Stopford Malloy and Malloy

[2017] FamCA 116

FAMILY COURT OF AUSTRALIA

STOPFORD MALLOY & MALLOY [2017] FamCA 116

FAMILY LAW – DISCLOSURE – Objection to subpoena – Where the recipient of the subpoena issued by the wife produced documents, but redacted them in such a way that the only visibly entities related to the husband and his siblings – The recipient contended the wife’s demand for the redacted information was a fishing expedition – Decided the wife demonstrated an objectively reasonable basis for seeking the information, given the alleged deterioration in the husband’s financial circumstances – Where the recipient is the trustee of the family trust – Where the husband is a beneficiary of the family trust – The rights the husband enjoys as a beneficiary to the trust amount to property and are amenable to property settlement orders – Concluded production of the redacted copy documents was not sufficient compliance with the subpoena

Evidence Act 1995 (Cth), ss 78, 79

Kennon v Spry (2008) 238 CLR 366

APPLICANT: Ms Stopford Malloy

FIRST RESPONDENT: Mr Malloy

SECOND RESPONDENT: Mr Q Malloy

THIRD RESPONDENT: The Malloy Group

FILE NUMBER: ADC 2595 of 2015

DATE DELIVERED: 7 February 2017

PLACE DELIVERED: Newcastle/Adelaide

PLACE HEARD: Newcastle/Adelaide

JUDGMENT OF: Austin J

HEARING DATE: 6 & 7 February 2017

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Wells QC & Mr McGinn

SOLICITOR FOR THE APPLICANT: Piper Alderman

COUNSEL FOR THE FIRST, SECOND & THIRD RESPONDENTS: Not Applicable

SOLICITOR FOR THE FIRST, SECOND & THIRD RESPONDENTS: Not Applicable

COUNSEL FOR DD PTY LTD AND OO PTY LTD: Mr Harris QC & Ms Kari

SOLICITOR FOR DD PTY LTD AND OO PTY LTD: Not Applicable

Orders

IT IS ORDERED THAT

1. The Notice of Objection filed by DD Pty Ltd on 14 December 2016 is partly dismissed and DD Pty Ltd is ordered to forthwith produce to the Court all documents in answer to Classes 2, 3 and 5 within the schedule to the subpoena issued to it on 14 November 2016.

2. Leave is granted to the husband and wife to inspect the documents produced by DD Pty Ltd pursuant to that subpoena.

3. The Notice of Objection filed by OO Pty Ltd on 20 December 2016 is dismissed and OO Pty Ltd is ordered to forthwith produce to the Court all documents in answer to Classes 2 to 5 inclusive within the schedule to the subpoena issued to it on 29 November 2016.

4. Leave is granted to the husband and wife to inspect the documents produced by OO Pty Ltd in answer to that subpoena.

BY CONSENT, IT IS FURTHER ORDERED THAT

1. No order as to costs as between the wife and DD Pty Ltd in respect of the Notice of Objection filed by DD Pty Ltd on 14 December 2016.

IT IS FURTHER ORDERED THAT

1. OO Pty Ltd shall pay the wife’s costs of and incidental to the determination of the Notice of Objection filed by OO Pty Ltd on 20 December 2016 (including the failed adjournment application) on a party/party basis in the sum agreed or assessed.

2. For the purposes of implementation of Order 6 hereof, pursuant to Rule 19.50 of the Family Law Rules, junior counsel, but not senior counsel are certified

NOTATION

A.The parties do not require the publication of Reasons for Orders 6 and 7 hereof.

Note: The form of the order is subject to the entry of the order in the Court’s records.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Stopford Malloy & Malloy has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT NEWCASTLE/ADELAIDE

FILE NUMBER: ADC 2595 of 2015

Ms Stopford Malloy

Applicant

And

Mr Malloy

First Respondent

And

Mr Q Malloy

Second Respondent

And

The Malloy Group

Third Respondent

Ex Tempore

REASONS FOR JUDGMENT

1. On 14 November 2016, the wife issued a subpoena to DD Pty Ltd (“DD”) requiring it to produce certain documents to the Court on 15 December 2016. 

2. On 14 December 2016, DD lodged with the Court a notice of objection to the subpoena. 

3. On 29 November 2016, the wife issued a subpoena to OO Pty Ltd (“OO”) requiring it to produce certain documents to the Court on 20 December 2016. 

4. On that day, OO lodged with the Court a notice of objection to the subpoena. 

5. The two notices of objection were listed before me for hearing and determination by audio-visual link between the Adelaide and Newcastle registries on Monday 6 February 2017.

6. There was no appearance by the respondent husband at the hearing. He did not wish to be heard in the dispute. 

7. DD and OO were represented by the same solicitors and counsel who have appeared for the second and third respondents in these proceedings.

Subpoena to DD

1. The schedule to the subpoena required the production of documents in six separate categories. 

2. DD conceded its obligation to produce documents in classes 1 and 2 and has already done so. 

3. DD conceded its obligation to produce the class 5 documents but has not yet done so. Although it alleged it produced such documents directly to the wife last Friday, the production should have been to the Court and, in any event, the wife’s lawyers have not yet had time to examine whether the purported production of class 5 documents is sufficiently comprehensive.

4. The residual dispute devolved to, first, the production of unredacted class 3 documents and, second, the production of any documents at all within classes 4 and 6. 

Class 3

1. The wife sought production of financial statements for the Mr Q Malloy Family Trust from 30 June 2010 to the present. 

2. Mr Q Malloy is the husband’s father and DD is the trustee of the Family Trust. 

3. DD produced the documents sought but redacted them in such a way that the only visible entries are those that relate to the husband and his three siblings. DD contended the redacted parts of the documents are irrelevant to the proceedings and the wife’s demand for those details amounts to nothing more than a fishing expedition. That submission is made apparently on the basis of an assertion by DD that the husband does not receive any distributions from the Family Trust and his only financial connection with it is his liability to it pursuant to a loan account for alleged “significant financial accommodation” given to him by his father over several years.

4. The wife does not accept, without proper verification, the validity of the assertion made by the husband (or DD) that he only has a debit loan account with DD. That may be the effect of evidence previously given on behalf of the husband, Mr Q Malloy and the Malloy Group by Mr GG, the CEO of the Malloy Group, but the wife is not bound by that evidence. No occasion arose in previous interlocutory proceedings for Mr GG to be challenged. I reject DD’s contention that there is now no basis for any doubt about the veracity of the evidence. It may be truthful and accurate evidence, but the wife is not precluded from proper investigation of it. 

5. DD submitted the wife’s suspicion about the husband’s integrity, and in particular, regarding his financial interests in DD is not enough to demonstrate the relevance of the documents she seeks produced, but I reject the submission.  The wife has demonstrated an objectively reasonable basis for doubting the integrity of the deterioration in the husband’s financial circumstances over recent years. If he is to be believed, his personal fortune plummeted from about $195 million in 2009 to his present penury. 

6. The husband is a beneficiary of the Family Trust and, in that capacity, he enjoys the right to due administration of it. Such a right amounts to “property” and is amendable to property settlement orders under Part VIII of the Family Law Act 1975 (Cth) (see Kennon v Spry (2008) 238 CLR 366).

7. I accept the wife’s submission that quantification of the husband’s property rights in the Family Trust is liable to be inaccurate unless all relevant financial records are released, without redaction. I am satisfied the financial statements for the Family Trust (held by DD) are relevant to the property settlement proceedings between the spouses and should be fully disclosed. Production of the redacted copies is not sufficient compliance with the subpoena. 

Classes 4 and 6

1. The wife seeks production of all records (being the classes 4 and 6 documents) pertaining to “when” the documents within classes 3 and 5 were prepared.

2. The wife contended she was suspicious the financial statements of DD and the Family Trust may have been prepared in a way that characterised financial transactions concerning the husband “ex post facto” and, by way of example, she cited his debit loan account in the Family Trust. 

3. I accept the validity of DD’s opposition to production of those documents.  Financial statements compiled by corporations and trusts cover reporting periods retrospectively, more usually in financial years. Such statements draw together a large amount of historical data and, unexceptionally, often involve several drafts. That of itself is not improper, much less the basis for suspicion of impropriety on the part of persons involved in the production of such documents. The wife has not satisfied me there is a legitimate forensic purpose in casting about for documents that might vindicate her suspicion that DD has falsified financial statements for it and the Family Trust. As DD submitted, the financial statements are to be taken at face value unless they are irregular on their face.

4. Even if the wife was not fishing, it would be an unduly oppressive task for DD to produce every document in its possession or control dealing with preparation of the financial statements. Quite literally, that would require collation of such myriad and tangential records as, for example, correspondence between DD, its accountants, and the beneficiaries of the Family Trust, file notes of such interactions and meetings, diary entries, and draft documents. 

5. DD need not produce documents in classes 4 and 6.

Subpoena to OO

1. By Application in a Case filed on 2 February 2017, supported by the affidavit of Mr PP, solicitor, filed on the same date, OO sought an adjournment of the hearing of its objection to the wife’s subpoena. The wife opposed the adjournment. The adjournment application was refused and these are the reasons why. 

2. OO assumed the wife relied upon the expert opinion evidence of her adversarial expert (Mr N) to demonstrate her entitlement to press her subpoena. Consequently, OO sought an adjournment to enable more time within which to adduce its own evidence to meet and challenge the validity of Mr N’s opinion evidence. When challenged to explain what further evidence it wished to adduce, OO asserted it would be evidence from an “external accountant” and the Chief Financial Officer of the Malloy Group. Specifically, it was anticipated such evidence would “reference and explain” the husband’s holdings in and relationships with certain corporations within the Malloy Group, including OO. That concession exposed OO’s misconception about this dispute. 

3. First, the wife was not seeking to rely upon Mr N’s opinion evidence as proof of anything other than the existence of a dispute between the spouses about:

   (a)the quantum of the “unpaid present entitlements” of the husband in various corporations and trusts; and

   (b)the percentage proportion of such entitlements that are probably recoverable by the husband and therefore amenable to division between the spouses in these proceedings.

4. Second, the wife has not sought and has not been granted leave to rely upon the adversarial expert opinion evidence of Mr N as proof to determine those issues. 

5. Third, OO was intending to call its own adversarial expert evidence on the above issues, without leave to do so. Self-evidently, evidence which “references and explains” documents must amount to opinion evidence about the meaning and import of the documents. OO clearly envisages such evidence would be called as expert evidence under s 79, rather than under s 78, of the Evidence Act 1995 (Cth).

6. Fourth, there is no occasion to consider (at least at this stage) the appointment of a single expert witness to offer an opinion on those issues. That is a matter for the trial, if at all. Presently, there is no need to reach concluded findings about factual issues. The wife need only demonstrate that, having regard to the ambit of the forensic contest, she has a legitimate forensic purpose in seeking production of the documents nominated in the subject subpoena. OO’s proposal amounted to an implicit suggestion that it be permitted to adduce evidence to facilitate an interlocutory determination of issues that must await ultimate determination at trial between the husband and wife and thereby exposed it as an advocate for the husband’s cause.

7. The adjournment application was dismissed and the parties then made submissions about the objection to the subpoena. 

8. The wife explained the underlying facts upon which the subpoena was premised. The husband filed and served an Affidavit of Documents in November 2016, pursuant to procedural orders made by the Court in October 2016. In summary, the documents discovered were said to reveal:

   (a)the husband claimed to have surplus assets of about $195 million in 2009;

   (b)by 2012, the husband was effectively insolvent, because his liabilities allegedly exceeded his assets by nearly $3 million;

   (c)in April 2012, the husband was sole director of and shareholder in QQ Investments Pty Ltd, which corporation held all shares in OO, but for consideration of only $1 he transferred his interest in AA Pty Ltd to another corporation controlled by his father, Mr Q Malloy, and resigned his directorship. At that stage, OO had declared net assets of nearly $7 million and a net operating profit of nearly $1.5 million;

   (d)contemporaneously, the husband also transferred other property interests for nominal consideration to his father, or alternatively, other entities under his effective control;

   (e)in February 2013, the husband settled his property settlement dispute with a former domestic partner in that financial context; and

   (f)while all that was occurring, the husband and wife were cohabiting and were engaged to marry.

9. OO prevaricated about whether it accepted or rejected the accuracy of that factual summary, but I have no hesitation accepting it to be so when submitted as accurate by the wife’s senior counsel. He is an officer of the Court and has a professional duty to ensure the accuracy and reliability of his submissions.  Accordingly, the husband’s historical interest in OO is understandably important to the spouse’s property settlement. That is particularly so when OO is apparently indebted to various other corporations and trusts, which are themselves indebted to the husband. Those asserted debts underpin the “unpaid present entitlements” due to the husband by members of the Malloy Group. On instructions, OO’s solicitor deposed that it is “unlikely” the unpaid present entitlements will ever be paid to the husband, but axiomatically, such evidence of his belief admits of the “possibility” they might be, which makes the wife’s pursuit of the issue understandable and reasonable. 

10. The husband has already disclosed the 2010 and 2011 financial statements of OO to the wife. OO failed to explain why it should not then disclose its more recent financial statements to her, since even the husband seems to recognise they are relevant. 

11. OO confined its submissions to the documents within class 3 to the subpoena but conceded, if its argument in respect of class 3 documents was lost, then it must also have its objection overruled in respect of the documents within all other classes within the subpoena. 

12. I reject OO’s objection. The documents sought by the wife in the subpoena are relevant. The wife is not on a fishing expedition and no other argument was advanced for the objection. 

13. For those reasons, I make the following orders. 

I certify that the preceding thirty-six (36) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Austin delivered on 7 February 2017.

Associate: 

Date:  3 March 2017