The wife applied for the husband to pay her costs pursuant to an Application in a Case she filed in July 2017. She sought spousal maintenance and a share of the income of the family trust. The husband sought to have her application dismissed and no alternative orders. The parties asked the Court to make consent orders. These orders included that she should be paid $1,700 per month. This was less than she had applied for.
The wife was, therefore, neither wholly successful nor wholly unsuccessful in her application.
Relevant Law:
Section 117 of the Family Law Act 2975 (Cth) states the general principles to be applied when making a costs order in a family law matter.
The parties are to bear their own costs, subject to certain discretionary considerations of the court. A court may make orders if it is of the opinion that there are circumstances that there are circumstances that justify it in doing so. The court may make orders it considers just.
The court must have regard to all of the matters in s 117(2A):
(2A) In considering what order (if any) should be made under subsection (2), the court shall have regard to:
the financial circumstances of each of the parties to the proceedings;
whether any partyto the proceedings is in receipt of assistance by way of legal aid and, if so, the terms of the grant of that assistance to that party;
the conduct of the parties to the proceedingsin relation to the proceedings including, without limiting the generality of the foregoing, the conduct of the parties in relation to pleadings, particulars, discovery, inspection, directions to answer questions, admissions of facts, production of documents and similar matters;
whether the proceedingswere necessitated by the failure of a party to the proceedings to comply with previous orders of the court;
such other matters as the court considers relevant.
Forrest J held sub-paragraphs, (a), (c), (e) and (f) to be relevant to this matter.
Ratio:
The wife submitted that her weekly income was $689.14 short of what she required and that the husband could afford to pay this. The husband submitted that he had been paying some maintenance 2015 through 2016, but did not dispute that this had been reduced to $65, or half the weekly cost of maintaining the home.
The husband ignored many requests for maintenance. When he did finally make an offer it was for $300 less than the wife received and accompanied by unreasonable conditions. Those conditions were that the wife make genuine efforts to reach a financial settlement before June 30, 2018 and that the wife withdraw her application for interim spousal maintenance. He further threatened to cease to provide any monthly payments at all if she did not meet these demands. Forrest J accepted that these requests were unreasonable.
The husband’s offers to pay were ostensibly made “without admission of capacity or need”. However, Forrest J considered them to be admissions both of his capacity to pay and her need for maintenance.
The wife did not receive everything she applied for, but the husband had applied simply to have her application dismissed. As such, she was relevantly not wholly unsuccessful.
The husband knew of the wife’s need for support but still forced her to bring an application at considerable expense. The husband has an income more than 20x the wife’s and a capacity to pay support.
As such, Forrest J was satisfied that the circumstances justified a costs order and ordered that the husband pay $6000 towards the wife’s costs.
In the case of Jenkins & Jenkins [2018] FamCA 224, the wife sought an Order for costs be made against the husband, although neither party had exactly achieved the outcome they had sought in their Application and Response.
In this case, the wife had, since separation, periodically asked for spouse maintenance support from the husband and he, periodically, had provided additional support such that the wife did not actually apply for spouse maintenance until July 2017, although the proceedings between the parties had been commenced by the wife in 2014.
The husband made his first offer to pay her periodic spousal maintenance in November 2017, four months after she had filed her Application. That initial offer was conditional.
The husband had made the offer to pay without admission of capacity or need. The importance in the case was that the Judge was satisfied that his repeated offers in the month prior to the hearing to pay her a reasonably substantial amount per month did amount to an acceptance by him of both her need and his capacity to pay it.
Neither party was determined by the Judge to be wholly unsuccessful. The Judge pointed to the discretionary nature of the exercise.
The matter resolved but the husband’s conditions which were in his first offer, were not part of the final resolution.
The court found that although the husband knew of the wife’s need and his own capacity to contribute to her financial support, the wife had to bring an application to the court in order to obtain the outcome she ultimately did obtain.
The reality for the husband was that had he conceded to the requests for periodic support when the wife first sought it even with the costs order his outlay was less. The commercial realities of negotiating without admission must be considered. Is it better not to make any offer?
Bond v Child Support Registrar & Anor 2018 FCCA 422
In the case of Bond v Child Support Registrar & Anor [2018] FCCA 422 (23 February 2018), the Federal Circuit Court confirmed the decision of the AAT on the basis that loans from his father consisted a financial resource of the father in the child support context.
There had been a determination by the Administrative Appeals Tribunal and an appeal followed.
“The decision in question, which was appealed, set aside an earlier determination of a senior case officer within the Child Support Agency and subsequently confirmed by an objections officer to fix the Applicant’s adjustable taxable income for the purpose of calculating child support at an amount of $127,500 for the period from 28 April 2016 to 27 April 2018″.
The issue was “whether the Tribunal properly acquitted the jurisdiction conferred upon it or fell into legal error when it characterised sums of money advanced to the applicant concerned to be a financial resource within the ambit of the Child Support legislation”.
The mother had applied on 28 April for a change of assessment because the current assessment didn’t, in her view, reflect the father’s income, property and financial resources, a reason 8 application. The mother relied on the fact that her former partner had received regular payments from the paternal grandfather who also paid mortgage payments and other household expenses incurred by the father.
The senior case officer had found that the father received significant financial benefits from entities controlled by the paternal grandfather. Those benefits were assessed to be a weekly amount of $1,330, together with an additional amount of $2,709. The corporate entities related to the paternal grandfather also provided the father with a company motor vehicle.
The father objected, and his objection was disallowed. The father applied to the Social Services and Child Support Division of the AAT for a review. The AAT set aside the decision and determined that the father’s taxable income should be varied upwards to $127,500 and the father then sought a review.
The central issue for the Tribunal was how the various sums advanced to the father and which supported his recurrent living expenses were to be categorised for child support purposes. The father asserted the sums constituted loans which necessarily would have to be paid back at some stage or another. On the other hand, it was the mother’s position the father regularly received money which she asserted was not reflective of a person who was in strained financial circumstances.
The paternal grandfather gave evidence at the AAT. The paternal grandfather was described by the AAT as a lawyer and tax specialist. Neither the father nor the paternal grandfather disputed the existence of either the company or the trust or that the company had regularly advanced monies to the father. The controversy centres only on the characterisation of the sums in question.
The court said: “The provenance of the regular deposits appearing in the bank statement was germane to the Tribunal’s inquiry”.
The father deposed that he fully intended to repay the sums, and indeed was under some pressure to do so from his father as he, the paternal grandfather, was in ill health and wished to retire from fulltime work. His efforts at repayment had been delayed by his own recent ill health.
The father was questioned about the loans. The paternal grandfather paid the council rates and levies on the property owned by the father in which he lived, and the cost of his health insurance. Each such sum was characterised as a loan. There was ostensibly a loan agreement.
The paternal grandfather had not asked for security because his son had “promised to repay the sums and he owns the house”. The paternal grandfather considered the written agreement amounted to an equitable charge over the house. The paternal grandfather couldn’t tell the AAT the exact amount that had been advanced to his son. The paternal grandfather was asked if he kept records of the loans and he answered, “Yes. Sure. Well, I don’t know that there were any ledgers established for him for these particular loans”.
The grandfather was asked to characterise the payments and said:
“Well, they are entirely at my discretion, and they’re only made to him because he doesn’t have any resources with which to sustain himself at the present time. So – so I would regard them as compassionate loans. Not really a financial resource of his except if he’s able -to the extent he’s able to create income for himself the payments would reduce and – or he’s able to modify his lifestyle in some way that – or worst-case scenario, if I can’t sustain him, he will – can’t assist him, then he will have to realise the only asset he has”.
The paternal grandfather’s view was that the payments were at his discretion and couldn’t be regarded as being permanent in nature. The paternal grandfather was 73.
The father hadn’t been required to make any repayment of the amounts paid. The Tribunal considered the meaning of financial resource in section 117(2)(c)(ia) of the Assessment Act and considered the description in Walker v Fielding (SSAT Appeal) [2010] FMCAfam 320 at [71] & [78]:
“The term financial resource in the light of the objects of the Assessment Act should be broadly defined and would, in my consideration, refer to any financial benefit that would enhance the capacity of parents to provide a proper level of financial support for their children.”
The SSAT had found that the sums advanced to the father amounted to $107,168 per annum. The Judge then listed the Tribunal’s findings. On the topic of hardship, the Tribunal said:
“He may lose his house as the business can request instant repayment of the loans. On the basis of the longstanding conduct of the business in not seeking repayment of the loans and the express ability to address the loans in distributions under Mr Bond Senior’s Will, I do not consider it likely in the immediate future that the business will require repayment of or any or all of the loans.”
The Tribunal determined that they did not consider that the loss of his house or bankruptcy was a realistic concern.
There was a determination that he would not have the capacity to pay a retrospective increase in his child support liability.
The court dealt with the legislative framework, and this of itself is of interest.
A reference was made to the Child Support Registrar & Crabbe and Anor [2014] FamCAFC 10 at 54. That was summarised in the Decision .
The court then considered the grounds of appeal. The financial resource argument was the most significant. The Tribunal had categorised the loans from Mr Bond Senior within the statutory confines of section 117(2) of the Assessment Act:
“This task required it to consider the manner in which the payments had been utilised in the past and their potential prospect of implications particularly in terms of their continuity and how Mr Bond would apply them.”
The court referred to the requirement of a decision maker to make a prediction and part of the task would require the assessment of whether some possibility is farfetched or improbable or otherwise. The court accepted that the Tribunal did undertake a predictive task. The court determined that the assessment was legally open to the Tribunal and is not one which can be characterised as legally unreasonable.
The court and the Tribunal had to deal with the issues which turn on a factual enquiry. The court was satisfied: “The Tribunal did embark on such an enquiry and its various findings were capable of being supported by the evidence”.
The court accepted that the Tribunal was entitled to apply the authority of Walker & Fielding(SSAT Appeal) [2010] FMCAfam 320 to the Decision.
This case is an interesting one. The court concluded that it did not consider that the Applicant had established any of the grounds of appeal asserted by him. There was then a costs argument and the Child Support Registrar was awarded costs in the sum of $5,000 by reference to the applicable scale.
This is a case that involves a discussion of corporate structures.
In this case, the structure involves the husband and his adult children, but not this wife.
This corporate structure had its beginnings in 1973, 30 years before the husband and wife married.
The particular structure here is that there are two proprietary companies called N Pty Ltd and T Pty Ltd. T is an investment company and the only investments are its shares in N Pty Ltd. The value of the shares in N Pty Ltd determine the value of the shares in T Pty Ltd. The shareholdings in each company are divided into classes. The eight shareholders, other than the husband, were gifted their shares by the husband. The husband and his adult son are the sole directors of each corporation.
This was a case where the husband was described as, for all practical purposes, controlling all of the voting shares in N Pty Ltd. What was unusual about N Pty Ltd was that it didn’t treat all members of a class of shareholders in the same way. For example, the holders of C class shares had received different dividends to other holders of C class shares.
The husband’s shareholdings either in his own right or through T Pty Ltd could cause N Pty Ltd to pay all of the dividends to one shareholder which may or may not be the husband or T Pty Ltd or otherwise divide them as they see fit.
The husband could appoint the directors as he chose. The husband had sufficient votes to wind up the companies if he chooses. He’s got the complete discretion to determine the payment of dividends from N Pty Ltd. He has determined the amount of dividend that has been paid and to whom they’ve been paid.
The husband also would move large amounts of cash from time to time to minimise the interest payable on the line of credit by depositing them into the line of credit account secured over the former matrimonial home.
These are perfect examples of the types of issues that are relevant in the Family Court jurisdiction when considering a corporate structure.
The amount of money moved to the line of credit was in excess of $8M.
The case involved a valuer engaged by the wife and a single expert. The Judge preferred the single expert.
Obviously, the wife’s contention was that the corporations were the husband’s alter ego, and, on another ground of appeal, the wife sought that if the corporations were not his alter ego, the value had not been properly ascribed.
The court summarised the wife’s case as being simply that the company was incorporated to meet tax implications and death duties and that the shares have always been in his ultimate control and that he was in a position to receive all benefit at his whim.
The court referred to Mallet v Mallet [1984] HCA 21, Ramsay v Ramsay (1997) FLC 92-742, Warnick J., Harrison v Harrison (1996) FLC 92-682.
In this case, the wife raised arguments on appeal that she had not run at trial and the majority decision determined that those grounds had to fail. The majority considered the alter ego argument. The court said:
“By reason of their individual memoranda, articles and shareholdings, corporations can embrace widely differing measures of control by an individual shareholder.”
The concept of alter ego can have ambiguity.
Another way of expressing it is synonymous with the concept of lifting the corporate veil. That is, ignoring the separate legal personality of the corporation.
In Sharrment Pty Ltd & Ors v Official Trustee in Bankruptcy [1988] FCA 179, it was said:
“It does not follow from the use or even abuse of control of the company’s affairs that their controller acquired any of the company’s property by some informal process.”
The court, in this case, said:
“Neither the circumstance that a company is completely subject to the ownership and the direction of another person nor the circumstance that that other person exercises directorial control of the activities of the company in ways which minimise the manifestations of the company’s separate legal identity will justify, in my opinion, a conclusion that acts in the law formally done by the company are to be regarded as acts in the law done by that other person.”
The court said:
“More fundamental to the instant context however, each of the statements of Gibb J., Beaumont J., in the Federal forecourt just referred to point to the need for evidence beyond that evident from a company structure including its articles, the nature and extent of its shareholders and the manner in which dividends have in the past been paid in order to found a submission that the corporate veil should be pierced.”
In this case, there were arguments addressing section 254T of the Corporations Act and section 232 of the Corporations Act. These provide:
“CORPORATIONS ACT 2001 – SECT 254T
Circumstances in which a dividend may be paid
A company must not pay a dividend unless:
the company’s assetsexceed its liabilities immediately before the dividend is declared and the excess is sufficient for the payment of the dividend; and
the payment of the dividend is fair and reasonable to the company’s shareholders as a whole; and
the payment of the dividend does not materially prejudice the company’s ability to pay its creditors.
Note 1: As an example, the payment of a dividend would materially prejudice the company’s ability to pay its creditors if the company would become insolvent as a result of the payment.
Note 2: For a director“˜s duty to prevent insolvent trading on payment of dividends, see section 588G.
Assets and liabilities are to be calculated for the purposes of this section in accordance with accounting standards in force at the relevant time (even if the standard does not otherwise apply to the financial year of some or all of the companies concerned).”
an actual or proposed act or omission by or on behalf of a company; or
a resolution, or a proposed resolution, of members or a classof members of a company;
is either:
contrary to the interestsof the members as a whole; or
oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members whether in that capacity or in any other capacity.
For the purposes of this Part, a person to whom a share in the company has been transmitted by will or by operation of law is taken to be a member of the company.
Note: For affairs , see section 53.”
These loan accounts were referenced to section 90AE(1)(a) which provides….
Section 90AE reminds us that N Pty Ltd is a third party.
The court pointed out that the treatment of loan accounts for the purposes of Division 7A of the Income Tax Act“is by no means conclusive of how they should be treated in achieving justice and equity pursuant to section 79 of the Act”.
The dissenting judgement in this was written by May J. She considered the merits of the new grounds rather than simply ignoring them. The majority did not.
A single expert had valued the company based on the capital rights of the shares in a winding up and depended on the allowance for control by the husband. The wife’s expert valued the company based on the history of payments of dividends. May J. referred to Ashton v Ashton [1986] FamCA 20. She referred to the decision of Strauss J. with whom Ellis and Emery JJ. agreed.
A trust and a company are not the same. A company is a separate legal person, a trust is not a separate legal person. The legal owner of the trust property is the trustee and the beneficiaries are the equitable owners of the trust property.
Ascot Investments Pty. Ltd v Harper and Harper (1981) FLC, at page 354, was also considered.
May J. determined that it would be better to consider whether the grounds had any merit rather than dismissing them on the basis that the case was not argued before the Trial Judge. Grounds 1 and 2.1 dealt with the alter ego argument.
Her Honour referred to S & M and Ors [2003] FamCA 1387 as being indicative of the type of argument now being run.
Part VIIIAA of the Act has been enacted post the Ascot Investments Pty. Ltd v Harper and Harper decision.
Eventually, Her Honour found:
“An analysis of the company structure and shareholdings together with the memorandum and articles of association could not be interpreted as matter of fact that the company is the alter ego of the husband.”
May J. wrote the decision in relation to legal fees which was accepted by the majority.
Chorn and Hopkins was accepted as the appropriate authority.
The case of Trevi and Trevi [2019] FamCAFC 51 considered the issue of legal fees as an addback. Murphy J. expressed it in this way:
“I consider respectfully that Her Honour confused two well established approaches to dealing with the wife’s paid legal fees as a claimed addback. More specifically, while purporting to treat the same as a matter relevant to section 75(2)(o), Her Honour in fact applied considerations relevant to the adding back of the sum. The discretions relevant to each are illuminated by differing considerations and Her Honour failed to consider matters relevant to the exercise of the discretion inherent within section 75(2) and the place of subparagraph (o) within that section. It follows that I also consider that Her Honour erred in the assessment of the relevant section 75(2) factors and that Her Honour’s reasons were inadequate to explain her refusal to add back the wife’s paid legal fees.”
This case is an example of a re-exercise of the discretion. The court discusses that at paragraphs 12 to 28. They make clear that the re-exercise is a different task. It is relevantly what this court considers to be the proper assessment of section 79(4)(e).
In Trask & Westlake, the Full Court heard an appeal brought by the husband against property adjustment orders made by Alridge J.
The parties had been married for eleven years and took on traditional roles during the marriage. The husband historically earned a very high income. Post-separation his income increased. The wife, though educated, had never held full-time employment and would need substantial re-training. The family had significant wealth and multiple property assets both in Australia and overseas. The husband made significant post-separation financial contributions through his employment and argued that the trial judge had attributed excess weight to the non-financial post-separation contributions of the wife.
Aldridge J found that the wife’s contributions were a continuation of the roles that the parties had each undertaken in this particular marriage while it subsisted. The Full Court did not disturb the finding that the post-separation contributions of the wife, whilst not financial, should still be given equal weight to those of the husband.
At [14] the Full Court said:
The husband’s written outline of argument calculates the percentage of the total value of the property represented by the husband’s post-separation cash injections. That can be a useful measuring stick, but the assessment of contributions remains “a matter of judgment and not of computation” (In the Marriage of Garrett (1984) FLC 91-539 at 79,372). That it must be so is emphasised by the fact that the percentage figure pertaining to direct financial contributions is being compared to the extremely important contributions made by the wife in maintaining a home as a single parent to four children dealing with the separation of their parents. Those contributions are not susceptible to any such mathematical calculation. His Honour plainly, and with respect correctly, recognised that the wife’s contributions did not cease upon separation but, rather, continued in circumstances made more difficult by the fact of separation. His Honour plainly accorded significant weight to those contributions.
Integral to the Full Court’s consideration of the appeal was the continuation of the parties’ roles post-separation. Whilst the husband’s income increased, the wife’s role was made more arduous by mere fact of separation. Importantly, the Court made no suggestion that had only the husband increased his financial contribution, or had only the wife’s non-financial contribution increased, the outcome would have differed. To understand the likely impact, if any, one need only turn to cases such as Figgins and Figgins (2002) FLC 93-122 and Petruski & Balewa (2013) 49 Fam LR 116.
At [15] the Full Court said:
… The years of cohabitation had embraced roles for the parties agreed between them that had led them to the point where one of them, the husband, received tangible recognition of, as his Honour put it, the “experience, knowledge and opportunities he had obtained in his earlier employment” (at [84]). The contributions of the wife are much less tangible. The lack of tangible recognition, or the fact that they are not susceptible to a dollar calculation, does not render them less important.
Ultimately, the husband’s challenge was one directed to the weight afforded to the wife’s contributions. It was not an appeal properly grounded on the misapplication of principle.
Referring to Sharman v Evans (1977) 138 CLR 563, the Full Court said at [17]:
This court, or any one of us, may have reached a different conclusion if charged as a trial judge with assessing those contributions. But, of course, that is insufficient to establish appealable error. The function of this court is “not to offer a second opinion” or to substitute our view of the application of s 79’s wide discretion for that of the trial judge. Indeed, “[i]t cannot be too strongly said that a mere difference of opinion … does not indicate error on the part of the trial Judge”.
While the Full Court allowed the appeal, it was not upheld on the basis that the trial judge had erred in attributing excess weight to the contributions of the wife, but rather on the basis that the original orders did not accurately reflect the judgment that had been made.
