Angus and Petrino
[2013] FamCA 817
FAMILY COURT OF AUSTRALIA
| ANGUS & PETRINO | [2013] FamCA 817 |
| FAMILY LAW – PROPERTY SETTLEMENT – Valuation of various entities opposed on basis that husband has no control and has received no benefit – Wife should be permitted to pursue valuation even if her view is tentative. |
| Corporations Act (2001) (Cth) Family Law Act 1975 (Cth) |
| Costopoulos and Costopoulos [2011] FCWA 89 |
| APPLICANT: | Ms Angus (formerly Petrino) |
| RESPONDENT: | Mr Petrino |
| FILE NUMBER: | MLC | 9331 | of | 2011 |
| DATE DELIVERED: | 18 October 2013 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Cronin J |
| HEARING DATE: | 14, 23, 30 August 2013 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Bartfeld QC with Ms Stoikovska |
| SOLICITOR FOR THE APPLICANT: | Taussig Cherrie Fildes |
| COUNSEL FOR THE RESPONDENT: | Mr Geddes QC with Mr Wilson |
| SOLICITOR FOR THE RESPONDENT: | Kennedy Partners |
Orders
That the husband forthwith provide:
1.1All documents and information as are in his power, possession or control, as is requested by F Accountants or make requests of third parties for such documents and information he asserts are not in his power, possession or control as requested by F Accountants in respect of but not limited to:
1.1.1MX Pty Ltd;
1.1.2MX Family Trust;
1.1.3M Investments Pty Ltd;
1.1.4RX Family Trust;
and any associated entities as may be requested by F Accountants;
1.2all documents including but not limited to any file notes, memoranda and correspondence in respect of the loans made by FP Investments Pty Ltd to M Investments Pty Ltd that are within his power or control;
1.3all files and documents including instructions, notes, memoranda, advice and correspondence in respect of the setting up of the MX Family Trust and the RX Family Trust that are within his power or control;
1.4all documents including notes, memoranda, instructions and correspondence in respect of the decision in 2010 to effect a distribution from MX Pty Ltd to M Investments Pty Ltd that are within his power or control
That any dispute as to costs be determined by submission or be reserved as indicated in the reasons published this day.
That all parties have leave to seek further interlocutory orders arising out of the reasons published this day.
That the interim applications are otherwise dismissed.
IT IS CERTIFIED:
That pursuant to Order 19.50 of the Family Law Rules 2004 it was reasonable to engage counsel to attend.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Angus & Petrino has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLC 9331 of 2011
| Ms Angus |
Applicant
And
| Mr Petrino |
Respondent
REASONS FOR JUDGMENT
Where the husband is a beneficiary of a family trust yet, on the face of the trust deed has no control over the trustee, should the wife be permitted to value all of the intricate entities involved for the purposes of a forthcoming property trial? In this case, I consider she should. FP Investments Pty Ltd
This discrete interlocutory issue was, on its face, the enforcement of a discovery/disclosure order made on 10 April 2013. That order, which was made by consent, read:
26.That [Ms Z] of [F] Accountants be appointed as the single expert witness to value the husband’s interest in the group of companies and trusts referred to as the “[Petrino Group]”…
…
29.That the husband provide all such documents and information that are in his power, possession or control as is requested by [F Accountants] or make requests of third parties for such document and information he asserts are not in his power possession or control.
It was common ground that the wife’s proposed exercise would not only be a very large undertaking but also a very expensive one having regard to the number of entities involved.
In the hearing before the Court, the wife sought an order that the husband forthwith provide:
All files and documents including instructions, notes, memoranda, advice and correspondence in respect of setting up of the [MX] Family Trust and the [RX] Family Trust;
…
All documents including notes, memoranda, instructions and correspondence in respect of the decision in 2010 to effect a distribution from [MX] to [M] Investments Pty Ltd.
The May 2013 orders were made as a prelude to an anticipated final hearing in relation to property proceedings that were due to be heard in August. By early August 2013, the parties’ business had not been valued and the appointed expert valuer was in something of a quandary about what was to be valued. On any view, the parties did not agree. The trial date was then vacated and has been refixed for February 2014. That led to the current application.
Some observations about the process need to be made before looking at the dispute itself. Both husband and wife were represented by senior and junior counsel and much of the evidence was provided by affidavits from the husband and his family members. I am not in a position to make any findings about most of that evidence and senior counsel for the wife indicated that he had a desire to cross-examine the husband’s witnesses. Senior counsel for the husband said that all of the witnesses were available at court for that cross-examination. Cross-examination was not pursued in this hearing.
Senior counsel for the wife submitted that if the order was not made, the wife would have to take the subpoena pathway and it was anticipated that there would be objections to any documents so served. I stress that I have not determined this case on the basis of any desire to avoid that problem. This case seems to fit within its own peculiar set of circumstances.
As the hearing began, Mr Glick SC announced, over objection by senior counsel for the wife, that he acted for the husband’s father and a corporate entity who and which, have not been joined to the proceedings nor sought to intervene. I heard from Mr Glick on the issue of locus standi and he observed that if orders were to be made of the nature pursued by the wife, his client would have an interest and thus a right to be heard. As a preliminary point, I do not consider there is a need to hear from Mr Glick’s clients at this time because his clients are, as yet, unaffected.
The relevant evidence provided by the wife was set out at paragraph 45 of her affidavit filed 7 August 2013. In that paragraph, the wife referred to correspondence between the solicitor for the husband and the single expert witness in which it was said that the husband did not agree to providing all of the documents relating to the MX Trust and associated entities. The letter said that he did not have an interest in the entity nor controlled it, nor had he ever benefited from it. The letter went on to say that the husband was seeking his family’s consent to the production of the relevant documents. Nothing seems to have happened thereafter from the family’s perspective. Thus, the wife’s application brought the matter to a head.
MX Pty Ltd is the trustee of the MX Trust. There is no guardian or appointor of that trust and therefore, it was submitted by the wife that it cannot be altered.
There is conflicting and confusing evidence about who are the directors of MX Pty Ltd. In her affidavit, the wife said that the husband was the sole director. As I understood the husband’s position, it was asserted that both the husband and his brother were the directors. The wife asserted that the husband had sole control of the trust and he was an object of the trust. I am sure the husband disagrees. That question affects the husband’s rights of access to documents.
Another disputed fact concerns the ownership of the shares in MX Pty Ltd. The original documents incorporating MX Pty Ltd showed that the husband and his brother were each allotted and then held, one share. Shortly thereafter, according to the husband’s uncle who was responsible for both the accounting and legal work, an “error” was picked up and the husband transferred his share to his brother. It was said that it was always the intention of the husband’s father that the husband not have a share. At the same time the share issue was rectified, it was said that the husband’s brother signed a declaration of trust saying that he held his two shares on trust for his father. Just how the father may be currently affected by an order remains unclear. If he is a shareholder in the trustee, he may not have a pecuniary interest in the property of the trust.
The genesis of the trust seems to lie with the husband’s father because he contributed the funds. He gave his brother the instructions which gave rise to the trust’s creation. The settlor was the uncle.
The husband’s uncle (the father’s brother) who is by profession both an accountant and a lawyer, said that he established this particular trust in 2003 based on his experience throughout the 1970s when there were probate and estate duties. He said it was his practice to draft trust deeds without an appointor or guardian to avoid any complication that might arise from the reintroduction of the relevant death duties. His view was that if the deceased was the appointor, death duties may be imposed upon the trust. He set out how he created the trust. No doubt, the basis of his reasoning will be the subject of cross-examination but I am not in a position to make any finding about his logic in this hearing.
It was the husband’s father’s evidence that in late 2003, he desired to set up two entities which he wished to be under his complete control and for his “personal benefit”. He did this in conjunction with his brother to whom I have just referred. The inference to be drawn from this evidence was that the money or property in the trust either belonged to the husband’s father or at least fell under his direct control. I am not able to make any such finding in these proceedings. The issue here concerns access to documents and information for the purposes of examining the interest (if any) of the husband and if so, its value. On the face of the documents, this seems to be a standard family trust.
The relevant evidence by the husband was that he had never received any distributions from the trust nor made any decisions in relation to its operation. That would seem unusual if he was one of the two directors of MX Pty Ltd but I am not in a position to make any finding.
The husband made the same observation as his uncle about the initial provision of funds by his father. He said his father made all the decisions in relation to the trust presumably on the basis of the shareholding.
The wife submitted that as the MX Trust is a bare trust and one in which the husband is a beneficiary, he could now take beneficial control. If so, the trust might vest.
According to the deed, the specified beneficiary in the MX Family Trust is the husband but it also goes on to read “and his spouse and his children, whether now living or yet to be borne”. The general beneficiaries include the brothers, sisters, spouses, children and grandchildren of the husband “and his spouse” as well as other descendents and trusts.
If the husband can bring about the conclusion of the trust, should he be able to access documents? Similarly, if the husband could take that course, should the wife be permitted to pursue discovery particularly for valuation purposes? Senior counsel for the wife submitted that the fact that the shares in the trustee company were held by the husband’s father was irrelevant because, as a result of the absence of an appointor and guardian, the trust was a bare trust. If that was so the company, as trustee, now holds any property in the trust for the absolute benefit and at the absolute disposal, of the beneficiaries. It would follow from that submission that the trustees’ only duty was to convey the property on the demand of and at the direction of, the beneficiaries. The difficulty is in determining just who the beneficiaries are.
In Herdegen v Federal Commissioner of Taxation (1988) 84 ALR 271, Gummow J discussed the meaning of a bare trust and bare trustee. His Honour observed that the usually accepted meaning of a bare trust was one under which the trustee held the property without any interest in it other than as holding the office and the legal title and without any duty or further duty to perform, except to convey the property upon demand to the beneficiaries or as directed by them. His Honour observed that it was sometimes said that the trustee in these situations held property without any duties to perform other than to convey them to the beneficiary or as the beneficiary directed. Insofar as the trustee retained active duties, his role would not aptly be described as a bare trustee.
Here according to the trust deed annexed to the husband’s uncle’s affidavit, the vesting day of the MX Trust is 16 January 2070. Could the husband be forced to vest the trust?
In Costopoulos and Costopoulos [2011] FCWA 89 Crisford J was dealing with the question of whether the Court could order the vesting of a trust pursuant to Part VIIIAA of the Act. In that case, the value of the trust had been agreed but there was no actuarial value of the trust on the nominated vesting date. Her Honour then looked at the question of whether parties to the marriage as beneficiaries of the trust could satisfy the Court that their interests could be categorised as property for the purposes of s 79 of the Act. In that case, there was a vacancy in relation to the appointor and guardian of the trust. Her Honour concluded that the position of the specified beneficiaries was virtually frozen or fixed and that although the value of their interest upon vesting was not presently ascertainable, each had a discrete entitlement to the corpus of the trust on vesting. Her Honour said that the fact of uncertainty of ultimate value was not a reason for failing to categorise the interest as property.
The matter then came before the Full Court on appeal. The Full Court (Bryant CJ, Finn and Strickland JJ) observed that Crisford J had made unchallenged findings about the implications for the trust in no longer having a guardian or appointor. Whilst that may very well be the situation here, I am not in a position to make any clear finding as her Honour did as part of the final trial.
The Full Court observed that it was not in issue that her Honour categorised the entitlement of the husband and the wife as objects of the trust as property for the purposes of s 79.
In relation to valuation, the Full Court observed the fact that Crisford J used s 90AF(2) of the Act for the purposes of the valuation but there could have been other ways for that to be done. In the case before me, Mr Bartfeld QC on behalf of the wife submitted that it may very well be that Part VIIIAA is in fact the course that the wife ultimately takes but at this point in time, her interest was in deciding what steps to take after the valuation exercise was undertaken. As the Full Court in Costopoulos observed (at para 85) whatever may be the outer limits of the powers in Part VIIIAA,
… we are satisfied the Part can be used to require a trustee (including a third party trustee) to bring forward the vesting date of a trust fund for what can be termed, the “ancillary” purposes of valuing it and irrevocable entitlement to ultimately share in the trust fund and of distributing that share to the party entitled …
It was also submitted by senior counsel for the wife that if it was accepted that the genesis of the trust came from the husband’s father, that was not a matter that should affect the interlocutory issue but was an ultimate argument for trial on the question of contribution. It was the wife’s position that:
(a)first, she wanted to establish what assets existed; and
(b)secondly, if there was some argument about the interest or entitlement of the husband, she might need to seek orders under s 90AE of the Family Law Act 1975 (Cth) (“the Act”) directing others (presumably the husband’s brother and/or father) to do such things in relation to this property (including possibly the bringing forward of the vesting of the trust) as might give rise to the husband becoming the legal owner of the property for the purposes of s 79 of the Act.
What needs to be valued is the interests of parties in property. As French CJ in Kennon v Spry (2008) FLC 93-388, the Full Court of this Court In the Marriage of Duff (1977) 15 ALR 476 said the definition in Jones v Skinner (1835) 5 LJ Ch 87 was that property is the most comprehensive of all terms which can be used in as much as it is indicative and descriptive of every possible interest which the party can have.
The facts in Spry are not the same here but the French CJ went on to say that “property of the parties to the marriage” was to be read widely and conformably with the purposes of the Act. He said:
In the case of a non-exhaustive discretionary trust with an open class of beneficiaries, there is no obligation to apply the assets or income of the trust to anyone. Their application may serve a wide range of purposes.
French CJ noted that the beneficiary of a non-exhaustive discretionary trust who does not control the trustee directly or indirectly has a right to due consideration and to due administration of the trust but it was difficult to value those rights when the beneficiary had no present entitlement or may never have any entitlement to any part of the income or trust capital. That is not a basis not to try to value it.
Gummow and Hayne JJ on the issue of the right to due administration of the trust said it did not depend upon an entitlement to any fixed or transmissible beneficial interest in the trust fund. It was a right accompanied at least by a fiduciary duty on the part of the trustee to consider whether and in what way, the power conferred by the trust should be exercised.
Thus, even though the claim is unclear, there remains the fact that the husband may be able to at least identify property or possibly even access it. That entitles the wife to discovery and valuation.
Senior counsel for the wife submitted that the starting point was that the order made earlier in 2013 was a consent order. Each of the parties through their letter of instructions to the valuer had set out what each asserted and the distinction was a matter for trial but not for the valuation exercise. It was submitted on behalf of the wife that she was entitled to value the trust with all of its associated companies on either the basis of the husband having an interest (and indeed possibly, the wife having such an interest) or, in the alternative, that the husband had a financial resource. Senior counsel for the wife then set out all of the observations about the husband’s role as I have earlier set them out.
Senior counsel for the husband submitted there was no direct or indirect beneficial interest of the husband “in any shares of the relevant trustee company”, he had never exercised or purported to exercise any de facto control over the decision-making process of the trustee nor had her ever received any distributions for the trust.
The holding of the shares in MX Pty Ltd may be seen as giving the shareholder the right to make the decisions as trustee but not to have the beneficial interest in the property. Thus, I accept the wife’s position that the husband may have a contribution argument.
The absence of the receipt of distributions by the husband and for that matter, any other beneficiary in the general class of beneficiaries, does not mean that those persons (named and indeed some unknown) do not have any rights and/or interests in the trust. I return to that issue below.
Senior counsel for the husband submitted that on the face of the trust deed, the husband could only be paid income pending the vesting day or be paid capital or receive a distribution of property pending the vesting day as a member of the class of general beneficiaries at the discretion of the trustee. That depends upon what a court might ultimately do at trial in relation to the determination of the husband’s entitlements including depending upon the outcome of the argument which I understand the wife wishes to pursue, namely the extent of the power of the Court in s 90AE and s 90AF of the Act.
It was the husband’s submission that the most that could be said of the husband being a beneficiary was that he was one of a number of potential beneficiaries and as such, had a right to due consideration and to due administration of the trust which otherwise had no value.
Senior counsel for the husband submitted that the single expert witness had made observations “from a layman’s perspective” which were wrong.
In the single expert witness letter dated 18 July 2013, that witness acknowledged that the inclusion of the trust in the “pool of assets” was a matter of law. She said that the opening preamble to the deed stated that the express purpose of the trust was to make provision for the specified beneficiaries and general beneficiaries. She observed that the trust had a history of making negligible profits or losses. After referring to another matter to which I shall turn in a moment, the single expert witness said:
In view of the complexity of the matter I confirm my suggestion that perhaps this matter should be the subject of judicial determination before it can proceed any further.
In the written outline drawn by counsel for the wife, it was said that it was only asserted in July 2013 “for the first time” that documents would not be provided about MX Pty Ltd because the husband did not control it. That was clearly an error on the wife’s part because a similar statement was made in writing in March 2012. All of that is a distraction. On all of the correspondence attached to affidavits that I read, the husband’s position has not altered.
Senior counsel for the wife conceded that if there was an incapacity of the husband to fulfil what the wife submitted were his obligations under the order, the subpoena process of the Court would have to be followed with all of its attendant potential objections and disputes. If that occurred, this case would not be ready for trial even in February 2014.
As I already indicated, no other parties have been joined nor has anyone intervened. Senior counsel for the wife submitted that the wife might be relying on Part VIIIAA of the Act but at this stage, she wanted to make inquiries. If indeed the wife pursues the line articulated by her counsel, absent any evidence of a sham, the only course I can see open to her on the evidence lies in Part VIIIAA.
If that course is taken, I have no doubt that the clients of Mr Glick have every right to be heard because their interests may be affected by an order of the Court. At this stage however, my order will be limited to the issue of the provision of documents necessary for the valuation exercise.
Mr Glick on the question of his clients’ right to be heard submitted that the wife had asserted an entitlement to see documents demanded of the husband on the basis of his directorship or former directorship.
The wife’s submission was that in relation to company entities in which the husband was a director, he had an obligation under the Family Law Rules to provide the necessary records. Mr Glick challenged the wife’s entitlement to the documents just on the basis of some obligation in the rules.
A company director has a right of access to information. The first right is of access to the financial records at all reasonable times (see s 290(1) of the Corporations Act2001 (Cth)). That right is for personal access only and the provisions of that Act should be used if there are directors other than the litigant who is a party to the family law proceedings. Under the legislation, a court may limit the use to which the financial records can be made.
The same provision restricts the right of former directors and I raise that because I am not entirely clear whether the husband remains a director of all of the relevant entities.
Section 198F of the Corporations Act relates to the inspection of the books of the company other than its financial records. Directors have a right of all reasonable times for the purposes of legal proceedings to which the director is a party, to have access to those books of the company. A similar right applies to a former director for a period of seven years. There is significant authority in relation to the approach of courts about the access to both company information and financial records. None of that was argued here but I propose to give persons who may claim to have a right to dispute the husband’s entitlement as a director, the opportunity to pursue an argument about the restriction of material.
Chapter 13 of the rules was referred to as the basis to make the order for disclosure by the husband. The rules cannot override the specific provisions in the Corporations Act. Chapter 13 of the rules relates to all documents that are within a person’s direct or indirect power or control.
A second issue associated with discovery but which seems to have been dismissed by the husband for discovery purposes was that of the repayment of what was described as the FP Investments loan. Both the husband and the uncle said that an agreement had been reached “for the purposes of clarifying the position” in the proceedings as a consequence of which it was best to immediately repay the loan. The inference to be drawn was that there was no need for further investigation.
An entity, M Investments Pty Ltd, was described by the husband as “wholly” owned by MX Pty Ltd. FP Investments Pty Ltd lent M Investments Pty Ltd money. The husband is the director and shareholder of FP Investments Pty Ltd.
FP Investments Pty Ltd made profits from another company which the husband said he “owned” before marriage. It appears that over a number of years, these payments were made by FP Investments Pty Ltd to the trust company MX Pty Ltd such that $727,000 was amassed in the balance sheet.
The husband said that recently, his uncle and father discussed the loan which stood in the company’s books of account and which he described as “considered to be confusing matters” in the valuation by the single expert witness. Consequently, his father decided to repay the loan. That repayment occurred along with interest. All of those calculations were done by the husband’s uncle. It was not clear on the evidence why it was that the loan was “confusing” matters in circumstances where the husband’s evidence was that he was the director and shareholder of FP Investments Pty Ltd. The effect of the repayment however was that there was said by the husband to “no longer (be) any connection between [FP] Investments Pty Ltd and [M] Investments Pty Ltd”. The husband said that justified a dismissal of the wife’s application for production of documents. Because I do not understand the background of FP Investments Pty Ltd and what control has been in the hands of the husband, the wife should have comprehensive access to documents to enable her to make an objective judgment about what (if any) orders should be sought not only in relation to the valuation of that particular company but also whether any transaction was undertaken that might have defeated a claim of the wife.
It is not yet clear which avenue the wife is going to follow in the property trial. On the basis that the wife asserts that the husband has an interest, even if it is limited to the due administration of the trust, it seems to me that she must have the opportunity to value it.
It is important to also acknowledge in this case that the husband consented to the orders in April 2013 even if there was some dispute about his control. There is no doubt that the valuer seems concerned about the extent of what she is to value but that is not a basis in my view for her not to undertake the exercise even if it is a complicated one let alone an expensive one.
Although an application for costs was made in writing, the matter was not argued. I shall give the parties liberty to put any submissions they consider appropriate seeking costs in writing by 4.00pm on 31 October 2013 and any reply by 4.00pm on 4 November 2013 or alternatively, the parties can agree that the costs be reserved to the trial.
Orders should be made accordingly.
I certify that the preceding Fifty Eight (58) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 18 October 2013.
Associate:
Date: 18 October 2013
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