E Pty Ltd & Ors & Zunino
[2020] FamCAFC 216
•1 September 2020
FAMILY COURT OF AUSTRALIA
| E PTY LTD AND ORS & ZUNINO AND ANOR | [2020] FamCAFC 216 |
| FAMILY LAW – APPEAL – PRACTICE AND PROCEDURE – Application for leave to appeal against dismissal applications seeking summary dismissal of the wife’s claim - Removal of parties – Where decision not attended by sufficient doubt to warrant leave being granted – Question of whether entities constitute alter ego or mere puppet of husband – Evidence of “uncommercial” transactions between husband and entities – Where the primary judge was not satisfied that the wife had no reasonable likelihood of success – Leave to appeal not given – Costs to be determined by way of written submissions. |
| Family Law Act 1975 (Cth) Pt VIII Family Law Rules 2004 (Cth) rr 6.02, 6.03, 10.12 |
| Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337; [1981] HCA 1 Ebner & Pappas (2014) FLC 93-619; [2014] FamCAFC 229 Gould and Gould (1993) FLC 92-434; [1993] FamCA 126 Harris & Dewell and Anor (2018) FLC 93-839; [2018] FamCAFC 94 Medlow & Medlow (2016) FLC 93-692; [2016] FamCAFC 34 Spencer v Commonwealth of Australia (2010) 241 CLR 118; [2010] HCA 28 Stein and Stein (1986) FLC 91-779; [1986] FamCA 27 Zao & Lee [2019] FamCAFC 169 |
| FIRST APPELLANT: | E Pty Ltd |
| SECOND APPELLANT: | F Pty Ltd |
THIRD APPELLANT: | F2 Pty Ltd |
| FIRST RESPONDENT: | Mr Zunino |
| SECOND RESPONDENT: | Ms Zunino |
| FILE NUMBER: | PAC | 1885 | of | 2019 |
| APPEAL NUMBER: | EAA | 134 | of | 2019 |
| DATE DELIVERED: | 1 September 2020 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney (via video link) |
| JUDGMENT OF: | Ainslie-Wallace, Ryan & Tree JJ |
| HEARING DATE: | 10 July 2020 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 15 November 2019 |
| LOWER COURT MNC: | [2019] FamCA 845 |
REPRESENTATION
| COUNSEL FOR THE FIRST TO THIRD APPELLANTS: | Mr Cummings SC |
| SOLICITOR FOR THE FIRST TO THIRD APPELLANTS: | Matthews Folbigg Pty Ltd |
| FIRST RESPONDENT: | No appearance |
| COUNSEL FOR THE SECOND RESPONDENT: | Mr Coleman SC with Mr O’Brien |
| SOLICITOR FOR THE SECOND RESPONDENT: | Hammond Nguyen Turnbull |
Orders
The application for leave to appeal filed 12 December 2019 be dismissed.
Within fourteen (14) days of the date of these orders, the wife file and serve by email an affidavit in relation to her application for costs together with written submissions in support of that application of no more than three (3) pages.
Within fourteen (14) days of service of the documents referred to in Order 2, the appellants shall file and serve by email any affidavit in reply and written submissions of no more than three (3) pages.
The wife may file any submissions in response of no more than two (2) pages which are to be filed and served by email within seven (7) days of service of the appellants’ submissions.
All parties are directed to give written notice to the Eastern Appeals Registrar of the date of service of any documents filed in accordance with these orders.
The wife’s application for costs will be determined without further oral hearing.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym E Pty Ltd and Ors & Zunino and Anor 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).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT SYDNEY |
Appeal Number: EAA 134 of 2019
File Number: PAC 1885 of 2019
| E Pty Ltd |
First Appellant
And
| F Pty Ltd |
Second Appellant
And
| F2 Pty Ltd |
Third Appellant
And
| Mr Zunino |
First Respondent
And
| Ms Zunino |
Second Respondent
REASONS FOR JUDGMENT
Introduction
By Notice of Appeal filed on 12 December 2019, E Pty Ltd, F Pty Ltd and F2 Pty Ltd (together, “the appellants”) seek leave to appeal, and assuming leave is given, appeal against the dismissal of various interlocutory applications. The appellants have been joined to proceedings between Ms Zunino (“the wife”) and Mr Zunino (“the husband”) in which the husband and wife seek relief pursuant to Pt VIII of the Family Law Act 1975 (Cth) (“the Act”). By her Initiating Application filed on 24 April 2019, the wife joined E Pty Ltd and by her Amended Application filed on 20 May 2019, the wife joined F Pty Ltd and F2 Pty Ltd. On 7 August 2019, the appellants filed a Response to the wife’s Application and relevantly, sought that they be removed as parties to the proceedings (r 6.02 and r 6.03 of the Family Law Rules 2004 (Cth) (“the Rules”)) and, that the wife’s Application against them be summarily dismissed pursuant to r 10.12 of the Rules. The applications were dismissed on 15 November 2019.
The wife seeks to uphold the orders. The husband filed a Submitting Notice on 4 May 2020 and is content to abide the outcome.
In order to secure leave to appeal, the appellants need to establish that the decision of the primary judge is attended by sufficient doubt to warrant it being reconsidered by this Court and that substantial injustice would result if leave was refused (Medlow & Medlow (2016) FLC 93-692).
Background
The eponymous E Pty Ltd is the corporate trustee of the Zunino Family Trust. This is a discretionary family trust of which the husband is a potential discretionary object. The husband is neither an officeholder nor shareholder of this entity and the husband’s father (Mr B Zunino) holds the power of appointment. Relevantly, this entity is the registered proprietor, as trustee, of the unit at G Street, Suburb H (“the Suburb H property”).
F Pty Ltd is the trustee of the Zunino Family Trust; a trust of which the husband is a potential discretionary object. The husband is neither an officeholder nor shareholder of this entity in respect of which the trustee holds the power of appointment. F Pty Ltd is the registered proprietor, as trustee, of properties at 1, 2 and 3 K Street, L Town (“the K Street properties”).
F2 Pty Ltd is a corporation wholly owned by the husband’s father. The husband’s father and the husband’s brother are its directors. F2 Pty Ltd is the registered proprietor of property at M Street, Suburb J (“the Suburb J property”).
The husband was a director of all three entities from 29 December 2017 until 19 December 2018. None of these properties were purchased at a time when the husband was a director of the relevant entity.
The wife contends that these entities are the alter ego (perhaps mere puppet) of the husband and that the various properties are held by the appellants on trust for the husband and the wife. The wife seeks declarations that:
·E Pty Ltd holds its interest in the Suburb H property for the husband and wife as tenants in common in equal shares;
·F Pty Ltd holds its interest in the K Street properties on trust for the husband and the wife as tenants in common in equal shares; and
·F2 Pty Ltd holds its interest in the Suburb J property on trust for the husband and wife as tenants in common in equal shares.
The husband and the appellants deny the wife’s claim and assert that the beneficial interests are at home with the legal interests.
We agree with the submission by the wife that the dismissal of the application for summary dismissal and as to joinder does not determine substantive rights. Thus as the Full Court said in Zao & Lee [2019] FamCAFC 169 said at [7]:
There is no doubt that courts exercise a “particular caution in reviewing decisions pertaining to practice and procedure” (Adam P Brown Male Fashions Pty Ltd v Phillip Morris Inc (1981) 148 CLR 170 (“Adam P Brown”) at [9] per Gibbs CJ, Aickin, Wilson & Brennan JJ). In Adam P Brown, their Honours expressly approved the following statement of Sir Frederick Jordan in Re the Will of F B Gilbert (1946) 46 SR (NSW) 318 at 323:
… I am of opinion that, … there is a material difference between an exercise of discretion on a point of practice or procedure and an exercise of discretion which determines substantive rights. In the former class of case, if a tight rein were not kept upon interference with the orders of Judges of first instance, the result would be disastrous to the proper administration of justice. The disposal of cases could be delayed interminably, and costs heaped up indefinitely, if a litigant with a long purse or a litigious disposition could, at will, in effect transfer all exercises of discretion in interlocutory applications from a Judge in Chambers to a Court of Appeal.
Alter Ego or Puppet
The scope of the court’s powers to treat property in the name of a third party as though it is the property (or a financial resource) of a party was considered recently in Harris & Dewell and Anor (2018) FLC 93-839 (“Harris & Dewell”). In Harris & Dewell the Full Court referred to Gibbs J’s seminal judgment in Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 (“Ascot Investments”) at 354–355:
20.The position is, I think, different… if a company is completely controlled by one party to a marriage, so that in reality an order against the company is an order against the party, the fact that in form the order appears to affect the rights of the company may not necessarily invalidate it…
21.Except in the case of shams, and companies that are mere puppets of a party to the marriage, the Family Court must take the property of a party to the marriage as it finds it. The Family Court cannot ignore the interests of third parties in the property, nor the existence of conditions or covenants that limit the rights of the party who owns it…
…
23.The position might have been different if it had been proved that the directors had refused to register a transfer for the sole reason that the husband has asked them not to do so…
Pivotal to “alter ego” and “mere puppet” cases is evidence that the entity, for example, through a trustee, director or shareholder, acted at the spouse party’s bidding (Ascot Investments at 355). Thus, and by way of example, as the Full Court said in Stein and Stein (1986) FLC 91-779 (“Stein”), the court is concerned with the reality of the situation and, “[i]t is not open to a party to assert on the one hand that the assets acquired in a family trust are not his and at the same time deal with them as if they are” 75,674. Although the published cases are replete with unsuccessful attempts to establish an alter ego scenario, as Stein demonstrates, it can be done.
Summary Dismissal
Turning then to the application for summary dismissal of the wife’s claim pursuant to r 10.12. The appellants carefully established that although the husband had been a director of the entities (he resigned shortly after the parties separated) he had never had explicit legal title to the entities. Senior counsel for the wife conceded the point but explained that, because it is the wife’s case that notwithstanding that legal control sat elsewhere, the husband was the controlling mind and the entities his alter ego, this is something of a non sequitur. To this end, the wife pointed to a raft of “uncommercial” transactions and what she said were the spouse party’s more or less exclusive use of the subject properties.
As the primary judge noticed, these included “loans without interest or terms of repayment, funds provided for holidays and travel for himself and his family, the personal use of a helicopter, personal use of motor vehicles owned by members of the Zunino Group” at [33(g)]. For example:
·$809,000 advanced many years ago of which the husband said: “my father… caused [the business] to pay me” and in relation to which there is no evidence of a loan agreement, repayment etc. (husband’s affidavit filed 3 July 2019, paragraph 37);
·approximately $1 million applied towards the family home many years ago, again without documentation which suggests the payment was a loan or repayment (husband’s affidavit filed 3 July 2019, paragraphs 43–46);
·a helicopter which cost in the vicinity of $1 million of which the wife said the husband had exclusive use (husband’s affidavit filed 3 July 2019, paragraphs 48–52); and
·an extravagant looking buggy used at the K Street properties (wife’s affidavit filed 20 May 2019, paragraphs 104–106).
Furthermore, the wife deposed to having worked in the business for 22 years and having an intimate understanding of its operations [23]. She gave a first‑hand account of the husband’s role in the business which the primary judge described in the following terms:
·it was the husband who controlled the family business entities and businesses. The husband further represented to her that the “[m]other and father are not involved in the business anymore. I run the company” [31];
·the husband represented to her that it was he who purchased the Suburb J property but that property is registered to the sixth respondent company [32];
·the husband “was the controlling mind of D Pty Ltd and/or AA Pty Ltd and the entities that traded under those business names” [33(d)];
·the husband represented to the wife that the Suburb H property was acquired for them as their weekender [33(h)];
·as with the Suburb H property, the parties agreed to purchase the K Street properties, which the husband told the wife he did [33(i)–(ii)]; and
·evidence to similar effect in relation to the acquisition of the Suburb J property [33(j)].
The submissions made by the wife at paragraph 6 of her Summary of Argument filed 27 May 2020 are also apt.
The primary judge then addressed the application of r 10.12 and considered whether the husband had shown that the wife had no reasonable likelihood of success. Informed by authority, a cautious approach was adopted and the wife’s evidence was evaluated at its highest and on the basis that the power should not be exercised unless it is clear there that there is no real question to be tried (see Ebner & Pappas (2014) FLC 93-619 citing Spencer v Commonwealth of Australia (2010) 241 CLR 118 at [56]). No challenge is made to his Honour’s statement of the guiding principles and it is their application and the adequacy of the reasons to which the application for leave and proposed grounds of appeal are addressed.
In deciding against the appellants, the primary judge took into account the circumstantial nature of the wife’s case mounted against them and the importance of her being given an opportunity to take advantage of interlocutory processes (for example to access the entities’ records) to prove her case. Although the primary judge did not expressly say so, it is tolerably clear that his Honour thought this aspect of the wife’s case appeared weak [40] but at this stage (which we note is at the very inception of the proceedings and prior to the usual interlocutory steps being undertaken), he was not satisfied that she had no reasonable likelihood of establishing that the husband exercises effective control over the entities as his alter ego [41].
This is sufficient to reject the assertion that the reasons for judgment are inadequate. It is also sufficient to reject the submission of the appellants, that the primary judge misunderstood the wife’s case and that his Honour should have found that she had no reasonable likelihood of success (Appellants’ Summary of Argument filed 1 April 2020, paragraphs 23–24).
The appellants have thus failed to establish either limb of the test for leave to appeal against the summary dismissal order.
Failure to remove the appellants as parties
Somewhat curiously, the appellants’ position in the appeal is that:
… If the wife sought more than mere declaratory relief as she does presently, being orders consequent upon any such declaration so as to interfere with the [appellants’] rights, the appellants ought properly remain as parties. The wife does not, and the appellants ought be removed from the proceedings at this time.
(Appellants’ Summary of Argument filed 1 April 2020, paragraph 27)
We agree with the wife that these observations conflate the question of the form of final relief sought against the appellants with an argument that the claim for declaratory relief has no merit.
In any event, the primary judge was satisfied that:
43.It is readily apparent that the relief sought by the wife as against [the appellants] directly affects those [parties] as the relief sought is as to an asset or assets of those [parties]. Should the wife be successful, then those [parties] would be deprived of their right or rights over the said properties. As such, it is appropriate that [the appellants] are parties to these proceedings for that purpose and for the purpose that should the wife be successful the matrimonial asset pool for division will be significantly enhanced; the joinder of [the appellants] is mandated by the provisions of rule 6.02. It is not appropriate that they be removed as parties to these proceedings.
…
45.It is, otherwise, readily apparent that in the event the declarations are made the Court would be in a position to order [the appellants] or any of them to transfer the subject property or properties to the names of the husband and wife as tenants-in-common. Thereafter the fate of those properties depends upon the ultimate resolution of the section 79 proceedings as between the husband and wife.
We also agree with the primary judge that as the appellants “may” be directly affected by the wife’s case raised against them and the husband, they are necessary parties (r 6.02) (see also Gould and Gould (1993) FLC 92-434). The appellants’ contention that an application for a declaration of trust in favour of the spouse parties is insufficient justification for a finding that they “may” be affected, needs only be stated to be rejected. Plainly, on the wife’s case, the appellants “may” be deprived of their beneficial ownership of valuable property and all that would remain is for the court to determine how those changed interests should be reflected as between the husband and the wife.
His Honour’s decision to reject the appellants’ application to be removed as parties was correct and leave to appeal in relation to the joinder issue should not be given.
Conclusion and Costs
The appellants have failed to establish that leave to appeal should be given and the application for leave will be dismissed. In these circumstances the wife seeks her indemnity costs. The appellants do not cavil with an order for costs in the wife’s favour calculated on a party/party basis but resist indemnity costs.
Before the issue of costs is determined, senior counsel for the wife sought the opportunity to place before us evidence concerning offers of settlement. Directions will be made to this effect and, as we propose that the outstanding costs issue will be determined in chambers, for short submissions on this issue.
I certify that the preceding twenty-seven (27) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (Ainslie-Wallace, Ryan & Tree JJ) delivered on 1 September 2020.
Associate:
Date: 1 September 2020
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