Ingles and Ingles and Ors
[2019] FamCA 33
•31 January 2019
FAMILY COURT OF AUSTRALIA
| INGLES & INGLES & ORS | [2019] FamCA 33 |
| FAMILY LAW – PROPERTY – Settlement in relation to marriage – Whether the interest of the husband in a trust is property or a financial resource – Where the husband is the appointor of the trust – Where the husband is a trustee and is within the specified range of beneficiaries – Where the husband is not the sole trustee – Where the legitimate interest of a third party arises – Where the trust is not a sham – Where the trust is not the alter-ego of the husband – Consideration given to whether the trustees hold the assets of the trust for the husband or for the husband and wife arising out of an express or constructive trust – Identification of the property of the parties available for division. |
| Family Law Act 1975 (Cth) ss 75(2), 79, 79(2), 79(4) |
| Anning v Anning (1907) 4 CLR 1049 Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566 Bevan & Bevan [2013] FamCAFC 116 Calverley v Green (1984) 155 CLR 242 Commissioner of State Taxation v Cyril Henschke Pty Ltd & Ors (2010) 242 CLR 508 Connell v Bond Corporation Pty Ltd (1992) 8 WAR 352 Giumelli v Giumelli (1999) 196 CLR 101 Goodwin v Goodwin Alpe (1991) FLC 92-192 Harris & Dewell & Anor [2018] FamCAFC 94 Harris & Harris (1991) FLC 92-254 Hewett v Court (1983) 149 CLR 639 Kennon v Spry (2008) 238 CLR 366 Muschinski v Dodds (1985) 160 CLR 583 Pierce & Pierce (1999) FLC 92-844 Pleash (Liquidator) v Tucker [2018] FCAFC 144 Reynolds and Reynolds [1990] FamCA 50 (27 April 1990) Rosati v Rosati (1998) FLC 92-804 Stanford & Stanford (2012) 247 CLR 108 Stephens & Stephens (2007) FLC 93-336 United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673 |
| APPLICANT: | Ms Ingles |
| 1st RESPONDENT: | Mr Ingles |
| 2nd RESPONDENT: | B Pty Ltd |
| 3rd RESPONDENT: | Ms Howard |
| FILE NUMBER: | DNC | 270 | of | 2017 |
| DATE DELIVERED: | 31 January 2019 |
| PLACE DELIVERED: | Darwin |
| PLACE HEARD: | Darwin |
| JUDGMENT OF: | Berman J |
| HEARING DATE: | 13 - 17 August 2018 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Ms Pyke QC |
| SOLICITOR FOR THE APPLICANT: | Norman Waterhouse Lawyers |
| COUNSEL FOR THE 1ST RESPONDENT: | Mr Crooke |
| SOLICITOR FOR THE 1ST RESPONDENT: | Murdoch Lawyers |
| COUNSEL FOR THE 2ND RESPONDENT: | Mr Bonig |
| SOLICITOR FOR THE 2ND RESPONDENT: | Finlaysons |
| COUNSEL FOR THE 3RD RESPONDENT: | Mr Bonig |
| SOLICITOR FOR THE 3RD RESPONDENT: | Finlaysons |
Orders
That in full and final settlement of all claims either the husband or the wife may have against the other for settlement of property either in the past, present or the future pursuant to Part VII of the Family Law Act 1975 (Cth) (as amended) (“the Act”):-
(a)Within ninety (90) days of the date of these orders the husband pay or cause to be paid to the wife’s solicitors for and on her behalf the sum of SEVEN HUNDRED & TWENTY THOUSAND FOUR HUNDRED AND NINETY SIX DOLLARS ($720,496) (“the settlement sum”);
(b)That as required by s 90MT(4) of the Act a base amount of TWO HUNDRED THOUSAND DOLLARS ($200,000) is to be allocated to the wife out of the husband’s entitlement in K Superannuation Fund (hereinafter referred to as “the Fund”);
(c)That pursuant to paragraph 90MT(1)(a) of the Family Law Act 1975 whenever a splittable payment becomes payable in respect of the husband’s interest in the Fund:-
(i)The Trustee shall pay to the wife’s nominated superannuation fund the entitlement calculated in accordance with Part VI of the Family Law (Superannuation) Regulations 2001 (Cth) using the base amount allocated in paragraph (1)(b) hereof;
(ii)The Trustee shall make a corresponding reduction in the interest that the husband would have had in the Fund but for this order.
(iii)This order has effect from the operative time.
(iv) That the operative time for these orders is four (4) business days from the date of service of the sealed order on the Trustee of the Fund.
(v) That these orders bind the Trustee of the Fund to observe the Trustee obligations as set out under the Family Law Act 1975 (Cth) and the Family Law (Superannuation) Regulations 2001 (Cth), the Trustee having been afforded procedural fairness in accordance with the Family Law Rules 2004 (Cth).
(vi) That the husband and the wife do all things necessary including but not limited to exercising the wife’s request pursuant to Regulation 7A.06(1) of the Superannuation Industry (Supervision) Regulations 1994 (Cth) for the rollover or transfer of the transferable benefit in the Fund to a fund of the wife’s choosing and in accordance with Regulation 7A.12 of the Superannuation Industry (Supervision) Regulations 1994.
(d)That other than as provided in these orders hereafter the property in the following shall vest in the wife absolutely, free of any further claim, demand or right or entitlement of the husband:-
(i)The wife’s Motor vehicle 1;
(ii)The furniture, furnishings and household contents of the property at C Street, Suburb D, Northern Territory …;
(iii)The wife’s superannuation entitlements including the amount from the splitting order provided herein;
(iv)The wife’s separate savings and investments including but not limited to the content of her J Credit Union accounts;
(v)Any personal property or financial resources of the wife, in the wife’s name or possession or otherwise specified herein.
(e)That other than as provided in these orders hereafter the property in the following shall vest in the husband absolutely, free of any further claim, demand or right or entitlement of the wife:-
(i)The husband’s Motor vehicle 2;
(ii)The husband’s Motor vehicle 3 and Motor vehicle 4;
(iii)The husband’s shareholding and interest in B Pty Ltd after the payment of the settlement sum and any necessary sale as provided for at paragraphs 1(a) and 1(k) herein;
(iv)The husband’s interest in the Ingles Family Trust other than as provided for in these orders;
(v)The husband’s superannuation entitlements after the splitting order provided for herein has taken effect;
(vi)The husband’s separate savings and investments, including but not limited to the contents of his NAB accounts;
(vii)Any other personal property or financial resources of the husband, in the husband’s name or possession or otherwise specified herein.
(f)That hereafter the wife shall be solely responsible for and shall indemnify the husband and keep him forever indemnified with respect to any debts or liabilities in her sole name whether past, present or future;
(g)That hereafter the husband shall be solely responsible for and shall indemnify the wife and keep her forever indemnified with respect to any debts or liabilities in his sole name whether past, present or future;
(h)That the husband shall be solely responsible for and shall indemnify the wife in respect of any claim by B Pty Ltd in respect of outstanding rental arising from the wife’s occupation of the property situate at C Street, Suburb D, Northern Territory … (“the C Street property”);
(i)That each party shall do all such acts and things and sign all such documents as may be necessary to give effect to the terms of this order;
(j)That the wife shall be entitled to remain in the C Street property until such time as she has received the entirety of the settlement sum together with default interest (if any) PROVIDED THAT:-
(i)upon the wife receiving the settlement sum she shall vacate the C Street property within seven (7) days thereafter and leave the same in good order and repair;
(ii)she will pay to B Pty Ltd the sum of THREE HUNDRED AND FIFTY DOLLARS ($350) per week during her period of occupation;
(k)That in the event that the husband shall default on the payment of the settlement sum either in whole or in part THEN:-
(i)B Pty Ltd shall do all such acts and things and execute all such documents as shall be necessary to:-
1. Call in any loan owed to it by the Ingles Family Trust;
2. Obtain the release of any of its directors past and present from their guarantees with respect to the borrowings of the Ingles Family Trust from the National Australia Bank, such borrowings secured by way of mortgage security over the C Street property and do obtain the discharge of the C Street property from the mortgage security and do thereafter cause the C Street property to be sold upon such terms and conditions as the parties may agree and in default of agreement as they may be ordered by the Court;
3. Cause the company to be wound up and do thereafter cause such monies as may be due and owing to the husband arising out of his shareholding to be paid firstly to the wife in such sum as may be necessary to satisfy her entitlement pursuant to paragraph 1(a) hereof and the balance if any to the husband; and
4. The husband and Ms Howard as Trustees of the Ingles Family Trust shall do all things as may be necessary to obtain the release of the directors past or present of B Pty Ltd from their guarantees and to secure the discharge of the mortgage security over the C Street property.
5. That in the event there shall be insufficient funds to satisfy the settlement sum payable to the wife following the sale of the assets in B Pty Ltd THEN the husband shall do all such acts as may be necessary either in concert with Ms Howard as a co-trustee of the Ingles Family Trust or in circumstances where the Trustees are not able to agree THEN the husband shall exercise his power of appointment such that [Ms Howard] shall no longer be a Trustee and thereafter the husband shall cause such of the assets of the [Ingles] Family Trust to be sold as may be necessary to enable the husband to either by way of drawings or distributions to discharge the wife’s settlement sum or so much of the said sum as shall remain outstanding together with default interest as and from the date of default calculated pursuant to the Family Law Regulations PROVIDED THAT the husband is not required to seek distributions and/or drawings in excess of FIVE HUNDRED AND THIRTY ONE THOUSAND SEVEN HUNDRED AND SIXTY FIVE DOLLARS ($531,765).
(l)If the husband or the wife shall refuse or neglect to execute any document necessary to give effect to the terms hereof within seven (7) days after the same shall have been tendered to him or her for that purpose THEN and in such case:-
(i)A Registrar of the Family Court of Australia upon proof by affidavit of such refusal or neglect is hereby appointed to execute any such document on behalf of either party hereto and if in his or her opinion it shall be necessary so to do to settle the same and do all such other acts and things and execute all such other documents as shall be necessary to give full force and effect hereto and shall execute and do the same accordingly.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Ingles & Ingles and Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT |
FILE NUMBER: DNC 270 of 2017
| Ms Ingles |
Applicant
And
| Mr Ingles |
Respondent
And
B Pty Ltd
2nd Respondent
And
Ms Howard
3rd Respondent
REASONS FOR JUDGMENT
Introduction
By Further Amended Initiating Application filed 31 May 2018, Ms Ingles (“the wife”) seeks orders for property settlement pursuant to pt VIII of the Family Law Act 1975 (Cth) (“the Act”) to the effect that she would receive an adjustment equal to 65 per cent of the net assets which would include the “assets” of the Ingles Family Trust (“the Trust”) or such proportion as the Court may determine should form part of the matrimonial pool for adjustment between the parties.
If the Court “does not declare that the assets of [the Trust] are the property of [Mr Ingles (“the husband”)]” then she seeks a declaration that the husband and Ms Howard (“Ms Howard”) in their capacity as trustees of the Trust “hold the assets of the Trust or in such proportion as the Court may determine for and on behalf of the husband or the husband and the wife arising out of an express or constructive trust.”
In addition, the wife seeks the allocation of a base amount of $200,000 pursuant to s 90MT(4) of the Act from the husband’s entitlement in K Superannuation Fund (“the fund”).
By the Further Amended Response filed 25 July 2018, the husband concedes that there should be a settlement of property, taking into account the sum received by the wife by way of partial property settlement on 22 June 2016 and 20 July 2016 in the total sum of $50,000 and such percentage and/or cash sum as may be determined by the Court in respect of the husband’s 50 per cent interest in B Pty Ltd (“BPL”).
The husband submits that of the $50,000 payment only $34,000 should be treated as “an asset in the hands of the Wife” given her evidence that she used $16,000 to purchase a motor vehicle which is included in the pool of assets.
The husband also concedes the base amount sought by the wife from his superannuation fund.
By Response filed 21 September 2017, BPL seeks that the wife vacate the property situate at C Street, Suburb D, Northern Territory (“the C Street property”) and pay rent for her occupation of the property since April 2016 to the present. As of 30 June 2018 rent and outgoings were in the total sum of $95,000.
By reference to the Response to Points of Claim filed 30 April 2018 by BPL and Ms Howard in her capacity as a trustee of the Trust opposes the wife’s orders sought against BPL and IFT and claims that they should be struck out. If successful BPL and Ms Howard seek that the wife be liable for their costs.
Short history
The husband was born in 1976. The wife was born in 1972. The parties commenced a relationship in December 1997 and cohabitation in mid-1998. The parties married in 2003 and separated in April 2016. There are two children of the marriage, Mr L aged 18 years and M aged 16 years.
An issue to be determined is whether the Trust is the alter-ego of the husband by reason of the wife’s assertion that he “has total and absolute control” of the trust. If that claim is sustained, then the wife contends that the assets of the Trust would be included in the matrimonial assets of the parties and be available for adjustment between them.
The wife contends that the necessary corollary of such a finding would enable the Court to “direct the husband in the exercise of his powers of appointment” as to the assets of the Trust that may be better necessary to give effect to the order for property settlement in favour of the wife. The alternative proposition is that the husband and Ms Howard in their capacity as trustees hold the assets of the Trust upon trust for the husband or the husband and the wife by reason of a resulting or constructive trust.
The husband contends that he had a financial resource in the Trust. A further consideration is whether the Trust should be considered as a “quasi-partnership” and a notional amount representing the husband’s interest should be brought to account in the pool of property.
Given that there is no challenge by the husband to his 50 per cent shareholding in BPL being property of the parties, there is contention as to the value of the husband’s interest depending upon whether the company is likely to be wound up. This also raises a consideration of the status of any indebtedness as between the Trust and BPL and in particular arising out of the purchase of the C Street property.
Background history
In 1981 the husband’s parents commenced a business in country South Australia. The husband and his sister Ms Howard worked in the business and became proficient in aspects of its operation.
The husband’s parents purchased a share in a business in N Town in October 1993 and upon the completion of his high school in 1993 and Ms Howard in 1994, both moved to N Town and worked in the business.
Following the sale of the husband’s parents’ interest in 1994, the husband, Ms Howard and her husband Mr O went into business as a partnership trading as “H”. The business was incorporated in 1997 and thereafter the business of H Pty Ltd was conducted through the company.
The husband caused the settlement of the Trust in October 1997. He was the sole appointor and only trustee.
It was later that year in December 1997 that the husband and the wife commenced a relationship.
Following incorporation in 1997, the husband and Ms Howard proposed to purchase the shareholding of Mr O. In May 1998, the husband and Ms Howard purchased Mr O’s shares in H Pty Ltd and thereafter were equal shareholders.
The husband does not have a clear recollection as to the circumstances surrounding the settlement and creation of the Trust. He understood that he was the sole appointor and trustee, although does not now recollect, if he ever knew, why the Trust was settled in that way.
The husband believed that in August 1998 Ms Howard was appointed as a second trustee. The husband and Ms Howard remain as co-trustees of the Trust to the present date.
In October 1998 the Trust purchased a property at P Street, N Town.
In April 1999, the Trust purchased a unit at Q Street, Adelaide and in June 2000 purchased a property at R Street, N Town.
In each case H Pty Ltd provided for the deposit as required to effect purchase with the Trust borrowing funds to enable settlement to occur.
In July 2000, the Trust contracted with a builder in N Town to build commercial premises at S Street, N Town.
In August 2000, the husband and Ms Howard agreed to sell the business of H Pty Ltd for the total sum of $1.7 million of which $1.342 million was goodwill. The purchaser continued the business from the S Street premises and whilst they also acquired the name “H Pty Ltd”, the husband and Ms Howard retained H Pty Ltd and changed its name to B Pty Ltd. Settlement took place in December 2000.
In January 2001, the construction of the S Street commercial property was completed and the Trust purchased the property for $1.222 million.
The sound financial position of BPL enabled it to assist the Trust to purchase property in mid-2002 in N Town, Suburb T and Brisbane. In July 2002 the Trust sold property at P Street, N Town.
At the time of marriage in 2003, the husband worked as a manager in N Town and the wife had commenced a Bachelor Degree.
In November 2004 the Trust purchased property at U Street, Suburb V, and in April 2005 the Trust purchased property at S Street, N Town. The Suburb V property was sold in August 2005.
The parties moved from N Town to Darwin in December 2006 and in May 2007 BPL purchased property at C Street, Suburb D (“the C Street property”) for $880,000. The C Street property was funded by borrowings secured over the real estate assets of the Trust.
On 18 August 2009 Ms Howard was appointed as an alternative appointor of the Trust in circumstances where the husband ceased to be an appointor, either upon his death or otherwise. The evidence of the husband and Ms Howard is that it was their intention that Ms Howard be appointed as a joint appointor with the husband. The evidence does not explain why their intention was not given effect.
The parties separated in April 2016.
The wife commenced proceedings by Initiating Application filed 14 June 2017. She remains living in the C Street property but does not seek to retain C Street as part of her property settlement, other than as it may be necessary as an asset of BPL to satisfy the payment of a settlement sum to the wife if the husband is not able to do so.
Issues in dispute
The issues for determination are as follows:-
(1)The husband’s interest in the Trust.
(2)Is the Trust the alter-ego of the husband?
(3)Do the trustees of the Trust hold the assets of the Trust for the husband or the husband and the wife arising out of an express or constructive trust?
(4)If the Court does not find that an express or constructive trust then does the husband have an equitable lien over the assets of the Trust?
(5)The value or weight to be given to the husband’s interest in the Trust as a financial resource.
(6)The extent to which the husband’s interest as a financial resource in the Trust is affected the distribution of income and capital from the Trust to the wife, the husband and Ms Howard, with particular focus on a capital distribution to Ms Howard of $363,630.
(7)The value of the husband’s interest in BPL and the status of the C Street property.
(8)The liability of the wife, if any, to reimburse BPL for unpaid rent.
(9)The property of the parties available for division.
(10)The weight to be given to the separate contributions of the parties.
(11)What orders, if any, can be made requiring the trustees to sell Trust property sufficient to supplement any default by the husband in the payment to the wife of a settlement sum as may be ordered.
Is it just and equitable to alter the property interests of the parties?
The parties contend that it is just and equitable for the Court to make an order pursuant to s 79 of the Act.
In Stanford & Stanford (2012) 247 CLR 108 the majority held:-
[35]It will be recalled that s 79(2) provides that “[t]he court shall not make an order under this section unless it is satisfied that, in all the circumstances, it is just and equitable to make the order”.
Section 79(4) prescribes matters that must be taken into account in considering what order (if any) should be made under the section. The requirements of the two sub-sections are not to be conflated. In every case in which a property settlement order under s 79 is sought, it is necessary to satisfy the court that, in all the circumstances, it is just and equitable to make the order.
[36]The expression “just and equitable” is a qualitative description of a conclusion reached after examination of a range of potentially competing considerations. It does not admit of exhaustive definition. It is not possible to chart its metes and bounds. …
In Bevan & Bevan [2013] FamCAFC 116 the Full Court considered at [73] that the decision of Stanford (supra) could be reduced to three fundamental propositions:-
(1)The Court needs to consider the existing property interests of the parties and to identify those interests (by reference to common law and equity); and
(2)The discretion must be exercised in accordance with legal principles and not in respect of any assumption that the parties interests are or should be different from those determined by common law and equity; and
(3)Section 79(2) cannot be conflated by reference to matters in s 79(4).
Both parties consider that it is appropriate for there to be orders made for property settlement. The parties have joint and several legal and equitable interests in property that arise out of the marital relationship or during the period of cohabitation.
In all the circumstances, it is just and equitable that orders for settlement of property be made.
Property of the parties
At the commencement of the proceedings the joint balance sheet was tendered (Exhibit “24”) setting out the assets and liabilities of the husband and wife as follows:-
ASSETS
WIFE $ VALUE
HUSBAND $ VALUE
Husband’s interest in B Pty Ltd
846,684
657,002
Husband’s interest in Ingles Family Trust
1,402,522
Nil
Wife’s Motor vehicle 1
10,850
10,850
Husband’s Motor vehicle 2
13,900
13,900
Husband’s Motor vehicle 3
10,000
10,000
Partial property payment to wife
Nil
34,000
LIABILITIES
Wife’s university fees
22,741
22,741
Husband’s debt to Ingles Family Trust
Nil
393,718
Rent owed by wife to B Pty Ltd
Nil
95,158
SUPERANNUATION
Husband – K Fund
362,235
362,235
Wife – W Superannuation
35,951
35,951
The husband contends that his interest in the Trust is at best a resource rather than property and therefore it should not be treated as property.
The wife does not accept that she should be responsible for the purported accumulation of rent payable to BPL.
The husband has paid the following single expert valuation fees and seeks that the wife reimburse him for one half:-
(1)Initial valuations $9,130
(2)Updated valuations $6,380
(3)F Accountants valuation $8,250
Parties’ legal costs
The parties were ordered to tender and exchange a costs notice at the commencement of the trial pursuant to r 19.04 of the Family Law Rules 2004 (Cth).
The cost notices are Exhibit “1” in the proceedings and summarised as follows:-
As to the wife:-
(a)Legal fees and disbursements already paid $ 66,693.85
(b)Legal fees and disbursements billed but unpaid $272,583.59
(c)Legal fees and disbursements incurred but not yet billed:-
(i)Solicitor $ 50,000.00
(ii)Counsel $ 32,500.00
(d)Estimated costs to the conclusion of the trial:-
(i)Solicitor $ 25,000.00
(ii)Counsel $ 32,500.00
(iii)Expert witness fees $ 5,000.00
Total$484,277.44
The wife has utilised the sum of $50,000 received by way of order of partial property settlement to meet her legal fees.
As to the husband:-
(a)Billed $173,422.83
(b)Legal costs incurred but not yet billed $ 6,201.25
(c)Counsel fees incurred but yet to be billed $ 12,500.00
(d)Solicitors fees for trial $ 22,000.00
(e)Counsel fees for trial $ 35,000.00
Total $249,124.08
The husband has personally paid $57,850 to his solicitors trust account and a further amount of $45,309.23 has been paid to the solicitors general account.
The costs notice advises that various counsel fees including travel, valuation and some earlier solicitors’ fees have been paid directly by the husband.
Costs of the Second and Third Respondents
(a)Fees and disbursements paid or payable by BPL
$39,064.21
(b)Fees and disbursements paid or payable by the Trust
$117,307.00
Total $156,371.21
It is anticipated that a further $45,000 will be incurred to the completion of the trial to be adjusted as to one third payable by BPL and two thirds payable by the Trust.
Is the Trust “property” for the purposes of the Act?
The wife seeks a finding that the Trust should be considered as “property” of the parties. The Trust was settled on 20 October 1997. The husband was the original trustee.
Clause 3.1 of the Trust Deed provides that the beneficiaries of the Trust comprise:-
(a)[The husband];
(b)Any child or grandchild of [the husband] born before the termination date;
(c)The spouse of any child or grandchild of the [the husband];
(d)Any parent, brother or sister, nephew or niece of [the husband].
The husband and Ms Howard are within the specified range of beneficiaries. Clause 3.1(f) enables a corporation to be a beneficiary of the Trust. Accordingly, BPL falls within the category of beneficiaries.
Clause 7.1 provides for the power of appointment. The husband is the appointor during his lifetime and on and from his death such person as he may by Deed or Will nominate. Ms Howard is entitled to hold the power of appointment upon the death of the husband. Clause 7.2 provides for the husband to relinquish his power of appointment or he may appoint a second appointor in his place during his lifetime.
Ms Howard was appointed as joint trustee by Deed of Appointment on or about 24 September 1998. Her nomination as appointor of the IFT as and from the death of the husband occurred on 18 August 2009.
The wife contends that as appointor the husband has “the sole and unfettered ability to control the Trust including removal and appointment of Trustees and distributing the assets of the Trust to and for his benefit or the benefit of any other beneficiary”. She maintains that notwithstanding Ms Howard is a beneficiary, she has no right or entitlement to the Trust and she remains as a trustee at the discretion of the husband.
It is argued on her behalf that as a consequence of the husband’s ostensible control of the Trust, the Trust and its assets should be considered as forming part of the matrimonial assets of the parties. The Trust is therefore the alter-ego of the husband and as such, to the extent that it is necessary to do so, the wife contends that the Court is able to order and direct the husband in the exercise of his Power of Appointment to deal with the assets of the Trust as may be necessary to give effect to any settlement of property in favour of the wife.
The Full Court in Harris & Harris (1991) FLC 92-254 considered the definition of ‘property’ under the Act and said at 78,707:-
…being property ‘to which the parties are entitled whether in possession or reversion’ the words ‘whether in possession or reversion’ are not intended to indicate that the kind of property with which this Act can deal must be property to which a party is entitled in possession or reversion but rather the phrase ‘whether in possession or reversion’ is, as a matter of grammar, an adverbial phrase which qualifies the word ‘entitled’.
The Full Court considered that the description was intended to remove any limitation on the Court in determining that any real or personal right or interest held by a party may well be defined as property.
The broad definition of property does not automatically place discretionary trusts into the category of “property” for the purposes of property settlement. The Court must consider the genuine interests of third parties who may have an entitlement to be considered as a potential beneficiary under a trust.
In Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 at 354 the following is discussed by Gibbs J:-
It can safely be assumed that the Parliament intended that the powers of the Family Court should be wide enough to prevent either of the parties to a marriage from evading his or her obligations to the other party, but it does not follow that the Parliament intended that the legitimate interests of third parties should be subordinated to the interests of a party to a marriage, or that the Family Court should be able to make orders that would operate to the detriment of third parties. There is nothing in the words of the sections that suggests that the Family Court is intended to have power to defeat or prejudice the rights, or nullify the powers, of third parties, or to require them to perform duties which they were not previously liable to perform.
In Goodwin v Goodwin Alpe (1991) FLC 92-192 the Full Court considered the question of control and at 78,273 applied the principles as stated in Reynolds and Reynolds [1990] FamCA 50 (27 April 1990) at [77]:-
…once again we emphasise that the question whether the property of the trust is, in reality, the property of the parties or one of them, or a financial resource of the parties or one of them, is a matter dependent upon the facts and circumstances of each particular case including the terms of the relevant Trust Deed.
Applying those principles to the facts of the case before them and ultimately finding that trust property was to be considered as the property of the husband, the Full Court held at 78,273 that:-
The husband had the sole power of appointment of the Trustee, which was a creature under his control, and he was a beneficiary to whom the Trustee could make payments exclusively of other beneficiaries as the husband saw fit. If further evidence was needed that the husband controlled both the Trustee and the trust for his own purposes, it is to be found in the fact of the removal of the wife and her son as beneficiaries of the trust following the separation. This evidence confirms both the power of the husband and the fact that the Trustee acted as his creature.[1]
[1]See also Ashton v Ashton (1986) FLC 91-777; Stein& Stein (1986) FLC 91-779; Davidson and Davidson (1991) FLC 92-197.
In Ascot Investments (supra) Gibbs J said further at 354 – 355:-
The position is, I think, different if the alleged rights, powers or privileges of the third party are only a sham and have been brought into being, in appearance rather than reality, as a device to assist one party to evade his or her obligations under the Act. Sham transactions may always be disregarded. Similarly, if a company is completely controlled by one party to a marriage, so that in reality an order against the company is an order against the party, the fact that in form the order appears to affect the rights of the company may not necessarily invalidate it.
Except in the case of shams, and companies that are mere puppets of a party to the marriage, the Family Court must take the property of a party to the marriage as it finds it. The Family Court cannot ignore the interests of third parties in the property, nor the existence of conditions or covenants that limit the rights of the party who owns it. To take two obvious examples, the Family Court could not compel a husband to assign to his wife a lease without obtaining the necessary consent of the lessor, and could not order the transfer to a wife of land owned by a husband free of mortgage, when in fact the land was mortgaged to a third party. Thus, in the present case, the Court must deal with the husband’s shares in Ascot Investments as they in fact are, that is, as shares in a company whose memorandum and articles contain a restriction on transfer.
As Barwick CJ said in Ascot Investments at 343:-
… The husband might be ordered to take such steps as he could lawfully take to secure the registration of the transfer. But the court could have no authority to compel the husband to do something which he could not do or compel others to do.
Similarly, Gibbs J said at p 354:-
… It is one thing to order a party to a marriage to do whatever is within his power to comply with an order of the court, even if what he does may have some effect on the position of third parties, but it is quite another to order third parties to do what they are not legally bound to do. If the sections had been intended to prejudice the interests of third parties in this way, it would have been necessary to consider their constitutional validity.
In considering what might be required to find that a person exercises “control” the following consideration by Barwick CJ appears at 343 - 344:-
The word “control” in this connexion may be ambiguous. The control which is significant here would be the ability to treat the company and its affairs as his own. Control he might exercise in the interests of the company and all its shareholders would be irrelevant. If the Full Court thought there was material on which he could be said to be in control of the company in the relevant sense, their Honours were, in my opinion, in error.
The issue was required to be considered by the High Court in Kennon v Spry (2008) 238 CLR 366. The case involved a claim by the wife that if a variation of a trust was set aside then because the husband controlled the trust, its assets should be treated as his property for the purposes of s 79.
French CJ and Gummow and Hayne JJ agreed with the wife’s claim and French CJ made the following finding at 390-391 [64]:-
The word “property” in s 79 is to be read as part of the collocation “property of the parties to the marriage”. It is to be read widely and conformably with the purposes of the Family Law Act. In the case of a non-exhaustive discretionary trust with an open class of beneficiaries, there is no obligation to apply the assets or income of the trust to anyone. Their application may serve a wide range of purposes. In the present case, prior to the 1998 Instrument those purposes could have included the maintenance or enrichment of Mrs Spry.
His Honour considered that “the characterisation of the assets of the Trust, coupled with Dr Spry’s power to appoint them to his wife and her equitable right to due consideration, as property of the parties to the marriage is supported by particular factors.”
It was considered important that there was an “absence of any obligation on his part to apply all or any of the assets to any beneficiary and the contingent character of the interests of those who might be entitled to take upon a default distribution at the distribution date”.
In Harris & Dewell & Anor [2018] FamCAFC 94, the proceedings centred upon the wife’s contention that a unit trust in which the husband holds no interest or control should nonetheless be considered to be property of the husband for the purposes of s 79 proceedings by reason that the trust is the husband’s “puppet”.
The trial Judge concluded that the unit trust was not the property of the husband in circumstances where his father aged 99 years “continues to maintain his legal and beneficial interest” in the trust. The Full Court upheld the determination of the trial Judge and found at [68]:-
Control is not sufficient of itself. What is required is control over a person or entity who, by reason of the powers contained in the trust deed can obtain, or effect the obtaining of, a beneficial interest in the property of the trust. In our respectful view, it is in that sense, that Finn J speaks of “some lawful right to benefit from the assets of the trust”.
The reference was to her Honour’s statement in Stephens & Stephens (2007) FLC 93-336 at 81,767 – 81,768:-
… I accept that no earlier authority in this court has gone so far as to hold that control alone without some lawful right to benefit from the assets of the trust, is sufficient to admit the assets of the trust to be treated as property of the party who has that control…
The Trust was established in October 1997; prior to the commencement of a relationship between the husband and the wife in December 1997.
The husband and Ms Howard purchased the interest of their former partner Mr O in H Pty Ltd in May 1998. The parties commenced cohabitation in mid-1998 shortly prior to Ms Howard being appointed as the second trustee of the Trust. Thereafter the Trust purchased, developed and sold various commercial properties.
The activities of the Trust were initially funded by Ms Howard and the husband facilitating BPL lending funds to the Trust made available from the net proceeds of the sale of H Pty Ltd in or about the sum of $1.7 million.
The husband and Ms Howard were joint directors and shareholders of BPL. At the time of trial Ms Howard was the sole director and 50 per cent shareholder of BPL following the husband’s resignation as a director in May 2017. The husband continues to hold a 50 per cent shareholding in BPL.
The evidence of the husband and Ms Howard is that they regard each other as equals in terms of the activities of the Trust. The husband states that Ms Howard has been “the primary point of contact for the various parties that the Trust deals with on a regular basis”. It is uncontroversial that Ms Howard is involved with the day to day management of the various properties including insurance requirements and banking and finance.
Ms Howard is likely to be the primary contact with the Trust’s accountant Ms X (“Ms X”).
The Trust also receives advice from a financial advisor and a lawyer. Again, I find that the principal point of contact is with Ms Howard and not the husband.
Ms X gave evidence that she is the external accountant for BPL and the Trust. I accept that she has the “primary conduct of the accounting affairs of both entities” and that her principal point of contact was predominantly with Ms Howard and, from her observations, Ms Howard was clearly in control of the day to day administration of the Trust.
The evidence of the husband was consistent with Ms X’s observations. He had some knowledge of the day to day issues affecting the Trust but was relatively unsophisticated in his understanding of the Trust structure and its day to day management.
Whilst in a strict sense, in his capacity as the sole appointor, the husband could have removed Ms Howard in her capacity as a trustee, this was not an issue ever contemplated by the husband and ignores the operation of the Trust since 1998 as one of equality between the husband and Ms Howard reflective of the source of funds initially made available from the sale of H Pty Ltd and via BPL.
It is a trite observation that if the commercial activities of the husband and Ms Howard had been conducted via BPL, it is unlikely that there could have been any assertion that the company was the alter ego of the husband or that his control could have been considered absolute in the sense of both legal and actual control.
The position of the husband and Ms Howard in respect of the status of the Trust is set out by her in [23] of her Response to Points of Claim filed 30 April 2018:-
23.In answer to the whole of the Claim in so far as it concerns the [Trust], [Ms Howard] and [BPL], [I] say that:-
23.1The [Trust] is and has always been conducted as a joint endeavour, also known as a ‘quasi partnership’ between the husband and [Ms Howard], each having equal rights, powers and entitlements;
23.2The [Trust] was established for the purpose of giving effect to the joint endeavour of the husband and [Ms Howard] referred to in the preceding sub-paragraph;
23.3Howard has an equitable claim as against the trustees reflective of the joint endeavour;
23.4Irrespective of the legal form of the [Trust], capital and profits were and are to be made available to the husband and [Ms Howard] in equal half proportions;
23.5In consequence of the above, no order should be made against the trustees or the husband which would place the [Trust’s] trust assets or the interests of [Ms Howard] at risk.
The wife highlights that the position of the husband and Ms Howard hitherto had been that at best the Trust could be considered as a financial resource of the husband and it was only until their evidence that a concession was made that would treat the assets of the Trust as their own as to one half. The wife concedes that if the Court does not find that the entirety of the Trust should be treated as an asset of the husband then a finding should be made as to one half of the assets of the Trust.
A significant issue in the proceedings is a complaint by the wife that in 2015 the husband and Ms Howard in their capacity as trustees resolved to distribute to Ms Howard the sum of $363,630. The wife alleges that this was designed to remove substantial value from the Trust with the intention of reducing the settlement sum payable to the wife.
Ms X’s evidence is that she was aware of the capital distribution in 2015. She provides her explanation for the capital distribution by reference to the books of account and her own knowledge.
It appears that the catalyst for the capital payment was the purchase of a commercial property in December 2011 in the name of Howard Family Trust (“HFT”). The Trust loaned HFT the sum of $360,000. The loan was recorded in the books of account and records of the Trust.
In 2015 an assessment of the respective drawings of the husband and Ms Howard highlighted and imbalance in favour of the husband. The short explanation is that the Trust paid for all of the personal expenses of the husband and wife. As Ms X describes in her trial affidavit, it was “cash out”.
Accordingly, the capital payment to Ms Howard was to equalise drawings.
The evidence is clearly demonstrated by reference to Exhibit “27” which comprises a table setting out the capital both contributed and drawn upon by the husband, Ms Howard, the wife and BPL.
I set out the table with reference to the husband and Ms Howard as follows:-
| [The husband] | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | Totals |
| Opening Balance | -118,375 | -159,050 | -205,910 | -247,862 | -271,128 | -276,352 | -307,248 | -336,000 | -368,541 | |
| Capital Contributed | - | 39,015 | 17,999 | 50,114 | 35,799 | 52,933 | 74,593 | 270,453 | ||
| Share of Profit | 8,775 | 61,222 | 46,455 | |||||||
| Drawings | -49,450 | -48,860 | -41,952 | -62,281 | -84,445 | -81,010 | -64,551 | -131,929 | -156,518 | -718,996 |
| Closing Balance | -159,050 | -205,910 | -247,862 | -271,128 | -276,352 | -307,248 | -336,000 | -368,541 | -450,466 | |
| Ms Howard | 2009 | 2010 | 2011 | 2012 | 2013 | 2014 | 2015 | 2016 | 2017 | [Totals] |
| Opening Balance | 91,117 | 86,116 | 57,115 | 35,915 | 83,612 | 37,877 | 56,024 | 100,057 | 105,795 | |
| Capital Contributed | -
| 88,822 | 25,500 | 98,479 | 35,636
| 31,153
| 279,590 | |||
| Drawings | -13,776 | -29,001 | -21,200 | -41,125 | -45,735 | -7,353 | -54,446 | -76,354 | -109,542 | -398,532 |
| Closing Balance | 86,116 | 57,115 | 35,915 | 83,612 | 37,877 | 56,024 | 100,057 | 105,795 | 261,476 | |
| Capital Distribution | -363,630 | -363,630 | ||||||||
| -762,162 |
The table demonstrates that from the financial year commencing 2009 significant capital was contributed to the Trust by each of the husband and Ms Howard. From time to time (although until 2015 predominantly by the husband) they each enjoyed substantial drawings.
I consider Ms X to be an impressive witness and I am satisfied on the balance of probabilities that the table prepared by her accurately reflects the financial inter-relationship between the husband and Ms Howard in the Trust.
That evidence together with the equally important but differing roles in the governance, management and day to day operation of the Trust supports a finding that whilst it could be said that the husband has legal control, there is no evidence that he exercised control for his exclusive benefit.
It could not be said that the Trust is the alter ego of the husband and in particular his conduct very much recognises the interests of Ms Howard.
The very concept of the husband and Ms Howard seeking to equalise their drawings is corroborative of their own view of their relationship namely, that it could be described as a “quasi-partnership”.
My assessment is that on balance the husband did not have or exercise unfettered or effective control of the trust such that it could or should be regarded as the direct property of the parties or the husband.
Are the assets of the Trust held for the husband or for the husband and the wife arising out of a Resulting or Constructive Trust?
The wife seeks a declaration that the assets of the Trust are held upon trust for the husband or for the husband and the wife by operation of a resulting or a constructing trust.
By reference to the final orders sought it is an initial observation that the wife’s orders refer to an express trust rather than a resulting trust.
In Muschinski v Dodds (1985) 160 CLR 583 the appellant (the plaintiff in the proceedings) sought a declaration that she was the beneficial owner of a parcel of land that was held in her name and the respondent’s as tenants in common. She claimed that the respondent’s joint interest “was held in trust for her”. The respondent sought that the land be sold and the proceeds be divided equally.
The appellant had provided the whole of the purchase price and paid other costs and charges necessary to complete the sale.
The respondent had hoped to contribute towards the purchase of the land by utilising funds that he anticipated he would receive from a property settlement with his former wife.
It was uncontroversial that the overwhelming contribution had been made by the appellant. The trial Judge found that as the appellant had provided the whole of the purchase price it was necessary for the respondent to rebut the presumption of a resulting trust in the appellant’s favour. The trial Judge held that there was no evidence that the appellant intended to confer on the respondent an interest that was conditional upon the fulfilment of the purposes the subject of agreement between the parties. His Honour considered that the appellant may well have an intention to give the respondent a beneficial interest in the land if for no other reason than to cement and/or further their relationship.
The High Court found “the equitable rules relating to the creation of a resulting trust” by referring to the then recent decision in Calverley v Green (1984) 155 CLR 242. The equitable rules required were stated by Gibbs CJ at 590 [6] as follows:-
… Where, on a purchase, a property is conveyed to two persons, whether as joint tenants or as tenants in common, and one of those persons has provided the whole of the purchase money, the property is presumed to be held in trust for that person, to whom I shall, for convenience, refer as “the real purchaser”. However a resulting trust will not arise if the relationship between the real purchaser and the other transferee is such as to raise a presumption that the transfer was intended as an advancement, or in other words a presumption that the transferee who had not contributed any of the purchase money was intended to take a beneficial interest. …
The High Court considered it material and relevant to consider the financial arrangements:-
Where both transferees have contributed to the purchase money, the intentions of both are material, but where only one has provided the money it is his or her intention alone that has to be ascertained.
The High Court held that the notion “that a constructive trust may be based upon a common intention which does not actually exist, but which is ascribed to the parties by operation of law, is contrary to principle and to authority”.
The High Court found that whilst a trust did not exist there must be an “equitable accounting between the parties”.
It was further considered that where the appellant is entitled to a contribution from the respondent to the extent that she paid more than one half of the purchase monies, she would appear to be entitled to an equitable charge (see Ingram v Ingram (1941) VLR 95). Deane J held at 620 [14]:-
…the principle operates in a case where the substratum of a joint relationship or endeavour is removed without attributable blame and where the benefit of money or other property contributed by one party on the basis and for the purposes of the relationship or endeavour would otherwise be enjoyed by the other party in circumstances in which it was not specifically intended or specially provided that the other party should so enjoy it. The content of the principle is that, in such a case, equity will not permit that other party to assert or retain the benefit of the relevant property to the extent that it would be unconscionable for him so to do. …
[citations omitted].
The wife contends that a resulting trust should arise because the husband as distinct from the Trust has provided a portion or the whole of the purchase price to the property.
I have found that the Trust is not a sham. The provenance of its current financial basis can be readily traced back to the proceeds provided to it from the sale of the H Pty Ltd business in which the husband and Ms Howard were equal shareholders and co-directors.
The wife does not provide any evidence as to the extent to which she and/or the husband have provided “a portion or the whole of the purchase price” in relation to any particular property specified. The assertion is that the entirety of the asset base of the Trust is in some way held on trust for the husband or the husband and the wife.
The point is well made that the Trust has beneficiaries of whom the husband and Ms Howard are part of the relevant class of beneficiaries. The wife’s primary position is not that the husband either owns or is entitled by reason of a resulting trust to one half of the property of Trust, but rather, the entirety of its assets. That proposition completely ignores the contributions made by each of the husband and Ms Howard.
It may well be accurate to assert that the husband has made significant contributions by way of contributions as recorded in the financial accounts of the Trust. The contributions of both the husband and Ms Howard are brought to account and recognised in the financials. There is no unfairness, nor is it unconscionable that the husband’s contributions are recorded. It is appropriate that they are and as such his contributions are recognised. There is neither a representation that the wife refers to, nor is there any detriment.
The wife considers that from time to time the husband had discussed with her that he considered he held a substantial interest in the Trust. There is no evidence that Ms Howard was aware of any representation that the husband may have made to the wife, nor is it conceded, or established, that Ms Howard made any representation.
The wife does not point to the detriment that has been occasioned to her. No evidence has been presented that Ms Howard “tacitly acquiesced” in the husband’s representation.
The husband and Ms Howard commenced the Trust prior to the commencement of the relationship between the husband and the wife. The Trust has been robust in its commercial ventures over a period of 20 years.
Income was generated by the Trust which was distributed from time to time pursuant to the proper determination of the trustees. The husband, and by implication the wife benefited significantly by the husband’s drawings from the Trust for their lifestyle and domestic and family expenses.
A constructive trust does not rely upon a concept that a party has been unjustly enriched to the detriment of another but rather, far from any notion of fairness, justice, equity or moral entitlement, a court should intervene “to prevent the unconscientious denial by the legal owner of another parties’ rights”.[2]
[2]See Shepherd v Doolan & Ors [2005] NSWSC 42 [31].
In Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566 at 585 [42] the High Court held that:-
…before the Court imposes a constructive trust as a remedy, it should first decide whether, having regard to the issues in the litigation, there are other means available to quell the controversy. …
An example of an “alternative remedy” is to be found in the decision of Giumelli v Giumelli (1999) 196 CLR 101. The case considered the rights that may be created when a promise is made to convey land. It was found that the respondent was entitled to equitable relief by reason of acting to his detriment in reliance upon the promises made by the appellants. The High Court considered that compensation was a more appropriate remedy rather than requiring a subdivision of the subject property.
In their joint judgment Gleeson CJ, McHugh, Gummow and Callinan JJ observed at [2] that the role of the Court in the interpretation or declaration of a constructive trust is to construe or interpret the circumstances and not to construct them:-
In submissions to this Court, the term “constructive trust” was used to identify the nature of the equitable remedy granted by the Full Court. Care is required in the use of the term “constructive” in this context. Professor Scott has pointed out[3]:
“It is sometimes said that when there are sufficient grounds for imposing a constructive trust, the court ‘constructs a trust’. The expression is, of course, absurd. The word ‘constructive’ is derived from the verb ‘construe’, not from the verb ‘construct’… The court construes the circumstances in the sense that it explains or interprets them; it does not construct them.”
[3]Scott on Trusts, 4th ed (1989), vol 5 §462.4.
In Giumelli (supra) the Full Court interpreted the circumstances as obliging the appellant, in good conscience, not to retain their beneficial interest in the whole of the property.
Their Honours said further at 112 [10]:-
… Before a constructive trust is imposed, the court should first decide whether, having regard to the issues in the litigation, there is an appropriate equitable remedy which falls short of the imposition of a trust. At the heart of this appeal is the question whether the relief granted by the Full Court was appropriate and whether sufficient weight was given by the Full Court to the various factors to be taken into account, including the impact upon relevant third parties, in determining the nature and quantum of the equitable relief to be granted.
(footnotes omitted).
John Dyson Heydon and Mark James Leeming in their capacity as authors of Jacobs’ Law of Trusts in Australia[4] say at [13-01]:-
The constructive trust differs in essential respects from both the express and the resulting or implied trust. It differs from the express trust in that it is raised by operation of law often without reference to the intentions of the parties concerned and indeed largely contrary to the desires and intentions of the constructive trustee. Further, a constructive trust arises without satisfaction of the requirements as to writing which a statute imposes in respect of express trusts, both testamentary and inter vivos. The constructive trust differs from the resulting or implied trust in that, although a resulting or implied trust also arises by operation of law in the case of presumed resulting trusts as distinct from automatic resulting trusts, the courts presume that a trust was actually intended and in the face of evidence to the contrary, may conclude that the presumption has been rebutted. In the case of a constructive trust, the inquiry is not solely as to the actual or presumed intentions of the parties, but as to whether, according to the principles of equity, it would be a fraud for the party in question to deny the trust. …
(footnotes omitted).
[4]John Dyson Heydon and Mark James Leeming, Jacobs’ Law of Trusts in Australia (LexisNexis, 8th ed, 2016).
But for the involvement of Ms Howard it may well be the case that there would be less difficulty in determining the status and relevance to the proceedings of the assets held by the Trust. The issue of representation is not as between the husband and the wife but more relevantly whether it could be said that Ms Howard made a representation which she understood was likely to be relied upon by the wife, or was reckless in that respect, or whether the conduct of the wife was such that the detriment was so obvious that a constructive trust should be construed.
The evidence does not support such a contention.
True it is that Ms Howard considered her involvement with the husband in the Trust as a “quasi-partnership”, but that is a far cry from any evidence that suggests that the assets of the Trust, or even some notional one half share of the value of the Trust is held on trust for the husband or the husband and the wife.
I consider that the evidence falls far short of that which would be required to establish either a resulting trust or a constructive trust in favour of the husband and the wife.
If a finding of a resulting or constructive trust was made, the interests of Ms Howard would be adversely affected. I consider that she comes to the proceedings with clean hands.
The point is well made that no order was sought pursuant to s 106B of the Act to set aside the Trust Deed.
There is merit in the argument advanced on behalf of Ms Howard that would support either a representation or a promise having been made to the wife and as a result performed the detriment to the wife would have been foreseeable. There is no evidence that identifies what specific contribution the wife alleges she has made. The husband does not assert that there has been unconscionable conduct, nor could there have been where he and Ms Howard promoted the settlement of the Trust in 1998.
Equitable lien
The wife asserts that in the absence of a finding that an express or constructive trust over the assets of the Trust exists, then the Court should find that the assets of the Trust are subject to an equitable lien.
The wife contends that an equitable lien is available in order to “quell the controversy” (see Bathurst City Council v PWC Properties Pty Ltd (1998) 195 CLR 566 at 585 [42]).
The remedy can be referred to as “the minimum equity”. It is intended to convey that “general notions of fairness and justice are relevant to the traditional concept of unconscionable conduct”.[5]
[5]See Baumgartner v Baumgartner (1987) 164 CLR 137 at 148 [33].
The wife supports her claim for an equitable lien to apply on the basis that:-
… [T]he husband and the wife have each undertaken works and endeavours for and on behalf of [the Trust] and its interests including, but not limited to, selecting residential and commercial properties for purchase by the [Trust], purchasing furniture and furnishing the properties, repairs and maintenance, painting and landscaping, and carrying out inspections of tenanted properties.
I do not consider that the evidence as presented would support a finding that the wife has had any significant or substantial direct involvement in the activities of the Trust. There is no evidence of any financial contribution made by the wife and whilst from time to time the husband included the wife in discussion about the activity of the Trust and was receptive to suggestion and comment made by the wife, to claim that the wife provided any significant assistance to Trust is a button pressed faintly.
The wife refers to the decision of Giumelli (supra). This case considered the rights that may be created when a promise is made to convey land. Whilst Giumelli has wide application, I do not consider that the direct promises made by the plaintiff’s parents in Giumelli are in any way referable to the current proceedings.
Whilst it is true that neither the husband nor Ms Howard received any income by way of wages from the Trust for any services rendered, the history of the capital contributions of the Trust show that both the husband and Ms Howard received substantial drawings over the years.
In Hewett v Court (1983) 149 CLR 639 Deane J at 668 [15] considered the circumstances which might give rise to an equitable lien between parties in a contractual relationship:-
… They are:
(i)that there be an actual or potential indebtedness on the part of the party who is the owner of the property to the other party arising from a payment or promise of payment either of consideration in relation to the acquisition of the property or of an expense incurred in relation to it…;
(ii)that the property…be specifically identified and appropriated to the performance of the contract…; and
(iii)that the relationship between the actual or potential indebtedness and the identified and appropriated property be such that the owner would be acting unconscientiously or unfairly if he were to dispose of the property…to a stranger without the consent of the other party or without the actual or potential liability having been discharged.
…
(references omitted)
An equitable lien is a right against property implied by equity to secure the discharge of an actual or potential indebtedness.
An equitable lien may be enforced in a manner not dissimilar to an equitable charge.
The wife is not able to demonstrate any relevant contribution that she has made to the specific assets of the Trust.
Whilst an equitable lien may well be imposed in circumstances where equitable estoppel has been applied, that is limited to the wife’s claim that the husband and Ms Howard “should be estopped from denying the interests of the husband and/or the wife in the assets of [the Trust]”. What is contended however is that whilst the husband and Ms Howard conducted their property investment business via the Trust, they always considered that their relationship was akin to a “quasi-partnership” and that at the very least the Court should bring to account one half of the value of the Trust as property of the parties.
In United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673 at 687 Mason J described an interest that a partner has in a partnership as an equitable interest “of a special and non-specific kind”.
The value or weight to be given to the husband’s interest in the Trust
The alternative position for the wife is that the Court should consider that the husband is entitled to one half of the value of the assets of the Trust and that therefore this sum can be brought to account in the balance sheet.
In Kennon v Spry (2008) 238 CLR 366 Dr Spry had settled a trust in 1968 and prepared a trust instrument but did not sign it due to stamp duty obligations that would have arisen. It was eventually signed in 1981. Dr Spry was the settlor and the trustee and therefore had effective control of the trust. The beneficiaries included himself, his siblings, his or his siblings’ children and the spouses of all of them.
French CJ found at 386 [48]:-
As sole trustee of the Trust Dr Spry had the legal title. He was the only person entitled in possession to the assets. His power as trustee to apply the income or capital under the terms of the Trust was not a species of property according to the general law but his legal title was.
And at [49]:-
Absent a specific application of Trust capital or income to one of the objects of the Trust, there was no equitable interest in its assets held by anyone. There did not need to be. In Glenn v Federal Commissioner of Land Tax Griffith CJ declined to accept “the assumption that whenever the legal estate in land is vested in a trustee there must be some other person other than the trustee entitled to it in equity”. …
(footnotes omitted)
Dr Spry had initially been both an appointor and a beneficiary but had subsequently renounced his interest. He was left with possession of the assets and held their legal title. Mrs Spry argued the true character of the trust was “a vehicle for Dr and Mrs Spry and their children”.
French CJ found at [62]:-
… it is the Trust assets, coupled with the trustee’s power, prior to the 1998 Instrument, to appoint them to her and her equitable right to due consideration, that should be regarded as the relevant property. It should be accepted that, in the unusual circumstances of this case and but for the 1998 Instrument and the 18 January 2002 Dispositions, s 79 would have had effective application to the Trust assets. Dr Spry was the sole trustee of a discretionary family trust and the person with the only interest in those assets as well as the holder of a power, inter alia, to appoint them entirely to his wife.
French CJ held that the word property as it appears in s 79 of the Act should be read “widely and conformably with the purposes of the Family Law Act”. His Honour held:-
65.Where property is held under such a trust by a party to a marriage and the property has been acquired by or through the efforts of that party or his or her spouse, whether before or during the marriage, it does not, in my opinion, necessarily lose its character as “property of the parties to the marriage” because the party has declared a trust of which he or she is trustee and can, under the terms of that trust give the property away to other family or extended family members at his or her discretion.
66.For so long as Dr Spry retained the legal title to the Trust fund coupled with the power to appoint the whole of the fund to his wife and her equitable right, it remained, in my opinion, property of the parties to the marriage for the purposes of the power conferred on the Family Court by s 79. The assets would have been unarguably property of the marriage absent subjection to the Trust.
67.An exercise of the power under s 79 requiring the application of the assets of the Trust in whole or in part in favour of Mrs Spry would, prior to the 1998 instrument, have been consistent with the proper exercise of Dr Spry’s powers as trustee and would have involved no breach by him of his duty to the other beneficiaries.
His Honour stressed at [69] that this conclusion was not a “general extension of s 79”. His Honour said:-
…So if the husband were trustee of a charitable trust or executor of the will of a friend or client the mere legal title to the assets of such trusts, because of their origins and character, could not be regarded as part of the husband’s property as a party to the marriage within the meaning of the Family Law Act. Importantly, in such a trust there could be no power of appointment to his wife and no corresponding equitable right enjoyed by her. The question of a trust involving a combination of purposes and family and extraneous assets does not arise.
His Honour considered at [70] that there were a number of factors that supported the characterization of the Trust as property of the parties:-
…It is supported by his legal title to the assets, the origins of their greater part as property acquired during the marriage, the absence of any equitable interest in them in any other party, the absence of any obligation on his part to apply all or any of the assets to any beneficiary and the contingent character of the interests of those who might be entitled to take upon a default distribution at the distribution date.
French CJ considered the “rights to due consideration and due administration as property”. A beneficiary has a right to compel the trustee to consider whether to make a distribution to them and a right to the proper administration of the Trust. At [77] his Honour notes:-
The beneficiary of a non-exhaustive discretionary trust who does not control the trustee directly or indirectly has a right to due consideration and to due administration of the trust but it is difficult to value those rights when the beneficiary has no present entitlement and may never have any entitlement to any part of the income or capital of the trust.
His Honour agreed with the joint reasons of Gummow and Hayne JJ that the equitable right to due administration of the trust and due consideration in relation to the application of income or capital could be taken into account as part of the property of the parties. While it is “difficult to put a value on either of these rights” French CJ said at [79] that Dr Spry’s power was:-
…able to be treated for the purposes of the Family Law Act as a species of property held by him as a party to the marriage, albeit subject to the fiduciary duty to consider all beneficiaries. This is so even though it may not be property according to the general law. So characterised for the purposes of the Family Law Act it had an attribute in common with the legal estate he had in the assets as trustee. He could not apply them for his own benefit but that did not take them out of the realm of property of a party to the marriage for the purposes of s 79.
Heydon J in dissent concluded at [175] that:-
The definition of “property” in s (4)(1) [of the Family Law Act] contemplates interests in property either owned otherwise than as trustee, or owned as beneficial interests in a trust, so that those interests can be adjusted by orders made under s 79. The definition does not contemplate entitlements as trustee. The wife’s submissions would enable a trustee who is not in law entitled to any personal enjoyment of the trust property, and who could never by his or her own act become entitled to any personal enjoyment of it, to be treated as though he or she was so entitled. The wife’s submission would mean that if a husband (or a wife) were trustee of a discretionary trust having a bare power of appointment among persons who are not related to the trustee, and who did not include the trustee, the trustee would be, within the meaning of the definition of “property” in s (4)(1), “entitled” to the assets, and the “interests” of the trustee reflected in that entitlement would be altered to the advantage of the other party to the marriage. …
In Pleash (Liquidator) v Tucker [2018] FCAFC 144 the Full Court considered at [33] that:-
It was not in issue between the parties that Mr Tucker, as the beneficiary of the discretionary trusts concerned, has no proprietary interest in the income and capital of those trusts: Pleash (No 3) at [23]. That position is established. An object of a discretionary trust has no legal or beneficial interest but only the right to due consideration and due administration of the trust.
(Citations omitted).
As discussed, if the husband and Ms Howard had continued their commercial pursuit via their initial company there would be little or no argument that the husband’s share could be brought to account as property of the parties.
The interests of Ms Howard would not have been immediately affected. There may be a consequence if an order is made that required the husband to sell or assign his share to another person, or were he to take some action to cause the winding up of the company. That is a different concept to an order that acts directly on Ms Howard or beyond the reasonable extent of the husband’s interest.
Acting on advice, the husband and Ms Howard considered that the most efficacious way forward was to conduct their commercial enterprise via a discretionary trust. The husband is currently the sole appointor and a co-trustee with Ms Howard. The wife is not a beneficiary of the Trust. Other than an accounting error in 2011 and 2013, the only beneficiaries to have received a distribution and permitted to draw down on the Trust funds has been the husband and Ms Howard.
The schedule of drawings in Exhibit “27” highlights the manner in which the husband and Ms Howard considered that their separate “interest” in the Trust should be considered as equal. I am satisfied that the husband and Ms Howard were not alive to the legal implications that arise from a discretionary trust and utilised a discretionary trust on accounting advice in order to afford them a greater level of flexibility taking into account their separate and individual circumstances from time to time.
The husband has always been a high income earner, whereas Ms Howard has not. They received accounting advice that there would be a taxation advantage in more income being distributed to Ms Howard than the husband, thereby enabling them to enjoy a lower marginal tax rate.
The manner in which drawings have been made demonstrate with considerable clarity the extent to which the husband and Ms Howard considered the Trust to be a “quasi-partnership”.
Whilst the wife is suspicious of the decision of the husband and Ms Howard as trustees to distribute $363,630 to Ms Howard as a strategy to lessen the value of the Trust and therefore reduce the wife’s entitlement, the mechanics of the transaction resulted in the desired effect, namely, to equalise the drawings of the husband and Ms Howard.
It is clear from the evidence that the manner in which they conducted their business relationship was intended to be one of equality.
I do not consider that the husband’s interest in the Trust in any way creates a proprietary interest in the wife of either the income and capital of the Trust. The husband’s “rights to due consideration and due administration” should be considered as property. It is not argued on behalf of Ms Howard that the husband’s interest should be considered as anything less than one half of the value of the Trust.
The intention of the husband and Ms Howard in terms of the operation of IFT and the decisions made by them in their capacity as trustees are important considerations and support the notion that the Trust is not dissimilar in its purpose and outcome to a unit trust where the beneficiaries hold the same number of units.
I propose to place a value on the husband’s interest in the Trust and bring it to account in the balance sheet.
Value of the husband’s interest in BPL and IFT
By Order made 22 February 2018 Mr E (“Mr E”) of F Accountants was appointed pursuant to pt 15.5 of the Family Law Rules to value the husband’s interest in BPL and the Trust.
By joint letter of instruction dated 21 May 2018 Mr Ingles was instructed to also “address the net value of [the Trust] and the nett value of [the husband’s] shares in BPL in the event that both BPL and the [the Trust] are to be wholly liquidated and wound up.”
Mr E was not required for cross examination and accordingly his Affidavit filed 10 August 2018 annexing his valuation report is to be read into evidence.
Mr E was asked to consider the costs and expenses as set out in [12.1] and [12.2] of the letter and to make the assumptions at [12.3] namely, that:-
12.3.1.[T]he trust represents a quasi-partnership between [the husband] and [Ms Howard], and 50 [per cent] of the net assets of the trust, after it was fully and finally liquidated were to be distributed to [the husband] (allowing for [Ms Howard’s] interest);
12.3.2.[I]nsofar as [the husband] has a net liability to the trust in respect of his beneficiary loan account, that liability has been brought to account by way of set-off; and
12.3.3.Any liability of [the husband] in respect of any personal tax liability consequent upon any such distribution is to be brought to account.
BPL
The husband and Ms Howard have an equal shareholding in BPL. The only non-current asset of value is represented by the C Street property valued at $915,000. In terms of current assets they are principally comprised of unpaid rent in relation to the C Street property of $52,000 and unsecured loans to the Trust totalling $586,659.
The total current assets are in the sum of $665,187 and when combined with the non-current assets of $1,016,415, the total assets are in the sum of $1,681,602.
There are liabilities of $11,766 resulting in the total equity of $1,693,368. The proportionate interest of the husband (and similarly Ms Howard) is one half or $846,684.
By further reference to Appendix “4” Mr E was asked to consider the notional winding up of BPL and in that respect he determines a total equity figure of $1,664,910 or $832,455 as representing the husband’s share.
It is uncontroversial that the husband and Ms Howard intend to dispose of the C Street property as soon as the wife vacates the premises. They intend that BPL is thereafter to be would up and accordingly the appropriate figure to represent the husband’s interest in BPL is to be considered by reference to [4.7] of Mr E’s report. He brings to account the amount in Column O of Appendix “4” which is cost and expenses incurred in the realisation of the BPL property and BPL’s winding up at $1,664,910. On that basis the husband would be entitled to $832,455.
The winding up would trigger capital gains tax and other taxation considerations. The total net cash received by the husband would be $657,002.
Ingles Family Trust
I accept the evidence of the husband and Ms Howard that they intend for the orderly disposal of BPL as soon as the C Street property is sold and accordingly I propose to bring to account the figure of $657,002 representing the husband’s interest in BPL consequent upon a winding up of the company.
In Rosati v Rosati (1998) FLC 92-804 the Full Court considered the extent to which it was appropriate to make an adjustment as to the value of an asset to bring to account the potential for capital gains tax to apply.
At 85,043 [6.36] the Full Court summarised the position as follows:-
It appears to us that although there is a degree of confusion, and possibly conflict, in the reported cases as to the proper approach to be adopted by a court in proceedings under s 79 of the Act in relation to the effect of potential capital gains tax, which would be payable upon the sale of an asset, the following general principles may be said to emerge from those cases:-
(1) Whether the incidence of capital gains tax should be taken into account in valuing a particular asset varies according to the circumstances of the case, including the method of valuation applied to the particular asset, the likelihood or otherwise of that asset being realised in the foreseeable future, the circumstances of its acquisition and the evidence of the parties as to their intentions in relation to that asset.
(2) If the Court orders the sale of an asset, or is satisfied that a sale of it is inevitable, or would probably occur in the near future, or if the asset is one which was acquired solely as an investment and with a view to its ultimate sale for profit, then, generally, allowance should be made for any capital gains tax payable upon such a sale in determining the value of that asset for the purpose of the proceedings.
(3) If none of the circumstances referred to in (2) applies to a particular asset, but the Court is satisfied that there is a significant risk that the asset will have to be sold in the short to mid term, then the Court, whilst not making allowance for the capital gains tax payable on such a sale in determining the value of the asset, may take that risk into account as a relevant s 75(2) factor, the weight to be attributed to that factor varying according to the degree of the risk and the length of the period within which the sale may occur.
(4) There may be special circumstances in a particular case which, despite the absence of any certainty or even likelihood of a sale of an asset in the foreseeable future, make it appropriate to take the incidence of capital gains tax into account in valuing that asset. In such a case, it may be appropriate to take the capital gains tax into account at its full rate, or at some discounted rate, having regard to the degree of risk of a sale occurring and/or the length of time which is likely to elapse before that occurs.
Mr E was asked to consider the value of the Trust to the husband as a financial resource as at 22 February 2018 and “the net cash sum that would be available to [the husband] from the orderly winding up of [the Trust]”.
The value attributed to the husband in the Trust as at 22 February 2018 was $1,402,522 which is based upon the value of the Trust at $1,796,240 less the net sum payable by the husband to the Trust of $393,718. The net value was $1,402,522. Taking into account the loan account of Ms Howard at $247,084 represents a total of $1,649,606.
Mr E anticipates that there will be profit to February 2019 together with reverse property maintenance provision resulting in a gross amount of $1,850,966, with the husband’s share being brought to account at one half or $925,483. Mr E then calculates that upon a notional winding up the husband (and Ms Howard) will have tax payable of $233,803 and bringing to account his debit loan account of $393,718 will produce a net cash amount to the husband of $297,962.
The calculations undertaken by Mr E are based upon the following assumptions:-
1.33Each of these calculations are based on a range of assumptions and is intended to reflect the lowest tax cost outcome assuming that the orderly winding up occurs during a single financial year (the 2019 financial year), not multiple financial years which may lower the overall tax burden.
1.34Assumptions and instructions relating to both opinions are set out in section 2 of this report.
1.35My calculations and assumptions relating to the:-
1.35.1Court ordered opinion are described in section 3 of this report; and
1.35.2Instructions from the parties opinion are described in section 4 of this report.
The wife rejects that any consideration should be given to the net cash position of the husband based upon an assertion that an order for the payment of a significant settlement sum in favour of the wife may require the husband and Ms Howard to wind up the Trust.
The position of Ms Howard is set out at [186] of her trial affidavit in the following terms:-
I am also very concerned that:
186.1.any order which purports to impact directly on the underlying assets may prejudice other assets, and/or leave the [Trust] with underperforming assets or assets which need maintenance (such as [S Street], which needs in excess of $50,000 spent on it in maintenance). I am concerned that should this occur, [the husband] and I will need to personally inject funds (which I personally do not have) to meet ongoing obligations;
186.2.my unpaid present entitlements will be affected and potentially not paid out in full to me;
186.3.should there be any forced sale orders that not only will sale prices be at “fire sale” prices but also it will trigger a significant tax liability for me. I would not otherwise have such a substantial tax liability. In this respect, if I receive a substantial distribution from the IFT this will increase the tax I need to pay. I would not otherwise incur that as [the husband] and I have had the unfettered ability to “smooth” payments over time to get the best possible tax outcome.
It is an important recognition by Ms Howard that she accepts there have been “a few specific instances of transactions” which reflect the position of “equality” as between her and the husband.
Appendix “6” to Mr E’s report set out the balance sheet for the Trust. Significantly, the principal assets bring to account real property with an estimated total value of $5,150,000 and the Trust’s current bank liability totalling $2,915,000, with a further $688,074 in repayments by the Trust to BPL.
I accept that if the Trust was wound up there would be significant taxation liability which would be payable separately by the husband and Ms Howard. The evidence does not support a finding that it is the present intention of the husband and Ms Howard to wind up the Trust in the 2019 financial year. Ms Howard’s position is that whilst she recognises there is likely to be additional costs and liability incurred together with personal taxation should the Trust be wound up, she acknowledges that a more orderly winding up spread out over some few years may well reduce her taxation liability.
Ms Howard and the husband talk of a “fire sale” arising out of orders that the Court may make that directly affect or impact on the assets of the Trust.
The reality is that the Trust operates in a robust financial environment and not a notional position.
There are many life events that could impact upon the Trust either by way of adverse trading circumstances (Ms Howard and the husband concede that the Trust is relatively highly geared), the differing financial circumstances and needs of each of them and the real possibility that their joint venture may be brought to an end simply because one or either of them would wish to make different financial arrangements.
I do not consider that even the most generous consideration of the principles as set out in Rosati (supra) are applicable in the current circumstances. I propose therefore to bring the husband’s interest in the Trust to account at the gross amount of $925,483 less his debit loan account of $393,718 with a net cash value of $531,765.
I propose to ignore the potential personal tax payable of $233,803 which would apply only in circumstances if the Trust was wound up in one financial year.
The history of drawings was a matter left entirely to the husband and Ms Howard but always with a view to assisting each of them in their separate financial circumstances and with a view to ensuring “equality” as exemplified in [180.2.] of Ms Howard’s trial affidavit:-
[W]henever either [the husband] or I would occupy a property owned by [BPL] or the Trust, we would pay rent by way of book entry adjustments. … [T]o equalise this for the other party not residing in the [Trust’s] property that party was entitled to reciprocal compensation.
Property of the parties
The balance sheet being Exhibit “24” in the proceedings was not the subject of complete agreement. The parties did not agree upon the husband’s interest in BPL and the Trust. There was further contention as to the treatment of the sum of $50,000 paid to the wife by way of partial settlement of property, the husband’s debit loan account to the Trust and the rent owed by the wife to BPL.
I have determined that the husband’s interest in BPL should be brought to account at $657,002 and the Trust (bringing to account the husband’s debit loan account of $393,718) at $531,765.
The wife has received the sum of $50,000 which was used by the wife for general living expenses and the anticipated legal and accounting fees in respect of the litigation.
As discussed, the wife has paid legal fees in the sum of $66,693.85 and is likely to incur legal fees and disbursements which including fees paid will total $484,277.
The husband has paid $57,850 into his solicitor’s trust account and a further $45,309.23 into the solicitor’s general account.
The total money received by the wife in April and June 2016 by way of partial property settlement was $50,000. There is agreement that the sum of $34,000 was payable towards the wife’s legal fees.
Having considered the decision in Chorn & Hopkins (2004) FLC 93-204 I do not propose to bring to account the payment by way of partial property settlement as an “add back”.
There is some uncertainty as to how the money was paid. The wife contends that the amounts of $29,993.79 on 22 June 2016 and $20,000 on 20 July 2016 were recorded in the transaction list from the husband’s unpaid present entitlements account of the Trust.
The husband does not respond to the assertion.
It may be that the sum is brought to account by reference to the debit loan account of the husband. I do not propose to run the risk of the amount being twice accounted for and accordingly I do not propose to bring to account by way of an “add back” the proportion of monies received by the wife that she agrees have been used to pay her legal fees.
In any event the husband’s significant income has enabled him to substantially meet his legal fees.
The final matter is the extent to which the wife owes rent to BPL in the total sum of $95,158. I consider that the issue is complicated by the notional rental (at least as to $52,000) appears as an asset of BPL and is reflected in its current valuation.
The husband’s position in respect of BPL is that his interest is only able to be finally determined upon the sale of the C Street property.
I have brought to account the evidence available that predicts the likely costs of the winding up of BPL. I do not propose to deal with the value of C Street and therefore BPL other than by reference to the agreed valuation of the property.
Wife’s liability for rent at C Street
The C Street property is owned by BPL and is currently occupied by the wife. It is not controversial that BPL seeks that the wife vacate C Street and that thereafter the property is to be sold.
BPL seeks that the wife repay in excess of $95,000 in respect of rent for her continued occupation of the property.
The wife contends that she and the husband were looking for a family home following their relocation to Darwin in late December 2006. The parties liked the home and the wife disagrees with the husband’s contention that it was understood that the property purchased would be by way of an investment rather than their family home.
The wife does not recollect that Ms Howard was in any way involved with the home and that the decision to purchase the property was as between she and the husband.
The husband negotiated the purchase of the property at $880,000 plus stamp duty and a contract was signed with BPL as the purchaser.
The wife was aware of the financial relationship between the husband and Ms Howard and she says she accepted the husband’s explanation that he and Ms Howard had signed a loan for the property and that Ms Howard had offered security.
The family moved into the home in May 2007 and remained there until they relocated to Adelaide in 2010. She was not aware of the financial arrangements with BPL and did not sign any tenancy agreement or pay rent to live in the property.
The property was substantially improved by the parties during their period of occupation. At [158] to [160] of her affidavit the wife sets out the improvements undertaken.
The husband contends that the wife was always aware that rent was being paid to BPL via an adjustment in respect of the husband’s loan account (reflected in the Trust as a payment to BPL with a corresponding debit against the husband’s account).
In any event the husband’s position is that from 25 July 2016 when there was a claim made by BPL for rental to be paid or the wife to vacate the premises, as and from that point she should have paid rent.
I accept that for some years the accounts of both BPL and the Trust reflect a notional payment in respect of rent for the C Street property. I also accept the wife’s evidence that she believed the property was the family home and realistically her financial circumstance following separation was such that neither the husband, Ms Howard or BPL could have expected that the wife would be able to appropriately accommodate herself.
The husband’s loan account with the Trust has been debited with the notional rental payments. I have not been presented with any reconciliation of the extent to which rent charged is reflected in the husband’s current loan account of $393,718 which has been brought to account. It is also to be noted that on 22 February 2018 the wife was ordered to pay the sum of $350 per week to BPL in respect of her continuing occupation of the property.
The husband asserts that the rental charged was commercial. The wife does not agree with that proposition and no evidence has been presented.
I do not propose to bring to account any adjustment for rent arising from the wife’s occupation of the C Street property. No lease agreement exists and in those circumstances it is difficult for BPL to maintain the claim against the wife. Whilst I do not propose to canvas the issue, it may well be that as a result of BPL’s recognition of the occupation of the Ingles family in C Street that it may be unconscionable for the wife to be required to vacate the premises pending the final determination of the proceedings.
I do not propose to bring to account any adjustment arising from the claim by BPL for unpaid rent. I propose to order that the husband indemnify the wife in respect of any subsequent claim that might be made.
The balance sheet
Bringing to account the earlier discussion, I set out the adjusted balance sheet as follows:-
Assets
Husband
Wife
Husband’s interest in B Pty Ltd
$657,002
Husband’s interest in Ingles Family Trust
$531,765
Motor vehicle 1 (wife)
$10,080
Motor vehicle 2 (husband)
$13,900
Motor vehicle 3 (husband)
$10,000
Liabilities
Wife’s University fees
$22,741
Total
$1,212,667
-$11,941
Superannuation
K Fund
$362,231
W Superannuation (wife)
$35,951
The parties agree that they commenced cohabitation in May 1998. They were married in 2003 and separated after 18 years of cohabitation on 1 April 2016. There are two children one of whom is aged 16 years and the other is aged 19 years.
At the commencement of cohabitation the wife was employed as an administration officer in N Town. Her income was approximately $31,000 per annum.
The wife had no liabilities but did own a motor vehicle, some modest savings, furniture and effects and superannuation of approximately $15,000.
The husband does not take issue with the wife’s assessment of her initial contributions.
For his part, the husband was working in the family business with a net income not dissimilar to that of the wife.
He agrees that he had a unit in N Town which he purchased in 1998 with a substantial mortgage. The husband does not recollect the value of the property or the extent of the mortgage.
The husband also owned a motor vehicle which was subject to finance, some savings, furniture and effects and some liabilities.
In particular, the wife contends that the husband had a 40 per cent interest in H Pty Ltd.
Whilst the parties have some level of disagreement as to the extent of their respective contributions during the period of cohabitation, I accept that the principal contribution of the wife was that of a homemaker whereas the husband was responsible for the financial support of the family.
The husband contends that he provided significant support for the wife in her career and in particular supported her pursuits from 2003 to 2011.
He says that during those years he was primarily responsible for the running of the household.
Whilst there is some disagreement as to the conduct and involvement of the husband in the running of the household and the management and parenting of the children, I consider that the gravamen of the consideration of the weight to be given to the respective contributions of the parties must relate to the contribution by the husband of the value of the interest that he held in H Pty Ltd.
The wife would assert that she had some involvement in the day to day operation of the H Pty Ltd business and was instrumental in business decisions made by the husband and Ms Howard.
I accept that from time to time the husband may have discussed the business affairs of H Pty Ltd, but I do not consider that there is any evidence that would support the wife’s contention that she made any substantial or even modest contribution to H Pty Ltd. At the time that the wife contends that the husband and Ms Howard decided to sell H Pty Ltd rather than to expand the business, the parties had been together for a period of two years. Each of them were engaged in their own separate employment and the relationship between them had not yet developed to the point where it could be said that their financial affairs were inextricably linked or intermingled.
To some extent this state of affairs is acknowledged by the wife in [58] of her trial affidavit whereupon the husband informing her that an offer had been received to purchase the H Pty Ltd business. Her response was that he should not sell the business. She acknowledged that “[t]he husband dismissed my concerns and, after speaking with his parents, decided to sell the business”.
The Trust largely owes its existence in terms of its asset base to the contribution by the husband and Ms Howard of the bulk of the sale proceeds of H Pty Ltd.
It is further argued by the wife that she was an integral part of the decision making process by the husband and/or Ms Howard in terms of the acquisition of real properties by the Trust.
Again, I find that the extent of the wife’s involvement was as a sounding board for the husband’s ideas. That does not suggest that the wife was anything other than supportive of the husband and was prepared to accommodate the rigors of the husband’s commercial activities.
The wife had little or nothing to do with Ms Howard and I find that the wife’s contribution to the day to day management of BPL and the Trust and ultimately in respect of the acquisition and accumulation of assets was negligible.
Again, that does not seek to diminish the contribution of the wife to the management and running of the household and the children.
Each of the parties were possessed of significant but differing skills and for better or for worse they each engaged in their separate activities with energy and good intentions.
Post-separation I do not consider that there is anything remarkable in the parties’ separate contributions.
The husband continues to enjoy high paying employment and together with Ms Howard continues the advancement of BPL and the Trust.
I do not consider that the wife’s continued residence in the C Street property should be considered as a contribution. I have determined that it is likely the issue of rent has been brought to account in the husband’s drawings, at least up until August 2016.
The significant aspect of the parties separate contributions is predominantly influenced by the weight that should be given to the husband’s contribution of his interest in H Pty Ltd and how that is reflected in the husband’s interest in BPL and the Trust.
I consider the husband’s interest in H Pty Ltd should be given significant weight.
In Pierce & Pierce (1999) FLC 92-844 the Full Court considered the proper approach to the weight that is to be given to an initial contribution made by a party. At 85,881 [28] the following is stated:-
In our opinion it is not so much a matter of erosion of contribution but a question of what weight is to be attached, in all the circumstances, to the initial contribution. It is necessary to weigh the initial contributions by a party with all other relevant contributions of both the husband and the wife. In considering the weight to be attached to the initial contribution, in this case of the husband, regard must be had to the use made by the parties of that contribution. In the present case that use was a substantial contribution to the purchase price of the matrimonial home.
(citations omitted).
In circumstances where I have found that the net assets of the parties is $1,200,726, I propose to reflect the separate contributions of the parties as to 65 per cent to the husband and 35 per cent to the wife. I am mindful that the weight to be given for contribution should not be a reflection of a percentage adjustment but must have real meaning. The differential between the adjustments provides an appropriate reflection of the superior contribution by the husband arising from his initial interest in H Pty Ltd and enduring impact upon the value brought to account for the husband’s interest in BPL and the Trust.
Section 75(2) factors
I give weight to each of the relevant factors pursuant to s 75(2). Following separation the wife obtained casual employment but struggled with the rigors of the ongoing litigation. The wife received assistance via a Mental Health Plan. Her employment was terminated in August 2016, but she did commence employment in administration.
Her current salary from her employment is $68,640. She currently receives $433 per week by way of Child Support Assessment noting that the subject child is 16 years of age.
Whilst the wife has many years of experience in the industry in which she normally works, I consider that whilst a financial resource it is of modest importance. She occasionally receives some work. I do not consider there are any factors on the horizon which are likely to change the wife’s current circumstances.
It is also noted that the wife has significant and ongoing liability to her solicitors.
The husband is current employed in a professional capacity for an international agency. His declared average weekly income is $7,966 or $414,232 per year. The bulk of the husband’s income is comprised from commission on sales. I appreciate that it is not a set figure and the husband’s income may fluctuate. I also consider that the evidence supports a finding that the husband should be considered as a high fee earner.
The husband’s income is unremarkable. He contributes substantially to his superannuation fund and by reference to his fixed and discretionary weekly expenses (Part N of his Financial Statement) it appropriate to find that the husband lives a comfortable and generous lifestyle.
I do not propose to bring to account the husband’s involvement in the Trust or BPL. Had I not treated the husband’s interest as if it were property then it would have been appropriate to consider the husband’s interest as a financial resource.
In the circumstances it would be an exercise in double counting to bring to account the husband’s interests in BPL and the Trust and then to regard his involvement as a financial resource for the purposes of s 75(2).
The husband’s income exceeds the wife by a factor of five times.
There is nothing to suggest that the husband will not continue in his current employment and at an income stream not dissimilar than he enjoys at this time.
The husband currently pays Child Support but this will be an obligation likely to cease in less than two years.
There should be an adjustment of 25 per cent in favour of the wife to reflect the differing financial circumstances.
Accordingly, the overall adjustment is as to 60/40 in favour of the wife.
Superannuation
The husband has an entitlement in K Superannuation Fund. The wife has an entitlement with W Superannuation Fund. The parties are agreed that an order be made allocating a base amount of $200,000 to the wife from his superannuation entitlement.
The parties are agreed on the terms and conditions of the proposed superannuation split. I am satisfied that procedural fairness has been afforded to the trustees of the husband’s superannuation fund and on that basis I propose to make the orders as sought.
Conclusion
The total net assets of the parties are $1,200,726. The wife should receive 60 per cent which represents a sum of $720,435 The wife retains the following:-
(1)Motor vehicle 1 $10,800
(2)Outstanding university fees $ 22,741
There is therefore a deficit of $11,941 and as such she is to receive $732,376 but she is obliged to reimburse the husband for one half of the valuation fees namely $11,880. Accordingly, the wife is to receive a settlement sum of $720,496.
The wife seeks that the husband pay the settlement sum within 60 days. The husband seeks 90 days.
Given the husband’s financial circumstances and the potential that any settlement sum may need the husband to realise his interest in BPL consequent upon a winding up of the company, or that he may need to cause the Ingles Family Trust to crystalize his interest, I propose to allow the husband 90 days to pay the settlement sum.
Default provisions
In Commissioner of State Taxation v Cyril Henschke Pty Ltd & Ors (2010) 242 CLR 508, four partners carried on a business but executed a deed providing for one partner to retire and the other three to continue the partnership without purchasing the retiring partner’s interest or the partnership being dissolved.
The High Court considered the nature of the interest conferred by equity upon each partner with respect to partnership assets and said at 517 [24 – 25]:-
24.Any such interest with respect to partnership assets were described by Dixon CJ as:
“a right in respect of assets but … a right, or a congeries of rights, growing out of the partnership articles”.
As Windeyer J indicated in Bolton v Federal Commissioner of Taxation, the right is generally regarded as equitable and is “a fractional interest in a surplus of assets over liabilities on a winding up and in the future profits of the partnership business”. In Canny Gabriel Castle Jackson Advertising Pty Ltd v Volume Sales (Finance) Pty Ltd, McTiernan, Menzies and Mason JJ said that the interest of the partner is sui generis.
25.The position here is not sufficiently or accurately expressed merely by use of the term “beneficial interest” any more than when considering the operation of discretionary trusts and unit trusts. The critical point, putting to one side the prospect of future profits, was explained by Kitto J in Livingston v Commissioner of Stamp Duties (Q). It is that the interest of each partner can be ascertained finally only upon completion of the liquidation and the identification of any surplus share. …
(Footnotes omitted).
The High Court further considered the decision in United Builders Pty Ltd v Mutual Acceptance Ltd (1980) 144 CLR 673 where Mason J, with whom Barwick CJ, Gibbs and Wilson JJ agreed, said at 687-688:-
“according to long established principle, a mortgage or charge over a partner’s share or interest in the partnership does not vest any interest in the assets of the partnership against the other partners. What the mortgage or charge does is to confer an entitlement on the holder on dissolution of the partnership in relation to the partner’s share of the partnership assets. …
The vital consideration is that the partner’s interest is in truth a chose in action, which, as [Federal Commissioner of Taxation v Everett] acknowledged, ‘consists of a right to a proportion of the surplus after the realization of the assets and payment of the debts and liabilities of the partnership’. A mortgage or charge is considered to vest rights over that chose in action but it is not considered to carry any title to the specific assets until dissolution.
… A fixed charge is appropriate to create a security over a partner’s share. It gives rise to a present security over the chose in action which is the partner’s share. Although it creates no specific interest in the partnership assets until dissolution, this is not because the charge is dormant; it is because the rights conferred by the charge relate to the existing chose in action and that the security over the chose in action confers no entitlement to the assets of the partnership until dissolution.”
(footnotes omitted)
In Connell v Bond Corporation Pty Ltd (1992) 8 WAR 352 Malcolm CJ held that the relationship of the parties to the agreement had properly been characterised as a partnership at 363:-
… First, the parties became joint venturers carrying on a business in common with a view to profit… Secondly, it was clearly intended that profits were to be shared in proportion to the joint venturers’ respective interests… Thirdly, Bond’s authority as operator was limited by cl 6(3), with the result that transactions involving a consideration of $50,000 or more required the consent of each party and any differences were to be settled by arbitration… Fourthly, the funding of the venture was dealt with in a way consistent with partnership. …
His Honour considered that a partners’ interest in a partnership is in the nature of an equitable chose in action. See, for example, Anning v Anning (1907) 4 CLR 1049 at 1077 where Higgins J said:-
The interest of a partner is an equitable interest – an interest recoverable in equity. The interest of a partner consists of such sum on a final winding up of a partnership…may be found payable to him…
The Declaration of Trust made by the parties had the effect that the first defendant held the assets comprising the partnership property upon trust for itself and the other parties for the purpose of dealing with them in accordance with the Agreement. At 374 his Honour noted:-
…the land was held by Bond upon trust for the partners to be dealt with for the purposes of the business of the partnership. As trust property it was also partnership property. The partners, as the cestui que trust, each had equitable interests in each asset comprising the partnership property in the same way as they had as partners an equitable interest in each asset of the partnership.
The partners had an equitable interest in each asset of the partnership as beneficiaries under the declaration of trust in the same way as they had as partners an equitable interest in each asset of the partnership.
At 374 Malcolm CJ made the following concluding remarks:-
A partner has a proprietary interest in all the partnership property for the time being in the same way as the unit holder in the unit trust. A partner also has a proprietary interest in each and every asset of a partnership in the same way as the unit holder. Neither of them has a specific title in any individual asset. Neither of them can claim to have any particular asset appropriate to his share or transferred to him. Each of them has special and non-specific equitable interest, but it is nonetheless a proprietary interest. In my opinion it necessarily follows that the plaintiffs have a caveatable interest in the land.
In the current circumstances I find that the husband has an equitable lien in respect of his interest in the Trust.
I do not consider that it is open to the wife to pursue any proportion of the settlement sum that remains outstanding and unpaid in respect of the assets of the Trust, but orders should be made that would require the husband to pursue payment to him of an amount up to $531,765 which represents the value of his accepted interest in the Trust.
I do not ignore the possibility that any distribution to the husband may be treated as income in the hands of the husband and subject to income tax assessment. I consider that any recourse to a distribution or drawing from the Trust would only occur if the husband does not pay the settlement sum in whole or in part and there are insufficient funds available to the husband following the winding up of BPL. The uncertainty of any amount outstanding is such that there cannot be any account taken of taxation liability.
I make orders as appear at the commencement of these reasons.
I certify that the preceding two hundred and eighty eight (288) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Berman delivered on 31 January 2019.
Associate:
Date: 31 January 2019
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