Ascot Investments Pty Ltd v Harper
148 CLR 33733 ALR 631
(Judgment by: MURPHY J)
Between: ASCOT INVESTMENTS PTY LTD
And: HARPER
Judges:
Barwick C.J.
Gibbs J.
Stephen J.
Mason J.
Murphy J.Aickin J.
Wilson J.
Subject References:
Family Law
Judgment date: 2 February 1981
CANBERRA
Judgment by:
MURPHY J
In the Full Court of the Family Court the present appellant contended that no order should be made against it or the directors for registration of the shares, on the ground that the transfer had not been submitted to them for registration. This point was not taken at first instance in the Family Court. The Full Court recognized the problem of prematurity, and dealt with it in a way which avoided technicality and delay. As the Full Court stated, the company and the directors were served with the application and affidavits prior to the hearing at first instance, were granted leave to intervene and the hearing "proceeded on the basis of strenuous opposition by the company to the registration of the shares." The Full Court relied on s. 97 (3) of the Family Law Act 1975 which directs that the Family Court "shall proceed without undue formality and shall endeavour to ensure that the proceedings are not protracted". They considered that to dismiss the appeal on this ground would be to do no more than require the matter to be relitigated at the first instance in the face of a certainty that the company would not register the transfer of shares. The Full Court decided that the just course was not to uphold the point, but to frame orders so that the company would have time to consider its position after the transfer was submitted to it.
The order therefore directed the company to comply within twenty-eight days of the wife delivering or causing to be delivered to the company a transfer from the husband to wife of the shares in registrable form together with the relevant share certificate. In my opinion, this overcame the problem of prematurity. Even if it did not, rather than uphold this appeal on such a technicality, it would be more appropriate to rescind the special leave to appeal. Such technicalities should not be encouraged by an ultimate court when the result is to add to the expense and inconvenience of the parties. The correct attitude for an ultimate court was stated by Lord Westbury in Scott v. Bennett (1871) 5 HLC 234 , at p 251:
"... we are all exceedingly glad when in a collection of miserable technicalities such as these which are before us here, we can see our way to something like a solid and reasonable ground of decision, and, above all, a decision which will prevent future litigation between the parties."
A number of questions of substance were argued on this appeal. These included the powers of the Family Court to make such an order. As I understand it, it is accepted that the orders fall within the literal words of s. 84 and s. 114 (3) and that they were made in aid of the jurisdiction of the Family Law Act 1975. Although no question of the constitutionality of the Family Law Act 1975 was directly raised (indeed it was specifically stipulated at the hearing that no question of validity of the Act or any constitutional point was raised in the case) questions which have constitutional overtones have emerged to the effect that if the Act empowered the court to make such orders then a question of validity would arise. I find no reason for reading the sections down so as to put the orders outside the scope of their literal meaning. I am not satisfied that the sections in so authorizing the orders are beyond the constitutional powers of the Parliament, and the sections are of course, presumed to be valid.
One question is whether a constitutional power to require transfer of property as incidental to marriage or divorce (and presumably bankruptcy, taxation or other powers) can be frustrated because a State law makes the property inalienable, or alienable only under certain conditions, as in this case. In general, the answer, of course, is that the State Statute or common law is subject to the federal law (see s. 109 of the Constitution). The theory emerging in this case is that federal law must end where the State law begins.
In a newly dressed-up version of the doctrine of reserved powers of the States it is argued that the Parliament's legislative powers (and statutory powers such as those of the Family Court) are to be read so as not to interfere with the general law, particularly of property.
If the proposition were correct, it would be very easy for persons to immunize themselves against the operation of federal law. A host of inalienable proprietary rights could be acquired - the right to be provided for lengthy periods, even for life, with meals and accommodation, transport and many other services, all beyond the reach of any bankruptcy, taxation, marriage or divorce law which could be enacted by the Federal Parliament.
The rights and obligations arising out of corporate arrangements are only a complicated example of numerous arrangements which might be made under the State laws, for example a contract under which property might be enjoyed but which is inalienable except under conditions which are not strictly within the apparent control of the person enjoying the property. The Full Court of the Family Court in its judgment referred to this as an important issue particularly in what may be described as family companies:
"It is possible for a husband to transfer the whole of his worthwhile assets into the control of a private company or similar body. The wife and/or children obtain an order for maintenance or settlement of property. The husband persistently refuses to comply. The court then directs the transfer to the wife of shares of the husband in the private (family) company. The directors usually but not necessarily including the husband refuse to register the transfer. The orders are thus effectively thwarted. Can the Family Court in a proper case order the directors to register the transfer thus effectuating the orders or is such an order beyond this Court's power?"
The consequences of holding that it is beyond power are so disturbing that it is conceded it cannot be applied without qualification. Thus, if the arrangements under which the property is inalienable or alienable only conditionally, are a "sham" or a device designed to frustrate an involuntary alienation, then it seems to be conceded that there is constitutional power to require alienation. Also, if the person who has the power to require the fulfillment of the conditions on alienation is the alter ego, or under the de facto control, of the person from whom the property is to be transferred, it seems to be conceded that Parliament may have power to require (or authorize orders requiring) alienation.
In my opinion, the limits of constitutional power do not depend on these features. If the power extends to require a transfer (notwithstanding unfulfilled conditions under State law) when the arrangement was created to defeat involuntary alienation, why does it not extend to when, although not created for that purpose, it is able to be used for that purpose?
The Australian Parliament may make laws authorizing alienation by judicial order of property which is inalienable under State law provided there is a rational connexion between the law and a legislative power such as that with respect to marriage, divorce, bankruptcy or taxation. Equally, if property is alienable under State law only under certain conditions, Parliament may authorize alienation notwithstanding that the conditions are not fulfilled, again provided there is a rational connexion between the law and a subject matter of legislative power. Obviously problems may occur where property is not inherently alienable, but there is no problem of that kind with the shares in question.
The Family Law Act contains numerous provisions in aid of the jurisdiction of the Family Court which override State property laws and interfere with the rights or privileges or duties of third parties. Thus s. 84 enables the Family Court to appoint an officer or any other person to execute any deed or other instrument, s. 84 was used in this case. The Registrar has executed a transfer in the name of the unwilling husband. Under State law, this is not a transfer. Yet the effect of s. 84 (2) is that the directors are required by s. 84 to treat the transfer as if it had been executed by the unwilling husband. This is an interference with State law, and with the "rights" of the directors under State law. Of course, as the Full Court of the Family Court recognized powers which affect third parties must be used with great discretion.
However, the width of the express grant of powers in ss. 84 and 114 (3) should not be narrowed by construction, for this would frustrate the effective operation of the jurisdiction. As Gibbs J. said in Reg. v. Dovey; Ex parte Ross (1979) 141 CLR 526 , at p 534:
"It is impossible to suppose that the Parliament intended that a husband might place the matrimonial home beyond the jurisdiction of the Family Court simply by vesting it in a private company which he himself controls; such a result would make it impossible for the Family Court properly to perform its functions in many cases."
The same applies to other forms of property.
Leaving aside more general consideration it seems to be accepted that if the husband were in fact in control of the Company, the Family Court's order was justified. There are two concurrent findings that the husband was in control of the Company. Frederico J. found "Ascot Investments Pty. Ltd. is what has been described as a family company and it is quite clear that the husband exercises effective control over that company." The Full Court of the Family Court adopted this.
There was ample evidence to justify the finding that the husband exercises effective control over the company. The evidence of his extensive financial dealings with the company justifies the inference that the company is his instrument. It can be inferred (particularly in the light of his evasions and refusals to answer) that he was channelling from the company to himself through another company known as Parkvale, tens of thousands of dollars which he was spending on racehorses, gambling, travelling and other pursuits. In part of his evidence he referred to a "pact" with Ascot Investments which "usually operates along the lines that when I want money I draw it from Ascot Investments. I do not have any other source of income that I can account for, and that is how it is done. Ascot Investments really is the cornerstone in these affairs for discussion, and it began, you see, Ascot Investments began by taking in its assets by a loan for me and when that was considerably in credit of course I drew from it, and I would imagine that the money that you are talking about from the distribution of Parvale sat on the loan account of Ascot Investments and like all other funds was simply drawn off by me as I wanted to. This is basically the principle by which this type of company was designed to operate. It reduced my own asset position and gave me something to live on. Except in recent times I took dividends which you have accounted for; prior to that for many many years all dividends were paid to the children. It is a matter of keeping it in proportion, a delicate operation".
There was other similar material which supported the finding of control. In addition, there was the affidavit of a Miss Margaret MacGregor, who at the time of the hearing was trustee of the shares for the two young children, and had been secretary and a director of the company for many years. The husband's dealings with her also justifies inferences of his control of the company. She was engaged by the husband to assist him in relation to "his company". She became secretary on 2 December 1964 and a director on 8 June 1966. She resigned as director and secretary on 19 March 1976. During that time the arrangements were that she would abide by the husband's directions. Although she was and is trustee of some of the children's shares, under the directions of the husband she breached her duties as trustee by paying into his accounts in the company dividends in respect of the children's shares as "loans for educational purposes and the like" although there was no accounting to her about what payments were made on behalf of the children. This domination of the company secretary and director over years and until recently, justifies the inference that the company tolerated the position that her duty was to obey him rather than the company or to obey him as if he were the company, and that he was in control of the company or that it was his alter ego.
The wife's affidavit, which was used without objection, stated "I believe however that my husband is in a position whereby he can fully control the company and can influence its discretion in whatever way he sees fit". She was not cross-examined on this and it was available evidence.
No evidence was called by the company to rebut the evidence that the company was controlled by the husband. In the light of this evidence (although the husband denied he was in legal control) it is understandable that the company did not ask for special leave on the ground that the finding was erroneous nor take this as a ground of appeal. On the appeal the company asserted that the finding by the trial judge and the Full Court that the husband was in fact in control of the company "must be a finding of fact as to the present situation" but submitted that it was not a finding that the company was set up as a device to defeat the wife. In my opinion the finding that the husband is in control of the company was open to the Family Court, and should not be disturbed.
If the Family Court is to be directed that in judging an issue of control, it must restrict itself to counting shareholdings and heads of directors, this is an open invitation to use proprietary companies as a means of defeating financial orders under the Family Law Act.
The husband who is a director has openly defied the Court's orders and asserted that he was not willing to co-operate in having the shares which were in his name registered in the name of Mrs. Harper. On the whole of the evidence the inference was open that the board of directors of Ascot would not in considering any question of registration, exercise its powers bona fide for the purposes for which they were conferred and with due regard to those affected. In these circumstances the orders were justified.
Imprisonment - The suggestion that this case shows the necessity for reverting to imprisonment as a means of enforcing maintenance obligations is refuted by the record, which shows that the appellant has preferred to undergo imprisonment for refusal to observe maintenance orders under the repealed Act. He has served in all more than a year for refusing to pay maintenance orders and has also preferred imprisonment for contempt under the Family Law Act rather than answer questions on his financial affairs.
The appeal should be dismissed.