Atkins & Hunt & Ors
[2019] FamCA 977
•18 December 2019
FAMILY COURT OF AUSTRALIA
| ATKINS & HUNT AND ORS | [2019] FamCA 977 |
| FAMILY LAW – PROPERTY – Where a property settlement order was made in 2014 – Where the wife’s appeal of that order was successful and the matter was remitted for rehearing – Where the value of the husband’s interest in family companies is in dispute – Where the wife contends that the companies are the “mere puppet” and the “alter-ego” of the husband – Where the evidence falls short of establishing that the companies were the husband’s “mere puppet” – Whether the husband’s controlling shares in the company should nonetheless have the same value as all the shares in the company – Where the husband transferred part of his shares in the holding company when the wife’s appeal against the 2014 property settlement order was pending –Where the requirements of s 106(B)(1) are satisfied – Where the husband made the substantial financial contribution and the wife made a non-financial contribution during the course of their cohabitation – Where the Court finds it is just and equitable to make a property settlement order, including that the husband pay the wife a sum of money – Where an order pursuant to s 106B(1) is made that will be operatable if the payment by the husband to the wife is not made. FAMILY LAW – SPOUSAL MAINTENANCE – Where the wife seeks an order that the husband pay her spousal maintenance – Where the husband opposes that order being made – Where the Court finds that the wife has a reasonable need which the husband has capacity to pay – Where a spousal maintenance order is made in favour of the wife. |
| Corporations Act 2001 (Cth) s180, 181, 232, 254T Family Law Act 1975 (Cth) s 79, 72, 74, 106B Income Tax Assessment Act 1936 (Cth) Part III |
| Atkins & Hunt and Ors [2017] FamCAFC 79 Atkins & Hunt and Ors [2019] FamCA 821 Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 Ashton & Ashton (1986) FLC 91-777 Bevan and Bevan (1995) FLC 92-600 Commonwealth v Milledge (1953) 90 CLR 157 Gould and Gould and Ors (1993) FLC 92-434 Halabi v Artillaga and Ors (1994) FLC 92-470 In the marriage of Abdullah (1981) FLC 91-003 In the Marriage of Clauson (1995) FLC 92-595 In the Marriage of Dunbar (1987) FLC91-846 In the Marriage of Mitchell (1995) FLC 92-601 Kennon v Spry (2008) 238 CLR 366 Lenehan and Lenehan (1987) FLC 91-814 Ngurli Ltd v McCann (1953) 90 CLR 425 |
| APPLICANT: | Ms Atkins |
| RESPONDENT: | Mr Hunt |
| 2nd RESPONDENT: | Mr J Hunt |
| 3rd RESPONDENT: | Mr D Hunt |
| 4th RESPONDENT: | N Pty Ltd |
| 5th RESPONDENT: | T Pty Limited |
| 6th RESPONDENT: | H Pty Limited |
| 7th RESPONDENT: | Mr EE Hunt |
| FILE NUMBER: | SYC | 425 | of | 2012 |
| DATE DELIVERED: | 18 December 2019 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Watts J |
| HEARING DATE: DATE OF LAST SUBMISSION: | 19 – 21 August 2019; 12 December 2019 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Dura, counsel |
| SOLICITOR FOR THE APPLICANT: | Mills Oakley |
| COUNSEL FOR THE RESPONDENT: | Mr Lethbridge, SC |
| SOLICITOR FOR THE RESPONDENT: | Sexton Family Law |
| COUNSEL FOR 2ND – 7TH RESPONDENTS | Mr Gray, counsel |
| SOLICITOR FOR 2ND – 7TH RESPONDENTS | HWL Ebsworth Solicitors |
Orders
All previous orders are discharged.
Pursuant to s 79 of the Family Law Act 1975 (Cth) (“the Act”), an order be made in the terms of paragraphs 3 to 6.
The husband, within two months, pay to the wife the sum of $964,683.
The husband indemnify and keep indemnified the wife from and against all actions, claims, suits or demands howsoever made against the wife in relation to or arising out of any liability associated with the operations of N Pty Ltd, T Pty Limited and H Pty Limited and any other liability asserted to be owed by the wife to any of the respondents or arising from any business conducted by them.
The wife be the sole owner of all items of furniture, property, effects and superannuation in her name possession, custody or control.
The husband be the sole owner of all items of furniture, property, effects and superannuation in his name possession, custody or control.
In the event that the husband fails to make the payment referred to in paragraph 3 within two months, pursuant to s 106B(1) of the Act:
(a)The transfer of the 400 “A” class shares held by Mr Hunt in N Pty Limited ACN … (“N Pty Ltd”) to Mr J Hunt be set aside;
(b)The transfer of the 250 “A” class shares held by T Pty Ltd ACN … (“T Pty Ltd”) in N Pty Ltd to Mr D Hunt be set aside;
(c)The transfer of the 250 “A” class shares held by T Pty Ltd in N Pty Ltd to Mr EE Hunt be set aside;
(d)For the purposes of giving effect to paragraph 7(a), Mr J Hunt forthwith do all acts and things and sign all documents necessary so as to transfer to Mr Hunt the 400 “A” class shares in N Pty Ltd;
(e)For the purposes of giving effect to paragraph 7(b), Mr D Hunt forthwith do all acts and things and sign all documents necessary so as to transfer to T Pty Ltd the 250 “A” class shares in N Pty Ltd;
(f)For the purposes of giving effect to paragraph 7(c), Mr EE Hunt forthwith do all acts and things and sign all documents necessary so as to transfer to T Pty Ltd the 250 “A” class shares in N Pty Ltd;
(g)Simultaneously with paragraph 7(d), Mr Hunt do all acts and things necessary to pay to Mr J Hunt the sum of $40,000 from his entitlement to the net assets of the parties such that the sum is not a joint liability of the parties;
(h)Simultaneously with paragraph 7(e), Mr Hunt do all acts and things necessary to pay to Mr D Hunt the sum of $25,000 from his entitlement to the net assets of the parties such that the sum is not a joint liability of the parties; and
(i)Simultaneously with paragraph 7(f), Mr Hunt do all acts and things necessary to pay to Mr EE Hunt the sum of $25,000 from his entitlement to the net assets of the parties such that the sum is not a joint liability of the parties.
(j)The husband is restrained from dealing in any way with the A Class shares which he receives as a result of paragraph 7, pending the payment to the wife of the sum referred to in paragraph 3.
All parties are given leave to make any application in respect of the implementation of these orders.
In the event either party refuses or neglects to sign any deed or instrument to give effect to these Orders, the Registrar of the Court be appointed pursuant to s 106A of the Act to sign such document on behalf of such party to give effect to the operation of the deed or instrument.
The husband pay to the wife, by way of spousal maintenance, the sum of $550 each week, the first payment within 7 days.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Atkins & Hunt and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 425 of 2012
| Ms Atkins |
Applicant
And
| Mr Hunt |
Respondent
And
| Mr J Hunt |
2nd Respondent
And
| Mr D Hunt |
3rd Respondent
And
| N Pty Ltd |
4th Respondent
And
| T Pty Limited |
5th Respondent
And
| H Pty Limited |
6th Respondent
And
| Mr EE Hunt |
7th Respondent
REASONS FOR JUDGMENT
On 4 December 2014, Justice Aldridge made a property settlement order and delivered reasons in respect to the parties’ final property proceedings. The wife appealed that order and on 28 April 2017, the Full Court upheld the appeal and remitted the case for rehearing. This judgment determines the second final property hearing between the parties.
In 1967, the husband commenced a car dealership business which he expanded over the following decades under entities known collectively as the Hunt Group (“the Group”). N Pty Limited (“N Pty Ltd”) is a company which holds the assets of the Group.
The wife met the husband through her employment at one of the dealerships and the parties commenced cohabitation in April 2001. The husband and wife married in 2003 and separated on 21 March 2011. There are no children of the marriage.
In the rehearing, the wife sought a property settlement order of 40 per cent of the husband’s net assets.
The wife asserts that N Pty Ltd (and other entities in the Group) are the “alter-ego” of the husband and consequently, the whole of the value of N Pty Ltd should be treated as that of the husband. In the alternative, the wife applies to set aside the disposition the husband had made in September 2015, transferring 90 per cent of the controlling shares in N Pty Ltd, she alleges, without sufficient consideration on the basis that it defeated her claim against him in these proceedings. The recipients of those shares were three of the husband’s sons, namely Mr J Hunt (“Mr J”), Mr EE Hunt (“Mr EE”) and Mr D Hunt (“Mr D”), and they, as well as the associated entities of the Group, were joined to proceedings as the 2nd to 7th respondents.
In addition, the wife seeks an order that the husband pay her an amount of $2,421 per week by way of spousal maintenance.
The husband sought that the wife’s applications be dismissed and that no property settlement order be made.
The 2nd to 7th respondents oppose the orders sought by the wife, so far as they are relevant to them, particularly, the order that the September 2015 transfers of shares be set aside and the declarations sought by the wife that N Pty Ltd and T Pty Ltd be declared an alter-ego of the husband.
Documents relied upon
The documents the wife relied upon are set out in Schedule 1.
The documents the husband relied upon are set out in Schedule 2.
The documents relied upon by the 2nd to 7th respondents are set out in Schedule 3.
Pursuant to orders made by the Court on 21 November 2019, the parties were allowed to make further written submissions, which have been made exhibits and are set out in Schedule 4.
All parties relied upon the Further Amended Schedule of Agreed Facts (Exhibit 18) dated 20 August 2018.
Chronology
In 1935, the husband was born and is currently 84 years of age.
In 1955, the wife was born and is currently 64 years of age.
From 1960 to 1974, the husband was married to his first wife. They had five children together.
In late 1967, the husband commenced the business Hunt Pty Ltd.
In the early 1970s, the husband purchased land for the business to operate from and commenced operation of a No. 1 franchise.
On 12 September 1973, N Pty Limited (“N Pty Ltd”) was registered and was initially established to own real property investments. It is the 4th respondent in these proceedings.
From 1975 to 1991, the husband was in a relationship with his second wife. They married in 1983 and they had three children together.
In 1978, the Hunt Group Staff Superannuation Plan (“HG Superannuation”) was established.
In 1981, the wife had a child.
On 13 December 1982, F Pty Limited (“F Pty Ltd”) was incorporated. The company is the manager of HG Superannuation.
On 8 April 1983, H Pty Limited (“H Pty Ltd”) was registered. H Pty Ltd is the operating company of the Group and the 6th respondent in these proceedings.
In May 1986, T Pty Limited was registered (“T Pty Ltd”). T Pty Ltd owns shares in N Pty Ltd and is the 5th respondent in these proceedings. The husband owns 99 per cent of the shares in T Pty Ltd.
Between 1990 and 2004, the husband visited one of his daughters and her family in Country A around two to three times a year.
In 1998, the wife commenced working at the Hunt No. 1 franchise.
In 2000, the wife started seeing Dr CC in respect of her mental health.
In February 2000, the husband and wife commenced a personal relationship.
In June 2000, the husband suffered a heart attack and underwent triple by-pass surgery. The wife cared for the husband whilst he recuperated.
In September 2000, the husband purchased a property at S Street, Town M (“the S Street property”) for an amount of $765,000. The husband and wife commenced extensive renovations to the property which were designed and managed by the wife and in April 2001, they commenced cohabitation at the S Street property.
From April 2001 to around 2006, the wife’s child resided on the ground level of the S Street property.
In April 2001, the wife commenced working with the Group.
On 26 June 2001, the S Street property was sold to N Pty Ltd for $1,750,000. The wife says that the net proceeds were applied to reduce the husband’s loan account with N Pty Ltd by $1,750,000. The husband says that the net proceeds were applied to the repayment of a loan owed to the National Australia Bank and otherwise to reduce the loan account with N Pty Ltd, which at the time, was in debit in the amount of approximately $1,000,000. Nothing turns upon that difference in their evidence.
In 2003, the husband and wife married.
In January 2004, a property at B Street, Town M (“the B Street property”) was purchased in the wife’s name for $2,000,000 plus stamp duty. The purchase price was funded by a Westpac loan of $1,500,00 and with a loan from N Pty Ltd.
Between 21 June 2005 until some point between April and June 2008, the husband held a number of shares in a Country A aquaculture business. N Pty Ltd advanced about $202,000 for the establishment of the Country A business.
From 2006 to 2009, a general manager was employed to conduct the day-to-day operations of the Group.
In March 2007, renovation work commenced on the B Street property. The wife designed and managed the redevelopment of the property.
In November 2007, the husband and wife borrowed $500,000 from Westpac (“the Rocket Home Loan”), which was secured over the B Street property and applied those monies to the redevelopment of the property.
In March 2008, the husband and wife moved into the B Street property. The cost of the renovation totalled approximately $1,500,000.
In 2009, the wife and Mr Q established Business E in X St, Suburb U. Business E was owned by Business Z Pty Limited (“Business Z Pty Ltd”). The wife purchased shares in Business Z Pty Ltd for $16,000 and applied a further $24,000 towards the fit-out of the business. The wife borrowed $40,000 from the CBA, secured over her property at AW Street, Town C (“the Town C property”) which she had acquired before meeting the husband. The husband also provided the wife $50,000 to use as working capital in the business.
In March 2009, the wife entered into a banker’s undertaking to provide security for the lease of the business which was secured over the B Street property. Two facilities were also established in the sum of $117,333 and $88,000. The husband denies that he was aware of the undertaking or the facilities at the time.
In September 2009, the business commenced trading. The wife entered into a variation agreement with Westpac which established an overdraft facility with a limit of $50,000 secured over the B Street property. The husband denies that he was aware of the overdraft facility at the time.
On 21 March 2011, the husband and wife separated. The wife continued to reside in the B Street property until it was sold.
For three months after separation, the wife received a salary from the Group of $1,288 per week.
In August 2011, the wife’s employment at the Group was terminated.
On 1 November 2011, Mr J Hunt (the 2nd respondent) became the Principal for the No. 2 franchise.
In 2011, the husband sold 20 per cent of his shares in H Pty Ltd to a company controlled by Mr J.
On 13 March 2012, Mr J became the Principal for the No. 3 franchise.
On 7 May 2012, Justice Ryan made the following interim orders:
a)The husband pay the wife $1,288 per week in respect of spousal maintenance;
b)The husband meet payments in respect of the wife’s motor vehicle;
c)The husband meet all mortgage repayments in respect of the B Street property when they fall due and discharge all arrears of the Rocket Home Loan; and
d)The husband be restrained from further encumbering the B Street property.
The husband complied with all payments pursuant to the orders until the sale of the B Street property in July 2015.
On 15 June 2012, Ryan J made, pending further order, the following order:
9. In relation to N Pty Ltd, T Pty Ltd and H Pty Ltd other than for the purpose of compliance with orders made in these proceedings, the husband is restrained from by himself, his servants and/or agents doing and/or causing or permitting to be done, any of the following:
a) alienating or further encumbering any of the assets, income or undertaking of any of the entities or any of the subsidiaries save for operating the entities in the usual course of business;
b) alienating or further encumbering any of shares which he has a legal or beneficial interest in any of the entities or the subsidiaries;
c) issuing any new shares or otherwise altering the shareholding (including any rights and entitlements attaching to or any other incident of the same) in any of the entities or subsidiaries;
d) removing, replacing or appointing any director or other officeholder of any of the entities or subsidiaries.
In 2012, the parties divorced.
On 24 May 2013, Mr Q sent an email which contended that the Business E was in arrears of its rent and the bank guarantee was called upon.
On 4 June 2013, the business’ landlord required a further bank guarantee, in the sum of $88,000 to be in place within 7 days.
In July 2013, RR Pty Limited purchased a No. 5 franchise which was largely funded by advances from Company 1 Finance Limited. The land upon which the dealership operated was acquired by QQ Pty Limited (“QQ Pty Ltd”). RR Pty Ltd and QQ Pty Ltd have established trusts known as the QQ Unit Trust and the RR Unit Trusts. The initial unit holders in the QQ Unit Trust are companies associated with Mr J and Mr D.
In July 2013, the wife borrowed $25,000 from Business Z Pty Ltd.
In August 2014, the Business E ceased to operate.
On 4 December 2014, a final property order was made and reasons for judgment were delivered by Aldridge J. At the time of trial, N Pty Ltd recorded a loan account in the wife’s name of $805,190 and another loan account in the husband’s name. The wife denies ever signing any loan agreement document.
On 23 December 2014, the husband caused to be paid to the wife the sum of $174,747 pursuant to the order of Aldridge J. The wife filed a Notice of Appeal.
On 8 April 2015, the wife filed an Application for a Stay of the orders for the sale of the B Street property.
On 16 April 2015, Aldridge J dismissed the wife’s Application for a Stay of the order.
On 14 July 2015, the wife filed an Initiating Application seeking spousal maintenance on an interim and final basis.
On 15 July 2015, the B Street property was sold for the amount of $2,170,000. The property was bought by Mr J, who subsequently moved into the property.
On 31 July 2015, the wife filed an Amended Notice of Appeal.
On 21 August 2015, McClelland J dismissed the wife’s application for spousal maintenance. The wife initially sought orders to be made pursuant to s 83 of the Act (modifying a spousal maintenance order which is in force) but then amended her application to seek orders under s74 of the Act (power of the Court to make a spousal maintenance order). His Honour found that he did not have jurisdiction to make the orders sought by the wife pursuant to s 83 of the Act because, at the date of the hearing, there was no longer an order in force in respect of spousal maintenance. In the alternative, his Honour also found that it was necessary for the wife to seek leave to bring an application under s 74 of the Act, because pursuant to s 44(3), the wife was required to bring any such application within 12 months of a divorce. His Honour did not grant the wife leave to bring an application for spousal maintenance.
On 7 September 2015, there was a conversion of the A Class shares in N Pty Ltd and on 15 September 2015, the husband disposed of the majority of those shares. This disposition is a focal point in this hearing and is discussed in further detail below.
As at 30 June 2016, the husband had taxable income of $1,744,274 and a superannuation interest of $1,511,957.
On 23 and 24 August 2016, the Full Court heard the wife’s appeal against Aldridge J’s property settlement order of 4 December 2014 and McClelland J’s orders of 21 August 2015.
On 12 November 2016, the Full Court upheld the wife’s appeal against McClelland J’s orders for spousal maintenance finding that his Honour erred by concluding that the wife was required to seek leave pursuant to s 44(3) of the Act and that the Court was “unable to discern from his Honour’s Reasons any other basis for concluding that leave should not have been granted for the wife to amend her application.”
On 24 March 2017, Justice Rees made an interim spousal maintenance order that the husband pay the wife the sum of $1,130 per week.
On 28 April 2017, the Full Court made orders and delivered reasons in respect of the wife’s appeal. Aldridge J’s order of 4 December 2014 was set aside and the wife’s application for the settlement of property was remitted for rehearing.
As at 30 June 2018, the overall value of N Pty Ltd was $24,930,000.
Value of the husband’s interest in N Pty Ltd
The expert evidence
Both parties relied upon expert evidence relevant to the nature of, and the value of, the husband’s interest in N Pty Ltd. The experts, Ms AAA and Ms BBB prepared reports set out in Schedules 1 and 2, respectively, and a Joint Statement filed 12 September 2019. They gave concurrent evidence on 20 November 2019.
Ms AAA, who was originally appointed as the Single Expert, became a witness in the wife’s case after the respondents were granted leave to call Ms BBB as an adversarial expert.
Both experts are of considerable experience. Ms AAA has over 40 years’ experience in the accounting sector and specialises in forensic accounting and litigation support where she has provided evidence in the Supreme Court of NSW, the Federal Court of Australia, a number of District Courts and the Family Court of Australia. She is a qualified Chartered Accountant, a Business Valuation Specialist, has a diploma of Financial Services and is on the Board of Collaborative Practice NSW. Ms BBB has over 30 years’ experience in the accounting sector and specialises in the valuation of privately owned and operated businesses including “entrepreneurial growth companies”. She is a qualified Chartered Accountant, with experience giving evidence in the Family Court of Australia, the Federal Court of Australia, the Supreme Court of NSW and Victoria, the Land and Environment Court of NSW, the Guardianship Tribunal of NSW, the NSW Consumer, Trader & Tenancy Tribunal and the District Court of NSW.
The structure of the shareholding in N Pty Ltd as at 15 September 2015
At a time shortly before 15 September 2015, the husband owned five A Class shares and ten C Class shares in N Pty Ltd. T Pty Ltd, in which the husband had a 99 per cent interest, owned the other five A Class shares and 10 B Class shares in N Pty Ltd. The other shareholdings in N Pty Ltd were held by the husband’s eight children as follows:
Mr DD Hunt 10 C Class
Mr EE Hunt 10 C Class
Mr J Hunt 10 C Class
Ms FF 10 D Class
Ms GG 10 E Class
Mr D Hunt 10 F Class
Ms HH 10 G Class
Mr JJ 10 H Class
Effectively, the husband held all the A Class shares which carry voting rights but on their own, did not entitle the husband to a dividend or to share in a surplus on a winding up of the company. A Class shareholders have the power to appoint and remove directors and ratify dividends proposed by the directors.
The B, C, D, E, F, G and H Class shares do not carry any voting rights. They entitle the holder to receive dividends if a decision was made to distribute dividends to them and to participate in any surplus assets pari passu upon the winding up of the company.
The husband’s control of, and the transfer of, his A Class shares in N Pty Ltd
The holder of the A Class shares in N Pty Ltd has complete control over the voting in N Pty Ltd. The A Class shares provide sufficient power and control to:
a)Determine the timing of the payment of dividends and to whom they are paid. It is relevant to note that dividends do not only have to be paid out of the current year’s profits but can also be paid out of retained profits;
b)Appoint and remove directors;
c)Change N Pty Ltd’s Memorandum and Articles of Association (N Pty Ltd’s Constitution); and
d)Determine if and when N Pty Ltd is wound up.
Prior to the disposal of shares in September 2015, the husband’s A Class shareholding gave him a substantial degree of control even in circumstances where his day to day involvement in the running of the business operations of the Group had reduced.
In 1973, the husband and his then wife subscribed to N Pty Ltd’s Constitution. At a time when death duties were payable in New South Wales, N Pty Ltd was a bespoke vehicle by which the husband carried on his business. This provided him with patriarchal control and the ability to plan for succession.
Part of Exhibit 57 contained a copy of N Pty Ltd’s Constitution which originally only contained every second page. I called for a complete copy which I have added to Exhibit 57. So far as I am aware, N Pty Ltd’s Constitution has not been altered since 1973.
Relevantly, N Pty Ltd’s Constitution provides:
8.The holders of the said “A” class shares shall be entitled on a show of hands or on a poll to one (1) vote for each share held in the capital of the Company. The holders of the said “A” class shares shall not be entitled to any dividends or in the winding up of the Company to participate in surplus assets.
9.The said “B” class, “C” class, “D” class, “E” class, “F” class, “G” class and “H” class shares shall not entitle the holders thereof to any vote in respect of the shares in the capital of the Company.
10.The holders of “B” class, “C” class, “D” class, “E” class, “F” class, “G” class and “H” class shares shall be entitled to receive in respect of such shares only such dividend (if any) whether or not prior to any dividend in respect of any other class of shares or in respect of each such “B” class, “C” class, “D” class, “E” class, “F” class, “G” class and “H” class shares the Directors may from time to time recommend and the Company in general meeting may declare and the dividend or dividends may be declared or paid on any one or more of the said “B” class, “C” class, “D” class, “E” class, “F” class, “G” class and “H” class shares to the exclusion of any class or classes of shares in the capital of the Company or at a higher or lower rate than that declared or paid on the other class or classes or on any other class or classes or to the exclusion of the said “B” class, “C” class, “D” class, “E” class, “F” class, “G” class and “H” class shares or any of them and any such declaration will be binding upon all members of the Company.
11.On the winding up of the Company the holder or holders of the said “B” class, “C” class, “D” class, “E” class, “F” class, “G” class and “H” class shares shall be entitled to participate pari passu in surplus assets.
It can be seen that under Clause 10 of N Pty Ltd’s Constitution, the non-A Class shareholders were not entitled, as of right, to any distribution of dividends.
Counsel for the wife relied upon statements made by Strauss J in Ashton & Ashton (1986) FLC 91-777 about the position of a trustee of a discretionary trust who has real de facto legal and beneficial ownership of the assets in the trust. Counsel for the wife submits that Clause 10 puts the non-A Class shareholders into a similar position as a beneficiary of a discretionary trust who have no interest or entitlement other than the due administration of the trust (Kennon v Spry (2008) 238 CLR 366).
The respondents argue that statements made about the controller of a discretionary trust do not translate to the controller of a company because of the provisions of the Corporations Act 2001 (Cth) (“the Corporations Act”).
For example, s 254T of the Corporations Act provides that a company “must not pay a dividend unless … the payment of the dividend is fair and reasonable to the company’s shareholders as a whole”. Section 232 of the Corporations Act provides relief to minority shareholders if a company acts in a way which is “contrary to the interests of the members as a whole” or “oppressive to, unfairly prejudicial to, or unfairly discriminatory against, a member or members…”
The operations of those sections have effect in conjunction with the constitution of an individual company. Clauses 10 and 11 of N Pty Ltd’s Constitution give non-A Class shareholders very different rights.
Clause 10, coupled with the Corporations Act, gives non-A Class shareholders no interest in or entitlement to dividend distributions unless the directors of the company resolve to make those distributions to that member, subject to the provision that dividend distribution needs to be fair and reasonable. It was not suggested that the history of the past distributions of dividends in N Pty Ltd were not fair and reasonable. That history of dividend distribution demonstrates that individual members were not entitled to expect pari passu distribution of dividends.
In contrast, Clause 11 provides that non-A Class shareholders are entitled to pari passu distribution of capital upon a winding up of the company. It would be oppressive to suggest, as Ms AAA does, that those rights could be thwarted by liquidating the assets of the company and distributing dividends in an uneven way so that there was no capital left upon a winding up.
That said, A Class shares give the power to say when any winding up of the company would take place. It is agreed that there is no prospect in the short or medium term for N Pty Ltd to be wound up and N Pty Ltd’s Constitution was written so that the A Class shareholders had the right to determine if and when the company would be wound up.
The husband, in his capacity as director, needs to exercise his powers in a bona fide way and cannot give his power ostensibly to benefit the company but really benefit himself. Nor as an A Class shareholder, could he install another director with the intent that that director would act in that way (Ngurli Ltd v McCann (1953) 90 CLR 425).
Exhibit 57 contains copies of minutes of directors’ meetings of N Pty Ltd from June 2003 through to June 2015, which passed resolutions as to the declaration of dividends in each year. Up until June 2014, the directors recorded as being present at those meetings were the husband and Mr D Hunt and they shared the chairmanship of those meetings. On 26 June 2015, Mr J was also present as a director in a meeting that the husband chaired.
As at September 2015, the husband held all the A Class shares in the company.
On 15 June 2012, Ryan J made orders, amongst others, restraining the husband from alienating or further encumbering any shares in the Group “pending further order”. In the orders made by Aldridge J on 4 December 2014, his Honour made a final property settlement order; an order dismissing all applications and cross-applications and an order that “all issues be removed from the Active Pending Cases List”. On 16 April 2015, Aldridge J refused to stay his orders of 4 December 2014 pending the wife’s appeal to the Full Court and the restraint imposed on 15 June 2012 was at an end.
On 7 September 2015, N Pty Ltd resolved to divide each A Class share by 100 creating 500 A Class shares in the hands of the husband and 500 A Class shares in the hands of T Pty Ltd.
By deeds dated 7 September 2015 and transfers dated 15 September 2019, the husband disposed of all 500 of the A Class shares held by T Pty Ltd and 400 of the A Class shares that he held himself in the following manner:
a)400 A Class shares from the husband to Mr J (2nd respondent);
b)250 A Class shares from T Pty Ltd to Mr D (3rd respondent); and
c)250 A Class shares from T Pty Ltd to Mr EE (7th respondent).
By doing so, the husband gave up the control of the voting rights in N Pty Ltd.
The consideration paid to the husband and T Pty Ltd was $100 for each A Class share and the husband and T Pty Ltd received an amount of $90,000 in total. In respect to how the price of these shares was set, the husband gave evidence at paragraph 75 of his trial affidavit which was objected to by the wife on the basis of form and hearsay. The majority of that evidence was not read and whilst senior counsel for the husband was given leave to adduce oral evidence about those transactions, that opportunity was not taken up by him. Further, Mr D, in his affidavit filed 12 September 2019, did not adduce any evidence as to the method (if any) by which the price was set. Mr J and Mr EE did not give evidence.
Indeed, as submissions by counsel for the wife point out, neither the husband nor any of the 2nd to 7th respondents adduced any evidence of any special meeting held by the directors and shareholders to discuss the transfer of or the passing of, any special resolution associated with the disposition of the shares.
The husband did not inform the wife that he was undertaking the transfers nor did he immediately provide the wife with documents in relation to the transfers.
The husband retained 100 A Class shares (10 per cent of the A Class shares) in N Pty Ltd.
As a result, the husband held, and still holds, 100 A Class shares and 10 C Class shares in N Pty Ltd. The husband maintained and still retains a 99 per cent interest in T Pty Ltd. T Pty Ltd no longer holds any A Class shares but holds 10 B Class shares in N Pty Ltd.
The husband gave evidence that it was always his intention for the company to be left to the benefit of his children but the catalyst for transferring his A Class shares in September 2015 was an admission to an intensive care ward in a hospital in Country A.
The husband tendered Exhibit 33, which is a transcript of an undated document entitled “Simple Idea” and is in the following terms:
(1)[The husband] sells Mr J [or others] his N Pty Ltd shares for $1M to 2M uses these funds to clear loan A/C with N Pty Ltd (Mr J will borrow this amount from N Pty Ltd).
(2)[The husband] now has NO ASSETS – as everything left over is in super fund but [the husband] has following debt:
(i) [Illegible]
(ii)$1.5M owed Westpac/secured by [the wife]’s mortgage on B Street
(3)[The wife] still owes N Pty Ltd about $1M (her B Street A/C)
(4)[The husband] makes a nomination in his super to pay [the wife] $1M in event of his death – which will give her the money needed to repay N Pty Ltd
[The wife] will still owe WBC $500K as well as being responsible as guarantor for [the husband]’s $1.5M mortgage debt (secured on B Street).
When asked about the document in cross examination, the husband said he had no knowledge of when the document was created nor does he recall ever giving instructions as to its creation.
The husband accepted in cross examination that by converting and selling his A Class shares in N Pty Ltd, he would no longer have the sole legal control of the distribution of dividends and that by undertaking that exercise he was diminishing the value of his interest in N Pty Ltd. The husband denied that he had transferred the shares to prevent the wife getting a part of the value of N Pty Ltd in order to obtain some advantage in these proceedings, stating that “It had nothing to do with [the wife]”.
When asked why, when the wife’s appeal of Aldridge J’s orders was still on foot, he had transferred the shares at that time, the husband said that he was 80 years of age.
The alter-ego argument
It is the wife’s assertion that at all material times prior to the transfer of shares by the husband on 15 September 2015, that the nature, degree and extent of the husband’s control of N Pty Ltd (and T Pty Ltd) arising from the rights attaching to his shares were such, that those corporations were the husband’s
“alter-ego”.
In the event that the wife established that proposition, the value of the husband’s interest in N Pty Ltd, held directly and indirectly in September 2015, would have an undisputed value of $13,391,000 and had the husband not made the dispositions in September 2015, a value of $24,930,000 as at 30 June 2018.
In asserting that the companies were the husband’s “alter-ego”, the wife relies upon the well-known passage in Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337, where at 354-355, Gibbs J states that:
… if a company is completely controlled by one party to a marriage, so that in reality an order against the company is an order against the party, the fact that in form the order appears to affect the rights of the company may not necessarily invalidate it.
Except in the case of shams, and companies that are mere puppets of a party to the marriage, the Family Court must take the property of a party to the marriage as it finds it. The Family Court cannot ignore the interests of third parties in the property, nor the existence of conditions or covenants that limit the rights of the party who owns it…
(Emphasis added)
It is not controversial that the husband owns 99 per cent of T Pty Ltd. Accordingly, the alter-ego argument has no relevance to the assessment of the husband’s interest in T Pty Ltd.
In order to establish the alter-ego argument in respect of N Pty Ltd, the wife needs to establish that, until the husband divested himself of 90 per cent of his A Class shares, N Pty Ltd was a “mere puppet” of the husband and that its corporate veil should be pierced.
In making that argument, the wife relies upon the ultimate control that the husband had under N Pty Ltd’s Constitution, the manner in respect of which assets were dealt and the assertion that the husband took benefits from N Pty Ltd “at his whim”.
The respondents challenge the evidentiary foundation to many of the underlying assertions upon which the wife relies and claims that even if they were well grounded, establishing that a corporation is no more than a puppet of a director and shareholder is a high bar the wife has not surmounted.
Turning to the test the wife needs to meet, the wife bears the onus of establishing that N Pty Ltd was the “mere puppet” of the husband and that the company does not truly exist as a separate legal entity. It does not seem genuinely disputed that as at September 2015, the husband had control of N Pty Ltd, given the rights that he had under N Pty Ltd’s Constitution arising from his A Class shares. Counsel for the wife makes the submission that it would be a rare situation where a finding was made of “mere puppet” without the person against whom that finding was made having control of the company. I don’t accept that legal control of a company is necessarily the hallmark of a situation where a “mere puppet” finding would be made. A person could install directors and shareholders in a company who were entirely willing to do the bidding of that person, so even though that person didn’t have legal control of the company, the company was, in fact, their “mere puppet”.
The wife argues in this case, however, that the husband went beyond merely exercising his ordinary legal rights in accordance with the law, including N Pty Ltd’s Constitution and that he was the real controller of N Pty Ltd.
The wife submits that as the owner of the A Class shares, the husband had complete control of what decisions N Pty Ltd made. Some of the decisions cited by the wife were the sale of shares to Mr J in 2011, decisions made in respect of real estate transactions and the changes to the number and ownership of A Class shares in 2015. Whilst the wife contends that control is a crucial element in her alter-ego argument, she concedes that there must be more and makes the following assertions, some of which are controversial:
(a)N Pty Ltd was incorporated by the Husband and his first wife, in 1973. At that time the Husband and his first wife held 1 A Class share each and the remaining shares were unsubscribed. Accordingly, N Pty Ltd was incorporated solely for the Husband and his first wife’s benefit. Once his first wife’s A Class shares were transferred to the Husband (and T Pty Ltd), the Husband had the sole benefit of N Pty Ltd.
(b)At the relevant times prior to 15 September 2015, the Husband held all of the A Class shares (personally and through T Pty Ltd).
(c)N Pty Ltd is a company in which, at the relevant times, only members of the Hunt family have been shareholders and directors.
(d)The Husband and/or his first wife allocated B to H Class shares (non-voting shares) to their children and relatives (and themselves) such that dividends could be paid within the family.
(e)The Husband received, either personally or through T Pty Ltd, approximately 70% of the dividends from N Pty Ltd since 2001; the balance of the dividends can be categorised as “gifts” for his children and relatives.
(f)Even following the Husband’s divestment of 90% of the A Class shares in N Pty Ltd, the Husband continued to receive approximately 70% of the dividends. That is clear evidence that in circumstances where on the face of it the Husband had lost control of the decisions of N Pty Ltd, he otherwise retained control of how dividends were paid to shareholders of N Pty Ltd.
(g)The Husband undertook transactions on behalf of N Pty Ltd at his whim including the transfer of property to and from the Husband’s superannuation company, F Pty Ltd. The 4 transactions raised during the Husband’s cross-examination are simply examples of that.
(h)The Husband gave clear and unambiguous answers during his cross-examination to the effect that he made all of the decisions on behalf of N Pty Ltd.
(i)The Husband had a loan account with N Pty Ltd which, from at least July 2013 to June 2018, he used to pay his personal expenses including:
(i) legal and accounting fees in respect of these proceedings;
(ii) legal fees in relation to other proceedings;
(iii) Foxtel bills; and
(iv) golf club membership fees.
(j)The fact that other persons were involved in the implementation of decisions (i.e. Mr D Hunt in his capacity as a director of N Pty Ltd) is not material to whether or not a company is the alter ego of a person. In fact, it is commonplace in circumstances of alter ego that, for example, a Wife is placed in the position of director but in reality the Husband controls the company behind the scenes. As much was submitted by counsel for the 2nd to 7th respondents
(k)Mr D Hunt’s involvement in N Pty Ltd can be simply explained as follows:
(i)Article 80 of N Pty Ltd’s Constitution states that there must not be less than 2 directors. At the time of incorporation, the 2 directors of N Pty Ltd were the Husband and his first wife. Following the Husband’s separation from his first wife, a directorial void was created. Accordingly, it was necessary for the Husband to appoint another director. Evidently he chose to appoint Mr D Hunt.
(ii)The fact that Mr D Hunt was legally required (by reason of his appointment as director) to attend board meetings and sign resolutions and transfers in order for the Husband’s wishes to be formally implemented takes nothing away from the alter ego argument
(l)Taking advice from accountants and valuers before making the decision to transfer properties worth several hundreds of thousands of dollars is not an impediment to a finding that N Pty Ltd was the alter ego of the Husband. It is commonplace for an individual person to take advice from experts in respect of how they deal with their personal assets. It makes no difference that N Pty Ltd is inserted into the situation.
(m)At no stage did the Husband, nor Mr D Hunt, give evidence that there was any form of consultation process when it came to making the decisions referred to above. At its highest, the evidence of Mr D Hunt was that he was aware of the decisions that the Husband had made and attended where it is asserted the proposed transaction was discussed. The Minute of Meetings annexed to the Affidavit of Mr D Hunt nor those contained within Exhibit 57 (tab 1) support the submissions advanced on behalf of the 2nd to 7th respondents.
The respondents assert that the matters referred to by the wife do not rise to a level which would allow a “mere puppet” finding to be made and proceed on errors of fact. The respondents more generally submit that the wife invites inferences to be drawn on matters that were never the subject of challenge by the wife and were not particularised by the wife in her Points of Claim (Exhibit 13).
Further, the respondents challenge the wife’s assertion that the A Class shares gave the husband complete control of what decisions N Pty Ltd made. The respondents point to the fact that under N Pty Ltd’s Constitution, the business of N Pty Ltd is managed by the directors. N Pty Ltd’s Constitution requires two directors of whom the husband was (and currently is) one. The respondents submit that there was no assertion in the wife’s Points of Claim that the husband and Mr D did not, as directors, conduct themselves in accordance with the Corporations Act and N Pty Ltd’s Constitution. The respondents adopt the description provided by the Full Court, in the appeal that led to the rehearing in this case (see Atkins & Hunt and Ors [2017] FamCAFC 79), at [36]:
36.Unlike many corporations seen in this court in the context of s 79 applications, N Pty Ltd is not a family company with the husband and wife as directors and shareholders and with the husband having a controlling interest. It is a significant and long-standing trading entity, albeit one born of the husband’s initial endeavours and intentions, the latter of which included classes of shareholdings with particular rights attaching to holdings gifted to his children. One of those children was a director of N Pty Ltd at the time of trial. He had been a director of that corporation (together with the husband) for over 15 years prior to the trial. He was and is active in the day to day running of the franchise. He gave evidence at the trial. It was not suggested to him at any time that, as a director, he did his father’s bidding or did not otherwise independently exercise his mind in and about his direction of the company.
(Emphasis per original)
The respondents submit that, under N Pty Ltd’s Constitution, all that the A Class shares provide is the ability to vote on matters such as the distribution of dividends. As already discussed, subject to whatever rights the non-A Class shareholders have under the Corporations Act, N Pty Ltd’s Constitutions gives the A Class shareholders rights well beyond that.
Whilst the respondents agree that the husband held all the A Class shares from 9 July 2003 until September 2015, they make the point that prior to that time he held 50 per cent of the A Class shares and an accountant and his ex-wife held the remainder. That is not to say, as an example given by the wife in respect of one transaction demonstrates, that it was not the husband that made the decisions prior to June 2003.
The respondents argue that counsel for the wife’s arguments at [118](a), (b), (c) and (d) are not indicators of “mere puppet”. The point is made that companies who have single shareholders and directors are still separate legal entities.
In relation to [118](e) and (f), the respondents assert that there is no factual basis for the submission that dividends were paid as anything other than dividends and should not be characterised as “gifts”. The respondents submit that in relation to the distributions to the husband after September 2015, including the distribution of $1,151,000 to T Pty Ltd in the 2016 financial year, the wife has not established the basis upon which those distributions were made and the Court should not draw an inference that they were made because the husband maintained control over the distribution of income. Counsel for the 2nd to 7th respondents submits that no inference should be drawn in circumstances where Mr D was not cross examined about the circumstances relating to this distribution to T Pty Ltd in which his father held 99 per cent of the shares. That submission is made in the context where Mr D provided an affidavit in which he did not refer to this transaction at all. Further, on 4 December 2014, Aldridge J made an order:
7.That N Pty Limited substitute the husband for the wife in respect of any debt owed by her to it or recorded in its books as being owed to it by the wife and to take all steps necessary to release her from any liability to it in respect of those debts.
At paragraphs 103 to 104 of the husband’s trial affidavit, the husband says that the dividend to T Pty Ltd of $1 million in the financial year 2016 was the method by which N Pty Ltd gave effect to this order (see at [222] in respect of the discussion at item 19 of the balance sheet).
In respect of the transactions in [118](g) and (l), there were four property transactions referred to in the cross examination of the husband. The respondents submit that it was the husband’s evidence that he made his decisions as to whether to buy or sell these assets and those decisions should not be equated to him exercising control in some adverse manner so as to amount to the assets being seen as his and not the company’s assets. The respondents further point to the following surrounding circumstances:
a)Independent advice was obtained as to each transaction;
b)N Pty Ltd bought and sold the assets at market value;
c)The wife does not contend that the transactions were not in the interest of the company;
d)Mr D, the other director at the time, was aware of the transactions prior to them occurring and was “involved in decisions” including the buying and selling of real estate, the rent of N Pty Ltd properties and the distribution of dividends. He gave evidence that he was “aware that”:
i)In about June 2001, N Pty Ltd bought the S Street property;
ii)In about June 2003, N Pty Ltd sold a property at PH Street, Town W to F Pty Ltd;
iii)In about June 2010, N Pty Ltd bought that property back from F Pty Ltd; and
iv)In about June 2010, N Pty Ltd bought a property at Town K.
There are no resolutions of the company in relation to any of those transactions that are available. I am left with the unambiguous answers of the husband to the effect that he made the decisions that the company would enter into these transactions.
The extent of Mr D’s evidence in relation to dividend distributions is that “I resolved that dividends be declared and paid according to what I perceived to be my obligations as a director N Pty Ltd”.
The respondents challenge the wife’s assertion at [118](h) as being factually accurate and I accept the substance of that challenge. It is overstating the position to say that the husband gave clear answers to the effect that he made all of the decisions on behalf of N Pty Ltd. The husband gave evidence that he made the decisions in respect of the transactions about which he was questioned. Mr D’s evidence is that he has been “involved in decisions in relation to the operation of N Pty Ltd’s business”.
In relation to [118](i), N Pty Ltd’s Constitution expressly allows for loan agreements to be entered into and there is no suggestion that the loan agreements are not compliant with Division 7A.
The respondents submit that [118](j) points away from N Pty Ltd being the alter-ego of the husband and that it is material that other persons were involved in the decisions of the company. The more fundamental point, however, is that the wife has not established that Mr D simply did everything that his father wanted him to do, although neither of them gave any example of a circumstance where the husband wanted the company to do something and Mr D resisted it.
The respondents submit that [118](k) does not assist the wife’s case but undermines it and the fact that the company has operated in accordance with its constitution shows that it was and still is, a genuine, separate legal entity.
In relation to [118](m), the respondents rely on the proposition that the wife bears the onus of bringing evidence to support her contention that N Pty Ltd is a “mere puppet” of the husband. The respondents submit that it would be an “absurdity” for N Pty Ltd to lead evidence of every decision that has ever been made over the past 40 years as to its operation to identify why it is not the husband’s puppet.
The respondents rely on correspondence (for example, at tabs 5 and 6 of Exhibit 57) which includes a letter from the lawyers of the 2nd to 7th respondents dated 3 October 2019, to demonstrate that they provided documents to the wife’s representatives and provided invitations to inspect company records from time to time.
Conclusion about the alter-ego argument
The fact that the husband had real legal control over what N Pty Ltd did from time to time (in examples that have been highlighted in the evidence which demonstrate his exercise of that control and most notably, through the distributions of dividends in his favour over a long period of time), falls short of establishing that N Pty Ltd was the husband’s “mere puppet”. Accordingly, the assertion that the value of N Pty Ltd should be treated as wholly in the hands of the husband on the basis that it was his “mere puppet” fails.
The value of the husband’s direct and indirect interest in N Pty Ltd given it is not his alter-ego
Even though N Pty Ltd was not the husband’s “mere puppet”, the issue still remains as to whether the husband’s control of N Pty Ltd means that its full value should still be ascribed to him on the balance sheet.
Mr R’s opinion of the value of N Pty Ltd in 2011
Exhibit 34 is a letter dated 30 March 2011 sent from Mr R of R & Co to the husband’s long term accountant, Mr KK. Mr R was a valuer retained by the husband to provide an opinion about the value of the husband’s and T Pty Ltd’s A Class shares in N Pty Ltd. Contained in Exhibit 34 is a short description of Mr R’s qualifications which includes that he has over 27 years’ experience specialising in the automotive industry, having been personally involved in over 50 dealership sale transactions and conducted over 50 business valuations. There was a challenge to the use that could be placed upon Mr R’s report (see Atkins & Hunt and Ors [2019] FamCA 821 dated 7 November 2019). It was determined that the use should not be restricted but that there would be a question of what weight would be placed upon Mr R’s opinion. The valuation was obtained in the context of Mr J seeking to purchase a minority share in N Pty Ltd’s interest in H Pty Ltd (the operating company that carried on the business of the Group). In that document, Mr R expressed the opinion that the value of the A Class shares in N Pty Ltd in aggregate at 30 March 2011 were $11,333,701, with the husband’s shares pro rata being worth $5,666,850 and one T Pty Ltd share being worth $1,133,370 (So far as Mr R’s opinion might imply that T Pty Ltd had only one A Class share, it is uncontroversial that it had five). The valuation also noted that these shares have a “high degree of marketability and could be sold to an external purchaser”.
Mr R’s opinion in 2011 was consistent with Ms AAA’s approach discussed below. The rational for Mr R’s opinion is expressed as follows:
… All of the shareholders’ value in N Pty Ltd is attributed to the A class shares principally because they have all the voting power. Although they do not share in a winding up the prospect of a forced winding up is so remote that this prospect bears no impact on value. If members wished to voluntarily wind up the company, a decision which could only be made by the A shareholders, they would cash up the assets of N Pty Ltd and distribute fully franked dividends. It would be a decision of the A shareholders as to whom dividends would be distributed.
We have used the realisation of assets method under the Asset Approach to valuation to value the A Class shares...
Mr R relied upon the realisation of assets method under the Asset Approach. Associated with this exercise, Mr R had valued N Pty Ltd’s shares in H Pty Ltd at $1,164,964 which was one of the assets comprising his overall value of $11,333,701.
Counsel for the 2nd to 7th respondent submitted, however, that Mr R’s opinion was based on two incorrect assumptions:
a)That the husband would have been free to make a decision to cash up the assets of N Pty Ltd and make his own decision as to who to distribute fully franked dividends to prior to a winding up; and
b)That the N Pty Ltd shares had a “high degree of marketability and could be sold to an external purchaser”.
These arguments are at the heart of the dispute in the evidence between Ms AAA and Ms BBB.
In relation to Mr R’s opinion that the shares have a high degree of marketability, the respondents argue that N Pty Ltd’s Constitution stands in the way of offering shares to the market. Clause 35 of N Pty Ltd’s Constitution, provides that shares can be transferred to any member selected by the transferor subject to the absolute discretion of the board to decline to register the transfer without specifying any grounds (see Clause 31(a)).
Because the respondents have not been able to test Mr R’s opinion, particularly, in relation to the particulars of the information given by the husband about the value of real estate in 2011, the questions of what could be done on a winding up of N Pty Ltd and the external marketability of the N Pty Ltd A Class shares, I place little weight on Mr R’s opinion.
What do the experts say the shares in N Pty Ltd were worth?
The value of the husband’s interest in the N Pty Ltd shares in September 2015
Ms AAA and Ms BBB agree that the value of N Pty Ltd as at 15 September 2015, was $13,391,000. At that time, the valuation of assets (mostly real property) was approximately $5.9 million and the goodwill of the trading entities was approximately $7.5 million.
Ms AAA valued the husband’s shares in N Pty Ltd, as at 15 September 2015, in the sum of $13,391,000.
Ms BBB valued the husband’s shares at N Pty Ltd at either $2,598,189 (her preferred position being par value less a 2.5 per cent discount for lack of marketability) or $3,268,000 (being par value with a 30 per cent premium for control).
The current value of the husband’s shares in N Pty Ltd (having disposed of his A Class shares)
As already mentioned, as at 30 June 2018, the overall value of N Pty Ltd was $24,930,000. At this time, the valuation of assets (mostly real property) was approximately $14.5 million and the goodwill of the trading entities was approximately $10.4 million.
As at 30 June 2018, Ms AAA values the husband’s shares in N Pty Ltd at $24,930,000 (less a further minority discount to be determined by the Court). Ms BBB values the husband’s shares in N Pty Ltd at $3,771,000.
The current value of the husband’s shares in N Pty Ltd had the dispositions not been made
Had the dispositions of September 2015 not been made:
a)Ms AAA values the husband’s shares in N Pty Ltd as at 30 June 2018, in the sum of $24,930,000; and
b)Ms BBB values the husband’s shares in N Pty Ltd at either $4,836,000 (her preferred position being par value less a 2.5 per cent discount for lack of marketability) or $6,083,000 (being par value with a 30 per cent premium for control).
Discussion
The experts agree on the following matters:
a)The appropriate premise of value is to assess the value of the shareholders’ interests in N Pty Ltd assuming that N Pty Ltd and its subsidiary companies are going concerns
b)There is no known intention to liquidate N Pty Ltd in the short or medium term
c)It appears that at all relevant times, the directors of N Pty Ltd:
i) Have had equal voting rights at meetings of directors of the company
ii) Have not been obliged to declare dividends equally between holders of shares in different classes or on a pari passu basis between holders of shares within the same class
d)For at least the last 18 years, the shareholders of N Pty Ltd have been members of the same family (or related entities), and so N Pty Ltd can be considered to be a closely held family company
e)The “A” Class shares have voting rights only and no rights to receive dividends or to participate in the surplus assets of the company on a winding up. As such, an “A” class shareholder who holds no other class of share in N Pty Ltd would be unable to receive any cash flows from N Pty Ltd (by way of dividend or distribution of capital on a winding up). That said, with their voting rights, the “A” Class shareholders control the company and so can appoint/remove directors and ratify dividends as proposed by the directors
f)The “B” to “H” Class shares do not have voting rights. They have the right to receive dividends and the right to participate in the surplus assets of the company on a winding up on a pari passu basis, at which time there would be 10 share parcels (of 10 “B” to “H” Class shares each) that would participate equally in the surplus assets of N Pty Ltd
g)Dividends have been paid to all shareholding family members, irrespective of whether or not they hold “A” Class shares, since FY2003.
The experts also agree that the value of one or more of the A Class shares is NIL, if the holder owns no other class of shares in N Pty Ltd. However, the reality in this case is that the husband retained 10 C Class shares and T Pty Ltd retained 10 B Class shares in N Pty Ltd. At all relevant times and to the current date, all A Class shareholders have held non-A Class shares.
A fundamental difference between the valuers is that Ms AAA is strongly of the view that, given as at September 2015 the husband had effective control of N Pty Ltd, he held the whole of the value of the shares in the company. It is Ms BBB’s opinion that the issues of control should not be conflated with issues of value.
Ms AAA’s opinion
Ms AAA concludes that only the A Class shareholders have any control over the company as they hold all of the voting rights. It is her opinion that the value of the company is held by the A Class shareholders. She asserts that no other shareholding has voting rights or any control over the company and therefore, the non-A Class shares have no value.
In support of her opinion, Ms AAA points to the way dividends have been declared from 2003 to 2018, including specifically 2016 and 2017, where the majority of the declared dividends were paid to T Pty Ltd in which the husband still holds a 99 per cent interest (see paragraph 22 of Annexure 2B of Ms AAA’s report.)
Further, the dividends paid to the husband (and/or T Pty Ltd) for the period 2010 to 2017 were 69 per cent of the total dividends paid, with the remaining 31 per cent in total ranging between 2 per cent and 7 per cent with no consistency in payment to the non-A Class shareholders.
It was only in 2018, that N Pty Ltd paid each of the eight non-A Class shareholders the same dividend, namely, $30,000 each.
Ms AAA bases her opinion on the assumption that the A Class shareholders can cause N Pty Ltd to pay all future dividends to themselves to the exclusion of all non-A Class shareholders. Ms BBB asserts that Ms AAA’s opinion goes further and assumes that the A Class shareholders would actually do this.
Further, Ms AAA opines that the A Class shareholders could, on a winding up, thwart an equal distribution of the capital in N Pty Ltd to the non-A Class shareholders by declaring a substantial dividend to the non-A Class shares held by the A Class shareholders after the sale of the business and just prior to the winding up of N Pty Ltd, thereby, creating a situation where there was no surplus available for distribution to the non-A Class shareholders equally on a winding up. I accept that Ms AAA’s opinion is founded on the assumption that the A Class shareholders could do that unimpeded by any challenge from the non-A Class shareholders.
Ms BBB’s opinion
Ms BBB asserts that Ms AAA is being factually inaccurate when she states that the dividends declared up to 2017 were mostly paid either directly or indirectly via T Pty Ltd to the husband each year. That, however, misstates what Ms AAA has said. Ms AAA has talked about the gross averages. The history of the net profit in dividends paid is set out in a number of places in the evidence. Most conveniently, it can be found in Appendix C to the affidavit of Ms BBB filed 15 August 2019.
It is not controversial that in the 2001 and 2002 financial years, no dividends were declared by N Pty Ltd and in the 2004, 2005 and 2006 financial years, the husband did not receive any dividends from N Pty Ltd either directly or through T Pty Ltd. He received dividends in every other year between 2003 and 2018.
It was suggested to Ms BBB in cross examination that Appendix C evidenced no pattern of distribution of dividends in the years between 2003 and 2017. Ms BBB did not agree with that proposition and asserted there was a pattern. Senior counsel for the husband submitted that the pattern was a “random” one. That is semantics. There is no regular or intelligible form as to how the determinations were made to distribute dividends up to 2017. In many years, members of the family holding the same class of shares got totally different dividend distributions. Some got significantly greater distributions than others. Some hardly any. For example, Ms FF in the years between 2003 and 2013, received distributions in only four of the ten years, around $61,000 in all.
It was uncontroversial that such an uneven distribution of dividends was not unusual. Nor was the way that N Pty Ltd was structured unusual. It was aimed at achieving a number of outcomes, including effective control in the hands of the husband so long as he sought to exercise it; succession planning for working family members with expectations of ownership and providing for family members both those that were working within the business and those that did not.
Ms BBB opines that private family companies of this type are often structured in such a way where control rests with a few shareholders, while at the same time, the wealth generated by the company is intended for the benefit of the family more broadly, by way of dividends and capital rights on a winding up.
Ms BBB observed that in the financial years 2008 to 2011, some $576,000 of the dividends paid to the husband and T Pty Ltd were apparently applied to reduce the loan balances owed by the wife to N Pty Ltd immediately prior to the year end, so as to eliminate any loans that would be the subject of Division 7A of Subdivision D, Part III, of the Income Tax Assessment Act1936 (Cth) (see 4.9(b) of the Joint Statement). Ms AAA said, and I accept, that that observation is of no relevance. The fact is that these dividends were declared in the husband’s favour, albeit that the money had already been taken by the husband and wife prior to the dividends being paid.
Ms BBB’s opinion as to the value of shares on 15 September 2015, is based upon a number of considerations, which I set out with my comments in italics:
a)N Pty Ltd has been a closely held family company for a considerable period;
b)Dividends have been paid to all shareholding family members, irrespective of whether or not they hold “A” Class shares, since FY2003;
c)Over the period FY2001 to 2018, the shareholders who have held “A” Class shares have not received dividends in several years. In contrast, shareholders who have not held “A” Class shares regularly received dividends, ranging from $4,000 to $1,151,000 per annum;
However, the reference by Ms BBB to the distribution of $1,151,000 is actually a reference to a distribution in 2016 to T Pty Ltd. Given that that distribution was effectively to the husband, the point Ms BBB makes in relation to that substantial distribution is an argument against her own proposition. I note in passing that, at this point in time, T Pty Ltd as a result of the transfers by the husband in September 2015, has divested itself of its A Class shareholding;
d)Since 30 June 2015 [that is since the husband divested his A Class shares], there has been more a consistent pattern of dividend payments than previously. This may indicate that the future dividend policy of the directors of N Pty Ltd is to continue to pay dividends on the non-“A” Class shares equally;
Whilst that is generally true, the husband has still, in the 2016, 2017, 2018 financial years, received approximately 73 per cent of dividend distributions ($1,151,000 + $24,000 + $406,000 + $24,000 + 30,000 + $30,000) ÷ ($1,355,000 + $622,000 + 300,000);
e)The allocation of the value of N Pty Ltd with reference only to the proportion of “A” Class shares held by a particular shareholder places $Nil value on the shares held by six [including T Pty Ltd at the current time] of the 10 shareholders. These same six shareholders, including T Pty Ltd, received more dividends in FY2016 to FY2018 than the holders of the “A” Class shares. In these circumstances, these six shareholders are likely to have a reasonable and justified expectation, based on the past resolutions of the company, of receiving dividends from N Pty Ltd in future (i.e. after each valuation date). Because of this, they are also unlikely, as rational investors, to be willing to sell their shares for $Nil (or $0.01), which is the value ascribed to them in the AAA Reports;
That is true, but it is true because of the significant distribution to T Pty Ltd in 2016 of $1,151,000, which as earlier pointed out, was a distribution indirectly to the husband who is an A Class shareholder. The more general point that Ms BBB makes, however, is that these six shareholders are likely to have a reasonable and justified expectation, based on the past resolutions of the company, and in this regard, it is her opinion that each of the current non-A Class shareholders hold shares of equal value with the A Class shareholders and that all the B – H Class shares have the same value. It is difficult for me to agree with Ms BBB’s assessment that, for example, the expectations that Ms FF would have up to the 2015 financial year are the same expectations as some of the other shareholders in N Pty Ltd. I have no evidence from any shareholder of N Pty Ltd as to what they expect by way of dividend distributions;
f)The retention of profits and assets by N Pty Ltd is consistent with an intention by the directors to continue to build the wealth of the company over time rather than pay out all profits as dividends. If this continues, most of the capital wealth of N Pty Ltd will only be realised by shareholders when the company is wound up, at which time each of the holders of the 10 “B” to “H” Class shares is entitled to participate in the surplus assets of the company equally; and
g)There are legal responsibilities and duties of directors and majority shareholders pursuant to Corporations Act 2001, including sections 180, 181 and 254T that may limit the “A” class shareholders and directors from accessing the retained profits of N Pty Ltd for themselves, on an unfettered basis, as is the basis of the conclusions in the AAA Reports;
I accept that proposition, however, it may be far more difficult for minority shareholders to challenge annual dividend distributions when the company anticipates continuing to trade in the short to medium term given the provisions of Clause 10 of N Pty Ltd’s Constitution.
(Footnotes omitted)
Conclusion as to values
I find that it is not a tenable position to accept an expert opinion that asserts that the non-A Class shares do not have any value. The strongest reason for that is that I accept the proposition that to adopt a strategy of liquidating the assets of the company and distributing them by way of dividends to A Class shareholders prior to a winding up could be the subject of a successful challenge under the Corporations Act by the non-A Class shareholders. Consequently, I am not able to accept the valuation of the husband’s shares as asserted by Ms AAA.
Nor do I accept any valuations by Ms BBB that are based upon the notion that the A Class shares have no value. That is a flawed approach to the valuation of the A Class shares because at all times (before and after September 2015) all A Class shareholders have held non-A Class shares. Consequently, the A Class shares have to be valued, not only on the basis of the control which they deliver, but on the basis that that control includes, subject to the Corporations Act, being able to determine what dividends are paid to themselves (through their non-A Class shares) and what, if any, dividends are paid to the other non-A Class shareholders. Whilst that determination might be subject to a potential challenge by a minority shareholder, that has not happened to date in this closely held family company.
Having the A Class shares gives value and tangible rights which are demonstrated by the history over many years of the distribution of dividends to the husband and T Pty Ltd.
Ms BBB, however, did provide an alternate value to the non-A Class shares held by A Class shareholders on the basis that a premium be given to those shares arising from the husband’s total control pursuant to him holding all the A Class shares. Ms BBB provided a 30 per cent premium for control and provided the following rationale:
3.30A reasonable alternative method to the above, in my opinion, would be to value the 10 ‘C’ and 10 ‘B’ Class share parcels held by the Husband and T Pty Ltd … on the basis that these share parcels should be treated as minority parcels with de facto control. As such, each of these two share parcels should have a greater value than each of the minority share parcels held by shareholders who hold no ‘A’ Class shares. This ‘greater’ value can also be described as a ‘premium for control’. Premiums for control are observable in the public company market and arise on the announcement of takeover offers. This premium is the measure of the increase in the share price paid as a result of the takeover offer by the acquirer of a company, relative to the share price prior to the announcement of the takeover offer (this being a price that reflects the value of a minority interest with no control). This approach recognises that while the retained earnings of N Pty Ltd have been distributed for the benefit of all shareholders, one party (being the Husband) has had the absolute control of N Pty Ltd and has had the power to make these decisions.
3.31In my opinion, the appropriate premium that can be adopted … is the midpoint of the range of takeover offer premiums, which is broadly 20% to 40%.
Using that alternative approach, Ms BBB valued all the shares held or controlled by the husband on 30 June 2018 (assuming the dispositions had not been made) in the sum of $6,083,000 which represents 24.4 per cent of the current value of the company ($6,083,000/24,930,000).
Further, using that alternate approach, Ms BBB’s value of the shares held by the husband and T Pty Ltd as at 15 September 2015, giving a premium for control, was $3,268,000. That valuation again represented 24.4 per cent of the then value of the company at an agreed figure of $13,391,000. Ms BBB also gave a preferred value as at 15 September 2015, which provided a 2.5 per cent discount for marketability and no premium for control in the sum of $2,598,189. The difference between those two methods is $669,811 ($3,268,000 - $2,598,189) which gives some indication as to her assessment of the value of the control provided by holding all of the A Class shares.
Unfortunately, in the circumstances of this case, Ms AAA took an “absolute” position and did not engage with Ms BBB, in the alternative, on whether or not it was appropriate to adopt the mid-point of a range of premiums (20 – 40 per cent) selected by Ms BBB. That range was selected as one observable when takeover offers are announced in the public company market. Ms AAA did not offer any opinion, in the alternative, as to whether or not a 30 per cent premium was sufficient recognition for the fact that retained earnings have not been distributed for the benefit of all shareholders and one party (being the husband) has had the absolute control of N Pty Ltd and has had the power to make those decisions.
This is a tightly held family company. It might have been possible to conclude that a 30 per cent premium was inadequate to take account of the ability in the medium term for the controller of the A Class shares to determine how dividends are distributed. I am unable, however, to accept Ms AAA’s opinion which creates a premium equivalent to the total value of the shares in the company. Whilst in some circumstances it might be possible to form an independent view as to a value (i.e. one that was higher than that proposed by Ms BBB’s alternate valuation), I have insufficient evidence to embark upon any such analysis (Commonwealth v Milledge (1953) 90 CLR 157 at p 160 – 161 and following; Lenehan and Lenehan (1987) FLC 91-814; In the Marriage of Dunbar and Dunbar (1987) FLC 91-846) and I am left with Ms BBB’s opinion as the only viable evidence as to the value of the shares.
As a consequence, I conclude that the value of the husband’s direct and indirect shareholding in N Pty Ltd as at 7 September 2015, was $3,268,000 and the current value of his direct and indirect shareholding as at 30 June 2018, had the dispositions not taken place, was $5,993,000 ($3,057,000 + $3,026,000 - $90,000 that he received from his sons for those dispositions).
Further, and accepting Ms BBB’s valuation, I find that the value of the husband’s direct and indirect shareholding in N Pty Ltd as at 30 June 2018, without disturbing the dispositions made in September 2015, is $3,771,000.
Section 106B
The relevant part of s 106B of the Act is in the following terms:
(1)In proceedings under this Act, the court may set aside or restrain the making of an instrument or disposition by or on behalf of, or by direction or in the interest of, a party, which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.
…
(3)The court must have regard to the interests of, and shall make any order proper for the protection of, a bona fide purchaser or other person interested.
…
(4A)In addition to the powers the court has under this section, the court may also do any or all of the things listed in subsection 80(1) …
(5)In this section:
disposition includes:
a)a sale or gift; and
b)the issue, grant, creation, transfer or cancellation of, or a variation of the rights attaching to, an interest in a company or a trust...
In this case, there is no issue that:
a)There are proceedings under the Act;
b)There are dispositions; and
c)Those dispositions were made by a party.
The approach I take in this case to the consideration of s 106B, is the one articulated by Nicholson CJ in Halabi v Artillaga and Ors (1994) FLC 92-470 (“Halabi v Artillaga”) at 80,885:
… I think that the proper approach is to first determine whether the requirements of ss (1) have been satisfied, and if so, to treat the disposition as not having been made for the purpose of arriving at an appropriate order pursuant to s 79, and then having done so, to determine whether, having regard to the rights of the bona fide purchaser or person interested under ss (3), a discretion should be exercised to set the instrument or disposition aside. The exercise of such a discretion may well depend upon whether if this is not done there are sufficient funds available to the party who has made the disposition to satisfy the order without setting the instrument or disposition aside.
Section 106B(1) of the Act, has two relevant and distinct purposes. The first is to allow the adding back onto a balance sheet the value of the asset the subject of the disposition before deciding what is an appropriate property settlement order. Secondly, the section allows an order to be made to set aside a disposition if it is necessary in order to effect or enforce the property settlement order.
Are the requirements of s 106B(1) satisfied in this case?
Subsection 106B(1) of the Act, sets out two situations in which it will be enlivened, firstly, if the dispositions have been made with the intention of defeating an anticipated order in the proceeding (the first limb), or secondly, that regardless of intention, the dispositions were made which will have the likely effect of defeating an anticipated order (the second limb).
Anticipated order
Exhibit 25 is the wife’s Amended Notice of Appeal filed 31 July 2015 which, amongst other orders, sought that if the appeal was allowed that “order 1 made on 4 December 2014 be varied substituting the sum of $4,299,226 for the sum of $171,747”. It follows, that at the time of the dispositions, the husband was on notice of the pending appeal from Aldridge J’s orders, which if successful (as it was) would possibly lead to the Full Court re-exercising the primary judge’s discretion under s 79 or remitting the matter for rehearing.
Senior counsel for the husband argued that the mere filing of the wife’s appeal was not sufficient, in of itself, to enliven s 106B(1) of the Act, in circumstances where the husband had complied with all of the orders of the Court and on 16 April 2015, Aldridge J refused to stay his orders pending the wife’s appeal to the Full Court. Senior counsel for the husband argues that the husband was entitled to assume that Aldridge J’s order was correct. Whilst that might be true, the husband was not entitled to anticipate that that order was safe from challenge. It turned out not to be and that possibility could have been anticipated in September 2015.
Ultimately, the Full Court upheld the appeal and remitted the matter for rehearing where a new property settlement order might be made. The husband, at all times, knew that the wife was seeking a substantial property settlement order.
First limb
There has been some disagreement at first instance as to the formulation of the test in the first limb of s 106B(1) of the Act. I adopt the approach taken by Nicholson CJ in Halabi v Artillaga in respect of the first limb of s 106B(1) of the Act at 80,885. His Honour noted the views of Nygh J in Whitaker and Whitaker (1980) FLC 90-813 and Heath and Heath (1983) FLC 91-362 and Treyvaud J’s view in Gelley (No 2) (1992) FLC 92-291, before finding that the making of a disposition with the intention of defeating an anticipated order alone is insufficient to attract the operation of s 106B(1) and that in addition, a causal connection must be shown between the disposition in question and the likelihood of an anticipated order being defeated. His Honour further noted that the Full Court in Heath and Heath (No 2) (1984) FLC 91-517 at 79,194-79,195, expressly left the issue open as to whether such a causal connection need be shown. Nicholson CJ concluded at 80,885 that:
For my part, I have some difficulty in accepting a proposition that where an instrument is made with the intention of defeating an anticipated order, it cannot be set aside unless it is shown that it was likely to do so.
It seems to me that the section clearly contemplates two possibilities, one being that the instrument was made with the intention of defeating an order, and the second being that, regardless of the intention with which it was made, it did have the effect of being likely to defeat an anticipated order. I consider that if the necessary intention has been demonstrated there is nothing in the section which imposes the further requirement that the instrument is likely to defeat such an order…
Further, in In the marriage of Abdullah (1981) FLC 91-003, Baker J discussed the first limb of s 106B as it existed in s 120 of the Matrimonial Causes Act 1959 (Cth). At 76,084, his Honour referred with approval to a statement in Cameron v Cameron (1968) 12 FLR 22, where Lush J held:
Once it is established that a party making an instrument or disposition intended thereby to defeat an existing or anticipated order and that such intention had a substantial influence on the party's decision to make the instrument or disposition, it is immaterial that the party may have had other intentions and, if so, which intention was dominant.
Items 21 – 25: The wife’s credit card debts
The wife seeks that her credit card debts totalling $87,400 be included on the balance sheet. That debt consists of a St George MasterCard totalling $11,033.32; Westpac totalling $19,407.92; David Jones Store card totalling $8,896.46, Commonwealth MasterCard Diamond totalling $45,602.15; and American Express totalling $2,533.72.
In the three months immediately following separation, the wife withdrew over $22,000 on various credit cards. At the time she incurred these debts, she was still receiving a salary and most of her expenses were paid by the Group including the mortgage and rates on the B Street property where she was residing at the time and expenses associated with her motor vehicle and telephone.
The husband submits that as the wife had been provided with substantial financial support during this time and since separation, that she should be responsible for her own expenses.
It is unclear how much, if any, the current credit card debts relate to legal fees.
I shall not treat the wife’s current credit card debt as a debt for the purpose of assessing the net assets of the parties.
Items 26 – 32: Further liabilities incurred by the wife
Items 26 to 29 are loans that the wife had entered into with family and friends. The wife gave evidence at paragraph 173 of her trial affidavit that these loans were entered into to meet her living expenses. However, at item 50 of her Financial Statement filed 7 August 2018, she gives evidence in respect of items 26 to 29 at note 50 that “The amounts borrowed were applied to meet my legal fees”. The loans for legal fees should not be placed upon the balance sheet and due to the inconsistency in the wife’s evidence, I am unable to place these items on the balance sheet.
The wife also asserts that she owes a Dr EEE $1,650 (item 30 – although I am unable to locate any evidence about this); Dr CC $5,000 (item 31) and that she is in arrears in respect of council and water rates in the sum of $4,523 (item 32). In respect of those debts, senior counsel for the husband argued that they should be excluded for the same reason that the wife’s credit card debts should not be placed upon the balance sheet, namely, and absent any evidence to the contrary, those loans were entered into during a period that the wife was receiving spousal maintenance from the husband.
The wife was not receiving spousal maintenance from the husband from between July 2015 and March 2017, a period of approximately 20 months. It doesn’t appear that the debts at items 30 to 32 were incurred at that time.
Counsel for the wife argued that these items should be placed on the balance sheet in circumstances where the husband’s loan accounts with N Pty Ltd and H Pty Ltd (items 16 and 17) have been included and are made up of his own living expenses, tax obligations and spousal maintenance payments. However, apart from the issue determined in the wife’s favour in respect of item 16, these amounts are agreed.
I have insufficient evidence, absent agreement, to place these debts of the wife at items 30 to 32 on the balance sheet, in circumstances where these debts may have been incurred in a period where the wife was receiving spousal maintenance.
Whether an order altering interests should be made
The husband seeks that no property settlement order be made. This litigation has had an unfortunately protracted history. The parties cohabitated for 10 years and have been apart for eight years. During their time together, their financial dealings intermingled in various ways. I am generally mindful of the history of contributions and the existence of s 79(4)(d)-(g) considerations which shall be discussed below.
I find that it is appropriate, in this case, to make a property settlement order.
Contributions
Initial contributions
At the commencement of cohabitation, the husband was 65 years of age and a man of substantial wealth. He had his interest in the Group as a result of his shareholding in 50 per cent of the A Class shares and control of N Pty Ltd and T Pty Ltd. The husband also owned the S Street property and had an interest in the HG Superannuation Fund.
The wife owned the Town C property, which was then the subject to a mortgage with St George of approximately $79,000 and had an interest in superannuation.
Financial contributions
The husband made the majority of the financial contributions during the relationship.
Upon the parties’ cohabitation, the mortgage on the Town C property increased. The wife re-mortgaged the property in about November 2006 with CBA and obtained a facility to enable her to borrow a further $200,000, of which, she applied approximately $122,000 to discharge the St George mortgage. In December 2007, the wife obtained a second loan facility with CBA for $35,000, which she later extended to $190,000. The wife used those facilities between 2007 and 2010 on repairs to the Town C property totalling $15,000, lent $20,000 to a friend, Ms CCC (of which only $3,500 was recovered), gave a total of $140,000 to her son, paid $40,000 in relation to the Business E and applied a further $22,600 on debts owed by her at the time. The wife also used the facilities to pay off a $35,000 credit card debt which she had incurred from the costs of plastic surgery. The wife agreed in cross examination that she had not informed the husband that she had given her son that money or applied further funds to credit cards.
Non-Financial Contributions
The length of the cohabitation was 10 years. There were no children of the relationship. The wife carried out the role of homemaker during the parties’ relationship, being primarily responsible for cooking and the cleaning and maintenance of the former matrimonial home.
In 2000, when the husband suffered a heart attack and underwent triple by-pass surgery, the wife cared for him whilst he recuperated.
The wife was responsible for much of the design and construction of the renovations to both the S Street and B Street properties. The husband organised how those renovations were to be funded.
Exhibit 32 is a document entitled “Loan facility agreement between [the wife] and N Pty Ltd” which is dated December 2003. The wife, in cross examination, denied signing the loan agreement, although agreed that the signature looked like her own. She gave evidence that she first became aware of it when she received a letter of demand after separation in 2011. Contained in the 2008 loan agreement was an incorrect reference to the wife’s surname as being “Hunt”. Nothing of significance turns on whether the wife signed the loan facility agreement as there is no controversy that monies were taken from N Pty Ltd and pursuant to the order of Aldridge J on 4 December 2014, that the loan in the wife’s name has been discharged.
The renovations of the B Street property cost approximately $1.5 million. The property was purchased for $2 million and was valued at $1.8 million for the purposes of the proceedings before Aldridge J. The property was sold to the husband’s son for $2,170,000. It is clear that the parties made a substantial loss on the sale of the B Street property.
Post Separation Contributions
Contained at paragraph 88 of the husband’s trial affidavit are calculations he has made as to the amount of money the wife has received pursuant to interim orders from 7 May 2012 to 17 July 2015 (the date of the settlement of the B Street property). They include:
a)Loan repayments formally secured on the B Street property of $2,500 per week, totalling $415,000;
b)Spouse maintenance payments to the wife of $1,288 per week, totalling $213,935;
c)Payment of utilities, insurances and other household related expenses of $300 per week, totalling approximately $49,800;
d)Marketing costs and the preparation for the sale of the B Street property totalling $16,672; and
e)Payment of the registration, insurance and maintenance of the wife’s motor vehicle.
The wife did not receive any spousal maintenance between July 2015 and March 2017. Pursuant to an interim spousal maintenance order dated 24 March 2017, the wife has received $1,130 per week from the husband, totalling $160,460 (1,130 x 142 weeks calculated to 18 December 2019). Those payments have been ongoing to the date of this judgment.
The husband also paid sums pursuant to the orders made by Aldridge J on 4 December 2014 and also assumed liability for company loan accounts in the names of himself and the wife. The wife’s loan account was about $800,000. As mentioned above at [244], there was some controversy as to whether the wife had entered into the loan agreement with N Pty Ltd. I do not need to make any findings as to whether the wife was aware of the loan agreement with N Pty Ltd in her name. The husband has paid it out after N Pty Ltd had declared a dividend to T Pty Ltd to facilitate that happening.
Conclusion on contributions
The contributions heavily favour the husband. Based on those contributions, the net assets of the parties should be divided as to 90 per cent to the husband and 10 per cent to the wife.
Future needs – section 79(4)(d)-(g) considerations
As a result of the findings on contributions, the husband will have about $6,584,337 in net assets and the wife will have $731,593 in net assets.
The husband is retired and resides primarily in Country A.
The husband is currently 84 years of age and is in poor health, having suffered from a severe bout of pneumonia in late 2016. He gave evidence that since then he feels considerably weaker, more tired and has a persistent cough. He lives with his de facto partner, Ms DDD, who is 41 years old. In the husband’s Financial Statement filed 16 August 2019, he asserts that Ms DDD earns no weekly income (item 17) and that he incurs no expenses for her (item 34). I note that that evidence is inconsistent with the husband’s evidence at item 60, where he disposes to be providing Ms DDD with living and motor vehicle expenses of $420 each week “for providing home care”.
The husband’s income, excluding dividend payments, is in the sum of $4,631 per week which he receives from his salary and director’s fees, as well as rental income he receives from assets held by his superannuation fund.
The history of the husband’s receipt of dividend distributions has already been discussed. His sons now control the board upon which he still sits. The full value of N Pty Ltd, including the income stream from profits it might have provided to the husband if not for his disposal of the A Class shares has been placed on the balance sheet (items 3 and 4). That value acknowledges the control the husband had over N Pty Ltd prior to his disposal of the shares in September 2015. It would be double counting to take into account the potential future income stream the husband has available to him from the very profitable activities of N Pty Ltd and I do not have regard to any potential dividend stream the husband might have from his shares in N Pty Ltd as a s 79(4)(d)-(g) consideration.
The wife is currently 64 years of age. She has no formal qualifications. Since 2000, she has been treated by Dr CC and sees him every one to two weeks in respect of her mental health. The wife gave evidence that she suffers from frequent panic attacks, periods when she has depressed mood and finds it is difficult to cope with stress.
The wife says that her mental health condition makes her an unreliable employee and that this is one of the reasons she cannot work.
The wife has not adduced any expert evidence about her mental health. Further, senior counsel for the husband submitted that I would conclude from Dr C’s notes that at least in 2010, the wife had a capacity to work. I accept that the wife was working three days a week at that time. The wife’s evidence, however, is that at the current time, she goes to Mr Q’s business not to work but to visit a couple of days a week and because they are her friends.
I accept that the wife worked from 2000 to 2014 in differing capacities and degrees of intensity during periods of time where she suffered from poor mental health. However, I do not agree that this is a strong indicator of her employability going forward when regard is had to the fact that her roles in the Group and the Business E were in businesses controlled by herself and the husband and those circumstances no longer exist.
Senior counsel for the husband cross examined the wife on whether she was currently working at Mr Q’s new business. I find that the wife has not been in any paid employment for at least the past five years and that this is significant in terms of her future earning capacity.
From 2001 to 2006, the wife’s adult son of a previous relationship lived rent free at the B Street property.
I take into account that, as mentioned above at [224], the husband needs to make arrangements to satisfy a tax debt of $190,000.
I have earlier made reference to the debts which the wife owes when discussing the balance sheet (items 21 to 32). I am mindful of those debts that are not connected to the payment of legal fees.
Conclusion in relation to s 79(4)(d) – (g) considerations
Taking all of those matters into account, I am of the view that the wife should receive a further adjustment of 10 per cent on account of s 79(4)(d)-(g) considerations.
Just and equitable
The wife did not seek, as part of a property settlement order, a provision that would split the husband’s superannuation so that she would receive part of it.
Based upon the discussion above, in respect of contributions and s 79(4)(d)-(g) considerations, the husband would receive 80 per cent of the net assets and the wife would receive 20 per cent of the net assets.
That outcome could be achieved by distributing assets in accordance with the following table:
Husband gets 80.0%
Assets
Item No.
Description
Value
1
FFF Bank
$6,800
2
FFF Bank
$39,700
3
Shares in N P/L (including H Pty Ltd)
$3,017,000
4
T Pty Ltd
$2,976,000
9
Loan to GGG Pty Ltd
$1,778
10
Balance of funds held in controlled monies account
$20,489
14
Hunt Group Staff Superannuation
$1,614,599
Liabilities
Item No.
Description
Value
16
N Pty Ltd loan
$416,245
17
H Pty Ltd loan
$402,693
18
Loan from Mr J Hunt
$40,000
Husband pays wife
$964,683
Net Assets
$5,852,745
Wife gets 20.0%
Assets
Item No.
Description
Value
5
AW Street, Town C
$450,000
6
St George Bank
$5
7
Jewellery
$800
8
Household contents
$5,000
11
2009 motor vehicle
$6,850
12
Partial property settlement 15.6.12
$200,000
13
Property settlement 4.12.14
$174,747
Liabilities
Item No.
Description
Value
15
CBA home loan (Town C property)
$338,851
20
CBA bank a/c
$48
Wife receives
$964,683
Net Assets
$1,463,186
Standing back, I find that a distribution of assets in accordance with this table is appropriate and otherwise, just and equitable.
Determination of whether or not an order should be made under s 106B
The order that I shall make is that the husband pay the wife a sum of $964,683 within 2 months. The husband currently requires part of his income from his salary, director’s fees and rental income to pay his weekly expenses.
It is my expectation that the requirement that the husband pay the wife $964,683. would be funded by arrangements made with N Pty Ltd to unlock some of the value the husband holds in that company himself and directly through T Pty Ltd.
If the husband does not make the payment, then an issue arises as to how the wife would be able to receive that money. I am mindful of the fact that the husband has given evidence in relation to the difficulties he asserts he has encountered in relation to making arrangements through N Pty Ltd for the payment of the $190,000 tax debt and other liabilities. At paragraph 108 of his trial affidavit, the husband says “In light of my present difficulties obtaining agreement from the companies to advance funds to me (referred to below), I do not know how I am going to meet that payment when it becomes due”. The evidence about those difficulties was objected to and does not form part of the evidence.
Section 106B(3) of the Act provides that when considering to exercise discretion to make an order under s 106B(1), regard needs to be had in respect of the interest of a bona fide purchaser or another person interested.
As I earlier indicated, shares which have a value of at least $669,811 were transferred to Mr J, Mr EE and Mr D for a total sum of $90,000. There is no evidence as to how the sum of $90,000 was calculated. The husband hasn’t said anything about it. The affidavit of Mr D was silent on the topic. Mr J and Mr EE did not give evidence at the rehearing.
I find that each of the husband’s sons would have been well aware that a transfer to them of their father’s A Class shares at $100 per share was nowhere near a proper consideration and I find that Mr J, Mr EE and Mr D were not bona fide purchasers of those shares. The dispositions made to them by their father were substantially a gift. Having received that gift, I accept that they were “persons interested” within the meaning of s 106B(3) of the Act. However, the bona fides of a person interested will have an impact on the extent upon which the Court will extend to those persons the protection referred to in s 106B(3). I conclude that the interests of Mr J, Mr EE and Mr D do not stand in the way of an order being made under s 106B(1), if that is necessary, in order to implement the property settlement order.
I shall make an order pursuant to s 106B(1) of the Act as a default order that will operate if the payment by the husband to the wife which has been ordered is not made.
Spousal maintenance
The wife seeks an order that the husband pay her an amount of $2,421 per week by way of spousal maintenance. The husband seeks that the wife’s application be dismissed.
The law
Section 72(1) of the Act is in the following terms:
A party to a marriage is liable to maintain the other party, to the extent that the first‑mentioned party is reasonably able to do so, if, and only if, that other party is unable to support herself or himself adequately whether:
(a) by reason of having the care and control of a child of the marriage who has not attained the age of 18 years;
(b) by reason of age or physical or mental incapacity for appropriate gainful employment; or
(c) for any other adequate reason;
having regard to any relevant matter referred to in subsection 75(2).
Upon satisfying the conditions outlined in s 72(1) of the Act, the Court then may make an order pursuant to s 74(1) that it considers proper for the provision of spousal maintenance.
Relevantly, s 81 of the Act requires that the Court “shall, as far as practicable, make orders as will finally determine the financial relationships between the parties to the marriage and avoid further proceedings between them”. That expression, whilst considered when making a final periodic spousal maintenance order, must give way to the requirements of the Court to make an order that it considers proper (Bevan and Bevan (1995) FLC 92-600).
Some relevant considerations have already been discussed when matters under s 79(4)(d) – (g) were considered.
The wife’s needs
The wife is 64 years of age. She has been out of the workforce for at least the past five years and has been relying upon a spousal maintenance order being paid by the husband for the majority of that period.
As already discussed, the wife describes in her trial affidavit her difficulty in coping with stress, that she suffers from frequent panic attacks and that she has periods when she has depressed mood. The wife says that her mental health conditions make her an unreliable employee and that this is the reason she cannot work. No evidence (apart from a few notes that were made exhibits) was adduced from the wife’s treating medical practitioner.
Apart from the spousal maintenance which the wife receives from the husband, the wife receives $350 per week by way of rental income from the Town C property.
The wife currently claims that she has weekly expenses in the sum of $1,767. The most significant of those expenses is a mortgage repayment on the Town C property in the sum of $506 per week. The current mortgage on the Town C property is in the sum of $338,850. With the monies received from the property settlement order, the wife could discharge that debt and eliminate that weekly expense of $506.
The wife also claims expenses on minimum weekly repayments on credit cards at the sum of $187 per week (item 30 on the wife’s Financial Statement). Those debts total $87,471 and could be paid out from the monies received from the property settlement order, thereby, eliminating those weekly payments.
Senior counsel for the husband asked the wife questions in relation to her mortgage repayments and why she was not living at the Town C property. He did not, however, challenge the wife in relation to the claims she made for her personal expenses totalling $935 each week. Some of those expenses might be considered somewhat excessive and for example, there is no explanation given as to why the wife pays a woman $30 per week to look after her peacock.
I take into account that the wife will receive a property settlement order in the sum of $964,683. I have already indicated that some of it could be used to pay off the mortgage on the Town C property and credit card debts. The wife has borrowed an amount of $327,000 from friends for the purposes of the payment of legal fees. She also, otherwise, owes lawyers and accountants about $334,239. The majority of those debts, if paid by the wife, would leave her with an unencumbered property but the sum to be paid by the husband to the wife under the property settlement order would be expended. It might be argued that debts relating to borrowings for legal fees should be disregarded. Even if I did so, I find that this is not a case, where the dimensions of the property settlement order prevent the wife from demonstrating that she is unable to support herself adequately (see In the Marriage of Mitchell (1995) FLC 92-601; compare In the Marriage of Clauson (1995) FLC 92-595).
Making some allowance for an overestimate of her weekly personal expenses, I assess the wife’s reasonable need for spousal maintenance to be in the sum of $550 per week on the following basis:
Claimed weekly expenses $ 1,767
Less mortgage payments 506
Less credit payments 187
Less rent received from the Town C property 350
$ 724
I have then reduced the amount of $724 to $550 on the basis that some of the wife’s personal expenditure as claimed is at a level that I consider excessive.
The husband’s capacity to pay
In relation to the husband’s capacity to pay, the husband has filed a Financial Statement on 16 August 2019. The husband asserts that his income (excluding dividend payments) is in the sum of $4,631 per week which he receives in the following form:
Salary $ 1,000
Director’s fees 878
Superannuation contribution 83
Rental income from assets in the husband’s superannuation fund 2,670
$ 4,631
The husband also receives dividends from time to time which he says are not being paid on a weekly basis. Declared dividends are usually allocated towards Division 7A loan repayments.
The husband currently has Division 7A loans with N Pty Ltd in the sum of $904,638 and with H Pty Ltd in the sum of $606,566 (total $1,511,204). Some of those borrowings have been for legal fees. As set out above, parts of those loan accounts (for N Pty Ltd $416,245 and for H Pty Ltd, $402,693) have been taken into consideration when the property settlement order has been made. In the past, dividends have often been declared from profits of the business operations in order to attend to responsibilities under Division 7A loans. I am confident for the purposes of this application, looking to the future and taking into account that the husband is still a member of the board of a tightly held family company, that those arrangements will continue. Had the husband not made the dispositions that he did in September 2015, he would still be in control of N Pty Ltd. Consistently with the submissions made by the 2nd to 7th respondents in respect of the alter-ego argument, the husband’s continuing shareholding in N Pty Ltd gives him real rights to expect regular dividend distributions. I shall, for the purposes of this analysis, ignore the receipt of income from dividends and the husband’s responsibility for maintenance of Division 7A loans. For those reasons also, I find that the husband will not have a problem meeting the payment to the wife in the sum of $964,683, particularly, in circumstances where I have made an order under s 106B(1) of the Act, should that payment not be made.
I anticipate that the value that the husband still has in his N Pty Ltd shares will enable him to make arrangements with N Pty Ltd for the payment of $964,683 to the wife without him having to interfere with the income earning assets he holds in his superannuation fund. If, however, the husband chooses to liquidate assets in his superannuation fund in order to pay the property settlement order, that decision by him, if it leads to a loss of income and given the value of the interest he holds in N Pty Ltd, would not be a circumstance of a kind referred to in s 83(2)(a)(ii) of the Act to justify an application by him to decrease any spousal maintenance order which is made.
The husband gives evidence in relation to his personal expenses. In summary, they are:
Income tax $ 496
Rent 275
Health insurance 135
Part N expenses 2,275
$ 3,181
The husband’s personal expenses are higher than those of the wife. The husband’s personal expenses of $2,275 per week can be compared with the wife’s personal expenses of $935 per week. This is partly a result of the husband claiming higher personal expenses (for example, the husband claims $350 per week for food whereas the wife claims $250 per week; the husband claims $100 per week for clothes and shoes and the wife $30 per week). Also included in the difference is expenses claimed by the husband for making trips back to Australia and an amount of $420 per week in relation to his current de facto partner. I have referred above to the inconsistency in the husband’s evidence in support of Ms DDD.
Without getting into whether the husband’s claim for personal expenses are reasonable and accepting, for argument’s sake, the husband’s personal expenses as asserted ($2,275 per week), the husband has a capacity to pay in the order of $1,450 per week ($4,631 – $3,181).
Accordingly, the husband has the capacity to pay a spousal maintenance order to cater for the wife’s reasonable needs.
A final spousal maintenance order will be made in the sum of $550 per week to be paid by the husband to the wife, the first payment being within seven days of the date of these orders.
I certify that the preceding two hundred and ninety-six (296) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watts delivered on 18 December 2019.
Associate:
Date: 18.12.2019
SCHEDULE 1
The wife relied upon the following documents:
Further Amended Initiating Application filed 10 July 2017;
Affidavit of the wife filed 9 October 2018 (“the wife’s trial affidavit”);
Affidavit of the wife filed 7 August 2019;
Financial Statement of the wife filed 7 August 2019;
Affidavit of Mr JJJ filed 30 January 2019;
Affidavit of Mr KKK filed 20 November 2018;
Valuation report of Ms AAA dated 26 June 2019;
Supplementary valuation report of Ms AAA dated 31 July 2019; and
A further short report of Ms AAA dated 18 November 2019 (Exhibit 50).
SCHEDULE 2
The husband relied upon the following documents:
Response to Further Amended Initiating Application filed 28 July 2017;
Affidavit of the husband filed 24 December 2018 (“the husband’s trial affidavit”);
Affidavit of the husband filed 16 August 2019;
Affidavit of the husband filed 3 October 2017;
Financial Statement of the husband filed 16 August 2019;
Affidavit of Ms BBB filed 15 August 2019;
Valuation report of Ms BBB dated 15 August 2019; and
A further short report of Ms BBB dates 19 November 2019 (Exhibit 51).
SCHEDULE 3
The 2nd to 7th respondents relied upon the following documents:
Affidavit of Mr LLL filed 14 December 2018;
Affidavit of Ms BBB filed 15 August 2019; and
Affidavit of Mr D Hunt filed 12 September 2019.
SCHEDULE 4
Pursuant to the orders made by the Court on 21 November 2019:
Senior counsel for the husband and counsel for the wife provided a statement containing their respective analysis in relation to a specific item on the balance sheet (which I now mark Exhibit 65);
Counsel for the wife provided written submissions in respect of the written and oral arguments of counsel for the 2nd to 7th respondents (which I now mark Exhibit 66); and
Senior counsel for the husband and counsel for the 2nd to 7th respondent provided written replies in respect of counsel for the wife’s submissions in Exhibit 66 (which I now mark Exhibit 67 and Exhibit 68, respectively).
Key Legal Topics
Areas of Law
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Family Law
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Equity & Trusts
Legal Concepts
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Remedies
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Statutory Construction
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Appeal
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Fiduciary Duty
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