Zagar-Sackett and Sackett and Ors
[2009] FMCAfam 610
•25 June 2009
FEDERAL MAGISTRATES COURT OF AUSTRALIA
| ZAGAR-SACKETT & SACKETT & ORS | [2009] FMCAfam 610 |
| FAMILY LAW – Property – contribution at separation equal – husband’s interest in [W] Pty Ltd – whether business is the alter ego of the husband – non-disclosure – add backs – s.75(2) adjustment – just and equitable. |
| Family Law Act 1975, ss.75(2), 78, 79 |
| Ascot Investments v Harper (1981) FLC 91-000 Hickey & Hickey & Attorney-General of the Commonwealth of Australia (Intervener I (2003) FLC 93-143 The Marriage of Moran (1994) 18 Fam LR 534 Milankov (2002) FLC 93-095 |
| Applicant: | MS ZAGAR-SACKETT |
| First Respondent: | MR SACKETT |
| Second Respondent: | [W] PTY LTD |
| Third Respondent: | MS WERDON |
| File Number: | SYM 32 of 2004 |
| Judgment of: | Altobelli FM |
| Hearing dates: | 18-19 December 2008, 15 April 2009 |
| Date of Last Submission: | 15 April 2009 |
| Delivered at: | Sydney |
| Delivered on: | 25 June 2009 |
REPRESENTATION
| Counsel for the Applicant: | Ms Bridger |
| Solicitors for the Applicant: | Kells the Lawyers |
| Solicitor-Advocate for the first Respondent: | Mr Phillips |
| Solicitors for the first Respondent: | Hansons Lawyers |
| Counsel for the second & third Respondent: | Mr Moss on 18 & 19 December 2008 and Mr Gould for 15 April 2009 |
| Solicitors for the second & third Respondent: | RMB Lawyers |
ORDERS
That within 21 days of the date of these orders the husband do all acts and things and execute all instruments and other writings necessary to transfer to the wife all of his right, title and interest in the property situate at and known as Property O.
That consequent on the transfer referred to in Order 1 above, the wife shall indemnify the husband in relation to all outgoings in respect of the said property including all payments in respect of taxes, rates, charges, insurances and expenses in relation to repairs and improvements and any other sums due or accruing in respect of the said property.
That within 21 days of the date of these orders, the husband and the wife do all acts and things and sign any authority necessary to direct the monies held on their behalf in any controlled monies account be released to the wife with the intention that she become the owner of the monies absolutely.
That if the husband has not already done so within 21 days of the date of these orders he must do all acts and things and sign all documents necessary to transfer to the wife his interest in the Holden Jackaroo motor vehicle presently located in the former matrimonial home.
That within 21 days of the date of this order the husband pay to the wife the sum of $29,336.
That unless specified in these orders and except for the purpose of enforcing payment of any money due under these orders or any subsequent order:
(a)Each party is to be solely responsible for and indemnify the other against any liability encumbering any item of property to which the party is entitled to under the orders;
(b)Each party shall be solely liable to the exclusion of the other to all other real and personal property and chattels of whatsoever kind in the possession of such party as at the date of these orders;
(c)All bank accounts, other financial accounts are deemed to be in the possession of the person whose name appears on the records of the bank or financial institution;
(d)All insurance policies are deemed to be in the possession of the beneficiary thereof;
(e)Superannuation entitlements are deemed to be in the possession of who is named as the worker whose age or working future provides the conditions for payment out of such entitlements.
That in the event either party refuses or neglects to execute any deed, instrument or other writing, the Registrar of the Court be appointed pursuant to section 106A to execute such deed, instrument or other writing in the name of the defaulting party and to do all acts and things necessary to give validity to the operation of the deed, instrument of other writing.
The parties have leave to apply on 14 days notice before Federal Magistrate Altobelli as regards the interpretation, implementation and enforcement of these orders.
IT IS NOTED that publication of this judgment under the pseudonym Zagar-Sackett & Sackett & Ors is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL MAGISTRATES COURT OF AUSTRALIA AT SYDNEY |
SYM 32 of 2004
| MS ZAGAR-SACKETT |
Applicant
And
| MR SACKETT |
First Respondent
| [W] PTY LTD |
Second Respondent
| MS WERDON |
Third Respondent
REASONS FOR JUDGMENT
Introduction
This is an application for property settlement under s.79 of the Family Law Act, commonly known as a property settlement. The wife is the applicant. She is 45 years old and lives in the former matrimonial home in a suburb near Wollongong. The husband is the respondent. He is 46 years old and lives in a township north of Wollongong. The wife describes herself as undertaking home duties and her only significant income is from Centrelink benefits and child support. The husband describes himself as a supervisor working for a building company, [W] Pty Ltd (“[W] Pty Ltd”) which is effectively owned by his de facto wife Ms Werdon. [W] Pty Ltd and Ms Werdon are the second and third respondents in this case.
The husband and wife commenced cohabitation in 1982, married in 1988 and separated on 10 June 2002. They had thus cohabited for 20 years. There are six children of the marriage aged between 25 and 9. At separation they were all living with the wife in the former matrimonial home, and it seems as if most if not all continue to do so.
The pool of assets is relatively small, but the parties commenced litigating in 2004. By the time the final hearing commenced on
18 December 2008 the issues in dispute had narrowed considerably, but were nonetheless quite complex.
Background
The parties agree that as at the date of separation contribution should be assessed as equal. That is completely appropriate on the facts of this case. This was a long marriage where the parties started off with little, but both worked very hard in the roles they had adopted during the relationship. The agreement about equal contribution as at separation means that it is not necessary to include a history in these reasons of the acquisition of assets.
The parties are even very close in terms of assessment of post-separation factors. The wife claims a further adjustment to her under s.75(2) of the Act assessed at 20 percent on the pool that she contends for. The husband concedes that there should be an adjustment in her favour of 18 percent on the pool that he contends for, calculated as to
3 percent for post-separation contribution, and 15% under s.75(2). I will need to decide this issue by reference to the evidence, but nothing will turn on the difference between a post-separation contribution and a s.75(2) adjustment on the facts of this case. The period since separation is so long, and the facts which support an adjustment (howsoever characterised) are the same. The irrefutable fact is that the wife has had the major responsibility for parenting six children for the last seven years, the oldest who was 19 and the youngest 2 at separation.
The main issue in this case is what should be included in the pool of assets. As will shortly become apparent, the wife contends that the pool of assets is $233,500 larger than that contended by the husband. She argues that the pool of assets should include as an asset, or notional asset, of the husband a one-half interest in [W] Pty Ltd. The husband contends to the contrary. The practical implications of this are very significant for the wife. On the pool of assets she contends for, whether she gets 68 percent or 70 percent, she will be able to retain the former matrimonial home, and receive a modest payment from the husband as well. However, if the husband’s pool of assets is accepted, she is confronted with a considerable payment to the husband in order to retain the home.
During the marriage the husband subcontracted his services as a [tradesman] to building companies. In September 2000 the husband took over the business he was subcontracting to –[PD]. For a period he operated it in partnership with the wife, and then incorporated the company [[P] Pty Ltd (‘[P] Pty Ltd”) of which he was the sole director and shareholder. As at the date of separation in June 2002 [P] Pty Ltd had taken over the business once conducted through the partnership and was trading in the building industry.
While there is significant controversy about the legal consequences of the following, there is little significant dispute about the facts. Quite shortly after separation the husband commenced cohabitation with
Ms Werdon. Within a few months of separation Ms Werdon and the husband subcontracted their services to [P] Pty Ltd, and it continued to trade in the building industry. In early 2003 Ms Werdon was appointed as a director of [P] Pty Ltd. By July 2003 Ms Werdon had incorporated [W] Pty Ltd, with her being its sole director and shareholder. The said company began trading in February 2004 and, for all practical purposes, the work hitherto conducted through [P] Pty Ltd was transferred to [W] Pty Ltd. The details of the transmogrification of [P] Pty Ltd into [W] Pty Ltd have, for present purposes, been simplified. Suffice it to say that this summary adequately reflects findings I make on the evidence.
Since January 2004 [W] Pty Ltd has traded in the building industry and indeed continues to trade. Ms Werdon is its principal, and the husband asserts he is an employee. The wife contends that the husband in fact has a one-half interest in [W] Pty Ltd and thus the value of this should be included in the asset pool as property or notional property.
It became apparent by closing submissions that in order for the wife to succeed in her claim, all she would need is for her husband to pay her as little as $33,655. In other words the Court would need to be satisfied either that:
a)There was actual property of the husband’s to a value of not less than $33,655 in respect of which he could be ordered to pay to the wife, provided of course it was just and equitable to do so; or
b)There was notional property of the husband’s to a value (whether specified or unspecified) that would nonetheless justify the court making an order for payment of $33,655, subject to justice and equity.
The agreed balance sheet will show that the husband had assets in his own name, excluding joint assets, to the value of $25,236, including superannuation.
Thus one can understand the forceful closing submissions of counsel for the second and third respondents that the wife’s claim against them was simply misconceived as she could obtain the relief she sought against the husband without joining his clients. This of course depended on the wife being able to establish that the husband’s interest in [W] Pty Ltd was notional property rather that actual property. Unless the wife could do this, it is highly unlikely that the court could consider the order that she sought to be a just and equitable one for the husband as well as for the wife.
Thus the main issue in this case is whether the husband has an interest in [W] Pty Ltd, and if so how it should be characterised and valued? What impact does this have on the pool of assets?
Once the pool of assets is established I then need to determine whether the further adjustment in favour of the wife should be assessed at
18 percent (as contended by the husband) or 20 percent (as contended by the wife), in each case based on the pools they each contend for.
I then need to consider what the just and equitable order to make is on the facts of this case.
The Wife’s Case
The presentation of the wife’s case based on the facts was far more convincing and articulate than her case based on the law. It was almost as if this was one of those cases where the facts so obviously cried out for a remedy in favour of the wife that considerations of jurisdiction and power were taken for granted. The wife’s case would have benefited from closer consideration of what, precisely, the court was being asked to do, and on what basis it was empowered to do so. At a very simple level it could be said that the wife was simply seeking to enlarge the asset pool by the inclusion of an extra $233,500. It was unclear though whether, if this inclusion were established on the evidence, it would be as actual property or as notional property. If it is as actual property the court would need to make clear findings, on the facts of this case, about the nature and value of the husband’s interest in [W] Pty Ltd. Any such finding would, of necessity, bind both [W] Pty Ltd and Ms Werdon as they were parties to the proceedings. If the inclusion of an additional sum into the asset pool was on the basis that it was notional property, on the one hand this may create issues about enforcing any order the court makes, but on the other hand it is less intrusive insofar as the rights and interests of third parties are concerned.
If I have understood the wife’s case, it seems to have been primarily based on the inclusion into the asset pool of a half interest in [W] Pty Ltd as actual property. Hence the primary remedy sought by the wife was based in s.78 of the Act i.e. that the court should make a declaration about the husband’s interest in [W] Pty Ltd, and then include that declared property in the pool of assets. In the alternative, but still on the basis of actual property, I was invited to find that [W] Pty Ltd was, in fact, the alter ego of the husband, or that it was a sham, based on the well-known principles stated by the High Court in Ascot Investments v Harper (1981) FLC 91-000.
However, the wife’s counsel in her closing submissions also referred, in a somewhat vague way, to the alternative possibility of treating the addition to the asset pool as notional property. Whilst this argument was not expanded to its full potential in closing submissions it does seem to me to be another way to understand the wife’s claim, and to establish the court’s powers. It could be treated as notional property on the basis that it is actual property the husband once had but no longer has today. The most obvious basis for this is to treat the notional property as an add-back because of a premature distribution of matrimonial assets, based on the principles stated by the Full Court in cases such as Milankov (2002) FLC 93-095, AJO v GRO (2005) FLC 93-218 and Townsend (1995) FLC 92-569. Another basis for this might be on principles of non-disclosure as stated in cases such as Weir (1993) FLC 92-338. I will need to consider these matters further below.
Applicable Law
This is an application that is governed by s.79 of the Family Law Act. Pursuant to s.79(1) the Court is required to make an order as it considers appropriate altering the interests of the parties to the marriage in property. Section 79(2) requires such an order to be just and equitable. The matters that need to be taken into account are set out in s.79(4):
(4) In considering what order (if any) should be made under this section in property settlement proceedings, the court shall take into account:
(a) the financial contribution made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last‑mentioned property, whether or not that last‑mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(b) the contribution (other than a financial contribution) made directly or indirectly by or on behalf of a party to the marriage or a child of the marriage to the acquisition, conservation or improvement of any of the property of the parties to the marriage or either of them, or otherwise in relation to any of that last‑mentioned property, whether or not that last‑mentioned property has, since the making of the contribution, ceased to be the property of the parties to the marriage or either of them; and
(c) the contribution made by a party to the marriage to the welfare of the family constituted by the parties to the marriage and any children of the marriage, including any contribution made in the capacity of homemaker or parent; and
(d) the effect of any proposed order upon the earning capacity of either party to the marriage; and
(e) the matters referred to in subsection 75(2) so far as they are relevant; and
(f) any other order made under this Act affecting a party to the marriage or a child of the marriage; and
(g) any child support under the Child Support (Assessment) Act 1989 that a party to the marriage has provided, is to provide, or might be liable to provide in the future, for a child of the marriage.
Thus it can be seen that s.79(4) is both retrospective and prospective in its scope and operation. Paragraphs (a), (b) and (c) are retrospective in the sense that a historical assessment of contribution is required. Paragraphs (d), (e), (f) and (g) are prospective in the sense of requiring a consideration of how an order takes into account the future.
Section 79(4) requires the court to consider contribution in the broadest sense: financial, non-financial, made to the welfare of the family, direct, indirect, and directed to acquisition, conservation and improvement of property.
The preferred approach to the determination of an application under s.79 of the Family Law Act is set out in a passage found in the Full Court’s decision in Hickey & Hickey & Attorney-General of the Commonwealth of Australia (Intervener) (2003) FLC 93-143 at 39.
The Full Court states that there are four inter-related steps:
a)Identify and value the property, liabilities and financial resources of the parties; and
b)Identify and assess the contributions of the parties and express them as a percentage of the net value of the property; and
c)Identify and assess the other facts relevant under s.79(4)(d)-(g) including s.75(2) and determine the adjustment (if any) to be made to the contribution entitlements at step two; and
d)Consider the effect of the above and resolve what order is just and equitable in all the circumstances.
One of the legal issues that arises is whether I should adopt a global or asset-by-asset approach to contribution. The authority in this regard is, the High Court’s decision in Norbis v Norbis (1986) 161 CLR 513 per Wilson and Dawson JJ at 534-5. It is clear from this statement of the law that either approach is available to me, in part or in whole. My discretion in this regard should be exercised having regard to the facts of this case.
A significant issue in this matter was the alleged non-disclosure of the husband. Attempting to deal with non-disclosure often puts the other spouse to considerable difficulty with regards to investigating their financial affairs. The Full Court in Weir (1993) FLC 92-338 at 79,593–4 made the following statement regarding the duty to disclose and the Court’s powers where non-disclosure has been found:
This Court has pointed out in a line of cases leading up to the recent decision of the Full Court in Black and Kellner (1992) FLC 92-287, that it is the duty of a party involved in property proceedings in this jurisdiction to make a full disclosure of their financial affairs. See also Giunti and Giunti (1986) FLC 91-759, and Mezzacappa and Mezzacappa (1987) 11 Fam LR 957; (1987) FLC 91-853. It is clear enough from his Honour's findings in the present case that the husband had not done so and had in fact pocketed the proceeds of a substantial number of cash sales. It is obvious that in most cases of this nature it is difficult enough for the other party to establish that fact let alone establish the quantum of what has been taken.
It seems to us that once it has been established that there has been a deliberate non-disclosure, which follows from his Honour's findings in this case, then the Court should not be unduly cautious about making findings in favour of the innocent party. To do otherwise might be thought to provide a charter for fraud in proceedings of this nature…
We appreciate that this is something of a broad brush approach, but, as we have said, where there is clear evidence of non-disclosure as there was here, the Court should not be unduly cautious about making findings in favour of the other party. It has been said by one commentator (O'Ryan and Broadfoot, 5th National Family Law Conference Handbook, p 249) the failure to disclose undermines the whole process of adjudication of proceedings for a settlement of property in that the court is unable to identify the property of the parties, to properly assess contribution, or to properly assess s 75(2) factors.
The law relating to add-backs is contained in a series of Full Court judgments, including Milankov (2002) FLC 93-095, Townsend (1995) FLC 92-569, AJO v GRO (2005) FLC 93-218. In general terms, these cases identify that it is appropriate to notionally consider assets which have been in the possession of one or other of the parties at some time after separation, but which have been used for that party's own use. The category of cases in respect of which there might be a notional add-back is not closed. It certainly includes cases where parties have expended money on legal fees (not an issue on the facts of this case), or where it is alleged that assets have been dissipated as a result of waste (not an issue in this case) or where there has been a premature distribution of matrimonial assets. It is the latter category that might apply on the facts of this case. It may well be that the Full Court's decision in Townsend contains the clearest statement of the principle at page 81,654 of the report. In short, if there has been a premature distribution of a proportion of the matrimonial assets, as a result of the actions of one spouse distributing to himself or herself an asset to which the other had a legitimate interest, then it is appropriate to bring the said asset back into the pool of assets on a notional basis, and then make a distribution accordingly. However, that principle does not apply to moneys that were used for the reasonable day-to-day expenses of the parties.
On behalf of the wife it was argued that s.78 of the Act also provided a remedy. This section provides:
78. Declaration of interests in property
(1) In proceedings between the parties to a marriage with respect to existing title or rights in respect of property, the court may declare the title or rights, if any, that a party has in respect of the property.
(2) Where a court makes a declaration under subsection (1), it may make consequential orders to give effect to the declaration, including orders as to sale or partition and interim or permanent orders as to possession.
Counsel for the wife referred me to the decision of Bulley J in The Marriage of Moran (1994) 18 Fam LR 534 as authority for the proposition that s.78 can be used to make a declaration that a spouse has an equitable or legal interest in property which could then be regarded either as property or as a financial resource in the alteration of property interests between a husband and wife. I am not sure that this case is in fact an example of that taking place. A more useful discussion of the ambit of the s.78 remedy is the decision of Brereton J in Valceski and Valceski (2007) 36 Fam LR 620 particularly at paragraphs 32-33.
The Pool of Assets
As indicated above the main issue between the parties relates to what should be included in the pool of assets. The balance sheet was relatively uncontentious but for this issue.
Balance Sheet;
| Asset | Owned By | Value |
| Property O | Joint | $445,000 |
| IAG Shares | Wife | $2,160 |
| AMP Shares | Wife | $1,735 |
| IAG Shares | Husband | $2,612 |
| AMP Shares | Husband | $1,005 |
| AMP Life Policy | Wife | $6,544 |
| ANZ Savings | Husband | $500 |
| Tower Life Policy | Husband | $4,000 |
| Holden Jackaroo | Wife | Nil |
| Personal Effects | Husband | $2,000 |
| Superannuation | Husband | $12,507 |
| Controlled Monies | Joint | $29,998 |
| Interest in [P] Pty Ltd | Husband Asserts | Nil |
| Interest in [W] Pty Ltd | Husband Asserts | Nil |
| Wife Asserts | $233,500 | |
| Pool of assets asserted by Husband | $508,061 | |
| Pool of assets asserted by Wife | $741,561 |
Wife wants 70 percent of $741,561 = $519,092.
Therefore if she retains the former matrimonial home, the controlled monies and everything in her name, a total of $485,437 the husband must pay to her $33,655.
Husband offers wife 68 percent of $508,061 = $345,481.
Therefore if the wife retains all items above, in order to retain the house at $485,437 she must pay the husband $139,955.
There was an issue between the parties about the value of the Holden Jackaroo vehicle. The evidence indicates that this vehicle is registered in the husband’s name, but has been signed over to the wife. It is located on the wife’s property and has not been driven for six years or so. It has been unregistered for at least four years. The wife agreed on cross examination that the cost of getting the vehicle repaired so that it could be registered was about $1,800. The husband asserts it has a value of $8,000 but produced no evidence to support this, despite the lengthy history of the litigation. The wife asserts it has no value. I find it probably has some value, but I do not know how much. Given that the only evidence I have is about the cost of repairs to the wife if she wants to register it, the best I can do is attribute a nil value to it.
The Evidence: from [P] Pty Ltd to [W] Pty Ltd
The wife’s case is that the business conducted during the marriage by the husband, or by a partnership of the husband and wife, or by the company [P] Pty Ltd of which the husband was sole director and shareholder, evolved or transmogrified into a business conducted after separation by the husband and Ms Werdon, and eventually by [W] Pty Ltd of which Ms Werdon is the sole director and shareholder.
The husband does not seriously contend otherwise, but in his evidence he seeks to explain why [W] Pty Ltd took over the work being undertaken by [P] Pty Ltd. The main reason he advances is that he could not obtain Home Owner Warranty Insurance in the name of [P] Pty Ltd because of insufficient asset backing. However Ms Werdon could provide asset backing but would only do so if she had control of the business and its finances. In short, from the husband’s perspective he had no choice but to, in effect, allow [W] Pty Ltd to take over the work of [P] Pty Ltd, and become an employee of [W] Pty Ltd. His case is that he is an employee of [W] Pty Ltd, and has no legal or equitable interest in the said company or the business it conducts.
The second and third respondents gave evidence by Ms Werdon. In short her evidence does not seriously contend to the contrary of what the wife asserts. She supports the husband’s evidence about why it was necessary for [W] Pty Ltd to take over the work undertaken by
[P] Pty Ltd: she had the assets needed to provide the financial backing for the business, especially the necessary Home Owner Warranty Insurance. In her evidence Ms Werdon emphasised that even though [W] Pty Ltd did take over building contracts held by [P] Pty Ltd, [W] Pty Ltd also took over all liability for warranty work arising out of these contracts for the next seven years. Ms Werdon deposes to commencing a relationship with the husband in June 2002, the same month that the husband and wife separated. She deposes to the commencement of cohabitation with the husband from September 2002 in her home. The wife alleges that Ms Werdon and the husband were in fact having an affair well before separation in June 2002, but nothing turns on this. What is clear is that a de facto relationship commenced between the husband and Ms Werdon either immediately after the husband’s separation from the wife, or shortly thereafter.
Ms D was the single joint expert appointed to value the interests of the husband and wife in [P] Pty Ltd as at 30 June 2002 and 31 December 2004. Her affidavit filed 15 February 2008 annexes her report dated
11 February 2008. The expert concludes as follows:
a)Value of [P] Pty Ltd at 30 June 2002 $2,961
b)Value of Husband’s interest in [P] Pty Ltd at 31 December 2004 $67,703
c)Value of [P] Pty Ltd at 31 December 2004 $135,406
d)Value of [W] Pty Ltd at 30 June 2007 $467,000.
At separation [P] Pty Ltd was controlled by the husband only. The expert found that its value was only $2,961 being a loan payable by the said company to the husband. On a net asset backing basis, however, the value of [P] Pty Ltd was nil. By 31 December 2004, however, [P] Pty Ltd was owned and controlled by the husband and Ms Werdon equally. Its total net value of equity and loans was $135,406. The value was based on a capitalised earnings approach. The significance of the date 31 December 2004 is that it is the date when [P] Pty Ltd ceased trading.
The value of [W] Pty Ltd as at 30 June 2007 is based on a capitalised earnings approach.
The case very much focussed on the 31 December 2004 value of
[P] Pty Ltd, rather than its 30 June 2002 value. Indeed it was never a part of the husband’s case that the 30 June 2002 value was the relevant one. If this can be construed as a concession on behalf of the husband it was a sensible and appropriate one particularly in view of the following background information provided in the Expert’s Report:
3.1 History of the business
3.2 The business known as [P] Pty Ltd was purchased by the Husband in October 2000 and initially operated by him through a sole trader structure. I am not aware of the consideration paid by the Husband for the business. The Husband had previously worked as a subcontractor for the business. I am advised that when the Husband bought the business five contracts had been entered into, and the Husband commenced and completed these contracts.
3.3 At all times, the business [trade omitted] in the Illawarra region.
3.4 In January 2002, the business incorporated, with the Husband as sole shareholder. I am advised that the incorporated business did not commence trading until around April 2002.
3.5 For a short period of time at the beginning of 2002, the Husband and Wife formed a partnership that subcontracted to the business. This arrangement ceased on commencement of trading of the incorporated business in around April 2002.
3.6 I am advised that prior to 10 June 2002 (being the date of separation), the Husband undertook all of the [trade] work required with the assistance of one other sub-contractor. The Husband was also responsible for sales, design work, obtaining council approval, signing up contracts, ordering materials, invoicing clients, and the general day to day running of the business. I am further advised that the Wife was responsible for banking, accounts receivable and recording potential clients. The Wife had no further input into the business following 10 June 2002.
3.7 Following 10 June 2002, the Husband entered into an equal partnership with Ms Werdon with both partners subcontracting their services to [P] Pty Ltd. The Husband’s responsibilities remained unchanged, however the Husband was assisted by three additional sub-contractors. Ms Werdon was responsible for on-site labouring, clean up and removal of waste to recyclers or waste depots, hiring of larger trucks and removal of roof tiles to recyclers, delivering materials, liaising with clients and sub-contractors and general office and administration duties.
3.8 On 14 March 2003, Ms Werdon became an equal shareholder in [P] Pty Ltd with the Husband.
3.9 [W] P/L, a company solely owned by Ms Werdon, was incorporated on 7 July 2003.
3.10 Ms Werdon has advised that from January 2004 onwards, no new contracts were written in [P] Pty Ltd. All new contracts thereinafter were written in [W] P/L. Some contracts that had been written in [P] Pty Ltd were transferred to [W] P/L, as detailed further at Section 8 of this report.
3.11 [P] Pty Ltd ceased trading in or around December 2004.
3.12 [W] P/L began trading in February 2004 and provides similar services to those provided by [P] Pty Ltd, being [trade omitted]. I understand that the company has purchased vacant land with the intention of developing the land.
3.13 The company employs Ms Werdon and the Husband, with a supervisor and two carpenters being employed on a casual basis as and when required, in addition to a number of sub-contractors. The Husband and Ms Werdon’s duties have not varied from [P] Pty Ltd however Ms Werdon appears to have increased her input with the day to day running of the business as well as on-site duties. I am advised that the Husband works approximately 35 hours per week and Ms Werdon works approximately 65 to 70 hours per week.
3.14 From when the Husband purchased the business in October 2000 as a sole trader to the present date trading through [W] P/L the business has traded variously as “[various similar names omitted]”, “[PA] Pty Ltd” and “[P] Pty Ltd[P] Pty Ltd. My review of the source documents for each of the entities indicated that these names have been used interchangeably, with no consistency or distinction between which entities the business was conducted through (refer Appendix K).
This history given to the expert was provided by the husband and
Ms Werdon. The expert was not challenged on this history in any way despite quite extensive cross examination. Moreover the history given by the expert is entirely consistent with the evidence about all of the matters that she refers to, given by the husband, wife and Ms Werdon in these proceedings. I accept as my own findings, therefore, the matters referred to above.
I categorically reject the evidence of Ms Werdon in cross examination where she sought to contend that the history given by the single expert was incorrect. Given that her own counsel did not challenge the history in cross examination I cannot accept Ms Werdon’s contrary evidence in this regard.
Given that the business conducted by [P] Pty Ltd as at 31 December 2004 was, for all practical purposes, the same business conducted by the husband, or the husband and wife, as from October 2000, it is entirely appropriate to focus on its valuation when it ceased trading, a mere 18 months after separation. Thus [P] Pty Ltd had a value of $135,406 as at 31 December 2004.
As at that date, [P] Pty Ltd had entered into eight contracts with its clients. This is dealt with at paragraphs 8.1-8.6 of the expert’s report.
8.1 As detailed in Section 3 of my report, there was a period of overlap between the trading of the various entities through which the business has been conducted.
8.2 Ms Werdon has advised that as of the end of January 2004, a decision was made that [P] Pty Ltd would not proceed with any contracts where [trade] had not commenced. Ms Werdon identified the following contracts as being those which were released by [P] Pty Ltd and re-negotiated with [W] P/L.
| Client name | Contract value |
| [omitted] | $49,990 |
| [omitted] | $67,100 |
| [omitted] | $62,692 |
| [omitted] | $38,625 |
| [omitted] | $81,786 |
| [omitted] | $70,843 |
| [omitted] | $49,361 |
| Total | $420,397 |
8.3 Ms Werdon has further advised that all work that was in progress as at January 2004 was completed by [P] Pty Ltd and no new work was undertaken.
8.4 A review of the source records for [P] Pty Ltd and [W] P/L produced to the Family Court Wollongong Registry was undertaken by Ms M, Manager [omitted] Forensic Accounting. The review confirms that the abovementioned contracts were constructed through [W] P/L. Invoices in relation to these contracts within [P] Pty Ltd appear to be restricted to plans being drawn up and inspection certificates, which confirms
Ms Werdon’s advice that [trade] had not commenced prior to January 2004.
8.5 The review identified one other contract that appeared to have been originally negotiated with [P] Pty Ltd and subsequently transferred to [W] P/L for construction, being:
Client name
Contract value
[omitted]
$80,800
8.6 Attached at Appendix P are letters from [W] P/L dated 24 July 2007 highlighting the crossover of contracts. With the exception of the contract referred to in paragraph 8.5 above, I have not noted any anomalies in the analysis provided.
Thus at the time that [W] Pty Ltd took over the work being undertaken by [P] Pty Ltd, it held the benefit of contracts with a gross value in excess of $500,000. Again there was no challenge to this evidence.
I have no hesitation in finding that [P] Pty Ltd was controlled by the husband as at the date of separation and continued to be controlled by him until it ceased to trade at the end of 2004. I make this finding notwithstanding the involvement of Ms Werdon firstly as the husband’s partner, and later as an equal shareholder with the husband in the company. The company was, for all practical purposes, the alter ego of the husband. He was the one with the skills and experience in the industry. He was the one who held the requisite licences. The inescapable conclusion to be drawn from the history given at paragraphs 3.6, 3.7 and 3.13 of the single expert’s report is that the husband’s role in [P] Pty Ltd remained unchanged and indeed continued when [W] Pty Ltd took over. Up until 31 December 2004 whatever Ms Werdon’s role in the company was as a matter of form, in substance it was the husband who controlled the business. When she was issued shares in [P] Pty Ltd on 14 March 2003 she provided no consideration. In cross examination Ms Werdon asserted that she provided financial backing to [P] Pty Ltd by guaranteeing supply arrangements with creditors. In her case she could only produce one document to support this – Exhibit B – a guarantee signed by
Ms Werdon on 15 July 2003 (four months after she became a shareholder in [P] Pty Ltd) in support of an application for commercial credit to a [trade] materials supplier. Given the date of this document I do not accept her contention that she provided consideration at the date of, or even prior to, the allotment of shares to her.
Whilst not seeking to minimise the practical role that Ms Werdon did play in [P] Pty Ltd, the fact remains that according to her own evidence she had no prior experience in the [trade] industry. She had prior experience working in the [finance industry]. She had also [worked in the art industry] for two years, and gained a diploma in [omitted] which she practised from her home.
In cross examination Ms Werdon conceded that the husband was essential to the operation of [W] Pty Ltd. It must logically follow that the husband was essential to the operation of [P] Pty Ltd. Thus, for all the reasons set out above, I find that up until [P] Pty Ltd was in effect taken over by [W] Pty Ltd, the husband was in substance in control of [P] Pty Ltd and in any event it was his alter ego.
The logical consequence of my finding is that, at the very least, the value of [P] Pty Ltd as at 31 December 2004 ($135,406) must be included in the asset pool. And yet it was never a part of the husband’s case that anything should be included or added-back into the asset pool. Indeed in closing submissions the husband’s counsel strongly argued that there was no case for add-backs because the current value of [P] Pty Ltd was nil and there was no evidence of a premature distribution. With great respect, there was ample evidence of a premature distribution of assets. [P] Pty Ltd had contracts valued at $500,000 at the time it ceased trade. As will shortly become apparent when it allowed these contracts to be taken over by [W] Pty Ltd it received no financial consideration for the same. This is, in my opinion, precisely the situation described by Nicholson CJ in Townsend (1995) FLC 92-569 where the learned former Chief Justice said at p.81564 “what the husband did was to distribute to himself an asset in which the wife had a legitimate interest”. Having regard to the history of [P] Pty Ltd, the wife had a legitimate interest in this asset. Whilst the husband did not distribute this asset to himself in the sense of, for example, liquidating and then dissipating it for his own use, at the very least he allowed it to be “lost” in the sense that he relinquished control of it in a legal sense, and his de facto wife, Ms Werdon, assumed control of it. This situation is, therefore, clearly one of a premature distribution of a matrimonial asset.
I accept that the asset i.e. [P] Pty Ltd, has now ceased to exist. In that respect if I add it back into the pool it is notional property valued at $135,406. It is regrettable that the husband did not concede in these proceedings that it should be added back into the pool of assets. It is perhaps a likely conclusion once the evidence of the single expert was filed in February 2008. Who knows – perhaps its inclusion in the asset pool would have precipitated a settlement? The court of course never knows these things, and rarely finds out, at least not before an application for costs. If the husband did not, in fact, concede to the add-back even on a without prejudice basis, it may well be that on a costs application by the wife or even the second and third respondents, the consequences would be visited upon him. These are all matters for mere speculation at this stage, of course, for there is always much that the court is not informed of. It might be the case, perhaps, that the wife felt she had no choice but to pursue the third parties in this case because of the husband’s actions.
Of course the wife’s case goes further. She contends that in fact $233,500 should be included in the asset pool, either as property or notional property. This necessitates an examination of the circumstances whereby [P] Pty Ltd ceased trading and [W] Pty Ltd assumed control of the former’s contracts.
There can be no doubt that the business formerly conducted by [P] Pty Ltd was taken over for no financial consideration by [W] Pty Ltd. There is evidence to indicate that some of [P] Pty Ltd’s plant and equipment was also taken over by [W] Pty Ltd. The business expanded quite rapidly. According to the single expert report at 3.24 the financial performance of [W] Pty Ltd was as follows:
3.24 The financial performance of the company is summarised below:
2007
$
Actual2006
$
Actual2005
$
Actual2004
$
ActualContract income 1,477,800 1,559,774 1,470,174 163,661 Profit / (loss) before tax
(without adjustment)91,910 113,708 267,530 8,272
Appendix F to the report provides a more detailed profit and loss review. I find that the expenses incurred by [W] Pty Ltd in its first year of operation to 30 June 2004 were much smaller than in the following year ($155,389 in 2004, $1,202,644 in 2005) not just because it only operated for part of the year, but also because the evidence of the husband and Ms Werdon indicates that [W] Pty Ltd had the benefit of expenses incurred by [P] Pty Ltd and assets owned by [P] Pty Ltd. The single expert quite properly aggregated the results of [P] Pty Ltd and [W] Pty Ltd for the year ending 30 June 2004 for valuation purposes.
The detailed analysis of contracts undertaken by the single expert at appendix K of her report, together with the analysis of business activity statements at appendix L, provide a revealing picture of the business activities of the husband, [P] Pty Ltd and [W] Pty Ltd, over the relevant period. I am surprised that counsel for the wife did not place even greater emphasis on this unchallenged evidence. Appendix L in particular demonstrates in tabular form the birth, growth and death of the business of [P] Pty Ltd (in its various permutations), and the rise from the metaphorical ashes of [P] Pty Ltd of [W] Pty Ltd in its phoenix-like glory. In its first full year of trading in the 2005 financial year [W] Pty Ltd had generated contracting fees of $1,469,881. There is no doubt in my mind that the $500,000 worth of [P] Pty Ltd contracts contributed to this.
But was, or is, [W] Pty Ltd the alter ego of the husband? Alternatively is there evidence to justify the imposition of a declaration of trust in the third parties to the effect that the husband has a one-half interest in [W] Pty Ltd? And even if that were the case, what value should be attributed to this?
I return to the evidence of Ms Werdon. In cross-examination she conceded that she was not qualified as a [tradesman], and had no prior experience in the industry. She agreed that the husband was the nominated supervisor for [W] Pty Ltd, an important aspect of compliance with licensing regulations. Indeed Exhibit C, an extract of the register under s.120 Home Building Act1989 showing the status of Licence Number [1] shows that [W] Pty Ltd has a building licence from 27 May 2004 with the supervisor nominated as the husband, together with one other person, Mr B. Ms Werdon agreed that [W] could not operate without the husband and that he was essential to the business operated by [W] Pty Ltd. Moreover she conceded in cross examination that the business name “[PA] Pty Ltd” is one used by [W] Pty Ltd both in the past and in the present, and that its name and logo was almost identical with that used by [P] Pty Ltd from June 2000. This merely confirms once again the statement by the single joint expert at paragraph 3.14 that the business names used by [W] Pty Ltd today are the same business names used not only by the husband and [P] Pty Ltd, but even by the person from whom the husband acquired the business in 2000.
Notwithstanding all of this it is not possible to conclude that [W] Pty Ltd is the alter ego of the husband, or that it is a sham. Moreover the evidence does not allow me to declare what title or rights the husband has in [W] Pty Ltd, even though I am satisfied that the evidence indicates he has some interest in the said company. Whilst the role of the husband in [W] Pty Ltd is clearly significant, it is equally clear that the role of Ms Werdon is also significant. There was no challenge to her evidence about the time she spends in the business even though her role is clearly different to that of the husband. It seems logical that only she could provide financial backing to the business because the husband’s assets were all tied up in the matrimonial assets the subject of present litigation. Whilst much time was spent on cross-examination dealing with whether or not it was licensing issues that necessitated her sole control of [W] Pty Ltd, I do not regard that as the main issue in this case. Even if I accept Ms Werdon’s case that the financial risks that she was undertaking justified the incorporation of [W] Pty Ltd and its taking over of [P] Pty Ltd, I do not accept that this necessitated her having sole control having regard to the importance of the husband’s role in the business both in the past, at the time of take-over, and continuing. Sole control may well have been a convenient structure for the entity known as [W] Pty Ltd, but it did not reflect the just and equitable reality of the husband’s involvement.
In any event the imposition of a declaration of trust would have been highly problematic. Even if the evidence was there to justify its characterisation at a one-half share in favour of the husband, the valuation of this is fraught with difficulty. Even the single joint expert noted the difficulties of valuing [W] Pty Ltd in June 2007, at paragraph 2.6 of her report. The valuation is now two years old and is, therefore, unreliable even putting side the concerns expressed about this by the husband and Ms Werdon. Whilst I appreciate that it is the only evidence before the court, the court is reluctant to adopt it in the context of declaring the interests of the husband in [W] Pty Ltd which also has the effect of declaring the interest of Ms Werdon in the said company, when Ms Werdon is not a party to the marriage. A much more careful and considered approach is required in these cases.
Thus I am satisfied that the husband does have an interest in [W] Pty Ltd but I am unable either to characterise or value it. It might be a legal, equitable, contractual or other interest. It might even be a inchoate interest under s.79 of the Act in a claim by the husband against Ms Werdon (but I doubt this – see Chemaisse v DFCT [1990] FLC 92-133). The evidence simply does not allow me to say what it is, or what its worth, though I am satisfied on the balance of probabilities it is there.
It was always incumbent on the husband to disclose to the court that he had such an interest whether as property, notional property, or as a financial resource. He has failed to do so. The evidence of the single joint expert always pointed, in my opinion, to the finding I have made. Once the counsel for the third parties and solicitor for the husband declined to challenge the relevant parts of the expert’s evidence on cross examination on 18 December 2008 then it became even more likely that the findings I have made were likely to be made. As I am not able to value the husband’s interest in [W] Pty Ltd I will need to treat this as a financial resource available to him, the precise value of which is not known.
Conclusion about the asset pool
The matters that I have referred to at length above result in two changes to the asset pool set out at paragraph 29 of these reasons.
First, there should be added back as notional property the husband’s interest in [P] Pty Ltd as at 31 December 2004 in the amount of $135,406.
Second, it should be noted that the husband has a financial resource available to him through his unspecified, unvalued interest in
[W] Pty Ltd.
I do not believe that there is any double-counting in what I have stated above, and even if there is it is the direct result of the husband’s non-disclosure. There is no double-counting because it is possible that the value of the husband’s interest in [W] Pty Ltd is greater than $135,406. So long as there is a difference in value, there can be no double-counting. It was the husband’s duty to disclose to the court the true nature, extent and value of his interest in [W] Pty Ltd. He has failed to do so. He has created an obscurity and he now cannot complain about the consequences of this. On one view his de facto wife was a party to this non-disclosure, a matter that should perhaps be carefully considered before any costs application is made.
The total known pool will therefore be that contended by the husband - $508,061 plus $135,406 i.e. $643, 467.
Further adjustment in favour of the wife?
As indicated above, the wife seeks a 20 percent adjustment in her favour under s.75(2) on the pool that she contends for whereas the husband concedes it should be 18 percent on the pool he contends for. There is no doubt in my mind that it should not be less than 20 percent.
The husband has a greater income than the wife particularly as the wife’s pension entitlement must be disregarded for s.75(2) purposes. The husband has a physical and mental capacity for employment well in excess of that of the wife. I am satisfied that she has attempted to find work without success, and will probably continue to find it difficult to do so. She had the main responsibility for the care and upbringing of six children since separation, and currently appears to have the care of four of them under the age of 18. The amount of child support paid by the husband goes nowhere near being an equitable contribution towards their actual living expenses. It follows that he does not have the commitments the wife has to support these children, at least not to the same extent. I also believe that the marriage has had an adverse impact on the wife’s longer-term capacity to earn, whilst having the opposite effect on the husband.
I must also take into account the financial circumstances of the husband’s de facto partner, Ms Werdon, particularly her own interest in [W] Pty Ltd.
However, as I have indicated at length above, I find that the husband has a financial resource in the form of an unspecified, unvalued interest in [W] Pty Ltd. He has not disclosed this to the court. It is clearly a matter that I must take into account and it is best done as a s.75(2) consideration. It is a financial resource under s.75(2)(b) and/or a fact or circumstance that the justice of the case requires to be taken into account under s.75(2)(o).
Cases often evolve in ways that are not anticipated by those who advise litigants. In this matter the wife’s case was based on the imposition of a trust on property owned by a third party in order to enlarge the pool of assets available for distribution between the husband and the wife. The evidence, however, compels an alternate approach based on add-back of notional property, and a finding of a further financial resource that has not been disclosed to the court. In this situation the wife should not be bound to her claim for 20 percent under s.75(2). In any event her claim for 20 percent was clearly predicated on the court’s acceptance of a pool of known assets of $741,561.
I propose to award the wife a further 10 percent under s.75(2)(b) and (o) arising out of the matter to which I have referred. It is only an extra $64,346, but it must be recognised that it arises out of the unique circumstances of this case, and by the notional adding back of property which accrued out of assets in respect of which she clearly had an interest, but which increased in value after separation through no direct financial contribution by her. The wife will therefore receive 30 percent by way of s.75(2) adjustment.
Just and equitable order?
Assessing justice and equity is always difficult when there is notional property and non-disclosure. The effect of my orders would be that the wife receives 80 percent of $643,467 which is $514,773.
If she retains the former matrimonial home, the monies in the controlled monies account, and everything else in her possession she would receive $485,437. This results in a payment to her from the husband of $29,336.
From the husband’s perspective, he receives 20 percent of $643,467, which is $128,693. The property that he retains consists of:
[P] Pty Ltd (Add-back) $135,406
IAG Shares $2,612
AMP Shares $1,005
ANZ savings $500
Tower life policy $4,000
Personal effects $2,000
Superannuation $12, 507
Less payment to wife ($29,336)
$128,694
I consider this to be just and equitable in the unique circumstances of this case. The husband may well feel aggrieved by this decision, but my findings are self-evident. He has contributed to this outcome by failing to recognise the true extent of his wife’s contribution to the acquisition of assets, her exceptional additional needs over and above his, and his failure to disclose before this court.
I certify that the preceding seventy-five (75) paragraphs are a true copy of the reasons for judgment of Altobelli FM
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