Josselyn and Josselyn and Ors

[2016] FamCA 557

FAMILY COURT OF AUSTRALIA

JOSSELYN & JOSSELYN & ORS [2016] FamCA 557

FAMILY LAW – PROPERTY – INTERLOCUTORY INJUNCTIONS – Where the wife seeks an interlocutory injunction to prevent further changes in the control of a family trust – Where there have been recent changes to the guardian and directors of the trustee of the family trust – Where the wife submits that those changes evidence the possibility of an intention sufficient to establish the risk of disposal of assets with the intent to defeat an order – Where the respondents oppose the orders sought by the wife – Where it is submitted that the assets held by the family trust could be found to be effectively held by the husband – Where the family trust has the hallmarks of a discretionary trust which holds assets available for distribution between the parties – Where the fact that the value of assets is not known does not mean an application for an order protecting assets must fail – Where it is found to be just and convenient to grant the relief sought by the wife.

Family Law Act 1975 (Cth)

Mullen v De Bry (2006) FLC 93-293

APPLICANT: Ms Josselyn

1^st RESPONDENT: Mr Josselyn

2^nd RESPONDENT: M Pty Ltd

3^rd RESPONDENT: Mr N Josselyn

FILE NUMBER: SYC 4325 of 2014

DATE DELIVERED: 8 July 2016

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Watts J

HEARING DATE: 23 May 2016

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Lethbridge, SC

SOLICITOR FOR THE APPLICANT: Mills Oakley Lawyes

COUNSEL FOR THE 1^ST & 2^ND RESPONDENT: Mr Richardson, SC

SOLICITOR FOR THE 1^ST & 2^ND RESPONDENT: Coleman & Greig

COUNSEL FOR THE 3^RD RESPONDENT: Mr Beaumont, SC

SOLICITOR FOR THE 3^RD RESPONDENT: Watts McCray

Orders

1. Pending further order, the husband and the 3^rd respondent in their personal capacity(ies) or in their capacity(ies) as an officeholder of any entity or in the capacity as Guardian of the Josselyn Family Trust, be and are hereby restrained from any and all of the following with respect to the Josselyn Family Trust:

   1.1.Appointing or removing the Guardian;

   1.2.Appointing or removing the Trustee, M Pty Ltd;

   1.3.Appointing or removing any class of beneficiary;

   1.4.Authorising the exercise of power by the Trustee, M Pty Ltd, to distribute capital to any class of beneficiary; or

   1.5.Otherwise causing any change to the terms of the Deed of Settlement dated 18 September 1995.

2. Pending further order the husband, either in his personal capacity or in his capacity as director of the 2^nd respondent, M Pty Ltd being trustee of the Josselyn Family Trust, be and is hereby restrained from any of the following:

   2.1.Resigning as, or accepting the appointment of, a director of M Pty Ltd;

   2.2.Causing M Pty Ltd to exercise its discretion and/or authority as trustee of the Josselyn Family Trust:

   2.2.1.To distribute capital to any beneficiary of the Josselyn Family Trust;

   2.2.2.To appoint or remove any class of beneficiary; or

   2.2.3.To otherwise cause any change to the terms of the Deed of Settlement of the Josselyn Family Trust dated 18 September 1995.

3. Pending further order the 2^nd respondent be and is hereby restrained from any of the following:

   3.1.Accepting the appointment or resignation of a director of the 2^nd respondent;

   3.2.Altering any existing shareholding or issuing any new shares in the 2^nd respondent;

   3.3.Exercising its discretion and/or authority as trustee of the Josselyn Family Trust:

   3.3.1.To distribute capital to any beneficiary of the Josselyn Family Trust;

   3.3.2.To appoint or remove any class of beneficiary; or

   3.3.3.To otherwise cause any change to the terms of the Deed of Settlement of the Josselyn Family Trust dated 18 September 1995.

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 Josselyn & Josselyn 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 SYDNEY

FILE NUMBER: SYC 4325  of 2014

Ms Josselyn

Applicant

And

Mr Josselyn

1^st Respondent

And

M Pty Ltd

2^nd Respondent

And

Mr N Josselyn

3^rd Respondent

REASONS FOR JUDGMENT

BACKGROUND

1. The applicant and the 1^st respondent commenced cohabitation in 1997. They separated on a final basis on 27 May 2014. There are no children of their relationship. The applicant is currently 58 years of age and the 1^st respondent is 57 years of age.

2. The 2^nd respondent is the corporate trustee of the Josselyn Family Trust. The 3^rd respondent is the husband’s brother.

3. The applicant de facto wife, seeks a final order by way of property settlement pursuant to s 90SM Family Law Act 1975 (Cth) (“the Act”).

4. Although some submissions made by senior counsel for the husband and the 2^nd respondent and by senior counsel for the 3^rd respondent might suggest otherwise, the applicant and 1^st respondent were never married.

THE WIFE’S INTERIM APPLICATION

1. The wife seeks the following interim orders on an urgent basis (contained in a Minute of Order dated 23 May 2016):

   1.    That pending further Order, the Husband and the Third Respondent in their personal capacity(ies) or in their capacity(ies) as an officeholder of any entity or in the capacity as Guardian of the [Josselyn] Family Trust, be and are hereby restrained from any and all of the following with respect to the [Josselyn] Family Trust:

   1.1Appointing or removing the Guardian;

   1.2Appointing or removing the Trustee, [M Pty Ltd];

   1.3Appointing or removing any class of beneficiary;

   1.4Authorising the exercise of power by the Trustee, [M Pty Ltd], to distribute capital or income to any class of beneficiary; or

   1.5Otherwise causing any change to the terms of the Deed of Settlement dated 18 September 1995.

   2.    That pending further Order the Husband, either in his personal capacity or in his capacity as director of the Second Respondent, M Pty Ltd being trustee of the [Josselyn] Family Trust, be and is hereby restrained from any of the following:

   2.1Resigning as, or accepting the appointment of, a director of [M Pty Ltd];

   2.2Causing [M Pty Ltd] to exercise its discretion and/or authority as trustee of the [Josselyn] Family Trust:

   2.2.1To distribute capital or income to any beneficiary of the [Josselyn] Family Trust;

   2.2.2To appoint or remove any class of beneficiary; or

   2.2.3To otherwise cause any change to the terms of the Deed of Settlement of the [Josselyn] Family Trust dated 18 September 1995.

   3.    That pending further Order the Second Respondent be and is hereby restrained from any of the following:

   3.1Accepting the appointment or resignation of a director of the Second Respondent;

   3.2Altering any existing shareholding or issuing any new shares in the Second Respondent;

   3.3Exercising its discretion and/or authority as trustee of the [Josselyn] Family Trust:

   3.3.1To distribute capital or income to any beneficiary of the [Josselyn] Family Trust;

   3.3.2To appoint or remove any class of beneficiary; or

   3.3.3To otherwise cause any change to the terms of the Deed of Settlement of the [Josselyn] Family Trust dated 18 September 1995.

   4.    That the Husband pay the Wife’s costs of and incidental to this application.  

2. The wife incorrectly refers to the name of the settlement as the Mr Josselyn Family Trust. The correct name of the settlement is the Josselyn Family Trust (see clause 18 and the Fourteenth Schedule of the Deed of Settlement dated 18 September 1995).

3. It is the wife’s case that recent changes to the guardian and directors of the trustee of the Josselyn Family Trust evidence the possibility of an intention that is sufficient to establish the risk of disposal of assets with the intent to defeat an order.

4. The respondent de facto husband, the 2^nd and 3^rd respondents all oppose the orders sought by the de facto wife.

THE LAW

1. The court’s power to grant interlocutory injunctions of the type sought by the wife is well established. The power is found in s 114(3) of the Act aided by the general powers in s 90SS(1)(k) and (5) of the Act.

2. Section 90TA(3) of the Act applies to matters involving de facto couples and incorporates and modifies s 90AF(2) and (3) of the Act.

3. Section 90AF(2) of the Act provides that a court may direct a third party to do a thing in relation to the property of a party to the marriage.

4. Pursuant to s 90AF(3) of the Act, the court can only make that order under s 90AF(2) if it is reasonably necessary, or reasonably appropriate and adapted to effect a division of property between the parties, where the third party has been accorded procedural fairness and where the court is satisfied in all the circumstances it is just or convenient to grant the injunction. The court also has to be satisfied that the injunction takes into account those matters which are referred to in s 90AF(4), none of which are specifically relevant in this case apart from s 90AF(4)(h).

5. The Full Court in Mullen v De Bry (2006) FLC 93-293, said that:

   In some cases, the possibility (based on some evidence) of an intention or scheme may, with other factors, be sufficient to establish the probability of an objective risk of disposal with the intent to defeat an order.  (Original emphasis)

TRUST STRUCTURE AND RECENT CHANGES

1. The Deed of Settlement which established the Josselyn Family Trust is dated 18 September 1995. The Deed is in familiar terms. The role of the 3^rd respondent as guardian allows him to appoint new guardians; to resign his position as guardian; to add new trustees and to remove old trustees. Importantly in relation, inter alia, to the distribution of capital from the trust, the guardian has an effective veto power because the trustee is prohibited from exercising any discretion to make distributions of capital to beneficiaries unless the trustee has given 7 days’ notice in writing to the guardian of its intention to exercise that discretion (but the guardian has the ability to shorten that period) (see clause 10(c)). If the guardian sought to stop the trustee from making a particular distribution, the guardian could replace the trustee.

2. The named beneficiaries of the Josselyn Family Trust are the husband as Principal Beneficiary and his two adult children, as Beneficiaries. The husband has been a director of the trustee company throughout the life of the trust.

3. The guardian of the Josselyn Family Trust who held the power of appointment pursuant to clause 12 of the Deed of Settlement was originally Mr D.

4. There is a Deed Pool dated 8 October 2015, the authenticity of which is in contest, whereby the husband asserts Mr D was replaced as guardian by the husband’s brother, Mr N Josselyn (the 3^rd respondent). It was not until 5 May 2016 that the lawyers for the husband forwarded to the wife’s lawyers the Deed Poll dated 8 October 2015. Significantly the lawyers for the husband in the covering letter forwarding the Deed Poll, go on to say that as a result of the appointment of the husband’s brother as guardian:

   The joint letter of instruction to [the single expert appointed to value the husband’s interests in entities] now needs to be amended given the fact that the Husband is not the alter ego of the [Josselyn Family Trust] and [sic] is therefore unnecessary to value that entity.

5. On 5 May 2016 the two children of the husband’s first relationship, Mr O Josselyn (currently 32 years of age) and Ms P (currently 31 years of age) were added as directors of the 2^nd respondent. There is no evidence as to the process by which that happened (whether or not by way of appointment by their father or at a meeting of the company).

6. The husband remains secretary of the company. The current shareholders of the company are the late Mr Q Josselyn and Ms R Josselyn, both of whom hold the shares beneficially (I infer for the husband).

7. The current dispute that the 1^st respondent is having with the previous guardian may be the obvious explanation as to why he says that he has effected a change of guardian of his family trust. The reason why he has made his children who are beneficiaries under the trust, directors of the trustee company is less obvious and has not been explained.

8. Mr D is the husband’s business partner. Since 1995 the husband was and still is, the guardian of the D Family Trust. There is currently litigation in the Supreme Court of New South Wales arising at least in part, from the husband’s action as guardian of the D Family Trust of removing the existing trustee and replacing that trustee with a new trustee.

9. The husband acknowledges that he has made changes to other corporate interests and structures since the commencement of these proceedings. He says that all of those changes were proper, although he does not say they were not connected with the commencement of these proceedings.

RELEVANCE OF TRUST ASSETS TO THE DISPUTE

1. The wife contends that the husband exercises control over the Josselyn Family Trust, saying that it was created for the benefit of the husband and his family and has been managed and maintained at his direction for that purpose since it was settled a few years prior to the husband and wife commencing their de facto relationship 17 years ago.

2. The assets held in the Josselyn Family Trust and the D Family Trust are assets held in a partnership known as “The Josselyn Family Trust and the D Family Trust Partnership”.

3. Senior counsel for the wife asserted during submissions that if the assets held by the Josselyn Family Trust, were ultimately found to be effectively held by the husband, then those assets would constitute one half of the overall assets held by the parties either jointly, severally or through third entities.

4. The trust was included in the entities to be valued in instructions provided to both the originally chosen single expert and the single expert subsequently appointed by the court to provide expert accounting valuations.

5. The husband has included the assets of the trust in statements made by him to his bankers setting out his financial position.

6. On its face (certainly sufficient for the purposes of this interlocutory hearing), the Josselyn Family Trust has all the hallmarks of a discretionary trust of the type typically encountered in family law proceedings which holds assets available for distribution between the parties to a long de facto relationship.

7. Senior counsel for the wife indicated that their best estimate as to the value of the Josselyn Family Trust was between $5million and $7 million. The wife submitted that she is aware the husband claims various debts either due to himself personally or due to entities. There is apparently a loan alleged to be owed to the husband’s mother of about $1 million. Those matters would be something that I would expect would be further explored by the single expert that has been appointed by the court and at the final hearing.

WHAT RISK IS THERE TO THE WIFE?

1. On 23 September 2015 Mr Peter Campton SC, submitted to Justice Rees that the Josselyn Family Trust was the husband’s alter-ego. On that occasion the husband was represented by Mr Richards of counsel. Mr Richards agreed that the 2^nd respondent was the husband’s alter-ego. The husband now seeks to resile from that concession and claim that it was inadvertent.

2. The historical company extract of the 2^nd respondent indicates that the husband was appointed as director of the trustee company on 18 September 1995.

3. The clear import of this contention by the husband’s lawyer is that as a result of this change, all of the assets in the trust were no longer either an asset or financial resource of the husband.

4. Currently, the de facto husband and his children control the trustee. Senior counsel for the husband conceded that the husband could receive a 100 per cent distribution of the capital of the trust if the trustees chose to exercise their discretion to distribute that capital to him. Equally, the trustee could resolve to distribute all or a good part of the corpus of the trust to the husband’s children. The guardian would then be the only person standing in the way of distributions of that nature taking place.

5. Also, if the husband and his children wished, new beneficiaries could be named by the trustee and distributions of capital made by the trustee to them.

6. Any distribution of capital potentially could have a significant effect upon the ability of the court to make a just and equitable property settlement order.

ORDERS SOUGHT AGAINST THE 3^rd RESPONDENT

1. Mr N Josselyn in an affidavit sworn 22 May 2016 indicates that he has no intention as at that date of:

   36.1.Resigning from the position of guardian of the Josselyn Family Trust;

   36.2.Appointing a new guardian of the Josselyn Family Trust;

   36.3.Removing M Pty Ltd as trustee of the Josselyn Family Trust.

2. The power in the hands of the 3^rd respondent is limited to appointing or removing the trustee (clause 9 of the Deed of Settlement) and to shortening the periods of time in which the trustee may do things.

3. The 3^rd respondent submits that there is no evidence that has been led by the wife to support a proposition that any action by the 3^rd respondent is likely to:

   38.1.Cause the matrimonial pool of assets to be adversely affected; and/or

   38.2.Exercise the powers of guardian of the trust for an improper purpose.

4. The 3^rd respondent submits that the applicant’s application for relief overlooks the fact that if the guardian were to replace the trustee of the trust (the 2^nd respondent), orders against the trustee would also bind, by force of s 90AG of the Act, any person who subsequently becomes the trustee. That is, s 90AG of the Act makes an order against the 3^rd respondent otiose. One difficulty with that argument is that whilst s 90AG binds subsequent trustees, an issue may well arise as to the notice that the new trustee had of existing orders. That is an argument the wife doesn’t need to concern herself about if the injunctive orders sought by the wife against the 3^rd respondent are made. I am also mindful of the allegation made by the wife that the husband has not kept her properly informed about movements in the control of the entities with which he is associated. The delay in providing the Deed Poll of 8 October 2015 is one example.

EXERCISE OF DISCRETION

1. Senior counsel for the husband submits that “In simple terms, for 20 years the guardian was not a party to this marriage and then after 20 years he appointed somebody else who is also not a party to this marriage, or if the applicant’s case is correct, then in truth the guardian remains somebody who is not a party to this marriage”.

2. The difficulty with the submission made by senior counsel for the husband is that it ignores that the parties were not separated for most of the 20 years during which Mr D was indisputably the guardian of the trust. They now are separated, and it was only after the separation that changes were made both to the office bearers of the trustee of the trust and to the guardian of the trust.

3. Senior counsel for the husband submits that the injunctive relief sought is not sufficiently connected to be substantive relief sought. I do not accept that is so.

4. In an alternate argument, senior counsel for the husband submits that the applicant’s case fails on the balance of convenience because the applicant who has the onus does not articulate how a distribution of the entire proceeds of the trust would prejudice the wife in circumstances where it was said that the value of the pool in the trust is something equivalent to the value of the pool sitting outside the trust. The difficulty with the submission is that the value of the two pools is not known at this point in time.

1. Senior counsel for the husband also submitted that because the wife in fact leads no evidence about the value of any of the assets then her application must fail because she has not established the onus on her of proving potential detriment. She has not established any risk of her claim. I infer the value of the trust is far better known to the husband than the wife. An order has been made for a single expert to value assets. The fact the value of assets is not known does not mean an application for an order protecting assets must fail.

2. I do not accept that if half the assets of the parties find their way into the hands, for example of the husband’s children, that would not have the potential to prejudice the wife in the ultimate result she achieves by way of property settlement order.

3. Even if a benign view was taken of all the changes the husband has made since separation to the roles he has in various entities, the expressed view by the husband’s lawyers in the letter of 5 May 2016 is some evidence of the possibility of an intention to put assets outside the reach of the de facto wife by the restructuring he has undertaken.

4. That apparent risk may ultimately turn out to be without any foundation. However, there is no downside in making the orders sought by the wife pending further order to guard against that risk.

5. The 3^rd respondent submits that the relief sought against the 3^rd respondent is not necessary to protect the applicant against dissipation of any property of the parties or another for s 79 purpose (given the parties were not married, senior counsel for the 3^rd respondent means a s 90SM purpose). I do not accept that is so.

6. Notwithstanding those indications by the 3^rd respondent sworn on his oath of his current lack of intention to exercise his powers as guardian, he opposes any injunctions being made against him from doing any of those things in the future on the basis that his duty as guardian should be exercised without his discretion being fettered.

7. The 3^rd respondent argues that the relief sought would be unjust and materially adverse to the 3^rd respondent’s capacity to perform a proper exercise of his powers and that the balance of convenience favours the 3^rd respondent. The 3^rd respondent submits that the 3^rd respondent has power to appoint another guardian and resign as guardian but as guardian, his powers are limited to appointing and removing the trustee. The most significant power that the 3^rd respondent can exercise under the trust deed is the power to replace the trustee. It is difficult to see how in the circumstances of this case the 3^rd respondent is affected in any real way if the court concludes that on an interim basis the status quo should be preserved pending a further inquiry as to how the court should deal with the assets of the Josselyn Family Trust. The 3^rd respondent submitted that that power to replace the trustee is too remote from the “property of a party to the marriage”. I am unable to accept that it is.

8. Senior counsel for the husband said that in respect of the order seeking restraint of distribution of income that the operation of those orders (1.4 and 2.2.1) as they are expressed in the applicant’s minute of order would create the difficulty of retained profits in the trust and the taxation consequences flowing from it. As it happened, I was unable to deliver these orders or judgment prior to 30 June and consequently any distribution of income may well have already happened. I did not, in any event, intend to make any order restricting the trustee’s discretion to distribute income in the 2015/2016 financial year. I make no order preventing the trustees from distributing income. It is unlikely that income earnt on the investments of the trust in one year, if dissipated, is something that could not be properly adjusted at the final hearing in circumstances where the wife seeks one half of the overall assets held by the parties. However, the injunctive order, as it applies to the corpus of the trust, is a different matter.

9. Other than that, there can be little damage to the husband, the 2^nd respondent or the 3^rd respondent as a consequence of granting the relief now sought by the wife.

10. The wife has given an undertaking as to damages in respect of the orders that she now seeks.

11. This is an application for an interlocutory injunction, primarily designed to protect the status quo prior to a consideration of what is a proper property settlement order. I find that it is just and convenient that the wife be granted the relief she seeks on an interlocutory basis. The order will be made pending any further order.

I certify that the preceding fifty-four (54) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watts delivered on 8 July 2016

Associate: 

Date:  8.7.16