Woley & Humboldt - [2008] FamCA 699

FAMILY COURT OF AUSTRALIA

WOLEY & HUMBOLDT

[2008] FamCA 699

FAMILY LAW – PRACTICE AND PROCEDURE – Subpoena – application to set aside subpoenae on ground of relevance - whether medical records of husband’s mother relevant to property settlement proceedings – where husband’s mother has legal control of family trusts but her legal capacity disputed – where wife alleges husband has legal control of family trusts – whether assets owned by trusts may be assets or financial resources of the husband – subpoenaed material released for inspection and copying.

Family Law Rules 2004
Family Law Act 1975 (Cth) ss 79, 75
Evidence Act 1958 (Vic), s 28(5)(c)
Privacy Act 1988 (Cth)

Hatton, VF v Attorney-General of the Commonwealth of Australia & Commonwealth Bank of Australia & Commonwealth Development Bank of Australia (2000) FLC 93-038
Stephens and Stephens and Others (2007) FLC 93-336
Ashton and Ashton (1986) FLC 91-777
Sharpe & Dalton (1990) FLC 92-167
Epstein and Epstein (1993) FLC 92-384
White & Tulloch & White (1995) FLC 92-640
Re Z (1996) FLC 92-694
Relationships Australia v Pasternak (1996) FLC 92-699
National Employers' Mutual General Association v Waind and Hill [1978] 1 NSWLR 372
Supreme Court of South Australia in Santos Ltd v. Pipelines Authority of South Australia [1996] 66 SASR 38

APPLICANT:

MS WOLEY

RESPONDENT:

MR HUMBOLDT

FIRST INTERVENOR:

MRS HUMBOLDT

SECOND INTERVENOR:

K PRIVATE HOSPITAL

FILE NUMBER:

MLF

1685

2005

DATE DELIVERED:

19 AUGUST 2008

PLACE DELIVERED:

MELBOURNE

PLACE HEARD:

MELBOURNE

JUDGMENT OF:

BRYANT CJ

HEARING DATE:

18 AUGUST 2008

REPRESENTATION

COUNSEL FOR THE APPLICANT:	MR ST JOHN SC
MR STRUM

SOLICITOR FOR THE APPLICANT:

MARSHALLS & DENT

COUNSEL FOR THE RESPONDENT:

MR GEDDES QC

SOLICITOR FOR THE RESPONDENT:	KENNEDY WISEWOULDS
COUNSEL FOR THE FIRST INTERVENOR	MR JAQUES
SOLICITOR FOR THE FIRST INTERVENOR	SIMON JAQUES & CO
COUNSEL FOR THE SECOND INTERVENOR	MR A. ROCKMAN
SOLICITOR FOR THE SECOND INTERVENOR	ROCKMAN & ROCKMAN

It is ordered:

That:
(a)       the wife and her lawyers;
(b)       the husband and his lawyers; and
(c)       the lawyers for the husband’s mother;
be entitled to inspect and copy the documents produced to the Court pursuant to the subpoenae issued to:
(i)the Alfred Hospital;
(ii)Professor A;
(iii)Epworth Rehabilitation;
(iv)Cabrini Health; and
(v)K Private Hospital.
That the material in the subpoenaed documents not be released to anyone other than those directly involved in the preparation of the case for the husband and wife respectively.
That the costs of compliance by K Private Hospital, in the amount of $150, be paid by the wife.
That judgment be reserved on the question of the costs of the K Private Hospital to appear to object to the subpoena directed to it.
That by 4.00pm on 28 August 2008 the wife file and serve an amended application setting out with particularity the orders sought by her.
That by 4.00pm on 10 September 2008 the husband file and serve an amended response setting out with particularity the orders sought by him in response to the amended application filed by the wife.
That the issue of costs relating to the subpoenae as between the wife and the husband be listed before Chief Justice Bryant for mention at 9.00am on 25 August 2008.
That the matter otherwise be listed before Chief Justice Bryant for mention at 9.00am on 16 September 2008.

IT IS NOTED

(A)That the parties are excused from attending Court for the purpose of delivery of judgment on the question of the costs of the appearance of K Private Hospital.
(B)That publication of this judgment under the pseudonym Woley & Humboldt is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLF1685/2005

MS WOLEY

Applicant

And

MR HUMBOLDT

Respondent

And

MRS HUMBOLDT

First Intervenor

And

K PRIVATE HOSPITAL

Second Intervenor

REASONS FOR JUDGMENT

Introduction

The issue for determination is whether the material produced pursuant to five subpoenae should be inspected and released.
On 23 July 2008 the wife filed and served subpoenae directed to Professor A, K Private Hospital, the Alfred Hospital, the Kingston Centre, Cabrini Health and Epworth Rehabilitation. Although originally six in number, it is conceded that the Kingston Centre has no material documents.
In each case the subpoena seeks the production of “all files, documents, records, medical and nursing notes, memoranda, reports, records of consultation, referrals, records of tests and investigations and correspondence in relation to [Mrs Humboldt], born […] March 1922”, the husband’s mother. The husband, the respondent in the substantive property proceedings, seeks an order that the subpoenae issued by the wife and filed 23 July 2008 relating to his mother’s medical records be set aside. On 1 August 2008 the husband filed objections to the said subpoenae.
Although the husband’s mother is not a party to the substantive proceedings, on the issue of the subpoenae her solicitor, Mr Jaques, appeared to support the husband’s argument that the subpoenae should be set aside. There was also an appearance on behalf of the K Private Hospital objecting to the production and release of the material without the consent of the husband’s mother, which was not given.

The background to the dispute

The husband and wife, who are the litigants in proceedings relating to property settlement and spousal maintenance, were married in March 1991 and separated on 3 October 2004. There are two children of their marriage aged 16 and 14 years respectively.
The wife filed an application for final orders on 23 May 2005 seeking, inter alia, “that the husband pay to the wife such lump sum by way of adjustment of property interests and spousal maintenance as this honourable court deems appropriate” and “that the wife be relieved of providing particulars with respect to Order 1 until the husband has filed and served a Form 13 Statement of Financial Services [sic] and discovery and inspection has taken place.”
The husband filed a response to the wife’s application on 11 July 2005.
The matter was listed for final hearing to commence on 16 October 2008 but as a result of matters that occurred on 18 August 2008 the trial judge found it necessary to disqualify herself and vacate the hearing date.

The issues in dispute

The wife contends that the material of which she seeks inspection and release is “apparently relevant” to matters in issue between the parties. The respondent husband seeks to set aside the subpoenae on the basis that rights of third parties and an invasion of their privacy should not be lightly entertained unless there are valid reasons for doing so. He contends that the only legitimate purpose of requiring the production and permitting the inspection of these documents can in the end be to add to the relevant evidence in the case (Hatton, VF v Attorney-General of the Commonwealth of Australia & Commonwealth Bank of Australia & Commonwealth Development Bank of Australia (2000) FLC 93-038). He contends that there is no apparent relevance of the documents to the matters in issue and thus the subpoenae are an abuse of process of process and the Court has inherent jurisdiction to prevent such abuse of process by setting aside the subpoenae.
The wife does not disagree with the statement of legal principle but contends that there is apparent relevance to the matters in issue.
It is necessary to consider the context in which the subpoenaed material is sought. The husband asserts that his mother has legal control of a complex group of inter-related companies and trusts by virtue of her position as director, majority shareholder and/or powers of appointment for the relevant trusts to which she succeeded following the death of the husband’s father, who originally held those positions.
Proceedings in the Family Court of Australia do not proceed by way of pleadings and one of the matters contended by the husband is that the orders sought by the wife do not give rise to any issue which might enliven the subject matter of the subpoenae. In Hatton, VF & Attorney-General of the Commonwealth of Australia (cited above) the Full Court, confirming the approach of the trial judge, said:
Further, given that there are at the present time no pleadings in this Court, the only way in which apparent relevance of the subpoenaed material to the main property settlement proceedings could be established was by reference to the affidavit material filed in those proceedings.
The counsel for the husband was correct in his assertion in written submissions that the wife has provided no particulars of the orders she seeks by way of final property settlement, nor has she sought to join the husband’s mother to the proceedings. He contends that the only reference in the wife’s affidavit sworn 11 May 2006 to the evidence of the mother is that in paragraph 65:
The husband’s mother [Mrs Humboldt] through various entities established by the husband’s late father pays for the children’s private school fees.
However, the wife now seeks to rely upon an affidavit sworn and filed 14 August 2008 in support of the subpoenae. In that affidavit the wife sets out in some detail her own observations and understanding of the mother’s deteriorating health since 1989.
The wife contends that from the mid-1990s the husband took full control of his mother’s financial and personal affairs. She deposes to the fact that the mother’s health significantly deteriorated, to the extent that she was not able to make independent decisions about financial matters. The wife deposes to the fact that the husband made the majority of decisions in relation to the interests. She contends that the husband has a powerful and controlling nature and during the marriage would often demand that she sign documents and would usually refuse to answer questions she asked about the nature of them. She contends that the husband similarly bullied his mother in relation to decisions.
None of these matters in my view take the matter any further. Whether or not the husband’s mother has legal capacity in so far as the day to day decision making is concerned, it is quite open to her to divest herself of that control and to allow the husband to exercise it consistent with the obligations that she would have as a trustee or as a director of a corporate trustee.
The husband himself admits that he had operational responsibilities for the trust but denies that he had what could be regarded as legal control.
In paragraph 22 of her affidavit the wife contends that “around the time of our separation, instead of purchasing properties in the names of our entities,…the husband commenced purchasing properties in the names of entities that he established with his brother [D] and/or in the names of entities he asserts [his mother] controls.” Two examples of this are given. The wife says that this was done in an attempt to minimise the asset pool available for division between them.
Counsel for the husband denies this assertion. First he says the first property described in N Street was purchased prior to the marriage of the parties and the second property is already included as part of their assets.
He contends that if the subpoenaed information is relevant to this claim then it is nothing more than a “fishing expedition”.
I agree with that submission. There is nothing in the wife’s affidavit which would establish any inappropriate use of funds by the husband. There is no assertion that assets belonging to the husband and wife were diverted to the trust or that money belonging to the husband and wife was used to acquire assets in the name of the trust. If it is sought that the Court should draw an inference from this paragraph, then in my view, no reasonable inference of that kind could be drawn.
Absent some evidence that assets of the parties inappropriately found their way into trusts controlled by the mother or monies owned by the parties acquired properties which were then registered in the names of trusts controlled by the mother, a mere assertion that properties were purchased in the name of the trust controlled by the mother does not lead to any adverse inference.
It is however necessary to look to other pre-trial preparation that has occurred either by order of the court or independently by the parties to see whether there is any relevance to the issues for determination of the material which the wife seeks to have released.
As part of the pre-trial preparation in this matter, two experts have been assisting the parties in the assessment and valuation of a number of corporate entities which make up the asset pool upon which the court will have to finally determine the disposition of the property of the parties.
Mr F of B Securities (NSW–VIC) Pty Ltd and Ms B of S Group have been engaged for the wife and husband respectively. Mr F provided a report on the income of the husband and Ms B then provided a critique of various sections of his report. In order to discuss the differences between them a meeting was held on 10 July 2008. The objective of the meeting was to consider the differences between the conclusions detailed in the two reports, the reasons for the differences and whether as a result of those considerations there was any change to their respective opinions.
It emerged during the course of the meeting that the main issue were entities in which Mr F concluded that the husband had an indirect interest and Ms B concluded he did not.
They agreed then in respect of those entities the reason for the different conclusions was ultimately a result of their conclusions in respect of the entities defined as the N First Trust and the N Second Trust.
Leaving aside the assertions of each of the parties about why they were established and other extraneous matters, the facts beyond contention are as follows:
(a)The husband’s mother controls the trusts by virtue of her position as appointor.
(b)While the trust deed provides that the husband will succeed the mother as guardian and appointor of the trusts, the mother may substitute the husband’s brother as guardian and appointor.
(c)Neither the husband nor any entity controlled by him has received a distribution from these trusts for the five years prior to 30 June 2007.
(d)SN Pty Ltd is trustee of the trusts.
(e)Clause 6.10 of the deed of settlement indicates the appointor has the power to remove a trustee, appoint an additional trustee, appoint a new trustee to replace one that is removed where the appointor is not eligible to be trustee of the trusts.
(f)The husband, his brother and the mother are the directors of SN Pty Ltd., while the mother and the husband are equal shareholders of the company.
Thus the major dispute seems to be what should be included in the asset pool. The husband asserts that the trusts should not be included in any form and the wife asserts that they should.

What then is the relevance of the legal capacity of the mother?

One of the trust deeds, the N Second Family Trust, together with two deeds of variation, was tendered in evidence. The deed indicates relevantly the following:
(a)the specified beneficiaries are the children of the husband
(b)general beneficiaries include specified beneficiaries, remoter issue (but not parents) and any of the following entities:
(i)the trustees of any trust or settlement under which any general beneficiary has an interest whether absolute or contingent;
(ii)any corporation one share in which is owned by any general beneficiary or by the trustees of an eligible trust;
(iii)any other legal entity at least one share or other interest in which is owned or held by any general beneficiary, or by the trustees of an eligible trust or an eligible corporation.
(c)In addition, the deed states that additional members of a general class of beneficiaries shall include the husband, his lawfully wedded wife for the time being, his brother D, his lawfully wedded wife and the husband’s mother.
(d)The guardian and appointor of the trust is the husband’s mother. Upon her death, the guardian and appointor becomes the husband unless the trustees with the consent of the husband’s mother while she is guardian and appointor but not otherwise may provide that after the husband’s mother’s death (in lieu of the husband) his brother D be substituted as guardian and appointor.
(e)Clause 16 of the deed provides power to the appointor to remove a trustee or appoint any additional trustee or trustees.
(f)Pursuant to clause 16, as long as the appointor is a general beneficiary, he is not permitted to be a trustee.
The effect of the provisions is that on the death of the husband’s mother (if the deed is not varied in the interim) the husband will become the Appointor and Guardian. He has the power to remove any trustee and, although whilst he remains a general beneficiary he does not have power to appoint himself as a trustee, he has the capacity to appoint a corporate trustee of which he is director or a shareholder. Furthermore, he could appoint himself as trustee and remove himself as a general beneficiary and still be entitled as a beneficiary if he is a member of an eligible company or trust that is one in which one of the class of general beneficiaries, in addition to him, has an interest or shareholding. That would provide the husband with the opportunity to distribute in accordance with the terms of the trust to a discretionary beneficiary including either himself, if he remained a member of the class of general beneficiaries, or an eligible trust or company of which he was a member. The effect of control and the capacity to receive funds as a beneficiary in a discretionary trust has been held to amount to an interest in property – see Stephens and Stephens and Others (2007) FLC 93-336:
It is settled law that a person who is a trustee and a beneficiary can be treated as controlling the assets of the trust sufficient to treat the trust property as belonging to him or her and, in appropriate cases, to make orders directly affecting the trust property.
In Ashton and Ashton (1986) FLC 91-777 Strauss J, with whom Ellis and Emery JJ agreed, said at pages 75,652-653:
It was conceded throughout that the husband was in full control of the assets of the trust, and the evidence made it clear that he was applying them and income from them as he wished and for his own benefit. Having regard to the admissions made during the hearing, there are good grounds for saying that the trust is no more than the husband’s alter ego. However, even on the construction of the trust deed in the light of the relevant facts, it would seem that the husband has power to appoint himself as trustee. It is apparent that by the deed the husband was, in fact, appointed trustee and that he acted as such in accordance with the terms of the deed. In my opinion, in all the circumstances, the proper construction of the deed is that the husband himself can be both appointer and trustee, but that other persons cannot hold both offices. It may be that the husband cannot become a named beneficiary under the deed, but, in my view, the fact that he is not one of the named beneficiaries does not preclude him in practice from receiving the full benefit of the settlement. As has been seen, para. (8) and (11), setting out the names of beneficiaries, include a company in which, for instance, a child or other relative of the husband may have a shareholding, or a trust in which a child or other relative of the husband may have an interest. There is nothing to prevent the husband from holding the overwhelming majority of the shares in such a company or from having the greater interest in such a trust. Furthermore, as long as the distribution is made to the company or the trust, the husband can get the full benefit of such a distribution.
In the result, having regard to the powers and discretion which the husband has, and having regard to what has in fact taken place, for the purposes of sec. 79, the husband’s power of appointment, and all the attributes it carries with it, amounts to de facto ownership of the property of the trust…

Whether or not a court would treat such an interest as property or a financial resource would very much depend upon the facts in the case and particularly having regard to how the assets in the trust were accumulated and dealt with.
In this case counsel for the wife said that the interest thus created was a “resource at the lowest” and further “at lowest it is a resource but it is somewhat more than that”. It is not apparent to me from the evidence that there is at this stage any evidence to suggest that a court would be able to determine that the trust was more than a financial resource of the husband. Neither the evidence nor submissions suggest that the trust is the alter ego of the husband. The mere assertion, in paragraph 22, that “instead of purchasing properties in the name of our entities …the husband commenced purchasing properties in the names of entities … that he asserts [his mother] controls…” is not evidence that, nor even leads to an inference that, the husband has made any contribution to the assets of the trust from his own assets rather than from those assets belonging to entities controlled by the mother.
The relevance of the mother’s legal capacity at this stage is that the capacity to remove the husband as the appointor and guardian after the death of his mother (clauses 26 and 27) is dependant upon the trustees doing so with the consent of the mother whilst she is guardian and appointor. If the mother has no legal capacity to give such consent then the provisions of the trust cannot be altered and the husband will remain as the default appointor and guardian.
Both counsel for the husband and the husband’s mother submitted that there would need to be a strong case to establish any apparent relevance to justify the production of the personal medical records of the husband’s mother. The power of this Court to set aside a subpoena, although not expressly provided for in the Family Law Rules 2004, has long been assumed or accepted (see in this regard Sharpe & Dalton (1990) FLC 92-167, Epstein and Epstein (1993) FLC 92-384, White & Tulloch & White (1995) FLC 92-640, Re Z (1996) FLC 92-694, Relationships Australia v Pasternak (1996) FLC 92-699 and Hatton, VF v Attorney General of the Commonwealth of Australia and Others (2000) FLC 93-038).
In Hatton, VF v Attorney General of the Commonwealth of Australia and Others, the Full Court (Finn, Kay and Dessau JJ) fully considered a number of authorities but citing in particular National Employers' Mutual General Association v Waind and Hill [1978] 1 NSWLR 372 and various authorities in which that case was discussed. The Full Court said (at paragraphs 48-49):
We are not satisfied that the distinction in the concepts of relevance (or lack thereof) which counsel attempted to draw for the purposes of production and inspection stages of the subpoena process has validity. Such a reading is not apparent to us on a reading of Moffat P’s reasons: see at [40]. …In particular, the statement in his Honour's judgment that "[the] only legitimate purpose of requiring production, and permitting the inspection, of a stranger's documents can be to add, in the end, to the relevant evidence in the case" (at 384) suggests that there is no distinction in the concepts of relevance to be applied in the production and inspection stages. As to the proposition that lack of relevance cannot of itself be a ground for setting aside a subpoena but rather must constitute oppression or abuse of process, we consider that whatever may have been the position at the time that Waind v Hill was decided, the present state of authority is such that lack of apparent relevance will be a sufficient ground in itself to set aside a subpoena.”
And the Full Court further said (at paragraph 55):
Further support for the proposition that relevance can now be regarded as a separate and distinct ground for the setting aside of a subpoena can be gained from the decision of the Supreme Court of South Australia in Santos Ltd v. Pipelines Authority of South Australia [1996] 66 SASR 38.
I have already indicated the lack of evidence to support any finding that the assets of the entities controlled by the mother could be asserted to be those of the husband or husband and wife, on the basis that they have been inappropriately acquired by the trust using funds or assets which might otherwise have belonged to the parties or that the trusts are the alter ego of the husband. However, the matter does not end there.
In considering the application for property settlement under section 79 of the Family Law Act, in addition to the matters in s.79(4), the court is required to have regard to the matters in s.75(2) insofar as they are relevant. Section 75(2)(b) includes “the income, property and financial resources of each of the parties and the physical and mental capacity of them for appropriate gainful employment.”
If the mother has no legal capacity and if the husband has control of the various trusts as a consequence, and/or as a consequence of legal incapacity will ultimately have that control, together with the right to have distributions made to him as a general beneficiary of the trust by a trustee, who can ultimately be controlled by him (and accepting that the trustee would be exercising powers appropriately under the trust deed) then, in my view, the husband would have a financial resource certainly at the time of his mother’s death and quite probably even now if his mother has no legal capacity. As the court must have regard to financial resources this is in my view a matter of relevance in the determination of the application for property settlement pursuant to section 79 brought by the wife and the medical condition of the mother relevant to her legal capacity is apparently relevant to the question of the husband’s financial resource constituted by the trusts I have described.
That is a far cry from establishing that the husband owns the entities in the trusts of which his mother is appointor and guardian. It is also a far cry from establishing that even if the assets of the trusts constitute a financial resource to the husband that the wife would be entitled to any of the assets of those trusts. At this stage the evidence I have seen goes no further than establishing at best, that if the mother’s legal incapacity is established, then the assets of the trusts in respect of which she is currently the appointor and guardian are likely to constitute a financial resource of the husband from which a court might find the wife to be entitled to a larger share of the assets which are identified as those of the parties. The extent to which that resource, if established, may impinge upon the result will depend upon many factors and the evidence ultimately led in the case.
Furthermore, the relevance of the trusts as a financial resource does not necessarily lead to the conclusion that the trusts should be added as assets to the asset pool. That too will depend upon it being established by other evidence that the assets of the trust of whom there are many beneficiaries can truly be said to be the husband’s. Thus the issue between the accountants as to the inclusion of those trusts in the asset pool is not determined by my decision today. But I am satisfied that financial resources of the parties, if that is what the trusts ultimately be, are a significant and relevant matter that the court should be able to take into account if necessary on the determination of an application under section 79. Thus evidence relating to the husband’s mother’s legal capacity is relevant.
I have considered the submissions on behalf of the husband and his mother’s counsel as to her right to privacy in relation to her medical reports.
I take into account the fact that it has not been asserted that the subpeonae are oppressive or vexatious and that most of the documents have been properly produced to the court and the issue here is one of release and inspection. Whilst some of the wife’s claims might be said to be in the nature of a “fishing expedition”, the basis upon which I have determined this matter is one of relevance. That is how the matter was argued.
The evidence lead by the wife does establish that the mother’s health is an issue and I am satisfied that that is an evidentiary basis for the subpoenaing of material which may indicate the effect of her medical problems on her legal capacity. I am satisfied that her health is relevant to the issue of control at least insofar as control is used in the context of whether the husband has financial resources which would be relevant to the ultimate determination of a section 79 application. The relevance in my view overrides the rights of the husband’s mother to privacy in this situation.
Counsel for the mother contended that s.28 of the Evidence Act 1958 (Vic) precluded certain medical records from being divulged without the consent of the patient, in this case the husband’s mother. However, he conceded that there is an exception where the sanity or testamentary capacity of the patient is the matter in dispute [s 28(5)(c) Evidence Act 1958 (Vic)]. He contended that the testamentary capacity of the mother was not in dispute in this case. I do not agree with that submission. The testamentary capacity of the mother is relevant in my view to the question of the control of the trusts of which the mother is presently the appointor and guardian and thus is the matter in dispute in respect of which the subpoenaed material is sought to be led, and there is no legislative impediment to the production and inspection of that material. Whilst relying in addition on the Privacy Act 1988 (Cth) in relation to medical records, counsel for the mother conceded that the court had power to order the release of those reports.
Hence I am satisfied that there should be production and inspection of the material produced pursuant to the subpoenae.

I certify that the preceding forty seven (47) paragraphs are a true copy of the reasons for judgment of the Honourable Chief Justice Bryant

Associate:

Date: 19 August 2008