Sasse & Sasse
[2008] FamCAFC 152
•20 October 2008
FAMILY COURT OF AUSTRALIA
| SASSE & SASSE | [2008] FamCAFC 152 |
| FAMILY LAW - APPEAL – From decision of Federal Magistrate – PROPERTY – Consent orders made in relation to altering property interests between husband and wife – Five years later those orders were set aside by consent – The issue of whether another order altering property interests ought be made and if so, what order, was litigated in the Federal Magistrates Court – Federal Magistrate published reasons for judgment with a 60/40 division of property in favour of the wife – Federal Magistrate did not make orders but asked parties to file and serve a proposed final order to reflect the reasons for judgment – Parties could not agree on final order – The matter was relisted and the husband made an application under the slip rule for an amendment to a finding made by the Federal Magistrate in relation to the value of a business conducted through a trust – The husband had contended at trial that what should be valued was the trust – After the determination of that issue and other points of disagreement the Federal Magistrate made final orders by way of alteration of property interests and costs – Husband appealed FAMILY LAW - APPEAL – From decision of Federal Magistrate – PROPERTY – Whether the learned Magistrate was correct to include in the asset pool the value of the business rather than the net value of the Trust that undertook that business – Whether, in finding that the business operated by the husband at the date of hearing was the same as the business operated by the parties at separation, the Federal Magistrate erred in fact – Whether the business should have been valued at the date of the first consent orders and whether the Federal Magistrate gave adequate reasons for not so doing – Whether, having valued the business as at the date of hearing, the Federal Magistrate ought have given greater weight to the post-separation contributions of the husband in the development and operation of the business – Whether the Federal Magistrate failed to give adequate reasons for the adjustment of only 5 per cent in respect of the husband’s contributions to the date of hearing – Whether the Federal Magistrate ought have added back to the property pool monies allegedly expended by the wife on legal fees in relation to family law proceedings – Whether the Federal Magistrate erred in his assessment of s 75(2) factors resulting in a 15 per cent adjustment in favour of the wife or failed to properly explain that adjustment – Whether the Federal Magistrate erred in failing to make an order for costs against the wife because of her initial resistance to the husband’s s 79A application and subsequent consent to the original order being set aside – Whether the Federal Magistrate erred in failing to make an order for costs against the wife because of allegations made by the wife in the trial, but rejected by the Federal Magistrate that she held certain properties in trust for the children of the parties – Some grounds of appeal have merit – Appeal allowed FAMILY LAW - APPEAL – From decision of Federal Magistrate – PROPERTY – Re-exercise of discretion – Asset pool – Add-back – Orders made to carry through the mathematical consequences of substituting the net value of the Trust for the value of the business conducted by it |
| Family Law Act 1975 (Cth), s 75(2), s 79A |
| Browne v Green (1999) FLC 92-873 Chorn and Hopkins (2004) FLC 93-204 DJM v JLM (1998) FLC 92,816 G and G [2004] FamCA 1179 Harris and Harris (1991) FLC 92-254 Johnson v Johnson (No.3) (2000) FLC 93-041 Omacini and Omacini (2005) FLC 93-218 Robinson and Higginbottom (1991) FLC 92-209 |
| APPELLANT: | MR SASSE |
| RESPONDENT: | MS SASSE |
| APPEAL NUMBER: | NA | 83 | L | of | 2008 |
| FILE NUMBER: | BRC | 6136 | of | 2007 |
| DATE DELIVERED: | 20 October 2008 |
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | WARNICK J |
| HEARING DATE: | 3 October 2008 |
| LOWER COURT JURISDICTION: | Federal Magistrates Court |
| LOWER COURT JUDGMENT DATE: | 5 June 2008, 22 July 2008 |
| LOWER COURT MNC: | [2008] FMCAfam 477 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Hamwood |
| SOLICITOR FOR THE APPELLANT: | SJP Law |
| COUNSEL FOR THE RESPONDENT: | Mr Galloway |
| SOLICITOR FOR THE RESPONDENT: | Pippa Colman & Associates |
Orders
That the appeal be allowed.
That the tables of assets in orders 1 and 2 of the orders of Federal Magistrate Howard made 22 July 2008 be amended as follows:
(i)in the schedule to orders 1:
(a)deletion of the first item and substitution of the following:
AssetValue
The [Mr Sasse] Trust $451,503.00
(b)deletion of the value for the item “Total assets (including superannuation)” and substitution of $4,262,299.97”
(c)deletion of the value for the item “TOTAL NET ASSETS” and substitution of $3,807,001.83.”
(ii)In the schedule to orders 2(a):
(a)deletion of the value for the item “Payment from husband” and substitution of $25,731.26.
(b)deletion of the value for the item “Total assets (including superannuation)” and substitution of $2,483,031.23.
(c)deletion of the value for the item “TOTAL NET ASSETS” and substitution of $2,284,201.09.
(iii)In the schedule to order 2(b):
(a)deletion of the first item and substitution of the following:
AssetValue
The [Mr Sasse] Trust $451,503.00
(b)deletion of the value for the item “Payment to the wife” and substitution of $25,731.26.
(c)deletion of the value for the item “Total assets (including superannuation)” and substitution of $1,805,000.00
(d)deletion of the value for the item “Total liabilities” and substitution of $282,199.28.
(e)deletion of the value for the time “TOTAL NET ASSETS” and substitution of $1,522,800.73.
That order 3 of the orders of Federal Magistrate Howard made 22 July 2008 be varied by deleting the sum of $62,329.47 and substituting the sum of $25,731.26.
IT IS NOTED that publication of this judgment under the pseudonym Sasse and Sasse is approved pursuant to s 121(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT BRISBANE |
Appeal Number: NA 83 L of 2008
File Number: BRC 6136 of 2007
| MR SASSE |
Appellant
And
| MS SASSE |
Respondent
REASONS FOR JUDGMENT
Mr and Ms Sasse married in March 1976 but separated finally about 25 years later, in early 2001. In May 2002, by consent, they obtained Family Court orders altering their property interests. However, in May 2007, by consent, those orders were set aside. The issue of whether another order altering property interests ought be made and if so, what order, was litigated before Federal Magistrate Howard for four days in November 2007 with further argument in March 2008. In June 2008, the Federal Magistrate published reasons for judgment. He assessed the total assets of the parties, including superannuation, at $3,867,998.83 (net). He concluded that contributions-based entitlements up to the date of hearing were 55 per cent to the husband and 45 per cent to the wife, then adjusted 15 per cent in favour of the wife on account of s 75(2) factors, thus dividing the assets 60 per cent to the wife and 40 per cent to the husband.
When he initially delivered reasons for judgment, Howard FM did not make orders, but directed that the parties file and serve a proposed final order to reflect those reasons, but that if agreement could not be reached, the matter be relisted. The parties could not agree. The matter was relisted and the husband made an application under the slip rule for an amendment to a finding made by the Federal Magistrate in relation to the value of a business conducted through a trust. The husband had contended at trial that what should be valued was the trust. After the determination of that issue and other points of disagreement, in respect of which he published further written reasons, the Federal Magistrate made final orders by way of alteration of property interests and costs.
These reasons are in respect of the husband’s appeal against Howard FM’s orders.
The fifteen grounds of appeal in the Amended Notice of Appeal can be grouped as follows:
· Whether the learned Magistrate was correct to include in the asset pool the value of the business rather than the net value of the Trust that undertook that business;
· Whether, in finding that the business operated by the husband at the date of hearing was the same as the business operated by the parties at separation, the Federal Magistrate erred in fact;
· Whether the business should have been valued at the date of the consent orders of 2 May 2002 and whether the learned Magistrate gave adequate reasons for not so doing;
· Whether, having valued the business as at the date of hearing, his Honour ought have given greater weight to the post-separation contributions of the husband in the development and operation of the business;
· Whether his Honour failed to give adequate reasons for the adjustment of only 5 per cent in respect of the husband’s contributions to the date of hearing;
· Whether the learned Magistrate ought have added back to the property pool some $90,000.00 approximately allegedly expended by the wife on legal fees in relation to family law proceedings;
· Whether the learned Magistrate erred in his assessment of s 75(2) factors resulting in a 15 per cent adjustment in favour of the wife or failed to properly explain that adjustment; and
· Whether the learned Magistrate erred in failing to make an order for costs against the wife:
(a)because of her initial resistance to the husband’s s 79A application and subsequent consent to the original order being set aside;
(b)because of allegations made by the wife in the trial, but rejected by Howard FM that she held certain properties in trust for the children of the parties.
Whether the learned Magistrate was correct to include in the asset pool the value of the business rather than the net value of the Trust that undertook that business
H Pty Ltd was trustee of the Mr Sasse Trust (“the Trust”). The Trust operated the business. For the purposes of the trial, the parties had engaged a chartered accountant, Mr M. Via a report annexed to his affidavit, Mr M indicated that he had valued the Mr Sasse Trust, a company, L Pty Ltd, and superannuation interests of each of the parties. His value of the Trust appeared at Schedule 2.1 to his report. The schedule was comprised of various assets, including motor vehicles and a boat and loans to L Pty Ltd, the husband and others.The business operated by the Trust and which Mr M also valued, was by far the major asset, at $512,906.00. The Trust also had a number of liabilities. The net value of the Trust was shown as $449,054.00.
In his initial reasons for judgment, the learned Magistrate set out a “property pool” in which he included the value of the business at $512,500.00 and a debt owing by the husband to the Mr Sasse Trust in the sum of $256,468.00, but he did not include any other items from Schedule 2.1 of Mr M’s valuation.
As indicated, the issue to which this ground relates was raised before Howard FM on the further hearing after delivery of initial reasons. In his final reasons delivered on 22 July 2008, the learned Magistrate said:
2.The husband contends that a slip or error has occurred and that the first item in the asset pool should be stated as the “[Mr Sasse] Trust” which the husband states has a value of approximately $451,000.00. The husband contends that it is the value of the “trust” and not the value of the “business” which should be inserted in this first item.
To determine whether he could, and would, apply the slip rule, Howard FM examined some of what had happened during the trial. He referred to a list of assets and liabilities forwarded to the court by way of a submission in early December 2007, on the wife’s behalf, on which only the value of the business, not that of the Trust, was listed. He also set out part of the written submissions for the wife:
3. …
b)…
“The significant dispute remaining is the actual/realistic value of the husband's business interests. …
Howard FM continued his final reasons:
c)During oral submissions made on behalf of the parties in March 2008 the oral submissions made on behalf of the wife referred to the value of the "business". …
…
e)In the written submissions of the husband provided by Mr Hamwood of counsel the front page refers to:
“(7) Treatment of post separation changes and the value of the husband's business.”
f)The terminology used by the husband's counsel, namely "value of the husband's business" continued during the oral submissions made in March 2008. …
g)The terminology used by Mr Hamwood during the oral submissions is encapsulated on page 18 of the Transcript from the day of the oral submissions where he stated, inter alia:
“Mr Hamwood: Yes, and that is why, your Honour, we will also be handing up - and your Honour has before you and it is something that your Honour will obviously take into account when looking at the overall justice and equity, the present value of the husband's business but we say that for the purpose of considering the components of the asset pool that arises out of the marriage of these parties, the appropriate value for the business is the value at the date of separation or at the date of the consent orders and there is not much difference between them…
So that is why it is preferable, in my submission, and clearer and makes more sense, to take the business valuation at the date that the parties agreed…”
…
i)(1) The husband provided a document entitled:-
“Schedule of Assets and Liabilities
…
Assets and Liabilities of The [Mr Sasse] Trust
DESCRIPTION
Husband
Wife
Value of the [Mr Sasse] Trust at date of separation 4 January 2000
$223,831.00
…
j)The Court was also handed during the course of submissions a one page document on behalf of the husband. That document is entitled, "Break up of Assets/Liabilities as Contended for by Husband". The first item in that document states:
BREAK UP OF ASSETS/LIABIITIES AS CONTENDED FOR BY HUSBAND
Item
Assets
Liabilities
% distrib-uted to client
Value to client
Value to other party
The [Mr Sasse] Trust
$513,831.00
100%
$513,831.00
$0.00
There is no indication as to where the husband obtained the value of the [Mr Sasse] Trust in the amount of $513,831.00 - although it does appear to be remarkably close to the figure included as the value of the business undertaken by the trusts as stated by [Mr M] in the amount of $512,500.00.
…
The learned Magistrate then noted that in Mr M’s report was a schedule of the “Value of the Business Undertaken by the Trusts” at various dates and a schedule of the “Value of the [Mr Sasse] Trust” , though two of the three dates on which the business had been valued were shown as “not applicable” to the current Trust. After referring to the Rules of the Federal Magistrates Court of Australia relating to correction of orders, Howard FM continued:
7.Apart from one line with an erroneous notation in the typed schedule of Assets and Liabilities provided by the husband (referred to in paragraph 3(i) above) all of the submissions of both parties (both written and oral) related to the "value of the business" as opposed to the “value of the Trust”.
8.The business was undertaken by the Trusts (initially the [Mr Sasse] Family Trust and subsequently the [Mr Sasse] Trust). The value of the [Mr Sasse] Trust at the date of the trial was approximately $451,000.00. The value of the business undertaken by the Trusts at the date of the trial was $512,500.00.
9.Having regard to the oral submissions made by counsel on behalf of both parties and having regard to the vast majority of the written submissions made by both parties, the Court's attention was directed to and focused upon the value of the business - as opposed to the value of the Trust.
10.For the purposes of this application I have also had regard to the balance of the Reasons for Judgment. In those Reasons for Judgment there are many references to "the value of the business".
11.I do not consider that this is an appropriate case for the application of the Slip Rule. In my view the Reasons for Judgment reflect the intention of the Court. The value of the business in paragraph 10 of the Reasons for Judgment shall therefore remain unchanged in the amount of $512,500.00.
The point raised by this ground of appeal is not the same question as whether or not the learned Magistrate was correct in what he said in respect of the application of the slip rule. In considering that rule, Howard FM was identifying his intention. The argument on appeal depends initially on what the “cases” of each party on the point were.
The references by the Federal Magistrate directly support the proposition that the parties spent considerable time litigating the value of the business. They may also raise an inference that, at trial, neither party contended that the value of the business should be taken into the balance sheet of the Trust and then only the net value of the Trust be included in the “property pool” for division between the parties. But there is ample evidence that the husband’s case was that the net value of the Trust, albeit dependent on the outcome in respect to the value of the business, was what should be brought into the asset pool.
On 26 November 2007, the first day of hearing, Mr Hamwood, counsel for the husband, informed the Federal Magistrate that the parties were “still working on the list of assets and liabilities” but went on to advise Howard FM that the husband’s contentions were that the Mr Sasse Trust had a value of $449,054.00.
Mr M’s evidence of the value of the Trust was put before the Federal Magistrate. Apart from challenges to the value of the business, the other detail of Mr M’s schedule 2.1 was not attacked.
During the hearing, the parties even agreed on an adjustment to the net value of the Trust, from $449,054.00 to $451,503.00, to reflect small increases in the value of the boat and cars, shown as Trust assets.
The parties (and Howard FM) accepted Mr M’s valuation of L Pty Ltd. That valuation included as a liability a debt to the Trust, shown on Mr M’s valuation of the Trust as a Trust asset. Thus, the value of the Trust was interlinked with the value of other assets and liabilities taken into account.
As Howard FM noted, Mr Hamwood had annexed to his written submissions a schedule that included as an asset the Trust that then ran the business, albeit valued as at the date of separation.
In oral submissions on 13 March 2008, Mr Hamwood specifically addressed the schedule of assets for which he contended, saying:
…The business appears to be worth more than the trust but for accounting reasons…the actual value of the trust as determined by Mr [M] including its interest in the business at that time was 223,831.
Mr Galloway (counsel for the wife on appeal) submits that there were reasons for which the learned Magistrate could have declined to include the net value of the Trust in the pool of assets for division. It was not the same Trust that had conducted the business during the marriage. Some current Trust assets were not business assets.
However, I do not accept that these observations are pertinent to the question of what were the cases of the parties before the Federal Magistrate. I am satisfied that the case of the husband was that only the net value of Trust assets, which would include the business as valued, should be included in the asset pool for division.
In any event, even if Mr Galloway’s submissions were valid arguments on appeal, a significant difficulty in respect of the judgment would remain, namely, that no reasons for the Federal Magistrate’s acceptance of one approach and rejection of the other appear in his initial reasons and the reasons in the second judgment relate not to that topic but to the Federal Magistrate’s intention.
Though the schedule put forward at trial by the wife showed only the value of the business as an asset, and might - generously - be taken as a contention that therefore the net value of the Trust ought not be included, I was not taken to any (other) contention in respect of the husband’s case on point. I therefore accept Mr Hamwood’s submission that the case of the husband about inclusion of the net value of the Trust was not directly opposed.
I am satisfied, therefore, that in failing to include the net Trust assets in the pool of assets for division, rather than only the value of the business it conducted, the learned Magistrate erred.
Whether, in finding that the business operated by the husband at the date of hearing was the same as the business operated by the parties at separation, the Federal Magistrate erred in fact
In his reasons, the learned Magistrate said:
23.It was submitted by Mr Hamwood of Counsel on behalf of the husband that the business had changed substantially between the date of separation and the date of hearing. I do not accept that submission. … The [X] business may now well have different clients; may perform different types of work; may have an increased turnover; may have more employees and an increased value. However, I find that the wife was involved in a substantial way with the business by performing the book work and by assisting the husband to build the business. Even though the business may have increased in value since the date of separation (and since the time of the consent orders) I find that the business has only been successful and has only increased in value because of the ground work laid by the husband and the wife during their 25 year marriage and the joint efforts of both of those parties. The business was already secure, profitable and well established by the time the parties separated in January 2001. It is still, essentially, the same business.
In his written submissions on appeal, Mr Hamwood, for the husband, referred to the husband’s unchallenged evidence in chief about the development of the business to the time of trial, and said:
6.3It is clear on this evidence that the only continuity is that both businesses operate in the [X] field. The pre 30 June 2002 business was essentially a one-man show operated by the husband with the two sons as apprentices and occasional subcontractors. The current business has a trade staff of 10, including 6 tradesmen and 4 apprentices, a 500% increase in the client base and a significant change in the nature of the business.
My first observation is that the quoted passage of Howard FM’s reasons demonstrates that he was well aware of the husband’s case on point. Secondly, the finding under attack, while a factual one, is qualitative, one arrived at after consideration of a number of features relating to the overall history of the business commenced by the parties during cohabitation and features of the business as it existed at trial. The finding is not one that can be empirically tested and does not purport to be. It says no more than that, despite a number of changes to the present business, it is essentially the same business as that commenced by the parties. I am not satisfied that that expression constitutes a mistake of fact.
Whether the business should have been valued at the date of the consent orders of 2 May 2002 and whether the learned Magistrate gave adequate reasons for not so doing
The contention here is that, since the wife had made no contributions to the business since the date of the consent orders and there had been major changes in the nature and operation of the business since that date, its value should have been assessed as at the date of the consent orders. In his first set of reasons, the Federal Magistrate said:
19.The value of the business should go in as at the date of the hearing. This is the general rule in relation to property settlement proceedings. …
…
22.… Therefore, six years and ten months elapsed between the date of separation and the date of hearing. In some cases this may well justify accepting an earlier date as the proper date for the valuation of a particular asset.
Howard FM then set out the paragraph discussed in respect of the preceding ground, resulting in the conclusion that the current business was “…still, essentially, the same business”. He next said:
24.Accordingly in my view the correct date for the valuation of the business is the date of the hearing. …
Mr Hamwood argues that the reasons given for this decision are inadequate and that, as paragraph 24 is expressed, it appears to say that the finding that the current business was still the same as the one operated during cohabitation justified taking the date of hearing as the valuation date. This, he said, was a “non-sequitur”.
I reject that submission. No attack was made on the learned Magistrate’s expression of the law as being that, ordinarily, property is valued as at trial. As seen a moment ago, in paragraph 23, Howard FM considered the argument as to why a different approach should be taken, and rejected it. That decision was discretionary. It was well open to him.
There is no merit in these arguments.
Whether having valued the business as at the date of hearing, his Honour ought have given greater weight to the post-separation contributions of the husband in the development and operation of the business; and
Whether his Honour failed to give adequate reasons for the adjustment of only 5 per cent in respect of the husband’s contributions to the date of hearing
In his first set of reasons, the Federal Magistrate said:
41.I make the following findings:-
a)the wife provided most of the home making duties in relation to this marriage. Furthermore the wife, by providing the home making duties and caring for the children, enabled the husband to advance his career and increase his earning capacity by building the [X] business;
b)the husband worked primarily in the [X] business. The husband built a substantial and profitable [X] business throughout the course of the marriage;
c)the husband was assisted in the [X] business by the wife (primarily performing bookwork type duties);
d)the parties raised their family together.
e)the parties did their best for the benefit of their family throughout the course of their (approximately) 25 year marriage.
42.In assessing the contributions based entitlements of the parties I have considered all of the foregoing matters in these Reasons for Judgment. By way of summary only it is to be noted that the matters I have considered include:-
a)the fact that the valuation of [L] Pty Ltd in the amount of $270,914.00 has been included in the asset pool even though this company was only incorporated on 4 June 2003 (after the date of separation);
b)the fact that I have valued the [X] business as at the date of the hearing;
c)the fact that I have included the full valuation of the husband’s superannuation as per the Evidex report prepared by Mr [M] (section 11) contained in his Affidavit sworn 23 November 2007;
d)the fact that the husband has been able to acquire assets in the name of [L] Pty Ltd and has been able to increase the value of his superannuation by using the earning capacity which he had “built up” or “acquired” during the course of the marriage;
e)all of matters mentioned in paragraph 41 herein.
Mr Hamwood, in his written submissions, argued:
4.3The following evidence of value was either available or was referred to by his Honour
(a)increase in value of [Mr Sasse] Family Trust/Trust $225,223.00
(b)creation of value in [L] Pty Ltd $270.914.00
(c)increase in value in husband’s superannuation $516,182.00
TOTAL$1,012,319.00
Less increase in husband’s debt ($256,468.00 - $111,862.00)
Nett increase $867,713.00
4.4On the property pool, as found by the learned Federal Magistrate at 3873893, the husband’s post-separation increases represent 22% of that pool.
4.5It is submitted that a 5% adjustment is inadequate.
The adjustment of 5 per cent represented about $193,000.00. However, when comparing that to the increases asserted by Mr Hamwood, one recognises that separation of the parties was some six years before trial. The value of money had increased; a matter of common knowledge. Moreover, in my view, the observation of his Honour that:
…the husband has been able to acquire assets in the name of [L] Pty Ltd and has been able to increase the value of his superannuation by using the earning capacity which he had “built up” or “acquired” during the course of the marriage;
is as to a matter of considerable weight, affecting the significance of each other factor identified in subparagraphs 42 a) to c), of Howard FM’s reasons.
The breadth of discretion in assessments such as under discussion, is wide. I discussed authorities on that point in G and G [2004] FamCA 1179. I am not satisfied that the learned Magistrate’s assessment was outside the parameters reasonably open to him.
As to the attack on reasons, the reasons are succinctly expressed. That is often helpful to clarity rather than an impediment to it, and the approach taken by the learned Magistrate is readily discernible.
Whether the learned Magistrate ought have added back to the property pool some $90,000.00 approximately allegedly expended by the wife on legal fees in relation to family law proceedings
This argument questions the Federal Magistrate’s treatment of the husband’s case for an “add-back” of $89,264.00. As to this, the Federal Magistrate said:
13.In the Schedule of Assets and Liabilities provided on behalf of the husband on 27 March 2008 it is noted on page 3 and 4 as follows:
“To reduce the unnecessarily complex procedure of adding back the known legal fees expended by the wife, noting the effect on the superannuation fund, dealing with the difficulty of dealing with the add-backs for [Ms Sasse], the husband submits that the source of the funds, namely the sale of [Property S] should be added back to the pool. Accordingly it is submitted that the sale price of [Property S] ($322,000) less the payment of the mortgage encumbering her home ($191,858.10) and less the deduction paid by [Ms Sasse] to her superannuation fund ($40,877.77) should be attributed to the wife”.
14.That document indicates that the husband seeks an amount of $89,264.00 to be added back into the pool.
15.… I do not consider that the evidence referred to is sufficiently clear for a finding to be made that the amount referred to should be added back into the pool. The only relatively clear evidence on the point appears at page 240 of the transcript where I note the following question and answer occurred:
Mr Hamwood:
“…Ok, so really apart from the reduction in the mortgage, much of what you’ve spent from [Property S] has gone on legal costs of these proceedings and the defamation proceedings, is that right?”
The wife:
“… yes”
16.Whilst the payment of legal fees in respect of the proceedings under the Family Law Act will, on occasions, be added back into the pool, the difficulty with that approach in this case is that the legal costs in question are stated to have been expended on “these proceedings and the defamation proceedings.” I have not been taken by the husband to any other evidence which will show the distinction between the amount of money spent on legal fees for the Family Law proceedings and the amount of money spent on legal fees in respect of the “defamation” proceedings.
17.Before there can be a notional add back into the property pool, there must be clear evidence concerning the particular issue. I am not persuaded by the submission on behalf of the husband that the amount sought as an add back falls into either of the remaining two categories identified by the Full Court in Omacini & Omacini [2005] FLC 93-218 at page 79,617-79,618.
18.Accordingly, the sum of $89,264.00 sought by the husband should not be added back into the property pool.
On appeal, Mr Hamwood points to evidence of the wife contained in answers to questions asked by the husband, that she had paid over $100,000.00 for legal costs of the Family Court proceedings. Thus, he argues there was no need for Howard FM to be concerned with an apportionment between costs of the defamation proceedings and family law proceedings, because the add-back requested was less than the wife’s admitted family law costs.
Mr Hamwood also submitted that no one, including the Federal Magistrate, had raised during the trial any issue arising from difficulty apportioning costs between defamation and family law proceedings. Had such a difficulty been raised, Mr Hamwood says, he could have directed the learned Magistrate to the evidence of the amount of the wife’s family law costs. On these points, Mr Galloway made no submission to the contrary.
Though Mr Galloway made other submissions in support of the Federal Magistrate’s conclusion, and though these submissions may well be pertinent to any re-exercise of discretion, they do not, in my view, overcome the difficulty that, by the learned Magistrate taking an approach not discussed at trial, these parties were both denied an opportunity of addressing its ramifications.
As Kirby J said in Johnson v Johnson (No.3) (2000) FLC 93-041 (at 87,637):
46. …
2. … Unless the adjudicator exposes the trend of his or her thinking, a party may be effectively denied justice because that party does not adduce evidence or present argument that could have settled the adjudicator’s undisclosed concerns. …
Accordingly, in my view there is merit in this argument.
Whether the learned Magistrate erred in his assessment of s 75(2) factors resulting in a 15 per cent adjustment in favour of the wife or failed to properly explain that adjustment
The attack on the adjustment of 15 per cent in the wife’s favour on account of s 75(2) factors is in the context that, by virtue of Howard FM’s decision in relation to contributions, the wife was already entitled to assets of $1,743,251.00. Thus, the 15 per cent adjustment gave her a further $581,083.00. This, Mr Hamwood argues, was at least excessive, if not entirely unnecessary.
The Federal Magistrate’s conclusions in respect of s 75(2) factors were as follows:
44.Does there need to be an adjustment pursuant to s.75(2) of the Act?
I will only refer to the relevant matters in s.75(2).
a)(i) The husband is aged 53 years and the wife is aged 51 years.
(ii) The wife does have certain health issues. I accept the evidence of the psychologist, [Ms E] – that following the initial marital dissolution in 1999 the wife suffered from an adjustment disorder with mixed anxiety and depressed mood.
(iii) I am not in a position to make a finding as to whether or not the wife is suffering from post traumatic stress disorder. In the circumstances I do not consider it is necessary to make a finding concerning post traumatic stress disorder one way or the other. Furthermore, I accept that the anxiety and depressive symptoms suffered by the wife made it impossible for her to work effectively in paid employment. In particular this is due to poor concentration, panic attacks and racing thoughts. I accept the evidence of Ms [E] that the wife is unfit for employment until she has addressed these debilitating symptoms. I consider that the twelve months of psychological counselling recommended by
Ms [E] is appropriate.
b)(i) Neither party has made a specific submission concerning the income of the parties. Counsel for the husband accepts in his written submissions that the husband has a greater earning capacity and has improved the value of the business with the assistance of his current wife since the separation.
(ii)In view of the fact that the husband has control and ownership of the [X] business and having regard to the fact that, since separation, the value of the business has continued to increase I find that the husband in fact has a substantially greater earning capacity than the wife.
(iii)I do note that both parties are in control of substantial assets, however it is the husband’s substantially greater earning capacity which I am particularly taking into account.
c)Through the course of this 25 year marriage the wife provided substantial home making contributions to the family as well as performing book work for the [X] business. I find that the wife’s prospects of future employability are very limited having regard to the length of time that she has been absent from the employment market (it is approximately 28 years since the wife worked for any substantial period of time in anything other than a family related business).
Conclusion in relation to section 75(2) adjustment
45.Mr Hamwood, counsel on behalf of the husband, contended that there should be an adjustment in the husband’s favour in the amount of 5%.
46.Mr George, counsel on behalf of the wife, seeks an adjustment in the amount of 20% in favour of the wife.
47.I conclude that there should be an adjustment in favour of the wife in the amount of 15%. I have reached this conclusion based on the matters referred to in paragraph 44 herein as well as my impression of the evidence generally, including the evidence given by the husband and the wife in the witness box.
The adjustment for s 75(2) factors is a very substantial one. When considering its aptness, it is appropriate to bear in mind, particularly when the main factor in support of it is a disparity in future earning capacities, that the resulting payment is of an immediate capital sum which itself can earn income for the wife. The husband must raise the sum from his capital and/or borrowing. This likely reduces his disposable income. Moreover, it might take a very long time, if at all having regard to the exigencies of life, for the differential between spouses’ after tax income to equate to the capital sum paid to the wife.
These observations turn the focus to the evidence of the disparity between earning capacities. Mr Hamwood did not challenge the Federal Magistrate’s statements that neither party had made a specific submission concerning the income of the parties and that the husband had “a substantially greater earning capacity than the wife”.
In his statement of financial circumstances, the husband showed salary of about $65,000.00 per year and very large superannuation contributions of $2,780.00 per week. The husband’s present wife received from the business a salary which Mr M adjusted downwards to a market rate of $42,636.00 per annum in 2006/07 and superannuation in that year of $49,336.00.
Mr M estimated maintainable earnings of the Trust at $205,000.00 per annum.
Mr Hamwood argues that the learned Magistrate had not shown that he had taken into account the wife’s future earning capacity, but, in my view, his use of terms of comparison in relation to earning capacities shows that he did. Mr Hamwood also suggests that the wife’s rental income was below market, but capacity to earn from capital is not central to the comparison of earning capacities and each party is able to earn from capital.
Finally, Mr Hamwood submits that the husband’s earning capacity has already been included in the asset pool of which the wife received a substantial share, because of the basis upon which the business was valued. There is a qualified validity to this submission, but by no means does the capitalisation of maintainable earnings for the purpose of valuing the business purport to value the earnings for, for example, the estimated working life of the husband. Moreover, if the husband sold the business, in theory, at least and perhaps in reality he can acquire another and has the skills to generate the same sort of income.
Having regard to the breadth of discretion earlier referred to, and the evidence before the Federal Magistrate about earning capacities and his unchallenged findings in respect of that, I am not satisfied that his assessment of s 75(2) factors fell outside a reasonable range.
As to sufficiency of reasons, Mr Hamwood submitted that the reader could not tell why the adjustment was 15 per cent rather than some other percentage.
The criterion for reasons is that they must adequately support the result, not that they must incontestably support it. The point is this: the circumstance that, in support of a discretionary result, reasons cannot entirely preclude other results, may give the appearance of a shortfall in reasoning, where no omission exists.
It was not necessary, is not generally done and may have been unwise, for the learned Magistrate to ascribe percentage weighting to every s 75(2) factor. In my view, the reasons for his assessment were plain.
There is ultimately no merit in these arguments.
Whether the learned Magistrate erred in failing to make an order for costs against the wife:
a) because of her initial resistance to the husband’s s 79A application and subsequent consent to the original order being set aside; and
b) because of allegations made by the wife in the trial but rejected by Howard FM that she held certain properties in trust for the children of the parties
When, in October 2004, the husband commenced his application to set aside the consent orders of May 2002, the wife resisted that application. It was set down for hearing on the threshold issue of whether the orders ought to be set aside, but on the trial date the wife consented to the orders being set aside.
At the trial before Howard FM, the wife alleged that the parties held two properties on trust for their children. She totally failed in respect of that contention.
Because of those matters, the husband sought an order for costs against the wife. After dealing with the matter of an offer - in a way unchallenged in this appeal - in his second set of reasons, Howard FM said:
20.I have had regard to s.117 of the Act and the various sub-sections therein.
21.Once the wife consented to the setting aside of the earlier property orders she became an equally willing participant with the husband in the further Family Law litigation.
22.The wife contended throughout the trial and during submissions that approximately $1 million worth of property (the [Property J] and ]Property B] properties) should be excluded from the property pool and that she should nonetheless recover 60 per cent of a property pool which did not include those properties. The wife contended those properties had been held by her and the husband on trust for the sons. I made findings against the wife in that regard in the Reasons for Judgment delivered 5 June 2008.
23.Taking into account that argument by the wife and taking into account the conduct of the husband and the wife relating to this Family Law litigation I consider that both the husband and the wife were obstinate in their outlook as well as resentful and bitter towards each other.
24.In those circumstances I consider that it would not be just to make a costs order in favour of either party in this case. Both the husband and the wife in this case have been willing participants in these property settlement proceedings (certainly since May 2007) including in particular the four day trial that was conducted in November 2007.
25.Each party should bear their own costs.
The wife’s consent to the setting aside of the consent orders was a consent only to the “threshold” issue, in effect allowing re-litigation of property settlement. The overall result of that re-litigation did not represent a “loss” by the wife.
As to the wife’s failed contentions in respect of a trust, no challenge has been made to the learned Magistrate’s conclusion (albeit unparticularised), expressed in paragraph 23 set out above, namely:
23.Taking into account that argument by the wife and taking into account the conduct of the husband and the wife relating to this Family Law litigation I consider that both the husband and the wife were obstinate in their outlook as well as resentful and bitter towards each other.
The width of discretion in relation to costs is broad. As Nygh J (with whom Simpson and Smithers JJ agreed) said in Robinson and Higginbottom (1991) FLC 92-209 (at 78,417):
As counsel for the husband rightly submitted, this Court should be very reluctant indeed to interfere with the exercise of discretion in respect of costs. …
And as the Full Court (Ellis, Strauss and Lindenmayer JJ) said in Harris and Harris (1991) FLC 92-254 (at 78,711):
…Orders for costs are peculiarly a matter which are within the discretion of the trial judge and it is only in the rarest of cases that the Full Court should interfere with a costs order.
I am not satisfied that in addressing the issue of costs, Howard FM erred.
Re-exercise of discretion
Each party seeks a re-exercise of discretion in the event of an appeal ground being made out. Neither party seeks to put further evidence before me.
I intend to first address the two issues as to inclusions in the asset pool of the net value of the Trust as against the value of the business and the add-back on account of legal fees. I will then consider, in light of the decisions with regard to those issues, what approach should be then taken.
Asset pool
In my view, the case of the husband as to inclusion of the net value of Trust assets (including the business) being unopposed, save as to the value of the business, the net value of the Trust is what should be included in the asset pool. This will reduce the pool and the gross assets to be retained by the husband by $60,997.00.
Add-back
As seen, at trial the argument for the husband relied on a calculation about the unexplained remnant of the sale proceeds of the Property S and the relation of that to paid legal fees.
I accept Mr Galloway’s submission that the actual source of payment of legal fees has not been shown by direct evidence. However, an inference could be drawn that some, or all, came from capital.
In Exhibit 28 before Howard FM the wife identified sources for payment of legal fees as including credit card and accounts, but capital from the sale of Property S may well still have been the source for repayment of credit card debt and of deposits in accounts.
All of the cases, DJM v JLM (1998) FLC 92,816 (at 85,262), Browne v Green (1999) FLC 92-873 (at 86,360), Chorn and Hopkins (2004) FLC 93-204 and Omacini and Omacini (2005) FLC 93-218 recognise the discretionary aspect in determination of this issue. The usual course may well be to add-back legal fees paid from capital that existed at separation, but that course may be departed from for sufficient reasons disclosed.
In my view relevant to this aspect are firstly that, in 2002, the parties’ alteration of property interests was finalised and remained that way until the orders were set aside by consent in May 2007. Property S was sold in 2005. Secondly, the husband has paid his legal fees from income generated by a business to which the wife made substantial contributions. The wife had virtually no employment and was largely dependent on capital to meet expenses, especially any out of the ordinary.
In these circumstances, I do not add-back to the asset pool for division the wife’s paid legal fees.
Other possible steps in the re-exercise of discretion
Should I, because of a decision to adjust the property pool by approximately $60,000.00, re-exercise in respect to all elements of the decision in alteration of property interests?
In my view, the diminution in the asset pool is so small that had the learned Magistrate made it, it would not have affected the other elements in the exercise of discretion.
I conclude that the only orders that I ought make are to carry through the mathematical consequences of substituting the net value of the Trust for the value of the business conducted by it.
This means that the net assets for division are $3,807,001.83. Under the orders of Howard FM, to provide the wife with 60 per cent of the asset table, the husband was to pay the wife the sum of $62,329.47. The reduction of the asset table by $60,997.00 means that the wife’s 60 per cent entitlement is $2,284,201.09, that is, $36,598.21 less than the provision in the Federal Magistrate’s orders. Thus, the husband need pay the wife only $25,731.26.
I certify that the preceding seventy-six (76) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Warnick.
Associate:
Date: 20 October 2008