PILSON & PILSON

FAMILY COURT OF AUSTRALIA

PILSON & PILSON

[2016] FamCA 1091

FAMILY LAW – PROPERTY – Interim – Where the husband seeks an order for the amount of $425,000 for the purpose of purchasing a home – Where the husband seeks the sale of shares to raise the funds sought – Where the wife opposes the sale of shares on the basis that it could affect her ability to receive funds at final property settlement.

FAMILY LAW – PROPERTY – Interim – Injunction – Whether the husband should be restrained from dealing with matrimonial property without the wife’s written consent – Where the husband created a new trust without the wife’s knowledge – Where the new trust did not have limitations as to the beneficiaries to whom funds could be distributed – Where the husband failed to disclose the new trust to the wife.

Family Law Act 1975 (Cth) ss 79, 80(1)(h)
Family Law Rules 2004 (Cth) Rules 13.01, 13.04(g), 13.07

Black & Kellner (1992) FLC 92-287
Oriolo & Oriolo (1985) FLC 91-653
Strahan & Strahan (Interim property orders) [2009] FamCAFC 166
Weir & Weir (1993) FLC 92-338

APPLICANT:

Ms Pilson

RESPONDENT:

Mr Pilson

FILE NUMBER:

BRC

1494

2016

DATE DELIVERED:

20 December 2016

PLACE DELIVERED:

Brisbane

PLACE HEARD:

Brisbane

JUDGMENT OF:

Forrest J

HEARING DATE:

12 December 2016

REPRESENTATION

COUNSEL FOR THE APPLICANT:

Mr Linklater-Steele

SOLICITOR FOR THE APPLICANT:

Phillips Family Law

THE RESPONDENT:

In Person

Orders

That notwithstanding all previous orders, and until further order, the husband as director of the Corporate trustee of the Pilson Family Trust No 2 and as director of ACN … shall be entitled, without the prior written consent of the wife, to cause either of those entities to sell any investments currently owned by those entities until such time as there is a total of $1,075,000 held in cash across the accounts of those two entities, provided that he gives full disclosure to the wife of any such sales, including as to the net amount of sale proceeds received for each such sale, within 48 hours of the settlement of any such sale.
That when the husband is able to show the wife that there is a total of $1,075,000 held in cash across the accounts of the two entities referred to in paragraph 1 hereof, he shall be entitled to cause to be withdrawn from those accounts a total of no more than $425,000 to be used by him solely for the purpose of paying a deposit on a home that he purchases in his sole name and paying for the stamp duty and costs of purchase of such property.
That the minimum amount of $320,000 of the $425,000 shall be used towards the actual purchase of the property such that the husband acquires at least $320,000 of equity in the property he purchases and the maximum amount to be paid for the purchase of such a property by the husband shall not exceed $1,600,000 and the husband shall take no steps, without the prior consent of the wife or further order of the Court, that would cause his realisable equity in that property to be any less than $320,000 at any time prior to the making of final orders in the property adjustment proceedings between him and his wife.
That the treatment of the husband’s use of any of that $425,000 in the final property adjustment as between him and the wife shall be a matter for the agreement of the husband and the wife or, failing agreement, the determination of the judge who makes final property adjustment orders as between the husband and the wife.
That the B Trust shall be considered an entity within the definition of “the Pilson Group” as provided for in paragraph 13(a) of the orders of Carew J of this Court of 11 August 2016 effective as and from 3 August 2016.
That save for the steps necessary to be taken by the husband in compliance with paragraphs 1 and 2 of these Orders, the husband as trustee of the Pilson Family Trust, as trustee and appointor of the B Trust, and as director of the corporate trustee of the Pilson Family Trust No 2 and as director of ACN …, is restrained by injunction from:
(a)Vesting, transferring, selling or further encumbering the assets of any of the Pilson Family Trust, B Trust, Pilson Family Trust No 2 and ACN …;
(b)Varying or altering the terms of any of the Pilson Family Trust, B Trust, Pilson Family Trust No 2 and ACN …;
(c)Distributing capital of any of the Pilson Family Trust, B Trust, Pilson Family Trust No 2 and ACN …;
(d)Distributing income from any of the Pilson Family Trust, B Trust, Pilson Family Trust No 2 and ACN …, to any beneficiary other than himself, the wife or a member of the Pilson Group;
without the wife’s prior written consent.

Note: The form of the order is subject to the entry of the order in the Court’s records.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Pilson & Pilson has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: BRC 1494 of 2016

Ms Pilson

Applicant

And

Mr Pilson

Respondent

REASONS FOR JUDGMENT

Property adjustment and spousal maintenance proceedings between the husband and wife in this matter were commenced early this year. So, too, were parenting proceedings. Since the commencement of those proceedings, interim parenting orders, child support departure orders, spousal maintenance orders and property orders have been made on an interim basis.
On Monday, 12 December, I heard competing applications for further interim property orders in the pending proceedings in my judicial duty list.

Some Background

The husband is 40 years of age and works as a professional. He is a partner in a Brisbane based firm earning in excess of $800,000 per year. The wife is 39 years of age and a full-time parent of their three children who are 9, 7 and 3 years of age. She is also a professional and was working until she ceased work at around the time their first child was born.
This former couple separated in June 2015 after 12 years of living together. The three boys live with their mother in the former matrimonial home in inner Brisbane and they spend five nights each fortnight (in a block of three over a weekend and two other separate mid-week nights) and half of the school holidays with their father. He lives in a rental apartment that he is sharing with his new partner. It is situated about 2.5 kms from the former matrimonial home. His new partner is also an experienced professional who is not employed at the moment. The husband substantially financially supports her, as well as his former wife and three children.
The wife is represented in these proceedings by specialist family lawyers. The husband was, too, until he withdrew his instructions from them a few months ago. Since then, he has been legally unrepresented and he appeared unrepresented at the hearing before me. The wife was represented by experienced family law counsel and solicitor. Nevertheless, the husband’s knowledge, skills and experience were obvious in the affidavit evidence, as well as the written and oral submissions he presented to the Court, though, as a party in the case, he clearly lacked the objectivity normally demonstrated by a professional advocate retained to represent a party in this Court.

The Competing Applications

The husband seeks interim orders, pending final determination of the matter, that permit him to use $425,000 of the parties’ wealth to put towards the purchase of a new home in which he proposes to live with his partner and his three boys when they are in his care. He is prepared to have that amount treated as “partial property settlement”, or, in other words, for it to be considered as part of his entitlement to property in the final adjustment of property between him and the wife.
His application is opposed by the wife. Not only does she oppose it, but she seeks injunctive orders from the Court restraining the husband from dealing with their assets pending finalisation of the property adjustment proceedings without her prior written consent. The husband opposes that.

How is the Husband’s interim Application for Partial Property Settlement to be determined?

The husband correctly submitted that the Court has the power to make interim property orders of the kind sought by him in advance of final orders. See s 79 and s 80(1)(h) of the Family Law Act 1975 and Strahan & Strahan (Interim property orders) [2009] FamCAFC 166. As the husband also submitted, the Full Court in the Strahan case made it clear that the determination of such an application involves the first step of determining whether the circumstances require the exercise of the power and the second step of actually exercising the power. When first considering whether to make an interim property order, as was said in Strahan, the “overarching consideration” is the interests of justice. Having regard to the fact that the usual order pursuant to s 79 is “a once and for all” order made after a final hearing, it must be determined to be appropriate to exercise the power. If it is, then the power must be exercised pursuant to the provisions of s 79, with some consideration given to the matters required to be considered pursuant to that section, circumscribed by the fact that it is not a final hearing, and with respect for the fact that any orders made settling property on a party need to be within the bounds of what that party would clearly achieve in the final outcome or at least capable of reversal in the final proceedings if that is necessary to do justice and equity on a final basis.

The Husband’s Case

The husband submits that it is indeed in the interests of justice that he be entitled to receive a partial property adjustment at this point in time. He has the three children in his care for five nights a fortnight and half of their school holidays. He is renting a three bedroom apartment and says the boys all currently share one of the bedrooms. He says the third bedroom, being internal without a window to the outside, is not appropriate for one or more of the boys to use. He says the boys are starting to make noises of disapproval about having to share one room there. He compares that situation to the wife’s continued occupation of the large, two storied former matrimonial home where the boys have a bedroom each.
Further, the husband’s lease on the apartment in which he currently lives has been extended but is due to expire in mid-March 2017 and he currently pays $1,000 per week rent. He says there is very limited suitable alternative rental stock available in the same local area, so he would prefer to purchase a more suitable home in which to live. He asserts that he could buy a suitable home in the same local area using the $425,000 that he asks for and says that would cover a deposit and stamp duty and allow him to purchase a home on a 10-20 per cent loan to valuation ratio. He says he would be able to meet the principal and interest payments with around the same amount as he is paying now in rent.
The husband correctly submits that none of these facts asserted by him are disputed by the wife. He submits that the interests of justice would be served by him receiving the partial property adjustment now. He submits that the amount of $425,000 represents less than 10 per cent of the net pool of property against which final adjustment orders would be made, placing it completely within the bounds of a just and equitable property adjustment in his favour having regard to s 79 and the matters contained therein. Finally, he submits that another matter that would support his application for a payment of $425,000 is the fact that he would use it to fund the purchase of a home and that it would, therefore, be reversible or able to be “clawed back” in any event if necessary by final orders compelling the sale of such property and the realisation of the equity he has in it.
Here, I observe that the orders that the husband sought in the document he handed to the Court at the start of the hearing simply provided for him to receive the sum of $425,000 on the sale of shares owned by the parties by way of interim property settlement. The proposed orders did not include any limitations upon his use of that amount. When that was pointed out to the husband at the hearing, he quickly acknowledged that he would accept restrictions in the orders such as conditioning the receipt of the money on its use only for the purchase of a property to be registered in his sole name with a set maximum purchase price.

My consideration of his application

There is nothing unmeritorious about the father’s desire to have more suitable accommodation for him and his three children in the general area where they currently live and in the form of a home of which he is the owner, albeit one encumbered by bank debt. Such a desire has for generations been generally lauded in this country as a worthy component of the “Australian dream”. On its own, I see no reason to reject the husband’s desire as one not appropriate to facilitate at this point in time if it can be achieved on an interim basis without prejudicing the wife’s rights to a final adjustment of their property interests that is considered just and equitable.
In this case, in my judgment, it is the determination undertaken at the second step of the process referred to above, that requires careful consideration.

The Property of the Parties or either of Them

The first part of any property adjustment undertaken pursuant to s 79 of the Family Law Act requires identification of the property and superannuation interests of the parties and the attribution of value to those.
In this case, the former matrimonial home has been valued by a jointly instructed expert at $2,300,000. Neither party disputes that expert’s opinion at this point in the proceedings. The property is registered in the wife’s name, having been bought by the parties during their marriage. Relevantly, the wife wants to retain it in the final property settlement, whilst the husband seeks final orders that it be sold, with the proceeds of sale to be divided between the two of them.
That real property is now encumbered by a mortgage supporting two lines of credit, established pursuant to orders made by this Court at the request of the parties in August of this year. One line of credit is for $100,000 to be accessed by the wife to pay her legal fees in these proceedings. It has not been drawn against yet. When it is, interest accruing on it is to be capitalised until paid out, presumably on final settlement. The other line of credit is for $550,000 to pay tax liabilities of the parties. Just over $175,000 has been drawn on that to pay their 2015 tax liabilities and a further $356,929 is to be drawn upon to pay their estimated tax liabilities for the 2016 financial year when their returns are finalised and submitted early in 2017. Interest on drawings on that line of credit is also to be capitalised until paid out, again, presumably on final settlement.
The wife has $265,091 in superannuation. The husband has $254,000 in superannuation. The chattels in the former matrimonial home, including a car, have been independently valued at $27,240. The chattels in the husband’s possession have been valued at $5,100. The wife has a small parcel of shares worth around $5,000 at the moment and a small amount of cash in the bank. The husband has recently acquired a new car but has financed it by a leasing arrangement about which little detail has been given in evidence. He also has a small amount of cash in the bank and credit card liability.
The wife, as registered proprietor of the real property, is also the plaintiff in Supreme Court litigation commenced before the parties separated. That action was being run by the husband but since separation, by agreement, it has been taken over by a firm of solicitors on a no win/no fee basis. It is an action for damages against the real estate agents who sold the parties the property. Apparently, alleged misrepresentation about the nature of the property is the basis of the cause of action pleaded. The husband asserts that chose-in-action is worth at least $200,000. The wife does not ascribe a value to it. She will be liable for costs if the action is not successful. There is an expectation that it might go to trial in or around the middle of next year.
The rest of the wealth of the parties is held through a number of discretionary trusts and a private company. The parties recently agreed to jointly instruct an independent accountant to provide his expert opinion as to the value of the parties’ interests in all of those entities. That has not been finalised yet, but is expected within weeks. In the meantime, the husband presses to have his interim application for partial property adjustment determined.
Through a trust called the B Trust, the husband holds his interest in the business in which he is a partner. For convenience, that is referred to as the E Trust. The husband says his interest is worth $841,227 and that is supported by a document adduced into evidence by the husband expressing that same opinion written by an officer of the firm. The husband also says that trust holds cash assets of $58,666. On the other hand, he says that trust has a liability of $950,000 to a bank for a loan used to fund the purchase of the equity in the business.
There is another trust which the husband says only has cash assets of $44.
The third trust is said by the husband to have the following assets:
·Cash $138,350;
·Shares in ASX listed company F Ltd x 204,274 (H’s value at 7 November 2016 = $541,326 being @ $2.649 per share – W’s value at 22 November 2016 = $480,044 being @ $2.35 per share);
·Shares in ASX listed company G Ltd x 125,000 (H’s value at 7 November 2016 = $355,000 being @ $2.84 per share – W’s value at 22 November 2016 = $343,750 being @ $2.75 per share);
·Shares in ASX listed company H Ltd x 2,000,000 (H’s value at 7 November 2016 = $250,000 being @ $0.125 per share – W’s value at 22 November 2016 = $230,000 being @ $0.115 per share); and
·Shares in unlisted I Pty Ltd x 2,000,000 (H’s value $25,000 based on his own expressed opinion without detailed supporting evidence, save that they were purchased for $100,000 – W’s value unknown);
Total $1,217,144 (taking the lower of the values for each asset – that being, in my judgment, the prudent course)
That trust is said by the husband to have a liability described as a Division 7A loan but no value is ascribed to it, with the husband asserting that it is simply netted out by an asset of the same value in the investment company of the parties. The wife simply awaits the independent expert’s opinion on that.
The investment company has a number of assets in addition to the Division 7A loan just referred to. The husband says it has the following other assets:
·Cash $11,135;
·Other cash proceeds of the recent sale of listed shares $188,669 (the husband had included the shareholding in his 11 November affidavit at $210,000);
·Shares in ASX listed company J Ltd x 1,250,000 (H’s value at 7 November 2016 = $225,000 being @ $0.18 per share – W’s value at 22 November 2016 = $243,000 being @ $0.195 per share);
·Shares in ASX listed company K Ltd x 15,683,901 (H’s value at 7 November 2016 = $156,839 being @ $0.01 per share – W’s value at 22 November 2016 = $156,000 being @ $0.01 per share);
·Shares in unlisted company L Pty Ltd x 4,448 (H’s value $25,000 based on his own expressed opinion without detailed supporting evidence save that they were purchased for Singapore dollars 54,945 – W’s value unknown and she says initial investment was AUD$51,000);
·Shares and notes in unlisted company M Pty Ltd x loan notes with a face value of $50,000 and 100,000 ordinary shares (H’s value $25,000 based on his own expressed opinion without detailed supporting evidence save that he says $50,000 was initially invested – W’s value unknown);
·Shares in unlisted company N Pty Ltd x 48,302 (H’s value $35,000 based on his own expressed opinion without detailed supporting evidence save that they were purchased for that amount – W’s value unknown);
·A loan to a third party (said by husband to be a client and acquaintance - said by wife to be husband’s best friend) – Principal owing is $291,044 and interest accrued another $29,000 with Husband asserting real risk of default but secured by shares with value of $153,827; and
·2016 estimated tax refund $4,345;
Total $823,976 (taking the lower of the values for each asset – that being, in my judgment, the prudent course)

Paragraph 9 of the orders made by Carew J, with the parties’ consent, on 11 August, 2016 provided:
The total amount each party has expended on legal fees to date and will expend subsequent to these Orders on legal fees, from whatever source, shall be characterised as being received by each of them as and by way of partial property settlement.
The husband deposed in his affidavit filed 11 November 2016 that as at 13 September 2016, the wife had spent $166,455 on legal costs and outlays and that he had spent $82,074.64. That was not disputed by the wife. Having regard to the order just referred to, those amounts and the $100,000 that is likely to be drawn by the wife from the line of credit secured against the real property should also be considered as part of the pool of property and superannuation against which adjustment orders are to be made.
Not including any amount for the Supreme Court litigation and not taking into account any tax and realisation costs that might be identified by the independent accountant, using all of these figures, a prudent consideration of what might be the pool of property and superannuation and notional amounts added in as property already received arrives, in my judgment, at a net figure of $4,546,017.

What the Parties hope to receive on a final basis and some consideration of that

The wife contends that she is entitled to property, superannuation and cash equal to 70 per cent of the net total. That would have a value of $3,182,211. She wants to retain the real property unencumbered, her superannuation interest, her chattels, and her small parcel of shares. Those assets and superannuation equal $2,596,335 in value. In addition, she will have received at least $266,455, being the money spent on her legal costs and outlays. That equals $2,862,790. That would see her receiving a further $319,421 in cash if she was to obtain 70 per cent.
On the wife’s case, the husband would obtain $1,363,805 worth of property and superannuation if he was awarded 30 per cent of the net value. On the husband’s case, he would obtain $2,045,707.
Assuming the husband retains his equity in business and takes the liability attached to that as well as the cash in the trust in which that interest is held, the remaining assets, at the lowest values ascribed as set out above, equal $2,041,120. The husband asserts that at this very moment, of that amount, there is $138,350 in cash in the investment trust and $199,804 in the investment company. That equals $338,154. The balance is held in shares in listed companies, shares in unlisted companies, and other investments such as the loan to the third party, Mr O. Accordingly, the non-cash balance of the investments total $1,702,966 in value.
Currently, there is enough cash held to meet the wife’s asserted entitlement to receive cash even if she obtains 70 per cent as she seeks. However, quite significantly, she seeks to retain the real property unencumbered by debt. That would require the prospective debt of $650,000 and any interest that has capitalised on the unpaid amounts drawn on those lines of credit to be paid out. That much in cash at least would have to be realised to achieve that.
Closer consideration of the shares and the other investments brings more issues into focus. The husband has himself deposed to the “illiquid nature of a number of the assets”[1]. In his affidavit of 20 May, 2016 he said that “realisation of the balance” of his listed share portfolio is “problematic”. In particular, he said the F and G shares will be difficult to sell and he set out his reasons for holding that opinion. He also said that the H shares are “largely illiquid” and would take a long time to sell. He also said that the J shares are “highly illiquid” and that they would be hard to liquidate within twelve months. He has not sold them yet and it is now December 2016. He also said that the K Ltd shares are highly illiquid and that he is unlikely to be able to sell them within twelve months. He has not sold them yet either. The shareholdings in those five companies alone are currently worth $1,452,794.
[1] Paragraph 15 of his affidavit filed 20 May 2016
The wife adduced evidence from a private wealth adviser who expressed an opinion that was in accord with the husband’s opinion in respect of H, K Ltd and J. That expert did say the G and F shares ($824,000 worth at the moment) were liquid enough to be able to readily sell parcels of the size held by the parties, but there was no analysis given to the husband’s claims that as those two companies are clients for whom he acts he would nevertheless have real difficulties selling the shares that he holds in those two companies. The husband’s own actions seemingly support his assertions.
Whilst he had come to the Court with an Application in a Case seeking orders that he be allowed to sell rather large portions of the share parcels the parties hold in G and F, the husband changed his position at the start of the hearing to one of seeking an order that permits him to sell any of the shares that the parties own and that he receive $425,000 from the sale proceeds.
In considering his application, it is worth remembering that all of the other non-listed investment assets are seemingly less liquid than any of the listed assets, at least as the evidence is presented. Indeed, the husband asserts they could take years to realise. It is no coincidence, I expect, that the wife seeks final orders that have the husband retain all those assets and that the husband seeks final orders that allows them to be divided in specie or realised over time with dividends being paid to the parties over the months and years as they are realised. By these contrary positions adopted by the parties, I am reasonably satisfied that each party truly accepts that there are real liquidity issues surrounding these assets.
As the husband seeks $425,000 in partial property settlement to purchase a home and $650,000 would be needed to discharge the encumbrance on the real property securing the lines of credit, a total of $1,075,000 would need to be realised to achieve that. As I have observed already, $338,154 in cash is already held in the investment trust and the investment company. That would still require $736,846 worth of the remaining assets to be realised to meet the interim order the husband seeks and to discharge $650,000 worth of liability secured over the house. In addition, there is the $319,421 that the wife would still be seeking in cash. That would take the amount of additional cash needed in total to achieve those three things to $1,056,267.
It is worth observing, in my view, that the parties agreed to seek orders from the Court, by consent, in August of this year, that provided for them to borrow against the real property to meet the projected liabilities of $650,000 when the illiquidity of all of the shares, listed and unlisted, was being strongly asserted by the husband. I am satisfied that had the illiquidity of the assets not been considered a real issue, the need to put orders in place to provide for lines of credit secured by mortgage would, most probably, not have been accepted by the wife.
Now, only a few months later, the husband submits that he is only seeking $425,000 and that he has an “irrefutable” claim to receiving at least that much in the property settlement. On the figures I have worked through above, that equals 9.3 per cent of the net total. As pointed out already, the husband seeks 45 per cent overall in the final adjustment whilst the wife seeks that he receives only 30 per cent. Prima facie, whichever way you look at it, it is difficult to refute the husband’s assertion that he will receive at least 9.3 per cent of the total net value of their property and superannuation interests in his final property adjustment.
The real difficulty in determining this interim application, in my judgment, arises out of consideration of the liquidity issues. If the husband is able to sell down just enough shares to reach $425,000 in cash (and he only needs to sell another $86,846 worth of shares to reach that amount, not taking into account the cash he says there is in the E Trust) then another $969,421 in cash would need to be realised if the wife was to be able to achieve the outcome she argues is just and equitable for her in the final adjustment which would require discharge of the lines of credit and the payment to her of over $300,000 in cash. However, that does not take into account the possibility of clawing back the equity that the husband purchases in any property he is to buy with any money he receives on this application.
Also relevant to this aspect of the determination is some consideration, given their disagreement about the correct percentages for the final adjustment of their property and superannuation interests, to the likely outcome having regard to the evidence that is currently before the Court.
The husband submits that the evidence will produce satisfaction that his contributions to be considered pursuant to s 79(4)(a) to (c) have been greater than those of the wife. As I said to him at the hearing of these competing interim applications, I do not necessarily accept that on a prima facie basis. I am more inclined, at this point in time, to a view that there is more chance that the parties’ respective contributions will be assessed as equal. Then, having regard to the fact that the wife gave up her career to provide full-time parenting to the children, has been out of the workforce for nine years, and, on the husband’s own evidence, might expect to go back into the workforce, if she decides she must, on an income of around $100,000 to $150,000 gross per year, whilst the husband earns in excess of $800,000 gross per year, I would expect an adjustment in favour of the wife, who continues to have the majority of the responsibility for caring for the boys on a day to day basis, to possibly be as much as would be necessary to get her to 70 per cent, having regard to the matters set out in s 75(2). At first glance, I do not consider the percentage the wife seeks to be beyond possibility, whereas I would expect the 55/45 division the husband is arguing for (in the wife’s favour) to be an unlikely outcome.
Finally, considering the final orders the parties seek, as against things as they currently stand in terms of the makeup of the divisible property and superannuation interests, I would not expect it to be considered unjust for the wife to retain the former matrimonial home, unencumbered, if, considering its value, it comes within the bounds of the percentage share that is determined to be justly and equitably hers, having regard to the other assets she seeks to retain. Further, I would not expect the Court to require her to retain highly speculative, illiquid, investment assets that the husband has been principally responsible for purchasing, if she did not wish to. If she is not working at the time and has no other means of generating income to support herself and the children, an inclusion of cash in her property adjustment entitlements might be expected.
Of course, achieving the outcome the wife currently seeks, will be quite problematic if the only remaining investment assets are not liquid enough to pay out the lines of credit and discharge the encumbrance as well as providing her with additional cash entitlements. I do acknowledge that real property, correctly priced to meet the market, can be reasonably liquid and that any equity the husband might obtain in real property purchased with the $425,000 he seeks in partial property settlement would be available to be clawed back by ordered sale of the property and distribution of sale proceeds to the wife. I take this into account.
Considering all of these matters, I am prepared to permit the husband access to up to a maximum of $425,000 in cash from the parties’ wealth to be used for no other purpose but to purchase a real property at a price not exceeding $1,600,000[2] and with no less than $320,000 of the $425,000 sum to be used in acquiring equity in the property with the balance, up to the maximum amount of $425,000 only to be used to meet costs of purchase, including stamp duty.
[2]The husband said in his written submissions that is said to be the median house price in the area he wishes to buy in
However, considering the serious liquidity issues seemingly accepted by both parties, I will also condition the drawing of up to $425,000 and its use in acquiring equity in a real property on the husband firstly realising sufficient of the listed share and other assets to have, including the cash already held in the investment trust and the investment company, a total of $1,075,000 before he accesses any of the $425,000 to purchase the property. The sale of a large part of the F and G share parcels would achieve that.
I will also require maintenance of a minimum amount of equity of $320,000 in any property the husband purchases, so that such equity is available to be clawed back, if necessary, in the final property adjustment, to meet a just and equitable adjustment in favour of the wife.

The Wife’s Application for Injunctive Relief

With the consent of both parties, and at their express request, Carew J made orders on 11 August, 2016 that, relevantly included, the following paragraphs:
10.Subject to Orders 4 and 6 hereof, neither the Husband nor the Wife shall suffer, cause or permit any asset now held within the [Pilson] Group to be encumbered or where it is presently encumbered, for it to be further encumbered (in each case, other than a lien arising by operation of law) without first obtaining the other’s consent in writing. For avoidance of doubt, any contract for sale of an asset (for example, under a share sale arrangement) or an arrangement whereby an existing encumbrance is replaced by another like encumbrance where there is no material diminution in the net value of the asset encumbered as a result of the new arrangements (for example, if a lender requires the Husband to enter into new security arrangements in respect of the existing equity loan to the Husband (as trustee of the [Pilson E] Trust) the commercial substance of which is similar to the security arrangements that are currently in place), is not an encumbrance affected by operation of this order.
11.In the event that any securities or other material asset of the [Pilson] Group is sold to a person other than another member of the [Pilson] Group or a person controlled by such person for cash, the net cash proceeds of any such sale shall be deposited into the account for the relevant member of the [Pilson] Group and shall, together with any other proceeds of sale under this order, be maintained as a minimum balance in that account, pending agreement between the parties or further Order of this Court, save that these monies may be drawn upon to satisfy capital gains tax liability arising from that sale.
12.In the event that any monies currently owed by [Mr O] to ACN … Pty Ltd are repaid then such monies shall be forthwith dealt with in accordance with Order 11 hereof.
13.For the purposes of these Orders:
a)A reference to the “[Pilson] Group” means the Husband, the Wife, ACN … Pty Ltd, [P Pty Ltd] as trustee for the [Pilson] Family Trust No. 2, the Husband as trustee for the [Pilson] Family Trust and the Husband as trustee for the [Pilson E] Trust; and
b)A reference to ‘pay’ includes to procure payment and, in respect of the period ending 30 June 2017 (or for such other period as the Husband and Wife agree), includes a payment of cash which may be treated by the trustee of the payer as a distribution from a discretionary trust.
Relevantly, the wife now seeks the following orders on an interim basis:
2.That the [B] Trust is an entity within the definition of the [Pilson] Group, as and from 3 August 2016.
3.That the Husband as trustee of the [Pilson] Family Trust, as trustee and appointor of the [B] Trust, and as director of the corporate trustee of the [Pilson] Family Trust No 2 and as director of ACN …, is restrained by injunction from:
(a)vesting, transferring, selling or further encumbering the assets of any of the [Pilson] Family Trust, [B] Trust, [Pilson] Family Trust No 2 and ACN …;
(b)varying or altering the terms of any of the [Pilson] Family Trust, [B] Trust, [Pilson] Family Trust No 2 and ACN …;
(c)distributing capital of any of the [Pilson] Family Trust, [B] Trust, [Pilson] Family Trust No 2 and ACN …;
(d)Distributing income from any of the [Pilson] Family Trust, [B] Trust, [Pilson] Family Trust No 2 and ACN …, to any beneficiary other than himself, the wife, or a member of the [Pilson] Group;
without the Wife’s prior written consent.
Whilst the orders of 11 August, 2016, did not restrain the husband from buying and selling assets without the wife’s prior written consent, the orders the wife now seeks would do that. For the wife, it is submitted that is necessary to protect and preserve the property of the parties pending final property adjustment. The husband submits such further restraint is not necessary and should not be imposed upon him.
The wife’s case is relatively simple. She points to a few factual matters that have occurred in recent times which she says demonstrate real risk of conduct prejudicial to her occurring if the further restraint is not imposed.
The most significant of those surround the E Trust by which the husband owns his interest in the business in which he is a partner.
The Balance Sheet of the E Trust prepared by an accountant at the husband’s instruction as at 30 June 2015 also had the balance sheet figures as at 30 June 2014 in it. Those figures included as the most significant asset in the trust, the equity in the business. It also had listed as “current liabilities” of the trust, beneficiary loans to the husband and to the wife, each noted to be $419,193 or half the value of the equity in the firm. Then as at 30 June 2015, the figures in the balance sheet record the equity in the firm as the principal asset still but show the liabilities of the trust to be $844,898 in beneficiary loan to the husband and nothing to the wife. There is no explanation on the document for the change in the beneficiary loan entitlements. Prima facie, it reflects the assignment by the wife of her beneficiary loan entitlement in the trust to the husband.
The wife’s evidence is that she learned of this change after the financial statements of the trust were completed and disclosed to her. She says in her affidavit that this occurred without prior notice or subsequent explanation to her. She is concerned that her “defined interest” in that trust was thereby extinguished without her knowledge or consent.
In none of his affidavit material in evidence before me does the husband actually depose to the circumstances surrounding this issue, yet, curiously, he writes in his written submissions:[3]
The Husband believes that the accountant for the [Pilson] Group consolidated the loan accounts in the entity – [Pilson] Family Trust No 2. In that way, none of the loan accounts were “extinguished” – they were simply reassigned to a single entity for convenience.
[3] At paragraph 58
I described that as “curious” for a few reasons. First, the husband has given no evidence about that in affidavit and, as such, reference to his beliefs in his written submissions is the giving of evidence from the bar table. The husband is an extremely capable, experienced professional and it might be expected that he would know that he cannot do that. Second, he refers to the Pilson Family Trust No. 2 and not the E Trust and has actually adduced no evidence to support the belief he asserts to have in those submissions. Third, as the person who gave instructions to the accountant, he would be expected to know what the accountant has done because he would have instructed the accountant to do it.

Neither the husband nor the accountant has deposed to the wife assigning her beneficiary loan account in the E Trust to the husband. I accept that she did not. Whilst the husband’s submissions about the treatment by this Court of the asset that is the beneficiary loan in his name as compared to the treatment by this Court of the assets in the form of separate beneficiary loan accounts in his name and his wife’s name where there is liability for a corresponding amount to a third party might ultimately have some merit, his apparent unilateral action in causing what was, at law, an asset of the wife to become an asset of his quite rightfully concerns the wife and her legal representatives and this Court. To assert, as the husband effectively did, that it was all done as a matter of convenience makes it no less concerning.
By this unilateral action, the next thing that the husband did without the wife’s knowledge appears to have been facilitated, although he does not acknowledge so in his affidavit evidence.
The husband was allocated additional equity in his business at the end of the 2016 financial year. That required him to increase his borrowings from the bank that funds his acquisition of equity in the firm. He did that. At the same time, he chose to change the structure by which he held his equity in the firm. It was previously held through the E Trust that has been discussed. However, as the husband explained, some form of binding election had been made in respect of the E Trust when the parties were still together. In summary, the effect of that election was a restriction, at law, as to the beneficiaries of the trust to whom income distributions could be made. Notwithstanding the definitions of primary, secondary and tertiary beneficiaries in the trust deed, distributions could only lawfully be made, as I understand it, to the husband, the wife or their children.
On 3 August, 2016, the husband and wife, through their solicitors sent the draft of the orders made by Carew J on 11 August, 2016, to the Court with a request that those orders be made. As can be seen above, those orders referred to, inter alia, the Pilson E Trust. The husband was the sole trustee of that trust. The very same day, 3 August, 2016, the husband signed a number of deeds. He signed a variation of the deed establishing the E Trust. He signed a deed of trust establishing the B Trust of which he is the sole trustee. He signed a deed of declaration in which he declared that he now held the interest in the firm on the terms of the B Trust not the Pilson E Trust. Consequently, all of the assets and liabilities of the E Trust (principally the husband’s equity in the firm and the beneficiary loan account which was by then all in his sole name) were rolled into the B Trust which the husband referred to as a “clone” of the E Trust with identical objects and beneficiaries. The B Trust was not referred to at all in the orders the Court was asked, on that same date, to make.
With full knowledge of what he had done that third day of August, 2016, the husband set about, after withdrawing instructions from his solicitors, jointly instructing the agreed independent accountant engaged to provide valuations of the entities. On 7 November, 2016 (over three months after 3 August) the husband proposed that the joint instructions include the following:
The [Pilson E] Trust holds the equity interest in [name of firm]. It currently holds no other investments, but has entered into a loan drawn to about $950,000, which has been used to fund the purchase of equity in [name of firm] from time to time.
The wife’s solicitors asked questions of the husband about the amount of the debt as it had not been that high before. The husband responded and disclosed to the wife for the first time that his equity in the firm had increased as had the loan used to fund the acquisition of his equity.
The parties then agreed on the instructions and documents to be forwarded to the joint accounting expert. It was agreed that the husband would send the agreed instructions and documents to the expert and copy the wife’s solicitor into the emails that were sent. The joint instructions were emailed by the husband to the solicitor on Friday 11 November. The emailed letter listed the documents that were said to be provided to the expert, as agreed. However, when the documents actually provided to the expert by the husband with that letter of joint instruction were reviewed by the wife, there were documents discovered that were not listed in the letter and which had not previously been disclosed to the wife. They were the three deeds that the husband executed on 3 August, 2016 that I have already referred to. The husband had not disclosed those documents to the wife before, nor told her about them or the transactions they represented.
When asked about these matters by the wife’s solicitors on 15 November, the husband sent an email in which he disclosed, for the first time further information and documents showing what he had done with the E Trust.
The husband said nothing about this issue in an affidavit he filed in these applications on 11 November, 2016. In that affidavit, he actually continued referencing the Pilson E Trust as the entity holding his interest in the firm. The wife’s affidavit in which she deposed to all of these circumstances was filed on 25 November. On 8 December, 2016, the husband filed another affidavit in which he directly responded to some matters raised by the wife in her affidavit filed 25 November. In that 8 December affidavit, the husband said nothing about these matters.
At the hearing before me, counsel for the wife took the Court to paragraph 52 of an affidavit filed by the husband on 18 October, 2016 in which he said:
I have at all times complied with, and will continue to comply with, my obligations pursuant to Rule 13.01.
I am not at all satisfied that was correct.
I have said in previous judgments that case law requires parties to property adjustment proceedings to make a full and frank disclosure of their financial position. (Oriolo & Oriolo (1985) FLC 91-653; Black & Kellner (1992) FLC 92-287; Weir & Weir (1993) FLC 92 – 338)
That case law is reinforced by the Family Law Rules. Parts 13.1 and 13.2 of those Rules set out a party’s disclosure obligations. The husband referenced Rule 13.01 of those Rules. Rule 13.01(1) provides:
Each party to a case has a duty to the court and to each other party to give full and frank disclosure of all information relevant to the case, in a timely manner. (my emphasis)
Rule 13.04(1)(g) provides:
A party to a financial case must make full and frank disclosure of the party’s financial circumstances, including:-
…
(g) any disposal of property (whether by sale, transfer, assignment or gift) made by the party, a legal entity mentioned in paragraph (c), a corporation or a trust mentioned in paragraph (f) that may affect, defeat or deplete a claim;
…
(ii) since the final separation of the parties. (my emphasis)
Rule 13.07 provides the duty of disclosure applies to each document that:
(a) is or has been in the possession, or under the control, of the party disclosing the document; and
(b) is relevant to an issue in the case.
The Explanatory Statement, issued in 2004 by the authority of the Judges of the Family Court of Australia, states, inter alia:

Rule 13.01: General duty of disclosure

This rule sets out the general duty of disclosure and provides that it applies from pre-action procedures to the finalisation of the case.
This rule reinforces these principles:
(a) the duty applies in all cases;
(b)the duty applies to the disclosure of information and documents; (my emphasis)
(c)it is a duty which the Court regards as very important and will scrutinise and enforce;

(d) it is a continuing duty starting with the pre-action procedure.
The importance of the duty of disclosure is emphasised in the Rules by the introduction of the following:
1.the parties are required to read the duty of disclosure before swearing the affidavit in the Form 1 and Form 1A;
2.the parties are required to acknowledge the duty of disclosure and give an undertaking as to their compliance with it at a certain stage of a case. Breach of this undertaking may be punishable as a contravention of a parenting order under the Act (section s 112AA (c) and 70 NB (c)) and may amount to contempt of court; and
3.Rule 13.14 which is intended to send a clear message that the Court will take a serious view of non-compliance with the duty of disclosure and the Rules.

Rule 13.04: Full and frank disclosure

This rule was formerly O17 r3 (FLR 1984) which has been extended to ensure it is contemporary, relevant and useful in relation to complicated financial structures as well as not so complicated arrangements.

Rule 13.07: Duty of disclosure - documents

This rule imposes a duty on a party to disclose documents in the party’s possession or control that are “directly relevant” to an issue. Gone are the days where the Court will allow “general discovery” ie “an order that a party produce all documents in the party’s possession or control relating to the issues in dispute.”
This follows the lead taken in the United Kingdom and Queensland in eliminating the extremely wide test established by The Compagnie Financiere du Pacifique v. The Peruvian Guano Company (1882) 11 QBD 55 which required discovery of documents which may (not must) either directly or indirectly enable the party requiring the affidavit either to advance his own case or to damage the case of his adversary. “ The results of this test was to make virtually unlimited the range of potentially relevant (discoverable) documents which parties were obliged to review and list forcing the other party to read, against the knowledge that only a handful of such documents would affect the outcome of the case. It is a monumentally inefficient and costly process.” (Lord Woolf: Access to Justice Final Report 1996)
The requirement to disclose “directly relevant” documents will introduce a higher standard of assessment in the sifting and examination of a client’s documents. This will oblige parties and lawyers to focus attention at an early stage upon the real issues in dispute and the documentary evidence that goes directly to those issues.

Given that proceedings are under way between the parties in this case and that “information and documents” that are “directly relevant” to an issue are to be disclosed in a “timely manner” and “any disposal of property … that may affect, defeat or deplete a claim” (my emphasis) has clearly been listed as such a “directly relevant” matter that is required to be disclosed, there can be little doubt, at least in my view, that the husband’s actions in creating and executing those deeds on 3 August, and the transfer of the interest in the firm from one trust to the newly created one were matters that attracted the duty to disclose in a timely manner. I am also satisfied that the acquisition of additional equity in the firm was a matter that attracted the duty to disclose in a timely manner.
Only by being properly aware, in a timely fashion, of a transaction entered into by the other party that may “affect, defeat or deplete a claim”, can a party seek advice and, if necessary, take steps to protect their legitimate interests in obtaining just and equitable property adjustment orders. Ongoing disclosure of information and documents about these matters that allows the wife to understand exactly what is happening with their property is an obligation of the husband, not something that has to be repeatedly requested by the wife.
Again, the husband did make reference to the matters in his written submissions. What he wrote was a mix of evidence and submission. Again, I remark that it is curious that he put the evidence in his unsworn/unaffirmed written submissions and not in affidavit form.
In paragraph 60 of his written submissions, he said that the purpose of establishing the new trust and transferring his equity in the firm to the new trust was to ensure that his equity interest was in a single trust and that the new trust did not have the limitations as to the beneficiaries to whom funds can be distributed that the old trust had. I questioned him at the hearing as to why he had not disclosed the matter in a timely fashion. He said that he did not consider the matter “material” as the second trust was a clone of the first. When I asked him why it was necessary then to clone the trust, he explained that the newly created trust was not subject to the same legal restrictions in respect of which beneficiaries funds could be distributed to, effectively orally expanding upon what he had said in his written submissions. He conceded that his current partner was not a beneficiary to whom funds could be distributed under the previous trust but that she was now under the new trust. He then appeared to concede my proposition that this difference alone made the matter “material” and one that he was obliged to disclose.
The way in which the husband had dealt with the issue in connection with the instruction of the single expert really concerned me and satisfied me that he was indeed aware of his obligations to disclose this material but only did it when he was forced to by the wife’s solicitors’ actions.
As much as he stressed his submissions that his actions will not prejudice final orders the wife seeks, the fact that he created a new trust that can now distribute funds beyond him, the wife and their children and did it without notice to the wife, or the consent of the wife or the Court and that he did it on the very day he was asking the Court to make consent orders that included restraints against that sort of conduct but specifically directed at the original E Trust (that he knew was no longer relevant) is sufficient conduct, as is submitted by the wife, to satisfy the Court that there are risks in this matter that need to be protected against by injunction as sought by the wife. Those risks clearly include the risk that he will do things like that again, that he will distribute capital or income to third parties in a way that might reduce the property able to be finally subject to adjustment orders as between the parties and, potentially, prejudice the wife’s rights in the proceedings.
The husband told the Court that he agrees for the orders of 11 August to be amended so as to include the B Trust within their reach. He does not wish to be restrained in respect of his buying and selling of investments by any prior need to get the consent of the wife. He says that will impede his ability to react in a timely fashion to market events that provide windows of opportunity to buy or sell at beneficial prices. My orders will give him unfettered capacity to sell assets of the Pilson Family Trust No 2 and the investment company until such time as $1,075,000 in cash is held. After that, he will be able to withdraw up to $425,000 to purchase a home but from then he will be restrained from selling or otherwise dealing with the assets of the Pilson Group without the prior written consent of the wife. I consider such restraint to be just and convenient in the factual circumstances of this case. Of course, he can have every expectation that the wife will quickly give her consent to the sale of the more illiquid investments once she is satisfied that they are being sold for the best price obtainable.
The husband also submitted that he should not be restrained from making trust distributions to third parties. He said that he has been making small distributions to his parents for years and that he ought to be able to continue to do that. In the circumstances of separation, conflict and reasonably based mistrust, I consider it just to restrain the husband from causing any distributions of capital or income to go to third persons, including his parents and his current partner. Any payments he wishes to make to any of them, should, in my judgment, be simply made from distributions made to him, unless he is able to obtain the prior written consent of the wife. Indeed, if satisfied that his proposed distributions to his parents are simply in accord with a long standing tradition of minor financial assistance given them by the husband, the wife might consent. Otherwise, that should simply await finalisation of property adjustment between the husband and the wife or further order of this Court.
I make the orders set out at the commencement of these written reasons.

I certify that the preceding eighty-one (81) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Forrest delivered on 20 December 2016.

Associate:

Date: 20 December 2016

[2016] FamCA 1091

20 December 2016

Key Legal Topics

Areas of Law

Family Law

Equity & Trusts

Legal Concepts

Injunction

Remedies

Fiduciary Duty

Constructive Trust