Layton & Layton
[2022] FedCFamC1F 727
Federal Circuit and Family Court of Australia (DIVISION 1)
Layton & Layton [2022] FedCFamC1F 727
File number(s): BRC 8675 of 2021 Judgment of: HOGAN J Date of judgment: 23 September 2022 Catchwords: FAMILY LAW – PRACTICE AND PROCEDURE – JOINDER – Where the applicant seeks a third party be joined to the proceedings – Where proceedings involving the parties are pending in the Supreme Court of Queensland – Where the applicant’s application is dismissed. Legislation: Family Law Act 1975 (Cth)
Jurisdiction of Courts (Cross-Vesting) Act1987 (Cth)
Federal Circuit and Family Court of Australia (Family Law) Rules 2021
Cases cited: Fencott v Muller (1983) 152 CLR 570; [1983] HCA 12 Division: First Instance Number of paragraphs: 24 Date of hearing: 16 September 2022 Place: Brisbane Counsel for the Applicant: Mr Wilson of King’s Counsel Solicitor for the Applicant: Ryan Kruger Lawyers Solicitor for the First Respondent: Mr Sinclair, Barry Nilsson Lawyers Solicitor for the Second Respondent: Ms Ranson, Merthyr Law Counsel for the Proposed Third Respondent: Mr McQuade of King’s Counsel with Mr Wacker of Counsel Solicitor for the Proposed Third Respondent: McInnes Wilson Lawyers ORDERS
BRC 8675 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS LAYTON
Applicant
AND: MR LAYTON
First Respondent
B PTY LTD
Second Respondent
C PTY LTD
Proposed Third Respondent
order made by:
HOGAN J
DATE OF ORDER:
23 SEPTEMBER 2022
THE COURT ORDERS THAT:
1.The Application in a Proceeding filed on 13 May 2022 is dismissed.
2.The parties have liberty to apply on the giving of seven (7) days’ notice in writing.
3.In the event that the proposed Third Party or any party seeks an order that another party pay the costs of and incidental to the Application in a Proceeding filed on 13 May 2022:
(a)any such person or party shall, within fourteen (14) days of today, file and serve:
(i)any affidavit necessary to support such application; and
(ii)written submissions in support of such application for costs; and
(b)the party against whom an order for costs is sought shall, within a further seven (7) days thereafter, file and serve:
(i)any affidavit necessary for the determination of any such application for costs; and
(ii)any written submissions in answer to the submissions filed and served by the party seeking an order for costs; and
(c)the party seeking an order for costs shall, within seven (7) days of being served with the submissions relied on by the party against whom an order for costs is sought, file and serve any further written submissions, strictly in reply, to the submissions served by the party against whom an order for costs is sought,
and any such application for costs shall be considered in Chambers.
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 Layton & Layton has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
HOGAN J:
By Application in a Proceeding filed 13 May 2022, Ms Layton seeks leave[1] to join C Pty Ltd (“C Pty Ltd”) to the property settlement proceedings she commenced by filing an Initiating Application in the Court on 2 July 2021.
[1] Federal Circuit and Family Court of Australia (Family Law) Rules 2021 r 3.03(4).
C Pty Ltd resists being joined to these proceedings.[2]
[2] Response to Application in a Proceeding filed 25 August 2022.
Some relevant matters
Mr and Ms Layton married in 1976. Ms Layton asserts that they separated on 18 December 2020.
C Pty Ltd is the plaintiff in proceedings it commenced in the Supreme Court of Queensland (“the Supreme Court proceedings”) in late 2020 against Mr Layton, Ms Layton and B Pty Ltd (“B Pty Ltd”) in its own capacity and as trustee for the F Unit Trust (“the F Unit Trust”). Ms Layton is the sole shareholder and director of B Pty Ltd; Mr Layton and Ms Layton are unitholders in the F Unit Trust.
By way of very, very broad overview, the allegations made by C Pty Ltd in the Supreme Court proceedings include that:
(a)having started to work as a consultant to it in early March 2005 (which engagement saw him provide services), Mr Layton misappropriated over $17 million from it between then and the cessation of his engagement in late 2020 and applied the funds he misappropriated for his benefit and that of Ms Layton, including by way of using the same to:
(i)fund the purchase and retention of various real properties acquired in their joint names over that period of time; and
(ii)fund the renovation of various real properties owned in their joint names by making unauthorised payments to suppliers of services and causing the accounting records held by C Pty Ltd to falsely record that funds owing to it by him and Ms Layton for renovations and/or construction works undertaken by C Pty Ltd on their behalf had been repaid; and
(iii)pay for holidays and other lifestyle expenses, including the acquisition of various motor vehicles; and
(iv)pay various tax liabilities owed by each of them; and
(v)increase the amount in his superannuation account by depositing $130,000 into the same; and
(vi)make payments to their children; and
(b)having regard to the discrepancy between the combination of her taxable income and Mr Layton’s taxable income (about which she is alleged to have known) and:
(i)the number and value of the real property acquisitions she and Mr Layton made jointly over the relevant period of time; and
(ii)the quantum and number of loan and credit card repayments required to be made over the relevant period of time as a consequence of the real property acquisitions and the conspicuous and extravagant expenditure they are alleged to have undertaken over the relevant period of time,
Ms Layton knew of Mr Layton’s misappropriation or ought to have known of the possibility that he was misappropriating monies from C Pty Ltd and wilfully shut her eyes to the “obvious possibility” of the same; failed to make appropriate inquiries; and that a reasonable person in her shoes would have appreciated that Mr Layton had misappropriated funds from C Pty Ltd such that she is liable to hold monies or the traceable proceeds of the same on trust for C Pty Ltd, to account to it and to pay it equitable compensation; and
(c)following the discharge of freezing orders made by consent in the Supreme Court proceedings in late 2020 (pursuant to which orders Mr Layton and Ms Layton paid over $3 million into court), one or both of Mr Layton and Ms Layton caused over $2 million to be paid to B Pty Ltd in its capacity as trustee of the F Unit Trust in early 2022 (at which time each of them knew that C Pty Ltd’s claim against each of them was for a sum that exceeded the amount paid into court) and that, thereafter, payments were subsequently made by the F Unit Trust to each of Mr Layton and Ms Layton – the allegations pleaded include that:
(i)such payments were allegedly made to defeat creditors; and
(ii)there was no valuable consideration given by B Pty Ltd, Mr Layton or Ms Layton for the transactions by which each received funds; and
(iii)B Pty Ltd received the funds paid to it knowing the same to have been obtained by Mr Layton from C Pty Ltd in breach of the fiduciary duties he owed to it and Mr Layton and Ms Layton received the funds paid to each of them by the F Unit Trust knowing the same to have been obtained by Mr Layton from C Pty Ltd in breach of the fiduciary duties he owed to it; and
(iv)B Pty Ltd is liable to C Pty Ltd as constructive trustee in respect of the funds it received and, in making payments to Mr Layton and Ms Layton, it was in breach of the duties it owed to C Pty Ltd by virtue of this relationship.
Again by way of very, very broad overview, the relief sought by C Pty Ltd in the Supreme Court proceedings as against:
(a)Mr Layton includes: a declaration that various sums were held on trust by him for C Pty Ltd; orders that he account to C Pty Ltd for, and pay to C Pty Ltd, various amounts and other profits made by reason of his alleged breaches of fiduciary duties to C Pty Ltd; judgment for the sum of alleged unauthorised payments as monies had and received; various other declarations; such further or other proprietary relief as is available to C Pty Ltd upon tracing; damages for the breach of the consultancy agreement between him and C Pty Ltd; orders that he indemnify and pay to C Pty Ltd various amounts; orders for restitution; equitable compensation for breach of fiduciary duty; that he pay C Pty Ltd damages for the tort of deceit; and
(b)Ms Layton includes: declarations that she held and holds certain monies on trust for C Pty Ltd; orders that she pay C Pty Ltd amounts received and any profits derived from trust property; equitable compensation; judgment for the sum of received trust property and other amounts owing; various other declarations; that she pay restitution; and
(c)B Pty Ltd (in whatever capacity) includes: declarations that it held and holds certain monies on trust for C Pty Ltd; equitable compensation; judgment for the amount of alleged unauthorised payments or their traceable proceeds as monies had and received; and various other declarations.
In addition, C Pty Ltd also seeks, as against all the respondents to the Supreme Court proceedings: various consequential orders; orders for the sale of the property of Mr Layton and Ms Layton and B Pty Ltd held on trust for C Pty Ltd or the transfer to C Pty Ltd of that property; interest; and costs on an indemnity basis.
The evidence at present[3] includes that:
(a)Mr Layton and Ms Layton have assets valued at over $19 million[4]; and
(b)the amount of the current assets of Mr Layton and Ms Layton that are traceable to C Pty Ltd is either nearly $15 million or nearly $16 million (depending on the approach taken to the calculation of the same); and
(c)the total quantum of C Pty Ltd’s claim against Mr Layton, Ms Layton and B Pty Ltd, inclusive of interest claimed, is over $24 million.
The competing positions and submissions
[3] Third report by Mr E from D Accounting Firm dated 8 April 2022.
[4] To which should be added any entitlement to superannuation which exceeds $230,000.
Ms Layton
It was submitted on Ms Layton’s behalf that the Court would exercise the discretion to allow her to join C Pty Ltd to the property settlement proceedings because this course is required by the terms of Rule 3.01 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (“the Rules”) which provide as follows:
A person whose rights may be directly affected by an issue in a proceeding, and whose participation as a party is necessary for the court to determine all issues in dispute in the proceeding, must be included as a party to the proceeding.
The submissions made on Ms Layton’s behalf in seeking the joinder of C Pty Ltd to these property settlement proceedings included, in essence, that:
(a)C Pty Ltd is a necessary party to the same because:
(i)the Court will be unable to determine the “property of the parties” without taking into account the interest (if any) of C Pty Ltd in property owned by Mr Layton, Ms Layton or B Pty Ltd or its interests (if any) as a creditor of Mr Layton and Ms Layton or either of them and, in determining the property of Mr Layton and Ms Layton for the purposes of the proceedings between them, the issues the Court will have to determine include: whether either or both of them are liable to C Pty Ltd and, if so liable, the quantum of the liability; whether C Pty Ltd has a proprietary interest in any of the real property, the title of which is registered in the names of Mr Layton and Ms Layton; whether the property of the F Unit Trust should be regarded as the property of either, or both, of Mr Layton and Ms Layton; and
(ii)the Court will likely have to consider whether an order pursuant to s 90AE or 90AF of the Family Law Act 1975 (Cth) (“the Act”) should be made in terms which affect the amount that C Pty Ltd will be able to recover from Mr Layton – a power this Court has but which the Supreme Court does not; and
(b)the property settlement proceedings in this Court cannot meaningfully advance until the claims made by C Pty Ltd are resolved; and
(c)it is “undoubtedly” more efficient to have the claims between C Pty Ltd and Mr Layton, Ms Layton and B Pty Ltd decided in the course of the property settlement proceedings in this Court rather than as commenced by C Pty Ltd – in furtherance of this, if C Pty Ltd is joined to these proceedings, an application to the Supreme Court for an order transferring the Supreme Court proceedings to this Court,[5] or staying the same pending the determination of the property settlement proceedings in this Court, was foreshadowed; and
(d)the Supreme Court proceedings have not progressed speedily, such that C Pty Ltd did not file and serve its Amended Claim and Statement of Claim until early 2022; and
(e)the costs and steps already taken by C Pty Ltd in the Supreme Court proceedings will not be lost or thrown away as directions can appropriately be made by this Court to ensure that that is the case.
[5] Jurisdiction of Courts (Cross-vesting) Act 1987 s 5.
C Pty Ltd
The submissions made on C Pty Ltd’s behalf in resisting joinder to the property settlement proceedings included, in essence, that:
(a)it would be an abuse of process for it to now be joined to these proceedings because:
(i)this would have the consequence that it would be forced to litigate the same issues in two fora – this Court and the Supreme Court; and
(ii)whilst Ms Layton foreshadowed an application to the Supreme Court to seek an order for the transfer of its proceedings to this Court or the stay of them pending the determination of the proceedings in this Court, this Court should not assume that any such application would be successful; and
(b)given the circumstances in this case, there is no utility in it being joined to these proceedings because, on the evidence as it currently stands, there is no way that this Court could be persuaded of the statutory prerequisites which have to be established before an order can be made against it pursuant to s 90AE of the Act, as foreshadowed would be sought by Ms Layton if an order was made joining C Pty Ltd to these proceedings – in particular, assuming that Mr Layton has a 50 per cent interest in the value of the assets of Mr Layton and Ms Layton (over $19 million), an order that he be wholly liable for C Pty Ltd’s claim would result in a shortfall between C Pty Ltd’s asserted entitlement (quantified as over $24 million in the Supreme Court proceedings) and his capacity to pay the same such that the Court could not be persuaded that it is not foreseeable when the order is made that to make such an order would result in the claimed debt to C Pty Ltd not being paid in full;[6] and
(c)it is concerned that this Court lacks the jurisdiction to determine all of its claims against all of the respondents to the Supreme Court proceedings; and
(d)it is concerned that it will be put to further expense if joined to these proceeding at this time (as opposed to an earlier time, prior to the progression of the Supreme Court proceedings) and will, in a sense, be required to “start again”.
[6] Family Law Act 1975 (Cth) s 90AE(3)(b).
Discussion and conclusions
It is uncontentious that:
(a)C Pty Ltd’s proceedings in the Supreme Court were regularly commenced at a time when there were no proceedings in this Court; and
(b)Ms Layton did not file an application seeking to join C Pty Ltd until about 10 months after the Supreme Court proceedings were commenced; and
(c)there is no evidence by Ms Layton, or on her behalf, to explain the delay in her seeking to join C Pty Ltd to these proceedings, especially given that it is also clear that she and the other parties to the Supreme Court proceedings have actively participated in the same since their inception; and
(d)the proceedings commenced by Ms Layton in this Court have not progressed in any meaningful way since they were commenced:
(i)Ms Layton has filed only the Initiating Application and a Financial Statement – both filed on 2 July 2021; and
(ii)the extent of Mr Layton’ participation to date has been limited to his solicitors filing a Notice of Address for Service on 24 January 2022.
In contrast to the lack of progress in the proceedings in this Court, it seems to me that the Supreme Court proceedings have progressed such that:
(a)Mr Layton and Ms Layton have caused more than $3,000,000 to be paid into the Supreme Court and have consented to various freezing orders in relation to, amongst other things, their use of real property owned by them jointly and/or have provided undertakings in respect of the use of funds obtained from the sale of real property (which orders and/or undertakings have resulted in approximately $8,000,000 being held in trust); and
(b)various orders have been made by consent in relation to issues such as:
(i)the provision of funds to Mr Layton and Ms Layton for their respective financial support; and
(ii)the provision of funds to Mr Layton and Ms Layton to enable each of them to be legally represented; and
(iii)enabling each of Mr Layton and Ms Layton to respond to the various allegations pleaded by C Pty Ltd in a manner that protects the privilege against self-incrimination that each of them asserts; and
(c)C Pty Ltd has obtained a number of reports from a forensic accountant in support of its pleaded claim and the allegations set out in the pleadings filed on its behalf; and
(d)the pleadings are closed; and
(e)C Pty Ltd has provided discovery by the provision of an Affidavit of Documents.
Whilst there may well be some unresolved issues associated with discovery, such a circumstance is by no means unusual or confined to proceedings in the Supreme Court.
I accept the force of the submissions made by Mr Wilson KC for Ms Layton to the effect that – obviously – I am not determining an application to transfer the Supreme Court proceedings to this Court. I also accept the force of the submissions made by Mr McQuade KC to the effect that Ms Layton’ application to join C Pty Ltd to these proceedings has not been attended by any explanation for the delay in the same.
As noted during the hearing, I do not join in the concerns expressed on behalf of C Pty Ltd about this Court’s jurisdiction to determine all of its claims against the parties to the Supreme Court proceedings. The evidence before me persuades, at least on a prima facie basis, that all of C Pty Ltd’s claims arise out of the same substratum of facts, matters and circumstances and that there is, here, the requisite commonality or “substratum” of facts (judged as a matter of “impression and practical judgment”[7]) such that there is a single justiciable controversy – with the consequence that this Court has the jurisdiction to determine the disparate causes of action advanced by C Pty Ltd in the Supreme Court proceedings.
[7] See, for example: Fencott v Muller (1983) 152 CLR 570 at 608.
Whilst I do not accept that C Pty Ltd would be required to, in essence, “start again” if it was joined to these proceedings, I do accept that it is more likely than not that it would incur further expenses if joined to them. However, I am also satisfied that this Court could easily make appropriate Directions to ensure that the costs C Pty Ltd has incurred to date in the Supreme Court proceedings are not wasted (or, at least, that any wastage is minimised) – for example, Directions could be made to ensure that:
(a)the proceedings as between C Pty Ltd, Ms Layton, Mr Layton and B Pty Ltd could proceed on the basis of the pleadings each has filed to date in the Supreme Court and C Pty Ltd could be relieved of the requirement to respond to the Notice of Contention filed by Ms Layton in these proceedings; and
(b)the Affidavit of Documents C Pty Ltd has completed to deal with the issue of discovery could be utilised in fulfilling the ongoing duty of disclosure imposed by the Rules on parties to litigation in this forum; and
(c)despite any non-compliance with the terms of the relevant Rules prescribing the use of single expert witnesses, C Pty Ltd was able to rely, without impediment, on the expert report/s it has obtained.
Despite my confidence that this Court’s case management processes and Rules could easily be implemented so as to ameliorate the prospect of significant costs being thrown away by C Pty Ltd, I am not so confident that the matter could be listed for final hearing here as quickly as seems likely in the Supreme Court. As noted earlier, there has been no progress at all in the proceedings commenced by Ms Layton in mid-2021.
There is no evidentiary challenge to the opinion expressed by Ms F to the effect that she estimates that the Supreme Court proceedings will be ready to be listed for trial in the next three months. Given the progress made in the Supreme Court proceedings and the ongoing participation of all of the parties in the same – including by previously seeking extensions of time within which to comply with various matters required by the rules which govern the progress of litigation in the Supreme Court – it seems much more likely than not that, with appropriate application to all outstanding issues, the Supreme Court proceedings may well be ready to be listed for trial within the timeframe opined by Ms F.
Even if, as was, in essence, submitted by Mr Wilson KC for Ms Layton, this means that the proceedings will not be listed for trial before early next year, such a listing would occur much earlier than could be expected for the property settlement proceedings in this Court, given the lack of progression in the same to date.
Whilst Mr Wilson KC for Ms Layton submitted that C Pty Ltd will be a necessary party to these proceedings and, in essence, it is a question of timing as to when it should properly be joined to the same, such submission seems to me to discount the possibility that finalisation of the relatively advanced Supreme Court proceedings may mean that there is no necessity for C Pty Ltd to be joined to these proceedings at all – particularly given that:
(a)the findings made by the Supreme Court will bind the parties in the litigation in this Court to the extent that the same are relevant to the determination of the property settlement proceedings between Mr Layton and Ms Layton; and
(b)the conclusion of the Supreme Court proceedings (whether by agreement or judicial determination) will determine whether Mr Layton and/or Ms Layton and/or B Pty Ltd are liable to C Pty Ltd and, if they are, will crystallise the quantum of any such liability and will determine the proprietary rights asserted by C Pty Ltd.
At present, taking into account and weighing the matters outlined above and according particular weight to the difficulties associated with Ms Layton’s prospective claim for orders pursuant to s 90AE of the Act, her delay in seeking to join C Pty Ltd to these proceedings, the possibility (however small) that C Pty Ltd will be put to further costs if joined to these proceedings, the relatively advanced state of the Supreme Court proceedings and the highly likely delay in finalising C Pty Ltd’s claims against Mr Layton, Ms Layton and B Pty Ltd if the same are litigated in this Court, I am not persuaded that the interests of justice require that C Pty Ltd be joined to these proceedings now.
Given that this matter will remain within my list of matters requiring resolution, I am confident that, should future circumstances mean that the interests of justice will be better served by then joining C Pty Ltd to these property settlement proceedings, any subsequent application seeking the same can be managed appropriately and in a manner that minimises delay and costs to the parties. In furtherance of this goal and my obligation to attempt to actively manage proceedings, an order will be made according the parties liberty to apply on the giving of seven days’ notice in writing.
As discussed during the course of the hearing, orders will also be made to enable the consideration of any application for costs to occur in Chambers without the necessity of a further appearance by the parties.
I certify that the preceding twenty-four (24) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Hogan. Associate:
Dated: 23 September 2022
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