New South Wales Court of Appeal CITATION: Townsend v Townsend [2006] NSWCA 352 HEARING DATE(S): 04/09/2006 JUDGMENT DATE: 12 December 2006 JUDGMENT OF: Handley JA at 1; Hodgson JA at 2; Bryson JA at 19 DECISION: 1) Appeal allowed to the extent only of varying the order of Judge Goldring of 28 May 2005 so as to add to Order 8; and also including any liability to the company arising from the Directors' Loan Account; 2) Save as aforesaid the orders of 26 May 2005 are affirmed; 3) Order the appellant to pay the respondent's costs of the appeal. CATCHWORDS: PROPERTY (RELATIONSHIPS) - De Facto relationship - adjustment of property s.20 - valuation questions relating to parties' shares in private company - significance of Directors' Loan Account where retained profits were not distributed as dividends - Trial Judge did not treat Directors' Loan Account as a liability in reality - Trial Judge's adjustment affirmed with minor clarification - decision on facts. LEGISLATION CITED: Family Law Act 1975 (Cth) s.79 Property (Relationships) Act 1984 (NSW) s.20 Chanter v. Catts [2005] NSWCA 411, (2005) 64 NSWLR 360 Howlett v. Neilson [2005] NSWCA 149, 33 Fam LR 402 CASES CITED: Jones v. Grech (2001) 27 Fam LR 711 Kowaliw v. Kowaliw (1981) FLC 91-092 Lipman v. Lipman (1989) 13 Fam LR 1 PARTIES: Stephen John Townsend - Appellant Beryl May Townsend - Respondent FILE NUMBER(S): CA 40515/2005 COUNSEL: Appellant's counsel: J. Hammond Respondent's counsel: R.S. Bell/R.T. Bell Appellant's solicitor: Trevillions Solicitors SOLICITORS: Respondent's solicitor: Rita Thakur & Associates LOWER COURT JURISDICTION: District Court LOWER COURT FILE NUMBER(S): DC 126/2004 LOWER COURT JUDICIAL OFFICER: Goldring DCJ LOWER COURT DATE OF DECISION: 26/05/2005 IN THE SUPREME COURT OF NEW SOUTH WALES COURT OF APPEAL CA 40515/2005 HANDLEY JA HODGSON JA BRYSON JA 12 DECEMBER 2006 STEPHEN JOHN TOWNSEND v BERYL MAY TOWNSEND Judgment 1 HANDLEY JA: I agree with Bryson JA. 2 HODGSON JA: I agree with the orders proposed by Bryson JA, and subject to what I say below, substantially with his reasons. 3 The exercise of jurisdiction under s.20 of the Property (Relationships) Act 1984 involves three steps: 1. Identification and valuation of the property of the parties. 2. Identification and valuation of the respective contributions of the parties, of the types referred to in s.20. 3. Determination of what if any order is just and equitable having regard to these contributions. See Lipman v. Lipman (1989) 13 Fam LR 1 at 18; Jones v. Grech (2001) 27 Fam LR 711 at [29]. 4 Apart from assets as to which there was no dispute, the property of the parties, for the purposes of step 1, was the Berkeley house (net value $253,546.00), the Taralga land (net value $42,386.00), and the company shares (value agreed by the accountants to be $110,300.00), giving a total of $406,142.00. 5 The main challenge to the primary judge's decision was based on the proposition that the value of the company was reached on the basis that its assets included a debt of $99,200.00 owing to it by the directors; and that accordingly there had to be deducted from $406,142.00 this debt owed by the parties to the company, giving as the correct net value of the parties' assets the sum of $306,942.00. On that basis, in receiving the house having a net value of $253,546.00, the respondent was receiving 82.6% of the assets; and this was not the 60/40 distribution intended by the primary judge, and was not justifiable. 6 There are grounds supporting this approach. The joint statement of the accountants asserts that their valuation of $110,300.00 is inclusive of all assets and liabilities of the company, in circumstances where one of those assets was the $99,200.00 debt. Further, the figure of $110,300.00 was arrived at by applying a capitalisation rate of 22.5% to future maintainable earnings of $24,819.00; and those future maintainable earnings were the average of an adjusted net profit for each of three years that included a notional interest on shareholders loans of $2,555.00, $2,907.00 and $6,006.00 respectively (giving an average of $3,823.00). 7 On the other hand, accountants gave evidence to the effect that the recoverability of the $99,200.00 loan made no difference to the valuation on a going-concern basis. 8 One accountant, Mr. Taylor, gave this evidence (Combined Book 116-7): Q. Would your opinion be different if you were told that the $99,000 was irrecoverable? A. Probably not if we were going to continue to use the going concern. The going concern says this company will generate this income which gives it this value, regardless of what the assets or liabilities may be. If one of those assets disappears or becomes worthless, it doesn't necessarily change, it doesn't change the value of the company. Q. It doesn't reflect on the value of the earnings basis? A. No. 9 Another accountant, Mr. Cachia, gave this evidence (Combined Book 143): Q. You accepted that there was this loan and that simply had no relevance to your valuation? A. It had no relevance to the valuation. Q. That is, it's a liability of the parties to the company? A. Yes. 10 When that evidence is combined with the reality, discussed by Bryson JA, that there was no likelihood that $99,200.00 was actually going to be paid to the company, there was in my opinion ample justification for not treating this $99,200.00 as a debt which had to be subtracted from the assets of the parties in order to arrive at the correct net value of the assets available for division. 11 However, I think that this approach is not altogether consistent with the accountants' statement that their agreed valuation was inclusive of all assets, or with the inclusion of a notional interest on shareholders loans in the figure for future maintainable earnings that was the basis for their valuation. In my opinion, if the approach is to be taken that the parties are not to be treated as owing the company $99,200.00, there does need to be an adjustment to the value of the company by removing the effect of the notional interest figure on the future maintainable earnings, and thus on the valuation. 12 A reduction of $3,823.00 from the future maintainable earnings of $24,819.00 is a reduction of 15.4%; and a similar reduction to the valuation of $110,300.00 would be about $17,000.00. A reduction of $17,000.00 to the value of the assets of the parties would give $389,149.00; and the $253,546.00, being the net value of the house property, would be about 65% of this. 13 This would give rise to the question whether a 65/35 distribution is at odds with the primary judge's reasons, or is outside an appropriate discretionary exercise; and if so, what would be an appropriate division. 14 A 60/40 division, on the basis of assets totalling $389,149.00, would have given the respondent $233,489.00. That is, assuming that the parties were to receive the assets as agreed, she would have to pay the appellant about $20,000.00. Having regard to the reasonableness of the division of assets and the relative smallness of this adjustment figure, I would not regard the difference between a 60/40 division and a 65/35 division as vitiating the primary judge's exercise of discretion. 15 I would say in any event that, in the circumstances of this case, a 65/35 distribution was not inappropriate. 16 I adhere to the view I expressed in Howlett v. Neilson [2005] NSWCA 149, 33 Fam LR 402, that contributions can be valued not only having regard to their benefit but also having regard to their cost to the party making them. I also accept that contributions occurring after the end of a relationship, particularly contributions to the welfare of children of the relationship, can be taken into account: cf. Chanter v. Catts [2005] NSWCA 411, (2005) 64 NSWLR 360 at [74]-[75]. 17 In my opinion, factors in this case supporting a 65/35 distribution include the following: 1. A greater initial contribution by the respondent. 2. The balancing of the benefit of contributions by the parties to the relationship as between the appellant's financial contributions and the respondent's financial and non-financial contributions. 3. The greater cost of the respondent's contributions, having regard to lost opportunities for development of income earning capacity and the assumption of long-term commitments to the care of children. 4. The greater contribution by the respondent to the care of children since the end of the relationship. 5. The appropriateness of the way the assets were divided, and the lack of justification for imposing additional financial burdens on the respondent. 6. The conservative nature of the valuation of the company, having regard to the absence of 2004 results (referred to by Bryson JA). 18 Accordingly, I too would dismiss the appeal, apart from making the adjustment to the orders proposed by Bryson JA. 19 BRYSON JA: The parties lived together in a de facto relationship from 3 May 1989 until September 2003. Both parties already had children when their relationship began, and one daughter of the respondent lived in the parties' household for nine years. The parties have a son Brock who was born in June 1993 and a daughter Stevie who was born in February 1995. The respondent by Ordinary Statement Of Claim filed on 27 August 2004 in the District Court at Wollongong claimed orders for adjustment of property interests which, although it did not mention the Property (Relationships) Act (a considerable achievement on the part of the pleader) can be recognised as claiming adjustment orders under s.20(1). The appellant, defendant in the District Court, filed a defence, and also a cross-claim seeking an order for payment by the respondent to him of $115,000 against transfers of the Berkeley house to the respondent and the Taralga land and the company shares to the appellant. After a hearing on 5 and 6 May 2005 his Honour Judge Goldring, on 26 May 2005, published reasons and made orders for adjustment of property. The appellant appeals against those orders. 20 The Trial Judge made findings about the contributions of the parties to property and welfare, referred to in s.20(1)(a) and (b); to these effects. After living in rented accommodation the parties acquired a house in East Corrimal in 1990 for $116,000. The respondent provided $27,000 towards the purchase, the appellant provided approximately $20,000, and the balance was borrowed on mortgage. The appellant made payments of principal and interest on the mortgage. The respondent owned some furniture and effects which she contributed to the relationship. Each party owned a vehicle. They sold the house at East Corrimal in May 1998 and the proceeds went towards buying a house at Berkeley. The Berkeley house was renovated extensively, and both parties did some work on the renovation although most work was carried out by tradesmen. They borrowed money on mortgage to buy the house; the appellant has made repayments on the housing loan since separation and the Trial Judge found that these repayments were made in lieu of child support. Throughout the relationship the appellant paid mortgage loan repayments, utilities charges, health insurance and other household expenses. Since their separation the respondent has continued to live in the Berkeley house with the parties' two children. The Berkeley house is subject to a mortgage upon which $61,454 was owing at the time of judgment and the value of the property net of the debt was agreed to be $253,546. 21 At all times the appellant carried on business as a contract truck driver carting bricks for Boral. At an earlier time he worked with his stepfather in this business. The parties formed a business in partnership in 1990; the appellant owned the truck and other equipment used in the business and the appellant continued to do contract truck driving work in this partnership. In 1998 the business was taken over by the B & S Townsend Haulage Pty Ltd. The parties owned the shares in the company equally and each was a director. The contract truck driving work continued, and the appellant did the work. He worked unusually long hours. The brick carting work was always the main source of family income. 22 The parties purchased land at Taralga, as joint owners. There is a debt on this property which at the time of judgment was $10,114. The Taralga property had an agreed value of $42,386 net of the debt. 23 The respondent was the prime carer for the children and did most of the household tasks. The respondent was assisted by her mother and by her older daughter in caring for the children when they were young. She had casual or part-time work at most times during the relationship, but not at times when she was medically unfit, including periods after the births of the children. From May 2003 (that is, during the last four months of the relationship) she worked full-time. She used her earnings to contribute to household expenses, and she bought clothes and paid other expenses for the children. 24 At the conclusion of the relationship the principal assets of the parties were the house at Berkeley, the land at Taralga and their shares in the company. They also owned motor vehicles and other chattels of relatively small value such as household effects, tools and a computer. 25 At the District Court hearing the parties produced Agreed Short Minutes which established the adjustments which were to be made for most items of property and identified remaining disputes. The draft orders which were agreed had the following effects. The appellant was to transfer his interest in the Berkeley house to the respondent. The respondent was to transfer her interest in the company to the appellant. The respondent was to transfer her interest in the Taralga land to the appellant. The respondent was to take the burden of debt on the Berkeley house and obtain a discharge of the current mortgage, releasing the appellant from his liability to the lender, and the appellant was to take the burden of the debt on the Taralga land and obtain a discharge of the debt, releasing the respondent. Each party was to retain her or his motor vehicle and other chattels in possession. Generally there were to be releases and protection for liability from debts associated with property given up. 26 The parties put forward for the Trial Judge's consideration several draft orders which would deal with the remaining disputes. These related to the affairs of the company. What the respondent asked for in her draft orders would protect the respondent from liability to the company; and protect the appellant and the company from claims of the respondent relating to the company's affairs. In particular the respondent asked for orders protecting her against any liability for the Directors' Loan Account in the company's books. (The Trial Judge's reasons show that his Honour intended to give her this protection, but I am not satisfied that Order 8 of the orders which he made sufficiently clearly gives effect to that intention). The appellant asked for orders that the respondent make payments to the company by way of repayment of the Directors' Loan Account and payment to him by way of property adjustment. Alternatively the appellant sought a declaration that each of the parties was indebted to the company for $49,600. If the respondent were to have an obligation to make a payment to the company she sought orders which required the appellant to make an equivalent payment; and consequential orders which would have compelled the company to make a distribution to shareholders to be set off against the Directors' Loan Account, and to make other arrangements to obtain advantages, including taxation advantages. 27 The Trial Judge said (Red 30J): "This company has been valued, and the experts qualified by the parties have agreed that the value of the company as a going concern is $110,307." This finding was undoubtedly correct, but what underlay it attracted a surprising amount of attention during the evidence and on appeal; this reveals obscurity in what underlay the agreement that the value of the company as a going concern was $110,307. 28 The respondent's solicitors obtained and put in evidence a report by Mr Albert Cachia, chartered accountant, dated 24 December 2004 and his further report dated 23 February 2005. In the further report Mr Cachia said that he had been instructed to carry out "the valuation of the above named company to provide you with a fair and reasonable value for the purpose of de facto property settlement proceedings". (Red 75M). Mr Cachia referred to several different valuation methods and said "As we consider the company to be a going concern the appropriate basis would normally be the 'capitalisation of earnings' basis". (Red 77M). When stating his valuing reasoning on the capitalisation of earnings basis he estimated future maintainable earnings at $24,819 (and supported this estimate in a schedule). He then addressed the rate at which profits should be capitalised, discussed the earning rates of various forms of investment and other considerations and having done so said (Red 78N) "Having considered all the relevant factors, and taking into account the risk inherent in the haulage industry we consider the appropriate capitalisation rate to be 22.5%." He then proceeded to apply that rate to the estimate of future maintainable earnings to produce a value of $110,307. 29 Discussion during argument on appeal revealed several possible sources of dissatisfaction with this opinion. One is that the future maintainable earnings estimate related to historical profitability over the three years ended 30 June 2003; whereas a further financial year had been completed on 30 June 2004 before Mr Cachia made his report and before the hearing. No accounts for that financial year were put in evidence, and no explanation which could be thought to be satisfactory or even comprehensible was given for the absence of 2003-2004 accounts. The company and its business continued, for practical purposes under the control of the appellant. Valuation should have proceeded on the more satisfactory basis of the more recent year's experience; and it should have been possible to add the experience of the first half of the financial year 2004-2005 by the time of Mr Cachia's valuation. The only conclusion which I could base on these observations is that if the later experience made Mr Cachia's valuation in any way disadvantageous to the appellant, the Court would probably have heard of it. 30 Another possible source of dissatisfaction is that the maintainable earnings as assessed by Mr Cachia (Schedule 4 (Red 83)) showed adjusted net profits for the financial year 2001 at $15,704, for year 2002 at $17,655 and for 2003 at $41,098. This produced the average of $24,819 to which Mr Cachia applied the capitalisation rate. If the adjusted net profit for the financial year 2004 were available and were equal to or greater than the adjusted net profit for 2003 the product of averaging the last three years available would have been considerably higher than $24,819. 31 A slight moderation of the last observation is that in assessing the maintainable earnings Mr Cachia had regard to interest on the Directors' Loan Account, which increased very considerably between 2001 and 2003; $2,555 in 2001, $2,907 in 2002, and $6,006 in 2003. If the averaging process had been applied to three financial years including 2004, and if interest on shareholders' loan had been treated as the same amount, or a higher amount than in 2003, the product of the averaging process would have been correspondingly lower; and to some degree this would have moderated the future maintainable earnings. 32 Another and even more amorphous observation is that at other parts of the Trial Judge's consideration the Directors' Loan Account was treated as if it had no real significance; or as if there were no Directors' Loan Account; this was a primary complaint of the appellant on appeal. If there had been no debt on the Directors' Loan Account there would have been no interest on that account to bring under consideration in the assessment of the maintainable earnings. 33 Mr Cachia's conclusion depends on steps in his valuation reasoning which are themselves matters of opinion. These include his assessments of the wage and superannuation which would have to be paid in a commercial situation to the person performing the work carried out by the appellant; in Mr Cachia's estimate, considerably more than the salary and superannuation actually paid to the appellant by the company. The estimate of the appropriate capitalisation rate was also a matter of opinion. 34 Mr Cachia also gave a valuation on a net asset backing basis at $74,706 based on book values at 30 June 2003. This basis is illustrated by a summary of the balance sheet, schedule 2 to his report (Red 81), which shows that the net assets of $74,706 are calculated by bringing into the balance sheet the Directors' Loan Account at $99,270 valued at the full amount. Mr Cachia also made an estimate of value on a notional liquidation basis, producing a notional liquidation value of $60,132. This also turned on bringing in the net assets at the value of $74,706, implying the availability of repayment of the Directors' Loan Account. The summary of the balance sheet shows equity of $74,706 being $2 Issued Capital and $74,704 Retained Earnings. 35 The picture of the company's affairs presented by the balance sheet and other material collected by Mr Cachia is quite odd. It shows the appellant as drawing out less than a commercial wage, contributing in a way to the company's resources and retained profits. On the other hand it shows as directors' loans drawings which exceeded the retained profits. The company has made and retained profits and has not distributed them as dividends, yet the directors have taken money out of the company as loans: they could have taken money out as dividends (but not as much money as they took out as loans). There are no significant liabilities for unpaid tax, so it should be understood that the company has paid tax on its retained profits. With its retained profit the company looks like a money box: but coins have been shaken out through the Directors' Loan Account. 36 This is not a way in which the company's affairs were likely to have continued indefinitely. Leaving aside what would have happened in a creditors' liquidation (and I have seen no reason to suppose that that would ever happen), it seems likely that the pressure of conceivable adverse action by the taxation authorities and the sheer claims of good order would have brought about a result in which profits including retained profits were distributed as dividends and the concomitant taxation liabilities of the shareholders were faced up to, and dividends would be set against the directors' loans. It does not seem to me to be likely or indeed possible that the company would have gone on indefinitely with the directors, as it were, living off the company by drawing out cash resources from it, and not resolving its retained profits questions and their own taxation questions. There is also a pragmatic limit to the amount of money which can be drawn out of a company and entered in the books as directors' loans. What is so unlikely that it can be left out of consideration is that the company would ever, had the relationship continued, have demanded and received repayment of the Directors' Loan Account from either or both of the directors. That something like that might happen is good theory, but has no relation to anything which it might reasonably be supposed would ever have occurred. 37 The appellant obtained a valuation by Mr Karl S. Taylor, chartered accountant, dated 9 January 2004. Mr Taylor's views differed from those of Mr Cachia and he observed that the value of the company was negligible if the loan liability due from the directors was unable to be repaid. 38 Mr Cachia and Mr Taylor conferred and produced a Joint Statement dated 24 February 2005 (Blue 81) as follows: A. POINTS OF AGREEMENT i) The Company operates a sub contract haulage service in the form of hire of truck and driver. ii) There is no formal contract to provide services. iii) The business appears to be a going concern. iv) The appropriate basis of valuation is the capitalisation of maintainable earnings. v) The agreed capitalisation rate is 22.5%. vi) The value of the business is $110,300 as per the amended Bartlett & Cachia valuation. B. POINTS OF DISAGREEMENT i) There are now no points of disagreement. 39 After a further conference on 4 May 2005, the day preceding the hearing, Mr Cachia and Mr Taylor produced a joint statement as follows: (Blue 80) We refer to the joint statement by valuers made and dated on 24 February 2005 wherein we valued the business on a capitalisation of maintainable earnings basis at $110,300. As requested we advise that the basis of the valuation being on a capitalisation of maintainable earnings, automatically includes earnings, expenses, assets and liabilities. In summary, our valuation of $110,300 is all inclusive of all assets and liabilities of the company. 40 The terminology the experts used was not altogether satisfactory. Mr Cachia said in his report that he was requested to carry out "a valuation of the … company" but his report concluded (Red 79K): "Accordingly, we value the business as at 20 December 2004 based on available financial statements, at $110,307. (I add some emphasis.) The terminology in the experts' joint statements also creates difficulties. The joint statement of 4 February 2005 concludes with the statement about the value of the business being $110,300. Mr Cachia's second report concluded with a statement to this effect, valuing the business at that amount, although it had opened with a statement that he had been instructed to value the company. Mr Taylor's report speaks both of his instructions (Blue 67L) and of his conclusion (Blue 70O) as giving a value for the business; but he then goes on to discuss the value of the company – "… the value of the company is negligible if the receivable due from the directors is unable to be repaid." In their joint statement of 4 May 2005 the experts repeat their earlier joint statement that they value the business at $110,300 but include with a statement "our valuation of $110,300 is all inclusive of all assets and liabilities for the company." The summary of balance sheet in evidence, part of Mr Cachia's second report (Red 81) does not show any asset being the business or goodwill. 41 At one point, as I said during argument, I entertained the idea that $110,300 as the value of the business should be added to the net assets $74,706 shown in the summary of the balance sheet for the year 2003; but I now see clearly that this is not correct, and that $110,300 is a valuation of the company as a whole. I see now that this is consistent with the valuing method of capitalisation maintainable earnings; the key to which is the future maintainable earnings, not the value of the assets employed in gaining the earnings. In principle, if the earnings are maintainable, the valuation based on capitalisation of maintainable earnings of the company is the same whether or not the Directors' Loan Account is repaid, and is still the same if it cannot be repaid. The concept that it does not make any difference to the value of the company as a whole whether or not an asset of $99,200 in its balance sheet is recovered or can be recovered is one which I found difficult, as some observations I made during the argument show. It is however a product of the valuing method (although there are qualifications, significant in detail but not vitiating in principle, if interest on the Directors' Loan Account is not to be brought under consideration when calculating the maintainable earnings). 42 The fact that the maintainable earnings, and the valuation of the company based on its maintainable earnings would not be increased if the company in the person of its directors insisted on the directors in their own persons repaying the Directors' Loan Account is one of the many factors favouring the view that it is very improbable that repayment would ever be required. This valuing method would be just as applicable and just as reliable if the company had no undistributed profits and a small or no Directors' Loan Account. 43 After stating the effects of the parties' agreement the Trial Judge said (Red 30M) "The sole matter in dispute concerns a 'loan' of $99,200 appearing in the company's books, from the company to the parties, who were sole shareholders and were both directors." His Honour referred to the appellant having, when the business was carried on as a partnership, drawn amounts from partnership accounts and applied them not only to business expenses but also as loan repayments and household expenses, and as continuing to do so when the business was acquired by the company. The Trial Judge referred only to the appellant as drawing against business funds, although evidence of the respondent shows clearly that she was in a position to make Eftpos withdrawals from the company's bank account and did so. There is no basis on which the amount of these withdrawals can be quantified, and no case was advanced, by cross-examining her or otherwise, that she made significant withdrawals of company funds other than for common household purposes. The Trial Judge said "it is clear that the plaintiff received some benefit from this practice" (of drawing against business funds for loan repayments and household expenses). The Trial Judge also observed that more than half the loan was made during the 12-month period immediately prior to the separation and "… the amount drawn by the defendant in this way is shown in the company's account as a loan to shareholders/directors." The Trial Judge said "… the plaintiff is technically liable to repay at least half of the outstanding amount to the company." I would not have put it quite that way; each is technically liable to pay the whole amount to the company, with a prima facie right to contribution for half of any amount paid; but the prima facie right might be displaced by circumstances relating to the drawing and application of funds. Viewing each as indebted to the company for half is a useful approximation but not necessarily wholly accurate. 44 The Trial Judge discussed, at some length, possible courses in the company's affairs which have not been taken: for example, possible treatment by the Australian Taxation Office of drawings as unfranked dividends in the parties hands, followed by levy of income-tax on the recipients; and also discussed possible treatment by the company of distribution of retained profits, with which the evidence of expert accountants had dealt. 45 The Trial Judge went on to discuss the respondent's contention that she should not in effect be penalised by being left exposed to liability to repay money to the company or to contingent liability to pay income-tax in respect of the loans "because of the way in which the defendant's business activities were structured." It appears to have been the Trial Judge's view (Red 32F) that after division of the assets the respondent should not be left exposed to liability to the company - "to expose her to a liability to pay nearly $50,000 to a company that, in effect, would be the defendant's asset, would be to distort this arrangement to her disadvantage." The Trial Judge referred to her seeking an order that the appellant (and the company) indemnify her against any liability for these claims, to the company or to the Australian Taxation Office. Although his Honour's expressions are not perfectly clear it can be generally understood that as the respondent asked, the Trial Judge decided that she should be protected against liability to the company for the Directors' Loan Account as well as against the more remotely possible liability for tax. In disposing of this part of the case his Honour said (Red 32)"… I find that it would not be just and equitable to permit the plaintiff to be subject to any actual or contingent liability because of the way the defendant has chosen to structure his business." This observation is further explained by this passage: (Red 33H) The business was structured as it was because the parties were advised to do so, clearly for reasons they did not fully understand. This is, unfortunately, the case with many small businesses. The owners of those businesses are advised that certain structures carry tax advantages, and they follow that advice, even though they have no idea that there may be serious consequences of choosing particular legal forms of business organisation. In this case the plaintiff was not, in any sense, a guiding force of the business, and it is just and equitable that she be protected against the consequences of a choice made, but clearly not fully understood, by the defendant in respect of what has always been essentially his business. 46 It was his Honour's view that the Directors' Loan Account was an aspect of the parties' affairs which neither of them understood or regarded as a true obligation. Seeing the Directors' Loan Account in that way was altogether in accordance with the probabilities. 47 Although this was not spelt out, the orders which the Trial Judge made showed that he did not treat the Directors' Loan Account as a liability which had any reality, or should be brought into account when making adjustments under s.20, either by allowing it to have any influence on the valuation of the company which the experts had not accorded to it; or in any other way; except by taking measures to protect the respondent against it. 48 The result then was that the Trial Judge's orders disposed of the issues which the parties had agreed on as follows: The Berkeley house and the burden of the mortgage on it went to the respondent - net value $253, 546. The Taralga property and the burden of the debt on it went to the appellant -net value $42,386. The respondent's share in the company went to the appellant, making him sole shareholder – value of the company $110,300. The vehicles and other chattels went to the parties in possession of them. There were no findings about their values, and their values did not enter into the argument on appeal. The Trial Judge disposed of the issues which were not agreed on, about the place of the Directors' Loan Account of $99,200 in the adjustment under s.20, by Order 8 which required the appellant to indemnify her, and to cause the company to indemnify her against liabilities relating to the company. 49 Although his Honour's expressions are not at all clear (Red 31V-32I) he seems to have understood the adjusting order as producing a division of the assets in which, taking into account the contribution that each party has made in the relationship, the respondent should receive slightly more than 60 per cent of the total assets. The discretion referred by s.20(1) is a wide one and has not been narrowly confined by appellate decisions, and I would not think that the Trial Judge's decision could be the subject of any serious doubt as to its being a sound exercise of discretion if the correct position is that it allocates slightly more than 60% of the total assets to the respondent. 50 Leaving out of consideration the vehicles and other relatively small assets which were not valued, the values attributed to the Berkeley house, the Taralga property and the company totalled $406,149, the respondent received the Berkeley house worth $253,456 which is about 62.4% of the value and the appellant received the Taralga land and the company the value of which is about 37.6% of the value. 51 The Taralga property and the shares in the company, which were co-owned, should be understood to have been produced, for practical purposes, by financial contributions made by the appellant, by bringing the contract carting business into the partnership and later into the company, and by his own exertions which were the substance of the business partnership and the company, and by his payments for acquisition and on the mortgage of the Taralga property. The parties' agreement allocates these to the respondent, and it is difficult to see what other allocation of them could have been made. The funds for the acquisition of the Berkeley house can be traced in part through the East Corrimal property, which was acquired with contributions from both parties, with initially rather higher contributions of money by the respondent, but all later financial contributions were made by the appellant, except that the respondent shared in some of the renovation work. The Berkeley house is closely associated with contributions made in the capacity of homemaker and parent by the respondent to the welfare of the appellant and also to the welfare of the family including the children in that household; the respondent and the children continue to occupy the house, and there appear to me to be strong considerations favouring an adjustment of property which allocated the house to her, with the burden of the unpaid balance of the mortgage. The Trial Judge allocated the Berkeley house to the respondent as the parties had agreed: again it is difficult to see what other allocation could have been made. 52 In dealing with the remaining issues which the parties left to him there was little room for choice for the Trial Judge, in that there was no liquidity in the assets and no room for balancing out any perceived disparities by ordering one party to make an adjusting payment to another party out of available funds. Any alternative plan of adjustment would involve either selling the house or imposing on the respondent an obligation, at present or at some future time, to pay the appellant an adjusting sum, which she could only raise by further encumbering the property; whereas the mortgage at present on the property, which she will have to replace with an equivalent sum, requires payments which will probably require all her capacity to make mortgage repayments. 53 The balance in value of the assets allocated by the Trial Judge would be seriously upset, and would in no way represent the adjustment which the Trial Judge intended, if the true position is that the Directors' Loan Account of $99,200 should be one of the assets under consideration when giving effect to the decision about the assets to be allocated to each party, or should be set off against the value of the company. The appellant's contention that the amount of the Directors' Loan Account should be deducted when calculating the assets available for distribution is contrary to the evidence about the value of the company. Although various attempts were made in the course of argument I heard no satisfactory analysis of how the Directors' Loan Account date should enter into the allocation. It would be inconsistent with the Joint Statements of the experts, with the agreement of the parties to put the statements into evidence, and with the findings of the Trial Judge to treat the Directors' Loan Account as in some way going to diminish the value of the company, so as to leave its value at $11,000 or some small figure. If the Trial Judge had done this, the net value of the assets allocated to the respondent after deduction of $49,600 from the net value of the Berkeley house, would be $203,856, while the assets apportioned to the appellant, adding the same $49,600 deducted from the respondent's side to the net value of Taralga and the company shares, would be $202,293; for practical purposes an equal distribution. (In this line of reasoning the other half of the directors' loan debt would be owed by the appellant to himself, and would not be an asset). 54 Before the Trial Judge's order was made both parties were directors and shareholders, and both were debtors on the Directors' Loan Account. It was outside the world of practicalities to suppose that it was ever possible that the company under their control would have compelled or required them to repay it. What would probably have happened if there had not been a separation is that the loan account would have either long continued or would have gone out of existence in some transactions involving dividends out of retained and future profits and allocation of dividends against the Directors' Loan Account; which would no doubt require careful management and due regard to taxation liabilities. It does not to my mind accord with reality, in an adjustment of the kind which s.20 requires, to treat the Trial Judge's orders as conferring on the respondent an advantage worth half the amount of the Directors' Loan Account, or for that matter the whole of the Directors' Loan Account, or any other economically measurable advantage related to the Directors' Loan Account. There never was any real prospect of the obligation coming home to her in a requirement that she produce a sum of money. The Directors' Loan Account does not have the tangible character of the other assets. In economic substance though not in legal form, it was a debt which the parties owed to themselves. In my view the Trial Judge's orders, which had the effect of treating the Directors' Loan Account as neither of value nor a burden to either party, made the correct disposition. 55 The grounds of appeal made many challenges to the decision. Ground (1) claimed that valuing the assets for division at $406,109 was in error in failing to take into account or give weight to the debt of $99,200. Ground (2) claimed error in awarding 62.4% of the total assets to the respondent, on grounds which principally were that the Trial Judge failed to take into account or failed to give sufficient weight to contributions by the appellant, particularly to the circumstance that the divisible assets almost exclusively represented financial contributions by the appellant. It was also claimed that the Trial Judge failed to take into account or give sufficient weight to the use of moneys borrowed from the company for the purposes of a financial contribution to the relationship. Ground (3) contended, for a number of reasons, that there were errors in the Trial Judge's decision to relieve the respondent from liability for the loan or from tax liability, and Ground (4) contended that there was error in failing to make a proper adjustment order in favour of the appellant on several grounds. These included a contention that the effect of the Trial Judge's orders was that the respondent would receive 82.5% of the net asset pool and that this was manifestly unreasonable. The basis of the figure 82.5% is a calculation in which the amount of the directors' loan of $99,200 is deducted from the value of the assets of $406,149; on this view the value of the total divisible property is $306,949 and the net value of the Berkeley house at $253,456 is 82.5% of this. 56 It is often said of an entry in accounts that they are "a mere book entry" in contexts where that expression has little meaning, so that I am reluctant to use it. However the circumstances of the company come close to justifying its use. If there were no retained profits, and the company had distributed its profits as dividends, instead of distributing its money as loans, the workings of the company in producing maintainable earnings would not have been affected and the amount of the loans and the directors' loans would be significantly less than $99,200; how much less cannot be said in an exact way, as the amount of dividends which could be credited to the parties as shareholders and then deducted from their loan debt would depend on how much of the dividend they needed to use to pay their own income-tax liabilities on it; with franking credits; detailed calculations are not available. Plainly more has been drawn out in directors' loans than could have been drawn out and applied to the benefit of the parties in dividends; but the Trial Judge's view about the respondent's position in relation to the Directors' Loan Account was, in large, correct. It could reasonably be said that there was oppression if the company had sought to enforce repayment of the Directors' Loans Account without distributing the profits. Detailed calculations are not available on accounts later than 30 June 2003; as there was another year's operations, the undistributed profits probably increased; and the Directors' Loan Account may have increased. Precision was not available, but in large, the Trial Judge's view was well founded. 57 It was complained that the Trial Judge did not in fact exercise the discretion conferred by s.20(1). Although there is no passage in the judgment which distinctly pronounced an exercise of that discretion it is clear from the nature of the proceedings, the terms of the judgment overall including the reference to s.20, and from the reasons which were given that the Trial Judge understood himself to be exercising that discretion, and there is no difficulty in recognising the orders which he decided to make as the product of that exercise. 58 The agreed division of the assets would, as the Trial Judge said mean that the respondent would receive slightly more than 60% of the total assets. It would not be correct to say and to my reading the Trial Judge did not say that it was agreed that this was the appropriate disposition overall; there remained the sole matter in dispute which concerned a loan of $99,200 in the company's books, and the Judge took under consideration whether the respondent should be exposed to liability to pay half that loan to the company which in effect would be the appellant's asset. The Trial Judge took under consideration whether he should leave the respondent exposed to liability to the company, and in effect require her to pay it; and treated the company as substantially identified with the appellant. 59 Counsel for the appellant referred to Kowaliw v Kowaliw (1981) FLC 91-092 at 76,643-76,644 (Baker J) which relates to the treatment of financial loss incurred by parties to a marriage under section 79 of the Family Law Act. The Directors' Loan Account is not a financial loss and the tests under section 79 are not to be identified with those under s.20. I do not find any assistance in Kowaliw v Kowaliw. 60 The appellant contributed financial resources in many ways. He brought the business now carried on by the company to the relationship, and his earnings were the source of the overwhelmingly greater part of all funds available to pay rent, mortgage payments on East Corrimal and Berkeley and expenditure relating to running the household, caring for the children and purchase of furniture. The respondent was in part-time employment at most times, and her financial contribution was much less than that of the appellant. She made substantial contributions to the welfare of all family members by conducting the household and caring for the children. 61 It was contended that the Trial Judge's adjustment was manifestly unreasonable. The appellant's counsel contended that when appropriate regard is paid to the contributions the appellant's contribution should be assessed at 60% and the respondent at 40%. This must involve an unexpressed reduction to economic value of contributions by the respondent which cannot in truth be analysed in terms of economic value, but to which regard must be paid nonetheless. 62 Decision on the just and equitable question under s.20(1) is not confined to achieving proportionality of value, and it is appropriate to have regard to practicalities created by the nature and value of the available assets. Evaluation of the contribution of the parties and comparison so as to produce some percentage expression of their contribution cannot be carried out in any accurate way. In my opinion there was no error and no departure from the ample range of powers conferred by s.20(1) in not achieving an adjustment which allocated an equal part or a greater part of the distributable assets to the appellant. In my opinion the respondent has a strong claim of justice to be given the Berkeley house, and to be given it in circumstances where it is within her economic grasp to meet the mortgage payments and retain the house. 63 In my opinion no ground has been shown upon which the Trial Judge's decision was erroneous. Order 8 should be varied, but otherwise the appeal should be dismissed with costs. 64 In my opinion the Court of Appeal should make these orders: 1) Appeal allowed to the extent only of varying the order of Judge Goldring of 28 May 2005 so as to add to Order 8; and also including any liability to the company arising from the Directors' Loan Account; 2) Save as aforesaid the orders of 26 May 2005 are affirmed; 3) Order the appellant to pay the respondent's costs of the appeal. ********** DISCLAIMER - Every effort has been made to comply with suppression orders or statutory provisions prohibiting publication that may apply to this judgment or decision. The onus remains on any person using material in the judgment or decision to ensure that the intended use of that material does not breach any such order or provision. Further enquiries may be directed to the Registry of the Court or Tribunal in which it was generated.