COLES & COLES
[2021] FamCA 144
•22 March 2021
FAMILY COURT OF AUSTRALIA
| COLES & COLES | [2021] FamCA 144 |
| FAMILY LAW – ALTERATION OF PROPERTY INTERESTS – three day trial consumed largely by settlement negotiations – parties announce a resolution at the end of the second day of the trial – on the morning of the third day the parties announce the case is not resolved – applicant applying to amend – applicant seeking time to adduce further evidence to support amendment application – directions given. |
| Australian Securities and Investments Commission Act 2001 (Cth) Family Law Act 1975 (Cth), s 117 |
| Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 D. Hayton, P. Matthews & C. Mitchell, Underhill and Hayton: Law of Trusts and Trustees (LexisNexis, 19th ed, 2016) |
| APPLICANT: | Ms Coles |
| RESPONDENT: | Mr Coles |
| FILE NUMBER: | SYC | 5785 | of | 2018 |
| DIRECTIONS MADE: | 19 March 2021 |
| REASONS GIVEN: | 22 March 2021 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Wilson J |
| HEARING DATE: | 17, 18 & 19 March 2021 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr L. O’Reilly |
| SOLICITOR FOR THE APPLICANT: | Jo-Anna F S Moy Solicitor |
| COUNSEL FOR THE RESPONDENT: | Mr P. Batey |
| SOLICITOR FOR THE RESPONDENT: | ATW Family Law |
Orders
Leave is granted to the parties to file and serve any further subpoenae on or before 4:00pm on 26 March 2021 and the inspection of documentation produced in response thereto must be completed by 4:00pm on 30 April 2021.
On or before 4:00pm on Friday 14 May 2021 the applicant must file and serve any further affidavit material on which she wishes to rely.
On or before 4:00pm on Friday 28 May 2021 the respondent must file and serve any further affidavit material on which he wishes to rely in reply.
On or before 4:00pm on Monday 7 June 2021 the applicant must file and serve written submissions.
On or before 4:00pm on Thursday 17 June 2021 the applicant must file and serve written submissions.
The further hearing of this proceeding is adjourned to 10:00am on Thursday 24 June 2021 for an interim defended hearing.
Leave is granted to either party to relist this proceeding before me on seven days’ notice in respect of any variation to the orders of Henderson J made on 6 June 2019.
I reserve costs thrown away by reason of the amendment application on 24 June 2021.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Coles & Coles has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 5785 of 2018
| Ms Coles |
Applicant
And
| Mr Coles |
Respondent
REASONS FOR JUDGMENT
These are my reasons for making the directions I made on 19 March 2021 in relation to the amendments proposed on the third day of the trial of this proceeding.
After a marriage of approximately 25 years, the parties’ property alteration application is part heard before me, 19 March 2021 being the third of the three days allocated for the trial. Two of the three days were consumed with extensive negotiations between the parties, assisted by counsel and their instructors. The case has not proceeded beyond the applicant’s opening and each party pressing for certain rulings as to the admissibility of evidentiary material from affidavits filed by the parties or on their behalves.
At a time nearing 6pm on the second day of the trial, most of which had been spent by the parties in negotiations, both counsel announced that the case had resolved in principle and that the applicant required overnight to examine the suite of documents that had been produced by way of progression of the settlement discussions. I adjourned the further hearing of the trial to the third day at the request of the applicant who, I was told, felt exhausted with the negotiations. She requested overnight to review the settlement documentation and to do so in an environment that was calm and unhurried. I warned the parties that a risk existed that negotiations could come undone if the time sought was granted. Both counsel assured me that it was unlikely that any retreat in positions would emerge. I listed the resumption of the trial for 11am on 19 March 2021, again at counsels’ request, expecting to receive submissions about the justice and equity of the resolution reached.
That was the night of the second day.
At 11am on the third day the case was called on for hearing at which time counsel for the applicant produced documents, but not terms of settlement. Instead he produced a proposed amendment to the initiating application. It contained several proposed amendments. The relevant proposed amendments are underlined and were as follows –
1.That leave be granted to the Wife to amend the final Orders sought by her.
2.That the wife receive by way of order for final adjustment of property interests between the parties 60% of the net asset pool.
3.That within 42 days of the date of these Orders, the Wife shall pay to the Husband such sum as to give effect to these Orders such that the Husband will receive/retain 40% of the net asset pool.
4.If the Wife is unable to comply with Order 2 herein, the husband and the wife forthwith do all acts and things and execute all documents and writings necessary to cause the property known as H Street Suburb J [the Suburb J property] in the State of New South Wales to be sold by public auction.
5.On settlement of the sale of the Suburb J property the husband and the wife shall do all acts and things and execute all documents and writings necessary to cause the proceeds of sale to be paid in the following manner and priority:
a.amount owing under the Mortgage to the Commonwealth Bank of Australia;
b. agent's commission and costs;
c. legal costs and disbursements on sale;
d. municipal rates and other charges in respect of the property;
e.funds equivalent to 60% of the value of the net asset pool to the wife;
f. the balance to the husband.
6.That within 14 days from the date of these Orders the husband transfer to the wife the whole of his right, title and interest in motor vehicle 1 registered number ... .
7.The husband otherwise retain as against the wife all his right title and interest in the following assets:
a. His interest in the E Partnership;
b. The Coles E Trust;
c. L Pty Limited;
d. Husband's M Bank Accounts ending in …36;
e. CBA bank account The Coles E Trust;
f. CBA account …76;
g. Husband's commsec account ending in …76;
h. Husband's share portfolio;
i. Motor cycle 1;
j. Contents in the husband's possession;
k. Husband's superannuation entitlements once known;
l. The husband's Country G pension entitlements.
8.The wife otherwise retain as against the husband all his right title and interest in the following assets;
a. Wife's CBA account ending in …55 and …87;
b. 637 N Company shares;
c. Contents in the wife's possession.
9.The parties will indemnify each other in respect of all liabilities standing to the credit of the other party and shall remain liable of all liabilities in their own names as at the date of the orders.
Spousal maintenance
10.That the husband pay to the wife the amount of $4,094.00 on the first day of every month commencing on the first day of the month immediately following the date of these Orders and ceasing on 1 December 2022 by way of spousal maintenance noting that the date X finishes school will be 1 December 2022.
11.In the alternative to Order to order 9 that in accordance with Part VIII of the Family Law Act the respondent pay the amount of $118,096.00 to the Applicant by way of lump sum payment of spousal maintenance.
Child Support Departure
12.That pending further order in addition to periodic child support, the husband pay to the wife or the wife's nominee, non-periodic child support in the form of school fees and associated expenses for the support, education, advancement and benefit of the child, X, born in 2004 as follows:
a.100% of private school tuition and charges for the child at P School, Suburb Q;
b. Text books;
c. School uniforms, including clothing and footwear;
d. Excursions and school camps;
e.Gap medical expenses for the child X and in particular all psychologist and psychiatrist expenses;
f.All extra-curricular expenses including the necessary cost of equipment to participate in the sport or extra-curricular activity;
g. Schoolies week.
13.That the payments of non-periodic child support will not reduce the amount payable under the administrative assessment of child support from time to time.
14.In the alternative to order 11 above the husband pay pursuant to section 123 of the Child Support (Assessment) Act 1989 the sum of $184,000 by way of lump sum or non- periodic child support in lieu of his obligations to pay periodic child support.
Listing of the E Partnership
15.That in the event that the E Partnership proceeds to be listed on the Australian Stock Exchange and the husband or any entity which the husband controls or has an interest in, including but not limited to L Pty Limited and or The Coles E Trust, is issued shares in the publicly listed company, then the husband shall within 28 days of receipt of the shares, transfer to the wife 50% of those shares.
16.In the event that husband's shareholding is unable to be transferred to the wife pursuant to order a) (sic) above, then the husband hold one half of those shares on trust for the wife until such time as the shareholding can be transferred.
17.The husband be restrained by way of injunction from encumbering the shares he is to hold on trust for the wife.
18.The husband shall provide to the wife confirmation of any shares he receives within 14 days of receiving such confirmation.
The proposed amendments that provoked most agitation related to the new paragraphs 15 and following. They were set against a very specific factual background which necessarily must be recorded. To that I now turn.
In this litigation the respondent is a senior partner of a major national law firm.
The legal relationship between the respondent and his partners in the subject law firm is governed by the terms of a partnership deed dated May 2016. The 2016 deed was an update and variation to the Partnership Deed dated 9 October 2005.[1]
[1] Clause 2.1 of the partnership deed.
The partnership deed differentiates between “partners” on the one hand and “capital partners” on the other hand.[2] The term “partnership” is defined to mean the partnership of capital partners and fixed draw partners conducting the practice known as “E Company” and “partner” means any one of them.
[2] The partnership deed also incorporates defined terms including “executive partner”, “chairman of capital partners”, “disabled capital partner”, “fixed draw partners” and “managing partner”.
Fixed draw partners are defined to be partners appointed by the managing partner who do not contribute capital and are not eligible to vote on partnership resolutions. They have a fixed draw of profits as determined by the managing partner.
During the year 2020 E Company actively pursued an initial public offering (“IPO”) by listing on the Australian Stock Exchange (“ASX”). The anticipated listing date was the first half of the financial year ended 30 June 2021. According to a memorandum addressed to whom it may concern dated 19 January 2021, the terms pursuant to which the IPO was to be listed were unacceptable so the IPO was terminated.
The husband explained how the E Partnership operated. The husband exhibited a letter addressed to whom it may concern dated 10 February 2021. That letter was from the accountants and tax agents of E Company. Lengthy as the quoted portion that follows may be, it is important to set it out in full –
We act as Accountants and Tax Agents for E Company (ABN …). E Company is a Partnership of special purpose Discretionary Trusts of which the associated individual holding the positional title of "Partner" at E Company is the Trustee.
The Partnership has two classes of Partners, Fixed Draw and Capital Partners. Fixed Draw Partners negotiate their financial arrangements with the Partnership Executive on an annual basis.
Capital Partners have their performance assessed by the Partnership Executive biannually against established KPI’s and based on this assessment, are allocated a certain number of Calibration Points. Each Capital Partners proportionate share of Calibration Points determines their entitlement to Partnership profit allocations in the following six months. Cash drawings are paid to Capital Partners periodically based on profitability entitlements and drawings strategies in place at any particular time.
When admitted as a Capital Partner, Partners are required to fund a contribution to working capital determined by reference to their calibration points. Funding of the capital contribution is obtained through either a Westpac or ANZ facility which is managed by the Partnership. Each Partner is liable for their respective contribution.
On exit from E COMPANY, Capital Partners receive repayment of their working capital contribution which is then repaid to either Westpac or ANZ and any allocated profit entitlements that, as at the date of their exit, remains unpaid as drawings.
In accordance with the Partnership Agreement, Capital Partners do not acquire a financial ownership interest in E COMPANY when they are admitted as a Capital Partner, nor do they receive any form of payment upon their exit from E COMPANY. The ATO have previously accepted that no Capital Gains Tax outcomes arise for Capital Partners on their entry to or exit from the Partnership. From a commercial perspective E COMPANY can be appropriately described as a "Non-Goodwill Partnership".
Unlike certain law firms the membership of which is made up of natural persons who are admitted solicitors, the E Partnership was said to be made up of special purpose discretionary trusts of which the associated individual holding the positional title of “partner” at E Company was the trustee.
Needless to say, a trust is not a legal entity.[3] It may well be more a colloquialism than an expression of legal precision that the accountants state that the firm E Company is “a partnership of special purpose discretionary trusts”.
[3] Sturt v Mellish [1743] 26 ER 765, Burges v Wheate Attorney-General v Wheater [1757] 28 ER 652, Wilson v Lord Bury (1880) 5 QBD 518, In Re Williams, Williams v Williams [1897] 2 Ch 12, Registrar of Accident Compensation Tribunal v Commissioner of Taxation (1993) 178 CLR 145, Minister for Immigration and Citizenship v Hart (2009) 179 FCR 212, Hancock v Rinehart (2015) 106 ACSR 207, Salvation Army (New South Wales) Property Trust v Chief Commissioner of State Revenue (2018) 96 NSWLR 119, Carter Holt Harvey Woodproducts Australia Pty Ltd v Commonwealth (2019) 93 ALJR 807, D. Hayton, P. Matthews & C. Mitchell, Underhill and Hayton: Law of Trusts and Trustees (LexisNexis, 19th ed, 2016) and The Honourable J. D. Heydon AC QC & The Honourable Justice M. J. Leeming, Jacobs' Law of Trusts in Australia (LexisNexis, 8th ed, 2016).
The wife deposed to her ascertaining that the IPO was not proceeding so she sought to value the husband’s partnership interest using Mr R as the valuer. Throughout, the husband has maintained that –
a)had the IPO proceeded, the value of the husband’s interest would have been determined by the market; and
b)given that the IPO did not proceed, the husband’s interest in the partnership has no value apart from his capital account.
So far as his entitlements as a capital partner were concerned, the husband explained them in detail. He said the following –
13.As a Capital Partner, I am entitled to receive regular Drawings by way of income pursuant Clause 7 .1 of the Partnership Deed which provides that a Capital Partner will be entitled to that proportion of net profits of E COMPANY (Calibration Points) determined by the Capital Partners from time to time and Clause 8.1 of the Partnership Deed which provides that a Capital Partner is entitled to draw an amount on account of net profits for the current Accounting Period an amount determined by reference to its Calibration Points. If the actual drawings in any pay period is less than the share of net profit to which the Capital Partner is entitled, that excess is credited to that Capital Partner's Current Account. Conversely, if the actual drawings in any pay period is more that the share of net profit to which the Capital Partner is entitled, that shortfall will be debited to that Capital Partner's Current Account. Accordingly, the Current Account balance can go up and down. I must pay tax on any amount credited to my Current Account even though I do not receive this amount by way of Drawings. From time to time, as determined by the Managing Partner, Capital Partners may be entitled to a special draw from the Current Account. My Current Account represents my undrawn net profits.
Returning to the proposed amendment, Mr O’Reilly pressed forcefully, based naturally on full instructions, that his client believed that the IPO, previously terminated, was likely to be resurrected. I asked on what information that was based. Mr O’Reilly said material that his client intended to subpoena would make good that point. Mr O’Reilly then told me that if the evidence his client believed existed in fact supported the contentions she pressed, Mr O’Reilly sought orders proposed in paragraphs 15 and following. In essence, he contended that any such shares to the husband issued in pursuance of a revised IPO should be impressed with a constructive trust.
That submission piqued my interest in the jurisprudence on constructive trusts based on the current state of learning. I handed to Mr O’Reilly a list of what I perceived to be important decisions on constructive trusts.[4]
[4] Muschinski v Dodds (1985) 160 CLR 583, Cooke v Cooke [1987] VR 625, Higgins v Wingfield [1987] VR 689, Baumgartner v Baumgartner (1987) 164 CLR 137, Rasmussen v Rasmussen [1995] 1 VR 613, Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566, Giumelli v Giumelli (1999) 196 CLR 101, Tanwar Enterprises Pty Ltd v Cauchi (2003) 217 CLR 315, Farah Constructions Pty Ltd v Say-Dee Pty Ltd (2007) 230 CLR 89, John Alexander's Clubs Pty Ltd v White City Tennis Club Ltd (2010) 241 CLR 1, Kakavas v Crown Melbourne Ltd (2013) 250 CLR 392, McNab v Graham [2017] VSCA 352, ASIC v Kobelt (2019) 267 CLR 1 and Khalif & Khalif [2020] FamCA 39.
Quite frankly and honestly, Mr O’Reilly submitted he was not conversant with those authorities and needed time to examine them. That request was understandable.
Mr O’Reilly said his client may also contend that a resulting trust arose. I handed to Mr O’Reilly my decision in Chen & Chen (No 3)[5] where I surveyed the learning on resulting trusts. I told Mr O’Reilly that he was not required to make submissions on the spot on his contentions of either the constructive trust or the resulting trust and that the applicant probably needed to formulate her contentions on point after examining the documentation produced in answer to subpoenae.
[5] [2020] FamCA 744.
Mr Batey submitted that no purpose would be served in allowing the amendment because the only IPO in existence had been terminated and no information currently existed to show any other was planned. He submitted that in any event, the ASX and the Australian Securities and Investments Commission Act do not permit an order to be made in the terms sought by the applicant.
Mr Batey pointed out that Mr R’s affidavit made no mention of any valuation of the respondent’s interest based on an IPO, whether past or proposed. Mr Batey was correct on that point.
It was apparent to me that the true positions of the parties in relation to the IPO had not been fully factually exposed by the third day of the trial.
That led to a consideration of the practical consequences of the course proposed by Mr O’Reilly. In essence it involved –
a)allowing the wife to issue subpoenae to the husband’s firm compelling production of all documentation evidencing any existing proposal by members of the respondent’s firm to engage in any future IPO;
b)allowing the applicant to adduce such further evidence as she may be advised about her version of the evidence in relation to any future IPO;
c)allowing the respondent to adduce evidence in opposition to the applicant’s evidence mentioned immediately above;
d)allowing the applicant to file submissions, especially in relation to her trust contentions;
e)allowing the respondent to file submissions in response; and
f)fixing a one-day hearing to ventilate the leave to amend application.
It struck me that it was premature to express a view about whether the proposed amendment had no prospects of success and therefore should be refused. That could only be determined on the evidence and such evidence especially in relation to any future IPO was not before me. It also struck me that the considerations which were pivotal in Aon Risk Services Australia Ltd v Australian National University[6] may not apply as the third day of the part heard trial was the end of the allocated period in this tranche of dates and a new collection of dates would need to be found in order to resume the trial part heard.
[6] (2009) 239 CLR 175.
I canvassed with counsel a proposed way forward. It was in the following terms –
1.Leave is granted to the parties to file and serve any further subpoenae on or before 4:00pm on 26 March 2021 and the inspection of documentation produced in response thereto must be completed by 4:00pm on 30 April 2021.
2.On or before 4:00pm on Friday 14 May 2021 the applicant must file and serve any further affidavit material on which she wishes to rely.
3.On or before 4:00pm on Friday 28 May 2021 the respondent must file and serve any further affidavit material on which he wishes to rely in reply.
4.On or before 4:00pm on Monday 7 June 2021 the applicant must file and serve written submissions.
5.On or before 4:00pm on Thursday 17 June 2021 the applicant must file and serve written submissions.
6.The further hearing of this proceeding is adjourned to 10:00am on Thursday 24 June 2021 for an interim defended hearing.
7.Leave is granted to either party to relist this proceeding before me on 7 days’ notice in respect of any variation to the orders of Henderson J made on 6 June 2019.
Mr Batey recognised that the applicant should have an opportunity to support her amendments, as proposed, and that a ruling on the proposed amendments needed to await further evidence, submissions and a further interim hearing on the amendment application.
Mr Batey informed me that the price for the indulgence sought by the applicant was a costs order. He said the respondent was required to meet ongoing monthly mortgage instalments for so long as this trial continued and the litigation was unresolved or undetermined. Mr Batey said the applicant should meet the costs of and incidental to the second and third days of the trial.
Mr O’Reilly did not address the merits of a costs order being made against his client but rather her inability to meet one if a costs order were made. I accept that the parties have an enormous income discrepancy. However, in and of itself that is not a reason for not making a costs orders. As Fitzgerald v Fish[7] held, one only of the elements of s 117(2A) is sufficient to underpin a costs order under s 117(2).
[7] (2005) 33 Fam LR 123.
I propose to reserve costs thrown away by reason of the amendment application on 24 June 2021.
For those reasons I make the orders set out in the earlier passages of these reasons.
I certify that the preceding thirty-one (31) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Wilson delivered on 22 March 2021.
Associate:
Date: 22 March 2021
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