Velten & Velten
[2020] FamCA 384
•22 May 2020
FAMILY COURT OF AUSTRALIA
| VELTEN & VELTEN | [2020] FamCA 384 |
| FAMILY LAW – PRACTICE AND PROCEDURE – INTERIM DISCOVERY – unsatisfactory nature of respondent’s discovery – consequences of unsatisfactory discovery. FAMILY LAW – SPOUSAL MAINTENANCE – INTERIM – orders made. FAMILY LAW – VALUATIONS – orders made. |
| Biosecurity Act 2015 (Cth) Corporations Act 2001 (Cth) s 181 Family Law Act 1975 (Cth) ss 72, 74, 75, 77 Family Law Rules 2004 (Cth) ch 13, rr 13.04, 15.09(1) |
| A v A; B v B [2000] 1 FLR 701 Ascot Investments Pty Ltd v Harper (1981) 148 CLR 332 Ashby v Slipper (2014) 219 FCR 322 Australian Competition and Consumer Commission v Metcash Trading Ltd (2011) 198 FCR 297 Banks & Banks [2015] FamCAFC 36 Barker v Barker (2007) 36 Fam LR 650 Bradshaw v McEwans Pty Ltd (1951) 217 ALR 1 Brewer & Brewer [2019] FamCA 247 Burns v Burns [2004] EWCA Civ 1258 Bacall & Zagar [2020] FamCA 350 Chang v Su (2002) 29 Fam LR 406 Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing & Allied Services Union of Australia v Australian Competition and Consumer Commission (2007) 162 FCR 466 Conrock Ltd v CSR Ltd [1990] FCA 312 Deiter & Deiter [2011] FamCAFC 82 Eaby & Speelman [2015] FamCAFC 104 Flight v Q [1844] 50 ER 9 Giorginis v Kastrati (1988) 49 SASR 371 Girlock (Sales) Pty Ltd vHurrell (1982) 149 CLR 155 Goodridge v Beadle (2017) 57 Fam LR 425 Guild & Stasiuk [2020] FamCA 348 Grunwick Processing Laboratories Ltd v Advisory, Conciliation and Arbitration Service [1978] AC 655 Hall v Hall (2016) 257 CLR 490 Holloway v McFeeters (1956) 94 CLR 470 In the Marriage of Black & Kellner (1992) 12 Fam LR 343 In the Marriage of Briese (1985) 10 Fam LR 642 In the Marriage of Chemaisse (1987) 11 Fam LR 392 In the Marriage of Efthimiadis (1993) 16 Fam LR 384 In the Marriage of Giunti (1986) 11 Fam LR 160 In the Marriage of Green and Kwiatek (1982) 8 Fam LR 419 In the Marriage of Howard (1982) 8 Fam LR 441 In the Marriage of Kannis (2002) 30 Fam LR 83 In the Marriage of Malpass & Mayson (2000) 27 Fam LR 288 In the Marriage of Marinko (1983) 8 Fam LR 849 In the Marriage of Marinko (Family Court of Australia, Nygh J, 29 October 1982) In the Marriage of Mezzacappa (1987) 11 Fam LR 957 In the Marriage of Monte [1986] FamCA 1 In the Marriage of Monte [1986] FamCA 1. In the Marriage of Morrison (1994) 18 Fam LR 519 In the Marriage of Nolan and Ingram (1984) 9 Fam LR 808 In the Marriage of Norbis(1986) 10 Fam LR 819 In the Marriage of P & P (1985) 9 Fam LR 1100 In the Marriage of Radwan (1985) 11 Fam LR 1 In the Marriage of Redman and Redman (1987) 11 Fam LR 411 In the Marriage of Rowell; Deputy Commissioner of Taxation (Intervener) (1989) 96 FLR 449 In the Marriage of Stein (1986) 11 Fam LR 353 In the Marriage of Stein (2000) 25 Fam LR 727 In the Marriage of Suiker (1993) 17 Fam LR 236 In the Marriage of Tate (2000) 26 Fam LR 731 In the Marriage of Tingley (1984) 10 Fam LR 707 In the Marriage of Weir (1992) 16 Fam LR 154 Inthe MatterOfPetrolink Pty Ltd, Re; Smith v Bone [2014] FCA 1024 J & A Vaughan Super Pty Ltd (Trustee) v Becton Property Group Ltd [2014] FCA 581 Jabour v Jabour (2019) 59 Fam LR 475 James v Plummer (1888) 23 LJNC 107 Jeeves v Jeeves [2011] FamCAFC 94 Jones v Dunkel (1959) 101 CLR 298 Judd v Cornell-Judd [2016] FamCA 390 Karjala & Gallard [2020] FamCA 110 Lithgow City Council v Jackson (2011) 244 CLR 352 Livesey v Jenkins [1985] 1 All E.R. 106 Lonrho Ltd v Shell Petroleum Co Ltd [1980] 1 WLR 627 Luxton v Vines (1952) 85 CLR 352 Mallet v Mallet(1984) 9 Fam LR 449 Marvel v Marvel (2010) 43 Fam LR 348 Merritt & Richards (No. 2) [2016] FamCA 66 Mitchell v Darley Main Colliery Co (1884) 1 Cab & El 215 Morley v Statewide Tobacco Services Ltd [1993] 1 VR 423 Myers v Elman [1940] AC 282 National Australia Bank v Bond Brewing Holdings Ltd [1991] 1 VR 386 Nyles v Nyles (2011 46 Fam LR 29 O’Sullivan v Herdmans[1987] 1 WLR 1047 Oriolo v Oriolo (1985) 10 Fam LR 665 Page v Vanker (Court of Appeal New South Wales, unreported, 7 December 1990) Palmdale Insurance Ltd (in liquidation) v L Grollo & Co Pty Ltd [1987] VR 113 Pearce & Pearce [2016] FamCAFC 14 Price & Price [2014] FamCA 1020 R v Watson; ex parte Armstrong (1976) 136 CLR 248 Re Warbler Pty Ltd (1982) 6 ACLR 526 Redmond & Redmond [2014] FamCAFC 155 Richard Evans & Co Ltd v Astley [1911] AC 674, 687 Q v Q [1982] 1 WLR 786 Salah & Salah (2016) 56 Fam LR 299 SS & AH [2010] FamCAFC 13 Stanford v Stanford (2012) 247 CLR 10 Tinkerbell Enterprises Pty Ltd v Takeovers Panel and Ors [2012] FCA 1272 TNT Management Pty Ltd v Trade Practices Commission; Brambles Holdings v Trade Practices Commission(1983) 47 ALR 693 Trang & Kingsley [2017] FamCAFC 120 Trustees of the Property of Cummins (a bankrupt) v Cummins (2006) 227 CLR 278 Walker v Wimborne (1976) 137 CLR 1 Wei & Wei (No 3) [2020] FamCA 98 Ward v Williams (1955) 92 CLR 496 Waterman & Waterman [2017] FamCAFC 23 |
| Edward Bray, Digest on the Law of Discovery with Practice Notes (Sweet & Maxwell, 1904). The Honourable Justice Paul Cronin, ‘The obligation to disclose; but what if they don’t’ (conference paper, National Family Law Conference, April 2008). Stephen O’Ryan QC, ‘Attempts to Deal with Undisclosed Wealth in Property Settlement Proceedings’ (1994) 8 Australian Journal of Family Law 96 Graham Richardson SC,‘A Beginner’s Guide to Property Settlement and Related Proceedings in the Family Court’ (1998) 17 Australian Bar Review 48 Sidney Edward Williams and Frank Guthrie‑Smith, Daniell’s Chancery Practice: being a treatise on the practice of the Chancery Division and on appeal therefrom (Sweet & Maxwell, 8th ed, 1985). |
| APPLICANT: | Ms Velten |
| RESPONDENT: | Mr Velten |
| FILE NUMBER: | MLC | 7244 | of | 2019 |
| DATE DELIVERED: | 22 May 2020 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | The Honourable Justice Wilson |
| HEARING DATE: | 7 April 2020 |
| DATE OF LAST WRITTEN SUBMISSIONS: | 15 April 2020 |
SUBMISSIONS RECEIVED FROM:
| COUNSEL FOR THE APPLICANT: | Not applicable |
| SOLICITOR FOR THE APPLICANT: | Not applicable |
| COUNSEL FOR THE RESPONDENT: | Mr R Hoult |
| SOLICITOR FOR THE RESPONDENT: | KCL Law |
REPRESENTATION AT HEARING:
| COUNSEL FOR THE APPLICANT: | Mr T Puckey |
| SOLICITOR FOR THE APPLICANT: | Taussig Cherrie Fildes |
| COUNSEL FOR THE RESPONDENT: | Mr R Hoult |
| SOLICITOR FOR THE RESPONDENT: | KCL Law |
Orders
By 4pm on 11 June 2020 the husband pay or cause to be paid to the wife the sum of $200,000.
Paragraphs 3 – 5 inclusive of the orders made by Deputy Registrar George on 13 March 2020 are discharged.
The husband and wife do all such acts and things and sign all such documents as may be required to meet the payment to the wife in paragraph 1 by forthwith selling the necessary assets including –
(a)the houseboat stored at B Street, C Town Victoria, owned by the husband;
(b)the mooring (permit) at BB Town Victoria;
(c)the classic motor vehicle owned by the husband;
(d)the speedboat registration …; and
(e)the jet ski registration … (the sales of items at subparagraphs (a) – (e) referred to together herein as the sales).
The husband forthwith deliver up possession and control of each item in paragraph 3 to the wife including but not limited to providing the wife with keys and remotes, registration/ownership papers, any documents necessary to sell the items, and authorising unrestricted access to the items by the wife and her nominated agents for the purpose of inspection and sale of the items.
The wife have sole conduct of each of the sales and for this purpose the wife be at liberty to appoint the selling agent and to determine the terms and conditions of each of the sales, including the sale price, on the basis that the wife keep the husband informed in relation to the Sales including providing him with copies of executed sale contracts and documents and particulars.
Upon completion of the sales, the proceeds of the sales are to be applied in the following manner –
(a)first, to pay all costs, commissions and expenses of the sales;
(b)second, such amount of the payment provided for in order 1 to the wife as is outstanding at the date of completion of the Sales;
(c)third, the sum of $200,000 to the wife, to be paid care of her solicitor; and
(d)fourth, the balance to be held in an interest bearing controlled monies account in the joint names of the parties, such account to be established by the wife’s solicitor, pending written agreement between the parties or further order of the court.
By 4pm on 21 May 2020 the husband provide the wife with discovery as follows –
(a)documents in accordance with order 10 of the orders made on 22 November 2019 (to the extent those documents have not already been provided);
(b)the documents requested in the letter from the wife’s solicitor to the husband’s solicitor dated 24 January 2020 (to the extent those documents have not already been provided); and
(c)the documents requested in the letter from the wife’s solicitor to the husband’s solicitor dated 6 February 2020 (to the extent those documents have not already been provided).
By 4pm on 21 May 2020 the parties do all things necessary to jointly instruct the single expert appointed pursuant to order 6 of the orders made on 22 November 2019, Ms D of E Valuers, to value the parties’ interest in –
(i) the Mr Velten Family Trust; and
(ii)F Pty Ltd (together the Velten Group)
on the basis that –
(a)the valuation of the Velten Group be undertaken at 31 December 2019;
(b)each business be valued individually utilising inter alia income statements for the relevant business;
(c)the valuation include all businesses sold or otherwise disposed of by the husband or at his direction since 1 July 2019 in order to ascertain whether any such business has been sold or disposed of for fair market value or otherwise;
(d)the valuation include all businesses purchased, acquired or opened by the husband, or in which he has or has held any legal or beneficial interest, during the period 1 July 2019 to the date of these orders.
By 4pm on 19 May 2020 the husband pay or cause to be paid any account or expense falling within the scope of orders 5 and 8 of the orders made on 22 November 2019 that is outstanding or overdue for payment as at the date of these orders, inclusive of arrears referrable to the payment plan for taxation owed or payable by the wife, and provide the wife with documentary evidence of each payment having been made.
To facilitate the husband’s compliance with his obligations pursuant to the provisions of order 5 of the orders made on 22 November 2019, by 4pm on 21 May 2020 the husband –
(a)provide the wife with a credit card, with such card to be used by the wife solely for the purpose of meeting expenses in accordance with order 5 of the orders made on 22 November 2019, and the husband pay or cause to be paid the total outstanding amount on the credit card on or before the due date for payment each calendar month; and
(b)establish and thereafter maintain direct debits for the rates, insurances and utilities accounts (including gas, electricity, telephone and internet) referred to in order 5 of the orders made on 22 November 2019 so that all such expenses and accounts are paid by the due date for payment, and provide the wife with documentary evidence of each direct debit having been established.
The monies standing in the KCL Law Trust Account in the sum of $50,000, being the remaining proceeds of sale of the business conducted by F Pty Ltd at Delacombe, be applied as follows –
(a)the sum of $8,317.80 to KCL Law, being monies owed to KCL Law to undertake all professional work in relation the sale of the said business; and
(b)the balance of $41,682.20 be paid to the business trading account of F Pty Ltd, with F Pty Ltd to apply the whole of the funds to pay outstanding creditors of F Pty Ltd, and with documentary proof of such payments to creditors to be provided to the wife’s solicitor within seven days of the relevant payment(s).
Order 5(b)(i) of the orders made on 22 November 2019 be varied to suspend mortgage repayments as and from 1 April 2020 until such time as the mortgagee requires the mortgage repayments to be reinstated, and thereafter to enable the husband to negotiate with the mortgagee to reduce the mortgage repayments to interest only on the basis that the husband continue to make the mortgage repayments (irrespective of the outcome of the husband’s negotiations with the mortgagee) as and when they fall due.
Order 9 of the orders made on 22 November 2019 are discharged.
Save as expressly provided for in these orders, the orders made by this Honourable Court on 22 November 2019 remain in full force and effect.
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 Velten & Velten has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLC 7244 of 2019
| Ms Velten |
Applicant
And
| Mr Velten |
Respondent
REASONS FOR JUDGMENT
Introduction
This proceeding was commenced in July 2019 yet it has travelled very little distance along the path of litigation in 10 months.
On 7 April 2020 while sitting in the Judicial Duty List I heard the extensive interim application urged on behalf of the wife in her application in a case filed on 20 February 2020. That application was returnable before a registrar on 13 March 2020. On that date the registrar made certain orders by consent and otherwise adjourned all applications to the Judicial Duty List on 7 April 2020. I heard those applications on that day.
On 7 April 2020 counsel addressed me by telephone in accordance with the court’s COVID-19 pandemic protocols, there being no scope for a face-to-face hearing. By fifty minutes into the submissions of counsel for the wife, at 4:10pm it was apparent that the application would not be completed that day. I asked counsel how they suggested the application should proceed. They agreed that the application could proceed on the papers. I invited counsel to formulate a timetable for their submissions, which they duly prepared. Only one party filed written submissions in accordance with the orders made in that regard. The other made verbal submissions.
The wife’s application in a case raised a wide range of issues for determination. Those included –
a)an injunction to restrain the disbursement of the proceeds of sale of various businesses;
b)payment of a sum certain of $200,000;
c)orders compelling the parties to execute documents to give effect to the sale of a collection of chattels including boats, a car and a jetski;
d)orders for the delivery of documents and keys so as to enable the sale of the chattels to be given effect;
e)orders giving the wife sole conduct of the sale of the chattels;
f)orders for the application of the proceeds of sale in a particular manner;
g)discovery;
h)the appointment of a single expert to conduct a business valuation; and
i)consequential orders such as orders for the husband to provide to the wife a credit card to meet ongoing expenses incurred or to be incurred in the running of the household.
Syponsis
In the passages below I have addressed each application. The orders that correspond to the reasons for each order have been set out above. In these reasons I refer to the applicant interchangeably as “the applicant”, “the mother” or “the wife” and I refer to the respondent as “the respondent”, “the father” or “the husband”.
Relevant factual setting
The wife commenced this proceeding in July 2019. She affirmed an affidavit on 1 July 2019. Relevantly paraphrased, the more important matters that arose in that affidavit were as follows –
a)the wife, now aged 43 and the husband, now aged 49, commenced cohabitation in 1998, married in 2001 and finally separated in November 2018;
b)they have three children, the eldest being a son born in 2001, the middle child being a son born in 2003 and the youngest child being a daughter born in 2004;
c)the eldest child is a university student, the middle child is in his penultimate year at secondary school and the youngest child is a year 10 student at secondary school;
d)all children have struggled since their parents separated and each has been in the care of psychological and other assistance;
e)the children live with their mother in the former matrimonial home;
f)the father lives in rental accommodation; and
g)in broad terms the father operates retail businesses.
It is necessary to go to the detail of those business interests, as deposed to by the applicant.
The business known as “Business 1” operates at five outlets. The business name Business 1 is owned by Velten Pty Ltd which acts as the trustee of a trust styled Mr Velten Family Trust. The respondent is the sole director and shareholder of the trustee and he is also the appointor of that trust.
F Pty Ltd is the owner of the business names “Business 2”, “Business 3” and “Business 4”. The applicant said 18 outlets in Victoria operate under one of those business names. She said the issued shares in the capital of F Pty Ltd numbered 1200 of which “we have a 50% interest”. That was a confused reference to Velten Pty Ltd owning that 50% interest as trustee of the Mr Velten Trust. The other 50% interest in F Pty Ltd was held by Q Pty Ltd, a company owned or controlled by Mr Q, the respondent’s business partner. The applicant said Business 1 was established in 1992 by the respondent but that over the following 20 years the applicant and respondent grew that business. She said Business 2 was started in 2014 and Business 3 was commenced in 2018.
The applicant stated that in 1998 when she and the respondent began living together she was employed as a senior manager with a business earning $120,000 per annum. She said that shortly prior to the birth of their first child she commenced performing administrative duties for what she called “the Velten businesses” in late 2000. She said she continued in that role from 2000 until separation in late 2018.
Doing her best to provide approximate valuations, she admitted to having no real basis of even estimating the valuation of certain assets. Those included –
a)Velten Pty Ltd;
b)Mr Velten Family Trust;
c)F Pty Ltd;
d)H Pty Ltd;
e)J Pty Ltd;
f)20 classic motor vehicles;
g)NAB shares;
h)a classic motor vehicle; and
i)cash at bank.
She estimated the valuations of other assets. Those included –
a)the former matrimonial home at $3,150,000;
b)a houseboat at $1,200,000;
c)a mooring at BB Town at $80,000;
d)a motorboat at $100,000; and
e)a jetski at $15,000.
Of the known assets, the applicant’s total estimated value was $4,545,000.
So far as liabilities were concerned, the applicant estimated them to total $1,716,850. They were joint and several liabilities including –
a)jointly in relation to the former matrimonial home of $1,390,850;
b)severally in relation to the respondent’s tax liability of $190,000; and
c)severally in relation to her tax liability of $136,000.
The applicant stated that she did not know what the husband’s superannuation was yet she gave as hers the sum of $33,324. That led her to estimate the net value of assets exclusive of the husband’s superannuation at $2,838,150 and, with her superannuation included, the sum of $2,861,474.
The applicant addressed contribution issues as well as s 75(2) factors. So far as health issues were concerned, the applicant addressed her own as follows –
a)chronic fatigue syndrome;
b)adrenal burnout;
c)chronic balance disorder;
d)fibrymyalgia; and
e)attention from a physiotherapist, chiropractor, interactive general practitioner, naturopath and personal trainer.
She said she is interested in commencing a law degree. She also said she has primary care of the children.
The applicant deposed to the lifestyle she, the respondent and the children enjoyed during the marriage between the applicant and the respondent. She said they enjoyed an affluent lifestyle. She catalogued the following –
a)holidays to the USA and Asia staying in luxurious accommodation;
b)the respondent’s purchase of a number of luxury cars and boats;
c)the respondent’s participation in regular expensive lunches and dinners that the applicant did not attend;
d)the children attending private schools;
e)the respondent’s leisure activity of restoring rare collectible classic motor vehicles;
f)their ownership of a houseboat estimated to be worth $1,200,000; and
g)owning a mooring at Town BB.
So far as the applicant’s financial position at present was concerned, she gave it in two parts, first in her affidavit made on 1 July 2019 and second, in her affidavit made 19 November 2019. In her July affidavit the applicant stated as follows –
a)during the marriage the respondent paid the applicant the sum of $1,200 per week to be applied towards family household and living expenses;
b)during the marriage the respondent provided cash to the applicant and she had access to bank accounts and to a credit card;
c)at separation, the respondent terminated the applicant’s access to bank accounts and to a credit card;
d)since separation the respondent has paid weekly support to the applicant of $3,500 for living and household expenses;
e)since February 2019 the respondent has paid an additional $860 per week as periodic child support for the children still at school as well as meeting their private school fees, health insurance and medical expenses;
f)so far as the former matrimonial home was concerned the respondent has paid mortgage dues, rates, insurance utilities and outgoings;
g)she said the respondent has been slow to make those payments on occasions; and
h)the applicant said she had been embarrassed during interactions with service providers, the orthodontist for two of the children refusing to schedule appointments unless fees were paid and the children school requiring arrears of fees to be paid.
She said she has been left “in a vulnerable financial position” although she did not say why she was rendered vulnerable nor did she say how the vulnerability manifested itself. She said she had sought orders for the respondent to provide her with a credit card. She said she was concerned that amounts paid by the respondent to the children were made in the form payroll sums for which she feared the children may be assessed for income tax.
She said she was wholly dependent on the respondent. She said she suffers a shortfall between the weekly support she receives from the respondent and her weekly expenses. She did not give details of the extent to which her outgoings exceeded her weekly support beyond stating that the excess was referred to in her financial statement. She said that in June 2019 the respondent’s solicitor wrote to her solicitors stating that the respondent’s income could no longer sustain the level of child support previously provided and that from 1 July 2019 the weekly amount would drop from $3,500 to $2,000. She said the eldest child’s university expenses this year would be $60,000. She did not exhibit an invoice to support the claim. So far as the two younger children were concerned, the applicant asserted that the fees for their private school plus a trip to Asia is in total $55,000, some of which was paid but $47,000 is remaining. That affidavit was made prior to the current pandemic so any trip to Asia is not presently feasible.
The applicant stated she owes the ATO a sum approximately $136,000 for the period 1 July 2010 to 20 February 2019. She sought orders indemnifying her in relation to tax owed.
I hasten to point out that a person’s tax liability is personal. Indemnification is only one of an array of possible orders.
Based on a conversation in June 2019 between the applicant and the respondent’s father’s partner (who seemed to have adopted the respondent’s father’s surname) the applicant said she expressed fears that various businesses were being sold. The applicant asserted that cash had been stored by the respondent’s father on behalf of the respondent and that the respondent may have transferred cash offshore.
In her affidavit made 19 November 2019 the applicant addressed problems she said she encountered in getting the respondent to meet expenses. She said –
a)the respondent owed $2,375.39 in private health premiums;
b)the respondent’s failure to pay utilities accounts in a timely manner had led to services being disconnected;
c)internet fees of $2,273.14 remain outstanding and unpaid school fees of $31,945.22 presently remain outstanding.
She said discovery was outstanding.
She said the respondent continues to live an extravagant lifestyle despite separation, paying over $1,000 per week for his rental accommodation, driving luxury cars, playing golf and dining out.
The respondent’s position
The respondent relied on four documents on the hearing of this interlocutory application. They were –
d)the respondent’s amended response to the applicant’s application in a case dated 2 April 2020;
e)the respondent’s affidavit affirmed 16 July 2019;
f)his affidavit affirmed 21 November 2019; and
g)his affidavit made 2 April 2020.
To put the respondent evidentiary material in context, it is necessary to keep in mind the applications he pressed on the hearing of this interlocutory application. In Mr Hoult’s written submissions he compressed the relief sought by the husband to a handful only. They were for orders to be made –
a)in relation to further and better discovery requiring both parties to give better discovery;
b)for the appointment of a single expert requiring that person to value the Mr Velten Family Trust and F Pty Ltd and the businesses known as Business 2, Business 3 and Business 4;
c)permitting the sales of assets to avoid legal action being commenced by creditors;
d)varying downwards spousal maintenance to $1,500 per week;
e)permitting the respondent to apply for relief from the relevant mortgagee;
f)reducing the sum the respondent is required to pay by way of child support;
g)for the youngest children to attend a government school; and
h)selling the former matrimonial home.
In the respondent’s affidavit made 16 July 2019, he set out matters that were not controversial. Those included –
a)his age and state of health;
b)his cohabitation with the applicant in late 1998, their marriage in 2001 and their separation in late 2018;
c)his current rental arrangements since July 2019;
d)the couple’s three children; and
e)issues concerning the children’s health.
The respondent said that between December 2017 and March 2018 he had an affair and, after six months of counselling, the applicant declared the marriage at an end in November 2018. He asserted that the applicant was alienating the children from him. He said he took the view that the applicant was not being supportive of the children having time with the respondent.
In terms of the style of his giving evidence in his affidavit made 16 July 2019, the respondent used the word “regrettably” seven times[1] between paragraphs 1 and 34 in the context of parenting matters. It was not easy to discern whether by the use of that word he was seeking to convey the notion that he regretted doing a particular thing, whether he meant that in the overall the particular thing described was lamentable or whether the event described was undesirable. Whichever use he intended, his seven uses of the word were entirely ambiguous and did not convey a fact, as an affidavit is meant to do. Similarly, between the same paragraphs he twice used the phrase “it saddened me” that a particular event transpired. It must not be forgotten that affidavits are required to be confined to facts and admissible evidence. That is expressly stated in r 15.09(1) of the Family Law Rules. The injection into an affidavit of deponent’s regret or sadness is not admissible evidence of the fact. In my view those words are inadmissible, even on an interlocutory application such as this. Solicitors drafting affidavits for their clients and counsel settling those affidavits should take greater care than was demonstrated in the respondent’s 16 July 2019 affidavit to ensure that affidavits are in an admissible form. In two recent cases I had occasion to address similar issues in Guild & Stasiuk [2] and Bacall & Zagar.[3]
[1] Paragraphs 13, 19, 20- 23 and 31
[2] [2020] FamCA 348
[3] [2020] FamCA 350
So far as financial matters in issue in this case were concerned, the respondent addressed his corporate structure, his trust arrangements, the leases undertaken by companies owned or controlled by him and other matters that went beyond the applicant’s more limited evidence on point. It is utile to record those details in precis form.
The respondent addressed Velten Pty Ltd. He said it was –
a)the trustee of the Mr Velten Family Trust;
b)incorporated on 12 October 1995;
c)owned and controlled solely by him;
d)operating out of premises at Suburb K;
e)the tenant of premises at Suburb L;
f)the tenant of premises at Suburb M;
g)the tenant of premises at Suburb N;
h)the tenant of premises at Suburb O; and
i)the tenant of premises at Suburb P.
The respondent also deposed to the other company mentioned by the applicant, namely, F Pty Ltd. The respondent described that company as F Pty Ltd. So will I. Of it the respondent said F Pty Ltd –
a)was incorporated on 29 July 2014;
b)is owned as to 50% by the respondent and as to the other 50% by Mr Q;
c)has its issued share capital divided into 1200 shares of which the respondent owns 600 shares and Mr Q owns 600 shares;
d)trades under the business names “Business 2” and “Business 3”;
e)trades at 11 premises under the name Business 2”;
f)trades at four premises under the name “Business 3” which premises it owns, F Pty Ltd having purchased premises in October 2018 from the administrators of another company; and
g)conducts the business of buying and selling businesses and also running businesses.
The respondent deposed to once working in businesses but now managing them.
The respondent said that at cohabitation, the applicant earned the same income as did he at least in approximate terms. He said that upon the birth of their first child, the respondent and applicant agreed that the applicant would be the primary carer for the child and the respondent would be the primary income earner. He said the applicant subsequently assisted him with bookkeeping and certain insurance contracts for the business.
The respondent deposed to trade creditors as at May 2019 being $1,289,003.64.
He said F Pty Ltd’s trade creditors as at 30 June 2019 totalled $3,150,033.
Pausing there, those two amounts, namely $1.2 million and $3.1 million were very large. Yet those amounts were abstract at one level because –
a)there were assertions only, and wholly unsubstantiated by any documentary verification; and
b)despite their apparent enormity those two amounts, howsoever seemingly large, may have been within the operating parameters of the respondent’s loan facilities.
However, the respondent provided no documentation to explain that. For example, he did not put into evidence the existence of a line of credit by which sums totalling $3.3 million of unpaid debtors could be sustained.
In paragraph 46 of his 16 July 2019 affidavit the respondent said the following –
I have not done anything other than what has been in the usual course of business, in that from time-to-time businesses that have been purchased and sold in order to either make a profit or improve cash flow.
Two things emerge from that quoted portion. First, in Goodridge v Beadle[4] I canvassed the legal meaning of “ordinary course of business” which I infer the respondent meant by his reference to usual course of business. The learning there set out is applicable to the respondent’s comments above. Whether he is correct or not in his assertion that he did what he did “in the usual course of business” remains for another day.
[4] (2017) 57 Fam LR 425
Second, his comment that as a director he needed to ensure “we can trade and the sale of these businesses is imperative” was not entirely aligned with his duties as a director of a company, as are prescribed by s 181 of the Corporations Act. His uppermost duty as a director is not that he can trade. It is to advance the best interests of the company. Trading at all costs is not among the duties of a director. For example, insolvent trading carries an array of sanctions including the director’s personal liability for the debts of the company. This is not the place to provide a detailed exposition of directors’ liabilities for company debts in the context of insolvent trading. Suffice it to say that the learning is deep, traceable to the High Court’s decision in Walker v Wimborne.[5]
[5] (1976) 137 CLR 1
The respondent stated, without proving, the existence of security facilities with ANZ, Westpac, NAB, R Bank, S Company, T Company, V Finance, W Finance, U Company, X Company and Y Company. It will be important to know –
a)the way to which each of those security facilities rank in priority;
b)the nature of the security conferred;
c)whether any is a fixed and floating charge over the assets and undertakings of which company;
d)the extent to which trust assets have been charged or pledged;
e)whether personal obligations have been incurred by the deponent and Mr Q under one or more of those facilities; and
f)whether and to what extent any of those security holders rank in priority ahead of another and whether all or any of those security interests are cross collateralised rendering default under one default under all.
In paragraph 50 of his affidavit the respondent stated that while he was unable to say with precision the value of each business, there was “significant debt in the businesses” owned by the Trust and those owned by F Pty Ltd. It is useful to point up the need for a director of a company to be entirely conversant with the financial affairs of the company he or she directs as was explained by Tadgell J in Morley v Statewide Tobacco Services Ltd.[6] It is not adequate compliance with a director’s duties for him or her to say that he or she is unable to say the value of the business of the company he or she directs. A director must, at law, have a sophisticated command of the company’s revenue, its liabilities and therefore the value of the business conducted by the company. That is all the more where, as seems to be the situation in this case, the company’s turnover is large, its operations are spread over a large number of businesses conducted at an equally large number of locations, it indebtedness is substantial, its creditors are numerous and the company’s solvency at any one time is in large measure determined by the ongoing willingness of its secured lenders to provide ongoing financial accommodation.
[6] [1993] 1 VR 423
In this case, at this juncture, I must say that I entertained concerns about the solvency of the two corporate entities (Velten Pty Ltd and F Pty Ltd) and of its directors. For a dramatic illustration of a corporate empire teetering on collapse, the decision of the Appeal Division of the Supreme Court of Victoria in National Australia Bank v Bond Brewing Holdings Ltd[7] is directly on point.
[7] [1991] 1 VR 386
The respondent in July of last year stated that the then current market conditions were not good. He said all businesses were showing a slowing of trade and had been for the then preceding 12 months. In the month of May 2020, during the currency of the economic collapse occasioned by the international COVID-19 pandemic, the financial affairs of the respondent and the corporate group that he directs are likely to be considerably worse than the condition of that group to which he deposed in July 2019. Even recognising that lenders have placed a general moratorium on the enforcement of their securities for a short time, (some pursuant to the Biosecurity Act), it is well-known that retail businesses have been extremely badly affected. The respondent is likely to be confronted by the reality of the need for him to sell a significant portion of his retail operations.
The economic plight of the respondent’s commercial interests has a direct bearing on his ability to meet sums due under the mortgage of the former matrimonial home. The applicant and the children live there. The respondent wants the property sold. I will do no such thing, not at this stage at least. To make such an order in the current economic climate, especially where the State of Victoria is operating under severe restrictions of movement as well as the ability to attend an auction, would imperil the applicant and the children. Whether or not an order should be made for the sale of the former matrimonial home at a later date remains to be seen.
The respondent stated that he will continue to meet the school fees of the two youngest children at their current school. I accept him at his word and will not require an undertaking from him to that effect. However, if he fails to diligently discharge his statement in paragraph 65 of his 16 July 2019 affidavit I will entertain such application that flows therefrom. I make similar observations in relation to his statements of the outgoings he will continue to meet as are recorded in paragraphs 66 to 69 of his affidavit.
It will be observed that the respondent has committed the trust to meeting ongoing financial obligations. For example, in paragraph 69 he stated “I will facilitate that the Trust (sic) to meet the motor vehicle registration insurance and scheduled servicing of motor vehicles driven (sic) me, [Ms Velten] and [Mr CC].” The respondent did not descend to the details of the trust. He did not exhibit the trust deed, its accounts, minutes of meetings of the trustee or any other details. I became concerned in this case that the respondent and the trustee of the trust were each other’s alter ego, such that the trust did precisely as the respondent wished it to do. Put differently, I was concerned that the respondent’s evidence about the separation of legal interests as between the respondent on the one hand and the trustee of the trust on the other hand was extremely vague, imprecise and blurred. So when he asserted in paragraph 17 of his affidavit that certain draft accounts of the trust revealed that the trust’s equity was zero, that statement was largely meaningless. The respondent was the sole shareholder in and director of the trustee. He had the sole control over the activities of the trust. Naturally, as the director of the trustee the respondent was bound by fiduciary duties towards his company (the trustee) which in turn was bound by fiduciary duties towards the beneficiaries of the trust of which it was trustee. In the absence of power under the trust deed the trustee was not entitled to meet his own personal debts from the funds of the trust nor was he entitled to pay non-trust related debts, or make wasteful payments. At the trial of this proceeding the respondent’s conduct in the administration of the trust may become an issue. The respondent’s reference to the trust’s acquisition of a classic motor vehicle may or may not be a valid application of trust funds. He said “due to strained financial circumstances I have not been able to complete the restoration of” that classic motor vehicle. While I was unable to say definitely, at this stage of this proceeding it seemed that it was not legitimate for me to make any findings in that regard. The use of trust funds to purchase an old car that the respondent was restoring appeared to warrant close investigation as to whether –
a)that was a proper use of trust funds;
b)it was a proper corporate purchase referrable to a proper activity in which the trustee was involved; and
c)was it an improper discretionary use of trust assets by the controlling mind of the trustee.
Those issues will undoubtedly unfold at trial. The amounts involved are not small.
Conversely, the respondent went to some lengths to point up how he said his partner, Mr Q, indicated that the applicant had made what the applicant termed “an unauthorised withdrawal” of $9,120 from F Pty Ltd’s bank account. Part of the sum withdrawn was a sum intended to meet the children’s orthodontic expenses. He said the withdrawal of $9,120 was stopped. He said he told the applicant that “her unilateral withdrawals… was (sic) not appropriate”. That statement seemed to reveal the true level of personal enmity exhibited by the applicant and the respondent. Being without funds to do so, the applicant endeavoured to meet her children’s orthodontic fees. The respondent’s partner stopped the payment. Then the respondent, after having engaged in (on his own admission) a “lifestyle during the marriage (that) was affluent and predominantly funded by debt,” chided the applicant about the alleged inappropriateness of paying the orthodontist’s fees. It may be that the respondent’s use of the word “affluent” was erroneous and that the words “financed an extravagant” lifestyle were better. In addition, I have serious concerns that the respondent may have engaged in conduct in relation to the operation of the trust that was not in accordance with the fiduciary duties of a trustee and in accordance with the fiduciary duties of a director of a company.
In his affidavit made 21 November 2019 the respondent deposed to a statutory demand served upon Velten Pty Ltd by Z Pty Ltd for $192,777.90. The respondent said the amount was wrong as only a sum nearer $175,000 was due.
In her affidavit made 12 March 2020 the applicant’s solicitor said the trust and F Pty Ltd were encountering significant cash flow deficiencies. She said litigation has been commenced in the County Court, although she did not say who was the plaintiff or what sums were involved. She said “creditors are circling for payment”. She asked for time to file affidavit material and she said that on her instructions “the financial position of the retail businesses is presently parlous”.
Shortly prior to the hearing of the application before me in April of this year, the respondent filed another affidavit, this one being made to April 2020. Without going to every matter there mentioned, the respondent said the following –
a)cash flow and income issues continued to adversely impact the trust and F Pty Ltd;
b)spousal support payments but not school fees were up-to-date (with $44,965 still owing);
c)mortgage payments for the former matrimonial home have been suspended since April 2020;
d)council rates payments were up-to-date;
e)he and the applicant need to curb their expenditures;
f)discovery remained an issue;
g)he had been meeting mobile telephone bills for the applicant and three children;
h)future school fees, insurance and car registration fees were owing;
i)the trust was paying $420,000 per annum for the benefit of the applicant and the children which sum the trust can no longer afford;
j)payments were being met in relation to that sum of $420,000 by increasing the overdraft, not paying creditors and not paying the Australian Tax Office;
k)the respondent’s estimated expenditure was $100,000 (he did not say over what period but it included highly discretionary expenditure such as a gym membership and a golf membership totalling more than $1,000 per month);
l)he owed the ATO over $478,000;
m)trade creditors of the trust totalled more than $2,242,000;
n)F Pty Ltd had trade creditors of $2,767,104;
o)he was considering closing some businesses indefinitely;
p)he is struggling financially;
q)the applicant holidayed in New Zealand (although he did say he was unable to say how the trip was funded, self-evidently, not by him); and
r)he said the applicant can sell some of her jewellery to meet her expenses.
Important matters in overview
Against that financial backdrop I have been asked to rule on the orders to be made as propounded by the applicant on the one hand and the respondent on the other.
Several things may be stated by way of overview. In no special order –
a)the respondent’s once remunerative businesses have been adversely affected by the international pandemic colloquially called COVID-19;
b)pursuant to measures made operational under the Biosecurity Act 2015 the respondent’s businesses, as with most other businesses in Australia, and the income generated thereby has severely diminished since March 2020;
c)most lenders, although not all, have imposed moratoria on loan repayments especially those relating to persons’ homes;
d)private schools continue to operate albeit mainly electronically and school fees continue to be payable;
e)the respondent personally, the trust and F Pty Ltd owe significant sums generally;
f)among the sums owed and which the respondent personally continues to meet are discretionary sums and I have already mentioned gym and golf memberships which prudent financial management would cry out for cancellation;
g)the respondent or interests owned or controlled by him own non-essential assets that could readily be liquidated and converted to cash such as jet skis, houseboats, classic cars, exotic cars and moorings; and
h)the trust and F Pty Ltd continue to operate expensive leasehold operations that prudent financial management would see rationalised so as to reduce the costly and ongoing outgoing of limited income into serving rental sums and other outgoings relating to non-performing businesses.
Tax and other debts
In addition, very substantial tax debts must be addressed. A strong line of authority has held that a court has a duty to protect the revenue of the Commonwealth, that the court should take such steps as it is able to ensure that the revenue laws are not evaded and that the referral of the papers to the Attorney-General attains that object. Authorities supporting that view include the decision of Lindenmayer J in In the Marriage of P & P, the decision of the plurality in In the Marriage of Tingley,[8] the decision of the Full Court of the Supreme Court of South Australia in Giorginis v Kastrati[9] and the decision of Handley JA of the Court of Appeal of the Supreme Court of New South Wales in Page v Vanker.[10]
[8] (1984) 10 Fam LR 707
[9] (1988) 49 SASR 371
[10] (Court of Appeal of the Supreme Court of New South Wales, unreported, 7 December 1990)
In one decision, now well over 30 years in age, Frederico J commented in In the Marriage of Radwan,[11] that it is demeaning to the court to require judges to report to the taxation authorities “all and sundry transgressions” of the taxation laws.
[11] (1985) 11 Fam LR 1
One of the last authoritative statements on point was given in the decision of the Full Court in In the Marriage of Malpass & Mayson.[12] A more recent illustration was given of a single judge referring a case to the Australian Taxation Office in Price & Price.[13]
[12] (2000) 27 Fam LR 288
[13] [2014] FamCA 1020
An equally impressive stream of judicial learning has cautioned against enthusiastic referrals to the authorities because by doing so parties to matrimonial litigation may be less likely to comply with their obligations of making full and frank disclosure. In that category of cases are the UK decision of A v A; B v B[14] and the cases referred to by Charles J.
[14] [2000] 1 FLR 701
Doctrinally, the question confronting me is more satisfactorily analysed by reference to ascertaining the nature and extent of the property available for division. If a liability to the Commissioner of Taxation will or might have a bearing on the ascertainment of the value and extent of property available for division, that is a matter of very direct relevance at this point in time. It seems to me that such an approach is wholly consistent with the decision in In the Marriage of Chemaisse,[15] In the Marriage of Rowell; Deputy Commissioner of Taxation (Intervener),[16] as well as In the Marriage of Malpass & Mayson. As to the approach the court should take where contingent liabilities may have the effect of diminishing the overall state of the assets, the Full Court said the following in Malpass –
It is clear that once a trial judge has determined that there is a prospect of the pool of assets being diminished because of some contingent liabilities, namely, potential arrears of income tax, the trial judge should normally invite the parties to make submissions on the effect that such liabilities might have in relation to either the future conduct of the proceedings or its outcome. This is not an invariable rule however and questions of proportion and the remoteness of the risk that such liabilities will be incurred should be taken into account in determining to invite such submissions. There may be other circumstances, such as those outlined hereafter, when we consider that a trial judge is not under such a duty.
[15] (1987) 11 Fam LR 392
[16] (1989) 96 FLR 449
I take the view that the respondent personally and also in his capacity as a director of the trustee as well as F Pty Ltd must diligently discharge his statutory obligations to pay tax debts punctually and fully.
It is also apparent that several creditors owed very large amounts of money are in the background. An accurate picture of the present state of their willingness to wait to be paid was not given by the respondent. It is far from unrealistic to expect that one or more creditors, who in the aggregate are owed millions of dollars, will run out of patience and pursue their remedies, possibly leading to one or more winding up applications against the trustee or F Pty Ltd. It is not beyond reality that one or more creditors may sue the respondent personally as a director for insolvent trading. It must not be forgotten that the applicant and the respondent chose to send their children to expensive and well-regarded private schools. The two youngest children, no doubt, have developed friendships at that school. Of course, a student’s attendance at an expensive private school is conditional upon regular ongoing payment of school fees. In the applicant’s and respondent’s case, in boom times that seems to have been unproblematic. But in more depressed times, the decision having been made to send children to a private school where they are likely to excel academically, parents should in my view, reduce their personal discretionary spending before cancelling private school enrolment.
The respondent is extremely highly geared.
Factual Findings on an interlocutory application
This was an interlocutory application, to state the obvious. On such an application factual findings should only be made with great circumspection. Before going to them, it is desirable to say something about the proper approach to be adopted in the determination of an interim application where factual matters are disputed and are untested by cross examination. A large number of decisions, especially at Full Court level have made observations that guide me. It is desirable to record their instructions.
In Marvel v Marvel[17] the Full Court addressed the complications that presented themselves when on an interim hearing the court is called upon to make findings of fact on disputed evidence. The Full Court embraced the cautioning remark sounded in SS & AH[18] where it was held that findings made at an interim hearing should be made with great circumspection.
[17] (2010) 43 Fam LR 348
[18] [2010] FamCAFC 13
In Deiter & Deiter[19]a differently constituted Full Court held that interim hearings are necessarily truncated hearings and a court must be cautious to avoid being drawn into contentious trial issues.
[19] [2011] FamCAFC 82
In Eaby & Speelman[20] the Full Court held that frequently the judge must do the best he or she can by weighing the probability of competing claims. The decision in Banks & Banks[21] was to like effect as was the decision in Salah & Salah.[22]
[20] [2015] FamCAFC 104
[21] [2015] FamCAFC 36
[22] (2016) 56 Fam LR 299
In Redmond & Redmond[23] a similar line of reasoning was adopted.
[23] [2014] FamCAFC 155
Spousal maintenance
This being as well a spousal maintenance case, certain legal principles apply. So far as the spousal maintenance claim is concerned, ultimately the issue is determined by application of the principles in s 72 and s 74 of the Family Law Act, a matter addressed by the Full Court in In the Marriage of Stein.[24] There, the Full Court (Kay, Holden and Dessau JJ) held as follows[25] –
Spousal maintenance is ultimately governed by the provisions of ss 72 and 74, namely there being no right to spousal maintenance unless there is a capacity to meet it and an inability by the claimant to meet the claimant's own self-support.
[24] (2000) 25 Fam LR 727
[25] Ibid (at [55])
In Hall v Hall[26] the High Court described the legislative gateway to the operation of Part VIII of the Family Law Act in relation spousal maintenance as being s 72(1) of the Family Law Act. The High Court pointed to the power conferred by s 74(1) to make an interim order as distinct to the power conferred by s 77 to make an urgent order. Under s 77 two preconditions were required, namely, the immediate need of financial assistance and, second, it must not be practicable in the circumstances to determine immediately what orders if any should be made. Conversely, under s 74 the making of an interim order calls for satisfaction of the threshold requirement in s 72(1) plus any relevant matter in s 75(2). On that last issue the High Court affirmed the observations of the Full Court of the Family Court in In the Marriage of Redman and Redman.[27] Hence, the High Court in Hall v Hall held that in an application for an interim order under s 74 the court cannot determine the application without finding on the balance of probabilities on the evidence before it the threshold requirement of s 72(1) are met plus any relevant matters in s 75(2).
[26] (2016) 257 CLR 490
[27] (1987) 11 Fam LR 411
Section 72(1) is in the following terms –
A party to a marriage is liable to maintain the other party, to the extent that the first‑mentioned party is reasonably able to do so, if, and only if, that other party is unable to support herself or himself adequately whether:
(a)by reason of having the care and control of a child of the marriage who has not attained the age of 18 years;
(b)by reason of age or physical or mental incapacity for appropriate gainful employment; or
(c)for any other adequate reason;
having regard to any relevant matter referred to in subsection 75(2).
In my view the applicant has demonstrated need for spousal maintenance. I take the view that the respondent has the capacity to meet a spousal maintenance claim if certain discretionary assets are sold. As to the precise sum to be ordered, the applicant’s figure of $400,000 more closely resembles a wish-list amount rather than a sum legally and factually supportable.
The applicant argued that the respondent should be required to sell what she called luxury items first. While she did not say as much, it seemed readily apparent that the rationale behind the position was the recognition that the businesses were income producing whereas luxury items were wholly discretionary, non-essential items described by the applicant’s counsel in opening as “toys”. There is considerable merit in that approach. It is self-evident that a party must realise assets if he, she or it is unable to afford those assets.
In this case I invited the parties to negotiate on whether they could agree on the assets to be sold. Quite frankly, I had hoped the parties would have seen sense in that suggestion having regard to the current highly uncertain economic times. Put differently, it seemed illogical for the parties to retain assets that were described as luxury assets when at the same time creditors, including the children’s school, the ATO, lenders and traders creditors went unpaid. To my mind, that was antithetical to commercial morality for which the decision in Re Warbler Pty Ltd[28] stands.
[28] (1982) 6 ACLR 526
To my mind, several non-essential assets should be sold at once. From the assets to be sold, whether it be that all or only some are required to be sold to meet the payment of the sum of $200,00 to be paid to the wife, are the following – –
a)the 60m x 24m houseboat at B Street, C Town;
b)the mooring at BB Town;
c)the classic motor vehicle;
d)the speedboat registered …; and
e)the jetski registered ….
Some of those items must be sold forthwith. Steps must forthwith set in train for the sale of those items to arms-length purchasers, such sales to be completed within two months, the sale prices to be the best prices obtainable. How much will in fact be realised remains to be seen.
The sum sought by the applicant was ambit and generalised. Very little attention was devoted to a proper ascertainment of the amount she should receive or a realistic quantification of that sum. She plumped for $400,000. Her counsel explained that figure merely on the basis that no question existed “that $400,000 is within her ultimate likely entitlement pursuant to s 79 and/or s 72, the pool of assets of the parties extended to some millions of dollars. The only controversy is where that money should come from on an interim basis.”
At the present time the property of the parties and in particular their legal and equitable interests in the property is in a state of great fluidity. Very little in the way of proof has been adduced about such matters as –
a)the registered proprietorship of the former matrimonial home (records from Land Use Victoria) and from the titles Registry Office in Queensland in relation to the parties’ Queensland real estate;
b)the deed of trust recording Mr Velten Pty Ltd as trustee;
c)shareholding records of that company and F Pty Ltd ;
d)F Pty Ltd’s accounts as well as those of the trustee over many years;
e)the borrowings of the trustee and F Pty Ltd over many years;
f)the security conferred in favour of lenders to support those borrowings including any guarantees given by the applicant and the respondent;
g)the current state of the indebtedness of the trustee, F Pty Ltd and others within the group of companies associated with the trustee and F Pty Ltd; and
h)tax liabilities.
Defective disclosure in this case
Chapter 13 of the Family Law Rules requires the parties to undertake the task of disclosure with considerable exactitude. I wrote about the parties’ obligations in Bacall & Zagar.
Rule 13.04 of the Family Law Rules imposes an obligation, mandatory in terms[29] in relation to a party’s financial circumstances including those set out in the many subsets of r 13.04(1)(a)-(h).
[29] The words used are “must make full and frank disclosure”, prima facie importing an obligation to exercise the function: Grunwick Processing Laboratories Ltd v Advisory, Conciliation and Arbitration Service [1978] AC 655 and Ward v Williams (1955) 92 CLR 496
Discovery in this case has been the subject of considerable agitation. At least seven decisions at single judge and intermediate appellate level in the Family Court in the 1980s addressed the consequences of one party’s dereliction in compliance with the obligation to make full and frank disclosure. By then the House of Lords had made stern observations about the consequences of one party failing to make full and frank disclosure of all material facts. The House of Lords was addressing a provision of mostly equivalent legislation to the corresponding provision in the Family Law Act, namely the Matrimonial Causes Act. That was in Livesey v Jenkins.[30] There, Lord Brandon held as follows –
“I stated earlier that, unless a court is provided with correct, complete and up-to-date information on the matters to which, under s 25(1), it is required to have regard, it cannot lawfully or properly exercise its discretion in the manner ordained by that sub-section. It follows necessarily from this that each party concerned in claims for financial provision and property adjustment (or other forms of ancillary relief not material in the present case) owes a duty to the court to make full and frank disclosure of all material facts to the other party and the court. This principle of full and frank disclosure in proceedings of this kind has long been recognized and enforced as a matter of practice. The legal basis of that principle, and the justification for it, are to be found in the statutory provisions to which I have referred.”
[30] [1985] 1 All E.R. 106
On 29 October 1982 Nygh J handed down reasons in the unreported decision of Marinko.[31] The relevant passage from his Honour’s decision was extracted in the decision of Smithers J in In the Marriage of Briese.[32] In Marinko, Nygh J held that the relevant statutory provision imposed an obligation of the parties and their advisors to cooperate. His Honour held as follows –
Although the case relates to quite different circumstances, I believe that the conclusion in the House of Lords in the case of Livesey v Jenkins [1985] 1 All ER 106 is apposite, namely that in financial proceedings between spouses each party must make a full and frank disclosure of all material facts. In that case it was made clear that full and frank disclosure was required as a matter of principle in the light of the fact that it was the duty of the court, taking into account a number of designated criteria, to make a decision which basically involved the exercise of a discretion. This is quite different from common law litigation between strangers, in which such a general duty does not exist, and obligations would only exist in so far as statute or court rules required.
In my view it is fundamental to the whole operation of the Family Law Act in financial cases that there is an obligation of the nature to which I have referred. Livesey v Jenkins makes it clear that mere compliance with rules of court or practice directions does not alter the basic principle of the need for full and frank disclosure by the parties. The fact that in the present case it is not a question of ultimate non-disclosure of a matter relevant to the orders made, but is of a different nature being relevant to delay and expense, does not in my view prevent the principle being applicable here as to the matter of costs. There is an obligation on each party to act so as to provide a basis upon which the two of them are in a position to resolve the case by agreement, or proceed to a hearing, as expeditiously as may reasonably be done.
[31]In the Marriage of Marinko (Family Court of Australia, Nygh J, 29 October 1982)
[32] (1985) 10 Fam LR 642
The Full Court subsequently dismissed an appeal from the decision of Nygh J.[33] The undue prolongation of litigation was seen as a costs issue.
[33]In Marriage of Marinko (1983) 8 Fam LR 849
In In the Marriage of Green and Kwiatek[34] it was held that the failure to comply with the statutory obligation to disclose all assets and income and a failure to make such disclosure may amount either a misrepresentation or a suppression of evidence. The court gave no indication of the relief that would arise from any proven misrepresentation or evidence suppression, however.
[34] (1982) 8 Fam LR 419
Certain inconsistent approaches began to be in apparent discord between the statements in Livesey and Marinko with the decision in In the Marriage of Howard.[35] The comments from Livesey and Marinko concerning the obligation to make full and frank disclosure stood at odds with the Full Court decision in Howard. In Howard, the court was concerned with the return of an interim injunction obtained by the wife against a company of which the husband was the relevant director yet the husband’s parents controlled the company. The husband had been named as a respondent to the injunction application. Being a respondent, he was a party to the proceeding. Curiously, the Full Court held that the husband was not under a duty to make full and frank disclosure even though he was a party. The court said the following –
“However, whilst it can be said that the husband was not under a duty to make full disclosure, he was not entitled to attempt to mislead the wife or the court or to take steps to conceal matters which then appeared to be relevant or to give instructions to counsel which led counsel to make statements in which the true position was not stated accurately or which were misleading.”
[35] (1982) 8 Fam LR 441
The court concluded that in the circumstances of the case the learned trial judge was entitled to make a costs order against the husband on that basis.
Chronologically, then came In the Marriage of Nolan and Ingram.[36] There the court held that even where disclosure had been defective, a trial judge must do the best she or he can on the basis on which the case is presented to the judge. That authority provided very little in the way of guidance as to the consequences of defective discovery or as to the proper approach in effecting a just and equitable property settlement.
[36](1984) 9 Fam LR 808
Smithers J in In the Marriage of Briese recognised the problems caused to a party who attempted to construct a financial narrative based on a comprehensive account of financial dealings by the other party where the other party being the party best placed to provide the material proferred imperfect materials. His Honour commented that the husband’s commercial arrangements were extremely complicated involving companies, partnerships and trusts. The husband had been ordered to produce a large volume of documentation. He failed to produce that documentation. He was charged with contempt, later dismissed upon his agreeing to produce other documentation. Nevertheless, Smithers J took the view that the husband’s attitude had been one of uncooperation and lack of assistance in the ascertainment of financial facts. In the end, his Honour made a factually significant property division order in favour of the wife and ordered the husband to pay costs.
By December 1985 the Full Court handed down its decision in Oriolo v Oriolo.[37] That decision is instructive for two main reasons. First (according to the headnote of the decision, at least) the three member Full Court in Oriolo overruled the three member Full Court in Howard. More correctly in Oriolo the court held that in its view the court in Howard did not correctly state the law. The second reason for the importance of Oriolo is its embrace of the learning in the House of Lords in Livesey v Jenkins and of Smithers J in Briese.
[37](1985) 10 Fam LR 665
On 28 February 1986 yet a different Full Court made observations about the course a trial judge might choose to follow where it became apparent there were “hidden assets.” The Full Court, comprised of Simpson, Murray and Frederico JJ, in the unreported decision of In the Marriage of Monte[38] held that the upper limit of what can be ordered to be transferred to one of the parties in a s 79 case is the whole of the ascertained property of the parties. Specifically, the court held as follows –
It is obviously desirable as a general principle that the court should first of all identify the pool of assets available and evaluate it. If each party complies with his or her obligation to make a full and substantive disclosure of their financial affairs: see In the Marriage of Briese(1985) 10 Fam LR 642; [1986] FLC 91-713, affirmed by the Full Court in Oriolo v Oriolo(1985) 10 Fam LR 665; [1985] FLC 91-653, there is no problem although there may be disputes as to valuation.
However if, as here, one party fails to fulfil that obligation, is it open to that party then to rely on the absence of satisfactory evidence to prevent the making of an order against him or her which otherwise justice and equity would require? It would be simple, if that were the case, to evade the jurisdiction of this court, not by outright refusal which would attract sanctions, but by obfuscation and evasion. Indeed, their Honours in Monte answered that dilemma in the following terms: “To find jurisdiction under s 79 in relation to property, other than the fund, her Honour was obliged to make a finding as to the existence and value of that other property even though the unsatisfactory nature of the evidence made it necessary to express that finding in the most general terms both as to identity and value.”
[38][1986] FamCA 1
On 18 July 1986 a differently constituted Full Court in In the Marriage of Giunti[39] held that the trial judge was entitled to infer that the husband had the benefit of assets that had not been disclosed to the court. Importantly, the court said this relying on Monte –
It was submitted for the husband that this was a situation where the wife on contribution was entitled to only 30 per cent of the identifiable assets. It was further argued that to increase that amount to 60 per cent was to make assumptions as to the existence and value of other assets which were in no way justified. Such a calculation is clearly untenable in the light of what was said by the High Court in Mallet v Mallet(1984) 9 Fam LR 449 and recently reiterated by the High Court in In the Marriage of Norbis(1986) 10 Fam LR 819; [1986] FLC 91-712 . Just as there is no 50 per cent rule for the wives of wage-earners, there is no 30 per cent rule for the wives of business men.
…
In those circumstances a conclusion that the wife by reason of her contribution over 20 years of marriage, during which three children were born and cared for, and substantial assets were acquired should receive 60 per cent of the one asset in respect of which orders could be made cannot be described as so plainly excessive or unjust that this court should intervene. It was well within her Honour's discretion. Nor could it be said that her Honour erred in increasing that figure by a further 5 per cent having regard to the disparity in needs and means on the evidence as found by her Honour.
[39] (1986) 11 Fam LR 160
Whether the court was in fact entitled to draw the inference asserted was a moot point, at least in light of more recent authority on inferences. In Wei & Wei (No 3)[40] I reviewed the authorities on inferences and held as follows –
[40] [2020] FamCA 98
So far as inferences were concerned, the phrase came from the speech to the House of Lords of Lord Robson in Richard Evans & Co Ltd v Astley[41] (“Richard Evans”). His Lordship’s speech was embraced by the High Court of Australia in Bradshaw v McEwans Pty Ltd (“Bradshaw”). [42] There, the High Court famously held as follows –
[41] [1911] AC 674, 687
[42] (1951) 217 ALR 1
Of course as far as logical consistency goes many hypotheses may be put which the evidence does not exclude positively. But this is a civil and not a criminal case. We are concerned with probabilities, not with possibilities. The difference between the criminal standard of proof in its application to circumstantial evidence and the civil is that in the former the facts must be such as to exclude reasonable hypotheses consistent with innocence while the latter you need only circumstances raising a more probable inference in favour of what is alleged. In questions of this sort where direct proof is not available it is enough in the circumstances appearing in the evidence give rise to a reasonable and definite inference: they must do more than give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is mere matter of conjecture (see per Lord Robson, Richard Evans & Co Ltd v Astley [1911] AC 674 at 687). But if circumstances are proved in which it is reasonable to find a balance of probabilities in favour of the conclusion sought then though the conclusion may fall short of certainty it is not to be regarded as a mere conjecture or surmise.[43]
[43] (1951) 217 ALR 1 at 5
That passage was later adopted by the High Court in Luxton v Vines[44] (“Luxton”). In that case, the High Court pointed out that the evidence gave rise to no more than conflicting conjecture of equal degrees of probability where no affirmative inference of fault could reasonably be drawn.
[44] (1952) 85 CLR 352
Inferences from actual facts that are proved are just as much part of the evidence as are those facts themselves. Citing Lord Robson’s speech in Richard Evans, the High Court so held in Holloway v McFeeters[45] (“Holloway”), a case concerning a claim for damages arising from personal injuries the plaintiff sustained in a motor vehicle collision. In that case, the High Court held that it was reasonably open to the jury to find that the death of the deceased was caused wholly or in part by the negligence of the driver of an unidentified vehicle.
[45] (1956) 94 CLR 470
The 1982 decision of the High Court in Girlock (Sales) Pty Ltd vHurrell[46] (“Girlock”) applied earlier High Court authority in Bradshaw, Holloway and Jones v Dunkel.[47] In Girlock, the High Court held that in civil cases (as is this case) where direct proof is not available, it is enough if the circumstances appearing in evidence give rise to a reasonable and definite inference and the circumstances must do more than give rise to conflicting inferences of equal degrees of probability so that the choice between them is not a mere matter of conjecture.
[46] (1982) 149 CLR 155
[47] (1959) 101 CLR 298
The notion of “circumstances appearing in the evidence give rise to a reasonable and definite inference: they must do more than give rise to conflicting inferences of equal degrees of probability”[48] was stated about 10 years ago by the High Court in Trustees of the Property of Cummins (a bankrupt) v Cummins.[49] There, the High Court approved of the statements about inferences in Bradshaw, Luxton, Jones v Dunkel and Girlock. Those authorities were drawn together by Collier J in the context of a takeover in Tinkerbell Enterprises Pty Ltd v Takeovers Panel and Ors.[50]
[48] (1951) 217 ALR 1 at 5
[49] (2006) 227 CLR 278
[50] [2012] FCA 1272
In slightly more strident terms but in a manner nevertheless impeccably reasoned, the Honourable Justice Pagone then of the Federal Court of Australia more recently put the matter in the following terms in J & A Vaughan Super Pty Ltd (Trustee) v Becton Property Group Ltd (“Vaughan Super”)[51] –
[51] [2014] FCA 581
Inferences require facts from which an inference is capable of being drawn. That requires that the facts relied upon bear probatively upon those inferences which are sought to be drawn.[52]
A court must not draw an inference where it is but a choice among rival conjectures. Justice Wigney of the Federal Court of Australia so held in Inthe MatterOfPetrolink Pty Ltd, Re; Smith v Bone.[53] A court must not rely on circumstances that do no more than give rise to conflicting inferences of equal degrees of probability. The Federal Court of Australia has said as much in Communications, Electrical, Electronic, Energy, Information, Postal, Plumbing & Allied Services Union of Australia v Australian Competition and Consumer Commission.[54]
In Lithgow City Council v Jackson,[55] Crennan J of the High Court held that the inferential process may fall short of certainty but a court is not authorised to choose between guesses, even on the ground that one guess seems more likely than another. A similar proposition was upheld by the Full Court of the Federal Court of Australia in Australian Competition and Consumer Commission v Metcash Trading Ltd.[56] Those authorities and others were surveyed by the Full Court of the Federal Court of Australia in Ashby v Slipper.[57]
Among the more important matters arising from that review of the authorities bearing upon inferences are those set out below. They are –
a)inferences from actual facts that are proved are just as much part of the evidence as are those facts themselves (Holloway);
b)if circumstances are proved in which it is reasonable to find on the balance of probabilities in favour of the conclusion sought, then though the conclusion may fall short of certainty, it is not to be regarded as mere conjecture or surmise (Richard Evans);
c)it is enough if the circumstances appearing in the evidence give rise to a reasonable and direct inference (Girlock); and
d)a court is not authorised to choose between guesses, even on the ground that one guess seems more likely than another (Lithgow City Council).
[52] [2014] FCA 581 at [19]
[53] [2014] FCA 1024 at [17]
[54] (2007) 162 FCR 466
[55] (2011) 244 CLR 352 at [94]
[56] (2011) 198 FCR 297 at [31]
[57] (2014) 219 FCR 322 at [71]–[78]
By December 1986 the prevailing judicial winds favoured Livesey v Jenkins, although by no means was there unanimity of opinion. Some judges were willing to draw inferences against the party who was derelict in his or her disclosure obligations. The precise terms of the inferences to be drawn were not given nor was it anywhere definitively said what were the orders that resulted from such an inference being drawn. The situation was not made very much clearer by the decision in In the Marriage of Stein,[58] judgment in which was handed down on 5 December 1986. There, the court (Evatt CJ, Wood SJ and Nygh J) was concerned with a husband who conducted a business in the name of a company as trustee for certain family trusts. He asserted that the property that fell for division under s 79 of the Family Law Act was in a family trust held by a company and was therefore not his. The court held that the trustee company was a mere puppet of the husband who had the power to apply the income and property of the trust to his own benefit. It was argued by the husband that the trial judge lacked jurisdiction (by that I take it to mean that the learned trial judge lacked the authority to adjudicate – see Karjala & Gallard)[59] to make any order for the adjustment of property that did not belong to him and instead was owned by the company. On that point, in Stein, the plurality of the court (Evatt CJ and Nygh J) held as follows –
The proposition which appears from the passage cited is self-evident. Section 79 speaks of an alteration in the property of the parties and this court has no jurisdiction to alter interests which do not belong to either party.
However, the issue may well arise what is meant by “property” of the husband in this context. In Monte the learned trial judge had found it “impossible to determine what the husband's assets and financial resources really are and where they are”. This is not the situation in the present case. His Honour had difficulty in determining the value of the assets of the trust but their identity and location are clearly established.
[58](1986) 11 Fam LR 353
[59][2020] FamCA 110
In Stein the plurality drew on the reasons for judgment of Gibbs J (prior to his Honour’s elevation as Chief Justice of the High Court of Australia) in Ascot Investments Pty Ltd v Harper[60] to characterise the nature of the control exerted by the husband over the companies, trusts and businesses he operated. The plurality in Stein held as follows –
It is not open to a party to assert on the one hand that the assets acquired in a family trust are not his and at the same time deal with them as if they are. There is no doubt that for general purposes Mr Barry Stein considers the business known as Barry Stein Nissan to be his, whatever arrangement he may have made for taxation purposes. It is a regrettable fact that frequently spouses, usually husbands, come to this court asserting on the one hand that assets placed in the wife's name do not really belong to her but to the husband, having been placed there for taxation purposes, and asserting at the same time that assets standing in the name of a third party, such as a trustee, do not really belong to the husband.
Fortunately the law does not compel us to adopt such an artificial view. I refer to the views of Gibbs J, as she then was, in Ascot Investments v Harper (1981) 6 Fam LR 591 at 602:
‘The position is, I think, different if the alleged rights, powers or privileges of the third party are only a sham and have been brought into being, in appearance rather than reality, as a device to assist one party to evade his or her obligations under the Act. Sham transactions may always be disregarded. Similarly, if a company is completely controlled by one party to a marriage, so that in reality an order against the company is an order against the party, the fact that in form the order appears to affect the rights of the company may not necessarily invalidate it.
“Except in the case of shams, and companies that are mere puppets of a party to the marriage, the Family Court must take the property of a party to the marriage as it finds it.”
[60] (1981) 148 CLR 332
So far as disclosure of information in the public domain was concerned, Mushin J held that the wife was nevertheless obliged to disclose that information as well. His Honour held –
By way of summary, I find that the wife did not make a full and frank disclosure as required by the law. While she made the husband aware in general terms that there were matters which she could not disclose to him without a confidentiality agreement first being entered into, she did not specify that material in any detail. In my view, the husband was aware of the fact that he could probably obtain further material relevant to the substantive applications, either by agreement as to confidentiality or court order. Further, the wife did nothing to cause the C valuation to be updated, which might have resulted in the emergence of a very different picture of the value of the wife’s shares.
More importantly, the wife breached her legal obligation to provide the husband with details of the material which was in the public domain. I reject the proposition that informing the husband of the availability of that information was even close to her obligation of full and frank disclosure, not only to the husband but also to the court.
Not only was full and frank disclosure a “basic” obligation, but according to Mushin J, the “duty of full and frank disclosure is a fundamental element of the administration of justice and has long been recognised as vital” in s 79 cases. His Honour said the “duty attaches to all material facts.” Some key words were “fundamental element to the administration of justice” and “long… recognised as vital.” There could be no doubt that his Honour was extremely focused on the need for diligence in disclosure. So with those statements expressed with such emphasis and imperative, one wonders why their full impact was neutralised by the court in Pearce & Pearce[77] stating –
“Equally, however, [it] is not every failure of full and frank disclosure which would justify a court in setting aside an order.”
[77][2016] FamCAFC 14
Most peculiarly, in Pearce & Pearce the court cited Morrison as well as Livesey v Jenkins for that quoted portion. If anything, Livesey pointed in the opposite direction. Pearce was a case concerning s 79A yet very few of the key cases on non-disclosure were considered, and instead Oriolo, Suiker and Briese were considered but in the context of the holdings of the trial judge. No separate consideration was given to them by the court hearing the appeal.
Hannam J was concerned with the husband’s non-disclosure in Judd v Cornell-Judd.[78] Her Honour there held that the husband had omitted to disclose a $31,000 bank balance along with $10,000 in understated superannuation entitlements and information relating to share trading. Her Honour held that those non-disclosures were a “significant matter in circumstances where the property pool available is a little over $200,000 and subject to a debt of $80,000.” So far as the decided cases that have addressed the consequences of non-disclosure were concerned, her Honour rested her conclusions based only on the decisions in Weir and Kannis. Hannam J ordered a further 25% division to the wife based on the non-disclosure and based on the husband’s reckless conduct thereby conferring 85% of the pool in favour of the wife and 15% in favour of the husband.
[78][2016] FamCA 390
In an undefended de facto property alteration case, Cronin J addressed the consequences of the father’s failure to make disclosure as well as his failure to participate in the proceeding in Merritt & Richards (No. 2)[79] by giving the entire pool to the mother. So far as non-disclosure was concerned, his Honour held as follows –
But for his superannuation, the evidence does not support a conclusion that the father has any assets. To a large degree, however, he is the master of his own demise, having regard to his positive obligations to provide evidence as to not only his assets but also his earning capacity and financial position (see Black and Kellner (1992) FLC 92-287 and Briese and Briese (1986) FLC 91-713).
[79][2016] FamCA 66
A large number of Full Court decisions bore upon the issue of non-disclosure that his Honour did not address.
Another s 79A decision emerged in Waterman & Waterman.[80] That as an ex tempore decision involving an appeal from the Federal Circuit Court. On appeal, the court recited how the trial judge considered Barker & Barker and Livesey v Jenkins. Under the heading “lack of disclosure,” the court said the following –
Importantly, the duty to disclose is a duty owed both to the other party and to the court. The duty is to make “full and frank disclosure of all information relevant to the case in a timely manner” (emphasis added).[14] The statements made by Smithers J in Briese & Briese[15] remain, with respect, as true today as they were then:
... a person in the position of the husband in this case has a positive obligation to set out at an early stage his financial position in a clear and comprehensive manner ... The need for each party to understand the financial position of the other party is at the very heart of cases concerning property and maintenance.
[80][2017] FamCAFC 23
The court referred to Morrison especially the statement therein that “the duty of disclosure is a basic duty.” In Waterman the court said that comment was “of considerable significance.” The court in Waterman recited the comments of Lord Brandon in Livesey v Jenkins. The court also quoted from Suiker in the following terms –
Under the Family Law Act 1975, the need for a resolution of disputes by negotiation and the consequent making of consent orders ... is an essential part of the legislation and the rules ... In our opinion, the necessity for full and frank disclosure of financial matters to the Court and to the other party are basic to the process of the Court and the fundamental aims of the financial legislation contained in section 79 of the Family Law Act 1975...
Thus, that Full Court placed special emphasis on the decisions in Barker, Livesey, Morrison and Suiker.
More recently again, in the ex tempore decision of Trang & Kingsley,[81] a single judge sitting as the appeal division dealt with a case in which the wife had failed in her disclosure obligations. After mentioning Chang v Su and Weir & Weir the court held as follows –
The starting point to consideration of these complaints is to emphasise two fundamental aspects of this case. First, by reason of the wife’s failure to explain her use of substantial funds in a total amount not quantifiable, allied with the wife’s abject failure to fully and frankly disclose her financial circumstances (including as to her property interests in Country A) only property interests held by the husband were capable of identification and valuation. Moreover, as the trial judge correctly observed at [68] in considering the first question of whether it is just and equitable to make any alteration of property interests, by reference to Stanford v Stanford [2012] HCA 52; (2012) 247 CLR 108, “[i]n reality any alteration could only be one way because the husband did not seek any alteration of the interests of property held by the wife”. Second, as his Honour correctly identified at [64] and [65] the guidelines to the approach to be taken set out in Weir & Weir (1993) FLC 92-338 and Chang v Su [2002] FamCA 156; (2002) FLC 93-117 were engaged.
[81][2017] FamCAFC 120.
The other cases mentioned above were wholly ignored. Embedded in the passage quoted immediately above is some form of recognition that the only repositories of the jurisprudence on the duty of disclosure and the consequences of a failure to meet those disclosures is to be found in the reasons for judgment in Chang v Su and in Weir & Weir. I do not agree. The learning goes well beyond that as I have surveyed above.
In Brewer & Brewer[82] I made some far reaching observations about disclosure. While lengthy they were as follows –
[82][2019] FamCA 247
In the specific context of family law litigation ch 13 of the Family Law Rules governs a party’s obligations concerning disclosure. The centuries of learning concerning civil litigation in courts of common law and chancery as recorded, for example, in Daniell’s Chancery Practice[83] have been largely supplanted by ch 13. In what can only be described as “clear and unambiguous terms”, as Cronin J called the phrase when referring to the rule in his Honour’s extrajudicial speech entitled ‘The obligation to disclose; but what if they don’t?’,[84] ch 13 sets out not only what to disclose but how to do so. By way of emphasis, the provisions of ch 13 are to be read in conjunction with the provisions of r 1.08 that imposes upon each party a responsibility to promote and achieve the main purpose recorded in the seven sub‑paragraphs of r 1.07. Among those are timeliness, proportionality and cost efficiency in the conduct of family law litigation. In many respects, the legislative aspirations evident in the Civil Procedure Act of the State of Victoria and its counterpart in New South Wales have been largely replicated, consonant with a legislative imprimatur across many jurisdictions of the Commonwealth of Australia that compels parties to get to the heart of disputed issues quickly, time and cost efficiently while concurrently keeping uppermost in mind the proportionality of the disputed issues relative to the overall contest.
[83] Sidney Edward Williams and Frank Guthrie‑Smith, Daniell’s Chancery Practice: being a treatise on the practice of the Chancery Division and on appeal therefrom (Sweet & Maxwell, 8th ed, 1985)
[84] The Honourable Justice Paul Cronin, ‘The obligation to disclose; but what if they don’t’ (conference paper, National Family Law Conference, April 2008)
The disclosure obligation is a continuing obligation. That point is traceable to older English decisions such as Mitchell v Darley Main Colliery Co[85] and Myers v Elman.[86] Yet the proposition was not as clear as it was once thought to be having regard to other earlier observations to the contrary, such as those emanating from the Divisional Court in James v Plummer.[87] For that matter, in the Full Court of the Federal Court of Australia in TNT Management Pty Ltd v Trade Practices Commission; Brambles Holdings v Trade Practices Commission[88] Sheppard J pointed out that the authorities said to impose the obligation of continuing discovery were not even referred to in Bray’s Digest on the Law of Discovery.[89]
[85] (1884) 1 Cab & El 215
[86] [1940] AC 282
[87] (1888) 23 LJNC 107
[88] (1983) 47 ALR 693
[89] Edward Bray, Digest on the Law of Discovery with practice notes (Sweet & Maxwell, 1904)
Rule 13.07 of the Family Law Rules describes the obligation of disclosure as a “duty”. Mirroring equitable principles, that rule provides that the duty of disclosure applies to each document that “is or has been in the possession, or under the control, of the party disclosing the document”. Noticeably, the word “power” was omitted from r 13.07, the word “power” having attracted a rash of judicial intrigue in common law courts such as in Lonrho Ltd v Shell Petroleum Co Ltd[90] and in Palmdale Insurance Ltd (in liquidation) v L Grollo & Co Pty Ltd.[91] At all events, severe consequences befall a party who deliberately withholds a document. In his Honour’s paper cited above, Cronin J observed that when it comes time to list a proceeding for trial each party is required to undertake that they have disclosed everything and if that undertaking is false on the basis that all documents have not been disclosed, the party in default thereby exposes himself or herself to the offence created by r 13.15(2). That offence is additional to the contempt power reposed in s 112AP of the Family Law Act.
[90] [1980] 1 WLR 627
[91] [1987] VR 113
It will be immediately apparent that the legislature has taken the view that parties’ disclosure duties are very serious and disobedience towards them or dereliction in a party’s approach in relation to them will not be trifled with.
In this case the issue of the sale of the husband’s interest in relation to all aspects of the B Pty Ltd enterprise remains a very important issue. I was not persuaded, at least not at this stage of the interlocutory process of the case, that the full, complete and exhaustive duty concerning disclosure has been diligently discharge by the husband. That failure has obvious consequences to an overall understanding of the husband’s financial circumstances. In turn, that bore upon whether I was satisfied of the matters that the husband needed to prove on this application, one of which was the reality of his needs. It was one thing for the husband to assert that he was unable to support himself from income and that he said he was a commission agent entitled to “commission” as opposed to regular income. It was an altogether different thing for him to fully and completely discharge his duties of disclosure concerning his interest (direct and indirect) in relation to all corporate and trust entities associated with all facets of the B Pty Ltd operations. To the extent that he asserted that he had sold some or all of his interest that he once owned, he was required (and currently remains required) to reveal all aspects of that sale. That encompassed all documents evidencing the offer, the acceptance of that offer, the written agreement that thereby came into existence by acceptance of that offer, the performance of that agreement according to its terms and other things. Of the latter point, the fact of payment and amounts paid are obvious matters calling for documentation. Performance will also be evidenced by the transfer of shares scrip, the registration of the transferees in the share registry of the company and ASIC documentation. So far as other evidence of payments is concerned, self‑evidently contemporaneous bank documentation will be especially relevant, not only as to the amount of the payment but as to the source of funds giving rise to the payment.
Those observations are scarcely new law. The modern genesis of the need for proper disclosure emanated from the House of Lords decision in Livesey v Jenkins.[92] There, Lord Brandon of Oakbrook held as follows –
[92] [1985] 1 AC 424, 437‑438
I stated earlier that, unless a court is provided with correct, complete and up‑to‑date information on the matters to which, under section 25(1), it is required to have regard, it cannot lawfully or properly exercise its discretion in the manner ordained by that subsection. It follows necessarily from this that each party concerned in claims for financial provision and property adjustment (or other forms of ancillary relief not to reel in the present case) owes a duty to the court to make full and frank disclosure of all material facts to the other party and the court. This principle of full and frank disclosure in proceedings of this kind has long been recognised and enforced as a matter of practice. …
All other members of the House of Lords agreed in the observations of Lord Brandon of Oakbrook.
Those observations were adopted by Smithers J in In the Marriage of Briese.[93] There, Smithers J placed significant store in the observation of the House of Lords in Livesey v Jenkins. His Honour held as follows –
[93] (1985) 10 Fam LR 642, 662
Although the case relates to quite different circumstances, I believe that the conclusion in the House of Lords in the case of Livesey v Jenkins [1985] 1 All ER 106 is apposite, namely that in financial proceedings between spouses each party must make a full and frank disclosure of all material facts. In that case it was made clear that full and frank disclosure was required as a matter of principle the in light of the fact that it was the duty of the court, taking into account a number of designated criteria, to make a decision which basically involved the exercise of a discretion. This is quite different from common law litigation between strangers, in which such a general duty does not exist, and obligations would only exist insofar as statute or court rules required.
In my view it is fundamental to the whole operation of the Family Law Act 1975 (Cth) in financial cases that there is an obligation of the nature to which I have referred. Livesey v Jenkins makes it clear that mere compliance with rules of court or practice directions does not alter the basic principle of the need for full and frank disclosure by the parties. The fact that in the present case it is not a question of ultimate nondisclosure of a matter relevant to the orders made, but is of a different nature being relevant to delay and expense, does not in my view prevent the principal being applicable here as to the matter of costs. There is an obligation on each party to act so as to provide a basis upon which the two of them are in a position to resolve the case by agreement, or proceed to a hearing, as expeditiously as may reasonably be done.
The decision of Smithers J in Briese was handed down on 27 June 1985. Almost six months later the Full Court adopted the observations of the House of Lords and of Smithers J as mentioned above in Oriolo & Oriolo.[94]
Very shortly thereafter a differently constituted Full Court in In the Marriage of Giunti[95] applied Briese as well as Oriolo. In Giunti, the Full Court held as follows[96] –
It is obviously desirable as a general principle that the court should first of all identify the pool of assets available and evaluate it. If each party complies with his or her obligation to make full and substantive disclosure of their financial affairs – see In Marriage of Briese (1985) 82 FLR 369, affirmed by the Full Court in In Marriage of Oriolo [1985] FLC 80,254 – there is no problem, although there may be disputes as to valuation.
However, if as is here, one party fails to fulfil that obligation, is it open to that party then to rely on the absence of satisfactory evidence to prevent the making of an order against him or her which otherwise justice and equity would require? It would be simple, if that were the case, to evade the jurisdiction of this court, not by outright refusal which would attract sanctions but by obfuscation and evasion. …
Subsequent decisions of the Full Court, consistent in approach, emerged in In the Marriage of Stein,[97] In the Marriage of Mezzacappa[98] and In the Marriage of Black & Kellner[99] as well as In the Marriage of Tate[100] and In the Marriage of Chang and Sue.[101]
In Tate’s case, the Full Court (Nicholson CJ, Kay and Waddy JJ) referred to the continuing process of discovery, citing TNT Management Pty Ltd v Trade Practices Commission; Brambles Holdings v Trade Practices Commission.[102] In Tate’s case, the Full Court compared the rules of courts relating to discovery in the High Court, the Federal Court of Australia and in the High Court of Judicature in the United Kingdom.
For decades this court has encountered situations where the court has been unable to fully ascertain the extent of a party’s financial position by reason of a lack of full and frank disclosure. Illustrations have emerged in cases such as In the Marriage of Stein[103] and In the Marriage of Weir,[104] the latter authority standing for the proposition that where there has been nondisclosure by one party, the court should not be unduly cautious about making findings in favour of the other party. For that matter, as was held in In the marriage of Abdullah,[105] undisclosed funds or hidden funds did not render those funds unascertained or unascertainable. Slightly later the Full Court in In the Marriage of Efthimiadis[106] followed Black’s case and Weir’s case.
Many of the issues addressed above were canvassed by Stephen O’Ryan QC in his article ‘Attempts to Deal with Undisclosed Wealth in Property Settlement Proceedings’.[107] Likewise, Graham Richardson SC made a very useful contribution to the learning in his article ‘A Beginner’s Guide to Property Settlement and Related Proceedings in the Family Court’.[108]
[94] (1985) 10 Fam LR 665
[95] (1986) 11 Fam LR 160
[96] Ibid 165
[97] (1986) 11 Fam LR 353
[98] (1987) 11 Fam LR 957
[99] (1992) 15 Fam LR 343
[100] (2000) 26 Fam LR 731
[101] (2002) 29 Fam LR 406
[102] (1983) 47 ALR 693
[103] (1986) 11 Fam LR 353
[104] (1992) 16 Fam LR 154
[105] (1981) 6 Fam LR 654
[106] (1993) 16 Fam LR 384
[107] (1994) 8 Australian Journal of Family Law 96
[108] (1998) 17 Australian Bar Review 48
Drawing the threads together about deficient disclosure
The authorities surveyed above seem to me to be the more authoritative statements of principle on the duty of disclosure and the consequences of a failure in complying with that duty. From the statements of principle that apply, the following may be extracted in the manner set out hereunder.
First, the duty of disclosure is a concept derived from equity (Flight v Q).[109]
[109] [1844] 50 ER 9
Next, r 13.04 of the Family Law Rules is the present repository of the duty.
From here, I have dissected the learning in three categories –
a)the duty itself including to whom the duty is owed;
b)the context of the duty; and
c)the consequences of non-compliance with the duty.
Let me start with the first.
The duty itself
The duty is owed to the court as well as to the parties to the proceeding (Livesey v Jenkins, Waterman).
Full and frank disclosure of all material facts is a fundamental requirement in financial matters (Black & Kellner).
A party in a property proceeding has a duty to make full disclosure of his or her financial affairs (Weir).
The duty to disclose is absolute (Kannis).
The duty is crucial to the functioning of this jurisdiction (Morrison).
Full and frank disclosure of financial matters between the parties is basic to the process of the court and is one of the elements of the Family Law Act and the process of the court (Suiker).
The duty is fundamental to the question whether to grant relief under s 79A (Nyles).
The content of the duty
There is an obligation on each party to act so as to provide a basis on which the parties are in a position to resolve the case by agreement or to proceed to a hearing as expeditiously as may reasonably be done (Briese).
Each party owes a duty to the court to make full and frank disclosure of all material facts to the other party and to the court (Livesey v Jenkins).
There is an obligation on the parties to make full and frank disclosure of all their financial assets and it is also expected of the parties that they shall cooperate in the conduct of the proceeding in order to bring it to an early and prompt conclusion with a minimum of expense (Marinko).
The duty is to make full and frank disclosure of all information relevant to the case in a timely manner (Briese, Waterman, Morrison, Suiker).
The comments made in Howard to the effect that the husband was not under a duty to make full disclosure are wrong (Oriolo).
The consequences of a breach of the duty
By reason of a breach of the duty of disclosure, the uppermost limit of what can be ordered to be transferred to one party in an application under s 79 is the whole of the ascertained property of the parties (Monte).
It is not open to one party who has failed to fulfil the obligation of full and frank disclosure to rely on that failure so as to prevent the making of an order against that party in default (Giunti, Black v Kellner, Oriolo).
The failure to disclose relevant financial information may lead a court to draw inferences against the person who failed to disclose the information. However, it is not appropriate to transfer the task of establishing relevant financial factors from the parties to the trial judge (Steiner).
Where there is clear evidence of non-disclosure the court should not be unduly cautious of making findings in favour of the innocent party (Weir, Monte)
Once there is sufficient evidence to support a finding that a party has not made full disclosure, the court has jurisdiction to make an order in relation to unidentified and undisclosed property (Weir, Monte).
It is beside the point whether non-disclosure was wilful or accidental or whether it was the result of misfeasance or nonfeasance. The duty to disclose is absolute. Where the court is satisfied that the whole truth has not come out the court might more readily conclude that the asset pool was greater than demonstrated. In those circumstances it might be appropriate to err on the side of generosity to the party who might otherwise be seen to be disadvantaged by the lack of complete candour (Chang v Su, Weir, Kannis).
The obligation to make full and frank disclosure is regarded as being so crucial to the functioning of this jurisdiction that the deliberate failure by one party to meet that obligation may result in the court drawing adverse inferences against the non-disclosing party, where there is material on which such an inference can be based (Stein, Mezzacappa, Giunti, Morrison and Barker).
The applicant submitted that on the figures disclosed by the evidence (there being no other contradictory evidence) the sum of $400,000 was readily realisable. That amount was derived from –
a)the houseboat $325,000
b)the mooring $80,000
c)the classic motor vehicle $170,000
d)the speedboat $88,750
e)the jet ski $5000
$668,750
Whether or not sales producing those figures are realisable remains to be seen. Those assets must be sold to realise an amount of not less than $200,000. Whether all of those must be sold depends on how much is realised for each of them.
Valuations
The parties seemed to agree on the need for a valuation to be undertaken by a single expert. The applicant and the respondent were in dispute about the method to be adopted in conducting the valuation. From counsel’s written submissions it appeared –
a)the applicant sought orders for each business to be valued separately, including those already sold; whereas
b)the respondent sought orders for the valuation of the businesses collectively.
On behalf of the applicant it was put that each business was a standalone business with individual attributes. That is true. Each is located geographically separately, lease arrangements for each is different, the fit out costs are likely to be different, patronage is likely to be different, the revenue, sales and expenses are likely to be different and the security interest held by one or more lenders may (repeat, may, but more likely all businesses are cross collateralised) be different.
The respondent wanted the businesses to be valued collectively to determine all debts of the trust. In my view that approach is wrong.
As has already been canvassed, the trust is the alleged owner of a classic car, wholly unrelated to the business operations of the business. Similarly, the respondent has already said that private expenses associated with the children and the applicant, in amounts approximating $400,000 have been applied. The business operations have no bearing on those expenses. Put differently, if all trust expenses are taken into account in an undifferentiated manner then the valuation is likely to be meaningless in that expenses properly referable to the trading activities of the businesses may morph into expenses such as children’s mobile telephone bills, classic car expenses and the like.
Timing is likely to be critical in this case. The trustee, F Pty Ltd and the respondent personally are being pressed for payment of very large sums. According to the evidence of the respondent and his solicitor, those creditors are “circling”, an allusion to vultures circling as a sign of imminent danger because a predator below is readying for the kill. In the absence of detailed accounting evidence, of which presently there is none, the total debts owed to creditors are vast, secured creditors may well be comfortable with the value of their security (although the point cannot be gainsaid) yet a significant number of unsecured creditors exist. Already one creditor has served a statutory demand. Others may do likewise. They may do so quickly. The respondent’s financial predicament may well be, as he says, precarious.
He sought an order permitting the businesses, or one or other of them, to be sold so that creditors can be paid. If the proposal had the applicant’s consent I may be willing to entertain it. However, one or more creditors are likely to be affected by such a proposal. Any security holder over a particular business will be required to release the security if a sale of the relevant business is to be effected. Undoubtedly, any such secured creditor will wish to be heard before the security is put at risk. Not having heard from any such secured creditor I am not willing to authorise any such sale. This case currently bears the hallmarks of a corporate structure on the brink of collapse. Dispositions to creditors within the relation-back period if an insolvency subsequently results is likely to create preferential payments issues. It will also not go unnoticed that the applicant complains that the respondent of his own accord applied the proceeds of sale of at least one business to creditors in respect of which no adequate disclosure has been given. The applicant pressed for the orders recorded in paragraph 3 of my orders made 22 November 2019 to remain as they are. I agree. That may have the effect of impeding the respondent’s plans to pay out certain creditors the whole or part of the sums owed to them. That may well be the upshot. But to accede to the respondent’s request would be to allow certain creditors to be paid ahead of others, thereby creating a priority and possibly a preferential payment. It is not appropriate for a judge to so order.
The orderly arrangement of the financial affairs of the trustee and F Pty Ltd invites the appointment of an administrator under the Corporations Act and possibly even a receiver if not a provisional liquidator also under the Corporations Act but no party has sought such relief so I shall not make any such order now.
On behalf of the applicant it was put that the applicant should have the conduct of the sale of what has been termed luxury items. On 13 March 2020 an order was made for the sale of the houseboat. That has not occurred. No explanation has been given for the failure to sell the houseboat. In order to progress the sale of the houseboat, I agree that the applicant should have the conduct of the sale. Paragraph 3 of the registrar’s orders made 13 March 2020 will be amended to reflect that.
The applicant proposed a form of order in support of this application. It was as follows –
1.Within 28 days, the husband pay or cause to be paid to the wife the sum of $200,000.
2.Orders 3 – 5 inclusive of the orders made on 13 March 2020 be discharged.
3.The husband and wife do all such acts and things and sign all such documents as may be required to forthwith sell:
(a)the houseboat stored at B Street, C Town Victoria, owned by the husband;
(b)mooring (permit) at BB Town Victoria;
(c)classic motor vehicle owned by the husband;
(d)speedboat registration …; and
(e)jet ski registration … (the sales of items at subparagraphs (a) – (e) referred to together herein as the Sales).
4.The husband forthwith deliver up possession and control of each item in order 3 to the wife including but not limited to providing the wife with keys and remotes, registration/ownership papers, any documents necessary to sell the items, and authorising unrestricted access to the items by the wife and her nominated agents for the purpose of inspection and sale of the items.
5.The wife have sole conduct of each of the Sales and for this purpose the wife be at liberty to appoint the selling agent and to determine the terms and conditions of each of the Sales, including the sale price, on the basis that the wife keep the husband informed in relation to the Sales including providing him with copies of executed sale contracts/documents and particulars.
6.Upon completion of the Sales, the proceeds of the Sales be applied in the following manner:
(a)first, to pay all costs, commissions and expenses of the Sales;
(b)secondly, such amount of the payment provided for in order 1 to the wife as is outstanding at the date of completion of the Sales;
(c)thirdly, the sum of $200,000 to the wife, to be paid care of her lawyer; and
(d)fourthly, the balance to be held in an interest bearing Controlled Monies Account in the joint names of the parties, such account to be established by the wife’s lawyer, pending written agreement between the parties or further order of the Court.
7.Within seven (7) days, the husband provide the wife with discovery as follows:
(a)documents in accordance with order 10 of the orders made on 22 November 2019 (to the extent those documents have not already been provided);
(b)the documents requested in the letter from the wife’s lawyer to the husband’s lawyer dated 24 January 2020 (to the extent those documents have not already been provided); and
(c)the documents requested in the letter from the wife’s lawyer to the husband’s lawyer dated 6 February 2020 (to the extent those documents have not already been provided).
8.Within seven (7) days, the parties do all things necessary to jointly instruct the single expert appointed pursuant to order 6 of the orders made on 22 November 2019, Ms D of E Valuers, to value the parties’ interest in:
(i) the Mr Velten Family Trust; and
(ii) F Pty Ltd (together the Velten Group)
on the basis that:
(a)the valuation of the Velten Group be undertaken at 31 December 2019;
(b)each business be valued individually utilising inter alia income statements for the relevant business;
(c)the valuation include all businesses sold or otherwise disposed of by the husband or at his direction since 1 July 2019 in order to ascertain whether any such business has been sold or disposed of for fair market value or otherwise;
(d)the valuation include all businesses purchased, acquired or opened by the husband, or in which he has or has held any legal or beneficial interest, during the period 1 July 2019 to the date of these orders.
9.Within three (3) business days, the husband pay or cause to be paid any account or expense falling within the scope of orders 5 and 8 of the orders made on 22 November 2019 that is outstanding or overdue for payment as at the date of these orders, inclusive of arrears referrable to the payment plan for taxation owed or payable by the wife, and provide the wife with documentary evidence of each payment having been made.
10.To facilitate the husband’s compliance with his obligations pursuant to the provisions of order 5 of the orders made on 22 November 2019, within seven (7) days the husband:
(a)provide the wife with a credit card, with such card to be used by the wife solely for the purpose of meeting expenses in accordance with order 5 of the orders made on 22 November 2019, and the husband pay or cause to be paid the total outstanding amount on the credit card on or before the due date for payment each calendar month; and
(b)establish and thereafter maintain direct debits for the rates, insurances and utilities accounts (including gas, electricity, telephone and internet) referred to in order 5 of the orders made on 22 November 2019 so that all such expenses and accounts are paid by the due date for payment, and provide the wife with documentary evidence of each direct debit having been established.
11.The monies standing in the KCL Law Trust Account in the sum of $50,000, being the remaining proceeds of sale of the business conducted by F Pty Ltd at Delacombe, be applied as follows:
(a)the sum of $8,317.80 to KCL Law, being monies owed to KCL Law to undertake all professional work in relation the sale of the said business; and
(b)the balance of $41,682.20 be paid to the business trading account of F Pty Ltd, with F Pty Ltd to apply the whole of the funds to pay outstanding creditors of F Pty Ltd, and with documentary proof of such payments to creditors to be provided to the wife’s lawyer within seven days of the relevant payment(s).
12.Order 5(b)(i) of the orders made on 22 November 2019 be varied to suspend mortgage repayments as and from 1 April 2020 until such time as the mortgagee requires the mortgage repayments to be reinstated, and thereafter to enable the husband to negotiate with the mortgagee to reduce the mortgage repayments to interest only on the basis that the husband continue to make the mortgage repayments (irrespective of the outcome of the husband’s negotiations with the mortgagee) as and when they fall due.
13.Order 9 of the orders made on 22 November 2019 be discharged.
14.Save as expressly provided for in these orders, the orders made by this Honourable Court on 22 November 2019 remain in full force and effect.
It is appropriate to make paragraph 1 to paragraph 3 in the terms set out above on behalf of the wife as she requires money to meet day-to-day expenses and litigation funding. Paragraph 4, 5 and 6 are machinery provisions to assist in that sale process.
Paragraph 7 endeavours to cure deficiencies in discovery. Paragraph 8 addresses the valuation issue canvassed above. Paragraph 9 addresses the payment of overdue sums. Paragraph 10 will enable the applicant to meet ongoing day-to-day expenses. Paragraph 11 is a curious order but one which may enable the deferral of the “circling” creditors. Paragraph 12 reflects the current mortgage moratorium extended by major banks. Paragraphs 13 and 14 are consequential orders.
In my view those orders are appropriate and I hereby make them.
I certify that the preceding one hundred and seventy-three (173) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Wilson delivered on 22 May 2020.
Associate:
Date: 22 May 2020
[71][1982] 1 WLR 786
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