D'Cruz & Pierce
[2008] FamCA 819
•19 September 2008
FAMILY COURT OF AUSTRALIA
| D’CRUZ & PIERCE AND ORS | [2008] FamCA 819 |
| PROPERTY SETTLEMENT - Determination of pool of assets - Transaction to defeat claims - Assessment of whether the orders sought by the wife were anticipated in consideration of its magnitude and the length of time which has elapsed between the relevant disposition and the proceedings - Whether instrument a sham - Independence of a trustee - Effect of the rule in Browne v Dunn (1893) 6 R 67 when issues are clearly in dispute - Affording natural justice, when orders are sought against an entity who is not a party to proceedings, but whose sole shareholder and director is a party to proceedings - Family Law Act 1975 (Cth), s 106B |
| Family Law Act 1975 (Cth) |
| ANZ Banking Group and Harper (1988) FLC 91-938 Balnaves v Balnaves (1988) FLC 91-952 Halabi & Artillaga (1994) FLC 92-470 Sharrment Pty Ltd & Ors v The Official Trustee in Bankruptcy (1988) 18 FCR 449 Raftland Pty Ltd v Federal Commissioner of Taxation (2008) 82 ALJR 934 Browne & Dunn (1893) 6 R 67 Seymour v The Australian Broadcasting Commission [1977] 19 NSWLR 219 Stern v National Australia Bank (2000) 171 ALR 192 Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 Whitaker & Whitaker (1980) FLC 90-813 Pflugradt & Pflugradt (1981) FLC 91-052 Ivanovic & Ivanovic (2000) FLC 93-003 Johnson & Johnson (2000) FLC 93-008 K & K [2001] FMCA Fam 237 S & M & Ors [2003] FamCA 1387 |
| APPLICANT: | Ms D’Cruz |
| 1st RESPONDENT: | Mr M Pierce |
| 2nd RESPONDENT: | Mr C Pierce |
| 5th RESPONDENT: | Mr T |
| FILE NUMBER: | MLF | 3135 | of | 2004 |
| DATE DELIVERED: | 19 September 2008 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Dessau J |
| HEARING DATE: | 16 May, 19-23 May, 26-29 May 2008 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Brown SC with Mr Dickson |
| SOLICITOR FOR THE APPLICANT: | Kennedy Wisewoulds |
| COUNSEL FOR THE RESPONDENT: | Mr Lethbridge SC with Mr O'Shannassy |
| SOLICITOR FOR THE RESPONDENT: | Griffin Sweeney |
Orders
That all existing applications shall be adjourned for mention before me at 10.00am on 29 October 2008 to consider the orders to be made arising from my reasons for judgment delivered on 19 September 2008.
IT IS NOTED that publication of this judgment under the pseudonym D’Cruz & Pierce is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLF 3135 of 2004
| MS D’CRUZ |
Applicant
And
| MR M PIERCE |
Respondent
| MR C PIERCE |
2nd Respondent
| MR T |
5th Respondent
REASONS FOR JUDGMENT
TABLE OF CONTENTS
A. Introduction………………………………………………………….
B. The parties’ backgrounds…………………………………………...
C. The business background
C.1 The husband’s work from 1989 to June 1995
C.2 The JC partnership June to October 1995.
C.3 Late 1995 until the sale to ARC in around December 1996…..…...
C.4 The events triggered by ARC’s September 1997 announcement to demutualise……………………………………………………...
C.5 The Supreme Court litigation from mid-2000 to late 2002
C.6 The 2004 to 2006 transactions
D. The questions
D.1 Whether there were agreements between the husband and C Pierce in March or June 1996 by which C Pierce became a beneficial owner of a one half interest in the business?....................
D.1(a) C Pierce’s financial contributions to and role in the business……………………………………………………
C Pierce’s financial contributions to the business..
C Pierce’s role in the business
D.1(b) Various documents including the 14 June, 5 July and 12 July 1996 documents………………….
D.1(c) When the M Pierce Trust was established?
D.1(d) How monies were distributed
D.2 Assuming there was a 50/50 agreement in either March or June 1996 between the husband and C Pierce, was there subsequently an agreement to the effect that the husband would take his share of the sale of the business by taking the first $6 million and C Pierce the balance?.............................................................................................
D.2(a) Were the monies distributed according to the purported agreement?...........................................................................
D.3 Whether at the time of each of the transactions now sought to be set aside in the wife’s amended application the wife’s property claim in these proceedings was reasonably foreseeable and whether each transaction:
(i) Was intended to defeat that claim; or
(ii) Regardless of intention, defeated that claim?............................
D.3(a) The state of the marriage……………………………
D.3(b) What was/was not conveyed by the husband to the wife ....
D.3(c) The nature of the instructions given and legal advice obtained from time to time and on whose behalf it was obtained……………………………………………...........
D.3(d) The time at which relevant legal advice was sought...........
D.3(e) How money was distributed following transactions……..
D.4 In relation to Mr T:
D.4(a) Whether he was truly independent of the parties?.............
D.4(b) Was he reasonably entitled to believe that the husband and C Pierce jointly owned the business (whether that be true or not)?....................................................................................
E. Conclusion
E.1 The 50/50 Agreement
E.2 The s 106B applications…………………………..........................
F.Orders…………………………………..……………………….
Annexure A – Documents relied upon.………………………………
Annexure B – Common to all parties chart of entities……………...
A. INTRODUCTION
Mr M Pierce, the husband, and Ms D'Cruz, the wife, cannot agree on a property settlement after a 15-year relationship. This part of the case is about what should be included in the pool of assets.
The wife wants declarations, or alternatively the setting aside of various transactions, as a result of which the pool would be very substantial (on her case, up to around $26 million). The husband and his father, the second respondent C Pierce, vigorously oppose the wife’s case. On their case, the pool of assets is around $6 million.
In short summary, the wife’s case is that, against the backdrop of an often unhappy marriage, with a short separation as early as 1995, various business transactions either did not genuinely occur, or were carried out by the husband and/or his father C Pierce to defeat an anticipated order in these proceedings, or were likely to defeat such an order, by directing significant assets to C Pierce, and removing them from the Court’s jurisdiction.
The husband and C Pierce argue that at relevant times they had reached a genuine agreement to run a business as equal owners. It is their case that all the transactions referred to by the wife were legitimate business transactions, at times when the wife’s application for orders in these proceedings could not have been anticipated, and with no intent or effect of defeating the orders.
If I accept the husband and C Pierce’s case, the pool could be sufficiently certain for me to then hear the case to conclusion. If I am satisfied on the wife’s case, further material would be required before the property case could be concluded. The setting aside of complicated corporate and trust transactions would most likely have profound tax consequences. Until those consequences could be explored, quantification of the pool would not be possible.
The lack of certainty surrounding potential taxation was compounded by the service on the husband and C Pierce of the Crimes Act1914 (Cth) search warrants, resulting in the seizure of numerous documents, just days before the trial started. That raised the spectre that the men could face criminal charges, one of the upshots of which could be significant taxation penalties.
The search warrants alleged reasonable grounds for suspecting offences against the Criminal Code Act1995 (Cth), of conspiracy between the husband, C Pierce, Mr A and others to defraud the ATO between May 2001 and May 2008, and that between January 2003 and May 2008 they conspired to deal with $1 million or more, intending that money to become an instrument of crime.
The fifth respondent is a solicitor, Mr T, from the firm of …. He is the appointor of the M Pierce Trust, and the sole director and shareholder of a company which is presently the trustee of the trust. He was also a director of a company D Nominees Pty Ltd which was integrally involved in some of the controversial transactions. The wife’s case is that Mr T has not acted independently of the husband and/or C Pierce. He denies that. He claims to be independent, and acting in good faith in the proper administration of the trust. He seeks an order for the wife’s application to be dismissed so far as it relates to him, and for such orders in relation to the administration of the trust as the Court considers appropriate.
The other three corporate respondents have not participated in the proceedings.
This case has a long litigation history with many interlocutory applications and hearings. This part of the hearing took ten days. The material is voluminous. The issues are complex. Early in the hearing, a useful set of questions was arrived at, as a framework for the findings that I need to make. They are set out below. Before I turn to them, I will summarise the parties’ backgrounds, and the relevant business background.
The documents relied upon by each party are set out in Annexure “A” to these reasons for judgment.
B. THE PARTIES’ BACKGROUNDS
The husband, M Pierce, is aged 47. He currently works as a consultant. The wife, Ms D’Cruz is aged 48. She has a PhD in the sciences but since 1996 has mainly been engaged in home duties.
The husband and wife started to live together in November 1989 and married in May 1993. They separated finally in December 2004. Before then, they lived apart for two weeks in November 1995, six weeks in around April 1999, 10 months in 2002, and under the one roof from February to December 2004. The circumstances of those periods apart shall be considered below. They divorced in March 2006.
L, now 14, was born in November 1993. N was born in April 1997. She is aged 11. Both children attend Y College. Pursuant to final parenting orders, they spend about five nights per fortnight and half school holidays with their father, and the balance with their mother.
C Pierce is aged 71, and is now retired. He lives with his wife. Until 1992 he was a teacher. His career and skills are issues in this case, so I shall consider them further below.
C. THE BUSINESS BACKGROUND
The relevant commercial events, though complex, took place in a relatively short span of time. What follows is just an overview. I shall deal with the detail, as relevant, below.
For convenience, I have divided the overview as follows:
C.1 The husband’s work from 1989 to June 1995.
C.2 The JC partnership June to October 1995.
C.3 Late 1995 until the sale to ARC in around December 1996.
C.4The events triggered by ARC’s September 1997 announcement to demutualise.
C.5 The Supreme Court litigation from mid-2000 until late 2002.
C.6 The 2004 to 2006 transactions.
Also for convenience, I have attached the common to all parties chart of entities at Annexure “B”.
C.1 The husband’s work from 1989 to June 1995
When the parties started their relationship in August 1989, the husband was employed by CN Business. In 1992, he started to work with BC Business as a management consultant ….
During his earlier employment at CN Business, the husband had dealt with a company, ARC, and a software technician Mr PE. In early 1991, he and Mr PE started to develop their own software. In October 1994 the husband was approached by ARC and asked to consider the feasibility of a software system for them, using the company’s existing data. The husband completed this work outside of office hours.
From 1 April 1995 he took three months leave without pay from BC Business to further his consultancy work with ARC. On 20 April 1995 he incorporated SC Pty Ltd as the company through which he performed that work.
C.2 The JC partnership June to October 1995
In June 1995 the husband resigned from BC Business. He started a business with a BC colleague, Ms JC. K Australia Pty Ltd (“K 1 Pty Ltd”) was incorporated on 27 July 1995. The company issued 4 shares, which were equally held by its four directors; the husband, the wife, Ms JC, and her husband. The husband was the CEO, and was responsible for developing the business product. Ms JC was the company secretary. She was responsible for the day to day administration of the business.
In the middle of 1995, SC Pty Ltd responded to an international tender by ARC to supply software services. It was successful.
K 1 Pty Ltd agreed to create a scoring system based on ARC’s raw data, and to supply to ARC a computer based software delivery system for these scores. K 1 Pty Ltd received a letter of intent from ARC on 10 August 1995. The software was to be delivered in December 1995.
On 11 August 1995, K 1 Pty Ltd entered an agreement with a company incorporated by Mr PE, AS Ltd. This agreement provided that AS Ltd would supply the software to complement K 1 Pty Ltd’s scoring system, to enable K 1 Pty Ltd to fulfil its contract with ARC.
By September 1995, the relationship between Ms JC and the husband had deteriorated. On 20 September 1995 Ms JC and her husband resigned their directorships, and the husband’s father, C Pierce, was appointed as secretary. In consideration for the husband’s acquisition of JC and her husband’s 50% interest in K 1 Pty Ltd, JC and her husband were paid $26,512 on 23 October 1995. Once they were paid out, the husband held three shares in K 1 Pty Ltd, and the wife held one share.
C.3 Late 1995 until the sale to ARC in around December 1996
In November 1995, Mr PE’s company, AS Ltd, was struggling and was unable to deliver the software required by K 1. C Pierce claimed he paid AS Ltd staff wages and other bills, so that K 1 could complete the ARC project. I shall return to that. In any event, K 1 did complete the scoring software for ARC in December 1995. ARC launched the software in May 1996.
In late 1995, the husband and Mr PE took advice on how best to hold their respective intellectual property rights. X Trading was incorporated in December 1995 to hold the husband’s interest in the software, whilst H Investments was incorporated in February 1996 to hold Mr PE’s interests. Both companies were incorporated in Singapore by OT Firm in Vanuatu. OT Firm was a firm offering audit, accounting, tax and advisory services. Mr A worked out of OT Firm.
According to the husband and C Pierce, in March 1996 they reached an oral agreement to each hold a 50% interest in K 1 Pty Ltd. This is the agreement at the heart of the dispute. The wife’s case is that it never existed, or in the alternative, it should be set aside.
On 31 March 1996 the wife resigned from her directorship of K 1 Pty Ltd. C Pierce was subsequently appointed as a director. On the same day, she also transferred her one share in K 1 Pty Ltd to C Pierce. There is a dispute as to whether she had knowingly transferred her share. In any event, ASIC documents show that the share registered to C Pierce was held for someone else. The husband said it was him. C Pierce denied that, saying they each held their shares for each-other. The ASIC records do not reflect that.
In April 1996, the sale of the intellectual property in X Trading and H Investments was negotiated for $500,000, most of which was directed to C Pierce.
During the first half of 1996, K 1 Pty Ltd employed UL Ltd of which Mr A was a director, to advise on a possible sale of K 1 Pty Ltd. They executed a Consultancy Agreement on 7 June 1996, K 1 Pty Ltd agreeing to pay UL Ltd a substantial “success fee” upon a future sale .
The husband and his father claim that on 14 June 1996 they embodied their oral agreement for 50/50 ownership into a written agreement. This too is at the heart of the dispute.
The men say they then became concerned about the “what if’s” in the event that one of them died or was incapacitated. On 5 July 2006, C Pierce executed a document declaring that in the event of his death he held the interest in various entities, including K 1 Pty Ltd, in his name, on trust for the husband. The intent and effect of that document is disputed. On 12 July 1996, the husband executed a document providing that in the event of his death or incapacity, he held all of his shares in K 1 Pty Ltd on trust for C Pierce. This too is a document to which I shall return.
A trust, the M Pierce Trust (“the MPT”) was established. The date of its establishment is contentious. The Deed is dated 27 July 1995. It was stamped on 14 April 1997. The husband and C Pierce assert that despite its date, it was in fact settled in late 1996 or early 1997. The wife says it was no later than 1 July 1996. What is clear is that initially the appointor of the trust was the husband, and the trustees were the husband and C Pierce. The beneficiaries were the husband and his spouse, children, spouses of children, grandchildren, uncles, aunts, brothers, sisters and parents, as well as corporate beneficiaries. SC Pty Ltd became the trustee on 1 July 1996. Its name was changed to JH Holdings Pty Ltd on 2 October 1996. The husband and wife were directors and shareholders, although the wife resigned as a director on 25 November 1996.
During the second half of 1996, negotiations proceeded for ARC to purchase 50% of K 1 Pty Ltd. The negotiations concluded in December of that year. On 3 December 1996 K 1 Pty Ltd changed its name to G Investments Pty Ltd. Then, a new company called K Australia Pty Ltd (“K 2”) was established on 3 December 1996 (renamed Q Corporation Pty Ltd on 15 April 1997). G Investments then entered an agreement with K 2 Pty Ltd whereby G Investment’s assets were transferred to K 2 Pty Ltd for $2 million and two million shares in K 2 Pty Ltd to the value of $1 per share.
On 31 December 1996, G Investments and ARC entered a Shareholders Agreement. It provided for ARC to obtain a 50% interest in K 2 in consideration for the payment of $2 million and $2 million worth of shares in K 2. Accordingly, both G Investments and ARC owned half of K 2. C Pierce and the husband became directors of K 2 as G Investment’s representatives, and two ARC representatives were also directors.
Following the payment of $2 million by ARC to G Investments in January 1997, G Investments bought out the Australian rights to X Trading software for $900,000. According to the men there was otherwise about $350,000 accrued earnings in G Investments at that time.
C.4 The events triggered by ARC’s September 1997 announcement to demutualise
The 31 December 1996 Shareholders Agreement between G Investments and ARC had allowed for a number of trigger events that gave G Investments the option to sell its remaining 50% interest to ARC at a later date. During September 1997, ARC announced its intention to demutualise and float on the Australian Securities Exchange. That was one such trigger event. Once it occurred, G Investments could “put” its shares in K 2 (now called Q Corporation) to ARC for sale. ARC’s public company, ADL Ltd (“ADL”), ultimately listed its shares on 30 September 1998.
The husband and C Pierce claim that at around the time of the demutualisation announcement in September 1997, when they intended to “put” the shares to ARC, they agreed amongst themselves that the first $6 million from the sale of G Investment’s 50% interest in Q Corporation would go to the husband, and any balance to C Pierce. This purported agreement is also disputed by the wife, and her alternative claim seeks to set aside the disposition made pursuant to it.
The husband and C Pierce say they agreed on 2-3 September 1997 that there should be an “independent trustee” of the MPT. This followed several opinions of counsel. The opinions are highly contentious, the husband and his father claiming they were largely directed at separating out the father’s genuine 50% interest, the wife asserting they were directed towards defeating anticipated orders. What is clear is that significant changes were made to the structure and control of the MPT during October/November 1997, the upshot of which was that C Pierce became guardian of the trust, a company of which Mr T was sole director and shareholder became the trustee, and the husband retired as appointor of the trust, by executing a Deed of Retirement in favour of Mr T. The Deed of Retirement is another document to which the wife’s alternative s 106B claim is directed.
In February or March 1998, ARC and G Investments agreed in principle to ARC purchasing G Investment’s remaining 50% interest in Q Corporation, subject to later valuations of Q Corporation.
In early 1998, further opinions were obtained from counsel. Again they are contentious. The wife asserts that some were specifically directed to defeating anticipated orders, and to removing assets from the Court’s jurisdiction. For present purposes I note that a flurry of controversial transactions occurred on the back of those opinions.
In March 1998, a company DM Ltd was incorporated in New Zealand. On the same day C Pierce settled a trust, the DM Trust, in New Zealand. Also on the same day, the husband and C Pierce executed a complicated Mortgage Agreement, whereby G Investments purported to sell DM Ltd a first right to the purchase of G Investments’ shares in Q Corporation, secured by a mortgage over the shares and an initial advance of $10,000. The Mortgage Agreement was one of the transactions the wife sought to have set aside, along with its Deed of Variation dated 7 July 1998. (That Deed of Variation was not produced.)
On 8 April 1998, ADL Ltd listed on the stock exchange and G Investments formally exercised its option to sell its Q Corporation shares to ARC.
Then there was another flurry of transactions. In summary, on 17 June 1998, a company D Nominees was incorporated with Mr T as its sole shareholder and director, to be the “independent distributor” of the proceeds from the sale of G Investments’ shares. Mr T executed a Declaration of Trust on 24 June, declaring that D Nominee’s assets in particular shares were held on trust for G Investments, DM Limited, and the Q Corporation Employee Reward Trust (“the Employee Reward Trust”), which was set up late in 1997 to reward employee members.
On 19 August 1998, G Investments, ARC and Q Corporation executed a Modification Agreement by which ARC acquired the balance of G Investments’ shareholding in Q Corporation, in consideration for an initial payment of $12 million, 50% of which could be satisfied by shares in ADL Ltd if so elected by G Investments. It also provided for ARC to pay three further instalments over three years, from 1999 to 2001, according to an agreed percentage of a valuation. The total value of Q Corporation was assessed by Pricewaterhouse Cooper on 10 November 1999 at $47.1 million.
On 28 September 1998, shortly after the agreed terms of sale, D Nominees, G Investments and ARC executed a Deed of Assumption, by which G Investments appointed D Nominees as the nominee to receive all the cash and shares payable to G Investments by ARC or ADL Ltd. On the same day, following G Investments’ election to receive ADL Ltd shares as part of the initial payment of $12 million, Mr T executed another Declaration of Trust on behalf of D Nominees, declaring that it held 3 million ADL Ltd shares on trust mainly for DM Ltd, but also for TRE Holdings, and to a small extent for G Investments. This is another instrument the wife seeks to set aside in her alternative claim.
Two days later, on 30 September 1998, ARC paid D Nominees, on behalf of G Investments, the sum of $6 million. G Investments ultimately received $2.95 million. PK Pty Ltd, a company set up in mid-September 1998, with C Pierce as its sole director and shareholder, received $1.4 million. The wife seeks to set aside the PK Pty Ltd payment in her alternative claim.
In January or February 1999 the parties moved into the former matrimonial home, in a bayside suburb. It was purchased by the MPT for $935,000. It was renovated during 1999. About $400,000 was spent on renovations. In September 1999, a property in the coastal region was purchased by the MPT for $825,000 and on 26 February 2003, 22 hectares of adjoining land was bought for $400,000.
During February 1999, C Pierce retired from Q Corporation.
In May 1999, LO Pty Ltd was incorporated. The sole director was C Pierce. All of LO’s shares were held by PK Pty Ltd. LO Pty Ltd purchased a property at D Street in May 2004 for approximately $1.5 million, for C Pierce and his wife, who undertook extensive renovations.
Pursuant to the August 1998 Modification Agreement, the next instalment was payable by ARC to G Investments on 1 October 1999. As the Pricewaterhouse Coopers’ valuation was not completed until 10 November 1999, it was not until 18 November 1999 that the instalment was paid. D Nominees received, on behalf of G Investments, just over $5,887 million.
The wife claimed that after various expenses were met, and $551,953 paid to the Employee Reward Trust for the benefit of the specified employees, DM Pty Ltd retained $5.3 million (and she sought that disposition be set aside). C Pierce claimed that DM Pty Ltd retained only $3.864 million, after the Employee Reward Trust payment, the payment of $888,125 to UL Ltd, and the payment of $588,000 to OT Firm in Vanuatu. He said that $1.7 million was then directed to the … Education Trust.
According to C Pierce, the Education Trust was set up in early 1999 to fund the education of his grandchildren, including the children of the Pierce/D'Cruz marriage. He said it was set up by OT Firm in Vanuatu. The trustee was TFI Ltd, a company incorporated in Vanuatu with Mr A as one of its directors. The settlor of the trust was VGD Ltd. The protector was F Holdings Ltd and the beneficiaries of the trust were C Pierce’s grandchildren. Neither C Pierce nor the husband were shareholders or office-bearers in the trustee, settlor or protector companies. C Pierce swore that as at 8 February 2008, the trust comprised investments totalling US$3,225 million.
C.5 The Supreme Court litigation from mid-2000 to late 2002
On 28 May 2000, the husband was dismissed from his position as Chief Executive Officer of Q Corporation. Thereafter, ARC refused to pay the instalments due in October 2000 and October 2001.
In August 2000, G Investments commenced Supreme Court litigation against BDL Ltd previously ADL Ltd, on the basis of the husband’s unlawful dismissal, defamation, and breach of contract.
The husband and C Pierce say they reached an oral agreement in June 2000, to the effect that C Pierce would fund the litigation, and the net proceeds would be divided equally. Later, on 30 May 2001, DM Ltd, G Investments and D Nominees entered a Deed of Confirmation and Modification, providing for DM Ltd to underwrite the costs of the litigation between G Investments and BDL Ltd. It also provided for DM Ltd to retain 50% of the net proceeds of settlement, after being reimbursed for any legal costs, after payment of the Employee Reward Trust entitlements, and after meeting other outstanding costs or expenses. The wife had sought to set this Deed aside, but later did not pursue that part of her application.
The Supreme Court litigation settled in October 2002 for $10 million, comprised by:
·$300,000 to the husband for wrongful dismissal
·$600,000 to the husband for defamation
·$9.1 million to G Investments for breach of contract.
The husband retained the $900,000, and on 18 December 2002 the settlement sum of $9.1 million was received by D Nominees on behalf of G Investments. It was distributed as follows:
·$2,966,189 to DM Ltd for reimbursement of legal costs
·$233,000 to G Investments for reimbursement of legal costs
·$2.405 million to DM Ltd (the wife had sought that this dispositon be set aside, but later did not pursue that part of her application)
·$2.405 million to G Investments
·$707,550 to UL Ltd
·$383,881 to Clayton Utz for legal costs.
The husband resumed his employment with BC Business as a consultant in early 2003. The parties separated under the one roof in February 2004.
C.6 The 2004 to 2006 transactions
On 21 April 2004, the DM Trust received $12.9 million into its account at the Bank of New Zealand.
On 10 June 2004, the GN Trust was settled. The husband was the appointor, guardian and specified beneficiary of the trust. VH Holdings Pty Ltd, incorporated on the following day, was the trustee. The directors and equal shareholders were the husband and C Pierce. The husband was the secretary.
A few days later, PH Pty Ltd was incorporated. The directors were the husband and C Pierce. The husband was the secretary. The sole shareholder was VH Holdings. Sometime in 2004, the MPT borrowed $1.8 million from PH Pty Ltd.
Bennett J made an order on 21 December 2006, that the husband do all acts and things in his capacity as appointor of the GN Trust and as director of VH Holdings as trustee for the trust, to call for $500,000 on account of the $1.8 million owed by the MPT to PH Pty Ltd. It was to provide a litigation fund for the husband and wife, and security for spousal maintenance payments.
In March 2006, the DM Trust resettled and transferred its corpus, then valued at approximately $10 million, to the MT Trust, which, according to C Pierce, was settled on 28 February 2008. The wife sought an order that the $10 million be paid to her.
The trustee of the MT Trust was MT Trustees Ltd, incorporated in New Zealand on a date unknown. The appointor was C Pierce. The directors and equal shareholders were Mr WN and Mr ES. The beneficiaries of the trust included C Pierce, his wife, MRG Ltd, and TFI Ltd. C Pierce could not tell me who were the directors of that latter company, even though it was also the trustee of the Education Trust. According to his evidence, the Education Trust was an entity very close to his heart. He claimed its purpose was to provide his grand-children’s private school fees.
D. THE QUESTIONS
A list of questions for me to determine was agreed between the parties. The questions provided a useful framework for the hearing, but several variations or refinements arose in evidence or in final submissions. I will deal with such variations as they arise. Also, in the course of reflecting upon these reasons for judgment, I have decided that for clarity and to avoid repetition, some questions should be re-framed. Again, I will make it clear where I have re-framed the questions. Finally, I have ultimately numbered them for ease of reading.
The agreed list was as follows:
1.Whether there were agreements between the husband and C Pierce in March or June 1996 by which C Pierce became a beneficial owner of a one half interest in the business? Matters relevant to that question include:
· What was C Pierce’s role and contribution in the business?
· Was there an oral agreement between them in March 1996?
· Was there a written document on 14 June 1996?
· Is the 14 June 1996 document a sham?
· When was the M Pierce Trust established?
· What is the effect of the document dated 5 July 1996?
· What is the effect of the “Authority to Act” document dated 12 July 1996?
· Were monies distributed according to purported agreements?
2.Assuming there was a 50/50 agreement in either March or June 1996 between the husband and C Pierce, was there subsequently an agreement to the effect that the husband would take his share of the sale of the business by taking the first $6 million and C Pierce the balance? One factor relevant to that issue is:
· Were the monies distributed according to the purported agreement?
3.Whether at the time of each of the transactions now sought to be set aside in the wife’s amended application the wife’s property claim in these proceedings was reasonably foreseeable and whether each transaction:
(i) Was intended to defeat that claim; or
(ii) Regardless of intention, defeated that claim?
Factors relevant to that question include:
· The state of the marriage.
· What was/was not conveyed by the husband to the wife.
· The nature of the instructions given and legal advice obtained from time to time and on whose behalf it was obtained.
· The time at which relevant legal advice was sought.
· How money was distributed following transactions.
4.In relation to Mr T:
· Whether he was truly independent of the parties?
· Was he reasonably entitled to believe that the husband and C Pierce jointly owned the business (whether that be true or not)?
The parties agree that the wife bears the onus of proof in this case, that the standard of proof is on the balance of probabilities, and that pursuant to s 140(2) of the Evidence Act 1995 (Cth), I must take into account (amongst other things) the nature of the cause of action, the nature of the subject-matter, and the gravity of the matters alleged.
It is agreed that the question of whether or not there was an agreement between father and son in March and/or June 1996 to share the business is fundamental to this case. The answer depends largely, albeit not solely, on the word of those men. Credit is an important consideration in this case.
In assessing credit, I am conscious that witnesses are not always reliable on every topic. Sometimes they are genuinely mistaken in relation to a part or parts of the evidence. Sometimes they are not honest in relation to a part or parts of the evidence. It is essential not only to identify such areas, but also to determine the impact on findings, particularly as to the ultimate issues. Sometimes, for example, it is valid to reject a witness’ evidence as to one part, but to accept it as to another.
In this case, the cross-examination of the husband commenced with questions about his extramarital affairs. It was relevant to the wife’s claim of an unhappy marriage, and one in which she was kept in the dark about financial affairs. Although I shall deal with the detail below, I note here that his evidence on the topic was unimpressive. He prevaricated and was evasive. His recollection of having provided overseas airfares for several women appeared to be prompted only when he was confronted with bills or credit card accounts that effectively caught him out. I was left with no confidence that he was being forthright about the number or nature of his extramarital relationships. The wife had been cross-examined on the topic as if she were simply being suspicious and unreasonable. I am satisfied her suspicions were very well-founded.
If the husband’s evidence on that topic alone was shown up as unreliable, I might have concluded that he was just unable to admit to his former wife that he had been unfaithful. However, for reasons that I will traverse in detail below, I found similar prevarication and evasiveness in much of his evidence, as well as in the evidence of C Pierce. I have similar misgivings about Mr T’s evidence.
I turn now to the first question.
D.1 WHETHER THERE WERE AGREEMENTS BETWEEN THE HUSBAND AND C PIERCE IN MARCH OR JUNE 1996 BY WHICH C PIERCE BECAME A BENEFICIAL OWNER OF A ONE HALF INTEREST IN THE BUSINESS?
I do not feel constrained to follow the structure of the “matters relevant” to this question in the precise form set out above. I shall consider each matter, but to avoid repetition, or in some instances, begging the answer to the question, I propose re-framing the matters relevant to deal with them as follows:
D.1(a)C Pierce’s financial contributions to and role in the business
D.1(b)Various documents, including the 14 June, 5 July and 12 July 1996 documents
D.1(c)When the M Pierce Trust was established?
D.1(d)How monies were distributed
It is convenient first to consider the relevant legal principles.
Mr Brown SC for the wife opened the wife’s case on the basis that the 14 June 1996 document was a sham. Senior counsel for both men submitted that I could not find the document to be a sham, because it did precisely what the parties to it said they intended it to do. That is, it reduced to writing their March 1996 oral agreement whereby, in consideration for C Pierce waiving repayment of the monies paid to Ms JC, the husband agreed that his father would take a one half interest in the business.
A “sham” is defined in the Macquarie Dictionary (Second Edition, 1991) as:
Something that is not what it purports to be; a spurious imitation.
Mr Lethbridge SC for the husband referred to the decision of the Full Court of the Federal Court in Sharrment Pty Ltd & Ors v The Official Trustee in Bankruptcy (1988) 18 FCR 449 at 454, where Lockhart J said:
A ‘sham’ is therefore, for the purposes of Australian law, something that is intended to be mistaken for something else or that is not really what it purports to be. It is a spurious imitation, a counterfeit, a disguise or false front. It is not genuine or true but something made in imitation of something else or made to appear to be something which it is not. It is something which is false or deceptive.
That passage in Sharrment has been recently considered by the High Court in Raftland Pty Ltd v Federal Commissioner of Taxation (2008) 82 ALJR 934, an appeal from the Full Court of the Federal Court, where Kirby J (at paragraph 112) said that important to Lockhart J’s “influential reasons” is the idea that the parties did not intend to give effect to the legal arrangements set out in their apparent agreement. He continued:
In Australia, that has become essential to the notion of sham, which contemplates a disparity between the ostensible and the real intentions of the parties. The courts must therefore test the intentions of parties, as expressed in documentation, against their own testimony on the subject (if any) and the available objective evidence tending to show what that intention really was. (citations omitted)
Kirby J considered the history of the legal analysis of sham transactions, particularly in relation to revenue cases. He then dealt with the key to a finding of sham (at paragraph 145) saying it is:
…the demonstration, by evidence or available inference, of a disparity between the transaction evidenced in the documentation (and related conduct of the parties) and the reality disclosed elsewhere in the evidence. Where, for example, the evidence shows a discordance between the parties' legal rights or obligations as described in the documents and the actual intentions which those parties are shown to have had as to their legal rights and obligations, a conclusion of sham will be warranted.
As to the parties’ intentions, his Honour continued (at paragraph 146):
The test as to the parties' intentions is subjective. In essence, the parties must have intended to create rights and obligations different from those described in their documents. Such documents must have been intended to mislead third parties in respect of such rights and obligations.
Kirby J said in considering a suggestion of sham that has a reasonably arguable evidential foundation, a court will not be confined to examining the propounded documentation alone. It may also examine (and draw inferences from) other evidence, including the parties' explanations as to their dealings, and evidence describing their subsequent conduct.
As I need to examine the parties’ subsequent conduct, amongst other things, I shall consider the answers to the later Questions 2, 3 and 4, in addition to this current question, in reaching my conclusion about the 50/50 Agreement.
D.1(a) C Pierce’s financial contributions to and role in the business
This is an important consideration in assessing whether C Pierce had an oral agreement with his son in March 1996, and then an authentic written agreement on 14 June 1996, to the effect that they were equal half owners of the business.
On the wife’s case, C Pierce had neither the money nor the skill to contribute in the significant way that is claimed. In 1995 he was a retired school teacher who, with his wife, often talked about “the parlous state of their finances” and their struggle with mortgage re-payments. The wife said that she and the husband discussed C Pierce’s financial position and discussed offering him the book-keeping position in K 1 Pty Ltd to help him out.
She said that when Ms JC and her husband left K 1 Pty Ltd in September/ October 1995, they transferred their shares to the husband, and he told her that he paid them out from monies obtained from his consultancy with ARC. So far as she was concerned, from the end of 1995 and throughout 1996, the couple’s financial position improved “dramatically and rapidly”, the husband was employing more and more staff, including C Pierce, who started working full-time at K 1 Pty Ltd in 1996.
The wife swore that at some time in 1996 the husband explained to her that his industry was extremely litigious. He said that they “could lose everything” and it would be better if she were not a director. She said she trusted him and signed a document to resign her directorship. She claimed she was unaware that she also transferred her share in K 1 Pty Ltd to C Pierce.
C Pierce’s account was that he commenced teaching in 1975. He retired in 1992, and became “a self-employed property developer.” At paragraph 10 of his trial affidavit he set out that by 1995 he and his wife owned two mortgage-free houses on the Mornington Peninsula. He had superannuation of about $350,000 in total, his wife about $170,000. He and his wife had each received a redundancy payment of $45,000 tax-free, and had accrued leave payments of $30,000. He recalled owning shares in the Commonwealth Bank and “other shareholdings”, a late-model Volvo, a caravan, a yacht, and that he had other money invested, but had not retained any relevant records and could not be more specific.
The husband’s account was that his father took over Ms JC’s role in the management of “the day-to-day operation of the business” from September 1995. He described various financial contributions made by C Pierce, and his ongoing involvement in the high level financial management and legal affairs of the company from late-1995.
I shall deal first with C Pierce’s financial contributions to the business, then with the role that he performed.
• C Pierce’s financial contributions to the business
In his trial affidavit, C Pierce swore that he contributed $40,000 by way of a loan in September 1995, from which Ms JC and her husband were paid out $26,512, and the balance used for working capital. Then he paid the K 1 Pty Ltd wages from November 1995, and wages, debts and overheads from January 1996, so that the work could be completed on the software that was needed to deliver on the ARC contract.
A stark example of C Pierce’s lack of credibility arose in the course of the cross-examination on this topic. His version changed from time to time and he was vague and unhelpful when it came to detail.
When cross-examined, he said he advanced cash of $120,000, but also money for renovations and goods, such as desks and carpet, so that the total amount advanced was “round $230,000”. However, he did not produce any records, and was unable to recall where the money had come from. It was in this context that it became apparent that his previous “property development” was on a very modest scale. I shall return to that.
When pressed as to where the monies had come from, he was vague. At times in cross-examination, he referred to monies just being “part of my banking system”. Although he purported to have a strong memory of how much he had contributed to the business, he had “no idea” how much money he had in the bank, or in shares, by late 1995. He could not help as to in which bank he held the monies, and he could not find or produce any taxation returns that might shed any light on the issue.
Although he maintained that he contributed $230,000, at paragraph 28 of a witness statement filed on 2 September 2002 in the subsequent Supreme Court litigation between G Investments and BDL, he had stated that in February 1996, his son owed him $120,000 for funds he had contributed. He had to concede that it would have been easier to accurately remember the events of 1996, in 2002. When challenged as to why he had not included the various other sums in the 2002 statement, he simply said that “I did the best that I could at the time”. When pressed as to details about the various additional items he claimed he had purchased for some $110,000, he could offer no details.
C Pierce was challenged about another version given by him in an affidavit filed in this court on 11 October 2005. At paragraph 17 he deposed that he had spent “several hundred thousand dollars” (by late 1995 or early 1996) on various things, including “sophisticated communications equipment” for a Sydney office. In fairness, he was questioned about having referred to “hundreds of thousands” of dollars, when the actual wording was, as noted, “several hundred thousand dollars”. In any event, his answers were as vague and dismissive as in other significant parts of his cross-examination.
In explaining his vagueness as to the size of the sums, his explanation was that they were “desperate times”, and “emotionally… very frightening”. He said “I’m a human being” and, “I can’t put my finger on that far back how much money on any given time”.
In another affidavit, filed in this court on 29 January 2008, C Pierce referred to a sum of “$249,000 or thereabouts” as being “… less than the monies I had paid out in support of the business…” In cross-examination his explanation was that it was “all about liquidity”. The various sums claimed were true, “at different times”. His evidence was unimpressive for its changes and vagueness.
The husband swore that in addition to the “first loan” of $40,000, when the K 1 Pty Ltd offices were set up in late 1995, C Pierce advanced money for rent, office equipment, costs and leases, as well as wages. In cross-examination, he said that in total, between August 1995 and February 1996, about $120,000 was “loaned” from C Pierce. The husband’s version added to the lack of clarity as to what was actually paid by his father.
I am satisfied that the husband did obtain financial assistance from his father in the early stages of the business. But in light of the disparity in C Pierce’s various versions, the absence of any proof or supporting documents, and the different account of the husband, I conclude that C Pierce’s financial contribution was substantially less than he claimed, although the vagueness in his evidence means I cannot be definitive about the actual sum.
• C Pierce’s role in the business
I am satisfied that C Pierce performed an administrative role, at a managerial level, in the business. Many letters and documents (as referred to by Mr Aldridge SC for him in final submissions) showed his active involvement in that regard. But other evidence and documents showed that the husband was also engaged with business and financial matters. The evidence does not support the arrangement the men claimed underpinned a genuine equal shared partnership, namely, that C Pierce was fully responsible for the business side, while his son was simply responsible for creating the property or product side of the business.
It was apparent that C Pierce had particular involvement leading up to the Modification Agreement between G Investments, ARC and Q Corporation, in 1998. That is probably because ARC did not deal comfortably with the husband. Mr T’s memorandum to Mr Goldblatt of counsel on 5 January 1998, (Exhibit W30), referred to a concern that Mr BN of ARC was not keen to see “this young bloke” (the husband) “get a whole lot more money”. It is likely that it was a prudent business decision to present the older man to Mr BN as the face of the business, so that he did not deal directly with the “young bloke”, the husband.
As to his business background, C Pierce’s description of himself as a “property developer” at the time he was asked to step in to help his son, was a self-aggrandising way to describe his activities at that point. It became apparent in cross-examination that between leaving teaching in 1992, and April 1996, the only property “developed” by him was the house in which he was living. He had renovated his Peninsula home, which he had then sold in 1994, for a sum in the mid-$200,000 range.
C Pierce’s evidence was confused, but it seems that he had purchased another Peninsula property which he had renovated and extended, so that he only sold the first home when he was able to move into the second. In evidence he conceded that he could be called a “house renovator”, although his intention was to find properties, and to re-do them, living in them for a few years to avoid capital gains tax upon selling. If he were a “property developer” at the time he started to work with the husband, it was on the modest scale of his own home renovation.
I cannot conclude that C Pierce had the skill or capacity to manage the financial affairs of the business. During cross-examination, his evidence about financial matters was frequently a bumbling mess – an embarrassment. By way of illustration, he said a number of times that he was “totally confused by the finances” (relevant to events in 2002), or at the end of a sequence of cross-examination about the purchase of his present home, he said that he did not discuss finances with his son as “most of the time I don’t understand them myself”. There were instances in cross-examination when he could not explain even the basic details of financial transactions in which he was purportedly integrally involved. He was asked about monies for which he could not account (for example a sum of $1 million withdrawn from his account on 2 June 2003). His evidence was that he simply “didn’t know” where the money had gone, or that “it’s gone somewhere”.
At one point in cross-examination, C Pierce said that if he had access to a computer and spreadsheets to undertake “a full analysis” he would be able to answer questions about the specifics of where monies went. That did not ring true. By then he had had months, indeed years, to have undertaken such an analysis. It was not that these topics had arisen for the first time in cross-examination.
A perfect illustration of C Pierce’s limitation in handling financial matters arose in his evidence about receiving and using the proceeds from the sale of intellectual property rights in 1996.
In April 1996, K 1 Pty Ltd faced a financial struggle. To gain funds for its work to continue, an agreement to sell the intellectual property in X Trading (and ultimately H Investments as well) was negotiated. As noted above, the sale price was $500,000, or a net $487,000 after costs. It was all received by C Pierce in September 1996.
First, as to the negotiations for the sale of the rights, C Pierce had to concede that although he was involved in the preparation of some relevant documents (mainly by asking Mr T to put the documents into “plain English”), he was not involved in the negotiations. The husband conducted those negotiations.
Although C Pierce travelled to Vanuatu in April 1996 to attend the office of OT Firm, he could not remember who paid for the trip, but it was “probably the business”. He was vague about the details of the trip, and his dealings with OT Firm, and particularly the level of Mr A’s involvement.
As to the sum he received from the sale, he swore in his affidavit filed on 29 January 2008 that there was only a “receivable balance” of $249,000, once the taxation liability “encumbrance” of $238,000 was considered. In the witness box he had to admit that in September 1996 he received and retained the full sum of $487,000. He said he was advised by Ms FM at OT Firm that in order to avoid paying half the monies in tax, he could invest them in insurance bonds. That is what he did. He had to concede that he received just under $2 million from the insurance bonds when he sold them in about 2002.
C Pierce was vague as to where that money was then placed by him. He gave answers such as “it moved through accounts to be adjusted and moved to places that I wanted it to be”. When unable to answer where monies had gone, amongst his explanations was that he was totally confused by the finances, it was “Monopoly money”, he felt he had been in a legal “straight-jacket” for years, and he just could not remember where sizeable sums of money had gone.
On taxation issues arising from the X Trading sale, he was cautioned and granted a certificate under s 128 of the Evidence Act1995. He admitted that “at this stage” he has not paid tax on the X Trading monies, although he received them six years’ ago. He was, I note, granted further certificates, on a similar basis, in relation to other transactions, in the course of his evidence.
It was put to C Pierce that it appeared from bank records that just under $2 million was paid into the account of his company, PK Pty Ltd, in December 2002, and that there was then an authority to transfer $640,000 of that sum on 23 December 2002. He said that he had “no idea” where the money was, it must be “within the NAB system”, and that he was “totally confused by the finances”. When it was put to him that the sum of $1.378 million was paid out of the PK Pty Ltd account to C and L Pierce on 24 December 2007, he said he “did not know”.
In the course of his evidence, he said he thought that some of the $2 million was applied to renovating a property in M Street, and/or towards the purchase of his current coastal home, but in further cross-examination he had to concede that it seemed that none of it was in fact applied to that real estate. He could not give coherent evidence in relation to the funds received from the sale of the insurance bonds.
C Pierce’s evidence about financial issues was unimpressive. He was not across those issues as one would expect of a partner in charge. He also seemed to make little effort to give helpful answers. Very often his answers were vague and/or evasive. Sometimes it was hard to glean whether it was a lack of capacity or a lack of candour. Overall, his evidence appeared to suffer from both.
I cannot find, as his counsel submitted, that his lack of memory could be as a result of him being some 12 years’ older than in 1996. There was no medical evidence to suggest a diminution in his mental functioning. His recently sworn affidavit was detailed and lucid. He was wily and sharp in the course of his evidence. And when cross-examined by counsel for Mr T, he was able to respond clearly to questions about Mr T’s role, the instructions provided to him, and communications between him and other professional advisors. They were topics about which he had been unclear when cross-examined by senior counsel for the wife.
I turn then to the evidence of other witnesses as to C Pierce’s role.
Mr KS was called on behalf of the wife. He was the husband’s first employee in K 1 Pty Ltd in mid-1995. He joined as an analyst, but was Business Development Manager by the time that he left in 1998.
Mr KS swore that shortly after moving to the new office (in late 1995), C Pierce commenced working part-time “like an office administrator”, and the husband said that his father was “just helping out”. He said that C Pierce arranged the office space, purchased furniture and equipment, and arranged the leases, but did not really understand any aspect of the business or software products they were developing. In addition, C Pierce had absolutely no strategic involvement in the development and growth of K 1 Pty Ltd, nor in its day-to-day management, nor so far as he was aware, in the negotiations of sale to ARC.
In cross-examination, Mr KS readily conceded that he did not attend directors’ meetings, that he himself did not take a role in negotiations with ARC, that he could not know if C Pierce was involved, and that it was really no business of his. Given those concessions, I accept Mr KS as a truthful witness, and take into account his observations, and his account of what the husband told him, at least in 1995.
Mr BY was called by the husband. He had been an accountant at OT Firm in Vanuatu. He undertook consultancy work for K 1/Q Corporation between 1996 and 1998, and was then employed by Q Corporation as its Chief Financial Officer from August 1998 to May 1999. He and the husband are friends.
Mr BY swore that from his observations, beginning in 1996, the husband largely ran client identification, marketing, and technical matters, whilst C Pierce undertook day-to-day business, financial and administrative management. He said he regarded both men as owners from whom he took instructions. He regarded the interests of K 1, C Pierce, and the husband as one, and he said that during the negotiations concerning the sale of 50% of K 1 to ARC in 1996, C Pierce provided “a very significant amount of instruction”.
Mr BY swore that he recalled C Pierce at some time telling him that he and the husband were equal owners. Mr BY purported to recall a number of other conversations about C Pierce being concerned about his interest in the business, and what would happen if his son died or was disabled. He was particularly worried about claims that the wife’s mother might make. Mr BY said that by the middle of 1996 C Pierce told him that he wanted his affairs separated from the husband’s, and Mr BY purported to assist with some of the necessary documents.
I was not impressed by Mr BY’s evidence. First, in his Supreme Court statement of 2 September 2002, he had given a different account of C Pierce’s role, describing him as “office manager”, at a time around the end of 1996. Although he said that C Pierce’s responsibilities grew, he went on to describe, by what appeared to be about mid-1997, that:
I tended to be the person who was comfortable taking responsibility and making decisions when [the husband] was not available.
I also found Mr BY evasive in his evidence about the Employee Reward Trust, which was established on his recommendation in November 1997. The trust entitled Q Corporation employees to a 9.375% interest in G Investments’ interest in Q Corporation. TRE Holdings Pty Ltd, previously JH Holdings, was the corporate trustee. Mr T became a director of TRE Holdings but it is unclear as to when that occurred.
Mr BY said he could not remember how much he received from the Employee Reward Trust. He was asked if it was in the vicinity of $650,000. He said “No”. He was asked if it was around $200,000. He said “Maybe”. He was not able to give a coherent explanation as to how the sum he received was calculated. When pressed, he denied that he received in excess of $600,000, but again said that he could not remember. He said that he thought he received $250,000-odd dollars but could not remember. When pressed further, he did remember receiving total amounts of about $600,000.
In re-examination, he said that he received a sum over $600,000, but only part of that sum was from the Employee Reward Trust, the balance being from the sale of equity he held in Q Corporation. I was left with the impression that such explanation was readily available to him when he was wrestling with answers as to what he had received, during cross-examination. It was not proffered, and his answers appeared to be unhelpful and evasive.
Further, I note that the Employee Reward Trust was Mr BY’s idea. He said he followed an American concept. It was specifically to ensure that employees would be encouraged to stay, by enabling them to share in the value of the business. C Pierce was a member of the Employee Reward Trust. Mr BY claimed he did not know that. It was odd that when he was told that, he said he was not surprised, even though on his own account, membership of the trust was inconsistent with ownership of the business.
Ms JO was C Pierce’s personal assistant until he retired in 1999. She was called by him to give evidence about documents she had signed as a witness. I note in her affidavit she described C Pierce as “the partner responsible for the administration of the business”. She described him as handling “most of the legal aspects” of the business. She believed the men were joint owners. They both signed documents and negotiated and settled agreements for the company.
Ms JO was notably vague in cross-examination about the circumstances surrounding the preparation of her affidavit, and vague as to the circumstances surrounding the 14 June 1996 document about which she gave evidence. She conceded that the husband has been a referee for her new jobs since she left his employment in 2000. I was not sure of her objectivity.
C Pierce relied upon affidavits of employees and associates, Mr HE, Mr HO, Mr DX, and Mr PE. They were not cross-examined. Each of them gave evidence pointing to the appearance of a partnership between C Pierce and the husband, by virtue of their roles in the company. Only Mr HE referred to a direct conversation about ownership, swearing (at paragraph 5) that:
I do recall in the early days of my association with the company, [the husband] saying to me that [C Pierce] had an interest in it. I did not discuss percentages with him.
I take into account their respective versions as to how things appeared, to weigh in the balance with all the evidence.
The husband relied on the affidavit of Mr YC. He is a venture capitalist and business advisor. In early 1996, he met the husband through Mr A from OT Firm. He became involved in strategic advice about the sale of K 1 Pty Ltd to ARC. He swore that he was told that C Pierce as well as the husband had an interest in the company. He observed that C Pierce “ran the administration side of the business”, while the husband was responsible for marketing and technical matters. But he had only incidental contact with C Pierce, and has become a very good friend of the husband. Mr YC was required by the wife for cross-examination. He was not produced. I can give little weight to his evidence.
Then there was the account of the men’s ownership of the business, as given by the solicitor, Mr T. He swore in his trial affidavit that he could not say when he came to the understanding that the family assets were “in essence equally divided” between the husband and his family and C Pierce and his family.
He continued (at paragraph 12):
…I can say that by the time I became Appointor of the [M Pierce] Trust that was my clear understanding and only since the Wife has raised an alternative view in these proceedings have I had any reason to even question what I understood to be the case. So far as I can recall, the documents I have seen and the actions taken by the members of the [Pierce] family since 1996 have been consistent with this understanding and even my discussions with [the wife] prior to these proceedings did not lead me to doubt my understanding.
In cross-examination, Mr T repeated that he could not put a time on when he became aware that both men owned the business. He did not recall being told of the March 1996 oral agreement or the 14 June 1996 agreement, or being familiar with the contents of C Pierce’s 5 July 1996 document although he was a witness to it.
He said the co-ownership was something that he had “come to know”. It was “an understanding”, from his observations and conversations. Although he could refer to the men giving joint instructions “about all manner of things”, he could not recall specific conversations or specific dates of conversations. He had what he described as a “bundled memory”. When pressed, he said that it arose from a combination of things that they said and did, and the way they conducted themselves over a period in 1997.
Mr T’s evidence was undermined in a number of ways. First, he claimed to have very little memory of almost every aspect of the work and transactions involving the Pierces, but a clear memory about the 50/50 ownership aspect. Yet despite that clear memory, he was vague as to how or when he became aware of it.
Secondly, from several advices given by counsel, it was apparent that Mr T gave instructions as to ownership of the business that was contrary to what he said in his evidence. For example, on 30 August 1996, he instructed Mr Murphy of counsel that K 1 Pty Ltd was a private company “owned by [the husband] …and managed on a day to day basis by his father…” Then in January 1998, that is, after the 1997 period in which he claimed to have appreciated the co-ownership of the business, Mr T gave detailed instructions to Mr Goldblatt of counsel clearly describing the husband as the owner of the business. He did not refer to C Pierce having an interest. He said he did not know why he wrote the memorandum in that way. He had to concede it was inconsistent with his evidence that well before then he knew of C Pierce’s interest in the business. He said he could not explain it. That was unimpressive.
In addition, Mr T was cross-examined about Q Corporation’s Employee Reward Trust, he being a director of the trustee company from “1997 or 1998”. When asked why C Pierce was a member when it was designed for employees, not owners, Mr T said it was not a matter for him. Tellingly, he said “It was primarily a matter for [the husband].”
D.1(b) Various documents including the 14 June, 5 July and 12 July 1996 documents
The husband and C Pierce relied on a number of documents they said supported their claim that they owned K 1 Pty Ltd equally from March 1996. Primarily there was the 14 June 1996 agreement, then the documents of 5 July and 12 July 1996, as well as various letters.
The wife said she knew nothing of any such purported agreement in March 1996 or thereafter.
The husband was adamant that he told her in March 1996 that he was giving his father half of their business. He said she “had no concern”. She accepted it was “a reasonable thing to occur” and she expressed “no negative sentiment” about it. I shall deal with this in more detail below. For current purposes I note that I prefer the wife’s account as the more credible. I accept that the husband told her nothing of a 50/50 agreement with his father in March 1996, or June 1996, or thereafter. Even in a relationship where the detail of business matters was obviously not daily conversation, I would have expected the husband to tell the wife of any genuine agreement, it being so fundamental to their family life.
According to the men, the background to their purported 14 June 1996 agreement was as follows.
During the first half of 1996, the husband discussed the possible sale of K 1 Pty Ltd with Mr A of OT Firm. K 1 retained his services to advise on a possible sale, through UL Ltd, the Vanuatu based company, of which Mr A was a director. On 7 June 1996, K 1 Pty Ltd and UL Ltd entered a Consultancy Agreement. K 1 Pty Ltd agreed to pay UL Ltd a “success fee” upon a sale. In the event that K 1 exceeded the value of $7.5 million, UL Ltd was to receive 7.5%, capped to a value of $25 million. The agreement was later varied (on 18 June 1998) to provide for a fixed success fee.
A week after the agreement with UL Ltd, on 14 June 1996, the men purportedly entered the agreement headed “[K 1 Pty Ltd] Equity Participation and Debt Funding Agreement”. It provided:
1. We hereby agree that the shares we hold in [K 1 Pty Ltd] are held for and on behalf of each other on an equal basis. We therefore hereby agree that we or our nominees will share the equity equally and any and all proceeds or dividends from the business will be distributed on a 50/50 basis.
It went on to provide that neither the husband nor K 1 had any obligation to repay the funds paid by C Pierce for the purchase of Ms JC and her husband’s 50% interest in K 1, that any debts owed to C Pierce prior to the agreement were discharged and, if any further funding was required by K 1 Pty Ltd from 1 July 1996, it would be incurred by the company in its own name and repaid directly from company funds or provided jointly and equally by the two men.
When the document came to light in 2005, after these proceedings had started, the wife raised an issue as to its provenance. C Pierce employed a paper and handwriting expert. The expert could not attest to the date of the document; only that the paper and ink were consistent with paper and ink available in 1996. The expert was not cross-examined.
C Pierce was adamant that the document was prepared and signed on the same day. He was clear about that. The husband could not recall the date of signing, but did recall the document itself. It was witnessed by the employee Ms JO, who could not remember the document, the date of its signing, or the circumstances surrounding it.
It was stark that the husband and C Pierce had a clear recollection of their discussion about ownership in March 1996, and yet their memories were so vague and so poor about so many of the matters raised in the course of this hearing, many of which were more proximate to the hearing than events in 1996. Similarly, as to the written agreement dated 14 June 1996, although the husband was vague as to the circumstances of its creation, like his father he was adamant of its existence and authenticity.
It struck me as odd that the document did not surface until 2005, once this case had started, at which stage, according to C Pierce, he found it in an old briefcase (although according to the husband, C Pierce told him he found it in “his old filing boxes”). And it was particularly odd that both men said they had totally forgotten the document, the more so given their recall of their oral agreement a few months before that, and then their certainty about this document’s existence, particularly C Pierce, who claimed a clear recall of its creation.
There were other strange aspects about the document. It was strange that it was apparently not kept in company files. It was strange that there was apparently only one copy. It was strange that it was never produced to their accountants or legal advisors, or referred to in 1996 or 1997, close to its purported creation, and at a time when the men were seeking professional advice about protecting assets they say belonged to C Pierce, his ownership purportedly arising from that very agreement.
It is stranger still that if an oral agreement were reached during March 1996, and considered sufficiently important to be reduced to writing in June 1996, that the men did not execute a transfer of shares to formalise the 50/50 ownership claimed by them. ASIC documents were filed on 31 March 1996. The wife’s share was transferred to C Pierce to be held on trust. The opportunity, within only days or weeks of their purported agreement, to transfer a 50% shareholding to C Pierce, was not taken up. Nor was it after the June 1996 agreement.
It was little wonder that the wife was suspicious about the document, and as to when it was brought into existence. From her perspective, it was raised for the first time, many years after the event. Then although the expert – whose opinion was obtained after a protracted process of discovery – could say it was consistent with paper and ink available in 1996, he could not be definitive about the date of its creation. Nor could the witness, Ms JO, who could not recall the date when she signed it. And it was apparent that she had “witnessed” another document, the M Pierce Trust Deed, on a date that was different from that shown on the Deed.
In final submissions, Mr Lethbridge SC for the husband raised the rule in Browne v Dunn (1893) 6 R 67, saying it was never put to the husband that he did not sign the 14 June document, or that it was a sham. I agree it was never put in those terms. He submitted that a court should be inclined to disregard a submission on evidence which was not tested by putting questions to the party best able to deal with it. He relied upon the NSW Court of Appeal’s decision in Seymour v The Australian Broadcasting Commission [1977] 19 NSWLR 219, at 224 where, referring to Browne v Dunn, Glass JA said:
If counsel proposes to submit that a witness' evidence should not be accepted or that a particular construction should be placed on his conduct, the witness should be allowed an opportunity to deal with the suggestion.
There is ample authority that what is often referred to as the “rule” in Browne v Dunn is in fact a rule of practice. It is designed to achieve procedural fairness. It is not absolute or fixed and inflexible. Those characteristics of the rule were referred to, for example, in Stern v National Australia Bank (2000) 171 ALR 192, at 203, in which the Full Court of the Federal Court observed that it is not ordinarily necessary to put to a party, matters that were clearly at issue in the proceedings.
A dispute about the 14 June 1996 document raged since it was first produced. In her trial affidavit (at paragraph 110), the wife denied that it was an authentic document that was prepared and executed in June 1996. She set out the laborious history of document examination. She described (at paragraph 103) the assertion that C Pierce owned a 50% interest in K 1 Pty Ltd as “simply not true”. In opening, Mr Brown SC described a 50/50 agreement between the men as a “nonsense”, and asserted that no such agreement was entered on the date claimed by the husband and C Pierce. Shortly after, when pressed by Mr Aldridge SC for C Pierce, Mr Brown said the document was “a sham”.
From the time the document was disclosed, the wife questioned its authenticity, although the nature of her questioning changed after the expert’s report was finally obtained on 29 April 2008, just shortly before trial, and after her affidavit was filed. The parties have addressed it in their respective affidavits, the person identified as the witness to the document was called by C Pierce, and there were long passages of cross-examination of both the husband and C Pierce about their conduct at all relevant times before and after that agreement, including challenges as to how they then distributed monies, and what they told the wife.
The authenticity of the document was clearly at issue in the proceedings. From early in the hearing, it was asserted that the document was a sham. I am satisfied that there was procedural fairness. Both men had ample opportunity to answer questions that dealt with the document, the events leading to it, their memories of it, and their subsequent actions arising from it.
The men then relied upon two documents signed shortly thereafter, one signed by C Pierce on 5 July 1996, the other by the husband on 12 July 1996. It was their case that those documents clearly pre-supposed the earlier 14 June agreement, and were made to deal with the “what ifs” in the event that one of them died or was incapacitated.
The 5 July 1996 document was witnessed by Mr T and an employee in his office. Mr T said C Pierce brought the document to him for signing. He claimed that he simply witnessed it, but never read it. That seemed improbable, given its nature. It purported to be a codicil to C Pierce’s last Will of 15 May 1994. It was a short document. Two witnesses were arranged for formal signing. In the circumstances, it is hard to believe that a solicitor would not have known of its contents.
C Pierce recorded that since his last Will:
I have become involved in a number of business transactions for my eldest son…In all of these transactions I act in trust for my said son.
He then set out:
All assets held in my name that are associated in any way with the operation of;
[K 1] Pty Ltd.
[K] New Zealand Ltd.
[MRG Ltd].
[X Trading] Pte Ltd. Singapore.
Are rightfully the property of my eldest son [the husband].
Any superannuation funds held in my name in the Integra Fund (and only the Integra fund) with Commercial Union Insurance are also the property of my son.
I therefore direct my executors to give up all such assets to the possession of my son [the husband] before the assessment of my estate for probate.
This direction is also a direction to my attorneys in the event that I should be declared no longer competent to manage my own affairs. In which case all of the forementioned assets must be returned to my Son [the husband] on his request.
The 12 July 1996 document was headed “Authority to Act”. It was signed by the husband, witnessed by Mr BY, and was in the following terms:
In the event of my death or permanent incapacity, I [the husband] of [address], hereby declare that I give authority to [C Pierce] of [address], to assume any and all offices, signatories and authorities necessary to operate the business of [K 1] Pty Ltd.
I further declare that in the event of my death or permanent incapacity, that I wish it to be known and recorded that any and all shares that I am holding in [K 1] Pty Ltd, I hold in trust on behalf of [C Pierce] and he is the rightful beneficial owner of them.
In his trial affidavit, C Pierce swore that in June or July 1996, he and the husband had a discussion along the lines “What would happen if one of us died?” C Pierce was concerned that the only way to move forward would be if he could offer equity to someone to replace his son, and to achieve that he required control. He swore (at paragraph 30):
…I said to [the husband] ‘How are we going to do that?’ I said ‘I would have to own your shares.’ [The husband] said, ‘The same applies to me.’
C Pierce continued that this was only to be a short term solution as his intention was to put his interest into a trust. He had no question in his mind though that his son trusted him to look after his wife and the children if anything happened to him, and he trusted his son similarly to look after his (C Pierce’s) wife.
As to the 5 July document itself, C Pierce swore (at paragraph 32):
…Whilst I do not recall preparing or signing the document it appears to bear my signature. I do not recall giving the document to [the husband] but it has been produced by [the wife] who asserts she found it amongst documents belonging to [the husband]. It was my intention that neither of the documents would have any affect [sic] unless one of us died. I have since made another will which does not contain the clauses to that effect.
In cross-examination, C Pierce reiterated that he had no memory at all of the document apart from it being produced in these proceedings. He had no memory of drafting it or it being drafted, or of it being signed or witnessed. But he admitted that it did bear his signature.
The husband swore that shortly after the 14 June 1996 50/50 agreement, C Pierce suggested that they should “both do something in the interests of the company” in the event of their death, and they agreed to leave documents that would declare they left their interests in trust for each other, so that each would have unfettered equity in the business, so as to be able to bring in a new equity partner. He was also concerned to “avoid problems with the families in the event of the shares being caught up in an estate claim”. He said he was particularly concerned that his brother or brother-in-law (both in the IT industry) should not become involved, and his father did not want to have “issues with [the wife’s] extended family”.
As to the 5 July document, the husband swore (at paragraph 80):
I do not recall seeing this document. In part it appears to reflect some of my discussion with [C Pierce]. There are parts I do not understand.
In his evidence he reiterated that he did not recall “ever seeing this document before”.
As to the 12 July document, the husband swore (at paras 81 and 82):
81.I was going to Fiji in July 1996 for a holiday with [the wife] and [the child L]. At that time [C Pierce] said to me words to the effect, ‘What would happen if the plane was to go down with all of you on it?’
82.I do not recall writing or signing the document. In March this year I arranged with […] to have documents retrieved from archives. I then came across the Authority to Act. The Authority to Act document is consistent with my recollection of the discussions I had with [C Pierce]. I believe I drafted the document although I had no recollection of it until its retrieval in March of this year.
I note that in August 1997, in the course of briefing counsel on the husband’s behalf as to trust assets being taken into account “in the event of the client ([the husband]) and his wife ([the wife]) divorcing”, Mr T took instructions from the wife to prepare a will for her. He sent her the draft will on 19 August. That was directly between advices obtained by him from Mr Raphael on 12 August and 25 August 1997, and just before the conference he attended with Mr Raphael on 26 August 1997.
Mr T was given repeated opportunities to acknowledge a conflict of interest in acting for the wife at that point. He said there was “none whatsoever”. Later, he said that as he now understood that the wife was saying C Pierce never had an interest in the business, and therefore no legitimate interest in re-structuring the trust, he was “far less comfortable” and could see “a clearer conflict”.
What I saw as a conflict for Mr T was exacerbated by accounts, dated 29 August 1997, being sent by him to JH Holdings, a company in which the wife was a shareholder. Those accounts included disbursements to meet Mr Raphael’s fees in relation to the advices to the husband relating to prospective divorce proceedings and the re-structuring of the trust of which the wife was a beneficiary. He claimed that as his “primary understanding” at the time was that C Pierce was trying to protect his interests in the business, he saw no conflict. That did not ring true.
E. CONCLUSION
E.1 The 50/50 Agreement
When I consider the real intentions of the husband and C Pierce, and test them against their explanations as to their dealings, their subsequent conduct, and other available evidence, I am not satisfied that they had a genuine intention in March or June 1996 to share equally in the business.
Their evidence was unimpressive and unreliable. And it sat in a context of periods of fracture and fragility in the marital relationship, the wife being kept in the dark about financial dealings, the nature of particular advices from counsel, the structures then put in place by the men, and the manner of the distribution of funds.
C Pierce gave different versions in different places as to the monies advanced by him to the business. He was vague and could not produce any records, or give a coherent account, as to where various sums had come from. The husband too was vague in his evidence on that topic, and on others he was not only vague, but also changed the versions he gave.
C Pierce claimed to take over the management part of the partnership, leaving his son to look after the technical side. I conclude that C Pierce did work in a managerial role in the business. In correspondence (accurately listed by senior counsel in closing submissions), negotiations, and legal work, there was evidence that he was participating at least some of the time at a high level, particularly in 1998 and 1999 in relation to the sale of Q Corporation. That in itself did not satisfy me that he did so as an equal partner of the husband, rather than as his close and trusted father who worked for him in the business.
Both C Pierce and the husband overstated his experience and competence. It was apparent from the evidence that others, including the husband and Mr BY, were integrally involved with various negotiations. C Pierce’s facility with money, and details, appeared almost non-existent in the course of his cross-examination. Much of his evidence was doltish, and left me with no confidence that he had been on top of the transactions in the way that would be expected of a partner in charge. At the same time, I was not satisfied that he was being fully forthright or frank. His evidence suffered from a combination of incompetence and lack of candour.
Importantly, although the men claimed a firm 50/50 agreement in March 1996, that is not what they put into effect when filing ASIC documents soon after that, on 31 March 1996. Again, after the June 1996 agreement, no ASIC documents were filed to effect an equal shareholding.
As to the 14 June 1996 document itself, the fact that it was never referred to in all the dealings with their various legal and financial advisors, that there were no contemporaneous references to it at all, and that the men apparently forgot it for many years, undermined my confidence in its genuineness.
C Pierce’s document dated 5 July 1996 did nothing to bolster his case. It made it clear that anything he did hold, he held for his son. Having adamantly denied its authenticity, he then opportunistically adopted it with an explanation that failed to impress.
I am satisfied that in 1997 and 1998 advices were sought from counsel on the husband’s behalf designed specifically to protect assets from the wife. In the result, assets and the control of assets were moved from the husband to entities over which he had no apparent control, and C Pierce established various entities out of Australia to which a significant proportion of the business monies was moved.
The retention by C Pierce of the X Trading monies, and his subsequent receipt of $200,000 as a member of the Employee Reward Trust, both undermined the claim of his genuine half ownership of the business. Otherwise too, monies were distributed in a way that did not reflect a 50/50 agreement. Instead, C Pierce (or his entities) received very substantially more than the husband, around $16 million, as opposed to the husband’s $6 million, or almost 75% of the business assets.
In final submissions for C Pierce, the question was posed: If the men were trying to ensure that the wife did not receive the benefits of assets, then why did they not transfer everything to C Pierce? The answer lies in the probability that the husband wanted the use and benefit of some of his wealth, for example for comfortable housing, and for general lifestyle. The majority (almost three-quarters) was retained by C Pierce or entities associated with him, and the majority of that went off-shore.
Senior counsel for C Pierce also pointed to the equal sharing agreement (the Deed of Confirmation and Modification dated 30 May 2001) in relation to the proceeds of the Supreme Court litigation, and that although it was made at a time when the husband and wife were separated, the husband nevertheless retained the full $900,000 relating to his wrongful dismissal and defamation, and then half of the net proceeds of the settlement.
It is true that the husband retained the $900,000, and that the $9.1 million settlement was otherwise received by D Nominees on behalf of G Investments, and after $700,000-odd was paid to UL Ltd and $383,000 to Clayton Utz for legal costs, nearly $3 million was paid to DM Ltd to reimburse costs, then $2.405 million was distributed to each of G Investments and DM.
Although this agreement to share the proceeds of litigation could support the men’s claim that they had previously agreed to share the business, that is by no means the only reasonable inference to be drawn. It was some years after the purported agreement. After the previous distributions in his favour, it was C Pierce who was best placed to meet the enormous expense of litigation. The agreement that the husband would retain the $900,000, which was personal to him for salary and as damages for defamation, was not remarkable. That the balance was split could simply reflect a genuine, discrete agreement to that effect. In the absence of a challenge to the agreement, I cannot speculate to the contrary. But viewed against all the evidence it does not dissuade me from my view that the men previously had no genuine intent to share the business.
According to the expert evidence, the document that purported to embody an agreement that C Pierce and the husband each owned 50% of the business was prepared on paper and used ink, consistent with paper and ink available in 1996. The men were unable to specify when it was prepared. The witness to it could not recall the date of its signing. It may have been brought into existence on 14 June 1996, or before or after that. I need not speculate about that. Whenever it was brought into existence, taking into account the explanations of the husband and his father as to their dealings, their subsequent conduct, and all the evidence, I am satisfied that C Pierce and the husband intended rights and obligations different from those in the document. I find it is a sham, and that there was no genuine 50/50 agreement as claimed.
E.2 The s 106B applications
It was agreed that if I found there was no 50/50 agreement, I need not proceed any further.
However, for completeness, I shall briefly turn to the wife’s alternative s 106B applications, as set out in paragraph 9, and her s 106B application in paragraph 3 of her Amended Application (Exhibit W2). The latter related to the setting aside of the Deed of Retirement executed by the husband, Mr T, and BNE Pty Ltd on 29 November 1997. It received little specific attention by Mr Brown SC for the wife in final submissions, probably because it had been conceded by the husband that the MPT assets should be brought into account as part of the pool.
The wife’s alternative s 106B applications were set out in paragraph 9 of her application as follows:
9.1The asserted oral agreement between the husband and second respondent of March 1996;
9.2Agreement between the husband and the second respondent headed ‘[K 1 Pty Ltd] Equity Participation and Debt Funding Agreement’ dated 14 June 1996;
9.3Mortgage agreement between [G Investments] Pty Ltd and [DM] Ltd dated 12 March 1998;
9.4 Deed of variation of mortgage agreement between [G Investments] Pty Ltd and [DM] Ltd dated 7 July 1998;
9.5Declaration of trust executed by the fifth respondent [Mr T] in his capacity as director and secretary of [D Nominees] Pty Ltd dated 28 September 1998;
9.6 Deed of confirmation and modification executed by [DM] Ltd, [G Investments] Pty Ltd and [D Nominees] Ltd dated 30 May 2001;
9.7Transfer of 2,647,875 shares in [ADL] Pty Ltd to [DM] Ltd by [D Nominees] Pty Ltd;
9.8The following payments made by [D Nominees] Pty Ltd:
9.8.1$1,400,000.00 to [PK] Pty Ltd;
9.8.2$5,300,000.00 to [DM] Ltd; and
9.8.3$2,400,000.00 to [DM] Ltd.
Ultimately, she did not pursue paragraph 9.6 or 9.8.3, relating to the Supreme Court litigation.
Section 106B(1) of the Family Law Act provides:
In proceedings under this Act, the court may set aside or restrain the making of an instrument or disposition by or on behalf of, or by direction or in the interest of, a party, which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.
With only several exceptions, counsel did not make detailed submissions about relevant case-law in relation to this alternative part of the wife’s application. Some aspects were not controversial. It was agreed that the onus of proving the elements under s 106B was on the wife. There was no dispute that there are “proceedings under this Act”. And there was no dispute that the wife’s application dealt with “instruments” or “dispositions”.
I must be satisfied that an instrument or disposition was made “by or on behalf of, or by direction or in the interest of, a party, …” The reference to “party” is a reference to a party to the marriage and not a party to the s 106B proceedings (see Whitaker and Whitaker (1980) FLC 90-813). That is not to say that the husband must himself be a party to the instrument or disposition, but it must be made at least on his behalf or by his direction, or in his interest.
The husband was directly involved as a party to some of the instruments or dispositions, not others. He was directly a party in his personal capacity to the instruments or dispositions at paragraphs 3, 9.1 and 9.2 of the wife’s application. He was a director of G Investments, the company that was a party to the instruments at paragraphs 9.3 and 9.4 of the wife’s application. He was not directly a party to the Declaration of Trust executed by Mr T on 28 September 1998 (paragraph 9.5), although it dealt with interests of G Investments. He was not directly a party to the transfer of shares to DM Ltd by D Nominees on the same date (paragraph 9.7), or the payment made by D Nominees to PK Pty Ltd (paragraph 9.8.1), although Mr T said it was at the husband’s direction. Nor was he directly a party to payments made by D Nominees to DM Ltd (paragraph 9.8.2).
The early 1996 50/50 agreement purported to effectively dilute the husband’s business interest by half, in his father’s favour. The November 1997 Deed, by which the husband renounced his position as appointor of the MPT, handed the powers of the appointor from himself to Mr T, who had also recently replaced him as trustee of the trust. The 12 March 1998 Mortgage Agreement effected the placing of assets outside this Court’s jurisdiction (as specified in counsel’s advice of 5 March 1998). D Nominees’ role (relevant to the 28 September 1998 Declaration of Trust, subsequent payments to PK Pty Ltd, and to DM Ltd), saw funds diverted from G Investments, that is away from the husband.
Despite the evidence of the husband, C Pierce, and Mr T, which attempted to distance the husband, I am satisfied as to his active role in relation to each disposition. The evidence is dealt with in detail above. For these purposes I note in particular the unhappiness in the marriage, the husband’s secrecy about financial matters and transactions, and his active involvement in the advices obtained from counsel, specifically directed towards the protection of assets from the wife. I am satisfied that all the transactions were made on his behalf, at his direction, or at the very least in his interest.
The question arises as to whether the relevant instruments or dispositions were made to defeat an anticipated order in these proceedings or, irrespective of intention, were likely to defeat such an order. It is clear that it must be “an anticipated order”, as distinct from “a claim” (see ANZ Banking Group and Harper (1988) FLC 91-938).
The test to be applied is an objective one. In Pflugradt and Pflugradt (1981) FLC 91-052 Elliott J said (at 76,430):
… it is not a question of whether the husband expected or foresaw a subsequent property application by the wife and “anticipated” an order being made, but whether considering all of the circumstances at the time of the disposition such an application by her at some time, with a consequent order, was objectively to be foreseen or to be expected by him as being likely or reasonably probable…
In Ivanovic and Ivanovic (2000) FLC 93-003, Lindenmayer J stated the test as follows (at 87,100):
… the Court must consider whether in the circumstances which existed, or could reasonably be foreseen, at the date of the disposition, there was more than a fifty percent chance that the order would be defeated by the disposition, and that for an order to be ‘anticipated’ it must be one which a reasonable disponor would, objectively, have foreseen as likely or reasonably probable at the time of the disposition …
In considering whether a reasonable disponor would have foreseen as likely or reasonably probable an order or orders in these proceedings, an important consideration is that more than eight years elapsed between the asserted oral agreement in March 1996 and the start of these proceedings in 2004. Five years elapsed from the last of the dispositions, to the start of proceedings.
In Johnson and Johnson (2000) FLC 93-008, Warnick J was satisfied that the section could apply even to an instrument made prior to marriage. In relation to the forerunner to s 106B of the Act he said (at 87,184):
… there is no temporal limitation bearing upon the making of the instrument or disposition which might be set aside or restrained. In particular, the court’s powers are not limited in their exercise to dispositions or instruments made after a marriage has taken place.
The authorities have more often dealt with dispositions not only made after the start of the marriage, but after separation, and within a time-frame closer to the proceedings than in this case. That is not surprising. It is likely that there will often be a correlation between the timing of dispositions, and the anticipation of orders in proceedings, for example, where parties have separated, and where proceedings are already on foot. But, that is not to say that the test cannot be met just because parties are living together at the time of a disposition, or because there are a number of years between the disposition and the proceedings. I agree with Warnick J. The section contains no “temporal limitation”.
I note too the decision of Bryant CFM (as she then was) in K and K [2001] FMCA FAM 237. In that case the proceedings were commenced in February 2001, the parties having separated in 1999. The relevant disposition occurred 11 years’ before that, in 1988. Having acknowledged that as “one of the difficulties faced by the wife”, her Honour went on to find that the particular document (a mortgage) was made to defeat an anticipated order. Her Honour took into account a range of factors, including that the parties had been separated at the time of the particular disposition, although they had reconciled after that.
Mr Lethbridge SC for the husband submitted that the “value” of the property disposed of at the time of the disposition is a relevant consideration. He submitted that in 1996, 1997, 1998 or 1999 it could not have been objectively foreseen, or expected as being likely or reasonably probable, that in 2004 an order would be sought for an amount in excess of $13.5 million. He submitted that in March or June 1996 it could not have been objectively said that the transfer of half of a business, valued by its previous owners at no more than $26,512, could defeat the orders sought by the wife, upon a separation more than eight years later.
I note that in ANZ Banking Group Ltd v Harper (1988) FLC 91-938, Simpson and Nygh JJ said (at p. 76,781):
…even if an order of some kind may be anticipated, it may not be reasonable to anticipate an order of the magnitude or kind sought by the applicant…
But the authorities have not gone so far as to suggest that an anticipated order need be precise as to quantum, to attract the s106B provisions.
In this case Mr Lethbridge’s submissions under-estimated what was being negotiated by the husband from early 1996. The negotiations underpinned an expectation to receive substantial capital payments. Very significant funds and further expectations followed within a short time.
The purported agreements of 1996 arose at a time when the possible sale of K 1 Pty Ltd was being discussed. The 14 June 1996 document, if that were its true date, would have been created just one week after an agreement with UL Ltd for a success fee to be paid if the sale of K 1 Pty Ltd exceeded the value of $7.5 million, capped to a value of $25 million. That readily gives a sense of the magnitude of the transactions then contemplated by the husband, or at least to which he was then aspiring. In any event, for the reasons I have already given, I cannot be certain that the document was created on 14 June 1996 rather than, for example, shortly after, when the prospects of the business had increased even further.
The amount of $26,512, as the value of half the business, had receded into history even by quite early in 1996. In December 1995 the ARC software had been completed. In April 1996 the X Trading intellectual property had been sold for $500,000. And as 1996 progressed, the negotiations with ARC continued, and their prospects improved.
Other transactions also occurred within the context of high financial expectations. The March 1998 mortgage agreement was signed within days of G Investments formally exercising its option to sell its Q Corporation shares to ARC as a result of ADL Ltd listing on the Stock Exchange. The Declaration of Trust document executed on 28 September 1998 was just two days before ARC paid $6 million. The transfer of ADL Ltd shares to DM Ltd by D Nominees and the payment of $1.4 million to PK Pty Ltd took place within days of that. And the payment made by D Nominees to DM Ltd referred to at paragraph 9.8.2 of the wife’s application, was made immediately after D Nominees had received $5.887 million from ARC on 18 November 1999.
I am satisfied that the various dispositions were made in the course of a marriage undergoing genuine difficulties. The parties separated in late 1995. The oral and written agreements related to early or mid-1996, respectively. They separated for six weeks in early 1999. The Mortgage Agreement and its variation were executed during 1998, just months before the 1999 separation. The Declaration of Trust, transfer of shares, and payment to PK Pty Ltd were later in 1999. They separated then for at least ten months in 2002, and again, under the one roof, from February to December 2004, when the final separation occurred.
I am satisfied that in all the circumstances a reasonable disponor would have foreseen the orders sought by the wife.
I am satisfied too that the husband intended to defeat the anticipated orders. Again I refer to the evidence of the marital unhappiness, the specific advices obtained from counsel on behalf of the husband, and the nature and timing of the dispositions, being proximate to counsel’s advices and/or the receipt or expectation of the receipt of substantial funds. I also take into account the husband’s evasiveness and lack of transparency with the wife about these transactions, and the ways in which monies were divided so that C Pierce received substantially more than the husband. Moreover, so far as the purported 50/50 agreement was concerned, I have found it to be a sham. The authorities are clear that the court will not permit a “blatant sham transaction” to defeat the operation of the Act (see Balnaves v Balnaves (1988) FLC 91-952).
I am satisfied that in any event, irrespective of his intention, at the time of each disposition it was more probable than not that the dispositions would defeat an anticipated order in the proceedings. In each instance, they effected transactions that moved assets or interests owned or controlled by the husband, or entities associated with him, away from that ownership or control.
I should add that I have not sighted the Deed of Variation of Mortgage dated 7 July 1998. Nor were there specific submissions about it. I have taken it that if I am satisfied that the mortgage itself should be set aside, it follows in logic that the variation should meet the same fate.
Before exercising my discretion to set aside these transactions, I am obliged to consider the interests of a bona fide purchaser or other “person interested” under s 106B(3) of the Act. In Halabi v Artillaga (1994) FLC 92-470 Nicholson CJ held that if a deed were a sham, then the other party to it could not be a person interested. The sham transaction could not confer any interest. In my view, that aptly covers the position of C Pierce in this case. I have not found as genuine the 50/50 agreement, or the later $6 million agreement. C Pierce’s purported interest in the various dispositions to follow – either directly or indirectly through other entities – cannot dissuade me from exercising my discretion to set aside the dispositions as sought by the wife.
Finally, I must consider whether there are sufficient funds available to satisfy the orders sought by the wife, without setting aside the relevant instruments or dispositions. In this case there clearly is not. The pool of assets as claimed by the husband is only around $6 million. On the wife’s case, the pool may be around $26 million. C Pierce conceded that he or entities connected with him received at least $16 million. I agree with Nicholson CJ in Halabi & Artillaga (at 80,885) that it is:
…self-evident that if the pool is significantly reduced then in most cases the applicant will be likely to receive significantly less than would have been the case if the instrument or disposition had not been made.
It was submitted for the husband that I could not set aside the $1.4 million payment to PK Pty Ltd (paragraph 9.8.1 of the wife’s application) as PK Pty Ltd is not a party to the proceedings. That is true. But C Pierce is PK Pty Ltd’s sole director and shareholder. In the course of evidence, he swore it was owned by him, and the husband described it as “a company of my father’s”.
I am satisfied there has been no denial of natural justice. In S & M & Ors [2003] FamCA 1387 at paragraphs 55-56, the Full Court described a party who was director and shareholder of a particular company as the “directing mind and will” of that company. In noting that it would have been the preferable course to separately serve the company, it was held not to be necessary in the circumstances. That is my conclusion in this case. C Pierce, represented throughout the proceedings, has known of the order sought as it related to PK Pty Ltd. PK could have but did not seek to intervene. PK, through C Pierce, had adequate notice of the proceedings.
I am satisfied for the reasons set out, and given the concessions about the MPT assets being included in the pool of assets, that the Deed of Retirement should be set aside. I am also satisfied that the s 106B application in relation to the other transactions, should also succeed, although I emphasise they were alternative claims, and my primary finding is that there was never a genuine agreement between the men to share the business.
F. ORDERS
It was agreed at the end of the hearing that I should not make orders until I hear argument as to their precise nature. I shall give counsel the opportunity to make submissions in the event that they are unable to arrive at an agreed form of the orders once they have read these reasons for judgment. I must also attend to the relevant s 128 Evidence Act certificates for C Pierce.
I certify that the preceding 435 paragraphs are a true copy of the reasons for judgment herein of the Honourable Justice Dessau
The 19th day of September 2008
Associate
ANNEXURE A
MATTER NO. MLF 3135 of 2004
PIERCE
and
D’CRUZ
Documents Relied Upon
The wife relied upon the following:
Paragraphs 1, 3, 4 and 9 of her amended Application for Final Orders, marked exhibit W2;
Her affidavit sworn 29 April 2008 and filed 30 April 2008;
Affidavit of Mr KS sworn 28 April 2008 and filed 30 April 2008; and
Her Financial Statement sworn 29 April 2008 and filed 30 April 2008.
The husband relied upon the following:
Amended Response to an Application for Final Orders filed 15 May 2008;
His affidavit sworn and filed 1 May 2008;
His further affidavit sworn and filed 7 May 2008;
Affidavit of Mr YC sworn 8 May 2008 and filed 9 May 2008;
Affidavit of Mr BY sworn 29 April 2008 and filed 1 May 2008; and
His Financial Statement sworn 30 April 2008 and filed 1 May 2008.
The second respondent, C Pierce, relied upon the following:
His Amended Response to an Application for Final Orders filed 20 May 2008;
His affidavit sworn 29 April 2008 and filed 30 April 2008;
Affidavit of Mr LL sworn and filed 29 April 2008;
Affidavit of Ms JO sworn and filed 29 April 2008;
Affidavit of Mr HO sworn 10 October 2005 and filed 13 October 2005;
Affidavit of Mr DX sworn 6 October 2005 and filed 11 October 2005;
Affidavit of Mr PE sworn 5 October 2005 and filed 11 October 2005;
Affidavit of Mr HE sworn 11 October 2005 and filed 13 October 2005; and
His Financial Statement sworn 5 March 2008 and filed 6 March 2008.
The fifth respondent, Mr T, relied up the following:
His Response to Amended Application for Final Orders sworn and filed 29 April 2008; and
His affidavit sworn and filed 29 April 2008.
ANNEXURE B
IN THE FAMILY COURT OF AUSTRALIA
AT MELBOURNE MLF 3135 of 2004
BETWEEN:
[MS D’CRUZ] AND [MR PIERCE] AND OTHERS
Common to all parties chart of entities filed by husband
pursuant to 2 May 2008 Orders INCLUDING WIFE’S ADDITIONS.
___________________________________________________________
[AS Ltd]
Incorporated in New Zealand and provided programming services to [K 1 Pty Ltd].
[VH Holdings] Pty Ltd
Incorporated […] June 2004. Since March 2007 [the husband] has been the sole Director and Secretary. The 12 ordinary issued shares are held.
[BNE] Pty Ltd
Incorporated […] November 1997. [Mr T] is sole Director and Secretary and owns all 6 issued shares. It is the Trustee of the [M Pierce] Trust.
[ARC]
This company was initially a company limited by guarantee and its business was conducted as a mutual association of members. The organisation was demutualised in 1998 with members surrendering their membership rights in exchange for shares in a new publicly listed company known as [ADL Ltd]. In 2001 [ADL Ltd] changed its name to [BDL Ltd].
[D Nominees] Pty Ltd
Incorporated […] June 1998 for the purposes of distributing the proceeds of sale of the business. [Mr T] sole Director and Secretary and holds all 12 ordinary shares held. Company de-registered on […] October 2003.
[DM] Limited
This company was incorporated in New Zealand and acted as the Trustee of the [DM] Trust. The assets of the [1][DM] Trust was subsequently resettled into the [MT] Trust.
[1] Underlined parts added after filing of first document when KW facsimile received.
[EQM] Pty.Ltd. A.C.N[…][2]
[2] This entity was omitted in error from electronic document sent to other parties on 5 May 2008.
Previously known as [NCW] Pty Ltd from incorporation on […] September 2000 until name change to [EQM] Pty.Ltd. on […] December 2002. This company has one issued share owned by [BNE] Pty.Ltd. The sole director and secretary is the husband [M Pierce]. The husband conducts his consultancy/self employment through this company.
[K 1] Pty Ltd A.C.N. […]
Incorporated on […] July 1995. Changed its name to [G Investments] Pty Ltd on […] December 1996. Also referred to as “[K 1]”
[K 2] Pty Ltd A.C.N. […]
Formed on […] December 1996 and took over the business of [K1 Pty Ltd]. Ultimately re-named [Q Corporation] Pty Ltd on […] April 1997 as a result of an unrelated issue. Referred to in the documents as “[Q Corporation]”. Has since had various name changes and the [Pierce] family has had no involvement in it since the sale of the business was finalised. Is now known as […] Pty Limited.
[TRE] Holdings Pty Ltd
This company was incorporated on […] April 1995 and was originally known as [SC] P/L and later [JH Holdings] P/L. For some time [JH Holdings] was the trustee of the [M Pierce] Trust. It changed name to [TRE] Holding P/L on […] October 1998 and was then used to hold the equity interests of the various employees of [Q Corporation].
[MRG] Ltd
This was a company owned by or representing interests of [OT Firm] a firm of Accountants with offices in [Vanuatu]. It received monies and applied them to various purposes including payments to [UL] Limited and to the […] Education Trust. This company was represented by [OT Firm] as a vehicle through which transactions could be facilitated.
[H Investments] Pte Ltd
This company was incorporated in Singapore on […] February 1996 and later had a name change to […] Pte Ltd. Neither [C Pierce] nor [the husband] now have an interest in this company.
[X Trading] Pte Ltd
This company was Incorporated in Singapore on […] December 1995. Neither [C Pierce] nor [the husband] now have an interest in this company.
[PK] Pty Ltd
Incorporated on […] September 1998 with [C Pierce] as sole Director and Secretary. [C Pierce] holds all 12 ordinary issued shares. Company is the Trustee of the [C Pierce] Trust.
[G Investments] Pty Ltd A.C.N. […]
The same company as [K 1] Pty Ltd (“[K 1]”) in that it resulted from a name change. Remains incorporated and the Husband and Wife are Directors and Shareholders.
[M Pierce] Trust
The deed constituting the [M Pierce] Trust was executed in late 1996. The initial Trustees were [the husband] and [C Pierce] who were replaced by a corporate Trustee [JH Holdings] Pty Ltd (on a date that is not clear on the evidence). [JH Holdings] Pty Ltd was replaced by [Mr T] as Trustee on […] October 1997. On […] November 1997 [BNE] Pty Ltd replaces [Mr T] as Trustee. [MR T] is sole Director of [BNE] Pty Ltd.
Originally, the husband was appointor of the [M Pierce] Trust. On […] November 1997, the husband renounced his position as appointor in favour of [Mr T].
The beneficiaries are the Husband, his spouse, all his children, spouses of children, grandchildren, uncles, aunts, brothers, sisters and parents of the said Husband.
[MT] Limited
This company was incorporated in New Zealand and acts as the Trustee of the [MT] Trust.
[GN] Trust
The deed constituting the [GN] Trust was executed on […] June 2004. [VH Holdings] Ply Ltd is the corporate Trustee. The Husband and [C Pierce] were joint directors of [VH Holdings] Ply Ltd. The Husband is currently the sole director.
The beneficiaries are the Husband (the specified beneficiary), the grandparents, uncles, aunts, brothers, sisters, spouses, widows, widowers, children, grandchildren, mother and father of the Husband and the spouses, widows, widowers, children and grandchildren of such brothers, sisters, spouses, children and grandchildren and the parents and grandparents of any spouses, uncles and aunts aforesaid, and without the generality of the foregoing including a person lawfully adopted by the Husband.
[NCW] Pty Ltd
The previous name for [EQM Pty Ltd]. See above.
[LO] Pty Ltd
Incorporated […] May 1999. [C Pierce] is sole Director and Secretary. All 12 ordinary issued shares are owned by [PK] Ply Ltd. The company has only ever been used as a corporate beneficiary of the [C Pierce] Trust.
[PH Holdings] Pty Ltd
Incorporated […] June 2004. Since 1 March 2007 [the husband] has been the sole Director and Secretary. The 12 ordinary issued shares are held by [VH Holdings] Pty Ltd and 1 B Class share is held by [the husband].
[UL] Limited
This was a company owned by or representing interests of [OT Firm] a firm of Accountants with offices in [Vanuatu]. It received commissions and consultancy fees owed to [OT Firm]. This is not admitted by the wife
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