BAILEY & BAILEY
[2018] FamCA 318
•9 May 2018
FAMILY COURT OF AUSTRALIA
| BAILEY & BAILEY | [2018] FamCA 318 |
| FAMILY LAW – PROPERTY – TRUSTS – where the husband, his brothers and their children are specified beneficiaries of a discretionary trust – whether the trust is a sham – whether the trust should be treated as an alter ego of the husband – where wife seeks that assets of the trust be included in the property pool – where wife seeks a Kennon adjustment – where wife makes an application for spousal maintenance - where trust is found to be not a sham or alter ego of the husband – where trust is found to be a financial resource of the husband – where court finds no basis for wife’s Kennon claim – where wife’s application for spousal maintenance is dismissed. |
| Family Law Act 1975 (Cth) s 72 |
| MacDowell and Williams [2012] Fam CA 479 Ascot Investments Pty Ltd v Harper and Harper [1981] FLC 91-000 Gillard & Gillard and Anor [2016] FamCA 841 Noogle &Noogle [2017] FamCA 140 Britt & Britt [2017] FamCAFC 27 Bevan & Bevan (1995) FLC 92-600 |
Grant T Riethmuller, “Discretionary trusts and family property disputes” (MPhi Thesis, University of Melbourne, 2016)
Geoff Y, “Fast Cars … Discretionary Trusts: Property of the Parties or a Financial Resource” – paper presentation to the Eleventh Annual Family Law Conference, Palazzo, Gold Coast 27 July 2017
| APPLICANT: | Mr Bailey |
| RESPONDENT: | Ms Bailey |
| FILE NUMBER: | HBC | 958 | of | 2016 |
| DATE DELIVERED: | 9 May 2018 |
| PLACE DELIVERED: | Hobart |
| PLACE HEARD: | Hobart |
| JUDGMENT OF: | Benjamin J |
| HEARING DATE: | 29, 30 & 31 January 2018 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Ayliffe SC |
| SOLICITOR FOR THE APPLICANT: | Blissenden Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr Trezise |
| SOLICITOR FOR THE RESPONDENT: | Dobson Mitchell & Allport |
ORDERS
The wife may elect to acquire the husband’s interest in M Street in Suburb T (‘the T Property’) and in the event that she does:-
(a)the wife pay to the husband the sum of $50,434 within 60 days from the date of these orders;
(b)upon such payment and the wife will secure the release of the husband from his personal guarantees and covenants in respect of the mortgage to Q Bank of about $414,131 over the T Property;
(c)the husband shall at the same time transfer his interest in the T Property to the wife;
(d)should the wife not make the election or pay the said sum to the husband and/or fail to secure the husband’s release from the mortgage, then order 3 shall apply instead of the provision for payment and vesting of property to the wife provided by this Order; and
(e)any such acquisition under this order is to be regarded as an acquisition pursuant to the Family Law Act 1975 (Cth).
The husband shall pay to the wife the sum of $30,943:-
(a)within 60 days from the date of this Order if the wife complies with order 1 above (and the sum of $30,943 may be deducted by the wife from the sum she would otherwise pay to the husband under Order 1); or
(b)if the wife does not comply with Order 1 then the husband shall pay the said sum out of his share of the proceeds of sale of the T property, if it is sold pursuant to Order 3.
Within 65 days from the date of these Orders the parties do all acts to sell the properties at U Street in Town P (‘the P Property’) and the T Property (unless the wife has complied with Order 1 above in which case this Order will only apply to the P property ) and:-
(a)The selling agent for the property/properties shall be such selling agent or agents as the husband and wife may from time to time agree or in default of such agreement:-
(i)Either the husband or the wife may request the President for the time being of the Real Estate Institute of Tasmania or his nominee (hereinafter referred to as ‘the arbitrator’) to determine the matter in dispute; and
(ii)The costs of the arbitrator’s determination shall be borne equally between the husband and wife.
(b)The listed sale price or reserved price and method of sale and manner of advertising for sale of the property/properties shall be as agreed between the husband and wife and in default of such agreement:-
(i) Either the husband or the wife may request the President for the time being of the Real Estate Institute of Tasmania or his nominee (hereinafter referred to as ‘the arbitrator’) to determine the matter in dispute; and
(ii) The costs of the arbitrator’s determination shall be borne equally between the husband and wife.
(c)In the event that the property/properties are offered for sale by way of auction the husband and wife shall each pay and be responsible for the payment of one-half of the auctions expenses.
(d)Both the husband and wife shall co-operate in every way with the selling agent in relation to the sale of the property/properties, including allowing inspection of the property/properties at times reasonably requested by the selling agent and will ensure that the property/properties are in a neat and clean condition at the time of inspection by the prospective purchasers.
That the proceeds of sale of the properties referred to in Order 3 shall be disbursed as follows:-
(a)First, to pay all costs, commissions and expenses of sale and to pay any Council and water rates outstanding in respect of the property/ies;
(b)Second, in respect of the sale of the T property to discharge the mortgage registered against the title to that property of about $414,131 together with any discharge costs and the like;
(c)Third, in respect of the sale of the P property to pay $139,999.77 in repayment to the S Bank line of credit (secured over one or both of the properties R and N);
(d)Fourth, to pay or adjust the net proceeds of sale of those properties equally to the parties subject to any deductions referred to in these Orders: and
(e)Fifth, the wife shall reimburse the husband out of her share of the proceeds of sale the sum of $4,466 being the wife’s share of valuation fees charged by Valuer 1 and Valuer 2 and the cost of production of documents by Firm 3.
Pending completion of sale of the T property and the O property:-
(a)The wife shall be entitled to reside in the T property to the exclusion of the husband;
(b)The wife and husband shall be each entitled to receipt of one half of the rental payments paid in relation to the O property and each shall be equally responsible for and shall pay as they fall due one half of all outgoings referable to that property;
(c)Neither party shall encumber the title to either the T property or the O Property without the consent of the other party;
(d)The parties shall each pay one half of instalments due under the Q Bank Mortgage registered against the titles to both properties when they fall due for payment; and
(e)The wife shall be solely responsible for the payment of all other outgoings referrable to the T property.
The wife shall retain as her sole property:-
(a)Motor vehicle 1 registration number … in her possession;
(b)The furniture and household contents presently situate at the T property;
(c)All furniture and household contents belonging to the wife at the date of this Order situate at the P property;
(d)All monies standing to the credit of bank accounts in the sole name of the wife;
(e)Motor vehicle 2 registration number … in her possession;
(f)Jewellery in the wife’s possession given to her by the husband;
(g)The horse; and
(h)The caravan in the wife’s possession.
The husband shall retain as his sole property:-
(a)The shares in his name in Mr Bailey Pty Ltd ACN … ATF R Trust;
(b)All monies standing to the credit of bank accounts in the sole name of the husband or under his control;
(c)The proceeds of the offset account in the joint name of the husband and wife with Q Bank, account number ending in …7
(d)The Z Bank investment in the sole name of the husband;
(e)The boat and trailer in his possession;
(f)A camper trailer in his possession; and
(g)The husband’s superannuation entitlements with Superannuation 1 and Superannuation 2.
That save as is otherwise provided for herein, the husband and wife each releases in favour of the other party any claim they may otherwise have to an interest in, ownership or possession of any real or personal property presently registered in the name of or in the possession of the other party and to any debt, damages or other sum due or alleged to be due by the other party to that party.
All extant applications in a case are dismissed.
10.All subpoenaed documents be returned to the persons or institutions from which they emanated and all exhibits are returned to the person or persons who tendered the same.
IT IS CERTIFIED
11.Pursuant to Rule 19.50 of the Family Law Rules 2004 (Cth) it was reasonable to engage senior counsel and counsel to attend.
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 Bailey & Bailey 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 HOBART |
FILE NUMBER: HBC 958 of 2016
| Mr Bailey |
Applicant
And
| Ms Bailey |
Respondent
REASONS FOR JUDGMENT
INTRODUCTION
Mr Bailey (‘the husband’) is the sixth generation of a family who have been continuously farming their R Property since 1850, totalling ownership and work over 168 years. When this family commenced their farm business, convicts were still being transported to the then Colony of Van Diemen’s Land as punishment imposed by English Courts. Transportation of convicts would end in 1853 and the Colony’s name was changed to Tasmania in 1856.[1]
[1] Transportation of Convicts to Tasmania ended in 1853 and on 23 October 1854 the Legislative Council of Van Diemen’s Land voted to forward a petition to the Queen Victoria to take the necessary steps to substitute the name of the Colony to Tasmania in lieu of Van Diemen's Land. As directed by the Order in Council of the United Kingdom, the name change was proclaimed to take effect on 1 January 1856. To give effect to this change the then Colonial Legislative Council passed An Act To Obviate Any Doubts Which Might Otherwise Arise From The Change In The Name Of The Colony Of Van Diemen's Land To Tasmania (19 Vic, No 17).
People’s lives in their holding, acquisition, conservation and maintenance of property can be complex; it is unable to be accommodated by any simple or even complex formulas.
This case is about the division of property, which is made complex by the Trust which holds the R Property and the question of whether that Trust is property of the husband, a financial resource or otherwise. To add to the complexity, Ms Bailey (‘the wife’) asserts that her contributions should be adjusted in the light of the alleged violence perpetrated on her by the husband. In that respect there are significant issues of credit between the parties.
The husband and the wife commenced cohabitation in February 2012, married in January 2013 and separated in September 2015. Their relationship subsisted for the relatively short period of three years and seven months.
They are engaged in proceedings in regard a claim by the wife for an adjustment of property and for spousal maintenance.
THE ISSUES
There are a number fundamental issues to be determined in these proceedings to enable determination of the various claims under the Family Law Act 1975 (Cth) (‘the Act’):-
(a)Whether the farming properties or part of them is property of the parties to the marriage or either of them for the purposes of s 79 of the Act given the nature and given the terms of the 6 August 1969 Trust Deed between the husband’s father and the then trustees of the fund. Alternatively, whether the assets or part of the assets of the Trust effectively owned or controlled by the Trust are a financial resource of the husband;
(b)Having determined the question of whether the farming properties are property or financial resources within the meaning of the Act, to adjust property between the parties;
(c)Whether there is substance to the wife’s assertions that the husband was violent to such an extent that it adversely impacted upon her ability to contribute to the marriage. If that was established what should flow from that circumstance;
(d)The other relevant considerations as to contribution and relevant factors contained in s 75(2) of the Act;
(e)Once the above questions have been determined then there is the overall determination of the adjustment of property, if any, between the parties; and
(f)Finally, to determine the wife’s maintenance application in accordance with the law. The wife seeks spousal maintenance in such sum as the Court considers proper, presumably having regard to the level of financial support that the husband has provided to her since their separation in September 2015.
The significant focus of the three day hearing was in relation to the nature of the farming properties and how they ought to be treated in the context of this property claim.
BACKGROUND
The husband is aged about 54 and has been a farmer all of his life. He operates a farming business on a property called R (‘the R Property’). He is in good health. The evidence is, and is not challenged, that the husband has a modest income and I have had regard to the details of that income.
The husband has been married three times and has two children from his former wife: K aged 17 and E aged 14. These children primarily live with their mother and spend time with the husband.
The husband has re-partnered and presently lives in a de facto relationship with Ms L, aged 46. That relationship commenced in May 2017. Ms L has the care of her daughters aged 16 and 10 who live with her and the husband in the house on the R Property. These children do not have contact with their father who is assessed to pay $500 per month in child support.
Ms L is not engaged in paid employment, but provides significant assistance to the husband in terms of his operation of the farm.
The wife is aged 35. She has the care of the three children of previous relationships namely her son H aged 14, daughters D aged 10 and J aged 7. The wife is in good health and is engaged in the full time care of her three children.
There are no children of the marriage between the husband and the wife.
The wife is in receipt of a carer’s allowance. During the marriage she undertook study towards a degree and on completion of that course she has undertaken some unpaid work and private work. The wife asserts that she has been unable to find employment in that field. In addition it is likely that she undertakes some work in another industry.
The husband and wife commenced living together in February 2012 at the N Property and subsequently married in 2013. The parties separated on 7 September 2015 after having been in a relationship for about three years and seven months. Their marriage was dissolved by a divorce order made in 2017.
During the course of their relationship the parties moved from the N Property to a residence on the R Property in June 2013.
In August 2013 the wife purchased a property at U Street, Town P (‘the P Property’) which had been owned by her father. I accept the evidence of the husband that the total cost of acquiring that property was some $145,965 of which $5,966 was provided by the wife and the balance of about $140,000 was provided by the husband, drawn against his S Bank line of credit.
The P Property is owned by the wife and the liability arising from its purchase is included as part of the husband’s liability with regard to his line of credit with S Bank, which as at 31 December 2017 stood at $1,111,550.
The husband’s business has been paying the interest on that loan since its acquisition and continues to do so. He arranged for the wife to pay rates and insurance; the wife’s evidence is that this ended in 2016. The situation is not clear. I have assumed that the rates and insurance continue to be paid by the wife.
The P Property was and seemingly remains tenanted. For the period between August 2013 and December 2013 the rent was paid to the S Bank line of credit. Since that time it has been paid to the wife. The P Property now has a value of $185,000 which is a net increase in value of about $39,000.
In December 2013 the husband and wife agreed that the rent paid by the tenant of about $200 per week for this property be paid to the wife and that the husband would otherwise pay housekeeping bills. The husband asserts, and I accept, that the wife said that she would be responsible for the payment of rates and insurance on the P Property. In terms of the payment of the loan on the P Property, I have had regard to that capacity of the husband in terms of both a property adjustment and the wife’s maintenance application.
In 2013 the wife wished to move to Hobart for job opportunities and for the education of her children. The wife found a property at Suburb T (‘the T Property’) and the husband and wife purchased that property. The purchase price was $445,000 plus stamp duty and other expenses. It now has an agreed value of $515,000, being an increase in value of about $70,000. That property was funded by way of a loan through the Q Bank.
Since separation the loan repayments in respect of the T Property have been met by the husband, together with council rates and other expenses. I have had regard to his in terms the husband’s earning capacity and in respect of the wife’s maintenance application. After the T Property was acquired, the husband, the wife and her three children moved to that home and the husband’s two children, from time to time, spent some time at that home.
Towards the end of the relationship I accept that the husband spent more time on the R property than at the T Property. I accept the evidence of the husband that he has paid some fees for the wife’s son to attend a private school in Hobart and has paid some school fees in relation to one of the wife’s daughters attending a private school.
I accept that during cohabitation the husband made contributions as set out in paragraph 102 of his trial affidavit,[2] including the purchase of Motor vehicle 1 for the wife at a cost of $32,000 and, a caravan, a horse and an expensive engagement ring.
[2] Husband’s trial affidavit filed 17 November 2017.
I also accept that during the course of the relationship the husband has effectively paid the mortgage repayments in respect of both the T and P properties, paid health insurance for the wife and her children at least until April 2016, paid water rates and gas accounts at the T Property up to 2016 and some Paypal expenditure. I accept the husband’s evidence in that regard as set out in his trial affidavit.[3]
[3] Ibid, paragraph 109.
The husband also asserts that he paid significant monies in relation to upgrading the home at the R Property for the benefit of the wife. Much of those have remained in respect of that property which the husband is entitled to occupy, at least into the medium term future.
I accept that there was contribution by the wife’s father and brother in terms of the reduced costs of painting and that there was some new furniture, whitegoods and the like also purchased. Some of those possessions remain with the wife, some of them remain with the husband.
After the parties separated the husband commenced property proceedings in November 2016.
In these reasons any statement of fact is to be regarded as a finding of fact unless the contrary is clear from the context.
THE EVIDENCE
The husband relied upon:-
(a)his affidavit filed 17 November 2017 (‘husband’s trial affidavit’);
(b)his affidavit filed 29 January 2018 (‘husband’s affidavit in response’);
(c)his statement of financial circumstances filed 17 November 2017;
(d)an affidavit of Mr Y filed 17 November 2017;
(e)an affidavit of Robert Blissenden filed 29 January 2018;
(f)balance sheet filed 24 January 2017; and
(g)the joint tender bundle of documents (7 Volumes – Exhibit E3).
The wife relied upon the following:-
(a)her affidavit filed 10 January 2018 (‘the wife’s trial affidavit’);
(b)her financial statement filed 10 January 2018; and
(c)the joint tender bundle of documents (7 Volumes – Exhibit E3).
In addition the parties tendered a number of documents namely:-
Exhibit E1: Husband’s case outline – the husband’s case outline was admitted into evidence not as to the facts asserted in it, but as to the approach adopted by his counsel. There is an exception in that where there is consistency as to dates between the husband’s case outline and the wife’s case outline they are treated as agreed facts;
Exhibit E2: Wife’s case outline – the wife’s case outline was admitted into evidence not as to the facts asserted in it, but as to the approach adopted by her counsel. There is an exception in that where there is consistency as to dates between the husband’s case outline and the wife’s case outline they are treated as agreed facts;
Exhibit E4: This was an agreed balance sheet and while the parties had agreed to the value of all of the assets in that document, there were issues regarding a number of them.
Exhibit E5: Income tax information of the husband for the year ended 30 June 2017. This showed he had a taxable income of about $61,100;
Exhibit E6: The expenditure analysis from Mr Y up to the end of 2017;
Exhibit E7: A series of admissions in relation to financial material;
Exhibit E8: The husband’s list of authorities;
Exhibit E9: An updated Part N of the husband’s financial statement showing his weekly expenditure in accordance with that part;
Exhibit E10 : The special purpose financial statements of the R Trust (the husband’s farming business) for the year ended 30 June 2017. This shows that the husband over the last two years has earnt between $91,000 and $115,000 in livestock trading and between $196,000 and $207,000 in terms of wool sales. There are some other smaller amounts in terms of contracting crop sales and some fuel rebates;
Exhibit E11 : Triage nursing records in relation to an alleged assault by the husband on the wife in November 2012;
Exhibit E12 : The costs notice showing that the husband had paid to his solicitors about $49,000 in legal fees and about $3,300 in barristers’ fees plus a valuation fee of $8,932. The source of funds for those payments of about $60,000 comprised of $3,316 from the sale of shares of the husband and the balance drawn against the S Bank line of credit;
Exhibit E13 : The wife’s statement of costs totalling about $30,000;
Exhibit E14 : A series of emails between the husband and the wife dated 21 August 2016, 23 May 2016 and 11 October 2016;
Exhibit E15 : The wife’s Commonwealth Bank Smart Access Account statements;
Exhibit E16 : The wife’s Commonwealth Bank Netbank Saver Account statements; and
Exhibit E17 : The wife’s carer allowance details.
THE HUSBAND
The husband gave evidence in terms of his trial affidavit, an affidavit in response, his November 2017 financial statement and amended Part N to his financial statement.[4]
[4] Exhibit E9.
The husband is now living with Ms L and her two children aged 10 and 16, and has done so since May 2007. Ms L and her children live with the husband on the R Property and she receives some Centrelink benefits and child support. The husband provides accommodation and receives significant assistance from her on the farm.
The husband gave evidence that the sheep are sheared towards the end of each year. Shortly after that the wool is sold and the proceeds are banked into his account. That income substantially sustains the family until the next year’s wool sale.
The husband said that he has been farming for 30 years, having left school in year 12 and went straight to work on the farm. I accept that he is a highly qualified and experienced pastoralist.
The husband gave evidence about the division of the farming business in 2007/2008 and 2009 with his brother Mr G Bailey, and about the husband’s inadequate knowledge about the Trust and the structures his father and grandfather had set up.
He gave evidence that after the failure of his second marriage he provided a property settlement to his former wife of $165,000 in November 2009. This was funded out of the then loan accommodation available to the husband and his brother secured over the farming properties.
Similarly, the husband provided evidence in respect of the breakup of the business between him and his brother Mr F Bailey and their subsequent agreement to use different parts of the pastoral properties.
The husband was cross-examined by counsel for the wife and his evidence tended to be accurate, thoughtful and considered. He made admissions against interest. The assertions he made as to financial matters generally stood up against the objective documents which were adduced.
During the course of the relationship the husband assisted the wife to undertake her study towards a diploma. I have considered that in terms of contribution.
It was asserted that the husband was violent to the wife throughout the marriage and he was cross-examined in relation to those allegations. He admitted two episodes of violence. The first was at the time of separation which he frankly conceded was wrong and the second was at a time when he was being attacked by the wife.
On balance, I prefer the husband’s evidence over the wife’s in respect of the alleged violence, particularly in terms of the language that was used which was, in many ways, confirmed in the documents that were either annexed to affidavits or exhibited.
There was an incident which is set out in paragraphs 36 through to 47 of the wife’s trial affidavit. The husband provided responses to that material in paragraphs 14 through to 24 of his affidavit in response.
When giving evidence the husband presented as being straight forward and thoughtful. As I indicated before, he made admissions against interest, such as the punch to the wife’s stomach after he was attacked and to which he referred in his affidavit in reply.
I am satisfied that his evidence is generally reliable given my observations of him in the witness box and under cross-examination and the documents which are available to the Court.
Mr Y
Mr Y is a chartered accountant who is one of the trustees of the Bailey Children’s Trust (‘the Children’s Trust’). He provided evidence contained in his affidavit filed 17 November 2017.
Mr Y gave evidence in chief that he was aware of the departure of his brother G from the farm business, but was not aware that the two pastoral properties had been put on the market for sale. He did not agree to the sale and would not have agreed to the transfer of the property to anyone else. Mr Y has been a trustee of the Children’s Trust since 1995.
Mr Y has not ever signed any of the mortgages to either the husband or his brother Mr F. Those loans, while secured over the real property contain the personal covenants of the husband and his brother Mr F. Mr Y is clearly aware of the advances and their limits. In his affidavit Mr Y says:-[5]
In [the husband’s father’s] case this goal of preserving farming land for the benefit of future generations was highlighted to me in his explanation of the acquisition of “N” in 1992 namely with the addition of that land holding there should be sufficient land, together with existing holding of ‘R” for all three sons and their families to be supported from the farming activities.
[5] At paragraph 9.
He then went on to say at paragraph 18 and 19:-
18. As a Trustee, I would not permit the sale of either “R” or “N” and a distribution of the sale proceeds to [the husband] and his [brother Mr F] respectively, as there are many beneficiaries to be considered and it would terminate a long tradition of farming the properties and there are many succeeding generations to be considered. No decision to sell and how the proceeds would be distributed can or ought be predicted or entrenched as such would be against the nature of a discretionary trust such as the … Bailey Children’s Trust and all beneficiaries would need to be considered and especially future generations who might wish to farm the properties.
19. If there was little prospect of anyone continuing the business of farming, the question then to be asked and answered is what was the family proposing be the future use of the sale proceeds and whether that was consistent with the objects of the Trust, bearing in mind that [the husband] and [his brother Mr F] are not the only beneficiaries of the Trust. Options such as investment to provide an income or to provide for the education of infant beneficiaries would be favoured. There would not be a distribution of capital simpliciter. Any such distribution would be pursuant to a new trust arrangement, which remained consistent with the objects of the Trust.
The trustees have permitted the husband’s family over the years to borrow against the land on the basis that borrowing was in keeping of the needs of the farming business or to improve the capital value of the farming business.
Mr Y was aware that borrowings had been secured to purchase the P Property.
As to the putative sale by the husband and his two brothers in 2007, Mr Y said, and I accept, that if the property was sold and he was not told he would have believed it to be a breach of fiduciary duty. Mr Y made very clear that his rationale as trustee was to maintain the farm for future generations in the light of his discussions with the husband’s father.
Mr Y was content to enable loans to the husband given his history and competence in that area and given the loan value ratio in respect of the loans and his property.
I accept the evidence of Mr Y as reliable and I have given that evidence significant weight.
Evidence of Mr Blissenden
Mr Blissenden provided evidence in his affidavit filed in Court on 29 January 2018. He was not cross-examined. He deposed that the wife’s Kennon[6] type claim was disclosed in her affidavit filed in January 2018, a short time before the hearing commenced. I have had regard to that evidence in terms of assessing the veracity of the wife’s evidence in that respect.
[6] Kennon & Kennon (1997) FLC 92-757
Evidence of wife
The wife provided evidence in her financial statement filed 10 January 2018 and her trial affidavit filed the same day. The wife asserts that her income comprises of rent from the P Property, a carer’s pension, a carer’s allowance, and child support for her children. She agrees that the husband has been paying the mortgage on the T Property.
The wife was cross-examined in relation to her employment prospects as a counsellor and I have concerns about the reliability of her replies in those areas.
In addition, the wife was cross-examined about her employment. I refer to that later in these reasons. I am satisfied on balance that the wife likely works in paid employment and has not disclosed that income.
The wife asserts that the husband was financially controlling whereas she conceded in cross-examination that at many levels he was generous to her and her children.
The wife was cross-examined in relation to the exclusion of the husband’s brother Mr F from the husband’s life and conceded, at least to a limited extent, that she did so. She conceded that she used harsh words; she also conceded that she used inappropriate language in emails against the husband’s previous wife and his current partner, Ms L.
Annexed to the husband’s affidavit in response was an email from the wife to him of 17 November 2014. This was an email sent in the year before separation. It was a confronting and in many ways an abusive email.[7]
[7] Husband’s affidavit in response, page 20 of 50.
The wife was threatening to the husband in terms of her assertions in the emails that:-
… it goes or I go. the farm goes or you lose me and the kids for good ….
… the farm sells or I walk and if I walk, it will most likely have to go because I know my rights better than anybody’.[8]
[8] Ibid.
She used appalling language and expressed hate towards the husband’s brother and sister-in-law. It is significant that the wife demanded this (allegedly) violent man to drive to Hobart and drive her son to and from school.
When cross-examined about this the wife reconstructed the evidence and endeavoured to deflect the blame to the husband.
There is some evidence of the wife working when she describes herself in correspondence as follows: ‘I have been working flat out’.[9]
[9] Ibid, page 23 of 50.
The wife gave evidence of obtaining a job and said there was no income from it. There is no evidence that she did receive income from that agency job.
The wife’s counsel cross-examined the husband and asked him to check the jewellery box at the R Property’s main residence for the missing rings, and yet the evidence of the wife was that she had control of these rings and that they disappeared whilst in her possession.
On a number of occasions she acknowledged she had been furious and angry. The wife asserted that she did all of the housework and yet there is the evidence of the husband undertaking some housework which is supported by, at some levels, a note provided by the wife.[10]
[10] Ibid, page 47 of 50.
The wife’s evidence about the husband’s violence was troubling. She seemed to exaggerate it and her evidence was at times inconsistent. She said that she wanted the husband to undertake an anger management course and seek psychological help, which on his evidence the husband did to keep the peace. The husband also employed help from an organisation called Rural Alive and Well. As the person assisting the husband did not give advice consistent with that which the wife considered was needed, she lodged a formal complaint about that person. The wife tried to severe the relationship between the husband and his counsellor. From her evidence, the contents of the emails and the husband’s evidence, it is clear that the wife tried to severe the relationship with the husband’s brother, the counsellor and his mother.
In her email material the wife has been demeaning of the husband’s present partner.
The wife said that she complained to the police about family violence on a number of occasions, but asserts that the police took no action. Given my assessment of the quality of her evidence, I do not believe her.
The wife was cautioned by the police for stealing a gun and she asserts that there was no such caution. Given my assessment of the quality of her evidence, I do not believe her.
The wife has a friendship with Mr C who is an artist. The wife denied that she is in a de facto relationship, although at one stage he was described in correspondence from her solicitor as ‘a partner’. There is not enough evidence to warrant a finding that the wife is in a de facto relationship with him.
The wife’s evidence was troubling and I am satisfied that she dissembled at times, that she fabricated her evidence and overall I am satisfied her evidence is generally unreliable.
FINDINGS
The wife asserts that the parties borrowed $400,000 from Q Bank to assist with the purchase of the T Property. The contract showed that the parties needed to borrow $410,000.[11] It is not clear to me how much was borrowed. In any event the amount now outstanding is $414,131, which is perhaps more consistent with the latter figure. I accept that the husband sold some shares and contributed the balance of the purchase monies of some $26,453.
[11] Exhibit E3 Volume 6 page 101.
I also accept that the husband spent monies setting up the residence at the T Property, including those set out in paragraph 97 of his trial affidavit, totalling some $16,226. They are significant contributions of which I have had regard.
The wife asserts that her only income is a carer’s allowance and other social security safety net payments. As I indicated earlier in these reasons the wife has trained as a professional, but has been unable to obtain work in that respect. There was little evidence in regard to her applications for work. I am not satisfied she has genuinely sought to obtain employment in that field.
In addition it was put to the wife that she works in the hospitality industry. There is some evidence that points to that being the case. In an email from the wife to the husband on 21 August 2016 the wife reported:-[12]
…Also recently ive (sic) had a lot of farming and [Town P] area people come in [my workplace] and inform me that you have previously told them I work there, one of them being a good friend of yours. Its (sic) not your right to be discussing where I work and what I do with anybody …
[12] Exhibit E14.
Later in the email she adds:-
Ypu (sic) have even said things about where I worked to the girls before its (sic) not good enough. You need to be extremely careful not to mention me and my private life in the future to anybody.
In an earlier email between the wife and the husband of May 2016 the wife makes a series of complaints about the husband and then asks rhetorically:-[13]
…You’re not broke. I am. Are you working in [a club] ? …
[13] Ibid, page 1.
Given my concerns about the evidence of the wife generally I find that it was likely that she was working for some undisclosed amounts. I am satisfied that she has not made full and frank disclosure of her actual earnings or her earning capacity.
The Children’s Trust and the R Property
The R Property has a value asserted by the wife of $3,250,000. If it is the property of the husband, it would clearly be the most substantial feature of the husband’s assets.
One of the significant issues in this case is how to treat the farming properties R and the adjacent property N. The R Property is farmed by the husband and the N Property by his brother, Mr F.
The R Property
The original section of the R Property was acquired in 1850 by the Bailey family. A company, R Pty Ltd was set up in 1960 and in 1963 the R Property was transferred to that company. I accept that the husband did not buy or pay for or make any financial contribution towards the acquisition of the R Property. R Pty Ltd owns the legal and equitable title to the R Property. The 1,699 out of 1,700 shares in the R Pty Ltd are the assets of the Children’s Trust.
The Children’s Trust
On 6 August 1969 the Children’s Trust was established by deed. At that time the husband was aged about 8 years.
The trust deed was in evidence.[14] The Children’s Trust was said by the trustee, Mr Y, to be established for two primary purposes: the first to ensure that the R Property remained a farming property for the Bailey family, the second to ameliorate the impacts of death duties.
[14] Exhibit E3 Volume 1 pages 1 to 9.
The settlor of the trust deed was the husband’s father and the then trustees were Mr W, a Hobart accountant, and Mr O, a Hobart solicitor. The Trust was expressed to operate “until the expiration of twenty-one years after the death of the last survivor of the issue now living, of His Late Majesty King George V”[15] (the Royal Family). Given the terms of the Trust it has some time to run before the Trust vests or as it defines reaches the ‘date of distribution’.
[15] Ibid page 2.
The deed of trust provides that the trustees may:-[16]
2.… pay or apply from time to time the whole or any part of the income of the Trust Fund for the maintenance support education advancement or for the general benefit of all or any one or more of the Beneficiaries in such manner and in such proportions as the Trustees may in their absolute discretion think fit…
… AND IT IS HEREBY DECLARED that the Trustees may at their own discretion at any time or times after the date hereof and before the date of distribution as aforesaid if in their uncontrolled discretion they think fit pay or apply the whole or any part or parts of the capital of the Trust Fund to or for the benefit of any one or more of the Beneficiaries in such manner and in such proportions as the Trustees shall think fit ….
[16] Ibid pages 2 and 3.
The Trust is a discretionary trust and the discretionary beneficiaries of the Trust are expressed to be; in favour of the [the husband’s father’s] children and remoter issue and the spouses, widows and widowers of any such children and remoter issue. The Trust Deed relevantly provides:-[17]
… the Settlor [the husband’s father] is desirous of making a settlement in favour of his children and remoter issue and the spouses widows and widowers of any such children and remoter issue (hereinafter called ‘the Beneficiaries’) …
[17] Ibid page 1.
The husband’s father has three sons, namely: the husband, Mr F and Mr G. The husband has two sons. His brother Mr F has two children and his brother Mr G has three children. The current beneficiaries under the Children’s Trust are set out in paragraph 47 of the husband’s trial affidavit as the husband and his two children, his brother F, F’s wife and their two children, his brother G, G’s wife and their three children.
The husband’s brother Mr G and his wife and children are discretionary beneficiaries within the meaning of the Trust. Mr Y gave evidence that given the transactions which I will later describe, he would not consider a distribution to the husband’s brother G or his family. I accept that evidence. It is of course possible for the trustees to form different views or different trustees to adopt different approaches.
The trustees have the power to apply trust property in ‘its actual condition or state of investment’
At the date of distribution the trustees shall:-[18]
2.… hold the Trust Fund with any accumulated interest thereon UPON TRUST for such of the Beneficiaries absolutely as are then living and if more than one in such proportions as the Trustees in there absolute discretion think fit.
[18] Ibid page 2.
I am satisfied that the trustees of the Children’s Trust have an unfettered discretion as to the application of the trust property (being both capital and income) to any one or other of the discretionary beneficiaries during the term of the Trust. The trustees have a similar discretion on the distribution of the trust to the beneficiaries who are alive at the date of the vesting of the Trust, except if only one discretionary beneficiary is alive.
By a Deed dated September 1995, Mr Y (the then Bailey family accountant) and Mr AA Bailey (a cousin of the husband and his brothers) were appointed trustees of the Children’s Trust. I accept the evidence of Mr Y that the Children’s Trust is expressed to be an entirely discretionary trust as to both the capital and income of the Trust. The distribution of the assets of the Trust when it vests is expressed to be discretionary in terms of the discretionary beneficiaries alive at that time.
Apart from the ability to borrow funds there is no evidence of the capital of the Trust being applied or paid to any discretionary beneficiary over the almost 50 years of its existence.
The interaction between R and N properties and the Children’s Trust
The Trust earns no income. The trustees have ultimate control of the properties through its shareholding in R Pty Ltd and X Pty Ltd. I discuss X Pty Ltd later in these reasons. The farm operations are monitored by the trustees though an annual meeting with the husband and his brother’s and through approval of the various loan arrangements over titles of the R Property and the N Property, which loans are approved by the trustees.
R Pty Ltd as owner of the land manages it, albeit under the umbrella supervision of the trustees. The husband, his mother and his brother G are the directors of R Pty Ltd. They are able to be replaced by the trustees at any time the trustees choose.
There are 1,700 shares in R Pty Ltd. Of those shares, 1,699 are owned by the trustees on trust for the Children’s Trust. One share is owned by the husband’s mother. This shareholding has been in place since shortly after the 1969 Children’s Trust was established, at least insofar as the trust shares are concerned. Accordingly, the Trust is effectively the beneficial owner of the assets of R Pty Ltd and consequently the R property.
The house and cottages on the R Property
The R Property has a main residence and three cottages. Two of the cottages are rented and during much of the parties' relationship and up until 2016 that rent ranged from $130 per week to $200 per week. From about 2013 until mid-2016 the rent was paid to the wife. It seems that the rent had been traditionally been paid to the husband’s mother, but during part of the time that the husband and wife were living at the house on R, the husband and his mother agreed that the rent could be paid to the wife by way of housekeeping. The occupant of the R home seems to have the authority to direct the application of the rent on the cottages. This is consistent with the approach of the trustees to allow the Bailey farmers to use the land at both the N Property and the R Property as they chose. I have had regard to this in terms of the husband’s use of the R Property and in terms of contribution.
The third cottage is occupied by the husband’s mother, the widow of the husband’s father. She pays no rent and the rent on the other two cottages is now paid to her.
The power to appoint or replace trustees
The replacement of trustees is not a power exercisable by the husband, his mother or his brother. The power of appointing trustees is set out in paragraph 7 of the trust deed. It provides that the power of appointing a new trustee shall be upon the death of any remaining trustee and if there are no trustees then the legal personal representatives of the ‘trustee last dying’.
In the 1995 Deed where Mr Y and Mr AA Bailey were made trustees of the Children’s Trust neither the husband, his brothers nor the husband’s father were signatories to that agreement.[19]
[19] Annexure A to affidavit of Mr Y filed17 November 2017.
The new farm –N Property
In 1992/1993 the pastoral N Property was acquired for $1,250,000 and registered in the name of X Pty Ltd. X Pty Ltd had been incorporated in 1984. The owners of the shares in X Pty Ltd are the trustees of the Children’s Trust.
The directors of X Pty Ltd are the husband, his mother and his brother F.
Accordingly, the beneficial ownership of N Property is effectively an asset of the Children’s Trust.
Discussion and findings
The companies R Pty Ltd and X Pty Ltd are the owners of the legal and equitable title in the two pastoral properties, but effectively hold them for the Children’s Trust. The exception is the 1/1700th share in R Pty Ltd which is owned the husband’s mother.
The evidence of Mr Y establishes the reason for the existence of the Children’s Trust and that the structures of the ownership of the property were to reduce the impact of death duties given the historic holdings of the R Property and to provide the use of the farming properties for the husband’s father, his sons and grandchildren. This was to enable the land to continue to be farmed by the Bailey family into the future until the vesting of the Trust.
I accept that the day to day operations of the properties are managed by the husband and his brother F, and I accept the evidence that the trustees or one of them meets with the brothers or at least the husband on an annual basis.
As a separate entity the partnership Bailey partnership 1 is the business which ran the pastoral or farming aspects on the properties. In November 1953 a formal farming business was set up in the form of a partnership ‘Bailey partnership 1’ (‘the partnership’). This partnership was between the husband’s grandfather and the husband’s father. In July 1956 the husband’s grandmother, was admitted to the partnership. These events happened before the birth of both the husband and the wife.
In 1966 the husband’s grandmother ceased to be a member of the partnership and the husband’s mother was admitted as a partner.
This history of this farming partnership is set out in the Deed of Dissolution dated June 2009.[20]
[20] Husband’s trial affidavit annexure A.
In the late 1980s this partnership was the business of the husband’s father and his three sons: the husband, G and F. It was effectively run and understood by the husband’s father, and I am satisfied that the husband did not clearly understand the structure until shortly before the commencement of these proceedings.
In January 2000 the husband’s father ceased to be a member of the business partnership and has subsequently passed away.
The effect of the arrangements put in place by the husband’s grandfather and father, and then adopted by the husband and his brothers was that the two pastoral properties were owned by the Children’s Trust and were to be retained for the following generations. As a consequence, the farmers would continue to operate their farming and pastoral businesses using the land and meeting the payment of rates et cetera and looking after the land.
The husband and, at earlier times, his brothers could borrow money against the land to the extent permitted by the trustees. I accept the underlying philosophy of the Trust as enunciated by Mr Y that:-[21]
In [the husband’s father’s case] case this goal of preserving farming land for the benefit of future generations was highlighted to me in his explanation of the acquisition of “N” in 1992 namely with the addition of that land holding there should be sufficient land, together with existing holding of ‘R” for all three sons and their families to be supported from the farming activities.
[21] Affidavit of Mr Y filed 17 November 2017, paragraph 9.
In his evidence Mr Y confirmed that it was his view that the Trust is to provide farming properties for the Bailey brothers and their children into the future. Mr Y also said, and I accept, that he would not permit the sale of either property with a distribution of the proceeds to the husband and his brother.
As to the Children’s Trust, I accept that the trustees are not alter egos of either the husband, his mother or his brothers. The trustees are truly independent and have been truly independent since the creation of the Trust. I accept the trustees have acted in accordance with the underlying philosophy of the Trust and I accept the evidence of Mr Y that he will continue to do so.
Neither the husband or his brothers have any control of the Trust: they need to apply to the trustees in terms of borrowings against the land.
Mr Y says and I accept:-[22]
18.…No decision to sell and how the proceeds would be distributed can or ought to be predicted or entrenched as such would be against the nature of the discretionary trust such as the [Children’s Trust] and all the beneficiaries would need to be considered and especially future generations who wish to preserve the property.
19.If there was little prospect in anyone continuing in the business of farming, the question then to be asked and to be answered [by the trustees][23] is what was the family proposing to be the future use of the sale proceeds and whether that was consistent with the objects of the Trust, bearing in mind that [the husband] and [his brother F] are not the only beneficiaries to the Trust. Options such as investment to provide an income or to provide for the education of infant beneficiaries would be favoured. There would be no distribution of the capital simpliciter. Any such distribution would be pursuant to a new trust arrangement, which remained consistent with the objects of the Trust.
[22] Ibid.
[23] My words given the evidence of Mr Y.
He went on to say at paragraph 20:-
20.It is true that the Trustees have permitted the Bailey’s over the years to use the land to secure significant (and increasing borrowings). This was on the basis that the level of borrowings was in keeping with the needs of the farming business and/or were likely to improve the capital value of the farming land or were required to ensure the land was still being farmed by beneficiaries of the Trust. Ultimately of course, there is a practical limit to borrowings set by the lender beyond which further borrowings would not be agreed to by the Trustees.
As to the borrowings, Mr Y set out that he permitted the increase in funding for the husband to buy the P Property as there was no increase in the overall borrowings. The trustee provided evidence of the expenditure analysis of the husband from 2013 until 2016 of which I have had regard to and which evidence I accept. He made comments in relation to the balance sheet of the R trust and I accept his evidence in that regard.
I accept the evidence of the husband that in about 2007 or 2008 the husband’s brother G informed the husband, his other brother F and their mother that he wanted to leave the farm and be paid out his share.
As I said earlier, I am satisfied that the husband had no clear understanding of the Trust and the structure and believed that his brother G was entitled to a share of the business and properties. The husband and his brothers F & G decided to sell the properties and listed them for sale with CC Limited.
They did not refer this to the trustees. In evidence Mr Y indicated that had he had known he would not have permitted the listing of the property for sale nor would he and the other trustee have permitted the distribution of capital to the husband and/or his brothers and the wife.
The property did not sell, and the brothers and the husband’s mother agreed to borrow funds to pay out E$1.3 million dollars. They used further borrowings from S Bank to facilitate that result.
Mr Y was cross-examined in relation to this transaction and said he did not know about the sale and had made strong comments as to his views. He gave evidence as to his clear views that it was not the property of the husband’s father’s sons, but he facilitated the borrowings to enable the continuation of the business of the Children’s Trust given the loan value ratios.
Mr Y said that this transaction selling and acquiring the husband’s brother G’s interest in the business was at a level far greater than the value of the business. His evidence was that this transaction gave rise to the continuation of the use of the pastoral properties for farming purposes, as was the intent of the husband’s father and the intent of this intergenerational trust. I accept the evidence of Mr Y that:-
7.My understanding, based on my experience in business planning of farming businesses and from discussions with the late [husband’s father], is that the Trust was established to ensure that the land comprising [“R”] and (later) [“N”] was available for future generations of the [Bailey’s] to conduct farming businesses, including to prevent the land from becoming the property of the estate of any deceased member of the family and becoming subject to (when this was the case) death duties.
8.Throughout my years of practice as an accountant I have dealt with many rural clients who have had the desire to ensure the land on which they have run their farming operations was preserved for future generations to farm the land and to achieve this, a discretionary trust similar to the Trust has been the vehicle used to achieve this. At the present time I even have a first generation farmer with the same desire who is also using a discretionary trust to achieve this. The existence of the discretionary trust in these circumstances avoids the need to determine by Will to whom the property will pass and also prevent a sale in circumstances where the interest of all beneficiaries of the Trust are not properly considered.
9.In [the husband’s father’s] case this goal of preserving farming land for the benefit of future generations was highlighted to me in his explanation for the acquisition of [“N”] in 1992, namely with the addition of that land holding there should be sufficient land, together with the existing holding of [“R”] for all three of his sons [named] and their families to be supported from farming activities.
I accept the evidence of the husband set out in paragraphs 50 to 59 of his trial affidavit in relation to the events surrounding his brother G's exit from the farming activities.
The husband then sets out the chronology of the S Bank refinancing in paragraphs 60 through to 65 of his trial affidavit that:-
60.In October 2007 $700,000.00 was borrowed from S Bank. $600,000.00 was to refinance existing Westpac debt and $100,000.00 was for working capital. This was later increased progressively to $2 million to enable [his brother F] and I to pay out [our other brother G].
61.In November 2009, borrowings were increased from $2 million to $2,165,000.00 for the purpose of having funds available to pay my [former wife] a property settlement.
62.On 2 September 2013, the sum of $1,200,000.00 was lent to the R Trust.
63.The borrowing arrangements referred to in Paragraph 62 were organised as a consequence of the dissolution of the partnership between [his brother F] and myself.
64.(a) On 26 May 2015 the debt to S Bank for the R Trust was increased to $1,400,000.00, there having been an earlier increase to $1,300,000. Based on advice I have received from S Bank, I am at the limit of the amount of money that can be borrowed using [“Property R”] as security;
(b)The borrowings from S Bank have allowed initially, [his brother F] and I in partnership to pay [our other brother G] out and continue the farming business. They have also allowed me:-
• To partly renovate the main residence situate on R;
• To fund periodic livestock purchases;
• To meet the cost of maintaining pasture and infrastructure;
• To send my children to a private school;
• To meet the high level of expenditure during the period of my cohabitation with [the wife] and to meet outgoings [the T Property] following separation.
65.All borrowings have been secured by way of first Mortgages over “R” and [“N”] with unlimited guarantees from R Pty Ltd, X Pty Ltd, myself and [his brother F].
I accept the reliability of that evidence. Those borrowings were approved by the trustees as they met the underlying philosophy of the Trust.
A significant issue in regard to the Trust arose after the failure of the husband’s marriage to his former wife. The evidence was that the husband and his former wife were married in 2000 and they separated in 2009. The husband’s two sons were from that marriage.
By agreement made 20 November 2009[24] the husband and his former wife entered into this informal agreement and have maintained a good relationship since the breakdown of their marriage. The $165,000 was drawn against the S Bank loan to fund the agreement and was within the loan arrangements about which I have earlier made comment.
[24] Exhibit E3 Volume 4, page 89 and 90.
The loans over the farming properties are a financial resource and I do not find that it is indicative of a capital drawing against the Children’s Trust as the husband was liable and remains personally liable under the terms of the loan/s.
The next significant aspect regarding the Trust was the termination of the partnership 1 business. As I have indicated earlier this partnership was set up in 1953 and with the departure of his brother G the partnership as between the three brothers was dissolved. The husband and his brother F, continued in that partnership.[25]
[25] See Deed of Dissolution dated 15 June 2009 Exhibit E3 Volume 3, pages 50 to 56.
This was followed by the dissolution of the Partnership between the husband and his brother F in 2013. The husband sets out the detail of that arrangement in his trial affidavit.[26] They used a rural consultant in the negotiations who clearly did not understand or acknowledge the structure of the Children’s Trust.
[26] At paragraph 78 to 87.
The effect of this dissolution of partnership was that the business Bailey partnership 2 came to an end and the husband set up his own trading entity as set out in paragraph 82 of his trial affidavit. The husband’s brother F set up his own trading entity. They divided up the plant and equipment and the stock.
There was an issue about which parts of the land each of them would retain and there were negotiations in that respect. Eventually an agreement was reached, but to give effect to the day to day operations there needed to be a boundary adjustment which was undertaken.
It is the wife’s contention that this boundary adjustment is indicative of ownership of that land. I do not agree. The titles to the property remained as they were and I accept the evidence of Mr Y that it was simply to continue the farming operations of the Children’s Trust in accordance with the underlying philosophy of that Trust. It is not evidence of ownership. There was no change to the beneficial interest in the land remaining that of the Children’s Trust, although there may have been a minor change in terms of the 1/1700th share of the husband’s mother in the R Property.
The husband continues farming and has a borrowing limit of $1.4 million which is secured against the R Property. Mr Y was and continues to be content for the husband to continue using those funds to operate his life and the farm. This trustee accepted and relied upon the husband being a sensible and effective farmer and the amount of the loan fluctuated between $1 million dollars and $1.4 million dollars. Mr Y said:-
20. It is true that the Trustees have permitted the [Baileys] over the years to use the land to secure significant (and increasing borrowings). This was on the basis that the level of borrowings was in keeping with the needs of the farming business and/or were likely to improve the capital value of the farming land or were required to ensure the land was still being farmed by beneficiaries of the Trust. Ultimately of course, there is a practical limit to borrowings set by the lender beyond which further borrowings would not be agreed to by the Trustees.
21.I have been made aware that borrowings secured against the properties was increased to enable [the husband] to fund a purchase of [the P Property]. I was not aware of that at the time, but so far as I am aware, there was no increase in the overall borrowings already secured over the titles to the lands.
The trustees and the husband are aware of the loan to value ratio between the properties and the current loan limit. That upper limit is the amount which the trustees regard as the maximum amount that the husband is permitted to borrow using the assets of the Trust as security.
The amount needed to operate the farm business fluctuates as most of the income of the husband came from the selling of wool towards the end of each year. In recent years this has provided a turnover of about $200,000 which was paid against the S Bank account at that time and was then used to fund the operations of the farming business and the lifestyle of the husband for the next twelve months.
In terms of the trustees, I find that the trustees are independent; they are not puppets. Further the Trust was set up for legitimate purposes and it was not a sham or a puppet of the husband. The trustees have kept the property separate from the sons, although they have allowed the use of the properties to fund the operations of the farm and the lifestyle of the husband within constrained loan to value ratios in accordance with the historical arrangements set up by the husband’s father.
The husband may as a director of R Pty Ltd seek to sell the real estate that is the R Property. Given the Trust and the bona fides of the Trust, the husband has a fiduciary duty to inform the trustees of the Children’s Trust of any such proposed sale.
I find that the trustees are shareholders of R Pty Ltd, that the Children’s Trust is the beneficial owner of almost all of the R Property, and that Mr Y could and would remove the husband as director to prevent any sale.
If the husband defaults on the loan to S Bank and the property was sold the net proceeds of sale are effectively trust assets. There is no agreement sought to be set aside and it is not sought that the Trust be set aside. Neither X Pty Ltd, R Pty Ltd or the trustees are parties to these proceedings and no steps have been taken to disturb the long-established structures for the use or ownership of the properties R or N.
In determining whether the trust is property I have considered the following:-
(a)The history of the parties’ treatment of the Trust property. Whilst they have the power to borrow, as I have said earlier, they do not have the lawful or effective power to sell without the consent of the trustees of the Children’s Trust. The husband and his two brothers endeavoured to do so in 2007 or 2008, but without the consent of the trustees and any monies from that sale, given the structure involved, would have remained the property of the trustees. I accept the evidence of the Mr Y that the trustees would have regarded that money as trust money and that if the sale had gone ahead without their knowledge they would have regarded the sale proceeds as trust monies and would have taken steps to enforce it; and
(b)The husband has exercised powers in relation to the loans which were permitted by the trustees, but not otherwise. The husband has the use of the land, without the payment of rent, for the purposes of his farming pastoral work and collection of rent on two of the cottages on the R property. That is within the scope of the Trust. The benefit the husband derives from the Trust is the use of the land and the alibility to borrow on the land within agreed parameters and to use the land for his farming and pastoral pursuits.
The assets of this Trust were acquired in two different ways. The R Property was acquired by the Trust through the husband’s father and grandfather as I have described earlier. It is not an asset created by the husband or by the wife. The N Property was acquired in 1992 by the Trust, presumably using the asset of the R Property to provide funding and the income from the farms to meet the costs of such funding.
Clearly the husband, and indeed his brothers and at one stage his father, contributed to the assets of the Trust by way of maintaining and improving the land, albeit rent free, and the costs of borrowings, if any, in regard to the N Property.
The N Property was purchased in 1992 for $1,250,000 plus a further part of the property for $125,000. It is subject to mortgages to S Bank, to which I have referred elsewhere, and a mortgage to the BB Bank. It seems to have been made up of a number of allotments.
Neither the husband nor his brothers has any ability to lawfully transfer any trust assets to themselves or their spouses.
The Trust is set up in such a way that the day to day administration of the properties is run through the companies which own the various properties. The husband and his brother F pay the expenses on the land on which they farm. The Trust enables the borrowings to the husband secured against the R Property to fund his farming business. The holding companies are in essence run by the husband and his brother F. However, the beneficial ownership rests in the shares which, apart from the tiny proportion held by the husband’s mother, are the property of the Children’s Trust. I have had regard to that circumstance.
The husband has the capacity to borrow up to $1.4 million dollars against that property, noting the fluctuation of about $200,000 or more in terms of the operation of the farming business and the income which comes in November/December. Accordingly, the approximately $1.1 million dollars that is presently outstanding is likely to reach upwards of $1.3 million dollars or more before the next proceeds of sale from the wool reduces it. To that end it is a financial resource to the husband. Although, that financial resource is significantly used at present.
There were a number of dealings using the loans secured against one or both of the properties and there was an endeavour by the husband and his brother to sell the properties. What should I make of these?
As to the listing for sale of the farm properties by the husband and his brothers in about 2007, I accept that this listing for sale was undertaken without the knowledge or consent of the trustees and I find that it was in the absence of the knowledge of the husband and his brothers as to the precise nature of the structure and corporate arrangements that had been set up by their father and grandfather.
I accept the evidence of the trustee that if the properties had been sold then the Trust would have retained the proceeds of sale and applied them for the objects of the Trust, that is, to provide farming land for the husband’s father’s family including his sons, grandchildren and other descendants.
The husband, the husband’s father and his brother have borrowed monies against the properties to enable the operation of their farming businesses. This is a financial resource and in regard to the husband and as I indicated earlier, it is currently a financial resource which has the capacity for him to borrow up to $1.4 million dollars.
After their brother sold his interest in the business partnership to the husband and his brother F, to which I have earlier referred, the husband and his brother F were in partnership operating farming on both properties. That partnership concluded in about 2013. Each of the brothers sought to continue farming but on different properties: the husband on R and his brother F on the N Property.
The trustees accommodated this process by providing a boundary adjustment to the properties so that each of them had roughly one half of the effective useful land upon which to conduct their business. This boundary adjustment did not transfer any equitable interest in the property, except perhaps in relation to the husband’s mother’s 1/1700th share. All it did was facilitate the order of the operations of the husband’s and his brother’s respective farming businesses.
The husband used the borrowings to pay out $165,000 to his former wife and he used the borrowings to finance the purchase of the P Property. I have had regard to his access to these borrowings in terms of contributions. These borrowings were secured over property or a property, however, the husband has given personal guarantees in relation to those advances. I do not accept this is evidence that the husband treats the trust corpus as his own property having considered all of the evidence. The capacity to borrow is solely dependent upon the goodwill of the trustees in their determination to give effect to the underlying objects of the Children’s Trust.
The Trust assets were not acquired from the joint efforts of the parties. They have been used as a financial resource, they are now one that has and have been used to provide a farming property upon which the husband could conduct his business.
The husband runs his own business; the trustees have control of the property for the Trust through the ownership of the shares. The husband has no power to remove a trustee nor has he any powers to appoint or reappoint trustees.
The operation of the properties is through the companies which are controlled by the husband and his brother, however the trustees can at any time appoint other directors and take effective day to day control of the properties, should they decide to do so.
As to what is property, in his thesis on Discretionary Trusts and Family Law Disputes,[27] Riethmuller elegantly set out the law relating to property, in particular that property held in discretionary trusts, saying at pages 8, 9 and 10:-
The [Act] provides for the division of the property of spouses. Upon application for orders, the courts must determine how to divide the property of the spouses appropriately. The first step in determining any property settlement application is to identify and value the ‘property’ of the parties. Many spouses have some involvement in trusts, either as beneficiaries, trustees, or appointors.21 As a result, the nature of a spouse’s ‘property’ (as defined in the [the Act]) in assets held on a discretionary trust is a crucial issue in family law disputes: in some cases, it is the bulk of the wealth of the parties.
Property, as understood at common law, is a bundle of rights, of which the right to exclude others is commonly referred to as the most significant indicium (at least when the subject of the property bundle is land or a corporeal object). It is accepted that like any word, ‘property’ can be given a unique definition by the legislature in a statute. The [the Act] defines property as ‘property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion’. As ‘property’ is not defined in the [the Act] as a common law or equitable ‘proprietary interest’ the term must be interpreted in the context of the [the Act], read as a whole. In Duff’s Case the Full Court of the Family Court, noted the importance of ‘reading and constru[ing the Act] widely and liberally with words and expressions being given their ordinary meanings as far as possible and without undue restraint imposed by legal principles more apposite to social conditions markedly different from those which characterise society today.’ The phrase ‘in possession or reversion’ is read as expanding, not limiting the meaning of property, as ‘…the phrase is descriptive of the entitlement and not of the property and it removes any fetter upon the Court in dealing with property under this Act by limiting the nature of the entitlement thereto to entitlement in possession.’ In Duff’s Case the court specifically stated that the term ‘includes choses in action,’ and ‘that this embraced assets either owned or in which the party had some “lesser proprietary right”.’
The absence of a property interest of a spouse in the assets held on a discretionary trust prevents the court from altering existing interests in the trust assets as ‘property’ of the spouses. The trust assets can be taken into account as a ‘financial resource’, bearing upon the division of the property of the spouses as one of the many unquantifiable considerations in the broad discretion the court exercises when determining the division of assets. Where trust assets are of modest value, compared to the total property of the parties, taking the trust assets into account as a ‘financial resource’ of one spouse is an adequate mechanism, but where there is little property to divide relative to financial resources and income it is not. Thus, there is immense practical importance in identifying a legal basis for establishing that the assets of a discretionary trust can come within the definition of property in the [the Act], and thereafter be the subject of orders in a form that allows for straightforward enforcement mechanisms.
(Footnotes omitted)
[27] Grant T Riethmuller, ‘Discretionary trusts and family property disputes’ (MPhi Thesis, University of Melbourne, 2016). This was not an academic exercise by Judge Riethmuller and I have treated it as such.
It was the wife’s primary contention that the R Property, which she asserts has a value of $3,250,000, is property of the husband. The leading case in relation to trusts and family law is Kennon v Spry [2008] HCA 56.
Pursuant to s 4 of the Act the term property means:-
(a)in relation to the parties to a marriage or either of them—means property to which those parties are, or that party is, as the case may be, entitled, whether in possession or reversion; or
Property under the Act is widely defined.
In Kennon v Spry the reasoning of the High Court in accepting that the assets in the trust in which Dr Spry was involved were assets of the parties was:-
(a)the power of Dr Spry as trustee to exercise the dispositive discretion to appoint trust assets to the wife; and
(b)The interest of the wife as an object of the discretionary dispositive power under the trust.
There are differing reasons in the various approaches taken by the Court in Kennon v Spry. As Riethmuller said in his paper:-[28]
Gummow and Hayne JJ reasoned that the wife’s equitable interest (a right to due administration of trust) and Dr Spry’s ‘power to appoint the whole of his property to his wife’ resulted in trust assets falling within the definition of ‘property’ of the parties under the [Act].
[28] Ibid page 29.
Riethmuller went on to say that their Honours found that:-
(a)‘the property of the parties … was … the right of the wife to due administration of the Trust, accompanied by the fiduciary duty of [Dr Spry], as trustee, to consider whether and in what way the power should be exercised’;
(b)‘because … [Dr Spry] could have appointed the whole of the Trust fund to the wife, the potential enjoyment of the whole of that fund was “property of the parties to the marriage or either of them”’; and
(c)‘because the relevant power permitted appointment of the whole of the Trust fund to the wife absolutely, the value of that property was the value of the assets of the Trust.’[29] (Footnotes omitted)
[29] Ibid, pages 29-30.
Riethmuller noted that in Kennon v Spry:-
French CJ identified that if one only looked to the wife’s position as a potential object of a dispositive discretion, even if coupled with Dr Spry’s power to exercise the discretion, it is very difficult to value the interest of the wife, as the obligation owed to other beneficiaries or objects of the trust must be considered at some point. For French CJ some method for dealing with the potential interests of others had to be employed at the time the court was determining the property of the parties. For this purpose the Chief Justice limited the ambit of the powers analysis to cases involving matrimonial property, and that did not involve mixed purpose trusts.
One of the issues raised by the Chief Justice in Kennon and Spry was the wife’s ‘right to consideration’ to endure administration of the trust as being ‘in the nature equitable chosen action’.[30]
[30] Kennon v Spry [2008] HCA 56, paragraph 75.
As to the ‘right to consideration’ Kent J discussed this in MacDowell and Williams [2012] Fam CA 479 saying:-
11.Both parties proposed opposing interpretations of the relevant law in this area. The solicitors for the Husband submitted that:
The wife is the primary beneficiary of the trust as well as the default beneficiary. Her parents are secondary beneficiaries of the trust. The Principal of the Trust is the wife’s father, [Mr J MacDowell]. Per Kennon v Spry (2008) FLC 93-388, the wife’s interest here in the trust are property:
“Rights to consideration and due administration of the wife as a beneficiary of the trust are equitable choses in action, and included as part of the wife’s property for the purposes of s 79. These rights can however be difficult to value. (Per French CJ, Gummow and Hayne JJ)”
(italics in original)
12.However, I accept the submissions made on behalf of the Wife’s parents to the effect that this is a misstatement of the law on this point. As noted by Mr Sullivan SC, the “quote” provided by the solicitors for the Husband above is in fact an extract from a headnote which arguably does not reflect with complete accuracy the reasons of French CJ, Gummow or Hayne JJ. The most similar statement can be found in the judgment of French CJ, where something quite different was held:
75.The rights to consideration and to due administration are in the nature of equitable choses in action. There has been considerable judicial discussion about the nature of a beneficiary’s right to due administration in the case of the residuary legatee of an unadministered deceased estate and members of superannuation funds whose benefits have not vested. … Such a right has been treated as property for the purposes of the Bankruptcy Act 1966 (Cth). In the case of a residuary legatee the right to due administration is connected to a real expectancy of an interest in the property. The same is true for the members of a superannuation fund although vesting of a benefit may be many years in the future. However, the right to due administration taken by itself in relation to a superannuation fund was described by the Full Court of the Family Court in 1986, in a brief consideration of the question, as “an empty present right of no relevance.”
76. In Evans, the majority of the Full Court of the Family Court found that consideration of the right to due administration of a superannuation fund offered “no solution as to how realistically to make practical orders under s 79 about that ‘property’ until it is in fact received”. The case concerned a future entitlement to benefits form a superannuation fund. Nygh J drew the analogy between the unvested interest in a superannuation fund protected by a right of due administration and “the interest which a potential beneficiary has in the proper administration of a trust”.
77.The beneficiary of a non-exhaustive discretionary trust who does not control the trustee directly or indirectly has a right to due consideration and to due administration of the trust but it is difficult to value those rights when the beneficiary has no present entitlement and may never have any entitlement to any part of the income or capital of the trust.
78.Gummow and Hayne JJ, in their joint reasons, characterise Mrs Spry’s right with respect to the due administration of the Trust as part of her property for the purposes of the Family Law Act. I respectfully agree with their Honours that prior to the 1998 Instrument the equitable right to due administration of the Trust fund could be taken into account as part of the property of Mrs Spry as a party to the marriage. So too could her equitable entitlement to due consideration in relation to the application of the income and capital. In so agreeing, however, I acknowledge, consistently with the observations of the Full Court in Hauff and Evans, that it is difficult to put a value on either of these rights though a valuation might not be beyond the actuarial arts in relation to the right to due consideration.
13.Earlier paragraphs also illuminate that French CJ, Gummow and Hayne JJ all also had in mind, in reaching the conclusion set out in paragraph 78 above, that in that case, Mr Spry also had total control of the trust. This is set out at paragraph 73 of French CJ’s reasons:
73. In light of the trial judge’s findings about the purposes of the 1998 instrument and the 18 January 2002 Dispositions, the preceding conclusion is sufficient to support the trial judge’s orders and the dismissal of these appeals. They are also supported by a consideration of Mrs Spry’s equitable right to due consideration as an object of the Trust prior to the 1998 instrument and, for the reasons enunciated by Gummow and Hayne JJ, by consideration of that right in conjunction with Dr Spry’s power as trustee to apply the assets or income of the Trust to any of the beneficiaries in his discretion. …
14.It is clear, on the evidence before me, that the Wife does not in fact control any of the entities from which documents are sought by the Husband. The Husband concedes that the Wife is neither a director nor a shareholder in any of those companies, and that her interest is restricted to being the primary and default beneficiary of the F G MacDowell Discretionary Trust. However, the Husband would have this Court infer, from the title alone of the relevant companies (such as C [the un-anonymised name is an abbreviation of the Wife’s name] Pty Ltd and B [the un-anonymised name is an abbreviation of the Wife’s name] Pty Ltd), that the Wife’s parents intend for the Wife to take control of these company in the near future. I am not persuaded by that submission. I also find unpersuasive the Husband’s submission that the creation of C Pty Ltd in March 2010, near to the date of separation of the parties, of itself implies that this company was to be used as a vehicle for the protection of the Wife’s funds from any property dispute between the parties, without further evidence.
15.I also accept the submission of Senior Counsel for the Wife’s parents that the Wife otherwise has no interest in any of the corporate entities attempted to be subpoenaed by the Husband. The way in which money is distributed between those entities, save for the distributions made by the Trust (which the Wife’s parents have conceded they will provide), is not in any way controlled by the Wife, nor affects her financial position. The way in which distributions are made by the Trust are set out in the Trust Deed, which the Husband accepts has already been provided by the Wife’s parents.
16.The solicitors for the Husband further submitted that this case was analogous to that of Keach & Keach [2011] FamCA 192 (“Keach”), where the husband’s father in that case had, similarly to this case, established four trusts that the husband’s father controlled, each bearing the name of one of his four children. In that case, Strickland J held that, although the husband had no control over the trust, it could still be treated as a financial resource given the past pattern of benefits and distributions received by the husband from the trust and the likelihood of receiving the same in the future.
17.However, there appear to be significant distinctions between Keach and this case. In Keach, the husband was in fact a director and a minority shareholder in the corporate trustee of the trust and had also advanced loans to the trust. This, amongst other factors, indicates that although the husband in Keach did not technically control the relevant trust, he had significant input into its administration. This is a clear point of contrast with this case, where the Husband does not submit that the Wife has any directorship or membership of the corporate trustee of the F G MacDowell Discretionary Trust or any of the other entities subpoenaed by the Husband. There is not, at present, any evidence before this Court to suggest, even prima facie, that the Wife has control over any of the entities referred to in the subpoena or that such control is likely to occur in the future. Nor has there been a pattern of significant and consistent distributions which point to the F G MacDowell Discretionary Trust being a significant source of funds for the Wife into the future. As highlighted by Senior Counsel for the Wife’s parents, the Wife has received only $28,000.00 over the ten years of the existence of the Trust, and during that time, distributions have also been made to other beneficiaries of the Trust, indicating that this Trust is truly discretionary not only in form but also in use and effect.
18.As to the further submissions by the solicitors for the Husband, I note with some concern that the quote posited as appearing in the case of Blue & Blue [2007] FamCA 1444 does not in fact appear in that case at all, and also that the quotes extracted from Simmons [2008] FamCA 1088 do not, in contrast with what is implied in the submissions made on behalf of the Husband, appear in sequence.
19.In essence, I find that there is no satisfactory justification for the Husband’s attempt to subpoena the documents sought from the corporate entities mentioned in the subpoena, save for those connected with the F G MacDowell Discretionary Trust, which the Wife’s parents have conceded they will supply.
Having regard to the s 75(2) factors referred to later in these reasons, I am satisfied that there ought to be adjustment for future needs for the wife in respect of this property of 20 per cent.
As such I will order that the P Property be sold and after repayment of the amount of $140,000 to S Bank, agents’ fees, legal costs and rate adjustments, the net proceeds ought to be divided equally between the parties having regard to the s 75(2) factors. That will mean that each will receive between $17,500 and $20,000.
The T Property is owned by both the husband and the wife. It is agreed between the parties that if the wife receives sufficient money she would like to keep it, based upon the inclusion of the R Property as property and her Kennon type claim. Otherwise it is to be sold.
The parties purchased the T Property in 2013, that purchase was completed in January 2014. The T Property has an agreed value of $515,000 and it is subject to a mortgage of $414,131. This leaves equity in that property of about $100,869.
I will be give the wife the option to purchase the husband’s share of the property for $50,434. This is approximately half the net interest in the property. To that end I will be making an order giving the wife 60 days in which to pay to the husband $50,434.
The wife must give notice to the husband, within one month from the date of these orders, that she wishes to acquire the husband’s interest in the property and it must be then settled within the 60 day period.
On settlement each of the parties will pay half the outstanding rates and the wife will either discharge the mortgage to Q Bank or release the husband of his personal guarantees.
The wife may set off the $50,434 which she is required to pay the husband for the T Property against any other monies to which he is required to pay her under these orders.
In terms of contributions towards the purchase of the T Property I note and accept the evidence of the husband in paragraphs 95 to 98 in his trial affidavit together with my consideration of the broader aspects of contributions.
The husband has paid the mortgage virtually since the property was acquired, including for a number of years after separation. He paid a significant capital sum, in relative terms, at the time of acquisition of the property.
On a contribution basis I am satisfied that the wife’s contribution represented 30 per cent of that asset and the husband’s contribution represented 70 per cent of that asset.
For the same reason as articulated in regard to the P Property I am satisfied that there ought to be an adjustment in regard to the T Property and the P Property of 20 per cent in favour of the wife making an equal division.
The husband has superannuation accumulation funds totalling $183,631. Neither the husband nor the wife is seeking an adjustment of that superannuation or the splitting of that superannuation. Accordingly, it will go into the single pool.
The husband’s superannuation fund at the commencement of cohabitation had a value of $110,751.[35] From the affidavit of Mr Y, the trustee and the husband’s accountant,[36] it appears that the husband paid into his superannuation fund between $7,155 to upwards of $7,700 each year over 2013, 2014, 2015, 2016 and 2017. In addition, I was provided with further calculations which were tendered as Exhibit E6 showing payments from $7,155 to $8,195.
[35] Husband’s trial affidavit, paragraph 103.
[36] Filed 17 November 2017, Annexure C.
This total over the four year period is some $29,884, averaging over $6,000 per year. The majority of that contribution was made during the time the husband and the wife were cohabiting. That has added significantly to the superannuation pool, as has the accretion of the value of the substantive pool due to interest and presumably capital appreciation.
I have had regard to the fact that this superannuation is not presently available to the husband in terms of the overall assessment of a division of property between the parties.
In terms of the superannuation there are two significant features to which I have had regard, in addition to the other features. The first is that the bulk of that fund was in existence at the time that the parties commenced cohabitation. The second is that whilst there have been contributions during the relationship of presumably around the $25,000 mark there had been contributions afterward. It is clear given the simple mathematics that the value of the fund has increased over the years and a significant part of that needed to be attributed to the initial capital contributions.
I have had regard to all of the general matters in relation to contribution and I am satisfied that the wife’s contributions to this fund are far less compared to the other property to which I have alluded. Her contributions are almost miniscule.
I have considered the relevant s 75(2) factors to which I allude elsewhere in these reasons, and I have determined that the wife is entitled to an adjustment for contribution and the s 75(2) factors with regard to this particular property at eight per cent of the whole, namely $14,690.
I will be ordering that the husband pay to the wife that sum out of the non-superannuation assets.
The other assets of the parties are generally agreed. They are set out in the joint balance sheet.[37] The husband accepts that there ought to be an add-back in terms of the $35,316 he paid in the proceeds of the sale of shares which he applied to legal costs. I will accept and adopt that approach.
[37] Exhibit E4.
The wife had control of jewellery, which the parties agreed had a valuation of $3,200. I have treated that jewellery as being lost as one of the normal exigencies of life. Accordingly, the other property is:-
Furniture at T Property $7,000
Wife’s motor vehicle 1 $17,350
Wife’s motor vehicle 2 $5,000
Wife’s caravan $2,800
Wife’s horse $500
TOTAL$32,650
The husband will retain the following property:-
Money at bank $6,152
Z Bank Investment $7,160
Boat $15,000
Cub camper trailer $5,000
Husband’s Q Bank Offset Account $685
Sale proceeds of shares $35,316
TOTAL $69,313
There is an agreed debt to his sons in a beneficiary account of $4,157 making a total of $65,156.
The total of the assets to be retained by the husband and/or wife is $97,806 of which I am satisfied the contributions were as to 30 per cent by the wife and as to 70 per cent by the husband. I refer to the contributions discussed elsewhere in these reasons and in particular the acquisition of the Subaru motor vehicle by the husband for the wife with a value of $32,000, the acquisition of the caravan, the horse, the jewellery and photography.[38]
[38] Husband’s trial affidavit paragraph 102.
However, for the factors to which I have referred to elsewhere I have made an adjustment in favour of the wife to the extent of 20 per cent, thus providing the division on an equal basis, therefore the wife is entitled to $48,903, of which she has $32,650 making a requirement that the husband pay her a further $16,253.
To give effect to these adjustments I have added the $16,253 to the $14,690 (being the superannuation adjustment) making a total of $30,943 payable by the husband to the wife. The wife may elect within 60 days of this order to deduct that sum from the amount of $50,434 she would be required to pay to the husband to retain the T Property.
I will make orders providing that the husband take the property to which I have earlier referred and the wife take her property to which I have earlier referred. The husband is to pay the wife $30,943 unless the wife decides to acquire the husband’s interest in the T Property as discussed earlier.
This deals with the identification of the property and an outline of my thinking in terms of adjustment of the property.
Kennon Claim
I need to consider the wife’s Kennon[39] claim which was raised by the wife late in the proceedings and she asserted that there ought to be a significant adjustment in her favour in that regard. The wife asserts that the course of conduct from the husband through perpetration of violence made her contributions much more difficult.
[39] Kennon v Kennon (1997) FLC-757.
Watts J in Gillard & Gillard and Anor [2016] FamCA 841 set out the principles which govern a claim of this nature:-
Applicable Principles
189.I repeat the discussion of applicable principles in Minterly & Minterly (2013) FamCA 418 at [68] - [73]:
68.The Full Court in Kennon & Kennon (1997) FLC 92-757 said the following:
Put shortly, our view is that where there is a course of violent conduct by one party towards the other during the marriage which is demonstrated to have had a significant adverse impact upon that party’s contributions to the marriage, or, to put the other way, to have made his or her contributions significantly more arduous than they ought to have been, that is a fact which a trial judge is entitled to take into account in assessing the parties’ respective contributions within s 79.
69.In Spagnardi & Spagnardi [2003] FamCA 905 the Full Court referred to the above passage in Kennon and emphasised the words “which is demonstrated” saying:
The question is whether a trial judge may infer from the evidence that the result must be that a party’s contributions have been affected.
70.The Full Court in Kennon went on to say that considerations of this nature only apply in a relatively narrow band of cases and that it was not directed at conduct which does not have that effect and, of necessity, it usually did not encompass conduct proximate to the breakdown of the marriage basically because there would be insufficient time for any impact to be relevant to contributions.
71.In Spagnardi, the Full Court approved a statement by the trial judge, when the trial judge had commented on the difficulty in that case which arose from the wife’s material, because although it gave evidence about specific acts of violence, it did not expressly refer to the impact of the violence on her contributions. The trial judge went on to say:
It cannot, however, be the law that the failure to state such matters expressly is necessarily fatal to such evidence; there must be cases where it is obvious or a very likely inference from the facts, that certain kinds of violence must have adversely affected a person’s contributions.
72.The Full Court in Spagnardi also commented upon the reference to “exceptional cases” and “the relatively narrow band of cases”. The Full Court in Spagnardi adopted the trial judge’s comments that:
… the references to ‘exceptional cases’ and ‘narrow band of cases’ occurs in the context of the principle of misconduct in general rather than the more narrow formulation about domestic violence. My reading of these passages, therefore, is that it is not necessarily correct that only cases of exceptional violence or a narrow band of domestic violence cases fall within the principles. It seems to me that reading these passages carefully, the key words in a case where there are allegations of domestic violence are ‘significant adverse impact’ and ‘discernable impact’. That reading of the passage is, I think, given some additional force by the actual decision in the Doherty case and the judgments of Baker J in both Doherty and Kennon.
73.The Full Court in Spagnardi at [47] said:
An insufficiency of evidence in the present case leaves the Court with a limited ability to deal with allegations in the context of section 79 proceedings. As Kennon has established, it is necessary to provide evidence to establish:
· The incidence of domestic violence;
· The effect of domestic violence; and
· Evidence to enable the court to quantify the effect of that violence upon the parties [sic] capacity to "contribute" as defined by section 79(4).
Senior counsel for the husband says that this was not a claim to which Kennon should apply.
The Court permitted the wife to adduce her evidence in support of the Kennon claim and consequently allowed the husband’s evidence through his affidavit in reply.
I accept that the email evidence between the parties showed that the wife was at times strident, domineering and abusive.
The wife conceded that the husband was generous to her and I am not satisfied that he was financially controlling.
The husband funded the wife to undertake a course of study.
In Noogle &Noogle [2017] FamCA 140 Austin J discussed the limits of the Kennon claim and said:-
36. In respect of the first issue, the restrictive limits of the Kennon guideline principle must be acknowledged. The majority stated (at 24), without dissent (at 66-67):
Put shortly, our view is that where there is a course of violent conduct by one party towards the other during the marriage which is demonstrated to have had a significant adverse impact upon that party’s contributions to the marriage, or, put the other way, to have made his or her contributions significantly more arduous than they ought to have been, that is a fact which a trial judge is entitled to take into account in assessing the parties’ respective contributions within s 79.
In the above formulation, we have referred only to domestic violence, for the reasons which we indicated earlier, but its application is not limited to that…
However, it is important to consider the “floodgates” argument. That is, these principles, which should only apply to exceptional cases, may become common coinage in property cases and be used inappropriately as tactical weapons or for personal attacks and so return this Court to fault and misconduct in property matters – a circumstance which proved so debilitating in the past…
However, in our view, s 79 should encompass the exceptional cases which we described above…
It is essential to bear in mind the relatively narrow band of cases to which these considerations apply. To be relevant, it would be necessary to show that the conduct occurred during the course of the marriage and had discernable impact upon the contributions of the other party. It is not directed to conduct which does not have that effect and of necessity it does not encompass…conduct related to the breakdown of the marriage (basically because it would not have had a sufficient duration for this impact to be relevant to contributions).
(original emphasis)
In the present case the wife has not provided any reliable evidence establishing that there has been an adverse impact on her contributions to the marriage.
I do not accept the wife’s evidence as to the level of violence. There was certainly some violence and some admitted violence to which the husband conceded. However, given the balancing of the weight to be given to the evidence, I prefer that of the husband as against the wife. I am satisfied that the violence was generally reactive. The wife’s evidence about the violence was exaggerated and at some levels fabricated.
The wife did not adduce any expert medical evidence nor did she adduce any psychological evidence. In Gillard & Gillard and Anor (supra) Watts J discussed the medical evidence of Dr EF which was:-
195.Dr EF provided therapy to Ms Q on four occasions in 2005 and on five occasions in 2012 and 2013. Ms Q Gillard gave a history to Dr EF similar to the history provided in her evidence before me about her recollections of serious difficulties caused by her father’s behaviour at home over the years that she was living in the household. The history she gave to Dr EF was, Dr EF said, consistent with the history given by the wife and involved cruel and inconsiderate behaviour of her father over the years including irrational and abnormal behaviour. Dr EF formed the view that Ms Q had been adversely affected by her father throughout her childhood and early adult life causing her depression and anxiety and affecting her education at school (and at university). Dr EF was of the view that Ms Q is likely to remain affected for many years and will need further counselling and psychological therapy/supportive psychotherapy. I infer the adverse impact that the husband’s behaviour had on Ms Q throughout her childhood and early adult life, made the wife’s role as Ms Q’s parent significantly more arduous.
His Honour went on to say:-
212.The husband submits that only incidents of violence perpetrated by the husband against the wife are relevant to the wife’s Kennon claim and that other incidents of alleged family violence against the children are not relevant. I do not accept that submission. The wife’s claim that contributions were made significantly more arduous by the husband’s systemic conduct include contributions that she made in the role of parent. Dr EF’s evidence would indicate that the children were all affected by the husband’s conduct that was directed at each of them. I am prepared to infer that the effect of the husband’s conduct on the children made the wife’s contributions as the primary carer of those children significantly more arduous.
The Full Court in Britt & Britt [2017] FamCAFC 27 considered whether the evidence was capable of establishing a claim that the appellants contributions were made more onerous by the conduct of the respondent and said:-
74.The respondent submitted that the appellant’s evidence was not relevant to an issue because even if it was evidence of family violence, the appellant had called no evidence to suggest that the violence had made her contributions more onerous. This submission overlooks the obvious point that the court can infer from appropriate evidence that there was a nexus between the conduct and the relevant contributions.
The wife showed that she was at times angry, controlling and abusive.
Having regard to the evidence before me, I am not satisfied that a Kennon claim is established.
CONTRIBUTIONS
At the commencement of cohabitation the husband had the following assets:-
(a) a one half interest of the farming business operated on the pastoral properties;
(b) a quantity of shares valued at 1 February 2012 at $84,216;
(c) a boat (with a current value of $15,000) and trailer;
(d) a camper;
(e) a Z Bank Investment of approximately $20,921 as at 30 June 2012; and
(f) superannuation entitlements totalling $110,751.[40]
[40] Husband’s trial affidavit paragraph 103.
The wife disclosed that at the commencement of the relationship she had no significant assets.
Given the evidence I infer that she had furniture and motor vehicle 2.
This was a marriage of relatively short duration, a period of three years and seven months.
The wife had the care of her three children during the course of the marriage and they were effectively financially supported and housed by the husband in addition to the payment by him of school fees to some extent, food and the like. He provided all of the income into the home apart from some family tax benefits received by the wife for the care of the children.
I accept that the husband made a direct contribution to the wife’s children to the extent of about $40,078. He paid health insurance for them during and after cohabitation. The parties went on regular holidays which were funded by the husband.
The husband has provided significant financial support for the wife and her children following separation.
The husband had a modest income and it is clear that his drawings exceeded his income each year. He provided funds to purchase the T Property and provided borrowings of approximately $140,000 to purchase the P Property. The wife has collected the rental income on that property and in addition she took rental income from two cottages on the R Property of about $200 per week for a period of time.
The husband’s capital contributions at the commencement of the relationship, having regard to the savings, superannuation and other property, were overwhelming as against those of the wife.
In terms of physical work, I accept that the husband undertook the vast majority of the day to day operations and physical work on the farm. I prefer his evidence that the wife’s involvement in the farming was very limited.
In terms of contributions as home-maker each of the parties has asserted that they were the primary contributor. The husband was away on the R Property regularly and in later years needed to commute from the T Property to the R Property. I generally prefer his evidence, although in terms of contribution I am satisfied there is some subjectivity from it. Given my assessment of each of the parties I am satisfied that the homemaker contributions of the parties during the course of their relatively short marriage were equal.
Further, I am satisfied that the husband contributed at least 50 per cent towards other aspects such as housework and homemaking. The husband was significantly involved in the care of the wife’s children, including driving them to and from school on occasions. I accept that the wife’s involvement with her children was greater than that of the husband.
I have had regard to the husband’s children visiting him on regular occasions and the need for the wife to provide for them when they stayed.
The parties lived at both properties: N Property then the R Property.
When the parties purchased the T Property the husband contributed to make the mortgage repayments out of his S Bank loan.
Since separation the husband has contributed to the wife to assist her and her children pending the outcome of these proceedings.
I do not intend to reiterate all of the evidence and I am satisfied that the contributions of the husband were overwhelmingly greater than those of the wife.
The income from the farm and the drawings were applied to the living expenses of the husband, the two children of his previous marriage when they stayed on the property, their school fees, the living expenses of the wife and the three children from her previous relationship. I am satisfied that the drawings exceeded the income.
The husband set out details of the funds spent in relation to the wife’s children.[41] I accept that the husband spent those funds on those children.
[41] Husband’s trial affidavit paragraph 16.
I accept that he paid health insurance cover for the wife’s children, which continued from the time of cohabitation until about April 2016. The total value of this health insurance, which obviously included the husband and his sons, was about $8,500.[42]
[42] Paragraph 7 of husband’s trial affidavit.
The husband funded holidays for the wife, the children and himself as set out in his trial affidavit.[43] In addition he was engaged to a significant extent in the lives of the wife’s three children and I accept his evidence set out in his trial affidavit in that regard.
[43] Ibid paragraph 17.
The husband provided accommodation for the wife and her three children initially at the N Property, then at the R Property and finally at the T Property when that property was purchased in 2014.
When the husband and wife moved to the main residence at the R Property the husband expended significant money on the renovation and restoration of that property. I accept that some of the whitegoods and furniture are now in the possession or control of the wife. I have given that minor weight in the overall adjustment of property. I have given some weight to the painting undertaken by the wife’s father and brother.
In terms of the P Property the husband advanced about $140,000 of those funds from his S Bank loan facility and funded the rest. I accept that the wife contributed about $5,966 towards the purchase.
The husband’s income was a factor in the parties obtaining a loan to purchase the T Property and I accept the husband spent money setting up the property. In addition the husband provided money from the sale of his shares. He spent considerable money having work undertaken on the premises.[44]
[44] Husband’s trial affidavit paragraph 97.
During the course of the marriage the husband provided financial assistance to the education of the children including some school fees at a private school for the wife’s eldest child and about $3,585 in school fees for one of the wife’s other children.
The husband funded the purchase of the items referred to in paragraph 102 set out in his trial affidavit.[45]
[45] Ibid 102 paragraph 102.
I also accept the analysis of the post separation expenses set out by the husband in his trial affidavit.[46]
[46] Paragraph 109.
Overall I am satisfied that the contributions by the husband were overwhelming as compared with the contributions of the wife both over the period of cohabitation and following separation.
In terms of income the husband discloses his assessable income[47] as follows:-
- Year ended 30 June 2013 $123,476
- Year ended 30 June 2014 $29,550
- Year ended 30 June 2015 $60,154
- Year ended 30 June 2016 $10,446
- Year ended 30 June 2017[48] $61,100
[47] Annexure E3 volume 6 pages 80 to 85.
[48] Exhibit E5 husband’s 2017 tax return.
The financial documents of the R Property Trust[49] show that the income of the Trust over the period 2014 to 2017 was as follows:-
2014 : $273,106
2015 : $319,094
2016 : $306,474
2017 : $320,183
[49] Exhibit E10 R Trust Financials 2017 and Exhibit E3 Volume 5 R Trust Financials for years 2012 to 2016.
The primary source of income was from the sale of wool with the second significant amounts being from the gross profit on livestock trading.
The husband deposed and I accept that his drawings over the time that he and the wife lived together where as follows:-[50]
2013 : $144,744
2014 : $255,906
2015 : $157,044
2016 : $143,253
2017 : $104,595[51]
[50] Husband’s trial affidavit paragraph 26.
[51] Amended annexure C to the affidavit of Mr Y.
These figures were also confirmed by Mr Y and I accept the accuracy of those figures. From the updated annexure of the affidavit of Mr Y these included superannuation, insurance, tax, the T Property loan repayments of about $2,400 per month, health insurance, DD School fees, EE School fees (for one year), drawings, life insurance, vehicle running expenses, electricity and other expenses.
The husband’s expenses dropped markedly in 2017 as a consequence of him taking significantly reduced drawings.
Section 75(2) factors
I have set out the age and health of each of the parties. Each is in good health, although the husband is much older than the wife. He has regular employment as a farmer (he is well regarded in that role) and has access to the R Property at no rent. I have treated those as significant financial resources.
The wife is trained in allied health and retail. I am not satisfied on the evidence that there is any real reason why the wife cannot obtain employment. Furthermore, I am concerned that the wife is working, but has not disclosed her income and I refer to the evidence discussed earlier in these reasons.
Given the husband’s support of the wife in her training as a counsellor she is better able to obtain employment following the marriage than before the marriage, which is an unusual consequence. She has given no satisfactory evidence as to why she has not taken up paid employment since separation.
I have doubts about the veracity of her evidence in terms of her income and I am not satisfied that she has made full and frank disclosure to the Court of that income.
The husband has two significant financial resources: the first is his ability to secure monies against the R Property. This is not evidence of his ownership of that property, but simply the facility to borrow money to run his farming business.
The effect of these orders will be that that mortgage will reduce to slightly less than $1 million dollars in the S Bank loan. This will increase to about $1.1 million to $1.2 million over the next twelve months and the husband has the capacity to draw up to $1.4 million dollars. That is the second significant financial resource of the husband to which I have had regard.
At the same time the husband has overall liabilities in relation to his business albeit set off against that sum will be the $309,970 being the assets of his farming business.
The financial resource of the husband from the Children’s Trust is that to which I have referred to above, that is the ability to borrow monies and farm on the R Property.
The wife has the responsibility and care for herself and her children. She gives evidence that she is in a romantic relationship, but it is not a de facto relationship. For the purpose of this determination I have accepted that circumstance. The husband has re-partnered and provides support for his current partner and she in turn provides assistance in terms of the farm.
The husband has the obligation to support his own children, including the payment of school fees.
The wife is receiving Centrelink benefits to which she has deposed in her financial statement.
Conclusion as to property
I have not undertaken a strictly global approach in terms of the adjustment of property. I have left the husband with the assets of his business and the significant liabilities of that business which is an overall liability measured in hundreds of thousands of dollars.
Whilst I have adopted an approach for adjustment on an asset or group of assets basis, I have considered them both individually and on a global basis. I have accepted the logic, but not necessarily the arithmetic, set out in the conclusion of the husband’s case outline.[52]
[52] Exhibit E1 pages 14 and 15.
I am satisfied that with the payments by the husband to the wife as set out in these reasons that the outcome is, in all of the circumstances, just and equitable.
Spousal Maintenance claim
The wife seeks an order that ‘the husband pays spouse maintenance to her in such sum and upon such terms as the Court considers appropriate’.[53] The husband opposes the order.
[53] Order 3 of the wife’s response to an initiating application filed 21 February 2017.
Section 72 of the Act provides for the right of a spouse to maintenance and says as follows:-
(1)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).
(2)The liability under subsection (1) of a bankrupt party to a marriage to maintain the other party may be satisfied, in whole or in part, by way of the transfer of vested bankruptcy property in relation to the bankrupt party if the court makes an order under this Part for the transfer.
The Full Court in Bevan & Bevan (1995) FLC 92-600[54] set out the process in determining spousal maintenance applications as:-
Taken together then, we would state the law as being that an award of spousal maintenance requires:
1.a threshold finding under s72;
2.consideration of s74 and s75(2);
3.no fettering principle that pre-separation standard of living must automatically be awarded where the respondent's means permit; and
4.discretion exercised in accordance with the provisions of s74, with "reasonableness in the circumstances" as the guiding principle.
[54] At 89,981 and 89,982.
The threshold questions are firstly whether the husband is able to fund a lump sum spousal maintenance order. He has limited ability to do so out of the S Bank loan.
The wife claims that she has no earning capacity and that she needs the support of the husband. I do not accept that she has made that threshold argument.
I am not satisfied that the wife does not undertake paid employment and I am not satisfied that she has made full and frank disclosure of her income.
As to the husband’s capacity to pay, I note the husband’s income to which I have alluded earlier in these reasons. It is not a strong income and is seasonally dependent. Given the living expenses of the husband set out in his financial statement including the updated paragraph “N” and his obligations to maintain interest on the loan and to maintain himself and his current partner I am not satisfied in all of the circumstances that he has a capacity to meet maintenance expenses. I have considered all of the s 75(2) factors to which I have earlier referred to and, in all those circumstances, I am not satisfied that the spousal maintenance claim by the wife is made out. As a consequence that application will be dismissed.
Summary
The wife is interested in retaining the T Property. Given the matters to which I have alluded to earlier it is not clear whether she is able to do so. It was raised with counsel for the wife as to the process which should be adopted should that occur.
The husband sought that the wife pays one half of the fees charged by Valuer 1 and Valuer 2 for the valuation of assets and the charges by the accountants for the production of documents. There being no submissions to the contrary, I have made these orders.
As such I have made provision for the wife to acquire the property in terms of the orders for sale. It is clearly open for the parties to enter into a private agreement for the sale to the wife should they chose to do so.
Any such acquisition would be pursuant to these orders and ought to be treated as such. I will make that orders.
The husband has been paying all of the expenses on the T Property and that has been debited against his borrowings to which I have earlier referred.
Given that the wife and her three children have occupation of that home I am satisfied that it is just and equitable that the wife shall be responsible for payment of the outgoings referrable to the T Property from the date of these orders and that each of the parties should be responsible for payment of one half of the instalments due under the Q Bank mortgage.[55]
[55] Balance sheet – Exhibit E4 item 19
I certify that the preceding three hundred and twenty (320) paragraphs are a true copy of the reasons for judgment of the Honourable Justice delivered on 16 May 2018
Associate:
Date: 9 May 2018
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