Shnell & Frey
[2021] FedCFamC1A 55
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1) APPELLATE JURISDICTION
Shnell & Frey [2021] FedCFamC1A 55
Appeal from: Shnell & Frey [2020] FamCA 631
Shnell & Frey (No. 3) [2020] FamCA 926
Appeal number(s): EAA 126 of 2020
EAA 159 of 2020File number(s): SYC 1057 of 2017 Judgment of: WATTS, AUSTIN & TREE JJ Date of judgment: 5 November 2021 Catchwords: FAMILY LAW – APPEAL – PROPERTY – Where the wife appeals from a property settlement order – Long marriage – Where the primary judge gave inadequate reasons for the conclusion reached – Where the primary judge erred in the treatment of CGT – Appeal allowed – Re-exercise of discretion – Costs ordered in a fixed sum.
FAMILY LAW – APPEAL – COSTS – Where it is conceded that if the appeal is successful the costs order made by the primary judge should be set aside – Re-exercise of discretion – Parties to file further written submissions.
Legislation: Family Law Act 1975 (Cth) ss 75, 79 Cases cited: Bennett and Bennett (1991) FLC 92-191; [1990] FamCA 148
Bonnici and Bonnici (1992) FLC 92-272; [1991] FamCA 86
Darley & Darley (No. 4) [2021] FamCAFC 54
Davut and Raif (1994) FLC 92-503; [1994] FamCA 113
Fitzmaurice & Woolridge (2020) FLC 93-951; [2020] FamCAFC 64
Gronow v Gronow (1979) 144 CLR 513; [1979] HCA 63
Hickey and Hickey and Attorney-General (Cth) (Intervener) (2003) FLC 93-143; [2003] FamCA 395
House v The King (1936) 55 CLR 499; [1936] HCA 40
Jabour & Jabour (2019) FLC 93-898; [2019] FamCAFC 78
Keskin & Keskin and Anor (2019) FLC 93-932; [2019] FamCAFC 236
Metwally v University of Wollongong (1985) 60 ALR 68; [1985] HCA 28
Mullane v Mullane (1983) 158 CLR 436; [1983] HCA 4
Norbis v Norbis (1986) 161 CLR 513; [1986] HCA 17
Rosati v Rosati (1998) FLC 92-804; [1998] FamCA 38
Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247
Stanford v Stanford (2012) 247 CLR 108; [2012] HCA 52
Sun Alliance Insurance Ltd v Massoud [1989] VR 8
Number of paragraphs: 104 Date of hearing: 26 May 2021 Place: Sydney Counsel for the Appellant: Mr Richardson SC Solicitor for the Appellant: Etheringtons Solicitors Counsel for the Respondent: Mr Lethbridge SC Solicitor for the Respondent: Tilley Family Law and Mediation ORDERS
EAA 126 of 2020
EAA 159 of 2020
SYC 1057 of 2017FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
DIVISION 1 APPELLATE JURISDICTIONBETWEEN: MS SHNELL
Appellant
AND: MR FREY
Respondent
ORDER MADE BY:
WATTS, AUSTIN & TREE JJ
DATE OF ORDER:
5 NOVEMBER 2021
THE COURT ORDERS THAT:
1.Appeal EAA 126 of 2020 is allowed.
2.Order 1 made 4 August 2020 is set aside.
3.Pursuant to s 79 of the Family Law Act 1975 (Cth), a property settlement order is made as follows:
(a)Within three months the husband pay the wife the sum of $399,412.
(b)Otherwise, each party retain to the exclusion of the other, all property currently in their respective possession or control.
4.Appeal EAA 159 of 2020 is allowed.
5.Orders 1 and 2 made 4 November 2020 are set aside.
6.In respect of the re-exercise of discretion in the costs appeal:
(a)Within 14 days, the husband is to confirm that he presses his application and is to file and serve any additional documents on which he relies and written submissions of no more than 10 pages;
(b)Within a further 14 days, the wife is to file any documents on which she relies and written submissions of no more than 10 pages; and
(c)Within a further seven (7) days, the husband file any further written submissions of no more than five pages in reply.
7.The husband pay the wife’s costs of these appeals in the fixed sum of $51,000.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
IT IS NOTED that publication of this judgment by this Court under the pseudonym Shnell & Frey has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
WATTS, AUSTIN & TREE JJ:
INTRODUCTION
By Notices of Appeal filed 31 August 2020 and 17 November 2020, Ms Shnell (“the wife”) appeals a property settlement order and a costs order made by a judge of the Family Court of Australia on 4 August 2020 and 4 November 2020 respectively. Mr Frey (“the husband”) resists the appeals.
Apart from allowing the husband to retain certain jointly owned chattels, the property settlement order provides that each party retain, to the exclusion of the other, all property currently in their respective possession or control. No order was made splitting the parties’ superannuation. Overall, this effectively allowed the wife to retain roughly 52 per cent of the net assets and the husband roughly 48 per cent.
The wife complains that it is not possible to discern from the reasons of the primary judge how this conclusion was reached. More specifically, the wife complains about how the primary judge dealt with the value to the husband of an interest in a family trust, the disparity of the gifts/inheritances of the parties and the latent capital gains tax (“CGT”) in the wife’s real estate.
For reasons which follow the appeals succeed. We shall re-exercise discretion and make a new property settlement order as requested by the parties, as well as directions for the filing of written submissions in relation to costs.
BACKGROUND
The husband is 70 years of age and employed as a professional. The wife is 64 years of age and employed as an advisor for a company providing financial services (at [4]).
The parties married in January 1980 and separated in late June 2015. They divorced on 21 July 2017. They have two adult children (at [5]).
In 1978 the husband purchased a property for $64,250 and borrowed $40,000 from a bank to do so. Two years later it became the parties’ only matrimonial home (at [6]).
The husband was already working as a professional at the time of marriage and the wife qualified as a professional the year after marriage. The husband was the primary income earner throughout the marriage and, as such, the parties made decisions such as relocating to G City for a number of years because it was advantageous to the husband’s career. The wife was employed for much of the marriage as an advisor for corporate companies. At times she worked part time and at other times took maternity leave. The wife was the primary homemaker/parent throughout the marriage, although the husband assisted to the extent possible given his longer working hours (at [7]).
In 2009 the wife received an inheritance from her father’s estate of $60,000 (at [17]). During the marriage the husband received by way of gifts and inheritances sums totalling $2,015,638 (at [18]) which was expended upon the acquisition and improvement of assets and on the family generally (at [19]).
Upon the death of the wife’s mother in 2019, the wife received an inheritance which is reflected on the balance sheet at a value of $2,550,026 (at [20]).
Since separation, the wife has earned more than the husband. Their respective salaries in 2019 were $175,203 and $99,991 (at [21]).
At the date of the trial the parties held between them joint net assets with a value of $8,623,296 (at [77]). The alteration of property by the primary judge resulted in the wife receiving $324,530 more than the husband (at [78]).
Both parties continued to be employed, the husband full time, the wife nine days a fortnight. Neither have any major health problems (at [23] and [24]).
The wife owns an investment property. If she had sold it at the date of the trial, she would have incurred a CGT liability of $290,029 (at [53]).
The husband, his sister and brother are the joint appointors (at [11]) and the joint directors of the corporate trustee (at [54]) of the H Trust (“the Trust”) which the wife asserted had net assets of $4,683,297 (Single expert report dated 27 May 2020, paragraph 47). This value is not referred to in the primary judge’s reasons.
The husband’s interest as an object of the Trust has resulted in him receiving regular distributions of one third of the income of the Trust since 2011 (at [15] and [73]) together with the right to occupy a beach holiday house from time to time (at [14]).
The primary judge found that the trust was “intergenerational”, having been established by the husband’s parents (at [8]) and that it was not the current intention of the husband and his siblings to vest the trust and distribute its capital (at [49] and [73]).
At trial each party sought to retain the assets in their respective possessions. Additionally, the wife sought that the husband pay her the sum of $1,860,000 and a $200,000 splitting order from the husband’s superannuation (Minute of Orders sought by the wife). On the other hand, the husband sought the wife pay him $162,200 (Minute of Orders sought by the husband).
REASONS OF THE PRIMARY JUDGE
The reasons of the primary judge contain the findings of fact to which reference has been made. The primary judge identified the major issues requiring determination (at [25]):
·the treatment of the value, if any, of the husband’s interest in the Trust;
·the weight, if any, to be attached to the introduction by the husband of his initial equity in the former matrimonial home;
·the value and weight to be attached to the husband’s inheritance;
·the value and weight to be attached to the wife’s inheritance;
·CGT on the wife’s real estate; and
·what adjustment should be made, if any, for prospective considerations.
The primary judge determined that it was just and equitable to make an order (at [29] and [30] referring to Stanford v Stanford (2012) 247 CLR 108 (“Stanford”)). Her Honour then resolved controversies in respect of the draft balance sheet by:
·finding that the husband did not control the Trust (at [44]) and that no value could be ascribed to the husband’s interest in the Trust ([46]), rejecting the wife’s assertion that the value to the husband of his interest in that financial resource was $1,561,099 (at [49]) which was a third of the value of the net assets of the Trust as asserted by the wife;
·rejecting the wife’s assertion that a CGT liability in respect of her property should be placed on the balance sheet, to her advantage (at [53]);
·noting that the husband conceded that his initial equity in the former matrimonial home was but one of the myriad of contributions made over a 35 year marriage (at [56]);
·noting that the husband’s inheritance was received progressively after the death of his mother in 2011 (at [59]); and
·rejecting the wife’s submissions that her inheritance should be quarantined in a second pool and her contributions to it considered on an asset by asset basis rather than a global basis (at [63]).
The primary judge then dealt with the parties’ contributions (at [64]–[69]) and said of the issue of the disparity in the inheritances:
68.Each party has received significant inheritances although the wife’s inheritance was greater than the husband’s. The husband however utilised a significant portion of his inheritance in further improving the former matrimonial home.
And concluded:
69.Overall, I consider that the myriad of contributions made by each party should be assessed as largely equal although slightly favouring the wife because of the disparity in the inheritances/gifts and the timing of the wife’s inheritance.
Her Honour, by way of a heading, then asked, “Whether and, if so, what adjustment should be made having regard to the following relevant factors in ss 79(4)(e) and 75(2)”. The heading then lists four prospective considerations which the primary judge discussed at [70]–[76] but her Honour does not answer the question posed in the heading.
Finally, the primary judge turned to consider what order will achieve a just and equitable outcome. Her Honour concluded, apart from allowing the husband to retain some jointly owned chattels, that no further order adjusting property needed to be made and that it was a just and equitable settlement for each party to otherwise retain what they have respectively in their name, possession and control, leaving the wife with roughly 52 per cent and the husband with roughly 48 per cent of the net assets on the settled balance sheet.
GROUNDS OF APPEAL FROM THE PROPERTY SETTLEMENT ORDER
The wife did not press Ground 6 which asserted that the primary judge had double counted the $2,015,638 the husband had brought into the marriage from gifts/inheritances.
The remaining grounds of appeal contained a degree of repetition and it is appropriate to deal with certain grounds together:
·Grounds 1 and 2 relate to a failure to give any or any adequate reasons for the outcome.
·Grounds 3, 8, 9 and 10(d) assert the primary judge erred when dealing with the husband’s interest in the Trust of which H Pty Ltd is the trustee.
·Grounds 4, 5and 10(b) relate to asserted errors by the primary judge in relation to the treatment of gifts/inheritances.
·Grounds 7, 10(a) and 10(c) assert errors in relation to the treatment of latent CGT in respect of the wife’s property at Suburb L.
·Ground 11 asserts that the ultimate result is plainly wrong (final limb of House v The King (1936) 55 CLR 499 (“House”)). It also is to be noted that Ground 5 contains a “plainly wrong” ground in relation to the wife’s inheritance.
Adequacy of reasons – Grounds 1 and 2
Were the primary judge’s reasons adequate to explain the approach taken when considering what property settlement order was appropriate?
The gravamen of these grounds is that the primary judge did not adequately explain how her Honour reached the ultimate outcome.
Reasons will be inadequate if an appeal court is unable to ascertain the reasoning upon which the decision is based or justice is not seen to have been done (Bennett and Bennett (1991) FLC 92-191 at 78,266–78,267, quoting Sun Alliance Insurance Ltd v Massoud [1989] VR 8). The reasons should enable the parties to identify the basis of the judge’s decision and the extent to which their arguments have been understood and accepted (Soulemezis v Dudley (Holdings) Pty Ltd (1987) 10 NSWLR 247 at 279).
In Hickey and Hickey and Attorney-General (Cth) (Intervener) (2003) FLC 93-143 (“Hickey”) the Full Court discussed the preferred approach to the determination of a property settlement order:
39.The case law reveals that there is a preferred approach to the determination of an application brought pursuant to the provisions of s.79. That approach involves four inter-related steps. Firstly, the Court should make findings as to the identity and value of the property, liabilities and financial resources of the parties at the date of the hearing. Secondly, the Court should identify and assess the contributions of the parties within the meaning of ss.79(4)(a), (b) and (c) and determine the contribution based entitlements of the parties expressed as a percentage of the net value of the property of the parties. Thirdly, the Court should identify and assess the relevant matters referred to in ss.79(4)(d), (e), (f) and (g), (“the other factors”) including, because of s.79(4)(e), the matters referred to in s.75(2) so far as they are relevant and determine the adjustment (if any) that should be made to the contribution based entitlements of the parties established at step two. Fourthly, the Court should consider the effect of those findings and determination and resolve what order is just and equitable in all the circumstances of the case.
(Citations omitted)
In Fitzmaurice & Woolridge (2020) FLC 93-951 (“Fitzmaurice”), the Full Court makes the point that Hickey is only a preferred approach:
19.These three aspects echo three of the four steps or stages developed in [Hickey]. Adherence to those four steps is not mandatory, and the approach “merely illuminates the path to the ultimate result” (see Norman & Norman [2010] FamCAFC 66 at [60]). Indeed in Martin & Newton (2011) FLC 93-490 at 86,127, it was said of the four step calculus:
305. … [T]hat approach is not legislatively mandated, and as the Full Court [in Hickey] said, is simply the preferred approach. This is because it will be sufficient, in most cases, to have regard to the overall justice and equity of the orders after determination of the asset pool, consideration of contributions and assessment of the relevant s 75(2) matters.
(Emphasis in the original)
However in Fitzmaurice, at [27] the Full Court goes on to express the view that it is imperative to be clear about what result you reach at the second stage so that a proper consideration of certain s 75(2) matters can be undertaken:
27.While it is desirable and indeed can be a useful foil against a charge of insufficiency of reasons to express the quantification of the assessed contributions in percentage terms, it is however, imperative to quantify the assessed contributions in some way, whether expressed in percentage or other terms so as to provide a basis against which any adjustment derived from a consideration of the matters referred to in s 90SM(4)(d)–(g) can be made. Here, his Honour made no attempt to quantify the contributions and the parties and the Full Court are in the dark as to what assessment of those contributions his Honour made (see Keskin & Keskin and Anor (2019) FLC 93-932 at 79,371).
Keskin & Keskin and Anor (2019) FLC 93-932 at [44] makes the point that following the “preferred approach” allows prospective factors to be considered after the outcome of the contributions analysis is known.
Paragraphs 19 and 27 of Fitzmaurice were referred to favourably by a subsequent Full Court in Darley & Darley (No. 4) [2021] FamCAFC 54 at [36].
It was agreed before us that the preferred approach was not mandatory however the wife referred to the following passage in Davut and Raif (1994) FLC 92-503 at 81,237, discussing the four stepped approach:
[It] is not only the approach to be preferred …but that if, in a particular case, a trial Judge adopts some other approach, he/she should indicate the reasons for adopting that other approach and be careful to ensure not only that all the matters referred to in s. 79(4) are properly taken into account but also are seen, in the reasons for judgment, to have been taken into account.
Whilst the primary judge did not explicitly refer to the preferred four stepped approach, as is evident from the discussion above, her Honour’s reasons adopted that structure.
Having determined that a property settlement order should be made, the primary judge first identified and valued the property, liabilities and financial resources of the parties at the date of the trial; secondly discussed contributions; thirdly discussed prospective considerations; and lastly, reached a conclusion as to what order was just and equitable in this case. As set out above, at the end of the second stage, the primary judge at [69] concluded:
69.Overall, I consider that the myriad of contributions made by each party should be assessed as largely equal although slightly favouring the wife because of the disparity in the inheritances/gifts and the timing of the wife’s inheritance.
The disparity referred to was a difference of $534,388 with the wife bringing in $2,550,026 and the husband $2,015,638 by way of inheritances/gifts. It is unclear what “slightly favouring” means. Grounds 4 and 5 of the Notice of Appeal assumes there has been an approximate adjustment of two per cent of net assets in the wife’s favour based on contributions but the reasons do not explicitly say that.
There is also ambiguity about what the primary judge meant about the “timing of the wife’s inheritance”. The wife assumed the reference “was a factor favourable to the wife because it was a reference to the inheritance being received four years after the separation”. The wife submitted that whilst the receipt of the husband’s inheritance and gifts were an incident of the marriage, that is not the way the receipt of the ultimate inheritance from the wife should have been characterised because of the “timing” of its receipt. That may well be the most rational meaning of her Honour’s reference to “timing”. On the other hand, the reference to timing could be a reference to the introduction of the $2 million by the husband at an earlier point in time and, because of the then value of money, a factor which favoured him.
The primary judge has not, as recommended in Hickey, expressed the result of her assessment of the parties’ contributions as a percentage of the net value of the property of the parties. Had the primary judge done so, what her Honour intended by [69] may have been more adequately explained.
Further, at the third stage, as indicated above, although the primary judge poses the question as to what adjustment should be made for prospective considerations, her Honour does not answer it.
The parties are left to guess what the primary judge concluded at the third stage. At the fourth stage, the wife received about a two per cent adjustment overall. If the words in [69] “as largely equal although slightly favouring the wife” mean a two per cent adjustment to the wife based on contributions, then the primary judge has likely made no adjustment at the third stage.
Given the factors discussed by the primary judge, that outcome might be seen to be problematic. In discussing prospective considerations, the primary judge refers to the fact that each party will receive in excess of $4 million as a result of the assessment of contributions. They are both still working and the wife is on a higher income and six years younger than the husband. The husband had the advantage of five years rent free accommodation in the matrimonial home after the separation but maintained it, paid outgoings and the children stayed there for a period of time.
Then, there is the reference by the primary judge to two matters which were the subject of focus at the trial. Firstly the latent CGT on the wife’s property (which had an assessment at the date of hearing in the sum of $290,029) and secondly, the advantages the husband obtained, together with his two siblings, from the Trust (which the wife asserted had net assets of $4,683,297). Both of these considerations favoured the wife. The primary judge’s reasons do not make clear how those considerations have been taken into account and the wife is left to wonder if the assumption should be made that her Honour intended that the significant amount of each party’s capital, the fact that there is almost a four per cent differential in that capital in the wife’s favour based on contributions and her higher income offset any advantage she might have received in respect of the consideration of these two other factors. If that is what her Honour intended it is not adequately explained and in fact, as we have said, her Honour reaches no conclusion as to what adjustment should be made at stage three.
Accordingly, we conclude that the primary judge’s reasons do not adequately enable the parties to ascertain how the primary judge reached her ultimate conclusion. There is merit in Grounds 1 and 2.
Did the primary judge justify making any property settlement order and was a property settlement order in fact made?
Under the rubric of the wife’s general complaint as to inadequate reasons, she drew attention to [30] of the reasons which is in the following terms:
30.Neither party contend that it is not just and equitable to make an order. That position is understandable noting that the parties separated in 2015 and “there is not and will not thereafter be the common use of property” by the parties. Additionally “the express and implicit assumptions that underpinned the existing property arrangements have been brought to an end by the voluntary severance of the mutuality of the relationship”. In such cases the “just and equitable requirement is readily satisfied” and I am satisfied in this case that it is just and equitable to make an order.
(Emphasis added) (The words quoted by the primary judge in this paragraph are from Stanford)
Senior counsel for the wife argued that inconsistently with this finding, the primary judge had in fact made no order altering property.
The primary judge ordered that each party retained to the exclusion of the other, all property currently in their respective possession or control. The wife submitted that this order was not an order altering the interests of the parties in property and therefore was not an order under s 79 (see the discussion in Hickey at [50]–[66]).
As pointed out during submissions the difficulty with that argument is the concession contained in the jointly agreed balance sheet at items 21 (the artwork) and 22 (the household contents in the Suburb F property) that these were joint assets (at [31]). Accordingly the order that each party retain to the exclusion of the other all property currently in their respective possession or control meant that the husband would retain the painting and retain the contents of the Suburb F property which prior to the order being made were joint assets. The wife argued that that was similar to an order that the husband be able to use these assets, and was subsequently not an order made under s 79 (Mullane v Mullane (1983) 158 CLR 436 at 445). However, there is a difference between retaining an asset and using an asset. The order allows the husband to retain these items and is an order which alters the right the wife had in them.
We are otherwise satisfied that the primary judge gave adequate reasons as to why a property settlement order should be made (at [30]).
Did the primary judge err in the treatment of the husband’s interest in the Trust? (Grounds 3, 8, 9 and 10(d))
There was a concession that any part of these grounds of appeal that asserted that the Trust should be seen as a proprietorial interest in the husband’s hands is no longer maintained.
The primary judge found:
46. … [T]he wife cannot succeed with an argument that a one third value of the assets of the Trust should be included in the property pool, because the husband does not control the trust. Nor can the value of the husband’s equitable choses in action be included in the property pool where no valuation of those interests has been undertaken.
47.The husband and wife accept that the husband’s interest can nevertheless be treated as a financial resource but they disagree about what, if any, value can be attributed to it.
…
49.The husband’s interest as an object of the Trust has resulted in him receiving benefits, such as the right to occupy the [suburb M] property from time to time. In addition, the husband has been allocated distributions from the trust arising largely from the [suburb K] property’s rent exceeding outgoings for the Trust. The distributions since 2011 have been equal (or equalised) between the husband and his two siblings. It seems likely that distributions will continue into the future but I reject the contention that the value of the husband’s interest is represented by the value of one third of the assets of [H Pty Ltd] as trustee of the Trust. Given the opposition expressed by the husband and his two siblings to selling the assets of the Trust, I consider it unlikely that the trustee will take steps to vest the Trust and distribute the capital during the husband’s lifetime.
50.If I am incorrect in my assessment of the nature of the husband’s interest, or the value of it, I would nevertheless place considerable weight on the fact that the assets of the Trust or the source of funds to acquire those assets were contributed by the husband’s parents and accordingly would represent an indirect contribution by the husband.
…
73.The husband will be likely to continue to receive the benefit of the use of the property at [Suburb M], director’s fees, and distributions from the Trust. While I accept it is not the intention of the husband or his siblings to vest the trust and distribute the capital, there is always the possibility they might change their minds in the right circumstances and while it is not possible to place any particular value on such a possibility, it is nevertheless a factor I take into account.
(Footnote omitted)
The husband led no evidence as to the value of the assets in the Trust. The two major assets of the trust were two pieces of real estate which the wife had appraised at a combined market value of $6,810,000. The liabilities of the Trust, in the sum of $2,127,783, consisted almost entirely of monies owed by way of loan from the Trust to the husband and his two siblings. The value to the husband of those loans were accounted for as assets on the balance sheet. A single forensic accountant had, on the basis of the wife’s market appraisals valued the net assets of the Trust in the sum of $4,683,297.
Her Honour’s statement at [46] that no valuation of the husband’s interest had been undertaken should be read to mean that, assuming the husband could not treat the assets of the Trust as his own, no valuation had been undertaken as to the value of the bundle of rights that he had as an object of the Trust.
Ground 10(d) complains the primary judge failed to acknowledge in her reasons that there was at least evidence that the underlying assets of the Trust were of significant value and substantial benefits would flow to the husband from those underlying valuable assets into the foreseeable future. Whilst it is true the primary judge did not acknowledge the amount of the underlying value of the Trust in dollar terms, her Honour did describe the primary assets held by the Trust.
Grounds 3 and 8 complain about the weight the primary judge attributed to this financial resource. A challenge based on weight faces a high bar (Gronow v Gronow (1979) 144 CLR 513). It is apparent the primary judge was not prepared to assume the husband’s interest in the Trust was worth anything like one third of the underlying net assets of the Trust. As we have already found however, given the structure of the primary judge’s reasons, it is not possible to say how this consideration was weighed.
There is otherwise no merit in Grounds 3, 8, 9 and 10(d).
Did the primary judge err in the treatment of the wife’s inheritance? (Grounds 4, 5 and 10(b))
As discussed above, the primary judge set out the gifts and inheritances received by each of the parties respectively.
Ground 4 argues that the primary judge erred by not dealing with the wife’s inheritance in the same way as the Court did in Bonnici and Bonnici (1992) FLC 92-272 by finding that a global approach presented considerable difficulties and adopting an asset by asset approach. The wife argues that that was an error because had the primary judge done so, her Honour would have focused upon the extent of the wife’s inheritance and the fact that it was received four years after the separation.
The primary judge deals with this argument at [62] and [63]:
62.This case is distinguishable from Bonnici in a number of respects but perhaps most importantly because in this case each party received an inheritance – the husband’s towards the end of the marriage and the wife’s after separation. Even if a two pool approach were adopted, the husband’s contribution of his inheritance would have to weigh heavily in favour of the husband in ‘pool one’ and wife’s inheritance in ‘pool two’ would have to be taken into account under s 75(2)(b) as property of the wife not otherwise included in ‘pool one’.
63.I propose to include the wife’s inheritance in the pool of assets available to be distributed between the parties. It is obviously a significant contribution but ultimately it is but one of the myriad of contributions made by each party during this long marriage.
(Footnote omitted)
It is unclear to us why, if the primary judge had placed the wife’s inheritance in a separate pool, her Honour would not have considered contributions to that pool at the second stage rather than at the third, but given her Honour did not create two pools, we need not dwell upon her Honour’s comment. It was not an error for the primary judge to adopt a “one pool” approach.
As earlier indicated, the primary judge goes on at [69] to find:
69.Overall, I consider that the myriad of contributions made by each party should be assessed as largely equal although slightly favouring the wife because of the disparity in the inheritances/gifts and the timing of the wife’s inheritance.
Ground 5 assumes that at [69] the primary judge has made almost a two per cent adjustment based upon the disparity in the gifts/inheritances received by each of the parties. As we have already observed, [69] does not actually identify what percentage adjustment the primary judge has made based on contributions. However, the discretion of a trial judge when determining a property settlement order is wide (Norbis v Norbis (1986) 161 CLR 513). Whilst the difference in value in dollar terms of the contributions made by the respective parties in gifts/ inheritances was $534,388, the husband’s were made at an earlier time and invested into the assets on the balance sheet, including improvements to the former matrimonial home, which is the single most valuable individual asset on the balance sheet. The fact that another judge may have given a greater adjustment to the wife on the basis of her inheritance is not of any relevance.
Ground 10(b) complains about the lack of weight the primary judge gave the wife’s contribution of her inheritance. This challenge cannot succeed independently of the challenge to the adequacy of the primary judge’s reasons to which we have earlier referred.
Accordingly there is no merit in Grounds 4, 5 and 10(b).
Did the primary judge err in relation to the treatment of the CGT? (Grounds 7, 10(a) and 10(c))
The primary judge placed the value of the wife’s Suburb L property on the balance sheet at its current value but rejected the wife’s submission that the latent CGT on that property also be included. As discussed above, the primary judge indicates at [74] that she took the latent CGT into account when adjusting prospective factors.
There was no controversy that if the wife’s Suburb L property was sold today then the CGT payable upon the distribution of the property would be $290,029 based on the gain that the wife had achieved on the property, her current level of income and the fact that it had never been her principal place of residence.
In Rosati v Rosati (1998) FLC 92-804 (“Rosati”) the Full Court said at [6.36]:
It appears to us that although there is a degree of confusion, and possibly conflict, in the reported cases as to the proper approach to be adopted by a court in proceedings under s.79 of the Act in relation to the effect of potential capital gains tax, which would be payable upon the sale of an asset, the following general principles may be said to emerge from those cases:-
(1)Whether the incidence of capital gains tax should be taken into account in valuing a particular asset varies according to the circumstances of the case, including the method of valuation applied to the particular asset, the likelihood or otherwise of that asset being realised in the foreseeable future, the circumstances of its acquisition and the evidence of the parties as to their intentions in relation to that asset.
(2)If the Court orders the sale of an asset, or is satisfied that a sale of it is inevitable, or would probably occur in the near future, or if the asset is one which was acquired solely as an investment and with a view to its ultimate sale for profit, then, generally, allowance should be made for any capital gains tax payable upon such a sale in determining the value of that asset for the purpose of the proceedings.
(3)If none of the circumstances referred to in (2) applies to a particular asset, but the Court is satisfied that there is a significant risk that the asset will have to be sold in the short to mid term, then the Court, whilst not making allowance for the capital gains tax payable on such a sale in determining the value of the asset, may take that risk into account as a relevant s.75(2) factor, the weight to be attributed to that factor varying according to the degree of the risk and the length of the period within which the sale may occur.
(4)There may be special circumstances in a particular case which, despite the absence of any certainty or even likelihood of a sale of an asset in the foreseeable future, make it appropriate to take the incidence of capital gains tax into account in valuing that asset. In such a case, it may be appropriate to take the capital gains tax into account at its full rate, or at some discounted rate, having regard to the degree of risk of a sale occurring and/or the length of time which is likely to elapse before that occurs.
(Emphasis in the original)
The wife asserts the primary judge erred when dealing with the latent CGT in the sum of $290,029 by not adding it back onto the balance sheet (adopting guideline (2) in Rosati).
By adopting guideline (3) in Rosati, the primary judge is taken to have concluded that none of the circumstances referred to in guideline (2) of Rosati applied but that there was a significant risk of the CGT debt coming into existence at some point.
The findings that the primary judge makes in relation to CGT are found at [51]–[53] of the reasons:
51.The [Suburb L] property is registered in the wife’s name and she could have taken up occupation of it at any time since separation. However, I accept that although it has [water] views, the location and amenity of the unit do not meet the wife’s current needs and at the time of separation the wife preferred to remain closer to the children. The wife maintains that it is her intention to sell the property within the next two years, but during cross-examination she conceded that a final determination about when to sell would be made having regard to her best interests financially at that point in time.
52.In addition, the wife’s counsel conceded that the CGT calculation would depend on a number of factors including:
a)The ultimate selling price;
b)The wife’s income in the year of disposal; and
c)Whether or not she occupied the property before sale
53.In the circumstances, I reject the wife’s submission that the CGT calculation of $290,029 should be deducted from the value of the assets in the balance sheet. The CGT consequences of a possible sale at some point in the future is nevertheless a factor to consider under s 75(2)(o) of the Act because I consider that there is a significant possibility that the wife will sell at some point.
(Emphasis added) (Footnote omitted)
The primary judge based her finding in the third sentence of [51] upon cross-examination of the wife by senior counsel for the husband during the hearing.
In paragraph 84 of the wife’s affidavit filed 25 June 2020, she says, “I intend to sell this property in order to purchase another property in which to live. I expect to sell this property in the next two (2) years”.
The relevant cross-examination of the wife is as follows:
[SENIOR COUNSEL FOR THE HUSBAND]: … You also own the real property comprised in the property at [Suburb L]?
[THE WIFE]:---I am the registered proprietor of that property.
[SENIOR COUNSEL FOR THE HUSBAND]: And there’s no issue, so far as you understand it, that that property will continue to be yours after the conclusion of these proceedings?
[THE WIFE]:---I’m not sure I understand that question.
[SENIOR COUNSEL FOR THE HUSBAND]: Well, [the husband] makes no application that he should have that property, does he?
[THE WIFE]:---That’s correct.
[SENIOR COUNSEL FOR THE HUSBAND]: And your application is that you wish to retain it?
[THE WIFE]:---That’s correct.
[SENIOR COUNSEL FOR THE HUSBAND]: So will you accept that it’s likely, if not inevitable, that you will retain it?
[THE WIFE]:---That’s correct.
[SENIOR COUNSEL FOR THE HUSBAND]: Right. So that going out of these proceedings, you will have an investment portfolio in cash and shares of the order of 2.2 million-plus; correct?
[THE WIFE]:---All things being equal.
[SENIOR COUNSEL FOR THE HUSBAND]: Yes. And you will have, in addition, a piece of real property, being an investment property held for many years having a value of $1.4 million?
[THE WIFE]:---Yes.
[SENIOR COUNSEL FOR THE HUSBAND]: Right. The decision you make to purchase another property - - -?
[THE WIFE]:---Yes. - - -
[SENIOR COUNSEL FOR THE HUSBAND]: at the time you purchase it will be dependent upon your financial position at that time; correct?
[THE WIFE]:---Yes.
[SENIOR COUNSEL FOR THE HUSBAND]: And that leads, does it not, to a decision that you will then make as to whether, for example, it is better to borrow at, say, 2.9 per cent, use some cash and purchase a home for yourself and retain the real property at [Suburb L] or not?
[THE WIFE]:---I don’t intend to keep the [suburb L] property. My current intention – my intention has been to sell that property and with the proceeds of that sale, to buy another property in which to live.
[SENIOR COUNSEL FOR THE HUSBAND]: And do you tell her Honour that when you come finally to make that decision, her Honour should accept that you will make it irrespective of the financial advantages of doing otherwise that is?
[THE WIFE]:---That has been my intention for a long time to do that. So I can’t project into the future any more than – than to give you what I know to be my intention.
[SENIOR COUNSEL FOR THE HUSBAND]: Just unpacking that, if I may?
[THE WIFE]:---Sure.
[SENIOR COUNSEL FOR THE HUSBAND]: The intention about which you speak is your present intention?
[THE WIFE]:---I think – sorry. Are we splitting hairs? It is my intention to sell that property.
[SENIOR COUNSEL FOR THE HUSBAND]: And at the time in the two or so years you speak of in your affidavit that you formulate a final determination to place the property on the market, that will be, will it not, having regard to your best interests financially at that point in time?
[THE WIFE]:---Yes.
(Transcript 23 July 2020, p.37 line 16 to p.38 line 17) (Emphasis added)
It is apparent that until that final question was put, the wife’s consistent evidence was:
·she intended to sell the property within two years of the date of her trial affidavit; and
·she did not intend to keep the property.
The preamble to the final question misrepresents the wife’s evidence in two ways:
·it changes “within two years” to “two or so years”; and
·it turns the wife’s intention to sell into a provisional one when the wife’s evidence was it was an intention to which she was firmly committed.
On balance this question put to the wife is likely to have been interpreted by her as a question as to whether, when the property was marketed, she would have regard to her best financial interests. To that, the wife agreed.
The primary judge erred in finding that the wife had made a concession in cross-examination that precluded the primary judge from considering the wife’s submission that CGT should be added back onto the balance sheet. As a consequence, the primary judge erred in failing to find that the sale of the property “would probably occur in the near future”. In addition, the primary judge failed to recognise the undisputed evidence that this was an investment property held by the wife and had always been rented out.
The question arises as to whether the wife can complain about the primary judge’s interpretation of this cross-examination on appeal (Metwally v University of Wollongong (1985) 60 ALR 68). The following exchange took place in final submissions between the primary judge and senior counsel for the husband:
HER HONOUR: Well, I think given the concession that you received from [the wife] about she will be making the decision within the next two years about whether to sell based upon her financial circumstances at that time, I probably don’t need to hear from you further about that. All right.
[SENIOR COUNSEL FOR THE HUSBAND]: If your Honour please…
(Transcript 24 July 2020, p.118 lines 24–29)
There was a question as to whether counsel for the wife had a chance in submissions in reply to respond to that formulation by the primary judge. It is a formulation replicated at [51] of the reasons, which we have concluded is erroneous. We accept counsel for the wife at trial may have been unsure, without a transcript, as to how the question had been framed during cross-examination. This is not a situation where the wife should be excluded from an argument on appeal because a proposition is not put at trial.
In respect of the primary judge’s reasons at [52] not to add a sum certain back onto the balance sheet as a liability, although the wife said in cross-examination she would like to retire, the wife’s written evidence was that she intended to continue employment and the primary judge so found. There is no indication that she was not going to continue to work and therefore it is unlikely that her income will change significantly before a sale. Although it is true that the ultimate selling price might not be known, the value of the property was placed on the balance sheet at the date of the hearing and the latent CGT at that date was known. The property has been always rented and there was no evidence to indicate that the wife might occupy the property before sale.
We accept that, given the totality of the evidence, the primary judge’s finding that the wife had made a concession in cross-examination which precluded the wife from relying upon the second limb of Rosati, was erroneous. Had the primary judge not made that error, it would have been appropriate for the primary judge to have included the latent CGT onto the balance sheet, so that the wife received full value for that liability.
There is merit in Grounds 7, 10(a) and 10(c).
Was the ultimate result plainly wrong? (Ground 11)
This is a ground relying upon the final limb of House. Given the wide ambit of a trial judge’s discretion, this ground cannot succeed independently from the wife’s complaint in relation to the adequacy of the primary judge’s reasons.
CONCLUSION
We have concluded that the primary judge’s reasons do not adequately explain how her Honour came to make the property settlement order. We have also concluded that the primary judge made an error when finding that the wife had made a concession relevant to the treatment of CGT. Accordingly the appeal shall be allowed and her Honour’s property settlement order set aside.
COSTS OF THE APPEAL AGAINST THE PROPERTY SETTLEMENT ORDER
It was agreed that in the event the appeal was successful a costs order would be made in the wife’s favour in the sum of $51,000.
RE-EXERCISE OF DISCRETION
As indicated, in the event that the appeal was successful, both parties seek that we re-exercise the discretion to make a property settlement order.
The wife now seeks the husband pay her $1,860,000 without any superannuation splitting order in her favour (Notice of Appeal filed 31 August 2020).
The husband seeks the same orders as made by the primary judge, namely that each party keep everything that they have in their name, possession or control (Transcript of the appeal 26 May 2021, p.33 lines 3–4).
The parties seek to rely upon the valuations as at the date of trial, the documents in the appeal book and the transcripts before the primary judge. They do not seek to rely upon any further evidence.
Subject to any comments we have already made, the facts as found by the primary judge are not controversial.
We agree that a property settlement order should be made for the reasons given by the primary judge (at [30]).
The primary judge found that the net assets of the parties (including superannuation) had a value of $8,623,296 held as to $4,473,913 by the wife and $4,149,383 by the husband.
For reasons already discussed, the latent CGT in the wife’s real estate in the sum of $290,029 attracts the second proposition in Rosati. It is appropriate to add that amount to the balance sheet as a liability for which the wife is responsible. That reduced the overall net assets to an amount of $8,333,267 and those held by the wife to $4,183,884.
The wife abandoned the submission that the husband’s interest in the Trust had a value which could or should be considered at the first stage.
We agree with the primary judge, for the reasons that her Honour has given, that the contribution assessment can be conducted on a global basis and we consider the assets in one pool. We adopt the primary judge’s discussion in respect of contributions but conclude the introduction of the wife’s inheritance (being $534,388 more than gifts and inheritances introduced by the husband) warrants it being afforded particular weight. Looking at contributions on a holistic basis (Jabour & Jabour (2019) FLC 93-898), we conclude that based on the parties’ contributions, the net assets of the parties on the resettled balance sheet should be divided as to 53 per cent to the wife and 47 per cent to the husband, based on contributions.
This conclusion ought not be regarded as an unwarranted interference of insignificant proportion with the primary judge’s exercise of discretion because the appealable errors we have identified do not include any miscarriage of discretion. Rather, we are exercising discretion entirely afresh in light of the error of law made when dealing with the CGT liability (Grounds 7, 10(a) and 10(c)) and an overall inadequacy of reasons (Grounds 1 and 2).
We again adopt the primary judge’s discussion in respect of prospective factors save that the latent CGT has now been directly accounted for on the balance sheet.
We have specific regard to the benefits the husband shall receive from his entitlements as an object of the Trust which is a significant financial resource. By way of partial offset, we take into account the wife’s higher income and the level of capital the wife is receiving as a result of our contribution finding (in excess of $4.4 million). Counsel for the wife in submissions before us conceded that whilst the husband had the benefit of the occupation of the matrimonial home for four years after the separation, this was a “line ball” consideration given that he maintained the property, paid utilities and the children lived there for a time. Other prospective factors are evenly balanced. We consider a further two per cent adjustment for prospective factors is appropriate.
Standing back, we conclude, based upon the findings at stages two and three, a 55/45 division of the net assets on the revised balance sheet is an appropriate, just and equitable outcome. To achieve that result, the husband shall be ordered to pay the wife $399,412 within three months. This outcome effectively requires the husband to be responsible for 45 per cent of the CGT and is the equivalent to a 56.5 per cent division in the wife’s favour on the balance sheet as originally constructed by the primary judge.
APPEAL AGAINST THE PRIMARY JUDGE’S COSTS ORDER
The second Notice of Appeal filed 17 November 2020, is an appeal from a costs judgment delivered by the primary judge on 4 November 2020.
In relation to the costs appeal, the primary judge made a costs order in the husband’s favour in the sum of $81,500 for the property settlement order proceedings and a costs order of $1,500 for the costs application itself, a total of $83,000.
The wife’s summary of argument at paragraph 6 said, “[i]n the event that the appeal is successful it is submitted that the costs order challenged in the [costs appeal] should be consequently discharged”. The husband’s summary of argument at paragraph 2, concedes that if the primary appeal succeeds, the costs appeal must also succeed. In making the costs order the primary judge at [41(d)] relied in part on a finding that the result achieved by the wife was substantially the same as three written offers made by the husband which the wife had rejected. The outcome has significantly changed in the wife’s favour. We accordingly agree that the costs order made in reliance upon this finding is now unsound and that the costs appeal should be allowed and the costs order set aside.
Accordingly, the appeal against the costs order will be allowed and the costs order set aside.
If the appeal was upheld both parties submitted that this Court should re-exercise the primary judge’s discretion in respect to the costs of the trial. During submissions, the wife indicated that upon the re-exercise, she wanted the opportunity to explain why it was her position that the husband could not rely upon the first two of three offers made by the husband because they were made at a time prior to the wife receiving her inheritance and that in relation to the third offer, some reasonable time needed to be allowed for the wife to consider that offer which was made a couple of weeks prior to the commencement of the final hearing.
In accordance with the parties’ suggestion we shall make directions for them to file written submissions and provide any additional documents by way of tender.
I certify that the preceding one hundred and four (104) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Watts, Austin & Tree. Associate:
Dated: 5 November 2021
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