STENSON & OSMUND
[2017] FamCAFC 144
•28 July 2017
FAMILY COURT OF AUSTRALIA
| STENSON & OSMUND | [2017] FamCAFC 144 |
| FAMILY LAW – APPEAL – PROPERTY – Where the appellant asserts that the trial judge erred in finding that there was no asset of value – Where the trial judge failed to consider the effect of the financial statements of the business and erred in finding that that business had no value – Appeal allowed – Proceedings remitted to the Federal Circuit Court of Australia for rehearing by a judge other than the trial judge. FAMILY LAW – APPEAL – COSTS – Where the appeal is being allowed as a result of errors of law by the trial judge – Where it cannot be suggested that the respondent caused or led the trial judge into those errors – Where each party should bear their own costs – Costs certificates granted pursuant to the Federal Proceedings (Costs) Act 1981 (Cth). |
| Family Law Act 1975 (Cth) ss 90MS, 90SF(3), 90SM(4)(a)-(d) and 117 Federal Proceedings (Costs) Act 1981 (Cth) ss 6 and 9 |
| Bevan & Bevan (2013) FLC 93-545 Chapman & Chapman (2014) FLC 93-592 Coghlan and Coghlan (2005) FLC 93-220 Metwally v University of Wollongong (1985) 60 ALR 68 National Australia Bank Ltd v KDS Construction Services Pty Ltd (in liq) (1987) 163 CLR 668 Stanford v Stanford (2012) 247 CLR 108 |
| APPELLANT: | Ms Stenson |
| RESPONDENT: | Mr Osmund |
| FILE NUMBER: | DGC | 1706 | of | 2016 |
| APPEAL NUMBER: | SOA | 58 | of | 2016 |
| DATE DELIVERED: | 28 July 2017 |
| PLACE DELIVERED: | Adelaide |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Strickland J |
| HEARING DATE: | 13 December 2016 |
| LOWER COURT JURISDICTION: | Federal Circuit Court of Australia |
| LOWER COURT JUDGMENT DATE: | 24 June 2016 |
| LOWER COURT MNC: | [2016] FCCA 1533 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Hines |
| SOLICITOR FOR THE APPELLANT: | Rothwell Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr Eardley |
| SOLICITOR FOR THE RESPONDENT: | Mackellars Lawyers |
Orders
The appeal be allowed.
Paragraphs 3, 4 and 5 of the Order made on 24 June 2016 be set aside.
The proceedings be remitted to the Federal Circuit Court of Australia for rehearing before a judge other than Judge Phipps.
The Court grants to the appellant de facto wife a costs certificate pursuant to s 9 of the Federal Proceedings (Costs) Act1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the appellant de facto wife in respect of the costs incurred by her in relation to the appeal.
The Court grants to the respondent de facto husband a costs certificate pursuant to the provisions of s 6 of the Federal Proceedings (Costs) Act 1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the respondent de facto husband in respect of the costs incurred by him in relation to the appeal.
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 Stenson & Osmund 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).
|
Appeal Number: SOA 58 of 2016
File Number: DGC 1706 of 2016
| Ms Stenson |
Appellant
And
| Mr Osmund |
Respondent
REASONS FOR JUDGMENT
Introduction
On 11 November 2016 Ms Stenson (“the de facto wife”) filed a Further Further Amended Notice of Appeal against certain of the orders made by Judge Phipps on 24 June 2016. The appeal is opposed by Mr Osmund (“the de facto husband”).
The orders appealed against provided for each party to retain all superannuation and other property owned or in their respective possession, for each party to be “solely liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled”, and for the dismissal otherwise of all applications before the court.
Background
The parties commenced to reside in a de facto relationship in 2007.
During the relationship the de facto husband was a director and shareholder of X Pty Ltd (“the Company”) which carried on a sheet metal fabricating business. The de facto wife was employed by this Company.
The parties separated in 2011.
On 18 March 2011 proceedings between the Company and the de facto husband on the one hand, and a previous director and his companies were settled. The agreement provided, inter alia, for the Company to pay to the previous director and his companies $447,639.26, and for that director’s son-in-law to transfer three shares in the Company to the de facto husband and the de facto wife. To help pay that amount the de facto wife lent the Company $184,000, which she obtained by increasing the mortgage over her property. That amount was paid direct to one of the former director’s companies to secure the release of encumbrances over three pieces of machinery. Importantly though the share transfer never took place.
The Company was placed into voluntary administration on 30 April 2012.
On 7 June 2012 the de facto wife filed an Initiating Application in the Federal Magistrates Court (as it then was).
On 5 July 2012 the Company entered into a Deed of Company Arrangement which provided for an agreement between the Company and YA Pty Ltd (“Y”), under which the assets and the employees of the Company transferred to Y, and Y assumed a liability to the National Australia Bank, and responsibility for advances made by the de facto husband. Thereafter Y traded as X and continued the business previously carried on by the Company. The structure is that the de facto husband is the sole director and shareholder of YB Pty Ltd, which is the trustee of the Y Trust. YB Pty Ltd is the sole shareholder in YC Pty Ltd and Y trading as X. YC Pty Ltd owns plant and equipment secured to the National Australia Bank and leased to Y. The de facto husband is the sole director of each company.
The de facto wife lodged a Proof of Debt with the administrator of the Company for the amount that she lent, and she received a payment of $70,000.
The reasons for judgment of the trial judge
His Honour identified the following issues for determination:
a)The value of the business and separately the value of the plant and equipment.
b)Whether the de facto husband had wrongfully withdrawn money from the Company/business, and how that could be investigated.
c)Whether the de facto wife holds an equitable charge over the three items of machinery.
Of these, the primary issue for his Honour was the question of whether the de facto husband had undisclosed assets, comprising or resulting from, money taken from the Company and/or the subsequent entities. The de facto wife’s claim in that regard depended on the accuracy of, and the interpretation of, the financial statements of the Company and the subsequent entities, and the bank statements of the de facto husband. His Honour referred to this (and to the de facto husband’s response) as follows:
19.The applicant’s claims, that the respondent has undisclosed assets and money taken from the business, or at least there is enough evidence to warrant further investigation, relies on two things. First that a loan account in the respondents name shows a substantial reduction for the year ending 30 June 2015. Second the respondent’s personal bank account, so far as available, shows amounts totalling over $300,000 paid to the respondent from the business account, this being well in excess of his salary.
…
23.The Balance Sheet of [the Company] as of 31 March 2012, immediately prior to the administration, shows a non-current liability to the respondent of $572,499. The Deed of Company Arrangement after the administration which resulted in the assets of the business being transferred to [Y] and [YC] Pty Ltd provided that the respondent was a non-participating creditor not entitled to participate in any distribution.
24.The Balance Sheet of [Y] for the period 1 July 2012 to 31 January 2013 shows a non-current liability to the respondent of $607,680.01. It shows a total equity of $262,101.94. The balance sheet as of 30 June 2014 shows a non-current liability to the respondent of $607,362 and total equity of negative $139,966. The balance sheet as of 30 June 2015 shows a non-current liability to the respondent of $108,806 and negative equity $149,700. The same balance sheet, 30 June 2015, for Last Year to Date shows the non-current liability, loan Mr Osmund $69,232.
25.The applicant argues that the accounts of [Y] show that the respondent’s loan account was transferred into the accounts of [the Company]. The applicant argues that the reduction in the loan shown in the year 2015 means that the respondent must have been paid some $400,000 by [Y].
26.The applicant then argues that an examination of the respondent’s personal bank accounts, to the extent that they are available, shows some $300,000 being paid to the respondent, an amount far in excess of his entitlement to wages. The applicant’s bank statements show this to be correct.
27.The respondent points to the entry in the balance sheet for 30 June 2015, Provision for Doubtful Debts negative $417,362. Under the column Last Year to Date the same entry appears but it is not on the balance sheet as of 30 June 2014. The respondent says that his understanding is that the transfer of his loan account from [the Company] to [Y] was a mistake and it was rectified in 2015 by a book entry which reduced his loan account and balanced it as an entry provision for doubtful debts. This may not have been the correct way to make the adjustment but it was done.
After explaining why the company accountant was not called to give evidence, and referring to the evidence of the de facto husband as to his personal circumstances, and his explanation for why money from the business went into his account, the trial judge concluded as follows:
31.The applicant’s argument depends upon making a finding that the respondent has wrongly removed some $400,000 from [Y] and has undisclosed assets. The respondent provides a plausible explanation for the alteration in his loan account. He has no personal assets. He uses a motorbike borrowed from a friend. The question then is should I find on the balance of probabilities, that the respondent has done so or at least there is sufficient doubt to warrant further investigation. I do not do so. The husband’s explanation is logical and plausible.
32.The changes in the Year to Date entries from the entries in the previous year’s balance sheet add some weight to the respondent’s explanation. If the changes are to correct an error made in 2012 backdating is logical.
His Honour then referred to the debts of the business for which the de facto husband is personally responsible, and said this at [33]:
… It makes no sense for him to take money out of the business and hide it rather than reduce these debts. For instance, for the respondent to not pay the tax debt when he had the means is illogical. The respondent does not impress as a person who is illogical to this extent.
The result of these findings was that this asset of the relationship had no value. Apart from superannuation, his Honour treated this as the only asset to be considered and found that “[t]here is nothing about which an order can be made” (at [35]). In then applying the principles emanating from the High Court decision in Stanford v Stanford (2012) 247 CLR 108 his Honour concluded as follows:
36.In this case the respondent’s property is his interest in the various entities making up the business of [the Company] and the applicant’s property, her interest in her [Suburb S] apartment. Neither has any value. In the circumstances it is not just and equitable to make an order.
Turning to the superannuation of the parties, his Honour found “a reasonable inference is that when the considerations in s.90SM(4)(a)-(d) are applied, the parties contributions to each other’s superannuation were equal”, and “[g]iven that the parties will be unable to access their superannuation for many years there is no adjustment for matters in s90SF(3)” (at [38]).
Further, his Honour said this at [39]:
A reasonable inference from the evidence is that each party’s superannuation increased by about the same during the relationship and to the extent one increased more than the other it is because it had higher value at the start. From this it follows that each party contributed equally to the increased superannuation during the relationship. This means that there should be no adjustment of superannuation interests.
The appeal
Ground 1
In finding that the respondent had no assets (see paras 29 and 31 of the Reasons), that the only asset (the business of [the Company]) apart from superannuation, of the de facto relationship has no value and there is nothing about which an order can be made (para 35 of the Reasons); and that apart from superannuation the respondent’s property is confined to his interest in the various entities making up the business of [the Company] and that in the circumstances it is not just and equitable to make an order altering the interests of the respondent in his property in favour of the appellant (para 35 of the Reasons); the Court was plainly wrong in overlooking or misunderstanding evidence of his loan accounts with [Y] and the value thereof; in the event those loans or some one or more of them did not exist or had no or a reduced value, in overlooking the consequent increase in value of his interest in [Y] (see para 13 of the Reasons); and in overlooking his evidence that he had $10,000 in assets. Given that there was evidence that [Y] still traded, and given the amount of the respondent’s loan accounts, the Court was plainly wrong in assuming (if such assumption was made) that the debts recorded in the loan accounts were of no value or no prospective value. Furthermore, if such part of the debt or debts was equal to the amount listed in Exhibit H2 of the Transcript of the Trial under provision for doubtful debts was unenforceable, did not exist, no longer existed, or should not have been or be treated as being a liability of [Y] then that company had substantial net assets and the respondent’s interest in that company and in [YC] Pty Ltd was a valuable asset of the de facto relationship.
This ground is difficult to follow, but doing the best I can, it seems to raise the following complaints:
a)His Honour overlooked or misunderstood the evidence of the de facto husband’s loan accounts in [Y], and the value thereof.
b)In finding that the loan accounts had no value, his Honour overlooked the consequent increase in value of the de facto husband’s interest in [Y].
c)His Honour overlooked the de facto husband’s evidence that he had $10,000 in assets.
These complaints focus on a different argument than the principal argument relied on at trial. In other words, it is that when analysed correctly, the evidence, and particularly the financial statements of Y and YC Pty Ltd, reveal that the “assets” did have value, rather than the claim that the de facto husband had taken money from the business and had undisclosed assets. That is not to say that that claim is not maintained, but it is not the subject of the appeal. The challenge on appeal is to his Honour’s finding that there were no assets of value.
I note that this is not a situation which enlivens the principle emanating from decisions such as that of the High Court in Metwally v University of Wollongong (1985) 60 ALR 68. That principle is that a party is generally bound on appeal by the case argued below. However, the issues now agitated are not being raised for the first time; they were well and truly before the trial judge, and indeed they arose from the de facto husband’s own evidence in attempting to explain the provision for doubtful debts and the reduction of his loan account in the balance sheet of Y (by analogy see National Australia Bank Ltd v KDS Construction Services Pty Ltd (in liq) (1987) 163 CLR 668, at 680). The complaint is that his Honour overlooked this in finding that there were no assets of value, and thus, there is no impediment to these issues being considered on appeal.
It is also important to appreciate that his Honour did not have the benefit of up to date valuation evidence, nor evidence from the accountant for the business. Indeed, all that his Honour had was a valuation of the business as at 31 January 2013, the financial statements of the various entities, and the less than helpful evidence of the de facto husband. The de facto husband professed not to know anything at all about the financial statements and the accounting process, (for example see Transcript 8.3.16, pages 122 – 123, and 7.3.16, pages 41 – 43).
As to the valuation, his Honour relied on that to a certain extent to demonstrate the value of the business, but of course the numbers were out of date, and significantly, the report did not identify the assets of the de facto husband.
However, in the context of his Honour finding that the business had no net value, I note that in the report it is valued at $120,000, and that was on the basis of a liability of $607,680.01 to the de facto husband. Thus, pausing there, not only did the business have a value at that time, but the de facto husband had a loan account of in excess of $600,000 in the business. As to the latter amount though, the Deed of Company Arrangement provided that the de facto husband was to be a non-participating creditor not entitled to participate in any distribution.
In any event, it is the financial position at the time of the hearing which is relevant, and in that regard, the financial statements of Y and YC Pty Ltd as at 30 June 2015 (Exhibits H1 and H2 before his Honour) provided his Honour with the clearest picture of the business and the de facto husband’s interest therein. Indeed, the de facto husband confirmed in his evidence that those statements provided a fair and reasonable disclosure of the activities of the business (Transcript 3.12.15, page 27, lines 1 – 2). Of course, that evidence needs to be taken with a grain of salt, given the de facto husband’s professed lack of understanding of those statements.
The financial statements themselves reveal first, that YC Pty Ltd, which owns the plant and equipment and leases it to Y, had total equity of $81,865.25, and that Y had total equity of negative $149,700. The de facto wife complains that his Honour failed to properly analyse the figures in the balance sheet of the latter company, and in particular those relating to the loan account of the de facto husband. However, it is here where the evidence before his Honour lacked clarity as a result of the absence of the accountant who prepared the statements, and the de facto husband’s lack of knowledge or understanding of the accounting process.
It was common ground that the de facto husband previously had a loan account in the Company, and that was transferred to Y when the Company went into administration. That loan account continued to appear in the accounts of Y until 2015 when, according to the de facto husband, it was recognised that it had been a mistake to transfer the loan account. It was said to be an error because the loan account in the Company had been compromised in the Deed of Company Arrangement (Transcript 8.3.16, pages 106 – 108, and 120). That alleged mistake was corrected by book entries reducing the loan account of the de facto husband to $108,806, and by including an item for doubtful debts of $417,362 in the assets of Y.
It seems that that evidence was intended to demonstrate how it cannot be said that the de facto husband had withdrawn in excess of $400,000 from the business, and he then retained the benefit of that money. Indeed, his Honour accepted that explanation, together with the de facto husband’s evidence that he had not received anything from his loan account, in rejecting the de facto wife’s argument to that effect (at [31]).
As for the evidence that the de facto husband had received various sums of money totalling in excess of $300,000 from the account of the business, his Honour accepted the evidence of the de facto husband that this was reimbursement of monies that he had paid on behalf of the business (at [30], and see [31] and Transcript 8.3.16, page 123).
However, to return to the financial statements, his Honour did not then go on and look at the effect of the book entries made in 2015.
As submitted by the de facto wife, if the debt of $417,362 is a debt which the de facto husband cannot recover, then the assets of Y increase by that amount to $2 365 230, and thus Y has total equity of $267,662, rather than the negative equity of $149,700.
In addition, and not referred to at all by his Honour, YC Pty Ltd has total equity of $81,865.25. I note that the de facto husband’s counsel argues that there would be income tax payable by that company, which would reduce the equity to about $56,000, but first, there is no evidence of that, and secondly, it does not remedy the failure by the trial judge to refer at all to the equity in this company.
Separate to that there is the de facto husband’s loan account of $108,806 in Y, which was also overlooked by his Honour as an asset of the de facto husband.
As can be seen from his Honour’s reasons in determining whether there was any value in the business, his Honour did take account of the tax debt of the business of in excess of $400,000, and an equivalent debt to the Bank (at [33]), but they are both accounted for in the financial statements of the business, and thus they cannot change what appears to be the position based on those financial statements.
The de facto husband submits that his Honour was not in error in finding no asset of value because of the extent of the de facto husband’s personal liabilities. However, first, that is not to the point here; it is his Honour’s finding that the business had no value which is the principal error. Secondly, it is the case that the de facto husband’s personal liabilities have to be addressed in determining whether there are assets of value available for distribution between the parties, but, there has to be relevant evidence of the current value of any liabilities to be taken into account, and here that was not the case. The evidence that the de facto husband took this court to is problematic in that regard. For example, it was the de facto husband’s alleged asset and liability position as at 13 January 2013 that was primarily relied on, and as is plain that was well before the hearing before his Honour. The only other evidence referred to was the de facto husband’s affidavit of 30 September 2014 wherein he deposes as to his position following the completion of the administration, but again, that was also well before the hearing. I also note that even if there are personal liabilities of the de facto husband to be taken into account, his counsel failed to engage with the issue of the doubtful debt of $417,362.
Thus it is apparent that, on the evidence before his Honour, he was in error in finding that “[t]he only asset, apart from superannuation, of the de facto relationship has no value” (at [35], and see [36]). Accordingly there is merit in this ground of appeal.
In defence of his Honour though, I mention again that he did not have the benefit of evidence from the accountant who prepared the financial statements, and it is apparent from the transcript, with respect, that his Honour was struggling to understand what in fact had happened, and why the accounts were prepared in the way that they were (for example see Transcript 7.3.16, pages 41 – 43, and 8.3.16, pages 106 – 108 and 120 – 121).
Finally, as referred to above, in this ground the de facto wife asserts that his Honour “overlooked” the de facto husband’s evidence that he had $10,000 in assets. However, nothing was said in support of this complaint in the de facto husband’s written summary of argument, and nor was this court taken to the evidence said to be overlooked. Thus, I make no finding on this part of the ground of appeal. I do note though that the assets apparently being referred to are the de facto husband’s personal assets, and as such it would not be surprising, or more particularly an error, if his Honour did disregard the same.
Ground 2
In finding that the appellant accepts that the [Company] has no net value because its liabilities exceed its assets (see para 3 of the Reasons), the Court was plainly wrong in overlooking evidence to the contrary.
It is readily apparent that there is merit in this ground.
Although his Honour said in [3] that “[t]he applicant accepts that [the business] has no net value because its liabilities exceed its value”, there was no such concession by the de facto wife, either in evidence, or in submissions before his Honour.
The de facto husband attempted to suggest that during the hearing the de facto wife’s counsel’s response of “Yes” to his Honour saying, “And they come up with their values, which means that there (sic) company hasn’t got a value, because we know what its debts are” (Transcript 8.3.16, page 164, line 46 – page 165, line 1), justifies his Honour’s statement in [3] above. However, simply put, I do not accept that submission. Counsel was merely acknowledging that his Honour had made that comment.
Throughout the proceedings the de facto wife was at pains to have his Honour find that the business, and thus the de facto husband’s interest therein, had a value (Transcript 3.12.15, pages 12 – 13, and 7.3.16, page 43).
However, although his Honour has made this incorrect statement, on a fair reading of his Honour’s reasons as a whole, that does not appear to play any material part in his Honour’s ultimate conclusion as to the value of the business. Thus, if this was the only error by his Honour, it would not result in the appeal being allowed, but of course, there is Ground 1, which does lead to that outcome.
Ground 3
In consequence of its findings referred to in Grounds 1 and 2, in considering whether and what orders to make for the alternation of property interests and in finding (in para 35 of the Reasons) that there was nothing about which an order can be made and that considerations of contributions and adjustments should not be looked at and (at para 36) that in the circumstances it was not just and equitable to make an order, the Court failed to take into account the matters referred to in Grounds 1 and 2, the matters referred to in s90SM(4) of the Family Law Act 1975 including the contributions made by the appellant to the property of the parties to the relationship or either of them as required by s90SM(4)(a) and (b) and in particular her loan to [the Company] referred to in paragraph 16 of the Reasons, her obtaining of the amount lent by increasing the mortgage over her [Property S apartment], her other entitlements as an unsecured creditor of [the Company], and the fact that as an unsecured lender to [the Company] she was repaid approximately 20 cents in the dollar only and her consequential losses and her other losses and in the premises the orders of the Court were plainly unjust and inequitable.
This is a ground that cannot be pursued. The complaint is that his Honour failed to in effect consider the contributions of the de facto wife, but there can be no error here, given his Honour concluded that “[t]here [was] nothing about which an order [could] be made”, and thus it was not “just and equitable to make an order” (at [35]). As his Honour said in [35]:
…In Stanford v Stanford [2012] HCA 52 the High Court of Australia said that when considering a property application under the Family Law Act 1975 (Cth) the Court must first determine what interests in property the parties had and then next determine whether it is just and equitable to make an order. It is then that considerations of contributions and adjustments are looked at.
Plainly, if his Honour had found that there were assets of value, and thus it was just and equitable to make an order, then his Honour would have considered the respective contributions of the parties.
That is not to say that the contributions of the parties cannot be considered in determining whether it is just and equitable to make an order. Indeed, the High Court in Stanford, as interpreted by the Full Court in Bevan & Bevan (2013) FLC 93-545, and as then explained in Chapman & Chapman (2014) FLC 93-592, says as much, but here, where his Honour’s conclusion is that there was no asset which could be the subject of an order because there was no asset of any value, there is no room to take into account the respective contributions of the parties in reaching that conclusion.
Thus, necessarily the focus has to be on Grounds 1 and 2 which challenge his Honour’s findings as to the assets of the parties, and whether it was just and equitable to make an order. Given that I have found that there is error in those findings, then, as ultimately conceded by both counsel, the proceedings would need to be remitted where the question of contributions would be open for consideration. Accordingly, for these reasons, to repeat, Ground 3 cannot be pursued.
Ground 4
In finding that there should be no adjustment of the respondent’s superannuation interest in favour of the appellant, the Court failed to take into account the matters referred to in s90SM(4) including her contributions to property of the parties to the relationship or either of them as required by s90SM(4)(a) and (b) and in particular her loan to [the Company] referred to in paragraph 16 of the Reasons, her obtaining of the amount lent by increasing the mortgage over her [Property S] apartment, her other entitlements as an unsecured creditor of [the Company], and the fact that as an unsecured lender to [the Company] she was repaid approximately 20 cents in the dollar only and her consequential losses and her other losses and in the premises the orders of the Court were plainly unjust and inequitable.
His Honour treated the superannuation of the parties separately, and found that “the parties (sic) contributions to each other’s superannuation were equal” (at [38]). His Honour further found that “each party contributed equally to the increased superannuation [of each party] during the relationship” (at [39]).
The complaint of the de facto wife is not that his Honour treated the superannuation separately, but that in assessing the respective entitlements of the parties to superannuation, his Honour failed to take into account the contributions of the de facto wife to the property of the parties, and not just to the superannuation itself.
In this instance the de facto wife is incorrect. Where superannuation is treated separately from the property of the parties, the contributions that are taken into account in assessing the respective entitlements of the parties to the superannuation are only those that relate to that superannuation. That is not inconsistent with either Note 1 to s 90MS or s 90SM of the Act as suggested by the de facto wife, and nor does the Full Court decision in Coghlan and Coghlan (2005) FLC 93-220 provide any comfort for the de facto wife. Simply put, the de facto wife has misread [48], [57] and [58] of the reasons for judgment of the Full Court, and it is not the case that the majority of the Full Court “resiled” from what was said in those paragraphs in [63] – [68] of the reasons. Certainly the correct position is explained in those latter paragraphs, and it is convenient to set them out here:
63.However, given the conclusions we have reached above, we consider that the preferred approach to the determination of property settlement cases must be to prepare in addition to the list of items of property (which would clearly fall within the definition of that term in s 4(1)), a separate list containing any superannuation interest or interests (valued according to the Regulations if a splitting order is sought in any application before the Court, or if no such order is sought, valued either according to the Regulations or otherwise). This of course is the approach which the trial Judge adopted in this case.
64.Then for the reasons we earlier gave, whether or not a splitting order is sought on either party’s application, the parties’ contributions to both the property (as defined in s 4(1)) and also to the superannuation interests should be assessed. The other factors in s 79(4)(d), (e), (f) and (g) would then need to be considered. Specifically in the context of s 79(4)(e), that is the s 75(2) factors, any division of the property (as defined in s 4(1)) and any “division” of any superannuation interest (in the sense of an allocation of the base amount) based respectively on the assessments of the parties’ contributions to the property and to any superannuation interest, would then be considered. Similarly, the parties’ future superannuation prospects (be they in capital or income form) would also need to be considered. The overall justice and equity of the ultimate award (including any proposed splitting order or the need for such an order) would then be considered.
65.In summary, then, the trial Judge has a discretion as to how superannuation interests will be treated in a particular case. If superannuation is not included in the list of property but rather made the subject of a separate pool, it will be necessary where a splitting order is sought, or extremely prudent where no such splitting order is sought (in order to ensure that justice and equity is achieved) to:
(a)value the superannuation interest (according to the Regulations if an order under Part VIIIB is sought or according to the Regulations or otherwise if no order is sought);
(b)consider and make findings about the types of contributions referred to in s 79(4)(a), (b) and (c) which have been made by the parties to the superannuation interests on either a global approach or an asset by asset approach depending on the circumstances;
(c)consider the other factors in s 79(4) being the matters in s 79(4)(d), (e), (f) and (g); and
(d)ensure that pursuant to s 79(2) the orders in relation to the parties’ property, and any order under Part VIIIB in relation to superannuation interests are just and equitable.
66.In the context of a consideration of the matters referred to in sub-paragraphs (b) and (c) of the last paragraph, the following matters may well be relevant: the relationship between years of fund membership and cohabitation; actual contributions made by the fund member at the commencement of the cohabitation (if applicable), at separation and at the date of hearing; preserved and non-preserved resignation entitlements at those times; and any factors peculiar to the fund or to the spouse’s present and/or future entitlements under the fund.
67.If this approach is adopted, whereby superannuation interests are dealt with separately from property as defined in s 4(1), but are subject to the considerations in s 79(4), then not only will any contributions, both direct and indirect, by either party to such superannuation interests be more likely to be given proper recognition, but the real nature of the superannuation interests in question can also be taken into account, both in consideration of the s 75(2) matters and in the final assessment of whether the ultimate order is just and equitable.
68.When we refer to “the real nature” of the relevant superannuation interest, we are referring to the fact that notwithstanding that its value according to the Regulations may well be calculated to be a very significant amount, that superannuation interest may be no more than a present or future periodic sum, or perhaps a future lump sum, the value of which at date of receipt is unknown.
There is no merit in this ground of appeal.
Ground 5
By reason of the matters aforesaid the exercise by the Court below of its discretion under s90SM and under s90MS miscarried and its decision caused a substantial miscarriage of justice and should be set aside and the appeal allowed.
This is a summary or catch-all ground which is dependent on the success of the previous grounds. Essentially, it is suggested that the exercise of discretion miscarried as a result of the failure to find that there were assets of value, and that it was just and equitable to make an order; that the contributions of the de facto wife were ignored, and further, her contributions to the property of the parties were ignored in assessing their entitlements to superannuation. In other words, if any of Grounds 1 – 4 succeed, then the success of Ground 5 would follow. However, if any those previous grounds do succeed, then it is unnecessary to address Ground 5, particularly if the success is found in Ground 1 and perhaps in Ground 2. As can be seen, this court has found merit in both of those grounds, and therefore it is unnecessary to further address this ground.
Conclusion
Having found merit in Grounds 1 and 2, the appeal must be allowed.
The question then becomes whether the orders the subject of the appeal are set aside and the proceedings remitted for rehearing, or whether it is open to this court to re-exercise the discretion.
Although in her Further Further Amended Notice of Appeal the de facto wife sought the latter, during the hearing she ultimately conceded that the only option is the former. Even if it were possible, with the aid of further non-controversial evidence, to determine the value of the business, his Honour made no findings as to the contributions of the parties to their property, and no findings as to relevant s 90SF(3) factors, and thus this court would not be in a position to re-exercise the discretion. I also hasten to add that it is impossible to expect that any further evidence as to the value of the business would be non-controversial.
In these circumstances paragraphs 3, 4 and 5 of the order made by his Honour must be set aside and the proceedings remitted for rehearing by a judge other than the trial judge.
Costs
At the conclusion of the hearing I received submissions from the parties as to the question of costs depending on the result of the appeal.
In the event of the appeal being allowed, the de facto wife sought an order for costs against the de facto husband, but if no order was made then she sought a costs certificate pursuant to the Federal Proceedings (Costs) Act 1981 (Cth). For his part, if the appeal was successful then the de facto husband opposed an order for costs, submitting that the primary position under s 117(1) of the Act should apply, and each party bear their own costs. In that event, the de facto husband also made an application for a costs certificate.
There is no basis here for an order for costs to be made against the de facto husband. The appeal is being allowed as a result of errors of law by the trial judge, and it cannot be suggested that the de facto husband caused or led his Honour into those errors.
I also note that no submissions were made that any of the factors required to be taken into account under s 117(2A) of the Act justified an order for costs against the de facto husband. Thus, s 117(1) should apply and each party will bear their own costs.
As to the applications for costs certificates, it is appropriate to grant them as sought given, to repeat, the appeal is being allowed as a result of errors of law by his Honour, and each party will be bearing their own costs.
I certify that the preceding sixty (60) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Strickland delivered on 28 July 2017.
Associate:
Date: 28 July 2017
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