Wife Successfully Objects to Producing Financial Records of Mother’s Trust – Subpoena Set Aside

Background

In the recent case of Kelton & Brady and Anor [2017] FamCAFC 186 (7 September 2017) FamCAFC 186 (7 September 2017) Murphy J (sitting in the appellate jurisdiction of the Family Court) heard the husband’s appeal of an order of Judge Cassidy that set aside a subpoena. The husband had caused a subpoena to be issued against an accountant of a discretionary trust of which the wife’s mother was appointor and sole director as well as shareholder of the corporate trustee. The wife was a beneficiary of that trust. The accountant (“Mr B”) did not object to the subpoena insofar as it sought production of the trust deed or any variations of the deed, but did object to production of the financial accounts, balance sheets and profit and loss statements of the trust.

Subpoena Set Aside

Murphy J stated that a subpoena can be set aside insofar as it seeks production of documents which have no ‘apparent relevance’ to the issues in the proceedings.

The onus was on Mr B to establish that the documents sought had no apparent relevance to the issues in the proceedings. The only basis for the subpoena sworn to by the husband was at paragraph 35 of his affidavit which in turn refered to the affidavit sworn by the wife’s mother.

The Wife’s Mother’s Evidence

The evidence of both the wife and the mother was to the effect that no distributions had ever been made to the wife and the mother deposed that it was not intended to make any distributions to the wife of income or capital in the foreseeable future. The wife’s mother specifically deposed that the wife did not have a beneficiary loan account with either a credit or debit balance.

The sworn evidence of the wife’s mother was that:

a) The wife’s mother provided the capital of the Trust on its establishment;

b) the funds were accumulated by her and her late husband as a result of their efforts during their lifetime;

c) at no time did the wife make ‘any contribution toward the acquisition, preservation or management of the capital or income of the Trust’;

d) the wife has not received any distribution of income or capital from the Trust in her capacity as a beneficiary or default beneficiary of the Trust;

e) the wife did not have a beneficiary loan account with a credit or debit balance in the books of the account of the Trust.

Other evidence was to the effect that the only evidence of any benefit that the wife had received from the Trust was her having been allowed to live in a house owned by the Trust rent free from the time of separation for approximately 18 months until she was better placed financially.

The Husband’s Submission

The basis of the objection of husband was, in the Court’s view and with respect, contrary to the submission made by his counsel before the Court, the essence of what was conveniently described as ‘fishing’. Although that term was frequently used, it was effectively a convenient description for other recognisable forms of objection to a subpoena (for example, impermissible purpose or oppression). The purpose deposed to by the husband, was to provide the possibility of establishing that what the mother (and the wife) have deposed to as to distributions and loan accounts was untrue and the husband provided no proper evidentiary foundation for asserting any lack of truthfulness.

The Trust was a discretionary trust. The wife disclosed her interest in the Trust as a discretionary beneficiary in her sworn Financial Statement. She was, along with the mother and her sister, one of the three ‘principal beneficiaries’ of the trust and, similarly they are the three ‘default beneficiaries’ of the Trust.

Further, counsel for the husband relied on the fact that, as contended in the written outline ‘a house property had been purchased by the Trust for the Wife to reside in around the time of the parties’ separation’ and she ‘paid no rent to the Trust for [omitted] months until [omitted] November 2016 when she alleged rental payments commenced (a fact unsupported by disclosure)’. It was also pointed out that the ‘wife’s legal costs had been paid by her mother (although the source was unidentified)’.

Court’s Assessment of Husband’s Submission

The Court rejected the contention of counsel for the husband that the evidence given by each of the wife and her mother was ‘secondary evidence’ and that the ‘best evidence’ of the matters they deposed to was constituted by the financial documents sought from Mr B. The mother was the effective controller of the trust. It was her actions (and her intentions) which governed the administration of the trust and directed the activities of the trustee, including the making of any loans and decisions as to distributions, including, crucially, the exercise of discretion relevant to them. In the Court’s view, the evidence of the mother was direct evidence and she was perfectly entitled to give the evidence that she did.

The Court accepted the submission by Counsel for Mr B that there was no evidence, much less any expert evidence, before either the primary judge or the current judge, by which the Court could or should conclude that the evidence as to the provision of the benefit of accommodation for the wife (admitted by both the wife and the mother) whether free or paid for, would be, or should be, treated within the accounts of the trust.

It was not suggested that the wife had any vested interest in the trust. It was, however, contended centrally by the husband that, within the substantive s 79 (of the Family Law Act) proceedings, the wife had an interest in property within the meaning of that section (relying on Kennon v Spry [[2008] HCA 56) or she had as an expectancy or financial resource (relevant to s 79(4)(e) of the Act).

It should be observed that in Kennon v Spry, above, the Chief Justice, while agreeing with Gummow and Hayne JJ that ‘the equitable right to due administration of [a trust]’ or the ‘equitable entitlement to due consideration in relation to the application of the income and capital’ might be property, also said:

‘In so agreeing, however, I acknowledge, consistently with the observations of the Full Court [of the Family Court] in Hauff and Evans, 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.’

There was no evidence adduced before her Honour at first instance as to whether the ‘actuarial arts’ might be able to value the asserted interest in property or the financial resource, much less the basis or bases upon which any such ‘valuation’ might be conducted or how a present value of any such ‘value’ might be calculated or what assumptions or qualifications may underlie it.

In any event, even if an actuarial ‘valuation’ was possible, it would axiomatically be a ‘valuation’ of: an indeterminate interest, of indeterminate amount, received (if at all) at an indeterminate time, and qualified by possible future events (including removal of the wife as a beneficiary) that may, or may not, occur at an indeterminate future time.

The relevance of any such evidence (even assuming it is obtainable; is obtained and is admissible; including being based on relevant expertise and established facts giving the basis for the opinion) was likely to be marginal at best within the context of the broad range of matters which a court must take into account by reference to each of s 79(2) and s 79(4) of the Act and, if an order is to be made, the broad discretion inherent within it.

Here, in the Court’s view, the s 79 process would be informed by facts that are already known and documents which must in any event have been disclosed or will be disclosed.

In addition, if the wife were to receive any benefit from the trust (in whatever form), the husband would have access to the wife’s taxation returns and bank accounts and the product of the wife’s ongoing duty to make full and frank disclosure of all matters relevant to her financial position and affairs.

Court’s Conclusion

In the Court’s view, it was not established that the primary judge had made any discretionary error. The Court accepted the submission by Counsel for Mr B that her Honour was required to exercise a discretion.

The Court did not see any basis in the arguments advanced on behalf of the husband that the primary judge ‘misapplied the law as to relevance’ of the documents mentioned in the ground.

Nor did the Court consider that her Honour’s reasons were inadequate to explain the conclusion that her Honour reached; having set out the relevant facts, law and arguments, her Honour concluded that Mr B (and the wife) had established that the documents sought were not ‘apparently relevant’.

The husband’s appeal was dismissed with costs.

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