Spurling & Spurling & Ors
[2017] FamCA 260
•28 April 2017 (Revised 4 May 2017)
FAMILY COURT OF AUSTRALIA
| SPURLING & SPURLING AND ORS | [2017] FamCA 260 |
| FAMILY LAW – PROPERTY – Application by the wife to set aside a transaction involving the third respondent pursuant to s 106B of the Family Law Act 1975 (Cth) – Where it is common ground that there was no collusion or dishonesty on the part of the husband – Where the wife must establish that the transaction was conducted at an undervalue – Where it is not appropriate for the Court to accept the expert valuation – Where the wife failed to establish that the transaction took place at an undervalue – Where the third respondent was a bona fide purchaser or other person interested – Where the wife was seeking an order which in reality she could not practically achieve – Where the wife’s application must fail – Application dismissed. FAMILY LAW – PROPERTY – Settlement in relation to marriage – Where an equal assessment of contributions was agreed – Where the wife submitted that the husband’s conduct came within the principles of Kowaliw & Kowaliw (1981) FLC 91-092 – Where the wife has not established any loss or reduction or minimisation of matrimonial property – Where the most relevant matter pursuant to s 75(2) of the Family Law Act 1975 (Cth) is the husband’s capacity to earn a significant income compared to the wife – Where an adjustment of 15 per cent of the available property and superannuation in favour of the wife is appropriate – Where a large component of the husband’s assets is in the form of a superannuation pension – Orders made to reflect an overall division of property and superannuation in the proportions 65 per cent in favour of the wife and 35 per cent in favour of the husband. FAMILY LAW – SPOUSE MAINTENANCE – Where the wife seeks an order that the husband pay her $2,000 per week for a period of three years by way of spousal maintenance – Where the wife is unable to establish the threshold requirement in s 72(1) of the Family Law Act 1975 (Cth) that she is unable to support herself adequately – Application dismissed. |
| Family Law Act 1975 (Cth) – ss 75(2), 79, 106B Family Law Rules 2004 (Cth) |
| Bevan & Bevan (2013) FLC 93-545 Clauson and Clauson (1995) FLC 92-595 Heath & Heath; Westpac Banking Corp. (Intervenor) (1983) FLC 91-362 Kowaliw and Kowaliw (1981) FLC 91-092 Stanford v Stanford (2012) 247 CLR 108 |
| APPLICANT: | Ms Spurling |
| 1st RESPONDENT: | Mr Spurling |
| 2nd RESPONDENT: | AX Pty Limited |
| 3rd RESPONDENT: | SZ Pty Limited |
| FILE NUMBER: | SYC | 6010 | of | 2010 |
| DATE DELIVERED: | 28 April 2017 (Revised 4 May 2017) |
| ORDERS MADE: | 4 May 2017 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Johnston J |
| HEARING DATE: | 16, 17, 18, & 19 August 2016 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Dura |
| SOLICITOR FOR THE APPLICANT: | Milevski Family Lawyers |
| COUNSEL FOR THE 1ST & 2ND RESPONDENTS: | Mr Walker, SC with Mr Macpherson |
| SOLICITOR FOR THE 1ST & 2ND RESPONDENTS: | Wilkinson Throsby & Edwards |
| COUNSEL FOR THE 3RD RESPONDENT: | Mr Svehla |
| SOLICITOR FOR THE 3RD RESPONDENT: | Surry Partners Lawyers |
Orders made 28 April 2017
That these proceedings be adjourned to 9.30 am on 4 May 2017 for further submissions about the form of the orders only and for making final orders. To assist consideration I annex at “Annexure A” to the Reasons draft orders I propose to make subject to submissions.
Orders made 4 May 2017
It is noted that revised Reasons for Judgment are published today and these replace erroneous Reasons published on 28 April 2017.
It is further noted that the orders made today are made for the reasons contained in the revised Reasons for Judgment.
That the wife’s application under Section 106B of the Family Law Act 1975 (Cth) be dismissed.
That within 42 days of the date of these orders, the husband and AX Pty Limited ACN … (“AX”) do all things and sign all documents necessary to cause AX to transfer to the Wife the property situate and known as B Street, Suburb C in the state of New South Wales Folio Identifier … (“C property”) free of encumbrance.
That simultaneously with the transfer referred to in Order 4 above the husband shall pay to the wife the sum of $764 101 being the difference between the agreed value of the C property of $1 125 000 and $1 889 101.
That simultaneously with the compliance with Orders 4 and 5 above the spousal maintenance order made on 29 October 2013 shall be discharged.
That the Wife retain the contents of the C property including but not limited to the following items:
(a) The Artwork;
(b) Venetian Glassware;
(c) Outdoor furniture;
(d) Lounges (x2);
(e) Dining table and chairs;
(f) Timber sideboard;
(g) Hall table and draws; and
(h) Large butterfly mirror located in the dining area.
That within 28 days the parties do all acts and things and sign all documents necessary in their capacity as trustees of the Spurling Superannuation Fund and as required by the Superannuation Industry (Supervision) Act 1999 to rollout all of the wife’s entitlements in the Spurling Superannuation Fund into a complying superannuation fund nominated by the wife.
That simultaneously with Order 5 hereof, the wife do all acts and things necessary to resign as trustee of the Spurling Superannuation Fund.
That within 28 days the wife do all things and sign all documents necessary to transfer her interest in Y Pty Limited to the husband.
That until the husband has complied with these orders he and AX Pty Limited are restrained from encumbering, selling or dealing with in any manner other than in accordance with these orders the property at B Street, Suburb C, New South Wales.
That subject to the return, by the wife, of the husband’s family heirlooms i.e.
(a)The bellows,
(b)The Grandfather’s chair, and
(c)The Silver candlesticks,
and subject to any other order to the contrary, the husband and the wife are declared to be solely, legally and beneficially entitled to the exclusion of the other party, to all other real and personal property of whatsoever nature and kind in their respective ownership, possession and/or control as at the date final orders are made, including but not limited to, money on deposit, shareholdings, insurance policies, motor vehicles and personal effects
That the wife do all acts and things and sign all such documents as may be required to remove herself from all positions of authority as Director, Shareholder or Trustee of all Spurling Entities.
That the husband do all acts and things necessary to indemnify, and keep indemnified, the wife from and against all liabilities of the husband including, but not limited to:
(14.1)all liabilities including claims, actions, suits or demands of whatsoever nature arising out of, or in connection with, the husband’s interest in any business, real property or corporation;
(14.1.1)taxation (including CGT); and
(14.1.2)duties (including stamp duty),
whether past, present or future.
That the husband indemnify, and keep indemnified, the wife from and against:
(15.1)all claims, actions, suits or demands of whatsoever nature arising out of, or in connection with the wife having been at any time:
(15.1.1)a beneficiary of the Spurling Family Trust and/or the A Investment Trust (“Trusts”);
(15.1.2)a director, secretary or shareholder of the trustees of the Trusts;
(15.2)any amounts owing by the wife to the Trusts or the trustees of the Trusts as may be reflected in the loan accounts of the Trust or the trustees of the Trusts;
(15.3)any liability to pay tax arising out of any advance, distribution, dividend or income paid to her by the Trusts or trustees of the Trusts,
whether past, present or future.
That the wife’s application for spousal maintenance is dismissed.
That in default of either both the husband and wife doing all such things and executing all such documents as may be needed to comply with the final orders within the time provided:
(17.1)a Registrar of the Sydney Registry of the Family Court of Australia or such other person appointed by the Court be authorised to do all such acts and things and execute all such documents on behalf of either or both parties; and
(17.2)if either party procures compliance with this order by obtaining execution of documents pursuant to this order, then the party procuring such execution of documents will be indemnified by the party for his or her costs and expenses incurred in obtaining such compliance.
That all exhibits be released.
That all parties have leave to re-list these proceedings by arrangement with the Associate to Justice Johnston in relation to the implementation of the orders and costs.
The parties to file and serve any application in respect of costs and supporting affidavits by 1 June 2017.
The parties to file and serve any material in reply by 15 June 2017.
The parties to file and serve any written submissions by 20 June 2017.
The applications for costs be listed for hearing for one day on 21 June 2017.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Spurling & Spurling and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 6010 of 2010
| Ms Spurling |
Applicant
And
| Mr Spurling |
1st Respondent
And
| AX Pty Limited |
2nd Respondent
And
| SZ Pty Limited |
3rd Respondent
REASONS FOR JUDGMENT (revised 4 may 2017)
Introduction
These are final property and spousal maintenance proceedings.
Ms Spurling (“the wife”) and Mr Spurling (“the husband”) met in 1985, married in 1986 and separated on 22 January 2010. They have been unable to resolve their property and maintenance dispute and have asked this Court to determine this for them.
There are other parties to the proceedings, AX Pty Limited (ACN …) (“AX”) and SZ Pty Limited (“SZ”) as second and third respondents respectively.
Applications
The wife seeks the following orders:
1.That, subject to Order 18 below, within 21 days of the date of these orders the Husband pay to the wife or as she may direct in writing such additional sum as may be required to effect an overall distribution of the net matrimonial pool of assets determined by the Court as to 60% in favour of the Wife taking into account the assets that she is to receive or retain pursuant to these orders.
2.That within 21 days of the date of these orders, [AX] Pty Limited ACN … (“[AX]”) do all acts and things and sign all documents necessary so as to transfer to the Wife the property situate and known as [B Street], [Suburb C] in the state of New South Wales Folio Identifier … (“[C] property”) free of encumbrance.
3.That the transfer of the 34 shares held by [AX] in [D] Pty Limited ACN … (“[D Pty Ltd]”) to [SZ] Pty Limited ACN … (“[SZ]”) be set aside pursuant to s106B of the Family Law Act.
4.That forthwith [SZ] do all acts and things and sign all documents necessary so as to transfer to [AX] the 34 shares in [D Pty Ltd].
5.That simultaneously with Order 4 hereof the Husband do all acts and things necessary to pay to [SZ] the sum of $350,000 from his entitlement to the net assets such that the sum is not a joint liability of the parties and shall indemnify the Wife and keep her indemnified with respect to the payment of such sum and/or any other such sum as may be ordered in favour of [SZ].
6.Within 28 days from the date of these orders, the parties do all acts and things and sign all documents as necessary in their capacity as trustees of the [Spurling] Superannuation Fund and as required by the Superannuation Industry (Supervision) Act 1999 to rollout all of the wife’s entitlements in the [Spurling] Superannuation Fund into a complying superannuation fund nominated by the wife.
7.Simultaneously with order 6 hereof, the wife do all acts and things necessary to resign as trustee of the [Spurling] Superannuation Fund.
8.In relation to the husband’s entitlements in the [E] Superannuation Scheme (“[E] Super Fund”):
8.1Pursuant to paragraph 90MT(1)(b) of the Family Law Act 1975:
8.1.1The wife is entitled to 60% of each splittable payment out of the husband’s interest in the [E] Super Fund; and
8.1.2The husband’s entitlement, and the entitlement of such other person to whom a splittable payment may be made out of the husband’s interest in the [E] Super Fund is correspondingly reduced;
8.2This order has effect from the operative time, being 7 days following service of the final orders of the Trustee of the [E] Super Fund;
8.3The Trustee of the [E] Super Fund:
8.3.1do all acts and things and sign all documents as may be necessary to calculate the entitlement (“[E] Super Fund entitlement”) created for the wife in order 8.1.1, in accordance with the requirements of the Family Law Act 1975;
8.3.2provide notice in writing to the husband of the amount of the [E] Super Fund entitlement within 7 days of its calculation; and
8.3.3pay the [E] Super Fund entitlement whenever the Trustee makes a splittable payment out of the husband’s interest in the [E] Super Fund to the wife as she directs in writing.
9.That the Wife retain the contents of the [C] property including but not limited to the following items:
9.1The Artwork;
9.2Venetian Glassware;
9.3Outdoor furniture;
9.4Lounges (x2);
9.5Dining table and chairs;
9.6Timber sideboard;
9.7Hall table and draws; and
9.8Large butterfly mirror located in the dining area.
10.Subject to any other order to the contrary, the husband and the wife be solely, legally and beneficially entitled to the exclusion of the other party, to all other real and personal property of whatsoever nature and kind in their respective ownership, possession and/or control as at the date final orders are made, including but not limited to, money on deposit, shareholdings, insurance policies, motor vehicles and personal effects.
11.That the husband do all acts and things necessary to indemnify, and keep indemnified, the wife from and against all liabilities of the husband including, but not limited to:
11.1all liabilities including claims, actions, suits or demands of whatsoever nature arising out of, or in connection with, the husband’s interest in any business, real property or corporation;
11.1.1taxation (including CGT); and
11.1.2duties (including stamp duty),
whether past, present or future.
12.That the husband indemnify, and keep indemnified, the wife from and against:
12.1all claims, actions, suits or demands of whatsoever nature arising out of, or in connection with the wife having been at any time:
12.1.1a beneficiary of the [Spurling] Family Trust and/or the [A] Investment Trust (“Trusts”);
12.1.2a director, secretary or shareholder of the trustees of the Trusts;
12.2any amounts owing by the wife to the Trusts or the trustees of the Trusts as may be reflected in the loan accounts of the Trust or the trustees of the Trusts;
12.3any liability to pay tax arising out of any advance, distribution, dividend or income paid to her by the Trusts or trustees of the Trusts,
whether past, present or future.
13.If any amount payable pursuant to the final orders is not paid within the time required pursuant to the orders, interest be payable on the total amount payable, from the date the payment became due until the date it is paid in full, at the rate prescribed by the Family Law Rules.
14.The husband pay to the wife the sum of $2,000 per week for a period of 3 years from the date final orders are made with the first payment to commence the first Thursday following the making of orders and weekly thereafter.
15.In default of either both the husband and wife doing all such things and executing all such documents as may be needed to comply with the final orders within the time provided:
15.1a Registrar of the Sydney Registry of the Family Court of Australia or such other person appointed by the Court be authorised to do all such acts and things and execute all such documents on behalf of either or both parties; and
15.2if either party procures compliance with this order by obtaining execution of documents pursuant to this order, then the party procuring such execution of documents will be indemnified by the party for his or her costs and expenses incurred in obtaining such compliance.
16.That the Husband pay the Wife’s costs of and incidental to these proceedings.
17.In the alternative to Order 16 hereof, the Husband pay the Wife’s costs of and incidental to the valuations and joint expert’s report prepared by [F Accountants] Pty Limited and the Application pursuant to s106B of the Family Law Act 1975.
18.That in the event that the Court refuses to make Orders in accordance with paragraphs 3 to 5 (inclusive) above, then the Court make Orders in accordance with paragraphs 1 and 8 (inclusive) above save that the percentage division referred to therein shall read “100%” in lieu of “60%”.
19.That the Orders sought by the Third Respondent be dismissed.
On the other hand, the husband seeks the following orders:
1.That the wife’s application under section 106B of the Family Law Act 1975 be dismissed.
2.That the wife pay the husband’s costs of and incidental to the section 106B application excluding the valuation fees of [Mr G] of [H Group].
3.That pursuant to sections 79(4), 75(2) and 81 of the Family Law Act the husband pay to the wife in full and final settlement the sum of $1 800 000 such sum taking into account all moneys and property presently held by the wife and all partial settlement payments paid to the wife.
4.That the sum due and payable to the wife pursuant to order 3 be paid from the proceeds of sale of the property [B Street], [Suburb C] in the State of New South Wales (Certificate of Title Folio Identifier …) and that any shortfall in the sum due to the wife pursuant to order 3 be paid within … days and the husband shall pay interest in accordance with the Family Law Act and Rules on such sum as may be outstanding from time to time.
5.That subject to the return, by the wife, of the husband’s family heirlooms i.e.
(a) The bellows,
(b) The Grandfather’s chair, and
(c) The Silver candlesticks,
each party retain all furniture, furnishings, effects and personalty currently in their respective possession.
6.That the wife do all acts and things and sign all such documents as may be required to remove herself from all positions of authority as Director, Shareholder or Trustee of all [Spurling] Entities.
7.That the parties have liberty to apply.
8.In default of either both the husband and wife doing all such things and executing all such documents as may be needed to comply with the final orders within the time provided, or at all:
8.1a Registrar of the Sydney Registry of the Family Court of Australia or such other person appointed by the Court be authorised to do all such acts and things and execute all such documents on behalf of either or both parties; and
8.2if either party procures compliance with this order by obtaining execution of documents pursuant to this order, then the party procuring such execution of documents will be indemnified by the party for his or her costs and expenses incurred in obtaining such compliance.
9.That the parties each pay their own legal costs in respect of the substantive proceedings.
The third respondent seeks the following orders:
1.That Final Orders 3, 4, 5 and 6 sought by the Applicant in the Further Amended Initiating Application dated 23 September 2015 be dismissed.
2.The Applicant to pay the Third Respondent’s costs on an indemnity basis.
3.In the alternative to orders 1 and 2, in the event that an order is made setting aside, in whole or in part, the disposition, being the sale, of 34 shares in [D] Pty Ltd ACN … ([D Pty Ltd]) from the Second Respondent, in its own capacity or as trustee of [A] Investment Trust, to the Third Respondent or about 27 June 2013 (Setting Aside Order), an order pursuant to s106B(3) and/or (4A) of the Family Law Act 1975 as amended (Cth) (Act) that the Applicant, the First Respondent and the Second Respondent (in its own capacity and as trustee of [A] Investment Trust), jointly and severally:
(a)pay the market value to the Third Respondent of the shares the subject of the Setting Aside Order (Set Aside [D Pty Ltd] Shares), such market value to be done at the date of the Setting Aside Order;
(b)indemnify the Third Respondent for any amount, and pay any amount, which the Third Respondent is or may become liable to pay to the Commissioner of Taxation of the Commonwealth of Australia, including but not limited to any liability or amount under any provision of:
(i)Income Tax Assessment Act 1936 as amended (Cth);
(ii)Income Tax Assessment Act 1997 as amended (Cth);
(iii)A New Tax System (Goods and Service Tax) Act 1999 as amended (Cth);
(iv)Taxation Administration Act 1953 as amended (Cth),
arising from, consequent upon, in connection with or in relation to the Setting Aside Order (Third Respondent’s Tax Liability).
(c)indemnify the Third Respondent for any amount, including any cost or expense, and pay any amount, including any cost or expense, which the Third Respondent is or may become liable to pay or incur arising from, consequent upon, in connection with or in relation to:
(i)the Third Respondents’ costs of this proceeding;
(ii)the Set Aside [D Pty Ltd] Shares until the Third Respondent ceases to be the registered legal owner thereof,
(Third Respondent’s Costs and Expenses).
4.In the event that a Setting Aside Order is made, an order pursuant to s106B(3) and/or (4A) of the Act, that the Set Aside [D Pty Ltd] Shares be charged in payment of the:
(a) market value of the Set Aside [D Pty Ltd] Shares;
(b) Third Respondent’s Tax Liability;
(c) Third Respondent’s Costs and Expenses.
Background
Agreed Background Facts
To their credit the parties were able to agree on the following facts.
The husband was born in 1954. The wife was born in 1961.
In March 1980 D Pty Limited (ACN …) (“D Pty Ltd”) was registered in New South Wales.
In December 1984 the husband was elected public office.
In 1986 the parties married. At the time of marriage the wife owned a motor vehicle, some furniture, jewellery, personal effects, savings and some superannuation. The husband owned a 50 per cent interest in a property on Town J, New South Wales and a 25 per cent interest in Company K, Town J, some savings, nominal superannuation, public office salary, a motor vehicle, furniture, furnishings and effects.
In July 1987 the parties purchased a property at L Street, Town M (“L Street”) for $185 000. The property was purchased using the proceeds of sale of the husband’s interest in Company K of $96 420 and private borrowings.
In February 1998 the parties borrowed $70 000 from O Limited secured by registered mortgage over the L Street property.
In 1990 the child P was born.
In 1991 the parties purchased a property in Queensalnd for $340 000.
In 1992 the parties carried out renovations to the L Street property.
In 1993 the child S was born.
In September 1995 the husband was appointed a director and secretary of T Consulting Pty Limited (“T Consulting”). The parties were equal shareholders.
14 September 1995 was the date of the Deed establishing the Spurling Family Trust. The trustee was U Pty Limited. The husband is the principal of the Trust. The specified beneficiaries include the parties and the children. The Trustee subsequently became T Consulting.
In 1996 the child V was born.
In August 1998 the husband retired from public office.
On 14 August 2000 the Queensland property was sold for $1.4 million.
On 16 October 2000 the parties sold the L Street property for $426 000 and purchased the property at W Street, Town X for $2 300 000 as tenants in common, the husband as to one-fifth share and the wife as to four-fifths share. The parties applied the proceeds of sale of the Queensland property and the L Street property and borrowed approximately $600 000.
On 15 March 2002 T Pty Limited (ACN …) (“T Pty Ltd”) was registered in New South Wales. The husband was appointed the director and secretary of T Pty Ltd.
On 17 June 2002 the parties became members of the Spurling Superannuation Fund. (The parties are the trustees.)
On 23 April 2003 Y Pty Limited (ACN …) (“Y Pty Ltd”) was registered in New South Wales.
On 26 March 2004 the parties purchased the AAA property Z Street, Town AA (as tenants in common) for $2.5 million. This was financed with a loan from Westpac for $1.25 million and three separate Westpac loans of $100 000, $342 771 and $55 000.
On 15 April 2004 the parties sold the Town X property for $4.25 million.
On 28 May 2004 the husband was appointed as one of seven directors of Y Pty Ltd. There are 367 075 ordinary shares. Currently:
· 6818 are held by the parties jointly;
· 6817 are held by AX; and
· 17 096 are held by the parties jointly as trustees of the Spurling Superannuation Fund.
On 15 December 2004 AX was registered in New South Wales. The husband was appointed as director and secretary of AX. The husband holds the only issued share.
16 December 2004 is the date of Deed of settlement of the A Investment Trust. The Trustee is AX. The primary beneficiaries are the parties. The appointor is the husband.
On 10 January 2005 is the date of Deed whereby AX purchased 34 ordinary shares in D Pty Ltd from Mr BB for $350 000 ($10 294.12 per share).
On 14 April 2005 the husband was appointed director of Company CC.
On 4 November 2005 Spurling Superannuation Fund acquired 100 000 shares in DD Limited for $100 275.
On 7 June 2006 Spurling Superannuation Fund acquired 9000 shares in DD Limited for $9000.
On 9 June 2006 Spurling Superannuation Fund acquired 41 000 shares in DD Limited for $41 000.
On 30 January 2007 Spurling Superannuation Fund acquired 17 096 shares in Y Pty Ltd at a cost of $29.25 per share ($250 000 on 30 January 2007 and $250 030 on 12 July 2007).
On 20 December 2007 AX entered into a contract to purchase B Street, Suburb C, New South Wales for $1 040 000 (stamp duty $42 690).
On 1 February 2008 AX purchased property at B Street, Suburb C for $1 040 000.
On 29 February 2008 the principal place of business of D Pty Ltd became EE Street, Town X, New South Wales.
On 9 April 2008 the registered office of D Pty Ltd became EE Street, Town X.
20 March 2009 was the date of the superannuation trust deed establishing the Spurling Superannuation Fund. The parties are the trustees.
On 21 September 2009 Spurling Superannuation Fund acquired redeemable convertible notes with Y Pty Ltd for $176 000 (352 000 units).
On 22 January 2010 the husband and the wife separated.
On 22 September 2010 the wife commenced the present proceedings.
On 15 December 2010 orders were made by a Registrar.
On 21 December 2010 the husband filed a Response to Initiating Application.
On 25 January 2011 the husband filed an Amended Response.
On 29 April 2011 Spurling Superannuation Fund have acquired further Y Pty Ltd redeemable convertible notes being 80 000 units, for a total cost of $40 000. The Superannuation Fund then had 4323 000 units.
On 20 June 2011 orders were made by a Registrar.
On 24 August 2011 Y Pty Ltd issued 367 075 shares at $3 each ($1 101 225).
On 25 May 2012 the parties attended a Conciliation Conference.
On 26 July 2012 AX was one of three purchasers of five shares in D Pty Ltd owned by Mr FF. The purchase price was $35 000 ($7000 per share).
On 13 August 2012 an extraordinary meeting was held by D Pty Ltd where it was resolved to reduce the share capital of the company by five shares, from 200 shares to 195 shares. The husband was present at the meeting.
On 14 November 2012 the wife filed an Application in a Case seeking inter alia orders for the appointment of a single expert to value various business interests.
On 29 November 2012 interim orders were made.
On 31 January 2013 interim orders were made.
In February 2013, 200 000 DD Limited shares were transferred to the wife and subsequently sold. The wife retained the proceeds of sale amounting to between $200 000 and $240 000.
The wife says that on 26 June 2013 the husband, in his capacity as director of AX, sold 34 shares held in D Pty Ltd for $350 000 to SZ without notice to the wife. The husband said that this occurred on 26 July 2013.
On 30 July 2013 the husband’s solicitor informed the wife’s solicitor that the husband had sold the D Pty Ltd shares.
On 29 October 2013 interim orders were made.
On 13 December 2013 the parties sold the AAA property for $3.45 million. The net proceeds of sale were deposited into the Trust Account of the solicitors acting on the sale and subsequently disbursed to the parties. Some stock, plant and equipment of T Pty Ltd was also sold and the proceeds of sale amounting to approximately $49 000 was deposited into the Trust Account of the solicitor acting on the sale of the farm at Town AA and subsequently released to the parties.
On 22 January 2014 the parties agreed on the appointment of Ms GG as the single expert to value the various corporate entities.
On 5 August 2014 a Third Party debt Notice was approved by the Court to recover arrears of spouse maintenance owed by the husband pursuant to the interim orders dated 31 January 2013 and 29 October 2013. Arrears were subsequently paid in full.
On 17 September 2014 wife filed an Application in a Case.
In December 2014 Ms GG released experts reports for the various corporate entities excluding D Pty Ltd.
On 6 March 2015 the husband filed a Response to the wife’s Application in a Case.
On 30 March 2015 the wife’s Application in a Case was listed for hearing. Orders were made, amongst others, for the parties to each obtain a valuation of the shares held in D Pty Ltd.
On 23 September 2015 the wife filed an Amended Application for Final Orders and Application in a Case following the release of the report by Mr F.
On 9 October 2015 the husband filed an Amended Response and Response to Application in a Case.
On 13 October 2015 orders were made by consent inter alia joining AX and SZ to the proceedings. Procedural orders were made.
On 23 December 2015 a Response to Initiating Application was filed with the wife as the applicant and SZ as the respondent, together with the filing of affidavits of Mr HH and Mr IJ.
On 13 January 2016 Justice Loughnan adjourned the proceedings for allocation of a trial date and procedural orders were made by consent.
On 18 February 2016 Justice Loughnan made procedural orders regarding the valuations and filing of a Joint Expert’s Report. The proceedings were listed for hearing on 16 August 2016.
Additional Background Facts
In addition to the agreed background facts are the following background facts.
In June 1995 the husband established T Consulting. The husband and the wife are equal shareholders and the husband is the sole director.
In 1997 the wife commenced studies in an allied health field. She completed a diploma in three years and thereafter conducted lessons for which she received an income.
In 1998 the husband commenced receiving a pension of approximately $70 000 per annum.
In 1999 the husband commenced working for Company JJ as a Corporate Advisor earning an income of approximately $250 000 per annum. He received the pension in addition to this.
In 2000 the husband received a payment from his late sister’s life insurance policy. The husband was the sole beneficiary and received $540 000.
On 15 February 2005 the husband was appointed as a director of D Pty Ltd.
Between 2006 and 2011 the husband was a Chairman of Company KK. He was paid $90 000 per annum inclusive of superannuation.
In June 2010 the wife moved out of the former matrimonial home to other accommodation on the AAA property.
On 25 May 2011 the husband established the Mr Spurling Superannuation Fund. The Trustee of that fund is AX Pty Ltd.
The 31 January 2013 consent orders provided for the husband to transfer to the wife his interest in 200 000 Company CC shares by way of partial property settlement; $1050 per week by way of interim spousal maintenance; the maintenance of the AAA property, the wife’s car expenses, and private health insurance. Other orders were made including for disclosure and valuations.
The 29 October 2013 consent orders provided for the sale of the AAA property, for the husband to pay to the wife by way of interim spousal maintenance the sum of $2500 per week as well as payments in relation to the C property, the wife’s car, and private health insurance.
In December 2013 upon the sale of the AAA property the husband received $120 000 and the wife received $100 000, plus $20 000 for her relocation costs. The remaining proceeds were deposited into an interest bearing account.
In December 2013 the wife vacated her accommodation on the AAA property and moved to rented accommodation.
On 14 June 2014 the divorce of the husband and wife became final.
In early 2015 the husband stepped down from his position as Chairman of Y Pty Ltd.
In June 2015 the husband resigned as a director of Company LL. He had been in receipt of an income of $25 000 per annum.
On 9 June 2015 consent orders were made to release the balance of the proceeds of sale of the AAA property from the relevant trust account, with the proceeds to be divided equally between the parties. The husband’s application for variation of spousal maintenance was dismissed.
Credit
The Wife
There was no cross-examination of the wife. Accordingly, her evidence is unchallenged.
The Husband
The husband was an impressive witness. He was forthright, responsive and articulate. He demonstrated a very good recollection of events and detail in respect of almost all matters raised with him in cross-examination.
He took a careful measured approach and gave me the impression that he was taking care to present an accurate account of relevant matters.
I have no hesitation in accepting his evidence as the truth.
Mr HH
Mr HH was also an impressive witness. He had a very good recollection of details. He was forthright and responsive.
I have no hesitation in accepting his evidence as the truth.
Mr IJ
Mr IJ is Mr HH’s accountant. He was forthright and responsive. I regard him as a witness of the truth.
Mr F
Mr F is a chartered accountant and the wife’s expert. I shall deal in some detail with his evidence below.
The Applicable Law
Sub-section 79(1) of the Family Law Act 1975 (Cth) (“the Act”) provides to the effect that in property settlement proceedings the Court may make such order as it considers appropriate altering the interests of the parties to the marriage in the property.
Sub-section 79(2) provides that the Court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.
Sub-section 79(4) sets out various matters which must be taken into account in considering what order (if any) should be made under the section. These matters include direct and indirect contributions, financial and otherwise by or on behalf of a party or a child to the acquisition, conservation or improvement of any property of the parties, contributions by a party to the welfare of their family including as a homemaker or parent, relevant matters referred to in s 75(2) and the other matters referred to in s 79(4).
The operation of s 79 was the subject of consideration by the High Court in the case of Stanford v Stanford (2012) 247 CLR 108. In this case the majority said (at page 120) in referring to ss 79(2) and 79(4) as follows:
35.… The requirements of the two sub-sections are not to be conflated. In every case in which a property settlement order under s 79 is sought, it is necessary to satisfy the court that, in all the circumstances, it is just and equitable to make the order.
36.The expression “just and equitable” is a qualitative description of a conclusion reached after examination of a range of potentially competing considerations. … while the power given by s 79 is not “to be exercised in accordance with fixed rules”, nevertheless, three fundamental propositions must not be obscured.
The High Court said that the first of these propositions is for the court to identify, according to ordinary common law and equitable principles, the existing legal and equitable interests of the parties in the property.
The second is that although s 79 confers a broad power on the court, it is not a power that is to be exercised according to an unguided judicial discretion. It must be exercised in accordance with legal principles, including the principles which the Act itself lays down.
The High Court said that the third fundamental proposition is that the question of whether the order is “just and equitable” is not to be answered by beginning from the assumption that one or other party has the right to have the property of the parties divided between them or has the right to an interest in marital property which is fixed by reference to the various matters set out in s 79(4). To conclude that making an order is “just and equitable” only because of and by reference to various matters in s 79(4), without a separate consideration of s 79(2) would be to “conflate” the statutory requirements and ignore the principles laid down by the Act.
And the High Court majority went on to say (at page 122) as follows:
41.… The fundamental propositions that have been identified require that a court have a principled reason for interfering with the existing legal and equitable interests of the parties to the marriage and whatever may have been their stated or unstated assumptions and agreements about property interests during the continuance of the marriage.
The Section 106b Application
This part of the wife’s application was the major issue in these proceedings.
As indicated above, in January 2005, the husband as director caused AX Pty Ltd to purchase 34 shares in D Pty Ltd from Mr and Mrs BB for $350 000.
As indicated above, on 26 June 2013, the husband as director of AX Pty Ltd caused the 34 shares to be sold for $350 000. The purchaser was a company SZ Pty Limited which had been established for the purpose of purchasing such shares by its owner Mr HH. The husband failed to inform the wife prior to the sale that he proposed to sell the shares. The share transfer was registered on 26 July 2013.
It is this share transfer that the wife seeks to have set aside pursuant to s 106B of the Act.
This application was strongly opposed by the husband and the second respondent as well as by the third respondent. They sought orders that such application be dismissed.
Sub-section 106B(1) provides as follows:
(1)In proceedings under this Act, the court may set aside or restrain the making of an instrument or disposition by or on behalf of, or by direction or in the interest of, a party, which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.
Sub-section 106B(2) provides as follows:
(2)The court may order that any money or real or personal property dealt with by any instrument or disposition referred to in subsection (1), (1A) or (1B) may be taken in execution or charged with the payment of such sums for costs or maintenance as the court directs, or that the proceeds of a sale must be paid into court to abide its order.
Sub-section 106B(3) provides as follows:
(3)The court must have regard to the interests of, and shall make any order proper for the protection of, a bona fide purchaser or other person interested.
Sub-section 106B(4) provides as follows:
(4)A party or a person acting in collusion with a party may be ordered to pay the costs of any other party or of a bona fide purchaser or other person interested of and incidental to any such instrument or disposition and the setting aside or restraining of the instrument or disposition.
In summary, the thrust of the wife’s s 106B application is as follows. At the time when the husband arranged the sale of the shares for $350 000, namely 26 June 2013, the shares had a value of $2 712 306. Therefore he sold the shares at a considerable undervalue. The shares are now worth even more. The wife wanted to receive 50 per cent of the shares as part of her property settlement and at the time of sale she had an application pending for such an order. Accordingly, the share transfer should be set aside under s 106B(1) of the Act because it has had the effect of defeating the order sought by her to receive 50 per cent of the shares. Mr HH was not a bona fide purchaser. The setting aside of the transfer would have the effect of restoring the shares to the ownership of AX Pty Ltd and the shares would form part of the pool of property available for division between the parties.
In my view, the wife’s case for the s106B order is fatally flawed and cannot succeed, as will become clear below.
To assist understanding, I shall include the following summary of the history of D Pty Ltd (which was set out in the First Report of Mr F, the wife’s expert valuer).
D Pty Ltd was registered (albeit under a different name until
23 April 1980) on 5 March 1980. Mr MM set up the company and he has always been the majority shareholder. As at April 2004 there were
200 issued shares. In January 2005 AX Pty Ltd purchased a total of 34 shares from a Mr and Mrs BB for $350 000. On 15 February 2005 the husband was appointed a director of D Pty Ltd. In July 2012 Mr FF sold his five shares in D Pty Ltd for $35 000 to the other shareholders namely, Mr MM, NN Pty Limited (owned by a Mr OO) and AX Pty Ltd. In August 2012 D Pty Ltd reduced its total shareholding from 200 to 195 shares. On 26 June 2013 AX Pty Ltd sold its 34 shares to SZ Pty Ltd for $350 000, although the share transfer was not lodged for registration until 26 July 2013. Then the shares in D Pty Ltd were held as follows:
·101 shares owned by Mr MM;
·60 shares owned by NN Pty Limited; and
·34 shares owned by SZ Pty Ltd.
D Pty Ltd is a closely-controlled private company. In relation to registration of its shares there are two legal vetoes. The first is that under the company’s Constitution the directors may decline to register any transfer of shares without giving any reason therefor. Secondly, under the Articles of Association, a transfer of shares requires approval by all shareholders.
It is clear that as at 26 June 2013 when the shares were sold, these proceedings were pending between the parties. The wife had sought an order in her Amended Initiating Application filed on 23 December 2010 in the following form at paragraph 8 thereof:
8.The parties do all things and sign all documents as necessary so that the wife receives 50% of the entire shareholding held by the parties (jointly and/or separately) and as part of the self-managed superannuation fund) and by [AX] Pty Limited ACN … as trustee for the [AX] Investment Trust in each of the following entities:
8.1[Y] Pty Limited ACN …; and
8.2 [D] Pty Limited ACN ….
Discussion
It is common ground that there was no collusion or dishonesty on the part of the husband in relation to the share sale. The husband said in his affidavit that neither he nor API have received monies for the shares over and above the sale price. It is also the case that the sale price was 42 per cent higher than the price of the last shares sold in D Pty Ltd.
Circumstances of the sale of the shares
The husband’s reasons for selling the shares were as follows.
The husband said in his affidavit that he sold the shares because he needed the money. He said that at the time of sale he had available cash from various sources in the total amount of $37 161.50. He said that at the time he had financial commitments to a total of $200 595.15. He said that these included spousal maintenance owed to the wife, wages for employees, interest, car lease, substantial educational commitments for two of the children, credit card liabilities and tax debts.
The husband provides advice to D Pty Ltd as a consultant and has done so for many years. He said that it was not necessary to retain shares in D Pty Ltd in order to maintain his consultancy income from that company. At no time during the period that AX Pty Ltd held the D Pty Ltd shares did it receive any dividend. The husband said that during the same period D Pty Ltd did not declare a profit.
In his oral evidence the husband said that he formed the view in the latter part of 2012 and the early part of 2013 that he wanted to sell the shares. He said that this was because of his financial circumstances at the time.
It was suggested to the husband that in fact T Consulting had received a payment of US$191 400 in February 2013. The husband said that T Consulting received payments from QQ Company from time to time, that he could not remember the specific payment but he thought he would have converted it to Australian dollars and paid it to various accounts.
The husband said that he first approached Mr MM to discuss his intention to sell his shares in early 2013. Mr MM was aware that the husband had separated from the wife and that there were proceedings in this Court between them. The husband said that he informed Mr MM that he had a forthcoming cash crisis and that he needed to sell some assets to overcome that so that he could meet his liabilities. The husband said that he also informed Mr MM that he had been trying to sell the farm (AAA property) for a period of twelve to 18 months but had not received a single offer. The husband said that he discussed with Mr MM the possibility of selling his shares to each of two specified companies but he said that Mr MM rejected both on the basis that each of the companies was either a competitor or potential competitor of D Pty Ltd. The husband said that Mr MM suggested that he would approach someone “with the mind to buy them”.
The husband was cross-examined in some detail about whether he had familiarised himself with the financial position of the company, including whether he had considered its management reports up to December 2012, at the time when he was forming his view about selling his shares. The husband said that his principal concern about the company at the time around the sale of the shares was not the company’s economic performance but rather its future prospects.
He said that the prospects for the company caused him a great deal of concern because it had lost its primary contract which he said was like the foundation stone on which the company rested. He said that this was for the provision of specialised equipment. He said that the contract was being extinguished, formal notification of that having come through in February 2013. He said that the company had entered into a contract with a government department to provide leased equipment. He said that he had great concerns about the viability of that contract given that the company had no idea about how much demand there would be for the equipment. He said that he was concerned about the possibility of the Government changing (in the near future at the then forthcoming election), which in fact occurred in September, and the prospect of a change of government policy, which would result in the slow down or cessation of the need for equipment to be provided by the company.
The husband said that the day to day financial performance of the company was not the driving force in him selling the shares but rather the driving influence was his “looming cash shortage and concerns about the prospects of the company in the future”.
The husband said that he had known Mr HH since 2002 and had continued to be acquainted with him from that time.
In relation to the value of the shares, the husband said that at the time he sold the shares the price he was hoping to achieve would be a premium on the price which Mr FF had received upon the sale of his shares (in July 2012). The husband said that initially he thought the shares were worth more than $350 000 and he tried to sell them for $500 000. He said that he subsequently moved to $400 000 with Mr HH.
The husband was asked why he did not wait for a valuation of the shares by a single expert for the purposes of these proceedings. He said that he had a looming crisis that he had to deal with, that the wife’s solicitors were not providing a nominee for a valuer and that something like twelve months had passed waiting for the wife’s solicitors to nominate a valuer. He said that the sale was something that would resolve his cash crisis and in the process would provide a market value for the shares.
The husband said that immediately upon receiving the proceeds of sale of the shares he paid various outstanding accounts, including the spousal maintenance and wages.
This attracted some criticism by counsel for the wife apparently on the basis of a suggestion that it was inappropriate to bring forward expenses of the Spurling entities to the 2013 financial year and pay them to obtain a taxation benefit. I do not accept the criticism and do not regard the money as having been expended inappropriately.
Mr HH said in his affidavit that he met the husband and the wife in approximately 2002 at a social function.
He lives across the road from Mr MM whom he has known since approximately 1999. He said they are friends. He knew Mr MM as the CEO and major shareholder in D Pty Ltd. In early 2010 D Pty Ltd became a tenant in a building which Mr HH owned at Town X.
In approximately early 2013 Mr HH had just sold a significant commercial building and had some money which he was looking to invest.
He and the husband had a telephone conversation in approximately March 2013. The husband mentioned that Mr MM had said that Mr HH might be interested in purchasing the husband’s D Pty Ltd shares. They subsequently met and the husband handed Mr HH a copy of the 2011 audited accounts. Mr HH discussed the matter with his accountant Mr IJ and showed him the financial information. He informed his accountant that he knew the husband had been having problems selling his farm. He also said that he thought he would have a good chance of being able to purchase the shares because Mr MM would not object to him buying them.
The husband informed Mr HH that he wanted $500 000 for the shares and Mr HH said his best offer was $300 000. A short time later they agreed on the purchase price of $350 000 on the basis that the funds would be paid before the end of the 2013 financial year. The husband also indicated that Mr MM would be happy for Mr HH to become a shareholder.
Mr HH said that approximately a week later he met and discussed the matter with his accountant Mr IJ who informed him that based on the 2011 accounts the company had little, if any, value. Mr IJ said that it had never made a profit or declared a dividend, that its liabilities exceeded its assets and that it had one customer. He said Mr IJ also said that as a minority shareholder, in reality, Mr HH would only be able to sell the shares when Mr MM decided it was time to sell. Mr IJ recommended against the purchase.
Mr HH said nevertheless as a long term investment he decided to go ahead. He said that despite the advice from his accountant, he went ahead on the basis that he had funds available from his recent property sale, he knew Mr MM well and had great confidence in him. He said that Mr MM was a neighbour, a fellow sportsman, a friend and a tenant who had always paid on time, and was reliable. He said that he viewed Mr MM as an astute businessman. He said that he took a long-term view and decided it would be an interesting long-term investment with a friend and neighbour. He said that he did not make any enquiries about D Pty Ltd’s future prospects other than discussing the matter with his accountant.
Mr HH’s evidence in cross-examination was as follows.
In early March 2013 he was having a cup of coffee with Mr MM and Mr MM raised the possibility of him purchasing some shares in D Pty Ltd. He said that Mr MM had informed him that the husband had not been able to sell the farm and was looking to sell some shares. He said that he also knew that the husband and the wife had separated and were involved in proceedings in Court. Mr HH said that he asked whether there was any more current financial information and was informed that there was not. He said that he was happy with discussions that he had had with Mr MM previously about how the company was operating in general terms without going into “the deep financials”. He said that Mr MM had indicated that the company had been through some tough times, that things were getting better and that they were continuing to get better. He said that Mr MM hedged his bets but he was just saying that they were doing OK. He said that he had known Mr MM for a long time, that he was a good friend, a trusted associate and he was basically keeping it simple, believing in Mr MM. He was confident that the company was not going to go bankrupt. Mr HH said that he did not think to ask the husband whether there would be any issue concerning the sale from the perspective of the husband’s family law litigation.
Mr HH said that he had made several investments taking a long-term view and having a punt. He said some of these had paid off spectacularly and a couple had not.
Mr HH denied that he was agreeing to acquire the shares as a favour for the husband. He said that it was a commercial transaction.
Mr IJ, Mr HH’s accountant, said in his affidavit that he is Mr HH’s brother-in-law and has been his accountant for approximately 34 years. Mr IJ knows Mr MM. Mr IJ confirmed Mr HH’s account. He said that when he looked at the financial accounts for D Pty Ltd he had concerns. He said that he advised Mr HH against purchasing the shares.
I have made observations above, about the credit of the husband, Mr HH and Mr IJ. I have no hesitation about accepting their evidence in relation to the circumstances of the husband selling his shares in D Pty Ltd and Mr HH purchasing those shares.
Mr F’s share valuation
In my view, it is fundamental to the wife’s s 106B case for her to establish that the D Pty Ltd shares were sold at an undervalue. Otherwise there would be no purpose for this part of her application. As was submitted by Mr Walker, the wife’s case for a s 106B order “depends on what has been tendentiously asserted on behalf of the wife, namely, that there was an undervalue of the price at which the shares were sold. If there is simply a transformation of a parcel of shares into their cash equivalent, it is no more significant in terms of defeating an anticipated order than the discharge of a liability that would continue to exist unless discharged”.
The wife, as permitted by the orders of 30 March 2015, engaged Mr F, chartered accountant, “to prepare a retrospective valuation of shares owned by [AX Pty Ltd] in [D Pty Ltd] as at 30 June 2013”. The husband was provided with a similar opportunity pursuant to the same orders and he engaged Mr G. Mr G prepared reports but the husband does not rely on these.
Mr F prepared two reports and subsequently the experts met and prepared a “Joint Statement Of Experts”. The husband does not rely on this Joint Statement, although the wife does.
Mr F has expressed the opinion that the 34 D Pty Ltd shares had a value of $2 712 306 at June 2013 and $7 149 096 at June 2015.
Because Mr F’s opinion is fundamental to the wife’s case I shall set out in some detail how he arrived at his opinion.
First Report
The first report of Mr F is dated 24 August 2015. Mr F described the report as a Limited Scope Valuation Engagement because certain information which he considered might be material including an annual budget and a cash flow forecast could not be obtained. Mr F explained that he had also sought to meet with the directors of D Pty Ltd to glean information about the position of the company at the relevant time and its future prospects but his request was denied. Accordingly, Mr F was unable to ascertain what the expectations of the directors were as at June 2013 about the future performance of D Pty Ltd.
Mr F’s overall valuation approach was to endeavour to estimate the “fair market value” of a non-controlling parcel of shares. His methodology involved use of the “discounted rateable value” approach. That is, determine the rateable value of the parcel of shares and apply a discount for lack of control and lack of marketability. In coming to a valuation of the business and company, Mr F adopted the capitalisation of maintainable earnings approach (in the absence of cash flow forecasts).
Mr F indicated that the best evidence of the value of a particular commodity is generally the price achieved in a recent dealing in the commodity itself, in a transaction between parties acting at arm’s length. However Mr F concluded that the price achieved in the sale of Mr FF’s shares one year previously was not persuasive evidence of value. His reasons for this were threefold. Firstly, Mr FF’s parcel of shares (five) was much smaller than the 34 AX Pty Ltd shares. Secondly, Mr F was not aware of the extent of the involvement of Mr FF in the activities of the company. Thirdly, Mr F did not know what information (about the company’s prospects) might have been available to Mr FF.
In relation to discounted future dividends, Mr F said that he was unable to predict likely future dividends, due to lack of information, despite what he described as the company’s capacity to pay them.
In relation to maintainable earnings, Mr F described the general rule as being that valuers cannot use hindsight, but rather must place themselves in the position of the prospective buyer and seller at the valuation date knowing what was known or was reasonably able to be ascertained at that date. However he considered it appropriate to have regard to post value date events as evidence of what were the reasonable expectations of the parties to the sale transaction because there was little or no evidence of expectations otherwise. Mr F thought it highly likely that the directors would have been able to predict substantial growth in revenue and profitability for 2014.
He then took what he described as “a conservative approach in the absence of budgets/forecasts and the opportunity to discuss the business with the directors” to arrive at his opinion that “a reasonable but not anxious purchaser (in) the position of (having) all information available at 30 June 2013 would form a view that the maintainable earnings (before interest and tax) of the company were at least $9.0 million…for 2013”.
He next gave consideration to what would be an appropriate multiple. In applying an Earnings Before Interest and Tax (“EBIT”) multiple, Mr F compared D Pty Ltd with two considerably larger, and publicly listed operational companies, whose multiples were 7.07 and 8.18 respectively and a publication by the Biz Exchange Index. He indicated that in general, larger businesses (classified by revenue) tend to sell at higher multiples. Ultimately he adopted an EBIT multiple in the range of 2.75 to 3.25.
Using this methodology Mr F arrived at an indicative midpoint valuation of D Pty Ltd as a whole, as at 30 June 2013, of $37 293 068.
In applying the discounted rateable value approach, Mr F noted that AX Pty Ltd held 34 of the 195 issued shares which was 17.44 per cent. He reported that there were five factors relevant in determining the extent of discounts which would apply for lack of control as follows:
· the husband was one of only three shareholders at the time of the sale;
· Mr MM held the controlling interest in the company but did not hold more than 75 per cent of shares and thus could not pass a special resolution alone;
· AX Pty Ltd alone could not block a special resolution;
· the husband through AX Pty Ltd was not a passive minority shareholder but rather was actively involved through his role as a director and a provider of substantial consulting services; and
· the husband had access to detailed financial information and business plans including knowledge about the current and prospective performance of the company.
On this basis, Mr F applied a marketability discount for lack of control of 20 per cent.
In relation to marketability, Mr F noted that there was no ready market for the shares, and that he was not aware of any prospect of sale of the whole company, which he thought would be more marketable than a small parcel of its shares. He opined that a likely buyer would view the shares as a medium to long term investment with an (expectation for) ultimate sell out of the whole company, and marketability would not be a “prime issue”. Having regard to those factors, Mr F applied a marketability discount of a further 20 per cent. He concluded that the value of the shares as at 30 June 2013 was in the range of $3 910 447 and $4 412 601. This provided a midpoint value of $4 161 524.
Mr F made the observation that, on the one hand, in 2005 when AX Pty Ltd paid $350 000 for the shares, D Pty Ltd’s net tangible asset position was a deficiency of $800 000 (and from that time until 2011 the company continued to show a deficiency). On the other hand, in 2013 when the shares were sold by AX Pty Ltd the D Pty Ltd’s balance sheet was showing vast improvement with net assets of $11.5 million (after allowing for goodwill) as well as large surplus cash holdings, substantial profits and the prospect of increased profits, yet the shares were sold at no increase in price.
Second Report
Mr F prepared a second valuation report dated 10 March 2016. He was instructed to provide his opinion about the value of the shares (now held by SZ Pty Ltd) at 30 June 2015 on the assumptions that AX Pty Ltd still held them on that date, and that the husband remained as a director (of D Pty Ltd).
As in his previous report, Mr F identified this report as a Limited Scope Valuation Engagement because he could not obtain relevant information and he used the same methodologies.
In relation to maintainable earnings, Mr F noted that service of a subpoena on D Pty Ltd had elicited the response that there were no management documents prepared for 2015 and 2016 from which he might be able to form some idea about the expected future performance of the company as at 30 June 2015. Mr F opined that it was “highly unusual” that none of the requested documents existed, particularly an annual budget and cash flow forecast. Adopting what he described as “a conservative approach in the absence of Budgets/forecasts and the opportunity to discuss the business with the directors”, Mr F opined that a willing but not anxious buyer with the relevant information available at 30 June 2015 would value the maintainable earnings (before abnormals, interest and tax) as at least $13 million. He adopted an EBIT multiple in the range of 3.5 to 4.5.
Amongst other things, Mr F noted that at 30 June 2015, D Pty Ltd had experienced four years of strong profitability. Mr F provided an indicative midpoint valuation of D Pty Ltd as a whole as at 30 June 2015 of $83 520 187.
Mr F again applied a 20 per cent discount for lack of control and a further discount of 20 per cent for (lack of) marketability, noting that there is clearly no ready market for the shares or an immediate prospect of sale of the whole company. He concluded that the value of AX Pty Ltd’s shares as at 30 June 2015 was in the range between $8 594 663 and $10 045 330. This is a midpoint of $9 319 996.
Joint Statement of Mr F and Mr G
As indicated above, the husband had arranged for a valuation by his own expert Mr G, which did not come into the evidence.
Subsequent to Mr F’s two valuations, Mr G and Mr F conferred and produced a joint statement of experts dated 23 May 2016.
As I have said, this statement was relied on by the wife but not by the husband.
Mr G had access to the husband and to the directors to discuss the prospects of D Pty Ltd. In the light of information Mr G was able to provide to Mr F, from such access, Mr F’s position changed to some extent.
After their discussion about the 30 June 2013 valuation, the experts’ positions were as follows. They agreed about the methodology. Mr G estimated future earnings at $3.35 million. Mr F, having regard to information provided to him by Mr G, modified his estimated future earnings from $9 million to $5.8 million. In relation to the multiple, Mr F continued to apply a midpoint of 3.0 and Mr G of 2.75. They agreed on a combined discount for lack of control and marketability of 44 per cent.
Accordingly, Mr F revised his 2013 midpoint value of the shares from
$4 161 524 to $2 712 306. The modified value adopted by Mr G was $1.86 million.
The experts’ opinions about the 2015 value of the shares were as follows.
Mr F revised his maintainable earnings estimate from a midpoint of $13 million to $11.9 million and his multiple from a midpoint of 4.0 to 3.5. He revised his discount for lack of control from 20 per cent to 30 per cent and maintained a lack of marketability discount of 20 per cent. Accordingly,
Mr F changed his 2015 midpoint value from $9 319 996 to $7 149 096. Mr G’s 2015 valuation was $5.25 million.
The joint statement notes that Mr F changed his valuations based on information about the company provided by Mr G in his report and in the course of discussions between them. But Mr F was still not satisfied that he had been provided with information adequate to form something other than an “indicative valuation”.
Problems with Mr F’s valuation
In my view there are numerous problems about Mr F’s valuation, these having emerged during the course of the robust cross-examination of Mr F by both Mr Walker and Mr Svehla as follows.
Shareholders’ right of veto
The 34 shares in D Pty Ltd constitute a minority parcel held in a private corporation which effectively gives a right of veto to the other shareholders.
In arriving at his valuation Mr F assumed that the veto of the shareholders in respect of registering a share transfer was “fiduciary”. That is, he understood it to be a right of veto in the shareholders which carried with it an obligation to consider a share transfer. Mr F conceded that he had not drawn a distinction in his mind between the obligations imposed on directors considering whether to register a transfer of shares and the liberty reserved to the shareholders whether to approve registration or not. Mr F conceded that there was a significant difference between the liberty of the D Pty Ltd shareholders to refuse a registration “for no reason” and the duty to give proper consideration to a transfer imposed as a set of obligations on the D Pty Ltd directors.
Mr F acknowledged that he had approached the preparation of his valuation on the basis that there was an obligation placed on those in D Pty Ltd who could approve or not approve a transfer.
Mr F acknowledged that a lack of approval would be more likely where there was a mere liberty to approve than where registration was subject to an obligation. Ultimately, he conceded that it was his recollection that he did not take into account the decidedly greater scope for non-approval, when it was a matter of liberty, as opposed to when it was governed by an obligation. Yet somewhat extraordinarily in my view, Mr F said that this would make no difference to the value of the shares. This appeared to me to be because
Mr F had the view that marketability was not important. This was because he said a purchaser would regard the shares as a medium to long-term investment probably to be sold (as part of a total sell-out). But later in his cross-examination Mr F said that this lack of marketability for reason of shareholder veto was taken into account by him in arriving at his marketability discount.
In my view, one can only wonder how the shares could be worth much at all if the owner of the shares was unable to have them registered and thereby join in the benefit of a sale or realisation of the company’s assets.
Marketability discount
There was no empirical basis for Mr F choosing a discount for lack of marketability of 20 per cent. Mr F said that his opinion about this figure was that it was “a product of (his) experience and judgment”. Yet he referred in his second report to some US empirical studies that suggested that the lack of marketability discount for a small minority interest in closely-held companies with turnover under $500 million was likely to be at least 25 per cent. He agreed that this did not support his judgment that the appropriate discount was
20 per cent.
Previous share sales
Mr F, in arriving at his valuation, did not take into account the two actual sales of D Pty Ltd shares namely the sale in July 2012 by Mr FF of his five shares and the sale by AX Pty Ltd of its 34 shares. Mr F did say in his report why he did not apply Mr FF’s shares sale.
Mr F did acknowledge that the best evidence of market was a transaction in the market unless it was not at arm’s length. Mr F said that he did not make the assumption that the AX Pty Ltd sale of its 34 shares was a “tainted” transaction and said that the reason he did not take this into account was that he was instructed to form an opinion of value “independent of that transaction”. Mr F acknowledged that there was no evidence that the sale of the 34 AX Pty Ltd shares was other than at arm’s length. He also acknowledged that precision about such a valuation was impossible, rather that there would be a valuation range.
Mr F acknowledged that to disregard market transactions would be artificial, especially such a transaction on the very day on which he was asked to value the shares. Mr F would not concede that this caused his valuation to be artificial and not realistic.
Mr F did acknowledge that as a matter of principle, to leave out of account the best evidence of market would be wrong and that the result would be artificial and not realistic. He was instructed that his client, the wife, thought the sale at $350 000 was an under value – but he agreed that this would be utterly irrelevant.
A narrow pool of prospective purchasers
Mr F agreed that buying these shares was in the nature of a “punt” or venture capital. He agreed that a prospective purchaser would want to make an assessment of the ability of Mr MM and Mr OO, the other shareholder, (who is in charge of operations) in running the company.
He also agreed that Mr MM had brought into the company as shareholders, persons, such as the husband, who could bring advice and acumen to the company, that is, what appeared to be a desire by Mr MM to have compatible shareholders known to him as the controller. Mr F acknowledged that this would narrow the pool of prospective purchasers who would be able to obtain approval for registration of the shares.
He agreed that the report contained nothing about quantification of that pool, the only reference by him to have been to the fact that Mr MM had indicated that he had not been interested in prospective purchasers who were competitors, or likely to become competitors, with D Pty Ltd.
Other matters
Mr F acknowledged that the absence of any payment of a dividend by D Pty Ltd in the past would probably make the shares less marketable.
He also acknowledged that his report did not refer to any period when
Mr MM, the majority shareholder and controller, might consider selling the enterprise.
Limited scope valuation
As indicated above, Mr F said that his reports involved what he described as a “limited scope valuation engagement”. He said that this was because he did not have all the information that he reasonably required to undertake the valuation exercise although he did say that by the time he arrived at his final position in the joint statement of experts, he had a lot more information than he had at the time of preparing his first report. But he agreed that it still remained a limited scope valuation.
Mr F had made an assumption that the husband as a director of D Pty Ltd would be able to provide to a prospective purchaser information about the company to inform such prospective purchaser about the attractiveness or otherwise of buying into the company. Yet the husband would not have the ability to do this without the approval of the other directors.
Mr F’s valuation - Conclusion
For the above reasons, I am not persuaded that it would be appropriate for the Court to accept Mr F’s opinion that as at 26 June 2013, when AX Pty Ltd sold its 34 D Pty Ltd shares to Mr HH, the shares had a value of $2 712 306.
It is clear that D Pty Ltd is a closely-controlled private company with a very limited number of shareholders. The unlimited and unconditional right of veto which the shareholders have, enables them to determine whom they would regard as acceptable as a new shareholder. Clearly Mr MM did not want to approve a competitor or potential competitor. I accept Mr Svehla’s submission that it would be unlikely that Mr MM would risk admitting someone whom might ultimately take action to wind up the company. When the husband approached Mr MM and informed him that he wanted to sell his shares and suggested two possible purchasers, Mr MM rejected them and said that he would approach “someone with the mind to buy them”, as I have said. It was Mr MM who suggested Mr HH as a possible purchaser. Mr MM had known Mr HH for many years as a friend and neighbour. I accept therefore, that the pool of acceptable prospective purchasers would be small indeed. This is not a matter to which in my view Mr F gave appropriate consideration.
Accordingly, in my view, the wife has failed to establish that the D Pty Ltd shares were sold at an under value.
Bona fide purchaser
As indicated above, it was submitted on behalf of the wife that Mr HH was not a bona fide purchaser. There was quite some focus on this matter by counsel for the wife. There were three parts to this submission.
Firstly it was submitted that Mr HH failed to undertake due diligence because he did not make all the appropriate inquiries that a prudent purchaser would have made. Such were said to have included legal advice and appropriate investment advice, as well as seeking access to various contracts between D Pty Ltd and their major clients. In my view, during the course of the evidence it became clear that even if Mr HH had sought details of the contracts it is doubtful that these would have been made available to him. As indicated above, he sought investment advice from his accountant, Mr IJ. As also indicated above, Mr HH made his assessment based on the discussions he had with Mr MM and the judgment that he made about Mr MM as the controller of the company. I must say I am unable to accept that the Court would find Mr HH not to be a bona fide purchaser on the alleged basis that he failed to take due diligence.
The second part to this submission was that Mr HH had knowledge that the husband was involved in this litigation and as such he fell within the principle espoused in the case of Heath & Heath; Westpac Banking Corp. (Intervenor) (1983) FLC 91-362. In that case Nygh J was considering an application to set aside an unregistered second mortgage to Westpac Banking Corporation under s 85 of the Act, the earlier version of s 106B. His Honour considered the meaning of bona fide purchaser in this context at p 78,425 and said as follows:
The term “bona fide purchaser” therefore implies two separate conditions: (a) the acquisition of an interest for valuable consideration and (b) without notice of what might at this stage be described neutrally as ``the disabling condition''.
At p 78,426 his Honour said that:
… the test of bona fides is whether the Bank at the time of the making of the instrument was aware or should have been aware by making due enquiry that the disposition would defeat the claim of Mrs. Heath.
In my view, there are real difficulties in the application of the principles in Heath to the present case, including that for the reasons below, I would have difficulty accepting that in the present case the order sought by the wife for 50 per cent of the D Pty Ltd shares could ever properly be made, or even if made, would produce the result that the wife would become owner of D Pty Ltd shares.
Accordingly, I am unpersuaded by this part of the submission based on Heath, that Mr HH was not a bona fide purchaser.
The third part to this submission was that the fact that the husband, Mr HH and Mr MM had all known one another for many years supported the assertion that Mr HH was not a bona fide purchaser. I reject any such assertion and accept the submission by Mr Svehla that in circumstances of close control of D Pty Ltd as reflected in the constitution and articles it would be more likely that a prospective purchaser known to Mr MM as controlling shareholder would be approved to purchase the shares and succeed in having them registered.
I am not persuaded on the basis of these arguments that Mr HH was not a bona fide purchaser. I regard him to be such. But even if I am wrong about this, not only must the Court have regard to the interests of, and make any order proper for the protection of, a bona fide purchaser pursuant to s 106B(3) of the Act it must also do so in respect of any other interested person. As Mr Walker said, s 106B(3) is not confined to “some angelic group of bona fide purchasers … but extends to other persons interested”. There could be no question that Mr HH is an interested person because he has paid $350 000 for these shares and enjoys ownership of the shares as owner of SZ Pty Limited. I shall refer to this aspect of the matter again below.
Conclusion about whether to set aside the sale of shares
In relation to the s106B application, I accept that the following facts existed at the time that the husband caused AX Pty Ltd to dispose of the shares:
·The transfer of the shares was a “disposition” within the meaning of s 106(B) of the Act;
·The disposition was undertaken at the direction of the husband;
·These proceedings were on foot;
·The husband was aware that the wife was seeking an order in relation to the shares;
·The husband and wife, through their solicitors, had been endeavouring to have a single expert appointed to value the shares; and
·The husband made the disposition without informing the wife or seeking her consent thereto.
I have referred to the circumstances surrounding the sale of the shares. There is no suggestion of any impropriety. I accept the husband’s evidence that he was faced with pressure of cash flow and that he had been unable to sell the property at AAA. Clearly he hoped to sell the shares for more than
$350 000 but in the end, this was the sale price negotiated between him and
Mr HH. I accept that this amount reflected the value of the shares at the time.
In my view, the husband should have put the wife on notice that he proposed to sell the shares in circumstances where he and the wife were involved in these proceedings and the wife was seeking the order that she have 50 per cent of the D Pty Ltd shares. The husband said that he considered that he had the right to manage (his) business affairs as he would normally manage them. The wife acknowledged in her affidavit [45] that at all times during their marriage the husband controlled and managed all financial and business aspects of their marriage without consultation with her. Having noted those matters I still have the view that in the context of the uncompleted litigation, the wife should have been appropriately notified.
It might be said that the transaction defeated the orders sought by the wife in the technical sense that the sale prevented her from having 50 per cent of the shares. But in my view, there was an unreality in a practical sense about the orders sought by the wife. Only in theory could she have 50 per cent of the shares because an order which required the husband to transfer his interest in 50 per cent of the shares to the wife could not in reality bring about such transfer unless the other shareholders of D Pty Ltd approved the transfer and registration of the shares. As both Mr Walker and Mr Svehla submitted, it would be highly unlikely that Mr MM and the other shareholders would approve of the wife becoming a shareholder particularly in circumstances where they would be likely to continue to have dealings with the husband, where they were friends of his and where the husband and the wife had divorced.
In my view, therefore, the wife was seeking an order which in reality she could not achieve. At its highest, the action taken by the husband in selling the shares had the effect of defeating an order which even if made would be highly unlikely to achieve the outcome that the wife would receive ownership of one half of the 34 shares in D Pty Ltd.
If the share transfer was set aside, in my view, as submitted by both Mr Walker and Mr Svehla, this would visit a very great unfairness upon Mr HH. How would he be compensated and how would the quantum of such compensation be determined? There would be issues of valuation and potential for considerable further litigation.
In all these circumstances and for these reasons, in my view the wife’s application to set aside the transfer of the shares pursuant to s 106B(1) of the Act must fail. I propose to dismiss this application.
Conduct designed to reduce or minimise the value of property
It was submitted on behalf of the wife that in the event that the Court did not make the s 106B order sought, the Court would accept that the husband embarked on a course of conduct in selling the shares that was designed to reduce or minimise the value of the matrimonial pool of property. It was submitted that the husband’s conduct came within the principles in Kowaliw and Kowaliw (1981) FLC 91-092.
It was submitted that the wife cannot be seen to be deprived of her proper entitlements under s 79 as a result of the conduct of the husband and his dealings with the matrimonial property during the course of these proceedings, at a time when the parties remained in dispute about the value of the shares, where they were engaged in endeavouring to secure an agent to value the shares and the sale of the shares was undertaken without any notice to the wife.
In Kowaliw, the husband vacated the former matrimonial home, owned in his sole name, and without consulting the wife permitted a prospective purchaser to go into occupation of the home and remain in occupation thereof for a period of some 12 months without paying any rent and without purchasing the property. During this period the husband lived elsewhere and made no payments in respect of the mortgage, the rates and maintenance levies.
Baker J held that it was commercially inept and economically reckless to allow the home to be occupied without rent being paid, whether by a prospective purchaser or not. At page 76,644 Baker J said as follows:
Marriage is for most couples an economic partnership. Married couples live together and work together with the ultimate object of purchasing a home, paying it off, acquiring other assets with the overall object of attaining a higher standard of living. The reported decisions in respect of applications for settlement of property under sec. 79 of the Act are unanimous that both parties should share the economic fruits of a marriage, having regard to the provisions of sec. 79(4) and sec. 75(2), although not necessarily equally.
Is not, however, the converse equally sustainable? In other words, should not financial losses incurred by parties to a marriage or either of them, whether incurred jointly or severally, be shared by them in the same manner as the financial gains?
As a statement of general principle, I am firmly of the view that financial losses incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally) except in the following circumstances:
(a) where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or
(b) where one of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised their value.
Conduct of the kind referred to in para. (a) and (b) above having economic consequences is clearly in my view relevant under sec. 75(2)(o) to applications for settlement of property instituted under the provisions of sec. 79.
In my view, in the present case, those principles involved in Kowaliw do not apply. The wife has not been able to establish any loss or reduction or minimisation of matrimonial property. She has not been able to establish that the D Pty Ltd shares were sold by AX Pty Ltd at an undervalue.
What the husband did was to convert the shares into money and then he used that money to pay various accounts. This is relevant in the broad context of the s 79 proceedings and will be taken into account. But this is not a loss in the sense involved in the Kowaliw principles.
Accordingly, I reject the submissions on behalf of the wife based on the principles of Kowaliw.
The parties’ existing legal and equitable interests in property
There was an issue about whether the $240 000 proceeds of sale of 200 000 DD Ltd shares, which had been transferred by the husband to the wife pursuant to a consent order made on 31 January 2013, should be added back to the pool.
It was submitted on behalf of the wife that it should not be. It was submitted that this was because she had applied the proceeds of sale of the shares to meet her legal fees in relation to these proceedings and to pay her day to day living expenses.
On the other hand it was submitted on behalf of the husband that the parties’ agreement as reflected in the consent order was that the shares were transferred to the wife “by way of partial property settlement”. It was submitted that in these circumstances the funds should be added back to the pool.
I accept the submission on behalf of the wife. Part of these funds was applied by the wife to fund her living expenses. In my view it would be unfair to the wife to add back these funds. I propose instead to take this advance into account pursuant to s 75(2) of the Act.
In relation to liabilities, there is a liability of the wife to the Spurling Family Trust of $9065 which is set off to the extent of $2323 owed to the wife by the AX Investment Trust. I do not propose to bring the net modest $6742 owing by the wife into account against her in the Balance Sheet. But I shall take it into account pursuant to s 75(2)(o) of the Act.
The husband asserted that he has the following liabilities:
1. Two deferred tax liabilities of T Pty Limited UPE ($199 727 and $19 196)– total $218 923;
2. Personal tax liability for 2015 ($65 858) and estimated for 2016 ($267 271) - total $333 129;
3. Outstanding account from his accountant Mr RR - $14 758.
It was submitted on behalf of the wife that the Court would not include these alleged liabilities in the balance sheet, it being submitted that there was no evidence in proper form about these alleged liabilities. On the other hand, it was submitted on behalf of the husband that he included these items in his financial statement. It is clear that the husband included these as liabilities in his financial statement. As indicated above, I regard the husband as a truthful witness and I accept his evidence in this regard. But I accept the submission on behalf of the wife that there was no evidence to support the husband’s alleged liability for $65,858 tax liability for 2015. I shall not include this.
In relation to outstanding legal fees, I propose to leave these for payment by each party and do not propose to include these in the balance sheet.
The parties’ interests in property and superannuation therefore are as follows:
Assets
$
1. Wife’s Westpac … Account BSB … account No …97 as at 2.8.16
1732. Wife’s SS Credit Union … Flex Account as at 8.8.16
2 4463. Wife’s SS Credit Union … Access Account as at 8.8.16
54 1994. Wife’s solicitor’s trust account
100 000
5. Wife’s furniture and contents
20 000
6. Wife’s … Horse float
7 000
7. Wife’s 410 AMP Shares @ $5.925 as at 9.8.16
2 429
8. Wife’s loan to Mr TT
12 000
9. Wife’s Spurling Superannuation Trust
64 896
10. Husband’s Westpac Account BSB … Account No: …69
53 17411. Husband’s wine collection
500
12. Husband’s furniture and contents and artwork
20 000
13. Husband’s Nissan … motor vehicle
25 000
14. Husband’s 50,000 DD Pty Ltd shares @ $0.78 as at 9.8.16
39 000
15. Husband’s Spurling Group – including T Pty Limited, T Consulting Pty Limited, AX Pty Limited, AX Investment Trust, Spurling Family Trust and inter related loans
1 155 00016. Husband’s E Superannuation Scheme – UU valuation
2 029 94017. Husband’s Mr Spurling Superannuation Fund
46 167
18. Husband’s Spurling Superannuation Trust
140 442
19. Parties joint billiard table (in storage)
3 000
20. Parties’ joint Y Pty Limited (valuation of Ms GG)
23 000
$3 798 366
The liabilities are as follows:
Liabilities
$
1. Wife’s Mr VV loan
5 000
2. Wife’s loans from Ms TT
20 499
3. Husband’s deferred tax liability – T Pty Ltd UPE
199 727
4. Husband’s deferred tax liability – T Pty Ltd UPE
19 196
5. Husband’s estimated tax liability for 2016
267 271
6. Husband’s Mr RR
Surplus assets over liabilities
14 758
$526 451
$3 271 915
Sub-section 79(2)
Sub-section 79(2) of the Act provides:
The court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order.
In their decision in the case of Bevan & Bevan (2013) FLC 93-545 the Full Court (Bryant CJ and Thackray J) said as follows at page 87,234:
In our view, it will be less likely that the separate issues arising under s 79(2) and s 79(4) will be conflated if judges refrain from evaluating contributions and other relevant factors in percentage or monetary terms until they have first determined that it would be just and equitable to make an order.
In the present case, the husband and the wife cohabited for almost 24 years and raised three children now to adulthood. Their financial circumstances are quite complicated, involving companies, trusts, superannuation, numerous bank accounts and property. Their corporate and property affairs need to be untangled. There are a number of issues including the s 106B application. Both the husband and the wife are seeking alteration of property and superannuation interests.
If the Court did not make orders, not only would the parties’ financial interests continue to be enmeshed but the unresolved issues between them would not be resolved and reflected in court orders. The result would be unfair to both the husband and the wife.
In these circumstances, in my view it would be just and equitable to make an order under s 79 of the Act.
Contributions
As indicated above, at the time of marriage the husband’s property consisted of a one-half interest in a property in Town J, an interest in a business, some savings, nominal superannuation, a motor vehicle, as well as some furniture, furnishings and personal effects. The business was sold during the first year of marriage, the proceeds of sale being some $96 420. The husband’s interest in the Town J property was sold approximately six months after marriage for $24 500. The motor vehicle had been purchased for approximately $12 000 and was unencumbered.
At the time of marriage, the wife’s property consisted of a motor vehicle subject to finance, approximately $12 000 from her superannuation payout, some savings of approximately $20 000, as well as some furniture, jewellery and personal effects.
At this time the husband was working as a public official and receiving his public office salary of $42 889 per annum plus allowances.
The wife resigned from her employment shortly before marriage and moved to Town M where the parties commenced their marriage. The wife worked part-time in retail sales for approximately 12 months.
I have referred above to the various properties acquired by the parties and to the companies, trusts and superannuation funds relevant to, or through which they have managed, their financial affairs.
The wife has made important contributions by supporting the husband’s work as a public official. This has involved her in regularly attending work functions, entertaining colleagues of the husband and constituents, officiating at all sorts of work-related functions, travelling with the husband and on delegations, organising and attending fundraising events and assisting the husband in furtherance of his career.
The husband has made the overwhelming financial contributions. His initial contributions were significant and much greater than those of the wife, as indicated above. When his public office career concluded in 1998 he became eligible for the relevant pension and he has received this to this point.
From that time the husband has earned income from private consultancies, membership of various boards and various business activities, including farming. He has had continuity of employment and earned income at a level well above community averages.
In addition, after the death of his sister in 1999 the husband inherited $540 000 being the proceeds of a life insurance policy.
On the other hand, the wife has made financial contributions by way of her initial assets, her limited paid employment during the marriage and the money she has earned by providing allied health lessons.
The overwhelming contributions to the welfare of the family constituted by the husband, the wife and their three children have been made by the wife. The wife undertook the major part of the domestic duties assisted by a hired cleaner. The parties also had the assistance of a paid gardener in their various properties. As indicated above, the wife has been the children’s primary parent assisted by a nanny after the birth of the parties’ second child in 1993. She has also been the greater homemaker.
This is not to suggest that the husband did not make significant contributions as homemaker and parent because clearly he did. I accept that he involved himself very much in assisting the children as he could, given firstly his public office responsibilities, and later his business responsibilities. He was able to do this more after the conclusion of his public office career. But his primary focus and effort was as breadwinner which of course has been his strongest area of contributions.
Both parties have been involved in considerable renovations of their various homes. For instance, renovations and extensions were undertaken to the Town M property. Both parties were involved with the builders.
The residence at Town X was repainted internally. In the case of AAA, extensive renovations were carried out to both the home as well as the outdoors area and outbuildings. I accept in relation to these renovations and extensions the husband undertook personally a very considerable amount of the physical work involved in improving this property.
In relation to the Suburb C home unit, the husband has arranged for extensive renovation of this property.
One might have thought that, in view of the husband’s significantly greater initial contributions and his greater contributions following separation, particularly when he became the primary parent to the children following separation in circumstances where unfortunately their relationships with their mother had broken down, the contributions would be assessed to some extent in his favour. It was conceded from the outset of the hearing, however, that the passage of time and the many forms of contributions made by the parties since the making of those initial contributions ought to produce the assessment that the parties’ contributions overall have been equal. An equal assessment of contributions was common ground between the husband and the wife.
Accordingly, the contributions of the husband and the wife overall, are assessed as having been equal.
Sub-section 75(2) matters
The wife is 56 years of age and there are some issues concerning her health. Following separation, the wife had been undertaking counselling for depression and anxiety with a psychologist, Ms WW. She attended programs to assist management of this condition in early 2011 and again in mid-2012. But her last counselling was in mid-2012. The wife also suffers from chronic neck pain which prevents her from teaching allied health classes.
The only paid work which the wife has had during the marriage was part-time retail sales work at the commencement of the marriage at Town M and she has conducted lessons for many years. The wife proposes to resume teaching allied health classes when her health improves which she hopes will occur following the conclusion of these proceedings.
The wife has a diploma in an allied health discipline. She has conducted lessons for many years. The wife earned $5000 per annum from conducting classes.
In 2009 the wife was awarded a prize for her promotion of peace and other work in schools.
The wife is in receipt of interim spousal maintenance payments of $2500 per week. The husband has been paying this amount since December 2013 when the sale of the AAA property was completed. This interim spousal maintenance has been paid pursuant to a consent order dated 29 October 2013 which was part of a package of orders, including orders to enable the sale of the AAA property. The husband said that he agreed to pay this amount of spousal maintenance to ensure that the sale of AAA was not lost and in circumstances where he understood that the final hearing would be listed in early to mid-2014. He said that by early 2014 it was clear that he could no longer afford to pay the $2500 per week. The parties agreed to consent orders being made on 28 October 2014 pursuant to which $100 000 was released to each of them. From the husband’s $100 000 he paid $99 428.57 by way of arrears of the spousal maintenance.
The wife’s income consists of the $2500 per week spousal maintenance paid to her by the husband and $63 per week earned from interest, as well as $2 from an AMP share dividend.
The wife asserts in her financial statement that her weekly commitments necessary for her own support come to the sum of $2483. She estimates her average weekly expenses as a total of $1933 per week. Bearing in mind that the husband has estimated his own average weekly expenses as being $1117, in my view, the wife would be able to achieve a reasonable standard of living for a similar amount although I accept that the husband has some assistance from his partner Ms XX in meeting some of the costs. So that at $1933 this appears to be an overestimate of what the wife reasonably requires. In addition, the wife is paying rent of $550. In the event that she was to purchase a home this expenditure would be obviated.
As I have said, apart from the wife’s teaching activity she has not undertaken income-earning activity since very early in the marriage. Having said this, in my view, the wife has not established that she does not have the physical and mental capacity for appropriate gainful employment. As I have also said, at the outset of the marriage she undertook retail sales employment in Town M. It is difficult to see why she would not be able to pursue similar employment.
On the other hand, the husband is 62 years of age and he is in good health.
The husband has an Associate Diploma which he achieved in 1976 from YY College. He was a public official for approximately 14 years with experience at a senior level. He has worked as a corporate advisor and in more recent years gained considerable experience as a businessman.
The husband established T Consulting Pty Limited in 1995. Through this entity the husband provides consulting services to corporations which have been involved in the supply of equipment to the Australian Government and to large corporations.
The husband established T Pty Limited in 2002. He has been Chairman of Company KK, a publicly listed design consultancy. He was Chairman of Y Pty Limited, a position he relinquished in early 2015. He was also a director of Company LL until June 2015.
The husband serves on the board of directors of DD Limited.
The husband’s weekly income from all sources, including his pension, is $14 186. This is an annual income of $737 672. On all current indications the husband should be able to continue to receive such income for many years.
The husband estimates his personal expenditure as being $11 272 per week. This includes the interim spousal maintenance of $2500 per week. It also includes $400 per week paid in relation to S and V as university students and $85 for registration and insurance for the wife’s motor vehicle. Even including these amounts, the husband has a significant surplus of income compared with necessary expenditure each week.
As indicated above, the husband is in receipt of his pension but this has been valued and included in the balance sheet.
The husband is cohabiting with Ms XX and they share the household expenditure.
The marriage continued for approximately 28 years.
I take into account the $6742 owing by the wife to the Spurling Family Trust. I also take into account the fact that the wife has had the benefit of the $240 000 proceeds of sale of the DD shares. I also take into account that the husband used the $350 000 proceeds of sale of the D Pty Ltd shares to pay various accounts and expenses.
In my view, a consideration of the relevant s 75(2) matters requires a set-off of property and superannuation in favour of the wife in order to arrive at a just and equitable order. Clearly there is a very significant difference between the parties in terms of their capacities for earning income. On the one hand, the husband is enjoying an impressive career and enjoying an annual income of $737 672. Clearly the wife has made a significant contribution to the husband’s income-earning capacity having supported the husband in his public office career and subsequently in his post-public office career.
On the other hand, the wife gave up her career so that she could move to Town M to commence the marriage with the husband. As indicated above, she has had only limited paid employment during the marriage. Unlike the husband she does not have a career other than the somewhat limited paid work she has undertaken in offering lessons in an allied health discipline.
In my view, as indicated above, the wife has not demonstrated an incapacity for income earning work. But obviously she has little experience and perhaps the most likely area of future employment would be in retail sales or perhaps some form of hospitality. Obviously any such employment would carry with it remuneration at a fraction of what the husband is able to achieve. In my view, this is most significant in terms of s 75(2) of the Act.
I accept that in the case of Clauson and Clauson (1995) FLC 92-595 the Full Court of this Court indicated trial judges need to consider the value of the adjustment in real terms. The Full Court said at page 81,911 as follows:
There is, we think, at times a tendency to assess s 75(2) factors in percentage terms without considering its real impact, and we think there is legitimacy in the views expressed in more recent times that the Court has tended to operate in this area within artificially delineated boundaries. That is, it appears almost to be inevitable that the s 75(2) factors will be assessed in a range between 10% and 20%. A number of cases will justify an assessment outside those parameters and in any event it is the real impact in money terms which is ultimately the critical issue.
In all these circumstances, in my view, an adjustment of 15 per cent of the available property and superannuation in favour of the wife would be appropriate in order to achieve the just and equitable order as required. This would be a differential between the parties of $981 574.
Conclusion
The property and superannuation available for division between the parties has a value of $3 271 915.
The wife is to have 65 per cent thereof which is property and superannuation with a value of $2 126 745 (65 per cent of $3 271 915 = $2 126 745).
The wife has the following assets:
$ $
1. Westpac … Account BSB 02
173
2. SS Credit Union … Flex Account
2 446
3. SS Credit Union … Access Account
54 199
4. Solicitor’s trust account
100 000
5. Furniture and contents
20 000
6. … horse float
7 000
7. 410 AMP Shares
8. Loan to Mr TT
9. Spurling Superannuation Trust
2 429
12 000
64 896
263 143
But the wife also has the following liabilities:
| 1. Loan from Mr VV | $ 5 000 |
| 2. Loan from Ms TT | 20 499 25 499 |
Accordingly, the wife has net assets with a value of $237 644 ($263 143 - $25 499 = $237 644). To achieve property and superannuation with a value of $2 126 745 the wife would require additional property and superannuation with a value of $1 889 101 ($2 126 745 - $237 644 = $1 889 101).
On the other hand the husband is to have 35 per cent of the property and superannuation available for division between the parties. This is property and superannuation with a value of $1 145 170 (35 per cent of $3 271 915 =
$1 145 170).
The husband has the following assets:
$
| 1. Westpac Account BSB 2 | 53 174 |
| 2. Wine collection | 500 |
| 3. Furniture, contents and artwork | 20 000 |
| 4. Nissan … motor vehicle | 25 000 |
| 5. 50,000 DD shares | 39 000 |
| 6. Spurling Group – including T Pty Limited, T Consulting Pty Limited, AXPty Limited, AX Investment Trust, Spurling Family Trust and inter- related loans |
|
| 7. E Superannuation Scheme – UU valuation | 2 029 940 |
| 8. Mr Spurling Superannuation Fund | 46 167 |
| 9. Spurling Superannuation Trust | 140 442 |
| 10. Joint billiard table (in storage) | 3 000 |
| 11. Joint Y Pty Limited (wife to transfer her interest to husband |
3 535 223 |
But the husband also has the following liabilities:
$
1. Deferred tax liability – T Pty Ltd UPE
199 7272. Deferred tax liability – T Pty Ltd UPE
19 1963. Estimated tax liability for 2016
267 271
4. Mr RR
14 758
500 952
Accordingly, the husband has net property and superannuation with a net value of $3 034 271 ($3 535 223 - $500 952 = $3 034 271).
If the husband was to pay the wife the sum of $1 889 101 this would leave him with property and superannuation with a value of $1 145 170 ($3 034 271 - $1 889 101 = $1 145 170).
Spousal Maintenance
As indicated above, the wife seeks the following spousal maintenance order:
The husband pay to the wife the sum of $2,000 per week for a period of
3 years from the date final orders are made with the first payment to commence the first Thursday following the making of orders and weekly thereafter.In order to succeed in this application it would be necessary for the wife to establish the threshold requirement set out in s 72(1) of the Act. Sub-section 72(1) is as follows:
A party to a marriage is liable to maintain the other party, to the extent that the first-mentioned party is reasonable to do so, if, and only if, that other party is unable to support herself or himself adequately whether:
(a) by reason of having the care and control of a child of the marriage who has not attained the age of 18 years;
(b) by reason of age or physical or mental incapacity for appropriate gainful employment; or
(c) for any other adequate reason;
having regard to any relevant matter referred to in subsection 75(2).
Under the property orders I propose the wife will be in receipt of property with a value of $2 126 745. The wife has also failed to establish that she would be unable to re-enter the paid workforce and earn income.
In these circumstances, in my view, the wife is unable to establish the threshold matter required in s 72(1) of the Act that she is unable to support herself adequately within the meaning of the section.
Accordingly, I propose to dismiss the wife’s spousal maintenance application.
Orders and final step
As indicated above, the husband seeks an order to pay the wife pursuant to s 79 and s 81 of the Act in full and final settlement the sum of $1 800 000, which he would obtain by causing AX Pty Ltd to sell the property at B Street, Suburb C and direct the net proceeds of sale to the wife, with the husband paying the balance from funds to be raised by him.
On the other hand, the wife seeks, amongst other orders, an order to the effect that the husband cause AX Pty Ltd to transfer the said C property to the wife.
It would seem to me to be an appropriate course for the Court to make this order sought by the wife and for the husband to be required to pay the balance between the value of the C property and $1 889 101 to the wife.
But the Court is unclear about the agreed value of the C property. Accordingly, I propose to hand down judgment, then adjourn the proceedings to 9.30 am on 4 May 2017 for further submissions about the form of final orders and the making of final orders.
The draft orders I propose are at “Annexure A” to these reasons for judgment. Under the orders I propose the wife would have the C property, the property and superannuation in her possession and/or control with a value of $237 644 less her outstanding legal costs, as well as cash in an amount being the difference between the sum of $1 889 101 and the value of the C property. The wife could use this cash to fund her living costs or, if she was to re-enter the paid workforce, use some of the cash to subsidise such costs.
On the other hand, the husband, after paying his liabilities and making the above payment to the wife, will be in deficit. But he will retain his pension in its entirety and, on all present indications, will be able to continue to earn his substantial income which should enable him to borrow sufficient funds to meet the deficiency, and continue to enjoy a reasonable standard of living assisted by Ms XX.
The orders I propose would not affect the earning capacity of either the husband or the wife.
In my view, such orders would be just and equitable within the meaning of s 79(2) of the Act.
I certify that the preceding three hundred and three (303) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Johnston delivered on 28 April 2017 and revised on 4 May 2017.
Associate:
Date: 4 May 2017
“ANNEXURE A”
DRAFT ORDERS
I propose to make the following orders:
That the wife’s application under Section 106B of the Family Law Act 1975 (Cth) be dismissed.
That within 42 days of the date of these orders, the husband do all things and sign all documents necessary to cause AX Pty Limited ACN … (“AX Pty Ltd”) to transfer to the Wife the property situate and known as B Street, Suburb C in the state of New South Wales Folio Identifier … (“C property”) free of encumbrance
That simultaneously with the transfer referred to in Order 2 above the husband shall pay to the wife the sum of $ being the difference between the agreed value of the C property and $1 889 101.
That the Wife retain the contents of the C property including but not limited to the following items:
(a) The Artwork;
(b) Venetian Glassware;
(c) Outdoor furniture;
(d) Lounges (x2);
(e) Dining table and chairs;
(f) Timber sideboard;
(g) Hall table and draws; and
(h) Large butterfly mirror located in the dining area.
That within 28 days the parties do all acts and things and sign all documents necessary in their capacity as trustees of the Spurling Superannuation Fund and as required by the Superannuation Industry (Supervision) Act 1999 to rollout all of the wife’s entitlements in the Spurling Superannuation Fund into a complying superannuation fund nominated by the wife.
That simultaneously with Order 5 hereof, the wife do all acts and things necessary to resign as trustee of the Spurling Superannuation Fund.
That within 28 days the wife do all things and sign all documents necessary to transfer her interest in Y Pty Limited to the husband.
That until the husband has complied with these orders he and AX Pty Limited are restrained from encumbering, selling or dealing with in any manner other than in accordance with these orders the property at B Street, Suburb C, New South Wales.
That subject to the return, by the wife, of the husband’s family heirlooms i.e.
(a)The bellows,
(b)The Grandfather’s chair, and
(c)The Silver candlesticks,
and subject to any other order to the contrary, the husband and the wife are declared to be solely, legally and beneficially entitled to the exclusion of the other party, to all other real and personal property of whatsoever nature and kind in their respective ownership, possession and/or control as at the date final orders are made, including but not limited to, money on deposit, shareholdings, insurance policies, motor vehicles and personal effects
That the wife do all acts and things and sign all such documents as may be required to remove herself from all positions of authority as Director, Shareholder or Trustee of all Spurling Entities.
That the husband do all acts and things necessary to indemnify, and keep indemnified, the wife from and against all liabilities of the husband including, but not limited to:
(11.1)all liabilities including claims, actions, suits or demands of whatsoever nature arising out of, or in connection with, the husband’s interest in any business, real property or corporation;
(11.1.1)taxation (including CGT); and
(11.1.2)duties (including stamp duty),
whether past, present or future.
That the husband indemnify, and keep indemnified, the wife from and against:
(12.1)all claims, actions, suits or demands of whatsoever nature arising out of, or in connection with the wife having been at any time:
(12.1.1)a beneficiary of the Spurling Family Trust and/or the AX Investment Trust (“Trusts”);
(12.1.2)a director, secretary or shareholder of the trustees of the Trusts;
(12.2)any amounts owing by the wife to the Trusts or the trustees of the Trusts as may be reflected in the loan accounts of the Trust or the trustees of the Trusts;
(12.3)any liability to pay tax arising out of any advance, distribution, dividend or income paid to her by the Trusts or trustees of the Trusts,
whether past, present or future.
That the wife’s application for spousal maintenance is dismissed.
That in default of either both the husband and wife doing all such things and executing all such documents as may be needed to comply with the final orders within the time provided:
(14.1)a Registrar of the Sydney Registry of the Family Court of Australia or such other person appointed by the Court be authorised to do all such acts and things and execute all such documents on behalf of either or both parties; and
(14.2)if either party procures compliance with this order by obtaining execution of documents pursuant to this order, then the party procuring such execution of documents will be indemnified by the party for his or her costs and expenses incurred in obtaining such compliance.
That all exhibits be released.
That all parties have leave to re-list these proceedings by arrangement with the Associate to Justice Johnston in relation to the implementation of the orders.
Key Legal Topics
Areas of Law
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Family Law
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Property Law
Legal Concepts
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Appeal
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Damages
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Remedies
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Statutory Construction
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