Warnick & Warnick
[2024] FedCFamC2F 749
•14 June 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Warnick & Warnick [2024] FedCFamC2F 749
File number(s): MLC 871 of 2022 Judgment of: JUDGE HARLAND Date of judgment: 14 June 2024 Catchwords: FAMILY LAW – practice and procedure – property – husband seeks to reopen the evidence to obtain evidence with respect to tax from a single expert – the wife opposes the husband’s application – if the case is reopened, the likelihood of evaluation being updated and other figures in the asset pool Legislation: Federal Circuit and Family Court of Australia Act 2021 (Cth), s.190
Family Law Act 1975 (Cth) s.75(2)
Income Tax Assessment Act 1936 (Cth) Division 7A
Cases cited: Baghti & Baghti and Ors (No 2) [2014] FamCAFC 204
Briggs on behalf of the Boonwurrung People v State of Victoria [2024] FCA 288
Chisler & Gatenby [2019] FamCA 200
Correia & Davila [2019] FamCA 558
Elgin & Elgin [2015] FamCAFC 155
Gelley & Gelley [1992] FamCA 92
Gresham & Gresham [2023] FedCFamC1F 49
Inspector-General in Bankruptcy v Bradshaw [2006] FCA 2
Khadem & Penk [2020] FamCAFC 211
Mallard & Mallard [2011] FamCA 876
McDermott & McDermott and Ors [2016] FamCA 613
Pfenning & Snow [2016] FamCA 29
Reid v Brett [2005] VSC 18
Rogers & Rogers (No 2) (2016) FLC 92-712
Rosati & Rosati (1998) FLC 92-804
Smith v New South Wales Bar Association (1992) 176 CLR 256
Spotlight Pty Ltd v NCON Australia Ltd (2012) 46 VR 1
Summit [2009] FamCA 365
Summit & Summit and Ors (Re-opening) [2009] FamCA 365
Smith v New South Wales Bar Association (No 2) [1992] HCA 36
Trevor & Trevor [2016] FamCA 756
Division: Division 2 Family Law Number of paragraphs: 81 Date of hearing: 23 May 2024 Place: Melbourne Counsel for the Applicant Mr Robinson Solicitor for the Applicant Sage Family Lawyers Counsel for the Respondent Dr Matta Solicitor for the Respondent Coote Family Lawyers ORDERS
MLC 871 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: MR WARNICK
Applicant
AND: MS WARNICK
Respondent
ORDER MADE BY:
JUDGE HARLAND
DATE OF ORDER:
14 JUNE 2024
THE COURT ORDERS THAT:
1.Leave is granted to the parties to reopen proceedings to adduce evidence with respect to B Pty Ltd operating via B Pty Ltd ATF Warnick Family Trust, C Pty Ltd, and D Pty Ltd (the Warnick Group).
2.Within 28 days of the date of these Orders, a single expert be appointed on the joint instruction of the parties to advise on the implications for Mr Warnick if the Court orders he retain B Pty Ltd operating via B Pty Ltd ATF Warnick Family Trust, C Pty Ltd, and D Pty Ltd including but not limited to:
(a)Updated valuation of the business B Pty Ltd including all plant and equipment in the event the business is wound up and if the business continues to operate as a going concern as at 30 June 2024.
(b)An assessment of the quantum of the unpaid present entitlements and retained earnings held in the Warnick Group (the Unpaid Present Entitlements) as at:
(i)30 June 2022;
(ii)30 June 2023;
(iii)30 June 2024; and
(iv)The current date (in the event there is a significant delay in the evidence being obtained).
(c)Advice on the options for management of the Unpaid Present Entitlements;
(d)Identification of loans (as defined under Division 7A Income Tax Assessment Act 1936 (Cth) and advice on the options for the management of Division 7A loans for the years:
(i)30 June 2022;
(ii)30 June 2023;
(iii)30 June 2024; and
(iv)The current date (in the event there is a significant delay in the evidence being obtained.)
(e)Assuming the business continues to operate as a going concern, advice on the options, including any tax effective schemes, for the management of:
(i)The Unpaid Present Entitlements for the Warnick Group;
(ii)Retained Earnings for the Warnick Group; and
(iii)Division 7A Loans for the Warnick Group.
(f)An assessment of the retained earnings held in C Pty Ltd as at:
(i)30 June 2022;
(ii)30 June 2023;
(iii)30 June 2024; and
(iv)The current date (in the event there is a significant delay in the evidence being obtained.)
(g)An assessment of the losses in the D Pty Ltd entity and the use of those losses in the event the business is wound up or if the husband retains the business to reduce the liabilities owing.
(h)Advice on the options for management of the Retained Earnings.
(i)The likely tax payable by the husband as a result of the different options for management of the Unpaid Present Entitlements and Retained Earnings of the Warnick Group.
(j)The tax payable associated with the operation of business in the 2023/2024 financial year.
3.For the purposes of the appointing single expert(s), the husband shall provide the wife with the name of three proposed valuers and the wife is to nominate an expert from that list within seven business days of receipt.
4.In the event the wife does not nominate the expert(s) within seven days of receiving the husband’s nominated valuers, the husband be at liberty to nominate the relevant single expert.
5.The parties do all acts and things to cause the expert fees to be paid from the funds currently held on trust by the wife’s solicitors.
6.There be no orders as to costs.
7.The matter be listed for Mention on 30 August 2024 at 9:30am to take place in person at the Melbourne Registry
8.In the event there is a delay with the production of the single expert report, the parties be at liberty to apply to Chambers with respect to the adjourned date.
9.The application in a proceeding filed 1 May 2024 and the response to an application in a proceeding filed 20 May 2024 is otherwise dismissed.
10.Order 3 of the Orders made 5 March 2024 be discharged.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Part XIVB of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish an account of proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym has been approved pursuant to subsection 114Q(2) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
JUDGE HARLAND
The husband seeks to reopen proceedings prior to judgment being reserved in order to adduce evidence from a single expert in relation to the tax implications of him being forced to retain the business, B Pty Ltd operating via B Pty Ltd ATF Warnick Family Trust, and C Pty Ltd. The wife opposes the application. The application was forcibly argued and opposed and both parties seek indemnity costs from the other. For reasons I shall explain, I find it is in the interests of justice for the proceedings to be reopened. The scope of reopening must be broader than the Orders sought by the husband in order for the Court to be able to finally determine a just and equitable outcome between the parties. The parties will incur further costs and the proceedings will be prolonged, but both parties and their solicitors must take responsibility for that.
BACKGROUND
This matter was listed for a four day final hearing commencing on 11 December 2023 and was adjourned part heard and listed for a further two days commencing on 4 March 2024.
Orders were made on the final day of the hearing, 5 March 2024 for the following:
1.The Respondent file and serve written closing submissions by 4.00pm on 2 April 2024.
2.The Applicant file and serve written closing submissions by 4.00pm on 30 April 2024.
3.The Respondent file and serve written closing submissions in reply by 4.00pm on 14 May 2024.
4.Upon receipt of the last of the parties’ closing written submissions, judgment be reserved.
The husband filed the application to reopen on 1 May 2024. I heard the application on 23 May 2024 and reserved my reasons for decision.
The business B Pty Ltd has operated throughout the course of the marriage with the income generated being the primary source of financial support for the parties and their family.
B Pty Ltd is operated by B Pty Ltd ATF Warnick Family Trust (“the Trust”). The corporate beneficiary of the Trust is C Pty Ltd. The husband is the appointor of the Trust, the director/shareholder of B Pty Ltd, and the sole director and shareholder of C Pty Ltd. Due to the structure of the entities, all tax consequences arising from the operation of the business and the related entities are borne by the husband.
Prior to the commencement of the final hearing, the wife sought final orders for B Pty Ltd and its entities to be wound up as found in Annexure A of the wife’s minute of orders sought contained in her further, further, amended initiating application filed on 22 November 2023. The husband also sought for B Pty Ltd and its entities be wound up in his minute of orders sought in Annexure A of his further, further amended response filed on 1 December 2023.
B Pty Ltd’s plant and equipment was valued by Mr E and attached to his affidavit filed on 17 November 2023. The plant and equipment was valued at market value of $697,500 as at 22 November 2022 as a going concern. In his financial statement relied upon by the husband at the trial filed 1 December 2023, the husband states that “the business position has changed” and values the plant and equipment at $350,000. In his trial affidavit he refers to the change of circumstances being the write off of Motor Vehicle 1, the sale of Motor Vehicle 2, which was included at $375,000, and the reduction of the balance of the business account being $267,000. In an email from the wife’s solicitors dated 26 April 2024 to the husband, the wife’s position in adopting the value figure of $582,000 for the plant and equipment owned by the business was simply a “commercial approach”. It is unfortunate that the parties have not taken a “commercial approach” more generally as the parties have incurred an extraordinary amount of costs. The way this application has been argued by both sides and the voluminous amount of correspondence between the solicitors is an example of this. There has been a lack of proportionality and reality testing in favour of point scoring. This was also apparent at the trial.
B Pty Ltd was valued by Mr F and attached to his affidavit filed on 23 November 2023. Mr F valued the company as of June 2022 at $1,252,800 as a going concern. He also acknowledged the related party loans that also need to be considered as part of the matrimonial pool which consists of $33,563 of tax paid owed to the wife, a loan of $369,425 owed to the parties, and a total of $1,959,816 of unpaid present entitlements owed to the husband and C Pty Ltd.
The unsatisfactory state of the evidence with respect to the tax liabilities was the subject of exchanges between the Bench and Counsel on the first day of the trial and was revisited on the third day of the trial.
The issue of the lack of evidence with respect to the taxation liabilities associated with B Pty Ltd was first raised before the Court on the first day of the final hearing by both Counsel. Counsel for the wife referred to Mr F’s disclaimer regarding not taking the tax liabilities into account.[1]
MR MATTA: I do this because I’m forecasting, your Honour, this matter to – when your Honour’s sitting in chambers and drafting your reasons for judgment, having heard the way each party has opened their case. My learned friend indicated that, about $870,000, being the monies held in my instructor’s trust account, $65,000 from the shares, and about $280,000 from the other [G Company] shares, be effectively quarantined and applied to discharge any tax liabilities. That’s $870,000, or 30 per cent of their pool. Now, what I would be submitting to your Honour, and what I’ve dealt with in my opening submissions, and if I wasn’t clear about it, I just need to clarify it now, is that taking a two-pool approach, as my learned friend is asking your Honour to do, one would have thought that the percentage alteration of the party’s interest in the property is significantly informed by how much one is dividing.
And if you take almost a million dollars off the balance sheet, and your Honour won’t know what’s going to happen because, assuming your owner reserves and delivers reasons for judgment well prior to 30 June 2024, then my client’s stuck with an outcome. If my learned friend succeeds and persuades your Honour that it’s the appropriate course, then my client’s stuck with an outcome where she receives a portion of question mark, whatever’s left over, which is a significant portion of this balance sheet.
If this was a 10, 15, 20 million dollar pool, and we’re talking about, you know, five per cent or six per cent, then one would say that it works out in a wash, but I’m somewhat concerned that in the absence of taxation evidence as to what the estimated tax liabilities are, that your Honour would be placed in an invidious position of having to work out what orders, or fashioning orders that would be just and equitable in all the circumstances. I just thought – it somewhat behoved me to mention that at this early stage, rather than dealing with it after your Honour has heard all the evidence or indeed if your Honour considers the matters in chambers and calls parties back in before you to answer that particular question.
[1] Transcript Day 1, Pg 18, Line 33 to 47 - Pg 19, Line 1 to 14.
The lack of single expert evidence was acknowledged and Counsel for the wife also flagged that there was a dispute as to how the company should be wound up with the wife wanting something different. There was no evidence about this process and no proposal as to who it would be by either party. Significantly the wife’s Counsel acknowledged these difficulties from the outset but resists this being belatedly fixed.
On the third day of the final hearing, the tax implications and liabilities of the business B Pty Ltd was again raised. After the lunch adjournment, Counsel for the husband submitted that the parties had reached an agreement, and that as part of any orders made by the Court which may include the winding-up of the business, the sale of the business and the funds currently held on trust in the wife’s solicitors’ trust account and the subsequent sale of proceeds of G Company shares would meet any liabilities that may arise from the sale of the business. The outstanding issue left for determination would be the mechanics of how the company would be wound up.[2]
[2] Transcript, Day 3, Page 117, Line 6-47.
On the final day of the trial, Counsel for the husband submitted that the wife had changed her position and sought for the husband to retain the business. The husband’s Counsel raised the issue of the tax liabilities being unknown if the husband is to retain the business. I foreshadowed that it may be that the husband would have to apply to have the evidence reopened.[3]
[3] Transcript, Day 6, Page 400, Line 45 – Page 401, Line 30.
DOCUMENTS RELIED ON
The husband relied on the following documents:
(1)Application in a Proceeding filed 1 May 2024;
(2)Affidavit filed 1 May 2024;
(3)Outline of Case filed 17 May 2024;
(4)Written submissions filed 20 May 2024; and
(5)Extracts from previously filed documents in the proceedings.
The wife relied on the following documents:
(1)Response to Application in a Proceeding filed 20 May 2024;
(2)Affidavit filed 20 May 2024;
(3)Outline of Case filed 21 May 2024; and
(4)Written submissions filed 20 May 2024.
ISSUE IN DISPUTE AND THE PARTIES’ RESPECTIVE APPLICATIONS
The issues I must determine are:
(1)Should leave be granted to reopen proceedings?
(2)If in the affirmative, what is the scope of further evidence required to do justice between the parties?
(3)Should there be an order for costs?
In summary, the husband seeks the following orders:
(1)Leave be granted to reopen proceedings; and
(2)The appointment of a single expert in order to obtain evidence with respect to the tax implications associated with him being forced to retain the business B Pty Ltd.
Counsel for the husband relied on various case law authorities with respect to the principles to be considered in an application to reopen.[4] The husband places much emphasis on what he refers to as being an agreement reached between the parties during the trial, which meant there was no need to identify the tax liabilities as they would crystallise in the sale of the business.
[4] Smith v New South Wales Bar Association (No 2) [1992] HCA 36, Reid v Brett [2005] VSC 18, Gelley & Gelley [1992] FamCA 92, Summit [2009] FamCA 365, Mallard & Mallard [2011] FamCA 876, McDermott & McDermott [2016] FamCA 613, Gresham & Gresham [2023] FedCFamC1F 49.
In summary, the wife seeks that the husband’s application be dismissed on the following basis:
(1)The retention of the business by the husband will not necessarily necessitate the requirement to have regard to any of the taxation liabilities.[5]
(2)The closing submissions by the wife filed 30 April 2024 proposes an alternate means of arriving at an outcome where the business is wound up and the wife is to obtain a further adjustment pursuant to s.75(2) of the Family Law Act 1975 (“The Act”).
(3)If the parties are unable to agree on the value of the business and if it is to be retained by the husband it may require further evidence or submissions requiring the parties to incur yet further costs.
(4)It is unclear as to whether the evidence proposed to be adduced by the husband will have a material effect on the outcome.
(5)The prejudice to the wife caused by the additional stress of the litigation and the interests of justice being better served by finality in the litigation.
[5] Rosati & Rosati (1998) FLC 92-804, Pfenning & Snow [2016] FamCA 29, Rogers & Rogers (No 2) (2016) FLC 92-712.
It is the wife’s position that the husband bears the onus of establishing the requisite injustice to reopen the trial[6] and that given the husband’s submissions, it does not appear that the interests of justice are better served in granting the application, particularly so given the ongoing costs that the parties will incur. The wife’s approach of making a further 10% adjustment in her favour under s.75(2)(o) does not solve this problem.
[6] Summit & Summit and Ors (Re-opening) [2009] FamCA 365.
In the event that leave is granted to reopen proceedings, the wife’s position is that the letter of instruction be in the terms as proposed by her and marked as Annexure A to her response to an application in a proceeding , that the husband pay the costs to obtain further evidence, and that she be granted leave to file further written submissions on the question of the value of the business.
LEGAL PRINCIPLES
The Court has a discretion to grant leave to a party to reopen their case after the final hearing has concluded with judgment being reserved and before judgment has been delivered if the Court is satisfied that it is in the interests of justice to grant the application rather than refuse it. The discretion should not be exercised lightly. In this case, the evidence has concluded, but written submissions in reply remain outstanding. Judgment has not yet been reserved.
The comments of the Full Court in Baghti & Baghti and Ors (No. 2) [2014] FamCAFC 204 are applicable here:
[15] In the context of applications to reopen an unperfected judgment or order, it has long been held that “the jurisdiction is not to be exercised for the purposes of re-agitating arguments already considered by the Court; nor is it to be exercised simply because the party seeking a rehearing has failed to present the argument in all its aspects or as well as it might have been put” (Autodesk Inc v Dyason (No. 2) (1993) 176 CLR 300, per Mason CJ at 303).
The questions considered in exercising that discretion have been considered in a number of cases.[7] The types of matters the Court should consider include:
(a)The nature of the proceedings;
(b)Is the further evidence material to the issues in the proceedings?
(c)If further evidence was accepted would it probably affect the outcome of the case?
(d)Could this further evidence have been discovered earlier with reasonable diligence?
(e)Will the other parties be prejudiced by the late admission of further evidence?
(f)Will the admission of further evidence require an adjournment?
(g)The public interest in finality of litigation.
[7] Khadem & Penk [2020] FamCAFC 211; Correia & Davila [2019] FamCA 558; Trevor & Trevor [2016] FamCA 756; Chisler & Gatenby [2019] FamCA 200.
Whilst several authorities refer to the factors, there is little guidance as to the approach the Court should take in instances to the exercise of its discretion where the evidence could have been obtained but was not, and where there is a delay in bringing a subsequent application. The overarching principle emerging from authorities however it is whether or not in the circumstances of the particular case the Court is better able to serve the interests of justice in allowing the application to reopen.
APPLICATION TO REOPEN
Counsel for the husband submits that the evidence that he seeks to adduce in relation to the tax issues is relevant in particular to the considerations and the matters the Court is obliged to consider, in that the Court will be unable to properly quantify the liabilities and the impact on the husband without this evidence. The husband included estimates to various tax liabilities in the balance sheet but said the estimated income tax for the 2024 financial year, including with respect to the sale of the business is not known, and the estimated tax to be paid as a result of raising a dividend to clear the retained earnings in the company could be between $550,000 and $860,000 depending on the process used. In his written submissions, the husband refers to the tax associated with the unpaid present entitlements ranging from $121,000 and $781,000. This is a wide range.
The husband argues that as the wife failed to engage with respect to the tax issues that he raised prior to the trial, he did not obtain evidence as to the tax liabilities of the business and says it was reasonable for him to conclude that his proposal of winding up the business which would crystallise tax liabilities was an agreed position. This is somewhat unsatisfactory. In order to determine what property orders are just and equitable, the Court is obliged to identify the parties’ existing legal and equitable interests at the time of the trial. This also includes liabilities.
The husband deposes to having attempted to engage with the wife regarding tax issues prior to the final hearing relying on various correspondence between the parties as found in his supporting affidavit filed 1 May 2024 and summarised below:
(1)16 August 2023: Letter provided to the wife including a summary of anticipated tax consequences associated with the management of unpaid present entitlements, sale of shares, winding down of entities, and dealing with associated tax as produced by H Firm. It includes two tax scenarios. The first scenario results in tax on the dividends in the company being $101,693, and the second being $654,424. As can be seen from these two estimates, there is a significant difference in the two scenarios.
(2)24 August 2023: Wife writes to the husband confirming the joint position of the winding up of the business and proposes the engagement of a single expert to provide an opinion as to the costs associated with winding up the business. This letter does not refer to the letter dated 16 August 2023.
(3)5 September 2023: Husband responds to the wife’s letter of 24 August 2023 in that it is premature to engage single experts in relation to the winding up of the business as it was not clear at that time whether there was a dispute and that a single expert could be engaged if the dispute was not resolved following a meeting between their respective accountants.
(4)19 September 2023: Wife responds that she is in the process of obtaining advice, and that her position remains that it is appropriate for the parties to engage a single expert in relation to the liquidation and that this issue be revisited once the wife has received advice in relation to winding up the business.
(5)5 October 2023: Husband seeks clarification if the wife has received any tax advice regarding the winding down of the entities and offers his accountant to meet with the wife’s accountant to discuss tax estimates, and that he should be made aware if there is a dispute. No response was received to this letter.
(6)27 October 2023: Husband again writes to the wife stating that ‘unless we hear otherwise from you by 31 October 2023, [Mr Warnick] will presume that [Ms Warnick] accepts the estimates provided by [Mr Warnick]’s accountant.’ No response was received to this letter.
(7)2 November 2023: The husband writes to the wife raising his concern that the wife will raise issues that require single expert evidence which will render the final hearing unable to proceed and offers the wife to provide by 6 November 2023 the names of three proposed single experts she seeks to engage with, their estimated costs and a summary of the advice sought. Again, no response was received. The wife does not address this in her supporting affidavit.
The husband extracts excerpts of the transcript of the third day of the final hearing in his supporting affidavit. Counsel for the husband complains that the correspondence between the solicitors does not reflect the fact that the letters were talking about single experts for different things. With the wife’s solicitors suggesting that a single expert be appointed and the husband’s solicitors responding as to whether or not there is a dispute, one being the winding up of the business, the other being ascertaining the tax liabilities.
It is then apparent from the further exchange that one of the many disputes between the parties in the lead up to the trial was the timing of the winding up of the business with the wife wanting it to be wound up straight away and the husband not wanting it wound up before the trial, as the parties would no longer have the benefit of the income from the business that covered the parties’ expenses, including the wife’s interim maintenance.
What is clear from the exchanges annexed to the husband’s supporting affidavit is that the parties appeared resolute in seeking agreement with regards to their respective positions in the case, with the husband seeking the appointment of a single expert to value the tax liabilities, and the wife appointing a single expert to assess the windup expenses. Neither party engaged in the other’s position. The obvious question arises as to why the parties did not turn their minds to a single expert being appointed to provide evidence with respect to the treatment of the tax liabilities and the costs of winding up the company. It would have been sensible to focus on that and addressing both issues at the same time, rather than continuing to engage in correspondence with the trial looming ever closer.
It is the husband’s position that there was an agreement to the windup of entities and crystallisation/payment of tax liabilities. The wife disputes this. As mentioned above, this was made clear on the third day of the trial with the husband’s Counsel referring to the parties reaching an agreement regarding winding up the various business entities and certain funds being held on trust to cover the liabilities as they arise.
Counsel referred to one of the key issues being the losses in the D Pty Ltd entity and the use of those losses by the parties, which would reduce the tax. Counsel for the wife referred to the impediment being the fact that Mr K is not a party to the proceedings and the company being in his sole name. I observe that the wife had raised joining the parties’ other son Mr L, as a party to the proceedings in the correspondence annexed to the husband’s supporting affidavit, although clearly, she did not proceed with that course of action. The husband’s Counsel submitted at trial that the husband had a short conversation with Mr K about him being joined to the proceedings. However, the wife’s Counsel intervened, complaining that they had received late tax scenarios in relation to D Pty Ltd and that Counsel had not quite worked out how to deal with that and that his submission would be that those should be excluded from the balance sheet. Counsel goes on to complain about it being unsatisfactory that there is not a crystallised balance sheet. I must point out that those submissions on this point were disingenuous, given the issues raised in correspondence between the parties on these points prior to the trial as referred to above.
The parties engaged Mr F from J Firm to provide the market value of the company as at 30 June 2022 as a going concern. At paragraph 20 of his report, Mr F states that consideration of the potential tax liabilities is beyond the scope of his engagement, and he has not considered the tax exposure, if any, with respect to the forgiveness of debts between related parties, unrealised capital gains tax, income tax, or Goods and Services Tax (“GST”) upon future realisation of specific assets within the entity. Both parties were clearly on notice before the trial that there were tax issues that had to be addressed.
At the interlocutory hearing, the husband’s Counsel submitted that there is clear evidence of liabilities which arises from the expert report of Mr F which is not before the Court, and that the evidence is clearly relevant to the Court’s discretion. This submission is incorrect. The parties relied on the affidavits of the valuers at the trial. Their affidavits were included in the Court Book. They were not required for cross-examination. In the joint balance sheet, the parties agreed on the figure of $582,000 for the realisable assets from the sale of the business.
Mr F in his affidavit, further notes that it is beyond his expertise to independently assess the appropriate income for those working in the business and that would require an independent remuneration expert. It is not the case that he gives “clear evidence” of the liabilities.
The husband’s emphasis on the wife changing her position last minute and alleging poor conduct during the course of the proceedings seeks to divert attention from the husband’s decision not to call evidence about the tax liabilities. The husband also emphasises the fact that in the wife’s particularised orders sought in her amended application filed 17 July 2023, sought that the business be wound up and that the husband’s position throughout the proceedings has been that the business should be wound up. I accept this is so, but this does not address the fact that the parties and their legal representatives were well aware of the deficiencies in the evidence before and during the trial. The transcript of the trial makes this plain.
The wife submits that she “has not, and does not” resile from her position with respect to the agreement reached on the third day of the final hearing, being that the business be sold and that the sale of G Company shares and funds held in the wife’s solicitors’ trust account pay the outstanding liabilities associated with the winding up of the business, in the event that findings are made to sell the business, and that she does not seek to adduce evidence of those liabilities prior to the winding up. The wife’s response is unhelpful. Given the issues involved and the range of potential outcomes, I have little confidence that there would not be further argument between the parties. It also does not sit easily with the submissions made by Counsel for the wife at the trial referred to above.
The wife summarises various aspects of the husband’s evidence given whilst under cross-examination, whereby the evidence given indicates that the husband intended to give the business to Mr K and Mr L, and that he had taken no steps to implement a sale of the business whilst continuing to operate. It is the wife’s submission that the evidence given by the husband during cross-examination casts significant doubt as to whether or not the husband intends to wind up the business and cease operating, or whether he intends to recommence the business under a new structure. The wife deposes that she had instructed her Counsel on the final day of the hearing to communicate to the husband’s Counsel about seeking orders for the husband to retain the business, and that when this was raised it was indicated that an application may need to be brought.
The wife also makes it clear that it was the husband’s answers in cross-examination that causes her to have real doubts that the husband’s stated intention of winding up the business is bona fide. I accept that this is a live issue.
It is the husband’s position that further evidence would most likely affect the result of my reasons for decision in for the substantial proceedings. The wife’s Counsel challenges this. Given the broad ranges of figures the husband refers to and the fact that the parties are arguing about asset and liability pools that are significantly different, it is hard to be precise about this.
In written submissions on the reopening, Counsel for the husband quoted the following paragraphs in Elgin & Elgin [2015] FamCAFC 155:
[199] Senior counsel for the husband further submitted that it was the trial judge’s obligation to be satisfied that all of his orders, including the taxation indemnity, were just and equitable. In effect, counsel argued that the trial judge could not be so satisfied when faced with the unchallenged and unequivocal statement of the single expert that the taxation consequences “must be considered”.
[200] Although it would have been highly desirable for those representing the husband to have emphasised to the trial judge the significance of the single expert’s caveat, and proposed a form of order to deal with it, we nevertheless consider there is merit in the submission now made by the husband that the trial judge erred in failing to take account of the unequivocal warning of the expert.
[201] We are fortified in our view by noting that the trial judge told counsel at the outset of the trial that he had read the entire report of the single expert, apart from the attachments. Paragraph 2.11 appears in the body of the report and not in the attachments. We find further support for our view in the fact that it was not contended that there was any way the husband would be able to satisfy the wife’s entitlements without extracting funds from companies, which would have inevitable tax consequences.
[202] Although, as was pointed out from the bench, it was the husband who wanted to retain the corporate structure, we do not accept that this means it was for him to agitate for the tax consequences to be considered. It could equally be argued that it was the wife who sought to be free of entanglement with the corporate structure, and to be indemnified against at least some tax liabilities, and that it was therefore incumbent on her to persuade the Court of the merit of her claim. This is especially so where she had not challenged the statement of the expert that the tax consequences “must” be taken into account.
[203] In the absence of evidence about the amount of the tax; in the absence of submissions relating to the tax; and in the absence of any reason for leaving the husband responsible for all the tax, we consider it was impossible for his Honour to be satisfied that his orders were just and equitable. Given the unfortunate way the matter had been conducted, we consider it was essential for the parties to have been given an opportunity to make submissions about the proposed form of orders, and the way in which the taxation burden would be shared, in order to bring about the intended equal division of the assets.
In response to this, Counsel for the wife relied on authorities which refer to the Court not being obliged to take liabilities that are uncertain into account.[8] The difficulty is that it is less a matter of them being uncertain, but a gap in the evidence as to what they will be and then they can be addressed. These passages are relevant as I am in a similar position of there being insufficient evidence to enable me to determine a just and equitable outcome.
[8] Rosati & Rosati (1998) FLC 92-804, Pfenning & Snow [2016] FamCA 29, Rogers & Rogers (No 2) (2016) FLC 92-712.
The husband’s Counsel at the interlocutory hearing submitted that the liabilities may be valued at approximately $900,000 which forms a significant part of the asset pool which the wife seeks for the husband to retain. The husband refutes the suggestion that if the liabilities are not immediately payable, then it would not be an issue, and that the reality is that although the liabilities may be minimised if the husband were to continue working, it does not have the effect of the liabilities being zero.
In written submissions, the wife submits that the husband did not take action to adduce further evidence, and that he closed his case and filed his written submissions on 28 March 2024, despite the written submissions acknowledging that the wife sought for the husband to retain the business and that this position created a “significant lacuna” in the evidence, with submissions being made as to why the business should be wound up. The husband had made the forensic decision to proceed with closing his case despite being made aware that the wife would be seeking orders that he retain the business. There is some force in this argument particularly given the potential need to bring an application to reopen was clearly flagged on the last day of the trial.
The orders sought by the wife were provided to the husband on 27 March 2024, which indicated that she sought for the husband to retain the business and associated entities.
The husband’s solicitors wrote to the wife’s solicitors on 17 April 2024, two and a half weeks after the husband filed written submissions seeking that she “revert to the original agreement in relation to the sale of the business” otherwise an application to reopen would be made. The husband’s solicitors sent further correspondence on 19 April 2024 after receiving further advice from H Firm. The wife responded on 26 April 2024 confirming that the orders she sought were sent to the husband on 27 March 2024, six days prior to when written submissions were due confirming that the wife’s position was made clear at the conclusion of the trial, and that the husband had four weeks to consider bringing an application but elected not to do so. The husband then confirmed his intention to proceed with an application to reopen on 29 April 2024.
It was submitted by the wife’s Counsel at the interlocutory hearing that the contention made by the husband in that it was not clear that the wife was seeking for the husband to retain the business should be rejected. Counsel relied on the fact that a joint balance sheet was produced at the conclusion of the final hearing to the husband which deleted the unpaid present entitlements tax liabilities, and that it was clear despite the mechanics that those tax liabilities ought to be excluded. The updated joint balance sheet submitted by the parties on 5 March 2024 reflects that the wife has not attributed a value to the liability with the box being empty with the husband estimating $550,000.
At the interlocutory hearing, Counsel for the wife provided two options before the Court with respect to dealing with the liabilities being that the liabilities be deducted, or discounted. As I indicated on that day, the difficulty with this submission is that I am unable to do so based on the various scenarios provided as there is no evidence in order to make a finding as to the appropriate scenarios to use. Despite the submissions, it is clear from the exchanges between the parties that the husband had received advice based on a few different scenarios and the range of the tax liabilities was large. If the tax liabilities are as high as $900,000, it is difficult to see how the wife could say that this would not impact on the outcome. If the liabilities are more likely to be $200,000, then there is more merit to the wife’s argument. However, the issue is somewhat clouded by the fact that even in the balance sheet submitted on 5 March 2024 the parties are contending for vastly different pools.
At the interlocutory hearing, Counsel for the husband submitted against what they perceived was an estoppel argument raised by the wife. The suggestion that the wife’s change in position on the last day of the trial and the fact that the husband had filed written submissions on 28 May 2024 that they are therefore estopped is a novel argument to be made and should be rejected. Counsel submitted that this evidence was not available on the final day of the trial, and that the suggestion that an application in a proceeding should have been made on the final day of the trial or earlier should be rejected.
I interjected and pointed out that even if the evidence could have been sought earlier, the nature of the evidence is quite significant that it needs to be reviewed in the interest of justice.
Counsel for the husband submitted that the wife was the “architect” of the issue before the Court, and that her change in position is what necessitates the need for the evidence and that the wife has had ample opportunities through correspondence between solicitors to engage with the issue. It was further submitted that because of the wife’s conduct, any prejudice that may be borne by the wife is outweighed by the evidence that is required, and the significance of which is due to the percentage of how much the tax liabilities may represent in the asset pool.
The assertion that the wife is the “architect” of the issue was rejected by the wife’s Counsel and that the husband was put on notice about the wife’s intention that she seeks orders for the husband to retain the business.
What the husband’s Counsel fails to engage with is the wife’s argument that the evidence the husband gave under cross-examination was such that she now has real doubts that the husband intends to wind up the business and that what he wants to avoid is paying the wife a share of the business whilst giving the business to their sons under a new entity. There is some force in that submission. As I indicated during the trial, I had real concerns about the credibility of aspects of both parties’ evidence about critical issues which include the extent of the family violence, and whether the husband truly seeks to wind up the business or hopes to give the business to his sons or to continue the business with them perhaps under another name. It is clear that the husband wanted to somehow quarantine the business from the property settlement.
The wife’s solicitors wrote to the husband on 8 May 2024, indicating that the application should have been filed prior to the filing of written submissions which effectively closed his case. They raised the wife’s concern that the application would enlarge the dispute, requiring further evidence and her preference to do so without the need for further hearing, requesting the confirmation of three experts including a draft joint letter of instruction, and in the event the husband is ordered to retain the business a valuation of the net assets.
On 13 May 2024, the husband’s solicitors confirmed that enquiries had been made of four experts, a copy of a proposed joint letter, and that the husband did not agree to retaining the business nor provide a valuation of the business. The wife’s solicitors responded to this letter on 14 May 2024 requesting confirmation as to whether the husband accepted that in the event orders were made for him to retain the business he would accept the existing liabilities, and that in acknowledging this the wife would accept that the husband maintains he does not seek to retain the business. The husband’s solicitors replied that day and that the queries sought by the wife do not have a material impact on her considering the resolution of the application and that the husband did not accept the contention set forth by the wife, and that further expert evidence was required due to the wife’s failure to engage prior to the final hearing with respect to tax evidence and the wife seeking that the husband retain the business.
The wife on 16 May 2024 wrote to the husband seeking clarification as to whether the husband would seek orders for the inclusion of tax liabilities on the balance sheet, seeking for the names and estimated fees of proposed single experts which had not been provided, and again whether the husband would accept that in the event orders were made for him to retain the business he would accept the liabilities of accrued employee entitlements. The letter further indicates that the quantum of unpaid present entitlements and retained earnings for the 2021 financial year was not required as the returns have already been filed, and that the wife agrees that the unpaid present entitlement in the financial year ending 2021 was $831,131 with retained earnings of $705,440. The husband’s solicitors responded on 17 May 2024 confirming that all tax liabilities associated with the business needed to be quantified and included in the balance sheet, provided the names of the three single experts, and disagreed with liabilities regarding employee entitlements.
Again, these correspondences reflect a failure by the parties to grapple with the core issues in favour of maintaining their respective stances.
I do not accept the husband’s Counsel’s submissions that the evidence could not have been discovered earlier with due diligence. This is clearly not the case as both Counsel were aware of the live issues in the lack of evidence as to the quantum of tax liabilities and unretained earnings. Both parties were keen to press on with the trial. Adjourning the trial would have resulted in Court dates being wasted. This is still too common an occurrence despite the obligations on the parties and legal representatives at compliance and readiness hearings and trial management hearings.
To make matters worse, the trial went significantly longer than Counsel estimated requiring an additional two days of evidence with the parties then having to prepare written submissions.
I do not accept the husband’s argument that it was only after the wife filed her written submissions and amended minute of order that it was apparent to him that he would need to file further evidence. There is no satisfactory application from the husband as to why he did not file this application until 1 May 2023. I accept the lateness of the application causes some prejudice to the wife, primarily as it will draw out the proceedings and involve further costs. However, the wife’s approach did not properly engage with the issue. There is fault on both sides. Additionally, the scope of the reopening will have to be broader than what is sought by the husband. The business valuation is almost two years out of date. The plant and equipment valuation is also old and will need to be updated. Given the delays that are likely to be incurred due to the need to obtain this evidence, it is likely that the other values on the balance sheet will also have to be updated.
It will not be known whether or not further dates will have to be allocated for the continuation of the trial until the further evidence is obtained.
Counsel for the wife in written submissions addresses various authorities with respect to the Court’s discretion of reopening proceedings with having regard to the public interest in maintaining finality of the litigation and that the overriding principle to reopen is that it must be in the interests of justice in the proceeding.[9] There are four recognised categories which may justify the granting of leave to reopen, however these categories are not closed.[10]
[9] Smith v New South Wales Bar Association (1992) 176 CLR 256 at 265, Briggs on behalf of the Boonwurrung People v State of Victoria [2024] FCA 288 at 20, Inspector-General in Bankruptcy v Bradshaw [2006] FCA 22 at 24, Briggs at 22.
[10] Spotlight Pty Ltd v NCON Australia Ltd (2012) 46 VR 1 at 25-26, Bradshaw at 24.
Counsel refers to the fact that there would be difficulty to see why the primary consideration should not be that of embarrassment or prejudice to the other side,[11] and the difficulty with husband’s submissions is that the retention of the business must include the crystallisation of any and all tax liabilities within the entities to be retained by him. Whereby the Court is not required to take into account a liability depending on the nature and circumstances of the liability, including when it will crystalise.[12] This ignores the fact that the issue had been flagged on several occasions. Further, both parties have benefited from the business in supporting their lifestyles for many years.
[11] Smith v New South Wales Bar Association (1992) 176 CLR 256 at265, [32].
[12] Rosati & Rosati (1998) FLC 92-80, Pfenning & Snow [2016] FamCA 29, Rogers & Rogers (No 2) (2016) FLC 92-712.
In written submissions, Counsel for the wife notes that the evidence relied upon by the husband from his accountant is predicated on an analysis where all remaining unpaid present entitlements are fully dealt with by the end of the 2024 financial year, and that at this stage there is no further evidence that will probably impact the result to the extent that it will be necessary to reopen. I do not accept this argument. The further evidence will address the issue of how to deal with the tax liabilities and unpaid entitlements. It will not necessarily be an all or nothing approach.
It was also submitted by the wife’s Counsel in written submissions that the husband failed to address the final criteria in Reid v Brett [2005] VSC 18 which is that “no prejudice would ensue to the other party by reason of the late admission of the further evidence”.[13] The wife relied on the findings of Murphy J in Summit & Summit and Ors (Re-opening) [2009] FamCA 365 where the application to reopen was denied on the basis that the value of the properties had been reduced due to the impact of the global financial crisis and ongoing issues with the supply of water to farming land.
[13] Reid v Brett [2005] VSC 18, 41.
The wife has concerns that the reopening of proceedings will prolong the dispute between the parties, requiring further cross-examination and the preparation of further written submissions. It is the wife’s case that the husband has not advanced as to why there has been a change in his position despite being made aware of the orders that the wife would seek since the final day of the final hearing, which causes a significant prejudice against the wife. The difficulty with this argument is that the wife was just as aware as the husband about the significance of this issue and the gap in the evidence. It is not the husband’s responsibility to ensure there is evidence before the Court which enables it to discharge its obligations to make orders that are just and equitable to the parties.
SINGLE EXPERT APPOINTMENT
At the interlocutory hearing, Counsel for the husband indicated that an updated valuation of the business may take up to eight weeks.
The husband made enquiries of various experts and has supplied the names of three experts for the wife to consider.
The husband seeks for the wife to pay the costs of the single expert given the circumstances of the appointment. If this submission is rejected, the husband seeks that the wife pay the costs of the single expert from the funds held by the wife’s solicitors.
CONCLUSION
The reality is that both parties have failed to ensure that the Court has evidence of the parties’ existing legal and equitable interests as of the date of the trial. It was clearly something that both parties’ solicitors were aware of. There has been considerable delay by the husband in bringing the application to reopen and his contention that he could not have brought the application earlier with due diligence must be rejected. However, the wife’s position does not deal with the reality of the situation.
Whilst they expend considerable energy pointing the finger at the other party, both parties must bear some responsibility for this. This is not a matter where the parties did not turn their minds to these issues. The credibility concerns with respect to important aspects of both parties’ evidence heightens these concerns. It is a reflection of the level of conflict and distrust between the parties, and it seems that the solicitors have failed with regard to their obligations to the Court with respect to the overarching purposes.
As I indicated during the course of argument, given that the remainder of the trial will be significantly delayed, it is necessary to update the valuation of the plant and equipment and the business as a going concern, and in the event it is wound up other values may also need to be updated.
The interests of justice require the application to succeed, but it cannot be limited to just the tax liabilities. I will make orders for the parties to adduce evidence of the following:
(1)The estimated tax liabilities of all the associated entities in the event the business is wound up;
(2)The costs associated with the winding up of the business and the most cost and tax effective way of doing so;
(3)The value of the business as at 30 June 2024; and
(4)The use of the tax losses in D Pty Ltd to reduce the parties’ tax liabilities.
Whilst Mr K has not been joined as a party to these proceedings, it is clear that the parties have provided significant financial support to Mr K for his business. The husband is the director of D Pty Ltd.
Updated figures for all items on the balance sheet will need to be provided, given that by the time that evidence is obtained the figures provided by the parties in their joint balance sheet submitted on 5 March 2024 will be outdated. This will need to be addressed at the directions hearing in August.
The costs notices filed on 22 May 2024 and 23 May 2024 by the parties respectively demonstrate that the parties have paid a combined total of approximately $945,252.52 in legal fees. Between the periods of 8 December 2023 and 23 May 2024, the wife has incurred a further $163,243.74, while the husband has incurred a further $147,155.25 between 8 December 2023 and 22 May 2024. I acknowledge that this includes a further two days of hearing and preparing written submissions. Nonetheless the amount of costs incurred by the parties is concerning as is the volume and tone of the correspondence between the parties. The Court reminds the parties and legal representatives of their obligations under the overarching purpose set out in s.190 of the Federal Circuit and Family Court of Australia Act 2021 (Cth):
190 Overarching purpose of civil practice and procedure provisions
(1) The overarching purpose of the civil practice and procedure provisions, in relation to the Federal Circuit and Family Court of Australia (Division 2), is to facilitate the just resolution of disputes:
(a) according to law; and
(b) as quickly, inexpensively and efficiently as possible.
Note 1: For civil practice and procedure provisions, in relation to the Federal Circuit and Family Court of Australia (Division 2), see subsection (4).
Note 2: The Federal Circuit and Family Court of Australia (Division 2) must give effect to principles in the Family Law Act 1975 when exercising jurisdiction in relation to proceedings under that Act.
(2) Without limiting subsection (1), the overarching purpose includes the following objectives:
(a) the just determination of all proceedings before the Federal Circuit and Family Court of Australia (Division 2);
(b) the efficient use of the judicial and administrative resources available for the purposes of the Court;
(c) the efficient disposal of the Court’s overall caseload;
(d) the disposal of all proceedings in a timely manner;
(e) the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute.
(3) The civil practice and procedure provisions, in relation to the Federal Circuit and Family Court of Australia (Division 2), must be interpreted and applied, and any power conferred or duty imposed by them (including the power to make Rules of Court) must be exercised or carried out, in the way that best promotes the overarching purpose.
(4) The civil practice and procedure provisions, in relation to the Federal Circuit and Family Court of Australia (Division 2), are the following, so far as they apply in relation to civil proceedings:
(a) the Rules of Court;
(b) any other provision made by or under this Act or any other Act with respect to the practice and procedure of the Federal Circuit and Family Court of Australia (Division 2).
Both parties have contributed to the current impasse and neither has been entirely successful.
The usual rule is that each party pays their own costs. Given the way both parties have approached the issue, it is appropriate that the parties pay their own costs of the application to reopen.
I will make the orders as set out above.
I certify that the preceding eighty-one (81) numbered paragraphs are a true copy of the Reasons for Judgment of Judge Harland. Dated: 14 June 2024
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