Eacret & Eacret (No 2)
[2022] FedCFamC1F 589
Federal Circuit and Family Court of Australia
(DIVISION 1)
Eacret & Eacret (No 2) [2022] FedCFamC1F 589
File number(s): SYC 4450 of 2021 Judgment of: SCHONELL J Date of judgment: 16 August 2022 Catchwords: FAMILY LAW – PRACTICE AND PROCEDURE – Where the wife sought a suite of orders including joinder, injunctions and disclosure – Where the husband purchased a property and used the former matrimonial home as additional security for that purchase – Where the wife sought to join two third party companies – Orders made for one of the companies to be joined as a party to the proceedings – Where the wife also sought to restrain the husband and the two companies from dealing with properties – Where the husband failed to make full and frank disclosure – Where the wife satisfied the Court that there is an arguable case for the relief she seeks – Injunctions granted against the husband and one of the companies – Orders made regarding disclosure. Legislation: Family Law Act 1975 (Cth) ss 79, 114
Family Law Rules 2004 (Cth)
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) rr 3.01, 3.03
Cases cited: Eacret & Eacret [2021] FedCFamC1F 300
Kannis & Kannis (2003) FLC 93-135; [2002] FamCA 1150
Oriolo & Oriolo (1985) FLC 91-653; [1985] FamCA 54
Sieling & Sieling (1979) FLC 90-627; [1979] FamCA 23
State of Victoria v Sutton (1998) 195 CLR 291; [1998] HCA 56
Tsiang & Wu and Ors (2019) FLC 93-911; [2019] FamCAFC 128
Wayne v Dillon and Another (2008) 40 Fam LR 543; [2008] 40 FamLR 543
Weir & Weir (1993) FLC 92-338; [1992] FamCA 69
Division: Division 1 First Instance Number of paragraphs: 83 Date of hearing: 4 August 2022 Counsel for the Applicant: Mr May Solicitor for the Applicant: Pearson Emerson Family Lawyers Counsel for the Respondent: Mr Bunning Solicitor for the Respondent: Watts McCray ORDERS
SYC 4450 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS EACRET
Applicant
AND: MR EACRET
Respondent
order made by:
SCHONELL J
DATE OF ORDER:
16 AUGUST 2022
THE COURT ORDERS THAT:
1.Leave be granted pursuant to r 3.03(4) of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) to join DD Pty Ltd ACN… (“DD Pty Ltd”) as a party to these proceedings.
2.Pending further order, the respondent husband (“the husband”) is hereby restrained from selling, transferring, assigning, further encumbering or alienating the property at B Street, Suburb C, New South Wales (Folio Identifier …) without the applicant wife’s (“the wife’s”) prior written consent or order of the Court.
3.Pending further order, the husband and/or DD Pty Ltd cause to be paid as and when they fall due the mortgage payments in respect of the mortgage secured over the property at Y Street, Suburb C, New South Wales (Folio Identifier…).
4.Pending further order, the husband and DD Pty Ltd be and are hereby restrained from selling, transferring, assigning, further encumbering or alienating their interest in the property at Y Street, Suburb C, New South Wales (Folio Identifier…) without the wife’s prior written consent or order of the Court.
5.Leave is granted to the wife to lodge a copy of these orders on the official folio of the real properties identified at Orders 2 and 3 and, for this purpose, the parties be and are hereby restrained by injunction from doing any act or thing which causes the removal of these orders from the official folio of the properties.
6.The wife within 28 days’ file and serve an affidavit as to the documents to which she seeks disclosure identifying with precision when disclosure was requested and attesting that the documents have not been provided.
7.The husband within a further 28 days thereafter respond to the wife’s affidavit attesting to when disclosure was made in relation to the documents sought and in relation to documents that have not been disclosed an explanation as to why and when disclosure will be made.
8.All extant interlocutory applications be otherwise dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Eacret & Eacret has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
SCHONELL J:
These are interlocutory proceedings that are part of wider financial proceedings between the parties, which were initially commenced by the applicant wife (“the wife”) in June 2021. Notwithstanding that the proceedings have been on foot for barely a year, the costs memorandums of the parties identify that the wife has so far expended approximately $250,000 in legal fees and the respondent husband (“the husband”) $300,000 in legal fees. The current contest will no doubt add considerably to those costs.
By Amended Application in a Proceeding filed 22 July 2022, the wife sought a suite of orders including joinder, injunctions, and disclosure and valuation issues. The parties in large measure were able to reach agreement, including identifying that they will attend a mediation in December 2022 to be conducted by the Honourable Gary Foster. Notwithstanding broad agreement on a number of topics, the parties remained apart in relation to questions of joinder, injunctions, disclosure and return of various items of personalty.
The orders that each party sought about which no agreement could be reached were set out in Exhibit 1. The wife sought Orders 1 – 17, while the husband sought Order 30. Exhibit 1 is in the following terms:
1.That leave be granted pursuant to rule 3.03(4) of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 to join [K Pty Ltd] ACN […] as a party to these proceedings.
2.That leave be granted pursuant to rule 3.03(4) of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 to join [DD Pty Ltd] ACN [...] as a party to these proceedings.
…
4.That pending further order [K Pty Ltd] cause to be paid, as they fall due, the mortgage payments in respect of any mortgage secured over the property at [B Street, Suburb C], NSW ( as amended orally)
5.That pending further order, the Husband and [K Pty Ltd] be and are hereby restrained from selling, transferring, assigning, further encumbering or alienating their interest in the property at [B Street, Suburb C], NSW (Folio Identifier […]) without the Wife’s prior written consent or order of the Court.
…
7.That pending further order, the Husband and/or [DD Pty Ltd] cause to be paid as and when they fall due the mortgage payments in respect of the mortgage secured over the property at [Y Street, Suburb C], NSW.
8.That pending further order, the Husband and [DD Pty Ltd] be and are hereby restrained from selling, transferring, assigning, further encumbering or alienating their interest in the property at [Y Street, Suburb C], NSW (Folio Identifier […]) without the Wife’s prior written consent or order of the Court.
…
10.Leave is granted to the Wife to lodge a copy of these Orders on the official folio of the real properties identified at Orders 4 and 7 and, for this purpose, the parties be and are hereby restrained by injunction from doing any act or thing which causes the removal of these orders from the official folio of the properties.
…
17.That within 14 days of the date of these orders, the Husband provide to the Wife copies of the documents listed in the Schedule attached to these orders and marked “A”.
…
30.That pursuant to order 13 of the Orders dated 14 December 2021, the wife make the following items available for collection by a carrier arranged by the husband within 21 days:
30.1.The husband’s 2 external hard drives;
30.2.The husband’s necklace;
30.3.[Mr Z] artworks;
30.4.All of the husband’s clothing;
30.5.All [L Company] stationery;
30.6.All Trust Deeds for the entities of the husband;
30.7.All cheque books, deposit books and banking documents of the husband and the husband’s entities; and
30.8.All financial records of the husband and the husband’s entities.
The wife relied upon the following documents:
(1)Amended Application in a Proceeding filed 22 July 2022;
(2)Affidavit of wife filed 22 July 2022;
(3)Affidavit of Mr AA filed 1 August 2022; and
(4)Case Outline document.
The husband relied upon the following documents:
(1)Response to an Application in a Proceeding filed 1 August 2022;
(2)Affidavit of husband filed 1 August 2022;
(3)Case Outline document; and
(4)Written Submissions.
Background
The wife contends that the parties commenced cohabitation in about January 1995 and were married in 1996. She says the parties separated in March 2020. There are three children of the marriage. There is only one child currently under the age of 18.
The husband has re-partnered and he has two children from that relationship. It would appear that the husband’s new partner and children live in the United Kingdom. The husband returns periodically to Australia.
The wife contends there is an issue as to when the husband and his partner commenced cohabitation. For the purposes of this application, that is not a relevant issue.
In October 2011, there was established a company, K Pty Ltd (“K Pty Ltd”), of which the husband was the sole director and sole shareholder. Following the parties’ separation, the husband’s sister was also appointed a director.
K Pty Ltd is the trustee of the K Trust. The wife describes K Pty Ltd in the following terms:
39. [K Pty Ltd] is the trustee of the [K Trust] which I understand is a hybrid discretionary and unit trust. [Mr Eacret] is the appointor and primary beneficiary of the [K Trust] and I am a secondary beneficiary. The units in the [K Trust] are held by [S Pty Ltd].
40. On or about December 2011, the [B Street] property was purchased in the name of [K Pty Ltd] as trustee of the [K Trust]. The property was purchased as vacant land and our house was constructed on the land between about 2011 and 2013.
41. The [B Street] property has been our family home for about 9 years and I wish to remain living there with the children. In my Initiating Application, as amended, I seek orders for [Mr Eacret] to discharge the mortgage secured over the property and transfer it to me.
42. The [B Street] property has been valued by the agreed single expert, [Mr EE] of [FF Company], for the purpose of these proceedings at $4,100,000 as at mid-2022.
43.There was a mortgage over the [B Street] property securing loans from ANZ which was refinanced with [JJ Bank] in about June 2017. The JJ Bank facility comprises 2 loans, accounts ending [#...58] and [#…13], with a limit of $1,803,750.
44. As at 10 May 2022, the balance of the [JJ Bank] loans was $1,760,965.
The wife makes a general contention in the proceedings that the husband has failed to make a full and frank disclosure.
The wife gives evidence that the company DD Pty Ltd (“DD Pty Ltd”) was incorporated on 9 July 2021. The wife asserts the following in relation to this company:
46. [Mr Eacret] is a director of [DD Pty Ltd] with his sister, [Ms KK], who is the secretary and sole shareholder of the company. [DD Pty Ltd] is the corporate trustee of the [BB Trust] and the [CC Trust].
47. The [BB Trust] was established by deed dated 21 July 2021. [Mr Eacret] and [Mr HH], are the appointors, with his sister, [Ms KK], as the alternative appointor. [Mr Eacret] is the primary beneficiary, with [CC Pty Ltd] Pty Ltd as the default beneficiary.
48. The existence of the [BB Trust] was first disclosed to me by letter received by my solicitors from [Mr Eacret's] solicitors on 6 May 2022.
49. [DD Pty Ltd] as trustee for the [BB Trust] entered a contract for the purchase of the [Y Street] property for $5,000,000 in early April 2022, without my knowledge. I do not know whether settlement of the purchase has occurred but understand that [Mr Eacret] has arranged to borrow $4,998,000 to fund the purchase, secured in part over the [B Street] property.
…
61.On 12 April 2022, my solicitors received a letter from [Mr Eacret's] solicitors enclosing documents by way of updating disclosure. There was no disclosure made regarding [DD Pty Ltd], [CC Pty Ltd], the [BB Trust] or the [CC Trust].
The wife says:
55. On or about 10 November 2021, I received a call on my mobile telephone from [MS LL], a real estate agent at [NN Agents, Suburb OO]. During the course of that conversation, [Ms LL] said to me:
“I have an email from [Mr Eacret]. He says he is the sole owner of the property. He wants to know if he can sell the property off market with a lease back to him for two years.”
I originally thought this conversation occurred on or about 8 November 2021, but after considering the time and date of the email produced on subpoena, as set out at paragraph 56 below, I now believe it was on or about 10 November 2021. I requested a copy of the email from [Ms LL] but she declined to provide it. This telephone call was not referred to in the affidavit material I relied on for the purpose of the interim hearing before the Honourable Justice Rees on 14 December 2021. I swore those affidavits before the telephone call had occurred. I subsequently caused my solicitors to issue a subpoena to [NN Agents].
…
57. I am informed by my lawyers and believe that the documents produced by [NN Agents] in response to a subpoena issued at my request on 6 May 2022 include an email dated 9 November 2021 from [Mr Eacret] to [Ms LL] in which he states:
I am a seller of this property however can't currently arrange access for viewings as it is tied up on my divorce process.
Any sale would need to be on a lease back basis until 31.12.2023.
I am in [the United Kingdom] at the moment but will be back in Sydney in December and looking for something similar to my [B Street] property.
58. On or about 25 January 2022, I was contacted by [QQ Valuers] to arrange access to the [B Street] property for a valuation report. On 17 February 2022, I caused my solicitors to forward a letter to [Mr Eacret's] solicitors to confirm the purpose of the valuation. On 7 March 2022, my solicitors received a response from [Mr Eacret's] solicitors which stated: “[JJ Bank] is doing a bank valuation; the valuation is part of their normal loan management process.”
59. On or about 31 March 2022, I had a conversation with my son, [Mr M] who is 20 years of age. [Mr M] said to me:
“I got a call from a real estate agent from [PP Agents, Suburb OO]. He said that they had heard that we were interested in selling the house.”
…
62. On 29 April 2022, my daughter, [Ms N], who is 19 years of age, said to me:
“I saw on my computer today that [Mr Eacret] is looking at buying a house in [Suburb C]”.
I then looked at [Ms N's] computer and saw a Westpac receipt dated 20 April 2022 for payment of $12,500 from [S Pty Ltd] to [PP Agents, Suburb OO] with a description “[Y] deposit”. I took a screenshot of the receipt.
…
[Y Street] property
64. On 6 May 2022, my solicitors received a letter from [Mr Eacret's] solicitors enclosing documents, including page 1 of a contract dated 20 April 2022 for the purchase of the [Y Street] property in the name of the [BB Trust] with a copy of the Deed establishing that trust dated 21 July 2021. Annexed and marked “[ME]-4” is a copy of the letter dated 6 May 2022 and page 1 of the contract which shows a purchase price of $5,000,000 million dollars and deposit of $500,000. The contract names [PP Agents, Suburb OO] as the vendor's agent.
…
67. On 16 May 2022, [Mr Eacret] filed Notices of Objection to the subpoenas to [NN Agents] and [PP Agents, Suburb OO]
…
69. On 6 June 2022, the Notices of Objection were dismissed with costs.
(As per the original)
The wife sought further inquiries of the husband in relation to the purchase of the Y Street property. The wife says that on 15 July 2022, the husband through his solicitors informed the wife that he intended to complete the purchase of the Y Street property and sent a letter to the wife’s solicitors that settlement would occur on or about 19 July 2022. Enclosed with that letter was a letter dated 8 July 2022 advising that the purchase would be funded by way of additional security over the B Street property.
The husband in his affidavit says the following:
30.I have taken no steps to sell, lease or transfer the [B Street] property, and I never engaged in talks to sell the property off-market. I have made several enquiries of multiple real estate agents since separation to obtain advice about the value of the home and on what basis it could be sold, namely whether a sale on a leaseback basis was a viable option. I made this these enquiries in the lead up to an anticipated mediation conference with [Ms Eacret], so that I would be able to propose that she remain the [B Street] property for a period, on a lease-back basis, if she wished to. The feedback I received from the real estate agents from those enquiries was that it would be an unattractive proposition to buyers and a potential buyer would likely be an owner-occupier.
…
64.Upon entering into a contract to buy the [Y Street] property and the purchase contract becoming unconditional, I provided disclosure of all of these entities. I did not go to the expense of disclosing these entities beforehand, as they had no value or relevance, and I was not certain that the purchase would proceed due to issues relating to the property due diligence. The cooling off period was extended to enable resolution of these issues.
Joinder
Section 79(10)(b) of the Family Law Act 1975 (Cth) (“the Act”) outlines that any other person whose interests would be affected by the making of the order is entitled to be joined to the proceedings.
The Act reflects what McHugh J observed in State of Victoria v Sutton (1998) 195 CLR 291 that:
77.The rules of natural justice require that, before a court makes an order that may affect the rights or interests of a person, that person should be given an opportunity to contest the making of that order. Because that is so, it is the invariable practice of the courts to require such a person to be joined as a party if there is an arguable possibility that he or she may be affected by the making of the order. …
(Footnote omitted)
Rule 3.01 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) (“the Rules”) provides:
3.01 Necessary parties
A person whose rights may be directly affected by an issue in a proceeding, and whose participation as a party is necessary for the court to determine all issues in dispute in the proceeding, must be included as a party to the proceeding.
While r 3.03(4) provides that a party who seeks to join a third party to the proceedings after the first court date must seek leave to do so.
In Wayne v Dillon and Another (2008) 40 Fam LR 543, Warnick J observed in respect of the old Family Law Rules 2004 (Cth) that “necessary” meant:
18. … something more than “useful” or “expeditious”. In my view, if there are available alternative means to joinder to the substantive proceedings, of obtaining from a third person or someone already a party what is needed to allow an applicant for joinder to establish an identified “case”, joinder is unlikely to be “necessary”.
19. However, if a cause of action, recognisable at law, against a “third person” is particularised, then it is at least highly likely that joinder will be “necessary for the court to completely and finally determine all matters in dispute”. …
The wife seeks to join K Pty Ltd and DD Pty Ltd. It is not is dispute that K Pty Ltd is the Trustee of the K Trust while DD Pty Ltd is the Trustee of the BB Trust.
The husband’s counsel in his written submissions contends:
14. It appears uncontroversial that he has the relevant control of the two trusts, and he has agreed to the Orders summarised above.
Such a concession is not immediately apparent from the husband’s affidavit and from the structure of the trust as outlined in the wife’s affidavit.
It is unclear to me when that concession was first made.
The wife’s relief on a final basis seeks a transfer of the B Street property to the wife. K Pty Ltd has always held the property on trust for the K Trust since its purchase in 2011. The wife has presumably known this since at least the commencement of proceedings in June 2021, if not earlier. It is not suggested that there has been a change of trustee or the shareholding of the trustee. It is beyond doubt that the husband remains in control of the trust. It is unexplained why there is now a necessity to join K Pty Ltd in circumstances where there has been no change to the K Trust or the shareholding in the trustee and where the husband retains control of the trust.
I am not satisfied that it is necessary to join K Pty Ltd to achieve the relief the wife seeks. In the event that the situation of control or a change in trustee should occur, then the wife’s position can be reassessed.
It is not immediately apparent to me that the husband (despite his counsel’s concession) controls the BB Trust. The husband is one of two appointors, with his sister an alternate appointor. He is not a shareholder of the trustee and but one of two directors. I was not taken to the Trust Deed.
The structure of DD Pty Ltd and its Trust is very different to that in respect of K Pty Ltd.
The acquisition by DD Pty Ltd of the Y Street property has led to the B Street property being provided as security for the advances by the mortgagee. Whereas the debt to JJ Bank secured over B Street was approximately $1.76 million, it is now security for $3.16 million (wife’s affidavit, Annexure ME-7).
These events took place with no notice to the wife and with the full knowledge that the wife sought on a final basis the transfer of the B Street property to her on an unencumbered basis.
The transfer of the B Street property to the wife (should that be a final order made by the Court) will require the cooperation of DD Pty Ltd and will affect the interests of DD Pty Ltd.
I am satisfied that it is necessary that DD Pty Ltd be joined as a party and will order so.
Injunctions
The wife seeks by way of injunction to restrain the husband, K Pty Ltd and DD Pty Ltd from dealing with the B Street and Y Street properties as well as orders that the husband and each of the entities pay the mortgages as and when they fall due.
Section 114 of the Act provides that the Court may make such order or grant such injunction as it considers proper, including an injunction in relation to the property of a party to the marriage.
In Tsiang & Wu and Ors (2019) FLC 93-911, the Full Court summarised the relevant law in relation to injunctions in the following terms:
20.The grant of an injunction is discretionary and the basis on which such an order is made is well established. A purpose, as in this case, is to preserve the status quo pending resolution of the controversy. An applicant must demonstrate first that there is a serious issue to be tried. While that statement has been the subject of various iterations, in essence it requires the demonstration of an arguable case or as was said in Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at [65], the applicant must “show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo”.
21.Next the applicant must demonstrate that the balance of convenience favours making the order sought. As part of this, the applicant must show that there is a “danger” or risk of dissipation of or dealings with assets which will frustrate any judgment in favour of the applicant.
22.In Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319, Gleeson CJ said after discussing the discretionary nature of the remedy at 321–325:
… as a general rule a plaintiff will need to establish, first, a prima facie cause of action against the defendant, and secondly, a danger that, by reason of the defendant’s absconding, or of assets being removed out of the jurisdiction or disposed of within the jurisdiction or otherwise dealt with in some fashion, the plaintiff, if he succeeds, will not be able to have his judgment satisfied.
...
It is not difficult to imagine situations in which justice and equity would require the granting of an injunction to prevent dissipation of assets pending the hearing of an action even though the risk of such dissipation may be assessed as being somewhat less probable than not.
23.As McDougall J in Skyworks v 32 Drummoyne Road [2017] NSWSC 343 said:
24.The Court is required to undertake a qualitative evaluation of all the evidence that is available, to see if there is a sufficiently serious risk of frustration to justify the making of a freezing order. Further, the two considerations [namely, (1) whether there is a good arguable case and (2) whether there is a real risk of judgment frustration] should be analysed together (as each may impact on the other), and with an appreciation of both the underlying purpose of the rule and the relative risks of granting or withholding relief – the customary discretionary calculus.
24.In this case the identified risk was that the wife might dispose of assets in Australia and in her name in order to defeat the husband’s claim and, equally it was asserted that there was a risk that the second and third respondents too might deal with the partnership assets in a way so as to defeat the husband’s possible judgment or claim to that entity.
25.It is unnecessary to demonstrate a positive intention but merely the possibility of the event occurring. The determination about the balance of convenience may thus be an inference drawn from the facts and circumstances established by the applicant’s evidence.
26.Nor is it the role of the judge determining the question of the injunction to, in effect conduct a trial of the disputed evidence to resolve those disputes (see Shercliff v Engadine Acceptance Corporation Pty Ltd [1978] 1 NSWLR 729).
27.As to the determination of the existence of the risk and its magnitude, in Palmer v Parbery [2019] QCA 27 McMurdo JA (with whom Fraser and Gotterson JJA agreed) said:
119.The determination of whether there exists a sufficiently serious risk of the dissipation of assets involves the evaluation of future possibilities, rather than the ascertainment of historical facts. The risk of dissipation might justify an order although the probability of the risk eventuating is less than 50 per cent. But, as the risk of dissipation must be a real and not merely a theoretical one, it must have an evidentiary basis. Where a fact is alleged by the plaintiff in support of its case about the risk, but there is contrary evidence from the defendant, must the fact be proved to the court’s satisfaction as if the application for the freezing order was the trial of the case? In my view, a plaintiff need not do so. A freezing order is interlocutory in nature; it does not involve a final determination of the parties’ positions. Usually it is made in circumstances of urgency in which the court is unable to conduct an extensive and conclusive factual inquiry in a way which is fair to both parties. Where the factual basis for the plaintiff’s case about the risk of dissipation is disputed, the risk will commonly have to be evaluated with the recognition that the factual basis for it is in doubt. Nevertheless, the possibility of the plaintiff’s evidence being correct, considered with other facts and circumstances, might mean that there is a sufficiently serious risk of the frustration of the satisfaction of a judgment as to justify the making of a freezing order. …
(Footnotes omitted)
Thus to ground the wife’s relief, she needs to establish that there is a serious issue to be tried alternatively expressed as a prima facie case for relief. She must also establish that her claim for relief will be imperilled if the injunction is not granted. To that extent the Court might be satisfied about risk of dissipation by an assessment of future possibilities of an event occurring, which may be established by the drawing of inferences from the applicant’s evidence.
The question of prejudice to the respondent needs to be considered and the order made should be no more than is necessary. It is the applicant for the injunction who bears the onus of satisfying the Court that the circumstances justify the making of the order: Sieling & Sieling (1979) FLC 90-627 at 78,262.
The wife seeks an order for adjustment under s 79 of the Act. The husband concedes that an order should be made albeit not the one that the wife seeks. It was not suggested by the husband’s counsel that there was not a serious issue to be tried
The real issue raised by the wife and implicit in the wife’s case is her concern that the husband has acted and will act or may act in a way that either reduces the pool of assets available for distribution or affects his capacity to transfer to her the B Street property. The wife’s concerns arise in significant part in response to the husband’s approach to disclosure.
The wife contends that the husband’s conduct in failing to comply with his obligations of disclosure and in particular, the circumstances surrounding the purchase of the Y Street property are such as to warrant intervention. Her counsel points to what she says is evidence of attempts by the husband to sell the property. Her counsel says the pool of assets has been reduced by the payment of stamp duty referrable to the purchase of the Y Street property and its purchase and encumbrance of the B Street property by a further $1.398 million possibly puts at risk the wife’s orders. The wife provides an undertaking as to damages.
The husband’s counsel says there is no evidence of the husband attempting to sell the B Street property. He says there is no evidence that the pool of assets has been reduced by the purchase and further the husband has paid and will continue to pay the mortgages over both properties. He also notes that Rees J has already dealt with the issue of injunctions and refused to make a similar injunction to that now sought by the wife. He submits that the injunction is unnecessary and affects the husband’s ability to refinance the properties.
Both parties to the litigation have an obligation of disclosure.
The authorities make plain that a party to financial proceedings is required to make a full and frank disclosure of their financial position (see Oriolo & Oriolo (1985) FLC 91-653; Weir & Weir (1993) FLC 92-338 (“Weir & Weir”)). That case law is reinforced by the Rules. The duty of disclosure is absolute. It is a continuing obligation throughout the litigation and until the point of judgment. It does not relate simply to documents but includes information relevant to all relevant and material facts.
In Kannis & Kannis (2003) FLC 93-135, the Full Court underscored the relevance and consequence of a failure to disclose:
51.Whether the non-disclosure is wilful or accidental, is a result of misfeasance, or malfeasance or nonfeasance, is beside the point. The duty to disclose is absolute. Where the Court is satisfied the whole truth has not come out it might readily conclude the asset pool is greater than demonstrated. In those circumstances it may be appropriate to err on the side of generosity to the party who might be otherwise be seen to be disadvantaged by the lack of complete candour. ...
It is not in issue that on 9 July 2021 DD Pty Ltd was incorporated. The husband is director of that company and his sister is the sole shareholder. That company is the corporate trustee of the BB Trust.
The BB Trust was established by deed dated 21 July 2021. The husband is one of the appointors of the trust and is a primary beneficiary. On 21 July 2021, the CC Trust was established. DD Pty Ltd is the trustee and the husband is one of the appointors of the trust and is a primary beneficiary.
These entities were not disclosed at the time of the hearing before Rees J on 9 December 2021.
On 11 March 2022, an order was made by a judicial registrar of the Court that the husband provide further disclosure. On 12 April 2022, the wife contends that the husband sent a letter to the wife’s solicitor enclosing various documents. There was no disclosure made at that time in relation to DD Pty Ltd, the BB Trust or the CC Trust.
It is not in issue that the husband did not disclose to the wife the existence of the BB Trust until 6 May 2022. Nor is it in issue that the husband did not disclose to the wife the existence of the CC Trust until 22 June 2022. In that respect, the husband says:
60.In July 2021, ahead of an anticipated mediation and resolving our property settlement, I caused The [BB Trust], [CC Trust], and the trustee [DD Pty Ltd] to be set up to acquire assets from my existing entities as part of the settlement process. [CC Pty Ltd] was established as the primary beneficiary of the [CC Trust]. These entities had no assets, no debts, no income, no value and did not engage in any activity; they sat idle in the hope of [Ms Eacret] and I settling our dispute.
In my view, the disclosure of his interest in these entities did not comply with his obligations of timely disclosure.
The wife gives evidence that in early 2020 the husband said to her that he would leave her and she would get nothing. The husband denies making such an assertion.
The wife says that on 10 November 2021, she received a telephone call from a real estate agent who informed her in words to the following effect:
55. …
“I have an email from [Mr Eacret]. He says he is the sole owner of the property. He wants to know if he can sell the property off market with a lease back to him for two years.”
The wife says that she caused a subpoena to be issued to the real estate agency. The wife says that the husband filed Notices of Objection to the subpoenas to the real estate agency, which were dismissed with an order for costs being made. Why Notices of Objection were filed in the first case is unexplained.
The wife says that documents produced by the real estate agent include an email from the husband dated 9 November 2021 to the following effect:
57. …
I am a seller of this property however can't currently arrange access for viewings as it is tied up on my divorce process.
Any sale would need to be on a lease back basis until 31.12.2023.
I am in [the United Kingdom] at the moment but will be back in Sydney in December and looking for something similar to my [B Street]property.
The husband did not disclose this email to the wife.
The wife gives evidence that in January 2022, she was contacted by QQ Valuers to arrange access to undertake a bank valuation for JJ Bank. She says the husband informed her that it was a part of the normal loan management process conducted by the bank.
The wife says that she had a conversation with her son in March 2022, who said that he had received a phone call from a real estate agent to the effect that the home may be sold.
As there has been no no cross-examination, I am unable to make findings as to whether the husband was attempting to sell the property contrary to his counsel’s submission. However, assessing the possibility that the wife’s contentions are correct, it is a matter that weighs heavy in the exercise of my discretion.
On 6 May 2022, the husband’s solicitors forwarded to the wife the front page of a contract dated 20 April 2022 for the purchase of the Y Street property. It had not previously been disclosed to the wife.
The wife says :
73.On 5 July 2022, my solicitors received a letter from [Mr Eacret’s] solicitors which included, amongst other things, the following information in relation to the recently disclosed entities and purchase:
We confirm that the [Y Street] property, and the $250,000 deposit, was entirely paid from existing trust assets and debt. This has been disclosed; the [K Trust] sold shares, funds were repaid to [S Pty Ltd], and [S Pty Ltd] advanced funds to [BB Trust] to pay the deposit. The balance of the purchase will be debt funded by [K Trust], and new [BB Trust] debt.
Our client has provided all disclosure in his possession in relation to these entities, their income, their assets and their debt. [BB Trust] and [CC Pty Ltd] both have a bank account with NIL balances and no activity on those accounts, and our client is unable to generate a transaction listing as no transactions have occurred on either account.
Upon [BB Trust] obtaining the loan for the [Y Street] property, disclosure will be provided.
On 15 July 2022, the wife received a letter from the husband’s solicitors indicating that he intended to complete the purchase of the Y Street property and that the former matrimonial home at B Street property was additional security for the property. In that respect, I note the mortgage advance was provided by JJ Bank.
The husband had not previously disclosed that the property at B Street would be used as security for the purchase of the Y Road property.
I do not regard the husband’s conduct in relation to the re-financing of the B Street property as falling anywhere within the rubric of timely disclosure.
I am satisfied that the wife has established that the husband has not complied with his obligation to provide fulsome and timely disclosure.
I also note that the parties referred me to Rees J’s interlocutory decision in this matter. I note her Honour’s finding in her Honour’s judgment of Eacret & Eacret [2021] FedCFamC1F 300 as follows:
60.However, I do not accept that the husband has made a full and proper disclosure of his actual income.
I note that this is now the second time that the Court has had cause to reflect upon the husband’s approach to his disclosure obligations.
The wife seeks orders for the payment of the mortgage on the B Street and Y Street properties. In that respect, the husband says:
33.I say that there is no basis for the orders sought by [Ms Eacret] in relation to the payment of the [B Street] mortgage or the [Y Street] property; I have always paid these loans solely, and will continue to do so.
34.In respect of the orders sought by [Ms Eacret] in relation to the [Y Street] and [B Street] property, I say there is no basis to warrant these orders being made. I have always solely paid the mortgages, and will continue to do so. Prior to refinancing the [B Street] property mortgage in July 2022, I had not dealt with the mortgage secured over the [B Street] property since 2017 when I refinanced the debt from ANZ Bank to [JJ Bank] in order to obtain a better deal.
I note, however, the husband also asserts in his affidavit that he is self-employed through his business, [L Company ], which he operates as a consultant. He says:
3.I am self-employed through my business, [L Company] as trustee for the [O Trust]. I operate as a Consultant and provide corporate advisory services including provision of executive management services. My consultancy business generates a net income before tax of around $800,000 although there are no fixed contracts in place and there is uncertainty as to future income generation ability.
He also says:
4.I also operate a share and derivative trading business through my company, [S Pty Ltd], and undertake investment activities via [K2 Trust] and [K Trust]. The profits from these entities associated with share and derivative trading are volatile and do not generate any reliable or consistent income; for the 2022 financial year these activities will have generated a net loss before tax. I travel extensively for business purposes (both domestically within Australia and Internationally) and for the most part all costs associated with travel are recovered from clients. Travel expenses include all my expenses whilst travelling and costs associated with 3rd parties where I arrange and co-ordinate travel for other advisors (predominantly legal personnel) and meet all expenses associated with this travel. …
…
Wife’s proposed injunctions
27.I am pleased that [Ms Eacret] has withdrawn her proposed orders for an injunction as to my use of mine and the entities’ bank accounts as previously sought by her. I was very concerned that if the orders for injunctions on the entity bank accounts previously proposed by [Ms Eacret] were made, then the entities would not be able to operate as they are active investment entities. [S Pty Ltd] remains liquidity constrained and is reliant on asset sales to meet ongoing liquidity requirements associated with derivative trading activities. Flexibility for raising debt rather than crystallising contingent tax liabilities is an important aspect of liquidity management for the entities, which would result in the continuing payment of the [B Street] property mortgage, [Y Street] property mortgage, spousal maintenance, child support and various debts of the entities being unable to be serviced, and I was concerned that the entities would not survive.
…
29.[S Pty Ltd] has been liquidity constrained since 2021, primarily because I invested substantial funds in illiquid investments (such as [Investment 1] and [Investment 2]) and when the market moved against [S Pty Ltd] I was unable to implement trading strategies to counter this due to a lack of liquidity. I have been managing these positions and trading around them, trying to trade around them in the hopes of reaching a position where I can exit those positions without incurring a substantial loss. Currently [S Pty Ltd] has a contingent liability of around $1 million, and this has been as high as $1.4 million on its derivative exposures over the last 12 months. If I had access to more liquidity, I would be able to trade differently.
The wife has established before me that there is an arguable case for the relief that she seeks. I am not conducting a final determination in relation to the matter but I am satisfied, taking into account the wife’s evidence of what she says she was told about attempts to sell the B Street property, the husband’s failure to make a disclosure in these proceedings in a timely fashion, the increase in debt secured against the B Street property and the husband’s own assertions in relation to liquidity, that the wife has established a risk of dissipation.
I fail to see the relevance of Rees J having dismissed an earlier application for injunctions. What is before the Court now is a very different factual scenario to that presented to her Honour. I note her Honour’s judgment was delivered on 14 December 2021. My observations of the husband’s attitude to disclosure of DD Pty Ltd, the BB Trust and CC Trust are apposite. He did not disclose the existence of these entities when he was before Her Honour.
The husband submits there is no utility to the order as he is making the payments under the mortgages and that there is already in existence an order in relation to the mortgage over B Street made by Rees J. I am not satisfied that the order lacks utility for the reasons he advances and rely upon what I have said earlier in support of the making of such an order.
Clearly where there has been no joinder as to K Pty Ltd, there will be no order against that entity.
The husband has not established before me what prejudice is occasioned to him by the making of the order beyond saying that it is unnecessary and that the husband needs the flexibility to be able to refinance the properties should the need arise. I am satisfied that the inclusion of the words “without the wife’s prior written consent or order of the Court” addresses this alleged prejudice.
I am satisfied that the orders sought by the wife go no further than is reasonably necessary to protect her position and that it is proper to make the injunctions sought.
Orders by way of disclosure
The wife sought orders that the husband provide various documents enumerated in a list of documents attached to the Minute of Order that the wife sought. During the course of the husband’s counsel’s submissions, it became apparent that some of the documents that the wife asserted had not been disclosed, had, as far as the husband was concerned, been disclosed, and his counsel made reference to correspondence attached to the husband’s affidavit said to demonstrate that some of the wife’s contentions about non-disclosure were not made out.
Disclosure is in many respects the bane of the Court. Parties are required to make a full and frank disclosure of all matters relevant to issues in the proceedings. All too often, much of the litigation and the costs attached to it becomes consumed by pursuing the issue of disclosure.
In the course of interlocutory proceedings, the Court is unable to make findings on disputed facts. As a consequence of the submissions, it became apparent that there was a dispute between the parties as to whether or not documents had in fact been disclosed.
The only way to resolve this issue is to require the parties to give sworn evidence about this issue. In that way at the final hearing, the parties can be tested on the assertions of non-disclosure and the Court can determine who is telling the truth.
The jurisprudence on this issue is well settled. In Weir, the Full Court stated at 79,593 that:
It seems to us that once it has been established that there has been a deliberate non-disclosure, which follows from his Honour's findings in this case, then the Court should not be unduly cautious about making findings in favour of the innocent party. To do otherwise might be thought to provide a charter for fraud in proceedings of this nature.
Deficiencies in disclosure permit the Court to adopt a robust approach in determination of the s 79 application.
I will therefore require the wife to file an affidavit in relation to her contentions that the husband has not disclosed various documents. I will direct that the husband file an affidavit in reply, identifying by reference to each particular category of documents asserted by the wife, what has been disclosed, when those documents have been disclosed, and if a document has not been disclosed why not. The parties can thereafter pursue these matters at a final hearing. It may well be that a parties’ credit will, become a significant issue in the proceedings, and that may well have, of itself, consequences including orders for costs.
The husband’s personal property
The husband sought orders for the return of his personal property. In that respect, his counsel pointed to orders having previously been made by Rees J on 14 December 2021 and, in particular, Order 13, which required the wife to make available the husband’s personal property for collection by carrier arranged by him.
The husband through his counsel contended that the wife has not complied with that order and the current order as sought by the husband provides particulars of the specific items of property that the husband seeks returned. Upon enquiries made with the wife’s counsel, he indicated that the wife did not have in her possession any of the property the subject of the orders that the husband seeks, other than some artwork by Mr Z, which the wife contended was not the husband’s personal property but rather the joint property of the parties.
The wife otherwise contended through her counsel that all of the husband’s property has been returned to him. I am, within the confines of this hearing, unable to resolve that disputed fact. It is pointless to make a further order in the context where the wife contends that she does not have any of the husband’s property. This is a matter that the parties can pursue at a final hearing.
I certify that the preceding eighty-three (83) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Schonell. Associate:
Dated: 16 August 2022
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