Northup & Peat
[2021] FedCFamC1A 63
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1) APPELLATE JURISDICTION
Northup & Peat [2021] FedCFamC1A 63
Appeal from: Peat & Northup (No. 2) [2020] FamCA 1123 Appeal number(s): SOA 6 of 2021 File number(s): ADC 554 of 2018 Judgment of: STRICKLAND, AINSLIE-WALLACE & ALDRIDGE JJ Date of judgment: 12 November 2021 Catchwords: FAMILY LAW – APPEAL – FINAL PARENTING AND PROPERTY – Where the wife appeals orders for equal shared parental responsibility – Where the children ought to have a meaningful relationship with their father – Where the primary judge considered the evidence of the Family Consultant – Where the wife appeals final property settlement orders – Family trust – Whether the husband was in control and receiving distributions from the trust – Where the primary judge did not err in the treatment of any interest the husband held in the family trust – Appeal dismissed – Costs ordered in a fixed sum. Legislation: Family Law Act 1975 (Cth) ss 65DAA, 75(2) Cases cited: Edwards v Noble (1971) 125 CLR 296; [1971] HCA 54 Number of paragraphs: 93 Date of hearing: 21 June 2021 Place: Adelaide, delivered in Sydney Counsel for the Appellant: Mr Tredrea Solicitors for the Appellant: Purdie Legal Counsel for the Respondent: Ms Pyke QC Solicitors for the Respondent: Culshaw Miller Lawyers ORDERS
SOA 6 of 2021
ADC 554 of 2018FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
DIVISION 1 APPELLATE JURISDICTIONBETWEEN: MS NORTHUP
Appellant
AND: MR PEAT
Respondent
ORDER MADE BY:
STRICKLAND, AINSLIE-WALLACE & ALDRIDGE JJ
DATE OF ORDER:
12 NOVEMBER 2021
THE COURT ORDERS THAT:
1.The appeal be allowed in part, Order 10 be set aside, and in lieu thereof the following order be made:
That the parties be restrained from engaging the children or each of them in any therapeutic intervention by a psychologist, psychiatrist or counsellor that relates to or arises from the relationship of the father with the children.
2.The balance of the appeal be dismissed.
3.The wife pay the husband’s costs fixed in the sum of $30,000.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Northup & Peat has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
STRICKLAND, AINSLIE-WALLACE & ALDRIDGE JJ:
On 24 December 2020 a judge of the Family Court of Australia (as it then was) made final orders determining parenting and property adjustment proceedings between Ms Northup (“the wife”) and Mr Peat (“the husband”).
The parenting orders concern the parties’ children, X aged 13 and Y aged 11 (“the children”). The orders provide that the parties have shared parental responsibility for the children, with the wife to have sole parental responsibility for matters affecting the health and education of the children, provided that the parties consult to reach a consensus, but in the event of there being no agreement, the wife is to make the final determination as to these matters. The primary judge made further orders that the children spend time with the husband commencing with four hours per week and, over a period of nine months, increasing to each alternate week and such other times as may be agreed between the parties.
As to the property adjustment orders, the primary judge assessed the parties’ contributions as to 70 per cent to the husband and 30 per cent to the wife, but in taking into account the matters to which s 75(2) of the Family Law Act 1975 (Cth) (“the Act”) refers, adjusted the wife’s entitlement by 20 per cent, arriving at an equal apportionment between the parties. Orders were then made to give effect to that.
BACKGROUND
It is helpful to set out some of the factual background to give context to the issues agitated on the appeal.
The parties began living together in 2005, married in October 2008 and separated in December 2016.
During the marriage the parties lived in Suburb F. At separation they agreed that the wife and children should move to City P while the husband remained in Suburb F to complete tertiary studies. The husband moved to City P in June 2017.
Before the husband moved to City P, he and the wife agreed on the time the children would spend with him and he travelled to City P each fortnight to spend time with the children at his sister’s house. That time did not include overnight which was agreed to commence in April 2017.
While the children commenced spending overnight time with the husband in April 2017, it was not all smooth sailing and the wife’s evidence was that the younger child, became upset and although she said she did all she could to encourage the children to spend time with the husband, by March 2018, the younger child did not want to attend. Nonetheless, on 19 June 2018 orders were made that from 29 June 2018 the children spend overnight time with the husband each alternate weekend.
By April 2019, both children were objecting to spending time with the husband, and this coincided with the husband’s marriage to his new partner.
The husband and wife were at odds as to why the children were reluctant to spend time with their father, however, except for a period of several hours on 30 October 2019 when the husband and the children were assessed together for the preparation of a Family Report, the husband did not see the children from 31 March 2019.
Some attempts at reconciling the children’s relationship with their father were made through what the primary judge described as “reunification therapy” but were not met with signal success. At the date of the hearing before the primary judge the younger child was spending a few hours each week with the husband. The older child was refusing to see the husband.
The primary judge had the benefit of two reports from a Family Consultant; the first dated 13 June 2018 which was obtained for the purposes of an interim parenting hearing and the second dated 4 March 2020 which was for the final parenting hearing at which time the older child was aged 12 years and the younger child aged 10 years.
The two reports chart a significant deterioration in the children’s relationship with the husband. The primary judge noted that in the first report the older child described his mother as a “great person who is caring and helps him”, and said he enjoyed spending time with his father, but while he said he did not want to increase that time, he did not want it to decrease (at [203]). The younger child said he did not like to visit his father but apart from saying that what they did together was not “fun”, was unable to elaborate on what might make him feel more positive about seeing his father (at [208]).
At the time of the second Family Report, the children were not spending time with the husband and the older child could not be persuaded to even be with the husband for the purposes of assessment (at [220]).
In the conclusion to the second report, the Family Consultant said she could identify no reason why the children would not spend time with the husband. The consultant noted a dramatic deterioration in the children’s “connection and emotional attachment with the husband” since the first report (at [225]).
The Family Consultant recommended that the children’s relationship with the husband be supported by court order. She also said that she would not support an order for sole parental responsibility in the wife because, it would “define the [husband] as tangential” to the children’s lives (at [226]). Nor did she support the children being given the choice to decide whether or not to see the husband (at [226]). The Family Consultant said that unless the children’s relationship with their father is supported they “may have an unreasonable and unjustified negative view of the husband in the long term” which would not be to their advantage (at [235]).
The primary judge noted that when the first report was prepared the children said they loved their father and their hesitation in spending time with him was concerned with the nature of the activities they did with him and not in spending time with him per se.
The primary judge said it was no coincidence that the deterioration in the children’s attitude to the husband occurred at the time of his remarriage and the primary judge found the breakdown of the children’s relationship with the husband around the time of his remarriage was not as a result of a “significant subsequent event or adverse incident” (at [258] and [265]).
After considering the parties’ complaints against each other as to their parenting, the primary judge said:
270. [The younger child] currently spends time with the husband whereas [the older child] does not. There is little or no cogent explanation from the children which would explain any reluctance or refusal by either of them to engage with their father.
271. [The Family Consultant] is more direct. She contends that the children would benefit from spending time with the husband, not necessarily based upon a current benefit but rather to ensure that the children do not progress in life holding a false belief that their father does not love and care for them.
272. The reluctance of [the older child] to engage with his father is not an indication that there is absent a meaningful relationship. There was a beneficial and important relationship between the husband and the children up until April 2019.
The primary judge thus found that there was a benefit to the children in maintaining a relationship with their father.
Turning then to the children’s views, the primary judge found that the wife was “strongly supportive of the children’s wishes. She is unlikely to provide fulsome support for the children to spend time with the husband” (at [276]). This had the effect of tempering the weight that the primary judge afforded the children’s expressed views.
Further, the primary judge found that even though there was, at the time of the hearing, an order in place that the children spend time with their father, the wife does not force them to go, nor promote the older child to see his father (at [282]).
The primary judge concluded that for the children to have the benefit of a meaningful relationship with the husband there needed to be a cautious and measured approach to what time they spend with him (at [284]). His Honour’s orders continued the then current order that the children have dinner each week with the husband and increased the time that they spend with him incrementally (at [307]–[312]).
The wife sought an order for sole parental responsibility whereas the husband sought an order for equal shared parental responsibility. The primary judge declined to order that the wife have sole parental responsibility because, he noted the Family Consultant’s concerns as to the implied effect on the children of the importance of the father in their lives (at [318]).
His Honour did though acknowledge the “appalling lack of communication between the parties. They are mistrustful of each other and are only able to communicate via email” (at [319]).
Apart from the children’s education and health, in respect of which the wife was to have sole parental responsibility, all other aspects of the long term and important decisions for the children would be the responsibility of both parents (at [321]).
THE PARENTING APPEAL
Three grounds of challenge to his Honour’s parenting orders were raised. Ground 1 challenged Order 10[1] which, it was said, was inconsistent with the order that the mother have sole parental responsibility in relation to the children’s health. During the appeal it was conceded that the challenge was well made and counsel for the parties each agreed on a form of words in substitution for those in Order 10 which would address the inconsistency and was as follows:
That the parties be restrained and an injunction granted restraining either party from engaging the children or each of them in any therapeutic intervention by a psychologist, psychiatrist or counsellor that relates to or arises from the relationship of the father with the children.
[1] Order 10 – That the parties be restrained and an injunction granted restraining either party from engaging the children or each of them in any therapeutic intervention by a psychologist, psychiatrist or counsellor other than may be agreed between the parties.
We will thus allow the appeal in part, set aside Order 10, and in lieu thereof make an order substantially in terms of the parties’ agreement.
Ground 1A contends that the primary judge erred in making the order for parental responsibility in that his Honour “fail[ed] to undertake the mandatory statutory analysis as required by Sections 61DA(1), 61DA(2) and 61DA(4)”. In the alternative, it was contended that the primary judge failed to give sufficient reasons for ordering shared parental responsibility.
Despite the opacity of the ground as set out in the Amended Notice of Appeal filed 24 May 2021, the thrust of the argument is two-fold, first, that in this particular case (excepting health and education) no other decision in relation to major long term decisions was likely to arise and so the wife should have sole parental responsibility. Secondly, it was argued that in light of the primary judge’s findings about the parties’ attitudes to each other and their inability to communicate, it was not in the children’s interests for there to be shared parental responsibility.
We do not accept the first part of the challenge. We do not understand on what basis it could be contended that in the lives of two young adolescent boys, no long term major decision will arise in the future save for health and education.
As to the second part of the argument, true it is that, as the primary judge described at [319], there was an “appalling lack of communication”, that of itself cannot dictate that an order for equal shared parental responsibility is not in a child’s best interests. It is clear from the primary judge’s reasons that notwithstanding that lack of communication, to order that the mother have sole parental responsibility would reduce the importance of the father in the children’s lives to being “tangential” and in the face of the primary judge’s findings that the children would benefit from a continuation of the meaningful relationship they previously enjoyed with him, would not be in their best interests.
That finding was amply supported by the expert evidence and, taken with the primary judge’s findings about the mother’s apparent lack of enthusiasm in promoting the children’s relationship with the father, was a conclusion well open to him. No error has been demonstrated.
Ground 2 is difficult to understand and it is as well to set it out in detail. It contends that the primary judge “failed to consider section 60CC of the Act more generally in arriving at an Order, which the Court considered proper under section 65D of the Act”. Pausing there, with respect to the author of the ground, it is cast in such wide and oblique terms that it is impossible to understand what is being asserted and is therefore impossible to address.
The ground also contains three sub-grounds of which Grounds 2.2 and 2.3 are couched in the alternative, and contend that the primary judge erred:
·in finding at [180] that the wife had “provided active encouragement to the children to terminate communications with the Husband”, which was said to be against the weight of the evidence (Ground 2.1);
·in failing to undertake the mandatory statutory analysis required by ss 65DAA(2) and 65DAA(5) (Ground 2.2); and
·in the alternative, if the primary judge did have regard to the matters to which s 65DAA(5) referred, erred in making Orders 4(a)–(c) which were contrary to the weight of the evidence and to the primary judge’s findings (Ground 2.3).
Dealing first with the challenge in Ground 2.1 which is a challenge to his Honour’s finding of fact at [180]. As long ago as 1971, in Edwards v Noble (1971) 125 CLR 296 Barwick CJ said at 304:
The question is not whether the appellate court can substitute its view of the facts which, of course, it is empowered to do: but whether it should do so. In any appeal against a finding of fact, whether or not by way of rehearing, however much the appellate court may be in an equal position with the trial judge as to the drawing of inferences, in my opinion, the appellate court ought not to reverse the finding of fact unless it is convinced that it is wrong. If that finding is a view reasonably open on the evidence, it is not enough in my opinion to warrant its reversal that the appellate court would not have been prepared on that evidence to make the same finding. Merely differing views do not establish that either view is wrong.
Thus, was the finding reasonably open on the evidence? It is not to the point that, as the written argument contends, that the Family Consultant did not reach that conclusion. As his Honour points out at [226], the Family Consultant commented on the wife’s position which was that the children could determine whether they saw their father. She said:
I do not think that giving the boys a choice about whether or not they see their father is reasonable at this stage, because in their current mood, they will say they do not wish to see him and I think if steps are not taken soon to re-establish contact between the boys and their father, that relationship is at risk of serious or perhaps even long term fracture. If this were to occur, it most certainly would not be in the best interests of the children. I am also inclined to think that given the on-going previously good connection between the boys and their father, there is enough of a foundation that repair can occur and can be followed by things settling and normalising between [the husband] and the children. In any event, I think vigorous efforts should be made in this direction. I am inclined to see [Ms B] as a positive and supportive person (to the children) in the background as the children normalise their connection with their father.
(Family Report dated 4 March 2020, p.14–15)
In our opinion there was abundant evidence on which his Honour could make that finding and this challenge is not made out.
Turning then to Ground 2.2, we confess to finding the challenge as expressed in the ground difficult to understand, it being so broad as to give no indication of what is in fact said to be the error. The Summary of Argument does not address that sub-ground, and thus, as with the complaint at the commencement of Ground 2, it is impossible to address.
The alternative challenge, Ground 2.3, refers to the primary judge’s orders which build on the then existing arrangements to provide an increasing regime of time between the children and the father. Those orders, it was argued were against the weight of the evidence and contrary to the primary judge’s findings.
Counsel for the wife’s Summary of Argument adds some illumination to the ground in that it is submitted that the primary judge was wrong to conclude that the children’s relationship with their father was capable of being restored and he ought to have found that in light of the “intractable inter-parental dysfunction” there existed a dysfunctional relationship between the children and their father which could never be addressed (Transcript 21 June 2021, p.46 lines 7–13). Aligned with this contention was the argument that in making the finding that he did, the primary judge did not properly consider the children’s best interests.
First, his Honour did not conclude that the children’s relationship could be restored but it is clear that he considered that an attempt should be made to reinstate it. The expert evidence gave support for his Honour’s conclusion. Further, as his Honour noted, at the time of the hearing, the younger child was seeing his father each week. We do not propose to rehearse the evidence to which his Honour referred in his detailed reasons, but suffice to indicate that, again, we do not accept that his Honour’s finding was against the weight of the evidence.
Given that the findings were well open to his Honour, the primary judge’s consideration of the children’s best interests was not affected by error.
The challenges to the parenting orders are not made out.
THE PROPERTY ADJUSTMENT APPEAL
When the parties lived in Suburb F they acquired a property in that suburb which was eventually sold. At the time of the hearing before the primary judge the net proceeds of that sale of about $398,071 were held in a joint account.
In December 2016, the husband’s mother died leaving him an inheritance of $851,387. From that sum, the husband paid a deposit on and some of the purchase price of a property in Suburb G, South Australia.
As the primary judge’s reasons reveal, there were disputes between the parties about what was to be included in the property pool to be considered in the property adjustment. For example, the primary judge made orders by way of partial property settlement and the parties were in dispute as to whether those payments or some of them were to be included in the property pool.
However, a significant matter in dispute between the parties was the husband’s interest in a family trust and how or to what extent his interest ought to be taken into account in determining the property of the parties. In fact, the only grounds of appeal which concern the primary judge’s property orders are those relating to the trust.
The trust
In 1975, many years before his death, the husband’s father, Mr Peat Snr, created the
L Family Trust (“the trust”). L Pty Ltd (“L Pty Ltd”) is the corporate trustee of the trust.
The beneficiaries identified in the trust document are Mr Peat Snr and his wife, the husband, his three sisters, and the grandchildren of Mr Peat Snr, including the parties’ two children. There are secondary beneficiaries but it is not necessary to consider them to understand the wife’s argument on appeal.
Relevantly, the terms of the trust stipulate the vesting date of the trust is 2055, but also give the trustee power to bring that date forward. Until the vesting date, the trust entitles the trustee to pay the whole or any part of the income of the trust fund to one or more of the beneficiaries (Clause 2(a)). The trustee may pay not only the income of the trust to the beneficiaries or some of them but Clause 4 permits the payment out of capital including accumulated income of up to 90 per cent of the value of the fund (Exhibit 16).
In his will made in 2012, Mr Peat Snr bequeathed his shares in L Pty Ltd to his grandchildren on their attaining 30 years of age. By a codicil executed in 2014, that age was reduced to 25 years and provided that his grandchildren equally receive the shares in L Pty Ltd.
The will also provided for an annual allowance to be paid to Ms S, Mr Peat Snr’s widow. The allowance was set at $200,000 and is to be increased in accordance with the Consumer Price Index. By subsequent agreement between the beneficiaries and the trustee, it was decided that the allowance should be funded as to 60 per cent from the L Pty Ltd Superannuation Fund of which Ms S is the sole trustee and member, and the balance of 40 per cent from trust income.
In his will, Mr Peat Snr expressed the wish that the net trust income, after payment of the allowance to his widow, be distributed equally to his four children (the husband and his three sisters). While there is no direct expression of intention, the family assumed and has acted on the assumption, that Mr Peat Snr wished the corpus of the trust to be preserved for the benefit of his six grandchildren. The wife too accepted this was Mr Peat Snr’s intention (at [375]).
Mr Peat Snr bequeathed to each of the husband and his sister Ms CC, 50 per cent of the shares in L Pty Ltd. While neither is a director of L Pty Ltd, as shareholders, the husband and his sister may determine who will be the directors of L Pty Ltd. At the time of the hearing before the primary judge there were three directors; Mr J, the husband of Ms EE, the husband’s sister,
Mr V, and Ms S, Mr Peat Snr’s widow.
Against this background, we turn to the challenges to the primary judge’s orders and impugned findings.
Three grounds of appeal challenged the primary judge’s property orders however only Grounds 4 and 5 were pressed. They are:
4. The learned Judge erred in his finding that there was no evidence to support a contention that the Husband, in concert with third parties, caused the premature distribution of assets of the [L] Family Settlement and further, the learned Judge erred by failing to include the value of the Husband’s interest in the [City Q] property in the adjusted asset pool.
5. The learned Judge erred in his finding that there was no evidence to support a proposition that the Husband together with third parties acted in concert thwart [sic] the testamentary intention of the late Mr [Peat Snr] thereby increasing the assets available for distribution to the parties.
The grounds on their face are somewhat difficult to understand, however, the thrust of the grounds was made plainer in oral argument and devolved to several issues. The argument on the appeal rested on these issues rather than the terms of the grounds themselves and thus we will address the issues.
Potential control of the trust and its assets
It was the wife’s case (Wife’s affidavit filed 25 February 2020, paragraphs 133–137) that although at present the husband has no control over the trust, with his sister as a joint shareholder of L Pty Ltd, they can appoint and remove directors of L Pty Ltd, and the husband could persuade his sister to appoint him as the sole director of L Pty Ltd in which case he would then have control of the trust. So, it was contended, that despite Mr Peat Snr’s wishes that the capital of the trust be preserved for distribution to his grandchildren, trust capital and income could be distributed otherwise than in accordance with his wishes. The wife deposed: “[t]he trustees are therefore able to generate income for the applicant and his siblings even if that means that the trust assets be sold” (Wife’s affidavit filed 25 February 2020, paragraph 144).
Mr J is married to Ms EE, one of the husband’s sisters. Their child is one of the ultimate beneficiaries of the trust and Mr J is a director of L Pty Ltd.
Mr J said of L Pty Ltd:
[L Pty Ltd] is a non-operating entity and serves only as the corporate trustee body to manage the assets of the Family Settlement. [The husband] holds this 50% interest on a non-beneficial basis; this reflects the direction under [Mr Peat Snr’s] will that the assets of the trust be passed to [Mr Peat Snr’s] Grandchildren when they reach the age of 25. [The husband] therefore has a fiduciary duty to ensure that all decisions of the trustee are in the best interests of the future beneficiaries (i.e. his own children and those of his sister [Ms EE]).
(Mr J’s affidavit filed 3 February 2020, paragraph 8)
Further and in relation to the wife’s contention as to the husband’s ability to wrest control of the trust, Mr J said:
[The husband] has had no direct involvement in the management of the Trust. I have read the [the wife’s] trial affidavit as it relates to [Mr Peat Snr’s] estate. Should [the husband] seek to pursue the sort of control that is inferred by the [the wife], there are a number of stakeholders who would not agree to that occurring, noting the negative impact to them financially or to their own children ([Mr Peat Snr’s] grandchildren).
(Mr J’s affidavit filed 27 August 2020, paragraph 12)
In his oral evidence, while Mr J agreed that the trust instrument created the possibility that the husband could act in relation to the trust as the wife contended, he said:
In the event that that was to happen, and the beneficiaries of the trust were to be disadvantaged – which, in this case, would be my children – if that was the action that was taken, then I would obviously pursue whatever action I would need to preserve that.
(Transcript 1 September 2020, p.152 lines 2–5)
The primary judge rejected the wife’s contention and said:
383. There is no evidence that following the Grant of Probate in respect of the husband’s father’s estate in 2016 that either the husband in concert with his sister [Ms CC] or otherwise has exercised any level of control in respect of [L Pty Ltd] for his or their separate benefit.
….
385. I do not consider that there is any evidence to support the contention that the husband, in concert with [Ms CC], could or would set upon a course of action to cause the premature distribution of the trust property contrary to the testamentary wishes of the husband’s father.
386. It must be remembered that the class of beneficiaries are extensive and the potential for third party interests to be affected go beyond the husband and his siblings.
387. I am left in no doubt that it is the intention of the husband, his siblings and the non-family directors of [L Pty Ltd] to manage the trust, with an intention that the grandchildren will receive valuable benefit upon each of them attaining 25 years of age.
As Mr J made plain in his oral and written evidence, the husband and his sister have a fiduciary duty to act in the interests of all beneficiaries, including their own children, and as Mr J alluded, each of the beneficiaries has actions available to them should the husband take control of the trust.
We also add that there was no evidence at all before the primary judge that the husband had ever attempted to suborn his sister with the aim of defeating the purpose of the trust. The contention before the primary judge was nothing more than speculation and he was entirely correct to reject it.
The distribution from the sale of Location T
One of the properties held by the trust was a commercial property in Location T in City P (“Location T”). That property was sold in 2017 and resulted in the trust receiving $4,285,425.
Three distributions were made from the sale proceeds – $1,071,356 to each of two of the husband’s sisters, and the third, Ms CC, received $2,142,713. The husband did not receive a distribution. The wife contended that Ms CC had received the “husband’s share” of the distribution and argued that therefore Ms CC held so much of the distributions as represented the husband’s “share” on trust for the husband, and that sum ought be included in the balance sheet of the parties’ assets.
The primary judge declined to include that amount in the balance sheet.
By way of background to this issue, we refer to the unchallenged evidence of Mr J. He said the intention of Mr Peat Snr was that his four children would receive distributions of the net income of the trust after the payment of Ms S’s allowance. However, in the years after
Mr Peat Snr’s death in 2014, the trust was insufficiently profitable to enable distributions to the husband and his sisters (Mr J’s affidavit filed 3 February 2020, paragraph 12).
Mr J said that the sale of Location T created a capital gain in the trust and the trustees took legal advice as to how the principles of distribution would be applied. It was decided that the proceeds should be treated as capital rather than income and be retained in the trust for the benefit of Mr Peat Snr’s grandchildren. Further it was decided that for taxation purposes, to advantage the trust, there should be a “notional distribution” of those proceeds to the beneficiaries to be taxed in their hands and the net funds after payment of the tax returned to the trust. The advantage to the trust was that the rate of taxation in the hands of the husband’s sisters was lower than that which the trust would have to pay (Transcript 1 September 2020, p.157 lines 8–14).
And so it came about that the husband’s three sisters received a distribution of those funds. The funds distributed were taxed in the sisters’ hands, the trust paid the tax assessed and each sister returned the net amount to the trust accompanied by a signed deed forgoing any right to seek the return of the money distributed to them (Transcript 1 September 2020, p.139–140).
The husband did not receive a distribution because, Mr J said, to do so would have artificially inflated his income at a time when he was paying child support and was embroiled in the family law litigation, and in circumstances where none of the siblings received a financial benefit from the transaction (Transcript 1 September 2021, p.152 lines 40–46).
It was the wife’s argument to the primary judge that the husband had an entitlement to a share of the distribution, and that Ms CC had received both her and “his share”. Some support was said to be gained for this position by the husband and his solicitor both speaking about “his share” being received by Ms CC. It was further argued that the distribution to Ms CC was a device to prevent the husband’s “share” being taken into account in the property proceedings with the wife.
The underlying premise of the wife’s contention was that whether notional or not, what the sisters received was a distribution of net profit from the trust. Mr J disagreed with the wife’s characterisation of the distributions.
His evidence was that the trustee has the right to characterise deposits into the trust and it was decided that the funds from the sale of Location T which was a capital asset were to be treated as capital (Transcript 1 September 2020, p.159 lines 17–20). Nor did he agree with the proposition that the beneficiaries had a “genuine present entitlement to be paid out those amounts” (Transcript 1 September 2020, p.159 lines 28– 31). In answer to the question of what would happen should Ms CC or one of the other sisters seek the return of the money distributed to them, he said:
[MR J]: I would first of all say you’re not entitled to them because you’ve signed a deed foregoing your right to that, and beyond that I would say it’s not consistent with the trustee’s intention to hold capital for grandchildren, and I wouldn’t support it.
(Transcript 1 September 2020, p.166 lines 8–11)
No evidence was brought by the wife to contradict this evidence, and nor was it otherwise challenged.
The primary judge said:
360. There was an anomaly to the anticipated exercise of the trustees’ discretion as to distribution of profit in the 2017 year. The Family Settlement Trust held an interest in a building in the [Location T]. In the 2017 financial year the property was sold with a profit of $4,285,425. A distribution was made to [Ms CC, Ms EE and Ms BB] but not to the husband. The decision not to distribute to the husband was deliberate and in part was in an attempt to simplify the litigation, in particular in respect of the assessment of child support.
361. The overarching intention of the late [Mr Peat Snr] was that the entirety of the [L Family] Trust is to pass to his six grandchildren upon each of them attaining the age of 25 years.
362. The three beneficiaries of the trust distribution in the 2017 financial year each signed a Deed of Covenant which directed the notional distributions to be re-invested as capital by the Family Settlement Trust.
His Honour further said:
387. I am left in no doubt that it is the intention of the husband, his siblings and the non-family directors of [L Pty Ltd] to manage the trust, with an intention that the grandchildren will receive valuable benefit upon each of them attaining 25 years of age.
Returning then to the ground of appeal, it was argued the primary judge erred in failing to include $1,071,356 in the property pool of the parties, because for the husband not to receive that amount was to fly in the face of Mr Peat Snr’s intentions.
This argument cannot succeed. Given that Mr J’s evidence as to how the capital gain was characterised was unchallenged, the primary judge was entirely correct in accepting that evidence, and finding that the payments to the siblings was not a distribution of net income from the trust to which they would ordinarily be entitled.
This contention is not made out.
The husband’s interest in the trust
The wife further contended that the husband held a 25 per cent beneficial interest in the trust which she valued at $609,664 and which should be included in the balance sheet. This contention was abandoned at the appeal. It was however argued that future distributions from the trust income ought to have been taken into account by the primary judge as a financial resource of the husband. The wife further argued that distributions received in 2018 by the husband from the trust ought be included in the balance sheet of property of the parties.
On past and future distributions, the primary judge said:
388. The wife also seeks to bring to account the funds received by the husband in the 2018 and 2019 financial years. The distributions received by the husband are properly to be considered as income in his hands. The distributions are the subject of declaration by the husband as part of his taxable income. It may well be that the potential for future distribution of income will be treated as a valuable financial resource in the hands of the husband, however, the evidence of [Mr J] is that income available for distribution is as a result of the [Location R] Development maturing consequent upon the sale of allotments.
389. I accept the evidence of [Mr J] that the income stream will come to an end within the next few years.
Although it was argued that the primary judge erred in not taking any future distributions from the trust into account, counsel for the wife conceded that there was no evidence what the value of these future distributions might be.
The primary judge clearly accepted Mr J’s evidence that the distributions from the trust will soon conclude once the sales of allotments in the property development are completed. Further, given there was no evidence on which the primary judge could possibly attribute a value to the future distributions, he was correct not to attempt to quantify the value to the husband of any future distributions. In any event, when taking account of the matters to which s 75(2) of the Act refer, the primary judge took into account that the husband may receive a “substantial distribution” from the trusts’ property development (at [425]).
On the evidence before him, the primary judge could do no more.
No error has been established.
City Q property
Although Ground 4 contended that the primary judge erred in failing to include in the property pool part of the value of the property in City Q occupied by Ms S, that was not pressed on appeal.
The appeal from the property adjustment orders will thus be dismissed.
COSTS
The husband sought an order for costs against the wife should the appeal be dismissed, fixed in the amount of $30,000.
Counsel for the wife opposed any costs order arguing that the challenge to the property orders was reasonable. Submissions were also made which referred to the wife’s inferior financial position to that of the husband.
The wife’s appeal both as to the property adjustment and the parenting orders (save and except in relation to Order 10) was wholly unsuccessful, and as we have noted some property grounds were abandoned during the appeal hearing. On that basis we are of the view that the wife should pay the husband’s costs as sought.
I certify that the preceding ninety-three (93) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justices Strickland, Ainslie-Wallace & Aldridge.
Associate:
Dated: 12 November 2021
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