Ullrich & Kraft
[2014] FamCA 266
•23 April 2014
FAMILY COURT OF AUSTRALIA
| ULLRICH & KRAFT | [2014] FamCA 266 |
| FAMILY LAW – PROPERTY – Final – Where the parties entered into final property orders by consent in December 2006 – Where the orders provided for the sale of the parties’ only substantial property and for the Wife to receive a fixed cash payment from the proceeds of sale and the Husband to retain the balance of the sale proceeds – Where the property subsequently sold for almost 50 per cent more than the amount at which it was valued – Where the Wife has incurred significant capital gains taxation and other taxation liabilities – Where the Wife brought proceedings in 2010 to enforce the terms of the consent orders regarding taxation liabilities – Nature of the hearing and the judicial process when final property orders are made by consent – Function of submissions made on the hearing for consent orders to be made – Where the Wife filed an application to have the consent orders set aside pursuant to s 79A(1)(a) of the Family Law Act 1975 some five (5) years after the orders were made – Whether a miscarriage of justice has occurred – Whether the discretion ought be exercised – Whether the orders ought be varied or set aside and another order under s 79 made | |
| Family Law Act 1975 (Cth) | |
Family Law Rules 2004 (Cth)
| Barker v Barker (2007) 36 Fam LR 650 |
| APPLICANT: | Ms Ullrich |
| RESPONDENT: | Mr Kraft |
| FILE NUMBER: | TVC | 461 | of | 2007 | |
| DATE DELIVERED: | 23 April 2014 | ||||
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Townsville and Brisbane |
| JUDGMENT OF: | Kent J |
| HEARING DATE: | 24, 25 and 26 July 2012; 11, 12 and 13 February 2013 and by written submissions filed 25 February 2013 and 21 March 2013 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Peter Baston |
| SOLICITOR FOR THE APPLICANT: | Feeney Family Law |
| COUNSEL FOR THE RESPONDENT: | Mr Fellows (on 24, 25 and 26 July 2012) |
| SOLICITOR FOR THE RESPONDENT: | Boulton Cleary & Kern (on 24, 25 and 26 July 2012) |
| FOR THE RESPONDENT: | In person on 11, 12 and 13 February 2013 |
Orders
It is ordered that
The Husband pay the Wife’s costs of and incidental to her Application in a Case filed on 7 October 2010 such costs to be agreed or, failing agreement, to be assessed on an indemnity basis.
The Wife’s Application pursuant to s 79A of the Family Law Act 1975 (Cth) be dismissed.
There be no order as to costs of the s 79A Application.
Any and all other pending applications be removed from the pending cases list.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Ullrich & Kraft has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT BRISBANE |
FILE NUMBER: TVC 461 of 2007
| Ms Ullrich |
Applicant
And
| Mr Kraft |
Respondent
REASONS FOR JUDGMENT
For the final trial of their property settlement proceedings to commence in Townsville before Monteith J on 6 December 2006 Mr Kraft (“the Husband”) and Ms Ullrich (“the Wife”) jointly commissioned the then single expert registered valuer, Mr I, to provide an updated valuation of the parties’ only major assets, being the assets of their grazing partnership, the Kraft Partnership (“the partnership”).
Those assets were the beef livestock grazing property known as G Property (comprising 32,700 hectares or about 82,000 acres of Crown leasehold land); the fixed improvements located on G Property; and the plant and equipment and livestock utilised in the partnership (collectively “the G Property assets”).
Mr I provided a written report dated 1 December 2006 which provided Mr I’s opinions of value of the G Property assets as follows:
a)Land and improvements $3,830,000
b)Plant and equipment $320,000
c)Livestock $36,000
Total $4,186,000
The parties and their then respective solicitors and counsel actually received this valuation virtually on the eve before the trial was to commence on 6 December 2006.
In the event, the parties and their then respective lawyers undertook negotiations throughout what was to be the first day of trial on 6 December 2006. Late that day the legal representatives formulated written terms of orders proposed to be made by consent the following day to give effect to an agreed outcome, which each party signed that evening.
Whilst the terms of those consent orders will be discussed further in these reasons it is evident, for reasons which will also be further outlined, that the parties’ compromise, as reflected in those consent orders, was predicated upon:
a)A division of the parties’ property interests overall approximating a 55 per cent apportionment of their value to the Husband and 45 per cent to the Wife. (The term “approximating” is used because there remained some relevantly minor differences between the parties concerning the identification and value of some of their other assets (other than the G Property assets) and their respective claimed liabilities);
b)The sale of the parties’ only significant assets, being the G Property assets or assets of the partnership referred to;
c)That sale being effected by settlement of a sale by private treaty no later than 1 July 2007 or otherwise by auction in mid 2007;
d)The value of the G Property assets being, or reasonably approximating, the values identified in the single expert valuation referred to;
e)The Wife receiving a fixed cash payment of $1,260,000 (as opposed to any percentage) from the proceeds of sale of the G Property assets when sold, with the Husband to retain the balance. That is, the Wife’s payment of the fixed sum was linked to whenever settlement of the sale of the G Property assets subsequently occurred;
f)The parties to undertake on 1 July 2009 (if not earlier) a comparison of their respective capital gains tax liabilities and income tax liabilities “paid” or “payable” including in consequence of the dissolution of the partnership, with an adjusting payment to be made to ensure that each party ultimately have responsibility for 50 per cent of those “combined liabilities”.
Sale of the G Property assets – The Wife’s claim
In the event, on 5 May 2007 the G Property assets were sold for very significantly more than the valuation figure totalling $4,186,000. They were sold for a total of $6,240,000. That is $2,054,000 or almost 50 per cent more than the valuation figure. The sale price was apportioned as follows:
a)Land and improvements $5,675,004
b)Plant, equipment and livestock $564,996
Total $6,240,000
The Wife, as a person affected by the consent orders made on 7 December 2006, contends that there has been a miscarriage of justice within the meaning of s 79A(1)(a) of the Family Law Act 1975 (Cth) (“the Act”). Summarising and paraphrasing her central contentions, as ultimately pursued in these proceedings, it is the Wife’s case that a miscarriage of justice arises because of the following:
a)The subject consent orders were predicated upon there being a 55 per cent/45 per cent division of the parties’ property interests overall;
b)Monteith J’s determination that the consent orders were just and equitable likewise rested upon the footing that the Wife was to receive or retain ultimately 45 per cent of the value of the parties’ overall assets;
c)The fixed cash payment to the Wife of $1,260,000 from and linked to receipt of the sale proceeds of the G Property assets, intended to achieve the 45 per cent proportion overall for the Wife, was predicated upon those assets having a total value of, or reasonably approximating, $4,186,000 with the land and improvements component being $3,830,000;
d)Pursuant to the orders and within the timeframe for sale of the G Property assets contemplated by those orders the assets were sold for $6,240,000 so that payment to the Wife of only $1,260,000 from the proceeds resulted in the Wife receiving, in real terms, very significantly less than 45 per cent, and the Husband receiving very significantly more than 55 per cent, of the overall property of the parties;
e)The capital gains taxation liability reasonably in contemplation when the orders were made was in contemplation of the land and improvements of G Property being sold for a sum in the order of the valuation figure of $3,830,000. Sale proceeds of $5,675,004 for that component and the taxation consequences of that were not reasonably in contemplation by the Wife when the consent orders were framed or made.
Whilst the Wife’s outline of case filed on 6 February 2013 contends that “the difference between the valuation figure and the actual sale price is $2.44m” that claim is incorrect because it ignores that the ultimate sale included plant, equipment and livestock and is a comparison only between the land and improvements valuation amount and the total sale price. The actual difference has already been noted above.
Part of the Wife’s case in the proceedings before me, including via the expert evidence of her expert Mr J, was directed towards establishing that the December 2006 valuation of the G Property land and improvements at $3.83 million significantly understated the value and thus the overall valuation at $4.186 million was not the true or accurate value of the G Property assets. On that contention there was a miscarriage of justice because of the obvious reliance upon that valuation in the compromise that was reached and in the subject consent orders being formulated in the way they were; and in what Monteith J was informed of at the hearing for the purpose of his Honour determining those orders to be just and equitable orders.
The Wife also pursued the contention that the Husband, by reason of his work, as at December 2006 knew or believed from his knowledge of the market in general and, specifically, because of his knowledge about, and involvement in, the then relatively recent sale of a neighbouring property known as L Property; that the December 2006 valuation significantly understated the true value of the land and improvements of G Property.
Alternatively to what may be conveniently described as this “actual knowledge” contention, the Wife advances the contention that neither party reasonably had in contemplation, when reaching the compromise in December 2006 and in formulating the terms of the subject consent orders that the G Property assets would actually be sold for almost 50 per cent more, or more than $2 million more, than the values the parties used in that process.
It should also be noted in passing that in these proceedings the Wife had historically sought to mount a case to the effect that the Husband had failed to make full and true disclosure, prior to the subject consent orders being made, of the existence of further livestock and/or sale proceeds of livestock sales he had or had received. However, that aspect or allegation in the Wife’s case, was not persisted in or pursued in the trial of these proceedings.
The Husband’s case in response
In response to the Wife’s case as to establishing a ground under s 79A(1)(a) the Husband’s case may conveniently be summarised and paraphrased as follows:
a)The December 2006 valuation of the single expert witness was accurate and that valuation did reflect the fair market value of the subject assets at the time. The Husband relies upon Mr I’s evidence in these proceedings as well as the expert evidence of Mr M, registered valuer, for that contention;
b)The Husband did not hold the belief, as at 6 or 7 December 2006, and had no reason to hold the belief, that the G Property assets were then worth substantially, or any, more than the December valuation of them, whether by reference to the earlier sale of L Property or otherwise;
c)It was the Wife who sought the certainty of receiving a fixed amount (fixed at $1,260,000) from the sale proceeds of the G Property assets. It was not a specific percentage but a fixed sum which the Wife sought. The Wife was to receive that amount from the sale proceeds even if those assets were ultimately sold for less than the valuation figures;
d)The risks of not effecting sale by private treaty within the time frame provided for (and then proceeding to an auction sale without reserve) and the impost of sale costs in respect of any sale effected in that timeframe were with the Husband. Those risks included the G Property assets being adversely affected by an adverse weather event such as cyclonic weather or the like; or potentially downwards market forces;
e)The ultimate sale price obtained for the G Property assets reflects upwards market movement post-dating the 7 December 2006 consent orders, and such a movement or the degree of movement was not reasonably able to be anticipated as at 7 December 2006.
There was emphasis in the Husband’s case, which I understood to be advanced as a reason or possible explanation for the Wife insisting upon a fixed sum, that in the property settlement proceedings the Wife had failed to disclose her purchase, jointly with her partner Mr N, of her Suburb O apartment. The evidence (Exhibit 3) is that on 17 November 2005 the Wife and Mr N had signed a contract for their joint purchase (off the plan for the construction of the subject property) of a residential apartment for a price of $2.95 million. A 10 per cent deposit, payable by bank guarantee, was paid by Mr N. It is clear that the Wife failed to disclose this, clearly in breach of her duty of disclosure, in the property settlement proceedings. The Husband was unaware of this fact in December 2006, as was the Court. Settlement of the Wife’s purchase with Mr N ultimately took place on or about 8 May 2008.
Thus the Husband contended for a conclusion that no miscarriage of justice occurred.
Relevant in part to the threshold question as to whether the Wife established a ground under s 79A(1)(a), but more particularly relevant to the further questions, namely whether even if a ground be established, the discretion ought be exercised in favour of the Wife; and then whether the order be varied or set aside and another order under s 79 be made if appropriate; the Husband’s case emphasised:
a)The Wife’s delay in instituting her proceedings pursuant to s 79A. The subject orders having been made on 7 December 2006 it was not until almost five (5) years later, on 14 November 2011, that the Wife instituted the s 79A proceedings;
b)In association with the above contention, the Husband emphasised the course of dealings over the intervening period he has engaged in and in particular his acquisition in 2007 of the grazing property known as D Property and the substantial work and capital injected into that property over the intervening period; and the reduction of its capital value as at the trial of these proceedings.
The trial in two parts – Discrete hearing
On 8 May 2012, for reasons then delivered, I acceded to the Husband’s application to determine, as a separate or discrete issue, whether the Wife established a ground under s 79A(1) and the hearing of that issue proceeded on 24, 25 and 26 July 2012. A further order was made that if it were determined a ground was established then the further hearing of the Wife’s application was to proceed on 22, 23 and 24 August 2012.
Thus it was that only evidence relevant to whether or not a ground was established was filed or relied upon in advance of the discrete issue hearing; which obviously did not include any complete valuation evidence of the parties’ assets or any complete evidence of the parties’ respective financial circumstances current to that time.
In the result it was determined at the conclusion of the July 2012 hearing that a ground under s 79A was established by the Wife. The parties agreed that rather than reasons for that determination then being delivered, reasons for judgment ought be delivered as part of the overall determination of the s 79A proceedings. Hence these reasons address the conclusion expressed by the Court in July 2012 that a ground was established.
The further hearing set down for 22, 23 and 24 August 2012, and for which the parties were to file evidence, including valuation evidence, and other evidence as to their respective financial positions, was deferred because the parties undertook negotiations, including a mediation. Unfortunately, the issues were not able to be resolved and the further hearing of the application proceeded in February 2013 with final written submissions being delivered in March 2013.
Both parties were represented by solicitors and counsel at the first stage of the trial of these s 79A proceedings in July 2012. The Wife continued to be so legally represented for the balance of the proceedings whilst the Husband represented himself for the balance of the proceedings heard in February 2013.
The Wife’s earlier application to enforce the consent orders
A complicating feature of these proceedings relates to what has been referred to in these proceedings as “the enforcement proceedings” instituted by the application filed by the Wife on 7 October 2010.
By that application the Wife sought an adjusting payment or payments for taxation pursuant to the terms of the consent order, particularly order 1.12. That application was initially heard by Monteith J on 25 October 2010 when his Honour made orders for, inter alia, an expert’s report from a chartered accountant on the taxation issues. The further hearing proceeded on 28 February and 1 March 2011. On 13 April 2011, for reasons then delivered and read before me, Monteith J made orders for the Husband to pay the Wife a total sum of $228,793.92. Monteith J also made an order reserving each party’s costs of the enforcement proceedings.
Other than the amount of $53,687.12 (included in the above total of $228,793.92) which the Husband did not dispute, the Husband has not paid the balance of the sum ordered. The Husband filed an appeal against those orders.
The Wife having filed this application pursuant to s 79A on 14 November 2011 it was determined that the hearing of the Husband’s appeal should not take place until the outcome of these proceedings was known.
Both parties agitated in these proceedings issues of costs concerning the enforcement proceedings and each party waived privilege with respect to offers historically made by them respectively, both in respect of the enforcement proceedings and these proceedings more generally.
In the relief she claims in these proceedings the Wife seeks a monetary variation of the consent orders calculated in a way which potentially overlaps with the orders made by Monteith J in the enforcement proceedings and which includes her costs of those proceedings.
The Wife’s damages claim against her former solicitor
Apart from the enforcement proceedings it is also to be noted that aside from this application and proceedings with respect to the subject consent orders the Wife instituted, in the Supreme Court of Queensland, in November 2011 a claim for damages for negligence and/or breach of contract against her former solicitor Mr Habermann who acted for her at all relevant times with respect to the subject consent orders. The Wife’s Notice of Claim and Statement of Claim filed in those proceedings is Exhibit 15 in these proceedings. The Wife’s Supreme Court claim has been defended and Exhibit 16 in these proceedings is the Notice of Intention to Defend and Defence filed in the Supreme Court proceedings.
What was the relevant context of the consent orders?
Before dealing further with the terms of the consent orders and, more specifically, with what transpired in the hearing before Monteith J on 7 December 2006, some matters of background or context ought be noted.
The Husband, born in 1955 and the Wife, born in 1961 commenced cohabitation in October 1980; married in 1980; and divorced on 6 November 2005.
The parties are in dispute as to the date of their final separation. On the Husband’s case, separation occurred sometime in March 2001 following the Wife’s relocation from G Property to Sydney. The Wife contends that separation occurred in November 2004. The parties reached an agreement, for the purposes of the divorce proceedings in 2005 that the date of final separation was in May 2003.
There are four now adult children of the marriage, namely Mr P born in 1982 now 32 years of age; Mr Q born in 1984 now 29 years of age; Ms R born in 1987 now 27 years of age; and Ms S born in 1990 now 24 years of age.
In December 1980 the parties established the partnership. Through the partnership the parties, as co-partners, carried on a rural livestock grazing business and other agricultural pursuits on properties where they resided from time to time. Over the course of the relationship and their conduct of the partnership the parties acquired or sold various rural grazing properties, the most significant of which was G Property, being the single major asset of the parties held by them at the end of the marriage.
The evidence establishes that well prior to the final trial stage of their property proceedings in 2006, both parties were aware of, and had taken accounting advice in relation to, potential taxation issues concerning both the dissolution of the partnership and capital gains taxation implications of a sale of the G Property land and improvements and the G Property assets overall.
Mr I had undertaken an earlier valuation of G Property on behalf of the Husband in 2005 and in his valuation of 11 August 2005 Mr I had assessed the value of the G Property land and improvements at $2.974 million in an overall valuation of $3.3 million. Both parties were provided with that valuation.
As Exhibits 1 and 4 reflect, the Wife had received, prior to the trial stage of the property proceedings, input from the accountants of the partnership (E Accountants) as well as her own expert accountant Mr T, albeit at that time with respect to the August 2005 valuation, concerning potential capital gains taxation and other potential taxation issues relating to the partnership.
It was known that the partnership had historically taken advantage of profit deferral available to primary producers being, in summary, deferring for income taxation purposes, profits on livestock sales. That mechanism enabled profits in any given taxation year to be deferred, for taxation purposes, for up to five (5) years. Exhibit 1 (letter from E Accountants to the Wife’s solicitors dated 22 June 2006) confirms that as at 30 June 2005 a total of $528,976 in deferred profits from livestock sales were still to be brought to account in the partnership for taxation purposes.
In the property settlement proceedings the Wife had been contending for a 50 per cent/50 per cent division of value, as between the parties, of their overall property interests. The Husband had been contending for a 75 per cent/25 per cent division in his favour. The Husband’s contention relied principally upon a case that there was initial capital disparity in his favour by reason of capital he contributed via his family and by him at the outset of the relationship/marriage; and his post-separation contributions, bearing in mind the earlier separation date he contended for.
As to the Husband’s case concerning post-separation contributions, there was, as has already been referred to, a significant difference between the parties as to the date of their final separation with the Husband contending separation occurred in March 2001 following the Wife’s relocation to Sydney; whilst the Wife contended that separation did not occur until November 2004.
The Husband contended significant contribution by him with respect to the G Property assets in the post-separation period for which he contended (the period post early 2001); including in particular his role in renewing and extending the term of the lease via which the parties held that interest despite opposition from the Environment Protection Agency and the National Parks Department.
In the event, as will be discussed, Monteith J was informed that the consent orders reached reflected a compromise by each party and an approximate 55 per cent/45 per cent division of property overall in favour of the Husband. It is apparent from the transcript of the hearing that at least by necessary inference it was at least partly on that basis that his Honour expressed satisfaction that the subject consent orders were just and equitable.
The nature of the hearing and process when the consent orders were made
The nature of the hearing before Monteith J on 7 December 2006 and what is involved in the making of consent orders is not open to doubt. In making consent orders for property settlement pursuant to s 79 of the Act the Court is not engaged in some mere formality or ceremony or “rubber stamping” exercise of whatever parties agree.
In Harris v Caladine,[1] the High Court considered the power to make consent orders under s 79 and held that in making orders by consent, as well as orders not made by consent, the Court must take into account the considerations set out in s 79(4) of the Act. However, the requirements under s 79(4) were less demanding in circumstances where parties have consented to the orders.
[1] (1991) 172 CLR 84.
Brennan J outlined (at p 101-102) that:
…as a judicial order of a superior court affords protection to a person executing it, the very purpose of procuring the making of orders by consent is to ensure that the terms agreed are susceptible of enforcement as a curial order.
(Footnotes omitted)
Brennan J stated that as the Court is required to take into account the factors in s 79(4) in making a consent order, the making of such is “no mere formality”.
Brennan J further observed with respect to the factors enumerated in s 79(4) (at p 103):
… It does not follow that, when a consent order is sought in a s. 79 application, it is necessary to conduct an inquiry into each of those factors. The Court may be satisfied that a provision is proper by reference not only to the material before the Court relating to the factors mentioned in s. 79(4) but by reference to the advice available to the respective parties and the consent which they respectively give to the making of the order. In the majority of cases, once it appears that the parties are conscious of the factors mentioned in pars (a) to (f) and have taken them into account before consenting, the provisions ‘with respect to financial matters’ proposed for incorporation in the consent order will be seen to be ‘proper’… Nevertheless, when an application for a consent order in a s. 79(1) matter is made there is a discretion to be exercised with reference to the propriety of the provisions with respect to financial matters. The making of a consent order in a s. 79(1) matter is not automatic.
Mason CJ and Deane J stated (at p 96):
Moreover, in our opinion, the reviewing Judge, as well as the Deputy Registrar, was required to have regard to the matters mentioned in s. 79(4), though, in the case of the Deputy Registrar, as a consent order was sought, comparatively little was required to satisfy him on that score.
Dawson J outlined (at p 124):
In considering what order, if any, should be made under s. 79, a court is required under sub-s. (4) of that section to take a number of matters into account, including the various financial contributions made by the parties to the marriage. And sub-s. (2) provides that a court shall not make an order under the section unless it is satisfied that, in all the circumstances, it is just and equitable to do so. The fact that an order is sought by consent does not relieve a court, or a Registrar, from compliance with the requirements of the section, but it may render compliance much less demanding. Provided that a court, or a Registrar, is adequately informed, where the parties are at arms length and are properly represented little more than consent may be needed to establish that the requirements of the section have been met: see Jenkins v. Livesey [1985] A.C. 424, at pp. 437, 444.
Even if the consent pursuant to which an order is made under s. 79 amounts to a contract between the parties, it is the order itself which is of legal significance. As Lord Diplock observed in de Lasala v. de Lasala [1980] AC 546, at p. 560, in related circumstances:
‘Financial arrangements that are agreed upon between the parties for the purpose of receiving the approval and being made the subject of a consent order by the court, once they have been made the subject of the court order no longer depend upon the agreement of the parties as the source from which their legal effect is derived. Their legal effect is derived from the court order.’
And in the case of an application under s. 79, even if there is consent amounting to a contract, that is not enough of itself to entitle the parties to an order. The requirements of the section must be satisfied.
(Footnotes included)
What is the purpose and effect of the submissions made on the application for consent orders?
In my judgment what was submitted to Monteith J in the hearing on 7 December 2006 when the consent orders were made serves at least two purposes relevant to this application. First, the submissions elucidate the intention of the parties or what they intended to achieve by the terms of the proposed orders and thus what they were each consenting to. Second, the submissions inform the Court, and form part of the information available to the Court in order for the Court to fulfil the task of determining whether or not the proposed orders are “appropriate” within the meaning of s 79(1); and “just and equitable” within the meaning of s 79(2).
It follows that I reject contentions by the Husband in his submissions on this application to the effect that any of the substantive submissions made by his counsel on the hearing may be characterised as “throw away lines”. In his oral evidence in cross-examination the Husband confirmed that whilst he was not physically present in the courtroom for the hearing; having read the transcript of that hearing (annexed to his affidavit) nothing in it caused him any concern or contained anything he did not understand.
For completeness, the transcript of that hearing attended by the Husband’s Counsel and solicitor (who were locally-based in Townsville) is set out:
HIS HONOUR: Good morning, Mr Fellows.
MR FELLOWS: Good morning, your Honour. I appear for the respondent husband. I also appear as a matter of courtesy for my colleague who represented the applicant wife. It was most cost effective for him to return to Brisbane this morning.
HIS HONOUR: Yes, I wondered about that, yes.
MR FELLOWS: Your Honour, the matter has settled, not ultimately until 6 o’clock last night because of the complexity of what we were trying to achieve. I can hand to your Honour consent orders, which have been signed by both parties which we ask the Court to make.
HIS HONOUR: I did have a look at it and, although I didn’t see the valuations, the principal property was the leasehold property, the name of which I can’t remember, [G] something or something?
MR FELLOWS: G Property, yes, yes. Indeed, that was, for practical purposes, the only property.
HIS HONOUR: Yes.
MR FELLOWS: The valuation which came in on Tuesday valued that property, plant, equipment and livestock at a little more than $4.1 million and the practical difficulty for the parties in terms of structuring a settlement was that such a value represented just about a $2 million capital gain in five years.[2]
[2] As earlier noted the valuation was for $4.186 million and as will be discussed the capital gain was $2.428 million but nothing of significance turns on these differences.
HIS HONOUR: I realised that there was a capital gains tax problem.
MR FELLOWS: Yes. And so we had to devise a structure to, in a sense, equally share the capital gains tax of the parties. Secondly, dating back to the parties’ ownership of previous capital property, they had deferred profits on [livestock] sales of some $500,000. So the resolution of their financial affairs, brought into immediate effect, crystallised both the potential capital gain and income tax liabilities.
HIS HONOUR: Yes.
MR FELLOWS: But each of them had, particularly because of the husband’s involvement in the rural industry, each of them has various advantages that may be possible and particularly as - - -
HIS HONOUR: Is the wife still working for – was it the … or the ---
MR FELLOWS: No, she is now in, I think, the - I’m not exactly sure of the title, but she’s the media advisor to [a senior politician].
HIS HONOUR: That’s right, yes. And is he still in the [livestock] industry?
MR FELLOWS: Yes, he is. He’s a [rural consultant] by occupation.
HIS HONOUR: Yes.
MR FELLOWS: But also running that property.
HIS HONOUR: The property. So what was the net – without me ---
MR FELLOWS: Yes, there’s always, of course, some differences between the parties as to assets and liabilities but, broadly speaking, the result was 45 per cent or thereabouts in favour of the wife, 55 per cent in favour of the husband.
HIS HONOUR: He got some - he started off with some benefits as a result of ---
MR FELLOWS: The typical family generosity type argument.
HIS HONOUR: Yes.
MR FELLOWS: And then he would have wanted to argue a post separation contribution ---
HIS HONOUR: Because his case was that the separation had been in 2000 or something.
MR FELLOWS: That is so, your Honour.
HIS HONOUR: Yes.
MR FELLOWS: Certainly from both parties’ sides there was no section 75(2) factor. They were both relatively young. The wife has a potential earning capacity. The children, broadly speaking, are nearly off their hands, there’s only one ---
HIS HONOUR: Yes, there’s only one child under 18, wasn’t there?
MR FELLOWS: That is so, your Honour. The wife achieved a lower figure. On the other hand, your Honour will see from the terms of settlement that she has a guaranteed result. The husband has to take both the benefit or risk of the sale price of the property.
HIS HONOUR: Right.
MR FELLOWS: And the taxation matters are so complex that they won’t ultimately be resolved until July 2009. A provision for an expert accountant to ultimately work out what, if any, adjustment should be made between the parties in terms of ---
HIS HONOUR: In relation to what the Australian Tax Office does.
MR FELLOWS: Yes, your Honour.
HIS HONOUR: All right. I’ll have a look at it now. Thank you. You have a seat, Mr Fellows.
HIS HONOUR: Yes, I’ll make the orders in those terms. I consider them to be a just and equitable adjustment of the property interests of the parties. I’ll initial these minutes which I’ll place on the Court file and I’ll order that the proceedings be transcribed and a copy of the transcript placed on the Court file lest anybody later says I didn’t have a good look behind the settlement.
What may be concluded from the hearing before Monteith J?
The following observations may relevantly be made about the above exchanges:
a)Counsel for the Husband informed his Honour, as was the fact, that the G Property (understood as the G Property assets) was “for practical purposes, the only property” (i.e. the only property of the parties of significance);
b)Monteith J engaged Counsel in discussion of the central issues in the case and his Honour obviously sought to be informed (in circumstances where this was a twenty plus year cohabitation and marriage which produced four children) what the proposed orders reflected in terms of an outcome or comparison as between the parties;
c)His Honour was informed that in circumstances where there remained some differences about the combined pool that the orders were to effect, at least “in broad terms” a 55 per cent/45 per cent division in favour of the Husband;
d)Monteith J received an explanation, or basis, from Counsel for the apportionment that was adopted being in the Husband’s favour;
e)His Honour was informed of the complexity of relevant tax issues; of the need to devise a “structure” to effect that the parties “equally share the capital gains tax of the parties”; in the context of potential capital gain and income tax liabilities being “crystallised” by the finalisation of the parties’ financial affairs;
f)In what was obviously a reference to the fixed cash sum of $1,260,000 the Wife was to receive, this was described by Counsel as a “guaranteed result” for the Wife with the Husband “to take both the benefit or risk of the sale price of the property”;
g)As is made plain by his Honour’s own statements as recorded at the conclusion of the transcript, his Honour sought to have “a good look behind the settlement” in reaching the conclusion that the orders were “a just and equitable adjustment of the property interests of the parties”.
Did the consent orders achieve their intended purpose?
I make it clear that no criticism can or should be made of the Husband’s Counsel in the information he imparted to Monteith J, in terms of its broad accuracy, in the overall context of that information upon the hearing referred to.
A central difficulty arises because the “guaranteed result” to the Wife only “guaranteed” her receiving or retaining 45 per cent overall and only “guaranteed” the net after tax amount the Wife would retain, if the subject assets to be sold were sold at a price approximating the value of those assets used to crystallise the 45 per cent; with such sale crystallising the capital gain referable to such amount. The structure devised to achieve the parties’ equally sharing capital gains tax was in contemplation of the notional gain being in the order of $2.4 million (based on the valuation), not $4.27 million (the actual gain).
I interpolate that the sale apportionment adopted ultimately in the sale contract of the G Property assets, as is common in sales of grazing properties, was made having regard to, at least in part, taxation consequences. Each of the vendor and the purchaser were entitled under the terms of the contract to make their own respective apportionments. Thus, for example, it is not to be inferred that the combined values for plant and equipment and livestock ($356,000) as per the expert valuation actually increased in value (in fair market value terms) to $564,996 (the figure apportioned to them by the vendor partnership in the sale). Of course, the corollary is that if the valuation figures for plant and equipment and livestock had been used in the sale apportionment, a higher amount out of the $6.24 million paid would have been apportionable to the land and improvements component, specifically $5,884,000, which would lead to a higher capital gain amount for taxation purposes on the land and improvements component.
It is also to be noted that, for comparison purposes, it was a term of the sale agreement that the Husband provide some consultancy services to the purchaser of the G Property assets for up to 50 hours per month from settlement in July 2007 until up to 31 December 2007, a period of about six (6) months. There was no specific sum identified or apportioned out of the $6.24 million total purchase price paid in that respect.
The payment to the Wife of the fixed sum of $1,260,000 out of the proceeds of sale resulted in the Wife ultimately receiving, in real terms, very significantly less than 45 per cent of the overall asset value if the amount of the sale proceeds, rather than the expert valuation figure, is considered. Broadly, in these terms, the Wife received or retained less than 30 per cent overall.
The provision for the fixed sum of $1,260,000 resulted in the Wife receiving no share of the increased or greater amount, compared to the valuation figure, the difference of $2,054,000 earlier referred to.
Compounding this, in terms of the Wife’s ultimate position as to what she received or was to retain are issues concerning taxation. The evidence reveals that whilst originally the parties paid $1.8 million to acquire G Property in 2001 the applicable purchase cost or cost base for taxation purposes of the land and buildings of G Property was $1,401,709.
As was referred to in the hearing before Monteith J on 7 December 2006 it was known that sale of the land and buildings of G Property at the expert valuation figure for that component of $3,830,000 would produce a capital gain and capital gains tax liability. That was so, even with the parties being able to avail themselves of what is known as the 50 per cent exemption for the sale of a business or “active asset” (within the meaning of that term in the capital gains tax legislation) and the further 50 per cent general discount in respect of an asset owned for longer than 12 months, prior to disposal of that asset.
However, sale of the land and improvements of G Property at the figure apportioned to that component of $5,675,004 (rather than $3,830,000) substantially increased the capital gain to be considered for capital gains tax purposes. This may be illustrated by the following comparison between the valuation figure for the G Property land and improvements and the amount apportioned to land and improvements in the actual sale:
Valuation
Sale
Land and improvements
$3,830,000
$5,675,004
Less cost base
(1,401,079)
(1,401,079)
Notional Capital Gain
$2,428,921
$4,273,925
50 per cent to each partner
$1,214,460.50
$2,136,962.50
Apply 50 per cent general discount for 12 months ownership
607,230.25
1,068,486.20
Apply 50 per cent “active asset” exemption
$303,615.12
$534,240.60
Thus, whilst the Wife actually received $1,260,000 from the sale proceeds of the G Property assets (including plant, equipment and livestock, in addition to the land and improvements); for capital gains tax purposes with respect to only the land and improvements component the Wife was to be treated as having received one half of the actual sale proceeds. Instead of a liability for taxation upon $303,615.12 referred to above, the Wife’s taxation liability was upon the figure of $534,240.60 referred to above. For the purposes of illustration, applying the then top marginal rate of tax of 46.5 per cent (as such an amount attracted) the taxation payable comparison is $141,181.03 as compared to $248,421.87 on the respective figures (ignoring any adjustments/deductions otherwise).
Would a Court determining orders make an order for a fixed sum?
In the context and in the circumstances of this case it is, in my judgment, of relevance to the question of whether the consent orders gave rise to a miscarriage of justice to consider what orders the Court would likely have made, as at the date of the consent orders, had the Court been called upon to make orders to achieve a 55 per cent/45 per cent division, in circumstances where the only significant assets of the parties were to be sold to achieve such an outcome.
In my judgment, by reference to guidelines from well-known authorities, it would be most unlikely that if the Court sought to make orders to give effect to an apportionment it would have made an order for a fixed sum to the Wife, rather than a percentage, in the circumstances under discussion given the confluence between:
a)The objective of effecting a 55 per cent/45 per cent division;
b)The need to effect sale of the parties’ only significant assets to achieve that division;
c)The fact that significant potential capital gains taxation and other taxation liabilities were to be crystallised;
d)The sale period contemplated with payments to be effected from the sale proceeds, rather than either party assuming any separate or personal obligation to make any cash payment.
In Noetel and Quealey[3] (“Noetel’s case”) the Full Court discussed the principles generally applicable to the practice of drafting orders based on a percentage entitlement rather than a fixed sum. At [143] the Full Court, with reference to earlier authorities, said:
[3] (2005) FLC 93-230.
143. The practice of drafting orders based on a percentage entitlement rather than a fixed sum to achieve fairness between parties in the event of a sale is subject of many authorities. Those authorities were subject of comprehensive review in Sinclair and Sinclair [2000] FamCA 262. We take this opportunity to repeat that summary and emphasise the importance of the well established principle:
‘108. A long line of authority in this Court (Waters and Waters (1981) FLC 91-019 at 76,208; Williams and Williams (1988) FLC 91-959 at 76,940; Docters van Leeuwen and Docters van Leeuwen (1990) FLC 92-148 at 78,024; Little and Little (1990) FLC 92-147 at 78,020; Smith and Smith (1991) FLC 92-261 at 78,759; and Bell and Bell (1993) FLC 92-347 at 79,683) establishes as a clear guideline for the exercise of discretion under s 79 of the Act, that, absent some special consideration (such as a desire by one spouse to retain a particular piece of property, in specie), and particularly where the value of an asset is contentious, or even where it is not but the market for the property is volatile, or there is likely to be a significant time lapse between judgment and sale, and where the value of the asset is to be divided between the parties, the Court should order its sale and the apportionment of the proceeds between the parties rather than order one party to pay to the other a fixed sum representing a notional proportion of its assessed value.
109. Moreover, in Docters van Leeuwin (sic) (supra) at 78,025, the Full Court (Fogarty, Nygh & Rowlands JJ), after citing a passage from the judgment of Mason and Deane JJ in Norbis v Norbis (1986) FLC 91-712 at 75,165–6, said this:–
“In our view the time has come to regard a departure from a long-standing guideline, such as the one given in Waters, without adequate explanation as a ground for finding that the exercise of discretion has miscarried.”
110. In Bell and Bell (supra) at 79,763, the Full Court (Ellis, Baker & Purvis JJ), after referring to the earlier decisions in Docters van Leeuwin (sic), Little, and Waters (all supra) said this:–
“We see no reason to depart from the line of authority referred to above. There is always uncertainty in relation to the amount which will ultimately be obtained in respect of the sale of matrimonial property and, in particular, matrimonial real estate.
…
Although the order which the trial judge made was essentially discretionary in nature, in our opinion the authorities above referred to clearly establish that where a sale of property is necessary to satisfy a lump sum order for settlement of property and the calculation of any lump sum payable arises from a finding as to the value of the property to be sold, then the amount to be paid to one or other of the parties following any such sale should be expressed in percentage terms, rather than by way of lump sum payment, unless good and sufficient reasons are given for doing so.
The trial judge gave no reasons for departing from the above principle and, given the facts of the case, we are unable to perceive that there was any justification in law for doing so. For this reason therefore, we consider the trial judge has erred in the proper exercise of his discretion and we would allow the appeal to this extent.” ’[4]
[4] Noetel and Quealey (2005) FLC 93-230 at 79,806-7 (Bryant CJ, Finn & Boland JJ).
In this context it is to be noted that as the transcript of the hearing on 7 December 2006 reveals, Monteith J was told certain things about the then recently received December 2006 valuation but the valuation itself was not filed or tendered. In circumstances where the proposed orders provided for a time frame for sale, first by private treaty by a set date more than six (6) months post-dating the date of the orders, and then proceeding to auction thereafter, it is relevant to note that the valuation contained a number of qualifications expressed in paragraph 1.5. Those qualifications included, at sub-paragraph 11:
11. This valuation is current as at the date of valuation only. The value assessed herein may change significantly and unexpectedly over a relatively short period (including as a result of general market movements or factors specific to the property). We do not accept liability for losses arising from such subsequent changes in value. Without limiting the generality of the above comment, we do not assume any responsibility or accept any liability where this valuation is relied upon after the expiration of three months from the date of the valuation, or such earlier date if you become aware of any factors that have any effect on the valuation.
(Emphasis added)
Did a miscarriage of justice occur?
Section 79A(1) of the Act provides, relevantly to these proceedings:
(1)Where, on application by a person affected by an order made by a court under section 79 in property settlement proceedings, the court is satisfied that:
(a)there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence (including failure to disclose relevant information), the giving of false evidence or any other circumstance; or
…
the court may, in its discretion, vary the order or set the order aside and, if it considers appropriate, make another order under section 79 in substitution for the order so set aside.
It is well settled that s 79A is a remedial section intended to overcome miscarriages of justice and the section should be construed liberally to affect its intended purpose.[5]
[5] Re Gilbert and the Estate of Gilbert (dec’d) (1990) FLC 92-125; Suiker & Suiker (1993) FLC 92-436; Barker v Barker (2007) 36 Fam LR 650; M & M [2003] FamCA 1304 (Kay, Holden & Monteith JJ).
In Suiker & Suiker[6] (“Suiker’s case”) the Full Court said, when commenting upon a passage in an earlier judgment of Clifton and Stuart:[7]
As regards the view expressed in Clifton and Stuart that the expression ‘miscarriage of justice’ ‘relates to the integrity of the judicial process’ we are of the opinion that this passage was not intended to refer only to the hearing in the Family Court, but that the expression ‘judicial process’ can refer to a variety of matters and circumstances which had an influence on the outcome of the litigation. It is neither necessary nor desirable to attempt to define the matters which may amount to a miscarriage of justice by reason of any other circumstance in the relevant sense.[8]
[6] (1993) FLC 92-436.
[7] (1991) FLC 92-194.
[8] Suiker & Suiker (1993) FLC 92-436 at 80,472 (Nicholson CJ, Baker & Strauss JJ).
In Suiker’s case the Full Court also observed:
In our view, in appropriate cases, the order itself in the light of the true facts may bear upon the question whether there has been a miscarriage of justice.[9]
[9] Suiker & Suiker (1993) FLC 92-436 at 80,471(Nicholson CJ, Baker & Strauss JJ).
The guidelines derived from the above authorities referred to in and including Noetel’s case, concerning the exercise of discretion in the form or structure of orders adopted to achieve an intended outcome may be accepted. That is, a trial judge exercising discretion under s 79 will have erred in the proper exercise of that discretion by fixing a lump sum payment, rather than a percentage, from the proceeds of the necessary sale of property to achieve an overall settlement of property, without good and sufficient reasons for so doing.
In my judgment, the corollary of that principle apposite to the circumstances of this case discussed further below is that a miscarriage of justice by reason of “any other circumstance” within the meaning of s 79A(1) has occurred because of the manner in which the subject consent orders were framed or constructed having regard to the real effect or outcome of those orders, or the operative effect of those orders, in the circumstances of this case. In this case it was not only the fixed sum provision in the consent orders but the manner in which those orders were constructed to deal with taxation issues that affected the overall outcome for the Wife.
In relation to capital gains taxation the orders as framed incentivised the Husband to effect a sale of the G Property assets within the 2007 financial year. By orders 1.2 and 1.4 the Husband had initial control of the sale but if he did not affect sale by private treaty by 31 May 2007 (for settlement on 1 July 2007) the property was to proceed to auction, without reserve, in July 2007. It was thus contemplated that sale be effected in the 2007 financial year, with crystallisation of any capital gains taxation liability in the 2007 financial year. Yet by order 1.12.2 the date of 1 July 2009 was fixed as the date by which the comparison and equalisation process was to commence (absent earlier consensual agreement). In the meantime, order 1.12.1 obliged a party liable for capital gains taxation to be responsible for payment of that liability “in the first instance”.
It is well settled that for the purpose of s 79A(1)(a) a miscarriage of justice can only occur by reason of a fact or event which occurs before or at the time of the making of the order which is sought to be set aside.[10] Whilst the sale of the G Property assets was obviously subsequent to the making of the consent orders it does not follow that this case can thus be characterized as one where the relevant act or event did not occur before or at the time of the making of the consent orders. Rather, the subsequent sale establishes why the following facts or events before or at the time of the making of the order assume such critical importance.
[10] In the marriage of Molier & Van Wyk (1980) 7 FamLR 18, 21; (1980) FLC 90-911 at 75,767-8; Public Trustee v Gilbert (1991) 14 FamLR 573, 576-8; (1991) FLC 92-211 at 78,426-8.
The parties sought and obtained the protections and benefits of a curial order, as part of the judicial process of a superior court, on the basis that the terms of the order were taken to effect, at least in broad terms, a 55 per cent/45 per cent division of their property interests overall.
However, the way in which the consent orders were constructed resulted in their operative effect being that the Wife actually received or retained not 45 per cent, even in broad terms, but less than 30 per cent when the sale of the G Property assets, in the manner and within the time frame contemplated by the consent orders, occurred. The incidence of capital gains taxation liability had a compounding effect upon what the Wife was to retain from the fixed sum she was to receive.
Obviously enough, the position would be different here if the sale of the G Property assets required by the consent orders was at a price differential compared to the valuation reasonably in contemplation when the orders were made. A differential of five per cent or 10 per cent higher or lower to the values identified would not be capable of being characterized as being beyond the reasonably foreseeable or contemplated outcome the Wife consented to; nor beyond what was reasonably in contemplation when the Court made the orders. However, the sale price here varied by almost 50 per cent, from $4,186,000 to $6,240,000 with the compounding capital gains taxation variation.
As already noted, the Husband agitated the proposition that it was the Wife who sought a fixed sum from the sale proceeds of the G Property assets, rather than a percentage. This is in circumstances where it is not in issue that the parties had no direct negotiations on 6 December 2006 but rather negotiations were carried out as between the parties’ respective legal advisors. Thus the Husband agitated the proposition that the essence of the parties’ compromise was that the Wife was to receive a fixed sum from the sale proceeds, rather than a percentage, with the Husband carrying the risk or benefit of the sale.
I accept the Wife’s evidence to the effect that in seeking a fixed sum her primary motivation was to “protect the integrity of the valuation” as she put it. That is, the effect of her evidence was that the fixed sum provision was to guard against any artificiality about any “sale” in circumstances where the Husband was to be in control of the private sale process and the Wife knew that throughout the course of the property settlement proceedings it had been the Husband’s position that he wished to retain the subject property. However, I also accept the Wife’s evidence that she considered her proper entitlement was the 50 per cent proportion she had sought in the proceedings. The compromise reached did not occur in a vacuum in terms of the Wife’s consideration of her entitlement.
On all the evidence, it is tolerably clear that the fixed sum of $1,260,000 was not arrived at arbitrarily. Undoubtedly it can be inferred that the precise figure was the consequence of negotiations and each party differed as to the precise percentage that amount represented, given their other (minor) differences about the pool of assets and liabilities. But the figure was arrived at by reference to the December 2006 valuation of the parties’ only significant assets, the G Property assets and his Honour was informed of the outcome that represented.
The parties did not elect to give effect to any compromise by entering into a binding financial agreement under Part VIIIA of the Act. Consent orders were sought and obtained under s 79 in the manner and upon the bases earlier outlined. Once the consent orders were made the parties’ respective legal positions were to be derived from the orders, not any antecedent agreement. The Court had to be satisfied that the orders were “appropriate” and that “in all the circumstances it was just and equitable to make the orders”. The Court was so satisfied here on the basis that the orders effected, at least broadly, a 55 per cent/45 per cent division.
This aspect highlights an important distinction between this case and a case such as Sanger & Sanger[11] (“Sanger’s case”) referred to in argument by Counsel for the Husband. In Sanger’s case the central issue was whether events subsequent to the parties entering into a binding financial agreement (“BFA”) amounted to “impracticability”. Leaving aside that that is not the subject ground in this case, in Sanger’s case the Full Court concluded that the principles of contract law governing the interpretation of contracts applied to resolving what the BFA revealed to have been the parties’ real intention at the time it was entered into. The Full Court resolved that as the covenants in the BFA did not provide for a 60 per cent/40 per cent division of the asset in dispute (and there were covenants to different effect) the covenants did not reflect such an intention.
[11] (2011) FLC 93-484.
As I have sought to emphasise, the presentation to the Court of proposed curial orders to be made by the Court pursuant to s 79 on information that the orders were intended to effect a 55 per cent/45 per cent division gives rise to fundamentally different considerations and conclusions. The central question here is whether a miscarriage of justice has occurred in the judicial process given the extent of the difference between the intended effect of the orders and their actual effect.
In Korsky and Bright & Anor (No 2)[12] (“Korsky’s case”) the Full Court confirmed at [19] that while the justice and equity of an order may in some circumstances bear upon the question of whether a miscarriage of justice affected the order, a miscarriage of justice and an unjust and inequitable order are not synonymous concepts. A miscarriage of justice may have occurred though an order is just and equitable; and an order may be unjust and inequitable, but not because of a miscarriage of justice.
[12] (2007) FLC 93-352.
At [20] and [21] the Full Court drew a distinction between evidence coming to light which shows that a fact found at trial was wrong (which may be a circumstance establishing a miscarriage of justice at trial) and a situation in which “subsequent developments” show that the outcome of the trial has become unjust and inequitable, a situation which of itself will not normally attract the operation of s 79A(1).
By analogy to this case, recognizing that there were no findings of fact as such made by Monteith J in circumstances where a consent order was made, the way in which the subject consent orders were constructed, taken with the bases upon which Monteith J expressed satisfaction that they were just and equitable, puts this case, by analogy, in the former of the two categories identified by the Full Court.
That is, these orders were premised upon effecting, as the appropriate and just and equitable outcome, an approximate 55 per cent/45 per cent division of the parties’ overall property interests. They expressly provided for the sale of the parties only significant assets, the G Property assets, to affect that. The Wife was only to be paid from the sale proceeds of that property (if and when a sale occurred), and the Husband was to retain the net (after mortgage debt) balance of the sale proceeds. The relevant taxation exposure in contemplation was that identified or identifiable by reference to the December 2006 valuation figures. The evidence coming to light subsequent to the consent orders, that is, the actuality of the sale proceeds realized from the sale (on terms and within the time frame provided for by the orders) demonstrates that it was wrong to premise the orders upon the valuation figures used. Thus the “fact” or “facts” analogous to the “findings of fact” referred to in Korsky’s case was that, based upon the December 2006 valuation the sale proceeds would be reasonably approximate to the figures identified in the valuation and the capital gains taxation liability as contemplated by such a sale.
Put another way, the evidence that has come to light since the consent orders on 7 December 2006, that is, the actuality of the sale, demonstrates that the parties and the Court were “in error” (in the sense referred to in Korsky’s case) as to the factual basis upon which the orders were constructed and made; that is, that sale within the time frame contemplated by the orders would yield proceeds approximate to their assessed value as at 1 December 2006, and taxation consequences in contemplation based upon that valuation.
Viewed from this perspective, in the particular circumstances of this case and the requirement for sale of the subject assets to give effect to the intended outcome, the question is not so much the “true” value or “real” value of the G Property assets as at 7 December 2006, when the orders were made, but their value as at the time of sale and, importantly, the amount of capital gains taxation liability crystallised.
What is the relevance of Barker’s case to this case?
It was observed by the Full Court in Barker v Barker[13] (“Barker”) at [124]:
But s 79A is a remedial section designed to avoid a miscarriage of justice. Where there is some intervening factor known to one party, but not the other, this may lead to a result which is unfair and unjust and can be characterised as a flaw in the judicial process by which the orders were made. There may also be circumstances in which the judicial process could be impugned by a sale after orders were made and in the absence of bad faith by either party or suppression of some relevant fact, if it lead to a significant miscarriage of justice.[14]
(Emphasis added)
[13] (2007) 36 Fam LR 650.
[14] Barker v Barker (2007) 36 Fam LR 650, 676 [124] (Bryant CJ, May & Boland JJ).
In Barker the Full Court set aside the consent orders under s 79A(1)(a). It was a case with some similarities to, but also some important differences from, this case. Thus a cautious approach must be taken to any comparisons. As the Full Court emphasised at [114] in Barker each of these cases must be carefully considered in light of its own circumstances.
In Barker, as distinct from this case, the consent orders were negotiated on the basis that the husband would retain the assets and assume the liabilities of the parties’ farming partnership. In my view, in the circumstances of this case that distinction is critical.
In Barker the consent orders were negotiated on the basis of an agreed net pool of assets worth $1.2 million including a particular property referred to as AW valued at $1.65m. The essence of the agreement and orders in Barker was for the wife to receive between 53 per cent and 55 per cent of the assets, via a cash payment, based on that valuation given that the husband was to retain the property.
Shortly after the orders were made the husband sold the AW property for $2.65 million. The husband had previously received an offer to purchase the AW property for $2.3 million but did not believe it to be a genuine offer and rejected it. The offer was not disclosed to the wife and the Full Court determined it ought to have been disclosed.
At [39] of the judgment the Full Court identified what was described as the “essential elements” of an order made by consent to arrive at a “fair result for both parties”, in accordance with the “just and equitable” requirement. One of the identified elements emphasised was the construction of the orders and I have earlier referred to the principles about the way in which orders ought be constructed where an asset is to be sold, which was not the case in Barker.
I interpolate that in terms of a “fair result to both parties” it can be readily understood that in many cases fairness dictates that a party be entitled to retain an asset rather than an asset being sold and the avoidance of sale or realisation costs will often benefit both parties. Fairness considerations aside, s 79(4)(d) requires account to be taken of the effect of any proposed order upon the earning capacity of either party so where a party depends upon a business or investment asset for their livelihood this consideration may dictate the conclusion that it is “appropriate” and “just and equitable” for the party to retain the asset even if the other party agitates for its sale.
Unlike this case, in Barker there was no similar taxation or capital gains taxation issues in that the wife in Barker was not exposed to any capital gains taxation liability because the subject consent orders did not contemplate sale of the subject property.
Notwithstanding the differences between Barker and this case, the statement of principle in [124] of the judgment, set out above, was not confined to cases where an undisclosed offer has been made.
In my judgment, for the reasons outlined, a miscarriage of justice by reason of “any other circumstance” within the meaning of s 79A(1)(a) is established by the Wife.
Is it necessary to determine the issues agitated about the December 2006 valuation?
Given the bases for the above conclusion as discussed, including the identified circumstances which distinguish this case from Barker, it is unnecessary to formulate similar questions as formulated by the Full Court in Barker. That is, by analogy, the question “was the December 2006 valuation of the G Property assets the “real value” of those assets?” In this case a further associated question, for the reasons already outlined, would concern the question of capital gains taxation reasonably in contemplation at the time of the orders.
However, for completeness, I will engage at least briefly with the parties’ competing contentions concerning the December 2006 valuation.
The subject valuation was for a valuation date of 1 December 2006. The contract of sale for the sale that occurred was entered into on 4 May 2007. It might therefore be thought that because there is a six (6) months gap between those dates this might, of itself, explain the almost 50 per cent difference in the price.
Such a conclusion would overlook some important facts. First, on the Husband’s evidence he did not test the market via listing of the property for sale until late February 2007 (on his oral evidence) or 13 March 2007 (on his affidavit evidence). That is, it is an unknown what would have occurred had the property been immediately listed for sale following 7 December 2006.
Following the making of the consent orders the Husband made several attempts to negotiate with the Wife to secure an agreement that, rather than the G Property assets being sold, the Wife should sell her interest in them to the Husband. Exhibits 22 and 23, being emails from the Husband to the Wife, reflect his attempts in February 2007 to persuade the Wife that by accepting a cash sum of “$900,000 or $1 million” by selling her interest to the Husband she would be in a better “after tax” position than receiving the cash payment provided for in the orders but being liable for capital gains and other tax on that amount.
The point is that on the evidence it was not until about the end of February 2007, some three (3) months after the date of the orders, that the Husband first began steps to list the property for sale.
When the Husband did test the market for the first time at the end of February or mid-March 2007 he determined to do so at an asking price of $6.25 million. His explanation for such a high listing price compared to the valuation comprised, in effect, his acting upon what can be described as “talk”, “hearsay” or anecdotal evidence from un-particularised discussions with unnamed persons, “a few people around town”, combined with the input of Mr U. In this respect Mr U’s evidence was to the effect that he encouraged the Husband to, in effect, start high in terms of price.
In any event, having determined an asking price of $6.25 million the Husband’s evidence is that it was only within a day or so of listing the property for sale that he had an interested purchaser in one Mr V who thereafter, following negotiations, entered into a contract to purchase on 26 March 2007 at a price of $6.125 million for land and improvements and plant and equipment but not including any livestock.
The Husband then sought to have the Wife execute the contract as vendor. The Wife refused to so do.
The Wife’s refusal to sign the contract resulted in the Husband filing an application on 4 April 2007 seeking orders for the Wife to sign the subject contract.
That application was heard by Monteith J on 13 April 2007. For reasons delivered on that date Monteith J was not persuaded by arguments on behalf of the Wife that by reference to the relevant terms of the subject consent orders the Wife was not obliged to execute the contract. Monteith J determined that the Wife was obliged to execute the contract and made an order that the Wife pay the Husband’s costs of the application.
In the event that sale was lost because the purchaser Mr V had withdrawn the offer to purchase on the evening before the hearing of the application. At paragraph 34 of his affidavit filed March 2012 the Husband deposes:
34. Unfortunately, given the delay incurred as a result of [Ms Ullrich’s] refusal to sign the contract, the day before the hearing, being 12 April 2007, [Mr V] contacted my solicitors and advised that he had withdrawn his offer and subsequent contract.
I am mindful of the cautions that apply to the issue of whether evidence of an offer can be relied on in arriving at a value for real property.[15] In Blake & Blake[16] the Full Court cited with approval the analysis by Guest J in Weatherall v Weatherall[17] as to when offers may be considered as evidence of value.
[15] McDonald v Deputy Federal Commissioner of Land Tax (NSW) (1915) 20 CLR 231; Goold v Commonwealth of Australia; Rootsey v Commonwealth of Australia and Another (1993) 114 ALR 135.
[16] [2007] FamCA 10.
[17] (2006) FLC 93-261.
In this case neither party sought to contend otherwise than that the offer was genuine and at arm’s length. Mr U’s evidence supports the contention that Mr V was a known industry figure and thus a serious buyer. The negotiations ended in a concluded bargain and the only reason that did not progress to a concluded contract was the Wife’s refusal to sign the contract entered into by each of the purchaser and the Husband. In these circumstances, in my judgment, the subject offer can be accepted as evidence of value of the property the subject of the contract.
The evidence includes that when Mr V withdrew his offer there were already a number of other interested purchasers. Mr V having withdrawn his offer on 12 April 2007, by late April 2007 the ultimate purchaser Mr W inspected the G Property and following negotiations the formal contract for the sale of the G Property was entered into on 4 May 2007 for the price of $6.24 million. Settlement of the sale took place on 3 July 2007.
Whilst Mr I provided affidavit evidence for this trial responsive to the evidence of the Wife’s expert Mr J (who provided a critique of Mr I’s December 2006 valuation) by which Mr I sought to support the approach he took for the December 2006 valuation, in the end Mr I made what I regard as a fundamental acknowledgement in his oral evidence in cross-examination.
Asked at trial, against the chronology or background described above, if he was called upon to perform now a retrospective valuation of G Property as at December 2006 in light of that evidence, whether such a valuation would be higher, Mr I acknowledged that it would be. Mr I was unable to say to what extent there would be a difference between his December 2006 and what he would assess G Property at upon applying a retrospective approach, as he had not given that sufficient consideration. However, the point is that the effect of this acknowledgement by Mr I in his evidence supports the conclusion that the December 2006 valuation did not reflect the true value of the G Property assets.
In this respect it needs to be emphasised that any valuation exercise, including the valuation of a grazing property such as G Property, necessarily entails numerous assessments or value judgments in the process. It is not a precise science. A valuation may be entirely legitimate as the product of proper judgments, made on each of the many variables involved, including assessment of comparable sales, yet there may result a significant divergence between the figure arrived at in a valuation compared with the true test of value, that is, actual sale on the open market.
In my judgment it is unnecessary to otherwise resolve the competing contentions from each of the expert valuers. It can simply be concluded that whilst Mr I’s December 2006 valuation may have been a legitimate valuation exercise, it did not in fact reflect the “true” value of G Property at least for the period contemplated by the consent orders for sale of that property.
Is it necessary to determine the Wife’s “actual knowledge” contention concerning the Husband?
Given the conclusion that a ground under s 79A(1)(a) is established for the reasons already discussed it is strictly unnecessary to deal with the Wife’s contention that, as at December 2006, the Husband knew or believed that the December 2006 valuation significantly understated the true value of the G Property assets.
However, because that is an issue relevant to the exercise of discretion I will engage with that contention.
The Wife relies principally on the following for that contention:
a)The Husband was, in his role with the stock and station agency appointed as agent for the sale of the neighbouring property L Property, intimately familiar with that sale. He knew and regarded L Property as comparable to G Property and thus knew or believed that the December 2006 valuation of G Property was at an undervalue by reference to the sale of L Property;
b)Exhibit 6, being a file note extracted from the records of the Husband’s accountants, reflects that in that interview the Husband regarded L Property as comparable to G Property given the comparison noted between the per acre sale price transposed to G Property in the apparent adoption of a value for the latter.
As to (b) I accept the Husband’s evidence that Exhibit 6 arose in circumstances where the Husband was of the view that it would be necessary for livestock to be included in the sale of G Property to maximise the marketability of the property and the sale price achieved. I accept that the Husband was focused upon obtaining finance to purchase livestock to be included in the sale and that the figures used in Exhibit 6 reflect the basis upon which the Husband might have been able to secure sufficient finance to purchase sufficient livestock to include them in a sale.
In my judgment, the Wife’s contention is confounded by the evidence that the L Property sale occurred in July 2006 and the evidence before me includes that as at November 2006 the Wife, by her solicitors, was expressing to the Husband, by his solicitors, a willingness to accept Mr I’s August 2005 valuation figure for G Property for the purpose of the forthcoming December 2006. That August 2005 valuation placed a value of $3.3 million on the G Property assets.
The Husband did not accept the Wife’s invitation to proceed on the August 2005 valuation for G Property. He pursued the obtaining of an updated valuation from Mr I, that is, the December 2006 valuation.
If the Husband believed, whether by reason of the L Property sale in July 2006 or otherwise, that G Property was worth significantly more than $3.3 million it beggars belief that he would not embrace the Wife’s invitation to proceed on the August 2005 valuation figure. It is not in issue that throughout the period of the property settlement proceedings it was the Husband’s ambition to retain the G Property assets, rather than seeing those assets sold.
I reject the Wife’s contention that the Husband knew or believed that the December 2006 valuation understated the value of the G Property assets.
Moreover, even if that contention were made out it does not follow that anything of consequence results. The single expert, Mr I was tasked by both parties to produce, in accordance with the Family Law Rules 2004 (Cth), an expert valuation. The L Property sale was a known fact. It was not for the Husband to persuade Mr I of anything about the L Property sale being transposed for the purpose of the valuation of G Property. This was not a case, as occurred in Barker, where the Husband failed to disclose a genuine offer to purchase the subject assets.
I accept the Husband’s evidence that he did not expect the December 2006 valuation to put as high a figure as it did upon the value of the G Property assets. I accept the Husband’s evidence that, faced with that valuation, he had to contemplate sale of the G Property assets rather than achieving his ambition of retaining them and raising sufficient finance to make a cash payment to the Wife in exchange for her interest.
Having concluded that a ground under s 79A(1)(a) is established by the Wife and thus that there has been a miscarriage of justice, it is necessary to consider whether the Wife satisfies the onus she bears that the subject orders ought be varied or set aside in consequence. Before dealing with the discretionary considerations and because the Court is asked to deal with the costs of the enforcement proceedings, itself an issue relevant to the discretionary considerations, the enforcement proceedings and the costs of those proceedings will be dealt with first.
The Wife’s application to enforce the consent orders
Because the contract of sale of the G Property assets was entered into in the financial year ended 30 June 2007 the capital gains tax assessable on the sale of the land and improvements was assessable in the hands of each party, as 50 per cent owners, in respect of the 2007 financial year.
In this respect as has been noted, whilst the consent orders contemplated a sale in the 2007 financial year, those orders, whilst providing for mechanisms to equalise the incidence of taxation for both parties, did not make allowance for that to occur until 1 July 2009, after dissolution of the partnership.
In the event the Wife, apparently acting on erroneous accounting advice, lodged her 2007 taxation return declaring a taxable gain of only $127,544 by reference to the actual sum she received from the sale ($1,260,000), rather than her actual taxable gain as a 50 per cent owner. She thus understated the capital gain by about $406,696. She was thus initially assessed to pay taxation of $56,102.50 (on the erroneous taxation return) when on the proper amount of taxable gain the assessable tax was $245,216.14.
In the circumstances of this case the following factors, which to some extent overlap or inter-relate, are at the centre of considerations in determining whether or not the appropriate exercise of discretion is to vary or set aside the original order.
a)The nature, and consequences of, the miscarriage of justice which occurred;
b)The Wife’s delay in bringing s 79A proceedings and any explanation for that delay;
c)The enforcement proceedings and the consequences of those proceedings;
d)Consequences of the Wife’s delay in bringing proceedings;
e)The parties’ respective financial circumstances;
f)The Wife’s alternate remedy.
Nature and consequences of the miscarriage of justice
This has already been largely addressed in the preceding discussion as to a ground being established. I will not repeat that discussion here.
I have rejected that part of the Wife’s case directed to demonstrating some fault or wrongdoing by the Husband concerning the December 2006 valuation. This is not a case where wrongdoing by a party to the litigation is a cause or contributor to the miscarriage which occurred. Whilst I have made some criticisms of the Husband’s conduct with respect to the enforcement proceedings that has nothing to do with the relevant miscarriage which occurred.
This was, on either party’s version as to the date of final separation, a long marriage which produced four children. The Wife’s substantial contributions over the lengthy period of marriage were reflected in the parties’ settlement agreement described to the Court, for the purposes of the consent orders, as achieving an approximate 55 per cent/45 per cent division of the parties’ property in favour of the Husband.
The way in which the subject consent orders were constructed did not, in the result, give effect to the Wife receiving what the parties, and the Court in making those orders, had in contemplation as the Wife’s just and equitable share of property. In the result, taken with taxation consequences, the Wife was to retain less than thirty per cent of the parties’ property.
I have also observed that even with the benefit of the orders made by Monteith J on 13 April 2011, the Wife’s remaining share of the capital gains tax was about $50,000 more than an equalisation of the capital gains tax the Wife would be liable for upon a sale of the assets at the valuation figure.
Overall this is a consideration weighing heavily in favour of exercising the discretion to vary or set aside the orders.
Indeed if the Wife had promptly brought a s 79A application when it became clear that the G Property assets were to sell for very substantially more than the valuation figure, with the consequences that for the reasons outlined the orders did not achieve their intended effect, many of the competing discretionary considerations discussed below, would never have arisen.
Section 79A proceedings brought promptly by the Wife and prior to the Husband’s purchase of D Property discussed below would likely have resulted in the subject orders being varied or set aside so that the Wife received an appropriate share of the parties’ property including a share of the sale proceeds of the G Property assets in excess of the valuation figure and the taxation consequences addressed. It is to be noted that 45 per cent of the excess sale proceeds above the valuation figure amounts to $924,300.
Wife’s delay in bringing s 79A proceedings and any explanation for that delay
The Wife first became aware that the G Property assets might sell for significantly more than the valuation figure when in late March or early April 2007 she was called upon to execute the sale contract entered into by Mr V as purchaser on 26 March 2007 for a price of $6.125 million, as earlier referred to. Notably that knowledge came to the Wife only three or four months after the consent orders were made.
As earlier discussed, the Husband filed an application on 4 April 2007 seeking orders, inter alia, to compel the Wife to sign the contract. The Wife’s response was not to make any cross-application pursuant to s 79A, but to oppose the Husband’s application. In the hearing and determination of that application there was no indication on behalf of the Wife that she had in contemplation any application under s 79A.
Obviously, the Wife was aware at all material times of the ultimate sale contract entered into on 4 May 2007 by which the G Property assets were sold for $6.24 million.
Settlement of the sale of G Property was effected on 3 July 2007.
The Wife then received payment of $1,260,000 as provided for in the consent orders.
The Wife gave evidence to the effect that in about mid-2007 she sought advice from Mr Habermann about any recourse she might have in relation to the sale of the G Property assets achieving a price so much higher than the valuation. The effect of her evidence was that she was advised by Mr Habermann that she did not have any reasonable prospects of success of an application under s 79A.
The Wife’s evidence in this respect would seem to be corroborated by the pleadings in the Supreme Court in Exhibit 15 and Exhibit 16.
Mr Habermann was not a witness in these proceedings. Nor was his complete file made available in evidence. With those caveats, this Court cannot reconcile how it was that Mr Habermann resolved that the Wife did not have reasonable prospects of success on a s 79A application. The decision of the Full Court in Barker earlier referred to was delivered on 24 January 2007.
Moreover, given Mr Habermann’s role and responsibility together with the Wife’s Counsel at the time in the manner in which these consent orders were drafted, taken with the knowledge of the actual sale price achieved for the G Property assets, absent direct evidence from Mr Habermann this Court does not know upon what basis Mr Habermann resolved that it was appropriate that he be the source of the Wife’s legal advice on this topic. On the face of it I find it remarkable both that Mr Habermann resolved that it was appropriate that he provide the subject advice and the content of that advice.
In my judgment, on the evidence before me the Wife had a compelling case for relief under s 79A when the G Property assets sold for substantially more than the valuation figures and when it was thus known that the consent orders would not achieve their intended effect.
Not only did the Wife not bring any application pursuant to s 79A until her application filed in November 2011, nearly five (5) years after the subject consent orders were made; when the Wife first made application to the Court by filing an application in November 2010 (almost four years after the consent orders were made) it was an application to enforce the consent orders, rather than seeking to vary them.
Whilst the advice the Wife received from Mr Habermann in mid-2007 provides some explanation for the Wife not then bringing an application under s 79A it is clear from the evidence surrounding the enforcement proceedings that by no later than October 2010 the Wife had alternate legal representation and those lawyers pursued the enforcement proceedings on her behalf. It was on 1 March 2011, during the hearing of the enforcement proceedings, that it was Monteith J who raised the question of whether any consideration had been given to a s 79A application. His Honour was then informed by the Wife’s Counsel to the effect that such an application was being considered. Nevertheless, the application was still not filed until November 2011.
The Wife’s apparent repose of confidence in Mr Habermann and his advice of mid-2007 does not rest comfortably with her pleading against him in her Supreme Court damages claim (Exhibit 15) which includes the allegation pleaded in paragraph 26(a). That pleaded allegation is that on 6 December 2006 (the day the consent orders were negotiated) “the Defendant was severely affected by alcohol having drunk to excess the evening before and was unable properly to discharge his professional obligations to the plaintiff.” A similar allegation is pleaded at paragraph 36(a) with respect to 7 December 2006, the day the subject consent orders were made.
Overall, I find that the Wife has not provided an adequate explanation for the whole of her delay in bring s 79A proceedings. Moreover, I find that the Husband was given no reason to expect an application under s 79A at any point prior to his acquisition of, and investment in, D Property nor for some years thereafter and indeed the Husband was effectively led to believe no such application would be brought, at least by the time that the Wife brought and pursued an application to enforce, rather than to vary or set aside, the subject consent orders.
The enforcement proceedings and the consequences of those proceedings
It is important to recognise the significance of the fact that when the Wife finally did take action it was to apply by her application filed 17 October 2010 to enforce the consent orders rather than to bring an s 79A application. An application to enforce the existing orders would have been rendered otiose or unnecessary by a s 79A application brought promptly, as earlier discussed.
Moreover it is relevant to the s 79A discretion that the Wife obtained relief in the enforcement proceedings. She succeeded in obtaining orders that the Husband pay her a total sum of $228,793.92.
As earlier noted, on a rough estimation to the current time the Wife is to receive not less than about $52,000 in interest on the unpaid proportion with respect to those orders and interest continues to accrue until payment.
The Wife is also to have the benefit of an order that the Husband pay her costs of the enforcement proceedings on an indemnity basis.
The fact that the outcome of the Wife’s enforcement proceedings is that, aside from the $53,687.12 the Husband has already paid the Wife is entitled, under the 13 April 2011 orders to an amount (including my estimate of interest) of not less than about $227,000 and that the Wife is to have the benefit of a costs order in respect of the enforcement proceeds are matters relevant to the discretion.
The consequences of the Wife’s delay
The net balance received by the Husband from the July 2007 settlement of the sale of the G Property assets after paying legal costs was $3,679,489.
After paying from that an amount of $63,253.92 for a loan owing by the parties’ sons, Mr P and Mr Q, it was in November 2007 that the Husband invested essentially the whole of his funds into the acquisition of the grazing property known as D Property.
With costs of purchase the acquisition of D Property cost about $3.62 million.
In my judgment it is of fundamental importance to the discretionary considerations that the following factors be recognised in relation to the Husband’s acquisition of D Property:
a)First, as at November 2007 when he acquired D Property, the Husband had no indication or notice from the Wife that any application under s 79A was to be pursued by her. As already noted, the Wife knew as early as March/April 2007 in relation to the Mr V purchase contract that the G Property assets might be sold for very substantially more than the valuation figures. She obviously knew of the sale contract entered into in May 2007 which settled on 3 July 2007, by which the G Property assets were sold for $6.24 million.
b)Second, I accept the Husband’s evidence to the effect that, on his understanding that financial matters concerning the Wife had been finally resolved by the consent orders, he set upon planning his financial future and the payment of the sons’ loan referred to, and his acquisition of D Property, was undertaken in that context.
c)Third, no criticism was levelled at the Husband at trial in respect of his purchase of D Property as being imprudent or reckless. Indeed the purchase of that asset was the means by which the Husband was able to avoid having to pay capital gains taxation otherwise payable with respect to the sale of the G Property assets; and trading via D Property provided a means by which the Husband could offset taxation on accrued earnings via the partnership, which taxation might otherwise have been payable.
d)Fourth, not only did the Husband undertake the November 2007 purchase of D Property without any notice whatsoever that the Wife was to pursue a claim under s 79A; but I accept his evidence that after purchasing D Property he borrowed and invested substantial loan funds in the order of $1 million; and contributed his time and energy and other funds via trading; in improvements made to the D Property over the period from its acquisition in November 2007 until four (4) years later, when in November 2011 the Husband was served with the Wife’s s 79A application.
e)Finally, but perhaps most importantly, as at the trial of these proceedings the following were the agreed values for the assets and liabilities relating to the D Property:
Land and improvements
$1,500,000
Livestock
$1,000,000
Plant and equipment
$110,000
Sub-total assets
$2,610,000
Less:
X Bank Mortgage debt
($932,179)
X Bank overdraft
($390,355)
Sub-total liabilities
($1,322,534)
Net equity total
$1,287,466
It ought to be noted that the above figure for livestock is a gross figure without taking into account any potential taxation that might be payable on realisation of that asset given that it is essentially the trading stock of the D Property business enterprise.
It can thus be seen that notwithstanding the Husband’s work and investment in D Property over the long period between its acquisition and trial, and between its acquisition in November 2007 and notice of the Wife’s s 79A claim four years later in November 2011, the Husband’s equity in the property has reduced from the initially invested $3.62 million approximately to net equity of $1,287,466, a capital loss of approximately $2.33 million.
It can thus be seen that whilst the Husband received solely (and not 55 per cent of) the $2,054,000 amount by which the sale of the G Property assets exceeded the December 2006 valuation adopted for the purpose of the consent orders, the fact is that the equity in D Property has reduced by $2.33 million over the period since its acquisition, notwithstanding the Husband’s investment of time and money into D Property in the period since its acquisition.
Given the gross delay by the Wife in bringing s 79A proceedings, in the above context and circumstances of this case, to treat the Wife as having notionally lost out on a 45 per cent share of the excess sale proceeds of the G Property assets (above the valuation figure) must come with the corollary that offsetting that is a notional 45 per cent share of the capital loss referred to.
The Wife’s delay in bringing s 79A proceedings and what the Husband has done over the period in which he acquired and continued to invest in, and contribute to, D Property renders it illusory, in my judgment to adopt some alternate analysis of assessing a notional share of the equity in D Property to the Wife.
That alternate analysis would involve notionally assuming that the Wife’s notional 45 per cent share of the excess of $2,054,000 (i.e. $924,300) was applied to the initial acquisition of D Property. That amount represents approximately 25 per cent of the acquisition cost of D Property. However, to now notionally attribute 25 per cent of the equity now remaining in D Property to the Wife would fail to account for the following:
a)It would result in the Wife notionally bearing only about 25 per cent, and not 45 per cent, of the capital loss the net value of D Property now represents in relation to its acquisition cost; and
b)It would fail to take any account at all of the Husband’s other financial and non-financial contributions to D Property over the lengthy period post-acquisition of that property.
The Wife’s outline of case document filed on 6 February 2013, settled by her Counsel, contended for a variation of the 7 December 2006 consent orders by provision for a cash payment by the Husband to the Wife of $1,015,856.63 “or alternatively such other sum as the court may consider just and equitable.” Further orders were sought for the Husband to pay the Wife’s costs including of the enforcement proceedings, which I have already dealt with.
Paragraph 6 of that document sets out the method of calculation of the cash payment contended for. It can be seen to be based in part upon a contention that the Wife “received an assessable amount of $2,136,962.50” from the sale of the G Property land and improvements. However, as has already been demonstrated, that amount was actually the Wife’s share of the capital gain, not “the assessable amount” upon which capital gains tax was assessable. The assessable amount was $534,240.60 upon which tax of $245,000 approximately was payable. The other added amount in paragraph 6 of $352,590.38 constitutes the whole, and not 50 per cent of, the Wife’s taxation burden arising from the sale of the G Property assets and the dissolution of the partnership. Plainly, that amount includes the amounts the subject of Monteith J’s orders of 13 April 2011. In his final submissions Counsel for the Wife, faced with the reality of the Husband’s actual financial position, contended in the alternative for a reduced cash sum, in comparison to the sum identified in the outline of case document, to incorporate all of the Wife’s claims, including her claims for costs.
However, in the context of what has occurred the Wife’s delay in pursuing relief under s 79A must be viewed from the perspective that the $2,054,000 amount by which the sale of the G Property assets exceeded their valuation, and the Wife’s notional share or entitlement to part of that excess, is offset by the capital loss of $2.33 million sustained with respect to D Property, a loss occurring notwithstanding the Husband’s contributions (aside from capital) contributed over the years since its acquisition.
Parties’ respective financial circumstances
Drawn from a schedule tendered on behalf of the Wife the Husband’s asset and liability position may be summarised as follows:
Husband’s net equity in D Property
$1,287,466
Bank accounts
$9,330
Motor vehicle
$40,000
Motor bike
$6,000
Boat
$2,000
Household contents
$10,000
Total
$1,354,796
Liabilities (other than X Bank/ D Property)
Business liabilities
$36,030
Y finance
$26,556
Z finance
$20,540
Outstanding legal costs
$22,000
Total
$105,126
Superannuation
$32,019.10
I have already referred to the feature that the above net equity figure for D Property includes livestock which is potentially pregnant with taxation upon realisation.
The above figures reflect a net position for the Husband, including superannuation, of $1,281,689.10.
However, from that must be deducted the balance amount the Husband owes to the Wife pursuant to Monteith J’s 13 April 2011 orders ($175,106.80) plus any interest payable on that outstanding balance until paid, on a rough estimation to date, not less than about $52,000.
In addition, the Husband is to pay the Wife’s costs of the enforcement proceedings on an indemnity basis, a significant sum to be determined by agreement or assessment.
Extracted from the same schedule the Wife contended that her asset and liability position was as follows:
Net equity in half interest in Macquarie Street apartment
(less X Bank mortgage and X Bank line of credit)$390,000
Bank accounts
$7,223.83
Shares
$1,182.00
Motor vehicles
$8,500.00
Household contents
$10,000.00
Total
$416,905.83
Liabilities
Loan – Mr AA
$15,000.00
Loan – Mr BB
$150,000.00
Credit card debt
$13,694.00
Unpaid tax
$425,000.00
Loan – Mr N
$272,150.00
Legal and accounting bills
$252,392.60
Total
$1,128,236.60
Superannuation (total)
$102,107.19
The Wife thus contended that her net financial position, including superannuation, is a substantial deficit position of liabilities exceeding assets.
It ought to be noted that the Wife’s schedule did not include nor ascribe any value to her damages claim in the Supreme Court. Obviously, that claim is yet to be adjudicated upon by that Court but potentially at least that chose in action has very significant value.
Whether or not the Wife ultimately succeeds in her damages claim against Mr Habermann in the Supreme Court is obviously a matter to be determined by that court and no fixed value can be allocated to this chose in action. All that can be observed of the Wife’s claim is that nothing contained in the evidence in these proceedings would support, in my judgement, any conclusion to the effect that the Wife’s chose in action has no value. I have sought to highlight the respects in which the subject consent orders did not fulfil their intended purpose. I have referred to the fact that the Wife might readily have obtained relief had she acted promptly in bringing a s 79A application when it became known that the G Property assets would likely sell for substantially more than the valuation figures.
It is also to be noted that the Wife’s schedule did not include any amount owing in respect of the orders of Monteith J made on 13 April 2011. I have earlier recorded observations with respect to the capital sum still owing and the potential interest amount.
I do not accept the Wife’s claim as to an unsecured liability owing to her de-facto partner Mr N in the amount of $272,150.
Leaving aside the impression of artificiality about one defacto partner claiming a debt at law against the other, no affidavit of Mr N was filed or relied upon by the Wife in the proceedings. There is thus no direct evidence from Mr N of any intention by him to enforce any alleged liability nor has there thus been an opportunity to test the whole of the financial arrangements between the Wife and Mr N. It is clear that for many years their financial and living arrangements have been intertwined.
It is to be remembered that in the property proceedings the Wife failed to disclose that on 17 November 2005 she and Mr N signed a contract to jointly purchase their residential apartment for $2.95 million with a 10 per cent deposit, payable by bank guarantee being paid by Mr N.
In evidence in these proceedings the Wife sought to characterise this non-disclosure as a matter of oversight or omission. She suggested to the effect that because the subject contract was subject to conditions it “wasn’t on my radar” in terms of her obligation to disclose because the settlement of that contract was then so far into the future for a property yet to be constructed.
Put simply, on the evidence that explanation is disingenuous. Exhibit 2 comprising relevant correspondence exchanged in 2006 reveals that well prior to the trial of the property proceedings below the Husband’s solicitors were pressing for information, both from the Wife and from Mr N, as to the nature of their relationship and the degree of financial interdependence or support. Obviously enough, if the Wife and Mr N had established a defacto relationship the existence of such a relationship would make it relevant for the Court to consider, in property settlement proceedings, Mr N’s financial standing and capacity to provide financial support or resources to the Wife.
Without detailing all of the contents of Exhibit 2 it is noteworthy that in a detailed letter dated 21 August 2006 Mr N’s solicitors advised the Husband’s solicitors, inter alia,:
Our client and [Ms Ullrich] do not own, use, have acquired or intend to acquire any property together. They have not purchased even the smallest item of furniture together.
…
Our client instructs there is, from his point of view, absolutely no commitment by him to [Ms Ullrich] to a ‘shared life, including the care and support’ of her.
Exhibit 2 reveals that the Wife’s own solicitors advised the Husband’s solicitors to similar effect and that the Wife, by her solicitors, was aware of the content of the response referred to provided by Mr N’s solicitors.
These assertions can be seen for what they are in the context of the Wife and Mr N having jointly signed a contract for their joint purchase of the subject apartment for $2.95 million on 17 November 2005 requiring the payment of a 10 per cent deposit.
I reject the Wife’s attempted explanation of her non-disclosure in the proceedings below. I find that the Wife’s non-disclosure was motivated by her determination to conceal the true nature of her relationship with Mr N and in turn Mr N was clearly complicit in that endeavour.
I do not regard the Wife’s claimed liability to Mr N in these proceedings as legitimate. Moreover, his absence as a witness in the Wife’s case leaves questions unanswered as to the Wife’s financial position vis a vis Mr N.
The Wife’s claimed liabilities to each of Mr AA and to her brother Mr BB are not corroborated by direct evidence from either of those witnesses.
The loan to Mr AA is said to arise from the assistance he gave the Wife, when she was in a casual relationship with Mr AA in the early 2000’s, in purchasing a property in Sydney. When that property was sold in late 2006 Mr AA received the Wife’s share of the proceeds but it is asserted that $15,000 remained owing. However, it is instructive that the debt has allegedly been owing since about early or the mid 2000’s and notwithstanding the Wife’s receipt of the capital sum under the subject consent orders she did not elect to discharge any alleged remaining liability to Mr AA.
The absence of direct evidence from either of these witnesses as to any intention by either of them to enforce any alleged liability, or when enforcement (if any) would likely occur, results in significant doubt concerning these claimed liabilities of the Wife.
It is clear from the Wife’s own evidence in her affidavit filed 23 January 2013 that from the lump sum payment of $1.26 million the Wife received under consent orders she made no provision out of that sum for any taxation. The Wife knew well in advance of the December 2006 trial, from the evidence of the partnership’s accountants and Mr T, that there would be a substantial taxation impost even on the December 2006 valuation figures. It would also seem that she did not apply the $53,687.12 which the Husband did pay in respect of Monteith J’s April 2011 orders towards her taxation. The Wife claims an existing taxation liability of $425,000 when the total primary tax consequences (ignoring any interest or penalties for non-payment) referrable to the outcome, as already discussed, is a total of $245,000 approximately for capital gains taxation and $107,000 approximately for adjustments (ignoring the Husband’s part payment).
I accept that there is some merit in the Husband’s contentions to the effect that it is difficult to reconcile the overall total loans the Wife claims with the amount she has actually paid by way of legal costs and the amount which remains outstanding.
Nevertheless, even taking all of these matters into account, I am satisfied that the Husband’s financial circumstances as existing at trial were superior to the Wife’s existing financial circumstances, subject to the ultimate value of the Wife’s chose in action when her Supreme Court claim is determined.
The Wife’s alternate remedy
Whilst I have already observed that it is entirely a matter for a Supreme Court to determine those proceedings on the evidence then presented whether or not the Wife succeeds in the claims she advances in her statement of claim (Exhibit 15) nothing in the case presented in these proceedings (recognising that the solicitor was not a witness) leads to a conclusion to the effect that the Wife’s damages claim does not enjoy reasonable prospects of success.
Obviously enough, if the Wife proves the allegations in support of her claim there would appear to be no impediment to her recovering substantial damages. Nothing in these proceedings or in the evidence presents as any obvious impediment to the Wife’s allegations or claims in the Supreme Court proceedings generally.
Indeed it is worth observing that as regards the central issue before me the Wife’s pleading (at paragraph 25(i)) is that during the negotiations of the subject consent orders she instructed her solicitor to convey an offer to the Husband that she receive $1.26 million from the net sale proceeds of the G Property assets plus an equal share of the amount by which those net sale proceeds exceeded $4,186,000 (the valuation figure). By his pleading (Exhibit 16) the defendant’s solicitor (at paragraph 25) admits that the Wife provided those instructions (paragraph 25(b)(i)) but alleges that the offer was put to the Husband but was rejected (paragraph 25(f)(iii)).
The Husband’s case before me regarding what occurred in the negotiations of the consent orders was not consistent with him having received and rejected the offer referred to. Moreover, the cross-examination of the Wife at the first stage of this trial by the Husband’s counsel, who was his counsel when the consent orders were negotiated, was likewise contrary to the subject offer having been made to, and rejected by, the Husband.
Obviously enough, a term in accordance with the offer included in the consent orders or some permeations of that term would have prevented the miscarriage that arose in the circumstances of this case.
Balancing discretionary considerations
A miscarriage of justice having occurred with respect to the consent orders made on 7 December 2006, resulting in the Wife not receiving her proper entitlement to property settlement in the context of the subject marriage, weighs heavily in the balance of considerations as to whether it is appropriate to exercise the discretion to vary or set aside those orders.
However, not without some hesitation, having regard to the competing considerations identified above I am not persuaded that the Wife discharges the onus she bears. Her delay in bringing the s 79A proceedings and the events that have unfolded in the meantime, in particular with respect to the Husband’s acquisition and contribution to D Property, loom large. One result is that D Property now represents a loss of capital greater than the capital gain on the G Property assets when they were sold, as compared to the valuation of those assets.
The Wife pursued and obtained relief in the proceedings she took to enforce the consent orders in 2010. She is now also to have her costs of those proceedings on an indemnity basis. She retains her chose in action represented by her damages claim against her former solicitor.
The s 79A application will be dismissed.
Costs of the s 79A Application
In the manner in which the trial was conducted by both parties, each waived privilege with respect to offers of settlement historically made by each in support of their respective costs claims or in defence of the claims of the other.
In circumstances where the s 79A application is to be dismissed the Husband can rely upon offers he has historically made that provided a more favourable outcome to the Wife.
However, there are other important factors to be considered.
First, it was at the Husband’s instigation and upon his application that the trial of the s 79A application was heard in two parts. The Husband sought and obtained an order that the issue of whether the Wife established a ground under s 79A be heard and determined as a discrete issue. The trial of that issue was held on 24 to 26 July 2012. The trial of the discretionary element or considerations was held on 11 to 13 February 2013. Inevitably, conducting the trial in two distinct parts added to the overall costs but that occurred at the Husband’s request.
Second, but related to the first, the Wife succeeded in establishing a ground under s 79A in the first instalment of the trial and thus demonstrated that a miscarriage of justice had occurred. That is, in respect of the first component of the trial, the Wife was wholly successful and the Husband wholly unsuccessful.
Third, whilst the Husband succeeded on the discretionary grounds in relation to the s 79A application the Wife succeeded in obtaining an order for her costs of the enforcement proceedings, an issue interwoven with the s 79A proceedings. Moreover, relevantly the Husband chose to represent himself in the second component of the trial and thus did not incur legal costs in respect of that part of the trial.
Fourth, it could not be concluded that, having established a ground under s 79A and that a miscarriage of justice occurred, it was unreasonable for the Wife to pursue her application. Had it been demonstrated that the Husband had retained for his sole benefit a significant part of the excess over and above the valuation figure he received from the original sale of the G Property assets then, notwithstanding the Wife’s delay, a completely different complexion would be placed upon the discretionary considerations. As I have sought to demonstrate, the Wife’s legitimate claim for relief under s 79A was ultimately defeated by delay combined with the fact that so much capital was lost, through no fault of either party, in the Husband’s acquisition of D Property.
Fifth, there were, in my judgment, obvious failures in the Wife’s legal representation at the time of the consent orders both in the respects in which the original consent orders were constructed, which failed in my view to properly protect the Wife’s interests, and in the advice the Wife received as to potential s 79A relief in 2007. Those failures cannot be characterised as being attributable to the Wife herself.
Finally, comparison of the financial circumstances of each party as outlined above counts heavily against any order for costs being made in the Husband’s favour.
For these reasons I make no orders as to costs in respect of the s 79A application itself.
Conclusion
I have earlier endeavoured to highlight for the Husband reasons why he might reflect upon the merits of pursuing his appeal against the orders of Monteith J and take the approach of meeting payment of the outstanding primary amount which remains owing under those orders, together with interest calculated in accordance with the Family Law Rules.
Further to that discussion, these reasons make clear that important to the discretionary considerations is the fact that Monteith J made the orders which he made on 13 April 2011 and the fact that the Wife is to receive a costs order in her favour in respect of the enforcement proceedings.
In the event that the Husband elects to pursue his appeal and to the extent his appeal succeeds in altering either Monteith J’s orders or the consequent order for costs I have made, then it will be understood that this may have the result that the Wife would be entitled to pursue a fresh application pursuant to s 79A of the Act. This would be so because part of the foundation for the dismissal of the Wife’s application would be removed if the Husband succeeds in his appeal.
For these reasons, I make the orders set out at the commencement of these reasons.
I certify that the preceding two hundred and sixty-seven (267) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Kent delivered on 23 April 2014.
Associate:
Date: 23 April 2014
3
5
2