Malallis & Malallis (No 2)
[2022] FedCFamC1F 935
Federal Circuit and Family Court of Australia
(DIVISION 1)
Malallis & Malallis (No 2) [2022] FedCFamC1F 935
File number(s): DGC 2090 of 2020 Judgment of: MCNAB J Date of judgment: 2 December 2022 Catchwords: FAMILY LAW – PROPERTY – Application in a Proceeding – Application for joinder – Entitlement under a Discretionary trust –Where the husband and his mother are co-directors of entities holding substantial assets in the context of a modest property pool – Where the husband has benefitted from substantial distributions in the past – Where there has been a withdrawal of admissions. Legislation: Family Law Act 1975 (Cth) s 79, 90AA, 90AC, 90AE, 90XT, 106B
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) r 3.01, 3.03, 5.05, 8.03(1)
Cases cited: B Pty Ltd v K [2008] FamCAFC 113
Cashman v 7 North Golden Gate Gold Mining Co. (1897) 7 QLJ 152
East-West Airlines Operations Ltd v The Commonwealth (1983) 49 ALR 323 at 326
Diem & Vho and Ors [2016] FamCA 680 at [12]
Friar & Friar [2011] FamCAFC 71
Harris & Dewell and Anor [2018] FamCAFC 94
Jeans v Commonwealth Bank of Australia Ltd (2003) 204 ALR 327 [17]-[24]
Lindon v The Commonwealth (No.2) (1996) 70 ALJR 541 at 544-545
Mendicino &Mendicino [2015] FamCA 485.
Orr v Ford (1989) 167 CLR
Division: Division 1 First Instance Number of paragraphs: 69 Date of hearing: 24 October 2022 Place: Melbourne Counsel for the Applicant: Mr Puckey KC Solicitor for the Applicant: Lander & Rogers Solicitor for the Respondent: Francis V Gallichio Lawyers Counsel for the Proposed Third Parties Mr North KC ORDERS
DGC 2090 of 2020 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS MALALLIS
Applicant
AND: MR MALALLIS
Respondent
order made by:
MCNAB J
DATE OF ORDER:
2 DECEMBER 2022
THE COURT ORDERS THAT:
1.The following individuals and entities be joined as parties to these proceedings:
(a)Ms B;
(b)D Pty Ltd;
(c)C Pty Ltd;
(d)F Pty Ltd; and
(e)P Pty Ltd.
2.The Husband and Ms B in their capacity as directors of D Pty Ltd, C Pty Ltd ATF The Malallis Family Trust, and F Pty Ltd ATF F Trust and related entities (Malallis Group):
(a)Provide the following documents to the Wife and any and all further relevant financial disclosure as requested by the Wife within 14 days of such written request:
(i)All minutes from all board and/ or meetings for the Malallis Group for the period 1 July 2014 to date and ongoing;
(ii)All financial accounts including managements account for the Malallis Group for the period 1 July 2014 to date and ongoing;
(iii)Copies of any and all Trust distributions as and from 1 July 2014 to date and ongoing;
(iv)Copies of any and all documents in relation to any proposed new borrowings of the entities, disposal or acquisitions of assets over $100,000; and
(v)Copies of any documents including but not limited to resolutions in regard to any change of office holdings or shareholdings of the Malallis Group.
(b)Notify the Wife of any proposed sale of an entity (whether part or in full).
3.Paragraphs 14 - 22 of the statement of claim filed by the wife on 4 October 2022 be struck out.
4.The joined parties file a response to the further amended initiating application filed 26 September 2022 together with an affidavit (or affidavits) in response by 20 January 2023.
5.The proceeding be fixed for a final hearing on 30 October 2023 at 10.00am for four days.
6.The proceeding be fixed for a case management hearing on 22 February 2023 at 9.30am.
7.The Costs of this application be reserved.
IT IS DIRECTED THAT:
8.In the event that a face to face trial is unable to proceed then, pursuant to sections 102C, 102D and 102E of Family Law Act 1975 (Cth) (“the Act”) and rule 1.06 and of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021, testimony, appearances and submissions shall be given by video link.
9.Pursuant to section 102J of the Act, a person who is to give testimony by video link be permitted to swear an oath or make an affirmation either:
(a)by video link, audio link or other appropriate means; or
(b)through the oath or affirmation being administered by another person who is present at the place the person giving the testimony is located.
10.Pursuant to rule 1.06 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021:
(a)all documents in these proceedings shall be electronically filed; and
(b)if during in the course of examination or the appearance of a person by video link it is necessary to put a document to that person a copy of the document be transmitted to the Court or that person as relevant.
Trial Directions
11.The applicant file and serve upon all other parties 35 days prior to trial date:
(a)an Amended Application setting out with precision the orders to be sought;
(b)the affidavits of evidence in chief of all witnesses including the applicant relied upon (noting that affidavits relied upon for previous hearings cannot be relied upon as evidence in chief).
12.The applicant pay all setting down and trial fees 28 days prior to trial.
13.The respondent file and serve upon all other parties 21 days prior to trial date:
(a)an Amended Response setting out with precision the orders to be sought;
(b)the affidavits of evidence in chief of all witnesses including the respondent relied upon (noting that affidavits relied upon for previous hearings cannot be relied upon as evidence in chief).
14.The applicant file and serve any affidavit in reply to that of the affidavits of the respondent, within 14 days from the date of the respondent filing material.
15.No party to be permitted to rely upon an affidavit or filed document if it is not filed in accordance with these orders and included within the Court Book (nor any affidavit not listed in their outline filed in accordance with these orders) unless they have first obtained leave of the Court.
16.Prior to commencement of the trial, the parties determine whether there are to be any rulings required arising out of objections to evidence and such objections be referred to in the parties' outlines of case.
17.All parties have leave to issue subpoena(s) for the production of documents or attendance of a witness by arrangement with the registrar docketed with the management of the file.
18.All parties have liberty to approach the registrar responsible for the management of the court file to vary the obligations under these orders to ensure readiness for trial.
19.Should any party fail to comply with these orders or the ensuing amending directions of the docketed registrar:
(a)the Court may re list the case requiring the parties to justify why it should not be taken out of the list; and
(b)the party who has complied may immediately thereafter file an application in a case supported by an affidavit seeking for the matter to proceed on an undefended basis.
20.The practitioners for the parties file and serve electronically and send a copy to …@... 7 days prior to trial date the following:
(a)a concise set of orders to be sought if different from those already filed;
(b)a list of the applications and affidavits to be read and, if not the whole affidavit, the relevant paragraphs relied upon;
(c)a list of assets and liabilities;
(d)a joint asset pool of agreed and not agreed assets and liabilities;
(e)a bullet-point summary of argument in relation to the issues in dispute;
(f)a trial plan;
(g)a list of objections to evidence upon which rulings are required; and
(h)a jointly prepared electronic court book of all documents to be relied upon by the parties.
21.Each witness must have access to a clean copy of the affidavit or affidavits upon which they intend to rely when giving evidence.
22.Each party provide to the court at the commencement of the hearing, a statement setting out the costs incurred to that date and from what source those costs have been paid and what costs are expected to be incurred until the completion of the hearing.
23.Counsel are expected deliver written and oral submissions at the conclusion of the hearing of the evidence in the proceeding.
AND THE COURT NOTES THAT:
A.If in any proceedings there are allegations of family violence and the provisions of section 102NA of the Family Law Act 1975 (Cth) apply (see attached Family Violence Information Sheet), any unrepresented party will not be permitted to personally cross-examine the other party/parties.
B.Affected unrepresented parties may apply to the Commonwealth Family Violence and Cross-Examination of Parties Scheme (“the Scheme”) for representation but any such application must be made at least 12 weeks prior to the final hearing.
C.Further information about the legislation and the Scheme can be found at Part 4 of the attached Family Violence Information Sheet.
D.If s102NA applies and a party becomes unrepresented after trial directions have been made, that party is required to promptly advise the Court.
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 Malallis & Malallis has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
McNab J:
This application came before the court by way of Orders made on 25 August 2022, in response to a hearing on 11 August 2022 of the applicant wife’s Application in a Proceeding filed 10 June 2022. This earlier hearing on 11 August 2022 and the hearing on 24 October 2022 were regarding the wife’s joinder application pursuant to r 3.01 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (“the Rules”) to join to the proceedings the following individuals and entities (“the proposed third parties”):
(1)Ms B, the husband’s mother;
(2)C Pty Ltd (the trustee of the Malallis Family Trust);
(3)D Pty Ltd;
(4)F Pty Ltd; and
(5)E Pty Ltd.
Following the hearing of the wife’s Application on 11 August 2022, I made orders that:
(1)The applicant have leave to file and serve a further amended application together with a proposed statement of claim, and any further supporting affidavit by 8 September 2022;
(2)The respondent and proposed respondents file a response and any supporting affidavits by 22 September 2022; and
(3)The application be listed for hearing on 6 October 2022 at 10.00am.
I set out my reasons for making these orders in a judgement delivered 25 August 2022, and I refer to paragraph [28] of these reasons:
In my view, the wife has not set out in a sufficiently clear way the jurisdictional basis for the joinder of these proposed third parties. At present it is a collation of facts but no cause of action is raised such as to make it clear how each of the proposed third parties are said to be necessarily involved in this proceeding. I also am of the view that the general claim for relief set out in the current application does not sufficiently identify the orders that are to be made against each of the entities sought to be joined or the legislative provisions relied on to make the order.
These reasons should be read in conjunction with my earlier reasons.
Procedural background to the application
The wife commenced proceedings on 25 June 2020 and orders were made by consent on 11 August 2020 for an interim property settlement. The wife’s initial application for the joinder of the proposed third parties was filed on 10 June 2022, and that application was heard on 11 August 2022. The court determined her claim did not sufficiently set out a jurisdictional basis/cause of action for the joinder, and orders were made for the filing of an amended application, statement of claim, and any other documents to be relied upon. The matter was relisted to 6 October 2022, and adjourned by consent due to the wife’s late filing to 24 October 2022.
Solicitors for the wife provided the court with the following documents on 30 September 2022:
(1)Amended Application in a Proceeding signed 26 September 2022;
(2)Further Amended Initiating Application filed 26 September 2022;
(3)Affidavit of Ms Malallis filed 26 September 2022; and
(4)Statement of Claim dated 29 September 2022.
On the wife’s behalf, her solicitors explained that the reason for the late filing was due to issues with the wife being unable to obtain litigation funding, which she had since been able to obtain. The court accepted these documents for filing, and the hearing on 6 October 2022 was adjourned to 24 October 2022 by consent.
The final hearing, which had been listed on 24 October 2022 for 5 days, was adjourned to a date to be advised.
For the hearing of this application on 24 October 2022, the applicant wife was represented by Mr Puckey KC of counsel, the respondent husband was represented by Mr Gallichio, a solicitor, and the proposed second to seventh respondents were represented by Mr North KC of counsel.
the evidence
In the wife’s Further Amended Initiating Application filed 26 September 2022, the wife sets out the relief sought against the proposed third parties. I have summarised the relevant orders sought below:
(1)Pursuant to s 106B of the Act that the mortgage loan over R Street, Melbourne, entered into between the husband and Ms B, be set aside;
(2)There be a capital distribution to her of an amount to be particularised from the husband and Ms B in their capacities as directors of C Pty Ltd;
(3)The husband and Ms B do all things to sell the properties at Unit 1 and Unit 2 Q Street, Suburb J (“the Suburb J Properties”), and pay 50% of the remainder after expenses and taxes to the wife; and
(4)Pursuant to s 90XS of the Act, orders be made under s79 for an adjustment of superannuation interests, and that the husband and Ms B in their capacities as directors of the Trustee of the Malallis Superannuation Fund do all things so the wife has a roll out of 100% of the husband’s entitlement in the Malallis Superannuation Fund.
All orders are opposed by the husband and proposed third parties.
The husband’s solicitor filed an affidavit on the husband’s behalf on 21 October 2022 stating that the wife’s statement of claim was insufficient and embarrassing, and cannot support her amended application filed on 26 September 2022. At the hearing, Mr Gallichio submitted that it was an issue of procedural fairness because the husband and proposed third parties could not adequately prepare their case unless the statement of claim set out in sufficient detail the case against them.
Counsel for the wife submitted that the standard for refusing an application for joinder is comparable to that of an application for strike out as per Diem & Vho and Ors [2016] FamCA680 at [12], and referred to Lindon v The Commonwealth (No.2) (1996) 70 ALJR 541 at 544-545, considered by the Full Court of the Family Court in Friar & Friar [2011] FamCAFC 71:
[52] While Kirby J expressed the test as requiring the applicant for summary dismissal to demonstrate, by reference to their opponent’s documents, that “the opponent lacks a reasonable cause of action or is advancing a claim that is clearly frivolous or vexatious”, the test has also been formulated in many other ways (see General Steel Industries Inc v Commissioner for Railways (NSW) [1964] HCA 69; (1964) 112 CLR 125 at 129). However, for the purposes of an application for summary dismissal under the Act, the test is that laid down by the Rules, namely that the claim must be “frivolous, vexatious or an abuse of process” or has “no reasonable likelihood of success.
[53] Regardless of the formulation, “exceptional caution” must be used in applications for summary dismissal and the power should be “sparingly employed”: Barwick CJ in General Steel Industries (supra at 129).
(Emphasis added).
Counsel for the wife submitted as per B Pty Ltd v K [2008] FamCAFC 113 at [43] – [49] that the wife bears the onus to adduce sufficient facts which, if proved, allow for the relief sought to be ordered. If she adduces sufficient facts, the onus reverses to the respondent to prove there is no reasonable likelihood of success.
The wife relies on her affidavit filed 10 June 2022, in addition to other documents listed above in this application. I set out the evidence given in that affidavit in my reasons dated 25 August 2022 from paragraphs [9]-[16], and I repeat this below:
9. The wife sets out by way of background that she is 45 years of age and the primary carer of the two children of the marriage, [X] aged 12 and [Y] age 9. She is a homemaker and she works on a casual basis at a […] retailer. The husband is 47 years of age and is the executive director of [G Group]. The mother deposes that [G Company] was a business set up by the husband's parents [Mr H] and [Ms B]. The wife deposes that the husband has worked at [G Company] for his entire adult career. He is responsible for the day-to-day operations of the business, long-term marketing, business strategy, new product development and all other aspects in the management of the business.
10. After his father died, the husband stepped into the role of Executive Director and it is asserted that he continues in this role. He is the only child of [Mr H] and [Ms B].
11. The business comprising [G Company] was valued as at 25 January 2022 by a single valuer at [over $50,000,000]. The wife states that each of the companies sought to be joined form part of the corporate structure which owns the assets of the business, [G Company]. Further, she said that [E Pty Ltd] and the [E Trust] hold adjacent properties in [Suburb J] in Victoria, with the husband and [Ms B] being the joint directors and equal shareholders of [E Pty Ltd], which is a trustee of the [E Trust]. The husband and the paternal grandmother are listed as joint proprietors on the title of the properties. One of the properties was purchased by the husband and his parents in 2010, and the other purchased in 2016. The wife asserts that one of the properties was used as a holiday house for the whole family prior to the separation. She asserts that this asset had no business use and was not an income generating investment.
12. The wife also refers to the husband's father's will, which was dated 18 December 2012 (the paternal grandfather having passed away [in] 2012). Paragraph 5.1 of the will provides: “I nominate and appoint such of [Ms B] and [Ms Malallis] who survive me to replace me in any controlling position in my trusts.” In that document “My Trust” is defined as the "[Malallis Family Trust], the [F Trust], [E Trust] and any other trust in which I have a controlling position.”
13. By her affidavit at [12] – [19] she says that both she and the husband received distributions from the [Malallis Family Trust] which are shown in the financial accounts, but she is not sure whether those distributions have actually been paid out. She states that in the financial year ending 30 June 2018, a distribution was declared in the tax return of the trust to her of $695,683 and to the husband of $695,682. The wife also refers to a distribution declared in the tax return of the trust for the year ending 30 June 2017 of $156,967 to her and $937,618 to [K Pty Ltd], a company wholly owned by the husband and of which he is the sole director. She also refers to a distribution declared in the tax return of the trust to the husband of $453,250 for the year ending 30 June 2016. The wife deposes that she does not know to what use those funds were put or whether there were further distributions in the previous years, as she says that those financial documents relating to any earlier payments have not been disclosed to her.
14. Otherwise, the wife refers to the income that the husband enjoyed during their relationship. She says that during the relationship should she received gross monthly payment of $4,000, which was used to pay for groceries and day-to-day expenses relating herself and the children. She also states that the husband has represented in these proceedings that he receives after-tax income of $71,676.90. This is notwithstanding that the wife states at [26]:
our expenses have consistently exceeded [Mr Malallis’] declared salary including mortgage payments of $14,000 per at month for the [Suburb L] property which we owned between 2017 and 2019, private school tuition fees for both children at about $3500 per month, living expenses and at least one annual holiday which was usually overseas for at least a month. Since our marriage all cars that either the husband or I have driven have been leased through the company. The company has also historically paid for our mobile telephones, [pay television service], Internet and gardeners. An analysis of expenses which [Mr Malallis] meets suggests annual expenses as follows:
1. a mortgage payments of about $168,000 per annum;
2. the school fees of about $42,000 per annum;
3. estimated annual living expenses of estimated $100,000; and
4. provision of mobile phones, [pay television service], Internet and gardeners of about $50,000
15. At [29] of her affidavit, she states the following:
In his application for refinancing the mortgage secured against the property at [M Street, Suburb N], in documents prepared by Francis V Gallichio, the Husband's solicitor in these proceedings, [Mr Malallis] declared a "self-employed" income of $2,493,001. I do not know where these funds generate from. Annexed hereto and marked with the letters "[MM-2]" is the Nulend Application form dated 17 November 2020.
16. Notwithstanding that this affidavit was served in June 2022, the respondent husband has not responded to the matters raised by the wife’s affidavit relating to his income, expenses and his statement in a loan application that he had income of $2,493,001.
Consideration
The 106B Application
The wife gave evidence in her affidavit filed 26 September 2022 as to her financial circumstances, litigation funding and the reason for any delay filing her material. She explained that she was notified by S Finance on 14 June 2022 that their enquiries relating to continued financing had revealed a registered mortgage on R Street, Melbourne, of which she was had not previously been made aware. After requesting information regarding this mortgage from the husband’s solicitors on 21 June 2022 and again on 14 and 27 July 2022 after receiving no response, she received the following documents indicating that the upper limit for the loan was $400,000:
(1)ANZ Priority Agreement dated 1 February 2022;
(2)Letter from ANZ to the husband on 1 February 2022; and
(3)Mortgage Loan Agreement dated 22 December 2021 signed by the husband (the husband’s signature is witnessed by his solicitor in these proceedings, Francis V. Gallichio).
The wife gave evidence that the equity in this property is approximately $664,854 referring to the husband’s financial statement filed 8 August 2020, and if the loan alleged to Ms B is established, the equity would be reduced to $264,854. The wife sought orders that this property be part of any distribution to her.
In submissions made on her behalf, counsel submitted that at final hearing orders would be sought under s 106B of the Act for the instrument purporting to be a mortgage loan, and resulting registered mortgage as between the husband and Ms B be set aside as it has the intention or effect of defeating the wife’s claim. She submitted that the loan agreement provides for two purposes for monies to be advanced, being:
(1)In order to meet “mortgage payments, spousal support and motor vehicle expenses, costs and maintenance, and school fees”; and
(2)“for legal costs, ordinary living expenses, and costs associated with the loan”.
Submissions were made on her behalf that under the first purpose, the loan was an endeavour to cause the wife to pay her own spousal maintenance through depleting a capital asset of the marriage, and the second purpose is one that is often treated as an add back for the purpose of final proceedings.
The husband asserted that the proceedings have been on foot since August 2020, and he has had obligations under orders made by consent on 20 August 2020 to pay maintenance to the wife. He submitted that he does not have the means to afford this, and the mortgage was taken out to enable him to meet his commitments under the orders of 20 August 2020. The husband submitted that there was no other avenue available for him to access funds, although he conceded there was no evidence of this before the court.
Section 106B(1) provides:
In proceedings under this Act, the court may set aside or restrain the making of an instrument or disposition by or on behalf of, or by direction or in the interest of, a party, which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.
In my view, the affidavit evidence of the wife provides sufficient basis for the joinder of the husband’s mother to this proceeding because she is a person affected or may be affected by an order under that section, and she is a party of the instrument sought to be set aside. There is a prima facie case that the conditions for making an order under s 106B (1) are satisfied.
The instrument sought to be set aside is a registered mortgagee against unit R Street, a property of which the husband is a sole proprietor. The wife seeks to retain that property.
Plainly, the property is matrimonial property and forms part of the pool of assets. The purpose of the loan is set out in schedule 2 of the loan include payments under purpose A, which include “spousal support and motor vehicle costs and maintenance, school fees and educational expenses”. Under purpose B reference is made to money to be loaned to pay for the husband’s legal costs, ordinary living expenses and costs associated with the loan. The loan provides for an ordinary interest rate of 8% per annum.
Orders were made on 11 August 2020 with the consent of the parties for the husband to pay to the wife or cause to be paid $7,000 per month in spousal maintenance together with expenses associated with Motor Vehicle 1 driven by the wife (Order 4).
By entering the loan agreement with his mother, and reducing the parties’ equity in the R Street property by the amount of the loan, the husband has effectively reduced the asset pool of the parties. When an order is made for the husband to pay an amount, the presumption is that the amount will be paid from the husband’s resources and not from matrimonial assets. By entering this agreement, the husband is putting the wife in the position of effectively paying her own maintenance and the asset pool is reducing.
Similarly, the arrangement allows the husband to draw on join resources to pay his own legal expenses and thereby deplete the asset pool.
On this basis, there is a prima facie claim to be brought pursuant to s 106B. Senior counsel for the mother and the other proposed third parties was at pains to make the point that there is no basis for any finding that the loan agreement is a sham. The applicant has not asserted that the loan agreement is a sham. The loan agreement is apparently being given effect to and there is a reasonable argument that the arrangement is likely to defeat an anticipated order in the proceeding.
For these reasons, I make an order joining the husband’s mother to the proceeding.
C Pty Ltd Capital Distribution
The wife asserts that the assets of the Malallis Family Trust ought to be treated as property of the husband for the purposes of s79 on the basis that he has legal and de facto control of the relevant entities, and he and the wife are objects of the Malallis Family Trust. On that basis, the wife seeks pursuant to s79 via s 90AE of the Act, an order against the husband and Ms B in their capacity as directors of C Pty Ltd and against C Pty Ltd (the proposed Third Respondent) as trustee of the Malallis Family Trust, with respect to the assets of D Pty Ltd (proposed Fourth Respondent) and F Pty Ltd (proposed Fifth Respondent) as trustee for the F Trust. The wife noted that the assets held by the trust have been valued at approximately $50 million, while the other property of the marriage is less than $2 million in non-superannuation assets, and approximately $1 million in superannuation.
In her 10 June 2022 affidavit, the wife gave evidence of distributions from the Malallis Family trust. I dealt with this in my reasons of 25 August 2022 and have set this out above. The wife submits that the husband could bring about a capital distribution to himself or the wife at will. She based this contention on the husband’s history of distributions effectively showing an ability to freely exercise the discretionary power of distribution at will.
In the wife’s statement of claim, she set out particulars as to her argument that the husband maintains effective control. Specifically, she referred to the husband working in the entity for his entire adult life, and bearing responsibility for day-to-day operations. Following the death of the husband’s father in 2012, the husband was appointed executive director. She gave the following evidence of the husband’s father’s Will:
I nominate and appoint such of [Ms B] and [Mr Malallis] who survive me to replace me in any Controlling Position in My Trusts” (with ‘My Trusts’ being defined as including “the [Malallis Family Trust], the [F Trust], the [E Trust] and any other trust in which [he held] a Controlling Position.
The wife submitted that Ms B has acquiesced to the husband exercising control over C Pty Ltd, the Malallis Family Trust, and D Pty Ltd at all material times. Counsel for the wife submitted that testing the level of control was an issue to be dealt with at trial, including with cross examination of all relevant parties, and testing of evidence.
The husband’s solicitor submitted on his behalf that in order for the husband to have control of the entity, he is required to have complete legal control (or alternatively, effective control through others acting as his puppet), and a right under the trust to receive distributions. He submitted that the husband failed at both stages as the husband does not have control as he is co-director with Ms B, and is unable to effect any distribution without her consent, and has not sufficient evidence to establish that she is the “puppet” of the husband. Further he submitted the nature of his interest under a discretionary trust does not amount to a right to receive trust property. He submitted that these are not issues for trial, but are issues that must be sufficiently proved in order to allow the joinder.
Counsel for the proposed third parties advanced the same argument with regards to the husband not being able to exercise control under the trust due to the nature of a discretionary trust. Counsel submitted the husband has no right to compel distribution, and the only absolute right he has under the trust is limited to the right of proper administration of that trust. He noted that counsel for the wife expressly stated they were not making a promissory estoppel or constructive trust argument, therefore he submitted there is no way the husband could be argued to have a right under a discretionary trust. He noted that a “reasonable expectation” of a distribution based on a history of past distributions is insufficient.
Further counsel for the proposed third parties submitted that the wife’s case is not adequately pled to enable the preparation of a proper defence by the husband and proposed third parties. He notes that the wife does not identify what property she seeks to take from the trust other than an amount to be particularised at a later date.
Rule 3.01 provides:
Necessary parties
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.
As was noted in the earlier judgement, sufficient facts must be asserted to demonstrate that, if proved, the law arguably provides the relief sought: B Pty Ltd v K [2008] FamCAFC 113. A person is a necessary party if either orders are sought against that person or entity, or orders are sought which might affect that person or entity.
The earlier judgement summarises relevant facts relied upon by the wife. In my view the statement of claim sufficiently identifies the jurisdictional basis of the claim for relief sought in relation to the trust and sufficiently identifies the claim that the proposed parties have to meet. A statement of claim does not have to plead all the evidence relied on to support the claim. A statement of claim must plead material facts to support the relief claimed, not the evidence by which a material fact is to be proved (East-West Airlines Operations Ltd v The Commonwealth (1983) 49 ALR 323 at 326 per Dawson J.). Sufficient facts have been pleaded to clarify the claim.
Paragraph 10 pleads that the husband has been and remains in effective control of C Pty Ltd (in its capacity as trustee of the family trust) and she provides particulars of the control including "[Mr Malallis] has assessed and applied income of the business, which is wholly owned by the trust at his personal discretion (particular L)”.
What should be paragraph 12 but is unnumbered in the statement of claim that the distributions which are referred to in the earlier judgement are pleaded.
In paragraph 12 further (and significant) advances and payments from the trust to the benefit of the parties are set out and are the subject of particulars. They are said to arise because of the husband's effective control. Whilst it is not expressly stated, I take it that the statement of claim is the husband’s effective control over his mother, who is the appointor trustee under the trust.
The proposed third parties take issue with use of the phrase “[Ms B] has acquiesced to [Mr Malallis] exercising control over [C Pty Ltd]” and particularly takes issue with the use of the word “acquiesced”. In a list of cases filed by the husband and proposed third parties, the court was referred to Cashman v 7 North Golden Gate Gold Mining Co. (1897) 7 QLJ 152 at [153] and Orr v Ford (1989) 167 CLR 316 at [377] – [378]. I do not those regard those authorities as relevant as both address the notion of acquiescence in the context of raising a defence to a claim rather than the positive sense the word is used in the present case.
Both parties refer the court to Harris & Dewell and Anor [2018] FamCAFC 94 at [66] – [72]. I was also referred to the discussion of the relevant authorities which is set out at paragraphs [37] – [65] of that judgement.
The appeal in that case concerned the primary judge's rejection of a claim that the husband's property should include units in a unit trust referred to as the E Unit Trust or EUT. Paragraphs [67] to [72] provide:
[67] It should be accepted that the principles emerging from the High Court and from the decisions of this Court to which reference has been made permit of a finding that property ostensibly that of a trust can be treated as property of a party for s 79 purposes where evidence establishes that the person or entity in whom the trust deed vests effective control is the “puppet” or “creature” of that party. The metaphor is used to connote a situation where the person or entity with control (the “puppet”) does nothing without the party (the “puppet master”) controlling or directing that person or entity.
[68] Control is not sufficient of itself. What is required is control over a person or entity who, by reason of the powers contained in the trust deed can obtain, or effect the obtaining of, a beneficial interest in the property of the trust. In our respectful view, it is in that sense, that Finn J speaks of “some lawful right to benefit from the assets of the trust”.
[69] Mr Richardson SC on behalf of the wife characterised the EUT as “the puppet” and the husband as “the puppet master”. Yet, if the principles emerging from the authorities are to avail the wife, it was necessary for the evidence to establish that the father was the puppet and the husband was the “puppet master”. It is the father who, by reason of the powers contained in the trust deed and his position as the sole unit holder, can obtain, or effect the obtaining of, a beneficial interest in the property of the trust.
[70] Mr Cummings SC for the father is correct when he asserts that there was no evidence from which any such finding could have been made by the primary judge. Mr Cummings SC is also correct in asserting that no proposition to that effect was ever put to the father.
[71] The husband did not have powers vested in him, or in any entity which he controlled or would do his bidding, that permitted of that result for him. The evidence was certainly to the effect that the current director of the trustee FPL (who, despite the caveat noted by the single expert appears to have been assumed to be the company’s sole director) would likely do the husband’s bidding. However, the trustee does not have ultimate control over the vesting of trust property. That ultimate control has at all times rested with, and currently rests with, the father.
[72] Within the EUT structure, the father not only has ultimate control over the distribution of trust property, but he is also the EUT’s sole unit holder and, as a consequence, he is the only person entitled to benefit from distributions and, conversely, the only person who can be affected adversely by actions contrary to the interests of the trust’s beneficiaries. The father was entitled to give the husband “the run of the trust”. The father was entitled to permit the husband to deal with trust property and there is no evidence that he did not consent to him so doing.
The question of whether the husband has been able to exercise control over his mother to obtain or affect a beneficial interest in the property of the trust is a matter that must be determined at trial. I appreciate the argument put by the husband and the third party that the advances to the husband and wife from the trust assets represent no more than examples of advances that are expressly authorised by the operative trust deed. However, the question of the level of control enjoyed and exercised by the husband remains to be determined at trial following disclosure of documents relevant to that question. For these reasons I will allow the joinder of the corporate entities as the parties who may be affected by orders.
E Pty Ltd and the Suburb J Properties
The wife seeks an order for the sale and division of the properties at Unit 1 and Unit 2 Q Street, Suburb J, of which the husband and Ms B are registered proprietors. She submitted that during the marriage, she and the respondent used one of these properties at Unit 1 Q Street as a family beach house. Thus, she contends the ownership structure makes joinder necessary as during the marriage, she had a reasonable expectation that she had an interest in these properties.
In her affidavit filed 26 September 2022, the wife gives evidence that she always believed that the husband and his parents were owners of the property at Unit 2 Q Street, Suburb J in a personal capacity, and on the death of the husband’s father in 2012, the husband and Ms B became the joint owners. When Unit 1 Q Street, Suburb J was purchased in 2016, the wife gave evidence that she signed the contract for the purchase to be in her name, and she personally negotiated the purchase with the agent. Before settlement, the husband told her words to the effect of “We’re going to transfer the purchaser details in the contract”, but she says she did not question him further as the husband was generally responsible for their finances.
The wife did not accept the existence of the trust, and emphasised that two years into this proceeding, she has not been provided with any evidence of the trust, including the trust deed. She caused her solicitor to undergo title searches, which are annexed to her affidavit, confirming that the properties are held by the husband and Ms B.
The wife also undertook an ASIC search of E Pty Ltd, in which the husband and Ms B are both directors holding a 50% interest, and discovered it was registered on 11 May 2017.
The husband asserts that the property is owned by the E Trust, which was created in 2009 and of which E Pty Ltd (the proposed sixth respondent) is the corporate trustee. The wife submitted that no deed or any other documents evidencing the trust had been provided. However, during the hearing on 24 October 2022, counsel for the proposed third parties provided to the court and the other parties a copy of the trust deed, which was tendered into evidence.
When asked if the existence of the trust deed changed the wife’s claim with regards to these properties, counsel for the wife denied that it did. The wife submitted that if the property was found to be owned by a trust, then she sought to argue that the husband has effective control over those trusts and the relevant assets.
The husband made the same argument as set out in relation to the C Pty Ltd trust, being that the husband does not have the two required elements to be found to be in control, being legal control (or effective control through a puppet scenario), and a right to a distribution.
Counsel for the proposed third parties noted again that the wife did not advance any argument to support a claim of promissory estoppel or constructive trust over the properties, and even if she had, there is no evidence of her being able to form a reasonable expectation of being able to benefit from the properties given the husband had always represented that they were trust property.
In relation to the claims about the holiday houses (at paragraphs 14 – 22 of the statement of claim) as is made plain in the recitation of the wife's claims set out the earlier judgement, the wife has acknowledged by earlier affidavit that the properties are held in the E Trust (see [11] of the earlier judgement). It was submitted that the husband has not disclosed any deed or other documents evidencing the terms of the trust and that neither the mother E Pty Ltd have sought to intervene in these proceedings to make a claim that they are the true owners of the property. The solicitor for the husband swore an affidavit dated 21 October 2022 which annexes a nomination form – sale of real estate dated early 2006 in relation to the property notice Unit 1 Q Street, Suburb J that nominates Ms B and Mr Malallis as trustees of the E Trust as an additional purchaser under the contract. Whilst that document has been produced, the applicant submits that no other documentation has been produced to establish that the trust is the owner of the property as deposed to the husband and his mother.
I shall proceed on the basis that it is a contested fact as to whether the Suburb J properties are owned by the E Trust. Whilst the wife did make an apparent concession in paragraph [7] of her affidavit of 10 June 2022 that the properties were held in the E Trust, that concession has been clearly withdrawn. It is open for a party to withdraw an admission with the permission of the Court or the consent of the parties: see Rule 8.03 (1) Federal Circuit Court and Family Court of Australia Rules, 2021, Jeans v Commonwealth Bank of Australia Ltd (2003) 204 ALR 327 [17]-[24] (Full Court of the Federal Court of Australia) and Mendicino & Mendicino [2015] FamCA 485.
Whilst the wife has not filed an application to withdraw the admission, her affidavit sworn 26 September 2022 at [24] explains the reason for the admission and the withdrawal of the admission and in the interest of giving effect to the overarching purpose of the Rules as expressed in r 1.04, I am prepared to treat the admission about the ownership of the properties as having been withdrawn. Any prejudice in relation to costs can be dealt with at trial.
It is a matter for the husband and E Pty Ltd to take what steps he wishes when trial evidence is filed in relation to the proving the statement of a conclusion made by the husband in his affidavit of 8 August 2020 at [16] that the property was held in a trust.
At present, the claim pleaded by the statement of claim is that the husband is a part owner of the property (para [18]).
Paragraph 19 pleads:
During the marriage, [Ms Malallis] had a reasonable expectation that she had, or would have, an interest in the [Suburb J] Property.
PARTICULARS
[Ms Malallis’] reasonable expectation was based upon the following facts and matters:
•A She was involved in, and negotiated with the vendor’s estate agent for, the purchase of the [Suburb J] Property.
•B She arranged for the renovation and maintenance of the [Suburb J] Property.
•C The [Suburb J] Property was used by [Ms Malallis], [Mr Malallis] and their children as a holiday house every summer.
•D [Mr Malallis] at all material times represented to [Ms Malallis] that the [Suburb J] property was owned personally by [Mr Malalllis] and [Ms B]
•E [Ms Malallis] negotiated and signed the contract for the purchase of [Unit 1 Q Street]
The pleading of reasonable expectation does not give rise to a cause of action and no alternate cause of action, such as one based on a constructive trust, is pleaded.
Under subparagraph (d), it is said that the husband represented to the wife that the properties were owned by the husband and grandmother. It is not clear how that gives rise to any relief. The claim is not brought on the basis of there being representations which are somehow actionable.
The applicant claims in the alternative that if the court finds that E Pty Ltd has an interest in the Suburb J properties as trustee of the E Trust, she is entitled to an order that it holds the E Pty Ltd properties on trust for the wife in such proportion as determined by the court.
The pleading does not set out the factual or legal basis for any such relief.
As the claim is presently formulated, there is no arguable claim raised in relation to the Suburb J properties and paragraphs [14] - [22] of the statement of claim being the claim in relation to the Suburb J properties will be struck out.
If the applicant is of the view that there is a maintainable claim, she must formulate same and make application to file and serve a further amended statement of claim. The failure on part of the husband to disclose documents evidencing the trust’s ownership of the Suburb J properties may provide the basis for such an application. The Rules of disclosure in financial proceedings under r 6.03 and 6.06 3 (f) appear to be sufficiently wide to require the production of such type of documents if they exist.
Superannuation
The wife seeks pursuant to s 90XT, superannuation splitting orders and a roll out to the wife of 100% of the husband’s entitlement in the Malallis Super Fund, of which the corporate trustee is P Pty Ltd (proposed seventh respondent), of which the Husband and Ms B are co-directors. She submitted this requires joinder of Ms B and P Pty Ltd and potentially F Pty Ltd as trustee for the F Trust, of which the Malallis Super Fund owns 55%.
The wife's further amended initiating application by paragraphs [17] to [25] seek pursuant to s 90XT superannuation splitting orders and the rollout to the wife of 100% of the husband's entitlement to the Malallis Super Fund of which the corporate trustee is P Pty Ltd. In my view that relief requires the joinder of the husband's mother and P Pty Ltd as it is the corporate trustee of the Malallis Superannuation Fund.
For these reasons the court will make the orders set out above.
I certify that the preceding sixty-nine (69) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McNab. Associate:
Dated: 2 December 2022
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