Berrell & Tily (No 2)
[2022] FedCFamC1F 715
Federal Circuit and Family Court of Australia
(DIVISION 1)
Berrell & Tily (No 2) [2022] FedCFamC1F 715
File number(s): SYC 3428 of 2018 Judgment of: CHRISTIE J Date of judgment: 21 September 2022 Catchwords: FAMILY LAW – PRACTICE AND PROCEDURE – where the respondent seeks to appoint an administrator for a company – where the applicant seeks a restraint on the respondent from appointing an administrator - where the applicant instead seeks to appoint a liquidator and for the winding up of the company – where the applicant could not demonstrate the need for an injunction. Legislation: Corporations Act 2001 (Cth), ss 461, 436A Cases cited: Allstate Exploration v Batepro [2004] NSWSC 261
Bishop and Bishop (2003) FLC 93-144
Freihart Pty Limited ACN 085 174 830 and the Corporations Act [2001] ACTSC 95
Norton & Locke (2013) FLC 93-567
Division: Division 1 First Instance Number of paragraphs: 42 Date of hearing: 16 September 2022 Place: Sydney Solicitor for the Applicant: Mr Hall, Hall Partners Solicitors Counsel for the Respondent: Mr Gray Solicitor for the Respondent: Lander and Rogers ORDERS
SYC 3428 of 2018 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR BERRELL
First Applicant
AND: MR B BERRELL
Second ApplicantAND: MS C BERRELL
Third ApplicantAND: MR TILY
Respondent
order made by:
CHRISTIE J
DATE OF ORDER:
21 September 2022
THE COURT ORDERS THAT:
1.The Application in a Proceeding filed on 8 September 2022 and amended on 16 September 2022 is dismissed.
2.Costs of the Application in a Proceeding be stood over to 28 November 2022.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Berrell & Tily has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
CHRISTIE J:
This is an interim application for an injunction restraining the appointment of an administrator and seeking the appointment of a liquidator to a company. It is opposed. It is necessary to set out the context in which the application is made to understand the nature and scope of the legal and factual issues which arise.
Background
The substantive matter is listed before me for hearing of a threshold issue, namely whether or not there was a de facto relationship between Mr Berrell (“Mr Berrell”) and Mr Tily (“the respondent” or “Mr Tily”). Those proceedings are listed for five days commencing 28 November 2022.
That threshold issue arose in circumstances where Mr Berrell and Mr Tily, together with Mr Berrell’s parents (Mr B Berrell and Ms C Berrell), were involved in a financial relationship which involved the purchase of a development site using the company M Pty Ltd (“M Pty Ltd”).
Proceedings were commenced in the Supreme Court of NSW (“the Supreme Court”) and transferred to the Federal Circuit and Family Court of Australia (Division 1) (“the Court” or "this Court”) when the question of whether or not Mr Berrell and Mr Tily were in a de facto relationship arose in the context of that commercial dispute.
In 2016 the matter came before his Honour Justice Lindsay of the Supreme Court who ordered that the respondent provide notice in the event that he sought to appoint an administrator to M Pty Ltd.
On 26 August 2022 the respondent, through his solicitor, provided notice of an intention to appoint an administrator to M Pty Ltd.
As indicated in my reasons for judgment which I delivered in respect of an earlier interim application on 21 December 2021, at that time I found that the assets of M Pty Ltd were:
(a)$325,000 (and accrued interests) held by D Solicitors; and
(b)$175,000 held by Q Solicitors (solicitors previously retained by Mr B Berrell and Ms C Berrell).
Having been taken to further evidence and having heard further submissions I now understand that those sums represent funds of M Pty Ltd but in any final analysis there may be further assets and there may be significant debts.
This application
On 8 September 2022 Mr Berrell brought an Application in a Proceeding seeking that Mr Tily and M Pty Ltd be restrained from appointing an administrator to M Pty Ltd.
On 16 September 2022 when the matter was before me, the solicitor who appeared on behalf of Mr Berrell, Mr B Berrell and Ms C Berrell (“the Berrell family”) sought to move on an Amended Application in a Proceeding which substituted Mr B Berrell for Mr Berrell as applicant for interlocutory relief (the Application also named Ms C Berrell as a second applicant) – the relief was otherwise identical. The Amended Application in a Proceeding did not refer to Mr Berrell but given my discussions with the solicitor for the Berrell family I understood that the application was pressed on behalf of each of them. Mr Tily did not object to the amendment and the matter proceeded on that basis.
It would appear as though Mr Berrell is seeking an order for the appointment of a liquidator to M Pty Ltd and that he be permitted to nominate the identity of the liquidator.
The law
The first question which arises is whether or not this Court has jurisdiction to make the orders sought.
Until there is a determination as to the threshold issue the Court’s power is circumscribed. As the Full Court of the Family Court (as it then was) (“the Full Court”) expressed the position in Norton & Locke (2013) FLC 93-567 (“Norton”) at [18]:
The terms of s 114(2A) are clear; the court’s power to grant injunctions pursuant to the section can only be granted “in a de facto financial cause”. There is no “de facto financial cause” until a de facto relationship is established and the additional ss 90SK and 90SB conditions met. Until they are met – that is, relevantly, a decision has been made by the court consistent with the case advocated by the respondent – there is no “de facto financial cause” and no jurisdiction to make an order of the type contemplated by s 114(2A).
The Court does have an inherent power to protect the subject matter of the litigation. As the Full Court outlined in Norton at [43] and [44]:
This court, does, however, plainly have jurisdiction to determine if it has jurisdiction – in this case the jurisdiction to embark upon proceedings which seek to establish or deny the relevant jurisdictional facts. This court has the power to make orders that are necessary for the determination of issues relevant to that jurisdiction. Those powers include the power to control its own process; “[t]he power of each court over its own process is unlimited; it is a power incident to all courts, inferior as well as superior; were it not so, the court would be obliged to sit still and see its own process abused for the purpose of the injustice…” (Cocker v Tempest (1841) 151 ER 864 at 865 by Alderson B, cited by Gaudron J in Jackson v Sterling Industries Pty Ltd (1987) 162 CLR 612, at 638). More specifically, this court has the power to, as Menzies J put it in Ex parte Bevan, “protect[…] its function as a court”.
Within that jurisdiction and within the ambit of powers just described, this court has the power to make what this court has described as “holding orders” pending the determination of the jurisdictional facts necessary to found jurisdiction. Orders of that type can include, specifically, orders for interlocutory injunctions (see, for example, Ex parte Green; Re LSH; and, Jackson v Sterling Industries Pty Ltd at 617, per Wilson and Dawson JJ). In both the High Court and this court orders of that type have been expressed as orders “preserving the status quo” pending resolution of the question of jurisdiction.
The parties did not agree that it was appropriate to appoint a liquidator. They did agree that the grounds upon which a company may be wound up are set out in s 461 of the Corporations Act 2001 (Cth) (“the Corporations Act”).
The parties agreed that legal requirements for appointment of an administrator had been met: s 436A of the Corporations Act.
Consideration
I accept that in late 2017 an order was made transferring the whole of the proceedings before the Supreme Court to this Court. The effect of that order for transfer was that the competing positions of, on the one hand, Mr Tily and M Pty Ltd and, on the other, the Berrell family, fell to be determined by this Court pursuant to its accrued jurisdiction. I pause to note that this Court will have accrued jurisdiction where there is a single justiciable controversy. This has not been interpreted as requiring there to be only a single justiciable issue and may include circumstances where there are “many issues but one broad controversy”: Bishop and Bishop (2003) FLC 93-144. It is usual to describe cases of this nature as containing a “common sub-stratum of facts” such that the resolution of the non-federal aspect of the controversy is necessary in order to make a determination as to the issues as between the spouse parties.
The difficulty that arises in the circumstances of this case arises because it is not yet plain that this Court will ultimately have jurisdiction to hear and determine the application for property adjustment. That jurisdiction will exist if the threshold question is answered by the conclusion that Mr Berrell and Mr Tily were in a de facto relationship as that is understood by the Family Law Act 1975 (Cth).
If we assume that the threshold issue will be answered in the affirmative then it follows that all of the issues as between the parties to the Supreme Court litigation will fall to be considered in the context of the relationship between Mr Berrell and Mr Tily, including the consideration of debts owed to third parties. If the threshold issue is determined with a finding that those men were not in a de facto relationship, this Court will cease to have any common sub-stratum of facts and it follows that the proceedings as between the parties to the Supreme Court litigation would be returned to that court.
I accept at this stage of the proceedings that all of the parties to the litigation before this Court are, as a consequence of the transfer orders, legitimately parties to proceedings before the Court with all of the rights and responsibilities which flow and may move the Court for orders. However, before the Court would use its injunctive powers to restrain a party from taking an action, and similarly, before it would make orders permitting a party to take action, at this preliminary stage of the proceedings it would be necessary to satisfy the Court that such injunctions or orders are required.
There were two effective questions for determination:
(1)Should Mr Tily be restrained from appointing an administrator?
(2)Should Mr B Berrell be permitted by court order to appoint a liquidator?
In respect of orders for the appointment of a liquidator, there are other statutory requirements which would need to be satisfied before such an order could be made. It is important in respect of the notice given by Mr Tily of his intention to appoint an administrator, to understand that:
(a)such notice was given in accordance with existing court orders;
(b)such notice was given regularly by a person with the power to effect the appointment of an administrator, namely a director of the company; and
(c)there is no evidence before the Court to suggest that the appointment of an administrator would function in a manner such as to prejudice the interests of the Berrell family.
It is fair to note that the Berrell family asked me to infer that Mr Tily would not be seeking the appointment unless it was in his self-interest. Even if they are correct, their lawyer was unable to point to any evidence to support a finding that the decision to appoint an administrator would function to the benefit of Mr Tily or the disadvantage of the Berrell family – except insofar as an administrator would charge fees which would need to be paid from funds to which they say they have a claim.
As I understood the submissions made on behalf of the applicants, I was being asked to infer that conduct of Mr Tily in the past was sufficient to cast doubt on any decision he made including the decision to appoint an administrator.
This argument was developed in submissions before me by reference to the conduct of Mr Tily in the period since this litigation has been before the Court. I was taken to correspondence between the lawyers for Mr Tily and the lawyers for the Berrell family in which it was proposed by Mr Tily to sell an asset of the company. In early 2022 M Pty Ltd proposed to sell land owned by it at Lot … DP … being vacant land in E Region. M Pty Ltd provided a valuation which indicated the value of the land was $275,000. M Pty Ltd conveyed that an offer of $385,000 had been received.
On its face, there could be no complaint about the action which Mr Tily on behalf of M Pty Ltd had proposed. I was not taken to any evidence to suggest that the valuation was inaccurate.
In a similar vein I was taken to the request in mid-2021 by Mr Tily that another property be sold. At that time Mr Tily indicated he had received an offer of $830,000. Mr Tily provided the Berrell family with a valuation of that land at $550,000. That sale proceeded but the Berrell family maintain that either it was, or it may be, a sale below value – on the basis that the transaction was “off market”. Apart from the fact that the transaction was off market, I was not taken to any evidence which would objectively impugn that transaction.
I was taken, in submissions by counsel who appeared on behalf of Mr Tily, to the referee’s report of Dr H (“Dr H”) dated 23 April 2018. That report included at page 10 a table headed “Assets and liabilities of the company” as at 30 June 2017. In that schedule the property at P Town, which had been the subject of the offer to purchase, was included by Dr H at a value of $320,000.
The parties had accepted the referee’s report and accordingly, an offer to purchase that property some five years later for $830,000 cannot, without further evidence, in and of itself be considered suspect.
I formed the view as a consequence of the submissions made on behalf of the Berrell family that they were inherently suspicious of any action taken by Mr Tily. It may be that they have every right to be suspicious. But, the question for me is, was there any evidence before the Court such that I would conclude that they were right to be suspicious? The answer to that question has to be no.
On behalf of the applicants it was submitted that the Court would be concerned that there was no information provided either to the Berrell family or to the Court about the identity of the administrator or the proposed arrangements.
Without more there is no reason to presuppose that any properly qualified administrator appointed to the company would do anything other than his or her role as an independently appointed administrator. Unless and until an administrator is actually appointed, it would be premature to have information about the proposed course of action sought to be undertaken by that person.
Asked to identify the prejudice to the Berrell family or the threat to either the processes of the Court or the subject matter of the litigation, the highest the submission on behalf of the applicants took the matter (other than the suspicions previously canvassed) were that an administrator would charge fees. Given the fees of either an administrator or a liquidator properly appointed would impact on the assets available to creditors, shareholders or parties to this litigation (in different proportions depending upon entitlements) it is not possible at this stage to find that this fact alone creates sufficient basis to sustain an injunction.
The applicant’s response to the proposal that M Pty Ltd might appoint an administrator was to seek that the applicant (Mr B Berrell as a shareholder of the company) have the right to appoint a liquidator and to identify who that liquidator ought to be. It was put to the applicants that in order for the Court to be convinced that it was appropriate to appoint a liquidator it would be necessary to establish that the appointment of a liquidator at this point was necessary to either:
(a)protect the subject matter of the litigation; or
(b)protect the Court’s processes.
I was not taken to any concrete evidence that suggests that the appointment of the administrator threatened the subject matter of the litigation and/or the appointment of a liquidator was necessary to preserve the subject matter of the litigation or protect the processes of the Court.
More fundamentally, counsel for the respondent raised concerns that the preliminary steps that need to be undertaken before a winding up order and appointment of a liquidator can occur have not been undertaken. I was taken in submissions to s 461 of the Corporations Act being the section which deals with the grounds on which a company may be wound up. The applicants did not identify under what basis it was asserted that a winding up was appropriate. In that regard, counsel for Mr Tily took the Court to a decision of a Master of the Supreme Court of the Australian Capital Territory being in the matter of Freihart Pty Limited ACN 085 174 830 and the Corporations Act [2001] ACTSC 95 in which that Court made reference to the fact that an application for the appointment of a liquidator is a drastic step. At [10] of those reasons the Supreme Court of the Australian Capital Territory says:
The appointment of a provisional liquidator when the company opposes that step is a drastic measure. A provisional liquidator will not normally be appointed on the just and equitable ground unless there are exceptional circumstances, such as the company being rudderless in the conduct of its affairs, or the assets are in jeopardy. The principles to be applied in considering such an application were set down in the New South Wales Court of Appeal in Constantindidis v JGL Trading Pty Ltd (1995) 17 ACSR 625 at 635 ff. Kirby P accepted that the following principles should apply:
1. A provisional liquidator is not automatically appointed by the court for the mere asking, even when the company presents its own petition.
2. A provisional liquidator may only be appointed after presentation of a duly authorised petition which must disclose a good ground for winding up.
…
…
4. Whilst the ultimate fate of the petition must be left to the court finally hearing the matter, a provisional liquidator will not usually be appointed unless it appears in the material that a winding up order is likely. This presupposes that there should be adequate evidence adduced on an application for appointment of a provisional liquidator to show that a winding up is, in the absence of material to the contrary, likely.
5. A company seeking the appointment of a provisional liquidator is in no way limited. The circumstances (which may constitute sufficient ground) under which a provisional liquidator may be appointed are infinite. There are no reasons why the public interest should not operate in favour of or against the making of an appointment in particular circumstances.
6. Whilst mere evidence of insolvency alone is usually insufficient to justify the appointment of a provisional liquidator at the instance of a creditor such evidence in the case of an application by a company may be sufficient to show that the application is bona fide and may be capable of constituting a “sufficient ground.”
It was suggested that in the exercise of the discretion to appoint a liquidator there are two principal matters. The first being that a provisional liquidator will not usually be appointed unless it appears from the evidence and in the absence of material to the contrary to be reasonably likely that a winding up order will be made: Allstate Exploration v Batepro [2004] NSWSC 261 at [27].
In order to make that finding it would be necessary to have considerable evidence before the Court well in excess of anything that was before me on this interim application.
The Court was also referred to the second requirement for the appointment of a provisional liquidator being that the applicants must point to some good reason for intervention prior to the final hearing. As discussed above, the reasons advanced by the applicants on this application appeared to be a general concern that the appointment of an administrator may function in such a way as to assist Mr Tily in achieving an aim in the litigation inconsistent with that which is sought on behalf of the Berrell family.
It follows that I cannot be satisfied that the application to appoint a liquidator is reasonably necessary having regard to the circumscribed nature of my present jurisdiction and the available evidence.
As regards the appointment of an administrator, counsel for the respondent indicated that whilst that order was sought in his client’s application, it was, in effect, unnecessary in circumstances where his client could, if not restrained from so doing, appoint an administrator as a matter of right as the director of M Pty Ltd. Given that I intend to dismiss the application for an injunction restraining Mr Tily from appointing an administrator, whether he appoints an administrator or not, is a matter entirely for him.
Costs
Each of the parties made an application for costs. No parties addressed me about the costs applications (unsurprisingly absent orders and reasons for judgment). The most time and cost effective approach is to stand over the costs applications and I propose to adopt that course.
I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Christie. Associate:
Dated: 21 September 2022
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