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Adequacy of Reasons – Case Study of Aitken & Aitken [2023] FedCFamC1A 69


a neon sign on the brick wall saying "be reasonable"

Aitken & Aitken was an appeal by the husband against orders made by a judge of the Federal Circuit and Family Court of Australia regarding the adjustment of the parties' matrimonial property. The adequacy of reasons given by the primary judge in the first instance was one of the central issues in the appeal.


Background


Mr and Mrs Aitken got married in April 1990 and lived together for 28 years before separating and finalising their divorce in 2020. At the time of legal proceedings, they had three adult children from their marriage. During their marriage, they became directors and equal shareholders of a company called D Pty Ltd, which was established in April 1995. The company was involved in the manufacturing and repair of equipment and operated from six properties located in Suburb H.


While the parties agreed that an equal distribution of their property was just and equitable, the specific identification of their respective interests and the method of achieving equal distribution remained disputed.


The parties had amassed considerable wealth together through their work, management, and investments, primarily in real property. The husband and wife agreed in that each party had a contribution-based entitlement of half of their net assets. However, they disagreed on the valuation and division of their interests in D Pty Ltd to achieve equal adjustment.


The husband did not explicitly state in his trial affidavit that he lacked the financial capacity to acquire the wife's interest in D Pty Ltd. However, he acknowledged that his ability to achieve this outcome depended on his financial situation. Furthermore, any discussions that the husband had with financial institutions regarding his potential to borrow $20 million occurred prior to there being a reduction in the value of D Pty Ltd.


After a final hearing, the primary judge delivered reasons for judgment, setting out agreed facts and directing the husband to buy out the wife's shareholding in D Pty Ltd. The judge rejected the husband's proposal to sell the company, expressing concerns about the husband's good faith and the underdeveloped nature of his proposal.


The primary judge favored the wife's precise and date-specific proposal for the husband to pay her a sum of $26,751,023 within 60 days. Final orders were made by the primary judge, including the payment required by the wife's proposal. However, no default order was included in case the husband failed to comply with the payment requirement.


Outcome of Appeal


The husband appealed against an order that required him to pay a fixed sum to acquire the wife's equal shareholding in a trading corporation called D Pty Ltd.


The wife argued on appeal that the primary judge must have inferred the husband's capacity to borrow the necessary funds based on his discussions with a financial institution about potentially borrowing over $20 million. However, this argument was deemed without merit as the husband's assets, including his potential borrowing capacity, still fell short of the required lump sum amount. Moreover, the primary judge did not explicitly consider the husband's borrowing capacity or provide an adequate evidentiary basis for such an inference.


On Appeal, the Honourable Deputy Chief Justice McClelland and Justices Austin & Altobelli ultimately held as follows at paragraphs 83 and 84:


“The adequacy of the reasons is to be assessed in the context of issues joined in the proceedings, with the primary judge being required to “ʻenter into’ the issues canvassed and explain why one case is preferred over the other.


In the circumstances of this case, the primary judge had an obligation to clearly explain why, despite the submission by the husband that he lacked the capacity to pay the required sum to the wife, the primary judge made Order 23 which required the husband to do just that. As a related issue, the primary judge also had a corresponding obligation to explain why he rejected the husband’s submission that, as an alternative to the wife’s proposal, an order be made for D Pty Ltd to be sold in order to raise sufficient funds to pay the wife the amount of $26,751,023. The primary judge did not provide reasons addressing the capacity to pay issue in that context.”


Thus, the appeal was allowed because the primary judge failed to consider the husband's capacity to pay the lump sum amount and did not provide adequate reasons for rejecting the husband's proposal to sell the corporation and divide the net proceeds equally.


As a result of the errors made by the primary judge, the case was remitted for a new hearing before a different judge. Despite finding error, no costs certificates were issued as both parties were considered well resourced.


Takeaway


In this particular case the inability of the parties to reach a joint agreement, despite agreeing in principle on how the total property pool should be divided, led to prolonged litigation and unnecessary costs. It goes to show that agreeing in principle on the division of global pool, does not necessarily mean resolving the case.


Most importantly, this case highlights the significance of adequacy of reasons given by the primary judge, which must encompass carefully evaluating each party's financial situation and their ability to meet the obligations set out in the final orders. In this particular case, failing to consider a party's capacity to pay resulted in unfair outcomes and led to further costs and litigation.


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