This case concerned an appeal from a decision where the Court rejected the Husband’s proposal to sell a company, and instead ordered the Husband to buy the Wife’s shares.
The Appeal Court found that the primary judge failed to:
- consider the Husband’s capacity to pay the lump sum amount to acquire the Wife’s equal shareholding; and
- provide adequate reasons for rejecting the Husband’s proposal that the company be sold with the net proceeds to be divided equally between the parties.
The Facts
The parties were in a relationship of approximately 28 years from 1990 to 2018. There were three adult children of the marriage.
The parties were directors and equal shareholders of the company ‘D Pty Ltd’. The parties’ combined assets totalled approximately $80 million and agreed that they had each contributed to one half of same.
There was agreement between the parties that D Pty Ltd was worth $45,514,742, excluding some debts and taxation.
The Wife proposed that the Husband ‘buy out’ her shareholdings in D Pty Ltd and conversely the Husband proposed for D Pty Ltd to be sold and the net proceeds of sale divided equally.
The primary judge directed the parties to give effect to the provisions of the decision that he had made, which included for the Husband to buy out the Wife’s shares in D Pty Ltd for the sum of $26,751,023. There was significant dispute between the parties about the terms of the orders requiring further hearings by the judge after the trial. The Husband, through this process, proposed that D Pty Ltd instead buy out the Wife’s shares (rather than him personally). The primary judge rejected that proposal because it was not in accordance with his original direction.
The primary judge delivered multiple sets of reasons before making a final order (being associated with the trial and subsequent disputes about the orders).
The Appeal
The Husband appealed the decision. The grounds for appeal from the primary decision included, amongst other things:
- That in ordering the Husband to pay $26,751,023 to the Wife within the 60-day period the primary judge fell into error in failing to have regard to the Husband’s lack of capacity to comply with that order and, as a related matter, failing to explain why, in light of that lack of capacity, his Honour rejected the Husband’s proposal that D Pty Ltd be sold. The Husband contended that the evidence at trial was that the property in possession of the Husband was less than the lump sum amount required to be paid.
- There was no cogent evidence that enabled the primary judge to properly draw an inference the Husband had the funds to pay the Wife through borrowing or otherwise within the 60 days prescribed.
- Having regard to the failure to recognise the Husband’s incapacity to pay the lump sum, the primary judge failed to adequately explain why he rejected the Husband’s proposal for D Pty Ltd to be sold and the proceeds equally divided.
The Wife contended that the Husband failed to establish that he drew the attention of the primary judge to his inability to pay the lump sum amount and that it could be inferred that the primary judge concluded that the Husband did have the capacity to make the payment to her.
What was the outcome?
The Appeal Court agreed with many of the submissions on behalf of the Husband in allowing the appeal and remitting the matter for rehearing (where a new trial will need to take place). The Appeal Court indicated that:
- It was satisfied that the Husband did draw the attention of the primary judge to his contention that he lacked the ability to pay the lump sum amount to the Wife to acquire her interest in D Pty Ltd.
- The Husband’s capacity to acquire the Wife’s shareholdings was clearly an issue of significance in the proceedings that required consideration by the primary judge.
- Nowhere did the primary judge find the Husband had assets, in his sole name, available to satisfy the payment to the Wife and in the time frame of 60 days.
- It did not accept the Wife’s submissions that the primary judge inferred the Husband had the capacity to make the lump sum payment to the Wife. There was no evidentiary basis available for the making of such an inference.
- The primary judge had an obligation to clearly explain why, despite the submission by the Husband that he lacked the capacity to pay the sum to the Wife, he made the orders for the Husband to do so and to explain why he rejected the Husband’s proposal for the company to be sold.
In addition, the Appeal Court also took issue with respect to the primary judge delegating responsibility to the parties to conceive the nature and form to give effect to the decision through the preparation of the orders generally and particularly where the Husband contended that he didn’t have the capacity to make the payment of the lump sum to comply with the orders.
Issues to Note
- It is important for legal representatives and financial advisors to ensure that all available evidence is before the Court in determining how company interests are dealt with, particularly in terms of how payments to retain the other party’s interests can be made and/or the impacts of the payments as opposed to the impacts of a sale. A failure to do so can lead to unexpected and unnecessary consequences, including delay, legal cost and taxation consequences.
- A further decision was made in this matter on 29 September 2023 (case reference Aitken & Aitken (No 7) [2023] FedCFamC1F836 where there were a number of interim orders made for the continuation of the matter in circumstances where it was held that various interim orders made prior to the final hearing ceased to have effect upon the pronouncement of the final orders, which do not automatically resume operation in the event of successful appeal.
