H & H

[2003] FamCA 1391

[2003] FamCA 1391

FAMILY LAW ACT 1975

IN THE FULL COURT       
OF THE FAMILY COURT OF AUSTRALIA                 Appeal No WA5L of 2003
AT PERTH  

BETWEEN:

MR H
Appellant Husband
- and -

MS H
Respondent Wife

REASONS FOR JUDGMENT

CORAM:  KAY, HOLDEN & CHISHOLM JJ
DATE OF HEARING:                 4 December 2003
DATE OF JUDGMENT:             4 December 2003

APPEARANCES:  Mr Dowding of Counsel, instructed by Carr & Co, Solicitors appeared on behalf of the Appellant Husband.

Ms Crisford of Counsel, instructed by O’Sullivan Davies, Solicitors appeared on behalf of the Respondent Wife.

H & H

WA5L of 2003
Coram:         Kay, Holden & Chisholm JJ
Date of hearing: 4 December 2003
Date of judgment: 4 December 2003

Catchwords:           INJUNCTION – interlocutory – stockbroker enjoined from day trading on his own account pending suit - trading history not jeopardising substantial asset pool – injunction set aside – parties ought only be restrained from conducting their normal affairs pending suit if the failure to restrain is likely to seriously interfere with the proper adjudication of the competing claims and the meeting of entitlements.

NOT REPORTABLE

1. KAY J:   This is an application for leave to appeal and, if granted, an appeal against orders that were made by Penny J on the 4th of July 2003.  They are interlocutory orders as follows

“1The respondent, [Mr H], be restrained and an injunction is hereby granted restraining him from trading in shares in the private trading accounts as defined in the Minute of Orders Sought of the applicant, [Ms H], so that any one time his exposure in those accounts does not exceed $200,000.

2The respondent and his agents be restrained and an injunction is hereby granted restraining them from purchasing or acquiring any shareholding on behalf of the respondent or any entity of the [H] Group in the private investment accounts as defined in the applicant’s minute without the consent of the applicant.

3The respondent and his agents be restrained and an injunction is hereby granted restraining them from establishing trading accounts and/or investment accounts on behalf of the respondent or any other entity of the [H] Group other than clients of [S Group] without the prior written consent of the applicant.

4The proceeds of the sale of shares held in the private investment group are to be placed in a private investment bank account with the [H] Group.

5The respondent is to advise the applicant within 72 hours of the sale of shares of any of the private investment accounts, including the amount of net proceeds received and details of the bank accounts within the [H] Group into which the proceeds have been placed.

6The respondent and his agents be restrained and an injunction is hereby granted restraining them from disbursing, encumbering, gifting, trading or otherwise dealing with the proceeds of sale of shares held in the private investment accounts without the prior written consent of the applicant being obtained.

7Any losses resulting from the respondent’s share trading in the private trading accounts should be borne by the respondent.

8There be liberty to apply in relation to the definitions of ‘exposure’ and ‘private trading accounts’ in relation to paragraph 1 hereof.

9There be no order as to costs.”

Background

1. The husband is a stockbroker, carrying on business through what can be conveniently referred to as the H Group.  The wife had worked in the business prior to the separation of the parties.  The parties separated in somewhat acrimonious terms. 

1. There are competing property applications before the Court, and we are of the view that it is likely that those property proceedings can be heard by the middle of next year.

1. The wife asserted in her material that the total asset pool was approaching $6 million and she was making a claim to a substantial share in the asset pool.  The husband's material before the trial Judge indicated that he saw the pool as being somewhat lower than the wife, perhaps lower by at least $2 million, but still it was a pool of significant substance.  It would be clear that the wife had a serious and significant claim to a share in the assets that the parties had accumulated in the course of their relationship.

1. There had been some interim injunctions made by a Magistrate.  The husband could only deal with the funds of the group in the ordinary course of business as a stockbroker and could trade to a limit of $50,000.  That limit was subsequently increased to $100,000. 

1. The nature of the husband's trading within the group was to trade for very limited periods of time.  He made several trades each day with very rapid turnover in the shares, trying to chart the market's movements.  He was investing large amounts of money for small amounts of time, eventually making significant profits.  This was not always a profitable arrangement, but the wife, whilst asserting that there had been trading losses on an annual basis of up to the range of about $100,000, complained that on a turnover of $45 million the most the husband could demonstrate was a profit of $6000. 

1. The husband suggested not only that he generated profit on that turnover when others were losing, thus showing his expertise, but that he was also generating fees for the stockbroking business itself from the trades and that the figures were somewhat misleading.

1. The wife sought injunctions to restrain the husband from continuing his trading and to have him sell down some of the investments that she was complaining were not as sound as they ought to have been.  Her material was supported by other financial advisers who indicated that they would not trade in the manner in which the husband was trading.  Indeed, they saw some of his trading as extremely precarious.

1. It was the husband's case that he had been conducting his business in this way for many years.  There was nothing untoward in the manner in which he was trading.  It was true that he took some risk positions, but at no time were those risks particularly threatening to the entirety of the parties’ asset base and that he was never really exposed for more than about $200,000 net at any one time.  Even that exposure had the backing of the shares, but on a worse case scenario of a complete meltdown of the market he might lose $200,000 or thereabouts.

1. Indeed, the wife's material in support of her application indicated that the husband's position was reasonably accurate in that statement, although she would have preferred him to have the money invested in something much more stable and less risky than the manner in which he was continuing to trade.

1. Those were the issues that confronted the trial Judge.

The trial judgment

1. Her Honour, in a very short judgment, granted the injunctions that I have already referred to.  In so doing she set out briefly the issue that was before her and set out the competing material of each of the parties, namely, the wife's complaint and the husband's defence to the complaint, and then said - and I quote paragraph 7 of her Honour's reasons for judgment:

"The wife says the injunctions sough[t] by her are required to preserve the assets of the parties pending settlement of property.  The husband says he wishes to continue trading in shares as he did before separation.  Before I can accede to the wife's application, I must be satisfied that there is evidence which shows that the husband has embarked on conduct which was designed to, or irrespective of design, would be likely to defeat any anticipated order in the substantive proceedings in the wife's favour.  (Waugh and Waugh, (2000) FLC 93-052)."

1. She then summarised the competing evidence, that is, what the wife suggested was the position, what the husband suggested was the position, and reached the following conclusions before pronouncing her orders:

"11.On the evidence presently available, I am not satisfied that the husband should cease trading in shares on behalf of the [H] Group.  When the parties were together he made losses when trading.  These losses have not reduced the value of the business because they have been added to profits for the purpose of calculating the value of good will.  Some of the losses were book losses rather than actual losses.  The wife, however, should not suffer if as a result of the husband's share trading he makes losses.  The husband allows other stockbrokers at [S Group] to trade on the house account, however, any losses made by them must be covered by them. To preserve the wife's position the husband should also cover any losses made by him as a result of his share trading.  While I do not intend to restrain him from share trading on his own account, I do intend to limit the extent of his exposure at any one time to $200,000. 

I also do not intend to order the husband sell the shares that he is currently holding long term.  The husband and Mr [Y] [who I interpose is the wife's adviser] have different views as to the advisability of holding these investments.  While these stocks certainly could not be described as ‘blue chip’, it may well be that profits will be derived from the sale of them at an appropriate time in the future.  If, however, the husband decides to sell some of the shares between now and when the parties finalise their property claims, the funds from the sale should be held in an interest bearing account pending final division of their assets."

1. That really is the totality of the reasons for judgment, apart from, as I have indicated, her Honour outlining the competing positions.

Discussion

1. In order to succeed in an application for leave to appeal, it is necessary to show an error of principle and that a party will suffer a hardship as a result of the error of principle.  I use the word "and" not necessarily in a conjunctive sense.  The authorities remain open on whether you need to show one or both, but for my purposes in this case I need not decide the dilemma identified in Rutherford and Rutherford (1991) FLC 92-255, amongst other places. It is sufficient to say that in my view there has clearly been an error of principle by her Honour, and the evidence discloses that there is a significant basis upon which one could say that the husband is likely to suffer some hardship if he cannot go about the conduct of his business in the normal course of events.

1. This case is in many respects identical to the situation that faced the Court in Waugh v Waugh, and the error of principle identified by Lindenmayer, Coleman and Brown JJ in that case is the same error of principle that is identified here.  Her Honour I think correctly summarised in one or two lines the right law to apply:

Does the evidence satisfy that the husband's conduct is likely to defeat an anticipated order in a substantive proceedings? 

Having stated the test, in my view, the evidence could not have led her Honour to reach a conclusion that the test had been satisfied.  Nor did her Honour justify the conclusions that needed to have been reached to make the orders.

1. Parties ought only be restrained from conducting their normal affairs pending the outcome of disputed proceedings if the failure to so restrain them is likely to seriously interfere with the proper adjudication of the claim and the meeting of the entitlements.

1. Here, on an asset pool of somewhere between $4 and $6 million, the potential risk of a loss through indiscretions in the sense of poor trading as best demonstrated by the wife was something in the vicinity of $100,000 a year.  It could not be said that the test of the wife's situation being significantly diminished as a result of the continued trading could be met.  There was no suggestion here that the husband was doing something to subvert the wife's position.  It is just that she and her advisers took a position that if they were in charge of the assets they would trade in a different way. 

1. In my view, that is not enough to meet the tests laid out in the authorities that say that the Court ought to be loath to grant an injunction unless it is proper and appropriate in the circumstances to ensure that the Court will be in a position to deal with the assets when it is time for so dealing.  In those circumstances, not only is it an appropriate case to grant leave, but the appeal should be allowed.

1. I just add one other remark, that one of the orders made was that any losses resulting from the husband's share trading in the private trading account should be borne by the husband.  Not only was there no reason given for explaining that that was an appropriate order to be made, that is, in proceedings between the husband and wife on an interlocutory level, other than that it was the normal trading account as between members of the firm.  That it seems to significantly encroach upon the discretion of the trial Judge when ultimately dealing with a s 79 exercise.

1. The contributions made by the parties, both during the marriage and after the marriage and before the trial, are matters to be taken into account and given weight.  It may well be that the trial Judge, with the benefit of hindsight, will say that it is appropriate for the husband to bear the losses given that the wife told him, "Don't trade like that" and yet he traded on, or it might be appropriate that the losses be part of what could be described as the roller coaster ride of married life that seems to end at trial sometimes.

1. Be that as it may, that is a matter for proper exercise of discretion under s 79 when all of the factors are available to be considered, and it is difficult to envisage immediately how it would be appropriate to make that order in advance of the final exercise of discretion.

1. For those reasons I would grant the husband's application for leave to appeal.  I would grant the appeal and I would set aside the orders and dismiss the application filed by the wife that sought to support the orders.

1. HOLDEN J:  Yes.  I too would grant leave to appeal and allow the appeal for the reasons advance by the presiding judge to which I have nothing to add.  I agree with the orders proposed by him.

1. CHISHOLM J:  I agree with the orders proposed by the presiding judge for the reasons given by him.  I would only add two brief points.  The first is that although we were provided with an interesting commentary on the Waugh decision, there were no submissions to the effect that the law laid down in that case was in any way incorrect or insufficient or that her Honour erred in the succinct summary she gave of the principle to be applied. 

1. The second point that I would make (which is very much consistent with the judgment delivered by Kay J) is that it seems on an overview that this is a case in which the focus of the argument was essentially on the question whether the husband's activities created a risk of diminution of the parties' assets.  That phrase is used in the very first sentence of the judgment as a summary of the risk identified by the wife.  Her Honour says:

"These orders are necessary, she [that is the wife] says, because the level of share trading presently undertaken by the husband is risky, makes a loss, and may result in a diminution of the parties' assets."

1. Towards the end of the judgment, in a passage quoted by Kay J, her Honour uses the phrase "preserving the wife's position".  It may be that in both of those extracts the focus was on the risk of the assets being diminished.  However, for the reasons explained by Kay J, a risk of diminishing the assets, even if established, does not necessarily take the matter to the extent of the test set out in Waugh and Waugh in paragraph 7 of the judgment.

1. KAY J:  The orders of the Court will be

1.      The husband have leave to appeal from the orders made by Penny J on 4 July 2003; 

2.      The appeal be allowed; 

3.      Orders 1 to 8 of the orders made by Penny J on 4 July 2003 be set aside; 

4.      The wife's application filed the 11th of April 2003, as amended on the 15th of April 2003, be dismissed.

I certify that the 28 preceding
 paragraphs
are a true copy of the reasons
for judgment delivered by this
Honourable Full Court.

Associate