Kerr & Christie
[2021] FedCFamC1F 313
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Kerr & Christie [2021] FedCFamC1F 313
File number(s): SYC 3851 of 2020 Judgment of: RIETHMULLER J Date of judgment: 17 December 2021 Catchwords: FAMILY LAW – Procedure – Production of documents – Subpoenas – Setting aside or other Relief – Subpoena seeking documents from trustee of discretionary trust of which wife is a beneficiary or object – Objections by trustee to production – Relevance of documents – Limited production of documents required. Legislation: Family Law Act 1975 (Cth), ss.75(2), 79, 117
Federal Circuit and Family Court of Australia (Family Law) Rules 2021, r.14.07
Cases cited: Alister & The Queen (1983) 154 CLR 404
Baumann & Rushbrooke [2016] FamCA 905
Hall & Hall [2016] HCA 23; (2016) 257 CLR 490
Kennon v Spry [2008] HCA 56
Livesey v Jenkins [1984] UKHL 3 at 7; [1985] 1 AC 424
Martin & Martin (No.2) [2014] FamCA 232;
Sadek and Ors & Hall and Anor [2015] FamCAFC 23
Saunders v Vautier [1841] EWHC Ch J82
Schmidt v Rosewood Trust Ltd (Isle of Man) [2003] UKPC 26X Pty Ltd and Ors & Merhi [2015] FamCA 622
Division: Division 1 First Instance Number of paragraphs: 29 Date of hearing: 16 November 2021 Place: Parramatta Counsel for the Applicant: Mr Potts SC with him Mr Langshaw Solicitor for the Applicant: Speed & Stacey Lawyers Counsel for the First Respondent: Mr O’Brien Solicitor for the First Respondent: Russell Kennedy Aitken Lawyers Solicitor for the Second Respondent: Barkus Doolan ORDERS
SYC 3851 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: J PTY LTD
Applicant
AND: MR KERR
First Respondent
MS CHRISTIE
Second Respondent
ORDER MADE BY:
RIETHMULLER J
DATE OF ORDER:
17 DECEMBER 2021
THE COURT ORDERS THAT:
1.Orders 17 and 18 of the orders made by the Registrar on 17 September 2021 be discharged.
2.The words “Financial Statements including any profit and loss statements” and the words “asset schedules” be struck from Item 4 and the whole of Item 5 be struck from the subpoena issued by the husband on 10 March 2021 to J Pty Ltd.
3.The time for J Pty Ltd to produce documents to the Court at schedule item 4 of the subpoena issued by the husband on 10 March 2021 is extended until 4.00 pm on 17 January 2022 and that the parties be granted inspection and photocopying access.
4.In the event that either party seeks a costs order, that party file and serve brief submissions in writing by 31 December 2021 and the other party file and serve and brief submissions in response by 21 January 2022.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Kerr & Christie has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
RIETHMULLER J:
The applicant was subpoenaed to produce documents. Items 4 and 5 of the subpoena for production that was issued by the husband are as follows:
4.A copy of the Financial Statements including any profit and loss statements, list of distributions and asset schedules of the L Trust for the last 3 financial years.
5.A copy of the taxation returns for the L Trust for the last 3 financial years
The applicant objected to the subpoena. A registrar heard the objection and made orders on 17 September 2021, inter alia, that:
17.The time [J] Pty Ltd to produce documents to the court at schedule item 4 and 5 of the subpoena issued by the husband on 10 March 2021 is extended until 4pm on 1 October 2021.
18.On compliance with the previous order, the parties are granted inspection and photocopy access to the documents produced by [J Pty Ltd] for items of the schedule to the subpoena 4 and 5 issued by the husband on 10 March 2021.
Applications for costs
19.The court request that the parties provide a joint minute of order to the court as to a timetable for the filing of any applications for costs and written submissions and if there is no agreement to a joint minute of order, the matter is listed before Judicial Registrar Maitland at 10am on 21 October 2021 for directions as to a timetable for any cost application.
The applicant seeks orders striking out items 4 and 5 of the subpoena. In the event that the orders are not entirely set aside, the applicant seeks that the material to be provided in answer to the subpoena be restricted, and that access to that material also be restricted to the parties' legal representatives.
For the purpose of this judgment it is convenient to consider the items in the subpoena as covering two categories of documents: first, the Financial Statements, profit and loss statements, asset schedules and taxation returns (the ‘financial statements’) and secondly, the list of distributions.
As the applicant identifies in its outline, a review of a registrar proceeds by way of a de novo hearing: Federal Circuit and Family Court of Australia (Family Law) Rules 2021, rule 14.07. The rules also provide for the Court to receive further evidence on the hearing of a review application. Unlike the former rules of the Federal Circuit Court of Australia, the current rules do not restrict a party from relying upon further evidence on a review of a registrar by making it subject to leave of the Court.
The requirements for disclosure in family law proceedings are greater than in other areas of litigation. The reason for this is explained in Livesey v Jenkins [1984] UKHL 3 at 7; [1985] 1 AC 424:
… unless a court is provided with correct, complete and up to date information on the matters to which … it is required to have regard, it cannot lawfully or properly exercise its discretion in the manner ordained by [the legislation]. It follows necessarily from this that each party concerned in claims for financial provision and property adjustment (or other forms of ancillary relief not material in the present case) owes a duty to the court to make full and frank disclosure of all material facts to the other party and the court. This principle of full and frank disclosure in proceedings of this kind has long been recognised and enforced as a matter of practice.
Of course, not all relevant documents will be in the hands of one or other of the parties. In this Court the process for obtaining documents from a non-party is to issue a subpoena seeking the document. The applicant for the subpoena must establish that the documents sought in the subpoena have "apparent relevance" to the issues before the Court: X Pty Ltd and Ors & Merhi [2015] FamCA 622. As the Full Court said in Sadek and Ors & Hall and Anor [2015] FamCAFC 23:
25.A stranger’s documents will be made available to the parties in the proceedings where that is requisite for the purpose of justice. Although, as Moffit P said [in National Employers Mutual General Association Ltd v Waind and Hill [1978] 1 NSWLR 372], the documents will be made available so far as is necessary for the proper conduct of the litigation, that necessity will generally be met by the documents having apparent relevance to the issues in the proceedings. As was pointed out by his Honour, concepts of disclosure, and particularly its extent, vary. In this court there is a heavy obligation on parties in property cases to make complete disclosure. The requirements of justice, in those cases, may well require a stranger to disclose those documents more fully than in other courts where there are lesser requirements for disclosure.
The test for ‘apparent relevance’ has been expressed in different forms of words, such as "on the cards that the information sought will assist the parties' case" (Alister & The Queen (1983) 154 CLR 404) and "on the cards" that the information will be relevant or "possibly throw light" on the issues (Martin & Martin (No.2) [2014] FamCA 232; X Pty Ltd and Ors & Merhi [2015] FamCA 622).
The relevance of the Trust to the present proceedings is that the wife in the property settlement proceedings is one of the beneficial objects of the Trust and the husband alleges that the wife’s interest in the Trust is a financial resource of the wife pursuant to s 75(2) of the Act. In the present case, it is not alleged that the wife has the legal or practical power to control the trustee of the trust, nor that there are circumstances which may lead to a finding that the wife has an equitable interest in an identifiable proportion of the corpus of the trust. Counsel for the husband submitted that whilst the case involves net assets of the parties somewhere between $50 million and $80 million (after being corrected by his instructing solicitor when he originally submitted that the case involved net assets of around $30 million to $50 million), such a financial resource may nonetheless be relevant pursuant to s 72(2).
The applicant on the review is the trustee of an investment trust (the Trust). In support of this application, the applicant relies upon two affidavits sworn on 9 November 2021, one by the wife, and one by Mr G, the chairman of the applicant's board of directors, which were not before the registrar. Mr G identifies that the Trust is a discretionary trust which confers wide discretionary powers upon the trustee of that trust. The trustee has four directors, of which the wife’s mother is one. The wife’s mother has the power to appoint the trustee of the trust from time to time and is the sole shareholder of the trustee company. The wife’s mother is, therefore, able to control the trustee, to the extent that such control does not breach the trustee’s fiduciary duties.
Where the party to the marriage is a discretionary object beneficiary of a trust, without legal or practical control of the trust, the nature of their entitlements depends entirely upon the proper interpretation of the trust deed and determinations made by the trustee. Importantly, even in these circumstances, the beneficiary has an interest in the due administration of the trust, which at times may be a property interest (see Kennon v Spry [2008] HCA 56) even though it may not necessarily sound in an interest that can be valued; hence, applications in cases such as these for that interest to be taken into account as a financial resource under s 75(2). If there is a reasonable expectation that the Trust will provide financial support to a party, it may be a financial resource: see Hall & Hall [2016] HCA 23; (2016) 257 CLR 490 at [54] where the High Court said:
The reference to "financial resources" in the context of s 75(2)(b) has long been correctly interpreted by the Family Court to refer to "a source of financial support which a party can reasonably expect will be available to him or her to supply a financial need or deficiency". The requirement that the financial resource be that "of" a party no doubt implies that the source of financial support be one on which the party is capable of drawing. It must involve something more than an expectation of benevolence on the part of another. But it goes too far to suggest that the party must control the source of financial support. Thus, it has long correctly been recognised that a nominated beneficiary of a discretionary trust, who has no control over the trustee but who has a reasonable expectation that the trustee's discretion will be exercised in his or her favour, has a financial resource to the extent of that expectation. (footnotes omitted)
In these proceedings, the terms of the trust deed were not put before me in order to consider the precise nature of the entitlements of the wife pursuant to the deed. In argument, it was referred to on the basis that the wife is in a class of beneficiaries who may receive distributions from the Trust if the discretion of the trustee is exercised in the wife's favour. Such a discretion has been exercised in the past where the wife received $5 million on 30 June 2011 and $9,274,460 on 18 March 2016. It appears that the wife's siblings also received equivalent amounts. The wife’s mother wrote to each of the wife and her siblings explaining that the purpose of those distributions was to enable her children to establish themselves earlier on in life, assist in giving her grandchildren the best start in life and to encourage the recipients to be responsible with wealth.
Whilst it is not suggested that the wife directly or indirectly has a power to appoint the trustee under the trust deed, she has nonetheless participated as a board member of the applicant during the times that it has been the corporate trustee of the Trust. It is not alleged that the wife contributed assets to the corpus of the trust.
The interest of a discretionary beneficiary or object of a trust may be sufficient to found an application for discovery against the trust documents and records, as discussed in Schmidt v Rosewood Trust Ltd (Isle of Man) [2003] UKPC 26, [51]. This is a consequence of the equitable right of ‘due administration’ of the trust, which for the purpose of s 79 of the Family Law Act 1975 is a property interest, and the potential claim for the Court to direct the due execution of the trust. Importantly, when considering the privacy of non-parties, the beneficial interest in the property that forms the corpus of the trust is no longer that of the settlor of the trust, nor simply that of the trustee. The settlor has given up their entitlements and the trustee holds the trust property impressed with equitable obligations to apply the property in accordance with the terms of the trust deed. In short, the corpus of the trust is not the private property solely of the trustee or the controller of the trust (the wife’s mother) as the various discretionary beneficiaries also have an equitable property interest that sounds in the due administration of the trust. Indeed, the sum of the equitable rights and interests of all of the potential beneficiaries and objects of the trust is such as to allow for the group to terminate the trust (at least, if the group is closed): the effect of the rule in Saunders v Vautier [1841] EWHC Ch J82.
In this case, it appears that the wife's mother is the effective controller of the Trust and views the property held on trust as property available, on a practical level, to be dealt with in accordance with the exercise of her discretion under the trust deed. Whilst, in one sense, the property held on trust has the appearance of property of the wife’s mother (or parents), it is not the property of her mother and father in the sense that a house or bank account held in their name would be their property. Rather, the act of establishing the Trust and settling the property upon it, has resulted in the legal title being held by the trustee and the beneficiaries of the Trust (including the discretionary beneficiaries and objects) holding equitable rights to due administration of the trust.
Once it is understood that the wife has an interest in the property (albeit less than a clearly definable property interest at this point), it is apparent that the claim of the husband for discovery, by way of subpoenaing the documents of the Trust, is a legitimate step in the process of determining the extent of the ‘property’ and ‘financial resources’ of the wife for the purpose of determining settlement orders that would be appropriate as between the husband and the wife pursuant to s 79 of the Act. To this extent, the claim that the party subpoenaed, the trustee, has an interest by way of privacy in the operation of the Trust, is significantly weaker than a case where what is sought is simply details of the private property holdings of a relative. The situation is not simply analogous to the husband seeking discovery of the wife’s mother’s financial affairs. However, as explained in Schmidt v Rosewood Trust Ltd, it is not every beneficiary that would be given all the Trust documents in any particular case. The facts and circumstances surrounding the particular proceedings, and the particular trust, must be considered.
In the present proceedings, the trustee of the Trust has conceded that the Trust has a value in excess of $100 million. It is a trust that has provided discretionary distributions to family members and charities. It is not alleged that the trustee has failed to properly manage the trust. It is not surprising that in these circumstances the wife's mother is opposed to the trustee providing full details of the financial circumstances of the Trust, given the very real possibility that that information could become known by other family members.
In the context of this case, the value of the Trust and the extent of the property pool of the parties that is in dispute are both so great that it is difficult to see how the precise value of the Trust, to the extent that it exceeds $100 million, is such that it could be said that it is "on the cards" that the information would make a difference to the outcome of the property settlement proceedings between the husband and wife. I note that a similar view was taken in Baumann & Rushbrooke [2016] FamCA 905 at [90]. In these circumstances I am not persuaded that it is appropriate to allow the husband to pursue the subpoena for the documents relating to the financial affairs of the Trust.
I turn, then, to consider the documents relating to distributions from the Trust over the last several years. The Trust is unlikely to be exhausted at any time soon, and holds sums so great that it could not be thought that they would be reasonably required to meet even an extravagant lifestyle by the wife's parents (and I note that it is not suggested that they have an extravagant lifestyle). The Trust has already distributed nearly $60 million dollars to the wife and her siblings, around $15 million to each over the last 15 years. It is, therefore, a case where there is:
(a)a very large sum held for the potential benefit of the wife's family, among others; and
(b)a history of significant sums being provided to the wife and family members.
Against this, the wife's mother sets out that she had proposed to the board members of the trustee company (whom have accepted the proposal) that the Trust should now focus upon philanthropic causes and capital accumulation for that purpose. That decision was said to be taken in 2016 and formed the background to large distributions to each of the wife and her siblings, said to be final, and a request that the siblings cease their roles as directors of the trustee company. This is not alleged to be a requirement or limitation set out in the trust deed, and thus, it was properly conceded by the counsel for the Trust or that such a decision cannot be taken to legally limit the discretion of the trustees of the Trust.
The wife’s mother says that neither her nor Mr G were aware of any intention of the husband and wife to separate and divorce until 2019, addressing the husband’s potential argument that they had altered their approach to the trust distributions following suspicions that the parties were separating.
The relevant consideration for the purpose of s 79 property settlement proceedings requires the identification of the property of the parties, and in this case their financial resources. In this case, the claim by the husband is that the wife’s interests with respect to the trust are a ‘financial resource’. Thus, an assessment of the likelihood that the wife may receive further distributions from the Trust into the future is the central issue. Whether she is likely to receive any sums (whether on the basis of an ongoing support provided to the wife and her siblings or to assist her to re-establish herself after her property settlement proceedings) is a matter for assessment by the trial judge. The documents that will bear upon this, however, are those that show the actual distributions that have been made from the Trust in recent times.
The identity of the beneficiaries who have received distribution from the Trust, and the size of those distributions, must be considered significant evidence in determining what weight, if any, should be placed upon the likely future benefits to the wife of being a discretionary beneficiary or object of the Trust.
The trustee of the Trust argues that such information should be limited to distributions to the wife and not others. However, this overlooks the reality that in many cases where couples’ marriages ground upon rocky shoals, distributions from trusts such as this cease at least until after the property settlement proceedings. One strong indicator of the likely benefits that a person may receive distributions in the future is the distributions made in the past and the distributions made to beneficiaries in a similar category, in this case there being the clear category of children of the wife's mother. Not all distributions for the benefit of a person are made directly to that person but sometimes to other entities for the benefit of the person (such as companies or trusts). Proper inquiry and assessment of the identity of the various recipients of distributions must be made in order to determine whether, in fact, distributions have been made for the practical benefit of the wife or her siblings. Similarly, the amounts distributed bear upon the determination of the likelihood of future distributions of amounts that may be significant to the exercise of the discretion under s 79 of the Act, at the very least because parents commonly distribute equally to children and in this case have done so in the past.
I accept that such records may lead to strains in the relationship between the wife and her mother, and indeed other family members, however, this must be balanced against the husband’s rights to discovery of relevant documents necessary for the proper exercise of the discretion under s 79 of the Act.
In this case the period over which distribution records are sought is surprisingly modest in that it does not commence from the time of the last distribution to the wife.
I am, therefore, persuaded that the husband should have the documents setting out the dates, identity of beneficiaries, and amounts distributed for the periods that he seeks but that the objection to the production of the financial documents should be upheld. The time frame for production should be extended until after the Christmas holiday period to enable the documents to be produced.
In the circumstances I will, therefore, discharge orders 17 and 18 as made by the registrar and order that:
1.The words “Financial Statements including any profit and loss statements” and the words “asset schedules” be struck from Item 4 and the whole of Item 5 be struck from the subpoena issued by the husband on 10 March 2021 to J Pty Ltd.
2.The time for J Pty Ltd to produce documents to the court at schedule item 4 of the subpoena issued by the husband on 10 March 2021 is extended until 4pm on 17 January 2022 and that the parties be granted inspection and photocopying access.
I note that each party has had some degree of success and some of failure on this argument and that s 117 limits the circumstances where costs may be ordered under the Family Law Act 1975. In the event that either party seeks a costs order it is more economical that they file and serve brief submissions in writing by 31 December 2021 and any response submissions be filed and served by 21 January 2022.
I certify that the preceding twenty-nine (29) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Riethmuller. Associate:
Dated: 17 December 2021
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