Assets Brought to the Relationship
114The Plaintiff's Assets. The evidence clearly showed that the defendant brought substantially more assets to the relationship than did the plaintiff. The plaintiff's own evidence was that at the commencement of the relationship she had household items, clothing and artwork worth $60,000 and superannuation entitlements worth $7,000. Under cross-examination she sought to add clothing and other items to this total of $67,000, contending that she had business suits and other clothing worth $20,000. I do not accept the plaintiff's evidence about this. I assess that the assets actually brought to the relationship were no more than she included in her affidavit of 17 August 2008. Under cross-examination the plaintiff tended to blame her previous lawyers for not including more evidence in that affidavit that was consistent with her current evidence. She accused them of preventing her from writing as complete an affidavit in her own interests as she wished. I do not accept that explanation. In October 2000 the plaintiff brought value of $67,000 to the relationship.
115The Defendant's Investments. Financially-speaking the defendant brought much to the relationship. When the relationship commenced the defendant or her then company, SFAC owned Suite 508 in Macquarie Street Sydney, Suite 207 in Macquarie Street Sydney, and a house in Hopetown Avenue, Vaucluse. Details of the acquisition of and the defendant's equity in these properties at the time of the commencement of the relationship are set out below in this section.
116But there is one other property, at Caroline Street, Westmead, which the defendant purchased in early 2001 for $169,000 and sold in September 2009 after these proceedings commenced for $279,000. The defendant says she had the Caroline Street, Westmead property before the relationship started. But the plaintiff says this property was purchased during the relationship. I have found that the plaintiff was right about when the relationship commenced. Therefore this property is considered in these reasons as one of the properties acquired during the relationship. But it was acquired so early that its acquisition makes little difference to the overall assessment of the relative financial contributions of the parties. I do not accept that the plaintiff made any financial contribution in respect of this property. By the time the relationship commenced the plaintiff had also started to acquire some small podiatry practices, described below. The defendant also owned some shares in three public companies, Consolidated Media, Crown Limited and Westpac.
117The plaintiff started investing in property by purchasing a terrace house in Campbell Street, Glebe in 1992, which was sold in 1998 for $420,000. She used the proceeds of this sale to purchase the two Macquarie Street, Sydney professional suites, (suites 207 and 508) and to give her the capacity to enable her to buy the house in Vaucluse. Each of suites 207 and 508 in Macquarie Street had a value in late 2001 of $120,000. The house in Hopetown Avenue, Vaucluse was worth approximately $1.3 million. It was sold very shortly after the beginning of their relationship in January 2001. The defendant then had a single major liability, a loan to HSBC over the Vaucluse property for $1 million. Her net position at the beginning of their relationship was about $960,000 (being $420,000 + $240,000 + $1,300,000 - $1,000,0000).
118The defendant's financial position had steadily improved over time from her first 1992 property investment in Glebe and continued right through until about 12 months after the relationship started. It peaked in late 2001 and declined without variation continuously from 2002. The objective facts speak of that clearly through the narrative below about the financial course of the relationship.
119The Defendant's Professional Practices. The plaintiff built up her podiatry practice between 1992 and 2001. She acquired five existing practices during this period, adopting a standard acquisition and operation formula that worked well. She was quite commercially astute in acquiring (or establishing) and running the multi-located practices that she built up in this nine-year period. By 2001 she had acquired, retained and was operating podiatry practices in Mascot, Surry Hills, Neutral Bay, Bligh Street, Sydney (which she moved to Macquarie Street, Sydney) and Crows Nest. She operated all these practices in 2001.
120The plaintiff's formula was simple: after acquiring (or establishing) a new suburban podiatry practice she hired the podiatrists and office staff; attended to supervise them on designated days of the week; paid the engaged podiatrists 50 per cent of gross fees; met expenses out of the other 50 per cent of gross fees and took the balance, after paying all expenses, as her profit. She says, and I accept, "the system worked well, and both the employed podiatrists and I made money". The podiatrists had a financial incentive directly related to the number of patients they saw. The plaintiff had a financial incentive to control local practice costs so as to maximize her profit out of each practice.
121The plaintiff was professionally entrepreneurial and found her financial feet in this nine-year period. She first acquired a podiatry practice in Mascot in 1992 for $25,000 using a loan from her father. Her second practice was established three years later in 1995 as part of the Surry Hills Medical Centre. There is no evidence of the investment costs of setting up this practice. Then in 1998-1999 she purchased a podiatry practice in Neutral Bay for $65,000.
122The plaintiff kept adding practices. In 1999/2000 she acquired the patient records from a retiring podiatrist in Bligh Street, Sydney for $10,000 and then established a base to service those patients from her first rooms in Macquarie Street, Sydney. Finally, in 2001 she bought a podiatry practice in Crows Nest for $9,000.
123The plaintiff was able to do all the required weekly administrative juggling to keep these five practices operational until 2001, indicating her professional discipline. But the soundness of her business model is somewhat harder to judge. There is evidence of the gross fees from these practices increasing up to 2001. She did not seem to have to over extend herself. The evidence does not suggest she was overburdened with debt in 2001. The staffing and remuneration arrangements in each of the practices were stable. I accept that she had good relationships with all her professional and non-professional staff in these practices in 2001. Indeed I also accept the judgment of the plaintiff's witness, Dr Shale Preston, who knew both the defendant and the plaintiff, that the defendant was an astute businesswoman and was highly successful at her business.
124The defendant's operation of these five podiatry practices has been conducted throughout by three companies, incorporated respectively as follows: Kitty Winks Pty Limited ("Kitty Winks") incorporated in 1997 before the parties met, Dogstar Diamond Pty Limited ("Dogstar Diamond"), incorporated in September 2004 when the parties had been together for about four years; and SFAC incorporated in February 2005, a few months after Dogstar Diamond. The course of incorporation and funding of these three companies was a contentious part of these proceedings.
125Upon incorporation in 1997 Kitty Winks was originally known as the "Sydney Foot and Ankle Clinic Pty Limited", the same name as was later used by SFAC incorporated in 2005. This entity changed its name to Kitty Winks in February 2005 when SFAC came into existence. The defendant was the sole shareholder and director of Kitty Winks, which owned the Mascot, Surry Hills, Neutral Bay, Macquarie Street, Sydney and Crows Nest practices. Kitty Winks became the object of two investigations by regulators, the first in 2001 by the HealthCare Commission and the second in 2002 by the Federal Department of Veterans Affairs. These incidents were the subject of other evidence analysed later in these reasons. Kitty Winks administered all these five practices from Suite 207 Macquarie Street, Sydney. The plaintiff never acquired any shareholding interest in Kitty Winks and never joined the defendant as a director of that company.
126Dogstar Diamond was incorporated in September 2004 to acquire another surgery at Suite 201, Macquarie Street, Sydney for $275,000. The external sources of funding for this were the following. Eclipse Prudent Mortgage Corporation Limited ("Eclipse") funded $150,000 of this purchase price and Macquarie Bank (through an extension of the defendant's existing line of credit with Macquarie Bank) a further $100,000. But some of this money, and the balance of the purchase price was formally advanced by Kitty Winks to Dogstar Diamond. I accept the genuineness of an agreement dated 26 November 2004 between those two entities that accurately records the following loans being made by Kitty Winks to Dogstar Diamond for the purchase and development of Suite 201: (1) $27,500 loaned for the deposit on the purchase on 8 September 2004; (2) $145,569 loaned on 17 November 2004 for the balance of the purchase price and $8,140.22 loaned on 27 January 2005 to pay for renovations. I accept the defendant's evidence that Dogstar Diamond has not repaid any of these monies to Kitty Winks and the full amount is still outstanding. Dogstar Diamond's Suite 201, Macquarie Street Sydney is an investment property, now tenanted by a medical practitioner. The defendant has never conducted a podiatry practice from Suite 201 and seeks to have it sold in the relief she claims in these proceedings.
127SFAC was the last of the three companies incorporated during the parties' relationship. SFAC took over two of Kitty Winks' original podiatry practices: the ones conducted respectively at Suite 207, Macquarie Street Sydney and at Crows Nest. The other three practices had closed by the end of 2004. SFAC continued to operate these two practices in Crows Nest and Macquarie Street until they too closed down when the defendant ceased practice in 2011. SFAC still owns Suite 207, Macquarie Street Sydney. The defendant still hopes to resume her podiatry practice from this address. For that reason she wishes, if at all possible, to retain Suite 207.
128Returning to 2001, apart from its five practices Kitty Winks owned two other assets: a share portfolio worth $100,000 and the apartment (with garage) in Caroline Street, Westmead, purchased in 2001 for $169,000. The defendant acquired both the Westmead property and the shares entirely with cashflow from her own resources. By the time the Westmead property was acquired the parties' relationship had not been going long enough for the plaintiff to have contributed much to its acquisition even indirectly through her non financial contributions, or through her Fairfax earnings.
129This completes the balance sheet for the defendant's assets in mid 2001. Thus in summary the plaintiff brought about $67,000 in financial resources to the relationship and the defendant brought to it a little over $1 million.