Webb & French

[2009] FamCA 357

FAMILY COURT OF AUSTRALIA

WEBB & FRENCH [2009] FamCA 357

FAMILY LAW – PROPERTY SETTLEMENT – value of husband shares in a company whose sole asset was shares in another company which owns a motel and caravan park– all of the shares were transferred to husband’s mother and the company wound up and deregistered - argument by wife that an informal family agreement provided for the husband to receive a greater share of the sale proceeds of the motel and caravan park than was reflected in his shareholdings – valuations undertaken by single experts of realty and shares - nil value attributed to the shares formerly held by husband

Family Law Act 1975 (Cth)

Biltoft (1995) FLC 92-614
Prince (1984) FLC 91-501
Carruthers (1996) 21 Fam LR 12
Rosati (1998) FLC 92-804
Coghlan (2005) FLC 93-220
Gould and Gould (2007) FLC 93-333

APPLICANT: Ms Webb

RESPONDENT: Mr French

FILE NUMBER: SYF 247 of 2006

DATE DELIVERED: 6 May 2009

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Moore J

HEARING DATE: 20 & 21 April 2009

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Maurice

SOLICITOR FOR THE APPLICANT: Johnson Horsley Lawyers

COUNSEL FOR THE RESPONDENT: Mr Alexander

SOLICITOR FOR THE RESPONDENT: Hilton King Lawyers

Orders

1. As soon as practicable but on or before one (1) month from this day each party is to do all things and sign all documents necessary to cause the funds presently invested on the parties’ behalf and held by Access Business Lawyers to be paid out as follows:

   (i)       the sum of $110,605 to the wife;

   (ii)      the sum of $46,985 to the husband;

   (iii)any remaining balance to be distributed to the wife and the husband equally.

2. Subject to order 1, each party is entitled to retain absolutely all property of whatsoever nature, including superannuation, presently owned by that party and in the control or possession of that party. 

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

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYF 247 of 2006

MS WEBB

Applicant

And

MR FRENCH

Respondent

REASONS FOR JUDGMENT

[Despite their divorce, the parties will be referred to as ‘wife’ and ‘husband’ to assist in editing this judgment for anonymity and for ease of reference]

Proceedings

1. This is the determination of proceedings for property settlement. 

Background

1. The wife (40) and the husband (42) began their relationship in 1989 although they did not live together until their marriage in April 1993.  They have two children: a daughter (13) born in August 1995 and a daughter (11) born in December 1997.  They separated in February 2006.  On 28 August 2006 consent orders were made about the children’s care arrangements: they live with their mother and spend time with their father each alternate weekend during school terms from Friday afternoon to Sunday afternoon, each Wednesday for a few hours after school, and for half of their school holidays.  These arrangements changed late last year in that their father also collects them from school in the afternoons. 

2. The husband has since remarried.  He and his wife have no children together but his wife has a daughter (7), from a previous relationship.  They manage the S Motel in circumstances to be elaborated shortly. 

3. The wife has not remarried and though she has been in a relationship for the past year or so they do not live together and there are no present plans to alter that.  She works full time as a personal assistant. 

Orders sought

1. The wife instituted these proceedings on 25 July 2006.  The orders she sought at the time were amended at the outset of the hearing [exhibit 2] and she now seeks to retain all of the proceeds of sale of a jointly owned property which have been invested pending the outcome of these proceedings and she otherwise proposes each retain all the other assets they presently have, including superannuation.  At that time the husband also amended the orders he had sought in his original response.  He now proposes [exhibit 1] that $30,000 be set aside from the sale proceeds invested for a contingent tax liability and after that is resolved what is available be distributed 55/45 in his favour, the balance of the funds be distributed 60/40 in his favour, and they each retain all other assets they now have, including superannuation. 

Approach

1. The distribution of property is governed by the provisions of s 79 of the Family Law Act 1975. The Court is not to make an order altering the interests of parties in property unless it is satisfied in all the circumstances that it is just and equitable to do so. In considering what order to make, if any, the Court is required to take into account various contributions - direct and indirect, financial and non-financial, to the welfare of the family including in the capacity of homemaker - described more particularly in s 79(4)(a) – (c), the effect of any proposed order on the earning capacity of either party, and the matters referred to in s 75(2) so far as they are relevant, and any other order made under the Act affecting a party. It is well established that this involves in most cases these sequential steps: (i) the identification of the parties’ property and its’ value; (ii) an evaluation of the parties’ contributions; (iii) an evaluation of the adjustment necessary, if any, to the contribution assessment by reason of any relevant matters in s 75(2); and (iv) finally, consideration whether the outcome fits the legislative requirement to arrive at a just and equitable outcome.

Evidence

1. That process is to be applied to their current net assets and have regard to the material features of their financial history.  That comes not only from the evidence of the parties but also from witnesses they called, lay and expert.  Single experts were engaged to value certain real estate and the husband’s shares in a company and more will be said of that in due course.  While there are issues surrounding his interest in that company, and in the company in which it holds shares, there was no challenge to the opinions the experts expressed in their reports - so far as they go.  The wife called evidence from Ms N French, her former sister-in-law, who is in dispute with the husband’s brother over their property entitlements but reliance on the evidence of two property developers was abandoned.  For his part, the husband called evidence from members of his family - his mother; his brother, Mr T French, and his sister, Ms B – and he also called evidence from his accountant, Mr N. 

Credit

1. Some of the history is agreed or not disputed but different versions are given of some events.  On the question of who could be seen as giving the more reliable report of the facts, shortcomings could be identified in the evidence they each gave; for example, the wife readily agreed that statements she had made on oath in her affidavit were incorrect and, while the husband gave a plausible explanation for not initially declaring his superannuation with Hostplus, some aspects of his evidence were in conflict with other evidence given in his case, more particularly by his brother.  But in the final analysis this case does not turn on a decision about who can be believed or who can be relied on to give an accurate account of the history; it revolves around the value to the husband of any interest he has [or had] in property known as the S Motel, which has been in his family for many years, and whether or not it is reasonable to expect he will derive financial benefit from any such interest in the foreseeable future – even if the wife’s version of some events is accepted and put at its highest.  That aside, their differences about other developments are not sufficiently material to make any difference to the outcome and controversies can be mediated without having to choose one account over the other. 

Core issue

1. Before coming to that history it will be convenient to summarise what some of the evidence reveals about this core issue of the husband’s interest in and expectation of receiving some benefit from the S Motel, much of which is taken from the undisputed report of the single expert, Mr S, who was engaged to value the husband’s shares in M Pty Ltd. 

   (a)The S Motel consists of a motel, a restaurant and function centre, and a caravan park 

   (b)The owner of the land and improvements and the operator the business conducted on the property is H Investments. 

   (c)At an earlier time [including when the parties’ relationship commenced] the shareholders of H Investments were the husband’s father, who held 2 ordinary shares and M Pty Ltd who held 32 A class shares.  The Articles of Association are not in evidence and so the rights attaching to those shares are not apparent.  On the death of the husband’s father in 2001 his wife, the husband’s mother, became the owner of his 2 ordinary shares. 

   (d)The history of appointment of directors of H Investments is apparent from the ASIC extract but it will suffice to say here that directors currently are the husband and his mother.  He became a director after his brother had resigned in December 2006 [registered with ASIC March 2007]. 

   (e)The management of the businesses operated from the S Motel has been in different hands over time, including more recently the husband’s and his wife’s, and there have been times when one or more of the components making up the S Motel have been leased by H Investments to others to operate. 

   (f)According to the report of Mr S, H Investments has been operating at a loss for a number of years.  Indeed, for all of the years of operation he reviewed it has not made a profit and the draft 2008 financial accounts [exhibit 14] tell the same story.  Losses have been funded by shareholder loans, including an advance by the husband’s mother of $526,000 in the 2006/07 year, and a commercial bill facility from the National Australia Bank secured by a fixed and floating charge over the company’s assets. 

   (g)Turning to M Pty Ltd, this company was put into voluntary liquidation recently and deregistered.  Before that, the share structure was divided into several classes whose rights are established by the Articles of Association attached to Mr S’s report.  The husband’s mother held the 11 management shares [10 were held formerly by her husband] which gave her voting control and her other shares gave her other rights of no particular relevance here.  The other shares were held by her three children in equal proportions; in particular, the husband held 10 C class shares and thus was a minority shareholder.  As the Articles indicate, the C class shares – as with all shares in class A to J - had attached to them the right to be paid out of profit a fixed cumulative preference dividend 7% per annum on the paid up capital, to receive capital on winding up after payment of capital to the holder of the management shares, participation in distribution of surplus assets, and one vote per share [as distinct from the 5 votes attached to every management share].  As a proportion of profit share, Mr S calculated the husband entitlement at 20%. 

   (h)The history of the appointment of directors to M Pty Ltd is apparent from the ASIC extract but more recently and before deregistration they were the husband [after his brother’s December 2006 resignation] and his mother.  Directors had the discretion to determine payment of dividends. 

   (i)M Pty Ltd’s only asset was its shares in H Investments and the financial accounts before deregistration showed it had a liability to the husband’s mother for $152,975. 

   (j)The property owned by H Investments was valued by a single expert as at February 2008 at $2.75 million as a going concern.  The valuer recorded in his report the bases of his opinion, including the various assumptions he made such as approvals related to encroachments on to adjoining public land.  He came to that opinion by adopting the average of a value of $2.6 million based on capitalisation of estimated net profit from the constructed trading profit and loss account and a value of $2.9 million based on direct comparison for the motel and capitalisation of net operating profits from the caravan park. 

   (i)That value was taken by Mr S to the financial accounts of H Investments to arrive, after various adjustments for reasons noted in his report, at a value of $16,982 for H Investments which was then taken to the financial accounts of M Pty Ltd to give a deficit in value for the shares of that company of $136,992 – the reason being the deduction of the debt owing to the husband’s mother.  It follows that he valued the husband’s interest in M Pty Ltd at nil. 

   (j)In March 2009 M Pty Ltd was deregistered after voluntary winding up and the wife advised of this through her solicitors on 16 April.  This followed a series of decisions taken the previous November and December which saw the 32 A class shares held by M Pty Ltd in H Investments transferred to the husband’s mother for no consideration [exhibit 8] and thus she became the owner of all the shares in H Investments which owns the S Motel.  After that M Pty Ltd had no assets and a debt to the husband’s mother of $152,975 and so it was wound up and deregistered.  The reasons given by the husband for this exercise relate, in effect, to the disposition of a company that had no useful purpose and was not motivated by any intent to dispose of an asset worth anything to him.  How the company’s debt to his mother was dealt with in the process was not explained by anyone but the existence of the debt was not questioned. 

2. For all but a period of about 13 months between April 2006 and May 2007, the husband has been involved in the S Motel since 1992 in one role or another and it will be convenient to outline that before going on to the other history:

   (a)Between 1992 and September 1998 he leased from H Investments and operated the caravan park. 

   (b)He relinquished the lease in September 1998 at his father’s request and was then employed by H Investments in a managerial capacity.  At the time of his father’s death in 2001 his brother T French was the Managing Director of H Investments and the husband was Assistant Manager.  They each undertook different roles. 

   (c)In 2003 he and his brother T each lent to H Investments $25,000 to help meet its liabilities and for the husband’s part that was borrowed from the ANZ Bank.  H Investments repaid the debt to both, as Mr N explains, during the 2004/05 year. 

   (d)Differences arose between the husband and his brother, at least from the point of view of the husband who considered his efforts were outstripping his brother’s. 

   (e)In April 2006 the enterprise was leased to L Pty Limited who installed their own management.  As will be noted later, there was at the time a proposal for L Pty Ltd to buy the S Motel.  The husband left the business and his brother T remained solely responsible for the management of H Investments. 

   (f)Later in 2006 the husband says his mother expressed concerns about mismanagement of H Investments, it was not meeting its various obligations such as payment of tax, superannuation, or workers compensation, not completing business activity statements and it had overdrawn its bank account.  He took this up with his brother who resigned as a director and from then the husband says he has been trying to sort out H Investments’ finances.  He alleges that his brother has used substantial funds for purposes unrelated to the operation of H Investments – he nominates no particular amount and gives no indication of the impact of it on the present financial position of H Investments – but he goes so far in his oral evidence as to call it embezzlement. 

   (g)From May 2007 or thereabouts the husband returned to the employ of H Investments as manager and his wife also became an employee.  At the time of his return he arranged for the eviction of L Pty Ltd for non-payment of rent [his evidence is that L Pty Ltd owed H Investments $180,000 but they have since gone into liquidation], he entered into various arrangements with creditors, and he has been operating the various components within the business for H Investments since. 

   (h)The husband and his wife both work full time for H Investments and have been living on the premises since mid 2007 in an area above the reception which was converted to accommodate them.  Initially they did not receive a wage but did receive their accommodation, food and household supplies.  More recently they have been drawing a combined wage of $500 per week. 

   (i)To assist H Investments to meet its debts, his wife refinanced a property she owns by increasing her borrowings by a further $45,000 which she lent to H Investments.  During the 2007 year the husband’s mother advanced to H Investments over $526,000 which she borrowed to help it meet debts. 

   (j)The husband says he has devoted time and energy to trying to save the S Motel and ensure H Investments does not become insolvent.  He says he is concerned his mother as a shareholder and director of H Investments may be held personally responsible for some of the debts of H Investments should it go under and that she may lose her farm at B.  He hopes to be able to sell the S Motel at some time in the future when the sale price is sufficient for H Investments to clear its debts.

   (k)There have been efforts in the past to sell the S Motel.  For example, in April 2006 H Investments granted to L Pty Ltd a call option to purchase the business for $4.8 million [at the same time L Pty Ltd took a lease].  L pty Ltd paid $20,000 of the premium but did not proceed with the purchase.  The husband says there were later negotiations with Mr E for sale at a proposed price of $3.6 million but that did not proceed after it was discovered there was encroachment on to land owned by the Council.  The final offer from Mr E was $3.3 million, but as this would not have covered the debts of H Investments it was rejected.  Presently H Investments is continuing to trade and meet its debts and it is listed with an agent for sale, albeit there is an error in the listing. 

   (l)Draft financial statements for H Investments to 30 June 2008 have been prepared but not yet signed and they reflect total liabilities of $3.233 million. 

3. Despite the unchallenged evidence of the experts, the wife does not accept that the husband’s interest in this enterprise is worth nothing and, more than that, it is her case that it had been agreed in the family at an earlier time before their separation that the husband would receive on the sale of the S Motel much more than the entitlement reflected in his 10 C class shares in M Pty Ltd; more particularly, there would be paid a sum of money to their sister Ms B but otherwise the two brothers would share equally in the balance of sale proceeds.  I shall return to that shortly after a summary of the parties’ other financial history. 

History

1. Before their marriage the parties worked and then travelled overseas together for a year or so.  At the time of their marriage the wife was employed as an accounts clerk and the husband, as lessee, was managing the caravan park at the S Motel. 

2. At the time he owned the 10 C Class shares in M Pty Ltd, a Holden Utility, Hilux, a dirt bike and he had savings of around $20,000 which he had been given for his 21^st birthday.  Before that he had sold a motor vehicle and put the proceeds towards the cost of a Toyota Corolla for the wife who also contributed by trading the vehicle she then owned.  Her assets consisted of that motor vehicle and some savings although she could not say how much. 

1. After they were married they lived in a townhouse owned by the husband’s father and did not pay rent. 

2. As already noted, the husband operated the leased caravan park until September 1998 when he relinquished the lease – the lessee of the motel and function centre and restaurant had gone into liquidation - and at his father’s request he took up employment with H Investments in a management role which he maintained until April 2006 shortly after the parties’ separation. 

3. The contingent liability he wants to allow for by quarantining $30,000 from the invested funds relates to the time he was operating the caravan park.  He had an employee and therefore obligations to pay superannuation which he maintains he met, but in 1998 the ATO sent him a notice with respect to unpaid contributions claiming a debt of $8,700.  Around this time he had Mr N write to the ATO on his behalf and point out that it had been paid and that no further action be taken – a copy of the letter is attached to Mr N’s affidavit.  In relating his efforts to have the ATO recognise he had paid the money, the husband says he gave them his original documents which they have conceded losing.  Yet despite the passing of a decade, the issue remains unresolved and the only response to the efforts of the husband and his accountant has been the run-around of being passed from pillar to post and the upshot is ever increasing level of debt now being claimed by the ATO in the order of $26,000. 

4. When they married the wife was employed as an accounts clerk where she remained until she left in October 1993 to work at the S Motel with the husband, but in 1994 she returned to work with her former employer and she has remained working there since, either full time or part time.  In particular, she took time off in 1995 when their first daughter was born before scaling down her hours to part time work in 1996 and then she took some months off around the birth of their second daughter before again returning to part time work in 1998.  After a time she stepped this up to full time, working 5 days a week and finishing each day at 3pm. 

5. In the years they were together they were involved in several real estate transactions and there were other developments involving their finances:

   (a)In 1994 they purchased a home on 5 acres at B for $275,000.  The husband’s father lent them $85,000 and they borrowed the remainder from a financial institution.  They lived there and commuted to work. 

   (b)In 1996 the wife’s father lent them $12,000, not for reasons of their need according to the husband but to enable him to obtain the pension.  They repaid him by instalments and it was repaid in full by 2001.  

   (c)They lived at the B property until 1997.  In the meantime some improvements were undertaken.  They disagree about the apportionment of responsibilities for the work undertaken but their differences are of no real moment. The work appears to have been directed towards improving and refurbishing the home and landscaping the gardens and in all probability those were years when they each did what they could having regard to the totality of their commitments.  Therefore it is accepted they both took some share of the responsibility as part of their wider responsibilities within the marriage at the time. 

   (d)In 1997 the B property was sold for $355,000 and so in the three years or thereabouts they owned it they made some financial gain.  They repaid the money they had borrowed including what remained of the debt to the husband’s father. 

   (e)For a time after the sale they lived in various rented premises in the local area. 

   (f)In 1999 they bought a property at F for $354,000.  They used $100,000 from the sale proceeds and they borrowed the remainder required from the ANZ Bank.  They lived at the F property until 2003.

   (g)In 2001 the husband received an inheritance from his grandmother of $145,000 which he says was used as follows:

   ·    reduction of mortgage on F property      $35,000

   ·    purchase of Audi motor vehicle for wife’s use $10,000

   ·    overseas holiday for the family  $35,000

   ·    purchase of furniture and effects  $20,000

   ·    loan to H Investments  $45,000

   (h)He says the $45,000 lent to H Investments was repaid in full over subsequent years and this was used for living expenses. 

   (j)In 2003 they sold the F property for $595,000 [the wife’s figure is $578,000].  Therefore in the few years they had owned this property there had been a relatively substantial capital increase.  After discharge of the mortgage of around $210,000 and other sale related expenses they had approximately $370,000 to apply towards the purchase of another property. 

   (k)They moved to rented premises. 

   (l)In 2003 the parties borrowed $42,500 from the ANZ Bank by way of personal loan.  Of that, $25,000 was lent to H Investments to help meet its expenses and the other $17,500 was used to buy a Holden Commodore.  According to the husband, H Investments repaid the loan to him in 2005/06 in weekly instalments.  His brother, T, also lent H Investments $25,000 at the same time.  The evidence of Mr N confirms the loan in this amount by each of the brothers to help H Investments pay its tax, that the husband’s loan was repaid during the 2004/05 year by weekly instalments, and his group certificate for the year ended 2004/05 year reflects wages of only $12,600 while other receipts were for repayment of this loan. 

   (m)After the sale of the F property they bought 2½ acres of land at K for $470,000 [the wife says $460,000].  They used the F property sale proceeds and borrowed $185,000 [the wife says $170,000].  The plan was to build a residence on the land at a cost, according to the wife, of $450,000 to be funded by the proceeds of sale of the S Motel which, as it happened, did not eventuate. 

6. Throughout their time together they each made various contributions other than their earnings from work, but while they differ about it the margin of dispute could not be seen as sufficient to have any consequence here.  Generally the evidence is to the effect that apart from the work they each undertook, either full time or part time, they each contributed to the care of the children after their birth according to their availability and they each undertook tasks in and around the home according to their ability or availability.  Certainly nothing comes out of the evidence to suggest one was not pulling their weight in the overall context of organisation of the total responsibilities between work and home and children. 

7. When they separated in early 2006 they were living in the rented premises.  They owned the K land subject to a mortgage of about $189,000 in favour of the ANZ Bank and a personal loan of some $42,215, there was some credit card debt and there were some school fees to be paid.  They also owned two vehicles, a motor bike and various miscellaneous chattels.  The husband still had his 10 C class shares in M Pty Ltd. 

8. On separation the husband left and went to live in one of the motel rooms at the S Motel while the wife and children remained living at the rented home for a time before she moved to other rented premises over time. 

9. Since the separation the wife has continued to work.  As for the husband, he says he was unemployed from April 2006 until mid 2007 and for most of that time he ‘helped out’ at a café said to be owned by his mother-in-law, and managed by his second wife.  He says he did not receive a wage.  In May 2007 the café was sold and around that time he returned to live at the S Motel premises and manage the business after the eviction of L Pty Ltd.  His evidence of their remuneration and living circumstances provided by H Investments was noted earlier. 

10. After separation the husband continued for a short time to pay his wage - $770 per week net – to the parties’ joint account from which the loan repayments were paid.  Then he paid child support of $200 per week and half the loan repayments.  To the point the property was sold in February 2007 it is his evidence the loan repayments he made amounted to a little over $10,000.  He says the wife paid half of the loan repayments for a short time only.  His more recent child support payments are reflected in exhibit 3 but he says the $948 arrears reflected there are the result of a catch up necessary because of a change of assessment. 

11. In February 2007 when the land was sold the mortgage debt amounted to $191,730 and the personal loan debt was $42,842.  After payment of the costs of sale and discharge of the loans and payment of some credit card debt, they each received $30,000 and there remained $161,241 which was invested pending finalisation of their property dispute.  They later used part of the money invested to pay for valuations and there is now a little over $157,000 remaining. 

12. In March 2007 the husband sold a motor bike for $7,500 and he has sold car seats and other car items for $500.  The money has been used for living expenses. 

Family agreement

1. Contrary to the husband’s formal shareholding in M Pty Ltd, the wife alleges an agreement before the death of the husband’s father to the effect that the husband would receive a much greater entitlement from the sale of the S Motel.  She says she was present when it was agreed the S Motel would be sold and the sons would receive half of the sale proceeds while their father would make different financial provision for their sister [paragraph 10].  In the year that T French and his wife separated the S Motel was listed for sale at $4.5 million and at the time the husband came home and said: ‘How would you feel being married to a millionaire?’  They had numerous conversations regularly about what they would do as a family once the S Motel was sold and how they would use their share.  She says it was her understanding in 2005 that once the sale went through and the bank loan and creditors were paid out Ms B would receive about $230,000 and the balance would be divided between the brothers [paragraph 13].  In anticipation of the sale they bought the land at K and set about planning a house to be constructed at a cost of $450,000.  But the sale did not eventuate.  In 2006, after their separation, she says there were again negotiations for a sale and the prospective purchaser took over the running of the business under a lease arrangement [paragraph 23].  No doubt this is a reference to L Pty Ltd. 

2. It has to be said that this relatively brief evidence has some flaws: her evidence essentially expresses a conclusion – namely, there was an ‘agreement’ – without any proper foundation such as the parties to the discussion and what was said by whom to establish its terms; her evidence gives no basis for the ‘understanding’ she spoke of; and there is an unexplained leap in her evidence from what could only be described as the vagueness of some provision being made for Ms B before her father’s death to an ‘understanding’ in 2005 that Ms B would receive $230,000 before the rest of the money was divided between the brothers. 

3. Nonetheless, the tenor of it all is matched by the evidence of Ms N French who was involved in the running of the S Motel until after separation from her husband in 2005.  She takes up the history in paragraph 8 of her affidavit to the effect that when the husband’s father died there were a number of conversations between her, the husband and T about the continuation of the motel and a decision was made in time to sell it since it was having difficulty paying debt. She says it was agreed during those discussions that after creditors and the bank were paid out Ms B [who had not worked in the business] would receive $250,000 to $300,000 and the balance of about $750,000 would be split equally between the brothers while the husband’s mother would not receive any funds since this was the husband’s father intention prior to his death.  N French and T French had numerous discussions about what they would do with the money when they received it. 

4. Obviously this evidence also has flaws since it too fails to give a proper foundation for the conclusion that there was an agreement, not to mention the elementary proposition that any statement by her about the husband’s father’s ‘intention’ prior to his death could not survive the application of the rules of evidence – and to say nothing of the apparent fact that his wife, the husband’s mother, inherited under his Will, apparently, his shares in H Investments and in M Pty Ltd.  The elaboration in cross-examination did nothing to cure the flaws but there can be no doubting her conviction that there was such an agreement within the family – nor any doubt about the wife’s conviction that there was an agreement for that matter.  It can be accepted they both believed it and they both had an expectation of financial benefit coming to their husband’s from the sale of the S Motel. 

5. Yet the shortcomings in their evidence were bridged to some extent by the email T French sent to his wife on 14 July 2006 [exhibit 16] and his evidence during cross-examination.  In that email he put his proposal about their property settlement to his wife and that included this: ‘3. Proceeds from sale of [S Motel] – 50% of [T French’s] share (approx $759,000) $379,500.  This figure may vary due to a dispute with tax office over a superannuation guarantee matter.’  With refreshing candour in his evidence at the hearing he readily agreed there were discussions to the effect outlined by the wife and his wife N French, which included Ms B receiving money as indicated and the balance being divided between the brothers 50/50.  He attributed the distinction between the arrangement for his sister and for him and his brother to the fact that they had put money into the business whereas she had not.  But he also said the $750,000 he anticipated receiving accordingly was on the assumption that the money would be forthcoming from the sale being proposed at the time and the sale never eventuated.  Moreover, he said the email represented what he thought was going to happen, but after speaking to his mother he realised he was ‘not on the same line’. 

6. The husband’s mother’s evidence was to the effect that she would decide how to distribute any money left over from any sale of the S Motel, that T was ‘totally inaccurate’ in making the proposal he did in the email, she has three children, and the decision about distribution will be hers. 

7. As for Ms B, she gave evidence on affidavit [well before the deregistration of M Pty Ltd] that she expects to receive her entitlement as a shareholder of M Pty Ltd, that she did not agree, and never did, to her brothers receiving half the net proceeds on sale of the S Motel, she is not aware of any agreement for her to receive $250,000 to $300,000 from the sale proceeds.  Her brief evidence in cross-examination reiterated the substance of this and denied any knowledge of any family agreement of the kind alleged. 

Value of husband’s interest in H Investments / S Motel

1. First there is the question of what is to be made of the conflict between the assertion of informal agreement and either the brothers’ denial of it or distancing from it.  In my assessment, nothing of substance turns on it here because, try as one might, from whatever angle the valuation evidence and the support for it is viewed, no value of any substance can be attributed to the husband – either (i) by ignoring the deregistration of M Pty Ltd and regarding him as still holding his 10 C class shares or (ii) even by applying the substance of what is alleged to have been agreed. 

2. It is trite to say it but perhaps timely to note that decisions are made on evidence or reasonable inferences drawn from it and no amount of conviction about the superior worth of the S Motel and no steadfast belief that it will be sold for a good deal of money at some stage in the future when these proceedings have concluded [that is, much more than it has been valued here] alters that. 

3. The view that no value of any substance could be attributed to the husband - agreement or not - has as its starting point the value of H Investments as the owner of the S Motel.  To arrive at his value of $16,982 for the shares, Mr S used the net realisable assets method over the alternative of capitalising future maintainable earnings for reasons he explained in paragraph 33; that is, the business of H Investments has failed to generate a profit and since the caravan park and motel business was leased [at the time] H Investments would be considered an investment company.  The second of these would no longer apply but the first would still render the methodology he adopted the proper approach.  As was demonstrated by the financial accounts reaching back to the 2001/02 year, the company had failed each year to generate a profit and, while the losses varied, they were not insubstantial in some years. 

4. Having adopted that methodology Mr S went to the latest Balance Sheet then available – year ended 30 June 2007 – and selected the figures set out on page 9 of his report and made assumptions for reasons explained in paragraph 36 on page 10.  None of that was controversial; in particular, he adopted the updated valuation of the land and buildings at $2.75 million in lieu of the book value to arrive at net assets of $16,982.  It will be apparent from his report that he has made no allowance in that exercise for the costs of sale which, at a price of $2.75 million, would be fairly substantial.  Obviously every dollar of sale costs would reduce the net asset base of $16,982 [in fact sale costs would almost certainly take the situation into deficit] and it follows there would be a greater deficit on the bottom line in M Pty Ltd. 

5. In a search for some prospect of finding some value somewhere, one can look to the 2008 draft accounts to see if that would make any difference to the result, since Mr S did not have these available, it becomes apparent that the application of the same methodology there only brings about a worse result.  That is because in 2007 there was a small surplus of assets over liabilities [$58,080] before the book value of the land and buildings is increased to $2.75 million, whereas the 2008 accounts show liabilities to exceed assets by $123,419 before that adjustment for revaluation.  Whatever the figure produced, when taken across to M Pty Ltd the deficit in value of those shares [$136,992] could only be greater. 

6. Next, one can turn to the exercise undertaken by the real estate valuer and see if anything can be made of that.  What he did to arrive at a value of $2.75 million was to select the average of $2.6 million and $2.9 million being the difference between two methodologies.  That was not put in question and there is no call for it to be questioned here.  But merely for the purpose of this exercise there can be a review of the result by taking the upper end of that range - namely, attributing a value of $2.9 million instead of $2.75 million - merely to test for the degree of improvement in Mr S result if that top end had been adopted by the valuer, knowing full well – I reiterate – that this upper figure was neither selected nor questioned. 

7. Applying that figure to the adjusted Balance Sheet on page 9 of his report, the total assets are increased by $150,000 and become $3,153,743 from which there is to be deducted total liabilities of $2,986,761, leaving net assets of $166,982.  From that there would have to be deducted the costs of sale, whatever that might be on a sale at $2.9 million.  In any event, ignoring for the moment costs of sale, if that figure is taken across to M Pty LTd, it exceeds the liability to the husband’s mother of $152,943 by $14,039 which would represent the value of the M Pty Ltd shares.  On the assumption that the husband received his 20% entitlement according to his former shareholding, he would be entitled to receive $2,800.  Obviously introduction of the costs of sale would reduce the amount able to be carried across to M Pty Ltd and unquestionably those costs would be sufficient to eradicate any surplus after payment of his mother’s debt.  It is equally obvious that the prospect of there being any surplus generated from a sale at $2.9 million would depend on the amount to be paid for costs of sale and also depend on whether the husband’s mother would have forgiven M Pty Ltd all or part of the debt. 

1. It is clear, therefore, that there would have to be a sale for significantly more than the uncontested value of $2.75 million and significantly more even than the top end of the range considered by the valuer and something known of the costs of sale for there to be any surplus assets in H Investments worth anything more than a token amount and there would have to be either forgiveness in whole or part by the husband’s mother of the debt M Pty Ltd owed to her. 

2. Nor is there any positive result to be had by moving away from the net realisable assets methodology to the capitalisation of future maintainable earnings rejected by Mr S for good reason.  The consistent losses of H Investments over many years – including many years before the parties’ relationship broke down and they separated - have varied from $209,000 to a bit over $22,000 for the 2007 year and there is a significant loss on the draft 2008 figures.  Even extracting depreciation – which is a legitimate expense – makes no impact since that exercise would not give a run of profit over several years. 

3. There is a suggestion that the business generates cash which is not reflected in the accounts and that is supported by the evidence of N French from her historical involvement.  That would have the effect obviously of increasing the gross profit figures and therefore reducing the losses.  Whatever the truth in that scenario, the cash takings would have to be for rather significant amounts to make up the deficit in income over expenditure.  Quite apart from that there is just nothing in the evidence that serves to convert suspicion about secreted cash to a fact on the balance of probabilities.  Of course there is cash in various machines and people pay by cash at times, but the Court has to be given something to on which to base a finding of fact; suspicion is not enough and nor does the evidence of N French about cash provide that base. 

4. There is also the question of the new venture that has been embarked upon more recently of constructing and selling permanent homes on site, as reflected on the web site, although at this stage only one home has been constructed with funds provided by the husband’s mother-in-law and that has not yet sold.  Whatever view might be taken of those arrangements, in the final analysis there is nothing sufficient in it to see this enterprise as putting its losses behind it and, even if it were otherwise, one would think it would take a few years of trading at a profit to demonstrate maintainable profits to improve its desirability in the eyes of a purchaser. 

5. There is finally to be considered the legitimate question about why the husband and his second wife would have worked in the business for nothing more than board virtually since the middle of 2007 and for not much more now.  He answers that by pointing to his desire to see that his mother does not suffer financially if the S Motel is sold up because there is insufficient to pay the NAB or reimburse her what she has borrowed to lend to the company to keep it going.  Of course the wife attributes more material motives to him, but looked at more objectively it seems to be a plausible explanation.  That said, there is no doubt the S Motel is on the market, they would like to sell it, the husband’s commitment to keeping it trading and trying to avoid insolvency, and the rather vague expression his mother gave of her intentions if there is a surplus on sale at some point would be sufficient to say here that she probably would bestow money on him if there is money left from a future sale.  But that is a far cry from being able to say here and now in these proceedings that there will probably be a sale in the foreseeable future at a price that will probably general surplus funds.  In short, whatever the husband’s expectations for the future, there is simply no way of construing the evidence to find here that he will or will probably receive a financial benefit from the sale of the S Motel in the foreseeable future. 

6. In the result, even if the deregistration of M Pty Ltd is ignored and the husband is regarded as still having his 10 C class shares, they could not be seen as presently worth anything and nor is there anything sufficient to regard him as likely to be in receipt of funds by the application of any former family agreement.  Developments in the future may prove that to be wrong, but there is nothing on the evidence that would allow that forecast here and now. 

Assets and liabilities

1. Most of the assets and their value are agreed, but there is dispute about two items.  It is argued for the wife that there should be added to the husband’s assets the sum of $25,000 representing the money advanced to H Investments during the financial year and repaid by the company but never applied towards reduction of the loan; instead, the loan was discharged from the sale proceeds of their property on sale in 2007.  It is said by her counsel that she did not receive any benefit from the money repaid, but the more objective view is that the husband received repayment and at that stage of their marriage it could not be said – and was not said – that any money coming in was used for anything other than their common purposes as a family.  It would constitute an error, in my view, to add back to the assets of the husband the amount repaid over time. 

2. The second argument relates to the inclusion of a contingent liability of the husband to the Australian Tax Office for what is now about $26,000 and a sum being quarantined for that purpose, but that argument will not be adopted for several reasons. The husband’s case is that nothing is owing, he would appear to be on fairly strong ground given the concession by the ATO that they have lost the documents he provided long ago, they have taken no action in the 10 years and more they have been claiming ever increasing sums of money from him, and on the basis of the history so far there could be no expectation the issue would be resolved any time soon. In the circumstances it would elevate this claim to call it a ‘contingent liability’; it is a disputed liability and if the husband’s evidence is correct, there is no merit on the other side of the argument. With such modest funds to distribute, neither party should be held out of their entitlement while it continues to drag on without the husband having confronted and resolved it long ago. Moreover, authorities have discussed the circumstances where it is proper for liabilities to be disregarded, in whole or part, in calculating the net assets for division under s 79; for example, in Biltoft (1995) FLC 92-614 [Nicholson CJ, Ellis and Buckley JJ] at 82,124 their Honours discussed the general practice of deducting liabilities, in the course of which they quoted with approval from the judgment of Evatt CJ in Prince (1984) FLC 91-501 at p 79,076:

   “…the outcome of the wife’s application will depend upon findings made by the Court as to the parties’ assets and liabilities, their contributions and their respective financial resources, means and needs. It would be necessary for the Court to determine so far as is possible the value of the property held by each party. In accordance with the usual practice this would be done by deducting the value of outstanding mortgages, debts, and other liabilities (e.g. Albany and Albany (1980) FLC 90-905, p. 75,717). The Court may have to determine, as between the parties, the existence of a particular liability (Af Petersens and Af Petersens (1981) FLC 91-095).

   The assessment of debts and liabilities is not necessarily arrived at by a strictly mathematical or accountancy approach in all cases. While some liabilities are charges upon the property which can be accurately assessed at a certain date, others are at large, or have not been precisely determined, e.g. tax liabilities (Kelly and Kelly (No. 2) (1981) FLC 91-108 p. 76,801). In some cases the amount of the liability can only be estimated generally (Albany (supra), p. 75,717). The Court can make an allowance for a particular liability if appropriate to do so. In some cases there are sufficient uncertainties as to the alleged liability to lead the Court to disregard it entirely or partly (e.g. a loan from a parent of the party not likely to be enforced; Af Petersens (supra); Quirk (1983) unreported). In other cases, the Court may take the view that because of the circumstances surrounding the incurring of the liability it ought in justice and equity to be wholly or partly disregarded in determining the appropriate order to make under sec. 79 as between the parties to the marriage. Such a result could be reached where a spouse had incurred a liability in deliberate or reckless disregard of the other party's potential entitlement under sec. 79 (Kimber and Kimber (1981) FLC 91-085; Kowaliw and Kowaliw (1981) FLC 91-092; Antmann and Antmann (1980) FLC 90-908; Af Petersens (supra)). Complex issues can arise in regard to liabilities to third parties (see, e.g. Pockran and Crewes; Pockran (1983) FLC 91-311).

   Of course, the Court cannot ignore the fact that there is or may be a liability; the effect is simply that it does not consider that the other spouse should be called upon to in effect ‘contribute’ to the liability by having that spouse's fair share in the parties’ property reduced by virtue of its existence. The effect may be that the party who has incurred the liability will be left to meet it out of whatever funds remain to that party after satisfying the property order made under sec. 79 (Af Petersens (supra)).”

3. Their Honours concluded at 82,127:

   ‘Notwithstanding the general practice which has developed, the Court has indicated that it may properly determine not to take into account or to discount the value of an unsecured liability in certain circumstances.  Such liabilities would include but are not limited to a liability which is vague or uncertain, if it is unlikely to be enforced or if it was unreasonably incurred.’

4. See also the discussion in Jenkin [1998] FamCA 163 noted and other earlier cases where similar issues were discussed such as Carruthers (1996) 21 Fam LR 12 per Nicholson CJ and Rosati (1998) FLC 92-804 [per Ellis, Lindenmayer and Kay JJ] more particularly at p.85,043.

5. In the present case, the circumstances can be said to be ‘uncertain and unlikely to be enforced’ and thus properly disregarded in arriving at the net assets for distribution. 

6. In what follows it will be noted that their superannuation entitlements have been included with other property which is the approach adopted by counsel and consistent with a reading of the majority judgment in Coghlan (2005) FLC 93-220. The creation of a separate list for superannuation would serve no real purpose in the circumstances of this case; the parties are not of dissimilar age and their entitlements, while different, are not largely dissimilar. I find their net assets to be as follows:

   Assets - joint
   Funds in trust  157,590
   Assets - wife
   Audi  15,000
   Furniture – including post separation $800             5,250
   Distribution from land sale  30,000
   AON Super  32,327   82,577

   Assets - husband
   Shares - M Pty Limited   nil
   Holden Crewman  22,800
   Ford Capri    3,000
   Tools, mini bike & car parts    4,500
   Distribution from land sale  30,000
   Proceeds sale motor bike   7,500
   Car parts sold on E-Bay   400
   AXA Personal Super              6,692
   SAS Super  13,386
   Hostplus Super  22,796  42,874  111,074
   Total net assets:  351,241

7. Both have incurred very high legal fees [exhibit 4] agitating their property dispute.  To the date of hearing the husband’s costs had been billed at just under $30,000 and the wife’s at just under $39,000 of which her father had paid over $24,000 on her behalf.  Quite rightly there is no suggestion that those costs be brought to account here. 

Evaluation of contributions

1. The parties’ relationship spanned some 13 years and it is now 3 years since their separation. 

2. The assets the husband brought to the marriage were relatively modest to the extent they can be quantified but they meant he was in a stronger position than the wife whose vehicle had been bought mostly from funds he provided.  He was self employed initially and then worked throughout the remainder of the marriage until beyond their separation for H Investments.  He contributed his earnings for the benefit of the family in one way or another, either to meet their day to day expenses or to pay for commitments they undertook.  He received an inheritance of a significant amount of money – $145,000 - relatively late in the marriage and he contributed that in the ways mentioned earlier, including for their mutual benefit.  That is a weighty contribution, particularly when regard is had to the amount now left to be distributed from the sale of their land.  He can be credited with the financial support provided by his father of rent free accommodation early in the marriage and the interest free loan to purchase their first property.  He also contributed in other ways in and around the home, including undertaking some improvements, and with the children.  Since separation he had a period of supposed unemployment but he paid some of the instalments related to their debt until the land was sold and he took a share of the responsibility with the care and support of the children, including some financial support.  The cumulative effect of all of this results in considerable weight in his favour. 

3. As for the wife, she brought little to the marriage by way of assets but she worked either full time or part time for most of their marriage and she contributed her earnings to their common cause including for living expenses and in meeting the financial commitments they took on from time to time.  To the extent she was not in paid work she was occupied with the care and supervision of the children and with the running of the home and improvements to the home.  She can be given the credit for the interest free loan from her father for a time, although it was for much less than the interest free loan provided by the husband’s father and there is no financial contribution from her to match the contribution by the husband of his inheritance.  Since separation she has had the care of the children for most of the time and the greater financial responsibility for their needs.  These are also weighty considerations. 

4. Balancing one against the other, the husband’s contribution of his inheritance is of substantial weight although that is counter-balanced to an extent by the wife’s greater share of responsibilities since their separation; nonetheless, the scales still tip in his favour for that reason.  Overall, their contributions should be seen as 35% to the wife and 65% to the husband.  The 30% differential is considerable but to assess it at any less would not give proper recognition to the husband’s total overall contributions, more particularly his inheritance. 

Section 75(2) factors

1. That is not to say the parties remaining net assets should be distributed in those proportions; relevant factors referred to in s 75(2) have to be taken into account. 

2. The parties are similar ages – 42 and 40 – and both are capable of earning an income and supporting themselves and meeting their financial obligations. 

3. For reasons of his own the husband has chosen to continue to operate the S Motel and receive little financial reward for his efforts, obviously in the hope or expectation that at some stage in the future he will benefit by having bestowed on him a suitable return.  Nonetheless, he should be, and will be, regarded in this assessment as capable of earning much more than he is doing now although alternative employment out in the market was not explored with him in such a way as to allow his earning ability to be quantified.  On the assessment made of contributions, he would retain the greater share of the currently available net assets.  There is no evidence from his wife about her financial circumstances although there is evidence from the husband about her earnings from work at the S Motel and obviously she has some property which allowed her to borrow an additional $45,000 and lend it to H Investments in 2007.  Absent detail of her situation, however, that relationship should be seen as capable of providing the husband with financial advantages. 

4. The wife’s case suggests he has not made a full and frank disclosure of his financial circumstances and her counsel cites the decision of Gould and Gould (2007) FLC 93-333 as support for the making of an adjustment in her favour. In truth she may be right, but this Court can only act on the evidence presented, and in the final analysis there is nothing on which to rest a conclusion of non-disclosure.

5. For her part, the wife’s earnings are from her employment as a personal assistant and there is no suggestion she has any unexercised earning capacity or financial resources available to her to supplement what she is able to earn.  She is in a relationship but unlike the husband’s situation that is not committed and there is no indication it provides or would provide a financial advantage for her.  Under the assessment of her contributions she would receive a much lesser share of the available assets than the husband.  A significant factor in her favour is her care of and responsibility for the children.  At the ages of 13 and 11 there are still a good number of child rearing years ahead of her during which she will be required to see to their needs as well as earn an income and to provide for their support to the extent it is not provided by child support paid by their father.  Under the formal agreement about the children’s arrangements they are with her most of the time and, while there has been some modification which has seen them in the care of their father after school, it appears that she is still providing most of their care and bearing most of the expenditure related to their upbringing.  Unless and until the husband concentrates his efforts on earning a proper income and taking on a commensurate share of the financial responsibility for the children, that is likely to remain the position. 

6. It is this last consideration for the most part that justifies a considerable adjustment in the wife’s favour.  Of course the proportion submitted for the wife in closing address was predicated on the basis that the argument about contributions would be accepted which has not been possible.  In my view, it would be appropriate to adjust her entitlement by a further 20% which, applied to the whole of the pool of assets, would give her a further $70,248. 

Just and equitable

1. This would bring the parties’ entitlements overall to 55% to the wife and 45% to the husband.  Applied to their total net assets of $351,241, this would give the wife $193,182 and the husband $158,058 – an overall differential of $35,124.  Of course these figures include the money they have already received from the sale proceeds and it also includes their superannuation entitlements they will not be able to access for quite some years yet.  Nonetheless, for the wife to receive her entitlement she would have to be paid from the funds in trust $110,605 [$193,182 - $82,577 = $110,605].  The husband would retain assets to the value of $111,074 and take the remainder of the funds in trust in the sum of $46,985 [$158,058 - $111,074 = $46,985]. 

2. The calculations of what they would each receive from the funds in trust are based on the figure of $157,590 provided at the hearing.  To the extent the credit balance is any greater – which would be relatively minimal interest – it can be distributed equally between them. 

3. Looking at their positions from that perspective, and having regard to what they will each retain in other assets, that is a just and equitable outcome in all the circumstances. 

Form of orders

1. The orders to put this decision into effect are simple and require no elaboration. 

I certify that the preceding sixty-six (66) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Moore

Associate: 

Date: