Summerfield & Summerfield

[2008] FamCAFC 63

FAMILY COURT OF AUSTRALIA

SUMMERFIELD & SUMMERFIELD [2008] FamCAFC 63

FAMILY LAW – APPEAL – APPEAL FROM FAMILY COURT OF AUSTRALIA – PROPERTY SETTLEMENT – FINDINGS OF FACT – Not established that trial Judge was in error in the inclusion or quantification of a credit loan account or monies expended from Hong Kong bank accounts in the pool of assets. Assertion that trial Judge erred in determination of wife’s knowledge of and benefits derived from Hong Kong bank accounts or in relation to the purchase price of personal property not established.

FAMILY LAW – EVIDENCE - CREDIBILITY – Not established that appellate intervention in trial Judge’s conclusions relating to credibility warranted. State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) and Others [1999] 160 ALR 588, Devries v Australian National Railways Commission (1993) 177 CLR 472, Abalos v Australian Postal Commission (1990) 171 CLR 167 and SS Hontestroom v SS Sagaporack [1927] AC 37 cited.

FAMILY LAW - DISCRETION – Assertion that trial Judge’s exercise of discretion miscarried in relation to a taxation liability and any interest or penalties relating to it or in general not established. Norbis v Norbis (1986) 161 CLR 513 and De Winter v De Winter (1979) FLC 90-605 cited.

FAMILY LAW - APPEAL – COSTS – FINDINGS OF FACT – Assertion that trial Judge failed to find the husband had not made a full and frank disclosure of his financial position not established. Not established that trial Judge erred in findings relating to offers of settlement.

FAMILY LAW - DISCRETION – Not established that trial Judge was in error in the exercise of discretion in given nor in the weight given to the disparity of financial positions of the parties, to offers of settlement or to the liability owed to the Australian Taxation Office. Penfold v Penfold (1980) 144 CLR 311 cited.

FAMILY LAW - APPLICATION OF LAW – Not established that trial Judge erred in choice of method of assessing costs nor in the amount determined by him.

FAMILY LAW – JUDGMENTS - ADEQUACY OF REASONS – Complaint that trial Judge failed to give adequate reasons relating to the assessment of costs not established.

Federal Commissioner of Taxation v Murry (1998) 193 CLR 605
Mordecai v Mordecai (1988) 12 NSWLR 58
Bruning v MMAL Rentals Pty Ltd (2004) 136 IR 14
McDonald v Deputy Federal Commissioner of Land Tax (1915) 20 CLR 231
Norbis v Norbis (1986) 161 CLR 513
De Winter and De Winter (1979) FLC 90-605
State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) and Others (1999) 160 ALR 588
Devries v Australian National Railways Commission (1993) 177 CLR 472
Abalos v Australian Postal Commission (1990) 171 CLR 167
SS Hontestroom v SS Sagaporack [1927] AC 37
Penfold v Penfold (1980) 144 CLR 311

APPELLANT: Mrs Summerfield

RESPONDENT: Mr Summerfield

FILE NUMBER: SYF 3067 of 2003

FIRST APPEAL NUMBER: EA 135 of 2006

SECOND APPEAL NUMBER: EA 105 of 2007

DATE DELIVERED: 13 May 2008

PLACE DELIVERED: Parramatta

PLACE HEARD: Sydney

JUDGMENT OF: Coleman, Thackray & Mushin JJ

HEARING DATE: 6 December 2007

LOWER COURT JURISDICTION: Family Court of Australia

LOWER COURT JUDGMENT DATE: 23 November 2006

LOWER COURT MNC: [2006] FamCA 1238

LOWER COURT JUDGMENT DATE: 9 August 2007

LOWER COURT MNC: [2007] FamCA 804

REPRESENTATION

COUNSEL FOR THE APPELLANT: Mr Hodgson

SOLICITOR FOR THE APPELLANT: Edmund Barton Chambers

COUNSEL FOR THE RESPONDENT: Mr Lloyd

SOLICITOR FOR THE RESPONDENT: Foulsham & Geddes

Orders

1. That the appeal be dismissed.

2. That the wife pay the husband's costs of the appeal as agreed or assessed on a party and party basis.  

IT IS NOTED that publication of this judgment under the pseudonym Summerfield & Summerfield is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY

Appeal Number: EA 135 of 2006; EA 105 of 2007
File Number: SYF 3067 of 2003

MRS SUMMERFIELD

Appellant

And

MR SUMMERFIELD

Respondent

REASONS FOR JUDGMENT

1. By Notice of Appeal filed 21 December 2006 Mrs Summerfield (“the wife”) appealed against orders made by O’Ryan J on 22 November and 13 December 2006 in property settlement proceedings pursuant to s 79 of the Family Law Act 1975 (Cth) (“the Act”) between the wife and Mr Summerfield (“the husband”). Reasons for such orders were published by the trial Judge on 23 November 2006.

2. The effect of the trial Judge’s orders, in essence, was that the wife was to retain and/or receive all interests, including shareholdings and credit loan accounts, in the business established by the parties and in a property at U. She was to also receive from the husband payment of approximately $70 000. The husband was to retain and/or receive all interests in properties at Brisbane and at M. The parties were to share equally in a substantial liability owed to the Australian Taxation Office.

3. The wife sought that a number of the orders for property settlement made by the trial Judge be discharged, and further sought orders that upon payment to her of the sum of $1 616 478 by the husband, she transfer to him her right, title and interest in a property jointly owned by the parties at M. The orders thus sought, if granted, would effect a more favourable division of the parties’ assets in the wife’s favour than did the trial Judge’s orders.

4. On 7 December 2006 the husband filed an application for the costs of the property settlement proceedings. The wife filed a response to such application on 18 January 2007. On 9 August 2007 O’Ryan J ordered that the wife pay a proportion of the husband’s costs of the property settlement proceedings. By Notice of Appeal filed 6 September 2007 the wife appealed the trial Judge’s costs orders.

5. The wife’s two appeals were heard together. The husband resisted each, and sought to maintain the trial Judge’s orders.

6. Subsequent to the hearing of the appeal, pursuant to an invitation to do so from the Court during the hearing of the appeal in December 2007, further submissions were made in writing on behalf of both parties in January 2008.

Background

1. The trial Judge recorded relevant matters of background in his Reasons for Judgment of 23 November 2006. These matters provide a useful background to the appeals to this Court.

2. The wife was born in 1936 and the husband in 1941. Accordingly the parties were aged 70 and 65 respectively at the time of the trial Judge’s judgment.

3. The parties commenced cohabitation in 1980 or 1982, were married in June 1995 and separated on 11 March 2003. Their period of cohabitation thus exceeded twenty years.

4. There are no children of this relationship, although both of the parties have adult children of prior marriages.

5. The parties acquired and disposed of various assets, including real and personal property, during the course of their cohabitation. They also accumulated substantial assets as a result of business dealings during that time.

6. In 1983 the parties established a business which imported and wholesaled giftware and furniture, initially through the entity L Pty Ltd, which became known as D Pty Ltd in August 2003. In 1995 a second company, F Pty Ltd, was incorporated, and in 1999 the entity S Pty Ltd was also incorporated. These three companies form the D Group of companies (“the [D] Group”). These companies maintained essentially one business with trading activities being inseparably linked. Both of the parties, in different capacities and to varying extents, were involved in the establishment and management of these companies and injected funds into them.

7. There are currently three directors of each of the companies, being the wife, her son Mr R, and Ms K who is not related to either party. The wife is the Managing Director of the main trading entity in the D Group, D Pty Ltd. The shareholding of each company is as follows:-

Company	Shares held by	Number and class of shares
D Pty Ltd	Wife	9 ordinary shares
Mr R	1 ordinary share
F Pty Ltd	Wife	1.5 ordinary shares
Husband	1.5 ordinary shares
Ms K	1 ordinary share
S Pty Ltd	Wife	1 ordinary share
Husband	1 ordinary share
Ms K	1 ordinary share

1. During the period of cohabitation with the wife, and after separation, the husband was involved in litigation with third parties. Family law proceedings with his first wife were on foot at or about the time the parties’ cohabitation commenced. These proceedings were resolved prior to February 1990. Also in the early 1980s, the husband commenced proceedings in the Supreme Court of New South Wales against the then directors of BMCH Pty Ltd and BMS Pty Ltd and Others, of which he had previously been a director. Those proceedings were settled on 7 November 1984. The husband was also involved in litigation in the Supreme Court of New South Wales against the wife’s son regarding the ownership of a certain yacht between March 2003 and 14 April 2005. As a consequence of the culmination of these proceedings the husband received over $1 million, albeit that sum was reduced by substantial liabilities for costs.

2. The assets of the parties were substantial. The wife contended that the net assets of the parties totalled $6 554 031. The husband asserted a figure of $8 591 881. The trial Judge, however, concluded that the gross assets totalled the sum of $9 179 988 with liabilities of $3 540 857, resulting in the net figure of $5 639 131. The trial Judge further concluded that the contribution based entitlements of the parties were equal, however, considered an adjustment of 2.5 per cent in favour of the husband pursuant to s 79(4)(e) of the Act was appropriate in the circumstances, noting in particular that amounts relating to goodwill of shares and debtors remained unquantified.

3. A number of his Honour’s findings with respect to the asset pool of the parties, particularly in relation to a liability which the husband owed to the Australian Taxation Office (“ATO”), the 2.5 per cent adjustment of the parties’ entitlements in favour of the husband, and the alleged unfairness that his orders produced, gave rise to the first of the wife’s appeals and will require close scrutiny later in these Reasons.

4. Subsequent to the delivery of judgment in the substantive proceedings, on 9 August 2007, the trial Judge concluded that the wife should pay approximately one-fifth of the husband’s costs of the property settlement proceedings, assessed on a party/party basis. In so concluding, his Honour had regard to the offers of settlement proposed by the husband which were rejected by the wife, the success of each party in relevant aspects of the proceedings and the husband’s establishment of the existence of justifying circumstances, and wife’s lack thereof, to make an order for costs.

5. The second of the wife’s appeals arises from this order for partial costs to be paid by the wife to the husband.

The Property Settlement Appeal

Trial Judge’s Reasons: Property Settlement

1. The trial Judge commenced his Reasons for Judgment with an outline of the legal principles which governed the property settlement proceedings before him and a brief summary of the issues and circumstances relevant to the determination of those proceedings. His Honour then gave an extensive background to the proceedings (commencing at paragraph 35).

2. The manner in which the case had proceeded before the trial Judge on certain dates in August, September and November 2005 and February, March, April and July 2006 was then discussed. Orders were made by his Honour on eight occasions during that period. The evidence given by both of the parties throughout the proceedings before the trial Judge, and also that of others, was found to have at times been unsatisfactory and lacking corroboration.

3. A considerable proportion of his Honour’s Reasons for Judgment concerned the financial circumstances of the parties. His Honour noted matters concerning the party’s financial circumstances which were not contentious as being:-

   ·    Notional inclusion of $250 000 paid to the husband by way of partial property settlement; and

   ·    That no amount would be notionally included for paid legal costs and associated liabilities.

4. The trial Judge also outlined the issues requiring determination in relation to the parties’ financial circumstances. These can be summarised as:-

   ·    Valuation of the shares in the D Group;

   ·    Notional inclusions of $500 000 for unexplained debtors and $1 000 000 for unexplained stock relating to the D Group; and

   ·    Debts owed by the wife totalling $7900 and owed by the husband totalling $1 244 524.

5. The valuation of the shareholdings in the D Group was described by the trial Judge as “very difficult”. The value of the shareholding in the group was contended to be $920 905 on behalf of the wife and $2 900 000 on behalf of the husband, a substantial difference of $1 979 095. Expert evidence was adduced by two Chartered Accountants, Ms E on behalf of the wife and Mr S on behalf of the husband.

6. Both experts, well-qualified and competent witnesses, gave evidence as to the value of the business of the D Group in a second joint statement dated 23 August 2005, in which they agreed upon the valuation methodology and the inclusion of an allowance of $100 000 to incorporate benefits attached to the business as at 30 June 2005. The basis for such an inclusion, despite the relative lack of profitability of the business, was described by Ms E in a report of 26 July 2004 to be that “a prospective purchaser of the business would pay an amount to acquire the business equal to the net tangible asset value plus some small premium for goodwill” to “avoid start up costs associated with commencing a new business of this size”, the benefits of “the reputation attaching to the business” and “the perceived benefits of the owner of the business being self employed”. On this basis the experts agreed that the shareholding of the parties in the D Group totalled $1 658 216.

7. Also in the joint statement of 23 August 2005, Mr S contended that a “special purchaser” may pay a greater amount, given the reported gross profit figures as well as the value of total stock of $927 084 as at 30 June 2005 in conjunction with the acquisition of “the existing customers” and the absorption of “the business operations swiftly without attendant overhead expenses”.

8. A third joint statement, dated 31 March 2006, was prepared by the experts. In this statement they agreed that the value of the equity interests of the parties in the D Group, comprised shares and loans, totalling $1 050 988, where no “special purchaser” was taken into account. Mr S however maintained that such a purchaser would pay the greater amount of $2 933 517 for the business. Ms E acknowledged the possibility of such a purchaser but contended that there was no evidence that one existed in relation to the D Group and thus that it could not be assumed that such a significant price could be attached to these entities.

9. The trial Judge then outlined the legal principles which govern the valuation of an asset and some general principles relevant to the valuation of businesses, and of shares and equity in them. In relation to the value of the goodwill of a business, his Honour cited a number of authorities, namely Federal Commissioner of Taxation v Murry (1998) 193 CLR 605, Mordecai v Mordecai (1988) 12 NSWLR 58, Bruning v MMAL Rentals Pty Ltd (2004) 136 IR 14 and McDonald v Deputy Federal Commissioner of Land Tax (1915) 20 CLR 231.

10. His Honour noted that the experts agreed that the D Group had a value greater “than the residual value which would ordinarily be arrived at using an earnings method of valuation” and that it was understandable “why Mr [S] adopted the special purchaser approach because he [Mr S] recognised that the business has integral and intangible benefits”. However his Honour rejected this opinion, and was “satisfied that there is no evidence that enables me to conclude that there is a special purchaser with a particular interest in obtaining the shares.”

11. The trial Judge ultimately did not accept the opinion of Ms E either, accepting “the criticisms by Mr [S] of the amount of $100 000” asserted by her. His Honour was satisfied that “the ‘benefits’ identified by both Ms [E] and Mr [S] are worth more than $100 000.”

12. The practicality of ordering a sale of the business was considered by the trial Judge, his conclusion being that this was “inappropriate” in the circumstances. Thus his Honour concluded:-

    235.I have come to the conclusion that the value of the shares is not less than the value contended for by Ms [E]. However, I am also of the view that the value is probably higher, although I am unable to quantify this additional value. I have no doubt that the unquantified value is not $2,000,000 for the reasons given by Ms [E]. However, I am also of the view that the value is greater than $100,000 for the reasons given by Mr [S]. I am going to take this further unquantified amount into account when considering the matters in s 75(2). As to the weight I shall give to this matter I rely upon the evidence of Mr [S]. For example, he said that amount of $360,904 would be an “upside value.”

13. The issue of unexplained stock was then considered by the trial Judge (commencing at paragraph 236). The husband contended that $1 000 000 should be notionally included in the asset pool in this regard as the closing stock values contained in financial statements of D Pty Ltd could not be relied upon. Mr S gave evidence that there had been understatements as to the value of stock in D Pty Ltd as at 30 June 2004, and the D Group as at 30 June 2003. Citing reasons for doing so, Ms E on behalf of the wife gave evidence that she disagreed with Mr S’s analysis.

14. The conclusions of the trial Judge in relation to the valuation controversy were expressed in the following terms:-

    245.In summary, on behalf of the Wife it was submitted that the calculations by Mr [S] were wrong because there had been no inclusion for customs and freight charges and further, that there was a variance with the actual profit margin which was small when expressed in percentage terms but significant in relation to the ultimate figure.

    246.I have come to the conclusion that the opinion of Ms [E] is to be preferred for the reasons she gave. Given what she said the evidence does not enable me to safely conclude that there is $1,000,000 in missing stock. Thus, I am not going to include this notional amount for stock.

15. The trial Judge then turned to the matter of unexplained debtors (commencing at paragraph 247). The husband asserted that the amount of $500 000 should be notionally included as an asset of the parties as a result of unexplained debtors of the D Group.

16. There were discrepancies between the records of a diary kept for the purpose of recording debtors and the computer database. The husband maintained that between May and June 2003 a reduction of trade debtors from $1 802 342 to $1 300 000 was recorded only in the diary and that during this period it was clear that the business was raising invoices. Thus it was submitted on behalf of the husband that in the relevant period invoices were raised but were not recorded and the payments were not credited to the company. It was further submitted that “the error cannot be put down to computer error and that on the balance of probabilities it was a deliberate attempt” by the wife to conceal the debtors.

17. Ms E gave evidence that the business raised debtors averaging $500 000 per month and therefore “the level of debtors should have been constant.” The evidence of Mr S revealed that a difference in accounting records between the combined trade debtor figures of D Pty Ltd and F Pty Ltd and the separate financial statements of each entity at the relevant time totalled $562 684.

1. The wife contended that the business was seasonal and that the figure of $500 000 per month was an average where “invoicing can in certain months be as low as $154,000 or $236,000”. It was submitted on behalf of the wife that “it was inconceivable” in light of the present litigation and the involvement of the ATO that the wife actively removed such sum from the D Group. It was suggested that a computer upgrade at the relevant time may have distorted business accounts.

2. The trial Judge held that there had been ample opportunity for the wife to have provided an explanation of the precise business activities during that time and thereby potentially exonerate herself. However, there was also a lack of evidence indicating whether invoices were raised and the quantum of them. His Honour thus concluded:-

   I have come to the conclusion that the Wife has failed to provide any satisfactory explanation for the reduction in debtors given that invoices were raised in the relevant period. However, I am not satisfied that it is safe to simply assume an average figure of $500,000 for the relevant period and thus, I am going to take what is a non-disclosure by the Wife into account when considering the matters in s 75(2).

3. A further issue arose in the proceedings in relation to certain Hong Kong bank accounts. The wife asserted that the figure of $312 600 should be notionally included in the asset pool, being a sum that the husband removed from such bank accounts in the post-separation period.

4. The husband gave evidence that he applied $140 000 of the sum withdrawn to “renovations, repairs and refurbishments” of his property in Brisbane and the remainder on living expenses, having had his application for spousal maintenance refused on the basis of his having the use of the sum of $312 600.

5. His Honour recorded the following observations and conclusions:-

   258.I accept that given the Husband was no longer working in the business he had a need for support. However, I do not accept that the Husband can ask the Wife to indirectly contribute the level of expenditure the Husband undertook by excluding the amount from the list of assets. The Husband’s expenditure included the purchase of a motor vehicle and trips overseas. The Husband also had the benefit of $250,000 paid by Ms [C] and the superannuation entitlements and it has all been expended. The disposition of all these funds cannot be explained by expenditure on legal costs and the Brisbane property. I am going to include the amount of $172,600. This gives the Husband the benefit of the money he spent on the Brisbane property. I also note that counsel for the Husband conceded that if I included as a liability the tax debt of $914,000 then I should include as an asset the amount of $312,000.

6. The trial Judge proceeded to consider the capital gains taxation implications arising from the sale of a property in Melbourne. The parties agreed that $900 000 should be included in the asset pool from the proceeds of such sale, as should $515 000 as a liability for a discharged mortgage on that property. They also agreed that the wife should bear the responsibility for the capital gains taxation resulting from the sale. The trial Judge therefore concluded that he would order that the husband pay the wife “an amount of money which represents a specified percentage of the additional amount of tax the Wife has to pay for the year ended 30 June 2006” by reason of the sale of the Melbourne property.

7. His Honour then discussed the unsecured loans of each of the wife and husband, determining to exclude all of the liabilities of the parties save for the debt owed by the husband to the ATO.

8. The trial Judge thus made the following conclusions in regard to the assets and liabilities of the parties at the time of the hearing before him:-

Assets	$
M Property	W/H	3 100 000
U Property	W/H	2 700 000
Melbourne Property (sold)	W	900 000
Brisbane Property	H	685 000
Funds NAB a/c (…)	W	3129
Household contents	W	30 450
Jewellery	W	10 000
Commonwealth Life Superannuation Master Trust	W	18 000
Shareholding - D Pty Ltd	W	868 359
Shareholding - F Pty Ltd	H	18 213
Shareholding - F Pty Ltd	W	18 213
Shareholding - S Pty Ltd	H	8060
Shareholding - S Pty Ltd	W	8060
Credit loan accounts, D Group	H	259 318
Annual/long service leave entitlements	W	86 377
Annual/long service leave entitlements	H	40 553
Funds at bank	H	550
Shares S	W/H	1100
Funds at Commonwealth Bank	W	2006
Monies expended from Hong Kong Bank accounts	H	172 600
Partial property settlement	H	250 000
Total	9 179 988
Liabilities
Mortgage – M Property - ING	W/H	(769 000)
Mortgage – U Property - CBA	W/H	(1 300 000)
Mortgage – Melbourne Property- Orix - Discharged	W	(515 000)
Loan account, D Group	W	(42 857)
Australian Taxation Office	H	(914 000)
Total	(3 540 857)
Balance	5 639 131

1. His Honour evaluated the contribution based entitlements of each of the parties. The husband contended that these should be considered equal, while the wife sought a percentage of 55 – 60 for herself, and 40 – 45 per cent for the husband. The wife argued that the husband had a lesser entitlement as a consequence of his mismanagement of the financial and taxation affairs of the D Group.

2. The trial Judge determined that there was insufficient evidence upon which to base conclusions regarding the assets of each of the parties at the commencement of cohabitation, and, for reasons which he detailed, proceeded “on the basis that the contributions made by the parties from pre-cohabitation assets were approximately equal.”

3. In relation to contributions during the cohabitation period, and in opposition to submissions made on behalf of the wife, his Honour concluded:-

   276.I am satisfied that during the relationship the Husband made a greater contribution to the establishment, management and operation of the business of the [D] Group. I reject the contentions that he made a “negative contribution” in the sense that he engaged in conduct that adversely affected the Company. This refers, amongst other things, to the relationship with Ms [C]. As to the effect of the tax fraud I am satisfied that the Wife knew about what was happening and directly and indirectly gained benefit from it.

   278.I accept that during the relationship the Wife has made a greater contribution to domestic tasks.

4. In the post-separation period the wife was considered to have made a greater contribution to the business of the D Group although she had also benefited from that business, as well as from the use of the matrimonial home.

5. His Honour thus recorded his conclusions in relation to contributions:-

   279.In all the circumstances, I am of the view, that the contribution based entitlements of each party, expressed as a percentage of the net assets, should be assessed as to 50 per cent to the Wife and 50 per cent to the Husband.

6. The trial Judge considered the appropriateness of an adjustment to the contribution-based entitlements of the parties as he had determined them pursuant to s 79 of the Act. The wife contended that such an adjustment was warranted only insomuch as it would render the overall entitlement to be 60 per cent to her and 40 per cent to the husband. The husband asserted that the contribution based entitlements should be regarded as equal and that no further adjustment was appropriate.

7. In addition to matters of age, health and employment capacity, his Honour made mention of the financial support the husband had received from his present de facto wife, the “unquantified goodwill value of the [D] Group” and the wife’s “failure of make a full and frank disclosure in relation to debtors raised in the period May/June 2003” in the D Group.

8. His Honour concluded:-

   289.In all the circumstances, I am of the view, that there should be an adjustment of 2.5 per cent or approximately $141,000 of the net assets of the parties to the contribution based entitlement of the Husband. This is mainly to reflect my findings in relation to the unquantified goodwill value of the shares in the [D] Group and also the unexplained debtors. It represents a disparity of entitlement of $281,957 and this adequately reflects the weight I have given to these matters.

9. The trial Judge then outlined the proposed division of assets to reflect the entitlements of each of the parties as follows:-

Wife
Assets	$
U Property	2 700 000
Melbourne Property (sold)	900 000
Funds NAB a/c (…)	3129
Household contents	30 450
Jewellery	10 000
Commonwealth Life Superannuation Master Trust	18 000
Shareholding - D Pty Ltd	868 359
Shareholding - F Pty Ltd	18 213
Shareholding of husband - F Pty Ltd	18 213
Shareholding - S Pty Ltd	8060
Shareholding of husband - S Pty Ltd	8060
Credit loan accounts of husband - D Group	259 318
Annual/long service leave entitlements	86 377
Funds at Commonwealth Bank	2006
Total	4 930 185
Liabilities
Mortgage – U Property - CBA	(1 300 000)
Mortgage – Melbourne Property - Orix - Discharged	(515 000)
Loan account, D Group	(42 857)
Payment to husband	(393 741)
Total	(2 251 598)
Balance	2 678 587

Husband
Assets	$
M Property	3 100 000
Brisbane Property	685 000
Annual/long service leave entitlements	40 553
Funds at bank	550
Shares S	1100
Monies expended from Hong Kong Bank accounts	172 600
Partial property settlement	250 000
Payment from wife	393 741
Total	4 643 544
Liabilities
Mortgage – M Property - ING	(769 000)
Australian Taxation Office	(914 000)
Total	(1 683 000)
Balance	2 960 544

1. For reasons which he detailed, the trial Judge was of the opinion that orders made in accordance with the proposed division would be just and equitable.

Grounds of Appeal: Property Settlement

Ground 1

1. The Notice of Appeal raised nine challenges to the trial Judge’s property settlement orders. The first of such grounds provided:-

   That the Trial Judge was in error in the exercise of his discretion in that the result embodied in his orders was plainly unreasonable and manifestly unjust.

2. As would be apparent from its terms, without more specific challenges, this ground would be unlikely to succeed given the broad nature of the discretion which the trial Judge was exercising and the outcome which he determined to be just and equitable.

3. The ambit of the challenge was however clarified by the written submissions of Counsel for the wife. It was there submitted that the result was “unreasonable or plainly unjust” in reliance upon the trial Judge’s adjustment of 2.5 per cent in the husband’s favour in the entitlements of the parties. Counsel also relied on the following aspects of his Honour’s findings relating to the asset pool of the parties:-

   (a)that the Husband’s credit loan account with the [D] Group (an amount of $259,318.00) be included as an asset notwithstanding that this loan account had been extinguished as a consequence of payments being debited from this account in reduction of the mortgage in respect of the jointly owned former matrimonial home at [M].

   (b)that the amount of only $172,600.00, rather than the amount of $312, 600.00, being monies expended by the Husband since separation from the accounts in his sole name in Hong Kong, should be included in the asset pool for division between the parties as a notional asset. This lower amount was credited to the Husband’s entitlement to property settlement instead of the higher amount.

   (c)that the Wife should equally share in the tax burden of $914,000.00 attributable to the Husband, as a consequence of his tax evasion.

4. The written submissions of Counsel for the wife submitted that the challenged findings “had a significant effect upon the quantum of the net asset pool available for distribution” and “were to the detriment of the” wife. It was ultimately submitted on behalf of the wife that the effect upon the asset pool in combination with the adjustment to the parties’ entitlements “created a result which … was plainly unreasonable and manifestly unjust.”

5. The written submissions of Counsel for the husband addressed each of the wife’s complaints relating to the trial Judge’s findings regarding the asset pool. In relation to the husband’s credit loan account it was submitted that “[t]he learned Trial Judge had regard to the third joint statement of the experts [E]/[S]”, evidence which was asserted to have not been challenged, and to have been corroborated by oral evidence and which, it was submitted, “settled” the “issue of loan accounts”. The figure which the trial Judge arrived at was submitted to be the “combination of two credit loan accounts” those being “to [D] [sic] Pty Ltd and [F] Pty Ltd.”

6. The trial Judge’s Reasons for Judgment relevantly recorded in relation to the credit loan account that:-

   206.In the third joint statement of 31 March 2006 the Accountants stated that they agreed that the value of the equity interests of the parties, in the absence of a special purchaser, as at 30 June 2005 was as set out in the third report of Ms [E] of 24 March 2006. In her third report Ms [E] valued the parties [sic] interests in the Group as follows:

   …$

   •Loan to [D] Pty Ltd (h)  257,353

   •Loan to [F] Pty Ltd (h)  1,965

   …

7. The trial Judge’s findings as to the financial circumstances of the parties, apparently based upon the agreed evidence of the experts, included the figure of $259 318 as an asset of the husband in relation to credit loan accounts to the D Group, being the aggregate of $257 353 (loan to D Pty Ltd) and $1965 (loan to F Pty Ltd).

8. In relation to the “add-back of $172,600.00”, Counsel for the husband submitted that the husband gave unchallenged evidence in relation to his expenditure of $140 000.00 and that the trial Judge had allowed such expenditure to cover living expenses. The figure of $172 600.00, which his Honour included as an asset of the husband, was submitted to have been the balance of the Hong Kong bank account after the expenditure of $140 000.00.

9. The trial Judge noted that of the $312 600 from the Hong Kong bank accounts, $140 000 was expended on “renovations, repairs and refurbishment of the […] Brisbane property” and “the purchase of a motor vehicle and trips overseas”. His Honour considered it appropriate to deal with the $312 600 in the following manner:-

   258.I accept that given the Husband was no longer working in the business he had a need for support. However, I do not accept that the Husband can ask the Wife to indirectly contribute the level of expenditure the Husband undertook by excluding the amount from the list of assets. … The disposition of all these funds [from the Hong Kong accounts, Ms [C] and superannuation] cannot be explained by expenditure on legal costs and the Brisbane property. I am going to include the amount of $172,600. This gives the Husband the benefit of the money he spent on the Brisbane property.

10. Counsel for the husband also addressed the issue of the taxation burden. In written submissions, the evidence of each of Ms C, the husband and the wife was cited and it was submitted that “[t]he finding of the wife’s involvement with this [the Hong Kong bank] account was well within the proper exercise of discretion.”

11. His Honour’s Reasons for Judgment contained extensive discussion in relation to the Hong Kong Bank accounts and the taxation liability of $914 000 (commencing at paragraph 95). To better understand the wife’s complaint, it is appropriate to reproduce much of this discussion:-

    95.In May 1995 accounts were opened with the Standard Chartered Bank in Hong Kong. One account was a savings account no.# and the other was a current account no.#. The Husband gave extensive evidence about the circumstances surrounding opening the accounts. The Husband contended that he opened the accounts at the suggestion of [Ms L] of [H] Ltd and [A] & Co Ltd. At a meeting in Hong Kong in 1995, in the presence of both parties, [Ms L] suggested that the [D] Group should over pay [H] Ltd and [A] & Co Ltd invoices by 10 per cent. She offered to then pay to a Hong Kong bank account an amount equal to 10 per cent of the value of all goods which the D Group purchased from [H] Ltd and [A] & Co Ltd. [Ms L] said “We do this with all our major accounts. You can then take advantage of the increase in sales value of all the business we do”. The Husband also contended that [Mr R] told him about the idea and that he had a similar arrangement for his business in the United States. This was denied by [Mr R] although he admitted that he introduced the Husband to Ms [L] and that he had been introduced to her “many years ago”. As well, the Wife contended that [Mr R] introduced [A] & Co Ltd as a buying agent for [D] Pty Ltd.

    96.The Husband contended that he and the Wife then went to the [Q] Branch of Standard Chartered Bank. The Wife said “Why don’t you open the account in your name? I already have an account in my name at the Hong Kong and Shanghai Bank”. The Husband gave evidence that it was a requirement of the Hong Kong authorities that the holders of bank accounts should have a local Hong Kong address. Bank statements and correspondence from the Bank were sent to the business address of Ms [L] in Hong Kong and she then sent the documents to the Husband in Australia. The Husband filed the documents he received in what he described as the “Hong Kong Standard Chartered Bank file” which he kept on his desk in the office as [U] that he shared with the Wife. The Husband contended the Wife opened the mail everyday in the office and she handed the Standard Chartered Bank statements and correspondence to the Husband after she opened the mail. The Husband then put the documents in the file which he described as a multi levered manila type folder with a red cover, about 40mm thick. It had different sections for bank statements and correspondence. It contained all the correspondence he had with the bank in Hong Kong and all the bank statements since the accounts were opened in 1995. It also contained copies of excel spreadsheets which he produced on his computer. They listed every invoice for stock and all payments due to the [D] Group by [H] Ltd and [A] & Co Ltd. The payments equated to 10 per cent overpayments on the invoice price of all purchases made by the [D] Group from [H] Ltd and [A] & Co Ltd. The Husband contended that on a weekly basis he showed the spreadsheets to the Wife.

    97.For a significant period the invoices from [H] Ltd and [A] & Co Ltd disclosed the costs of goods plus a commission charge of 10 per cent. This was the profit skimming scheme described by Mr [S].

    98.In further evidence in chief, the Husband contended that funds were transferred from the account in Hong Kong to the credit of an account in the name of [D] Pty Ltd with a bank at […]. There were two accounts – one an Australian dollar account and the other a United States dollar account. As the accounts were in the name of [D] Pty Ltd the Husband and the Wife were the only signatories on the accounts. The funds were then used to pay expenses of [D] Pty Ltd including the purchase of stock.

    99.The Wife contended that she was not in Hong Kong at the time the accounts were opened. She purported to annex to her affidavit of evidence in chief a copy of her passport. However, it was not annexed. A call was then made for the original passport and at first it was not produced and it was contended that it could not be located. Ultimately, there was put into evidence the Wife’s New Zealand passport issued 1988 (Exhibit R) and it revealed that the Wife was not in Hong Kong in May 1995.

    100.In her affidavit the Wife contended that she first became aware of the Hong Kong bank accounts when they were disclosed by the Husband in his Financial Statement of 7 April 2003. However, in cross examination the Wife said that she always knew the Husband had overseas bank accounts. She said “I knew that he had an account in Hong Kong”. She also regularly saw invoices from [H] Ltd in which the 10 per cent commission was recorded. She could not recall observing a commission on any invoice prior to that time. She could not recall when she first saw it. In her oral evidence the Wife contended that she thought that it was an appropriate payment to [H] Ltd for services provided by that company however, she said it did not come as a surprise, I assume, referring to the profit skim scheme. Further, she contended that the Husband explained to her that it was a commission for work done. The Wife contended that she never raised any question about this expense with the supplier. For example, she contended that she never spoke to Ms [L] about it. On behalf of the Wife evidence was given by Ms [L]. However, as it transpired Ms [L] was not made available for cross examination and I rejected her affidavit.

    …

    106.On 28 January 1997 the Husband authorised the Wife to withdraw funds from the accounts with the Standard Chartered Bank in Hong Kong. He annexed to his affidavit copies of two authorities to sign cheques dated 28 January 1997 which he contended were signed by the Wife. The Husband usually made all of the withdrawals. In cross examination the Wife said it appeared to be her signature but she could not recall signing the document. She said it looks like “my signature”, “very much like” her signature. It was not put to the Husband in cross examination that he forged the Wife’s signature on the documents. The Wife could not recall signing the documents or ever being at the bank before May 2004. However, the Wife was in Hong Kong on 28 January 1997 (Exhibit R). I am satisfied that the Wife did sign the “Authority to Sign Cheques” (Exhibit S). Ms [C] gave evidence which corroborated the Husband’s contentions that the Wife was aware of the Hong Kong Bank accounts. Ms [C] saw the Wife in possession of statements from the Hong Kong Bank. She also overheard the Husband and the Wife talking about the accounts. I also observe that although the accounts were opened in 1995 Mr [K] only carried out an investigation of transactions from August 1997 onwards.

1. His Honour, having accepted that the wife was aware of the Hong Kong bank accounts, further recorded:-

   107.I accept that at the suggestion of perhaps [Mr R], and the participation of Ms [L], the Husband initiated the profit skim scheme and organised the opening of bank accounts in Hong Kong to facilitate the scheme. I also accept that the Wife was not in Hong Kong at the time when the bank accounts were opened. However, I do not accept the Wife’s contentions as to her awareness of the profit skim scheme and the bank accounts in Hong Kong. I am satisfied that she was always aware of the existence of the profit skim scheme and the overseas bank accounts and I reject her denials.

2. Under the heading “Debt to Australian Taxation Office”, the trial Judge considered the competing contentions of the parties as to the inclusion of the $914 000 taxation liability in the list of assets. His Honour concluded:-

   271.I am going to include in the liabilities the tax debt of the Husband. The Wife knew about the scheme and directly and indirectly benefited from the scheme. As well, some of the funds were used to acquire stock and used for the benefit of the [D] Group. The funds also enabled the parties to make a very expensive gift to [Mr R] for his birthday. Further, the tax also related to the amount of $312,600 taken by the Husband from the accounts after separation and a significant portion of that amount I have notionally included in the assets for division. As well, money was spent on the Brisbane property.

3. As is apparent from its terms, this ground, as articulated in the wife’s Notice of Appeal, appears to raise a challenge to the trial Judge’s exercise of discretion. The complaints agitated on behalf of the wife with respect to the trial Judge’s exercise of discretion do not appear to involve direct challenges to findings of fact made by the trial Judge. It is also apparent that, to the extent that other challenges which do assert errors of fact by his Honour find favour, the ultimate justice and equity of the outcome may require consideration independently of any challenges to the exercise of discretion. The obstacles to challenges to the exercise of judicial discretion are not in doubt, and do not require extensive restatement in this appeal. The judgment of Brennan J in Norbis v Norbis (1986) 161 CLR 513 is instructive for present purposes. His Honour there said (at 539 – 540):-

   The difficulties in the way of developing guidelines beset an appellate review of the exercise of discretion under s.79. Unless the primary judge reveals an error in his reasoning, the Full Court can intervene only if the order made is not just and equitable. How does the Full Court arrive at that conclusion? In Bellenden (formerly Satterthwaite) v. Satterthwaite [1948] 1 All ER 343 at p. 345 Asquith L.J. stated the rationale of an appellate court’s approach:

   “It is, of course, not enough for the wife to establish that this court might, or would, have made a different order.  We are here concerned with a judicial discretion, and it is of the essence of such a discretion that on the same evidence two different minds might reach widely different decisions without either being appealable.  It is only where the decision exceeds the generous ambit within which reasonable disagreement is possible, and is, in fact, plainly wrong, that an appellate body is entitled to interfere.”

   The “generous ambit within which reasonable disagreement is possible” is wide indeed when there are a number of factors to be taken into account and the comparative weight to be attributed to those factors is not clearly indicated by uniform standards and values of the community. The generous ambit of reasonable disagreement marks the area of immunity from appellate interference.

4. In this case, nothing to which we have been referred by Counsel for the wife persuades us that the trial Judge’s exercise of discretion in reliance upon the facts as found by him “miscarried” in the sense in which that term can be understood in the light of the judgment of Brennan J in Norbis (supra).

5. As the written submissions on behalf of Counsel for the wife, and those in response of Counsel for the husband make clear however, this ground may in reality be directed, though not so expressed, rather to assertions that the trial Judge’s exercise of discretion miscarried insofar as it was made in reliance upon erroneous findings of fact. Were such a challenge to be made out, appellate intervention may be enlivened (see De Winter and De Winter (1979) FLC 90-605).

6. It is convenient to move to a consideration of the complaints earlier identified involving challenges to findings of fact made by the trial Judge which are specifically articulated in other grounds of appeal. As we have already noted, unless one, or more, of these challenges is made out, Ground 1 must fail. To the extent that any of the challenges summarised in paragraph 56(a), (b) or (c) of our reasons is made out, appellate intervention with respect to the exercise of discretion may be enlivened.

Ground 2

1. The second ground of appeal provided:-

   That the Trial Judge was in error on the evidence by including as an asset of the parties, the Husband’s credit loan account with the [D] Group, such loan account having been extinguished as a consequence of payments being made from this loan account in reduction of the mortgage of the jointly owned former matrimonial home at [M].

2. Counsel for the wife submitted that the inclusion of the loan account in the asset pool “caused a significant distortion” to the entitlement of the wife as, in determining that she should retain the D Group, the trial Judge credited the sum of $259 318.00 to the wife although such loan account was submitted not to be in existence.

3. During the course of oral submissions, Counsel for the wife submitted that although the valuers had addressed the issue of the valuation of the D Group, they had not sought to make any adjustments to the parties’ loan accounts. In support of that submission, Counsel for the wife referred us to a number of references to the transcript of proceedings before the trial Judge.

4. Counsel for the wife (by reference to Appeal Book, Volume VIII, page 1802) directed the Court to an exchange with the trial Judge in relation to this topic. During that exchange his Honour asked Counsel for the wife why he had deleted the loan account from what he submitted to be the relevant assets and liabilities of the parties. As is apparent from Appeal Book, Volume VIII, page 1803, the schedule relied upon by Counsel for the wife also reflected a reduction of approximately $300 000 with respect to the wife’s loan account, such reduction having occurred by virtue of the payment of mortgage instalments in relation to the property of the wife. It was submitted by Counsel for the wife that there was no reason why the same approach ought not have been taken with respect to the mortgage on the M property.

5. In support of his contentions, Counsel for the wife particularly relied upon the following exchange between himself and the trial Judge:-

   HIS HONOUR: And worked out that the money – when they realised the fiddle on the director’s expenses, took those out as an expense of the company and debited them against your client’s loan account. Thus, the company has reduced its indebtedness to your client. That’s probably what’s happened. Which means, let’s have a look at the director’s – the shareholder’s loan account ledgers.

   MR HODGSON: Certainly, but I can indicate, your Honour, that the debits to my client’s loan account have related to the mortgage repayments.

   HIS HONOUR: I understand that, but they were previously claimed as an expense of the company.

   MR HODGSON: That’s- yes.

   HIS HONOUR: Someone says, “We’d better fix that up”.

   MR HODGSON: Yes.

   HIS HONOUR: So what they’ve done is now redone it be debiting those expenses against your client’s director’s loan, hence reducing the amount the company owes to it.

6. It was thus submitted by Counsel for the wife that although Ms E had included a loan account of the husband of “a positive 250-odd”, the qualification referred to by her in her report, which was not taken into account, resulted in a “distortion as to what the true picture was” as the sum of approximately $790 000 “should properly have been attributable” against both the parties’ loan accounts. The effect of so doing was submitted to have been that, if equally attributed, the husband, rather than having a credit balance of $259 318 in his account, would have owed the company money on his loan account. Counsel for the wife asserted that the trial judge’s error may have been because Ms E had not “embarked upon a task of sorting out the loan accounts” and had “simply indicated” how the books of the company reflected these matters.

7. Ultimately it was submitted by Counsel for the wife that the husband’s loan account should not have been included in the sum of $259 318 and that if it was appropriate to include such sum, the wife’s loan account should have been similarly treated. It was thus submitted that treating the loan accounts differently produced a “distortion” with respect to the asset pool, such distortion being exacerbated by the reality that the husband’s credit loan account was transferred to the wife by virtue of the trial Judge’s orders. The practical effect of the error asserted on behalf of the wife if accepted was thus that the wife was credited with receiving an asset worth $259 318 which was not worth that sum.

8. Counsel for the husband submitted that there was no evidence before the trial Judge that the funds represented by the loan account balance had been utilised, and that the evidence indicated the contrary.

9. Although we have alluded to this challenge in the context of our consideration of Ground 1, it is necessary to now refer more extensively to the trial Judge’s conclusions with respect to this topic.

10. Brief reference to his Honour’s Reasons for Judgment in this regard has earlier been made. Referring to the third joint statement of 31 March 2006 of the expert witnesses regarding the value of the D Group, the trial Judge set out the figures given by Ms E, including the sum of $257 353 loaned to D Pty Ltd by the husband. The list includes another loan by the husband of $1 965 to F Pty Ltd. These two loans total $259 318.

11. Later in his Reasons, his Honour noted that it had been “submitted that the Husband had a credit loan account with the D Group which exceeded $312 600” at his disposal. The basis on which that sum was asserted is not apparent to us. In his conclusion relating to the financial circumstances of the parties, the trial Judge listed as an asset of the husband the sum of $259 318 as a credit loan account with the D Group. The basis of that figure we have already indicated. That basis was mathematically sound.

12. In relation to the mortgage over the M property, the trial Judge noted that “[t]he mortgage repayments were, and still are, paid by [D] Pty Ltd”. His Honour’s conclusion regarding the financial circumstances of the parties included reference to the figure of $769 000 owed to ING by way of mortgage over the M property. No error has been demonstrated with respect to any aspect of his Honour’s consideration of these matters, or his treatment of them.

13. The submissions on behalf of the husband regarding Ground 1 are particularly helpful in relation to this challenge:-

    Without assistance in attempting to locate that evidence [as to the existence of the loan account], it would appear so far as the Respondent [husband] is concerned, that the issue of loan accounts was settled by the experts. … [E’s] evidence seems to suggest that she did have access to documentation verifying her figure collectively at $259,318.00. That figure is a combination of two credit loan accounts identified by the learned Trial Judge at page 53, Vol. 1, paragraph 206, being loans to [D] [sic] Pty Ltd and [F] Pty Ltd.

14. Whilst there may have been other findings open to his Honour on the evidence, although we are by no means persuaded that that was the case, the evidence before him did in our view permit his Honour to find as he did. The source of the figures which gave rise to the sum which his Honour included, as opposed to the sum which was submitted on behalf of the wife to have been available to the husband, could be relied upon, and the mathematics with respect to the two loan accounts were correct. We are not persuaded that the trial Judge erred in finding that the husband had an asset, being his credit loan account in the D Group of $259 318. No “distortion” of the wife’s entitlement has been demonstrated.

15. Assuming that the trial Judge should not have included the sum of $259 318 as the balance of the husband’s credit loan account, on the basis that it should have been regarded as having been repaid, the wife would not have received the benefit of such loan account. On the other hand, the company, which the wife clearly was to receive, was, by being relieved of the obligation to repay the husband $259 318, accordingly worth $259 318 more than the trial Judge’s figures envisaged. In those circumstances, even if the trial Judge erred, which we are not persuaded that he did, such error had no impact upon what the wife was to receive.

16. We conclude that inclusion of that sum as an asset was not of itself erroneous nor, so far as the challenge to the exercise of discretion agitated under Ground 1 is concerned, can it advance such challenge. We are thus not persuaded that this ground has merit.

Ground 3

1. The third ground of appeal provided:-

   That the Trial Judge was in error on the evidence in only including in the asset pool the amount of $172,600.00, as opposed to $312,600.00 being the monies expended by the Husband from the Hong Kong bank accounts.

2. On behalf of the wife it was submitted by Counsel that the husband had “retained the larger amount” of $312 600.00 and that “the totality of the monies retained by the Husband, irrespective of how he may have expended them, should have been included as a notional asset and credited to the Husband’s side of the ledger”.

3. Counsel for the husband again submitted that the trial Judge correctly allowed for living expenses of the husband, taking into account the factual circumstances. It was thus submitted that “the learned Trial Judge calculated $172,600.00 as a notional asset after allowing reasonable expenditure”.

4. Although we have alluded to this challenge in context of our consideration of Ground 1, it is now necessary to refer more extensively to the trial Judge’s conclusions with respect to this topic.

5. The trial Judge noted that the husband expended “the funds” on the “purchase of a motor vehicle, [payment of] credit card debts, day to day living expenses, travel expenses, legal costs and the costs of renovation to [the Brisbane property] in Queensland”. Those findings of fact have not been challenged in this appeal.

6. His Honour further considered this issue under the heading, “Monies from Hong Kong bank accounts” (paragraph 255). His Honour there noted:-

   256.The Husband gave evidence about how the money was spent and it included $140,000 spent on renovations, repairs and refurbishment of the […] Brisbane property.

   …

   258.I accept that given the Husband was no longer working in the business he had a need for support. However, I do not accept that the Husband can ask the Wife to indirectly contribute the level of expenditure the Husband undertook by excluding the amount from the list of assets. The Husband’s expenditure included the purchase of a motor vehicle and trips overseas. The Husband also had the benefit of $250,000 paid by Ms [C] and the superannuation entitlements and it has all been expended. The disposition of all these funds cannot be explained by expenditure on legal costs and the Brisbane property. I am going to include the amount of $172,600. This gives the Husband the benefit of the money he spent on the Brisbane property. I also note that counsel for the Husband conceded that if I included as a liability the tax debt of $914,000 then I should include as an asset the amount of $312,000.

7. It is reasonably apparent from these passages of the trial Judge’s judgment that a significant part of the $140 000 which was not ultimately included as an asset of the husband related to “renovations, repairs and refurbishment” of the husband’s [W] property, which was included as an asset at its agreed value of $685 000, a valuation determined after the improvements had been expended upon the property. The impact of the expenditure on the property is not apparent to us. More importantly, allowing expenditure of the kind and magnitude revealed by the evidence has not been shown to have been unreasonable.

8. Properly analysed, this ground can be seen as challenging the exercise of discretion more than challenging the making of a finding of fact by the trial Judge. In reality, the challenge relies upon his Honour’s findings. On the findings of fact that the trial Judge made as to the husband’s circumstances when he expended the funds, and the purposes for which he expended the funds, a number of approaches to the issue of adding back some or all of the funds were reasonably open to his Honour.

9. On balance, the challenge this ground raises is, in reality, a challenge to the exercise of discretion. On the unchallenged findings of fact he made, the trial Judge could in our view have added back more of the $312 600 than he did. Conversely, nothing to which we have been referred persuades us that by failing to add back more than $172 600, his Honour was in error. We are thus not persuaded that this ground is made out.

Ground 4 and 5

1. The fourth and fifth grounds of appeal provided:-

   4.That the Trial Judge was in error on the evidence in his determination as to the Wife’s knowledge of the existence of the Hong Kong bank accounts and her complicity in the “profit skim” and the tax evasion by the Husband.

   5.That the Trial Judge was in error on the evidence in his determination that the Wife had benefited directly and indirectly as a consequence of the “profit skim” and the tax evasion by the Husband.

2. Counsel for the wife submitted that the evidence before the trial Judge did not support findings that the wife was complicit in any taxation evasion, nor that she benefited from the husband so doing.

3. Counsel for the husband submitted that there was “ample evidence to conclude that the wife had knowledge of the arrangement and his [the trial Judge’s] findings that she should share in the consequences logically followed.”

4. These challenges raise, we perceive, a number of issues, they being the wife’s “complicity” in the “profit skim” and consequential taxation evasion by the husband, and the trial Judge’s conclusion that the wife had benefited, directly and indirectly, from those matters. Although not so expressed, turning as they do to some extent on the trial Judge’s conclusions with respect to the credibility of the parties, reference to his Honour’s Reasons for Judgment in relation to credibility is relevant for present purposes, and is a convenient starting point for our consideration.

5. In relation to credit the trial Judge said that “with the exception of the expert accountants overall I found the evidence of the parties and some witnesses to be unsatisfactory and further that “I have already said that in a number of respects I found the evidence of both parties and others to be unsatisfactory.”

6. Reference was made to the inconsistencies between the evidence in chief of the wife and evidence given by her during the course of cross-examination in relation to a number of issues. The trial Judge concluded that such differences “probably” arose from the wife’s realisation that “her earlier evidence was against her interest given the consideration by the Australian Taxation Office of the affairs of the parties and the [D] Group.”

7. Earlier in these Reasons the passages of the trial Judge’s judgment which related to the Hong Kong bank accounts have been set out. They make clear that his Honour concluded that the wife was aware of the said bank accounts, the profit skim scheme and the taxation evasion as well as that she benefited from the latter two.

1. In relation to the wife’s knowledge of the profit skim, the trial Judge accepted that “the Husband initiated the profit skim scheme and organised the opening of bank accounts in Hong Kong to facilitate the scheme”. However his Honour did not accept “the Wife’s contentions as to her awareness of the profit skim scheme and the bank accounts in Hong Kong.” He added “I am satisfied that she was always aware of the existence of the profit skim scheme and the overseas bank accounts and I reject her denials.”

2. The wife’s contentions at trial relating to the bank accounts and the profit skim scheme were not entirely consistent, a matter upon which his Honour understandably relied. The trial Judge recorded that her affidavit alleged that “she first became aware of the Hong Kong bank accounts when they were disclosed by the Husband in his Financial Statement of 7 April 2003.” Nevertheless, in cross-examination the wife revealed that “she always knew the Husband had overseas bank accounts”, and that she “knew that he [the husband] had an account in Hong Kong”. In cross-examination the wife was shown the husband’s financial statement of 7 April 2003 and said she had never seen it before. When shown her own affidavit (of 8 April 2004) during her cross-examination the wife “said she had seen the Financial Statement before it was shown to her in cross examination.”

3. In cross-examination the wife also admitted that “[s]he also regularly saw invoices from [H] Ltd in which the 10 per cent commission was recorded” however his Honour recorded that she alleged that “she thought that it was an appropriate payment to [H] Ltd for services provided by that company however, she said it did not come as a surprise, I assume, referring to the profit skim scheme”. The wife contended that the husband had “explained to her that it was a commission for work done” and that she “never raised any question about this expense with the supplier”.

4. Regarding the contentious issue of the wife’s authority to withdraw funds from the Hong Kong bank accounts, the trial Judge recorded the positions of each party. The husband alleged that he “authorised the Wife to withdraw funds” annexing “to his affidavit copies of two authorities to sign cheques dated 28 January 1997 which he contended were signed by the Wife.” During cross-examination the Wife “said it appeared to be her signature but she could not recall signing the document.” His Honour noted that it had not been “put to the Husband in cross examination that he forged the Wife’s signature on the documents.” The trial Judge found, in accordance with the wife’s passport, that the wife was in Hong Kong at the relevant time and thus concluded “I am satisfied that the Wife did sign the ‘Authority to Sign Cheques’”.

5. As the trial Judge recorded, the debt owed to the Australian Taxation Office was assessed by the Commissioner to be $913 024.94 together with interest charges for late payment. This amount was not disputed. His Honour further recorded that the Commissioner claimed the sum of $231 744.86 in addition to interest charges for late payment from D Pty Ltd, an amount the company was repaying by instalment at the time of the proceedings before the trial Judge. His Honour also noted that the husband had “lodged an objection” to his taxation assessment and that if he “succeeds then some of the amount may then be attributed to the D Group.”

6. It was found by the trial Judge that the wife “knew about” the profit skim scheme and that she “directly and indirectly benefited” from it and hence played a role in the accumulation of the liability to the Australian Taxation Office. The funds of the profit skim “were used to acquire stock” and used “for the benefit of the D Group” and “enabled the parties to make a very expensive gift to [Mr R] [the wife’s son] for his birthday”. Further his Honour noted that the “understatement of trading profits” in part related to “directors’ private expenses treated as company expenses” as well as “understatement of closing stock values” and “overseas profit skim”.

7. His Honour thus concluded that he would “include in the liabilities the tax debt of the Husband”. Reciprocally, he included as an asset the monies accumulated in the Hong Kong bank accounts through the profit skim scheme.

8. Nothing to which we have been referred, either in relation to credibility generally, or to the specific findings of fact upon which the trial Judge relied for the conclusions complained of in these grounds persuades us that any relevant finding was erroneous. Whilst the challenges articulated in both grounds must overcome the obstacle arising from “the trial judge’s real advantages” (see State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) and Others (1999) 160 ALR 588 at 619), the challenge raised by Ground 4 has particular difficulties in that regard.

9. Historically, appellate courts have been understandably reluctant to interfere with trial Judges’ findings on credit. The circumstances in which an appellate court can overturn findings of fact based upon credit were considered by the High Court in Devries v Australian National Railways Commission (1993) 177 CLR 472. Brennan, Gaudron and McHugh JJ said (at 479):-

   More than once in recent years, this Court has pointed out that a finding of fact by a trial judge, based on the credibility of a witness, is not to be set aside because an appellate court thinks that the probabilities of the case are against — even strongly against — that finding of fact. (See Brunskill (1985) 59 ALJR 842; 62 ALR 53; Jones v Hyde (1989) 63 ALJR 349; 85 ALR 23, Abalos v Australian Postal Commission (1990) 171 CLR 167). If the trial judge’s finding depends to any substantial degree on the credibility of the witness, the finding must stand unless it can be shown that the trial judge “has failed to use or has palpably misused his advantage” (SS Hontestroom v SS Sagaporack [1927] AC 37 at p. 47) or has acted on evidence which was “inconsistent with facts incontrovertibly established by the evidence” or which was “glaringly improbable”. (Brunskill (supra)).

10. In Abalos v Australian Postal Commission (1990) 171 CLR 167 (referred to above), McHugh J (with whom Mason CJ, Deane, Dawson and Gaudron JJ concurred) referred at page 178 to “the power of the Court of Appeal” and to the judgment of Lord Sumner in SSHontestroom v SS Sagaporack [1927] AC 37 who had stated (at 47):-

    …not to have seen the witnesses puts appellate judges in a permanent position of disadvantage as against the trial judge, and, unless it can be shown that he has failed to use or has palpably misused his advantage, the higher Court ought not to take the responsibility of reversing conclusions so arrived at, merely on the result of their own comparisons and criticisms of the witnesses and of their own view of the probabilities of the case. The course of the trial and the whole substance of the judgment must be looked at, and the matter does not depend on the question whether a witness has been cross-examined to credit or has been pronounced by the judge in terms to be unworthy of it.  If his estimate of the man forms any substantial part of his reasons for his judgment the trial judge’s conclusions of fact should, as I understand the decisions, be let alone.

11. Having quoted this passage, McHugh J in Abalos (supra) went on to state (at 178):-

    Consequently, where a trial judge has made a finding of fact contrary to the evidence of a witness but has made no reference to that evidence, an appellate court cannot act on that evidence to reverse the finding unless it is satisfied “that any advantage enjoyed by the trial judge by reason of having seen and heard the witnesses, could not be sufficient to explain or justify the trial judge’s conclusion”: Watt or Thomas v Thomas [1947] A.C. 484, at p. 488.

12. In State Rail Authority of New South Wales v Earthline Constructions Pty Ltd (in liq) and Others (1999) 160 ALR 588, the majority (Gaudron, Gummow and Hayne JJ) explained “the trial judge’s real advantages” in relation to the credit of witnesses. In the course of their judgment their Honours said (at 619):-

    The true advantages in fact-finding which the trial judge enjoys include the fact that the judge hears the evidence in its entirety whereas the appellate court is typically taken to selected passages, chosen by the parties so as to advance their respective arguments. The trial judge hears and sees all of the evidence. The evidence is generally presented in a reasonably logical context. It unfolds, usually with a measure of chronological order, as it is given in testimony or tendered in documentary or electronic form. During the trial and adjournments, the judge has the opportunity to reflect on the evidence and to weigh particular elements against the rest of the evidence while the latter is still fresh in mind. A busy appellate court may not have the time or opportunity to read the entire transcript and all of the exhibits. As it seems to me, these are the real reasons for caution on the part of an appellate court where it inclines to conclusions on factual matters different from those reached by the trial judge. (footnotes omitted).

13. To the extent that the challenge embodied in Ground 5 cannot be as readily dismissed by reference to the trial Judge’s advantage, it is apparent that there was documentary evidence upon which the trial Judge relied in partial support of his conclusion. It has not been established either that there is other documentation inconsistent with his Honour’s conclusion, or that the documentation upon which he did rely in any way rendered erroneous his conclusion. Nor has it been shown that such conclusions were not reasonably open on the findings of fact made by the trial Judge.

Ground 6

1. The sixth ground of appeal provided:-

   That the Trial Judge was in error in the exercise of his discretion by requiring the Wife to equally share in the tax burden of $914,000.00 attributable to the Husband as a consequence of his tax evasion.

2. At trial, it was submitted on behalf of the wife that the husband should solely bear, or at least bear a greater proportion of, the taxation liability before this Court. It was submitted that the trial Judge had not “analysed the actual benefit each party may have gained”, and had “essentially determined by virtue of his orders that the parties should be equally responsible for the liability, notwithstanding that the Wife must have received a lesser benefit”. In what way the trial Judge should have “analysed” the “actual benefit … gained” by each party was not specified. Nor was how, or why, the wife “must have received a lesser benefit”. It was further submitted that the wife “has not been in a position to take any steps in regard to the imposition of penalties and interest.”

3. On behalf of the husband it was submitted that the trial Judge had sufficient evidence upon which to make the findings he did, and was able in reliance upon those findings to exercise the discretion in the manner in which he did.

4. We have earlier dealt with most of the issues which were raised by Counsel for the wife in support of this ground. Some however warrant further consideration. We have earlier noted the trial Judge’s conclusions with respect to the benefit which the parties gained from the actions of the husband which gave rise to the taxation burden to which this ground relates, and concluded that the findings of fact in that regard were open to the trial Judge on the evidence, as were the inferences he drew and conclusions he reached in reliance upon such findings of fact.

5. It is unnecessary to again set out those passages in his Honour’s Reasons for Judgment which led us to the conclusions we have indicated. We are not persuaded that any further or greater analysis of the benefits which the parties gained from the monies which would otherwise have been paid by way of taxation was required of the trial Judge. His Honour’s reasoning process with respect to the issue was in our view adequately revealed in his Reasons for Judgment. The logic of his Honour’s path of reasoning has not been shown to have involved error in any relevant respect.

6. Nothing to which we have been referred persuades us that his Honour’s conclusions with respect to the comparative benefits obtained by the parties were other than reasonably open to him.

7. So far as the submission that the wife had not been in a position to take any steps in regard to the imposition of penalties and interest is concerned, the trial Judge was aware of the issue. His Honour said:-

   296.… I am also going to make orders that I believe will deal with the consequence of the objection by the Husband against the assessment that he pay tax of $914,000. I will also attempt to deal with the accruing interest. There are three possible outcomes. First, that the Husband’s objection is not successful in which event he will be liable to pay the amount of $914,000, as this is reflected in the net assets and the entitlements of each party, and the Wife will have to pay to the Husband an amount equal to one half of the interest which has accrued on this tax indebtedness to the date of the ultimate discharge of the liability. In other words, the parties shall be jointly liable for and pay an equal one-half share of all interest accruing on the amount of $914,000 assessed against the Husband. The second scenario is that the Husband’s objection is successful and the amount of $914,000 and interest accruing is reduced to an amount less than $914,000. In that event the Husband would have to pay to the Wife a sum equal to one half of the amount which represents the difference between the total current indebtedness namely, $914,000 and the ultimate amount which has to be paid on the basis that this latter amount is less than the former amount. The third scenario is that as a consequence of the second scenario coming to pass the [D] Group of Companies are reassessed by the Australian Tax Office and required to pay further tax in consequence of the [D] Group having to pay tax in respect of the income which is currently the subject of the assessment of $914,000. In that event the Husband would be required to pay to the [D] Group of Companies an amount equal to one half of the increased income tax including penalties and interest assessed against the [D] Group in consequence of the amended assessments for the financial years ended 30 June 1998 to 30 June 2003 inclusive.

8. With respect to Counsel for the wife, this challenge is predicated on an assumption which is difficult to accept in logic. Implicit in the wife’s complaint is the prospect of the husband deliberately or recklessly allowing the taxation liability, and liabilities arising from the failure to discharge it, to increase in circumstances where he is, and will continue to be liable for one half for all such liabilities. Put simply, the complaint assumes that the husband would “cut off his nose to spite his face” despite an absence of any evidence to that effect and, as the trial Judge found, a demonstrated history of endeavouring to pay the taxation office as little as possible, including indulging in an illegal “profit skim” which gave rise in part to the current taxation liability. Without suggesting anything which might be thought to encourage further litigation, it is not difficult to suggest ways in which, by enforcement application or, at worst s 79A application, the wife could gain relief from the potential evils of which she complains pursuant to these grounds.

9. More significantly, other than by visiting the whole of the taxation liability, whatever it ultimately proved to be, upon the husband, it is difficult to see how the trial Judge could have dealt with this difficult issue in a way which was potentially fairer to both parties. No doubt, had his Honour adjusted the net asset pool on the basis that the husband would be liable for the whole of the $914 000, and the husband’s objections resulted in the sum being reduced, the wife would, justifiably, have cause to complain about that.

10. It is clear from the passage referred to earlier, and the form of the trial Judge’s orders (Order 18) that his Honour was careful to protect the wife’s entitlement in whatever taxation scenario eventuated. The orders as made by the trial Judge do not preclude her from involvement in the process with the Australian Taxation Office.

11. Given the failure of the challenge to his Honour’s conclusion that the parties should equally bear the $914 000 taxation liability, or such other figure as it might become, and the matters to which we have referred, we are not persuaded that the challenge to the form of the order he made in relation to the liability enlivens appellate intervention.

Ground 7

1. The seventh ground of appeal provided:-

   That the Trial Judge was in error in the exercise of his discretion by allocating to the Wife the liability of interest and penalties, in the event that the Husband failed to pay his tax liability, in circumstances where the amount of tax attributed to the Wife has already been adjusted and is required to be paid by the Wife in accordance with his orders.

2. Counsel for the wife submitted that “the amount of tax attributed” to her had “already been adjusted and is required to be paid” pursuant to the trial Judge’s orders. It was thus submitted “that it is not appropriate that the Wife should be responsible for further interest and penalties which may accumulate in circumstances where she can have no influence whatsoever upon the Husband’s conduct in pursuing any objection to his assessment.”

3. Counsel for the husband submitted that regardless of the arguments put forward on behalf of the wife, she had failed to comply with the trial Judge’s orders, including payment of any sum to the Commissioner of Taxation.

4. The challenge raised by this ground which requires consideration appears to be the suggestion on behalf of the wife that the trial Judge on the one hand visited the $914 000 taxation liability of the husband equally upon the parties but visited the wife’s taxation liability solely upon her in circumstances where the husband could be seen as having benefited equally from the monies received from the wife which gave rise to her liability for taxation.

5. We have set out above the trial Judge’s reasoning as to the wife’s burden in relation to the taxation liability. His Honour was clearly cognisant of how the liability arose and the role of each of the parties.

6. The challenge raised by this ground overlooks the trial Judge’s undisturbed findings of fact in relation to the specific issue and the broader issue of the credibility of the parties. Without suggesting that the failure to successfully challenge his Honour’s findings with respect to the wife’s credibility necessarily denies this ground the potential to succeed, it must be recognised that such failure severely limits its potential in that regard. Nothing to which we have been referred persuades us that the trial Judge’s discretion miscarried in relation to the wife’s taxation liability. As with other aspects of the case before him, his Honour could, on the undisturbed findings of fact he made, have reached other conclusions. We are not persuaded that the conclusion which he did reach was not reasonably open to him. We accordingly reject this challenge.

Ground 8

1. The eighth ground contained in the Notice of Appeal provided:-

   That the Trial Judge was in error on the evidence in his determination as to the Wife’s knowledge as to the transfer of monies from the Hong Kong bank accounts towards the purchase of the parties’ yacht known as “[F]”.

2. On behalf of the wife it was submitted that the trial Judge’s determination in relation to this issue was not supported by the evidence. Counsel for the husband submitted that there was supporting evidence for such a determination, citing the evidence of the wife and of her witness, Mr K, who “confirmed the payment”.

3. In reality this challenge is a specific aspect of the broader challenge to the trial Judge’s conclusions with respect to the wife’s knowledge of dealings with monies in the Hong Kong Bank account. That in turn, though perhaps not directly, involves the challenge which we have previously considered, and rejected, to the trial Judge’s findings with respect to the credibility of each of the parties.

1. In relation to the complaints with respect to the impact of the trial Judge’s decision with respect to the $914 000 taxation liability, it was submitted on behalf of the wife that the liability was increasing by $350 per day and had increased by at least $2000 per week since April 2006 and that, in those circumstances, resolving the issue with the taxation office should be the husband’s responsibility.

2. It was further submitted that the wife has “no standing whatsoever in relation to this issue and can assert no influence upon the husband’s conduct in pursuing any objection to his assessment”.

3. We have earlier dealt with the substance of this complaint. With respect to Counsel for the wife, nothing asserted in his further submissions takes the matter further than did his primary submissions. Essentially for the reasons we have earlier given, we do not consider that the supplementary submissions on behalf of the wife entitles this challenge to succeed.

The Costs Appeal

Trial Judge’s Reasons: Costs

1. The trial Judge provided a brief outline of the costs proceedings before him, the relevant legal principles governing such proceedings and a background to the property settlement proceedings which were determined by final orders he had made on 23 November 2006. The trial Judge recorded that the husband sought that the wife pay his costs of the property proceedings in the sum of $552 424.26. He also recorded that the wife sought that the husband pay the wife’s unquantified costs of the property and costs proceedings.

2. His Honour proceeded to consider the financial circumstances of each of the parties, reiterating the relevant matters to which he had referred in his earlier Reasons for Judgment (commencing at paragraph 22). The wife however asserted that the husband had not made a full and frank disclosure of his financial circumstances. Between June 2004 and March 2007 the husband had established three entities, one in Australia, one in the United States and one in China. The husband maintained that none of these had traded nor held any assets.

3. In his Reasons for Judgment the trial Judge noted (at paragraph 138) that the husband had acquired shares in a non-trading entity. He thus concluded:-

   38.I am not satisfied on the evidence before me that the Husband has failed to make a full and frank disclosure of his financial circumstances either at the hearing of the property settlement applications or in the current proceedings. …

4. The considerations pursuant to the relevant legislative provisions were considered by the trial Judge, who noted that the assistance of legal aid, the conduct of the parties, whether the proceedings were initiated by a failure of a party to adhere to orders and whether a party had been wholly unsuccessful in the proceedings were not relevant to the case before him.

5. His Honour considered the impact of the offers of settlement upon which both parties relied in the costs proceedings, outlined the legal underpinning of such offers (commencing at paragraph 44), and reiterated the factual circumstances as he had earlier found them (commencing at paragraph 49).

6. Commencing with an offer on 30 May 2003, the husband made seven offers of settlement, by which he essentially proposed an equal division of assets. The wife made no reply to the husband’s offers of 30 May 2003, 7 May 2004 or either of the offers made on 12 August 2004. On behalf of the wife it was submitted that these offers had not outlined the husband’s contention as to the value of the net assets and therefore the wife could not evaluate the reasonableness of the offers. In relation to the other offers of the husband, of 2 August 2005, 18 August 2005, 16 March 2006 and 20 April 2006, submissions were made on behalf of the wife that such offers proposed that the husband receive a far greater sum than that received in accordance with the orders of the trial Judge.

7. The wife made her first of three offers of settlement by letter dated 17 August 2005. The wife proposed that she receive certain assets, the total value of which represented 86.77 per cent of the value of the net assets as found by the trial Judge. The wife’s offers of 16 March 2006 and 26 May 2006 were contended by her to represent an approximately equal distribution of property through the transfer or sale of certain assets. The husband asserted that the offers of the wife bore “no resemblance to the ultimate outcome” of the proceedings.

8. The husband asserted that “from the commencement of the proceedings” he had “exercised a proper conciliatory approach and made numerous offers of settlement in an attempt to avoid litigation and subsequent costs.” The wife maintained that the offers did not “provide a basis for an award of costs.”

9. The trial Judge outlined the difficulty encountered in deciding the property settlement proceedings because of the difficulties of determining the value of the net asset pool (commencing at paragraph 80), and noted “that there were significant issues about the assets and liabilities of the parties and ultimately both parties were successful on some issues and not on others.” His Honour reiterated the process of determining the contribution based entitlements of the parties and the appropriate adjustment thereto (commencing at paragraph 88).

10. His Honour observed that “parties have an obligation to earnestly and honestly explore the possibility of a resolution” and to “minimise court time in resolving issues which are clearly identifiable and capable of resolution”.

11. The husband’s offers were ultimately regarded by the trial Judge in the following terms:-

    95.In this case on a number of occasions namely 30 May 2003, 7 May 2004, 12 August 2004, 2 August 2005, 18 August 2005 and 20 April 2006 the Husband made offers to settle. In my view the offers were made seriously. I am satisfied that the terms of the offers were framed clearly, with reasonable certainty and with precision. It is not a case there the Wife had significantly less grasp of the parties’ financial arrangements. I accept that there were assets and liabilities that were the subject of disputed value and, in the absence of compromise, the legitimate subject matter for determination. However it is not a case where the financial circumstances were so complex that it would have been premature to accept an offer.

12. The trial Judge was “of the view that the Wife and those advising her were able to determine whether the offers were reasonable or appropriate.” He concluded that the wife “should have responded to the offers of the Husband and engaged in a dialogue which should then have lead [sic] to the resolution of at least a number of important issues.”

13. Thus his Honour concluded that “the Husband has established justifying circumstances and that an order for costs should be made.” He held that the wife “should pay one fifth” of the husband’s legal costs as a reflection of “the costs that were incurred by the failure of the Wife to respond to the offers of the Husband.”

14. The trial Judge was “of the opinion that the costs should be assessed on a party to party basis.” His Honour determined that the husband’s legal costs, exclusive of expert’s fees, exceeded $500 000 and therefore ordered that the wife should pay to the husband the sum of $100 000.

Grounds of Appeal: Costs

Ground 1

1. The Notice of Appeal raised nine challenges to the trial Judge’s conclusions in relation to the costs of the property settlement proceedings determined by final orders made by the trial Judge on 23 November 2006.

2. The first ground of appeal provided:-

   That the Trial Judge was in error in the exercise of his discretion as the result embodied in his Orders is plainly unreasonable and manifestly unjust.

3. Counsel for the wife submitted that although “the discretion of the Trial Judge to award costs is considerably wide, nevertheless in the circumstances of this case, it was not appropriate to do so, in particular based upon the offers of settlement made on behalf of the Husband and a perception that the Wife had not sought to engage in the negotiation process.”

4. It was, sensibly acknowledged by Counsel for the wife that “[t]his Ground is obviously related to the success or otherwise of the Wife in the substantive Appeal in regard to property settlement”.

5. On behalf of the husband it was submitted that this ground had no basis as the appellant failed to indicate “any material mistake of fact or law which would have the effect of contaminating the proper exercise of discretion” and further that it is not apparent “that the exercise of discretion was so manifestly unreasonable as to warrant Appellant intervention.”

6. In our view there is substance in the submission on behalf of the husband to which we have just referred. For reasons which he clearly, and cogently, explained, the trial Judge concluded in the exercise of his discretion that the wife should pay a proportion of the husband’s costs. It is readily apparent that, in the absence of some other successful challenge to them, the matters upon which the trial Judge relied in reaching the “opinion” that an order for costs should be made could properly lead him to such a conclusion.

7. The law relating to the exercise of discretion with respect to costs is not in doubt and does not require extensive restatement in this appeal. In Penfold v Penfold (1980) 144 CLR 311 the High Court said (at 315):-

   Sub-section (2) requires a finding of justifying circumstances as an essential preliminary to the making of an order. Beyond this there is nothing in the subject matter or in the interrelationship of the two provisions which imposes any additional or special onus on an applicant for an order for costs. Consequently, with respect to their Honours in the Family Court, we do not agree with the suggestion made in the judgment under appeal that an order can only be made under s.117(2) in “a clear case”.

8. The appeal against the trial Judge’s substantive order having failed, the difficulty of establishing the complaint articulated in this ground becomes more difficult. That difficulty is not reduced when regard is had to the failure in the substantive appeal of challenges to the trial Judge’s adverse conclusions with respect to a number of aspects of the wife’s evidence before him, and the consequences of those findings in the determination of the worth of the parties’ assets. Nothing to which we have been referred in support of this undoubtedly broad challenge to his Honour’s exercise of discretion persuades us that appellate intervention is justified.

Ground 2

1. The second ground of appeal provided:-

   That the Trial Judge was in error in the exercise of his discretion in failing to place sufficient weight upon the financial disparity between the parties of $281,957.00 which resulted as a consequence of his Orders by way of property settlement of 23 November 2006.

2. It was submitted on behalf of the wife that the trial Judge failed to take into account the disparity of 5 per cent in the parties’ financial circumstances as a result of his orders in considering the factors of s 117(2A) of the Act.

3. Conversely, Counsel for the husband submitted that the trial Judge was “acutely aware of the parties’ financial position”. Further, it was submitted on behalf of the husband that both parties had financial positions which were “very significant” and that “the sum complained of under Ground 2 is unwarranted.”

4. It is inconceivable in our view that the trial Judge would not have been aware of the disparity in the financial positions of the parties arising as a consequence of the orders he had previously made in the substantive proceedings. As is not in doubt, the trial Judge was aware of the quantum of the costs which he was ordering and must have been conscious of their impact on the net assets which each of the parties would receive and/or retain pursuant to his orders for property settlement.

5. In the circumstances of this case the trial Judge was not obliged, in our view, to refer expressly to the relativities of which Counsel for the wife complains. Nor, in the case in which findings of fact were made in the terms in which they were by the trial Judge, and where the net assets were of the magnitude he found them to be, was the disparity in the ultimate entitlements of the parties a factor to which his Honour needed to have regard. To the extent that his Honour may not have had regard to that disparity, which we do not accept was necessarily the case, we are not persuaded that so doing could or should have led him to a different conclusion. Unless some other basis for impugning his Honour’s order with respect to costs is made out, the challenges based on the impact of the order on the wife’s ultimate financial position on the one hand, or its quantum relative to the 5 per cent disparity in the financial positions of the parties could not in our view result in this challenge succeeding.

Ground 3

1. The third ground of appeal provided:-

   That the Trial Judge was in error on the evidence in failing to find that the Husband had not made a full and frank disclosure of his financial circumstances, in circumstances where it was apparent there had been a failure to disclose and where the Husband’s evidence was contradicted by documentary evidence.

2. Counsel for the wife submitted that the trial judge “essentially dismissed” the issue of whether the husband had made full and frank disclosure as to his financial situation, where the husband’s “conduct in the proceedings was a relevant factor in relation to the issue of costs”. Thus it was submitted that the husband’s “oral evidence and failure to disclose relevant documents was a matter that the Trial Judge place little if any weight upon.”

3. On behalf of the husband, learned Counsel submitted that the husband had been cross-examined during the costs proceedings and that the trial Judge “made findings of fact in relation to the husband’s financial affairs consistent with the evidence.” These findings were submitted to be “clearly within a proper range of discretion”.

4. Absent further evidence establishing the probability of a failure to make a full and frank disclosure of his financial circumstances, and we have been referred to none, the trial Judge was not obliged to revisit the issue raised on behalf of the wife at trial, and determined adversely to her claims, in relation to the husband’s alleged failure to make a full and frank disclosure of his financial position. His Honour made findings of fact in relation to that issue. Interestingly the wife’s appeal against the substantive orders made by the trial Judge did not involve any attempt to challenge his Honour’s findings of fact in that regard.

5. Nothing to which we have been referred persuades us that this ground has merit.

Ground 4

1. The fourth ground of appeal provided:-

   That the Trial Judge was in error in the exercise of his discretion in placing undue weight upon offers of settlement made by the Husband on 30 May 2003, 7 May 2004 12 August 2004, 7 August 2005, 18 August 2005 and 20 April 2006, in circumstances where no offer exceeded the ultimate result in favour of the Husband as determined by the Trial Judge.

2. Given that we are not persuaded that the appeal against the trial Judge’s orders for settlement of property should succeed, for the reasons which we have earlier provided, this challenge must necessarily be evaluated by reference to the entitlements of the parties in the light of the trial Judge’s orders for property settlement.

3. Counsel for the wife submitted that the offers of settlement made by the husband “never exceeded the ultimate result which was made in his favour as determined” in the property proceedings. It was also submitted that the trial Judge “placed undue weight upon these offers and also failed to have regard to the time limits in which these offers were open for acceptance, as well as the underlying factual matters relating to the case.” It was conceded by Counsel that the success of this ground would be substantially dependent upon the success or otherwise of the substantive appeal.

4. Counsel for the husband submitted that certain offers did exceed “the quantum received” by the wife. It was further submitted that the wife failed to have regard to “the issue of contributions identified in the various offers” and the probable length of the hearing of the proceedings, which were matters correctly referred to by the trial Judge.

5. We do not understand that any part of the exercise of the trial Judge’s discretion to award the husband part of his costs of the substantive proceedings was dependent upon a finding that any offer made by the husband was more generous to the wife than was the ultimate result although, having regard to his Honour’s review of the offers, which is not suggested to have been inaccurate in any way, that may have been the reality.

6. In our view, his Honour was clearly influenced by the number of offers which had been made by the husband in an endeavour to settle the proceedings, the comparable reasonableness of such offers, and the wife’s failure to respond to a number of the offers which the husband made. It seems clear that the trial Judge regarded the wife’s failure to “engage” as significant, recording:-

   105.The Wife should have responded to the offers of the Husband and engaged in a dialogue which should then have lead [sic] to the resolution of at least a number of important issues. However she failed to do so and in adopting this stance she did so at her risk as to costs.

7. The trial Judge was exercising a broad discretion. A minute examination of the relationships between offers and outcomes was not called for. None of the facts upon which his Honour based the exercise of his discretion has been shown to have been erroneous. The judgment of the High Court in Penfold (supra) to which we earlier referred is also relevant in this context. In our view, the trial Judge’s conclusion that the circumstances justified a potential costs order was reasonably open to him.

8. At the risk of oversimplifying the trial Judge’s reasons as he articulated them, it is plain that the trial Judge formed the opinion that the wife should bear a minor proportion of the husband’s costs having regard to, on the one hand, the husband’s repeated demonstrations of a desire to negotiate a settlement of the proceedings, and the absence of similar demonstrations on the part of the wife on the other. In neither law nor logic are we persuaded that his Honour was in error in approaching the matter in that manner, or in concluding as he did.

Grounds 5 and 6

1. The fifth and sixth grounds of appeal provided:-

   5. That the Trial Judge was in error on the evidence in determining that this was not a case where the financial circumstances were so complex that it would have been premature to accept an offer.

   6. That the Trial Judge was in error in the exercise of his discretion in failing to place any weight upon the liability of the parties and the [D] Group to the Australian Tax Office in his consideration of the Husband’s various offers of settlement.

2. Counsel for the wife submitted that this case involved “a significant dispute between the parties as to the value of the [D] Group of Companies and this issue was further complicated by the admitted tax evasion by the Husband” and thus that “it would have been premature” for the wife to have accepted any of the husband’s offers of settlement.

3. On behalf of the husband it was submitted that the wife failed to have regard to the “issue of contribution”. Reliance was placed upon the fact that the wife was found to be aware of the funds in Hong Kong and that she never gave “any sensible response” to any of the offers made by the husband.

4. So far as the fifth ground of appeal is concerned, it is necessary to have regard to what the trial Judge actually said. His Honour recorded:-

   91.When consideration is given to the terms of the Act and the Family Law Rules there is some support for the submissions that parties have an obligation to earnestly and honestly explore the possibility of a resolution; that parties have an obligation to minimise court time in resolving issues which are clearly identifiable and capable of resolution such as issues of contribution, valuation and so on. Further, I accept that lawyers have an obligation to advise clients in relation to the possible outcome of the proceedings and only seek to litigate matters which are “truly in dispute”. In support of this it is only necessary to consider the responsibilities of parties and lawyers set out in Pt 1.2 r 1.08 of the Family Law Rules in achieving the main purpose of the Rules. I note that Pt 1.2 r 1.08(h) identifies “issues genuinely in dispute”.

   …

   95.In this case on a number of occasions namely 30 May 2003, 7 May 2004, 12 August 2004, 2 August 2005, 18 August 2005 and 20 April 2006 the Husband made offers to settle. In my view the offers were made seriously. I am satisfied that the terms of the offers were framed clearly, with reasonable certainty and with precision. It is not a case there [sic] the Wife had significantly less grasp of the parties’ financial arrangements. I accept that there were assets and liabilities that were the subject of disputed value and, in the absence of compromise, the legitimate subject matter for determination. However it is not a case where the financial circumstances were so complex that it would have been premature to accept an offer.

1. On balance the trial Judge concluded, as was open to him on the findings of fact that he had made that, within the context of litigation, the outcome of which will always have a measure of uncertainty, the wife, with the benefit of the advice available to her, could have reasonably decided to accept the husband’s offer, or at least responded in ways likely to have advanced negotiations. To the extent that this complaint involves acceptance of the wife’s versions of events where, in the circumstances which we have earlier discussed, the trial Judge made findings more favourable to the husband which have not been disturbed on appeal, making out this challenge becomes more difficult. We are not persuaded that the trial Judge erred in fact or in the exercise of discretion in concluding as he did with respect to any of the matters complained of in Ground 5.

2. In relation to the complaint raised in Ground 6, Counsel for the wife submitted that the husband’s offers of settlement “totally disregarded any potential tax liability or who would be responsible” for them. It was further submitted that “the existence and nature of the taxation liability was such that it would have been premature for the Wife to have accepted any offer.”

3. The thrust of the challenge raised by this ground is that the offers of settlement made on behalf of the husband failed to have any regard to potential liabilities for tax, or to have regard to which of the parties would accept responsibility for such liabilities, and that the omission of that significant issue from the husband’s offers of settlement, rendered it inappropriate for the wife to have accepted such offers. It may well be that, for the reasons advanced on her behalf, the wife was not in a position to accept any of the offers made by the husband. That did not preclude the wife from making a counter-offer which addressed the alleged deficiencies in the husband’s offer. Nor did it preclude her form making a counter offer in other terms. We perceive however that the exercise of the learned trial Judge’s discretion was not influenced by the merits of any particular offer made by the husband and not accepted by the wife, but rather by the more general consideration that one party could be seen as having genuinely endeavoured to reach a compromise whilst the other had not. We are reinforced in that conclusion by the reality that the trial Judge did not suggest that the wife should have accepted any offer of settlement made by the husband.

4. So far as the challenge raised by Ground 6 is concerned, given that the parties shall effectively equally bear the taxation liability, we fail to perceive in what way the trial Judge erroneously had regard to, or failed to have regard to, the liability of the husband and the D Group to the Australian Taxation Office. To the extent that this topic had relevance, or possible relevance, to the costs dispute, we do not see that anything the trial Judge failed to do in relation to it can advance this challenge. As is apparent from a balanced reading of his Honour’s Reasons for Judgment, his Honour did not seek to attach significance to the precise terms of the offers for settlement to which he was referred, preferring, as was open to him, to have regard to the broader implications of such offers as he explained in the course of his Reasons.

Ground 7

1. The seventh ground of appeal provided:-

   That the Trial Judge was in error on the evidence in determining that the Wife and those advising her were able to determine whether the offers made by the Husband were reasonable or appropriate.

2. Counsel for the wife submitted that the “significant dispute between the parties as to not only the value of the net assets of the parties but also as to which assets each of the parties should retain” was a barrier to the wife “determining whether these offers were reasonable or appropriate.”

3. On behalf of the husband it was submitted that the trial Judge had correctly found that “the offers were clear” and ought to have given rise to “constructive responses.” It was submitted that, particularly in light of the rules and regulations governing the court, the “failure to respond was important”.

4. We have, at least inferentially, earlier dealt with what appears to be the substance of this complaint. It is unnecessary to restate those matters, save to record that the factor which appears to have influenced his Honour’s discretion was the failure of the wife to “engage” in settlement negotiations in a meaningful way. As we have noted earlier, that failure was instrumental in the trial Judge concluding that the wife should pay one fifth of the husband’s costs.

5. The difficulty of which Counsel for the wife complains could readily have been addressed by the wife by specifying in offers of settlement those assets which she desired to retain or obtain in specie. It was that failure to “engage” in meaningful settlement negotiations upon which the trial Judge clearly was significantly reliant in forming the opinion that the wife should bear some portion of the husband’s costs. His Honour was justified in doing so in the circumstances of this case. We are accordingly not persuaded that this challenge has substance.

Ground 8

1. The eighth ground of appeal provided:-

   That the Trial Judge was in error in law in determining that the Husband’s costs should be assessed upon a party/party basis and thereafter determining the quantum of such costs upon the basis of the Husband’s costs as set out upon a solicitor/client basis.

2. On behalf of the wife it was submitted that the trial Judge had:-

   … fallen into error by basing his costs award upon the Husband’s solicitor/client costs as opposed to party/party costs. It is submitted that the Trial Judge’s order is tantamount to an order for 20% of the Husband’s costs upon an indemnity basis. It is submitted that this was not the Trial Judge’s intention, if he proposed to award a proportion of costs upon a party/party basis.

3. Counsel for the husband submitted that the trial Judge “did not assess the costs on a Solicitor/client basis nor on an indemnity basis” but had noted “that he had the power to order that a party is entitled to a specific amount of party/party costs by reference to a percentage of actual or indemnity costs.”

4. His Honour said in relation to this topic:-

   108.I am of the opinion that the costs should not be assessed on a lawyer to client basis or an indemnity basis. I am of the opinion that the costs should be assessed on a party to party basis.

   …

   110.I have the power to order that a party is entitled to a specific amount of party to party costs and that is what I propose to order. In so doing I take into account the matters in Pt 19.5 r 19.19(3) of the Rules. The Husband has estimated costs of in excess of $700,000. The Husband has legal costs of in excess of $500,000 if the expert’s fees are excluded. I am of the view that the Wife should pay one fifth of the costs of $552,424.26. However I will round the amount off at $100,000. This reflects my assessment of the costs that were incurred by the failure of the Wife to respond to the offers of the Husband.

5. If, as asserted by the wife, the trial Judge’s order did not reflect his intention that is a matter which could have been, and still could be, the subject of an application to his Honour to amend his orders pursuant to the slip rule.

6. It is clear that, unlike a later ground, this ground does not challenge the trial Judge’s award of a specific sum by way of costs. We are not persuaded that the trial Judge in fact assessed the amount payable to the husband by way of costs on a solicitor/client basis. As Counsel for the husband submitted, the trial Judge, exercising an undoubtedly broad discretion, awarded less than one-fifth of the costs sought by the husband, a figure which was more than $150 000 less than the totality of the husband’s estimated costs, to reflect the trial Judge’s “assessment of the costs that were incurred by the failure of the wife to respond to the offers of the husband”. We are not persuaded that this challenge has merit.

Ground 9

1. The ninth ground of appeal provided:-

   That the Trial Judge was in error in failing to give adequate or proper reasons for fixing costs in a specific amount and as to a specific proportion of the Husband’s costs as set out upon a solicitor/client basis.

2. Counsel for the wife submitted that the trial Judge “failed to give adequate or proper reasons for fixing costs in a specific amount in circumstances where there was no evidence before him as to the Husband’s costs upon a party and party basis.” It was further submitted that his Honour erred “by basing his award of costs as a proportion of the Husband’s solicitor/client costs” or by having “essentially ‘plucked a figure out of the air’.” Counsel on behalf of the wife thus submitted that the trial Judge should have awarded that the wife pay a proportion of the husband’s costs “to be taxed if not agreed”.

3. On behalf of the husband it was submitted that the trial Judge had “very broad exercise of discretion” in relation to costs. It was submitted that the trial Judge had “made an assessment of a sum of money which was appropriate in all of the circumstances.”

4. The trial Judge said in relation to this issue:-

   109.I could refer the matter to taxation on the basis that the Wife had to pay a percentage of the assessed costs of the Husband. However as I indicated in discussion the history of this litigation and the complete lack of co operation and other matters demonstrates to me that such an order would probably only lead to more extensive and expensive litigation. This is also apparent from the written submissions of the Wife.

5. To the extent that this ground asserts any failure of the trial Judge to give adequate or proper reasons for fixing a sum which the wife was to pay by way of contribution to the husband’s costs, rather than ordering a percentage of agreed or assessed party/party costs, the challenge must fail. In the passage from his Honour’s judgment which we have set out above, his Honour’s reasoning process is transparently revealed. With respect to him, his Honour’s reasons for declining to subject the parties to “more extensive and expensive litigation” was a matter upon which he could rely in support of the exercise of discretion to award a fixed sum by way of costs.

Conclusion

1. For the reasons we have earlier recorded, both the wife’s appeals will be dismissed.

Costs

1. Counsel for the husband sought that the costs of the appeal “follow the event”. Although less than entirely clear, or consistent, the stance of Counsel for the wife in his final submissions, as recorded in the transcript, appeared to also be that costs follow the event. What is clear is that Counsel for the wife neither specifically opposed the outcome advanced by Counsel for the husband, nor sought the opportunity to make further submissions in relation to the issue of costs after the delivery of judgment in the appeal. Having regard to the challenges agitated on her behalf, the stance of Counsel for the wife with respect to costs was unsurprising and, with respect to Counsel, sensible. The obstacles to a successful appeal against a discretionary judgment are well known, and substantial. Having successfully withstood the valiant endeavours of the wife’s learned Counsel to disturb the trial Judge’s decision, the husband is in a strong position to pursue his application for costs of the appeal. No factor referred to in s 117(2A) of the Act would disincline the Court to form the opinion required of it in order to award costs, particularly having regard to the wife’s financial resources. We thus conclude that the wife should pay the husband’s costs of the appeal as agreed or assessed on a party and party basis.

I certify that the preceding two hundred and thirty three (233) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court 

Associate:  13 May 2008

Date: