Blue and Blue and Ors - [2008] FamCA 787

FAMILY COURT OF AUSTRALIA

BLUE & BLUE AND ORS

[2008] FamCA 787

FAMILY LAW – PRACTICE AND PROCEDURE – Application for deferral of property proceedings – Application dismissed

Family Law Act 1975 (Cth) s 79(5)

Ferraro v Ferraro (1993) FLC 92-335
Gartside v Inland Revenue Commissioners [1968] AC 553
Grace v Grace (1998) FLC 92-792
Kelly v Kelly (No 2) (1981) FLC 91-108
Schmidt v Rosewood Trust Limited [2003] UKPC 26
S v S [2003] FamCA 851
Van Essen v Van Essen (2000) FLC 93-028

APPLICANT:

Ms Blue

FIRST RESPONDENT:

Mr Blue

SECOND RESPONDENT:

Ms Trent

THIRD TO THIRTY FIFTH RESPONDENTS:

Others

FILE NUMBER:

BRF

3188

2005

DATE DELIVERED:

29 August 2008

PLACE DELIVERED:

Brisbane

PLACE HEARD:

Brisbane

JUDGMENT OF:

O'Reilly J

HEARING DATE:

22 August 2008

REPRESENTATION

COUNSEL FOR THE APPLICANT:

Mr Martin

SOLICITOR FOR THE APPLICANT:

Hirst & Co

COUNSEL FOR THE FIRST AND SECOND RESPONDENTS:

Mr Kirk SC

SOLICITOR FOR THE FIRST AND SECOND RESPONDENTS:	Hopwood Ganim
COUNSEL FOR THE THIRD TO THIRTY FIFTH RESPONDENTS:	Mr Sullivan
SOLICITOR FOR THE THIRD TO THIRTY FIFTH RESPONDENTS:	Herbert Geer

Orders

IT IS ORDERED

The wife’s application in a case filed on 16 June 2008 for the deferral of the s 79 proceedings is dismissed.

AND IT IS CERTIFIED

It was reasonable for the parties to engage lawyers including Counsel and Senior Counsel in relation to that application.

AND IT IS FURTHER ORDERED

The wife pay the husband’s and the second respondent’s costs of and incidental to that application on the standard (party and party) basis, to be assessed by a Registrar if not agreed, the payment to be made at the same time as the settlement of the s 79 proceedings.
The wife pay the third to thirty-fifth respondents’ costs of and incidental to that application on the standard (party and party) basis, to be assessed by a Registrar if not agreed, the payment to be made within 30 days after assessment or agreement.
The matter be listed for mention and consideration of further directions at 9.30am on Friday 12 September 2008.

IT IS NOTED that publication of this judgment under the pseudonym Blue & Blue is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: BRF3188/2005

MS BLUE

Applicant

And

MR BLUE

Respondents

MS TRENT

Second respondents

OTHERS

Third to thirty-fifth respondents

REASONS FOR JUDGMENT

By application filed on 16 June 2008 the wife seeks that the property proceedings she commenced on 3 November 2005 be deferred under s 79(5) of the Family Law Act 1975 (Cth) to a date not sooner than the completion of the development of four properties by the husband and/or entities in which she alleges he has an “interest”.
The four properties, specifically, are described as Property A, Property B, Property C and Property D.
The application for deferral is opposed by the husband and his partner who are the first and second respondents in the proceedings and by the several corporate trustee entities comprising the third to thirty fifth respondents.
The principles relevant to the wife's application are as stated by the Full Court in Grace v Grace (1998) FLC 92-792. Generally, it was said that the exercise of the discretion in s 79(5) is guided by the legislature so that taking the words of s 79(5) on their face the following are preconditions which cumulatively must be found in order to invoke the power to order a deferral, namely that the Court is of the opinion that:
·there is likely to be a change in financial circumstances
·the likely change is a significant one
·having regard to the likely and significant change it is reasonable to defer the proceedings and
·an order made if that significant change occurs is more likely to do justice and equity as between the parties than an immediate order.
In so concluding, the Full Court considered the broader context of the scheme established within the Act for property proceedings under s 79, and referred to the important features of the scheme, including that an application for property settlement must be brought no later than 12 months after the marriage has been dissolved unless leave be obtained under s 44(3) of the Act and that the usual process to be undertaken operates upon the property of the parties at the time of the hearing.
The Full Court distinguished between procedural adjournment which connotes that the hearing has commenced or is due to commence in a relatively short time and the power under s 79(5) stating that in context it is better described as deferral because an order under s 79(5) has the effect of deferring the step of ascertaining the property pool for distribution to a defined future point in time so that as such an order goes to the core subject matter of the determination to be made under s 79 thus conferring a substantive not just procedural quality to its consequences.
Although s 79(5) uses the expression "adjournment" it is convenient to use the term "deferral".
More recently, a differently constituted Full Court in Van Essen v Van Essen (2000) FLC 93-028 agreed with the formulation and statement of the principles in Grace v Grace.
Since both of those cases were decided s 79(5) has been amended, however, not in a way presently relevant.
Section 79(7) specifies two categories in which s 79(5) may apply, namely superannuation interests and discretionary trust powers, but provides expressly that nothing in that provision shall be taken to limit the circumstances in which the Court may form the opinion that there is likely to be a significant change in the financial circumstances of a party.
The wife's case for deferral largely is as contained in pars 187 to 199 of her affidavit filed on 16 June 2008 and an affidavit of Mr BY, registered valuer, filed on 17 July 2008. She says there will be a change in the husband's financial circumstances arising from the development of the four properties referred to on the basis that they will increase in value upon being developed or redeveloped, and points to valuation reports prepared by Mr TI, registered valuer, in relation to a commercial development at MU to demonstrate that valuations obtained on the as if completed basis can vary significantly over time.
Mr TI’s valuations show increase in as if completed valuations for the MU project as follows: 12 August 2005 $46m; 14 March 2006 $65m; 30 March 2007 $74.7m.
The wife says that based on the MU example she is not satisfied that a valuer accurately can value a development as if completed and that until a development is actually completed a valuer cannot take into account the circumstances prevailing at the time, the nature of lease commitments actually entered into, the actuality of incentives or rent-free periods provided to tenants and/or the trading economic conditions at the time of completion.
Mr BY, in support of the wife's application, confirmed to the wife's solicitors that the primary method of valuation of a proposed commercial redevelopment is the capitalisation method, which he described, and that application of the capitalisation method depends on a range of assumptions, which he set out, expressing also various observations on the method as it relates to as if completed valuations and his opinion as to certain other matters. For the sake of completeness, I will set out the full text of his report.
The following report is prepared for and on behalf of the Family Court in accordance with Part 15.5 of the Family Law Rules 2004, with my opinion as follows:
1. Confirmation that the primary method of valuation of a proposed [commercial] redevelopment is the capitalisation method
The primary method of valuation of a proposed [commercial development] is the capitalisation method. The capitalisation method is a comparative approach which considers income and expense data relating to the property being valued and estimates value through a capitalisation process. Capitalisation relates income and defined value type by converting an income amount into a value estimate. This process involves the use of capitalisation rates or discount rates.
As an accepted methodology within the income approach to valuation, discounted cash flow analysis involves the projection of a series of periodic cash flows to a development project.
2. Confirmation that the capitalisation method determines the present value of the expected net future income to be derived from the property
The capitalisation method involves a calculation of the expected net income from the property at the appropriate capitalisation rate which is adopted after reference to comparative market data. Whilst the capitalisation rate adopted is relative to historical data the assessed value reflects the future benefits to be derived from the property.
3. Confirmation that the basic capitalisation method when applied to a proposed [commercial] development depends on a range of assumptions including the following:
• That the current market rent will continue indefinitely and that the risk to future income will remain stable
• Vacancy allowances
• Outgoings
• Operating costs
• Specify any further assumptions.
In assessing market value of a proposed [commercial] development on a capitalisation basis the valuation would be subject to the assumptions outlined in the report with such assumptions likely to include but not limited to:
• That the market rent will continue indefinitely and that the risk to future income (the capitalisation rate) will remain stable
• That the vacancy allowance as utilised in the adoption of the net income will remain consistent
• That outgoings adopted as part of the initial assessment will in fact apply
• That operating costs will remain consistent
• That all details of rental levels including rental incentives, if applicable, have been disclosed
• That the “as if’ complete assessment is on a fully let basis.
In addition to the assumptions previously detailed, an assessment of value on an “as if’ complete basis would have a qualifying clause indicating that the valuation is subject to such assumptions and included within the qualifying clause would also be the following statements that the valuation was subject to:
• Satisfactory completion of the improvements in accordance with the Plans, Specifications and details as provided
• Issue of all relevant approvals including a satisfactory Building Completion Certificate under the appropriate legislation
• The Valuer reserves the right to review and if necessary vary the valuation if there are changes in the project itself or in any of the assumptions made.
4. Confirmation that any of these assumptions could vary considerably between the date of valuation and actual completion.
The assessment of value involves assumptions in regards to rental levels, full occupancy, outgoings, operating costs and capitalisation rates based on market analysis at the date of the initial assessment. As part of the initial assessment a sensitivity analysis may have been carried out which shows the effect on the value of the property based on differing assumptions as to the future rent, yield, operating costs and capitalisation rates.
The sensitivity analysis, whilst not predicting any particular scenario for the proposed development, does indicate that any changes in the assumptions adopted can have quite significant effects on the value “as if” complete and as most projects have a development period of two to three years, any number of factors could change the value as completed in comparison to the value “as if” complete.
5. You opinion as to when he considers a [commercial] development is “completed” for the purposes of valuation.
A [commercial development] is considered to be completed at the time at which the Final Certificate and/or the Certificate of Completion is issued by the relevant authority. At this time the development would be capable of being occupied and rental income received.
Mr Martin of Counsel, for the wife, submitted that based on Mr BY’s evidence the assumptions referred to by him could vary considerably between the date of valuation of the four properties on the as if completed basis and the date of actual completion so that a hearing now could not do justice and equity between the parties, and that an order made after the completion of proposed developments on the four properties would be more likely to do justice and equity between the parties than an order made prior to those events if there should not be a deferral. Mr Martin said that presently the completion of the development of the four properties was anticipated to be about 3 years.
Mr Martin submitted that on the evidence the four preconditions in Grace's case are established in that with the completion of the development of the four properties there is likely to be a change in the husband's financial circumstances, the likely change is significant because the difference between the properties as they now are and the developed properties potentially is tens of millions of dollars, and that having regard to the likely and significant change it is reasonable to defer the proceedings because otherwise they will be based upon predictions by valuers as to what may occur in the future, whereas once the significant financial change occurs in the future by way of the completion of the development of the four properties an order then made would be more likely to do justice and equity between the parties.
Mr Martin, in relation to a submission by Counsel opposing him that there must be a “line in the sand”, said it is not correct to say that in 3 or so years when the trial comes on, if it is deferred, there will be other properties which will be incomplete and which may then have to be assessed for the trial, because the wife is content to draw the “line in the sand” upon completion of the four properties mentioned.
Mr Martin conceded that it is not controversial that there are significant third party “interests” in relation to the trusts of which the many corporate respondents are trustees, and other related and unrelated third party “interests” in relation to the four properties. In context, I understand the concession as to “interests” to relate to the popular use of that word rather than its legal meaning, because three of the four properties are owned by corporate trustees of discretionary trusts.
The husband's case is that he owns, operates and is the managing director of R Group Pty Ltd ATF R Group Trust which is engaged in the business of the development and redevelopment of commercial properties. Basically, the ownership of each property is held by a separate entity. R Group Pty Ltd is the development company which is engaged by the property entities to undertake the developments. R Group Pty Ltd employs 14 staff. With the exception of Property B, in which the husband holds the 100 % beneficial interest, the other three properties are owned by corporate trustees with underlying discretionary trusts in which the husband and related and unrelated third parties are the beneficiaries.
The husband says that whilst Property A is due for completion of the major component of construction in March-June 2009 the timing of the proposed future development of the other properties is less certain. The husband's affidavit filed on 8 August 2008, pars 110 to 136, provided the following specific information in relation to the four properties.

Property A

(a)The property is owned by Property A Pty Ltd as trustee of the Property A Unit Trust, the units being held 60% for the W Trust and 40% for G Trust, both of those trusts being discretionary trusts
(b)The husband is the appointor of the W Trust, the named beneficiaries of which include himself and the two children of the marriage aged 17 years and 14 years
(c)The husband is the appointor of the G Trust, established to provide bonuses for staff
(d)The property was acquired 3½ years post separation (16 July 2007)
(e)There is a third party “interest” in the property by way of a profit share arrangement with Mr WS, who introduced the property to the R Group, which, based on feasibilities, would see Mr WS earn a fee of the order of $1.5m-$2m for his involvement, although the precise terms of the arrangement are still being finalised
(f)Whilst major completion is expected to be achieved in March-June 2009, a feasibility prepared in March 2008 estimated profit of $5.1m, including third party “interests”, but that because of the changed financial markets since then he cannot be certain such profit will be realised
(g)If there are profits realised from the property, funds will need to be allocated to the costs of the R Group business overhead, which is over $2.9m per year.

Property B

(a)The property is held in the Property B Trust
(b)Development approvals are in place and the project is ready for construction
(c)However there are funding difficulties because of changed lending regimes by the banks, which are more stringent than the husband previously has experienced, in that now a construction funding facility for the project requires 75% committed leases, with signed lease agreements in place, which can take 3-6 months
(d)Construction will take about 12 months from commencement, however, because of the new funding prerequisites, it is uncertain when construction can commence although the husband hopes it can commence by September 2008
(e)Profit originally was anticipated to be about $1m, however, this assumed completion in May 2009, and because of the changed funding prerequisites the husband anticipates the project will be up to 6 months behind schedule resulting in increased holding costs and thus reduction in the anticipated profit.

Property C

(a)The property is owned by S Properties Pty Ltd ATF The Property C Trust, a discretionary trust of which the husband is the appointor and the husband and Mr BN (deceased) are the named beneficiaries
(b)The 8 lots comprising the property were acquired during 2003 and 2004
(c)The planned redevelopment involves 2 stages
(d)For stage 1, …, development approvals are held, however, the finance facility for construction expired in March 2008 and to date there has been inability to obtain funding because of the changed financial markets; once the finance is able to be obtained construction can commence but the husband cannot predict with any certainty when stage 1 will commence or be completed; and even so the anticipated profit for stage 1 will be minimal
(e)For stage 2, …, there is not as yet development approval and obtaining approval will require proceedings in the Planning and Environment Court because the Council is against the project and also third parties have indicated they will object to the development approval; the timeframe for the Court proceedings is not predictable with any certainty and if stage 2 eventuates it will take a minimum of 3 years to complete

Property D

(a)The property is owned by N Properties Pty Ltd ATF The Property D Trust, a discretionary trust of which the husband is the appointor and the husband and Mr BN (deceased) are the named beneficiaries
(b)The 4 lots comprising the property were acquired during 2004 and 2005
(c)The development approval experienced unforeseen delays, being 18 months in Council, with effect that the holding costs increased; with increase also in construction costs, and softening yields, the currently approved scheme no longer is financially viable
(d)The existing finance facility will expire on 31 August 2008, and a longer term facility cannot be put in place until there can be a viable development scheme, however, this will mean that another development approval will need to be sought from Council, which will be impact assessable, requiring advertising, with potential third party objections and therefore potentially proceedings in the Planning and Environment Court

(e)Accordingly, with no feasible mode and no funding in place the husband cannot speculate whether the project will commence or be completed nor if so whether it will be profitable.

The husband also said in his affidavit, at par 38:
The [R Group] business is involved in the acquisition, planning, development, construction and leasing of [commercial] property for sale or selectively for investment. The properties owned by [R] Group form the stock of the [R] Group business and at any point in time the [R] Group has a number of properties at various stages of acquisition, planning, development, construction, leasing or sale. Upon sale of any of the properties the proceeds are earmarked for the ongoing requirements of the [R] Group business including retirement of debt, payment of overhead, working capital requirements, funding requirements, repayment to stakeholders and meeting the needs of the ongoing projects. The survival of [R] Group and its funding requirements depends upon ongoing strategic acquisition of property and sale of properties to be able to continue to operate as a going concern. The nature of the [R] Group business is such that the composition of its property developments and investments change from time to time. For instance the property held by the group at separation is different from the property held by the group at present. I expect at a future time, for example in 3-4 years, the [R] Group will be in the same position as it is today, with a diverse property portfolio of development and investment in [commercial] properties at various stages of completion.
The husband explained in detail historical factors relating to debt funding for the R Group developments and the need to re-think funding since the third quarter of 2007 because of changes in the global economy and in particular the impact of the United States subprime crisis on banking policy. See, for example, pars 46 to 59 of his affidavit filed on 8 August 2008 to which I refer but need not set out.
The husband explained further in his affidavit direct impact on him of personal strain relating to the litigation having detrimental effect on his ability to run the R Group, and direct impact on the staff of the R Group and its ongoing projects, and said that to date legal fees in the matter (including his estimate of the wife's legal fees) already exceed $1m. He described also detrimental effect on the two children of the marriage, aged 17 years and 14 years, and other matters, including detriment to his health, particularly as the final separation occurred more than 4½ years ago and the proceedings commenced 2½ years ago. In relation to the children the husband said that already they have been exposed to the litigation for 2½ years and a deferral for 3 years would expose the children to the litigation for most of their teenage years.
Mr Kirk of Senior Counsel, for the husband and the second respondent, submitted that traditionally s 79(5) and the principles in Grace's case have been applied to cases involving superannuation interests and inheritances, and that although the category of cases to which the provision may apply is not closed, here the wife's sole reason for seeking deferral is that she is not satisfied that a valuer accurately can value a development until it is actually completed so that a valuer can take into account the circumstances prevailing at that time.
Mr Kirk pointed to the circumstance that the wife herself is not a valuer, and that Mr BY, the expert relied upon by the wife, did not say that as if completed valuations cannot be done, submitting that to the contrary they are routine and used daily to justify developments. Mr Kirk referred to the husband's evidence as explaining the change in value to the MU property, which presently I need not set out: see, however, the husband's affidavit filed on 8 August 2008, pars 94 to 97 for that explanation.
Mr Kirk referred to the nature of the business of the R Group, deposed to in more detail by the husband, to which I have referred, such that even if a “line in the sand” be drawn by reference to these particular four properties, in 3 or 4 years, by the time the matter came on if deferred, the wife may have to confront another batch of incomplete developments, thus being in the same position as now. (I have referred already to Mr Martin’s statement that the wife is content for the “line in the sand” to be drawn upon the completion of the development of the four properties). Mr Kirk pointed to the evidence by the husband that already in the past the husband and the wife had agreed on 31 March 2007 as to the “line in the sand”, but the wife wanted now to extend it although the parties' final separation occurred in January 2004, they have been divorced since January 2008 and the proceedings now have been on foot since December 2005. He pointed also to the circumstance that the four properties the subject of the wife's deferral application mostly were acquired post-separation.
More fundamentally, Mr Kirk pointed to the circumstance that although Property B is held in trust 100 % beneficially for the husband the other three properties are held according to the terms of discretionary trusts as to both income and capital, two of which (Property C and Property D) involve the family of Mr BN (deceased).
Ms LD, solicitor, formerly was the corporate solicitor with the R Group. She is now engaged more predominantly in its management and general business. In particular her role involves setting up the companies and trusts for projects and advising on appropriate structures for projects. Ms LD provided an affidavit filed on 8 August 2008 on behalf of the third to thirty fifth respondents describing the structure of the entities in the R Group, its current projects and third party “interests” shown conveniently in a flowchart annexure NJL1.
Ms LD said that whilstever the matrimonial proceedings remain on foot there will be consequential impact on the “interests” of the third parties who have “ownership or other investment interests” within the R Group as a direct result of the diversion of resources from the core business of the R Group to the matrimonial proceedings.
Ms LD referred also in her affidavit to the current financial crisis the property market is experiencing as a knock-on effect of the United States subprime crisis, consequent altered funding parameters of the R Group's financiers, strategies that need to be put in place to ensure ongoing viability of the R Group business and the effect of the continuing matrimonial proceedings on the husband and the R Group staff.
Ms LD said in relation to the financial viability of the R Group that it is necessary to buy and sell properties to ensure there is an income/capital injection to sustain the overhead of the group's business and that the continuing matrimonial proceedings restricted the ability of the group to undertake such transactions in the ordinary course of business.
Mr Sullivan of Counsel, for the third to thirty fifth respondents, highlighted certain of the matters relating to Property B, Property C and Property D, in particular that finance is not yet in place for Property B, there will be inevitable Planning and Environment Court proceedings in relation to Property C stage 2 and presently there is no feasible development scheme for Property D. Mr Sullivan referred also to the husband's and Ms LD’s evidence in relation to the knock-on effect of changes in the global economy and changes in banking policy resulting from the United States subprime crisis leading to lack of certainty in relation to ongoing viability of the R Group. He referred to MFS and Centro as examples of recent property business collapses largely as the result of financial strain.
Mr Sullivan submitted that there is nothing unorthodox about valuing property with development potential, and that valuers are used to doing it.
More pertinently, however, Mr Sullivan submitted that the matrimonial proceedings between the husband and the wife have impact not only as between the husband and the wife, but also are affecting the corporate trustee respondents and other persons with third party “interests” in the properties and their development projects. He referred also to the necessity to disclose the Family Court proceedings in funding applications for development of the properties as a potential inhibitor to necessary funding.
Mr Sullivan submitted that on the evidence there is no real indication that the development projects for the four properties can be completed within 3 years, as projected by Mr Martin, and that in reality leaving aside Property A the completion of the development of the other three properties, subject to financial survival of the R Group, is at some indeterminate point in the future.
Mr Sullivan submitted that in all of the circumstances the elements in s 79(5) and Grace's case are thus not met, and that the matter should proceed to trial now, particularly as the Court at the trial will have the benefit of expert opinion as to the value of the four properties on both the as is and as if completed bases.
Mr Kirk and Mr Sullivan referred also to the evidence of personal strain on the husband and his ability to continue to manage the R Group as a viable concern, the diversion of resources of the group to the matrimonial proceedings instead of its core business, and the impact on the corporate trustee respondents and third parties, as already mentioned, as discretionary factors militating against favouring the wife's application, particularly as already the proceedings have been on foot for 2½ years.
During argument Counsel estimated the trial duration as about 3 weeks. I mentioned to Counsel that I have no trial dates left for 2008, and that if the wife's application should be refused it is likely that I would place the matter on my callover list for November 2008 for the allocation of trial dates in 2009; that it is unlikely, having regard to the number of matters already on the callover list, that dates would be allocated in the first half of 2009; and that the likely allocation of dates for a 3 week trial would be not until mid 2009. I also mentioned that although ordinarily trial dates are not allocated more than 3 months ahead, the Court always is able to make special arrangements for long matters.
On all of the evidence, and having considered the submissions, I am unable to be of the opinion as to all of the requisite matters to grant the wife's application. Although it may be likely that there will be a change in the husband's financial circumstances upon the completion of the development of the four properties (despite the circumstance that three of the properties are owned by corporate trustees of discretionary trusts as to income and capital), and although the likely change may be a significant one, and even for the sake of argument assuming those two preconditions in the wife’s favour, I am not of the opinion that having regard to the likely and significant change it is reasonable to defer the proceedings, for reasons which I will set out, and further I am not of the opinion, for reasons which also I will set out, that an order made if that significant change occurs would be more likely to do justice and equity as between the parties than an immediate order (meaning, in practical terms in this case, an order able to be made as soon as the proceedings can be listed).
As to whether having regard to the likely and significant change it is reasonable to defer the proceedings, the thrust of the wife's case is that any expert valuation evidence adduced at the trial on the as if completed basis would be inherently unreliable and thus there would be detriment to her position unless the trial be deferred for 3 years or so to enable the properties to be valued as is after completion.
It is true, as put by Mr Kirk, that as if completed valuations are routine and used frequently to justify developments, and as put by Mr Sullivan, that there is nothing unorthodox about valuing property with development potential. Thus, as Mr Sullivan put, if the matter should proceed to trial now the Court would have the benefit of expert opinion as to the value of the four properties on both the as is and the as if completed bases.
Against this however, although I emphasise I am not predetermining the matter in advance of the trial, because there are exceptions, is that the conventional approach at trial, having regard to cases such as Ferraro v Ferraro (1993) FLC 92-335, would be (to the extent relevant) to determine the value of the four properties on the as is basis as at the date of trial and/or (to the extent relevant) determine the value of the four trusts under which the properties are held on the as is basis as at the date of trial. At first blush, this may seem to present a difficulty in relation to the acceptance of Mr Kirk's and Mr Sullivan's submissions on the point, although arguably the Ferraro principle applies only in relation to step 1 of the s 79 exercise, that is assessing the nature and value of the property in the pool, and not to step 3 when the s 75(2) factors are assessed, in particular the husband’s financial resources under s 75(2)(b) and/or (o), as to which see Kelly v Kelly (No 2) (1981) FLC 91-108 at 76,806-7.
However, there are difficulties also for the wife because the husband does not own the four properties. It is clear he has the 100% beneficial interest in Property B. However the other three properties are owned by corporate trustees of discretionary trusts as to income and capital. Thus it may not avail the wife, or improve her position, if the trial be deferred for some 3 or so years until the completion of the development of those three properties if, at the end of the day, she cannot devise an acceptable mode of having the husband or a person or persons appointed by the Court access the assets of one or some of the three trusts, by exercise of the relevant discretionary powers, so as to cause the assets or some of them to become property of the husband, and be left thus to rely on the Court’s assessment of the husband’s financial resources for the s 75(2) exercise. In this regard, the distinction between “property” of the husband and his “financial resources” must be kept firmly in mind, because under s 79 the Court is empowered only to make an order in relation to property not a financial resource.
The case is thus quite unlike that considered in Grace’s case, where in relation to a discretionary trust of which the husband was one of a small number of beneficiaries, distribution according to the trust deed was to occur not later than 30 June 2000, the Full Court observing that by that precise date it would be known what distribution, if any, the husband would achieve, being anything from zero to 100 per cent, thus deciding that the deferment ought to have been granted and on appeal granting it, in part on that basis, although also on the basis of other facts particular to that case relating to relevant assessment of benefit and detriment to each party by deferring or not deferring.
There is no such similar evidence (as yet) in the present case. It will thus be necessary at the trial to examine the trust deeds and make relevant determinations according to issues which may then be raised as to control of or the ability to control the trusts and their distributions, as to which see, for example, S v S [2003] FamCA 851 referred to in Mr Kirk's submissions at par 2.7.
Although, as pointed out also by Mr Kirk, the wife's amended application for final orders filed on 16 June 2008 seeks to utilise Part VIIIAA of the Act, which part by s 90AC(1)(b) has effect despite "anything in a trust deed", Division 2 of Part VIIIAA makes clear that the power to “override” trust deeds relates to “property of a party to the marriage” and to “property interests of a third party in relation to a marriage”, whereas a beneficiary's right under a discretionary trust traditionally has not been regarded as property, or an interest in property, but a mere expectancy, that is, a right to be considered as a potential recipient of benefit by the trustee: Gartside v Inland Revenue Commissioners [1968] AC 553 per Lord Reid at 607 and Lord Wilberforce at 616-7. (Since preparing and delivering these reasons I would refer also however to the transcript of argument in the High Court in Spry v Spry, M25 and M26 of 2008, 2 September 2008, as to the potential shifting meaning of “property” according to statutory context; and see also Schmidt v Rosewood Trust Limited [2003] UKPC 26, referred to by Gummow J at T69).
Moreover, to the extent that the thrust of the wife's case is the inherent unreliability of as if completed valuations I am unable to find substance in it. Mr BY referred to the range of assumptions involved, the usual inclusion of a qualifying clause, and said that any number of factors could change the value as completed in comparison with the value as if completed. He did not say, however, as pointed out by Mr Kirk, that as if completed valuations cannot be done.
I am not able to determine at this early stage what use the parties will seek to make at the trial of the as if completed valuations they propose to arrange. However, whatever use is proposed to be made of them in relation to valuation of the trusts, the assumptions and other qualifying matters in Mr BY’s opinion in relation to the value of the properties held in the trusts appropriately would be the subject of cross-examination and submission even if there be single expert evidence.
In conclusion on the matter of whether having regard to the likely and significant change in the husband’s financial circumstances it is reasonable to defer the proceedings, insofar as the wife claims there will be detriment to her position if the trial is not deferred because of inherent unreliability of as if completed valuations, I am unable to accept that such detriment would ensue if the trial is not deferred so that the reasonableness argument goes against the wife. The position as to reasonableness would be quite different if the husband owned the four properties, and there were no discretionary trusts involved. However, that is not the case. Thus, regardless of when the trial proceeds, the wife will face this same reality.
It is awkward for the wife to suggest, and I do not accept, that an order made if the significant change in the husband's financial circumstances occurs would be more likely to do justice and equity as between the parties than an immediate order, having regard to the particular characteristics of the case, which I have analysed above.
In short, although the husband has the 100% beneficial interest in Property B, the other three properties are held by corporate trustees of discretionary trusts, as to which, subject to the matters I have mentioned, it may be likely, on the current state of the law, that relevant determinations will need to be made at the trial as to the likelihood of distributions which may favour the husband, and if so to what extent, for the purpose of potential findings under s 75(2)(b) and/or (o).
In this regard however, although the trusts relating to the latter three properties are discretionary, Mr Kirk's submissions at pars 2.4 and 2.5 pick up evidence by the husband that the trusts were established and structured because he, Mr BN (deceased) and other investors “trusted each other” and they found the discretionary trust structure “a flexible way to do business”: see the husband’s affidavit at pars 29-35, in which the husband speaks of “ownership” interests in the properties, with third party “ownership” being up to 40%-50% of the “ownership” of each property. Thus, although traditionally a beneficiary of a discretionary trust has only a right to be considered in relation to distributions, there is a framework or “matrix of fact” which potentially would allow the Court to consider whether there should be a supervening or overriding finding that the participants in the establishment of those trusts formed them with the intent pursuant to underlying agreements or understandings that there be equitable or pro rata distribution according to contribution, as a commercial reality, and that distribution otherwise would be inequitable according to the tenor of any such agreements or understandings underlying the establishment of those discretionary trusts. In other words, it may be that ultimately the particular discretionary trusts in this case, because of their commercial nature, and the hint of underlying agreements or understandings as to how distributions would be made, distinguish them from “Mum, Dad and the kids” intra family discretionary trusts as to which such supervening or overriding claims for equitable distribution do not usually arise. In Rosewood’s case (above) the Privy Council considered such a possibility, based upon language in the relevant trust deeds relating to powers of appointment including “portions of the Trust Fund” to which a beneficiary is “entitled” according to “percentage interests” nominated in the schedule of beneficiaries. Lord Walker, who delivered the opinion of the Judicial Committee, referred expressly at par 31 to the potential relevance of “the surrounding circumstances (or “matrix of fact”) in which the settlement was made”. It would seem to be this paragraph which prompted the following exchange in the High Court in Spry’s case (above) at T69:
… the court, consistent with Gartside, with what Justice Dixon said in Commissioner of Stamp Duties v … described the discretionary beneficiary as having nothing more than a mere expectancy.
GUMMOW J: That is not quite fully accurate, is it?
MR GLEESON: Save for the right to be considered or the right to compel a due administration of the trust ---
GUMMOW J: It had to be looked at since in the light of what Lord Walker said in the Rosewood Case, does it not, on appeal from the Isle of Man to the Privy Council?

By the time of the trial, the decision of the High Court in Spry’s case may be likely to be available, given that, even if there is not deferral, the trial is unlikely to be listed before mid 2009.
If the High Court decision in Spry’s case should take the law relating to distribution under discretionary trusts in a new direction, according to the notion of underlying surrounding circumstances governing an equity to require the discretion in relation to distribution to be exercised having regard to such underlying surrounding circumstances, or indeed determine that the right of a beneficiary under a discretionary trust is “property” within the meaning of the Act, the wife would then have opportunity to apply again under s 79(5) for a deferral of the proceedings.
In the meantime, however, for reasons already explained, whatever use is proposed to be made at the trial of the as if completed valuations, I am not satisfied on the present state of the law as to discretionary trusts that the wife should have a deferral because an order after the completion of the development of the four properties would be more likely to do justice and equity between the parties than an immediate order.
The wife thus has failed, presently, as to the third and fourth preconditions in Grace's case, so that I have no power to order the deferral.
However even if, contrary to Grace's case, I have full discretionary power because s 79(5) expressly is premised as without limiting the power to grant adjournments, nonetheless I would refuse the wife's application on discretionary grounds not only on the basis of the matters I have mentioned but also because the parties have been separated 4½ years, the proceedings have been on foot 2½ years, and the estimated period of deferment for a further 3 years would result in the passage of 7½ years or so between the final separation and the trial.
This would be inconsistent not only with the policy that matters before the Court be determined as expeditiously as possible in order to put an end to financial relations between the parties to the marriage, but also would mean the continuing involvement of the 33 corporate trustee respondents and the other third party “interests” wrapped up in them, and the continuance of the difficulties in the R Group described in the evidence of the husband and Ms LD, particularly because in the wife's amended application for final orders filed on 16 June 2008 she seeks a declaration that the net property of the “[R] Entities”, defined in the amended application as the 33 entities there listed, is property divisible between the husband and the wife.
Moreover, even if I had been satisfied as to the four preconditions to invoke the power to order a deferral, s 79(5) nonetheless is couched in discretionary terms, and for the reasons already given in any event in the exercise of my discretion I would have refused the wife's application for deferral. In particular, even if the four preconditions were satisfied, on the evidence a deferral at this stage potentially would cause detriment to the husband, the parties' children, the R Group generally and potentially also the various third parties referred to as outlined in the evidence of the husband and Ms LD and in the submissions of Mr Kirk and Mr Sullivan which I need not repeat. Moreover, the uncertainties in relation to the Property B, Property C stage 2 and Property D developments, in relation to funding, potential Planning and Environment Court proceedings and feasibility, as set out adequately already, have the effect that any deferral would or could not ensure that all four developments would be completed within 3 years. Whilst at this stage 3 years may be a reasonable estimate, the nature of the contingencies has the effect that this is uncertain and, as put by Mr Sullivan, in reality completion of the development of these three properties is at some indeterminate point in the future. In this regard, it must be borne in mind that s 79(5) expressly refers to “the time when” any relevant change in a party’s financial circumstances is likely to take place.
I recognise that the Full Court in Grace's case observed that a s 79(5) order goes to the core subject matter of the determination to be made under s 79 thus conferring a substantive not just procedural quality to its consequences, so that exercise of the discretion, when the four preconditions are established, may be more limited than applies to the exercise of the discretion in wholly procedural matters. I do not understand, however, that the Full Court in Grace's case intended to infer that because of the substantive quality to which it referred, necessarily it must follow that if the four preconditions be met exercise of the discretion usually should favour a deferral. Indeed, such a meaning would negate the legislative intention firmly expressed in s 79(5) that the four preconditions are not to limit the power otherwise to grant adjournments. Perhaps, however, in that part the legislative intention should be taken to refer to procedural adjournments.
However, none of this matters. I am bound by Grace’s case, with effect that as I am not satisfied as to the third and fourth preconditions, in that my opinion is against them, I have no power to grant the deferral.
The point of my observations simply is that even if Grace's case should be held to be wrongly decided, and even if ultimately the discretion to grant a deferral be held to be an unfettered discretion, I have stated firmly that on discretionary grounds I have exercised it against the wife's application.
The result is that, on either basis, the wife's application for deferral will be dismissed and I will so order.
That, however, is not the end of the matter. At this stage, there are the uncertainties to which I have referred in relation to the ultimate shape of the case at the trial.
I am convinced that at an early stage I should at least determine the nature and value of the property in the pool, contribution, and the trust issues likely to be raised, which I have highlighted.
The husband has said that each property has its own entity and trust. I presume, therefore, that evidence may be led that each relevant trust will complete its distribution soon after completion of the particular development project and sale of the property held in trust by that entity, or at least as soon as taxation and other matters are finalised for that entity. If, as may be the case, there be a finding as to some underlying arrangements or understandings for contribution to give rise to pro rata equitable distribution (although I emphasise again there is no prejudgment, because the matter must be fully argued, and at this stage I have not even seen or read the trust deeds), then at that stage possibly I could adjourn the proceedings part heard pending completion of the development of the four properties, that is, after relevant findings have been made in relation to the operation of the trusts, and depending upon the nature of those findings. Even so, I should think adjournment part heard may not be necessary even then to do justice and equity between the husband and the wife, because potentially I would not need as if completed valuation evidence at all. It may be sufficient, for example, if it may end up being characterised as “property” within the meaning of the Act to award the wife a percentage of whatever distribution the husband ultimately may receive from the four trusts holding the four properties.
I suspect, however, that once that stage in the trial be achieved, even if there be an adjournment part heard, there would by that stage be excellent prospects of settlement.
The parties may yet seek to invite me to embark upon preliminary determination of the trust issues. However, I will wait until the directions the parties seek are brought in.
I note that in Grace's case the Full Court granted deferral in relation to the trust issue, but left open the question of any subsequent deferral relating to another issue in that case. There is, thus, precedent established that in appropriate cases there be a step by step approach towards ultimately the one s 79 order which must be made.
The wife's application is dismissed.

Editorial Note: In editing I have taken the liberty of adding reference to and observations in relation to Spry’s case and Rosewood’s case as being consistent with and merely enlargement upon the reasons for judgment as delivered ex tempore and in the anticipation that such may be of assistance to the parties.

I certify that the preceding seventy (70) paragraphs are a true copy of the reasons for judgment of the Honourable Justice O'Reilly

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