a notional asset, any outstanding liability in respect of those fees should also be taken into account.

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.

59.Outstanding legal fees themselves are generally not taken into account as a liability.

60.If in the exercise of the discretion, it is determined that legal fees already paid should be taken into account as a notional asset, then normally any liability associated with the acquisition of the monies used to pay the legal fees should also be taken into account.

54.In view of these passages, the primary judge concluded:

136.There is no dispute that the funds used by the husband to pay his legal fees have been generated by him after separation from his employment as a [professional].  It is submitted on behalf of the wife that she has made contributions to the development of the husband’s career; she has supported him in the early years of his practice when he was establishing himself as a [professional].  Otherwise, it is submitted on her behalf that she has been the primary care-giver to the parties’ children and principally responsible for maintaining the home; in this way she provided invaluable support to the husband in the progression of his career and development of his capacity to earn income. I accept those submissions.

137.At the time the husband earned the income applied to the payment of his legal fees, he had an obligation to support the wife and the children of the marriage.  That this is so is evident from the orders dated 4 November 2013 which required him to meet mortgage payments and outgoings with respect to the properties in Western Australia and [Suburb C].

138.As noted earlier, the husband did not service the mortgage liabilities on the parties’ properties, thereby increasing the debt payable upon settlement of the sales of those properties.  Further he substantially reduced his child support liability by providing an estimate of his income to the Child Support Registrar which substantially reduced his obligation to pay child support.  Income which otherwise would have been available to support the wife and the children was applied to the payment of his legal fees.  The husband has effectively executed self-help with respect to his legal costs and in doing so has disregarded his obligations to meet liabilities pursuant to orders of this Court and in accordance with the Child Support (Assessment) Act 1989 (Cth).

139.Such matters may be taken into account pursuant to the provisions of s. 75(2)(o) of the Family Law Act.  However, in my view a percentage adjustment will not achieve justice and equity in the overall context of this case in circumstances where:-

·the asset pool excluding superannuation is only $803,000;

·the husband has paid $230,000 to his lawyers in preference to his obligations to the wife and the children; and

·such payment has been made from income which he has been able to earn, in part, through the contributions of the wife. 

140.Having regard to those circumstances, I am satisfied that justice and equity require that there be a cash adjustment in favour of the wife with respect to her outstanding legal costs prior to the disbursement of the sale proceeds rather than a percentage adjustment in her favour.

…

167.Further I am satisfied for the reasons set out herein that prior to disbursement of the sale proceeds the sum of $170,000 should be paid to the wife’s solicitor on account of her legal costs.

55.As appears from [129] of her Honour’s reasons, the sum of $230,000 is the approximate total of the $167,702 paid to Belleli King and the $59,800 paid to barristers by the husband.  The husband did not challenge the primary judge’s finding at [138] that “income which otherwise would have been available to support the wife and the children was applied to the payment of his legal fees”, contrary to orders of the court and the provisions of the Assessment Act.  Thus the matter was not simply about the husband dealing with his post‑separation income as he saw fit.

56.The primary judge turned to the issue as to how to take into account the husband’s use of these funds. 

57.As is apparent from the above passages, her Honour first looked at “adding back” the sum of $230,000 to the assets to be divided. That would have been an entirely permissible course: Vass v Vass (2015) 53 Fam LR 373. It is clear that this approach was not adopted.

58.We would add here that had her Honour “added back” the sum of $230,000 to the property pool, the amount available for distribution from non‑superannuation assets would have been $1,033,611.41 ($803,611.41 + $230,000).  Assuming the same 70/30 division, the wife would have received $723,528 rather than $612,782 under the primary judge’s orders.

59.Her Honour then turned to s 75(2)(o) of the Family Law Act and found that a percentage adjustment under that section would not achieve justice and equity.  We pause to observe that we do not agree with this observation – such an adjustment would do so if correctly calculated.

60.As can be seen from [140] of the primary judge’s reasons, her Honour decided to make a lump sum adjustment. Reading the reasons as a whole we consider that in deciding to do so, her Honour was making an adjustment under s 75(2)(o), which can, of course, be made in a lump sum.

61.Further, all these considerations were undertaken in the course of the determination of the appropriate property division and within the particular discussion of “add backs” and the application of s 75(2). The discussion bears all the hallmarks of the determination of property orders and not a costs order.

62.We are fortified in our conclusion by the remarks her Honour made in the following exchange during closing addresses:

MR McINNIS:   … If you were to make order 3(c), then what it requires is my client disburses to my friend’s instructor such amount as required to meet the lower end – the lower of the two figures.  Now, we know one of them is 170,000, so that’s hardly an insignificant amount, and then, in the alternative if there’s a lower figure in (a), one suspects on the material probably not.  But what it does do is give to the wife’s solicitors an amount which effectively is tantamount, as I submit, to a costs order.  In my respectful submission, that’s quite contrary, for a start, to section 117, and it’s not an order that should be made.

HER HONOUR:   I think you’re misunderstanding, Mr McInnis.  I don’t think it’s put that way at all.  The way it’s put is that the parties should stand equally in terms of how they’ve treated the costs position as between them.  What’s said by the wife is that, “Well, the husband has had the opportunity of having his legal costs paid from the parties’ pool of assets.  I should have the same opportunity, and thereafter there be a division of the pool.”  That’s the way it’s put.  It’s not a costs order.

MR McINNIS:   Well, I know it’s not a costs order in the formal sense, but that’s the effect of it.

HER HONOUR:   Well, it’s not, because your client is not paying the wife’s costs on that order, just as she is not paying his.  Both parties’ costs are coming out of the pool of assets, rather than just one party’s.  That’s the way it’s put.

63.Thus, despite the form of the order in question, we are satisfied that it is, in substance, an order made under s 79 and is not a costs order. The order made for the payment of $170,000 to the wife’s solicitors is in accordance with the wife’s application.  However, the form of that order is misleading and we will therefore vary Order 1(a) so that it provides for a payment to the wife and not to her solicitors.

64.The husband also challenged the order on the ground that the primary judge did not properly take into account that the $230,000 was paid from post-separation income which, it was submitted, he was entitled to spend as he saw fit.  In support of this submission, the husband referred to Beklar & Beklar [2013] FamCA 327. In that case the primary judge “added back” into the property pool payments made to a party’s lawyer, but, recognising that the payments had been made from post‑separation income, the amounts added back were reduced by 50 per cent.

65.That case is, of course, an example of the flexibility of approach required in complex financial cases where the orders must be adapted to the particular facts of the matter before the court.  It is not, and did not purport to be, a statement of general principle, as counsel for the husband properly conceded.

66.In the unique circumstances of this case and having regard to the husband’s evidence and her Honour’s unchallenged findings, the primary judge could have followed such a course.  However, the relevant enquiry is whether the primary judge was in error in taking into account the whole of the $230,000.  It is apparent from what we have already said that we do not consider that there was such an error.  In particular, the findings made by the primary judge at [136] – [138], which were unchallenged, support her approach.

67.It follows that this ground has not been established.

Was the order for the payment of capitalised spousal maintenance properly made? (Grounds 6 and 7)

68.The husband submits that the primary judge erred by not properly considering whether the husband was reasonably able to meet an order for spousal maintenance.  As recorded earlier, the primary judge ordered that the husband pay the wife spousal maintenance in the form of a lump sum of $65,000. 

69.Her Honour noted that the wife’s weekly expenses of $1,542 had not been challenged, and that the wife’s income consisted solely of Centrelink benefits and child support.  The wife’s unmet weekly expenses were found to be $500.

70.The primary judge continued:

177.As noted earlier, I am satisfied that the husband has an income of $5,000 per week.  The total of all expenses claimed by him in Part G of his Financial Statement is $4,357 per week.  The expenses claimed by the husband include an allowance of $1,004 per week in respect of the mortgages for the Western Australian properties.  Given those properties have been sold the husband no longer has liability for that payment.  Similarly, the husband had made an allowance of $225 per week for rates and unit levies.  Again, given that the properties have been sold the husband is no longer required to meet that expense.  Taking into account those adjustments I am satisfied that the husband’s weekly expenses are approximately $3,128 per week and that he has a surplus of income over expenses of approximately $1,872 per week.   Accordingly, I am satisfied that the husband has the capacity to meet an order for spousal maintenance. 

178.I am satisfied having regard to the wife’s need to retrain and her responsibilities to the care of the parties’ children that it is appropriate that there be an order for spousal maintenance.  That order will be limited in time, recognising that the wife anticipates that she will be able to resume employment within three years.

179.I am also satisfied, having regard to the husband’s non-compliance with previous orders of this Court that he pay the mortgage expenses for the former matrimonial home and the investment properties that it is appropriate that the wife’s maintenance be paid as a lump sum.  Given that she will be paid maintenance in advance I am satisfied that it is appropriate that there be a discount for the lump sum amount as the wife will have the benefit of being paid maintenance in advance. 

180.In those circumstances, I am satisfied that an appropriate lump sum amount to be paid to the wife is $65,000.

71.In [177] her Honour referred to the husband’s Financial Statement.  In that document the husband recorded his child support liability as being $500 per week.

72.However, the primary judge also made an order that the husband’s child support was to be assessed on the basis that his income was $243,000 per annum, which, we were informed, would lead to a child support assessment of $894 per week.

73.The primary judge also ordered the husband to pay the children’s private school fees, extra-curricular expenses, and costs for uniforms and associated equipment.  The husband conceded that this order should be made, but neither party adduced any evidence as to the quantum of all the expenses.  The husband did accept that the cost of the private school the two older children were attending was between $10,000 and $12,000 per annum per child, but it was unclear whether this concession related only to the fees or included all of the other expenses.  In any event, the primary judge did not refer to, or take into account, the increased child support or the obligation to pay the school expenses when considering the ability of the husband to meet a recurring spousal maintenance order.

74.As the table at [15] makes clear, after the husband met his liability to pay outstanding child support, school fees and his former solicitors and made the ordered payments to the wife (including maintenance of $65,000), he would be left with $22,359.72.

75.However, the evidence also disclosed that the husband owed a further $130,000 to his current lawyers.  That obligation was not taken into account by the primary judge.

76.Section 72(1) of the Family Law Act provides that a party to a marriage is liable to maintain the other party “to the extent that the first-mentioned party is reasonably able to do so”, in the circumstances otherwise set out in the section.

77.In Spano & Spano (1979) FLC 90-707 Evatt CJ said at 78,766 (Powley SJ and Lusink J agreeing):

One ought to mention too that the court has always taken the view that a lump sum order should only be awarded if there are funds available to meet such an order. In the present case there is no such difficulty. There are clearly funds available but it should not be taken that the fact that there are funds available would itself alone justify the making of an order. It is only a condition precedent and not necessarily itself a justification for such an order.

78.In Clauson & Clauson (1995) FLC 92-595 at 81,907 the Full Court pointed out that the result of any s 79 order must be taken into account because it “defines the other party’s capacity to meet any order”.

79.The primary judge erred in finding that the husband had the capacity to meet the order for spousal maintenance, because she failed to take into account the increased child support obligation, the expenses associated with the children’s school and the husband’s debts, including the debt owed to his then lawyers.

80.It is correct to say that the primary judge did not receive any submissions from the husband on the impact of his debt to L. Y. Tonge on any aspect of the wife’s claims.  It was argued that this precluded the husband from asserting on appeal that the primary judge erred in failing to take it into account (Metwally v University of Wollongong (1985) 60 ALR 68; Whisprun Pty Ltd v Dixon (2003) 200 ALR 447). However, the husband’s evidence of this debt was not disputed, and it is difficult to see what further evidence could be given on the point. The wife did not suggest any. Thus, we can see no impediment to the husband advancing this argument on appeal (Whisprun at [51]). In any event, the ground would succeed even if the husband was limited to submissions as to the failure to take into account the other matters raised by him.

81.Thus, the order for the payment of spousal maintenance must be set aside.  We accept the submission of counsel for the husband that the application for spousal maintenance needs to be remitted for rehearing, especially as the parties’ circumstances are likely to have changed from when the matter was before the primary judge.

Were the orders for the payment of child support and school expenses properly made?  (Ground 8)

82.The primary judge made the following orders:

(14)That pursuant to s 117 of the Child Support (Assessment) Act 1989 (Cth) there be a departure from the administrative assessment of child support payable by the husband to the wife for the children [D] born … 2003, [E] born … 2004 and [F] born … 2009 and for the purposes of calculating the child support obligation of the husband the annual child support income for him shall be fixed as follows:

(a)For the period commencing 1 January 2016 to 31 December 2016 the sum of $243,000; 

(b)For the period 1 January 2017 to 31 December 2017 the sum of $243,000 plus CPI.

(15)That pursuant to s 124 of the Child Support (Assessment) Act 1989 (Cth), the husband pay all tuition fees, extracurricular expenses, uniforms and equipment consequential to attendance by the children to the schools attended by them as at the date of hearing.

83.The husband submitted that:

The learned trial judge held that the husband’s child support income should be assessed at $243,000 per annum, however all periodic and non-periodic child support (including school fees and related expenses) will be paid by the husband out of his after tax income. A gross income of $243,000 per annum is approximately $155,580 after tax at present tax rates. Pursuant to the provisions of the CSA Act it is estimated that the husband’s child support income would result in an assessment that he pay periodic child support of $894 per week or $46,488 per annum. This is a significant proportion of the husband’s after tax income.

84.This aspect of the husband’s submissions was not challenged. 

85.We have already referred to difficulties associated with the order for the payment of the school fees.  Whilst each party criticised the other for not adducing evidence as to the costs of these expenses, we do not see how the primary judge could be satisfied of the ability of the husband to meet the orders in the absence of this evidence.

86.Further, at the hearing of the appeal, the Court raised s 125 of the Assessment Act, noting that it had not been complied with and querying whether that non‑compliance vitiated the orders.  Whilst this was not the subject of a ground of appeal, counsel for the wife properly accepted that the mandatory nature of the section could not be ignored.

87.The section provides:

125Court to state relationship between order and assessed child support

(1)If the court makes an order under section 124, the court must state in the order whether the annual rate of child support payable by the liable parent under any relevant administrative assessment is to be reduced, in the manner specified under subsection (3), by the child support ordered to be provided by the liable parent.

Note:If the court makes a statement under this section that the annual rate of child support is to be reduced, the Registrar must make a provisional notional assessment under section 146B.

(2)The court may state that the annual rate of child support payable by the liable parent is not to be so reduced only if it is satisfied that, in the special circumstances of the case, it would be:

(a)just and equitable as regards the child, the carer entitled to child support and the liable parent; and

(b)otherwise proper;

that the annual rate of child support not be reduced by the child support ordered to be provided.

(3)If the court states in the order that the annual rate of child support is to be reduced by the child support ordered to be provided, the court must also state in the order either:

(a)that the annual rate of child support payable is to be reduced by a specified amount that represents an annual value of the child support to be provided; or

(b)that the annual rate of child support payable is to be reduced by 100% or another specified percentage that is less than 100%.

(4)The court may, under subsections (1) and (3), make different provision in relation to different child support periods and in relation to different parts of a child support period.

(5)In determining whether it would be just and equitable as regards the child, the carer entitled to child support and the liable parent to make a statement of the kind referred to in subsection (2), the court must have regard to the matters mentioned in subsections 117(4), (6), (7), (7A) and (8).

(5A)In having regard to the earning capacity of a parent of the child under paragraph 117(4)(da), the court may determine that the parent’s earning capacity is greater than is reflected in his or her income for the purposes of this Act only if the court is satisfied as mentioned in subsection 117(7B).

(6)In determining whether it would be otherwise proper to make a statement of the kind referred to in subsection (2), the court must have regard to the matters mentioned in subsection 117(5).

(7)Subsections (5), (5A) and (6) do not limit the matters to which the court may have regard.

88.The terms of the section have not been complied with.  Thus, whilst this issue was not raised before the primary judge, we cannot ignore the mandatory nature of the section.

89.For these two reasons, Orders 14 and 15 must be set aside.

90.Counsel for the wife submitted that we could rectify the error relating to s 125 by making an additional order that the amounts the husband was required to pay pursuant to Order 15 should not be credited against any relevant administrative assessment of child support. Unfortunately, we are not satisfied the matter can be so easily resolved.

91.The decision about the way in which Order 15 should impact upon the husband’s obligation to pay child support would be dependent upon us having full information concerning the extent of the obligation under Order 15.  We do not have that evidence, and nor do we know anything about the husband’s current financial circumstances.  Counsel for the husband foreshadowed seeking to adduce further evidence in relation to the husband’s circumstances, and counsel for the wife acknowledged it was likely such evidence would be controversial.  Counsel for the wife also properly accepted that the issue relating to child support was tied in with other issues, such as the payment of lump sum spousal maintenance.  In these circumstances, we see no alternative other than to remit the issue for rehearing. 

Should the primary judge have made a different superannuation order? (Ground 9)

92.The primary judge, at the invitation of the parties, made the following orders:

(6)That the base amount of $250,000 be allocated to the wife out of the interest of the husband’s interest in the Fund.

(7)That pursuant to s 90MT(1)(a) of the Family Law Act 1975 (Cth) a splittable payment becomes payable in respect of the husband’s interest in the Fund, the wife shall be entitled to be paid an amount calculated in accordance with Pt 6 of the Family Law (Superannuation) Regulations 2001 (Cth) using the base amount and there be a corresponding reduction in the entitlement of the person to whom the splittable payment would have been made but for these Orders.

93.Notwithstanding the joint approach of the parties, the husband submits that the primary judge erred in making that order because “in circumstances of significant delay, the making of orders which are just and equitable within the meaning of s 79(2) required that the learned primary judge to [sic] divide the parties’ superannuation interests by reference to a percentage of the parties’ total superannuation entitlements at the date of the judgment”.

94.In support of this ground, by an Application in an Appeal filed 23 September 2016 the husband sought to adduce evidence of changes in the parties’ superannuation entitlements.  In short, the aim of the evidence was to show that the parties’ interests had not increased in value to the same extent, thus supporting the submission that the primary judge was in error in making the consent order.

95.It is self-evident that a person’s interest in a superannuation fund may change over time as the underlying assets vary in value from time to time and produce varying income.  How such an easily anticipated variation would lead to a consent order splitting superannuation interests being set aside on appeal is entirely obscure.

96.First, the matter was before the Court on 22 December 2015, approximately two months before judgment.  The husband did not raise this issue.  It is therefore difficult to assert that the husband’s consent to the superannuation order had, in some way, been vitiated by delay.

97.Secondly, there is no over-arching obligation on the court to achieve a just and equitable outcome as to superannuation contrary to the parties’ wishes (see Russo & Wylie (2016) FLC 93-747 at [54]).

98.Finally, the primary judge merely acceded to the parties’ wishes.  It cannot be said that in doing so her Honour fell into error.  Both parties were legally represented, which was a matter on which her Honour could rely (Harris v Caladine (1991) 172 CLR 84 per Mason CJ and Deane J at [15], Brennan J at [11] and Dawson J at [25]). It was not suggested that the agreement that led to the consent order was in question, but, if it was, that would need to be raised in an application to set aside the orders and not on appeal.

99.Given the decision we have reached on this issue, the application to adduce further evidence will be dismissed.

100.For the same reasons, this ground has no merit.

Costs

101.The husband was successful on the appeal as to spousal maintenance and the child support and school expenses. He failed in his other challenges. We note also that her Honour was led into the error concerning non-compliance with s 125 of the Assessment Act, as the form of order made by her Honour was drafted by counsel for the wife, and (then) counsel for the husband did not draw attention to the non-compliance with the mandatory statutory provision.  The appropriate order is that there be no order as to costs.

102.However, as we have identified, the appeal is being allowed because of an error of law – and the errors extend beyond the one relating to s 125 of the Assessment Act. In that circumstance it is appropriate that the parties be granted certificates under the Federal Proceedings (Costs) Act 1981 (Cth) for both the appeal and the rehearing.

I certify that the preceding one hundred and two (102) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (May, Thackray & Aldridge JJ) delivered on 2 March 2017.

Associate: 

Date:  2 March 2017