SELLICK & SHIELDS
[2020] FamCA 241
•17 April 2020
FAMILY COURT OF AUSTRALIA
| SELLICK & SHIELDS | [2020] FamCA 241 |
| FAMILY LAW – PRACTICE AND PROCEDURE – Production of documents – Where orders were made for the husband to produce financial documents of companies he has interests in – Where the documents have not been produced – Where the wife seeks the production of the documents – Where the husband initiated proceedings in the Federal Court of Australia to obtain the documents - Where the husband has been reappointed as a director of the companies – Where the documents are relevant and within the husband’s control - Orders FAMILY LAW – PRACTICE AND PROCEDURE – Discovery – Where the wife seeks the discovery of a settlement agreement of proceedings in the Federal Court of Australia involving the husband and other parties – Where the husband asserts the agreement is confidential and not relevant – Orders |
| Corporations Act 2001 (Cth) s 247A Family Law Rules 2004 (Cth) Ch 13 Federal Court Rules 2011 (Cth) rr 20.11, 20.12, 20.14, 20.15 |
| Alanco Australia Pty Ltd v Higgins (No 2) [2011] FCA 1063 Briese & Briese (1986) FLC 91-718 Hatton v Attorney-General of Commonwealth of Australia & Ors (2000) FLC 93-038 Lucas Industries Ltd v Hewitt (1978) 18 ALR 555 Martin & Martin and Anor (No. 2) [2014] FamCA 232 Re McGorm, Ex parte Co-Operative Building Society of South Australia (1989) 86 ALR 275 Stinson & Stinson and Anor [2012] FamCA 520 |
| APPLICANT: | Ms Sellick |
| RESPONDENT: | Mr Shields |
| FILE NUMBER: | ADC | 4790 | of | 2016 |
| DATE DELIVERED: | 17 April 2020 |
| PLACE DELIVERED: | Adelaide |
| PLACE HEARD: | Adelaide |
| JUDGMENT OF: | Berman J |
| HEARING DATE: | 13 March 2020 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Bullock |
| SOLICITOR FOR THE APPLICANT: | Norman Waterhouse Lawyers |
| COUNSEL FOR THE RESPONDENT: | Mr Richards |
| SOLICITOR FOR THE RESPONDENT: | Howe Jenkin |
Orders
That within twenty eight (28) days of this order the husband cause production to Mr B of the documents sought by him in his email dated 21 October 2019.
That the husband provide discovery of the terms of settlement of the Federal Court of Australia proceedings …/2019.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Sellick & Shields has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT ADELAIDE |
FILE NUMBER: ADC 4790 of 2016
| Ms Sellick |
Applicant
And
| Mr Shields |
Respondent
REASONS FOR JUDGMENT
INTRODUCTION
By Initiating Application filed 9 December 2016, Ms Sellick (formerly Shields) (“the wife”) seeks orders by way of settlement of property pursuant to Part VIII of the Family Law Act 1975 (Cth) (“the Act”). Her final orders were not particularised and the wife sought to do so on the completion of discovery and valuations.
The wife had also sought orders pursuant to s 106B of the Act against Ms C and Mr D in respect of shares in E Pty Ltd, and to set aside the resignation or cessation of Mr Shields (“the husband”) as a director of E Pty Ltd, F Pty Ltd and G Pty Ltd (“the companies”).
By Response to Initiating Application filed 28 February 2017, the husband indicated his consent to the setting aside of the share transactions to Ms C and Mr D in E Pty Ltd and whilst otherwise dismissing the wife’s application for property settlement, sought orders pursuant to s 78 of the Act that each of the parties retain personalty and realty currently in their respective possessions free from claim of the other.
The parties commenced a relationship in March 2007. They married on … 2017.
At the commencement of the relationship the wife was studying a law degree. She concedes that she did not have any assets of significance.
The husband was setting up a company known as E Pty Ltd. The husband has a Bachelor of Applied Science and a Masters degree. He has completed a law degree during the course of the relationship.
E Pty Ltd was registered on 29 September 2006. Following separation and coincident with discussions between the parties as to a settlement of property, 200,000 shares in E Pty Ltd were allotted on 10 June 2016 to Ms C and Mr D. The husband did not receive any further shares and the wife contends that the effect of the share allotment was to reduce the husband’s interest in E Pty Ltd from 33.3 percent to 0.18 percent.
The husband ceased his appointment as a director of E Pty Ltd on 2 November 2016.
F Pty Ltd was registered on 3 July 2013. The husband, Ms C and Mr D each held one share. They were each appointed as directors of F Pty Ltd.
G Pty Ltd was registered on 2 February 2011. The husband, Ms C and Mr D each held one share and were each appointed as directors.
The primary focus of the proceedings to date has been to undertake a valuation of the husband’s interest in the companies.
By Application in a Case filed 6 March 2020, the wife seeks the following orders:-
(1)That within 14 days the husband cause production to Mr B of the documents sought by Mr B in his email dated 21 October 2019.
(2)That the husband provide discovery of the terms of settlement of his Federal Court proceedings …/2019.
(3)That the husband do pay the wife’s costs of and incidental to the application.
BACKGROUND
Ms C and Mr D, together with the companies, were named as the second to sixth respondents in these proceedings. The parties attended a conciliation conference before a Registrar on 28 September 2017. There was no appearance by or on behalf of the second to sixth respondents. The Registrar’s order reflects that the conciliation conference was adjourned to a later date to enable the valuations of the husband’s interests in the companies to be undertaken and completed.
The parties agreed that the valuation of the husband’s interests would be undertaken by Mr B in his capacity as a jointly instructed single expert.
Noting that there was no appearance by the second to sixth respondents, an order was made by consent on 3 July 2018 that the husband provide to the wife and Mr B, information required by him to complete his valuation report which at that time included the 2017 financial statements for F Pty Ltd and G Pty Ltd.
The valuation report was important in that it was anticipated it would be provided prior to the adjourned conciliation conference on 26 September 2018.
It is not controversial that Mr B provided a list of the information and documents that he would need to complete his report, including the following:-
(1)2017 financial report for E Pty Ltd;
(2)2018 financial report for F Pty Ltd;
(3)2018 financial report for G Pty Ltd;
(4)2018 financial report for E Pty Ltd;
(5)The details in relation to the withdrawal of $548,969 from the business loan on 24 May 2017;
(6)The details in relation to the funding of the purchase of the Suburb H property which settled in March 2017;
(7)The detailed spreadsheet for financial year 2017 as previously provided by Mr D;
(8)The detailed general ledger (in excel or pdf/paper copy), prepared by the group’s external accountant Mr J, for each company;
(9)If not included in the financial statements of E Pty Ltd at the end of June 2017, an estimate of the company’s:-
(a)Unpaid debtors at year end; and
(b)Unpaid trade and other creditors (such as unpaid PAYG, superannuation, income tax) at year end.
(10)An estimate of the E Pty Ltd unpaid trade debtors, unpaid trade creditors and unpaid employee leave entitlements at the end of June 2018.
The husband also agreed that he would do all such things to ensure “the prompt finalisation”[1] of the financial reports referred to in the orders of 3 July 2018, and that he would promptly respond to any and further inquiries or requests for information by Mr B.
[1] Order dated 3 July2018 at [3].
The proceedings came before me on 28 August 2018. The parties were represented and there was no appearance by the second to sixth respondents.
The notation to the order made on 28 August 2018 was to set out the outstanding information that was required by Mr B to complete his valuation report. The list of documents required generally mirrors that as set out in the order of 3 July 2018.
The husband consented to provide bank statements for E Pty Ltd and F Pty Ltd to Mr B and paragraph 2 of the order made 28 August 2018, compels the husband to issue a written request to Mr J (the companies’ accountant) for provision by him of the documents as requested by Mr B.
In his affidavit filed 5 April 2019, the husband conceded that at that time, Mr B’s valuation report was not able to be completed due to the non-production of documents by the companies and in particular at the direction of Mr D and/or Ms C.
The husband acknowledged that the provision of documents has been contentious since at least August 2017 and he conceded that he had been unable to obtain many of the documents because he was no longer a director of the companies and that “the required documents have always been prepared, maintained and possessed by Mr D.”[2]
[2] Affidavit of the husband filed 5 April 2019 at [15].
Mr B was able to undertake a valuation of the husband’s interest in the companies as at the end of June 2017, but he expressed concern arising from the following considerations:-
1.The time which has passed since the end of June 2017
2.General reliance upon the group’s unaudited financial statements
3.Concerns relating to the quality of the group’s record keeping, the accuracy of its financial statements and income tax compliance
4.Reliance on instructions as to the agreed values of the group’s real property interests
5.Reliance upon Mr D’s earlier unsubstantiated guidance as to the extent of trade debtors, trade creditors and employee leave entitlements provided in mid-June 2017…
6.Instructions concerning the composition of large expense items in the 2016 financial year between what might be regarded as recurrent and non-recurrent (Advertising & Promotion, General Expenses, Materials & Supplies, Staff Training and Travel, Accommodation and Conferences). [3]
[3] Ibid at [40].
There were various reasons for the delay in the provision of documents, however, of significance is the husband’s advice that on 5 March 2019 the companies were no longer represented by Mr J but rather, now by a different firm of chartered accountants.
On 7 February 2019 the husband commenced proceedings in the Federal Court of Australia seeking the production of documents by the companies and/or Mr D and Ms C pursuant to s 247A of the Corporations Act 2001 (Cth) (“the Corporations Act”).
The focus of the proceedings was to obtain the documents requested by Mr B as specified in the order of the Family Court of Australia.
The husband contends that as a result of the Family Court proceedings his relationship with Mr D deteriorated to the point where he considered any prospect of an “ongoing professional relationship”[4] was untenable.
[4] Ibid at [79].
The husband’s stated intention in respect of the provision of documents is set out in the following paragraphs of his affidavit filed 5 April 2019:-
85.Due to my untenable relationship with Mr D and his refusal to provide necessary documentation for me to receive appropriate legal advice and negotiate the proposed split of the Group and business on an informed basis, I instructed Leventis Lawyers to file the Federal Court proceedings.
86.I also intended to immediately make disclosure, and provide any documents produced as a result of the Federal Court proceedings to Mr B to enable him to forthwith complete his valuation report.
87.It is my hope and desire that the Federal Court proceedings may also procure a broader class of documents than those identified by Mr B, which may materially impact the value attributed to my interest in the Group by Mr B.
The husband was successful in the Federal Court proceedings. By consent order made May 2019 (Exhibit “6”), the plaintiff (the husband), the legal representatives of the husband, Mr L (a forensic accountant) and any other person as agreed between the parties were authorised to inspect and make copies of the books and documents described in Schedule A to the order which provides for a comprehensive suite of documents, which if provided to Mr B would enable him to complete his valuation report at least as at the 2018 financial year.
It might be reasonably assumed that the clarity of outcome as reflected in the Federal Court orders would have resolved the issue of the production of documents. It did not. The husband, Mr D and Ms C apparently resolved their differences and the husband then was reappointed as a director of the companies.
The settlement between the husband, Mr D, Ms C and the companies is set out in a confidential settlement agreement signed by the parties at some time in late 2019.
The wife seeks that the husband discover the confidential settlement agreement. The husband resists the wife’s application but only on the basis that the agreement is considered confidential. The husband accepts that the agreement is unlikely to be commercially sensitive and in any event considers that it is largely, if not entirely, irrelevant.
The question of relevance was not able to be agreed between the parties. The wife’s counsel was required to give an undertaking that he would not disclose the contents of the document before he was able to peruse it. He was able to submit that he considered the content of the document to be relevant to the proceedings.
There seemed no other option but for the Court to consider the document and determine whether it was relevant. I did so and consider that it is relevant.
A court must always be cautious not to lightly ignore the privacy of third parties. The husband and his business associates considered the terms and conditions of their settlement to be confidential.
In Stinson & Stinson and Anor [2012] FamCA 520 Cronin J set out the competing principles of privacy and relevance at [13]:-
Family law litigation is no different from any other litigation save that the rules of court require the parties to the marriage to make comprehensive disclosure of any document that might enable the other party to the relationship to understand the financial circumstances in dispute. Of necessity, that obligation captures and infringes upon the privacy of third parties who are involved with a party to the marriage. It is for that reason that the Court provides the protection of what is described as the implied undertaking but which is in reality, an enforced obligation.
The settlement agreement contains the following notations:-[5]
I.On 14 February 2019, Mr Shields instituted the Federal Court Proceedings seeking relief under section 247A of the Corporations Act 2001 (Cth) and orders for the inspection and copying of the books of the Group Companies.
J.Mr Shields has made the Allegations which are denied by Mr D and Ms C.
K.On 29 May 2019, by consent the Inspection Order was made.
L.The Group Companies have incurred substantial cost and inconvenience as a result of their participation in both the Family Court Proceedings and the Federal Court Proceedings and the provision of the Company Information to Ms Sellick and Mr Shields in the Family Court Proceedings.
M.The parties wish to fully and finally resolve their disputes arising out the Family Court Proceedings and the Federal Court Proceedings and end the disruption to the affairs of the Group Companies on the terms of this agreement.
[5] Exhibit “3” at page 3.
The operative terms of the agreement sought that the parties do all things necessary to dismiss the Federal Court proceedings. Undertakings given by parties were to be the subject of release and the following appears at [5] under the heading of Family Court Proceedings:-
Mr Shields acknowledges that the joinder to and participation of the other parties to the Family Court Proceedings has disrupted the conduct of the affairs of the Companies at substantial cost and inconvenience to the other parties and undertakes to do whatever he can lawfully do to avoid and minimise any further cost and inconvenience arising from their continuing participation including by opposing the disclosure of any further financial information about the Group Company affairs not reasonably required for the proper conduct of the Family Court Proceedings.[6]
[6] Exhibit “3”.
The agreement provides for the employment of the husband as a director and senior consultant on an annual base salary of $144,000 plus occupational superannuation.
The agreement is silent in respect of the compliance by the companies or their directors in terms of the supply of documents pursuant to the order of the Federal Court made 29 May 2019.
PRINCIPLES TO BE APPLIED
Chapter 13 of the Family Law Rules 2004 (Cth) (“the Rules”) imposes an obligation of full and frank disclosure on the parties to Family Court proceedings and provides specific mechanism by which that obligation must be fulfilled.
Despite the breadth of the duty to disclose, there are concerns about the over-broad disclosure of documents in Family Court proceedings. The restriction on the obligation of discovery has been the subject of discussion as it relates to subpoenas to produce documents. Smithers J in Lucas Industries Ltd v Hewitt (1978) 18 ALR 555 at 570 said:-
The purpose of the process of subpoena is to facilitate the proper administration of justice between parties. For that purpose it is the policy of the law that strangers who have documents may be put to certain trouble in searching for and gathering together relevant documents and bringing them to court. It is according to the same principle that persons who have knowledge of facts are put to the inconvenience of being brought to court and required to give evidence.
In Hatton v Attorney-General of the Commonwealth of Australia & Ors (2000) FLC 93-038 the relevance of documents in the context of a subpoena was considered by the Full Court and the following examples were given where a Court may determine that it is proper to set aside a subpoena:-
· If the subpoena is for an improper purpose namely to obtain discovery against a third party.
· Where it might be oppressive to comply with a subpoena.
· Where a party embarks upon a “fishing expedition”.
· That the subpoena should be set aside because it lacks relevance to the proceedings.
In Martin & Martin and Anor(No 2) [2014] FamCA 232, Cronin J found that the focus of the Court should be whether it was “on the cards” that the documents would materially assist. At [28] his Honour considered his own comments in Woley & Humboldt (No 4) [2009] FamCA 546 where he said:-
39.In Hudson Timber and Hardware Ltd v Chaudhary Group Pty Ltd [2002] FCA 832 the Full Court of the Federal Court examined the issue of apparent relevance and said that the relevant principles governing the obtaining of documents on subpoena which have “apparent relevance” were that inter alia:-
(1)The relevance of documents was not limited to documents directly admissible in themselves in proof of an issue raised in pleadings; and
(2)If a class of document which has material forensic relevance could be shown to exist, then a subpoena would not normally be set aside.
The obligation to make discovery is not in the abstract but rather, requires the parties to consider the relevance that the documents may have to an issue in dispute. The objective should be to assist the Court in the disposal of an issue or the dispute in general.
At an early stage in the proceedings it is not necessarily easy to define the issues and therefore the extent to which a document or a category of documents may have a sensible relevance. As the proceedings progress, the issues are cast more clearly and accordingly the parties are better able to ascertain what documents are truly relevant and germane to the task that the Court is required to undertake.
In recent years superior courts have taken a more modern approach to general discovery. In part, this is as a result of the enormous amount of documentation that is involved and the burden and cost of discovery in many cases where it may not be necessary. The discovery process has been criticised as having disadvantages, including the swamping of parties with masses of material which tend to delay the proceedings and to fog the real issues.
On 1 August 2011 the Federal Court of Australia adopted the Federal Court Rules 2011 (Cth) (“Federal Court Rules”) and its revised regime for discovery in Pt 20. These changes have impacted upon the extent and the cost of discovery.
Part 20 provides for:-
·Increased judicial control of discovery;
·A default or standard form of discovery that requires the documents be “directly relevant” to issues in the pleadings and in the parties “control” after conducting a “reasonable search”;[7] and
·A more flexible and responsible non-standard discovery regime that can be tailored to the specific case, such as those that are likely to be document intensive, especially where the documents are sought electronically.[8]
[7]Federal Court Rules 2011 (Cth) r 20.14.
[8] Ibid r 20.15.
The new regime for discovery in Federal Court proceedings is on the basis of two principles namely, that a party must not apply for discovery unless the making of an order will “facilitate the just resolution of the proceedings as quickly, inexpensively and efficiently as possible”[9] and that a party is not able to provide discovery “unless the Court has made an order for discovery.”[10]
[9] Ibid r 20.11.
[10] Ibid sub-r 20.12(1).
The focus is to prevent unnecessary discovery.[11]
[11] See Dennis v ChambersInvestment Planners Pty Ltd [2012] FCA 63.
In Alanco Australia Pty Ltd v Higgins (No 2) [2011] FCA 1063 the following is said:-
8.For that purpose under the 2011 Rules, discovery is to be given only when ordered by the Court rather than pursuant to any private arrangements between the parties (r 20.12). Under both sets of Rules, documents must be directly relevant to the issues raised in the proceedings by pleading or affidavit or affidavits accompanying the originating application. In addition, it is necessary that the documents must meet at least one of the following criteria (r 20.14(2) of the 2011 Rules):
(a)The documents are those on which the party intends to rely;
(b)The documents adversely affect the party’s own case;
(c)The documents support another party’s case;
(d)The documents adversely affect another party’s case.
9.While more extensive and special discovery may be permitted where the party satisfies a Court as to the need (r 20.15 of the 2011 Rules), the overriding objectives and purpose must always be borne in mind.
Accordingly, the purpose of the Federal Court Rules is to require parties to consider the extent to which discovery is required and whether the document or documents are necessary as being relevant to the issues raised, that a party is aware of them and that they are or have been in a parties’ control.
For discovery to be the subject of an order, the document must pass the “directly relevant” test.
The direct relevance test is aimed at narrowing the scope of discovery. The meaning of direct relevance is that of relevance in the sense of requiring the document be directly on point and that it tends to prove or disprove the allegation in issue.
It is also important to differentiate proceedings that do not necessarily fall within the category of “commercial proceedings”. Parties in proceedings under the Act may have different levels of control and disadvantage. In many cases, without the clear obligation on a party to make full and frank disclosure, matters that could well be relevant to the issues that the Court needs to determine may not be known by any other means.
Accordingly, the Rules impose a more generous obligation in respect of discovery than might now be the practice in other superior courts. That obligation falls short of discovery without forensic focus.
The duty of disclosure in the Family Court is absolute both as between the parties and as a duty to the Court. In Briese & Briese (1986) FLC 91-718 at 75,180 the Full Court said:-
The need for each party to understand the financial position of the other party is at the very heart of cases concerning property and maintenance.
The position that has now been reached in the proceedings is that there is broad agreement that the matter cannot progress without Mr B having completed his valuation report. The broad thrust of documents as sought by Mr B are relevant to the valuation exercise. The documents identified by Mr B have been the subject of consent order in the course of these proceedings, at a time when the second to sixth respondents were parties and perhaps of greater relevance, are the subject of clear delineation in consent orders made in the Federal Court between the husband as the plaintiff and the second to sixth respondents as the defendants.
The husband urges the Court to not make the order sought by the wife on the basis, that whilst he is now a director of the companies and concedes that he is entitled to seek the documents, if he was compelled to do so then he apprehends that the dispute with Mr D and Ms C will be re-ignited.
It is a matter for the husband as to how he chooses to conduct his affairs. It could be reasonably anticipated, that in discontinuing the proceedings and thereby discharging any obligation on the second to sixth respondents to provide the documents the subject of the Federal Court order, that the obligation for discovery of the documents required by Mr B would remain a live issue.
The concern of the wife that there may be an underlying strategy in the husband and/or Mr D and Ms C in resisting the provision of the agreed documents, arises from the following paragraphs in the husband’s affidavit filed 5 April 2019:-
88.I admit that Mr D has previously had discussions with me in relation to minimising any potential payment to Ms Sellick through the Family Court proceedings by taking steps to understate the value of my interest in the Group. Although it was a party to these discussions and correspondence, I assert that I never consented to the steps proposed by Mr D.
89.By email dated 20 June 2016, Mr D stated that Mr J had devised a two-stage plan to “fix the Ms Sellick situation”. I inferred the “K situation” to be reference to my separation from Ms Sellick (as my former wife is often known by her nickname of “K”). The plan was expressed to involve first, the dilution of my shares in E Pty Ltd and secondly, my ceasing to be a director. This was coupled with a “script” to explain the above steps, together with references to the ability for the Group’s books and records to be adjusted to give effect to same. Mr D’s email stated”
“time for something abit [sic] more serious”
“essentially the company pays the 3 of us a dividend of $100k each, poulous and I use our $100k to buy E Pty Ltd shares, you take $100K cash”
“if the worse [sic] happens and she is awarded 1/6th the best Mr J should [sic] with the books is just under $1 million to her”
“Mr J’s other suggestion on top of this is that you resign as a director.”
“your reason (in court) for doing this was because the seporation [sic] took much of a toll on you and couldn’t cope with running the company anymore. So basically she cost you the company. another [sic] Mr J suggestion.”
“Mr J can back date records to before you met with the lawyer.”
The reference to Mr J is the company accountant Mr J. It now transpires that the companies have terminated the services of their current accountants and reappointed Mr J.
It is not unreasonable that both the husband and in particular the wife would be concerned that a strategy has been implemented to frustrate, delay and derail the wife’s application for settlement of property.
CONCLUSION
The husband is in the unique position, having now been reappointed as a director, to seek the documents pursuant to s 247A of the Corporations Act. It is difficult to understand the husband’s current opposition in circumstances where Mr D and Ms C agreed to supply the identified documents. Given their preparedness to do so as reflected in the Federal Court order, there could be no impediment to their cooperation.
The documents are identified, relevant and within the husband’s control.
In the decision of Re McGorm, Ex parte Co-Operative Building Society of South Australia (1989) 86 ALR 275 at 278:-
The obligation resting on a party obliged to give discovery requires that he make proper inquiries and efforts to identify and disclose all relevant documents that are not in his possession. The obligation extends to making inquiries from the person in whose possession the documents now are … It was said in the nineteenth century case of Taylor v Rundell … by Lyndhurst LC: “If it is in your power to give the discovery, you must give it; if not, you must show that you have done your best to procure the means of giving it”; …
The scope of the inquiries which should be made will depend on the circumstances of the case having regard to the need for discovery in order to dispose fairly of the matters in question, or to save costs in the proceedings. The inquiries must be reasonable, but do not demand of the party giving discovery that he goes to lengths which are oppressive. …
(Citations omitted)
I propose to make the orders as sought by the wife in her application.
I certify that the preceding sixty-nine (69) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Berman delivered on 17 April 2020.
Associate:
Date: 17 April 2020
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