Spinks & Spinks

[2001] FamCA 197

FAMILY LAW ACT 1975

FAMILY COURT OF AUSTRALIA
AT SYDNEY Appeal No: EA 88 of 2000

Registry No: CA 1008 of 1998

BETWEEN	SPINKS Brett William (Applicant husband)
AND	SPINKS Dianne Frances (Respondent wife)

Date of Hearing:	Monday 15 January 2001
Date of Judgment:	Thursday 25 January 2001

JUDGMENT OF THE HONOURABLE JUSTICE CHISHOLM

APPEARANCES:	Mr Hodgson, counsel [instructed by Mr J. Nicholl of John Nicholl & Co, 7^th Floor, 17-21 University Avenue, Canberra City ACT 2601, DX 5710 Canberra ACT], appeared on behalf of the applicant husband.
Mr D.W. Farrar, solicitor [Farrar Gesini & Nunn, Level 5, 17-21 University Avenue, Canberra ACT 2601, DX 5700 Canberra ACT], appeared on behalf of the respondent wife.

CATCHWORDS:

CHILD SUPPORT – application to vary liability under child support agreement - earning capacity – whether magistrate erred in having regard to payer’s earning capacity after payer had given up employment to commence a less profitable taxi business – Child Support Assessment Act 1989 (Cth) s 117.

This was an appeal against orders made by a federal magistrate in proceedings under the Child Support Assessment Act 1989 (Cth).

The parties were married in 1983 and separated in 1996. Consent orders relating to property were made shortly after the separation. They were considered by the magistrate to favour the wife. Shortly after the property orders were made the parties entered into a child support agreement, under which the husband was to pay $200 per week in total for the three children, to be adjusted for inflation. In his application, the husband sought orders limiting his total child support liability to $60 per week.

At the time of the orders the husband was employed and had an income of $35,000. At about that time he commenced to live with his present wife, who was earning about $22,000. Each of them gave up their employment in order to operate a taxi business. The husband had obtained advice from an accountant that the business might be expected to return a profit of about $30,000 per annum, with both the husband and his wife working in it. However the husband said he expected the net profits to be about $22,000 for the 1999-2000 year.

The federal magistrate applied the three-stage process set out in Gylselman (1992) 15 Fam LR 219; (1992) FLC 92-279. In considering whether the husband’s reduced income constituted a ground under s 117(1)(c), he held that he should look to the husband’s income earning capacity as indicated by his previous employment, citing s 4, and Scott v Scott (1994) FLC 92-457 and DJM v JLM (1998) FLC 92-816. He said that “when a liable parent moves from a higher paid job to a lower paid job and seeks a reduction in child support in consequence the onus will be on that parent to show a basis upon which the court should disregard to his or her earning capacity as demonstrated by the earnings generated by the first job and have regard only to the income received in the second job.” He considered that the husband’s position was that the new position “had sufficient potential for longer term prosperity such that the ultimate benefits that might accrue to the children in the longer term would justify short term sacrifices”. To make that argument, the Federal Magistrate considered that the husband would have to satisfy the Court that either there was a high probability that within a reasonable period the income earned in the new position would result in a greater level of child support being paid than was payable on the income earned in the former position and that in all the circumstances a short term reduction in child support is justified; or that the potential longer term benefits were so significant as to justify a period of reduced child support.

The Federal Magistrate found that the husband had satisfied neither of these tests. He also found that he could not be satisfied that the husband’s income was as he represented it.

He went on to hold that nevertheless the husband had established a ground under s 117(2)(c) having regard to the outcome of the property settlement. He then considered s 117(4), and concluded that it would be just and equitable to vary the child support agreement to the extent of reducing the amount payable to the amount that would be payable under the formula if the husband had continued in his previous position. Having considered that it was “otherwise proper” to do so, he made a “modest” adjustment to the amount payable under the agreement, reducing it by $38 a week.

The grounds of appeal raised two main issues. The first was whether the magistrate erred in taking as a basis the husband’s income earning capacity as distinct from his actual income. The second was whether it was just and equitable to make an order.

Held, dismissing the husband’s appeal:-

There may be circumstances in which a court dealing with child support might properly base its decision on earning capacity, even if it could not properly do so on the same facts if the issue were spouse maintenance or property adjustment.
Ross v McDermott (1998) 23 Fam LR 613; FLC 98-003, applied,
In child support proceedings, the situations in which the court may properly take into account earning capacity rather than actual income are not limited to those in which a person has deliberately weakened their economic position in an attempt to avoid their responsibilities.
DJM v JLM (1998) 23 Fam LR 396; FLC 92-816, discussed.
The Federal Magistrate was entitled to find that the evidence did not bring the father within those cases in which a voluntary adverse change of circumstances should lead the court to ignore the person’s earning capacity.
Having regard to the considerable overlap between s 117(2)(c) and s 117(4), and to the fact that the major issue, namely whether the court should focus on the father’s reduced actual income or much larger earning capacity, arose in each case, and to the limited evidence and argument about other matters, the Federal Magistrate had given adequate reasons for concluding that the orders were just and equitable.
The Federal Magistrate’s conclusion was within his discretion, and he was entitled to conclude that the specific figure determined by him was, as he put it, “an appropriate balance between the parties’ competing interests”.

INTRODUCTION

This is an appeal against orders made by Federal Magistrate Brewster on 17 August 2000. The appellant sought and obtained leave to file amended grounds of appeal on the day of the hearing.
Mr Farrar submitted that strictly speaking, since the appeal arose under section 102A of the Child Support Act, leave was required. In this respect, he suggested that there might have been an error in the order providing for the matter to be dealt with by a single judge. He did not submit, however, that the proceedings were invalid, and I do not think it necessary to pursue this aspect. It is correct, though, that the father requires leave to appeal. I will treat the application as if it were an application for leave to appeal. I will deal at the same time with the application for leave and with the appeal itself. It was not submitted that any different principles apply to the application for leave to appeal as distinct from the appeal itself.
It was agreed between the parties that the appeal should proceed in exactly the same way as an appeal from the decision from a judge of the Family Court to the Full Court. This is clearly correct. It is not a hearing de novo. The usual principles that apply to appeals by way of re-hearing[1] apply to this case. As was said in the High Court:-[2]
[1]Allesch v Maunz [2000] HCA 40;
[2]Allesch v Maunz [2000] HCA 40, per Gaudron, McHugh, Gummow and Hayne JJ, paragraph 23.
..the critical difference between an appeal by way of rehearing and a hearing de novo is that, in the former case, the powers of the appellate court are exercisable only where the appellant can demonstrate that, having regard to all the evidence now before the appellate court, the order that is the subject of the appeal is the result of some legal, factual or discretionary error, whereas, in the latter case, those powers may be exercised regardless of error.
That being so, the familiar principles applicable to challenges to the exercise of discretion by the judicial officer at first instance apply to this case. There was no discussion of these principles: they were taken for granted by both parties, and I do not think it necessary to restate them.[3]
[3]House v R (1936) 55 CLR 499; Australian Coal and Shale Employees Federation v Commonwealth (1956) 94 CLR 621 per Kitto J at 627; and Gronow v Gronow (1979) 144 CLR 513; 29 ALR 129; 5 Fam LR 719.

THE FACTS

The facts are summarised succinctly in the trial judgment and that summary was not challenged. I will therefore set out the relevant portions of the judgment:-
2. The parties were married on 5 November 1983, separated in April 1996 and were divorced on 5 August 1998.
There are three children of the marriage presently aged 12, 9 and 4.
In May 1996, shortly after separation the parties entered into consent property Orders pursuant to Section 79 of the Family Law Act (“FLA”). These Orders were drafted by the wife’s solicitors and sent to the husband under cover of a letter dated 9 May 1996 which indicated that they reflected an agreement reached by the parties. The letter invited the husband to seek legal advice if he wished. The husband says he did not seek such advice. He says that he was distressed by the separation, wanted to eliminate any conflict with the wife and the children and did not understand the nature and effect of signing the Orders.
The Orders appear to be favourable to the wife. She was to receive the former matrimonial home and the parties were to share a taxi plate owned by them. The plate turned out to be of no value as when it was sold the proceeds did not fully cover a loan on it. The home however was valued by the wife at the time at $320,000.00 and was subject to a mortgage of $240,000.00. The mortgage however related to the monies borrowed to buy the plate and, when that plate was sold, was reduced to between $18,000.00 and $20,000.00. Each party kept their respective motor vehicles and any insurance policies on their lives. The husband was to keep his superannuation. I infer that this was of limited value. The husband’s evidence was that the home was acquired through the earnings from the taxi plate so it would appear that the imbalance was not a result of any overwhelming imbalance of contributions.
… No Section 79A application was ever filed and I conclude that the husband has abandoned the idea of making such an application...
On 16 May 1996, shortly after the property orders were signed, the parties entered into a child support agreement. That agreement provided for the husband to pay $66.67 per week for the two oldest children and $66.66 for the youngest child, making a total of $200.00 per week by way of child support and also provided for these payments to be indexed. With indexation the amount payable is now $235.10 per week.
At the time the Agreement was entered into the husband was employed by Aerial Taxi Cabs Co-operative Ltd. He states that his income at the time was $35,000.00 per annum. By July 1999 it had risen to just under $42,500.00 per annum.
At Easter 1998 the husband met his present wife Pauline Cribben. They began to live together in about July of that year and were married on 6 November 1999. Ms Cribben has a four year old daughter who lives with her. She does not receive any child support.

10.In the early part of 1999 the husband began to make plans to lease a taxi plate and purchase a taxi cab with a view to him and his present wife giving up their existing employment and operating a taxi cab business. The plan was for him and his present wife to conduct this business in partnership. They put this plan into operation in July 1999. Each resigned their employment, the husband as Operations Manager of Aerial Cabs and the wife her position in the Public Service. As mentioned above he was earning just under $42,500.00 per annum at the time. He stated in evidence that he believed his wife was earning in the order of $22,000.00 to $23,000.00 per annum in her job. As it turned out there were unexpected delays in acquiring a cab and the business did not commence until August 1999.
11.The husband says that he drives the cab for about 60 to 65 hours a week, his wife for 15 to 25 hours a week and a driver is employed on a contract basis to drive addition hours.
12.The husband gave evidence that in December 1998 he consulted a Mr Harrison, an accountant in Queanbeyan, presumably to advise as to the viability of the proposed venture. Mr Harrison predicted gross takings of between $9,500.00 and $12,000.00 per month. The husband said that if this had eventuated the business would have been expected to return a profit of about $30,000.00 per annum…
15.… the husband says that the business did not, and still does not, generate the gross income predicted by Mr Harrison. . He has produced a table showing that the average monthly gross income of the business from September 1999 to May 2000 was a little over $8,000.00. It should be noted that this is despite the fact that, according to his affidavit, the taxi industry had been in a slump between May 1996 and July 1999 (the period in which Mr Harrison produced his projections) but from May 1999 started to recover. He says that he expects the net profits of the business in the 1999/2000 year to be in the order of $22,000.00.
16.It appears that the husband continued to pay child support in accordance with the agreement until about November 1999 when he ceased paying entirely. From this time until recently the only monies received by the wife was an amount of $217.21 being a tax refund intercepted by the Child Support Agency. At some time after the return date of his Form 63 he commenced paying $60.00 per week.

THE TRIAL JUDGMENT

The application before the Federal Magistrate was an application by the husband filed 14 June 2000 seeking orders that the child support agreement entered into by the parties on 16 May 1996 be discharged to the extent to which it stood paid and that he should pay child support at the rate of $60.00 per week ($20.00 per child per week).
Having identified the application, the Federal Magistrate set out what he described as "factual matters” as previously set out.
Under a heading "The Law", the Federal Magistrate then set out briefly the relevant provisions of the Child Support (Assessment) Act. Following the Full Court's decision in Gilmour,[4] he held that it was not necessary to demonstrate a change of circumstances since the agreement was entered into and that the court should apply "the three-stage process set out in Gylselman (1992) FLC 92-279”. There was no suggestion that in this the Federal Magistrate erred in any way. The grounds of the appeal deal with the question whether he succeeded in the task he set himself.
[4]Gilmour (1995) FLC 92–591.
The Federal Magistrate next considered (to quote his heading) "Has a ground been made out? – section 117(2)". The Federal Magistrate then quoted section 117(2) and dealt with this issue. He rightly said that paragraphs (a) and (b) had no application. He then said:-
" 23If there is a ground made out it must be found in subsection (c). The husband would argue that both the limbs in that subsection are made out, that is he would say that his reduced income is such as to provide a ground and that the property settlement in 1996 would also provide a ground."
Federal Magistrate Brewster then said that paragraph (c) applied to payments under a child support agreement. In this he was clearly correct.[5] He then posed the issues in the following way:-
25The first matter relied upon which is referred to in subsection (c) (i) is the husband’s income. Two issues arise in this respect. These are
(a)whether I should accept the husband’s evidence that his income has declined as a result of going into the taxi cab business, and
(b)if I do accept that evidence whether, given the circumstances in which the change in income occurred, I should disregard it and instead look to his income earning capacity as indicated by his previous employment."
[5]Bryant (1996) FLC 92-690.
The Federal Magistrate proceeded to deal with these matters, taking the second one first. That is, he dealt with the question whether, assuming he accepted the husband's evidence that his income had declined as a result of going into the taxicab business, he should instead look to his income earning capacity as indicated by his previous employment. To understand the submissions in this case I think it is necessary to set out this portion of the judgment in full:-
27Section 117(2)(c) does not only refer to a party’s income. It also refers to a party’s earning capacity. In this respect it mirrors the provisions of the FLA relating to child maintenance. In a number of cases the Family Court has had regard to this and refused to reduce child support where a liable parent has given up a job to his short term economic disadvantage. Many of these cases are referred to in the Full Court decisions of Scott v Scott (1994) FLC 92-457 and DJM v JLM (1998) FLC 92-816. The second of these cases applied the principles developed by the Court in relation to maintenance under the FLA to child support under the CSA.
28The starting point for this discussion is Section 4 of the CSA which sets out the objects of the Act. That section provides that the principal object of the Act is to ensure that children receive a proper level of financial support from their parents and that that the level of support is determined according to the parents’ capacity to provide financial support. In this respect the word “capacity” is significant.
29The second matter that needs to be stated is that when the husband embarked on the taxi business he did so in the knowledge that he had a responsibility to provide financial support for his children and that he was a party to a child support agreement which defined the extent of that responsibility. The Californian case of Regnery (1989) 214 Cal. App. 3d 1367 cited with approval by the Full Court in DJM v JLM is apposite in this respect. In that case the court said
“Once persons become parents, their desire for self realisation, self fulfilment, personal job satisfaction and other commendable goals, must be considered in context of their responsibilities to provide for their children’s reasonable needs. If they decide they wish to lead a simpler life, change professions or start a business, they may do so but only when they satisfy their primary responsibilities: providing for the adequate and reasonable needs of their children.”
30In my opinion when a liable parent moves from a higher paid job to a lower paid job and seeks a reduction in child support in consequence the onus will be on that parent to show a basis upon which the court should disregard to his or her earning capacity as demonstrated by the earnings generated by the first job and have regard only to the income received in the second job. Without attempting to be exhaustive the following scenarios might discharge that onus:
(a)where the parent goes from a well paid but insecure position to a lower paid but secure position;
(b)where the higher pay obtained in the former job was a result of dangerous working conditions or excessive hours worked which could not be sustained in the long term;
(c)where the new position had sufficient potential for longer term prosperity such that the ultimate benefits that might accrue to the children in the longer term would justify short term sacrifices.
31. As I understand it the husband in this case would rely on the third of these scenarios.
32In my opinion a parent attempting to come within this scenario would have to satisfy the court that either:
(a)there was a high probability that within a reasonable period the income earned in the new position would result in a greater level of child support being paid than was payable on the income earned in the former position and that in all the circumstances a short term reduction in child support is justified; or
(b)notwithstanding that such probability could not be demonstrated the potential longer term benefits were so significant as to justify a period of reduced child support.
33An example of the second of these is found in the decision of Wastle v Wooster (Kay J, unreported, 23 July 1996 cited in DJM v JLM at page 85,267.) In that case the father was a professional golfer who had ambitions to be a tournament player but was struggling to establish himself on the circuit. The mother contended that child support should be set at a level referable to the higher income he could earn as a golf club professional. In that case the judge referred to the “glittering prizes” that awaited a successful tournament professional and allowed reduced child support for a two year period to give the father an opportunity to realise his potential.
34In my opinion the husband in the present case has satisfied neither of these requirements. Insofar as the first is concerned on his evidence the future of the business is, in my opinion, uncertain. On his evidence the prospects of growth depends upon first the election of a Labour government, secondly the continued re-election of that government and thirdly the adoption by that government of the policies of its predecessors in relation to Public Service usage of cabs. Insofar as the second is concerned there was no cogent evidence that there are potential “glittering prizes” to be obtained from leasing a taxi plate.

The Federal Magistrate then turned to what he had previously identified as the first issue, namely whether he should accept the husband's evidence that his income had declined. He said that he was "unable to unequivocally accept that his income is as stated by him" for reasons which he set out in paragraphs (a), (b) and (c) of paragraph 35. These reasons are as follows:-
(a)there is the potential to take cash from the business and not declare it. The husband conceded in cross examination that when the parties operated a cab during the marriage they “possibly” did not bank all the cash takings. The only method of conclusively determining what the takings are is to keep meter records which will show the fares chargeable. It is possible to keep records in this way but the husband has not done so. The wife’s father, who also operates a taxi in Canberra, gave evidence to the effect that the ratio of cash to overall takings for his cab is significantly higher than that disclosed in the husband’s material. I appreciate that evidence as to the experience with only one other cab needs to be treated with a great deal of caution but nevertheless it does serve to add to my unease as to the husband’s evidence as to the amount of cash his cab earns;
(b)I find it difficult to accept that the projections made of the gross earnings expected from the cab could be so wrong. If it were just Mr Harrison who could be blamed for the miscalculation I would not be so troubled but in this case Mr Harrison was not advising a person new to the industry. The husband had owned a taxi plate before and had worked for Aerial cabs for some years;
(c)I also find it difficult to accept that the husband and his present wife would give up a combined income of over $60,000.00 per annum to work very long hours for an income expected to be less than half that amount. I could understand this if cogent reasons could be advanced as to why the business would be expected to grow but no such reasons were advanced in this case.
The Federal Magistrate went on to say:-
36.In saying this I do not make a positive finding that the husband has lied to the court and is taking undeclared cash from the business. It is simply that, in my opinion, if he is to place reliance on the income he claims to earn, he carries the onus of establishing to my satisfaction that he really does only earn that income. I am not so satisfied.
The Federal Magistrate then went on to deal with the next possible ground which, he said, "concerns the property of either parent as indicated in sub-section (c)(i) which I will deal with along with one of the matters set out in sub-section (ii), that is any transfer of property made under the Family Law Act 1975."
I pause at this point to say that Mr Farrar submitted, I think correctly, that it is really sub-paragraph (i), rather than sub-paragraph (ii) that is applicable in this case. The substance of the matter, I think, is that the husband wished to rely on the distribution of assets resulting from the property settlement. This is clear from the submissions made at the trial. It was not the case, for example, that there was any suggestion that some property was transferred in lieu of some payment of child support. The Federal Magistrate correctly focused on the issue, by saying "that the position at present is that the husband has no significant property whereas the wife has a home, the equity in which she estimates to be $290,000".
The Federal Magistrate considered that in view of this, a ground was established. The reasoning that led him to this conclusion was expressed as follows:-
39.The position at present is that the husband has no significant property whereas the wife has a home the equity in which she estimates to be $290,000.00. If the husband were paying child support in accordance with the administrative formula I would not be inclined to regard such a disparity in property as justifying a departure from the formula. However the child support agreement provides for payments in excess of the amount that would be payable if the husband had continued in his employment and continued to earn in the order of $42,500.00 per annum. I calculate that the child support that would be payable on this income would be $197.00 per week as opposed to the $235.10 per week under the agreement.
40.If I were satisfied that the husband were earning more than this amount from his taxi business I would not find the ground established. However I am not so satisfied. A number of the matters that led me to doubt that he was earning a combined total of $22,000.00 per annum, or even the projected $30,000.00 per annum, do not have the same cogency when we are talking of an income of over $40,000.00 per annum.
41.In order to vary the parties’ child support agreement on this basis I would have to be satisfied that it results in an unjust and inequitable level of child support. I am conscious of the fact that, as submitted by Mr Farrar on behalf of the wife, this raises the bar to a height that is not easily jumped. I am conscious also of the provisions of Section 4(3) concerning consent arrangements and of the fact that the husband consented to pay the level of child support set out in the agreement. However having regard to the disparity in the parties’ asset position I do not regard it as either just or equitable that the husband should continue to pay child support in excess of the amount fixed by the legislature as to amount payable in normal circumstances. In all the circumstances, in my opinion, to require him to do so would result in an unjust and inequitable level of child support
42.Accordingly I find that a ground is established.
Having found that a ground was established, the Federal Magistrate then addressed the question, to use his heading, "Is it just and equitable to make an order?". He quoted section 117(4) of the Act and then said:-
43.Having regard to the matters set out in this section, and in particular the property of each parent, I consider that it would be just and equitable to vary the child support agreement to the extent of reducing the amount payable to the amount that would be payable under the formula if the husband had continued in his previous position
The Federal Magistrate then considered whether it was "otherwise proper" to make an order. He considered that this provision did not preclude him from making an order of the type that he contemplated namely one that created a "comparatively modest reduction of $38.00 per week in child support".
The Federal Magistrate then expressed his conclusions in terms which have been discussed and which need to be set out:-
46For the reasons set out above I regard it as appropriate to vary the child support agreement such that it will provide that the husband pay child support in an amount equal to the amount that he would be liable to pay if his income were $42,500.00 per annum. As indicated above I calculate this to be $197.00 per week or $65.67 per child. The order will operate from 1 July 1999 which is approximately when the husband gave up his former employment. I am conscious of the fact that, given that child support is to be assessed as if he did not give up that employment, this is somewhat arbitrary but in all the circumstances I regard this as an appropriate balance between the parties’ competing interests. The provision for indexation will remain, and indeed will operate to increase the amount from 1 July 2000, and in this respect will take account of the salary increases that would have been expected had the husband remained in his previous employment

THE GROUNDS OF APPEAL AND THE ISSUES

The grounds of appeal are as follows:-
That the Trial Judge (sic) was in error in determining to vary the Child Support Agreement in that he:
(i)failed to place any or sufficient weight to the appellant's present income, property and financial resources;
(ii)failed to place any or sufficient weight to the present commitments of the appellant which were necessary to support himself;
(iii)failed to place any or sufficient weight to the respondent's present income, property and financial resources;
(iv)failed to place any or sufficient weight to the commitments of the respondent which were necessary to support herself and the children.
The Trial Judge erred on the evidence in determining that the plaintiff's earning capacity for the 1999/2000 child support period was $42,500.00 rather than the actual earnings for that period, and erred in determining that such earning capacity was the appropriate income for that period.
The Trial Judge erred by failing to place any or sufficient weight to the final property settlement between the parties in 1996 as a ground for departure.
That the Orders of the Trial Judge are manifestly unreasonable and plainly unjust in the exercise of discretion pursuant to Section 117(4) of the Child Support (Assessment) Act 1989 by failing to have any, or sufficient, regard to:
(i)the income earning capacity, property and financial resources of each party;
(ii)the commitments of each party necessary to enable the parent to support him or herself and any other person that they have a duty to maintain;
(iii)the direct and indirect costs incurred by the carer entitled to child support in providing care for the child;
(iv)any hardship that would be cause to the children, the carer or the liable parent or any other person which the liable parent had a duty to support.
That the Trial Judge erred in exercise the discretion determining that there were circumstances which justified a departure from the usual principle that each party should pay their own costs.
The Trial Judge erred in the exercise of discretion in relation to the Order as to Cost by failing to give appropriate consideration to all of the factors set out in Section 117 (2) (A) of the Family Law Act 1975.

The main issues

With one exception, all the grounds relate to matters of weight and the exercise of discretion. The exception is Ground 2, the first part of which asserts a factual error. However there was nothing in the submissions to indicate that there was a real issue about the Federal Magistrate’s factual finding about the father’s earning capacity. I therefore disregard this aspect of the ground: there is no basis on which it has been or could be supported.
Putting this matter aside, then, in substance, it seems to me that the issues can conveniently be considered under two separate headings. The first is whether the Federal Magistrate was justified in taking as a basis the income earning capacity of the husband as distinct from his actual income. The appellant submits that he should have based the judgment on the reduced actual income rather than what he held to be the husband's income earning capacity. The respondent submits that the Federal Magistrate was perfectly entitled to take the approach that he did. This area involves questions of law and also whether it was open to the Federal Magistrate to make certain findings of fact and to draw certain inferences.
The second issue is the Federal Magistrate's treatment of the question whether it was just and equitable to make an order. The appellant submits, in brief, that his treatment of this topic, essentially in paragraph 43, is unsatisfactory and does not pay proper attention to the relevant matters. The appellant submits that it was not just and equitable for the Federal Magistrate to make the orders he did.
In this respect, the submissions about whether the Federal Magistrate erred overlap almost completely with submissions as to how I should determine the matter myself if I were to conclude that he erred. Both parties agreed that if I concluded that the Federal Magistrate made an error in the appellate sense I should proceed and determine the matter myself rather than order a re-hearing. This approach is made possible by the fact that he made all the necessary factual findings.

THE USE OF THE HUSBAND'S EARNING CAPACITY

I now consider the first issue, whether the Federal Magistrate erred taking into account the father’s earning capacity.
The Federal Magistrate was clearly correct in making the factual finding in paragraph 29 that when the husband embarked on the taxi business he did so "in the knowledge that he had a responsibility to provide financial support for his children and that he was a party to a child support agreement which defined the extent of that responsibility". It is also clear that embarking on the business entailed a serious loss of income. Thus this is a case in which the husband voluntarily gave up a job and substituted a business that produced a much lower income. This made it appropriate for the Federal Magistrate to consider the authorities and legal principles set out in his judgment.
The question was very thoroughly discussed in the decision of the Full Court in DJM v JLM.[6] This clearly seems to be the leading case, and was so treated by the Federal Magistrate. Counsel was unaware of any decisions since DJM on the issue. Nor am I aware of any such decisions, and I will treat that decision as the significant one for the purpose of determining this appeal.
[6]DJM and JLM (1998) 23 Fam LR 396.
Mr Farrar also drew my attention to the decision of the Full Court in Ross v McDermott.[7] However, I do not think this decision is of real significance on this particular point.
[7]Ross v McDermott (1998) 23 Fam LR 613; FLC 98-003.
In this appeal there was a detailed discussion of the decision in DJM and the numerous authorities considered therein. I do not think it useful to quote at length the relevant passages, but I should say something about the case. In DJM the Full Court was dealing with a case that involved property adjustment, spouse maintenance and child support. The trial judge had said that the approach to earning capacity and actual income should be the same in all three areas. On this important principle the Full Court disagreed. It undertook at detailed comparison of the legislative provisions and held that the approach of the court to earning capacity may properly vary in the three areas.
The Full Court discussed a number of authorities on child support, and considered the extent to which they applied to spouse maintenance and property adjustment. It is clear that in this comparison the Full Court considered that the child support area was the one in which it was most appropriate for the court to focus on earning capacity. That is, there may be circumstances in which a court dealing with child support might properly base its decision on earning capacity, even if it could not properly do so on the same facts if the issue were spouse maintenance or property adjustment. It is only the discussion of the child support cases that is relevant to the present appeal.
The Full Court discussed Australian and United States authorities. It did not set out a single statement of principle applicable to child support. However it approved Scott v Scott[8] and a number of first instance decisions consistent with it. It referred to United States child support decisions. Those considered in paragraph [17.35] are of particular importance, because the Full Court went on to say in paragraph [17.37] that it was “attracted” by the ability and opportunity tests set out in the extracts from those cases.
[8]Scott v Scott (1994) FLC 92-457
I agree with Mr Hodgson’s submission that it is necessary to consider the particular facts of each case. However the authorities provide guidance as to the sort of factors that are important when the court comes to consider what weight to give to the person’s earning capacity as distinct from the actual income. It is clear that where the person deliberately weakens his or her financial position in order to reduce liability for child support, the court may focus on the earning capacity. It is also clear that there are circumstances in which a person can reasonably move to a position of lower income, and the court will focus on the actual income rather than the higher income foregone. As the Federal Magistrate pointed out, the decision of Kay J in Wastle v Wooster is a good example of such a case.
Mr Hodgson submitted that when one looks at the authorities one finds that by and large the cases where the courts look to income earning capacity, as distinct from actual income, are often those in which the court has held that the person has behaved in a way that was not bona-fide or was "devious". In particular, these cases deal with people who have deliberately reduced their income in order to avoid their obligations under the family law system, whether those obligations be child support or spousal maintenance.
It is true that that comment applies to a number of the reported Australian cases. However, Mr Farrar referred to the decision in Rowe, quoted with obvious approval in DJM. I agree with him that that case does not fall within the category identified by Mr Hodgson. The decision of Fogarty J in that case seems to be about a person who chooses for no very satisfactory reason other than personal preference to give up a well-paid job for a less well paid job. This is, I think, an important decision, because it shows that the court may properly take into account earning capacity in situations other than those in which a person has deliberately weakened their economic position in an attempt to avoid their responsibilities. This also emerges clearly, I think, from the Full Court’s discussion of the United States case.
I therefore do not accept the submission that the as a matter of law the court can have regard to earning capacity rather than actual income only in cases of “deviousness”. To put it another way, I do not accept the proposition expressed in the appellant’s written submissions, that it is sufficient for him to show that the change of circumstance was “bona fide”.
The critical point is that there are cases, as shown by Rowe and the discussion in DMJ, in which the court will give weight to the earning capacity rather than the actual income even though it is not shown that the person’s economic decline resulted from an attempt to avoid child support responsibilities.
What, then, distinguishes those cases from cases in which the court does focus on the actual (reduced) income? Sometimes, judges try to formulate the applicable principle, as was done in McCord.[9] The Federal Magistrate also did so, in paragraph 32, quoted above. I am not sure that any single authoritative formula emerges from DMJ. Clearly the facts of each case must be considered. Ultimately, although the judges’ language varies from case to case, the decisions seem to turn on whether the person acted reasonably in all the circumstances in taking the step that led to the reduced income.[10] What is reasonable must be determined not only in the light of the particular facts, but also, as DMJ makes clear, in the light of the particular area of law involved. In child support cases, as the Federal Magistrate quite rightly pointed out, an important part of the context for determining what is reasonable is the explicit statement of the objects of the Act in s 4, in which there is a reference to the parents’ capacity.[11]
[9]DMJ paragraph [17.32].
[10]See for example DMJ paragraphs [17.22] – [17.33], [17.24 – [17.25], [17.31].
[11]Judgment paragraph 28, quoted above.
For myself, I would be cautious in attempting to formulate what it would require for a person to show that it is reasonable to take on a lower paid position. The danger is that one might use a formula that would exclude a novel situation that might involve a reasonable step.
In the present case, the husband's position was that he gave up his job in order to obtain what in the long term would be a more profitable occupation. The Federal Magistrate correctly identified this as the husband's argument: see paragraph 31, referring to paragraph (c) of the previous paragraph. This led the Federal Magistrate to paragraph 32, quoted above.

Mr Hodgson was critical of that paragraph as stating new law. The Federal Magistrate’s formulation in paragraph 32 might be vulnerable to that criticism if treated in isolation, as if intended as an authoritative and exhaustive statement. For example, it is perhaps a fair comment that there may be no clear authority for the use of the phrase “high probability”. The amounts might be relevant. Perhaps a medium or even rather low probability might suffice if the potential rewards were extreme, as in the “glittering prizes” that might have been earned by the golfing father in Wastle v Wooster.
In my view, however, the statement must be seen in the context of this case. As such, it covered the issues actually raised by the father’s argument. It was in my view an approach that was entirely appropriate to this particular case, and represented a correct interpretation of the authorities binding on the Federal Magistrate, and binding on me in this appeal.[12]
[12]There was no suggestion that DJM was wrong or that it would be open to me to depart from it if I took that view.
Having correctly identified the proper approach, the Federal Magistrate considered the facts and held that the father did not satisfy him that in the circumstances he should look to the actual income and ignore the earning capacity. He had ample basis for this conclusion. Even on the estimates of Mr Harrison, the father’s prospects would be financially worse, whether or not one treats him and his wife as a unit.[13] The father’s asserted expectation that the profitability of the business would improve was based on a series of assumptions, one of which was a change of government at the next election.[14] The father’s asserted views about the industry recovering from a slump did not fit well with the evidence.[15] The Federal Magistrate was entitled to find that the evidence did not bring the father within those cases in which a voluntary adverse change of circumstances should lead the court to ignore the person’s earning capacity.
[13]Paragraph 12.
[14]Paragraphs 13, 34.
[15]Paragraph 15.
Further, even if I were to accept Mr Hodgson’s submissions that the Federal Magistrate was wrong in relying on the evidence of the wife’s father, the Federal Magistrate was entitled to refuse to accept the father’s evidence as to his income. The circumstances that justified this conclusion included the potential for cash to be taken from the business, the failure to keep the meter records that would enable this possibility to be excluded, the fact that the projections, involving Mr Harrison and the father (who was experienced in the industry) were “so wrong”, and the unlikelihood that the father and his wife would give up their combined income of over $60,000 to work long hours for the limited income the father disclosed.[16]
[16]Paragraph 35.
I would summarise this portion of my judgment as follows. In essence the Federal Magistrate held, in light of the authorities, that in the circumstances of this case there was an onus[17] on the husband to satisfy the court that it should focus on his actual reduced income rather than his earning capacity. It seems to me that in this the Federal Magistrate was quite correct. In considering whether the husband had done this, the Federal Magistrate was unconvinced on the evidence. In my view the factual findings that he made and the inferences that he drew were entirely open to him, and do not constitute any error.
[17]It is clear in my view that in using this language the Federal Magistrate was referring to what has been called the tactical onus, rather than the ultimate onus.
As indicated, the Federal Magistrate then went on in paragraph 35 to hold that he was unable to unequivocally accept that the husband's income was as stated by him. There were a number of reasons for this, set out in paragraph 35 (a) and (b). Although these paragraphs were criticised, in my opinion the conclusions that the Federal Magistrate drew were clearly open to him.

Just and equitable

The next set of issues relates to the Federal Magistrate's brief treatment of this topic. It is submitted for the appellant that he failed to deal adequately with these matters, and or that he failed to give proper reasons.
It is true that the Federal Magistrate did not specifically discuss the various matters contained in section 117(4). However I take the opening words of paragraph 43 to mean that the he had regard to the matters that he had previously made findings about when considering this question. In substance he considered that these matters, and in particular the property of each parent, made it just and equitable to reduce the child support to the amount that would be payable under the formula if the husband had continued in his previous position.
In support of his submissions, Mr Hodgson submitted that the Federal Magistrate had failed to take into account the wife's income. The Federal Magistrate made no mistake as to this matter in connection with the application of the formula, because her income fell below the amount that would have reduced the amount payable by the husband.
In relation to the application of section 117(4), of course her income, along with other matters, was a relevant factor. It is also true that the Federal Magistrate did not specifically refer to it, or to a number of other matters. Does this constitute an error?
It is necessary in this connection to have regard to the remarkable overlap between s 117(2)(c) and s 117(4). Omitting detail so that the point emerges clearly, the ground in s 117(2) is that application of the formula would result in an unjust and inequitable determination of the level of child support payable because of certain things. Those things include the income and earning capacity of each parent. In order to determine whether the application of the formula would be unjust or inequitable, it seems obviously necessary to have regard to all the matters specified in sub-paragraph (i). It seems impossible in principle to say, for example, that the application of the formula is unjust because of the income of one parent: one cannot know this without taking into account the other matters. Thus, in considering this ground, one has to take into account all of those matters. This was held in Ross v McDermott.[18] The Full Court made the further point that it might be necessary to take into account other matters, notably the commitments of each party, in order to determine whether the ground exists, even though that is not specifically included in s 117(2).[19]
[18]Ross v McDermott (1998) 23 Fam LR 613; FLC 98-003.
[19]Paragraphs 29-31.
Having found that for these reasons the application of the formula would be unjust or inequitable, the court then proceeds to consider whether it would be just and equitable as regards the child, the carer entitled to child support and the liable parent to make a particular order: s 117(1). It is obvious that there will be a great overlap between the matters constituting the ground under s 117(2)(c) and those that must be considered under this provision. The Federal Magistrate specifically noted this.
In this case, the real contest was about whether the court should focus on the father’s reduced actual income or much larger earning capacity. This issue arose both in connection with the ground under s 117(2) and the test in s 117(4). Having exhaustively dealt with this issue in connection with s 117(2), it was unnecessary for the Federal Magistrate to repeat his discussion when essentially the same question arose under s 117(4).
In considering the adequacy of the Federal Magistrate’s reasons, it is also relevant that in relation to the other matters, there was little dispute as to the facts, and there had been limited submissions. It was clear, for example, that there was a deficit of about $209 between the mother’s income and her expenditure. As to the father’s commitments, whether or not he formally abandoned any attempt to rely on his obligations to his present wife, in my view no such argument could have succeeded, since she, too, had given up her former employment to be part of the new taxi business with the father. Mr Hodgson sought to rely on the husband’s actual income being less than his needs, but again this argument presupposes that the Federal Magistrate was wrong to take into account the father’s earning capacity. For reasons I have given, I think he was entitled to take this approach.
Against the context of the law and the submissions, therefore, I do not think there was any inadequacy or insufficiency in the Federal Magistrate’s reasons.[20]
[20]See also Ross, at paragraphs 39ff.
Finally, I should address the question whether the orders made fell outside the wide discretion possessed by the first instance judicial officer in these cases. In my view the Federal Magistrate’s conclusion, that the agreement should be varied so that the amount payable should be approximately what would be payable under the formula had the husband’s income been the same as his earning capacity, was entirely open to him. Although Mr Hodgson was also critical of the reasoning in paragraph 46, in my view the Federal Magistrate was entitled to conclude that the specific figure determined by him was, as he put it, “an appropriate balance between the parties’ competing interests”.
For these reasons, in my judgment the appeal should be dismissed.

I certify that the preceding 56 paragraphs are a true copy of the reason for judgment herein of the Honourable Justice Chisholm

Associate

[2001] FamCA 197

25 January 2001

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