H and H - [2002] FMCAfam 255

FEDERAL MAGISTRATES COURT OF AUSTRALIA

H & H

[2002]FMCAfam255

PROPERTY – Interim injunction – control of company pending final hearing – Company business significant asset of parties – parties unable to cooperate in running of company.

Applicant:

D J H

Respondent:

K L H

File No:

ZM 3447 of 2002

Delivered on:

6 June 2002

Delivered at:

Melbourne

Hearing Dates:

10 April 2002 & 1 August 2002

Judgment of:

Phipps FM

REPRESENTATION

Counsel for the Applicant:

Mr Schepis

Solicitors for the Applicant:

Pearsons

Counsel for the Respondent:

Mr Combei

Solicitors for the Respondent:

Gavan J Black

ORDERS

THAT until further order the Applicant Husband have the sole and exclusive conduct of the business conducted by F L Pty Ltd trading as “F L” operating from premises at 82D A Street, W F and 113 R Street, G (“the businesses”).
THAT pending further order the Respondent Wife and her servants and agents be restrained from attending at the businesses.
THAT pending further order the Applicant Husband cause to be paid to himself and the Wife the weekly sum of $800.00 commencing with the first payment this day and thereafter by direct debit into the Wife’s account ANZ Bank W, Account and a further single amount of $5,000.00 to the Wife on or before 5 July 2002 such sums to be categorised by the trial judge.
THAT the Wife forthwith return to the W F shop all business and company documents she may have in her possession or control.
THAT until further order:
(a)The Husband pay or cause to be paid all debts and accounts of the said businesses as and when they fall due and T R R Pty Ltd including all debts secured by mortgage and including any mortgages secured by the property at 3 P Close W;
(b)The Husband ensure that all proper books and accounts (including records of daily takings) are kept and made available for inspection and copying of (at her expense) such as records on a monthly basis (including BAS) by the Wife and/or her representatives such documents to be made available at the businesses accountant from there by the said Wife or her representatives.
THAT each party have liberty to apply upon 48 hours written notice to the other party(s).
THAT all extant financial interim applications be otherwise dismissed.
THAT the hearing of interim child applications listed for the 17 June 2002 be vacated and adjourned to the duty list on 22 July 2002.
THAT the parties attend a Conciliation Conference with a Deputy Registrar of the Family Court of Australia at the Melbourne Registry on 16 August 2002 at 9.30am.
THAT each parties costs of and incidental of these proceedings be reserved.
THAT the court certifies that it was reasonable for the parties to employ an advocate.
THAT reserve liberty to each of the parties to apply for an order for an interim lump sum payment notwithstanding any other order.
THAT the Husband be permitted to attend at the garage at 3 P Close W on 13 June 2002 at 9.00am for a period not exceeding 1 hour and remove the following:
(a)Documents belonging to F L Pty Ltd;
(b)Work sheets of F L Pty Ltd;
(c)Taking records of F L Pty Ltd and that the Wife not be in attendance but be permitted to be represented by Mr G M.

FEDERAL MAGISTRATES
COURT OF AUSTRALIA AT
MELBOURNE

ZM 3447 of 2002

D J H

Applicant

And

K L H

Respondent

REASONS FOR JUDGMENT

This is an interim application seeking orders and injunctions in relation to the control of a business operated by a company, F L Pty Ltd, of which the husband and wife are directors and shareholders. The parties were married on 7 January 1978 and separated on 28 February 2002. There are three children of the marriage, one of whom is under the age of 18, J D J H born on 13 October 1997. Of the two adult children, one is in employment as a first year physiotherapist and the other is a student at a tertiary institution. All three children reside with the mother in the former matrimonial home.
The proceedings commenced in this court on 5 March 2002 in relation to the child J. That resulted in an order by Bryant CFM on 10 April 2002 that until further order and pending a family report and psychiatric assessment, the child J D J H born 13 October 1997 reside with the husband each Friday directly after kindergarten until the following Monday at 4 pm and with the wife at all other times. There was also an order that the husband vacate the former matrimonial home by no later than 4 pm on Friday, 12 April and thereafter the wife have sole use and occupation of the home.
There were orders in relation to the preparation of the family report, psychiatric assessment for the wife, and random supervised drug screen tests of husband and wife. There was an order that each of the husband and wife be restrained from consuming illicit substances at any time while the child lives with them and for 12 hours prior to any such period. There was an order for the husband to return to the wife through his solicitor the key or keys to the garage and an order that neither party be at liberty to remove any items from the garage. The proceedings were then adjourned until 17 June 2002.
The parties, notwithstanding that they have proceedings on foot in this court, also found themselves in the W Magistrates Court in proceedings under the Crimes (Family Violence) Act 1987 of Victoria. On 24 April 2002, they reached agreement at that court that in respect of the parties' business premises at 82 A Street, W F they would attend at those premises at nominated times and be prohibited from attending at all other times. The times which were agreed were for the wife are Mondays between the hours 10.00am to 5.00pm, Thursday between the hours of 10.00am to 5.00pm, Fridays between the hours 5.30pm to closing, Saturday during operating hours, Sunday during operating hours. For the husband, Mondays between the hours 5.30pm to closing, Tuesdays during operating hours, Wednesdays during operating hours, Thursday between the hours 5.30pm to closing, Friday between the hours 10.00am to 5.00pm. That agreement also stated this:
“It is agreed that all books, accounts, journals and work-related documents, including cheque books and original bank statements, will be left at the business premises situated at 82 A Street, W F, and are not to be removed, except by order of the Family Court or by written agreement between the parties.”
That is in substance what the parties agreed about the business. The parties, as I have said, are shareholders and directors of a company, F L Pty Ltd. That company operates two businesses being A B’s. One of them is in G at 113 R Street, G and the other one at 82D A Street, W F. In addition, each is a 25 percent shareholders in a company T R R Pty Ltd. The other 50 per cent is owned by another couple, J and J M. T R R Pty Ltd owns a property described as N S and associated lands at T and it also owns a business at T.
The other assets are the former matrimonial home at 3 P Close, W in joint names, 5 S Street, B M in joint names and another piece of land at T in addition to the business. There is land at J Drive, K in joint names. The wife puts her half share of that at $1500.00. But the valuation of the parties' property is substantial. The wife's financial statement puts the mortgages of various businesses as a total of $297,500.00. The husband's financial statement puts the amount owing under mortgages, which he describes as CBA Various F L Pty Ltd $430,000.00. It seems from the husband's material that at least in part some of that money is secured by a mortgage over his parent's farm at B M.
The agreement reached between the parties on 24 April 2000 for the operation of the business has not worked. The court now has before it an application by the husband where he seeks an order that he have the sole and exclusive conduct of the businesses conducted by F L Pty Ltd trading as F L from the premises known as 82D A Street, W F and 113 R Street, G. The wife's response seeks the exact opposite. In the course of the interim hearing it was put on behalf of the wife that there should be an order as an alternative that the husband have control of the G shop and she have control of the W F shop.
In addition to those orders and various associated restraining orders, the husband seeks an order that he pay to himself and to the wife each the sum of $800.00 per week, such sum to be characterised as maintenance or part-property distribution by the trial judge. The wife's application seeks an amount of $1000.00 to be paid to her by way of wage or maintenance and does not propose paying anything to the husband. The two businesses are A B’s. It seems that they are profitable, although despite the amount of affidavit material that has been filed, no financial statements, no tax returns, no financial records other than what I might describe as individual items or bits and pieces, have been put before the court.
The competing allegations are these: the husband alleges that the wife has been not attending the business regularly as he says is contemplated by the order of 24 April, but she has been coming in periodically. He says she has been taking cash from the till and cash from the float kept overnight. She has been intervening with the staff, she has been abusing the staff, she has been generally causing trouble, so he alleges. There has been put before the court material subpoenaed from a psychiatrist, Dr Benjamin, whom the wife has been seeing for some time. That shows that the wife has been suffering from depression. As best as can be gleaned from the reports and notes without having the benefit of a report from Dr Benjamin, the extent of the depression and its existence fluctuates from time to time.
On behalf of the husband, that is put as a factor in favour of him having control of the businesses rather than the wife, although I should say it was put on the basis that all other things being equal the fact that the wife suffers from depression should tip the balance in favour of the husband. The husband also alleges that the wife is either addicted to or is a frequent user of the substance speed and he alleges that the amount of money which she has been taking from the business is used for the purpose of purchasing that substance.
The wife, on the other hand, alleges violence against the husband. She alleges that ever since she informed him the marriage was at an end some little time prior to the separation he has set out on a concentrated campaign to remove her from the business and to ensure that she receives no money. It is alleged on her behalf that the husband's intention is, just as I have said, that he wants to exclude her from the business, wants to make sure that she receives no money. She says that the staff have turned against her and sees that as being done by the husband.
Since this proceeding started on 5 March, it has so far generated two large court files. The filing record on the front now reaches number 47, but the volume and speed at which material has been filed means that staff have not been able to keep up with it and there are still some documents within the file which, although properly filed, would seem not yet to have been recorded within that number of 47. At the commencement of the interim hearing before me, each counsel gave to me a list of the affidavits upon which their respective clients were relying, but as the argument proceeded, other affidavits were referred to in part and comparisons made with subsequent and previous affidavits. Subpoenaed material was put before the court, such that if I was to attempt to enumerate all of the material which has been relied upon by each party I am sure that I would fail. Given the decision I have reached, there is no need for me to list all of that material.
As I said in the course of the hearing, if this was an application in a commercial court, an application pursuant to the Corporations Law to deal with the situation which exists with this company, it will have taken very little time before that court. It would have resulted in the appointment (without the need for much argument at all or much persuasion) of a provisional liquidator or a receiver and manager or some form of administrator. It is apparent from the material that this company is in practical terms a partnership between the husband and wife. There is no need to recite any of the material to be able to say that the relationship of trust between them essential to the operation of a business of this type has completely broken down. In fact, I think it is not an exaggeration to describe the relationship between the parties as one of extreme bitterness.
It is impossible for them to cooperate in the running of this business. Indeed, it would seem to be impossible for them to be in each other's presence without some substantial means of controlling arguments which might break out between them. That is not to make any comment on who is at fault or who is not at fault. That, as I see it, is just the objective fact. The company of course is at law a separate entity. The Corporations Law, if invoked, would deal with that situation by putting in an independent person to control the company and run its affairs until some solution could be found either by agreement between the parties or by an order under the Corporations Law for one party to buy out the other or if such a solution could not be found liquidation of the company and the division of the proceeds among the parties.
But neither party has sought to make the application to this court. It may be that this court could make such an order under section 18 of the Federal Magistrates Act. It has associated jurisdiction conferred on it in exactly the same terms as associated jurisdiction is conferred on the Federal Court and the Family Court. Corporations Law is now dealt with by laws passed by the Commonwealth of Australia following the referral of Corporations powers by the states to the Commonwealth. While this court and the Family Court have no direct jurisdiction over Corporations Law, it may well be in a situation such as this that section 18 of the Federal Magistrates Act and the equivalent section in the Family Law Act would confer the appropriate powers under the Corporations Law to deal with this situation as the Corporations Law provides. But that cannot be done.
As I have said, a commercial court would not have taken long to deal with the application before it. The argument before me went beyond a day. Each party sought to establish facts in its favour. On the husband's side he has his own affidavits of what he alleges has been the wife's behaviour in relation to the business, particularly in relation to taking cash from the till and from the float, not cooperating in the signing of cheques, independently ordering stock which he says was not needed. He has in support affidavits from most, if not all, of the employees of the businesses. He has affidavits from others in relation to the wife's behaviour generally and her use of speed. He relied upon, as I have said, the subpoenaed documents from Dr Benjamin. The wife, on the other hand, goes into considerable detail about the husband's behaviour towards her and in particular, she recounts two instances where she alleges actual physical violence, being struck and a car being damaged. One was at the matrimonial home and on the way to it and it would seem, at the W Police Station. On another occasion there was an incident in the shop where she says she was punched while an argument took place over the business and over business records. She has support from affidavits by her daughters.
Each party makes claims about the extent to which they ran and managed the businesses prior to the disputes between them arising. The wife says that in relation to the F business, she ran it largely. The husband had very little to do with it. The husband denies that. As I said earlier, the debate ranged far and wide over the many affidavits that have been filed in this proceeding. The wife's counsel pointed to affidavits filed prior to the application before me being filed, affidavits in the dispute over the child J in which the husband describes the amount of time he spends at home and contrasts that with the time the wife is spending at the business.
This is an interim hearing and despite the best efforts of counsel, I can see no way that I can make any assessment at all of the veracity of any of these allegations on either side. To an extent, they are admitted and explained. The wife, for instance, acknowledges that she has been to the business and taken cash from the business. She says it is nothing like the extent alleged, but she says she needed it to live on. She says she has had to borrow money from her mother and the family. She and the three children have had to rely upon the salary of the oldest daughter to live. So therefore she accepts that she has been taking money. The husband acknowledges and accepts to a degree damaging the wife's car by bending both mirrors, acknowledges that his car did collide with her car while both of them were on the way to the W Police Station. He says it was an accident, the wife says it was deliberate.
As I have said, it is quite impossible for me to make any findings of fact on each of these matters. Likewise, it is impossible to form any assessment of the financial state of the business. As I said earlier, surprisingly no financial records have been put before the court, other than fragmented records. There are no financial accounts which one might expect to have been prepared at the end of each financial year. It is now close to the end of the 2001-2002 financial year. One would expect that the annual accounts, profit and loss statement and so on would have been prepared for the previous year and the previous year again should be available.
The Form 17 financial statements which have been filed give no clue as to the parties' incomes. The wife puts her income at $80.00 a week as an average of what she has been able to obtain in cash from the business. The husband's is even more remarkable. He says his income is not known. Somehow or other these parties between them or the financial entities in which they have an interest are managing to service very substantial mortgages and yet the only income which is disclosed is $80.00 a week. Some understanding of the way the business is conducted can be gleaned from the affidavits of both husband and wife and of the members of staff who have sworn affidavits.
Some members of staff are paid in cash. Much was made by counsel for the husband of the wife describing in detail how staff members were paid in cash. One, the wife alleges, is not only paid in cash, but is also drawing Centrelink payments, the inference being that he is defrauding the Commonwealth. What was put on behalf of the husband was that this showed that the wife was an unsatisfactory manager of this business because she had turned against the staff. But what it does show is that it seems very likely that this business is being conducted without proper accounting records being kept. As I have said, the parties are in extreme conflict.
I can have no confidence that either party will conduct the business properly so as to ensure the entitlements of the other party are preserved, let alone the rights of the company itself, creditors or others who may be interested. The wife, for instance, says that at the W Magistrates Court the husband said to her that he would make sure she received no money or words to that effect. She is corroborated by an affidavit from her solicitor. The husband, on the other hand, points to the detailed affidavits of the staff showing the amount of money that the business has been taking, pointing to bills which have not been paid. Each alleges that the other will not cooperate in the signing of cheques.

As I have said, I can have no confidence that either of these parties will conduct this business properly so that the other is not disadvantaged. I have no way of determining who is less likely to misbehave. I have to somehow or other make a decision about who should control the business. It is plain that it cannot be conducted by both of them. They cannot cooperate. The result would be non‑payment of bills, each possibly taking cash by subterfuge or other ways in order that they can meet their weekly expenses. The business would probably fail. As I have said, the husband has affidavits from most, if not all, of the staff supporting his position critical of the wife's behaviour.
The wife sees these staff members as having turned against her. She says in one of her affidavits that she has a locksmith and employment agency standing by. It is clear that if she is in control of the business she would propose dismissing the staff and employing new ones who no doubt she would see as being loyal to her. There may be reasons why some of the staff members are supporting the husband, other than their view on who would best run the business and therefore preserve their jobs and make their daily working lives easier than they would seem to be now. On the material I have no way of assessing that.
What I have to do is determine on the limited material I have and in the unsatisfactory situation which exists what is the best thing to do. As I have said, the best thing to do would be to have someone independent appointed, but neither party agrees to that and neither has made an application to that effect. Consequently, I think the decision comes down to this: each party in their affidavits acknowledges that neither of them is present full‑time at the business. Indeed, prior to the current difficulties arising there was not a full‑time presence by the combination of them. To a large extent, the business was run from home and the parties as the proprietors attended as necessary. The business was, therefore, on a day-to-day basis run by the staff.
I should say something about the wife's proposal that she control the F business and the husband control the G business. I said in the course of argument that I would not do that because it simply would not work. This is one company. It is not two separate companies. Although it operates from two separate geographical locations, and the two on a day-to-day basis may operate independently and may even operate independently on the basis of ordering product, banking and so on, it is one company. It would not be possible for it to operate with two directors who, although physically separated, would not cooperate. For instance, it is said there are suppliers and creditors pressing for payment. Both businesses might need supply from the same supplier. The supplier might well be taking the normal commercial approach of refusing supply if he was not paid. Immediately there would be a dispute between the parties over which bill should be paid, F or G. That would seem to me to be one of the milder disputes which might arise if these two parties have to in any way attempt to cooperate.
So given that on a day-to-day basis the business is operated by the staff, the husband's proposal that there be continuity of staff tips the balance in his favour. The wife's proposal is to dismiss the current staff and employ new staff. She may be right. As I have said, the situation is unsatisfactory. I may be making a decision which severely disadvantages the wife, but as best as I can see, continuity in this business by keeping the same staff employed is the only way I can decide this case. Everything else is disputed, except to a limited extent. To the limited extent it is not disputed it does not help me.
I therefore propose making orders largely in terms of the husband's application, but with some additions. The husband proposes a distribution of the sum of $800.00 per week to each party. I would propose making that order. In addition to that, an order that the husband pay or cause to be paid all the debts and accounts of the company F L Pty Ltd and the business of T R R Pty Ltd including the mortgage payments in addition to the $800.00 per week. There will be an order that he keep proper books and account including daily records of takings by way of cash register rolls and Z key totals or similar.

I certify that the preceding twenty-eight (28) paragraphs are a true copy of the reasons for judgment of Phipps FM

Associate: Kwong S

Date: 16 August 2002