Farina and Lofts

[2014] FamCA 536

FAMILY COURT OF AUSTRALIA

FARINA & LOFTS [2014] FamCA 536

FAMILY LAW – PRACTICE AND PROCEDURE – JOINDER – Where the wife seeks a third party be joined to the proceedings

Family Law Act 1975 (Cth)
Family Law Rules 2004 (Cth)

APPLICANT: Mr Farina

RESPONDENT: Ms Lofts

FILE NUMBER: BRC 10102 of 2012

DATE DELIVERED:

PLACE DELIVERED:

PLACE HEARD: Brisbane

JUDGMENT OF: Hogan J

HEARING DATE: 16 May 2014

REPRESENTATION

COUNSEL FOR THE APPLICANT: Ms Hawkshaw of Counsel by way of direct brief

FOR THE RESPONDENT: Mr Farina in person

COUNSEL FOR THE SECOND RESPONDENT: Mr Tucker

SOLICITORS FOR THE SECOND RESPONDENT: Journey Family Lawyers

Orders

IT IS ORDERED UNTIL FURTHER ORDER

1. That Mr B also known as Mr B be joined as a party to the proceedings.

2. That C Pty Ltd be joined as a party to the proceedings.

3. That D Pty Ltd be joined as a party to the proceedings.

4. That within 48 hours of the date of these Orders, the Husband and Mr B Second Respondent do all that is necessary to return the motor vehicle registration … into the possession of the Wife.

5. The Husband and Mr B are restrained from directly or indirectly by way of any third party, removing the motor vehicle registration …from the Wife’s possession. 

6. The Husband and Mr B shall do all things necessary to cause C Pty Ltd to make all payments in relation to the said motor vehicle including any lease payments, service costs, registration cost and insurance payments.

7. That within three (3) business days of the date of these Orders, the Husband and Mr B do all things necessary to cause C Pty Ltd to obtain a Caltex fuel card for the motor vehicle and provide the fuel card to the Wife.

8. The Husband and Mr B do all things necessary to ensure that C Pty Ltd pays the amounts outstanding on the fuel card as and when they fall due.

9. The parties have leave to inspect and copy all documents produced pursuant to subpoena to the date of this Order.

10. The parties have leave to provide a copy of any material obtained as a consequence of Clause 9 above to any expert retained by them for the purpose of this proceeding.

11. That each party’s costs are reserved.

12. All outstanding Interim Applications be adjourned to the Directions Hearing on 21 August 2014.

13. That in the event that outstanding Interim Application requires a further judicial determination after the Directions hearing on 21 August 2014, those interim Applications be listed for hearing on 25 August 2014.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Farina & Lofts has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: BRC 10102 of 2012

Mr Farina

Applicant

And

Ms Lofts

Respondent

REASONS FOR JUDGMENT

1. The Respondent initially sought to join only Mr B to the current property settlement proceedings.

2. However, by written submission filed 15 May 2014 leave was sought to amend the Application in a Case filed 14 March 2014 to include D Pty Ltd, D Investment Trust and the B Family Trust.

3. The Respondent also seeks certain particularised interim orders against the Applicant, and, in the event that the application for joinder is successful, certain particularised interim orders directed toward Mr B and the other proposed parties.

The Relevant factual matrix

1. The Applicant and Respondent commenced an intimate relationship in about late 1995. They commenced cohabitation in about early 1998. Their de facto  relationship ended with their separation in May 2012.

2. At the time of separation, the Applicant was a director of C Pty Ltd which traded as “E Pty Ltd” (the business). The business was involved in the importation of wholesale pet products which were distributed to various pet shops and pet product suppliers in Australia and New Zealand. Included within the Respondent’s case for property settlement is the assertion she contributed in many ways – as particularised in her affidavit material – to the operation of C Pty Ltd.

How did the business come about?

1. In July 2001, the Applicant and Mr B established C Pty Ltd. Each owns 50 per cent of C Pty Ltd. Both remain directors of the same. Whilst their intention at the time was, it seems, to use C Pty Ltd as a vehicle through which property investment could occur, this did not eventuate.

2. At around the time C Pty Ltd was established:

   a)the Applicant was a sole trader, distributing food products under the name “F”;

   b)Mr B was involved in selling or distributing pet products under the brand “G.”

3. In broad terms, the Applicant and Mr B later decided to combine their efforts to operate a business, known by the name “E Pty Ltd”, through C Pty Ltd. Initially at least, the business sold both the “F” and “G” products. After a while, the Applicant and Mr B decided to focus only on pet related products.

4. They subsequently changed the business trading name from “E Pty Ltd” to “E Pty Ltd.”

5. The Respondent asserts that, in about 2005, the Applicant, Respondent and Mr B established H Pty Ltd through which a café business in Canberra was conducted. The Respondent says she worked in the café business and contributed to its success. She further assets that, when it was sold for a profit in about 2006, the monies obtained from the sale were applied to C Pty Ltd.

6. Prior to separation, the business bought pet products directly from various manufacturers or suppliers and sold them to retail stores. This was profitable. In the financial year ended 30 June 2012, C Pty Ltd recorded a net profit before tax of $1,183,604.00.

What relevantly happened after separation?

1. The Applicant and Respondent separated in May 2012.

2. In about June 2012, Mr B established D Pty Ltd. He is its sole director and shareholder.

3. D Pty Ltd is the corporate trustee of the D Investment Trust – a unit trust in which all 20 units are held by the B Family Trust. The Respondent alleges that the B Family Trust holds 10 of the 20 units on trust for the Applicant or a trust established by him after separation. Mr B denies the existence of the unit trust although he acknowledges an intention to establish the same and that he has taken some steps toward establishing it.

4. The Respondent asserts that, after D Pty Ltd came into existence, the Applicant and Mr B decided to change the manner in which C Pty Ltd operated.

5. She says, in broad summary, that instead of C Pty Ltd purchasing the G - and other - products directly from the supplier or manufacturer as was previously the case, D Pty Ltd now purchases the same products, sells them to C Pty Ltd which then supplies them to retail stores.

6. The Respondent asserts that the change to the way in which the business is operated has had the consequence of adding an additional - and not previously necessary - layer of cost for C Pty Ltd with the consequent result that its profitability has diminished. Correspondence from Mr I, an accountant agreed upon by the parties to value C Pty Ltd, outlines that C Pty Ltd recorded a net loss of $715,640.00 for the financial year ended 30 June 2013[1] notwithstanding an increase in sales.

   [1]           Affidavit of Ms Lofts filed 14 March 2014, Annexure “SL-10”.

7. Whilst the Applicant and Mr B told Mr I that this figure did not represent C Pty Ltd’s true loss - because a number of transactions between C Pty Ltd and D Pty Ltd had yet to be allocated between the two entities – Mr I retained his preliminary view that the financial performance of C Pty Ltd would be ‘substantially different’ in subsequent years to those achieved in previous years. Of course, the previous years to which Mr I refers are years which pre-dated the separation of the Applicant and the Respondent.

8. I note, in particular, that Mr I has said:[2]

   The change in financial circumstances for the business has arisen as a result of the new arrangements relating to D Pty Ltd and will cause a substantial reduction in the profit of C. These arrangements see an entity owned by Mr B purchasing stock items from the supplier and then on selling the products to C. Previously C would purchase the products directly. Due to an additional margin charged by D to C, this results in a transfer of profits from C to D.

   We hold concerns in relation to the nature of these changes and whether they are appropriate given the relevant duties owed as a Trustee/Director. However, we are not able to form any conclusions on these matters what possible remedies the Husband might have (if any).

   [2]           Affidavit of Ms Lofts filed 14 March 2014, Annexure “SL-10”.

The Application to join Mr B, D Pty Ltd, D Investment Trust and the B Family Trust

1. Determination of the Respondent’s application for joinder of Mr B and the entities outlined above requires consideration of the following questions in each case:

   a)is the person or entity sought to be joined a ‘person’ whose rights may be directly affected by an issue in a case; and

   b)is the participation of the person or entity as a party necessary for the Court to determine all issues in dispute in the case.[3]

   [3] Rule 6.02(1) Family Law Rules

Issues in the case and issues in dispute in the case

1. I consider that the material reveals at least the following issues and disputed issues, all of which require resolution as part of the Court’s obligation to identify the property of the Applicant and Respondent and its value:

   a)whether the Applicant and Mr B have, in their capacity as directors of C Pty Ltd, jointly acted to diminish that entities profitability by changing the way in which the business operated for the purpose and/or with the consequence of diminishing the value of C Pty Ltd – part of the property of the Applicant and Respondent for the purposes of the property settlement proceedings between them;

   b)whether in restructuring the manner in which the business operated after separation, the Applicant and Mr B acted to ensure that any new business or brands or any expansion of product lines was effectively quarantined into D Pty Ltd;

   c)whether in establishing D Pty Ltd and operating it in the manner alleged by the Respondent, Mr B has breached his duties as a director of C Pty Ltd and, if so, whether the Applicant and/or Respondent – if she can establish that the Applicant holds any of his shares in C Pty Ltd on trust for her - have any redress against him for any loss caused to C Pty Ltd as a consequence;

   d)whether C Pty Ltd or Mr B is the owner of the exclusive distribution rights in Australia and New Zealand for the G products;

   e)whether in implementing the creation of D Pty Ltd and the change to the way in which the business operated, Mr B acted as the Applicant’s ‘puppet’ and in concert with him to implement a plan to diminish the value of the C Pty Ltd;

   f)whether because of the manner and circumstances in which D  Pty Ltd was established, Mr B holds any of his shares in D Pty Ltd on trust for the Applicant;

   g)whether, by virtue of the manner in which and the circumstances surrounding the establishment of D Pty Ltd and its role in the business structure, the Applicant  has an actual or beneficial interest in D Pty Ltd;

   h)whether transactions between C Pty Ltd and D Pty Ltd are ‘shams’ entered into to diminish the value of C Pty Ltd for the purpose of these proceedings.

2. In the circumstances I am well persuaded Mr B falls within the category of person identified in Rule 6.02 (1) of the Family Law Rules who must be included as a party to the case. One only has to consider the dispute about the ownership of the distribution rights for the G products to see that his rights may be directly affected and that his participation as a party is necessary to enable the Court to determine all issues in dispute in this case.

3. Should any further justification be necessary, regard need only be had to the dispute about the role D Pty Ltd has played in the asserted diminishment of the profitability of C Pty Ltd since separation. Mr B’s assertion that D Pty Ltd was established to protect his agreements to distribute the brands J, K and L is disputed by the Respondent. She contends that the contents of Mr I’s October 2013 correspondences reveals dealings between the Applicant and Mr B which are capable of founding a conclusion – advocated for by her – that they jointly agreed to implement a course whereby the future profits of C Pty Ltd have been transferred to D Pty Ltd to the detriment of C Pty Ltd and, consequently, her detriment.

4. I am persuaded Mr B, and D Pty Ltd must be included as parties to the proceedings.  Given the nature of the disputes outlined above, I am also persuaded that C Pty Ltd must be joined to the proceedings – on the Respondent’s case, it is the owner of the distribution rights for G.

5. The Respondent asserts that the D Investment trust is a unit trust in which all 20 units are owned by the B Family Trust. She further asserts that the B Family Trust holds 10 of these units on trust for the Applicant or a trust established by him after separation.

6. Mr B swears that there is no such entity as the D Unit Trust although he wishes to establish one and has taken steps to that end. On the basis of the evidence as it stands, I am not persuaded, at this stage, that either the B Family Trust or the D Investment trust – if this exists – are ‘persons’ whose rights may be directly affected by an issue in the case or that their participation as parties is necessary for the Court to determine all issues in dispute in the proceedings. If further disclosure, which will now follow the joinder of Mr B and the entities referred to above, reveals a basis for a further application for joinder, that course is open to the Respondent.

The motor vehicle

1. A dispute has arisen around the motor vehicle owned by C Pty Ltd and previously provided for the Respondent’s use by the Applicant on the basis that all costs including repairs, insurances, registration and fuel were met by C Pty Ltd.

2. The Applicant, in his capacity as a director of C Pty Ltd, gave the Respondent permission to retain and use the car. In reliance on this, the Respondent paid for the car registration, tyres and maintenance. Shortly after this, Mr B, in his capacity as a director of C Pty Ltd acted to have the car removed from the Respondent.

3. Whist there is a dispute between the parties as to the basis on which the Respondent was permitted to continue to use the car – the Respondent asserting that Mr B simply required that she meet the payments she paid and Mr B later raising that the Respondent had to pay outstanding fines accrued during her use of the car - I consider that these issues can appropriately be dealt with at trial.

4. At present, the balance of convenience favours the return of the car to the Respondent on the same terms on which it was provided for her use during her relationship with the Applicant who retains the exclusive benefit of the income and profits from his ownership of C Pty Ltd.

Leave to inspect and copy material produced pursuant to subpoena

1. Given the joinder of new parties to the proceedings, I consider it appropriate to make an order that the parties have leave to inspect and copy material produced pursuant to subpoena returned to date.

2. It is also appropriate, I think, that the parties have leave to provide a copy of the material obtained via this process to any expert from whom they are seeking advice during the course of this proceeding and to Mr I, the accountant jointly appointed to value the business.

The child’s kindergarten fees

1. The Respondent seeks an order that the Applicant pay half of the fees outstanding to the day care centre at which the child was enrolled. The Applicant opposes the making of such an order on the basis that he did not agree to M’s enrolment at the centre.

2. I am not persuaded that it is appropriate to order the Applicant to pay half of the fees and I decline to do so.

The Speeding and Parking Infringements

1. The Applicant submits that the Respondent should be required to transfer the speeding and parking infringements into her name. They currently are recorded against C Pty Ltd as owner of the car.

2. The Respondent says she has made attempts to do as the Applicant requests but has been told that this is not possible. In the absence of evidence to the contrary, I accept her assertion.

3. I decline to make an order requiring the Respondent to transfer the speeding and parking infringements into her name.

I certify that the preceding thirty-seven (37) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Hogan delivered on 18 July 2014.

Associate: 

Date:              18 July 2014