SAMPER & SAMPER
[2020] FCCA 1675
•6 July 2020
FEDERAL CIRCUIT COURT OF AUSTRALIA
| SAMPER & SAMPER | [2020] FCCA 1675 |
| Catchwords: FAMILY LAW – Property – final – long marriage 26 years – contributions to separation agreed to be equal – valuation of husband’s sole trader professional practice – valuation principles – likelihood of the possibility of the critical identified future events occurring – analysis of wife’s post separation unilateral distribution of revenues of parties business operated solely by her – analysis of wife’s entitlement to be allocated a notional salary from partnership profits to reflect her personal exertions – distinction between salary as return on personal exertion and profits as return on business enterprise - no net preliminary distribution by wife of funds not otherwise accounted for in joint balance sheet - assessment of post separation contributions – assessment of pre and post separation contributions – equal contributions overall to hearing – assessment of each parties future earning capacity – failure of husband to provide full and frank disclosure – no basis for finding different earning capacities sufficient to justify an adjustment pursuant to s75(2) – order adjustment of property interest so that each party retains 50% of the net property pool including superannuation – which party should have first right to purchase partnership business – wife as party who has operated partnership business day to day for 14 years to have first opportunity for 3 months – husband to have second opportunity for 3 months – if neither party can buy out the other then partnership business to be sold on the open market. |
| Legislation: Family Law Act 1975 (Cth), ss.79, 75(2), 75(2)(o), 79 Evidence Act1995 (Cth), s.140(2) Partnership Act1892 (NSW), s.32 |
| Cases cited: DJM & JLM (1998) FLC 92-816 Trevi v Trevi [2018] FamCAFC 173 Black and Kellner (1992) FLC 92-287 Weir & Weir (1993) FLC 92-338 Williams & Williams [2007] FamCA 313 Wallis & Manning [2017] FamCAFC 14 Jabour & Jabour (2019) FLC 93-898 Horrigan & Horrigan [2020] FamCAFC 25 Hurst & Hurst (2018) FAMCAFC 146 Malec v JC Hutton Pty Ltd [1990] HCA 20 169 CLR 638; Burger King Corporation v Hungry Jack’s Pty Limited [2001] NSWCA 187 |
| Applicant: | MS SAMPER |
| Respondent: | MR SAMPER |
| File Number: | SYC 2499 of 2015 |
| Judgment of: | Judge B Smith |
| Hearing dates: | 12 August 2019, 13 August 2019 |
| Date of Last Submission: | 13 August 2019 |
| Delivered at: | Sydney |
| Delivered on: | 6 July 2020 |
REPRESENTATION
| Counsel for the Applicant: | Mr Kearney S.C. |
| Solicitors for the Applicant: | Pearson Emerson Meyer Family Lawyers |
| Counsel for the Respondent: | Mr Hodgson |
| Solicitors for the Respondent: | Malouf Solicitors |
ORDERS
The Applicant Wife (“the wife”) shall, within 3 month of the date of these Orders by way of alteration of property interests, pay to the Respondent Husband (“the husband”) $1,553,005.50 being such sum as is necessary for the husband to retain an amount equal to 50% of the net value of the parties interests, where the wife retains the assets and liabilities of the Partnership and the B Street, Suburb C property:
(a)Simultaneously with the parties' compliance with Order 1, the husband and wife shall do all acts and things and sign all documents as are necessary, at the wife's expense, to discharge the D Company loan or discharge the husband’s liability for that loan, and thereafter the wife shall be solely responsible for all monies owing in respect of the D Company loan.
(b)The husband shall do all acts and things and sign all documents as are necessary to transfer to the wife his interest in the B Street, Suburb C property, at the wife's expense;
(i)The wife is confirmed in her ownership of her pre-existing interest in the B Street, Suburb C property and the business and assets of the Partnership.
(c)Simultaneously with the parties' compliance with Order 1 the wife is to serve on the husband, through his solicitors, notice of the dissolution of the Partnership pursuant to section 32 of the Partnership Act 1892 (NSW), such dissolution to be stated in the notice to have taken effect on the date of the payment in Order 1.
(d)Upon the dissolution of the Partnership:
(i)The parties shall do all acts and things and sign all documents as are necessary so as to close the joint bank accounts and in doing so disburse any remaining balances to the wife;
(ii)Other than as provided in these Orders, the husband will have no claim on the property, assets or profit of the Partnership;
(iii)The Partnership business and assets, including the goodwill of D Company, will vest in the wife, and she will be entitled to continue to operate the business of the D Company;
(iv)The husband and wife are to do all acts and things and sign all documents as are necessary so as to close all bank accounts of the Partnership and in doing so are to disburse any remaining balances to the wife;
(v)The husband and wife are to do all acts and things and sign all documents as are necessary to give effect to these Orders as they relate to the Partnership, and the business and assets of the Partnership; and
(vi)Other than as provided in these Orders, each of the husband and the wife releases the other from all claims arising from, or in any way related to, the Partnership and the business conducted by it.
If the Applicant wife does not comply with Order 1 within the specified 3 month period, then within a further period of 3 months of the date of these Orders, by way of alteration of property interests, the husband shall pay to the wife $1,991,659.50 being such sum as is necessary for the wife to retain an amount equal to 50% of the net value of the parties interests, where the husband retains the assets and liabilities of the Partnership and the B Street, Suburb C property:
(a)Simultaneously with the parties' compliance with Order 1, the wife and husband shall do all acts and things and sign all documents as are necessary, at the husband’s expense, to discharge the D Company loan or discharge the wife’s liability for that loan, and thereafter the husband shall be solely responsible for all monies owing in respect of the D Company loan.
(b)The wife shall do all acts and things and sign all documents as are necessary to transfer to the husband her interest in the B Street, Suburb C property at the husband’s expense;
(i)The husband is confirmed in his ownership of his pre-existing interest in the B Street, Suburb C property and the business and assets of the Partnership.
(c)Simultaneously with the parties' compliance with Order 1 the husband is to serve on the wife, through her solicitors, notice of the dissolution of the Partnership pursuant to section 32 of the Partnership Act 1892 (NSW), such dissolution to be stated in the notice to have taken effect on the date of the payment in Order 1.
(d)Upon the dissolution of the Partnership:
(i)The parties shall do all acts and things and sign all documents as are necessary so as to close the joint bank accounts and in doing so disburse any remaining balances to the wife;
(ii)Other than as provided in these Orders, the wife will have no claim on the property, assets or profit of the Partnership;
(iii)The Partnership business and assets, including the goodwill of D Company, will vest in the husband, and he will be entitled to continue to operate the business of the D Company;
(iv)The husband and wife are to do all acts and things and sign all documents as are necessary so as to close all bank accounts of the Partnership and in doing so are to disburse any remaining balances to the husband;
(v)The husband and wife are to do all acts and things and sign all documents as are necessary to give effect to these Orders as they relate to the Partnership, and the business and assets of the Partnership; and
(vi)Other than as provided in these Orders, each of the husband and the wife releases the other from all claims arising from, or in any way related to, the Partnership and the business conducted by it.
If neither Order 1 nor Order 2 are given effect within the specified 6 month period, then within a further period of 3 months of the date of these Orders the parties are to jointly arrange for the sale of the business known as D Company in a package including the B Street, Suburb C property, and for the dissolution of the Partnership, and the net proceeds after all the discharge of the mortgage over the B Street, Suburb C property and payment of all sales costs are to be distributed between the parties so that each party receives such sum as is necessary for them to retain an amount equal to 50% of the net value of the parties interests.
(a)If the parties are unable to agree on a mechanism for any aspect of this Order they have leave to approach the Court for the making of machinery provision Orders.
Upon dissolution of the Partnership, pursuant to Order 1, 2 or 3 above, the wife shall indemnify and keep indemnified the husband in respect of the husband’s liability to pay income tax on any income derived by him from the Partnership in the financial years ended 30 June 2018, 30 June 2019 or 30 June 2020.
Within 28 days of date of these Orders, each party shall pay 50% of Mr E's money to Mr E.
Save as otherwise provided for in these Orders, the wife be and hereby is declared to be solely entitled to all property and financial resources in her name, possession or control or to which she is or may become entitled including but not limited to the following:
(a)The wife's car;
(b)The wife's superannuation;
(c)The wife's bank accounts;
(d)The wife's jewellery and household contents;
(e)The wife's Westpac Foundation Plan;
(f)The wife's ATO Credit; and
(g)All furniture, furnishings, household contents and personal effects in the possession of the wife.
Save as otherwise provided for in these Orders, the husband be and hereby is declared to be solely entitled to all property and financial resources in his name, possession or control or to which he is or may become entitled including but not limited to the following:
(a)F Company;
(b)The husband's bank accounts;
(c)The husband's superannuation;
(d)The husband's household contents;
(e)The husband's Inheritance;
(f)The husband's Shares;
(g)The G Street, Suburb H property; and
(h)All furniture, furnishings, household contents and personal effects in the possession of the husband.
Save as otherwise provided herein:
(a)the wife indemnify the husband from and in respect of all actions, claims, suits and demands as may be made against the husband in relation to all liabilities in the name of the wife including but not limited to the wife's credit cards;
(b)the husband indemnify the wife from and in respect of all actions, claims, suits and demands as may be made against the wife in relation to all liabilities in the name of the husband including but not limited to the G Street, Suburb H loan and the husband's credit cards;
(c)except as specifically provided for by any paragraph comprising these Orders to the contrary, each of the wife and the husband release the other from all debts owing from one to the other; and
(d)unless otherwise specified in these Orders, and other than in respect of the Partnership and the business carried on by it, each party be solely liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled pursuant to these Orders.
Both parties shall do all acts and things and execute all documents, authorities and writings as are necessary to give effect to any of these Orders.
In default of either or both the husband and wife doing all such things and executing all such documents as may be needed to comply with these Orders within the timeframe provided:
(a)a Registrar of a Court exercising competent jurisdiction or such other person appointed by the Court be authorised to do all such act and things and execute all such documents on behalf of either or both parties; and
(b)if either party procures compliance with this Order by obtaining execution of documents pursuant to this Order, then the party procuring such execution of documents will be indemnified by the party for his or her costs and expenses incurred in obtaining such compliance.
NOTES
(A)The Court notes the following definitions for the purposes of these Orders:
(a)"F Company" means Mr Samper trading as F Company being the practice conducted by the husband from rental premises situate at J Street, Suburb K.
(b)"Mr E's money" means the sum of $21,714 which the parties owe their son, Mr E.
(c)"Husband's bank accounts" means the following accounts held in the name of the husband:
(i)Commonwealth Bank Business Online Saver account #...99;
(ii)Commonwealth Bank Premium Cheque account #...06;
(iii)Commonwealth Bank account #...26;
(iv)Commonwealth Bank account #...51;
(v)Westpac Bank Choice account #...60; and
(vi)Westpac Bank eSaver account #...13.
(d)“Husband's credit cards” means and any credit cards in the husband's name including but not limited to the husband's Commonwealth Bank Amex/Visa #...28.
(e)“Husband's household contents” means household contents in the husband's possession and control.
(f)“Husband's Inheritance” means the funds inherited by the husband from the Estate of the late Ms L.
(g)“Husband's shares” means the husband's:
(i)2,800 ordinary shares held with M Shares;
(ii)2,355 ordinary shares held with N Shares;
(iii)360 ordinary shares held with O Shares;
(iv)2,125 ordinary shares held with P Shares;
(v)10,000 ordinary shares held with Q Shares; and
(vi)CommSec Account #...33.
(h)“Husband's superannuation” means the husband's superannuation interest held with Super Fund R #...89.
(i)“Joint bank accounts” means any accounts held in the joint names of the parties including but not limited to the following accounts held jointly in the names of the husband and the wife:
(i)Westpac Bank Business One account #...12;
(ii)Westpac Bank Choice account #...12; and
(iii)Westpac Bank Business Cash Reserve account #...89.
(j)“G Street, Suburb H loan” means the means the loan owing to Commonwealth Bank account #...05 registered on the title over the land at G Street, Suburb H which secures the G Street, Suburb H loan.
(k)“G Street, Suburb H property” means the property situate at and known as G Street, Suburb H registered in the sole name of the husband being more particularly described as Lot ...6
(l)“Partnership” means the Mr & Mrs Samper Partnership (ABN ...) between the husband and the wife by which the parties carry on the business known as D Company from the B Street, Suburb C Property.
(m)“D Company loan” means the loan owing to Bank S account #...01 secured by mortgage registered on the title over the land at B Street, Suburb C, which secures the D Company loan.
(n)“B Street, Suburb C property” means the property situate and known as B Street, Suburb C, being the whole of the land contained in Folio Identifier ...27 registered in the names of the husband and wife as tenants in common in equal shares.
(o)“Wife's bank accounts” means the following accounts held in the name of the wife:
(i)Westpac Business Cash Reserve #...22;
(ii)Westpac Business One #...14
(iii)Westpac One account #...38,
(iv)Bank T account #...39;
(v)Bank U #...00; and
(vi)interest in Bank V account, Country W held in the name of Ms X.
(p) “Wife's cars” means the Motor Vehicle 1 registered in the name of the wife registration ... and the Motor Vehicle 2 registered in the name of the wife registration ....
(q)“Wife's credit cards” means the wife's following credit cards & or credit facilities:
(i)Bank Y account #...30;
(ii)Westpac MasterCard account #...39.
(r)“Wife's jewellery and household contents” means the jewellery and household contents in the wife's possession and control.
(s)“Wife's superannuation” means the wife’s superannuation interests held with Super Fund Z account #..., Super Fund AA #...05 and Super Fund BB #...05.
(t)“Wife's Westpac Foundation Plan” means the wife's investment interest in Policy Number: ...17.
(u)“Wife's ATO Credit” means the wife's credit with the ATO.
IT IS NOTED that publication of this judgment under the pseudonym Samper & Samper is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT SYDNEY |
SYC 2499 of 2015
| MS SAMPER |
Applicant
And
| MR SAMPER |
Respondent
REASONS FOR JUDGMENT
Ms Samper, 60 years of age, and Mr Samper, 64 years of age, were married and commenced cohabitation in 1987 in Country W. They had three children: Mr E, 31 years of age; Mr CC, 28 years of age; and Ms DD, 23 years of age. They migrated to Australia in 1992 and became Australian citizens in 1996. They finally separated on 27 June 2013 after approximately 26 years. They were divorced on 24 July 2015. These proceedings were commenced by Ms Samper on 30 July 2015 for the adjustment of property interests pursuant to section 79 of the Family Law Act1975 (Cth) (“the Act”).
Mr Samper is a qualified health care worker and has worked as such since receiving his qualification from the EE University in Country W in 1982.
Relevantly, in about 2010 the parties started a practice in which Mr Samper trades as a sole practitioner with the name F Company (“F Company”). F Company is currently located in rental premises at J Street, Suburb K. Mr Samper has continued to operate F Company since the date of separation. He is paid a salary and makes his personal exertion income from F Company. There are no profits left over after payment of his salary.
Among the issues in dispute are the value of F Company, whether Mr Samper has provided full and frank disclosure around the financial affairs of F Company including the salary and overall financial benefits he has received through it, and Mr Samper’s current and future earning capacity. There is no dispute that Mr Samper should retain F Company.
Since about 2006 the parties have operated a business known as the D Company through the Mr & Ms Samper Partnership. Except were necessary to distinguish between the business and the partnership they will be referred to jointly as “D Company”. There is no written partnership agreement and it is common ground that the partnership is governed by the provisions of the Partnership Act 1892 (NSW).
Both parties were involved in the development phase. Ms Samper has the relevant child care qualifications for accreditation. Mr Samper does not. While both parties were involved in D Company pre-separation as non-executive partners and owners of the business, Ms Samper operated D Company on a day to day basis while the Mr Samper worked as a health care worker including at F Company. Post separation Ms Samper has continued to work as the operator of D Company.
The value of D Company, which includes the land on which D Company operates at FF Street, Suburb C also known as B Street, Suburb C, was sensibly agreed for the purpose of these proceedings at $4,025,000 after adversarial experts greatly narrowed the range in dispute at a joint conference. There is a joint mortgage of $458,347.
Pre-separation the D Company profits were treated as joint matrimonial income. Ms Samper was not paid a separate salary for her personal exertion. The parties allocated the D Company profits between them on the advice of their accountants. There is no suggestion of taxation impropriety in this allocation.
Apart from the value of F Company the parties agreed the values of all assets, liabilities, other interests to be accounted for (or “add-backs”) and superannuation entitlements. For the reasons set out below I have found the value of F Company to be $162,093. The parties total net position allowing for all assets, other interests and superannuation, less all liabilities is $5,806,567.00.
The parties sensibly agreed during the course of opening submissions that contributions to the date of separation should be treated equal. The remaining issues in dispute therefore related primarily to post separation contributions and conduct.
At the heart of the dispute around post-separation conduct was to Mr Samper’s assertion that Ms Samper had wrongly retained and converted to her sole use and benefit 100% of the profits from D Company, when 50% of those profits should have been paid to Mr Samper as joint partner and owner of D Company pursuant to partnership law and in the appropriate allocation of the income, or profits, from joint matrimonial property.
Mr Samper’s case was that this unilateral retaining and use of joint matrimonial assets must be brought into account in the adjustment of property rights between the parties, as must the post separation inheritance he has received. On that basis he submitted that the parties’ property interests should be adjusted so that he retained 55% of the net value of the pool. He also sought the first right to retain D Company.
Ms Samper’s response to Mr Samper’s case was that she was entitled to a salary for her personal exertion in the day to day operation of D Company, and that after that allowance a careful analysis of the actual expenditure of D Company’s revenues showed that when funds expended for Mr Samper’s sole benefit, the parties joint benefit including for their children, and funds caught by the agreed superannuation balances and add-backs on the joint balance sheet were accounted for, there was no additional retainer by Ms Samper of the profits of D Company. She submitted that taking into account her additional contributions to the welfare of the children post separation, that the parties property interests should be adjusted so that she retained 55% of the net value of the pool and also that she have the first right to retain D Company as the qualified existing operator.
One of the central concepts relevant to the determination of these proceedings is the distinction between a “salary” as a return for personal exertion in an enterprise and “profit” which is the return to ownership of the enterprise. The distinction can become easily blurred both where considering a sole trader business such as F Company in which Mr Samper was selling professional services and or where one of two partners also works full-time in the business as Ms Samper did in D Company. Unfortunately, at various stages during these proceedings, the concepts of a salary and profits became either confused or conflated.
What is the value of the F Company practice?
i. The expert evidence
Expert witness evidence was obtained from a single expert chartered accountant and valuer, Mr GG. Mr GG had subject matter input into that valuation from a qualified health care worker as a Consultant, Dr HH. Mr GG produced reports dated 12 April 2016, 20 August 2018 and 13 May 2019. Dr HH attested to the accuracy of the information attributed to him by Mr GG. The expert affidavits were read and reports tendered by consent. Neither Mr GG nor Dr HH were required for cross examination by either party.
The relevant opinion is that of Mr GG of 13 May 2019. The opinion was based on information provided by Mr Samper, found in paragraph 26 of Mr GG’s report dated 13 May 2019. There were obvious issues with some of the information provided by Mr Samper. However, the parties proceeded on the basis of this valuation and the issue of Mr Samper’s disclosure was treated as a separate issue and is dealt with further below.
Mr GG proceeded on the basis that a market salary, including superannuation, for a qualified health care worker to act as principal of F Company would be $98,550. Assuming that market wage for the health care worker operating F Company and given the income and outgoings of F Company as disclosed by Mr Samper, Mr GG found that there were notional losses in F Company reflecting Mr Samper accepting below market level remuneration to operate F Company.
On the basis that F Company was not operating profitably Mr GG was unable to adopt the standard Capitalisation of Future Maintainable Earnings methodology. He instead considered it appropriate to use the Inherent Value method combined with the Sales Evidence. He also considered the value and rate of return on plant and equipment as assessed by Dr HH, and took into account his experience with the acquisition and sale of practices which were not operating profitably, which had values from $0 to $200,000, relevant to Inherent Value.
Mr GG took into account a range of factors, including the fact that it was a well-established local practice, in the same good geographic location since establishment, with council approval and a fit-out to operate in an area with high barriers to entry. F Company was identified with good visibility and demographics, a good fee scale with fees correctly charged but also noting the small premises which could limit efficiency and practice growth, potentially inconvenient consulting hours, current low key marketing, absence of ongoing support for the IT management system, and also very high competition from local practices.
There was no challenge to this methodology by either party.
One of the factors Mr GG took into consideration was that there is not currently a signed lease in place. There was a first 5 year lease. A 5 year extension was offered in 2014 which would finish in 2019, but Mr Samper did not sign the lease extension. Instead F Company continued occupancy on a month-to-month basis. Mr GG therefore provided a range of valuations taking into account the issue of whether or not a lease would be available.
ii. Valuation evidence
Mr GG’s opinion on the value of F Company was expressed as follows (original emphasis):
[74] After consideration of the factors discussed in Paragraphs 72 and 73 and Appendix E we are of the opinion, that without a signed lease in place and while occupation of the premises is on a month to month basis the value of the goodwill of the Practice is Nil. However, if Mr Samper was to put a lease in place, on market terms, with a minimum term of 5 years, with an option for a further 5 years the value of the goodwill of the Practice would be, in my opinion, in the range of $100,000 to $150,000.
75. STATEMENT OF VALUE
In my opinion the indicative value of Goodwill and Plant & Equipment of F Company at 7 March 2019 is as follows:
High – Lease available Low – Lease available No lease available Value of Goodwill $150,000 $100,000 Nil Value of Plant & Equipment $45,624 $45,624 $45,624 Total Value $195,624 $145,624 $45,624
iii. What is the likelihood of the availability of a lease?
The likelihood of the availability of a lease, to Mr Samper or a potential purchaser, was a principal factual issue underlying the valuation.
The only evidence as to the likelihood of a lease being available came from Mr Samper, as part of his instructions to Mr GG. The most contemporaneous evidence from Mr Samper was included at paragraph 39 of Mr GG’s final report:
The practice premises are leased. The current lease is towards the end of its second 5 year term with an end date of 31 December 2019. However, we understand that the lease extension was never signed and that in effect the Practice is currently occupying the premises on a month to month basis. At this time, there is no written confirmation available indicating that the lease will be able to be renewed at its theoretical end date of 31 December 2019 and on what terms. Mr Samper has advised Dr HH that he intends to continue to occupy the premises on a month to months basis after 31 December 2019. Mr Samper has advised Dr HH that he has no reason to believe that the landlord will not accept his continued occupation on this basis. Equally Mr Samper advised Dr HH that he has no reason to believe that he would not be able to enter into a formal lease on similar terms to the existing lease albeit with potentially an increase in rent in line with the market should he choose to do so.
Given the landlord has been content to proceed on a month-to-month basis for five years, and that Mr Samper said he had no reason to believe he would not be able to enter into a formal lease on similar terms assuming a rent increase in line with the market, I find that a lease in terms identified by Mr GG at paragraph 74 of his report is very likely to be available to Mr Samper or a prospective purchaser. However, I do not believe this evidence alone, and without evidence from the landlord, would justify a finding that it is a practical certainty.
iv. What is the value of F Company?
Mr Samper submitted that as there is in fact no lease the Court should proceed on the basis of that known fact, and consequently adopt a valuation based on no lease being available.
On that basis Mr Samper also submitted that the $12,366 fit-out component of the Plant and Equipment valuation would be worthless as it could not be usefully stripped and taken despite being owned, so that the appropriate figure is the $45,624 assuming no lease, minus $12,366 which is equal to $33,258.
In the alternative Mr Samper submitted that there would be a discount for the fact that the lease is not a certainty. It was submitted that taking that approach, the range for goodwill would be the midpoint of the nil to $150,000, being $75,000, plus some amount for Plant and Equipment. It was further submitted that given his age, Mr Samper may not choose to enter a new lease if the landlord requires him to do so.
Ms Samper submitted that in valuing F Company the Court would adopt a valuation on the basis of a lease being in place or available to be put in place. Further, to the extent that Mr Samper has elected not to enter a lease, it was submitted that his voluntary actions in not taking a new lease should not be allowed to decrease the value of an asset in his hands to the detriment of Ms Samper, citing DJM & JLM (1998) FLC 92-816.
On that basis Ms Samper submitted that the appropriate assumption was that a lease is available, which means that the Plant and Equipment and fit-out are to be valued on a going concern basis, with the valuation adopting the mid-point figure assuming a lease to account for positive and negative vicissitudes. That figure is $170,624.
Where the Court is engaged in a business valuation, which by its nature involves an assessment of the likelihood of the possibility of future events occurring, the Court must so far as possible form an estimate of the likelihood of the possibility of the identified future events occurring and incorporate its findings as to the degree of probability into the valuation, see Malec v JC Hutton Pty Ltd [1990] HCA 20 169 CLR 638 and Burger King Corporation v Hungry Jack’s Pty Limited [2001] NSWCA 187.
Given the finding I have made about the likely availability of a lease, the appropriate course is to approach the valuation by reference to a lease being very highly likely to be available. As it is necessary to apply a percentage figure for the purposes of calculations I find that likelihood is 95%.
Whilst there is an argument that Mr Samper has not exercised his full earning capacity, nor has he maximised the value of F Company by entering a new lease, the statutory requirement is that I first identify the parties existing legal and equitable property interests. Accordingly, I do not consider it appropriate to notionally treat the likelihood of a lease being available as practical certainty as Ms Samper submitted I should.
The starting point is therefore the mid-point figure between the high and low range valuation assuming a lease, to take into account the positive and negative vicissitudes assuming a lease is available, however, as the probability of a lease being available cannot be raised to a practical certainty, some additional allowance should be made for the risk that a lease might not be available.
On that basis I would reduce the mid-point sum by approximately 5% for that small uncertainty. Accordingly, I find that the value of F Company is $162,093.
I have taken the factors raised by Ms Samper by reference to DJM & JLM into account as an “other” factor pursuant to section 75(2)(o) below when also considering the quality of Mr Samper’s disclosure around F Company.
What are the assets, liabilities superannuation and other interests to be accounted for of the parties?
The Court is required to identify the parties’ existing legal and equitable property interests, whenever acquired, pursuant to the ordinary principles of the common law and equity.
Across the course of the hearing the parties narrowed the issues and agreed on a final joint balance sheet, subject to the value of F Company. The final version was provided after the close of oral submissions. That joint balance sheet is set out below, amended only to include the value of F Company as I have found it.
The parties agree that the interim distributions and legal fees which were required to be accounted for were captured by other assets or dealt with through the inclusion of paid legal fees, see Trevi v Trevi [2018] FamCAFC 173, and similarly that the agreed superannuation captured superannuation paid from D Company and also the funds received by Mr Samper from the sale of the JJ Company.
Accordingly, I find that the following represents the parties’ assets, liabilities, superannuation, and other interests to be accounted for, as follows:
ASSETS Ownership Description 1 Husband G Street, Suburb H $1,328,000 2 Joint D Company including premises at FF Street, Suburb C also known as B Street, Suburb C $4,025,000 3 Joint Westpac Business One account #...12 Incl in item 2 4 Joint Westpac Choice account #...12 Incl in item 2 5 Joint Westpac Business Cash Reserve account #...89 Incl in item 2 6 Wife Westpac Business Cash Reserve #...22 Incl in item 2 7 Wife Westpac Business One #...14 as at 30.06.19 Incl in item 2 8 Wife Westpac One account #...38 as at 05.08.19 $17,650 9 Wife Bank T account #...87 (including #...39) as at 05.08.19 $ 262,405 10 Wife Bank V (Country W) (136,934.83) $13,938 11 Wife Bank U Account #...00 $2,990 12 Wife Westpac Foundation Plan #...17 $49,961 13 Wife Motor Vehicle 1 registration ... $9,500 14 Wife Motor Vehicle 2 (used by son) $300 15 Wife Household contents EXCL 16 Wife Jewellery $7,000 17 Wife ATO Credit $2,116 18 Husband F Company (as found) $162,093 19 Husband CBA Business Online Saver account #...99 at 6.7.19 $2,439 20 Husband CBA Premium Cheque account #...06 $670 21 Husband CBA account #...26 at 31.7.19 – H at 9.8.19 $328 22 Husband Westpac account #...60 NIL 23 Husband Westpac eSaver #...13 as at 18.03.19 $106 24 Husband M Shares 2800 ordinary fully paid shares as $7.93 @ at 2.08.2019 $22,204 25 Husband N Shares 2523 ordinary shares $8.43 @ 2.08.19 $21,268 26 Husband O Shares 360 Ordinary fully paid shares $2.63 @ 2.08.19 $946 27 Husband P Shares 2,125 Ordinary shares 2,125 ordinary shares - $3.56 at 2.08.19 $7,565 28 Husband Q shares 10000 ordinary shares $500 29 Husband CommSec account #...33 $NK 30 Husband Household contents EXCL 31 Husband Funds of the Estate of the late Ms L $90,000 32 Husband Motor Vehicle 3 $9,500 33 Wife Partial property settlement (Court orders 17.07.17) Incl in item 1 34 Husband Partial property settlement (Court orders 17.07.17) Incl in items 9 and 35 Total $ 6,036,479
ACCOUNTING FOR OTHER INTERESTS Ownership Description 35 Wife Paid legal fees, disbursements and funds in Trust account $381,085 36 Husband Legal fees Paid to Martin Legal $84,005 37 Husband Legal fees to Malouf Solicitors Incl in item 36 38 Husband Disbursements (Valuations) Paid to Malouf and to Edmunds & Associates Incl in item 36 Total $ 465,090
LIABILITIES Ownership Description Applicants value 39 Joint Mortgage secured over FF Street, Suburb C (Bank S) $458,347 40 Husband Mortgage secured over G Street, Suburb H CBA #...05 $741,629 41 Joint Parties' son Mr E $21,988 42 Wife ATO – 2018 taxation $20,556 43 Wife ATO – 2019 estimated taxation $16,494 44 Wife Bank Y #...30 EXCL 45 Wife Westpac Card #...39 EXCL 46 Husband CBA Amex/Visa #...28 credit card at 5.07.19 EXCL Total $ 1,259,014
SUPERANNUATION Member Name of Fund Type of Interest Applicants value 47 Wife Super Fund Z Accumulation $194,653 48 Wife Super Fund AA#...5 Accumulation $1,098 49 Wife Super Fund BB #...05 Accumulation $5,978 50 Husband Super Fund R #...89 Accumulation $362,283 Total $ 564,012
Ms Samper’s total sole assets are $365,860, addbacks are $381,085, superannuation is $201,729 and liabilities are $37,050. In summary that is (assets) $365,860 + (addbacks) $381,085 + (super $201,729) – (liabilities) $37,050 = $911,624.
Mr Samper’s total sole assets are $1,645,619, addbacks are $84,005, superannuation is $362,283 and liabilities are $741,629. In summary that is (assets) $1,645,619 + (addbacks) $84,005 + (super) $362,283 – (liabilities) $741,629 = $1,350,278.00.
The parties’ total jointly owned assets (D Company and associated mortgage) equate to $4,025,000 and liabilities of $480,335 = $3,544,665
Therefore, the parties’ combined individual and jointly owned total assets $6,036,479.00 + addbacks $465,090.00 + superannuation $564,012.00 - liabilities $1,259,014.00 = $5,806,567.
Post separation contributions and conduct
Did Ms Samper take Mr Samper’s share of the D Company’s profits?
i. D Company background
The parties established D Company through the partnership on advice from their then accountants. There is no partnership agreement. The terms of the partnership are governed by the law of NSW. Accordingly, in determining the legal and equitable interests of the parties to the assets of the partnership each party is entitled to 50%. The balance sheet represents this fact.
Prior to separation the profits of D Company were treated as joint matrimonial income.
ii. Mr Samper alleges Ms Samper kept Mr Samper’s share of D Company’s profits
Mr Samper submits that post separation Ms Samper excluded him entirely from the operation of D Company and from access to its cash flows and profits. As a matter of fact that is correct.
This exclusion was clearly a source of great frustration and concern to Mr Samper and has had an impact on the course of this litigation.
Mr Samper alleged that Ms Samper retained and used for her sole benefit 100% of the profits of D Company, including the 50% which were legally his. He submitted that this premature distribution of his half of the profits was not captured in the joint balance sheet and needed to be brought into account.
While Ms Samper admitted that she had exercised sole control over D Company and its cash flows and profits, she submitted that when a proper allowance and accounting was made for;
a)the taxation liability of the partnership;
b)a notional salary to be paid to Ms Samper for her personal exertion in conducting D Company, in the same way that Mr Samper received a salary for his personal exertions in conducting F Company;
c)payments made to or on behalf of Mr Samper;
d)payments made for the joint benefit of the parties in the payment of the mortgage over the former matrimonial home until sold and in the financial maintenance of their adult children; and
e)for the amounts she had paid for legal fees already captured as an other interest to be accounted for or “add back” on the joint balance sheet;
then, she had not in fact kept and dispersed for her sole benefit the monies which represented Mr Samper’s share of the profits of D Company.
Ms Samper’s analysis implicitly accepted that she had unilaterally used drawings from D Company to pay her legal expenses. Ms Samper’s submission was that having agreed to include the expenditure on legal fees as her “other interests” on the joint balance sheet, those fees had already been brought into account, and that Mr Samper’s submission that a further allowance should be made for this expenditure would involve double counting.
iii. Evidence relevant to the use of the calculation and use of D Company’s profits
Mr Samper bore the evidentiary onus to establish his allegation on the balance of probabilities. Mr Samper had access to the financial records of D Company. Mr Samper gave these financial records to his qualified expert business valuer, Ms KK. Ms KK undertook the valuation of D Company on his behalf which resulted in an agreed valuation figure, after a joint conference with Ms Samper’s qualified expert valuer, Mr LL.
Mr Samper could have had Ms KK provide qualified accounting evidence to substantiate his claim on this issue. He elected not to. Ms Samper did call accounting evidence to positively meet Mr Samper’s claim.
iv. Evidence of Ms X, Ms Samper’s sister and the D Company’s bookkeeper
Ms X is Ms Samper’s sister. Ms X gave evidence that she migrated to Australia in or around 2002 and has been employed at D Company as the office manager and bookkeeper since early 2006.
As D Company bookkeeper she was responsible for entering transactions from bank and credit card statements into MYOB. She gave evidence that “my practice is to distinguish between business and personal expenses.” She said that she combined transactions when preparing the MYOB accounts so that personal expenses which were in close proximity on the bank and credit card statements were combined when entered into the MYOB accounts. In cross-examination she agreed that she did not have any qualifications as a bookkeeper, but said she had done an MYOB course and had worked with finances for a long time.
She gave evidence that personal or non-business items were entered as “owners drawings” and business expenses went into the relevant expense accounts, and “the accountant worked it out at the end”.
She gave evidence that in her role as D Company’s bookkeeper, at Ms Samper’s request, she assisted D Company’s usual external accountant Ms MM to compile the summaries of Ms Samper’s expenditures of the partnership’s funds for each financial year from 1 July 2013 until 30 June 2019, by providing the documents and information requested by Ms MM, including bank and credit card statements and MYOB files.
In cross-examination she stated that she was not involved in determining Ms Samper’s notional salary, the profits of D Company, or how they were apportioned on paper between Ms Samper and Mr Samper. That was a matter for Ms MM. She merely provided the source materials.
Ms X was not challenged about the process of data entry into MYOB or its accuracy nor as to the material she provided to Ms MM. Accordingly, I am satisfied that the source accounting material and the entry of the material into the MYOB accounts relied upon by Ms MM for her analysis, considered below, was reliable and accurate.
Ms X’s evidence was that Ms Samper worked an average of 12 hours a day at D Company, opened most days, closed most days, worked late most days, worked weekends, and basically “works a lot”.
In response to the proposition in cross examination that Ms Samper controlled the distribution of monies from the partnership she agreed that Ms Samper was the only person who authorised money going out of business. When asked whether she agreed that Ms Samper takes all the profits she said “Ms Samper draws what she needs to live. That’s the only way how I can answer it.” She otherwise deferred to the accountant noting “I enter the information and it gets sent to the accountant. I don’t tally anything up.” She agreed that at least some of the money Ms Samper had paid for legal expenses came from D Company.
I am satisfied that Ms X answered these questions as best she could noting that she is the bookkeeper and not the accountant.
Ms X gave evidence and was cross-examined about her understanding of the parties’ intentions with regards to D Company, and her perception of Mr Samper’s involvement in the operations of D Company. She said she had had minimal interactions or communications with Mr Samper regarding D Company, and had dealt exclusively with Ms Samper in relation to the running of D Company and her duties and gave evidence that she heard Mr Samper make the comment during initial days of D Company that; “The business will be set up for Ms Samper to run and do it for herself”, a statement that Mr Samper denied making. I give no weight to this evidence which I understood was to go to the question of who should have the first opportunity to acquire D Company.
Given the narrowing of the issues relating to contributions and section 75(2) issues it is not necessary to consider Ms X’s evidence regarding her personal observations of Ms Samper’s contributions and relationship with Mr Samper, Ms Samper’s health, or Ms Samper’s involvement in Mr Samper’s practices.
v. Evidence of Ms MM, D Company’s accountant, and Exhibit C
Ms Samper called D Company’s external chartered accountant, Ms MM. Ms MM is an accountant of approximately 25 years’ experience. She gave evidence that her firm was approached by Ms Samper to take over the accounting for D Company in 2016 and that since then she had been retained by Ms Samper to provide accounting services in relation to the operation of D Company by the partnership, and in relation to Ms Samper’s personal income tax returns. She is accordingly very familiar with the partnership and D Company.
Ms MM filed an affidavit which dealt with both matters of fact and expert opinion on accounting issues relevant to the operation of D Company, the interpretation of the books of D Company including the extent and applications of Ms Samper’s personal expenditure, and also as to the appropriate market salary to remunerate Ms Samper for her personal exertion in operating D Company. Ms MM was not challenged as to expertise or credit.
Ms MM confirmed that in her role she liaises with Ms X. She gave evidence as to the process used for preparing the summaries she created for the purposes of these proceedings from the MYOB ledgers. She was not challenged as to this process or her accuracy in undertaking it. Ms MM gave her opinion that the summaries prepared were accurate summaries of the funds drawn by Ms Samper from the partnership for the period 1 July 2013 to 30 June 2019.
The financial information contained in the schedules prepared by Ms MM were helpfully extracted into a single document headed “S.50 Schedule Summary: Mr & Ms Samper Partnership - Reconciliation Profits for the years 2014 to 2018 and 2019”, admitted without objection into evidence as Exhibit C.
The accuracy of the summary in Exhibit C of the underlying financial transactions made by Ms Samper and recorded as drawings, and of the movements in the balance sheet account balances and of profit for each year, was not challenged. I accept it as accurate.
Ms MM gave oral evidence in respect of Exhibit C and the parties made their submissions by reference to it. Exhibit C was later supplemented by a document derived from Exhibit C prepared on behalf of Ms Samper, Aide Memoire 4, which was relevantly identical to the top section of Exhibit C “Personal Cash Spending”, with the inclusion of annotations to represent whether the payment was for “W” the wife, “H” the husband, “J” joint, “C” children, and “O” other.
Aide Memoire 4 also brought to account in the drawing section the $93,000 loan contributed to D Company by Ms Samper in 2019, although it was not set off against the existing calculation for net drawings in Exhibit C. Further it set out calculations for “husband benefit”, “wife benefit”, “other (mortgage, education, tax)” and “children” (although “children” is a duplicate of funds already covered by “other”).
Ms MM also gave evidence that she advised Ms Samper to begin receiving a salary of $150,000 from D Company from 2016, when Ms MM was appointed, rather than only receiving partnership distributions. Ms MM identified this as “an allocation towards personal exertion,” which was then included in the expenses of D Company to see what the profit was afterwards, but not considered to be an employee salary so as to attract the superannuation guarantee. It was “recorded as an allocation of profit and shown separately to salaries, in the personal tax return” and credited against the drawings as otherwise made in total for that year.
She stated that the issue arose because, in the context of the separation and court proceedings, Ms Samper felt she was entitled to receive a salary for the work she was doing in operating D Company. Ms MM said that Ms Samper felt she was not being appropriately remunerated for her time and effort and agreed in cross-examination that the sole purpose of the inclusion of the salary for Ms Samper was to “reduce the profits which might be otherwise available.”
Ms MM was cross-examined as to the approach used to determine the $150,000 figure, and explained that it had been looked at in a number of ways. She gave evidence that she sought and obtained a detailed list of Ms Samper’s roles and duties, looked at the modern award for those particular businesses and using that award determined a base hourly rate, leave loadings and allowances based on that. She also took into account the fact that Ms Samper looked after D Company in an ownership capacity as well as in an employee capacity, including looking after the finances, staff, employment, insurances and having to deal with the overall running of D Company.
Taking those matters into account, schedules were prepared and she came up with a salary that was “about $120,000 plus super” based on a modern award calculation. That would be in the range of $131,400 including the 9.5% superannuation guarantee.
From that starting point, and based upon her experience in dealing with small businesses, she considered that it was not unusual for the owner-operator of a business to be paid a higher salary because they take on a higher obligation in terms of roles and responsibilities. On that basis she considered that a salary of $150,000 as a package:
…was not unreasonable for the duties and the role that was being carried out, bearing in mind that salary would have included any allowances for annual leave, long service leave, superannuation, because it was a package figure. We – I should say, we also considered it in light of advertised salaries that we looked at over a year or so’s period of what other centres were paying.
In summary, Ms MM adopted a standard approach to the valuation of personal exertion by reference to the assessment of role and duties, hours, the applicable modern award and comparable advertised market-based salaries, together with the inclusion of a loading for the additional overtime hours worked by Ms Samper as a self-employed person, noting that the $150,000 figure included items such as long service leave which was not in fact accruing.
Ms MM agreed that although Mr Samper had had profits attributed to him, and that tax was being paid on his behalf by D Company in respect of his allocated share, he was not paid the net profit after tax allocated to him. She was not able to say why D Company was not paying Mr Samper’s tax in full but rather by way of instalments.
Ms MM gave evidence that the superannuation paid to Ms Samper and Mr Samper was paid out of their profit share as on a voluntary basis, rather than as for an employee. They were each paid $60,000 across the financial years 2015 to 2017, and Ms Samper was paid an extra $25,000 in the financial year 2018 for a total of $85,000.
In respect of the top half of Exhibit C headed “Personal Cash Spending” she confirmed that, apart from the matters in red, which related to Ms Samper’s salary for the financial years 2016 to 2019 and the recorded net positive refund from NN Firm, the other items shown in black were attributed as a partner drawing.
Ms Samper’s salary was shown in red and brackets to indicate it was a negative, as was the NN Firm refund. This was as the drawings recorded as “Personal Cash Spending” in Exhibit C were treated as if they were a loan account, so that Ms Samper’s drawings would then be set off against her salary and the NN Firm repayment against other drawings. The treatment of Ms Samper’s notional salary in this way, with notional payments of $150,000 a year for the full financial years from 2016 to 2019 totalling $600,000 as a set off, and also treating the net repayment from NN Firm of $20,620.16 in this way, is why the total drawings figure shown in Exhibit C is $1,125,619.97, when the total drawings (show in black) in fact add up to $1,746,240.13.
That is to say the total net drawings of $1,125,619.97 recorded in Exhibit C are Ms Samper’s drawings in excess of her notional salary allowed for the four years from 2016-2019 and accounting for the net repayment by NN Firm.
Further, however, I also note that the $1,125,619.97 figure does not take into account the $93,000 loan that Ms Samper made to D Company in 2019, which is brought up (in red) into the “Personal Cash Spending” section in Aide Memoir 4, but which was not then deducted from the $1,125,619.97 figure. This cash payment from Ms Samper back to D Company needs to be accounted for by being deducted from net drawings. Deducting that $93,000 from the $1,125,619.97 leaves $1,032,619.97 in net drawings by Ms Samper over the period after allowing for the set off of her notional salary from 2016-2019.
It was put to Ms MM that based upon the 2019 figures in Exhibit C, Ms Samper’s Financial Statement swearing to income of $4,690 per week in January 2019 “would be grossly understating the income”. That proposition was put on the basis of a rough running calculation undertaken by counsel for Mr Samper, without the benefit of a calculator, which suggested a gross income of about $8,000 per week. There were two issues with that proposition. The first is that on my calculation there was $100,000 inadvertently added during the verbal mathematical calculation. This was clearly an accident which was not picked up by anybody at the time. More importantly, the cross-examination took place on the basis that the drawings represented in the first part of the schedule (Personal Cash Spending) should be added to the total profit in the second part of the schedule (Movements in Balance Sheet Account Balances).
Ms MM in response raised the caveat that the 2019 financial year had some very abnormal figures, including high expenditure on lawyers, and on tax which was in part to make up for the previous year’s underpayments for both Ms Samper and Mr Samper and also that in considering Ms Samper’s income you would need to look at the payments made to the benefit of Mr Samper or jointly.
In re-examination it was put to Ms MM, and she accepted, that it would “be fair to say that trying to ascertain the funds that have come out across the parties, personally, is the top half that is above Movements” and she also agreed “that the suggestion was that you took the entirety of both Personal Cash Spending and Movements in Bank Account Balances to derive the amount taken, that’s not correct”. Leave was not sought to further cross-examine on this clarification and retraction.
Given the totality of Ms MM’s evidence regarding Exhibit C, I am comfortably satisfied that Ms MM’s concession in cross-examination on this issue was wrong and that her retraction in re-examination was correct.
Taking into account that the drawings and profits set out in Exhibit C should not be added together, and given the findings I make below based on Mr Samper’s concessions that certain of the drawings were used for his or for the parties joint benefit, I find that Ms Samper’s sworn Financial Statement was sufficiently accurate. I therefore reject the proposition that Ms Samper intentionally misstated and understated her average weekly income in her sworn Financial Statement.
vi. Was it appropriate for Ms Samper to be paid a salary, if so was a salary of $150,000 appropriate, and should it be allowed for the 2014-2015 financial years?
Post separation Mr Samper worked in the F Company business. Whilst that business was in his sole name, it was clearly joint matrimonial property created and built up during the course of the marriage. Mr Samper was paid a salary for his personal exertion in operating F Company. The fact that F Company was not able, prima facie, to pay him a market salary does not detract from that fact. Arguably Ms Samper would have been entitled to half of the profits of F Company as joint matrimonial property, regardless of the fact that it was technically Mr Samper’s solely owned business. However, there were no profits to distribute.
If Ms Samper had not worked at D Company post separation a qualified and experienced professional would have had to have been hired to operate D Company and undertake all of Ms Samper’s duties. In addition to a director it may have been necessary to hire one or more additional people to undertake the duties that Ms Samper also fulfilled, together with all of the other odd jobs which Ms Samper did as the owner operator of D Company,
The company director, and any other people required to undertake the totality of Ms Samper’s work, would have had to have been paid salaries.
Further, Ms Samper would then have been free to exercise her personal exertion earning capacity elsewhere and retain to her own sole benefit of the rewards of that personal exertion income in the way that Mr Samper retained for himself for the sole benefit of the salary paid to him for his personal exertions by F Company.
Although much was made in cross-examination of Ms MM that the effect of allowing Ms Samper a salary was to reduce the profits for division, and that as Ms MM accepted “that was the sole purpose of that happening…”, it was clear that Ms MM’s and Ms Samper’s intention was personally that Ms Samper should be allocated a salary to properly remunerate her for her personal exertion, and secondly that the profits to be divided between the parties reflected only the profits of ownership of the D Company business, and did not include Ms Samper’s personal exertion earnings.
The reduction of the profits available to the partnership as return on the ownership of the business due to the allocation of a salary to Ms Samper was an inevitable corollary of payment to Ms Samper of a salary for her personal exertion in the day-to-day operation of D Company.
To the extent to which Mr Samper’s submission was that this was an improper accounting device to deprive him of profits to which he was entitled in his capacity as an owner of D Company, I reject that submission. Mr Samper was no more entitled to half of Ms Samper’s salary working in D Company than Ms Samper was entitled to half of Mr Samper’s salary for working in F Company.
Indeed, in cross-examination Mr Samper conceded that some allowance for Ms Samper’s personal exertion was required, and this was accepted in closing oral submissions. Despite the way in which other submissions were formulated the real issues are therefore whether the $150,000 per annum notional salary was too high, and whether an allowance in a similar range should also have been, or be, allowed for Ms Samper’s personal exertions during the 2014 and 2015 financial years.
Mr Samper’s business valuer, Ms KK in her report of 23 May 2019 at paragraph 57, when considering the appropriate valuation of D Company on a future maintainable earnings (FME) basis made an adjustment deducted from profits for a “Market salary and superannuation for the director of $100,000 per annum as at 2019 based on industry averages in Sydney and reduced by 2% per annum historically.” That adjustment was explained in her comments at paragraph 64 on the basis that “Directors wages have been allowed at a market rate of $100,000 per annum including superannuation. This is above industry average but is reasonable considering the above average trading performance of” D Company.
It is important to note that Ms KK and Ms MM were not undertaking the same task, and from my reading of the material were not valuing like with like.
Ms KK’s sum of $100,000 including superannuation was for a non- director, who presumably would have worked standard hours and not been involved in the day-to-day work which the evidence established that Ms Samper was. Such an employee would also be entitled to be paid overtime, holidays, sick leave, leave loadings and long service leave.
Ms MM’s sum of $120,000 plus superannuation, or $131,400 was based on a detailed analysis of the actual duties and roles performed by Ms Samper in the context of the award, which also included duties and other tasks as required not accounted for by Ms KK, and on that basis was likely to be an accurate assessment of the value of all of Ms Samper’s work in D Company. For this reason I prefer Ms MM’s analysis over that of Ms KK, without any disrespect to Ms KK who was undertaking a different task and was not seeking to determine the proper valuation of Ms Samper’s personal exertion, but rather was undertaking a general business valuation assuming that Ms Samper’s labour could be entirely replaced by a director.
It is also relevant that the figure did not increase across the period from 2016 to 2019 which arguably involved a discounting in later years from the 2016 assessment.
I find that the $150,000 salary package valuation of Ms Samper’s personal exertion income in all the roles and the operation of D Company in the years 2016 to 2019 was an accurate assessment of the value of her personal exertion in the D Company and an appropriate notional salary.
I raised in both opening and closing submissions with Counsel for Mr Samper whether an allowance should be made for Ms Samper’s personal exertion during the two financial years, 2014 and 2015, in respect of which there was no notional or other allocation to her of a salary for her work in D Company. No specific position was taken on this issue by Mr Samper.
It seems to me that it must necessarily follow from the reasons set out above that an allowance should be made for a salary or notional salary for Ms Samper’s personal exertions in the two financial years 2014 and 2015.
I start from Ms MM’s assessment of a package of $150,000 in the 2016 financial year. I reduce that figure by 2% per annum historically, as recommended by Ms KK. In round terms, for the financials years 2014 and 2015 that is $150,000 x 2, discounted by an average of 2% per annum from the starting point of the assessment in 2016, which for present purposes is approximately, $285,000-$290,000.
I take $285,000 as an appropriate sum to reflect Ms Samper’s personal exertions into account when considering the submissions made in respect of Exhibit C and following through from that into account in the analysis in respect of the submissions made about post separation contributions.
vii. Did Ms Samper retain Mr Samper’s share of profits of D Company’s not otherwise accounted for on the joint Balance Sheet?
Mr Samper made very reasonable concessions about the appropriateness of many of the payments made by Ms Samper using the funds of D Company as being for the parties’ joint benefit and these being payments which he would have agreed to. Much of the antagonism between the parties may have been avoided if Ms Samper had asked as she made these expenditures rather than making them unilaterally.
In order to understand the submissions is also necessary to know that Ms Samper gave unchallenged evidence that of all the $145,310.74 she spent on “medical” expenses over the six year period, $88,000 was spent on surgery for Ms DD and that another $10,000 was spent on Mr E’s medicals, and that Mr Samper agreed these were appropriate expenditures on the parties’ joint behalf to care for their adult children.
Counsel for both parties made detailed submissions about the analysis that flowed from this material by reference to Exhibit C.
I refer to my analysis of Exhibit C set out above showing that Ms Samper’s net drawings, after set off of her $600,000 notional salary for the four financial years 2016 to 2019, the net refund from NN Firm, and the loan back of $93,000, was $1,032,619.97.
From that figure of $1,032,619.97 needs to be deducted the tax paid on the D Company’s profits of $342,001.56 and $103,360.64 leaving $587,257.77.
From that $587,257.77 also needs to be deducted the $60,000 paid to Mr Samper and the $85,000 paid to Ms Samper in superannuation which captured by the joint balance sheet, as well as Ms Samper’s legal fees of $229,715.04 which are captured in the joint balance sheet leaving $212,542.73
From that $212,542.73 it was agreed that the mortgage payments on the former matrimonial home of $42,700 and the $40,030 in cash paid to Mr Samper would need to be deducted, as well as the $88,000 agreed to have been paid for the parties joint benefit for Ms DD’s medical expenses, the $66,800.41 spent for the parties joint benefit on the children’s education expenses, and the other $10,000 paid to the benefit of Mr E’s medical expenses, that would leave a figure of (-$34,987.68).
Senior Counsel for Ms Samper submitted that this analysis dealt with the issue of and by itself, noting that this is not a strict accounting exercise, without having to refer to the fact that Ms Samper did not receive a notional payment for salary for her personal exertion in the two financial years 2014 and 2015, which is considered further below.
There is one caveat on the above calculations, which is that, as Counsel for Mr Samper noted while each party received by way of partial property settlement $480,219.32 pursuant to Orders dated 17 July 2017, Mr Samper used this sum to purchase his new property. The property has net equity greater than the distribution and so it is accounted for.
Of the distribution of $480,219.32 to Ms Samper the sum of $262,405 was accounted for in her bank account at item 9. That left $217,814.32 of the interim distribution to be accounted. There were $381,085 accounted for by way of legal fees at item 35, but as $229,715.04 (net of the repayment of $20,620.16) of her $381,085 legal fees came from D Company, then only $151,085 of the partial property settlement was accounted for in that way. That left a shortfall of somewhere in the range of approximately $78,000 to be accounted for either from the monies paid as an interim distribution of the monies said to be accounted for as legal fees paid from D Company.
There is merit in that submission. Adding back the $78,000 which is not accounted for to the final calculation above (-$34,987.68) would lead a net positive drawing by Ms Samper for her sole benefit over and above her entitlement to a notional salary of approximately $43,000.
Approaching the matter slightly differently, Senior Counsel for Ms Samper conceded the figure in her favour could be up to the range of $70,000 to $85,000 over the period. Given the broad nature of the figures in Exhibit C and the generality around the calculations of the expenditures on the children’s medical expenses I consider that an appropriate concession.
I find that Ms Samper obtained a benefit for herself from D Company over and above the notional salary allowed for the period 2015 to 2019, and not elsewhere accounted for in the joint balance sheet, in the range of approximately $43,000 - $80,000, or for these general purposes say $70,000.
However, as Ms Samper submitted, she continued to operate and be responsible for D Company “without drawing a wage in respect of her exertions until commencing to do so in 2016”. For the reasons given above I find that allowance must be made for Ms Samper’s personal exertion in operating D Company. The above calculations make no allowance for her personal exertion in the two financial years 2014 and 2015 which I have estimated as being worth approximately $285,000. Setting $285,000 off against the $70,000 net benefit above, in round terms that is a positive post separation contribution by Ms Samper of approximately $200,000 by reason of her operation of D Company.
Ms Samper’s case also appeared to involve an argument that post separation she had increased the profitability and therefore value of D Company for the parties’ mutual benefit by reason of her hard work and commercial skills. I do not think it is appropriate to make any additional allowance for any special contribution by Ms Samper in this regard, including because she excluded Mr Samper from any chance to participate in the operation of D Company post separation.
Other post separation contributions
Mr Samper pointed in particular to an inheritance of approximately $290,000 received on his mother’s passing in 2018. However, as there had been an outstanding loan of $200,000 from Mr Samper’s mother that was set off and he received an additional $90,000. That all forms part of the pool. Mr Samper submitted that this was equivalent to a contribution of $290,000 many years post separation which should be included, but given great weight justifying an adjustment in his favour.
Ms Samper submitted that the parties had had the benefit of the $200,000 loan during cohabitation and that that was part of Mr Samper’s equal contribution prior to separation, so that the additional post separation contribution was only $90,000. Further, Ms Samper submitted that Mr Samper’s inheritance should be looked at in the overall context of contributions across the course of the entire relationship since cohabitation, including for example Ms Samper’s mother’s loan to the parties in 1995, Ms Samper’s personal injury award in 1999, and the inheritance received from Ms Samper’s mother during cohabitation. Ms Samper also says she cared for and supported Mr Samper’s mother until her death.
Ms Samper in her written submissions in opening pointed in particular to the fact that she had “borne substantially, and almost solely, the financial and parenting burdens of the relationship since separation”. That included the payment of Ms DD’s school fees, substantial medical costs and supporting her through her mental health issues. As well as the cost of financially supporting the parties other children and paying for their health and other costs “without contribution by Mr Samper”. This was the basis for her greater post separation contributions and the point was made in the hearing that he had not paid child support.
The difficulty with Ms Samper’s submission in this regard is that the case in respect of her use of the revenues of D Company’ depended substantially upon her submission, which Mr Samper fortunately agreed with, that the extensive payments for the children’s education, health and other costs were joint payments using joint matrimonial funds for the parties joint benefit. Indeed, Ms Samper’s opening written submissions, filed prior to the development of this argument during the hearing, rather tend to support Mr Samper’s complaint that Ms Samper viewed and treated the entirety of the revenues and profits of D Company as her own. In circumstances where the finding is that these payments were made using joint matrimonial property for the parties joint benefit it is not then open for Ms Samper to then argue that these were her sole financial contributions. The appropriate finding is that the parties jointly engaged in providing this substantial ongoing financial support to their children as an equal contribution.
While Ms Samper was the person who primarily provided post separation care for Ms DD until she turned 18 and thereafter, and for the parties adult children, she did this using the parties joint funds. However, as her conduct and written submissions indicate she did not give Mr Samper any moral credit for providing half of the funds and did not offer him the opportunity to be involved in the decision making around these issues. Given the manner in which Ms Samper acted and her exclusion of Mr Samper from the process and from receiving any credit from their children, I would give no additional weight to this contribution of time by Ms Samper.
Total contributions
When considering the weight to be given to post separation contributions in the assessment of a property adjustment it is important to remember that the parties cohabited for approximately 26 years prior to separation. They had 3 children. Mr Samper ran his practices. Ms Samper cared for the children. Ms Samper also worked in Mr Samper’s practices at times. Mr Samper helped with the children at times. The parties started D Company together, which Ms Samper operated while Mr Samper continued working as a health care worker. Each party received a loan from a parent. Ms Samper received an inheritance from her mother. These are but a small selection of the myriad of contributions the parties made to each other and to the joint benefit of their family over this 26 year period.
The fact that the parties, quite rightly, agreed that contributions in this 26 year period were equal does not mean that the Court treats these as being mathematically equal and then ignores them when assessing and weighing post separation contributions. To do so would give undue weight to the contributions during the 6 post separation years over the 26 pre-separation years, particularly when the asset pool was largely developed over the period prior to separation. The post separation contributions are to be seen and weighed and as part of the totality. (Williams & Williams [2007] FamCA 313, Wallis & Manning (2017] FamCAFC 14, Jabour & Jabour (2019) FLC 93-898, Horrigan & Horrigan [2020] FamCAFC 25, Hurst (2018) FAMCAFC 146)
This is not a mathematical exercise. While on one view Ms Samper may have made slightly greater post separation contributions, weighing so far as possible all of the mutual contributions across the 26 years of cohabitation and the various post-separation contributions as set out above, I am not satisfied that there is any basis on which I should find that either party made greater contributions overall.
Accordingly, I find that the parties made equal contributions to the date of hearing.
Did Mr Samper make full and frank disclosure?
Mr Samper had sworn and filed a Financial Statement on 17 August 2018. The Consent Orders made on 21 March 2019 for the filing of updated material included an Order:
4. That no later than 14 days prior to the hearing date:
4.1. Each party shall file and serve a further Financial Statement;
Ms Samper complied with this Order. Mr Samper elected not to.
Mr Samper was cross examined at length as to the information he provided to Mr GG. In particular, he was cross examined as to the “Drawings” of $160,000 for the 2018 financial year recorded in the “Detailed Balance Sheet” for F Company included as part of Appendix D to Mr GG’s final report and how that sat with his stated income from F Company. His answers that “I certainly don’t recollect drawing that amount of money” and raising the possibility that he had “introduced capital”, and that it was accurate but “doesn’t seem possible”, were neither enlightening nor particularly satisfactory.
He was also asked questions about an application in 2017 to the Commonwealth Bank of Australia noting self-employed income of approximately $76,158 but self-employed add backs of a little over $120,000. His answers that he could not bring to mind what this meant and that his accountant would need to be consulted was also not helpful, and raised further concerns about the true extent of the financial benefits Mr Samper has obtained from F Company in the past, and so the likely financial benefits you may receive in the future.
Finally, when being cross examined about information contained in the F Company accounts relied upon by Mr GG, Mr Samper gave evidence that certain information was obviously incorrect. When pressed on whether he had informed the valuer of these errors he gave evidence that he had given the printout material to the valuer and that
In fact, the valuer – being the valuer and he’s being paid for it – should have asked me for proper financial statements and said if you haven’t got them done, best get them done.
The position Mr Samper adopted was not consistent with the positive obligation Mr Samper had to provide full and frank financial disclosure as to his financial position, including his trading as F Company.
In closing oral submissions Senior Counsel for Ms Samper submitted that the Court was left in a “most unsatisfactory position” with regard to Mr Samper’s financial affairs, and that the Court could not be satisfied it had any real understanding of the income and benefits derived by Mr Samper from operating F Company.
Having considered all the material and section 140(2) Evidence Act 1995 (Cth), I find that Mr Samper has not discharged his positive obligation to provide full and frank disclosure in respect of his financial position, including in his conduct as a sole trader of F Company, to allow the Court to determine the true value of the financial benefits accruing to him through the operation of F Company.
On that basis it was submitted there could be no adjustment in Mr Samper’s favour based on his proven past income being less than Ms Samper’s. However, it was specifically submitted for Ms Samper that the evidence did not go so far as to justify an adjustment in favour of Ms Samper for non-disclosure. I accept Ms Samper’s submissions on this issue. (Black and Kellner (1992) FLC 92-287 and Weir (1993) FLC 92-338.)
Section 75(2) factors
The parties identified only a narrow range of relevant sections 75(2) factors. Only the factors identified by the parties will be considered.
The issue raised for consideration pursuant to section 75(2) was the parties’ respective future earning capacity. Ms Samper is 60 years of age and Mr Samper is 64 years of age. There is no reliable evidence that either of them will not be able to continue working to the usual retirement age and possibly for some time thereafter.
Ms Samper referred in her evidence to certain ailments, but as Counsel for Mr Samper pointed out she lead no medical evidence as to how these would impair her actual capacity to carry out her employment tasks. Nor, I note, did Ms Samper herself give any specific evidence as to restrictions that would allow a finding that her capacity to fulfil any particular task in her current job or occupation is impaired in a way which would likely impact on her actual future earnings. As Ms Samper had the onus on this issue I make no finding of any impairment to her future earning capacity by reason of health impairments.
Ms Samper’s case otherwise is that the parties have similar earning capacities and that Mr Samper’s failure to make full and frank disclosure of the true benefits he obtains through F Company would weigh against any adjustment in his favour for this factor.
Mr Samper’s case is that the parties have an unequal earning capacity as demonstrated by his earnings of approximately $55,000 per year in his 2018 Financial Statement compared with Ms Samper’s $150,000. Further, Mr Samper submitted that if Ms Samper is able to purchase D Company her earning capacity will be increased by the full profits of D Company.
Given Mr Samper’s inadequate disclosure, I am not satisfied that I can comfortably rely upon his evidence as to the actual financial benefit he has been receiving, or may in future receive, from F Company.
Although the inadequate disclosure is sufficient to dispose of the matter, I also note that Mr Samper says that he has been operating F Company at a lower rate of return than he could obtain by working as an employee. Mr GG the Single Expert placed a market value on a health care worker doing the work of operating a business such as F Company at $90,000 plus superannuation or approximately $98,550 per annum. A number of aspects of the F Company valuation related to the commercial decisions made. In terms of earning capacity rather than earnings, Mr Samper could sell F Company and take the capital sum and then obtain work as an employee of a more successful business. There is no reason to believe he could not obtain the assessed market earnings for a person with his qualifications.
D Company was valued on the basis of a notional salary for a director of $100,000 per annum including superannuation i.e a figure almost identical to the open labour market value of Mr Samper’s work.
To the extent to which Ms Samper’s salary has been assessed at $150,000 including superannuation, that reflects her working in excess of normal hours. It would be open to Mr Samper to work one full-time job and a part-time job on the weekend and so work equivalent hours those worked by Ms Samper in D Company and make a similar income.
Mr Samper’s second point, that if Ms Samper is allowed to purchase D Company her earning capacity will include the profits of D Company, fails to distinguish between the return to personal exertion and the return to the business of D Company. The profits of D Company are the basis for the valuation of D Company at $4,025,000. That figure, in simple terms, is the capital sum equivalent in current dollar terms to the discounted likely future profits of D Company. The party who purchases the other party’s interest in D Company, if that occurs, will have to borrow to pay a present capital sum equivalent to the other parties’ interest. The party whose interest is purchased will receive a present capital sum which may be invested as a passive investment or otherwise. This is not relevant to personal income earning capacity.
There is no relevant effect of any proposed order upon the earning capacity of either of the parties.
I am satisfied that each party has an approximately equal earning capacity on the open labour market and that there is no basis for any adjustment on these grounds.
I also have in mind, pursuant to section 75(2)(o), of the approximately $10,000 reduction in the potential value of F Company due to Mr Samper’s decision not to renew the lease. I do not consider this a sufficient basis for any adjustment.
Accordingly, I do not consider that any adjustment is required pursuant to section 75 (2).
Who should have the first opportunity to retain D Company?
Each party seeks the right to retain D Company. Neither party is in the financial position to buy out the other’s interest without obtaining either finance or a new equity partner.
The first question is which of the parties should have the first opportunity to purchase the other party’s interest and how long should they be given to seek to arrange finance. If neither party is able to obtain sufficient finance D Company will have to be sold.
Ms Samper’s submission was that Mr Samper operated F Company for which he was qualified and she operated D Company for which she was qualified. Mr Samper should be allowed to retain F Company, which is a consent position, and she should be allowed to retain D Company.
Ms Samper has been involved in the day to day operations of D Company since its inception. She is the public face of D Company. D Company is more likely to be successful and to continue to operate in the hands of its experienced owner than in the hands of Mr Samper who has no qualifications or experience in the day to day operation of D Company, and who will have to hire and rely upon a manager for the technical and practical skills required to operate D Company.
Ms Samper’s evidence was that she believed she could obtain finance and that she had had discussions with financiers but had not made an application. The basis for her belief was not independently established. She also indicated she had had an informal approach from the father of one of the children at D Company indicating that he would be interested in taking a stake in D Company. However, no specifics had been discussed and it was no more than an informal conversation.
Mr Samper’s reason for why he would be given first opportunity to purchase D Company was that he had this in mind as his passive retirement investment strategy. Putting aside the issue as to whether or not this kind of small business is suitable as a passive investment, no other basis was offered why Mr Samper would have the first opportunity to purchase D Company. There was no evidence of his capacity to purchase D Company either.
I do not consider that Mr Samper’s intention to be more involved in D Company is particularly relevant when considering the reality that he has no qualifications in the field, has no experience in the day-to-day running of that particular business, and in practical terms, involvement has been that of an owner relying upon a co-owner. I do not see any of this as being particularly relevant when considering who should be given the first opportunity to purchase the other party’s interest.
In the alternative, Mr Samper’s submission was that the same approach should be taken as might be taken to a former matrimonial home which both parties wished to purchase, so that it should be placed on the market with each party able to make an offer. I do not accept that is a valid analogy.
While the evidence of available finance is less than satisfactory, it is clearly possible that Ms Samper may be able to obtain sufficient finance based on the positive cash flows and profitability of D Company. She is qualified and the existing day to day operator with a successful long term track record. There is a good history of paying the mortgage on the underlying real property and no evidence to suggest that she has other than a good credit history. She would be able to increase her capacity to service the loan by reducing her salary.
I am satisfied that as between the parties, Ms Samper’s connection to D Company is superior, as would be Mr Samper’s to F Company if Ms Samper had sought to acquire that business, and that Ms Samper should have the first opportunity to obtain finance and purchase D Company.
Senior Counsel for Ms Samper sought 3 months to allow her to raise finance. I think that is reasonable. Similarly, if Ms Samper is unable to obtain finance and complete within 3 months then Mr Samper should have a similar period of 3 months in which to raise finance.
If after that time neither party can afford to purchase the other’s interest, then D Company will need to be sold on the open market.
Summary
Both parties agree that their property interests require adjustment to finally terminate their financial relationship.
For the reasons given above, I find that contributions were equal up to the time of the hearing and do not require adjustment. On that basis each party should receive 50% of the net property pool.
Except with regards to D Company in the B Street, Suburb C property each party should keep their own assets, superannuation and liabilities.
Ms Samper offered an indemnity in respect of Mr Samper’s tax liability in respect of all tax liability for profits of D Company attributed to Mr Samper which had not been paid. Given the issues that arose in this regard the analysis of the distribution of funds from D Company, were Mr Samper was allocated a taxation liability but no funds to pay it out of associated profits, it is clearly necessary. As Ms Samper has retained the control of D Company that indemnity should run to 30 June 2020.
Both parties proposed Orders that would dissolve the partnership pursuant to section 32 of the Partnerships Act 1982 (NSW) and I will make that Order.
Ms Samper should be given the first opportunity to purchase D Company from Mr Samper within 3 months. If Ms Samper is unable to complete the transaction then Mr Samper should be given the same opportunity to purchase D Company from Ms Samper.
On the basis that the parties net assets equal $5,806,567 then each party should retain half which is $2,903,283.50.
Given Mr Samper’s net position, excluding D Company and its mortgage, of $1,350,278.00, in order to retain D Company, including its mortgage, Ms Samper will need to pay to Mr Samper the sum of $2,903,283.50 - $1,350,278.00 = $1,553,005.50 and remove him from the D Company mortgage.
If Ms Samper is unable to purchase D Company from Mr Samper, then given Ms Samper’s net position of $911,624, in order to retain D Company, including its mortgage, Mr Samper will need to pay to Ms Samper the sum of $2,903,283.50 - $911,624 = $1,991,659.50 and remove her from the D Company mortgage.
If neither party is able to afford to purchase the other party’s interests then D Company will need to be sold and the net proceeds divided on the basis of the findings in this judgement that each party receives 50% of the net pool. As neither party proposed a mechanism for this to occur Orders will be made in general terms and leave given to the parties to approach for the making of specific machinery provision Orders if agreement cannot be reached.
I make Orders accordingly.
I certify that the preceding one hundred and seventy-six (176) paragraphs are a true copy of the reasons for judgment of Judge B Smith
Associate:
Date: 6 July 2020
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Commercial Law
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