Milstead and Richards and Anor
[2014] FCCA 13
•21 February 2014
FEDERAL CIRCUIT COURT OF AUSTRALIA
| MILSTEAD & RICHARDS & ANOR | [2014] FCCA 13 |
| Catchwords: FAMILY LAW – Property – de facto relationship of 11 years – discretionary trust – farming properties and enterprises – evidentiary difficulties – contributions – Section 90 SF(3) factors. |
| Legislation: Family Law Act 1975 Federal Circuit Court Act 1999 Federal Circuit Court Rules 2001 |
| Alcaine & Alcaine & Abrahams (unreported 20 March 1997, SY9878/94) Bevan & Bevan [2013] FamCAFC 116 BP & KS (2003) FLC 93-157 Garrett & Garrett (1984) FLC 91-539 JEL v DDF (2001) FLC 93-075 Norbis v Norbis (1986) 161CLR 513 OSF & OJK (2004) FLC 93-318 Russell & Russell (1999) FLC 92-877 Stanford & Stanford [2012] HCA 52 |
| Applicant: | MR MILSTEAD |
| First Respondent: | MS RICHARDS |
| Second Respondent: | X PTY LTD |
| File Number: | LNC 481 of 2010 |
| Judgment of: | Judge McGuire |
| Hearing dates: | 13 & 14 December 2012 4 March 2013 11 & 12 June 2013 16 August 2013 |
| Date of Last Submission: | 17 January 2014 |
| Delivered at: | Melbourne |
| Delivered on: | 21 February 2014 |
REPRESENTATION
| Counsel for the Applicant: | Mr Boland |
| Solicitors for the Applicant: | Chris Boland Solicitors |
| Counsel for the First Respondent: | Mr Somerville and Mr Fitzgerald |
| Solicitors for the First Respondent: | Fitzgerald and Browne |
| Counsel for the Second Respondent: | Mr Somerville and Mr Fitzgerald |
| Solicitors for the Second Respondent: | Fitzgerald and Browne |
ORDERS
That X Pty Ltd be joined as a party to these proceedings.
That within sixty (60) days of the date of these orders the respondents, jointly or severally, make a lump sum cash payment to the applicant of $259, 808 and for these purposes the trustee and/or administrator of X Pty Ltd be and is hereby directed to authorise such payment.
That should the respondents fail to make the cash payment referred to in paragraph 2 hereof, then the real property known as “Property M” situated at Property M in Tasmania being the property of the Mr B Trust discretionary trust with X Pty Ltd (now in voluntary administration) as trustee be sold on terms as agreed between the applicant and the administrator of X Pty Ltd with the proceeds of sale being distributed as follows:
(i)To the reasonable costs and disbursements of the sale;
(ii)The reasonable professional costs of the administrator in effecting the sale;
(iii)The discharge of the registered first mortgage held by (omitted) Bank and the registered second mortgage held by Mr R;
(iv)As to a sum of $259, 808 to the Applicant; and
(v)As to the balance to the administrator of X Pty Ltd.
That within sixty (60) days of the date of these orders the respondents transfer all their right, title and interest in the following to the applicant absolutely:
(i)The assets of (omitted) Pty Ltd;
(ii)Any shareholdings in the name of the applicant at the date of these orders;
(iii)Ford Courier motor vehicle;
(iv)All personalty and chattels in the possession of or under the control of the applicant as at the date of these orders including work tools, and artworks;
(v)(omitted) Bank Bond; and
(vi)Any superannuation policy or benefit of the applicant as at the date of these orders.
That the first named respondent be solely responsible for and indemnify the applicant in respect of the following:
(i)Any and all liabilities incurred by the first respondent since separation in either her name alone or in joint names;
(ii)Any credit card liabilities in the name of the first respondent; and
(iii)Any and all liabilities attaching to any assets retained by the first respondent pursuant to these orders.
That the second named respondent be solely responsible for and indemnify the applicant in respect of the following:
(i)(omitted) finance Range Rover;
(ii)(omitted) Bank mortgage secured by the property “Property M’;
(iii)The second mortgage held by Mr R and secured by “Property M”;
(iv)Any personal loan liabilities to Mr R;
(v)Any and all liabilities attaching to any of the assets retained by the second respondent pursuant to these orders; and
(vi)Any and all liabilities incurred by the second respondent since the separation of the applicant and the first respondent.
That contemporaneously with the transfer orders in order 4 hereof the applicant transfer all his right, title and interest in the following to the first respondent absolutely:
(i)Subaru motor vehicle;
(ii)All personalty and chattels in the possession of the first respondent as at the date of these orders including jewellery and artworks;
(iii)The balances of any bank accounts or like investments in the name of or to the benefit of the first respondent as at the date of these orders; and
(iv)Any superannuation policy or benefit of the first respondent as at the date of these orders.
That contemporaneously with the transfer and vesting order in order 4 hereof, the applicant transfer all his right, title or interest in the following to the second respondent:
(i)All the assets of the Mr B Trust including but not limited to the property known as “Property M” and all farm, plant, equipment and stock; and
(ii)The balance of any bank accounts or like investments in the name of or to the benefit of the second named respondent.
That the applicant be solely responsible for and indemnify the first and second named respondents in respect of the following:
(i)Any and all liabilities attaching to any of the assets retained by the applicant pursuant to these orders;
(ii)Any and all liabilities incurred by the applicant since separation from the first name respondent in either his name alone or in joint names; and
(iii)The applicant’s (omitted) Bank credit card liability.
That the Court declares taxation credits of the Milstead/X Pty Ltd farming partnerships in a total of $603, 656 are resources of each of the applicant and X Pty Ltd in quantum of $301, 828 and to the exclusion of each other or any other.
That the parties, any of them, or the administrator of X Pty Ltd have liberty to apply in respect of the sale of the property at Property M, Property M in Tasmania.
IT IS NOTED that publication of this judgment under the pseudonym Milstead & Richards & Anor is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).
| FEDERAL CIRCUIT COURT OF AUSTRALIA AT HOBART |
LNC 481 of 2010
| MR MILSTEAD |
Applicant
And
| MS RICHARDS |
First Respondent
| X PTY LTD |
Second Respondent
REASONS FOR JUDGMENT
These are proceedings for property settlement. To say that they have been vigorously fought is an understatement and evidenced by the fact that the trial was listed by Orders of 13 September 2012 for final hearing “for no longer than two days”. The evidence proceeded over nine days and final submissions were received in writing.
It is proper for me to observe that the parties have litigated this matter with some difficulty. The applicant and first respondent both claim to have been relatively impecunious. The respondent, Ms Richards, was unrepresented for a period of time during the trial and was without solicitors on the record at the start of the trial. The Court file shows that both parties have instructed various solicitors. Both respondents were represented by Counsel at the commencement of hearing, and for reasons that escape me, given the Bar rules, that Counsel ceased to act after a number of days hearing. Fortunately for her, a Hobart practitioner, Mr Fitzgerald, was able to take over conduct of the matter with the assistance of a lengthy transcript and complete the trial on their behalf. Similarly, the applicant claimed prior to the trial and variously throughout it that the prosecution of his application was limited by issues of full and proper disclosure and discovery. There is some merit to his claims and I observe only that the lack of consistency of representation and the conduct of pre-trial and interlocutory procedures has been such as to lengthen the trial and obviously the expense for both the applicant and the respondents. Indeed, normal pre-trial procedure seems to have been virtually non-existent and even affidavits filed and relied upon exhibited what seemed at first glance to be “without prejudice” offers of settlement. I chose not to read the detail of these annexures and excised them.
The trial proceeded over many days between 13 December 2012 and 17 January 2014. It was conducted in the Hobart Registry and, due to some issues of judicial conflict, I was required to travel from Melbourne to Hobart on no less than six occasions so as to complete the evidence which I repeat was anticipated to occupy no more than two days. My observations are that the cross-examination of the parties and most witnesses was long and often unnecessary should proper pre-trial and interlocutory procedure have been conducted. Probative evidence was often not adduced and notably there being no accounting evidence of any nature (and certainly no forensic accounting evidence) in respect of a major issue being the status and financial workings of a Trust and Trustee Company, X Pty Ltd (“X ”) in which Ms Richards is alleged to hold a controlling interest and it has clearly been alleged by the applicant that she uses the assets of that Trust for her own benefit. Accounting evidence was forthcoming only on the last day of evidence and only at the urging of myself and in this sense I do not attribute any blame to Mr Fitzgerald who took on carriage of this matter only in its latest stages. Suffice for me to observe that the forensic responsibilities of trial preparation, evidence and argument fall on solicitors or Counsel, and it is presumptuous and dangerous to leave such forensic exercises to judges, as it is also to urge findings of fact based on speculation and unsubstantiated claims and assertions.
X Pty Ltd, the Trustee Company for the Mr B Trust was noted as a party, the second respondent, when I began the evidence. I was not seized of this matter in any of its pre-trial procedures. My reading of the file, however, does not disclose the making of any actual order joining X Pty Ltd as a party although I do note an apparent unsealed copy of a memorandum of proposed orders in such terms. I do not propose to further complicate the matter or draw any inferences given that the applicant and the first respondent clearly continued the proceedings on the basis of X Pty Ltd being a party. I will however make a formal order joining X Pty Ltd as a party. If either the applicant or the first respondent have any issues in this regard then I will give them leave to be heard. The same courtesy will be accorded X Pty Ltd.
My comments as to the nature of and conduct of this matter are perhaps best evidenced in the orders sought by the parties. The applicant, Mr Milstead seeks an order inter alia that the first and/or second respondent pay to him a sum of $1,200,000. Conversely, the respondents propose orders whereby the applicant pays to the second respondent an amount of $202,761 and an amount $20,000 to the estate of Ms Richards’ late father. Consequently, the ambit of the dispute is some $1,400,000 within the context of a relationship of relatively short duration and where the property pool is not substantial. The obvious inference to draw is that any negotiations towards settlement within the pre-trial forum provided by these Courts has been utterly unsuccessful most likely because of a lack of forensic accounting and valuation evidence. It also inevitably follows that one or other of the parties (or perhaps all three) is likely to be substantially incorrect in their understanding of the facts and the relevant law as to the limited but complex issues in contention; in the advice they have received; and in their expectations.
Background
The applicant, Mr Milstead, is 60 years of age. He now lives in Queensland. There is no evidence that he has re-partnered. He is employed as a (omitted). He claims some medical conditions which impact on his work capacity although no expert evidence was adduced on his behalf.
The first respondent, Ms Richards is 53 years old. There is no evidence that she is re-partnered. I am satisfied on the evidence that she has a diagnosis of Parkinsons Disease. There is dispute between the parties as to the impact on her enjoyment of life generally and her ability to earn an income. Ms Richards receives a Centrelink benefit. However, as these reasons will show, she also is the beneficiary of the considerable largesse of a Mr R who is her ninety-nine year old uncle by marriage who lives in Sydney. No relevant medical evidence in respect of Ms Richards’ condition was adduced.
The second respondent, X Pty Ltd was at no stage represented by separate Counsel or apparently by separate solicitors. The inference that I draw is that the interests of the first and second named respondents are not contrary. Indeed when Mr. Fitzgerald first announced his appearance, it was as counsel for X Pty Ltd, although he quickly decided he might best be acting for both respondents. A director of X Pty Ltd, Ms S provided an affidavit and gave evidence. Ms S is the oldest of the first respondent’s children. Ms S resigned her directorship during the course of the trial.
Not surprisingly, the applicant and the respondent disagree even as to the date of commencement of their relationship. The applicant says the relevant date is September 1999. The respondent says that it is January 2000. Little turns on this dispute. They do agree, however, that they finally separated on 5 March 2010. There appears to have been a previous separation for a number of weeks in about February 2007. The applicant and the respondent were not married although they did undertake a form of “commitment ceremony” in (omitted) 2002. There are no children of their relationship although each has children from their previous marriages.
The first respondent continues to live on a country property known as ‘Property M’ in Northern Tasmania which is an asset of X Pty Ltd which in turn is the corporate trustee for the Mr B Trust (“the Trust”).
The Trust was established in 1997 by Ms Richards’ late father, Mr B, who was a prominent (occupation omitted). Mr B died on 22 August 2011. By a Deed executed in 2003, Mr B appointed Ms Richards to be guardian and appointor of the Trust upon his death. Ms Richards concedes she retains these roles.
The Trust Deed shows the primary beneficiaries being Ms Richards and her sister, Ms J. Mr B, Ms J and Ms Richards are all former directors of X Pty Ltd. Ms J resigned her role some years ago. Mr B resigned in 2005. Ms Richards herself resigned in 2011 leaving her daughter Ms S then as the sole director. However, during the course of these proceedings, and in or about May 2013, Ms S herself resigned as director in favour of Mr J. Mr J provided an affidavit and gave evidence in these proceedings albeit prior to him becoming the sole director of X Pty Ltd. His evidence was specifically about a land purchase made by Ms. Richards during her relationship with Mr Milstead. It was apparent that Mr J is a long-standing acquaintance of Ms. Richards and her family.
The Trust purchased the Property M property, initially vacant land, in or about 1998 and for $170,000. A home was constructed in about 1999. The first respondent has since lived on the property. The parties lived there during their relationship. Ms Richards claims that the property continues to operate as a working farm albeit not, on her evidence, necessarily profitably.
In or about 2005 a partnership was established between Mr Milstead and X Pty Ltd so as to operate a separate farming enterprise. It is clear on the evidence that outside income earned by Mr Milstead, or at least a substantial proportion of it, was then paid through partnership accounts.
At around the same time X Pty Ltd and Mr Milstead purchased another farming property known as “Property R” near (omitted) in Northern Tasmania. This property was purchased as tenants-in-common as to 60% interest in X Pty Ltd and 40% interest in Mr Milstead although the farming partnership operated on a 50/50 basis. There was no written partnership agreement. The Property M property was used as a security for borrowings of more than $700,000 to make the purchase of Property R.
In or about September 2005 Mr Milstead sold property owned by him prior to entering into the relationship with Ms Richards and retained it from his previous property settlement. The property sold for about $200,000. The parties agree that the partnership’s financial statements of the following years show a capital contribution of approximately $186,000 by Mr Milstead. He says that this is consistent with him retaining more than $140,000 from the sale of real property plus a contribution of some $42,000 from his (omitted) work. He says that the balance funds were also contributed by him generally to the enjoyment of life of Ms Richards and himself. Ms Richards acknowledges the capital contribution but claims that it was then drawn down by Mr Milstead in order to meet a debt to his former wife and family members and for the purchase of a rally car. She also claims a cash contribution by X Pty Ltd of $54,601 to the purchase of Property R together with a transfer of plant and equipment at $71,020. Mr Milstead does not concede these two assertions. Despite the lack of particularity of evidence, I am satisfied on the balance of probabilities that Mr Milstead entered the relationship with Ms Richards with wealth of approximately a net $200,000.
Property R was sold in mid 2011. I am satisfied on the evidence that there was a shortfall of $38,240 from the sale proceeds and in respect of the amount required to discharge the mortgage.
In or about 2003, Ms Richards purchased a block of land adjacent to Property M known as “Property L”. The purchase funds were borrowed from the aforementioned Mr J and his wife. The title was subdivided. One half of the land was sold to a neighbour. The remainder was adhered to the neighbouring Property M property. The first respondent claims a profit from these transactions of $100,000 which were contributed to the farming enterprise and to improvements on a cottage on the Property R property. Mr Milstead claims a contribution by him to these transactions and profit. Ms Richards claims sole credit.
The parties agree that in about 2008 Mr Milstead borrowed $20,000 from the late Mr B. Mr Milstead claims that the loan has been repaid. The respondents say the loan is outstanding and seek an order for a payment of those monies to Mr B’s estate.
From about 2006, the first respondent has paid regular, usually weekly, visits to her uncle, Mr R, in Sydney. On each visit she receives $3000 from Mr R. If she does not visit then it seems that she receives $1000 for that particular week. Ms Richards says that her duty is to “manage the care” of Mr R. Undoubtedly, Mr R is a wealthy man. He is elderly and infirmed. There was some argument as to the status of the payments to Ms Richards and whether they constitute income given that she has for some years received a Centrelink benefit or pension. There is no contract of employment. There is a familial relationship. There appears to be no compulsion on Ms Richards to attend on Mr R in Sydney. In all the circumstances, I am satisfied that her attendance is voluntary and that the payments from Mr R are a gratuity. I am unsure whether Centrelink would take the same view? These payments are further complicated in that they may, in whole or in part, be paid through the X Pty Ltd accounts with separate payments made to X Pty Ltd or to Ms S. Whatever the complexities, it is clear on the evidence that Mr R has been a very generous benefactor to his niece and to X Pty Ltd by both gratuity and loan.
Global or Asset-by-Asset Approach
In respect of the contributions of parties pursuant to s.90SM(4) and s.79(4) (as appropriate) of the Family Law Act 1975 (“the Act”) it is generally understood that a “global” approach is appropriate and more convenient than determining the weight of various contributions of the parties to each asset separately or as is commonly known, “the asset-by-asset” approach. It is clear, however, that the application of an asset-by-asset approach does not, of itself, constitute an error of law[1].
[1] Norbis v Norbis (1986) 161 CLR 513
In the matter now before me I do not understand from final submissions that Counsel for any of the parties is urging me to take an asset-by-asset approach. Nevertheless, the conduct of the case, and particularly cross-examination, was often directed at length and in minute detail to particular contributions to specific assets. For instance, the first respondent’s claim that she should be credited with a contribution of $100,000 from the purchase, sub-division and sale of the “Property L property” is a case in point. Similarly, the tenor of the applicant’s argument and the tendency of his Counsel’s cross-examination was often, and laboriously, directed to his contributions to particular assets.
This was a relationship between the applicant and first named respondent of more than ten years duration. There have been substantial contributions, both directly and indirectly, by all parties. There have been contributions on behalf of the first respondent which are dealt with below. There have been contributions by the parties from their labours. There have been contributions to the children of each of them. As such, I am of the view that justice and equity between these parties is properly served by the Court taking a global approach to contributions. In this sense, and at this early stage of these reasons, I note the tendency of the applicant, in particular, to calculate his contributions on a mathematical or gross approach as for instance emphasising the contribution of his earnings and, at times, even providing hourly rates for his work on joint farming enterprises. It is long established that the consideration of contributions is not to be made on a strictly mathematical basis. Rather, the Court is to consider each and every one of the contributions by and on behalf of the parties and attribute weight rather than carry out a form of accounting or auditing exercise. As the Full Court observed in Garrett & Garrett[2]:
The wide and indefinite terms of para (a) themselves suggest that where appropriate, and certainly in a case like the present, a broad estimate of financial contribution of each party must be made. Under s.79(4)(b) non-financial contribution of each is to be taken into account. This must of necessity be a matter of judgment and not of computation. Similar indications can be found amongst the relevant matters in s.75(2). It is also worth noting that para (a) and (b) refer to the “contribution” and not the contributions of each party.
In this case it has been possible to determine with some degree of accuracy what the parties brought into the marriage and what they received during cohabitation from their respective families. However, the long term significance of these contributions is not determined as a mathematical exercise. They enhanced the lifestyle of the parties and their children who all benefited from them.
[2] (1984) FLC 91-539
The Relevant Issues
After considering the copious material filed and exhibited, and the evidence of the parties and their witnesses, I isolate the major issues between the parties as follows:
i)Is there justice and equity served pursuant to s.90SM(3) of the Act in making any order for alteration of property interests between these parties?
ii)Whether the assets and liabilities of the second respondent, X Pty Ltd, be brought into account in the asset pool (the assets of the Mr B Trust) with consideration as to whether or not Ms Richards has control or effective control of the Trust, and if so, the nature and extent of her interest?
iii)The status of loan accounts in the books of the Milstead/ X Pty Ltd partnership showing on their face an outstanding loan liability of Mr. Milstead of $202, 761 a credit to X Pty Ltd in its loan account of $81, 935.
iv)The applicant’s claims that the first respondent (and perhaps the second respondent through Ms S) have made improper drawings or “misappropriations” from the account of the Milstead/ X Pty Ltd Partnership and/or the X Pty Ltd accounts so as to give a misleading view of the current net value of the property pool.
v)The weight to be attached to the various contributions of the parties including initial contributions, those made during the relationship, and post-separation contributions?
vi)The status of the mortgage held by Mr R over the Property M property and loans provided by Mr R?
vii)Any consideration and attributing of weight to any relevant s.90SF(3) factors including but not limited to the impact of the first respondent’s health on her earning capacity, the earning capacity of the applicant, and the relevance of the generosity of Mr R to the respondents.
The Relevant Law as to Property Settlement
Contrary to the written submissions of Counsel for the applicant, this matter is not to be considered under s.79 of the Family Law Act. The parties were not married. Alteration of property interests of defacto couples is dealt with under Part VIII AB – Division 2 of the Act given that the Court is satisfied pursuant to s.90SB that these parties cohabited in a defacto relationship. Nevertheless, the long line of authorities dealing with property settlement pursuant to s.79 of the Act remain relevant and applicable in many respects.
It was generally accepted until recently that there was a well-established multi-step process for a Court in considering and arriving at just and equitable orders for alteration of property interests between parties to a marriage or a defacto relationship. The Court first determined the make-up of the property pool including assets, liabilities and financial resources. Superannuation entitlements are to be “treated as property” for this purpose. The Court attributed value to each item in so far as the evidence allows. Secondly, the Court was to identify, and attribute weight, to the contributions of the parties to the property pool. Those contributions include direct and indirect financial contributions. They include contributions by and on behalf of the party. They include contributions as home maker and parent. After consideration of the contributions the Court would make a determination of an alteration of interests and commonly on a percentage basis. Thirdly, the Court would then consider various relevant matters under s.79(4)(d)-(g) or s.90SM(4)(d)-(g) including the relevant matters under s.75(2) or s.90SF(3) of the Act and determine whether any further adjustment to any property is appropriate. Finally, and arguably, there was a “fourth step” whereby the Court pursuant to s.79(2) or s.90SM(3), considers whether the proposed orders are “just and equitable”. It is the orders themselves that must be just and equitable, not simply the percentage division.[3] Some judges have argued that is no ‘fourth step’ and that consideration of justice and equity is inherent in continuing throughout the process.[4]
[3] Russell & Russell (1999) FLC 92-877 at p. 86,439
[4] Walters FM (as he then was) OSF & OJK (2004) FLC 93-191.
However, following recent consideration of the jurisprudence by the High Court in Stanford & Stanford[5] and by the Full Court in Bevan & Bevan[6] there has been a re-think of that strict multi-step process. The High Court in Stanford opined that s.79(2) of the Act and its equivalent required the Court to determine at an early stage whether it is just and equitable to make any orders at all altering parties’ current legal and equitable interest in their properties. The Full Court in Bevan suggests that this is not a new development in the jurisprudence and that it has always been the case that the Court should consider whether it be just and equitable to make property settlement orders at all stages in the process.
[5] [2012] HCA52
[6] [2013] FamCAFC 116
In respect of the course of consideration for the Trial Judges and following Stanford, the Full Court in Bevan observed[7]:
Stanford would also serve as a reminder that the four step process “merely illuminates the path to the ultimate result”. Any future re-statement of that process should incorporate acceptance of the fact that the power to make any order adjusting property interests is conditioned upon the Court finding that it is just and equitable to make an order.
It follows that Judges would be well advised to avoid what we consider to be arid discussion of the “stage in the process” at which “adjustments” are permissible. Such discussion tends to elevate the four step process to the status of a statutory edict, when in fact it is no more than a short hand distillation of the words of a statute which has but one ultimate requirement, namely not to make an order unless it is just and equitable to do so.
[7] Paragraphs 71 and 72
The High Court in Stanford laid down three “fundamental propositions” as a guide for trial Judges in determining alternation of property interests as follows[8]:
1.Determination of a just and equitable outcome of an application of existing property interests begins with the identification of existing property interests (as determined by Common Law and equity);
2.The discretion conferred by the statute must be exercised in accordance with legal principles and must not proceed on an assumption that the parties’ interests in the property are or should be different from those determined by Common Law and equity;
3.A determination that a party has a right to a division of property fixed by reference only to the matters in s.79(4), and without separate consideration of s.79(2) would erroneously conflate what are district statutory requirements.
[8] See Bevan (Supra) at [73]
Importantly in respect of the first “fundamental proposition” and for the matter now before me, where the applicant mounts significant arguments for “add-backs”, are the observations of the Courts in Stanford and particularly in Bevan as to the common practice of trial Judges making “notional add backs” to property pools for consideration and alternation. The Full Court in Bevan noted:
We observe that “notional property”, which is sometimes “added back” to a list of assets to account for the unilateral disposal of assets is unlikely to constitute “property of the parties to the marriage or either of them”, and thus is not amenable to alteration under s.79. It is important to deal with such disposals carefully, recognising the assets no longer exist, but that the disposal of them forms a part of the history of the marriage – and potentially an important part. As the question does not arise here, we need to say nothing more on this topic, save to note that s. 79(4) and in particular s.75(2)(o) gives ample scope to ensure a just and equitable outcome when dealing with the unilateral disposal of property.[9]
[9] See Bevan (Supra) at [79]
The Full Court then commented in respect of the second “fundamental proposition”:
is also not novel since, as the plurality noted, it is well accepted that “title to property and proprietary rights in the case of married persons…rests upon the law… Wirth & Wirth (1956) 98 CLR 228 at 232. Thus, spouses do not have rights to property by operation of s.79 unless and until an order is made altering the rights they have, as determined by the principles of common law and equity: Fisher & Fisher (1986) 161 CLR 438 per Mason and Deane JJ at 452 to 454.
I am satisfied that it is proper for me to firstly establish the legal and equitable interests of the parties in property including assets, liabilities, resources and superannuation as they exist at the date of the hearing.
I must consider then the particular circumstance of the parties and their relationship together and to the property and determine whether it is just and equitable to make any order altering their interests. In reality this is not a difficult task in matters, such as this, where there has been a relationship of some duration; where there has been common usage of property; where there have been various contributions by and on behalf of the parties to the property; and where there is no longer common usage.
I must identify and attribute weight to the various contributions and to the relevant matters under section 90SF(3) of the Act. I must be satisfied that the orders I propose making are themselves just and equitable as opposed to the simple percentage division calculated on contributions and s.90SF(3) factors.
The Evidence
The applicant – Mr Milstead
The applicant asserts that the net property pool for consideration of the Court amounts to $2,496,218 in value. In arriving at this total he includes “add-backs” or “forgiven liabilities” totalling $1,339,816. He seeks a payment to him of $1,200,000 or effectively a 50/50 division of his version of the property pool.
Mr Milstead gave evidence and was cross-examined. His evidence was clear and confident and in the terms of his affidavit material. He showed a good recollection of detail. The weight to be attached to his evidence, however, is dependent upon many of the necessary findings of fact and credit. Much of Mr Milstead’s evidence is uncorroborated and, in a sense, self-serving of his own arguments. He adduced no forensic accounting evidence in his case but often relied on minute evidence from bank statements and various transactions which in each particular were of little probative value within wider contexts. His Counsel similarly cross-examined, and at times laboured, particular points such as items from a bank statement with resultant submissions and argument on a mathematical basis which did not necessarily assist the process under s.90 and did not always reflect overall reality. Generally the Court is more assisted by forensic accounting evidence by an independent expert in matters involving Trust and Corporate entities and particularly where a party alleges misuse of bank accounts. Mr Milstead, for instance, produced a number of “spread sheets” prepared by him and from his own analyses. Such evidence is often, of course, simply self-serving. The impression I gleaned from Mr Milstead’s evidence, and from his case generally was of an objective or optimum result being aimed for and then attempting to isolate any evidence that might lend itself to such an end rather than an overall expose of full and objective perspective of the evidence within context accompanied by a consideration of the relevant law and leading to the resulting orders sought. There was a certain lack of contextual reality about much of his evidence and his case generally. He often favoured a mathematical approach which further distracted from reality. Much of his evidence and argument from his Counsel relied on speculation and unsubstantiated conclusions. As I have said, these difficulties (and perhaps the trial itself) may have been avoided by a more rigorous approach to the interlocutory and forensic exercises pre-trial and by the engagement of appropriate forensic experts.
Mr Milstead’s case relies on numerous assertions of fact and credit. Any findings of fact must be based on a weighing of the evidence given and adduced. The onus of proof rests with the party making a particular assertion of fact. Section 140(1) of the Evidence Act 1995 requires the facts asserted and relied upon by a party to be proved on the balance of probabilities. Sub-Section 140(2) states:
(2) without limiting the matters that the Court may take into account in deciding whether it is so satisfied, it is to take into account:
(a) the nature of cause of action or defence; and
(b) the nature of the subject – matter of the proceeding; and
(c) the gravity of the matters alleged.
Generally, however, I found Mr Milstead to be a witness of the truth but an applicant whose case suffered from a lack of corroborative evidence and who prosecuted his case under a misapprehension that the role of the Court is to undertake a form of mathematical, accounting or auditing procedure, which of course is not so.
The first respondent – Ms Richards
Ms Richards’ case is that the overwhelming contributions to the property pool were made by or on her behalf. In doing so, and to her credit, she does not apparently argue that she does not control the assets of X Pty Ltd by reason of her being appointor of the trust. Indeed, Ms Richards’ own property, absent X Pty Ltd is negligible. Specifically, the property at “Property M” valued at $1,350,000 is, she argues, a contribution by her even if the Court is satisfied that she has control of the Trust and that its assets are to be considered in the pool. She asserts various other significant contributions and, in particular, those by her uncle Mr R. She seeks a 10 per cent adjustment in her favour on account of s.90SF(3) considerations with emphasis on her poor health and diagnosis of Parkinson’s disease.
I did not find Ms Richards to have been as forthcoming a witness as Mr Milstead. She was at pains to emphasise her argument and the factors which she thought to favour her case. Ms Richards was keen to a fault to highlight any perceived negatives in the applicant’s case or indeed his character. Each of the applicant and the respondent were reluctant to concede any positive contributions by the other but were ready to criticise at every opportunity.
The symptoms of Ms Richards' Parkinsons disease were made abundantly obvious to me from her time in the witness box and at times when she was seated at the back of the Court. However, she adduced no expert evidence, other than from a psychologist, in respect of her condition. The evidence of the psychologist was of minimal value and again Mr Fitzgerald should not bear any blame in this regard given his late arrival in the case and his efforts to fill the numerous forensic holes in the respondent’s case was admirable. My impression of Ms Richards however, was often of a witness prone and ready to being selective in her responses and also to exaggeration or embellishment of her evidence when it suited. She at times claimed vagueness of memory with the implication or express excuse that her illness was to blame whilst at other opportune moments she demonstrated a capability of very detailed memory and capacity. I consider the credit of her evidence accordingly and in light of these observations together with other evidence including:
i)That she continues to drive a motor vehicle;
ii)That she travels weekly between Tasmania and Sydney return;
iii)That she claims to continue to work on and manage the Property M farming enterprise.
Generally, I did not find Ms Richards to be an impressive witness. I am not satisfied, without medical evidence, that the symptoms of her unfortunate illness are currently or consistently so debilitating as she would have the Court believe. Her claims as to relinquishing control of X Pty Ltd and a lack of understanding of its financial intricacies were, in my view, unconvincing and opportunistic. Generally her evidence and that of her witnesses was highlighted by negativity and criticism of Mr. Milstead which in itself does her little credit and which often was unsubstantiated when placed under scrutiny.
Written submissions filed on behalf of the respondents provide that they seek Orders whereby, on Ms Richards’ version of the property pool, there be a 93/7 per cent distribution of net property in their favour. She then seeks a further 10 per cent loading to her on account of Section 90SF(3) considerations. Mathematically, this would give the respondents, who are, for practical purposes indistinguishable, 103 per cent of the property pool. I note, however, they seek an order for a cash adjustment from Mr Milstead and this is explained by an argument in respect of loan accounts of the now defunct X Pty Ltd /Milstead farming partnership in which she says that loan account discrepancies need to be rectified.
Mr J
Mr J provided two affidavits. The second was after his appointment on 7 May 2013 as Director of X Pty Ltd in substitution of Ms S. That affidavit mainly references the farming partnership between X Pty Ltd and Mr Milstead. It annexes loan account summaries for the partnership and concludes that Mr Milstead owes $202,761 to the second respondent. Mr J does not claim to give expert accounting evidence and he is merely the conduit for such hearsay expert evidence. He was, of course, not a director during the operation of the partnership and does not depose to any direct involvement during that period. The financial documents annexed to his affidavit disclose distributed losses, now in the form of available tax credits to each of X Pty Ltd and Mr Milstead in the sum of $301,828.
Mr J’s evidence given in December 2012 was in respect of the purchase of the “Property L property”. He understood Ms Richards to be the instigator for the purchase. Mr J was pointedly critical of Mr Milstead’s involvement and claimed contributions including claimed bounced-cheques. He would not concede any contributions by Mr Milstead even in the nature of sourcing the property and negotiating the purchase. Mr J is clearly partisan to Ms Richards in these proceedings, which is understandable given apparent long family connections. His evidence was that he and his wife did not “trust” Mr Milstead and that they, as mortgagees, insisted on the title been registered in the name of only Ms Richards. His evidence was extremely critical of Mr Milstead’s character and dismissive of any contributions either directly or indirectly by Mr Milstead to the purchase.
I am satisfied that Mr J provided monies for the purchase of Property L. His evidence, however, was of little assistance as to the roles played by each Mr Milstead and Ms Richards in respect of this purchase which, of course, occurred during the course of their relationship. I found his evidence generally, and particularly in the witness box to be partisan to Ms Richards and often uninformed and unnecessarily critical of Mr Milstead and his credibility suffered easily under cross-examination.
Witness – Mr S
Mr S is the husband of Ms S. He is a (occupation omitted) in New South Wales who provided an affidavit sworn 16 November 2012. Mr S was cross-examined. His evidence proved to be of little assistance. The contents of his affidavit were partisan, selective and at times simply factually incorrect. The tenor of his affidavit suggests its sole objective being to attack the character and contributions of Mr Milstead. I place little or no weight on his evidence. His visits to Property M were short and infrequent and hence his observations and subjective interpretations are of no probative value. It is clear that the content of his affidavit is based primarily on hearsay and with the primary motive of discrediting Mr Milstead. Ironically, it is the credit of the respondents which suffers when evidence of this quality is adduced.
Witness – Ms S
At the time of giving her evidence Ms S was the sole director of X Pty Ltd. She is the daughter of Ms Richards. Her evidence was pointedly supportive of that of her mother in being negative as to the contributions and personal character of Mr Milstead. She gave evidence that she played a direct role in management of X Pty Ltd and its accounts. Her evidence was supportive of that of her mother in respect of X Pty Ltd’s contributions to the purchase of Property R. Ms S was prepared to concede the deposits made to the partnership accounts by Mr Milstead but was keen to qualify her evidence by volunteering that he had “drawings”. Ms S denied that she was deliberately taking drawings from X Pty Ltd accounts for personal use and thereby accruing increased debt and hence decreasing the value of X Pty Ltd.
Ms S gave evidence that she received $1000 a week from Mr R, her great uncle. She said that monies are forthcoming from Mr R “to run Property M for X Pty Ltd and costs of this litigation”. Ms S denied that the mortgage held by Mr R over Property M is a “sham” designed to decrease the value of the property pool in these proceedings.
Ms S was heavily criticised in cross-examination as to her role and impartiality as director of X Pty Ltd. She was accused of breaching her fiduciary duties. She was accused of allowing the sale of partnership assets and not accounting to the partnership and made one such concession in respect of the sale of a bull. In my view she was generally unable to explain, or explain satisfactorily, a number of transactions in respect of X Pty Ltd and partnership accounts which adds weight to the inference I am asked to draw by the applicant being that Ms Richards has always held actual control over the assets of X Pty Ltd and its finances and that Ms S and Mr J are simply “puppet” directors.
Generally, I did not find Ms S to be a satisfactory or impressive witness. Much of her evidence and knowledge of the Trust and X Pty Ltd did not seem to be independent of that of her mother. She was cross-examined intrusively and vigorously by Mr Milstead’s counsel and did not generally present as a director of X Pty Ltd with an independent or intricate understanding of the financial workings of the farm or company.
Ms S gave her evidence on 8 March 2013 but gave no indication then of her pending resignation as a director on account of “ill-health” in favour of Mr J which occurred only a matter of weeks later on 7 May 2013 and whilst these proceedings continued. No further explanation or particularisation of her resignation was forthcoming.
Witness – Mr W
Mr W is a retired accountant and has been employed as book- keeper for X Pty Ltd and the X Pty Ltd /Milstead partnership from February 2010. His Affidavit was sworn on 15 November 2012. He was a witness for the respondents.
Mr W’s evidence is that Ms Richards attempted to maintain both the Property M and Property R farms following her separation from Mr Milstead. He says that he received telephone calls from Ms Richards complaining that Mr Milstead was deliberately hindering or sabotaging her running of the enterprises such as letting sheep into river paddocks and cutting off electricity to shearing sheds. My recollection is that Mr Milstead was not cross-examined as to these allegations. Mr W was cross examined but could not say whether annexure 6 to Ms S’s affidavit being a list of capital contributions to the X Pty Ltd/Milstead partnership by each of X Pty Ltd and Mr Milstead was his own final reconciliation. As with much of the evidence in this matter, Mr W’s evidence proved to be of little probative assistance to my determination. He did, however, impress me as a witness of truth who made an effort to put the facts fairly and objectively.
Witness – Mr P
Mr P was a witness of the respondents. Mr P is a (occupation omitted). His Affidavit was sworn 5 April 2013. He holds a power-of-attorney for Mr R. Mr P gave his evidence by way of telephone link. He has been a (occupation omitted) for 50 years. Mr R’s group of companies is his primary responsibility. He holds no shares or interest in the Mr R group of companies and Mr R holds 100 per cent of all shareholdings. He confirmed that Ms Richards (or X Pty Ltd?) is paid $3000 per week by Mr R. He confirms her duties are to travel regularly to Sydney and look after Mr R’s household and his personal needs. Ms Richards is paid on a per-visit basis. Mr P’s evidence was that Mr R provided a total of $4000 per week including an amount of $1000 for Ms S or X Pty Ltd itself. I understand that $4000 is paid to Ms S on behalf of X Pty Ltd (or perhaps formally into X Pty Ltd accounts) and $3000 of that sum was paid to or drawn by Ms Richards personally. Mr P confirmed that the payments by Mr R were voluntary, not subject to contract and “could stop tomorrow”.
Mr P was cross-examined as to the mortgage securing a $342,000 loan from Mr R to X Pty Ltd. He was aware of the history of there being an original mortgage over the Property M property and then later to be secured by Mr B’s own (omitted) property and then later still secured again by Property M with a hiatus where no mortgage was registered and hence the loan being unsecured. That mortgage was reinstated over Property M on 8 March 2012 although no longer with first priority and after the commencement of these proceedings. Correspondence between Mr P and solicitors is annexed to his affidavit. He denies that the current mortgage is a sham or that the original loan was forgiven by Mr R and he withstood considerable challenge on this issue by Counsel for Mr Milstead who urged the Court to find that the loan had been forgiven by Mr R and the mortgage was again placed against title to Property M during the period of this litigation and only to decrease the net value of that property and hence the pool for these proceedings.
Mr P gave evidence that he is aware of the contents of Mr R's Will and that Ms Richards is a beneficiary entitled to life time use of a (omitted) home and will receive dividends on bank shares to a maximum of $500,000 per annum together with some art works.
Mr P was an impressive witness. He gave his evidence in an informed and confident fashion. I gleaned a sense of objectivity and independence in his evidence and that he was not simply partisan to Mr R or Ms Richards.
Witness – Mr O
Mr O provided an affidavit only very late in the trial and after the involvement of Mr Fitzgerald as both solicitor and Counsel for the respondents and then only after the Court had observed to Mr Fitzgerald that this matter had proceeded to trial without any accounting evidence whatsoever.
Mr O is an accountant with (omitted) with more than twenty years experience. He has prepared the tax returns and financial statements for both Ms Richards and X Pty Ltd together with those of the partnership since 2007. Mr O's Affidavit was sworn 28 July 2013. Mr O prepared his reconciliations on material essentially supplied by Ms Richards. I am satisfied on the evidence that Mr Milstead was invited to make an input but did not respond to Mr O’s invitation from 2011 and therefore the implied criticism of Mr O in not involving Mr Milstead is unjustified.
Mr O was a good and credible witness. He withstood and responded confidently to vigorous cross-examination and often in respect of speculative matters. For instance, it was put to him that should the “Property L property” have been purchased and registered in the name of the partnership rather than the first named respondent then his reconciliations would have been different. He agreed that this was the case but noted the simple fact that Ms Richards was at all times the registered owner of “Property L”.
I generally accept the evidence of Mr O. He was able to justify and explain the financial statements annexed to his affidavit. He was able to both give a general overview and respond in an easy and understandable manner to cross-examination by the applicant’s Counsel. Mr O was not on the original list of witnesses when the trial began and he certainly was not the independent forensic accountant normally anticipated in a matter of this type. His evidence, however was explanatory of a number of the issues raised by the applicant and generally of real assistance to the Court.
Witness – Mr G
Mr G is Ms Richards’ psychologist. He gave evidence following the Court commenting late in the trial that there was no medical evidence adduced in respect of Ms Richards’ diagnosis and any effect on her capacity to work despite Counsel’s opening clearly making it an issue. This issue was raised in an abundance of caution and fairness to Ms Richards given her Counsel had ceased to act part way through the trial and Mr Fitzgerald had admirably taken up the task but without any involvement in the pre-trial preparation and reliant upon a transcript of Counsel’s opening remarks and the earlier evidence. The evidence of Mr G was of limited or nil probative value. His role is that of a therapist. He is not a medical practitioner. He did not provide a forensic report. He gave evidence, however, that Ms Richards herself advised him that her condition was currently well managed by medication and may improve further following the conclusion of this litigation.
The Property Pool
(a) X Proprietary Limited (as trustee for the Mr B Trust)
The applicant argues simply that the assets of X Proprietary Limited be included in the pool property at full value. He says that Ms Richards has control of the discretionary trust and hence at law the assets are hers to deal with as she sees fit and is therefore in the position of “owner” or “defacto owner”. He does not, however, so easily agree the prima facie liabilities of the company/trust be properly included in the pool.
In his written submissions at page 12, counsel for the respondents submits:
The First Respondent agrees that she has control of X Proprietary Limited as appointor and guardian.
Even if it is open to the court to make a finding that the assets and liabilities of X Pty Ltd are property of the First Respondent, there is an obligation under the Trust Deed in relation to all of the primary beneficiaries which include not only the First Respondent but her sister, Ms J, and also after they both die, to the children of the First Respondent and her sister, Ms J. It is irrelevant that Ms J obtained a greater entitlement from the estate of Mr B Trust.
The prospective entitlements of Ms J and/or her children need to be taken into account. If there is a prospect of orders affecting the potential entitlement of Ms J and/or her children, the court is asked to note that none of them have been afforded natural justice.
The issue then is a discrete one. Does Ms Richards have effective ownership of the assets of X Pty Ltd as argued by the applicant? Or, alternatively, does Ms Richards owe a fiduciary duty to the other beneficiary of the corpus of the trust, her sister Ms J, as argued by the respondents.
The trust was established in 1997 by Mr B. He is the father of the primary beneficiaries, Ms Richards and Ms J. Ms Richards became appointor and guardian of the trust upon the death of Mr B.
Prima facie the assets of the trust are:
“Property M” farming property $1,370,000 Range Rover motor vehicle $32,000 Stock and Plant and equipment Not valued TOTAL $1,402, 000 plus stock and plant and equipment
The respondents claim the liabilities of the trust to be:
(vehicle omitted) Finance $32,000 (omitted) Bank loan (first mortgage) $347,274 Mr R loan (second mortgage) $342,000 Mr R additional loan/mortgage $200,000 TOTAL $921,274 Net Assets of X Pty Ltd (Respondents’ Case) $480,726 plus stock/plant and equipment
The applicant does not concede the mortgage loans from Mr R and argues them now to be shams having previously been forgiven. He does not concede the quantum of the (omitted) Bank liability for the purposes of the property pool. He says that Ms Richards and/or Ms S have deliberately caused the (omitted) mortgage to draw out since the separation of Mr Milstead and Ms Richards and, in effect, this is a “negative contribution” from the respondents and I infer his argument to be that the (omitted) loan should have either been extinguished or substantially reduced by the time of the trial. I pause again to emphasize that the applicant did not apparently have a forensic accountant inspect the financials of X Pty Ltd and its accounts or, at least, did not adduce any such expert evidence. Rather the attack by the applicant in respect of this important issue was by his Counsel’s intrusive and detailed cross-examination of specific expenditure items usually evidenced only on particular bank statements.
Given this apparent concession by the respondents in respect of Ms Richards’ control of the trust, an issue remaining for me is whether to include all or any of the assets of the trust into the property pool and, if so, then am I to do so as assets or financial resources? I must also address the applicant’s argument in respect of the status of the various liabilities. I must also address the fiduciary duty, if any, owed to the other primary beneficiary of the trust.
Whilst Ms Richards retains the control of the trust, she is not the trustee. There is a Trustee company, X Pty Ltd. Ms Richards is no longer a director. The sole director is Mr J. I am able to find, on his evidence and after seeing and hearing him in the witness box, that he is generally sympathetic to Ms Richards in the matter now before the court. Ms Richards, of course, retains ultimate control of the trust though her ability to replace the trustee and/or the directors of X at any time.
Whether Ms Richards’ interest in the trust is by way of asset, financial resource or expectancy is a question of fact to be determined with regard to the particular factual platform. Those relevant facts are:
1.Ms Richards has for many years had exclusive use of Property M which is the major asset of the trust. She says that she has paid rent;
2. Ms Richards and her daughter, Ms S, have been directors of the Trustee company until relatively recently;
3. The other primary beneficiary, Ms J, resigned as the director many years ago;
4. Ms J has received no distributions or benefits from the trust to date;
Ms Richards was removed as a beneficiary of his estate in the late Mr B’s last will made 10 November 2010. Her four children were substituted as beneficiaries and together in the same proportion as their mother previously held being a one half share of the residue of the estate. Ms J was the other beneficiary as to one half of the residue. Ms J was also the beneficiary of a specific bequest of $200,000. The will specifically forgives any debt owed by X Pty Ltd noting that the purchase price for Property M was provided by Mr B in the sum of $170,000.
The applicant argues that the gross assets of the trust be included in the property pool by reason of Ms Richards’ control of the trust. He says that it is irrelevant that Ms J remains a primary beneficiary under the trust and that the full benefit of income and corpus “devolves to Ms Richards”. He describes Ms J as “a beneficiary in name only”. He argues that the specific bequest of $200,000 to Ms J in Mr B’s will together with the removal of Ms Richards as a beneficiary evidences the reality of Ms Richards not only having control of the trust but also being the sole beneficiary. He argues that it is open for me to find that the rationale of the specific bequest to Ms J was to set off the forgiving of the $170,000 loan to X Pty Ltd and the practical intent being to remove Ms J as a beneficiary of the trust. I note however that there has been no amendment to the Trust Deed.
The respondents argue that there is a fiduciary duty owing to Ms J as a primary beneficiary and her prospective entitlement needs to be taken into account. Notably, Ms J was not joined as a party. Neither party called her to give evidence. The respondents argue that the specific bequest of $200,000 to Ms J in Mr B’s will is irrelevant and, in any event, untested as to its genesis and that there is no evidence linking it as a set-off for the forgiving of the X Pty Ltd loan. Again, evidence from Ms J herself may have easily resolved this dispute.
Undoubtedly, at law a trustee of a discretionary trust has a broad and unfettered discretion in respect of the trust income and corpus. Further, Ms Richards, as appointor and guardian, has control of the trust and, therefore, effective control of the trustee. On the other hand, the beneficiaries themselves hold no proprietary interest in the property of the trust pending its final vesting. Such interest as there is can at best be a chose-in-action. Such being the practical reality of trusts, it is not surprising that Family Courts have regularly found the property of the trust to be the property of either or both of the parties and, therefore, available for alteration under section 79 of the Act[10]. However, I am urged still to consider the position of Ms J as a primary beneficiary who prima facie would be entitled to one half of the corpus of the trust upon vesting. In doing so, I must look at the nature and background of the trust itself. The late Mr B was the original settlor. The trust provided primarily for his two daughters, Ms Richards and Ms J. The trust was established contemporaneously with the purchase of Property M. Ms Richards has always had use of Property M and there have been no distributions of income to Ms J. Nevertheless, she has remained a beneficiary at all times since the trust was declared in 1997. It is clear, of course, that the nature of interest in trust property is a question of fact, and I must therefore consider the trust deed itself, the intention of the original settlor, and the historical life of the trust thus far. Courts dealing with family law have regularly been called upon to make determinations in such issues. There is often an inherent intellectual conflict between the “interests” of beneficiaries and the reality of “looking behind the veil” as to whether a trust is but a sham or otherwise simply a vehicle for actual ownership or de facto ownership by a relevant person?
[10] (see Stein & Stein (1986) FLC 91-779; Ashton & Ashton (1986) FLC 91-779; and JEL & DDF (2001) FLC 93-075)
These issues must be considered within the context of the following:
i)A discretionary trust gives the trustee an unfettered discretion as to the allocation of trust income and capital within the range of beneficiaries;
ii)Any beneficiary does not have entitlement to any part of trust property until the trustee distributes income and/or capital. At best, a beneficiary has an expectant interest of a chose-in-action;
iii)The appointor has affective control over the trust in that they may remove any trustee;
iv)Nevertheless, the very nature of a trust denotes a fiduciary duty owing by the trustee to the beneficiaries. That is, the trustee does not have unlimited enjoyment of the trust property.
In BP & KS[11] Warnick J considered many of the issues now confronting me and a number of the relevant decisions of the Full Court. In considering the powers and duties of the trustee of a discretionary trust, his Honour cited at paragraph 47 of the text “Discretionary Trusts”[12]:
It has already been observed that a trustee, even if he is not obliged to exercise his power, must give it consideration from time to time ... The nature and extent of the consideration he must give to the exercise of his power, whether it be a mere power or a trust power, have also been discussed ... But, more specifically, it may be said that a discretionary trustee must not act arbitrarily, in capricious disregard of his power; nor may he allow another to take a decision on his behalf; he must exercise a personal discretion. Finally it is clear that he may not, in considering his power, act in bad faith or so as to commit a fraud on power. McGarvie J has generalised that discretionary trustees must act “in good faith, upon real and genuine consideration and in accordance with the purpose for which [their] discretion was conferred. Karger v Paul [1984] VR 161 at 164 ...
Finally, a discretionary trustee must exercise his powers and discretions in accordance with the purpose for which they were conferred; Karger v Paul [1984] VR 161. It is essential that, in considering the exercise of his power of distribution, the trustee act in a state of mind contemplated by the set law.
[11] (2003) FLC 93-157
[12] Hardingham, and Baxt, second edition, at [502]
His Honour then considered the judgment of the Full Court in Davidson & Davidson[13]. That matter concerned a trust and as to whether or not it was a sham or whether the husband had such control of the trust that its assets might be regarded as his or as his resource. The Full Court concluded that the husband had control of the trust, and could take possession of the trust assets. Importantly, however, the court considered the issue of conflict between control/ownership and fiduciary beneficiaries at page 78,365 as follows:
It was argued that such a manipulation of the provisions of the Trust would amount to a breach of the fiduciary duty of the husband as appointor, relying on a decision of Kaye J, in Re Skeats’ Settlement (1889) 42 Ch D 522. Whatever may have been the position 100 years ago .... Australian Courts today have to look at the reality of the situation and the purpose which family trusts serve today. A limitation as to the husband’s power to control the assets and income of the trust and in accordance with the provisions of the trust deed, is inconsistent with the reasoning of the Full Court in Ashton...Whatever might be the remaining effect of Skeats’ case, it is not authority for the proposition that the husband is prevented from appointing a trustee who is compliant to his wishes.
[13] (1991) FLC 92-197
Interestingly, however, Davidson under different nomenclature continued its dispute into the Supreme Court of New South Wales Equity Division and on to the New South Wales Court of Appeal[14] where Meagher JA commented:
The second issue in the proceedings before Santow J, and apparently the only one before us, concerns alleged breach, or possible breach, of fiduciary duty by Andco) Pty Ltd. It is common ground that the MAVK Trust was a discretionary trust of the normal kind and it is also common ground that it is not a sham. In this regard it is a little difficult, as Mr Grieve QC pointed out, to know what to make of the Family Court's findings that the Trust's assets were de facto Mr Davidson's assets.
Nor is the task of discovering what is, made any easier by the fact that the Family Court apparently thought that the payment of $700,000 from the assets of the trust would be perfectly proper and would discharge the obligation which arose under the Family Court order. Nor is the fact made any easier by the fact that the High Court seemed to have endorsed this argument.
[14] Thurlstane (Aust) Proprietary Limited and Ors v Andco Nominees Proprietary Limited
It seems, however, that Courts dealing with trusts within the context of section 79 of the Family Law Act remain untroubled by the comments of Meagher JA[15]. I note, though, that the trusts involved in those cases were primarily intra a family unit mainly involving a husband, wife and children beneficiaries in which one of the adults was deemed to have control of the trust.
[15] see JEL v DDF (2001) FLC 93-075 and Milankov & Milankov (2002) FLC 93-095
In the matter now before me, the beneficiaries are sisters and the settlor was their father. Such was the situation in Ashton[16] which was also considered by Warnick J in BP & KS. In Ashton, the Court noted:
It was conceded throughout that the husband was in full control of the assets of the trust, and the evidence made it clear that he was applying them and income from them as he wished, for his own benefit...there are good grounds for saying that the trust is no more than the husband’s alter ego. In my opinion, in all the circumstances, the proper construction of the deed is that the husband himself can be both appointor and trustee...the legal owner of the trust property is the trustee and the beneficiaries are the equitable owners of the trust property. The powers which the husband has in the Ashton Family Settlement give him control of the trust either as trustee or through a trustee which is his creature, and at the same time he is able to apply all the income and property of the trust for his own benefit. In my opinion, in a family situation such as the one here (my emphasis) this Court is not bound by the formalities designed to obtain advantages and protection for the husband who stands in reality in the position of the owner. He has de facto legal and beneficial ownership...No person other than the husband has any real interest in the property or income of the trust except at the will of the husband (the Court finding that the whole of the trust was in reality the husband’s property).
[16] (1986) FLC 91-777
Warnick J, in BP & KS, commented on these findings as follows:
I find myself uncertain of the impact of the passage:
“...in a family situation such as the one here, the Court is not bound by formalities designed to obtain advantages and protection for the husband who stands in reality in the position of the owner.”
The case does not contain any direct discussion of any duties falling on the husband in relation to due administration of the trust. For myself, I would not conclude from the passage quoted that a trustee of a discretionary trust in a “family situation” which was before the Family Court, was not bound by law. Ashton may be a case which turned upon the particular position of the husband in relation to the particular trust.
Warnick J then turned to consideration of the decision of the Full Court in Alcaine & Alcaine & Abrahams[17] where the Full Court said:
The order made by Her Honour does not deprive the trustee of an existing right nor does it impose upon a trustee a duty which the trustee would not otherwise be liable to perform. The order does not alter or affect, in any way, the rights and obligations of the trustee. In our opinion the order does not defeat or prejudice the rights of the trustee, nullify the powers of the trustee, or require the trustee to perform duties which the trustee was not previously liable to perform. The order only affects the share of the husband. The order does not alter the provisions of the deed establishing the trust. The order neither alters or affects, in any way, the entitlements of the primary and general beneficiaries nor the property of the trust. The husband and/or the wife do not obtain, as a result of the order made by Her Honour, any beneficial interest in the property of the trust [emphasis added].
[17] (unreported 20 March 1997, SY9878/94)
Warnick J concludes that there have been numerous Family Court cases where findings were made that the capital of discretionary trusts was either “property” of a particular person by reason of control of the trust or “de facto property”. Importantly, however, his Honour then states:
While such findings might impliedly leave the court at liberty to deal with that property as the court sees fit, this is not necessarily so.
The significance of such a finding may initially be that the assets of the trust can properly be included in a “pool” of assets for division between the parties. To do so is a notional step in a process of reasoning, as distinct from the executive nature of a court order dealing with trust assets.
Even when such a finding underpins a court order, there is a difference between firstly, an order requiring a payment from, for example, husband to wife, (albeit the only source of funds is the capital of a discretionary trust of which the husband is trustee or appointor or otherwise in control), leaving it to the husband to act, presumably according to law, and secondly an order requiring a trustee to pay funds from a trust to satisfy an order for property settlement.
As seen, Ellis J in Davidson (No. 2), Maxwell J in Alcaine and Santow J in Andco Pty Ltd were circumspect in the “reach” of the orders they made, or were prepared to countenance.
While the distinction between order designed to facilitate satisfaction of other orders for property settlement by distribution from a trust and orders that direct that result may seem fine, it is nonetheless real.
Whilst I am sympathetic to the logic of the comments of Meagher JA in Thurlstone and the considered doubts of Warnick J in BP & KS, it seems that I remain bound by the authorities of the Full Court in Milankov and JEL & DBF with emphasis on the control by Ms Richards of the trust in that the property of the trust is effectively the property of Ms Richards. In any event, the factual situation here lends towards such a conclusion in reality including:
a)The nature of the trust property primarily being a farm and plant and equipment exclusively used and operated by Ms Richards;
b)Ms J not receiving any benefits or distributions under the trust since its creation;
c)The amendments to the Mr B Trust’s will and, in particular, the specific bequest of $200,000 to Ms J and the contemporaneous forgiving of the X Pty Ltd loan made to purchase Property M;
d)The failure of the respondents to adduce evidence from Ms J and to give any explanation for not doing so, which gives rise to me drawing an inference that Ms J’s evidence may not have assisted the respondents’ case[18].
[18] Jones v Dunkel (1959) 101 CLR 298
Consequently I am satisfied on the balance of probabilities that the assets of X Pty Ltd as trustee for the Mr B Trust discretionary trust should be included in the asset pool as being effectively the property of Ms Richards.
(b) “Mr R Mortgage and Loan”
There is a registered second mortgage over Property M in favour of Ms Richards’ uncle, Mr R, securing a liability of $342,000. These facts are not disputed. The applicant, however, says that the mortgage is a “sham”. He points a previous mortgage held by Mr R over Property M in 2005 but that this mortgage was discharged and Mr R was offered alternative security over the late Mr B’s property at (omitted) but apparently never registered. Any mortgage in favour of Mr R was not reinstated until 2012 and then as a second mortgage. This occurred only during the course of these proceedings and after a period of some years where the original advancement was unsecured. The applicant argues the mortgage therefore to be a sham created to decrease the property pool available for alteration under section 79 of the Act. The implication is that Mr R has previously forgiven his loan consistent with his overall generosity to his niece.
Mr P, holding a power of attorney for Mr R, was an important witness in respect of this issue. I found Mr P to be an independent, informed and credible witness. He was strongly challenged in cross-examination as to the chronology of the Mr R loan and mortgage and provided reasonable explanations. The money advanced is substantial and was initially secured by a mortgage. There is no evidence that it has been repaid. The explanation for the removal of the first mortgage in 2005 being so as to give a bank a priority first mortgage is reasonable. This occurred when the X Pty Ltd/Milstead partnership borrowed some $700, 000 to purchase “Property R”. I accept Mr P’s explanation that it was only a breakdown in communication between Mr R and Mr B that caused the hiatus in there being no registered security for the moneys he had advanced. Communications annexed to affidavits give corroboration. I am satisfied that the mortgage is not a sham. I am satisfied that the advancement of $342,000, made some years ago, remains outstanding and that repayment is required. Whilst Mr R has clearly made regular gifts to X Pty Ltd or Ms Richards, it is significant that the original advancement was secured by mortgage and therefore had the status of a loan. It will therefore be included in the property pool as a liability of the trust.
(c) Mr R – Advancement/loan of $200,000
Mr R provided a further sum of $200,000 to X Pty Ltd in about November 2012. This was shortly before the commencement of the trial in this matter and after these proceedings had been on foot for a considerable time. The loan is evidenced by a document marked “without prejudice” but annexed at exhibit T to the affidavit of Mr P filed 31 May 2013. No objection was taken to the exhibit. The document is signed by Mr P under his power of attorney but purports to be a statement of Mr R. It recites inter alia:
Yesterday and earlier today, I was requested by Ms Richards and Ms S for permission for the first mortgage to be increased by $200,000 to provide “the company” with additional liquidity. As I was unaware of any other existing first mortgage, I arranged for this meeting between the four of us today.
They requested that I might like to advance the extra $200,000 myself or cancel my second mortgage. I did not agree to these proposals.
After much discussion, I agreed with their request for my permission that the first mortgage be increased by $200,000 to $550,000 and that my loan of $340,000 be secured by a second mortgage, with the following conditions: -
(A) that I do not have to contribute or pay any fees or costs in this matter;
(B) that I receive a copy of the current property valuation;
(C) that I receive a copy of the proposed new first and second mortgage prior to completion, for my acceptance;
(D) because of my past experience with my mortgage, I require that all legal work be completed at the same time, so that I will always have security for “my loan”.
Despite this statement, it is clear on the evidence that the $200,000 was advanced from Mr R and not by way of a refinancing of the (omitted) Bank Loan secured by the first mortgage. The cross-examination of Ms Richards, and also of Ms S, elicited clear responses that this additional loan of $200,000 was required for the “payment legal costs in respect of this trial” as well as “general liquidity”. Evidence of the use or apportionment of these moneys was not otherwise particularised, pursued in cross-examination or offered in evidence-in-chief. Ms Richards did, however, give evidence that she was indebted to her previous solicitors, who had ceased to act well before the trial, in a quantum of “more than $200,000”. I was not informed then as to whether, or in what quantum, any outstanding legal costs had been satisfied.
I accept the evidence of Mr P, confirmed in cross-examination, that the $200,000 is a loan to Ms Richards and/or X Pty Ltd and not a gift. Its timing is, however, crucial. The loan was obtained just before a trial and in respect (at least in part) for the payment of legal costs. Mr Milstead played no part in obtaining the loan or in negotiating its terms. He received no benefit from the advancement and has no expectation of doing so. The loan was obtained well after separation. In all of those circumstances, I do not intend to include the $200,000 as a liability properly in the pool of property for the purposes of my determination and on the balance of probabilities I am satisfied that its primary purpose was to meet the respondents’ outstanding legal costs incurred in these proceedings.
(d) Partnership – X Pty Ltd and Mr Milstead
In 2005, Mr Milstead and the second respondent, X Pty Ltd, formed a farming partnership. There was no written partnership agreement. The parties agree that the partnership operated on a 50/50 basis. The partnership purchased, as tenants-in-common, a separate farming property at Property R near (omitted) in Tasmania and held title as to 60 per cent to X Pty Ltd and 40 per cent to Mr Milstead. The purchase price was $750,000 plus costs and disbursements. Property M was put up as additional security for a mortgage loan. It was at this time and for this purpose that Mr R’s first mortgage over Property M was released. The purchase was substantially financed by borrowings.
Financial statements show an introduction of cash, stock, and plant and equipment to the partnership from X Pty Ltd. Similarly, those same financial statements show an introduction of capital from Mr Milstead in a quantum of $186, 468. This correlates roughly with the sale by Mr Milstead of a property that he owned at (omitted) on the east coast of Tasmania. There appears to be no correlation between the proportionate ownership of “Property R” at 60/40 in favour of X Pty Ltd and the contributions by each partner. Substantial improvements were apparently made to “Property R” given its eventual sale price.
The partnership continued after the separation of Mr Milstead and Ms Richards. After an unsuccessful auction, the property was eventually sold by private treaty in June 2011 for $1.25 million. This left a shortfall owing to the bank of $38,044. Following the sale of Property R, X Pty Ltd purchased plant and equipment and stock from the partnership at valuation. Partnership debts were satisfied from the proceeds of sale.
Mr O was the accountant for that partnership. He gave evidence and was cross-examined. He deposed that the partnership lost in excess of $900,000 during its operation and these losses required regular capital contributions by the partners. It is considered that the partnership was effectively dissolved as of 2011, and significantly leaving a net loss of $602,656 which can be carried forward for the benefit of the partners, Mr Milstead and X Pty Ltd, in the form of tax credits, each in a quantum of $301,828 and which can be utilised against future income. After hearing the evidence of Mr O, I am satisfied that these tax credits totalling $603,656 are properly financial resources to be included in the property pool. They are not, in my view, “assets” in the sense that they can be sold or transferred (even between the parties to this litigation). They are personal to each of X Pty Ltd and Mr Milstead and dependent upon future income. They do however have some real value in the hands of each party and I will therefore include them as financial resources respectively of Mr Milstead and X Pty Ltd.
MR MILSTEAD
ASSETS
Ford Courier motor vehicle
$5000
(omitted) Shares
$1200
(omitted) Bond
$10,000
Work Tools
$3000
Paintings and Sketches (Mr Milstead)
$2000
TOTAL ASSETS
$21,200
LIABILITIES
(omitted) Bank
$5000
TOTAL LIABILITIES
$5000
TOTAL NET ASSETS
$16,200
SUPERANNUATION
$55,000
FINANCIAL RESOURCES
Future Tax Credits
$301,828
TOTAL FINANCIAL RESOURCES
$301,828
MS RICHARDS
ASSETS
Jewellery
$5850
Subaru motor vehicle
$15,000
Household contents
$25,000
Other personal property including artworks
$20,000
TOTAL ASSETS
$65,850
LIABILITIES
(omitted) Finance re: Subaru
$13,400
(omitted) Visa Card
$27,668
(omitted) Bank Card
$4,584
(omitted) Bank MasterCard
$50,152
TOTAL LIABILITIES
$95, 804
TOTAL NET ASSETS
$29, 954
The above represents the pool of property as I determine it given the state of the evidence before me. I have included the parties’ disclosed credit card liabilities as unchallenged in cross-examination although, of course, it does not escape my attention that, in respect of Ms Richards in particular, she has been the beneficiary of substantial funds from Mr R and arguably should have been in a position to satisfy personal credit card liabilities, especially given her denials of any extravagant lifestyle. No particulars are provided as to the genesis of the expenditure or the scheme of repayments. I will consider this matter when dealing with additional matters under s.93SF(3)(r) of the Act. I must say, however, that I have difficulty understanding how Ms Richards who is ostensibly in receipt of a Centrelink benefit, should be permitted credit of such magnitude.
Finally, I have not included as a liability the alleged personal debt of Mr Milstead to the Mr B Estate in a quantum of $20,000. The respondents seek an order that Mr Milstead makes that payment. Mr Milstead denies that there is such a liability or, alternatively, says that it has been repaid. I have no better evidence than this and I accept Mr Milstead’s evidence on its face and given that there was little if any, cross-examination and certainly none which caused any retractions by him. Yet again, however, this Court is presented with an issue and dispute completely devoid of proper evidence. One might think that an affidavit from the executor of Mr B’s Trust’s estate or alternatively, a cheque butt from Mr Milstead would have put such a matter to sleep long before the trial. Alas no such evidence was adduced and the discrete dispute travelled through trial with little or no testing only to be left for my determination.
Therefore, excluding the tax credits of $602,656 which are of a peculiar status and must surely be attributed each to Mr Milstead and X Pty Ltd, the net property of these three parties, inclusive of superannuation amounts to $827, 520.
Contributions
There have been a number of significant direct financial contributions by or on behalf of the respondents, Ms Richards and/or X Proprietary Limited. In saying so I again note that Ms Richards has effective control of the trust (and X Pty Ltd). Those contributions include the property “Property M”. It was purchased in 1997 with a contribution of $170,000 from her father, Mr B. That “loan” was forgiven in Mr B’s will. That property is now valued at $1,370,000. This significant increase in value has occurred substantially during the relationship between Mr Milstead and Ms Richards although the early addition of a residence must have added significant value. They have both contributed although obviously with the real assistance of capital injections from Mr R.
By far the greatest contribution on behalf of Ms Richards and X Pty Ltd comes from Mr R. There have been lump sum advancements now secured by mortgage with an outstanding $342,000. Over and above these lump sum advancements, however, there is the regular payment by Mr R to Ms Richards/X Pty Ltd on a roughly weekly basis of some $4000 or approximately $200,000 per annum. The evidence suggests that Ms Richards personally has benefited by about $3000 per week or about $150,000 per annum. Initial payments may have been made into X Pty Ltd bank accounts and then distributed to Ms Richards or vice versa. At paragraph 66 of her early affidavit sworn 25 October 2011 Ms Richards deposes:
From 1999 to the present trial, my uncle Mr R has lent X Pty Ltd funds which total $1,239,052. My uncle is a successful businessman who has considerable financial resources available to him. Annexed hereto and marked ‘N’ is a spread sheet showing deposits of the money provided by my uncle into my bank account. The money was then transferred from my bank account into the X Pty Ltd bank account. The money was used during my relationship with Mr Milstead to improve the property and to fund the farm on Property R, for the upkeep of Property M and for day to day living expenses. My uncle continued to provide funds to me post separation in order to pay for day to day living expenses until November 2010 when I ceased being able to sustain my commitment to him on a regular basis.
. . .
. . .
my uncle has asked me on many occasions when I am going to repay the monies he has provided. … I told my uncle that I would have to sell the Property M property to repay him.
X Pty Ltd and Ms Richards have not considered these monies to be income and hence no tax has been paid and therefore the amounts are considered in their gross form. Ms Richards’ only other regular income was from Centrelink. I refer to Mr Milstead’s income below. I also take into account generally the evidence of the parties as their lifestyle during their relationship and conclude that the advancements from Mr R were used in part to attend to the operation of the farm and in part to provide necessary income and a particular lifestyle for both Ms Richards and Mr Milstead. In this sense, Ms Richards says in her affidavit of 26 October 2011 that total moneys advanced by Mr R to X Pty Ltd from 1999 until the date of affidavit, a period of some twelve years, totalled $1,239,052 or about $100,000 per annum on average. The accountant, Mr O, gave evidence that contributions to the Property R farming partnership by X Pty Ltd over the approximate six years duration of that partnership were $802,806.
I accept in part the argument mounted by Mr Milstead that Ms Richards and/or Ms S (X Pty Ltd) have enjoyed a comfortable lifestyle from the moneys received from Mr R. I accept that works of art have been purchased. I accept that personal items have been purchased through trust or company bank accounts post separation.
It is clear from the evidence, and despite her statement in paragraph 66 of her affidavit of 25 October 2011, that Ms Richards continues on a weekly or most/weekly basis to attend Mr R. I accept, however, that the relationship is not one of employment and that these payments have been made through the familial relationship and by the generosity of Mr R. They amount to a significant contribution on behalf of Ms Richards. She deposes in her earlier affidavit that all advancements are “loans”. On all of the evidence I do not accept this proposition. $342,000 is secured by mortgage. There is no indication, other than in Ms Richards’ affidavit, however that the remaining advancements are pursued for repayment. Mr P gave no such evidence. I am satisfied that Mr R has made substantial and generous gifts to Ms Richards/X Pty Ltd over the last decade or longer. I accept Ms Richards’ evidence that these funds have been used to improve and maintain the farm but also to pay for the living expenses and lifestyle of the parties. It is an important and substantial contribution on behalf of the Respondents and should be credited accordingly. In mathematical terms it equates to an average of E$100,000 per annum although probably in larger amounts during later years.
I also accept that Ms Richards has worked the farms both at Property M and Property R and contributed her skills and experience accordingly.
Similarly, there is evidence of capital contribution from X Pty Ltd to the farming enterprise at Property R.
Mr Milstead has also made various and significant contributions. I repeat, however, that it is not proper for me to follow Mr Milstead’s mathematical exercise of simply calculating his gross earnings and/or attributing “hourly rates” to his labours in order to “calculate” his contributions. As the Full Court noted in Lovine and Connor and Anor[21]:
It follows that the assessment involves matters of estimation and is not, and cannot be, a mathematical exercise. No amount of devotion to mathematics is capable of transforming a discretionary exercise involving many component parts, such mostly unamenable to precise computation, into one of aggregating separately finely calculated components to reach an overall outcome.
[21] (2012) FLC 93-515 at [41]
Mr Milstead has prepared and provided, as annexure “A” to the written submissions of his counsel, a spreadsheet totalling his “contributions” at $666,635 which might, at its simplest, equate to an average of approximately $60,000 per annum (inclusive of capital contributions) over the ten plus year duration of the relationship. Even following this course then such contributions pale into insignificance compared to those on behalf of X Pty Ltd and Ms Richards. Rather, I am satisfied that Mr Milstead made some early capital contributions from the sale of his property at (omitted) and other assets he owned at the date of commencement of the relationship.
I reject the argument by the respondents minimising Mr Milstead’s contributions during the relationship. I prefer that Mr Milstead contributed actually and beneficially by his labours and use of plant and equipment to the farming projects and improvements to the properties. I accept that these contributions have been important in achieving the value of the property pool as it now stands and, in particular, in respect of Property M. I find the attempts by Ms Richards and Ms S in their evidence, both in affidavits and in court, to diminish the efforts and contributions of Mr Milstead to be both unjustified and unbecoming. For example, I again reject the submission on behalf of Ms Richards that she should be attributed the “contribution” from the purchase, subdivision and subsequent sale of the “Property L land”. Rather, I accept Mr Milstead’s evidence that he and Ms Richards were in a domestic relationship at the time of this purchase. I accept that he contributed to the negotiations and the ultimate decision making. I am satisfied that the profits emanating from this transaction of approximately $100,000 is the result of equal contribution by those parties. I reject the evidence adduced from various witnesses for the respondents aimed at demeaning the character of Mr Milstead. I find such evidence generally to be calculated, selective and partisan.
I am satisfied on the evidence of Mr O that Mr Milstead made capital contributions to the Property R partnership of $186,467. Such a direct financial contribution is to be considered in quantum, time, and usage relative to the contribution on behalf of the Respondents of “Property M” purchased for $170,000 shortly before the commencement of the relationship between Mr Milstead and Ms Richards.[22]
[22] Pierce & Pierce (1999) FLC 92-844
I reject, however, the “wastage” or “negative contribution” argument mounted again in abstract mathematical terms by Mr Milstead. He argues that the respondents have deliberately drawn out the mortgage account or not paid in farm proceeds calculated to diminish the property pool. Without forensic accounting evidence, I am not satisfied that Mr Milstead has discharged his onus of proof in making these allegations. In doing so, however, I am satisfied that Ms Richards and Ms S/X Pty Ltd have benefited significantly from the assets in the period post separation of Mr Milstead and Ms Richards. The financial statements attached to the affidavit of Mr O make this clear. The annexures to Mr Milstead’s affidavit as to gross form income are suggestive of a productive working farm which benefits Ms Richards. Ms Richards has managed “Property M” since her separation from Mr Milstead. I repeat that such a consideration is more properly had under s.90SF(3)(r).
I am also satisfied that Mr Milstead made contributions from his employment and contracting “off the farm”. Mr Milstead operated and used his experience in heavy equipment. He achieved income as evidenced in annexure “A” being the spreadsheet annexed to his counsel’s written submissions. I am satisfied that Mr Milstead generally applied this income for the benefit of both he and Ms Richards and also for the farming partnership with X . Mr Milstead also made drawings from the farming partnership and it is thus that his contributions should not be considered in their gross form. Similarly, however, those drawings were put to the necessary expenses and lifestyle choices of the applicant and first respondent.
In summary, there have been financial injections by or on behalf of Ms Richards/X Pty Ltd and Mr Milstead. There is then the introduction of gifts and loans by Mr R. Within the context of the other financial contributions and the nature of the pool, such cash injunctions assume overwhelming importance. They total in excess of $1.2 million in a property pool which I value at net $827, 520 albeit with $347, 000 categorised as a “loan”. Also considering the non-financial contributions of each parties including to their various children, I am satisfied that it is proper for there to be an alteration of the parties’ property as to 80% to Ms Richards and 20% to Mr Milstead. In doing so I do not differentiate between Ms Richards and X Pty Ltd. Their interests in this trial and generally financially are so intermingled by reason of Ms Richards’ control of the trust that I am satisfied that I do not need to differentiate between them as to contributions.
Section 90SF(3) Factors
The applicant works as a (omitted). He is 60 years of age. He says that he has some difficulty in obtaining consistent work in his field. That evidence was not challenged. The spreadsheet prepared by Mr Milstead himself, and appearing at annexure A of his counsel’s written final submissions, suggests Mr Milstead’s earnings from (omitted) for the nine years from 2001 to total about $168,000. He contracted his labour and equipment through his company, (omitted) Pty Ltd. I have no evidence before me of any current valuable assets of this entity. He was, of course, otherwise occupied in the farming pursuits and I am unsure therefore as to whether he was working his machines and as a (omitted) to their full potential. I note, however, his unchallenged evidence that he has been required to dip into his superannuation entitlements since separation. There is no evidence that Mr Milstead has re-partnered. He claims a back injury which may impact on his continued self-employment although no further or medical evidence was adduced.
Ms Richards continues to receive $3000 on a roughly weekly basis from Mr R. Another $1,000 per week is allocated to X Pty Ltd. Whilst I accept that there is no obligation of a contractual nature on Mr R, the payments have been made consistently and there is no evidence before me to suggest that they will cease. Ms Richards has not declared the payments as income and hence they have not been taxable and sit in her hands in a gross form. I reject Ms Richards’ assertion in her early affidavit that all advancements have been “loans”. In addition, she and X Pty Ltd have been the beneficiary of further generosity from Mr R in the form of a loan to assist with legal costs incurred in these proceedings in a sum of $200, 000. Ms Richards has the benefit of use of Property M being the trust property together with its other assets. She, effectively on behalf of X Pty Ltd, operates the farming enterprise and has the benefit of any income or other advantages which may arise. The other beneficiary of the family trust, Ms J has never received a dividend or benefit from the farm. I note that X Pty Ltd, like Mr Milstead, will have the continuing benefit of the tax credits of $301,000 each and such benefit will in reality be to Ms Richards. Within this context, I consider it completely unreasonable and unjustified that Ms Richards should claim to have accrued credit card liabilities totally more than $80, 000 and I take this into account under s.93F(3)(i) and within the context of the quantum of the property pool. She also apparently continues to receive her Centrelink benefit although it does perhaps not figure significantly in her overall financial position.
Mr P gave evidence that Ms Richards is a beneficiary under Mr R's Will. Mr R is elderly and his generosity to Ms Richards is now well documented and established. In all of these circumstances, it is proper that I take into account the very likely bequest from Mr R to Ms Richards. According to Mr P, and upon the death of Mr R, Ms Richards will receive lifetime use of a home at (omitted). She will also receive dividends on bank shares to a maximum of $500,000 per annum. She will receive some works of art.
I also take into account under section 90SF(3)(r) the fact and circumstance of the relationship between Ms Richards and X Proprietary Limited/The Mr B Trust. Put simply, Ms Richards has and continues to enjoy control of the trust and use of its assets. I am satisfied that, for instance, trust funds have been used for the purchase of significant and valuable artworks which ultimately benefit Ms Richards if only in an aesthetic sense.
Whilst her financial statements filed in these proceedings and her taxation returns suggest that Ms Richards is not a person of wealth, has minimal personal assets, and indeed has received a Centrelink benefit for many years, the facts before me suggest the reality to be very different. Ms Richards has had resources available to her and utilises them for her own personal benefit. I am satisfied that her current and potential financial circumstances are overwhelmingly superior to those of Mr Milstead. Within this context, and whilst I accept Ms Richards’ unfortunate diagnosis of Parkinson’s Disease, that condition is irrelevant to her financial position. Indeed, her own evidence is that she continues to work the farm. The financial documents annexed to Mr Milstead’s affidavit suggests it to be a financially productive enterprise. In this respect, I generally accept the evidence of Mr Milstead that Ms Richards has benefited substantially from the farm and certainly to a greater extent than she admits. In making such findings I reject much of the evidence of Ms Richards in cross-examination as to the nature and profitability of the farm. I found much of the evidence to be contrary to financial documents produced. Her evidence was unconvincing and at times disingenuous.
I take into account the financial resources of tax credits of $301, 828 available to Mr Milstead and X Pty Ltd.
I am to reference the probative evidence to each of the numerous factors under section 90SF(3) of the Act insofar as they are relevant. The relative positions of the applicant and the first respondent in respect of income/financial resources is most relevant here. Importantly, however, this consideration is not analogous to the term “needs factors” which is a phrase used in many older judgments but now discouraged. Neither is the Court to address the section 90SF(3) factors with a view to a form of “evening up” after consideration of the contributions of the parties. Rather, the guiding principle remains that the orders overall must be just and equitable as between the parties and not a form of social engineering[23]. As Wilson J observed in Mallet & Mallet[24]:
The objective of the section is not to equalise the financial strengths of the parties. It is to empower the Court, following a dissolution of marriage, to effect a redistribution of the property of the parties if it be just and equitable to do so…
[23] Clauson & Clauson (1995) FLC 92-595 at 81, 912.
[24] (1984) FLC 91-507
In summary, there is a significant disparity between the income, current and potential, of Mr Milstead and the financial resources and income available to Ms Richards together with evidence of what I find to have been ongoing and significant personal benefit to Ms Richards from the trust post separation. In all of those circumstances, I am of the view that an adjustment to Mr Milstead of 20 per cent of the property pool is just and equitable.
Findings and Conclusions
Consequently, I find that justice and equity is served as between Mr Milstead and Ms Richards in altering or distributing their legal and equitable interests in property as to 60% to the respondents and 40% to Mr Milstead. In doing so, I treat the applicant’s superannuation entitlement as property given his age and his apparent access to his benefit. I do not in a practical sense differentiate between Ms Richards and X Pty Ltd given her actual and historical control of the trust assets and her benefit received from the trust.
I find the property pool to have net value of $827,520 leaving out the resource of tax credits available to Mr Milstead and Ms Richards (or $1,111,191 if included). A forty per cent division of that part would give Mr Milstead property with a value of $331,008 and sixty per cent to the respondents equates to a value of $496, 512..
Mr Milstead retains the following:
Superannuation
$55,000
Ford Courier
$5,000
(omitted) Shares
$1,200
(omitted) Bond
$10,000
Work Tools
$3,000
Paintings & Sketches
$2,000
Fees – (omitted) Bank Liability
($5,000)
Net property retained
$71, 200
Consequently, there will be a cash adjustment to Mr Milstead of $259,808. Each of Mr Milstead and X Pty Ltd will retain their resource of the taxation credits.
Within a relationship of some eleven years duration and one with an unusual history of property and contributions and given the ages and future financial positions of the applicant and the first respondent, I am satisfied that such orders are just and equitable.
Given my findings as to Ms Richards’ control of the trust and hence of X Pty Ltd’s assets, these orders will obligate X Pty Ltd given the limited personal asset position of Ms Richards outside of the trust. Should the cash payment be unable to be made then inevitably Mr Milstead’s entitlement will be satisfied from the sale of Property M and my orders will provide accordingly.
As a postscript to these reasons, there has been an interlocutory application filed in January 2014 by Mr Milstead and during my judgment being reserved. During this period it has eventuated that the director of X Pty Ltd, Mr J, has placed the company into voluntary administration. This occurred in December 2013. The evidence in this matter completed on 16 August 2013 with final written submissions required by mid-October. Interestingly, and despite what is clearly a relevant dealing with assets of the litigation before me by a party, namely X Pty Ltd, Mr J did not see fit himself to bring an application leaving that to Mr. Milstead. The interlocutory application came on urgently in Hobart on 17 January 2014.
The applicant sought the following order:
That until further order the appointment of Mr I (sic) (omitted), Registered liquidator No (omitted) and partner in the firm (omitted), Chartered Accountant, (omitted), Melbourne, Victoria, as External Administrator be stayed.
The application was supported by an affidavit from the applicant’s solicitor, Mr Boland. The administrator was then represented by separate Counsel and solicitors, or more properly, X Pty Ltd was now separately represented from Ms Richards. Affidavit material was filed from the administrator, Mr J and Ms Richards. The material advises that Mr J was anxious to ensure that X Pty Ltd’s debt situation did not result in it trading whilst insolvent. It seems that “Maggie Orman solicitor” who had represented Ms Richards and X Pty Ltd prior to the commencement of the trial has obtained an assessment of costs against the respondents claiming $156,466.62. Mr J also notified other liabilities of X Pty Ltd in the voluntary administration some of which are dealt with in my reasons above. The documents filed are suggestive of some other minor liabilities of X Pty Ltd not disclosed at the trial and I can therefore only assume them to be accrued recently. I repeat however that the motivation for the voluntary administration seems to have been this significant liability to Maggie Orman, solicitor. I comment only to the references in my reasons above as to evidence from the respondents at the trial in respect of this situation and, in particular, the alleged purpose of the advancement of $200,000 from Mr R.
Issues of my jurisdiction to make the orders sought by the applicant were raised on 17 January with the result being that an undertaking was received from the administrator not to dispose of or encumber the assets of X Pty Ltd/the trust. No other application to re-open the proceedings was otherwise before me. I do note however that the administrator has particular duties and obligations in respect of essentially the same assets and liabilities dealt with in this litigation. It seems that the administrator also has further and separate liabilities to consider. In those circumstances there will be an order giving leave for the administrator of X Pty Ltd as delegated trustee of the Mr B Trust to apply in respect of the implementation of my orders.
I certify that the preceding one-hundred and fifty seven (157) paragraphs are a true copy of the reasons for judgment of Judge McGuire
Date: 21 February 2014
Key Legal Topics
Areas of Law
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Equity & Trusts
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Family Law
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Property Law
Legal Concepts
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Remedies
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Costs
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Injunction
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Constructive Trust
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Fiduciary Duty
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Restitution
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