SCHMALHORST and SCHMALHORST
[2018] FCWA 76
•27 APRIL 2018
JURISDICTION : FAMILY COURT OF WESTERN AUSTRALIA
ACT: FAMILY LAW ACT 1975
LOCATION: PERTH
CITATION: SCHMALHORST and SCHMALHORST [2018] FCWA 76
CORAM: DUNCANSON J
HEARD: 25 JANUARY 2018
DELIVERED : 27 APRIL 2018
FILE NO/S: PTW 1384 of 2017
BETWEEN: MS SCHMALHORST
Applicant
AND
MR SCHMALHORST
First Respondent
AND
MS PORCHER
Second Respondent
Catchwords:
PROPERTY - Application for summary dismissal of orders by first respondent pursuant to s 106B and for constructive trust - Where it is found that claim pursuant to s 106B has no reasonable likelihood of success
Legislation:
Family Law Act 1975 (Cth) s79, s 106B
Judiciary Act 1903 (Cth) s 78B
Family Law Rules 2004 (Cth) r 10.12
Representation:
Counsel:
| Applicant | : | Mr G Donaldson SC |
| First Respondent | : | Mr R Hooper SC |
| Second Respondent | : | Mr M Kearney SC |
Solicitors:
| Applicant | : | O'Sullivan Davies |
| First Respondent | : | Carr & Co |
| Second Respondent | : | Lavan |
Case(s) referred to in decision(s):
Ebner & Pappas (2014) FLC 93-619
Friar & Friar [2011] FamCAFC 71
Giumelli v Giumelli (1999) 196 CLR 101
Grefeld & Grefeld and Anor (2012) FLC 93-508
Halabi v Artillaga (1994) FLC 92-470
In the Marriage of Buckeridge (No 2) (1981) FLC 91-114
In the Marriage of Gould (1993) FLC 92-434
In the Marriage of Pflugradt (1981) FLC 91-052
Lumbers v W Cook Builders (2008) 232 CLR 635
Morse and Duarte [2017] FamCA 1039
Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221
VC & CG (2010) FLC 93-434
WORDS IN SQUARE BRACKETS REPLACE WORDS USED IN THE ORIGINAL JUDGMENT - PARTIES’ NAMES AND IDENTIFYING DETAILS HAVE BEEN CHANGED
1These interlocutory proceedings arise out of proceedings between [Ms Schmalhorst], the wife and [Mr Schmalhorst], the husband, pursuant to s 79 of the Family Law Act 1975 (Cth) ("the Act").
BACKGROUND
2On 2 March 2017 the wife filed an application seeking orders for property settlement. The husband filed a response on 28 April 2017. The matter came before the Court on 2 May 2017 and some interim property orders were made by consent.
3On 16 June 2017 the husband filed an amended response in which he sought an order that [Ms Porcher], the wife's mother be joined as a party to the proceedings and be described as the second respondent.
4On 27 June 2017 it was ordered that the husband particularise his claim pursuant to s 106B of the Act with respect to the second respondent. It was further ordered that the second respondent issue the appropriate notices pursuant to s 78B of the Judiciary Act 1903 (Cth), and disclosure be provided by the wife in relation to the transfer by her of her shareholding in [Company A] to the second respondent ("the share transfer").
5On 31 July 2017 the second respondent filed an application in a case, which is the subject of this interim determination. The second respondent seeks the following orders:
1Pursuant to r 10.12 of the Family Law Rules 2004 (Cth) ("the Rules"), the First Respondent's claim for relief against the Second Respondent be dismissed.
2Consequent upon order 1 herein, the Second Respondent be removed as a party to the proceedings.
3The First Respondent pay the Second Respondent's costs of and incidental to the proceedings.
4Such further or other orders as this Honourable Court deems appropriate.
6On 22 September 2017 the husband filed a response to the second respondent's application in a case in which he seeks the following orders:
1The orders sought by the Second Respondent in her form 2 filed 11 August 2017 be dismissed.
2The Second Respondent pay the First Respondent's costs of and incidental to the application.
3Such further or other interim orders as this Honourable Court deems appropriate.
7On 22 September 2017 the husband also filed a further amended response to initiating application in which he seeks the following orders:
11Pursuant to s 106B of the Family Law Act 1975 (Cth) as amended, the transfer by the wife of her 25 ordinary shares in [Company A] to [Ms Porcher] dated 11 April 1996 be set aside.
12In the alternative to order 11, there be a declaration that the second respondent is holding 25 shares in [Company A] on a constructive trust for the applicant.
13Further and in the alternative to orders 11 and 12, there be a declaration that the transfer of shares by the wife of her 25 ordinary shares in [Company A] to the second respondent pursuant to a form of transfer dated 11 April 1996 is a sham and of no effect.
8On 28 September 2017 orders were made programming the second respondent's application to a hearing with the parties ordered to file written submissions.
9On 22 December 2017 in support of his relief sought the husband filed amended particulars of claim in which he particularised his applications pursuant to s 106B and the declaration of a constructive trust over the Company A shares. The husband abandoned his application to the effect that the transfer was a sham and sought relief on the basis of unjust enrichment to which I refer below.
10The application and response came before the Court on 25 January 2018.
THE ORDERS SOUGHT BY THE PARTIES AND DOCUMENTS RELIED ON
11By a minute of orders sought contained in her papers for the judicial officer filed 21 December 2017 the second respondent seeks the following orders:
1That paragraphs 11, 12 and 13 of the orders sought by the Respondent Husband in the further amended response to initiating application filed 22 September 2017 be dismissed.
2That consequent upon Order 1, the Second Respondent be removed as a party to these proceedings.
3That the Respondent Husband pay the Second Respondent's costs of and incidental to these proceedings.
12The second respondent relied upon her said application filed 31 July 2017, and her affidavit filed 31 July 2017. The second respondent relied on a letter from Lavan to Carr & Co dated 25 August 2017 which became Exhibit 1. She also relied on the husband's particulars of claim filed 16 August 2017, although these were effectively substituted by his amended particulars of claim which were filed the day following the Court's receipt of the second respondent's papers for the judicial officer. As such, the second respondent's papers do not address the new pleading of unjust enrichment contained in the husband's amended particulars of claim.
13The wife relied on her submissions filed 12 January 2018 which referred to her affidavit filed 2 March 2017 and her notice to admit facts filed 28 June 2017. The wife also relied on supplementary submissions which were received by the Court on 24 January 2018. The wife's position was set out in her submissions.
14The husband relied on amended particulars of claim filed 22 December 2017 together with submissions filed 16 January 2018, which referred to affidavits of the husband filed 28 April 2017 and 16 June 2017.
15The second respondent filed objections to the husband's affidavit filed 22 September 2017. She objected to several paragraphs of that affidavit on various grounds, including opinion, speculation, argument and relevance.
16At the hearing on 25 January 2018 the wife gave notice of objection to the husband's affidavit filed on 28 April 2017 and provided written notice thereof shortly after the hearing was concluded. The wife objected to various paragraphs of that affidavit on similar grounds. The second respondent joined in those objections.
17Senior Counsel for the wife and second respondent did not seek to be heard and have each objection determined, but indicated that it would be acceptable that I consider them and rule on them accordingly when determining this matter.
18Senior Counsel for the husband considered this to be an unsatisfactory manner of dealing with the objections and argued that I should ignore them in these interlocutory proceedings.
19The husband's response to the wife's objections filed 25 January 2018 was received by the Court on 2 March 2018. The husband submits that if the Court determines that the version of the facts put forward by the husband is "not inherently incredible", then in the absence of any opportunity for cross-examination, it is incumbent upon the Court to proceed on the basis that the husband's version will ultimately be accepted at the trial. The husband submits reference to affidavit evidence in applications such as the present is sometimes made where there are no pleadings and where the affidavit evidence supports contentions that are not well pleaded. He submits the Court is bound to consider the position of a respondent to an application for summary dismissal in its most favourable light, and reference to the affidavit evidence is to support the position of the respondent not defeat it. The husband further submits the totality of the evidence makes it obvious that his evidence and claims are founded upon his understanding of direct discussions involving the parties or some of them which are sometimes expressed in summary or concluded form. In these circumstances the husband submits, the objections are a distraction and misconceived.
20At the hearing I stated that when I was determining this matter I would consider the objections and any ruling I made in relation thereto would be included in my reasons to follow.
CHRONOLOGY OF UNDISPUTED FACTS
21In the wife's submissions filed 12 January 2018 she included a chronology of undisputed facts. Neither of the other parties took issue with that chronology and I reproduce it as follows:
1964
[Mr Schmalhorst] ("Husband") born.
1967
[Ms Schmalhorst] ("née [Porcher]") ("Wife") born.
On incorporation of [Company A], Wife receives 25 shares in [Company A] in her name ("[Company A] Shares").
1995
Parties commence cohabitation.
11.04.1996
Wife signed a standard share transfer form for the [Company A] Shares ("[Share] Transfer") to her mother, [Ms Porcher] "Second Respondent").
1996
Parties marry.
At that time, Husband admits he had no intention of separating from Wife.
16.05.1996
Duty of $552 assessed on the [Share] Transfer.
26.07.1996
Directors' Meeting of [Company A] to receive and register the [Share] Transfer.
31.10.1996
Annual Return of [Company A] lodged with ASIC confirms the [Share] Transfer had been registered.
Throughout marriage
Parties buy and sell various real estate and business interests.
1998
[Child A] born.
2000
[Child B] born.
2004
[Child C] born.
2008
Wife commences working for her family's [hospitality] business as an employee. The parties dispute whether the wife was paid for this work.
25.01.2013
Parties finally separate.
Husband moves out of the former matrimonial home and into a property held in his sole name.
22The date of incorporation of Company A was omitted from the chronology. The second respondent deposed in her affidavit filed 31 January 2017 that Company A was incorporated on 25 May 1976. The husband deposed in his affidavit filed 22 September 2017 that [Company B] was incorporated on 25 May 1976, and on 26 October 1979 Company B changed its name to Company A.
THE HUSBAND'S AMENDED PARTICULARS OF CLAIM
23The husband's claim falls under three limbs as set out below.
Section 106B application
24The husband that it was the intention of the wife or the second respondent, that the transfer of the Company A shares from the wife to the second respondent defeat any claim which the husband may have in proceedings under the Act to an adjustment of property interests which included the wife's shareholding in Company A, in the event of the breakdown of the marriage of the husband and the wife.
25The husband further submits in the alternative, even if the intention of the wife or the second respondent in transferring the Company A shares was not to defeat an anticipated order in these proceedings, the effect of the transfer was to reduce the value of the net assets of the parties available for division between them by way of property settlement.
Constructive trust
26The husband asserts that in the alternative, the second respondent is holding the shares on a constructive trust for the wife. The husband pleads that for a number of years during the parties' relationship the wife worked for Company A and although promised payment by the second respondent she has not been compensated for her work.
27The husband asserts it is unconscionable for the second respondent to deny the existence of the wife's interest in Company A, but retain through the second respondent's shareholding in Company A the benefit of her work.
Unjust enrichment
28The husband asserts that by reason of the wife's employment with her family's business at the request of the second respondent and at the wife's expense, the second respondent, through Company A, accepted the benefit of and was enriched by her work. The husband asserts that by reason of the fact that the wife undertook work for Company A and asked for and was promised payment by the second respondent, the second respondent knew or ought to have known that the wife was not working gratuitously but expected to be paid for her work. The husband asserts that at no time did the second respondent reject the benefit of the wife's work.
THE SECOND RESPONDENT'S POSITION
29The second respondent submits that the particulars filed by the husband are manifestly defective and she submits he has failed to plead material facts necessary to support the causes of action alleged.
30The second respondent seeks orders that the relief sought against her be summarily dismissed pursuant to r 10.12 of the Rules on the basis that there is no reasonable likelihood of success and consequently she be removed as a party to the proceedings.
THE WIFE'S POSITION
31The wife supports the second respondent's submissions and her application for summary dismissal of the husband's claim against the second respondent on the ground that there is no reasonable likelihood of success. The wife submits that alternatively the husband's claim should be dismissed on the ground that it is frivolous, vexatious or an abuse of process, submitting that the husband has failed so seriously in his obligation to present a prima facie case for the relief that he seeks, that even taking his case at its highest, summary dismissal of his application is warranted.
THE LEGAL PRINCIPLES FOR SUMMARY DISMISSAL
32Rule 10.12 of the Rules provides:
Application for summary orders
A party may apply for summary orders after a response has been filed if the party claims, in relation to the application or response, that:
(a)the court has no jurisdiction;
(b) the other party has no legal capacity to apply for the orders sought;
(c)it is frivolous, vexatious or an abuse of process; or
(d) there is no reasonable likelihood of success.
33In Friar & Friar [2011] FamCAFC 71 Thackray and Watts JJ said at [49] to [53] as follows:
Rules 10.12(c) and (d) of the Family Law Rules 2004 ("the Rules") relevantly provide that a respondent may apply for "summary orders" in relation to an application on the basis that it is "frivolous, vexatious or an abuse of process" or has "no reasonable likelihood of success".
The Rules are properly read as supplementing the power of the Court to dismiss frivolous or vexatious proceedings pursuant to s 118(1) of the Act. The Rules are also to be read in the context of the many cases confirming the Court's inherent power to dismiss or permanently stay an application which cannot succeed, as to which see the authorities discussed in Bigg v Suzi (1998) FLC 92-799 at 84,974.
Kirby J outlined the principles governing summary dismissal applications in Lindon v The Commonwealth (No.2) (1996) 70 ALJR 541 at 544 – 545 as follows (our emphasis added):
1.It is a serious matter to deprive a person of access to the courts of law for it is there that the rule of law is upheld, including against Government and other powerful interests. This is why relief, whether under O 26, r 18 or in the inherent jurisdiction of the Court, is rarely and sparingly provided;
2.To secure such relief, the party seeking it must show that it is clear, on the face of the opponent's documents, that the opponent lacks a reasonable cause of action or is advancing a claim that is clearly frivolous or vexatious;
3.An opinion of the Court that a case appears weak and such that it is unlikely to succeed is not, alone, sufficient to warrant summary termination. Even a weak case is entitled to the time of a court. Experience teaches that the concentration of attention, elaborated evidence and argument and extended time for reflection will sometimes turn an apparently unpromising cause into a successful judgment;
4.Summary relief of the kind provided for by O 26, r 18, for absence of a reasonable cause of action, is not a substitute for proceeding by way of demurrer. If there is a serious legal question to be determined, it should ordinarily be determined at a trial for the proof of facts may sometimes assist the judicial mind to understand and apply the law that is invoked and to do so in circumstances more conducive to deciding a real case involving actual litigants rather than one determined on imagined or assumed facts;
5.If, notwithstanding the defects of pleadings, it appears that a party may have a reasonable cause of action which it has failed to put in proper form, a court will ordinarily allow that party to reframe its pleading. A question has arisen as to whether O 26, r 18 applies to part only of a pleading. However, it is unnecessary in this case to consider that question because the Commonwealth's attack was upon the entirety of Mr Lindon's statement of claim; and
6.The guiding principle is, as stated in O 26, r 18(2), doing what is just. If it is clear that proceedings within the concept of the pleading under scrutiny are doomed to fail, the Court should dismiss the action to protect the defendant from being further troubled, to save the plaintiff from further costs and disappointment and to relieve the Court of the burden of further wasted time which could be devoted to the determination of claims which have legal merit. (footnotes omitted)
While Kirby J expressed the test as requiring the applicant for summary dismissal to demonstrate, by reference to their opponent's documents, that "the opponent lacks a reasonable cause of action or is advancing a claim that is clearly frivolous or vexatious", the test has also been formulated in many other ways (see General Steel Industries Inc v Commissioner for Railways (N.S.W.) (1964) 112 CLR 125 at 129). However, for the purposes of an application for summary dismissal under the Act, the test is that laid down by the Rules, namely that the claim must be "frivolous, vexatious or an abuse of process" or has "no reasonable likelihood of success".
Regardless of the formulation, "exceptional caution" must be used in applications for summary dismissal and the power should be "sparingly employed": Barwick CJ in General Steel Industries (supra at 129).
34In Ebner & Pappas (2014) FLC 93-619 at 79,663-79,664 the Full Court considered the meaning of the phrase "no reasonable likelihood of success" in the following terms (emphasis added):
59. The phrase "no reasonable likelihood of success" is, at least in relation to the test to be applied in the summary dismissal proceedings, of relatively recent origin.
60. In Bretton & Bondai [2013] FamCAFC 168 Finn and Strickland JJ at [59], and May J at [122], considered this is a conceptually different test to the "doomed to fail" test.
61. In Spencer v Commonwealth of Australia (2010) 241 CLR 118, referring to a Federal Court Rule in similar terms to Rule 10.12, Hayne, Crennan, Kiefel and Bell JJ said at [56]:
Because s 31A(3) provides that certainty of failure ("hopeless" or "bound to fail") need not be demonstrated in order to show that a plaintiff has no reasonable prospect of prosecuting an action, it is evident that s 31A is to be understood as requiring a different enquiry from that which had to be made under earlier procedural regimes. It follows, of course, that it is dangerous to seek to elucidate the meaning of the statutory expression "no reasonable prospect of successfully prosecuting the proceeding" by reference to what is said in those earlier cases.
62. The applicable test was considered by another intermediate court of appeal, the Victorian Court of Appeal in Lysaght Building Solutions Pty Ltd (t/as Highline Commercial Construction) v Blanalko Pty Ltd [2013] VSCA 158. At that time the relevant legislative test in Victoria was "no real prospect of success". There at [27] Warren CJ and Nettle JA said:
… whatever might be the practical effect of the new test, it is difficult to disagree with McMurdo J in Gray v Morris and McMurdo P in the Commissioner of Taxation v Salcedo that it should be applied by reference to its own language, without paraphrase or comparison with the previous rule, always bearing in mind the principle that the power to award summary judgment is only to be exercised with caution and, therefore, not unless it is clear that there is no real question to be tried.
(Footnotes omitted)
63. Their Honours continued at [35]:
Upon the present state of authority:
(a)the test for summary judgment under s 63 of the Civil Procedure Act 2010 is whether the respondent to the application for summary judgment has a ‘real’ as opposed to a ‘fanciful’ chance of success;
(b)the test is to be applied by reference to its own language and without paraphrase or comparison with the ‘hopeless’ or ‘bound to fail test’ essayed in General Steel;
(c)it should be understood, however, that the test is to some degree a more liberal test than the ‘hopeless’ or ‘bound to fail’ test essayed in General Steel and, therefore, permits of the possibility that there might be cases, yet to be identified, in which it appears that, although the respondent’s case is not hopeless or bound to fail, it does not have a real prospect of success;
(d)at the same time, it must be borne in mind that the power to terminate proceedings summarily should be exercised with caution and thus should not be exercised unless it is clear that there is no real question to be tried; and that is so regardless of whether the application for summary judgment is made on the basis that the pleadings fail to disclose a reasonable cause of action (and the defect cannot be cured by amendment) or on the basis that the action is frivolous or vexatious or an abuse of process or where the application is supported by evidence.
THE SECTION 106B CLAIM
Legal principles
35Section 106B of the Act provides as follows:
Transactions to defeat claims
(1)In proceedings under this Act, the court may set aside or restrain the making of an instrument or disposition by or on behalf of, or by direction or in the interest of, a party, which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.
(1A)If:
(a)a party to a marriage, or a party to a de facto relationship, is a bankrupt; and
(b)the bankruptcy trustee is a party to proceedings under this Act;
the court may set aside or restrain the making of an instrument or disposition:
(c)which is made or proposed to be made by or on behalf of, or by direction or in the interest of, the bankrupt; and
(d)which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.
(1B)If:
(a)a party to a marriage, or a party to a de facto relationship, is a debtor subject to a personal insolvency agreement; and
(b)the trustee of the agreement is a party to proceedings under this Act;
the court may set aside or restrain the making of an instrument or disposition:
(c)which is made or proposed to be made by or on behalf of, or by direction or in the interest of, the debtor; and
(d)which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.
(2)The court may order that any money or real or personal property dealt with by any instrument or disposition referred to in subsection (1), (1A) or (1B) may be taken in execution or charged with the payment of such sums for costs or maintenance as the court directs, or that the proceeds of a sale must be paid into court to abide its order.
(3)The court must have regard to the interests of, and shall make any order proper for the protection of, a bona fide purchaser or other person interested.
(4)A party or a person acting in collusion with a party may be ordered to pay the costs of any other party or of a bona fide purchaser or other person interested of and incidental to any such instrument or disposition and the setting aside or restraining of the instrument or disposition.
(4AA)An application may be made to the court for an order under this section by:
(a)a party to the proceedings; or
(b)a creditor of a party to the proceedings if the creditor may not be able to recover his or her debt if the instrument or disposition were made; or
(c)any other person whose interests would be affected by the making of the instrument or disposition.
(4A)In addition to the powers the court has under this section, the court may also do any or all of the things listed in subsection 80(1) or 90SS(1).
(5)In this section:
disposition includes:
(a) a sale or gift; and
(b) the issue, grant, creation, transfer or cancellation of, or a variation of the rights attaching to, an interest in a company or a trust.
interest:
(a) in a company includes:
(i)a share in or debenture of the company; and
(ii)an option over a share in or debenture of the company (whether the share or debenture is issued or not); and
(b) in a trust includes:
(i)a beneficial interest in the trust; and
(ii)the interest of a settlor in property subject to the trust; and
(iii)a power of appointment under the trust; and
(iv)a power to rescind or vary a provision of, or to rescind or vary the effect of the exercise of a power under, the trust; and
(v)an interest that is conditional, contingent or deferred.
36Section 106B is available if:
•there are proceedings under the Act;
•there is an instrument or disposition;
•the instrument or disposition is made or proposed to be made by or on behalf of a party, or by the direction of a party or in the interests of a party; and
•the instrument or disposition:
(a)is made or proposed to be made in order to defeat an existing or anticipated order in these proceedings; or
(b)irrespective of intention, is likely to defeat such an order.
37In Halabi v Artillaga (1994) FLC 92-470 Nicholson CJ set out the procedure to be applied in determining a claim under s 106B, at 80,885, as follows:
… the proper approach is to first determine whether the requirements of ss (1) have been satisfied, and if so, to treat the disposition as not having been made for the purpose of arriving at an appropriate order pursuant to s 79, and then having done so, to determine whether, having regard to the rights of the bona fide purchaser or person interested under ss (3), a discretion should be exercised to set the instrument or disposition aside. The exercise of such a discretion may well depend upon whether if this is not done there are sufficient funds available to the party who has made the disposition to satisfy the order without setting the instrument or disposition aside.
38I am mindful of the view expressed by the Full Court in VC & CG (2010) FLC 93-434, at 84,730, that "it is generally undesirable to have a discrete hearing of a s 106B application" that is "severed" from the substantive s 79 proceedings.
39I am not asked and do not intend to determine the husband's s 106B application at this interlocutory stage. The instant proceedings concern the second respondent's application for the summary dismissal of the claim the husband seeks to maintain against her, and her consequent removal as a party to the proceedings. The husband submits the only basis on which the 106B application could be dismissed is, if it was seen to be completely hopeless and have no prospect of success. Put another way, in the current context the issue for the Court is whether, having regard to the available evidence put at its highest and the stage of the proceedings, the husband's application has a reasonable likelihood of success such that it should proceed to be determined at trial.
Discussion
Are there proceedings under the Act?
40The wife's application for property settlement constitutes proceedings under the Act. It is not necessary that the proceedings be on foot at the time of the share transfer in April 1996.
Is there an instrument or disposition?
41It is not in dispute that the share transfer dated 11 April 1996 is an instrument or disposition.
Was the instrument or disposition made by or on behalf of, or by direction or in the interests of a party?
42The instrument or disposition was made by the wife who is a party to the proceedings.
Was the instrument or disposition made or proposed to be made to defeat an anticipated order in the proceedings or, irrespective of intention, likely to defeat such an order?
43This involves a consideration of whether the transfer was made to defeat an anticipated order (not a claim) in these proceedings or, irrespective of intention, was likely to defeat such an order.
44In his submissions filed 16 January 2018 the husband submits that his claim with respect to s 106B of the Act is based upon "the intention of the Applicant and Second Respondent, when transferring the [Company A] shares, to defeat any claim that could be made by the Husband in the event of marriage breakdown".
45In his amended particulars of claim filed 22 December 2017 the husband pleaded that the consideration of $92,000 as stated on the transfer form in respect of the shares was not paid. At the time of the share transfer neither of the wife's sisters transferred their shares in Company A to the second respondent, and subsequently in 2004, the second respondent expressed to the husband that the share transfer had been done to protect "the Second Respondent's business from any claim by the First Respondent". The husband pleaded by reason of these matters that it was the intention of the wife or the second respondent that the transfer defeat any claim that the husband may have in proceedings for an adjustment of property interests, which included the wife's Company A shares, in the event of the breakdown of the marriage.
46The high point of the husband's evidence in this respect is contained in his affidavit filed 22 September 2017 where he deposes:
22I also recall that at around the time of these events I asked the wife and/or my mother-in-law about the distribution of income which she (my wife) might receive from the business in the 1996 financial year. … I later discovered that as a result of this sort of questioning, my mother-in-law considered that I was "trying to get my hands on her money".
…
26In 2004 there was an incident at our home … when the wife discussed with her mother the circumstances surrounding her removal as a shareholder of [Company A] (and potentially other family entities). … The mother explained to us she did it to "protect her business" after the "messy and costly dispute" she went through with her husband. … Soon after my mother-in-law left our house [the wife's sister] arrived. … She accused me of trying to get access to her mother's money.
47These paragraphs were objected to on the ground of relevance. I consider them to be relevant as they have a connection with the intention at the time of the disposition. Further, in his affidavit filed 28 April 2017 the husband deposes (emphasis added):
31… This transaction took place in order to exclude these shares from any later property division between us. I suspect that the wife was not aware of the nature and effect of the transfer …
48In oral submissions Senior Counsel for the husband said that the evidence of his client is that the transaction was made so as to prevent him making a claim in respect of the shares in the event of a breakdown of marriage. To suggest that "somebody didn't act with an intention", he submits, is "quite bizarre". Senior Counsel for the husband submitted that "the mother sought to do this to prevent [the husband] making subsequent attack on the [Company A] shares held in the name of the wife". He submitted that on the evidence presently available I should find that there was an intention to defeat, and as such, "the application has merit and should be allowed to proceed in the usual way".
49For the purpose of s 106B of the Act the relevant intention is that of the disponer at the time of the disposition.
50At best, the husband's case is that the second respondent intended that the Company A transfer, effected by the wife, defeat a future claim by the husband to the Company A shares. The second respondent was not the disponer of the shares. The relevant intention is that of the wife.
51The order that the disposition would defeat must be anticipated by the disponer, the wife, at the time of the disposition. The husband's evidence refers to the second respondent's intention. He also deposes he suspects the wife was not aware of the nature and effect of the transfer. Even putting the husband's evidence at its highest, I consider the second respondent has demonstrated the husband's case has no reasonable likelihood of success in establishing that the disposition was made to defeat an existing or anticipated order in the proceedings. This defect cannot be cured by amendment.
52The husband's s 106B application may nevertheless have merit if he can establish that the disposition, "irrespective of intention, is likely to defeat" an existing or anticipated order. In this respect, Senior Counsel for the husband referred to In the Marriage of Gould (1993) FLC 92-434, submitting as follows:
28It is sufficient to enliven Section 106B (subject to other aspects being established) to show that the transaction would have the effect of diminishing the pool of assets available to meet anticipated orders and is not necessary to show the transaction attacked would involve specific items of property that would be the subject of an anticipated Section 79 order.
53The husband pleaded that even if the intention of the wife or second respondent in transferring the Company A shares was not to defeat an anticipated order in these proceedings, the effect of the share transfer "was to reduce the value of the net assets of the parties available for division between them by way of property settlement".
54Senior Counsel for the wife submitted that the husband's contention in this respect is untenable, as the issue is not whether a disposition "might diminish the pool of assets"; rather that it has to defeat an anticipated order.
55A difficulty with the husband's case in this respect is the length of time that has passed between the share transfer and the commencement of the proceedings. The share transfer took place in April 1996, [shortly] prior to the parties embarking upon a marriage which endured for almost 17 years, which produced three children, and almost 21 years prior to the commencement of the proceedings for property settlement. There is no evidence before me that at the time of the disposition there was a likelihood of a breakdown in the parties' relationship. The issue is whether the share transfer, effected in 1996, was likely to defeat an anticipated order arising out of the proceedings commenced in 2017.
56An order may be anticipated even though the transaction in question was made before the proceedings had commenced (In the Marriage of Buckeridge (No 2) (1981) FLC 91-114).
57In VC & CG (supra) the transaction was some 10 years or so prior to marital disharmony, so a disposition can be attacked on the basis it occurred well prior to breakdown.
58The test to be applied is an objective one. Elliott J said in In the Marriage of Pflugradt (1981) FLC 91-052, at 76,430, that:
... it is not a question of whether the husband expected or foresaw a subsequent property application by the wife and "anticipated" an order being made, but whether considering all of the circumstances at the time of the disposition such an application by her at some time, with a consequent order, was objectively to be foreseen or to be expected by him as being likely or reasonably probable.
59Applying this test, I do not consider that a reasonable disponer in the wife's position, in 1996, would have objectively contemplated or foreseen as being reasonably likely or probable in all the circumstances, that an order in property proceedings was likely to be made in 2017 or subsequently. I do not consider that at the time of the disposition an order could have been anticipated. I therefore consider that the second respondent has demonstrated that the claim the husband is advancing, that the share transfer is a disposition falling within the provisions of s 106B of the Act, has no reasonable likelihood of success. I do not consider the defect in the husband's case could be cured by amendment.
CONCLUSION AS TO SECTION 106B CLAIM
60In light of the available evidence, and mindful of the stage of the proceedings and the "exceptional caution" which I must exercise in applications such as these, I find this aspect of the husband's case has no reasonable likelihood of success. I find there is no real question to be tried and accordingly, this part of his application should be summarily dismissed.
THE CONSTRUCTIVE TRUST AND UNJUST ENRICHMENT CLAIMS
Legal principles
61In Morse and Duarte [2017] FamCA 1039 Le Poer Trench J discussed constructive trusts and set out the relevant authorities. I respectfully agree with his Honour's conclusions at [836] where he stated:
A constructive trust, therefore, is a "remedial institution" imposed by the Court where such conclusion can be construed from the circumstances of the case and where it would be unconscionable not to do so. There must exist an element of unconscionability for a constructive trust to arise.
62 Giumelli v Giumelli (1999) 196 CLR 101 is authority for the proposition that constructive trusts should not be imposed if, in all the circumstances of the case, there is an appropriate equitable remedy which falls short of the imposition of a trust.
Discussion
63The evidence of the husband is that the wife undertook work in relation to Company A projects at the request of the second respondent and for which she expected to be rewarded. He submitted that there is no evidence that she has been so rewarded. It is contended that any such payment represents property which was generated from the work of a party to the marriage and during the marriage, and that the value should be taken into account in these proceedings. It was submitted that the second respondent has a controlling interest in Company A and benefitted by the wife's work through her interest in Company A.
64At the hearing Senior Counsel for the husband submitted "if the mother has gained … commercial advantage by the work done by her daughter, at the mother's request, the claim … is properly made against the mother." He said given the lack of disclosure at this stage of the proceedings concerning the arrangement for remuneration, it would be dangerous to summarily dismiss the case. It was ultimately submitted that whether orders need to be made in relation to the Company A transfer or the non-payment of work done is a matter that can only be determined at the trial of the substantive proceedings.
65The second respondent submitted that the constructive trust claim is one supported by the claim for unjust enrichment. There is force to this submission in light of Senior Counsel for the husband's oral submission that "it may be that the Court charges the second respondent's shares in [Company A] with payment of that sum". I note, however, that in his amended particulars of claim the husband pleaded under two separate headings of "Constructive trust" and "Unjust enrichment". To the extent the unjust enrichment aspect of the husband's case represents a standalone claim I will also address it as such.
66Senior Counsel for the second respondent asserted the husband's claim in respect of the constructive trust is summarised at paragraph 21 of the husband's particulars of claim where he stated:
It is unconscionable for the second respondent to deny the existence of the applicant's interest in [Company A] but retain, through the second respondent's shareholding in [Company A], the benefit of her work as pleaded above in paragraph 17.
67Senior Counsel for the second respondent submitted that the husband's contention is at its highest a complaint about the non‑payment of money and has nothing to do with the Company A shares. He submitted it is unsustainable for the reasons set out by the wife in her submissions at paragraphs 25 to 34.
68Senior Counsel for the wife submitted that to establish the existence of a constructive trust at law an equitable wrong for which a declaration of constructive trust is available as a remedy must be established. It was submitted the husband has not asserted the wife has any equitable claim against the second respondent in relation to the share transfer. The facts asserted by the husband do not allow the wife to claim the equitable remedy of constructive trust. It was further submitted the claim at its highest is for non-payment of an unspecified sum. There is no contention by reason of the work carried out by the wife she was to have, or retain an interest in the Company A shares. It is no more than a claim for payment of work undertaken. It was submitted that the leap that the husband seeks to make was that the Company A shares, transferred to the second respondent in 1996, could somehow be impressed with a satisfaction of a claim for payment of money. It is contended that the wife undertook the work for Company A. The second respondent is not Company A, but is the wife's mother. If anyone is responsible it would be Company A.
69In asserting that the unjust enrichment claim fails, Senior Counsel for the second respondent and the wife referred to Lumbers v W Cook Builders (2008) 232 CLR 635 where the High Court discussed its previous decision in the matter of Pavey & Matthews Pty Ltd v Paul (1987) 162 CLR 221 (original emphasis, footnotes omitted):
83In Pavey & Matthews, a majority of this Court held that the right to recover on a quantum meruit does not depend on the existence of an implied contract but on a claim to restitution or one based on unjust enrichment. The concept of unjust enrichment was described by Deane J in Pavey & Matthews as constituting:
"a unifying legal concept which explains why the law recognises, in a variety of distinct categories of case, an obligation on the part of a defendant to make fair and just restitution for a benefit derived at the expense of a plaintiff and which assists in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognise such an obligation in a new or developing category of case."
84It is important to recognise two points about Pavey & Matthews. First, there was no issue in that case about whether the plaintiff, a builder, had a claim for work and labour done and materials supplied. The issue in the case was whether that claim was defeated by a statutory provision analogous to s 4 of the Statute of Frauds 1677 (UK) … In particular, the issue was whether the builder's action on a quantum meruit was a direct or indirect enforcement of the oral contract the parties had made. The majority in Pavey & Matthews held that because "the true foundation of the right to recover on a quantum meruit does not depend on the existence of an implied contract" the action was not "one by which the plaintiff seeks to enforce the oral contract".
85The second point to be noted is that unjust enrichment was identified as a legal concept unifying "a variety of distinct categories of case". It was not identified as a principle which can be taken as a sufficient premise for direct application in particular cases. Rather, as Deane J emphasised in Pavey & Matthews, it is necessary to proceed by "the ordinary processes of legal reasoning" and by reference to existing categories of cases in which an obligation to pay compensation has been imposed. "To identify the basis of such actions as restitution and not genuine agreement is not to assert a judicial discretion to do whatever idiosyncratic notions of what is fair and just might dictate." On the contrary, what the recognition of the unifying concept does is to assist "in the determination, by the ordinary processes of legal reasoning, of the question whether the law should, in justice, recognise such an obligation in a new or developing category of case" (emphasis added).
86Builders' submission that acceptance of a benefit, without a request, suffices to found an action for work and labour done or money paid thus finds no direct support in Pavey & Matthews. That issue did not arise and was not decided in that case. Rather, the question to which Pavey & Matthews directs attention is whether the long established and well recognised category of cases constituted by claims for work and labour done or money paid at the request of another should be extended or developed in the manner for which Builders contended. …
70Senior Counsel for the wife submitted the only claim available to the wife is a quantum meruit claim to money being the reasonable market value of services provided, and it could never attach to the shares held by the second respondent in Company A. To the extent that the unjust enrichment claim advanced by the husband supports his application for a constructive trust over the Company A shares, Senior Counsel for the wife submitted that the claim fails, as a constructive trust upon shares of a shareholder in the company that benefitted from the services is not the fair market value of the services. I accept that submission.
71To the extent that the unjust enrichment claim represents a standalone claim against the second respondent for some lesser form of relief falling short of a constructive trust, Senior Counsel for the wife submitted the husband has not particularised the remedy sought.
72I am well aware of the "significant burden" on the party who seeks the summary dismissal of the other party's case (Ebner (supra) at [74]). I am also conscious of the observation of the Full Court in Friar (supra) at [139] that in proceedings such as these the failure of the husband to amend his application "would not prevent the Court from making an order … for some relief falling short of what had been sought". However, it has been demonstrated that the husband lacks a reasonable cause of action against the second respondent in circumstances where the wife undertook work for Company A, of which the second respondent is a shareholder. In all the circumstances and upon the evidence, subject to my reasons below, I consider this aspect of the husband's application has no reasonable likelihood of success, and his case as pleaded is defective.
73Further, I consider in the circumstances of the case it has been demonstrated that there is no reasonable basis upon which a constructive trust could be imposed over the Company A shares in satisfaction of an obligation to pay the wife for work done.
Other matters
74At the hearing Senior Counsel for the second respondent submitted it is incumbent upon me to "look at … the claim that the husband now brings. Not one that he may hope at some time to make good". This submission does not accord with Friar (supra).
75In Friar Thackray and Watts JJ found there was merit in the appellant's ground of appeal that the first instance judge had erred in prematurely dismissing the wife's claim which should have been left to the trial judge, and said as follows (emphasis added):
136In our view, there was no need for the wife to amend her application before the Court would be able to grant her a lesser form of relief. In the event the Court did not see it as appropriate to make the declaration of trust, we consider it could nevertheless make a declaration of any lesser equitable entitlement the wife had in the property. In this regard, we note that s 78 permits the Court to declare not only “title” but also “rights” in relation to property. This was properly conceded by counsel for the sister in his oral submissions when he acknowledged that on a s 78 application the Court could make a declaration of an entitlement to an equitable charge over property.
137Whilst we accept that it would have been open to the wife to have specified in her application other relief as alternatives to the primary relief sought, we do not consider it was obligatory for her to do so. For example, we note in Giumelli that the applicant was granted a remedy he had never sought.
138In any event, we note that when the wife detailed the relief sought in her points of claim, in addition to seeking a declaration of trust, she also sought “such further or other orders and directions as the Court deems appropriate”. It is true the wife did not formally amend her application (which she was entitled to do without leave), but the points of claim showed that she recognised other forms of relief would be available if the primary application failed. Counsel for the sister was therefore not correct in suggesting in his oral submissions that the points of claim “did not encompass any lesser sort of relief”.
139We consider his Honour ought to have proceeded on the basis that the wife would, before trial, formally amend her application to seek the relief set out in the points of claim, rather than proceeding on the basis that the relief to be sought was as contained in the application. However, as we have already indicated, the wife’s failure to amend would not prevent the Court from making an order in her favour for some relief falling short of what had been sought.
76Mindful of the Full Court's observations in Friar I shall assess whether, notwithstanding the defects in the husband's pleadings, he has a reasonable likelihood of success in obtaining "some relief" in the present circumstances. That is, notwithstanding the defects in the husband's pleadings, it may be the case that in light of the available evidence, as presented, the possibility of an amendment or additional evidence would lead to a conclusion other than that the husband's claim has no reasonable likelihood of success. In such circumstances his claim for equitable relief in respect of the shares should not be summarily dismissed. Is this apparent on the present circumstances?
77In his trial documents the husband makes a number of references to his belief that the purchase price of $92,000 for the Company A shares was not paid by the second respondent to the wife upon or following their transfer. In his affidavit filed 22 September 2017 the husband deposes that "It is my further understanding that no such consideration was paid". In his affidavit filed 28 April 2017 the husband deposes that the wife effected the share transfer "seemingly for no consideration", and that "Between 2011 and 2012 the wife … was promised substantial compensation, not only for her work, but also for her former interest in this company which to my knowledge has not been paid". In his amended particulars of claim filed 22 December 2017, in support of his s 106B application, the husband pleads as follows:
Despite the transfer form pleaded … the consideration of $92,000 for the transfer of the [Company A] shares from the applicant to the second respondent was not paid by the second respondent to the applicant.
78The wife and the second respondent object to the husband's evidence in this respect on the grounds of opinion, conclusion, speculation or argument.
79The husband opposes the objection and submits "The husband makes his conclusion based on an absence of any information available to him that the payment was made." At the hearing Senior Counsel for the husband said that the Court is being "asked to allow an objection at a time in the process where we have not had the ability to be able to interrogate on a point with my client saying what he understands from communications with the wife". He observes that "No assertion has been made by the other parties that the payment was made". It is further submitted that at this stage of the proceedings the husband does not yet have disclosure, and is "seeking to oppose an application to prevent us from even getting it".
80The husband's evidence in this respect is a matter at issue. At this stage of the proceedings when disclosure has not yet been given I do not intend to strike out this aspect of the husband's evidence.
81In a letter from Lavan to Carr & Co dated 25 August 2017 which became Exhibit 1 the second respondent's solicitors assert that the husband's pleadings are insufficient to properly particularise any claim the husband has based on s 106B of the Act, or any allegation of the existence of a constructive trust. Additionally they state the following:
If the basis of alleging a trust is that the consideration of $92,000 was not paid, then the question required to be addressed in particularising the claim is the basis upon which a simple debt was not created and thereby a resulting trust was created. If it is the First Respondent's claim that a constructive trust was created the elements to ground the implication of a constructive trust and that the same ought to be imposed taking into account the principles of Giumelli v Giumelli (1999) 196 CLR 101 at 113 [10] (that a constructive trust will not be imposed where another form of equitable relief provides a remedy) need to be particularised.
82In light of Friar (supra) and my above reasons, I do not consider the husband's failure to plead non-payment of the $92,000 purchase price as the basis for alleging a constructive trust over the Company A shares to be fatal to his being granted a declaration of trust or a lesser form of relief in this respect. The second respondent's solicitors appear to have foreshadowed the possible imposition of a resulting trust in the aforementioned letter, upon which they rely in this application.
83The distinction between resulting and constructive trusts was conveniently discussed by the Full Court in Grefeld & Grefeld and Anor (2012) FLC 93-508 where it said at 86,493 ‑ 86,494:
92A resulting trust arises where some party other than the legal proprietor of property provides a portion or the whole of the purchase price of that property. A trust is presumed in favour of the party providing the whole or part of the purchase price and the equitable interest, which is held on trust for that party by the proprietor of the legal interest, is proportionate to the financial contribution (see Allen v Snyder [1977] 2 NSWLR 685 at 689-690; Calverley v Green (1984) 155 CLR 242 at 246). Of course, if the totality of the purchase price is provided by a party then the whole of the property is held on trust for that party by the proprietor of the legal interest.
…
94To imply such a trust the Court looks to the intention of the parties, inferred as a matter of fact from their conduct and representations, but the implication of the trust will yield to the actual intention of the parties (see Allen v Snyder at 690, 691, 698).
…
96… In the face of the trial judge’s finding that the withdrawal from the account was not properly characterised as a loan, the finding of a resulting trust was well open. The factual circumstances surrounding the husband’s conduct rationally permitted an inference that the property was acquired on trust for the sister. The sister provided the funds for the purchase, through the husband acting as her agent, and the wife acquired legal title in the property, through the husband acting as her agent.
97A constructive trust differs from a resulting trust in that it is created by operation of law without reference to the parties’ intentions. The inquiry is not as to the actual or presumed intention of the parties but rather as to whether, according to principles of equity, it would be unconscionable to allow a legal owner of property to enjoy sole beneficial ownership of that property (see Muschinski v [Dodds] at 614-617, 620-621; Baumgartner v Baumgartner at 148-150).
84Whether the $92,000 purchase price for the Company A shares was paid is at issue. Neither the wife nor the second respondent has asserted that the payment was made. In these circumstances, taking the evidence at its highest, the husband may have a claim to some relief. The defect in the claim for equitable relief as pleaded by the husband is capable of being cured when regard is had to the totality of evidence before me and the stage of the proceedings.
CONCLUSION AS TO CONSTRUCTIVE TRUST AND UNJUST ENRICHMENT CLAIMS
85I have considered all of the available evidence, and am mindful of the stage of the proceedings and the "exceptional caution" which I must exercise in applications such as these. Notwithstanding the defects in the husband's application, for the reasons set out above I consider these can be cured.
86I conclude the second respondent has not demonstrated that the husband's claim for declaratory relief has no reasonable likelihood of success. Accordingly, while this aspect of the husband's claim may not ultimately succeed, it should not be summarily dismissed but should proceed to be determined at trial.
THE ORDERS
87I make the following orders:
1Pursuant to Rule 10.12 of the Family Law Rules 2004 (Cth) the First Respondent, [MR SCHMALHORST]'s claim for relief pursuant to s 106B of the Family Law Act 1975 (Cth) as amended be dismissed.
2The proceedings be listed for directions on 6 August 2018 at 10.00 am in the Duty Judge List.
I certify that the preceding paragraph(s) comprise the reasons for decision of the Family Court of Western Australia.
RM
ASSOCIATE27 APRIL 2018
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