Lenz and Cull
[2018] FamCA 455
•7 May 2018
FAMILY COURT OF AUSTRALIA
| LENZ & CULL | [2018] FamCA 455 |
| FAMILY LAW – PRACTICE AND PROCEDURE – Subpoenas – Objection to subpoena – Whether to set aside a subpoena to a third party – Where a party is a director of the third party – Where there is an allegation that the party’s interest in the third party is greater than stated – Whether there is sufficient “apparent relevance” to the subpoena to allow it to be issued. |
| Family Law Act (Cth) 1975 Family Law Rules (Cth) 2004 |
| Botany Bay Instrumentation & Control Proprietary Limited v Stewart (1984) 3 NSWLR 98 Cosco Holdings Pty Ltd v Commissioner of Taxation [1997] FCA 1504 Hamilton v Oades [1989] HCA 21; (1989) 166 CLR 486 Hatton v Attorney-General (2000) 158 FLR 31 Kelton & Brady and Anor [2017] FamCAFC 186 National Employers' Mutual General Insurance Association Ltd v Waind & Hill [1978] 1 NSWLR 372 Oceanic Sun Line Special Shipping Co Inc v Fay [1988] HCA 32; (1988) 165 CLR 197 Seven Network Ltd v News Ltd (No 5) [2005] FCA 510; (2005) 216 ALR 147 Sharp & Dalton (1990) FLC 92-167 |
| APPLICANT: | Mr Lenz |
| RESPONDENT: | Ms Cull |
| FILE NUMBER: | SYC | 6598 | of | 2017 |
| DATE DELIVERED: | 7 May 2018 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Le Poer Trench J |
| HEARING DATE: | 28 February 2018 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Lethbridge |
| SOLICITOR FOR THE APPLICANT: | Nolan Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr Batey |
| SOLICITOR FOR THE RESPONDENT: | Finn Roache Lawyers |
Orders
The husband’s application to set aside the subpoena issued by the court at the request of the wife on 15 February 2018 and served upon the husband is dismissed.
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 Lenz & Cull 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 6598/2017
| Mr Lenz |
Applicant
And
| Ms Cull |
Respondent
REASONS FOR JUDGMENT
Introduction
Before the Court is an objection to a subpoena, issued on behalf of the wife in these proceedings, to the husband for the production of documents. The subpoena was issued on 15 February 2018 in the following terms:
Copies of all loan applications, loan deeds and/or Agreements, Deed of Guarantees Mortgages entered into by you or in your capacity as director of [Lenz’s] Investments Pty Ltd with the National Australia Bank or any of its subsidiaries particularly [B Pty Ltd] and/or [C Pty Ltd] or any of its subsidiaries [D Pty Ltd] or any of its subsidiaries in particular [F Pty Ltd] and/or [E Pty Ltd] in relation to the development known as “[Property G]” and correspondence in relation to same between January 2014 to date.
On 23 February 2018, the husband filed a notice of objection which set out the husband’s objection as follows:
The Subpoena is an abuse of process, constitutes a fishing expedition and/or in the alternative seeks to bring before the Court information and or documents that are irrelevant to the issue in dispute between eth parties to the proceedings.
The husband also filed an objection to inspection on the same grounds as those detailed above. At hearing the husband’s counsel informed the court the husband objects to production of any document called for by the subpoena.
Background
Lenz’s Investment Pty Ltd is an entity which the husband says is owned by his parents, and is the Trustee of the Lenz’s Family Trust, of which both the husband and the wife are discretionary beneficiaries. The husband is a director of Lenz’s Investment Pty Ltd. The wife is seeking to join both of those entities as parties to this proceeding, however, that application is opposed by the husband and by each of the entities. The application for joinder is due to be heard before me in May 2018.
The wife filed on 15 March 2018 a document titled “Second Further Amended Initiating Application”. She had on 7 March 2018 filed a document titled “Further Amended Initiating Application”. Both documents were filed before 28 March 2018, the date by which she was permitted by the orders of 28 February 2018 to file any amendment to her Application for Final Orders.
In the document filed 15 March 2018 the wife seeks an order pursuant to s 79 of the Act against Lenz’s Investments Pty. Ltd. in its capacity as trustee of Lenz’s Family Trust. The wife otherwise seeks orders against the husband personally.
The order sought against the Lenz’s Family Trust seeks a payment of funds which are payable to the husband. The wife’s application uses the word “distribution” when referring to funds payable by the Trust to the husband. The word “Distribution”, in the context of the movement of funds within the control of a trust, would usually be understood by lawyers to mean a payment to a beneficiary which was not a loan. The payment would usually be “income” rather than “capital”. The nature of the payment sought by the wife is probably not relevant to this determination. The fact that an order is sought which prima facie is within the jurisdiction of the court to make is sufficient at this time.
Evidence
The husband relied on aspects of his affidavit filed 28 February 2018.
The wife relied on aspects of her affidavit filed 9 February 2018 and paragraph 7 of the husband’s affidavit sworn 27 February 2018.
Wife’s Evidence Relevant to the Subpoena Argument
The documents identified in the wife’s affidavit filed 9 February 2018 which are relied upon are annexures marked “C”, “H”, “Q”, “R”, and “E”. Other relevant fact contained in the affidavit of the wife is as follows:
·The husband is a director of Lenz’s Investments Pty Ltd.
·The Lenz’s Family Trust (“the Trust”) was created by instrument dated 10 September 1987.
·Mr H Lenz has power of appointment under the Trust instrument. He is the husband’s father.
·The husband and the wife together with their son are members of a potential class of beneficiaries of the Lenz’s Family Trust. The distribution of trust funds are at the discretion of the trustee.
·The cohabitation commenced in 1998 and marriage in 2003.
·The parties have one child X born in 2011.
·The parties separated on 17 September 2017.
·The wife observed during the cohabitation that the husband managed aspects of the trust business including entering into contracts on behalf of the trust.
·The Trust owns real estate in Adelaide, South Australia. There is no issue that the asset is of substantial value. The husband asserts the asset is security for very substantial borrowings.
·The husband has worked for the Trust since 2009. He was not paid for his work between 2009 and 2015.
·The husband has been actively involved in the management of the Adelaide project.
·The wife was actively involved in the Adelaide project.
·Although the husband denies he has control or any interest in the Trust, the wife says that he has “personally guaranteed” loans advanced to the trustee of the Trust.
·The wife has had conversations with the husband where he has said to her: “I am not working for free, I will be paid when we sell the units.”; “I am not working for free my assets are in the family trust. I am the CEO.” “There is no trace of my interest in the family trust. We have hidden it very well. You will have no chance in court.”
·The documents annexed by the wife and relied upon for this issue disclose the following: J Estate Agents estimate the market value of the building Property G is $135,650,000; NAB loan approval document shows advances of $71.5 million to Lenz’s Investment Pty. Ltd. in relation to which security is held including “Guarantee and Indemnity for the facilities, only to be enlivened upon drawing of $3m contingency funding, defined as any amount utilised over $68,500,000, and given by Mr Lenz and Mr H Lenz. A condition of the facility was “Provision of Statements of position for [Mr Lenz] and [Mr H Lenz].”
·In a document sent to the Directors of Lenz’s Investments Pty Ltd., B Pty Ltd attached a letter of offer for an advance of $12 to $16 million on 2 May 2017. It noted that one of the securities to be held for the advance was “Joint and several Guarantee provided by [Mr Lenz], [Mr H Lenz] and [Mr K Lenz].”
·A document titled Deed of Guarantee and indemnity between Mr Lenz and L Pty Ltd. dated 2017, not signed by either party, makes clear that if it was signed by the husband he was personally guaranteeing the performance of Lenz’s Investments Pty Ltd under a loan agreement entered into by the company with L Pty Ltd.
·An email from Ms M (Chief Financial Officer) to the husband and “Mr N”, asks for the Financial Statements for Lenz’s Family Trust for the 2017 year, asking for details of the beneficiary names for distribution together with other financial information. The email advises there is $3.3 million for distribution. The email is answered by the husband on 17 August 2017.
·A copy of a Minute of Directors of Lenz’s Investments Pty Ltd in its capacity as Trustee for Lenz’s Family Trust, held 10 February 2017. The husband was named as Chairman of the Directors present. The minute approved the Financial Statement for the year ended 30 June 2016 “and that the Trustee’s Declaration be signed.”
The husband’s evidence relevant to this issue is as follows:
·The husband is but one of the directors of Lenz’s Investment Pty Ltd.
·As a director of the company he has access to the company records.
·In 2015 the husband joined the company as a project Director.
·Between July 2011 and May 2015 he contributed time to the company on an unpaid basis.
·The husband denies he has control of the Lenz’s Family Trust.
·The husband has loaned money to the trust, along with other family members. The husband has a loan account with the trust with a value of $99,976.
·The husband says he has told the wife he is only a beneficiary of the trust.
Submissions
Husband’s submissions
Counsel for the husband made submissions in support of his objection to subpoena orally in court on 28 February 2018.
It was submitted on behalf of the husband that the subpoena constitutes an abuse of process, where there is no apparent relevance between the documents sought and any orders which can be made by this Court pursuant to s 79 of the Family Law Act.
The husband submitted that he acted in the capacity of a Director of the trustee company only, and had no other association with Lenz’s Investment Pty Ltd. He submitted that he was one of six directors of the company (the other directors being his parents and three outside directors), and had been a director since mid-2015. It was submitted that the original and continuing shareholders of that company were his parents. The husband is a discretionary beneficiary of the Lenz’s Family Trust.
It was further submitted that unless the wife could show that the Lenz’s Family Trust was an entity which could be the subject of orders of the Family Court, then husband’s role and actions in relation to Lenz’s Investment Pty Ltd (particularly in relation to loan agreements and guarantees) were not relevant to the proceeding. Counsel noted that the wife did not set out the assets which she contended were to be the subject of distribution in her Initiating application, and has since specified properties for distribution which are the property of the parties jointly or separately.
It was conceded that anything signed in the husband’s personal capacity would need to be answered, but it was submitted that the husband set out in his affidavit sworn 27 February 2018 that he had ‘only ever acted in the capacity of a director’. It was further stated that prior to the husband’s appointment as a director, he had undertaken some unpaid work for the company.
Counsel for the husband directed the Court to the judgments to National Employers' Mutual General Insurance Association Ltd v Waind & Hill [1978] 1 NSWLR 372; Sharp & Dalton (1990) FLC 92-167; Botany Bay Instrumentation & Control Proprietary Limited v Stewart (1984) 3 NSWLR 98. It was submitted (as per transcript)
in order to satisfy the requirements (it) must be able to be said that these documents will in some way, that is reasonably likely, add to relevant evidence in the case, AND the extent to which my client’s signature as a director of – being one of six directors […] – to guarantees entered into since he became a director is, in our submission, unlikely in any way to add to the relevant evidence in the case.
On that basis the husband submitted the submission should be set aside.
Wife’s submissions
Counsel for the wife provided written submissions in response on 7 March 2018.
It was submitted by the wife that the husband was not only a director of Lenz’s Investment Pty Ltd but is the Chairman of the Company. She submits that the husband has provided a personal guarantee for a loan extended to the company by the NAB, and that this action “hints strongly at his participation in the development as not one of a mere discretionary beneficiary, or just as another director, but a person who has more than a discretionary beneficial interest in the Trust”.
The wife submitted that the subpoena is targeted at the relationship between the husband and several lenders of significant sums to the company Lenz’s Investment Pty Ltd. The Court’s attention was directed to the test in Cosco Holdings Pty Ltd v Commissioner of Taxation [1997] FCA 1504, in which the test as to the forensic legitimacy of a subpoena is set out as:
whether the material caught by the subpoena appears to have relevance in the sense of “throwing light” on at least some of the issues in the principal proceedings
Counsel submitted that the subpoena is aimed at obtaining material which would identify the husband’s role in the Trust’s property development, in particular, whether he is involved solely or jointly in management and day-to-day decision making.
Counsel drew further decisions to the Court’s attention, particularly as it surrounded the aspect of relevance. It was submitted that the test in relation to relevance was less stringent than that for the admissibility of evidence. In particular it was submitted “And where, as here, the proceeding are at a very early stage and the issues have not been clearly defined, the question whether documents sought by subpoena have apparent relevance, should not be approached too narrowly or rigidly”.
In relation to any allegation that the subpoena was “fishing”, it was submitted that a finding of that nature would require the court to find that there was no legitimate purpose to the subpoena. It was submitted that the wife had discharged the onus of establishing a legitimate forensic purpose through the affidavit evidence filed by her and supporting persuasive documents.
The wife submitted that the husband did not make any objection in relation to the subpoena being oppressive, and it is therefore not a relevant consideration. It was further submitted that the Court could not find that the subpoena could be considered “seriously unfairly burdensome, prejudicial or damaging” or “productive of serious and unjustified trouble or harassment” (pursuant to Hamilton v Oades [1989] HCA 21; (1989) 166 CLR 486 at 502; Oceanic Sun Line Special Shipping Co Inc v Fay [1988] HCA 32; (1988) 165 CLR 197 at 247; Seven Network Ltd v News Ltd (No 5) [2005] FCA 510; (2005) 216 ALR 147 at 151) as there was no evidence as to the volume of the documents that would need to be produced.
It was finally submitted that the husband had failed to provide persuasive grounds to support the objection to subpoena, and that if the husband maintains his objection to inspection on the grounds of confidentiality or privilege, the specific documents should be identified rather than pursuing a blanket claim.
LAW
Murphy J set out in his single-judge appeal judgment in the matter of Kelton & Brady and Anor [2017] FamCAFC 186 the following summary of the Full Court’s position in relation to setting aside a subpoena on the basis of relevance.
52. In Hatton, above, the Full Court referred extensively to the seminal judgment of Moffitt P in Waind v. Hill and National Employers’ Mutual General Association Ltd. In that earlier decision, the President of the New South Wales Court of Appeal referred to three steps or stages involved in the subpoena process described broadly as production, inspection and admission into evidence.
53. Here, Mr B did not object to bringing the documents to court by reference to, for example, the subpoena being not properly served or the like; his objection was to the documents being given to the husband (and/or his lawyers). Moffitt P held that the “critical question” at this step was the power of the judge to permit inspection and, in particular, whether the judge had a discretion to permit inspection of the documents.
54. Referring to what in other decisions has been called the “adjectival relevance” as distinct from “substantive relevance” the President continued in Waind, above:
The crucial question in relation to the exercise of the discretion to permit inspection in the second step is whether the documents have apparent relevance to the issues. It is at the third step that questions between the parties of relevance in fact and admissibility are ruled upon.
…
The exercise of the discretion does not involve the determination of an issue between the parties as to the relevance or admissibility of the document. …
55. It is by reference to that distinction, that a distinction is made between “adjectival relevance” and “substantive relevance”.
This a succinct encapsulation of this Court’s position in relation to the part relevance has to play when considering whether to set aside subpoenae.
The authority in this Court in relation to this issue, as referred to by Murphy J above, is the Full Court’s decision in the matter of Hatton v Attorney-General (2000) 158 FLR 31, in which the Full court (Finn, Kay and Dessau JJ) set out the following:
35. Nevertheless, the existence of a power in this Court to set aside subpoenae seems to have long been assumed or accepted by this Court (see in this regard: Sharpe and Dalton (1990) FLC 92-167; Epstein (1993) FLC 92-384; White and Tulloch v White (1995) FLC 92-640; Re Z (1996) FLC 92-694 at 83,240; and Relationships Australia v Pasternak (1996) FLC 92-699). However, the principles which should govern the exercise of the power have not, it would seem, to date been the subject of any extensive examination
Their Honours discussed, with approval, the judgment of Moffit P in National Employers Mutual General Association v Waind & Hill (1978) 1 NSWLR 372. They further discussed at length the three step process in relation to subpoenae which flowed from Waind & Hill, and traced the caselaw authorities in relation to the issue of “apparent relevance” and the separation of the ground of relevance from the ground of oppression when considering whether to set aside a subpoena. They reached the conclusion that the first question to be asked in relation to whether subpoenaed documents are to be produced or inspected was in respect of the apparent relevance of the documents. Their Honours stated:
51. It will be seen that Powell J. did not include lack of relevance as a ground for setting aside a subpoena. However, he did include the ground of oppression, and in the subsequent decision of Trade Practices Commission v Arnotts (1989) 88 ALR 90, where an entity known as Mattingly applied that a subpoena to produce documents issued by Arnotts be set aside on the ground of oppression, Beaumont J. expressed the view that the application required two questions to be addressed, being (at 103):
“(1) Does the material sought have an apparent relevance to the issues in the principal proceedings, ie, is adjectival, as distinct from substantive, relevance established? Does the subpoena have a legitimate forensic purpose to this extent? This involves a consideration of the matter from the standpoint of Arnotts [at whose request the subpoena was issued].
(2) Is the subpoena seriously and unfairly burdensome or prejudicial? This is to look at the matter from the point of view of Mattingly [who sought the setting-aside of the subpoena].”
52. It is reasonably clear from the manner in which Beaumont J. went on to apply these two tests to the subpoenaed documents in that case, that if the test of adjectival or apparent relevance was not met, the second question of serious or unfair burden or prejudice did not have to be addressed.
53. The two (and apparently disjunctive) tests applied by Beaumont J. in Arnotts have subsequently been applied by Cooper J. in Australian Competition and Consumer Commission v Shell Co of Australia (1999) 161 ALR 686, and by Goldberg J. in Australian Competition and Consumer Commission v Australian Safeway Stores Pty Ltd (1998) FCR 1599.
54. The latter decision has particular significance for present purposes in that having concluded that the ground of oppression was established, Goldberg J. went on to say that he had “also reached the conclusion independently of the ground of oppression that it is appropriate to set the subpoenas aside on the grounds of relevance”. His Honour concluded that in his opinion, the documents sought were “of no apparent relevance … to the substantive issues in the principal proceeding”.
55. Further support for the proposition that relevance can now be regarded as a separate and distinct ground for the setting aside of a subpoena can be gained from the decision of the Supreme Court of South Australia in Santos Ltd and Others v Pipelines Authority of SA (1996) 66 SASR 38 where, in dismissing an appeal against the setting aside by the trial Judge of subpoenae to produce documents issued to BHP Bass Strait Pty Ltd and Esso Australia Resources Ltd, and where, at both first instance and in the appeal, relevance was treated as a separate ground from oppression (which in that case was said to exist because of the width and vagueness of the subpoenae). Debelle J. (with whom Cox and Prior JJ. agreed) said at 52, citing Trade Practices Commission v Arnotts:
“A party seeking to uphold the issue of a subpoena seeking documents must prove that the documents have an apparent relevance to the issues in the in the arbitration…”
56. Given the state of the authorities as we have outlined them, it cannot, in our view, be said that in the present case by applying a test of “apparent relevance” in his determination that the subpoena to the Attorney-General should be set aside, Rose J. was in error as to principle.
(Emphasis added)
Conclusion
The husband submitted there was no apparent relevance between the documents sought by the wife from the company or the Trust and any order this court can make. The wife submitted the relevance argument is satisfied by the affidavit evidence filed by her and supporting persuasive documents which set out the husband’s potential interest in the company and trust. The wife also seeks an order against the Trust and in particular the husband’s interest in the trust.
The thrust of the husband’s submission was that really the husband can only be seen as an employee of a company in which he may only have any financial entitlement at the discretion of the appointor of the Lenz’s Family Trust, namely his father. However, given the history of the husband’s work for the Trust on an unpaid basis for a number of years, there is the potential for the husband to be able to claim some equitable relief against the trustee. Given that the husband has displayed no intention to take any such action, if it were available, the court could, at the urging of a party, consider the value to the husband of his interest as a discretionary beneficiary, as a resource. The court has the power to consider same under section 75(2). That may give rise to an order which effectively sees an adjustment to the wife in the other available assets because of the resource the husband has in the Trust. In my view it is not essential for the wife to establish she could seek an order against the trust, which order, if she was successful, the court has the power under the Family Law Act to make, in order to establish relevance in documents held by the trust which the wife seeks to have access to.
The evidence before the Court suggests the husband has or may have personally guaranteed the performance of the company and/or the trust of its obligations under contract with suppliers of credit to either of those entities. If the wife is able to establish the husband has so personally guaranteed the debts of the Trust and/or the company then she may establish the husband has rights which he could thereafter enforce against the Trust, should there be a family dispute which saw him excluded from the operation of the company or the trust. Further, the provision of clear matrimonial assets as security for his personal guarantee of the debts of the Trust, would potentially give rise to arguments about joint contribution, should the facts so establish.
The wording of the subpoena clearly requires the production of any “loan applications, loan deeds and/or Agreements, Deed of Guarantees Mortgages” in which the husband had acted as a director of the company within the dates specified. As such, the documents identify relevant transactions which, if accepted into evidence, could satisfy the court as to the nature and extent of the husband’s resource in the Trust. This is not a fishing expedition as the wife has provided evidence which could establish the existence of such documents and, further, it is conceded by the husband that he did give personal guarantees in order to secure borrowings. The husband’s case is that such guarantees did not attach to his personal assets rather the attachment was to the assets of the trust only. The documents already provided by the wife could, if they were ultimately found to have been executed by the husband, lead to a determination to the contrary of the husband’s assertion.
In relation to the order sought by the wife against the company (and realistically against the assets of the trust in order 3 of her proposed orders sought in her second further amended Initiating Application) it is in reality (when linked with the wife’s proposed order 7) an order that the Trust pay the husband, as a beneficiary of the Trust, a sum of money which the husband will be thereafter required to pay to the wife. As such, the wife would need to establish that the Trustee of the Trust should be required at law to pay such sum (or any sum) to the husband as a beneficiary. The husband says, with respect correctly, that no basis upon which the court might make such an order has been specified by the wife.
There can be no argument that the husband’s interest in the Trust is not a resource to him. There is a clear concession that the Trust already holds funds of the husband’s which amount to nearly $100,000. There is nothing to suggest the husband could not immediately call upon the trust to pay that sum to him.
The evidence to enable the calculation of the value to the husband of his interest in the Trust is largely within the hands of the husband and the Trust and the trustee company. If the wife is barred from being able to establish her case about that resource then the potential for an injustice to arise is present. The extent of the husband’s involvement in the day to day operation of the trust is, potentially, relevant to an assessment of the worth to the husband of that resource. Documents which evidence such involvement are clearly within the narrow range of documents sought by the wife through the husband.
Having regard to those matters I propose to order the husband to produce such documents. The husband has not argued that he does not have the power to produce the documents. They are clearly within his power as a director of the trustee company to provide.
I certify that the preceding thirty-eight (38) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Le Poer Trench delivered on 7 May 2018.
Associate:
Date: 7 May 2018
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