X Pty Ltd and Carapello and Anor

[2013] FamCA 724

FAMILY COURT OF AUSTRALIA

X PTY LTD & CARAPELLO AND ANOR [2013] FamCA 724

FAMILY LAW – PRACTICE & PROCEDURE - Application for summary dismissal by the second respondent in the substantive proceedings – Where the relevant test derived from r 10.12 of the Family Law Rules 2004 is applied - Where the power of summary dismissal should be sparingly employed – Whether deficiencies in the wife’s points of claim should be taken into account in determining whether or not an order for summary dismissal should be made – Where this is not an application that a pleading be struck out as disclosing no reasonable cause of action – Where regard should be had to the entirety of the evidence now available to the wife since the filing of the points of claim – Where the application for summary dismissal is refused.

Family Law Act 1975 (Cth)

Family Law Rules 2004 rr 10.12(c), 10.12(d); 10.14(a)
Uniform Civil Procedure Rules 2005 (NSW) r 14.28

Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337
Friar & Friar [2011] FamCAFC 71
General Steel Industries Inc. v the Commission for Railways (NSW) (1964) 112 CLR 125
Lindon v the Commonwealth (No. 2) (1966) 70 ALJR 541
Midland Bank PLC v Wyatt [1995] 1 FLR 696

Raftland Pty Ltd as Trustee of the Raftland Trust v Comissioner of Taxation (2008) 246 ALR 406
Republic of Peru v Peruvian Guano & Co (1887) 36 Ch. D. 489

Sharrment Pty Limited v Official Trustee in Bankruptcy (1988) 82 ALR 530

Wentworth v Rogers(No. 5) (1986) 6 NSWLR 534

APPLICANT: X Pty Ltd

FIRST RESPONDENT: Mr Carapello

SECOND RESPONDENT: Ms Carapello

FILE NUMBER: SYC 4376 of 2012

DATE DELIVERED: 17 September 2013

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Aldridge J

HEARING DATE: 23 August 2013

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Fernon

SOLICITOR FOR THE APPLICANT: Yates Beaggi Lawyers

COUNSEL FOR THE FIRST RESPONDENT: Mr Lloyd SC

SOLICITOR FOR THE FIRST RESPONDENT: Blanchfield Nicholls Partners

COUNSEL FOR THE SECOND RESPONDENT: Mr Kearney SC

SOLICITOR FOR THE SECOND RESPONDENT: Broun Abrahams Burreket Lawyers

Orders

1. That the Application in a Case filed on 22 March 2013 by X Pty Limited is hereby dismissed.

IT IS NOTED that publication of this judgment by this Court under the pseudonym X Pty Limited & Carapello & Carapello 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 SYDNEY

FILE NUMBER: SYC 4376 of 2012

X Pty Ltd

Applicant

And

Mr Carapello

First Respondent

And

Ms Carapello
Second Respondent

REASONS FOR JUDGMENT

1. The second respondent in the substantive proceedings, X Pty Limited (“X”) seeks an order that the claims against it by Ms Carapello (“the wife”) be summarily dismissed.  The wife asserts that the two properties owned by X are in fact owned by the husband or, alternatively, they are a financial resource available to him.  Alternatively, she asserts that the shares in X are, in fact, owned by the husband, or that it is a financial resource available to him.  

2. X is the registered proprietor of land at 1, 2 & 3 A Street, Suburb B (“the A Street property”) and C Street, Suburb D (“the Suburb D property”).  The directors and shareholders of X are the parents of Mr Carapello (“the husband”).  The husband’s father is, and has always been, the company secretary of X.

Background

1. The husband and wife married in 1990.  The parties separated in July 2011, according to the husband, or January 2012, according to the wife.

2. Throughout the period of the marriage, through a number of corporate entities some of which involved a third person, the business of property development and project management was carried out, principally by the husband.  Directly or indirectly, the parties acquired a number of properties of significant value. The wife estimates the value of that property to be in the order of $16 million.

3. X was incorporated on 11 May 2005.  Its registered office and principal place of business has always been 4 A Street, Suburb B or 5 A Street, Suburb B.

4. In about 2000 E Pty Ltd (“E”) acquired 5 A Street, Suburb B.  Mr F and the husband were and are the directors of that company.  The shares in E are owned by a company in which the husband and Mr F have an equal interest.  Thus, indirectly, they have an equal interest in E.

5. 5 A Street, Suburb B is also the registered office of G Pty Ltd.  The husband presently conducts his business through that entity.

6. On 22 December 2009 the contract for the purchase of the Suburb D property by X was settled.  The purchase price was $1.15 million.  Subsequent to the purchase no mortgage was registered against the property.

7. On 14 February 2012 the contract for the purchase of the A Street property was settled.  The purchase price was $2.805 million.  Subsequent to the purchase no mortgage was registered against the title.

8. On 23 July 2012 the wife commenced these proceedings.

9. On 12 October 2012 X was joined as a party to the proceedings. 

10. On 15 November 2012 Registrar Campbell made the following order:

    3.        The Applicant Wife must file and serve by 4pm 20 December 2012:

    A document setting out the Wife’s points of claim with respect to her claim that [X Pty Ltd] holds some, if not all, of its assets as Trustee for the benefit of the Husband including but not limited to: The exact characterisation of the Trust alleged to exist between the husband and [X Pty Ltd]; the kind or kinds of Trust alleged; a summary of the facts alleged by the Wife in support of the Trust alleged.

11. The wife’s points of claim were filed on 26 February 2013.

Principles to be Applied

1. Rule 10.12 (c) and (d) of the Family Law Rules 2004 provides that a party may apply for summary orders if the party claims that the application is frivolous, vexatious, an abuse of process or that there is no likelihood of success. Pursuant to r 10.14(a), on such an application, the court may dismiss any part of the case. In General Steel Industries Inc. v the Commission for Railways (NSW) (1964) 112 CLR 125 Barwick CJ said at [128]:

   The plaintiff rightly points out that the jurisdiction summarily to terminate an action is to be sparingly employed and is not to be used  except in a clear case where the Court is satisfied that it has the requisite material and the necessary assistance from the parties to reach a definite and certain conclusion.  

   I have examined the case law on the subject, to some of which I was referred in argument and to which I penned a list of references.  There is no need for me to discuss in any detail the various decisions, some of which were given in cases in which the inherent jurisdiction of a court was invoked and others in cases which counterpart rules to Order 26, r. 18, were the suggested source of authority to deal summarily with the claim in question.   It is sufficient for me to say that these cases uniformly adhere to the view that the plaintiff ought not be denied access to the customary tribunal which deals with actions of the kind he brings, unless his lack of a  cause of action – if that be the ground on which the Court is invited, as in this case, to exercise its powers of summary dismissal – is clearly demonstrated.  The test to be applied has been variously expressed; “so obviously untenable that it cannot possibly succeed”; “manifestly groundless”; “so manifestly faulty that it does not admit of argument”; “discloses a case which the Court is satisfied cannot succeed”; “under no possibility can be a good cause of action”; “be manifest to allow them” (the pleadings) “to stand would involve useless expense”.

2. In Lindon v the Commonwealth (No. 2) (1966) 70 ALJR 541 at 544-5 KirbyJ said:

   1.It is a serious matter to deprive a person of access to the courts of law for it is there that the rule of law is upheld, including against government and other powerful interests.  This is why relief, whether under O 26, r 18 or in the inherent jurisdiction of the court, is rarely and sparingly provided.

   2.To secure such relief, the party seeking it must show that it is clear, on the face of the opponent's documents, that the opponent lacks a reasonable cause of action or is advancing a claim that is clearly frivolous or vexatious.

   3.An opinion of the court that a case appears weak and such that it is unlikely to succeed is not, alone, sufficient to warrant summary termination. Even a weak case is entitled to the time of a court. Experience teaches that the concentration of attention, elaborated evidence and argument and extended time for reflection will sometimes turn an apparently unpromising cause into a successful judgment.

   4.Summary relief of the kind provided for by O 26, r 18, for absence of a reasonable cause of action, is not a substitute for proceeding by way of demurrer. If there is a serious legal question to be determined, it should ordinarily be determined at a trial for the proof of facts may sometimes assist the judicial mind to understand and apply the law that is invoked and to do so in circumstances more conducive to deciding a real case involving actual litigants rather than one determined on imagined or assumed facts.

   5.If, notwithstanding the defects of pleadings, it appears that a party may have a reasonable cause of action which it has failed to put in proper form, a court will ordinarily allow that party to reframe its pleading. A question has arisen as to whether O 26, r 18 applies to part only of a pleading. However, it is unnecessary in this case to consider that question because the Commonwealth's attack was upon the entirety of Mr Lindon's statement of claim.

   6.The guiding principle is, as stated in O 26, r 18(2), doing what is just. If it is clear that proceedings within the concept of the pleading under scrutiny are doomed to fail, the court should dismiss the action to protect the defendant from being further troubled, to save the plaintiff from further costs and disappointment and to relieve the court of the burden of further wasted time which could be devoted to the determination of claims which have legal merit. (References omitted)

3. Of course, the relevant test to be applied in these proceedings is that which is derived from r 10.12 which is whether the claim is “frivolous, vexatious or an abuse of process” or has “no reasonable likelihood of success”. Nevertheless, exceptional caution must be applied and the power of summary dismissal should be sparingly employed. Friar & Friar [2011] FamCAFC 71 per Thackray and Watts JJ.

The Points of Claim

1. The points of claim are not ideally expressed.  They contain a one paragraph contention followed by a number of particulars which are a recitation of facts said to be relevant and then known to the wife.  The introductory contention is:

   The shareholding and directorships of [X Pty Ltd] (“[X]”) is a device and/or artifice as that term is used in Ascot Investments Pty Ltd v Harper, in that it is brought into being “as a devise to assist one party to evade his/her obligations under the Family Law Act”. As such the property of [X] should be treated as the property of the Respondent; or in the alternative:

   [X] holds its property on trust for the Respondent; or in the alternative

   the shareholders of [X] hold their shareholding on trust for the Respondent.  (References omitted)

2. X asserted that, as the points of claim were ordered by the Registrar and as they were ordered to be a complete statement of the claims to be made against X, deficiencies in that document should be taken into account in determining whether or not an order for summary dismissal should be made.  Thus it was submitted that none of the particulars, if proven, could establish that X was created as a sham or to evade the husband’s obligations under the Family Law Act. 

3. As to a sham, X relied on the well known passage of Lockhart J in Sharrment Pty Limited v Official Trustee in Bankruptcy (1988) 82 ALR 530 at 536-7. Reference was also made to the Judgment of Kirby J in Raftland Pty Ltd as Trustee of the Raftland Trust v the Commissioner of Taxation (2008) 246 ALR 406. His Honour said:

   [146]The test as to the parties’ intentions is subjective.  In essence, the parties must have intended to create rights and obligations different from those described from their documents.  Such documents must have been intended to mislead third parties in respect of such rights and obligations.  

   [147]Where a court is considering a suggestion of sham that has a reasonably arguable evidential foundation, the court will not be confined to examining the propounded documentation alone. It may examine (and draw inferences from) other evidence, including the parties’ explanations (if any) as to their dealings, and evidence describing their subsequent conduct. (References omitted)

4. X accepted that “that notwithstanding the intention of the parties must have been intended to create rights and obligations different from those described in their documents “a sham transaction will still remain a sham transaction even if one of the parties to it merely went along with the “shammer” not knowing or caring about what he or she was signing”.  (Midland Bank PLC v Wyatt [1995] 1 FLR 696 at 699).

5. Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 was not limited simply to shams. At 354 Gibbs CJ said:

   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, being an 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.”

6. Thus an artifice, as described by Gibbs CJ in Ascot Investments, takes a sham and a company being a mere puppet to the parties of marriage to be different concepts.  The points of claim, whilst not ideally drawn, are capable of encompassing both as well as the claim that X holds its property on trust for the respondent. 

7. It is not appropriate to focus merely upon the points of claim and see whether the particulars are capable of supporting the contention. This is not an application that a pleading be struck out as disclosing no reasonable cause of action. (See Rule 14.28 of the Uniform Civil Procedure Rules 2005(NSW)). This is not a court that proceeds by way of pleadings. Rather, it is preferable to look at the evidence relied upon by the wife.

8. The wife now relies upon material of which she has become aware since the points of claim were filed.  Regard should be had to the entirety of the evidence now available to the wife.

9. Finally, if the court is of the view that there are facts available justifying the applicant’s claim and the defects in the pleading can be cured by amendment the court would give the applicant the opportunity to amend.  (Republic of Peru v Peruvian Guano & Co (1887) 36 Ch. D. 489 at 496; Wentworth v Rogers(No. 5) (1986) 6 NSWLR 534 at 536).

10. For these reasons it is preferable to focus on the facts relied upon by the wife and not confine attention to the form of the points of claim or to limit attention to the facts set out as particulars in the points of claim.

11. In addition to the background material identified above the wife relies upon the matters set out below.  In setting these matters out no findings of fact are being made.  This is merely the identifying of evidence which may or may not be accepted at the final hearing, to see whether there is material capable of supporting the wife’s claims.  For the purpose of deciding whether or not the wife’s claim against X should be summarily dismissed the wife’s claim and evidence against X is to be taken at its highest.

12. In about November 2008 the wife received some documents that were delivered to the family home.  Included in those documents was an invoice from the accountant of the husband and the wife for the formation of X in the sum of $13,000.  The wife says the name on the invoice was that of the husband and the address was the home address.  The husband’s response was he did not know of the company and that the accountant had made a mistake.

13. When pressed further about this, after the wife confronted the husband with the results of a company search of X, he said to the wife that his parents had asked him not to tell anyone about it.

14. H Real Estate were the real estate agents who acted on the sale of the A Street property.  On the sales advice the purchaser was noted as the husband.  Their letter confirming the purchase was sent to X to the attention of the husband.  A letter advising of exchange of contracts was similarly addressed.

15. The trust account records of I Real Estate have an entry relating to the purchase of the A Street property as follows:

    Deposit of $127 500.00 received from purchaser ([Mr Carapello]) – receipt 933.

16. The contract for the purchase of the A Street property was executed by X by the signatures of the husband and his father.  The capacity in which those signatures were fixed was not noted on the document.  

17. On 8 February 2012 X granted a licence to third parties for the use by them of the A Street property.  The document was executed by X by means of the sole signature of the husband.

18. The file of the solicitors who acted for X on the purchase and licence of the A Street property shows that the conveyance and licencing were not straightforward.  The solicitors file is extensive and covers the period from November 2009 to August 2012.  The licencing required the solicitor to receive detailed instructions on draft licence agreements.  The purchaser was required to remediate the land.  This required the obtaining and consideration of remediation reports with the solicitor requiring and receiving instructions on many occasions.  The file indicates that all instructions were given to the solicitors by the husband.  Correspondence was sent to and received from him.  There is no record or file note in the file of any instructions being received from either of the parents of the husband.  There is no correspondence sent to or received from the parents in the file.  It was the husband who approached the Council in relation the remediation reports and who, according to the file, obtained his own expert advice in relation to them.

19. The A Street property, or at least part of it, was proposed to be let to J Pty Ltd.  Instructions were given by the husband to H Real Estate in relation to that letting.  On 22 July 2011 being Annexure “F” to the wife’s affidavit filed 6 June 2013 he said in an email “…I would rather wait and try and do a deal on both properties, that’s providing [J Pty Ltd] are happy to work with us”.  In April 2012 he received from H Real Estate a detailed proposal for a lease of part of the property from J Pty Ltd.

20. On 14 April 2011 he sent an email, being Annexure “C” to the wife’s affidavit filed 6 June 2013, to an architect about the property saying:

    Hi [Mr K] please find revised sketch.  We have tried to satisfy all of [J Pty Ltd] requests. The number of parking spaces has been increased to the max – 180 spaces with access from [A Street] and [L Street]. The [J Pty Ltd] unit remains at 3000m², the maximum we can get for [M Pty Ltd] is 2030m² on ground and 400m² on mezzanine level, it is impossible to get anymore from the site.  Please forward for comment, Regards [Mr Carapello] (As per original).

21. In November 2011 he received a concept sketch of the development of the property from the architect.

1. The initial instructions for the purchase of the Suburb D property recorded by the solicitors acting for X on the purchase are shown in a file note as coming from the husband.  Thereafter the file reveals that all instructions were given by and sought from the husband.  All communications in relation to the sale were directed to or received from the husband.  The letter seeking payment of the stamp duty was directed to the husband and a file note records that the husband informed the solicitor that he would get the stamp duty by “next Monday”.   There is no record in that file of any instructions being sought from or given by the husband’s parents or any correspondence sent to or received from them.

2. The contract for the purchase of the Suburb D property was executed by X over the signature of the husband alone who was described as “Director/Sec.”.

3. Thus, the only evidence of any involvement in the purchase by the husband’s parents that appears in the solicitors’ files for both properties is the execution of the A Street contract by the husband’s father.

4. The husband had engaged for a number of years N Pty Ltd, a firm of financial planners, to give advice.  On 22 November 2011 they created an invoice addressed to the husband at “[X] Group” being Annexure “I” of the wife’s affidavit of 6 June 2013.  That was forwarded to the husband by them by email with the following message:

   I know you do not want [X] info mailed, so have attached [N Pty Ltd] Invoice for you.

5. Annexure “J” to the wife’s affidavit filed 6 June 2013 attaches an invoice dated 20 June 2011 seeking the payment of $22,000 for repairs to a carpark slab in Suburb O.  The invoice was headed “X, 5 A Street, Suburb B”. 

6. On 10 June 2011 the wife alleges the husband completed a deposit slip for the deposit of $200,000 into an account where the owner was described as “X” which is Annexure “L” to her affidavit filed 6 June 2013.

7. The wife’s case is that the husband’s parents are elderly (they are presently 75), and notwithstanding that they own a number of properties, they had neither the means nor the ability and desire to undertake such commercial developments.

8. The husband’s case is that he was merely helping his parents out.  That maybe so, but that is a matter for determination at any final hearing and is not to be taken into account for the purposes of this application where the wife’s case is to be taken at its highest.

Conclusion

1. The power to summarily dismiss a case is to be exercised sparingly and in exceptional cases.  This is not such a case.  There is evidence, which, if accepted at a trial, is capable of indicating that it is the husband, and not his parents, who control the decision making of X, at least in relation to the two properties, the subject of these proceedings.  There is thus evidence which supports a finding that X is a puppet of the husband.  The evidence above, if accepted at the trial, as to the apparent control of the decision making is also consistent with the claim of the wife that the land, or the husband’s parents’ interest in X, are beneficially owned by the husband.  The attempts of the husband to conceal these matters from the wife, if it is so found, would support the wife’s contentions.

2. What is missing, from the evidence as it presently stands, as was forcibly pointed out by counsel for X, is evidence of the source of funds to purchase the two properties.

3. The trust account records showing the receipt of a deposit from the husband do not establish that it was, in fact, his money that he provided.

4. X was asked by the wife to provide to the wife details as to how the properties were financed.  It declined to do so.

5. Whilst the husband received a copy of the letter the wife’s solicitor wrote to X the husband has not been specifically asked to disclose what he knows about the financing of the two X properties.

6. The wife did not issue a subpoena to X, or the husband, seeking documents evidencing the financing of the two properties.

7. There are therefore, obvious steps to identify the source of funds used for the purchase of the property which have not been taken. However, this is not the final hearing of the case. The requirement is not for the applicant wife to prove her case, at least to a prima facie level, at this stage of the hearing. Rather it falls to X to establish that the wife’s case is manifestly groundless, so obviously untenable that it cannot succeed or to use the words of the r 10.12, is “frivolous, vexatious or an abuse of process” or “there is no reasonable likelihood of success”. The court is not trying the case at this stage, nor even determining whether there is a prima facie case.

8. The court is required to determine whether there is no reasonable likelihood of success.  In doing so, the court must bear in mind it must be satisfied it has the requisite material before it, that it is a serious matter to deprive a person of access to the courts, that even a case that is weak and unlikely to succeed is not one that attracts summary dismissal and the power summarily to dismiss must be used sparingly and in exceptional cases.

9. There is evidence which, if accepted at a hearing, is capable of establishing that the husband acted as the sole director of X and that his parents played little, if any, role in the company.  This goes some distance in establishing the wife’s contentions.  There is no evidence as to the source of funds used to buy the properties and, no doubt, that will be very significant at the trial.  At present that is a lacuna, and thus a weakness, in the wife’s case.  Given the other evidence that lacuna should not deprive the wife of taking her case to a final hearing.  Even if that be so, the authorities require the court to not summarily dismiss her case.  It cannot be said, on the basis of the above material, that the wife’s lacks a reasonable cause of action.  Whether it is established, or not, is a matter for the final hearing.

10. Finally, it was submitted that, if it was the case of the wife that at the time of the creation of X, it was intended that all of the assets of X, or the shares the husband’s parents held in it, were held on trust for the husband then all of the subsequent acts relied upon by the wife, cannot be relevant to the parties’ intentions at the time of X’s creation.

11. This is contrary to the position stated by Kirby J in Raftland at [147] as set out above.

12. Secondly, the wife’s case is not so limited.  Her case is also that the properties themselves are held by X in trust for the husband so that, even accepting for the purpose of this argument, X’s submission as to the relevant date of the enquiry, there is evidence which, if accepted at the final hearing, is capable of indicating that the intention of X was other than to acquire the properties for its own benefit.

13. X has failed to establish that the proceedings are frivolous, vexatious or an abuse of process or that there is no reasonable likelihood of success. Accordingly, the application in a case will be dismissed. 

I certify that the preceding fifty-eight (58) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Aldridge delivered on 17 September 2013.

Associate:

Date: 16 September 2013