Richards v Dare and Ors
[2001] VSC 466
•21 December 2001
| IN THE SUPREME COURT OF VICTORIA | Not Restricted |
AT MELBOURNE
COMMON LAW DIVISION
No. 6863 of 1999
| DEBORAH SUSAN RICHARDS (as Executrix of the Will of EVELYN MAY RICHARDS, deceased) | First Plaintiff |
| And | |
| GARNET STEWART FIELDING (as Administrator of the Estate of RONALD STEWART DARE, deceased) | Second Plaintiff |
| v. | |
| DENNIS WILLIAM DARE | First Defendant |
| And | |
| ROBYN LEE FROST | Second Defendant |
| And | |
| REGISTRAR OF TITLES | Third Defendant |
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JUDGE: | HARPER, J | |
WHERE HELD: | MELBOURNE | |
DATE OF HEARING: | 21, 24-27 SEPTEMBER, 1 OCTOBER 2001 | |
DATE OF JUDGMENT: | 21 DECEMBER 2001 | |
CASE MAY BE CITED AS: | RICHARDS & ANOR. v. DARE & ORS. | |
MEDIUM NEUTRAL CITATION: | [2001] VSC 466 | |
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CATCHWORDS: Fraud – Intention to defraud creditors – Alienation of property pursuant to order of the Family Court – De facto couple – Property Law Act 1958, ss.172, 285 – Evans v. Marmont (1997) 21 Fam LR 760; Lloyds Bank Ltd. v. Marcan [1973] 1 WLR 339; [1973] 1 WLR 1392 and Royal Brunei Airlines v. Phillip Tan Kok Ming [1995] AC 378 considered.
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APPEARANCES: | Counsel | Solicitors |
| For the Plaintiffs | Mr P Jewell | Barry Kenna & Co |
| For the Second Defendant | Mr R McInnes | Mahonys |
| No appearance for First and Third Defendants |
HIS HONOUR:
On 12 June 1990 Ronald Stuart Dare died. He was survived by two adult children, Dennis William Dare and Charmaine Riches, and by his de facto partner, Evelyn May Richards. By his Will, Dennis was appointed executor. The deceased's estate then became the subject of several years of bitter dispute, principally between Mr. Dare and Mrs. Richards. Four proceedings were issued in this Court. Three of them were initiated by Mr. Dare: one concerned the construction of his father’s Will, the second sought further provision under Part IV of the Administration and Probate Act, and the third challenged a contract for the sale of land owned jointly by the late Mr. Dare and Mrs. Richards. The fourth proceeding was a claim for further provision by Ms. Riches under that Act.
All four proceedings were heard by Justice Teague from 28 January to 11 February 1993. On 10 November 1993 his Honour handed down written reasons for judgment. One of the findings made by his Honour was that, immediately following the death of his father, Mr. Dare said to Mrs. Richards words to the effect that he would make sure that she got nothing from his father’s estate. Although the Judge found against Mr. Dare in the three proceedings initiated by him and indicated a strong disposition to award costs against him personally on a solicitor/client basis, his Honour did not on that day make any formal orders; instead he gave the parties an opportunity to consider his judgment and return to the Court for any orders if necessary. It is clear that at that stage Mr. Dare potentially faced a substantial costs liability. Protracted negotiations between Mr. Dare and Mrs. Richards commenced through their legal representatives in an attempt to settle, among other things, the question of costs. Ultimately his Honour made costs orders against Mr. Dare on 7 November 1994. Those costs were taxed, insofar as they relate to Mrs. Richards, at $130,962.85. With interest the amount outstanding now comes to approximately $213,000. Following an unsuccessful appeal by Mr. Dare, further costs were awarded to Mrs. Richards of $11,085.10. None of these costs have been paid.
Justice Teague also found that a number of milking cows, and certain items of plant and equipment in the possession of Mr. Dare formed part of the assets of a farming partnership between Mrs. Richards and the late Mr. Dare. As such, he found that Dennis Dare should account for them to each of the estate of the late Mr. Dare and to Mrs. Richards. I was informed by Mr. Jewell, counsel for the plaintiffs at this trial, that the administrator of Mr. Dare’s estate, who was appointed after his Honour removed Mr. Dennis Dare as executor on 15 December 1993, instituted proceedings for the recovery of the cattle. These proceedings were compromised for a monetary sum which also remains unpaid.
It is against this background that Mr. Dare and his de facto partner, Ms. Robyn Frost, deposed in papers filed with the Family Court of Australia that on 23 December 1993 their relationship had irretrievably broken down. Ms. Frost sought (a) orders dissolving the partnership pursuant to which the two had formerly carried on business as dairy farmers; (b) custody of the children of the relationship; and (c) other relief. These claims never came to trial. On 1 August 1994 Justice Frederico granted custody of the children to Ms. Frost, dissolved the partnership and made orders for the division of property based on material submitted on behalf of Ms. Frost. Counsel for Mr. Dare, Mr. Ian Abraham, indicated that while his client did not consent to the orders, he conceded that they were appropriate. Pursuant to these orders Ms. Frost received some four fifths of the estate while Mr. Dare received a sum of $160,000, of which an uncertain amount, perhaps about $30,000 was (according to minutes of proposed orders in the Family Court proceedings) to be applied "to discharge all moneys owing to the National Australia Bank in respect of the partnership overdraft and the housing equity loan secured by second mortgage over 'Nalangil' [the dairy farm operated by the partnership] and indemnify [Ms. Frost] and keep her indemnified in respect to same."
The plaintiffs in this proceeding are Deborah Susan Richards (as executrix of the Will of Mrs. Richards who died on 2 June 2001), and Garnet Stewart Fielding (as administrator of the estate of Ronald Stuart Dare). They allege that the orders made in the Family Court were obtained by fraud. The purpose and effect of these orders, the plaintiffs assert, was to deprive Mrs. Richards and the estate of the late Mr. Dare of the moneys owed or likely to become owing to them by Mr. Dare. The plaintiffs allege that Justice Frederico was not informed of the interests of Mrs. Richards and the estate. Nor was his Honour informed (a) that notice had not been given to them of the Family Court proceedings, or (b) of the indebtedness of Mr. Dare to Mrs. Richards and the estate. It is further alleged that his Honour was not told of the true financial position of either Ms. Frost or Mr. Dare; nor was the Judge informed that the proceedings were a sham. The failure to bring these matters to the attention of Justice Frederico was (it is alleged) fraudulent and misleading. A declaration is sought that the alienation of three pieces of real property pursuant to the Family Court order was obtained to defraud creditors within the meaning of s.172(1) of the Property Law Act 1958. As such the alienations are voidable. The plaintiffs seek an order that Mr. Dare and Ms. Frost, who are the first and second defendants in this proceeding, apply to the Family Court to set aside the orders there made and to execute registrable instruments to effect the transfer of the three properties back to their joint names as either tenants in common or as joint tenants.
Section 172(1) of the Property Law Act 1958 provides:
"(1)Save as provided in this section, every alienation of property made, whether before or after the commencement of this Act, with intent to defraud creditors, shall be voidable, at the instance of any person thereby prejudiced."
Sub-section (3) provides:
"(3)This section shall not extend to any estate or interest in property alienated for valuable consideration and in good faith or upon good consideration and in good faith to any person not having, at the time of the alienation, notice of the intent to defraud creditors."
Mr. McInnes on behalf of Ms. Frost submitted that the plaintiffs have not established that they are persons prejudiced. Accordingly, s.172(1) cannot apply: no evidence has been adduced to show either that Mr. Dare cannot pay the debts due or that attempts to obtain execution against him have been fruitless. In response Mr. Jewell pointed to the tax returns of Mr. Dare which show he is without assets and receiving only a small income. He further points to letters of demand sent to Mr. Dare’s solicitor, letters which received no positive response. I am prepared for the purposes of this judgment to assume the fact both of Mr. Dare's indebtedness to the plaintiffs, and his inability to repay at least part of the amount owed.
Mr. Jewell relied on the decision of Pennycuick, J. in Lloyds Bank Ltd v Marcan[1] as authority for the proposition that s.172(1) is only concerned with the intention of the transferor. The plaintiffs therefore need only establish either an actual or imputed intention on the part of Mr. Dare to "defraud creditors"; and that expression in that sub-section covers not only fraud in its "ordinary modern sense" but also an intention thereby "[to deprive] creditors of timely recourse to property which would otherwise be applicable for their benefit": Marcan's case at 344. Mr. Jewell also submitted that the fact that at the time of alienation there was no actual relationship of debtor and creditor is not a bar to the plaintiffs' success.
[1][1973] 1 WLR 339
The facts in Marcan's case are of relevance. David Marcan, on 15 April 1964, guaranteed the indebtedness of his company to Lloyds Bank Ltd. Two years later, on 17 May 1966, he executed a charge in favour of the bank. By both guarantee and charge the bank obtained, as security for its debt, the property upon which Mr. Marcan carried on a horticultural business.
By September 1967, the amount owing to the bank was considerable, and its call for payment under the guarantee had not been met. It accordingly issued a summons for possession. This was due to be heard in January 1968; but the bank's affidavits were defective, and the summons was stood over until 15 March that year. On 23 February, the bank sent a letter to Mr. Marcan's wife informing her of the hearing and its adjournment, and giving her notice that, had she any claim of right adverse to the bank, she might attend the hearing and apply to be added as a defendant.
These events triggered a defensive response by husband and wife. On 11 March, they entered into a lease between Mr. Marcan as the landlord and Mrs. Marcan as the tenant. The premises in question were those over which the bank had security. The lease was for a term of 20 years, with the rent being determined by an independent person. Thus, the property was let at a rent which was (as the Court found) honestly fixed; and Mr. Marcan was unaware (again, as the Court found) that the land would be worth more with vacant possession than when subject to the lease. Moreover, the debtor took legal advice before granting the lease, and acted at least in part for the sake of his wife and family. According to Cairns, L.J. when the case went on appeal[2], all these facts tended to support the view that Mr. Marcan acted honestly. On the other hand, he granted the lease at a time when he knew that the bank was seeking possession. He must also have known that it would have been more convenient to the bank to have vacant possession than merely to have possession of the rents and profits. Thirdly, although his wife was the lessee, it was obviously for his own benefit that she rather than the bank be in possession.
[2][1973] 1 WLR 1387 at 1392 (C.A.)
On the basis of these facts, the trial judge (Pennycuick, V.C.) said (at 344):
"Turning first to s.172(1) … [and] the expression 'with intent to defraud creditors' I think it is fairly clear that the word 'defraud' in this sub-section is designed to reproduce the expression 'hinder, delay or defraud' in the Statute of Elizabeth [13 Eliz. I, c.5], and is not intended to be confined to cases of fraud in the ordinary modern sense of that word, i.e. as involving actual deceit or dishonesty. It is quite inconceivable that if parliament had intended to circumscribe the effect of the old provision it would not have done so in clear terms. The word 'defraud' in the context of s.172, and having regard to the history of its statutory predecessor, must, I think, carry the meaning of depriving creditors of timely recourse to property which would otherwise be applicable for their benefit. This result can plainly be achieved by transactions in many forms."
The defendant appealed. He was again unsuccessful. Russell, L.J. said (at 1391):
"The intention of Mr. Marcan is perfectly plain: the lease to his wife was designed expressly to deprive the bank of the ability to obtain the vacant possession to which the bank plainly attributed value, and to diminish to that extent the strength of the bank's position as creditor. To take that action at that juncture, in my judgment, was, in the context of relationship of debtor and creditor, less than honest: it was sharp practice, and not the less so because he was advised that he had power to grant the lease. It was, in my judgment, a transaction made with intent to defraud the bank within s.172."
Cairns, L.J. went further. He said (at 1392):
"In my opinion, fraud involves dishonesty and I cannot go with Pennycuick, V.C. in his observation … that the word 'defraud' in s.172 'is not intended to be confined to cases of fraud in the ordinary modern sense of that word, i.e. as involving actual deceit or dishonesty.' It is clear enough that deceit is not a necessary element, but in my view dishonest intention is, at any rate when the conveyance is for consideration."
This passage has received little if any support in Australian courts. Thus, in PT Garuda Indonesia Ltd. v. Grellman[3] Wilcox, Gummow and von Doussa, JJ. said (at 524-525):
"It … is a matter only for observation that in the United Kingdom there has been a difference of opinion [from that in Australia] in the interpretation of s.172 of the Law of Property Act 1925 (U.K.) In Lloyds Bank Ltd. v. Marcan … Pennycuick, V.C. treated s.172 in a manner consistent with the authorities we have discussed. On the other hand, in the Court of Appeal, Cairns, L.J., without full reference to those authorities, said that 'at any rate when the conveyance is for consideration' intention involving 'actual deceit or dishonesty' is a necessary element … That interpretation has been criticised; see Langstaff, 'The Cheat's Charter?' (1975) 91 L.Q.R. 86 at 92-96."
[3](1992) 35 FCR 515
I need not in this case seek to resolve these differences. I am content to apply the law as propounded by Mr. Jewell, which in any event reflects the generally accepted position in this country. Moreover, as Marcan's case makes uncontroversially plain, s.172 (which is in substantially the same form in the English Law of Property Act 1925 as it is in the Property Law Act 1958) has the effect that the burden of proof under s.172(1) lies on the person seeking to avoid the alienation, whereas under s.172(3) it lies on the transferee. And while the word "defraud" encompasses a wider field than that of outright mendacity, there must be in the transferor at least the intention of causing prejudice to the affected creditors. It is on this basis that I will proceed to consider the evidence.
Mr. Dare did not appear at the hearing. Nor did his legal representative take any active part in the trial. Ms. Frost, however, was separately represented and did give evidence. This was to the effect that, far from colluding with Mr. Dare to defraud Mrs. Richards, she herself was fighting for own financial survival and that of her three (soon to be four) children – of all of whom Dennis Dare was the father.
Robyn Frost first met Dennis Dare in 1985. She was then almost 30 years old. She was an independent woman who owned some property in her own right. She was in partnership with her brother in a protea and wild flower growing business and also part owned a plant nursery in Colac, where she worked full time.
By late December 1993, some eight years into the relationship, her situation had deteriorated. She had sold her property and business interests and invested all her savings in 'Nalangil', the dairy farm operated in partnership with Mr. Dare. She ceased working at the nursery in 1991. From June 1986 she had been living at the farm, which provided her only source of income. Her position was summed up in the evidence given in this trial by her solicitor in the Family Court proceedings, Mrs. Janet Reid:
"Well, she had numerous problems. Not only were the problems in relation to the separation with the de facto husband and him not leaving, not being willing to leave, the de facto husband had been involved in [the] litigation [described in paragraph [1] above], and that had been going on for some time. This was causing her real problems emotionally. She was very worried about money and how she was going to support the four children that she was going to have, who were all very little. I don’t remember their exact ages – they were two and four, and six or seven, something like that, and she was about to have another one. She had a lot of problems, yes."
One of the issues raised at the outset of the trial before me was whether the "breakdown" in the relationship of Mr. Dare and Ms. Frost was genuine and irretrievable. Mr. Jewell opened the plaintiffs’ case on the basis that there would be evidence that the defendants were cohabiting and that it could be inferred that the alleged breakdown was no more than a sham. In this context, evidence was called from three milk supply officers employed by Bonlac who each visited 'Nalangil' at irregular intervals but about twice yearly. These visits began in about 1980, and continued until the trial (although not all three employees were involved throughout this period). They spoke of a relationship which appeared to them to be amicable. In my opinion, the observations made by these witnesses do not advance the plaintiffs’ contentions.
Instead I prefer the evidence given by Ms. Frost about the state of her relationship with Mr. Dare from the end of December 1993 onwards. I accept that, in large part due to the burden of the litigation between Mr. Dare and Mrs. Richards, her relationship with Mr. Dare was already strained by late 1993. During examination in chief she gave the following evidence:
"Well, the whole year had been fairly stressful, and Dennis was drinking heavily, he was seeing people that I didn’t really like, and on that particular night [23 December 1993] I had all the presents ready to wrap once the children had been got to bed, and he promised me he would be home, and he didn’t even turn up to milk, and I’d had to milk on my own and, yes, when he walked in the door I went crazy. And then he proceeded to ring his ex-wife and wish her a merry Christmas. So that is the actual circumstance of it … We continued to live in the same house, and I was hoping that we could continue our farming arrangement and for the benefit of the children have some semblance of a civil relationship …"
Ms. Frost gave evidence that while they continued to live under the same roof they occupied separate bedrooms and Mr. Dare spent much time away from home. I am satisfied that there has been a genuine breakdown in the relationship.
Ms. Diana Bryant QC (now Chief Federal Magistrate), who acted as counsel for Ms. Frost during the Family Court proceedings, gave evidence before me. She said that she received instructions, which she never doubted, that (due in part to the protracted litigation instituted by Mr. Dare and which consumed assets owned jointly by him and Ms. Frost) the relationship had completely broken down. I accept this evidence. I further accept the evidence of Mrs. Reid that she had no reason to doubt Ms. Frost’s honesty in relation to similar instructions. I find that, if Ms. Frost was not telling the truth about the breakdown of her relationship with Mr. Dare, then neither Ms. Bryant nor Mrs. Reid were aware that they were being misled. I must of course make up my own mind about Ms. Frost's veracity.
Mr. Jewell on behalf of the plaintiffs submitted that even if I find, as I do, that Ms. Frost was a witness of truth, the plaintiffs may nonetheless succeed for three reasons. First, s.172(1) of the Property Law Act 1958 only requires the plaintiffs to establish that Mr. Dare had the requisite fraudulent intent. Second, in order to exculpate herself from the operation of s.172(1) Ms. Frost must show that she is a person without either actual or constructive notice of Mr. Dare’s fraudulent intent. Finally, under the accessory liability principle, the honesty of Ms. Frost’s conduct in the Family Court proceedings must be assessed objectively rather than subjectively; and any such assessment would, the plaintiffs submit, demonstrate that Ms. Frost is liable.
Mr. Jewell properly conceded that his clients can only seek relief from that portion of the joint property that can rightly be said to belong to Mr. Dennis Dare. Even if I find that the requirements of s.172(1) of the Property Law Act 1958 have been satisfied and order the transfer of the property back into joint names, Ms. Frost’s true entitlement cannot be the subject of any order sought by the plaintiffs.
Because Mr. Dare was not called, there is before me no direct evidence of his intention. This has implications for the discharge of the plaintiffs' burden of proof under s.172(1). The plaintiffs invited me to draw an inference from a variety of circumstances which, they say, taken together, demonstrate that Mr. Dare acted dishonestly. The following evidence was relied upon: he was aware of the proposed orders of Teague, J. as set out in his Honour’s judgment; he showed a consciousness of a liability to pay a substantial debt because he approached the NAB on 19 November 1993 to borrow up to $300,000; and he engaged two firms of solicitors: one to negotiate, with the plaintiffs, a settlement of the question of costs, and the other to negotiate with Ms. Frost in a manner which, so the plaintiffs would have me accept, showed a plan for a fallback position in the event the negotiations on costs failed. It is then said that during negotiations to settle the question of costs Mr. Dare authorised his solicitors, Sewells, to send to the plaintiffs’ solicitors a letter dated 23 May 1994 (Exhibit 6) in which the following sentence appeared: "The debt that Dennis Dare will have to service is approximately $520,000.00 and any equity in his properties after debt belongs to his defacto". The plaintiffs argue that this statement demonstrates that Mr. Dare believed that he had an entitlement of $520,000 from the joint assets held with Ms. Frost. It is significant, so they say, that he subsequently did not pursue that entitlement and that he "caved in" at an early point in his negotiations with Ms. Frost. In so doing, he limited the investigation by the Family Court of the parties’ positions. They also rely on the fact that Mr. Dare did not submit to the Family Court his own statement of financial position or challenge that prepared for Ms. Frost by Mr. Brian Hawkes, an accountant. Finally, they point to the fact that notwithstanding the orders made, Mr. Dare remains on the 'Nalangil' farm pursuant to a share farming arrangement with Ms. Frost and as such has not suffered any detriment. This is consistent with an "alienation engineering a contrived result" (T 440).
Mr. McInnes on behalf of Ms. Frost submitted that the evidence about Mr. Dare’s alleged belief that his equity in the joint properties amounted to $520,000 should be seen for what it was: no more than a bargaining tool unsupported by any independent evidence. To find that Mr. Dare deliberately "caved in" to Ms. Frost’s demands in order to defeat his creditors requires me, he submitted, to engage in speculation. Rather, the evidence is equally consistent with someone who, "having just been through complex, emotional proceedings in the Supreme Court the previous year, and finding that the personal relationship between he and Ms. Frost was changing, concerned about his children and his future, [had accepted] when the material was put before him in Mr Hawkes’ report", and after receiving independent legal advice, that "there was no more to be gained from fighting on" (T 481). This could not amount to fraud. By contrast, Mr. Jewell asked me to reject the suggestion that Mr. Dare was tired of litigation, pointing to the fact that he pursued a complicated and detailed appeal from the decision of Justice Teague.
In my opinion, the reference to the sum of $520,000 is equivocal. I have not found it to be of assistance in coming to my conclusions.
It was submitted on behalf of the plaintiffs that the most compelling indicator of fraud is that, assessed objectively, the orders made by Justice Frederico were well outside the range to be expected for a just and equitable division of property. It therefore becomes necessary for me to consider whether there was a proper basis for the orders made. Mr Jewell relied on the decision of the NSW Court of Appeal in Evans v Marmont[4]. That case was concerned with determining the scope of the discretion of the Court under the equivalent of s.285 of the Property Law Act 1958 (Vic.) where an order for adjustment of interests of de facto partners in property is sought. Section 285, which is almost identical to the legislation considered in Evans v Marmont, provides:
[4](1997) 21 Fam LR 760
"S.285(1)A court may make an order adjusting the interests of the de facto partners in the property of one or both of them that seems just and equitable to it having regard to –
(a) the financial and non-financial contributions made directly or indirectly by or on behalf of the de facto partners to the acquisition, conservation or improvement of any of the property or to the financial resources of one or both of the partners; and
(b) the contributions, including any contributions made in the capacity of homemaker or parent, made by either of the de facto partners to the welfare of the other de facto partner or to the welfare of the family constituted by the partners and one or more of the following –
(i) a child of the partners;
(ii) a child accepted by one or both of the partners into their household, whether or not the child of either of the partners; and
(c) any written agreement entered into by the de facto partners.
(2) A court may make the order whether or not it has declared the title or rights of a de facto partner in respect of the property."
The NSW Court of Appeal held that there was nothing in the equivalent NSW section that required or entitled the court to take into account as a factor alongside those set out in paragraphs (a) and (b) matters such as those permitted under s.75(2)(o) of the Family Law Act, namely "any fact or circumstance which, in the opinion of the court, the justice of the case requires to be taken into account". In the joint judgment of Gleeson, C.J. and McLelland, C.J. in Equity their Honours said (at 768):
"… paras (a) and (b) prescribe the focal points by reference to which the discretionary judgment as to what seems just and equitable must be made. They are not merely two matters, or groups of matters, which take their place amongst any other relevant considerations. It is by having regard to those matters that the court may adjust property interests in a just and equitable manner.
The concept of remedying an injustice the applicant would otherwise suffer because of his or her reasonable reliance on a relationship or his or her reasonable expectations from the relationship seems to us, with respect, to involve a major shift in focus dictated by s.20, as does the notion of importing, by analogy, the principles according to which equity awards compensation for breach of equitable duties. This appears to us to broaden the scope of the enquiry well beyond that contemplated by the legislature …"
The plaintiffs therefore argue that a determination under s.285 does not involve a wholesale rearrangement of property interests but rather a consideration of the respective contributions of each party in accordance with paragraphs (a) and (b). They say that a careful examination of the arrangements between Ms. Frost and Mr. Dare will show that the contributions of Mr. Dare have been so diminished that the only inference open is that a fraud was perpetrated.
As evidence of the alleged fraud, the plaintiffs pointed to the financial report prepared by Mr. Hawkes in 1994 and submitted to the Family Court. Mr. Jewell contended that this report is flawed. It does not, he argued, reveal the true financial positions of Ms. Frost and Mr. Dare. Evidence was called by the plaintiffs from Mr. Kevin Ferguson, a forensic accountant with 23 years' experience in relation to the preparation of reports on just and equitable apportionment between de facto partners for the Family Court. He gave evidence of his review of the material put to Justice Frederico. He took issue with the report prepared by Mr. Hawkes on the following grounds: Mr. Hawkes was not qualified to value such items as cattle or real estate; the report failed to take account of the rental value of 'Nalangil' to the partnership which Mr. Ferguson characterised as a "substantial non-cash contribution"; the allocation of drawings was "unusual" and without explanation; and the net value given to the 'Nalangil' property at the commencement of the partnership should have equated to the purchase of the half share interest in 1988 at $152,000. Mr. Ferguson did not appear to take any issue with Mr. Hawkes' methodology.
No attempt was made at trial to impugn Mr. Hawke’s professional skill or suggest that he colluded in any fraud. Rather it seems to be said that the defendants tailored the information provided to him to such an extent that the resulting report was inaccurate and misleading.
Nonetheless the plaintiffs also called the Hon. John Fogarty AM, a former Judge of the Family Court, to give his opinion of the report prepared by Mr. Hawkes. He concluded that the report adopted a methodology that was "unheard of" and "aberrant". An example was the practice of valuing contributions by each partner as at the date of contribution rather than as at the date of the report. He also indicated that he would have expected the range of potential liability for costs to be outlined to the trial Judge and, assuming the costs were likely to be substantial, for notice to be given to any creditor before any order was finally made. Mr. Fogarty gave evidence that by 1994 there was a well established practice of giving such notice, although there were limits on the extent to which such outside interests could be considered. He expressed the opinion that an 80:20 division of property in Ms. Frost's favour was unusually generous to her given that there had been a 50:50 partnership. The combination of these factors, together with the fact that the orders were unopposed and the likelihood the Judge would not have read the papers beforehand, would have "rung a bell" with the witness.
Mr. Hawkes was called to give evidence on behalf of Ms. Frost. Although he has been practising as an accountant since 1978 and did his first forensic accounting report in 1984, Mr. Hawkes specialised in forensic accounting and litigation support from 1991. He was engaged directly by Ms. Frost rather than through a solicitor. Some comment was sought to be made by the plaintiffs about this fact. While I accept that the ordinary course would be to brief someone such as Mr. Hawkes through a solicitor, the evidence was that direct contact with the client did happen from time to time and therefore it is not unusual. Mrs. Reid gave evidence that she discussed obtaining such a report from Mr. Hawkes with her client and it was decided that, as Ms. Frost had all the information, it would be best if Ms. Frost contacted Mr. Hawkes directly. It is clear that Mr. Dare had no direct involvement with Mr. Hawkes, who was retained by Ms. Frost, rendered his account to her and was paid by her. He never met Mr. Dare nor had any discussion with him regarding the report.
Despite the misgivings expressed by both Mr. Fogarty and Mr. Ferguson, I found Mr. Hawkes to be a credible witness who presented a tenable explanation of his methodology. At the very least, I am not satisfied that his approach was so extraordinary that no Judge could accept it as a reasonable basis for the division of property. More importantly, I am satisfied that it evidenced a bona fide attempt to allocate the joint and other property equitably between the former partners. It follows that I am also satisfied that the defendants were not seeking to mislead the Family Court. Mr. Hawkes explained his methodology as follows:
"The object here was to divide the assets between those assets in the state in which they were contributed and the part that was added or subtracted from their value during the period of the relationship. So any item that was brought into the relationship by way of cash or asset is taken at the amount it is brought in. Similarly, any cash or asset that is taken out of the relationship is taken at the amount that it was taken out at.
… This way I separated the pool of assets into two portions: the first portion was the absolute value of net contributions; the values that were brought in, less the drawings that were taken out. And the second part was the growth in the assets during the period of the relationship."
He later added:
"The remaining slice after contributions is the amount of growth which is caused by (a) reinvesting the profits of the partnership back into it and (b) the natural improvement by the work of the parties plus also any natural increase in value of the land … any increase in value whether it’s by inflation, or by improvement, or by reinvestment was divisible between [Mr. Dare and Ms. Frost] on an equal basis. Then I added the factor of the children."
Mr. Hawkes gave evidence that he first ascertained the net asset position of the Dare/Frost partnership as at May 1994, some five months after the end of their domestic relationship. He commenced by considering the assets and liabilities set out in the financial statements of the partnership provided to him by Ms. Frost at the only meeting he had with her. This was held at the farm on (it seems from Ms Frost’s evidence) 16 June 1994 (see the first column headed "Accounts" in Table 4 to the report exhibited to Mr. Hawkes' affidavit, affirmed on 29 July 1994, in the Family Court proceedings).
Mr. Jewell submitted that Mr. Hawkes understated the value of 'Nalangil'. This was the principal item of property of the partnership, a half share of which Mr. Dare contributed when he and Ms. Frost commenced their relationship (the other half share being owned by his father). No expert evidence of its value was led by the plaintiffs; instead they relied on inferences drawn from evidence about the value of the property two years later. A value of $100,000 as at 1986 and before liabilities was ascribed to Mr. Dare’s share by Mr. Hawkes based on a figure given by Ms. Frost (T 242). However, Mr. Jewell points to the contract of sale dated 24 May 1988 (Exhibit 9 Court Book 721-726) which shows the remaining half share interest in 'Nalangil' was sold to Mr. Dare by his father for $135,0000. Further, he relies on correspondence between Mr. Dare’s solicitors and the Rural Finance Commission in relation to a $70,000 loan which indicates that the total purchase price for the half share was $180,000 (Exhibit 11 CB 728). A letter from the Rural Finance Commission dated 20 April 1988 states that the purpose of the loan is: "To assist purchase remaining half interest in 98 hectares from father for $180,000 plus costs. Total outlay $190,000. Father to gift $30,000 and leave in a further $65,000 at 12% interest only. Balance of requirements to be by way of assuming responsibility for existing debt of $30,107 to the Commission." This, Mr. Jewell says, demonstrates that the 'Nalangil' contribution two years earlier must have been worth more than $100,000.
I cannot agree. First, the contract of sale is a more reliable source of evidence about the purchase price than is correspondence from the Rural Finance Commission. Secondly, it seems to me that the value of 'Nalangil' in May 1988 is not a reliable guide to its value two years earlier because many improvements had been made by both Ms. Frost and Mr. Dare to the property over these two years. Ms. Frost gave evidence, which I accept, about the contributions made by her to the partnership and to improving the farm.
This evidence was to the effect that when Ms. Frost first started living at 'Nalangil' in June 1986 the house was only partially renovated and otherwise derelict, with exposed footings, a gutted front section and an open ceiling. There was virtually no garden. Although the farm was divided into paddocks and had some equipment and a dairy, they were in a poor condition. There was one water bore and only half the framework for a hay shed. Ms. Frost and Mr. Dare took out a home loan with the National Australia Bank to finance initial work on the foundations, framing and roofing of the dwelling. That loan was serviced from the partnership account. Much of the labouring work was performed by Ms. Frost and Mr. Dare. Over 40,000 second hand bricks together with stone from the lake were laid by Ms. Frost’s brother, who is stonemason and bricklayer, and by Mr. Dare. Ms. Frost drew on her income from the nursery to pay for these materials, bathroom fixtures and fittings, carpet, and doors and windows as they were needed. Ms. Frost also planted a garden. Improvements were made to the dairy over about three years to convert it from a seven a side swing over to a 22 a side swing over, thereby tripling the production rate. This required rebuilding the yards, rebuilding the dairy to widen and extend it, and the installation of new machinery, compressors and pumps. The hay shed was extended and completed. Approximately 5,000 trees, supplied by Ms. Frost’s nursery, were planted. Another water bore was sunk and the dam extended to increase irrigation capacity. A 10,000 gallon concrete tank was installed to provide a more reliable watering system for the cattle.
Although these improvements had not been completed by May 1988, I am satisfied that 'Nalangil' had been significantly improved in the two years following the commencement of the partnership in 1986. For these reasons I cannot accept the plaintiffs’ submission that Mr. Hawkes was misled when he used the figure of $100,000 for Mr Dare’s initial contribution in Table 4. Certainly, I cannot conclude that a fraud was advanced, let alone perpetrated, by such use.
Next Mr. Hawkes adjusted the figures in Table 4 to take into account values or amounts (such as cash) either as verified from records or as instructed by Ms. Frost (see the second and third columns of Table 4 headed "Adjustments" and "Valuations"). Independent valuations were not obtained; this is a matter that Mr. Hawkes leaves to his client. Should such a valuation be provided he would adjust the values accordingly, if necessary. Ms. Frost gave evidence that prior to Mr. Hawke’s visit she discussed the value of various items with Mr. Dare who "co-operated in coming to an agreement on what values would be given to [Mr. Hawkes] because it was only going to be an aid to us to finalise the situation." In relation to the 'Nalangil' property, Mr. Dare estimated a then current value of $1,800 per acre totalling about $445,000. This correlated with the figure contained in a sworn valuation used in the proceedings before Justice Teague.
Two other properties, each of which had been purchased by the partnership, were also assessed by agreement by the former partners. I accept that this exercise was, and was intended to be, realistic and that Mr. Hawkes was justified in incorporating the result in his calculations. One of the properties the value of which was arrived in this way is known as 'Staffords'. It was estimated as being worth $220,000. The other (known as "the Burkes Road land") was agreed to be worth $80,000. In the case of 'Staffords' the estimate was supported by an offer to purchase made by a neighbouring landowner who was leasing it at the time. The assessment of the value of the Burkes Road land was based upon the partners' knowledge of comparable sales.
These assessments resulted in different values per acre being attributed to each property. This, however, is hardly surprising if the quality of the land differs as between them. I accept Ms. Frost's evidence that it does. I also accept that, in each case, the valuations represented an honest assessment of the true worth of the property in question and that, again, Mr. Hawkes was justified in using them in arriving at his conclusions. It is true that in no case was a valuer called to verify the figures put before me. That, in my opinion, is a matter of no consequence. I am concerned not to establish precise values, because these are not relevant to my task: which is to decide whether or nor the property adjustments effected between Mr. Dare and Ms. Frost amounted to a fraud (in the terms of s.172 of the Property Law Act) on Mr. Dare's creditors. I must therefore be satisfied that the values put before me formed the basis for those adjustments, that they were realistic, and that the result reflected an honest and reasonable assessment of the rights inter se of each former partner. I include in this the value put on the cattle forming part of the assets of the partnership. I am satisfied that an average price of $500 per head is, for present purposes, sufficiently accurate; if anything (and I accept Ms. Frost's evidence on this point) it errs on the side of the "generous".
Mr. Hawkes then brought the figures into their current standing either by verification from records or on instruction (see the fifth column of Table 4 headed "1993-94"). The result of this exercise was that Mr. Hawkes calculated a net asset position of $644,250 as at May 1994.
Next Mr. Hawkes sought to ascertain the net contributions of each partner to the partnership since its inception in 1986 (see Table 7) again on the basis of the partnership financial accounts prepared from year to year by an accountant. He found that Mr. Dare brought to the partnership contributions totalling $129,383 and made drawings of $98,443 leaving a net contribution of $30,940. He found that Ms. Frost contributed a total of $177,980 and made drawings of $16,700 leaving a net contribution of $161,280. The net contributions to the partnership were therefore $192,220. In Table 5 he calculated the respective contributions of the two partners in percentage terms and found that Mr. Dare contributed 12.87% while Ms. Frost contributed 87.13%. The large difference between the percentage figures is, I find, due to the difference both in contributions and in drawings: Mr. Dare put in less and drew out more than his partner. I note that the figures for net contributions used to make these calculations are different to those that appear in Table 7. This discrepancy is not explained.
Table 2 of the report then sets out the net asset changes of the partnership having regard to contributions and drawings. It shows that Ms. Frost’s share of the profit, being contributions less drawings, was $204,039, while Mr. Dare’s share amounted to $23,361. It is not clear how these figures marry with those in Table 7.
Evidence was given by Ms. Frost about the discrepancies in drawings. Her evidence was that Mr. Dare paid his tax out of the partnership funds, while she paid her tax from her income from the nursery. In seeking to persuade me Mr. Dare used his drawings to pay for the whole of the tax liabilities of the partnership, Mr. Jewell relied upon paragraphs 9 and 10 of the affidavit of Ms. Frost sworn 1 August 1994 (CB 258-264) filed in the Family Court proceedings. Those paragraphs state:
"9.From the commencement of our partnership we both worked and pooled the money earned from the partnership for all of our joint endeavours and our pooled income was used to acquire, conserve and improve our assets and Nalangil.
10.For the purpose of constructing the house on Nalangil the respondent and I borrowed money in the form of Home Equity Loan from the National Australia Bank and again used our partnership earnings to meet the repayments."
I do not accept that these paragraphs assist the plaintiffs. They do not suggest, let alone prove, that the figures for drawings used in the partnership accounts and relied upon by Mr. Hawkes were inaccurate. Moreover, if those accounts show drawings going to one partner then the necessary inference is that they were received by that partner for his or her personal use, not for partnership purposes. Ultimately, however, the question is whether I can find that Mr. Hawkes was used to perpetrate a fraud. I do not so find. On the contrary, I am satisfied that Ms. Frost was entirely honest in her dealings with him and in her use of his report.
In 1991 Ms. Frost sold her interest in the nursery for $110,000. Some $28,000 was put into the house at 'Nalangil'. She invested $82,000 towards the purchase by the partnership of the property known as 'Staffords'. This land was purchased at auction for $180,000. The balance of the purchase price was financed by a loan through the Rural Finance Corporation. This loan was serviced through the partnership bank account. In 1991 Ms Frost also sold her interest in the land owned with her brother for $29,600. The proceeds of that sale were likewise deposited into that bank account.
Ms. Frost also gave evidence that she was the primary carer for the children while also performing her share of the milking responsibilities. She managed this by taking the children with her to the dairy. As an additional contribution to the welfare of the partnership, she paid the household expenses and paid for veterinary fees for the calves.
By April 1994, after the relationship between Ms. Frost and Mr. Dare had broken down, Ms. Frost was concerned about her position. She gave evidence that she had no funds of her own apart from her share of the partnership assets: all her assets had been pooled with those of Mr. Dare.
I am not satisfied that Ms. Frost obtained an undue benefit as a result of the Family Court order. No evidence was adduced at trial about the likely division of property had Ms. Frost brought to the attention of Frederico, J. the matters the plaintiffs assert she should have raised. In these circumstances, the most that Mr. Jewell could argue was that Ms. Frost should have given notice to the plaintiffs to ensure that the settlement was not "rubber stamped". However, I am satisfied that the orders made by the Family Court would not have been materially different had such notice been given. The most that can be said by the experts called on behalf of the plaintiffs is that the division of property was prima facie "unusual". While this may be true, each case must be determined according to its own facts. Neither Mr. Fogarty nor Mr. Ferguson had the benefit of the detailed evidence given by both Ms. Frost and Mr. Hawkins, which I accept, and which, in my opinion, demonstrates that the Orders made were not untenable.
In this enquiry I am not concerned finally to settle the position; I have not been asked to make any order under s.285 of the Property Law Act. My concern is to establish whether creditors have been defrauded. Having considered all these matters, it seems to me that the plaintiffs have not been able to establish that Mr. Dare perpetrated such a fraud.
The next issue is whether Ms. Frost is liable under what Mr. Jewell referred to as the "accessory liability" principle. He sought to rely on the advice of the Privy Council in Royal Brunei Airlines v Philip Tan Kok Ming[5]. That case was concerned with a claim by an airline to account for moneys held by a travel agent company. That company had been appointed under a written agreement to account to the airline for all amounts received from sales of tickets. It was alleged that rather than deduct commission and hold the moneys intact until it had paid the airline, the company used the moneys in the conduct of its business. As such there was a breach of trust. The company became insolvent. The airline sought to recover from the principal director and shareholder of the company on the basis that he knowingly assisted the breach of trust under the second limb of the principle enunciated in Barnes v Addy[6]. In particular, Mr. Jewell sought to rely on the discussion in relation to dishonesty of the accessory to the breach. After noting that the liability of the trustee himself will be strict and dictated by the terms of the trust, Lord Nicholls observed that whether an accessory was dishonest will be determined using an objective standard. His Lordship said at 390:
"Acting in reckless disregard of others’ rights or possible rights can be a tell-tale sign of dishonesty. An honest person would have regard to the circumstances known to him, including the nature and importance of the proposed transaction, the nature and importance of his role, the ordinary course of business, the degree of doubt, the practicability of the trustee or the third party proceeding otherwise and the seriousness of the adverse consequences to the beneficiaries. The circumstances will dictate which one or more of the possible courses should be taken by an honest person. He might, for instance, flatly decline to become involved. He might ask further questions. He might seek advice, or insist on further advice being obtained. He might advise the trustee of the risks but then proceed with his role in the transaction. He might do many things. Ultimately, in most cases, an honest person should have little difficulty in knowing whether a proposed transaction, or his participation in it, would offend the normally accepted standards of honest conduct."
[5][1995] AC 378
[6](1874) LR 9 Ch App 244 at 251-252
Mr. Jewell argued that there was no reason in principle why the same approach is not applicable in this case. I disagree. The plaintiffs have not established that any fiduciary relationship existed between Mr. Dare and the plaintiffs or that he had perpetuated any fraud. Nor have they established a breach of any such duty or any dishonest intention on the part of Mr. Dare. Moreover, Ms. Frost had a legitimate interest in ensuring that she recovered from Mr. Dare whatever was rightfully hers. I also observe that Ms. Frost did obtain advice about her position in circumstances where the possibility of some inchoate liability of Mr. Dare was known to her legal advisers. In such circumstances it is not open for the plaintiffs to successfully argue that Ms. Frost was an accessory to a breach of fiduciary duty or that she knowingly assisted in defrauding Mr. Dare's creditors.
Success for the plaintiffs in this litigation depends upon their proving that Mr. Dare effected an alienation of his property with intent to defraud them. In my opinion, they have failed to prove fraud, even if one accepts the definition of that expression adopted by Pennycuick, V.C. in Marcan's case. They have also failed to prove that any of the property which passed to Ms. Frost, and which the plaintiffs claim was thus alienated in a way which attracted the provision, was in any event his property rather than hers. What is more, Ms. Frost has proved to my satisfaction that, if Mr. Dare did intend to defraud the plaintiffs, she had no notice of that intention. Her evidence on this point is encapsulated in the following passage from her cross-examination, which I accept as the truth (T.399-400):
"Q.And would it be fair to say that you knew that he [Mr. Dare] would rather give the money to yourself and the children than let any other potential creditor get the benefit of it?
A. No, I didn't know that.
Q.But if you didn't know it, you certainly didn't consider whether that was a likely result of what was going to happen in the Family Court?
A. What was?
Q.That other people who might be owed money by Dennis Dare were not going to get paid?
A. No, I didn't think that would be the result at all."
Despite Mr. Jewell's care in taking every point which could reasonably be taken on behalf of his clients, the plaintiffs' claim must, for these reasons, fail.