Malallis & Malallis (No 2)

Case [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.

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AGLC
Malallis & Malallis (No 2) [2022] FedCFamC1F 935
Case
[2022] FedCFamC1F 935
Decision Date

CaseChat Overview and Summary

In the matter of Malallis & Malallis (No 2), the wife sought to join several parties to her existing proceedings in relation to the distribution of property and financial assets. The husband and proposed third parties opposed the application on the grounds of procedural fairness, arguing that they were unable to prepare their defence due to the insufficiency of the wife's statement of claim. The primary legal issue before the court was whether the wife's application for joinder should be refused due to the inadequacy of her statement of claim. The court considered the principles of procedural fairness and the standard for refusing an application for joinder, which is comparable to the test for striking out a claim. The court also examined the wife's affidavit and other documents provided in support of her application.

The court held that the wife's application for joinder should be refused due to the insufficiency of her statement of claim. The court emphasised that the standard for refusing an application for joinder is high and requires exceptional caution, with the power being sparingly employed. The court found that the husband and proposed third parties could not adequately prepare their case due to the lack of detail in the wife's statement of claim. The court also noted that the wife had not responded to the husband's affidavit, which raised concerns about her income, expenses, and financial declarations. As a result, the court concluded that the application for joinder should be refused.

Orders

Orders of the court

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Background

Background to the litigation

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.

Evidence

Evidence Before The Court

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).

Decision

Reasons for decision

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Ratio Decidendi

Legal Principle Established

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; and4. provision of mobile phones, [pay television service], Internet and gardeners of about $50,00015. 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