Dinham & Dinham

[2019] FamCA 427

FAMILY COURT OF AUSTRALIA

DINHAM & DINHAM AND ORS [2019] FamCA 427

FAMILY LAW – PROPERTY SETTLEMENT – Where preliminary issues are to be determined in advance of the husband’s interim application – Where husband is beneficiary under an estate and various discretionary trusts – Where the issues are in relation to single experts and an indemnity in favour of the husband’s child support and taxation liabilities – Where a single expert is required for taxation advice – Where a single expert is required for valuations of family trusts and trust property – Where husband is owed unpaid present entitlements from trusts – Where those unpaid present entitlements affect the husband’s taxable income and therefore child support liability to the wife – Where the family trust should bear the costs of the taxation advice and all valuations in relation to the discretionary trusts – Where the family trust has the capacity to do so – Where the family trust owes the husband more money than the amount of the husband’s liabilities – Where the family trust shall indemnify the husband against any child support and taxation liability.

Family Law Act 1975 (Cth)
Family Law Rules 2004 (Cth) r 15.47

APPLICANT: Ms Dinham

FIRST RESPONDENT: Mr Dinham

SECOND RESPONDENT: Mr B Dinham as Trustee of the Estate of The Late Mr P Dinham

THIRD RESPONDENT:	C Pty Ltd as Trustee of the Dinham Family Trust
FOURTH RESPONDENT:	D Pty Ltd as Trustee for the D Family Trust
FIFTH RESPONDENT:	F Pty Ltd as Trustee for the N Family Trust
SIXTH RESPONDENT	Ms Kaufer

FILE NUMBER: BRC 10057 of 2017

DATE DELIVERED: 5 July 2019

PLACE DELIVERED: Cairns

PLACE HEARD: Chambers

JUDGMENT OF: Tree J

HEARING DATE: By submissions last filed 12 June 2019

REPRESENTATION

SOLICITORS FOR THE APPLICANT: Hopgood Ganim Lawyers

COUNSEL FOR THE FIRST RESPONDENT: Mr Wilson QC

SOLICITORS FOR THE FIRST

RESPONDENT:

Reaston Drummond Law

COUNSEL FOR THE SECOND & THIRD RESPONDENTS: Mr Hanlon

SOLICITORS FOR THE SECOND & THIRD RESPONDENTS:	Marlin Coast Law Pty Ltd
SOLICITORS FOR THE FOURTH, FIFTH & SIXTH RESPONDENTS:	Sajen Legal
COUNSEL FOR THE SIXTH RESPONDEDNT:	Ms Lawrence

IT IS NOTED that publication of this judgment by this Court under the pseudonym Dinham & Dinham has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT CAIRNS

FILE NUMBER: BRC10057/2017

Ms Dinham

Applicant

And

Mr Dinham; Mr B Dinham As Trustee Of The Estate Of The Late Mr P Dinham; C Pty Ltd As Trustee Of The Dinham Family Trust; D Pty Ltd As Trustee For The D Family Trust; F Pty Ltd As Trustee For The N Family Trust And Ms Kaufer

First to sixth Respondents

REASONS FOR JUDGMENT

INTRODUCTION  

1. Ms Dinham, (“the wife”) and Mr Dinham (“the husband”) are presently engaged in litigation in this Court relating to the appropriate parenting orders for their children, and the just and equitable division of their property.  However the matter has become complicated because much of the husband’s wealth and financial resources are held by others, and not directly under his exclusive control.  Particularly, the husband, together with his two siblings, are beneficiaries under the estate of their late father, as well as beneficiaries under three discretionary trusts, seemingly established by their late father, which hold significant assets and earn significant incomes. 

2. Further, it is common ground that each of those three trusts owe the husband significant amounts by way of unpaid present entitlements (“UPEs”) but that in order to pay those debts, properties owned by the trusts would need to be sold.  There is a further complication, in that because the UPEs are, for tax purposes, treated as income of the husband, although not actually received by him, they nonetheless form part of his taxable income, which is used as the basis for the assessment of the husband’s income tax, and his child support liability to the wife.

3. Because of these complications, the husband, who is the first respondent in the proceedings, has joined his two siblings and the trustees of the three discretionary trusts as parties to these proceedings, which has made their progress somewhat more complicated.

4. On 8 May 2019 I conducted a case management hearing in an effort to try and move the matter forward.  On that occasion, some matters were able to be agreed, but five matters were identified as needing judicial resolution.  These issues are as follows:

   1.Who should bear the costs of Mr G of M Pty Ltd providing the parties with detailed advice in relation to the tax implications of effecting each parties’ proposed orders (Issue 1);

   2.Which party or parties should bear the costs of the single expert valuer, which the parties agree needs to be appointed to value all of the trust properties (Issue 2);

   3.Which party or parties should bear the cost of the single expert valuer, which the parties agree needs to be appointed to value the three trusts and the estate of the husband’s late father (Issue 3);

   4.Who should be the single expert valuer appointed to value the three trusts and the estate of the husband’s late father (Issue 4);

   5.Should one of the respondent trustees (being C Pty Ltd as trustee of the Dinham Family Trust) indemnify the husband in relation to tax or child support liabilities he incurs in respect of his UPEs in all the trusts, and if so, how should that indemnity be crafted (Issue 5).

5. Also on 8 May 2019, I made directions for the filing of necessary documents to enable those five issues to be determined, which directions culminated in the decision in relation to those issues standing reserved on 13 June 2019.  This is that decision and the reasons for it.

BACKGROUND FACTS

1. From a draft balance sheet attached to the husband’s affidavit filed 29 May 2019, it appears as though the husband’s father’s estate has a net value of $2,813,872.42, however all but $408.00 of that is comprised of a loan to the Dinham Family Trust.  It seems not in contest that the only means by which the Dinham Family Trust can repay that loan is by the sale of significant assets.

2. The Dinham Family Trust does have significant assets.  At paragraph 8 of the husband’s affidavit, he estimates the value of its real properties is some $6,330,881.00.  Those properties all appear to be commercial real estate.  The husband asserts that trust receives $474,855.00 by way of rental income each year.

3. The D trust also owns commercial real estate.  The husband estimates that its value is worth $5,695,461.00, and that it receives rental of $390,139.00 per annum.

4. The final trust is the N Family Trust, which also owns a commercial property.  The husband estimates its value to be $1,809,578.00, and asserts that it receives annual rental of $123,956.00.

5. The husband claims that each of the three trusts owe him significant sums of money under UPE arrangements.  It is a little unclear as to whether it be him personally who is owed the funds, or whether it be L Pty Ltd as trustee for the Mr Dinham Family Trust, as he asserts at paragraph 12 of his 29 May 2019 affidavit.  Further, there is some inconsistency between that paragraph – which asserts no UPE from the Dinham Family Trust – and paragraph 2(e) of his written submissions, which asserts that he is owed UPEs by the Dinham Family Trust of $506,579.73.  However somewhat ironically (for reasons I will shortly explain) in the affidavit of Mr B Dinham, he concedes that there is a UPE in favour of the Mr Dinham Family Trust of $506,579.73, and I am therefore satisfied that is indeed the balance of the UPE.  There is a further UPE owing to either the husband, or his associated trust, by the D Family Trust, in the sum of $114,987.00, and a UPE owing to the husband (or his trust) by the N Family Trust, in the sum of $124,787.00.  There may also be a loan owed by the latter trust in the sum of $222,462.00.

6. In noting the irony that the husband’s case in this respect is made good by his brother, I was adverting to the fact that, unfortunately, there is a further layer of complexity in this case, namely that the husband’s relationship with his brother appears to have broken down, as has that brother’s relationship with their sister.  (It is unclear whether the husband’s relationship with his sister has also broken down).  Therefore, although ordinarily in matrimonial litigation, one is only concerned with the failed relationship between the husband and the wife, here there is the added hostility between the siblings.

7. It probably does not matter how the UPEs accrued, but it seems that they were likely by way of trust distributions which were not in fact paid.  At all events, it appears as though the chain of notional income most likely initially goes to the Mr Dinham Family Trust, which then declares dividends to the husband.  It seems that those dividends may not actually be paid, as in fact there is no cash available to the Mr Dinham Family Trust to make the payment.  Inevitably this creates a liability for tax, and is the income upon which child support is assessed.

8. In the year ending 30 June 2017, the husband’s taxable income was $173,849.00.  I infer he did not receive all of that by way of actual cash income.  In the year ended 30 June 2018, his income was $64,572.00.  That reduced income has seen his annual child support assessment at $11,712.00, down from the previous assessment of $44,252.00.  That has resulted in there in fact being a debt owed by the wife to the husband for child support overpayment in the sum of $19,078.50.  In reality, I expect that will not be required to be paid by her, but rather there will be an offset of that debt against the continuing assessment, such that the husband will not be required to in fact make payment of child support for some time.  That said, the wife has indicated that she intends to seek to vary the current assessment.  At all events, the husband does not have cash income from which to meet ongoing liabilities, albeit as I understand it, there are in the wife’s solicitors’ trust account monies comprising the balance proceeds of sale of a property that had been jointly owned by the husband and wife.  Otherwise the husband says that his income is slender.

9. For her part, the wife says that she requires child support payments in order to meet the costs of the parties’ children, particularly their private school education, and will now, unless there is varied assessment, need to utilise the funds in her solicitors’ trust account, in order to meet their education costs.

ISSUES 1 – 4

Overview

1. It is convenient to deal with issues 1 to 4 as a group, because all of them relate to the appointment of single experts, and/or their remuneration.

Relevant statutory provisions and legal principles

1. Division 15.5.2 of the Rules deals with the appointment of single expert witnesses.  The parties are agreed that the relevant expert evidence is required, and have identified the issues in relation to which their opinion should be directed.  Rule 15.47(1) provides “the parties are equally liable to pay a single expert witness’ reasonable fees and expenses incurred in preparing a report.”  Implicitly, to the extent that a party seeks payment of the expert’s costs by some other mechanism, they seek a dispensation of the application of that rule in this case.

Issue 1

1. The parties are agreed that Mr G of M Pty Ltd should be retained to provide advice with respect to the tax implications of effecting each party’s proposed orders, especially in regards to income or capital gains tax, and transfer duty, which may be incurred in connection with the transactions contemplated by such proposed orders.  Particularly, the parties are agreed that the advice should also cover whether there is a more tax effective means of achieving the respective orders sought.

2. As I understand it, the underlying problem is how the UPEs can be best paid, and the debt to the husband’s late father’s estate met.  The husband contends that the UPEs and debt should be met by the sale of real property owned by the Dinham Family Trust, and perhaps the other trusts.  There will inevitably be tax implications on the sale of those properties, and I suppose there is the live prospect that it may be more tax effective to wind up the trust, and make distributions of the capital of the trust to the beneficiaries.

3. However what the parties have not been able to agree is who should, at least in the first instance, bear the costs of this exercise.  For his part, the husband says that it should be the Dinham Family Trust, on the basis that it owes him the greatest amount of money by way of UPE, has a significant debt to his father’s estate, and has a considerable income stream from which it could meet the costs of the advice.  He emphasises that, given the size of the UPE which it owes him, there is no question that the cost of the advice would exceed that indebtedness.

4. The wife proposes something quite different.  She says that the costs should be met by the husband, his brother and his sister in equal shares.  She justifies that position on the basis that she does not really know which of the three trusts are more appropriate to meet the single expert’s fees, and therefore suggests that, in effect, that can be left to the siblings to sort out.  She proposes that any personal expenditure by the individual siblings could then be reimbursed to them by the trusts.

5. In the alternative, and on a global basis in respect of all costs issues of the experts, she says that she might meet the first $20,000.00 from joint funds in her solicitors’ trust account, but the balance should then be met by the three siblings.

6. As to this, the husband says that, if he is required to pay a share of the costs of the advice, the wife should do likewise, as it may well be to her ultimate benefit.

7. The husband correctly notes that the second and third respondents make no proposal in relation to the first issue, and that the fourth, fifth and six respondents propose that the third respondent (ie the Dinham Family Trust) pay the costs.

8. A further problem with the wife’s position is that, as I understand it, by way of a Second Further Amended Response to Initiating Application, in fact the husband has now conceded that his sister should no longer be a party to these proceedings.

9. I am satisfied that, for the reasons put forward by the husband, in the first instance, and subject to the question ultimately being reserved to the trial judge, the Dinham Family Trust should bear the costs of the advice.  I will so order.

Issue 2

1. The parties are agreed that a single expert valuer be appointed to value all of the real properties owned by the trusts.  As I understand it (although it makes no difference to this decision) the parties have settled on K Company as being the appropriate valuer.  However they are not agreed as to the party who should be responsible in the first instance for the costs.

2. Again, the husband says that it should be the Dinham Family Trust which bears the costs in the first instance.  The wife repeats her arguments, which I have discussed in relation to issue 1.  The fourth, fifth and sixth respondents repeat their arguments, and the third respondent does not make any proposal. 

3. To my mind the situation which arises in relation to this issue is indistinguishable from issue 1.  I am therefore again satisfied that Dinham Family Trust ought in the first instance bear the costs of the real property valuations of all of the trusts, because it has the greatest capacity to do so, and it owes the husband the most money.  I do not overlook the incongruity that one trust will be paying for the valuation of other trusts, but it is only in the first instance.

4. I should also deal with the argument advanced by the fourth, fifth and sixth respondents that they are third parties, and hence Part VIIIAA of the Family Law Act applies.  As the husband’s submissions correctly identify, that Part is of no application to this application, because it only relates to orders under s 79 or 114 of the Act, or matters ancillary to them.  Those provisions are not presently engaged in the exercise which I am undertaking.

Issue 3

1. The parties are agreed that the value of the three trusts, as distinct from just their underlying real estate, will need to be undertaken.  They are not agreed as to who should meet the costs of doing so.

2. This matter is indistinguishable from valuing the underlying the real property of each of the trusts, and I am satisfied that it should be, in the first instance, the Dinham Family Trust which bears that expense.  I repeat my reasons for that as I gave in relation to issues 1 and 2.

Issue 4

1. In addition to not being able to agree who should be responsible for the cost of the relevant valuation of the three trusts, and the husband’s father’s estate, the parties are not agreed as to who the appropriate valuer should be.  That said, the husband and wife are agreed that it should be H Company, the second and third respondents make no proposal, and the fourth, fifth and sixth respondents propose a valuer, K Company, undertake the exercise.

2. The husband correctly identifies that the valuation of the estate and trusts is more likely to be within the remit of an accountant, than a valuer.  That is particularly so given, as I understand it, the only asset of any significance in the estate of the husband’s late father is a debt, and the only assets, as I understand it, owned by the trusts are the real properties, and hence it is a question as to how those values should be translated across into the trusts which is the issue.  There will likely be issues such as realisation costs, latent tax liabilities and the like, which will need to be taken into account.  I am well satisfied that an accountant is the appropriate professional.  There will therefore be an order that H Company undertake the valuation.

ISSUE 5

1. The problem which has arisen is that, because of the UPEs needing to be disclosed as income by the husband, notwithstanding the fact that they are not actually received by him, income tax and child support liabilities accrue, which the husband has difficulty meeting, because both are assessed on the fiction that he received the UPEs.

2. Of course the UPEs are derived from the three trusts, but at least as regards the present outstanding balances, principally the Dinham Family Trust.

3. For her part, the wife says that it is premature to determine this matter, as there is presently no liability for child support that the husband will have, unless and until she succeeds in varying the assessment.  To this the husband says that he nonetheless wants the indemnity to cover the eventuality of a liability, whenever it arises.  In addition, I note that the indemnity he seeks is also in relation to taxation liabilities.

4. The second and third respondents make no proposal in respect of issue 5, and it does not concern the fourth, fifth and sixth respondents.

5. Again I am satisfied, for the reasons advanced by the husband, that the order he seeks is appropriate.  Particularly, his present UPE with the Dinham Family Trust will far exceed the amount of any indemnity, or indeed, the cumulative total of the costs which will need to be borne by the Trust under these orders, and it has the largest income stream of all of the trusts.

6. Again I do not overlook the fact that it may be, in effect, that the Dinham Family Trust is meeting expenses related to the other two trusts, rather than just itself, but again, so long as the order reserves the final balancing of any apportionment to the trial judge, any injustice that may arise can be easily remedied.

CONCLUSION

1. I will direct that within 7 days from the date of this judgment, the solicitors for the husband bring in orders consistent with these reasons for settling in chambers.         

I certify that the preceding forty (40) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Tree delivered on 5 July 2019.

Associate:

Date: 5 July 2019