Welch & Abney
[2016] FamCAFC 271
•22 December 2016
FAMILY COURT OF AUSTRALIA
| WELCH & ABNEY | [2016] FamCAFC 271 |
| FAMILY LAW – APPEAL – PROPERTY – Superannuation – Whether the primary judge erred in the approach he took to the division of the parties’ property with respect to the wife’s non-commutable and contingent pension for total and permanent disability (“TPD pension”) received as component of her occupational superannuation – Where primary judge adopted as the present value of the TPD pension the capitalised amount calculated pursuant to s 90MT(2) of the Act but made no splitting order – Whether primary judge failed to properly consider the evidence of the single expert as to the different nature of the TPD pension from normal superannuation interests – Where primary judge failed to take account of taxation upon the TPD pension and failed to take account of contingencies – Where primary judge failed to recognise the contribution of the wife if the TPD pension was treated as having the value of the capitalised amount – Where orders made were not just and equitable – Appeal allowed – Proceedings remitted for re-hearing. |
| Family Law Act 1975 (Cth) Family Law (Superannuation) Regulations 2001 (Cth) |
| Campbell v Superannuation Complaints Tribunal [2016] FCA 808 Hayton v Bendle (2010) 43 Fam LR 602 Semperton v Semperton (2012) 47 Fam LR 626 |
| APPELLANT: | Ms Welch |
| RESPONDENT: | Mr Abney |
| FILE NUMBER: | NCC | 629 | of | 2013 |
| APPEAL NUMBER: | EA | 2 | of | 2016 |
| DATE DELIVERED: | 22 December 2016 |
| PLACE DELIVERED: | Brisbane |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Murphy, Aldridge & Kent JJ |
| HEARING DATE: | 21 June 2016 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 14 December 2015 |
| LOWER COURT MNC: | [2015] FamCA 1116 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Tregilgas |
| SOLICITOR FOR THE APPELLANT: | Burke & Mead Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr Bates |
| SOLICITOR FOR THE RESPONDENT: | Hunter Family Law Centre |
Orders
The respondent husband’s Application in an Appeal filed on 8 June 2016 be dismissed.
The appeal be allowed.
The orders made by Austin J on 14 December 2015 be set aside.
The proceedings be remitted for re-hearing by a judge other than Austin J.
There be no order as to costs of the appeal pursuant to s 117 of the Family Law Act 1975 (Cth).
The Court grants to the appellant wife a costs certificate pursuant to the provisions of s 9 of the Federal Proceedings (Costs) Act 1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the appellant wife in respect of the costs incurred by the appellant wife in relation to the appeal.
The Court grants to the respondent husband a costs certificate pursuant to the provisions of s 6 of the Federal Proceedings (Costs) Act 1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to the respondent husband in respect of the costs incurred by the respondent husband in relation to the appeal.
The Court grants to each of the parties a costs certificate pursuant to s 8 of the Federal Proceedings (Costs) Act1981 (Cth) being a certificate that, in the opinion of the Court, it would be appropriate for the Attorney-General to authorise a payment under that Act to each of the parties in respect of the costs incurred by them in relation to the re-hearing ordered.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Welch & Abney has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EA 2 of 2016
File Number: NCC 629 of 2013
| Ms Welch |
Appellant
And
| Mr Abney |
Respondent
REASONS FOR JUDGMENT
On 14 December 2015 Austin J made property settlement orders pursuant to s 79 of the Family Law Act 1975 (Cth) (“the Act”) between the parties to this appeal, following the breakdown of their 16 year cohabitation and marriage. The relationship produced two children.
The orders made were predicated upon treating, as an interest in property with a present capital value of $972,959, the wife’s non-commutable total and permanent disability pension (“TPD pension”) which, subject to conditions, was payable to her as a component of her UniSuper occupational superannuation.
The wife’s essential contention at trial, as it is on her appeal from the orders made, is that having regard to the real nature of the TPD pension treating it in that manner; and at that value, and on the same footing as other property items, could not be just and equitable.
The wife contends that the trial judge’s discretion miscarried by his Honour failing to properly consider a relevant consideration, namely the real nature of the TPD pension. An associated challenge is that the trial judge failed to provide sufficient reasons for treating the TPD pension in the manner which he did. These challenges are contained within grounds 2, 3 and 4 of the wife’s amended notice of appeal filed on 4 March 2016.
Ground 1 contains a discrete challenge as to the trial judge’s determination not to “add-back” as a notional asset the husband’s post-superannuation expenditure and will be dealt with separately. The remaining ground, ground 5, was not ultimately pursued in circumstances referred to later in these reasons.
For the reasons which follow we find merit in the wife’s challenges directed to the manner in which the trial judge dealt with the TPD pension. We consider that the trial judge fell into error in the following respects:
a)By adopting, as the present value of the TPD pension, the capitalised amount determined pursuant to s 90MT(2) of the Act. This value (or, more accurately “amount”) is mandated solely for the purpose of a splitting order of a superannuation interest being made. No splitting order was made by his Honour and that decision is not the subject of any challenge on this appeal.
b)By disregarding the evidence of the single expert as to the TPD pension entitlement being considered in a similar manner to earnings from employment, and that expert’s evidence as to the different nature of the TPD pension entitlement from normal superannuation interests.
c)As a consequence of (a) and (b), ignoring the imposition of taxation upon the TPD pension and making orders which leave that substantial burden entirely with the wife.
d)As a consequence of (a) and (b), ignoring contingencies operative upon the TPD pension and making orders which leave those contingencies entirely with the wife, and conversely, relieve the husband of any impact of them.
If, contrary to our view, it was open to his Honour to deal with the TPD pension at its ascribed capital value in the manner in which his Honour did, the treatment of it at that capital sum was a very significant contribution by the wife. His Honour’s failure to regard it as such is in our respectful view, a failure by his Honour to take account of a highly relevant consideration and we consider his Honour’s discretion miscarried in any event as a result.
The Trial Judge’s Orders And Their Practical Effect
The husband was born in 1962 and was aged 53 years at trial. The wife was born in 1966 and was aged 49 years at trial.
In July 1995 the parties commenced cohabitation. They married on in 1996, separated in April 2011 and, in October 2011, the husband vacated the former matrimonial home at Town D and moved to a property he had then recently purchased at Town F.
There are two children of the marriage, girls aged 18 years and 15 years at trial. Both children lived with the wife following separation and both continued to so do. As at trial neither child had seen the husband for some time. He had been paying child support.
Throughout the relationship the wife undertook paid employment as a university lecturer. Her employment as a lecturer was terminated on medical grounds in February 2011.
The wife’s eligible service period commencement date with respect to her occupational superannuation is 1 July 1996, that is about a year after cohabitation commenced. Soon after the parties’ separation in April 2011 the wife became entitled to receive the TPD pension.
The husband was in fulltime employment during the relationship save for some months in 2002 when he was a PhD student. From 2003 the husband was employed as a university lecturer until his employment was terminated in December 2013.
As at trial each party was receiving payments via income protection insurance policies they each held with CommInsure payable until notional retirement at age 65 years, subject to continuing unfitness for employment as medically assessed.
The trial judge’s assessment of the parties’ respective entitlements, and the orders made, were predicated upon the TPD pension being treated as an interest in property with a present capital value of $972,959.
The orders made by the trial judge did not include any order pursuant to Part VIIIB of the Act effecting an alteration of the wife’s interest in superannuation, such as a s 90MT splitting order. The trial judge did not make any order otherwise effecting any alteration of the wife’s superannuation interest, including the TPD pension. That circumstance is central to our conclusion that his Honour erred in respect of the “value” of the wife’s TPD pension.
On the trial judge’s determination, the parties’ combined property interests (including superannuation and net of liabilities) were worth $2,797,777, including the TPD pension at its ascribed capital value. The trial judge adopted a global approach to that “pool” and determined that an overall 60 per cent/40 per cent apportionment in favour of the wife of that combined total was the appropriate outcome.
The Practical Effect of the Trial Judge’s Orders
At an ascribed capital value of $972,959 the TPD pension constituted about 34.8 per cent of the total worth of the parties’ combined property interests as found by the trial judge. It will be appreciated that by making orders to alter the parties’ interests in property to effect an overall 60 per cent/40 per cent outcome in the wife’s favour (but not including any splitting order with respect to the subject superannuation interest), the majority of the wife’s 60 per cent entitlement ($1,678,666) is constituted by the capital value ascribed to the TPD pension ($972,959).
Immediately apparent is a significant difference between the parties with great significance to the justice and equity of the orders arising from the nature, form and characteristics of the property and superannuation interests retained by each of the parties.
The practical effect of the orders for the husband included that he received the entirety of his 40 per cent entitlement of $1,119,111 in cash or other tangible property capable of immediate conversion into lump sum cash or its equivalent. In addition, the husband solely retained the benefit of his prospective common law damages claim in respect of which a single expert opined, and the trial judge apparently accepted, that it was “not unrealistic” to expect that the husband could settle the claim “in the range of $400,000 to $500,000”.
The practical effect for the wife was that she received or retained net tangible
(non-superannuation) property worth $368,608 in an overall entitlement of $1,678,666. Notably, whilst the wife was to receive the former matrimonial home worth $560,000 she was ordered to indemnify the husband in respect of the $312,000 mortgage debt on that property. Thus the wife was to retain a real property worth, in net terms, $248,000 and a concomitant responsibility to meet its mortgage.
The cash amounts to be retained by the wife were less than $10,000 in total and she was ordered to pay a cash adjustment of $1,992 to the husband. In comparison, the husband retained his Town F home worth $380,000 which, notably, was unencumbered, and his retained cash deposits exceeded $700,000 in total.
Factors Affecting The “Value” Of The TPD Pension
His Honour said, at [85]:
…In this case, the husband no longer has any superannuation. He voluntarily converted it to cash. The wife retains her superannuation, but the bulk of it comprises defined benefits with undisputed capitalised value. Global assessment of contributions to assets and superannuation is preferable.
It is uncontroversial that there was no expert evidence, other than with respect to the methodology under the Family Law (Superannuation) Regulations 2001 (Cth) (“the FLSR”), for the valuation of the income stream represented by the TPD pension taking into account taxation and the applicable contingencies. Neither party sought to adduce expert evidence of that kind. In the case of the wife that is understandable given her case that no capitalised value could legitimately be placed upon what was an income stream in replacement of earnings from employment.
Thus, whilst it is true to say that the capital value of the TPD pension was “undisputed” that statement ignores the fact that the wife’s case was completely contrary to the major component of her superannuation interest, the TPD pension, being ascribed a capital value at all. As will be seen, her contentions in that respect had support in opinions expressed by the single expert. Further, as will also shortly be seen, even on behalf of the husband there were expressed concerns about the approach to be taken if the “undisputed” capital value was applied.
The Nature, Form and Characteristics of the TPD Pension
As at trial the TPD pension was being paid to the wife in monthly gross sums liable to taxation. The wife could not commute any part of the TPD pension into a capital lump sum. It was not an assignable interest nor could it be the subject of a bequest upon the wife’s demise.
The wife opposed the making of any splitting order with respect to her superannuation interest. Her case at trial was that the TPD pension ought be recognised as being no more than a future (and uncertain) income stream. The wife contended at trial that ascribing a value of $972,959 to the TPD pension was no more than placing a capital value on the equivalent of future employment earnings.
For his part, by reference to an addendum to his case outline filed on 20 November 2015, the husband contended at trial for five separate pools to be adopted. “Pool A”, as described, included all “non-superannuation” property whilst each other item in the nature of a “superannuation interest” was placed in its own separate pool. Relevantly, whilst “Pool C” contained the TPD pension at the capital value of $972,959, the husband contended for that interest to be apportioned 82 per cent/18 per cent in favour of the wife. During final submissions in support of this approach, counsel for the husband submitted to the effect that the disparate nature of the interests and, in respect of the TPD pension the “difficulty” of its quantification, justified this approach.
Thus, counsel for the husband recognised, properly with respect, that if the TPD pension was to be taken in at its capitalised “value”, recognition needed to be given to the fact that it represented a very significant contribution on the part of the wife. We are, with respect, unable to see how his Honour gave this very important matter any consideration at all; certainly it forms no part of his Honour’s reasons.
It bears repeating that the wife commenced to receive the TPD pension soon after the parties had finally separated. It was received, conditionally, in lieu of future notional earnings from employment. Whilst the husband contended for an 18 per cent entitlement to that interest, the trial judge’s determination had the effect that the husband was entitled to 45 per cent of it on a
contributions-based assessment, adjusted by 5 per cent for the relevant s 75(2) adjustment factors.
The Value Of The TPD Pension Under The Act And Regulations
The “undisputed” capital value of the wife’s TPD pension was arrived at by the single expert applying the formula prescribed by the FLSR. However, it is important to understand that this capital amount is the mandated amount applicable under s 90MT(2) only if a splitting order is to be made.
Section 90MA of the Act expresses the sole object of Part VIIIB in these terms:
The object of this Part is to allow certain payments (splittable payments) in respect of a superannuation interest to be allocated between:
(a) the parties to a marriage; or
(b) the parties to a de facto relationship;
either by agreement or by court order.
Section 90MT(1) prescribes the kinds of orders that may be made in relation to a superannuation interest (as defined in s 90MD) each of which is directed to splitting a superannuation interest. Section 90MT(2) mandates the determination of an amount in relation to the interest “before the court makes an order under subsection (1)”. That section does not mandate that the amount determined for the purpose of a splitting order is to be adopted for any other purpose.
That legislative decision is quite intentional, and understandable. The (essentially actuarial) calculation upon which the amount of an interest is arrived at under the FLSR – or any approved scheme-specific calculation – incorporates assumptions (for example about taxation) that are only valid if there is to be a splitting order. The attributable “value” assumes that a splitting order is to be made and the consequent benefits and burdens, importantly including taxation, will fall upon both parties, although not necessarily equally, when each draws upon the benefit. Conversely, when no splitting order is made, a consideration of factors such as, importantly, taxation must be considered.
In respect of the approximate 16 year period between the valuation date of 1 January 2015 and the wife attaining the age of 65 years, Schedule 5 to the single expert’s report in evidence before his Honour discloses that the “valuation factor” to be applied pursuant to the FLSR is 14.6281. As the single expert explained in oral evidence, the difference between that figure and 16 years relates to an allowance for life expectancy. It should be noted that life expectancy is the only contingency which is accounted for.
This has considerable significance in this case given the unchallenged evidence as to contingencies applicable to the wife’s TPD pension to which we will shortly refer.
Thus, it is critically important to appreciate that (a) the Regulation or
scheme-specific “value” attributable to a superannuation interest applies only where there is to be a splitting order and (b) conversely, if no splitting order is to be made a number of considerations apply to any “value” ascribed to an interest by reference to same if justice and equity is to be achieved. So much is evident from the nature of the calculation undertaken if the Regulations (or scheme-specific) methodology is employed for the purposes of a splitting order. It is also evident by reference to authority (to which we will shortly refer). And, it is also evident in this case from evidence of the single expert directed specifically to that issue.
The Qualified Opinions As To the “Value” of the TPD Pension
The single expert’s opinion of the value of the TPD pension arrived at by reference to the FLSR was significantly qualified.
At 2.8 the single expert noted:
Given the nature of the Wife’s disablement pension, this pension entitlement would cease in the event that the Wife was no longer disabled or undertook other gainful employment. Therefore, it may be appropriate to consider the disability pension entitlement in a similar manner as earnings from employment as the pension payment is replacing the employment income that the Wife could have otherwise earned from the relevant date had she had the capacity to undertake other gainful employment. Therefore, it may be appropriate to consider to [sic] the value attributed to the disability benefit in a different manner to the retirement benefit and accumulation interest which have similar characteristics to normal superannuation interests.
(emphasis added)
In his oral evidence at trial the single expert explained the “purpose” of what is expressed at paragraph 2.8 in the following way:
My purpose of paragraph 2.8 is to highlight the different nature and characteristics of the disablement benefit compared to the retirement benefit and that it could be considered as an income replacement given that if the wife was to undertake other gainful employment that would cease.
(Transcript of Proceedings 25 November 2015 at page 239 line 15)
The expert’s evidence, as to the nature of the TPD pension was highly relevant to the exercise of the trial judge’s discretion, in particular the fact that its nature made it very different from the other components of the wife’s superannuation interest. That evidence mirrored the wife’s arguments before his Honour.
Neither this evidence of the single expert, nor the qualifications to his opinions more broadly is mentioned in the trial judge’s reasons. There is no reconciliation of this evidence by the trial judge with the conclusion that the amount determined for the purpose of a splitting order was appropriately adopted as the present capital value of the TPD pension.
The Impact On “Value” of Taxation and Contingencies
Taxation
As we have earlier said, the FLSR formula adopted by the single expert in arriving at a capital “value” of the TPD pension takes no account of taxation.
The wife’s financial statement filed on 4 November 2015 which she relied upon at trial discloses that in respect of the then estimated gross weekly amount of TPD pension of $1,271, the wife was paying estimated weekly income tax of $415.85. Annualising the tax figure produces $21,624.20, leaving a net annual pension (after tax) of $44,467.80.
Schedule 5 of the single expert’s report sets out the methodology, pursuant to the FLSR, used by the single expert. Note (3) on Schedule 5 records:
(3)UniSuper verbally advised that the monthly pension paid in December 2014 was $5,542.74 before tax. This has been multiplied by 12 to result in an annual pension of $66,513.
(emphasis added)
Thus, the formula under the FLSR for the purpose of a valuation for splitting purposes which was used by the single expert to determine the gross value of the TPD pension, pays no regard to the feature that the payments are taxable.
Schedule 5 gives the gross value of the TPD pension at $972,959. That figure derives from multiplying the before tax annual amount of pension of $66,513 by 14.6281. Not only could the wife not commute the pension into a capital sum, but even on the assumption that she received the TPD pension for 16 years until age 65 years, the expected total amount she would have received after tax by the expiration of 16 years would not even approximate $972,959. For illustrative purposes only, given the uncertainty about the incidence of future income tax over 16 years, but for the sake of comparing like with like, the annualised tax figure referred to of $21,624.20 multiplied by 14.6281 amounts to $316,320.96. That is, on this basis, the gross calculation of $972,959 reduces to $656,638.04 on account of tax.
In Semperton v Semperton (2012) 47 Fam LR 626 (“Semperton”), an authority to which the trial judge referred in his reasons for a different point (at [101]), the Full Court emphasised the importance of potential taxation in considering an interest, the gross “value” of which is determined under the FLSR. Further reference will later be made to Semperton which considered a pension of a different kind not subject to the same contingencies as will now be referred to with respect to the TPD pension.
Regrettably the trial judge was not assisted with submissions specifically directed to the taxation issue. However, the evidence referred to made it clear that calculation of the amount pursuant to the FLSR in respect of the TPD pension was based upon gross figures. As a matter of law, as highlighted in Semperton to which his Honour was referred in submissions, it was necessary to consider the impact of taxation particularly when no splitting order was to be made.
Other Contingencies Specific to the TPD Pension in this Case
The TPD pension was not a guaranteed fixed term or lifetime pension. Its continued receipt by the wife was subject to conditions. The wife was 49 years of age at trial and, subject to those conditions, she might continue to receive the TPD pension until she attained the age of 65 years, a prospective period of about 16 years.
However, apart from her continued survival, the wife’s continued receipt of the TPD pension was contingent upon medical assessments of the wife from time to time confirming her continued incapacity for gainful employment and the wife not in fact undertaking gainful employment.
Because the TPD pension was not a fixed or guaranteed benefit and formed part of the wife’s interest in a superannuation fund regulated by the relevant superannuation legislation and administered by a Trustee pursuant to the terms of a Trust Deed governing the scheme, there also existed the contingent prospect of the Trustee implementing changes to benefits sometime within the 16 year period referred to. This contingency has particular significance because of what was contained in the single expert’s report. That report attached at “Appendix B” the Form 6 responses from UniSuper as at
October 2011 and October 2012.
The form contained this:
Important note
This is an estimate only. UniSuper’s Defined Benefit Division (DBD) is currently subject to three monitoring periods under the UniSuper Trust Deed. The first of these monitoring periods is due to end on 31 December 2012 and in 2013 the Board will make a decision as to whether or not benefit reductions are required to ensure the long term financial position of the fund.
If benefit reductions are made they could include reductions to the future rate at which defined benefits accrue, reductions to the current value of defined benefits or a combination of both.
(emphasis added)
In his oral evidence at trial the single expert, in the course of clarifying some amendments to his affidavit, said this in relation to prospective changes within the subject fund:
At that stage I wasn’t clear as to the amendments that were being put forward by UniSuper as to whether they would have an impact on the benefits of the wife. It is now my understanding that they will not have an impact to her because she has already commenced the pension; however, UniSuper are still going through two periods of consideration for further changes. So whilst the changes that have been implemented will not impact her until those other reviews – periods have been completed I can’t say whether–whether there will be any further changes to her entitlements.
(Transcript of Proceedings 25 November 2015 at page 231 line 45) (emphasis added)
At 2.14 of his report, the expert noted:
The disablement pension is payable to age 65 but may cease or reduce if the Wife ceases to suffer from disablement or engages in gainful employment. The Wife may also be subject to regular medical checks to consider her [sic] the status of her disablement and whether she has the capacity to return to work.
(emphasis added)
In his oral evidence the single expert confirmed that if the wife ceased to be eligible to receive the disability pension, “tomorrow”, then his calculation of the disability pension amount “would be a nil value”.
Principles Emerging From the Full Court Decision in Semperton
As we have said, the decision of the Full Court in Semperton was cited to his Honour and was the subject of submissions before him.
The principles espoused by the Full Court in that case have particular resonance for the instant case because there, as here, no splitting order was made by the primary judge. Crucially, the pension at issue in Semperton was not subject to the contingencies operative in this case. For example, in Semperton neither the recipient’s eligibility to receive the pension, nor the amount payable by way of pension, was affected by employment or an income therefrom.
The Full Court’s reasons in Semperton contain a detailed discussion of various authorities which discussion need not be repeated here. Suffice to note that each of May J, in her Honour’s separate judgment, and the plurality (Thackray and Ryan JJ) in a joint judgment, emphasised that whilst a trial judge has a discretion as to how superannuation interests will be treated in a particular case, the discretion is guided by statements of principle; including that the nature, form and characteristics of the subject interest must be considered, whether or not a splitting order of the interest is made.
In emphasising these principles the plurality quoted extensively from the judgment of Murphy J in Hayton v Bendle (2010) 43 Fam LR 602, a case concerning a judicial pension. Whilst we need not quote all of the same extracts from Murphy J’s judgment as were quoted with approval by their Honours in Semperton, the following paragraphs have particular resonance in the instant context:
105.…It has always been the task of courts making orders pursuant to s 79 to properly examine the nature, form and characteristics of the property forming part of the pool for division. Variety in the nature of such property is by no means uncommon. That is neither more nor less so because there can now be, as part of the “pool”, a particular item, or items, of a statutorily-defined type with a value (or, more particularly, “amount”) derived by statutory means.
106.There has never been a requirement for different types of property to be treated the same as other types of property, nor has there ever been a requirement for different types of property to be treated differently. The nature, form and characteristics of the property has always been recognised…With great respect, I can see no reason why that should be different with respect to a “superannuation interest” which is defined by statute for a statutory purpose.
107.What is crucial is that the nature, form and characteristics of all components (or groups of components) of the “pool” to which s 79 orders might apply are considered. That is neither more nor less true of “superannuation interest”. “Superannuation interest” – particularly unvested superannuation interests – can be seen as being of a nature, and having a form and characteristics, markedly different from, say, real property. But that neither adds to nor distracts from, the tasks to be applied to those interests any more or less than the tasks to be applied to the property of the parties.
…
117.The characteristics of the pension – which see it as starkly different from, say, the cash proceeds from the sale of the former matrimonial home – need to be taken into account within the broad-based discretion provided for by s 79 in general and the assessment of contributions in particular (difficult though that may be).
Crucially, at [175] of their joint judgment the plurality in Semperton emphasised that the mandatory requirement expressed in s 90MT(2) of the Act to determine an amount in relation to a “superannuation interest” as defined arises only when the superannuation interest is to be split.
The Findings As To The Value Of The TPD Pension
Whilst at [3] of the reasons the trial judge referred to the feature that the TPD pension could not be commuted, and its continued receipt was subject to the proviso as to the wife’s medical condition, and at [101] the trial judge made reference to Semperton in the context of not “double-dipping” when considering s 75(2) adjustment factors, the trial judge’s disposition of the issue appears to be limited to what appears at [46] and [47] of the reasons as follows:
46.The wife’s TPD pension is a defined benefit superannuation interest in the payment phase. It’s capitalised value of $972,959 was calculated by the single expert according to the Family Law (Superannuation) (Methods and Factors for Valuing Particular Superannuation Interests) Approval 2003 (Cth) (item 49). That figure represents the current value of the TPD pension, assuming payment until she attains 65 years of age. The pension is paid monthly and cannot be commuted. Her continuing entitlement to payment of the pension depends upon her medical qualification for it, which is periodically reviewed. No aspect of the evidence implied any likelihood of its cessation and no such suggestion was made by the husband.
47.Because the statutory scheme expects the TPD pension to be capable of lump sum valuation, the wife’s superannuation interests incorporate that value. Contrary to the husband’s submission, the wife has no existing proprietary interest in it. Contrary to the wife’s submission, it is not merely a financial resource. It is a valuable superannuation interest susceptible to a splitting order. However, the “nature, form and characteristics” of the TPD pension affect any decision about whether it should be split.
(footnotes omitted) (emphasis added)
Two central findings would appear to emerge. First, despite the qualifications referred to in [46] of the reasons, the emphasised passages in both [46] and [47] would appear to reveal assumptions that (a) the FLSR “value” is “the current value” of the interest despite no splitting order being made and (b) “[b]ecause the statutory scheme expects the TPD pension to be capable of lump sum valuation” that valuation should be adopted even where no split is contemplated. Secondly, his Honour appears to confine a consideration of the “nature, form and characteristics” of the TPD pension to the question of whether a splitting order should be made. As Semperton makes clear, the question is multi-layered and impacts directly on the “value” of the pension if, as his Honour determined should occur, it is to be retained wholly by the wife.
That his Honour apparently approached the determination in this way is reflected in the finding, on the one hand, that “the wife has no existing proprietary interest in” (an interest valued at a capital sum of $972,959) yet, on the other, the adoption of that gross value, and the treatment of the interest at that value, in precisely the same way as all other property interests, even though no splitting order was made.
That conclusion is also reinforced by comparing the conclusions the trial judge expressed at [46] and [47] with some of his Honour’s statements in the course of the trial.
For example, at the outset of the trial in exchanges with counsel, the trial judge described the single expert’s assessment as “an ethereal expression of an opinion about a superannuation interest” (Transcript of Proceedings 23 November 2015 at page 4 line 35). That exchange was at the trial’s outset before his Honour had heard and considered the evidence tested in
cross-examination. However, it was a topic returned to in final submissions during the course of which, in exchanges with counsel for the wife, his Honour said of the TPD pension, “[i]t’s just a calculation. It can’t commute.”
In exchanges with counsel for the husband, counsel conceded “…Your Honour, I concede at the very outset that [the TPD pension] replaces lost income…” Later in the course of submissions by counsel for the husband his Honour said, with respect correctly, “…[the wife] is saying it’s not property in which she has either a legal or a beneficial interest because if she goes to the next medical appointment they say, ‘“Good as gold,”’ it stops.” Before going on to ask “[s]o how could it be said to be property in circumstances where she doesn’t have a legal or equitable entitlement to its continuing payment. It hinges entirely on the continuation of her medical condition.”
His Honour there addressed the capitalised “value” of the TPD pension. In response to counsel for the husband’s suggestion that the TPD pension “… is something that has a value that is capable of being calculated in accordance with the family law superannuation regulations”, his Honour said, “… that’s an artifice. It’s just a methodology.” When counsel submitted that the TPD pension “constitutes a legal entitlement that she has as against the trustee … a legal entitlement, it’s a vested and indefeasible entitlement”, his Honour responded:
No. I can’t accept that … she can’t go along and commute. She can’t go along and get the $900,000. She can only demand what it is, $5000 a month or whatever it is, whilst ever her medical condition is such as to warrant entitlement. The only person who would have an interest, legal or equitable in that payment, [it] seems to me, is the husband consequent upon a splitting order.”
(Transcript of Proceedings 27 November 2015 at pages 354 and 355)
The trial judge’s observations, and in particular, the qualifications his Honour expressed concerning the “value” of the TPD pension and the nature of the interest were, with respect to his Honour, well made and entirely correct. The difficulty is that the same considerations are not the subject of discussion or rationalisation in the reasons and are apparently subsumed by the findings earlier referred to.
As we have earlier sought to explain, the nature, form and characteristics of this particular interest required a consideration of matters affecting both the manner in which it should be treated if justice and equity was to be achieved and the value attributed to it in that process.
In the latter respect, no reference was made by the trial judge to the impost of taxation on the TPD pension nor is account taken of the fact that the wife can never receive the pension as a capital sum at all, much less at the value attributed to it or the impact of the contingencies inherent within it. Moreover, there is no articulation of reasons by the trial judge why, when a splitting order was not to be made, a gross value derived solely for the purposes of a splitting order, was adopted.
We consider that error is established in the various respects set out at the commencement of these reasons.
Those errors underpinned his Honour’s ultimate orders the practical effect of which we have also earlier set out. With all respect, we are unable to see how those orders with those effects can be said to be a just and equitable alteration of the parties’ interests in property as s 79 requires.
The Findings As To Contributions
As already noted, the trial judge determined to make a global assessment of contributions to the combined total.
What is expressed by the trial judge at [83] to [85] as follows would indicate some misapprehension on the part of the trial judge as to the respective positions of each party in the respects referred to. His Honour said:
83.Despite the lively debate over the facts, the nature of their contributions, and the manner in which their contributions should be assessed, the parties had remarkably similar opinions about the value of their contributions. The wife submitted for assessment of her contribution-based entitlement at 55 per cent, whereas the husband thought her entitlement was even greater, in the range between 55.5 and 60 per cent.
84.The wife submitted for global assessment of their contributions across all assets and superannuation interests, whereas the husband submitted for separate assessment of their contributions to assets and superannuation interests in five separate categories. Given the trifling differential between their respective assessments, the dispute over the methodology needs only superficial attention.
85.Global assessment of contributions is the norm (see Norbis v Norbis (1986) 161 CLR 513 at 523, 532-533, 541), though superannuation interests are usually treated separately (see Marriage of Coghlan (2005) 33 Fam LR 414 at 428-429). In this case, the husband no longer has any superannuation. He voluntarily converted it to cash. The wife retains her superannuation, but the bulk of it comprises defined benefits with undisputed capitalised value. Global assessment of contributions to assets and superannuation is preferable.
We have difficulty reconciling what his Honour said about “remarkably similar opinions” and describing the parties’ differences as “trifling” given the actual differences between the parties.
For example, in the case of the wife she was contending for a pool of assets including items of “notional” assets to be added-back in excess of $600,000 and to form part of the husband’s 45 per cent entitlement for which she contended. The wife was contending that no capital amount be included for the TPD pension. The husband contended for the inclusion of $972,959 in respect of the TPD pension. Those two matters alone constitute a $1.5 million dollar difference.
After discussing and making findings about various aspects of contribution, the trial judge expressed his ultimate conclusion as to that assessment in the following terms at [86]:
86.Overall, the wife’s contributions were modestly greater than the husband’s. The husband made a greater capital contribution at the beginning of their relationship, but their financial and non-financial contributions during some 16 years of cohabitation should be regarded as relatively equivalent. After separation, the wife’s contributions were greater and outflanked the greater initial contribution of the husband. He continued to make financial contributions to increase his superannuation interests, but the wife improved the [Town D] property and she contributed to maintenance of the debt over that property the husband created to buy the [Town F] property for himself. The wife’s contributions to the care of the children over the past four years have been substantially greater. The parties were correct to assess the wife’s overall contribution-based entitlement at 55 per cent.
We note that what the trial judge said at [86] in relation to the wife’s contributions after separation makes no reference to the TPD pension. If the wife’s TPD pension (whose value equated to 34.8 per cent of his Honour’s determination of the overall pool), was to be taken in as part of a global assessment of contributions, we are respectfully unable to see how it could be said that her contributions were “modestly greater” than those of the husband. Indeed, as we have earlier set out, the husband effectively conceded that they should be seen as markedly greater than what that expression might connote.
We consider that the only conclusion reasonably open is that his Honour did not consider the capitalised pension as a contribution by the wife at all. That is, in our respectful view, a significant error.
The “Add-Back” Argument
The trial judge found that each of the parties had spent large sums of money subsequent to their separation. In the case of the wife, her expenditure included a Workers’ Compensation lump sum payment of $60,000 she received in April 2012 and common law damages of $500,000 she received in May 2013.
In the case of the husband, his expenditure included $23,000 in sale proceeds of properties held at separation but sold subsequent to it; the entirety of $54,000 in severance pay he received in December 2013; and about $300,000 of his superannuation interests which he crystallised in 2015.
The trial judge found that the post-separation expenditure by each party was not profligate or unreasonable. The trial judge found that, in the main, the expenditure by each party was to meet ordinary living expenses, retire debt and to pay legal costs and that any discretionary expenditure was reasonable (at [37]).
We note this aspect in particular because the only ground of appeal pursued by the wife which is not directed to the issue of the TPD pension is ground 1. By that ground the wife contends that the trial judge erred in failing to “add-back” to the “divisible pool” as “notional property” funds received and expended by the husband post-separation, those being the funds the subject of the explicit finding the trial judge made at [37].
In the course of argument in the appeal, counsel for the wife conceded that there was no challenge on appeal to that finding. As we pointed out to counsel during argument, in the face of that unchallenged finding at [37] there exists no legitimate basis for the trial judge to have added-back as notional property any such expenditure. On this basis ground 1 must fail.
Re-exercise Or Remitter?
Understandably desirous of bringing an end to this litigation, both parties initially sought at the hearing of this appeal that in the event we found merit in the appeal we ought re-exercise the discretion rather than remitting the matter for re-hearing.
The first and obvious difficulty in doing so, as was pointed out during the hearing, was that if there was to be no splitting order of the wife’s superannuation interest as she contended for, there is the potential to value the wife’s future income stream via the TPD pension on an entirely different basis to that prescribed by the regulations. It was confirmed on the hearing that there was no evidence in this case from the single expert as to a valuation on such a basis.
Second, on the approach of the husband that a splitting order is to be made, it is clear from the report of the single expert and his oral evidence at trial that uncertainty pervaded the outcome, to each party but in particular the wife, if a splitting order of a particular amount was made. It seems that UniSuper would apply a splitting order across all components of the wife’s defined benefit interest, including the TPD pension, but that the Trustee may be amenable to a request by the wife to apply the split discretely. That aside, there exists a paucity of evidence about the effect of splitting orders of various amounts. Uncertainty about the effect upon the wife of a splitting order remained, on the state of the evidence, at the conclusion of the trial.
Further, the husband’s application to adduce further evidence on appeal was disposed of with the parties’ agreement that we could proceed on the basis of accepting as fact that the wife has now borrowed funds to discharge the mortgage on the former matrimonial home, but the wife has had to borrow significantly more than the $312,000 balance of that debt as at trial. That also resulted in the wife not pursuing ground 5 of the appeal.
This highlighted the need for each party to provide updating evidence. At the hearing of the appeal both parties contended that they would wish to place further evidence before the Court for the purpose of any re-exercise of discretion. Obviously, as was pointed out during the hearing, the need to engage in fact-finding on disputed issues renders a re-exercise of discretion by this Court impracticable.
It was ultimately acknowledged by both parties that further expert evidence, and updated evidence by each party, may need to be tested by
cross-examination and be the subject of submission.
Finally, a further matter arising since the appeal was heard would dissuade us from re-exercising the discretion if such a re-exercise were otherwise possible.
In Campbell v Superannuation Complaints Tribunal [2016] FCA 808, unreported, delivered on 15 July 2016, Logan J, sitting at first instance in the Federal Court, considered the applicant’s entitlement to receive an invalidity pension benefit pursuant to the Military Superannuation Benefits Scheme.
One issue in that case was the meaning of “defined benefit interest”, as defined for the purposes of the FLSR by regulation 5. Sub-regulation (2) of regulation 5 provides:
(2)A superannuation interest, or a component of a superannuation interest, is not a defined benefit interest for these Regulations if the only benefits payable in respect of the interest, or the component, that are defined by reference to the amounts or factors mentioned in sub-regulation (1A) are benefits payable on death or invalidity.
Logan J determined that whilst the subject interest in that case was a “superannuation interest” within the meaning of the Act, by operation of the regulation referred to, the subject interest was not a “defined benefit interest”.
Valuation of the TPD pension component on the basis that it is an “accumulation interest” rather than a “defined benefit interest” on Logan J’s analysis (if it applies and is correct) might produce fundamentally different outcomes, if, indeed, valuation by reference to the FLSR is appropriate at all in this case. It may not be if no splitting order is sought, and is not otherwise ordered.
We express no view as to the correctness of Logan J’s determination nor as to whether that determination transposes to the interest under consideration here. However, the opportunity for each party to consider the matter and to make submissions on any re-hearing and re-exercise of discretion militates in favour of the matter being remitted for that purpose.
For these reasons we propose to remit the proceedings for re-hearing by a judge other than the trial judge.
Costs
Whilst the wife sought an order for the husband to pay her costs if the appeal succeeded, we consider that the circumstances here do not justify an order for costs against the husband.
Given the bases upon which the appeal is to be allowed, we consider it appropriate that each party bear their own costs (s 117(1)) but would grant each party a costs certificate, as each sought, for both the appeal and in respect of the re-hearing.
I certify that the preceding one hundred (100) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Murphy, Aldridge & Kent JJ) delivered on 22 December 2016.
Associate:
Date: 22 December 2016
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