Macdermott & Grant
[2021] FamCA 231
•23 April 2021
FAMILY COURT OF AUSTRALIA
Macdermott & Grant [2021] FamCA 231
File number(s): ADC 5291 of 2019 Judgment of: BERMAN J Date of judgment: 23 April 2021 Catchwords: FAMILY LAW – PROPERTY – Sale of property – Preservation of property – Where the applicant seeks the sale of farming lands and other property – Where the farming lands were transferred to a trust – Where the respondent had effective control of the trust – Where the respondent has been declared bankrupt – Where the respondent wishes to attempt to refinance – Where there is significant debt which is substantially increasing each month resulting in the equity diminishing – Where a Notice of Demand has been issued – Where the applicant ultimately wishes to preserve any remaining property – Where the parties’ interests will be adversely impacted if no order for sale is made – Orders.
FAMILY LAW – TRUSTS – Where farming lands are held within a trust – Whether the trust is the alter ego of the parties – Whether a party had control over the trust and whether they could benefit from the trust – Where the parties, particularly the respondent treated the farming lands as their own – Where the farming land is found to be property of the parties.
FAMILY LAW – TRUSTS – Whether the applicant should be appointed as trustee to a trust in which property of the parties is held –– Where the respondent and his parents were the nominated trustees – Where a Deed of Amendment resulted in the respondent being the sole trustee – Where the respondent was then declared bankrupt – Where a further Deed of Variation purported to remove the respondent as trustee and appoint another trustee – Where as a result of bankruptcy there is currently no validly appointed appointor or trustee – Where there is no impediment to an order appointing the applicant as trustee – Orders.
FAMILY LAW – INJUNCTIONS – Preservation of property – Where the applicant seeks the respondent be restrained from dealing with certain property – Where property is held in a family trust – Where the parties were trustees – Where the respondent was declared bankrupt – where the applicant remains the only trustee – Where the applicant alleges the respondent was selling property – Where the respondent disputes the allegation – Orders.
Legislation: Family Law Act 1975 (Cth) ss 79, 80, 114 Cases cited: Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337
Davidson & Davidson (No 2) (1994) FLC 92-469
Duff & Duff (1977) FLC 90-217
Federal Commissioner of Taxation v Vegners (1989) 90 ALR 547
Kennon v Spry (2008) 238 CLR 366
Lampros and Anor & Lampros and Anor [2012] FamCA 415
Norton & Locke (2013) FLC 93-567
Re: Richstar Enterprises Pty Ltd and Ors; Australian Securities and Investments Commission v Carey and Ors(No 6) (2006) 233 ALR 475
Sieling & Sieling (1979) FLC 90-627
Stacy v Stacy (1977) FLC 90-324
Stephens & Stephens and Ors (2007) FLC 93-336
Number of paragraphs: 98 Date of hearing: 25 March 2021 Place: Adelaide Counsel for the Applicant: Mr Cox QC Solicitor for the Applicant: C M Tucker & Associates Counsel for the First Respondent: Mr Mellows Solicitor for the First Respondent: RSA Law Counsel for the Second Respondent: No appearance Solicitor for the Second Respondent: No appearance Counsel for the Third Respondent: No appearance Solicitor for the Third Respondent: No appearance Counsel for the Fourth Respondent: Mr Norcock Solicitor for the Fourth Respondent: Westley Di Giorgio Norcock ORDERS
ADC 5291 of 2019 BETWEEN: MS MACDERMOTT
Applicant
AND: MR GRANT
First Respondent
MR B GRANT
Second Respondent
MS C GRANT
Third Respondent
MR DEAGAN
Fourth Respondent
ORDER MADE BY:
BERMAN J
DATE OF ORDER:
23 APRIL 2021
THE COURT ORDERS THAT:
1.The applicant be appointed as the trustee of the B Trust.
2.The following properties of the B Trust shall be sold:
(a)The whole of the land comprised and described in Certificate of Title Volume … Folio …;
(b)The whole of the land comprised and described in Certificate of Title Volume … Folio …;
(c)The whole of the land comprised and described in Certificate of Title Volume … Folio …;
(d)The whole of the land comprised and described in Certificate of Title Volume … Folio …; and
(e)The whole of the land comprised and described in Certificate of Title Volume … Folio ….
3.The applicant is hereby granted power to sell the land and, in order to facilitate the sale, is hereby invested with all rights, powers and indemnities accorded to the trustee under the Deed of Settlement of the B Trust; with such sales to be in accordance with the following terms:
(a)The applicant is to take all reasonably necessary steps required (including but not limited to, appointing a real estate agent) to sell the properties by public auction or by private treaty;
(b)The respondent is to do all things necessary to facilitate the sale of the properties;
(c)If any or all of the properties are sold, the applicant shall, on settlement, pay the proceeds of sale in the following order;
(i)First, all outstanding amounts properly owing that are secured by the mortgage lodged by C Company on the properties;
(ii)Secondly, all costs and expenses incurred in relation to the sale of the properties; and
(iii)Thirdly, any net surplus to be paid into the solicitors’ trust account of CM Tucker & Associates Lawyers and held until further order of the Court.
4.There be a declaration that the applicant is the sole trustee of the D Family Trust with power to sell the remaining plant and equipment of the trust as she sees fit, provided if any assets are sold, the applicant shall, on settlement, pay the proceeds of sale in the following order:
(a)First, all outstanding amounts properly owing that are secured by any security interest in the sold assets, to the holder of that security;
(b)Secondly, all costs and expenses incurred in relation to the sale of the assets; and
(c)Thirdly, any net surplus be paid into the solicitors’ trust account of CM Tucker & Associates Lawyers and held until further order of the Court.
5.The first respondent is to do all things reasonably requested by the applicant to facilitate the sale of any assets of the D Family Trust and to inform the applicant of the whereabouts of any asset.
6.The first respondent is restrained and an injunction be granted restraining him from selling, transferring, encumbering or otherwise dealing with:
(a)Any chattel in his sole name including motor vehicles, trailers, caravans and boats; and/or
(b)Any plant or equipment being the assets of the D Family Trust.
7.The question of the applicant’s costs sought to be paid by the first respondent be reserved.
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 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to 17.02 Family Law Rules 2004 (Cth).
IT IS NOTED that publication of this judgment by this Court under the pseudonym Macdermott & Grant has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
BERMAN J
INTRODUCTION
By Amended Initiating Application filed 26 November 2020, Ms Macdermott (“the applicant”) seeks final orders for both settlement of property and parenting matters. This judgment deals solely with the property aspects of the proceedings.
Of relevance to the interim property proceedings are the following additional final orders:
18.That there be a declaration that the Deed of Variation of the Trust Deed dated 15th June 2020 (the Deed of Variation) is void or in the alternative the Deed of Variation be set aside;
19.That [a] trustee be appointed for the Trustee of the B Trust as agreed between the parties or as determined by this Honourable Court.[1]
[1] Amended Initiating Application filed 26 November 2020, page 6.
In addition, and by way of interim relief, the applicant seeks that Mr Grant (the respondent) be restrained and an injunction be granted restraining him from transferring, encumbering or otherwise dealing with the following properties (“the farming lands”):
(i)The whole of the land comprised and described in Certificate of Title Register Book Volume … Folio …;
(ii)The whole of the land comprised and described in Certificate of Title Register Book Volume … Folio …;
(iii)The whole of the land comprised and described in Certificate of Title Register Book Volume … Folio …;
(iv)The whole of the land comprised and described in Certificate of Title Register Book Volume … Folio …;
(v)The whole of the land comprised and described in Certificate of Title Register Book Volume … Folio …;
subject to the consent of the applicant which shall not be unreasonably withheld.[2]
[2] Ibid, page 9.
By his Response to Amended Initiating Application filed 23 March 2021, the respondent opposes the final orders sought by the applicant and by way of interim relief seeks the following order:
12.That the injunction granted by this Honourable Court on 10 February 2020 restraining the husband from dealing with the farming property mentioned thereto be discharged or varied so as to allow the husband and/or the trustee of the B Trust to refinance the loan secured over the farming property, and to enable the husband to trade and deal in the ordinary course of business, including leasing parcels of farming land, and to enable the husband to discharge himself from bankruptcy with the consent of the creditors and the trustee of the bankrupt estate.[3]
[3] Response to Amended Initiating Application filed 23 March 2021, page 4.
The current hearing relates to an Application in Case filed by the applicant on 30 June 2020 seeking orders that the farming lands be sold upon terms as may be agreed between the parties or in default of agreement as determined by the Court. That application is supplemented by an Amended Application in a Case filed 21 December 2020 which seeks the following relevant orders:
1.That any property held by the B Trust be declared property of the marriage pursuant to section 4 of the Family Law Act 1975 (as amended).
2.That there be a declaration that the Deed of Variation of the Trust Deed dated the 15th June 2020 (the Deed of Variation) is void or in the alternative the Deed of Variation be set aside.
3.That [a] Trustee be appointed for the Trustee of the B Trust as agreed between the parties or as determined by this Honourable Court.
4.…
5.That the wife in her capacity as trustee of the D Family Trust do proceed to sell all of the remaining plant and equipment belonging to the Trust and that the husband do all things necessary to facilitate the sale of plant and equipment.
6.That any proceeds of sale of the plant and equipment be deposited into the Trust Account of CM Tucker & Associates Lawyers.
7.That the husband be restrained and an injunction be granted restraining the husband from selling, transferring, encumbering or otherwise dealing with:
d.Any chattels in his sole name including motor vehicles, trailers, caravans and boats.
e.Any plant or equipment being the assets of the D Family Trust.[4]
[4] Amended Application in a Case filed 21 December 2020, pages 2 and 3.
By his Response to an Application in a Case filed 23 March 2021, the respondent seeks the following relevant orders:
1.That any plant and equipment belonging to the D Family Trust remain in that Trust pending any outcome of trial in this proceeding and until then it be used by the husband in the ordinary course of business related to that Trust and to the farming property of the B Trust.
2.That the husband and/the trustee of the B Trust be at liberty to lease the farming property until further order.
3. …
4.That the injunction granted by this Honourable Court on 10 February 2020 restraining the husband from dealing with the farming property mentioned thereto be discharged or varied so as to allow the husband and/or the trustee of the B Trust to refinance the loan secured over the farming property, and to enable the husband to trade and deal in the ordinary course of business, including leasing parcels of farming land, and to enable the husband to discharge himself from bankruptcy with the consent of the creditors and the trustee of the bankrupt estate.
…
BACKGROUND
The parties met in about 2002 and were married in 2004.
At the commencement of the relationship the respondent worked for his parents and assisted in the running of a farming enterprise on the farming lands. On 19 August 2008 the respondent and his parents Mr B Grant and Ms C Grant (the second and third respondents) caused the B Trust to be settled (“the Land Trust”) and the farming lands were thereafter transferred to the Land Trust.
In 2005 the applicant and respondent became trustees of the D Family Trust (“the Family Trust”) which held the farming plant, equipment and stock. A property at F Town was also purchased in the joint names of the parties in 2012.
In 2008 the respondent’s parents transferred their interest in the farming land to the Land Trust and in 2012 the first respondent was appointed as sole trustee. The parties continued to operate the farming business although it appears that the respondent had effective control.
Over the years, a number of other non-farming related businesses were commenced including:
(a)D1 Pty Ltd;
(b)D2 Pty Ltd;
(c)D3 Pty Ltd;
(d)D4 Pty Ltd; and
(e)D Limited.
It is uncontroversial that the off farm businesses were unprofitable and as a result the total debt increased dramatically to $3.135 million in 2012.
In 2014 Westpac Bank approved a further funding application of $1.1 million which extinguished an existing finance obligation but increased the overall debt by a further $400,000 necessitating the sale of a farming property.
In 2015 the respondent leased a portfolio of the farming lands to third parties for an initial period of three years and then by way of renewal of the lease for a further three years which expired on 26 March 2021.
In 2015 Westpac approved a further $190,000 to pay out certain creditors and to settle a debt to the Australian Taxation Office.
From March 2016 no repayments were made pursuant to the Westpac loans.
The applicant asserts that there were four different attempts by the respondent to refinance the Westpac loans but without success. A Notice of Demand was issued by Westpac on 9 June 2017.
The financial statements for the various entities were produced for the 2018 financial year but not thereafter.
In November 2018 the parties separated but remained under the same roof until July 2019.
Of critical relevance to the current interim proceedings are the terms and conditions of the finance arrangement entered into between the husband and G Pty Ltd on 10 September 2019. G Pty Ltd provided refinancing to the sum of $3.125 million secured by mortgage over four titles of the farming lands but pursuant to the following onerous conditions:
(a)An interest rate of 10.5%;
(b)A default interest rate of 15.5%;
(c)An establishment fee of $130,375;
(d)An arranger fee of $55,875; and
(e)A monthly management fee of $2,500.
The respondent has not caused any repayments to be made with the result that the G Pty Ltd debt increases by about $70,000 per month.
It is now a matter of record that the respondent committed an act of bankruptcy on 11 October 2019. On 21 May 2020 the husband was declared bankrupt and an order was made that his estate be sequestered.
By orders made 10 February 2020, the respondent was restrained from transferring, encumbering or otherwise dealing with the farming lands.
On 15 June 2020 the respondent, his parents and Mr Deagan, the respondent’s accountant, entered into a Deed of Variation of the Land Trust Deed with the following intended effect:
(a)That the respondent’s parents are appointors, guardian and outgoing trustees; and
(b)That the respondent is noted as an outgoing trustee.
The applicant contends that the purpose of the Deed of Variation was to alienate the farming lands and to circumvent the order of injunction of 10 February 2020.
The applicant argues that at all material times the respondent’s parents were not the appointors of the Land Trust and have no rights. The effect of the respondent’s bankruptcy is to vacate the office of trustee.
A further concern of the applicant is the non-compliance by the respondent of orders for the disclosure of documents, correspondence and applications in respect of any refinancing application.
On 27 July 2020 G Pty Ltd issued a Notice of Demand in the sum of $3.604 million. The applicant opines that G Pty Ltd has no urgent interest in seeking to foreclose on the secured farming lands given that until all of the equity is extinguished, the liability to G Pty Ltd increases by $70,000 per month given the onerous rates of interest, default interest and management fees. The current debt of the respondent is about $5.25 million, of which, as at 1 March 2021, $4.062 million is secured over four of the five farming lands.
The gravamen of the proceedings is apparent by reference to the valuation report of Mr H, rural land valuer, dated 4 September 2020 wherein the market value of the land was $7.11 million but if a sale is forced then market forces would likely result in the farming lands achieving a sale price of $5.73 million.
Other than whatever equity remains in the farming lands subject to the G Pty Ltd debt, the plant and equipment and other assets held in the Family Trust, there is little else of value retained or held by each of the parties.
The applicant contends that notwithstanding the injunction, the respondent has sold and/or disposed of various items of plant and equipment without her consent given she is now the sole trustee of the Family Trust by reason of the respondent’s bankruptcy.
The applicant has caused the Amended Initiating Application and subsequent applications to be served upon the respondent’s parents and Mr Deagan. Personal service was effected and acknowledged by the second, third and fourth respondents. They have not appeared in the proceedings nor sought to be heard. I am satisfied that they are aware of the proceedings and for various reasons do not intend to engage in these proceedings nor do they wish to be heard.
THE B TRUST (“THE LAND TRUST”)
The Land Trust was settled on 19 August 2008 by the settlor Mr J.
The nominated trustees were Mr B Grant and Ms C Grant, being the respondent’s parents and the respondent.
The primary beneficiaries are the respondent and his parents.
The appointors are the respondent, his parents and their executors.
The Land Trust Deed provides that the trust will vest on the “vesting date” which is to occur on the first of the following dates namely;
1.7.1 the date of expiration in the Schedule as “the vesting Day”;
1.7.2 the date of expiration of the perpetuity period …;
1.7.3 such date as the Trustees may with the consent of the Guardian; or
1.7.4if there be no Guardian or if the last surviving Guardian shall have died such date as the Trustees may in their absolute discretion appoint;
PROVIDED HOWEVER that all powers and dispositions made by or pursuant to or contained in this Deed which but for this provision would or might vest take effect or be exercisable after the expiration of the perpetuity period shall vest and take effect on and be exercisable only until the last day of the perpetuity period.[5]
[5] Tender Book of Documents to the affidavit of the applicant filed 19 October 2020, document 1, page 3.
The Land Trust Deed gives the trustees a wide discretion of powers. There is no impediment to the trustee dealing with the farming lands.
Paragraph 24 of the Land Trust Deed provides for the removal of the trustee if he or she shall become subject to any bankruptcy.
On 31 August 2012 the respondent and his parents, in their capacity as appointors and trustees of the Land Trust, entered into a Deed of Amendment wherein the respondent’s parents gave notice of their intention to retire as trustees and appointors of the Land Trust and to confirm the continuing role of the respondent as sole trustee and appointor.
Consistent with the intention of the retiring trustees and appointors, the Deed of Amendment records the following:
1.The Retiring Trustees declare that they are desirous of retiring from and being discharged from the Trusts relating to the said Trust as set out in the Deed;
2.The Appointor in exercising the power for that purpose given to him by Clause 15 and 18 of the Deed and every other power thereunto hereby removes the Retiring Trustees as a Trustee of the Deed and of the Trust Fund and of the assets thereof and appoints the Continuing Trustee to be the sole Trustee thereof.[6]
[6] Tender Book of Documents to the affidavit of the applicant filed 19 October 2020, document 2, page 1.
The Deed of Amendment provides for the following:
(a)That the retiring trustees declare their estate and interest in the trust fund and the trust property shall vest in the continuing trustee (clause 3);
(b)That the continuing trustee accepts the position of trustee (clause 4);
(c)That in consideration of the retirement of the retiring trustees, the appointor releases and discharges the retiring trustees and their personal representatives and assigns from and against all liability and demand (clause 5);
(d)The retiring trustees renounce all their entitlements to any further benefit from the trust whether by income or capital (clause 6); and
(e)That the continuing trustee recognises the renunciation of the retiring trustees as beneficiaries of the trust and will honour it as irrevocable and will exclude the retiring trustees from income or capital distribution of the receipt of any other benefit (clause 7).
The respondent, his parents and Mr Deagan entered into a further Deed of Variation on 15 June 2020.
The Deed of Variation does not refer to the earlier Deed of Amendment dated 31 August 2012. It refers to the respondent’s parents as the appointors, guardian and outgoing trustees, to the respondent as the outgoing trustee and Mr Deagan, the accountant for the respondent, as the incoming trustee.
The purported parties to the Deed of Variation seek to vary the Land Trust Deed by appointing Mr Deagan as the trustee of the Land Trust and to remove the outgoing trustees in any capacity.
The respondent was made bankrupt by order of 21 May 2020 consequent upon the commission of an act of bankruptcy on 11 October 2019.
As a result of the new bankruptcy, the respondent was not entitled to be either an appointor or a trustee of the Land Trust as and from the date of bankruptcy.
The Deed of Amendment dated 31 August 2012 removed irrevocably the respondent’s parents from their position as appointors and trustees.
Accordingly, it is argued that the Deed of Variation dated 15 June 2020 is of no effect.
It is not asserted by the respondent that notwithstanding his bankruptcy he retained the power of appointment in respect of Mr Deagan. It is faintly argued that the respondent’s parents retained their power of appointment.
It is as a result of the latter Deed of Variation that the respondent’s parents and Mr Deagan were joined as parties to the proceedings as second, third and fourth respondents. I am satisfied that they are aware of the proceedings and of the contentions of the applicant and do not intend to engage in the proceedings nor do they wish to be heard.
I consider that there has not been any cogent argument or submission put which would speak against the proposition of counsel for the applicant that the Deed of Variation made on 15 June 2020 is of no effect.
The consequence is that currently there is no validly appointed appointor and trustee of the Land Trust.
IS THE LAND TRUST THE ALTER EGO OF THE PARTIES
Generally s 79(1) of the Family Law Act 1975 (Cth) (“the Act”) confers a broad jurisdiction with respect to the property of parties to a marriage to make such orders as it thinks fit altering the interest of the parties in the property.
By necessary implication, there must be property of the parties or either of them before s 79 of the Act can be given effect. Property has a broad interpretation, starting with the treatment in the early decision of Duff & Duff (1977) FLC 90-217 through to the much considered decision of Kennon v Spry (2008) 238 CLR 366.
The problem often created by a family trust is that the very construct of the trust means that the parties have effectively divested themselves of their beneficial interest in all or part of their assets, notwithstanding one or other of the parties may have retained effective control over the property via the trust and its management. Whilst control is clearly important in the consideration by the Court as to how to deal with the property held by a family trust, effectively control is not an enforceable legal right and is unlikely to be described as a right of property. Control of a trust through the power of appointment does not amount to any interest in the assets of the trust itself. In Stacy v Stacy (1977) FLC 90-324 the interest of a beneficiary under a discretionary trust was held not to be property under the meaning of the Act and could therefore not directly become the subject of a s 79 order.
If a beneficial interest vests then it is clearly property of the beneficiary but as previously outlined, the beneficiary is unlikely to have significant enforceable rights other than a right of proper administration, information and the proper exercise of the fiduciary obligations of the trustee whether by common law or state statute.
The Court has the ability to access significant powers under the Act in order to achieve an appropriate outcome. In particular, the Court has recourse to the following:
(a)Section 114 of the Act gives the Court broad powers to grant injunctions directed to a party of the marriage and this could be utilised to restrain a party from exercising the power of appointment under a Trustee or dealing with the assets of a trust under a party’s control. Save as to the application of Part VIIIAA of the Act, there is significant restrictions on the ability to make orders directed against third parties.
(b)Section 80 of the Act gives the Court the power to order that a trust deed or instrument be executed to carry out an order of the Court, appoint or remove trustees and/or impose terms and conditions as may be necessary to do justice to the proposed outcome. That does not mean that there is an ability to effect the substantive rights of a genuine, arm’s length third party. The principle in Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 is still good law, namely that a court cannot compel a third party to do a deed or act that they are not legally obliged to do. Accordingly, the Court cannot require a trustee to act outside of the terms and conditions of a trust deed that regulates the management of the trust.
However, the Full Court in Davidson & Davidson (No 2) (1994) FLC 92-469 at 80,875 considered the extent of the power and scope of s 80(1) of the Act in the following terms:
However, once s. 80(1) is activated there is no basis for reading down its powers or scope (other than the limitations to which we have referred generally above). It is an enabling provision and the Court in exercising its powers may do so in ways which are suitable and appropriate to meet the varying circumstances which arise in individual cases.
Section 80 is not an independent source of jurisdiction for the Court but only arises where the Court is exercising its power under Part VIII of the Act (see Yunghanns & Yunghanns (1999) FLC 92-836).
In Stephens & Stephens & Ors (2007) FLC 93-336 (“Stephens”) at 81,742 Bryant CJ said:
34.… It is settled law that a person who is a trustee and a beneficiary can be treated as controlling the assets of the trust sufficient to treat the trust property as belonging to him or her and, in appropriate cases, to make orders directly affecting the trust property.
In Re: Richstar Enterprises Pty Ltd and Ors; Australian Securities and Investments Commission v Carey and Ors(No 6) (2006) 233 ALR 475 at 480 French J considered the remarks of Gummow J in Federal Commissioner of Taxation v Vegners (1989) 90 ALR 547 in describing the power of a trustee of a discretionary trust as a special or hybrid power and noted that at 522 his Honour said:
… a power exercisable in favour of any person including the donee of the power would be a general power and thus would be a tantamount of ownership of the property concerned…
Further, at 481 French J said:
At least by analogy it may be observed that a beneficiary who effectively controls the trustee of a discretionary trust may have what approaches a general power and thus a proprietary interest in the income and corpus of the trust.
The proposition however is modified if there is an absence of beneficial entitlement notwithstanding that a party controls a trust. Finn J in Stephens (supra) said at 81,767:
137.In my opinion, control of the trust was not sufficient. As was submitted by senior counsel for the husband in all of the earlier authorities on which his Honour relied (being principally, Ashton (supra) and Davidson (supra)), the spouse who had control of the trust also had some capacity to benefit (if only through a corporate entity) from the assets of the trust. In the present case, if the 1983 Deed remained in place, which was the basis on which Strickland J expressly proceeded, the husband had no beneficial right or interest. He only had control, and I accept that no earlier authority in this court has gone so far as to hold that control alone without some lawful right to benefit from the assets of the trust, is sufficient to permit the assets of the trust to be treated as property of the party who has that control. …
Accordingly, in each case, consideration must be given not only to whether a party has control over the trust but whether they can benefit from the trust such that the trust is considered their alter ego and therefore trust property will be treated as property of that party.
It is the contention by the applicant that the property of the Land Trust should be considered as property of the parties.
The contention is not the subject of serious dispute. Again, the second, third and fourth respondents do not seek to be heard even though they are aware of the applicant’s position.
The respondent seeks to retain the trust and the farming lands and resists the application for their sale based upon his proposition that if given a proper opportunity to do so, he will be able to successfully refinance the G Pty Ltd liability and retain the farming enterprise.
It is not controversial that during the course of the marriage the parties, but in particular the respondent, treated the farming lands as their own. The farming lands formed the basis upon which the farming enterprise was operated. The real estate was used as security for the various ventures of the respondent, including businesses that were not farm related.
It appears that the conduct of the respondent in particular was likely known to his parents and occurred without complaint or opposition.
The onerous terms and conditions attached to the G Pty Ltd refinance arrangements would be inconsistent with any scenario other than that the respondent considered he had an unchallenged ability to deal with the corpus of the Land Trust. It is his stated position that he wishes to attempt a refinance of the G Pty Ltd liability to enable him to retain and operate the farming enterprise.
It is difficult to find otherwise than the corpus comprising the farming lands to be other than property of the parties. Should the farming lands be sold as discussed, the debts incurred by the respondent, by reference to his affidavit of 23 March 2021, total $5.25 million, $4 million of which is secured over the farming lands.
The debt owed by the trust and secured over the farming lands to G Pty Ltd increased from $3.537 million on 23 July 2020 to $4.062 million on 1 March 2021. Interest continues to accrue at 15.5% together with monthly management fees and other default provisions. It is not disputed that the liability to G Pty Ltd increases by about $70,000 per month or about $800,000 per year.
It is conceded that the remaining equity in the farming lands may be less than $1 million with even that figure optimistic given the rate at which the outstanding liability to G Pty Ltd is increasing and the potential for the farming lands to be significantly reduced in value if sold by reason of a forced sale. G Pty Ltd issued a Notice of Demand on 27 July 2020.
The respondent has had an opportunity to put forward a credible proposal for refinancing the G Pty Ltd debt. Whilst he indicates a desire to retain the farming enterprise and the farming lands, the respondent presents no evidence as to how such an outcome might be achieved.
The history of the matter is redolent with poor financial decisions, failed applications for refinance and disastrous terms and conditions associated with the only successful finance application.
It is a possible scenario that significant further delay in resolving the G Pty Ltd debt may well extinguish any remaining equity.
The orders sought by the applicant are predicated upon an intention to preserve what remaining property there is. The applicant does not seek any order that property pass to her but rather seeks to sell the farming land and to preserve any net balance.
Accordingly, the focus of the applicant is to preserve property.
The Court has broad powers to grant relief for the purpose of preserving property of the parties and to regulate the conduct of the parties pending final hearing (see G & T (2004) FLC 93-176 at 78,989-78,990.)
Whilst s 114 of the Act empowers a court to make orders in terms of positive as well as negative terms, as in the case of mandatory injunctions, such order must be considered proper. The term proper means reasonable and just in all of the circumstances.
As was observed by Forrest J in the decision of Lampros and Anor & Lampros and Anor [2012] FamCA 415 at paragraph 50:
In this Court particularly, interim injunctive relief is primarily utilised to maintain things as they are, or to restore things to as they were until they were abruptly changed to the prejudice of an interested party, to protect claims that parties have or may have substantive relief after a final hearing
The applicant in seeking orders for the sale of the property must establish that there is a real risk of the assets being disposed of, diminished or extinguished prior to the final hearing. The respondent’s position is that no order should be made until the Court has had an opportunity to finally determine the property claim as between the parties. The difficulty of the respondent’s position is that without a viable plan to preserve the current equity in the farming lands, by the time the matter reaches trial the equity is likely to be exhausted.
I am not obliged to be satisfied as to the probability of success of the applicant or the respondent’s case. The applicant bears the onus of establishing that there is a real risk in the assets being disposed of or the equity being exhausted.
Not dissimilar to the power to grant injunctions, there is a general principle that “equity intervenes to the minimum extent necessary to do justice”[7] (see Giumelli v Giumelli (1999) 196 CLR 101 at [10]).
[7] Norton & Locke (2013) FLC 93-567 at [72].
In the context of family law proceedings, in Sieling & Sieling (1979) FLC 90-627 at 78,264 the Full Court said:
The power to grant injunctions is, of course, a discretionary power, not to be exercised lightly. The Court must balance the hardship to each party of granting or refusing an order, and frame its order in such a way as to impose no further restriction that is necessary to achieve the protection of the applicant’s interest. It will not lightly interfere with the rights of an owner of property on the basis of a vague or uncertain claim.
I consider that I have the power to order the sale of the farming lands. I find that unless it occurs and in the absence of any countervailing proposal by the respondent, the interests of the parties will be adversely impacted by the diminution and likely extinguishment of any residual equity remaining.
SHOULD THE APPLICANT BE APPOINTED AS THE TRUSTEE OF THE LAND TRUST
A careful consideration of the Land Trust Deed does not reveal any impediment to an order being made pursuant to s 80(1)(e) of the Act appointing the applicant as trustee of the Land Trust.
I do not consider that the Deed of Variation dated 15 June 2020 is an impediment. The respondent’s parents retired as appointors and trustees by reason of the Deed of Amendment dated 31 August 2012. The order of bankruptcy which predated the Deed of Variation on 15 June 2020 renders it of no effect. The second to fourth respondents do not wish to be heard and do not seek to engage in the proceedings.
To some extent, the finding that the Land Trust is the alter ego of the parties renders a consideration of the Land Trust Deed and the purported Deed of Variation to be unnecessary, however the implementation of the orders of the Court are likely to be served by the appointment of the applicant as trustee of the Land Trust.
FAMILY TRUST
The D Family Trust was settled on 6 May 2005. The parties were the trustees. Clause 21.2 of the Family Trust Deed provides that if a trustee commits an act of bankruptcy then that person is no longer entitled to hold the office of trustee. Clearly that has happened. The applicant remains as the only trustee of the Family Trust.
The applicant alleges that the respondent has posted for sale items of plant and equipment as described in paragraph 5 of her affidavit filed 21 December 2021. The respondent disputes the assertion of sale and contends that the items listed are not sold and still remain on the farming lands.
In addition, the applicant contends that the respondent continues to transfer money from other accounts but has failed and/or refused to provide discovery that would enable a proper assessment of the financial position of the Family Trust.
At present the respondent does not conduct a farming business. The farming lands are the subject of a lease to independent third parties. That lease expired on 26 March 2021. The respondent seeks to re-lease the farming lands for a further extended period whereas the applicant contends that there should not be a new lease put in place in circumstances where there is now no impediment to the farming lands being placed on the market for sale.
The respondent does not indicate how he intends to retain the farming lands given the significant and increasing G Pty Ltd debt nor how the retention of farming plant and equipment would be utilised by him in circumstances where his first position is to lease the farming lands to third parties.
The Court is faced with the certain approach of the applicant and the absence of any credible proposal or plan put forward by the respondent.
There is merit in the orders sought by the applicant that she have the ability, in her capacity as trustee of the Family Trust, to sell or dispose of the farming plant and equipment for value. The orders sought by the applicant are predicated upon a proposition that the value of remaining property under the control of the parties or each of them needs to be preserved.
I make orders as appear at the commencement of these reasons.
I certify that the preceding ninety-eight (98) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Berman. Associate:
Dated: 23 April 2021
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