Rickwood & Rickwood

[2009] FamCA 264

FAMILY COURT OF AUSTRALIA

RICKWOOD & RICKWOOD [2009] FamCA 264

FAMILY LAW – PROPERTY – Waste – Add Backs

Family Law Act 1975 (Cth)

C & C [1998] FamCA 143
In the Marriage of Clauson (1995) FLC 92-595
In The Marriage of Kowaliw (1981) FLC 90-092
Omacini & Omacini (2005) FLC 93-218

APPLICANT: Mr Rickwood

RESPONDENT: Ms Rickwood

FILE NUMBER: BRF 3141 of 2006

DATE DELIVERED: 8 April 2009

PLACE DELIVERED: Newcastle

PLACE HEARD: Brisbane

JUDGMENT OF: Justice Murphy

HEARING DATE: 20 March 2009

REPRESENTATION

APPLICANT: In person

COUNSEL FOR THE RESPONDENT: Mr M. Pieterse

SOLICITOR FOR THE RESPONDENT: Briese Lawyers

Orders

As and by way of settlement of property pursuant to Section 79 of the Family Law Act 1975 (Cth):

IT IS ORDERED THAT

1. Each party retain to the exclusion of any right, title, claim or interest of the other, the property currently in their respective possession.

2. From the amount held in trust by the solicitors for the wife, there be paid:

   (a)The liabilities totalling $78,190.50 enumerated at paragraph 38 of the Reason for Judgment delivered herewith; and

   (b)       Of the balance thereafter: 70% to the wife;

   (c)Of the balance thereafter:

   (i)To the Family Court of Australia: the hearing fee not earlier paid by the applicant husband in the sum of $534.00; and thereafter

   (ii)The balance to the husband.

3. Each of the parties otherwise be solely responsible for, and indemnify the other in respect of any and all liabilities in their respective names or for which they are each responsible.

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

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: BRF 3141 of 2006

MR RICKWOOD  

Applicant Husband

And

MS RICKWOOD  

Respondent Wife

REASONS FOR JUDGMENT

1. From the outset of these Section 79 proceedings, the central issue has been the ‘adding back’ of money; each party alleges that the other is culpable for the diminution in value of various assets post separation.

2. The wife alleges approximately half a million dollars was lost on a number of investment properties, allegedly attributable to the husband’s “deliberate and negligent conduct” in dealing with the properties post separation.

3. For his part, the husband alleges the wife negligently administered the affairs of their jointly held interest in a restaurant business, M Restaurant.  M Restaurant is owned by “[P] Pty Ltd”, a registered company owned by the Applicant husband.

4. At the conclusion of the trial, counsel for the wife, with respect, properly, conceded that, consistent with principle, most of the various amounts asserted as “add backs” by the wife could not be sustained.

5. The husband (who represented himself) maintained in his closing submissions that the wife’s negligent, perhaps even wanton, conduct has had the unfortunate result that M Restaurant now appears in the pool at a considerable loss.

6. The significance of these issues, as alleged, are more apparent when considered with reference to the now marital pool, which, leaving aside a number of specific debts owed by the parties, is represented by a modest figure held in trust by the wife’s solicitors.

Background

1. The parties were married in June 2002. The wife had previously been married, and had sole parental responsibilities for a child of that relationship.

2. The parties had two children together, the first born in January 2004, and the second in January 2006.

3. The family resided in North Queensland for the majority of the marriage, where the parties maintained a renovation and rental property business, in addition to the husband’s trade activities in the building industry. The wife provided full time care to the children.

4. The husband contends that, throughout the course of the relationship, he supported and provided for the mother’s child, who was approximately 5 years of age at the commencement of the parties’ relationship. At no stage during proceedings did the wife refute that contention, and it is common ground that the family holidayed together in Italy for three months in 2004.

5. Despite the fact that, by early 2006 the marriage was showing signs of pressure, the parties nevertheless resolved to buy the M Restaurant from family friends (at arms length) in South East Queensland. The negotiated purchase price was $340,000.00.

6. The parties were advised by the vendors that, in order to operate profitably, the business was best run as a family concern, given that, crucially, the restaurant could not sustain the large employment of outside workers. The purchase of M Restaurant was settled in May 2006. The husband noted in his submissions that the vendors sought to retain possession of M Restaurant until June/July of 2006, allowing the parties a period of observation and apparent ‘training’ in the necessary processes to efficiently manage the business before handover.

7. The wife elected to relocate from North Queensland to South East Queensland early that same year, both to actively involve herself in the M Restaurant’s operation pre-handover, as well as to settle the children and establish a home base for the family. The husband remained in North Queensland to manage the parties’ property interests, with a view to joining the family once their affairs were in order. For the intermediate period, it seems, the husband travelled to South East Queensland on weekends.

8. Tragically for this family, the M Restaurant venture was both ill-timed and ill-fated. In addition to the stresses associated with the dislocation of the family unit, its acquisition was, it seems, negotiated at a time when the marriage was breaking down. Separation occurred in July 2006.

9. The financial circumstances of the parties deteriorated significantly post separation, to the point where the gross asset pool, as at the date of trial, (agreed save for the issue of add backs) stood at approximately $138,000.00.

Property

1. Although the marital assets were largely agreed, the values attributed to furniture items retained by each were the subject of dispute. Neither party led any reliable evidence as to the actual value of such items.

2. In light of the latter, it was suggested that the most appropriate solution was for each party to retain all furniture items in their respective possession as at the date of separation and for no dollar equivalent to be attributed to them. The parties each conceded that would be a fair outcome.

3. Similarly, counsel for the respondent submitted that the wife ought to retain the Mazda vehicle (the “Mazda”) and any associated liability, given the wife caused the purchase of that vehicle post separation. That is also appropriate in the circumstances. The approximate value of the Mazda is given at $25,000.00, where the relevant loan balance currently stands at around $36,000.00. These figures were not in dispute. The husband will retain a Toyota Hi-Ace van.

4. Furthermore, each party agreed to retain their respective superannuation funds.

5. The assets of the parties, then, essentially comprise the moneys on trust account deposit ($137,935.00) and shares ($900.00), a total of about $138,000.00.

6. With respect to the outstanding liabilities of the parties, there were three major sources of dispute.

7. The first related to the balance of a jointly held Westpac MasterCard, currently $11,500.00.

8. The second refers to various liabilities set out in the husband’s Financial Statement, which lists 23 separate amounts allegedly owing to various third parties. On cross-examination, it was revealed that the husband had previously paid many of the sums particularised in that document post separation. Of the amounts listed, only three were accepted by the wife in her statement of liabilities, and two were not supported by any relevant documentation.

9. The third point of contention related to debts owed by the wife pursuant to various personal guarantees given by her in order to finance the M Restaurant venture. The husband submitted the wife ought to bear those debts wholly. Similarly, the husband submitted that the wife should be held liable for the whole amount owing on the joint MasterCard.

10. The wife asserted that liability for the joint MasterCard, the personal guarantees as well as the last three items in the husband’s Financial Statement (specifically, amounts owed to a Construction company and a Building Supplies company) should be borne equally by the parties.

Findings - Liabilities

1. On cross-examination, the husband contended that many of the amounts listed in his financial statement were owing by the parties, being debts incurred during the relationship, or incurred in the course of administering the parties’ property and business interest. He says they were paid by him post separation. The husband contended those amounts ought be added back by the Court when making a determination of the parties’ respective financial contributions in this matter.

2. The Court has a discretion, by virtue of the s 79 process, to add back moneys spent, or the value of property disposed of, by parties to a dispute. The exercise of that discretion is, however, governed by the principles of justice and equity. The general rule, enunciated by the Baker J in In The Marriage of Kowaliw (1981) FLC 90-092 at 76, 643 - 76, 644, is that financial losses incurred by the parties throughout the course of a marriage, whether jointly or otherwise, should be shared by them, though not necessarily equally.

3. Adding back is the exception, not the rule; the general principle being that the Court takes the property of the parties as it stands at the date of trial. (see C & C [1998] FamCA 143 at para. 46).

4. The exception arises where a party, or both, has, by a “…deliberate act or by economic recklessness reduced the value of assets available for distribution” (see Kowaliw at 76,645).  Baker J held:

   “…financial losses incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:

   (a) where one of the parties has embarked upon a course of conduct designed to mise the effective value or worth of matrimonial assets, or

   (b) where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.” (Kowaliw at 76 – 644).

5. The Full Court in Omacini & Omacini (2005) FLC 93-218 accepted Baker J’s analysis, and, in addition (and relevant to the case at hand), noted that the Court’s discretion to add back necessarily extends to instances where there has been a premature, though not always ‘wanton or negligent’, distribution of marital assets.

6. However, the Full Court went on to reject the notion that “…the mere fact that a party has expended money realised from the disposition of assets that existed as at the date of separation, will result in that expenditure being added back…” as being “…unduly simplistic” (at 79-619). Indeed an analysis and assessment of the reasonableness of any such expenditure is crucial in making findings with respect to adding back.

7. There is here a significant time lapse between the separation of the parties and the hearing of this matter. As is often the case, the parties have each made certain financial contributions to their joint affairs post separation, including, but not limited to, assorted payments made by the husband against a number of joint debts, as well as the wife’s endeavours to maintain the parties’ interest in M Restaurant.

8. Given that both parties have indeed made, as seems clear, a concerted effort, despite their respective meagre resources, to meet the various liabilities incurred (both pre and post separation), it would be manifestly unjust to add back entirely the amounts listed, as paid by each, against the other party in this instance.

9. Thus the balance of the joint MasterCard, including the amounts debited against it post separation (as alleged) by the husband, shall remain a joint debt of the parties. Indeed, the wife conceded such a finding would be appropriate during the course of proceedings.

10. Similarly, I find that the amounts paid by the husband, be they in part or full satisfaction of the various liabilities listed in his Financial Statement, ought not be added back against the wife.

11. With respect to the business guarantees, the husband’s assertion that the wife should be held liable for those debts in full, seems to be based upon an argument that the wife alone gave such guarantees in her capacity as an owner of the business. 

12. However, there is no evidence at all in the husband’s case to suggest those guarantees were given negligently, much less wantonly, by the wife or that they were called in because of any such behaviour.  The M Restaurant investment, and any associated guarantee/s, was negotiated with a view to advancing the financial interests of both parties equally. The resultant liabilities should be borne equally unless there is good reason to order otherwise. In this case, there is not.  The guarantees given by the wife must be taken in for the purpose of calculating the net asset pool.

13. The parties’ total joint liabilities are then as follows:

Liability	Amount
Creditors of “[P] Pty Ltd” (M Restaurant)	$   57,357.26
Westpac MasterCard	$   11,500.00
Conics	$       487.99
… Building Supplies Company	$     2,450.00
… Construction Company	$     6,395.25
Total	$   78,190.50

1. The total net assets of the parties are, then, about $60,000.00 in cash.

2. That the parties should be litigating over such a sum is tragic, and, it should be said, the hearing occurs against a background where, at earlier procedural hearings, the parties were beseeched by the Court to resolve the dispute.

Add Back Arguments

1. Add back arguments centred initially around four separate issues:

   ·    the diminution in value of the North Queensland rental properties allegedly at the hands of the husband;

   ·    losses attributable to the M Restaurant venture as alleged against the wife, to be considered in conjunction with the alleged impact of the withdrawal of approximately $24,000.00 from joint moneys by the husband from the cash assets of the M Restaurant business post separation;

   ·    rental moneys in the amount of approximately $31,000.00, collected from the North Queensland properties post separation, and allegedly retained by the husband;

   ·    and a debt in the amount of $1,413.70, incurred and left unpaid by the husband, later being the subject of a caveat over joint property of the parties, and ultimately paid from joint settlement money.

2. According to the wife’s affidavit, filed 4 November 2008, the lost value on the four North Queensland properties totalled approximately $173,000.00. In her affidavit, the wife alleged that such losses occurred as a direct result of the husband’s “…deliberate and negligent conduct…” in administering those properties, and specifically that “[t]he properties were not maintained with respect to their tenancy and thus incurred significant damage resulting in loss…”  

3. On the wife’s evidence however, there is nothing to suggest the husband managed the North Queensland properties in a manner suggestive of negligence, nor was the husband’s behaviour redolent of a wanton desire to run down the value of those properties. Furthermore, there is nothing in the expert valuation reports that can be interpreted as being, in any way, supportive of the wife’s allegations. So much was ultimately, effectively, conceded by the wife’s counsel. No add back should occur.

4. Central to the husband’s case, with respect at least to his allegations against the wife of negligent mismanagement of M Restaurant and the alleged resultant financial loss, is the further allegation that the wife refused entry for a real estate agent to the business, necessary, on the husband’s evidence, to complete a market evaluation in preparation for sale.

5. The wife claims that at no point had she been made aware that the husband intended to list the restaurant for sale. The husband asserts that he made all the necessary arrangements with a real estate agent to put M Restaurant on the market. He also alleges that the wife repeatedly denied him access to the financial records of the business.

6. According to the husband, that same agent later advised him of an offer to buy the restaurant for $320,000.00. Again, the wife claims ignorance of any such offer.

7. The husband’s evidence can be briefly summarised: the agent was unnamed; the alleged prospective buyer was unnamed; no contract of sale was ever offered nor has any been produced. In short there is no probative evidence of the assertions save for the husband’s account of what an unnamed real estate agent told him.

8. The M Restaurant venture was embarked upon at a time when, on any view of the evidence, the marriage was falling apart. The stresses and tensions experienced by the parties in this regrettable scenario were exacerbated by their geographical separation. The wife alone undertook the day to day operations of the restaurant whilst the husband continued to work in North Queensland. The wife had also shouldered most of the additional stress associated with the move to South East Queensland.

9. Post separation, the wife has had the sole care of three children, in circumstances where historically the husband made few, if any, child support payments, and currently does not pay.

10. It could hardly be thought surprising that M Restaurant would fail. No negligence, or wantonness or ‘waste’ is made out.  

11. With respect to the $24,000.00 withdrawals from the joint business accounts, post separation by the husband, the wife submits that those withdrawals were reckless in the circumstances, and executed without due consideration for the likely impact on the business’ cash flow. In essence, it is alleged that the husband’s “unauthorised withdrawals” contributed significantly to the ultimate demise of the restaurant business.

12. There is insufficient evidence from which any such (serious) findings could be made. Again, this was, quite properly, effectively conceded by counsel for the wife.

13. With respect to the rental moneys from the North Queensland properties, allegedly misappropriated by the husband, the wife submits that approximately $31,000.00 ought to have been deposited, by way of direct transfer, into a joint business loan account. The wife submits that loan account did not have a redraw facility, and that moneys deposited would ordinarily have been applied towards reducing the property mortgages as well as the business loan for M Restaurant.

14. The husband insists that was never the case, and, in the alternative, that all rental proceeds were paid into a separate joint account, from which funds were then applied to the loan account. The wife claimed that all rental moneys were paid into a joint loan account by the property managers of the rental properties, until approximately August 2006, when the husband allegedly directed those moneys be paid to him directly. The husband refuted that contention.

15. There was no satisfactory evidence, by reference to financial records or the like, indicating that any rental moneys received from the North Queensland properties were not paid into the joint business loan account. The best evidence, said to support that contention, is Annexure RCR7 to the wife’s affidavit, being a letter from the Westpac Bank dated the 16 January 2008 indicating that, at the date specified, there was approximately $850,000.00 owing to the Bank. Interestingly, as it seems to me, the letter speaks in the present tense, saying “It does not appear that anyone is making loan payments”.

16. That letter was written 18 months after separation. The husband’s submission is that he paid the $31,000.00 into the Westpac loan account. There was no reliable evidence put before the Court refuting the husband’s contention. It is possible, for example, that both the husband’s contention and RCR7 can each be right.

1. Mr Pieterse suggested the wife’s evidence be accepted, especially given the husband’s repeated failure to openly and honestly disclose his financial position to the Court earlier in proceedings. I am deeply troubled by the husband’s evidence relating to his earnings post separation and will refer to it further in a moment. But, in respect of the rental moneys and business loans now considered, I am inclined to believe him. 

2. In the absence of other substantive evidence on point, the $31,000.00 in rental moneys allegedly misappropriated by the husband will not be added back.

3. Finally, there remains for consideration an amount of $1,413.70, paid from settlement moneys held by the wife’s solicitors, in satisfaction of a debt incurred by the husband post separation. On the wife’s evidence, the husband’s failure to pay the amount owing resulted in a caveat being lodged against one of the joint properties in North Queensland, effectively preventing sale. The husband did not refute that contention. The wife claims that amount should be added back against the husband, given the debt was incurred solely by him post separation, and the debt did not relate to the joint affairs of the parties.

4. Given the circumstances, I do not think it appropriate to add back the caveat debt against the husband. The wife satisfied that debt from joint settlement moneys, with the objective of removing the caveat so as to effect sale of the joint property. That property was maintained whilst ever the caveat had effect, and, by paying the relevant amount, the property was sold and the residuals moneys were paid onto the balance of the settlement moneys held in trust by the wife’s solicitors.

5. The wife, though not technically liable for the debt, thus benefited from its satisfaction. Indeed counsel again effectively conceded as much.

6. That add back, too, is rejected.

Contributions by the Parties and Distribution Assessment

Contributions

1. Mr Pieterse submitted that, should I find against his client’s add back arguments, the wife ought receive a division of the remaining pool on a 70/30 basis in her favour. 

2. It was submitted that, save for the initial contributions made by the husband, over the balance of the marriage, the parties’ contributions were equal. The wife led evidence indicating that she assisted with the property ventures in North Queensland, as well as being the principal carer of the children throughout the duration of the marriage.

3. Credit must be given, however, to the husband for his significant initial contribution, particularly in the context of a four-year relationship.

4. Specifically, his parents contributed substantial equity in the primary marital home in circumstances where the wife, on her own case, had no assets.

5. The husband thus provided a home for the parties, and shortly thereafter for their children. That home, though the evidence on point is somewhat thin, seems likely to have provided a springboard for the parties’ renovation activities and speculative property investments in North Queensland.

6. The wife sought to emphasise that the marital home, transferred to the husband by his parents, was not unencumbered, with a mortgage of approximately $100,000.00. The equity in that property stood at around $60,000.00 at the date of transfer. The parties then serviced that mortgage throughout the relationship.

7. That fact notwithstanding, particular regard should be had to the nature of the initial contributions and its use by the parties in this very short marriage.

8. I assess contributions, in this very small net “pool” in the percentages of 60% to the husband and 40% to the wife.

Section 75(2) Factors

1. The s 75(2) arguments led by the wife centred upon the fact that she has been the primary carer of the two infant children of the marriage, with minimal (if any) financial (or other) contribution from the husband since separation.

2. The husband acknowledged he had not spent any time with the children since December 2008; some two and a half months. Those children are aged 5 years and 3 years, and thus the wife faces significant future financial responsibilities for those children. The wife receives no support from the husband, indeed she bears the financial and parenting responsibility for the children alone. That seems likely to continue.

3. The wife earns approximately $40,000.00 per annum. Though she is qualified in hospitality, given the hours required of employees within the hospitality industry, it would seem (despite the husband’s arguments to the contrary) practically impossible for her to maintain employment in that trained profession until the children are significantly older. The wife’s income is, it was submitted, unlikely, then, to exceed around $40,000.00 in the foreseeable future. I agree.

4. The husband, in his financial statement, disclosed nil earnings. Upon cross examination however, the husband eventually disclosed (apparently gross) earnings of about $100,000.00, earned over a 16-month period post separation. The husband currently works with his brother in his capacity as a tradesman. It seems likely that working relationship will continue.

5. Even on his own case, one should be very sceptical of how much income would be declared for taxation purposes. The husband’s evidence with respect to his earnings and income position was entirely unsatisfactory and, I suspect, dishonest.

6. The wife, then, submitted the husband has a vastly superior earning capacity to her own, though it is not possible on the evidence to conclude with any certainty what that income is likely to be.

7. Mr Pieterse suggested that the husband’s earning capacity is at least twice that of the wife.

8. The wife’s  outstanding debts are as follows:

Liability	Amount
Income tax liability	$   5,818.17
Car Loan	$ 36,000.00
Westpac Visa	$    722.26
NAB MasterCard	$   4,313.24
NAB American Express	$   2,174.20
Total	$ 49,027.87

1. A highly relevant matter is, of course, that the “pool” equates to approximately $60,000.00 after the satisfaction of all relevant joint debts. Neither party will receive property or financial resources of any significance as a result of the final distribution (whatever distribution that might be made).

2. But, it is of very great significance that the wife is likely to bear the brunt of the financial (and other) responsibility for the children. I have real doubts, for example, that the husband’s tax return will ever provide an accurate picture of his income and it is those tax returns (absent litigation) that will determine child support.  

3. I am not unaware that the husband supported and provided for the wife’s child of a previous relationship.

4. The husband referred to a number of other matters in submissions, none of which I find persuasive:

   ·    a past intention to sell a ring in order to satisfy various unspecified debts, but alleges the wife refused to return it to him post separation. The husband alleged that, given his resultant inability to meet those debt repayments, his credit rating was adversely affected by the wife’s behaviour;  

   ·    valuation fees paid in full by him to D Company, being for services rendered with respect to the North Queensland properties. The husband submitted that the wife obtained further, and allegedly unnecessary and wasteful, valuations for the same properties;

   ·    the $5,000.00 balance of a “Go MasterCard”, allegedly used to buy a fridge during the term of the relationship. The husband insisted that he paid the balance of that MasterCard in full. Further, the husband referred to a Commonwealth Bank MasterCard used to pay for the parties’ wedding. He insisted he had also paid that amount in full since the separation.

5. The husband also suggested that, if not for the relationships he maintained with various friends in the construction industry in North Queensland, the parties would not have been capable of pursuing their various property investments. The husband insists that, by virtue of those commercial friendships, he was availed of more favourable pricing and accounting terms when it came to the purchase of building materials and the like. Thus, on his submissions, the residual marital pool, however modest, would not exist without the money made on the North Queensland properties, where such investments were made possible through his industry contacts and significant efforts in renovating those properties.  I have taken account of that in assessing contributions.

6. The husband has debts outstanding as at the date of trial which include amounts owing to Conics, a Building Supplies company and a Construction company. Those debts, on the evidence of the wife (which is, I find, more reliable), amount to $9,333.24.

7. The husband’s further allegations were, again, not substantiated by reliable evidence. He submitted that he continued to seek 70% of the net marital pool. 

8. Even in this very small pool, the Court must consider the real dollar value of any percentage adjustments made to the distribution (see In the Marriage of Clauson (1995) FLC 92-595). In this case, for example each 10% adjustment equates only to about $6,000.00.

9. I am particularly persuaded by the wholly unreliable evidence of the husband in respect of his income, and the fact that no child support is being paid or likely to be paid. Given the ages of the children, I consider an adjustment of 30% is called for (that is $18,000.00).

10. That results in an overall distribution of 70% to the wife and 30% to the husband. Such result seems to me just and equitable in the unfortunate circumstances of this case.

11. I order accordingly.

I certify that the preceding eighty-nine (89) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Murphy.

Associate

Date:  08 April 2009