Pierce v D'Cruz
[2010] FamCAFC 99
•9 June 2010
Family Court Of Australia
| PIERCE & D’CRUZ and PIERCE & T | [2010] FamCAFC 99 |
| FAMILY LAW - APPEAL – Against declarations made pursuant to s 78 of the Family Law Act 1975 (Cth) and consequential orders and also orders pursuant to s 106B of the Act FAMILY LAW - APPEAL – First Area of Complaint – Whether the trial Judge erred in finding that Agreements between the Appellants were sham transactions and were not genuine transactions – Whether the First Appellant became a beneficial owner of a one half interest in the business in question – Consideration of the rule in Browne v Dunn (1893) 6 R 67 – Where the complaints of the Appellants are directed to considerations of weight – Where the trial Judge attached appropriate weight to the evidence, her findings in relation to the credit of the Appellant and important witnesses, and a preponderance of other matters that illustrated that there was not a genuine agreement – Where the trial Judge correctly identified the relevant legal principles and in applying those principles to the evidence before her and her findings of fact came to the conclusion that the transactions were shams – Where it was within the trial Judge’s discretion to make the findings of fact and where it was not demonstrated that in so doing she either failed to give appropriate weight or gave inappropriate weight to particular matters – No appealable error established FAMILY LAW - APPEAL - Second Area of Complaint – Whether the trial Judge erred in her findings with respect to s 106B of the Act – Where it was submitted that the trial Judge made no findings under s 106B of the Act but indicated that she would have done so had she not found the relevant transactions to be shams – Whether the various dispositions between the Appellants were likely to defeat an anticipated order in the Family Court of Australia – Where the trial Judge had found that the various dispositions were made in the course of a marriage undergoing genuine difficulties, that in all the circumstances a reasonable disponor would have foreseen the orders sought by the Wife and that the Husband intended to defeat the anticipated order – Where, in the circumstances of this case, the trial Judge was entitled to reach the conclusions she did in relation to the alternate relief sought pursuant to s 106B of the Act – No appealable error established FAMILY LAW - COSTS – Reserved |
| Ascot Investments Pty Ltd v Harper & Anor (1981) 148 CLR 337 Bania & Bania [2009] FamCAFC 105 Browne v Dunn (1893) 6 R 67 Equuscorp Pty Ltd and Another v Glengallan Investments Pty Ltd (2004) 218 CLR 471 Essex & Essex [2009] FamCAFC 236 Fox v Percy (2003) 214 CLR 118 Jones v Dunkel (1959) 101 CLR 298 Nelson & Anor v Nelson & Ors (1995) 184 CLR 538. Raftland Pty Ltd v Federal Commissioner of Taxation (2008) 238 CLR 516 Re: W (Sex Abuse: Standard of Proof) (2004) FLC 93-192 Roth & Quinn [2004] FamCA 816 Sharrment Pty Ltd & Ors v Official Trustee in Bankruptcy (1988) 18 FCR 449 |
| Evidence Act 1995 (Cth) – s 140(2) Family Law Act 1975 (Cth) – s 106B |
| FIRST APPELLANT: | C Pierce |
| SECOND APPELLANT: | Mr M Pierce |
| FIRST RESPONDENT: | Ms D’Cruz |
| SECOND RESPONDENT: | Mr T |
| THIRD RESPONDENT: | DM LTD |
| FOURTH RESPONDENT: | D NOMINEES |
| FIFTH RESPONDENT: | MT TRUSTEES |
| FILE NUMBER: | MLF | 3135 | of | 2004 |
| APPEAL NUMBER: | SA SA | 97 98 | of of | 2008 2008 |
| DATE DELIVERED: | 9 June 2010 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Bryant CJ, Faulks DCJ & O'Ryan J |
| HEARING OF: | 20, 21 & 22 July 2009 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 29 October 2008 |
| LOWER COURT MNC: | [2008] FamCA 988 |
Representation
| COUNSEL FOR FIRST APPELLANT: | Mr Aldridge SC with Ms Rees |
| SOLICITOR FOR FIRST APPELLANT: | Taylor Splatt & Partners |
| COUNSEL FOR SECOND APPELLANT: | Mr O’Shannessy |
| SOLICITOR FOR SECOND APPELLANT: | Griffin Sweeney Lawyers |
| COUNSEL FOR FIRST RESPONDENT: | Mr Glick QC with Mr Dixon |
| SOLICITOR FOR FIRST RESPONDENT: | Kennedy Wisewoulds Lawyers |
| COUNSEL FOR SECOND RESPONDENT: | No Appearance |
| SOLICITOR FOR SECOND RESPONDENT: | Middletons |
| COUNSEL FOR THIRD RESPONDENT: | No Appearance |
| COUNSEL FOR FOURTH RESPONDENT: | No Appearance |
| COUNSEL FOR FIFTH RESPONDENT: | No Appearance |
Orders
The appeal by the First Appellant, C Pierce, be dismissed.
The appeal by the Second Appellant, Mr M Pierce, be dismissed.
Each party be at liberty to make an application by way of written submissions in respect of costs incurred in relation to the appeals by filing such submissions at the Southern Region Appeal Registry of the Family Court of Australia and serving them on the other parties within 28 days of the date hereof.
Each party have a further 14 days in which to make written submissions in answer thereto by filing such submissions at the Southern Region Appeal Registry of the Family Court of Australia and serving them on the other parties.
Each party be at liberty to reply to an answer by way of written submissions by filing such reply at the Southern Region Appeal Registry of the Family Court of Australia and serving it on the other parties within a further seven days.
Each party endorse on the cover sheet of any submissions filed pursuant to orders 3, 4 and 5, the date upon which a copy of that submission was served on the other parties.
IT IS NOTED that publication of this judgment under the pseudonym Pierce & D’Cruz / Pierce & Mr T is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT MELBOURNE |
Appeal Number: SA 97 & 98 of 2008
File Number: MLF 3135 of 2004
| C PIERCE |
First Appellant
And
| MR M PIERCE |
Second Appellant
And
| MS D’CRUZ |
First Respondent
And
| MR T |
Second Respondent
And
| DM LTD |
Third Respondent
And
| D NOMINEES |
Fourth Respondent
And
| MT TRUSTEES |
Fifth Respondent
Reasons For Judgment
Introduction
General
These are two appeals against declarations made by Dessau J pursuant to s 78 of the Family Law Act 1975 (Cth) (“the Act”) and consequential orders and also orders pursuant to s 106B of the Act. The First Appellant is C Pierce. The Second Appellant is Mr Pierce (“the Husband”). C Pierce is the Husband’s father. The First Respondent to both appeals is Ms D’Cruz (“the Wife”). During the hearing before her Honour the Wife was the Applicant and the Husband was the First Respondent. The Second Respondent was C Pierce. There are pending proceedings pursuant to s 79 of the Act between the Husband and the Wife.
In the appeals the Second Respondent is Mr T. There was no appearance before us by or on behalf of Mr T. Mr T was the Fifth Respondent during the proceedings before Dessau J and is a solicitor from the firm of WH Pty Ltd. He is the appointor of the M Pierce Trust (“MPT”) and the sole director and shareholder of a company which is the trustee of that Trust. He was also the director of D Nominees which her Honour said at [8] of her reasons was “integrally involved in some transactions”. Her Honour also observed at [8] that the Wife contended that Mr T had “not acted independently of the [Husband] and/or [C Pierce]” and this was denied by Mr T “who claimed to be independent and acting in good faith in the proper administration of the trust”.
The Third Respondent is DM Ltd. The Fourth Respondent is D Nominees. The Fifth Respondent is MT Trustees. The trial Judge observed at [9] that the three corporate respondents being, DM Ltd, D Nominees and MT Trustees did not participate in the proceedings before her and they also did not participate in the hearing before us.
In her reasons the trial Judge said at [10]: “This case has a long litigation history with many interlocutory applications and hearings. This part of the hearing took ten days. The material is voluminous. The issues are complex”. The hearing before her Honour occurred between 16 and 29 May 2008.
Brief Overview of Issues
In her reasons the trial Judge gave the following brief introduction to the issues:
1.[The Husband] and [the Wife] cannot agree on a property settlement after a 15-year relationship. This part of the case is about what should be included in the pool of assets.
2.[The Wife] wants declarations, or alternatively the setting aside of various transactions, as a result of which the pool would be very substantial (on her case, up to around $26 million). [The Husband] and his father, the second respondent [C Pierce] (“[C Pierce]”), vigorously oppose the wife’s case. On their case, the pool of assets is around $6 million.
3.In short summary, [the Wife]’s case is that, against the backdrop of an often unhappy marriage, with a short separation as early as 1995, various business transactions either did not genuinely occur, or were carried out by the husband and/or [C Pierce] to defeat an anticipated order in these proceedings, or were likely to defeat such an order, by directing significant assets to [C Pierce], and removing them from the Court’s jurisdiction.
4.The husband and [C Pierce] argue that at relevant times they had reached a genuine agreement to run a business as equal owners. It is their case that all the transactions referred to by the wife were legitimate business transactions, at times when the wife’s application for orders in these proceedings could not have been anticipated, and with no intent or effect of defeating the orders.
5.If I accept the husband and [C Pierce]’s case, the pool could be sufficiently certain for me to then hear the case to conclusion. If I am satisfied on the wife’s case, further material would be required before the property case could be concluded. The setting aside of complicated corporate and trust transactions would most likely have profound tax consequences. Until those consequences could be explored, quantification of the pool would not be possible.
6.The lack of certainty surrounding potential taxation was compounded by the service on the husband and [C Pierce] of the Crimes Act1914 (Cth) search warrants, resulting in the seizure of numerous documents, just days before the trial started. That raised the spectre that the men could face criminal charges, one of the upshots of which could be significant taxation penalties.
7.The search warrants alleged reasonable grounds for suspecting offences against the Criminal Code Act1995 (Cth), of conspiracy between the husband, [C Pierce], [Mr A] and others to defraud the ATO between May 2001 and May 2008, and that between January 2003 and May 2008 they conspired to deal with $1 million or more, intending that money to become an instrument of crime.
The Questions before the trial Judge
During the hearing before the trial Judge a number of agreed questions were formulated that her Honour was asked to determine. Her Honour observed:
68.… The questions provided a useful framework for the hearing, but several variations or refinements arose in evidence or in final submissions. I will deal with such variations as they arise. Also, in the course of reflecting upon these reasons for judgment, I have decided that for clarity and to avoid repetition, some questions should be re-framed. Again, I will make it clear where I have re-framed the questions. Finally, I have ultimately numbered them for ease of reading.
The agreed questions the trial Judge had to determine were:
1.Whether there were agreements between [the Husband] and [C Pierce] in March or June 1996 by which [C Pierce] became a beneficial owner of a one half interest in the business? Matters relevant to that question include:
·What was [C Pierce]’s role and contribution in the business?
·Was there an oral agreement between them in March 1996?
·Was there a written document on 14 June 1996?
·Is the 14 June 1996 document a sham?
·When was the [M Pierce Trust] established?
·What is the effect of the document dated 5 July 1996?
·What is the effect of the “Authority to Act” document dated 12 July 1996?
·Were monies distributed according to purported agreements?
2.Assuming there was a 50/50 agreement in either March or June 1996 between [the Husband] and [C Pierce], was there subsequently an agreement to the effect that [the Husband] would take his share of the sale of the business by taking the first $6 million and [C Pierce] the balance. One factor relevant to that issue is:
·Were the monies distributed according to the purported agreement?
3.Whether at the time of each of the transactions now sought to be set aside in the wife’s amended application the wife’s property claim in these proceedings was reasonably foreseeable and whether each transaction:
(i)Was intended to defeat that claim; or
(ii)Regardless of intention, defeated that claim?
Factors relevant to that question include:
·The state of the marriage.
·What was/was not conveyed by the husband to the wife.
·The nature of the instructions given and legal advice obtained from time to time and on whose behalf it was obtained.
·The time at which relevant legal advice was sought.
·How money was distributed following transactions.
4.In relation to Mr [Mr T]:
·Whether he was truly independent of the parties?
·Was he reasonably entitled to believe that [the Husband] and [C Pierce] jointly owned the business (whether that be true or not)?
As to the first question the trial Judge said:
76.I do not feel constrained to follow the structure of the “matters relevant” to this question in the precise form set out above. I shall consider each matter, but to avoid repetition, or in some instances, begging the answer to the question, I propose re-framing the matters relevant to deal with them as follows:
D.1(a)[C Pierce]’s financial contributions to and role in the business
D.1(b)Various documents, including the 14 June, 5 July and 12 July 1996 documents
D.1(c)When the [M Pierce Trust] was established?
D.1(d)How monies were distributed
The Wife submitted that it was significant that the questions were formulated by all counsel during the course of the trial at the request of the trial Judge. The wording of question l, which was agreed to in form by senior counsel for C Pierce, had as its premise the fact that C Pierce was not a beneficial owner of a one half interest in the business but raised the question of whether he became a beneficial owner by reason of either of agreements in March or June 1996 given a payment he made of $26,512.
As to question 3, and the factor relating to the state of the marriage, the trial Judge said at [295]: “The state of the parties’ marriage when particular transactions occurred is relevant as to whether, at the time of those transactions, orders in these proceedings could be anticipated”.
As to question 4 about Mr T, the trial Judge said at [375] that it was submitted on behalf of the Husband and C Pierce that the question as to Mr T’s independence should be narrowed by adding the words, “in his capacity as trustee of the [M Pierce Trust]”. On that point, her Honour disagreed.
Referring to s 140(2) of the Evidence Act 1995 (Cth), the trial Judge observed at [70] that the parties agreed that the Wife bore the onus of proof in the case and that the standard of proof was on the balance of probabilities.
It was agreed that if the trial Judge found that there was not a 50/50 agreement between the Husband and C Pierce then her Honour need not proceed any further. However, the Wife had an alternative claim seeking orders pursuant to
s 106B of the Act. The Wife sought to set aside:1. An asserted oral agreement between the Husband and [C Pierce] of March 1996;
2. An agreement between the Husband and [C Pierce] headed ‘[K 1] Equity Participation and Debt Funding Agreement’ dated 14 June 1996;
3. A mortgage agreement between [G Investments] and [DM Ltd] dated 12 March 1998;
4. A deed of variation of mortgage agreement between [G Investments] and [DM Ltd] dated 7 July 1998;
5. A declaration of trust executed by [Mr T] in his capacity as director and secretary of [D Nominees] dated 28 September 1998;
6. A deed of confirmation and modification executed by [DM Ltd], [G Investments] and [D Nominees] dated 30 May 2001;
7. A transfer of 2,647,875 shares in [ADL Ltd] to [DM Ltd] by [D Nominees];
8. The following payments made by [D Nominees]:
8.1$1,400,000 to [PK Pty Ltd];
8.2$5,300,000 to [DM Ltd]; and
8.3$2,400,000 to [DM Ltd].
Ultimately, the Wife did not seek to set aside the deed in paragraph 6 or the payment in paragraph 8.3, which related to litigation in the Supreme Court of Victoria (“the Supreme Court”).
The Wife also sought to set aside a Deed of Retirement executed by the Husband, Mr T, and BNE Pty Ltd (“BNE”) on 29 November 1997. However, her Honour said at [402]: “It received little specific attention by Mr Brown SC for the wife in final submissions, probably because it had been conceded by the husband that the MPT assets should be brought into account as part of the pool”.
On 19 September 2008 the trial Judge delivered reasons but did not pronounce judgment. The parties were directed to make submissions as to what the orders should be.
In answering the questions the trial Judge had to address a considerable number of factual issues including those particularised in the draft questions as amended by her. Her Honour made findings in relation to the various issues and thus was able to provide, as was sought, an answer to the questions.
In summary, the trial Judge found at [400] that “there was no genuine 50/50 agreement as claimed” by the Husband and C Pierce. As to the alternative claims pursuant to s 106B of the Act her Honour found at [434] that she was satisfied that the Deed of Retirement should be set aside and “that the s 106B application in relation to the other transactions, should also succeed, although I emphasise they were alternative claims, and my primary finding is that there was never a genuine agreement between the men to share the business”.
The issue in these appeals is whether the trial Judge was in error in making the findings she did in relation to the agreed controversies. Unfortunately, the appeals require consideration of an enormous amount of material and very lengthy and detailed reasons for judgment. We observe that there are 10 appeal books and the hearing before us took approximately three days.
As well there were difficulties in relation to the presentation of the arguments in relation to the appeals. For example in the Notice of Appeal of C Pierce there are 29 grounds of appeal. However there are two areas of complaint by C Pierce against the judgment of the trial Judge. The first complaint is articulated in ground 1 of the Notice of Appeal, and grounds 2 to 26 are “in effect particulars or sub-grounds” to ground 1. The second area of complaint relates to the findings of the trial Judge with respect to s 106B of the Act and grounds 27 to 29 address this complaint. The written and oral submissions for C Pierce did not follow the order in which relevant matters were addressed in the Notice of Appeal and during oral submissions no reference was directly made to any of the grounds of appeal.
In our view, the complaints raised in these appeals are largely concerned with issues regarding the weight that the trial Judge gave or failed to give to matters relevant to whether there was a genuine agreement between the Husband and C Pierce in relation to ownership. The submissions on behalf of C Pierce and the Husband were concerned with matters that it was contended pointed to why there was genuine agreement. The Wife, however, contended that there was a preponderance of matters that pointed to why there was not a genuine agreement.
The Orders Made
Then on 29 October 2008 the trial Judge made the following declarations and orders:
IT IS DECLARED
1. That the purported equal partnership agreement entered into orally between the husband and the second respondent [C Pierce] in March 1996 is a sham and of no effect.
2. That the written agreement dated 14 June 1996 between the husband and the second respondent [C Pierce] is a sham and of no effect.
3. That from 31 March 1996, the husband was the beneficial owner of the shares in the company [K Australia Pty Ltd] (ACN ….) known as [K 1 Pty Ltd].
IT IS ORDERED
4. That order 1 of the orders made on 4 April 2005 (as amended), order 2 of the orders made on 5 February 2008 and order 1 of the orders made on 29 May 2008 be discharged.
5. That until further order the second respondent [C Pierce] be restrained by himself, his servants and/or agents from:
5.1 Resigning from any office or power of appointment held by him in any of the following corporate entities or trusts:
5.a.1 [PK Pty Ltd];
5.a.2 [LO Pty Ltd];
5.a.3 [VH Holdings Pty Ltd];
5.a.4 [G Investments];
5.a.5 [PH Pty Ltd];
5.a.6 [MT Trust];
5.a.7 [DM Trust],
5.a.8 [GN Trust];
5.a.9 [Education Trust]; and
5.a.10 [C Pierce] Trust,
("the corporate entities").
b. Selling, alienating, encumbering, dealing with or otherwise doing any act or thing reasonably likely to have the effect of reducing the value of:
5.b.1 Any property, both real or personal, in which he has a legal or beneficial interest; and
5.b.2 Any property, both real and personal, held in the name of any of the corporate entities;
c. Removing, replacing or altering any of the trustees of the [MT Trust] or the [DM Trust] save in the event that he seeks to do so by reason of the circumstances contemplated by notation "A" of the orders made on 5 February 2008,
SAVE THAT this order does not preclude:
(a) Any of the named entities from meeting, with the consent of the husband and the wife first obtained, any demands or assessments received from the Australian Taxation Office (for tax, interest or penalties) from being paid;
(b) The [Education Trust] from paying education costs for the grandchildren of the second respondent (subject to the provision by the second respondent of an accounting of all school fees paid to date from that Trust);
(c) The second respondent accessing his superannuation entitlements or personal bank accounts referred to in his financial statement filed on 6 March 2008;
(d) Expending monies of the [C Pierce] Trust to complete construction/renovation of the property owned by the Trust in [a bayside suburb] subject to the second respondent providing to the wife details and documents as to all monies expended pursuant to this order;
(e) Selling the [current coastal home] property provided that the wife first consents in writing.
6. That the solicitors for the wife serve a sealed copy of these orders upon the solicitors for the sixth respondent by sending the said orders to the solicitors for the sixth respondent, Rhodes & Co of level 17, 119 Armagh Street, Christchurch, New Zealand by way of facsimile transmission.
7. That the second respondent provide to the wife a detailed accounting for all monies received by him or paid at his direction since 1 January 2008 from the [MT Trust].
8. That pursuant to s 106B of the Family Law Act 1975 the deed of retirement executed by the husband and the fifth respondent dated 29 November 1997 be set aside.
9. That within 7 days of the said deed of retirement being set aside, the husband, the wife and the fifth respondent do all such acts and sign all such documents as may be necessary to appoint the husband and wife as directors and equal shareholders of [BNE Pty Ltd] in lieu of the fifth respondent.
10. That upon the husband and the wife being appointed directors and equal shareholders of [BNE Pty Ltd], the fifth respondent do all such acts and things as may be necessary to deliver up to the solicitors for the wife all files, documents and records with respect to the [M Pierce Trust] to be held on behalf of the [M Pierce Trust] and made available to the husband at his request.
11. That within 7 days of the date of these orders, the second respondent do all such acts and sign all such documents as may be necessary to retire as guardian of the [M Pierce Trust].
12. That any party wishing to seek any order for costs arising from the May 2008 proceedings shall file and serve written submissions by 31 January 2009 in support of such an order (including details of the order sought).
13. That any party against whom costs are sought shall file and serve any written submissions in response by 28 February 2009.
14. That pursuant to section 128(7) of the Evidence Act, a certificate issue to the second respondent in relation to the following passages of evidence referred to in the following pages of transcript:
14.1 Pages 37-45 23.05.2008;
14.2 Pages 24-26 - 26.05.2008;
14.3 Pages 78-79 - 26.05.2008;
14.4 Pages 83-92 - 26.05.2008;
14.5 Pages 8-23 - 27.05.2008.
IT IS ORDERED BY CONSENT
15. That on or before 12 December 2008 the husband and the second respondent [C Pierce] forward to the wife, in writing, the approach that either of them wish to make to the Australian Taxation Office ("the ATO") and the subject matter of these proceedings together with the expected quantum of any taxation and penalties (if any) arising from such approach, if accepted by the ATO ("the approach").
16. That on or before 31 January 2009, the wife advise the husband and [C Pierce], in writing, of any disagreement she has as to the approach.
17. That on or before 14 February 2009 the parties and their advisors confer as to any disagreement as to the approach of the parties to the ATO.
18. That there be liberty to apply as to any difficulty with the approach of the parties or any of them to the ATO.
19. That the docketed Registrar is requested to arrange a telephone mention with all parties in around the last week of March 2009 to ascertain the progress of the ATO issues and the wife's amended application tendered on 20 May 2008 (Exhibit W2) shall be adjourned to that date.
Both appeals were filed on 26 November 2008. C Pierce is appealing against orders 1, 2, 3, 7, 8 and 11. The Husband is appealing against orders 1, 2 and 3.
In their respective notices of appeal if the appeals are allowed C Pierce and the Husband each sought that the application of the Wife be dismissed with costs or alternatively the application be remitted to the Family Court for further hearing. At the conclusion of the hearing before us we were informed by senior counsel for C Pierce and counsel for the Husband that in the event the appeals are allowed we should re-exercise the discretion rather than remit the matter for re-determination because there is no challenge to the findings of the trial Judge in relation to credit or any complaint about the adequacy of her reasons and there is no further material that would need to be considered.
Brief Overview of Relevant History
In the written submissions of C Pierce there is a brief overview of the relevant history. In late 1995 to early 1996 the Husband was engaged in the development of a credit assessment application. The development was through a company called K Australia Pty Ltd (“K 1 Pty Ltd”) which was “owned as to one half by the Husband and as to the other by” Ms JC and Mr DC. In the written submissions of C Pierce K 1 Pty Ltd is described as Q Corporation. In any event, the Husband provided the requisite expertise in development of the product and Ms JC ran the administrative side of the business as Office Manager. In fact it was owned as to one half by the Husband and the Wife.
In late 1995 Ms JC and Mr DC wished to leave the business. The Husband and C Pierce contended that the shares of Ms JC and Mr DC were purchased with money provided by C Pierce and that C Pierce also provided significant monies to enable the business to stay afloat. The trial Judge found that C Pierce did provide funds but not as much as was claimed by him and that he took part in the management of K 1 Pty Ltd.
The development of the business was successful. K 1 Pty Ltd changed its name to G Investments Pty Ltd (“G Investments”). A new company described as K 2 Pty Ltd, which was later renamed Q Corporation, was then established. G Investments transferred its assets to K 2 Pty Ltd and acquired shares in K 2 Pty Ltd. G Investments then entered into a shareholders agreement with ARC. The sale took place in December 1996 and ARC obtained a fifty per cent interest in the equity of K 2 Pty Ltd upon the payment of $2 million. Accordingly, K 1 Pty Ltd and ARC owned half each of K 2 Pty Ltd. C Pierce and the Husband became directors of K 2 Pty Ltd along with two ARC directors.
The shareholders agreement between K l Pty Ltd and ARC had a put and call option which was exercised by K 1 Pty Ltd in late 1997. In early 1998 ARC agreed to purchase the shares in Q Corporation for an initial payment of $12 million, fifty percent of which could be satisfied by shares in a new holding company, with three further annual instalments according to an agreed percentage of an annual valuation. ARC refused to pay the instalments due in October 2000 and October 2001 and K 1 Pty Ltd commenced proceedings against ARC. Those proceedings were settled in October 2002 for approximately $10 million.
The Husband and C Pierce contended that there were relevantly three agreements between them in relation to their ownership of K 1 Pty Ltd. The first was an oral agreement in March 1996 followed by a written agreement in June 1996 by which they contended they confirmed they each held a fifty percent interest in each of the companies.
The Husband and C Pierce contended that the second agreement was made at about the time of the discussions between ARC and K 1 Pty Ltd about the buyout of K l Pty Ltd by ARC. Since shares in a new publicly listed company (ADL Ltd) were being offered as part of the consideration the Husband and C Pierce contended that the Husband did not wish to take the risk of the shares and it was agreed between the Husband and C Pierce that the Husband would take the first $6 million dollars from the arrangements involving ARC and that C Pierce would take the shares and bear any risk attached to them.
The Husband and C Pierce contended that the third agreement was made prior to litigation commenced against ARC and that C Pierce would fund the litigation and that the proceeds, if any, would be divided equally between C Pierce and the Husband. C Pierce contended that he fully funded the litigation against ARC.
The Wife contended that the first and second agreements, but not the third, were not genuine, or alternatively, liable to be set aside under s 106B of the Act. The Wife did not seek to set aside the third agreement on the basis that she was seeking declarations in relation to (or alternatively orders setting aside) the initial two transactions, which were the source of funds paid to C Pierce from which he met his obligations under a litigation funding agreement. It was therefore not necessary to set aside the third agreement if the first two were either declared shams (as they were) or were set aside (the alternate finding).
The trial Judge found that the first two agreements were not genuine. Her Honour expressed the alternative finding that if they were genuine then the agreements ought to be set aside under s 106B of the Act. In doing so her Honour rejected the evidence of the Husband and C Pierce that they were genuine agreements taking effect according to their tenor.
In her reasons the trial Judge said at [71]: “It is agreed that the question of whether or not there was an agreement between father and son in March and/or June 1996 to share the business is fundamental to this case. The answer depends largely, albeit not solely, on the word of those men. Credit is an important consideration in this case”. Her Honour had to resolve whether or not the Husband and C Pierce made an oral agreement in March 1996, and then an authentic written agreement on 14 June 1996, to the effect that they were equal half owners of the business. The trial Judge said at [87] that the Wife contended that “C Pierce had neither the money nor the skill to contribute in the significant way that is claimed”.
The trial Judge made strong adverse credit findings against the Husband and C Pierce and they were acknowledged in the written submissions of C Pierce. Except as set out in the submissions those findings were not challenged. However, it was submitted that those findings did not mean that the Wife’s case must succeed or that contemporaneous documents were not to be accorded full weight, particularly where those documents were not the subject of cross-examination. It was submitted that the rejection of the evidence of the Husband and C Pierce does not prove the contrary to what was asserted by them.
We observe that in the written submissions of the Wife it was submitted that the brief overview is “overly simplistic” because, inter alia, it failed to make any mention of the receipt by C Pierce in 1996 of $487,000 which was a significant factor, particularly given he advanced only $26,512 to buy shares in K l Pty Ltd in October 1995. The sum of $487,000 well exceeded even the most generous interpretation of C Pierce's evidence about sums advanced to the Husband and/or the business in its early days being a total of $120,000 and the monies initially advanced to purchase the shares.
We also observe that subject to an amount of $6 million, senior counsel for C Pierce informed us that the “bulk of the money” from ARC was received by C Pierce and “remains in his control”. Senior counsel said that the Husband received “the benefit of six or seven million” and C Pierce “received the benefit of about 17 or 18 million”.
Background
The trial Judge provided at [16] to [67] what she described as “an overview”. Thereafter when her Honour addressed the agreed questions, as amended by her, she dealt with the “commercial events” in significantly more detail. In order to obtain a comprehensive understanding of the relevant “commercial events” we propose to set out in some detail, in a chronological way, the relevant events. The trial Judge observed at [16] that the “relevant commercial events, though complex, took place in a relatively short span of time”.
C Pierce was born in 1937. The Wife was born in 1959 and the Husband was born in 1961.
The Husband and Wife commenced to live together in November 1989 and were married in May 1993. They lived apart for two weeks in November 1995, six weeks in around April 1999, 10 months in 2002, and under the one roof from February to December 2004. They divorced in March 2006.
There are two children of the marriage [L] born November 1993 and [N] born April 1997. Pursuant to final parenting orders made in November 2004, the children spend about five nights per fortnight and half school holidays with the Husband and the balance with the Wife.
The Husband works as a consultant. The Wife has a PhD in microbiology but since 1996 has mainly been engaged in home duties.
C Pierce is now retired. He lives with his wife. Until 1992 he was a primary school Principal. He commenced primary teaching in 1975. In 1990 he became the Principal of a primary school and retired in 1992. He contended that after he retired he became “a self-employed property developer.”
The trial Judge at [90] said that in “his trial affidavit” C Pierce:
set out that by 1995 he and his wife owned two mortgage-free houses in [the Mornington Peninsula]. He had superannuation of about $350,000 in total, his wife about $170,000. He and his wife had each received a redundancy payment of $45,000 tax-free, and had accrued leave payments of $30,000. He recalled owning shares in the Commonwealth Bank and “other shareholdings”, a late-model Volvo, a caravan, a yacht, and that he had other money invested, but had not retained any relevant records and could not be more specific.
The trial Judge said at [15] that “the career and skills” of C Pierce were issues in the case. Her Honour was not very flattering about the property development activities of C Pierce and said:
105. As to his business background, [C Pierce]’s description of himself as a “property developer” at the time he was asked to step in to help his son, was a self-aggrandising way to describe his activities at that point. It became apparent in cross-examination that between leaving primary teaching in 1992, and April 1996, the only property “developed” by him was the house in which he was living. He had renovated his [Mornington Peninsula] home, which he had then sold in 1994, for a sum in the mid-$200,000 range.
106. [C Pierce]’s evidence was confused, but it seems that he had purchased another [Mornington Peninsula] property which he had renovated and extended, so that he only sold the first home when he was able to move into the second. In evidence he conceded that he could be called a “house renovator”, although his intention was to find properties, and to re-do them, living in them for a few years to avoid capital gains tax upon selling. If he were a “property developer” at the time he started to work with the husband, it was on the modest scale of his own home renovation.
The trial Judge was very critical of the skill and capacity of C Pierce to manage the financial affairs of the business.
When the parties commenced their relationship in August 1989, the Husband was employed by CN Business.
During his employment at CN Business, the Husband had dealt with ARC, and a software technician Mr PE who was not a relation. In early 1991, the Husband and Mr PE started to develop their own credit risk auto score software.
ARC was initially a company limited by guarantee and its business was conducted as a mutual association of members. It was demutualised in 1998 with members surrendering their membership rights in exchange for shares in a new publicly listed company known as ADL Ltd. In December 2001 ADL Ltd changed its name to BTL Ltd.
In 1992 the Husband commenced to work with BC Business as a management consultant, specialising in risk analysis. He developed an expertise in automated lending systems for major financial institutions. He devised mathematical algorithms to predict credit risk. These credit risk estimates were used to calculate credit ratings for individuals and companies.
In October 1994 the Husband was approached by ARC and asked to consider the feasibility of a credit score card system for them using existing data. The Husband completed this work outside of office hours.
The Wife contended that from March 1995 the marriage “began to show signs of strain”. The trial Judge observed at [296] that the Wife “described the husband’s behaviour towards her as erratic, angry, and critical. She said that sexual intimacy completely stopped, and that he became secretive about their finances. She referred to the husband’s various extra-marital relationships, that he either conceded or she suspected”.
From 1 April 1995 the Husband took three months leave without pay from BC Business to further his consultancy work with ARC.
On 20 April 1995 the Husband incorporated SC Pty Ltd as the company through which he performed his consultancy work with ARC.
In June 1995 the Husband resigned from BC Business and commenced a business with Ms JC who had been a colleague at BC Business.
A contentious issue was whether a Deed dated 27 July 1995 established the MPT. The Deed was stamped on 14 April 1997. The Husband and C Pierce contended that despite its date, the MPT was settled in late 1996 or early 1997. The Wife contended that it was no later than 1 July 1996. Her Honour found at [215]: “The precise date on which the MPT came into existence was thus unclear, but I am satisfied that it was after the purported March and June 1996 agreements”.
In relation to the MPT the trial Judge did say at [35] that what was clear was that initially the appointor of the trust was the Husband, and the trustees were the Husband and C Pierce. Her Honour also said that the beneficiaries were the Husband and his spouse, children, spouses of children, grandchildren, uncles, aunts, brothers, sisters and parents of the Husband, as well as corporate beneficiaries.
On 27 July 1995 K 1 Pty Ltd was incorporated. There were four issued shares, which were equally held by its four directors; being the Husband, the Wife, Ms JC and Mr DC. The Husband was the Chief Executive Officer, and was responsible for developing the business product. Ms JC was the Company Secretary and was responsible for the day to day administration of the business. K 1 Pty Ltd later changed its name to G Investments.
In mid 1995 SC Pty Ltd responded to an international tender by ARC to supply automated bureau scoring services and it was successful.
K 1 Pty Ltd agreed to create a credit ratings system based on ARC’s raw data, and to supply to ARC a computer based software delivery system for these ratings. On 10 August 1995 K 1 Pty Ltd received a letter of intent from ARC. The software was to be delivered in December 1995.
On 11 August 1995, K 1 Pty Ltd entered into an agreement with AS Ltd. AS Ltd was a company incorporated in New Zealand by Mr PE. This agreement provided that AS Ltd would supply the software to complement K 1 Pty Ltd’s credit scoring card system, to enable K 1 Pty Ltd to fulfil its contract with ARC.
The Wife contended that in August 1995 the Husband admitted that he was infatuated with Ms JC and that at around that time the Husband and the Wife each attended a session with a marriage counsellor. The trial Judge observed at [296] that by September 1995, the relationship between Ms JC and the Husband had deteriorated.
On 20 September 1995 Ms JC and Mr DC resigned their directorships of K 1 Pty Ltd and C Pierce was appointed as Company Secretary.
In September 1995 the shares of Ms JC and Mr DC in K 1 Pty Ltd, being 50 per cent of the issued capital, were transferred to the Husband. Thus, the Husband became the registered holder of 75 per cent of the issued capital being three shares and the Wife remained the registered holder of 25 per cent being one share. The consideration expressed on the share transfers was $1.
Senior counsel for C Pierce submitted to us that the value of the business at this time was “not at all high” and was probably “minimal” (Transcript, 20 July 2009, p 52).
There was put in evidence a copy of an agreement between the Husband and the Wife, Ms JC and Mr DC and DC Pty Ltd. In the agreement the Husband and the Wife were referred to compositely as “Pierce”. The agreement provided that Ms JC and Mr DC would hand to “Pierce”, disjunctively being the Husband and the Wife, on execution and exchange of the agreement, executed share transfers of their shareholding in K 1 Pty Ltd.
On 23 October 1995 Ms JC and Mr DC were paid $26,512. This amount of $26,512 was paid in satisfaction of an invoice presented to K 1 Pty Ltd for services rendered to the company by DC Pty Ltd pursuant to a sub-contract.
There was an issue as to the source of funds to pay Ms JC and Mr DC for their shares in K 1 Pty Ltd. There was also an issue as to the consequence of the transfer of the shares to the Husband.
The trial Judge said at [86] that the financial contribution to and role in the business of C Pierce was “an important consideration in assessing whether C Pierce had an oral agreement with his son in March 1996, and then an authentic written agreement on 14 June 1996, to the effect that they were equal half owners of the business”.
The Wife contended that when Ms JC and Mr DC left K 1 Pty Ltd they transferred their shares to the Husband, and he told her that he paid them out from monies obtained from his consultancy with ARC.
The trial Judge said at [91] that the Husband contended that from September 1995 C Pierce took over Ms JC’s role in the management of “the day-to-day operation of the business”. The Husband described various financial contributions made by C Pierce, and his ongoing involvement from late-1995 in the high level financial management and legal affairs of K 1 Pty Ltd.
In the context of dealing with the financial contribution of C Pierce, the trial Judge said at [93] that C Pierce contended “that he contributed $40,000 by way of a loan in September 1995, from which [Ms JC and Mr DC] were paid out $26,512.00, and the balance used for working capital”.
It was C Pierce’s case that when he advanced the monies to the Husband’s fledgling business to pay out Ms JC and Mr DC, the Husband told him that the Husband would hold their shares on trust for him until the Husband found another partner. C Pierce contended that he assumed responsibility for the administration of the business and also became the Company Secretary. He contended that he worked full-time in the business, took over the financial responsibility not only for the funding of the company but also its running, and oversaw the Husband’s securing of the intellectual property in the program he was developing. He contended that by March 1996 it was agreed that he would “manage the company” on the basis of a 50/50 ownership arrangement.
As previously noted, the Wife contended that C Pierce had neither the money nor the skill to contribute in the significant ways that he contended. In 1995 he was a retired primary school Principal who, with his wife L Pierce, often talked about “the parlous state of their finances” and their struggle with mortgage re-payments. The Wife said that she and the Husband discussed C Pierce’s financial position and discussed offering him the book-keeping position in K 1 Pty Ltd “to help [the parents] out.”
In late 1995 the office of K 1 Pty Ltd was established in premises in Melbourne where it remained until the latter part of 1996.
In November 1995 AS Ltd, being Mr PE’s company, was struggling and was unable to deliver the software required by K 1 Pty Ltd. C Pierce contended that he paid the K 1 Pty Ltd wages from November 1995, and AS Ltd wages, debts and overheads from January 1996, so that the work could be completed on the software that was needed to deliver on the ARC contract.
The trial Judge at [93] to [102] dealt with the “financial contributions to the business” by C Pierce and without repeating all of what her Honour said she did say at [94]: “A stark example of [C Pierce]’s lack of credibility arose in the course of the cross-examination on this topic. His version changed from time to time and he was vague and unhelpful when it came to detail”.
The Husband and the Wife were separated for two weeks in November 2005. We observe that the trial Judge said:
297. It was common ground that the first separation occurred for several weeks from the end of November 1995. It was submitted for the husband that this separation was not made known to [C Pierce]. I accept that it would not have been made known to him by the wife. Their relationship was already distant. Given the closeness between father and son and their conduct in early 1996, I find it more probable than not that [C Pierce] was in any event aware of difficulties.
We also observe that submissions were made on behalf of C Pierce in relation to the state of the marriage of the Husband and the Wife in late 1995 and three matters were stressed. First, that the Husband obtained an insurance policy in late 1995. Second, that after 1995 the Husband and the Wife had another child. Third, that after 1995 the Husband and the Wife went on holidays.
We also observe that at [314] to [315] the trial Judge dealt with the relationship between the Wife and C Pierce. Her Honour observed at [315] that C Pierce said “from late-1995 to April 1996 the relationship between him and the Wife became distant, and they did not have a lot of contact”. Her Honour observed at [314]: “There is no question that [the Wife] and [C Pierce] had a difficult relationship”.
In December 1995 K 1 Pty Ltd completed the credit score card software for ARC and the software was launched by ARC in May 1996.
So far as the Wife was concerned, from the end of 1995 and throughout 1996, the financial position of the Husband and the Wife improved “dramatically and rapidly”. The Husband was employing more and more staff, including C Pierce, who started working full-time at K 1 Pty Ltd in 1996.
In mid 1995 Mr KS was employed by K 1 Pty Ltd and he was the first employee. He joined as an analyst, but was Business Development Manager by the time he left in 1998. He gave evidence on behalf of the Wife in relation to the role in the business of C Pierce. The trial Judge dealt with his evidence at [121] to [123]. Her Honour accepted Mr KS “as a truthful witness, and [took] into account his observations, and his account of what the husband told him, at least in 1995”.
In late 1995 the Husband and Mr PE took advice on how best to hold their respective intellectual property rights. On 14 December 1995 X Trading was incorporated in Singapore to hold the Husband’s interest in the software. On 15 February 1996 H Investments was incorporated in Singapore to hold Mr PE’s interest. Both companies were incorporated by OT Firm in Vanuatu. OT Firm was a firm offering audit, accounting, tax and advisory services. Mr A worked out of OT Firm.
We observe that in his affidavit of 29 April 2008 Mr T testified that he met C Pierce in early 1996 and that in that year “and subsequent years [WH Pty Ltd] and I in particular carried out a variety of legal tasks for [C Pierce, the Husband and the Wife] and established business and personal relationships with each of them”. He also testified that his “professional practice has not been limited to that of a transactional commercial lawyer”.
In early 1996 the Husband met Mr YC through Mr A. Mr YC is a venture capitalist and business advisor. He became involved in strategic advice about the sale of K 1 Pty Ltd to ARC. He gave evidence on behalf of the Husband. Mr YC deposed that he was told that C Pierce as well as the Husband had an interest in the company. He said that C Pierce “ran the administration side of the business”, while the Husband was responsible for marketing and technical matters. The trial Judge observed at [136] that Mr YC had only incidental contact with C Pierce, and has become a very good friend of the Husband. He was required by the Wife for cross-examination and was not produced. Her Honour said that she could give little weight to his evidence.
The Husband and C Pierce contended that in March 1996 they reached an oral agreement to each hold a 50 per cent interest in K 1 Pty Ltd. The trial Judge said at [29]: “This is the agreement at the heart of the dispute”.
The Wife contended that the March 1996 agreement never existed, or in the alternative, it should be set aside pursuant to s 106B of the Act. The Wife contended that she knew nothing of any such purported agreement in March 1996 or thereafter. The Husband, however, was adamant that in March 1996 he told the Wife that he was giving C Pierce half of their business and that she said she “had no concern”. The Husband contended that the Wife accepted it was “a reasonable thing to occur” and she expressed “no negative sentiment” about it.
The trial Judge said at [146] that she preferred the Wife’s account as the more credible. Her Honour accepted that the Husband told the Wife nothing of a 50/50 agreement with C Pierce in March 1996, or June 1996, or thereafter. Her Honour said: “Even in a relationship where the detail of business matters was obviously not daily conversation, I would have expected the husband to tell the wife of any genuine agreement, it being so fundamental to their family life”.
We also observe that the trial Judge said:
156. It is stranger still that if an oral agreement were reached during March 1996, and considered sufficiently important to be reduced to writing in June 1996, that the men did not execute a transfer of shares to formalise the 50/50 ownership claimed by them. ASIC documents were filed on 31 March 1996. The wife’s share was transferred to [C Pierce] to be held on trust. The opportunity, within only days or weeks of their purported agreement, to transfer a 50% shareholding to [C Pierce], was not taken up. Nor was it after the June 1996 agreement.
157. It was little wonder that the wife was suspicious about the document, and as to when it was brought into existence. From her perspective, it was raised for the first time, many years after the event. Then although the expert – whose opinion was obtained after a protracted process of discovery – could say it was consistent with paper and ink available in 1996, he could not be definitive about the date of its creation. Nor could the witness, [Ms JO], who could not recall the date when she signed it. And it was apparent that she had “witnessed” another document, the [M Pierce Trust] Deed, on a date that was different from that shown on the Deed.
On 31 March 1996 the Wife resigned from her directorship of K 1 Pty Ltd. C Pierce was subsequently appointed as a director. On the same day, the Wife also transferred her one share in K 1 Pty Ltd to C Pierce.
There was a dispute as to whether the Wife knowingly transferred her share in K 1 Pty Ltd. Some time in 1996 the Husband explained to the Wife that his industry was extremely litigious. He said that they “could lose everything” and it would be better if she were not a director. The Wife trusted the Husband and signed a document to resign her directorship. She was unaware that she also transferred her share in K 1 Pty Ltd to C Pierce.
The trial Judge found that the Wife knew she was resigning as a director but did not know that she was also transferring her shareholding to C Pierce. Senior counsel for the wife submitted to us that this is one of the “elephant in the room” problems. Further, he submitted that her Honour made a “positive finding that [the Wife] was tricked” although her Honour did not use the word “tricked”.
The trial Judge said at [30]: “In any event, ASIC documents show that the share registered to [C Pierce] was held for someone else”. What her Honour was referring to was that the records of the Australian Securities and Investments Commission (“ASIC”) disclosed that the Husband was the registered holder of three issued shares and C Pierce was the holder of one issued share. However, significantly the ASIC records revealed that C Pierce did not hold his share beneficially. The Husband contended that the share in the name of C Pierce was held on trust for him. C Pierce denied the contention of the Husband and contended that he and the Husband held their shares for each other. Her Honour observed at [30] that the “ASIC records did not reflect that”.
The evidence of the Husband was inconsistent with the contention that as from September 1995 C Pierce held a beneficial interest in the issued capital of K 1 Pty Ltd. The evidence of C Pierce was in conflict with that of the Husband and also inconsistent with the ASIC records.
During cross-examination of the Husband, referring to the ASIC records, the following evidence was given (Transcript, 21 May 2008, p 197):
As to the nature of the shareholding as to whether its held by him beneficially the document indicate that it is not held by him beneficially, so its held by him for someone else. Ok? --- Yes
Who is that someone else? --- That would be me.
The following further evidence was given (Transcript, 21 May 2008, p 198):
That was intended, you say, to effect an absolute transfer to your father of the share. Do you agree with that? --- Not necessarily. We agreed we were going to hold our shares in trust for each other.
MR BROWN: Yes, well, you don’t hold them for your father, you hold them for yourself? --- Yes. We weren’t aware of what we needed to do that.
You didn’t have the acuity to appreciate what you were achieving. Is that what your saying? --- We didn’t have the experience to know what we were doing, no.
You just didn’t know what you were doing? --- No, not at that point.
I was asking you where this agreement was kept and you say you can’t remember? --- I believe it would have been kept in the office I think I responded.
In April 1996 K 1 Pty Ltd faced what the trial Judge described at [110] as “a financial struggle”. Her Honour observed: “To gain funds for its work to continue, an agreement to sell the intellectual property in [X Trading] (and ultimately [H Investments] as well) was negotiated”. The sale price was $500,000 or a net $487,000 after costs. As it transpired all of the proceeds of sale were received by C Pierce in September 1996.
The Husband conducted the negotiations for the sale of the intellectual property rights. The trial Judge at [111] said that “[C Pierce] had to concede that although he was involved in the preparation of some relevant documents (mainly by asking [Mr T] to put the documents into ‘plain English’); he was not involved in the negotiations”.
In April 1996 C Pierce travelled to Vanuatu to attend the office of OT Firm. The trial Judge observed at [112] that C Pierce could not remember who paid for the trip, but it was “probably the business”. Her Honour was of the view that C Pierce “was vague about the details of the trip, and his dealings with [OT Firm], and particularly the level of [Mr A’s] involvement”.
The trial Judge said at [220]: “Although on the [Husband and C Pierce]’s version, the oral agreement for a 50/50 ownership of the business had been struck just before the negotiations for the sale of the intellectual property in [X Trading] in March/April 1996, the monies received from that transaction, in September 1996, were all directed to C Pierce. The [Husband and C Pierce] gave various versions about the transaction”. Her Honour at [221] to [226] was critical of the evidence of the Husband about the sale. Her Honour at [231] to [235] was also critical of the evidence of C Pierce.
During the first half of 1996 the Husband discussed the possible sale of K 1 Pty Ltd with Mr A of OT Firm. K 1 Pty Ltd retained the services of Mr A to advise on a possible sale, through UL Ltd, a United Kingdom registered Vanuatu based company, of which Mr A was a director.
On 7 June 1996 K 1 Pty Ltd and UL Ltd entered into a Consultancy Agreement. K 1 Pty Ltd agreed to pay UL Ltd a “success fee” upon a sale. In the event that K 1 Pty Ltd exceeded the value of $7.5 million, UL Ltd was to receive 7.5 per cent, capped to a value of $25 million. The agreement was varied on 18 June 1998 to provide for a fixed success fee.
On 14 June 1996 the Husband and C Pierce purportedly entered an agreement headed “[K 1 Pty Ltd] Equity Participation and Debt Funding Agreement”. It provided: “We hereby agree that the shares we hold in [K 1 Pty Ltd] are held for and on behalf of each other on an equal basis. We therefore hereby agree that we or our nominees will share the equity equally and any and all proceeds or dividends from the business will be distributed on a 50/50 basis”.
The 14 June 1996 document went on to provide that neither the Husband nor K 1 Pty Ltd had any obligation to repay the funds allegedly paid by C Pierce for the purchase of the 50 per cent interest in K 1 Pty Ltd of Ms JC and Mr DC, that any debts owed to C Pierce prior to the agreement were discharged and, if any further funding was required by K 1 Pty Ltd from 1 July 1996, it would be incurred by the company in its own name and repaid directly from company funds or provided jointly and equally by the Husband and C Pierce.
In summary, the Husband and C Pierce contended that on 14 June 1996 they embodied their March 1996 oral agreement for 50/50 ownership of the business into a written agreement.
Referring to the 14 June 1996 document the trial Judge said at [33]: “This too is at the heart of the dispute”. It was described by counsel for the Husband as “[t]he key disputed document”. The Husband submitted that “the contemporaneous and supporting letters including the [Mr AA] letters had a critical bearing on the 50/50 and the first $6 million agreements and were an important part of [C Pierce]’s cases”.
The trial Judge observed at [162]: “[t]he authenticity of the [14 June 1996] document was clearly at issue in the proceedings”.
The 14 June 1996 document was only discovered in 2005 by C Pierce and the trial Judge observed at [151] that when it “came to light in 2005, after these proceedings had started, the Wife raised an issue as to its provenance”. Her Honour also said at [151]: “[C Pierce] employed a paper and handwriting expert. The expert could not attest to the date of the document; only that the paper and ink were consistent with paper and ink available in 1996. The expert was not cross-examined”.
To corroborate the authenticity of the 14 June 1996 agreement the Husband and C Pierce relied upon two documents signed shortly after 14 June 1996, one signed by C Pierce on 5 July 1996 and the other signed by the Husband on 12 July 1996. The trial Judge said at [163] that it “was their case that those documents clearly pre-supposed the earlier 14 June [1996] agreement, and were made to deal with the “what if’s” in the event that one of them died or was incapacitated”.
The trial Judge said at [34] that the Husband and C Pierce contended that “they became concerned about the “what if’s” in the event that one of them dies or was incapacitated”. Her Honour at [172] referred to evidence of the Husband that shortly after the 14 June 1996 agreement “[C Pierce] suggested that they should ‘both do something in the interests of the company’ in the event of their death, and they agreed to leave documents that would declare they left their interests in trust for each other, so that each would have unfettered equity in the business, so as to be able to bring in a new equity partner”. Her Honour said that the Husband was also concerned to “avoid problems with the families in the event of the shares being caught up in an estate claim”. The Husband said he was particularly concerned that his brother or brother-in-law (both in the IT industry) should not become involved, and [C Pierce] did not want to have “issues with [the Wife’s] extended family”.
On 1 July 1996 SC Pty Ltd became the trustee of the MPT.
On 5 July 1996 C Pierce executed a document declaring that in the event of his death he held the interest in various entities, including K 1 Pty Ltd, in his name, on trust for the Husband. The trial Judge at [34] observed that the intent and effect of that document was disputed.
The trial Judge said at [164] that the 5 July 1996 document was witnessed by Mr T and an employee in his office. Her Honour continued: “[Mr T] said [C Pierce] brought the document to him for signing. He claimed that he simply witnessed it, but never read it. That seemed improbable, given its nature. It purported to be a codicil to [C Pierce]’s last Will of 15 May 1994. It was a short document. Two witnesses were arranged for formal signing. In the circumstances, it is hard to believe that a solicitor would not have known of its contents”. Elsewhere in her reasons at [139] her Honour referred to the evidence of Mr T and said: “In cross-examination, [Mr T] repeated that he could not put a time on when he became aware that both men owned the business. He did not recall being told of the March 1996 oral agreement or the 14 June 1996 agreement, or being familiar with the contents of [C Pierce]’s 5 July 1996 document although he was a witness to it”.
In the 5 July 1996 document C Pierce recorded that since his last Will: “I have become involved in a number of business transactions for my eldest son. … In all of these transactions I act in trust for my said son”. The trial Judge referred at [168] to [171] to what C Pierce swore in his “trial affidavit” about the 5 July 1996 document and at [171] said: “In cross-examination, [C Pierce] reiterated that he had no memory at all of the document apart from it being produced in these proceedings. He had no memory of drafting it or it being drafted, or of it being signed or witnessed. But he admitted that it did bear his signature”.
In relation to the 5 July 1996 document the trial Judge referred at [173] to the evidence of the Husband that he did not recall seeing the document and that “[t]here are parts I do not understand”. Her Honour said that in his evidence the Husband “reiterated that he did not recall ‘ever seeing this document before’”.
Then on 12 July 1996, the Husband executed a document which provided that in the event of his death or incapacity he held all of his shares in K 1 Pty Ltd on trust for C Pierce. The 12 July 1996 document was headed “Authority to Act”. It was signed by the Husband and witnessed by Mr BY.
The trial Judge at [174] referred to the evidence of the Husband that he did not recall writing the 12 July 1996 document and that in March 2005 he arranged to have documents retrieved from archives and he then came across the “Authority to Act”. The Husband contended that the “Authority to Act” document was consistent with his recollection of the discussions he had with C Pierce. The Husband deposed that he believed he drafted the document although he had no recollection of it until its retrieval in March 2005.
The trial Judge said at [178] that the 12 July 1996 document was in two parts. Her Honour at [179] observed that the first part simply indicated that the Husband wanted to leave the business in the care of C Pierce in the event of his death or permanent incapacity. Her Honour said: “In that respect it struck me as unremarkable that he would want the trusted relative with whom he was working to step in to operate the business”. Her Honour at [180] observed: “The second part though, in which the husband declared that all his shares in [K 1 Pty Ltd] were held ‘in trust on behalf of [C Pierce] and he is the rightful beneficial owner of them’, was more remarkable”.
The trial Judge at [181] agreed with the submissions for the Wife that the 12 July 1996 document “did suggest issues in the marriage at that time, and raised the spectre of the husband’s concern about the wife retaining assets. And there must be doubts about the husband’s claim that he trusted his father to look after the wife, given [C Pierce]’s evidence of difficulties in that relationship from as early as 1994”.
The trial Judge also at [182] observed: “[s]enior counsel for [C Pierce] grappled with the meaning of these two documents” and “urged that the documents should have no effect in these proceedings” and that her Honour “should put these documents to one side”.
During the second half of 1996 negotiations proceeded for ARC to purchase
50 per cent of K 1 Pty Ltd. The negotiations concluded in December 1996.On 30 August 1996 a memorandum to Terry Murphy of counsel was prepared by Mr T. Mr T instructed that his firm acted for K 1 Pty Ltd: “a private company owned by [the Husband] … and managed on a day to day basis by his father [C Pierce]”. The trial Judge observed at [197]: “That description aligned with the wife’s belief and understanding”. What Mr T said did not corroborate what the Husband and C Pierce contended as to ownership.
The trial Judge was very critical of the evidence of Mr T and in her reasons she gave various examples as to why she came to this view. One example dealt with by her Honour at [141] to [142] related to the instructions Mr T gave to Terry Murphy “as to the ownership of the business that was contrary to what he said in his evidence”.
On 12 September 1996 Terry Murphy gave a written advice, referring to advice given in conference on 4 September 1996. As the trial Judge observed at [198] Terry Murphy wrote:
2. My understanding of the current corporate and commercial arrangements is as follows:-
2.1.The issued capital of [K 1 Pty Ltd] comprises 4 shares of which 3 are legally and beneficially owned by [the Husband] (“[the Husband]”) and the fourth is owned by his father in trust for him.
2.2.[H Investments], a Singaporean company is ultimately beneficially owned as to half by [the Husband] and as to half by [Mr PE] a resident of New Zealand (who is currently experiencing financial difficulties).
2.3.[X Trading], another Singaporean company, is ultimately beneficially owned by [the Husband].
What Terry Murphy said in para 2.1 of his advice is consistent with what happened in September 1995 in relation to the shares that were acquired in the Husband’s name from Ms JC and Mr DC and also in March 1996 when the Wife transferred her share to C Pierce and also the ASIC records. However, it is inconsistent with what the Husband and C Pierce contended happened in consequence of their agreement in September 1995 or March or June 1996. It is inconsistent with what the Husband and C Pierce contended was established by the documents that were only discovered after the proceedings were commenced.
The trial Judge observed at [199] that C Pierce made notations on Terry Murphy’s written advice at paragraphs 2.2 and 2.3 in relation to the H Investments and X Trading structure. However, C Pierce did not make any notes near paragraph 2.1 of the advice in relation to the Husband’s ownership of the shares in K 1 Pty Ltd being perhaps the most important matter stated. Her Honour did say at [199] that C Pierce “said the word ‘No’ scribbled at the foot of the page signified that he rejected the entire page”. However, her Honour observed “[t]hat is not the way it appeared from the lines and scribbles”.
The trial Judge said at [200] that in his Supreme Court statement of 2 September 2002 C Pierce referred at paragraph 46 to Terry Murphy’s advice. C Pierce complained that Terry Murphy “had not grasped the problem, and had failed to take into account his oral instructions”. Her Honour observed: “Although [C Pierce] complained that ‘the basis outlined in the recitals was not correct’, he made no specific complaint that the recitals were wrong in relation to the ownership of [K 1 Pty Ltd]”. All C Pierce said was: “In particular, [Terry] Murphy suggested at paragraph 2.3 that [X Trading] was ultimately owned by [the Husband]. That was not correct”.
The trial Judge said at [201] that C Pierce could not remember anything he might have said to Mr T about the advice being wrong, and he had no explanation for seeking further advice from Terry Murphy when he had found him fundamentally wrong in the first advice. Her Honour also noted “that the instructions in the follow-up brief to [Terry] Murphy, on 14 November 1996, in no way advised of any error in the background material set out in his previous opinion”.
In September 1996 C Pierce received $487,000 being the proceeds of the sale of the intellectual property in X Trading. The trial Judge considered the evidence of C Pierce and the Husband about the receipt of these funds and what happened to them. As to the evidence of C Pierce her Honour said at [109]: “A perfect illustration of [C Pierce]’s limitation in handling financial matters arose in his evidence about receiving and using the proceeds from the sale of intellectual property rights in 1996”.
The trial Judge also said:
113. As to the sum [C Pierce] received from the sale, [C Pierce] swore in his affidavit filed on 29 January 2008 that there was only a “receivable balance” of $249,000, once the taxation liability “encumbrance” of $238,000 was considered. In the witness box he had to admit that in September 1996 he received and retained the full sum of $487,000. He said he was advised by [Ms FM] at [OT Firm] that in order to avoid paying half the monies in tax, he could invest them in insurance bonds. That is what he did. He had to concede that he received just under $2 million from the insurance bonds when he sold them in about 2002.
114. [C Pierce] was vague as to where that money was then placed by him. He gave answers such as “it moved through accounts to be adjusted and moved to places that I wanted it to be”. When unable to answer where monies had gone, amongst his explanations was that he was totally confused by the finances, it was “Monopoly money”, he felt he had been in a legal “straight-jacket” for years, and he just could not remember where sizeable sums of money had gone.
115. On taxation issues arising from the [X Trading] sale, he was cautioned and granted a certificate under s 128 of the Evidence Act1995. He admitted that “at this stage” he has not paid tax on the [X Trading] monies, although he received them six years’ ago. He was, I note, granted further certificates, on a similar basis, in relation to other transactions, in the course of his evidence.
The trial Judge at [231] to [238] was very critical of the evidence of C Pierce in relation to an amount of $2 million received in December 2002 from the realisation of the insurance bonds. The insurance bonds were acquired using the money received in September 1996.
The trial Judge at [225] to [230] was also very critical of the evidence of the Husband. Her Honour said:
227. Then there was the husband’s evidence about his father’s use of the funds. He claimed he never asked his father where the funds went or how he used them. He said that he did not know if the monies could still be in Vanuatu. He could not answer “with any certainty.” He explained that his father “was very private about his affairs as to how money was distributed.”
228. It was inconceivable that at a time when the intellectual rights were purportedly sold not only to repay his father, but also to enable the business to continue (and it was the husband who had negotiated the sale), that the husband would be clueless as to what occurred with the funds. It was also inconsistent when he said that after the [X Trading] sale, he felt more “secure” that the business could continue. If he did not know where or how the funds were used, it made no sense that he felt more positive about the survival of the business.
229. As his cross-examination on the topic continued, the husband’s evidence was vague to the point of absurdity. He could not give any indication as to where the two cheques came from, one for $90,000 in about April 1996, the other for $98,000 in about September 1996, to pay off the mortgage on the family home. He did not know if they were his father’s personal cheques. The wife swore that the first cheque was drawn on [K 1 Pty Ltd]’s account. That did not prompt the husband’s memory. Although paying off the mortgage was very significant in 1996, the husband could not offer much helpful evidence on the topic, save that in “maybe September or October … my father drew a cheque for me and said that the business was doing okay…”.
230. The husband was cross-examined about various aspects of the [X Trading] sale that had come up in the course of the Supreme Court proceedings between 2000 and 2002. In answer to virtually every question about it, he was either unable to recall or did not know the answer.
On 2 October 1996 SC Pty Ltd, which was then the trustee of the MPT, changed its name to JH Holdings Pty Ltd. JH Holdings Pty Ltd later changed its name to TRE Holdings Pty Ltd (“TRE Holdings”). The Husband and the Wife were directors and shareholders, although the Wife resigned as a director on 25 November 1996.
On 14 November 1996, Mr RD, the accountant for C Pierce and the Husband, wrote to Terry Murphy. The trial Judge observed at [202] that Mr RD “referred to the ‘put options for [the Husband]’ as opposed to the put options for [the Husband] and [C Pierce]”. Her Honour described this as further documentation supportive of the Wife’s version.
The Husband and C Pierce also relied upon five pieces of correspondence which they contended corroborated their contentions that there were agreements made by them in either September 1995 or March 1996 or June 1996 being:
·A letter dated 26 November 1996 the Husband wrote to Mr T, on K 1 Pty Ltd letterhead, towards the end of the negotiations for ARC to purchase 50 per cent of K 1 Pty Ltd; per [186] to [190];
·A letter dated 16 July 1997 C Pierce wrote to Mr AA, a partner in the accounting firm JMH Firm; per [191];
·A letter dated 23 September 1997 the Husband wrote to C Pierce with the title “Re Appointment of Independent Trustee”; per [192];
·A letter dated 3 April 1998 C Pierce wrote on G Investments letterhead to Mr BN of ARC, and to the Husband, requesting a variation to the shareholders agreement; per [193];
·A letter dated 16 June 1998 that C Pierce wrote to Mr AA on 16 June 1998, “just before [G Investments] was due to receive $4.5 million from the sale of its [Q Corporation] shares to [ARC]”; per [194].
By letter dated 26 November 1996, towards the end of the negotiations proceeding for ARC to purchase 50 per cent of K 1 Pty Ltd, the Husband wrote to Mr T on K 1 Pty Ltd letterhead. The trial Judge at [186] to [190] referred to the contents of the letter. As we have already observed, this was the first piece of correspondence relied upon by the Husband and C Pierce to corroborate their contentions as to their joint ownership of the business.
On 3 December 1996 K 1 Pty Ltd changed its name to G Investments. On 3 December 1996 K 2 Pty Ltd, which became Q Corporation, was established.
On 3 December 1996 G Investments entered an agreement with K 2 Pty Ltd whereby G Investments’ assets were transferred to K 2 Pty Ltd for $2 million and two million shares in K 2 Pty Ltd to the value of $1 per share. On 15 April 1997 K 2 Pty Ltd was renamed Q Corporation.
The negotiations for ARC to purchase 50 per cent of K 2 Pty Ltd concluded in December 1996 and on 31 December 1996, G Investments and ARC entered a Shareholders Agreement. The agreement provided for ARC to obtain a 50 per cent interest in K 2 Pty Ltd in consideration of the payment of $2 million and $2 million worth of shares in K 2 Pty Ltd. As the trial Judge observed at [37]: “Accordingly, both [G Investments] and [ARC] owned half of [K 2 Pty Ltd]”. C Pierce and the Husband became directors of K 2 Pty Ltd as G Investments’ representatives, and two ARC representatives were also directors.
In January 1997 ARC paid $2 million to G Investments and following the payment G Investments bought out the Australian rights to X Trading software for $900,000. The trial Judge observed at [38]: “According to the [Husband and C Pierce] there was otherwise about $350,000 accrued earnings in [G Investments] at that time”.
The 31 December 1996 Shareholders Agreement between G Investments and ARC allowed for a number of what the trial Judge at [39] described as “trigger events” that gave G Investments the option to sell its remaining 50 per cent interest to ARC at a later date.
C Pierce complained that the Wife came to him in May 1997 and demanded money from the business. As we have observed, the trial Judge said at [314] that there was no question that the Wife and C Pierce had a difficult relationship. Her Honour observed that each of them, and the Husband, said it in different ways. Her Honour observed that C Pierce explained that after the demand by the Wife he became very anxious that the monies or share that he claimed he had in the business, should be separated. He said he was worried about the Wife’s mother, but he did not fully expand upon that. Her Honour said that it was “hard to imagine the Wife’s mother would have a claim against the business or [C Pierce]”.
The trial Judge said at [315]:
During his evidence it became clear that [C Pierce]’s long-standing antipathy towards the wife started well before 1996. He said that he only met her about half-a-dozen times in that year. He said he saw her rarely. He spoke of a minor incident in about 1994 when [the Wife’s] mother had rather sharply removed the child [L] from his arms because the child was crying. He said from late-1995 to April 1996 the relationship between him and [the Wife] became distant, and they did not have a lot of contact. There was nothing in the evidence of the husband or of [the Wife] to suggest that her relationship with [C Pierce] was any better than he described it.
The complaint is made on the basis of a comparison between the conclusion the trial Judge drew from the Husband’s document emerging years after its creation and at a forensically convenient time, with what she concluded about another document, relied upon by the Wife, but not created by her which she located in an old file in 2008.
Having stated the argument it hardly needs more said to dismiss it. However, as was submitted on behalf of the Wife, the trial Judge was entitled to find that it was odd that C Pierce apparently only found the June 1996 agreement in an old briefcase given that he was (on his version) aware of that document and its significance. It was hardly remarkable that the Wife discovered the codicil document late in the piece, given she was unaware of its existence prior to then.
In our view, the submissions on behalf of C Pierce are selective. What the trial Judge said included:
153. It was stark that the husband and [C Pierce] had a clear recollection of their discussion about ownership in March 1996, and yet their memories were so vague and so poor about so many of the matters raised in the course of this hearing, many of which were more proximate to the hearing than events in 1996. Similarly, as to the written agreement dated 14 June 1996, although the husband was vague as to the circumstances of its creation, like his father he was adamant of its existence and authenticity.
154. It struck me as odd that the document did not surface until 2005, once this case had started, at which stage, according to [C Pierce], he found it in an old briefcase (although according to the husband, [C Pierce] told him he found it in “his old filing boxes”). And it was particularly odd that both men said they had totally forgotten the document, the more so given their recall of their oral agreement a few months before that, and then their certainty about this document’s existence, particularly [C Pierce], who claimed a clear recall of its creation.
155. There were other strange aspects about the document. It was strange that it was apparently not kept in company files. It was strange that there was apparently only one copy. It was strange that it was never produced to their accountants or legal advisors, or referred to in 1996 or 1997, close to its purported creation, and at a time when the men were seeking professional advice about protecting assets they say belonged to [C Pierce], his ownership purportedly arising from that very agreement.
156. It is stranger still that if an oral agreement were reached during March 1996, and considered sufficiently important to be reduced to writing in June 1996, that the men did not execute a transfer of shares to formalise the 50/50 ownership claimed by them. ASIC documents were filed on 31 March 1996. The wife’s share was transferred to [C Pierce] to be held on trust. The opportunity, within only days or weeks of their purported agreement, to transfer a 50% shareholding to [C Pierce], was not taken up. Nor was it after the June 1996 agreement.
157. It was little wonder that the wife was suspicious about the document, and as to when it was brought into existence. From her perspective, it was raised for the first time, many years after the event. Then although the expert – whose opinion was obtained after a protracted process of discovery – could say it was consistent with paper and ink available in 1996, he could not be definitive about the date of its creation. Nor could the witness, [Ms JO], who could not recall the date when she signed it. And it was apparent that she had “witnessed” another document, the [M Pierce Trust] Deed, on a date that was different from that shown on the Deed.
When viewed in its proper context her Honour’s conclusions are clearly open to her and we find no merit in this ground.
Browne v Dunn
In the written submissions of C Pierce a number of submissions were made at paragraphs 39 to 43 in relation to Browne v Dunn (1893) 6 R 67. The submissions appear to relate to grounds 20, 21 and 22 in the notice of appeal.
The trial Judge said at [158]: “In final submissions, Mr Lethbridge SC for the husband raised the rule in Browne v Dunn, saying it was never put to the husband that he did not sign the 14 June document, or that it was a sham. I agree it was never put in those terms. He submitted that a court should be inclined to disregard a submission on evidence which was not tested by putting questions to the party best able to deal with it”.
It was submitted on behalf of C Pierce that the trial Judge dealt with the Browne v Dunn issue at [158] and [159] noting the relevant authorities. At [161] and [162] her Honour noted that the authenticity of the 14 June 1996 document was an issue from early on in the proceedings and concluded at [184] that there was no lack of procedural fairness.
We observe that at [183] the trial Judge also dealt with the rule in Browne v Dunn in relation to a submission on behalf of the Husband that he “was not cross-examined at all in relation to the 12 July document and therefore the wife could not assert it was other than genuine. It was submitted that similarly it was not put to [C Pierce] that he had concocted the document dated 5 July 1996”.
In relation to the submissions with respect to the 14 June 1996 document we were referred to various parts of the cross-examination of C Pierce and the Husband and it was submitted that it is remarkable what was not put to those two witnesses.
Senior counsel for C Pierce put his argument in this way. In the course of opening the case at trial, senior counsel for the Wife referred to the 14 June 1996 document saying its status was very much an issue, that it was not entered into on the date it was asserted to be entered into and that it was unreliable and mischievous. It was submitted that in doing so an unsigned witness statement of C Pierce of 2002 in other proceedings was referred to for the first time. Counsel for the Wife further stated that if the agreement was executed on 14 June 1996 then all of the allegations made about it fail but if a year or two later then it is a fraudulent document and that if the document was not executed on the day it purports to have been it is a sham.
It was submitted on behalf of C Pierce that any case alleging a sham must allege that the parties’ intention in relation to the transaction was something different to that disclosed in the document. What that supposed intention was in this case is not apparent from the affidavits or from the opening. Thus, the cross-examiner was obliged to put it to C Pierce and the Husband. It was submitted that to some extent the failure to do so seems to have arisen from a confusion, seemingly adopted by the trial Judge, that a document is established to be a sham if it can be established it was executed on a date other than that which it bears or is not “genuine”. It was submitted that such a document is merely a back-dated document which may or may not have some other consequences. It does not make it a sham which is a document which means something other than what is written on its face. It was submitted that there was an obligation to put what the Wife asserted to be the true intention of C Pierce and the Husband to them or to put that the document was created recently. That obligation was not taken up and the assertion that the 14 June 1996 agreement was a sham cannot be put to the Court.
It was submitted on behalf of C Pierce that the position is even stronger if account is taken of the fact that the corroborating documents were not the subject of any cross-examination whatsoever or indeed any submissions. It was submitted that even accepting the rule as one of procedural fairness the findings of the trial Judge should not have been made in the light of the critical and significant failure to put these matters about critical documents not put to the relevant witnesses. The documents relied upon by C Pierce were not, by and large, in the affidavits so it cannot be said that issue was joined on the exchange of affidavits.
It was submitted on behalf of C Pierce that even if the case of the Wife is still technically available to her, the lack of cross-examination on these documents makes it very difficult for any court to do anything but take them at their face value. In this case this is fatal to the Wife’s case.
On behalf of the Wife it was submitted that Browne v Dunn is a case relating to procedural fairness. It may disentitle counsel from putting submissions premised on propositions of which the other party had no notice. However, in the present proceedings that did not require counsel for the Wife to put the question as formally as “I put it to you that the document/agreement does not reflect your intention at the time as expressed in that document.”.
It was submitted on behalf of the Wife that both the Husband and C Pierce were well aware at all times that the Wife was asserting that the Q Corporation shares at all times belonged in reality to the Husband, and that that was the true intention. It was submitted: “It is ridiculous to suggest that either [C Pierce] or the Husband were unaware that that was the Wife’s case. Both witnesses were cross-examined at length about matters showing their true intention at the time”.
It was submitted on behalf of the Wife that in order to enable the submissions to be made that the purported agreements were in fact shams, it was necessary for the cross-examination of the witnesses to give the basis for the submission as to the true ownership, intention and reality at the time of the purported agreements. It was submitted that was done at some length and the matters established during that cross-examination formed the basis of the submissions ultimately accepted by the trial Judge
It was submitted on behalf of the Wife that the trial Judge did apply the rule in Browne v Dunn appropriately and properly in disallowing counsel for the Wife from asserting certain matters in relation to the documents not cross-examined upon.
The trial Judge said at [162]: “The authenticity of the document was clearly at issue in the proceedings. From early in the hearing, it was asserted that the document was a sham. I am satisfied that there was procedural fairness. Both men had ample opportunity to answer questions that dealt with the document, the events leading to it, their memories of it, and their subsequent actions arising from it”.
In our view, there is no merit in the complaints made by the Husband and C Pierce. It is obvious from all of the material that the Husband and C Pierce were challenged in relation to the genuineness of the 14 June 1996 agreement.
Ground 6 of the Husband’s Notice of Appeal
In ground 6 of the Husband’s notice of appeal it was contended that the trial Judge erred when considering the three impugned agreements in failing to consider or properly consider relevant matters including that the impugned transactions occurred more than a decade ago and the inherent unlikelihood of precise recollection of the execution of any particular document in those circumstances; that for C Pierce such a passage of time took an individual from the time of a working life to a time of advanced retirement; and that unreliable oral evidence of a witness in support of the impugned transactions does not create evidence that the impugned agreement or document is a sham.
It was submitted on behalf of the Husband that the unassailable fact is that the impugned events and transactions occurred long ago. It was submitted that the most organised and frank person in every day life let alone in the witness box inevitably will have difficulty recalling events and documents of years earlier. It was submitted that this may make the witness unreliable but does not prove nor become evidence of the converse.
On behalf of the Wife it was submitted that the submissions for the Husband presume that the trial Judge acted only on the unreliable evidence of the Husband and C Pierce and others to impugn the agreements, as against unassailable documents pointing the other way. Her Honour was entitled to take account of the oral evidence, there being no evidence of any age related recall problems and particularly having regard to each man’s asserted ability to recall with precision certain events which suited them.
We observe that in relation to C Pierce the trial Judge said at [119]:
I cannot find, as his counsel submitted, that his lack of memory could be as a result of him being some 12 years’ older than in 1996. There was no medical evidence to suggest a diminution in his mental functioning. His recently sworn affidavit was detailed and lucid. He was wily and sharp in the course of his evidence. And when cross-examined by counsel for [Mr T], he was able to respond clearly to questions about [Mr T]’s role, the instructions provided to him, and communications between him and other professional advisors. They were topics about which he had been unclear when cross-examined by senior counsel for the wife.
It was submitted on behalf of the Wife that the fact is the trial Judge at [195] to [206] also referred to and relied upon, various historical documents.
It was submitted on behalf of the Wife that the submissions of the Husband (like those of C Pierce) fall into the error of assuming that the only compelling evidence emerges from contemporaneous documents. That is not the case. There was significant oral evidence of both the Husband and C Pierce, and of the Wife. It was a significant part of the weighing up exercise embarked upon by the trial Judge to balance the oral evidence of the witnesses and make findings accordingly.
It was submitted on behalf of the Wife that it should not be forgotten that, while the Husband gave evidence of having advised the Wife of the March and June 1996 agreements, the Wife’s unequivocal evidence was that he had not. The Wife was not cross-examined in any meaningful way about that, and the trial Judge preferred the evidence of the Wife. It was not put to the Wife that she may be in error in her recollection. Insofar as the Wife was challenged about this at all, she was cross-examined by counsel for the Husband.
It was submitted on behalf of the Wife that like C Pierce, the Husband seeks to ignore all of the oral evidence given, and the very significant findings, credit and otherwise made as a result of that oral evidence, and relies solely on a select group of documents not all of which in any event support the position contended for by the Husband and C Pierce.
In conclusion, we accept the submissions on behalf of the Wife. In our view, these complaints by the Husband have no merit.
Conclusion – First Area of Complaint
This was a difficult case and the trial Judge was confronted with a large amount of evidence and had to resolve a number of complex issues. Ultimately, her Honour addressed each of the questions that she was asked to answer and came to the conclusion that there was no genuine agreement between the Husband and C Pierce that C Pierce was the beneficial owner of one half of the relevant issued shares. Her Honour concluded that from 31 March 1996, the Husband was the beneficial owner of the shares in K 1 Pty Ltd.
The trial Judge provided very detailed reasons for her judgment and there is no controversy about the adequacy of her reasons or her findings as to the credit of any party or witness. As we have observed it was submitted to us by senior counsel for C Pierce and counsel for the Husband that in the event the appeals succeeded then we should re-exercise the discretion on the basis that there is no challenge to the adequacy of her Honour’s reasons or her credit findings and no further material is required.
In coming to her conclusions the trial Judge dealt with and gave appropriate weight to various matters that pointed to a conclusion that there was a genuine agreement. Although we do not agree with all of what was submitted on behalf of the appellants in relation to the matters relied upon by them it is clear that her Honour took such matters into account.
However, there were a considerable number of matters, which the trial Judge took into account, that pointed to a conclusion that there was not a genuine agreement and they included the following:
· The Husband told the Wife that when Ms JC and Mr DC left K 1 Pty Ltd in September/October 1995, they transferred their shares to the Husband, and he paid them out from monies obtained from his consultancy with ARC: at [88].
· From the end of 1995 and throughout 1996, the financial position of the Husband and the Wife improved “dramatically and rapidly”, and the Husband was employing more and more staff, including C Pierce, who started working full-time at K 1 Pty Ltd in 1996: at [88].
· At the request of the Husband in 1996 the Wife resigned her directorship of K 1 Pty Ltd and unknowingly also transferred her share to C Pierce: at [89].
· The Wife “knew nothing of any such purported agreement in March 1996 or thereafter”: at [145].
· The Husband did not, as he contended, tell the Wife “in March 1996 that he was giving his father half of their business”: at [146].
· The March 1996 agreement, was not put into effect when filing ASIC documents on 31 March 1996: at [391].
· After the June 1996 agreement, no ASIC documents were filed to effect an equal shareholding: at [391].
· The 14 June 1996 document was never referred to in all the dealings with their various legal and financial advisors, that there were no contemporaneous references to it at all, and that the [Husband and C Pierce] apparently forgot it for many years: at [392].
· Although the Husband did obtain financial assistance from C Pierce in the early stages of the business it was substantially less than C Pierce claimed and her Honour could not be definitive about the actual sum: at [102].
· C Pierce’s description of himself as a “property developer” at the time he was asked to step in to help his son, was a self-aggrandising way to describe his activities at that point: at [105].
· The evidence did not support the arrangement that C Pierce was fully responsible for the business side, while the Husband was simply responsible for creating the property or product side of the business: at [103].
· Her Honour could not conclude that C Pierce had the skill or capacity to manage the financial affairs of the business: at [107].
· C Pierce’s “evidence about financial issues was unimpressive” and “[h]e was not across those issues as one would expect of a partner in charge”: at [118].
· The receipt by C Pierce of the entire proceeds of sale of the intellectual property in X Trading and the very unsatisfactory evidence as to what happened to the funds he received: at [217] to [239].
· C Pierce’s membership of the Employee Reward Trust and the amount he received from that trust: at [395].
· The unsatisfactory evidence of Mr T who was the solicitor for the Husband and C Pierce at all relevant times from early 1996 and in particular what he represented to others was the ownership of the business: at [197] to [142].
· The failure to call Mr AA of JMH Firm.
· The memorandum to Terry Murphy prepared by Mr T on 30 August 1996: at [196].
· The written advice of 12 September 1996 from Terry Murphy: at [198].
· The 2 September 2002 Supreme Court statement of C Pierce: at [200] and [203].
· The letter written on 14 November 1996 by Mr RD, the accountant for C Pierce and the Husband, wrote to Terry Murphy: at [202].
· The advices obtained from counsel in 1997 and 1998.
· The advices from counsel in 1997 and 1998 were obtained “on the husband’s behalf designed specifically to protect assets from the wife”: at [394].
· The September 1997 first $6 million agreement: at [252] to [253].
· The distribution of the proceeds of sale pursuant to the $6 million agreement: at [252] to [253].
As we observed at the outset, in our view, the complaints of the Husband and C Pierce are substantially directed to considerations of the weight the trial Judge attached to matters that pointed to a genuine agreement. It is clear that her Honour took those matters into account and placed upon them appropriate weight for reasons which she gave having regard to the evidence. However, her Honour also took into account what was a preponderance of matters that pointed to why there was not a genuine agreement and again gave to these matters appropriate weight for reasons which she gave having regard to the evidence. Her Honour also took into account her findings in relation to the credit of the Husband and C Pierce and also important witnesses such as Mr T and Mr BY.
In conclusion, in our view, it has not been established that the trial Judge made any error of principle. Having regard to the evidence, it was well within her Honour’s discretion to make the findings of fact she did and it has not been demonstrated that in so doing she either failed to give appropriate weight or gave inappropriate weight to particular matters. We do not accept that there was an appealable error on the part of her Honour in reaching her conclusions in relation to the genuineness of the alleged agreement.
Second Area of Complaint – s 106B of the Act
The submissions in support of the grounds of appeal in relation to the second area of complaint were very brief and limited. The Husband simply adopted the written submissions of C Pierce.
On behalf of C Pierce it was submitted that the trial Judge made no findings under s 106B of the Act but indicated that she would have done so had she not found the relevant transactions to be shams.
As we have found no error in the trial Judge’s finding that the relevant transactions were shams, we do not need to discuss the grounds concerning s 106B. However, in an abundance of caution we will briefly deal with the submissions and include, as her Honour did, that s 106B would be applicable if the transactions were not found to be shams.
In the written submissions of C Pierce it was submitted that in relation to the 1996 agreement it can readily be seen that there might have been some conflict in the marriage at the time but it was neither significant nor extensive. The March and June 1996 agreements referred to the provision of funds for the share purchase which actually occurred. It was submitted that there can be no basis for saying that this transaction was either intended to or had the effect of defeating the Wife’s claim simply because prior to the set of transactions half of Q Corporation was owned by the Husband and half by Ms JC and Mr DC and after the transactions half was owned by the Husband and half by C Pierce. It was submitted that the interest of the Husband or the Wife in the business had not changed at all. The transaction did not have the effect of removing any assets from the matrimonial pool. There were no surrounding circumstances that cast any adverse light upon it and thus the claim must fail.
We observe that in oral submissions senior counsel for C Pierce submitted that the only evidence of a rift in the relationship of the Husband and the Wife was a separation for two weeks in November 1995 and that they reconciled, had another child and went away on holidays together. It was submitted that in those circumstances it is difficult to see how that could support relief pursuant to s 106B of the Act.
On behalf of the Wife it was submitted that the submissions of C Pierce again presume the success of the resulting trust argument which have no basis. It was never put that the March and/or June 1996 agreements simply confirmed what was already the position, namely, that C Pierce held a 50 per cent beneficial interest. It was submitted that the agreements changed the position from one where the Husband owned all of the shares beneficially to one where C Pierce held one half of them beneficially. We have already dealt with this issue and accepted that as at March 1996 the Husband owned all of the issued shares and that the issue was whether C Pierce obtained an interest in consequence of the alleged agreements in March and June 1996.
On behalf of the Wife it was also submitted that to suggest that the trouble in the marriage was “neither significant or extensive” during 1996 is an extraordinarily optimistic view of the evidence. The parties had endured a separation in November 1995 and, on the Husband's own evidence, there were ongoing tensions in the marriage in 1996.
Given the admissions made to us during the hearing we do not propose to deal with the submissions in paragraphs 46 and 47 of the written outline of C Pierce in relation to the $6 million agreement. However, we accept that the $6 million transaction took place at a time of significant friction in the marriage and that it was open to the trial Judge to conclude that this transaction was either intended to defeat an anticipated order or had that likely affect. Further, that the advices obtained from David Raphael made plain what the intention at the time was, namely to put the assets beyond the jurisdiction of the Family Court.
Conclusion – Second Area of Complaint
As we have already observed the trial Judge dealt with the alternate issues in relation to s 106B of the Act at [401] to [435]. No reference was made in the grounds of appeal or the written submissions to any particular part of the reasons of her Honour.
In the grounds of appeal the complaints are that the trial Judge erred in finding that the dispositions were likely to defeat, at the time they were made, an anticipated order in the Family Court in favour of the Wife and in finding that the transactions were likely to defeat that order.
What the Husband purported to do was assign one half of a business which was ultimately represented by many million of dollars. We also observe that the trial Judge at [295] to [315] and elsewhere in her reasons dealt with the “state of the marriage”.
The trial Judge was of the view at [425] that she was satisfied “that the various dispositions were made in the course of a marriage undergoing genuine difficulties”; at [426] that “in all the circumstances a reasonable disponor would have foreseen the orders sought by the wife” and also at [427] that the “husband intended to defeat the anticipated orders”. As her Honour observed at [427] she found: “the purported 50/50 agreement was … a sham” and “the court will not permit a ‘blatant sham transaction’ to defeat the operation of the Act”. Her Honour also at [428] made a finding that she was satisfied: “[I]n any event, [that] irrespective of his intention, at the time of each disposition it was more probable than not that the dispositions would defeat an anticipated order in the proceedings”.
In our view, in the circumstances of this case, the trial Judge was entitled to reach the conclusions she did in relation to the alternate relief sought pursuant to s 106B of the Act and thus we find no merit in the grounds of appeal.
Conclusion
The appeals of C Pierce and the Husband will be dismissed. We will make directions in relation to applications for costs.
I certify that the preceding four-hundred and fifty-five (455) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court of
Bryant CJ, Faulks DCJ and O’Ryan J.
Associate:
Date: 9 June 2010
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