Evert & Pascal (No 2)
[2022] FedCFamC1F 788
•18 October 2022
Federal Circuit and Family Court of Australia
(DIVISION 1)
Evert & Pascal (No 2) [2022] FedCFamC1F 788
File number(s): ADC 5265 of 2020 Judgment of: BERMAN J Date of judgment: 18 October 2022 Catchwords: FAMILY LAW – PRACTICE AND PROCEDURE – Discovery - Where the wife seeks a wide range of documents from the husband – Where the husband asserts that he has already provided relevant disclosure – Where orders have previously been made in relation to disclosure – Where both parties have filed an Affidavit of Discovery –Consideration of the “directly relevant” test – Orders made.
FAMILY LAW – PROPERTY – Valuation – Where the wife places a value on the husband’s business of approximately $...– Where the husband asserts that his business has nominal value and no goodwill – Where the husband has a debit loan account with the business –Foda & Foda – Where the wife contends that she must consider a wide range of documents before the husband’s business can be valued by a single expert – Consideration of Rule 7.02 – Application of Rule 7.04(1) – Orders made.
Legislation: Family Law Act 1975 (Cth)
Federal Circuit and Family Court of Australia(Family Law) Rules 2021 (Cth) rr 6, 6.06, 7.04(1)
Federal Court Rules 2011 (Cth)
Cases cited: Alanco Australia Pty Ltd v Higgins (No 2) [2011] FCA 1063
Briese and Briese (1986) FLC 91-713
Dennis v Chambers Investment Planners Pty Ltd [2012] FCR 321
Foda & Foda (1997) FLC 92-753
Hatton & Attorney-General of the Commonwealth of Australia & Ors (2000) 158 FLR 31
Lucas Industries Ltd v Hewitt (1978) 18 ALR 555
Martin & Martin and Anor(No 2) [2014] Fam LR 492
Woley & Humboldt (No 3) [2009] FamCA 546
Division: Division 1 First Instance Number of paragraphs: 87 Date of hearing: 30 September 2022 Place: Adelaide Counsel for the Applicant: Ms James Solicitor for the Applicant: Wadlow Solicitors Counsel for the Respondent: Mr Anderson Solicitor for the Respondent: Belperio Clark ORDERS
ADC 5265 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS PASCAL
Applicant
AND: MR EVERT
Respondent
order made by:
BERMAN J
DATE OF ORDER:
18 October 2022
THE COURT ORDERS:
1.That on or before sixty (60) days of this order, the parties do jointly instruct a single expert to undertake a valuation of the husband’s interest in LL Company and NN Company, unless the parties reach prior agreement as to the value of the husband’s business interests.
2.That unless the parties agree otherwise, they are equally liable to pay the single experts reasonable fees and expenses in preparing a report, provided that the single expert is not required to undertake any work in relation to the said appointment until the fees and expenses are paid or secured.
3.That the husband and the wife do all things and sign all documents as may be required to cause the net proceeds of sale of the former matrimonial home, currently in the separate account of the husband and the wife’s Country H solicitors, to forthwith be transferred into the trust accounts of the Australian solicitors for the husband and the wife, provided that unless the parties agree otherwise, the parties and each of them are restrained and an injunction is granted restraining them from withdrawing, disbursing or encumbering those proceeds.
4.That within fourteen (14) days of this order, the husband do authorise Mr OO and Ms PP, accountant, to provide such information as may be requested by the wife and/or her legal representatives, providing that the requests are reasonable and not onerous in either frequency or scope and that in any event, the provision of any service upon the request of the wife or her legal representatives, will be at her sole cost.
5.That within twenty one (21) days, the husband shall disclose to the wife and produce copies of the following documents, at her sole expense:
(a)A copy of the applicant husband’s Tax Clearance Certificate and Capital Gains Tax Assessment (when received) for Foreign Investment;
(b)A ledger setting out the husband’s loan account transactions with LL Company for the period 1 March 2019 to 4 June 2022;
(c)Documents detailing the husband’s policies with QQ Insurance;
(d)Documents relating to the recurring payment by the husband of health insurance premiums for his mother being transaction number …86 from the husband’s Bank FF Account;
(e)General Ledger entries or records of LL Company, NN Company;
(f)Invoices relating to “expenses” as referred to in the Annual Statements for financial year 2020/2021 for NN Company;
(g)Business Activity Statements (BAS) for NN Company to be provided by either the husband or from the accountant;
(h)Documents in respect of the husband’s Retirement Annuity Fund with RR Company;
(i)The registration document and photographs or pictures of the husband’s Motor Vehicle 2.
6.That the Application in a Proceeding filed 26 September 2022 be 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 Evert & Pascal has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
BERMAN J
INTRODUCTION
Mr Evert (“the husband”) and Ms Pascal (“the wife”) are not able to agree settlement of property.
The wife seeks orders that the husband do pay to her, the proceeds of the sale of the former matrimonial home situate at BB Street, Suburb CC, City J, Country H (“the former matrimonial home”) together with such further and other order as the Court deems fit.
The husband opposes the orders sought by the wife and seeks that the application for property settlement be dismissed.
By judgment delivered 9 August 2022, orders were made that dismissed the wife’s Application in a Proceeding filed 14 April 2022 with further orders that enabled the parties to obtain a copy of the Family Law Information Co-location Project South Australian Police – Information Release document. Liberty was also given to the husband to provide certain specified court documents to his criminal lawyer.
As part of the dismissed Application in a Proceeding, the wife sought the following orders:-
(1)That a sum of Country H currency held by the husband in Country H, be released to the wife for litigation funding.
(2)That a sum of Country H currency held in the Trust Account (of the wife’s Country H solicitors) be transferred to the Trust Account of Wadlow Solicitors.
Even though the Application was dismissed, the status of the funds retained separately by the parties in Country H is outstanding and requires a resolution.
background
The parties are citizens of Country H but migrated to Australia in 2019.
The parties are not agreed as to the date of separation although it is either October 2019 or April 2020.
The husband is self-employed and trades via two principle entities namely, LL Company (a Country H registered company) (“LL Company”) and NN Company (“NN Company”).
As previously discussed, the parties have a deep mistrust of each other which appears to have been taken up by their legal representatives.
Whilst not agreed, by reference to the wife’s balance sheet as set out in paragraph 7 of her affidavit filed 26 September 2022, she places a value on the husband’s business in Country H currency of about AUD $534,502.
The husband contends that he is self-employed and has no other employees and few, if any, hard assets associated with the business either in Country H or in Australia.
It appears that the value adopted by the wife may well be based upon the extent of the husband’s debit loan account. By necessary implication, the husband asserts that the existence of his debit loan account, namely the amount recorded in the financial statements of the company which represent the amount owed by the husband, is of no practical consequence in circumstances where there are no assets of the company separate to the debit loan account.
In any event, it is argued that the debit loan account should be ignored given that it is only the asset of the parties that could be utilised to discharge the amount owed by the husband. See Foda & Foda (1997) FLC 92-753.
The wife does not accept the husband’s description of his business and how it operates. She considers that it is only after an exhaustive consideration of a wide range of documents, that a valuation of the husband’s business interests can be properly considered.
It is that the financial pool, as considered by the wife, is modest but without the purported value of the husband’s business being included, the legal costs of the parties are likely to overwhelm the proceedings.
Orders made for discovery
On 27 January 2022, Judge Kelly made the following orders in preparation for a conciliation conference to be convened on 9 May 2022:-
1.The husband file and serve an Affidavit in relation to financial matters and a Financial Statement within 28 days.
2.Each party make discovery of all financial records in accordance with Rule 6.06 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 by 11 March 2022.
3.Each party endeavour to comply with any requests for discovery of specific records that may be made by the other party, noting the request for disclosure of statements for specific bank statements included in the wife’s Outline of Case filed 27 January 2022.
The wife sought to file an affidavit of disclosure comprising 407 pages of annexures. On 22 March 2022, Judge Kelly made an order in chambers refusing to grant leave to do so.
On 22 April 2022, the proceedings were transferred to Division 1 of the Federal Circuit and Family Court of Australia with an extension of time for the husband to comply with the previous discovery order.
At a preliminary hearing on 20 May 2022, following the transfer of the proceedings, Judicial Registrar noted the following:-
A. The respondent wife raises the issue of non-disclosure by the applicant husband and the parties remain in dispute in relation to disclosure generally.
The Judicial Registrar made detailed orders for further and better discovery and orders were made by consent that the parties make disclosure on oath in respect of documents that go to the party’s personal and business related activities and financial circumstances.
Notwithstanding that each of the parties filed an Affidavit of Discovery, the wife filed an Application in a Proceeding on 26 September 2022, seeking a wide range of documents on the basis that she considered the husband’s disclosure to be inadequate and that there were documents that were both available to him and that should have been disclosed, but were not.
Principles to be applied
Chapter 6 of the Federal Circuit and Family Court of Australia(Family Law) Rules 2021 (Cth) (“the Family Law Rules”) imposes an obligation of full and frank disclosure on the parties to court proceedings and provides specific mechanisms by which that obligation must be fulfilled.
As noted in Briese and Briese (1986) FLC 91-713, Smithers J said at 75,180 “the need for each party to understand the financial position of the other party is at the very heart of cases concerning property and maintenance. …”
Despite the breadth of the duty to disclose, there are concerns about the over-broad disclosure of documents in Court proceedings. The restriction on the obligation of discovery has been the subject of discussion as it relates to subpoenas to produce documents. In Lucas Industries Ltd v Hewitt (1978) 18 ALR 555, at 570 Smithers J said:-
The purpose of the process of subpoena is to facilitate the proper administration of justice between parties. For that purpose it is the policy of the law that strangers who have documents may be put to certain trouble in searching for and gathering together relevant documents and bringing them to court. It is according to the same principle that persons who have knowledge of facts are put to the inconvenience of being brought to court and required to give evidence.
In Hatton & Attorney-General of the Commonwealth of Australia & Ors (2000) 158 FLR 31, the relevance of documents in the context of a subpoena was considered by the Full Court and the following summary of examples were given where a Court may determine that it is proper to set aside a subpoena:-
•If the subpoena is for an improper purpose namely to obtain discovery against a third party.
•Where it might be oppressive to comply with a subpoena.
•Where a party embarks upon a “fishing expedition”.
•That the subpoena should be set aside because it lacks relevance to the proceedings.
In Martin & Martin and Anor(No 2) [2014] Fam LR 492, Cronin J found that the focus of the Court should be whether it was “on the cards” that the documents would materially assist. At [28] his Honour considered his own comments in Woley & Humboldt (No 3) [2009] FamCA 546 where he said:-
39.In Hudson Timber and Hardware Ltd v Chaudhary Group Pty Ltd [2002] FCA 832, the Full Court of the Federal Court examined the issue of apparent relevance and said that the relevant principles governing the obtaining of documents on subpoena which have “apparent relevance” were that inter alia:
(1)The relevance of documents was not limited to documents directly admissible in themselves in proof of an issue raised in pleadings; and
(2)If a class of document which has material forensic relevance could be shown to exist, then a subpoena would not normally be set aside.
(Emphasis in original)
The obligation to make discovery is not in the abstract but rather requires the parties to consider the relevance that the documents may have to an issue in dispute. The objective should be to assist the Court in the disposal of an issue or the dispute in general.
At an early stage in the proceedings, it is not necessarily easy to define the issues and therefore the extent to which a document or a category of documents may have a sensible relevance. As the proceedings progress, the issues are cast more clearly and accordingly, the parties are better able to ascertain what documents are truly relevant and germane to the task that the Court is required to undertake. The Court now has the advantage of the affidavits of the parties.
Obviously the wife’s application must be determined in the context of the orders that each of the parties seek and the evidence they rely upon as set out in the affidavit material.
In recent years, superior courts have taken a more modern approach to general discovery. In part, this is as a result of the enormous amount of documentation that is involved and the burden and cost of discovery in many cases where it may not be necessary. The discovery process has been criticised as having disadvantages including, the swamping of parties with masses of material which tend to delay the proceedings and fog the real issues.
The new regime for discovery is based on the basis of two principles as set out in Dennis v Chambers Investment Planners Pty Ltd [2012] FCR 321, namely:-
14. …that a party must not apply for an order for discovery unless the making of an order will facilitate the just resolution of a proceeding quickly, inexpensively and efficiently as possible; and
16.… a party may apply to the Court for discovery and when doing so must state whether it is seeking “standard discovery” or state “the proposed scope of the discovery”.
In Alanco Australia Pty Ltd v Higgins (No 2) [2011] FCA 1063, the following is said:-
8. For that purpose under the 2011 Rules, discovery is to be given only when ordered by the Court rather than pursuant to any private arrangements between the parties (r 20.12). Under both sets of Rules, documents must be directly relevant to the issues raised in the proceedings by pleading or affidavit or affidavits accompanying the originating application. In addition, it is necessary that the documents must meet at least one of the following criteria (r 20.14(2) of the 2011 Rules):
(a) The documents are those on which the party intends to rely;
(b) The documents adversely affect the party’s own case;
(c) The documents support another party’s case;
(d) The documents adversely affect another party’s case.
9. While more extensive and special discovery may be permitted where the party satisfies a Court as to the need (r 20.15 of the 2011 Rules), the overriding objectives and purposes must always be borne in mind.
Accordingly, the purpose of the Federal Court Rules 2011 (Cth) is to require parties to consider the extent to which discovery is required and whether the document or documents are necessary as being relevant to the issues raised, that a party is aware of them and that they are or have been in a parties control.
For discovery to be the subject of an order, the document must pass the “directly relevant” test.
The direct relevance test is aimed at narrowing the scope of discovery. The meaning of direct relevance is that of relevance, in the sense of requiring the document be directly on point and that it tends to prove or disprove the allegation in issue.
It is understood that the current proceedings do not necessarily fall within the category of “commercial proceedings”. It is also important to differentiate proceedings under the Family Law Act 1975 (Cth) (“the Act”) where the parties may have different levels of control and advantage. In many cases, without the clear obligation on a party to make full and frank disclosure, matters that could well be relevant to the issues that the Court needs to determine, may not be known by any other means.
Accordingly, the Family Law Rules impose a more generous obligation in respect of discovery than might now be the practice in other superior courts. That obligation falls short of discovery without forensic focus.
The wife’s application
The proceedings were adjourned generally for mention or argument to 30 September 2022. The wife filed her Application in a Proceeding on 26 September 2022 and sought that it be listed for hearing on the adjourned date.
I determined that the issue of the adequacy of discovery generally, but in particular as by the husband, was a matter that needed to be heard and determined at the earliest opportunity.
Given my expressed concern that the purported value of the husband’s business had the potential to be of limited value, rather than require the husband to file a Response and affidavit in support, the husband gave evidence on affirmation in response to the matters raised by the wife. The husband detailed his business arrangements and confirmed that he conducted business in Country H via LL Company and in Australia via NN Company.
It appears that the husband is the sole shareholder and director of NN Company but is a co-director with Mr OO of LL Company.
At present, the ongoing business of LL Company and NN Company is limited to a two year contract with Country M, for the husband to provide advice as to the management and operation of a business. The husband is paid in US dollars which are then transferred to his Australian account.
LL Company and NN Company have no employees however, where required, they engage subcontractors to assist in the business operation.
The husband utilises the services of Mr OO in his capacity as either bookkeeper or financial advisor who then instructs separate accountants to undertake the preparation of financial statements, tax returns and related matters.
LL Company and NN Company does not operate from any formal office space although the registered office is at the offices of Ms PP, Chartered Accountant.
The husband made an appropriate concession in that he has offered to authorise Mr OO and Ms PP to provide information directly to the wife providing the requests are not onerous and that any work undertaken is at the wife’s expense.
The general flavour of the husband’s evidence was in support of his contention that the business has little intrinsic value and no good will given that the husband is paid for his professional advice.
Under cross examination, there was little or no challenge to the husband’s evidence.
Repatriation of funds from COUNTRY H to Australia
Following the sale of the former matrimonial home, a sum of Country H currency was held in the trust account of the wife’s Country H solicitors and held in the Bank FF account of the husband.
Apparently, before money can be transferred from Country H to Australia, there needs to be a Capital Gains Tax (“CGT”) Assessment consequent upon the sale of the former matrimonial home and a Tax Clearance Certificate enabling the repatriation of funds. The husband understands that a CGT Assessment was submitted on 17 July 2022 and he is waiting for formal confirmation that the Country H Revenue Service (“HRS”) accepts the assessment. The husband considers that the CGT Assessment is likely to be modest, if at all.
The application to HRS has been disclosed. Given the amount held by the husband, a Tax Clearance Certificate may not be available.
There is some uncertainty as to whether the wife now presses her earlier application for funds to be repatriated.
There appears to be no good reason why monies should remain in Country H and not be transferred to Australia. No evidence was provided as to any financial advantage in the parties’ funds remaining in Country H but given I am entitled to bring to account an understanding of the current financial volatility in international markets, the better way forward is for an order to be made that requires the parties to do all things necessary and sign all such documents to cause funds held by each of them in Country H to be repatriated to Australia and for the moment, to remain in the trust account of the parties’ separate solicitors subject to an injunction that the funds are not to be disbursed other than by the joint consent of the parties. The order of 8 September 2021 will be amended to enable the transfer of funds.
disclosure sought by the wife
Husband’s loan account to LL Company
Whilst it is difficult to understand what is likely to be obtained from a detailed consideration of the husband’s debit loan account movements, particularly given that the loan account commenced in or about 1996, the husband is prepared to provide a detailed statement of his loan account movements.
LL Company standard bank business, SS Bank & TT Bank accounts
The husband’s evidence is that each of the three accounts have been closed for more than three years.
On that basis, I do not consider that there are any documents capable of discovery.
QQ Insurance life insurance
The husband has agreed to produce the life policy documents.
Bank FF Health Insurance Payments
The wife seeks disclosure of documents relating to the recurring monthly payments made by LL Company, from the LL Company Bank FF account with the transaction number …86.
The husband’s evidence is that the recurring monthly payment described as ….86, is a payment for health insurance premiums in favour of his mother.
LL Company financial statements for 2019 and 2020
Again, the relevance is peripheral however, the husband has agreed to produce the Bank FF accounts for LL Company for financial years 2019 and 2020. The husband states that there are no other relevant documents in existence. Similarly, he has disclosed bank statements relating to his foreign currency accounts. No further documents are available. The husband was not challenged on this matter.
Rental Agreements for NN Company
The husband’s evidence that he has no rental space in relation to either LL Company or NN Company, is unchallenged.
Contracts entered into by LL Company or NN Company
The wife has given detailed consideration to the website of the companies and from other information and she has formed the view that the husband was trading in twelve overseas countries.
I accept the husband’s evidence that the only contract he has is with Country M. He has agreed to produce the contract.
General ledgers for LL Company / NN Company
Some documents have been produced by the husband and whilst it is likely that the current discovery is adequate to give consideration to the likely value, if any, of the husband’s business, he nonetheless is prepared to authorise Mr OO and Ms PP to provide information as may be requested.
Underlying invoices relating to expenses of LL Company / NN Company
The husband’s business operates via zero software accounting package and the documents sought by the wife are able to be provided. Whilst it would not ordinarily have been considered as necessary or relevant discovery, in circumstances where there is no opposition I propose to make the order as sought.
Contracts that coincide with specified deposits into ANZ Bank Account …78
The husband’s evidence is that the documents have been produced. The husband was not challenged as to his assertion.
Documents identifying the recipient of payments made by NN Company from ANZ Bank Account …78
The transactions, as identified by the wife, are payments by way of debits from the ANZ Account …78 in favour of Country H contractors. The information, as requested by the wife, is set out in the bank statements that have been discovered.
BAS Statements for NN Company
The BAS statements are able to be produced by the husband’s accountant upon the wife’s request.
Husband’s Retirement Annuity Fund with RR Company
The husband acknowledges that there is a retirement benefit in Country H that will mature in 2027, with a current value of AUD 45,000. He agrees to produce the relevant documents.
Documents pertaining to any real estate investment trust in which the husband has an interest
The husband’s evidence is that he did not know what this was and that he would “follow it up with Mr OO”. I do not propose to make any order in respect of this category of documents given that there is a level of uncertainty.
B and D Evert Family Trust
The husband’s evidence is that this entity no longer exists and as such, there are no documents available. Documents were produced evidencing same.
Evert-Pascal Children Educational Family Trust
The husband’s evidence is that this is not a formal entity but rather a bank account and as such, there are no documents available. The husband has provided bank statements for the three accounts he set up for the children.
Account statements for B and D Evert Family Trust, TT Bank Account, UU Credit card and Evert-Pascal children education trust
The husband’s uncontested evidence is that all statements have been provided and in particular, that the documents have been produced in relation to the monies held for and on behalf of the parties’ children.
Bank statements in the name of LL Company and NN Company
As discussed, there are no documents available given that the companies do not trade in any other overseas country other than Country H.
Qualifications of Mr OO
Mr OO’s qualifications are unlikely to be relevant to the proceedings. The husband’s evidence is that whatever Mr OO may do in relation to the preparation of the financial statements and other relevant accounting records, the documents are all vetted and completed by a chartered accountant prior to lodgement.
Valuation of the HUSBAND'S MOTOR VEHICLE 2
The husband retains a Motor Vehicle 2. It is currently in Country H and can be valued by the wife either in situ or by reference to the registration papers and a photograph of the vehicle.
Valuation of the LL COMPANY AND NN COMPANY
The parties are not able to agree either settlement of property or the future parenting arrangements for their children.
A resolution of the parenting considerations is difficult in circumstances where, the husband is the subject of serious criminal charges which are unlikely to be heard and determined before mid-2023 at the earliest.
Consideration may therefore be given to the proceedings being bifurcated in circumstances where I have determined that the pool of property, even as promoted by the wife, is modest.
I have proposed that a single expert be appointed to ascertain the value, if any, of the husband’s interest in LL Company and NN Company. Such an approach is not opposed by the husband but is by the wife. During the course of submissions, it was revealed that the wife has a shadow expert and her preference is that there should be no appointment of a single expert until there has been full and frank disclosure and an opportunity given to the wife to take advice as to whether the value of the business can be agreed.
An overall assessment of the enthusiasm by which the parties have engaged in the request for documents, raises the concern that the mistrust between the parties may well be clouding their good judgment.
Part 7.1 of the Family Law Rules sets out the purpose of the part as follows:-
(a)to ensure that parties obtain expert evidence only in relation to a significant issue in dispute;
(b)to restrict expert evidence to that which is necessary to resolve or determine a proceeding;
(c)to ensure that, if practicable and without compromising the interests of justice, expert evidence is given on an issue by a single expert witness;
(d)to avoid unnecessary costs arising from the appointment of more than one expert witness;
(e)to enable a party to apply for permission to tender a report or adduce evidence from an expert witness appointed by that party, if that is necessary and in the interests of justice.
The parties are unlikely to agree the appointment of a single expert. Rule 7.04(1) of the Family Law Rules provides as follows:-
The Court may, on application or on its own initiative, order that expert evidence given by a single expert witness.
I propose to order that the husband provide the documents and the authorisation to Mr OO and Ms PP such that if after sixty days, the parties are not able to reach agreement as to the value to be ascribed to the husband’s business, then a single expert shall be appointed at the joint and equal expense of the parties.
I do not propose that there should be further discovery (other than as provided for in Rule 6.06 of the Family Law Rules) unless as may be required by the jointly instructed single expert.
Conclusion
I make orders as appear at the commencement of these reasons.
I certify that the preceding eighty-seven (87) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Berman. Associate:
Dated: 18 October 2022
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