Chen & Chen (No 2)
[2024] FedCFamC1F 665
•4 October 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Chen & Chen (No 2) [2024] FedCFamC1F 665
File number MLC 5805 of 2016 Judgment of WILSON J Date of judgment 4 October 2024 Catchwords FAMILY LAW – MAJOR COMPLEX FINANCIAL PROCEEDINGS LIST – application by first respondent for indemnity costs against second respondent – second respondent failed to adequately discharge her duties concerning disclosure – application for indemnity costs granted. Legislation Corporations Act 2001 ss 95A, 436A, part 5.3A
Family Law Act 1975 ss 79(2), 117(1),117(2), 117(2A), 117(2A)(c), 117(2A)(g)
Federal Circuit and Family Court of Australia (Family Law) Rules 2021
Cases cited Bacall & Zagar [2020] FamCA 350
Barker v Barker (2007) 36 Fam LR 650
Black v Kellner (1992) 15 Fam LR 343
Chen v Chen (No 3) (2020) 63 Fam LR 448
Chen v Chen [2018] FamCA 828
Chang v Su (2002) 29 Fam LR 406
Colgate-Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 225
Fitzgerald v Fish (2005) 33 Fam LR 123
Flight v Robinson (1844) 50 ER 9
Guild v Stasiuk (No 2) [2020] FamCA 564
In the Marriage of Briese (1985) 10 Fam LR 642
In Marriage of Giunti (1986) 11 Fam LR 160In the Marriage of Hogan (1986) 10 Fam LR 681
In the Marriage of Kohan (1992) 16 Fam LR 245
In the Marriage of Marinko (1983) 8 Fam LR 849
In the Marriage of Mezzacappa (1987) 11 Fam LR 957
In the Marriage of Morrison (1994) 18 Fam LR 519
In the Marriage of Stein (1986) 11 Fam LR 353In the Marriage of Suiker (1993) 17 Fam LR 236
In the Marriage of Weir (1992) 16 Fam LR 154
Kannisv Kannis (2002) 30 Fam LR 83Medlon v Medlon (No 6) [2015] FamCAFC 157
Monte & Monte [1986] FamCA 1
Moy v Pao [2022] FedCFamC1A 17
Oriolo v Oriolo (1985) 10 Fam LR 665
Waterman & Waterman [2017] FamCAFC 23Willans & Enmore (No 2) [2021] FedCFamC1F 130
Division Division 1 First Instance Number of paragraphs 61 Date of last submission 16 September 2024 Date of hearing 16 September 2024 Place Melbourne Counsel for the applicant Did not participate Counsel for the first respondent Mr D. Farrands KC Counsel for the second respondent Did not participate Counsel for the third respondent Did not participate Solicitors for the fourth, fifth and sixth respondents – the liquidators Mr N. Ayliffe Counsel for the seventh respondent Did not participate Counsel for the eighth respondent Did not participate Solicitors for the receivers KHQ Lawyers Counsel for the ninth and tenth respondents Did not participate ORDERS
MLC 5805 of 2016 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN MS CHEN
Applicant
AND MR CHEN
First Respondent
MS QUEN
Second Respondent
ORDER MADE BY
WILSON J
DATE OF ORDER
4 OCTOBER 2024
THE COURT ORDERS THAT –
1.Pursuant to s 117(2) of the Family Law Act, the first respondent’s costs are to be assessed on an indemnity basis by a registrar of this court in respect of the period 20 September 2020 to 20 May 2022 and when assessed paid by the second respondent.
2.The first respondent’s costs of and incidental to this application for indemnity costs are to be assessed by a registrar of the court and when assessed, paid by the second respondent.
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).
Part XIVB of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish an account of 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 Chen & Chen has been approved pursuant to subsection 114Q(2) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
WILSON J
INTRODUCTION
The first respondent has brought a costs application in this proceeding. The proceeding has been on foot since 2016. It came into my docket in 2020. It has been the subject of a reported decision in respect of a pleading concerning a resulting trust.[1] The proceeding had been before me 42 times prior to the first respondent’s unsuccessful application for leave to appeal against my orders made on 27 February 2024.
[1] Chen v Chen (No 3) (2020) 63 Fam LR 448.
The proceeding moves forward in this court at glacial speed. The solicitor for the liquidator informed me on 16 September 2024 that in satellite litigation in the Supreme Court an examination will be conducted by the liquidators into, among other things, the conduct of the second respondent and whether she entered into one or more uncommercial transactions. That examination, I am told, will be under the direction of a judge of the Commercial Court of the Supreme Court. How long it will take to conduct that examination, Mr Ayliffe was unable to say. The solicitor for the liquidators informed me that the liquidators have realised certain property and were endeavouring to ascertain the extent of amounts due to unsecured and secured creditors. A degree of likelihood has emerged that once the liquidators windup the insolvent administrations in this proceeding, the amount in the pool for distribution among the parties may well be zero.
In December 2024 the liquidators are required to report to the Australian Securities and Investments Commission and to the court reporting on their investigations into the companies in liquidation. I have adjourned the further hearing of this proceeding to 5 December 2024.
The first respondent has sought orders that the second respondent pays his costs on an indemnity basis in respect of discrete aspects of this proceeding. The second respondent has not consented to that application yet she has equivocated on her position. She did not appear before me on 16 September 2024. However, she filed submissions in opposition to the first respondent’s application, apparently with the assistance of counsel.
In essence, the first respondent seeks an indemnity costs order against the second respondent by reason of what he says is the second respondent’s dereliction in her disclosure obligations. In support of that contention, the first respondent asserts that since August 2020 the second respondent has fallen significantly short in providing proper disclosure leading to the applicant encountering enormous obstacles in proving her case. For the reasons that follow, I order the second respondent to pay the first respondent’s costs on an indemnity basis.
When ordering the setting aside of the relevant binding financial agreement in October 2018, Cronin J observed that the applicant as wife and the first respondent as husband where still married when the first respondent commenced an extended relationship with the second respondent bearing several children with him. The applicant wife asserted that the husband and the second respondent diverted funds of various corporate entities owned and controlled at least in part by the wife away from those corporate entities and into property of which the second respondent became registered as the legal or beneficial owner. The applicant claimed a resulting trust in respect of various acquisitions. However, by reason of the second respondent’s deficiencies in disclosure, the applicant wife was unable to plead her case in respect of any resulting trust. The wife made powerful submissions about deficiencies in the second respondent’s disclosure and how those deficiencies impaired the wife’s ability to properly plead the resulting trust she alleged.[2]
[2] Chen v Chen(No 3) (2020) 63 Fam LR 448 at [20(d)] and at [177-181].
The first respondent on this indemnity costs application contended that the second respondent’s failure to provide meaningful discovery entirely thwarted the progress of this litigation, “virtually keeping it at a stand-still”.[3]
[3] First respondent’s written submission dated 14 July 2022.
The first respondent contended that between 2020 and the date of a mediation conducted in March 2021, the second respondent’s disclosure of documents remained inadequate, culminating in the failure of that mediation.[4]
[4] The mediation was conducted before Benjamin J, then of the Family Court of Australia.
The first respondent asserted that despite his request for specific documents, the second respondent failed to provide them. He submitted that the “whole of the legal costs of the first respondent had been wasted because the second respondent has simply failed to provide any meaningful disclosure”.
A second mediation conducted on 27 July 2021 and 4 August 2021 failed, the first respondent asserting that the failure of the mediation was due to the second respondent’s failure to provide her estimate of the pool of assets despite court’s requirement for her to do so.
A variety of other bases in support of his indemnity costs application was advanced by the first respondent. They are considered below.
The first respondent made an affidavit in support of his costs application on 14 July 2022. The date in which that affidavit was made is over two years ago. The first respondent has been pressing for the determination of costs from a time prior to the appointment of external administrators to various companies now in liquidation and trusts now in receivership. Having regard to the first respondent’s unsuccessful application which he appealed, and in view of the time the Full Court reserved its decision, this is the first real opportunity Mr Farrands KC has had to fully ventilate his client’s costs application.
In the family law arena, principles governing the circumstances in which indemnity costs may be ordered are slightly different to the circumstances in which indemnity costs may be ordered in a State court or in the Federal Court of Australia. In this court the learning from the 2015 decision in Medlon v Medlon (No 6) (indemnity costs)[5] carries sway, even though the locus classicus for an indemnity costs order applicable in most Australian jurisdictions emanates from the 1993 decision of Sheppard J in Colgate-Palmolive Co v Cussons Pty Ltd.[6] The learning in Medlon v Medlon (No 6) was recently applied in Moy v Pao.[7] There the Full Court reiterated that indemnity costs should only be ordered in exceptional circumstances and that any costs order must in all the circumstances be just.
[5] [2015] FamCAFC 157.
[6] (1993) 46 FCR 225.
[7] [2022] FedCFamC1A 17.
An indemnity costs order is one made under s 117(2) of the Family Law Act, representing a deviation from the more normal order made under s 117(1) to the effect that each party bears his, her or its own costs. If a court is persuaded that a ground under s 117(2A) of the Family Law Act is enlivened, it is competent for the court to make an order for costs in reliance upon s 117(2) of the Family Law Act. Only one of the several grounds in s 117(2A) need be invoked as was held in Fitzgerald v Fish.[8]
[8] (2005) 33 Fam LR 123.
On this costs application, the first respondent made an affidavit on 14 July 2022 in which he deposed, in substance, that the matters extracted in submissions prepared by senior and junior counsel on his behalf were true. So far as the second respondent’s submissions were concerned, they were expressed in narrative form, as if an affidavit, yet the “submissions” (euphemistically so-called) were neither sworn nor affirmed as an affidavit. She did not attach any supporting documents to her submissions. For that matter, her submissions were an exhibit to the first respondent’s affidavit. The second respondent denied she was liable to the first respondent for costs for any reason asserted by the first respondent.
I take the view that exceptional circumstances have been demonstrated by the first respondent for the imposition of an indemnity costs order against the second respondent. I also take the view that an order for indemnity costs against the second respondent is just in all the circumstances, in accordance with the ratio decidendi of Hogan v Hogan.[9] The second respondent has conducted this litigation with cavalier disregard for her disclosure obligations and for her compliance with court orders.
[9] In the Marriage of Hogan (1986) 10 Fam LR 681.
The applicant encountered very considerable difficulty pleading her resulting trust claims mostly by reason of the fact that the second respondent was derelict in complying with her disclosure obligations leading me in Chen v Chen (No 3)[10] to record that under chapter 13 of the then operative Family Law Rules criminal sanctions were imposed for dereliction in disclosure.[11] According to Cronin J in Chen (2018),[12] the first respondent and the second respondent were involved in the purchase of 14 separate parcels of land.
[10] (2020) 63 Fam LR 448.
[11] See also Bacall & Zagar [2020] FamCA 350.
[12] Chen v Chen [2018] FamCA 828.
On this application for indemnity costs, the first respondent has asserted that the second respondent continues to fail to provide disclosure, whether in accordance with court orders or by operation of rules of court. The second respondent effectively stymied the applicant wife’s advancement of her claims in respect of resulting trusts by reason of the second respondent’s persistent refusal to do as she was required to do in relation to disclosure. The conduct of the second respondent in that persistent refusal to give proper disclosure has all but thwarted the applicant’s attempts to progress this case to trial for at least four years. Curiously, the first respondent complains about the second respondent’s dereliction in her compliance with her disclosure obligations when the person most adversely affected by such noncompliance is the applicant, not the first respondent. It is alleged that his conduct in applying business funds towards the second respondent’s registration as the registered proprietor of 14 separate parcels of land caused loss to the applicant. In some instances it is alleged by the applicant that the second respondent became the registered proprietor of certain parcels of land in pursuance of one or more transfers of land from the first respondent to the second respondent for natural love and affection without the payment of any valuable consideration.[13]
[13] Chen v Chen (No 3) (2020) 63 Fam LR 448 (at [70]).
In support of his costs application, the first respondent contended that by reason of a tactic of standing still adopted by the second respondent, the second respondent wasted costs by requiring the first respondent to pursue the second respondent for disclosure, to which the first respondent contended that the second respondent’s decision to put the fourth, fifth and sixth respondents in administration was a device or tactic orchestrated to further delay the ongoing forward progress of this litigation.
So far as the quantum of costs were concerned, the first respondent sought indemnity costs on three bases. They were –
(a)a total of $402,971.74 by way of indemnity costs for the second respondent’s failure to provide any material disclosure between September 2020 and 20 May 2022;
(b)a further amount, in the sum of $77,850 by way of indemnity costs for the costs incurred by the first respondent of and incidental to his application for orders terminating the administrations of the fourth, fifth and sixth respondents who were appointed by the second respondent; and
(c)a further amount in the sum of $16,142 by way of indemnity costs being the costs of and incidental to the application before me for indemnity costs.
Cognisant of the need to ground these applications for indemnity costs in one or more of the several subsections of s 117(2A) of the Family Law Act, the first respondent has relied on s 117(2A)(c), and s 117(2A)(g). Section 117(2A)(c) invites examination of the conduct of the parties to the proceeding “in relation to the proceedings” on such matters as pleadings, particulars, discovery, inspection, production of documents and similar matters. Importantly for present purposes, discovery (or, in current parlance, disclosure) is among the matters to which regard is appropriately had. Section 117(2A)(g) is a reference to such other matters as the court considers relevant.
The authorities under s 117 of the Family Law Act in relation to indemnity costs are few in number. They include In the Marriage of Kohan,[14] Medlon v Medlon (No 6),[15] Guild v Stasiuk (No 2)[16] and Willans & Enmore (No 2).[17] As has already been narrated, exceptional circumstances must exist to warrant the imposition of an indemnity costs order. Something must be shown as being out of the ordinary as I held in Willans & Enmore (No 2).[18]
[14] (1992) 16 Fam LR 245.
[15] (2015) 54 Fam LR 245.
[16] [2020] FamCA 564.
[17] [2021] FedCFamC1F 130.
[18] Ibid.
THE FIRST BASIS FOR AN INDEMNITY COSTS ORDER – NON-COMPLIANCE WITH ORDERS FOR DISCLOSURE
The first respondent relied on s 117 (2A)(c) as well as s 117(2A)(g) in support of his indemnity costs application grounded in non-compliance with orders for disclosure.
The chronological context of the disclosure deficiencies asserted by the first respondent began to emerge soon after judgment was handed down by me in Chen v Chen (No 3)[19] on 9 September 2020. In those reasons for judgment I pointed out that adverse consequences awaited a party who failed to provide timely and proper disclosure. Mr Farrands KC and Ms AG submitted[20] that by 24 October 2020 the second respondent had given extremely limited disclosure prompting the solicitor for the first respondent to write to the solicitors for the second respondent on 8 December 2020 stating that disclosure from the second respondent was seriously deficient, setting out the deficiencies.
[19] (2020) 63 Fam LR 448
[20] Paragraph 44 of their written submissions dated 14 July 2022.
In March 2021 this proceeding was dealt with at a judicial mediation over two and a half days. The mediation was unsuccessful, which, according to Mr Farrands KC was largely referrable to defective disclosure, in consequence of which, applications were made for orders for specific disclosure. Orders were made by me on –
(a)3 May 2021 requiring the second respondent to provide all further disclosure by 14 May 2021;[21]
(a)6 July 2021 requiring the second respondent to provide documentation to AD Financial Services as soon as practicable at the request of AD Financial Services;[22]
(b)14 July 221 requiring each party to serve on all other parties a statement of costs incurred to 20 July 2021;[23]
(c)20 July 2021 requiring the second respondent to provide disclosure of documents set out in paragraphs one to 20 of the letter dated 15 July 2021 from the first respondent’s solicitors to the second respondent’s solicitors;[24] and
(d)27 July 2021 requiring disclosure to be completed by 30 July 2021 in the case of certain documents and other staggered dates in the case of other documentation.[25]
[21] That order was not complied with.
[22] That order was not complied with, a situation where AD Financial Services was unable to complete its valuation.
[23] That order was not complied with.
[24] This order was not complied with.
[25] This order was not complied with.
On behalf of the first respondent, Mr Farrands KC submitted that the second respondent’s delinquency[26] in the provision of disclosure was so great that the first respondent and other parties to this litigation were no better informed of the financial aspect of the pool of assets that fell for division. Mr Farrands KC submitted that the whole of the first respondent’s legal costs have been wasted because, so he submitted, the second respondent refused to provide any meaningful disclosure.
[26] This was the word selected by Mr Farrands KC in paragraph 49 of his 14 July 2020 written submissions.
In her affidavit made 20 May 2022, the second respondent purported to address the disclosure deficiencies about which the first respondent complained. Mr Farrands submitted that the contents of the second respondent’s affidavit was false and unreliable by reason of it containing assertions about disclosure. That led to orders being made on 10 June 2022 requiring the second respondent to provide all disclosure in accordance with disclosure orders previously made by 15 June 2022. According to Mr Farrands, even the 10 June 2022 orders were not complied with by the second respondent because the second respondent did no more than produce certain tax returns for the financial years ended 30 June 2016, 30 June 2017, 30 June 2018 and 30 June 2019.
In developing his contentions on this application in respect of deficiencies of disclosure the first respondent submitted that the second respondent’s disclosure deficiencies fell into several categories. Those were –
(a)failing to disclose the application of the proceeds of sale of properties totalling $6.5m;
(b)failing to disclose the source of payment of $1.6m in legal fees;
(c)failing to disclose documents relating to the withdrawal of $12m in ATM transactions;
(d)failing to disclose uncommercial transactions totalling $5m;
(e)failing to disclose documentation involving the reconciliation of two wage books;
(f)failing to provide documentation to AD Financial Services to enable the business to be valued;
(g)failing to disclose documents relevant to Jobkeeper payments totalling $1m;
(h)failing to provide bank statements in relation to certain City YY bank accounts;
(i)failing to provide tax returns;
(j)failing to disclose loans secured over VV Property in the State of Victoria;
(k)failing to provide documentation to substantiate her assertions that certain lending from National Australia Bank Ltd was cross-collateralised;
(l)failing to provide critical documentation relating to family trusts said to be worth millions of dollars; and
(m)continuing to breach rules of court concerning disclosure and orders plus directions for disclosure.
Those were the categories of disclosure deficiencies.
In respect of all of those separate categories of defective disclosure, Mr Farrands KC submitted that since at least September 2020 (four years ago) the second respondent adopted a strategy of providing derelict disclosure with a view to obstructing the forward progress of this proceeding and preventing it from progressing beyond September 2020. Mr Farrands KC submitted that such behaviour was “egregious”, that it was “of the worse possible kind in a matrimonial/de facto dispute where the parties should be wishing to progress the proceeding to finality” and where “there is a finite pool”. Mr Farrands invited me to conclude that the second respondent’s strategy had been to hold off giving disclosure so that the other parties might simply give up the litigation against her, the second respondent being the principal holder of the relevant assets. Mr Farrands KC submitted that apropos the first respondent, the strategy adopted by the second respondent has been “extremely wasteful” (his words). While wasteful, the second respondent’s strategy has been effective (according to Mr Farrands) because –
(a)the wife has been unable to progress her pleading against the second respondent since the decision in Chen v Chen (No 3),[27] reasons for judgment in which were handed down in September 2020; and
(b)the first respondent had been unable to ascertain the likely composition or value of the pool of assets that falls for division in this case.
[27] (2020) 63 Fam LR 448.
Mr Farrands KC submitted that the second respondent’s contentions of abuse of process has been largely unsuccessful.
THE SECOND BASIS FOR AN INDEMINITY COSTS ORDER – WASTED MEDIATIONS IN MARCH AND AUGUST 2021
As a stand-alone basis for his application for indemnity costs, the first respondent claimed that the mediation before Benjamin J and the day of mediation before Mr AE were unsuccessful by reason of the second respondent’s failure to provide financial records of any business activity subsequent to 2017. Mr Farrands KC submitted that each of s 117(2A)(c) and (g) was engaged in the context of the wasted mediation process.
THE THIRD BASIS FOR AN INDEMNITY COSTS ORDER – OVERALL EGREGIOUS CONDUCT OF THE SECOND RESPONDENT
Mr Farrands KC submitted that the conduct of the second respondent in failing to provide disclosure since September 2020 had been egregious and had led to the virtual derailment of this proceeding. In support of that proposition, he relied on a collection of factors, namely –
(a)the second respondent knew full well from September 2020 that the proceeding could not progress without adequate and full disclosure by her and she deliberately blocked disclosure (Mr Farrands’s words);
(b)the second respondent well knew (based on information disclosed to the court) that as at 3 August 2021 legal costs in the proceeding exceeded $3.5m, she knew that efficiently completing all interlocutory steps in the litigation was in the interests of all parties and despite those factors, the second respondent deliberately took steps to cause the first respondent to incur significant further costs by pursuing the second respondent’s non-compliance with orders for disclosure;
(c)the second respondent wantonly (Mr Farrands’s words) refused to provide disclosure causing all other parties to apply multiple times for orders for disclosure;[28]
(d)the conduct of the second respondent is of the very worst kind in family law litigation where parties should be seeking to quell the controversies as soon as possible consistent with their duties to the other parties and to the court (Mr Farrands’s words);
(e)the second respondent effected a strategy of non-disclosure knowing that disclosure was essential for mediation and her hope that the other parties would simply give up on the litigation had not come to pass;
(f)so far as non-disclosure of financial statements of trusts controlled by the second respondent were concerned, at one time the second respondent attempted to say that those statements had not been disclosed because they had not been prepared, demonstrating that the failure to prepare and/or provide financial statements and tax returns by the second respondent was deliberate;
(g)rather than seeking to address disclosure deficiencies, in October 2021 the second respondent attempted to defer all disclosure applications to the trial of this proceeding;
(h)the second respondent retained and then dismissed a collection of legal representatives and now she is unrepresented reflective of the fact that her decision to proceed unrepresented is strategically driven not financially driven;
(i)the second respondent’s approach to disclosure had been incredulous (Mr Farrands’s word) in that “she believed she might be able to pull the wool over the court’s eyes by mere assertion and obfuscation” (Mr Farrands’s words again); and
(j)until 16 March 2022 the second respondent was represented by a specialist firm of family law practitioners and at no stage from early 2021 had the second respondent’s legal representatives indicated they were unaware of their client’s disclosure obligations and that since September 2020 the second respondent assumed she could “fool or persuade the court about… (the) responsibility associated with her disclosure obligations”.
[28] It was put that the second respondent flagrantly ignored disclosure orders requiring still further orders to be sought and when disclosure was actually provided, it was piecemeal giving the appearance of compliance with orders.
Mr Farrands KC advanced a pointed submission. It was as follows –
“The second respondent’s conduct is of the worst possible kind; ignoring the advice of her legal team, wantonly withholding key documents, seeking to present as an ignorant or confused victim of the family court system, and all the while well knowing that the first respondent was incurring substantial and unnecessary costs, the second respondent hoping this might put the first respondent off pursing his rights.”
FOURTH BASIS FOR AN INDEMNITY COSTS ORDER – NO GROUNDS FOR PLACING COMPANIES IN ADMINISTRATION
As a further stand-alone basis for applying for indemnity costs against the second respondent, the first respondent contended that the second respondent’s evidence in relation to the fourth, fifth and sixth respondents was hopeless and should be rejected with the consequence that it should be held that –
(a)the second respondent acted improperly in seeking the appointment of administrators to the fourth, fifth and sixth respondents;
(b)the appointment of the administrators was an abuse of statutory powers; and
(c)the appointment of the administrators was bad in law.
Before going further, it must not be overlooked that no findings have yet been made about the propriety or otherwise of the appointment of administrators to the fourth, fifth and sixth respondents. Equally, no finding has yet been made about the legitimacy of the second respondent’s purpose in seeking the appointment of administrators to the fourth, fifth and sixth respondents. Accordingly, the first respondent’s contention that the appointment of the administrators “was clearly done for an improper purpose and/or was an abuse of statutory power” has not been debated nor any findings made on the issue. Despite there being no factual findings made in relation to the second respondent’s acts of procuring the appointment of administrators to the fourth, fifth and six respondents, the first respondent’s submissions were laced with assumption – namely, that an improper purpose had been engaged in, that an abuse of statutory power was manifest and that the second respondent had herself breached s 436A of the Corporations Act.
There being no findings of fact concerning the appropriateness or otherwise of the second respondent appointing administrators to three companies, it is not correct for me to proceed on the basis urged by the first respondent, namely, that the appointment of the administrators was an abuse of statutory power, that it was done for an improper purpose and that the appointments were bad in law. In assessing the conduct of the second respondent by appointing administrators to the fourth, fifth and sixth respondents in the context of an application by the first respondent for an indemnity costs order, at least one issue will be whether the second respondent’s conduct of so appointing the administrators was reasonable in all the circumstances.
On behalf of the first respondent, Mr Farrands argued in written submissions that a director abuses his or her statutory power under s 436A of the Corporations Act if he or she appoints administrators for an improper purpose. It was argued that the appointment of the administrators was done for an improper purpose because –
(a)the appointments were not done for a purpose identified in Part 5.3A of the Corporations Act;
(b)a proper purpose was maximising the chances of the company continuing or if not possible, to result in a better return to creditors and members than would result from an immediate winding up;
(c)on the facts of this case (according to the first respondent) the appointment of administrators was directed to protecting the second respondent’s interests in a property at Suburb AC and in another property at Suburb AF for the benefit of the second respondent’s two children given that the loans from National Australia Bank to companies owned or controlled by the second respondent were cross-collateralised to her personal assets;
(d)the appointments of administrators was made on the recommendation of the accountant for the second respondent in order for that accountant to have input and influence over the conduct of the companies in question; and
(e)an administrator rather than a provisional liquidator was appointed suggesting that the administrator was more compliant than might a provisional liquidator have been.
The first respondent endeavoured to place in a chronological setting how the second respondent’s appointment of administrators to the fourth, fifth and sixth respondents was made a year after the first respondent applied for orders appointing receivers and managers to those companies yet the second respondent opposed the appointment of receivers and managers. The first respondent made those submissions under the broader rubric of his contentions that the second respondent orchestrated disruption to the proper conduct of this proceeding and in the process caused an adverse impact on my control of the litigation. He called in aid a collection of factors, those being –
(a)having opposed the first respondent’s applications for the appointment of receivers and managers aimed at protecting the asset pool of the proceeding, the second respondent independently applied to the court for the appointment of administrators to three respondents;
(b)by application made 12 March 2021, the first respondent sought orders replacing the trustees of the relevant family trusts which applications were returnable on 1 and 2 June 2022;
(c)the hearings on 1 and 2 June 2022 were fixed to hear and determine the first respondent’s applications dated 12 March 2021 and 27 June 2021 for the appointment of receivers and managers to entities within the G Group of companies and, to that end, an indication was given to the effect that those orders would be made unless the second respondent provided adequate disclosure yet she failed to provide that disclosure;
(d)on the second respondent’s motion for the appointment of administrators, the first creditor’s meeting was being held simultaneously with the second respondent’s senior counsel addressing the court; and
(e)so the first respondent asserted, the appointment of administrators on the motion of the second respondent was intended by the second respondent to derail the general conduct of this litigation.
The first respondent then advanced a submission that seemed not to be grounded in admissible factual allegations, namely, that the appointment of administrators was –
(a)a breach of statutory power;
(b)made without any concluded view about solvency; and
(c)made for an improper purpose so as to disrupt the work of the court.
The first respondent contended that he had incurred wasted costs by reason of the conduct of the second respondent in her various steps to procure external administration over various entities in the G Group. The first respondent described his costs as “wasted costs” for which he sought an indemnity costs order in respect of three amounts –
$402,971.74;
plus $77,850.00;
plus $16,42.50
total $496,964.24
THE SECOND RESPONDENT’S POSITION IN RELATION TO THE INDEMNITY COSTS SOUGHT
The second respondent provided written submissions which she prepared. They were dated 20 June 2022. They were argumentative in nature, purporting to address the contention of the first respondent that the second respondent did not have a proper basis for appointing administrators to the fourth, fifth and sixth respondents. She did not address what seemed to be a major platform of the first respondent’s application, namely, disclosure deficiencies. Be that as it may, in her written submissions the second respondent asserted as follows –
(a)s 95A of the Corporations Act, which defines solvency, does not refer to a balance sheet or profit and loss report;
(b)cash flow is more relevant in deciding whether a company is solvent or otherwise;
(c)she considered numerous documents over the period January 2021 to May 2022 in reaching the concluded view that “the company”[29] was insolvent;
(d)in paragraph 7 of her written submissions she purported to narrate facts about her conclusions concerning the solvency of one or more companies in the G Group of companies, yet more factual matters should have been put forward in the form of an affidavit;
(e)she asserted that she considered a range of alternative financing;
(f)she asserted that she explained how the proceeds of sale of seven properties were applied; and
(g)she disputed the contention advanced by Mr Farrands KC to the effect that no attempt was made by her to explain the adequacy of the disclosure she was provided.
[29] She did not identify which company was said to be insolvent.
No meaningful attempt was made by the second respondent to explain her deficiencies of disclosure. Similarly, she advanced no legal submissions in opposition to the first respondent’s indemnity costs application, whether grounded in s 117(2A) of the Family Law Act or otherwise.
DISCLOSURE OBLIGATIONS IN FAMILY LAW
This proceeding has been in the Major Complex Financial Proceedings List of this court for several years. Contrary to the usual progression of cases in that list (cases mostly progress to trial within 12 months of entry in the list), this litigation has slowed to glacial speed by reason of the involvement of external administrators. No party is presently advocating for the s 79 application to go forward while trusts and companies within the G Group of companies are under external control.
An unusual facet of this indemnity costs application is that the first respondent presses it now, there being no particular historical event of significance in this proceeding. To the contrary – the latest event of significance was the first respondent’s failure in his application for leave to appeal against my decision concerning the remuneration of the liquidators and receivers.
Since the enactment of the Federal Circuit and Family Court of Australia Act 2021 and the rules made in pursuance of that enactment,[30] litigants in this court have been bound by the overarching obligations requiring litigants to conduct litigation in such manner as they get to the heart of contested issues in a cost effective and time efficient manner. In other words, litigants do not have a free hand to engage in wasteful, expensive, time consuming and distracting steps during the interlocutory phases of a proceeding but instead they are required to get the case to trial as efficiently and cost effectively as can be done.
[30] The Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (“the Rules”).
In civil litigation throughout the Commonwealth of Australia, whether the litigation is regulated by pleadings or otherwise, disclosure is a particular feature of the proceeding. In this court, parties’ obligations concerning disclosure are governed by specific provisions of the Rules. In addition to those specific stipulations, since 1976 when the Family Law Act first came into operation a body of case law developed containing yet further stipulations in relation to parties’ obligations in disclosure. I surveyed those obligations in Paviello & Paviello,[31] drawing together the reasoning from decided cases. It is utile to repeat what I there said in paragraph 7. It was as follows –
[31] [2022] FedCFamC1F 592.
At its core, ground 1 was concerned with the consequences of the arbitrator’s conclusion about material non-disclosure. The review applicant argued that material non-disclosure “should have been as to the ultimate just and equitable adjustment pursuant to s 79(2) of the Act”. The review applicant contended that rather than doing that, the arbitrator considered that non-disclosure enlivened s 75(2)(o) of the Act. The wife argued that authorities such as Black v Kellner,[32] In the Marriage of Briese,[33] Oriolo v Oriolo,[34] In the Marriage of Weir [35] and others contain stipulations about the correct approach to be adopted when one party has been derelict in his or her compliance with the duty of disclosure. In Bacall & Zagar[36] I surveyed the learning in those authorities between the years 1985 and 2020. It is useful to record some of the conclusions set out in that decision –
[32] (1992) 15 Fam LR 343.
[33] (1985) 10 Fam LR 642.
[34] (1985) 10 Fam LR 665.
[35] (1992) 16 Fam LR 154
[36] [2020] FamCA 350.
(a) rule 13.04 of the Family Law Rules, in operation in the lead up to the commencement of the arbitration in this case, imposed a duty of disclosure;
(b) that duty can be traced back to 19th century equitable principles;[37]
[37] Flight v Robinson (1844) 50 ER 9.
(c) the duty is owed to the court as well as to the parties to the proceeding;[38]
[38] Waterman & Waterman [2017] FamCAFC 23.
(d) full and frank disclosure of all material facts is a fundamental requirement in financial matters;[39]
[39] Black v Kellner (1992) 15 Fam LR 343, In the Marriage of Giunti (1986) 11 Fam LR 160 and In the Marriage of Mezzacappa (1987) 11 Fam LR 957.
(e) a party to a financial proceeding has a duty to make full disclosure of his or her financial affairs;[40]
[40] In the Marriage of Weir (1992) 16 Fam LR 154.
(f) the duty to disclosure is absolute;[41]
[41] Kannisv Kannis (2002) 30 Fam LR 83.
(g) the duty is crucial to the functioning of courts administering the Family Law Act;[42]
[42] In the Marriage of Morrison (1994) 18 Fam LR 519.
(h) full and frank disclosure of financial matters between the parties is basic to the process of the court and is one of the elements of the Family Law Act;[43]
(i) parties are expected to cooperate in the conduct of the proceeding in order to bring about an early and prompt conclusion with a minimum of expense;[44]
(j) the duty involves full and frank disclosure in a timely manner;[45]
(k) if a party breaches the duty of full and frank disclosure as outlined above, the uppermost limit of what can be ordered to be transferred to one party in a s 79 application is the whole of the ascertained property of the parties;[46]
(l) it is not open to a party who has failed to fulfil the duty of full and frank disclosure to rely on that failure so as to prevent the making of orders against the party in default;[47]
(m) any failure to disclose relevant financial information may lead a court to draw inferences against the person who failed to disclose the relevant financial information;[48]
(n) where there is clear evidence of non-disclosure the court should not be unduly cautious about making findings in favour of the innocent party;[49]
(o) once there is sufficient evidence to support a finding that a party has not made full and frank disclosure, the court has jurisdiction to make orders in relation to unidentified and undisclosed property;[50]
(p) the duty to disclose is absolute and it is beside the point whether the non-disclosure was wilful, accidental, the result of misfeasance or nonfeasance;[51] and
(q) in the case of deliberate non-disclosure, the court is entitled to draw inferences against the non-disclosing party.[52]
[43] In the Marriage of Suiker (1993) 17 Fam LR 236.
[44] In the Marriage of Marinko (1983) 8 Fam LR 849.
[45] In the Marriage of Briese (1985) 10 Fam LR 642, Waterman & Waterman [2017] FamCAFC 23, In the Marriage of Morrison (1994) 18 Fam LR 519 and In the Marriage of Suiker (1993) 17 Fam LR 236.
[46] Monte & Monte [1986] FamCA 1.
[47] In the Marriage of Giunti (1986) 11 Fam LR 160, Black v Kellner (1992) 15 Fam LR 343 and Oriolo v Oriolo (1985) 10 Fam LR 665.
[48] In the Marriage of Stein (1986) 11 Fam LR 353.
[49] In the Marriage of Weir (1992) 16 Fam LR 154 and Monte & Monte [1986] FamCA 1.
[50] Ibid.
[51] Chang v Su (2002) 29 Fam LR 406, In the Marriage of Weir (1992) 16 Fam LR 154 and Kannis v Kannis (2002) 30 Fam LR 83.
[52] In the Marriage of Stein (1986) 11 Fam LR 353, In the Marriage of Mezzacappa (1987) 11 Fam LR 957, In the Marriage of Giunti (1986) 11 Fam LR 160, In the Marriage of Morrison (1994) 18 Fam LR 519 and Barker v Barker (2007) 36 Fam LR 650.
The authorities speak of a “duty” to give disclosure. They say the duty is absolute. The authorities speak of parties being expected to cooperate.
The analysis given by Mr Farrands KC about the second respondent’s very casual approach to disclosure indicated to me that the second respondent fell very far short in the discharge of the duties by which she was bound when giving disclosure. Whether her omission to give full and frank disclosure was accidental or deliberate is largely beside the point. Her duty was absolute. She failed in the discharge of it, necessitating the making of a large number of applications to court to compel her obedience with those disclosure duties.
It may be said (although this was not argued) that the disclosure sought from the second respondent was ultimately to benefit the applicant, especially in the applicant’s resulting trust assertions against the second respondent. Had it been properly given, disclosure in this case would have enabled the parties to better understand the details of the pool of assets that fell for division in this litigation. In other words, the second respondent’s disclosure was likely to have had a material impact on an important aspect of this case by identifying and quantifying aspects of the pool.
The second respondent did not cooperate in the disclosure process. She was required to have done so. Instead, the facts revealed that the second respondent feigned compliance with her disclosure obligations yet she did not discharge those obligations in the manner required by law.
Aside from that conduct not representing compliance with the pronouncements in the case law concerning disclosure (surveyed above), the second respondent’s conduct also represented non-compliance with the overarching obligations under the legislation and subordinate legislation of this court.
It is important to emphasise, that in respect of the law relating to disclosure in family law litigation, the reason for the failure to give disclosure is largely irrelevant as the duty is absolute and on the facts of this case, the second respondent failed to discharge her duty.
Conduct by one of the parties is a matter relevant to the making of an order under s 117(2) of the Family Law Act. To my way of thinking, where that conduct –
(a)amounts to a failure in the duties prescribed by law for the proper discharge of disclosure obligations; and
(b)amounts to substantial non-compliance with the overarching obligations prescribed by the Federal Circuit and Family Court of Australia Act 2021 and the Rules then s 117(2A)(c) is properly and regularly engaged with the consequence that the making of an order for costs under s 117(2) of the Family Law Act is also regularly and properly made.
It is next necessary to address the line of authority that stipulates that the making of an order for indemnity costs is reserved for exceptional cases, that is to say, those out of the ordinary. On the facts of this case –
(a)it is out of the ordinary for a litigant in the shoes of the second respondent to have approached her disclosure obligations in such a cavalier manner, especially at a time when she was legally represented;
(b)an array of orders requiring the second respondent to give disclosure were made over a sustained period, most of which were not complied with or worse, they were ignored by the second respondent; and
(c)rather than complying with her disclosure obligations, the second respondent pursued avenues for the placing of various respondents in external administration, the first meeting of creditors of which was held as counsel was on his feet before me.
Those amount to exceptional circumstances. I find it difficult to accept that they admit of any other conclusion but deliberateness. For that matter, immediately after my decision in Chen v Chen (No 3)[53] was handed down, the second respondent should have adopted a vastly more focused approach towards this litigation by complying with her duty in respect of disclosure and by complying with the overarching obligations by which she was bound in the conduct of this litigation. She failed to do either. Judgment in that application was over four years ago. The case has ground to a near standstill since then. The greatest activity is being exhibited by liquidators and receivers, all of whom are being handsomely renumerated while the parties to this litigation watch from the sidelines being unable to control the conduct of the s 79 application.
[53] (2020) 63 FamLR 448.
In my view ample basis has been shown for the ordering of indemnity costs.
So far as the quantum is concerned, I take the view that those indemnity costs should be assessed by a registrar of this court. When assessed, the second respondent should have 30 days to pay the costs as assessed.
It will be readily apparent that the primary basis for my ordering indemnity costs relates to the manner in which the second respondent failed to adequately discharge her duties concerning disclosure. The first respondent’s counsel invited me to conclude that another basis existed for ordering indemnity costs, namely that no legal entitlement existed for the second respondent to seek the appointment of administrators and that the process of appointing administrators added to the time and delays sustained in this litigation. For reasons already canvassed, in my view there is insufficient information available for me to make any sensible assessment of whether the second respondent had a proper basis for seeking the appointment of administrators. The point was not argued before me in any event. Further, no application was brought to set aside the appointments of the administrators for being beyond power or for being bad in law. In those circumstances, I am most reluctant to conclude that the second respondent had no basis for seeking the order for the appointment of the administrators.
ORDERS
I make an order that pursuant to s 117(2) of the Family Law Act, the first respondent’s costs are to be assessed on an indemnity basis in respect of the period 20 September 2020 to May 2022 and when assessed paid by the second respondent.
So far as costs associated with the making of this order for indemnity costs is concerned, the first respondent sought costs of over $16,000. Her costs of and incidental to the application for indemnity costs should be ordered which I now do. The task of assessing those costs will fall to the registrar.
I certify that the preceding sixty-one (61) numbered paragraphs are a true copy of the reasons for judgment of the Honourable Justice Wilson. Associate:
Dated: 4 October 2024
SCHEDULE OF PARTIES
MLC 5805 of 2016 Respondents
Third Respondent
C PTY LTD
Fourth, Fifth and Sixth Respondents – the Liquidators
MR OO AND MR UU IN THEIR CAPACITY AS JOINT AND SEVERAL LIQUIDATORS OF QUEN PTY LTD (IN LIQUIDATION), E PTY LTD (IN LIQUIDATION) AND F PTY LTD (IN LIQUIDATION)
The Receivers
MR OO AND MR UU IN THEIR CAPACITY AS JOINT AND SEVERAL RECEIVERS OF THE ASSETS AND UNDERTAKING OF THE QUEN FAMILY DISCRETIONARY TRUST , E PTY LTD FAMILY TRUST AND F FAMILY TRUST
Seventh Respondent
G PTY LTD
Eighth Respondent
MR A CHEN
Ninth Respondent
MS K
Tenth Respondent
MS J
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