Bing and Bing

[2010] FamCA 522

FAMILY COURT OF AUSTRALIA

BING & BING [2010] FamCA 522

FAMILY LAW – INJUNCTIONS – Injunction variation – Requirement to consider interests and entitlement of non-parties affected by orders – What is proper and appropriate where injunctions had been ignored, creating debt, where refusal to allow further encumbrance could affect pool of assets

Family Law Act 1975 (Cth)

Cardile v LED Builders Pty Ltd (1999) 198 CLR 380

APPLICANT: Mr Bing

RESPONDENT: Ms Bing

INTERVENERS:

O Pty Ltd;

S Investments Pty Ltd;
G Investments Pty Ltd;
EL Pty Ltd;
EN Pty Ltd;
ET Pty Ltd;
ES Pty Ltd;
N Pty Ltd

FILE NUMBER: MLC 1745 of 2006

DATE DELIVERED: 30 June 2010

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: THE HONOURABLE JUSTICE CRONIN

HEARING DATE: 22 JUNE 2010

REPRESENTATION

COUNSEL FOR THE APPLICANT: MR BROWN SC WITH MR DICKSON

SOLICITOR FOR THE APPLICANT: NEVILE & CO

COUNSEL FOR THE RESPONDENT: MR WALMSLEY WITH DR SADLER

SOLICITOR FOR THE RESPONDENT: BUXTON & ASSOCIATES

COUNSEL FOR THE INTERVENERS: MR EDMUNDS

SOLICITOR FOR THE 

INTERVENERS:

CLARENDON LAWYERS

Orders

1. That for the purposes of these orders only, paragraph 3 of the orders made 13 July 2006 (as varied on 10 August 2006) be varied to permit the husband, his servants and agents to further encumber the Certificates of Title to the properties owned by EF Pty Ltd trading as P Business, B, and ED Pty Ltd trading as P Business, F, to Westpac Banking Corporation.

2. That to give effect to paragraph 1, the wife sign all such documents as may be required to enable Westpac Banking Corporation to:

   (a)regularize the security arrangements to cover the borrowings referred to in the letter to all parties from Minter Ellison dated 22 June 2010; and

   (b)advance the sums referred to in the said letter.

3. That to further give effect to paragraph 1, but only for that purpose, the wife remove any caveat, at the expense of the husband, to enable registration by Westpac Banking Corporation of its security as set out in these orders.

4. That O Pty Ltd, S Investment Pty Ltd, G Investments Pty Ltd, EL Pty Ltd, EN Pty Ltd, ET Pty Ltd, ES Pty Ltd and N Pty Ltd be joined as parties to these proceedings.

5. That save as to costs, the application of the husband filed 11 June 2010 and the application of the third parties filed 10 June 2010 be dismissed.

IT IS CERTIFIED:

1. That pursuant to Order 19.50 of the Family Law Rules 2004 it was reasonable to engage counsel to attend.

IT IS NOTED that publication of this judgment under the pseudonym Bing & Bing is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth)

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLF1745 OF 2006

MR BING

Applicant Husband

And

MS BING

Respondent Wife

REASONS FOR JUDGMENT

1. It has long been held that if you come into equity seeking justice, you have to come with clean hands.  Despite that very sound equitable principle, there are times when even equity might have to turn a blind eye to what should not have occurred.

2. The substantive proceedings between the husband and wife relate to property and spousal maintenance.  It seems common ground that the husband is in control of the major commercial assets.  The assets of the husband and wife comprise a valuable home and some interests in corporate entities which conduct the purchase and operation of shops and associated businesses.  There is a group of companies involved including those who will now be formally joined as parties to these proceedings.  The interests of those other companies appear inextricably bound up with those of the husband and wife.

3. If the husband is right, there is a divisible equity between the husband and wife which upon lifting the corporate veil, should be about $5 million.  That of course, presupposes that the wife is unsuccessful in having added back into the pool another $4 million or so which is said by the wife, to have been transferred by the husband to businesses in China which are now lost to the extent that those interests are only valued at about $500,000.

4. Accordingly to senior counsel for the husband, at face value, there could still be “enough to go round”. 

5. Underlying the immediate problem is the fact that on 13 July 2006, Kay J made the following order:

   3.        That until 10 August 2006 or further order the husband by himself, his servants or agents be and is hereby restrained from

   (a)selling, disposing of or further encumbering any capital asset of the husband and/or the wife or any capital assets controlled by any corporate entity or trust of which the husband is a director or shareholder or has a direct or indirect interest in, including but limited to the entities referred to in paragraph 13 of the wife’s affidavit of 1 June 2006 (hereinafter collectively referred to as the companies);

   (b)      resigning any office held by him in the companies;

   (c)transferring, selling or alienating any shares held by him in the companies;

   (d)issuing or suffering to be issued any additional shares in the companies;

   (e)appointing any additional office bearers to the companies;

   (f)relinquishing any power held by him under any deed of settlement or trust;

   (g)voting in favour of any resolution in any company or the companies in which the husband holds shares to borrow and/or encumber any of the capital assets of that company or sell or dispose of any of the capital assets of that company or companies without the prior written consent of the wife or order of this Honourable Court;

   (h)alienating any monies standing to his credit, including any monies in loan accounts standing to the credit of the husband save and except for the purposes of meeting his financial obligations to the wife and children of the marriage and for his reasonable living expenses;

   (i)transferring any monies overseas without the prior written consent of the wife obtained in writing or order of this Honourable Court.

6. Two observations should be made about paragraph 3(a) of the orders. First, it will be noted that the corporate entities were limited to those in paragraph 13 of the wife’s 2006 affidavit. That does not make much grammatical sense. Was it intended to mean all corporate entities not limited to those in paragraph 13? Secondly, the named entities in paragraph 13 included entities of which the husband was a director. The injunction was directed to the husband. The companies were not parties. The provisions of Part VIIIAA of the Act were operative but no injunctive orders were sought against any other persons. Thus, the focus of the wife’s attention and concern was upon the husband. Just what the husband’s interest was in these entities in August 2006 is a subject of contention.

7. Although the order was to last until 10 August 2006 or further order, it was extended indefinitely by Bennett J on 10 August 2006 by consent of the husband and wife.

8. As became clear from the submission of Mr Brown SC for the husband, the husband has paid little attention to the order.  Now it seems, he needs the injunction varied, not because of some desire to comply with the orders of Kay J but rather, because the Westpac Bank as the bankers of the group of companies, will not fund prospective or retrospective borrowings without the injunction being altered or the wife consenting to those borrowings.  In part but certainly not wholly, the wife consents to some of the borrowings.  To a large degree, the Westpac Bank holds the trump card regardless of the injunction.

9. The difficulties of the husband and wife are compounded because eight corporate entities have now sought to intervene.  These are the corporate vehicles of the business partners of the husband but who were named in paragraph 13 of the wife’s 2006 affidavit.  Apart from being affected by the Westpac Bank position, they are on one view, also the subject of the 2006 injunctions.  Their position is that the injunctions should be discharged because their interests are different from those of the husband and they were unaware of the all-embracing nature of the restrictions on the husband by virtue of the injunction. 

10. In his submissions on behalf of the wife, Mr Walmsley SC described the husband’s business partners in pejorative terms and flagged that there would be further applications to set aside a variety of transactions as between and involving, the husband and these partners. 

11. There is much emotional heat in this case and the flourishing statements of counsel belie the complexity lurking between the issues.  Whilst I was assisted by the various submissions, I propose only to deal with the formal applications for orders as they have been presented to me and to determine them on the basis of the evidence that the parties have presented interpreting the law as I understand it.

12. It is important to note that the evidence of the deponents in the truncated hearing could not be tested.  It is clear that neither the husband nor the wife has any trust for the other.  Accordingly I shall determine the matters as best I can on the evidence noting that to be satisfied about any issue, the standard of proof is the balance of probabilities.

13. There is considerable urgency about this interim determination because some of the required expenditure relates to a computer system known as “Point of Sale” technology and that must be in place within 7 days.  All of the businesses have a connection with the P organisation and on 30 June, that technology is being used in all points of sale.  If the system is not connected, I am uncertain as to what will occur.  It was asserted by senior counsel for the husband that the businesses would come to an end but there is certainly no evidence by the parties nor anything objective which would confirm that. 

14. The absence of trust of the husband by the wife makes any agreement difficult despite her consenting to the implementation of the technology.  She points to the recalcitrance of the husband concerning arrears of maintenance and child support along with his apparent inability to comply with a litigation funding order as indicators of her justification for lacking in trust as to his sincerity.  That, combined with what she sees as a significant diminution of the property pool, makes the equitable relief sought by the husband so much less attractive.  Against that are the facts that the husband and wife have business interests which may suffer as well as the interests of other parties being significantly adversely affected.

15. The power to make the 2006 order lay in s 114 of the Family Law Act 1975 (Cth) (“the Act”). The power to discharge or vary that order also lies in s 114. It relevantly provides:

    (1)      In proceedings of the kind referred to in paragraph (e) of the definition of matrimonial cause in subsection 4(1), the court may make such order or grant such injunction as it considers proper with respect to the matter to which the proceedings relate, including:

    …

    (3)      A court exercising jurisdiction under this Act in proceedings other than proceedings to which subsection (1) applies may grant an injunction, by interlocutory order or otherwise (including an injunction in aid of the enforcement of a decree), in any case in which it appears to the court to be just or convenient to do so and either unconditionally or upon such terms and conditions as the court considers appropriate.

16. Section 4 of the Act provides the definition of matrimonial cause and paragraph (e) reads:

    (e)proceedings between the parties to a marriage for an order or injunction in circumstances arising out of the marital relationship (other than proceedings under a law of a State or Territory prescribed for the purposes of section 114AB); or

17. The provisions above focus on the parties, their interests and their proceedings.  But what about the interests of non-parties or parties who are not involved other than in a commercial sense?  The discretion invested in the court to make such order as it considers proper gives rise to, and means, that the court is required to contemplate a number of matters that affect persons other than just the parties.  Often a court will require a party to give an undertaking as to damages but that is difficult to demand where the person seeking the indulgence does not necessarily have clean hands. 

18. An injunction granted under s 114 relating to property is as much designed to protect the process of the court so that the just and equitable outcome can be properly achieved as it is about protecting the individual’s interests.

19. Where an order under s 114 of the Act extends its reach beyond the parties to have an impact on third parties, those parties should be at least put on notice if not joined, concerning the application for the injunction. Any person who may be affected by the court’s order has a right to be heard. It may be that after hearing from those persons, the applicant for the injunction is required to give an undertaking as to damages or at least be put on notice by way of order or otherwise, that a claim might be made in due course. In this case, I have not been asked for such a course of action to be taken.

20. Although this is not a case involving injunctions against third parties, it is certainly one involving or affecting them.  Authorities concerning injunctions against third parties provide assistance.

21. In respect of injunctions against third parties, the courts have been urged to be cautious because the order operates in personam and contempt consequences may follow.  (see Cardile v LED Builders Pty Ltd (1999) 198 CLR 380). Equally however, a court should be cautious where the consequences are such that the third party (innocent or otherwise) may have property rights frustrated to the extent that they incur losses that cannot be recovered.

22. Ultimately, there can be no precise rule set down about how the provisions of s 114 are to be exercised and as Kirby J said in Cardile (supra) at paragraph 111:

    Statutory courts should never stray far from their statutory mandate nor should they forget the general principles which repeatedly emphasise the broad scope of the power conferred on a court and the need to avoid rigid, restrictive categories.

23. Section 114(1) refers to the court making the order if it is proper to do so. Interestingly, s 114(3) refers to orders being made if appropriate. In my view, the words are interchangeable.

24. In Cardile, Kirby J noted that persons who were not parties to litigation between others were entitled to expect some justification for the making of orders as appropriate, as against them.  I would extend that principle to “affecting them”.  His Honour said that the interests of non-parties must be given weight according to the circumstances of the case.  The rules of court make it mandatory for the joining of any person whose interests may be adversely affected by the orders.  Thus, persons who are not parties to the proceedings are entitled to expect that if they have not been heard, it was clearly appropriate for the court to make any order that has consequences for them.

25. In Cardile, Kirby J was concerned about parties who were innocent in the business sense.  In this case, I am not at all sure of the innocence in the legal sense of a number of people who may be affected by the refusal to grant the husband’s application.

26. Turning to the applications, this litigation has been on foot between the husband and the wife for a number of years.  There have been numerous hearings.  The major argument seems to have been about the valuation of the various business enterprises involving the husband but also what has been described as his repatriation of funds to China.

27. On 11 June 2010 the husband filed an application seeking the following types of orders:

    (a)that the injunction order made on 13 July 2006 be varied to enable three companies along with the husband to “encumber or further encumber” the various titles to the properties owned by the companies;

    (b)for the wife to execute such documents as would enable the Westpac Bank to advance $550,000 to what I shall describe as the F entity and $750,000 to the D entity including for the wife to withdraw all caveats;

    (c)that pursuant to s 106A, if the wife failed to sign the necessary documents, a registrar do so in her name; and

    (d)that the 2006 injunctions be varied to include the words “save in the ordinary course of business”.

28. An examination of the application will show that the details concerned three corporate entities.  They were EM Pty Ltd, EF Pty Ltd and ED Pty Ltd. 

29. At the commencement of the hearing, Mr Brown SC for the husband indicated that I did not need to trouble myself in relation to the M entity.  The application had initially sought a further $1.9 million in respect of M and I was told that that was not a matter with which the husband wished to proceed.

30. No response was filed by the wife.  Her application however could readily be seen in the affidavit which she filed seeking that the husband’s application be simply dismissed.  That too was her position carefully articulated by Mr Walmsley SC on her behalf.

31. On 10 June 2010, an application in a case was filed by O Pty Ltd, S Investment Pty Ltd, G Investments Pty Ltd, EF Pty Ltd, EN Pty Ltd, ET Pty Ltd, ES Pty Ltd and N Pty Ltd.  In these reasons, I shall refer to those companies as the third parties.

32. The third parties sought orders to be granted leave to intervene and become parties and then that in so far as they were affected, paragraph 3 of the orders made 13 July 2006 be varied to discharge therefrom EF Pty Ltd, EN Pty Ltd, ET Pty Ltd and ES Pty Ltd.

33. On 11 June 2010, the husband filed an affidavit.  It is a large document with 12 annexures.  The husband said that the E Group which included the third parties was seeking “refinancing” with respect to “various sites” within the group for “various business purposes”.  He said the discussion had taken place and correspondence had occurred but the matter had not been successfully concluded.

34. Principally, he said that documents were sent to the wife relating to the construction of a canopy for the F entity which included a quote for a new canopy, equipment replacements, underground equipment replacement and removal of the old underground equipment.  He said that in addition, the refinancing was sought to enable the installation of the new point of sale system which was to be implemented by 30 June 2010.  He added that if it was not by that date, “the [business] operations at each site will cease upon close of business on that day”.  Just exactly what P Company’s attitude would be if the system was not operational by 30 June is not clear.  I have read the email dated 23 March 2010 in annexure JB5 but it does not assist me further.

35. According to senior counsel for the wife, she does not oppose the implementation of the renovations to the F site or the point of sale technology.  Each requires considerable expenditure and again, it seems that the wife does not object to that.  The dilemma arises because of the overall refinancing to which I shall now turn and because of the requirements of the Westpac Bank.

36. The husband’s affidavit said that the group had overdraft facilities with Westpac at each site with a limit of $100,000 save for one which had $150,000.  He said the directors of the group had resolved to increase the overdraft limit at each site from $100,000 to $150,000 because each site exceeded its limit from time to time in breach of the banking arrangements.  Thus, as owner of part of the entities within the group, the husband said his share of the increased capital amounted to $411,000.  He pointed out that the Westpac Bank was not prepared to advance further funds arising out of breaches of current agreements.

37. The husband went on to explain how the fluctuating overdrafts occurred.

1. The husband then turned to the specific details of the loan applications for which he sought approval by way of the variation of the injunction.

2. In respect of the D entity, the husband sought an increase in the loan facility of $750,000 bringing the total liability for that business to $1.3 million.  He said the purpose of the increased facility was to fund his share of the new technology but also his capital requirement to reduce the excess in overdraft “facilities at various sites”.  Of the $750,000, $411,000 was for the technology and $339,000 was to go towards the increased overdrafts “on the various sites”.  The $339,000 was insufficient and he indicated he had to find a further $204,000.

3. In respect of the F entity, the increase in the loan facility was $550,000 taking the total liability for that site to $1.15 million.  Here, the canopy repairs and other works to which I have already referred was to be undertaken.

4. The husband then referred to the fact that all of these works were being carried out in the ordinary course of business and as such, the injunctions needed to be amended to avoid the constant difficulties of approaching the wife and ultimately the court when refinancing was necessary.  The husband said that he and his business associates were becoming “extremely frustrated” by the conduct of the wife in failing to agree to the financing of the various issues set out.  He said this had a “stultifying” effect on the day to day operations, progress and expansion of the group. 

5. The husband then made reference to letters of demand served upon him from some of the third party entities.

6. The letters of demand relating to the third party entities appear to relate to a development about which senior counsel for the wife said his client had considerable concern.  It was said by the entities that the loan agreement that gave rise to the debt was dated 6 January 2006 but looking at the document, the 10 per cent interest claimed would indicate that the debt arose in May 2010.  In one case, a claim for $600,000 plus interest would indicate that the debt arose in October 2009. 

7. The correctness of these liabilities is yet to be established but if they were genuine borrowings, presumably they occurred without the knowledge of the wife and at a time when the injunctions were in place.  He made the observation that the collective wealth of the parties has grown and that it was important that the facilities did not fail. 

8. Mr Brown said that the business sites would be shut down because P Company would not allow them to trade unless the facilities were installed.  I agree with Mr Walmsley who objected to that statement.  There is no evidence of that.

9. Importantly, Mr Brown relied upon the letter from the solicitors Minter Ellison on behalf of the Westpac Bank to indicate the nature of the dilemma.  Throughout the proceedings before me, Mr Geddes QC sat in the body of the court representing the interests of the Westpac Bank.  All counsel made it clear that Mr Geddes had made a significant contribution to clarifying issues throughout their discussions.

10. The bottom line of Mr Brown’s submission was that if the orders were made, a new debt would be established but the bank would use the existing borrowing to clear what was described as a “dirty debt” leaving a surplus of about $400,000.

11. Mr Brown SC conceded that the orders made in 2006 had not been complied with but that the borrowings from the banks had been to fund capital works.  He acknowledged the husband should have applied but he pointed to the fact that there was not one word from the wife to indicate that what had occurred by the husband’s conduct had had the effect of diminishing the pool of assets as between the parties.  He pointed to the significant business acumen of the husband. 

12. The difficulty I have with the husband’s evidence is what it does not say.  Were it not for the position set out by the Westpac Bank, the clearer picture of the problem would not have emerged.

13. The wife’s evidence can simply be stated as being that she was ignorant of what the husband was doing and being frustrated by the absence of disclosure.  There is an uncertain element in all of that because she has been involved in long-running litigation and has had a number of advisers.  Disclosure is a positive obligation but it is puzzling how the matter got this far without some of these issues being raised and litigated.

14. I am satisfied on the wife’s evidence that there has been nothing she has done which has “stultified” the “day to day operations, progress or expansion” of the group.

15. The evidence does not convince me however that the wife’s lack of knowledge nor the husband’s lack of disclosure would justify the husband and the group of associated entities from operating as they have in relation to these transactions.  Had the husband sought to commence the transactions in light of the injunction rather than retrospectively regularize what he had done, there would have been a legitimate basis to grant the order.

16. There is no evidence that these transactions were not in the ordinary course of business.  There is no evidence that these were connected to the “repatriation” of money to China as alleged by the wife.  The husband gave a plausible explanation as to why the operational costs were what they were.  The husband asserted and it was not denied by the wife that these transactions did not reduce the pool of assets.  It is something that a court must seriously consider as an asset protection strategy.  That is not to say that the husband should not be criticized or the wife simply brushed aside.

17. Based upon the husband’s past attitudes to the injunctive orders, the wife’s legitimate consternation about what has been happening and the vagueness of the picture portrayed by the husband in his affidavit about what the underlying difficulty really was, it would not be appropriate to effectively give him carte blanche to determine what as in the ordinary course of business.  It would not be proper for the Court to make that variation to the 2006 orders.

18. Similarly, notwithstanding the apparent urgency of the situation, there is neither the evidence nor the justification for the Court to conclude that the wife would not comply with orders.  Despite the husband’s assertion of the wife being difficult, which I interpret as her exercising her legitimate rights to complain about the husband’s unilateral action, there is no evidence to suggest that it is the wife who has put the parties’ assets at risk.

19. Section 106A of the Act should only be used where there is evidence of a likely non-compliance. To use it otherwise suggests that orders of the Court will not necessarily be binding or mean what they say. Further, to blindly put in place a general order of the type proposed by the husband places the registrar in the invidious position of deciphering what documents are necessary for the implementation of the order and more importantly, the extent and reach of the order. That is unreasonable and potentially extending the delegated power to exercise a discretion too far.

20. Thus, the s 106A order should not be made.

21. The husband also sought an order that the wife lift her caveats.  That clearly needs to be done to enable the carrying out of the orders I shall make but they need only be lifted for that purpose.  In circumstances where the husband has ignored the orders and where caveats act as notices to the world of legal and equitable interests, there is no basis for me to direct the wife to remove the caveats permanently.

22. The third parties’ evidence is equally vague and unrevealing.  The directors of the various entities all relied upon the one main affidavit.  The history of the incorporation and “structure” does not assist me in this case.  What seems clear is that the husband removed himself from the relevant entities.  He, and the entities, would have the Court accept this was all part of a structuring begun before the injunctions of August 2006 but it does not explain the husband’s actions knowing that he was restrained from resigning as a director.  Counsel for the entities submitted that the wife did not dispute that the husband did not have an interest in the entities.  The wife’s evidence was silent on that issue.  I have the assertion by her counsel that “applications will be made”.  That is not reflected in the wife’s evidence.  This litigation has been extant for years now.  None of that however explains the husband’s conduct when he and his professional advisers must have known of the injunctions.  The third parties must therefore be joined.

23. Counsel for the third parties sought that the injunctions be “lifted” by which he clearly indicated the companies had the view that they were bound by the orders.  He stressed the limited involvement of the husband.

24. It was not argued by senior counsel for the wife just what the extent of the injunctions meant.  He simply said his client was foreshadowing further applications “against them” referring to the companies.  There is a very significant grey area involving the distinction between the interveners as companies and the individuals who are not interveners or parties but who were described as the husband’s partners.  Whilst this Court has traditionally and appropriately “lifted the corporate veil”, these people and companies are not parties to the marriage.  The Court should tread carefully with their legal rights regardless of the pejorative terms with which the wife’s counsel described his client’s views of them.

25. There is no evidence before me to be confident that the orders restrain the third parties from doing anything. That is different from them being affected by the orders. It is also not clear to me the extent of the orders having regard to Part VIIIAA of the Act and in particular, whether those provisions are being used.

26. Accordingly, it would not be proper or appropriate for me to discharge the injunction by removing those entities.  The order is directed to the husband, his servants and agents in personam.

27. Ultimately, the only helpful evidence came from the letter from Minter Ellison, the lawyers for Westpac Banking Corporation.

28. Initially, based on the evidence of the wife, the Bank’s position was troubling.  The Bank had been dealing with the husband as if there were no restrictions.  The Bank seemed not to have a record of the 2006 correspondence in which the injunctions against the husband were brought to its attention by the solicitors for the wife.  The Bank’s first response was inconsistent with its very recent response when it became aware of the 2006 orders and the position it had been put in by the husband.  I commend the Bank for its recent attitude.

29. The Minter Ellison letter was dated 22 June 2010 which was the day of the hearing.  I shall quote only the paragraphs relevant to my determination:

    2.The Bank’s clear preference is for all post-July 2006 borrowings to be consent to (either by [the wife] or the Court).

    3.However, the Bank is now prepared to expeditiously consider an application for further funding to enable the installation of new point of sale systems and the replacement of the canopy at [B] (Works), provided that the arrangements agreed with certain [E] entities in October are put into place and the conditions set out below are complied with.

    4.Those arrangements (which necessarily require [the wife’s] consent), and the reason the Bank requires them to be formalised, are explained below.

30. The letter then dealt with funding for the group including in relation to entities and interests not affecting my determination.  In October 2009, the Bank issued agreements to all entities which increased the entities’ indebtedness by $4 million.

31. The Bank required documents to be executed for its security including a fixed and floating charge over all assets of the borrowers.  That was not done.  The letter went on:

    14.Given that the Additional Securities could not be provided expeditiously and that the [E] Group required funds on an urgent basis, the Bank subsequently agreed to provided (sic) temporary overdrafts to [EP] and [EL] (Temporary Overdrafts).

    15.When provided, the Bank’s expectation was that the Temporary Overdrafts would be repaid from the funds to be provided under the BFAs, within a matter of weeks.  As events have transpired, that has not occurred.

    16.The temporary overdrafts have a combined limit of $3.5 million, comprised as follows:

    (a)        [EP]: $2.5 million; and

    (b)       [EL]: $1.0 million.

    …

    19.As we understand it, the Temporary Overdrafts have been used to fund the activities of the broader [E] Group, not only those of the borrowing companies.

    20.The Bank is not prepared to continue to make the Temporary Overdrafts available.  In ordinary circumstances, such facilities are provided for short periods – usually 30 days.  The provision of such large temporary facilities for months is outside both normal banking practice and the Bank’s credit risk management policies.

    21.The balance of the Temporary Overdrafts will have to be repaid from the funds comprising the Net Increase once the BFAs are put into place.  Further, an overdraft facility with a limit of $100,000 provided to [EN] Pty Ltd is due for repayment.

    22.As a result, the actual funds available to be drawn on once the facilities contemplated by the BFAs are put into place will be in the order of $415,000.  It may be that those funds are already earmarked for use and cannot be put towards the Works.  If so, that is something that [the husband] or the Interveners will be best placed to explain.

    …

    24.For the avoidance of doubt, the conditions of any new funding offer will not include a requirement for any fresh securities, but will require an increase to the limit of all relevant guarantees.

    Most importantly of all:

    25.The Bank is unwilling to provide further funds until the Additional Securities (and the charge mentioned at paragraph 11 above) have been provided, and the consent of [the wife] or the Court has been received for the arrangements contemplated by the BFAs and the funding of the Works.

32. Thus it will be seen that the third parties are also caught in the position where the restraint on the husband affects their entitlement to operate.  I do not understand what might happen to them if the Court refused the husband’s application.

33. I do not dwell on the ramifications for the bank if the Court refuses the order sought but it would be obvious that the financial consequences would be disastrous not so much because it involved large sums of money but because it would mean significant litigation.  The husband and wife need this family law matter heard and it is listed for that purpose before the end of the year.

34. The bank’s evidence therefore shows that it will finance what the wife agreed should be done but sensibly, it did not wish to go further into debt with the parties where there were risks that it may be criticised but also fail to recover.  The failure to recover could arise if the wife became entitled to all of the assets of the husband and the bank had inappropriately lent money in the face of the injunction.  Here, the parties turned my attention to a schedule.

35. Of the three relevant entities in this application, the picture appears that the extensive borrowing will be maintained by the bank’s existing security but the funds will be used to discharge the temporary overdraft leaving a surplus of approximately $400,000.

36. It is asserted by the husband and presumably accepted by the bank that all of the money is being used for business purposes.  Thus, had the application been made in October 2009, the wife would have been faced with an argument that the business needed the funds.  The wife’s position of supporting the “point of sale” technology and the repair work strongly indicates her desire to protect the assets.  There is no evidence that the operations giving rise to the overdraft were not appropriate.

37. Thus the wife’s legitimate complaints are:

    (a)lack of consultation;

    (b)lack of disclosure; and

    (c)the husband’s “repatriation” of funds.

38. Legitimate as those concerns may be, the evidence suggests it is proper to grant the variation for its limited purpose.  Thus, this is one occasion where equity should turn a blind eye to breaches to the orders.

I certify that the preceding Seventy Five (75) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin

Associate: 

Date:  30 June 2010