Sigley and De Santis & Ors (No 5)
[2020] FamCA 968
•20 November 2020
FAMILY COURT OF AUSTRALIA
| SIGLEY & DE SANTIS AND ORS (NO. 5) | [2020] FamCA 968 |
| FAMILY LAW – PRACTICE AND PROCEDURE – applicant further amending statement of claim – leave sought – 12 day trial consumed arguing pleading amendments. SHAM TRANSACTIONS – review of applicable case law. |
| Corporations Act2001 (Cth), ss 491, 494, 496, 541, 601AD, 601AH Family Law Act 1975 (Cth), ss 79, 80, 85, 87(11), 90SS, 90UN, 106B, 114, 117 Family Law Amendment Act 2000 (Cth), sch 3 Family Law Rules 2004 (Cth), r 19.10 |
| AG Securities v Vaughan [1990] 1 AC 417 Matthew Conaglen, Sham Trusts (2008) 67 Cambridge Law Journal 176 |
| APPLICANT: | Ms Sigley |
| FIRST RESPONDENT: | Mr De Santis |
| SECOND RESPONDENT: | Q Pty Ltd as trustee for Q Discretionary Trust |
| THIRD RESPONDENT: | R Pty Ltd as trustee for De Santis Family Trust |
| FOURTH RESPONDENT: | Mr S De Santis |
| FIFTH AND SIXTH RESPONDENTS: | Mr T and Mr U as liquidators of E Pty Ltd (in liquidation) |
| SEVENTH RESPONDENT: | De Santis Family Investments Pty Ltd as trustee for E Superannuation Fund |
| EIGHTH RESPONDENT: | V Partners Pty Ltd (formerly P Partners Pty Ltd) |
| |
| TENTH RESPONDENT: | X Pty Ltd as trustee for Trust for the Children of Mr & Ms De Santis |
| ELEVENTH RESPONDENT: | E6 Pty Ltd |
| TWELFTH RESPONDENT: | Ms De Santis (also known as BB De Santis) |
| THIRTEENTH RESPONDENT: | E Pty Ltd |
| FOURTEENTH RESPONDENT: | Mr AA De Santis |
| FIFTEENTH RESPONDENT: | Ms EE De Santis |
| SIXTEENTH RESPONDENT: | Ms DD De Santis |
| SEVENTEENTH RESPONDENT: | Ms AA De Santis |
| FILE NUMBER: | MLC | 9296 | of | 2015 |
| DATE DELIVERED: | 20 November 2020 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | The Honourable Justice Wilson |
| HEARING DATE: | 15, 16, 19, 20, 21, 22, 28 & 29 October 2020 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr J. St John QC with Mr P. Agardy and Mr T. Hutchings |
| SOLICITOR FOR THE APPLICANT: | Peter Szabo Family Law |
| COUNSEL FOR THE FIRST RESPONDENT: | No appearance |
| SOLICITOR FOR THE FIRST RESPONDENT: | No appearance |
| COUNSEL FOR THE SECOND RESPONDENT: | No appearance |
| SOLICITOR FOR THE SECOND RESPONDENT: | No appearance |
| COUNSEL FOR THE THIRD RESPONDENT: | Mr D. Bongiorno |
| SOLICITOR FOR THE THIRD RESPONDENT: | Berry Family Law |
| COUNSEL FOR THE FOURTH RESPONDENT: | Mr D. Bongiorno |
| SOLICITOR FOR THE FOURTH RESPONDENT: | Berry Family Law |
| COUNSEL FOR THE FIFTH AND SIXTH RESPONDENTS: | Dr A. Trichardt |
| SOLICITOR FOR THE FIFTH AND SIXTH RESPONDENTS: | Charles Fice Solicitors |
| COUNSEL FOR THE SEVENTH RESPONDENT: | Mr D. Bongiorno |
| SOLICITOR FOR THE SEVENTH RESPONDENT: | Berry Family Law |
| COUNSEL FOR THE EIGHTH RESPONDENT: | No appearance |
| SOLICITOR FOR THE EIGHTH RESPONDENT: | V Partners Pty Ltd |
| |
| |
| COUNSEL FOR THE TENTH RESPONDENT: | Mr D. Bongiorno |
| SOLICITOR FOR THE TENTH RESPONDENT: | Berry Family Law |
| COUNSEL FOR THE ELEVENTH RESPONDENT: | Mr D. Bongiorno |
| SOLICITOR FOR THE ELEVENTH RESPONDENT: | Berry Family Law |
| COUNSEL FOR THE TWELFTH RESPONDENT: | Mr M. Wilson |
| SOLICITOR FOR THE TWELFTH RESPONDENT: | KCL Law |
| COUNSEL FOR THE THIRTEENTH RESPONDENT: | No appearance |
| SOLICITOR FOR THE THIRTEENTH RESPONDENT: | Charles Fice Solicitors |
| COUNSEL FOR THE FOURTEENTH RESPONDENT: | Mr D. Bongiorno |
| SOLICITOR FOR THE FOURTEENTH RESPONDENT: | Berry Family Law |
| COUNSEL FOR THE FIFTEENTH RESPONDENT: | Mr D. Bongiorno |
| SOLICITOR FOR THE FIFTEENTH RESPONDENT: | Berry Family Law |
| COUNSEL FOR THE SIXTEENTH RESPONDENT: | Mr D. Bongiorno |
| SOLICITOR FOR THE SIXTEENTH RESPONDENT: | Berry Family Law |
| COUNSEL FOR THE SEVENTEENTH RESPONDENT: | Mr D. Bongiorno |
| SOLICITOR FOR THE SEVENTEENTH RESPONDENT: | Berry Family Law |
Orders
The trial of this proceeding is fixed part heard for an additional 18 days commencing on 20 September 2021.
On or before 4pm on 22 March 2021 the applicant must file and serve full particulars of loss and damage properly itemised.
I allow the amendments in the terms recorded in these reasons.
I direct that by 4pm on 27 November 2020 the parties confer and formulate a minute of agreed orders pursuant to which this proceeding will progress further.
I adjourn the further hearing of this proceeding for mention at 9:30am on 2 December 2020.
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 Sigley & De Santis 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 MELBOURNE |
FILE NUMBER: MLC 9296 of 2015
| Ms Sigley |
Applicant
And
| Mr De Santis |
First Respondent
And
| Q Pty Ltd as trustee for Q Discretionary Trust |
Second Respondent
And
| R Pty Ltd as trustee for De Santis Family Trust |
Third Respondent
And
| Mr S De Santis |
Fourth Respondent
And
| Mr T and Mr U as liquidators of E Pty Ltd (in liquidation) |
Fifth and Sixth Respondents
And
| De Santis Family Investments Pty Ltd as trustee for E Superannuation Fund |
Seventh Respondent
And
| V Partners Pty Ltd (formerly P Partners Pty Ltd) |
Eighth Respondent
And
| |
Ninth Respondent
And
| X Pty Ltd as trustee for Trust for the Children of Mr & Ms De Santis |
Tenth Respondent
And
| E6 Pty Ltd |
Eleventh Respondent
And
| Ms De Santis (also known as BB De Santis) |
Twelfth Respondent
And
| E Pty Ltd |
Thirteenth Respondent
And
| Mr AA De Santis |
Fourteenth Respondent
And
| Ms EE De Santis |
Fifteenth Respondent
And
| Ms DD De Santis |
Sixteenth Respondent
And
| Ms AA De Santis |
Seventeenth Respondent
REASONS FOR JUDGMENT
Introduction
The trial of this proceeding commenced on 15 October 2020 having been previously fixed for 12 days. When fixing the case for trial, all counsel assured me that all issues in the case could be comfortably tried over the allocated 12 days. The 12 day allocation should have run out on Friday 30 October 2020.
By 29 October 2020 no party had opened his or her case let alone called any evidence. After exhaustive debate about the latest version of the applicant’s proposed amended statement of claim (on the ruling of which I reserved judgment) it was necessary to find what I estimated was the likely duration of the trial of this proceeding. As 12 days that had been previously allocated were significantly inadequate, I estimated the trial is likely to take not less than 18 days (possibly 20) so I fixed the trial (part heard) for an additional 18 days commencing on 20 September 2021.
That outcome was the inevitable consequence of the way in which the trial of this proceeding had been conducted since 15 October 2020. It is also inevitable that an array of interlocutory applications will arise requiring adjudication between now and the resumption of the trial.
By 4pm on 29 October 2020 when the trial of this proceeding was adjourned part heard, debate had concluded on the amendment proposed by the applicant at 2:15pm on 28 October 2020. Mr St John QC requested me to provide written reasons for my ruling either in allowing or refusing his application for leave to amend. These are my reasons.
Synopsis
For the reasons that follow I allow the amendments that are recorded hereunder.
The various iterations of the applicant’s statement of claim
As has already been canvassed in my earlier reasons, the applicant’s pleading in this case passed through a variety of iterations since I ordered pleadings the first of which was filed and served on 15 August 2019. On 23 December 2019 the applicant’s solicitor produced his affidavit to which he attached a five page document setting out –
a)additions to paragraph 18 in the form of paragraphs 18A(1) and 18A(2), relevantly, referring to the second respondent Q Pty Ltd[1] becoming “the alter ego/or the puppet of the first respondent”;[2]
b)additions to paragraph 61 in the form of paragraph 61A made up of subparagraphs 61A(i) to 61A(xvii) relevantly inserting the assertion that the trust was a sham; and
c)additions to paragraph 74 to similarly incorporate the assertion that Q Pty Ltd, then not in liquidation, was the alter ego and/or puppet of the first respondent;[3]
[1] As at the date of this amendment, no reference has been made to that company being in liquidation.
[2] In debate on 29 October 2020 Mr St John QC placed heavy reliance on the concept of “alter ego” and “puppet” as derived from the judgment of Fogarty J in In the Marriage of Gould (1993) 17 Fam LR 156.
[3] Ibid.
An array of complaints were made in the lead up to trial to the effect that the respondents or one or more of them had failed or delayed in filing responses or defences to the applicant’s statement of claim. Those complaints were resolved.
On 6 October 2020, literally days prior to the commencement of the trial of this proceeding, the applicant produced and circulated the amended statement of claim in its consolidated form, called by its acronym the CAMSOC. While aspects of the CAMSOC have been the subject of some decisions handed down by me, no attention has yet been devoted to the changing nature of the CAMSOC, especially in the period between 6 October 2020 being the version of the statement of claim the applicant took to trial and the version of the CAMSOC as was circulated at 2:15pm on 28 October 2020.
The overall claims made by the applicant in her consolidated amended statement of claim
On many occasions in the period between 15 and 29 October 2020 Mr St John QC told me that his client’s claims in this litigation were factually and legally complex. He was correct. They were not easily comprehensible from the CAMSOC or its later proposed amendments. The following is a snapshot of the claims the applicant made against each respondent. This is a cursory narrative only, not intended to exhaustively record all aspects of all claims against all respondents. That recording is more properly the province of reasons for judgment following the trial of the entire proceeding.
The applicant’s pleaded case against the first respondent
At its most rudimentary level, the applicant has brought this litigation to enforce the provisions of clause 6 of a financial agreement made between the applicant and the first respondent as if it were an order of the court. The financial agreement was made on 24 October 2013 pursuant to Part VIIIAB of the Family Law Act. The applicant applied to enforce –
a)clause 6(a) of the financial agreement pursuant to which the first respondent agreed to meet all mortgage dues owing under a mortgage in favour of NN Bank over Y Street, Suburb Z;
b)clause 6(c) of the financial agreement pursuant to which the first respondent agreed to make all repayments on the applicant’s 2009 Luxury motor vehicle and on any replacement vehicle; and
c)clause 6(d) pursuant to which the first respondent agreed to ensure that an identified policy of life insurance or any replacement thereof was maintained with the applicant being named as the sole beneficiary under such policy.
The applicant asserted that the first respondent breached the financial agreement he made with her. She contended the first respondent –
a)last made a payment on the Y Street mortgage on 27 July 2015;
b)last made a payment on the Luxury motor vehicle loan on 27 July 2015; and
c)ceased making payments under a policy of life insurance under which the applicant was named as a beneficiary on 13 November 2015.
The applicant asserted that the consequences of those breaches were threefold. They were –
a)NN Bank sought an order for possession of the Y Street property;
b)the lender pursuant to the financing arrangement for the Luxury motor vehicle sought enforcement of that loan; and
c)the first respondent’s policy of life insurance naming the applicant as beneficiary lapsed.
The applicant asserted that she resolved the mortgagee possession litigation in the County Court of Victoria by entering into a deed of settlement dated 13 April 2016 pursuant to which she assumed responsibility for the Y Street mortgage.
The applicant asserted that she resolved the dispute with the financier of the Luxury motor vehicle by meeting arrears[4] and by entering into a finance agreement with another financier in relation to ongoing leasing amounts due on the Luxury motor vehicle.
[4] Inferring that she discharged the finance agreement with the earlier financier.
The first respondent now has an incurable muscular disorder[5] rendering him wheelchair bound by reason of progressive atrophy of muscles on limbs. She asserts that no insurance is available.
[5] The applicant alleges that this condition was diagnosed by Professor OO in 2005.
In paragraph 14 of the CAMSOC the applicant claimed damages for breaches of the financial agreement. With some particularity, the applicant alleged that she was entitled to damages pursuant to s 87(11) of the Family Law Act.
In her case outlined filed at 4:20pm on 14 October 2020[6] the applicant relied on s 90UN of the Family Law Act. In this case the applicant and the first respondent were in a de facto relationship so their financial agreement was governed by the provisions of Part VIIIAB of the Family Law Act, one section in which is s 90UN. Mr St John QC relied on that section. It provides as follows –
The question whether a Part VIIIAB financial agreement or a Part VIIIAB termination agreement is valid, enforceable or effective is to be determined by the court according to the principles of law and equity that are applicable in determining the validity, enforceability and effect of contracts and purported contracts, and, in proceedings relating to such an agreement, the court:
(a)subject to paragraph (b), has the same powers, may grant the same remedies and must have the same regard to the rights of third parties as the High Court has, may grant and is required to have in proceedings in connection with contracts or purported contracts, being proceedings in which the High Court has original jurisdiction; and
(b)has power to make an order for the payment, by a party to the agreement to another party to the agreement, of interest on an amount payable under the agreement, from the time when the amount became or becomes due and payable, at a rate not exceeding the rate prescribed by the applicable Rules of Court; and
(c)in addition to, or instead of, making an order or orders under paragraph (a) or (b), may order that the agreement, or a specified part of the agreement, be enforced as if it were an order of the court.
[6] That is to say the day before the trial of this proceeding was fixed to commence.
The applicant claimed she was entitled to compensatory damages. She relied on the decision of Baron Parke in Robinson v Harman[7] as well as decisions in the High Court in Wenham v Ella[8] and Commonwealth v Amann Aviation Pty Ltd.[9]
[7] [1848] 154 ER 363.
[8] (1972) 127 CLR 454.
[9] (1991) 174 CLR 64.
In paragraph 14 of the CAMSOC the applicant left particulars of her damages claim unspecified. Similarly in paragraph 15 of the CAMSOC the applicant left particulars of her costs claimed unspecified.
In the prayer for relief the applicant sought against Mr De Santis a collection of remedies. They included –
a)orders for the payment of all sums due under the financial agreement;
b)damages for breach of the financial agreement;
c)declaratory relief relating to the Luxury motor vehicle;
d)the dismissal of related litigation transferred from the Supreme Court of Victoria;
e)orders for the sale of X Street, Suburb FF;
f)orders under s 106B of the Family Law Act; and
g)the payment of any money due to Mr De Santis in the winding up of E Pty Ltd to be paid to the applicant.
The applicant’s pleaded case against the second respondent
In paragraph 18 of the CAMSOC the applicant alleged that the first respondent, Mr De Santis, had “legal and/or de facto control of the second respondent”, Q Pty Ltd (then, not in liquidation). The CAMSOC introduced paragraphs 18A(1) and 18A(2). In them the applicant asserted –
a)in paragraph 18A(1) that on 12 January 1999 the first respondent took over the management and control of a defunct company and renamed it Q Pty Ltd; and
b)in paragraph 18A(2) that the second respondent became the alter ego of the first respondent.
In paragraph 22 of the CAMSOC the applicant alleged that the first respondent “entered into a scheme with others” to effect dispositions “which were deliberately intended to defeat existing orders” in this proceeding or “assets in his name or within his control (“the Scheme”)”. No particulars were given of that allegation, whether as to the participants in that scheme or about the mental state of the participants. The date of the entry into the Scheme was not specified except to say “that it was by 6 June 2016”. This proceeding was commenced in 2015.
In paragraph 23 the applicant identified the participants in the Scheme. She said they were the first, fourth and fourteenth respondents, that is to say Mr De Santis, Mr S De Santis and Mr AA De Santis together with the companies each controlled, namely the second respondent (Q Pty Ltd), the third respondent (R Pty Ltd), the seventh respondent (De Santis Family Investments Pty Ltd), the tenth respondent (X Pty Ltd) and the eleventh respondent (E6 Pty Ltd).
The applicant asserted in paragraph 23 of the CAMSOC that the respondents identified immediately above “were each parties to the Scheme and acted in accordance with the intentions of the Scheme”. Nowhere in the CAMSOC did the applicant articulate what were “the intentions of the Scheme”. One wonders how an inanimate object such as a scheme can have intentions. Be that as it may, at paragraph 15 of the case outline of all counsel for the applicant, they wrote the following –
15.As detailed at [16] – [83] & [117] – [123] in the CSC, it is asserted by Ms Sigley that at an unknown time (but before 6 June 2016), Mr De Santis, Mr De Santis Snr and Mr S De Santis agreed to participate in a scheme (the Scheme) involving a number of transactions, and the execution of documents, which was deliberately intended to defeat existing Orders, or Orders that were anticipated to be made in these proceedings.
In a pleading dispute, it is permissible to examine only the impugned pleading and not evidence adduced in support of the impugned pleading.[10]
[10] Wiedenhofer v The Commonwealth (1970) 122 CLR 172, Turner v Bulletin Newspaper Co Pty Ltd (1974) 131 CLR 69, Salemi v MacKellar (No 1) (1976) 137 CLR 388, East-West Airlines v Commonwealth (1983) 57 ALJR 783, Munnings v Australian Government Solicitor (1994) 68 ALJR 169, Munnings v Australian Government Solicitor (No 2) (1994) 68 ALJR 429 and South-West Forest Defence Foundation (No1) v Department of Conservation & Land Management (No 1) (1998) 72 ALJR 837.
To that point the applicant alleged against the second respondent that it was the alter ego of Mr De Santis and that it was a participant in the Scheme.
Between paragraphs 37 and 54 of the CAMSOC the applicant alleged that pursuant to an arrangement entered into on 12 November 2009 the third respondent (R Pty Ltd) advanced and the first and second respondents borrowed the sum of $400,000 repayable on 30 June 2014, secured by –
a)a mortgage over the second respondent’s real property at 72-74 Buckley Street Morwell; and
b)the share held by the first respondent in the thirteenth respondent, E Pty Ltd, then not in liquidation.
In paragraph 40 of the CAMSOC the applicant alleged that the loan and the charge of share “were not intended to be of legal effect” and that no advance of $400,000 was made by Pullet Investments Pty Ltd to Q Pty Ltd or to Mr De Santis. In paragraph 41 of the CAMSOC the applicant alleged that no demand was made by the third respondent upon the second respondent. In paragraph 45 the applicant alleged that the third respondent gave the first and second respondents notice that the third respondent asserted that it intended to exercise its rights as a secured creditor by requiring a transfer of Mr De Santis’s one share in E Pty Ltd. The applicant said no such sum as the amount allegedly due to R Pty Ltd ($755,013.28) was in fact due from Q Pty Ltd or Mr De Santis. Then, in paragraph 54 the applicant asserted (while not naming the second respondent, in terms) that the pursuit of a debt which did not exist and the requirement for the forfeiture of Mr De Santis’s share in E Pty Ltd to R Pty Ltd and Mr De Santis agreeing to such forfeiture without proper consideration were all acts undertaken pursuant to the Scheme.
In paragraph 56 of the CAMSOC, the applicant alleged that all instruments which called up the alleged debt and the transfer of the one share held by Mr De Santis to the fourth respondent[11] should be set aside pursuant to s 106B of the Family Law Act. It was far from clear whether the second respondent was implicated in that prayer for relief.
[11] This seems to be a reference to the share in the thirteenth respondent.
Between paragraphs 57 and 61A of the CAMSOC the applicant addressed a trust constituted by deed of settlement dated 24 December 2004 known as The Trust for the Children of Mr & Ms De Santis. It was alleged that the second respondent was the trustee of that trust. It was also alleged in paragraph 61A[12] that the Trust (as defined) was a sham.
[12] It must be acknowledged that Mr St John QC pressed forcefully that paragraph 61A was a pleading in the alternative. To my mind, that made no difference.
In paragraph 59 of the CAMSOC the applicant contended that the second respondent was the registered proprietor of X Street, Suburb FF being the whole of the land described in certificate of title volume … folio …. In paragraph 64 the applicant alleged that Q Pty Ltd had been deregistered by the Australian Securities and Investments Commission (“ASIC”).[13]
[13] Pursuant to orders made by me on 28 October 2020 Q Pty Ltd was restored to the register of companies maintained by ASIC, that order being made under s 601AH of the Corporations Act.
By way of further allegations against the second respondent, the applicant made various assertions about Q Pty Ltd being the trustee of The Q Discretionary Trust. In paragraph 74 of the CAMSOC the applicant alleged that the Q Discretionary Trust[14] was the beneficial owner of 72-74 Buckley Street, Morwell and in paragraph 74A the applicant alleged that the second respondent was the alter ego or puppet of Mr De Santis.
[14] This was a curious allegation as a trust is not a legal entity so if the pleader was intending to refer to the trustee of the trust being somehow an owner of that parcel of land, the manner of such ownership was not accurately recorded.
None of those allegations provided a factual foundation for the relief the applicant sought. Most peculiarly, in paragraph 78 of the CAMSOC the applicant stated as follows –
78.(Until there is proper disclosure the Applicant is unable to pursue specific claims affecting the assets of the Q Trust but reserves her right to make a claim arising from information which comes to her attention.)
Paragraph 78 was not a proper pleading.
That survey seemed to represent the allegations made by the applicant against or involving Q Pty Ltd.
Of course, the legal status of the second respondent as a deregistered company seemed to have been overlooked. Upon its being deregistered, Q Pty Ltd ceased to exist, a point made clear by the Court of Appeal of the Supreme Court of Victoria in Tarkington Pty Ltd v Kingdrake Pty Ltd.[15] It was not competent for the applicant to bring this proceeding against a deregistered company. Yet no point was taken by any counsel on the matter, a matter that was even more curious it seemed to me.
[15] [2000] VSCA 98.
In the prayer for relief, paragraph 8 contained a plea that, among others, the second respondent placed X Street on the market for sale and, pursuant to paragraphs 9 and 10, the applicant sought orders that the net proceeds of sale be paid to the applicant.
In paragraph 19 of the prayer for relief the applicant sought orders for the realisation of all assets of the Q Discretionary Trust and the proceeds thereof to be paid to the applicant.
The applicant’s pleaded case against the third respondent
In paragraph 1(d) of the CAMSOC the applicant asserted that the third respondent, R Pty Ltd was trustee for The De Santis Family Trust. In paragraph 19 of the CAMSOC the applicant alleged that R Pty Ltd was under the control of Mr AA De Santis. In paragraph 21 of the CAMSOC the applicant alleged that the third respondent held all the issued shared in the capital of the thirteenth respondent, E Pty Ltd.
The applicant alleged that the third respondent was a party to the Scheme alleged in paragraph 22.
In paragraph 38 of the CAMSOC the applicant alleged that on 12 November 2009 the third respondent purportedly advanced to the first and second respondent the sum of $400,000 secured by a charge over the one share that Mr De Santis held in the capital of E Pty Ltd. In paragraph 38A of the CAMSOC the applicant alleged that on 12 November 2009 R Pty Ltd took mortgage security from Q Pty Ltd over 72-74 Buckley Street, Morwell.
In paragraphs 39 and 40 of the CAMSOC the applicant alleged that R Pty Ltd was entitled, by the loan documentation executed on 12 November 2009, to sell Mr De Santis’s share in E Pty Ltd in the event of default under the loan documentation. Between paragraphs 40 and 45 the applicant asserted that R Pty Ltd made no demand upon the first or second respondents by way of exercising any right under the security documentation it held and that the first and second respondents made no payment to R Pty Ltd. Between paragraphs 45 and 50 of the CAMSOC the applicant asserted that the third respondent served a default notice on the first and second respondents for $755,013.28, that such notice of default was false, that no payment was made in satisfaction of the notice of default yet Mr De Santis’s one share in E Pty Ltd was transferred to R Pty Ltd allegedly in the exercise of the security interests R Pty Ltd held. In paragraph 50 of the CAMSOC the applicant asserted that R Pty Ltd was not entitled to require the forfeiture of Mr De Santis’s share in E Pty Ltd.
The applicant alleged that the transfer of Mr De Santis’s share in E Pty Ltd to R Pty Ltd was undertaken pursuant to the Scheme alleged in paragraph 22. She asserted that the instrument on which R Pty Ltd relied “which called up the alleged debt” (those being the words of paragraph 56) should be set aside under s 106B of the Family Law Act.
The claim for relief under s 106B is reflected in paragraph 12 of the prayer for relief.
The applicant’s pleaded case against the fourth respondent
The fourth respondent is Mr S De Santis, the son of Mr De Santis and the grandson of Mr AA De Santis.
The applicant alleged in paragraph 23 of the CAMSOC that Mr S De Santis was a party to the Scheme defined in paragraph 22. She alleged that the fourth respondent was a director of E Pty Ltd.
The applicant alleged that on 15 June 2016 the directors of E Pty Ltd resolved to issue a third share in E Pty Ltd (the other two being held by Mr De Santis and Mr AA De Santis) to the fourth respondent without requiring the fourth respondent to pay any consideration and on 1 August 2016 that third share was issued. The applicant alleged in paragraph 34 of the CAMSOC that the third share in E Pty Ltd was issued pursuant to the Scheme alleged in paragraph 22.
As an alternative plea, the applicant alleged that the fourth respondent could reasonably foresee that the issue of the third E share to the fourth respondent would defeat orders to be made in this proceeding. In paragraph 36 of the CAMSOC the applicant alleged that the resolutions, instruments and dispositions by which the third share in E Pty Ltd was issued to the fourth respondent should be set aside under s 106B of the Family Law Act. She made a similar allegation in paragraph 56 of the CAMSOC.
In paragraph 65 of the CAMSOC the applicant alleged that the fourth respondent had legal control of the tenth respondent, X Pty Ltd from the date of its incorporation, 29 March 2017. Between paragraphs 66 and 71 of the CAMSOC the applicant made allegations against the fourth respondent who in conjunction with the first respondent, the applicant alleged executed a deed of change pursuant to which (relevantly) –
a)X Pty Ltd became the trustee of The Trust for the Children of Mr & Ms De Santis; and
b)legal ownership[16] of X Street, Suburb FF changed from Q Pty Ltd to X Pty Ltd.
[16] Curiously, the applicant did not assert that the registered proprietor of X Street, Suburb FF changed and instead she called it “legal ownership”.
The applicant asserted that the deed of change was executed in accordance with the Scheme, as defined.
The applicant also alleged that the fourth respondent, and others knew that the deed of change had the effect of defeating or likely defeating an existing or anticipated order in this litigation and therefore, according to paragraph 71 of the CAMSOC, the deed of change should be set aside under s 106B of the Family Law Act.
The applicant alleged that the fourth respondent (with others) approved the accounts of X Pty Ltd at the time of the liquidation of that company on 4 October 2016 and that those accounts did not accurately represent its financial position.
In her prayer for relief, the applicant does not make an in personam claim against the fourth respondent. Instead, she sought relief under s 106B in respect of various transactions or instruments seeking to set them aside.
The applicant’s pleaded case against the fifth and sixth respondents
The applicant raises no material facts against the fifth and sixth respondents who were joined as parties to this litigation in their capacity as liquidators of E Pty Ltd (in liq).[17] Paragraph 83 of the CAMSOC erroneously recorded that the fifth and sixth respondents were appointed as liquidators to the twelfth respondent. E Pty Ltd is the thirteenth respondent. Ms De Santis is the twelfth respondent. The error in paragraph 83 requires correction. Additionally, nowhere in the CAMSOC does the applicant plead (as it should have) that leave to proceed against a company in liquidation was granted, nor when such leave was granted, if at all. When a company is placed in liquidation, litigation against that company stops and can only be brought thereafter with leave of the court. As to the specific alphabetical subparagraphs of paragraph 83, the applicant did not record the statutory entitlement on which she relied for her claim in paragraph 83(c) and 83(d).
[17] The court heading does not reveal that E Pty Ltd is in liquidation. The Corporations Act requires that (see s 541).
Paragraph 84 was not a proper pleading and it was inappropriate to include it.
A fair reading of paragraphs 83 and 84 leads to the conclusion that no material fact is alleged in either paragraph.
The applicant’s pleaded case against the seventh respondent
De Santis Family Investments Pty Ltd is the seventh respondent. In paragraph 1(g) of the CAMSOC the applicant alleged that the seventh respondent is the trustee of the E Superannuation Fund (“the Fund”).
The applicant alleges that as at 30 June 2017 Mr De Santis had an existing entitlement of $495,784 in the Fund. She said that she seeks an order for the payment to her of Mr De Santis’s entitlement in the Fund and, to that end, that Mr De Santis be ordered to apply to the Fund and to the ATO for the release of his entitlements to him to be paid to her.
In addition, the applicant sought orders under s 106B of the Family Law Act. More particularly, she alleged that the seventh respondent is the registered proprietor of an apartment known and described as H Street, Suburb I in which Mr De Santis lived from the date of acquisition of the apartment until the date of his departure from Australia in 2018. The applicant alleged in paragraph 93 of the CAMSOC that the seventh respondent received rental from Mr De Santis for his occupation of the apartment for the financial years ended 30 June 2016, 2017, 2018 and 2019. In paragraph 95 the applicant said she sought orders under s 106B of the Family Law Act setting aside transactions that the seventh respondent knew[18] or ought to have known had or would have the effect defeating an existing or anticipated order in this proceeding.
[18] The seventh respondent is a corporation. Attributing a state of mind to a corporation is well known in trade practices law yet the applicant made no attempt to attribute a natural person’s knowledge to that of the corporation.
In the prayer for relief, paragraphs 15 and 16 related to the seventh respondent. In paragraph 15 the applicant sought an order that within seven days the seventh respondent pay the applicant all monies due to Mr De Santis from his entitlements in the Fund. In paragraph 16 the applicant sought orders setting aside under s 106B of the Family Law Act all rental paid by Mr De Santis for his occupation of H Street, Suburb I and applying those payments to meet all sums due under her financial agreement with Mr De Santis.
The applicant’s pleaded case against the eighth respondent
Between paragraphs 96 and 107 of the CAMSOC the applicant set out the basis of her allegations that under s 106B, fees of $61,112.55 paid by Mr De Santis to his solicitors then acting for him should be paid to her. Of particular relevance was paragraph 105 of the CAMSOC. It was in the following terms –
105.Whilst not the deliberate intention of the Eighth Respondent, it knew and / or should have known, that payments made by (or on behalf of) the First Respondent in satisfaction of the accounts would defeat (or likely defeat) existing Orders and / or anticipated Orders in the Applicant’s proceedings against the First Respondent.
That seemed to amount to a plea that the legal practice V Partners Pty Ltd was required to disgorge funds already received by it in fees ($61,112.55) on the basis that that legal practice knew or ought to have known that payment of those fees would or might defeat orders (or anticipated orders) against Mr De Santis.
That contention called for close examination in terms of the practical ramifications on the eighth respondent of a lengthy trial. The eighth respondent was a peripheral respondent. The costs of requiring V Partners Pty Ltd to participate in a lengthy trial was disproportionate. On the urgings of Mr Mihailidis, I excused the eighth respondent from participating in this case until all other claims had been heard.
The applicant’s pleaded case against the ninth respondent
The applicant discontinued its claim against W Pty Ltd.
The applicant’s pleaded case against the tenth respondent
As mentioned already, the tenth respondent is in liquidation pursuant to a resolution of members passed on 4 October 2016. Leave to commence this proceeding against it was required. The CAMSOC made no reference to such leave having been given. That represented a failure to plead a material fact of the sort I canvassed in Chen & Chen (No 3).[19]
[19] [2020] FamCA 744.
The real battleground in the disputation involving X Pty Ltd lay in proceeding …2019 commenced in the Supreme Court of Victoria by notice of motion. That proceeding was transferred to this court. In it, X Pty Ltd sought rectification of clause 2.1 of The Trust by deleting reference to the primary beneficiaries, one of which was Q Pty Ltd and substituting instead the fourth respondent, Mr S De Santis. In this proceeding the applicant contended in paragraph 113 of the CAMSOC that the Supreme Court proceeding transferred to this court does not fall within the accrued jurisdiction of the Family Court of Australia. In paragraph 114 of the CAMSOC the applicant alleged that if ordered, the rectification sought “would significantly alter” the effect of the twelfth respondent’s agreement conferring additional and substantial benefits on Ms De Santis and her children. In paragraph 115 of the CAMSOC the applicant alleged that if rectification of The Trust were ordered, the applicant’s ability to enforce the financial agreement between the applicant and Mr De Santis would be extinguished. The applicant said in paragraph 116 of the CAMSOC that rectification was not justified.
The applicant’s status to contest the rectification issue was a vexed issue. The liquidator of X Pty Ltd appeared to have brought the rectification claim in which orders were sought rectifying clause 2.1 of The Trust. The applicant was not a party to that dispute. Nevertheless, in paragraph 6 of the prayer for relief in the CAMSOC the applicant sought an order dismissing the rectification claim. An important issue in this litigation will need to be determined about whether a party who seemingly has no connection to an instrument (here, the applicant to The Trust) can rely on s 106B of the Family Law Act to obtain orders that have the effect of conferring a priority over those with equitable interests.
The applicant’s pleaded case against the eleventh respondent
E6 Pty Ltd is the eleventh respondent. In paragraph 1(j) of the CAMSOC the applicant alleged that E6 Pty Ltd purchased the assets and undertaking of E Pty Ltd prior to E Pty Ltd being placed in liquidation.
As against E6 Pty Ltd the applicant made two broad claims. The first was that the sale of business dated 30 September 2016 between E Pty Ltd as vendor and E6 Pty Ltd as purchaser pursuant to which the vendor sold the business to the purchaser for $297,621 was part of the Scheme, as defined. The second was that under s 106B of the Family Law Act the purchase price should be repaid to the liquidators of E Pty Ltd (in liq).
The applicant’s pleaded case against the twelfth respondent
Ms De Santis is the twelfth respondent. She was once married to Mr De Santis. She is the mother of the fourth respondent, Ms DD De Santis and Ms EE De Santis. She is the former daughter-in-law of Mr AA De Santis the fourteenth respondent and the former daughter-in-law of Ms AA De Santis, the seventeenth respondent.
Between paragraphs 124 and 138 of the CAMSOC the applicant made a collection of allegations yet few could be properly described as material facts for the purposes of the CAMSOC in this proceeding. Some more properly took the form of submissions (for example, paragraphs 132, 133 and 134), not appropriate to a pleading. That said, between paragraphs 124 and 138 of the CAMSOC, the applicant alleged as follows –
a)Ms De Santis commenced proceeding MLC11947 of 2018 against Mr De Santis;
b)Ms De Santis and her three children have enforceable rights in the property at X Street, Suburb FF and Ms De Santis sought the dismissal of the applicant’s claims in this proceeding for orders for the sale of X Street;
c)in proceeding MLC11947 of 2018 Ms De Santis seeks orders enforcing a financial agreement made between her and Mr De Santis, including an order amending the certificate of title of X Street, Suburb FF to reflect her life interest and remainderman interests of her children and other relief; and
d)the applicant disputed this court’s power to make the orders Ms De Santis sought.
No separate prayer for relief was sought by the applicant in relation to the twelfth respondent.
No pleaded case against the thirteenth to seventeenth respondents
The CAMSOC did not contain allegations or prayers for relief against E Pty Ltd (in liq), Mr AA De Santis, Ms DD De Santis, Ms EE De Santis or Ms AA De Santis.
The amended statement of claim – 19 October 2020
In my reasons for judgment in Sigley & De Santis (No 4),[20] ex tempore judgment in which was handed down on 21 October 2020, I canvassed proposed amendments sought unsuccessfully on behalf of the applicant on 16 October 2020. That led to counsel for the applicant formulating the version of the further amended statement of claim that was produced on 19 October 2020. As was recorded in my ex tempore reasons, the main focus of debate by the third and fourth days of the trial was on paragraphs 79 to 82 of the further amended statement of claim and on paragraph 13A of the prayer for relief. Another focus was on paragraph 59 insofar as any claim in relation to X Street, Suburb FF was asserted. Mr Wilson of counsel for Ms De Santis complained about the newly introduced paragraphs 59A - 60. He argued that leave to amend to include paragraphs 59A – 60 should be refused. In the upshot I refused leave to amend as proposed in paragraphs 79 to 82, 59A – 60 and paragraph 13A of the prayer for relief.
[20] [2020] FamCA 903.
The amended statement of claim 2:15pm 28 October 2020
At 2:15pm on 28 October 2020 when the hearing of the trial resumed, Mr St John QC announced that still further pleading amendments were proposed in consequence (so he said) of very last minute production of documentation by the parties represented by Mr Bongiorno. Unsurprisingly, that provoked a denial by the respondents that documentation had been late produced or that any such newly produced documentation altered in any way material known already to the applicant and her legal advisors.
Before going to the minutiae of the version of the further amended statement of claim produced at 2:15pm on 28 October 2020 it is important to record that the trial of this proceeding was fixed for 16 October 2020 for 12 days pursuant to my orders in Sigley & De Santis.[21] It was scheduled to run from 16 October 2020 until 30 October 2020. By the close of court business on 29 October 2020 the case had not even progressed to openings, let alone a single witness giving evidence. That is why in Sigley & De Santis (No 4)[22] I said “it was not emblematic of the way litigation should be conducted, even recognising the complex claims and cross-claims made in this litigation”. By 4pm on 29 October 2020 the version of the CAMSOC that was before the court on the first day still applied in an unamended form. The version of the further amended statement of claim proposed at 2:15pm on 28 October 2020 introduced a collection of minor and another collection of major amendments. The applicant needed leave to amend, whether as to minor or major amendments. In the course of a lengthy address over two days on the proposed amendments, several times Mr St John QC told me, in effect, that he did not understand there to be an issue with one or more of the amendments proposed. His understanding was immaterial. He had to persuade me to grant his client the leave she sought and which she needed without which the amendments could not be made.
[21] [2020] FamCA 780.
[22] [2020] FamCA 903.
On the front page of the 28 October 2020 proposal the applicant included five words that piqued debate. In the description of Q Pty Ltd after the applicable company number and before the description “atf Q Discretionary Trust and atf The Trust for the Children of Mr and Ms De Santis” the applicant included “in its own right and”. The respondents asked what the words “in its own right and” as trustee for the two trusts mentioned actually meant.
That issue was debated. However, I confess not to have understood the point Mr St John QC made on the matter.
Paragraph 18A(2)
The first substantive opposition arose in relation to paragraph 18A(2). In the version of the CAMSOC on which the applicant proceeded to the first day of the trial, paragraph 18A(2) was in the following form –
18A(2)The Second Respondent became the alter ego and / or the puppet of the First Respondent.
Particulars
(i)At no time was any person other than the First Respondent actively involved in the management of Q prior to the Deed of Change.
(ii)From at least 2003 there was no meeting of its directors;
(iii)From at least 2003, there was no Annual General Meeting;
(iv)From at least 2003, no accounts of its operations were prepared;
(v)Since 1999, it has not been actively engaged in commercial activity;
That was unchanged in the version of the statement of claim proposed on 19 October 2020.
Yet the version of paragraph 18A(2) that appeared in the 28 October iteration of the further amended statement of claim differed, provoking objection by Mr Wilson. It was as follows –
18A(2)The Second Respondent became the alter ego and / or the puppet of the First Respondent.
Particulars
(i)At no time was any person other than the First Respondent actively involved in the management of Q prior to the Deed of Change.
(ii)From at least 2003 there was no meeting of its directors;
(iii)From at least 2003, there was no Annual General Meeting;
(iv)
From at leastAfter the 2007 financial year, no annual accounts of its operations were prepared;(v)Since 1999, it has not been actively engaged in commercial activity(vi)In or about November 2008 the annual accounts for at least the 2005 & 2006 financial years were purportedly retrospectively altered.
Mr Wilson’s objections related to imprecision. He submitted that the pleading identified Q Pty Ltd as being the trustee of two trusts. Mr Wilson contended that the new particular (vi) subjoined to paragraph 18A(2) failed to differentiate which of the two trusts to which it referred. Mr Wilson submitted that the point was significant and that the particulars to paragraph 18A(2) were confusingly unclear. Mr Bongiorno did not wish to be heard on this paragraph.
Mr St John QC in reply submitted that the applicant had consistently contended that Q Pty Ltd was the puppet or alter ego of Mr De Santis and that the amendment to paragraph 18A(2)(vi) had been necessitated by the provision of accounts for both trusts.
Dr Trichardt did not wish to be heard on this issue.
It seemed to me that considerable merit existed in Mr Wilson’s criticism that particular 18A(2)(vi) did not differentiate between the two trusts of which Q Pty Ltd was trustee. However, that did not render the proposed amendment bad, per se. It seemed to me that it was open to construe paragraph 18A(2)(vi) as being a reference to the two trusts. Whether the facts found at trial bear that out remains to be seen.
I allow the amendment to paragraph 18A(2).
Paragraph 43
The applicant proposed an amendment to paragraph 43 by the inclusion of one further financial year, namely 2017. Mr St John QC said the proposed amendment was minor. That was true. No other counsel opposed the proposed amendment or wished to be heard on point.
In my view the proposed amendment to paragraph 43 is cosmetic only. I allow it.
Paragraphs 59, 59A, 60, 61 and 61A
To better contextualise the iteration of paragraphs 59, 59A, 60, 61 and 61A in the proposed amended pleading produced on 28 October 2020, it is necessary to understand the evolution of those allegations.
Paragraph 59 was introduced in the CAMSOC dated 6 October 2020. It was as follows –
59.The Second Respondent has been the registered proprietor of Unit X Street, Suburb FF (“X Street”) since 20 September 2005 and was the borrower of monies applied towards its purchase secured by registered mortgage loan to JJ Company upon the title of X Street.
Particulars
A copy of title Volume … Folio … is Exhibit “J” to the affidavit of George Peter Szabo filed 19 April 2018.
Paragraph 59 was unchanged in the version of the pleading dated 19 October 2020.
A proposal to amend paragraph 59 was introduced in the document produced on 28 October 2020. That proposal was in the following terms –
59.The Second Respondent has been and is the registered proprietor of X Street, Suburb FF (“X Street”)
since on or about 20 September 2005and was the purchaser and the borrower of monies applied towards its purchase secured by registered mortgage loan to JJ Company upon the title of X Street.Particulars
(a)A copy of title Volume … Folio … is Exhibit “J” to the affidavit of George Peter Szabo filed 19 April 2018 (and Annexure “PS2” to his affidavit filed 9 October 2020) which discloses the mortgage was registered on 2 March 2005.
(b)The accounts of Q Discretionary Trust in at least the 2004 & 2005 financial years record X Street as an asset and the mortgage loan to JJ Company on X Street as a liability.
In support of the proposed amendment to paragraph 59 Mr St John QC argued that his client cured the complaint raised earlier by Mr Wilson.
Neither Dr Trichardt or Mr Wilson made a submission about the proposed amendment to paragraph 59.
On behalf of the respondents he represented Mr Bongiorno advanced a collection of reasons why the amendments to paragraph 59 should not be allowed. They were –
a)the central proposition in this case that Q Pty Ltd was the registered proprietor in its own right of X Street, Suburb FF was inconsistent with the proposition in paragraph 59(b) that X Street, Suburb FF was shown as an asset in the accounts of Q Discretionary Trust over several years, indicating that Q Pty Ltd was the registered proprietor of the property in a representative capacity and not “in its own right”;
b)paragraph 59 said nothing about the capacity in which Q Pty Ltd acquired X Street, Suburb FF; and
c)the amendment to paragraph 59, in a contradictory manner as it presently appeared, should not be allowed.
In reply Mr St John submitted that the registered proprietor of X Street, Suburb FF is Q Pty Ltd.
It was fair to say that the source of the difficulties encountered by the applicant in adequately pleading the status of Q Pty Ltd as the registered proprietor of X Street, Suburb FF lay in the consequences of the deregistration of Q Pty Ltd under the Corporations Act. It was common ground that the second respondent was deregistered on 20 February 2017 in consequence of which all assets of that company vested in ASIC pursuant to s 601AD of the Corporations Act. By inexplicable oversight, no application had been made to ASIC for the reinstatement of the registration of the second respondent. Had an application in those terms been made, pursuant to s 601AH(5) of the Corporations Act, an order reinstating the registration of the second respondent enlivened all aspects of the company as if the company had not been deregistered. In Tarkington Pty Ltd v Kingdrake Pty Ltd[23] Balmford J canvassed the legal effect of reinstatement of a company previously deregistered. Q Pty Ltd was reinstated to the register of companies by my order made on 28 October 2020. It continues to exist. But that phenomenon does not bear upon the capacity in which Q Pty Ltd held X Street, Suburb FF nor did it address the latest version of the further amended statement of claim except to now render peripherally relevant any allegation about the deregistration of the second respondent.
[23] [2001] VSC 126.
It seemed to me that the amendments proposed to paragraph 59 were properly to be characterised as amendments in the nature of additions to particulars. Mr Bongiorno may well be correct in submitting that particular (b) is inconsistent with the applicant’s thesis in this case that Q Pty Ltd is the registered proprietor of X Street, Suburb FF “in its own right”. That seems to me to be an issue properly to be ventilated at trial. The certificate of title will identify the registered proprietor. That will tell only of the legal interest in that land and will say nothing of the equitable interests in the land. Those equitable interests will fall for determination at trial.
In my view paragraph 59 ought to be allowed in the form proposed in the amendment to the further statement of claim put forward at 2:15pm on 28 October 2020.
Paragraph 59A was introduced by the further amended statement of claim produced on 19 October 2020. It was the subject of some attention in Sigley & De Santis (No 4),[24] especially at paragraphs 32, 33, 34 and 61. To the extent that paragraph 59A was the subject of a leave to amend application in those reasons, I refused leave in the form then presented yet I allowed the applicant to replead. The version of the proposed amended statement of claim urged at 2:15pm on 28 October 2020 was the upshot of another attempt to replead the allegations in paragraph 59A.
[24] [2020] FamCA 903.
It is as well to record the two versions of paragraph 59A to better understand their evolution.
In the 19 October 2020 iteration of the further amended statement of claim, paragraph 59A was comparatively short. It was as follows –
59AAt all relevant times until its de-registration by ASIC on 20 February 2017, the Second Respondent was the legal and beneficial owner of X Street.
Particulars
(a)The Second Respondent is the registered proprietor of X Street;
(b)There is no written declaration of trust as required by section 53(1)(b) of the Property Law Act 1958 (Vic).
Paragraph 59A of the 28 October 2020 further amended statement of claim was substantially enlarged. It was in the following terms –
59AAt all relevant times until its de-registration by ASIC on 20 February 2017, the Second Respondent in its own right was the legal and beneficial owner of X Street.
Particulars
(a)There is no written declaration of trust as required by section 53(1)(b) of the Property Law Act 1958 (Vic) in favour of the Q Discretionary Trust.;
(b)There is no written declaration of trust as required by section 53(1)(b) of the Property Law Act 1958 (Vic) in favour of the Trust;
(c)The Deed of Settlement of the Trust had not been signed when X Street was acquired;
(d)The Trust had not been established when X Street was acquired;
(e)JJ Company, the registered mortgagee of X Street, was not informed that X Street was held on trust when the mortgage was approved and X Street was acquired;
(f)It was warranted to JJ Company by or on behalf of the Second Respondent that X Street was not held on trust when the mortgage loan was approved and X Street acquired.
On behalf of the various respondents he represented, Mr Bongiorno contended[25] that in paragraph 59A, the applicant asserted for the first time in her further amended statement of claim that Q Pty Ltd in its own right was both the legal and beneficial owner of X Street. Mr Bongiorno submitted that I had already ruled on paragraph 59A, refusing it.
[25] He submitted that paragraph 24(a) of the applicant’s case outline made a similar contention.
It was true that I ruled on paragraph 59A, disallowing it in the form in which it appeared in the 19 October 2020 iteration of the further amended statement of claim. The version of paragraph 59A in the 28 October 2020 iteration of the further amended statement of claim went significantly beyond the 19 October 2020 version, especially in relation to the particulars subjoined to paragraph 59A. Yet it seemed plain enough that by paragraph 59A the applicant was asserting that Q Pty Ltd was the legal and equitable owner of X Street, Suburb FF. The applicant made that allegation relying on the details in the particulars, namely –
·no written declaration of trust existed by which it could be said that Q Pty Ltd held X Street on trust;
·when X Street was acquired no deed of settlement in respect of it had been executed nor had The Trust for the Children of Mr and Ms De Santis been constituted;
·the relevant mortgagee was not informed that the property was held on trust; and
·the second respondent warranted to the mortgagee that X Street, Suburb FF was not held on trust and, in consequence, mortgage finance for the acquisition of X Street was advanced.
Mr Wilson advanced a collection of submissions urging me to refuse the applicant leave to amend in terms of paragraph 59A as recorded in the 28 October 2020 further amended statement of claim. He submitted –
a)the amendments to paragraph 59A did not arise from documents disclosed very recently and Ms AA De Santis had deposed to the acquisition of X Street;[26]
b)the documentation on which Ms AA De Santis relied[27] revealed that X Street was acquired on a different date to the date alleged by Mr St John on behalf of the applicant;
c)documents from the mortgagee provided to the applicant months ago have nothing to do with matters on which the applicant relies as grounding her most recent application to amend paragraph 59A; and
d)if the applicant were to abandon her contentions that X Street was not held on trust, then costs consequences followed.
[26] Court book page 2653, for example.
[27] For example, court book 1798.
It seemed to me that the applicant was electing to maintain inconsistent propositions about X Street, yet she failed to identify that her propositions were in fact inconsistent. On the one hand she was asserting that Q Pty Ltd held the legal and beneficial interest in X Street, Suburb FF and thus, it owned that land “in its own right” (as alleged in paragraph 59A) and at the same time the applicant alleged that Q Pty Ltd was the registered proprietor of X Street yet it held that land on trust. Of course, according to accepted orthodoxy in pleadings, it is permissible to allege inconsistent factual scenarios so long as the pleader makes perfectly plain that the inconsistent pleadings are alternative. Here, paragraph 59A is not expressed to be pleaded in the alternative. Mr St John did not do so in paragraph 59A.
Mr Wilson, perfectly properly, contended that this case has been on foot for five years and it had been the subject of 46 separate interlocutory skirmishes prior to the trial of the proceeding commencing. Mr Wilson submitted that it was antithetical to the fair conduct of this proceeding to permit the applicant to amend at the conclusion of the 12 days allocated for the trial, arguing that Q Pty Ltd owns X Street absolutely while the applicant concurrently asserts that Q Pty Ltd is the registered proprietor of that land yet the second respondent holds that land on trust. Relying on Aon Risk Services Australia Ltd v Australian National University[28] Mr Wilson submitted that the applicant should not be permitted to amend merely because she says she wishes to amend. There is considerable force in that submission. It may have been determinative were it not for the fact that the further hearing of the trial can only resume as late as 20 September 2021 for 18 days. I do not share the characterisation advanced by Mr Wilson, forcefully yet appropriately, that incurable detriment will be occasioned to the respondents if paragraph 59A is permitted to go forward. I accept that some detriment will be occasioned to the respondents by allowing any amendment now but any such detriment is not incurable. The respondents will have nearly a year to formulate their answer. I also accept that there may be costs consequences for allowing any amendments at this late stage.
[28] (2009) 239 CLR 175 (at [95]).
However, the defect of paragraph 59A, it seemed to me, was its failure to make plain that it was expressed in the alternative. Expressed in that way, it is permissible. On the other hand, unless it is expressed in that way it is wholly inconsistent with the propositions elsewhere advanced, namely, that Q Pty Ltd, as trustee for two trusts, is the holder of the legal interest in trust assets, the holder of the equitable interest laying elsewhere.
Subject to the applicant making plain that the assertion in paragraph 59A that Q Pty Ltd holds the legal and beneficial interest in X Street in its own right is pleaded in the alternative and not otherwise, I am willing to allow the amendment proposed to paragraph 59A in the 28 October 2020 further amended statement of claim.
Paragraphs 59B & 59C
Those paragraphs appeared in the iteration of the statement of claim dated 18 October 2020 and produced to the court on 19 October 2020. Those paragraphs are not pressed in the 28 October 2020 proposed further amended statements of claim.
Paragraph 60
The version of paragraph 60 proposed in the 19 October 2020 iteration of the further amended statement of claim was not the subject of an order granting leave to amend. As a result, in the 28 October 2020 iteration of the applicant’s further amended statement of claim paragraph 60 is also deleted.
Paragraph 61A
In the version of the further amended statement of claim dated 18 October 2020 and produced on 19 October 2020 paragraph 61A was in the same form as it had been since 22 December 2019. It was as follows –
61A Further and/or in the alternative, the Trust is a sham.
That precise wording appeared in the CAMSOC dated 6 October and it appeared in the version of the further amended statement of claim dated 18 October 2020. So far as the 28 October 2020 iteration of the further amended statement of claim was concerned, the reference to a sham vanished altogether. Yet, in disconformity with established pleading practices of illustrating an amendment by leaving the existing pleading in place then striking a line through the wording being altered, no such attempt to do so was made in relation to paragraph 61A. That was an error.
But it went further than that. The new version of paragraph 61A was as follows –
61AFurther and / or in the alternative, the Trust is the alter ego and / or puppet of the First Respondent.
61A(i)The Deed of Settlement of the Trust was drafted by B Accountants, on the instruction of the First Respondent following upon the final separation of he and Twelfth Respondent (“Ms De Santis.”)
61A(ii)The parties to the Deed of Settlement are the settlor (the accountant MM, the principal of B Accountants) and the trustee Q.
61A(iii)MM has deposed he cannot recall if he read the Deed of Settlement before signing it.
61A(iv)When the Deed of Settlement was purportedly signed on 24 December 2004 the two directors of Q were Ms De Santis and Ms AA De Santis, the mother of the First Respondent.
61A(v)The affixing of the company seal of Q to the Deed of Settlement was witnessed by Ms De Santis and Ms AA De Santis.
61A(vi)Neither Ms De Santis nor Ms AA De Santis read the Deed of Settlement prior to it being executing.
61A(vii)The First Respondent was sole appointor of the Trust.
61A(viii)Save to remain the registered proprietor of X Street, Q as purported trustee from the date the Deed of Settlement was purportedly signed, performed no oversight or other practical function in and / for the Trust until the First Respondent sought to remove it as trustee pursuant to the Deed of Change.Particulars(a)No meetings of its director(s) as to the affairs of the Trust were held; and(b) No accounts of the Trust were prepared;61A(ix)No person affected by the terms of the Deed of Settlement were aware of its terms from the date it was purportedly executed until 2019.
61A(x)On 18 March 2008 Ms De Santis and the First Respondent purportedly signed Ms De Santis’s Agreement which Ms De Santis asserts to be binding within the meaning of the Family Law Act.
61A(xi)Notwithstanding Ms De Santis’s Agreement expressly refers to X Street and purports to inter alia grant Ms De Santis a right of occupation of X Street:
(a) she did not read the Deed of Settlement;
(b) the solicitors individually advising she and the First Respondent did not read the Deed of Settlement;
(c)MM, the accountant for the First Respondent, did not read the Deed of Settlement.
61A(xii)The Deed of Change (see paras. 66 & 767 of the Statement of Claim) was executed on 1 June 2017 in the presence of the parties thereto and MM.
61A(xiii)Save as to the First Respondent (whose position is not known), all the parties to the Deed of Change, and their accountant MM, had not read the terms of the Deed of Settlement.
61A(xiv)MM, the accountant for Ms S and X Street, did not read the Deed of Settlement until, mid-to-late 2018 and only then because he became aware of the Applicant’s claim against X Street.
61A(xv)Ms De Santis has deposed that she did not read the Deed of Settlement until she was responding to the Applicant’s application filed 24 September 2019.
61A(xvi)The other persons who the terms of the Deed of Settlement most directly affected, or potentially affected, have each deposed they had no occasion to even read it until the Applicant had commenced application for X Street be sold.
Particulars
See affidavits filed in the Supreme Court proceedings of Mr S, Ms DD & Ms EE (all sworn 19/2/19) at para. 4 for both Ms DD & Ms EE and at para.6 for Mr S);
61A(xvii)None of the parties directly affected were concerned to learn the terms of the Deed of Settlement because the Trust existed in appearance only and had never been of practical effect;
61A(xviii)The financial records of the trusts were altered to purportedly remove the X Street property and associated loans from the Q Discretionary Trust and to place it within the X Trust.
Particulars
There are no records of any meeting/s of the directors of Q Pty Ltd which authorised the purported change of the financial records.
This case had proceeded since December 2019 on the basis that the applicant alleged that the Trust was a sham. By making a conscious decision to allege that a transaction, document or thing was a sham, a party pleading the existence of a sham is to be taken to allege certain things.
For centuries the law has wrestled with the metes and bounds of the doctrine of sham. Ambiguity and uncertainty surrounds its meaning and application.[29] A sham is one of several situations where an agreement may be taken otherwise than at its face value because where a sham exists an objective of deliberate deception of third parties is involved.[30]
[29] As was held by Lockhart J in Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449, 453 as embraced by Kirby J in Raftland Pty Ltd v Federal Commissioner of Taxation (2008) 238 CLR 516.
[30] This was the conclusion reached by Mustill LJ in Hadjiloucas v Crean [1987] 3 All ER 1008, 1019.
Various descriptors have been applied to shams. Among them are the following –
a)“merely a disguise, a facade, a sham, a false front”;[31]
b)a “popular and pejorative word”;[32]
c)acts done or documents executed by the parties to the sham which are intended by them to give to third parties or to the court the appearance of creating between the parties legal rights and obligations different from the actual legal rights and obligations (if any) which the parties intend to create;[33]
d)the word sham first appeared in the seventeenth century and ambiguity in its meaning has attended the word for centuries;[34]
e)for the purposes of Australian law, a sham is something that is intended to be mistaken for something else that is not really what it purports to be;[35]
f)it is a spurious imitation, a counterfeit, a disguise or a false front, not genuine or true but something made in imitation of something else or made to appear to be something which it is not;[36]
g)it is something which is false or deceptive;[37] and
h)something devised to delude, it is a trick or a hoax, an imposture, something intended to be mistaken for something else, it is not really what it purports to be, it is a spurious imitation or a counterfeit.[38]
[31]Perpetual Trustee Co Ltd v Bligh (1940) 41 SR (NSW) 33, 39.
[32]Snook v London & West Riding Investments Ltd [1967] 2 QB 786, 802 (Diplock LJ).
[33] Ibid.
[34]Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449, 453 (Lockhart J).
[35] Ibid.
[36] Ibid.
[37] Ibid.
[38]Cranstoun v Federal Commissioner of Taxation (1984) 75 FLR 220 (Carter J).
The word “sham” derives from Old English traceable to the Old English word “shame” with which its core notions of duplicity and deceit are connected.[39]
[39]Raftland Pty Ltd v Federal Commissioner of Taxation (2008) 238 CLR 516, 560 (Kirby J at [135]).
The existence of sham transactions is antithetical to the presumed legal efficacy of a signed instrument of the sort canvassed in L'Estrange v F Graucob Ltd,[40] Toll (FGCT) Pty Ltd v Alphapharm Pty Ltd[41] and Equuscorp Pty Ltd v Glengallan Investments Pty Ltd.[42] Intention of the parties is the key.[43] Subjective evidence is required.[44] Counterintuitively to the general test of objectivity of the law of contract[45] pursuant to which the legal rights and obligations of the parties turn on what their words and conduct would be reasonably understood to convey as opposed to their actual beliefs or intentions,[46] ascertaining whether a sham is established depends on whether the parties intend their respective rights or obligations to derive from what appears to be a legal instrument.[47] Professor Conaglen pointed out[48] (and Leeming JA agreed in Lewis v Condon[49]) as follows –
The relevance of the sham doctrine, and the difference between it and normal processes of construction, lies in the fact that it justifies the court in ignoring (as opposed to construing) the usual primary material regarding that transaction, and focusing its attention instead on all other material factors which indicate the arrangement that the parties in fact intended.
[40] [1934] 2 KB 394.
[41] (2004) 219 CLR 165.
[42] (2004) 218 CLR 471.
[43]Raftland Pty Ltd v Federal Commissioner of Taxation (2008) 238 CLR 516, 562 (Kirby J).
[44]Snook v London & West Riding Investments Ltd [1967] 2 QB 786, 802.
[45] Australian Broadcasting Corporation v XIVth Commonwealth Games Ltd (1988) 18 NSWLR 540, 549 (Gleeson CJ).
[46] Gissing v Gissing [1971] AC 886, 906 (Lord Diplock) and Ashington Piggeries Ltd v Christopher Hill Ltd [1972] AC 441, 502 (Lord Diplock).
[47]Raftland Pty Ltd v Federal Commissioner of Taxation (2008) 238 CLR 516, 559 (Kirby J).
[48] Matthew Conaglen, Sham Trusts (2008) 67 Cambridge Law Journal 176, 206.
[49] (2013) 85 NSWLR 99.
In Scott v Commissioner of Taxation (No 2),[50] Windeyer J held that the question to be determined is whether the parties who entered into the ostensible transaction meant it to be in truth their transaction, or did they mean it to be, and in fact use it as, merely a disguise, a facade, a sham, a false front…concealing their true transaction.
[50] (1966) 40 ALJR 265, 279.
Where the existence of a sham is made out, the court is entitled to ignore primary documentary material rather than merely construe it.[51] Further, as sham transactions ordinarily involve an element of deceit, rectification will generally not be ordered.
[51]Equuscorp Pty Ltd v Glengallan Investments Pty Ltd (2004) 218 CLR 471, 483 (plurality reasons at [33]).
Next, it is necessary to consider the evidence on which a determination may be made to the effect that the impugned transaction is a sham. The court is not confined to examining the propounded documentation alone. It may examine and draw inferences from other evidence including the parties’ explanations as to their dealings and evidence describing their subsequent conduct.[52] Intention to mislead must be a common intention of the parties.[53] Neither the complexity of the transaction or its artificiality, nor the circularity of the events in it nor the apparent lack of economic or commercial sense of the transaction will of themselves, alone or in combination, necessarily warrant a conclusion that a transaction constitutes a sham. Of a decision that a transaction is a sham, Kirby J said the following in Raftland Pty Ltd v Federal Commissioner of Taxation[54] –
152.For a court to call a transaction a sham is not just an assertion of the essential realism of the judicial process, and proof that judicial decision-making is not to be trifled with. It also represents a principled liberation of the court from constraints imposed by taking documents and conduct solely at face value. In this sense, it is yet another instance of the tendency of contemporary Australian law to favour substance over form. As such it is to be welcomed in decision-making in revenue cases.
[52]Sharrment Pty Ltd v Official Trustee in Bankruptcy (1988) 18 FCR 449, 461.
[53] Snook v London & West Riding Investments Ltd [1967] 2 QB 786, 802; Raftland Pty Ltd v Federal Commissioner of Taxation (2008) 238 CLR 516, 562 (Kirby J at [148]).
[54] (2008) 238 CLR 516, 562 (at [152]).
Australian authority on sham transactions has not always aligned with the law of other common law countries. A variety of English decisions illustrate the reluctance of the courts to declare transactions as shams where the transaction is uncommercial or even uneconomically artificial. Those include Yorkshire Railway Wagon Company v Maclure,[55] Stoneleigh Finance Ltd v Phillips,[56] W T Ramsay Ltd v Inland Revenue Commissioners[57] and National Westminster Bank plc v Jones.[58]
[55] (1882) 21 Ch D 309.
[56] [1965] 2 QB 537.
[57] [1982] AC 300.
[58] [2001] 1 BCLC 98.
Revenue cases in Canada and in New Zealand also have proceeded on tests different to Australia. Kirby J surveyed them in Raftland Pty Ltd v Federal Commissioner of Taxation.[59]
[59] (2008) 238 CLR 516 (at [121]-[128]).
In order to determine that the impugned transaction is a device, a pretence, or a false front (or any of the other appellations given to the transaction by the cases described above) it is necessary to examine the details of the transaction, as the Court of Criminal Appeal held in Barendse v Comptroller-General of Customs.[60] According to that court, only then can the relevant question be answered, namely, whether the intention of the parties was that the transaction was a sham, citing Re La Rosa; Ex parte Norgard v Rocom Pty Ltd.[61] In Lewis v Condon, Leeming JA held that it is necessary to be precise as to the extent to which a transaction is said to be a sham. The whole of the transaction may be a sham or merely a part of it as was the situation in AG Securities v Vaughan.[62]
[60] (1996) 136 FLR 243.
[61] (1990) 21 FCR 270, 279.
[62] [1990] 1 AC 417.
The authorities speak of sham being a species of deceit. While the authorities do not focus particularly on the evidential standard that must be discharged, it seems to me that if proof of deceit is involved, it must follow that proof to a standard equivalent to that essayed in Briginshaw v Briginshaw[63] must be involved.
[63] (1938) 60 CLR 336.
That analysis may once have been useful. But paragraph 61A was amended in such manner as to reveal that the sham alleged had been abandoned.
Mr Bongiorno submitted that the new paragraph 61A substituted for allegations of sham new allegations of puppetry by Mr De Santis. Mr Bongiorno submitted that in its revised wording paragraph 61A nevertheless still contained an odious complexion and paragraph 61A persisted with an allegation of fraud. Mr Bongiorno submitted that the sham allegations advanced by the applicant were always likely to be difficult factual allegations to prove and questions of intention were squarely raised. Mr Bongiorno submitted that the very same particulars on which the applicant relied to demonstrate that the Trust was a sham were still relied on yet in the 28 October 2020 version of the further amended statement of claim, those subparagraphs of paragraph 61A go to demonstrating that the Trust is the alter ego or the puppet of Mr De Santis.
The criticisms advanced by the respondents about paragraph 61A and its sudden abandonment of the sham allegation have real force, it seemed to me. However, by the deletion of any reference to sham, the case took a different course, one slightly less burdensome to the respondents. The same subparagraphs to paragraph 61A appear as have been present since December 2019, with the exception of a new paragraph 61A(xviii).
To my mind, the proposed new paragraph 61A simplifies rather than complicates this proceeding. At trial, forensic issues may well arise about why the sham allegations were abandoned. However, that does not bear upon whether to grant leave to amend paragraph 61A.
In my view leave should be given to amend paragraph 61A.
Paragraph 80
Proposed amendments to paragraph 80 provoked substantial opposition from the respondents. To put the debate in context it is necessary to trace the evolution of the paragraph.
In the CAMSOC produced on 6 October 2020, paragraph 80 was uncomplicated. It was as follows –
80.The First Respondent, the Fourth Respondent and the Fourteenth Respondent as directors of the Tenth Respondent approved accounts of the Tenth Respondent at the time of its liquidation which did not accurately represent its financial position, including giving accounting effect to purported transactions whereby its loans to debtors were discharged and / or offset.
That was straight forward enough. In essence, the applicant alleged that at the time of its liquidation Mr De Santis, Mr S De Santis and Mr AA De Santis approved the accounts of X Pty Ltd that did not accurately represent its financial position.
Paragraph 80 was amended slightly in the version of the further amended statement of claim that was incorporated into the 19 October 2020 iteration. It was as follows –
80.The First Respondent, the Fourth Respondent and the Fourteenth Respondent as directors of the
TenthThirteenth Respondent approved accounts of theTenthThirteenth Respondent at the time of its liquidation which did not accurately represent its financial position, including giving accounting effect to purported transactions whereby its loans to debtors were discharged and / or offset.That amendment had the effect of altering the corporate entity the accounts of which Mr De Santis, Mr S De Santis and Mr AA De Santis approved which allegedly did not give an accurate representation of its true financial position. The objections to that paragraph (and others) were part of the focus in my reasons in Sigley & De Santis (No 4).[64] I refused leave to amend in the terms sought. Among the matters that influenced me in refusing leave to amend in accordance with the 19 October 2020 iteration were the respondents’ contentions that nowhere did the applicant plead how the thirteenth respondent’s accounts did not accurately represent its financial position. Of course, the relevant respondent was the thirteenth, not the tenth as earlier alleged in that paragraph. The thirteenth respondent is E Pty Ltd (in liquidation).
[64] [2020] FamCA 903.
New particulars subjoined to paragraph 80 went to considerable lengths to set out the financial position of E Pty Ltd (prior to its liquidation). Those particulars, in the main, addressed financial issues relevant to E Pty Ltd for the financial years ended 30 June 2015 and 30 June 2016.
On behalf of the several respondents he represented, Mr Bongiorno took issue with both the form and the substance of the newest iteration of paragraph 80 and the particulars subjoined thereto. In no particular order he submitted as follows –
a)in the opening paragraph to the particulars the words in brackets [“(as described in the affidavit of Mr C filed 16 April 2020 at paras. 51 - 75)”] were objectionable for being too wide, vague and imprecise;
b)the gravamen of paragraph 80 was to be understood against a factual backdrop in which the applicant originally made allegations of a sale at an undervalue, which allegations have since been abandoned;
c)overall, and subject to the above objections, paragraph 80 was largely uncontroversial; and
d)if the real controversy about paragraph 80 is one of costs occasioned by such a late amendment then the applicant should be required to pay costs thrown away by reason of the late amendment and the trial should only resume once those costs thrown away are paid.
Aside from questions of costs, it seemed to me that the debate about paragraph 80 boiled down to the words in brackets in the opening paragraph of the particulars subjoined to paragraph 80. For reasons already canvassed in this proceeding[65] it is insufficient and it is wholly inadequate for a party pleading a matter to incorporate by reference large portions of technical affidavit material. The words in brackets in the opening paragraph to the particulars subjoined to paragraph 80 do precisely that. In that form they are objectionable. In my view the words in brackets in the opening paragraph must be deleted. Once done, I grant leave to amend in terms of paragraph 80.
[65]Sigley & De Santis (No 4) [2020] FamCA 903.
Paragraphs 80A and 80B
No objection was taken by any respondent to those paragraphs.
I grant leave to amend in terms of paragraphs 80A and 80B.
Paragraphs 117 and 119
Cosmetic amendments were made to paragraphs 117 and 119. No respondent sought to address on those amendments. Amendments to paragraphs 117 and 119 were necessitated by reason of erroneous transpositions of references to the eleventh and thirteenth respondents as vendor and purchaser of a business for $297,621. There being no objections, those amendments will be allowed.
The proposed amended prayer for relief
Amendments proposed to the prayer for relief included elaborations, minor deletions and major inclusions. Some were uncontroversial whereas others were the subject of pitch battle. It became necessary to separately consider each proposed amendment to the prayer for relief.
Paragraphs 1(a) and (b) were cosmetic. They were concerned for the most part with the identity of the entity to which car loan repayments were made, namely, CBA, PP Financial Services Ltd and QQFinance. Leave should be granted to amend this paragraph.
Paragraph 2 was concerned with an articulation of the damages the applicant said she had sustained. All sums remained unquantified except one – $1.23m in damages the applicant said arose from Mr De Santis’s failure to make payments under the policy of life insurance. Those amendments were useful although they do not go far enough and while I am willing to grant leave to amend paragraph 2 of the prayer for relief I also order the applicant by 22 March 2021 to file and serve full particulars of loss and damage properly itemised.
Paragraphs 8 and 10(a) and 10(C2) were cosmetic additions. Leave should be granted to amend them.
Paragraph 13 involved the introduction of uncontroversial inclusions. No party addressed about them. Leave will be granted to make the amendments proposed to paragraph 13.
Paragraph 13A involved the deletion of paragraphs 13A and 13B that were hotly debated and earlier ruled on. It also involved the wholesale recasting of paragraph 13A. The new paragraph 13A was equally contentious as was the earlier emanation of that paragraph. Before addressing the arguments advanced by way of opposition to the new iteration of paragraph 13A it is useful to record its terms, lengthy as it may be. It was in the following terms –
13AUpon the Applicant’s written request each of the First, Fourth (if applicable) and Fourteenth Respondents do all acts and things and sign all necessary documents to:
a.Instruct an accountant of the Applicant’s choosing (“the Accountant”) to prepare accounts for E Pty Ltd (in liquidation) for the period up to and including the date of the company was placed into voluntary liquidation;
b.Provide the Accountant with all documents and information requested by him/her necessary to prepare the accounts specified in (a) hereof;
c.Provide the liquidator of E Pty Ltd (in liquidation) with the accounts prepared in accordance with this order and request that they consider them and act upon them if they are of the view they can recover additional monies to return to shareholders;
d.In the event that the liquidator refuses to act in accordance with a request pursuant to (c) hereof, to bring application to a Court under Schedule 2; section 90-20 of the Corporations Act 2001 for Orders pursuant to section 90-15;
e.In the event E Pty Ltd (in liquidation) is wound up and de-registered without sub-paras. (c) – (d) hereof being fully enacted,
(i) To apply to ASIC to reinstate the registration; and / or
(ii)To appoint the Applicant or her nominee as a director; and / or
(iv) To pursue monies owed to the company including bringing Court action; and / or
(vi) To apply for liquidation.
The legal basis for the relief sought
As a threshold issue it fell to the applicant to demonstrate the legal basis on which the applicant relied in seeking the relief set out in each alphabetical subparagraph set out in paragraph 13A. I invited Mr St John QC to address on the issue.
He submitted that each alphabetical subparagraph to paragraph 13A had a genesis in one of sections 106B, s 80 or s 114 of the Family Law Act. Before examining each alphabetical subparagraph of paragraph 13A of the latest iteration of the further amended statement of claim it is useful to record the substance of Mr St John’s contentions about the legislative pathway he said enabled the relief his client sought to be granted. The first legislative provision he said was s 106B(1). It was in the following terms –
(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.
In an earlier consideration of this case,[66] I made various and necessarily general comments about the operation of that section. There, I held as follows –
[66]Sigley & De Santis [2019] FamCA 271.
Relief under s 106B of the Family Law Act
74.The operation of s 106B of the Family Law Act is very wide. It applies irrespective of intention. It empowers the court to set aside or restrain the making of an instrument or disposition made or proposed to defeat an existing or anticipated order in the proceeding. It operates even if the party who acquires title as purchaser does so as a bona fide purchaser for value, a point highlighted by Nygh J in In the Marriage of Whitaker.[67] Classically, this section has been enlivened where parties separate and, for example, the husband wishes to prevent the wife from obtaining a share in his property so he transfers his property to his new partner so that he will have no property available to the wife in an application for the division of property under s 79.
75.In ANZ Banking Group v Harper[68] the court held that the onus is on the applicant to prove an entitlement to relief under s 106B.
76.In various decisions of this court, it has been held that a “disposition” of which the section speaks is any form of alienation and is not limited to assignments, sales or gifts of property. Those authorities include In the Marriage of Bassola (No 2),[69] In the Marriage of Hudson[70] and Re Bassi and KD Sales Force Specialists Pty Ltd.[71] In the specific context of a transaction involving the allotment of shares in a family company said to be a sham, the section applied, as was held in In the Marriage of Turnbull.[72] Forgiveness of a debt for the payment of that debt may attract the operation of the section, as was held in In the Marriage of Hudson. Yet, the section’s operation is not confined to sham transactions, a point passed upon in In the Marriage of Gould.[73]
[67] (1980) 5 Fam LR 769.
[68] (1988) 11 Fam LR 649.
[69] (1985) 10 Fam LR 413.
[70] (1986) 11 Fam LR 189.
[71] (1999) 25 Fam LR 678.
[72] (1990) 15 Fam LR 81.
[73] (1993) 17 Fam LR 156.
Mr St John QC referred to and relied upon three decisions of this court by way of the proper construction to be given to s 106B, each decided prior to 2000. That is significant as s 106B was introduced into the Family Law Act by Act 143 of 2000, especially s 3 and Schedule 3 of that Act. The cases on which Mr St John relied all addressed a legislative forerunner to s 106B namely s 85 of the Family Law Act. Mr St John drew comfort from the fact that ss 85(1) and 106B(1) are in identical form.
The first decision of the repealed s 85(1) was In the Marriage of Collins.[74] Mr St John submitted with some force that s 85(1) had been held to be constitutionally valid. No issue arose in this case about the constitutional validly of s 106B. I did not draw any particular support from In the Marriage of Collins. So far as constitutional validity of the provisions of the Family Law Act were concerned, one need scarcely go beyond observations of the High Court in Ascot Investments Pty Ltd v Harper[75] and R v Ross-Jones; ex parte Green.[76]
[74] (1987) 11 Fam LR 382.
[75] (1981) 148 CLR 337.
[76] (1984) 156 CLR 185.
Recognising that the former s 85(1) and the current s 106B(1) have a high degree of correspondence, the consideration given in In the Marriage of Gould[77] has an equally high degree of present utility. The following propositions may be taken to be extracted from In the Marriage of Gould –
a)s 85 is not confined to situations where a third party is the alter ego of the respondent;
b)s 85 can be employed where an applicant seeks relief against a person who is a stranger to the marriage relationship;
c)under s 85 the court has power to set aside an instrument or disposition “by or on behalf of, or by direction or in the interest of” a party to the marriage, even if the person applying is not party to the instrument or disposition;
d)s 85 also applies to transactions involving a bona fide third party;
e)the ultimate issue is whether the applicant establishes that the instrument or disposition is likely to defeat an “anticipated order”;
f)a causal connection must exist between the instrument or disposition and the anticipated order;
g)s 85 is predicated on the basis that in particular cases, the provision of a just and equitable financial outcome may be thwarted if one of the parties is able to dispose of property in a way which may defeat an actual or anticipated order; and
h)in Fisher v Fisher[78] the High Court recognised that the marriage power may in some circumstances permit an intrusion into the rights of third parties.
[77] (1993) 17 Fam LR 156.
[78] (1986) 161 CLR 438.
In In the Marriage of Davidson[79] on which Mr St John QC also relied, other observations were made about the breadth of orders under s 85 of the Family Law Act. There, the court held that s 85 was not confined simply to setting aside the instrument in question. The court held that the section “necessarily extends to the making of such further orders as are ancillary to or necessary to give effect to the primary order and that may attract other provisions of the Act, including one or more of the powers in s 80(1)”.
[79] (1994) 17 Fam LR 656.
That last point raised an interesting question about the proper approach that I should take in scrutinising on this leave to amend application the various alphabetical subparagraphs to the newly formulated iteration of paragraph 13A of the prayer for relief . When Mr St John was addressing each I asked him, as to each, on which particular aspect of s 106B he relied to support each alphabetical paragraph of 13A. He responded as to each relying on s 114(3) or s 80(1)(d) or its de facto equivalent s 90SS. Having regard to the observations in In the Marriage of Davidson, it seemed to me that it was not appropriate for me to go very much further than ascertaining that each prayer for relief was arguable. Mr Bongiorno did not concede a test in those terms. However, he did recognise that this court has ancillary power on the facts of this case against the fourth and fourteenth respondents. He submitted that the exercise of any such power must be connected to s 106B in aid of restraining the matters canvassed under s 106B. He submitted that insofar as any of the subparagraphs of paragraph 13A concerned orders akin to the making of a mandatory injunction, the High Court in Smethurst v Commissioner of Police[80] made it plain that an order for a mandatory injunction is predicated on the existence of a right whereas s 106B speaks of setting aside an instrument or restraining the making of an instrument.
[80] (2020) 94 ALJR 502.
So far as any of the alphabetical subparagraphs of paragraph 13A were concerned with matters bearing upon the Corporations Act, such as 13A(c) or 13A(d), Mr Bongiorno submitted that the provisions of the Corporations Act impose their own statutory regime that s 106B cannot circumvent. He submitted that such was the case in relation to the operation of s 491, 494, and 496 of the Corporations Act. Mr Bongiorno contended that in a voluntary members’ winding up no power exists for this court to make orders as are proposed in paragraph 13A(c), (d) or (e) of the prayer for relief.
Dr Trichardt embraced Mr Bongiorno’s contentions about the operation of the Corporations Act. Dr Trichardt went further by arguing that a distinction existed between a court ordered winding up and a members’ voluntary winding up. Dr Trichardt called in aid the decision of Austin J in the Supreme Court of New South Wales in Clutha Ltd (in liq) v Millar (No 5).[81] The precise passage on which Dr Trichardt placed reliance (at [18]) was as follows –
18.The distinctions in the modern statute reflect the history of the law of company liquidation: see A Keay, McPhersons Law of Company Liquidation, 4th ed, LBC Information Services, Sydney, 1999, p 25; and note Gibbons v LibertyOne Ltd (in liq) (2002) 41 ACSR 442 at [53]–[59]. They reflect the fundamental proposition that in a winding up by court order, it is the court that conducts the winding up, and the official liquidator acts as an officer of the court on its behalf: Cmr for Corporate Affairs v Harvey [1980] VR 669 at 695; (1979) 4 ACLR 259 at 285; Cresvale at [22]. That is not the case in a voluntary winding up, which is purely a statutory process. The liquidator in a voluntary winding up is not regarded as an officer of the court carrying out tasks under the supervision of the court, notwithstanding the substantial statutory and general law duties imposed on such a liquidator and the court’s statutory power to review some aspects of the performance of the administration.
[81] (2002) 43 ACSR 295.
Dr Trichardt submitted that no point was served in allowing the prayer for relief in the current form of paragraph 13A as no power existed to enable this court to make many of the orders sought. Dr Trichardt also relied on the decision of the Court of Appeal of the Supreme Court of Western Australia in Saraceni v Jones.[82] In two passages of the reasons of Martin CJ, with whom McLure P and Newnes JA agreed, the following was held –
146.The voluntary winding up of a company is initiated by its members. It is not initiated by an order of the court. The liquidator in a voluntary liquidation is appointed by the members or creditors of the company, as the case may be, and is not an officer of the court.
And this –
168.It has been held that a liquidator in a voluntary winding up is not an officer of the court: Re TH Knitwear (Wholesale) Ltd [1988] Ch 275 at 288; Australian Security Estates Pty Ltd v Bluecrest Holdings Pty Ltd (in liq) (2002) 169 FLR 111 at [60] per Bergin J; Clutha Ltd (in liq) v Millar (No 5) (2002) 43 ACSR 295 at [13] - [18] per Austin J. That is consistent with the statutory scheme.
[82] (2012) 42 WAR 518.
Dr Trichardt contended that no power existed to order accounts to be replaced with other accounts. Dr Trichardt also submitted that the liquidators have already indicated that no funds exist to meet the costs of the execution of the activities the applicant seeks. He also submitted, as Dr Trichardt had previously submitted, that the applicant was neither a member or creditor of the company so she had no standing to seek the orders she sought against the liquidators. He said the liquidators are keen to be released from this entire litigation. Dr Trichardt foreshadowed that his clients would seek a costs order against the applicant’s solicitor under Rule 19.10 of the Family Law Rules.
Dr Trichardt submitted that the form 520 on which the liquidators have proceeded cannot be amended so little purpose is served by the applicant’s request for accounts to be amended. He also submitted nothing presently stood in the way of the liquidators finalising their winding up of E Pty Ltd.
Mr Wilson submitted that he did not wish to be heard on the question of paragraph 13A of the prayer for relief.
It seemed to me that the debate about paragraph 13A raised matters that called for full ventilation at trial. It was premature to now rule on them holding them unarguable. Mr St John may be correct about the full reach of s 106B especially having regard to the breadth of the observations in cases such as In the Marriage of Gould and In the Marriage of Davidson. To my mind it would be wrong to foreclose on the applicant’s ability to raise them at trial. At all events, this was an application for leave to amend, not a summary judgment application. To that end Dr Trichardt may well be correct in his construction of the applicant’s entitlement to relief against the liquidators. Again, however, this was not a summary judgment application. Further, Dr Trichardt’s position may well be bolstered at trial when, by then, the winding up of E Pty Ltd (in liq) has been completed. On that issue at present there is no evidence and on an application for leave to amend I was confined to the proposed newly amended pleading in any event.
I have carefully weighed the considerations in Aon Risk Services Australia Ltd v Australian National University[83] in relation to the grant of leave to amend. The resumption of the trial is almost a year away. Whatever hardship may have befallen the respondents by the allowance of the latest amendment is ameliorated by the time they will have to arrange their evidence and submissions to answer the new allegations. Naturally, they will need an opportunity to file amended responses and they will need to take advice on whether further evidence is required by them. They shall have an opportunity to formulate their positions on each.
[83] (2009) 239 CLR 175.
Conclusion
I allow the amendments in the terms recorded in these reasons.
I direct that the parties confer and formulate a minute of agreed orders pursuant to which this proceeding can progress further.
I adjourn the further hearing of this proceeding for mention at 9:30am on 2 December 2020.
Costs
Both Mr Wilson and Mr Bongiorno pressed with considerable force and skill for the applicant to be ordered to pay the costs occasioned by the amendment. They contended that any order for costs should be fashioned in such manner that those costs are to be paid before the trial of this proceeding resumes. Such an order is within the range of orders legitimately capable of being ordered in pursuance of s 117(2) of the Family Law Act. However, costs orders other than those under s 117(1) require evidence, not merely submissions as was held in In the Marriage of Wilson.[84]
[84] (1989) 13 Fam LR 205.
It is readily apparent that the costs likely incurred by all parties so far will be vast. It is also readily apparent that costs to be incurred in formulating amendments to the latest iteration of the further amended statement of claim are also likely to be substantial. Whether the amendments properly arose from last-minute disclosure of accounts as Mr St John said was the case or whether those documents were already in the applicant’s hands, as Mr Bongiorno said, was a matter on which I was unable to form a view and on which more elaborate examination was required.
No doubt anticipating that the costs argument would enliven considerations set out in s 117(2A), Mr St John pressed that his client’s financial circumstances are bleak. He may well be correct. Yet it must also be acknowledged that Mr St John and the applicant’s legal team have chosen over five years during which this litigation has been on foot to cast their net as widely as could be cast thereby inviting complications of the sort witnessed over 12 days of the trial thus far. A much more tightly constructed case could have and should have been advanced. I encourage the applicant to carefully assess the need for and evidentiary status in support of each claim she now propounds. For example, the case she abandoned relating to the sham transactions was a highly technical case and one fraught with enormous difficulty, as the cases I have set out above revealed. A case of sham should not have been lightly made. The applicant should use the time presently available to her to subject all claims she advances to very careful scrutiny to ensure they are entirely arguable. Verbose wording in her pleading should be avoided as should the use of the passive tense. A reader of the pleading is entitled to know against which specific respondent a particular allegation is being made.
It seemed to me that s 117(2A)(c) supported my decision to reserve the costs of the amendment. However, I decline to make an order as proposed by Mr Wilson and Mr Bongiorno for the applicant to pay costs as a condition to the resumption of the trial.
I certify that the preceding one hundred and seventy-two (172) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Wilson delivered on 20 November 2020.
Associate:
Date: 20 November 2020
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