Y & T

[2005] FamCA 1067

FAMILY LAW ACT 1975

IN THE FAMILY COURT OF AUSTRALIA
AT BRISBANE No. NA26L of 2005

(No. BRM8636 of 2002)

BETWEEN:
Y

Appellant Father

AND:
T
Respondent Mother

BEFORE THE HONOURABLE JUSTICE WARNICK

REASONS FOR JUDGMENT

Dates of Hearing: 21 October 2005

Date of Judgment: 9 November 2005

Appearances: Mr Westbrook of Counsel appeared on behalf of the Applicant Father
Ms Sweetapple of Counsel appeared on behalf of the Respondent Mother

Y and T NA26L of 2005 (BRM8636 of 2002)

Heard: 21 October 2005

Delivered: 9 November 2005

APPEAL FROM FEDERAL MAGISTRATES COURT – DEPARTURE FROM CHILD SUPPORT ASSESSMENT – Orders relate to an application by the father for departure from an administrative assessment of child support liability – The parties have three children.

ASSESSABLE INCOME – Earning capacity – The Federal Magistrate concluded that the father had an earning capacity of approximately $85,000 – This was based on an admitted earnings of $45,000, a conclusion that he was devoting insufficient time to income producing work and that he had been offered $5,000 more per annum for the work then undertaken for his parent’s company – There was no evidence before the Federal Magistrate that there was productive work available for which the father could receive the further income calculated.

JUST AND EQUITABLE – Resulting capital debt – The father also argued that the Federal Magistrate failed to consider whether the order relating to a liability dating back to 2002 was just and equitable given the resulting capital debt, and the evidence that the husband had no capacity to pay – Further the husband argued that regard should have been had, but was not, to the level of actual expenses incurred in respect of the children – Not strictly necessary to decide these issues – The capacity to pay should be considered in a decision on the justice and equity of the orders – In the legislation reference is to the ‘proper’ needs of the child, not the actual needs.

DJM v JLM (1998) FLC 92-816

Hendy v Deputy Child Support Registrar (2001) 164 FLR 236

That the father have leave to appeal the orders of Federal Magistrate Rimmer made 24 March 2005. That the appeal be allowed. That the orders of Federal Magistrate Rimmer made 24 March 2005 be set aside. That the application of the father filed 11 November 2002 be remitted to the Federal Magistrates Court for re-hearing by a Federal Magistrate other than Rimmer FM. That the court grants to the appellant father and the respondent mother costs certificates.

The parties have three children in relation to whom, on 13 March 2002, the father was administratively assessed as liable for child support. In March 2004, an application by the father for departure from that assessment was heard by Federal Magistrate Rimmer and in March 2005 her Honour ordered:
“(1)   That the child support assessment for the children…born 11 November 1988,…4 September 1993 and…29th August 1995 for the financial years ended 2002, 2003, 2004, 2005 and 2006 be based upon gross income for the husband of $85,000.00 per annum;
(2)     That in addition to the above assessments the husband pay the total sum of $750.00 per annum for the extra curricular activities of the children.
(3)     That in addition to the above assessments the husband pay one half of the expenses of the child [A’s] orthodontic treatment (net of any rebate paid by any medical health insurance that covers the child).
(4)     That all other applications be dismissed.”
The father sought permission to appeal those orders and these reasons relate to the disposition of that application.
There are 11 grounds of appeal in the (proposed) amended Notice of Appeal filed 4 August 2005, but the essential points that counsel for the father sought to make:
·   arose out of the learned Magistrate’s attribution to the father of “gross income for the husband of $85,000 per annum” in order 1 quoted above. It was submitted that there was no, or no sufficient, evidence to support the conclusion that that was his earning capacity.
·   asserted that the learned Magistrate, in considering whether it was just and equitable to make orders for each of the years dated back to 2002, failed to consider the resulting capital debt, (and possibly penalties) which, on the evidence, the father had no capacity to pay.
·   asserted that, in deciding what income for assessment purposes ought be attributed to the father for past years, regard should have been had, but was not, to the level of actual expenses incurred in respect of the children. If this level was less than appropriate to the level of support calculated with respect to the father’s deemed earning capacity, the effect of the learned Magistrate’s orders would be to provide to the wife a windfall remote from the time to which the support related.
In the (proposed) amended Notice of Appeal the father sought an order:
“1. That the parties be assessed for child support payments, and make payments on the basis of their taxable income and notifiable fringe benefits only, for the years 2002 to 2006.”
However, having regard to the nature of the arguments on appeal, particularly the alleged inadequacy of facts to support the finding about the husband’s income earning capacity, it was acknowledged by both counsel that the almost inevitable result of success of the appeal was remission for rehearing.
Each party had filed applications for leave to adduce further evidence, which essentially related to events post trial and would have been pertinent to a re-exercise of discretion. In view of the likelihood of remission, these applications were not pressed.
Before discussing the points raised on appeal and the resulting conclusion and consequences, I set out a short background and summary of the learned Magistrate’s reasons.

Background and summary of the judgment of the Federal Magistrate

Facts recorded in this discussion are taken from the Federal Magistrate’s reasons.
The agency assessment from which the father sought departure resulted from an application by the mother to the agency, seeking a departure from administrative assessment on the grounds of special circumstances. The mother’s application was successful and of it the learned Magistrate said:
“15. The basis for increasing his assessment was that the children have special needs which include psychiatric treatment and orthodontic work and further it required him to pay half the school fees for his eldest child and because he received income via a business, he should be assessed as having an income higher than that shown on his tax return.”
Her Honour described the father as a self-employed manager of real estate properties and a writer. He conducted his business through corporate entities, one of which supplied him with a ten year old motor vehicle. He was effectively the sole proprietor of two private corporations, had a half interest in another and was a director, but not a shareholder, of another. A, or the, major source of income for the father was from a company controlled by his parents.
The father’s evidence was that in the property settlement in 2000 he received only 20% of an estate of $207,000 approximately, that he lived in a rented two bedroom unit in a Brisbane suburb and, without his previous asset base, found it difficult to conduct business for investment in his own right, which limited his income earning capacity. It was likely he would have a duty to support a fourth child, although paternity had not been determined to his satisfaction.
The mother’s case was, as recorded by her Honour:
“…that the husband had the ability to manipulate his income level by:
(i)     determining what level of payment he and/or [his investment company] gets from his parent's company [L] from his property development work for [L]. For instance, his mother gave evidence that he had refused a pay increase some years ago when she suggested paying him $5000 per annum more. It is the wife's evidence that the husband received about the same income for his work since the late 1980's.
(ii)determining when he receives payments from [L].…
(iii)    deciding to take up a non cash benefit for his work for [L]   such as a fully maintained vehicle and annual [club] membership fees. Clearly if the husband received the value of these benefits in his hand as income his assessable income for child support purposes would be higher.
(iv)    determining the level of his drawings from [the husband’s investment company].
(v)     determining what expenditure [the husband’s investment company] makes from time to time and therefore determining profitability of that company therefore his own income.
(vi)    unilaterally deciding how much of his time to devote to income earning activities, for example, the husband has made a decision to currently spend a considerable portion of his working week two or three days of work for his [internet company] which does not produce an income at present. Similarly he has (indistinct) lobbying of political activities which produced no assessable income for child support purposes.
(vii)   deciding to continue work as a property developer where that activity produces potentially less income than other work for which he is immediately qualified for such as work a real estate agent.”
Her Honour then discussed the father’s evidence about his work activities, recording that the provision of a vehicle to the husband was a benefit of about $5,000 per annum, and that his income was $45,000 per year. She also referred to evidence of the father’s mother, of which she said:
“35. …She gave evidence that some years ago she had suggested to the applicant that she pay him $5,000 a year increase in his income but that he refused. She further gave evidence that he has received the same level of income from [L] for his work since the late 1980’s.
36. From her evidence it is clear that the husband has the capacity to manipulate the level of income he receives and that he is not receiving proper remuneration for his work for [L].
37. Further the evidence establishes that he is able to be paid other benefits from [L] such as his [club] membership fee and he has the benefit of a fully maintained motor vehicle from [L]. Whilst these are perfectly acceptable arrangements for him to make with [L], the fact that he is able to so this (sic) reduces his actual income earned and therefore the amount of his taxable income which forms the basis of the child support formula”.
Her Honour then discussed the decision of the Full Court of the Family Court in DJM v JLM (1998) FLC 92-816 and in particular what the court there said about the concept of “earning capacity”, and continued:
“40. In applying this principal (sic) to the facts that exist in this matter it is clear that in the court assessing the father’s income earning capacity for the purpose of meeting his obligation to pay child support for his three children, the court must take into account what he actually earns and not some reduced amount that he can arrange to receive as taxable income through a perfectly legitimate arrangement, even though he is entitled to do so to enable him to minimise the tax he pays on the gross income he earns.
41.    I am satisfied that given the nature of the husband’s business enterprises that it is reasonable for him to spend some time on developing new business opportunities so as to ultimately enable him to derive better business opportunities and therefore increased income but that the extent to which he does this is excessive when taken alongside his other non-income earning pursuits. Clearly he could still work more hours on his income earning activities and develop his internet business. Although admittedly not as quickly. This is a matter which must be taken into account when assessing his capacity to pay child support for his children, given the priority which must be given to that duty by a parent.
43.    The husband’s evidence and that of his mother satisfies me that whilst at present he earn approximately $45,000 per annum for effectively three days work, he has the capacity to earn approximately $85,000 per annum if he properly applied himself to income producing activities in his company and accepted a proper level of remuneration for the work undertaken for his parent’s company.
44.    His mother’s evidence that he has been paid the same level of remuneration since the 1980’s and that he has refused a suggestion made by her some years ago that she increase his remuneration by $5,000 per annum support this finding. When this is taken together with the fact that his company provides him with a fully maintained motor vehicle and his two expensive club subscriptions and allowing as reasonable one half a day a week to develop his internet business venture which does not produce income.
Her Honour then turned to discuss the financial position of the wife, saying:
“41. The wife is employed as a full-time primary school teacher.... Her taxable income is $52,099. Approximately $739 net per week.…”
Next, the Federal Magistrate discussed the issue of assistance received from the wife’s family, as to which she said:
“51. The evidence under cross-examination of both the wife and her brother…left me in some considerable doubt as to exactly what are the arrangements that the wife has in relation to the Trust.…
…
53. I am satisfied that the wife has and will continue to receive benefits directly or on behalf of the children from the trust. Certainly the private school fees have always been paid for [A] from this trust and there is no cogent evidence to suggest that this will change given the past history of payment, notwithstanding evidence by the wife and her brother to the contrary.”
And, somewhat later:
“94. I was not impressed that the wife has revealed all of the benefits that she receives from the trust.…”
Shortly after, the Federal Magistrate addressed the proper needs of the children with regard in particular to counselling, orthodontic and dental treatment, extra-curricular activities and private schooling.
Then, under the heading “Child Support” the learned Magistrate included some history of the attitudes of the parties to the issue and assertions bearing upon factors relevant to it and then proceeded to make findings about the “special” needs of the children and appropriate contribution by the father thereto.
Her Honour then addressed “The law”, setting out the terms of section 117(1), (4) and (5) of the Child Support Assessment Act 1989 and noting the terms of subsection (2), as well as referring to some reported decisions. She concluded discussion under the heading by saying:
“112. I am satisfied in this matter [that] there are grounds for departure in relation to the husband’s financial position, the wife’s financial position and the special needs of the children.”
Under the following heading:
“What level of Child Support is proper for these three children?”
Rimmer FM then said:
“113. The current determination by the Case Officer…is that the father should pay the sum of $1600.00 a month or $19500 a year. I have found that the husband should command an income of approximately $85,000.00. This has been based upon the fact that the evidence makes it clear to me that he only works on income producing work of 3 out of 5 days in each week and currently earning approximately $45,000 per annum.
114. While I have found that some allowance is properly made by him to work on expanding his internet business it should not be more than one day a week, based upon the fact that he has not taken the benefit of the increase in fees offered to him by his parent’s company for such a long period of time and the fact that it must be factored in that he received non cash benefits in prevision (sic) of his motor vehicle and his club subscriptions.
…
117. Given the inquiry the Court has made into each of the parties’ circumstances and the children’s needs I am satisfied that orders should be made until the end of the financial year in 2006.”

The arguments on appeal

The first point

As couched at the outset of these reasons, that point:
“● arose out of the learned Magistrate’s findings which formed the basis for the attribution to the husband of ‘gross income for the father of $85,000 per annum’ in order 1 above quoted. It was submitted that there was no or no sufficient evidence, to support the conclusion that that was his earning capacity.”
It can be seen from the reasons of the learned Magistrate quoted, in particular paragraphs 43, 44, 113 and 114 thereof, that the conclusion of the Federal Magistrate that the father should command an income of approximately $85,000 per annum was essentially based upon an admitted earnings of $45,000, a conclusion that he was devoting insufficient time to income producing work and had been at one time offered $5,000 more per annum for the work then undertaken for his parents’ company.
Before such an approach can be seen as anything other than theoretical, evidence would need to establish that if the father devoted more time to working for his or his parents’ company, there would be productive work available for which he could receive the further income calculated.
There is no discussion in the reasons of the learned Magistrate indicating that she considered whether in reality additional work was available to the father and it was not contended in the appeal before me that that aspect was the subject of exploration at the trial.
Counsel for the mother did refer to an exchange during cross-examination of the father as follows:
“MS SWEETAPPLE (Counsel for the mother): Well, presumably you have some role in advising them about [L]’s next move?---Yes. I – I’m influential. I’ve also got two sisters.
And presumably they defer to you to at least some extent about what property development that company ---?---Sure.
---undertake next? So you can be as fast or as slow as you like to embark upon the next project, can’t you?---I guess so, yes.”
There were also in evidence some financial documents relating to the parents’ company, but this evidence and the passage above were not the subject of any scrutiny to see if the affairs of the parents’ company could be so conducted as to generate an annual salary for the father, approaching $85,000 per annum.
The only pertinent evidence before the learned Magistrate was that, several years before the hearing the husband’s mother had offered him an increase in salary of $5,000, which he had declined. From such evidence, it might be inferred that at the time of the offer the husband’s efforts for the company could have been rewarded at that level, but it is not an available inference that, at any other period to which the orders challenged related, the particular level of work (at the time of the offer) or any other level of work greater than that, was available if the husband wished to perform it.
Counsel for the father wrote in his summary of argument:
“1.1 …there was no evidence to support a finding or inference that he had qualifications or experience that would enable him to obtain employment that would have given him an income of $85,000 per annum in the past or that would give him this income henceforth.
.2     The learned Magistrate adopted a mathematical analysis from which she concluded the level of the Husband’s earning capacity but this does not amount to evidence of his having an earning capacity in keeping with this analysis.
.3     The finding in respect of the Husband’s earning capacity appears to have been predicated on an assumption, not founded in evidence, that the husband’s remuneration (from a company of which he was the owner/controller) through contracting with another company (of which his parents and he were in control) represented what he could have expected to earn doing the same tasks for an ‘arms-length’ employer employing the Husband for the same time, and that this justified an extrapolation as to what the same hypothetical employer would then pay to the Husband if engaged for a five day week.
.4     The finding of the husband’s earning capacity is necessarily predicated upon a perception that the husband’s earning capacity is not an abstract concept – that is, if he has an earning capacity of $85,000 per annum, this means that there is employment available for which he can successfully apply and from which he can expect to be paid that income. But there was no evidence which was to this effect, or which would support this inference, before the learned Magistrate.
.5     The evidence in respect of the husband’s actual earning capacity is deficient both in respect of the Child Support periods in the past with which the learned Magistrate dealt, and in respect of future periods, that is, in respect of the periods following the close of evidence.”

In my view, although a little differently directed from what I have just discussed, there is much force in these submissions. This is not to say that there were not evidentiary bases upon which an earnings rate or capacity for the father could have been calculated, at least for particular periods. There was the evidence of his mother about the offer of $5,000 at some time. There was the evidence of benefits received. These bases formed part of the learned Magistrate’s reasoning, but nonetheless, a significant part of that reasoning included the “abstract” exercise referred to.
In my view there is merit in this proposed basis of appeal.

Other arguments on appeal

These arguments, as initially identified:
“● asserted that the learned Magistrate, in considering whether it was just and equitable to make orders for each of the years dated back to 2002, failed to consider the resulting capital debt, (and possibly penalties) which on the evidence the father had no capacity to pay.
● asserted that in deciding what income for assessment purposes ought be attributed to the husband for past years regard should have been had, but was not, to the level of actual expenses incurred in respect of the children. If this level was less than appropriate to the level of support calculated with respect to the husband’s deemed earning capacity, the effect of the learned Magistrate’s orders would be to provide to the wife a windfall remote from the time to which the support related.”
In view of my conclusion in respect of the first point, it is not strictly necessary to decide these further points, however, they can be discussed fairly shortly.
Both the matter of the husband’s capacity to pay the capital debt created by the orders and the actual needs of the children during the relevant periods are matters that seem to me to fall for consideration when addressing whether, as required by section 117(1)(b)(ii)(A) and (B), the orders proposed are:
“(A) just and equitable as regards the child, the carer entitled to child support and the liable parent; and;
(B) otherwise proper.”
Section 117(4) prescribes that, in determining the justice and equity of proposed orders the court shall have regard to, among other things:
“…
(b)     the proper needs of the child;
…
(d)     the income, earning capacity, property and financial resources of each parent who is a party to the proceeding; and
(e)     the commitments of each parent who is a party to the proceedings that are necessary to enable the parent to support:
(i)himself or herself; or
(ii)any other child or another person that the person has a duty to maintain…and
…
(g)     any hardship that would be caused:
(ii)to:
(A)     the liable parent;…”
In my view, under the subsection the capacity of the father to pay the arrears “created” by the orders was to be considered in a decision on their justice and equity.
In relation to the final point, the asserted need to consider the actual expenses incurred for the children, the reference in section 117(4)(b) is not to the actual needs of the child but to the “proper” needs of the child. This gives rise to a possible argument against the validity of the point argued. This aspect was not argued before me, and I would not wish to reach a concluded view, but merely observe that the terms of section 117(4) do not exclude considerations other than those to which regard must according to that subsection be had, and there is a certain logic in the point argued on behalf of the father, as bearing upon the justice and equity of proposed orders.

Principles applicable to leave to appeal

The principles to be applied in determining whether or not to grant leave were discussed in a fulsome way by the Full Court in Hendy v Deputy Child Support Registrar (2001) 164 FLR 236. There, the Full Court said (at paragraph 44):
“We shall approach our task of determining whether to grant leave bearing in mind that we should not be too restrictive if we perceive there has been an error of principle which has affected the applicant’s substantive rights.”
Applying that approach to the instant case, I am satisfied that leave to appeal ought be granted and having regard to what I have said of the points argued, the appeal be allowed.

Consequential orders

The erroneous approach underpins each of orders 1 to 3 and consequently, in my view, all the orders ought be set aside.
As indicated, neither party contended that there were options available other than remission.
Each party sought a certificate in respect of the appeal if it succeeded and in my view, the grant of certificates is appropriate.

ORDERS

That the father have leave to appeal the orders of Federal Magistrate Rimmer made 24 March 2005.
That the appeal be allowed.
That the orders of Federal Magistrate Rimmer made 24 March 2005 be set aside.
That the application of the father filed 11 November 2002 be remitted to the Federal Magistrates Court for re-hearing by a Federal Magistrate other than Rimmer FM.
That the court grants to the appellant father a costs certificate pursuant to the provisions of section 9 of the Federal Proceedings (Costs) Act 1981 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 father in respect of the costs incurred by the appellant father in relation to the appeal.
That the court grants to the respondent mother a costs certificate pursuant to the provisions of section 6 of the Federal Proceedings (Costs) Act 1981 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 mother in respect of the costs incurred by the respondent mother in relation to the appeal.
I certify that the preceding 42 paragraphs
are a true copy of the Reasons for Judgment
herein of the Honourable Justice Warnick.
………………………………….
Associate
Date: 9 November 2005

[2005] FamCA 1067

9 November 2005

Key Legal Topics

Areas of Law

Civil Procedure

Administrative Law

Legal Concepts

Judicial Review

Jurisdiction

Standing

Procedural Fairness

Natural Justice

Abuse of Process