Stephens & Stephens & Anor (Enforcement)
[2009] FamCAFC 240
•24 December 2009
FAMILY COURT OF AUSTRALIA
| STEPHENS & STEPHENS & ANOR (Enforcement) | [2009] FamCAFC 240 |
| FAMILY LAW - APPEAL – From enforcement proceedings regarding property orders – Whether a property order can be made attaching to the assets of a trust – Whether the trial judge erred in making a finding that assets of a trust could be used to satisfy the husband’s personal obligation to the wife – Whether the assets of a trust could be used to satisfy the entitlement of the wife in circumstances where the husband had legal control of the assets of the trust and the wife was an object of that trust – Where the husband made no application seeking relief in respect of his obligations under the property settlement order – Where an order may be made as part of s 79 proceedings that enables an entitlement of a party to the marriage who is an object of a trust, or ceased to be an object of a trust by reason of divorce, to be satisfied out of the assets of the trust – Where an order may be made that enables a party to the marriage who is in control of a trust to satisfy his or her own personal liability to the other party to the marriage who is an object of the trust from that assets of that trust – Where it was within the jurisdiction and power of the trial judge to make orders attaching to the assets of a trust – No error established FAMILY LAW - APPEAL – Whether the trial judge erred in law by making orders without representation of all legal persons and/or entities with an interest in the balance of the moneys – Where it is contended that in the event that the assets of a trust are to be used for the purposes of satisfying an entitlement pursuant to the property settlement order that a court must have regard to the interests of any third parties who may also be classified as beneficiaries – Where the husband was the only trustee of the Stephens Trust and the sole trustee of the three children’s trusts – Where the children of the marriage, who were also beneficiaries, made clear that they did not wish to be heard before the trial judge – Where the only relevant trust was the Stephens Trust pursuant to 106B of the Family Law Act 1975 (Cth) – No error established FAMILY LAW - APPEAL – Whether the trial judge erred in not making a finding of the legal and beneficial ownership of the moneys – Whether the trial judge erred in law by finding that the husband had the onus of establishing the legal and/or beneficial ownership of the moneys – Where the trial judge was entitled to conclude that the husband was always open to file evidence explaining the ownership of the funds – Where it was immaterial to determine in what proportions the cash funds were the property of the husband and the property “of the parties to the marriage” due to orders made by 106B of the Family Law Act 1975 (Cth) – No error established FAMILY LAW - APPEAL – Whether the trial judge erred in law by not discharging orders that were obtained in breach of the duty to make full and frank disclosure – Rule 5.12(b) – No error established FAMILY LAW - APPEAL and CROSS-APPEAL – In relation to the calculation of Interest – s 117B and Rule 17.03 – Where the Family Law Act 1975 (Cth) does not draw a distinction between interest up to judgment and interest on judgment – Where the discretion conferred by s 117B (2) of the Act is to be exercised by the court that made the order for the payment of money and cannot be exercised by any other court – Where the discretion conferred by s 117B enables the court to make the rate of interest higher or lower in accordance with the interests of justice – Where the onus of establishing the reason to vary the rate of interest is the party seeking to take advantage of s 117B – Where although the purpose of interest on a judgment debt is to compensate the party entitled to the benefit of the judgment it should not be confined to this – Where the purpose is to also ensure compliance with orders – Where the trial judge failed to address whether it was in the interests of justice that the interest rate be varied – Wife’s cross-appeal upheld and the husband’s appeal dismissed FAMILY LAW - APPLICATION TO REOPEN AN APPEAL AND ADDUCE FURTHER EVIDENCE – Section 93A (2) and Rule 22.39 – Fundamental principle to be applied in determining whether to grant an application to reopen is whether the interests of justice are better served by allowing the application or rejecting it – Relevant discretionary factors to permit a beginning party to adduce further evidence as referred to in Australian Securities and Investments Commission v Rich [2007] 235 ALR 587 FAMILY LAW - APPLICATION TO ADDUCE FURTHER EVIDENCE – Where the husband sought to adduce evidence on two separate occasions – Where the first application relates to notations that were on the envelopes containing the moneys that were taken by the wife – Where the first application sought to adduce evidence that was available at the time of the hearing before the trial judge – Where the evidence sought to impugn the trial judge’s finding regarding the ownership of the moneys – Where the second application related to a contention that the three children’s trusts and the W Stephens Trust had a total liability to the children – Where the second application sought to adduce evidence after the hearing before the Full Court but was evidence also available at the hearing before the trial judge and before the Full Court – Where on the second occasion the evidence is controversial and where in circumstances that if the evidence was adduced there would be a need for a new trial – Where there would be significant prejudice occasioned to the wife if the husband’s application was granted – Husband’s applications dismissed FAMILY LAW - APPLICATION TO ADDUCE FURTHER EVIDENCE – Where the wife sought to adduce evidence that prior to the hearing of the appeal the husband removed Mr J as a joint trustee of the three children’s trusts and fixed his signature to share transfers – Wife’s application granted FAMILY LAW - APPLICATION TO EXTEND TIME TO FILE AN APPLICATION FOR LEAVE TO APPEAL – Against separate orders made by Watts and Cronin JJ – Where it was contended that the wife failed to place before their Honours all material facts and did not make a full and frank disclosure – Where the complaints regarding these orders serve no practical purpose – Application dismissed FAMILY LAW - APPLICATION IN AN APPEAL – APPLICATION TO REMOVE A PARTY TO AN APPEAL – Rule 22.04 – Pursuant to s 106B of the Act the trustee of the three children’s trusts and the trustee of the W Stephens Trust do not have any interest in the proceedings – Where the trustee of the Stephens Trust does have an interest in the proceedings because it is from the reconstituted assets of that trust that funds were paid to the Wife FAMILY LAW - COSTS – Reserved |
| Civil Procedure Act 2005 (NSW) – s 100, s 101 Federal Court of Australia Act 1976 (Cth) – s 51A(1), s 51A (3)(c) Judiciary Act 1903 (Cth) – s 79B Penalty Interest Rates Act 1983 (Vic) Supreme Court Act 1970 (NSW) – s 95(1) Supreme Court Act 1986 (Vic) – s 59, s 60, s 60(3)(c), s 101 Supreme Court Act 1995 (Qld) – s 47, s 48 Trustee Act 1958 (Vic) Family Law Rules 2004 – r 17.03 Supreme Court Regulation 2008 (Qld) Uniform Civil Procedure Rules 2005 (NSW) |
| Ashton and Ashton (1986) FLC 91-777 Australian Securities and Investments Commission v Rich (2006) 235 ALR 587 CDJ v VAJ (1998) 197 CLR 172 Cross v Beaumont [2007] FamCA 123 Davidson and Davidson (1991) FLC 92-197 Gaspaldi & Gaspaldi [2008] FamCAFC 134. Gelly and Gelly (no 1) (1992) FLC 92-290 Gould and Another v Vaggelas and Others (1985) 62 ALR 527 Grincelis v House (2000) 201 CLR 321 Goodwin and Goodwin Alpe (1991) FLC 92-192 Hartley Poyton Ltd v Ali (2005) 11 VR 568 Hickey and Hickey and Attorney General of the Commonwealth of Australia (Intervener) (2003) FLC 93-143 JEL and DDF (No 2) (2001) FLC 93-083 Jones and Jones (1990) FLC 92-143 Joyce v GIO (NSW) (unreported, Supreme Court of New South Wales, Sheppard J, 21 July 1976) Kelly, In the Marriage of (No 2) (1981) 7 Fam LR 762 Kennon v Spry (2008) 238 CLR 366; FLC 93-388 Kowaliw and Kowaliw (1981) FLC 91-092 Matthews & Matthews (2006) FLC 93-304 Milankov and Milankov (2002) FLC 93-095 Metcalfe v Commonwealth (No. 2) [2006] VSC 133 Mercantile Credits Ltd v McDowell and Others (1980) 2 NSWLR 101 Murray v Commonwealth of Australia (1986) 5 NSWLR 83 Orpen v Tarantello [2009] VSC 143 Rural Export & Trading (WA) Pty Ltd v Hahneuser [2007] FCA 1535 Smallacombe v Lockyer (1993) 114 ALR 568 Smith v New South Wales Bar Association (No 2) (1992) 176 CLR 256 State Bank of New South Wales Ltd v Chia and Another (2001) 50 NSWLR 587 Stein and Stein (1986) FLC 91-779 Stephens & Stephens and Ors (2007) FLC 93-336 Thompson v Faraonia (1979) 54 ALJR 231 TS & B Retail Systems Pty Ltd v 3 Fold Resources Pty Ltd (No 4) [2007] FCA 635 Townsend and Townsend (1995) FLC 92-569 Urban Transport Authority of New South Wales v Nweiser (1992) 28 NSWLR 471 Webster v Webster (1998) FLC 92-832 |
| APPELLANT: | MR STEPHENS |
| FIRST RESPONDENT: | MS STEPHENS |
SECOND RESPONDENT: | MR STEPHENS (as Trustee of the Stephens Trust) |
| FILE NUMBER: | MLC | 788 | of | 2009 |
| APPEAL NUMBERS: | SA SA | 23 24 | of of | 2009 2009 |
| DATE DELIVERED: | 24 December 2009 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | May, Boland & O'Ryan JJ |
| HEARING OF: | 7, 8 and 22 May and 4 December 2009 |
| LOWER COURT JURISDICTION: | Family Court of Australia |
| LOWER COURT JUDGMENT DATE: | 10 March 2009 |
| LOWER COURT MNC: | [2009] FamCA 156 |
REPRESENTATION
| COUNSEL FOR THE APPELLANT: | Mr S.G. McLeish SC with Dr R.S. Ingleby |
| SOLICITOR FOR THE APPELLANT: | Nedovic & Co. |
| COUNSEL FOR THE FIRST RESPONDENT: | Mr N.J. Ackman QC with Ms K.M. MacMillan SC |
| SOLICITOR FOR THE FIRST RESPONDENT: | Kennedy Wisewoulds, Lawyers |
| COUNSEL FOR THE SECOND RESPONDENT: | Dr I.J. Hardingham QC with Mr M.C. Hines |
Orders
The appeal by the Husband be dismissed.
The cross-appeal by the Wife be allowed.
Order 2 made by Coleman J on 10 March 2009 be set aside.
The Husband forthwith pay to the Wife such sum as represents interest calculated in accordance with r 17.03 of the Family Law Rules 2004 payable on moneys owed by the Husband to the Wife pursuant to the order of the Court of 30 November 2005.
It be noted that in the event that sufficient funds are still retained by the Kennedy Wisewoulds, Solicitors (the stakeholders) that the Husband’s obligation to the Wife pursuant to Order 4 hereof may be satisfied from that source.
It be noted that the amount to be paid pursuant to Order 4 hereof is after allowance for any amounts paid pursuant to Order 2 made by Coleman J on 10 March 2009.
The application by the Husband to extend the time to file an application for leave to appeal against the orders made by Watts J on 1 February 2009 be dismissed.
The application by the Husband to extend the time to file an application for leave to appeal against the orders made by Cronin J on 2 February 2009 be dismissed.
The application by the Husband filed on 30 March 2009 for leave to adduce further evidence be dismissed.
The application by the Husband filed on 9 November 2008 for leave to adduce further evidence be dismissed.
The oral application of the Husband made on 4 December 2009 seeking to reopen the hearing of the appeal be dismissed.
The application by the Wife filed on 21 May 2009 for leave to adduce further evidence be granted and the Wife have leave to adduce further evidence.
Each party be at liberty to make an application by way of written submissions in respect of costs incurred in relation to the applications by the Husband to extend the time to file an application for leave to appeal; the appeal by the Husband and the cross-appeal by the Wife by filing such submissions at the Southern Region Appeal Registry of the Family Court of Australia and serving them on the other parties within 21 days of the date hereof.
Each party have a further 14 days in which to make written submissions in answer thereto by filing such submissions at the Southern Region Appeal Registry of the Family Court of Australia and serving them on the other parties.
Each party be at liberty to reply to an answer by way of written submissions by filing such reply at the Southern Region Appeal Registry of the Family Court of Australia and serving it on the other parties within a further seven days.
Each party endorse on the cover sheet of any submissions filed pursuant to orders 12, 13 and 14, the date upon which a copy of that submission was served on the other parties.
IT IS NOTED that publication of this judgment under the pseudonym Stephens & Stephens and Anor (Enforcement) is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT MELBOURNE |
Appeal Numbers: SA 23 & 24 of 2009
File Number: MLC 788 of 2009
| MR STEPHENS |
Appellant
And
| MS STEPHENS |
First Respondent
And
| MR STEPHENS (as Trustee of the Stephens Trust) |
Second Respondent
REASONS FOR JUDGMENT
INTRODUCTION
General
This is an appeal by Mr Stephens (“the Husband”) and a cross-appeal by Ms Stephens (“the Wife”) against orders made by Coleman J on 10 March 2009. There is also an application by the Husband seeking an extension of time to file an application for leave to appeal against orders made by Watts J on 1 February 2009 and orders made by Cronin J on 2 February 2009.
This case has a long and protracted history. In 2002 proceedings were commenced in the Family Court when the Wife filed an application for final orders for property settlement and spouse maintenance. On 30 November 2005 Strickland J pronounced judgment on the final orders applications and made orders pursuant to s 106B of the Family Law Act 1975 (Cth) (“the Act”) and an order pursuant to s 79 of the Act. The order pursuant to s 79 included a provision (paragraph 4 of the orders) that on or before 28 February 2006 the Husband pay to the Wife an amount of money being the sum of $2,182,302.00. Strickland J did not make an order pursuant to s 117B (2) in relation to interest and thus pursuant to s 117B (1) the Husband also had an obligation to pay to the Wife interest at the rate prescribed by r 17.03 of the Family Law Rules 2004 (“the Rules”).
Strickland J found that the parties to the marriage had net assets of $9,818,144.37 which included assets of certain trusts of $4,760,152.00. The effect of what his Honour ordered was that the Husband was entitled to net assets of $5,105,435.00 (in round dollars) and the Wife net assets of $4,712,709.00 (in round dollars). The Wife already had net assets of $2,530,406.80 (this should have been $2,530,466.80) and thus she had to receive a further $2,182,302.20. The Husband had net assets of $1,790,108.15 less $57,727.15 being the amount for legal costs.
In 2006 the Full Court of the Family Court heard an appeal against the orders of Strickland J and dismissed the appeal: reported as Stephens & Stephens and Ors (2007) FLC 93-336. The High Court then granted special leave to appeal against the orders of the Full Court and on 3 December 2008 dismissed the appeal: Kennon v Spry (2008) 238 CLR 366; FLC 93-388.
As a consequence of the dismissal by the High Court of the appeals, the Husband still had the obligation to pay $2,182,302.00 to the Wife as part of her property settlement entitlement and interest on that amount at the rate prescribed by the Rules. However the position taken by the Husband, the Husband and Mr J as joint trustees of the X Stephens Trust, the Y Stephens Trust and the Z Stephens Trust (“the three children’s trusts”), the Husband as trustee of the Stephens Trust (“the Trust”) and the Husband as the trustee of the W Stephens Trust is that the maximum amount that could ever be paid to the Wife was $1,790,108.15 being the value of the net assets of the Husband. It will be seen shortly that the Husband has now paid $1,038,000.00 to the Wife in part satisfaction of the order and the amount that was unpaid was $996,362.18 plus interest and costs. The Wife contended that her entitlement could be satisfied from the assets of the Trust.
In circumstances which we will hereafter consider in more detail an amount of $4,442,000.00 in a cash form came into the possession of the Wife’s solicitors Kennedy Wisewoulds, Lawyers. The cash represented the proceeds of realisation of certain assets of the Husband and assets which in consequence of an order made by Strickland J pursuant to s 106B of the Act were assets of the Trust.
The Wife then sought the following:
2. That … the amount of $2,034,632.18 being the amount of the judgment in her favour pursuant to the Order of the Honourable Justice Strickland made on 30 November 2005 as confirmed by the judgment of the High Court of Australia on 3 December 2008 after adjustment to reflect an agreed inadvertent error in His Honour’s calculations be paid forthwith to the wife (“the judgment sum”).
3. That interest on the judgment sum from 1 March 2006 to the date of receipt by the wife of the judgment sum be paid to the wife in the amount of $665,573.86 to 1 February 2009 together with a further $682.00 a day from 1 February 2009 to the date of receipt by the wife of the judgment sum and interest.
4. That from the said monies the amount of $500,000 be forthwith paid to the wife in satisfaction of all orders and claims for costs of the proceedings before the Honourable Justice Strickland, the Full Court of this Court and the High Court of Australia and in default:
4.1The wife have leave to proceed with an application for costs with respect to the proceedings before the Honourable Justice Strickland.
4.2The wife’s costs of the proceedings in the Full Court of this Honourable Court and the High Court of Australia be taxed in accordance with the Orders of those Courts and, when taxed, paid by the husband.
5. That Kennedy Wisewoulds solicitors as the stakeholders appointed under the Order of the Honourable Justice Watts made on 1 February 2009 be authorised to invest the balance of the monies after payment to the wife of the amount in paragraph 2 hereof in an interest bearing account as trustees for the parties pending final determination of this application.
6. That the paintings owned by the husband and the wife be divided between them in accordance with the Orders of the Honourable Justice Strickland by the wife preparing two lists of paintings and the husband choosing one such list. (emphasis in original)
The Wife also sought that the Husband pay the costs of the application on an indemnity basis.
The Husband sought the following:
1. That the moneys stolen from the Respondent’s home and now held by Kennedy Wisewoulds be paid to the Children’s Trusts and to the Respondent as set out in paragraph 3 hereof, together with interest, compensation and the costs of the Children’s Trusts and the Respondent.
2. That from the said moneys $50,000 be paid immediately to the Respondent, to enable him to pay for legal and other expenses.
3. That, pending the payment referred to in paragraph 1 hereof, the balance of the said moneys held by Kennedy Wisewoulds be invested by them at call, in separate accounts, on behalf of the following:
[W Stephens] Trust: $839,000
[X Stephens] Trust: $879,000
[Y Stephens]Trust: $815,000
[Z Stephens]Trust: $821,000
[Mr Stephens]: $779,000 (less an amount under paragraph 2, supra)
[Mr Stephens] Superannuation: $309,000
and that copies of all statements and other documents relating to the said moneys be sent to the Respondent immediately upon receipt by Kennedy Wisewoulds of such statements and other documents.
4. That the paintings owned by the Respondent by Streeton and McCubbin be delivered to him, and the Brack drawing and Ashton painting be retained by the Applicant.
5. That interest be payable only from 3rd December 2008 or some other date after 28th February 2006, and further or alternatively that interest at a reduced rate be payable.
6. That the Applicant pay the Respondent’s costs of and incidental to this application on an indemnity basis.
The proceedings before Coleman J were for the enforcement of that part of the property settlement order made by Strickland J that required the Husband pay $2,182,302.20 to the Wife together with interest in accordance with s 117B(1) of the Act.
Pursuant to a consent order Coleman J made on the first day of the trial the Wife received $1,038,000.00 from the funds held by Kennedy Wisewoulds. His Honour then made an order that Kennedy Wisewoulds forthwith pay to the Wife the sum of $996,362.18 being the balance of moneys owed by the Husband to the Wife pursuant to the order of Strickland J and the sum of $500,647.98 by way of interest on the moneys owed by the Husband to the Wife. Coleman J also made an order that the sum of $500,000.00 be held in an interest bearing account on trust for the parties pending quantification and/or determination of the Husband’s liability for costs pursuant to orders made by the High Court on 3 December 2008; the Husband’s liability for costs pursuant to orders made by the Full Court on 13 July 2007 and any costs ordered by Strickland J with respect to the proceedings determined by him on 30 November 2005.
According to the Husband and others, given the Husband’s current financial circumstances except for the sum paid by consent the amounts described in the preceding paragraph will never be paid. It is contended that all that the Husband now has is a motor vehicle and some furniture. It is contended that the amounts can never be paid unless the financial circumstances of the Husband significantly improve. It is contended that the consequence of the judgment of the High Court is that the Wife will not be able to obtain what is due to her because the order for the payment of $2,182,302.00 was against the Husband personally. The central contention is that the order did not attach to any trust assets and thus the assets of the Trust cannot be accessed to satisfy the entitlement of the Wife.
Strickland J on two bases found that the assets of the Trust were the property of the Husband for the purposes of the proceedings pursuant to s 79 of the Act. On appeal to the Full Court the majority, consisting of Bryant CJ and Warnick J, agreed with the first of Strickland J’s bases for reaching the conclusion that the assets of the Trust be treated as the property of the Husband but for different reasons. Senior counsel for the three children’s trusts and the Trust submitted that the High Court rejected, with “very little comment” the reasoning of Strickland J and the majority of the Full Court to the effect that the Husband could access the assets of the Trust. Senior counsel for the Husband submitted that in the High Court “Gummow, Hayne and Heydon JJ clearly regarded the assets of the [Trust] as not being property of the parties to the marriage” (transcript, 7 May 2009, p 42). It was submitted that “French CJ … regarded the bare legal title of the husband, together with the right to due administration of the wife, as amounting to property of the parties to the marriage but did not identify either of those … as the relevant property” and Kiefel J held that the assets of the Trust “were not property of the husband” (transcript, 7 May 2009, p 42).
These proceedings raised for consideration inter alia what Gummow and Hayne JJ said or intended in their joint reasons, namely:
138. If the husband wishes to satisfy his obligations to the wife under order 4 by recourse to the augmented assets of the Trust then it is open to him to approach the court for an appropriate order to assist him in doing so. By such an order the court would provide the machinery whereby the Trust was to be administered “as if” the wife had not ceased to be the spouse of the husband, and there was an application by the husband as trustee of a stipulated sum in favour of the wife in pro tanto discharge of his obligation to her under order 4. It would be for the court to determine whether, putting aside the interests of the children of the marriage for the reasons already given, it was just and equitable to make the order having regard to the interests of any third parties who may also fall within the defined class of “beneficiaries”.
139. Whether or in what circumstances the wife may apply for orders of this nature need not be further considered here.
The Husband as trustee of the W Stephens Trust submitted that what Gummow and Hayne JJ said was obiter dictum and in any event “clearly wrong”. The Husband submitted that the “suggestion that [he] should approach the court to obtain a personal benefit through the application of Trust assets is a surprisingly misjudged emanation from High Court judges”. He referred to “their liberties with the law” and what he described as “comments of doubtful validity”.
The issues are relatively easy to describe. Superficially it is a simple enforcement proceeding. A property settlement order was made which included a provision for the payment by the Husband of a sum of money to the Wife: Hickey and Hickey and Attorney General of the Commonwealth of Australia (Intervener) (2003) FLC 93-143 at [48]. The Husband accepts that he has an obligation to pay to the Wife an amount of $996,362.18 by way of property settlement plus interest. The amount of interest is either $500,647.98 as ordered by Coleman J; $676,498.11 as asserted by the Wife or $445,979.20 as asserted by the Husband. The proceedings before Coleman J concerned efforts by the Wife to recover the amounts due and whether such amounts could be satisfied from the assets of the Trust.
However given the way the issues were argued before us, we think to properly address those issues requires us to undertake a detailed consideration of what has happened over a considerable period of time. It is necessary to consider aspects of the relevant financial history and the reasons for judgment of Strickland J, the Full Court and the High Court. Because of the number of matters, to aid understanding and for ease of reference, these reasons are organised as follows:
A. Introduction [1]
1. General [1] – [16]
2. The parties to the proceedings [17] - [21]
3. Conclusion [28]
B. Background [29]
1. Pre-separation marital and financial history [29] - [31]
i.The 1968 Parol Trust [32] – [33]
ii.The 1981 Instrument [34] – [37]
iii.The 1983 Deed [38] – [42]
iv.The 1998 Instrument [43] – [46]
2. Post-separation history [47]
i.The Children’s Trusts [48] – [50]
ii.18 January 2002 Dispositions [51] – [54]
iii.20 January 2002 Dispositions [55]
3. Post commencement of proceedings [56]
i.Appointment of Mr J as joint trustee [57] – [58]
ii.Dissolution of the marriage [59]
iii.Proceedings before Strickland J [60] – [70]
iv.Retirement of Mr J as joint trustee of the W Stephens Trust [71]
v.Judgment of Strickland J [72] – [87]
vi.Resignation of Mr J as joint trustee of the three children’s trusts [88]
vii.
Appeal to the Full Court (Bryant CJ, Finn
& Warnick JJ) [89] – [94]
viii.Appeal to the High Court [95] – [129]
4. Post-High Court [130]
i.Realisation of assets and threats to destroy [130] – [134]
ii.Removal of cash from Husband’s premises [135] – [140]
5. Commencement of enforcement proceedings [141]
i.General [141]
ii.Orders of Watts J [142] – [143]
iii.Orders of Cronin J [144]
iv.Proceedings before Coleman J [145] – [164]
v.Post-judgment of Coleman J [165]
C. Appeal Proceedings [166]
1.General [166] – [177]
2.Hearing on 7 and 8 May 2009 [178]
3.Post hearing of the appeals [179]
i.
Disclosure of the retirement of Mr J
as joint trustee [179] – [185]
ii.Applications of 21 May 2009 [186] – [191]
iii.
Disclosure of liability to the four children
of $1,258,195.00 [192] – [215]
iv.
Disclosure of disbursement of balance of
the fund of the Trust [216] – [217]
v.Hearing on 4 December 2009 [218] – [225]
D. The Reasons of the Trial Judge [226] – [260]
E. The Applications and Appeals [261] – [266]
F. Admission of Further Evidence and Application to Reopen [267]
1.Introduction [267] – [274]
2.Applications by Husband [275]
i.Application of 30 March 2009 [275] – [304]
ii.Application of 9 November 2009 [205] – [316]
iii.Conclusion – Applications by Husband [317] – [324]
3.Applications of 21 May 2009 [325] – [326]
G. Participation by Joint Trustees of W Stephens Trust, Joint Trustees of Three Children’s Trusts and Trustee of the Trust [327] – [334]
H. Husband’s Grounds of Appeal [335]
1.General [335] – [338]
2.Ground One [339] – [358]
3.Ground Four [359] – [371]
4.Ground Two and Three [372] – [385]
5.Ground Five [386] – [388]
I. Applications to Extend Time to File Applications for
Leave to Appeal [389]J. Appeals in Relation to Order for Interest [390]
1.Introduction [390] – [395]
2.Principles to be applied [396]
i.General [396] – [401]
ii.Interest up to judgment [402] – [409]
iii.
Exercise of power pursuant to
s 117B(2) of the Act [410] – [414]
iv.Interest on a judgment sum [415] – [425]
v.Variation of prescribed rate of interest [426] – [428]
vi.Conclusion – rate of interest [429] – [431]
3.Background and submissions before the trial Judge [432] – [451]
4.Reasons of the trial Judge [452] – [473]
5.Submissions on behalf of the Husband [474] – [477]
6.Conclusion [478] – [483]
K. Conclusion [484]
The parties to the proceedings
It is necessary to identify the parties to the proceedings before us. We observe that special leave to appeal to the High Court from the decision of the Full Court was granted to the Husband and the Husband and Mr J as the joint trustees of the three children’s trusts and the Husband and W Stephens as joint trustees of the W Stephens Trust. The Wife and each of the four children were Respondent’s to the appeals.
Before us the Husband is an appellant and the First Respondent to the cross-appeal of the Wife. The Wife is a cross-appellant and the First Respondent to the appeal by the Husband. For reasons we will hereafter give, in our view, the Husband as trustee of the Trust is a respondent to the appeal of the Husband and the cross-appeal of the Wife.
We observe that in his Notice of Appeal the Husband named as the Second Respondent himself and Mr J as trustees of the three children’s trusts and himself as trustee of the W Stephens Trust. The Husband named as the Third Respondent himself as trustee of the Trust. He named W Stephens as the Fourth Respondent; X Stephens as the Fifth Respondent; Y Stephens as the Sixth Respondent and Z Stephens as the Seventh Respondent.
The children of the marriage W Stephens, X Stephens, Y Stephens and Z Stephens appeared before Coleman J and were represented by senior counsel. However they did not participate in the appeal proceedings before us.
There were appearances before us, which the Wife objected to, on behalf of the Husband and Mr J as joint trustees of the three children’s trusts; the Husband as a trustee of the W Stephens Trust and the Husband as trustee of the Trust. At the commencement of the hearing we allowed the further representation of the joint trustees of the three children’s trusts, the Husband as a trustee of the W Stephens Trust and the Husband as trustee of the Trust on the basis that after we had heard all the submissions we would determine whether or not it was appropriate for those entities to be represented.
At the time of the hearing before the High Court the Husband and W Stephens were the joint trustees of the W Stephens Trust. Although W Stephens was represented by senior counsel before Coleman J she did not appear before us and nor was she represented. W Stephens did not participate in the hearing before us in any capacity. The Husband announced an appearance on behalf of the W Stephens Trust. However he did not announce an appearance on behalf of himself and W Stephens as the joint trustees of the W Stephens Trust. We assumed that W Stephens remained as a joint trustee of the W Stephens Trust. However on 4 December 2009 we were informed by the Husband that W Stephens is no longer a trustee of the W Stephens Trust.
Before us the Husband was represented by senior and junior counsel. However the Husband appeared on behalf of himself as a trustee of the W Stephens Trust.
The Husband and Mr J as the joint trustees of the three children’s trusts and the Husband as trustee of the Trust were represented by the same senior and junior counsel. There were no solicitors on the record for the Husband and Mr J as joint trustees.
It will be seen later that after the hearing before us concluded in May 2009 we ascertained that Mr J is no longer a joint trustee of the three children’s trusts and that the Husband is now the sole trustee of such trusts. However given the basis on which the submissions were made to us during the hearing, in these reasons we will refer to the Husband and Mr J as the joint trustees of the three children’s trusts.
Senior counsel for the Husband and Mr J as the joint trustees of the three children’s trusts and the Husband as the trustee of the Trust appeared before the High Court on behalf of each of the children personally. At the commencement of the hearing before us in May 2009 we were informed by senior counsel that he was concerned about a possible conflict of interest and that each of the four children had signed a “direction” to him that he could accept his current retainer.
During a hearing before us on 4 December 2009 the Husband appeared on behalf of the Trust, the three children’s trusts and the W Stephens Trust.
Conclusion
During the hearing there were a number of matters agitated that raise issues concerning the conduct of the Husband. We will shortly explain such matters in more detail however the Husband’s conduct in relation to the treatment of trust assets, the management of relevant trusts, the threatened destruction of trust assets, his misleading representations to various courts including the High Court over a period in excess of three years as to who are the trustees of relevant trusts and his recent applications to adduce further evidence is of concern to us particularly given that the Husband is a retired barrister and Queen’s Counsel in the State of Victoria.
BACKGROUND
Pre-separation marital and financial history
The Husband was born in 1940. The Wife was born in 1956. The parties were married in 1978 and separated in October 2001. The Husband and the Wife are now divorced.
30. There are four children of the marriage W Stephens, born in 1980; X Stephens born in 1982; Y Stephens, born in 1984; and Z Stephens, born in 1987. The child W Stephens is married.
31.An extensive outline of the relevant background appears in the reasons of French CJ in Kennon v Spry at [1] to [39]. Senior counsel for the Husband said that the most “convenient place” to find the “major steps in the chronology” is in the reasons of the Chief Justice.
The 1968 Parol Trust
32. On 21 June 1968 the Husband created the Trust of which he was settlor and trustee. It was created by parol although the Husband had prepared a trust instrument. The Husband did not execute the instrument because of stamp duty that would be applicable to it. The Trust was eventually signed and stamped in October 1981.
As seen the parties were married in December 1978 and in 1979 the Trust acquired a property at Suburb B which between 1983 and 1994 was occupied as the matrimonial home.
The 1981 Instrument
The terms of the Trust were reflected in an instrument made on 15 October 1981 (“the 1981 Instrument”). French CJ at [9] observed that it was not in dispute that the 1981 Instrument was not a deed. The terms of the 1981 Instrument were identical to the 1968 parol trust. Relevant clauses of the 1981 Instrument are set out in the reasons of Strickland J at [21]. The Chief Justice said:
10. By cl 1 of the 1981 instrument, [the Husband] designated himself as settlor and trustee. He could appoint any other person as an additional trustee and could remove any such person as he saw fit. Clause 2, which assumed importance in the argument, provided:
“The settlor may at any time vary the terms of this trust but not in such a manner as to increase in any way his rights under this trust to the beneficial enjoyment of the fund.”
The fund was defined in cl 3 as “the trust fund from time to time in existence”.
11. The beneficiaries were defined in cl 4 as “all issue” of [[the Husband]'s father], which of course included [the Husband], and all persons married to such issue. The class would extend to their further issue and any persons married to them, as well as the Attorney-General as parens patriae. As at 30 May 2005, when [the Husband] swore his affidavit in the proceedings in the Family Court, the beneficiaries comprised his living sister and her children, the daughter of his deceased sister and his four daughters. This contraction of the class to exclude himself and his wife followed upon the 1983 deed and the 1998 instrument which are discussed below.
12. The “date of distribution” was defined in cl 4 as the earlier of 100 years from 21 June 1968 and 21 years after the death of the last survivor of all children alive at 21 June 1968 of three named persons (unrelated to the beneficiaries).
13. Clause 6 provided:
“The trustee shall have the power from time to time, as he in his absolute discretion sees fit, to apply all or any part of the income and/or capital of the fund to or for all or any of the beneficiaries, either by making payments to or applications for the benefit of the beneficiary in question or payments to a trust set up substantially for the benefit of such beneficiary; and income not from time to time lawfully paid or applied shall be accumulated”.
14. Clause 7 provided for division of the fund at the date of distribution equally between such beneficiaries “as the trustee thinks fit” and, in default, equally among all male beneficiaries save for the settlor.
15. Clause 9 provided:
“The trustee may from time to time invest or deal with the fund in any way as if it were his own absolute property, save that it shall be held beneficially by him on the trusts hereof”.
Gummow and Hayne JJ said at [125] that “[t]he wife was an eligible object of benefaction of the Trust” and:
Furthermore, as an object of these powers the wife had a right in equity to due administration of the Trust. The existence of such a right did not depend upon entitlement to any fixed and transmissible beneficial interest in the trust fund. The right of the wife was accompanied at least by a fiduciary duty on the part of the trustee, the husband, to consider whether and in what way he should exercise the power conferred by cl 6. (endnotes omitted)
Pursuant to the provisions of the 1981 Instrument the Husband had the power to apply all or any part of the income or capital of the Trust to himself. He could also apply all or any part of the income or capital of the Trust to the Wife.
As to the position of the Husband in relation to the Trust prior to 1983, after referring to the decisions of the Full Court in In the Marriage of Kelly (No 2) (1981) 7 Fam LR 762; Ashton and Ashton (1986) FLC 91-777 and Goodwin and Goodwin Alpe (1991) FLC 92-192, French CJ said at [58]:
Prior to the 1983 Deed [the Husband] as sole trustee had the “absolute discretion” to apply all or any part of the income and/or capital of the fund to himself as one of the “beneficiaries”. On the basis of that power, and consistently with authority including the decisions of the Full Court referred to above, the assets of the Trust would properly have been regarded as his property as a party to the marriage for the purposes of s 79.
The authorities establish that in certain circumstances the assets of a third party, such as a trust, can be treated as the property of a party to the marriage: see also Stein and Stein (1986) FLC 91-779; Davidson and Davidson (1991) FLC 92-197; Webster v Webster (1998) FLC 92-832; JEL and DDF (No 2) (2001) FLC 93-083 and Milankov and Milankov (2002) FLC 93-095. A number of the authorities are usefully identified by the editors of CCH, Australian Family Law and Practice Commentary, vol 2 at [41-610]. We observe that in discussion before us senior counsel for the three children’s trusts and the Trust said that he was “not seeking to challenge that line of authority” (transcript, 8 May 2009, p 65).
The 1983 Deed
French CJ at [16] observed that the Husband said that he suggested to the Wife in 1983 that she become a trustee of the Trust upon his death or resignation until one or more of the children was old enough to take over. Then on 4 March 1983, as settlor and trustee, the Husband with the Wife executed a deed varying the Trust (“the 1983 Deed”). The reason for the 1983 Deed was to prevent the trust property being aggregated with other properties held by the Husband for land tax purposes. The Husband was concerned that under land tax changes being introduced in Victoria any properties owned by the Trust, such as the matrimonial home at Suburb B, would be aggregated with properties in his name for the purposes of land tax unless he was removed as a beneficiary.
Relevant clauses of the 1983 Deed are set out in the reasons of Strickland J at [24]. French CJ said:
16. … It included provisions to the following effect
1.[The Husband] as settlor of the Trust released the trustee from any loans advanced by him. He acknowledged that no amount was or remained owing to him by the trustee or in relation to the trust fund and that he had ‘no rights to or interest in the trust fund or the income thereof’ (cl 1).
2.He released and abandoned all and any beneficial interest or rights which he might as settlor have held under the Trust or in the Trust fund or income and confirmed that by reason thereof he ceased to be a beneficiary of the Trust or a person to whom or for whose benefit all or any part of the Trust fund and income thereof could be applied (cl 2).
3.Clause 3 provided:
For the purpose of removing doubts it is confirmed and provided that the expression ‘issue’ used in the said instrument includes all [descendants] however remote, and not merely children; that appointments by the settlor of a trustee or trustees may be revocable or irrevocable; and that any variation of the trusts of the said instrument shall be invalid to the extent to which it purports to confer directly or indirectly any right or benefit upon the settlor.
4.The deed confirmed that no loans to the trustee by [the Wife] or any other person were outstanding (cl 4).
5.[The Husband], as settlor, appointed [the Wife] to be the trustee on his death or resignation and their daughter [W Stephens] upon the death or resignation of [the Wife], provided that the appointment was revocable by the settlor at any time (cl 5).
6.In all other respects the trusts of the 1981 Instrument were confirmed.
The effect of the 1983 Deed was to exclude the Husband as a beneficiary and to appoint the Wife as trustee upon the Husband’s death or resignation. Senior counsel for the Husband submitted that it was “an important fact in this case” that the Husband was the trustee and appointor but not a beneficiary of the Trust (transcript, 7 May 2009, p 10). The Husband continued on as trustee and, by reason of her marriage, the Wife continued as a discretionary beneficiary.
French CJ said:
26.The learned primary judge made extensive findings of fact and law. Key findings for present purposes are summarised in the following paragraphs. As to the effect of the 1983 deed, his Honour held:
1.Prior to the 18 January 2002 Dispositions [the Husband] was able to benefit from the assets of the Trust to an extent that, if the Family Court were to set aside the 1998 Instrument, the assets could be treated as his property. In that case, [the Husband] would then be reinstated as capital beneficiary subject to the terms of the Trust and the 1983 Deed.
2.There was nothing to prevent [the Husband] from revoking the 1983 Deed or just cl 2 of it. Clause 2 was not a variation of the terms of the Trust. Its revocation could not be invalidated by cl 3. Clause 3 was invalid to the extent it attempted to vary the power of variation. If cl 2 were a variation, [the Husband] was not thereby validly excluded as a beneficiary and remained a person to whom any part of the Trust fund and income could be applied.
3.Even if cl 2 of the 1983 Deed remained, [the Husband] sufficiently controlled the Trust such that once the instruments and dispositions of 7 December 1998 and 18 January 2002 were set aside its assets could be treated as his property.
4.In the alternative, [the Husband]’s level of control over the assets of the Trust meant that they could be treated as “a financial resource”.
5.Although his Honour regarded the Trust assets as “at the very least” able to be taken into account as a financial resource of [the Husband], he proceeded on the basis of treating them as [the Husband]’s property.
As senior counsel for the Husband observed the 1981 Instrument and the 1983 Deed were “left untouched” by the orders of Strickland J. It was also pointed out that although there were views expressed in the reasons of Strickland J and the Full Court as to whether or not the 1983 Deed could be revoked, cancelled or otherwise dealt with such a view was not accepted in the High Court. In those circumstances the Husband is not entitled to any capital or income of the Trust.
The 1998 InstrumentThere was a further and very significant instrument of variation on 7 December 1998 (“the 1998 Instrument”). At this time the marriage of the Husband and the Wife was in difficulty.
French CJ said:
17. By an instrument of variation dated 7 December 1998 [the Husband] provided that, after his death or resignation as trustee, the trustees of the Trust would be his two eldest daughters, [W Stephens] and [X Stephens], jointly. If he ceased to be trustee no payment or distribution or application of the income or capital of the fund or exercise of any powers under cl 6 or cl 7 of the 1981 Instrument could be made during his lifetime without his prior written consent.
18. The power of variation in cl 2 of the 1981 Instrument was itself varied as follows:
“The power of variation set out in clause 2 of the trust instrument is hereby varied so that (a) it may be exercised by the settlor either in writing during his lifetime or by his will, and (b) any exercise of that power of variation may be either revocable or irrevocable (but unless expressly stated to be irrevocable any such exercise shall be revocable)”.
19. Clause 4 excluded [the Husband] and his wife from the receipt of any part of the capital of the Trust:
“Clauses 6 and 7 and the other terms of the trust set out in the trust instrument are hereby varied so that no power or discretion to pay or apply the capital of the fund or any part thereof shall be exercised in favour of the settlor or [the Wife] or in favour of any trust in which either of them has any interest, right or possibility, and the settlor and the said [the Wife] are hereby excluded absolutely and irrevocably from all and any interests, rights and possibilities in the capital of the fund. The variation made by this clause 4 of this instrument of variation shall be irrevocable, and no future purported variation purporting to amend this clause 4 or purporting to confer any interest, right or possibility in the capital of the fund on the settlor [or] on the said [the Wife] shall be valid in any way”.
Thus the Husband and the Wife were excluded from the receipt of any part of the capital of the Trust and this variation was said to be irrevocable. The 1983 Deed removed any entitlement of the Husband to any of the income and capital of the Trust, and so the 1998 Instrument which purported to exclude the Husband’s entitlement to any of the capital was unnecessary. The Husband’s explanation was that he had forgotten the 1983 Deed and its effect. The Husband however continued to retain control of the Trust. The outcome for the Wife was that she lost her ability to participate in the capital of the Trust but remained available as an object for the distribution of income.
In relation to the 1998 Instrument French CJ said:
27.As to the 1998 Instrument, his Honour found, inter alia:
1.[The Husband] did not tell the Wife of the instrument.
2. Its primary effect was to exclude [the Husband and the Wife] as capital beneficiaries and create a situation where that could not be changed.
3. [The Wife] remained an income beneficiary.
4. [The Husband] made the 1998 Instrument knowing the marriage was in trouble and that an order dealing with the property of the parties, including the assets of the Trust, was likely. He wanted to remove the assets of the Trust from the reach of the Family Court and considered the instrument would achieve that result. He was looking to defeat an anticipated order for property settlement.
5. All the necessary elements of s 106B were satisfied in relation to the 1998 Instrument and it was open to make an order setting it aside.
The findings in paragraphs 2 and 4 above were not the subject of challenge on appeal and were critical findings upon which the case proceeded.
Post-separation history
In May 2001 the Wife told the Husband that she wanted a divorce and in late October 2001 the Husband and the Wife separated. Subsequently the Wife applied to dissolve the marriage.
The Children’s Trusts
On 18 January 2002, without informing the Wife, the Husband created four identical trusts for each of the four daughters being the three children’s trusts and the W Stephens Trust. The primary beneficiary of each of the four trusts was one of the daughters of the Husband and the Wife.
The Husband however appointed himself as trustee of each of the four trusts and on his death he was to be succeeded by a person or persons specified in his will and in the absence of such specification the Wife. The daughters were to become trustees of their own trust upon attaining the age of 32 years. As trustee of the Trust the Husband then applied one quarter of the capital and income of the Trust for the benefit of each of the three children’s trusts and the W Stephens Trust.
In his reasons Strickland J at [53] set out certain clauses in the trust instruments of the three children’s trusts and the W Stephens Trust. Of this, French CJ observed:
21. The beneficiaries were defined as the primary beneficiary, [W Stephens], and her children, grandchildren, sisters, nephews and nieces and their spouses (cl 2). The trustees had a power of appointment from time to time in their absolute discretion to apply all or any part of the income and/or capital of the fund for the benefit of all or any of the beneficiaries and income not from time to time so applied was to be accumulated (cl 3). [The Husband] and [W Stephens] were empowered to appoint or remove trustees from time to time (cl 1). They also had a power to amend any of the provisions of the trust instrument (cl 8). [The Husband] was “excluded absolutely” from any interest or benefit in or from the fund. Neither the fund nor any part thereof was to be paid or applied for his benefit in any way, or for the benefit of any company or trust in which he might have any beneficial interest or from which he might receive any benefit (cl 9).
18 January 2002 Dispositions
There then occurred dispositions to each of the three children’s trusts and the W Stephens Trust. On 18 January 2002 the Husband, without informing the Wife, executed a document which French CJ described as follows:
23. By a document executed on 18 January 2002 [the Husband], as trustee of the Trust, confirmed that in his personal capacity he had forgiven and released all and any amounts owing to him by the Trust and that no amount was owing by him to the Trust or by the Trust to him (cl 1). He also declared that [the Wife] was forgiven and released from all or any amounts owing by her to the Trust and that no amount was owing by her to the Trust or by the Trust to her (cl 2).
24. Clause 3 of the document provided that [the Husband] applied all of the income and capital of the Trust fund of the Trust:
“(i) by applying one-quarter thereof by assigning it hereby to the Trustees of the [W Stephens] Trust constituted on 18 January 2002 so as to be held by them from the execution hereof by them beneficially on the trusts of the [W Stephens] Trust”.
By cl 4 he varied the terms of the Trust by providing that from the execution of the instrument:
“(i) one-quarter of the income and capital as at the execution hereof of the trust fund of that Trust is held for the Trustees of the [W Stephens] Trust (and is hereby assigned to them) to be held by them beneficially on the trusts of the [W Stephens] Trust”.
Identical provisions were made in relation to each of the other Children's Trusts.
As a consequence, the assets of the Trust were divided equally between the three children’s trusts and the W Stephens Trust (“the 18 January 2002 Dispositions”). The assets of the Trust were conveyed to the Husband as trustee of each trust and he retained the power to distribute capital and income to any of the (child) beneficiaries. Strickland J found at [55] that the effect of what the Husband did was “that each of the children’s trusts acquired assets to the value of approximately $875,000 which included $1,188,000 being the net proceeds of sale” of a property.
In relation to the three children’s trusts and the W Stephens Trust and the 18 January 2002 Dispositions, French CJ said:
28. As to the children's trusts and the 18 January 2002 Dispositions, his Honour found:
1.There was no need for [the Wife] to pursue an application to set aside the Children's Trusts under s 106B. The crucial step was the transfer of assets to those trusts.
2.[The Husband], as trustee of the Trust, applied one quarter of all of its income and capital to each of the Children's Trusts. As a result each of the Children's Trusts acquired assets to the value of approximately $875,000 which included $1,188,000, being net proceeds of the sale of [property 2] at [Suburb B]. That property had been purchased by the Trust in December 1979 for about $152,000, then rented until occupied by the family from 1983.
3.There was no money owing by the Trust to either [the Husband or the Wife].
4.[The Husband] had not made an agreement with his wife that the assets of the Trust could be passed to the children when [the Husband] determined to do so.
5.[The Husband] did not adequately explain why it was necessary to set up the Children's Trusts and apply the capital and income of the Trust to them.
6.At a time not long after separation at which it could clearly be anticipated an order would be made dealing with the parties' property, [the Husband] determined, without informing [the Wife], that it was time to move approximately $3,500,000 from the Trust and place it in the Children's Trusts. He was concerned that despite the 1998 variation the assets of the Trust might still have been within the reach of [the Wife] and the Family Court.
7.The instruments were made to defeat an anticipated order in future proceedings.
The disposition of the entirety of the property of the Trust to the three children’s trusts and the W Stephens Trust meant that there was nothing left in the Trust which could possibly be distributed to the Wife. The whole of the property of the Trust was now the property of the three children’s trusts and the W Stephens Trust, each of which was controlled by the Husband.
20 January 2002 Dispositions
Then on 20 January 2002 the Husband, again without informing the Wife, executed a document by which he assigned shares held by him beneficially to the four children and declared himself trustee for them of such shares (“the 20 January 2002 Dispositions”). French CJ at [25] observed that “[b]y the 20 January 2002 Dispositions [the Husband] conveyed to his four children shares held by him beneficially”. Strickland J at [56] found that “[t]he effect of this transaction was that each child personally received assets to the approximate value of $125,000.00 [being] a total of $500,000.00.”
Post-commencement of proceedings
In April 2002, the Wife filed an application in the Family Court seeking orders for property settlement and spouse maintenance.
Appointment of Mr J as a joint trustee
On 20 May 2002 the Husband appointed Mr J as joint trustee with himself of each of the three children’s trusts and the W Stephens Trust from 1 July 2002. Mr J is a solicitor and a consultant with a firm of lawyers. French CJ said:
22. The trust was amended on 20 May 2002 so that [Mr J], a solicitor, became a further trustee from 1 July 2002. The age at which [W Stephens] would become a further trustee was reduced to 25 years. On that basis she became a trustee on 23 September 2005. [Mr J] has evidently not continued as a trustee of that trust although he continued as a joint trustee with [the Husband] of the other Children's Trusts.
In relation to the 20 January 2002 Dispositions and the appointment of Mr J as joint trustee of the three children’s trusts and the W Stephens Trust, French CJ said:
30. In respect of the 20 January 2002 Dispositions and the appointment of [Mr J] as joint trustee of the Children's Trusts, his Honour found:
1.There was no agreement between [the Husband] and his wife, as claimed by [the Husband], that his personal assets would go to the children and that he would determine when.
2.[The Husband] did not adequately explain why the transfer of shares (to the value of $500,000) had to take place at that time.
3.[The Husband] intended to defeat a contemplated order at the time he entered into these transactions.
4.The wife's entitlement, on her case, would be met even if the disposition of the shares were not set aside, provided the assets of the Trust were treated as [the Husband]’s property. Therefore this was a case where s 106B did not need to be applied to the disposition of the shares.
5.The current value of the shares should be notionally added to the pool of assets for distribution between the parties.
6.[Mr J]'s appointment as joint trustee of the Children's Trusts would only need to be set aside if the alternative position that the assets of the children had to be taken into account as a financial resource of [the Husband] were to apply.
Dissolution of the marriage
The marriage of the Husband and the Wife was dissolved when the decree nisi became absolute on 17 February 2003. On appeal to the High Court there was a question as to whether after the divorce the Wife had any entitlements to assets of the Trust. Without repeating what was said, Gummow and Hayne JJ at [128] and [129] (French CJ at [72] agreeing) rejected an argument that the divorce ended the Wife’s entitlement to benefit from the Trust.
Proceedings before Strickland J
On 30 October 2003 orders were made granting leave to the then three adult children, W Stephens, X Stephens and Y Stephens, to intervene and be made parties to the proceedings. On 10 November 2003 leave was granted to Z Stephens to intervene by a next friend.
The hearing of the applications for final orders before Strickland J extended over five days in August 2005. In our view it is important to consider the relief which the Wife sought at the trial and the manner in which the issues were addressed by Strickland J.
At the hearing the Wife sought orders under s 106B of the Act setting aside the 1998 Instrument, the instruments creating the three children’s trusts and the W Stephens Trust, and the 18 January 2002 Dispositions. The Wife sought an order that the Husband pay her, inter alia, 50 per cent of the assets and resources held in their individual or joint names, the Trust and the three children’s trusts and the W Stephens Trust.
The “primary issue” / “principal dispute” related to what was to be “comprised in the pool of assets to be distributed between the parties”: see [94] and [106] per Strickland J. The Wife contended that the assets of the three children’s trusts and the W Stephens Trust should be included in the “asset pool”: see [106] per Strickland J.
In order to include the assets of the three children’s trusts and the W Stephens Trust in the “asset pool” for division between the Husband and the Wife, the Wife relied “primarily” on s 106B in Pt VIII of the Act and “if necessary”
s 90AE in Pt VIIIAA: see [106] per Strickland J. The application for orders pursuant to s 90AE was “one alternative” to orders pursuant to s 106B: see [110] per Strickland J.
French CJ observed at [31] that Strickland J rejected the contention that orders could be made under s 90AE in Pt VIIIAA of the Act. An attempt had been made late in the case before the trial Judge to introduce a claim under Pt VIIIAA. Although Pt VIIIAA was raised on the appeal to the Full Court it was not considered by Bryant CJ and Warnick J although it was dealt with by Finn J who at [138] concluded that it was raised too late. Part VIIIAA was not considered by the High Court.
In the “alternative” to relief under s 106B or s 90AE of the Act, the Wife contended that the assets of the three children’s trusts and the W Stephens Trust and the children’s shares should be “notionally added to the asset pool” and relied upon what was said in Kowaliw and Kowaliw (1981) FLC 91-092 per Baker J in relation to assets wasted by a party and the Full Court in Townsend and Townsend (1995) FLC 92-569 in relation to the notional inclusion of assets prematurely distributed to a party: see [112] per Strickland J.
In the “further alternative” the Wife contended that the assets of the three children’s trusts and the W Stephens Trust and the children’s shares could be taken into account under s 75(2)(b) of the Act as “financial resources of the husband in determining the respective entitlements of the parties by way of property settlement”: see [113] per Strickland J. In relation to this last alternative Strickland J observed at [113] that the Wife “did not address … whether the instruments and dispositions would still need to be first set aside under” s 106B of the Act. In our view it was not necessary for any orders pursuant to s 106B to be made if the purpose was to consider whether or not the assets of the three children’s trusts and the W Stephens Trust should be treated as a financial resource of the Husband. In fact this was acknowledged by Strickland J at [129.4.35] of his reasons. We observe that on appeal to the Full Court, Finn J, who dissented, found at [142] that the assets of the three children’s trusts and the W Stephens Trust should be treated as a financial resource of the Husband within the meaning of s 75(2)(b) as applied by s 79(4)(e) and an adjustment should then have been made in favour of the Wife.
In our view, it is important to bear in mind that the outcome for the Wife, which the Husband, the joint trustees of the three children’s trusts, the trustee of the Trust and the Husband as trustee of the W Stephens Trust now seek, could have been achieved by adopting this last alternative approach; that is the assets of the three children’s trusts and the W Stephens Trust be taken into account as a financial resource of the Husband and then the Wife receive all of the property of the Husband. Such an outcome may or may not have been generous to the Wife but was within the jurisdiction and discretion of the trial Judge.
In summary, the trial before Strickland J was conducted on the basis that he was being asked by the Wife to include the assets of the three children’s trusts and the W Stephens Trust as assets of the Husband and that such assets be available for distribution between the parties to the marriage as part of his or her entitlement or that one of the parties could use such assets to satisfy his or her obligation to the other party pursuant to an order in relation to the entitlement of the other party.
French CJ then said:
31. His Honour rejected a contention that orders could be made under s 90AE in Pt VIIIAA of the Family Law Act. He then summarised the basis upon which he proposed to proceed as follows:
“189.1.1The instrument executed by the husband as settlor on 7 December 1998 should be set aside. The effect of this is that subject to the 1983 instrument the husband remains a capital and income beneficiary of the [Stephens] Trust.
189.1.2The instrument executed by the husband as trustee on 18 January 2002 whereby the income and capital of the [Stephens] Trust was applied to the four children's trusts should be set aside. The effect of this is to return the capital and income of the children's trusts to the [Stephens] Trust.
189.1.3The instrument executed by the husband on 20 January 2002 whereby he assigned to the four children shares held by him beneficially can be set aside to the extent of the assignment of those shares. The effect of this would be to return to the husband all of the shares save and except those which were the subject of the inheritance to the children from the husband's father. However, given that the assets of the Trust will be available for distribution between the parties there is no need to in fact apply Section 106B, and these assets can be notionally added back to the pool of assets pursuant to the principles espoused in TOWNSEND”.
Orders were not sought pursuant to s 106B of the Act in relation to the 1983 Deed.
Retirement of Mr J as joint trustee of the W Stephens Trust
We observe that on 23 September 2005 W Stephens became aged 25 years and hence a trustee of the W Stephens Trust. Mr J then retired. However Mr J apparently remained as a joint trustee of the three children’s trusts.
Judgment of Strickland J
On 30 November 2005 Strickland J pronounced judgment and delivered reasons. His Honour made the following orders:
1. That the wife forthwith transfer to the trustee interveners the 14,600 Westpac Shares held by her as nominee of the [Stephens] Trust together with all dividends received by her thereon and all interest earned on those dividends.
2. That pursuant to the provisions of Section 106B of the Act the [Stephens] Trust Instrument of Variation dated 7 December 1998 be set aside.
3. That pursuant to the provisions of Section 106B of the Act the instrument entitled “The [Stephens] Trust” dated 18 January 2002 and the dispositions made pursuant thereto whereby the husband:
3.1Forgave and released all amounts owing by him to the said Trust;
3.2Forgave and released all amounts owing by the wife to the said Trust; and
3.3Applied all of the income and capital of the trust fund of the said Trust;
3.3.1as to one quarter thereof to the [W Stephens] Trust;
3.3.2as to one quarter thereof to the [X Stephens] Trust;
3.3.3as to one quarter thereof to the [Y Stephens] Trust;
3.3.4as to one quarter thereof to the [Z Stephens] Trust;
be set aside.
4.That on or before 28 February 2006 the husband pay to the wife the sum of $2,182,302.00.
5.That by consent the paintings owned by the husband and the wife be divided equally between them.
6.That the wife do retain as her sole property absolutely free of any claim, demand, interest, right or entitlement of the husband the following:
6.1The proceeds of the sale of the house property at [Suburb A];
6.2Subject to paragraph 276.1 hereof all shares in public companies in respect of which she is registered as owner;
6.3Her [motor vehicle];
6.4The furniture and chattels in her possession;
6.5Her jewellery and personal possessions;
6.6Her interest in the … Superannuation Fund;
6.7All monies standing to her credit in any bank account.
7. Subject to compliance with paragraph 4 hereof the husband do retain as his sole property absolutely free of any claim, demand, interest, right or entitlement of the wife the following:
7.1The unit property situated at [Suburb B] registered in his name;
7.2The furniture and chattels in his possession;
7.3His library and personal effects;
7.4The proceeds of his interest in the … Superannuation Fund;
7.5All shares in public companies in respect of which he is registered as owner;
7.6All monies standing to his credit in any bank account;
7.7The … motor vehicle registered in his name.
8. Each party do all such acts and things and sign all such documents as may be necessary to give effect to the terms of this order.
9. Liberty to each party to apply as to consequential matters.
10. That all applications be removed from the pending cases list.
In summary Strickland J set aside the 1998 Instrument and the 18 January 2002 Dispositions. However he did not set aside the 1983 Deed (there being no application that he do so) and hence it remained that the Husband was not an object of the capital or income of the Trust.
The effect of the orders was to cause the assets of the Husband and the Wife to increase by approximately $4.8 million, making total net assets of approximately $9.8 million. The Husband was ordered to pay $2,182,302.00 to the Wife so as to effect a division of 52 per cent of the net assets to the Husband and 48 per cent to the Wife. The net assets for division included the net assets of the Trust and the three children’s trusts and the W Stephens Trust.
It was common ground before us that the amount of $2,182,302.00 was mathematically wrong and that the correct figure was $2,034,362.18. There had been a double counting of the value of the shares held by the Wife as nominee, such that the value of the net assets should be reduced to $9,527,356.00.
On 13 February 2006 an order was made by Morgan J granting a stay of the orders of Strickland J, which was extended by agreement until the appeal to the High Court was dismissed on 3 December 2008.
Before us it was submitted on behalf of the Husband, the joint trustees of the three children’s trusts, the trustee of the Trust and the Husband as trustee of the W Stephens Trust that it was significant that the order for the payment of a sum of money (paragraph 4 of the orders) placed a personal obligation on the Husband and did not attach to any fund or other source of payment and as senior counsel for the three children’s trusts and the Trust submitted “nor did it earmark any particular asset” of the Husband (transcript, 8 May 2009, p 60).
It was submitted on behalf of the joint trustees of the three children’s trusts and the trustee of the Trust that access to trust funds could not be achieved by “consequential relief or machinery provisions” (transcript, 8 May 2009, p 60) and reference was made to the following passage in the reasons of Gummow and Hayne JJ:
103. The primary judge also made orders (numbered 8 and 9 respectively) that each party “do all such acts and things and sign all such documents as may be necessary to give effect to the terms of this order”, and that each party have “[l]iberty ... to apply as to consequential matters”. Reservation of liberty to apply is directed to questions of machinery which may arise from the other orders which the court in question has made. Orders 8 and 9 reflect provision made by s 80(1) of the Act, in particular by pars (d) and (k) which state that the court may… : (endnotes omitted)
It was submitted that an order requiring the application of funds held by a trustee towards the satisfaction of personal orders could not be a machinery or consequential order and that this was to some extent supported by comments made by Kiefel J at [237] and [238] who was of the view that in order to access the assets of the Trust the Wife could resort to s 85A of the Act. In summary, it was submitted that putting aside s 85A in order to access the assets of the trusts it must be shown that the assets of the trusts are the property of the parties to the marriage, or either of them, within s 79 of the Act.
Strickland J made a number of significant findings that included the factual findings which led his Honour to make orders under s 106B of the Act setting aside the 1998 Instrument by which the Wife was removed as a capital beneficiary of the Trust, and the 18 January 2002 Dispositions being the transfer of the assets of the Trust to the three children’s trusts and the W Stephens Trust. His Honour found that the intention of the Husband in making the 1998 Instrument and the 18 January 2002 Dispositions was to defeat a future property order of the Family Court by putting the assets of the Trust beyond the reach of the Family Court. It is of significance that these findings were not the subject of challenge on appeal to the Full Court and the High Court.
The findings which Strickland J made at [197] to [200] in relation to the net assets of the parties at the date of the hearing are also important. French CJ recorded at [32] that a schedule prepared by the Husband “reflecting agreements reached between the parties (subject to some points of difference with the wife) showed”:
$
§Assets of the Wife 2,530,466.80
§Assets of the Husband 1,790,108.15
Total 4,320,574.95
§Assets held by Wife as nominee for trusts 308,084.00
§Assets of Children’s Trusts 4,760,152.00
Less
§Distributions to beneficiaries (income accrued but not paid) (114,000.00)
Balance $4,646,152.00
Less (429,333.42)
The amount of $429,333.42 represented an amount of $525,333.42 for shares transferred by the Husband to each of the four children as at 28 July 2005 less an amount of $96,000.00 for an inheritance the children received from the Husband’s father plus interest as calculated by the Husband.
Strickland J found at [266] that the net asset pool comprised “a monetary equivalent of $9,818,144.37” which comprised:
$
§Assets of the Wife 2,530,466.80
§Assets of the Husband 1,790,108.15
§Assets held by Wife as nominee for trusts 308,084.00
§Assets of Children’s Trusts 4,760,152.00
§Shares transferred etc 429,333.42
Total $9,818,144.37
However as we have already noted there was an error in the calculation.
Strickland J then considered the matters of contribution in s 79(4) of the Act and at [231] determined that the contribution based entitlements of each of the Husband and the Wife should be assessed as to 52 per cent to the Husband and 48 per cent to the Wife. His Honour also considered the matters in s 79(4)(d), (e), (f) and (g) and determined that there should be no further adjustment to the contribution based entitlements of each party.
On the basis of net assets of $9,818,144.37, as Strickland J made clear at [266], the consequence was that the Husband was entitled to net assets of $5,105,435.00 (in round dollars) and the Wife net assets of $4,712,709.00 (in round dollars). His Honour found at [267] that the Wife already had net assets of $2,530,406.80 (this should have been $2,530,466.80) and then said at [268] that the Husband would have to pay the sum of $2,182,302.00 (in round dollars) to the Wife. However the Husband only had in his name net assets of $1,790,108.15 and thus he had a shortfall of $392,193.85. In the result, in our view, it was intended by the trial Judge that the Husband may need to resort to the assets of the Trust in order to meet this shortfall of approximately $400,000.00. In fact it was clear that the Husband may have to obtain more than $392,193.85 from the Trust because his assets of $1,790,108.15 comprised:
$
§Suburb B property 730,000.00
§Bank account 11,000.00
§Shares 937,831.00
§Motor vehicle 10,000.00
§Antiques and paintings 41,550.00
§Miscellaneous personal property 5,000.00
§Office rental (3,000.00)
§Legal costs paid 57,727.15
In relation to the source of the amount of $2,182,302.00 (in round dollars) Strickland J made this clear when he said:
268. Thus, the husband will have to pay to the wife the sum of $2,182,302.00 (in round dollars). Where that will come from though is entirely up to the husband. On the figures he has assets to the value of $1,790,108.15 less $57,727.15 being the amount he has paid for legal costs, but I have found that the assets of the [Stephens Trust] can be treated as his property once the relevant instruments and dispositions are set aside, and thus that is a source of funds for the husband. My orders though will not permit the husband to apply the assets that he assigned to the children because he himself successfully argued that the discretion to set aside that disposition should not be exercised where the husband has the ability to otherwise meet the order. That of course will not prevent the husband reaching some arrangement with the children about this given that I have still notionally added back these assets to the net asset pool of the parties.
269. The husband’s position as a result of my proposed orders is therefore somewhat unclear given that it will depend on what he does in relation to the [Stephens] Trust and its assets. However, that is entirely a consequence of the husband’s own actions in attempting to remove assets from the reach of the wife and the Family Court, and this cannot prejudice the position of the wife in any way. In any event, on the basis of the applicable figures the proposed orders leave the husband with substantial assets but, of course, with a large proportion of those assets being assets in the [Stephens] Trust. To repeat, it is entirely up to the husband what he then does about this.
270. With the wife she will have assets to the value of $4,712,709.00 less the amount of $131,000.00 being her legal fees. The majority of this will be in shares and/or cash, but she foreshadowed the purchase of a house property with some of these funds.
271. In relation to the children, although there is no requirement to consider their position per se, I cannot leave this case without commenting about their involvement in the same.
272. I note of course that my proposed orders could have a substantial effect on the children. The assets of their Trusts will be returned to the [Stephens] Trust, and depending on what the husband does in response to the orders there may or may not be assets retained in that trust for the benefit of the children and the other beneficiaries. Further, although prima facie the children will still have the shares assigned to them by the husband, again the husband may choose to make other arrangements with them about that given that those assets have been notionally treated as the husband’s property.
273. In these circumstances it might be tempting to feel some sympathy for the children, but when analysed that does not necessarily follow. There is simply no basis on which the children can complain about the effect of the orders that I propose. Prima facie they were the innocent victims of the husband’s actions. The husband used them initially in his attempts to remove assets from the reach of the wife and the Family Court, and for that the children cannot be criticised, but it is sad that the children have chosen to thereafter become involved in what is essentially a dispute between their parents. The husband’s actions were to divert assets that the parties had accumulated for the benefit of the entire family, yet the children have sought in these proceedings to maintain the position created by the husband. That is unfortunate to say the least given that in reality the children have had the ability as much as the husband has had to prevent this dispute not only from occurring at all but certainly from reaching the heights that it has. For example, all it would have taken is for the children to have said that they do not consider that it is appropriate for assets accumulated by their parents to be diverted to trusts from which only they can benefit, and without their mother even being informed that that was being done. In other words, although the children may feel that they should benefit from the assets of their parents at some stage, and that is what probably should happen, surely when that is should be a decision for the parents themselves.
274. The consequences of the children’s attempts to in effect hold on to assets which they had no direct input in accumulating and which should still be under the control of their parents has been a bitterly fought and extremely costly court case, let alone the negative impact on the family and the relationships between the members of that family.
275. In any event, I digress. Having considered the result and re-visited the history of the relationship between the parties, their respective contributions and the relevant Section 75(2) factors I am satisfied that my proposed orders are just and equitable.
Reasons of the trial Judge
The trial Judge at [19] observed that the Husband opposed any order for interest “on two bases”. His Honour said that the “first, and overarching basis” was that, after the Wife received $1,038,000.00, the Husband “had no property from which any interest awarded could be recovered”. His Honour said that, “[i]n the alternative, the husband raised a number of objections to the Court exercising its discretion to award any interest, or interest for the period, or at the rates prescribed by the Rules of Court and claimed by the wife”.
At [107] to [135] the trial Judge dealt with the Wife’s claim for interest. His Honour repeated at [108] that the Husband objected to any interest being awarded to the Wife on the basis that, having paid to her $1,038,000.00, the Husband had no other property or assets from which the Wife could successfully recover any moneys awarded by way of interest or otherwise. At [109] his Honour said that having rejected the assertion of the Husband, it was necessary to consider the other bases upon which the Husband objected to the imposition of interest on the moneys payable to the Wife. His Honour said that the Husband asserted that interest should accrue from 2 September 2008, the date upon which his unsuccessful appeal to the High Court was heard but observed that the “logic underpinning that date [was] less than entirely clear”. His Honour said that the Husband contended that he had done no more than pursue his legal rights to challenge the judgment of Strickland J.
At [110] the trial Judge said that there was no evidence that the Husband delayed the appeal process through to the High Court. His Honour also said that it was also a matter of record that the issues raised on behalf of the Husband gave rise to a division of opinion in the Full Court and in the High Court. The Husband thus contended that he should not be penalised by way of an award of interest.
The trial Judge then referred to submissions on behalf of the Wife. On behalf of the Wife it was submitted that to deny her interest from the date she was entitled to receive $2,034,362.18 pursuant to the order of Strickland J “was unjust in circumstances where, albeit the husband was only pursing his legal rights, the wife had been vindicated at every turn”. Next it was submitted that declining to award the Wife interest for the whole of the period to which she would be entitled pursuant to s 117B of the Act would unjustly confer a substantial financial benefit upon the Husband and correspondingly, and equally unjustly, visit a financial penalty upon the Wife. It was submitted that whatever interest rate was applied, it was clear that “absolving” the Husband from the obligation to pay interest on $2,034,362.18 for almost three years “would confer a substantial benefit upon him and represent, even allowing for the assets which she otherwise had, a substantial penalty” upon the Wife.
The trial Judge at [113] set out in full the terms of s 117B of the Act and at [114] said that the provisions of s 117B(2) “repose in the Court a discretion to make an order for the payment of interest for a different period, and at a different rate to those which would otherwise apply by operation of” s 117B(1) of the Act. His Honour continued at [115] that whilst it was clear that nothing emerging from s 117B(2) suggested on what basis orders might be made pursuant to that subsection, it was reasonably apparent that the general legislative intention was revealed by s 117B(1) and that s 117B(2) “provides exceptions to the usual practice”. He said that, “[o]n what grounds a court might decide to depart from the usual rule is not assisted by the wording of section 117B(2)”. He then concluded at [116] that whilst it is undoubtedly clear that the discretion created by s 117B(2) is broad, it must be exercised judicially.
The trial Judge said at [117] that he was not disposed, in the circumstances, to make an order pursuant to s 117B(2) of the Act “with respect to the period during which interest should accrue on the wife’s entitlement to receive $2,034,362.18 pursuant to” the order of Strickland J. At [118] his Honour said that, “[w]hilst the issue is finely balanced in some respects what [was] ultimately decisive [was] the reality that any shortening of the period during which interest [accrued] on the wife’s unpaid entitlement [represented] a substantial financial gain for the husband and a substantial financial detriment for the wife in circumstances where, notwithstanding that the husband was only pursuing the avenues of redress legally available to him, he was wholly unsuccessful”. His Honour came to the conclusion that interest should accrue on the Wife’s entitlement from the date provided in the judgment of Strickland J. If we are wrong in relation to the trial Judge not having any discretion under s 117B(2) then we agree that this was the only proper decision to be made.
The trial Judge then dealt with the issue in relation to the rate of interest to be paid. At [119] he said that the “more complex issue [was] the rate of interest which should from time to time apply”. His Honour said that it was “ultimately less than entirely clear what rate the husband asserted to be the appropriate rate applicable to any interest awarded to the wife”. His Honour referred to the hand written affidavit which the Husband filed in court on 18 February 2009 and repeated what the asserted interest rates were. The rates were for periods from the end of 2006 to February 2009.
The trial Judge at [121] then said that there was no doubt as to the interest rates prescribed by the Rules for the relevant periods and the “RBA cash rate” for those periods. He said that the Husband’s 18 February 2009 affidavit provided some evidence of bank lending rates for those periods.
At [122] the trial Judge said that the difficulty he had with applying the interest rates from time to time applicable pursuant to the Rules was “the disparity between such rates and the RBA cash rate”. His Honour said that “[a]lthough less dramatic, there [was] a significant difference between the rate applicable under the Rules and the rates emerging from the husband’s 18 February 2009 affidavit”.
The trial Judge then at [123] said that senior counsel for the Wife “squarely addressed the issue, asserting that the intention under the Rules was to impose a ‘penalty’ on parties who do not comply with their obligations to pay monies pursuant to Court orders”. It was submitted on behalf of the Wife that it would be reasonable having regard to the prescription of a differential of five per cent above the “RBA cash rate” to conclude that that indeed was the intention of the Rules.
The trial Judge at [124] said that “there are at least three obvious ways of categorising interest rates on unpaid verdict monies [namely] penal, coercive, and compensatory”. His Honour said that the issue was not without uncertainty. He then identified s 112AP of the Act as a penal provision and s 112AD as a coercive provision. He said that although more in the context of parenting proceedings under Part VII of the Act than in financial proceedings, the Court is empowered to make “compensatory” orders. Importantly he said that, “[w]hilst the Rules might appear to endeavour to be penal, or at least coercive, nothing in section 117B of the Act provides a legislative foundation for concluding that the imposition of interest on unpaid monies must be penal or coercive, or that the legislature so intended”.
The trial Judge at [125] referred to the submissions of senior counsel for the Wife and said that nothing to which he referred established that, in the exercise of the discretion created by s 117B(2) of the Act, “the Court cannot regard as its primary focus the issue of “compensation” to the party who has been denied the use of monies to which (in this case) she has been repeatedly held to be entitled”. His Honour said, “[t]hat is particularly appropriate where, as here, the husband has merely pursued unsuccessful but by no means baseless claims”.
At [126] the trial Judge said that there was no evidence before him that the Wife had “been denied the opportunity to earn interest on her unpaid entitlement at or near the rates prescribed pursuant to the Rules. Nor [was] there any evidence before [him] that the wife [had] lost any particular financial opportunity by reason of the non-payment to her of her entitlement’.
At [127] the trial Judge said that, “[i]n those circumstances, to do more than seek to compensate the wife for not having had the benefit of her entitlement would, whether or not it was intended, be to punish the husband in circumstances where, albeit ultimately, and by majority, he was unsuccessful, has only pursued his legal rights throughout the courts of the land”.
At [128] the trial Judge said that he was not persuaded by any evidence before him or submissions advanced on behalf of the Wife that she should reap the benefits of penal interest rates, or that the Husband should be penalised by their imposition. His Honour said that the question then was what rate to apply. He referred to a submission of senior counsel for the Wife that it was not open to his Honour to simply fix on a rate of its own choosing and that, “the rate applied must have basis in fact and logic”.
The trial Judge at [129] said that to award interest at the “RBA cash rates” would probably be unfair to the Wife. He said that the rates that emerged from the Husband’s affidavit had the attraction that they reflected what the Wife would have been likely to have had to pay by way of interest had she borrowed to acquire or do something because she had not received her entitlement from the Husband. However, there was no evidence that she borrowed any money.
The trial Judge at [130] said that there was no evidence before him in relation to what, if the Wife had received her entitlement, she would have done with it and that was not surprising and not cause for criticism. However, his Honour said that it placed him “in a somewhat invidious position so far as determining an appropriate compensatory interest rate”.
The trial Judge at [131] referred to a submission by senior counsel for the Wife that his Honour’s capacity to impose an interest rate other than that prescribed by the Rules was limited, inferentially to the rates emerging in evidence before it.
The trial Judge at [132] noted that “none of the rates revealed by the evidence [were in his] view appropriate, being either too high (such as the rate applicable pursuant to the Rules), and thus punitive, or too low (such as the RBA cash rate), and thus inadequately compensating the wife, or simply inappropriate (such as what the wife would have paid had she borrowed from a bank)”.
The trial Judge at [133] said that in what he identified as “valuation disputes, the Court frequently declines to adopt the capitalisation rates emerging from competing expert opinion evidence and, for reasons which it provides, fixes a capitalisation rate not relied upon by any expert”. His Honour said that he perceived “there to be no absolute bar to fixing an interest rate” and that doing so would be based upon the evidence before the court. He observed that, “[n]o impermissible reliance upon expertise is involved in doing so”. He also said that rejecting the various rates, for reasons he gave “provides support for adopting the rate” he proposed.
The trial Judge then at [134] set about determining an appropriate interest rate. He said that if a rate two per cent in excess of the rate from time to time prescribed by the RBA as the cash rate were applied, that would in his view, “though less than perfect, provide the fairest basis for compensating the wife”. His Honour observed that “unsurprisingly”, applying a two per cent margin to the RBA rate produced figures somewhat less than the interest rates payable on borrowings and “[t]hat is consistent with the ordinary experience of most people who have ever invested or borrowed money. He continued that, “[his] approach tends to approximate the cash rates offered by the “big four” banks to investors”. His Honour at [135] set out in tabular form the outcome produced and arrived at total interest of $500,647.98.
The trial Judge made an error in the original order in relation to the amount of interest to be paid which he amended by reliance on the slip rule. He provided very brief supplementary reasons which we do not need to consider.
Submissions on behalf of the Husband
Senior counsel for the Husband submitted that the court’s discretion is at large in relation to interest. It was submitted that s 117B of the Act creates a default or prima facie position that the rates prescribed by the Rules shall apply but just because the rule is penal does not mean that the Act is penal and that the intention of those who formulated the Rules cannot govern the intention of those who wrote the Act. It was submitted that the Rules prima facie provide an interest rate that is penal or coercive but that cannot “govern” s 117B(2) of the Act. It was submitted that given that s 117B(2) does not have a penal or coercive character there is ample justification for departing from the provision for interest in the Rules. It was submitted that the analysis by the trial Judge of penal and coercive provisions in the Act was correct and that absent such a character in s 117B(2) it was within his discretion to make the variation which he did.
Senior counsel for the Husband submitted that the trial Judge however made an error in relation to the application of the principle which he identified. At [134] the trial Judge decided that a rate of two per cent in excess of the rates from time to time prescribed by the RBA as the cash rate would provide the fairest basis for compensating the Wife. His Honour went on to say that unsurprisingly applying a two per cent margin to the RBA cash rate produces figures somewhat less than the interest rate paid on borrowings. It was submitted that this was not correct. It was submitted that there was evidence of the rates that Y Stephens was paying to the Westpac Bank on borrowings which were identified by the trial Judge at [120] and the rates there were lower than the rates the trial Judge applied being the RBA cash rate plus two per cent. The trial Judge went onto say that this was consistent with the ordinary experience of most people who have invested or borrowed money. It was submitted that an investment tends to give less than borrowing costs and that a second incongruity appeared when his Honour said that this approach tended to approximate the cash rates offered by the big four banks to investors. It was submitted that the rates offered by the big four banks for investment are less than the rates they are going to charge to borrowers so that to the extent his Honour was seeking to approximate the rates offered to investors he should have gone below the rates offered to borrowers.
Senior counsel for the Husband submitted that the order should have applied the Westpac Bank rates which were rates charged to borrowers being the rates relied upon by the Husband. In summary it was submitted that his Honour was right in principle but the selection of the actual rate was not consistent with the principle.
The table setting out how the amount of $445,979.20 was calculated adopting the Westpac Bank “facility rate” identified in the affidavit of the Husband sworn 18 February 2009. This rate is higher than the RBA cash rate but less than a rate equivalent to the RBA cash rate plus two per cent being the rate adopted by the trial Judge.
Conclusion
In our view the appeals in relation to interest can be disposed of shortly. The Wife was entitled by reason of paragraph 4 of the property settlement order of Strickland J to the benefit of interest in accordance with s 117B(1) of the Act as from the date by which the Husband was to pay the money to the Wife. On a plain reading of s 117B any exercise of the discretion conferred by s 117B(2) was a matter for Strickland J. Strickland J was not asked to exercise the discretion conferred by s 117B(2) and thus Coleman J should not have exercised that discretion. In the result the appeal by the Wife should be allowed and the appeal by the Husband dismissed. However, as we have observed, if our construction of s 117B is wrong and Coleman J was able to exercise the discretion conferred by s 117B(2) then we have to consider the matters addressed by his Honour.
The Wife was entitled to the benefit of the rate prescribed in the Rules and she sought enforcement of the Husband’s obligation to pay an amount so calculated. It was submitted on behalf of the Wife that, “the proceedings were in effect proceedings for enforcement of the order made by Strickland J on 30 November 2005”. There was no obligation on the Wife to put evidence before the Court directed to establishing why it would be in the interests of justice to retain the prescribed rate. We accept the submissions by senior counsel for the Wife that there was no onus on the Wife to establish that the rate prescribed by the Rules would in the circumstances adequately compensate the Wife. In any event, as senior counsel for the Husband pointed out it would be very difficult “to prove what is compensatory” (transcript, 8 May 2009, p 113).
The Husband in his Response sought that the Wife’s application be dismissed and he provided no evidence as to why in the interests of justice an order should be made that the interest be at a rate lower than that prescribed in the Rules. However, after the discussion with the trial Judge on 17 February 2009 the Husband with leave put on evidence as to a rate of interest lower than that prescribed in the Rules. However, again the Husband provided no evidence as to why in the interests of justice the interest rate should be varied to a rate lower than that prescribed in the Rules.
Consideration of the reasons of Coleman J and what happened during the hearing reveal that his Honour was of the view that absent a clear direction in the legislation the purpose of an award of interest on an order to pay a sum of money is compensatory and that no other purposes are relevant. The principle to be applied in determining a rate different from that prescribed in the Rules is that the amount awarded should only be compensatory to the party entitled to the benefit of the order. His Honour determined that the “primary focus” of
s 117B(1) of the Act is compensatory and with this in mind thereafter at [134] set about determining a rate that would “provide the fairest basis for compensating the wife”. With respect to his Honour we do not accept the approach which he adopted.
The trial Judge was obliged to be satisfied that it was in the interests of justice that the interest rate be varied and he failed to address this fundamental issue. The purpose of an award of interest on a judgment debt includes that it be compensatory but by so confining the inquiry, the trial Judge was in error.
For these reasons even if we are in error as to the primary reason why the Wife’s cross-appeal should be upheld and the Husband’s appeal dismissed we would uphold the Wife’s cross-appeal and dismiss the Husband’s appeal.
CONCLUSION
In conclusion, the appeal by the Husband will be dismissed and the cross-appeal by the Wife will be allowed. At the conclusion of the hearing before us in May 2009 the parties sought an opportunity to provide written submissions in respect of costs of the appeal, the cross-appeal and the various applications made. We propose to make provision in our orders for the filing of written submissions in relation to costs.
I certify that the preceding four-hundered and eighty-four (484) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court of May, Boland and O’Ryan JJ.
Associate:
Date: 24 December 2009
23
2
15