WYNDHAM & GILBERT
[2012] FamCAFC 164
•5 October 2012
FAMILY COURT OF AUSTRALIA
| WYNDHAM & GILBERT | [2012] FamCAFC 164 |
| FAMILY LAW – APPEAL – PROPERTY – appeal by the wife against orders of the Federal Magistrate dividing property with net value of $517,307 as to 70 per cent to the husband and 30 per cent to the wife – asserted by the wife that the Federal Magistrate should not have accepted the single expert’s evidence in determining the value of the parties’ business – Full Court found no error, being satisfied that the Federal Magistrate was well aware of the limitations of the expert’s evidence but in circumstances where no other evidence was provided – asserted by the wife that the Federal Magistrate erred in determining the liabilities of the parties and that the Federal Magistrate should not have accepted the husband’s explanation of his liabilities, particularly post-separation – Full Court found no justification for interfering with this exercise of discretion by the Federal Magistrate, the Full Court having concluded that the Federal Magistrate had carefully examined the husband’s material and was satisfied to accept the husband’s claimed liabilities – asserted by the wife that the Federal Magistrate erred in the exercise of discretion in assessing the parties’ contributions – Full Court found that, despite the Federal Magistrate having overlooked the husband’s evidence as to the amount of his liabilities at the time of the marriage, it would not be justified in interfering with the contribution assessment – asserted by the wife that the Federal Magistrate erred in the adjustment made for s 75(2) factors – Full Court found this challenge to be solely based on an argument as to weight and that again its interference would not be warranted – appeal dismissed – each party to bear their own costs in relation to the appeal. |
| Family Law Act 1975 (Cth) s 75(2), s 121(g) Federal Magistrates Court Rules (2001) (Cth) r 16.05(2)(e) |
| Gronow v Gronow (1979) 144 CLR 513 Kowaliw and Kowaliw (1981) FLC 91-092 |
| APPELLANT: | Ms Wyndham |
| RESPONDENT: | Mr Gilbert |
| FILE NUMBER: | SYC | 7763 | of | 2007 |
| APPEAL NUMBER: | EA | 54 | of | 2010 |
| DATE DELIVERED: | 5 October 2012 |
| PLACE DELIVERED: | Canberra |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Finn, Strickland and Murphy JJ |
| HEARING DATE: | 19 September 2011 |
| LOWER COURT JURISDICTION: | Federal Magistrates Court |
| LOWER COURT JUDGMENT DATE: | 9 April 2010 |
| LOWER COURT MNC: | [2010] FMCAfam 24 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr Durra |
| SOLICITOR FOR THE APPELLANT: | Pearson Family Lawyers |
| COUNSEL FOR THE RESPONDENT: | Ms Rees SC |
| SOLICITOR FOR THE RESPONDENT: | Abrams Turner Whelan |
Orders
The appeal be dismissed.
Each party bear their own costs in relation to the appeal.
IT IS NOTED that publication of this judgment by this Full Court under the pseudonym Wyndham & Gilbert has been approved by the Chief Justice pursuant to
s 121(9)(g) of the Family Law Act 1975 (Cth)
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EA 54 of 2010
File Number: SYC 7763 of 2007
| Ms WYNDHAM |
Appellant
And
| Mr GILBERT |
Respondent
REASONS FOR JUDGMENT
This is an appeal by the wife, Ms Wyndham, against three of the orders for property settlement made by Walker FM on 9 April 2010 in proceedings between the wife, the husband, Mr Gilbert, and the husband’s sister, Ms Gilbert. Although named as the respondent to the appeal, the husband’s sister informed the Appeal Registrar prior to the hearing of the appeal that she did not intend to participate in the appeal.
The principal order appealed (Order 12) required the husband to pay the wife a certain sum of money within three months of the making of the order. The other orders appealed (Orders 13 and 21) are in the nature of orders for enforcement of that payment.
“Slip-rule” amendment of the orders appealed
It needs to be explained at the outset of these reasons, that the appeal books contained an engrossment of orders made on 9 April 2010, in which the amount to be paid by the husband to the wife under Order 12 (and to be enforced under Orders 13 and 21) is shown as $155,192.10. This is also the amount stated at [247] and [249] of the Federal Magistrate’s reasons for judgment (in the form in which they appear in the Appeal Book) as being payable by the husband to the wife in order to give effect to her Honour’s division of the net value of the parties’ property (found by her to be $517,307) in the proportions of 70 per cent to 30 per cent in the husband’s favour.
However, the Appeal Book also contains a further engrossment of the orders stated to have been made on 9 April 2010, but also stated to be “[a]s amended by the Slip Rule on 21/7/10”. In this engrossment the amount shown to be payable by the husband to the wife under Order 12 and enforceable under Order 13 is $94,354.10, with the amount shown as enforceable under Order 21 being $95,354.10. At the end of the orders appearing in this “slip-rule” engrossment there is the following notation:
24.These Orders have been amended pursuant to rule 16.05(2)(e) of the Federal Magistrates Court Rules to show new (sic) 12, 13 and 21 in lieu of old Order 12, 13 and 21 dated 9 April 2010.
The notice of appeal against the orders of 9 April 2010 was filed on 6 May 2010. It is explicable given that the slip rule order was not made until 21 July 2010, that the copy of the orders attached to the notice of appeal is of the original orders showing the amount payable under Order 12 (and enforceable under Orders 13 and 21) as $155,192.10.
Perhaps surprisingly, however, the written summary of argument of Counsel for the appellant, which was filed on 22 November 2010, sets out Orders 12, 13 and 21 in their original, unamended form (notwithstanding that a copy of the slip rule order is contained in the Appeal Book). There is also no reference to the slip rule amendment elsewhere in the written submissions of Counsel for the appellant, nor in those of Counsel for the respondent. Nor was any reference made to the slip rule amendment during the hearing of the appeal.
Fortunately, we have been able to work out the reasons for the need for the slip rule amendment and can be reasonably confident of what the correct figure owed to the wife under the Federal Magistrate’s orders should be. If the net value of the property as found by her Honour at $517,307 is divided in the proportions of 70 per cent to 30 per cent in the husband’s favour, the wife’s share would be $155,192.10 which is the figure in her Honour’s reasons (as they appear in the Appeal Book) and in her original orders. However, as will later be seen the figure of $517,307 includes the value of four assets in the possession of the wife which total in value $70,838 and it also takes into account her Mastercard debt of $10,000. The resulting value of the wife's net assets is therefore $60,838. When that last mentioned figure is deducted from the wife's 30 per cent entitlement figure of $155,192.10, she is required to be paid by the husband only the figure of $94,354.10 (which is the amount shown in two of the three orders in the slip rule order). We will therefore proceed on the basis that the amount which the husband had to pay to the wife under the Federal Magistrate’s orders was $94,354.10 which we round down to $94,354.
Factual Background
The factual background to this case as found by the Federal Magistrate is as follows.
The husband (who was 59 at the time of the trial) and the wife (who was 46 at that time) commenced a relationship in 1998, but only began to live together when they married in early 2000. The wife had a three year old son from a previous relationship, who then lived with the parties for most of the time. The parties’ only child, a daughter, G, was born in May 2001. The parties lived together until 2007.
The husband’s mother had owned a block of land at C on which there were two houses, one of which was known as the “shed”. The husband had lived in the shed since about 1971, and it became the parties’ matrimonial home. The mother also owned a property at W.
The husband’s sister, Ms Gilbert, who, as earlier mentioned, was a party to the proceedings before the Federal Magistrate, had lived with their mother in the other house on the C property for a period prior to the mother’s death.
In 1996 following their mother’s death, the husband and his sister inherited the C and W properties as tenants in common, with each continuing to occupy the house on the C property in which they had been living prior to the mother’s death.
The W property was rented with rent being paid into a joint account of the husband and his sister.
About three years before the parties’ marriage (that is, in about 1997) the husband opened a business in C called business B. He borrowed $120,000 secured against the W property to assist in setting up this business and he alone (rather than with his sister) was responsible for the repayments of this loan. The husband worked in the business throughout the marriage.
In 1998 the husband’s stepbrother commenced Family Provision Act proceedings against the husband and his sister. These were settled, with $290,000 being borrowed by the husband and his sister to meet the settlement and legal costs. The loan was secured over the C property and rent from the W property was used to meet repayments on the loan as well as on the loan for the establishment of the business.
After the parties’ marriage (in 2000) renovation work was started on the shed which had become the parties’ matrimonial home. The renovations were not completed until 2004, and according to the husband, the final cost was about $650,000.
In order to finance the renovation work, the husband entered into refinancing arrangements which involved two new loans, one with his sister for $270,000 in respect of the loan taken out in relation to the Family Provision Act proceedings, and the other in his sole name for $380,000 (made up of a home loan of $180,000 and an overdraft facility of $200,000 which by July 2007 (just prior to separation) had increased to $608,000).
In April 2005 the W property was sold, with the husband receiving $644,943.54. He applied this amount to the overdraft.
In July 2007 the husband entered into another refinancing arrangement, which involved a home loan of $170,000 and an overdraft facility of $780,000.
In August 2007 the parties separated when the wife left the matrimonial home with G and moved to a unit in a nearby suburb.
Following separation, the husband continued to operate business B (although it was apparently no longer as profitable as it had originally been).
In February 2009 the wife commenced employment at a public school having also re-partnered.
In mid 2009, in addition to business B the husband also took over the management of a business, Z, through a company called K Pty Limited. His level of indebtedness continued to increase and had reached $930,000 by August 2008, with a further line of credit with a limit of $250,000 being established with the assistance of his sister and accountant in December 2008.
Walker FM heard both parenting and property proceedings between the parties (with the husband’s sister being joined as the second respondent to those proceedings) from 16 to 18 November 2009.
On 9 April 2010 her Honour delivered reasons for judgment and made her orders. The effect of the parenting orders was for G to live with the wife, but to spend six nights each fortnight with the husband, and to spend half of each school holidays with each parent. She was to continue to go to school in the area in which the husband lived. These parenting orders are not appealed.
The appealed orders and reasons with respect to property
In her reasons for judgment after setting out the history of the parties’ financial affairs, the Federal Magistrate recorded at [145-146] that the wife had sought to receive an amount of $1,842,489 being equivalent to 35 per cent of the net pool of assets identified “in the balance sheet attached to her minute of orders”, although her Honour went on to note that there was “some slight adjustment to the net asset pool as calculated by the wife”. Her Honour also recorded that the husband sought that he should pay the wife $50,000 in addition to her retaining certain property and her superannuation.
Her Honour then (at [148]) identified the issues before her as being:
·the husband’s credit and the adequacy of his financial disclosure;
·the valuation of business B;
·the quantum of the husband’s liabilities and whether certain liabilities should be notionally added back into the so-called “pool”;
·whether there was an agreement between the husband and his sister in relation to the distribution of the proceeds of any sale of the C property; and
·the parties’ contributions.
A little later in her reasons (at [152-153]) her Honour summarised certain of these issues, which are the issues relevant to this appeal, in the following way:
152.This is a matter where the wife had little involvement in, or knowledge of, the husband’s financial affairs. The husband’s main source of income was, in the past at least, earned from [business B] which was established by him three years before the marriage.
153.Apart from the issue of the value of [business B], the issues in dispute relate very much to what the husband alleges are his liabilities. They are indeed very considerable, amounting to a figure just in excess of $3.1 million dollars.
Just prior to these two paragraphs, her Honour had set out two tables of assets and liabilities which she described in her reasons as “Table 1” and “Table 2” respectively. It appears from [151] of her Honour’s reasons that both parties had had input into Table 1 (which had been Exhibit 19 before her Honour), and that Table 2 had been submitted on behalf of the wife after the trial. Her Honour noted that Table 2 contained a “significant difference” from Table 1 in that it contained a value of $400,000 for business B and also included a tax debt as a disputed item when the wife’s Counsel had conceded in submissions that it should not be a separate item. We will return to these issues in due course, but we observe in passing that it appears to us somewhat irregular, to say the least, that further apparently unexplained figures would be submitted to the Federal Magistrate following the conclusion of the trial without some form of leave having first been given.
In considering the five issues which she had identified as issues in the proceedings, the Federal Magistrate dealt first with the issues of the husband’s credit and the adequacy of his disclosure. Having considered certain matters apparently relied on by the wife in relation to the husband’s credit, her Honour concluded (at [157]) that “there is clearly a basis for the husband’s evidence about certain matters to be treated with caution”.
The issue of the adequacy of the husband’s disclosure apparently related to his earnings from business Z. Having reviewed the evidence in this regard, her Honour concluded that she was “unable to make adverse findings about the husband’s credit or disclosure” in relation to business Z, but she went on to say:
162.… Nevertheless, as discussed it is clear that there are financial matters about which in the recent past, the husband has not been frank and the Court needs to take this into account in relying on certain of his evidence.
Her Honour next considered the issue of the husband’s liabilities. We will return to her Honour’s conclusions in this regard, so far as presently relevant, when dealing with the ground of appeal directed to this issue. Suffice it to say at this point, that at the conclusion of her discussion of the husband’s liabilities her Honour observed (at [182]) that she had “doubts about the husband’s credit in relation to at least some aspects of his evidence about financial matters”.
Her Honour then turned to the issue of the value of business B. Again, this is a matter which we will return to in the context of the first ground of appeal. However, we mention here that while her Honour was prepared to accept the valuation of the single expert, Mr M, at “minus $15,310” (and not the $400,000 contained in the wife’s second table of assets and liabilities), she concluded her discussion of this issue by saying:
194.The difficulty is that the Court has a concern about the reliability of some of the evidence given by the husband, in particular about monies taken from the business. It is quite possible, that the husband has taken more money from the business than acknowledged by him. The wife will be disadvantaged as a result of such action. It is open to the Court to make an adjustment in favour of a disadvantaged party pursuant to the provisions of s. 75(2)(o). (Kannis & Kannis (2003) FLC 93-135). This is a course the Court will take in this matter.
In making findings in relation to other disputed items her Honour addressed the issue of the alleged agreement between the husband and his sister in the context of determining the amount to be included for the mortgage over the C property. We will return to this issue later in these reasons, but for now we observe that on the evidence before her, her Honour was not persuaded that there was such an agreement, but she proposed to take the circumstance that the husband could expect to receive a benefit upon the sale of the C property into account under
s 75(2)(o) of the Act.
Her Honour then set out a table of assets and liabilities based on her findings in relation to all disputed items, and which she referred to as Table 3. It will be convenient for us also to set out this table at this point of these reasons:
Table 3
Asset H/W/J Value 50% interest in [C] Husband $1,750,000.00 CBA Account H trading as [business B] Husband 0 Bk Qld: [K Pty Ltd] Bank Account Husband $9,500.00 Bk Qld: [K Pty Ltd] Bank Account (2) Husband $1,700.00 Contents Husband $10,000.00 AMP shares Husband $2180.00 [Business B] Husband ($15,310.00) Sports car Husband $15,000.00 Bank Deposit Rental Bond Husband $21,450.00 Paid legal Fees Husband $79,000.00 Superannuation Husband $33,717.00 BMW Car Husband $17,500.00 Boat Husband $15,000.00 Contents Wife $1000.00 Volvo car Wife $3000.00 Paid legal fees Wife $43,000.00 Superannuation Wife $23,838.00 Total assets $2,010,575.00 Less Liabilities Mortgage [C] Husband ($932,000.00) Home Loan [C] Husband ($166,000.00) LineCredit [C] Husband ($240,268.00) Amex Husband ($50,000.00) Visa Husband ($20,000.00) Trade Creditors: [business B] Husband ($50,000.00) Trade Creditors: [K Pty Ltd] Husband ($25,000.00) MasterCard Wife $10,000.00 Unpaid legal fees Wife 0 Total liabilities ($1,493,268.00) NET PROPERTY $517,307.00
Her Honour then turned to an assessment of the parties’ contributions. We will return to this matter when we consider the ground of appeal directed to it. But we would explain here that having regard to her findings as to the husband’s very large initial contributions of the W property and particularly of the C property, as to his direct and indirect financial contributions during the marriage, and as to the wife’s contributions as a home maker, her Honour assessed the wife’s contributions of 20 per cent and the husband’s at 80 per cent.
As to the s 75(2) factors, her Honour found that there should be a 10 per cent adjustment in the wife’s favour on account of the greater amount of time which the child would spend with the wife, the husband’s greater income-earning capacity and his expectations of financial benefits, and her concerns regarding the reliability of the husband’s evidence about financial matters. Again, we will return to this matter in the context of the grounds of appeal.
Thus, her Honour arrived at 70 per cent - 30 per cent division in the husband’s favour, of the net value of the parties’ property (being presumably at a figure of $517,307.00). She said at [247] of her reasons (as they appear in the Appeal Book) that the result of this division was “that the husband should pay the wife the sum of $155,192.10”.
Unfortunately, given what was otherwise a very detailed and thorough judgment, her Honour did not set out a calculation of how she arrived at the figure of $155,192.10 (subsequently amended to $94,354.10 in the slip rule orders) which the husband was required to pay the wife. Had she done so, the need for the slip rule amendment may well have been avoided.
As earlier explained in our discussion of the slip rule orders, the amount of $155,192.10 represents the wife’s entitlement to 30 per cent of the value of the net property at $517,307. However, it was necessary to take into account the fact that included in that last mentioned sum are her contents ($1,000), Volvo car ($3,000), paid legal fees ($43,000) and superannuation ($23,838). There is also her credit card liability of $10,000. When the total value of those assets and liabilities ($60,838) is taken into account the sum required to be paid to her by the husband is $94,354 ($155,192 - $60,838).
The Grounds of Appeal
As will have emerged from our summary of her Honour’s reasons for her property orders, the grounds of appeal assert that she erred:
· in determining the value of business B (Ground 1);
· in determining the nature and extent of the parties’ liabilities (Ground 2) and in accepting that the husband gave an adequate explanation for the significant increase in his liabilities post separation (Ground 5);
· in assessing contributions at 80 per cent -20 per cent in favour of the husband (Ground 3); and
· in determining a s 75(2) adjustment at 10 per cent (Ground 4).
It will later be seen from our discussion of the grounds of appeal that we have concerns about the lack of particularity in the grounds; such a lack of particularity might cause them to be regarded as not being grounds of appeal at all. Nevertheless, we received argument in support of each ground and this provided some insight into the complaint intended to be embodied in the ground in question.
We note in passing that the wife sought leave to appeal in her notice of appeal but without providing any supporting facts or argument. However we point out that leave is not needed to appeal the orders now appealed.
The valuation of business B
As we have earlier explained, the Federal Magistrate accepted as the valuation of business B the negative value of “minus $15,310” which had been provided by the single expert, Mr M, rather than the figure of $400,000 which was contained in the wife’s (second) table of assets and liabilities submitted (without apparent explanation) after the trial. As will later be seen, her Honour gave detailed reasons for her decision in this regard.
The ground of appeal (Ground 1) which asserts error in her Honour’s determination of the value of the business does no more than simply assert that error. It does not contain any particulars of how or why her Honour is alleged to have erred in accepting the single expert’s valuation.
However, it emerges from the submissions, oral and written, in support of the ground that the complaint about this matter is to the following effect.
Mr M set out at page 2 of his report the limited range of documents and sources of information which he had available to him for the purposes of valuing the business. He then conceded under cross-examination that he had not seen American Express and Visa card invoices “directed to the husband”, nor cheque butts, nor bank statements, and that his valuation might “possibly” have been different had all income for the business been disclosed.
Mr M also explained in his oral evidence that his “overriding concern in undertaking this valuation was that there is only a short-term lease on the premises” with about eighteen months left to run. However, he went on effectively to concede that he was not aware that the lease had two additional options which could lead to a further six years. (Transcript 18 November 2009, page 184, lines 1-32).
Against this background, it was submitted by Counsel for the wife in his final address to her Honour that Mr M’s valuation could not be accepted, and that the answer to the question of what was the value of the business could not be known because the husband had not made “full and frank disclosure of the correct position concerning its income, and … its expenses” (Transcript 19 November 2009, page 239, lines 41-46).
Notwithstanding these submissions, her Honour did accept Mr M’s valuation, and thus, presumably, the complaint in Ground 1 is that she should not have done so given the concessions which Mr M had made and the husband’s lack of disclosure.
Before we set out the paragraphs from her Honour’s reasons where she dealt with these issues, it needs to be explained that no alternate valuation for business B appears to have been suggested on behalf of the wife to her Honour by the conclusion of the trial. However, as already mentioned in these reasons, following the conclusion of the trial, the further table of assets and liabilities which her Honour described as “Table 2”, was submitted to her on behalf of the wife and that table contained a value of $400,000 for business B. But no submissions or any form of explanation apparently accompanied this further table. However, it was accepted before us that the source of the figure of $400,000 was the figure used by the husband as a value for the business in an application for finance made to a bank in about 2007 (which was Exhibit 2 before the Federal Magistrate).
It will be seen from the paragraphs which follow from her Honour’s reasons that all the issues now raised in support of Ground 1 were considered in depth by her:
184.Mr [M]’s opinion is that [business B] is valued at minus $15,310.00. The wife submitted that the documents Mr [M] relied on were inadequate. It was submitted that there were problems relying on the husband’s income tax returns because of the husband’s evidence that he had taken cash out of the business and because the tax returns could not support the lifestyle described by the husband. A further limitation pointed to was that Mr [M] did not have statements from the husband’s Amex and Visa credit cards which the husband said were the records of the acquisitions of produce for the running of the business.
185.The husband’s counsel agreed that possibly there were categories of documents that Mr [M] did not see but noted that the tax returns for 2007 and 2008, contained significant detail about the trading affairs of the business at the end of each financial year. He correctly observed that it was not put to the expert in cross-examination that the provision of other documents would assist him in the valuation or suggested to him that without the documents he could not form an opinion. Neither was there a suggestion that the expert had asked for documents which he did not receive. Mr [M] in his report sets out his use of the Fair Market Value methodology. He refers to having the income tax returns from 2005 to 2008, BAS returns for the four quarters ended 30 June 2009, the lease, the Profit and Loss Account for the four years to 30 June 2008 but not the Balance Sheet for the business. He said this was not required to be produced by a sole trader. His evidence was that he also relied on benchmark figures for businesses of a similar nature. The profit and loss account showed a negative operating profit before tax in 2005 which deteriorated much further in 2006. This is consistent with the husband’s evidence of the very adverse consequences to business of [an event which occurred in the area in 2005].
186.Mr [M] agreed that if not all the income was brought into account, he may possibly have come to different conclusions in his report depending on the quantum of income that was not included. He said that the husband would need somewhere between $50,000.00 and $60,000.00 to earn a commercial wage out of the business so that if sums taken out of the business had been in the area of say $15,000.00 that would still only take the husband to a commercial wage and that more than this would be required for the business to show a profit over and above such a sum so as to be able to attract a purchaser. The Court, as noted, cannot be confident about the evidence given by the husband about sums taken out of the business.
187.Mr [M] confirmed that outstanding tax had been incorporated in the report. If the business was sold for some figure that netted a surplus over and above outstanding BAS he noted that trade creditors would be required to be paid. He agreed that he did not have figures for trade creditors when he did the valuation. The significance of the options on the lease were put to Mr [M] who agreed that the question of the exercise of the option would depend on the success or otherwise of the business at the end of the lease. In his opinion the lease limited the goodwill although he conceded that an incoming purchaser might assess the situation differently, in his opinion the lease limited the goodwill.
188.In submissions it was asserted on behalf of the wife that the reason why a value could not be given to [business B] was because the husband had not made a full and frank disclosure of the correct position of his income.
189.The wife subsequent to the hearing provided the documents set out in Table 2 which purported to give the business a valuation of $400,000.00. This does not reflect the submissions made on behalf of the wife at hearing. At the same time, the Court infers that this reflects the representation made by the husband when further credit was sought from the Bank of Queensland.
190.The husband was cross-examined about this representation. He said that about 6 years ago, or when the restaurant was not making a loss, he had a very good offer that was around this figure. He said he was unsure if he had made this representation to the bank in 2008 and said that the documents were prepared by his accountant and that he did not record the detail in the applications to the bank. The husband’s evidence about this as discussed previously is unconvincing. At the same time, it is difficult to rely on the prior representation to the bank, rather than the value as assessed by the expert, as the present value of the business.
…
193.Before the Court of course, is the evidence of the single expert. While the representations of the husband might well lead the Court to be cautious in accepting certain of his evidence it is difficult to see that the Court has a basis for inserting a different value to that provided by the expert. It may well be that the valuation has limitations. At the same time, there is no indication that either party sought to address further questions to the expert upon receipt of the report. The husband’s counsel expressed some puzzlement that the expert did not take up details of trade creditors in the valuation, however the thrust of his submission was that the single expert completed the valuation as asked and provided the valuation which was before the Court. The Court cannot conclude that there is a sound basis for substituting any other valuation. The difficulties in taking any other course were highlighted in the recent decision of the Full Court, in Di Salvo & Di Salvo [2009] FamCAFC 232.
194.The difficulty is that the Court has a concern about the reliability of some of the evidence given by the husband, in particular about monies taken from the business. It is quite possible, that the husband has taken more money from the business than acknowledged by him. The wife will be disadvantaged as a result of such action. It is open to the Court to make an adjustment in favour of a disadvantaged party pursuant to the provisions of s. 75(2)(o) (Kannis & Kannis (2003) FLC 93-135). This is a course the Court will take in this matter.
It will thus be seen that her Honour was well aware of the limitations on Mr M’s evidence. But it will also be seen that she well understood the difficulties of relying on representations to a bank made in the past in preference to an expert’s opinion as to present value.
In circumstances where her Honour was given no further assistance in the form, for example, of a further expert opinion, she certainly cannot be said to have erred, in an appellate sense, in reaching the conclusions which she did concerning the value of the restaurant.
Further, in relation to this ground, it needs to be borne in mind that her Honour recognised that the difficulties in relation to the valuation of business B could be sourced to the reliability (or lack of reliability) of the husband’s evidence concerning monies taken from the business, and she said that she would make an adjustment on account of that matter in the context of s 75(2)(o). That aspect of her Honour’s decision should not be overlooked, and it is a matter to which we will return. But it can be said at this point, that we do not find merit in Ground 1.
The liabilities of the parties
The precise terms of the grounds of appeal directed to the Federal Magistrate’s treatment of the parties’ liabilities are that her Honour erred:
§ “in determining and including the nature and extent of the liabilities of the parties” (Ground 2); and
§ “in accepting that the husband gave an adequate explanation as to the significant increase of his liabilities post separation” (Ground 5).
Again it will be seen that as was the case in relation to Ground 1, the terms of Ground 2 give little insight into the nature of the complaint made in the ground. Furthermore, Counsel who appeared for the appellant before us, apparently at short notice, was ultimately unable to give us any great assistance in understanding the scope or content of this second ground. It is fair to say that he largely relied on the submissions made at trial being to the effect that the husband’s expenditure was largely unexplained and should not, therefore, be made the responsibility of the wife.
Ground 5 on its face is perhaps more informative in that it can be read as being directed to the husband’s post-separation liabilities. Again, however, the submissions in support of the ground, particularly the figures relied on, were far from clear.
The most convenient way to begin our discussion of these somewhat unclear challenges to her Honour’s conclusions concerning the parties’ liabilities is to set out again at this point the list of liabilities which her Honour was prepared to take in to account in determining the net value of the parties’ property. That list is as follows (with the numbers appearing beside each being the numbers used in “Table 2” in her Honour’s reasons and as used by her in her reasons when discussing a particular liability):
18 Mortgage [C] Husband ($932,000.00) 19 Home Loan [C] Husband ($166,000.00) 20 LineCredit [C] Husband ($240,268.00) 22 Amex Husband ($50,000.00) 23 Visa Husband ($20,000.00) 24 Trade Creditors: [ business B] Husband ($50,000.00) 25 Trade Creditors: [ K Pty Ltd] Husband ($25,000.00) 26 MasterCard Wife $10,000.00 27 Unpaid legal fees Wife 0 Total liabilities ($1,493,268.00)
The liability numbered (19), being the home loan on the C property, would appear not to have been in issue at trial as the amount of $166,000 appears as an agreed amount in both Table 1 and Table 2 (at [151] of her Honour’s reasons).
Similarly, the wife’s MasterCard debt (item (26)) and unpaid legal fees (item (27)) are not in issue.
As to the remaining items, it was the wife’s case at trial (as emerged from her Table 2) and as we understand it, maintained on appeal, that the mortgage liability at item (18) should be reduced to $303,500 and items (20), (22), (24) and (25) be deleted essentially because of the husband’s failure to explain them.
The difficulty that the appellant has to face is that these disputed liabilities were all the subject of detailed examination and discussion by her Honour before she reached her discretionary conclusion to take them into account in calculating the net value of the parties’ property.
It needs to be explained that before her Honour embarked on her discussion of each of these disputed liabilities, she had at [163] to [182] of her reasons undertaken a thorough examination of what the husband had said “about the debt he [had] incurred prior to and post separation and what he says about the way his business has been conducted”. The salient matters which emerge from these paragraphs in her reasons, and which provide useful background to her subsequent discussion of the disputed liabilities, are then as follows:
164.It is the husband’s case that using the overdraft facility to pay business and other expenses had been his practice prior to separation. … His evidence is that about 80 per cent of his business expenses are paid from using credit cards.
165.… [The husband] agreed in cross-examination that he also used [credit] cards for personal use, but did not know how his accountant separated out the amounts for personal and business use.
166.The husband has incurred liabilities of around $570,000.00 since separation and the wife says that he has not adequately explained how this has occurred. It was asserted by the [wife’s] counsel that these types of borrowings had not taken place prior to separation but rather that pre separation borrowings had dealt with “an identifiable asset” which was by and large the home at [C].
167.… The husband says … that the [C property] renovations were completed in about 2004 and it is most likely as the husband’s counsel submits that that as a result of the 2005 deposits [of the W property sale proceeds] the cost of the renovations largely did not figure in the overdraft facility by the latter part of 2005.
168.In August 2005 the husband used the … overdraft facility to pay out the balance of the loan taken out to fund the Family Provision Act settlement and associated legal costs. The husband’s evidence is that the [event that occurred in the area in 2005] had a very adverse consequence for his … business in [C]. It would be difficult to dispute this. … Subsequently the renovations to [business B] were paid by drawing down on the overdraft and given that [business B] was the only source of income it is probably also difficult to dispute the husband’s evidence that he relied on the overdraft to fund expenses incurred by both himself and the family. By July the overdraft was up to $608,000.00. ... interest payments were about $40,000.00 for a year by 2007.
169.… The husband in cross-examination acknowledged that following separation he went through a stage when he “didn’t care about his expenditure.” He purchased the boat for $23,000.00, which is listed in his assets, while substantial debts were accruing.
170.The husband’s evidence is that in February 2008 the … overdraft facility was over its limit of $780,000.00 and that he arranged an increase in the overdraft facility to $930,000.00 … he subsequently sought a further loan … when the overdraft facility reached its limit of $930,000.00 in August 2008. This was declined.
171.Subsequently [the husband’s sister] and the husband’s accountant … applied jointly for a further loan. … This application was approved and a line of credit (referred to as the second line of credit in the table of assets and liabilities) was established in the joint names of [the sister] and [the accountant]. This loan was also secured against the [C] property. …
172.The husband says that he has used it primarily to pay his credit card expenses …, including those incurred for food and supplies for [business B]. … He says he used the facility to pay $20,000.00 to this accountant, that he has negotiated a new lease for [business B] premises at $27,000.00 per annum more than the previous lease and that in April 2009 was required to provide a bank guarantee for three months rent and used the line of credit for this. … The husband agreed that he had also used the line of credit for refurbishment on his [sports] motor vehicle which is shown as an asset in the balance sheet. He says that he may have spent $30,000.00 on that. The debt on this facility, incurred during the year had reached $240,000.00 at hearing. The husband’s evidence is that this represents a loan which he is required to repay to his sister and to [the accountant].
…
175.A perusal of the statements annexed to the husband’s affidavit in respect of the period of the second line of credit shows that as might be expected from the husband’s evidence, the majority of drawings are from cheques. The cheque butts indicate that many of the cheques are described as being for payments into credit cards … They also describe items such as rent, solicitor, school fees, [business B] wages, rates and ATO instalments. …
176.It was submitted on behalf of the husband that since he refinanced his loan about two months prior to separation, in a period of about two and a half years, his interest had been running about $100,000.00 a year …
177.… A perusal of the cheque butts annexed to the [husband’s] affidavit with the financial statement relating to the second line of credit indicates that in the period to which they relate, from early February 2009 to early November 2009 the expenditure amounted to just over $150,000.00 with credit card payments. … No spreadsheet reconciling expenditures across the cheque butts, and other financial statements was provided although requested by the Court, so little more can be done other than by way of such an observation. It is evident from the statements that monthly overdraft interest on this second line of credit had reached over $1,000.00 by August 2009.
…
180.An important issue then is whether the husband’s assertions about his expenditure can be accepted. It was submitted on behalf of the wife that the type of borrowings which the husband made post separation were different to those made pre separation and that by and large the pre separation borrowings dealt with an identifiable asset, namely the construction of the home at [C]. The assumption behind this is that expenses apart from those for the renovations were largely met by the business. However, the evidence set out above indicates that this does not reflect the full picture of what occurred before separation. … The husband’s evidence is that the overdraft was used for a range of expenditure pre separation including the refurbishment of the [business B], meeting family expenses, the purchase of a Mercedes for $60,000.00 for the wife’s fortieth birthday and the purchase in about 2006 of a 200 BMW wagon for $28,000.00. The wife herself is not able to give any evidence of how expenses were met. …
181.The husband acknowledges that there was a period when he did not care about his expenses. He acknowledges expenses which he said he did not now view as responsible. At the same time however there is no evidence of hidden sums of money or of particular extravagances compared to the types of expenditures incurred in the pre separation period. There is evidence of the husband’s attempt to increase his income in the last twelve months to the extent that he has rented out the boat house while he lives in the granny flat and following the agreement at the end of July 2009 with the [business Z], he is now working in two businesses.
182.Accepting the husband’s evidence about his liabilities is essentially at the discretion of the Court. The husband has a responsibility to satisfy the Court about the liabilities which he seeks to add back to the pool. The husband says that he has provided documentary corroboration of his expenditure in the documents annexed to his affidavit and in other documents produced and tendered in the proceedings. Certainly voluminous documents were annexed to his affidavit tendered in the proceedings. The husband contends that these documents corroborate his expenditure. This may well be so. Given that the sums involved are large and that no schedule was provided, the material was not presented in a way that allowed the Court to be completely satisfied that the expenditure was as the husband asserts. An assessment of the husband’s claims about his expenditure in the circumstances needs to be undertaken in the context of a consideration of his credit. In relation to some matters, in particular, his 2008 Financial Statement there is no doubt that the husband’s evidence was unreliable. There is a considerable discrepancy in the husband’s own evidence about his income in 2008. At hearing the husband acknowledged that he took cash sums of between $10,000.00 and $15,000.00 from the accounts and also that he did not bank everything that he received. He said minimal amounts were involved but acknowledged that it was possible that the BAS statements did not fully reflect the earnings of the business. The Court for the reasons referred to has doubts about the husband’s credit in relation to at least some aspects of his evidence about financial matters. It may well be likely that the cash sums the husband took from the business are greater than the sums acknowledged by him.
Returning then to the specific liabilities which were disputed but which were accepted by her Honour, the first such liability is the amount of $932,000, which represents the fully drawn overdraft facility secured against the C property. As her Honour recorded at [199] of her reasons (and as Tables 1 and 2 also reveal), the wife contended that the only part of this amount which should be taken into account as a joint liability was $303,500. However, as her Honour also explained at [199] she remained “uncertain as to how the precise figure of $303,500.00 … was calculated.”
What is reasonably clear from [195] to [199] of her Honour’s reasons is that the wife’s case for the inclusion of only a small part of the overdraft facility as a joint debt was based on her belief that there was an arrangement between the husband and his sister whereby when the C property was sold, the husband would receive an additional amount from the sale proceeds (beyond his half share) in order to cover the cost of the improvements which he had carried out to the property.
But as will be seen from [199] of her reasons, and as we have already observed, her Honour was not prepared to find that there was such an agreement, and thus there was no basis to reduce the husband’s liability on account of this matter; rather she found that the husband would have “a reasonable expectation” of such a benefit for which an adjustment should be made in the wife’s favour under s 75(2)(o):
199.The evidence of the husband and [his sister] is that there is no agreement. The wife does not say that she was present during any conversation between the husband and [his sister]. What she says cannot be relied on as evidence of an agreement. Her evidence also is not consistent with the husband’s evidence about the cost of the renovations. Despite an example provided by the wife’s counsel in submissions the Court remains uncertain as to how the precise figure of $303,500.00 which the wife contends is the liability which should be inserted at item 18, was calculated. However, there can be no doubt that there has been discussion between the husband and his sister about what would seem to be fair in the event of a sale of the property. It is reasonable to interpret [his sister’s] evidence as an acknowledgment of the fairness of some adjustment. The evidence however does not support it being put higher than this. It is not a basis for reducing the husband’s present liability. However, having heard the evidence of the husband and [his sister] the Court considers that should there be a sale in the future some adjustment reflecting the husband’s financial input into the renovations is likely. This is a reasonable expectation that the husband would have. It is something that can reasonably be taken into account as a benefit the husband is likely to receive in the future. To that extent it could be characterised as a financial resource for which it would be appropriate to make an adjustment in section 75(2)(o).
Nothing put to us in support of Grounds 2 and 5 has persuaded us that we would be justified in interfering with her Honour’s decision to include the whole of the amount of $932,000 as a liability particularly having regard to her conclusions in [199].
The liability of $240,268 referred to at item (20) is the line of credit which was taken out on the husband’s behalf by his sister and the accountant and which was discussed at length by her Honour at [164] to [182] (particularly from [170] on) of her reasons which we have set out in abbreviated form above.
Her Honour explained at [201] of her reasons that the wife contended that this liability should be disregarded for the reason that the husband had not satisfied his obligation of full and frank disclosure and that there was not sufficient evidence of how the amount of the liability had been incurred.
Her Honour went on to explain at [202] that the husband’s counsel had referred to the credit card statements produced during the proceedings and submitted that the overall majority of the entries related to the living expenses of the husband and to significant capital purchases for the business from the providers of stock used in the business.
Then having noted that it had not been submitted that there had been a premature distribution of assets or waste as envisaged in Kowaliw and Kowaliw (1981) FLC 91-092, her Honour concluded:
204.… The submission made on behalf of the wife relied principally on what was alleged to be the husband’s failure to adequately disclose his expenditure related to this line of credit. The Court has discussed the issue of credit and the extent to which the husband has corroborated his expenditure. The Court is of the view that there is little alternative other than to allow this liability to be included in the pool of assets and liabilities.
Again, nothing put to us in support of Grounds 2 and 5 has persuaded us that we would be justified interfering with her Honour’s decision to include this line of credit liability as a liability of the parties.
Finally, there were the credit card debts and the trade creditors of business B and business Z which were items (22), (23), (24) and (25) in the list of liabilities.
Her Honour recorded at [207] that it was the wife’s case that given the husband’s evidence that the credit cards had been used to meet the expenses of the two businesses they represented “rolling figures” for the business which were constantly paid off, and that there would be a risk of double-dipping if these liabilities were taken into account because they would have already have been taken into account in the valuations of the businesses.
Her Honour rejected these arguments saying:
208.It was submitted on behalf of the husband that the credit cards represented an outstanding liability because they reflected an ongoing balance that was not paid off month to month. It was also the evidence of Mr [M] that the trade creditors were not included in his valuation of the business. The Court regards these as persuasive reasons for including these liabilities of the husband in the pool of assets and liabilities.
We are satisfied that this conclusion was well open to her Honour.
Overall therefore we have been unable to find substance in either Ground 2 or Ground 5. Essentially the complaints in those grounds must be taken to be that her Honour should not have accepted the husband’s explanation for the extent of his liabilities, particularly post separation. However, it is clear to us from her Honour’s reasons that she looked in great depth at such material as the husband did provide, and was sufficiently satisfied that she should accept his claimed liabilities. To the extent that she had reservations about his evidence, or that she considered that he may in the future obtain a benefit from the sale of the C property, these were matters which she re-visited in the context of the s 75(2) adjustment. As already indicated, we consider that we would not be justified in interfering with her exercise of discretion in deciding to include the husband’s liabilities in her calculation of the net value of the parties’ property.
The 80 per cent - 20 per cent contribution assessment
Again as earlier explained, her Honour assessed the parties’ contributions at 80 per cent - 20 per cent in the husband’s favour on account of his very large initial contributions of his interests in the W and C properties, and his greater financial and non-financial contributions during the marriage.
It was conceded before us on behalf of the wife that the ground of appeal (Ground 3) directed to her Honour’s assessment of contributions, which asserted only that she had erred in the exercise of her discretion in making that assessment, was based purely on weight. Nevertheless, in the course of argument Counsel for the wife attempted to rely on what would amount to an error of fact in her Honour’s findings in relation to the parties’ contributions.
That error was her Honour’s failure to take account of the husband’s evidence in his affidavit (sworn 9 November 2009) that while at the time of the marriage he had assets to the value of $878,600, he also had liabilities at that time totalling $280,000. At [213] of her reasons, her Honour had accepted the husband’s evidence as to the value of his assets, but it is true that her Honour apparently did overlook the husband’s evidence as to the amount of his liabilities at the time of the marriage. Those liabilities if taken into account, would have reduced the value of his initial contribution from $878,000 to about $600,000.
However, recognition of this apparent error on her Honour’s part would not cause us to interfere with her Honour’s contribution assessment. It is well recognised that the assessment of contributions is not a precise mathematical calculation. Rather, it must be a matter of impression. Accordingly, when regard is had to the fact that by far the most valuable of the parties’ current assets (being the husband’s interest in the C property) is an asset which was possessed by the husband at marriage, we consider that there would be no justification for interfering with her Honour’s contribution assessment.
To the extent that the challenge to her contribution assessment was based on weight, we draw attention to the following observations of Stephen J in Gronow v Gronow (1979) 144 CLR 513 at 519-520:
The constant emphasis of the cases is that before reversal an appellate court must be well satisfied that the primary judge was plainly wrong, his decision being no proper exercise of his judicial discretion. While authority teaches that error in the proper weight to be given to particular matters may justify reversal on appeal, it is also well established that it is never enough that an appellate court, left to itself, would have arrived at a different conclusion. When no error of law or mistake of fact is present, to arrive at a different conclusion which does not of itself justify reversal can be due to little else but a difference of view as to weight: it follows that disagreement only on matters of weight by no means necessarily justifies a reversal of the trial judge. Because of this and because the assessment of weight is particularly liable to be affected by seeing and hearing the parties, which only the trial judge can do, an appellate court should be slow to overturn a primary judge's discretionary decision on grounds which only involve conflicting assessments of matters of weight. …
In the present case and save for the error of fact which we have just discussed, we have not been taken to any evidence or any submissions or any part of the Federal Magistrate’s reasons which demonstrate that she has erred in the exercise of her discretion and is “plainly wrong”. Thus this aspect of Ground 3 also fails.
The 10 per cent s 75(2) adjustment
In relation to the s 75(2) matters, her Honour found that:
§ a significant consideration was that the husband had a greater earning capacity than the wife (as was conceded on behalf of the husband) [233];
§ the fact that the child would spend “somewhat more time” with the wife was a consideration which slightly favoured the wife [234];
§ “significant factors to be taken into account” under s 75(2)(o) related to her findings first about “certain of the husband’s evidence about financial matters” being “unreliable and that the wife is likely to have suffered some disadvantage as a result of this”, and secondly that “the husband has an expectation of financial benefit in the future following any sale of the [C] property” arising “from the acknowledgment by his sister of the substantial sum which he has expended in relation to renovations which will add to the value of the property upon sale”.[245]
Having made these findings, her Honour concluded:
246.Overall then, a consideration of section 75(2) factors other than those related to section 75(2)(o) slightly favours the wife, particularly in terms of her earning capacity. However, taking into account the other factors set out above the Court finds that pursuant to section 75(2)(o) there should be a greater adjustment in favour of the wife, even taking into account the husband’s contributions to the child of the wife’s previous relationship, so that overall she should receive a further 10% of the net pool in respect of section 75(2) factors.
Yet again the ground of appeal (Ground 4) directed to her Honour’s s 75(2) adjustment does not contain any particulars; it merely asserts that she “erred in determining s75(2) factors as being 10%”.
However, it emerged from the submissions in support of the ground that although at trial the wife had only sought a 5 per cent s 75(2) adjustment (which was the matter relied on by the husband in opposition to this ground), this was of a much larger net pool from which the extensive liabilities claimed by the husband would not have been deducted. Thus the challenge apparently was that the 10 per cent adjustment of the smaller pool found by her Honour was not an adequate adjustment for the s 75(2) matters for which it was made and which we identified in [85].
It was therefore a challenge based solely on weight. Having regard to the limits on appellate interference on the basis only of matters of weight as we have explained them in the context of the ground directed to her Honour’s contributions assessment, and particularly having regard to the observations of Stephen J in Gronow, we consider that we would not be entitled to interfere with her Honour’s s 75(2) adjustment. Again in relation to this matter, we have not been taken to any evidence or submissions or any part of the reasons of the Federal Magistrate which would show error in the exercise of her discretion and that she was “plainly wrong”.
It will be remembered from what her Honour said in [246] that the greater part of her ten per cent s 75(2) adjustment was made on account of the matter in
s 75(2)(o), which is “any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account”, with such facts or circumstances in the present case, being first that the wife was “likely to have suffered some disadvantage” as a result of the husband’s evidence being unreliable about financial matters, and secondly the husband’s expectations of future financial benefit following the sale of the C property. For our part we have some doubts as to whether her Honour’s findings in relation to these two matters were sufficiently strong, or had sufficient foundation, to warrant an adjustment under s 75(2)(o). However we do not need to consider that issue further because there is no cross-appeal challenging the ten per cent s 75(2) adjustment.
Costs of the appeal
Having regard to the submissions made to us at the conclusion of the hearing of the appeal, we consider that each party should bear their own costs in relation to the appeal.
I certify that the preceding ninety-one (91) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Finn, Strickland and Murphy JJ).
Associate:
Date: 5 October 2012
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