Weiss and Hiette - [2011] FMCAfam 443

FEDERAL MAGISTRATES COURT OF AUSTRALIA

WEISS & HIETTE

[2011] FMCAfam 443

FAMILY LAW – Property dispute – major initial contribution by respondent – serious business losses – parties with substantial business debts – consideration of Kowaliw (1981) FLC 91-092 – just and equitable outcome.

Family Law Act 1975, s.75(2)

In the Marriage ofKowaliw (1981) FLC 91-092
In the Marriage of Browne & Green [1999] FamCA 1483

Applicant:

MR WEISS

Respondent:

MS HIETTE

File Number:

MLC 7206 of 2010

Judgment of:

Burchardt FM

Hearing dates:

22, 23 February & 31 March 2011

Date of Last Submission:

31 March 2011

Delivered at:

Melbourne

Delivered on:

16 May 2011

REPRESENTATION

Counsel for the Applicant:

Mr. P. Indovino

Solicitors for the Applicant:

Zolis Lawyers & Consultants

Counsel for the Respondent:

Mr. P. Davis

Solicitors for the Respondent:

Webb Korfiatis Solicitors

ORDERS

THE COURT ORDERS BY CONSENT THAT:

Pursuant to Rule 13.04 of the Federal Magistrates Court Rules 2001, orders are made by consent in accordance with the attached minutes of proposed orders signed by the parties and placed on the Court file.

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

FEDERAL MAGISTRATES
COURT OF AUSTRALIA
AT MELBOURNE

MLC 7206 of 2010

MR WEISS

Applicant

And

MS HIETTE

Respondent

REASONS FOR JUDGMENT

This is a property dispute in which, as is sometimes the case, some aspects of the evidence are far from clear and the evidentiary history is by no means complete. It will accordingly be necessary, to an extent, to paint with a relatively broad brush.
Put simply, the only significant positive net asset that the parties have is the former matrimonial home which is to be sold and in respect of which it is anticipated that net equity following the discharge of secured debts will be something over $230,000.
The parties are also involved with two companies which have a significant net deficit financially amounting to a total in excess of $180,000. That liability is partly secured against the matrimonial home.
The applicant’s position is that all outstanding debts should be discharged from the sale of the matrimonial home and any sum remaining be apportioned equally between the parties.
The respondent’s position is that she should retain the totality of the net sale proceeds of property and that the applicant should retain the two companies and all their associated debts.
In my view, both the positions contended for by the parties overstate their case and for the reasons that follow, I will order that the net proceeds of sale be divided as to two-thirds to the respondent and one-third to the applicant, with the businesses to be wound up.

The facts

The applicant was born [in] 1965 and the respondent [in] 1954. There is some confusion as to exactly when they entered into a relationship, but they appear to have cohabited from either late 1996 or early 1997 until final separation on 24 September 2009.
When they met, the applicant was earning about $100,000 a year as a [omitted] and the respondent approximately $60,000 a year (plus ancillary benefits) as a manager with [omitted].
The respondent owned, unencumbered, a property in [M] worth $95,000 at the commencement of cohabitation. She also owned about $18,000 worth of AMP shares.
The applicant’s superannuation was worth about $25,000 at the commencement of the relationship and the respondent’s approximately $100,000.
The applicant and the respondent lived for some years in the respondent’s [M] property. Scarcely surprisingly, given that the parties were in a defacto relationship, the applicant was not charged rent. Insofar as the respondent sought to make much of the applicant’s failure to pay rent, I would share the applicant’s incredulity. According to my understanding of ordinary human affairs, it is not common for people to charge their lovers rent when they are in a committed and no doubt satisfactory relationship.
Nonetheless, it is fair to conclude, as I do, that the applicant contributed nothing material to the value of the [M] property prior to its sale for some $183,000 in the year 2000. The net proceeds of that sale were committed to the purchase of the former matrimonial home in [S], which was bought in 2001 for $526,692.
The purchase of the matrimonial home was subsidised by a number of loans taken out separately by each of the applicant and the respondent in what was plainly, at that time, an endeavour to apportion liability to themselves of roughly an equal amount, but in separate responsibility. They were tenants-in-common in equal shares after purchase. The purchase price was financed by the parties’ borrowings and by the funds from the [M] property, apart from some $30,000 to $40,000 in cash contributed by the applicant.
In the early years of the relationship, when the parties were living in [M] and not paying rent, they clearly spent a lot of money on travel and their own personal pleasure. The applicant put the figure thus expended and wholly contributed by him in the order of $172,000 and the respondent provided a lower estimate of approximately $62,000.
It is neither necessary nor appropriate for the Court to spend a great deal of time working out whose version of the figures was more accurate. On any view, the parties were both contributing to their joint well-being and both receiving the benefit of such travel and the like as they undertook.
The applicant, it seems clear, bought the respondent an engagement ring for $18,000, although they never in fact married.
In March 2003, the applicant started a business conducted through the medium of a proprietary limited company called [B] Pty Ltd (“the [B] business”). He committed a $6,000 tax refund towards it and worked the business from home. The business appears to have been relatively successful.
This was in marked contrast to the applicant’s share dealings. It appears that in or about 2000, he prevailed upon the respondent to transfer her AMP shares to his name. He lost not only the full value of those shares, but a number of shareholdings of his own within the next two years in what he referred to as the dot-com crash.
In November 2005, the respondent was made redundant from her long-standing position in employment. The [B] business had earlier that year moved out of the matrimonial home, so to speak, to premises in [suburb omitted].
It is clear, (and despite some to-ing and fro-ing between the two witnesses there is no real conflict about this), that the [B] business was very much the applicant’s brainchild. Up until November 2005 the respondent had no active role in it. Thereafter, she took over what might be described as management and administration, whereas the applicant was responsible for all matters to do with sales and production.
Thereafter, in 2006, the applicant decided to expand his business through another company called [P] Proprietary Limited (“the [P] business”). About this initiative the respondent was far less keen. She did not like the fact that the business would be conducted not just by the applicant, but also by a friend of his, Mr C. She foresaw difficulties and says that she opposed the establishment of this business. It is her case that thereafter the applicant became secretive and would not let her see the books and sought to exclude her from any knowledge of or participation in the [P] business. A falling out with Mr C did indeed take place and all or almost all of Mr C’s shareholding was purchased from him in 2007 for $50,000.
The [P] business has not gone well and is now heavily in debt. It is in debt not only in respect of overdraft facilities, but related ancillary credit card debts, some of which are secured against the former matrimonial home.
Right up to the trial, the husband’s position was that he should obtain the businesses. The day before the trial, the applicant obtained a valuation of the businesses which, putting the matter shortly, says that while the two businesses may have net tangible assets of about $30,000, they have debts of over $180,000.
He has thus changed his position to the one I have articulated at the commencement of these Reasons for Decision.
The applicant left the respondent for another woman and if I understand the matter correctly, the respondent was informed of this while she was overseas on an extended trip to visit her family in England. The resultant palpable bitterness between the parties was evident during the proceeding.
The applicant’s subsequent relationship has, it appears, itself folded and he is presently living in the factory in [suburb omitted], a circumstance he understandably describes as thoroughly unsatisfactory. The respondent continues to live in the former matrimonial home, although it is conceded that it will have to be sold.
The respondent’s counsel has set out a schedule of assets and liabilities at pages 6 to 8 of his written submissions, and I understand that these are agreed to be an accurate distillation of what are otherwise a rather complicated set of figures set out by the parties in their affidavits.

The credit of the witnesses

Both parties have sought to attack the credit of the other as a witness. The recitation of facts I have set out above reflects my conclusions as to what has occurred. In fact, although there was much time spent in cross-examination of both witnesses, the broad outline of the facts in my view is not the subject of very substantial dispute. To the extent that the facts as I set them out above adopt the positions contended for by one or the other party, this reflects my conclusions as to their different positions.
It should be noted that the applicant was a very unsatisfactory witness. Notwithstanding the quite unnecessarily combative way in which he was cross-examined by counsel for the respondent, something I failed properly to control on the first day of hearing but improved on the second, the fact is that the applicant’s evidence was evasive, unresponsive and self-serving.
The respondent’s evidence was given with a quiet dignity, redolent of a witness concerned to tell the truth in circumstances that were plainly very distressing for her. While, as is pointed out in the written submissions for the applicant, there were some areas of her evidence where her answers were less than satisfactory, as a general rule, I would make it clear that her demeanour was entirely convincing and I would in the main accept her evidence in preference to that of the applicant. The one area I should indicate I would tend to accept the applicant’s evidence over that of the respondent was the scale of expenditure on holidays and travel during the early years of the relationship. It had an indignation which I would characterise as the ring of truth.

The pool

The pool is as I have said set out at pages 6 to 8 of the applicant’s submissions.
The matrimonial home is on the market and according to the respondent, was likely to sell for some $680,000 shortly after the conclusion of the hearing. It may well have sold already, although neither party has informed me of the sale price if that is the case. Debts secured against the property, together with arrears of body corporate fees and anticipated sale and advertising costs, come to some $442,700 which, if the sale price is $680,000, will produce anticipated net sale proceeds of about $237,000.
I accept that there are personal credit card debts of approximately $73,400 owed by the applicant, most of which are primarily business related, as it is clear he conducted the businesses through the medium of his credit cards, and by the respondent, of some $54,000.
The companies have other debts of approximately $120,691.
One aspect of the case in which the materials and submissions are manifestly inadequate, a matter to which I have already referred earlier, is what is to happen to the companies’ debts. These are proprietary limited companies with very limited capital. According to the valuer, they had net tangible assets of some $30,000 and debts of $180,000 (to the extent that one can say given the fact that credit card debts are both those of the companies and personal).
Prima facie, these companies could be wound up and a dividend of approximately 15 cents in the dollar could be made to creditors. Unless the applicant, who has plainly had the major running of the [P] business and certainly controlled since separation the [B] business as well, has been engaging in insolvent trading, prima facie they could be wound up and the debts accrued by the companies thereby expunged.
Because the applicant only changed his position in relation to the retention of the companies at the last moment, nothing has been done to investigate this aspect of the matter. Notwithstanding that that is so, I am prepared to assume for these purposes that the assets of the companies will be sold, their unsecured debts will simply not be met and that the companies will be the subject of winding up. I therefore ignore such unsecured debts as the companies have in dealing with the parties’ positions.
Thus, ignoring as the parties largely have the question of any cars or chattels, the true position in the pool is that there is a likely net equity of some $237,300, together with $73,000 credit card debt for the applicant and $54,000 credit card debt for the respondent.

Contribution

There is no doubt that both parties contributed as best they were able throughout the currency of the relationship. The parties seem to have to a considerable extent kept their finances separate. Indeed, both parties proceed on the footing that there should not be a splitting order and that each party should retain their superannuation ($50,000 for the applicant and $150,000 for the respondent).
This latter position is in my view sound, given that the applicant is some ten years younger than the respondent and has plenty of time to make up the leeway.
Nonetheless, in my view it is quite clear that the contribution by the respondent was far the greater. She had the property unencumbered when the relationship started. That property was what enabled the parties to buy the [S] property. That property represents the only positive cash asset that the parties have. The springboard effect of the contribution by the respondent cannot be ignored and should be given full weight.
Against this, the earning capacity of the applicant was clearly the greater until he ceased full-time employment in 2003, but not by so very much. Furthermore, and to the extent that he seeks to make much of his contribution to holidays and the like, the fact is that the applicant went on these holidays too and had just as much benefit out of them, it is to be presumed, as the respondent.
This brings the Court to the question of how the debts incurred by the parties during their businesses should be addressed. It was the position of the applicant that applying the judgment of Baker J in

In the marriage of
Kowaliw (1981) FLC 91-092 at 76,643 – 76,644, the debts should be taken to be simply part of the assets of the relationship and shared equally. What Baker J said was:
“Marriage is for most couples an economic partnership. Married couples live together and work together with the ultimate object of purchasing a home, paying it off, acquiring other assets with the overall object of obtaining a higher standard of living. The reported decisions in respect of applications for settlement of property under s.79 of the Act are unanimous that both parties should share the economic fruits of a marriage, having regard to the provisions of s.79(4) and s.75(2), although not necessarily equally.
Is not, however, the converse sustainable? In other words, should not financial losses incurred by parties to a marriage or either of them, whether incurred jointly or severally, be shared by them in the same manner as the financial gains?
As a statement of general principle, I am firmly of the view that financial losses incurred by parties or either of them in the course of a marriage whether such losses result from a joint or several liability, should be shared by them (although not necessarily equally), except in the following circumstances:
(a) where one of the parties has embarked upon a course of conduct designed to reduce or minimise the effective value or worth of matrimonial assets, or
(b) where one or more of the parties has acted recklessly, negligently or wantonly with matrimonial assets, the overall effect of which has reduced or minimised that value.” (Emphasis added)
In In the Marriage of Browne & Green [1999] FamCA 1483 at [49]-[50], the Full Court confirmed the status of Kowaliw in the following terms:
“While care should probably be taken (in light of the statements by the High Court in Norbis to which we will shortly refer) not to elevate Baker J’s statement to “a principle”, we are nonetheless satisfied that it certainly is a well-accepted guideline within the jurisdiction which has received endorsement of successive Full Courts.
Such a guideline can, of course, be departed from if a trial judge considers such a departure is warranted on the facts of a particular case.”
Here, I do not accept that the conduct of the applicant in running both the [B] business and the [P] business falls within the two exemptions referred to by Baker J in Kowaliw. His business ventures turned out poorly and he may not have been best advised to go into business with a friend, but the fact is that such business relationships are commonplace enough. Partnerships are perhaps more commonly entered into by friends than otherwise.
The evidence does not, in my view, go anywhere near far enough to engage the sort of exemptions referred to in Kowaliw.
Nonetheless, Kowaliw itself notes that while the parties should share ordinarily in the negative assets of their relationship, this need not in all cases be necessarily in equal proportions. Furthermore, the Full Court made it plain that in an appropriate case, the Court can depart from that prima facie position.
In my opinion, this is a case in which departure from equal sharing of the debts is appropriate.
The businesses are to be sold, as I understand it, and the debts of those companies should remain simply the debts of those companies. They are not, prima facie, the debts of the applicant and the respondent, save to the extent that their credit card bills (those not encumbered upon the property) may reflect business expenses. For reasons to which I will refer under the final heading of Just and Equitable, in my view each side should pay now the credit cards that stand directly to their own debit that are not otherwise secured against the [S] property.
In my opinion, the respondent is, leaving aside the question of these debts, entitled to a loading of 15 per cent in her favour on the question of contribution.

The section 75(2) factors

Both parties are apparently in reasonable health apart from matters associated with the strain of this case. Both parties, I should say, were plainly under considerable strain during the time they gave their evidence, as was clear from their demeanour.
The applicant’s evidence is that he is likely to be able to obtain employment as a [omitted], in which the basic salary is likely to be $50,000 and after that, it is up to skill and integrity, as he described it. The employment future of the respondent is far less clear. She was able for a period of three months in 2010 to obtain a position with [omitted], a company for whom she had worked in the past. That three month contract was not renewed because of failures in her work performance which arose directly, as she said and I accept, from the strain of these Court proceedings. The respondent’s evidence about the difficulties of obtaining employment at the age of 56 were given with great dignity in circumstances where she was clearly under a great deal of stress and indeed, clearly almost broke down. The attack upon her credit in this respect, like the applicant’s disdain for the difficulties the respondent might obtain in getting other accommodation, does him no credit.

True it is that the respondent has three times as much superannuation as the applicant but as I say, he will have another 10 years in which to make it up and, in all probability, at a substantially greater earning level than the respondent would be able to achieve. This was the position when they first met and it is more probable than otherwise going to be the position in the future even assuming, as one would hope, that the respondent does indeed obtain employment. In my view, the respondent is entitled to a further adjustment in her favour of some 10 per cent in this regard.

Chattels

The parties agree that, apart from the small number of chattels claimed by the applicant, each party should simply retain what they have as they do their superannuation.
As is correctly asserted at paragraph 18 of the written submissions of the applicant, the respondent conceded that the antique Queen Anne furniture piece, the painting in the carpark cage and other items in the cage, the exercise bike, the Dromana Bay painting and Phillip Island painting could be collected by the applicant as his property. The respondent also agreed that the black refrigerator was an item that was to be sold with the property. Those are the orders that the applicant seeks and they should be made.

Just and Equitable

Assuming that the net sale proceeds of the [S] home are approximately $240,000, that each party keeps their own credit card debt, as I think should be the case, and that the proceeds be divided 75 per cent in the respondent’s favour that would produce an outcome where the respondent would obtain about $180,000 and the applicant would retain about $60,000. The respondent would thus obtain approximately $125,000 net and the applicant would be left with net debt of $10,000.
I do not think an outcome in these terms would be just and equitable. The parties have had the misfortune to lose a lot of money in business. While the respondent undoubtedly expressed reservations from time to time about the conduct of the [P] business in particular, the fact is that she knew of it and did not end the relationship because of it. The applicant’s written submissions rightly assert that if these businesses had been profitable, she would doubtless be asking for an account of that profitability and assets in the final property settlement. I think that the just and equitable outcome is that the net sale proceeds should be split as to two-thirds to the respondent and one-third to the applicant. That will mean that the applicant would obtain a net payment of approximately $80,000 and discharging a credit card debt of $74,000, leave him with a narrow margin of profit. The respondent will obtain a net payment of about $160,000 and a net benefit of about $115,000.
Looked at superficially, this might seem to be a gross imbalance and of course, superficially, it is. The adjustment downwards from the various disparities in contribution and in the s.75(2) factors gives proper weight to the fact that this was a relatively lengthy relationship of twelve years. In it, both parties contributed significantly and the real difficulty that has arisen has been the debt engendered by what, in large part, was a common endeavour in relation to the [B] company, albeit that the [P] company was predominantly conducted by the applicant.
The fact is that with his comparative youth and likely considerably greater earning capacity, the applicant will have plenty of opportunity over time to, as it were, address any imbalance that might now be thought to obtain.
The net effect of this is to apportion the debts of the parties unequally but as I note that was a possibility well and truly left open by Baker J in Kowaliw and on the facts of this case, it represents, in my opinion, an appropriate just and equitable outcome.
I should note finally that each party is to be responsible for their respective credit card debts. It is not possible, at least in the case of the applicant and possibly to an extent the respondent also, to disaggregate the personal and business components of these debts. Given this inadequacy in the evidence, the court has no realistic methodological alternative than to treat each credit card debt as belonging to each card holder, as I have done, and then including the resultant figures in the outcome as set out above.
I have prepared draft orders to give effect to these conclusions but will hear from counsel before making final orders.

I certify that the preceding sixty-two (62) paragraphs are a true copy of the reasons for judgment of Burchardt FM

Associate:

Date: 16 May 2011

ADDENDUM

These additional remarks arise out of the consent orders that the parties have sought today (18 May 2011). They reflect a significant difference, on one view, from what I had originally determined and propounded in my proposed draft orders. That difference arises out of the fact that contrary to the position adopted at trial, the applicant wishes to retain his interest in the two businesses to which the Judgment refers. The parties have, by consent, adjusted the proportions of the net proceeds of sale of the formal matrimonial home to reflect this change, and I am prepared to make those orders because I think that these new proposed orders are within the range of outcomes that I had felt to be just and equitable, as indicated in my Judgment.
Like counsel for the respondent, I have not actually encountered this particular sort of set of circumstances before, but the Court has great flexibility in the way in which it proceeds and the outcome is, as I say, I think within the range of what I had originally contemplated and therefore is just and equitable. For those reasons, I am making orders that proceed on a completely different basis to the findings I have made in my original Judgment.