FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Cirillo & Cirillo (No 7) [2023] FedCFamC1F 163
File number(s): SYC 4192 of 2020 Judgment of: ALDRIDGE J Date of judgment: 20 March 2023 Catchwords: FAMILY LAW – PROPERTY – Application for final property settlement orders – Large property pool – Where the property consists of the former matrimonial home, the parties’ interests in several commercial properties and overseas companies and real estate assets overseas – Where the parties agree that the property should be divided equally save for add backs and further adjustments – Limited factual disputes – Where the submissions focused on claimed add backs and adjustments, the proceeds of sale of a commercial property and the true value of some assets held overseas – Orders made for the wife to receive the former matrimonial home and most of the real estate assets overseas – Orders made for the husband to receive the interests in several commercial properties and overseas companies – Orders made for the husband to make a cash payment to the wife as to effect the equal distribution of property. Legislation: Evidence Act 1995 (Cth) s 91
Family Law Act 1975 (Cth) s 75
Federal Circuit and Family Court of Australia Act 2021 (Cth) ss 67, 68
Cases cited: Harmer v Hare [2011] NSWCA 229
HTW Valuers v Astonland Pty Ltd (2004) 217 CLR 640
Jones v Dunkel (1959) 101 CLR 298
Linder & Linder [2016] FamCAFC 139
Mezzacappa and Mezzacappa (1987) FLC 91-853
NHC and RCH (2004) FLC 93-204
Rosati v Rosati (1998) FLC 92-804
Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2010] FCA 274
Sagacious Legal Pty Ltd v Wesfarmers General Insurance Ltd [2011] FCAFC 53
Trevi & Trevi (2018) FLC 93-858
Weir and Weir (1993) FLC 92-338
Division: Division 1 First Instance Number of paragraphs: 326 Date of last submissions: 23 November 2022 Date of hearing: 9, 11-12, 19-20 May; 9-10 June; 10-11, 24-26 August 2022 Place: Sydney Counsel for the Applicant: Mr Condon SC with Dr Barnett Solicitor for the Applicant: MDW Law Counsel for the Respondents: Mr Richardson SC with Mr Todd Solicitor for the Respondents: Boyce Family Law & Mediation ORDERS
SYC 4192 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS CIRILLO
Applicant
AND: MR CIRILLO
First Respondent
B PTY LTD
Second Respondent
ORDER MADE BY:
ALDRIDGE J
DATE OF ORDER:
20 MARCH 2023
THE COURT ORDERS THAT:
The Suburb P property
1.Within 90 days from the date of these orders, Ms Cirillo (“the wife”) is to take all steps necessary to refinance or restructure the mortgage held by Westpac Banking Corporation over the property situated at RR Street, Suburb P in the state of New South Wales, being the whole of the land contained in folio identifier … (“the Suburb P property”) so as to remove or discharge any liability of Mr Cirillo (“the husband”) under the mortgage and thereafter to indemnify him against any liability arising under it, except to the extent detailed in Order 7.
2.Upon the wife complying with Order 1, the husband is forthwith to take all necessary steps to transfer his interests in the Suburb P property to the wife.
3.In the event that Order 1 is not complied with (unless otherwise agreed in writing between the parties):
(a)Within a further 14 days, the parties shall do all things and sign all documents necessary to list the Suburb P property for sale by auction and, for that purpose, unless otherwise agreed between the parties in writing, the parties shall:
(i)List the Suburb P property for sale by auction with a reserve price agreed by the parties in writing, 7 days before the auction, or in default of agreement, such amount advised by an independent real estate agent appointed by the President of the Real Estate Institute of New South Wales;
(ii)The agent is to be agreed between the parties in writing and failing agreement, the husband will forthwith in writing nominate three agents from which the wife will, within a further 7 days, select one and failing which the husband will select one who shall be the agent appointed (“the agent”);
(iii)Execute all documents requested by the agent for the sale of the Suburb P property and, in the event that the parties cannot agree on the terms of the agent’s contract, within 7 days of the agent being selected, the parties shall enter into such contract in the agent’s standard terms;
(iv)Give such instructions as are necessary to a legal practitioner to act on the conveyance relating to the sale, with such legal practitioner to be agreed upon by the parties within 7 days of the selection of the agent and failing agreement, the husband will forthwith in writing nominate two solicitors from which the wife will, within a further 7 days, select one and failing which the husband will select one who shall be the legal practitioner appointed (“the legal practitioner”);
(v)Execute the contract for sale and in the event that the husband and the wife fail to agree on the terms of the contract for sale, the terms recommended by the legal practitioner will be adopted;
(vi)Execute all other documents necessary to complete the sale within the time required by the contract for sale to ensure that the purchasers do not have a right to terminate or rescind due to failure to do so; and
(vii)operate in every way with the agent in relation to the sale of the property at all times requested by the agent including (without limiting the generality of the foregoing):
A.making the key available to the agent;
B.allowing inspection of the Suburb P property at all reasonable times requested by the agent;
C.not doing or saying anything to hinder or prevent a sale being effected;
D.ensuring the Suburb P property including the grounds are in a neat and clean condition at the time of inspection by the agent and prospective purchasers; and
E.signing all documents requested by the agent in relation to the listing for sale of the Suburb P property except a contract or agreement for sale which has not been authorised by the parties’ solicitors.
4.On settlement of the sale of the Suburb P property, the parties shall forthwith do all things and sign all documents necessary to distribute the proceeds of sale of the Suburb P property in the following manner and priority:
(a)In payment of the agent’s commission, marketing and advertising costs, auctioneer’s fees and any other expense properly incurred in respect of the sale of the Suburb P property;
(b)In payment of the conveyancing costs of sale;
(c)In payment to the supplier of any unpaid costs of preparation of the Suburb P property for sale, where such costs have been agreed to in writing between the parties;
(d)In payment of any amount outstanding to any water authority or local council in respect of the Suburb P property not otherwise taken up as a credit in favour of the vendor;
(e)In payment of any amount required to effect a discharge of the Suburb P mortgage;
(f)In payment of such sums as may be required to satisfy the caveatable interests registered against title to:
(i)E Trust Ltd as regards the interest of the husband (bearing dealing number …);
(ii)The partners comprising NN Lawyers as regards the interest of the wife (bearing dealing number …); and
(iii)OO Pty Ltd as regards the interest of the wife (bearing dealing number …);
(g)The balance then remaining to be paid to the wife.
5.Pending settlement of the sale of the Suburb P property:
(a)the parties are restrained from further encumbering the Suburb P property or drawing down on any loan facility secured by mortgage against the title to the property unless otherwise agreed between the parties in writing and
(b)the wife shall have sole occupancy of the Suburb P property to the exclusion of the husband.
6.If the property does not sell at the auction, then the property is to be re-auctioned within a further 6 weeks, in the same way as prescribed by Orders 3, 4 and 5, save that no reserve price is to be set (Order 3(a)(i)) and the same agent is to be used (Order 3(a)(ii)).
7.The husband is to continue paying the outgoings on the Suburb P property which he has been paying, including the mortgage, until one of the following occurs:
(a)The mortgage is refinanced (per Order 1);
(b)The Suburb P property is sold;
(c)The husband pays the sum set out in Order 12; or
(d)Six months from the date of these orders.
Transfer of wife’s interest (if any) in entities comprising the Cirillo Group
8.Within 42 days from the date of these orders, the wife will do all acts and things necessary, including signing all documents presented to her by the husband or his nominee and provide all necessary consents, authorities and instructions as may be required and the husband will do all other things necessary to cause the following to occur simultaneously and at the husband’s cost in relation to the D Trust, the D Investment Trust; and the Cirillo Family Trust (No 2) (hereinafter referred to as “the Trusts”):
(a)To the extent necessary, the wife to resign as a director of the trustees of the Trusts and those entities listed at Order 16 and transfer to the husband any shares she may hold in those trustees and the entities listed at Order 16;
(b)The wife to resign and remove herself from the position as beneficiary in relation to the Trusts;
(c)The husband will amend the Trust Deed (if required) to remove the wife as a beneficiary of the Trusts;
(d)Assigning by the wife to the husband and/or his nominee all credit loan accounts and/or unpaid entitlements standing in the wife’s name and the parties’ names jointly in the Trusts (if any);
(e)The husband shall retain to the exclusion of the wife any unpaid entitlements due by the Trusts.
9.Within 42 days of the date of these orders, the wife will do all acts and things necessary, including signing all documents presented to her by the husband or his nominee and provide all necessary consents, authorities and instructions as may be required and the husband will do all other things necessary to transfer from the wife to the husband all the wife’s shares in Cirillo Pty Ltd (No 2) at the husband’s cost.
Transfer of Country H properties
10.Within 42 days of the date of these orders:
(a)The husband shall sign all documents and do all things necessary so as to cause the transfer the whole of his right, title and interest in the following properties, free of any mortgage or liability, howsoever arising, to the sole name of the wife and at the husband’s cost:
(i)The properties located at K City, Country H;
(ii)The properties located at N Street, Suburb L, AA District, Country H;
(iii)The properties located at M Street, Suburb L, AA District, Country H;
(iv)House and land located at JJ Region and
(v)Apartment located at KK Region.
Transfer of Motor Vehicle 2
11.Within 7 days of the date of these orders the husband shall, in his capacity as director, cause B Pty Ltd to transfer to the wife, at the husband’s cost, the Motor Vehicle 2, and indemnify her in respect of any tax liability, including income tax and stamp duty, arising as a result of the transfer.
The property adjustment payment
12.Within 42 days of the date of these orders, the husband is to pay to the wife the sum of $1,360,591.
Country H litigation
13.In respect of any award for damages, compensation or proceeds from the litigation in Country H involving Y Business regarding the property ownership of the property in “Z Area” in X Town, including but not limited to the following cases:
(a)Supreme Court case against the Country H State, the X Town and the decision No. … of the three-member Court of Appeal of the Y Business;
(b)Lawsuit for damages dating 2003 (serial filing number …) against the X Town for a total amount of 20,264,122.60 in Country H currency,
in Y Business’ favour, an amount equal to 45 per cent be paid by the husband to the wife within 45 days of receipt of the award for damages, compensation or proceeds from the litigation.
General orders
14.Each party shall pay one half of all single expert fees.
15.As between the parties and subject to these orders, the husband is hereby declared to be solely entitled to the following:
(a)All bank accounts held in the sole name of the husband;
(b)The husband’s interest in the Cirillo Group (being the entities in which the husband has an interest, including but not limited to those entities listed at Order 16);
(c)The husband’s interest in the property at O Street, Suburb L in Country H;
(d)The husband’s shares (held in the husband’s Commsec Portfolio Account No. …84);
(e)The husband’s motor vehicles;
(f)Items of personalty held by the husband at O Street, Suburb L in Country H;
(g)All other property of whatsoever nature and kind in the possession of the husband at the date of these orders.
16.The husband, as between the husband and the wife shall be solely liable for all other debts, mortgages, financial facilities, and charges that he owes or is owed by any business entity to which he has an interest in, including but not limited to:
(a)Cirillo Pty Ltd;
(b)AL Pty Limited (Country H);
(c)V Company (Country AN);
(d)AM Investments Pty Ltd;
(e)Cirillo Pty Ltd (No 2);
(f)AO Pty Ltd;
(g)AP Pty Ltd;
(h)F Pty Ltd;
(i)B Properties Pty Ltd;
(j)B Pty Ltd;
(k)AQ Pty Ltd;
(l)AR Pty Ltd;
(m)QQ Property;
(n)AS1 Pty Ltd;
(o)B Finance Pty Ltd;
(p)Cirillo Pty Ltd (No 3);
(q)AT Pty Ltd;
(r)Cirillo Pty Ltd (No 4);
(s)AU Pty Ltd; and
(t)C Pty Ltd,
and shall indemnify the wife in respect of the same; and
17.As between the parties and subject to these orders, the wife is hereby declared to be solely entitled to the following:
(a)all bank accounts held in the sole name of the wife;
(b)the wife’s jewellery;
(c)consequent upon compliance by the parties with these orders, the wife’s interest in the following properties:
(i)The properties located at K City, Country H;
(ii)The properties located at N Street, Suburb L, AA District, Country H;
(iii)The properties located at M Street, Suburb L, AA District, Country H;
(iv)House and land located at JJ Region and
(v)Apartment located at KK Region.
(d)all other property of whatsoever nature and kind in the possession of the wife at the date of these orders, including all items of personalty in the Suburb P property and the properties listed in Orders 17(c)(i) to 17(c)(v) above.
18.As between the husband and wife, and subject to the above orders the husband and wife shall each respectively retain all interest in and entitlement to:
(a)all personal property now in his/her respective possession or control;
(b)all shares, debentures, units in unit trusts, bank, building society or credit union accounts standing in his/her sole name respectively;
(c)all interests in life insurance policies and superannuation funds standing in his/her sole name respectively.
19.Each party shall do all things necessary including providing all consents to give effect to these orders in the time periods prescribed in these orders.
20.In the event either party refuses or neglects to execute any deed, document or instrument necessary to give effect to all or any of these orders, then the registrar of the Court shall be appointed pursuant to s 106A of the Family Law Act 1975 (Cth) to execute such deed, document or instrument in the name of the said party and do all acts and things necessary to give validity and operation to the deed, document or instrument upon the registrar being provided with verification of such refusal or failure by way of affidavit.
21.All extant applications are 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 the pseudonym Cirillo & Cirillo (No 7) has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
ALDRIDGE J:
INTRODUCTION
This is an application for final property orders between Mr Cirillo (“the husband”) and Ms Cirillo (“the wife”). The second respondent, B Pty Ltd, was joined to proceedings in October 2021 and is the trustee for the D Trust, in which many of the family business assets are held and controlled.
The parties agreed at an early stage that, subject to appropriate adjustment being made to take account of funds transferred to Country H, if found to be appropriate, the net assets should be divided equally. In the course of final submissions the wife sought to move from that position and sought 55 per cent of the net assets in addition to many “add backs” which included, but were not limited to funds transferred to Country H over many years. That course was opposed by the husband and I shall return to it in due course.
Ultimately there were limited factual disputes which required resolution. Rather the parties submissions focused on the claimed add backs, how the proceeds of sale of LL Property (a commercial property which was sold on in late 2021 for $78.1 million) should be taken into account and the true value of some assets held in Country H.
It is, however, helpful to place those disputes in the appropriate factual matrix. Much of that relates to proceedings in the Supreme Court of New South Wales involving, amongst other things, the control of B Pty Ltd and the facts that led to those proceedings. The parties included the husband, the parties’ two daughters and their son in law. The wife was not a party to the proceedings but supported her daughters and son in law.
Some of the matters recited come from the reasons given in that matter and may be controversial. I am conscious of the provisions of s 91 of the Evidence Act 1995 (NSW). The purpose of the recital is to understand how the proceedings arose and were resolved. The relevance is to understand the construction of the balance sheet. The asserted conduct that led up to the proceedings is not relevant to the determination of the appropriate division of property.
BACKGROUND TO THE PROCEEDINGS
Both parties were born in Country H, the husband in 1947 and wife in 1952. They immigrated to Australia with their respective families in the mid-1960s, both settling in Melbourne. The parties met in around 1972, married in 1975 and had two daughters, Ms AW in 1978 and Ms AX in 1981.
The husband owned a business at the time the parties met. He soon sold a one-half interest to the wife’s brother, Mr AY, and a few years later they sold the business.
In around 1981, using the money from the sale, the husband and Mr AY established AS2 Pty Ltd, later trading as AS3 Company, which was initially focused on assembling and manufacturing machines.
The wife says she assisted in both businesses by performing secretarial duties. Both parties agree that the wife was primary carer for the children.
In 1985, the husband established the D Trust and in 1986, he established the Cirillo Family Trust (No 2).
In around 1990, the family moved to Sydney so that AS3 Company could focus on selling machines in a larger market.
In 1994, the parties purchased the matrimonial home at RR Street, Suburb P (“the Suburb P property”).
Sale of AS3 Company and the establishment of the commercial property business
The husband decided to move into the property business.
In 1996, the F Property in Suburb AZ, South Australia was purchased and in 2010, became owned by F Pty Ltd as trustee for the Cirillo Family Trust (No 2).
In early 1997, B Pty Ltd and B Properties Pty Ltd were incorporated with the purpose of purchasing and managing businesses and properties.
For B Pty Ltd, the husband is the sole shareholder and director. The wife, Ms AX and Mr BA (Ms AX’s husband) were appointed as directors from 2018 until they were removed by the husband in 2020 and Ms AW was a director from 1999 to 2020.
In the same year, the D Trust was established and B Pty Ltd was appointed as the corporate trustee.
In 1998, the husband and Mr AY sold AS3 Company for approximately $140,000,000, which was divided equally between them.
Since then, B Pty Ltd has:
·In 1999, purchased the MM Property in Sydney;
·In 2003, established the PP Property in Sydney;
·In 2005, purchased the QQ Property in Suburb UU, South Australia; and
·In 2008, purchased a property in Sydney and established LL Property (which was sold in late 2021).
The husband’s loan to the D Trust
In 1998, the husband loaned $25 million to the D Trust from the proceeds of sale of AS3 Company and since then, from time to time, has lent further money to the D Trust and made repayments of the trust debt to himself.
The D Investment Trust and the Country H entities
The D Investment Trust was established in 1998, with B Properties Pty Ltd as its corporate trustee. The D Investment Trust owns all the shares in Cirillo Pty Ltd, which in turn owns shares in the Y Business and all the shares in W Ltd (both incorporated in Country H) and V Company (incorporated in Country AN and subject to legal proceedings detailed below).
The Y Business
In 1996, the husband (or through companies he is a shareholder in) invested in a business in Country H and currently holds a 90 per cent share. The husband has always been a director and the wife was a director from 2012 to 2021.
Litigation in Country H and Country AN
Y Business litigation
In around 2005, the Y Business became involved in litigation against the local council, the Council of X Town and then in around 2008, against the Country H State.
The proceedings relate to a dispute regarding the ownership of the property called “the [Z Area]” which is located in CA Region. The local council is a minor shareholder in the Y Business. At the time, the council had asserted ownership over the Z Area and agreed to contribute it to the property in order to obtain its share. However, in or around the year 2000, the Country H State claimed it owned the Z Area and not the local council. The litigation continues in the High Court of J City.
Separately, the Y Business is involved in proceedings against former employees relating to unpaid employee entitlements and the husband has also been personally charged with the debts owed by the business to the Country H State, relating to taxes and employee benefits.
Other litigation
The husband commenced proceedings against Mr YY, along with others, in the Court of J City in relation to an investment in a business in City BC, Country H. It is alleged that Mr YY never transferred shares in a business to the husband upon the husband’s payment.
There are proceedings involving a company called V Company, whereby Cirillo Pty Ltd transferred its shares in it to another company. The husband says that he never received payment for the transfer of shares.
Events between 2015 and 2017
The parties’ daughter Ms AX married Mr BA in 2015 and they have one son, BD born 2016. After BD was born, Mr BA was gradually brought into the family business by the husband.
In 2017, the husband was diagnosed with a chronic illness. His diagnosis has worsened over the years resulting in him requiring major surgery in 2022.
The Deed of Assignment
In early 2018, problems arose in the family after the husband disclosed an extramarital affair to Ms AX’s husband, Mr BA, in confidence. Mr BA then immediately informed both daughters and the wife of the affair, which set in motion a series of events leading to the separation of the parties and a battle for control of the family’s assets and businesses.
In mid-2018, Mr BA, purporting to be acting on instructions of the husband, contacted the husband’s solicitors, TT Lawyers, and requested that they prepare documents that would give power of attorney to Ms AX and Ms AW and make them appointers of the D Trust. The solicitors of TT Lawyers informed Mr BA that they could prepare the documents but required express instructions from the husband himself.
The following day, Mr BA contacted Ms BE from BF Lawyers and sought that she prepare the power of attorney and relevant appointment documents for the husband. Ms BE did not seek confirmation from the husband and the relevant documents were prepared, including a Deed of Assignment assigning the family’s major asset, a debt owed to the husband by the D Trust in the sum of approximately $18.5 million, to the daughters.
In mid-2018, Ms AX and Mr BA travelled to Country H where the husband was staying and confronted him about the affair. On the day before Ms AX and Mr BA were due to fly back to Sydney, Ms AX presented the husband with the Deed of Assignment and pressured him to sign the trust debt over to the two daughters to protect the family assets against any claim that could be brought by the woman he was involved with. Neither Ms AX nor Mr BA explained the legal ramifications of the document nor did they encourage the husband to obtain legal advice. The husband signed the Deed of Assignment at their request.
The following month, the husband was contacted by one of his accountants, Mr BG, who had by then received a copy of the Deed of Assignment. Mr BG asked the husband why he had signed the Deed of Assignment and informed him of the risks, namely that it exposed the D Trust to the risk of a call for repayment by the daughters, which would require a forced sale of a substantial asset. The husband then sought legal advice about the deed.
By late 2018, Mr BA had, unbeknownst to the husband, began to take steps to attempt to move the commercial properties owned by the D Trust into a trust under his and Ms AX’s control.
Ms AX and Mr BA were appointed as directors of B Pty Ltd in late 2018, also without the husband’s knowledge. In late 2018, the wife was appointed as a director of B Pty Ltd.
At the time, Ms AW remained the alternate director (from early 1999) and the husband remained the sole shareholder and the appointer of the D Trust.
The General Security Deed and the proposed sale of LL Property
As at early 2020, B Pty Ltd’s existing facility agreement with NAB totalled over $47,000,000.
In mid-2020, the wife and Mr BA executed a General Security Deed on behalf of B Pty Ltd, granting a security interest in favour of the two daughters in respect of the trust debt assigned to them under the Deed of Assignment. Neither the husband nor NAB (B Pty Ltd’s secured lender) were consulted about the granting of the security.
In mid-2020, an offer was made to purchase LL Property for $60 million. Given the increasingly detrimental effects of the COVID-19 pandemic on the property industry, the wife, the daughters and Mr BA pushed the husband to accept the offer. The husband however received an offer for $90 million for the property earlier that year and believed the offer was well below value and declined to sell.
The other family members did not agree with the husband’s position and in mid-2020, called a directors meeting where, in the husband’s absence, they resolved to approve the sale.
On the same day, the family members informed the husband of their intent to proceed with the sale of LL Property against his wishes. The husband, on learning of the family’s intentions, immediately incorporated C Pty Ltd, which he then in turn appointed as the new trustee for the D Trust in order to protect the assets of the trust from being diminished by the family’s actions.
The following day, Mr BA, again without authorisation, made multiple withdrawals from the B Pty Ltd NAB account in the following amounts totalling $510,000:
·$150,000 to Mr BA;
·$100,000 to Ms AX;
·$100,000 to Ms AW;
·$110,000 to BH Lawyers (the daughters’ lawyers) and
·$50,000 to BF Lawyers.
A short time later, the wife, Ms AX and Mr BA attended the premises of the LL Property, the MM Property and the PP Property and instructed the staff members to hand over all cash held on the premises, or otherwise have their employment terminated.
On the following day, the husband left the Suburb P property and did not return other than to collect his belongings.
A few days later, in 2020, the wife lodged a caveat over the Suburb P property and in late 2021 she lodged caveats over LL Property and the MM Property. In late 2021, Ms AX lodged caveats over LL Property and the MM Property.
In mid-2020, the husband, as the sole shareholder of B Pty Ltd, passed a resolution removing the wife, the daughters and Mr BA as directors, leaving himself as the sole director.
On the same day, the wife filed an Initiating Application commencing the current proceedings.
Some weeks later, in 2020, the daughters’ solicitors wrote to the husband enclosing a letter of demand for the repayment of the debt owed by B Pty Ltd as trustee for the D Trust, which they claim was assigned to them via the Deed of Assignment. A short time later, in 2020, the daughters also lodged caveats over the MM Property and LL Property, using the General Security Deed dated mid-2020 in support.
The following month, in 2020, Mr Bird and Mr Tobler (both of CB Limited) both signed a document by which they consented to act as receivers and managers of B Pty Ltd if appointed by a court.
Supreme Court proceedings
The Supreme Court proceedings were commenced by the two daughters in 2020.
The initially sought orders appointing receivers in reliance on the General Security Deed in their favour. In late 2020, NAB in its capacity as the secured lender of B Pty Ltd appointed Mr Bird and Mr Tobler as receivers to all assets of B Pty Ltd, due to what it asserted were breaches of the terms of B Pty Ltd’s facility agreement, namely the creation of the Deed of Assignment, the daughters’ subsequent call on the trust debt assigned and the creation of the General Deed of Security. Two weeks later, the Supreme Court then appointed those receivers as receivers and managers of the assets and undertakings of the D Trust and of C Pty Ltd in its own right and its capacity as trustee of the D Trust. On the same day, the Supreme Court made orders declaring that the General Security Deed was void.
By late 2020, the husband had secured a refinance of B Pty Ltd’s NAB loan with G Pty Ltd in an amount of nearly $55 million and had executed all the relevant documents, effectively ceasing any private receivership between the parties and NAB. A term of the refinance with G Pty Ltd obliged the husband to exercise his power as appointer of the D Trust to reappoint B Pty Ltd as trustee of the trust in the place of C Pty Ltd.
In early 2021, in line with the refinance agreement, Black J made orders retiring the CB Company receivers appointed by the Court and allowing the refinance agreement to proceed. The following day, NAB removed the receivers that it has appointed as secured creditor. On the same day, the husband reappointed B Pty Ltd as the trustee for the D Trust.
The final hearing took place over six days in early 2021.
In early 2021, the daughters filed an amended application seeking orders that:
·B Pty Ltd render accounts of the loan which was subject to the Deed of Assignment;
·B Pty Ltd pay them out of the assets of the D Trust and
·A declaration be made that the removal of B Pty Ltd as trustee of the D Trust was invalid and the appointment of C Pty Ltd as trustee in its place was also invalid.
By way of cross-claim, the husband, B Pty Ltd and C Pty Ltd sought orders that:
·A declaration be made that the Deed of Assignment was procured by the exercise of undue influence or unconscionable conduct;
·The Deed of Assignment be set aside;
·The Deed of Assignment is void under s 7 of the Contracts Review Act 1980 (NSW) and
·Money be recovered in respect of unauthorised transactions made by the daughters and Mr BA.
Orders and reasons of Black J were delivered in early 2021 in the husband’s favour. His Honour confirmed the legitimacy of the change in trustee of the D Trust by the husband in mid-2020 and declared that the Deed of Assignment was unjust in the circumstances relating to it at the time it was made under s 7 of the Contracts Review Act 1980 (NSW). His Honour found that the daughters had:
57.… misstated the commercial effect of the DoA, which was not to “protect” the family business but to expose it to the risk (which subsequently eventuated) that it might face a call by [Ms AX] and [Ms AW] for payment of an amount that it could not pay without the forced sale of a substantial asset, and the consequential risk of appointment of a receiver by [Ms AX] or [Ms AW] or by NAB to the [D Trust’s] assets.
His Honour also entered a judgment against the daughters and Mr BA in the sum of $350,000 plus interest in relation to the unauthorised removal of funds from B Pty Ltd’s accounts in mid‑2020.
The daughters filed an appeal. It was dismissed with costs in early 2022.
The sale of LL Property
In late 2021, B Pty Ltd as trustee for the D Trust entered into separate contracts for the sale of the business and for the sale of the land for a combined price of $78.1 million, with settlement occurring in late 2021.
The remaining proceeds of sale after costs and adjustments were placed in a controlled monies account held by TT Lawyers as per orders made in late 2021.
THE PROPERTY TO BE DIVIDED
The parties’ major assets can be conveniently placed in five groups.
The first is the former matrimonial home at Suburb P. It has an agreed value of $43 million and is subject to a mortgage of $2,015,305. Initially, both parties, but particularly the wife, wished to retain the property, but it is now agreed that it should be sold. They are, however, unable to agree on the terms of its sale and I shall return to that in due course.
The second group is the parties’ interests in several commercial properties. The primary asset is the MM Property which includes the land on which the business is conducted. It has a value of $37.13 million and is owned by B Pty Ltd as trustee for the D Trust. That company, again as trustee for the D Trust, also owns the PP Property valued at $12.32 million and the QQ Property, valued at $790,000.
Previously, as trustee for the D Trust, B Pty Ltd owned a commercial property called LL Property. As detailed above, in late 2021, it entered into separate contracts for the sale of the business and for the sale of the commercial property’s land. The combined sale price was $78.1 million. On settlement of the sales in late 2021, the financier of B Pty Ltd, G Pty Ltd, was repaid in full in the sum of $53,345,088. After payment of the usual costs of and adjustments on the sale, the proceeds were paid into a controlled monies account in the name of TT Lawyers. One of the purposes of the account was to maintain sufficient funds to enable payment of capital gains tax on the sale, due for payment in early 2023 in the anticipated sum of $9,587,000. Subsequently, those funds have been depleted by a series of orders, mainly by consent, allowing for the payment of business expenses and partial property settlements to the parties.
The particular difficulty that arises in this matter is that the expert reports as to the value of the assets and controlling entities were based on accounts of the various entities as at 30 June 2021. The sale of LL Property took place after that date and effected a significant change in the affairs of the D Trust. The parties could not agree as to how the sale of LL Property should be reflected in the list of assets and liabilities.
This was the primary dispute in the proceedings, which I shall deal with shortly.
The parties also hold the F Property, valued at $1.1 million, which is owned by F Pty Ltd as trustee for the Cirillo Family Trust (No 2). That trust was given a nil value.
The third group consists of real estate assets in Country H. One of the properties is said to be where the husband resides in Country H and has used over a long period of time.
The fourth group consists of companies in Country H. The companies are involved in legal proceedings overseas, most of which are associated with the Y Business. That business was given a negative value when valued, but it is the subject of litigation which if successful, would see it have a substantial value. In addition, there is also litigation in Country H with Mr YY and litigation in Country AN concerning a business owned by a company referred to as “V Company”.
The Country H companies, taken together, were given a negative value. Disputes arose between the parties as to how these assets should be reflected in the balance sheet, because the 30 June 2021 accounts of the holding companies record positive values for some of them. A further issue to be resolved is how to deal with the ongoing litigation in Country H and its proceeds, if any.
Finally, the wife sought to “add back” into the balance sheet as “assets” money spent or transferred by the husband as well as legal fees.
DISPUTED BALANCE SHEET ITEMS
B Pty Ltd ATF the D Trust
As I have said, this is the primary dispute in this matter and arises from the differing ways in which the parties sought to deal with the sale of LL Property.
The expert valuer of B Pty Ltd was Ms WW, who provided reports dated 11 May 2022 (“First Report”) and 7 June 2022 (“Second Report”).
The second report dealt extensively with the sale of LL Property and each party’s approach to taking it into account. I shall discuss them shortly, but it is necessary to make some preliminary comments.
The sale of LL Property increased the net asset position of the D Trust (the basis on which it was valued) by being sold at a higher price than the recorded amount in the trust’s total assets. The sale proceeds repaid G Pty Ltd, the financier, in full. Thus, the 30 June 2021 accounts do not reflect the financial position of the D Trust after the sale.
The 30 June 2021 accounts recorded a value for freehold land ($26,801,416), property improvements ($18,490,966 less depreciation of $4,734,599), as well entries for fixtures and fittings, plant and equipment and licences (First Report, Appendix 13 and Second Report, Appendices 13A and 13B). The debt owed to the financier was $53.6 million (First Report, Appendix 13).
The parties themselves recognised that some adjustment to the accounts was required to take into account the current value of the commercial properties. Thus, they jointly instructed Ms WW to adopt a value of $37,130,000 for the MM Property and $12,320,000 for the PP Property (which were values given by independent valuers) which replaced the figures for freehold land, property improvements, fixtures and fittings, plant and equipment and licenses which had previously appeared (See First Report, Appendix 13, in the “Adjustments” and “Adjusted” columns and Note 3).
Nonetheless, that approach still led to a negative value of the D Trust of $7,380,855 because the debt to the financier remained in the accounts. Similarly, the net proceeds of sale of LL Property were not yet taken into account. In her first and second reports, Ms WW ascribed a nil value to the D Trust (First Report, paragraph 150).
The parties could not agree on an approach to the sale of LL Property. Consequently, each party put a set of assumptions to Ms WW and asked her to adjust the accounts in accordance with them. They were described as the “husband’s instructed scenario” and the “wife’s instructed scenario”. Ms WW did so and the outcomes are set out in the Second Report. Ms WW did not provide an opinion as to which scenario was more accurate or was to be preferred. On the contrary, Ms WW cautioned against such approaches saying:
m.I note that the amended instructions provided by both the Husband and the Wife result in the financial position of the entities not necessarily being correct in that they have instructed me to amend my report to reflect the value of only some of the assets and liabilities at a date which is not the same as the Valuation Date, being 30 June 2021. For example, adopting the cash balance as at 19 May 2022 means that the movement in the cash balance as between 30 June 2021 and 19 May 2022 may not be reflected elsewhere in the financial statements. That is, changes to the cash balance may result in a corresponding increase or decrease in another account balance. By cherry picking which assets and/or liabilities to adjust may result in an incorrect financial position and an incorrect valuation conclusion.
(Report of Ms WW dated 7 June 2022, p.5)
In her oral evidence, Ms WW said:
[SENIOR COUNSEL FOR THE WIFE]: Yes. And under the husband’s scenario, if you wanted to identify the position of [LL Property] as at a time late in 30 June 2021, being the notional valuation date, you would need to have regard to more than simply the change in the cash balance and the change in the creditor balance; correct?
[MS WW]: Correct.
[SENIOR COUNSEL FOR THE WIFE]: You would need to know, for example, what happened to the sale proceeds of [the LL Property]; correct?
[MS WW]: Yes, that’s correct.
[SENIOR COUNSEL FOR THE WIFE]: And what other matters would you need to rely upon to understand the full picture of [B Pty Ltd] – the [D Trust] as at, say, 19 May 2022 over and above the change in the cash balance and any change to creditor balance, what else would you need to know to reach a valuation of the trust at that point in time?
[MS WW]: You would need to know what other movements occurred in the asset and liability accounts, whether they were changes in the loan accounts and whether any of the other assets or liabilities were transferred as part of the sale and, therefore, not being double counted.
(Transcript 25 August 2022, p.278 lines 1–16)
[MS WW]: As mentioned, when we take a valuation date, we don’t use the benefit of hindsight. So at 30 June 2021 we take into account what was known or knowable as at that date.
[SENIOR COUNSEL FOR THE HUSBAND]: Yes?
[MS WW]: If events occurred after that date, unless you were subsequently instructed to update your valuation, then you otherwise wouldn’t be, if I understand that to be the question.
[SENIOR COUNSEL FOR THE HUSBAND]: As a matter of valuation theory, but if his Honour’s aim from all the evidence is to endeavour to ascertain the best picture he can at the time of the hearing as to value - - -?
[MS WW]: You would want to seek an updated valuation.
[SENIOR COUNSEL FOR THE HUSBAND]: Well, if you had an asset that there was no contest in the case was taken into account at $1 million and there was no issue that it would become worth zero, we could all very confidently make that adjustment, couldn’t we?
[MS WW]: Depends on what the asset was. I think here - - -
[SENIOR COUNSEL FOR THE HUSBAND]: Are you serious about that? It wouldn’t matter, would it, if it was a confident answer?
[MS WW]: I think here I’ve been instructed to value the trust and that is to input a value for the commercial property. So the trust is a compilation of a whole lot of other assets and liabilities, including a lot of inter-entity loans in addition to this particular asset.
[SENIOR COUNSEL FOR THE HUSBAND]: Okay?
[MS WW]: So the million dollars for the asset we might all agree on, but it’s then putting that into the balance sheet of the trust and seeing if anything else has changed at a later valuation date, which would then affect the value of the trust, quite distinct from the asset of the commercial property, for example.
(Transcript 25 August 2022, p.288 lines 11–36)
It follows that the course that each party sought to have the Court follow was fraught with the same difficulty because adjustments would be made to some entries whereas the correct position is not so simply achieved. The consequences are significant as the following table (taken from the joint balance sheet) demonstrates:
2021 Accounts Wife’s scenario Husband’s scenario TT Lawyers -
Controlled monies account (Item 4)--- --- $8,614,662 Husband’s loan account with D Trust (Item 11) $24,750,261 $24,750,261 $18,376,006 Value of the D Trust (Item 31) Nil $46,202,432 $29,429,559
The parties effectively asked me to choose between the two scenarios. A third course is open which is to proceed on the 30 June 2021 valuation. However, as the table makes clear, the value of the D Trust has dramatically improved since the sale of LL Property and in circumstances where both parties propose the retention of the commercial properties as opposed to their sale, any such reliance would unfairly distort the value of the property to be divided leading to a unjust decision.
There is a fourth course – namely the sale of the remaining commercial properties and the effective winding up of the D Trust and the division of its net assets. Such a course would provide a true figure for the value of the D Trust. I raised such a possibility with the parties on more than one occasion.
The parties did expressly oppose the sale of all of the assets of the D Trust and pointed out the considerable costs in doing so. The single expert who provided a report on the taxation effect of some proposed transactions, opined that:
7.The capital gain made on the sale of the [MM Property] will thus be $18,872,160.76 (i.e., $28,500,000 minus $9,627,839.24).
8.However, this capital gain will be reduced by expenditure incurred in respect of the sale of the [MM Property], such as legal fees and agent’s fees.
…
22. It follows that, without adding the incidental costs (such as agents fees and legal fees), relating to selling the goodwill and the […] licence, the capital gain made on the sale of those assets by the [D Trust] will be $7,026,660.14 (i.e., $8,460,876.14 minus $1,434,216).
23. As noted above in respect of the [MM Property], the tax payable on this capital gain depends upon the type of beneficiary of the [D Trust] to whom the gain is streamed. Portions of the capital gain streamed to companies will be taxable at 25% or 30% whilst individual beneficiaries will pay tax at an effective rate of 23.5%.
(Report of [Mr BJ] dated 9 August 2022, paragraphs 7–8 and 22–23)
Senior counsel for the husband said that the capital gains tax payable on the sale of the MM Property would be $4,434,000 and $1,651,000 on the sale of its business – a total of $6.886 million (Transcript 26 August 2022, p.353 lines 12–14).
Having regard to these matters I do not propose to proceed further with a consideration of the sale of the assets of the D Trust. That means that I must choose between the wife’s and the husband’s scenarios for dealing with the sale of LL Property even though neither has the support of Ms WW, who also declined to indicate a preference for one over the other.
Therefore I must proceed on the basis of one of the proposed scenarios and to apply it with the consequences identified by Ms WW. In doing so, I acknowledge that I am not a valuer and can only choose a scenario based on the submissions put to me. As is implicit in both scenarios, I accept that the aim is to take into account the effect of the sale of the LL Property and its effect on the value of the property to be divided, in the absence of a full valuation of the D Trust at a later date.
The wife’s instructed scenario
Under this scenario Ms WW was instructed to take up the net proceeds of the sale of LL Property and the associated property at the gross sale price.
That price may safely be taken to be the fair value of LL Property. It is to be recalled that in the Second Report, as in the earlier accounts in the First Report, the remaining commercial properties and where relevant, the properties on which the businesses are conducted, were included in the accounts at their current value.
This scenario, then brings LL Property into line with the other businesses owned by the D Trust by taking into account its current value, recognises the sale and also recognises the discharge of the debt of the D Trust’s financier.
The effect of this scenario was set out in Appendix 13B to the Second Report. The value of the D Trust became $46,202,432 and the husband’s loan account with the D Trust became $24,750,261.
The husband’s instructed scenario
The husband’s scenario was intended to reflect the reality that the sale of LL Property did not result in the D Trust retaining the net sale proceeds of $76.83 million. There were further costs of the sale and adjustments to be taken into account. Importantly, according to the husband, there were significant further adjustments and payments as a result of the sale per Exhibit 6, being outstanding gaming tax and creditors.
Ms WW was asked to make the following assumptions as to the cash balances of the following entries in the accounts as at 19 May 2022:
·PP Business – Nil
·PP Property - $433,664.69
·MM Business – Nil
·MM Property - $633,452.50
·B Pty Ltd - $76,200.62
·LL Business – Nil
·LL Property - $102,682.10
These took into account payments made from the proceeds of sale of LL Property.
Ms WW was asked to take into account the following payable balances:
·PP Property - $366,253.59
·MM Property - $355,004.59
·B Pty Ltd - $634,326.51
Ms WW was also asked to assume that the Group borrowing of $53.6 million had been discharged (as it had on the sale of LL Property).
The husband’s scenario is therefore more complicated than the wife’s, and the wife submits, more artificial. Yet, she did not criticise any of the assumptions as being incorrect, merely their selection.
The effect is that the D Trust becomes valued at $29,429,559 and the husband’s loan account becomes $18,376,006. A new asset is recognised on the balance sheet of $8,614,662 being the cash proceeds of the sale of LL Property held in a controlled monies account. That did not need to be separately recognised on the wife’s scenario because it was included in the global figure for the sale of the LL Property.
On the wife’s scenario the D Trust and the husband’s loan account totals $70,952,693. On the husband’s scenario the D Trust, his loan account and the balance in the controlled monies account total $56,420,227, leading to a significant difference of $14,532,466. The parties derived these figures for the balance sheet, as explained in their individual notes to these items in that document.
As I have said, Ms WW did not accept that either scenario accurately or fully took into account all relevant adjustments. It is obvious that each party chose a day after 30 June 2021 and after the sale of LL Property but without specifying which day and did not attempt to create a full set of accounts as at that day. Instead, the parties seek only to adjust some of the relevant entries.
As I have said, Ms WW declined to indicate a preference for either scenario and regarded both as apt to lead to error.
Neither party suggested that there was any relevant principle that could be applied to the choice between the two scenarios. The wife suggested that hers was simpler and less artificial in that it contained fewer assumptions.
Nonetheless, a choice must be made. I consider that, accepting that both scenarios are at best incomplete, the husband’s is to be preferred. This is because it recognises that the cash generated by LL Property did not remain with the D Trust because it had largely been dissipated – mainly in paying creditors and through partial property settlements to the parties. The wife’s scenario then, to my mind, gives an overly inflated view of the D Trust and it does not recognise the significant payments that have been made from the proceeds of sale of LL Property.
The values for the funds in the controlled monies account, the value of the D Trust and the husband’s loan account (Items 4, 11 and 31 of the balance sheet) will be as proposed by the husband.
The amount owed by the D Investment Trust to the husband (Item 26)
The wife seeks the inclusion of this item in the sum of $744,185, which is in accordance with the 30 June 2021 accounts. The husband seeks its inclusion at $257,824 which is that sum as adjusted by Appendix 11A to the Second Report.
This, in turn, depends on the value of the D Investment Trust. This is discussed below.
“Shares in other companies”
The accounts of the D Investment Trust show as an asset “shares in other companies” with a value of $10,501,872 (First Report, Appendix 11 and Second Report, Appendices 11A and 11B). The accounts of Cirillo Pty Ltd (No 2) has a similarly named entity with a value of $3,486,372 (First Report, Appendix 21 and Second Report, Appendices 21A and 21B). It is the husband’s position that the entities refer to the companies in Country H that have no value at all.
In her Report, Ms WW noted that in the absence of those entities being written down in the financial statements or written off in the tax returns, she would adopt the book value of the entities for the purposes of her valuation. Again, she was asked to prepare a hypothetical valuation of the D Investment Trust and Cirillo Pty Ltd (No 2) with nil value on the assumption of a zero value of the Country H entities. This Ms WW did her Second Report in Appendices 11A, 13A and 21A, conveniently brought together as Exhibit 7.
Mr BK, an accountant, gave evidence that in 2019 he prepared the financial report for Cirillo Pty Ltd for the 2014 financial year.
He referred to the entry “shares in other companies” on the balance sheet for B Pty Ltd (as trustee for the D Investment Trust) of $10,501,872 and said that was merely a balance carried forward from Cirillo Pty Ltd. In the financial report for 2014 for that company, the investments were broken down as follows:
24. …
Investment in [W Ltd], [Country BP] $3,326,278
Investment in [V Company] $2,918,805
Investment in [Y Business] (Tax Cost Base 80,000) $884,289
Investment in [AL Pty Limited] $3,126,479
$10,255,851
(Affidavit of Mr BK filed on 19 August 2022, paragraph 24)
It is not in contest that AL Pty Limited is in the process of winding up. It was not suggested that it should be ascribed any value.
Mr BK suggested that the difference between the amount shown for B Pty Ltd and the above figure was “most likely due to timing differences” (Affidavit of Mr BK filed on 19 August 2022, paragraph 25).
The husband also relied upon a report from Mr BL, an expert valuer. He referred to the above evidence and said that an international transfers spreadsheet disclosed $4,336,515 being transferred to Country H in the 2015 financial year as well as two transfers of $1.7 million (Affidavit of Mr BL filed on 22 August 2022, Annexure “A”, paragraphs 7.4 and 7.6).
This led, he said, to an increase of values for the following entries in the financial statements as follows:
7.7 …
a)An increase in [Country H Investments] made by [Cirillo Pty Ltd]
In the 2015 financial year $2,058,133
b)An increase in the [D Investments Trust] “Shares In other Companies”
In the 2015 financial year $4,237,631
$6,295,764
(Affidavit of Mr BL filed on 22 August 2022, Annexure “A”, paragraph 7.7)
The small difference between the total transferred and the amount recorded did not prevent Mr BL from opining that the increase in value in the accounts was due to the transfers.
Mr BL was not required for cross-examination.
Counsel for the wife rightfully pointed to the failure of the husband himself or anyone else with direct knowledge of the matters to give evidence on this topic. Indeed, he asked the Court to drawn an inference against the husband (Jones v Dunkel (1959) 101 CLR 298) for his unexplained failure to call the accountant responsible for the preparation of the 2015 accounts. He again, pointed to the poor disclosure of the husband.
Thus, senior counsel for the wife submitted, the Court should find that either the D Investment Trust and Cirillo Pty Ltd (No 2) actually own assets in overseas companies which have a value described in the accounts or that, at least, the accounts are the best evidence of the value.
There is force in these submissions, but, as counsel for the wife himself suggested, courts prefer established facts to conjecture (HTW Valuers v Astonland Pty Ltd (2004) 217 CLR 640 at [39]).
A court can only act on the evidence before it. In this matter despite the obvious inadequacies of the evidence of Mr BK and Mr BL and the lack of direct evidence, there is no evidence that suggests there are undisclosed companies in Country H. The unchallenged valuation evidence is that the disclosed companies have a negative value.
As discussed elsewhere, vast amounts of money have been transferred to Country H and Country AN over many years.
The entities in Country H have not fared well. AL Pty Limited is in liquidation. The only prospect of the remaining entities in Country H returning to a positive value in the future is if they are successful in the various court cases being conducted (again, as explained elsewhere).
Importantly, the wife did not suggest that there were undisclosed entities in Country H or elsewhere that may have been the recipient of the funds. No other potential candidates for the description of “overseas companies” whether as a description of entities or misnomer for something else has been made. It was not put, to use the words of senior counsel for the husband, that this money had “fallen off the table” (Transcript 26 August 2022, p.345 line 33).
It is therefore, more likely than not that the overseas companies referred to in the accounts for the D Investment Trust are the Country H entities which have no current value. If that is so, then to assess the financial position of the parties on the value recorded in the accounts when it is known that they have no asset value would be to proceed on a false and artificial basis and not have regard to the true position. The possibility of success in the litigation will be dealt with elsewhere.
The evidence as to Cirillo Pty Ltd (No 2) is even more tenuous.
Mr BL referred to a copy of an unsigned letter from the husband to the Australian Taxation Office which states:
6.4 …
“In 2015, as part of the final liquidation of [AL Pty Limited] In Liquidation) (“[AL Pty Limited]”) the shares owned by [AL Pty Limited] in the [Y Business] were transferred to [Cirillo Pty Ltd (No 2)] (In Liquidation) […] as in-specie distributions. It is anticipated that [Cirillo Pty Ltd (No 2)] liquidation to be completed in 2016 and the shares owned in [Y Business] are to be transferred to [Cirillo Pty Ltd], which is intended to be the ultimate holder of all overseas investments for [Mr Cirillo].”
(Affidavit of Mr BL filed on 22 August 2022, Annexure “A”, paragraph 6.4)
As pointed out by the wife, if this was the case it could easily be proven by the production of the relevant cash book and journal entries.
It is difficult to give an unsigned draft letter any weight.
Mr BL also included, as Annexure D to his report, the entries in Cirillo Pty Ltd (No 2) of the various entries for “Shares in unlisted entities – [Country H] Business” (used in 2000 to 2002, with the description changing over the subsequent years as set out in the appendix). That material taken with the other considerations to which I have referred makes it more likely than not that the entry for “shares in other companies” is a reference to the Country H entities.
However, even disregarding that evidence entirely, for the same reasons I have just given, there is no basis for suggesting that this company currently has any value.
It follows that nil value should be ascribed to “shares in the other companies” in the accounts. The consequence is that the figures identified in Appendices 11A, 13A and 21A, applying the husband’s scenario, should be adopted.
By way of an alternative submission, the wife suggested that the accounts only showed an approximate $6 million investment by the D Investment Trust in overseas companies and that the balance of $4 million remained unexplained. Again she relied upon the presumed accuracy of the accounts and the absence of relevant cash books and journal entries.
Again, there is force in this submission but the effect of it is that, if accepted, there are either unidentified assets which should be ascribed a real value or that a value is given to the Country H entities.
There is no evidence or suggestion as to the first. The second is contrary to the evidence and the stance of the parties. The submission cannot be accepted.
Thus, using Ms WW’s figures, the husband’s loan account with the D Investment Trust (Item 26 on the balance sheet) will be given a value of $257,824 and confirms the value given to the husband’s interest in the D Investment Trust.
Amounts due to the husband and AL Pty Limited by Y Business (Item 34)
The wife submits that the husband is entitled to receive $2.2 million from the Y Business.
Ms WW noted that the Y Business had a deficiency in net assets as at 31 December 2021 of EUR 2,795,881.32 “most notably due to an ‘other payables’ liability of EUR 4,846,391.56. I am not aware as to whom this amount is owning. If it is owing to the Husband, it should be recognised as a personal asset of his” (Second Report, Appendices 5A and 5B, Note 3).
Referring to pages 50 and 52 of the affidavit of Mr BM filed on 1 June 2022, who valued the Y Business, the wife submitted:
34. …
Of the amount of €4,846,391.56, a total of $4,438,145* is due to the husband and [AL Pty Limited]. There is also shown in the [AV Valuers] analysis an amount due to the husband, reclassified from capital, of €1,379,320**, so that the total of “Other payables” is €6,225,710 and the total due to the husband and [AL Pty Limited] is €5,817,465, or 93.4% of the total. The net assets of [Y Business] before allowing for these related party debts, and available to meet them, is therefore €1,591,177. The husband and [AL Pty Limited] are accordingly able to recover 93.4% of that amount equals €1,486,837, or some AUD2.2 million
*See pages 52 of the affidavit of [Mr BM] ([AV Valuers])
** See page 50 of the affidavit of [Mr BM] ([AV Valuers]
(Exhibit 24, p.7)
At page 50, Mr BM noted that the husband had deposited EUR 1,379,319.79 for the increase of share capital in Y Business, but the general meeting had not yet decided to increase share capital. According to Country H requirements, the amount paid by the husband must be classified as a liability and not an equity investment, even though it was intended as one and may become one.
At page 52, Mr BM recorded that the amount payable to the husband was EUR 2,132,148.45.
The wife takes the actual value of the Y Business as valued by Mr BM of negative EUR 4,634,533 and adds back the sums owing by AL Pty Limited and the husband, giving it a positive notional value of EUR 1,591,177, of which they would be entitled to receive EUR 1,486,837 or $2.2 million.
It was not explained to me why the husband should receive all of the funds owing to AL Pty Limited and him as opposed to being entitled to receive his advances only. The ability of AL Pty Limited to repay its debts is not known but unlikely given it is being wound up.
Ms WW assumed for the purposes of her reports that the Y Business had zero value and therefore related third party debts were not recoverable.
As the husband pointed out, if in that circumstance, a finding that the husband was entitled to receive $2.2 million, which was realistically payable, there would need to be a matching obligation in an entity capable of paying it. In essence, the approach of the wife ascribes a value of $2.2 million to the Y Business, which is not the case.
Of course, if AL Pty Limited and the husband were to waive all or part of their debts so as to give the Y Business a positive value, that would prevent recovery of the debt.
I will not include the claimed sum in the balance sheet.
National Bank of Country H loan (Item 60)
The husband seeks to include a liability to the National Bank of Country H in the sum of $296,994.
The husband tendered a bundle of bank accounts, all in Country H, which he asserted established outstanding loans in Country H in the sum of EUR 195,539 or $283,390 (Exhibit 16). The tender was not opposed and submissions were not directed to it by the wife.
At the time senior counsel of the wife said:
[SENIOR COUNSEL FOR THE WIFE]: … I doubt there will be a problem, your Honour. Could I just reserve my position, but I don’t mind the tender, your Honour.
(Transcript 26 August 2022, p.321 lines 26–27)
No submissions were made subsequently and the liabilities will be taken into account.
This figure will appear in the balance sheet.
ADD BACKS
The wife sought that sums totalling about $51.7 million be ‘added back’ to the property to be divided representing assets that she says would, had they not been spent by the husband, have been available for distribution between them. The add backs that she seeks are in respect to the transfer of cash or income as opposed to the transfer of other assets. The assumption in the wife’s case is that if the transfers of cash and income had not taken place, that cash or income would have been retained or have been used to acquire other assets which could be divided between the parties.
The present approach of the court does not favour add backs and prefers to deal with such dispositions under s 75(2)(o) of the Act, although it remains a course that can be taken. See Trevi & Trevi (2018) FLC 93-858 for example. This is because add backs are notional only – they do not refer to actual property. Some care must be taken when, as here, the proposed add backs comprise a third of the “property” to be divided. I do not need to take this further, however, because, save for some legal costs, I am not satisfied the basis for add backs or consideration under s 75(2)(o) has been established.
Legal costs
The wife accepted that some of the legal costs of the husband, as sought by him on the sum of $193,239 (Item 51) should be added back in accordance with the principles stated in NHC and RCH (2004) FLC 93-204 (Transcript 26 August 2022, p.332 lines 17–18).
The wife’s costs notice (Exhibit 19) accepts that some of her legal costs were paid from her personal funds outside the interim property settlements, but there is no evidence as to how much that might be. On the contrary, the wife states in the joint balance sheet that her legal costs were paid only from the funds provided as interim property settlements.
Therefore, the balance of the parties’ legal costs appear to have been made from interim property settlements as far as can be determined (except for the amount above), so no further consideration is required.
Funds paid to Ms BN (Item 53)
The wife seeks to add back the sum of $366,561, paid to Ms BN by the husband.
The wife asserts that between late 2020 and late 2021, the husband transferred a total of $558,762 to Ms BN. She also asserts that over the same period Ms BN re-paid $302,202, which included payments of $100,000 in early 2021 (Wife’s affidavit filed on 8 May 2022, paragraph 242). The balance of her claim is the total of small regular payments to Ms BN.
The husband agrees that the payments and receipts took place. He says that the payments were made by him for Ms BN’s living expenses and as reimbursement for a car. He said that Ms BN purchased Motor Vehicle 1 for him in 2020 on pre-order, for $500,000. The car arrived in early 2021 and he sold it in mid-2021 so that he could repay Ms BN.
He added that part of the money said to be repaid to him was, in fact returned to him by the bank because he had incorrectly entered Ms BN’s account number when attempting to transfer funds to her. He was not challenged on this evidence.
In his cross-examination, the husband said that he borrowed the funds for Motor Vehicle 1 from Ms BN because he did not then have the funds, which he was awaiting from the sale of LL Property (Transcript 10 June 2022, p. 175 lines 10–11).
It appears that in early 2021, $399,000 was withdrawn from the husband’s account.
In re-examination, the husband referred to the following deposits made into his account (Exhibit 1), all in early 2021:
·$50,000 from F Property
·$100,000 from Mr BO
·$100,000 from Ms BN
·$200,000 from cash deposit at Suburb U
Ms BN is a tenant of the F Property where she conducts a business. Mr BO is her son.
The husband submitted that these payments are consistent with his evidence. I agree.
The wife contended that the whole story about Motor Vehicle 1 is implausible and that, in reality, the husband was giving Ms BN funds to be held for him. If so, there would be little point in the repayments. If Ms BN was not the source of the cash deposits, then they are entirely unexplained. No other sources of funds present as likely and none was suggested.
On balance, I accept the evidence of the husband. It confirms with the facts, that is the deposits and his shortage of cash following the sale of LL Property and Supreme Court proceedings, and there is no alternative explanation.
As to the regular payments, the husband said it was for Ms BN’s expenses in looking after him. The parties have had the benefit of significant income and have spent it freely. It is not the function of the court to conduct an audit of the parties’ lives after separation.
In the absence of any evidence to the contrary of the husband’s assertion, any amount referrable to Ms BN’s living expenses will not be added back.
This claim by the wife does not succeed.
Funds transferred from G Pty Ltd to TT Lawyers (Item 54)
The wife’s contention is that in mid-2021 the husband’s solicitor from TT Lawyers instructed G Pty Ltd (the Group’s financier) to transfer $400,000 of surplus funds and $120,823 held in G Pty Ltd lawyers’ trust account to them. The wife suspects that the funds were used by the husband to pay his costs in the Supreme Court proceedings (Wife’s affidavit filed on 8 May 2022, paragraph 247).
The husband’s lawyers also acted for B Pty Ltd in that litigation. It has not been established that the funds were used for the husband’s legal costs as opposed to its costs. However, having regard to the subject matter of that litigation and its outcome, it would not have been an unreasonable use of the parties’ funds to do so.
FINANCIAL RESOURCES
The Country H litigation
The litigation in Country H continues. If the proceedings involving the Y Business, in particular, are successful, a significant asset will arise which must be divided between the parties. Due to the uncertainty and lack of evidence a present value (based on the probabilities of success) cannot be determined. An order must therefore be made to deal with the proceeds of and when realised.
The husband proposed that it be a condition of any such order that the wife pay one half of the costs to be incurred in realising any favourable result. I consider that would not be fair unless she was to have a say in the course of the litigation. However, that course will inevitably lead to discord, disagreement and further litigation and is to be avoided.
The better course is simply to require a division of the net proceeds. As the husband will be paying the continuing costs and bears the risk of losing, I will adopt the wife’s alternative order but amend the percentage division of 45 per cent to reflect that risk.
Funds removed from Australia to Country H between mid-1985 and 2021 that are unaccounted for (Item 55)
The wife contends that the sum of $50,822,651 should be added back to the balance sheet as funds transferred to Country H that have not been explained in the accounts. The figure is calculated in an aide-memoire attached to but not forming part of Exhibit 14, which is a bundle of financial records.
Despite the title of the proposed balance sheet item above, the aide-memoire only covers international money transfers during the period of 1995 to 2018. The wife uses the information contained in Annexure 35 to the husband’s affidavit filed 8 May 2022 to complete the period of 2018 to 2021.
Annexure “MC-1” to the wife’s affidavit filed 8 May 2022 and Annexure “K” to Mr BL’s report each set out a schedule of funds transferred to Country H between 1995 and 2018 which total $107,393,037.37 and $107,473,037.37 respectively. The husband did not challenge the accuracy of the schedules.
The aide-memoire, by reference to the documents identified in it, calculates the total transferred to Country H during the whole period as $117,017,659.
By reference to various documents in Exhibit 14, the aide-memoire goes on to identify assets in Country H, or at least, in the case of the business, that were the destination of the funds as follows:
Dissipation of funds: cost of assets acquired in Country H Real property in Country H owned by the Husband $12,160,080 Investment in W Ltd, Country BP $3,719,788 Investment in V Company $3,858,258 Invested in business $46,456,882 Total funds accounted for $66,195,008
(Exhibit 14)
Therefore, it is submitted, the fate of the balance of the funds ($50,822,651) has not been explained and remains unaccounted.
The starting point is the wife’s schedule of money sent to Country H (Wife’s affidavit filed on 8 May 2022, Annexure “MC-1”, p.1305). The provenance of the document is not explained but clearly the creator has had regard to the relevant primary documents to identify the date and amount of the transfers, usually the recipient and often the purpose.
For example, the first entry for 1999 is:
11/01/1999 316,881.71 … [Mr BR] (USD 200,000 – [BT Transport] ?)
(Wife’s affidavit filed on 8 May 2022, Annexure “MC-1”, p.1305)
The last entry for that year is:
24/12/1999 $150,000.00 … [BQ] Bank ([Mr Cirillo’s] personal)
(Wife’s affidavit filed on 8 May 2022, Annexure “MC-1”, p.1305)
I take this entry to say that the money transferred was for the personal use of the husband.
Having regard to those entries, it is not correct to say that the transfers have not been explained. Whilst the transfers may not be recorded in final accounts of various entities, the records that have been kept and made available to the wife, and which she has clearly relied, are sufficient to make plain the transfers, the destination of the funds and often with an expressed purpose. What remains unclear is whether these transfers were recorded in any accounts. The Court is entitled to rely on all the evidence adduced by the wife which included the descriptions in the schedule she annexed to her affidavit.
I accept that the husband has not sought to explain in any great detail how the funds were spent, particularly those transferred for the stated purpose of personal expenses. That is hardly surprising given the number and amounts involved and the fact that many were made many years ago during the course of the marriage. I also bear in mind the unchallenged evidence that Country H law required some investments in Country H to be made by the husband personally, so that the transfer of funds had to be by him personally in order to make the investment himself, as opposed to directly by a company.
The transfers include transfers expressed to be for his children, sisters and for loans. Some transfers included descriptions which would appear to be payments for services.
Of course, the parties and the husband would have living expenses in Country H whilst they were there and presumably for the maintenance and expenses in relation to the properties that they owned there.
Again, the provenance of Annexure “K” to Mr BL’s report is unknown. However, no objection was taken to the schedule and accordingly I am entitled to have regard to its contents. The weight to be given to them remains to be considered.
The schedule identifies transfers from Australia to Country H from 1995 to 2018 as being some $107,473,037.37.
The following summary was provided:
Y Business $43,871,771.63 W Ltd $4,180,003.61 Bill Payment $2,652,686.06 Family $1,884,189.81 V Company $2,421,380.01 Loan repayment $1,600,000.00 Mr Cirillo $32,236,573.00 Purchase $218,715.40 (blank) $5,353,516.84 Unknown $400,000.00 BU Company $3,972,699.04 BC Business investment $7,795,557.72 Loan to family member – not recoverable $885,944.25 Grand total $107,473,037.37
(Affidavit of Mr BL filed on 22 August 2022, Annexure “K”, p.396)
Additionally, the unknown author of the schedule added some comments as follows:
Y Business $43,871,771.63 Mr Cirillo $32,236,573.00 These funds were also utilised for Business, now impossible to say how much. He also purchased land and constructed properties which are currently valued at EUR8.444M or around AUD12.4M BC Business investment $7,795,557.72 Client is currently in litigation in relation to this investment. (blank) $5,355,549.84 Various amounts to different destinations W Ltd $4,180,003.61 These funds went towards purchase of land, construction of buildings, payment of taxes and associated property expenses. Properties are currently valued at EUR2.345M or around EUR3.442M BU Company $3,972,699.04 Bill Payment $2,650,653.06 V Company $2,421,380.01 Client is currently in litigation in relation to this investment. Family $1,884,189.81 Loan repayment $1,600,000.00 Loan to family member – not recoverable $885,944.25 Loan to client’s neice(?) but she refused to repay Unknown $400,000.00 Purchase $218,715.40 Other purchases Other Prior to March 1998 (when business was sold), client had a business partner. For that period, 50% of these transfers are effectively ‘joint’ transfers. That business partner still has small share in the business.
(Affidavit of Mr BL filed on 22 August 2022, Annexure “K”, p.396)
The total of the above is $107,473,037.37.
Care must be taken to the weight to be given to these comments, if any. However, they at least add to the impression gained from the wife’s own schedule that some explanation of the fate of most of the transfers appears from the records themselves from which these schedules were prepared. The similarity of the two schedules, especially as to the amounts involved, is noteworthy, as is the similarity to the aide-memoire attached to Exhibit 14.
It is not in dispute that the investments in Country H have been fraught with difficulties. The direct evidence as to that is confirmed by the present negative value of these assets (especially when compared to many transfers unquestionably made to develop them) and the continuing litigation involving all of them.
I am far from satisfied that the aide-memoire can be relied upon to identify unexplained transfers. If the above schedules correctly record the destination of funds then, at the most, just under $6 million in the rows “(blank)” and “unknown” remains unexplained.
The husband’s oral evidence was that, from time to time, he had statements of assets and liabilities prepared for use in seeking funds or the renewal of loans. None was disclosed.
Such statements may have been of assistance in determining the existence or the value of particular assets at particular times. However, again the wife did not point to an issue where their absence was a relevant consideration.
The overseas companies
The main submissions under this heading (Wife’s written submissions dated 26 August 2022, paragraphs 6.4(d), 6.4.1.2 and 6.5) point to failure to call evidence as opposed to lack of disclosure.
The relevant journal entries, cash book entries and transaction documents as to the overseas companies and the acquisition of them by Cirillo Pty Ltd (No 2) and B Properties Pty Ltd were not disclosed. That was taken into account in making the above findings.
Recently disclosed documents
The fact that documents were disclosed late or under pressure from a need to challenge an expert’s opinion (Wife’s written submissions dated 26 August 2022, paragraphs 6.4(e) and 6.4.1.2) does not equate to a failure to disclose.
$50,822,651 transferred to Country H
This has been dealt with elsewhere. It remains to add that it is hardly surprising that all relevant documents have not been produced given that the transfers occurred as long ago as 28 years ago.
Litigation in Country H
The wife submitted that the husband has “not led evidence in satisfactory detail about the value of the litigation” (Wife’s written submissions dated 26 August 2022, paragraph 6.4(a)). It is true that he could have provided copies of pleadings, but I am not at all certain the expert reports as to the prospects of success would assist. Some indication of the likely outcome appears in the latter as to the proceedings in Country H; to be discussed shortly.
In any event, this is a complaint about evidence, not disclosure.
It is true to say that the husband has not disclosed the files, let alone the pleadings in the Country H litigation. The wife did not say how such production would have assisted determination of these proceedings, beyond what was disclosed.
The husband produced a letter from his solicitors dated 3 May 2022 which briefly outlines the nature and status of the Country H proceedings.
As to the claims of the Y Business against the Country H State, one of the two pieces of litigation where the Y Business is the plaintiff, its claim has been rejected by the J City Administrative Court of Appeal, and a further appeal has been taken before the Supreme Court of Country H. That appeal also seems to involve an appeal from the Court of Appeal of the Y Business and the municipality of X Town. These proceedings involve the ownership of the land on which the casino was built.
The other litigation which is against the municipality of X Town has been suspended by the Court of Appeal of the Y Business, the adjournment is pending the outcome of the other appeal. This appears to be a claim for damages.
In short, the complaint of the wife is that there is no expert opinion as to the prospects of success. That is a matter of evidence and not disclosure.
I will return to the Country H litigation under the consideration of the orders to be made.
Other
I am not satisfied that any non-disclosure is relevant to the determination of the issues in these proceedings other than in the limited way already identified.
The wife relied on the non-disclosure to support her claim under s 79(2) by reference to the well-known words in Linder & Linder [2016] FamCAFC 139, that “the Court need not shy away from a robust exercise of discretion in favour of the wife” (at [32]).
The wife relied on the statements by the Full Court in Mezzacappa and Mezzacappa (1987) FLC 91-853 at 76,449, but there it was found that the husband had not disclosed the whereabouts of $202,418 of the parties’ assets which he had unquestionably received.
The wife relied on the following, again, well-known passage from Weir and Weir (1993) FLC 92-338. There the Court said at 79,593:
It seems to us that once it has been established that there has been a deliberate non-disclosure, which follows from his Honour’s findings in this case, then the Court should not be unduly cautious about making findings in favour of the innocent party. To do otherwise might be thought to provide a charter for fraud in proceedings of this nature.
There the finding was that the husband had “pocketed the proceeds of a substantial number of cash sales” (at 79,593). In other words, there was a failure to disclose an asset –i.e. the proceeds of sale.
Their Honours further said at 79,593:
We should have thought that the Court’s jurisdiction to make an order going beyond the identified property arises once there is sufficient evidence to support a finding that the party has not made a full disclosure of his or her assets.
(Emphasis added)
The encouragement to be robust arises when there has been non-disclosure of assets not documents, although a failure to disclose documents could lead to a finding of failure to disclose assets. That is not the case here – the wife did not suggest that the evidence disclosed that the husband had a hidden source of funds or assets, other than as already discussed.
EVENTS AFTER THE FINAL HEARING
Shortly before the hearing finished, the wife filed a further Application in a Proceeding seeking a number of interim property settlement orders.
On 31 October 2022, the husband filed an urgent Application in a Proceeding seeking an interim property settlement. The husband’s health had significantly declined and he had travelled to City BV, BW State, USA for urgent medical treatment. There the husband was advised that he needed major surgery and that this procedure was reasonably available at a hospital in City BX, BY State, USA, the cost being nearly AUD 1.9 million. The husband had travelled there and, at the time of the relevant orders were made, was awaiting the surgery. The procedure was subsequently undertaken in late 2022.
Pursuant to these applications an order was made on 4 November 2022 that there be an interim property settlement in favour of the husband in the sum of $1.9 million. On 11 November 2022, a further order was made that there be an interim property settlement in favour of the wife in the sum of $750,000. The funds in each case were to come from the TT Lawyers’ controlled monies account.
That account now has a balance of $5,923,586, which is reflected in the balance sheet.
The parties were directed to file written submissions “as to the effect, if any, of the above orders on the final orders to be made and what adjustments should be made to the balance sheet to take them into account” (Order 3). The parties filed submissions, but the wife’s went beyond the scope of the direction.
The effect of the above orders was that the husband had received interim property settlement of $6.4 million and the wife $5.55 million – a difference of $850,000.
THE ORDERS PROPOSED BY THE PARTIES
It is desirable to say something about the orders proposed by the parties to give effect to the percentage division they each sought.
The parties agreed that the wife should retain Motor Vehicle 2.
The wife’s proposed orders
The wife proposed that the MM Property be transferred to her and that she receive six of the properties in Country H. If she was not to receive the MM Property she proposed that she receive the Y Business instead.
I do not readily understand the logic of the alternative proposal in that one asset is very valuable and the other is agreed to have no value.
The transfer of the MM Property was to be to her, or her nominee and was to be on the basis that upon the transfer, the MM Property and business be “free from any debt, liability, financial facilities and charges or mortgages”. There is no specific reference to the capital gains tax.
Mr BJ, the single expert who provided a report on the tax consequences of various transfers, agreed that a transfer of the MM Property to the wife would not incur an obligation to pay capital gains tax whereas a transfer to a nominee would incur a capital gain of $18,872,160.76, which would be taxable (Report of Mr BJ dated 9 August 2022, paragraphs 100–101).
Similarly, if the business of the MM Property, including its license, was transferred to the wife, no capital gains would be incurred. A transfer to a nominee would see a taxable gain of $7,026,660.14 (Report of Mr BJ dated 9 August 2022, paragraphs 104–105).
Either the trustee for the D Trust or its beneficiaries would bear the burden of the tax. Whether such tax is payable by them should not fall to the whim of the wife. The inclusion of the words “or nominee” is not acceptable.
The wife sought that all the Country H properties be transferred to her. Her orders are silent as to whether any liabilities will arise on the transfer of the Country H properties. Mr BJ suggested that the transfer to her of the properties owned by the W Ltd would create an income tax liability for her of $1,623,467, if she became an associate of Cirillo Pty Ltd or a shareholder in W Ltd.
The alternative order sought by the wife, includes the transfer of the husband’s shares in W Ltd to her and would thus incur that tax.
I am unable to see any merit in the alternative proposal.
The wife then seeks that the parties, generally speaking, retain their other assets other than for the Suburb P property, which is to be sold and the proceeds divided to effect the percentage division.
In respect of the proceedings concerning the property ownership of Y Business, if there was to be judgment in the husband’s favour, the wife sought an amount equal to 47.5 per cent of the proceeds of litigation.
The husband’s proposed orders
The central feature of the husband’s proposed orders is that he retain the benefit of the D Trust including the MM Property.
Interestingly, he seeks the sale of the QQ Property and the F Property, with the proceeds to be held in an account pending determination of any payment of any tax arising from the sales. The net proceeds are to be divided equally.
According to Mr BJ, who advised on the tax consequences of the sale of the trusts’ assets, the sale of the QQ Property would generate a capital loss of $4,065,291 and that $8,185.68 would then be added to the assessable income of the D Trust in relation to the sale of trading stock Report of Mr BJ dated 9 August 2022, paragraphs 48 and 51). He said, that the sale of the F Property would generate a capital loss of $488,692 (Report of Mr BJ dated 9 August 2022, paragraph 77).
The husband wishes to retain one of the Country H properties owned by him (O Street, Suburb L), which is his home in Country H, with the remaining Country H properties to be transferred to the wife.
He also seeks that the Suburb P property be sold. If the net proceeds exceed $43 million, he seeks the wife retain up to $43 million and any amount above that figure to be divided between the parties equally.
THE FORM OF THE ORDERS TO GIVE EFFECT TO AN EQUAL DIVISION
The D Trust and the MM Property
Unsurprisingly, each party sought to receive the MM Property. Not only is it valuable, but it is the parties’ major source of income.
The husband sought simply to retain B Pty Ltd and the assets of the trusts of which it is trustee. This includes the MM Property and most of the other commercial properties, but not all.
The wife sought only to receive the MM Property. Although its removal from the D Trust could be achieved, the wife did not suggest any mechanism to do so or call evidence as to the costs involved.
I raised with the parties the sale of the MM Property as a way of resolving the issue but both parties were adamant in their opposition, citing the likely large capital gains tax as the reason.
I then asked the parties for assistance as to the principles to be applied in choosing who should retain the MM Property. Unsurprisingly, I received none. I was merely informed as to how each party would be a better manager of the asset and needed the income more.
Until the events of 2018, the business of the parties had been under the care and control of the husband under which it developed and thrived. It was not suggested that the business is not currently being operated properly even though the husband does not attend to day-to-day management due to his health and residence in J City.
The dispute that arose in 2018 which led to the parties’ children taking control of B Pty Ltd and the subsequent regaining of control by the husband after successful court action was the proposal by the children to sell LL Property for $60 million. In this move, the children were strongly supported by the wife who maintained that stance in her oral evidence before me. She said all would have been better off if the sale had proceeded. Whilst that might be a reference to the subsequent court proceedings, she was unable to explain how a sale at $60 million saw a better return than a sale at $78 million.
That is far from a ringing endorsement of the wife’s capacity to run a large complex business.
The husband has always strongly opposed the sale of LL Property at $60 million and was proven to be entirely correct by the subsequent sale.
If the decision is to be made on the competence of the parties, the husband should receive the MM Property.
Each party will receive a large capital sum. The income earning capacity of the MM Property has been reflected in its valuation which in turn has been picked up by Ms WW’s valuation. Further, the party not receiving the MM Property will still receive a very large capital sum or assets which can be sold to obtain such a sum. Income earning assets can thus be acquired.
Therefore, I place little weight on the need to earn an income.
The business has historically been that of the husband. He will retain the MM Property. As the husband will also be retaining the assets owned through B Pty Ltd, he will be liable for the outstanding capital gains tax payable on the sale of LL Property.
The simplified and most appropriate way for the husband to receive the MM Property is for him to receive the benefit of the D Trust and its trustee, B Pty Ltd.
Similarly, the husband will retain the benefit of his various loan accounts.
The husband accepted that the burden of the capital gains tax payable on the sale of LL Property will ultimately be borne by him. It is appropriate that he indemnify the wife against any obligation to contribute towards his payment. He will concomitantly, receive the balance of the TT Lawyers controlled monies account which holds the last of the proceeds of the sale of the commercial property. Those funds now fall well short of what is required to discharge the debt and the husband will have to find the shortfall.
Both the husband and the wife accepted that they should bear half of the shortfall (Wife’s Proposed Order 10, husband’s Proposed Order 10 and the joint balance sheet). That is appropriate because each has shared in the proceeds of sale of LL Property.
The South Australian commercial properties: The QQ Property and the F Property
The sale of the QQ Property and the F Property may trigger capital gains tax liabilities. The husband’s proposal would see that liability born equally by both parties. The wife’s proposal is that the husband retain the F Property along with all the remaining assets of the Cirillo Family Trust (No 2).
Apart from the husband’s proposed orders, there is no indication that the QQ Property or the F Property is likely to be sold in the short to mid-term, which would trigger a requirement to take into account capital gains tax payable on a sale (Rosati v Rosati (1998) FLC 92-804) (“Rosati”). The husband merely said that he did not seek to retain them, wanted them sold because he is finding it difficult to travel and would prefer to be based in Sydney. I do not consider this to be sufficient but, in any event, the tax to be incurred on the sale as identified by Mr BJ is not large and if the husband wishes to sell them he ought bear any of the tax payable.
Again, no submissions were made by the parties as to these orders other than for the husband to remind me that capital gains tax was “embedded” in the valuations of the two commercial properties or to suggest that “embedded tax” should be taken into account. In the absence of any suggestion of sale, I do not give those submissions weight.
I have already determined that the husband should retain the D Trust and the entities owned by it, which includes the QQ Property. The husband is also to retain the Cirillo Family Trust (No 2), which in turn holds the F Property.
The Suburb P property
The other remaining asset of high value is the Suburb P property. Therefore, by default, it must go to the wife. Both parties however, sought the property’s sale. In the wife’s case the sale was coupled with her retention of the MM Property. She proposed that the net sale proceeds be divided so as to see her receiving 55 per cent of the net assets. She did not propose an order giving her the opportunity to retain the Suburb P property.
The husband’s proposal to sell the Suburb P property is coupled with his proposal to retain the MM Property and to sell the QQ Property and the F Property. The proceeds are to be divided to affect an equal division of the property. The advantage of the sale is that it frees the husband of the obligation to maintain the mortgage over it. Absent a source of income, such as the MM Property, the wife does not have the means to repay or refinance the mortgage.
It follows that the wife will receive the Suburb P property. Whilst the wife proposed orders for its sale, that was on the presumption that she would receive the MM Property. There is no need to make orders for its sale – the wife can do with it what she wishes.
The Suburb P property is encumbered by a mortgage of $2,015,305. The wife will have to take steps to refinance so as to terminate the husband’s liability for it.
The wife will not be receiving an income producing asset and it is likely that she will need to sell the Suburb P property. The mortgage is presently being paid by the husband and it is appropriate for those payments to continue for either for six months, or until the property is sold, or the mortgage is refinanced, or she receives the cash payment from the husband, whichever occurs first.
The Country H properties
The husband will retain the property at O Street, Suburb L in Country H, which is where he lives.
In order to give effect to the equal distribution of property, the wife will receive the remaining properties in Country H.
Add backs
The husband accepts that $193,239 should be added back as legal costs paid from parties’ assets. As to the balance of the husband’s and wife’s costs, it is likely that they have been paid from interim property settlements. The wife has had no other obvious means of paying them. There will be no further add backs.
Interim property settlements
The husband has received $6.4 million in interim property settlements and the wife $5.55 million. An adjustment will therefore be made in favour of the wife for the difference of $850,000.
Wife’s proposal for the husband to assign his interest in funds
The wife sought an order that the husband assign to the wife any interest held by himself and B Pty Ltd as trustee of the D Trust in the funds of the yet to be satisfied judgments owing to them by Mr BA, Ms AW and MS AX, including costs owing from the judgment in the New South Wales Supreme Court and Court of Appeal. The basis for such an order was not explained in submissions. The order appears to be for the benefit of the named persons, who were supported by the wife. I see no reason to make that order.
CONCLUSION
The husband will receive and retain, by reference to the balance sheet:
HUSBAND No. Ownership Description Value ASSETS 3 H Funds held in Controlled Monies Account by TT Lawyers on behalf of the parties as at 23 August 2022 $5,923,586 4 H Loan Account with D Trust $18,376,006 5 H Two watches ($8,000 and $2,000) $10,000 6 H Jewellery, personal effects and clothing $20,000 7 H Household contents at properties in O Street, Suburb L and J City, Country H $50,000 8 H Interim property distributions $4,500,000 10 H Interim property distribution in November 2022 $1,900,000 13 H Cirillo Pty Ltd (No 2) monies owed to Husband - 30 June 2021 balance sheet $23,035 14 H AU Pty Ltd at 30 June 2020 shows an amount due to the husband $97,551 15 H B Properties Pty Ltd as trustee for the D Investment Trust amount due to the husband from 30 June 2021 balance sheet $257,824 16 H AP Pty Ltd amount due to the husband from 2021 balance sheet $4,522 17 H The Cirillo Family Trust No 2 amount due to the husband from 2021 balance sheet $137,931 18 H The D Trust amount due to the husband from 2021 balance sheet $100,000 19 H B Pty Ltd ATF the D Trust
• MM Property and Q Street, Suburb U Sydney NSW - $37,130,000
• PP Property - $12,320,000
• QQ Property - $790,000
• Debt owed to Mr Cirillo by D Trust -$29,429,559 20 H Cirillo Pty Ltd (No 2) (in liquidation) $4,494,804 22 H Properties located at O Street, Suburb L, AA District EUR996,000 $1,434,240 Total $66,759,058 ADD BACKS 27 H Legal costs of these family law proceedings as at 22 August 2022 $193,239 Total $193,239 LIABILITIES 29 H National Bank of Country H Loan (all accounts) as at 28 July 2022 EUR 201,956 $296,994 30 H FY2022 tax (CGT liability on sale of LL Property)
Less: Wife’s share of CGT liability - $1,831,707
Total: $7,755,293$7,755,293
Total $8,052,287 TOTAL $58,900,010
The wife will receive and retain by reference to the balance sheet:
WIFE No. Ownership Description Value ASSETS 1 W RR Street, Suburb P NSW … $43,000,000 2 W Household Contents at RR Street, Suburb P $500,000 9 W Interim property distributions $4,800,000 11 W Interim property distribution in November 2022 $750,000 12 W Watches and jewellery $250,000 21 H Properties located at K City EUR2,307,000 $3,322,080 23 H Properties located at N Street, Suburb L, AA District EUR2,040,000 $2,937,600 24 H Properties located at M Street, Suburb L, AA District EUR2,890,000 $4,161,600 25 H House and land located at JJ Region EUR176,500 $254,160 26 H Apartment located at KK Region EUR35,000 $50,400 Total $60,025,840 ADD BACKS LIABILITIES 28 W Westpac Home Loan secured by mortgage over RR Street, Suburb P $2,015,305 30 W FY2022 tax (Wife’s share CGT liability on sale of LL Property) $1,831,707 Total $3,847,012 TOTAL $56,178,828
Therefore, in order to achieve to an equal division the husband will need to make a further adjusting payment being half of the difference between $56,178,828 and $58,900,010. The difference is $2,721,182 so the further payment required is $1,360,591.
The assets the husband is to receive return an income whereas those received by the wife do not. However, the values given to the income earning assets reflect that reality so no further adjustment is required.
I consider that the above division of property and the orders made to effect it to be just and equitable.
Since the hearing ended on 26 August 2022, the wife has sent 22 emails to my chambers, despite being informed that such communication was not appropriate. I have not read any of them.
I certify that the preceding three hundred and twenty-six (326) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Aldridge. Associate:
Dated: 20 March 2023
- AGLC
- Cirillo & Cirillo (No 7) [2023] FedCFamC1F 163
- Case
- [2023] FedCFamC1F 163
- Decision Date
CaseChat Overview and Summary
The court determined that the property should be divided equally, save for add backs and further adjustments. The court found that the wife was entitled to receive the former matrimonial home and most of the real estate assets overseas, while the husband was entitled to receive the interests in several commercial properties and overseas companies. The court ordered the husband to make a cash payment to the wife to effect the equal distribution of property. The court also made orders regarding the sale of the matrimonial home, the transfer of various properties and assets, and the payment of certain litigation proceeds.
The court found that the wife had sent 22 emails to the court after the hearing ended, despite being informed that such communication was not appropriate. The court noted that it had not read any of the emails. The court made orders for the sale of the matrimonial home, the transfer of various properties and assets, and the payment of certain litigation proceeds. The court also ordered that each party pay one half of all single expert fees.
The court's decision provides guidance on the division of property in a complex family law case involving a large pool of assets. The court's orders ensure that the property is divided equally between the parties, while also taking into account the specific circumstances of the case. The court's decision also highlights the importance of complying with court orders and the potential consequences of failing to do so. Overall, the court's decision provides a clear and just outcome for both parties in this complex family law case.
Orders
Orders of the court
SYC 4192 of 2020
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN:
MS CIRILLO
Applicant
AND:
MR CIRILLO
First Respondent
B PTY LTD
Second Respondent
ORDER MADE BY:
ALDRIDGE J
DATE OF ORDER:
20 MARCH 2023
THE COURT ORDERS THAT:
The Suburb P property
1. Within 90 days from the date of these orders, Ms Cirillo (“the wife”) is to take all steps necessary to refinance or restructure the mortgage held by Westpac Banking Corporation over the property situated at RR Street, Suburb P in the state of New South Wales, being the whole of the land contained in folio identifier … (“the Suburb P property”) so as to remove or discharge any liability of Mr Cirillo (“the husband”) under the mortgage and thereafter to indemnify him against any liability arising under it, except to the extent detailed in Order 7.
2. Upon the wife complying with Order 1, the husband is forthwith to take all necessary steps to transfer his interests in the Suburb P property to the wife.
3. In the event that Order 1 is not complied with (unless otherwise agreed in writing between the parties):
(a) Within a further 14 days, the parties shall do all things and sign all documents necessary to list the Suburb P property for sale by auction and, for that purpose, unless otherwise agreed between the parties in writing, the parties shall:
(i) List the Suburb P property for sale by auction with a reserve price agreed by the parties in writing, 7 days before the auction, or in default of agreement, such amount advised by an independent real estate agent appointed by the President of the Real Estate Institute of New South Wales;
(ii) The agent is to be agreed between the parties in writing and failing agreement, the husband will forthwith in writing nominate three agents from which the wife will, within a further 7 days, select one and failing which the husband will select one who shall be the agent appointed (“the agent”);
(iii) Execute all documents requested by the agent for the sale of the Suburb P property and, in the event that the parties cannot agree on the terms of the agent’s contract, within 7 days of the agent being selected, the parties shall enter into such contract in the agent’s standard terms;
(iv) Give such instructions as are necessary to a legal practitioner to act on the conveyance relating to the sale, with such legal practitioner to be agreed upon by the parties within 7 days of the selection of the agent and failing agreement, the husband will forthwith in writing nominate two solicitors from which the wife will, within a further 7 days, select one and failing which the husband will select one who shall be the legal practitioner appointed (“the legal practitioner”);
(v) Execute the contract for sale and in the event that the husband and the wife fail to agree on the terms of the contract for sale, the terms recommended by the legal practitioner will be adopted;
(vi) Execute all other documents necessary to complete the sale within the time required by the contract for sale to ensure that the purchasers do not have a right to terminate or rescind due to failure to do so; and
(vii) operate in every way with the agent in relation to the sale of the property at all times requested by the agent including (without limiting the generality of the foregoing):
A. making the key available to the agent;
B. allowing inspection of the Suburb P property at all reasonable times requested by the agent;
C. not doing or saying anything to hinder or prevent a sale being effected;
D. ensuring the Suburb P property including the grounds are in a neat and clean condition at the time of inspection by the agent and prospective purchasers; and
E. signing all documents requested by the agent in relation to the listing for sale of the Suburb P property except a contract or agreement for sale which has not been authorised by the parties’ solicitors.
4. On settlement of the sale of the Suburb P property, the parties shall forthwith do all things and sign all documents necessary to distribute the proceeds of sale of the Suburb P property in the following manner and priority:
(a) In payment of the agent’s commission, marketing and advertising costs, auctioneer’s fees and any other expense properly incurred in respect of the sale of the Suburb P property;
(b) In payment of the conveyancing costs of sale;
(c) In payment to the supplier of any unpaid costs of preparation of the Suburb P property for sale, where such costs have been agreed to in writing between the parties;
(d) In payment of any amount outstanding to any water authority or local council in respect of the Suburb P property not otherwise taken up as a credit in favour of the vendor;
(e) In payment of any amount required to effect a discharge of the Suburb P mortgage;
(f) In payment of such sums as may be required to satisfy the caveatable interests registered against title to:
(i) E Trust Ltd as regards the interest of the husband (bearing dealing number …);
(ii) The partners comprising NN Lawyers as regards the interest of the wife (bearing dealing number …); and
(iii) OO Pty Ltd as regards the interest of the wife (bearing dealing number …);
(g) The balance then remaining to be paid to the wife.
5. Pending settlement of the sale of the Suburb P property:
(a) the parties are restrained from further encumbering the Suburb P property or drawing down on any loan facility secured by mortgage against the title to the property unless otherwise agreed between the parties in writing and
(b) the wife shall have sole occupancy of the Suburb P property to the exclusion of the husband.
6. If the property does not sell at the auction, then the property is to be re-auctioned within a further 6 weeks, in the same way as prescribed by Orders 3, 4 and 5, save that no reserve price is to be set (Order 3(a)(i)) and the same agent is to be used (Order 3(a)(ii)).
7. The husband is to continue paying the outgoings on the Suburb P property which he has been paying, including the mortgage, until one of the following occurs:
(a) The mortgage is refinanced (per Order 1);
(b) The Suburb P property is sold;
(c) The husband pays the sum set out in Order 12; or
(d) Six months from the date of these orders.
Transfer of wife’s interest (if any) in entities comprising the Cirillo Group
8. Within 42 days from the date of these orders, the wife will do all acts and things necessary, including signing all documents presented to her by the husband or his nominee and provide all necessary consents, authorities and instructions as may be required and the husband will do all other things necessary to cause the following to occur simultaneously and at the husband’s cost in relation to the D Trust, the D Investment Trust; and the Cirillo Family Trust (No 2) (hereinafter referred to as “the Trusts”):
(a) To the extent necessary, the wife to resign as a director of the trustees of the Trusts and those entities listed at Order 16 and transfer to the husband any shares she may hold in those trustees and the entities listed at Order 16;
(b) The wife to resign and remove herself from the position as beneficiary in relation to the Trusts;
(c) The husband will amend the Trust Deed (if required) to remove the wife as a beneficiary of the Trusts;
(d) Assigning by the wife to the husband and/or his nominee all credit loan accounts and/or unpaid entitlements standing in the wife’s name and the parties’ names jointly in the Trusts (if any);
(e) The husband shall retain to the exclusion of the wife any unpaid entitlements due by the Trusts.
9. Within 42 days of the date of these orders, the wife will do all acts and things necessary, including signing all documents presented to her by the husband or his nominee and provide all necessary consents, authorities and instructions as may be required and the husband will do all other things necessary to transfer from the wife to the husband all the wife’s shares in Cirillo Pty Ltd (No 2) at the husband’s cost.
Transfer of Country H properties
10. Within 42 days of the date of these orders:
(a) The husband shall sign all documents and do all things necessary so as to cause the transfer the whole of his right, title and interest in the following properties, free of any mortgage or liability, howsoever arising, to the sole name of the wife and at the husband’s cost:
(i) The properties located at K City, Country H;
(ii) The properties located at N Street, Suburb L, AA District, Country H;
(iii) The properties located at M Street, Suburb L, AA District, Country H;
(iv) House and land located at JJ Region and
(v) Apartment located at KK Region.
Transfer of Motor Vehicle 2
11. Within 7 days of the date of these orders the husband shall, in his capacity as director, cause B Pty Ltd to transfer to the wife, at the husband’s cost, the Motor Vehicle 2, and indemnify her in respect of any tax liability, including income tax and stamp duty, arising as a result of the transfer.
The property adjustment payment
12. Within 42 days of the date of these orders, the husband is to pay to the wife the sum of $1,360,591.
Country H litigation
13. In respect of any award for damages, compensation or proceeds from the litigation in Country H involving Y Business regarding the property ownership of the property in “Z Area” in X Town, including but not limited to the following cases:
(a) Supreme Court case against the Country H State, the X Town and the decision No. … of the three-member Court of Appeal of the Y Business;
(b) Lawsuit for damages dating 2003 (serial filing number …) against the X Town for a total amount of 20,264,122.60 in Country H currency,
in Y Business’ favour, an amount equal to 45 per cent be paid by the husband to the wife within 45 days of receipt of the award for damages, compensation or proceeds from the litigation.
General orders
14. Each party shall pay one half of all single expert fees.
15. As between the parties and subject to these orders, the husband is hereby declared to be solely entitled to the following:
(a) All bank accounts held in the sole name of the husband;
(b) The husband’s interest in the Cirillo Group (being the entities in which the husband has an interest, including but not limited to those entities listed at Order 16);
(c) The husband’s interest in the property at O Street, Suburb L in Country H;
(d) The husband’s shares (held in the husband’s Commsec Portfolio Account No. …84);
(e) The husband’s motor vehicles;
(f) Items of personalty held by the husband at O Street, Suburb L in Country H;
(g) All other property of whatsoever nature and kind in the possession of the husband at the date of these orders.
16. The husband, as between the husband and the wife shall be solely liable for all other debts, mortgages, financial facilities, and charges that he owes or is owed by any business entity to which he has an interest in, including but not limited to:
(a) Cirillo Pty Ltd;
(b) AL Pty Limited (Country H);
(c) V Company (Country AN);
(d) AM Investments Pty Ltd;
(e) Cirillo Pty Ltd (No 2);
(f) AO Pty Ltd;
(g) AP Pty Ltd;
(h) F Pty Ltd;
(i) B Properties Pty Ltd;
(j) B Pty Ltd;
(k) AQ Pty Ltd;
(l) AR Pty Ltd;
(m) QQ Property;
(n) AS1 Pty Ltd;
(o) B Finance Pty Ltd;
(p) Cirillo Pty Ltd (No 3);
(q) AT Pty Ltd;
(r) Cirillo Pty Ltd (No 4);
(s) AU Pty Ltd; and
(t) C Pty Ltd,
and shall indemnify the wife in respect of the same; and
17. As between the parties and subject to these orders, the wife is hereby declared to be solely entitled to the following:
(a) all bank accounts held in the sole name of the wife;
(b) the wife’s jewellery;
(c) consequent upon compliance by the parties with these orders, the wife’s interest in the following properties:
(i) The properties located at K City, Country H;
(ii) The properties located at N Street, Suburb L, AA District, Country H;
(iii) The properties located at M Street, Suburb L, AA District, Country H;
(iv) House and land located at JJ Region and
(v) Apartment located at KK Region.
(d) all other property of whatsoever nature and kind in the possession of the wife at the date of these orders, including all items of personalty in the Suburb P property and the properties listed in Orders 17(c)(i) to 17(c)(v) above.
18. As between the husband and wife, and subject to the above orders the husband and wife shall each respectively retain all interest in and entitlement to:
(a) all personal property now in his/her respective possession or control;
(b) all shares, debentures, units in unit trusts, bank, building society or credit union accounts standing in his/her sole name respectively;
(c) all interests in life insurance policies and superannuation funds standing in his/her sole name respectively.
19. Each party shall do all things necessary including providing all consents to give effect to these orders in the time periods prescribed in these orders.
20. In the event either party refuses or neglects to execute any deed, document or instrument necessary to give effect to all or any of these orders, then the registrar of the Court shall be appointed pursuant to s 106A of the Family Law Act 1975 (Cth) to execute such deed, document or instrument in the name of the said party and do all acts and things necessary to give validity and operation to the deed, document or instrument upon the registrar being provided with verification of such refusal or failure by way of affidavit.
21. All extant applications are 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.
Background
Background to the litigation
Evidence
Evidence Before The Court
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Decision
Reasons for decision
Ratio Decidendi
Legal Principle Established
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