Vass & Vass
[2015] FamCAFC 51
•30 March 2015
FAMILY COURT OF AUSTRALIA
| VASS & VASS | [2015] FamCAFC 51 |
| FAMILY LAW – APPEAL – PROPERTY – Where the trial judge made orders dividing the property between the appellant husband and respondent wife on a 35 per cent and 65 per cent basis respectively – Where the appellant husband asserted that the trial judge erred in failing to find that a 10 per cent “management fee” existed between two entities associated with both the appellant husband and his business associate – Where the trial judge did not err in finding no valid agreement existed between the entities – Where the trial judge did not err in accepting that the “management fees” paid were excessive, and resonant of a profit sharing scheme – No merit in these grounds of appeal – Where the appellant husband submitted that the trial judge erred in not taking into account a loan of $70,000 between two of the entities as a liability of the parties – Where the trial judge fundamentally mistook the character of the said loan - Merit in this ground of appeal – Where the appellant husband received a $90,000 redundancy payment in 2009 – Where it the trial judge’s reasons do not reveal what weight was given to the redundancy payment – Where the trial judge erred in rejecting an amount of $50,000 loaned by the appellant husband’s parents as a contribution on his behalf – Where the trial judge erred in failing to giving any or sufficient weight to these direct financial contributions – Merit in these grounds of appeal – Appeal allowed – Where it is not appropriate for the Full Court to re-exercise the discretion – Remitted for rehearing. FAMILY LAW – APPEAL – EXPERT EVIDENCE – Where the trial judge preferred one of two expert opinions – Where the appellant husband submitted that the trial judge erred in accepting the opinion of an expert – Where there was no error demonstrated of the factual premises upon which the expert opinion was based – No merit in these grounds of appeal – Appeal allowed – Remitted for rehearing. FAMILY LAW – APPEAL – COSTS – Where the appeal succeeded on a question of law – Where no order for costs made – Costs certificates granted to the parties for the appeal and rehearing. |
| Family Law Act 1975 (Cth) ss 75, 79 Federal Proceedings (Costs) Act 1981 (Cth) ss 6, 8, 9 |
| Allesch v Maunz (2000) 203 CLR 172 In the Marriage of Biltoft & Biltoft (1995) FLC 92-614 Kessey & Kessey (1994) FLC 92-495 |
| APPELLANT: | Mr Vass |
| RESPONDENT: | Ms Vass |
| FILE NUMBER: | MLC | 7299 | of | 2012 |
| APPEAL NUMBER: | SOA | 70 | of | 2013 |
| DATE DELIVERED: | 30 March 2015 |
| PLACE DELIVERED: | Adelaide |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Strickland, Murphy and Tree JJ |
| HEARING DATE: | 1 July 2014 |
| LOWER COURT JURISDICTION: | Federal Circuit Court of Australia |
| LOWER COURT JUDGMENT DATE: | 11 September 2013 |
| LOWER COURT MNC: | [2013] FCCA 1354 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Spicer |
| SOLICITORS FOR THE APPELLANT: | Twigg Family Law |
| COUNSEL FOR THE RESPONDENT: | Mr Hutchings |
| SOLICITORS FOR THE RESPONDENT: | Berry Family Law |
Orders
The appeal be allowed.
The orders made on 11 September 2013 be set aside.
The proceedings be remitted to the Federal Circuit Court of Australia to be reheard by a judge other than Judge Burchardt.
There be no order as to costs.
The Court grants to the appellant husband a costs certificate pursuant to the provisions of s 9 of the Federal Proceedings (Costs) Act 1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under the Act to the appellant husband in respect of costs incurred by him in relation to the appeal.
The Court grants to the respondent wife a costs certificate pursuant to the provisions of s 6 of the Federal Proceedings (Costs) Act 1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under the Act to the respondent wife in respect of costs incurred by her in relation to the appeal.
The Court grants to each party a costs certificate pursuant to the provisions of s 8 of the Federal Proceedings (Costs) Act 1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under the Act to each party in respect of such part as the Attorney-General considers appropriate of any costs incurred by each party in relation to the new hearing granted by these Orders.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Vass & Vass has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT MELBOURNE |
Appeal Number: SOA 70 of 2013
File Number: MLC 7299 of 2012
| Mr Vass |
Appellant
And
| Ms Vass |
Respondent
REASONS FOR JUDGMENT
Introduction
On 11 September 2013, Judge Burchardt made orders which effected a division of the property of the parties on a 65 per cent/35 per cent basis in favour of
Ms Vass (“the wife”). That result was effected by orders which provided for the wife to receive all of the net proceeds of sale of the former matrimonial home (after specific liabilities had been deducted); 65 per cent of the net proceeds of sale of two motor vehicles and a boat and a cash sum payable within six months. Further orders provided for Mr Vass (“the husband”) to retain his interests in his two businesses.
By Amended Notice of Appeal filed on 8 May 2014 the husband challenges the orders relating to the sale of the home and providing for the further cash payment, but curiously seeks dismissal of all orders made by his Honour.
Uncontroversial Facts
The parties
At the time of the trial, the husband was 42 years of age and the wife was 46 years of age. They commenced cohabitation in 2000, married the following year, and separated on 22 April 2012. Their relationship bore two children, X and Y, aged respectively eleven and nine at trial.
Until 2009 husband was in full-time employment, but was then made redundant. Since then he has been engaged in two businesses which we will explain in more detail shortly. The wife worked full-time until 2000, but then ceased work to care for the parties’ children, only returning to part-time home-based employment in late 2011. She resigned from that employment when the parties separated.
Since separation the wife has continued to live with the parties’ children in the former matrimonial home, whereas the husband lives with his parents. By consent orders made 29 May 2013, the children spend five nights per fortnight with the husband, together with half of the school holidays.
Relevant companies and directors
There are a number of companies relevant to this appeal. All of them are either associated with the parties or the husband’s long-time friend, Mr G, or a combination thereof.
The first relevant company is Z Pty Ltd. It is a company exclusively controlled by Mr G. It appears to be the corporate vehicle for some of his investments and businesses.
The second relevant company is G Pty Ltd. It is also a company exclusively controlled by Mr G, and again is a corporate vehicle for some of his business interests.
The next relevant company is L Pty Ltd. It was established by the parties in 2010. It is unclear whether the husband is the sole director and shareholder of the company, or whether both parties are shareholders and directors, however nothing appears likely to turn on that. The company only acts as the trustee for the L Trust, which appears to have been the vehicle used by the parties to distribute business income, presumably in a tax effective way.
The next relevant company is AA Pty Ltd. It is not clear when it was established. At all relevant times it has operated a car hire business which trades as AA Business. The directors of AA Pty Ltd are the husband and Mr G.
The final company relevant to these proceedings is AB Pty Ltd. It was established in late 2010. It operates a business trading as AB Business. The shareholders of the company are not clear, but probably are L Pty Ltd (again, in its capacity as trustee) and a company associated with Mr G, probably G Pty Ltd. The directors are the husband and Mr G.
The companies and relevant agreements
AA Business conducts its car-hire business in Melbourne. L Pty Ltd acquired a 30 per cent shareholding in AA Pty Ltd from G Pty Ltd by way of Share Sale Agreement dated 25 October 2010. Pursuant to that Share Sale Agreement, the purchase price for the shares was $90,000; $20,000 of that sum was to be (or more likely had been) paid on 15 July 2010, a further $35,000 was payable on or before 15 July 2011, and the balance $35,000 was payable on or before 15 July 2012.
Also on 25 October 2010, a Shareholders Agreement was entered into between AA Pty Ltd, G Pty Ltd, L Pty Ltd as trustee of the L Trust, and the husband. Relevant to this appeal were clauses 2.12 and 2.13 which provided as follows:
2.12 Business Plans
Each party to this document agrees to and will take reasonable steps to put in place the plans contained in schedule 3.
2.13 Possible Business Plans
Each party to this document agrees to and will take reasonable steps to put in place the possible plans contained in schedule 4.
Clause 1 of schedule 3 recorded that the husband was employed by AA Pty Ltd on a salary of $90,000 for the first year, increasing to $100,000 for the second year. Clause 2 provides as follows:
2. The Company [defined as [AA] Pty Ltd] shall enter into an agreement with the entity nominated by [Mr G] [defined as [G] Pty Ltd] in relation to use of certain intellectual property and certain know how. Such agreement shall require that the Company pay to the nominated entity a fee equal to 10% of Ordinary Revenue (plus GST) of the Company. In this clause the expression “Ordinary Revenue” means all revenue of the Company except GST, fuel charges and vehicle damage reimbursement charges.
Schedule 4 dealt with possible business plans. It provided as follows:
Possible Business Plans
1. It is proposed that the Company establish:
(a) a car rental site in Melbourne city by December 2012;
(b) a car parking site at or nearby the Company’s office […] by December 2011; and
(c) other car rental and/or car parking ventures in Victoria,
subject to the planning for each of the ventures leading to the conclusion that the relevant venture is sufficiently profitable.
2. In the event that any such venture is established and is profitable, the profit from such venture shall be distributed (via dividends or another method as agreed) to [Mr G] and [L Pty Ltd] [defined as [L] Pty Ltd] equally.
3. Clause 2 of this schedule may result in the need to establish new entities or new share classes in the Company.
4. Part 2 of this document shall apply to any venture referred to in this schedule except that the relevant proportions for directors’ fees shall be 50% to [Mr G’s] representative director and 50% to [L Pty Ltd’s] representative director.
5. Clause 2 of schedule 3 shall apply to any venture referred to in this schedule.
In about November 2010, AB Pty Ltd was established, and commenced to offer car parking services as AB Business. Therefore at the time of trial, albeit via corporations under his and Mr G’s effective control, the husband was operating both a car hire business and a car parking business in Melbourne.
The Trial
The trial proceeded in three phases. The first phase comprised five days of hearing, resulting in reasons delivered 31 July 2013 (“the First Reasons”) at the conclusion of which the trial judge invited further submissions as to the practical means of achieving a just and equitable outcome based upon those reasons.
That precipitated a further hearing which occurred on 11 September 2013, and resulted in ex tempore reasons (“the Second Reasons”) and orders. Those orders effected the division of the parties’ property as outlined earlier in these reasons.
The third phase was the correction of a mistake in the orders relating to an intended add-back of $75,000 which the husband had dealt with post-separation. That mistake and alteration is not relevant to this appeal, save that the correction to the orders saw the 65 per cent entitlement of the wife calculated by reference to, amongst other things, that sum.
Grounds 1 to 4, 8 and 9
Generally
These grounds were argued collectively. The grounds have their genesis in conflicting opinions of two accountants, Mr L and Mr B, who both valued the car hire and car parking businesses. The trial judge’s resolution of two of the three differences in opinion (an appropriate management salary and the capitalisation rate) are not the subject of appeal.
The third difference, to which grounds 1 to 4 relate, was whether or not allowance should be made, in calculating the future maintainable earnings of AB Pty Ltd, for a management fee charged by Z Pty Ltd to AB Pty Ltd in the order of 10 per cent of the latter company’s ordinary revenue (as that term was defined in the Shareholders Agreement).
One of the expenses of both businesses was the 10 per cent management fee. In both cases the husband said that those fees were being paid pursuant to a contractual entitlement on the part of G Pty Ltd under clause 2 of schedule 3 of the Shareholders Agreement. He contended that each of AA Pty Ltd and AB Pty Ltd was obliged contractually to pay 10 per cent of their ordinary revenue to the nominee of G Pty Ltd.
Mr L accepted that, in the case of AA Pty Ltd, there was such a contractual obligation and entitlement. However, in arriving at the future maintainable earnings of AB Pty Ltd, he disregarded any alleged contractual obligation/entitlement. In his report of 26 March 2011 at paragraphs 7.3.1 Mr L identified that no agreement existed between the two companies requiring that fee to be charged.
In cross-examination he detailed his reasoning. It can be seen to fall into two parts. First, he explained his opinion that the asserted contractual obligation was problematic as a result of the following:
·AB Pty Ltd was not a party to the Shareholders Agreement;
·Z Pty Ltd was not a party to the Shareholders Agreement;
·There was no evidence of any agreement ever having been entered into between AB Pty Ltd and Z Pty Ltd, whether permitting the latter to 10 per cent of the former’s ordinary revenue, or at all;
·There was otherwise no contractual entitlement on the part of Z Pty Ltd to the revenue stream that it was claiming and, being paid.
Secondly, he opined that both the arrangement itself and the quantum of the fee lacked commerciality for the following reasons:
·The work being performed for AB Pty Ltd by Z Pty Ltd was not worth anything like the amounts that were being paid;
·Further, given that Mr G controlled interests held a 50 per cent shareholding in AB Pty Ltd, it was not a justifiable commercial arrangement for him to derive further income comprising 10 per cent of that company’s ordinary revenue as well.
The husband disagreed with Mr L’s rejection of the management fees in relation to the AB Pty Ltd and relied upon the evidence of Mr B.
Unlike Mr L, in assessing the future maintainable earnings of AB Pty Ltd,
Mr B did take into account the asserted contractual entitlement on the part of
Z Pty Ltd to be 10 per cent of the ordinary revenue of AB Pty Ltd. He claimed that clause 2 of schedule 3 to the Shareholders Agreement applied to the business operated by AB Pty Ltd by virtue of clause 5 of schedule 4.
Having summarised the competing contentions of the two valuers, the trial judge succinctly explained why this issue is important and was the subject of significant attention at trial, as follows:
29. I approach this aspect of the controversy bearing in mind the terms of s.140 of the Evidence Act 1995 (“the Evidence Act”). Stripped of any ambiguity what Mr [L] was really saying was that the books had been cooked; that while moneys had been paid in the totals claimed by way of alleged management fees, these were not in fact management fees but were profit sharing. Although the matter has not been spelt out it would seem inevitable that there would be tax obligations avoided by such a mechanism. It is not a finding that the Court should rush to embrace.
30. Nonetheless, I should make it clear that I do in the main accept Mr [L’s] position.
The trial judge then discussed the relevant expertise and opinions of the experts views (at [33] - [40], before preferring Mr L’s evidence on this point (at [42] - [45]).
At paragraph [42] the trial judge identified nine reasons why he preferred Mr L’s evidence. Given that Ground 1 asserts that the trial judge erred in accepting those views, his Honour’s reasons should be referred to:
42. The reasons I accept Mr [L’s] evidence are as follows:
a)First of all Mr [L] is an expert in forensic valuations and he was not challenged in his assertions as to his qualifications in this regard. Mr [B], while clearly a competent accountant, did not profess the same expertise.
b)To the extent that it is of any moment Mr [L’s] Curriculum Vitae is somewhat more impressive. He is a chartered accountant and Mr [B] is not.
c)Mr [L’s] evidence was that there was a rule of thumb in licensee arrangements (and there was no challenge to his categorisation of the car parking business in this regard) of a cap of 25 per cent of gross profit paid to the licensor. This evidence was also not successfully challenged. Mr [L’s] evidence was that the 10 per cent of all profit charged by the asserted arrangements was excessive.
d)In regard to (c) I point out that Mr [L] said (p-112) that the management fees charged struck as being high from the start. He said that this was normally an indicator of distribution of profits rather than a charge for value and that indeed there was no mention of invoices supporting the management fees when the matter was first brought to his attention.
e)The provision of a 70 per cent shareholding, in addition to a 10 per cent licensing fee, was grossly excessive (“ridiculous” –
p-117).f)Mr [L] was saying right from the start to [an accounting firm] that the management fees overall were excessive and approximately double what he would have expected to see.
g)Mr [L’s] evidence was that a licensor already received payment for any management fees in the 50 per cent ownership that was granted.
h)Mr [L] said it was never the case that a licensor takes equity in the licensee's business in any event.
i)The amounts actually paid were substantially wide of 10 per cent in any event. Exhibits R8 and R9 in my view are consistent with Mr [L’s] characterisation.
It is against this background that we turn to consider the individual grounds. Because whether or not AB Pty Ltd was subject to any contractual liability to pay 10 per cent of its ordinary revenue to Z Pty Ltd is a central issue to all of these four grounds of appeal, it is convenient to deal with ground 4 first.
Ground 4
This ground provides as follows:
That the learned Trial Judge erred in failing to find that there was a valid agreement between [AB] Pty Ltd and [Z] Pty Ltd in relation to the payment of 10% management fees to [Z] Pty Ltd.
The issue raised by this ground of appeal is whether there was a contractual entitlement on the part of Z Pty Ltd to require AB Pty Ltd to pay it a management fee of 10 per cent of its gross revenue (and a concomitant contractual obligation on the latter to pay).
The first point to be made is that the evidence before his Honour, and his Honour’s findings, support the first three of the premises relied upon by Mr L (see [24] above) and no challenge is made to them on this appeal. That is, neither AB Pty Ltd nor Z Pty Ltd was a party to the Shareholder’s Agreement and there was “no evidence of any [written] agreement ever having been entered into…”.
The evidence was simply that, from the outset, Z Pty Ltd had invoiced AA Pty Ltd for amounts said at trial to be in the order of 10 per cent of its ordinary revenue, and later did the same in respect of AB Pty Ltd when it commenced business.
It will be appreciated that his Honour’s enumerated reasons for preferring the evidence of Mr L (see [30] above) pertain to the second of the two bases for his opinion, namely that the quantum of the alleged management fee was indicative of it being a share of profits rather than a business expense that should be counted as such in deriving value. This ground attacks, on the other hand, the first part of the opinion, namely the expert’s finding as to a lack of an enforceable contractual obligation.
His Honour’s reasons do not delineate that distinction with particular clarity. It seems tolerably clear that the focus of his Honour’s reasons lie in the second (related) component of the opinion. That being, the commerciality of the alleged arrangements.
The husband’s argument in relation to this issue was somewhat complex. He said that schedule 4 to the Shareholders Agreement recorded that it was proposed that AA Pty Ltd would establish, amongst other things, car parking ventures in Victoria. The profit for any such additional venture was to be equally divided between G Pty Ltd and L Pty Ltd. It was contemplated that equal splitting of profits may require new entities or new share classes to be established. However importantly, it was agreed that clause 2 of schedule 3 would apply to any venture referred to in schedule 4.
That concession, together with acceptance of the factual premises for Mr L’s opinion earlier referred to, caused this Court to explore (with counsel for the husband) how it is said that the asserted contractual entitlement of Z Pty Ltd to 10 per cent of ordinary revenue of AB Pty Ltd would be pleaded in any legal proceedings.
Plainly, there was no evidence of any negotiation between those two entities or their directors which led to any concluded agreement, and counsel conceded that the agreement would need to be implied from conduct, namely the fact of invoicing and payment. However, implication would not only be required to establish the fact of the contract itself, but would also be required to define the scope of services that were to be provided by Z Pty Ltd, the period of time for which they were to be provided, and the standard at which such services were to be performed. It should be recorded that in respect of funds said to be paid under the existing contractual arrangement his Honour finds (at [43]):
…While it is clear that moneys were paid to meet these invoices I note that none of these invoices actually detail what was provided. These amounts do as Mr [L] suggests give rise to serious questions as to what was being bought.
How such terms could be implied, whether as an incident of the class of contract in question, or as necessary to give business efficacy to the agreement, was not elucidated and is difficult to fathom. Although not necessarily expressed in such legalistic terms, this is the problem that confronted both Mr L, and the trial judge. Moreover, the evidence of Mr B did not grapple with, much less answer, these sorts of concerns.
This ground asserts error on the part of the trial judge in failing to positively find the existence of a valid agreement. In our view, there was no error committed by the trial judge in failing to so find. The existence of an implied agreement is a question of fact (see Brambles Ltd v Wail (2002) 5 VR 169 at 188) and the onus of establishing the contract is on the party so asserting (see Modahl v British Athletic Federation [2002] 1 WLR 1192 at [102]). Other than the fact of invoicing and payment, and the earlier Shareholders Agreement between different (albeit concededly related) entities, there was no evidence to support the implication of any agreement. Such evidence does not necessarily prove a contract of the kind asserted, even by implication; it is equally consistent with a range of other alternatives, including that identified by Mr L, namely profit sharing. Certainly, the trial judge was not required to find the existence of any contract as this ground asserts.
Ground 4 fails.
Ground 1
This ground provides as follows:
That the learned Trial Judge erred in finding that the evidence of [Mr L] should be accepted as to the value of the Husband’s interest in [AB] Pty Ltd.
Mr L valued the parties’ interest in AB Pty Ltd at $276,453; Mr B valued it at $58,742. As explained earlier in the general consideration of Grounds 1 to 4, the primary difference between the accountants’ reasoning lay in their differing approaches to taking into account the management fees being charged to the company by Z Pty Ltd.
Once it is accepted that Z Pty Ltd had no contractual entitlement to 10 per cent of the ordinary revenue of AB Pty Ltd, then the only reason why the future maintainable earnings of that company should have been calculated inclusive of that expense was if there was a legitimate business service being provided of that value. Mr L was emphatic in his assertion that no such value was being obtained, and particularly was of the opinion that:
·The nature of a car parking business did not require the same sort of administrative supports as a car hire business;
·Ordinary commercial relations would not see a 50 per cent equity owner of a business also remunerated by such a fee, and in this regard he drew an analogy between businesses operating under a licencing agreement;
·The tax invoices to support the fee were either non-existent, or very general in their description of the services being charged for; and
·Where management fees such as those in question exist, they are often indicative of profit sharing rather than a genuine fee for service.
His Honour found in relation to the evidence of Mr B in this respect (at [33]):
It was Mr [B’s] position that if the management fees were commercial and backed by relevant documentation they should be taken into account. He said he had seen a couple of BAS statements which as he put it "stacked up". He said that the payments actually made were close to 10 per cent of profit and that any disparity might be explained by disputation as to what constituted a sale. [Italics in original].
The primary argument of the husband at trial was that there was a contractual obligation on the part of AB Pty Ltd to pay the 10 per cent fee. A relatively faint attempt was also made to justify the fees as reflecting an appropriate commercial remuneration for services rendered. However in this context, the failure on the part of the husband to call evidence from Mr G is noteworthy.
The highest the husband’s case achieved in this respect was during the cross-examination of Mr L, when a series of questions suggesting a commercial need on the part of AB Business for services which might have been provided by
Z Pty Ltd were put to him. However he robustly dismissed them all.
No error has been demonstrated in respect of the factual premises upon which Mr L’s opinions were based. No argument suggests that Mr L’s opinions were not open to him by reason of any lack of expertise or failure to apply proper valuation principles. That being so, the acceptance or rejection of the opinion evidence and its component parts was a matter within the discretion of the trial judge. The trial judge was entitled to prefer Mr L’s evidence on the point and no error in the exercise of his Honour’s discretion is demonstrated.
This ground of appeal fails.
Ground 2
Ground 2 provides as follows:
That the learned Trial Judge erred in finding that the 10% management fees payable by [AB] Pty Ltd to [Z] Pty Ltd were a distribution of profits.
This ground contains an assumption that the trial judge made a finding that the 10 per cent management fees being charged to AB Pty Ltd were a distribution of profits. No such express finding is to be found in the First Reasons. The closest the First Reasons come to that is at [27] where his Honour noted Mr L’s evidence that the management fees “constituted a form of, in effect, profit sharing between Mr [G] and [the husband]” and at [29] where his Honour again noted that what Mr L “was really saying was that the books had been cooked; that while money had been paid in the totals claimed by way of alleged management fees, these were not in fact management fees but were profit sharing.”
In the Second Reasons at [6] his Honour did expressly state that he accepted Mr L’s evidence that “the husband’s valuation of the car parking business concealed significant undisclosed profit distributions” and that “[i]n other words, the husband was making far more money than he revealed”. There is nothing there to suggest, in terms, that his Honour had the 10 per cent management fees in contemplation specifically when so concluding. Yet, in the context of the evidence read as a whole, we think it fair to the husband to assume that it is more than likely than not that this is what is being referred to by his Honour.
However, even permitting of that assumption, ground 2 must fail.
Once it is accepted that there was no contractual entitlement on the part of any entity associated with Mr G to 10 per cent of the ordinary revenue of AB Pty Ltd, it follows that there was in fact additional profit in that amount which would otherwise have been available for distribution. By paying it under the guise of a management fee, (or however else it might be described) that profit was being diverted to G Pty Ltd. In that sense the payment was a channelling of profit by agreement between Mr G and the husband. It was a means by which – although unequally – the profits of the businesses were divided or shared between them.
The evidence in chief of Mr L did not touch directly upon undisclosed income (which is scarcely surprising considering his role was to value the two businesses). However, he was taken to that issue in cross-examination. (Transcript of proceedings, 5 June 2013, p 132 ln 3-20). While he there adverted to the prospect of such an arrangement between the husband and Mr G, he conceded he could not otherwise comment. However, later (Transcript of proceedings, 5 June 2013,p 141 ln 4-24), when addressing his belief that the management fees were a profit sharing mechanism, he identified what, to that point in the trial, does not appear to have been previously adverted to. Although the Shareholders Agreement provided for a salary of $100,000 for the husband in his role at AA Pty Ltd, there was no evidence as to any agreement about his remuneration for his role in AB Pty Ltd. Rather, he was himself also charging a management fee to that company.
Mr L then proceeded to explain that “[t]hat management fee he receives is more than a salary” and, specifically, that it was more than the $70,000 salary he had determined was the appropriate rate for a manager of that business. Counsel for the husband at that point expressly agreed with Mr L, who continued “[a]nd hence my point that it appears to be a profit distribution mechanism.” (Transcript of Proceedings, 5 June 2013, p 141, ln 35-36)
These exchanges occurred immediately after Mr L had identified that in fact, in the March 2013 accounts for AB Business, the total management fees charged to the business had greatly reduced in line with the company’s reduced profit, which he said again corroborated his view that the management fees were really a means of profit distribution to both the husband and Mr G.
Plainly the trial judge accepted that excessive management fees were being paid by AB Pty Ltd to Z Pty Ltd. That finding had a firm evidentiary foundation, including the husband by his counsel expressly conceding that the management fees being paid to him from AB Business exceeded the reasonable remuneration for his management position. The two matters just referred to alone rendered it reasonably open to the trial judge to conclude that he was not being told the whole story about how the husband and Mr G had determined to share the profits of their businesses, or the true basis for, or total amount of, the husband’s remuneration. Therefore even if it be assumed that the trial judge did find that there was profit sharing, it was a finding reasonably open to his Honour.
Ground 2 must fail.
Grounds 3, 8 and 9
Ground 3 provides as follows:
That the learned Trial Judge erred in finding that the Husband received any benefit from the 10% management fees paid by [AB] Pty Ltd to [Z] Pty Ltd.
Although, as we have said, Grounds 1 to 4 were, understandably enough, dealt with together as all pertaining to what might be described as the “10 per cent management fee issue”, the issues raised by Ground 3 are also directly related to Grounds 8 and 9.
Grounds 8 and 9 provide:
8. The learned Trial Judge erred in finding that the Husband’s car parking business concealed very significant undisclosed profit distributions.
9. That the learned Trial Judge erred in finding that the Husband’s income was bigger than he had declared.
Ground 3 assumes that there was a finding by the trial judge that the husband received some benefit from the 10 per cent management fees being paid by AB Pty Ltd to Z Pty Ltd. No such express finding was made. Rather, it appears that ground 3 relates to two passages in the judgment, the first being at [79] of the First Reasons and the second at [6] of the Second Reasons. They relevantly provide as follows:
[79] Whatever the husband makes (and bearing in mind that I accept Mr [L’s] evidence it is substantially more than he says) he will certainly earn far more than [the wife] in the future…
[6] Stripped of any equivocation, I accepted Mr [L’s] evidence that the husband’s valuation of the car parking business concealed very significant undisclosed profit distributions. In other words, the husband was making far more money that he revealed, and this business was worth far more that he admitted. Furthermore, it is more probable than otherwise that the husband and Mr [G], who have, as I have found, a proved track record of manipulation to their advantage, will collude in the same way to minimise the sale price of the business. The orders proposed by the husband leave this possibility wide open.
We do not accept that his Honour was there necessarily linking the husband’s undisclosed income to the 10 per cent management fees, although plainly his Honour was there finding that the husband was earning more than he had disclosed, and albeit in an unspecified way, connecting it to the evidence of Mr L.
As we have earlier pointed out in respect of Ground 2, the evidence of Mr L, which in this respect, his Honour plainly accepted, and the concession as to the amounts of the management fees charged by the husband through his counsel renders well open the findings to which each of Grounds 3, 8 and 9 is directed.
The same findings and evidence pertain to the challenges embraced by Grounds 8 and 9.
In his outline of submissions, at paragraph 23, the husband asserted that the errors pertaining to these grounds led, in particular, to an erroneous s 75(2) adjustment in the wife’s favour of 20 per cent. However the finding impugned by ground 8 was not made by his Honour in considering s 75(2) factors (which his Honour did at [78] to [83] of the First Reasons). Rather it was made by the trial judge in the Second Reasons after he had determined the appropriate weight to be given to s 75(2) factors.
In the Second Reasons, the trial judge was determining the appropriate set of orders to give effect to the First Reasons which he had already delivered. Given that his Honour had already determined the appropriate adjustment to be made for s75(2) factors, it is not clear to us how anything in the Second Reasons could be said to - retrospectively, in a sense - infect the First Reasons, Appellate review is directed to orders, not reasons which have no impact on orders.
The finding impugned by ground 9, appears to have been made in both the First Reasons and the Second Reasons. Insofar as it appears in the latter, there is no merit in this ground for the reasons we have given for rejecting ground 8.
At [79] of the First reasons his Honour found that the husband earns “substantially more than he says”.
We have sought to explain above, when dealing with ground 3, the evidence which supports a finding that the husband derived benefits beyond those which he had disclosed by virtue of the management fees which he charged AB Pty Ltd, in excess of any reasonable salary entitlement.
However more fundamentally, we do not read the statement in [79] as bearing upon the s 75(2) adjustment directly. What follows this finding is the further finding that the husband “…will certainly earn far more than her in the future”. It is that finding which informs the relevant aspect of the adjustment pursuant to s 79(4) of the Act and that finding is not the subject of any challenge on appeal.
None of Grounds 3, 8 and 9 are made out. Accordingly, Grounds 3, 8 and 9 fail.
Ground 5
Ground 5 provides:
That the learned Trial Judge erred in law in not taking into account the loan owed by [L Pty Ltd] to [Z Pty] Ltd in law and his discretion miscarried in failing to give sufficient weight to the Husband’s contributions for the purchase by [L Pty Ltd] of shares in [AB] Pty Ltd. [Errors in original]
There is infelicity in the drafting of this ground. It appears that at least two matters are asserted in it, each of which comprises a separate ground of appeal.
The first is that the trial judge did not take into account (in fact he expressly disregarded), an alleged loan owed by L Pty Ltd to Z Pty Ltd.
The second ground within the ground is that inadequate weight was given to the husband’s contribution comprising the acquisition of the shares in AB Pty Ltd by L Pty Ltd.
Failure to take loan into account
At First Reasons [71] the trial judge expressly excluded from the liabilities of the parties an alleged loan from Z Pty Ltd to L Pty Ltd in the sum of $70,000. He did so because “it remains as a book entry” between those companies, and “there is no suggestion that Mr [G] will call for its return” (First Reasons [68]). The evidence before the trial judge in relation to the alleged loan was not at all clear. Further significant confusion has arisen because, as is conceded by the wife, it seems plain that the reference by the trial judge to a loan owed to Z Pty Ltd is an error; the relevant entity is AB Pty Ltd. The confusion is added to by the drafting of the ground which perpetuates that error (it also refers to Z Pty Ltd). As argued, the husband proceeded as if the ground referred to a loan owed by L Pty Ltd to AB Pty Ltd. However, as shall be seen, it is in fact by no means clear that the loan was in fact to L Pty Ltd.
Before us there was agreement that two payments of $70,000 were made by AB Pty Ltd. Likewise, it was not in dispute that one payment of $70,000 was made directly to entities associated solely with Mr G, and the other payment ultimately made its way to one of those entities as well.
However the evidence was in a state of considerable confusion as to what entities were involved in the chain of transactions which led to that outcome, and what the purpose or justification for the payments was.
Perhaps the most succinct – but not necessarily correct – explanation of the circumstances surrounding the payments was in a letter of 3 July 2012 from the husband’s accountant. Relevantly it says as follows:
# EXPLANATION OF $70,000 LOAN
[The husband] needed $70,000 to pay balance of $90,000 owing for the purchase of 30% of [AA Pty Ltd].
Since there were funds available in [AB Pty Ltd] which is 50% owned by [the husband] the directors of the company agreed to distribute $70,000 each as a loan to themselves to use as they best saw fit. Interest is being paid back to the company at ATO division 7A benchmark rates.
Using company funds rather than finance company funds retains more profit in the company.
This is an appropriate place to record that although the Share Sale Agreement required a payment of $35,000 on 15 July 2011 to be made by L Pty Ltd to G Pty Ltd, that did not occur. Therefore, as at the date of separation, the $70,000 balance of the purchase price remained wholly outstanding, albeit that $35,000 of it was not due to be paid until 15 July 2012. The wife took no issue with that fact at trial. To the extent that she had any issue, it was her contention that she believed that that balance would be paid progressively over time, and not in any lump sum.
In evidence before the trial judge were statements of a bank account maintained by L Pty Ltd. They showed that prior to separation, on 14 February 2012, $40,000 was deposited into that account, seemingly from AB Pty Ltd, and a further $30,000 was likewise deposited by it on 4 April 2012. During the post-separation period, on 8 June 2012, $50,000 was withdrawn from the account by way of transfer, with that transaction being described as “purchase [AB Business]” and then on 13 June 2012, a further $20,000 was transferred, with the transaction again being described as “purchase [AB Business]”.
The husband’s evidence was that those transfers were made not to G Pty Ltd, but rather to Z Pty Ltd.
However there was conflicting evidence as well, albeit largely secondary in nature. In his Financial Statement sworn 14 September 2012, at item 54, the husband disclosed a joint liability of the husband and wife to the L Trust in the sum of $70,000. In the course of his cross-examination, Mr L (Transcript of proceedings 31 May 2013, p 124, ln 31-37) said in relation to this entry:
…I would expect somewhere else in this financial statement there must be an asset called an interest in a trust which trust must have as an asset the debt owing by the parties. So what I am saying is it would be my expectation that if there is, indeed, a liability owing by the husband and the wife to another entity, the trust that is, then that trust should have an asset in its balance sheet being the $70,000 debt owed by the husband and the wife, a debit loan account, which often happens with trading trusts…
There was no mention of the $70,000 joint loan to the L Trust in the subsequent financial statement of the husband filed 22 February 2013. However in his updating affidavit sworn 19 May 2013 he said as follows:
I further seek to rely upon my Financial Statement sworn on 21 February 2013 and filed on 22 February 2013 save for that inadvertently by error the liability, to the [L] Trust in the names of myself and the respondent in the amount of $70,000 which was included in my previous financial statement filed in these proceedings was not included in the Financial Statement filed 22 February 2013 as a liability. This affidavit is for the purpose of rectifying this error.
Precisely how the husband and wife were said to have a joint liability to the L Trust for the $70,000 was unexplained in the evidence.
The trial judge dealt with this issue at [66] to [71] of the First Reasons as follows:
66. When parties conduct their affairs in a fashion designed to minimise their taxation obligations through relatively complicated and sophisticated company and trust structures, the task for the Court in trying to unravel it becomes extremely difficult. That is unquestionably the case involving all the areas of dispute in this proceeding.
67. I note that I have not heard any evidence from Mr [G] and there is nothing to suggest he was unavailable. Whilst the facts do not go far enough to justify a Jones v Dunkel (1959) 101 CLR 298 inference and indeed no such submission has been made by counsel for the wife, the fact is that I have not had the benefit that I would have thought one might expect of having Mr [G] confirm not only that the $70,000 is owing to his entity but also for example the validity of the 10 per cent management fee charges that are paid by the car parking company.
68. In my view for present purposes the $70,000 advanced by [Z Pty Ltd] to [L Pty Ltd] remains as a book entry in those two respective entities. There is no suggestion that Mr [G] will call for its return. If it is to be repaid it must be repaid in due course.
69. The one thing I do know is that $70,000 was paid to fulfil [the husband’s] purchase obligations under the Share Sale Agreement. This vested the three shares in the car hire business in [L Pty Ltd]. I note that Mr [L] pointed out, when dealing with the alleged indebtedness of the parties to [L Pty Ltd] but (sic) there was nothing in the accounts to show a countervailing entitlement on the part of the trust to any funds. This is an important omission
70. As Mr [L] also pointed out, while ostensively (sic) there is a loan in favour of [L Pty Ltd] from [Z Pty Ltd], the Court is not privy to whatever arrangements must subsist between [the husband] and Mr [G] in their entirety. It is clear beyond doubt that the various companies and trusts are to all effects (subject of course to the wife’s nominal 50 per cent ownership of [L Pty Ltd]) their creatures.
71. It is in these circumstances almost impossible to workout exactly what occurred. On one view the moneys advanced by way of loan was simply paid back to complete [the husband’s] purchase of the business in a circular transaction. It is not possible to make any detailed sense of it. In my opinion, and bearing in mind my observations at paragraph 68 above, the $70,000 should not be included in the pool.
There is considerable tension between some of those paragraphs. Particularly, even accepting that the reference to Z Pty Ltd in [68] is an error, the reference to the $70,000 as “a book entry” does not easily sit alongside the finding in [69] that the $70,000 was paid. Moreover, the reference to Mr L’s evidence (at [69]), dealing with an absence of a countervailing entitlement on the part of the Trust to any funds, overlooks the explanation in the accountant’s letter of 3 July 2012, and does not advert to the bank statement evidence of payments by L Pty Ltd to Z Pty Ltd in June 2012.
The prospect of enforcement of debts is a legitimate inquiry for a trial judge in determining the assets and liabilities of the party to the marriage: see In the Marriage of Biltoft & Biltoft (1995) FLC 92-614 at 82, 125. However, crucial to the challenge on appeal, it is plain to us that the error of the trial judge in saying that the loan was from Z Pty Ltd, when in fact it was appears to be from AB Pty Ltd, becomes critical to his Honour’s thinking about likely recovery.
Since Z Pty Ltd was a company wholly under Mr G’s control, the failure of the husband to lead evidence from him assumed a significance it would not otherwise have had, because his Honour was troubled that the $70,000 was “owing to his entity.” The trial judge also was clearly placing weight on the absence of any “suggestion that Mr [G] will call for its return.” [Emphasis added]
His Honour’s reference to the “important omission” in the accounts of the L Trust is perplexing; other than in the husband’s affidavit sworn 19 May 2013 and Mr L’s discussion of the husband’s earlier financial statement, there is no suggestion that there is $70,000 owing to the Trust, and it is difficult to see how any such liability could have arisen. That is because even if the $70,000 was a director’s loan to the husband from AB Pty Ltd, which loan was as a matter of convenience paid to L Pty Ltd to enable it to meet its outstanding obligations to G Pty Ltd under the Share Sale Agreement, any loan would be by the husband to the L Trust, not vice versa.
Moreover, his Honour’s reference to the $70,000 being “a book entry” is also perplexing. Plainly the bank statement evidence demonstrated that there were funds actually transferred via L Pty Ltd to Z Pty Ltd in purported discharge of L Pty Ltd’s outstanding obligation to pay the balance of the purchase price under the Share Sale Agreement, and it was apparently not in contest that there was interest being paid on the loan by L Pty Ltd to AB Pty Ltd.
Before us the husband contended that the following was the chain by which the alleged debt arose and remained outstanding:
(a)AB Pty Ltd loaned its directors $70,000 each. In the case of the husband, the $70,000 was paid to L Pty Ltd, in its capacity as trustee of the L Trust, which funds were physically paid to it by the $40,000 deposit on 14 February 2012, and the $30,000 deposit on 4 April 2012;
(b)The $70,000 was paid by the L Trust to Z Pty Ltd by payments of $50,000 on 8 June 2012 and a further $20,000 on 13 June 2012. It was paid to Z Pty Ltd rather than G Pty Ltd because that must have then suited Mr G; and
(c)Interest on the $70,000 loan is being paid by the L Trust to AB Pty Ltd.
Whilst the wife conceded that there is an error of the First Reasons, where his Honour referred (at [70]) to the loan in favour of L Pty Ltd being from Z Pty Ltd (when in fact it was probably from AB Pty Ltd) she correctly identified that the basis upon which AB Business was valued (being the capitalisation of future maintainable earnings) was not affected by this misconception. The wife then argued that:
(a)In fact the $70,000 loaned by AB Pty Ltd was one of two loans, each of a total of $70,000, to both directors (being the husband and Mr G) and hence “the loans effectively cancel each other out”; and
(b)there was no evidence that AB Pty Ltd would ever call for the repayment of the loans.
However, even if that reasoning is correct, that is not the reasoning which is adopted by the trial judge.
Plainly, his Honour mistook the entity to which the loan was said to be owed, incorrectly identified that Mr G had the exclusive control over whether or not the loan would ever be called in or not, and in that context appeared to give the failure of Mr G to give any evidence some weight. Further, his Honour thought that the loan in question had only arisen by book entry, and in doing so did not advert to either the accountant’s letter of 3 July 2012, or the bank statement evidence.
In our view, these plain flaws in the trial judge’s reasoning demonstrate error in the finding that the $70,000 was not a liability of the parties. The first aspect of this ground of appeal therefore has merit.
Inadequate weight to husband’s contribution of shares in AB Business
The second aspect of this ground of appeal is an asserted failure to give sufficient weight to the husband’s contribution comprising the acquisition by L Pty Ltd of its 50 per cent shareholding in AB Pty Ltd.
This aspect of the ground was not in fact argued either in the husband’s Summary of Argument or in oral submissions before us, but we consider, nonetheless, that we should briefly deal with it.
There was no direct evidence as to the circumstances by which AB Pty Ltd came into existence, or the circumstances under which L Pty Ltd came to own 50 per cent of its shares.
In any event, AB Pty Ltd and the AB Business were both established and operating prior to separation. In that respect, as the trial judge noted at [74] of the First Reasons, the parties conducted their cases at trial on the basis that their contributions made during the course of the relationship were equal. The main focus of their dispute was as to the alleged disparity of initial contributions in favour of the husband. Further, as noted by the trial judge at First Reasons [23] “little has been said about how the agreed 50 percent interest (sic) [the husband] was derived.” A party is bound by how they conduct their case at trial: Metwally v University of Wollongong (1985) 60 ALR 68.
There is no merit to this aspect of ground 5. However, for the reasons earlier given, ground 5 succeeds in part.
Grounds 6 and 7
These grounds were argued collectively. They provide as follows:
6. The learned Trial Judge erred in law and his discretion miscarried in failing to give sufficient weight to the Husband’s initial contributions and the Husband’s subsequent contribution of his redundancy package of $90,000.
7. The learned Trial Judge erred in law and his discretion miscarried in failing to give sufficient weight to the sum of $50,000 given to the Husband by his parents (upon finding that it was not a loan) as a further contribution by the Husband.
The gravamen of these appeal grounds, whether individually or collectively, is that the trial judge failed to properly evaluate the respective contributions of the parties to the property pool.
While the grounds make specific mention of two aspects of direct financial contribution as illuminating an error in the exercise of his Honour’s discretion in assessing the respective contributions of the parties, that assessment is a holistic exercise that must take account of and attribute weight to the contributions made by each of the parties over the whole of their relationship including, where relevant, contributions made before commencement and after separation.
Trial judge’s reasons regarding contributions
His Honour ultimately concluded at First Reasons [75] that the respective contributions of the parties should be assessed in the proportion 55 per cent / 45 per cent in the husband’s favour. His Honour’s reasoning in arriving at that conclusion is contained in [72]-[75], but also (arguably) in [76]-[77]. Those paragraphs are as follows:
72. It seems common ground that the husband owned a property in [Suburb B] at the commencement of the relationship which had a measure of equity in it. It was sold at or about the time the parties started to cohabit. Each of the parties gave differing evidence as to how much savings they had at the time. The husband puts his estimate as high as $80,000 and the wife says it was much lower and that her own savings were of approximately $25,000. It is not surprising that neither party presently has any records to prove their position.
73. What does seem clear, however, is that when the [Suburb B] property was sold it generated a net benefit of somewhere between $60,000 and $80,000. That is not commensurate with the far more substantial savings that the parties assert. For these purposes I accept that the husband’s initial contribution was substantially greater than that of the wife. It formed the springboard which enabled them to buy a property which they later sold and which contributed the springboard to the matrimonial property in [Suburb W].
74. Counsel for the wife suggested that in a relationship that subsisted from 2000 to 2012 these initial contributions should be set at zero. It is accepted by the parties that in a general way their contributions were otherwise equal.
75. In my view, although it is not possible to say exactly how much the husband’s initial contribution exceeded that of the wife, it was substantial and I think must be given some weight despite the length of the relationship. This conclusion is bolstered by the husband’s unchallenged assertion that he contributed a redundancy package of about $90,000 in 2009 (see paragraph 9, affidavit filed 14 September 2012). Without his initial contribution it is impossible to say that the parties would have been able to buy the property they did. In my view, there should be a 5 per cent adjustment in the husband’s favour.
76. The husband always earned substantially more than the wife but she worked and also brought up the children. She was clearly the primary child rearer and in a general way I accept that the contributions would be otherwise even. Weight must however be given to the fact that for a period of some seven or eight months after separation, the husband paid all of the relevant household bills and although it is not possible to say exactly how much this would amount to it would have to be in a five-figure sum.
77. It should be noted that the mortgage was only some $200,000-plus at separation and has now ballooned very significantly to $328,000. Whilst he husband asserts that this is through his impecuniosity and cash flow problems associated with his businesses, I think it is more accurate to say that the predominant reason for this increase is that the husband drew down on the mortgage because it disadvantaged the wife.
As it can be seen from these passages, his Honour considers the husband’s second $90,000 contribution in an indirect way, in that his Honour considers it as something that “bolsters”, rather than significantly adds to, the husband’s pre-existing contributions.
The husband’s initial and subsequent $90,000 contributions (Ground 6)
The trial judge expressly found at [73] of the First Reasons that the husband’s initial contribution was “substantially greater” than that of the wife, and further, that that contribution was the “springboard” for the purchase of the parties’ first home, which in turn was the “springboard” for the acquisition of the former matrimonial home. None of those findings are challenged on appeal, nor is there any cross-appeal.
It is not in dispute that in consequence of his employment terminating in 2009, the husband received a redundancy payment of $90,000. Because of the way that the trial was conducted, in that some assets were not valued, and nor could their values be agreed, it is not possible to precisely determine the net value of the pool (excluding add-backs) as found by his Honour, but in approximate terms it was probably between $650,000 to $800,000.
In the context of a 10-year relationship terminating in April 2012, receipt of $90,000 in 2009 was therefore a potentially significant matter. The only advertence to the $90,000 in the part of the First Reasons, when his Honour was dealing with the weight to be given to that contribution, was at [75] where it is simply said to “bolster” the husband’s claim to have made a substantial initial contribution, which should still be given weight despite the length of the relationship.
Whilst plainly conceding that the payment was received, counsel for the wife argued that it should be seen as a contribution by both parties, in that during the time of the husband’s employment which gave rise to the redundancy package, the wife had been the homemaker and hence assisting the husband by supporting him in employment.
The fundamental difficulty is that one cannot glean from his Honour’s reasons what weight – even in general terms, such as “considerable,” “significant,” “some,” or “negligible” – he gave to an arguably substantial and recent financial contribution. Moreover, it is very difficult to understand how a recent, and in the context of a pool of the size his Honour was dealing with, arguably substantial, contribution necessarily “buttresses” the substantiality of an unrelated contribution made at the start of the relationship.
The $50,000 contribution (Ground 7)
The trial judge found that in about 2008, the husband’s father gave the parties $50,000 which they applied to their mortgage (First Reasons [61]). His Honour specifically found that the $50,000 then advanced was not a loan (First Reasons [64]). Although at trial the husband had argued that indeed it was a loan, he did not challenge his Honour’s finding on this appeal. Rather, he argued that, having rejected his argument that the $50,000 was loan, it was incumbent upon his Honour to take the sum into account as a (further) direct financial contribution made by him during the course of the relationship.
It was not in dispute that the husband had paid to his parents $50,000 post separation in purported discharge of the alleged loan. In the First Reasons, the trial judge indicated that, consistent with the findings just referred to, he intended to “add-back” that $50,000 into the “asset pool”.
His Honour dealt with the parties contributions at [72] – [77] of the First Reasons. Plainly there is no reference there to the $50,000. However counsel for the wife sought to argue that, notwithstanding the absence of any specific reference, it was in fact addressed at [50] of the First Reasons. There, under the heading “Add-backs” his Honour said:
50. Although in theory this might go to questions of contribution (and indeed in one sense does so) it is appropriate to deal with certain add backs at this point.
One of the add-backs thereafter considered was the $50,000.
We are not persuaded that paragraph [50] is sufficient advertence to the contribution aspect of the $50,000 which, by the rejection of it as a loan, the husband might expect, in the ordinary course of events, to have considered as a contribution by him through his parents: Kessey & Kessey (1994) FLC 92-495 at 81,150. If his Honour considered and rejected the treatment of it in that manner, we do not consider it manifest in his reasons. In the absence of further reasons (again, even if brief) in respect of this direct financial contribution, it is impossible to assess what weight, if any, was given to that contribution relative to all other contributions of varying types made by both parties.
As has been frequently observed, appellate challenge to the attribution of weight in a quintessentially discretionary judgment faces considerable hurdles. Yet, the absence of reasons of sufficient adequacy (even if brief) which illuminate the relative weight that was, or was not, given to direct contributions of the nature and amount of those under consideration, gives rise to a significant concern that the exercise of the discretion has miscarried.
We are not persuaded that his Honour gave any, or any sufficient weight to direct financial contributions that can be argued to have significance in an overall assessment pursuant to s 79(4).
Grounds 6 and 7 are made out.
Ground 10
This ground asserts:
That the learned trial judge erred in finding that the Husband and Mr [G] have a proven record of manipulation to their advantage.
This finding was made in the context of the Second Reasons, in which his Honour was explaining why the preferable orders were those which saw a pre-determined sum of money payable to the wife (subject only to the vagaries of sale prices for the former matrimonial home and the motor vehicles and boat) rather than the businesses being sold, and the wife’s entitlement being dependant on the prices thereby obtained. His Honour made the impugned observation in the course of concluding that the husband and Mr G “will collude in the same way to minimise the sale price of the business.” (Second Reasons at [6]).
There was sufficient evidence upon which his Honour could reasonably conclude, on the balance of probabilities, that the husband and Mr G did have a “proven track record of manipulation to their advantage” and particularly:
·Mr L’s opinion that the management fees which both men (via corporate entities under their control) charged to AB Pty Ltd were not commercially justifiable for the services being performed;
·Mr L’s evidence that the 10 per cent management fee being charged by Z Pty Ltd to AB Pty Ltd was, given that another Mr G related entity was a 50 per cent shareholder in the latter, commercially unjustifiable, and more, being paid unsupported by any agreement;
·Mr L evidence that the 10 per cent management fees paid to Z Pty Ltd were either not supported by tax invoices, or where there were invoices, they were frequently devoid of any of the sort of detail one would ordinarily expect in commercial matters;
·Mr L’s evidence that the invoices which ultimately were made available to him did not match the relevant company’s financial statements, which evidence was not challenged by the husband;
·The fact that G Pty Ltd was able to be paid (albeit by way of payment to Z Pty Ltd) the balance due under the Share Sale Agreement by funds derived from (probably) a director’s loan to the husband from AB Pty Ltd.
It is reasonable to infer on the whole of the evidence before his Honour that both men were advertently compliant with the other’s conduct in all of the above, and that they did so because there was some advantage thereby obtained by them. Other instances of such dealings relate to not only the husband’s unexplained, but apparently unchallenged, entitlement to send invoices for management fees to AB Business, but also the similarly unexplained reasons why, as plainly was the case, the husband at trial no longer remained in receipt of a salary from AA Pty Ltd, but was likewise remunerated by invoiced management fees to that company. Given that thereby the company became liable to pay GST on the amounts invoiced, it is reasonable to infer that there was some advantage to the company – and the husband – in so structuring their respective affairs. It was not controversial that both men had been friends for 20 years. Plainly there was a mutually accommodating relationship between them.
The finding complained of by this ground was reasonably open on the evidence presented. Any inexplicable omissions and inconsistencies in evidence may be, and quite correctly were, used against both the husband’s interests and credit as a witness (Weir & Weir (1993) FLC 92-338, 79-593).
Ground 10 fails.
Grounds 11 to 15
These grounds were argued collectively. They assert:
11. That the learned Trial Judge erred in law in making orders requiring the Husband to pay monies to the Wife which he simply does not have.
12. That the Learned Trial Judge erred in law in making orders which provide for the Husband to pay the Wife an amount based on the valuation of the business known as [AB] Pty Ltd which the Husband will have to sell in order to pay the monies outstanding to the Wife.
13. That the learned Trial Judge erred in making orders which place the Husband at risk of not being able to obtain sufficient funds for the sale of the [AB Business] to pay the monies he ordered should be paid to the Wife.
14. That the learned Trial Judge erred in law and his discretion miscarried in making orders which are unjust and inequitable in all of the circumstances.
15. That the learned Trial Judge erred in law and his discretion miscarried in that he failed to made order that were just and equitable in all of the circumstances of the matter.
The gravamen of these complaints is that, in the event that the husband cannot achieve a sale price equal to or greater than the value of his business interests as determined by his Honour, then he may not be able to satisfy the orders and moreover, that therefore the practical outcome of the orders was not necessarily a just and equitable one.
However the result complained of is simply one of the inevitable consequences of ordering payments of sums based upon valuations, and leaving it to the party to either sell the asset or borrow against it, rather than making orders for sale. Here, plainly his Honour was concerned that there would be collusion in the sale of the husband’s business interests. By reference to the findings and evidence earlier discussed and given that, under the Shareholders Agreement, those interests could not be assigned or transferred without the consent of G Pty Ltd – albeit that such consent could not be unreasonably withheld - that concern had a substantial basis.
The trial judge was clearly conscious of the tension between the parties’ proposals, and the prospect for there to be injustice on either party’s proposed orders. The selection which his Honour ultimately made was a quintessentially discretionary one, and one which his honour adequately explained.
Ground 12 asserts an error in requiring the husband to sell his interest in AB Pty Ltd. That was the very order (per order 5 of the husband’s Proposed Minutes of Order filed 11 September 2013) which he sought, save that the wife would have carriage of the sale, and there would be a reserve price of $277,000.
These grounds of appeal fail.
Ground 16
Ground 16 of the Amended Notice of Appeal provides:
The learned Trial Judge erred in law and in his discretion in that he added back into the property of the parties the sum of $75,000 being the sum of $50,000 repaid to the Husband’s parents and the sum of $25,000 used by the Husband to pay the mortgage and associated household expenses.
At the hearing of the appeal, this ground was only faintly pressed, if at all. We therefore propose to deal with it very briefly.
At [50] to [65] of the First Reasons under the heading “Add-backs,” the trial judge held that $25,000 withdrawn by the husband from the parties’ bank accounts post-separation should be added back into the pool of assets, and further concluded that $50,000 which the husband had, post-separation, paid to his parents, purportedly in repayment of a loan from them, should also be added back.
There is no error committed per se in adjusting the parties’ actual property interests by a calculation involving notionally adding back into the pool sums which have been dissipated by the parties. We reject any suggestion that the decision of Bevan & Bevan (2013) FLC 93-545 – or, more particularly, the decision of the High Court in Stanford & Stanford (2012) 247 CLR 108 - is authority for any necessary contrary solution. Some statements made by the High Court may lead to the conclusion that references to “notional property” as have been referred to in decisions of this court and at first instance may need to be reconsidered.
The decisions referred to seek to remind the Court that, however the exercise of discretion might seek to deal with property that is said to be the subject of “add back”, proper consideration must be given to existing interests in property, and the question posed by s 79(2) as a separate inquiry from any adjustment to property interests by reference to s 79(4) if a consideration of s 79(2) reveals that it is just and equitable to alter existing interests in property.
No error is established in relation to this ground of appeal, and it therefore fails.
Ground 17
This ground provides:
The learned Trial Judge erred in law and in his discretion in finding and/or ordering the Husband to be solely responsible for all payments pursuant to the rates, water, any mortgage or other encumbrances secured over the real property.
It was conceded at trial that the husband had superior earning capacity to that of the wife, who plainly was not earning anywhere near sufficient to be able to meet these sorts of costs. Moreover, the husband had tacitly acknowledged that, since separation and at the time of trial, he was meeting such expenses.
In those circumstances there can be no merit to the argument that by requiring the husband to continue to meet those expenses pending the sale of the property, his Honour’s discretion miscarried.
This ground of appeal therefore fails.
The Outcome of the Appeal and Orders
Ground 5 (in part) and grounds, 6 and 7 of the appeal have succeeded and the appeal will be allowed.
The question then is whether we should re-exercise the discretion for ourselves by determining whether the $70,000 should be included as a liability in the pool of assets and liabilities, and determining afresh the appropriate contribution based entitlement of the parties, or whether the proceedings should be remitted for further hearing to the Federal Circuit Court.
As this Court has sought to explain on a number of occasions, we are of course always anxious to avoid the parties being exposed to yet further expense and delay. However, this court is constrained in re-exercising not by willingness or whim, but by principle.
It is plain from the decision of the High Court in Allesch v Maunz (2000) 203 CLR 172 that on any re-exercise of discretion, this court is obliged to achieve a just and equitable outcome by reference to the law and facts as they exist as at the date of re-exercise.
That presents difficulties both evidentiary and practical. Those difficulties arise where, as here, the Court is told that many matters central to the exercise of discretion are the subject of dispute; where there is no agreed pool of property and where the time that has elapsed since the orders were made might see arguments as to value, contributions (including post-separation contributions) adduced and, equally, might see the parties seeking to depose to changed financial circumstances directly relevant to the exercise of the discretion.
Thus, unfortunately, we consider that remitter is the only realistic option open to us.
We therefore propose to remit the matter for hearing before a Federal Circuit Court judge other than the trial judge.
Costs
At the conclusion of the appeal we heard the parties as to the appropriate costs orders which should flow from the various possible outcomes of the appeal.
Grounds 5 (in part), 6 and 7 have succeeded; the balance of the grounds failed. We are not persuaded that the usual rule in relation to costs should be departed from. However, the appeal has succeeded principally because of legal error, and we are satisfied that in those circumstances there should be certificates granted to both parties in relation to the appeal and the re-hearing pursuant to the Federal Proceedings (Costs) Act 1981 (Cth).
I certify that the preceding one hundred and fifty three (153) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court delivered on 30 March 2015.
Associate:
Date: 30 March 2015
172
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