Smith v Gould
[2012] VSC 461
•18 OCTOBER 2012
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
in the MATTER of Part IX of the Property Law Act 1958 (Vic)
No. 4269 of 2006
| GEOFFREY SMITH | Plaintiff |
| v | |
| ROBERT GOULD | Defendant |
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JUDGE: | DIXON J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 24, 26, 27, 30 APRIL, 1– 4, 7–11, 14–18, 22–25, 28–31 MAY, 1 JUNE 2012 | |
DATE OF JUDGMENT: | 18 OCTOBER 2012 | |
CASE MAY BE CITED AS: | SMITH v GOULD | |
MEDIUM NEUTRAL CITATION: | [2012] VSC 461 | |
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PROPERTY – De facto partners – Adjustment of property interests under Part IX of Property Law Act 1958 – Same gender relationship - Relevant principles for time of and basis for valuation of divisible pool - Relevant principles for assessment of respective contributions for just and equitable adjustment – Whether plaintiff’s contribution to defendant’s successful business during relationship enhanced by special skill – Nature of welfare contribution - Property Law Act1958 ss 275, 284, 285.
VALUATION – Relevant principles for valuation of shares in private company that owns a commercial art gallery – Artworks – Meaning of market value – Whether transaction costs relevant.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiff | Mr R Kendall QC with Dr P Vout | Clark Toop & Taylor |
| For the Defendant | Mr S Wilson QC with Mr P Herzfeld | HWL Ebsworth |
TABLE OF CONTENTS
Introduction........................................................................................................................................ 1
The statutory provisions applying................................................................................................. 3
Pre-conditions................................................................................................................................ 3
Duties and obligations on the court and enabling powers..................................................... 3
Principles of adjustment - some general observations............................................................... 5
The issues to be determined............................................................................................................ 6
Was Mr Smith’s claim compromised?............................................................................................ 7
A separation arrangement........................................................................................................... 7
When did separation occur?...................................................................................................... 7
Property adjustment at separation.......................................................................................... 13
Was an arrangement made?...................................................................................................... 13
Legal consequences of dealings post separation....................................................................... 15
Part performance of the arrangement...................................................................................... 16
3/31 Marne Street.................................................................................................................... 16
Investment properties.............................................................................................................. 17
Art at 3/31 Marne Street......................................................................................................... 17
Other benefits........................................................................................................................... 20
Assets contributed to the relationship......................................................................................... 20
Mr Smith....................................................................................................................................... 20
Mr Gould...................................................................................................................................... 21
Assets at the separation date.......................................................................................................... 23
Agreed pool assets...................................................................................................................... 23
Disputed pool assets................................................................................................................... 25
Resolving asset pool disputes and determining contributions.............................................. 27
Asset by asset or global approach............................................................................................ 27
Sub-pool categories..................................................................................................................... 29
Operative date – date of separation or date of trial............................................................... 29
The divisible pool............................................................................................................................ 31
Residential real estate sub-pool................................................................................................ 32
Park Street................................................................................................................................ 32
Potts Point............................................................................................................................... 32
3/31 Marne Street.................................................................................................................... 33
Current sub-pool value............................................................................................................ 33
Investment properties................................................................................................................. 33
The ‘Geoffrey Trading’ document............................................................................................ 34
3/29A Wallace Avenue............................................................................................................ 36
12/33 Albany Road, Toorak..................................................................................................... 37
14/63 Alexandra Avenue, South Yarra................................................................................... 37
2/128 Toorak Road West, South Yarra.................................................................................... 37
4/16 Millswyn Street, South Yarra......................................................................................... 38
3/35 Marne Street, South Yarra.............................................................................................. 38
‘Scotsforth’, Elizabeth Bay, NSW............................................................................................ 40
4/35 Marne Street, South Yarra.............................................................................................. 40
59 Smith Street, Fitzroy.......................................................................................................... 41
Other investment properties.................................................................................................... 42
Alleged trust properties........................................................................................................... 42
Distribution of investment properties sub-pool....................................................................... 44
The Gould Galleries business.................................................................................................... 44
Evidentiary issues.................................................................................................................... 44
Financial accounts for taxation purposes................................................................................ 50
The stock of Gould Galleries as at 30 June, 2004.................................................................... 55
Schedule 3A............................................................................................................................. 55
Schedule 3B.............................................................................................................................. 57
Finding as to the stock of Gould Galleries at 30 June 2004..................................................... 61
Present value of the June, 2004 stock of Gould Galleries...................................................... 61
Valuation methodology............................................................................................................ 61
Market Value........................................................................................................................... 61
Buyer’s Premium..................................................................................................................... 61
GST.......................................................................................................................................... 61
The relevance of hammer price................................................................................................. 61
Value of June 2004 Gould Galleries stock............................................................................... 61
The artwork hanging at Park Street......................................................................................... 61
Mr Smith’s artworks personally owned.................................................................................. 61
Mr Gould’s artworks personally owned.................................................................................. 61
Insurance Policies.................................................................................................................... 61
The value of the Park Street art................................................................................................. 61
Conclusions about art values................................................................................................... 61
Other assets of Edrob Nominees Pty Ltd................................................................................ 61
The Hong Kong bank accounts................................................................................................ 61
The ‘gift’ to Gary Gould.......................................................................................................... 61
Finding as to the value of Dukville.......................................................................................... 61
Other assets of Mr Gould........................................................................................................... 61
Other assets of Mr Smith............................................................................................................ 61
Findings about the value of the divisible pool.......................................................................... 61
Residential real estate................................................................................................................. 61
Investment properties................................................................................................................. 61
The Art sub-pool......................................................................................................................... 61
Mr Gould’s shares in Dukville................................................................................................ 61
Mr Smith’s artwork................................................................................................................. 61
Mr Gould’s artwork................................................................................................................. 61
The remaining personal assets and liabilities sub-pool......................................................... 61
The divisible pool of assets collectively summarised............................................................ 61
Contributions of the parties to the relationship........................................................................ 61
Aspects of contributions............................................................................................................. 61
Special skill contribution............................................................................................................ 61
The concept of erosion................................................................................................................ 61
Contribution to welfare.............................................................................................................. 61
Contributions to the residential real estate sub-pool............................................................. 61
Contributions to the investment sub-pool............................................................................... 61
Contributions to the art sub-pool................................................................................................. 61
What Mr Smith alleged was contributed................................................................................. 61
Credit issues for Mr Gould...................................................................................................... 61
Credit issues for Mr Smith...................................................................................................... 61
The absent Mr Singer.............................................................................................................. 61
Goldcheck Pty Ltd.................................................................................................................... 61
Mr Smith’s expertise with the NGV......................................................................................... 61
Mr Smith’s archive.................................................................................................................. 61
Mr Smith as an expert witness................................................................................................ 61
Mr Gould’s skills..................................................................................................................... 61
Was there a private collection?................................................................................................. 61
How did Mr Smith assist Gould Galleries?............................................................................. 61
A vision for the future of the gallery........................................................................................ 61
Stock selection generally.......................................................................................................... 61
Selection of specific paintings.................................................................................................. 61
Selling Gould Galleries stock................................................................................................... 61
Helping with gallery activities................................................................................................. 61
Assessing the adjustment......................................................................................................... 61
Conclusions about contributions to the art sub-pool............................................................... 61
Mr Smith’s contributions to the other assets sub-pool............................................................ 61
Welfare contributions..................................................................................................................... 61
Indirect contribution to Mr Gould’s financial resources......................................................... 61
Conclusions as to a just and equitable adjustment by sub-pool............................................ 61
A comparative check by a global approach................................................................................ 61
Partial adjustments post separation............................................................................................. 61
Alternative claims............................................................................................................................ 61
Final Disposition.............................................................................................................................. 61
HIS HONOUR:
Introduction
This is a case about fine art and its role in the personal domestic relationship between Geoffrey Smith and Robert Gould. Artistically it all began and ended with Donald Friend. Mr Gould was staging an exhibition of that artist’s work at his gallery, Gould Galleries in South Yarra, when he met Mr Smith at an art event cocktail party in April 1990. Mr Smith recalled that when he told Mr Gould he was moving out, some 14 years later in June 2004, Donald Friend’s sculpture Greek Soldiers bore silent witness to their anguish.
In the decade prior to meeting Mr Smith, Mr Gould worked successfully, with his mother Dita Gould, to establish and build a commercial art gallery. Gould Galleries has thrived to this day. Mr Smith, about 14 years Mr Gould’s junior, was studying fine art at Melbourne University when he met Mr Gould and a career at the National Gallery of Victoria, specialising in modern Australian art, lay before him. Mr Smith’s first love was the work of Sir Arthur Streeton and the story of his involvement in Gould Galleries, central to this proceeding, began with a Streeton painting, The Gentleness of Heaven is on the Sea. In 2006, Mr Gould’s sale of Brett Whiteley’s, Bather and Garden caused legal hostilities to erupt between the two men with an application to this court to restrain the sale of artworks allegedly constituting a joint private collection. By then, Gould Galleries had been dealing extensively in the secondary market with the art of modern Australian artists including Howard Arkley, Charles Blackman, Arthur Boyd, Andrew Browne, Criss Canning, Donald Friend, David Larwill, Norman Lindsay, Sidney Nolan, John Perceval, Ben Shearer, Freddie Timms, Albert Tucker, Brett Whiteley, and Fred Williams.
This court may, on application made under Part IX of the Property Law Act by one partner in a failed domestic relationship adjust the interests of the domestic partners in the property of one or both of them as appears to be just and equitable. The Family Court of Australia now exercises this jurisdiction.
In 1990, Mr Gould owned a terrace house in South Yarra and, once renovated, it became the domestic residence for the duration of the relationship. In 1999, Mr Gould acquired an apartment in Potts Point, used as a Sydney residence.
In 2004, when Mr Smith and Mr Gould separated, a most impressive hanging of artworks adorned what had been their South Yarra home. Mr Smith alleged that fifty-four of these artworks, sourced from Gould Galleries, and from one or both of Mr Gould and Mr Smith, had been the ‘Gould-Smith Collection’, a jointly owned private collection of significant modern Australian artists. Mr Gould owned half of Dukville Pty Ltd, which in turn owned all of the units in the E&R Gould Unit Trust. The trading trustee, Edrob Nominees Pty Ltd operated Gould Galleries from two locations in South Yarra and, later, in Sydney. In 1996, Mr Gould purchased his mother’s interest in Dukville. Mr Smith identifies both the Gould Smith Collection and Mr Gould’s shares in Dukville as major assets of the divisible pool of property interests for adjustment in this proceeding.
Mr Gary Singer was a close friend of each of Mr Smith and Mr Gould throughout the relationship. Now he is, and has been for some years possibly from a time prior to June 2004, Mr Smith’s partner in an intimate relationship. During the 14 years of the Smith-Gould relationship, Mr Singer participated with them in residential property investment ventures. In 2004, Mr Smith and Mr Gould, or Mr Gould’s entities, had interests, mostly with Mr Singer’s entities, in nine investment properties. There were other investment projects that were completed before June 2004.
When Mr Smith and Mr Gould agreed to separate in 2004, Mr Gould purchased for Mr Smith an apartment in South Yarra that was under contract to Mr Singer or nominee and Mr Smith moved into it. Mr Gould furnished and equipped that apartment and provided artworks to adorn its walls. There were discussions between those involved about transfers of the interests in the investments consequent on the break up of the relationship. Mr Gould contended he reached an agreement with Mr Smith. Many investment properties have been sold since 2004.
There were other assets identified, being, in the main, cash in bank accounts, cars, household contents (other than artwork), superannuation accounts, gifts, and some liabilities.
The statutory provisions applying
Pre-conditions
The court needs to be satisfied of certain conditions for making orders that are set out in ss 280–282 of the Act. These matters are that:
(a)one or both of the domestic partners lived in Victoria on the day on which the application was made;
(b)both partners have lived together in Victoria for at least one third of the period of their relationship;
(c)substantial contributions of the kind referred to in s 285(1)(a) or (b) have been made in Victoria by the partner making the application;
(d)the domestic partners have lived together in a domestic relationship for a period of at least two years; and,
(e)if domestic partners have ended their domestic relationship, the application for an order was made within two years after the day on which the relationship ended.
These conditions are satisfied.
Duties and obligations on the court and enabling powers
So far as is practicable, the court’s duty is to make orders that will end the financial relationships between the domestic partners and avoid further proceedings between them.[1] To this end, the statute grants two relevant powers.
[1]Section 284 of the Act.
In respect of existing title or rights in property, the court may declare the title or rights, if any, that a domestic partner has in respect of the property.[2] Further, the court may make any one or more of the orders set out in s 291 of the Act, including, relevantly for this proceeding:
(a)order the transfer of property;
(b)order the sale of property and the distribution of the proceeds of sale in any proportions that the court thinks fit;
(c)order that any necessary deed or instrument is executed and that documents of title be produced or other things be done that are necessary to enable an order to be carried out effectively or to provide security for the due performance of an order;
(d)order payment of a lump sum, whether in one amount or by instalments;
(e)order that payment of any sum ordered to be paid be wholly or partly secured in any manner that the court directs.
[2]Section 278 of the Act.
The key operative provision is s 285 and I will set it out.
285. Order for adjustment
(1)A court may make an order adjusting the interests of the domestic partners in the property of one or both of them that seems just and equitable to it having regard to—
(a)the financial and non-financial contributions made directly or indirectly by or on behalf of the domestic partners to the acquisition, conservation or improvement of any of the property or to the financial resources of one or both of the partners; and
(b)the contributions, including any contributions made in the capacity of homemaker or parent, made by either of the domestic partners to the welfare of the other domestic partner or to the welfare of the family constituted by the partners and one or more of the following—
(i)a child of the partners;
(ii)a child accepted by one or both of the partners into their household, whether or not the child is a child of either of the partners; and
(c)any written agreement entered into by the domestic partners.
There was no relevant written agreement.
Principles of adjustment - some general observations
In recent years, State appellate courts have examined the interpretation, and the principles governing the application, of the statutory provisions for the adjustment of property rights between former de facto couples. In 2011, the Court of Appeal in Apostolidis v Kalenik,[3] reviewed earlier authorities and affirmed the principles to be applied in the exercise of the statutory jurisdiction. In New South Wales, the Court of Appeal in Kardos v Sarbutt[4] considered the principles for adjusting property interests under the Property (Relationships) Act1984 (NSW). The New South Wales Court of Appeal identified a three-step approach to the exercise of the jurisdiction, and a number of guiding principles in taking those steps, that have been accepted by other State appeal courts. In both Giller v Procopets[5] and Apostolidis v Kalenik,[6] the Victorian Court of Appeal approved of the Kardos three step approach when considering appeals under Part IX of the Property Law Act 1958 (Vic)), which is in similar terms to the NSW Act. In Queensland, the similar terms of Part 19 of the Property Law Act1974 (Qld) were discussed in FO v HAF[7] and GAJ v RAJ.[8]
[3][2011] VSCA 307.
[4][2006] NSWCA 11; (2006) 34 Fam LR 550.
[5][2008] VSCA 236; (2008) 24 VR 1.
[6][2011] VSCA 307.
[7][2006] QCA 555; [2007] 2 Qd R 138.
[8][2011] QCA 65.
The three main steps in exercising the jurisdiction[9] are first, the identification and valuation of the property of the parties to the relationship, which determines the pool of property of the parties or either of them which may be adjusted (the ‘divisible property’). The second step is evaluating and balancing the parties’ respective contributions (of the identified types[10]), typically resulting in a percentage apportionment between the parties of the overall contributions made by each of them to the date of hearing. Third, determination of the orders required to sufficiently recognise and compensate the plaintiff’s contributions. Commonly, but not in this case, this step results in a declaration that leaves the plaintiff with the identified percentage of the divisible property, and consequential orders.
[9][2006] NSWCA 11; (2006) 34 Fam LR 550, 558 [29]. The three-step process is a simplification or refinement of a four-step approach identified in earlier cases.
[10]For convenience I will refer to contributions of the type identified in s 285(10)(a) as property contributions and contributions of the type identified in s 285(1)(b) as welfare contributions.
The issues to be determined
In this proceeding I must, in making an order that adjusts the interests of the parties in the property of one or both of them, and in fashioning its terms, resolve the following issues:
(a)What is the date of separation when Mr Smith and Mr Gould ceased to live together as a couple on a genuine domestic basis?
(b)Did Mr Smith compromise his claim by making an enforceable agreement with Mr Gould that determined their several entitlements to divisible property?
(c)Should the court adopt an ‘asset by asset’ approach or a ‘global’ approach to determining the financial and non-financial contributions of each party?
(d)Should the court adopt, as the operative date, the date of separation or the date of trial to best facilitate the ultimate task of evaluating respective contributions.
(e)What was the nature and value of the assets, property, or financial resources – the divisible property - held by the parties at the operative date?
(f)During the relationship, what contributions were made by each of the parties to the acquisition, conservation or improvement of any of the divisible property (see note), an issue that raises some further issues being:
(i)what was the nature and value of the assets, property, or financial resources introduced by each party to the relationship when it commenced?
(ii)what was the nature and value of the divisible property that, following the date of separation, was retained by either party or provided by one party to the other?
(iii)what contributions were made by either party to divisible property retained by the other party after the date of separation?
(g)What were the respective contributions made by each party to the other’s welfare?
(h)What orders are required to sufficiently recognise and compensate the plaintiff’s contributions?
Was Mr Smith’s claim compromised?
A separation arrangement
It is convenient, before examining the issues pertaining to adjustment to look at the first two issues raised - the separation date and whether Mr Smith compromised his claim by making an enforceable agreement with Mr Gould that determined their several entitlements to divisible property.
When did separation occur?
I find that the domestic relationship between Mr Smith and Mr Gould terminated on or about the Queen’s Birthday weekend in 2004. For the most part, I can conveniently adopt 30 June 2004 as the appropriate date for separation.
Throughout the course of the proceeding until during the trial, Mr Gould maintained that the domestic relationship had ended in 1997 because Mr Smith was involved in an intimate relationship with Mr Singer from that time. The statute directs a factual inquiry into the status of the relationship. A ‘domestic relationship’ is defined in s 275 of the Act.
"domestic relationship" means the relationship between two people who, although not married to each other, are living or have lived together as a couple on a genuine domestic basis (irrespective of gender).
…
(2) For the purposes of the definition of "domestic relationship" in sub-section (1), in determining whether a domestic relationship exists or has existed, all the circumstances of the relationship are to be taken into account, including any one or more of the following matters as may be relevant in a particular case—
(a) the duration of the relationship;
(b) the nature and extent of common residence;
(c) whether or not a sexual relationship exists;
(d)the degree of financial dependence or interdependence, and any arrangements for financial support, between the parties;
(e) the ownership, use and acquisition of property;
(f) the degree of mutual commitment to a shared life;
(g) the care and support of children;
(h) the reputation and public aspects of the relationship.
The relevant determinative concept is residence, not fidelity, but all of the particular circumstances of co-habitation by the parties during the relevant period may bear upon the proper conclusion. Mushin J in Moby & Schulter,[11] considering like provisions in the Family Law Act 1975 (Cth),[12] pertinently observed:
It is not necessary for a de facto relationship to be an exclusive relationship. One or both parties may be legally married or in another de facto relationship while being in the de facto relationship which is the subject of the proceedings. Further, the parties to a de facto relationship may be heterosexual or of the same sex …
… before the definition may be considered as constituting "a single composite expression of a comprehensive notion or concept", there are two specific elements of that definition which require individual consideration. The first of those is the concept of "a couple". For the purposes of the definition, "a couple" is constituted by two people, whether of the same or opposite sexes. The second specific element is the concept of "living together". In my view, if a couple do not live together at any time, they cannot be seen as being in a de facto relationship. However, the concept of "living together" does not import any concept of proportion of time. In particular, it does not require that a couple live together on a full-time basis. On the basis that one or both members of the couple may also be legally married or in another de facto relationship at the same time as they are in the subject relationship, it must follow that it is feasible that the subject relationship might involve the parties living together for no more than half of the time of that relationship. Further, there is nothing to suggest that it must be even as much as half of the time. Subject to the above, the question of whether the parties were in a de facto relationship must be considered on a case-by-case basis without circumscribing any particular factor.
[11][2010] FamCA 748, see also KQ v Hae [2006] QCA 489, [2007] Qd R 32, [18]; Jonah v White [2011] FamCA 221, [47]; Smyth & Pappas [2011] FamCA 434, [6]–[13]; Vaughan & Bele [2011] FamCA 436, [11]; and Ricci & Jones [2011] FamCAFC 222.
[12]Section 4AA and Part VIIIAB of the Act.
I agree. Further, as I will explain, the infidelity that Mr Gould alleges, assuming it existed, did not have the effect of terminating his domestic relationship with Mr Smith until June 2004. Again, the family law cases, considering that issue when applications for dissolution decrees are opposed, provide guidance about the circumstances that identify the termination of a relationship. What is required is an intention by a party to the marriage to sever, or not resume, the marital relationship and that such party acts on that intention, or alternatively, acts as if the marital relationship has been severed.[13] This is a question of fact and degree depending on all of the circumstances of the particular case.
[13]Marriage of Falk (1977) FLC ¶90-247, following Pavey and Pavey (1976) FLC ¶90-051.
In this case, the confluence of intention and action did not occur until June 2004, but the relationship deteriorated over time. In December 2003, when on their way to Morocco on a holiday, Mr Smith told Mr Gould he wanted to leave him. Mr Gould persuaded Mr Smith to stay and try to make things work. Then, on their return to Australia, Mr Smith told Mr Gould that he was unhappy, depressed, and proposed that he needed ‘space’ to consider the future of their relationship. Mr Smith suggested acquiring an apartment at 3/31 Marne Street, South Yarra that was on the market. Although Mr Gould agreed to purchase 3/31 Marne Street, he did not then want Mr Smith to leave, but by April 2004 Mr Smith intended to move out. Mr Gould changed his attitude when he learned, from an admission made to him by Mr Smith in June 2004, that he was in a relationship with Mr Singer. In June, the purchase of 3/31 Marne Street settled, and Mr Smith moved out of Park Street. This was, in practical terms the termination of the relationship, although Mr Gould only conceded that in final submissions.[14]
[14]It is unnecessary to state and consider the contentions advanced by Mr Gould prior to that concession, save that I was not disposed to accept that the domestic relationship had terminated at an earlier time.
Unsurprisingly, there was conflict in the evidence over the conversations about separation. These were emotionally charged times. Mr Smith denied making that admission about Mr Singer, asserting that he did not have a relationship with anyone between June 2004 and December 2004, when his relationship with Mr Singer commenced. He explained that the final decision to separate, when he told Mr Gould he was now moving to 3/31 Marne Street, occurred in the laundry, witnessed by Donald Friend’s Greek Soldiers, and Mr Gould was still asking him not to leave. Mr Gould denied the laundry conversation, but most of its content was probably stated at some time. No doubt there were several intense conversations leading to separation. I think it likely that the other matters that Mr Smith attributes to this conversation were stated around this time. The move to Marne Street was in prospect for a while, during the settlement period on the purchase contract.
Mr Smith denied a conversation that Mr Gould recounted that took place in their bedroom in June 2004, but I accept Mr Gould’s account of that conversation. Mr Smith admitted to Mr Gould that he had been having a long-term affair with Mr Singer. Mr Gould had expected as much and there was evidence of reasonable opportunity for suspicions to be aroused. When asked why this admission was finally emerging, Mr Smith said he had been seeing a counsellor. His psychologist counselled that it was best for his own mental state to come clean and tell Mr Gould the truth. Mr Gould described this admission as hardening his heart towards Mr Smith whom he now wanted to leave. Mr Gould helped Mr Smith into Marne Street to achieve this separation.
Mr Smith described how Mr Gould helped with the move and how together they selected and purchased furnishings. Invoice dates suggest that there was activity of this sort over the weekend of 12–13 June 2004.
I will have more to say about the credibility of each man later, but I will say a little now about my preference for Mr Gould’s evidence on this issue. I found Mr Gould to be frank about his personal dealings with Mr Smith, just as he mostly was when in the witness box about his failings and lack of frankness in his commercial dealings outside of the witness box. Although that frankness in evidence about his commercial dealings did not paint a portrait of Mr Gould as a credible witness on many issues, careful assessment of the evidence of each of them, about uncorroborated conversations and dealings between them, must be undertaken to make certain findings of fact. About their personal relations, particularly in 2004, I generally prefer Mr Gould’s evidence.
I reject Mr Smith’s denial of his relationship with Mr Singer and his assertion that such relationship commenced in December 2004. Although it hardly matters, Mr Smith may have suspended his relationship with Mr Singer while trying to sort out his feelings for Mr Gould, but Mr Smith’s explanation about that relationship, and this was not the only occasion, was incomplete.
During this time, Mr Smith discussed with Mr Gould what paintings could hang in Marne Street. Mr Smith referred to his ‘contribution’ and repeatedly, and apparently annoyingly, asked Mr Gould whether he thought Mr Smith had contributed. Mr Smith was asserting that he was entitled to ‘a lot of things’ although, as I will later discuss, the ‘Gould-Smith Collection’ was not one of them. Although Mr Smith denies the notion of ‘contribution’ was discussed, I accept Mr Gould’s evidence of it.
Mr Smith’s evidence, when his relationship with Mr Singer was involved, was not reliable. Although a close examination of Mr Smith’s evidence provided many opportunities for not accepting his evidence about his relationship with Mr Singer, I will pause to mention two matters at this point. Because of his absence from the witness box, Mr Singer’s evidence about his relationship with Mr Smith likely would not have helped Mr Smith and I more readily accept Mr Gould’s evidence of the destructive effect of Mr Smith’s admission of infidelity on their relationship.
Mr Smith was most unconvincing when cross-examined about evidence he gave in this court in Nolan v Nolan.[15] Mr Singer was Ms Jinx Nolan’s solicitor and Mr Smith gave expert evidence for Ms Jinx Nolan concerning the provenance of three paintings that Ms Jinx Nolan alleged had formed part of the estate of her mother, Nolan’s first wife Cynthia. Mr Smith was cross-examined about assisting Ms Jinx Nolan against her stepmother Lady Mary Nolan. There were two distinct issues from that cross-examination, which concerned Mr Smith’s independence from Mr Singer and from Gould Galleries.
[15]Nolan v Nolan [2003] VSC 121, (2003) 10 VR 626.
First, in the Nolan proceeding Mr Smith denied ‘travelling together’ with Mr Singer to New York in June 2001. Mr Smith was cross-examined in that trial about whether he, with Mr Singer and, to some extent, Mr Gould had, in effect, ‘put a case together’ for Jinx Nolan. Asked about a Gould Galleries exhibition of Nolan’s work called Nolan – Landscapes and Legends, Mr Smith distanced himself from Gould Galleries, as being an independent art expert. That evidence was inconsistent with his evidence before me of his contribution to exhibitions by Gould Galleries, particularly that Nolan exhibition. Secondly, Mr Smith’s evidence about his trip to New York was that he and Mr Singer had not travelled together. He was coincidentally in Boston when the opportunity presented for Mr Singer to introduce him to Jinx Nolan. In the Nolan proceeding, Mr Smith had at least two motives for providing an untruthful answer about ‘travelling together’ with Mr Singer, one of which may have been to protect his infidelity with Mr Singer from disclosure to Mr Gould.
Mr Smith’s explanation to me about ‘travelling together’ with Mr Singer in June 2001 was demonstrated as not truthful when the cross-examiner presented Mr Smith with documentary evidence of his travel arrangements. Because I am not satisfied that Mr Smith’s evidence about his relationship with Mr Singer can be relied on in any respect, I prefer as more probable, Mr Gould’s account of the bedroom conversation in June 2004.
For these reasons, I am satisfied that, despite their difficulties, Mr Smith and Mr Gould remained in a domestic relationship, as that term is defined in s 275 of the Act, until about the Queen’s Birthday weekend on 2004, when their domestic relationship terminated. That relationship may have been unsatisfactory for either or both of them prior to that time, as evidenced by their expressed intentions and conduct, however, they remained living together as a couple on a genuine domestic basis in that state of dissatisfaction until that time. It is convenient, and neither party suggested otherwise, to adopt 30 June 2004 as the appropriate proximate separation date.
Property adjustment at separation
I have mentioned the acquisition of 3/31 Marne Street. Mr Gould also furnished and fitted out this property for occupation. He provided Mr Smith with a car. Artwork was provided to Mr Smith. Transfers of interests in investment properties were discussed, that also involved Mr Singer and his entities, and some adjustment of interests later occurred. There was an agreement for Mr Gould to pay Mr Smith $100,000 in cash, and a debt of about $90,000 allegedly owed by Mr Smith to Mr Gould that was forgiven.
When Mr Gould agreed to buy 3/31 Marne Street for Mr Smith, he paid $200,000 to Simon Parsons & Co. That Mr Gould might approach the purchase of 3/31 Marne Street in this way was not surprising, given the history of dealings with investment properties when Mr Singer’s legal firm handled the conveyancing. The money was used to repay to Mr Singer the deposit he paid and the balance was used, with a bank loan, to pay the residue and expenses, approximately $550,000. I accept Mr Gould’s denial of being aware that 3/31 Marne Street had been originally purchased by Mr Singer or nominee. It was not asserted that anybody other than Mr Gould contributed financially to this property. Title to the property was transferred to Mr Smith with a mortgage and Mr Gould met mortgage repayments, totalling $39,600, for about 18 months until Mr Smith sold the property.
Naturally, in the period before settlement of the purchase, discussion centred on art works for 3/31 Marne Street. After separation, art was hung in 3/31 Marne Street. Some of the art was Mr Smith’s; some of it was from Gould Galleries stock. Some art belonging to Mr Smith remained at Park Street. I will come back to the art.
Was an arrangement made?
Between 16 June and 10 July 2004, Messrs Smith, Gould, Singer, and Dunn (an accountant) discussed their jointly held property interests. I accept that an arrangement was negotiated, although nothing was signed. Mr Gould produced cotemporaneous notes of, or for, the discussions with Mr Smith to sort out their affairs at Mr Dunn’s office at which Mr Singer was also present in July 2004. There was no other record produced of these discussions, and although Mr Smith called evidence from Mr Dunn of the discussions, Mr Singer was not called. Mr Smith claimed to have not been present or to have no recall of these discussions. I am satisfied Mr Smith participated in discussions. Mr Dunn suggested that his role was merely to provide accounting and tax advice, but through corporate entities, he is involved in Mr Singer’s affairs, including holding, through his company Pacemake Pty Ltd, a third share in 4/35 Marne Street, South Yarra, one of the investment properties discussed. Mr Dunn did not produce a file or a note of the discussions. He displayed a poor recollection about these discussions, and about a later meeting he attended with a solicitor, Richard Szental. I found Mr Dunn an unconvincing witness who gave unsatisfactory evidence that provided no assistance to Mr Smith’s contentions about the settlement arrangement.
It was immediately apparent to Mr Gould that the involvement of Mr Singer in their investments added complexity, requiring Mr Singer to be a party to these discussions in his own right. Mr Gould curiously expressed a desire to extricate Mr Smith from joint investments not just with himself, but also with Mr Singer, which, if it be true, may have contributed to the failure to arrive at a documented, and performed, settlement agreement. Others were also involved in these investments, including Mr Smith’s mother and Questec Pty Ltd, associated with a Mr Piaggio.
Mr Gould and Mr Smith agreed in discussions in June and July 2004 that Mr Gould made no claim on any of Mr Smith’s assets. Mr Gould had agreed a list of paintings in his possession that belonged to Mr Smith. Mr Gould agreed to confer other benefits on Mr Smith. He would give 3/31 Marne Street to Mr Smith together with furniture and household items (excluding art) that he valued at $40,000. He would pay out the mortgage on 3/31 Marne Street within five years, intending to do so on the basis that such payment would be recorded as a wage paid to Mr Smith from Gould Galleries.[16] Mr Smith would receive a car valued at $15,000, forgiveness of a $90,000 debt accrued on a running account, known as ‘Geoffrey Trading’, and Mr Gould would provide Mr Smith with $100,000 in cash.
[16]Such a characterisation would not have been correct and had it occurred would have required Mr Smith to declare the mortgage repayments as income.
Concerning art, Mr Smith would surrender his half share of Nicky Hoberman’s Bewitched 1998 to Mr Gould and in addition to the artworks that had been placed with Mr Smith at Marne Street, Mr Gould would provide additional paintings to Mr Smith; Nolan Wounded Bushranger, Arthur Boyd Hillside, Nolan Landscape, and Rupert Bunny Tintaldra.
I will explain the investment property dealings in due course. The agreement that Mr Gould alleged was that the property at 12/33 Albany Road would be sold with Mr Gould’s share of the proceeds of sale going to Mr Smith. Mr Smith would receive the property at 3/35 Marne Street, South Yarra as his own, by Mr Gould and Mr Singer each transferring their one third interest to him. In return, Mr Gould would transfer his one third interest in 4/35 Marne Street, South Yarra to Mr Singer. Mr Singer would transfer his half share of ‘Scotsforth’, Elizabeth Bay, NSW to Mr Smith, and Mr Smith and Mr Gould would transfer their shares in 4/16 Millswyn Street to Mr Singer. Apart from these transfers, no further claims would be made between Mr Smith and Mr Gould respecting investment properties.
Later in 2004, Mr Richard Szental, a solicitor, was involved in these transactions, with correspondence suggesting that he was instructed to arrange the appropriate transfers. Mr Szental did not give evidence. Ultimately, for reasons that do not matter, these transfers were not effected. The agreement Mr Gould alleges was not documented and the other parties to it, at least in respect of the investment properties, are not parties to this proceeding.
Legal consequences of dealings post separation
Until final submissions, Mr Gould contended that he agreed to make these post separation adjustments in return for Mr Smith agreeing not to pursue any legal remedies available to him arising out of their relationship. Ultimately, Mr Gould did not press an argument that a settlement agreement forestalled the court’s jurisdiction under Part IX of the Act. Mr Gould relied on the separation arrangement as evidence of the parties’ respective views of Mr Smith’s entitlement at the time.[17] That, Mr Gould contended, is a factor that is relevant to the exercise of the court’s power under s 285 of the Act, at least as part of the context in which the contributions by the parties are to be assessed. Thus, I need not determine whether these post separation adjustments were made pursuant to a compromise agreement.
[17]DW v GT [2005] FamCA 161; (2005) 191 FLR 305.
The entitlement of each of the parties to the divisible property is to be assessed by reference to the remaining issues identified above. Mr Gould contends that the separation arrangement is significant in other respects. First, it contradicts the existence of any private art collection, jointly owned by the parties. If Mr Smith had a joint interest in a private collection, he made no demand for his share of it prior to the institution of this proceeding. The evidence bears that out. Second, Mr Gould points to the practical consequences of the separation arrangement. In broad terms, Mr Smith has received over $2 million as part of the arrangement. He was to receive on Mr Gould’s reckoning approximately $2.1 million more, which he has not yet received. Mr Gould contends that the total amount, some $4.1 million, was recognised then, and remains now, as adequate compensation on a just and equitable adjustment of their divisible property. Mr Smith contends that the assets he received upon his separation from Mr Gould should be treated as part of the pool of assets to be adjusted by the court, albeit that the present value of such assets sits on Mr Smith’s side of the ledger. I will return to these contentions in due course.
Part performance of the arrangement
3/31 Marne Street
Mr Gould provided $200,000 towards the purchase of 3/31 Marne Street for Mr Smith. Mr Gould paid the mortgage on 3/31 Marne Street until Mr Smith sold the property.
Mr Smith did not dispute the circumstances of the acquisition of 3/31 Marne Street in his name. Mr Smith’s explanation of the arrangement under which he acquired 3/31 Marne Street was that he needed somewhere to live if they were going to live apart. Mr Gould offered to buy the property in Mr Smith’s name and pay the mortgage ‘until we came to a property settlement’. In late 2005, Mr Smith considered the property was his to sell and he sold it for $952,500. The net proceeds from the sale are agreed at $388,254. Mr Smith retains $188,254, and $200,000 now sits in a solicitor’s trust account, by agreement with Mr Gould. That agreement followed a caveat lodged by Mr Gould’s solicitors after he learned from Mr Smith of the sale. Interest has accrued on this sum and its present value is $285,572. Presumably Mr Smith retains the furniture and furnishings provided by Mr Gould. There was no evidence to the contrary.
Investment properties
The negotiated agreement about investment property interests was not completed. Apartment 12/33 Albany Road was sold on 27 November 2004, but Mr Gould retained his share of $49,713 from the proceeds of sale. Apartment 4/16 Millswyn Street was not transferred to Mr Singer and was sold in February 2007. The parties each received quarter shares of the proceeds of sale, $37,451. ‘Scotsforth’ in Elizabeth Bay, NSW was sold in April 2008. Mr Smith has received half of the proceeds of sale ($42,418), and Mr Singer’s entity Goldcheck Pty Ltd retained its half share. Apartments 3/35 and 4/35 Marne Street have not been sold or transferred, and remain owned by various entitles as I will later describe.
Art at 3/31 Marne Street
On 16 June 2004, Mr Gould and Mr Smith continued their discussion about separating out art for Mr Smith. I prefer Mr Gould’s account of the conversation on 16 June, accepting that the discussion took place at Gould Galleries and that a document was printed from the computer, signed by Mr Gould and handed to Mr Smith. There was substantial agreement at trial as to what artworks went to Mr Smith, but not much else.
I did not find Mr Smith’s evidence about art transfer in June 2004 credible and, for the reasons that follow, I reject it. I find that Mr Smith received some 33 artworks into his possession at Marne Street mostly, but not entirely, at the time of separation. Mr Smith received art from four sources. Some pieces Mr Smith had purchased from his own resources and others were his as commissions from Gould Galleries or gifts from Mr Gould. Mr Gould described these artworks as belonging to Mr Smith. About 22 artworks came from Park Street or the Potts Point flat and, of these, 11 artworks were owned by Mr Smith. Mr Gould gave one of his own paintings to Mr Smith at this time. I will address later the issue of whether artwork at Park Street was part of a private art collection or was collectively hung, but separately owned by one of Mr Smith, Mr Gould, or Gould Galleries. Four or five artworks came directly from stock located at Gould Galleries, chosen by both men in the sense that Mr Smith nominated pictures that he wanted and Mr Gould agreed that he take them. In every case the artwork, directly or indirectly, formed part of the divisible pool.
The selection and rehanging of art at Marne Street occurred in June 2004 when Mr Smith took up residence there.
Mr Gould acknowledged to Mr Smith on 16 June 2004 a list of 17 works at Park Street, and one at 270 Toorak Road that belonged to Mr Smith. Most, but not all, of these works went with Mr Smith to 3/31 Marne Street. Mr Gould contended that these 17 artworks at Park Street were then valued at $586,200. On separation, Mr Gould kept eight of Mr Smith’s paintings. He retained four Howard Arkleys; Own Your Own Flats, Triple Fronted 1988, A Freeway Painting 1994 and House with Gate 1999, two works on paper by John Brack; Jockeys Returning 1956, Mounting 1956, and two other works, being Nicki Hoberman Bewitched 1988, and Maria Kozic I Woman (Brooke) 1994. Mr Gould agreed that Mr Smith take Nolan’s Wounded Bushranger from Park Street.
I am satisfied that Mr Smith’s denial that these were the paintings that Mr Smith wanted and Mr Gould gave them to him as part of the settlement arrangement was a false denial. Initially, Mr Smith maintained that on separation he took ‘a couple’ of artworks from Park Street. On reconsidering his response, he suggested ‘maybe about 12, often works of low value’, notwithstanding that he had just mentioned Nolan’s Wounded Bushranger, Tucker’s Antipodean Head and Rupert Bunny’s The Little Green Tree, Tintaldra. The cross-examiner then inquired whether Mr Smith had taken Boyd’s Hillside. Mr Smith said that the Boyd was lent to him, ‘provided by Rob when we were furnishing Marne Street’. Confronted with an inconsistent answer to an interrogatory, Mr Smith suggested that Mr Gould had loaned him certain paintings. Mr Smith said the Boyd painting was loaned from Gould Galleries stock. When furnishing the apartment he had selected that painting. Likewise, Mr Smith received another Boyd, Potter’s Wife, as a loan. I am satisfied that this concept of paintings on loan, having not previously been mentioned, was proffered as a refuge from the cross-examiner. Mr Smith contended that there was no separation arrangement as paintings were on loan to decorate 3/31 Marne Street until a separation agreement was negotiated, which never happened.
What then emerged was that Mr Smith had thereafter sold five paintings, not directly but by engaging Mr Singer or Goldcheck as his agent for sale. Four of the paintings ‘on loan’ were sold for $104,000 and the other, Williams’ Swamp Grasses Kew Billabong, sold for $225,000. Although belonging to Mr Smith, the Williams is alleged to be part of the private collection. Mr Smith suggested, unconvincingly, that when Mr Gould gave an undertaking not to sell paintings, alleged to be part of the private collection, to settle the injunction application in 2006, Mr Smith also undertook not to sell artwork, but which did not extend to the works he sold. Mr Smith had not given any such undertaking. Even if he had done so, the Williams, the most substantial sale by value was, he alleged, part of the private collection. I will later return to the circumstances that prompted that injunction application. These sales, particularly of the loaned paintings, were not first discussed with Mr Gould. Mr Smith has explained that he considered the sold paintings including gallery stock were part of their joint asset pool and the sales were no different to sales of Gould Galleries’ stock that had not been restrained. He was entitled to sell the loaned paintings and bring the proceeds to account as part of the pool of divisible assets. Mr Smith could not give detail about these sales. In particular, Mr Smith did not identify how the sale proceeds were disbursed and Mr Singer was not called. I am satisfied that Mr Smith sold these paintings to raise funds for his financial needs at the time believing them to be his to sell, free of any obligation to later account for sale proceeds.
Other benefits
The other benefits offered to Mr Smith were the forgiveness of a debt and payment of $100,000 in cash, which were received by Mr Smith. Mr Gould has not proved the debt he alleges, and the obligation to pay Mr Smith $100,000 was later worked out, at Mr Smith’s suggestion, in art purchases by Mr Gould on Mr Smith’s behalf. These transactions occurred after separation and it is now appropriate to return to the start of the relationship.
Assets contributed to the relationship
Mr Smith and Mr Gould met at a Sotheby’s cocktail party and commenced their relationship on 5 April 1990. Mr Smith was then an undergraduate student at Melbourne University living in rented accommodation with his brother. Mr Gould was the owner, with his mother, of Gould Galleries, a commercial art gallery in Toorak Road, South Yarra. Mr Gould was living in rented premises in Grange Road, Toorak, but he had purchased a substantial property in need of renovation in Park Street, South Yarra. Soon after they met, Mr Gould spent $75,000 renovating Park Street and they then resided at Park Street until separation.
Mr Smith
Mr Smith came to his relationship with Mr Gould, aged 21, effectively a full time student, living off his savings supplemented by casual employment. He had assets of about $20,000, being savings of about $11,000, a car, some furniture, glassware, and art, including a work by each of John Brack, John Tenniel, and Victor Mayzner. These were taken to Park Street by Mr Smith when the parties began living together there. Mr Smith later inherited some artworks from an uncle. These works have all been sold, to his benefit, and do not warrant further consideration.
Mr Gould
Mr Gould came to his relationship with Mr Smith, aged 35, as an art gallery proprietor. When they met, Mr Gould’s assets were:
(a)Park Street, South Yarra, in a dilapidated and uninhabitable state, purchased for $555,000 and renovated for $75,000 during 1990 by Mr Gould. The effective initial contribution into the relationship by Mr Gould of Park Street is $630,000;
(b)a one third interest in a property at Palm Court, Frankston; the parties are agreed that Mr Gould’s interest in this property be disregarded;
(c)an indirect half interest in Gould Galleries; and
(d)artworks that he had purchased prior to 1990. These works were Tucker, Intruder and Parrots, Friend, Sleeping Sailor, Larwill, Falling Figure, Perceval, Boy with Cat Looking Over Shoulder, and Santhill’s Fandango and Petrushka.
Mr Gould held half of the 12 issued shares in Dukville that, in turn, held all of the units in the E&R Gould Unit Trust, for whose benefit Edrob Nominees Pty Ltd operated the business of Gould Galleries. Mr Gould estimated that, as at 30 June 1990, the value of Gould Galleries stock, at cost, was $1-$1.5 million and by the time of the buy-out of his mother in 1995, the stock was, at cost, ‘about a couple of million dollars’. Mr Gould also gave evidence that the value of stock was understated in the financial statements for the trust, prepared by Mr Dunn, and adopted by the directors of Edrob as true and correct. The understated figure was $95,426. I am not satisfied that I have sufficient information to value Mr Gould’s half interest in Dukville when the relationship commenced, but I will assess an allowance for that value in Mr Gould’s favour.
In 1996, Mr Gould acquired his mother’s shares in Dukville. Mrs Gould received two payments, of $120,000 and $50,000, for her shares, plus some ancillary benefits including such Gould Galleries stock artwork as was hanging in her home. Mrs Gould retains the title to the gallery premises in Toorak Road, South Yarra. Mr Gould also became the sole director and shareholder of Edrob, the trading trustee. From 1996, Mr Gould brought the whole of the interest in Dukville to the divisible pool.
Mr Gould’s buy-out of his mother’s share of Dukville was not an arm’s length transaction and provides no indication of the value of the gallery business at the time. The transaction was documented by a solicitor, a family friend, in two agreements signed on the same day. The arrangement appears, from that documentation, to have been one of convenience for the parties. I accept Mrs Gould’s explanation that the principal consideration, $120,000, was set as the amount of money that Mr Gould was then able to draw out of the business. The supplementary agreement provided that all paintings at Mr Gould’s house are his property and all paintings at Mrs Gould’s house are her property. The precise effect of this term is unclear. Its practical effect was that any artworks at Mrs Gould’s residence belonged to her whether or not such artworks had previously come from Gould Galleries stock and Mr Gould contended that the clause operated in the same way for him for stock at Park Street at that time.
This contention could not be tested. There is no evidence about the source of the purchase price paid to Mrs Gould, that is, whether it came from Mr Gould or from Edrob Nominees Pty Ltd, but from Mrs Gould’s evidence it appears that the source of all benefits to either party to the buy-out was Gould Galleries. If that occurred Mr Gould drew $170,000 and an unquantified tax liability from Gould Galleries to pay to his mother and transferred some Gould Galleries stock at its 1996 value to both himself and his mother. No relevant financial records evidencing the transaction were produced in evidence.
Gould Galleries stock then hanging at Park Street that Mr Gould acquired this way included Arkley Actual Fractual, Blackman Girl with Flowers, Arthur Boyd Wedding Group, Boyd, Figure by a Round Pool (Narcissus), Nolan Hartz Range, and Pugh Rape of Europa. Mr Smith alleges these five paintings are not Gould Galleries stock and form part of the private collection. If that is accepted, on any view these paintings were contributed by Mr Gould. Without evidence of appropriate entries in the loan accounts of the E&R Gould Unit Trust or other evidence, I am unable to find that the beneficial interest in these artworks passed to Mr Gould. Neither can I be satisfied that these transactions were properly accounted for by Mr Gould and Edrob Nominees Pty Ltd to the Australian Taxation Office. On 23 April 2012, the opening day of the trial, Mr Gould by letter informed the Australian Taxation Office that Dukville acquired the units of Mrs Gould and as part of the arrangement Mrs Gould and Mr Gould were permitted to retain unidentified paintings that belonged to the trust. These paintings will be regarded as part of the divisible pool, but not as gallery stock.
There were also limited occasions when Mr Smith and Mr Gould purchased artwork directly using their own funds. For example, Arkley’s A Freeway Painting (Overpass) 1994, was purchased by Mr Smith with funds received following the settlement of a damages claim. Each of them contributed jointly to the purchase of Arkley’s Triple Fronted 1988.
Assets at the separation date
Naturally there were asset acquisitions during the 14 years of the relationship, but the areas of dispute about the pool of divisible assets that existed as at 30 June, 2004 were confined. There was agreement about many assets as to whether it was a divisible pool asset and as to value.
Agreed pool assets
It was agreed at trial that, as at June 2004, the pool of divisible property included the following assets:[18]
[18]excluding, as agreed, the Frankston property.
(a)Park Street, South Yarra (Title: Mr Gould 100%);
(b)Oak Lane, Potts Point, Sydney (Title: Mr Gould (Dukville) 100%);
(c)3/31 Marne Street, South Yarra (Title: Mr Smith 100%);
(d)Interests in investment properties –
(i) 3/29A Wallace Avenue, South Yarra (Interests: Mr Smith 100%);
(ii)12/33 Albany Road, Toorak (Interests: Mr Smith one third; Dukville one third; Goldcheck Pty Ltd (Mr Singer) one third);
(iii)14/63 Alexandra Avenue, South Yarra (Interests: Mr Smith two thirds; Goldcheck Pty Ltd one third);[19]
[19]Originally Mr Smith’s mother Wendy Smith held a one third interest in this property that she sold to Mr Smith in November 2003.
(iv)2/128 Toorak Road West, South Yarra (Interests: Mr Smith and Me Me Me Pty Ltd (Mr Gould) two thirds; Goldcheck Pty Ltd one third. In 2003 Leona Smith bought out Me Me Me Pty Ltd and Goldcheck Pty Ltd and Mr Smith now holds a 36% interest);
(v)4/16 Millswyn Street, South Yarra (Interests: Mr Smith one quarter; Me Me Me Pty Ltd one quarter; Goldcheck Pty Ltd one quarter; Questec Pty Ltd (Mr R Piaggio) one quarter);
(vi)3/35 Marne Street, South Yarra (Interests: Mr Smith one third; Me Me Me Pty Ltd one third; Lakeberry Pty Ltd (Mr Singer) one third);
(vii)‘Scotsforth’, Elizabeth Bay, NSW (Interests: Mr Smith one-half; Goldcheck Pty Ltd one half);
(viii)4/35 Marne Street, South Yarra (Interests: Me Me Me Pty Ltd one third; Ablepair Pty Ltd (Mr Singer) one third; Pacemake Pty Ltd (Mr Dunn) one third);
(ix)58-62 Smith Street, Fitzroy (Interests: Keelboat Pty Ltd (Mr Gould) 100%);
(e)artwork at Park Street on the separation date, other than artwork that was Gould Galleries stock, which is owned personally by the parties;
(f)Dukville, which was from 1996, and is, wholly owned by Mr Gould and which wholly owns all the units in the E&R Gould Unit Trust of which Edrob Nominees Pty Ltd, at trustee wholly owns the business of Gould Galleries including the leasehold interest in the gallery premises at Toorak Road, South Yarra; and
(g)Superannuation account balances – Mr Smith $47,709: Mr Gould $394,792.
(h)Various bank accounts -
(i) ANZ account 244 in Mr Gould’s name - $70,256;
(ii) ANZ account 547 in Mr Gould’s name - $5,321;
(iii) Term deposit account 301 in Edrob Nominees Pty Ltd’s name - $504,080.
Disputed pool assets
The parties were in dispute about what Mr Smith described as the Gould-Smith Collection, a list of 53 artworks mostly situated at Park Street on the separation date. Mr Gould did not dispute that there was what might loosely be described as a ‘collection’ located at Park Street, but he denied Mr Smith’s contention that such a named collection existed. He contended that the artworks identified by Mr Smith as forming the collection was mostly Gould Galleries stock that was owned by Edrob Nominees Pty Ltd and displayed at Park Street. Gould Galleries does not, separately from the shares in Dukville, form part of the pool. Otherwise the remaining artworks, which were owned by one, other, or both of them jointly are agreed to be pool assets. Mostly, there was agreement as to what artwork was located on the separation date at Park Street and as to its value if individually offered for sale at auction.
The parties were in dispute as to whether the following assets were part of the pool:
(a)cash in bank accounts in Hong Kong – (Mr Smith’s value: $927,894.00);
(b)the furnishings and contents (excluding artwork) of Park Street and Potts Point (Mr Smith’s value: $546,000, Mr Gould’s value: $150,000);
(c)gift to Mr Gould’s brother Gary - $719,000;
(d)half interest in a trust account with solicitors Marshalls & Dent in name of Mr Gould and Mrs Gould - $530,074; and
(e)various assets:
(i) plant and equipment of Gould Galleries;
(ii) deposit of $1,410,000 into Edrob account;
(iii) deposit of $2,058,535.47 into Edrob account.
Whether two identified liabilities should be brought into account was also in dispute. The first was a debt of $280,000 owed by Edrob Nominees Pty Ltd to a bank. The existence and quantum of the debt were agreed. The second debt was a taxation liability for the financial year ended 2006, of which an amount of $1,196,850 was suggested to be the debt referable to the year ended June 2004 and prior years. This tax debt arose when Edrob Nominees Pty Ltd submitted amended tax returns that disclosed, in its view, the true value of its trading stock at relevant dates.
Mr Smith held title to three further assets that Mr Gould contended formed part of the pool. Mr Smith contended that these assets belonged to Mr Singer and that Mr Smith held Mr Singer’s interest as a bare trustee and that Mr Smith neither contributed to the acquisition nor received proceeds from any sale of these properties or shares. These interests were:
(a)the proceeds of sale of 6/128 Toorak Road, South Yarra;
(b)the proceeds of sale of 6 Avoca Street, South Yarra; and
(c)shares in Lakeberry Pty Ltd, Pacemake Pty Ltd and Ablepair Pty Ltd;
Disputes about the content and, particularly, the value of pool property raise a number of issues of some complexity, and I will explain the approach that I take to resolving these aspects of the dispute before setting out my findings about the divisible pool.
Resolving asset pool disputes and determining contributions
Asset by asset or global approach
Should the court adopt an ‘asset by asset’ approach or a ‘global’ approach to determining the financial and non-financial contributions of each party? Mr Gould made no submission on this issue. Mr Smith contended for a global approach. Either approach is open to me. In the context of s 79 of the Family Law Act, the High Court said that which of the two approaches is the more convenient will depend on the circumstances of the particular case, but, there is much to be said for the view that, in most cases, the global approach is the more convenient.[20] In Giller,[21] Neave JA held that the trial judge erred in concluding that a global approach was not open under Part IX of the Act, affirming the application of the discretion identified in Norbis to de facto property adjustment.[22] In Kardos, Brereton J suggested that mathematical calculations are of some use in guiding and testing conclusions, and that even though one approach is preferred, the other may serve as a check method about what is just and equitable.[23] The like observation is open about using one method as a check on the conclusion reached by the other method.
[20]Norbis v Norbis [1986] HCA 17; (1986) 161 CLR 513, 523-524.
[21](2008) 24 VR 1 [283].
[22]See also Apostolidis v Kalenik [2011] VSCA 307 [12]; Kenyon v Akeroyd [2008] VSCA 277 [10]; Kardos v Sarbutt (2006) 34 Fam LR 550 [51]–[53].
[23]Kardos v Sarbutt (2006) 34 Fam LR 550 [49]; Giller v Procopets (2008) 24 VR 1 [286]; Flood v Dockerty [2010] VSC 233 [7].
The circumstances of this particular relationship call for a departure from the global approach generally considered as more convenient. That is because the purpose of the approach chosen is to assess the parties’ contributions to the divisible assets. The global evaluation of contributions in the circumstances of this relationship would become unnecessarily speculative and suffer for a want of transparency in the assessment being made.
In Kardos,[24] Brereton J explained:
As Lenehan shows, the principal indicator for an ‘asset-by-asset’ analysis is discrepant identifiable contributions of the parties to different assets: in that case, the proportionate contribution of the parties to the acquisition conservation and improvement of the matrimonial home on the one hand, and to the business assets on the other, were quite different. Such an approach will often be contra-indicated where, as here, there has been a pooling of income.
[24][2006] NSWCA 11 [54].
The pool of divisible assets is quite varied both in terms of the nature of the asset and the nature of the contributions of the parties to different assets. The non-financial contributions, direct and indirect, distinctly relate to particular assets rather than to the whole pool. In particular, the special non-financial contribution that Mr Smith contends that he has made is his application of his scholarship and expertise in modern Australian art for Mr Gould’s benefit. Mr Smith contends this contribution has enhanced the value of Gould Galleries, represented by the value of Mr Gould’s shares in Dukville. That form of contribution bears little analogy with a welfare contribution. A significant welfare contribution, commonly present in most cases, will usually be more conveniently assessed on a global approach. Further, Mr Smith’s contribution to investment properties was different in character to his contribution to Gould Galleries. The contribution he alleges that he made to Park Street is distinct from his contribution to investment properties and to the gallery business.
Further, there was no pooling of assets, or of banking, or of financial commitments by Mr Smith and Mr Gould. There was not a practical union of property in this relationship. In fact, some assets said to form part of the divisible property are held in different entities from the parties and, in relation to the investment properties, jointly with different third parties. Each of Mr Smith and Mr Gould pursued his own commercial and employment interests unrestrained by obligations to provide for the welfare of the other and without supererogatory merit.
In the first instance, I will evaluate contributions in sub-pools, but globally within the sub-pool rather that on an asset-by-asset basis because the alleged nature of non-financial contribution to sub-pool assets suggests this approach. I recognise that interaction between the sub-pools may be present. Mr Smith contends that his contribution to the decisions about precisely what stock of art Gould Galleries purchased facilitated the application of greater financial resources by Mr Gould in other activities than might otherwise have been the case. I will also later check that the approach I have adopted meets the fundamental criteria of Part IX of the Act, that the adjustments of the respective interests of the parties in the divisible property of the relationship seems just and equitable.
Sub-pool categories
I propose to consider the asset categories as follows:
(a)Properties that were used as residential, with no rent collected – Park Street, South Yarra, Potts Point, Sydney and 3/31 Marne Street, South Yarra;
(b)Investment properties – equity in, and profits earned on realised, property investments;
(c)Artworks, considering both the private collection alleged and Mr Gould’s shares in Dukville Pty Ltd; and,
(d)Remaining personal assets and liabilities.
Operative date – date of separation or date of trial
Should the court adopt, as the operative date, the date of separation or the date of trial to best facilitate the ultimate task of evaluating respective contributions? The parties proceeded on a complex basis for agreement of assets and values. The operative date is the date of separation for the purposes of the identification of the divisible property but they adopted the date of trial as the date to value retained property, subject to liabilities that existed as at the date of separation. Where property was sold between these dates, the sale price of the property is adopted as the valuation. On this basis, the parties agreed the value of many, but not all, of the assets comprising the pool.
Ordinarily, the identification and valuation of the divisible property is undertaken as at the date of trial, to appropriately account for ongoing contributions since separation by one party that have benefited the other. However, adopting the date of separation can better facilitate the ultimate task of evaluating respective contributions in some circumstances. The separation date may be favoured where, as here, there has been substantial delay by the parties in pursuing the matter to trial.[25]
[25]Giller v Procopets [2008] VSCA 236; (2008) 24 VR 1, 75 [318].
In my view, the ordinary rule ought not be applied in the circumstances of this relationship, as there have not been ongoing contributions since separation by one party that have benefited the other. Commonly such contributions are made in the context of a family. Here, the contributions that have been made since separation fall into two categories. First, some limited dealings between the parties have involved a service for a separate commission or consideration. Second, the property that was involved in the separation arrangement forms part of the pool. The dealings between the parties under the separation arrangement are properly to be considered as post relationship adjustments to the divisible pool. Property used in the adjustment by the separation arrangement came partly from Mr Gould and partly from Gould Galleries and other entities.
A further reason not to apply the ordinary rule is the appreciating nature of the primary asset type, collectable fine art. There appears to have been significant appreciation in the value of this art during the period of substantial delay by the parties in pursuing the matter to trial. Separation was in June 2004. Competent litigators could have completed the proceeding by June 2007. During that period, values in the secondary art market were trending strongly upwards. That trend ended after 2007 because of the global financial crisis. One of the art valuers, Mr Abdallah, suggested that many artists set personal best prices in 2007 that have not been improved upon. While some artists’ prices have moved higher in a gentle trend, others remain in decline. A few artists, Brett Whiteley being an example, have remained strongly in demand, unaffected by the global financial crisis. Valuation at the separation date could eliminate such factors.
Had the court the opportunity to manage trial preparation on key issues, the issue of the time of, and the methodology for, valuation of art and company shares may have been appropriately identified. That would have facilitated an efficient trial. I will say more about valuation methodology in due course. Notwithstanding my view that, in the circumstances of this relationship, the separation date is the appropriate time, the separation date was not adopted. The evidence presented will only permit issues of value and contribution to be resolved fairly if I continue on the basis agreed by the parties, despite my view that it is not the proper and most appropriate approach to either the issue of timing or that of value. Mr Gould also presented some evidence of values for art that was a hybrid of 2004 values for unsold items and actual sale prices for art sold after 2004 and prior to 2012. On the other hand values for property investments were based on realised values where sales had occurred after 2004 and assessments of current values where the asset was still held.
I have concluded that the approach agreed and adopted by the parties constrains me on pool valuation issues, and the related contribution issues, to the basis most consistently adopted by the parties, which is, absent agreement, realised values where sales have occurred since 2004 and assessments of present market value where the asset is still held.
The divisible pool
In calculating the value of the pool I have excluded, to the credit of the original contributor, the initial contribution to the acquisition of assets in the name of that contributor or his entity. The value of equity in real estate in the pool represents equity in respect of which the contribution of the other to its acquisition, conservation, or improvement can be assessed. In the next section of my reasons, I have identified the direct financial contributions that have been made and I will deal separately with the indirect, and non-financial, contributions to the acquisition, conservation, or improvement of pool assets.
the focal points by reference to which the discretionary judgment as to what seems just and equitable must be made. They are not merely two matters, or groups of matters, which take their place amongst any other relevant considerations. It is by having regard to those matters that the court may adjust property interest in a just and equitable manner.[108]
The majority held that, although the factors set out in [the analogous provision to s 285 of the Act][109] were fundamental, other matters might also be relevant. It concluded[110] that considering the plaintiff's contributions and nothing else cannot conceivably lead to any view on what is just and equitable in the circumstances. Other factors can only have independent bearing if relevant to the question: what is just and equitable having regard to the plaintiff's contributions?
[107][1997] NSWSC 331; (1997) 42 NSWLR 70.
[108]Ibid, 80.
[109]Section 20 of the NSW Act.
[110]approving the view expressed by Hodgson J, as the trial judge in Dwyer v Kaljo (1987) 11 Fam LR 785.
Some other factors will be relevant in this way in all cases. For example, have the contributions of the plaintiff been sufficiently compensated? The relevance of this question is confirmed by the terms of [s 17 of the NSW] Act. This in turn requires the court to reach some view of the value of the contributions of the plaintiff, and some view of the value of what the plaintiff has received in return.
On the other hand, Victorian judges have expressed a variety of views.[111] The Court of Appeal in Giller[112] expressed its preference for the approach in Evans v Marmont that does not confine the range of discretionary considerations. In Evans v Marmont, the court stated that in most cases, the present financial circumstances of the parties will be relevant, usually because it is necessary for the court to ascertain what the property of the parties comprises at the time of the hearing, to be subject to any adjustments of interest have to be made. Further, in most cases the needs and means of the parties will have general relevance, as subsidiary factors, to the question of what is just and equitable having regard to the plaintiff's contributions. However, that limited context is the extent of the relevance of this factor and, in particular, the court cannot say that because the defendant has extensive assets, and the plaintiff has very little, if that were the case, for that reason alone it is just and equitable to make an adjustment. Other circumstances which may be relevant include such matters as the length of the relationship, any promises or expectations of marriage (at present this consideration, as expressed, applies only to mixed gender relationships), and opportunities lost to the plaintiff due to the plaintiff's contributions.[113]
[111]Neave JA referred to Conn v Martusevicius (1991) 14 Fam LR 751, 754; Robertson v Austin [2003] VSC 80, [38]-[40]; and Findlay v Besley (2004) V Conv R 54-688 [56].
[112][2008] VSCA 236; (2008) 24 VR 1, 80 [341]-[349].
[113]Evans v Marmont [1997] NSWSC 331; (1997) 42 NSWLR 70, 75.
This list is by no means intended to be exhaustive. I do not think any limit can be set on what circumstances may be relevant, remembering always that the relevance must be to the question, what is just and equitable having regard to the plaintiff's contributions. In Evans v Marmont, Gleeson CJ and McLelland CJ in Eq added the following observation:
It would be unrealistic to attempt to evaluate [financial, non-financial and homemaker and parent contributions] for the purpose of determining what is just and equitable, having regard to those contributions, in isolation from the nature and incidents of the relationship as a whole, relevant aspects of which may well include factors of the kind mentioned by Hodgson J.[114]
[114]Ibid, 75.
Conclusions about contributions to the art sub-pool
Taking all of the above matters into account and considering Mr Smith’s whole contribution to Gould Galleries, I am not persuaded to accept Mr Gould’s submission that Mr Smith’s contribution is limited to a ‘back-room effort’ of casual conversations with his personal partner in the evenings that does not warrant recognition in Mr Smith’s favour of an interest in Dukville. Equally I have not been persuaded by Mr Smith that he made either a special or a substantial contribution to the business of Gould Galleries, and thus to the value of the shares of Dukville, warranting recognition of a half interest in Mr Smith’s favour in Dukville.
The court’s evaluation is holistic and broad based, drawing on the context of the relationship between the parties and my assessment of the respective contributions both financial and non-financial that are directly or indirectly made by or on behalf of each partner and directed to determining what adjustment is ultimately just and equitable.
On the basis of my assessment of the various aspects in which contribution was asserted, set out above and following, I have determined that Mr Smith’s contribution to the value of the art sub-pool was modest, but not minimal, and I assess his contribution to the growth in value of the art sub-pool over the course of the relationship at 10%.
Mr Smith’s contributions to the other assets sub-pool
The remaining two categories of assets are superannuation account balances and Mr Gould’s bank accounts. The respective superannuation account balances principally reflect the age and financial opportunities of each of Mr Smith and Mr Gould. Apart from contending for a global 50% interest in the whole pool, Mr Smith did not suggest any particular contribution to Mr Gould’s superannuation balance. I do not consider that any ground exists for eroding that asset by any adjustment in favour of Mr Smith. In this respect, I am mindful that as a younger man Mr Smith has full opportunity to accumulate suitable superannuation and cannot contend that his opportunity to do so has been affected by his attention to Mr Gould’s welfare or financial resources. There was no evidence about how the funds held in bank accounts by Mr Gould at the separation date were accumulated. Assuming the funds were drawn from the business as wages or the like, Mr Smith has not demonstrated any further relevant contribution to that asset distinct from his contributions to the gallery.
Welfare contributions
Mr Gould contended that the love and support he provided to Mr Smith must be viewed in the context of Mr Smith’s long-term intimate relationship with his current partner, Mr Singer. This circumstance caused Mr Gould to be unhappy and gave rise to a want of reciprocity in the contributions of Mr Smith to Mr Gould’s welfare. In submissions, counsel emphasised the effect of Mr Gould’s suspicions of a relationship and Mr Smith’s false denials, the secret dealings in property and shares between Mr Smith and Mr Singer, and the apparently engineered, by Mr Smith and Mr Singer, separation from Mr Gould. These contextual matters, it was submitted, increase the significance of Mr Gould’s contribution to Mr Smith’s welfare.
Section 285(b) of the Act directs that welfare contributions, in the sense that I have discussed above at [267] and following, be taken into account. There is ordinarily no warrant from the statute to take into account a want of due attention to the welfare of the other party to the relationship. There may be special circumstances, such as domestic violence or particular issues with children of the relationship, which are not relevant in this case. However, in my view, what Mr Gould contends for is nothing more than an irrelevant notion of fault. As I have noted, there is no relevant concept of fault, the Act directs attention to contributions. Mr Gould chose to remain in this relationship despite his strong suspicions about Mr Smith’s conduct with Mr Singer. Why each man behaved as he did in this context is not a matter for this court.
The welfare contributions are relevantly much narrower in compass and I am satisfied that Mr Gould made a greater contribution that Mr Smith to the welfare of the other. I am satisfied that Mr Smith made some contributions towards expenses before he became involved in property investment and that he made some contributions to travel expenses. But these contributions were insignificant compared with the costs of their travel and their lifestyle. Mr Smith contended, and I agree, that the gallery business, that is, Edrob Nominees Pty Ltd substantially contributed to the lifestyle that Mr Smith and Mr Gould enjoyed. In this respect, Edrob Nominees Pty Ltd was contributing to the welfare and financial resources of Mr Smith and that is a matter that to be balanced against the adjustment that Mr Smith now seeks for his contribution to the profitability and success of Gould Galleries.
The evidence concerning household, entertainment, and travel expenses overwhelmingly favours Mr Gould. Mr Smith did not dispute that the vast majority of all domestic and entertainment expenditure, including overseas travel, was paid by Mr Gould or Edrob Nominees Pty Ltd. That such expenses may have been deductible to Edrob Nominees Pty Ltd is not to the point and not a matter about which I can make any finding. There was a real benefit to Mr Smith. His income from his NGV job became wholly his to invest, as he did, in property and art.
In no sense can it be said that Mr Smith has been held back from his own financial destiny by contributing to the welfare of Mr Gould. Towards the end of 2006 Mr Smith left his employment at the NGV and took up a position at First East Auction Holdings Pty Ltd, who traded as Bonhams & Goodman. Mr Smith is now Chairman of Sotheby’s Australia, drawing a six-figure salary. It cannot be suggested that he has not been successful in his occupation or his career pursuits. More particularly, it is not the case that Mr Smith’s career and financial resources have been diminished or restrained by providing for the welfare of Mr Gould. The evidence of Mr Smith’s current financial position was far from complete, and may be intertwined to some extent with that of Mr Singer. It was not suggested by Mr Smith that he has any need for residential real estate and no inventory of his present collection of artworks was given.
I am satisfied that Mr Gould has also contributed to Mr Smith’s welfare by providing Mr Smith with the opportunity to observe closely the commercial side of art dealing over a 14 year period, which Mr Smith has now married with his academic and curatorial experience. Mr Gould had paid Mr Smith’s domestic upkeep and expenses, while he was completing his studies and moving up the chain of success at the NGV. Mr Smith observed that Gould Galleries supported what his counsel described as a ’lavish lifestyle’. Mr Gould assisted Mr Smith with his work at the NGV, his writings generally and the development of his archive. These matters were, in themselves, benefits for Mr Smith for which he made little or no contribution but for the contributions he made to Gould Galleries.
Indirect contribution to Mr Gould’s financial resources
Having approached the assessment of contributions by reference to sub-pools requires that I consider the interaction of sub-pool contributions. On the one hand, Mr Smith contends that, having contributed to the value of Dukville and the art sub-pool, he has provided an indirect advantage to Mr Gould who draws his financial resources from the business. There is no practical way, as the evidence was presented to me, to value whether there was any effect on the drawings made by Mr Gould from the business in order to identify and quantify that advantage. Moreover, that task is made more difficult by the approach adopted on valuation, which does not allow for thorough analysis of the financing of artwork purchases and tracking of cash outflows. On the other hand, it seems clear that the business provided significant support to Mr Smith throughout the course of the relationship, in the provision of the welfare benefit that I have found he received and in assisting in financing Mr Smith into property development. I have allowed for the indirect assistance to Mr Gould of Mr Smith’s contribution to Gould Galleries in assessing the balance of welfare contributions and Mr Smith’s contribution to their investment activities, as I described above.
Bearing these considerations in mind, I do not think any further adjustment is required, and in reaching that conclusion I bear in mind that I have not specifically apportioned Mr Gould’s cash at bank on separation.
Conclusions as to a just and equitable adjustment by sub-pool
I have concluded that Mr Smith has no entitlement to an adjustment of the residential sub-pool in his favour and has received both a welfare contribution from it and a direct financial contribution to his post relationship financial resources from it. I have concluded that the just and equitable distribution of the investment property sub-pool is that Mr Gould and Mr Smith should share it equally. Further, Mr Smith should have an adjustment in his favour of 10% of the value of the art sub-pool. There will be no adjustment in the other assets sub-pool. In the following table the ‘total’ column shows the assessed total value of the sub-pool and the columns for Mr Gould and Mr Smith show what monetary value of the sub-pool after adjustment consequent on my findings of entitlements at the separation date, is being allowed
2696
Total
Mr Gould
Mr Smith
Adjustment
Residential real estate
$3,026,435
$3,026,435
0
Nil
Investments
$2,359,899
$1,179,950
$1,179,950
50%
Art (privately owned)
Dukville
$5,008,300
$4,507,470
$500,830
10%
$11,917,704
$10,725,934
$1,191,770
Other
$518,078
$470,369
$47,709
Nil
Totals
$22,830,416
$19,910,158
$2,920,259
Subject to remaining observations, to arrive at a just and equitable adjustment, so assessed, Mr Smith was entitled at the separation date to a share of the divisible pool totalling $2,920,259.
A comparative check by a global approach
Although the above analysis is warranted by the different nature of contributions to the several sub-pools, it may appear mathematical. Considering all of the matters discussed above afresh, and from a broad holistic perspective, uninfluenced by any reductionist process, I consider that a just and equitable entitlement in favour of Mr Smith, from a divisible pool accumulated over a 14 year period, when Mr Smith’s contribution was not by equity or capital but was principally as advice, knowledge or research effort, is in a range from $2,500,000 to $3,000,000. In so doing, I have considered again the settlement offered by Mr Gould in 2004. I have already noted that Mr Gould did not press the settlement agreement he alleged to forestall the exercise by the court of its broad jurisdiction under Part IX. Rather, Mr Gould relied on those arrangements as evidence of the parties’ respective views of Mr Smith’s entitlements at the time. Mr Gould in submissions valued his offer at just over $4 million but using different, and higher, values than I have adopted and I have not thought it useful to revalue that arrangement. I consider that Mr Gould took a generous view when dealing with Mr Smith in 2004, possibly the result of an over-inflated view of the totality of the divisible pool.
Bearing in mind the comparative correlation of my global and sub-pool approaches, I fix Mr Smith’s share of the divisible pool of assets of the relationship between Mr Smith and Mr Gould between April 1990 and June 2004 at $3,000,000.
Partial adjustments post separation
I now turn to consider the appropriate orders to effect a proper adjustment of the interests of the parties. The first consideration is the adjustments that since separation have already been made or paid.
The most significant adjustment is that Mr Gould purchased 3/31 Marne Street for Mr Smith. The value of this property has been agreed at $388,254 but it can only be regarded as an adjustment for Mr Smith if he received the funds held in the solicitor’s trust account and, as compensation for having been held out of that adjustment since 2006, the interest that has accrued on the sum in trust since that time.
Part of the settlement arrangement included a forgiveness of a debt due from Mr Smith to Mr Gould that Mr Gould put at $90,000. This forgiveness of debt was disputed by Mr Smith and it turns on the entries in the ‘Geoffrey Trading’ document. I am not satisfied about that debt and will not find that any forgiveness of it was a post separation adjustment. Further, Mr Gould offered $100,000 cash, but Mr Smith elected to receive that offer in the form of particular paintings that he nominated. The cost of those paintings to Mr Gould was $96,000 and they included Harris, The Face, Marburg’s Fright and Fly Lightly and Tucker Swans at Metung. Those paintings are a post separation adjustment in favour of Mr Smith.
Next, there have been sales of investment properties. Mr Smith has received $946,202, and he retains an interest on the title to 3/35 Marne Street that is valued as $303,333. The title interest in 3/35 Marne Street is a matter that could require an order to discharge the duty under s 284 of the Act, that is, to bring finality in the financial dealings between the parties to the domestic relationship. However, as it has not become appropriate to order the transfer of this interest one way or the other to effect a fair adjustment, it may need to be sold, unless one party can, by agreement, buy out the other. Without the co-proprietors as parties to the proceeding, orders for a sale of the property are not presently contemplated.
Finally, there was the artwork that was provided to hang in 3/31 Marne Street. There were 33 artworks and, of them, five were sold for a total of $329,000. Mr Gould submitted that these 33 artworks are valued at $1,438,600 by a combination of sales and agreed values or, in the absence of agreement, values determined by Mr Abdallah. This group of artworks includes the paintings provided by Mr Gould at a cost of $96,000. I have revisited Mr Abdallah’s valuation of these paintings reducing the assessed value on the same basis that I used to determine the value of other artworks. Mr Dwyer did not value these artworks. Applying a discount of 8.3%, I assess the value of the artwork received from the divisible pool by Mr Smith at $1,319,200.
The total value of the adjustments made in Mr Smith’s favour following separation is $2,956,989.
Alternative claims
Finally, I record that Mr Smith contended, alternatively, a constructive trust claim that his counsel described as a secondary claim, to be considered should the statutory claim fail. As that has not occurred, it is not necessary that I say any more about this alternative basis, save that had I done so, I would not have been satisfied that Mr Smith established such a claim to an extent that might have resulted in a better or preferable remedy being available to him by that cause of action. At the heart of such a claim is the notion that equity relieves against conduct by a defendant that has unconscionably caused detriment to the plaintiff by a remedial constructive trust.[115] I do not accept that, at any stage, Mr Smith acted to his detriment in, or in the conduct of, his relationship with Mr Gould. On the other hand, by reason of the adjustment that I will order pursuant to the statutory claim, Mr Gould will not be unconscionably benefitting from the contributions that Mr Smith made to his assets and financial resources.
[115]Moshinski v Dodds (1985) 160 CLR 583; Baumgartner v Baumgartner (1987) 164 CLR 137; Green v Green (1989) 17 NSWLR 343.
Final Disposition
The value of the post separation adjustments from the pool of divisible assets received by Mr Smith almost matches what I have determined to be the payment required from Mr Gould to Mr Smith to effect a just and equitable adjustment of their interests in the divisible pool. Me Me Me Pty Ltd and Mr Smith each retains an interest in 3/35 Marne Street, valued at $303,333. Subject to any submission as to the form of the orders that I propose, I will make orders for that adjustment to be made as follows.
(a)I declare that Mr Smith was, at the separation date, justly entitled to an adjustment of the divisible property of the relationship to the value of $3,000,000;
(b)The value of the adjustments in the divisible property of the relationship since separation is $2,956,989;
(c)The funds held back in a solicitors trust account from the sale of 3/31 Marne Street, including all accrued interest, are to be forthwith paid to Mr Smith;
(d)Mr Gould shall forthwith pay to Mr Smith the sum of $43,011. I do not propose to direct that this payment be satisfied by any transfer of artworks, in specie. If that is a matter that can be agreed, that is as to both the artwork and the value being allowed for it, I will make orders accordingly;
(e)Pursuant to s 278 of the Act and for the avoidance of doubt in the future, I will declare that each of Mr Smith and Mr Gould is, as against the other, the owner of such of the divisible property of the relationship, particularly artworks, as is now in his possession, free of any prior demands, interests or title rights claimed in such property by the other. This declaration is not intended to affect and does not extent to effecting any adjustment of title rights or interests as between Mr Gould on the one hand and Edrob Nominees Pty Ltd or Dukville Pty Ltd on the other.
I will hear from counsel on the form of final orders, particularly concerning 3/35 Marne Street, and on costs.
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