Allan and Allan and Ors
[2009] FamCA 553
•26 June 2009
FAMILY COURT OF AUSTRALIA
| ALLAN & ALLAN AND ORS | [2009] FamCA 553 |
| FAMILY LAW – PROPERTY – Interim hearing – Wife seeking interlocutory orders restraining mortgagees from dealing with property of the relationship – consideration and application of s90AF(1); s 90AF(3) and s 90AK Family Law Act – Wife seeking orders enabling her to sell properties owned by trustee of the trust established by the husband – Trust is the alter ego of the husband |
| Family Law Act 1975 (Cth) ss 90AF, 90AF(1), 90AF(3), 90AF(4), 90AK, 114(3) |
| Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337 Sanders & Sanders (1967) 116 CLR 366 Trustee of the property of G Lemnos, a bankrupt and Lemnos and Lemnos (2009) FLC 93-394 Biltoff and Biltoff (1995) FLC 93-614 |
| APPLICANT: | Mrs Allan |
| RESPONDENT: | Mr Allan |
| 2nd RESPONDENT: | W Nominees Pty Limited |
| 3rd - 6th RESPONDENTS: | Ms E Allan Ms H Allan Ms C Allan Mr L Allan |
| 7th RESPONDENT: | Toner Nominees |
| 8th RESPONDENT: | Ms A Toner |
| 9th RESPONDENT: | Mr K Toner |
| 10th RESPONDENT: | Mr N Toner |
| 11th RESPONDENT: | Mr D Toner |
| FILE NUMBER: | SYC | 3842 | of | 2008 |
| DATE DELIVERED: | 26 June 2009 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Watts J |
| HEARING DATE: | 25 May 2009 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT: | Mr Lloyd |
| SOLICITOR FOR THE APPLICANT: | Paul and Paul Lawyers |
| SOLICITOR FOR THE RESPONDENT: | John De Mestre & Co |
| SOLICITOR FOR 3RD - 6TH RESPONDENTS: | Horowitz & Bilinsky |
| COUNSEL FOR P FINANCE: | Mr Walker, SC |
| SOLICITOR FOR P FINANCE: | Tiernan & Associates |
| SOLICITOR FOR M FINANCE: | HWL Ebsworth lawyers |
| SOLICITOR FOR B FINANCE: | Bansgroves Lawyers |
| SOLICITOR FOR F FINANCE: | Madsen Rowley |
| SOLICITOR FOR MR D: | Kelly & Co |
| COUNSEL FOR A FINANCE: | Marks & Sands Lawyers |
Orders
Orders 1, 2 and 3 sought in the wife’s Application in a Case filed 14 May 2009 be dismissed.
Pending further order:
The husband is restrained from doing any act which would remove W Nominees Pty Limited (“W Nominees”) as trustee of the Allan Family Trust.
Forthwith upon the making of this order the husband join with the wife in passing any necessary resolution to amend the Articles of Association and/or Constitution of W Nominees so as to provide that the minimum number of directors is one.
Forthwith upon the making of this order the husband and wife in their capacities as shareholders of W Nominees execute all documents necessary to appoint the wife the sole director and secretary of W Nominees.
Upon the making of the preceding order the wife and W Nominees immediately do all acts and things and sign all necessary documents to cause the following properties to be placed on the market for sale by public auction for the best price reasonably obtainable:
5.1.1 F Street in the State of Western Australia being lots … in SP …;
5.2.1 J Street in the State of Western Australia;
5.3.2 J Street in the State of Western Australia.
(“the Western Australian properties”)
The wife and W Nominees, after the expiration of 28 days from the date of these orders, do all acts and things and sign all necessary documents to cause the following properties to be placed on the market for sale by public auction for the best price reasonably obtainable:
6.1.1 M Street at M in the State of New South Wales;
6.2.H Street at M in the State of New South Wales;
6.3.2 M Street, M, in the State of New South Wales;
6.4.1 G Street, M in the State of New South Wales;
6.5.3 M Street, M in the State of New South Wales;
6.6.2 G Street, M, in the State of New South Wales;
6.7.2 A Street, M, in the State of New South Wales;
6.8.1 A Street, M, in the State of New South Wales.
(“the M properties”)
For the purpose of implementing orders 5 and 6:
7.1.the wife shall instruct such lawyer(s) as she chooses to act on behalf of W Nominees to have the conduct of the sale of the Western Australian properties and M properties;
7.2.the wife shall appoint such agents as she may determine to have the conduct of the sale of the Western Australian properties and M properties on behalf of W Nominees;
7.3.the Western Australian properties shall be listed for sale by public auction (“the first Western Australian auctions”) to take place within six weeks of the date of these orders or such other longer period as the wife may determine:
7.3.1.the wife and husband shall agree upon the reserve sale price and failing agreement after a period of seven days the wife shall determine the reserve sale price for the purpose of such auction;
7.3.2.the wife, W Nominees and the husband shall co-operate in every way with the agent and any valuer engaged by the wife, including (without limiting the generality of the foregoing):
7.3.2.1.making the key(s) to the property available to the agent(s) and the valuer(s);
7.3.2.2.allowing inspection of the property at all reasonable times requested by the agent(s) and valuer(s);
7.3.2.3.doing or saying nothing to hinder or prevent a sale being effected;
7.3.2.4.ensuring that the property, including the grounds, is in a neat and clean condition at the time of inspection by the agent(s) and prospective purchasers; and
7.3.2.5.signing all documents requested by the agent in relation to the listing for sale of the property except a contract or agreement for sale which has not been authorised by W Nominees’ conveyancing lawyer;
7.3.2.6.undertake a marketing campaign in accordance with the recommendations of the agent.
7.4.the M properties shall be listed for sale by public auction (“the first M auctions”) to take place within ten weeks of the date of these orders or such other longer period as the wife may determine:
7.4.1.the wife and husband shall agree upon the reserve sale price and failing agreement after a period of seven days the wife shall determine the reserve sale price for the purpose of such auction;
7.4.2.the wife, W Nominees and the husband shall co-operate in every way with the agent and any valuer engaged by the wife, including (without limiting the generality of the foregoing):
7.4.2.1.making the key(s) to the property available to the agent(s) and the valuer(s);
7.4.2.2.allowing inspection of the property at all reasonable times requested by the agent(s) and valuer(s);
7.4.2.3.doing or saying nothing to hinder or prevent a sale being effected;
7.4.2.4.ensuring that the property, including the grounds, is in a neat and clean condition at the time of inspection by the agent(s) and prospective purchasers; and
7.4.2.5.signing all documents requested by the agent in relation to the listing for sale of the property except a contract or agreement for sale which has not been authorised by W Nominees’ conveyancing lawyer;
7.4.2.6.undertake a marketing campaign in accordance with the recommendations of the agent.
7.4.3.the wife, W Nominees and the husband be restrained from selling or encumbering the M properties for a period of 28 days from the date of these orders.
7.5.In the event the bidding at the first Western Australian auctions or first M auctions do not reach the reserve price the wife shall negotiate with the highest bidder or any other interested person and effect a sale of the property at a price which is not less than five per cent (5%) less than the reserve price or such other price as the parties agree upon in writing.
7.6.In the event any of the properties are not sold at first auction the wife shall do all acts and things and sign all documents necessary to list the properties for sale by further auction(s) no more than eight weeks from the date of the previous auction or such longer period that the wife may determine.
7.7.Upon settlement of the sale of the properties that the proceeds of sale be applied in the following order and priority:
7.7.1.in payment of legal fees;
7.7.2.in discharge of any liabilities properly secured over the properties;
7.7.3.the outstanding debt payable to P Finance Limited secured over Units 1 and 2 at No. 5, E in the State of New South Wales (being the whole of the land in Folio Identifiers 1/… and 2/…) and over Y property in the State of Western Australia (being the whole of the land in Lot … on Diagram …)
The applicant wife do all acts and things so as to open a new bank account in the name of W Nominees in its capacity as trustee of the Allan Family Trust.
In the event that there are any monies payable to the wife pursuant to orders made by the Honourable Justice Rose on 24 November 2008 that remain unsatisfied and in the event there are funds in the account established pursuant to the preceding order, then the wife shall be permitted to do all acts and things and sign all documents necessary for an amount to be paid to the wife to satisfy the outstanding balance.
The husband forthwith and without delay do all acts and things and give all such assistance to the Receiver appointed by A Finance in relation to the sale of collectables as the Receiver may require from time to time.
For the purposes of implementing these orders and pursuant to s 106A of the Family Law Act the Registrar of the Family Court of Australia, Sydney be appointed to execute all documents in the name of any party and to do all such acts and things necessary to give validity and operation to such documents.
Liberty to restore on 7 days notice in respect of the implementation of these orders.
Notation:
It is noted that Orders 5, 6 and 7 are not intended to affect any right a mortgagee might otherwise have to sell a property.
IT IS NOTED that publication of this judgment under the pseudonym Allan & Allan and Ors is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 3842 of 2008
| MRS ALLAN |
Applicant
And
| MR ALLAN |
Respondent
REASONS FOR JUDGMENT
INTRODUCTION
This interim hearing is in two parts.
By way of an Application in a Case filed 14 May 2009 (the wife’s application), the wife seeks interlocutory orders under s 90AF of the Family Law Act, restraining six mortgagees from entering into possession of or selling or otherwise dealing with properties which the wife has sought to retain, once final orders for alteration of property interests are made between herself and her husband.
The wife also seeks orders against her husband and W Nominees Pty Limited to enable her to sell properties owned by W Nominees. The wife says that W Nominees is the alter ego or puppet of the husband.
APPLICATION IN A CASE & AMENDMENT TO THAT APPLICATION
The wife abandoned orders 1 and 2.1 as sought in her Application in a Case. The effect of that was that the auction of the former matrimonial home, R property, scheduled for May 2009, would proceed.
The wife was also granted leave to amend Order 7.6 of the wife’s Application by inserting after Order 7.6.2:
“7.6.3The outstanding debt payable to [P Finance] secured over units 1 and 2 [at No. 5, E] and [Y property].”
and by renumbering Order 7.6.3 as sought in the wife’s application as Order 7.6.4.
APPEARANCES
The applicant wife was represented by Mr Lloyd.
The husband was represented at the hearing by Mr De Mestre.
The 4th respondent (the child of the marriage C Allan) was represented by Mr Bilinsky who indicated shortly before he withdrew that he had oral instructions (which he wished to confirm in writing) to act for the third, fifth and sixth respondents (the other children of the marriage). He announced that the children opposed any order that would change the current control of the trustee of the Allan Family Trust (the trustee being W Nominees Pty Limited) but otherwise Mr Bilinsky did not want to be heard on the question of the wife being given control of the trust for the purpose of liquidating properties. Mr Bilinsky asked to be excused before final submissions were made.
The lawyers acting for W Nominees Pty Limited, Solomon Brothers, had sent an email addressed to my associate dated 21 May 2009 indicating that their client was unlikely to be able to appear and the email gave notice that the company opposed the making of the orders sought in the wife’s application.
There were appearances on behalf of the following mortgagees:-
10.1.P Finance Limited was represented by Mr Walker SC with Ms Nolan;
10.2.A Finance was represented by Dr Dickey;
10.3.M Finance Pty Ltd was represented by Mr McGregor;
10.4.B Finance Limited was represented by Ms Cooper;
10.5.F Finance Pty Ltd was represented by Mr Rowley.
The wife and F Finance Pty Ltd reached agreement and interim orders were made in the terms of that agreement.
Order 2 in the wife’s application also sought orders against D Finance Pty Limited and R Finance Pty Limited. There was no appearance on the part of either of those companies. They were not mentioned in submissions by counsel for the applicant. There was no evidence that they had been served with any documentation. No orders should be made against these companies.
The Receiver, Mr D, appointed by A Finance to gather and sell various collectibles and chattels of the parties, was represented by Mr Colovic.
No adjournment was sought by any party.
MATERIAL RELIED UPON
The wife relied upon:
15.1.An affidavit by herself filed 14 May 2009;
15.2.An affidavit of Ms JM sworn 1 October 2008;
15.3.Paragraph 9 of the husband’s affidavit filed 12 February 2009;
15.4.An amended application by the wife seeking orders for alteration of property interest under s 79 filed on 29 October 2008.
A schedule was tendered that everybody, save Dr Dickey who had not seen it, agreed accurately recorded how the various mortgagees held registered securities on various properties and in what priority (Exhibit “D”).
Exhibit “D” summarises the securities held by A Finance; B Finance Limited; P Finance; and M Finance. Exhibit “D” shows secured liabilities in the total sum of $67,443,802.00. A Finance is said to be owed $17,955,189.00. B Finance is owed $23,600,000.00. M Finance is owed $16,000,000.00 and P Finance is owed $8,285,247.33. I am told the current debt is about $70,000,000.
The schedule accords with Dr Dickey’s submissions as to the securities held by A Finance.
Dr Dickey on behalf of A Finance indicated that A Finance had first mortgages over the following properties:
19.1.F Street, Western Australia;
19.2.1 J Street, Western Australia;
19.3.Units 3 & 4, No. 5, E, New South Wales;
19.4.3 J Street, Western Australia;
19.5.2 J Street, Western Australia;
19.6.The Snowy Mountains property;
19.7.P Street, Western Australia;
19.8.Units 2, 6 & 7, No. 7, E, New South Wales.
A Finance had second mortgages over the Y property.
Mr Lloyd also sought to tender a copy of a fixed and floating charge which had been granted to P Finance over the assets of the trustee of the family trust (apparently the point being that the Receiver, having liquidated chattels, would make some payment to P Finance out of those funds; Mr Lloyd, however, conceded that he was unable to ascertain from the Receiver in what priority those payments would be made). I provisionally allowed the tender. I confirm the tender, so far as it relates to matters which need to be decided between the wife, husband and W Nominees, but I reject the tender based on relevance, as it relates to orders sought against P Finance.
The wife also sought to tender a bundle of documents being valuations of most of the properties. That tender was allowed provisionally (Exhibit B) on the basis that I would subsequently rule on the relevance of those documents.
A summary of the valuations tendered, as to the name of the property, date and amount is:-
| Name of Property | Date of Valuation | Amount of Valuation |
| 4 F Street, WA | 6 May 2005 | $1,200,000 |
| P Street WA | 19 June 2008 | $380,000 (GST exempt) |
| Unit 7/7, E, NSW | Undated | $550,000 |
| 1 J Street, WA | 30 May 2008 | $1,450,000 (GST exclusive) |
| No. 5, E, NSW | 2 June 2008 | $13,500,000 (GST inclusive) |
| 2 W Street WA | 29 May 2008 | $2,500,000 (GST inclusive); $2,365,000 (GST exclusive) |
| 3 W Street, WA | 29 May 2008 | $6,200,000 (GST inclusive); $5,870,000 (GST exclusive) |
| Lot 24 V, WA | 29 May 2008 | $2,800,000 (GST exempt) |
| Lot 87 V, WA (sold) | 29 May 2008 | $4,300,000 (GST inclusive); $4,070,000 (GST exclusive) |
| Lot 88 V, WA (sold) | 29 May 2008 | $4,300,000 (GST inclusive); $4,070,000 (GST exclusive) |
| Lot 89 V, WA (sold) | 29 May 2008 | $4,300,000 (GST inclusive); $4,070,000 (GST exclusive) |
| R property (sold) | 29 May 2008 | $9,500,000 (GST exempt) |
| 1 F Street, WA | 12 June 2008 | $1,700,000 (GST exempt) |
| Y property | 5 December 2007 | $8,000,000 |
| Snowy Mountain property | 19 December 2006 | $4,000,000 |
| M property | 1 March 2007 | $37,000,000 |
| Total (using GST exclusive where available) of unsold properties | $78,815,000 |
On the face of these valuations, assuming the debt secured upon the property is approximately $70,000,000.00, the net value in the unsold real estate is only in the order of $8,000,000.00.
The submission of Mr Walker SC was that these values could not be relied upon today by the wife as evidence that would be relevant to the question of the current value of the properties and therefore as evidence of the degree of comfort which a first mortgagee, who had been relieved of that advantage, could feel knowing that monies from the liquidation of other assets were about to come their way. Again, I confirm the admissibility of the material as it relates to issues between the wife, husband and W Nominees but find that the age of the valuations means they can have no relevance in determining the claim against P Finance or any of the other mortgagees.
Although the lawyer for the husband indicated he intended to read material that had been previously filed and he would hand up a list of that material, he failed to do so. The husband did not read any material. The husband’s lawyer made some submissions about matters that were not in evidence before me. The husband relied upon some matters in the wife’s case outline document.
The trustee of the Allan Family Trust did not read any material.
P Finance did not read any material.
M Finance relied upon an affidavit of Mr H sworn 22 May 2009.
B Finance did not rely upon any material.
Mr D read an affidavit sworn by him on 22 May 2009.
A Finance relied upon Mr D’s affidavit and also an affidavit sworn by Mr H on 21 May 2009. A Finance also provided a multi coloured table setting out the registered mortgages in respect of various properties owned by the Allan Group.
JOINDER OF PARTIES
The wife’s application failed to name any of the mortgagees as respondents to the application. Rule 6.03 of the Family Law Rules sets out that an applicant may add another party after a case is started by amending the application to add the name of the person and by serving on the new party a copy of the application and any other relevant document in the case. I granted leave to the wife to amend the application in a case filed 14 May 2009 for the purposes of adding the names of the mortgagees to that document.
The mortgagees oppose being joined as parties to the proceedings and that matter is dealt with below.
INJUNCTIONS AGAINST THIRD PARTIES
Gibbs J in an often quoted passage (Ascot Investments Pty Ltd v Harper[1]) described some of the circumstances in which injunctive orders could be made against third parties:
The authorities to which I have referred [and his Honour had referred to such authorities as Sanders v Sanders[2] and Antonarkis v Delly[3]] establish that in some circumstances the Family Court has power to make an order or injunction which is directed to a third party or which will indirectly affect the position of a third party. They do not establish that any such order may be made if its effect will be to deprive a third party of an existing right or to impose upon a third party a duty which the party would not otherwise be liable to perform. The general words of ss 80 and 114 must be understood in the context of the Act, which confers jurisdiction on the Family Court in matrimonial causes and associated matters, and in that context it would be unreasonable to impute to the Parliament an intention to give power to the Family Court to extinguish the rights, and enlarge the obligations, of third parties, in the absence of clear and unambiguous words......
It is one thing to order a party to a marriage to do whatever is within his power to comply with an order of the court, even if what he does may have some effect on the position of third parties, but it is quite another to order third parties to do what they are not legally bound to do. If the sections had been intended to prejudice the interests of third parties in this way, it would have been necessary to consider their constitutional validity.
The position is, I think, different if the alleged rights, powers or privileges of the third party are only a sham and have been brought into being, in appearance rather than reality, as a device to assist one party to evade his or her obligations under the Act. Sham transactions may always be disregarded. Similarly, if a company is completely controlled by one party to a marriage, so that in reality an order against the company is an order against the party, the fact that in form the order appears to affect the rights of the company may not necessarily invalidate it.
Except in the case of shams, and companies that are mere puppets of a party to the marriage, the Family Court must take the property of a party to the marriage as it finds it. The Family Court cannot ignore the interests of third parties in the property, nor the existence of conditions or covenants that limit the rights of the party who owns it.
i)[1] Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337
ii)[2] Sanders & Sanders (1967) 116 CLR 366
iii)[3] Antonarkis v Delly (1976) FLC 90-063
In Kennon v Spry (2008) FLC 93-388, French CJ (at paragraph 68) refers to the last paragraph of the remarks of Gibbs J and confirms the long accepted power in the Family Court to make an order which indirectly affects the position of a third party.
Section 90AF and Section 90AK of the Family Law Act
Since 2004, clear and unambiguous words have been inserted into the Family Law Act by Parliament in, inter alia, s 90AF and s 90K.
Given the arguments in this case it is useful to set out the text of these sections as follows:
Section 90AF
(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;
(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;
Note: See paragraph (3)(b) for requirements for making the order or granting the injunction in these circumstances.
(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;
Note: See paragraph (3)(c) for the requirement to accord procedural fairness to the third party.
(h) any other matter that the court considers relevant.
[I have excluded the examples given in the Act]
Section 90AK
(1) The court must not make an order or grant an injunction in accordance with this Part if the order or injunction would:
(a) result in the acquisition of property from a person otherwise than on just terms; and
(b) be invalid because of paragraph 51(xxxi) of the Constitution.
(2) In this section:
"acquisition of property" has the same meaning as in paragraph 51(xxxi) of the Constitution.
"just terms" has the same meaning as in paragraph 51(xxxi) of the Constitution.
On their face, subsections 90AF(1) and (2) authorise discretionary alteration of the rights and obligations of third parties.
These seemingly wide powers have been caverned by other parts of s 90AF. Concerns expressed by, inter alia, the banking industry led to, inter alia, the inclusion of s 90AF(3).
The powers expressed in s 90AF(1) and (2) only exist if the mandatory and cumulative conditions contained in s 90AF(3) exist.
The first two, subsections (3)(a) and (b), are of particular importance. Subsection 3(a) says that no order should be made unless reasonably necessary or reasonably appropriate and adapted to effect a division of property between the parties to the marriage. Subsection 3(b) says that no order concerning a debt should be made if it is not foreseeable today that the order would result in the debt not being paid in full.
Also there is no power to make an order under s 90AF if it would result in the acquisition of property from a third party otherwise than on just terms (see s 90AK Family Law Act).
Summary Dismissal
The general test for summary dismissal and what material is to be considered has been conveniently described by Finn J in Custodio v Pinto & Ors (2006) FLC 93-279 at pages 89,759 – 89,761 at paragraphs 6 - 15 in the following terms:-
6.It was common ground before me that the principles which govern an application for summary relief are as stated by Kirby J in Lindon v The Commonwealth (no 2) (1996) 70 ALJR 541 at 544-5:
The approach to be taken by the Court to [an] 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; [General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 128f; Dyson v Attorney-General [1911] 1 KB 410 at 418.]
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 [Munnings v Australian Government Solicitor (1994) 68 ALJR 196 at 171f, per Dawson J] or in advancing a claim that is clearly frivolous or vexatious; [Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91.]
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 termination. [Coe v The Commonwealth (1979) 53 ALJR 403; Wickstead v Browne (1992) 30 NSWLR at 5-7.] 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 a demurrer. [Coe v The Commonwealth (1979) 53 ALJR 403 at 409.] If there is a serious legal question to be determined, it should ordinarily be determined at a trial for the proof of facts may sometimes assist the judicial mind to understand and apply the law that is invoked and to do so in circumstances more conducive to deciding a real case involving actual litigants rather than one determined on imagined or assumed facts;
5.If, notwithstanding the defects of pleadings, it appears that a party may have a reasonable cause of action which it has failed to put in proper form, a court will ordinarily allow that party to reframe its pleading. [Church of Scientology v Woodward (1980) 154 CLR 25 at 79.] A question has arisen as to whether O 26, r 18 applies to part of a pleading. [Northern Land Council v The Commonwealth (1986) 161 CLR 1 at 8.]… ; and
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.
7. See also the decisions of the Full Court of this Court in Bigg v Suzi (1998) FLC 92-799 paragraphs 5.1 to 5.10; Ferrall and McTaggart v Blyton (2000) FLC 93-054 paragraphs 95 – 98; Pelerman v Pelerman (2000) FLC 93-037; and Beck v Beck (2004) FLC 93-181 paragraphs 17 – 18.
8. 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).
9. In Beck (supra) the Full Court cited a passage from the joint judgment of Mason CJ, Dean and Dawson JJ in Webster v Lampard (1993) 177 CLR 598 at 608 concerning the power to summarily dismiss which concluded with the following:
As has been said, it was incumbent on the Master, in the absence of any opportunity of cross-examination, to dispose of the case on the basis that the [respondent’s] version of the facts, which was not inherently incredible, would ultimately be accepted on the trial of the action.
10. Having cited this passage, the Full Court in Beck continued (at paragraphs 20–21):
20. Further support for the proposition that an application for summary dismissal must be determined on the basis only of the material put forward by the respondent (to that application) is to be found in the passage from the judgment of Kirby J in Lindon v The Commonwealth (No 2) (1996) 70 ALJR 541 at 544-5 (which was quoted by the Full Court in its judgment in Bigg v Suzi) where his Honour said:
“…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 (Munnings v Australian Government Solicitor (1994) 68 ALJR 196 at 171f, per Dawson J) or in advancing a claim that is clearly frivolous or vexatious; (Dey v Victorian Railways Commissioners (1949) 78 CLR 62 at 91.)”
21. Regard should also be had to paragraph 6.31 of the judgment in Bigg v Suzi where the Full Court referred to the fact that the wife, who was the applicant for the summary dismissal of a s 79A application by the husband, “had no right to adduce any evidence at that summary hearing to contradict the evidence of the husband or to seek to contradict any inference which it might be submitted should be drawn from that evidence.”
11. In the recent decision in Bain Pacific Associations LLC, BCIP Associates II-B and Pacific Equity Partners (NZ) Limited, and others and Kelly [2006] FamCA 518, having referred to what was said in paragraphs 21 of the judgment in Beck (supra), the Full Court of this Court accepted the proposition:
21.… 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.
12. In the present case I did not understand any attempt to be made by the applicants for summary dismissal to rely on any of their own material.
13. It was the position of Counsel for the respondent wife that in opposing the application for summary dismissal he could rely on all material before the Court. I did not understand that proposition to the [sic] challenged.
14. Reliance was, however, placed on behalf of both the applicant third parties and to a greater extent by the respondent wife (with no objection being taken by either party) on the affidavit material of the husband (who is not a party to the summary dismissal proceedings). Certainly it is necessary to have regard to some of the affidavit material filed by the husband in order to understand certain of the orders and declarations which are sought by the wife and which are the subject of the summary dismissal application. It is also necessary to have regard to parts of the husband’s affidavit material to understand the wife's affidavit material.
15. It was of course accepted that in this jurisdiction in which there are no pleadings, it is necessary to have resort to the affidavit material in order to understand the substance of the claim which is sought to be summarily dismissed.
FACTUAL BACKGROUND
The husband is 67 years of age. The wife is 62 years of age.
The parties married in August 1967.
There was an initial separation in late 2007.
The parties resumed cohabitation in May 2008 and separated for the last time on 18 June 2008.
Between May 2008 and June 2008 the parties had a conversation where the husband asserted to the wife that the parties’ net worth was in excess of $400 million.
In the wife’s affidavit of 14 May 2009 the wife estimates the net asset position of the parties at $84,350,000 (Those calculations are done at paragraphs 58 – 62 of the wife’s affidavit filed 14 May 2009). So far as I can tell, those paragraphs do not add into the calculation the proceeds of sale of the R property prior to discharge of the mortgages. The wife also makes the comment that the calculation does not take into account the potential redevelopment of M which, based on paragraph 9 of the husband’s affidavit filed 12 February 2009, might yield an increase in the value of those properties from $30 million to $77 million.
However, this evidence needs to be matched against the information in Exhibits B and D, which suggests that the net value in real estate could be as low as $8,000,000.00, taking M in its undeveloped state and not including any net proceeds of sale or reduction of mortgage arising from the liquidation of R property.
Much of the real estate and the bulk of the collectables are owned by W Nominees as the trustee of the Allan Family Trust. The Allan Family Trust is a trust established by the husband. The husband is the appointor and consequently has the power to appoint and remove the trustee.
The Trust is a discretionary trust and its potential discretionary objects include the husband, the wife and the children.
The wife asserts that W Nominees as trustee of the Allan Family Trust is the alter-ego or puppet of the husband. In earlier interlocutory proceedings before Justice Rose on 24 November 2009, Mr Aldridge SC on behalf of the husband conceded that the Allan Family Trust was the alter-ego of the husband (although I have some evidence that suggests the husband may now wish to resile from that concession).
In some correspondence written by the husband’s lawyers (see below), there is an assumption that the husband controls the Allan Family Trust. Mr H describes how the husband has built his wealth and draws no distinction between the husband and the Allan Family Trust (see paragraph 6 of Mr H’s affidavit of 21 May 2009).
To borrow some of the language of French CJ in Kennon v Spry , in this case, the husband is in full control of the assets of the trust and he can apply the assets of the trust as he wishes and for his own benefit. The husband can cause W Nominees to distribute the assets of the Allan Family Trust in whole or in part to himself and/or the wife without W Nominees breaching its duty to any other beneficiary.On balance, on the evidence I have before me and for the purpose of the applications before me, I find that W Nominees as trustee of the Allan Family Trust is the alter-ego or mere puppet of the husband.
The wife has by way of a Further Amended Initiating Application filed 29 October 2008 indicated that as part of an alteration of property interests in her favour, she seeks to retain particular properties and sets out her reasons for wishing to do so. These properties are at Y (see paragraphs 19 and 20 of the wife’s affidavit), No. 5 E (see paragraph 21 of the wife’s affidavit), Unit 7/7, E, (see paragraph 22 of the wife’s affidavit), the Snowy Mountains property (see paragraphs 23 and 24 of the wife’s affidavit). Using the values in Exhibit B, the gross value of these properties are in the sum of $26,050,000.00.
In her Further Amended Initiating Application the wife also sought to receive two other apartments at No. 7, E. The wife has not, however, set out in her affidavit any reason why those particular units are ones that she wishes to retain as part of the overall alteration of property and they do not seem to be the subject of valuation in Exhibit B.
The wife in her original Further Amended Application wished to seek to have transferred to her the former matrimonial home known as R Property. The wife at the commencement of the proceedings before me announced that she no longer sought to proceed with that part of her application which sought to retain that property.
On 27 March 2009 the wife’s lawyers received communication from the husband’s lawyers indicating that the husband had no option other than to concede possession of properties at Y and No. 5, E (the property which is the wife’s home in New South Wales) to P Company.
It is not contentious that P Company are owed about $8.2 million and they have first mortgages on three properties being 1 & 2/5 at E and the Y property.
The wife says that until receipt of the letter of 27 March 2009, she was of the understanding that there were no outstanding Notices of Default.
The wife gives evidence that in late March 2009 her daughter, Ms E Allan said to her “Dad said that he is sending the mortgagees in to sell you up” and in another conversation in early April 2009 E said to her mother “Dad called. He told me he has 8 buyers (referring to the E property) lined up and that they are prepared to pay $25 million”.
On 2 April 2009 the solicitor for the husband wrote to the solicitor for the wife saying:
It is our understanding that you have been informed by representatives of the mortgagees that unless certain properties are listed for sale immediately, including [E], a receiver will be appointed to undertake those sales.
In the circumstances, our client feels he has little alternative other than to concede possession. We are instructed that the financiers require the property to be available for inspection next Wednesday and Thursday.
The language of that letter is instructive. It seems the solicitor for the husband had instructions from the husband as controller of the Allan Family Trust.
On 7 April 2009 the husband’s solicitors had received an email from P Finance indicating that the borrower (the Allan Family Trust) had agreed to surrender possession of Y property and E property.
The wife’s lawyers received an email from the husband’s lawyers on 23 April 2009 asking the wife’s lawyers to “Please confirm if your client agrees to the sale of [Y Property]”. It appears that this is the first the wife became aware of the email of 7 April.
On 1 May 2009 the wife through her lawyers became aware that A Finance issued Notices of Default in relation to R property, the wife’s home at No. 5, E, (as second mortgagee) and other properties at J Street and F Street, WA. The A Finance loans are all expired and are in default.
On 8 May 2009 A finance emailed the wife’s lawyers communicating that A Finance was looking to recover loan advances. A Finance reserved the right to sell secured properties in whatever order it chose.
The wife gives evidence that the husband has not paid her any spouse maintenance since 24 November 2008 other than monies that the wife received by way of a third party debt notice. The wife gives evidence that she applied those monies towards the cost of her daughter’s wedding.
The wife also relies on evidence of Ms JM who gives evidence about a dinner that she had with the husband on 16 September 2008 when the husband said to her “I am selling everything – all assets, the properties, the furniture … I have already sold three blocks at [J Street], and [Y property], [E] apartments, [R Property] and [M] are next”. She also gives evidence that the husband said to her that he did not care about ending up with an amicable situation.
The wife relies on paragraph 9 of the husband’s affidavit filed 12 February 2009. In that paragraph the husband indicates that he has been working on the rezoning of the M property. In a letter from the NSW Department of Planning dated 5 December 2008 they had authorised the local City Council to draft an amendment subject to conditions. I have no evidence as to what has happened between 5 December 2008 and now in respect of the progress of the subdivision.
As at 12 February 2009 the husband’s evidence was that he was optimistic that he would be able to obtain the rezoning. The husband in paragraph 9 of his affidavit, at Annexure “B”, refers to a letter from Mr KW, Registered Valuer dated 28 January 2009 indicating that a total gross realisation of M once the subdivision was completed, would be in the order of $77 million. I have no evidence as to the amount that will be required to complete the subdivision. Mr KW in his letter of 28 January 2009 refers to an earlier valuation as at 1 March 2007 of M in the sum of $37 million (without any subdivision – see Exhibit B).
The wife in her affidavit estimates that the collectables owned by W Nominees and/or the parties have a value of approximately $70 million. The better evidence is contained in an affidavit of Mr D sworn 22 May 2009. As already mentioned, Mr D is a liquidator appointed by A Finance. He gives evidence that he has identified antiques and collectables owned by W Nominees. It appears from his evidence that Mr D has not been able to obtain access firstly to the unit believed to be occupied by the husband when he stays in Perth and secondly to a storage facility used by the husband. It does however seem that the husband has allowed Mr D’s agents to have access to the M property for the purposes of itemising and listing its extensive contents. It appears that the wife has co-operated with Mr D. Mr D says that it had been represented to A Finance that W Nominees’ antique collection was worth in the order of $50 million to $70 million. Mr D believes that the realisable value of the antiques will be substantially less. The sale of the items would need to be staggered over a progressive period. It is Mr D’s current opinion that it will be unlikely that the sales will achieve proceeds of more than $10 million to $20 million from which Mr D’s costs of administration, sales commission, insurance and associated expenses will need to be deducted.
I have no information given to me by anybody as to the priority in which Mr D will distribute any proceeds from the sale of collectables and chattels. Mr D has filed no evidence in respect of who, in his view, has priority on a distribution of proceeds of the sales.
THE CASE PUT BY EACH PARTY ABOUT THE s 90AF FLA ORDER SOUGHT BY THE WIFE
Submissions by the wife
Counsel for the wife conceded that what was being sought against the mortgagees was a very serious order which interfered with their rights and that an inconvenience would be caused to the mortgagees. It was submitted that I could be comfortably satisfied that there was a surplus of $80,000,000.00 in the net pool available to the husband and wife and that the pain suffered by the mortgagees was something that should be borne by them on the basis that it would enable a proper alteration of property interests to be made between the husband and the wife. The gravamen of the wife’s submissions is that I have sufficient evidence to suggest that it is more likely than not that there are sufficient assets to ensure that all the mortgagees will be paid out under the mortgage, even if the timing of that payment might be delayed. I deal with the argument about adequacy of assets in my conclusions.
Counsel for the wife submitted that not to allow the injunctive relief effectively put paid to the wife’s application for final orders; that procedural fairness had been afforded to the mortgagees and that there were no taxation effects to take into account.
Although under the wife’s proposal there would be an orderly but expeditious sale with the properties, counsel for the wife conceded that it would not be known with any degree of precision as to the whether outstanding interest owed to the mortgagees would be paid on a continuing basis if the injunctions were granted. The husband and W Nominees provide no evidence in these proceedings about their current capacity to meet their recurrent obligations under the various mortgages.
The wife, in an inadmissible and inappropriate form, alleged collusion between the husband and his financiers to target those properties which she wished to keep, including the property in which the wife currently lives, as the properties which would first be sold. That allegation was not pursued before me. In submissions, counsel for the wife simply referred to it as a coincidence rather than anything more sinister.
P Finance has first mortgages in respect of Units 1 and 2 of No. 5, E and the Y property. It does not have any other securities on any other properties. I find it is only a coincidence that those three properties are among the properties the wife more particularly wishes to receive on a final distribution.
Counsel for the wife submitted that it is “quite interesting to note” so far as A Finance is concerned that the only steps so far taken, not by it but by the husband, is to sell R property, the former matrimonial home and that the only other action that has been taken by a mortgagee on the evidence that I have is in respect of Y property. Currently there appears to be no attempt to exercise powers of sale in respect of any other properties, although notices have been issued in respect of a number of properties. None of the mortgagees puts on any evidence about what they intend to do but that is said without criticism because it is in the nature of the mortgagees’ application for summary dismissal that that application needs to be dealt with on evidence presented by the applicant at its highest and there is no onus on a respondent to file any evidence.
Submissions by P Finance Limited
Mr Walker, senior counsel for P Finance, objected to P Finance being joined and/or sought summary dismissal of the wife’s claim against P Finance. The other mortgagees made the same applications. Given the way the matter was argued, it seems to me that there is no difference between considering an objection to being joined, on the one hand, and considering an application by the mortgagees for summarily dismissal of the wife’s application against the third party mortgagees, on the other. I will deal with both topics in the one discussion.
What the wife proposes, by the relief she seeks, is that until further order P Finance should be restrained from entering into possession of and/or selling and/or otherwise dealing with properties in respect of which P Finance have registered first mortgages. The suspension of P Finance’s rights, on the wife’s proposal, would be for a time that would enable her as the new controller of W Nominees to sell other properties, in respect of which P Finance do not have a first mortgage or any security at all, except for a floating charge over the overall assets of W Nominees, on the basis that, after the registered mortgagees in respect of those other properties had been satisfied out of the proceeds of the sale of those properties, monies that might then remain could be paid to P Finance. The order proposed takes away property from P Finance. It means that P Finance cannot even take rents from the sitting tenants.
In essence, the submissions made by P Finance are:
84.1.in the facts of this case there is no power to make Order 2 as sought by the wife notwithstanding the provisions of Order 7.6.3 as sought by the wife;
84.2.if there is power the discretion to make the order should not be exercised;
84.3.as a consequence P Finance should not be joined as a party for the purposes of making the order and/or the wife’s application against P Finance should be summarily dismissed.
Senior counsel for P Finance highlighted again the “extraordinarily scant” financial evidence filed by the wife in relation to the balance between the monies owing and the current value of properties which would enable a finding that the allocation of risk to P Finance had not increased.
I deal with some of Mr Walker’s other submissions in my conclusions.
Submissions by A Finance Limited
Counsel for A Finance, Dr Dickey, supported the arguments made by counsel for P Finance and made others to which I refer to in my conclusions. A Finance opposed the orders sought against it by the wife.
Submissions by M Finance
The solicitor for M Finance adopted the submissions of Mr Walker and Dr Dickey. M Finance opposed the orders sought against it by the wife and its solicitor emphasised that his client was a third mortgagee who had not done anything yet to sell properties, apparently hoping that sales would realise sufficient money to have M Finance paid out in full.
The solicitor for M Finance spoke against Order 3 being made. Order 3 is an order whereby the wife effectively seeks non-party discovery. Counsel for the wife conceded that M Finance had complied with usual subpoena procedures.
Submissions by B Finance
The solicitor for B Finance adopted the submissions of Mr Walker and Dr Dickey and opposed the orders sought against it by the wife.
Submissions by the Receiver
The solicitor for the receiver opposed order 12 as sought by the wife. That order sought that the receiver be restrained from selling personal property and collectables at Y and E properties. The receiver’s submission about the orders sought by the wife was that I would not be able to glean from the wife’s material any basis for making the order sought. The receivers’ evidence disclosed a level of uncooperative behaviour on the husband’s part.
CONCLUSIONS ABOUT THE S 90AF FLA ORDERS SOUGHT BY THE WIFE
The constitutionality of s 90AF depends upon the existence s 90AF(3) and s 90AK and their careful application to the facts of a particular case. The provisions of s 90AF(3) are mandatory and cumulative.
s 90AF(3)(a) and (b) FLA
As set out in detail above, any order which I make has to be reasonably necessary or reasonably appropriate and adapted to effect the division of property sought by the wife and it should not be foreseeable that the order would result in the debt not being paid in full (s 90AF(3)(a) and (b) FLA).
The Full Court in B Pty Ltd & Ors & K & Anor (2008) FLC 93-380 made it clear (at paragraph 63) that any order made must be for the purpose of effecting the division of a property between the parties. It cannot be for the purpose of increasing the property of the parties.
Dr Dickey submitted that there was no firm evidence in this case that at the end of the day there is a reasonable expectation that the wife will be able to receive all the properties that she seeks in her Further Amended Application for Final Orders. I accept that that is so. He submits, what flows from that is that the injunctive orders sought by the wife, that hang off that application for final orders, cannot be said to be reasonably necessary or reasonably appropriate and adapted to effect a division of property between the parties of the marriage, as s 90AF(3)(a) requires. I do not accept that is so. An injunction could be justifiable only if part of the property a party sought by final orders could be saved.
Mr Walker argues that if the rights of a mortgagee are suspended for an indeterminate period of time, without providing something equivalent to the first mortgagee in return, there is an increase in the property that the parties might otherwise have to distribute between themselves. I accept that is so.
A commercial lender should be able to lend without having to worry about whether the managing director of a trustee company has a spouse and that spouse is happy. In the particular circumstances of a particular case that worry might be able to be alleviated by an order which gives an alternate security which is the equivalent or better than the security being taken away. A court would need to have evidence and make a finding that what was being offered was equal to or substantially better than what was being taken away. Otherwise there is a real risk that the property of a married couple is being increased at the expense of a third party and the mandatory requirement of s 90AF(3)(a) FLA is not met.
It seems from Exhibit “D” that all of the properties are encumbered. That is, in respect of each property there is a lender who has a first mortgage on those properties. To provide P Finance with a first mortgage on a property other than a property over which it currently has a first mortgage, would mean that one of those other first mortgagees would need to be displaced. Exhibit “D” demonstrates how complex the cross-collateralisation of all the properties is in this case.
As already emphasised, s 90AF(3)(a) FLA means that any order made must lead to a result which helps effect a division of property between the parties to a marriage. The section cannot be used to deprive a third party of its rights simply to benefit a party to the marriage and an order made under s 90AF(1)(a) FLA cannot be made to deprive a third party of its rights now in the mere hope that the third party’s claim will be met at some time in the future.
The wife’s argument is that there is so much property in this case that that risk does not actually exist and that P Finance should be confident that they will be fully paid at the end of the day. Even if that was a sufficient answer, I am not satisfied on the evidence against P Finance and the other mortgagees, that that is so in this case. The wife submitted that the evidence showed there was $80,000,000.00 in net assets. It was not clear from the wife’s submissions as to how the $80,000,000.00 was calculated. Counsel for the wife made a submission that even if they were 50 per cent wrong there is at least $40,000,000.00 left. Coincidently, the amount of $40,000,000.00 is the amount of the net value of the real estate in Exhibit D ($30,000,000.00) and the lower estimate by Mr D for the realisation of the chattels. I do not have up-to-date valuations. The valuations I do have cause me some disquiet as to what percentage the current borrowings are of the current value of the properties against which they are secured.
Even though the wife submits that P Finance should not be concerned about their debt being paid in full in the fullness of time, it is clear that if a “pending further order” is made taking away P Finance’s first registered mortgages, then when a further order is made by this Court the market will have moved, interest will have accumulated and if non-payments continue the debt owed to P Finance will be all the larger at that time. The risk of the market movement and the accumulated interest then falls on the third party rather than on the wife and the husband jointly.
I accept the proposition that there has to be better than a “mere hope” that a third party’s claim will be met at some time in the future. For instance, if the wife had led evidence to indicate that within a very short period of time the whole of the money owing to P Finance could be paid to them then it might be that there was a basis under s 90AF to make the injunctive order sought for a limited period. An example of this happening can be seen in W & W and Anor, a 2006 case where Justice Bennett restrained the husband’s trustee in bankruptcy from selling the matrimonial home, in which the wife and the children lived, for a very limited period of time so that the wife could make enquiries as to whether or not alternative financing was available.
Dr Dickey points to the fact that Mr H’s affidavit at paragraph 19 indicates that the husband’s entities owe A Finance $17.955 million and that interest is accruing on that amount owed to A Finance at a rate of $259,000.00 per month.
On Dr Dickey’s calculations the comfort offered by the wife in her proposal to take control of the immediate sale of other property, falls short of comfortably satisfying the Court that A Finance’s debt of $18 million will be accommodated. He points out that B Finance has first mortgage over the majority of those properties (the properties at M). One of the properties in the list (J Street) is already subject to a first mortgage to A Finance (in respect of that property B Finance are the second mortgagee and M Finance are the third mortgagee).
In re-emphasising Dr Dickey’s point in relation to interest, the lawyer for M Finance pointed out that the overall debt was $70 million, not just the $18 million owed to A Finance and that the recurrent interest debt is far higher than $250,000.00 per month (extrapolating it could be $972,000 per month).
The solicitor for M Finance said that Order 6 should not be made because lenders had borrowed on the basis that the subdivision at M would take place and he implied that a premature sale of M may affect some of the securities on that property. I have no evidence at all to support a proposition that the current debt which is secured on M property exceeds its current value (absent the subdivision). Even if I did have that evidence, a lender when making the original borrowing on M property, would have taken the risk that the subdivision would not be completed prior to sale.
The solicitor for M Finance argued that giving the wife control over the sale of property affected the mortgagee’s power of sale. That is not so. The wife would simply stand in the same shoes as the husband currently stands in respect of those properties owned by W Nominees. If she was to effect a sale by auction she would have to be able to give clear title to any potential purchaser and that would mean that she would have to pay out mortgages secured over the property or otherwise come to an arrangement with those who have security over the properties.
The solicitor for B Finance made the point that if properties held by Finance were the subject of injunctive orders then A Finance’s first mortgage over the unfrozen properties in respect of which B Finance have a subsequent mortgage would secure a larger debt in front of B Finance. However, B Finance has the first registered mortgage over the M properties. B Finance are owed $21 million. On the information that I have the properties are worth significantly in excess of that and it seems unlikely (absent any injunctive orders being made against the mortgagee) that B Finance would be prejudiced by the orders the wife sought in taking control of the immediate sale of properties including M property.
I find that as at the current time, the wife has not established that it is not foreseeable that the granting of the injunction would result in the debt to the mortgagees not being paid in full. I accept Mr Walker’s submission that the assertions as to value contained in the wife’s affidavit (as against the mortgagee’s) are not sufficient for the purpose required. The wife cannot rely upon the husband’s admissions contained in the handwritten document (which the husband’s solicitor said was prepared at a candlelit dinner) as against the mortgagee’s. The valuations (Exhibit B) that have been provisionally tendered are of insufficient currency to be relied upon for the purposes of me being comfortable that the requirement of s 90AF(3)(b) have been made out.
As has been discussed it is mandatory for the Court to be satisfied that the conditions in sub-section 90AF(3) are met and I am not satisfied that conditions 3(a) and 3(b) have been met.
s 90AF(3)(c) – (f); s 90AF(4) FLA
In respect of s 90AF(3)(c) there is no complaint by any of the mortgagees that they have not been accorded procedural fairness.
The order being sought pending further order is an interlocutory injunction and consequently the provisions of s 90AF(3)(d) do not apply.
When considering s 90AF(3)(e) the Court has to be satisfied that in all the circumstances it is just or convenient to grant the injunction. Dr Dickey submitted that it would “undermine the very nature of commercial security for a secured creditor with a first mortgage in the position of a special lender not to be able to rely upon the security for a loan except in the most exceptional cases”. I generally agree with that statement but, as discussed elsewhere in these reasons, there may be cases where a substituted security of equal or better value could be provided or conditions could be attached to the injunction being granted (for example, the short timeframe in which it is being granted) so that the Court, on the facts of a particular case, could be satisfied that there was power to make the order and it was just and convenient to do so. On balance, in the circumstances of this case, I find that it is not just or convenient to grant the injunction.
Section 90AF(3)(f) requires me in order to exercise the powers under s 90AF to consider the matters in s 90AF(4). These are discretionary considerations:
(a) and (b) There is no taxation effect arising out of the injunction of orders proposed by the wife.
(c) There is no social security effect arising out of the orders or injunctions proposed by the wife.
(d) Senior counsel for P Finance did not point to any administrative costs arising from the injunction. It was submitted that interest payable under the mortgages may spiral upward if the order is made without P Finance having a right to do anything about it (a matter perhaps more appropriately considered under s 90AF(4)(e) or (h)).
(e) Senior counsel for P Finance pointed to the fact that the wife in her evidence was unsure about her capacity to pay her own lawyers and highlighted that the undertaking as to damages given by the wife was only on the basis that the husband would indemnify her in relation to that undertaking. I agree that that offers very little comfort to the mortgagees given that they already had the benefit of a guarantee from the husband.
(h) When dealing with s 90AF(4)(h) (any other matter that the Court may consider is relevant), senior counsel for P Finance emphasised again the existence of risk which is notorious when it comes to the forced realisation of property by people whose borrowings are no longer being serviced. The submission was that the wife’s application sought to shift the risk from the husband and wife onto the mortgagee. Senior counsel for P Finance pointed out that the wife should be looking to the husband as the prime source of funding rather than third party mortgagees.I agree with those submissions.
When considering discretionary matters I also take into account Dr Dickey’s submission that the debt to A Finance is increasing at a rate in excess of $250,000.00 per month; that the overall debt is accruing at about $972,000 per month and the debt is currently not being serviced.
In the circumstances of this case, even if I had found that I had the power to make the orders sought by the wife against the mortgagees, I would have not exercised my discretion to do so.
Just terms
Section 90AK of the Act provides any acquisition of property rights must be on just terms.
Secured commercial lenders (and more generally, related but bona fide secured lenders) stand head and shoulders above unsecured creditors. Secured creditors have interest in property. There is generally no question that these property rights have to be quarantined before determining what assets of the parties can be divided. This is to be contrasted with the rights of unsecured creditors (see Coleman J at paragraph 96-101 of Trustee of the property of G Lemnos, a bankrupt and Lemnos and Lemnos (2009) FLC 93-394; Biltoff and Biltoff (1995) FLC 93-614). Sometimes adjustments of property are made without removing all unsecured debts from the asset pool prior to dividing the asset pool between the parties. The pari passu principle as enshrined in s 108 of the Bankruptcy Act, does not apply to the division between unsecured creditors and the parties in these circumstances (see Thrackay and Ryan JJ in Lemnos at paragraph 262 - 264, 271) and the Family Law Act requires a just and equitable division of property as between spouses and unsecured creditors. No such approach is relevant to a circumstance as exists in this case where orders are sought which affect property rights of bona fide secured commercial lenders.
It needs to be recognised that a commercial lender who has a first mortgage has a power to sell a property without court order. That is a very important right and if it is being acquired, it has to be acquired on just terms. The mortgagee needs to be put into an equivalent position after the first mortgage on a particular property is taken away or if rights are taken away for a limited period, it would have to be done in circumstances where the mortgagee was at no risk of being disadvantaged in any way. Otherwise property rights are being taken away from the third party on other than just terms.
I find it is not appropriate for the mortgagee to lose their registered security and queue up behind others who are owed yet to be determined totals and aggregates after the sale of other properties at unknown times and in an unknown order, over which the mortgagee has no control in respect of the sale. I have no evidence as to whether there are any unknown unregistered mortgagees which would complicate the exercise even further.
The wife’s application to restrain the mortgagees from entering into possession of or selling or otherwise dealing with properties over which they have registered securities (even though it is expressed until further order) has the effect of depriving a third party of the advantages that that security gives them.
Section 90AK of the Act means that you cannot take property from a third party, except on just terms, and you cannot take the property interests which is the hypothecation represented by a registered mortgage without giving something back which fully compensates for what has been taken away.
As mentioned in the context of the discussion about s 90AF(3)(b) of the Act, once the injunctive order is made the market may move and interest may accumulate and there is no guarantee that the mortgagee’s position once lost will ever be able to be regained again.
Although there is a promise of repayment by the liquidation of assets, the mortgagee loses control over the sale of the security that they once had and a repayment to them is out of their control. If a repayment does happen, it will be at a time which is indeterminate. The granting of an injunction would take away, potentially forever, property rights that a third party has and it is not open as a matter of power in the circumstances of this case for the wife to seek an order which would have that effect.
ORDERS SOUGHT BY THE WIFE AGAINST THE HUSBAND AND IN RELATION TO W NOMINEES AND THE SALE OF PROPERTIES
The applications that the wife seeks in Orders 4 to 8 are primarily in the nature of mandatory injunctions aimed at preserving assets pending the final hearing for alteration of property. The basis of those applications is s 114(3) FLA which allows the court to make injunctive orders if it is just and convenient to do so.
If I am incorrect about that then the orders sought may be seen as interim property orders.
As the Full Court said in Harris and Harris (1983) FLC 92-378, the court has power in a proper case in s 79 proceedings to deal with some of the property of the parties prior to a final hearing.
In making what has been called an “interim or partial” order, the court needs to consider:-
128.1.Whether there are compelling reasons for exercising the power, given that normally parties are better served by there being only one final hearing in s 79 proceedings;
128.2.The exercise of power is carried out within the parameters of s 79;
128.3.The powers are exercised conservatively. That is, not in a way that will jeopardise any future order that one or the other party might seek at the final s 79 hearing.
So far as I am aware, the husband has not made any application for an adjournment pursuant to s 79(5) FLA and no order is being sought by him pursuant to s 79(6) FLA of which I am aware.
Wife’s submissions
In relation to the orders aimed at making the wife controller of the Allan Family Trust, Mr Lloyd asserted that the husband was yet to comply fully with his obligations of full and frank disclosure.
Counsel for the wife submitted that the husband has not complied with the orders of his Honour, Justice Rose. I have the wife’s sworn assertion that that is so. I have a statement from the bar table by the husband’s solicitors that he contests that it is so. It is clear from that statement that no regular periodic payments have been made which is what is contemplated by the order.
It is submitted by the wife that the husband has not fully co-operated with the Receiver, Mr D, and his affidavit provides some support for that submission.
The wife wishes to stand in the shoes of the husband in his capacity as a director of the trustee company and to cause the trustee company to affect the sales of the properties referred to in Order 6 of the wife’s application in a case.
The evidence in support of the application sought by the wife has been presented in a less than coherent way. For example, the wife seeks that W Nominees sell 4 F Street, when Exhibit B indicates that that property is owned by CV Company. The wife seeks an order that W Nominees sell S Apartments in the State of Western Australia and P Street in the State of Western Australia, when, so far as I can tell, I have no evidence that W Nominees owns them.
The wife has not sought specific orders for the sale by W Nominees of the properties at 2 and 3 W Street and 3 J Street in Western Australia. So far as I can tell, I have no evidence that these properties have already been sold. However, given that the wife is seeking an order that she become the new controller of W Nominees, if she is successful in that regard, she will effectively have the capacity to sell these properties without a specific order.
Submissions by the husband
The husband opposed the orders sought against the mortgagees but made no independent submissions in relation to the orders sought by the wife against them.
The solicitor for the husband indicated that the only orders that directly affected the husband were orders relating to the change of control in W Nominees and the sale of properties. The lawyer for the husband indicated that he presupposed that the wife would only be seeking those orders if she was successful in her application to stop the mortgagee selling other properties. There was no indication from the wife during the hearing before me that that assumption had any basis whatsoever. The lawyer for the husband submitted that it would be logical to only deal with orders for a change in control of W Nominees and the sale of the properties after the dispute with the mortgagees was dealt with and that there was no real urgency to deal now with the orders, which the husband said affected him.
The lawyer for the husband submitted that orders removing Mr CE and Mr SN as directors of the Trustee company could not be made without Mr CE and Mr SN being served and given notice of the application. Mr Lloyd has agreed that Mr CE and Mr SN have not been served but submits that, in the circumstances of this case, it is sufficient for the trustee to have been served. The trustee is the alter-ego of the husband. The husband and wife together can determine who the directors and secretaries of W Nominees are, from time to time.
I find on the material I have that the husband is the appointer of the Trust and could in fact, if he wished, simply remove W Nominees as the trustee of the Trust and appoint a new trustee of the Trust. I find on the material I have that the husband totally controls W Nominees. Given the circumstances of the case and the evidence I have, I find it is not necessary to have served Mr CE and Mr SN or to make specific orders removing them as directors of W Nominees. A general order can be made requiring the parties to do everything necessary for the purposes of appointing the wife the sole Director and Secretary of W Nominees.
The husband filed no evidence. The solicitor for the husband indicated from the bar table that the husband rejected the suggestions that:
140.1.he had not made proper financial disclosure;
140.2.he had not paid arrears of maintenance; and
140.3.there had been a disorderly delay in the sale of chattels due to the husband’s failure to co-operate.
The husband’s lawyer said from the bar table that on 11 November 2008 there was a payment of $55,000.00 and on 2 March 2009 the husband’s bank account was frozen and the wife got by way of an enforcement summons $42,975.33. The lawyer for the husband, having said the whole of the $55,000.00 was for maintenance, amended that to say that $10,000.00 of it was for costs of the wife’s senior counsel for the proceedings before Justice Rose.
A submission was made that the wife on 3 March 2009 took a further $170,000.00 from the account associated with the running of the Snowy Mountains facility.
The lawyer for the husband referred to the wife’s Case Outline Document. The wife’s Case Outline Document has information in it which is not formally before me given the documents that the wife relied upon in evidence before me. In the context of this application, it is permissible for the husband to rely upon admissions in it. The husband’s lawyer points to admissions in the wife’s Case Outline Document that on 11 November 2008 the husband paid into the wife’s lawyers trust account the sum of $55,000.00. This was said to be in accordance with orders made by consent on 21 October 2008. Those consent orders were made prior to the orders of Justice Rose on 24 November 2008. I am not able to ascertain how it is that the lawyer for the husband says that a payment pursuant to consent orders on 21 October 2008 is to be credited as a payment against the maintenance order of Justice Rose.
The husband’s lawyer also refers to items 50 and 51 of the wife’s Case Outline Document which are in the following terms:
50.2 March 2009 Wife receives a cheque from the ANZ in answer to her Third Party Debt Notice in the sum of $42,975.53.
51.3 March 2009 Wife draws the sum of $170,000 on her loan account with [O Company] and applies some of the monies towards her outstanding legal costs.
I have no evidence that that was for maintenance. The husband asserts that if that amount is counted as maintenance then there are no arrears of maintenance.
None of this has been properly put in evidence before me by the husband. The wife’s evidence is that only $43,000.00 has been paid of monies owing to her pursuant to the orders made by Justice Rose last year. The husband has not attempted to organise a regular payment to the wife pursuant to the orders and clearly has not complied with the terms of the orders which require a regular weekly payment. On the evidence that I have (which is the wife’s evidence) there are substantial arrears in respect of Justice Rose’s order.
The lawyer for the husband indicated that he could have taken me to parts of previous affidavits filed by the husband where the husband disputes he has made financial disclosure. He, however, did not do so. It was made clear by the husband’s lawyer that the husband’s position is that he wishes the matter to be prolonged so that he can maximise the amount of time he has to effect the subdivision of the M property. In the meantime, he is content to allow all the properties, including those which the wife wishes to retain, to be sold.
The lawyer for the husband refers to the affidavit of Mr H sworn 22 May 2009. Mr H is the Managing Director of A Finance. He is also the sole Director of M Finance. M Finance is a secondary lender to W Nominees. M Finance is currently owed $16 million by W Nominees.
M Finance has the following security, which includes:
149.1.third registered mortgage over the properties owned by W Nominees at 1 F Street, 1 J Street, Unit 3/5 at E, Unit 4/5 at E, 2 J Street, Unit 1/5 at E, Unit 2/5 at E;
149.2.a fourth registered mortgage over the property owned by W Nominees at 3 J Street;
149.3.a second registered mortgage over M property.
Mr H says that often with these lending arrangements interest is prepaid rather than relying upon cashflow.
Mr H is also the Managing Director of A Finance and in his affidavit of 21 May 2009 relied upon by A Finance, Mr H gives evidence that the husband has been a successful builder and developer over many years. During the 1970s he successfully built and developed many properties in Sydney. …. More recently he was involved in a major subdivision in Western Australia and is in the process of subdividing M property in New South Wales.
At paragraph 6 of his affidavit, Mr H says:
From the prospective of a Financier, an important characteristic of [the husband’s] business is that his wealth has been built upon the realisation of projects and the sale of assets. His business enterprises have not been characterised by creating income producing assets. Some developers build and hold projects and their wealth comes from income streams such as rents. Since [A Finance] has had a financial association with [W Nominees], there have been no material income producing assets amongst [W Nominees’] portfolio and [W Nominees] has relied on developing and selling off projects to fund its borrowings and to provide distributions to the Family Trust.
The lawyer for the husband wanted to put on the record that his client was not comfortable that the properties that the wife lives in are being sold. He indicated from the bar table that there are some units behind where the wife lives that she could move into. It was not clear to me from what funds she would pay the rent.
The lawyer for the husband indicated from the bar table that the wife can move back with the husband – not literally with him because there are three houses on the M property. The lawyer for the husband indicated that it was the husband’s position that he perceived that the wife’s main concern was that she was being thrown out of the home. I have no doubt that that does concern the wife and it is one of the important things that motivates her in bringing this application.
W Nominees Pty Limited as trustee of the Allan Family Trust
There was no appearance on behalf of W Nominees, although, as indicated, the lawyers for the trustee had sent an email indicating that their client opposed the making of the orders sought in the wife’s application.
Other possible beneficiaries of the Allan Family Trust
There was an appearance on behalf of the four children of the marriage who are potential discretionary beneficiaries of the Family Trust. Other than indicating that they were opposed to the orders sought by the wife, they did not wish to be heard further on the question of their mother being given control of the Trust for the purposes of liquidating properties.
Conclusions about the wife’s application against the husband and in relation to W Nominees and the sale of the properties
The application by the wife against the husband and in relation to W Nominees and the sale of the properties can be taken to be an application for orders and/or injunctions pursuant to s 114(3) FLA. Implicitly part of the wife’s case is that injunctive orders relating to the sales of the properties are just and convenient to conserve a pool of assets which is currently being depleted at a significant rate on a monthly basis due to accumulating interest (at an estimated rate of about $972,000 per month).
There is a duty on the husband, whose financial affairs are quite complex, to update the wife on a very regular basis as to what is happening in respect of his financial affairs and the financial affairs of the Trust which is his alter-ego.
In response to the assertion that the husband has not co-operated with the Receiver, the husband’s lawyer says that if the receiver is unhappy then the Receiver should exercise his powers. That is not an answer to an assertion by the Receiver that he has yet to receive full co-operation from the husband in respect of the task which the Receiver has been given.
Mr H says that distributions to the Family Trust have come from the sale or gearing of assets rather than from income produced by the assets.
What is clear from that evidence is that the husband has a long history as a builder and developer and has connections which have enabled him to have cashflow from the sale of assets or borrowings rather than from any income producing assets.
The evidence I have is that a number of facilities have expired. I have no evidence as to the husband’s attempts to renegotiate these securities with the existing lenders and little evidence about the husband’s future proposals to sell assets that are not part of the portfolio which the wife has sought in her further Amended Application for Final Orders. I am on balance satisfied, on the limited evidence that I have, that the husband has not been diligent in informing the wife as to the current situation in respect of the mortgages from time to time and he certainly has not put any evidence before me about the history of the loans or what he intends to do, if anything, about the loans which are in default.
It seems clear that the wife has little control over her short-term fate. It is the husband’s stated position that he wants the litigation to go on as long as possible so he maximises his chances of effecting a subdivision at M. In the meantime, the husband takes steps to sell the former matrimonial home in Perth in circumstances where the wife, in her evidence, said she had intended to go back there (although she no longer resists the sale of that property).
As I have indicated, the wife will not be successful in obtaining the orders she seeks against the mortgagees but it may be that, if she can move to sell expeditiously some of the other properties, that she can enter into negotiations with various mortgagees. This may, for example, enable her to negotiate with P Finance with a view to being able to preserve some of the properties which she is seeking to retain by way of final alteration of property settlement.
All the properties which the wife seeks by way of distribution of property settlement are subject to threat by registered mortgagees who hold mortgages which are currently in default. The husband sits back and says there is rental accommodation in close proximity to the wife’s home that she could go to (it is not explained how) or she can come back and live in close proximity to the husband on the properties at M. It is clear the husband’s attitude is that so far as he is concerned, no arrangements should be made to attempt to refinance the current portfolio of properties or to sell some of them in such a way as to maintain the possibility that the wife’s application or part of it might be able to be achieved by her in some way at the final hearing.
I find that there is a basis for making orders of the nature sought by the wife pursuant to s 114(3) FLA for the purposes of conserving the pool of assets, subject to me giving the husband an opportunity to present further evidence within a limited period to persuade me that the sale of the M properties should not proceed.
In the alternative, the wife’s application could be seen as an application for interim property orders.
The normal evidence one would expect to find in an application for interim property orders has not been fully presented in the evidence given by the wife.
I have little information about the nature and merits of the parties’ competing s 79 applications. The marriage existed through a period in excess of 40 years. There were four children.
The wife has done a calculation in her affidavit that she is seeking only 34 per cent of the real estate. At the current time I am unable to accept the wife’s calculations. It is far from clear to me at this stage that the wife will receive the property she seeks. Putting to one side the less tangible assets, including the outcome of future litigation referred to paragraphs 61(a) and (b) of the wife’s affidavit, the tangible net assets could be as low as $18,000,000.00. The wife seeks $26,000,000.00 in unencumbered real property.
Apart from some vague evidence, the husband has not sought to present to me any evidence as to why the M properties should not be sold at this time, nor has he given any evidence as to why (as apparently the husband has been able to achieve through a long career in commercial development of real estate) he has not been able to refinance properties which the wife seeks to retain. Mrs JM’s evidence is that the husband said in September that he intended to sell everything, including M property.
There is however in my view enough evidence for me to be able to conclude, on an alternate basis, that the orders that the wife seeks could be made within the parameters discussed in Harris.
Given the complexity of financial matters in this case, it would be naïve to think that the parties will not (as they already have had) a number of interlocutory proceedings. In the circumstances of this case the management of the financial affairs of the parties prior to the matter being ready to be finally heard will almost certainly “compel” the court to deal with the matter on an interim basis and probably on more than one occasion in the future.
The husband has not put before me what he seeks by way of final orders and so I have no indication one way or the other as to whether or not he wishes to attempt to retain any of the properties, including the M properties.
The orders the wife seeks do not in any way jeopardise the future claim in final s 79 proceedings by one or the other party as it is presently known to me.
The orders as sought by the wife do not put any money from sales into her hands (apart from monies that would allow current maintenance orders to be paid).
Subject to what I will say about the subdivision of the M properties, taking a conservative approach on the evidence I have and given that the whole of the proceeds of sale will be used to repatriate debt, it is difficult to see how there can be anything other than a conservation of assets. The wife has not established to my satisfaction what she asserts as the net value of the assets of the parties and in those circumstances the claim for final orders that she makes may not be clearly justifiable. However, if it turns out at the end of the day that they are not justifiable on the evidence I have, nothing is lost in this exercise. On the evidence that I have, the orders that the wife seeks can only secure the asset pool (and reduce the loss of nearly $1,000,000.00 a month in interest payments).
I am mindful that I may not have heard the full story, particularly in respect of the M property given that the husband chose not to lead any evidence.
There is evidence that points in the direction that the immediate selling of the M property may mean that a realistic and limited chance of increasing M’s value from $37,000,000.00 to $107,000,000.00 is lost. In those circumstances it is appropriate to give the husband, who has failed to provide any evidence to me about the position with M property, a right to apply for further interim orders in relation to M property. In the event that he does not do so within 28 days, the wife will then be given the right to cause W Nominees to sell the M properties.
The orders for sale are pending further order. In the event that the husband is able to use his long experience to organise a financing arrangement that saves, in the short term, some of the properties the wife wishes to keep in the longer term, then the husband also has the ability to file a further application for further interim orders based on that new evidence.
I note that there are at least four other properties (at F Street, P Street, Y and the Snowy Mountains) which are held in the names of companies other than W Nominees.
I will note that the order permitting the wife to sell properties does not affect any right any mortgagee might otherwise have to sell the properties.
The method by which that order is to be made is to substitute the wife as the controller of W Nominees. That will be done by requiring the husband and wife (and in default the Registrar) to do what is necessary to make the wife the sole director and secretary of W Nominees. She will thereafter be authorised to have W Nominees affect a sale of the properties nominated in paragraph 6 of her Application in a Case filed 14 May 2009 where the evidence indicates that W Nominees actually owns them. The proceeds of the sale are to be used firstly to discharge secured creditors in respect of those properties and secondly, to make payments to P Finance for the purposes of attempting to reach an arrangement with them so that they do not sell the property in which the wife is living in E and the Y property.
Orders sought for general discovery
There was a concession made by counsel for the wife that M Finance and F Finance had complied with previous subpoenas.
I decline to make Order 3 as sought by the wife on the basis that there is no evidence that would satisfy me that any of the mortgagees have failed to respond to the provision of information either requested of them or as a result of a subpoena being issued to them.
Subpoenas can be issued and dealt with in the normal way.
Proposed Orders sought against the Receiver
The wife seeks an order that the Receiver be restrained from selling personal property at R Property, E and Y (order 12 as sought in the wife’s application in a case). Counsel for the wife pressed that application. I am not able to glean from the material any basis which would justify restricting the Receiver’s obligations under current securities.
Default signature by Registrar
It is appropriate to make an order pursuant to s 106A FLA.
I certify that the preceding one hundred and eighty-eight (188) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watts
Associate:
Date: 26 June 2009
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