Papadopoulos & Papadopoulos (No. 2)
[2007] FamCA 1683
•23 March 2007
FAMILY COURT OF AUSTRALIA
| PAPADOPOULOS & PAPADOPOULOS (NO. 2) | [2007] FamCA 1683 |
| FAMILY LAW – PRACTICE AND PROCEDURE – SUBPOENA – Objection by a party but not recipient of subpoena – Objection by beneficiaries of a trust who are not parties to proceedings FAMILY LAW – PRACTICE AND PROCEDURE – DISCOVERY – Rule 13.04 of the Family Law Rules 2004 – Mandatory nature of discovery and disclosure – Husband director of trustee company and appointor of trust but not beneficiary – Obligation to comply with Rule 13.04 |
| Family Law Act 1975 (Cth) |
A & A and Ors [2005] FamCA 561
Ansett Industries Ltd v Commonwealth SC (Vic), Marks J No 268/87 3 April 1987 (unreported)
Boardman v Phipps [1967] 2AC 46
Briese (1985) 10 Fam LR 642
Hatton v Attorney-General of Commonwealth of Australia and Ors (2000) FLC 93-038
Keviris Pty Ltd v Capital Building Society (SC) (Vic) No 6566/86 9 February 1988 (unreported per Kaye J)
Killorgan Investments Pty Ltd v Baycorp Advantage Business Information Services Limited and Ors [2002] VSC 270 (4 July 2002 unreported)
O’Sullivan v Herdmans Ltd [1987] 3 All ER 129
Wellesley v Lord Mornington [1855] 2K. and J. 143
| APPLICANT: | Ms Papadopoulos |
| RESPONDENT: | Mr Papadopoulos |
| INTERVENOR: |
| FILE NUMBER: | MLF | 11340 | of | 1995 |
| DATE DELIVERED: | 23 March 2007 |
| PLACE DELIVERED: | Melbourne |
| JUDGMENT OF: | Justice Cronin |
| HEARING DATE: | 16 March 2007 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr O'Shannessy |
| SOLICITOR FOR THE APPLICANT: | Philippa Power Solicitor |
| COUNSEL FOR THE RESPONDENT: | Mr St John SC |
| SOLICITOR FOR THE RESPONDENT: | T J Mulvany & Co |
| COUNSEL FOR THE PAPADOPOULOS FAMILY TRUST: | Ms Colla |
Orders
That the further hearing of the applications in a case (Form 2 and the amended Form 2) both filed 8 February 2007 be adjourned to a date to be fixed before the Honourable Justice Cronin.
That forthwith, the material produced under subpoenae but filed 13 December 2006 by National Australia Bank, L Financial Services and O Financial Services be released for inspection and copying by all parties.
That the exhibits be returned to the respective parties.
IT IS NOTED that publication of this judgment under the pseudonym Papadopoulos & Papadopoulos is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLF 11340 of 1995
| MS PAPADOPOULOS |
Applicant
And
| MR PAPADOPOULOS |
Respondent
REASONS FOR JUDGMENT
These are my reasons for judgment in an interim hearing.
The unusual nature of this dispute relates to the obligations to comply with the disclosure provisions of the Family Law Rules which are quite explicit.
The factual matrix in this case is also most unusual and complicates the outcome.
I am dealing with two applications brought by Form 2 documents but also objections by the husband and his children from an earlier marriage to the release of financial material relating to a trust and corporate trustee. The children referred to, are the beneficiaries of the trust.
The applicant wife is 58 years of age and the husband 66 years. The parties commenced living together in December 1985 and married in 1988. Their first main separation occurred in March 1995 and they resumed cohabitation in December 1995. However in December 1995, they executed an agreement which was then registered under s 86 of the Family Law Act 1975 (Cth) (“the Act”). That agreement contemplated a reconciliation of their relationship at that time. Under the agreement, the wife says she received $616,160.15 some of which she gave to her children, some she invested in shares which lost money, a large amount was apparently gambled and the rest was spent on living expenses. In April 2001 the wife won $62,011.55 which is now similarly gone. Even those facts were either denied or not admitted.
The parties finally separated on 12 March 2006. Proceedings commenced.
The wife filed an application on 19 October 2006 seeking an unquantified property settlement and maintenance and requested that she be excused from particularising her claim until such time as the husband had made full and frank disclosure of his financial position. At the same time, she sought interim relief in the sum of $1500 per week spousal maintenance and a “Barro” order of $50,000. She also sought various orders for the provision of documents by the husband. In her financial statement, the wife deposed to being engaged in home duties and having no income.
On 27 November 2006 the husband filed responding material also seeking unquantified property settlement and repeated the phrase that he should also be excused from particularising what orders he should seek until such time as the wife had disclosed her financial position. In his interim application, he sought that the wife’s application be dismissed but that he make available for inspection by the wife a series of documents in relation to two companies T Products Pty Ltd (“[T Products]”) and T Pty Ltd (“[T]”).
These proceedings however were essentially about the Papadopoulos Family Trust and its trustee, P Pty Ltd.
In his response, the husband sought orders that he provide to the wife:
All resolutions, resignations, acceptances, nominations or like documents pertaining to the appointment or change of the trustee, Appointor or Guardian of [Papadopoulos] Family Trust…;
Loan accounts between the husband and each of [P] Pty Ltd…[Papadopoulos] Family Trust…
It is clear from the husband’s material that he has no objection to the wife examining any of the documents in which he has a significant interest. However, it is equally obvious that he only wishes the wife to have a limited examination of the documents (and certainly not comprehensive financial documents) of the Papadopoulos Family Trust and P Pty Ltd. It is this issue that needs to be addressed.
Each party filed affidavit material. The wife’s solicitor filed an affidavit in essence setting out:
(a) the wife had received limited information in response to requests;
(b)the wife’s legal expenses thus far paid had been from funds borrowed from her daughter; and
(c)the usual particulars about projected costs associated with forensic exercises.
The husband’s affidavit which was drawn by his senior counsel, said in respect of the corporate trustee and the trust to which I have referred:
I am one of three directors. I am not, and never have been, a beneficiary of the trust.
…
I have not received any distribution, loan or like benefit from this trust since it was created. It is a trust which benefits the four sons of my first marriage. Whilst I admit this trust has substantial assets, I deny they are relevant to my financial position.
In other words, the husband sees his obligation under the disclosure and discovery issue as being limited.
The husband set out in his affidavit that he and the wife had lived a modest lifestyle. He said that he earned approximately $50,000 per annum by way of a wage and he had the benefit of a company car. He said that any entertainment he undertook on behalf of T Products was reimbursed to him. His mobile telephone expenses are similarly reimbursed. He said that he received no distributions or like payments from any of the entities about which there was a dispute and had never done so.
The wife in her affidavit complained that the husband’s solicitor had set out in writing that it was his view that the family trust did not form part of the pool of assets and that disclosure would not be provided in relation to the family trust.
The husband in reply admitted that that was the view his solicitor had taken on the basis that the general financial affairs of the trust were not relevant to his financial situation. He set out that he had no power, direct or indirect, to vary the terms of the trust deed and that whilst he was the appointor of the trust, it was his understanding that he was not, and could never be, a beneficiary of the trust.
The bottom line can be seen in paragraph 34 of the husband’s affidavit where he said:
I say my attitude to the provision of documents is appropriate. I have been concerned to ensure that the privacy of my sons is not unnecessarily intruded upon.
The privacy of the sons to which the husband refers is also apparent. The sons are not children of this marriage. They have been the beneficiaries of the relevant trust from infancy. They are not parties to the proceedings but have had a keen interest along the way. They appeared at the hearing before me and before registrars in hearings to which I shall turn in a moment.
The matter came before me initially on 21 December 2006 on discrete issues of spousal maintenance and a “Barro” order.
I then made orders that the husband pay to the wife $200 per week by way of spousal maintenance and that he pay a further sum of $25,000 to the wife for her purposes of obtaining valuations and engaging an investigative accountant.
The matter was then next before the Court in the Registrar’s List on 22 January 2007 relating to various subpoenae issued by the wife. All documents required to be produced were produced by the recipients of the subpoenae. No objection was raised by them. However, objection was raised by the husband and his children who were the beneficiaries of the Papadopoulos Family Trust to the release of material produced under three subpoenae.
Ms Colla of counsel appeared on behalf of persons who were described by the Registrar as “beneficiaries of the trust”. Ms Colla appeared before me and maintained the objection on behalf of the beneficiaries of the trust but otherwise adopted the position outlined by the husband.
The Registrar on 22 January 2007 ordered that all outstanding applications along with the objections to the inspection and photocopying of material produced under subpoenae be referred to be heard before me.
Subsequent to the hearing on 22 January 2007, the wife filed a Form 2 application and an amended Form 2 application both on 8 February 2007. The amended application sought orders in the same terms as those that I had dealt with in December but there were new orders which sought the production of documents. The wife clearly could not pursue the unamended part of the application. In the second of the two applications, she sought a second sum of $25,000 by way of a “Barro” order for use in the proceedings in addition to what I had ordered in December. This was on the basis that the $25,000 had been spent and there were expected expenses still to come.
In respect of the “Barro” order, it was agreed that that really had to wait until I had determined the discovery issue because if I ruled that the husband’s position was correct, there was nothing much further to forensically investigate.
Following the directions hearing, the parties had a conciliation conference with a registrar. The matter did not resolve. Two orders were made on that day. The first was that the matter be placed in the Trial Notice List and the second was that all extant applications as well as the objections to the subpoenae, be adjourned before me.
Accordingly, I have had three issues to determine:
(a) the “Barro” application;
(b) the release of subpoenaed material; and
(c) the request for further discovery.
In respect of the argument before me, the two latter issues are bound up together. They relate to the material from the same entity.
During December 2006 and January 2007, the wife’s “shadow” expert, a chartered accountant Mr F advised the wife that he wished to see a number of documents but in particular, those relating to Papadopoulos Family Trust and P Pty Ltd. Mr St John SC was critical (perhaps justifiably) of what Mr F sought. The schedule refers to “details” rather than “documents”. In discussions with counsel, it is clear that that issue needs to be clarified. Because of that, I shall leave the discovery issue aside for the moment.
In her affidavit sworn 20 December 2006, (paragraph 8) the wife said:
[The husband] has, throughout out relationship, always been in control of the properties and assets owned by [P] Pty Ltd. None of his sons have, in fact, as opposed to in name, exercised that control.
In his affidavit filed 15 March 2007, the husband denied the assertions of his alleged control of P Pty Ltd.
Scant though the evidence may be, it is the evidence of the wife that I must turn to in deciding whether there is something other than just mere assertion in assessing whether the material sought by the wife is relevant to such an extent as to warrant overruling the objection of the husband and the non-parties.
The features of the Papadopoulos Family Trust as detailed in the evidence of the wife and the submissions of her counsel and not disputed by the husband are:
(a) It is a discretionary trust settled … May 1975;
(b) The husband is not a beneficiary;
(c) The husband’s sons are named as primary beneficiaries;
(d) The husband is the appointor;
(e)The husband has no power of variation such as to enable his own establishment as a beneficiary;
(f)The general beneficiaries do not include the husband;
(g)The trustee is P Pty Ltd;
(h)The husband is one of three directors and a shareholder of the trustee.
On examination of the deed, the trustee has very wide discretionary powers.[1] However, the trust deed makes clear that the trustee cannot distribute income or capital to itself (or to the husband) but, according to the wife, it could possibly lend money to itself (or himself if the husband was to be treated as the trustee). It is not for me to determine the assertion of the wife that I have set out in para 31 above nor to assess the likelihood of the lending possibility just mentioned but I am conscious that it is a basic principle of the law of equity that in the absence of a clear indication to the contrary, a trustee cannot benefit himself from a trust. The doctrine extends to cases where an appointment is made to a beneficiary but, as a matter of substance, the purpose of the appointor is to benefit some person who is not a beneficiary.[2]
[1] See trust deed para 7(a)(ii), para 7(b), para 7(h)(iii) & para 7(m)
[2] Wellesley v Lord Mornington [1855] 2 K. and J. 143
If there is a breach of duty by the receipt of property, it has long been understood that equity would not allow the recipient to retain that property or traceable property which represents it. It is a breach of the fiduciary obligation[3].
[3] Boardman v Phipps [1967] 2AC 46
If in fact the trustee made a distribution to himself of a benefit to which he was not entitled, he would hold it on a constructive trust.
How then can any involvement of the husband in the trust and also the corporate trustee have any relevance to these proceedings?
The wife points to the other trusts in which the husband is involved which are not controversial and about which the husband has no objections to the release of information. I was handed various financial statements showing there are inter-entity loans. The husband concedes that there is no shortage of funds here in the event that these loans were called up. All of the traceable loans point to the Papadopoulos Family Trust for their source of satisfaction. However the interest of the husband in these other entities is relatively small. As I have pointed out earlier, the husband readily concedes the loan accounts exist and that he has no objections to disgorging documents and details about these loans. His position therefore is that because he cannot benefit himself from the Papadopoulos Family Trust, the affairs of the trust and its corporate trustee cannot be relevant.
This gives rise to an unusual dilemma because in referring to the obligations of disclosure, Rule 13.04 says (emphasis added):
(1) A party to a financial case must make full and frank disclosure of the party’s financial circumstances, including:
(a) the party’s earnings, including income that is paid or assigned to another party, person or legal entity;
(b)any vested or contingent interest in property;
(c)any vested or contingent interest in property owned by a legal entity that is fully or partially owned or controlled by a party;
(d)any income earned by a legal entity fully or partially owned or controlled by a party, including income that is paid or assigned to any other party, person or legal entity;
(e)the party’s other financial resources;
(f)any trust:
(i)of which the party is the appointor or trustee;
(ii)of which the party, the party’s child, spouse or de facto spouse is an eligible beneficiary as to capital or income;
(iii)of which a corporation is an eligible beneficiary as to capital or income if the party, or the party’s child, spouse or de facto spouse is a shareholder or director of the corporation;
(iv)over which the party has any direct or indirect power or control;
(v)of which the party has the direct or indirect power to remove or appoint a trustee;
(vi)of which the party has the power (whether subject to the concurrence of another person or not) to amend the terms;
(vii)of which the party has the power to disapprove a proposed amendment of the terms or the appointment or removal of a trustee; or
(viii)over which a corporation has a power mentioned in any of subparagraphs (iv) to (vii), if the party, the party’s child, spouse or de facto spouse is a director or shareholder of the corporation;
(g)any disposal of property (whether by sale, transfer, assignment or gift) made by the party, a legal entity mentioned in paragraph (c), a corporation or a trust mentioned in paragraph (f) that may affect, defeat or deplete a claim:
(i)in the 12 months immediately before the separation of the parties; or
(ii)since the final separation of the parties; and
(h)liabilities and contingent liabilities.
(2) …
(3) In this rule:
"legal entity "means a corporation (other than a public company), trust, partnership, joint venture business or other commercial activity.
The husband says again that there is no point in fulfilling this requirement under the Rules because he cannot obtain any benefit other than in the way that he has already conceded.
The overarching Rule is 13.01 which reads:
(1) Each party to a case has a duty to the court and to each other party to give full and frank disclosure of all information relevant to the case, in a timely manner.
Note Failure to comply with the duty may result in the court excluding evidence that is not disclosed or imposing a consequence, including punishment for contempt of court. This Chapter sets out a number of ways that a party is either required, or can be called upon, to discharge the party’s duty of disclosure, including:
(a)disclosure of financial circumstances (see Division 13.1.2);
(b)disclosure and production of documents (see Division 13.2.1); and
(c)disclosure by answering specific questions in certain circumstances (see Part 13.3).
(2) The duty of disclosure starts with the pre-action procedure for a case and continues until the case is finalised.
Note The duty of disclosure applies to a case guardian for a child and a person with a disability (see subrule 6.13 (2)).
Normally, one would expect all parties to strictly comply with the letter of the rules but I do not think that necessarily follows in every case particularly if there is an objection.
If there is an objection as here, the applicant needs to show that there is some relevance to the matters in issue. Does the husband have to disclose this information on the basis that it is, or maybe, relevant to the case? In the explanatory memorandum with the Family Law Rules 2004, this appears:
This Rule imposes a duty on a party to disclose documents in the party’s possession or control that are “directly” relevant to an issue.
…
The requirement to disclose “directly relevant” documents will introduce a higher standard of assessment in the sifting and examination of a client’s documents. This will oblige parties and lawyers to focus attention at an early stage upon the real issues in dispute and the documentary evidence that goes directly to those issues.
Notwithstanding the apparent strictness of the rule, the focus must really be on the relevance at a particular time of the documents or information being pursued. The same principle of relevance applies in respect of the disclosure and discovery of documents as it does in relation to the pursuit of documents by a party of non-parties under subpoenae.
In the civil jurisdiction, where one would have expected the court to jealously guard the privacy of non-parties, the Supreme Court of Victoria has had little difficulty in determining its underlying philosophy namely that it will be cautious about the exercise of its discretion but the order for non-party preliminary discovery will be made if it is in the interest of justice in resolving an issue between the parties to a proceeding.[4]
[4] Keviris Pty Ltd v Capital Building Society (SC) (Vic) No 6566/86 9 February 1988 (unreported per Kaye J).
In Ansett Industries Ltd v Commonwealth [5] Marks J said that the purpose (of the Rule) is that of ordinary discovery, namely, to assist the administration of justice by minimising costs and facilitating the disclosure of information which would advance the fair determination of the issues. That has different words to the explanatory memorandum that came with the rules of this Court but the philosophical meaning must be seen as much the same.
[5] Supreme Court (Vic), Marks J No 268/87 3 April 1987 (unreported).
Other jurisdictions have taken a similar view that the production of documents by a non-party before trial advances the interests of justice by promoting settlement[6].
[6] O’Sullivan v Herdmans Ltd [1987] 3 All ER 129
The question of what is relevant takes on significance. The objective must be to assist the parties and the court in the determination of the issues in dispute. How does one determine that at an early stage? This issue was considered in the Victorian Supreme Court in Killorgan Investments Pty Ltd v Baycorp Advantage Business Information Services Limited and Ors[7] where Byrne J said:
The degree of relevance for this purpose is not high: the inspecting party need only show a legitimate forensic purpose in the inspection. A party is entitled to inspect documents not only to see if they contain relevant facts, but also to see if they contain information which may be proved otherwise than through that document.
[7] [2002] VSC 270 (4 July 2002 unreported)
Accordingly, the bar is not set very high in respect to the question of relevance in a civil proceeding as between strangers. It should be less so in family law proceedings provided the pursuit of information is genuinely designed to assist in determining the issue and not for some illicit or harassing type of reason.
The onus in establishing the relevance lies on the person seeking the production of the documents either by way of subpoena or through discovery.[8]
[8] A & A and Ors [2005] FamCA 561; also Hatton v Attorney-General of Commonwealth of Australia and Ors (2000) FLC 93-038
In Hatton[9] the Full Court supported the “apparent relevance” test. This is the same test referred to above by Byrne J. That latter case was a commercial one. It is hard to see how it could be argued that cases in the Family Court of Australia should be conducted on a more strenuous test basis than those as between strangers in a commercial cause. That is particularly so having regard to the philosophy that this Court has traditionally espoused in relation to disclosure.[10]
[9] ibid
[10] See Briese (1985) 10 Fam LR 642
Mr O’Shannessy for the wife says that the husband is endeavouring to “pull himself up by his own boot straps” because he claimed not to have received a benefit from his position in the trust. The husband effectively argues that therefore, the wife is not entitled to check the truth of his assertions nor to look for information that may assist her to prove her case. It may be for example that the husband has breached his fiduciary duty and no-one knows about it. It may be that the beneficiaries have been complicit in the husband enjoying the benefits of the trust. This situation could for example, arise where the husband lives in a property owned by the trust or uses trust property for his own benefit or owes money to the trust and uses his position as trustee to determine the terms and conditions of the repayment. The wife argues that she does not know how the former matrimonial home was purchased and whether with funds of the trust or otherwise and points to the fact that the husband does not disclose any mortgage liability. She accordingly queries whether a benefit arises for the husband and asserts that that gives her the right to at least investigate the funding arrangements of the trust.
Various authorities of this Court in relation to trusts were drawn to my attention by Mr O’Shannessy to support the proposition that trust interests could be property or financial resources. My view is that whilst those cases may assist in an argument about control of and use of, trust funds, they are relevant to a final hearing when all of the discovery processes and discovered information will assist in the determination of what, if any, relevance they have to the property proceedings. According to the wife, the dilemma is that those issues cannot be argued until this discovery process is finalised.
Mr St John for the husband says that regardless of anything else, the husband has an interest of 1.7 per cent in T Products Pty Ltd and 1 per cent in T Pty Ltd and as such, the interest that he has in even the tracing of the funding through the intercompany-connected balance sheets will be of marginal value or relevance. The husband argues that, to use the expression of his senior counsel, the wife has gone overboard as to what is necessary at this stage of the proceedings.
On 7 February 2007 the shadow forensic accountant pointed to a property at W in Queensland which in 1995, the husband said was funded partly by his father and partly by repayment of monies due to him from the trust. This excited the wife’s interest. However on 26 February 2006, the solicitor for the husband responded to the forensic accountant’s comment by saying:
[The husband] has never denied that he was then and is now a debtor of the [Papadopoulos] Family Trust. (emphasis mine)
All of these issues come back to a question of whether the wife should be allowed to investigate the source documents, look at the position as set out in financial records and ask questions to either corroborate or refute her assertion that the husband somehow has either the property of the trust as his own or at least as a financial resource rather than just rely upon what she is being told by the husband. The relevance is “apparent” so it is now just a question of whether the wife should be refused the opportunity to investigate the matters. As Mr O’Shannessy puts it, if the wife is putting her assertion incorrectly, she faces the prospect of an order for costs.
Having regard to:
(a) the apparent relevance test which I find has been met here; and
(b)the possible opportunity to resolve matters in the way envisaged by an examination of the source documents at an early stage,
it is appropriate to overrule the objections of the husband and the persons who have an interest in the material produced under the three subpoenae.
In respect of the issue of production of documents, I have already said that item 4 of the orders sought in the amended Form 2 application is inappropriate but having determined that the wife is entitled to access material generally in the Papadopoulos Family Trust and P Pty Ltd, I would see little difficulty in the request by the wife being not only clarified but redrawn in a proper way. In the meantime, I am not prepared to make orders in those terms as requested. I will however make orders in terms of paragraph 3.
In respect of where the matter goes from here, I give liberty to apply to have the matter relisted on a date to be fixed before me.
I certify that the preceding sixty (60) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin
Associate
Date: 23 March 2007
23