Simmons & Simmons
[2008] FamCA 1088
•12 December 2008
FAMILY COURT OF AUSTRALIA
| SIMMONS AND ANOR & SIMMONS | [2008] FamCA 1088 |
| FAMILY LAW – PRACTICE AND PROCEDURE – SUMMARY DISMISSAL – Rule 10.12 of the Family Law Rules 2004 and the doomed to fail test - Property - What constitutes? – The interest of an object of a non-exhaustive discretionary trust with an open class of beneficiaries – Part VIIIAA |
| Family Law Act 1975 (Cth) | |
| B Pty Ltd and Ors & K and Anor 219 FLR 107 R and R (unreported, Simpson, Strauss and Smithers JJ, 27 April 1990) Richstar Enterprises Pty Ltd and Others; Australian Securities and Investments Commission v Carey (No 6) (2006) 153 FCR 509 Yanner v Eaton (1999) 201 CLR 351 | |
| APPLICANT: | L Pty Ltd |
| APPLICANT HUSBAND: | Mr Simmons |
| RESPONDENT WIFE: | Ms Simmons |
| FILE NUMBER: | MLF | 1269 | of | 2005 |
| DATE DELIVERED: | 12 December 2008 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Watt J |
| HEARING DATE: | 19 June 2008 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Glick QC with Mr Strum |
| SOLICITOR FOR THE APPLICANT: | Kennedy Wisewoulds |
| COUNSEL FOR THE APPLICANT HUSBAND: | Mr Melilli |
| SOLICITOR FOR THE APPLICANT HUSBAND: | Kenna Teasdale Lawyers |
| COUNSEL FOR THE RESPONDENT WIFE: | Mr North SC with Mr Sweeney |
| SOLICITOR FOR THE RESPONDENT WIFE: | Landers & Rogers |
Orders
That paragraphs 1 and 2 of L Pty Ltd’s amended response to an application in a case filed 17 June 2008, and the husband’s application in similar terms filed 18 April 2008, be dismissed.
I transfer all pending applications to Justice Cronin for mention on 17 December 2008 at 2:15pm or such other date as his Honour may appoint.
IT IS NOTED that publication of this judgment under the pseudonym Simmons and Anor & Simmons is approved pursuant to s 121(9)(g) of the Family Law Act -1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLF 1269 of 2005
| L PTY LTD |
Applicant
And
| MR SIMMONS |
Applicant husband
And
| MS SIMMONS |
Respondent wife
REASONS FOR JUDGMENT
INTRODUCTION
In this interim proceeding, the applicant, L Pty Ltd, who is the third respondent in the substantive proceedings for property settlement brought by the wife, seeks to have her further amended application for final orders filed 12 May 2008 summarily dismissed pursuant to r 10.12 of the Family Law Rules 2004 (“the Rules”) insofar as she seeks orders in that application for relief against it. In the alternative, L Pty Ltd seeks to have the wife provide security for its costs. The husband supported L Pty Ltd’s application and sought the same order for summary dismissal. This judgment deals with the summary dismissal argument only.
The orders sought by the wife proceed on the basis that the husband has a proprietary interest in the F Family Settlement. Accordingly, the wife seeks orders against L Pty Ltd pursuant to Part VIIIAA of the Family Law Act 1975 (“the Act”).
BACKGROUND
The husband’s father established the Simmons Group over fifty years ago. He died in 1999. He was survived by his widow and their five adult children: the respondent husband and his siblings B, C, D and E.
The F Family Settlement is a discretionary trust which was settled in 1979. There are two classes of beneficiaries, identified in the schedule of the Trust Deed:
The Beneficiaries: The [H] Foundation, Melbourne, Victoria
The General Beneficiaries: Any person who at or prior to the Distribution Date either is or has been a student at [H] Melbourne Victoria or any spouse, child or grandchild of such a person
The relevant distribution date is eighty years from the date of the Deed of Settlement, which is July 2059.
All members of the Simmons family are beneficiaries. The current structure of the Simmons family includes the husband’s mother, her five adult children, their spouses (not including the wife) and their children. This totals twenty three people.
The third respondent, L Pty Ltd, is the trustee of the F Family Settlement. As trustee L Pty Ltd owns the assets of the Simmons Group which includes several businesses throughout Melbourne. All of the adult children of the father’s parents contribute to the operation of the Simmons Group.
The composition of the L Pty Ltd Board is consistent with a resolution passed by it in July 2003 which provided that three of the six directors must be members of the Simmons Family. Furthermore, that those directors should rotate in order to ensure that all family members are given the opportunity to serve in this position.
The current members of the L Pty Ltd Board who are members of the Simmons family are C who is the Chief Executive Officer of the Simmons Group, B and D. The husband was a director until his resignation in August 2004.
The three issued shares in L Pty Ltd are jointly owned by the husband’s mother, Mr R and Mr A. As trustee of the F Family Settlement, L Pty Ltd has applied to the Australian Tax Office to make family trust elections. As a consequence, penalties apply if distributions are made to persons other than the husband’s mother, her adult children, her grandchildren and their spouses.
The second respondent in the substantive proceedings is R Investments Pty Ltd (“R Investments”). Although R Investments is not a party to the current proceeding, it is important to understand its role. It is the wholly owned subsidiary of L Pty Ltd. The directors are the husband and C.
R Investments has shares in three primary areas of the Simmons Group including:
·Simmons Group Pty Ltd;
·Simmons Properties Pty Ltd; and
·Simmons Investments Pty Ltd.
All of the dividends declared by R Investments are distributed twice a year to L Pty Ltd pursuant to R Investments’ dividend policy. These monies are distributed in turn as income of the F Family Settlement. Historically, distributions have only been made to members of the Simmons family. Furthermore such distributions have been divided equally between the husband’s mother and her adult children.
Paragraph 65 of the wife’s affidavit of evidence in chief sworn or affirmed on 11 March 2008 reads as follows:
Since [the husband’s father’s] death, [the husband] has in addition to his salary received regular distributions from the [F] Family Settlement in which the primary assets of the [Simmons] Group are held. The distribution policy of that trust is determined by the Board of [L] Pty Ltd, its corporate trustee. The distribution policy for many years has remained such that one quarter of the annual profit of the [Simmons] Group (after payment of salaries to family members) has been divided equally between the five [Simmons] siblings and their mother […]. Distributions have been made at least twice per annum, which [sic] an interim distribution usually paid in March/April and a final distribution paid in October/November each year. For many years, such distributions took the form of dividends but in recent times such distributions have involved capital payments.
There is one qualification to this equality of distribution: the salaries of the husband and C are met in part by distributions from the F Family Settlement and in part by franking credits from the dividends received from R Investments. Accordingly, the husband and C receive an additional sum when dividends are distributed.
Following the establishment of the F Family Settlement and L Pty Ltd in 1979, members of the Simmons family, including the husband, sold their shares in Simmons Investments Pty Ltd to L Pty Ltd. Each was to receive approximately $942,800 in payment for the transfer of their shareholding, which was recorded as a capital loan payable by L Pty Ltd to each relevant family member. Pursuant to the loan agreements however, the loans were not repayable for a period of twenty five years. Furthermore, there was no interest payable on the loans.
In June 2003 prior to the conclusion of the twenty five year period, the loans were extended to 21 December 2014 and the debts were transferred to R Investments. The revised loan agreements also provided for a draw down of an additional $100,000 by each lender upon the lender reaching fifty five years of age.
On 7 March 2006, the Board of L Pty Ltd resolved to commence making profit distribution payments to the relevant family members in the form of non-assessable loan account withdrawals from their existing loan balances. The resolution became effective on 20 June 2006. In effect the distributions reduce the balances of the lenders’ loan account, thereby reducing the debt owed by R Investments to each of the family members who reinvested the sale price of their original shareholdings in the entity through which the business was conducted.
The Simmons Family Council was established in 2000. The Council has held annual retreats since April 2000. It makes recommendations to L Pty Ltd regarding the management and administration of the Simmons Group. As described in retreat papers in April 2003, part of the role of the Council is:
To communicate to the board the differing needs and wishes of the various generations of family members.
The mission statement of the Simmons Family Council, adopted on 12 August 2001 reads as follows:
a)We will practice financial discipline so that sufficient financial returns can be made from the business to ensure:
i)A secure financial future to all stakeholders
ii)Reinvestment in the future of the business; and
iii)Return on an investment to the family.
The Constitution of the Simmons Family Council also provides the terms of employment and remuneration of Simmons family members, the selection of its Board members and the procedure by which family members who are not members of the Board can be heard.
The Mission Statement and Constitution were affirmed at the fourth annual Simmons Family Council retreat in April 2003.
The adult children of the Simmons family also established the Pillars Group in 2004. This group meets informally to discuss the business and personal issues faced by the Simmons Group.
Documents generated by the Simmons Family Council and the L Pty Ltd Board make reference to “long term trust shareholders” and the “family pillars.”
The parties approached this matter on the basis that the only material that could be used in the context of the application for summary dismissal was the wife’s further amended application for final orders filed 12 May 2008 and her affidavit of evidence in chief sworn or affirmed on 11 March 2008.
This approach is consistent with Custodio and Pinto & Ors (2006) FLC 93-279 whereby Finn J observed at 80,760:
The authorities also establish that there are limitations on the material upon which an applicant for summary dismissal can rely in establishing the case for such relief. As Kirby J said in Lindon (supra) that in order to secure relief by way of summary dismissal, "the party seeking it must show that it is clear on the face of the opponent's documents that the opponent lacks a reasonable cause of action" (at 544-5).
Her Honour also cited at 80,576 the following proposition espoused by Bryant CJ in Bain Pacific Associations & Ors and Kelly & Ors (2006) FLC 93-270 who had regard to Beck and Beck (2004) FLC 93-181:
... that apart from material in the case of the respondent to an application for summary dismissal, the court may have regard to relevant non-contentious facts, even if raised by the applicant for summary dismissal.
Non-contentious facts referred to by Senior Counsel in the course of submissions included:
·The present structure of the Simmons family – annexure “RBL–1” to the affidavit of Mr RL sworn on 30 May 2008;
·The Trust Deed - annexure “RGL1” to the affidavit of Mr A sworn 22 April 2008; and
·Facts asserted by Senior Counsel for the wife in his document entitled Factual and Legal Contentions relied upon by the wife in support of her application for final relief filed 12 May 2008.
It is common ground that the property of the marriage includes, but may not be limited to, the former matrimonial home, the husband’s loan account with the Simmons Group and a joint investment account in the United States.
Pursuant to the wife’s further amended application for final orders, she seeks an order that:
(1)(b) the husband pay such further sum to the wife as is necessary to bring the total value of the property received and retained by the wife under theses orders to an amount equal to 50% of the net assets of the husband and the wife.
Her application proceeds on the basis that the husband’s interest as on object of the F Family Settlement is property that can be the subject of an order under s 79 of the Act and that orders could be made as sought by her under PartVIIIAA of the Family Law Act 1975 (the Act) to effect a division of property between the parties to the marriage.
I heard oral submissions from Senior Counsel for the wife and L Pty Ltd on 19 June 2008. Written submissions were filed on behalf to the parties prior to that date. Counsel for the husband adopted submissions made by Senior Counsel for L Pty Ltd and reaffirmed the submission that the husband’s interest in the trust is not property.
Since reserving my judgment, a Full Court of this court (Faulks DCJ, Coleman and Warnick JJ) delivered judgment in B Pty Ltd and Ors & K and Anor (2008) 219 FLR 107. Very recently, the High Court delivered its reasons for judgment in Kennon v Spry; Spry v Kennon [2008] HCA 56. I invited further written submissions in respect of both judgments and I will refer to those that were received in due course.
LEGAL PRINCIPLES
Summary dismissal
A central issue in this proceeding is the nature of the husband’s interest as an object of the F Family Settlement. The F Family Settlement is a non-exhaustive discretionary trust, with an open class of beneficiaries. As sole trustee of the F Family Settlement, L Pty Ltd has legal title over the assets of the trust.
The final orders sought by the wife against L Pty Ltd are in the following terms:
7.Until final payment is made by the husband in accordance with paragraph 1, 2 and 3 hereof or until the husband, or Third respondent provides the wife with security acceptable to her for the performance by the husband or his obligations in 1, 2 and 3 hereof the Third respondent is retrained from causing or permitting or acquiescing in any of the following:-
(a) any alteration in the identity of the [F] Family Settlement;
(b) any amendment or alteration to the terms of the Trust known as the [F] Family Settlement
(c) any distribution of income or capital from the [F] Family Settlement to any person other than a person who is both an object of that trust and has in the past received a distribution of income or capital;
(d)making any distribution of capital or income in any one year in favour of any object or objects of the [F] Family Settlement other than the husband without first ensuring that the distributions are made to the husband in an amount at least equal to one third of the total of the amounts that are distributed in that year to the husband’s siblings, [B, D and E] and any spouse or child of any such sibling.
8.Until final payment is made by the husband in accordance with paragraph 1, 2 and 3 hereof or until the Third respondent is released from the restraints in 7 hereof, in the event that the Third respondent makes any distribution or distributions to the husband in any one year then the Third respondent shall cause the amount so distributed to the husband, up to an amount that is equal to one third of the distributions in that year to the other objects, to be paid to the wife and together with that payment the Third respondent shall deliver to the wife a statement as to whether the distribution is one of capital or income or both in what amount it is of capital and in what amount it is of income insofar as it is a distribution of income the Third respondent shall further state the amount of any franking credit attributable thereto.
9. Until final payment is made by the husband in accordance with paragraphs 1, 2 and 3 hereof or until the Third respondent has been released from the restraints in paragraph 7 hereof the husband shall no later than 15 June of each year notify the wife of the percentage rate at which he anticipates income tax will be assessed on him for the last dollar earned by him in the year, failing which the wife shall assume that percentage rate to be such rate applicable as if the husband’s income was no greater than the amount received by them from the Third respondent as an income distribution for the husband in the 12 months preceding the 30 June that year.
The principal questions raised by the applications for summary dismissal are:
·Does the husband’s interest as an object of the F Family Settlement fall within the meaning of property for the purposes of section 79 of the Act?
·Is the husband’s interest capable of being dealt with by an order under s 79, altering the interests of the parties or either of them?
·Can Part VIIIAA arguably support the orders sought by the wife, based on the wife’s material before the court and any non-contentious facts material to her claim? If the answer to this question is in the negative, the court would lack jurisdiction to make the orders sought under PartVIIIAA.
Rule 10.12 of the Rules provides for the making of an application for a summary order of the kind sought here. The rule came into effect on 29 March 2004. It reads as follows:
A party may apply for summary orders after a response has been filed if the party claims, in relation to the application or response, that:
(a) the court has no jurisdiction;
…
(d) there is no reasonable likelihood of success.
Pursuant to r 10.14, on application the court may:
(a) dismiss any part of the case;
(b) decide an issue;
(c) make a final order on any issue;
(d) order a hearing about an issue or fact.
The Full Court (Warnick, May and Boland JJ) in Korsky & Bright and Anor (No. 2) (2007) FLC 93-352 cited with approval the following legal principles which govern the exercise of summary relief which were enunciated by Kirby J in Lindon v The Commonwealth (No 2) (1996) 136 ALR 251 at 255-6 (references omitted):
The approach to be taken by the court to the Commonwealth's application for summary relief is not in doubt:
1. It is a serious matter to deprive a person of access to the courts of law for it is there that the rule of law is upheld, including against government and other powerful interests. This is why relief, whether under O 26, r 18 or in the inherent jurisdiction of the court, is rarely and sparingly provided.
2. To secure such relief, the party seeking it must show that it is clear, on the face of the opponent's documents, that the opponent lacks a reasonable cause of action or is advancing a claim that is clearly frivolous or vexatious.
3. An opinion of the court that a case appears weak and such that it is unlikely to succeed is not, alone, sufficient to warrant summary termination. Even a weak case is entitled to the time of a court. Experience teaches that the concentration of attention, elaborated evidence and argument and extended time for reflection will sometimes turn an apparently unpromising cause into a successful judgment.
4. Summary relief of the kind provided for by O 26, r 18, for absence of a reasonable cause of action, is not a substitute for proceeding by way of demurrer. If there is a serious legal question to be determined, it should ordinarily be determined at a trial for the proof of facts may sometimes assist the judicial mind to understand and apply the law that is invoked and to do so in circumstances more conducive to deciding a real case involving actual litigants rather than one determined on imagined or assumed facts.
5. If, notwithstanding the defects of pleadings, it appears that a party may have a reasonable cause of action which it has failed to put in proper form, a court will ordinarily allow that party to reframe its pleading. A question has arisen as to whether O 26, r 18 applies to part only of a pleading. However, it is unnecessary in this case to consider that question because the Commonwealth's attack was upon the entirety of Mr Lindon's statement of claim.
6. The guiding principle is, as stated in O 26, r 18(2), doing what is just. If it is clear that proceedings within the concept of the pleading under scrutiny are doomed to fail, the court should dismiss the action to protect the defendant from being further troubled, to save the plaintiff from further costs and disappointment and to relieve the court of the burden of further wasted time which could be devoted to the determination of claims which have legal merit.
In light of Lindon v The Commonwealth (No 2) the Full Court (Ellis, Lindenmayer and Rose JJ) set out the following principles in Bigg v Suzi (1998) FLC 92-799. These principles were cited with approval in Pelerman v Pelerman (2000) FLC 93-037 at 87,582:
(a) The power for summary dismissal is a discretionary one.
(b) Relief “is rarely and sparingly provided.”
(c) The parties seeking summary dismissal must show that the application is ``doomed to fail'' or as has been otherwise described ``that the opponent lacks a reasonable cause of action or is advancing a claim that is clearly frivolous or vexatious.”
(d) A weak case or one that is unlikely to succeed is not ``sufficient to warrant termination''.
(e) “If there is a serious legal question to be determined, it should ordinarily be determined at a trial.”
(f) “If notwithstanding the defects of pleadings, it appears that a party may have a reasonable cause of action which it has failed to put in proper form, a Court will ordinarily allow that party to reframe its pleadings.”
Accordingly, I must determine whether the Court has the jurisdiction to make the orders sought by the wife under Part VIIIAA or in the alternative, whether the wife’s claim has no reasonable likelihood of success. The issue of the merits of the wife’s claim is a matter for the trial Judge.
The decisions of the Full Court of this court prior to the introduction of r 10.12, make reference to the “doomed to fail” test. A question arose during the course of oral submissions as to whether the test for summary orders (or dismissal) has changed since r 10.12 came into effect in 2004.
As Senior Counsel for the wife pointed out, since the rule came into effect, the Full Court has not made express reference to r 10.12 in a number of judgments that have considered summary dismissal. The Full Court has, however, applied the “doomed to fail” test. These judgments include Bain Pacific, JB & BW [2006] FamCA 639, Gitane and Velacruz (2007) FLC 93-309 and Korsky & Bright and Anor (No. 2).
Senior Counsel for the wife submitted that the test for summary dismissal has not changed since 2004 and that it would be a breach of procedural fairness if r 10.12 was not taken to mean “doomed to fail.”
Senior Counsel for L Pty Ltd submitted that the introduction of r 10.12 had lowered the bar with respect to the applicable test for summary orders. In support of this argument L Pty Ltd directed the court’s attention to a decision of the Full Court of the Federal Court (Finkelstein, Rares and Gordon JJ) in Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd and Others (2008) 167 FCR 372, which was illustrative of the operation of s 31A of the Federal Court of Australia Act 1976 (Cth), which governs the Federal Court with respect to summary judgments.
That section provides:
(1) The Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is prosecuting the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding.
…
(3) For the purposes of this section … a proceeding or part of a proceeding need not be:
(a) hopeless; or
(b) bound to fail;
for it to have no reasonable prospect of success.
Senior Counsel for L Pty Ltd highlighted the distinction between the Family Law Rules and the Federal Court of Australia Act as s 31A(3) does not appear in the former. He further submitted that s 31A(3) provides a specific legislative direction to the Federal Court in relation to the content of “no reasonable prospect of success.” Senior Counsel for L Pty Ltd concluded that there is no substantial difference between the tests for summary judgment or dismissal in the Family Court and in the Federal Court.
Although no submissions were made in this respect I note that an identical provision governs summary judgments in the Federal Magistrates Court. Section 17A of the Federal Magistrates Act 1999 (Cth) provides:
(1) The Federal Magistrates Court may give judgment for one party against another in relation to the whole or any part of a proceeding if:
(a) the first party is prosecuting the proceeding or that part of the proceeding; and
(b) the Court is satisfied that the other party has no reasonable prospect of successfully defending the proceeding or that part of the proceeding.
…
(3) For the purposes of this section … a proceeding or part of a proceeding need not be:
(a) hopeless; or
(b) bound to fail;
for it to have no reasonable prospect of success.
With respect to the Federal Magistrates Act 1999, Jarrett FM in Jacobs & Vale [2008] FMCAfam 641 observed at 13:
It will immediately be appreciated that the power possessed by the Federal Magistrates Court pursuant to the Federal Magistrates Act and the Federal Magistrates Court Rules is fundamentally different to the power identified in Lindon, Bigg v Suzi and Pelerman.
I agree with the learned Federal Magistrate in so far as he identifies a fundamental difference between the approach taken in the authorities that he cites and the statutory guidelines that governed the exercise of discretion by him.
The Rules were drafted against the background of the decision in Lindon and the judgments of the Full Court of this court that had applied it. Subsequent decisions of the Full Court of this court have continued to apply the same test in circumstances where r 10.12 was the relevant statutory guide. One such case that I have cited and quoted above is Korsky & Bright and Anor (No. 2), where the Full Court’s intention to apply the Lindon test could not be more apparent. There is no basis, in my view, for the proposition advanced on behalf of L Pty Ltd that the approach of this court to this issue has changed, or should now change, to the less demanding standard that applies to an applicant for summary dismissal under the Federal Court Act 1976 (or the Federal Magistrates Court Act 1999), or that the introduction of r 10.12 has produced such a change.
LEGAL PRINCIPLES
What constitutes property
In oral submissions Senior Counsel for L Pty Ltd directed the court’s attention to the different senses in which the term “property” could be used throughout legal discourse. In Yanner v Eaton (1999) 201 CLR 351 at 365 - 366, (references omitted), a majority of the High Court (Gleeson CJ, Gaudron, Kirby and Hayne JJ) noted:
The word "property" is often used to refer to something that belongs to another. But in the Fauna Act, as elsewhere in the law, "property" does not refer to a thing; it is a description of a legal relationship with a thing. It refers to a degree of power that is recognised in law as power permissibly exercised over the thing. The concept of "property" may be elusive. Usually it is treated as a "bundle of rights". But even this may have its limits as an analytical tool or accurate description, and it may be, as Professor Gray has said, that "the ultimate fact about property is that it does not really exist: it is mere illusion". Considering whether, or to what extent, there can be property in knowledge or information or property in human tissue may illustrate some of the difficulties in deciding what is meant by "property" in a subject matter. So too, identifying the apparent circularity of reasoning from the availability of specific performance in protection of property rights in a chattel to the conclusion that the rights protected are proprietary may illustrate some of the limits to the use of "property" as an analytical tool. No doubt the examples could be multiplied.
Nevertheless, as Professor Gray also says, "An extensive frame of reference is created by the notion that 'property' consists primarily in control over access. Much of our false thinking about property stems from the residual perception that 'property' is itself a thing or resource rather than a legally endorsed concentration of power over things and resources."
The Full Court of this Court comprising of Watson SJ, Murray and Wood JJ in Duff and Duff (1977) FLC 90-217 held that the definition of property should not be narrowly construed. Their Honours adopted at 76,133 the following definition of property by Lord Langdale MR in Jones v Skinner (1835) 5 LJ Ch 87 at 90:
Property is the most comprehensive of all terms which can be used in as much as it is indicative and descriptive of every possible interest which the party can have.
It was argued by L Pty Ltd that pursuant to s 79, property must be capable of valuation and alteration in order to be amenable to an order under s 79. It submitted that the husband’s interest as an object of the F Family Settlement has no value and is not capable of alteration.
Oral submissions proceeded on the basis that the husband was not a controller of the F Family Settlement, nor was the trust a sham or puppet save that Senior Counsel for the wife submitted that an argument could be raised at final hearing based on the judgment of the High Court in Raftland Pty Ltd as trustee of the Raftland Trust v Commissioner of Taxation (2008) 82 ALJR 934.
That case concerned income tax and related legislation as well as the subjective intention of parties with respect to sham transactions. The High Court considered the history and meaning of the term sham for the purposes of Australian law. Justice Kirby concluded at 963 that the term sham could relate to only one transaction or part thereof.
Accordingly, Senior Counsel for the wife submitted that the concept of sham could be applicable to this case in light of the history of distributions and the real intention of the trust as a traditional family settlement.
During oral submissions Senior Counsel for L Pty Ltd conceded that for the purposes of the present proceeding only, the F Family Settlement is a traditional family settlement intended to benefit the husband’s father and mother, their children, spouses and descendants. That is to say that there is no real intention to benefit the H Foundation, nor past or present pupils of H Organisation.
Senior Counsel for L Pty Ltd directed the court to Richstar Enterprises Pty Ltd and Others; Australian Securities and Investments Commission v Carey (No 6) (2006) 153 FCR 509. That case concerned an application by the Australian Securities and Investments Commission (ASIC) pursuant to s 1323 of the Corporations Act 2001. ASIC sought to appoint receivers to property related to companies within the Westpoint Property and Finance Group.
Senior Counsel for the wife had no argument with respect to the reasons of Justice French (as he then was) in that case as a general proposition, but argued that the ratio decidendi of that case related to a proprietary interest in trust property which was not being argued by the wife in the current proceeding. The wife conceded that the husband had no proprietary interest in the property of the F Family Settlement.
In that case French J provided the following summary of non-exhaustive discretionary trusts at 516:
Gummow J [in Federal Commissioner of Taxation v Vegners (1989) 90 ALR 547] described as “purely discretionary” a trust in which income and capital can be withheld altogether. This kind of trust fits within the classification of non-exhaustive discretionary trusts discussed below.
….
On the other hand a discretionary trust is called “non-exhaustive” when the trustee has a discretion to distribute any part or perhaps none of the income of the trust as he thinks fit. Similar classifications would apply according to the basis upon which the corpus of a trust is distributed. The beneficiaries may form a defined and closed class of persons. Alternatively, the class may be open. By way of example of the latter case, a discretionary trust intended primarily to benefit a family may nevertheless name as beneficiaries not only its living members, but also relatives born or yet to be born into the extended family, charities and other classes of entity. The naming of these species of discretionary trusts, like the term “discretionary trust” itself, is a matter of taxonomical convenience rather than expository of principle.
His Honour continued at 516 to cite the following passage from the judgment of Romer J in Re Smith; Public Trustee v Aspinall [1928] Ch 915 at 918:
Where there is a trust under which trustees have a discretion as to applying the whole or part of a fund to or for the benefit of a particular person, that particular person cannot come to the trustees, and demand the fund; for the whole fund has not been given to him but only so much as the trustees think fit to let him have.
Contingent on the argument that the F Family Settlement is a non-exhaustive discretionary trust, Senior Counsel for L Pty Ltd submitted that at the conclusion of each financial year, L Pty Ltd as trustee could within its absolute discretion elect to:
·make distributions to any of the beneficiaries;
·accumulate income; or
·make donations to charitable institutions.
In Richstar Enterprises Pty Ltd and Others; Australian Securities and Investments Commission v Carey (No 6) at 517 French J cited the following passage from the learned author Geraint Thomas in Thomas on Powers (1st edition, Sweet & Maxwell, London, 1998) at p 6,286:
Thus, although an individual object of an exhaustive discretionary trust (and a fortiori in the case of a non-exhaustive one) cannot claim any part of the trust fund or its income (as the case may be) because he is not entitled to any interest in it unless and until the trustees exercise their discretion in his favour…. Although, as Lord Reid pointed out in Gartside v IRC, two or more persons cannot have a single right unless they hold it jointly or in common, and the beneficiaries of a discretionary trust do not have such a right — indeed, they are in competition with each other and what the trustees give to one is his alone …
Justice French continued at 517 to cite a passage from Patrick Parkinson (ed), The Principles of Equity (2nd edition, Law Book Co, Sydney, 2003) at p 60:
Since the trustees of a discretionary trust have no duty to make a particular distribution, or indeed any distribution to a specific individual, the rights of the beneficiaries are limited to compelling the trustees to consider whether or not to make a distribution in their favour and to ensuring the proper administration of the trust. This is true even if the discretionary trust only has one beneficiary (Re Weirs Settlement Trusts [1971] Ch 145).
Written submissions filed on behalf of the wife and L Pty Ltd both cited extracts from the following passage in H. A. J. Ford and W. A. Lee, Principles of the Law of Trusts (3rd edition, LBC Information Services, Sydney, 1996 onwards) at 5210:
A person who has a trust power (see above, [5180]) is under (i) a duty to consider how to distribute and (ii) a duty to distribute. An object has an equitable chose in action to complain to a court if the trustee fails in these duties. That equitable chose in action may amount to property (Hardingham and Baxt, Discretionary Trusts, (2nd ed, Butterworths, Sydney, 1984), pp 126ff) but it is not property that can be alienated by an individual object inter vivos (see below, [5220]) or be given by will. Nor can it descend on an intestacy. A trustee who has a mere power is under a duty to consider the exercise of the power from time to time: see above [5180]. A person who is specified as an object or who is within the specified class of objects has, as such, standing to complain if the trustee so acts as to manifest an intention not to consider, as where the trustee improperly delegates or releases the power or exercises it capriciously: Hardingham and Baxt, pp 11-12; Re Hodges; Davey v Ward (1878) 7 Ch D 754; Re Roper's Trusts (1879) 11 Ch D 272; Re Lofthouse (an infant) (1885) 29 Ch D 921.
As the object of a mere power possessed by a trustee has an equitable chose in action that person can be considered to have property but that property is no more alienable or transmissible than the chose in action of an object of a trust power: Hardingham and Baxt, p 129.
Senior Counsel for L Pty Ltd conceded that the bundle of rights held by the husband could be defined as a chose in action. Furthermore, Mr Glick QC submitted that such an interest is a mere expectancy which only arises in the event that the trustee fails to consider the beneficiaries or fails to properly administer the trust.
Senior Counsel for the wife and L Pty Ltd both made reference to the judgment of Lord Wilberforce in Gartside v Inland Revenue Commissioners [1986] AC 553 at 617 which was adopted by French J in Richstar Enterprises Pty Ltd and Others; Australian Securities and Investments Commission v Carey (No 6) at 518:
No doubt in a certain sense a beneficiary under a discretionary trust has an “interest”: the nature of it may, sufficiently for the purpose, be spelt out by saying that he has a right to be considered as a potential recipient of benefit by the trustees and a right to have his interest protected by a court of equity.
L Pty Ltd then relied upon the following passage from the reasons for judgment of Owen J in R and I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd [1992] 10 WAR 59 at 79, which was also adopted by French J in Richstar Enterprises Pty Ltd and Others; Australian Securities and Investments Commission v Carey (No 6) at 518:
The trustee has a duty to administer the trust bona fide having regard to the purpose for which it was established. This is a duty which the court will enforce at the behest of the beneficiary. In this way, the remedy defines the nature of the interest of an individual beneficiary.
Senior Counsel for the wife submitted that this proposition may be the case for the particular purpose identified in that case, but that it was not a general proposition applicable to all such interests.
Justice French concluded at 29 of Richstar Enterprises Pty Ltd and Others; Australian Securities and Investments Commission v Carey (No 6) that:
… in my opinion, in the ordinary case the beneficiary of a discretionary trust, other than perhaps the sole beneficiary of an exhaustive trust, does not have an equitable interest in the trust income or property which would fall within even the most generous definition of “property”….
Senior Counsel for both parties referred to Spellson v Spellson (1989) FLC 92-046 during their oral submissions. Certain extracts were cited from the reasons of Murray J at 77,529 who concurred with Lindermayer J:
I am ad idem with my brother Lindenmayer in his agreement with the general propositions asserted by the learned authors Hardingham and Baxt in Discretionary Trusts (2nd ed.) that an object of a discretionary trust has no equitable interest, in the strict sense, either vested or contingent, in the distributable fund as a whole or in any fraction of it, or in any of the assets constituting the distributable fund; that an object has ``nothing more than an expectancy'' in relation to the assets of the trust which is ``not in the nature of a property interest'' (In Matter of Rule's Settlement (1915) V.L.R. 670). There is no challenge by the wife's Senior Counsel to the proposition that while an object's expectancy is not in the nature of a property interest, his chose in action may be so described. A chose in action is no less ``property'' because it is unenforceable or may be only indirectly enforceable.
The value of the wife's chose in action in these proceedings however, cannot in my view be ascertained at this interlocutory stage but must await a full hearing on the evidence and of argument.
As later appears, however, this court has previously dealt with property of no apparent value, the ownership of which has produced an income stream or other benefits to the owner. Such income streams and other benefits can of course be valued, especially where they represent long standing arrangements that are likely to continue into the future, or would have continued, but for a change of approach to distributions on the part of a third party trustee.
Senior Counsel for the wife also relied upon a decision by the Full Court of this court (Fogarty, Lindenmayer and McGovern JJ) in Bestv Best (1993) FLC 92-418 at 80,289:
The second quality which Senior Counsel for the husband submitted that interest must have is that it be capable of being the subject of an order under s. 79. If that was intended to mean that it must be capable of being the subject of a direct order under s. 79 we do not consider that that is correct. There are a number of interests which have been held to be property notwithstanding that they cannot themselves be the subject of a direct order because of legislative or other restrictions.
Mr North SC, in describing the husband’s interest as a right that gives rise to future title, also relied upon the reasons of Lindemayer J at 77,533 of Spellson:
In particular, it was not submitted that his Honour was in error in holding that the wife, as an object of the Settlement and the Trust, has a chose in action which is ``a right of `property' of the wife''. That proposition is supported by the text referred to by his Honour [Hardingham and Baxt, Discretionary Trusts (2nd ed, Butterworths, Sydney, 1984)], although I think it appropriate to note that the learned authors of that text describe the right of an object of a discretionary trust to call upon the trustees to deal with the distributable fund in a manner appropriate to the due administration of the trust as `a right in the nature of an equitable chose in action'.
A further alternate submissions pursued on behalf of L Pty Ltd was that the husband’s interest was not capable of alteration, thus incapable of forming part of an order pursuant to s 79 of the Act.
In response to this submission, Senior Counsel for the wife directed the court’s attention to the decision of the High Court in Mullane v Mullane (1983) 158 CLR 436 at 445:
In our opinion, section 79 on its proper construction refers only to orders which work an alteration of the legal or equitable interests in the property of the parties or either of them…. It does not exclude every interest which is not assignable or transferable
A similar proposition was raised before the Supreme Court of Queensland in C v B and W (2006) 35 Fam LR 547. Justice McMurdo held at 556 – 557 (references omitted):
As is said in Discretionary Trusts by Hardingham and Baxt (2nd ed, Butterworths, Sydney, 1984), the object of a discretionary trust, in circumstances comparable to the first defendant’s position, has a right or rights amounting at least to an equitable chose in action which is “property in the strict sense”. In particular the inalienability of that chose in action does not prevent it from being property, and the authors cite National Trustees Executors & Agency Co of Australasia Ltd v Federal Commissioner of Taxation (Cain’s Case) where Kitto J said:
It may be said categorically that alienability is not an indispensable attribute of a right of property according to the general sense which the word “property” bears in the law.
Rights may be incapable of assignment, either because assignment is considered incompatible with their nature, as was the case originally with debts (subject to an exception in favour of the King), or because a statute so provides or considerations of public policy so require, as is the case with some salaries and pensions; yet they are all within the conception of “property” as the word is normally understood…
In the Full Court judgment of B Pty Ltd and Ors & K and Anor the applicants, that is the husband and numerous third parties, sought permission to appeal against orders made by Morgan J which allowed for the respondent wife to amend her application to join six respondents and claim further relief against existing respondents. Some of the third parties in that case were trustee corporations and appointors of discretionary trusts of which the husband was a member of the class of beneficiaries.
As in the current proceeding, Mr North SC acted on behalf on the wife. The Full Court stated at 109:
It is common ground that, the trusts concerned being discretionary trusts, though the husband is a beneficiary of each of them, he cannot under the general civil law in Victoria require a distribution to himself. However, Mr North SC, who appears before us for the wife, submits that an order to that effect can be made pursuant to s 90AE of the Act.
In further written submissions filed on behalf of the wife it was submitted that the ratio decidendi of B Pty Ltd and Ors & K and Anor had no relevance to the wife’s application in the proceeding currently before me on the basis that the Full Court held at 52 that, “[s]ufficient facts must be asserted to demonstrate that, if proved, the law arguably provides the relief sought.” As evidence thereof, Mr North SC and Mr Sweeney pointed to the non-contentious fact that the husband and his siblings lent the trust funds on generous terms.
It is important to note that in B Pty Ltd and Ors & K and Anor, Mr North SC sought to show a connection between the marriage and the interests of the third parties by establishing that the husband’s right as a beneficiary of a discretionary trust constituted a chose in action, and was thus property. A similar line of argument was pursued by him in the current proceeding. Written submissions filed on behalf of L Pty Ltd and the husband directed the court’s attention to 110 whereby the Full Court concluded:
…there is no nexus between the husband’s chose-in-action and the trust assets which gives the husband any proprietorial interest in those assets. An order in respect of those assets would not seem to be “in relation to the property of a party to a marriage” (s 90AA).
Further written submissions filed by L Pty Ltd and the husband emphasised the analogous facts between the husband in the present proceeding and the husband in B Pty Ltd and Ors & K and Anor, with both men being members of a class of general beneficiaries of a discretionary trust, with a right to require the proper administration of the trust. Further written submissions filed on behalf of the wife distinguished B Pty Ltd and Ors & K and Anor from the present proceeding on the basis that the orders sought by the wife in that case sought to increase the pool of martial assets by an unknown quantum.
The High Court handed down its reasons for judgment in Kennon v Spry; Spry v Kennon [2008] HCA 56 on 3 December 2008. On 5 December 2008 I made a direction in chambers that was sent to each party’s legal representatives by my associate (by email and facsimile transmission) under a covering communication that drew attention to the High Court’s judgment in Spry. The direction was:
Any further submission to be made by any party is to be made in writing by email to my associate at [email address supplied] and copied to each other party by 4.00pm on Tuesday 9 September 2008.
This did not require any party to make a further submission but rather created an opportunity to do so within a limited time frame. Further written submissions were received from L Pty Ltd on 9 December 2008, which were adopted by the husband.
Spry required a consideration of the definition of the property of parties to the marriage and in particular whether the right of the wife with respect to the due administration of the relevant trust and the discretionary power of the husband to appoint the whole of trust assets to the wife constituted part of the property of the parties to the marriage. L Pty Ltd directed the court’s attention to the observations of French CJ at 77:
The beneficiary of a non-exhaustive discretionary trust who does not control the trustee directly or indirectly has a right to due consideration and to due administration of the trust but it is difficult to value those rights when the beneficiary has no present entitlement and may never have any entitlement to any part of the income or capital of the trust.
Chief Justice French continued at 78 to state:
Gummow and Hayne JJ, in their joint reasons, characterise Mrs Spry's right with respect to the due administration of the Trust as part of her property for the purposes of the Family Law Act. I respectfully agree with their Honours that prior to the 1998 Instrument the equitable right to due administration of the Trust fund could be taken into account as part of the property of Mrs Spry as a party to the marriage. So too could her equitable entitlement to due consideration in relation to the application of the income and capital.
At 79 his Honour noted:
Insofar as Gummow and Hayne JJ rely upon the property comprised by Dr Spry's power as trustee and Mrs Spry's equitable rights prior to 1998, I agree that these property rights were capable of providing a basis for the orders which Strickland J made. I do so, as already indicated, by considering that power and the equitable rights, in conjunction with Dr Spry's legal title to the Trust assets, without which the power and the rights were meaningless.
In their separate judgment, Gummow and Hayne JJ held at 126:
The right of the wife with respect to the due administration of the Trust was included in her property for the purposes of the Act. The submissions by Mr Gleeson to this effect should be accepted. The submissions to the contrary by Mr Myers should not be accepted. And in considering what is the property of the parties to the marriage (as distinct from what might be identified as the property of the husband) it is important to recognise not only that the right of the wife was accompanied at least by the fiduciary duty of the husband to consider whether and in what way the power should be exercised, but also that, during the marriage, the power could have been exercised by appointing the whole of the Trust assets to the wife. Observing that the husband could not have conferred the same benefit on himself as he could on his wife denies only that he had property in the assets of the Trust, it does not deny that part of the property of the parties to the marriage, within the meaning of the Act, was his power to appoint the whole of the property to his wife and her right to a due administration of the Trust.
In its further written submissions L Pty Ltd argued that the facts in the current proceeding were distinguishable from those in Spry on the basis that the husband is not a director of L Pty Ltd, the trustee of the F Family Settlement, nor does he hold a power of appointment in respect of the trust. A further submission was that the assets of the F Family Settlement were not accumulated by the parties during the marriage, but instead by the husband’s father.
I will consider the effect of the judgment of the majority in Spry further in due course.
Value
The alternate submission made by L Pty Ltd was that the husband’s interest had no value by reason of being incapable of valuation.
In this respect, Senior Counsel for L Pty Ltd referred to R and I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd which concerned an application for contempt following an alleged breach of a Mareva injunction. The Full Court of the Supreme Court of Western Australia held that the beneficiary of a non-exhaustive discretionary trust did not have a proprietary interest in any particular asset of the trust fund as the expectancy in the possibility of a trustee appointing capital of the trust in his or her favour lacked the requisite aspect of “value.”
Justice Owen concluded at 80:
In my opinion, the expectation which a beneficiary has that the trustee might appoint income or capital in his or her favour lacks the requisite aspect of value for it to be regarded as an asset. I interpose for it to be regarded as property. Similarly the chose in action to due administration of the trust is so qualified or limited in its connection with the property making up the trust fund that it is too devoid of value to the extent necessary to constitute it an asset. The right to say to the trustee "please consider me", is too remote from value to have any value.
Senior Counsel for the wife submitted that given the husband’s position, the family arrangement and the history of distributions, the husband’s interests was analogous to that of the husband in Ramsay v Ramsay (1997) FLC 92-742. In that case the husband held a minority shareholding. Historically he had never received dividends on his shares.
In Ramsay v Ramsay Warnick J concluded that the husband had no realistic prospect of gaining control of the company in the future. Furthermore, that his shares could not be sold as there was no market value. Accordingly his Honour recognised the lack of realisable value in the husband’s shareholding. His Honour concluded that for the purposes of s 79 proceedings, the shares had a value to the husband represented by the value of the income stream received by him, by reason of his family and his ownership of the shares.
I refer again to the decision of the High Court in Spry. After recognising that the interest of an object of a discretionary trust is property for the purposes of the Family Law Act, Chief Justice French acknowledged that:
In so agreeing, however, I acknowledge, …. that it is difficult to put a value on either of these rights though a valuation might not be beyond the actuarial arts in relation to the right to due consideration.
Part VIIIAA
In order for the wife’s further amended application for final orders to withstand the challenge to the court’s jurisdiction raised by L Pty Ltd, I must be satisfied that the court has the power to bind L Pty Ltd pursuant to Part VIIIAA of the Act. Part VIIIAA was introduced on 17 December 2004. Pursuant to s 90AA, the object of this Part is to allow the court to make orders directed to third parties with respect to s 79 proceedings. The power given to the court is entirely discretionary.
Pursuant to s 90AB, an order made under this Part is binding on a third party, meaning a person who is not a party to the marriage. As such L Pty Ltd comes within this definition. In accordance with s 90AG, such an order also binds subsequent trustees. Consistent with submissions made on behalf of the wife, such an order prevails over any other contradicting law, trust deed or other instrument pursuant to s 90AC.
s 90AE reads:
(1) In proceedings under section 79, the court may make any of the following orders:
(a) an order directed to a creditor of the parties to the marriage to substitute one party for both parties in relation to the debt owed to the creditor;
(b) an order directed to a creditor of one party to a marriage to substitute the other party, or both parties, to the marriage for that party in relation to the debt owed to the creditor;
(c) an order directed to a creditor of the parties to the marriage that the parties be liable for a different proportion of the debt owed to the creditor than the proportion the parties are liable to before the order is made;
(d) an order directed to a director of a company or to a company to register a transfer of shares from one party to the marriage to the other party.
(2) In proceedings under section 79, the court may make any other order that:
(a) directs a third party to do a thing in relation to the property of a party to the marriage; or
(b) alters the rights, liabilities or property interests of a third party in relation to the marriage.
(3) The court may only make an order under subsection (1) or (2) if:
(a) the making of the order is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage; and
…
(d) the court is satisfied that, in all the circumstances, it is just and equitable to make the order; and
(e) the court is satisfied that the order takes into account the matters mentioned in subsection (4).
(4) The matters are as follows:
(a) the taxation effect (if any) of the order on the parties to the marriage;
(b) the taxation effect (if any) of the order on the third party;
(c) the social security effect (if any) of the order on the parties to the marriage;
(d) the third party’s administrative costs in relation to the order;
(e) if the order concerns a debt of a party to the marriage—the capacity of a party to the marriage to repay the debt after the order is made;
(f) the economic, legal or other capacity of the third party to comply with the order;
(g) if, as a result of the third party being accorded procedural fairness in relation to the making of the order, the third party raises any other matters—those matters;
(h) any other matter that the court considers relevant.
The Explanatory Memorandum for the Family Law Amendment Bill 2003 (Cth) indicates that Parliament intended s 90AE to cover a wide range of possible interests which a party to the marriage may have. Furthermore that the range of orders available to the Court be broad. This position is consistent with submissions made on behalf of the wife.
Senior Counsel for the wife directed the court’s attention to Hunt v Hunt & Lederer (2006) 36 Fam LR 64, whereby O’Ryan J upheld the constitutionally validity of s 90AE(2)(b). His Honour concluded at 65:
When s 90AE(2) was read in conjunction with s 90AE(3), s 79, and Part VIIIAA generally, it was clear that what was contemplated was not some arbitrary invasion of the rights of a third party but an alteration of those rights where they were sufficiently connected to the division of the property between parties to a marriage.
This decision was cited with approval by the Full Court in B Pty Ltd and Ors & K and Anor. With respect to respect to s 90AE(2) their Honours observed at 21:
… insofar as the words in s 90AE(2)(b) “property interests of a third party in relation to the marriage” may be unclear, we note again the object of the Part in s 90AA, namely to allow the court to make orders under s 79 that is directed to the property interests of a third party in relation to the property of a party to a marriage.
On the basis that the wife seeks injunctions against L Pty Ltd, I also need to be satisfied that the court’s power comes within the scope of s 90AF. That section reads:
(1) In proceedings under section 114, the court may:
(a) make an order restraining a person from repossessing property of a party to a marriage; or
(b) grant an injunction restraining a person from commencing legal proceedings against a party to a marriage.
(2) In proceedings under section 114, the court may make any other order, or grant any other injunction that:
(a) directs a third party to do a thing in relation to the property of a party to the marriage; or
(b) alters the rights, liabilities or property interests of a third party in relation to the marriage.
(3) The court may only make an order or grant an injunction under subsection (1) or (2) if:
(a) the making of the order, or the granting of the injunction, is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage; and
(b) if the order or injunction concerns a debt of a party to the marriage—it is not foreseeable at the time that the order is made, or the injunction granted, that to make the order or grant the injunction would result in the debt not being paid in full; and
(c) the third party has been accorded procedural fairness in relation to the making of the order or injunction; and
(d) for an injunction or order under subsection 114(1)—the court is satisfied that, in all the circumstances, it is proper to make the order or grant the injunction; and
(e) for an injunction under subsection 114(3)—the court is satisfied that, in all the circumstances, it is just or convenient to grant the injunction; and
(f) the court is satisfied that the order or injunction takes into account the matters mentioned in subsection (4).
(4) The matters are as follows:
(a) the taxation effect (if any) of the order or injunction on the parties to the marriage;
(b) the taxation effect (if any) of the order or injunction on the third party;
(c) the social security effect (if any) of the order or injunction on the parties to the marriage;
(d) the third party’s administrative costs in relation to the order or injunction;
(e) if the order or injunction concerns a debt of a party to the marriage—the capacity of a party to the marriage to repay the debt after the order is made or the injunction is granted;
(f) the economic, legal or other capacity of the third party to comply with the order or injunction;
(g) if, as a result of the third party being accorded procedural fairness in relation to the making of the order or the granting of the injunction, the third party raises any other matters— those matters;
(h) any other matter that the court considers relevant.
The legislation provides a relevant example with respect to s 90AF(4)(f). It reads:
The legal capacity of the third party to comply with the order or injunction could be affected by the terms of a trust deed. However, after taking the third party’s legal capacity into account, the court may make the order or grant the injunction despite the terms of the trust deed. If the court does so, the order or injunction will have effect despite those terms (see section 90AC).
With respect to an order made under s 90AF, s 90AK states that the court must not make an order or grant such an injunction if it would result in the acquisition of property from a person otherwise than on just terms or be invalid pursuant to paragraph 51(xxxi) of the Constitution. I am satisfied in the present case that neither limitation applies. As argued in the wife’s written submissions regarding Part VIIIAA, each object of the F Family Settlement has no present entitlement to a proprietary interest in the assets of the trust; therefore no individual object suffers pecuniary loss.
Senior Counsel for the wife submitted that the power under s 90AF was analogous to that under s 114. On this basis, a reference was made to the judgment of Nicholson CJ in Law-Smith and Seinor (1989) FLC 92-050 at 77, 565 – 566:
Paragraph (e) of sec. 114(1) refers to an injunction in relation to the property of a party to the marriage and although I have expressed the view that the husband's present entitlements under the superannuation scheme are not property as such, it is clear that they are capable of becoming property depending upon the happening of certain contingencies. Accordingly, I consider that an order requiring the husband to take a step to bring such property into existence, is an order with respect to the property of the husband within the meaning of para. (e) of sec. 114(1). If I am incorrect about this, I am nevertheless confident that the general power contained in sec. 114(1) is such as to confer the necessary jurisdiction to make such an order.
I consider that the order sought in the present proceedings falls clearly within the category of an exercise of power in aid of the jurisdiction of the Court to make orders for a property settlement pursuant to sec. 79 of the Act. It seems to me that an order which has the effect of placing property in the hands of one party who has been able to put himself into the position of obtaining that property, at least to some extent, by reason of the marital relationship must be treated as a valid exercise of power in aid of the Court's jurisdiction under sec. 79. If it were otherwise, human ingenuity being such as it is, it is apparent that the jurisdiction of the Court to make effective orders under sec. 79 could be readily circumvented contrary to the clear intent of the legislation.
With respect to the issue of procedural fairness, the third party in question, L Pty Ltd, must be served with the wife’s application and relevant documents pursuant to s 90AI and r 7.04(4). I am satisfied that this has occurred in this case and that L Pty Ltd has been given the opportunity to respond and be heard on the issue. Furthermore, I am satisfied that to give effect to procedural fairness, L Pty Ltd has previously been joined to the proceedings pursuant to r 6.02.
Senior Counsel for L Pty Ltd submitted that the orders sought by the wife, in particular 7(a), 7(b), 7(c), 7(d) where outside the jurisdiction of this court. Senior Counsel for the wife described 7(d) as the linchpin of the orders sought by his client, on the basis that once a distribution is made to the husband, it vests in the wife.
In considering the orders sought by the wife, s 90AK is relevant to orders 7(a), 7(b) and 7(c). With respect to 7(c), Senior Counsel for L Pty Ltd submitted that its client as trustee has a duty to consider; therefore the making of this would result in a breach of its duties as trustee. Furthermore, that it would limit the rights of other beneficiaries, particularly future beneficiaries.
With respect to order 7(d) and s 90AE, Senior Counsel for the wife submitted that the question as to whether or not this order is reasonably necessary will ultimately depend on factual findings that are made following a final hearing. Additionally, that success at final hearing would be akin to the reasoning of Nicholson CJ in Law-Smith and Seinor. I accept this submission.
Senior Counsel for L Pty Ltd asserted that order 8 could more appropriately, be made against the husband on the basis that once a distribution is made to him it would then become his property. Mr Glick QC did however concede that grounds existed to make the order against L Pty Ltd. A similar proposition was raised in relation to order 9.
Senior Counsel for the wife submitted that the authority in Gazzo v Comptroller of Stamps (Vic) (1981) 149 CLR 227 at 234–5 and 248, is that whether a law which affects the property of parties to a marriage is a law with respect to marriage is dependent on the strength of the connection between the law and the marital relationship. Mr North SC then relied upon the dissenting judgment of Mason J in that case in addition to Fisher v Fisher (1986) 161 CLR 438, whereby Mason and Deane JJ concluded in their joint judgment at 453 that such an authority should be confined to its particular facts because the underlying reasoning was fundamentally unsound.
Senior Counsel for the wife sought to rely on the differences of opinion expressed by differently constituted benches of the High Court. I note that a contrary view was expressed by Gibbs CJ and Aicken J in Gazzo v Comptroller of Stamps (Vic).
CONCLUSION
The Full Court has previously emphasised the need to determine issues such as those raised in the current proceeding in light of contemporary trends. In the Marriage of Davidson (1991) FLC 92-197, their Honours Simpson, Murray and Nygh JJ observed at 78,365 – 366 that:
Whatever may have been the position one hundred years ago, Australian courts today have to look at the reality of the situation and the purpose which family trusts serve today.
In R and R, an unreported decision delivered on 27 April 1990, the Full Court of this Court comprising of Simpson, Strauss and Smithers JJ stated at 77:
…whether the property of the trust is in reality the property of the parties or one of them or a financial resource of the parties or one of them is a matter dependent upon the facts and circumstances of each particular case …
The decision of the majority of the High Court in Spry establishes an important principle when considering the interests of those who seek relief under section 79 of the Act based on the rights that accrue to a beneficiary of a discretionary trust where ownership of the trust property is vested in a party to the marriage, albeit as trustee.
In Spry, the husband’s legal ownership of the assets as sole trustee and the wife’s interest as a beneficiary of the trust were found to have provided a proper basis for orders made by the trial Judge that required the husband to pay to the wife a substantial sum in circumstances where the source of payment of such an amount was the trust assets. In so holding, French CJ acknowledged at 80, that any order made in such circumstances would have to take into account the interests of other beneficiaries.
In my view there are facts in this case that establish a connection between the trust assets and the husband: he has lent the trust the proceeds of his shares in the entity that previously owned and conducted the family business on terms that can only be described as very favourable: no interest is payable at any time, and the initial period for repayment was 25 years. This was recently extended by a further 10 years. This is a very different situation from that which existed in B Pty Ltd and Ors & K and Anor where the court found that on the facts available to it for the purposes of dealing with the application before it, there was no relevant connection between the trust assets and the marriage, and therefore the powers under Part VIIIAA could not be properly engaged to grant the wife the relief that she sought. In this case, we have the facts to which I have already made reference in this paragraph further supported by evidence that the mission statement of the Simmons Family Council provides, as one of its objects:
iii) Return on an investment to the family.
And by evidence that the term “long term trust shareholders” appears in documents generated by the Simmons Family Council and L Pty Ltd.
One possibility in this case is that further disclosure of documents by L Pty Ltd will render those words capable of a more clearly ascertainable meaning. On their face, however they appear to acknowledge that investments were made by family members such as the husband and his siblings, and express the object of providing a return on such investments to the “long term trust shareholders”
The facts in this case establish a very significant investment in the trust assets by the husband and his siblings in the form of interest free loans that now do not require repayment until the 35th year since they were advanced. Whilst the genesis of the trust assets may be attributable, as L Pty Ltd argues, to the husband’s father, his own original corporate structure included the husband as a substantial shareholder. Those shares were clearly property of the husband. Those shareholdings have been converted into loans in circumstances where they represent a reinvestment of the husband’s asset in a form that may already be recognised in the L Pty Ltd documentation as a change in form rather than substance. Such are the issues to be determined at trial, but I find that a court, hearing the trial of this matter could properly find that orders or injunctions of the kind sought by the wife were reasonably necessary or adapted to effect a division of property between the parties to the marriage, Whether it is just and equitable to make such an order would be a matter for the trial judge.
In Spry, neither the trial Judge (nor, therefore the High Court) was required to consider the effect and operation of Part VIIIAA. Put another way, the powers that Part VIIIAA provides were not relied upon to underpin the orders made under section 79 in that case, because the husband was the owner, as trustee, of the trust assets. Here the husband is not the owner of the trust assets and the wife seeks to rely on the court’s powers under Part VIIIAA specifically. I accept the argument, advanced by Mr North SC on behalf of the wife, that the decision in B Pty Ltd and Ors & K and Anor is distinguishable from the present case on the basis inter alia of the facts to which I have made reference. I consider that the wife’s claim does not lack a reasonable cause of action thereby being doomed to failure: the husband’s interest as an object of the F Family Settlement is property for the purposes of the Act. It may be difficult to value that property but as held by the French CJ in Spry, that difficulty does not deprive it of the character of property that it otherwise holds, and the existence of a longstanding scheme of distributions to beneficiaries such as the husband and his siblings provides a useful starting point in the valuation process.
I find that there is a sufficient nexus between the assets of the trust and the property of the parties to the marriage for a court to find that Part VIIIAA applies, and is available to enable orders binding third parties to be made for the purpose of the making of orders, or the granting of injunctions, “that are reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage” and that these powers could be exercised in a way that takes into account the existence of other beneficiaries, and is not limited by the terms of the trust deed or any other law.
In such circumstances, it is open to a court hearing this matter to decide that orders and injunctions of the kind presently sought by the wife can and should be made. In forming a view about these matters the court may well be assisted by any further evidence that may be given once the parties (including L Pty Ltd) have made full disclosure of all relevant documents.
In conclusion, I am not satisfied that the wife’s claim is doomed to failure because it shows no reasonable cause of action, or that the court lacks jurisdiction to exercise the powers conferred on it by Part VIIIAA in this case.
The applications of L Pty Ltd and the husband will therefore be dismissed.
I certify that the preceding one hundred and twenty six (126) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watt
Associate:
Date: 12 November 2008
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