W & W
[2000] FamCA 1302
•26 OCTOBER, 2000
[2000] FamCA 1302
FAMILY LAW ACT 1975
IN THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA
AT SYDNEYAppeal No. EA83 OF 1999 File No. SY8069 OF 1997
IN THE MATTER OF: Mr W
Appellant/Husband
AND: Ms W
Respondent/Wife
CORAM: LINDENMAYER, KAY & HANNON, JJ. DATE OF HEARING: 22 MARCH, 2000
DATE OF JUDGMENT: 26 OCTOBER, 2000
JUDGMENT OF THE COURT
Appearances: Mr Brereton of Senior Counsel (instructed by Adrian Twigg & Co, Solicitors) for the Appellant/Husband
Mr Lloyd of Counsel (instructed by Gillis Delaney Brown, Solicitors) for the Respondent/Wife
INTRODUCTION
1. This is an appeal by Mr W (“the husband”) from orders made by “the trial Judge” on 25 August, 1999, by which his Honour determined proceedings between the husband and Ms W (“the wife”) for orders under s.79 of the Family Law Act 1975 (“the Act”) altering the parties’ interests in their property.
2. The orders of the trial Judge the subject of this appeal are those numbered 3, 4, 5, 6 and 7 of the orders (numbering 15 in all) which were made by his Honour on that date. However, in order to understand orders 3 and 4, it is first necessary to know that orders 1 and 2 provided for the sale of a boat known as “XXX”. The relevant orders then provided as follows:-
“3. On sale of the said boat after payment of the costs of and incidental to sale 65% of the balance of the price is to be paid to the wife forthwith and the remaining part of the balance is to be paid to the husband forthwith.
4. In the event that the husband is given a notice of assessment of capital gains tax payable on the proceeds of sale of the boat the wife shall within one month of being notified by the husband of his said capital gains tax liability pay 65% of it to the Commissioner of Taxation in partial discharge of that liability.
5. Within one month of sale of the said boat the wife shall pay to the husband the sum of $126,448.00.
6. In the event that the wife complies with Order 5. the husband shall forthwith do all things and execute all documents necessary to transfer to the wife and shall transfer to the wife free of all encumbrances all his right title and interest at law and in equity in the premises situate at and known as [M Road, Suburb E].
7. In the event the wife fails to comply with Order 5. the parties shall sell the premises known as and situate [at M Road, Suburb E] within three months of that failure and after payment of all costs of and associated with the said sale shall distribute the balance of the proceeds as follows:
(i)$118,719.00 to the wife;
(ii)65% of the balance to the wife;
(iii)the remainder to the husband.”
3. By his Notice of Appeal filed on 24 September, 1999, the husband asks for the following orders, which we infer that he seeks in lieu of the orders the subject of his appeal:-
“1. That all parties do all such acts and things and execute all such documents as are necessary to effect a sale of the property [at M Road, Suburb E] and upon sale to pay the net proceeds of the sale as follows:-
(a)$30,000.00 to the Husband.
(b)As to the balance equally between the Husband and the Wife.
2. That the parties do all such acts and things necessary to cause the boat “[XXX]” to be sold and upon sale calls for the proceeds of such sale to be divided as follows:-
(a)In payment out of any selling costs.
(b)In retention of the amount calculated as the taxation payable on sale of the boat, with such taxation to be paid when assessed.
(c)In payment out of 50% of the balance equally between the Husband and the Wife.”
4. It will be seen that, essentially, by his Notice of Appeal the husband challenges his Honour’s determination that the proceeds of the boat should be divided in the proportions 65 per cent to the wife and 35 per cent to the husband (with the wife to pay 65 per cent of any capital gains tax which may be assessed and is payable upon its sale) and contends that the proceeds of sale, after payment of any capital gains tax, should be divided equally between the parties. He further challenges his Honour’s determination that the wife should receive a transfer of the husband’s interest in the property at M Road, Suburb E (“[M] Road”) in exchange for a payment to him by her of
$126,448 or, in default of such payment, that the property be sold and, from the net proceeds, the wife receive $118,719 plus 65 per cent of the balance, and contends that in lieu of that division the property should be sold and from the net proceeds of sale the husband receive the first $30,000, with the balance being divided equally between the parties.
5. On the hearing of the appeal, senior counsel for the husband maintained the position advocated in the Notice of Appeal in relation to the distribution of the proceeds of sale of the boat, but departed from the position advocated in that notice in respect of M Road. Counsel’s submission was that if the wife were to retain that property the amount which she should be required to pay to the husband should be
$244,352 in lieu of the $126,448 provided for in the trial Judge’s order number 5, and that in default of that payment the property should be sold and the proceeds divided approximately equally (49 per cent to the wife and 51 per cent to the husband).
BACKGROUND FACTS
6. The husband is currently aged 52, having been born in 1947, whilst the wife is approximately one year younger. The parties were married in 1970, and separated on 6 January, 1996, when the husband left the former matrimonial home. The parties therefore cohabited for about 26 years.
7. There are two children of the marriage, both of whom are now over the age of 18 years. The elder child, D, was born in 1974, and the younger, S, in early 1979. S was aged 17 years at the time of the parties’ separation. Both children continued to reside with their mother in the former matrimonial home at the date of the hearing.
8. The husband is an entertainment product executive, and he worked in that capacity throughout the duration of the marriage. He currently operates his own business through the company FF Pty Ltd, of which he and his current de facto wife, Ms L, are the only and equal shareholders.
9. The wife is currently employed on a permanent-casual basis, in administration at a sporting club in Sydney. During the marriage she worked in the field of information technology until the children were born, and then, from about 1980, she worked in administration in the entertainment product and recreational sport businesses operated by the parties.
MAJOR ISSUES AT TRIAL
10. At trial, the matter essentially revolved around the value of the husband’s entertainment products business and of the boat “XXX”, as well as the relative significance of the parties’ contributions, under s.79(4)(a), (b) and (c) of the Act, and the impact of the relevant s.75(2) factors. The boat was the vessel previously used to operate the recreational sport business owned by the husband. As we have previously noted, the entertainment product business was conducted through the company FF Pty
Ltd (“the company”). The company also owned the residential premises in which the husband and Ms L were residing.
THE JUDGMENT OF THE TRIAL JUDGE
11. His Honour began his judgment by outlining the major issues which we have identified in the immediately preceding paragraph hereof. He then undertook a detailed analysis of the history of the parties, their marriage, the separation and relevant events thereafter, in the course of which he made various findings, to some of which it is appropriate that we refer.
12. In relation to initial contributions, his Honour found 1 that at the time of the marriage the wife “probably had about $4,000 in savings”, and that the husband “probably had a car and some savings worth a total of about $3,000”.
13. His Honour then outlined, in some detail, various aspects of the parties’ lives in which they received assistance from the wife’s parents. In so doing, he found 2 that: “From the time of marriage to separation the wife's parents made numerous loans and gifts to the parties”. At a later point 3 his Honour enumerated those loans and gifts (as to the former of which, some were ultimately forgiven) and concluded that “[t]he ultimate gift was, therefore, $61,875.00 and no interest was charged on the loans while they were extant”. He also found 4 that the wife’s parents provided another loan to the parties of $8,000 in 1990 to purchase a boat, and guaranteed loans to the parties by financial institutions totalling some $95,000 over the period from 1976 to 1990.
14. In relation to those loans and gifts from the wife’s parents, his Honour found 5 that they constituted “a substantial contribution to the parties’ property”, and 6 he said this:-
“Although the wife agreed that the loans and gifts were provided for the benefit of both parties, I am not satisfied that they were made on behalf of both parties. They were probably made on behalf of the wife.”
15. His Honour further found that the wife’s parents provided other services of benefit to the parties which he categorised as contributions on behalf of the wife. These included the following:-
· providing the parties with rent free accommodation for three months in 1975 7;
· frequently taking care of and transporting the children 8;
· having the children reside with them for about a year during the marriage, including a period during 1982 when the wife was ill and underwent a major operation 9;
· taking the children on their holidays (alone until 1989 and thereafter in the company of the wife also) 10;
· purchasing material and sewing clothing and curtains for the family 11;
· purchasing paint and assisting the parties to paint the exterior of the family home 12;
· attending to general maintenance and repairs to the parties’ home, and frequently paying the bills arising from work completed there by tradesmen 13; and
· purchasing cars for the wife during the marriage 14, although in so far as these purchases involved financial outlay by the wife’s parents this seems to have been included in the gifts totalling $61,875 to which his Honour subsequently and we have previously referred, and the same applies to at least some of the expenditure by the parents on the parties’ matrimonial home.
16. In relation to contributions to the welfare of the family, his Honour found that the husband had very little to do with the running of the household or the care of the children, had “very little interest and played very little part in home and family life”, and that it was the wife who “bore the lions share of the homemaking and parenting”. 15 That finding by his Honour was based, at least in part, on the finding 16 that the husband “spent long hours working during the week and he also entertained clients much more than is usual in most other industries”, and his further finding 17 that on weekends and during holidays the husband had “an active sporting and social life”.
17. The trial Judge found 18 that, beginning in 1972 and continuing until 1985, the husband acquired a series of boats which he spent time and money (some derived from his entertainment product business and some borrowed) improving, prior to their sale, generally at a profit. He also found that in 1986 the husband acquired the hull of “XXX” from the proceeds of sale of an earlier boat, that he spent $225,000 (much of it borrowed) and many hours of work over 18 months building it, and
subsequently recovered $120,500 in a lawsuit against the manufacturer over a defect in the vessel’s trim. Some of that money was then spent on repairs to the boat, and
$50,000 was put into establishing a recreational sport business, which operated from 1989, in partnership with the wife, using the boat. His Honour found 19 that both parties played a significant part in the operation of that business until separation, but that upon separation the partnership was dissolved and the husband took sole ownership of the boat and the business. However, his Honour also found (in the same paragraph) that that business “has been virtually inactive in the past two or three years” and 20 that “one could not regard the business as other than the source of an overall loss to the parties”. He added 21:-
“It can broadly be said that the gross income has been so small by comparison to its capital cost and overheads that, at best, depreciation and losses were probably able to be used to reduce the tax payable by the husband on his income from the [entertainment] industry and, overall, the parties earned no income from this business which could be a contribution to their property.”
18. However, his Honour also found 22 that the parties’ efforts in relation to the boat and the recreational sport business – in the husband’s case the completion and crewing of the boat, and in the wife’s case, her administrative and book- keeping activities and “some physical work on the boat”, together with some entertainment of clients – amounted to “a contribution to the current net property”, including “the current value of the boat”.
19. In relation to the entertainment product business, his Honour found 23 that the parties “commenced their own [entertainment product] partnership” in 1980, and that until 1989 the wife “mainly attended to the administrative side of the business and helped entertain clients” for which she received “a salary of about $350 per week”. However, his use, in that paragraph, of the word “partnership” to describe the nature of the vehicle for the operation of that business must be regarded as colloquial because, earlier 24 he had found that a company JP Pty Ltd, of which the husband and wife were directors, was formed in 1980, and that this ceased operating in 1990. His Honour also there found that “it was the husband who played the really active role in this enterprise”.
20. His Honour found 25 that the husband commenced “FF” in about 1994, that this was “originally a partnership between himself and the wife but, after a short
time, it was replaced by an incorporated business where the company was owned by the husband and Ms [L]”.
21. His Honour found 26 that at separation the parties had “cash savings of about $45,000” and that of that “the husband took $15,000 and left $30,000 for the wife”. After then referring to some contributions made by the husband since separation in the form of spousal maintenance, school fees, and rates on the house occupied by the wife and children, his Honour rejected any suggestion that the wife had wasted the
$30,000 which she received at separation by pointing out that she had spent it “at the rate of less than $9,000 per year” and that “her income from her job has always been small and she has been forced to borrow from her parents in addition to that income and the savings”.
22. His Honour referred 27 to the husband’s evidence about his earnings from the entertainment industry throughout the marriage, and to date, which his Honour said “was not challenged”. That evidence was to the effect that the husband's total earnings from marriage to date of trial were $1,063,970, with his level of earnings “from 1994 to date” being $750 per week.
23. In relation to the wife, his Honour found 28 that she obtained a permanent part-time administrative role at a sporting club in October, 1995, that she usually worked three or four days per week sometimes more, and that her current average earnings were “about $400 per week gross”. He further found that although she had been unable to find full-time employment, the wife had “prospects of increasing her working hours with her employer”, and that “if offered an increase in working hours, she would accept the offer”. His Honour was satisfied that “she has always been keen to earn more and quite prepared to do the additional work involved if it would have been available”.
24. Finally, in respect of contributions, his Honour found 29 that “although the husband worked long hours, the time the wife spent on parenting and homemaking involved considerably longer hours, at least until the children left school”. He further found that, during 1982, when the wife underwent a major operation and other treatment for cancer, “she could not always care for the children”, but that her parents then did.
He found that the children lived with the wife’s parents, in all, for more than a year during the marriage, and that “when the wife’s parents took the children on holidays and otherwise assisted the wife with them, they probably made their contribution on behalf of the wife”.
25. In paragraph 45 of his judgment his Honour listed the property of the parties “which is the subject of agreement as to value or which ought to be attributed a value which the holder asserts it has where there is no expert valuation”. We think it unnecessary to set out that list in full. Suffice it to say that the total value of the items in that list is $523,522, the major component of which is M Road (at $480,000). The balance is made up of items of personalty and bank savings, of which a total of $16,800 is attributed to the wife, whilst $16,722 is attributed to the husband, and $10,000 is attributed to furniture and furnishings in the home at M Road.
26. In paragraph 46 of his judgment his Honour referred to legal costs of the proceedings already paid by each party, namely $28,555 by the wife and $27,753 by the husband, and stated, for reasons which he gave, that he proposed to regard those costs paid as “notional property available for division between them”. He added that “where the parties have borrowed to enable the payments to be made, I shall not overlook the actual debts so created”.
27. His Honour then set out, in paragraph 47 of his judgment 30 a list of the “undisputed liabilities of the parties” which totalled $29,600, of which $29,200 was attributable to the husband and only $400 to the wife.
28. His Honour then referred 31 to a debt of $45,604 which the wife claimed she owed to her mother, having borrowed those moneys from her since the separation of the parties to meet her “legal bills, her land rates, medical and hospital insurance and day to day living expenses”. Having described the wife as “a credible witness” his Honour said that he believed her evidence, and proposed to “regard the moneys provided by her mother as a debt payable to her mother by the wife on the division of the parties’ property”. He added: “These loans are without interest and amount to a contribution to the parties’ property on behalf of the wife”.
29. His Honour then turned his attention to the issue of the value of the boat “XXX”. After noting 32 that the husband claimed it was “now worth $170,000” whilst the wife’s valuer valued it at $325,000, his Honour undertook 33 a detailed analysis of the conflicting evidence on that issue, before concluding 34 that he was “... not satisfied
... what the value of the boat is” and that he therefore proposed to “order its sale”. As that decision of his Honour is not challenged on this appeal it is unnecessary to recount the reasoning process which led him to that conclusion.
30. His Honour next dealt 35 with the issue of the value of the husband’s interest in the company (“FF Pty Ltd”). He ultimately concluded 36 that the value of the husband’s 50 per cent shareholding in the company was $55,043. As that valuation, and the method by which his Honour arrived at it, are the subject of challenge in this appeal, it is appropriate that we summarise, at this point, the steps by which his Honour arrived at that conclusion. We may have occasion to set out, in more detail, some of his Honour’s findings and his reasoning process later, when we come to deal with the specific grounds which challenge that conclusion.
31. His Honour recorded 37 that the wife’s valuer (Mr B) valued the husband’s share in the company at $80,000. By contrast, he later recorded 38 that the husband’s valuer (Mr P) and the husband’s accountant (Mr T) contended that the business of the company was “not worth anything”. His Honour described Mr B 39 as “... an impressive witness who gave me the impression that he set out to value the husband’s shareholding rather than assist the wife’s case”. Again, by contrast, he said 40 that “... Mr [T] and Mr [P], have left me with the strongest impression that they had set out to provide valuation evidence and evidence about the activity of the business which would assist the husband”. Accordingly, his Honour concluded: “I am not willing to rely on the evidence of either on valuation related issues, as I have insufficient confidence in their credit”.
32. His Honour rejected 41 the argument advanced for the husband that, “... because the business [of the company] relies wholly on the skills of the directors [the husband and Ms [L]], the goodwill is worth nothing and that, in reality, the business is merely a resource which is a manifestation of their earning capacity rather than property”. Rather, he held that the husband’s share in the company is property, the
value of which “is to be ascertained in the husband’s hands”. That was the approach advocated by Mr B in his valuation report 42, where he said: “In arriving at a valuation one must consider what the company is worth to [the husband]”, because he considered that “... a valuation of the business based on a sale to an arms length purchaser would not be feasible”.
33. His Honour adopted 43 Mr B’s “mode of valuing” the business “by determining its assets as a going concern”, which involved valuing its goodwill as one of its assets. He also adopted Mr B’s method of valuing the goodwill by determining the “adjusted profitability” of the business and placing a value on the goodwill equivalent to “the adjusted profit expected for two years of trading”. He also accepted Mr B’s opinion that, in determining the “adjusted profitability” of the business it was appropriate to add back to the profits disclosed by the company’s accounts the value of “private and personal benefits” derived by the proprietors “from claimed expenses of the business”, including excessive employer superannuation contributions.
34. The only significant departures which his Honour made from Mr B’s valuation, which had led him to a figure of $160,000 for the value of the goodwill of the business, were:-
(i)to adopt, as his starting point, the net profit of the company (before tax) for the two financial years ended 30 January, 1998 and 1999 (the figures for the latter year having become available only subsequent to Mr B’s report) rather than, as Mr B did, to take only the 1998 figures and double them;
(ii)to make a much smaller adjustment from the company’s returned profit figures in respect of directors remuneration (Mr B having added back $50,000 per year in respect of that item, whilst his Honour added back only $2,000 for each year); and
(iii)to add back $26,000 per year as the value of travel, food and entertainment enjoyed by the directors but met by the company and claimed as part of the entertainment product expenses.
35. His Honour’s calculation of the value of the husband’s 50 per cent shareholding in the company at $55,043 may then be summarised as follows:-
(i)he started from the average net profit as disclosed by the
company’s accounts for 1998 and 1999 44: $5,000
(ii)he added back an average adjustment for those two years in respect of excess income paid to the directors, rent paid on the unit occupied by them and excess employer
superannuation contributions 45: $20,000
(iii)he added back $26,000 (being $20,000 in respect of travel and $6,000 in respect of food and entertainment) as the annual value of personal benefits enjoyed by the directors
from company expenditure on those items 46: $26,000
Total adjusted net profit for one year: $51,000
(iv)he applied a multiplier of 2 to capitalise that adjusted net
profit: $102,000
(v)he added the value of the net tangible assets of the company 47 : $8,087 To arrive at total assets: $110,087
(vi)he then divided that figure by 2 to ascertain the value of the
husband’s 50% interest, thus arriving at the ultimate figure: $55,043.
36. In arriving at the figure of $8,087 for the net tangible assets of the company, his Honour had made allowance 48 for the fact that directors fees of $50,000 would be paid from the existing net assets of the company, shown in the balance sheet as at 30 June, 1999 as $58,087. Accordingly, he concluded that in calculating the net assets of the parties, for the purpose of the proceedings, he should include the $25,000 which the husband would receive as his half share of the those directors fees. Similarly 49, his Honour noted that as the company’s 1999 balance sheet showed that the husband “now owes the company $26,357”, which “largely arises from his need to meet legal expenses”, he should include that liability of the husband in calculating the net assets of the parties “because his notional property has been increased by his payment of legal fees” (which we take to mean increased by the amount of his paid legal fees – see paragraph 25 hereof).
37. Drawing together all his prior findings, his Honour then set out 50 what he found to be “the parties’ net assets and notional assets” other than the boat, and found them to be “worth $558,312”. That figure was arrived at as follows:-
“Property of agreed value etc. $523,522.00
Costs paid by wife - notional asset $28,555.00 Costs paid by husband - notional asset $27,753.00 Husband's 1999 directors fees $25,000.00 Husband's share in company $55,043.00 TOTAL
$659,873.00
Their known liabilities are: Undisputed liabilities
$29,600.00
Wife's debt to her mother $45,604.00 Husband's loan account with company $26,357.00 TOTAL
$101,561.00”
38. His Honour then referred 51 to the prospect of capital gains tax being payable on the proceeds of sale of the boat, but said that as he did not know “what, if any, capital gains tax on it will be paid by the husband” he would provide in his orders for the wife to contribute to any such tax which the husband “must pay” in the same proportion as her share of the sale price bears to the total net receipts from the sale.
39. His Honour then made 52 his ultimate finding as to the parties’ total contributions “to their current net assets and notional assets”. He found that those contributions were “45% by the husband and 55% by the wife”.
40. In the next paragraph of his judgment his Honour identified “two major reasons for the wife having made the larger contribution”. Those reasons were, firstly, that “[t]he wife, and her parents on her behalf, provided nearly all the homemaking and parenting and the wife assisted in the family business”, and secondly, “that the wife’s parents also lent and gave a considerable amount of money to the parties”.
41. Finally 53 his Honour undertook a detailed consideration of what he regarded as the relevant matters arising under s.75(2) of the Act and concluded 54 that those factors called for “an adjustment on the parties’ respective contributions to their property ... of 10% in favour of the wife” to “allow a just and equitable division” of the parties’ property. Thus he determined that the parties’ ultimate entitlements to their net property and notional property were 65 per cent to the wife and 35 per cent to the husband.
42. His Honour then calculated 55 the parties’ entitlements, on the basis that they each retained the assets, notional assets and liabilities which they then had (other than the home and the boat), that they shared the proceeds of sale of the boat, less any capital gains tax payable on it, in the proportions 65 per cent to the wife and 35 per cent to the husband, and the wife retained the home and paid out the husband the balance of his entitlement. His Honour correctly calculated that, on the basis of his findings, if the wife were to retain the home she would have to pay the husband $126,448. Hence orders 5 and 6 of his Honour’s orders as set out in paragraph 2 hereof.
43.His Honour did not set out in his judgment how he calculated the figure of
$118,719 to be paid to the wife, from the proceeds of sale of the home (in the event of its sale) prior to the division of the balance of those proceeds in the proportions 65 per cent to the wife and 35 per cent to the husband, as provided in order 7 of his orders, and we are unable to understand how he arrived at that figure. It appears to us that the figure should be $41,552, calculated as follows:-
Net assets and notional assets (excluding the house and boat) ($558,312 -
$480,000): $78,312;
65 per cent of $78,312: $50,903;
The wife currently holds and will retain net property and notional property of
$9,351 (and the husband $68,961) 56;
À To bring wife’s share of these assets and notional assets up to 65 per cent, she must be paid $50,903 - $9,351 = $41,552.
44. After making some further observations which are not relevant to this appeal, his Honour then proceeded to make the orders set out in paragraph 2 hereof, which are the subject of this appeal.
THE APPEAL
45. The husband’s Notice of Appeal contains eleven grounds of appeal, but one ground (ground 8) was not pressed by his senior counsel, Mr Brereton, SC, at the appeal hearing. The remaining ten grounds were addressed by Mr Brereton, SC, in two broad groups, and it is convenient for us to deal with them in the same manner.
The Pool of Property
46. The first broad group of grounds addressed by senior counsel for the husband consists of grounds 3, 4, 5, 6, 9 and 10, all of which go to his Honour’s determination of the pool of assets available for division in the proceedings. 57 Within that broad group of grounds, the appellant’s outline (paragraph 3) identifies three sub- issues or areas of challenge to the trial Judge’s determination, namely:-
(i)his findings in respect of the value of the husband’s share in the company (grounds 3, 4, 5 and 9);
(ii)his inclusion, amongst the liabilities, of the wife’s alleged debt to her mother arising from post-separation borrowings (ground 6); and
(iii)his failure to take into account, as a preliminary distribution, cash retained by the wife upon separation (ground 10).
(i) The Share Valuation
47. The husband’s challenge to the trial Judge’s valuation of his share in the company, as presented by his senior counsel 58 contains three elements. The first element (covered by grounds 3 and 4, but particularly the latter, the former being more of a general catch-all) relates to his Honour’s acceptance that the company had any goodwill to value. The second (said to be covered by ground 9) relates to his Honour’s finding that the husband’s share had any value of significance “in the husband’s hand”. The third (covered by ground 5) relates to his Honour’s adding back of the supposed value of food, entertainment and travel (enjoyed by the husband and Ms L) in his assessment of the value of the goodwill of the company.
48. However, before addressing each of those elements, in turn, and the specific grounds which raise them, it is appropriate to deal with some general submissions on issues of principle, which the husband’s senior counsel put as preliminary to his submissions on the particular grounds. 59
49. Firstly it is submitted 60 (in our view correctly) that the property to be valued was the husband’s share in the company “not the company itself, nor its business”. However, it is obvious that to obtain a value for the husband’s share in this case (it not being a minority shareholding, or one producing a dividend stream which could be valued, or one for which there is a ready and established market) one must first value the company, which may necessitate valuing its assets, including goodwill, if any, attaching to any business operated by it.
50. It is next submitted 61 that: “a share is not simply worth that fraction which it represents of the value of the company particularly when liquidation is not contemplated”. Again, as a general proposition we would accept that, if the word “necessarily” were inserted before “simply”, since it is not correct to say that the value of a share in a company can never be “simply worth that fraction which it represents ...” etc.
51. Although ground 9 (which we shall set out below) appears to challenge the trial Judge’s statement 62 that the value to be ascertained in relation to the husband’s share in the company is its value “in the husband’s hands”, it is implicitly accepted 63 (and was expressly accepted by his senior counsel in the course of his oral submissions) that his Honour was correct in so stating. As authority for that, one need only refer to Turnbull & Turnbull 64, Sapir v. Sapir (No.2) 65 and Harrison & Harrison 66.
52. It is next submitted 67 that “... goodwill is a concept which relates to business enterprises, not shares” and that “[i]f ... it had any relevance here, it was to the business conducted by the company, and not the individual shares in it”. Again, we accept that submission, but with the rider which we referred to in paragraph 49 hereof, namely that in this case, in order to value the husband’s share it was necessary to value the company and hence to value its assets, including the business conducted by it, which would necessitate valuing any goodwill attaching to that business.
53. It is next submitted 68 that “... a superprofit valuation (which is what his Honour did) is concerned with the value of the shareholder’s interest – what it is worth to him to be a shareholder (rather than, say, an employee) – and not with the goodwill of
the business conducted by the company”. It is further submitted (Outline paragraph 8) that:-
“...no valuer who gave evidence in the case adopted the approach which His Honour took, namely a superprofit basis. His Honour rejected the Husband’s experts; but the Wife’s expert, Mr [B], who was not entirely accepted by His Honour, used an ‘Assets Value on Going Concern’ basis [par 68; 2/323]. As no party had propounded a superprofit approach, not surprisingly the evidence which one would normally adduce to support it was not available to His Honour; and as His Honour did not inform the parties of the approach which he proposed to adopt, their submissions not surprisingly did not address it.”
54. We do not accept those submissions. Firstly, we were referred to no authority, judicial or academic, to support the first proposition quoted in the immediately preceding paragraph, to the effect that a superprofit valuation is not appropriate for the goodwill of the business. Secondly, whilst we accept that Mr B adopted an “Assets Value on Going Concern” basis for his valuation, we do not accept that he did not use a “superprofit approach” (in the sense in which that expression was used by his Honour in paragraph 76 of his judgment) in valuing the goodwill of the company's business as an asset of that business.
55. Mr B, in his valuation 69 calculated the value of the goodwill of the business as follows:-
(i)He adjusted the net profit of $1,737 disclosed in the company’s accounts for the year to 30 June, 1998, by adding back the following amounts for the following expenses, in order to arrive at “an accurate net profit for the business”:-
“1. Directors fees and Salaries (addition) $50,000.00 2. Rent, personal proportion $24,307.00 3. Superannuation adjusted to 6% $ 2,076.00 $ 77,583.00”
That produced an “adjusted net profit” of $79,320.
(ii)He then estimated the goodwill to be “two years purchase of the Net adjusted profit”, which would have produced a figure of $158,640, but he rounded that off to $160,000.
56.Although Mr B, in arriving at that goodwill valuation, had added back
$24,307 for what he regarded as the personal proportion of the rent paid on the premises occupied by the husband and Ms L which are also used as the company’s business premises, and $2,076 in respect of excessive superannuation contributions paid by the company in respect of the directors, he did not add back anything in respect of items charged to product expenses which he considered to be “of a private and personal nature” and “non-claimable expenditure for Income Taxation purposes”.
57. In arriving at his valuation, his Honour essentially did the same exercise as Mr B, except that he varied (downwards) the “add back” figures in respect of directors fees and rent adjustment, he varied (upwards) the add back figure in respect of superannuation (because he averaged two figures which were by then available to him for 1998 and 1999 rather than merely doubling the lower 1998 figure) and he made an additional negative adjustment in respect of the items charged to product expenses which were of a private and personal nature, and which Mr B had specifically not made an adjustment for (presumably because he had no way of assessing the amount) although he clearly considered that their inclusion in the company's expenses artificially deflated the level of its net profit.
58. Assuming for the moment that it was open to Mr B and therefore to his Honour to conclude that the business of the company had some goodwill attaching to it, and also assuming for the moment that none of that goodwill was personal to the husband or Ms L, we think it was open to them both to seek to arrive at a value for that goodwill by adjusting the net profit of the business, as recorded in the company’s accounts, for any extraordinary expenses or expenses of a purely private and personal nature relating to the directors, and to capitalise that adjusted net profit by the application of an appropriate multiplier which, in this instance, Mr B had fixed at two. That process is very akin to the commonly used valuation method of capitalising the Earnings Before Interest and Tax (“EBIT”) of an enterprise, in this instance the capitalisation rate adopted being 50%, although in that process one would ordinarily expect it to produce a value for the whole business, and the goodwill component would be arrived at by deducting from that figure the value of the net tangible assets employed in the business. In this case, however, as the net tangible assets of the business are negligible, the difference is relatively insignificant.
59. Senior counsel for the husband next addressed grounds 3 and 4, which are as follows:-
“3. That the trial Judge has erred in finding that the value of goodwill of [FF] Pty Ltd is $102,000.00 (see finding paragraph 98J).
4. That the Trial Judge erred in finding that [FF] Pty Ltd has any goodwill.
60. With particular reference to ground 4, paragraph 9 of the appellant’s Outline (as corrected, in relation to some references, during oral argument) submits [the references in brackets being, in the case of “par” to a paragraph of his Honour’s judgment, and in the case of numbers such as “2/315”, to the volume and page number of the Appeal Books]:-
“The Company had no goodwill. His Honour should have found – if it was relevant at all – that the Company had no goodwill. In this case the business conducted through the Company relied wholly on the skills of the Husband [par 100; 2/315]. Any ‘goodwill’ was personal to him (and perhaps Ms [L]) [4/530]. The company was totally dependent upon their personal skills. The company could not sell its business without selling the Husband’s personal skills, which it could not do. Without them, there was nothing to ‘sell’ and no goodwill [4.530]. There was no market for such a business [2/322]. If the Company were liquidated, ‘goodwill’ would not realise anything; the only realisable assets were the tangible assets. Adopting Mr [B’s] definition [2/321], no benefits accrued and attached to the business as a result of, inter alia, management, skills, reputation etc which contribute to the retention of existing and possible acquisition of clientele. Such benefits of that type as there were attached personally to the Husband, and not to the business of the Company. Accordingly, the finding that the Company had goodwill was wrong, and the only value in the Company was comprised by the tangible assets.”
61. Leaving aside, for the moment, the reference to paragraph 100 of his Honour’s judgment (to which we shall return below), the Appeal Book references in that submission are all to the evidence of Mr B, whose evidence his Honour preferred to that of Mr P and Mr T.
62. The first of those references (Appeal Book 2 p.315) is to the following statement by Mr B in his written report dated 30 July, 1999, which is annexure “B” to his affidavit sworn on the same date and filed on 2 August, 1999:-
“This Company trades in [an entertainment product]. The marketing, management and revenue derivation of the Company appears to be reliant on the services of the Company Directors. It is noted that of the Directors, [the husband] has extensive skills in all aspects of the business' service performance, although [Ms L] is listed in the Company records as being a [senior executive]. Documents I’ve inspected which she has signed, refers to her as a [senior executive].”
63. The last of the references in the submission quoted in paragraph 60 hereof (Appeal Book 2 p.321) is to the following statement by Mr B in his written report:-
“GOODWILL
The interpretation of this component of business value in my considered opinion, is defined as being the benefits which accrue and attach to a business as a result of such factors as:
Location, management, skills, reputation, type of service and all products, expected potential and substantive criteria which contribute to the retention of existing and possible acquisition of clientele.”
64. The second and third references in that submission (Appeal Book 4 p.530 and Appeal Book 4 p.529) are to the oral evidence of Mr B given during cross- examination by the husband’s then counsel, Mr C. Starting at Appeal Book 4 p.529, Mr C directed Mr B’s attention to an early part of his report in which he identified the purpose of his report as being: “establishing a fair market value for the business described in this report as a basis for the settlement of a Family Law matter”. The cross-examination then continued as follows:-
“Is that the purpose for which you have prepared this report?---Yes.
Would you agree with me that fair market value would be defined by you as the price paid by a willing, not anxious, purchaser to a willing but not anxious vendor?---No, I qualify that in the report later on.
Well, sir, what - - -?---That’s the normal approach one might adopt. In the case of this report here further, I made the comment that I believed for Family Law – as a Family Law matter, a fair valuation would be based on the ..... of [the husband].
That is what you have clearly said, isn’t it?---Yes.
MR C: What do you mean, sir, by fair market value in the context being used there?---Well, the same thing. Exactly the same thing.
So when you say ‘fair market value’, it is the market and [the husband] is the market, is he?---Yes.
It is not a value to any outsider?---No.
Indeed, would you agree with me, that [the husband] and Ms [L], if you remove them from this business, there would be nothing to sell in terms of goodwill?--- Both persons?
Yes?---Yes.
The value then, you say, of some $160,00 [sic.] – and you describe that as goodwill, don’t you?---Yes.
That would be the value to [the husband], would you say?---Well, yes, [the husband] basically.
What about Ms [L]?---Well, if you go further along the valuation, you will find I’ve divided the valuation between the two shareholders, one being [the husband], one being Ms [L], that’s been divided into $80,000 per shareholder.
I see, so the goodwill, as you call it, it is attributable as to one half Ms [L] and one half to [the husband], is that right?---Yes, Yes.”
Although the transcription of that passage appears incomplete in relation to the witness’ response to the third question in the passage quoted, we infer from the context that the missing words used by the witness there were probably “value in the hands of”, so that the passage should read: “... I made the comment that I believed for Family Law – as a Family Law matter, a fair valuation would be based on the value in the hands of [the husband]”.
65. The remaining reference in that submission (Appeal Book 2 p.322) is to the following passage of Mr B’s written report, under the heading “Personal Goodwill”:-
“In arriving at a valuation one must consider what the company is worth to [the husband], In this instance to consider a valuation of the business based on a sale to an arms length purchaser would not be feasible.”
66. We have already noted (in paragraph 32 hereof) that in paragraph 100 of his judgment his Honour rejected the argument advanced for the husband that “because
the business relies wholly on the skills of the directors, the goodwill is worth nothing and that, in reality, the business is merely a resource which is a manifestation of their earning capacities rather than property”. In that paragraph, his Honour said further:-
“The simple fact is that the husband and Ms [L] have chosen to operate the business through the medium of a company in which they own shares. The husband’s share is property. It has to be valued. Its value is to be ascertained in the husband’s hands. The goodwill is, in any event, a manifestation of only two years super profitability and not the income of the husband for the rest of his working life in it. The husband’s earning capacity is quite a different thing from the value of the goodwill of the business. It is not double counting to rely on both the goodwill for the purpose of s.79 and the husband’s earning capacity for the purpose of s.75(2).”
67. We think it was open to his Honour to reject the submission that because the business relies wholly on the skills of the directors the goodwill is worth nothing. Such a proposition ignores the fact that “goodwill” in relation to a business may attach to such features as the business name or its location, and many small businesses, which rely entirely on the skills of their operators (e.g. professional practices) are considered to have some goodwill. As Mr B said in his report 70 “...an ordinary person prefers taking over an existing business, rather than setting up a new business”. Certainly, an important aspect of that is the set up of an existing business, which would usually include its tangible assets, and possibly some intangible assets other than goodwill, but the mere fact that a business of a particular kind exists in a particular place and has an established business name and clientele who habitually resort to, is, or at least may be, an intangible asset (categorised as “goodwill”) of some value. As Wayne Lonergan says 71:-
“The reality is that goodwill exists because a business has a demonstrated capacity to earn cash flows exceeding the cash flow which one would normally expect if one were to invest the same level of tangible and identifiable intangible net assets in a similar business starting from scratch.”
68. At the same time, however, we think it was important for his Honour to recognise what is really adverted to in the evidence of Mr B, particularly the statement quoted in paragraph 62 hereof, and in his oral evidence quoted in paragraph 64 hereof, namely that there is a significant element of personal goodwill attaching to both the husband and Ms L in this case, which is clearly not transferable, and which, in the case of the husband at least, is really part of his earning capacity rather than property.
69. The difference between commercial goodwill and personal goodwill is described, thus, by Lonergan72, with particular reference to the valuation of professional partnerships:-
“The goodwill of professional practices may be attributable to the combined personal attributes of the partners which revolves around their skills, reputation and personal relations between each other and their clients. Alternatively it may reflect commercial goodwill which relates to their clients’ favourable attitudes towards the practice as a whole. This favourable attitude may have been gained through the reputation of the firm or through prior connections and dealings with the firm.
The value of commercial goodwill is reflected in the advantages that a prospective partner would obtain by entering into a practice with a recognisable name, established clientele, a range of services, research and precedent databases, well trained staff and recognised programmes and procedures. Personal goodwill attaches to the individual and is attached to that person’s own ability, skills, experience, training and reputation. As a general rule personal goodwill is likely to be disproportionally higher than commercial goodwill in a sole practice or small specialist practice of say two or three partners whereas commercial goodwill is likely to be of more value in a larger practice trading under a well recognised name or national or international affiliation.”
70. With respect to his Honour, we think that in saying, as he did (in paragraph 100) that “the husband’s earning capacity is quite a different thing from the value of the goodwill of the business”, he failed to appreciate the important distinction between commercial goodwill and personal goodwill and failed to have regard to that evidence of Mr B to which we have referred in paragraph 68 hereof. In valuing the goodwill of the business as he did, we think that his Honour effectively treated the personal goodwill attaching to the husband as part of the commercial goodwill attaching to the business, and this resulted in the adoption of a grossly inflated value for the business, for the company and for the husband’s share in the company.
71. Accordingly, whilst ground 4 is not strictly made out, we consider that ground 3 is.
72.Ground 9 is in the following terms:-
“9. That the Trial Judge has erred in finding that the value of the husband’s share in [FF] Pty Ltd is the value ‘in the husband’s hands’. (see finding paragraph 100J).”
73. As we have earlier noted, although that ground appears to challenge his Honour’s approach to the task of valuing the husband’s share in the company, as argued it sought only to challenge his Honour’s conclusion that that share had a value in the husband’s hands. This is clear from paragraph 10 of the appellant’s Outline, which states:-
“Share not of value in the Husband’s hands. His Honour should have found that being a shareholder conferred on the Husband no benefits which he could not have obtained as a sole trader, and accordingly that his shareholding was of no significant value to him. Although the Husband chose to carry on business through the medium of a proprietary company, there was no suggestion that there was any market for the shares, and he could just have easily carried on business as a sole trader [sic.]. If he chose to carry on his business as a sole trader, or in partnership, or through a different corporation, he would derive precisely the same benefits as he derived from being a shareholder in the Company. Being a shareholder made no difference to the benefits which the Husband derived from his skills – he could have derived the same benefits as a sole trader.”
74. That argument really covers much the same ground as we have already covered in dealing with grounds 3 and 4. We think it was open to his Honour to find that the husband’s share had some value in his hands because it conferred on him some benefits which he could not have obtained as a sole trader (e.g. the benefit of Ms L’s input into the company of which she too was a shareholder, and the benefits flowing from the continued use of the company name and reputation, in the conduct of the business, rather than his own or some other name which he might need to adopt and take time to attract clients to). However, we do not think that it was open to his Honour to place a value on that share in the husband’s hands by simply capitalising the adjusted net profits of the business, adding the value of the net tangible assets, and dividing it by two because the husband was a 50 per cent shareholder in the company. As we have said above, to do so involves attributing entirely to the business whatever personal goodwill attaches to the husband which, on any view, would be substantial in this case.
75.Ground 5 is in the following terms:-
“5. That the Trial Judge erred in ‘adding back’ to the value of goodwill of [FF] Pty Ltd $6,000 for food and entertainment, and $20,000 for travel (see finding paragraph 98J).”
76. This ground was argued independently of the previous grounds relating to his Honour’s finding about the value of the husband’s share in the company. Under this ground it was submitted that even if his Honour was correct in finding that the business of the company had goodwill, and in his method of attributing a value to that goodwill, he was in error, in calculating the adjusted net profit of the company for that purpose, in adding back $26,000 for the benefits of food, entertainment and travel enjoyed by the husband and Ms L.
77. As we have already noted, in paragraphs 35 and 36 hereof, this $26,000 which his Honour ultimately added back to the company’s profit, in the course of his valuation exercise, represented his assessment of “the value of the personal benefit the directors derived from the [entertainment product] expenses” of the company 73. However, his Honour nowhere found that these expenses were not legitimate expenses of the company. Indeed, he found 74 that “in the industry in which the company is competing, it is necessary to appear to be successful and to need to entertain lavishly and generously and to provide first quality meals …”. Nevertheless, he went on to find
75 that “the directors must have gained considerable benefit from the ability to meet a good part of their gastronomical and entertainment needs by company expense”, and “from airfares the company paid so they could travel to and stay in such places as the USA, [Europe], Western Australia, South Australia [and Asia].” Having so found, his Honour set about assigning a value to those benefits.
78. It was submitted by senior counsel for the husband 76 that his Honour’s approach to this issue was wrong in principle, for two reasons, namely:-
“(a)If the Husband had been a sole trader, he would have derived exactly the same ‘benefits’. So they did not in fact result in the Husband gaining from being a shareholder benefits which he would not otherwise have gained.
(b)If there were an hypothetical arms-length investor/purchaser who was not engaged in management of the business – which is the proper assumption for valuation purposes – the costs of such food, entertainment and travel for management would have to be paid before profit in any event. So
they must be deducted in working out the maintainable profit or superprofit.”
79. We see some merit in both of those submissions, although the first would be more attractive if, rather than referring to the benefits which the husband would derive as “a sole trader” it referred to the benefits which he and Ms L would derive as members of a partnership of which they were the only members. In that context, those benefits would more properly be seen as an aspect of their combined earning capacities rather than as an asset to which a capital value might be attributed.
80. In addition to those challenges based upon matters of principle, it was submitted for the husband 77 that the amounts of $20,000 which his Honour arrived at for the value of travel benefits and $6,000 for the value of food and entertainment benefits, were without any evidentiary foundation and based upon a process of “utter speculation” by his Honour.
81. Again, we find merit in that submission. As to the travel benefits, his Honour’s process of reasoning 78 does not disclose the evidentiary basis for his conclusion that “the directors would probably regard the free travel etc provided by the company to be worth at least $20,000 per annum to them”. His Honour began that process 79 by expressing the view that “the fairest way to value the worth of travel to the directors is to assess what they might ordinarily spend on holiday travel if they did not have the opportunity to travel at business expense”, but then referred to no evidence which might form the basis of such an assessment. Nor was our attention directed to any such evidence. Then, after making some general observations about the attractiveness of travel destinations visited by the directors for business purposes, and how they “could ... be used as stepping stones to places of their choice”, and noting that “hotels stays and meals away at company expense would be a source of direct savings”, his Honour moved directly to his conclusion referred to at the commencement of this paragraph. With respect, that process is flawed, as it involves speculation without foundation rather than assessment from an evidentiary base.
82. As to the food and entertainment benefits, his Honour attempted 80 to explain the basis for his arriving at a figure of $6,000, namely that “on average, over the 95 incidences of expenses on meals and catering, the cost was $141 for each instance,
so it is likely that the benefit to the directors was, on average, a little more than $60 for each occasion expense was so incurred”.
83. Whilst it is readily enough apparent how his Honour progressed from $60 per occasion to $6,000 per annum, it is far from clear how he concluded that out of an average cost of $141, $60 was the average benefit enjoyed by the directors. Without some analysis of the average costs on a per capita basis, and a consideration of whether one or both of the directors was present on each occasion, it seems quite arbitrary to attribute 42.5 per cent of the average cost to the directors.
84. A cursory examination of the husband’s Answers to Specific Questions delivered by the wife 81 shows that on the occasions of entertainment which apparently formed the basis of this calculation by his Honour, the number of persons present varied from 250 to 2, whilst on some occasions the number is indeterminate, those attending being described only in generic terms. We were not referred to any evidence from which his Honour could have calculated that, on average, 42.5 per cent of the expense (or any other particular percentage, for that matter) incurred at these diverse functions should be attributed to the directors. Thus his Honour’s decision to attribute that approximate percentage of the total cost to the husband and Ms L is not supported by the evidence and, in our view, involved a degree of impermissible speculation or guess work by his Honour.
85. Counsel for the wife, Mr Lloyd, sought to uphold his Honour’s findings which are the subject of this ground of appeal by submitting that as the husband had not been forthright in his disclosure of the full extent of his benefits derived from the company, it was open to his Honour to draw inferences against him in relation to those benefits. However, this is not what his Honour did. He made no finding of any relevant non-disclosure by the husband nor, in our view, does the evidence (to the extent to which it was drawn to our attention) reveal any relevant non-disclosure. All it reveals is that, like many businesses, this company, which is controlled by the husband and Ms L, pays, as part of its business expenditure, outgoings in respect of travel and entertainment which includes travel and entertainment enjoyed by its executives. If that expenditure, or some of it, is not a legitimate business expense (and, again, his Honour made no findings to that effect), it ought to be debited against the loan accounts of the
husband and Ms L with the company. Such a course might have the effect of increasing the net assets of the company, but the net effect, so far as these proceedings is concerned, would be small, because any corresponding debt of the husband to the company would also have to be taken into account. In the context of this case, the real significance of any such benefits enjoyed by the husband and Ms L, as a result of the payment of their personal travel and entertainment expenses by the business, is as a measure of their true earning capacity.
86. For the foregoing reasons, we conclude that this ground, too, has been made out.
(ii) The Alleged Debt to the Wife’s Mother
87.Ground 6 of the Notice of Appeal is as follows:-
“6. That the Trial Judge erred in finding that the Wife has a relevant liability to her mother in the sum of $45,604.00.”
88. We have already referred, in paragraph 28 hereof, to his Honour’s finding which is challenged by this ground. In support of that challenge, the husband’s senior counsel drew our attention to the fact that the wife’s mother swore an affidavit in the proceedings, which was relied upon by the wife as part of her case, in which the mother gave detailed evidence about loans and gifts made by her and her husband to the parties during their marriage, but in which she made no reference to any loans or advances made to the wife after separation. It was submitted that although his Honour was satisfied (by the production of a medical certificate) as to the non-availability of the mother for cross-examination on her affidavit, there was no explanation for her failure to address the issue of her alleged loans to her daughter, post-separation, in her affidavit, and that “her failure to address this issue warranted an inference that her evidence on it would not have assisted the wife’s case”. In support of that submission, reliance was placed upon the decision of the New South Wales Court of Appeal (Kirby P, Priestly and Handley JJA) in Commercial Union Assurance Company of Australia Ltd v Ferrcom Pty Ltd & Anor 82.
89. In that case, Handley JA 83 held, by extension of the principle arising from Jones v Dunkel 84, that a court should not draw inferences favourable to a party about an issue when that party made no attempt to adduce direct evidence about that issue from a witness called by that party who might reasonably have been expected to be able to give evidence going to that issue. Kirby P agreed with Handley JA on this point, but Priestly JA expressed no opinion on it.
90. In our opinion, that case is clearly distinguishable from this, and the principle there espoused has no application to the facts of this case. In this case his Honour did not draw an inference favourable to the wife in respect of an issue about which her mother could have given evidence. Rather, his Honour accepted the sworn evidence of the wife given directly on this issue 85. Whilst it may have been open to his Honour, if asked, to draw an inference, from the silence of the mother’s affidavit on this issue, that the mother’s evidence would not have assisted the wife’s case on this point, an examination of the transcript of the closing submissions of counsel for the husband 86 reveals that he was not asked to draw any such inference.
91. On the contrary, the submissions of the husband’s counsel on this issue 87 were limited to a submission that the debt should be omitted from consideration because it was “largely made up of borrowings for legal fees” and because “the wife has said there was no call for the money” (i.e. to be repaid). In any event, it was open to his Honour to accept the wife’s uncontradicted evidence on this issue, even if he had been asked to draw a Jones v Dunkel inference against her on her failure to adduce evidence- in-chief about it from her mother.
92.This ground of appeal is therefore rejected.
(iii) The Preliminary Cash Distribution
93.Ground 10 of the Notice of Appeal is as follows:-
“10. That the Trial Judge has erred in giving no or insufficient weight to the fact that the wife has since separation had the use of a large sum of money jointly owned by the parties.”
94. In paragraph 21 hereof we have referred to the trial Judge’s finding that at separation the parties had “cash savings of about $45,000”, and that of that sum “the husband took $15,000 and left $30,000 for the wife”. This ground challenges the correctness of that finding, in so far as it refers to total cash savings of $45,000 and to
$15,000 as having been taken by the husband. It also challenges his Honour’s treatment of the $30,000 admittedly retained by the wife.
95. For the husband it was submitted 88 that “[t]here was no evidentiary basis for the statement that they had savings of $45,000 or that the husband retained
$15,000”. In his oral submissions, the husband’s senior counsel stated that the only evidence was that the wife retained $30,000 at separation.
96. The only evidence about this came from the husband, and it is to be found in paragraphs 30 and 32 of his affidavit of evidence-in-chief filed on 12 February, 1999.
97. In paragraph 30 of that affidavit 89after stating that savings of $120,000 had been accumulated by the parties by “the end of the 1980’s”, and then stating that in the period from then until 1994 “we lived substantially on our savings” he said:
“By the time of our separation the savings had dwindled to about $45,000.”
98.Then, in paragraph 32 of that affidavit 90 the husband said this:
“At the time of separation I left approximately $30,000 in the joint account [Mr and Mrs W]. From the date of separation I did not draw any money out of that joint account. The wife has had sole use of that account and according to her evidence filed in this Court, the amount that remained in that account at the 3 March, 1998 was only $1,200 91. I do not know to what use the wife has put these funds.”
99. The wife did not respond to that evidence of the husband either in her affidavit of evidence-in-chief filed on 19 February, 1999, or in her oral evidence at the trial, and in those circumstances, not surprisingly, she was not asked any questions about it by the husband’s counsel during his cross-examination of her. The husband’s
evidence on this issue was not challenged by the wife’s counsel during his cross- examination of him at the trial.
100. In the husband’s Outline of Case Document filed for the trial, there is included, amongst the list of assets “at the date of separation” 92, in the column attributable to the wife, the sum of $30,000 described as “Amount in joint account of [Mr and Mrs W]”. The wife’s Outline of Case Document filed for the trial 93 does not contain a schedule of assets and liabilities at separation.
101. Having regard to that evidence, there is no doubt that his Honour was correct to find that the wife retained $30,000 from the joint account on separation. However, we are of the opinion that it was also open to him to find, as he did, that at separation “the husband took $15,000”, because of the husband’s evidence in paragraph 30 of his affidavit which we have referred to in paragraph 97 hereof. Thus we reject the submission that there was no evidentiary basis for that finding of his Honour.
102. It was further submitted for the husband, however, that his Honour erred in failing to include in the pool of property, as a notional asset in the wife’s hands, the
$30,000 which was “a preliminary distribution” 94 in her favour. Although not cited,
Townsend & Townsend 95 was clearly relied upon in support of that submission.
103. The trial Judge’s reasons for not including, in his calculation of the pool of assets available for division between the parties, the $30,000 retained by the wife (and, presumably, the $15,000 which he found was taken by the husband), are contained in paragraph 28 of his judgment, to which we have already referred in paragraph 21 hereof. However, we think it appropriate at this point to set out fully what his Honour said in that paragraph, as follows:-
“28. When the parties separated, they had cash savings of about $45,000.00. The husband took $15,000.00 and left $30,000.00 for the wife. He has paid a further $26,640.00 in spousal maintenance, $8,000.00 for school fees and
$5,000.00 for house rates etc. He seems to suggest that because there is now nothing left of the $30,000.00, the wife must have wasted it. There is no evidence to establish this. After all, three and a half years has now elapsed, so she spent it at the rate of less than $9,000.00 per year. Her income from her job has always been small and she has been forced to borrow from her parents in addition to that income and the savings. The payments and savings referred to by the husband are
not to be counted as contributions by the husband because, as I shall include all his income and his commencing property in his contributions, to count these payments and the savings would be double counting.”
104. With respect to his Honour, we think that that paragraph indicates that he may have misconceived what had been put to him by counsel for the husband in relation to the $30,000 retained by the wife at separation, and what was the real issue to be considered in relation to it.
105. Firstly, it would seem from the fourth sentence of that paragraph that his Honour perceived the husband’s contention to be that the wife had “wasted” the
$30,000, and that the so called “Kowaliw” principle (arising from the judgment of Baker J in Kowaliw & Kowaliw 96, should be applied. However, consideration of the submissions which were made to his Honour on this point by then counsel for the husband (Mr C) 97 makes it clear that no such submission was made, and that it was only his Honour who made any reference 98 to the possible relevance of the money being “wasted”.
106. Secondly, although the husband’s counsel began his submissions about this $30,000 with a reference 99 to post-separation contributions, and seemed to be putting that the benefit derived by the wife from the use of that sum should lead to a 5 per cent contribution disparity in the husband’s favour, it subsequently emerged clearly enough 100 that what he was contending was that this sum represented a “capital amount built up by the parties during the course of the marriage” which was “extant at separation” and used solely by the wife, and that to fail to take that into account would be unjust to the husband. Although no reference was made to Townsend’s case (supra) we think it was reasonably clear that it was to the principle enunciated by Nicholson CJ (for the Full Court) in that case 101 that his Honour’s attention was being directed.
107. Perhaps his Honour was misled, by Mr C’s initial reference to contributions, into perceiving the only issue to be whether the $30,000 retained by the wife should be seen and counted as an extra contribution by the husband. So perceived, his Honour’s answer (that if he gave the husband full credit for his contributions of income during the marriage, it would be double counting to give him a further contribution credit for savings effected from that income) would be perfectly sound.
However, in our respectful opinion, that approach misses the real point, which was that one party (the wife) had received and disposed of, since separation, an asset to which both had contributed during the marriage, and had thus received “a premature distribution of a proportion of the matrimonial assets”, to adopt the words of the Chief Justice in Townsend’s case (supra).
108. Notwithstanding that the wife had received and had the benefit of this sum, it would certainly have been open to his Honour, as an exercise of discretion, not to follow the course espoused by Nicholson CJ in Townsend (supra), if he were satisfied that the money had been expended by the wife upon the reasonable and necessary support of herself and the children. Indeed, given his Honour’s finding (which we have already upheld) that the husband also received $15,000 of the parties’ joint savings at separation, it would have been open to his Honour, as an exercise of discretion, to disregard both that amount received by the husband and $15,000 of the amount retained by the wife, on the basis of doing equity between the parties, leaving for consideration only the remaining $15,000 retained by the wife. And in relation to that amount, he might then properly have concluded (if there was evidence of it) that it was reasonably spent by the wife on the support of herself and the children, and that in the exercise of his discretion it ought not therefore be brought into the pool of assets as a “premature distribution” to the wife.
109. However, that is not what his Honour did. He decided, as a matter of principle, that the whole amount received by the wife should be disregarded, and there was in fact no direct evidence before his Honour as to how that money was expended by the wife. His Honour seems to have supposed (in the sixth and seventh sentences of his paragraph 28 quoted above) that the wife expended the money on ordinary day to day living expenses for herself and the children, and that it was reasonable for her to do so. Given the level of her income during that three and a half year period (between $200 and $400 per week 102) and the level of support provided by the husband ($26,640 plus
$8,000 plus $5,000 = $39,640 which, if divided by 182 weeks, equals $217.80 per week on average) that appears to us to be a not unreasonable conclusion, which is fortified by the fact that each of the financial statements filed by the wife claimed an excess of expenditure over income well in excess of $200 per week. 103 However, it remains the
case that there was no direct evidence on this and no submissions made to his Honour by either counsel as to how his discretion should be exercised on this point.
110. If this were the only point in the appeal, we would probably take the pragmatic view that, in the end, having regard to his Honour’s finding about the
$15,000 received by the husband, and his findings about the wife’s income and the husband’s post-separation contributions to the support of the wife and children, no real injustice was done to the husband by his Honour’s exclusion from the asset pool of the
$30,000 in savings retained by the wife at separation. However, as the appeal stands to succeed on other grounds, we shall ultimately have to consider whether to re-exercise the discretion of the trial Judge or to remit the proceedings for rehearing, in whole or part. If we decide to take the former course, then we can decide for ourselves how the discretion should be exercised in relation to the $30,000 retained by the wife and the
$15,000 taken by the husband on separation. We shall come back to that later in this judgment, if necessary.
The Apportionment
111. The second broad group of grounds addressed by senior counsel for the husband, consisting of grounds 1, 2, 7 and 11, go to the trial Judge’s apportionment between the parties of the net pool of property as determined by him. That group, in turn, contains two sub-groups, namely:-
(i)grounds which challenge his Honour’s conclusion that the parties’ contribution- based entitlements are 55 per cent to the wife and 45 per cent to the husband (grounds 1 and 11); and
(ii)grounds which challenge his Honour’s conclusion that there should be an adjustment to the parties’ contribution-based entitlements of 10 per cent in the wife’s favour (bringing her ultimate entitlement up to 65 per cent and reducing the husband’s to 35 per cent) on account of the relevant matters arising under s.75(2) of the Act (grounds 2 and 7).
(i)The Contribution Finding
112.Grounds 1 and 11 of the Notice of Appeal are as follows:-
“1. That the Trial Judge has given insufficient weight to the contributions of the husband in finding his contribution to the assets of the parties is 45% (see finding paragraph 106 judgment).
11. That the Trial Judge has erred in giving no or insufficient weight to the Wife’s use of the former matrimonial home between separation (5 January, 1996) and trial.”
113. As ground 1 identifies, his Honour made his ultimate finding on contributions in paragraph 106 of his judgment, and, as we have already noted (in paragraph 40 hereof) his Honour identified, in the next paragraph of his judgment, two reasons for his conclusion that the wife’s contribution was greater than the husband’s by a factor equal to 10 per cent of the parties’ total contributions (which means that he considered the wife’s total contributions to be 1.22 times greater than the husband’s – 55 as to 45).
114. The first reason so identified by his Honour was expressed by him in these terms 104:-
“The first is the fact that housework and parenting are not limited to weekdays, and commence early each morning and usually end in mid evening. There are no real holidays. Even during vacations, children must be cared for and some domestic tasks must be undertaken. The wife, and her parents on her behalf, provided nearly all the homemaking and parenting and the wife assisted in the family businesses.”
115. In relation to that reason, advanced by his Honour, for valuing the wife’s contributions component over the husband’s, senior counsel for the husband made the following submissions 105:-
(1)“There was no evidence that the wife’s domestic contributions were unusually burdensome or onerous”, or “as to the hours which she spent on home duties”.
(2)“No submission was made to this affect at trial”.
(3)“It might equally have been said that the husband spent long hours working and seeking work and using his personal creative skills to earn income for the parties”, but, rather than being given credit for this, the husband was criticised by his Honour 106, and the assessment of his contributions diminished, because of this.
(4)His Honour’s error was to confuse “efforts” with “contributions”, the former being “the input” and the latter “the result”: Hayne & Hayne 107. “Very large contributions can be made from minimal effort”, but conversely “very great effort can produce minimal contributions” and there is “nothing to suggest that the wife’s efforts produced superior results in terms of the welfare of the family” or “to take this case out of the ordinary”.
(5)“In so far as the basis for giving weight to domestic contributions under s.79(4)(b) is that they ‘free’ the other spouse to generate income (Dawes & Dawes 108), it is not possible for them to exceed the financial contributions which they free the income earner to make”.
116. As to the first of those submissions, it is true that there was no evidence that the wife’s domestic contributions were “unusually burdensome or onerous”, but his Honour did not find that they were. He merely found that the demands of home and children “are not limited to week days” and that they “commence early each morning and usually end in mid evening” with “no real holidays”, and even impinge on vacations. Whilst there may not have been any direct evidence of those matters, there was evidence that two children were born to the parties, the first in 1974, who lived with them throughout the remainder of the marriage, and that the husband (as his Honour found 109) spent long hours away from the home, both at or in connection with his business or pursuing his “active sporting and social life” leaving the wife to do “the lion’s share of the homemaking and parenting” and “nearly all the usual housework”. In those circumstances, it was clearly open to his Honour to draw upon his own experiences of life and to make the observation that he did about the demands of a home and children upon one parent who receives little assistance from the other in that respect. The point his Honour was really making here was that, in addition to shouldering that heavy burden, the wife also “assisted in the family businesses”, so that her contribution under s.79(4)(b) was not confined to her care of the house and children, thus freeing the husband to earn income, but included a direct contribution to the businesses and to the assets accumulated through the income which they generated.
117. As to the second of those submissions, it is true that there was no submission at trial that the wife’s domestic contributions were “unusually burdensome or onerous” but, as we have said, his Honour did not find that they were. There
certainly was a submission made at trial by counsel for the wife that the contribution assessment “would be marginally in favour of the wife” 110, and although his Honour did make statements, in the course of counsel’s closing submissions, to the effect that he was thinking along the lines that the contributions were “pretty close to 50/50” 111, he never stated definitively that he had come to a conclusion of equality, such as to lead counsel to think that they need not make submissions on contributions save to the extent that they might seek to dissuade his Honour from a finding of equality.
118. As to the third of those submissions, we are not satisfied that the trial Judge did not give full credit to the husband for the long hours he worked or sought work, and used his creative skills to earn income for the parties. He analysed the husband’s work history and his contributions from that work at some length, in paragraphs of his judgment preceding that which gave rise to this submission 112. His comments about the husband’s long hours of work and his sporting and social activities in paragraph 40 of his judgment we do not perceive as being critical of the husband or as being put forward to diminish his contributions, but rather to indicate the extent of the wife’s contribution to the welfare of the family which, naturally, was increased by those absences of the husband from the home, and also to ensure that her contribution under s.79(4)(c) was not undervalued.
119. As to the fourth of those submissions, we were not referred to any authority other than Hayne & Hayne (supra) for the proposition that, in the context of
s.79 of the Act, contributions of spouses are to be measured by reference to the results produced by their actions and not by the effort put into those actions.
120. As authorities go, Hayne’s case is only the slightest authority for that proposition. In the first place, it is a decision of a single judge only (Pawley SJ), and therefore not binding on this Court. Secondly, it was decided in only the second year of operation of the Act, and there have been very great developments in the jurisprudence relating to the Act in the 23 years since, not to mention significant amendments to the Act itself, including the amendments to s.79 effected in 1983 which were the subject of discussion by the Full Court in Shaw & Shaw 113. Thirdly, Pawley SJ’s statement in support of the proposition that “equality of effort does not mean equality of contribution” was relatively lukewarm, his Honour having merely picked up a wider
submission of counsel for the appellant which included that expression and endorsed the whole submission with the words: “I think there is a good deal of weight in this argument.”
121. The notion that the degree of effort expended by a party is irrelevant to the evaluation of the contribution made by that party, and that what counts are the results of that effort, does not sit well with the concept of contributions to the welfare of the family, including those in the capacity of homemaker and parent, which s.79(4)(c) obliges the Court to take into account, and which authority 114 teaches must be recognised not in a token but in a substantial way.
122. Whilst it may be possible (although difficult) to evaluate objectively the results of some aspects of homemaking and parenting (e.g. housekeeping), it is impossible to do so in respect of some other important aspects of that area of contribution. For example, how is the Court to objectively evaluate the results of the spouses’ efforts at parenting? Does that effort only produce a result which qualifies as a contribution if the children all turn out to be law abiding, decent, successful citizens? What if, despite the unstinting efforts of the principle homemaker and parent, a child becomes delinquent and resorts to a life of crime, or becomes addicted to alcohol or drugs? Are that spouse’s parenting efforts to be marked down to zero, in assessing his or her contributions under s.79(4)(c) of the Act? We think not.
123. Whilst it is true, as submitted by senior counsel for the husband, that very large amounts of property may be accumulated from minimal effort, and very great effort may produce minimal property, it is artificial and potentially misleading to say that contribution equals results only, and that unproductive effort can never qualify as contribution. We think the better view is that the Court should not attempt to define, too precisely, what may or may not amount to a contribution. It is a matter for the judgment of the Court, in each case, whether very great effort producing little result, or very little effort producing a great result (in terms of property) was nevertheless a significant contribution under s.79(4)(a), (b) or (c) of the Act, bearing in mind that in every case the contributions of one party are not looked at in isolation but in comparison with those of the other party.
124. The notion that contribution equals result, not effort, also sits ill with the concept of the relevance of domestic violence as a factor which may affect the assessment of contributions under s.79, as espoused by the Full Court in Kennon v Kennon 115. In his oral submissions, senior counsel for the husband submitted that the Kennon principle should be limited to its own special circumstances, namely where the other spouse is responsible for the additional effort required by the relevant spouse. If not, he submitted Kennon may have been wrongly decided. However, he did not make any detailed submissions seeking to demonstrate error by the Full Court in that case, and that fact, together with the circumstances of this case and the limited significance of the issue here, lead us to conclude that this is not a case in which it is either necessary or desirable to reconsider the correctness of that decision.
125. For present purposes, there is no need to extend the Kennon principle beyond its special facts, but it remains relevant to note that, logically, there is a degree of inconsistency between that principle, so confined, and the submission which we are currently considering. For that, and for the other reasons which we have given, we reject that submission.
126. As for the last of the submissions referred to in paragraph 115 hereof, we accept that in so far as the basis for giving weight to contributions under s.79(4)(b) is that they “free” the other spouse to generate income, it is not possible for them to exceed the financial contributions which they free the income earning spouse to make. But “domestic contributions” also count as contributions under s.79(4)(c) and, as Shaw & Shaw (supra) establishes, such contributions need have no connection with property, its acquisition, conservation or improvement, to give rise to an entitlement under s.79. Thus it is not correct to say that one spouse’s “domestic contributions” can never exceed the other’s direct financial contributions. This submission therefore does not materially advance this aspect of the husband’s challenge to the trial Judge’s judgment.
127. Accordingly, we reject ground 1, in so far as it seeks to challenge his Honour’s contribution assessment on the basis of his identification of the wife’s almost single handed (vis-a-vis the husband) performance of the homemaker and parenting role coupled with her assistance in the businesses, as one of the two “major reasons” for his reaching that assessment.
128. The second reason identified by his Honour, in paragraph 107 of his judgment, for assessing the parties’ contributions in the proportions 55/45 in favour of the wife, was that “the wife’s parents also lent and gave a considerable amount of money to the parties”.
129. We have already set out, in paragraph 13 hereof, the specific findings which his Honour made about the financial assistance provided to the parties by the wife’s parents, and those findings were not challenged on this appeal. On any view, that assistance was very substantial and, if properly treated as a contribution by or on behalf of the wife, would well justify (even on its own) his Honour’s assessment that in terms of contributions, the wife was entitled to 10 per cent more of the available asset pool than the husband. After all, 10 per cent of the parties’ “net assets and notional assets” other than the boat, as found by his Honour, amounts to about $55,800. Even if the boat realises the maximum value contended for in the proceedings but not accepted by his Honour ($325,000) the net amount to be received by the parties will be considerably less than that, after deduction of the costs of and incidental to sale and the capital gains tax which will be payable in that event. Assuming a net return of, even, say $250,000, 10 per cent of that sum represents an additional $25,000, which would increase the size of his Honour’s allowance to the wife to about $80,000. That figure, in the coin of the year 2000, seems quite modestly proportionate to amounts totalling $61,875 provided over the years from 1975 to 1991, much of it in the early part of that period.
130. The issue raised by this ground, and the submissions in support of it 116, in relation to this part of his Honour’s judgment, is whether he was correct to find, as he did 117 that these contributions by the wife’s parents were “probably made on behalf of the wife”. It was contended for the husband that that finding was not open to his Honour on the evidence, and that he ought to have found those contributions to have been made on behalf of both parties.
131. In support of that contention, senior counsel for the husband directed our attention, first to the affidavit evidence of the wife’s mother 118, secondly to the oral evidence of the wife 119, and finally to a copy of the mortgage document 120 signed by the parties at one time to secure their then indebtedness to the wife’s parents.
132. The relevant paragraphs of the mother’s affidavit are paragraphs 11, 12, 14 and 16. Those paragraphs state:-
“11. In July 1975 I loaned the applicant and the respondent husband the sum of $22,000.00 for the purchase of their home at [Suburb E] with no provision for the payment of interest. The house was purchased for $42,000.00. At that time the respondent was not working and had no borrowing capacity.
12. In June 1975 I purchased motor vehicle 1 for the applicant for the sum of $2,500.00.
14. In November 1979 I loaned the applicant and the respondent husband the further sum of $12,875.00 for the improvements to the matrimonial home.
16. In May 1991 I paid $24,000.00 for motor vehicle 2 which I gave to the applicant.”
133. The mortgage document shows the husband and wife as the mortgagors with the wife’s parents as the mortgagees, and it secures a principle sum of $30,000.
134. Senior counsel for the husband submitted that, at least in respect of the sums totalling $34,000 referred to in paragraphs 11 and 14 of Mrs Y’s affidavit (part of which seems to be the money at one time secured by the mortgage), there was thus evidence of an intent by the wife’s parents to benefit both parties.
135. The oral evidence of the wife upon which senior counsel for the husband relied, consisted of the following questions of counsel and answers by the wife during her cross-examination by the husband’s then counsel, Mr C:-
“MR C: Your parents have advanced you and your former husband moneys in the past, haven’t they?---Yes they have.
And they haven’t all had to be repaid, have they?---Yes they have. And have they all been repaid?---No they haven’t.
All right and the position is that those parts of the moneys advanced that weren’t repaid were forgiven by your parents, weren’t they?---Yes in good faith they did that when they sold a property and went back to their old house they did do
it, they discharged the mortgage.
Yes and as far as you know your parents in doing that were attempting to help you, your husband and your children, is that right?---I can only say again in good faith.
Yes?---Yes, they did help.
And indeed the whole family did receive a benefit from that, didn’t they?---The whole family has always received a benefit from them.”
136. Senior counsel for the husband submitted that when all of that evidence is taken into account there was evidence which established an intent on the part of the wife’s parents, in making the relevant gifts, not to benefit only their daughter, the wife, but to benefit both parties. It was therefore submitted that the presumption referred to by the Full Court in Kessey & Kessey 121 did not apply to this case.
137. In Kessey’s case (supra) the issue before the Full Court, as in this case, was whether a trial Judge’s conclusion, that a sum of money advanced by the wife’s mother towards the cost of some substantial improvements to the former matrimonial home of the parties was a contribution by or on behalf of the wife, was open to him. After reviewing the evidence and the authorities (including Fogarty J’s detailed analysis of earlier authorities on this topic in Gosper & Gosper 122, the Full Court (Baker, Finn & McCall JJ), in upholding the trial Judge’s conclusion, said this:-
“There is certainly nothing inconsistent, in our view, between the trial Judge’s approach and the statements of principle made by Fogarty J. in Gosper. It may well be, however, that the trial Judge’s approach and our approval of it, go somewhat further than what was said by Fogarty J. in Gosper. This is because this case would establish that where there is no evidence of any intention by a parent-donor as to whether he or she wished to benefit only his or her child or also to benefit the spouse of the child as well as the child, then the fact of the parent-child relationship, especially in circumstances where that has been a relationship of support on the part of the child, will be sufficient to establish a contribution of the donation by or on behalf of the child of the parent. In other words, a contribution by a parent of a party to a marriage to the property of the marriage will be taken to be a contribution made by or on behalf of the party who is the child of the parent unless there is evidence which establishes it was not the intention of the parent to benefit only his or her child.”
138. That case thus effectively puts the onus on the spouse who is not the child of the generous parent to place evidence before the Court that the parent did not intend to benefit only his or child, absent which the benefaction of the parent will be
presumed to be a contribution by or on behalf of the child spouse. And in interpreting that judgment it is important to recognise that in that case the property, to the improvement of which the wife’s mother’s money was put, was registered in the sole name of the husband, and also that in Gosper's case (supra), which the Full Court approved, Fogarty J had been concerned with what he described 123 as: “The critical case ... where a relative gifts property to both of the parties to [a] marriage”.
139. In our opinion, the evidence of the wife and of her mother relied upon by senior counsel for the husband is not sufficient to rebut the presumption which the decision of the Full Court in Kessey’s case (supra) effectively establishes. Certainly, having regard to the facts, both of that case and of Gosper (supra), it could not be said that the mere fact that the gift was made to both spouses, or that it was applied to property in which they both had an interest, would alone be sufficient to rebut the presumption of intent to benefit only the donor’s child. That is all that the mother’s evidence establishes, and then only in respect of part of the total gift. As for the wife’s responses under cross-examination, we share his Honour’s view, expressed in the course of counsel’s final submissions 124, that they are insufficient to prove the necessary intent on the part of the wife’s parents.
140. Accordingly, we conclude that it was open to his Honour to find, as he did, that the benefactions of the wife’s parents towards the parties were a contribution by or on behalf of the wife, and ground 1 therefore fails completely.
141. As for ground 11, the submissions did little more than restate the ground and observe that the trial Judge did not refer to in his judgment (and therefore take into account) the fact that the wife had had the benefit of the exclusive use of the parties’ former matrimonial home for over three years, from separation to trial. It is clear that this was no mere oversight by his Honour in the preparation of his reasons for judgment, since the issue was squarely raised by the husband’s then counsel in the course of his closing submissions 125 at which point his Honour indicated his intention not to take that into account as a factor affecting his assessment of the parties’ contributions.
142. In our view, this ground has no merit. As his Honour stated in the course of his debate with the husband’s counsel on this issue 126, whilst the wife may have had
the benefit of the use and enjoyment of the home, half the equity in which was the husband’s, by the same token the husband had exclusive use and enjoyment of the boat and the business, in which the wife had an equity, or at least an inchoate right arising under s.79 of the Act. His Honour made the further point in the course of that debate 127 that if the wife had been obliged to vacate the home the husband may have been called upon to contribute to her rent, in the form of interim maintenance, and we think that is also a valid point.
143. In short, we are not satisfied that in the circumstances of this case his Honour erred in principle or in the exercise of his discretion in declining to give any weight, in his assessment of the parties’ contributions, to the fact that the wife had enjoyed the use and occupation of the former matrimonial home to the exclusion of the husband. This ground of appeal is therefore rejected.
(ii) The s.75(2) Adjustment and the Ultimate Result
144.Grounds 2 and 7 of the Notice of Appeal are as follows:-
“2. That the trial Judge has erred in finding that the s75(2) factors require an adjustment of 10% in favour of the Wife (see finding paragraph 122J).
7. That the Trial Judge has erred in the exercise of discretion in finding that the husband should receive only 35% of the parties’ property.”
145. As noted in paragraph 40 hereof, his Honour undertook a detailed analysis of the relevant matters arising under s.75(2) before concluding 128 that consideration of them called for “an adjustment on the parties’ respective contributions to their property ... of 10% in favour of the wife” to “allow a just and equitable division” of the parties’ property. These grounds do not challenge any aspect of his Honour’s analysis of those relevant factors, nor do they assert that he overlooked any relevant matters or took into account any irrelevant matters. Rather, the grounds focus on the end result of his Honour’s exercise (a division of the parties’ “net property and notional property” in the proportions 65 per cent to the wife and 35 per cent to the husband), and
contend that such a result is simply not “just and equitable” within the meaning of s.79(2) of the Act.
146. The submissions of senior counsel for the husband in support of these grounds are summarised thus 129:-
“22. If the ‘starting point’ had not already been 55%, a section 75(2) adjustment of 10% might not have been unreasonable. But what His Honour failed to take into account was the very great disparity in capital positions in which that would leave the parties when superimposed on a finding that favoured the Wife 55:45 on the contributions. She would end up with 65% of the property, and, after 26 years of marriage, the Husband with only 35%.. In a case where the children had attained their majorities, the wife was in employment, there was in excess of $700,000 of property, and the Husband had made substantial financial contributions from the employment of his personal creative skills during the marriage, a result which left him with only one-third of the property was not just and equitable, and was outside the legitimate ambit of discretion.”
147. Whilst we see some merit in that submission, particularly given his Honour’s inclusion in the pool of assets of an item of $55,043 for the husband’s share in the company, the picture changes somewhat as a consequence of our determination that the appeal must succeed because of that inclusion. It will therefore be necessary for us either to re-exercise the discretion of the trial Judge or to remit the proceedings for rehearing (either in whole or part). What is clear is that either this Court, in re- exercising the discretion, or another trial Judge considering the matter on remittal, will have to give fresh consideration to the impact of the relevant s.75(2) factors having regard to the adjusted value of the total net asset pool as a result of this appeal.
148. Since the hearing of this appeal, the High court has delivered its judgment in Allesch v Maunz 130. In that case, Gaudron, McHugh, Gummow and Hayne JJ, in their joint judgment, said this 131:-
“30. Although, on an appeal by way of rehearing from a discretionary judgment, an appellate court may, itself, exercise the discretion in question by reference to circumstances as they then exist, it is not bound to do so. It may, instead, set aside the order under appeal and remit the matter for rehearing or, in terms of s 94(2) of the Act ‘order a re-hearing, on such terms and conditions, if any, as it considers appropriate.’ And where circumstances have or are likely to have changed between the original hearing and the disposition of the appeal, it is
not uncommon for an appellate court to remit the matter for rehearing rather than, itself, exercise the discretion in question.
31. If on an appeal by way of rehearing from a discretionary judgment an appellate court is minded to exercise the discretion in question by reference to circumstances as they exist at the time of the appeal, it is necessary that the parties be given an opportunity to adduce evidence as to those circumstances.”
149. In view of that statement, and the passage of time since the appeal hearing in this matter, we consider that we cannot finally dispose of this appeal without first giving the parties the opportunity to make submissions as to the effect of the High Court’s judgment in that case, and its application to the facts of this case.
CONCLUSION
150. Having regard to all of the foregoing, we propose, at this stage, to allow the appeal, set aside the relevant parts of the trial Judge’s orders, and give directions for the filing and service by each party of written submissions as to the following matters:-
(a)whether this Court should re-exercise the discretion of the trial Judge, or remit the proceedings for some form of rehearing;
(b)whether, in the event that this Court were to re-exercise the discretion of the trial Judge, it should do so on the basis of the facts found by the trial Judge, as varied by this Court’s findings, or on the basis of the facts as they may be found by this Court now to be and, if the latter, whether that party would seek to place before this Court further evidence, and if so what evidence (in outline only) that party would seek to adduce and from whom; (c) whether, in the event that this Court declines to re-exercise the discretion, the proceedings should be remitted for a complete rehearing or a rehearing limited to certain (and if so what) issues only; and
(d)any other matters considered relevant to the ultimate determination of the appeal.
We shall then stand the appeal over, for further consideration, pending the receipt of those submissions, following which we shall make such further orders as we see fit to
finally dispose of the appeal, or (if we think it more appropriate) relist the appeal for further hearing to that end.
COSTS
151. At the conclusion of the appeal hearing, when we invited submissions as to the costs of the appeal, we were advised that there had also been an appeal instituted against a subsequent order as to costs made by the trial Judge which, although deemed abandoned pursuant to O.32, r.15(5) of the Family Law Rules, was the subject of an application to this Court for re-instatement. After some discussion, the consensus seemed to be that the preferred course was to let the issues of costs, both of this appeal and as regards the appeal from the trial Judge’s costs order (“the costs appeal”), stand over until the determination of this substantive appeal, and that those issues then be dealt with by way of written submissions which we should provide for in conjunction with our substantive orders.
152. Because of the fact that our substantive orders will not now finally dispose of this appeal, we perceive that there may be reasons why the parties would not wish to make submissions on the costs of this appeal and/or on the costs appeal, until we have finally resolved all issues in the appeal. However, we shall include in our orders directions which will enable the parties to make those submissions now, if they both agree that it is appropriate to do so.
ORDERS
153. In accordance with the foregoing reasons, the orders of the Court are as follows:-
1.That the appeal be allowed.
2.That orders 3, 4, 5, 6 and 7 of the orders made herein on 25 August, 1999 be and are hereby set aside.
3.That the parties file and serve written submissions, according to the timetable set out in order 4 hereof, as to the following matters:-
(a)whether this Court should now re-exercise the discretion of the trial Judge in relation to the matters dealt with in the orders referred to in order 1 hereof, or remit the proceedings for rehearing before a single Judge;
(b)whether, in the event that this Court were to re-exercise the discretion of the trial Judge, it should do so on the basis of the facts found by the trial Judge, as varied by this Court’s findings, or on the basis of the facts as they may be found by this Court now to be and, if the latter, whether that party would seek to place before this Court further evidence, and if so what evidence (in outline only) that party would seek to adduce and from whom;
(c)whether, in the event that this Court declines to re-exercise the discretion of the trial Judge, the proceedings should be remitted for a complete rehearing or a rehearing limited to certain (and if so what) issues only;
(d)any other matters considered relevant to the ultimate determination of this appeal in accordance with the Court’s reasons for judgment published this day; and
(e)if the parties agree that it is appropriate to make submissions on costs at this time, then:-
(i)the appeal by the wife from the costs order of Cohen J of 12 November, 1999 (“the Costs Appeal”) (including the application to re-instate that appeal); and
(ii)the costs of this appeal and of the costs appeal.
4.That unless the parties otherwise agree in writing or the Court or a Registrar otherwise orders, the submissions referred to in order 3 hereof be filed and served in accordance with the following timetable:-
(a)the appellant husband’s submissions within 14 days after the date of these orders;
(b)the respondent wife’s submissions within 10 days after receipt of the husband’s submissions; and
(c)the appellant husband’s submissions in reply (if any) within 7 days after the receipt of the wife’s submissions.
5.That each party endorse on the cover sheet of any submissions filed pursuant to these orders the date of service thereof on the other party.
6.That each party have liberty to apply to the Registrar for the relisting of the appeal for further argument or for any other procedural directions upon 4 days notice to the other party.
7.That, subject to any further order or direction of the Court or Registrar, the appeal be stood over for further consideration and final determination, following the receipt of the submissions referred to in order 3 hereof.
1 Appeal Book p.9 paragraph 4
2 Appeal Book p.10 paragraph 8
3 Appeal Book p.11 paragraph 10 to Appeal Book p.12 paragraph 16
4 Appeal Book p.12 paragraph 17
5 Appeal Book p.13 paragraph 18
6 Appeal Book p.11 paragraph 9
7 Appeal Book p.10 paragraph 6
8 Appeal Book p.10 paragraph 6 and Appeal Book p.12 paragraph 12
9 Appeal Book p.20 paragraph 44
10 Appeal Book p.19 paragraph 43
11 Appeal Book p.11 paragraphs 10 and 11
12 Appeal Book p.11 paragraph 11
13 Appeal Book p.11 paragraph 11
14 Appeal Book p.12 paragraphs 13 and 15
15 Appeal Book pp.18 & 19 paragraphs 40, 41 & 42
16 Appeal Book p.18 paragraph 40
17 the same
18 Appeal Book pp.13-14 paragraphs 20-23
19 Appeal Book p.14 paragraph 25
20 Appeal Book p.17 paragraph 35
21 the same
22 Appeal Book p.17 paragraph 36
23 Appeal Book p.17 paragraph 38
24 Appeal Book p.14 paragraph 26
25 Appeal Book p.15 paragraph 27
26 Appeal Book p.15 paragraph 28
27 Appeal Book p.15, paragraph 29
28 Appeal Book p.18 paragraph 39
29 Appeal Book p.20 paragraph 44
30 Appeal Book p.21 paragraph 47
31 Appeal Book p.21 paragraph 48
32 Appeal Book p.22 paragraphs 51 & 52
33 Appeal Book pp.22-25 paragraphs 52-61
34 Appeal Book p.25 paragraph 62
35 Appeal Book pp.25-40 paragraphs 63-101
36 Appeal Book p.40 paragraph 101
37 Appeal Book p.25 paragraph 63
38 Appeal Book p.39 paragraph 99
39 Appeal Book p.25 paragraph 63
40 Appeal Book p.39 paragraph 99
41 Appeal Book pp.39-40 paragraph 100
42 Appeal Book p.322
43 Appeal Book p.27 paragraph 68
44 Appeal Book p.36 paragraph 91
45 Appeal Book p.36 paragraph 91
46 Appeal Book pp.37-39 paragraphs 92-98
47 Appeal Book p.40 paragraph 101
48 Appeal Book p.40 paragraph 101
49 Appeal Book p.40 paragraph 102
50 Appeal Book p.41 paragraph 104
51 Appeal Book p.41 paragraph 105
52 Appeal Book p.41 paragraph 106
53 Appeal Book pp.42-47 paragraphs 108 to 121
54 Appeal Book p.47 paragraph 122
55 Appeal Book p.47 paragraphs 123-124
56 Appeal Book p.47 paragraph 124
57 The appellant’s “Outline of Oral Argument” actually refers to ground 11, rather than ground 10 in this group, but from the nature of the submissions and the fact that ground 11 is included in the next group, whereas ground 10 is not elsewhere included, we have deduced that the ground intended to be referred to here is ground 10 not ground 11.]
58 Outline of Oral Argument, paragraph 5
59 Appellant’s Outline paragraphs 6, 7 and 8.
60 Appellant’s Outline paragraph 7.1
61 the same
62 Appeal Book p.40 paragraph 100
63 Appellant’s Outline, paragraph 6
64 (1991) FLC 92-258 at 78,738 (per Baker J)
65 (1981) FLC 92-047 at 77,543 (per Young J, of the Supreme Court of New South Wales)
66(1996) FLC 92-682 at 83,087 (per Full Court)
67 Appellant’s Outline paragraph 7.2
68 Appellant’s Outline paragraph 7.3
69 Appeal Book pp.323-4
70 Appeal Book p.322
71 “The Valuation of Businesses Shares and Other Equity”, Second Edition at 243
72 the same at 204
73 Appeal Book p.37 paragraph 92
74 Appeal Book p.37 paragraph 94
75 Appeal Book pp.37-38 paragraph 94
76 Appellant’s Outline paragraph 11.2
77 Appellant’s Outline paragraphs 11.3 & 11.4
78 Appeal Book p.38 paragraphs 95 & 96
79 Appeal Book p.38 paragraph 95
80 Appeal Book p.39 paragraph 97, final sentence
81 Appeal Book pp.236-272
82 (1991) 22 NSWLR 389
83 at 418-9
84 (1959) 101 CLR 298
85 That evidence is contained in section H of the wife’s Financial Statement sworn on 29 July, 1999, at Appeal Book p.306, and in the wife’s oral evidence at Appeal Book pp.374 and 380-382.
86 Appeal Book pp.695-724
87 Appeal Book pp.716-7
88 Appellant’s Outline, paragraph 14
89 Appeal Book p.152
90 Appeal Book p.153
91 Appeal Book p.65
92 Appeal Book p.334
93 Appeal Book pp.339-344
94 Appellant’s Outline paragraph 14
95 (1995) FLC 92-569
96 (1981) FLC 91-092
97 Appeal Book pp.698-700
98 Appeal Book p.699 line 26
99 Appeal Book p.698 lines 2-7
100 from Appeal Book p.699 line 12 to p.700 line 28
101 at 81,654
102 Judgment paragraph 39 at Appeal Book p.18
103 Appeal Book pp.60 and 300
104 Judgment paragraph 107 at Appeal Book p.42
105 Appellant’s Outline paragraph 18
106 Judgment paragraph 40 at Appeal Book p.18
107 (1977) FLC 90-265
108 (1990) FLC 92-108
109 Judgment paragraph 40 at Appeal Book p.18
110 Appeal Book p.694 line 10
111 e.g. Appeal Book p.693 line 1
112 Judgment paragraphs 29, 30, 31, 35 and 36 at Appeal Book pp.15-17
113 (1989) FLC 92-010 at 77,290-3
114 e.g. Rolfe & Rolfe (1979) FLC 90-629 at 78,273, approved (on this point) in Mallet v Mallet (1984) FLC 91-053 at 79,111
115 (1997) FLC 92-757
116 Outline of Argument paragraph 19
117 Appeal Book p.11 paragraph 9
118 Appeal Book p.170
119 Appeal Book p.382
120 Appeal Book p.173
121 (1994) FLC 92-495 at 81,150
122 (1987) FLC 91-818
123 (1987) FLC 91-818 at 76,168
124 Appeal Book p.697
125 Appeal Book pp.700-702
126 Appeal Book p.702 line 15
127 Appeal Book p.702 lines 1-6
128 Judgment paragraph 122 at Appeal Book p.47
129 Outline of Argument paragraph 22
130 (2000) FLC 93-033
131 at 87,517
PROPERTY – Value of property – Whether it is necessary to include the value of any goodwill attaching to a business when valuing shares held in a company – Whether goodwill is worthless if the business relies wholly on the skills of the director – Whether personal goodwill is distinct from the commercial goodwill which attaches to a business.
PROPERTY SETTLEMENT – Contribution by one party’s parents – Whether the presumption of intent to benefit only the donor’s child is rebutted if the gift is made to both parties, or applied to property in which both parties have an interest.
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3
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