Property – Determination of valuation methodology – “Value to owner” preferred to “fair market value”

In Gare & Farlow [2023] FedCFamC2F 109 (17 February 2023) Judge Forbes heard competing property and parenting applications following a marriage of almost 10 years that produced two children born in 2010 and 2012.

The asset pool included the wife’s business that was purchased for $50,000 by the wife and her friend Ms O in 1998 through their entity F Pty Ltd ([103]). The business operated out of leased premises. The wife’s father and Ms O’s father-in-law purchased the business premises and rent continued to be paid, albeit there was no written lease. Ms O subsequently sold her share of the business to the wife in 2002 for $75,000 and her father-in-law sold his share of the business premises to the wife’s father in 2013.

In November 2019 the wife’s business was valued by her forensic accountant (“Mr G”) at $57,120 ([54]).

The husband’s expert (“Mr H”) valued the business at $60,228 on a “fair market value” basis due to the absence of a lease and said that if there was a lease, the value would be $361,723 ([55]). In May 2020, Mr H then valued the business at $400,000 on a “value to owner” basis ([60]).

Prior to the trial in February 2022, Mr H provided an updated valuation using a “fair market” valuation methodology absent a commercial lease of $224,820. At trial, the wife relied on Mr G’s updated valuation of $56,948 ([102]).

Judge Forbes said (from [107]):

“The wife’s case is that the business provides her with a source of income but that if she were to sell it she would not recover anything other than the cash value of the business assets. When cross-examined the wife agreed that she could realise a greater return for the business if her father entered a written commercial lease with her or a prospective purchaser, but she said that she had no intention of selling and that her father would not offer a written lease in any event.

[108] The husband … contends that the business has a much greater intrinsic value, whether valued by its net asset backing or on a ‘value to owner’ basis which would assume the existence of an industry standard commercial lease between the business and the landlord. The substance of the husband’s case is that the absence of a written lease between the wife and her father is a calculated and deliberate ploy to minimise the true underlying value of the business by presenting it as an unsaleable asset.

( … )

[119] … [I]f confronted with the reality that his daughter’s business might realise well over $400,000 … if sold with a lease, I have considerable doubt … that [her father] would deny his daughter the opportunity to realise the fruits of her 25 year investment. … ”

After summarising the evidence of the competing experts, Judge Forbes continued (from [177]):

“It is well accepted that traditional valuation methods which have been developed for commercial purposes may be inappropriate for the purposes of a Family Law valuation.

( … )

[180] The ‘value to owner’ approach to valuation is intended to capture the reality of the situation by bringing to account any special or additional economic benefit which is conferred upon the business owner by his or her control of the shareholding. It is intended to include within the value any commercial, financial or other advantage which accrues to the owner which might not necessarily be available to any hypothetical third party purchaser [Scott & Scott (2006) FamCA 1379]. Such benefits might include the right to receive profits or dividends, the flexibility and autonomy of self-employment, control and ownership of business assets, the use of a company car, use of the company for contribution to household expenses and bills, the use of a loan account, the ability to tax plan and so on [See e.g. Harrison & Harrison (1996) FLC 92-682 (‘Harrison’)]. There may be other benefits such as security of tenancy due to a special relationship with a landlord or the ability to expend funds in a way which benefits other family members. A valuation which assumes a negligible or only net asset value because the business is ‘unsaleable’ is artificial because it ignores the reality of benefits which accrue to the owner.

[181] In a fair market value valuation, risk is considered from the hypothetical willing but not anxious buyer. It reflects the value of each asset and liability on a going concern basis and the profitability, market position and attractiveness of the business. The value to owner approach on the other hand considers risk from the perspective of the existing owner and assumes that the party wishing to hold on to the asset will do so in good faith and seek to maximise the value that could be obtained in a hypothetical sale. …

( … )

[184] It was submitted on behalf of the wife that the value to owner approach to valuation is normally used to value a minority shareholding, usually in a family business, which is not realisable because there is no available market. It is true that the approach is often used in such cases, although it has also been adopted in respect of partnership interests in medical practices, legal practices and similar businesses.

[185] The criterion which engages the value to owner approach is not whether a party is a minority shareholder. Rather the critical criteria are the absence of a market for the party’s interest in a business … and evidence of circumstances which satisfy the Court that even in the absence of a market the party is likely to retain the interest because he or she derives real value and benefits from it, of the type described in Harrison [See also Wender & Wender [2017] FamCAFC 48].

( … )

[188] … I am satisfied that in the circumstances of this case the ‘value to owner’ approach to valuation is appropriate for the following reasons:

(1) there is no market for the wife’s interest in the business. In the absence of a written commercial lease, the business is not saleable as a going concern to a third-party purchaser and cannot be valued on that basis;

(2) the evidence demonstrates that the business is successful and profitable and has been so for the entire time it has been owned by the wife. The business has in the past and continues to deliver significant financial and other benefits to the wife in terms of steady and reliable profits, a salary, flexibility of self-employment and autonomy, access to and control of business funds, the ability to tax-plan among other things;

(3) a unique benefit to the owner of the ongoing business is the security of its tenancy on favourable terms notwithstanding the absence of a written lease. … ;

(4) I infer that the business has significant value to the owner having regard to what the wife was prepared to pay to buy out her partner Ms O in 2002. … ;

(5) the evidence clearly establishes that the wife wishes to retain the business, intends to operate it on an indefinite basis and that she has no intention to sell the business, let alone close it. … ;

(6) a further significant benefit to the wife is the very real likelihood that her landlord father would act in his daughter’s best interests should she ever decide to sell the business. There is evidence that … if a standard industry lease were in place, the wife could expect to realise in excess of $400,000.

[189] Despite the wife’s attack on his credentials and Mr G’s strident criticism of his methodology, I accept the evidence of Mr H that for the purpose of determining the asset pool the business should be valued at $429,500 on a value to owner basis. … ”

Divorce – Wife’s application for declaration of nullity dismissed as evidence contradicted her assertion that the parties’ Fijian marriage was a symbolic ceremony and was not registered in Australia

In Rahimi & Moradi [2023] FedCFamC1F 151 (2 March 2023) Berman J heard a wife’s application for a decree of nullity of a marriage solemnised in 2010. The husband opposed the application and sought a divorce order.

The parties were born in Australia and were Australian citizens. They commenced a relationship in early 2009 and decided to marry in Fiji. The wife said it was her understanding that parties underwent a symbolic ceremony to celebrate the parties’ commitment to each other ([5]). There was disagreement as to whether the husband had registered the marriage at Births, Deaths and Marriages in Sydney ([7]).

The parties separated in early 2018. The wife subsequently married Mr C. On 25 May 2021, the wife’s lawyer was served with an application for divorce ([10]). The wife asserted that she had not seen the marriage certificate until service of the Divorce Application ([12]).

Berman J said (from [15]):

“The information on the [marriage] certificate appears to be uncontroversial. The document properly records the personal details of the parties, their conjugal status at the time, their usual place of residence and information as to the names of the parents of each of the parties.

[16] The Certificate of Marriage also contains the identity of the witnesses to the marriage … and it records that the marriage was solemnised …

[17] Finally, the Certificate of Marriage bears the original signature of the Registrar in Fiji and the seal or stamp confirming the authenticity of the document. Whilst the applicant does not concede the veracity of the Certificate of Marriage, in the absence of any evidence to the contrary, I am easily able to find on the balance of probabilities that the Certificate of Marriage is an authentic document.

( … )

[21] … The applicant was not able to remember that the ceremony was witnessed.

( … )

[28] There are other documents provided by the respondent which are of assistance. In particular, the respondent provides a greeting card signed by a number of people directed to the applicant congratulating her on the wedding and marriage to the respondent.

[29] Finally, the applicant entered into communication with an officer of the Attorney General’s Department in relation to the applicant’s enquiry as to whether NSW Birth, Deaths and Marriages received information and confirmation of the parties’ marriage in Fiji in 2010.

( … )

[31] The applicant’s assertion that the communication purportedly undertaken with Births, Deaths and Marriages NSW did not occur, was unconvincing.”

After a review of the relevant legislative provisions, Berman J continued (from [38]):

“Under s 51 of the Act, an application for a decree of nullity of marriage must be based on the ground that the marriage is void.

[39] A void marriage is of no effect in law. It is not a ‘marriage’ at all irrespective of whether or not a decree declaring it void has been pronounced. The decree is simply a declaration which confirms the fact that there was never a valid marriage.

( … )

[41] I find that the applicant and respondent participated in a marriage ceremony in 2010, that the parties were therefore lawfully married and as such, the grounds for a declaration of nullity do not exist.”

The nullity application was dismissed without costs.

Property – Interests of deceased spouse’s adult children irrelevant when assessing justice and equity overall – Husband’s disposition of assets worth $500,000 prior to his death relevant to justice and equity

In Hatch & Madsen [2023] FedCFamC1A 52 (24 April 2023) Tree J, sitting in the appellate jurisdiction of the Federal Circuit and Family Court of Australia, heard a de facto wife’s (“the wife’s”) appeal from property adjustment orders made after the de facto husband (“the husband”) had died.

The parties cohabited from 2006 until November 2019 and had no children together. The husband was diagnosed with a terminal illness in 2015.

In 2020 the husband updated his will, leaving his estate to his four children from previous relationships. By the time he died, he had sold and disposed of most of his assets (in excess of $500,000) ([10]).

The trial judge assessed contributions and section 90F factors as 90:10 in favour of the wife and then reduced the wife’s entitlement by six per cent, resulting in an overall division of 84 per cent to the wife and 16 per cent to the husband ([26]). The wife appealed.

Tree J considered the reasons for decision (at [194] of the original judgment), which included: “The husband leaves four children surviving him. While each received benefits from their father when he distributed the proceeds of sale of [Suburb F], they did not exercise any control over his decision-making and may themselves regret some of the decisions he made. This outcome sees each of them receive a modest but reasonable inheritance from their late father’s estate.”

Tree J said (from [28]):

“… The wife says it should be read as introducing an irrelevant consideration, namely the reasonableness of the husband’s children’s inheritance. This was conceded by the husband as being an irrelevant consideration in property settlement cases, and plainly it is. It is not possible to read the primary judge’s reasons other than it being the sole factor in favour of the six per cent adjustment …

[29] To the extent that the primary judge was concerned that a 90/10 split would see the husband receive less than his initial contribution … her Honour did not explain why the return of that sum was necessary to achieve justice and equity, or conversely, by reference to relevant considerations, how not returning [his initial contribution] … to his estate effected an injustice or inequity on the husband.

[30] It follows that these grounds succeed and hence the concession that the appeal ought be allowed was correctly made.”

His Honour concluded (from [33]):

“The appeal has only succeeded in relation to the challenge to the primary judge’s adjustment of six per cent in the husband’s favour, so as to achieve a just and equitable outcome. Therefore the re-exercise is a very slender one since, as the parties request, I am adopting the undisturbed findings of a 70/30 contribution based entitlement in the wife’s favour, together with further adjustments totalling another 20 per cent in her favour, arriving at a 90/10 division.

[34] It is difficult to see anything about that outcome which is unjust or inequitable. Although before me the husband contended that justice and equity required the return of [his initial contribution] … that has necessarily already been considered in determining the 70/30 contribution based entitlement. There is nothing apparently unjust – given the husband’s dissipation of more than $500,000 post separation – in his estate only receiving $155,000. The fact that [his initial contribution] … is now more valuable than when it was purchased does not speak to injustice either, as its current value was utilised in the balance sheet, and hence the husband’s entitlement already reflects that.”

The final orders were varied to facilitate a 90:10 division overall and orders made for written costs submissions.

Property – Transactions within the ambit of s 106B were “fraud” as used in s 125 of the Evidence Act 1995 (NSW) (client legal privilege is lost in a case of fraud) – Husband’s application seeking to restrain wife’s reliance on certain documents dismissed

In Antoun [2023] FedCFamC1F 129 (9 March 2023) Riethmuller J heard a wife’s application for property settlement against her former husband after a relationship which began in 2000, ended in 2015 and produced four children.

The husband worked in a trade and the wife worked in finance. The wife alleged that the husband formed the intention to separate in 2015 and embarked on a course of conduct to defeat the wife’s s 79 claim ([1]). This included removing himself as appointor from five discretionary trusts ([9]). The wife sought orders under s 106B and other equitable remedies ([2]).

The husband sought to restrain the wife from continuing to instruct her current solicitors and that she be restrained from relying on certain documents on the basis they were privileged ([3]).

Riethmuller J said (from [69]):

“… [W]hat emerges regularly in the wife’s Points of Claim … are numerous transactions where the husband has either transferred shares he held (without consideration at market value) or divested himself of the position of appointor of trusts. Such transactions necessarily lead to a prima facie case that the transactions would be likely to defeat the wife’s property settlement claims pursuant to s 79 of the Act.

( … )

[72] … [T]he husband has joined issue with the wife’s claims … on the basis that they were not done with an intention to defeat her potential claims under the Act … but rather done for ‘estate planning’ reasons … Whilst intention is not an essential element to a claim pursuant to s 106B of the Act (and indeed nor is lack of consideration at market-value), both factors are weighty considerations when exercising the discretion pursuant to s 106B of the Act, and are therefore relevant facts and circumstances in the wife’s case.

THE PRIVILEGE CLAIM

[73] In order to address the question of the husband’s intention when carrying out various transactions, the wife seeks to rely upon a number of documents prepared by former solicitors for the husband … In substance, these documents are letters from the husband’s solicitors seeking information to enable them to effect changes to the various corporate and trust structures of the husband so as to remove the husband as a director and appointor of various entities.

( … )

[77] Section 117 and s 118 of the Evidence Act 1995 (NSW) (‘the Evidence Act’) provide for communications between solicitors and clients to be privileged in the circumstances set out in the provisions. The relevant documents appear, prima facie, to be confidential communications between the husband’s solicitors and the husband.

[78] … [T]he privilege provided by the Evidence Act is lost if the document was prepared ‘in furtherance of the commission of a fraud or an offence or the commission of an act that renders a person liable to a civil penalty’: see s 125(1)(a) of the Evidence Act.

[79] Transactions designed to put assets beyond the reach of a spouse in property settlement proceedings were found by Hogan J to be within the ambit of s 125 of the Evidence Act: see Yamada & Bernard [2016] FamCA 977. Such an approach is consistent with the common law and the approach taken in a number of cases in other superior courts. It was accepted by counsel for the husband that transactions within the ambit of s 106B of the Family Law Act 1975 (Cth) would fall within the ambit of ‘fraud’ as that word is used in s 125 of the Evidence Act.

[80] I am mindful that privilege would attach to legal advice on what could lawfully be done (Australian Securities & Investments Commission v Mercorella (No 3) [2006] FCA 772 … ), and that it is the documents with respect to the carrying out of the scheme that come within the ambit of s 125 of the Evidence Act.

[81] Prima facie, the documents show that the husband was instructing his solicitors to put in place the various changes in contemplation of ‘leaving his wife around Christmas time’, and choosing his sister as replacement for the husband in the companies and trust as that way the ‘risk is minimal as … his sister is independently significantly wealthy’ … It is clear on the face of these documents that they were prepared in order to effect transactions that the husband ultimately carried out, which the wife seeks to impugn in her Points of Claim. … I am persuaded that the documents fall within the exception set out in s 125 of the Evidence Act.”

The husband’s application was dismissed and the case was transferred to the Complex Financial Proceedings List.

Children – Court erred by refusing to admit report by child’s treating psychologist as to the child’s sexualised behaviours – “Life changing” reversal of care order set aside

In Simmons [2023] FedCFamC1A 44 (5 April 2023) the Full Court (McClelland DCJ, Aldridge & Baumann JJ) heard a mother’s appeal from parenting orders made by Hannam J.

The parties separated in 2015 after a 9 year relationship. There were three children of the relationship, two daughters aged 8 years (“Y” and “W”) and one daughter (“X”) aged 11 years. One of the twins had been diagnosed with autism spectrum disorder ([5]).

The children had lived with the mother since separation ([6]). Allegations that the father sexually abused X were investigated and not substantiated ([8]). X had psychological and behavioural difficulties which resulted in the mother presenting the child to medical professionals and receiving various diagnoses.

The children’s time with the father was stopped by the mother and they last spent time with the father on 13 August 2019 ([15]).

After further disclosures of sexual abuse, the case was transferred to the Magellan List and in January 2020, a Magellan report concluded that there had been a substantiation of sexual abuse of the child X. The father had not been charged with any offence ([18], [19]).

The child X had attended on a clinical psychologist (“Ms R”) at the request of the independent children’s lawyer (“ICL”) in 2020. Ms R prepared a report and Hannam J would not accept the tender of that report ([21]).

Despite earlier recommending that the children should live with the mother, the family report writer recommended that there be an immediate change in residence on the basis of the expert’s view that the mother could not manage the behaviour of two of the children ([2], [22] & [23]).

Hannam J ordered a change of residence of the children from the mother to the father; for him to have sole parental responsibility and for the children to spend limited time with the mother. During the final hearing interim orders were made for the children to live with the paternal grandmother and spend supervised time with each parent pending delivery of judgment ([24]).

The mother appealed, her grounds of appeal including Hannam J’s failure to admit Ms R’s report into evidence.

The Full Court said (from [32]):

“ … [W]e find merit in the mother’s first ground of appeal in that the primary judge erred in failing to receive into evidence the report of Ms R dated 3 November 2020. In circumstances where the finding of that error is dispositive of the appeal, we find it unnecessary to address the remaining grounds of appeal. …

( … )

[35] … [W]e are satisfied that, in ruling that the report of Ms R would not be admitted into evidence, the primary judge failed to take into account a material consideration, namely, the opinion expressed by child X’s treating psychologist as to the reasons for child X’s dysregulated and sexualised behaviour.

( … )

[37] At the preliminary stages of the hearing, the primary judge indicated to the parties that she had available to her a report from Ms R and enquired of the parties as to whether Ms R was child X’s treating psychologist and whether any party was seeking to rely on the report.

( … )

[41] The primary judge … stated in respect to the report that ‘I don’t propose admitting it. I’m not reading it’ and also indicated that she did not ‘propose saying anything further about it’.

( … )

[46] In discharging her case management obligations, the primary judge was entitled to make an advance ruling regarding the potential admission of Ms R’s report into evidence (s 192A of the Evidence Act). However, consistent with the guidance provided by the Full Court in Britt & Britt [2017] FamCAFC 27 …  trial judge should be cautious in doing so.  …

( … )

[50] As acknowledged by counsel for the ICL, the orders made by the primary judge were indeed ‘life changing’ for these children. … The final orders provided for the children to continue having ongoing supervised time of three hours per week with their mother for a period of three months and thereafter, for a period of two months, six hours per week. It was only after the expiration of five months from the date of the final orders … that the children’s time with the mother was to progress to spending each alternate weekend and half of school holidays.

( … )

[52] Before making such an order that in and of itself was likely to cause such significant emotional distress to the children with potential lifelong implications for them, the Court had an obligation to ensure that a decision of such magnitude for these children was based upon the most comprehensive and relevant evidence that was reasonably available. … [T]his included the report of Ms R.

[53] Ms R was not simply an adversarial witness engaged by the mother. She was a clinical psychologist attached to C Services, a government service agency to which the mother had been referred by the Department for the purpose of obtaining counselling and therapy to assist child X.

[54] In her report dated 22 July 2022, the single expert herself acknowledged that a potential deficiency in her own report was that she had attempted, but had been unable to, contact a representative of C Services.

( … )

[59] … [T]he reason provided by [the family report writer] for changing the recommendations that she initially made in her Family Report … was based on her conclusion that the sexualised behaviour displayed by child X and child W in the video recording … evidenced that ‘the mother struggling to set boundaries for the children’ … This, [the family report writer] opined, was ‘the most likely contributor to their ongoing sexual behaviour’ …

( … )

[61] The opinion of Ms R was highly relevant to this finding because it provided a counter narrative to the conclusion reached by the primary judge. That is, it was the clear opinion of Ms R, after applying a number of separate measures, that child X had … been the subject of trauma, rather than simply that she had been the subject of a ‘message’ from her mother that she had been the subject of trauma.

( … )

[65] Having regard to the contents of the report of Ms R … it is clearly the case that the admission of her report could rationally have affected the determination of several issues in the proceedings. This included, most relevantly, whether child X’s sexualised behaviour, which has unfortunately been replicated by child W, is the result of the mother’s inability to set boundaries rather than a multiplicity of other considerations, including the potential that child X has in fact been the subject of trauma, with that trauma occurring in the context of a history of child X engaging in problematic behaviour associated with her diagnosis of ADHD and exhibiting signs of having ODD.”

The appeal was allowed, the case was remitted for rehearing and costs certificates were ordered.

Children – Reversal of care from mother with “propensity towards elevating her adult needs over the children’s best interests” and who had “no investment” in supporting children’s relationship with father

In Grier [2023] FedCFamC1A 32 (23 March 2023) McClelland DCJ, sitting in the appellate jurisdiction of the Federal Circuit and Family Court of Australia, heard a mother’s appeal from a decision changing the children’s residence to the father.

The children, “X’’ aged 8 and “Y” aged 6, had lived with the mother since separation in 2018. Although the final hearing occurred in 2020, the trial judge died prior to delivering final judgment. The mother relocated with the children in January 2022, resulting in the father applying for a recovery order in March 2022.

The second trial was finalised in July 2022 and final orders were made on 1 March 2023 for the children to live with the father and spend time with the mother either on alternate weekends or for one mid-term weekend if she relocated (as she sought to do in her application).

The trial judge found that the children and the father had a positive attachment; that the mother had involved the children in parental conflict including making allegations of sexual abuse by the paternal grandmother; that she had “no investment” in supporting the children’s relationship with the father and that she placed no value on court orders ([14]).

The mother appealed, arguing that the trial judge failed to have regard to relevant considerations under s 60CC: the findings were not reasonably open to the trial judge and that the trial judge failed to give sufficient weight to the impact of the orders on the children’s relationship with her.

McClelland DCJ said (from [25]):

“Having noted the significance of that connection between the children and their mother, the primary judge nonetheless concluded … that … ‘the benefits afforded to the children of maintaining [the mother’s primary care] of them’ were overridden by the mother’s ‘propensity towards elevating her adult needs over the children’s best interests’, which the primary judge found was a situation that was likely to continue. …

( … )

[31] It appears to be contended by the mother that in circumstances where the children have a meaningful relationship with both parents, the primary judge should have found … that both parents have contributed to that positive relationship and … that the Court should have found, by way of inference, that situation would continue into the future.

[32] The difficulty with that argument is … that the primary judge specifically found to the contrary. … [T]he primary judge found … that the mother ‘is wholly negative about the father’ and … that her capacity to foster a relationship between the children and the father ‘is compromised as a consequence of her being overwhelmed in her own psychological self and adult focus.’

[33] … [T]his was evidenced by the mother’s ‘poor attitude to her parenting responsibilities inter alia by reason of her failure to comply with Court Orders’ and her ‘frustration of the father/child relationship,’ most relevantly, by unilaterally moving with the children to City F.

[34] … [T]he primary judge accepted the opinion of the Family Report writer that … there were ‘some indications to suggest that [the mother] had intentionally sought to influence the children’s views wishes and opinions’ negatively towards the father. This included what the primary judge found … to be her conduct in placing pressure on child X to pen a letter to the Court channelling the mother’s views and, also, facilitating the children attending a police interview to give evidence against their paternal grandmother falsely accusing her of sexually abusing them …

[35] … [T]he primary judge found that, given that history, the Court could have no confidence that the mother would, in the future, support and foster the children’s relationship with the father because she placed no value on it …”

His Honour continued (from [41]):

“It was not disputed that the mother had unilaterally relocated … with the children. Her actions in doing so without consulting the father were … contrary to the order made by Judge Middleton for the parties to exercise equal shared parental responsibility.

( … )

[54] … [T]he fact that the mother had not conferred with either the grandmother or the father before reporting the children’s disclosures to police was but one aspect of the evidence considered by the primary judge in arriving at the conclusion that the mother had opportunistically used the children’s report of their grandmother’s conduct for the purpose of advancing her case in the litigation, rather than as a result of genuine concerns that the paternal grandmother had in actual fact sexually abused the children. …”

His Honour concluded (from [86]):

“I have earlier referred to the specific acknowledgement by the primary judge of the significance of a trial judge making orders for there to be a change in residence for a child including … the fact that the case concerns young children. Her Honour’s appreciation of that fact was consistent with her duty, as set out in s 43 of the Act, which provides that in exercising jurisdiction under the Act, the Court ‘must’ have regard to ‘the need to protect the rights of children and to promote their welfare’. …

[87] The primary judge clearly appreciated that orders imposing a 28 day moratorium on the children communicating with the mother, in order to facilitate the children’s adjustment to changing their primary place of residence from that of the mother to the father, would cause emotional distress to the children. The primary judge appropriately balanced that finding against her finding that the children were at risk of emotional and psychological harm in the care of the mother, with child X in particular being ‘at breaking point in terms of his emotional stability and psychological function’ … such that an urgent response was required.”

The appeal was dismissed and the mother was ordered to pay the father’s fixed costs of $13,533.24.

Property – Judge failed to distinguish between the assets and liabilities of the parties and those of the parties’ company – Judge also failed to take into account the liabilities the husband would solely be liable for – Court not empowered to make order compelling parties to strip company of its assets by distributing the sale proceeds between parties in proportions that did not match their (equal) shareholdings

In Pavlic [2023] FedCFamC1A 54 (4 May 2023) the Full Court (Austin, Williams & Howard JJ) heard a husband’s appeal from a decision of McClelland DCJ in a property case.

The husband and wife separated after a long relationship. The parties owned numerous real properties and shares in a company that conducted a building business ([3]). There was a dispute over the value of the company, but there was no single expert valuation.

At first instance, final orders were made for a 57 per cent division to the wife and 43 per cent to the husband. The orders compelled a sale of the business and that the husband be solely responsible for the company’s tax debt.

The husband appealed, arguing that his Honour failed to take into account the liabilities that he would be solely liable for and therefore reached an artificially low figure ([11]).

After saying (at [7]) that “no clear distinctions were drawn between the corporation, the parties, and their respective assets and liabilities”, Austin & Williams JJ said further (from [23]):

“When calculating the quantum of the sum the wife would need to pay to the husband … his Honour took into account the assets and superannuation the husband would retain as part of his 43 per cent overall share of the property … but failed to account for the liabilities he would bear.

[24] The husband was to bear exclusive liability for … liabilities which could total well over $300,000, including his credit card debt … his personal tax debt … the partnership tax debt … and any portion of the corporate tax debt of $185,255 not discharged by the proceeds realised on the sale of the corporation’s assets. Without taking those liabilities into account, the wife’s payment to the husband was calculated by reference to the gross value rather than the net value of the property he was to retain.

[25] It necessarily follows that the sum which the wife was ordered to pay to the husband was much less than was correctly payable. How much more she needed to pay him cannot be accurately calculated on the evidence currently available …

( … )

[28] The orders require the parties to sell the corporation’s business and other assets, whereas the reasons for judgment discuss the need to sell the corporation itself, so the orders and reasons do not match in that respect either. The orders then oblige the parties to divide between them any surplus proceeds realised on the sale of the corporation’s assets in respective shares of 57 and 43 per cent … The corporation will remain a separate viable entity because no order was made compelling the parties to liquidate it. Nor was any order made compelling one party to transfer his or her shareholding in the corporation to the other, so they will retain their equal shareholdings in it, despite the statutory imperative under s 81 of the Act to sever the parties’ financial relationships wherever possible.

[29] It follows from those orders that the funds realised on the sale of corporate assets will remain the property of the corporation. The primary judge was not empowered to make an order either compelling or authorising the parties to strip the corporation of its assets by distributing its money between them, particularly in proportions which do not match their equal shareholdings. … [I]f the existing orders are implemented, the distribution of corporate funds to the parties in that way would likely trigger unanticipated personal tax liabilities under Pt III, Div 7A of the Income Tax Assessment Act 1936 (Cth), which nobody envisaged and which would likely upset the intended proportional division of net assets.”

In a separate judgment, Howard J also concluded that the appeal should be allowed, where the non-deduction of the husband’s liabilities had not been adequately explained ([76]).

The appeal was allowed, the final orders set aside and the case remitted for rehearing. Costs were reserved for determination on the papers.

Property – Wife’s application to value properties and business owned and operated by husband’s family dismissed – Composition of family group of companies uncertain

In Wheeler & Loggins [2023] FedCFamC1F 66 (17 February 2023) Harper J heard a wife’s application for valuations of properties owned and operated by the husband’s family.

The husband and wife both filed applications seeking property adjustment orders. The husband had financial interests in corporations and trusts associated with his family, which the wife asserted were worth up to $70 million ([2]).

The wife sought orders that included valuations of several companies, trusts and real estate ([3]). While the parties largely agreed on which real estate, companies and trusts should be valued, there was dispute about properties of which the husband was not registered proprietor and in which the wife conceded the husband held had no proprietary interest. Her case was that the there was a complex group of corporate and trust structures and that the husband owned a substantial percentage interest in the group (“Q group”).

Harper J said (from [18]):

“ … [T]he wife’s own material discloses imprecision and some inconsistency about the identity of the companies, trusts, or businesses comprising the group in which she claims the husband enjoys a one third interest, and which therefore should be valued.

( … )

[22] It may be that there exists an assemblage of entities and businesses associated with the Loggins family which are sufficiently commercially federated to be accurately described as a group, as the wife contends. The present evidence does not allow any clear conclusion to be formed at this stage. What the evidence does show, for interlocutory purposes, is that some entities are most directly associated with the husband’s siblings, and have no obvious connection to the disputed items. ( … )

[23] … [T]he essential question here, which helps determine what property should be valued, is what legal and equitable property interests, according to ordinary legal and equitable principles, are owned by the wife and husband. Asserting a percentage interests in a large group of amorphously defined entities, in which third parties to the marriage also clearly have interests, is not very helpful in identifying the parties’ precise legal and equitable property. It was clear on the wife’s own argument that the only way in which a conclusion could be reached about an overall percentage interest in an asserted Loggins group is by a consideration of the specific interests owned or enjoyed by an individual through a range of identified trusts or corporations. What needs to be demonstrated with a much greater degree of particularity is what falls within the alleged ‘[Q Group]’ and what a given family member’s specific interests are.  …

[24] The other basis upon which the wife mounted her argument was that the disputed items should be … viewed as a financial resource of the husband. It has long been held that a ‘financial resource’ in the context of property adjustment proceedings means ‘a source of financial support which a party can reasonably expect will be available to him or her to supply a financial need or deficiency’: Kelly and Kelly (No. 2) [1981] FamCA 78 …

( … )

[27] … [I]n my view [the current evidence] does not presently justify valuation of the disputed items. They may indirectly constitute a financial resource of the husband, but on no view of the evidence can it be said the assets of the disputed items are a direct financial resource of the husband, at least at this stage.”

Harper J concluded (from [40]):

“ … [I]rrespective of whether or not any of the disputed items are ultimately held to be a financial resource of the husband, they are owned and operated by third parties. The wife did not grapple clearly with this reality in her submissions, but it was conceded by her that before any valuation of operating businesses could be undertaken, especially where turnover would have to be assessed and potentially commercially sensitive information given to a valuer, the cooperation of third-party owners would be essential. The same difficulty affects the proposed valuation of parcels of real estate. That could only take place if the registered proprietors were prepared to allow access for the purpose of the valuation to be undertaken.

[41] I have no idea as to whether such cooperation would be forthcoming. None of those entities have been invited to give a view about valuation or to be heard from by the Court. I take account of the husband’s submission that in the event orders were made for the valuation of these third-party interests, the prospect of any cooperation would automatically be reduced.

( … )

[44] Accordingly, I do not propose to make orders for the valuation of the disputed items at this stage. After the agreed valuation process is undertaken, if the single expert identifies the need to engage in valuation of further third-party assets, it is possible that the question may need to be revisited, and the result of this application should not be taken as precluding a further application in the event information of that nature comes to light.”

The wife’s application was otherwise dismissed, with no order as to costs.

Children – Contravention – Mother’s genuine but unreasonably held belief of sexual abuse by father is not a reasonable excuse for her 22 admitted breaches – “Serious disregard” not established and 24 month bond ordered

In Peluso & Karle [2023] FedCFamC1F 87 (24 February 2023) Henderson J heard a father’s contravention application alleging that the mother had contravened final orders 22 times between June 2021 and April 2022.

Final parenting orders were made between the parents on 4 August 2020 in relation to two children X, aged 9 years and Y, aged 6. The orders provided for the children to live with the mother and spend time with the father, including time on alternate weekends, school holidays and over the Christmas period, and communicate with the father via audio visual communication ([4]).

In June 2021, the mother alleged that X made disclosures of sexual abuse by the father and stopped the children’s time with the father. Following investigations by the Department of Communities and Justice and the police, the investigation was suspended in September 2021 ([23], [39]).

The father filed a contravention application in April 2022. The application was heard on 22 November 2022.

The mother pleaded guilty to all breaches but argued that she had a reasonable excuse. She had also filed an application in a proceeding seeking that the final orders be suspended ([48]-[50]).

After reviewing the case law on “reasonable excuse” Henderson J said (from [58]):

“ … [C]ounsel for the mother submitted that the mother relied upon the same reasonable excuse for all counts. The reasonable excuse was that the father sexually abused the children, and her contravening the orders was necessary to protect the health and safety of the children.

[59] The facts are that, since 13 June 2021, the children have not spent time with the father, and since 17 June 2021, the children have not had audio/visual communication with the father.

[60] The mother’s evidence to support her reasonable excuse was contained in her affidavit together with a tender bundle. The mother deposed that from 14 June 2021, X disclosed to her that she had not hurt her vagina on the slide … but that the father had touched her on her vagina …

( … )

[64] The sad reality in this matter is that X has, almost since her birth, been living with the spectre of the mother believing that the father has behaved inappropriately towards her by way of sexual abuse, touching her vagina and anus, and other areas of her body sexually.

[65] The matter came on for final hearing before Rees J in on 22 July 2020, wherein the mother and father agreed as to the regime of time for the children … Her Honour made some orders, and the parties agreed on various other orders …

[66] … The decision made by Rees J …  was informed by the parties’ evidence as well as the Expert Report of Ms G. Ms G was of the view that the allegations against the father, made by the mother in her material and to Ms G in-person, were unfounded …

( … )

[83] The mother confirmed orally and was firm in that she believes the father has sexually abused X, despite there being no police action, no action by the DCJ, and X’s school confirming that they have no concerns about her behaviour. Counsel for the mother submitted and consistent with his Case Outline, that the mother, within the meaning of the Act, believed on reasonable grounds, the contraventions were necessary to protect the health and safety of the children.

[84] The submissions of the mother’s counsel were that the mother believes X has been sexually abused, that this belief is genuine, that she is firm in this belief and, in those circumstances, it was reasonable for her to contravene the final orders because to send either or both X and Y, for time with the father, could not be countenanced by her when she believes the children will be harmed. I reject that submission. The mother’s fixed belief is not based on reasonable grounds, but her erroneous, improperly held view that the father has sexually abused X, which has been held since X was 11 months of age. It is inconsistent with her decision to enter into the final orders for equal shared parental responsibility and unsupervised time with the father, including overnight time and school holiday time.

[85] The mother has waged a campaign against the father to excise him from the children’s life, due to this erroneously and unreasonably fixed belief held by her. Police, the DCJ, medical practitioners and court experts such as Ms G have not believed the mother’s allegations nor is there any substance to her allegations other than X’s words, which the mother has coached from her … “

Henderson J continued (from [94]):

“ … [M]erely contravening orders because of a child disclosing alleged sexual abuse by the other parent is not a reasonable excuse. Further, having a genuine belief of the disclosure of sexual abuse made by a child is not a reasonable excuse per se. The belief must be genuinely held and the belief is based on reasonable grounds.

[95] One substratum of facts that plays a significant role in determining whether the belief is based on reasonable grounds is whether the alleging parent has accepted the outcome of an investigation and/or the findings made by the Court.

[96] A second factor that is important for the Court to consider is whether the contravening party has sought to change the orders they are contravening. For example, in Ackland & Ackland [2007] FMCAfam 693. Kelly FM noted that the mother had filed an Initiating Application to vary the final orders two days prior to the father filing his Contravention Application. The mother made no such application in this matter.

[97] In the present matter, the mother has not accepted the outcome of the investigation from the police and DCJ …

( … )

[102] While the mother may genuinely hold the view that the father has sexually abused the children, particularly X, it is not reasonably held on the evidence … The investigations of allegations made before the final orders were made were not substantiated, and the investigation undertaken as a result of the allegations in June 2021 have not been substantiated. The mother entered into the consent orders knowing the disclosures allegedly made by X. This conduct is inconsistent with the mother now holding a reasonable belief that the new disclosures which mirror, in many respects, the prior disclosures, are true.

( … )

[104] I find, on the balance of probabilities, the mother did not have a reasonable excuse for breaching the final orders made on 4 August 2020 and all counts are proven, save for a breach of order 30(a), which restrained the parents from taking the children to a counsellor in relation to allegations of sexual abuse.”

Henderson J concluded (from [113]):

“Although I find the mother has breached the final orders for a lengthy period, I find it is more appropriate that these contraventions be dealt with under Subdivision E. If the mother does not comply, any further breaches, if found, may be regarded as a ‘more serious breach’ under Subdivision F.

( … )

[117] Given that I have found the mother guilty of contravening the final orders without reasonable excuse on 22 counts, I will make an order placing her on a good behaviour bond without surety. I am satisfied on the balance of probabilities that the grounds for making such an order exist, and it was conceded as an appropriate penalty by counsel for the mother. The order for the bond will be for a period of 24 months so as to ensure a long-term compliance of orders by the mother.”

No order was made for compensatory time on the basis that such an order would not be in the best interests of the children ([120]). The case was adjourned for submissions on whether the final orders should be varied.

Financial Agreements – Post-separation s 90C agreement set aside due to deliberate non-disclosure – Wife had “special disadvantage” at the time of signing the agreement and since separation

In Whitford [2023] FCWA 15 (30 January 2023) Berry J in the Family Court of Western Australia heard a wife’s application for a s 90C financial agreement entered into post-separation to be set aside.

The parties’ relationship started in 1999 when the wife was 19 years old. They commenced cohabitation following their marriage in 2001. There were three children of the marriage being “A” born in June 2003, “B” born in December 2004 and “C” born in January 2013. The parties separated on 5 October 2012 when the wife, who was pregnant with “C” left the family home (“Farm A property”) and lived in temporary accommodation. When “C” was 8 months old he commenced living with the husband in disputed circumstances ([23]-[30]).

The parties’ divorce became final on 20 January 2015. On 12 April 2015, the husband married the wife’s sister, Ms D ([39],[45]).

On 17 December 2014, the parties entered into a financial agreement, which valued the husband’s net assets at $1,109,973 and the wife’s at $59,000 and provided for a division of the asset pool 95 per cent to the husband and 5 per cent to the wife ([38]). The Farm A property was referred to in the financial agreement and valued at $2,217,000 ([72]).

Unknown to the wife, a contract of sale for the Farm A property was signed by the husband in October 2014 and settlement took place on 27 February 2015. The Farm A property was sold for $2.6 million and the husband purchased the Farm B property for $1,036,205 ([42]). The husband and Ms D moved into the Farm B property following settlement.

The wife discovered the sale price of the Farm A property when undertaking internet searches in September 2020. She issued proceedings in February 2021 to set aside the financial agreement ([54]). The wife argued that the financial agreement was not binding pursuant to s 90G of the Act and also that there were several grounds to set aside the financial agreement under s 90K.

After finding that there was compliance with s 90G, Berry J considered the s 90K arguments and said (from [72]):

“The husband entered into a contract to purchase the property … Farm B … on 21 September 2014, for $1 million … The financial agreement makes no reference to the Farm B property.

[70] … [T]he husband’s entry into this contract was not disclosed to the wife prior to the financial agreement being signed and a copy of the contract was never disclosed to the wife …

( … )

[72] The value attributed to the Farm A property in the financial agreement is $2.217 million. This value is derived from a market appraisal … dated 8 August 2014.

[73] The husband was presented with two contracts of sale for rural land in respect of the Farm A property dated 30 September 2014 … The first offer was for $2.5 million and the second offer was for $2.6 million. The husband accepted the second offer prior to execution of the financial agreement …

[74] … [T]he first offer, the second offer and the husband’s acceptance of the second offer were never disclosed to the wife before the financial agreement was signed.  … [T]he wife was unaware of these offers or that the husband was intending to sell the Farm A property …

[75] … [W]hen the husband signed the financial agreement, he knew that the value attributed to the Farm A property of $2.217 million was materially inaccurate. …

The Farming Business

[76] The value attributed to the farming business in the financial agreement is $90,000. The husband’s evidence is that the assets covered by this item were sold at a clearing sale on 18 February 2015 for $457,782 (for plant and equipment) and $47,172 (for sheep), both sums are net of sales commission and GST. The sale proceeds … are over five times greater than the value attributed in the financial agreement.

[77] The Court is satisfied that when the husband signed the financial agreement, he knew or ought to have known that the value attributed to the farming business of $90,000 was materially inaccurate.”

Considering the wife’s claim of unconscionable conduct, Berry J continued (from [87]):

“In addition to earlier findings in connection with s 90K(1)(a), the Court is satisfied after hearing the parties and considering the evidence that:

(a) The payment of $50,000 to the wife by way of property settlement with no provision for spousal maintenance was dictated by the husband with no input by the wife. The Court accepts the wife’s evidence that the husband told her words to the effect that this was all he could pay her and all she would get from him.

(b) The wife was in no financial position to pursue litigation in Court to seek a greater settlement and this was known by the husband.

(c) The wife’s access to the children was controlled by the husband.

(d) The husband was anxious to have the financial agreement signed by the end of 2014 … The husband had not, on the Court’s finding, disclosed any of these pending transactions to his own lawyers nor the wife.

(e) The husband put pressure on the wife to obtain legal advice in order to sign the financial agreement, including by arranging her first lawyer at Law Firm A, and to enable the wife to do so the husband was prepared to, and did, pay for her legal advice.

(f) There was no motive or incentive to the wife signing the agreement in December 2014 (or at all), given the absence of evidence that such might prompt an accelerated payment of her paltry property settlement entitlement.

(g) … [T]he wife felt powerless and that she had no choice but to sign the financial agreement, irrespective of the legal advice she might receive, because she would not get a ‘better deal’. The wife did not have any reasonable time to reflect upon the legal advice she received.

(h) The husband’s engagement in telephone conversations with the wife … was no proper way to convey information or obtain ‘consent’ for the terms of an agreement, in light of the other findings the Court has made about the relationship between the parties and the psychological condition of the wife.

(i) The husband was aware of the wife’s psychological vulnerabilities arising in part from her abusive childhood and exploited these vulnerabilities in dealing with her after separation …

(j) The payment of $50,000 between March 2014 … and December 2019, as provided for in the financial agreement, was grossly unfair and unreasonable given the background facts and this level of unfairness and unreasonableness is a relevant consideration in determining whether vitiating factors exist.

( … )

[89] … [T]he wife, at the time she signed the financial agreement and in the period since separation, was in a position of special disadvantage and the husband unconscionably took advantage of his much superior position relative to the wife.

[90]The Court is satisfied that in the making of the financial agreement, the husband engaged in unconscionable conduct.”

Rejecting the husband’s argument that the wife’s application was statute- barred ([92]-[96]) and that the doctrine of laches applied ([97]-[102]), Berry J ordered that the financial agreement be set aside.