Gilmore & Patrick
[2022] FedCFamC1F 1015
Federal Circuit and Family Court of Australia
(DIVISION 1)
Gilmore & Patrick [2022] FedCFamC1F 1015
File number(s): SYC 8338 of 2019 Judgment of: AUSTIN J Date of judgment: 21 December 2022 Catchwords: FAMILY LAW – PRACTICE AND PROCEDURE – Review of Decision – Subpoena Objection – Where the parties are engaged in complex financial proceedings – Where the wife caused a subpoena to issue to D Limited (“D Limited”) in New Zealand – Where D Limited filed a Notice of Objection to the subpoena – Where the subpoena objection was heard and subsequently dismissed by a senior judicial registrar – Where D Limited filed an Application for Review seeking to review the senior judicial registrar’s decision – Where D Limited sought that the subpoena be set aside pursuant to common law principles – Where the subpoena casts a wider net than the evidence properly permits – Where the review application succeeds in respect of certain orders made by the senior judicial registrar – Where the ambit of the subpoena is confined so as to require D Limited to produce certain financial documents within a specified timeframe – Where the time for D Limited’s compliance with the subpoena is extended – Orders made – Costs reserved.
FAMILY LAW – PRACTICE AND PROCEDURE – Application in a Proceeding – Where the wife was granted leave to issue the subpoena to D Limited pursuant to the Trans-Tasman Proceedings Act 2010 (Cth) (“the TTP Act”) – Where D Limited sought that the subpoena be set aside under s 36 of the TTP Act – Where D Limited’s application under the TTP Act to set aside the subpoena fails – Application dismissed – Costs reserved.
Legislation: Family Law Act 1975 (Cth) Pt VIII, s 79
Trans-Tasman Proceedings Act 2010 (Cth) ss 35, 36,
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) rr 5.06, 6.36
Companies Act 1993 (NZ) ss 178, 179
Trust Act 2019 (NZ) ss 52, 53
Cases cited: Alister v The Queen (1984) 154 CLR 404
1 Breen v Williams (1996) 186 CLR 71
2 Carroll v Attorney General for NSW (1993) 70 A Crim R 162
3 Commissioner for Railways v Small (1938) 38 SR (NSW) 564
4 Erceg v Erceg [2017] 1 NZLR 320
5 Gray v Guardian Trust Australia Ltd [2003] NSWSC 704
6 Hall v Hall (2016) 257 CLR 490
7 Hatton v Attorney-General of Commonwealth of Australia and Ors (2000) FLC 93-038
8 Hearne v Street (2008) 235 CLR 125
9 Kehoe & Seden (No.2) [2022] FedCFamC1F 346
10 Kennon v Spry (2008) 238 CLR 366 at 387
Loughran v Perpetual Trustees WA Ltd [2007] VSC 50
11 McDonald v Ellis (2007) 72 NSWLR 605
12 National Employers’ Mutual General Association Ltd v Waind and Hill [1978] 1 NSWLR 372
13 Re Simersall; Blackwell v Bray (1992) 108 ALR 375
14 Schmidt v Rosewood Trust Ltd [2003] 2 AC 709
15 Secretary of the Dept of Planning, Industry and Environment v Blacktown City Council [2021] NSWCA 145
16 Spellson v George (1987) 11 NSWLR 300
17 Vissell & Vissell [2021] FamCAFC 76
Woodcock & Woodcock (2021) 64 Fam LR 489
Division: Division 1 First Instance Number of paragraphs: 96 Date of hearing: 14 November 2022, 13 December 2022 Place: Newcastle Counsel for the Applicant: Mr Rogen Solicitor for the Applicant: Pearson Emerson Counsel for the Objector: Ms Cuncannon Solicitor for the Objector: MC ORDERS
SYC 8338 of 2019 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS GILMORE
Applicant
AND: MR PATRICK
First Respondent
B PTY LTD
Second RespondentC PTY LTD (and others named in the Schedule)
Third Respondent
order made by:
AUSTIN J
DATE OF ORDER:
21 December 2022
THE COURT ORDERS THAT:
1.Orders 1 and 3 made by a Senior Judicial Registrar on 10 October 2022 are set aside.
2.The subpoena issued to D Limited on 18 July 2022 is confined so as to require the recipient corporation to produce to the Court its following financial documents, covering the period from 1 July 2019 to date:
(a)balance sheets;
(b)profit and loss statements; and
(c)tax returns.
3.The time for compliance with the subpoena, confined pursuant to the terms of Order 2 hereof, is extended to Friday 27 January 2023.
4.The costs of and incidental to these interlocutory proceedings are reserved for 28 days.
5.Otherwise:
(a)The Application for Review filed on 27 October 2022 is dismissed;
(b)The Application in a Proceeding filed on 15 November 2022 is dismissed; and
(c)The Response to an Application in a Proceeding filed on 23 November 2022 is 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 Gilmore & Patrick has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
AUSTIN J:
The parties are engaged in complex financial proceedings under Pt VIII of the Family Law Act 1975 (Cth) (“the Act”), commenced by the wife in December 2019.
Their dispute concerns an elaborate and supposedly inter-related structure of corporations and a trust. Numerous corporations are joined to the proceedings as respondents.
On 18 July 2022, with leave granted by the Court, the wife caused a subpoena to issue to D Limited (“D Limited”) in New Zealand, requiring it to produce certain documents to the Court.
About a week before, on 12 July 2022, the wife filed an application seeking such leave under the provisions of the Trans-Tasman Proceedings Act 2010 (Cth) (“the TTP Act”) and several days later, on 15 July 2022, Campton J made orders in these terms:
1.Pursuant to section 31(1) of the Trans-Tasman Proceedings Act 2010 (Cth), leave be granted to the applicant wife to file and serve subpoena in New Zealand to the following entities:
…
b.The Proper Officer, [D Limited], company number […].
The subpoena issued with such leave required D Limited to produce the identified documents to the Court by 1 August 2022, but D Limited instead filed a Notice of Objection to the subpoena, articulating numerous grounds of objection to it.
The subpoena objection was heard by the senior judicial registrar (“the registrar”) on 30 September 2022, but was determined by orders subsequently made on 10 October 2022. The subpoena objection was dismissed, the wife’s costs of the interlocutory dispute were reserved, and further procedural directions were made in respect of such costs.
On 27 October 2022, D Limited filed an Application for Review to review the registrar’s decision (but only as is reflected in Orders 1 and 3) by hearing de novo. In substitution for those orders made by the registrar, D Limited sought that the subpoena be set aside pursuant to common law principles and the costs of the dispute then be re-determined in light of the reviewed outcome.
At the review hearing on 14 November 2022, D Limited sought to re-structure the terms of its objection by instead applying under s 35 of the TTP Act to set aside the subpoena, since it was not given the chance to oppose the wife’s application for leave to issue the subpoena before such leave was granted on 15 July 2022. To afford the wife the procedural fairness of more time within which to consider D Limited’s fresh application, the hearing was adjourned for two weeks to 28 November 2022.
Due to illness suffered by D Limited’s counsel, the hearing was adjourned again consensually to 13 December 2022, though the parties’ mutual request to adjourn the hearing for determination in another registry was refused.
The resolution of the dispute now entails determination of D Limited’s contested:
(a)Application for Review filed on 27 October 2022; and
(b)Application in a Proceeding filed on 15 November 2022 (opposed by the Response to Application in a Proceeding filed by the wife on 23 November 2022).
The interim dispute was contested between only the wife and D Limited. Neither the husband nor any of the other corporate respondents appeared.
Evidence
In prosecuting its case in opposition to the subpoena, D Limited relied upon the affidavits of:
(a)Ms E, filed on 15 November 2022;
(b)Mr F, filed on 15 November 2022;
(c)Mr G, filed on 16 November 2022; and
(d)Mr H, filed on 28 November 2022.
The last affidavit was filed by D Limited in reply to the wife’s second affidavit, filed in response to D Limited’s application to set aside the subpoena. The Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) (“the Rules”) do not envisage D Limited being able to file and rely upon the affidavit in reply (r 5.06) as the wife did not raise any new cause of action when opposing D Limited’s application, but she took no objection to the reply affidavit.
The wife objected to a single paragraph within the affidavit of Mr G, but the terms of the objection were amended in a way which eradicated any real dispute and the evidence was admitted unconditionally.
In defence of the subpoena, the wife relied upon:
(a)the two affidavits filed by her solicitor (Tineka Winter) on 12 July 2022 and 23 November 2022 – the first in support of her initial application for leave to issue the subpoena and the second to resist D Limited’s application to set it aside; and
(b)an additional bundle of documents, marked as an exhibit.[1]
[1] Exhibit W1
factual setting
Both parties are discretionary beneficiaries, but the husband is a primary beneficiary and was also the former appointor, of the Patrick Family Trust (“the family trust”).
In recent years, the husband has received large distributions described as “spend money” and also acquired loans from the family trust.[2] The wife has not received any form of financial accommodation from the family trust.
[2] Exhibit W1, pages 92–93
The corporate trustee of the family trust (Q Limited (“the corporate trustee”)) holds shares in D Limited, which are the “most significant asset” of the family trust – a fact not contested by D Limited. The sole director of the corporate trustee is Mr G.
Neither the corporate trustee, Mr G, nor D Limited are parties to these proceedings.
As long ago as March 2020, orders were made for the appointment of single expert witnesses to value real estate and relevant corporate entities. A specific single expert (“the single expert”) was appointed by the parties to value their interests in various corporations and the family trust in these terms:
The parties have agreed to your appointment as a Single Expert…to provide a written market valuation of their respective interests in a number of corporate and/or trust entities.[3]
[3] Exhibit W1, page 1.
Within the instructions provided to the single expert, his attention was specifically drawn to the family trust and the spouses’ mutual belief that the family trust enjoys “ownership” in D Limited and other corporations “operating as one economic group”. Such instructions may entail an admission by the husband of some form of ill-defined corporate group, but no such admission was made by D Limited for present purposes.
On 3 March 2021, the single expert confirmed his instructions to the effect that the family trust has “investments” in D Limited and four other corporations mentioned in the family trust balance sheet, but requested more information in these terms:[4]
Further disclosure is required to understand the actual interests (equity) held, the current corporate structure of the [D Limited] entities…
[4] Exhibit W1, page 12
In separate correspondence on the same date, the single expert relevantly requested that he be furnished with documents described in this way:[5]
[5] Exhibit W1, pages 16, 37–38
[D Group] interests: We have not been provided with any specific information regarding the companies and interests held in the [D Group]. As an initial tranche of information the following would be of assistance:
a.Shareholding certificate(s) or other documents showing the entities in which [the family trust] holds equity interests;
b.Overview of the corporate structure of the [D Group];
c.Consolidated Financial Statements (as available) or individual financial statements for each entity – FY20, YTD21.
Following provision of (at least) the above, we will then provide a more detailed request.
The wife issued the subpoena to D Limited in furtherance of the request made by the single expert for such further information.
The schedule within the subpoena describes the documents to be produced as follows:
1. A copy of this subpoena.
2. In this subpoena:
2.1.“[D Group]” means the entity [D Limited], company number […], registered in New Zealand, and any and all related entities, holding companies and subsidiaries, including but not limited to:
2.1.1. [D1 Limited], company number […];
2.1.2. [D2 Limited], company number […];
2.1.3. [D3 Limited], company number […];
2.1.4. [D4 Limited], company number […];
2.1.5. [D5 Limited], company number […];
2.1.6. [D6 Limited], company number […]; and
2.1.7. [D7 Limited], company number […].
3.Current overview of the corporate structure of the [D Group].
4.Financial statements for each entity in the [D Group] for the period 1 January 2016 to the date of this Subpoena.
It is important to note that, despite the use in these proceedings of loose descriptors like “the [D Group]” and “[D Group] interests”, not much precision has attended the identification of the corporate constituents of such a group. As can be easily seen from the subpoena schedule, numerous different corporations identified in these proceedings contain the words “[D Limited]” in their corporate name.
The available evidence demonstrates that:
(a)five of the corporations named in the subpoena (those identified in paragraphs 2.1.3, 2.1.4, 2.1.5, 2.1.6 and 2.1.7) are wholly owned by D Limited;
(b)D Limited transferred its shareholding in another corporation (that identified in paragraph 2.1.2) to a third party corporation in April 2019; and
(c)D Limited has no interest in the remaining corporation (that identified in paragraph 2.1.1), but conversely, that corporation holds shares in D Limited.
Aside from D Limited, only four of the other corporations named within the subpoena were identified by the single expert as being corporations in which the family trust has “investments” (those identified in paragraphs 2.1.2, 2.1.4, 2.1.5 and 2.1.7), but the family trust financial statements disclose there are actually five (including that identified at paragraph 2.1.6).[6]
[6] Exhibit W1, page 81
The wife ultimately conceded she could not press for D Limited’s production of the financial statements of the corporation over which it has no control (the one identified at paragraph 2.1.1) and so abandoned the subpoena’s extension to that corporation.
The subpoena is too wide in its current form, but that defect will be addressed following consideration of the grounds of objection advanced by D Limited.
The objection
D Limited initially objected to its compulsion to produce documents in answer to the subpoena on grounds of relevance, lack of legitimate forensic purpose, and oppression, by reference to familiar common law principles.
While not abandoning those arguments, D Limited then expanded its attack upon the subpoena by contending it should be set aside on the non-exhaustive grounds set out within s 36 of the TTP Act. In summary, it was asserted: the documents sought are not sufficiently significant in the litigation to justify the expense and inconvenience of compliance with the subpoena; compliance would cause hardship and serious inconvenience (ss 36(3)(b) and 36(3)(c)(i)); enforcement of the subpoena would compel the production of documents which could not be compelled under New Zealand law; and the documents sought by the subpoena could be more easily obtained by other means (s 36(3)(c)(ii)).
Despite the obvious overlap between the arguments, the issues should ideally be isolated.
Apparent relevance
The test for the relevance of the subject documents is their “apparent relevance” to the facts in issue in the proceedings.[7]
[7] Secretary of the Dept of Planning, Industry and Environment v Blacktown City Council [2021] NSWCA 145 at [65], [80] and [89]–[96]; Hatton v Attorney-General of Commonwealth of Australia and Ors (2000) FLC 93-038; National Employers’ Mutual General Association Ltd v Waind and Hill [1978] 1 NSWLR 372
But D Limited made these following written submissions as to the actual, rather than merely the apparent, relevance of the documents:
6.The documents sought in the subpoena are not relevant for the following reasons:
a.There is no sufficient connection to the documents sought to justify their production or inspection. Neither the husband nor the wife have a connection to [[D Limited]]. The husband is not involved in the management or affairs of [[D Limited]].
…
c.The documents sought can have no relevance to a fact in issue in the proceedings, as the documents go only to the flawed assumption that the [family trust] can be valued for Family Law purposes and is a matrimonial asset.
d.It is unarguable that the [family trust] as a discretionary trust is not a matrimonial asset as the husband has no control. The husband and wife are discretionary beneficiaries (among multiple other discretionary beneficiaries), and as such have a right in equity to the due administration of the [family trust], but no legal or beneficial interests in the assets of the [family trust]. Neither the husband nor wife is a director or shareholder of the [corporate trustee], nor has the power to appoint and remove trustees.
…
f.As in Kennon v Spry, it would be difficult, if not impossible, to value the husband’s and wife’s interests in the [family trust] when neither beneficiary has a present entitlement and both may never have any entitlement to any part of the income or capital of the [family trust]. Financial information related to the [family trust] is therefore not of use or relevance in the proceedings.
(Written submissions of D Limited dated 13 September 2022) (Emphasis added)
17. …
(f)[The wife] can only establish the relevance of the documents once she has established [the husband] controls the Trust.
(Written submissions of D Limited dated 11 November 2022)
In oral submissions, D Limited broadened its approach to encapsulate a denial of even the apparent relevance of the documents. Nonetheless, its submissions are not accepted in the didactic way they are made.
It is somewhat presumptuous for a third party such as D Limited to assert what may or may not be relevant in property settlement proceedings between spouses under the Act, to which it is not privy. The ordinary duty of the recipient of a subpoena, subject to provision with proper conduct money, is to obey it and produce to the Court the documents sought which he, she or it possesses.[8] The recipient may of course apply to set aside the subpoena or for an order relieving him, her or it from production of the sought documents under one or other of various well-established legal principles regulating abuse of the Court’s coercive power, but such applications by strangers to the proceedings are not commonly made on grounds the specified documents lack “apparent relevance” to the substantive proceedings.
[8] Commissioner for Railways v Small (1938) 38 SR (NSW) 564 at 573–574
In more specific answer to D Limited’s submissions about the asserted lack of actual or apparent relevance of the documents to the spouses’ property, the concept of “property” is used in different ways in different statutory contexts and, where the term appears in s 79 of the Act, it has been given a wide meaning which should be read comformably with the remedial purpose of the Act.[9] It certainly extends beyond property in which the spouses have legal interests.[10]
[9] Kennon v Spry (2008) 238 CLR 366 at 387, 390 and 396–397
[10] Kennon v Spry at 442
Assets of a discretionary trust, such as the assets of the family trust in this instance, may be property for the purposes of property adjustment proceedings between spouses. The question whether the property of the trust is, in reality, the property of the spouses is dependent upon the facts and circumstances of each particular case.[11] The trust assets and the spouses’ equitable right as beneficiaries to due consideration by the trustee might be regarded as property for the purpose of relief under Pt VIII of the Act, since the right to consideration and to the due administration of the trust is in the nature of an equitable chose in action.[12]
[11] Kennon v Spry at 388–389
[12] Kennon v Spry at 390–395 and 408
The failure to prove the husband exercises any “control” over the family trust does not necessarily preclude the assets of the trust from being treated as property of the spouses.[13] The interlocutory factual dispute between the wife and D Limited over that issue was otiose. The wife might believe the husband has de facto control of the family trust, but the evidence does not establish it at this point. Such asserted control may be a factual issue explored at trial which will influence the eventual determination about the husband’s interest in the family trust being classified as property or a financial resource.
[13] Kennon v Spry at 407, 433 and 437
Though it might be difficult to value the right to the due administration of a discretionary trust, such difficulty does not of itself strip the right of its quality as “property”.[14] The single expert has asked for the documents to be provided, so it may be reasonably presumed he considers some form of valuation opinion is possible.
[14] Kennon v Spry at 394 and 411
Even if it subsequently proves that the parties’ interests in the family trust are not capable of characterisation as “property” in the circumstances of this case, the family trust is still liable to be characterised as a “financial resource” of at least the husband. Financial resources extend beyond and are not confined to present legal entitlements,[15] but are still relevant to property settlement proceedings between spouses.
[15] Hall v Hall (2016) 257 CLR 490 at [53]–[55]
Application of those principles points strongly to the conclusion that the financial statements of the corporations have “apparent relevance” to the issues in dispute between the spouses. The value of the spouses’ interests in the family trust, either characterised as property or as financial resources, is liable to be influenced by the value and profitability of the corporations in which the family trust holds shares.
D Limited cited numerous cases as authority for the proposition that the subpoena in this case must be set aside,[16] however none of those cases carries any precedential value demanding the determination of this present dispute in the way D Limited wants. The facts and circumstances of each case are intrinsically unique, as the High Court has made plain,[17] so whether the property of a trust is to be treated as the property of the beneficiary spouses will differ from case to case. So then will the decision of whether or not a subpoena directed to that issue amounts to an abuse of power differ from case to case.
[16] Kehoe & Seden (No.2) [2022] FedCFamC1F 346; Vissell & Vissell [2021] FamCAFC 76; Woodcock & Woodcock (2021) 64 Fam LR 489
[17] Kennon v Spry at 388–389
Legitimate forensic purpose
In relation to the asserted lack of legitimate forensic purpose, D Limited submitted:
10.The documents sought are not relevant and cannot materially assist for the reasons articulated above. Accordingly, there can be no legitimate purpose in seeking their production. The pursuit of the information is random, unguided and the pursuer has no case but seeks to build one (in other words, the request is a fishing expedition).
(Written submissions of D Limited dated 13 September 2022) (Emphasis added)
Paragraphs 2 and 4 of the subpoena seek the production of financial statements held by the named corporations from 1 January 2016 to the current time.
The subpoena does not define the meaning of “financial statements”, though for present purposes it may be presumed to mean balance sheets, profit and loss statements, and tax returns for the given period. There is no doubt the corporations would hold such documents, as they are integral to their corporate governance and regulatory compliance. For the reasons already explained, such financial statements have apparent relevance to the spouses’ dispute. The request for production of those documents is not a fishing expedition.
However, paragraph 3 of the subpoena purports to require the production of a document loosely described as an “overview” of a corporate group, the constitution of which is not readily identifiable. A subpoena can only require the recipient to produce specific documents in its actual or constructive possession and there must be some basis for anticipating the recipient possesses the document sought, for otherwise the demand for the document is indeed a fishing expedition. The subpoena cannot extend so far as to require the recipient to create documents which do not already exist to sate the curiosity of the issuing party. The subpoena cannot properly require D Limited to create and furnish to the wife some form of memorandum of advice or Venn diagram about its supposed affiliation with other corporations.
Paragraph 3 of the subpoena lacks legitimate forensic purpose. It demands the production of a document when it cannot be reasonably imputed D Limited actually or constructively possesses it. The wife did not demonstrate it is “on the cards” that the “overview” document even exists, let alone that it is relevant to the value of the family trust.[18]
[18] Alister v The Queen (1984) 154 CLR 404 at 414 and 456; Carroll v Attorney General for NSW (1993) 70 A Crim R 162 at 170
Recently, the wife searched the New Zealand corporate register to form her own views about the inter-relationship (if any) between the corporations in which she is interested and so she conceded just in advance of the hearing that she now does not press her demand for the production of any document described within paragraph 3 of the schedule to the subpoena.
Oppression
In relation to the alleged oppression, D Limited submitted:
15.It has not been established in the evidence that the production of a current overview of the corporate structure of the [D Group] and the financial statements of the private entities is relevant as articulated above. Given the lack of relevance the requests are plainly oppressive.
(Written submissions of D Limited dated 13 September 2022) (Emphasis added)
As can be seen, the “oppression” submission does not expand the “relevance” submission, so rejection of the latter requires rejection of the former – at least in respect of the corporate financial statements.
Hardship, expense and inconvenience
D Limited submitted this:
18.Even if the Documents pass the relevance threshold (which they do not), the Documents are certainly not sufficiently significant to justify the expense and inconvenience caused by service of the Subpoena on [D Limited].
19.The expense and inconvenience to [D Limited] caused by service of the Subpoena is significant. [D Limited] is a third party in relation to the proceeding. It has no connection to [the wife] or [the husband], and the material sought is private and highly confidential to the companies in the [D Group].
…
21.It is also relevant that [D Limited] has incurred significant expense to date challenging the Subpoena and the previous subpoena, which underscores the importance that [D Limited] places on the confidentiality of the information and the inconvenience this matter has already caused it. That is not to mention the time and effort that would be required in collating the Financial Statements and creating the Corporate Structure, which is time and effort [D Limited] should not be required to expend.
…
23.As set out above, [D Limited] is a third party with no connection to [the wife] or [the husband], and the material sought is private and highly confidential to the companies in the [D Group] and it is anxious to protect that information. The practical reality is that once the information is disclosed to [the wife] and [the husband], its confidentiality is lost.
(Written submissions of D Limited dated 11 November 2022) (Footnote omitted)
The significant inconvenience and expense D Limited might have already incurred in trying to resist the subpoena and withhold the documents has no bearing on the exercise of discretion. The relevant statutory considerations are whether compliance with, as distinct from resistance to, the subpoena will cause D Limited to incur “hardship” or “serious inconvenience” (s 36(3)(b)).
There is no evidence at all given by any officer of D Limited that it would incur either hardship or inconvenience by producing the financial documents sought by the wife. D Limited’s submission that it would amount to relevant “hardship” for it to be compelled to produce documents it wants to withhold is rejected.
D Limited is indeed anxious to protect the confidentiality of documents recording its financial status and performance, but that is a different consideration and is not dispositive of the dispute over the subpoena. D Limited did not explain how such anxiety bears upon the issue of the hardship, expense or inconvenience incurred by its compliance with the subpoena.
D Limited was keen to emphasise how the law “jealously guards” the privacy of third parties, but it does not do so at the expense of litigants being able to procure information which they could not acquire other than by way of subpoena when such information legitimately bears upon the resolution of their litigation.[19]
[19] National Employers’ Mutual General Association Ltd v Waind and Hill at 384
Any concern harboured by D Limited about broader dissemination of the documents or the information within them, if the subpoena is answered, can be reasonably quelled by the knowledge that the use or disclosure of the information outside the confines of the litigation is prohibited (r 6.36(2) of the Rules), the breach of which prohibition potentially amounts to contempt of court.[20] D Limited’s subjective doubts about the sufficiency of the level of protection for its privacy afforded by the Rules and common law principles is not particularly persuasive as a discretionary consideration.
[20] Hearne v Street (2008) 235 CLR 125 at 131, 145, 157–162 and 166–167
New Zealand law
D Limited submitted the production of the documents sought by the wife could not be compelled under New Zealand law and so should not be compelled indirectly by Australian law. The submission was made in these terms:
11.Further, discretionary beneficiaries of the [family trust] are not entitled to inspect the documents requested under New Zealand law, which further undermines the legitimacy of the request. Shareholders (here the [corporate trustee]) are entitled to request certain information from companies, but the company is entitled to refuse if it has sufficient reason to do so and other reasons do not outweigh the refusal. Furthermore, even if the documents were held by the [family trust] or [corporate trustee], neither [the wife] nor [the husband] would be entitled to disclosure of the documents under New Zealand law.
…
13.The subpoenas cannot be used to obtain documents that would not be available to the beneficiaries in New Zealand. If a Trustee fails to provide information properly requested (noting no such request has been made in this case), the proper remedy for a discretionary beneficiary is to challenge that decision in the usual way in accordance with the law governing the Trust.
(Written submissions of D Limited dated 13 September 2022) (Emphasis added)
The submissions deal with two different things: the legal entitlements of trust beneficiaries to procure documents from trustees and those of corporate shareholders to procure documents from corporations. But neither situation directly covers present circumstances. The wife is not presently seeking to compel the family trust to produce documents. Rather, she is seeking to compel a corporation to produce to the Court the financial documents which it undoubtedly possesses, which documents are amenable to inspection by its shareholders. The wife is not a shareholder of D Limited, but the corporate trustee holds shares in D Limited and is thereby entitled to reasonable access to the documents reflecting its financial performance.
So much is true because Mr G deposed:
29.With respect to item 5 (“Financial statements for each entity in the [D Group] for the Period”) I am aware that [the corporate trustee] could request this information under s 178 of the Companies Act 1993 given it has a 2.32% shareholding in [D Limited]. …
(Affidavit of Mr G filed 16 November 2022)
However Mr G has also deposed that (in his capacity as the sole director of the corporate trustee) he declines to procure or seek access to the subject documents, saying:
29.… Shares in the [D Group] are tightly held and the practice is that such information is provided only to the substantial shareholders of [D Limited]. All shareholders are committed to ensuring that all information is kept confidential and secure.
30.Accordingly, if I held the information sought under item 5, I would not consider it appropriate to disclose it to any of the Discretionary Beneficiaries [of the family trust]. …
(Affidavit of Mr G filed 16 November 2022)
Mr G omits to explain why he is so “committed” to maintain the confidentiality of documents disclosing the financial status and performance of D Limited and any other corporations in which the family trust, managed exclusively by him through the corporate trustee, is or should be vitally interested. The confidentiality is not his to assert, maintain or protect. One might have thought he had an interest, if not a duty, to adopt a contrary position on behalf of the family trust. His use as a witness by D Limited to attack the subpoena certainly piqued the curiosity of the wife.
Mr G bears a fiduciary duty to manage the affairs of the corporate trustee in a way which advances the financial interests of the family trust and the beneficiaries of it (which includes the spouses). The shares held in D Limited are the most significant asset of the family trust, so the value of the corpus of the family trust is inexorably tied to the value of D Limited.
If Mr G abides by his confounding decision to decline to procure the financial statements of D Limited to which the corporate trustee is probably entitled, that ought not preclude the wife’s access to the documents when she is one of the beneficiaries to whom his duty of fidelity is owed. D Limited did not cite a New Zealand authority expressly saying otherwise.
D Limited asserted there was an important distinction to be drawn between the corporate trustee’s right to request D Limited to produce its financial statements, which right Mr G confirms, and its right to refuse the request, which right Mr F confirms in his expert opinion evidence.
In reliance upon the evidence of Mr F, D Limited asserts the provisions of ss 178 and 179 of the Companies Act 1993 (NZ) would permit its refusal of any such request, but the adoption of such a rigid position is not an absolute right. Relevantly, a New Zealand corporation may only refuse a shareholder’s request for information if disclosure would likely prejudice the commercial position of the corporation or the request is frivolous (s 178(4)). The wife’s request for D Limited’s financial statements is not frivolous, nor would the production of such documents to the Court, the spouses and the single expert within the confines of these proceedings compromise its “commercial position” in any tangible way because they are only interested in its value, not the intricacies of its commercial interests or secrets. Even if a corporation does refuse a shareholder’s reasonable request for information, the Court retains the discretion to override the refusal (s 178(7)).
D Limited’s position in respect of trusts and their beneficiaries is no better fortified. Persuasive authority in England,[21] together with binding or persuasive authority in both New Zealand[22] and Australia,[23] all tends to stand for the general proposition that beneficiaries of trusts are ordinarily entitled to inspect at least the documents connected to the financial circumstances of the trust administered for their benefit. According to the expert evidence given by Mr F, the New Zealand legislature sought to give statutory imprimatur to those common law principles in the Trust Act 2019 (NZ) (“the Trust Act”).
[21] Schmidt v Rosewood Trust Ltd [2003] 2 AC 709
[22] Erceg v Erceg [2017] 1 NZLR 320
[23] Breen v Williams (1996) 186 CLR 71 at 89; Spellson v George (1987) 11 NSWLR 300 at 315-316; Re Simersall; Blackwell v Bray (1992) 108 ALR 375 at 378-380; Gray v Guardian Trust Australia Ltd [2003] NSWSC 704 at [34]-[39]; McDonald v Ellis (2007) 72 NSWLR 605 at [32]–[53]; Loughran v Perpetual Trustees WA Ltd [2007] VSC 50 at [32]–[35]
Beneficiaries of discretionary trusts might stand in a less secure position than the beneficiaries with vested interests, but the balance of authority incorporates them within such principles. It has been said that discretionary beneficiaries have the same entitlements[24] and also that they have a “less clear and compelling basis” to demand the financial documents of the trust.[25]
[24] Spellson v George at 315-316; Re Simersall; Blackwell v Bray at 378–379
[25] McDonald v Ellis at [35] and [45]–[48]
The disclosure of trust documents by trustees to beneficiaries might well entail an exercise of discretion, either at common law or under the Trust Act (ss 52 and 53), but the identity of the beneficiary, the nature of the beneficiary’s interest in the trust, and the nature of the documents sought to be inspected are all considerations which materially influence the exercise of such discretion. The New Zealand Supreme Court has recognised that the desire to maintain the confidentiality of trust documents will not ordinarily warrant a refusal to disclose the trust’s financial statements under common law principles.[26]
[26] Erceg v Erceg at [73], [88] and [90]
Here, the husband has a recent history of receiving substantial financial accommodation from the family trust, the wife is within a beneficiary class of the family trust, the value of the family trust is pertinent to the resolution of the litigation between the spouses, the value of the family trust depends upon the value of its underlying assets, and the family trust’s shareholding in D Limited is its principal asset. It would be surprising if that conglomeration of considerations would not militate in favour of the corporate trustee having to disclose to the spouses, either individually or jointly, any documents evidencing the value of the family trust’s shareholding in D Limited, if in possession of such documents.
But the corporate trustee asserts (through Mr G) that it does not possess such documents, so given the sole director of the corporate trustee expressly declines to voluntarily procure them from D Limited and given the documents would likely help establish the value of the family trust’s shareholding in D Limited, it would be quite incongruent if the spouses could not circumvent the corporate trustee’s torpor to procure the documents for themselves.
Mr F confirms the wife enjoys no right under the New Zealand legislation to compel the corporate trustee to procure the documents, so no substantive legal remedy is available to her in a separate cause of action. Conspicuously though, Mr F does not assert the wife could not competently issue the same subpoena in New Zealand if the underlying property settlement proceedings between the spouses were being conducted in that jurisdiction. The issue of a subpoena is the commonly accepted method to procure access to documents which the issuing party would not otherwise have any legal right to obtain for use in relation to legal proceedings.
Acquisition of the documents by other means
Although s 36(3)(c)(ii) of the TTP Act directs attention to alternate means of obtaining the documents which are sought in the subpoena, D Limited sought to instead argue that there were alternate ways for the wife to ascertain the value of D Limited, which is a different thing.
Mr G deposed that there were other methods to value D Limited without needing to force D Limited to produce its financial statements.
First, he said the New Zealand government produces annual energy statistics on a website, but his implication that such generic statistics would offer any reliable insight into the value of D Limited and hence the value of the family trust’s shareholding in D Limited is rejected.
Next, he named three firms who might undertake some form of valuation: J Pty Ltd, K Company, and L Company.
The wife’s lawyers contacted J Pty Ltd and were informed that firm would be “less confident in the quality of the valuation” if it was not furnished with the financial statements of D Limited, which response accords with logic.
The wife’s lawyers also contacted K Company and L Company, but received no reply.
Helpfully, D Limited’s lawyers contacted L Company and were informed that firm could produce a valuation report. The valuation methodology L Company would employ was described thus:
The valuation methodology that we would apply is the same that I expect most practitioners would themselves apply. In broad terms this would involve us undertaking bottom-up valuations of individual [D Limited] assets via discounted cash flow (DCF) analysis. We would then aggregate valuations for those individual assets to arrive at a sum-of-the-parts valuation. In normal circumstances we would deduct any debt of incumbencies (sic) held against the assets to arrive at an equity value, however for the reasons explained above we would not do so in this case as we have no visibility towards the financing arrangements of [D Limited]. We would then benchmark the results of our DCF analysis against top-down market valuation benchmarks observable from peer companies and/or assets.
(Affidavit of Mr H filed 28 November 2022 p. 3)
Stripped of jargon, L Company would do the same as any other valuation expert – add up the value of D Limited’s assets, then deduct the amount of debt owed by D Limited, to arrive at a net asset-backed corporate value. In that exercise, the value of D Limited’s assets would be estimated from the income which the assets generate, the quantum of which cash flow would be revealed by D Limited’s financial statements.
Simply stated, it seems accepted by both the single expert and L Company that a reliable valuation of D Limited (and hence the value of the family trust’s shareholding in D Limited) depends upon provision of D Limited’s financial statements. There is no reasonable alternative, let alone an easier one, but to have D Limited produce such documents. They are not publicly available.
If D Limited refuses to reveal its financial statements – the prospect of which L Company seems to be cognisant – then L Company would instead fall back on an educated guess at D Limited’s value by comparing it to comparable corporations. It is not clear how such comparable corporations would be identified. Surely a suitable comparison could not be established merely because another corporation has similar petroleum or mining interests. The unstated assumption is that the benchmark value of the comparable corporations would be established by access to their financial statements. D Limited is seemingly in denial about the essentiality of financial statements of either it or a comparable corporation to the valuation of its shares. The wife has an interest in D Limited’s financial statements, but certainly no interest at all in the financial statements of an entirely unrelated corporation and so could not procure them instead.
conclusion
The subpoena is too wide and ought be confined, albeit not for reasons expressly addressed by D Limited in its submissions.
Paragraph 1 is superfluous, as the wife conceded. It does not matter if D Limited fails to produce to the Court a copy of the subpoena.
Paragraph 2 does not require the production of anything. It simply purports to define the constituent corporate entities said to comprise the “[D Group]”. While the subpoena is directed to only D Limited, it purports to oblige D Limited to produce documents for and on behalf of the seven other corporations in addition to its own documents.
Although the subpoena alleges the other seven corporations are “all related entities, holding companies and subsidiaries”, the evidence establishes D Limited’s association or affiliation with only six.
As noted already, the wife conceded she could not press for D Limited’s production of the financial statements of the corporation over which it has no control (the one identified at paragraph 2.1.1).
Since D Limited disposed of its shares in another corporation (the one identified at paragraph 2.1.2) in April 2019, it no longer has any control over that corporation either. The shares were transferred to a third party corporation, of which Mr G is the shareholder and director, so the wife suggested an inference should be drawn that he holds the shares beneficially for the family trust, in which case the subpoena should still apply to it. The submission is rejected. An inference requires more than a guess.
D Limited is the sole and exclusive shareholder in each of the remaining five corporations named in the subpoena. Even though the family trust financial statements may claim some form of “investment” in those corporations, the family trust actually holds shares in none.[27] Why the family trust has been paid dividends by those corporations when it holds no shares in them remains a mystery.[28] According to the New Zealand corporate searches, which is the best evidence, the family trust only has a direct proprietorial interest by shareholding in D Limited.
[27] Exhibit W1, pages 50–64
[28] Exhibit W1, page 81
The wife submitted the subpoena should encompass the financial statements of all the associated corporations to help shed light on the conundrum, but the submission is rejected. The subpoena casts a wider net than the evidence properly permits and should be confined to require production of relevant documents by only D Limited, as it is the only corporation in which the family trust holds shares. The current value of the family trust cannot rationally depend upon the value of corporations in which it has no proprietary stake.
Paragraph 4 seeks the production of “financial statements”. Although not defined, the description should be imputed to mean balance sheets, profit and loss statements, and tax returns. The ambit of the subpoena should be so confined. When pressed, the wife equivocated but could not identify with any precision any other form of financial document which the definition should embrace.
The subpoena requires the production of financial statements extending back to 1 January 2016, but that is an over-reach. The single expert only sought financial statements for the 2020 and 2021 financial years,[29] so the subpoena should be so confined. The documents should not reach back any further than 1 July 2019.
[29] Exhibit W1, pages 37–38
disposition
The application under the TTP Act to set aside the subpoena fails.
The review application succeeds in respect of Orders 1 and 3 made by the registrar. Fresh orders need to be substituted for those made by the registrar to confine the ambit of the subpoena and to extend the time for compliance with it.
D Limited requested that the issue of costs lie in abeyance until after the dispute is determined, to which request the wife acquiesced. Costs will be reserved for 28 days.
I certify that the preceding ninety-six (96) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Austin. Associate:
Dated: 21 December 2022
SCHEDULE OF PARTIES
SYC 8338 of 2019 Respondents
Fourth Respondent:
M Pty Ltd
Fifth Respondent:
N Pty Ltd
Sixth Respondent:
O Pty Ltd
Seventh Respondent:
P Pty Ltd
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