Burnell & Rockford
[2024] FedCFamC2F 468
•16 April 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 2)
Burnell & Rockford [2024] FedCFamC2F 468
File number(s): CAC 760 of 2021 Judgment of: JUDGE HUGHES Date of judgment: 16 April 2024 Catchwords: FAMILY LAW – PROPERTY – adjustment to the wife for greater contributions and in accordance with the principles in Kennon – further adjustment to the wife for s.75(2) factors – referral of husband to the Commonwealth DPP for consideration of investigation of potential fraud against the Commonwealth. Legislation: Family Law Act 1975 (Cth) ss 75(2), 79(1), 79(2), 79(4), 102QB Cases cited: Kennon v Kennon (1997) FLC 992-757 Division: Division 2 Family Law Number of paragraphs: 318 Date of last submission/s: 6 October 2023 Date of hearing: 31 October, 1 & 2 November 2022 and 9, 10 & 11 August 2023 Place: Canberra Counsel for the Applicant: Ms Davis Solicitor for the Applicant: Farrell Lusher Counsel for the Respondent: Mr Hegedus Solicitor for the Respondent: Inner West Solicitors Pty Ltd ORDERS
CAC 760 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 2)
BETWEEN: MS BURNELL
Applicant
AND: MR ROCKFORD
Respondent
ORDER MADE BY:
JUDGE HUGHES
DATE OF ORDER:
16 APRIL 2024
THE COURT ORDERS THAT:
1.Within 60 days of the date of these orders (“the due date”) the husband shall pay to the wife the sum of $646,342 (“the payment”).
2.Contemporaneously with the payment:
(a)The wife shall take all steps necessary to transfer to the husband all her right, title and interest in the real property known as C Street, City D being the whole of the land more particularly described in Certificate of Title Lot … Deposited Plan … (“the C Street property”); and
(b)The husband shall discharge any mortgage secured over the real property and refinance the associated home loan into his sole name.
3.In relation to the transfer and discharge referred to in 2(a) and 2(b) above:
(a)Each party shall pay their own conveyancing/legal costs and PEXA service fees associated in relation to the transfer and discharge;
(b)The husband shall pay the transfer lodgement fee for the Transfer; and
(c)The Husband shall pay all mortgage discharge fees.
4.Pending the transfer of the property pursuant to order 2, the husband shall be responsible for and indemnify the wife in relation to:
(a)Payment of all mortgage instalments to the NAB for the C Street property as and when they fall due; and
(b)Payment of all rates, taxes and outgoings with respect to the C Street property as and when they fall due.
5.Pending the transfer in order 2, the husband and wife are restrained from further encumbering the C Street property except for the purposes of the husband securing refinance for the purposes of compliance with order 2(b), in which case, the wife shall take all reasonable steps to facilitate that process, if required.
6.Subject to order 9 below, in the event the husband fails to make the payment to the wife by the due date, the parties shall forthwith take all steps necessary to list the C Street property for sale by private treaty and, for the purpose of this order:
(a)The sales agent shall be as agreed or, failing agreement within seven days of the default, the husband shall nominate two agents in writing and the wife shall select one of those agents to list the property.
(b)The sale price shall be agreed, or, failing agreement, shall be as determined by the sales agent.
(c)The settlement period shall be as agreed or, failing agreement, within 42 days of the date of exchange.
7.The proceeds of the sale of the C Street property shall be applied as follows:
(a)First, to discharge the mortgage and any other encumbrances on the title to the property;
(b)Second, to pay any commission, conveyancing fees, and any other costs of sale;
(c)Third, to pay to the wife the amount of the payment which remains outstanding plus:
(i)interest in accordance with the Federal Circuit and Family Court Rules 2021 from the date of default to the date of payment; and
(ii)any amounts payable to the wife by way of costs orders which remain outstanding; and
(d)Fourth, the balance to the husband.
8.In the event the sale of the C Street property fails to raise sufficient funds to pay the full amount owing to the wife pursuant to orders 1 and 7(c)(i) and (ii) above, the husband shall forthwith take all steps necessary to sell the property at B Street, Suburb E, NSW, more particularly described in Certificate of Title … (“B Street”) with the proceeds of sale to be disbursed as follows:
(a)First, to discharge the mortgage and any other encumbrances on the title to the property;
(b)Second, to pay any commission to the selling agent, the conveyancing fees, and any other costs of sale;
(c)Third, to pay any Capital Gains Tax payable on the property;
(d)Fourth, to pay to the wife any amounts outstanding in accordance with orders 1 and 7(c)(i) and (ii) above; and
(e)Fifth, the balance to the Husband.
9.The husband may elect to sell the B Street property at first instance, rather than the C Street property in the event of default in making the payment.
Super Fund 1
10.The parties, in their capacity as trustees of Super Fund 1, shall forthwith take all steps necessary to roll over or transfer the whole of the wife’s withdrawal benefit in the Fund (as defined in regulation 1.03 of the Superannuation Industry (Supervision) Regulations 1994) (“the Regulations”) into a new complying superannuation fund (“the New Fund”) to be nominated by the wife and, for the purpose of this order:
(a)Service of this order is deemed to have occurred on the date of the order by reason of the parties being trustees of Super Fund 1;
(b)The wife shall, as soon as practicable, request the roll over or transfer of her withdrawal benefit to the New Fund in accordance with regulation 6A.02 of the Regulations (“the request”);
(c)The parties shall, within 14 days of receipt of the request, convene a meeting by exchange of minutes and take all steps necessary to comply with regulations 6.33 and 6.34 of the Regulations and to authorise the rollover or transfer of the wife’s withdrawal benefit to the trustee of the New Fund by way of the following:
(i)An in specie transfer of the property at F Street, City D; and
(ii)The transfer of sufficient cash to meet the balance of the withdrawal benefit in accordance with the wife’s request.
IT IS NOTED in relation to this order that:
A.Super Fund 1 is a self-managed superannuation fund listed by the Australian Taxation Office on the Super Fund Lookup Website as a complying superannuation fund.
B.The rules governing the operation of Super Fund 1 are contained in the Deed of Trust dated 6 April 2009.
C.Clause 20 of the Deed of Trust establishing Super Fund 1 allows for rollover of entitlements of members upon request and in accordance with governing legislation.
D.The husband, the wife and the husband’s Mother, Ms G, are the trustees of Super Fund 1 and the only members of Super Fund 1.
E.The requirements of procedural fairness in accordance with s.90MZD of the Family Law Act 1975 have been met.
F.The trustee of Super Fund 1 will be eligible for Capital Gains Tax Rollover relief in accordance with s. 126-140 of the Income Tax Assessment Act 1997 for any in specie transfer.
11.Upon the rollover or transfer of the wife’s withdrawal benefit to the New Fund in accordance with order 10 above, the wife shall take all steps necessary to resign as a trustee and member of Super Fund 1.
12.Contemporaneously with the wife’s compliance with Order 11 above, the husband will indemnify the wife and keep her indemnified in relation to all liabilities of and in relation to Super Fund 1, including any debt personally guaranteed by the wife.
13.In the event of any dispute arising between the parties in the exercise of their powers as trustees of Super Fund 1, the parties shall appoint an arbitrator nominated by the President of the Institute of Chartered Accountants.
14.Pending the rollover or transfer of the wife’s withdrawal benefit from Super Fund 1 to the New Fund:
(a)Each party is restrained from selling, transferring, encumbering or dealing in any way with any investment property of Super Fund 1, other than in accordance with these orders; and
(b)Taking any steps which would defeat, extinguish or reduce the entitlement of either party under this order.
General Orders
15.Unless otherwise ordered and except for the purposes of enforcing the payment of any money due under these or any subsequent orders:
(a)Each party is solely entitled, to the exclusion of the other, to all property and superannuation in their name or possession at the date of these orders, noting that all chattels in the C Street property are deemed to be in the possession of the husband; and
(b)Each party is solely liable for and shall indemnify the other against any liability encumbering any item or property to which they are entitled pursuant to these Orders.
16.Pursuant to section 106A of the Family Law Act 1975, in the event of either party failing to execute any document required to give effect to these orders, the Judicial Registrar of this Court is appointed to execute such documents in the name of the defaulting party and to take all steps necessary to give effect to such documents.
17.The Deputy Principal Registrar of the Court shall forward a copy of these orders and Reasons for Judgment to the Commonwealth Director of Public Prosecutions (DPP) for consideration of an investigation into the husband’s involvement in the receipt by his mother of JobKeeper payments to which she was not entitled.
18.Following the referral in order 17, the Manager of Court Services at the Canberra Registry shall make available to the DPP, if requested, electronic copies of the transcript of proceedings, any documents filed and any exhibits tendered in the proceedings.
19.The contravention application filed by the husband on 19 July 2022 is withdrawn and dismissed.
20.Otherwise, all extant applications are hereby dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
INTRODUCTION
These are property proceedings following a relationship of twelve and a half years.
Associated parenting issues were resolved by consent orders made on 1 November 2022.
BACKGROUND
The applicant wife is a 49-year-old health care professional. The respondent husband is a 46-year-old public servant.
The parties commenced a relationship in 2006. They began living together in early 2008 and married the same year. They separated on 11 June 2020 but remained living in the one house for six months before physically separating in January 2021.
The parties have three children now aged 14, 12 and 9 years respectively. All of the children have special needs. The children live with their mother and spend time with their father every second weekend, during school holidays and on special occasions.
At the commencement of their relationship, the parties were living in Sydney. The wife was working and completing her health care training. The husband was working as a transport worker for J Company.
At the commencement of cohabitation, the parties each owned a real property. The husband had purchased a property in B Street, Suburb E, for $519,000 in mid-2005.[1] At the end of 2007 he repaid a loan of $120,000 to a former partner, drawing on the mortgage to do so.[2] At the commencement of cohabitation, the loan balance was approximately $470,000. The husband asserted the property would have increased in value in the two and a half years between the purchase and the commencement of cohabitation in early 2008. That may be so but there is no evidence of the value of the property in early 2008. Accordingly, I assume the husband had equity in the property of at least $49,000.
[1] Exhibit W1 at page 355
[2] Transcript 10 August 2023 at pages 208 to 212
The wife purchased a property at H Street, City D in late 2007, the month prior to the commencement of cohabitation, for which she paid $370,000. She paid the deposit and costs of purchase from her savings and utilised a bank loan for the balance. There is no documentary evidence of the size of the loan at that time and the equity is, therefore, unknown. The wife said she believes her equity in the property was approximately $50,000 at that time.
A month later, in early 2008, the wife received $20,000 in round terms from her employer, being the payout of various entitlements when she resigned that month. It is not clear to me whether or not the asserted $50,000 equity the wife had in her property included the $20,000 she received in early 2008.
In the absence of any other evidence to assist me, I will assume the value of the parties’ respective interests in real property at the commencement of cohabitation was broadly equal.
In early 2008 the parties moved to City D and commenced living together in the wife’s H Street property. They remained living in that property until late 2015.
Throughout the parties’ relationship, the wife worked as a health care professional in City D. The husband initially remained working for J Company in Sydney on a roster which meant he was in City D for four days, then at work in Sydney for four days. He stopped working for J Company in late 2012 and began living full-time in City D. The husband said in his submissions that he received an “almost 6 figure redundancy and unused leave payment” when he left J Company.[3] There was no evidence of that during the trial and it was not conceded in submissions.
[3] Husband’s submissions at paragraph 144
In early 2011, the parties purchased an investment property in Suburb K in Sydney in the wife’s name for $445,000. The husband lived in that property when he was in Sydney for work. In late 2012, when the husband stopped working for J Company, the Suburb K property was tenanted. When the husband started his public service job in 2017, he again lived in the property when in Sydney. The property was sold for $680,000 in mid-2019. The wife paid Capital Gains Tax of approximately $52,300 for that financial year.
In mid-2019, just before the settlement of the sale of the Suburb K property, the parties purchased another investment property in the wife’s name at Suburb M for $1.66 million.
In late 2011, the parties bought a block of land at C Street, City D, for $225,000 on which they built a family home. The husband was very involved in the design of the home which utilised technology for heating, cooling and hot water.
THE PARTIES’ WORK HISTORY
From early 2008 the wife was employed as a health care professional for hours equating to .9 of a Full-Time Equivalent (FTE) load. She was also worked as an educator for hours equivalent to .1 FTE. In addition, she was on call for seven days every four weeks.
In late 2009 the wife and another health care professional, Mr L, established a business, O Clinic, in which the wife continued to work at the time of the trial. The husband was very involved in discussions with the wife and Mr L about the business and the legal structure through which it would operate.
When the parties’ first child, X, was born in 2010, the wife took four months of maternity leave and then returned to work at .5 FTE hours. She also returned work as an educator and on-call work. The husband’s mother looked after the child on the wife’s workdays and assisted when she was on-call if the husband was away working in Sydney.
In early 2011 the wife’s work as an educator increased to 0.2 FTE.
When the parties’ second child, Y, was born in 2011, the wife took five months of maternity leave before returning to work. Again, the paternal grandmother cared for the baby when the wife worked. X attended daycare on the mother’s workdays. Y joined his brother at day care from early 2012.
In late 2012, the husband stopped working for J Company and the wife became the sole income earner for the family for 16 months, until early 2014. The husband spent much of this time caring for his father who had been diagnosed with a terminal illness and who died in 2013. The husband also managed the financial affairs of the wife and her business and began planning the construction of a family home on the block of land the parties had purchased at C Street in late 2011. He became increasingly involved in public service in a volunteer capacity at this time.
In 2013 the wife’s on-call work for the hospitals reduced slightly in frequency to one week in five.
In early 2014 the husband opened a business, “[P Business]”, with his sister and brother-in-law. That business was sold 12 months later. The parties agreed that, from late 2013, the husband spent significant time establishing the business and preparing for the opening. For the 12 months the business operated, the husband received a weekly income of about $508 from it. It was put to the wife during cross-examination that the business was sold for $350,000, representing a significant profit. The wife agreed the business was profitable but said she had no knowledge of the amount for which it was sold. There was no evidence of any significant deposit into any account around the time of the sale, apart from $49,225 deposited in early 2015. During cross-examination, the husband said the parties only had a half share in the business so would not have received all of the proceeds.[4] I conclude that the deposit of $49,225 was the extent of the profit to the parties from the sale, not the $350,000 suggested to the wife.
[4] Transcript 10 August 2023 at pages 215 to 218
The parties’ third child, Z, was born in 2014. The wife had been able to secure staff to cover her business costs and remained on maternity leave until 2015, a period of eight months. She then returned to work at a 0.5 FTE in her clinic. She also returned to her educator position but at a reduced load of 0.1 FTE. She returned to her on-call work for the hospitals for one week in five.
The husband was not in paid employment from early 2015 until mid-2017. However, he continued to manage the family finances including the financial aspects of the wife’s business. He was also engaged in volunteer work for the Q Organisation and the S Organisation. He became the Chair of the latter. He founded the R Organisation and did volunteer work for the public service. All of this presumably helped him to gain employment in public service in 2017.
The wife deposed that the husband’s work schedule thereafter was unpredictable and that he was away from home much of the time because of his work commitments. She said that, in the second half of 2019, the husband was often home only every second weekend. She halved her on-call commitments, working only three or four days every five weeks. She continued working in her clinic and as an educator.
The wife’s evidence was that she was the primary carer of the children throughout the relationship, including during periods when the husband was not engaged in paid employment. The husband asserted that he contributed substantially to the care of the children. The wife agreed he contributed but said his contributions were not substantial. It was put to her that the husband cared for the children when she travelled for work. She said she stopped travelling once the children were born, apart from one three day conference in early 2015, during which she left the eldest two children with their father and took the baby who was still breastfed.[5] There was no evidence to contradict that. I am satisfied on the evidence as a whole that the wife was the children’s primary caregiver throughout the relationship.
[5] Transcript 1 November 2022 at page 70
THE CHILDREN’S SPECIAL NEEDS
From early 2017, X began to have some significant issues with separation anxiety. The wife arranged for him to see a psychologist. This progressed to significant school refusal and some other behavioural issues. In 2018 the child began seeing a psychiatrist and, at the time of the trial, he remained under the care of a psychiatrist. In response to the child’s worsening condition, the wife took four months leave from her on-call duties in mid-2019. X was then diagnosed with Attention Deficit Hyperactivity Disorder (ADHD). In late 2019 he was also diagnosed with Autism Spectrum Disorder (ASD) and Generalised Anxiety Disorder (GAD). He was subsequently diagnosed with Major Depression. He receives support under the National Disability Insurance Scheme (NDIS).
In 2018, Y began to exhibit behavioural problems and difficulties at school. The wife arranged for paediatric and psychological support for him. He was diagnosed with ADHD and commenced treatment in mid-2019. He also suffers from anxiety. He sees a child psychologist and is medicated for ADHD.
Z has also been diagnosed with ADHD and anxiety. Like her siblings, she is medicated for ADHD and sees a child psychologist.
THE ROCKFORD FAMILY DISCRETIONARY TRUST
In late 2009 the parties established the Rockford Family Discretionary Trust. The corporate trustee is N Pty Ltd. The husband and wife are the only directors and shareholders of N Pty Ltd. The beneficiaries of the Rockford Family Discretionary Trust are the husband, the wife, their three children and the husband’s mother. The husband’s father was a beneficiary prior to his death in 2013.
The parties used the Rockford Family Discretionary Trust to facilitate income sharing amongst the beneficiaries which had the effect of reducing the tax paid by the parties. The husband’s parents and the parties’ children were allocated income and the parties or the Rockford Family Discretionary Trust paid their tax bills. For instance, the financial statements for the Rockford Family Discretionary Trust show that the husband’s mother received distributions of $50,000 in 2017 and $112,882 in 2018.[6] The husband said that most of these transactions were paper transactions, with the beneficiaries rarely actually receiving the funds. The husband’s mother gave evidence that regular amounts were deposited into her account by her son but she was unclear about what those amounts were for and said she thought they came from the self-managed superannuation fund, of which she and both parties are members and which was managed by the husband.[7]
[6] Exhibit W13
[7] Transcript 11 August 2023 at page 422
The husband agreed during cross-examination that the vast majority of income of the Rockford Family Discretionary Trust came from the wife’s business, O Clinic, and that, once the husband became a public servant in 2017, the sole source of income for the Rockford Family Discretionary Trust was O Clinic.[8] Also from that time, the only distributions made were to the children and the husband’s mother.
[8] Transcript 9 August 2023 at page 108
O CLINIC UNIT TRUST
From late 2009, O Clinic, the business established by the wife and Mr L in late 2009, operated through a unit trust, the O Clinic Unit Trust. During the trial, the parties did not agree on the value of their interest in the O Clinic Unit Trust and much time was occupied with a dispute about the way distributions were made by the O Clinic Unit Trust following the parties’ separation. To understand the latter, in particular, it is necessary to understand the history and operation of the O Clinic Unit Trust.
The O Clinic Unit Trust has a corporate trustee, O Clinic Pty Ltd. The wife and Mr L were the original directors and shareholders of O Clinic Pty Ltd and were each allocated 50 ordinary shares in the company and 50 units in the O Clinic Unit Trust. The units were formally held by the corporate trustees of the Rockford Family Discretionary Trust and the family trust of Mr L. The units were valued at one dollar each.[9]
[9] Exhibit W1 at page 517
The clinic operates from a property at F Street, City D which is 50 percent owned by the parties’ self-managed superannuation fund and 50 percent by Mr L.
In early 2018, two new health care professionals joined the clinic and were appointed directors of O Clinic Pty Ltd and issued 50 ordinary shares. On the same date, 50 units in the O Clinic Unit Trust were issued to the trustees of the family trusts of the new health care professionals. The units were valued at $100 each and the existing units held by the wife and Mr L were revalued from one dollar each to $100 each. The value of the units had been calculated by reference to the value of the business assets at that time. Accordingly, the value of the unit holding of each of the four unit holders was $5,000.
In late 2021, one of the health care professionals who joined the clinic in 2018 resigned. At that time the units held by that health care professional were bought back by the trustee of the O Clinic Unit Trust at the original purchase price of $100 per unit on the understanding that there had been no change in the value of the assets in the intervening period. It was put to the wife in cross-examination that the interest of the three remaining unit holders must, therefore, have increased to 33 percent and, if the value of the assets remained the same, the value of the unit holdings must have increased. The wife disputed this. She said the assets of the O Clinic Unit Trust fell as a result of the O Clinic Unit Trust paying the $5,000 to the resigning staff member, leaving the three remaining unit holders with assets of $15,000 or $5,000 each. She also pointed out that the largest costs for the business were staff costs and no staff were laid off when the health care professional left so the proportion of costs increased along with the proportionate increase in unit holding.[10]
[10] Transcript 9 August 2023 at page 55
A major source of contention in the proceedings was how distributions from the O Clinic Unit Trust were paid post-separation and whether both parties were entitled to the distributions, or only the wife. Each unit holding staff member in the business has their own family trust which beneficially owns the O Clinic Unit Trust units. Each family trust has a corporate trustee. One director of each corporate trustee is a director of O Clinic Pty Ltd, the corporate trustee of the O Clinic Unit Trust. The trustee of the O Clinic Unit Trust has a legal obligation to distribute the income of the O Clinic Unit Trust to the beneficiaries, the respective family trusts. In the parties’ case, the distributions from the O Clinic Unit Trust were paid to the Rockford Family Discretionary Trust. The wife was a director of both N Pty Ltd, the corporate trustee of Rockford Family Discretionary Trust, and a director of O Clinic Pty Ltd.
Each health care professional in the business operates as a sole trader and generates their own income but pays a service fee to the O Clinic Unit Trust which generates a small profit which, in turn, is distributed through the Unit Trust to the family trusts. The wife’s evidence was that the profit is always modest because the O Clinic Unit Trust was set up to be a service vehicle, providing secretarial and health services, office supplies and basic equipment to the health care professionals in the clinic, rather than to make a profit.
The service fee paid by the health care professionals in the clinic comprises two parts. One part is fixed and reflects the fixed costs of running the clinic, such as rent. The second part is variable and depends upon the amount of work done by each health care professional. Those with a higher work volume pay a higher variable component to cover greater use of the resources, such as secretarial staff, health staff, stationery and electricity. If someone is on leave, they do not pay the variable component of the service fee but continue to pay their share of the fixed costs.
Towards the end of each financial year, the directors of the corporate trustee for the O Clinic Unit Trust decide whether or not the unit holding health care professionals should pay an additional service fee equal to 105 percent of the operating costs of the clinic. The precise sum is calculated by the O Clinic Unit Trust accountant to ensure the arrangement stays within the Australian Tax Office rules. This enables the O Clinic Unit Trust to generate a further small profit. The total profit distributed each year is broadly equivalent to the additional service fee paid by each of the health care professionals at the end of each financial year. This can be seen from the following table which sets out the additional service fee paid by each unit holding health care professional in the 2020, 2021 and 2022 financial years and the distribution paid by the O Clinic Unit Trust to each of the family trusts in those years:
Financial Year Additional service fee paid O Clinic Unit Trust distribution to each family trust 2020 $45,000 [11] $46,313 2021 $42,725 $41,631 2022 $56,967 $59,348 2023 $90,927 $95,666 [11] The precise figure is not clear on the evidence but both parties agreed it was approximately $45,000.
The advantage of the additional service fee is that it reduces the income of each health care professional but contributes to the profit of the O Clinic Unit Trust which is then distributed to the respective family trusts. This arrangement facilitates the family trusts making distributions to other family members on lower incomes, reducing the overall tax liability of each family.
Other health care professionals who are not unit holders and have no interest in the O Clinic Unit Trust work in the business. They pay the fixed and variable service fees but do not pay the additional service fee. The business also has visiting health care professionals who see patients at the clinic and who pay a fee for use of the facilities.
The additional service fee paid by the wife to the O Clinic Unit Trust was a valuable tax minimisation strategy for the parties until the husband became a public servant in 2017 after which there was no income splitting advantage to the parties. The wife said she nevertheless continued to pay the additional service fee as the other unit holders had spouses with lower incomes and it provided a benefit to them with which she was happy to cooperate.
When the parties separated just prior to the end of the 2019/20 financial year, the wife was concerned that, if she paid the additional service fee and a distribution was paid by O Clinic Unit Trust to the Rockford Family Discretionary Trust, the husband, as a Director of N Pty Ltd could remove the funds as a distribution to himself. The additional service fee due to be paid to the O Clinic Unit Trust was about $45,000 and would be paid entirely from the wife’s income. If the husband took some of the distribution, this would represent a transfer of some of the wife’s post-separation income to the husband.
With the help of their accountant, the parties agreed that $32,500, representing the bulk of the distribution to be made by the O Clinic Unit Trust to the Rockford Family Discretionary Trust for the 2020 financial year would be declared in the wife’s tax return. The wife declared that amount in her 2020 tax return but did not actually receive the funds at that time as she had not paid the additional service fee of $45,000 to the O Clinic Unit Trust. The wife said this was because she had cash flow problems at that time. Her total tax bill for the 2020 financial year was $76,978 which included $52,300 in Capital Gains Tax following the sale of the Suburb K property in mid-2019. The wife entered into a payment plan requiring her to pay $4,000 per month to the Australian Tax Office. The additional service fee for 2020 became a liability owed by the wife to the O Clinic Unit Trust.
Despite the agreement that the wife declare the $32,500 in her 2020 tax return, the husband resisted the notion that the wife should take that amount as income when the distribution was eventually paid, even though he did not intend to contribute to paying the additional service fee to achieve it. He contended that some of the O Clinic Unit Trust profit was generated from the business structure which he helped set up and from which he should, therefore, benefit. He relied on the fact that any distribution from the O Clinic Unit Trust comprised more than the additional service fee paid by the wife because a component of the profit was generated from other health care professionals in the clinic who were not unit holders but paid the fixed and variable fees, and from visiting health care professionals who paid a fee for use of the facilities. The wife agreed that was so but said that the fees essentially only covered the cost of providing the service. She said that when a room was made available for a visiting health care professional, a token rent was charged for the day to offset the costs of secretarial services, health services and electricity used by the worker that day. She said the business did not try to make a profit from visiting health care professionals as they were providing a service for the patients of the health care professionals in the clinic.[12]
[12] Transcript 1 November 2022 at page 83
Given the unresolved issue of whether or not the husband would access the 2020 distribution from O Clinic Unit Trust, the wife did not pay the additional service fee for the 2020 financial year until the end of the 2021 financial year.
On 4 June 2021 the wife’s solicitors wrote to the husband to try to resolve the issue. They sought an undertaking from the husband that, if she paid the additional service fee, he would not draw on the resultant distribution, except to pay “necessary accounts” and that the funds would be distributed back to the wife by the Rockford Family Discretionary Trust.[13] The husband did not reply to wife’s solicitors but he did send a text message to the wife on 21 June 2021 making it clear that he regarded himself as entitled to a share of any distribution from O Clinic Unit Trust. His long text message included the following:
I’m not providing any guarantee for the family trust, especially given your refusal to be transparent and open with the information I’ve requested previously in relation to it. You’ve been deliberately evasive and refusing to provide information I’m entitled to. You’ve benefited from my management of it for more than a decade. That management entitles me to a share of its profits. I see no reason to relinquish that entitlement, especially given your refusal to be reasonable on other issues. You refuse every single reasonable offer I make, yet expect me to blindly provide you a guarantee for a family trust for which you’ve been evasive and secretive.[14]
[13] Exhibit W1 at page 460 to 461
[14] Wife's affidavit filed 26 September 2022 at paragraph 189 and Exhibit W1 at page 470
From 21 June 2021 the husband also began writing to the other directors of O Clinic Pty Ltd, demanding information about what was owed by the O Clinic Unit Trust to the Rockford Family Discretionary Trust, making various allegations and threatening to report the O Clinic Unit Trust to the Australian Securities and Investment Corporation (ASIC).[15] The wife said this was personally and professionally humiliating for her and made her work situation very uncomfortable as her colleagues became concerned about the husband’s threats and about being dragged into the family law dispute between the parties.
[15] Exhibit W1 at pages 228 to 252
On 25 June 2021 the wife’s solicitors wrote to the husband to advise that the distribution due to the Rockford Family Discretionary Trust from the O Clinic Unit Trust for the 2020 financial year was $46,313 and that the distribution had been made that day. The solicitors noted the parties’ previous agreement that, for the purpose of the parties’ tax returns for that financial year, $32,500 would be distributed by the Rockford Family Discretionary Trust to the wife. They advised that the wife had paid the outstanding fees due to the Rockford Family Discretionary Trust accountant and transferred the balance of $32,500 to herself in accordance with the declaration in her tax return. The solicitors referred to the husband’s correspondence to the other directors of O Clinic Pty Ltd and accused him of attempting to cause disharmony in the wife’s workplace. They also foreshadowed an application by the wife for an injunction to stop him accessing any funds paid by the O Clinic Unit Trust to the Rockford Family Discretionary Trust in the future, given he had refused to give an undertaking to that effect.[16]
[16] Exhibit W1 at pages 464 to 465
Later that day, 25 June 2021, the husband responded, encouraging the wife’s solicitors to bring the matter before the Court. He took issue with the notion that any distribution from the O Clinic Unit Trust to the Rockford Family Discretionary Trust was entirely generated from the wife’s income. He said in his letter to the wife’s solicitor the following:
… Your client has benefited from more than a decade, with my management of the [Rockford] Family Discretionary Trust and the interactions it had as a shareholder of [O Clinic]. That prudent management entitles myself to continue to see a benefit from the structures I manage (and continue to manage) and the risk I took in personally guaranteeing in my name, the formation of [O Clinic] at [F Street] in the initial days.[17]
[17] Ibid at page 156
On 30 June 2021, the husband wrote to the wife’s solicitors and copied in the other directors of O Clinic Pty Ltd. He said he has been blindsided by the wife’s actions in immediately withdrawing funds from the Rockford Family Discretionary Trust which he presumed was on the solicitor’s advice. He accused the wife’s solicitor of professional misconduct and of having colluded with the wife to prevent him receiving a share of the distributions from the O Clinic Unit Trust. He accused the solicitor of having a conflict of interest. [18]
[18] Ibid at pages 471 to 472
The husband separately wrote to the directors of O Clinic Pty Ltd, accusing them of colluding to deny him a benefit and threatening to take legal action against them.[19]
[19] Ibid at pages 228 to 252
On the same day, 30 June 2021, the husband sent a message to the wife through the parties’ accountant, Mr T, indicating that he was prepared to relinquish his association with the O Clinic Unit Trust in the event the wife was prepared to agree to the values he sought to be attributed to the parties’ real properties for the purpose of the property proceedings.[20] The wife felt the husband was using his belligerent behaviour to her colleagues to put collateral pressure on her to accede to his demands in the property proceedings. In my view, this was a reasonable assessment of the husband’s behaviour at that time.
[20] Exhibit W1 at page 473
The wife filed an application in a proceeding on 26 July 2021 in an attempt to have a wide range of ongoing issues dealt with by the Court. This included the issue of the parties’ respective entitlements to distributions made by the O Clinic Unit Trust to the Rockford Family Discretionary Trust and communications by the husband with the directors of the corporate trustee of the O Clinic Unit Trust. The application was dealt with by Senior Judicial Registrar Evans on 30 September 2021. The relevant orders made that day were as follows:
24. The Applicant Wife remain as the family representative of the [Rockford] Family Discretionary Trust to [O Clinic] and that the Respondent Husband be restrained from communicating with any of the directors of [O Clinic] Unit Trust including, but not limited to, all communication regarding distribution from [O Clinic] Unit Trust to [Rockford Family] Discretionary Trust and any and all communication in relation to rent payable by [O Clinic] to the parties’ self-managed superannuation fund.
25. The Applicant Wife will provide to the Respondent Husband, within 7 days of any trust distribution made by [O Clinic] Unit Trust to [Rockford] Family Discretionary Trust disclosure as to the distributions made and any further information as reasonably requested by the Respondent Husband as to decisions made or communications by [O Clinic] Unit Trust in respect of the payment of rental to the parties’ self-managed superannuation fund.
26. The Respondent Husband be restrained in his capacity as appointor of the [Rockford] Family Discretionary Trust from appointing or removing the Trustee of the said trust without prior written consent of the applicant wife.
The wife said that her understanding of these orders was that she was entitled to deal with the distributions from the O Clinic Unit Trust to the Rockford Family Discretionary Trust but had an obligation to make a full disclosure to the husband of all distributions and all communications about them. It appears the husband had a similar understanding as he said in his written submissions at the end of the trial:
SJR Evans assigned control of the [Rockford Family Discretionary Trust] share of [O Clinic Unit Trust] to the Wife.[21]
[21] Husband’s written submissions filed on 29 September 2023 at paragraph 25
Nevertheless, in the following month, the husband removed funds totalling a little over $12,000 from the Rockford Family Discretionary Trust bank account without the wife’s knowledge or consent. Some of those funds were used by the husband to pay his share of some joint litigation expenses such as valuations. Those transactions left a balance of less than $100 in the Rockford Family Discretionary Trust account.[22]
[22] Exhibit W1 at page 474
In the lead up to mediation in November 2021, the wife discovered the husband had removed the funds. She attended the bank to check that the husband had not changed any of the arrangements for the operation of the account which allowed each party to withdraw funds. She was told that no changes had been made. She scheduled an appointment the following week to arrange for a transfer of the anticipated distribution from the O Clinic Unit Trust for the 2021 financial year. However, before that occurred, she received a message from the branch manager of the bank to say that the Rockford Family Discretionary Trust bank account had been frozen as there seemed to be a dispute between the parties in relation to it. This meant that deposits could be made into the account but no withdrawals could be made. If the 2021 distribution from the O Clinic Unit Trust was paid into the account, the wife would be unable to access it which would create significant cash flow problems for her.
On 17 November 2021, the wife arranged for any distributions from the O Clinic Unit Trust to be paid into a personal account in her name and this is what occurred. The distribution from the O Clinic Unit Trust to the Rockford Family Discretionary Trust for the 2021 financial year, was $41,631 and was paid into a personal account in the wife’s name. On 23 November 2021, the wife’s solicitors wrote to the husband advising him of the distribution.
On 26 November 2021, the husband filed a contravention application alleging she was in breach of orders for doing so. The application was heard and dismissed on 27 October 2022 and the husband ordered to pay the wife’s costs.
On 17 December 2021, for the sake of transparency and accounting clarity, the wife opened a new account in her name with the Commonwealth Bank for the sole purpose of dealing with distributions from the O Clinic Unit Trust.[23] She transferred the funds distributed to her by the O Clinic Unit Trust into that account. She said she had spoken with the Rockford Family Discretionary Trust accountant, Mr T, and was reassured that the Rockford Family Discretionary Trust account could be rectified by a journal entry when the tax returns with the Rockford Family Discretionary Trust were being finalised.[24] She also subsequently transferred into that account the proceeds of sale from the Suburb M property once orders were made on 2 November 2022 for the release of those funds to her by way of interim property distribution.
[23] Wife's affidavit filed 26 September 2022 at paragraphs 194 and 195.
[24] Ibid at paragraph 196
For the 2022 financial year, the wife was required to pay an additional service fee to the O Clinic Unit Trust of $56,967.16. She borrowed $56,000 from her mother as she did not have sufficient funds to make the additional payment without a loan. On 17 August 2022 the O Clinic Unit Trust made a distribution to Rockford Family Discretionary Trust in the sum of $59,348. The wife endorsed the back of the cheque and deposited the funds into her new bank account. She then reimbursed her mother the $56,000 she had borrowed from her. The wife’s solicitors wrote to the husband and advised him of these matters in a letter dated 22 August 2022.
On 26 June 2023 the wife was advised that the additional service fee for that financial year was $90,927. The wife paid this amount using funds available in her new account and the sum of $40,000 which she withdrew from a mortgage offset account (account no …56). On 4 July 2023 she received a distribution of $95,666 from the O Clinic Unit Trust in the form of a cheque which she endorsed and paid into her new account. She reimbursed the $40,000 to the mortgage offset account that day. On 7 July 2023, the wife’s solicitor wrote to the husband advising him of these matters. The husband reported the wife to police for taking the funds.[25]
[25] Transcript 11 August 223 at page 352
On 12 July 2023 the wife’s new account was frozen by the Commonwealth Bank as a result of complaints by the husband. This left the wife with no access to the more than $60,000 in it.
The wife filed an application in a proceeding on 31 July 2023 seeking, interalia, to join the Commonwealth Bank and to have the freeze on the account lifted. She amended the application on 7 August 2023 to remove the order she sought against the bank as, by then, she and the bank had resolved the issue.
On 9 August 2023, the first day of the second tranche of the trial, the husband finally indicated through his counsel that he was content for the wife to take the O Clinic Unit Trust as part of her property settlement. However, the value of the O Clinic Unit Trust was not agreed.[26] He also maintained that he was entitled to a share of the distributions received by the wife since 2020 and, in his submissions at the end of the trial, sought that all of the distributions received by the wife from 2020 to 2023 be notionally added to the property pool and treated as a partial property settlement to the wife.[27]
[26] Transcript 9 August 2023 at pages 75 to 76
[27] Husband’s written submissions filed 29 September 2023 at paragraph 48
SUPER FUND 1
In early 2009 the parties set up a self-managed superannuation fund, Super Fund 1. Soon after the establishment of Super Fund 1, the parties purchased a 50 percent interest in a property at F Street in City D in the husband’s name. Mr L’s family trust bought the other 50 percent interest. The parties and Mr L undertook renovations to make it suitable to accommodate the clinic, O Clinic. The parties’ interest was then rolled into Super Fund 1. The husband asserted in the current proceedings that he should be given credit for taking on the risk of the venture by having the property purchased in his name alone. The wife said her recollection was that the purchase was in the husband’s name for asset protection purposes. It is irrelevant in any event as both the benefit and risk of the venture was borne by both parties, as was the benefit and risk of the investment properties in Sydney purchased by the parties in the wife’s name.
The original members of Super Fund 1 were only the parties. The husband’s parents joined the fund not long afterwards when the parties had purchased the F Street property but were unable to borrow sufficient funds to complete the renovation. The husband’s parents joining the fund generated extra funds for Super Fund 1.
O Clinic began operating from F Street in about 2010 or 2011. Although not clear on the evidence, I assume this is when Mr L bought a 50 percent share of the F Street property. The O Clinic Unit Trust pays rent to Super Fund 1.
It is common ground that there have been very few increases in rent since the clinic began operating from the property. The initial rent for the premises was $2,500 per month. Three years later, following a review, the rent was increased to $2,800 per month.
From July 2021 to September 2021 and again in May 2022, the husband wrote to the directors of O Clinic Pty Ltd as the trustee of the O Clinic Unit Trust and to the wife’s solicitors, insisting that they agree to an increase in rent on the premises.[28] When no agreement was forthcoming, the husband wrote to the NSW Small Business Commissioner, lodging a complaint about the O Clinic Unit Trust. By the time of the trial, the rent had still not been increased.
[28] Exhibit W1 at pages 253 to 273
On a date which is not clear on the evidence, Super Fund 1 purchased a property at U Street, City D. The parties were in the process of renovating this property to make it suitable to lease when the parties separated. The renovation was completed post-separation. The property was then sold and the net proceeds are held as cash by Super Fund 1. The husband’s counsel put to the wife that, considering the costs of the purchase and renovations, Super Fund 1 made a $15,000 loss on the property. The wife said she was not aware of a loss being incurred on the sale because she had never been provided with any detailed information about it.[29] The wife’s counsel submitted that, until those questions were put to the wife, there had never been any quantification of any loss and no documents in support of a loss had ever been disclosed, despite the proceedings being on foot for 18 months. It was suggested to the wife that the property was purchased to provide new premises from which the clinic could operate. The wife denied that. She said the property was purchased because it was agreed that real estate would offer a better return for Super Fund 1 than having cash in the bank. She said the parties had discussed the potential for the property to be used for the clinic but had ultimately decided to lease it for residential purposes.[30] Notwithstanding this evidence, the husband ultimately submitted that the wife alone should bear the asserted loss, through a reduction in the value of her interest in Super Fund 1, apparently on the basis that the property was purchased to provide her with alternative business premises. There is no cogent evidence of any loss and, even if there was, there is no principled reason for the wife alone to bear it.
[29] Transcript 1 November 2022 at page 100
[30] Ibid at page 100
At the time of the trial, the members of Super Fund 1 were the parties and the husband’s mother. At that time Super Fund 1 owned the following assets:
(a)a 50 percent share in the property at F Street, City D, from which the business, O Clinic, is operated;
(b)cash from the sale of the property at U Street, City D; and
(c)other cash reserves.
The combined value of the parties’ interests in Super Fund 1 at the time of the trial (excluding the value of the husband’s mother’s interest) was a little over $750,000.
V PTY LTD
In mid-2015, the husband started a company, V Pty Ltd, to manage the finances of the parties. The wife was the principal client of the company. This formalised the husband’s management of the wife’s financial affairs and facilitated income splitting between the two. During his oral evidence the husband explained that, each year, he received information from the accountants for the O Clinic Unit Trust about the distribution to be paid to the Rockford Family Discretionary Trust. He then prepared spreadsheets and other documents for the Rockford Family Discretionary Trust accountant, Mr T, who prepared the tax returns for each of the parties and for the Rockford Family Discretionary Trust.[31]
[31] Transcript 9 August 2023 at pages 104 to 105
The husband’s evidence was that, once he became a public servant in 2017, V Pty Ltd was wound down.[32]
[32] Ibid
The husband agreed during cross-examination that, throughout the proceedings and despite repeated requests, he had never disclosed any bank statements for V Pty Ltd. He said he did not know where any of the bank statements were, given he ceased his directorship of the company when he joined the public service. The bank statements were subpoenaed by the wife’s legal representatives. They indicated that the bank account for V Pty Ltd was not closed until 1 March 2021. The husband said in his oral evidence that this was because, when he started in the public service, his mother, Ms G, took over the business and was appointed director of V Pty Ltd. He said that, from that point, “I had no interest or involvement in [V Pty Ltd]”. When asked why he had never previously disclosed that fact, he replied “Why would I disclose my mother’s stuff?”[33]
[33] Transcript 10 August 2023 at page 192
When asked what his mother did as director of V Pty Ltd, the husband said she helped the wife in her business by doing data entry and bookkeeping.[34] He was challenged about that. He was taken through the V Pty Ltd bank accounts from April 2020. He agreed that transfers of funds from the wife’s account to the V Pty Ltd account were made by him, as were transfers out of the account to pay bills, such as for the accountant. He was asked why his mother did not pay those bills, given she was employed by the company to do financial work. He said that, sometimes, he would open the mail and simply pay the bills. It was put to him that the transfer of V Pty Ltd to his mother was a complete sham. He denied that. He said he sometimes assisted his mother because he knew how things worked.[35] This contradicted his evidence that he was not involved from 2017.
[34] Ibid at page 194
[35] Transcript 10 August 2023 at page 196
Between June and October 2020 there were monthly deposits of about $3,000 from the Australian Tax Office into the V Pty Ltd bank account.[36] The husband said these were JobKeeper payments made during the Covid-19 pandemic in relation to his mother’s employment and which he transferred to his mother’s account. However, a total of $16,500 was paid by the ATO to V Pty Ltd between 24 June 2020 and 12 October 2020 but only two payments totalling $3,000 appear to have been transferred to Ms G as these are the only transactions which named her as the transferee. The husband said he was not sure to whom the other transfers were made if his mother was not named on the transfer. He said they could have been paid to another entity, such as the Rockford Family Discretionary Trust, as his mother was a beneficiary of the Trust.[37]
[36] Exhibit W9
[37] Transcript 10 August 2023 at page 195
The husband said that the application for JobKeeper was made by Mr T, the accountant for the family and its various entities. It seems most unlikely that such an application would have been made without the husband’s approval.
Ms G swore two affidavits in the proceedings, neither of which touched on her involvement with V Pty Ltd. She gave oral evidence on the last day of the trial, 11 August 2023. She was asked when she became a director of V Pty Ltd. She answered “Probably when it was formed”[38] which is incorrect. When asked what sort of bookwork she did for the wife, she responded “Nothing”.[39] When asked how she helped to manage the wife’s business from 2017 she said, “I don’t know”. [40] When asked if she had ever done any bookwork for the wife’s clinic she said, “Not that I recall”. [41]
[38] Transcript 11 August 2023 at page 418
[39] Ibid at page 421
[40] Ibid at page 422
[41] Ibid
Ms G was asked if there was a bank account associated with V Pty Ltd. She said, “Well, all that sort of stuff is handled by my son”[42] . When asked about Internet banking, she declared herself to be “completely illiterate where technology is concerned”.[43] She said she does not own a computer, does not do Internet banking, and still uses a passbook for her personal banking.
[42] Ibid at page 419
[43] Ibid
Ms G said during cross-examination that she had no recollection of ever being paid JobKeeper during the pandemic. She said her son deposits money into her account which she believed came from her superannuation fund.[44]
[44] Transcript 11 August 2023 at page 422
The affidavit filed by Ms G on 17 July 2023 gives extensive evidence about her interest in Super Fund 1 and about the rent of the property from which O Clinic operates. Much of the evidence in her affidavit closely mirrored that of her son in its content and tone. During cross-examination Ms G was asked whether she helps to decide what level of rent should be paid by O Clinic. She responded, “I leave it all to my son. I leave it completely in his hands… I don’t know how to - I trust him with everything”.[45]
[45] Ibid at page 419
It was clear from all of this evidence that:
(a)The husband continued to operate V Pty Ltd from 2017 until the account was closed in March 2021;
(b)The appointment of Ms G as director of V Pty Ltd in 2017 was a sham;
(c)Ms G neither worked for V Pty Ltd nor for the wife;
(d)An application for JobKeeper was made on behalf of the husband’s mother in relation to her employment with V Pty Ltd, despite her never having worked for the company; and
(e)Some of the JobKeeper funds received by V Pty Ltd were transferred by the husband to his mother and some were transferred elsewhere, possibly to the Rockford Family Discretionary Trust of which the husband and his mother are beneficiaries. The evidence about those transfers is opaque but all were controlled by the husband.
On the evidence before me, I find the husband gave deliberately false and misleading evidence about his involvement with V Pty Ltd for the period mid-2017 to March 2021.
The evidence also at least raises a query about whether the husband committed a fraud against the Commonwealth by authorising an application for JobKeeper on behalf of his mother, knowing she was not entitled to the payment. I am not in a position to make any determination about that and nor would it be appropriate for me to attempt to do so. However, because of the serious nature of the apparent conduct, I am not prepared to ignore it. I will arrange for the Deputy Principal Registrar of the Court to make a referral to the Commonwealth Director of Public Prosecutions as that is the appropriate authority to consider whether an investigation into these matters is warranted.
ALLEGATIONS OF COERCION AND CONTROL
The wife alleged the husband engaged in behaviour that was coercive and controlling and made her life difficult both during the marriage and after separation. She relied on that behaviour to ground an argument that the contributions she made should be accorded more weight because the husband’s behaviour made the circumstances in which she made them, significantly more arduous than they ought to have been.[46]
[46] Kennon v Kennon (1997) FLC 992-757
The wife deposed that, very early in the relationship when she was setting up a business, the husband helped her as she felt overwhelmed at everything required to start her own business. She said the husband helped her to set up the clinic and provided advice about how the business should be structured. She said that, over time, she let the husband make all of the financial and business decisions in a context in which she was the primary parent to the children and the primary income earner. She said this pragmatic division of labour became problematic when, over time, the husband became disparaging of her lack of knowledge of their finances and, during arguments, said things such as “Well, run your own business then”, which caused her to back down from the argument.[47] This implied threat to simply cease his financial management of the business was manipulative. Although denied by the husband, I accept the wife’s evidence about it because it was consistent with the volume of evidence of many other threats made in writing by the husband to both the wife and her solicitor, which I will come to.
[47] Wife's affidavit filed 26 September 2022 at paragraphs 149 and 152
The wife said that, over time, she felt increasingly uncomfortable about the level of debt carried by the parties, including the purchase of the Suburb M property solely in her name when, at the same time, the husband insisted they had no money for other things, such as family holidays.
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