Watson and Watson
[2014] FamCA 1015
•1 April 2014
FAMILY COURT OF AUSTRALIA
| WATSON & WATSON | [2014] FamCA 1015 |
| FAMILY LAW – DISCLOSURE |
| Family Law Act 1975 (Cth) |
| APPLICANT: | Ms Watson |
| RESPONDENT: | Mr Watson |
| FILE NUMBER: | MLC | 3382 | of | 2013 |
| DATE DELIVERED: | 1 April 2014 |
| PLACE DELIVERED: | Melbourne |
| PLACE HEARD: | Melbourne |
| JUDGMENT OF: | Johns J |
| HEARING DATE: | 1 April 2014 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Dickson SC |
| SOLICITOR FOR THE APPLICANT: | Lander & Rogers |
| COUNSEL FOR THE RESPONDENT: | Mr Werner |
| SOLICITOR FOR THE RESPONDENT: | Westminster Lawyers Pty Ltd |
Orders
That within 7 days the husband, or any agent acting on his behalf, provide to the wife’s solicitors copies of the following documents:-
(a)bank statements issuing to the husband in relation to the following entities:-
(i) B Pty Ltd;
(ii) C Pty Ltd ATF for the Watson Family Trust;
(iii) D Pty Ltd ATF the E Trust;
(b)details of payments (distributions, dividends, commissions, loan payments) paid to the husband or any of the entities associated with F Group, G Pty Ltd or H Group;
(c)a copy of all minutes from the directors’ meetings in relation to the F Group, G Pty Ltd or the H Group;
(d)copy of BAS statements filed in relation to the F Group, G Pty Ltd or H Group
for the period as and from the date of the parties’ separation to the date of these orders, and in relation to documents created and/or received after the date of these orders, such documents be so produced by the husband within 28 days of his receipt of the same.
That within 7 days the husband, or any agent acting on his behalf, provide full financial disclosure in relation to:-
(a)the purchase of I Pty Ltd, including details of the full purchase price and all supporting documentation;
(b)any indicative assessments carried out in relation to I Pty Ltd;
(c)details of any other financing arrangements which are in place in relation to I Pty Ltd or any other entities purchased by the husband in his capacity as a director of F Pty Ltd;
(d)financial accounts in relation to I Pty Ltd and any other documents which the husband and/or his agents were provided by the vendors and which were relied upon by the husband and/or his agents and fellow directors.
Any application for finance which have been made by the husband and/or his fellow directors in relation to the purchase of I Pty Ltd or any other enterprise or entity.
BY CONSENT IT IS ORDERED
That within 7 days the husband, or any agent acting on his behalf, provide all documents relating to the purchase of land by the husband and/or his fellow directors in their capacity as directors of F Pty Ltd and/or the H Technologies Group Partnership including:
(a)any indicative assessments carried out in relation to the value of that parcel of land;
(b)details of other financing arrangements in place in relation to that parcel of land;
(c)all documents provided by the vendor which have been relied upon by the husband and/or his fellow directors in making the decision to acquire the property; and
(d)any applications for finance which have been made to support the new financing facility.
That within 7 days the husband, or any agent acting on his behalf, provide all documents in relation to the establishment of J Pty Ltd and as trustee for the J Family Trust including, but not limited to:-
(a)copies of the Constitution and/or Memorandum of Articles and Association of J Pty Ltd;
(b)a copy of the Trust Deed for the J Family Trust;
That the husband comply with all reasonable requests for discovery within 7 days of that request having been made by the lawyers engaged on behalf of the applicant.
That the wife’s application in a case filed 17 February 2014 be dismissed, save as to the question of costs, which issue is adjourned for determination in the Judicial Duty List at 10.00am on 9 May 2014.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Watson & Watson has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT MELBOURNE |
FILE NUMBER: MLC 3382 of 2013
| Ms Watson |
Applicant
And
| Mr Watson |
Respondent
REASONS FOR JUDGMENT
INTRODUCTION
The wife seeks final orders in relation to property. She submits that the two principal assets the subject of that application are the former matrimonial home (which she seeks to retain) and the business owned and operated by the parties through their corporate entities (which she says the husband should retain).
In order to advance the property proceedings, the wife submits that it is necessary to value the parties’ business interests. To facilitate that valuation, the wife has engaged a forensic accountant and sought specific discovery from the husband.
On 15 November 2013 orders were made by consent by MacMillan J. that addressed a range of issues, including the requirement that both the husband and the wife make specific disclosure. Paragraph 24 of the orders required the husband to “forthwith provide to the wife, through their respective solicitors the documents referred to in the correspondence from the wife’s solicitors dated 25 October 2013 from the date of separation to date, and thereafter on an ongoing basis”.
The letter referred to in the orders (“the letter”) requested the husband to provide to the wife’s solicitors specific disclosure in relation to:-
·Payments received by the husband (including distributions, dividends, commissions, loan re-payments) from the F Group, G Pty Ltd or H Group (“the entities”);
·Copy of all minutes from the directors’ meetings in relation to the entities; and
·Copy of the most recent BAS statement filed in relation to the entities.
It is common ground between the parties that the husband has not complied with the disclosure requirements of those orders.
During the course of the submissions, the husband confirmed his consent to some parts of the wife’s application with respect to disclosure. Accordingly, I will make those orders by consent.
Two issues remained for determination. First, the wife seeks to enforce the orders as to disclosure. Second, she seeks orders for further specific disclosure with respect to the acquisition of a new business and property by the H Group, an entity in which the parties’ (through their entities) hold a 39 per centum interest.
The husband opposes the wife’s application that he makes disclosure in relation to the purchase of the new business and property. Further, he opposes any order requiring him to disclose the minutes of directors’ meeting as required at paragraph 10(b) of the letter.
LEGAL PRINCIPLES
Chapter 13 of the Family Law Rules2004 sets out the duty of disclosure between parties in financial cases. The rules require that parties in financial cases exchange significant documentation.
Rule 13.01(1) provides that “each party to a case has a duty to the Court and to each other party to give full and frank disclosure of all information relevant to the case, in a timely manner.”
The duty of disclosure is a continuing obligation (R 13.01(2)).
Rule 13.07 of the Family Law Rules provides as follows:-
13.07 The duty of disclosure applies to each document that:
(a) is or has been in the possession, or under the control, of the party disclosing the document; and
(b) is relevant to an issue in the case.
Accordingly, in order to succeed in her current application it is necessary that the wife establish, on the balance of the probabilities, that the documents sought by her are in the possession or control of the husband and that they are relevant to an issue in the case.
BACKGROUND
The wife is aged 40 years and her occupation is home duties.
The husband is aged 41 years and describes his occupation as managing director.
The parties married in 1996 and separated in December 2012. There are three children of the marriage, aged 13, 10 and 7.
The wife filed an Initiating Application seeking final relief in relation to property and parenting matters on 30 April 2013. The husband filed his Response to Initiating Application on 26 June, 2013. To date, there have been interim proceedings in relation to parenting and financial matters. As outlined above there have been previous orders with respect to disclosure.
The parties conduct a business called G Pty Ltd, which provides products and services. They also conduct a business called F Pty Ltd, a company which deals with equipment rental and repair, as well consulting services.
Pursuant to a Shareholders Agreement[1], the parties, through their company, C Pty Ltd hold a 39 per centum interest in the H Group. The husband’s business partner, Mr K, also holds a 39 per centum interest in the H Group.
[1] Affidavit of the wife filed 17 February, 2014, paragraph 13, Annexure TW4
In July, 2013 the H Group purchased a property in New South Wales and in November, 2013 it purchased I Pty Ltd. During the hearing before me, it was conceded that the husband did not disclose to the wife that the H Group had purchased those interests.
It was not until December, 2013 that the wife was informed by Mr K that the H Group had acquired I Pty Ltd and the New South Wales property. At that time, Mr K, in his capacity as Chairman of the H Group requested that the wife sign an application for finance within 24 hours. Mr K indicated that if the wife did not sign the requested application the parties would be in breach of their responsibilities pursuant to the Shareholders Agreement. That finance application apparently related to the acquisition of I Pty Ltd and the New South Wales property. The wife now seeks production of documents in relation to the purchase of each of those interests.
WHY THE DOCUMENTS ARE SOUGHT BY THE WIFE?
The wife has engaged a forensic accountant, Mr L to undertake an assessment of the value of the parties’ business interests. It is said on behalf of the wife that the documents sought by her in relation to the acquisition of I Pty Ltd and the New South Wales property by the H Group, as well as documents relating to the financing of those purchases are relevant to the assessment of the value of the parties’ interests in the H Group.
Further, it is said on behalf of the wife that she requires disclosure of the Minutes of Directors’ meetings in relation to the F Group, G and the H Group. Those documents are necessary to enable the wife’s accountant to have a complete understanding of the operation of those entities, how they are managed, whether there are plans to acquire other assets within the group, their financing arrangements and the like. It is submitted on behalf of the wife that in circumstances where it is conceded that the husband has failed to disclose relevant transactions undertaken by the H Group, it is necessary that the minutes of directors’ meetings be disclosed to ensure that she is appraised of such activity which may occur in the future.
Further, Senior Counsel for the wife submits that those documents are required to assist in the assessment of the value of the parties’ interests.
Put simply, it is said on behalf of the wife that the documents sought from the husband are first, within his possession, power or control and second, relevant to the issues in dispute.
WHAT IS THE BASIS FOR THE HUSBAND’S OPPOSITION TO DISCLOSURE OF DOCUMENTS RELATED TO I PTY LTD?
The husband admits that he did not make disclosure of the acquisition of the new business or of the real property in New South Wales. That the documents sought are in his possession, custody or control was not disputed.
The husband objects to the production of documents relating to the acquisition of the new business (I Pty Ltd) as sought in paragraph 2 of the wife’s Application in a Case.
It was submitted on behalf of the husband that the documents sought were not relevant to the assessment of value of the parties’ interests. Paragraph 2 of the wife’s Application in a Case seeks documents evidencing the purchase price of the business, indicative assessments carried out in relation to that business, details of financing arrangements in relation to that business or other entities associated with the husband’s business interests, the financial accounts of the new business and applications for finance.
Counsel for the husband submitted that disclosure of Financial Statements for the H Group by the husband was sufficient to enable the wife’s forensic accountant to undertake a valuation of the parties’ interests. I do not accept that submission.
I am satisfied that the documents sought in paragraph 2 of the Application in a Case are documents relevant to the assessment of the value of the parties’ interests. The documents sought will provide relevant information with respect to I Pty Ltd, including its acquisition costs, financing arrangements, income stream and expenses; the provision of that information is at the heart of the valuation exercise to be undertaken by the parties’ forensic accountants.
It was submitted on behalf of the wife that her forensic accountant seeks that information to enable him to complete his valuation. I accept that submission.
The submissions of the husband’s Counsel ignore the fact that the husband’s obligation to make disclosure is ongoing. The fact that the H Group has acquired assets post-separation is relevant to the issues in dispute. The relevant time for valuing the parties’ interests is at the date of the final hearing; documents relating to post-separation acquisitions will be relevant to the assessment of that value.
Accordingly, I will make orders as sought in paragraph 2 of the wife’s application.
MINUTES OF DIRECTORS MEETING
There is no dispute that the minutes of directors’ meetings are in the possession, custody or control of the husband.
Although counsel for the husband sought to object to the production of the minutes of directors meetings, in reality the objections raised were those of his business partner, Mr K.
It was submitted by the husband’s counsel that Mr K had alleged that the production of the minutes of the directors’ meeting was in breach of the confidentiality provisions contained in the Shareholders’ Agreement between the husband’s entities and those of Mr K. Further, the husband’s counsel submitted that Mr K has threatened the husband that if those documents are produced, Mr K may elect to exercise his rights under the Shareholders’ Agreement, which include an option to acquire the parties’ interests under the Shareholders’ Agreement pursuant to a formula prescribed in that agreement. Correspondence from Mr K to the husband to that effect is referred to at paragraphs 33 and 35 of the husband’s affidavit filed 27 March, 2014.
As a result of the position communicated to the husband by Mr K, the husband submitted that the appropriate course was to refuse the wife’s application for disclosure and for the wife to issue subpoenae directed to the H Group seeking production of the documents. I do not accept that submission. It is the obligation of the husband to make disclosure; the wife should not be put to the inconvenience and expense of causing subpoena to issue to obtain documents she is otherwise entitled to pursuant to the Rules relating to disclosure set out in Chapter 13.
Mr K holds a 39 per centum interest in the H Group. On the face of the documents produced, he has the same (and no greater) rights and responsibilities than those of the husband.
Counsel for the husband confirmed that Mr K had attended court on the day of the hearing and was represented by Ms Mitchell, solicitor, and Mr Melilli of counsel, both of whom are known to the Court and are senior and experienced family law practitioners. I was also informed that Mr Melilli and Ms Mitchell, acting on behalf of Mr K, engaged in discussions with the parties prior to the commencement of the hearing. Ultimately, presumably upon the advice of his solicitor and counsel, Mr K elected not to seek to participate in today’s hearing with respect to disclosure. I was told he left the court precincts prior to the commencement of the hearing.
I am satisfied that had Mr K perceived that his interests were likely to be affected, either due to previous orders consented to by the husband, or pursuant to the orders I was being asked to make, he would have sought to have been heard in relation to the issue. He has elected not to pursue the matters, notwithstanding his attendance at court. It has been left to the husband to ventilate the concerns raised by Mr K.
Prior to the filing of her Application in a Case, the wife, through her solicitor offered to provide to the husband a confidentiality agreement in order to assuage any concerns the husband or his business partners may have in relation to the disclosure of commercially sensitive material which may nonetheless be relevant to the valuation exercise to be undertaken for the purposes of these proceedings. That offer was made by letter dated 20 December 2013 (annexure TW-10 of the wife’s affidavit filed 17 February 2014). That offer was rejected. I am satisfied that there is little more the wife could have done in order to alleviate the concerns of the husband and his business partners.
It was open to the husband and Mr K to make application pursuant to Section 114 of the Act to restrain the wife and her solicitors from divulging information regarding the business as occurred in the matter of Stinson and Stinson and Anor [2012] FamCA 520. They have elected not to do so.
In those circumstances, I do not accept the submissions of counsel for the husband that the disclosure of the minutes will compromise Mr K’s interests. Further, even if Mr K’s interests were affected by the disclosure of those documents, I do not accept that that would be a basis for refusing to make the orders for disclosure.
The nature of family law litigation is such that it requires the parties to the marriage to make comprehensive disclosure of any document that might enable the other party to understand the financial circumstances the subject of the dispute. The consequence of those obligations is that from time to time, the privacy of third parties may be infringed as a result of their relationship with a party to the marriage. However, such parties are not without protection; all parties are subject to an implied obligation that documents disclosed during court proceedings must not be disclosed to anyone outside of the proceedings. That implied obligation will apply with respect to the documents produced pursuant to the orders I make in relation to the current application.
The husband also sought to challenge the relevance of the Minutes of the Directors’ meetings on the basis that the application in relation to those documents was little more than a fishing expedition. I do not accept that position.
The husband has consented to the production of those documents at an earlier interim hearing when he was represented by both senior counsel (Mr Kirkham QC) and junior counsel (Mr Werner).
I am satisfied that the documents sought are relevant to the issues in the case. They are likely to assist the parties’ forensic accountants in the valuation of the parties’ interests. Further I am satisfied that the relevance of those documents has already been conceded by the husband by virtue of his consent to an order for their production.
The husband’s objection to the production of those documents appears to be motivated by his business partner, Mr K. The husband does not raise such objection on his own behalf; that this is so is confirmed at paragraph 32 of his affidavit filed 27 March 2014, where the husband deposes as follows:-
For the avoidance of doubt, I have no in-principle objections to providing [Ms Watson] with copies of minuted of the directors’ meetings. By letter dated 11 December 2013, my lawyers told [Ms Watson’s] lawyers that these documents would be provided as set out in such letter…
Accordingly, I will make orders for the production of the minutes of directors meetings in circumstances where:-
(a)it is conceded that the documents are in the possession, custody or control of the husband;
(b)the husband has already consented to an order for production of those documents;
(c)I am satisfied the documents are relevant to the issues in dispute; and
(d)Mr K has failed to articulate any basis as to why the documents should not be so produced.
The orders I make are as follows:
(1)That within 7 days the husband, or any agent acting on his behalf, provide to the wife’s solicitors copies of the following documents:-
(a)bank statements issuing to the husband in relation to the following entities:-
(i) B Pty Ltd;
(ii) C Pty Ltd ATF for the Watson Family Trust;
(iii) D Pty Ltd ATF the E Trust;
(b)details of payments (distributions, dividends, commissions, loan payments) paid to the husband or any of the entities associated with F Group, G Pty Ltd or H Group;
(c)a copy of all minutes from the directors’ meetings in relation to the F Group, G Pty Ltd or the H Group;
(d)copy of BAS statements filed in relation to the F Group, G Pty Ltd or H Group
for the period as and from the date of the parties’ separation to the date of these orders, and in relation to documents created and/or received after the date of these orders, such documents be so produced by the husband within 28 days of his receipt of the same.
That within 7 days the husband, or any agent acting on his behalf, provide full financial disclosure in relation to:-
(a)the purchase of I Pty Ltd, including details of the full purchase price and all supporting documentation;
(b)any indicative assessments carried out in relation to I Pty Ltd;
(c)details of any other financing arrangements which are in place in relation to I Pty Ltd or any other entities purchased by the husband in his capacity as a director of F Pty Ltd;
(d)financial accounts in relation to I Pty Ltd and any other documents which the husband and/or his agents were provided by the vendors and which were relied upon by the husband and/or his agents and fellow directors.
Any application for finance which have been made by the husband and/or his fellow directors in relation to the purchase of I Pty Ltd or any other enterprise or entity.
BY CONSENT IT IS ORDERED
That within 7 days the husband, or any agent acting on his behalf, provide all documents relating to the purchase of land by the husband and/or his fellow directors in their capacity as directors of F Pty Ltd and/or the H Group Partnership including:
(a)any indicative assessments carried out in relation to the value of that parcel of land;
(b)details of other financing arrangements in place in relation to that parcel of land;
(c)all documents provided by the vendor which have been relied upon by the husband and/or his fellow directors in making the decision to acquire the property; and
(d)any applications for finance which have been made to support the new financing facility.
That within 7 days the husband, or any agent acting on his behalf, provide all documents in relation to the establishment of J Pty Ltd and as trustee for the J Family Trust including, but not limited to:-
(a)copies of the Constitution and/or Memorandum of Articles and Association of J Pty Ltd;
(b)a copy of the Trust Deed for the J Family Trust;
That the husband comply with all reasonable requests for discovery within 7 days of that request having been made by the lawyers engaged on behalf of the applicant.
That the wife’s application in a case filed 17 February 2014 be dismissed, save as to the question of costs, which issue is adjourned for determination in the Judicial Duty List at 10.00am on 9 May 2014.
I certify that the preceding forty-nine (49) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Johns delivered on 11 April 2014
Associate:
Date: 11 April 2014
0