NYLES & NYLES
[2011] FamCA 565
•19 July 2011
FAMILY COURT OF AUSTRALIA
| NYLES & NYLES | [2011] FamCA 565 |
| FAMILY LAW - PROPERTY – Section 79A application to set aside consent orders – miscarriage of justice by reason of fraud, suppression of evidence, the giving of false evidence of any other circumstance – whether wife failed to disclose information material to the valuation of a shareholding – where parties made orders and a binding financial agreement by consent – whether wife had an obligation to disclose confidential information – whether wife had an obligation to disclose information that was in the public domain – where husband was advised not to consent to orders because solicitors had inadequate information – husband did not rely on advice of solicitors – husband did not rely on knowledge or representations of the wife. FAMILY LAW - PROPERTY – Section 90K application to set aside a binding financial agreement – where it was alleged agreement obtained by fraud – husband’s non reliance on wife’s fraudulent misrepresentation and non-disclosure. |
Family Law Act 1975 (Cth)
Corporations Act 2001 (Cth)
Evidence Act 1995 (Cth)
| Australian Steel and Mining Corporation Pty. Ltd. v. Corben (1974) 2 N.S.W.L.R. 202 |
| APPLICANT: | Mr Nyles |
| RESPONDENT: | Ms Nyles |
| FILE NUMBER: | MLF | 4247 | of | 2003 |
| DATE DELIVERED: | 19 July 2011 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Mushin J |
| HEARING DATE: | 30 - 31 May 2011, 1 June 2011 & 10 June 2011 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Dr Pannam QC with Mr Strum of Counsel |
| SOLICITOR FOR THE APPLICANT: | Taussig Cherrie Fildes & Associates |
| COUNSEL FOR THE RESPONDENT: | Mr Minahan of Counsel with Ms Teicher of Counsel |
| SOLICITOR FOR THE RESPONDENT: | James D Mapleston |
it is ordered that:
The husband’s Amended Application filed on 11 October 2005 together with any other extant application be and is hereby dismissed and removed from the list of cases awaiting hearing.
Liberty be reserved to either party to make an oral application to Mushin J for any order arising out of these orders, including an order for costs, at 10.00 am on Friday 22 July 2011, written notice of any such application to be given to the other party by no later than 12 noon on Thursday 21 July 2011.
IT IS CERTIFIED
Pursuant to Rule 19.50 of the Family Law Rules 2004 this matter reasonably required the attendance of Counsel and Senior Counsel.
IT IS NOTED that publication of this judgment under the pseudonym Nyles & Nyles is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLF 4247 of 2003
| Mr Nyles |
Applicant
And
| Ms Nyles |
Respondent
REASONS FOR JUDGMENT
introduction
On 10 March 2004 the husband and the wife consented to final orders ("the consent orders") and entered into a Binding Financial Agreement (“BFA”) resolving all issues between them with regard to parenting orders and alteration of property interests. The consent orders provided for the parties' two children to live in the primary care of the wife and spend time and communicate with the husband on five nights in each fortnight as well as substantial holiday and other times. The consent orders also provided for the husband to receive a little less than 60% of what were agreed to be the relevant assets at that time.
One of those assets is at the heart of these applications. At the time of the consent orders and the BFA the wife was a director of a company which is commonly known as J Company ("the company") but that is not its formal appellation. Prior to and at that time the company was engaged in the process of converting from a private to a public company. While the outcome of that process was then uncertain, it floated on the stock market a little less than two months after the making of the consent orders and the BFA. As a result of that float, the wife's shares in the company vastly increased in their value which the wife realised to achieve a large windfall.
Following the float and the increase in the value of the wife's assets, the husband made application to the Court pursuant to the provisions of section 79A of the Family Law Act 1975 ("the Act") seeking to set aside the consent orders with regard to alteration of property interests and for the rehearing of that issue. Contemporaneously, he made an application to set aside the BFA pursuant to section 90K of the Act.
Fundamental to the husband's application are questions of whether the wife made a full and frank disclosure of all relevant matters prior to the making of the consent orders and whether the husband relied on any representation made by the wife or alternatively, made his own decision to settle the matter irrespective of any belief that he may have had that the company was about to float on the stock market.
The proceedings
The proceedings have had a long and tortured history. The main issue in the preparation for trial has been the question of third-party discovery of relevant documents by the company. The major hurdle standing in the way of such discovery has been the extremely commercially sensitive nature of the process which ended in the float and the consequent difficulty of disclosing documents which were, in many instances, properly classed as being commercial-in-confidence.
There have been a number of interlocutory applications which considered that issue. One of the issues in those applications was the Court's power to require the wife to attend upon the company pursuant to the provisions of section 198F of the Corporations Act 2001 (Cth) to obtain documents to which she was entitled pursuant to that legislation.
Ultimately, the discovery process was completed and I gave consideration to the conduct of the trial of the husband's application. That consideration was determined by my reasons for judgment delivered on 11 May 2010. As I held in those reasons for judgment, the process of determining an application pursuant to section 79A of the Act entails three separate steps. The first of those is the question of whether a ground for varying or setting aside the subject orders has been made out. If that is answered in the negative, the application is dismissed. If answered in the affirmative, the second step requires a separate exercise of discretion as to whether the subject orders should be set aside. Again, if that is answered in the negative the application is dismissed. If answered in the affirmative the Court must then proceed to determine the competing applications for alteration of property interests.
My reasons for judgment and consequent orders referred to in the previous paragraph determined, for reasons set out therein, that the trial of the husband's application to set aside or vary the orders should, in the first instance, only consider the first step. This trial has been conducted on that basis. Also incorporated in this trial and these reasons for judgment is the question of the setting aside of the BFA. Accordingly, these reasons for judgment determine the question of whether the husband has made out a ground for the variation or setting aside of the consent orders and /or the BFA pursuant to the legislation. If I answer that question in the negative, the husband’s application is to be dismissed. If I answer it in the affirmative, a further trial will need to be conducted on the second and third steps referred to above, namely the question of the exercise of the discretion and the possible consequent determination of the competing applications for alteration of property interests as a result of what would then have been the variation or setting aside of the consent orders. Likewise, if I determine that the BFA is to be set aside, there will need to be a further trial to consider the consequences of such an order.
A considerable proportion of the evidence consists of affidavits, tendered documents and oral evidence of negotiations between the parties leading to the consent orders which, in other circumstances, would be privileged pursuant to the provisions of section 131 of the Evidence Act 1995 (Cth). As a result of orders and the parties' approach to this litigation, privilege has been essentially waived on both sides. No issue has been raised with regard to that save for a small matter of a Conciliation Conference which was resolved during the trial. The waiver of privilege has been an essential element of the proper conduct of this trial.
Credibility
While I will detail issues of credibility as necessary, it is appropriate that I make some general findings in that regard. Regrettably, I have concerns about the credibility of both parties. The husband gave different versions of his evidence in several important instances. There were times which I will particularise when I formed the view that his evidence was very unreliable.
I was more impressed with the credibility of the wife than I was with that of the husband. By way of general finding, she was clearer and more focused in her evidence than was the husband. However, by virtue of a number of negative findings which I will make, I also have reason to be cautious with regard to her credibility.
Save as indicated in the previous two paragraphs, it is unnecessary to make general findings with regard to credibility.
Relevant facts
Background
The wife is aged 58 years and the husband is aged 52 years. The parties married in December 1991 and separated in February 2003. A decree of divorce was pronounced on 3 October 2004.
The parties have two daughters aged 17 years. The parties, together with their daughters, have determined the circumstances in which the husband sees the children. They are not relevant to these applications.
The husband is presently employed in sales. The wife is presently employed as a consultant.
2001 to July 2003
In August 2001 the company was a public company called "[JG Firm Ltd]". On 11 August 2001 D Ltd ("[D]"), a venture capital investor, bought all of the shares in the company from a family and the public markets through a company called "[J Company Pty Ltd]" ("[J]"). As a result, the public company was privatised. The husband swore that the wife told him of that process, presumably at or about the time that it occurred.
A present joint managing director and shareholder of D, Mr P, a witness in these proceedings, described D's intent as follows:
11. [D's] investment in [J], and its acquisition of [JG Firm], was made with a view to increasing the value of the equity and then selling the company either through a "trade" sale to another party (for example, another private equity investor), or by way of stock exchange listing.
Mr P explained that D ultimately purchased 87% of the equity in J. The remaining 13% of the equity was acquired by "selected management". The wife was in the category of that selected management and acquired approximately 1.5% of the total equity. That equity was allocated by way of B class shares in the company ("the wife's shares"). The wife's shares were subject to conditions as sworn to by Mr P as follows:
14. The management shares were subject to a number of onerous conditions (inter alia) as follows:
(a) no right to sell, transfer or encumber the shares without [D] consent;
(b) strict confidentiality obligations;
(c) [D’s] right to purchase the shares at the “lower of cost and fair market value” in the event of a breach of shareholders agreement, cessation of employment on a full-time basis or breach of an employment agreement;
(d) limited voting rights; and
(e) an obligation to sell the shares if [D] disposed of its 100% equity in the company, known as a “drag right” in favour of [D].
In subsequent paragraphs of his affidavit, Mr P expanded the proposition that D, by virtue of its domination of the J board, was in total control. He swore:
15. … The fact that [D] could elect to vote its shares at board meetings was known by all board members, and as such there was acceptance that ultimately [D's] will and decisions would prevail in board debates.
There is substantial evidence to support D's total control of the J board. The proposition was not challenged during the trial and I accept it.
July 2003 to January 2004
I have already noted that the parties' separation occurred in February 2003. On 1 July 2003 an application was filed in the Court on behalf of the wife seeking parenting orders in respect of the parties' children.
The wife's evidence contained many allegations of intimidation and harassment of her by the husband, including stalking. On 31 July 2003 an intervention order pursuant to legislation of the State of Victoria was made against the husband preventing him from having any contact with the wife except for limited circumstances relating to the children. The order expired on 30 April 2004.
Mr P swore that D raised its desire to "exit" its stake in J in "late 2003". That evidence was inaccurate in so far as the date was concerned. The company minutes of the board meeting held on 14 August 2003, at which the wife was present, included the following:
[A board member] advised the Board of [D’s] intention of realising their investment in [JG Firm] within the next 12 months, with a target timeframe to completion at June 2004. It was agreed that the project is (sic) be referred to as [Project X].
The board established a subcommittee to conduct all processes necessary to achieve that end. It was determined that the exit would be achieved in one of two ways. The first was a sale of the company to "the trade" by way of a process of negotiation. The second was a public float by way of initial public offering ("IPO") utilising the process of a “book build”, the details of which are not presently relevant.
At the monthly board meetings of the company between September 2003 and January 2004, the board received reports of the progress of Project X. Those reports indicate that the project was proceeding. In particular, the report which appears to be dated September 2003 and would therefore have been presented to the October 2003 board meeting contains the following:
All work streams have now been launched with solid progress being made. At this stage, there is little evidence to suggest that a May IPO is still not the most likely outcome.
That prediction was accurate.
On 25 August 2003 the husband filed a Response to the wife's application referred to above. In addition to joining issue with her in regard to parenting orders, the husband sought an alteration of property interests pursuant to section 79 of the Act together with spousal maintenance.
Also on 25 August 2003 the wife filed a Financial Statement in which she disclosed her interest in the "[JG Firm]".
On 14 October 2003 the husband filed an affidavit in support of an application seeking that the wife pay him money to enable him to prepare his case. He swore:
19. I seek a lump sum payment by way of security for costs. I refer particularly to [the husband’s solicitor's] affidavit filed herein in support of this request. As I have insufficient information with which to properly advise my solicitors and accountants I cannot undertake meaningful negotiations in this matter until there has been full and frank disclosure, appropriate valuations and independent legal and accounting advice.
On 3 November 2003 a subpoena was filed on behalf of the husband addressed to an employee in the Human Resources Department of "[J Company Pty Ltd]" seeking various documents relevant to the wife's employment by that company. On 7 November 2003 an application was filed on behalf of the husband seeking, inter alia, that the wife pay him the sum of $141,750 by way of interim security for the cost of his legal, accounting and valuation expenses. The husband also sought spousal maintenance of $1800 per week.
On 11 November 2003 the wife swore a Financial Statement which was filed on the following day. At paragraph 35 the wife relevantly referred to "investments including shares in public or private companies" as "[J Company Pty Ltd] (per valuation summary attached)" as having "No current value". Importantly, the wife annexed a valuation of her shares in the company prepared by C Capital Pty Ltd ("[the C valuation]"). The C valuation was prepared at the request of the wife's solicitors. It states that it is current as at 10 November 2003.
The C valuation is an extremely important document in these proceedings. It details the nature of the wife's holding in J Company Pty Ltd. It provides more details of the severe limitations on her shares as compared with A Class shares. Those limitations were specified as follows:
·Right of the Investors to require disposal of the shares at any time and to control the price …
·No voluntary transfer without consent of the Investors and restrictions on approved purchasers …
·Obligation of owner to dispose of shares on termination or death or bankruptcy …
·Restraint of Trade …
·Warranties …
The above bullet points are quotes from the C valuation. In each case, I have omitted the specific reference to the relevant contractual documentation as being presently unnecessary.
The C valuation did not refer to the possibility of a float of the company but did state that the purpose of the leveraged buyout was to improve the company and sell it within 5 years. It valued the wife's shares in the company as follows:
The current net value of the shares taking into account the rights and obligations attaching to them is minus $278,853.
During his oral evidence the husband swore that he did not receive the C valuation or the affidavit to which it was annexed. He alleged that he had received a document of one or two pages which he referred to as a "Form 17". As I will detail shortly, that evidence is contradicted by his own solicitor. That contradiction, together with the manner in which he gave his evidence on this issue, is one of the reasons for my criticism of his credibility above.
On 12 November 2003, the proceedings came before Joske J. His Honour ordered that the wife pay the husband’s solicitors the sum of $5,000 -
to be expended by them on an accounting investigation into the wife's financial circumstances.
He also ordered that the husband and his legal advisers execute a confidentiality agreement in agreed terms, upon which the Shareholders Agreement in relation to [J] Pty Ltd be released for inspection and copying. That issue of a confidentiality agreement was litigated between the parties and the company on several more occasions including in these applications.
In her affidavit of evidence-in-chief in these proceedings, the wife swore:
28. In or about mid November 2003, I advised the husband about the possibility of a float in [J] within the context of settlement discussions directly between us.
At the commencement of his oral evidence, I gave the husband's counsel leave to lead oral evidence-in-chief from him. He was taken to the paragraph quoted above and asked to comment on it. He denied that the wife had advised him of the possibility of a float as she alleged. In cross-examination, the husband was asked about that denial. Senior counsel put to him that what had in fact been said by the wife was that she did not know whether the company was going to float and if so by what means.
The husband swore to a number of different versions of what the wife had told him with regard to the possibility of a float. Because of their importance to the husband's credibility and the significance of the issue of the husband's belief as to that issue, I quote the transcript by way of illustration:
DR PANNAM: Well, what I put to you, and I will put to you generally and come back specifically later, but when the subject of shares was discussed and the possible flotation or sale of the shares either by private sale or by float, she said she really had no idea, she didn’t know. And she couldn’t answer your question because she didn’t know when it was going to float or sell and she had no timeframe. It could have lasted a long time, it might not have. She didn’t know. That’s what she told you. That’s right, isn’t it?
HUSBAND: Yes, yes. Exactly. That’s right.
DR PANNAM: Thank you.
HIS HONOUR: Didn’t you say yesterday that, first of all, she didn’t know whether it was going to float or not?
HUSBAND: Yes, that’s correct.
HIS HONOUR: And, secondly, if it was going to float
HUSBAND:It would be in a few years time. It could be in a few years time.
HIS HONOUR: If you would be good enough to allow me to finish my question to you?
HUSBAND: Sorry.
HIS HONOUR: And if it was going to float, didn’t know whether it was going to be a trade or otherwise?
HUSBAND: Yes. She had no idea. It could be years to come and that’s only speculation if it was or so forth. That’s what she told me. It may not float.
HIS HONOUR: Whereas earlier evidence that you gave was that on 4 February she told you that it wasn’t going to float?
HUSBAND: Yes, correct.
HIS HONOUR: Those two propositions seem to me to be at odds with each other?
HUSBAND: Well, what she was saying to me, “It’s not going to float and if it is going to – if it is going to float, it will be years to come and the shares are worth zilch”. That’s what she told me.
HIS HONOUR: Yes. All right.
DR PANNAM: Well, can I put this to you. She didn’t say it would be years. If she said anything, is that she couldn’t make an estimate as to when it might be ?
HUSBAND: No, she did. She said it – it would be
DR PANNAM: and it “could” rather than “would” be years?
HUSBAND: Yes. She – no, she told me that, “It would be – it was going to float but it would be years to come. Two or three years to come.” That’s what she said to me. That was her words.
DR PANNAM: “That it would be years to come”?
HUSBAND: Yes “it could be years to come”.
DR PANNAM: “Could be”? Thank you?
HUSBAND: Yes.
HIS HONOUR: Well “would” or “could”? “Would” or “could”?
HUSBAND: “Could.” Sorry, semantics. I’m sorry. “Could” or “would”.
HIS HONOUR: No, it’s not semantics, Mr [Nyles]. It happens to be a very different proposition?
HUSBAND: Okay. “Could”. It could float in a few years time.
There are a large number of contradictions in the husband's sworn evidence on that topic of which those quoted in the previous paragraph are typical. Those contradictions are fundamental to my adverse finding against the husband on the issue of credibility. It will be evident below that the question of the husband's belief is one of the several central issues in these applications.
Further, the whole context of the evidence clearly indicates the husband's knowledge of the possibility of a float of the company from or about mid-November 2003 as alleged by the wife. The parties were in negotiations at that time and later that month the issue was discussed at a Conciliation Conference referred to below. The husband's denial of the wife's allegation cannot be correct.
On Sunday 16 November 2003 the husband sent an e-mail to his solicitor. He referred to the forthcoming "mediation day" which was in fact a Conciliation Conference conducted by a Registrar. He asked his solicitor to –
… have available tomorrow for me to pick up from your office -
1/ [The wife's] Statement 17 inclusive of the 200,000 "B" class shares.
…
6/ Finally, what you believe (subjective) a fair financial settlement would be in light of your previous experiences and what my chances would be to win in court if we dragged this out until next March?
The husband's solicitor responded to that e-mail by further e-mail on the following day. She wrote:
I will otherwise arrange for the requested documents to be available for collection at our reception desk however I note that a copy of [the wife's] Form 17 Financial Statement was already provided to you last week. I will arrange for another copy in any event.
I confirm that it is not possible for me to advise you as to your ultimate property entitlements until we have obtained a valuation from an accountant as to the value of [the wife's] shares in [J Company]. The only option available to you in the absence of this valuation would be for you to receive an equitable share of [the wife's] interest in [J Company].
I refer to my previous finding with regard to the husband's denial of receipt of the wife's Financial Statement. The quote in the previous paragraph contradicts that denial. As previously found, that goes to the husband’s credibility. The further relevance of that quote is the proposition that the husband’s solicitors were unable to advise him as to what would be a just and equitable settlement because of a lack of information. That proposition is repeated on a number of occasions in later evidence and is another central element to these applications.
On 19 November 2003 the husband wrote to the wife by e-mail stating:
We have taken into consideration the 200,000 "B" class [J Company] Management shares that you were paid a dividend of $140,000. The calculation of the shares are between $1.2 and $1.5 million at this present stage. Who knows the value if and when [J Company] floats?
…
I believe I am not as astute as yourself and have shown my cards (1st offer) and backed down even further again to settle with conditions of extended child contact and Intervention and Breach Charge withdrawals.
If we settle now, I will not hound you for any extra monies … .
On 24 November 2003 the wife's solicitors wrote to the husband’s solicitors offering to settle the proceedings. The reference to the wife's holding in the company was shown as follows:
1.4% equity in [J Company Pty Ltd] (tied to performance and subject to restrictions valued at $0.00 but our client will use for these purposes the share purchase price)
The value was shown as "E$200,000". Relevantly to these applications, the letter contained the following:
Our client will, upon being able to do so, transfer to your client such amount of shares as represents 5% of her current holding in [J] Pty Ltd. In the event that our client is unable to transfer shares to your client, she will sell such amount as represents 5% of the present holding and after deduction of capital gains taxation, will pay the proceeds of sale to your client.
The estimate of the value of the offer referred to in the previous paragraph was approximately $294,000 which amounted to approximately 38% of the total net assets on the basis of the company valuation, which for the purpose of the offer was stated to be $200,000. The offer contained the following statement:
If as [the wife] believes, the [J] shares have future potential, this will provide him with further capital.
As previously referred to, a Conciliation Conference was conducted by a Registrar of the Court on 26 November 2003. The wife alleged, and I accept, that the first offer referred to above together with the potential float of J and an allocation of shares to the husband were discussed. In her affidavit of evidence-in-chief she swore in relation to the conference:
My lawyer enquired whether the husband was interested in my proposal of taking a percentage of the shares if and when a float should occur and sharing with me (albeit not to the same extent) in either the benefits or burdens of the shareholding. The husband listened with interest in relation to the concept of taking an entitlement to a percentage of the shares, but did not commit to any negotiation in relation thereto.
…
The husband and I continued to pursue settlement negotiations thereafter, although the husband did not sustain interest in retaining any shares in [J].
In an e-mail to his solicitor later that day, the husband referred to the conference and the negotiations as being "positive". In a further e-mail to the wife after the conference, the husband expressed himself positively about the conference and wrote:
I am willing to settle as soon as possible as well. We still have a few hurdles to overcome.
The e-mail expressed gratitude for an arrangement made between the parties with respect to the husband spending time with the children of the marriage and stated:
I hope this is a big step in rekindling our friendship.
It is not correct for the wife to say that the husband did not sustain his interest in receiving shares, at least until the latter part of the negotiations. While the ultimate resolution of the proceedings did not involve the husband acquiring any shares in J, on 29 November 2003 he wrote an e-mail to the wife which stated in part:
This is my good and honourable intentions (sic) to finalise settlement immediately. The alternative will be long, drawn out, nasty and expensive. We will both lose out and bad blood between us will probably surface again. I want to be one of your best friends and I want you to be my close confidante and best friend as well (sic) I mean this with all sincerity and especially on behalf of the love and well-being of our children.
The e-mail proceeded to outline the proposed settlement framework and sought -
A percentage of your "B" class shares to be determined now or by the courts at a future date (at your suggestion).
On 3 December 2003 the husband's solicitor wrote an e-mail to the husband, initially advising him against communicating with the wife "on matters unrelated to contact with the children" on the basis that it contravened "the current intervention order against you." The e-mail continued:
2. We confirm our advice that we are not in a position to recommend a final settlement of property at this stage until we are able to verify [the wife's] financial position. Further, we have not been provided with key source documents relating to [the wife's] employment or the nature of her shareholding in [J Company]. Once [the wife] has disclosed all relevant financial information, we will be able to obtain a valuation of her shareholding in [J Company]. We will then be able to advise you as to your overall entitlements and put an offer of settlement to [the wife's solicitors].
A search of the records of the Australian Securities and Investment Commission (“ASIC”) is evidence in these proceedings. The search establishes that on 24 December 2003 ASIC received a document entitled “Application for Reservation of a New Name upon Change of Name”. The document was “processed” on the same day.
By January 2004 there was significant speculation in the financial media with regard to a possible float of J Company. Unbeknown to the media and the market, by notice dated 9 January 2004 members of the board of the company were advised of a General Meeting to be conducted in Sydney on 13 January 2004. The Special Business of the meeting which was proposed to be considered specified:
1.1 That pursuant to section 162(1) of the Corporations Act 2001, the Company convert from a proprietary company to a public company.
1.2 That, subject to this General Meeting approving special resolution 1.1, the Company change its name from [J Company Pty Ltd] to [JG Firm Limited], as from the date that the Australian Securities and Investments Commission alters the details of the Company's registration.
1.3 That, subject to this General Meeting approving special resolutions 1.1 and 1.2, the constitution of the Company submitted to the meeting and signed by the Chairman for identification be adopted as the constitution of the Company in substitution for the existing Constitution, as from the date that the Australian Securities and Investments Commission alters the details of the Company's registration.
That General Meeting was held, the wife attended and all three special resolutions were passed.
Following the passage of the above resolutions, later on the same day the company filed various documents at ASIC. The ASIC search reveals the receipt and processing of the following documents on 13 January 2004:
· Notification of Resolution;
· Changing Company Name;
· Converting to a Public Company;
· Altering the Constitution;
· Application for Change of Company Status Conversion of Company from Pty to Public; and
· Constitution of Company.
By e-mail dated 15 January 2004 to the wife and other members of the board, the company secretary sought the attendance of the addressees, including the wife, at a meeting in the following week to answer questions from potential purchasers of the company.
On 23 January 2004 the husband wrote by e-mail to his solicitor seeking an update on information including information from the company. He wrote in part:
[The wife] is trying to put a settlement offer on the table and I know that [J Company] is about to float within weeks.
It has now been over seven weeks since we all met with [a principal at the husband's solicitor's firm] and I want to put closure to the settlement offer ASAP.
Contrary to his solicitor’s advice, on 27 January 2004 the husband wrote a further e-mail to the wife. It was couched in an aggressive and threatening tone. The husband complained that he was not working and was "living off credit". He said that he would -
… continue to live off credit cards until March 9th or if you settle prior.
…
The longer this settlement offer from you procrastinates, the more likely that I will wait until the [J Company] float and find out your true worth in court. If we go to court, the wound will not heal but feaster (sic) and our lives will become more stressful and ugly. This is NOT a threat but a fact! I will not be pressured into an alternative settlement so YOU instruct [your solicitor] NOT to f*ck up. (Original abbreviation included)
…
Finally, let's see if you will provide the settlement offer tomorrow as promised and put an end to it all.
Apart from the substance of the correspondence quoted in the previous paragraph, its style and tone is relevant. I have already made findings with respect to the Intervention Order proceedings issued by the wife against the husband in the State Court. The wife gave other evidence that the husband harassed and stalked her. By way of denial of the wife's evidence in that regard, the husband swore that the wife had been aggressive towards him.
The husband is not claiming that he entered into the consent orders and executed the BFA under duress. However, underlying his evidence was a subtle but clear inference that he felt intimidated by the wife during the negotiation process. I allowed some exploration of the competing allegations during cross-examination if only on the question of credibility. The entirety of the evidence relevant to this point, including the husband's e-mail quoted above, satisfies me that the husband did resort to some degree of verbal violence. While it is correctly not suggested that the wife was adversely affected by the husband's behaviour, the husband's credibility has been adversely affected by this issue. Nevertheless, I emphasise that the issue does not pertain to a substantive fact in issue but rather goes to the question of credibility and then, in the circumstances, only marginally so.
I have previously referred to the e-mail from the husband to his solicitor written on 23 January 2004. On 28 January 2004 the husband sought a response. Later on that day the solicitor replied to the husband in part as follows:
I have written to [J Company] seeking their full compliance with our subpoena issued on 3 November 2003. I will advise you of any response (sic) this regard.
…
I confirm that all documents in my possession had been provided to [Mr S]. [Mr S] has only recently confirmed with me the further documents that will be required to complete his valuation of [the wife's] interest in [J Company]. I have written to [the wife's solicitor] seeking this information and will advise you of their response in due course. A copy of this correspondence has also been sent to you by post.
Mr S is a valuer who had been previously engaged on behalf of the husband and was later re-engaged for these applications. While I will refer to him further below, I quote from this e-mail for the purpose of noting that at least no later than late January 2004 the husband's solicitor had engaged a valuer for the purpose of valuation of the wife's interest in the company.
At some time on or before 28 January 2004 and perhaps nine days earlier, the wife forwarded documents to the husband by e-mail. On that last date the husband forwarded those documents to his solicitor. His e-mail stated:
She tells me that if I don't accept, that this will be her final offer before court and I will end up with less.
After speaking with a stockbroker last Friday, he tells me that [J Company] is listed and just about to float.
The stockbroker referred to by the husband was a casual acquaintance and a customer of the husband in the latter's apparently casual employment in the hospitality industry. In evidence, the husband was unable to provide any further identification of that person.
The e-mail referred to in the previous paragraph contained several features. The first of those was the husband's claim that he was in dire financial circumstances. He wrote:
… I cannot afford any more legal expenses and I am constantly told that I should settle with her and escape these expensive legal cost (sic).
I want to put all this behind me now and get on with life.
The husband summarised the wife's settlement proposal and in colourful language indicated his view that he would receive very little from the settlement. He complained about the state of his life and expressed concern that his need to work was preventing him from having sufficient access to his daughters. He wrote:
Please advise honestly and tell me if we should pursue [the disclosure issue] and/or investigative accountant or should we put these monies towards your fees?
The husband's solicitors replied to the husband by letter dated 29 January 2004. Under the heading "Property Settlement", they wrote:
We are simply not in a position to advise you as to whether the settlement proposal is within the range of what you may receive from the Court if the matter were to proceed to trial.
We refer to previous conferences in this matter and confirm our advice that we will require a valuation of [the wife's] shares in [J Company] before we are able to give you such advice.
If [J Company] is about to float, then it would be in your interests to delay any further settlement discussions until the float has taken place.
The letter referred to the inclusion of a lump sum maintenance component within the settlement proposal and advised that it may provide some difficulty for the husband. The letter otherwise considered issues of contact and child support, notations and the intervention order.
Also on 29 January 2004, the husband’s solicitor wrote to the wife’s solicitor advising of the appointment of Mr S "… to prepare a valuation of your client’s interest in [J Company] Pty Ltd.". The wife's solicitor was asked to "confirm whether your client is prepared to provide us with these documents as soon as possible."
February 2004 to 8 March 2004
On 4 February 2004 the wife’s solicitors wrote to the husband’s solicitors by e-mail forwarding what I assume were the same Minutes of Consent Orders referred to above together with a draft BFA and Child Support Agreement. The e-mail advised:
The provision of the attached drafts (sic) have been reached by the parties pursuant to direct negotiations conducted between them over the last few weeks.
The attached drafts represent our client’s final position and she is not open to further negotiation as to any substantive matters.
The e-mail referred to several matters contained in the drafts which are not relevant at this stage.
There is one provision of the draft orders which is potentially important in these applications. It is in the following terms:
20. That save and except for the purposes of enforcement of these orders and any orders consequential thereto, the wife retain to the exclusion of the husband and the husband relinquish any entitlement to the assets and resources in the possession of the wife and without limiting the generality thereof:
…
(b) her shares in:
(i) [J Company] Pty Ltd (“[J]”) … .
I will refer to that matter further below. However, for present purposes I note that the provision in subparagraph (b) above was included in the consent orders in those terms.
The husband's solicitors replied to the letter referred to the previous paragraph on the same day. They wrote in part:
Our client accepts the goodwill with which your client has made this proposal. However as his lawyers we are in the impossible position of being unable to advise our client of his overall entitlements without a valuation of your client’s interest in [J Company] or information relating to any proposed float of this company.
The solicitors expressed the view that the offer was inadequate and continued:
For each of the two reasons above we are simply not in a position to recommend your client’s settlement proposal to our client. Nor can we properly advise him in relation to same.
A further request was made for the documents referred to in their letter of 29 January 2004 referred to above.
On 5 February 2004 ASIC received a notification of Change to Company Details, the particulars of which were -
· Changes to Share Structures;
· Notification of Share Issue;
· Changes to (Members) Share Holdings; and
· certain changes of office holder/member names addresses.
The effective date of the changes was the date of their receipt but the document was not processed until 24 March 2004, that is after the making of the consent orders and the signing of the BFA.
On 6 February 2004 the husband wrote to the wife by e-mail and sent a copy of it to his solicitor. He thanked her for –
… not attending a police station and having me charged for phoning you and technically breaching the Intervention Order. As you know, I could be imprisoned.
I will formally retract any accusation of you blackmailing/threatening me with forcing the signing of our settlement offer. I will inform [my solicitors] to do the same. This will not be recorded or used as evidence. (emphasis included)
All I require for us to settle is for relevant documentation (sic) forwarded to [my solicitors]. For peace of mind and for the sake of our health and well-being, could you forward any details you have on your package, bonuses and float details.
The husband sought certain financial calculations "and the amended settlement offer we agreed on Wednesday." He continued:
If documentation cannot be forwarded, could you explain the reasons why so [my solicitors] have an understanding!
I just wanted to feel absolutely comfortable that your offer is fair and reasonable. I don't doubt you or your intentions.
The e-mail referred to in the previous paragraph also annexed another e-mail from the husband to the wife which was not copied to his solicitor. It was written on 5 February 2004. It contained the following statement:
[The wife], if [J Company] is now NOT going to float as you mentioned yesterday, and it will take 5 years to receive any monies if it does, please make this information known to [my solicitors]. This will confirm any doubt of a financial windfall in months to come.
The husband's statement quoted from his e-mail in the previous paragraph occupied significant time during this trial. The husband asserted that he had relied on the wife's statement allegedly made by her on 4 February 2004 that the company would not be floated on the ASX. The husband regarded that statement as being pivotal in his decision to enter into the consent orders. During cross-examination on that statement, the husband swore as follows:
HIS HONOUR: Could you just clarify, are you saying that what your former wife told you on 4 February, that there wouldn’t be a float, was really important in your thinking? Is that ?
HUSBAND: ‑‑‑Absolutely, and more so than that, she mentioned that if it was going to, which I don’t think it will, it could take four or five years and there is nothing in it for us anyhow because there is no value to the shares.
HIS HONOUR: Yes?
HUSBAND: ‑‑‑ And that’s what she told me on the 4th and the 5th, and so I assumed, and I just wanted to believe her, and didn’t want to drag this on any further, didn’t want to go for spousal maintenance, so I just wanted to end it all and move on with our lives, and that’s why I just took what she said, I just believed her. Silly me, but I did, and … .
The wife was concerned as to what information she could disclose to the husband and his solicitors. She contacted the Company Secretary of J Company Pty Ltd who replied by e-mail on 10 February 2004 as follows:
The advice from our corporate lawyers … in (sic) that to disclose any information with respect to forecasts that is not normally publicly available would constitute a breach of your fiduciary duty as a director of the company.
As a director you have a fundamental obligation of duty of confidence to the company at general law. This means that any information you receive in your capacity as a director that is not in the public domain is to remain confidential and cannot be disclosed.
Therefore you are unable to disclose such information as it is not available in the public domain and hence subject to confidentiality at law.
On 11 February 2004 the wife's solicitors responded to the husband's solicitor's letter dated 29 January 2004 which sought further information to enable Mr S to complete his report. They wrote:
We are advised by [the wife’s commercial solicitors] that the required confidentiality agreement has not been executed. In the circumstances, until such time as that matter has been attended to the satisfaction of [J Company], some of the documentation you seek cannot be made available, particularly the items referred to (sic) points 3, 4, 5, Please let us have a copy of the agreement when it has been executed.
We do observe however, that a number of items on your client's list are in fact in the public domain and available on the ASIC database (as is the case for the items referred to at points 5 and 9 (the financial statements). Any abnormal transactions (point 6) are disclosed in the financial statements.
We have otherwise referred your list to [Mr C] as to what documents he is able to assist with that are not specifically referable to [J Company].
Also on 11 February 2004 the wife wrote to the husband by e-mail noting the response of the same date from her solicitors to his solicitors quoted in the previous paragraph. In particular, she wrote:
… but to further clarify their requests I thought this e-mail from our Company Financial Secretary would provide more clarity.
The wife did not specify the e-mail to which she was referring but I infer that it was the e-mail from the Company Secretary quoted above. The wife's e-mail to the husband also referred to certain information which was “publicly available via an ASIC search of the company database” and to certain diligence reports which were “unavailable subject to confidentiality”.
On the same day the husband forwarded the wife's e-mail quoted in the previous paragraph to his solicitors. He wrote:
Following is [the wife's] response to the information we required from your 29-01-04 letter to her.
What do you think?
I want to settle before March 9th and hopefully before [the wife's] overseas buying trip in a fortnight's time so I can have custody of my children.
By way of instructions to his solicitors, the husband said that he would be happy to receive the unencumbered title to a real property together with legal fees and a further payment in respect of the children. He referred to that as being an increase in his previous offer of $180,000. He suggested that a higher figure be put to enable him to “haggle down to my wants.” He instructed that he would -
… like an additional $200,000 for immediate extensions and renovations but this may seem an excessive increase if we seek the additional $180,000?
Specifically, the husband's instructions did not include the receipt of any of the wife's shares in the company or the possibility of delaying the settlement until the question of the float of the company was resolved.
Meanwhile, the wife's complaints with respect to the husband's alleged harassment of her continued. By separate letter written on 11 February 2004, the wife's solicitors wrote to the husband's solicitors with regard to his alleged behaviour:
The purpose of this communication is to put your client on notice that he is to no longer contact our client or indulge (sic) any behaviour that would be in breach of the current intervention order. If he does so, our client will have no hesitation in referring the matter to the police.
I referred to this issue above. I have quoted this letter, not by way of relevance to a fact in issue, but rather with regard to the credibility issue.
On 24 February 2004 the directors of the company, including the wife, were given formal notice of a general meeting of the company, JG Firm Limited, to be held on 27 February 2004. The purpose of the meeting was to consider resolutions which cancelled the various classes of shares then issued by the company and convert them to ordinary shares. The shares included those owned by the wife. The resolutions were passed at the general meeting. That meeting also passed resolutions providing for the buyback of certain shares.
The company advised ASIC of those resolutions by notifications received by ASIC on 27 February 2004 with effect from that date but processed on 2 March 2004.
On 27 February 2004 the husband’s solicitors wrote to the wife's solicitors with regard to their failure to agree on the terms of the confidentiality agreement. The letter raised several issues relevant to that topic and advised that the husband would be proceeding with his application, then referred to as a Form 8 Application, now an Application in a Case. That application sought orders in respect of the dispute over the confidentiality agreement.
At this point, settlement negotiations between the parties appear to have broken down. Thereafter, they continued preparation for the hearing of the husband's application referred to in the previous paragraph. On 2 March 2004 the husband's solicitors wrote to the company's General Manager Finance referring to a previous letter to her dated 28 January 2004 and her response dated 30 January 2004. Neither of those letters appears to be part of the evidence before me. In further preparation, the husband’s solicitors served a formal Notice to Produce on the wife seeking large volumes of documentation relating to the wife's shares in the company, financial reports and other documentation which potentially would have assisted in the question of whether the company was going to float on the stock exchange.
9 March 2004
This and the following days were extremely important in the context of these applications. As I have previously noted, the husband's application was returnable on 9 March 2004. It came before Young J in the Judicial Duty List. The husband was represented by Senior Counsel and the wife was represented by a senior member of Junior Counsel, both specialising and highly experienced in this jurisdiction. It was stood down to enable the parties to attempt to settle all issues between them which they achieved as discussed below. The consent orders and BFA were made on the following day, in circumstances discussed below.
As I have found, the fundamental issue before the Court at that hearing was the question of the confidentiality agreement. The company was insisting on confidentiality, in my view quite properly because of the extreme sensitivity of the commercial-in-confidence negotiations leading to the eventual float of the company, and the husband, inferentially on legal advice, was not prepared to agree to their requirements.
However, counsel referred to other issues as being relevant to the hearing. Questions of spousal maintenance, discovery, the husband's contact with the children and interim alteration of property interests or security for costs and various matters related to those issues were raised. The matter was stood down at 10:21 a.m. on 9 March. At 2:36 p.m. Counsel informed his Honour that the negotiations were -
… significantly advanced in terms of there having been produced minutes of orders, a financial agreement and a child support agreement.
It was indicated that that entailed “an overall discussion” on more than “just interim issues”. Those negotiations had not been finalised and further time was sought. The matter was stood down a few minutes later and was not mentioned again on that day.
The entirety of the evidence satisfies me that at all relevant times leading to this application, the husband's solicitors were very concerned that they did not have enough information to enable them to give properly informed advice to their client with regard to what would be a just and equitable settlement. The material quoted above has a number of references in that regard. I am satisfied that that concern came to its climax on this day in the context of the negotiations between the parties, conducted by the lawyers and particularly counsel, to arrive at an overall settlement. The manifestation of that was the letter written by the husband's solicitors to their client dated that day.
The letter referred to in the previous paragraph was the subject of considerable evidence and submissions during this trial. I regard it as being of great importance in my consideration and therefore produce it in detail. The letter commenced:
We confirm that upon your instructions [Senior Counsel] has facilitated discussions as to an overall property settlement together with (sic) on the following basis … .
The elements of the proposed settlement are set out as being -
·a payment to the husband of $60,000;
·transfer to the husband of a specified real property together with discharge of the mortgage,
·the wife's resignation as a director of a company and transfer to the husband of her shares in that company;
·transfer to the wife or her nominee subject to existing encumbrances of another specified real property; and
·the parties' assignments to each other of their interests in various companies and trusts together with the usual indemnities.
The usual provisions were included in the letter with regard to each of the parties retaining various items of personal property. In particular, the proposed settlement provided for the wife to retain her shares in “[J Company Pty Ltd]”.
The settlement also included a provision for attribution of lump sum maintenance and a request to Victoria Police not to proceed with pending charges against the husband for alleged breaches of the Intervention Order.
The letter then proceeded to list the assets and liabilities relevant to the settlement. In the list of assets, the value of “Wife's shares in [J Company]” was shown as “Not known”. There was a reference to the wife's publicly listed shares which are not relevant to these applications.
The letter continued with an evaluation of the justice and equity of the offer. It stated:
If it was (sic) accepted by the Court that the wife's entitlements in [J Company] had no value, then this appears to be a favourable settlement for you. However it is our view that it is unlikely that these shares have no value particularly if the company is to float in the short term. In fact it appears most likely that the shares currently have a significant value, let alone their potential value on a float. Further, there is every prospect that there may be further significant related benefits that may flow to your wife in the event of a float.
We confirm our advice that we simply not (sic) in a position to advise you as to whether you should or should not accept the current proposal for the following reasons:
(a)The wife has provided a valuation report that states the value of her entitlements in [J Company] to be minus $278,853.00. We are simply not able to verify this.
(b)Whilst we have engaged [Mr S] of [S Accountants] to prepare a valuation of the wife’s shareholding and entitlement in [J Company], we are yet to be provided with sufficient information from the wife, her solicitors or her accountants for this report to be completed.
(c)You have advised that you believe a float of [J Company] is imminent and as a result the wife may be entitled to a large sum of money. Without a valuation report we are unable to advise you as to what the wife’s likely entitlements may be if this were to occur. (emphasis added)
(d)In the event that there was (sic) a float of [J Company] then it would be open for you to seek a share of the funds paid to the wife as part of your overall property settlement. It will also be open to the wife to assert the following:
(i)That these funds are a post separation contribution by her. This is not an argument that the writer believes has great weight. It is fair to say that [Senior Counsel] believes it does have some weight.
(ii)That you have made a little or no contribution to her shares and entitlement in [J Company].
(iii)That any funds paid to her are as a result of ‘special contributions’ made by her during the marriage.
(e) We confirm our advice that the manner in which the Family Court will ultimately deal with these shares and the proceeds paid to the wife subsequent to any float will be a manner within the discretion of the Trial Judge. We do not believe you will be excluded from sharing in this entitlement although the percentage share will not (sic) doubt be subject to argument.
The letter proceeded to note that the solicitors did not have valuations of the two real properties referred to above. Further, they were unable to verify a claim by the wife of the taxation liability of $211,000.
We have previously advised you that we require valuations of the wife's entitlements in [J Company] and of the real properties … to be undertaken before we are able to advise you as to your property settlement entitlements. This remains our view.
The solicitors then referred to the proposed BFA. They advised the husband that signing such an agreement would preclude his ability to make any claim to spousal maintenance “regardless of your financial circumstances in the future”. They advised that the same applied to the proposed Child Support Agreement. Under the heading “Acknowledgement”, the letter stated:
We request that you read this letter carefully and sign the acknowledgement at the bottom of the page to confirm that you have understood the contents of this letter.
At the bottom of that page, over the husband's signature, the following is written:
I [the husband] acknowledge that I have read and understood the contents of this letter.
The husband was cross-examined at length on that letter. In particular, he was taken to the confirmation of his instructions that -
… a float of [J Company] is imminent and as a result the wife may be entitled to a large sum of money.
I invited the husband to respond directly to me regarding the use of the word “imminent” in that statement. He swore:
HUSBAND:Yes. Well – well, say the word “imminent”, and it’s signing on behalf of the word “imminent”, obviously I did not fully, at the time, understand, although I’ve signed it, the word – the word “imminent.” I think that’s a play of words. But, yes, I’ve signed it and – and that’s how they word it to me to sign.
HIS HONOUR: Yes?‑‑‑
HUSBAND: And so I’ve done so. And the word “imminent” obviously – I was told prior that it wasn’t going to – I put that word – they – they put that word in and I signed the documents. I’ve signed so many documents with [my solicitors] and all my solicitors. Things they’ve thrown in front of me, I do read, I’m not silly, I do read and I do sign. And that’s what I’ve done since day one. For whatever reason I just – I had my faith in my lawyers at the time. They put this – they’ve put this document in front of me and say, here, I’m going to cover my backside because I’m – I’m telling you, [Mr Nyles], that – yes, I will cover myself in case down the track something may happen. This is what you should be signing. This is what I believe you should be – you should agree on. And I’ve – and I’ve signed it.
In re-examination he swore:
HUSBAND:No. I did not say it was imminent to my lawyers. I said, it could happen down the track. I was advised that it could happen, down the track, but the shares weren’t worth anything. That’s – I didn’t say it was “imminent”. That’s a word I don’t use. I don’t use that word, “imminent”. I have never used the word “imminent”.
I do not believe the husband in his evidence with regard to his lack of understanding of the letter. In my view, the terms of that letter were entirely clear and the word "imminent" is not ambiguous. His evidence on this issue was evasive and is a significant reason for my general findings against him with regard to credibility.
10 March 2004
The BFA was signed by the parties on 10 March 2004. I have not referred to its terms as they have not been submitted to be specifically relevant. They are ancillary to the terms of the consent orders. While I must consider the setting aside of the consent orders and/or the BFA separately, the matter has been conducted on the basis that the two documents are hand in hand with each other.
The Act requires that a BFA include a certification by the solicitors for both parties that they have given independent legal advice to their respective clients. Because of its importance, it is necessary to quote it in detail as follows:
I, [solicitor's name and address] HEREBY CERTIFY that in relation to an agreement in writing proposed to be entered into between [the husband] and [the wife] (“the parties”) I advised [the husband] (“my client”) independently of the other party, and before the time at which my client signed the agreement, as to the following matters:
1. The effect of the provisions of this Deed on his rights pursuant to the Family Law Act 1975;
2. The advantages and disadvantages at the time that the advice was provided, to his making the agreement evidenced by this Deed.
…
Notation:
1. My client stated to me that he understood the nature and effect of the document and the obligations and risks involved in signing it. It appeared to me that he did have such understanding.
2. My client stated to me that he was signing the document freely, voluntarily and without pressure from the other party to the Deed or from any other person.
The husband was cross-examined on the Certificate and Notation quoted in the previous paragraph. He swore:
DR PANNAM: Now, here we are on 9 March with your solicitors not expressing much enthusiasm for the settlement that had been negotiated by Mr Geddes, don’t we?
HUSBAND: ‑‑‑Yes.
DR PANNAM: And they were drawing to your attention and, indeed, getting – by getting you to sign the letter, warning you that there might be adverse consequences or you if you entered into the settlement?
HUSBAND: ‑‑‑Yes.
DR PANNAM: Yes. And you decided that you wouldn’t accept their advice?
HUSBAND: ‑‑‑No, I – no – and I believed in checking out what she said to me.
DR PANNAM: Well, you decided that you wouldn’t accept their advice. The reason is another question but you decided ?
HUSBAND: ‑‑‑Okay. Yes. You’re right. Okay. Yes.
DR PANNAM: All right. So you wouldn’t accept their advice?
HUSBAND:‑‑‑Yes.
DR PANNAM: Even though you knew that on that day there had been returnable legal process in the form of a subpoena and notices to – a notice to produce that would have yielded a lot of valuable information about any [J Company] float, maybe timing, possibly value?
HUSBAND:‑‑‑Possibly value.
DR PANNAM: Yes, possibly. So with that material about to be called on, as it were, before the court you went against your solicitor’s advice and decided that you’d settle on the terms that you’ve agreed to. Is that right?
HUSBAND: ‑‑‑Yes.
The proceedings came before Young J on 10 March 2004. The parties had settled all issues between them and handed up Minutes of Proposed Consent Orders a BFA and a Child Support Agreement, all entered into in accordance with the provisions of the relevant legislation. Both parties were present in Court with their respective counsel. His Honour was aware of the media publicity speculating on a float of the company in the near future. Because of its importance, I now set out the transcript of that hearing as follows, omitting irrelevancies:
… WEDNESDAY, 10 MARCH 2004
Continued from 9/3/04
RESUMED [4.29 pm]
…MR GEDDES [for the husband]: If your Honour is familiar with the company for which the wife works, there's a very strong suggestion that it's going to float this year and raise $150 million. So the wife doesn't really have to, we would say, be too troubled by that potentiality.
HIS HONOUR: Well, she'll only get a share of the 150 million.
MR STRUM [for the wife]: I'm indebted to my learned friend for reading into the transcript a matter that I was going to raise with your Honour.
HIS HONOUR: Is that done on the basis that as a 79A expectation, if it floats then there is or is not to be a setting aside of the order?
MR STRUM: There's not to be a setting aside.
HIS HONOUR: Well, that might even be a notation to the order, I don't know.
MR STRUM: My learned friend has made that concession ‑ ‑ ‑
HIS HONOUR: What I hear is comments from counsel I'm not relying on. I'll get on with this other matter.
MR GEDDES: Thank you, sir.
…
ADJOURNED [4.31 pm]
RESUMED [4.40 pm]
MR STRUM: At long last, your Honour, we have signed minutes.
HIS HONOUR: I'll believe it when I see them.
MR STRUM: Your Honour's court officer has them.
HIS HONOUR: All right.
MR STRUM: Your Honour, we also have, and don't need to trouble your Honour, in detail with the binding financial agreement and the child support agreement of the parties.
HIS HONOUR: I won't look at those. So long as it's noted that there are - is it?
MR STRUM: Yes. They are referred to. Your Honour will see that ‑ ‑ ‑
HIS HONOUR: Note 1.
MR STRUM: ‑ ‑ ‑ the first part of the orders until the end of order 18 relate to children's matters that have been compromised on a final basis between ‑ ‑ ‑
HIS HONOUR: So what's the broader picture? How many dollars does the husband get?
MR STRUM: The husband is getting - and first thing, your Honour, I've got to take you to paragraph 19. Your Honour will see that [P Nyles] Business, which is defined as […] ‑ ‑ ‑
HIS HONOUR: Yes, it's joined as a party.
MR STRUM: That is a company that is ‑ ‑ ‑
HIS HONOUR: 55,000.
MR STRUM: Yes, your Honour. That is payable within 48 hours. Pursuant to the BFA, there will be a transfer to the husband of the [P Property]. That's referred to in the BFA but the other mechanics in relation to ‑ ‑ ‑
HIS HONOUR: What's the equity in [P Property]?
MR STRUM: The husband has annexed to his affidavit a kerbside appraisal in the order of 550 to 600 thousand dollars.
HIS HONOUR: What's the equity?
MR STRUM: There's a mortgage of 416 - there's equity there in the order of 150. The husband now appears to say that it may be worth less than the 550 to 600. Given that, he's keeping it.
HIS HONOUR: That might be because he's keeping it.
MR STRUM: We're paying out the mortgage, as your Honour will see, at paragraph 21. So he's taking [P Property] unencumbered at a value of somewhere between 520 to 600 thousand dollars. He takes that unencumbered. My client is discharging that mortgage within 45 days. He's getting $50,000 within 48 hours.
HIS HONOUR: That doesn't cover his current legal fees, the 55. Is 55 agreed?
MR STRUM: 55 is agreed, absolutely. Now, your Honour, in relation to ‑ ‑ ‑
HIS HONOUR: So effectively then, the wife keeps the matrimonial home where she lives, subject to the 55,000, subject to tax, if any, to be paid. She keeps the equity in the home, and more particularly, she keeps I think it was a B class sharing holder, wasn't it, that she's got?
MR STRUM: Your Honour will see that paragraph 27 of the orders, which commences at page 9, provides that she retain ‑ ‑ ‑
HIS HONOUR: What's [W Company]?
MR STRUM: That's the company that has come to replace [P Nyles Business] as the trustee of the [R Unit Trust]. But your Honour will see more particularly at the top of page 10 that she's retaining shares in B(i) [J Company Pty Ltd].
HIS HONOUR: Yes, I understand. The other ones are all listed companies.
MR STRUM: Your Honour will see in paragraph (f) that in relation to the [J Company Pty Ltd] shares ‑ ‑ ‑
HIS HONOUR: So if there's a float of [J Company], your client exclusively retains the benefits.
MR STRUM: Yes. It's a matter well known to the husband. When your Honour asked Mr Geddes and I about that earlier, my learned friend did say - when your Honour asked whether ‑ ‑ ‑
HIS HONOUR: Well, it's covered in (f). The husband goes into this settlement with his eyes wide open.
MR STRUM: Yes, wide open, your Honour.
HIS HONOUR: If the favourable financial conditions continue and [J Company] is floated and the market accepts, then your client gets a bonanza; it's all hers.
MR STRUM: Yes.
HIS HONOUR: That's understood. Mr Geddes, understood?
MR GEDDES: It is, sir.
HIS HONOUR: All right. I shouldn't be inquiring, I take it, about why [W Company] has replaced [P Nyler Business] as the trustee?
MR STRUM: No, your Honour.
HIS HONOUR: Meaning I shouldn't be inquiring.
MR STRUM: No, your Honour.
HIS HONOUR: I take it it's got to do with some appropriate advice. What's the last order, uplift the affidavits of the wife's nanny? Why would I want anything to come off the file?
MR STRUM: To give my client leave to - it's simply an order for leave for affidavits to be uplifted, your Honour. There was some complaint by the husband as to matters raised in those affidavits and the order simply provides for there to be leave to uplift.
MR GEDDES: There were three nannies, sir, that filed affidavits in the interim proceedings in relation to contact issues.
HIS HONOUR: Why would they come off the file?
MR GEDDES: The parties have agreed in order to assist them with parenting issues they should be removed from the file. It's a matter directly negotiated between the parties without the intervention of their lawyers.
HIS HONOUR: Yes, but the problem is they've been filed and they form part of the body of evidence that was before the court.
MR GEDDES: Contact issues have never been litigated, as such, sir. They've always been resolved by consent. There's been no hearing based upon that material.
HIS HONOUR: I'll let that order go through provided what's added to it is "and that copies be retained by the wife's solicitors and be produced, if and when, ever required". In other words, the wife's solicitor is going to uplift them. Is that right?
MR GEDDES: I believe so, sir, yes.
MR STRUM: Your Honour, in the same way that Mr Geddes said this was a matter negotiated between the parties, I can tell your Honour this is not a clause that he and I have discussed. As I read it, it provides the wife have leave to uplift the affidavits of the nannies.
HIS HONOUR: But all I'm saying is if they're uplifted, because they've been filed in this court, the originals have got to be held by your client's solicitor. That doesn't seem to me unreasonable in the circumstances. So that if ever they need to be - the parties are going to have copies of them anyway.
MR STRUM: What was the wording that your Honour proposed?
HIS HONOUR: "Have leave to uplift the affidavits and that such affidavits be retained in safe keeping by the wife's solicitors." So there's a 77A in this case as well.
MR STRUM: Yes, your Honour.
MR GEDDES: What's not in the orders but is a matter of agreement is a contact issue is this Saturday the children are going to their father, although it's not a contact weekend, between the hours of 10.00 and 7.00 to facilitate them attending a cousin's birthday party. The parties will then arrange - the following week there will be make-up.
HIS HONOUR: That's agreed, Mr Strum?
MR STRUM: Yes, your Honour. The father, although he's not - he wouldn't ordinarily have contact as between 10.00 to 7.00 and his contact the following week will be adjusted accordingly.
HIS HONOUR: So as to make sure there's not the extra hour, so to speak.
MR STRUM: Well, it's something that my learned friend offered and we've accepted.
HIS HONOUR: All right.
…
MR GEDDES: Just before your Honour does that, may I just clarify something that your Honour did say? There has been no independent financial inquiry conducted on behalf of the husband.
HIS HONOUR: I understand. There was a valuation prepared by [C Capital], if my memory is correct.
MR GEDDES: That's correct, sir.
HIS HONOUR: But the husband has read that and he understands that there may be issues in the marketplace that might cause the valuation of the wife's shareholding, if acceptable to the public, to be worth a lot of money.
MR GEDDES: Your Honour, I just wanted to say that by way of clarification that one of the difficulties has been the signing of a confidentiality agreement as provided by ‑ ‑ ‑
HIS HONOUR: I saw that in previous orders, if my memory serves me right.
MR GEDDES: Yes, but there have been significant difficulties there. So there has been no independent assessment made on behalf of the husband, but this settlement has been arrived at by the husband stating what he would be prepared to accept in order to resolve the matters.
HIS HONOUR: That might be a pragmatic way of dealing with the case, but the husband then takes on the obligation of understanding that if he settles for this, that's final. On that basis, the orders are made and they have to bring finality. If there's a financial bonanza in the future - and I've got no idea whether there will or will not be - it's likely to be that the children will also share in that benefit because of lifestyle, education and other matters.
MR GEDDES: Thank you, your Honour, I just wanted to clarify that point.
HIS HONOUR: Yes, all right. In the matter of [Nyles], there are orders by consent made in terms of the minutes of orders as amended and inclusive of the amendment to paragraph 35 that will be contained in the orders when emailed to the court. There are three notations that will also accompany the orders. I direct the solicitor for the wife is to engross the orders and forward them by email transmission to my associate prior to 1 pm tomorrow, Thursday, 11 March 2004. The signed minutes of orders will remain upon the court file. Any other matters?
MR STRUM: If your Honour pleases. No.
MR GEDDES: May it please your Honour.
…
MATTER ADJOURNED AT 4.54 PM ACCORDINGLY
As will be seen from the transcript, at the conclusion of the exchange between Young J and counsel, particularly senior counsel for the husband, his Honour made the consent orders which, of particular relevance to these applications, included the following:
27. THAT save and except for the purposes of enforcement of these orders and any orders consequential thereto, the wife retain to the exclusion of the husband and the husband relinquish any entitlement to the assets and resources in the possession of the wife and without limiting the generality thereof:
…
(b) her shares in:
(i) [J Company Pty Ltd] ("[J]");
…
(f) any right entitlement shares or interest arising from her employment by, and ownership of shares in, [J] including any shares allotted in a public issue (whether listed on ASX or otherwise) arising from the sale of some or all of the assets of [J], or the sale, redemption or conversion of the wife's shares in [J]; … .
The consent orders also included the following:
IT IS NOTED
A. That the parties have executed a Child Support Agreement and a Section 90C Financial Agreement which come into effect upon the making of these Orders.
B. That the parties intend these orders to finalise and determine all financial relationships between them pursuant to Section 81 of the Family Law Act 1975.
C. That the wife will use her best endeavours to properly and legally request Victoria Police not to proceed with the pending charges against the husband arising as a result of the two alleged breaches by him of the Intervention Order made on 9 October 2003.
In mid-March 2004 the company board abandoned a trade sale of the company and focused on the alternative of the float on the ASX. The board subsequently proceeded to make various decisions including the completion of a Shareholders Agreement, a Termination Deed and a Buy Back Agreement. The wife participated in all those decisions. The company floated on the ASX on 7 May 2004.
On a specific date which is not the subject of evidence but perhaps within no more than a few months after the making of the consent orders, the wife sold her shares in the company and received a very large amount of money. It is that money which would be the focus of the trial of steps two and three of the husband's application in the event that I were to find that he had established a ground to vary or set aside the consent orders and/or the BFA.
The legislation
I have already noted that the husband seeks the setting aside of both the consent orders and the BFA. Each of those proposed remedies is subject to separate legislation. I now set out that legislation to the extent relevant to these proceedings.
The consent orders legislation is in the following terms:
79A Setting aside of orders altering property interests
(1) Where, on application by a person affected by an order made by a court under section 79 in property settlement proceedings, the court is satisfied that:
(a)there has been a miscarriage of justice by reason of fraud, duress, suppression of evidence (including failure to disclose relevant information), the giving of false evidence or any other circumstance;
…
the court may, in its discretion, vary the order or set the order aside and, if it considers appropriate, make another order under section 79 in substitution for the order so set aside.
The BFA legislation is in the following terms:
90K Circumstances in which court may set aside a financial agreement or termination agreement
(1) A court may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied that:
(a)the agreement was obtained by fraud (including non‑disclosure of a material matter); or
…
(b)the agreement is void, voidable or unenforceable; … .
…
90KA Validity, enforceability and effect of financial agreements and termination agreements
The question whether a financial agreement or a termination agreement is valid, enforceable or effective is to be determined by the court according to the principles of law and equity that are applicable in determining the validity, enforceability and effect of contracts and purported contracts, and, in proceedings relating to such an agreement, the court:
(a) subject to paragraph (b), has the same powers, may grant the same remedies and must have the same regard to the rights of third parties as the High Court has, may grant and is required to have in proceedings in connection with contracts or purported contracts, being proceedings in which the High Court has original jurisdiction; and
(b) has power to make an order for the payment, by a party to the agreement to another party to the agreement, of interest on an amount payable under the agreement, from the time when the amount became or becomes due and payable, at a rate not exceeding the rate prescribed by the applicable Rules of Court; and
(c)in addition to, or instead of, making an order or orders under paragraph (a) or (b), may order that the agreement, or a specified part of the agreement, be enforced as if it were an order of the court.
As I have previously noted, these reasons for judgment only consider whether the husband has established –
·a “miscarriage of justice” in accordance with the meaning of that term in paragraph (a) of the consent orders legislation; and/or
·one or more of the grounds in the financial agreement legislation set out above.
If I decide either of those questions in the affirmative, the further issues of the exercise of the discretion to vary or set aside the consent orders and/or the BFA together with any consequential order in substitution for the order or agreement set aside will be the subject of a further trial.
Materiality of the public information
The information that the wife asserted was publicly available and could have been utilised by the husband is contained in the ASIC company extract of the company referred to above. I have found that the wife failed to make full and frank disclosure by not providing that information to the husband.
The wife deposed that she understood the conversion of the company to a public company to be –
… part of the series of technical “machinery” matters required for the [D] exit process.
Counsel for the wife submitted that this was not material to the valuation of the shares, as the wife continued to hold her shares in “the same company, being ACN […]”, albeit with a different name and status. Similarly, counsel for the wife submitted that the change of the wife’s shares to ordinary shares represented -
… no material change to affect the [C Capital] valuation of November 2003.
Counsel for the husband submitted that these were intermediate steps -
… which represented incremental and favourable shifts in the “risk” of the IPO succeeding -
and which, as discussed above, were material elements of the C valuation.
In my view, the husband's submissions are to be preferred. The change of name of the company and the restructure of the shares, both completed to the knowledge of the wife prior to the consent orders and the BFA, were significant indicators of the expectation within the company that the float would take place. While not finally determinative, I accept that they represented a shift in the risk referred to by Counsel in the previous paragraph. In particular, the dropping on the term “Pty” from the company name as part of its change was potentially an important indicator of the possibility of a float.
By way of summary, I find that the wife did not make a full and frank disclosure as required by the law. While she made the husband aware in general terms that there were matters which she could not disclose to him without a confidentiality agreement first being entered into, she did not specify that material in any detail. In my view, the husband was aware of the fact that he could probably obtain further material relevant to the substantive applications, either by agreement as to confidentiality or court order. Further, the wife did nothing to cause the C valuation to be updated, which might have resulted in the emergence of a very different picture of the value of the wife’s shares.
More importantly, the wife breached her legal obligation to provide the husband with details of the material which was in the public domain. I reject the proposition that informing the husband of the availability of that information was even close to her obligation of full and frank disclosure, not only to the husband but also to the Court.
Has the wife misrepresented material facts to the husband?
I will divide the misrepresentations alleged by the husband into 3 categories as follows:
·misrepresentations about the possibility or probability of a float proceeding and the timeframe in which this would occur together with the financial consequences thereof;
·misrepresentations about the status of the company; and
·misrepresentations about the value of the shares at the time of settlement.
The first issue under this heading is the husband’s allegation that the wife actively misled him regarding the likelihood and timing of a float by the company. I have previously rejected the husband’s evidence contained in the email sent by him to her on 5 February 2005 that the wife had told him that the company was “now NOT going to float”. I have also made detailed findings with respect to the various unsatisfactory elements of the husband’s evidence in that regard. Accordingly I find that the wife did not make any positive misrepresentation to the husband with regard to the possibility of a company float.
The second issue under this heading concerns the change to the company’s name and its conversion to a public company. On 4 February 2004 the wife’s solicitors provided the husband’s solicitors with the draft minutes of consent orders which provided that the wife would retain her shares in “[J Company Pty Ltd]”. Similarly the consent orders provided for the wife to retain her shares in “[J Company Pty Ltd]”. As discussed above, the company named “[J Company Pty Ltd]” ceased to exist by that name on 13 January 2004 and was superseded by “[JG Firm Ltd”. I do not accept that the retention of the same ACN number had the effect of maintaining its identity as the same company in any relevant sense of that concept.
The evidence on the topic of the company’s conversion to a public company and corresponding change of name was not entirely clear during the proceedings. The Minutes of a Meeting of Directors of J Company Pty Ltd held on 19 February 2004 included an action point that -
[Mr A] and [Ms B] advised that the change of company name to [JG Firm] will be deferred until there is an announcement of an IPO or trade buy.
However, that appears not to have been activated. The ASIC extract of the company shows that the change of the company’s name was processed on, and effective from, 13 January 2004. In cross-examination, the wife gave evidence that the change of name occurred -
…on or around about in January, February.
She also swore that she understood that the resolution passed by the board would change the company’s name once ASIC processed the board’s resolution.
I find that the wife knew that the company name in the orders was incorrect and that signing the minutes of consent order was a misrepresentation by her with regard to the progress made by the company towards a float.
The third representation of the wife that requires consideration is the C valuation of her shareholding which valued her interest in the company at -$278,583. The wife gave evidence that she understood the significance of the C valuation in informing the husband and the Court of the value of her shareholding. She further swore that she understood the considerations used by C to prepare the report and that information such as the limitations on her shareholding were crucial to the value that C ascribed to the interest.
It was conceded by the wife that she did not at any time seek to provide further information to C for the purpose of facilitating an updated valuation of the shareholding. She swore:
WIFE: The documentation was done and finished and closed, and we moved on from that point, so I didn’t go back and ask [C] for any futher information after this document had been completed.
MR MINAHAN: Right. But you knew, as matters progressed, that the subject of the valuation of that shareholding was very much a hot issue in your dealings with [the husband]?
WIFE: I did.
MR MINAHAN: Thank you, so nonetheless, you left that one to stand as it is?
WIFE:I didn’t think it had any relevance to this valuation at that point.
I have made findings above regarding the information received by the wife following this valuation and prior to the making of final orders as well as its materiality.
I find that at the time of the consent orders and the BFA, the wife knew that much of the information relied upon by C had changed as work to prepare the company for a float or trade sale progressed. As such, I find that her failure to update both her Financial Statement and the C valuation, together with her continued reliance on those representations of the value of the shareholding to the husband, amounted to a misrepresentation on her part.
Did this conduct amount to fraud?
The next question is whether the conduct discussed above amounted to fraud for the purpose of the consent orders legislation and /or the financial agreement legislation.
In Kostres & Kostres [2009] FamCAFC 222 the Full Court considered the operation of s 90K(1)(b). Inter alia it referred to the Explanatory Memorandum tabled by the Attorney General on the second reading speech on the introduction of the Family Law Amendment Act 2000 (Cth) which included s90K. The Explanatory Memorandum stated that s 90K(1) was modelled on provisions under s 87(8) of the Act.
It is thus appropriate to consider the meaning of fraud as it has been applied in the past to s 87(8) of the Act and to the original s 87(6) of the Act which empowered the Court to revoke a financial agreement that had been “obtained by fraud” prior to the repeal of this section and its amendment and replacement with s 87(8).
In Green v Kwiatek (1982) FLC 91-259 the Full Court considered the meaning of “fraud” under s 87(6) in the context of an application to set aside a financial agreement approved by the Court. Asche SJ, Lindenmayer and Nygh JJ held, with regard to the standard of disclosure that must be met to defeat an action alleging fraud (p 77,456):
The learned trial Judge proceeded on the assumption that the word ``fraud'' in sec. 87(6) connotes equitable fraud. We agree with that conclusion which also appears to have been the conclusion reached by Ferrier J. in Fryda and Johnson (No.2) (1981) FLC ¶91-058; (1981) 7 Fam. L.R. 238 where his remarks [FLC at p. 76,470; Fam. L.R. at p. 243] indicate that he was considering such misrepresentation as would entitle a plaintiff to rescission of the agreement.
…
The definition of ``fraud'', both equitable and at common law, has been well settled since the celebrated definition of Lord Herschell L.C. in Derry v. Peek (1889) 14 A.C. 337 at p. 374. The learned trial Judge restated that definition in the following terms:
``Fraud in this context consists of a false statement of fact which is made by one party to a transaction to the other knowingly, or without belief in its truth, or recklessly, without caring whether it be true or false, with the intent that it should be acted upon by the other party and which was in fact so acted upon.''
…
(at 77,457)
… we express our agreement with Ferrier J. in Fryda and Johnson (No.2) (1981) FLC ¶91-058; (1981) 7 Fam. L.R. 238 that there is under the Australian legislation an obligation on the wife to disclose all assets and income.…
Since the involvement by the wife in the business was within her personal knowledge, it can also be assumed that the representation was made by her knowingly, without belief in its truth and with the intention that it should be acted upon by the husband.
The language of s 90K clearly incorporates material non-disclosure within the bounds of fraudulent conduct, as was held by Strauss J in Suters & Suters (1983) FLC 91-365 p 78,458, (with whom Wood SJ and Lambert J agreed) regarding s 87(6) of the Act:
Suppression or non-disclosure of material facts has long been treated as such fraud in equity as would entitle a Court of Equity to set aside a transaction.
Counsel for the husband submitted that the meaning of fraud in s 79A and s 90K was broad enough to incorporate innocent misrepresentations or non-disclosures. In Jeeves (supra), the Full Court stated:
102. Importantly, in the context of this appeal, his Honour thus recognised by his reference to a consent based on “inadequate information”, that a non-disclosure, however innocent, could vitiate the consent of a party to orders made in reliance on the disclosure by the other party.
I thus find that the wife has engaged in fraudulent conduct, namely:
· using the wrong company name and status (“[J Company Pty Ltd]”) in the minutes of consent orders forwarded by the wife to the husband on or before 28 January 2004 and by the wife’s solicitors to the husband’s solicitors on 4 February 2004;
· the inclusion of the incorrect company name and status in the consent orders;
· failing to update the information previously provided to C to enable it to update its valuation;
· in the alternative to the previous dot point, failing to inform the husband that the material relied upon in the C valuation was out of date but subject to confidentiality; and
· failing to advise the husband that the 2004 and 2005 financial projections were available although subject to confidentiality.
The wife well knew that the husband was keenly interested in the value of the wife’s shares and that all of the above material impacted on that issue.
Had the husband not signed the consent orders which contained the incorrect company name and were premised on the C report that had not been updated, it is highly unlikely that he would have signed the financial agreement. As such, the misconduct on behalf of the wife operates on both instruments.
Has the husband relied on any misrepresentation of the wife resulting in a miscarriage of justice pursuant to s 79A?
The next question is whether the husband relied on any misrepresentation or lack of full and frank disclosure when he consented to the consent orders on 10 March 2004.
In Barker (supra) the Full Court held:
46. … There is no dispute that the miscarriage of justice must have occurred at the time of the making of the orders, namely 6 November 2003 (Molier and Van Wyk (1980) FLC ¶90-911 at pp 75,767-75,768; Public Trustee (as executor of the estate of Gilbert) v Gilbert (1991) FLC ¶92-211 at pp 78,426-78,427, 78,428).
In that case, as here, the sale of the disputed property and windfall gain occurred subsequent to the making of the orders. However the Court found that the misstatement of the value of the property at the time that the orders were made was the relevant misconduct:
118. We are mindful of the fact that for the purpose of s 79A(1)(a) “a miscarriage of justice can only occur by reason of a fact or event which occurs before or at the time of the making of the order which is sought to be set aside” (Public Trustee (as executor of the estate of the late Gilbert) v Gilbert (supra). See also Bigg v Suzi (1998) FLC ¶92-799 at paragraph 6.39). Counsel for the wife relied upon what he asserted to be the disparity between “real value” and the value the Court had acted upon at the time of the consent orders, such a value being established in part by the events which had occurred before the orders were made and in part by the subsequent sale. Counsel for the wife’s point was that although the sale occurred after the orders were made, the circumstances which enabled the sale at $2,650,000 had already occurred by the date of hearing approximately a month earlier. We do not consider that his Honour properly addressed this point.
While some knowledge of surrounding factors may not be sufficient to defeat a claim of a lack of full and frank disclosure, a party’s access to legal advice has been treated by the Court as a significant factor weighing against reliance on a misrepresentation or non-disclosure. In Scribe & Scribe (2006) FLC 93-302 a series of misrepresentations were made to the Court, including the level of income received by the wife, her interest in a business and her liability to pay child support, all of which had been inflated with the result that the husband received close to the entirety of the asset pool. The Court held:
66. But to focus on the fact that she did not obtain legal advice after the amendment, would be to ignore the factual matrix in which the agreement had been negotiated and which the process to obtain orders was taking place. Whilst we have concluded that the court was mislead by the information in the application as to the justice and equity of the orders being made, the wife was not mislead (sic) by the addition of this information which came very late in the whole process of trying to obtain the Court’s consent to the orders. It was at all times the position of the wife, and the husband, that orders should be made which had the effect of:
·Transferring the wife’s interest in the former matrimonial home to the husband; and
·Relieving the wife from an obligation to pay child support to the husband.
67. This was the intent when the first application for consent orders was signed and remained the intent. The orders themselves did not change and the orders that were made on 19 November 2001 contain no reference to child support. It was the last application, filed after the Court had rejected earlier ones, which contained the information about the child support calculation. That calculation was done as we have indicated, in order to persuade the court that the terms of the order were just and equitable. From the wife’s perspective it mattered not how that argument was put to the Court because she at all material times wanted orders, in the form in which they were finally made, to be made. She was content to have those orders made without any reference to child support and had supported two earlier applications. Thus whilst the calculation of child support may have been material to the justice and equity of the orders the court was making, they were not material to the wife’s willingness to sign the application.
…
70. In Gebert v Gebert (1990) FLC 92-137 at 77,937, the Full Court said:
The very expression "miscarriage of justice" used in sec.79A(1)(a) does not fit happily with the concept of a party of full age and with full knowledge of the circumstances entering into an agreement of this nature in circumstances where he had deliberately decided not to seek legal advice, although urged to do so. No doubt had the situation brought about by the order been imposed upon him, it may have amounted to a miscarriage of justice but the law fortunately still allows persons to form their own views as to the arrangement of their affairs. In the present case, there appears to be no doubt that this is precisely what the husband did. The fact that he later repented of that decision, in no sense elevates his original decision to consent to such an order to a miscarriage of justice nor should such order in our view be interfered with. On the contrary, we would regard it as a considerable miscarriage of justice from the wife's point of view if the husband's then conscious decision entered into free of duress, was now to be interfered with on a paternalistic view as to what might or might not have been in his best interests.
71. Commenting on that paragraph, Finn J in McIntyre v McIntyre (1994) FLC 92-468 at 80,856, made the following observation:-
I would suggest that what was said by the Full Court in the final paragraph of its decision in Gebert to the effect that the law still permits persons, who have deliberately decided not to take legal advice, to make their own arrangements, must be taken as applying only to situations where such persons have, in the language of the Full Court, “full knowledge of the circumstances".
72. Finn J’s comments were the subject of comment by the Full Court (Justices Fogarty, Kay & Mushin) in L & L (FCOA Full Court; 27 February 1996). In particular Fogarty J said:
The other matter I wish to mention is this, that it seems to me that the Full Court in Gebert's case correctly stated the principles to be applied and they emphasised the importance of parties being able to reach their own decision and the undesirability of a retreat from that.
I have two comments to make about that. Sometimes, unwittingly I think, this Court tends to adopt a paternalistic approach and that Gebert's case demonstrates that husbands sometimes are not as easily able to retreat as wives are. Now, there may be social background factors or individual factors in each case which would justify that, but I think it cuts both ways and there is an end point to these sorts of cases.
The second point is that Finn J in interpreting Gebert's case in her judgment in McIntyre may have overstated the position where she said that there must in effect be full knowledge of the circumstances. The balance of her Honour's judgment may suggest that her Honour may not have meant that in the precise sense that it is capable of being interpreted as meaning.
It does seem to me that it can be full knowledge or the opportunity to acquire full knowledge or a conscious decision not to obtain information or knowledge that was available.
73. We agree with his Honour’s comments which we interpret to mean that the law still permits persons who have deliberately decided not to take legal advice, to make their own arrangements, in circumstances where such persons have full knowledge of their entitlements, or the opportunity to acquire full knowledge of their entitlements, have made a conscious decision not to obtain information or knowledge about the entitlements or about the orders that was available, and have made a conscious decision to proceed in the face of advice that it would not be in their interests to do so.
…
83. We note also that in Rohde v Rohde (1984) FLC 91-592 at 79,770, Gee J sitting at first instance, considered that in the exercise of the discretion under s 79A(1), he was bound to have regard to the principles stated by Mason J in Taylor (supra) and also to the following principle (at 79,770):
It is in the public interest, that parties who have been the primary contributors to their own financial troubles in the way the husband has been in the case, should not be allowed to relitigate matters with a view to getting themselves out of those troubles.
84. We think that that principle stated by Gee J could well be adapted and applied to the present case to support the conclusion that the wife should not have been permitted to rely on her own apparently unexplained failure to seek proper and full independent legal advice. Had the wife had such advice, the misleading information may not have been put before the Court.
85. But in any event, and leaving to one side the issue of the wife’s failure to seek legal advice, the possibility of her relinquishing her interest in the business and the true level of the income which she actually received were matters that must have been known to the wife herself.
I have already made detailed findings about the state of knowledge of the husband at the time that the consent orders were made. I have made particular reference to the fact that one day prior to the consent orders being made, the husband signed an acknowledgement of receipt of advice from his own solicitor confirming his instructions that he believed that a float of the company was “imminent” and acknowledging that his lawyer believed that the shares at that time had “significant value”. In that context, his lawyer advised that she was unable to properly advise him with regard to what was a just and equitable outcome in the absence of information and on the basis of the belief that the float was "imminent".
In the context of the knowledge and belief that I have found the husband to have possessed, I find that he did not rely on the fraudulent actions of the wife. Rather, the husband had been aware of at least the possibility that the wife’s shareholding would be realised in the not-too-distant future and that this may well result in a windfall gain for the wife. He had been negotiating with the wife under this belief from approximately November 2003. He did not rely on the C valuation and instead sought his own valuation by Mr S.
There are many and varied reasons for litigants to settle proceedings. In this matter, at least some of the reasons on the husband’s part were his wanting to avoid mounting legal costs and repair relationships. On at least several occasions during the negotiation process, he expressed his strong preference for ‘hard’ assets which were free of risk or encumbrances from which he could build new foundations. He regarded finality and the consequent avoidance of uncertainty as being very important.
I further find that the husband was fully apprised of the legal consequences of his decision, and that he chose to consent to the orders notwithstanding the legal advice he had received. He cannot now attempt to rely on his failure to take that advice now that the contingency that he was well aware of and elected not to pursue has eventuated.
Was the financial agreement obtained by fraud pursuant to s 90K?
Despite my finding that the husband did not rely on the misconduct of the wife, I will now consider whether the financial agreement was obtained by fraud for the purpose of the husband’s application under s 90K.
In Gipps v Gipps (1978) FLC 90-523, the Court of Appeal of New South Wales considered a common law action to set aside a maintenance agreement that was obtained by fraudulent misrepresentation. The Court considered the relevance of the wife’s state of mind where she had suspected that the husband had provided a fraudulent valuation of property, but had not known the extent of his misrepresentations. Hutley JA, (Glass and Samuels JJA agreeing) held (at 77,768):
The analysis of the effect of misrepresentation in Cheshire and Fifoot begins with the proposition — ``knowledge of the untruth of a representation is a complete bar to relief since the plaintiff cannot assert that he has been misled by the statement, even if the misstatement was made fraudulently''.
… (at 77,769)
In fact, it by no means necessarily follows that complete knowledge of the falsity of representations defeats a case based on them; it is only if the knowledge is such as to destroy the effect of the misrepresentations as inducements. Only if knowledge is of the falsity of representations, and that knowledge is accepted as true so that the false belief is wholly dissipated does knowledge defeat misrepresentation. The true legal position is, in my opinion, stated by Burt J. (as he them was) in Sinclair v. Preston (1970) W.A.R. 186 at p. 191:
``I might say in passing that I do not agree, that if a person to whom a misrepresentation of fact inducing in character has been made subsequently but before agreement finds out that the statement is not wholly true, that it must follow that he was not induced by such statement to enter into the agreement. The question whether a person has been induced by a statement made to him to enter into an agreement is, in my opinion, a single issue of fact. No doubt precontractual knowledge that the statement made is not wholly true has a very direct bearing upon the resolution of this question of fact but it does not of itself necessarily provide the answer. To say that it does is to formulate a different question.''
To state that a person is induced by a statement is to affirm a causal relation which is a question of fact, not of law. That being so, it is impossible to apply to any situation a rule which produces a final result, the trial Judge or jury have to answer the question — did the misrepresentation cause the representee to enter into the contract, it being understood that the representation ``was one among the factors which induced the contract''.( Australian Steel and Mining Corporation Pty. Ltd. v. Corben (1974) 2 N.S.W.L.R. 202 at p. 207.)
Any other rule would be an affront to commonsense, it would mean that if a person dealing with a rogue has made to him a representation which he knows to be false, but believes to be false to a particular extent, he has no right of action if after making the contract in reliance upon the representation as adjusted by the representee, even though he later learns that the misrepresentation was greater than he suspected.
In determining whether a person is induced by a misrepresentation, the court is entitled to assume that the representor knows his victim and the misrepresentation designed to produce a result does so (Corben's case (supra) p. 208)…
In the whole of the circumstances, it cannot be said that the husband was induced to enter into the financial agreement by the misconduct of the wife. It is not the case here that the husband was merely suspicious of the valuation provided by the wife. As I have found above, he had a positive belief that the company would float and had received sound legal advice as to the most appropriate course for him to take. He chose not to take that advice, thereby undertaking the risk that he was wrong.
Conclusion
The wife failed to make a full and frank disclosure in accordance with the requirements of the law. Further, in some instances she has acted fraudulently within the meaning of that word in the relevant legislation. Accordingly, the husband has established a prima facie ground for the setting aside of both the consent orders and the BFA.
However, the husband did not rely on either the wife's failure to make a full and frank disclosure or any misrepresentation, whether fraudulent or otherwise, made by her. At all relevant times, he had competent and experienced family law solicitors acting for him and was also represented by senior counsel with a highly specialised practice in family law. The ultimate advice received by the husband was the letter dated 9 March 2004 which was extremely detailed, articulate and most competently written. The husband chose to ignore that advice.
The husband was also present in Court on the making of the consent orders on the following day and heard the discussion between Young J and his senior counsel. Despite the warning from his Honour, the husband chose to proceed with the formalisation of the settlement.
As a result of his actions, particularly on 9 and 10 March 2004, the husband made a totally informed and considered choice which now has the result, regrettably for him, of denying him the relief which he seeks. Accordingly, his application will be dismissed.
I certify that the preceding one hundred and ninety-seven (197) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Mushin
Associate:
Date: 19 July 2011
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