Coversheet and Orders Page 1

FAMILY COURT OF AUSTRALIA

SIMMONS AND ANOR & SIMMONS [2008] FamCA 1088

FAMILY LAW – PRACTICE AND PROCEDURE – SUMMARY DISMISSAL –

Rule 10.12 of the Family Law Rules 2004 and the doomed to fail test - Property -

What constitutes? – The interest of an object of a non-exhaustive discretionary trust

with an open class of beneficiaries – Part VIIIAA

Family Law Act 1975 (Cth)

Federal Court of Australia Act 1976 (Cth)

Federal Magistrates Act 1999 (Cth)

B Pty Ltd and Ors & K and Anor 219 FLR 107

Bain Pacific Associations & Ors and Kelly & Ors (2006) FLC 93-270

Beck and Beck (2004) FLC 93-181

Best v Best (1993) FLC 92-418

Bigg v Suzi (1998) FLC 92-799

C v B and W (2006) 35 Fam LR 547

Custodio and Pinto & Ors (2006) FLC 93-279

Duff and Duff (1977) FLC 90-217

Evans and Public Trustee for the State of Western Australia as Legal Personal

Representative of Evans (deceased) (1991) FLC 92-223

Fisher v Fisher (1986) 161 CLR 438

Gartside v Inland Revenue Commissioners [1986] AC 553

Gazzo v Comptroller of Stamps (Vic) (1981) 149 CLR 227

Gitane and Velacruz (2007) FLC 93-309

Hauff and Hauff (1986) FLC 91-747

Hunt v Hunt & Lederer (2006) 36 Fam LR 64

In the Marriage of Davidson (1991) FLC 92-197

Jacobs & Vale [2008] FMCAfam 641

JB & BW [2006] FamCA 639

Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd and Others (2008)

167 FCR 372

Jones v Skinner (1835) 5 LJ Ch 87

Kennon v Spry; Spry v Kennon [2008] HCA 56

Korsky & Bright and Anor (No. 2) (2007) FLC 93-352

Law-Smith and Seinor (1989) FLC 92-050

Lindon v The Commonwealth (No 2) (1996) 136 ALR 251

Mullane v Mullane (1983) 158 CLR 436

Pelerman v Pelerman (2000) FLC 93-037

R and I Bank of Western Australia Ltd v Anchorage Investments Pty Ltd [1992] 10

WAR 59

Raftland Pty Ltd as trustee of the Raftland Trust v Commissioner of Taxation (2008)

82 ALJR 934

Coversheet and Orders Page 2

Ramsay v Ramsay (1997) FLC 92-7423

Re Smith; Public Trustee v Aspinall [1928] Ch 915

R and R (unreported, Simpson, Strauss and Smithers JJ, 27 April 1990)

Richstar Enterprises Pty Ltd and Others; Australian Securities and Investments

Commission v Carey (No 6) (2006) 153 FCR 509

Spellson v Spellson (1989) FLC 92-046

Yanner v Eaton (1999) 201 CLR 351

APPLICANT: L Pty Ltd

APPLICANT HUSBAND: Mr Simmons

RESPONDENT WIFE: Ms Simmons

FILE NUMBER: MLF 1269 of 2005

DATE DELIVERED: 12 December 2008

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Watt J

HEARING DATE: 19 June 2008

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Glick QC with Mr

Strum

SOLICITOR FOR THE APPLICANT: Kennedy Wisewoulds

COUNSEL FOR THE APPLICANT

HUSBAND:

Mr Melilli

SOLICITOR FOR THE APPLICANT

HUSBAND:

Kenna Teasdale Lawyers

COUNSEL FOR THE RESPONDENT WIFE: Mr North SC with Mr

Sweeney

SOLICITOR FOR THE RESPONDENT

WIFE:

Landers & Rogers

Coversheet and Orders Page 3

ORDERS

(1) That paragraphs 1 and 2 of L Pty Ltd’s amended response to an application in a

case filed 17 June 2008, and the husband’s application in similar terms filed 18

April 2008, be dismissed.

(2) I transfer all pending applications to Justice Cronin for mention on 17

December 2008 at 2:15pm or such other date as his Honour may appoint.

IT IS NOTED that publication of this judgment under the pseudonym Simmons and

Anor & Simmons is approved pursuant to s 121(9)(g) of the Family Law Act -1975

(Cth)

Reasons Page 1

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLF 1269 of 2005

L PTY LTD

Applicant

And

MR SIMMONS

Applicant husband

And

MS SIMMONS

Respondent wife

REASONS FOR JUDGMENT

INTRODUCTION

1. In this interim proceeding, the applicant, L Pty Ltd, who is the third respondent

in the substantive proceedings for property settlement brought by the wife,

seeks to have her further amended application for final orders filed 12 May

2008 summarily dismissed pursuant to r 10.12 of the Family Law Rules 2004

(―the Rules‖) insofar as she seeks orders in that application for relief against it.

In the alternative, L Pty Ltd seeks to have the wife provide security for its

costs. The husband supported L Pty Ltd’s application and sought the same

order for summary dismissal. This judgment deals with the summary dismissal

argument only.

2. The orders sought by the wife proceed on the basis that the husband has a

proprietary interest in the F Family Settlement. Accordingly, the wife seeks

orders against L Pty Ltd pursuant to Part VIIIAA of the Family Law Act 1975

(―the Act‖).

Reasons Page 2

BACKGROUND

3. The husband’s father established the Simmons Group over fifty years ago. He

died in 1999. He was survived by his widow and their five adult children: the

respondent husband and his siblings B, C, D and E.

4. The F Family Settlement is a discretionary trust which was settled in 1979.

There are two classes of beneficiaries, identified in the schedule of the Trust

Deed:

The Beneficiaries: The [H] Foundation, Melbourne, Victoria

The General Beneficiaries: Any person who at or prior to the Distribution

Date either is or has been a student at [H] Melbourne Victoria or any

spouse, child or grandchild of such a person

5. The relevant distribution date is eighty years from the date of the Deed of

Settlement, which is July 2059.

6. All members of the Simmons family are beneficiaries. The current structure of

the Simmons family includes the husband’s mother, her five adult children,

their spouses (not including the wife) and their children. This totals twenty

three people.

7. The third respondent, L Pty Ltd, is the trustee of the F Family Settlement. As

trustee L Pty Ltd owns the assets of the Simmons Group which includes several

businesses throughout Melbourne. All of the adult children of the father’s

parents contribute to the operation of the Simmons Group.

8. The composition of the L Pty Ltd Board is consistent with a resolution passed

by it in July 2003 which provided that three of the six directors must be

members of the Simmons Family. Furthermore, that those directors should

rotate in order to ensure that all family members are given the opportunity to

serve in this position.

9. The current members of the L Pty Ltd Board who are members of the Simmons

family are C who is the Chief Executive Officer of the Simmons Group, B and

D. The husband was a director until his resignation in August 2004.

10. The three issued shares in L Pty Ltd are jointly owned by the husband’s mother,

Mr R and Mr A. As trustee of the F Family Settlement, L Pty Ltd has applied

to the Australian Tax Office to make family trust elections. As a consequence,

penalties apply if distributions are made to persons other than the husband’s

mother, her adult children, her grandchildren and their spouses.

11. The second respondent in the substantive proceedings is R Investments Pty Ltd

(―R Investments‖). Although R Investments is not a party to the current

proceeding, it is important to understand its role. It is the wholly owned

subsidiary of L Pty Ltd. The directors are the husband and C.

Reasons Page 3

12. R Investments has shares in three primary areas of the Simmons Group

including:

Simmons Group Pty Ltd;

Simmons Properties Pty Ltd; and

Simmons Investments Pty Ltd.

13. All of the dividends declared by R Investments are distributed twice a year to L

Pty Ltd pursuant to R Investments’ dividend policy. These monies are

distributed in turn as income of the F Family Settlement. Historically,

distributions have only been made to members of the Simmons family.

Furthermore such distributions have been divided equally between the

husband’s mother and her adult children.

14. Paragraph 65 of the wife’s affidavit of evidence in chief sworn or affirmed on

11 March 2008 reads as follows:

Since [the husband’s father’s] death, [the husband] has in addition to his

salary received regular distributions from the [F] Family Settlement in

which the primary assets of the [Simmons] Group are held. The

distribution policy of that trust is determined by the Board of [L] Pty Ltd,

its corporate trustee. The distribution policy for many years has remained

such that one quarter of the annual profit of the [Simmons] Group (after

payment of salaries to family members) has been divided equally between

the five [Simmons] siblings and their mother […]. Distributions have been

made at least twice per annum, which [sic] an interim distribution usually

paid in March/April and a final distribution paid in October/November

each year. For many years, such distributions took the form of dividends

but in recent times such distributions have involved capital payments.

15. There is one qualification to this equality of distribution: the salaries of the

husband and C are met in part by distributions from the F Family Settlement

and in part by franking credits from the dividends received from R

Investments. Accordingly, the husband and C receive an additional sum when

dividends are distributed.

16. Following the establishment of the F Family Settlement and L Pty Ltd in 1979,

members of the Simmons family, including the husband, sold their shares in

Simmons Investments Pty Ltd to L Pty Ltd. Each was to receive approximately

$942,800 in payment for the transfer of their shareholding, which was recorded

as a capital loan payable by L Pty Ltd to each relevant family member.

Pursuant to the loan agreements however, the loans were not repayable for a

period of twenty five years. Furthermore, there was no interest payable on the

loans.

17. In June 2003 prior to the conclusion of the twenty five year period, the loans

were extended to 21 December 2014 and the debts were transferred to R

Reasons Page 4

Investments. The revised loan agreements also provided for a draw down of an

additional $100,000 by each lender upon the lender reaching fifty five years of

age.

18. On 7 March 2006, the Board of L Pty Ltd resolved to commence making profit

distribution payments to the relevant family members in the form of non-

assessable loan account withdrawals from their existing loan balances. The

resolution became effective on 20 June 2006. In effect the distributions reduce

the balances of the lenders’ loan account, thereby reducing the debt owed by R

Investments to each of the family members who reinvested the sale price of

their original shareholdings in the entity through which the business was

conducted.

19. The Simmons Family Council was established in 2000. The Council has held

annual retreats since April 2000. It makes recommendations to L Pty Ltd

regarding the management and administration of the Simmons Group. As

described in retreat papers in April 2003, part of the role of the Council is:

To communicate to the board the differing needs and wishes of the various

generations of family members.

20. The mission statement of the Simmons Family Council, adopted on 12 August

2001 reads as follows:

a) We will practice financial discipline so that sufficient financial returns can

be made from the business to ensure:

i) A secure financial future to all stakeholders

ii) Reinvestment in the future of the business; and

iii) Return on an investment to the family.

21. The Constitution of the Simmons Family Council also provides the terms of

employment and remuneration of Simmons family members, the selection of

its Board members and the procedure by which family members who are not

members of the Board can be heard.

22. The Mission Statement and Constitution were affirmed at the fourth annual

Simmons Family Council retreat in April 2003.

23. The adult children of the Simmons family also established the Pillars Group in

2004. This group meets informally to discuss the business and personal issues

faced by the Simmons Group.

24. Documents generated by the Simmons Family Council and the L Pty Ltd Board

make reference to ―long term trust shareholders‖ and the ―family pillars.‖

25. The parties approached this matter on the basis that the only material that could

be used in the context of the application for summary dismissal was the wife’s

Reasons Page 5

further amended application for final orders filed 12 May 2008 and her

affidavit of evidence in chief sworn or affirmed on 11 March 2008.

26. This approach is consistent with Custodio and Pinto & Ors (2006) FLC 93-279

whereby Finn J observed at 80,760:

The authorities also establish that there are limitations on the material upon

which an applicant for summary dismissal can rely in establishing the case

for such relief. As Kirby J said in Lindon (supra) that in order to secure

relief by way of summary dismissal, "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" (at 544-5).

27. Her Honour also cited at 80,576 the following proposition espoused by Bryant

CJ in Bain Pacific Associations & Ors and Kelly & Ors (2006) FLC 93-270

who had regard to Beck and Beck (2004) FLC 93-181:

... that apart from material in the case of the respondent to an application

for summary dismissal, the court may have regard to relevant non-

contentious facts, even if raised by the applicant for summary dismissal.

28. Non-contentious facts referred to by Senior Counsel in the course of

submissions included:

The present structure of the Simmons family – annexure ―RBL–1‖ to the

affidavit of Mr RL sworn on 30 May 2008;

The Trust Deed - annexure ―RGL1‖ to the affidavit of Mr A sworn 22 April

2008; and

Facts asserted by Senior Counsel for the wife in his document entitled

Factual and Legal Contentions relied upon by the wife in support of her

application for final relief filed 12 May 2008.

29. It is common ground that the property of the marriage includes, but may not be

limited to, the former matrimonial home, the husband’s loan account with the

Simmons Group and a joint investment account in the United States.

30. Pursuant to the wife’s further amended application for final orders, she seeks an

order that:

(1)(b) the husband pay such further sum to the wife as is necessary to

bring the total value of the property received and retained by the wife

under theses orders to an amount equal to 50% of the net assets of the

husband and the wife.

31. Her application proceeds on the basis that the husband’s interest as on object of

the F Family Settlement is property that can be the subject of an order under s

79 of the Act and that orders could be made as sought by her under PartVIIIAA

Reasons Page 6

of the Family Law Act 1975 (the Act) to effect a division of property between

the parties to the marriage.

32. I heard oral submissions from Senior Counsel for the wife and L Pty Ltd on 19

June 2008. Written submissions were filed on behalf to the parties prior to that

date. Counsel for the husband adopted submissions made by Senior Counsel

for L Pty Ltd and reaffirmed the submission that the husband’s interest in the

trust is not property.

33. Since reserving my judgment, a Full Court of this court (Faulks DCJ, Coleman

and Warnick JJ) delivered judgment in B Pty Ltd and Ors & K and Anor (2008)

219 FLR 107. Very recently, the High Court delivered its reasons for judgment

in Kennon v Spry; Spry v Kennon [2008] HCA 56. I invited further written

submissions in respect of both judgments and I will refer to those that were

received in due course.

LEGAL PRINCIPLES

Summary dismissal

34. A central issue in this proceeding is the nature of the husband’s interest as an

object of the F Family Settlement. The F Family Settlement is a non-

exhaustive discretionary trust, with an open class of beneficiaries. As sole

trustee of the F Family Settlement, L Pty Ltd has legal title over the assets of

the trust.

35. The final orders sought by the wife against L Pty Ltd are in the following

terms:

7. Until final payment is made by the husband in accordance with

paragraph 1, 2 and 3 hereof or until the husband, or Third respondent

provides the wife with security acceptable to her for the performance

by the husband or his obligations in 1, 2 and 3 hereof the Third

respondent is retrained from causing or permitting or acquiescing in

any of the following:-

(a) any alteration in the identity of the [F] Family Settlement;

(b) any amendment or alteration to the terms of the Trust known as the [F]

Family Settlement

(c) any distribution of income or capital from the [F] Family Settlement to

any person other than a person who is both an object of that trust and

has in the past received a distribution of income or capital;

(d) making any distribution of capital or income in any one year in favour

of any object or objects of the [F] Family Settlement other than the

husband without first ensuring that the distributions are made to the

husband in an amount at least equal to one third of the total of the

amounts that are distributed in that year to the husband’s siblings, [B,

D and E] and any spouse or child of any such sibling.

Reasons Page 7

8. Until final payment is made by the husband in accordance with

paragraph 1, 2 and 3 hereof or until the Third respondent is released

from the restraints in 7 hereof, in the event that the Third respondent

makes any distribution or distributions to the husband in any one year

then the Third respondent shall cause the amount so distributed to the

husband, up to an amount that is equal to one third of the distributions

in that year to the other objects, to be paid to the wife and together with

that payment the Third respondent shall deliver to the wife a statement

as to whether the distribution is one of capital or income or both in

what amount it is of capital and in what amount it is of income insofar

as it is a distribution of income the Third respondent shall further state

the amount of any franking credit attributable thereto.

9. Until final payment is made by the husband in accordance with

paragraphs 1, 2 and 3 hereof or until the Third respondent has been

released from the restraints in paragraph 7 hereof the husband shall no

later than 15 June of each year notify the wife of the percentage rate at

which he anticipates income tax will be assessed on him for the last

dollar earned by him in the year, failing which the wife shall assume

that percentage rate to be such rate applicable as if the husband’s

income was no greater than the amount received by them from the

Third respondent as an income distribution for the husband in the 12

months preceding the 30 June that year.

36. The principal questions raised by the applications for summary dismissal are:

Does the husband’s interest as an object of the F Family Settlement fall

within the meaning of property for the purposes of section 79 of the Act?

Is the husband’s interest capable of being dealt with by an order under s

79, altering the interests of the parties or either of them?

Can Part VIIIAA arguably support the orders sought by the wife, based

on the wife’s material before the court and any non-contentious facts

material to her claim? If the answer to this question is in the negative,

the court would lack jurisdiction to make the orders sought under

PartVIIIAA.

37. Rule 10.12 of the Rules provides for the making of an application for a

summary order of the kind sought here. The rule came into effect on 29 March

2004. It reads as follows:

A party may apply for summary orders after a response has been filed if the

party claims, in relation to the application or response, that:

(a) the court has no jurisdiction;

…

Reasons Page 8

(d) there is no reasonable likelihood of success.

38. Pursuant to r 10.14, on application the court may:

(a) dismiss any part of the case;

(b) decide an issue;

(c) make a final order on any issue;

(d) order a hearing about an issue or fact.

39. The Full Court (Warnick, May and Boland JJ) in Korsky & Bright and Anor

(No. 2) (2007) FLC 93-352 cited with approval the following legal principles

which govern the exercise of summary relief which were enunciated by Kirby J

in Lindon v The Commonwealth (No 2) (1996) 136 ALR 251 at 255-6

(references omitted):

The approach to be taken by the court to the Commonwealth's

application for summary relief is not in doubt:

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

Reasons Page 9

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.

40. In light of Lindon v The Commonwealth (No 2) the Full Court (Ellis,

Lindenmayer and Rose JJ) set out the following principles in Bigg v Suzi

(1998) FLC 92-799. These principles were cited with approval in Pelerman v

Pelerman (2000) FLC 93-037 at 87,582:

(a) The power for summary dismissal is a discretionary one.

(b) Relief ―is rarely and sparingly provided.‖

(c) The parties seeking summary dismissal must show that the application

is ``doomed to fail'' or as has been otherwise described ``that the opponent

lacks a reasonable cause of action or is advancing a claim that is clearly

frivolous or vexatious.‖

(d) A weak case or one that is unlikely to succeed is not ``sufficient to

warrant termination''.

(e) ―If there is a serious legal question to be determined, it should

ordinarily be determined at a trial.‖

(f) ―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 pleadings.‖

41. Accordingly, I must determine whether the Court has the jurisdiction to make

the orders sought by the wife under Part VIIIAA or in the alternative, whether

the wife’s claim has no reasonable likelihood of success. The issue of the

merits of the wife’s claim is a matter for the trial Judge.

42. The decisions of the Full Court of this court prior to the introduction of r 10.12,

make reference to the ―doomed to fail‖ test. A question arose during the course

of oral submissions as to whether the test for summary orders (or dismissal) has

changed since r 10.12 came into effect in 2004.

43. As Senior Counsel for the wife pointed out, since the rule came into effect, the

Full Court has not made express reference to r 10.12 in a number of judgments

that have considered summary dismissal. The Full Court has, however, applied

the ―doomed to fail‖ test. These judgments include Bain Pacific, JB & BW

Reasons Page 10

[2006] FamCA 639, Gitane and Velacruz (2007) FLC 93-309 and Korsky &

Bright and Anor (No. 2).

44. Senior Counsel for the wife submitted that the test for summary dismissal has

not changed since 2004 and that it would be a breach of procedural fairness if r

10.12 was not taken to mean ―doomed to fail.‖

45. Senior Counsel for L Pty Ltd submitted that the introduction of r 10.12 had

lowered the bar with respect to the applicable test for summary orders. In

support of this argument L Pty Ltd directed the court’s attention to a decision of

the Full Court of the Federal Court (Finkelstein, Rares and Gordon JJ) in

Jefferson Ford Pty Ltd v Ford Motor Company of Australia Ltd and Others

(2008) 167 FCR 372, which was illustrative of the operation of s 31A of the

Federal Court of Australia Act 1976 (Cth), which governs the Federal Court

with respect to summary judgments.

46. That section provides:

(1) The Court may give judgment for one party against another in relation

to the whole or any part of a proceeding if:

(a) the first party is prosecuting the proceeding or that part of the

proceeding; and

(b) the Court is satisfied that the other party has no reasonable

prospect of successfully defending the proceeding or that part of the

proceeding.

…

(3) For the purposes of this section … a proceeding or part of a proceeding

need not be:

(a) hopeless; or

(b) bound to fail;

for it to have no reasonable prospect of success.

47. Senior Counsel for L Pty Ltd highlighted the distinction between the Family

Law Rules and the Federal Court of Australia Act as s 31A(3) does not appear

in the former. He further submitted that s 31A(3) provides a specific legislative

direction to the Federal Court in relation to the content of ―no reasonable

prospect of success.‖ Senior Counsel for L Pty Ltd concluded that there is no

substantial difference between the tests for summary judgment or dismissal in

the Family Court and in the Federal Court.

48. Although no submissions were made in this respect I note that an identical

provision governs summary judgments in the Federal Magistrates Court.

Section 17A of the Federal Magistrates Act 1999 (Cth) provides:

(1) The Federal Magistrates Court may give judgment for one party against

another in relation to the whole or any part of a proceeding if:

Reasons Page 11

(a) the first party is prosecuting the proceeding or that part of the

proceeding; and

(b) the Court is satisfied that the other party has no reasonable

prospect of successfully defending the proceeding or that part of the

proceeding.

…

(3) For the purposes of this section … a proceeding or part of a proceeding

need not be:

(a) hopeless; or

(b) bound to fail;

for it to have no reasonable prospect of success.

49. With respect to the Federal Magistrates Act 1999, Jarrett FM in Jacobs & Vale

[2008] FMCAfam 641 observed at 13:

It will immediately be appreciated that the power possessed by the Federal

Magistrates Court pursuant to the Federal Magistrates Act and the Federal

Magistrates Court Rules is fundamentally different to the power identified

in Lindon, Bigg v Suzi and Pelerman.

50. I agree with the learned Federal Magistrate in so far as he identifies a

fundamental difference between the approach taken in the authorities that he

cites and the statutory guidelines that governed the exercise of discretion by

him.

51. The Rules were drafted against the background of the decision in Lindon and

the judgments of the Full Court of this court that had applied it. Subsequent

decisions of the Full Court of this court have continued to apply the same test

in circumstances where r 10.12 was the relevant statutory guide. One such case

that I have cited and quoted above is Korsky & Bright and Anor (No. 2), where

the Full Court’s intention to apply the Lindon test could not be more apparent.

There is no basis, in my view, for the proposition advanced on behalf of L Pty

Ltd that the approach of this court to this issue has changed, or should now

change, to the less demanding standard that applies to an applicant for

summary dismissal under the Federal Court Act 1976 (or the Federal

Magistrates Court Act 1999), or that the introduction of r 10.12 has produced

such a change.

LEGAL PRINCIPLES

What constitutes property

52. In oral submissions Senior Counsel for L Pty Ltd directed the court’s attention

to the different senses in which the term ―property‖ could be used throughout

Reasons Page 12

legal discourse. In Yanner v Eaton (1999) 201 CLR 351 at 365 - 366,

(references omitted), a majority of the High Court (Gleeson CJ, Gaudron,

Kirby and Hayne JJ) noted:

The word "property" is often used to refer to something that belongs to

another. But in the Fauna Act, as elsewhere in the law, "property" does not

refer to a thing; it is a description of a legal relationship with a thing. It

refers to a degree of power that is recognised in law as power permissibly

exercised over the thing. The concept of "property" may be elusive.

Usually it is treated as a "bundle of rights". But even this may have its

limits as an analytical tool or accurate description, and it may be, as

Professor Gray has said, that "the ultimate fact about property is that it does

not really exist: it is mere illusion". Considering whether, or to what extent,

there can be property in knowledge or information or property in human

tissue may illustrate some of the difficulties in deciding what is meant by

"property" in a subject matter. So too, identifying the apparent circularity

of reasoning from the availability of specific performance in protection of

property rights in a chattel to the conclusion that the rights protected are

proprietary may illustrate some of the limits to the use of "property" as an

analytical tool. No doubt the examples could be multiplied.

Nevertheless, as Professor Gray also says, "An extensive frame of

reference is created by the notion that 'property' consists primarily in

control over access. Much of our false thinking about property stems from

the residual perception that 'property' is itself a thing or resource rather than

a legally endorsed concentration of power over things and resources."

53. The Full Court of this Court comprising of Watson SJ, Murray and Wood JJ in

Duff and Duff (1977) FLC 90-217 held that the definition of property should

not be narrowly construed. Their Honours adopted at 76,133 the following

definition of property by Lord Langdale MR in Jones v Skinner (1835) 5 LJ Ch

87 at 90:

Property is the most comprehensive of all terms which can be used in as

much as it is indicative and descriptive of every possible interest which the

party can have.

54. It was argued by L Pty Ltd that pursuant to s 79, property must be capable of

valuation and alteration in order to be amenable to an order under s 79. It

submitted that the husband’s interest as an object of the F Family Settlement

has no value and is not capable of alteration.

55. Oral submissions proceeded on the basis that the husband was not a controller

of the F Family Settlement, nor was the trust a sham or puppet save that Senior

Counsel for the wife submitted that an argument could be raised at final hearing

based on the judgment of the High Court in Raftland Pty Ltd as trustee of the

Raftland Trust v Commissioner of Taxation (2008) 82 ALJR 934.

Reasons Page 13

56. That case concerned income tax and related legislation as well as the subjective

intention of parties with respect to sham transactions. The High Court

considered the history and meaning of the term sham for the purposes of

Australian law. Justice Kirby concluded at 963 that the term sham could relate

to only one transaction or part thereof.

57. Accordingly, Senior Counsel for the wife submitted that the concept of sham

could be applicable to this case in light of the history of distributions and the

real intention of the trust as a traditional family settlement.

58. During oral submissions Senior Counsel for L Pty Ltd conceded that for the

purposes of the present proceeding only, the F Family Settlement is a

traditional family settlement intended to benefit the husband’s father and

mother, their children, spouses and descendants. That is to say that there is no

real intention to benefit the H Foundation, nor past or present pupils of H

Organisation.

59. Senior Counsel for L Pty Ltd directed the court to Richstar Enterprises Pty Ltd

and Others; Australian Securities and Investments Commission v Carey (No 6)

(2006) 153 FCR 509. That case concerned an application by the Australian

Securities and Investments Commission (ASIC) pursuant to s 1323 of the

Corporations Act 2001. ASIC sought to appoint receivers to property related

to companies within the Westpoint Property and Finance Group.

60. Senior Counsel for the wife had no argument with respect to the reasons of

Justice French (as he then was) in that case as a general proposition, but argued

that the ratio decidendi of that case related to a proprietary interest in trust

property which was not being argued by the wife in the current proceeding.

The wife conceded that the husband had no proprietary interest in the property

of the F Family Settlement.

61. In that case French J provided the following summary of non-exhaustive

discretionary trusts at 516:

Gummow J [in Federal Commissioner of Taxation v Vegners (1989) 90

ALR 547] described as ―purely discretionary‖ a trust in which income and

capital can be withheld altogether. This kind of trust fits within the

classification of non-exhaustive discretionary trusts discussed below.

….

On the other hand a discretionary trust is called ―non-exhaustive‖ when the

trustee has a discretion to distribute any part or perhaps none of the income

of the trust as he thinks fit. Similar classifications would apply according to

the basis upon which the corpus of a trust is distributed. The beneficiaries

may form a defined and closed class of persons. Alternatively, the class

may be open. By way of example of the latter case, a discretionary trust

intended primarily to benefit a family may nevertheless name as

beneficiaries not only its living members, but also relatives born or yet to

be born into the extended family, charities and other classes of entity. The

Reasons Page 14

naming of these species of discretionary trusts, like the term ―discretionary

trust‖ itself, is a matter of taxonomical convenience rather than expository

of principle.

62. His Honour continued at 516 to cite the following passage from the judgment

of Romer J in Re Smith; Public Trustee v Aspinall [1928] Ch 915 at 918:

Where there is a trust under which trustees have a discretion as to applying

the whole or part of a fund to or for the benefit of a particular person, that

particular person cannot come to the trustees, and demand the fund; for the

whole fund has not been given to him but only so much as the trustees

think fit to let him have.

63. Contingent on the argument that the F Family Settlement is a non-exhaustive

discretionary trust, Senior Counsel for L Pty Ltd submitted that at the

conclusion of each financial year, L Pty Ltd as trustee could within its absolute

discretion elect to:

make distributions to any of the beneficiaries;

accumulate income; or

make donations to charitable institutions.

64. In Richstar Enterprises Pty Ltd and Others; Australian Securities and

Investments Commission v Carey (No 6) at 517 French J cited the following

passage from the learned author Geraint Thomas in Thomas on Powers (1st

edition, Sweet & Maxwell, London, 1998) at p 6,286:

Thus, although an individual object of an exhaustive discretionary trust

(and a fortiori in the case of a non-exhaustive one) cannot claim any part of

the trust fund or its income (as the case may be) because he is not entitled

to any interest in it unless and until the trustees exercise their discretion in

his favour…. Although, as Lord Reid pointed out in Gartside v IRC, two or

more persons cannot have a single right unless they hold it jointly or in

common, and the beneficiaries of a discretionary trust do not have such a

right — indeed, they are in competition with each other and what the

trustees give to one is his alone …

65. Justice French continued at 517 to cite a passage from Patrick Parkinson (ed),

The Principles of Equity (2nd

edition, Law Book Co, Sydney, 2003) at p 60:

Since the trustees of a discretionary trust have no duty to make a particular

distribution, or indeed any distribution to a specific individual, the rights of

the beneficiaries are limited to compelling the trustees to consider whether

or not to make a distribution in their favour and to ensuring the proper

administration of the trust. This is true even if the discretionary trust only

has one beneficiary (Re Weirs Settlement Trusts [1971] Ch 145).

Reasons Page 15

66. Written submissions filed on behalf of the wife and L Pty Ltd both cited

extracts from the following passage in H. A. J. Ford and W. A. Lee, Principles

of the Law of Trusts (3rd

edition, LBC Information Services, Sydney, 1996

onwards) at 5210:

A person who has a trust power (see above, [5180]) is under (i) a duty to

consider how to distribute and (ii) a duty to distribute. An object has an

equitable chose in action to complain to a court if the trustee fails in these

duties. That equitable chose in action may amount to property

(Hardingham and Baxt, Discretionary Trusts, (2nd ed, Butterworths,

Sydney, 1984), pp 126ff) but it is not property that can be alienated by an

individual object inter vivos (see below, [5220]) or be given by will. Nor

can it descend on an intestacy. A trustee who has a mere power is under a

duty to consider the exercise of the power from time to time: see above

[5180]. A person who is specified as an object or who is within the

specified class of objects has, as such, standing to complain if the trustee so

acts as to manifest an intention not to consider, as where the trustee

improperly delegates or releases the power or exercises it capriciously:

Hardingham and Baxt, pp 11-12; Re Hodges; Davey v Ward (1878) 7 Ch D

754; Re Roper's Trusts (1879) 11 Ch D 272; Re Lofthouse (an infant)

(1885) 29 Ch D 921.

As the object of a mere power possessed by a trustee has an equitable chose

in action that person can be considered to have property but that property is

no more alienable or transmissible than the chose in action of an object of a

trust power: Hardingham and Baxt, p 129.

67. Senior Counsel for L Pty Ltd conceded that the bundle of rights held by the

husband could be defined as a chose in action. Furthermore, Mr Glick QC

submitted that such an interest is a mere expectancy which only arises in the

event that the trustee fails to consider the beneficiaries or fails to properly

administer the trust.

68. Senior Counsel for the wife and L Pty Ltd both made reference to the judgment

of Lord Wilberforce in Gartside v Inland Revenue Commissioners [1986] AC

553 at 617 which was adopted by French J in Richstar Enterprises Pty Ltd and

Others; Australian Securities and Investments Commission v Carey (No 6) at

518:

No doubt in a certain sense a beneficiary under a discretionary trust has an

―interest‖: the nature of it may, sufficiently for the purpose, be spelt out by

saying that he has a right to be considered as a potential recipient of benefit

by the trustees and a right to have his interest protected by a court of

equity.

69. L Pty Ltd then relied upon the following passage from the reasons for judgment

of Owen J in R and I Bank of Western Australia Ltd v Anchorage Investments

Pty Ltd [1992] 10 WAR 59 at 79, which was also adopted by French J in

Reasons Page 16

Richstar Enterprises Pty Ltd and Others; Australian Securities and Investments

Commission v Carey (No 6) at 518:

The trustee has a duty to administer the trust bona fide having regard to the

purpose for which it was established. This is a duty which the court will

enforce at the behest of the beneficiary. In this way, the remedy defines the

nature of the interest of an individual beneficiary.

70. Senior Counsel for the wife submitted that this proposition may be the case for

the particular purpose identified in that case, but that it was not a general

proposition applicable to all such interests.

71. Justice French concluded at 29 of Richstar Enterprises Pty Ltd and Others;

Australian Securities and Investments Commission v Carey (No 6) that:

… in my opinion, in the ordinary case the beneficiary of a discretionary

trust, other than perhaps the sole beneficiary of an exhaustive trust, does

not have an equitable interest in the trust income or property which would

fall within even the most generous definition of ―property‖….

72. Senior Counsel for both parties referred to Spellson v Spellson (1989) FLC 92-

046 during their oral submissions. Certain extracts were cited from the reasons

of Murray J at 77,529 who concurred with Lindermayer J:

I am ad idem with my brother Lindenmayer in his agreement with the

general propositions asserted by the learned authors Hardingham and Baxt

in Discretionary Trusts (2nd ed.) that an object of a discretionary trust has

no equitable interest, in the strict sense, either vested or contingent, in the

distributable fund as a whole or in any fraction of it, or in any of the assets

constituting the distributable fund; that an object has ``nothing more than

an expectancy'' in relation to the assets of the trust which is ``not in the

nature of a property interest'' (In Matter of Rule's Settlement (1915) V.L.R.

670). There is no challenge by the wife's Senior Counsel to the proposition

that while an object's expectancy is not in the nature of a property interest,

his chose in action may be so described. A chose in action is no less

``property'' because it is unenforceable or may be only indirectly

enforceable.

The value of the wife's chose in action in these proceedings however,

cannot in my view be ascertained at this interlocutory stage but must await

a full hearing on the evidence and of argument.

73. As later appears, however, this court has previously dealt with property of no

apparent value, the ownership of which has produced an income stream or

other benefits to the owner. Such income streams and other benefits can of

course be valued, especially where they represent long standing arrangements

that are likely to continue into the future, or would have continued, but for a

change of approach to distributions on the part of a third party trustee.

Reasons Page 17

74. Senior Counsel for the wife also relied upon a decision by the Full Court of this

court (Fogarty, Lindenmayer and McGovern JJ) in Best v Best (1993) FLC 92-

418 at 80,289:

The second quality which Senior Counsel for the husband submitted that

interest must have is that it be capable of being the subject of an order

under s. 79. If that was intended to mean that it must be capable of being

the subject of a direct order under s. 79 we do not consider that that is

correct. There are a number of interests which have been held to be

property notwithstanding that they cannot themselves be the subject of a

direct order because of legislative or other restrictions.

75. Mr North SC, in describing the husband’s interest as a right that gives rise to

future title, also relied upon the reasons of Lindemayer J at 77,533 of Spellson:

In particular, it was not submitted that his Honour was in error in holding

that the wife, as an object of the Settlement and the Trust, has a chose in

action which is ``a right of `property' of the wife''. That proposition is

supported by the text referred to by his Honour [Hardingham and Baxt,

Discretionary Trusts (2nd ed, Butterworths, Sydney, 1984)], although I

think it appropriate to note that the learned authors of that text describe the

right of an object of a discretionary trust to call upon the trustees to deal

with the distributable fund in a manner appropriate to the due

administration of the trust as `a right in the nature of an equitable chose in

action'.

76. A further alternate submissions pursued on behalf of L Pty Ltd was that the

husband’s interest was not capable of alteration, thus incapable of forming part

of an order pursuant to s 79 of the Act.

77. In response to this submission, Senior Counsel for the wife directed the court’s

attention to the decision of the High Court in Mullane v Mullane (1983) 158

CLR 436 at 445:

In our opinion, section 79 on its proper construction refers only to orders

which work an alteration of the legal or equitable interests in the property

of the parties or either of them…. It does not exclude every interest which

is not assignable or transferable

78. A similar proposition was raised before the Supreme Court of Queensland in C

v B and W (2006) 35 Fam LR 547. Justice McMurdo held at 556 – 557

(references omitted):

As is said in Discretionary Trusts by Hardingham and Baxt (2nd ed,

Butterworths, Sydney, 1984), the object of a discretionary trust, in

circumstances comparable to the first defendant’s position, has a right or

rights amounting at least to an equitable chose in action which is ―property

in the strict sense‖. In particular the inalienability of that chose in action

Reasons Page 18

does not prevent it from being property, and the authors cite National

Trustees Executors & Agency Co of Australasia Ltd v Federal

Commissioner of Taxation (Cain’s Case) where Kitto J said:

It may be said categorically that alienability is not an indispensable

attribute of a right of property according to the general sense which

the word ―property‖ bears in the law.

Rights may be incapable of assignment, either because assignment is

considered incompatible with their nature, as was the case originally

with debts (subject to an exception in favour of the King), or because

a statute so provides or considerations of public policy so require, as is

the case with some salaries and pensions; yet they are all within the

conception of ―property‖ as the word is normally understood…

79. In the Full Court judgment of B Pty Ltd and Ors & K and Anor the applicants,

that is the husband and numerous third parties, sought permission to appeal

against orders made by Morgan J which allowed for the respondent wife to

amend her application to join six respondents and claim further relief against

existing respondents. Some of the third parties in that case were trustee

corporations and appointors of discretionary trusts of which the husband was a

member of the class of beneficiaries.

80. As in the current proceeding, Mr North SC acted on behalf on the wife. The

Full Court stated at 109:

It is common ground that, the trusts concerned being discretionary trusts,

though the husband is a beneficiary of each of them, he cannot under the

general civil law in Victoria require a distribution to himself. However, Mr

North SC, who appears before us for the wife, submits that an order to that

effect can be made pursuant to s 90AE of the Act.

81. In further written submissions filed on behalf of the wife it was submitted that

the ratio decidendi of B Pty Ltd and Ors & K and Anor had no relevance to the

wife’s application in the proceeding currently before me on the basis that the

Full Court held at 52 that, ―[s]ufficient facts must be asserted to demonstrate

that, if proved, the law arguably provides the relief sought.‖ As evidence

thereof, Mr North SC and Mr Sweeney pointed to the non-contentious fact that

the husband and his siblings lent the trust funds on generous terms.

82. It is important to note that in B Pty Ltd and Ors & K and Anor, Mr North SC

sought to show a connection between the marriage and the interests of the third

parties by establishing that the husband’s right as a beneficiary of a

discretionary trust constituted a chose in action, and was thus property. A

similar line of argument was pursued by him in the current proceeding. Written

submissions filed on behalf of L Pty Ltd and the husband directed the court’s

attention to 110 whereby the Full Court concluded:

Reasons Page 19

…there is no nexus between the husband’s chose-in-action and the trust

assets which gives the husband any proprietorial interest in those assets.

An order in respect of those assets would not seem to be ―in relation to the

property of a party to a marriage‖ (s 90AA).

83. Further written submissions filed by L Pty Ltd and the husband emphasised the

analogous facts between the husband in the present proceeding and the husband

in B Pty Ltd and Ors & K and Anor, with both men being members of a class

of general beneficiaries of a discretionary trust, with a right to require the

proper administration of the trust. Further written submissions filed on behalf

of the wife distinguished B Pty Ltd and Ors & K and Anor from the present

proceeding on the basis that the orders sought by the wife in that case sought to

increase the pool of martial assets by an unknown quantum.

84. The High Court handed down its reasons for judgment in Kennon v Spry; Spry

v Kennon [2008] HCA 56 on 3 December 2008. On 5 December 2008 I made a

direction in chambers that was sent to each party’s legal representatives by my

associate (by email and facsimile transmission) under a covering

communication that drew attention to the High Court’s judgment in Spry. The

direction was:

Any further submission to be made by any party is to be made in writing by

email to my associate at [email address supplied] and copied to each other

party by 4.00pm on Tuesday 9 September 2008.

85. This did not require any party to make a further submission but rather created

an opportunity to do so within a limited time frame. Further written

submissions were received from L Pty Ltd on 9 December 2008, which were

adopted by the husband.

86. Spry required a consideration of the definition of the property of parties to the

marriage and in particular whether the right of the wife with respect to the due

administration of the relevant trust and the discretionary power of the husband

to appoint the whole of trust assets to the wife constituted part of the property

of the parties to the marriage. L Pty Ltd directed the court’s attention to the

observations of French CJ at 77:

The beneficiary of a non-exhaustive discretionary trust who does not

control the trustee directly or indirectly has a right to due consideration and

to due administration of the trust but it is difficult to value those rights

when the beneficiary has no present entitlement and may never have any

entitlement to any part of the income or capital of the trust.

87. Chief Justice French continued at 78 to state:

Gummow and Hayne JJ, in their joint reasons, characterise Mrs Spry's right

with respect to the due administration of the Trust as part of her property

Reasons Page 20

for the purposes of the Family Law Act. I respectfully agree with their

Honours that prior to the 1998 Instrument the equitable right to due

administration of the Trust fund could be taken into account as part of the

property of Mrs Spry as a party to the marriage. So too could her equitable

entitlement to due consideration in relation to the application of the income

and capital.

88. At 79 his Honour noted:

Insofar as Gummow and Hayne JJ rely upon the property comprised by

Dr Spry's power as trustee and Mrs Spry's equitable rights prior to 1998, I

agree that these property rights were capable of providing a basis for the

orders which Strickland J made. I do so, as already indicated, by

considering that power and the equitable rights, in conjunction with

Dr Spry's legal title to the Trust assets, without which the power and the

rights were meaningless.

89. In their separate judgment, Gummow and Hayne JJ held at 126:

The right of the wife with respect to the due administration of the Trust was

included in her property for the purposes of the Act. The submissions by

Mr Gleeson to this effect should be accepted. The submissions to the

contrary by Mr Myers should not be accepted. And in considering what is

the property of the parties to the marriage (as distinct from what might be

identified as the property of the husband) it is important to recognise not

only that the right of the wife was accompanied at least by the fiduciary

duty of the husband to consider whether and in what way the power should

be exercised, but also that, during the marriage, the power could have been

exercised by appointing the whole of the Trust assets to the wife.

Observing that the husband could not have conferred the same benefit on

himself as he could on his wife denies only that he had property in the

assets of the Trust, it does not deny that part of the property of the parties

to the marriage, within the meaning of the Act, was his power to appoint

the whole of the property to his wife and her right to a due administration

of the Trust.

90. In its further written submissions L Pty Ltd argued that the facts in the current

proceeding were distinguishable from those in Spry on the basis that the

husband is not a director of L Pty Ltd, the trustee of the F Family Settlement,

nor does he hold a power of appointment in respect of the trust. A further

submission was that the assets of the F Family Settlement were not

accumulated by the parties during the marriage, but instead by the husband’s

father.

91. I will consider the effect of the judgment of the majority in Spry further in due

course.

Reasons Page 21

Value

92. The alternate submission made by L Pty Ltd was that the husband’s interest had

no value by reason of being incapable of valuation.

93. In this respect, Senior Counsel for L Pty Ltd referred to R and I Bank of

Western Australia Ltd v Anchorage Investments Pty Ltd which concerned an

application for contempt following an alleged breach of a Mareva injunction.

The Full Court of the Supreme Court of Western Australia held that the

beneficiary of a non-exhaustive discretionary trust did not have a proprietary

interest in any particular asset of the trust fund as the expectancy in the

possibility of a trustee appointing capital of the trust in his or her favour lacked

the requisite aspect of ―value.‖

94. Justice Owen concluded at 80:

In my opinion, the expectation which a beneficiary has that the trustee

might appoint income or capital in his or her favour lacks the requisite

aspect of value for it to be regarded as an asset. I interpose for it to be

regarded as property. Similarly the chose in action to due administration of

the trust is so qualified or limited in its connection with the property

making up the trust fund that it is too devoid of value to the extent

necessary to constitute it an asset. The right to say to the trustee "please

consider me", is too remote from value to have any value.

95. Senior Counsel for the wife submitted that given the husband’s position, the

family arrangement and the history of distributions, the husband’s interests was

analogous to that of the husband in Ramsay v Ramsay (1997) FLC 92-742. In

that case the husband held a minority shareholding. Historically he had never

received dividends on his shares.

96. In Ramsay v Ramsay Warnick J concluded that the husband had no realistic

prospect of gaining control of the company in the future. Furthermore, that his

shares could not be sold as there was no market value. Accordingly his Honour

recognised the lack of realisable value in the husband’s shareholding. His

Honour concluded that for the purposes of s 79 proceedings, the shares had a

value to the husband represented by the value of the income stream received by

him, by reason of his family and his ownership of the shares.

97. I refer again to the decision of the High Court in Spry. After recognising that

the interest of an object of a discretionary trust is property for the purposes of

the Family Law Act, Chief Justice French acknowledged that:

In so agreeing, however, I acknowledge, …. that it is difficult to put a value

on either of these rights though a valuation might not be beyond the

actuarial arts in relation to the right to due consideration.

Reasons Page 22

Part VIIIAA

98. In order for the wife’s further amended application for final orders to withstand

the challenge to the court’s jurisdiction raised by L Pty Ltd, I must be satisfied

that the court has the power to bind L Pty Ltd pursuant to Part VIIIAA of the

Act. Part VIIIAA was introduced on 17 December 2004. Pursuant to s 90AA,

the object of this Part is to allow the court to make orders directed to third

parties with respect to s 79 proceedings. The power given to the court is

entirely discretionary.

99. Pursuant to s 90AB, an order made under this Part is binding on a third party,

meaning a person who is not a party to the marriage. As such L Pty Ltd comes

within this definition. In accordance with s 90AG, such an order also binds

subsequent trustees. Consistent with submissions made on behalf of the wife,

such an order prevails over any other contradicting law, trust deed or other

instrument pursuant to s 90AC.

100. s 90AE reads:

(1) In proceedings under section 79, the court may make any of the

following orders:

(a) an order directed to a creditor of the parties to the marriage to substitute

one party for both parties in relation to the debt owed to the creditor;

(b) an order directed to a creditor of one party to a marriage to substitute

the other party, or both parties, to the marriage for that party in relation to

the debt owed to the creditor;

(c) an order directed to a creditor of the parties to the marriage that the

parties be liable for a different proportion of the debt owed to the creditor

than the proportion the parties are liable to before the order is made;

(d) an order directed to a director of a company or to a company to register

a transfer of shares from one party to the marriage to the other party.

(2) In proceedings under section 79, the court may make any other order

that:

(a) directs a third party to do a thing in relation to the property of a party to

the marriage; or

(b) alters the rights, liabilities or property interests of a third party in

relation to the marriage.

(3) The court may only make an order under subsection (1) or (2) if:

(a) the making of the order is reasonably necessary, or reasonably

appropriate and adapted, to effect a division of property between the parties

to the marriage; and

…

(d) the court is satisfied that, in all the circumstances, it is just and

equitable to make the order; and

Reasons Page 23

(e) the court is satisfied that the order takes into account the matters

mentioned in subsection (4).

(4) The matters are as follows:

(a) the taxation effect (if any) of the order on the parties to the marriage;

(b) the taxation effect (if any) of the order on the third party;

(c) the social security effect (if any) of the order on the parties to the

marriage;

(d) the third party’s administrative costs in relation to the order;

(e) if the order concerns a debt of a party to the marriage—the capacity of a

party to the marriage to repay the debt after the order is made;

(f) the economic, legal or other capacity of the third party to comply with

the order;

(g) if, as a result of the third party being accorded procedural fairness in

relation to the making of the order, the third party raises any other

matters—those matters;

(h) any other matter that the court considers relevant.

101. The Explanatory Memorandum for the Family Law Amendment Bill 2003 (Cth)

indicates that Parliament intended s 90AE to cover a wide range of possible

interests which a party to the marriage may have. Furthermore that the range

of orders available to the Court be broad. This position is consistent with

submissions made on behalf of the wife.

102. Senior Counsel for the wife directed the court’s attention to Hunt v Hunt &

Lederer (2006) 36 Fam LR 64, whereby O’Ryan J upheld the constitutionally

validity of s 90AE(2)(b). His Honour concluded at 65:

When s 90AE(2) was read in conjunction with s 90AE(3), s 79, and Part

VIIIAA generally, it was clear that what was contemplated was not some

arbitrary invasion of the rights of a third party but an alteration of those

rights where they were sufficiently connected to the division of the

property between parties to a marriage.

103. This decision was cited with approval by the Full Court in B Pty Ltd and Ors &

K and Anor. With respect to respect to s 90AE(2) their Honours observed at

21:

… insofar as the words in s 90AE(2)(b) ―property interests of a third party

in relation to the marriage‖ may be unclear, we note again the object of the

Part in s 90AA, namely to allow the court to make orders under s 79 that is

directed to the property interests of a third party in relation to the property

of a party to a marriage.

Reasons Page 24

104. On the basis that the wife seeks injunctions against L Pty Ltd, I also need to be

satisfied that the court’s power comes within the scope of s 90AF. That section

reads:

(1) In proceedings under section 114, the court may:

(a) make an order restraining a person from repossessing property of a

party to a marriage; or

(b) grant an injunction restraining a person from commencing legal

proceedings against a party to a marriage.

(2) In proceedings under section 114, the court may make any other order,

or grant any other injunction that:

(a) directs a third party to do a thing in relation to the property of a party to

the marriage; or

(b) alters the rights, liabilities or property interests of a third party in

relation to the marriage.

(3) The court may only make an order or grant an injunction under

subsection (1) or (2) if:

(a) the making of the order, or the granting of the injunction, is reasonably

necessary, or reasonably appropriate and adapted, to effect a division of

property between the parties to the marriage; and

(b) if the order or injunction concerns a debt of a party to the marriage—it

is not foreseeable at the time that the order is made, or the injunction

granted, that to make the order or grant the injunction would result in the

debt not being paid in full; and

(c) the third party has been accorded procedural fairness in relation to the

making of the order or injunction; and

(d) for an injunction or order under subsection 114(1)—the court is

satisfied that, in all the circumstances, it is proper to make the order or

grant the injunction; and

(e) for an injunction under subsection 114(3)—the court is satisfied that, in

all the circumstances, it is just or convenient to grant the injunction; and

(f) the court is satisfied that the order or injunction takes into account the

matters mentioned in subsection (4).

(4) The matters are as follows:

(a) the taxation effect (if any) of the order or injunction on the parties to the

marriage;

(b) the taxation effect (if any) of the order or injunction on the third party;

(c) the social security effect (if any) of the order or injunction on the parties

to the marriage;

(d) the third party’s administrative costs in relation to the order or

injunction;

Reasons Page 25

(e) if the order or injunction concerns a debt of a party to the marriage—the

capacity of a party to the marriage to repay the debt after the order is made

or the injunction is granted;

(f) the economic, legal or other capacity of the third party to comply with

the order or injunction;

(g) if, as a result of the third party being accorded procedural fairness in

relation to the making of the order or the granting of the injunction, the

third party raises any other matters— those matters;

(h) any other matter that the court considers relevant.

105. The legislation provides a relevant example with respect to s 90AF(4)(f). It

reads:

The legal capacity of the third party to comply with the order or injunction

could be affected by the terms of a trust deed. However, after taking the

third party’s legal capacity into account, the court may make the order or

grant the injunction despite the terms of the trust deed. If the court does so,

the order or injunction will have effect despite those terms (see section

90AC).

106. With respect to an order made under s 90AF, s 90AK states that the court must

not make an order or grant such an injunction if it would result in the

acquisition of property from a person otherwise than on just terms or be invalid

pursuant to paragraph 51(xxxi) of the Constitution. I am satisfied in the present

case that neither limitation applies. As argued in the wife’s written submissions

regarding Part VIIIAA, each object of the F Family Settlement has no present

entitlement to a proprietary interest in the assets of the trust; therefore no

individual object suffers pecuniary loss.

107. Senior Counsel for the wife submitted that the power under s 90AF was

analogous to that under s 114. On this basis, a reference was made to the

judgment of Nicholson CJ in Law-Smith and Seinor (1989) FLC 92-050 at 77,

565 – 566:

Paragraph (e) of sec. 114(1) refers to an injunction in relation to the

property of a party to the marriage and although I have expressed the view

that the husband's present entitlements under the superannuation scheme

are not property as such, it is clear that they are capable of becoming

property depending upon the happening of certain contingencies.

Accordingly, I consider that an order requiring the husband to take a step to

bring such property into existence, is an order with respect to the property

of the husband within the meaning of para. (e) of sec. 114(1). If I am

incorrect about this, I am nevertheless confident that the general power

contained in sec. 114(1) is such as to confer the necessary jurisdiction to

make such an order.

Reasons Page 26

I consider that the order sought in the present proceedings falls clearly

within the category of an exercise of power in aid of the jurisdiction of the

Court to make orders for a property settlement pursuant to sec. 79 of the

Act. It seems to me that an order which has the effect of placing property in

the hands of one party who has been able to put himself into the position of

obtaining that property, at least to some extent, by reason of the marital

relationship must be treated as a valid exercise of power in aid of the

Court's jurisdiction under sec. 79. If it were otherwise, human ingenuity

being such as it is, it is apparent that the jurisdiction of the Court to make

effective orders under sec. 79 could be readily circumvented contrary to the

clear intent of the legislation.

108. With respect to the issue of procedural fairness, the third party in question, L

Pty Ltd, must be served with the wife’s application and relevant documents

pursuant to s 90AI and r 7.04(4). I am satisfied that this has occurred in this

case and that L Pty Ltd has been given the opportunity to respond and be heard

on the issue. Furthermore, I am satisfied that to give effect to procedural

fairness, L Pty Ltd has previously been joined to the proceedings pursuant to r

6.02.

109. Senior Counsel for L Pty Ltd submitted that the orders sought by the wife, in

particular 7(a), 7(b), 7(c), 7(d) where outside the jurisdiction of this court.

Senior Counsel for the wife described 7(d) as the linchpin of the orders sought

by his client, on the basis that once a distribution is made to the husband, it

vests in the wife.

110. In considering the orders sought by the wife, s 90AK is relevant to orders 7(a),

7(b) and 7(c). With respect to 7(c), Senior Counsel for L Pty Ltd submitted

that its client as trustee has a duty to consider; therefore the making of this

would result in a breach of its duties as trustee. Furthermore, that it would

limit the rights of other beneficiaries, particularly future beneficiaries.

111. With respect to order 7(d) and s 90AE, Senior Counsel for the wife submitted

that the question as to whether or not this order is reasonably necessary will

ultimately depend on factual findings that are made following a final hearing.

Additionally, that success at final hearing would be akin to the reasoning of

Nicholson CJ in Law-Smith and Seinor. I accept this submission.

112. Senior Counsel for L Pty Ltd asserted that order 8 could more appropriately, be

made against the husband on the basis that once a distribution is made to him it

would then become his property. Mr Glick QC did however concede that

grounds existed to make the order against L Pty Ltd. A similar proposition was

raised in relation to order 9.

113. Senior Counsel for the wife submitted that the authority in Gazzo v

Comptroller of Stamps (Vic) (1981) 149 CLR 227 at 234–5 and 248, is that

whether a law which affects the property of parties to a marriage is a law with

respect to marriage is dependent on the strength of the connection between the

Reasons Page 27

law and the marital relationship. Mr North SC then relied upon the dissenting

judgment of Mason J in that case in addition to Fisher v Fisher (1986) 161

CLR 438, whereby Mason and Deane JJ concluded in their joint judgment at

453 that such an authority should be confined to its particular facts because the

underlying reasoning was fundamentally unsound.

114. Senior Counsel for the wife sought to rely on the differences of opinion

expressed by differently constituted benches of the High Court. I note that a

contrary view was expressed by Gibbs CJ and Aicken J in Gazzo v Comptroller

of Stamps (Vic).

CONCLUSION

115. The Full Court has previously emphasised the need to determine issues such as

those raised in the current proceeding in light of contemporary trends. In the

Marriage of Davidson (1991) FLC 92-197, their Honours Simpson, Murray

and Nygh JJ observed at 78,365 – 366 that:

Whatever may have been the position one hundred years ago, Australian

courts today have to look at the reality of the situation and the purpose

which family trusts serve today.

116. In R and R, an unreported decision delivered on 27 April 1990, the Full Court

of this Court comprising of Simpson, Strauss and Smithers JJ stated at 77:

…whether the property of the trust is in reality the property of the parties or

one of them or a financial resource of the parties or one of them is a matter

dependent upon the facts and circumstances of each particular case …

117. The decision of the majority of the High Court in Spry establishes an important

principle when considering the interests of those who seek relief under section

79 of the Act based on the rights that accrue to a beneficiary of a discretionary

trust where ownership of the trust property is vested in a party to the marriage,

albeit as trustee.

118. In Spry, the husband’s legal ownership of the assets as sole trustee and the

wife’s interest as a beneficiary of the trust were found to have provided a

proper basis for orders made by the trial Judge that required the husband to pay

to the wife a substantial sum in circumstances where the source of payment of

such an amount was the trust assets. In so holding, French CJ acknowledged at

80, that any order made in such circumstances would have to take into account

the interests of other beneficiaries.

119. In my view there are facts in this case that establish a connection between the

trust assets and the husband: he has lent the trust the proceeds of his shares in

the entity that previously owned and conducted the family business on terms

that can only be described as very favourable: no interest is payable at any

Reasons Page 28

time, and the initial period for repayment was 25 years. This was recently

extended by a further 10 years. This is a very different situation from that

which existed in B Pty Ltd and Ors & K and Anor where the court found that

on the facts available to it for the purposes of dealing with the application

before it, there was no relevant connection between the trust assets and the

marriage, and therefore the powers under Part VIIIAA could not be properly

engaged to grant the wife the relief that she sought. In this case, we have the

facts to which I have already made reference in this paragraph further

supported by evidence that the mission statement of the Simmons Family

Council provides, as one of its objects:

iii) Return on an investment to the family.

And by evidence that the term ―long term trust shareholders‖ appears in

documents generated by the Simmons Family Council and L Pty Ltd.

120. One possibility in this case is that further disclosure of documents by L Pty Ltd

will render those words capable of a more clearly ascertainable meaning. On

their face, however they appear to acknowledge that investments were made by

family members such as the husband and his siblings, and express the object of

providing a return on such investments to the ―long term trust shareholders‖

121. The facts in this case establish a very significant investment in the trust assets

by the husband and his siblings in the form of interest free loans that now do

not require repayment until the 35th

year since they were advanced. Whilst the

genesis of the trust assets may be attributable, as L Pty Ltd argues, to the

husband’s father, his own original corporate structure included the husband as a

substantial shareholder. Those shares were clearly property of the husband.

Those shareholdings have been converted into loans in circumstances where

they represent a reinvestment of the husband’s asset in a form that may already

be recognised in the L Pty Ltd documentation as a change in form rather than

substance. Such are the issues to be determined at trial, but I find that a court,

hearing the trial of this matter could properly find that orders or injunctions of

the kind sought by the wife were reasonably necessary or adapted to effect a

division of property between the parties to the marriage, Whether it is just and

equitable to make such an order would be a matter for the trial judge.

122. In Spry, neither the trial Judge (nor, therefore the High Court) was required to

consider the effect and operation of Part VIIIAA. Put another way, the powers

that Part VIIIAA provides were not relied upon to underpin the orders made

under section 79 in that case, because the husband was the owner, as trustee, of

the trust assets. Here the husband is not the owner of the trust assets and the

wife seeks to rely on the court’s powers under Part VIIIAA specifically. I

accept the argument, advanced by Mr North SC on behalf of the wife, that the

decision in B Pty Ltd and Ors & K and Anor is distinguishable from the present

case on the basis inter alia of the facts to which I have made reference. I

Reasons Page 29

consider that the wife’s claim does not lack a reasonable cause of action

thereby being doomed to failure: the husband’s interest as an object of the F

Family Settlement is property for the purposes of the Act. It may be difficult to

value that property but as held by the French CJ in Spry, that difficulty does not

deprive it of the character of property that it otherwise holds, and the existence

of a longstanding scheme of distributions to beneficiaries such as the husband

and his siblings provides a useful starting point in the valuation process.

123. I find that there is a sufficient nexus between the assets of the trust and the

property of the parties to the marriage for a court to find that Part VIIIAA

applies, and is available to enable orders binding third parties to be made for

the purpose of the making of orders, or the granting of injunctions, ―that are

reasonably necessary, or reasonably appropriate and adapted, to effect a

division of property between the parties to the marriage‖ and that these powers

could be exercised in a way that takes into account the existence of other

beneficiaries, and is not limited by the terms of the trust deed or any other law.

124. In such circumstances, it is open to a court hearing this matter to decide that

orders and injunctions of the kind presently sought by the wife can and should

be made. In forming a view about these matters the court may well be assisted

by any further evidence that may be given once the parties (including L Pty

Ltd) have made full disclosure of all relevant documents.

125. In conclusion, I am not satisfied that the wife’s claim is doomed to failure

because it shows no reasonable cause of action, or that the court lacks

jurisdiction to exercise the powers conferred on it by Part VIIIAA in this case.

126. The applications of L Pty Ltd and the husband will therefore be dismissed.

I certify that the preceding one hundred and twenty six (126) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watt

Associate:

Date: 12 November 2008