Zegna & Zegna

[2021] FamCA 538

FAMILY COURT OF AUSTRALIA

Zegna & Zegna [2021] FamCA 538

File number(s):

SYC 3648 of 2011

Judgment of:

HARPER J

Date of judgment:

4 August 2021

Catchwords:

FAMILY LAW – PROPERTY – Where construction of property purchased by the parties was incomplete at the time of separation – Where Second to Fourth Respondents are the father and mother of the Husband, and an associated corporation – Where Second Respondent took over construction – Where there is a dispute over the costs of construction – Where Second to Fourth Respondents claim interest – Where basis of claim for interest is contractual – Where calculation of interest differs to an agreement to compromise between the Wife and Second to Fourth Respondents – No reason to depart from said agreement – Where Court limits the claim for interest.

FAMILY LAW – EVIDENCE – Where evidence of the Second to Fourth Respondent’s accountant is struck as inadmissible and prejudicial – Where account’s evidence included no material which would allow for an assessment of payments for construction costs – Where Wife would be prejudiced in giving instructions as she presently resides in Spain – Where elements of the Husband’s evidence are struck as inadmissible, prejudicial, or liable to cause an undue waste of time – Where Second Respondent’s affidavit contains schedules setting out payments for construction – Where schedules fail to identify who made the payments – Where the rates of interest in the schedules vary – Where source of interest rates is not identified – Court infers the schedules were prepared for the purposes of these proceedings – Where the schedules are struck out as irrelevant or lacking probative value.

Legislation:

Evidence Act 1995 (NSW) ss 69, 135

Number of paragraphs:

44

Date of hearing:

2-6, 9-10 August 2021

Place:

Sydney

Solicitor for the Applicant:

Mr Zegna (Jnr) in person

Counsel for the First Respondent:

Mr Richardson SC and Mr Roberts

Solicitor for the First Respondent:

Barkus Doolan

Counsel for the Second, Third and Fourth Respondents:

Mr Gould

Solicitor for the Second, Third and Fourth Respondents:

Buckley Lawyers

ORDERS

SYC 3648 of 2011

BETWEEN:

MR ZEGNA

Applicant

AND:

MS ZEGNA

First Respondent

MR F ZEGNA

Second Respondent

MS N ZEGNA

Third Respondent

L PTY LTD
Fourth Respondent

ORDER MADE BY:	HARPER J
DATE OF ORDER:	4 AUGUST 2021

THE COURT ORDERS THAT:

1.The affidavits of Mr P sworn on 22 June 2021 and 3 August 2021 are inadmissible and separately excluded under s 135 of the Evidence Act 1995 (NSW) ("the Act").

2.Paragraphs 2 to 6, Exhibit Z1, and Exhibit Z2 in the affidavit of Mr F Zegna sworn 3 August 2021 are inadmissible.

3.Paragraph 61 of the affidavit of Mr F Zegna sworn 10 February 2015 be excluded under s 135 of the Act.

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

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).

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

EX TEMPORE REASONS FOR JUDGMENT

HARPER J

1. These proceedings are long-running and complex.  The trial of the financial issues commenced before me on 2 August 2021. 

2. The Applicant Husband (“the Husband”) lives in Australia and the Respondent Wife (“the Wife”) lives in Spain.  Accordingly, the Wife is compelled to rise at inconvenient hours of the night in order to be present in the proceedings and to give instructions during daylight hours in Australia.

3. The trial, by reason of the COVID-19 pandemic, must be conducted electronically via Microsoft Teams.  The Second to Fourth Respondents are the father and mother of the Husband, and an associated corporation.  It is uncontentious that the parties purchased R Street, Suburb S on 18 June 2008.  The purchase price was some $2,225,031.  It appears that the funds for the purchase price were provided by the Second Respondent, Mr F Zegna, and two other companies.  At the end of 2009 or the beginning of 2010, the existing building at R Street was demolished and the construction of a new home commenced.

4. Construction was incomplete when the Husband and Wife separated in about February 2011.  Thereafter, the Second Respondent, Mr F Zegna, seems to have taken responsibility for progressing and completing the construction.  The Second and Third Respondents argue that they, or perhaps one of their associated companies, paid for the completion of the construction at R Street.  They have claimed during the proceedings that they paid approximately $1.2 million for this purpose.  The Husband has agreed with this figure during proceedings, but the Wife has not.

5. On 12 March 2018, amongst other orders, the Court made the following notations: 

   15. The Court notes the agreement of the second, third and fourth respondents to accept $999,436.70 in settlement of their claim for the principal sum of $1,212,055.72

   […]

   17. The Court notes that the second, third and fourth respondents’ claim for interest on the sum of $999,436.70 paid by them towards the construction of the dwelling on the Suburb S property will be determined at the final hearing, along with the question of legal costs.

6. I note that in a number of interlocutory hearings before me, Mr F Zegna confirmed that the claim of the Second to Fourth Respondents was limited to costs and interest. 

7. When the trial commenced on 2 August 2021, the Wife raised a complaint that the basis of the Second to Fourth Respondent's claim for interest was not articulated on any recognised legal basis.  The Court observed that there was force in that complaint.

8. Counsel for the Second to Fourth Respondents, who was briefed only a few days prior to the commencement of the trial, provided an Amended Case Outline on 3 August 2021.  It appears from the case articulated in that document that the Second to Fourth Respondents claim interest in the amount of $471,698.  In the course of submissions, Counsel for the Second to Fourth Respondents submitted that the basis of the claim for interest was contractual, and that the evidence in support of that contention included evidence of discussions that took place between the Wife, the Husband, and Mr F Zegna in 2015.

9. The Amended Case Outline identifies the following evidence upon which the claim for interest is said to be based:

   (a)Affidavit of Mr F Zegna, sworn 24 June 2021;

   (b)Affidavit of Mr P, sworn 22 June 2021, filed on behalf of the Applicant Husband, and a further affidavit;

   (c)Affidavit of Mr P, sworn 3 August 2021, filed on behalf of the Second to Fourth Respondents; and

   (d)Paragraphs 31, 33, 50, 61 and 99 of an affidavit of Mr F Zegna, sworn 10 February 2015. 

   The Case Outline also adverted to the possibility of a further short affidavit of Mr F Zegna, but at present, no such affidavit is filed or apparently sought to be relied upon.

10. Prior to the commencement of the cross-examination of the Husband, the Wife raised an objection to the evidence sought to be relied upon by the Second to Fourth Respondents. She sought rulings for that evidence to be excluded or confined under s 135 of the Evidence Act 1995 (NSW) (“the Evidence Act”).

11. After the commencement of the Husband's cross-examination on 4 August 2021, the issue of the evidence to be relied upon by the Second to Fourth Respondents was further agitated by reason of the fact that, if it was to be allowed, it would have consequences for the manner in which senior counsel for the Wife conducted the cross-examination of the Husband.  Accordingly, I consider it appropriate to make rulings in respect of the evidence sought to be relied upon by the Second to Fourth Respondents at this stage of the trial, and to make clear what the limitations are upon the claim for interest which they propose to make.

12. In respect of the affidavit of Mr F Zegna, sworn 24 June 2021, the paragraphs relevant to the claim for interest and the circumstances in which the agreement was made for a compromise amount of $999,436 (as recorded in the notations of 12 March 2018).  The relevant paragraphs appeared to be 110 to 122.  I defer ruling upon those now. They may be inadmissible on several grounds individually, but I do not propose to rule upon them until they are formally relied upon in the case of the Second to Fourth Respondents later in the trial.

13. With respect to the two affidavits of Mr P, he is an accountant of the Second to Fourth Respondents, and in both affidavits, he attached schedules purporting to calculate interest from 3 February 2011 at various rates to 5 March 2018.  Then, he undertook a further calculation for the period 5 March 2018 to 2 August 2021.  The calculations, on the face of the schedules attached to both affidavits, assume payments by the Second to Fourth Respondents at various dates for construction costs over the seven year period between February 2011 and March 2018, and then calculations of simple interest thereafter.

14. Mr P calculated the interest on what he contends to be the outstanding amount of $471,698 from 5 March 2018 in order, I assume, to provide some calculation of interest by reference to the date of the two notations which recorded the compromise agreement between the Wife and the Second to Fourth Respondents.

15. The notations of 12 March 2018 clearly record an agreement to compromise between the Wife and the Second to Fourth Respondents in respect of construction costs.  I can see no reason why the Court should now depart from those notations and accordingly, in my view, the case for interest to be propounded by the Second to Fourth Respondents is limited to a claim for interest on the amount of $999,436.  That is made clear by the wording, in particular, of order number 17 which, as already noted, records a claim "for interest on the $999,436.70 paid."

16. For those reasons, in my view, none of the calculations by Mr P have any relevance to the claim for interest made by the Second to Fourth Respondents and are of no utility to the Court in quantifying that claim.

17. Moreover, as the senior counsel for the Wife submitted, there is no material in either of Mr P’s affidavits which will allow an assessment of who paid what for construction costs on any particular date, bearing in mind there appeared to be no dispute that money may have come directly from Mr F Zegna personally, or from one or more of his companies.  Any investigation of such matters would, in my view, obviously delay the trial at this stage.  In light of the fact that the Wife is resident in Spain, taking account of the time differences, any investigation would be prejudicial to her because of the difficulties in obtaining instructions and forming a view about whether any of the payments claimed by the Second to Fourth Respondents as set out in the schedules of Mr P should in fact be accepted as correct.

18. Moreover, the evidence of Mr P simply highlights the surprising position of the Second to Fourth Respondents who appear to claim interest on amount in excess of $999,436, despite having clearly reached a compromise with the Wife at that figure in March of 2018. I therefore exclude the evidence of Mr P as irrelevant and therefore inadmissible in the proceedings. Separately, I exclude that evidence under s 135 of the Evidence Act as unfairly prejudicial to the Wife or on the basis that it would cause an undue waste of time.

19. That leaves the affidavit of Mr F Zegna, sworn 10 February 2015, and the nominated paragraphs which I have set out above.  The basis upon which those paragraphs are contented to be relevant is that they contain the Wife’s admissions of a liability to pay interest.  However, in my view, none of that material is relevant.  Whatever was said between the parties prior to 2015, and certainly prior to 12 March 2018, in my view, is not relevant to the question of what interest may be payable by the Wife on the figure of $999,436.  There may be material which bears upon that question which is in the nature of the surrounding circumstances in March 2018, which can be taken into account in the Court forming the view about what the terms of any agreement struck at that point were.  The conversations about different figures in a totally different context of three or more years earlier, in my view, are irrelevant to the question of what interest is payable.

20. I therefore rule as inadmissible paragraphs 31, 33, 50, 61 and 99 of the affidavit of Mr F Zegna, sworn 10 February 2015. Separately, I also exclude them as unfairly prejudicial or liable to cause an undue waste of time under s 135 of the Evidence Act.

21. I further order that the claim of the Second to Fourth Respondents for interest is limited to making contentions in respect of a claim for interest on the figure on $999,436 in accordance with notations 15 and 17 made on 12 March 2018.

22. After I made rulings with reasons concerning evidence sought to be relied upon by the Second to Fourth Respondents, Senior Counsel for the Wife raised with the Court whether the rulings on the evidence of Mr P should be extended to the affidavit of Mr F Zegna, the Second Respondent, filed on 3 August 2021. 

23. In further argument, it transpired that the Second to Fourth Respondents sought to rely upon this affidavit in support of their claim for interest.  Counsel for the Second to Fourth Respondents contended this was the "further short affidavit" which was referred to in item 6 of section A of the Second to Fourth Respondent's Amended Case Outline dated 3 August 2021 as potentially to be relied upon. This had not been previously made clear and the Court was unaware of this fact.  This caused some confusion which was exacerbated by the fact that the copy of the affidavit sent electronically to the Court was missing a page.  This was subsequently remedied over the lunch adjournment when a full copy of the affidavit was provided to my chambers.

24. Prior to the adjournment for lunch, counsel for the Second to Fourth Respondents then invited me to reconsider my ruling concerning the affidavits of Mr P on the basis that the further affidavit of Mr F Zegna provided an evidentiary basis for the schedules attached to Mr P’s affidavits.

25. The affidavit of the Second Respondent, Mr F Zegna (intending no disrespect) of 3 August 2021 exhibits one of the schedules used by Mr P as exhibit “Z1”.  I will refer to that document as “Z1” in the course of these reasons.

26. Mr F Zegna then deposes that the schedule attached to the affidavit of Mr P was actually prepared by another person, Ms T, who is Mr F Zegna's bookkeeper.  Mr F Zegna gave evidence that the schedule was prepared under his supervision.  Mr F Zegna then deposes that the figures in the schedule were obtained through records kept in the ordinary course of business by him.  He did not explain in any detail what business that was, whether it was conducted by him personally or through one of his companies.

27. Mr Zegna then exhibits what he called "the entirety of the schedule prepared by my bookkeeper under my supervision."  This is called “FZ2”.  Mr Zegna then gave evidence that this was provided to Mr P.  I understand from his evidence, therefore, that Z2 was prepared by Ms T under his supervision, and then a further schedule, which was Z1, was also prepared by her and then provided to Mr P.

28. Z2 is a schedule that purports to set out payments for "construction costs" on specific dates beginning on 3 February 2011 and finishing on 24 September 2013.  Nothing on the face of Z2 or in the evidence of Mr Zegna identifies who made the payments listed.  There are also regular entries with a calculation of interest for nominated periods.  The rate of interest ranges from 7.4 per cent to 5.95 per cent.  There is nothing on the face of the schedule or in the evidence of Mr Zegna to disclose where the nominated interest rates come from.  I point out here that there are also nominated interest rates in Z1 which are entirely different to those used in Z2 and again, the source of the interest rates is not disclosed. 

29. Mr Zegna, at paragraph 5 of his affidavit of 3 August 2021, says that he has provided documents to the Wife to prove each entry.  He does not make clear whether he means every entry including interest or only those entries in respect to construction costs.

30. Behind the first page of Z2 is a further set of schedules which appear to give a breakdown of some of the totals for construction costs up to 23 November 2011.  There is no evidence where these schedules came from or by whom they were prepared. 

31. In my view, the affidavit of 3 August 2021 goes no distance to support the admissibility of Mr P’s affidavits for at least two reasons.  First, the evidence said to support a conclusion that the schedules given to Mr P or prepared by Ms T are business records is not convincing.  The timing and circumstances of their preparation is not disclosed.  There is, as I have pointed out, a substantial difference between the interest rates appearing on the face of Z1 and those appearing on Z2, with no explanation of where they came from or where the difference is said to arise.

32. There is a ready inference that the schedules were prepared for the purposes of these proceedings so that exclusion of the hearsay rule for business records set forth in s 69 of the Evidence Act does not apply.  For this reason alone, this material in my view is not admissible.

33. Secondly, and perhaps more importantly, no relevant connection between the figure agreed and recorded in the notations of 12 March 2018 is shown.  There is, as pointed out by Counsel for the Second to Fourth Respondents, a discrepancy between the figure of $999,436 agreed between the Wife and the Second to Fourth Respondents and recorded in the notations, and the figure of $998,972 appearing in Z1 and Z2, and the schedules used by Mr P.

34. However, no point was taken in respect of this, and Counsel for the Second to Fourth Respondents agreed these two figures should be relevantly equated for the purpose of argument and nothing turned on the difference.

35. That may be true as a matter purely of quantum.  The difference between the figures is de minimis as a matter of mathematics, but there seems to be a great difference in how these two figures were arrived at.  The figure of $999,436 was agreed between the Wife and the Second to Fourth Respondents on the basis of a quantity surveyor's assessment of actual construction costs in relation to R Street, Suburb S.  The figure of $998,972 was reached by combining figures for construction costs with interest charged on those costs at regular intervals between 3 February 2011 and 1 May 2012.  Thus, the figure of $998,972 includes an amount for interest which appears, on the face of the schedules, to be in excess of approximately $60,000. Therefore, it can be seen that the figures of $999,436 and $998,972 are reached on entirely different bases.

36. Z1 then records the calculation of interest on $998,972 at various rates from 3 June 2012 to 5 March 2018, taking account of two repayments; one on 2 August 2016 and one of 5 March 2018.  Clearly, these calculations obviously include, to some extent, a calculation of interest upon interest.

37. Then, after allowing for the repayments on the nominated dates, the outstanding balance is said to be calculated at $471,698.  This is obviously made up substantially by interest calculated at various rates between 30 June 2012 and 5 March 2018.  The balance of Z1 then calculates interest on $471,698, again reflecting a calculation of interest upon interest.

38. This approach to calculating the claim on interest cannot, in my view, be reconciled with the notation of 12 March 2018. It discloses no relevant relationship to an agreement reached between the Wife and the Second to Fourth Respondents about the quantification of construction costs assessed by a quantity surveyor at $999,436.

1. Consequently, I am not satisfied that the evidence in paragraphs of 2 to 6, and Exhibits Z1, and Z2 in the affidavit of Mr F Zegna, sworn 3 August 2021, are relevant or have any probative value and are therefore inadmissible. 

2. I do not propose to revisit my ruling on the admissibility of the affidavit evidence of Mr P.

3. However, as Counsel for the Second to Fourth Respondents made clearer in the course of further submissions in inviting me to revisit my rulings, the asserted basis for the claim to interest lay in contract – that is, an agreement to pay interest.  Whether or not that is ultimately sustained is, of course, a question for after all the evidence has been received and submissions heard.

4. Having reflected on the submissions of Counsel for the Second to the Fourth Respondents concerning the admissibility of five paragraphs in an affidavit of Mr F Zegna, sworn 10 February 2015, I am of the view that they may have slight relevance. I am certainly of the view that I am unable to exclude the possibility of some probative value at this early stage of the trial.

5. I revoke my earlier ruling in respect of paragraphs 31, 33, 50 and 99 of that affidavit. However, I maintain it in respect of paragraph 61 which, on a separate basis, in my view, is unfairly prejudicial and should be excluded under s 135 of the Evidence Act.

6. I note that those four paragraphs are the only paragraphs upon which the Second to Fourth Respondents rely in connection with their claim for interest.

I certify that the preceding forty-four (44) numbered paragraphs are a true copy of the ex tempore Reasons for Judgment of the Honourable Justice Harper delivered on 4 August 2021.

Associate:

Dated: 9 September 2021