Hancock & Hancock
[2023] FedCFamC1F 429
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Hancock & Hancock [2023] FedCFamC1F 429
File number MLC 9456 of 2021 Judgment of WILSON J Date of judgment 23 May 2023 Catchwords FAMILY LAW – MAJOR COMPLEX FINANCIAL PROCEEDINGS LIST – PROPERTY – ASSET PRESERVATION ORDER – consideration of injunction and asset preservation order authorities – third party interests considered – unjustifiable dissipation of assets considered – held, no real danger of unjustifiable dissipation of assets – application dismissed.
FAMILY LAW – MAJOR COMPLEX FINANCIAL PROCEEDINGS LIST – PROPERTY – INTERLOCUTORY ORDERS – MANDATORY INJUNCTION – alternative application for the husband to pay $30,000,000 into a trust account – Cardile v LED Builders Pty Ltd considered – held, payment would take effect as a security fund – application refused.
Legislation Corporations Act 2001 (Cth) ss 180, 180(2), 260 and 260A
Family Law Act 1975 (Cth) ss 4(1)(e), 79, 90AF, 90AF(3)(a), 114(1)(e), 114(3), 117, 117(2) and 117(2A)
Income Tax Assessment Act 1936 (Cth) Div 7A
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) s 9
Cases cited Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd (1981) 146 CLR 249
Ascot Investments Pty Ltd v Harper (1981) 148 CLR 337
Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199
Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57
BluePoint Property Pty Ltd v Zuri Properties Pty Ltd [2020] QSC 219
Blueseas Investments Pty Ltd & Mitchell (1999) 25 Fam LR 65
Bradto Pty Ltd v State of Victoria (2006) 15 VR 65
Brayton & Brayton [2021] FedCFamC1F 337
Cardile v LED Builders Pty Ltd (1999) 198 CLR 380
Carlen v Drury (1812) 35 ER 61
Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148
Connective Services Pty Ltd v Slea Pty Ltd (2019) 267 CLR 461
Daniel Herridge v Electricity Networks Corporation (No 5) [2020] WASC 145
Dasreef Pty Ltd v Hawchar (2011) 243 CLR 588
Deputy Commissioner of Taxation v Kliman (2002) 29 Fam LR 301
Frigho v Culhaci [1998] NSWCA 88
Goodridge v Beadle (2017) 57 Fam LR 425
Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL (1968) 121 CLR 483
Hill v Zuda Pty Ltd (2022) 96 ALJR 540
Holder v Holder [2020] FamCA 347
Holyoake v Candy [2018] Ch 297
Honeysett v R (2014) 253 CLR 122
Howard Smith Ltd v Ampol Petroleum Ltd [1974] AC 821
Hua Wang Bank Berhad v Deputy Commissioner of Taxation (2010) 81 ATR 66
In the Marriage of Aldred (1984) 9 Fam LR 539
In the Marriage of Sieling (1979) 4 Fam LR 713
In the Marriage of Waugh (2000) 27 Fam LR 63
Jackson v Sterling Industries Ltd (1987) 162 CLR 612
Jones v Pacaya Rubber and Produce Co Ltd [1911] 1 KB 455
Kennon & Spry (2008) 238 CLR 366
Les Ambassadeurs Club Ltd v Albluewi [2020] EWHC 1313 (QB)
Lister & Co v Stubbs (1890) 45 Ch D 1
M v DB (2006) 36 Fam LR 454
Makita (Australia) Pty Ltd v Sprowles (2001) 52 NSWLR 705
Mobil Cerro Negro Ltd v Petroleos de Venezuela SA [2008] 2 All ER (Comm) 1034
National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] 1 VR 386
Palmer v Parbery (2019) 136 ACSR 26
Parbery v Queensland Nickel Pty Ltd (In Liq) [2018] QSC 107
Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1
Patterson v BTR Engineering (Aust) Ltd (1989) 18 NSWLR 319
Patton & Patton [2015] FamCA 1083
PBF as Child Representative for AF (Legal Aid Commission of Tasmania) & TRF & LKL (2005) 33 Fam LR 123
Pejic & Pejic (No 2) [2022] FedCFamC1F 513
Perrey v Mordiesel Co Pty Ltd [1976] VR 569
PT Bayan Resources v BCBC Singapore Pty Ltd (2015) 258 CLR 1
R v Dovey; ex parte Ross (1979) 141 CLR 526
Shipman v Shipman (2022) 64 Fam LR 75
Skyworks v 32 Drummoyne Road [2017] NSWSC 343
Smethurst v Commissioner of the Australian Federal Police (2020) 272 CLR 177
Stanford v Stanford (2012) 247 CLR 108
Third Chandris Shipping Corporation v Unimarine SA [1979] 2 All ER 972
Tsiang & Wu [2019] FamCAFC 128
B Pty Ltd v Hancock [2023] FCA 359
Yadu v Orjit (2022) 66 Fam LR 231
Yuanda Vic Pty Ltd v Façade Designs Pty Ltd (No 2) [2021] VSCA 85
Yunghanns & Yunghanns (1994) 24 Fam LR 400
Division Division 1 First Instance Number of paragraphs 152 Date of last submission 19 May 2023 Date of hearing 15 and 19 May 2023 Place Melbourne Counsel for the Applicant Mr R. Craig KC with Ms H. Renwick Solicitor for the Applicant Lander & Rogers Counsel for the First Respondent Mr R. Heath KC with Mr J. Schmidt Solicitor for the First Respondent Taussig Cherrie Fildes Counsel for the Second to Fifth Respondents Mr C. Archibald KC with Mr D. Matta Solicitor for the Second to Fifth Respondents Arnold Bloch Leibler Counsel for the Intervenor Mr A. Robins KC Solicitor for the Intervenor KCL Law ORDERS
MLC 9456 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN MS HANCOCK
Applicant
AND MR HANCOCK
First Respondent
MR STAMATIS
Second Respondent
B PTY LTD
Third Respondent
MR ROGERS
Fourth RespondentC PTY LTD
Fifth RespondentD PTY LTD
Intervenor
order made by
WILSON J
DATE OF ORDER
23 MAY 2023
THE COURT ORDERS THAT –
1.Paragraphs 3, 4, 5, 6 and 7 of the wife’s amended application in a proceeding filed 5 May 2023 are dismissed.
2.I fix the trial of this proceeding for 5 September 2023.
3.The further hearing of this proceeding is adjourned to 10:00am on 21 July 2023 for directions in the Major Complex Financial Proceedings List.
4.On or before 4:00pm on 6 June 2023 any party (including the intervenor) seeking costs orders must file and serve any submissions in support of such application.
5.On or before 4:00pm on 20 June 2023 any party responding to such costs application must file and serve any submissions in response and questions of costs in this application will be determined on the papers thereafter.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Hancock & Hancock has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
EX TEMPORE REASONS FOR JUDGMENT
WILSON J
INTRODUCTION
By amended application filed 5 May 2023, the applicant in this litigation[1] has applied for asset preservation orders, an anti-suit injunction and a mandatory injunction against the respondent.[2]
[1] In accordance with custom in this court, in these reasons the applicant is called “the wife”, intending no disrespect by that appellation.
[2] In accordance with custom in this court, in these reasons the respondent is called “the husband”, intending no disrespect by that appellation.
So far as the asset preservation orders were concerned, the wife sought orders enjoining the husband, in his personal capacity, in his capacity as a director of D Pty Ltd and in his capacity as a director of and shareholder in E Pty Ltd from doing a collection of activities without the wife’s prior written consent or court order. Those were –
(a)selling or otherwise disposing of, encumbering or dealing with shares in E Pty Ltd or E Pty Ltd’s shares in D Pty Ltd;
(b)doing any act or executing any document that permits E Pty Ltd or D Pty Ltd to proceed with the business acquisition described as F Project;
(c)causing or permitting D Pty Ltd to enter into any transaction other than in the ordinary course of F Project the effect of which would result in an increase in D Pty Ltd’s liabilities above $4.6 million; and
(d)permitting D Pty Ltd in any way to restrict its ability to declare a dividend in favour of E Pty Ltd or the husband.
The application for orders recorded immediately above was characterised as an application for an asset preservation order within the contemplation of Cardile v LED Builders Pty Ltd[3] and key authorities subsequent thereto.
[3] (1999) 198 CLR 380.
The second injunction sought by the wife was an anti-suit injunction restraining the husband from commencing any proceeding in any other court concerning the affairs of D Pty Ltd in which the wife is named as a party.
Alternatively, the wife sought an order requiring the husband to pay her the sum of $30,000,000 within 28 days.
Each of the husband, D Pty Ltd and the second to fifth respondents opposed the interlocutory orders sought by the wife.
As these reasons explain, in my view –
(a)the wife’s applications for asset preservation orders and for an order to compel payment to her of $30,000,000 are refused; and
(b)I fix the trial of this proceeding for 5 September 2023.
It was agreed between counsel that the restraints were to be decided on this hearing, although not the anti-suit injunction or the joinder application.
It was also agreed that by reason of the urgency of the issues raised in this litigation, a trial should be fixed as soon as possible. In the upshot, the trial is fixed for 5 September 2023.
Further, despite earlier statements that the offer in relation to the F Project proposal would lapse by 19 May 2023, it was extended to 29 May 2023. Nevertheless, the parties before me requested these reasons to be produced at a high speed, which I have now done.
RELEVANT DRAMATIS PERSONAE
To better understand these reasons, it is necessary to say something about the relevant actors in the events leading to the wife’s applications.
The wife is 56 and the husband 58. They married in 1990 and separated on a final basis in 2021, their marriage inuring for 31 years. They have adult children who work for D Pty Ltd. During the marriage, the wife was primarily responsible for the care of the children and she worked as well for D Pty Ltd. When the husband and wife married –
(a)the husband owned no assets of value; and
(b)the wife was a registered proprietor of a parcel of land at Suburb G in which her equity was about $20,000, she had some accumulated employment entitlements of about $35,000 and a motor vehicle.
In 2002 the husband and the wife together with other shareholders established D Pty Ltd. D Pty Ltd provides a range of services across several areas.
E Pty Ltd is –
(a)the trustee of the Hancock Family Trust;
(b)the holder of the majority of issued shares in the capital of D Pty Ltd;
(c)owned and controlled as equal shareholders by the husband and wife; and
(d)directed equally by the husband and wife as co-directors.
Mr Stamatis, the second respondent, is the owner and controller of B Pty Ltd, the third respondent. In 2017, B Pty Ltd acquired a 5% shareholding of D Pty Ltd.
Mr Rogers, the fourth respondent, is the owner and controller of C Pty Ltd, the fifth respondent. C Pty Ltd held a 5% shareholding in D Pty Ltd.
Expressed in percentage terms, the shareholders in D Pty Ltd as at February 2020 were E Pty Ltd as to 90%, B Pty Ltd as to 5% and C Pty Ltd as to 5%.
According to valuation evidence of Mr H exhibited by the wife to her affidavit dated 6 April 2023 made in support of this application, the value of D Pty Ltd was given as being between $49.5 million and $58.5 million. That was premised on future maintainable earnings of $9 million and the application of multiple ranges of 5.5 times to 6.5 times.
The wife has questioned an asserted allotment of 15% of the issued shares in the capital of D Pty Ltd to B Pty Ltd and C Pty Ltd, allegedly effected in July 2020. The consideration for that 15% interest was said to be $3 million. The wife has put in issue aspects of that share allotment, contending that an electronic version of her signature to the relevant instruments was affixed without her recollection or discussion. The wife also asserts that the funding of that acquisition of the 15% interest was made up of vendor finance provided by E Pty Ltd, with loans to be repaid from dividends otherwise payable to B Pty Ltd and C Pty Ltd. The wife also alleged that to date, B Pty Ltd and C Pty Ltd have made no payments in reduction of their loan indebtedness. She also alleged that D Pty Ltd made available the sum of $350,000 by way of a loan made under division 7A of the Income Tax Assessment Act 1936.
Chronologically, the husband and wife separated on 15 May 2021. The husband has re‑partnered. He lives in J Town, Queensland.
In 2022, the husband proposed the appointment of Mr Stamatis and Mr Rogers to the board of D Pty Ltd. He sought the wife’s consent. She refused.
The wife has highlighted a statement made by Mr Stamatis to the effect that he would divert work and revenue away from D Pty Ltd to an entity the business name of which is K Business. The precise significance of that communication was not easily divined.
RELEVANT EVENTS FROM JUNE 2022
According to the wife, the financial statements for the year ended 30 June 2022 for D Pty Ltd revealed increased revenue of $29,294,000 on the preceding financial year (about a 55% increase) and net profit of $7,175,000, compared to net profit of $2,485,000 for the financial year ended 30 June 2021.
Further, as the majority shareholder in D Pty Ltd, E Pty Ltd’s profit before distribution was a little over $3 million as at 30 June 2021, then over $8.5 million as at 30 June 2022.
In early April 2023, the wife deposed to being informed that the husband had received a previously undisclosed dividend of $3,750,000 paid into his personal bank account.
The real basis of the wife’s application before me relates to her apprehension that D Pty Ltd is in advanced negotiations for the acquisition of a target the effect of which would be to burden D Pty Ltd with substantial borrowings the consequence of which may be the diminution in value of E Pty Ltd’s shareholding in D Pty Ltd. The transaction has been described in the affidavit material by the somewhat peculiar name “F Project”. The details of the proposal were recorded in a letter dated 19 January 2023 from solicitors KCL Law then acting for D Pty Ltd. The salient aspects of the F Project proposal in that letter may be stated in précis form in the following way –
(a)the vendors and purchasers involved in the transaction had progressed negotiations to the point that the most advantageous approach for D Pty Ltd involved a hybrid pursuant to which D Pty Ltd would acquire the shares of the holding company being sold, and D Pty Ltd would also acquire the assets and undertaking of the operations company being sold;
(b)the hybrid proposal had the commercial effect of saving D Pty Ltd millions of dollars and it was more advantageous to D Pty Ltd for taxation purposes;
(c)two major banks had offered finance to fund the hybrid proposal described in the 19 January 2023 KCL letter as the “preferred transaction structure”;
(d)D Pty Ltd expected to receive offers of finance from two further major banks;
(e)each proposed lender was seeking security over the shares of the holding company being sold;
(f)each financier required what KCL called a “whitewash” involving the obtaining of D Pty Ltd’s shareholders’ approval for financial assistance for the purposes of s 260A of the Corporations Act;
(g)D Pty Ltd was taking a conservative approach in relation to s 260 of the Corporations Act, consistent with the observations of the High Court in Connective Services Pty Ltd v Slea Pty Ltd;[4]
(h)the four financiers have indicated each required D Pty Ltd to undertake a whitewash as a condition to financing the preferred transaction structure and so all D Pty Ltd shareholders needed to agree to the whitewash, without which the preferred transaction structure could not proceed;
(i)Mr Rogers and Mr Stamatis were key employees of D Pty Ltd, being the chief financial officer and chief executive officer respectively, and so it was in D Pty Ltd’s interests to retain them;
(j)the preferred transaction structure offered significant benefits over other acquisition structures; and
(k)KCL sought the wife’s approval to the whitewash.
[4] (2019) 267 CLR 461.
On 28 March 2023, the wife’s solicitors received an email from KCL about aspects of the structure of F Project. In précis form, that letter indicated that F Project would involve –
(a)a wholly debt-funded acquisition of assets of $25,000,000;
(b)D Pty Ltd’s indebtedness increasing from $3,264,000 as at 30 June 2022 to $4,600,000 as at May 2023, to $38,000,000; and
(c)D Pty Ltd’s financiers requiring principal repayments of $3,500,000 per annum plus interest on the increased level of indebtedness prior to any dividend being paid to shareholders.
A short time earlier on 17 March 2023, the solicitors for B Pty Ltd and C Pty Ltd wrote to the wife requiring her to consent to financial assistance being given under the Corporations Act and that if such consent was not provided, legal proceedings would be commenced against her.
On 6 April 2023, the wife filed an application in a proceeding to commence this litigation and served unsworn affidavit material seeking injunctive relief.
Then followed an application commenced in the Federal Court of Australia in which B Pty Ltd and C Pty Ltd sought orders against the wife, E Pty Ltd, D Pty Ltd and the husband, as well as interlocutory relief against the wife for having refused to consent to D Pty Ltd’s entry into F Project.
With commendable speed of despatch and exhibiting his Honour’s customary scholarly approach to the interlocutory application, in reasons handed down on 20 April 2023, the Honourable Justice Anderson dismissed the applications for interlocutory relief against the wife brought the day earlier by B Pty Ltd and C Pty Ltd.[5]
[5] B Pty Ltd v Hancock [2023] FCA 359.
The husband, Mr Stamatis, B Pty Ltd, Mr Rogers and C Pty Ltd have indicated that D Pty Ltd will proceed with F Project, although the method to be adopted now involves D Pty Ltd acquiring the assets of the target and of the related target entity but no consent of the wife is involved.
THE WIFE’S CONTENTIONS ON THE INJUNCTION TO PRESERVE THE STATUS QUO
Before addressing statutory, legal and equitable issues that fell for determination on this application, it is utile to record the manner in which counsel for the wife cast the wife’s applications.
In reliance upon the general power conferred by s 114(1)(e) of the Family Law Act, counsel for the wife invoked this court’s jurisdiction to grant such injunction as the court considers proper including “an injunction in relation to the property of a party to the marriage”. Paragraph (e) of the definition of “matrimonial cause” in s 4(1) of the Family Law Act provides that a matrimonial cause is a proceeding “between parties to the marriage for an order or injunction in circumstances arising out of the marital relationship”. The words “arising out of the marital relationship” have been held to have wide scope there being no need to demonstrate any close temporal connection between the marital relationship and the relevant circumstances. So much was held by the High Court in R v Dovey; ex parte Ross[6] and more recently in this court in Yadu v Orjit.[7]
[6] (1979) 141 CLR 526.
[7] (2022) 66 Fam LR 231.
It will be observed that the wife has not cast her injunction application as an assert preservation order. All respondents have, however. Instead, the wife seeks orders against the husband personally and in his capacity as a director of D Pty Ltd and as a director of and shareholder in E Pty Ltd. She seeks orders restraining him from exercising such control in E Pty Ltd and D Pty Ltd that causes disruption to the status quo that currently exists. She relies on R v Dovey; ex parte Ross[8] as well as the decision in In the Marriage of Aldred[9] for the proposition that s 114(1) of the Family Law Act confers power to restrain a party to a proceeding from exercising a controlling power in a company to affect or to dispose of that company’s assets. The power to “affect” seems to me to include the power to encumber.
[8] (1979) 141 CLR 526.
[9] (1984) 9 Fam LR 539.
Counsel for the wife stressed that the wife does not seek orders that affect the rights of third parties. However, they pointed out that even if it could be said that orders sought by the wife operated in such manner as to affect the rights of third parties, s 90AF of the Family Law Act is broad enough in its reach to enable me to make orders affecting third persons.
Orders having the effect of preserving the status quo pending the hearing and determination of a proceeding is a well-recognised basis for the grant of an injunction. The jurisdiction to make such orders is of several hundred years’ veneration in the equity jurisdiction. As this court is a superior court of record of law and equity, its power to invoke that equitable jurisdiction goes beyond the observations in Tsiang & Wu.[10] In any event, in this case no judgment has yet been obtained so the observations in Tsiang & Wu about frustrating a judgment need to be understood in context, as is canvassed below.
[10] [2019] FamCAFC 128.
Counsel for the wife submitted that an injunction to preserve the status quo pending the hearing and determination of the proceeding in order to prevent the frustration of the court’s processes is an acknowledged species of an interim and interlocutory injunction.[11] They argued that the court ordinarily undertakes an evaluative exercise to ascertain whether the evidence reveals that the order preserving the status quo is justified by reference to the risk posed. They contended that an order preserving the status quo is proper where the consequence of the risk eventuating is significant, citing M & DB.[12]
[11] Brayton & Brayton [2021] FedCFamC1F 337, In the Marriage of Waugh (2000) 27 Fam LR 63 and Deputy Commissioner of Taxation v Kliman (2002) 29 Fam LR 301.
[12] (2006) 36 Fam LR 454.
On that analysis of the authorities on which the wife placed reliance, her counsel developed submissions about the risks associated with an order not being made in the terms she sought. In support, the following matters were advanced –
(a)D Pty Ltd is highly successful with its forecast EBITDA for the 2023 financial year of $21,770,000;
(b)each of Mr H and Mr L, experts, consider that a multiple of 5.5 to 6.5 is appropriate when assessing the value of future maintainable profits;
(c)D Pty Ltd could be worth between $119,740,000 and $141,510,000;
(d)E Pty Ltd’s current 75% shareholding in D Pty Ltd is valued at between $89,810,000 and $106,130,000;
(e)the parties’ most valuable asset in this litigation is their shareholding in E Pty Ltd’s shares; and
(f)on the wife’s claim in this case, she may be entitled to a property alteration order corresponding to a payment to her of about fifty to fifty-five million dollars.
Counsel for the wife submitted that the wife does not want to retain the shares she owns in E Pty Ltd in her s 79 application and instead she seeks orders paying her the cash equivalent of the E Pty Ltd shares. The wife’s counsel submitted that F Project puts the wife’s application for orders at risk in two ways –
(a)the acquisition of the target puts the value of E Pty Ltd’s shareholding in D Pty Ltd at risk; and
(b)the acquisition involves D Pty Ltd incurring significant liabilities thereby affecting E Pty Ltd and consequentially affecting the husband’s ability to pay out the wife in the s 79 application.
Counsel for the wife developed their submissions about risk in reference to debt, dividends and the husband’s ability to settle the s 79 application. Those propositions may be summarised in the manner that follows –
(a)E Pty Ltd’s shares in D Pty Ltd are the most valuable asset in the litigation;
(b)D Pty Ltd has not acquired another company since its inception in 2002;
(c)F Project is a highly unusual step for D Pty Ltd and carries significant risks, especially the large liability that D Pty Ltd will assume;
(d)the risks in this merger and acquisition include overpaying the target, negotiation errors, excessive transaction costs, cultural issues impacting interrogation, interest rate risk, underestimating the complexity of the integrated two businesses and external market forces;
(e)D Pty Ltd will incur a wholly debt-funded acquisition of assets of $25,000,000;
(f)D Pty Ltd’s overdraft will increase from $4,600,000 to $10,000,000 it will undertake a liability in bank guarantees of $6,500,000;
(g)D Pty Ltd will incur liability for stamp duty, tax and road testing costs;
(h)D Pty Ltd will incur transaction costs; and
(i)if F Project proceeds, D Pty Ltd will increase its liabilities to $45,000,000 so as to acquire a $25,000,000 asset.
So far as F Project’s impact on dividends was concerned, the wife’s counsel advanced in comprehensive terms a collection of issues. They may be synthesised as follows –
(a)under the proposed debt facilities for F Project, constraints will be exerted on the payment of dividends including a prohibition on paying dividends greater than 50% of the net profit after tax and a prohibition on paying dividends unless D Pty Ltd first meets its repayment obligations under its borrowings;
(b)it is highly likely that prospectively, D Pty Ltd’s dividends payment regime will be different to its historical payment regime;
(c)if the acquisition is not as successful as anticipated, D Pty Ltd’s ability to pay dividends at previous levels may be compromised or eroded;
(d)the lender has the ability to review the debt facilities annually which may result in no dividends being paid at all; and
(e)if available loan facilities are drawn down, the annual repayments will exceed $6,000,000 per annum, having an impact on D Pty Ltd’s ability to pay dividends.
In addition, the wife submitted that she has no control over F Project. She also argued that Mr Stamatis, B Pty Ltd, Mr Rogers and C Pty Ltd have not acted in a manner demonstrative of an intent to preserve the value of E Pty Ltd or to protect the wife’s claims. Given that they owe the wife no duties in law, one wonders how that submission takes the debate anywhere. No authority was cited for the wife’s submissions in that regard.
So far as the wife’s assertion that the acquisition under F Project would substantially reduce the husband’s ability to settle the matrimonial dispute, counsel for the wife advanced two main propositions. They were –
(a)Hancock Family Trust would be in a far better position to borrow if F Project did not proceed; and
(b)the husband has previously asserted that the wife’s claims will be met, yet he has failed, refused or neglected to particularise any such capacity.
Based on those contentions, the wife submitted that an order should be made preserving the status quo of the parties’ financial position in this proceeding. She disputed that her application was in the nature of an asset preservation order and she contended that she was not required to discharge the evidentiary burden nor demonstrate the legal issues that must be demonstrated in making good an asset preservation order. That was a matter on which the parties joined issue on this application.
THE HUSBAND’S CONTENTIONS ON THE INJUNCTION SOUGHT BY THE WIFE
In detailed written submissions dated 14 May 2023, counsel for the husband posed the three issues for my determination in the following terms –
(a)whether the wife was entitled to the order she seeks preventing completion of F Project;
(b)whether the wife was entitled to the order she seeks preventing D Pty Ltd from entering into any transaction, other than in the ordinary course of F Project, resulting in an increase in D Pty Ltd’s total liability of more than $4.6 million; and
(c)whether the wife is entitled to the order she seeks preventing D Pty Ltd restricting its capacity to declare a dividend or lend money to E Pty Ltd or the husband.
The husband submitted that the wife was not entitled to any of those orders. They argued that in reliance of the observation in Cardile v LED Builders Pty Ltd,[13] the purpose of granting an asset preservation order is to prevent the frustration or inhibition of the court’s process by seeking to meet a danger that a prospective judgment of the court will be wholly or partially unsatisfied, but not to provide security in respect of a prospective judgment.
[13] (1999) 198 CLR 380 (at [42]).
They also argued that an asset preservation order is a “drastic” remedy.[14]
[14] Frigho v Culhaci [1998] NSWCA 88 and Skyworks v 32 Drummoyne Road [2017] NSWSC 343 (at [24]).
They contended that the making of such an order called for a “high degree of caution” before the order was made, relying on Cardile[15] and Parbery v Queensland Nickel Pty Ltd (In Liq).[16]
[15] (1999) 198 CLR 380.
[16] [2018] QSC 107 (at [41]).
They submitted that not every risk of a judgment being unsatisfied can justify the grant of an asset preservation order (because all business dealings involve a measure of risk) so in England and Wales in Holyoake v Candy,[17] and in Mobil Cerro Negro Ltd v Petroleos de Venezuela SA[18] it has been held that there must be a real risk, judged objectively, that a future judgment would not be met “because of unjustifiable dissipation of assets”. They emphasised the reference in the authorities to “unjustifiable” conduct submitting that Australian courts have adopted that approach in Palmer v Parbery,[19] Daniel Herridge v Electricity Networks Corporation (No 5)[20] and BluePoint Property Pty Ltd v Zuri Properties Pty Ltd.[21]
[17] [2018] Ch 297.
[18] [2008] 2 All ER (Comm) 1034.
[19] (2019) 136 ACSR 26 (at [54]-[56]).
[20] [2020] WASC 145.
[21] [2020] QSC 219.
Counsel for the husband addressed on the evidentiary standard to be discharged by an applicant for an asset preservation order. They contended that the state of authorities required an applicant in the shoes of the wife to prove facts from which a prudent, sensible commercial person can properly infer the existence of the relevant danger, citing Third Chandris Shipping Corporation v Unimarine SA,[22] and Hua Wang Bank Berhad v Deputy Commissioner of Taxation.[23] The relevant danger to be inferred in this case was the chance of a dissipation in value of D Pty Ltd shares and a decline in the dividends paid to beneficiaries of the Hancock Family Trust of which E Pty Ltd is trustee, they said.
[22] [1979] 2 All ER 972.
[23] (2010) 81 ATR 66.
Counsel for the husband focused on the essence of the F Project transaction, involving a sale of assets, not a sale of shares and assets, pursuant to which D Pty Ltd will acquire the assets and undertaking of an established business. They argued that if the wife succeeded in the restraints she seeks, F Project would be thwarted because –
(a)the husband would be enjoined from executing the transaction documentation (notwithstanding that he is D Pty Ltd’s sole director and that in his view this transaction is responsible and rational); and
(b)D Pty Ltd would be enjoined from borrowing funds to finance the proposed asset acquisition (notwithstanding that the expert Mr M opined in paragraph 22 of his report dated 13 May 2023 that debt-based funding does not carry significant risk).
The husband argued that the wife’s contentions concerning a risk of dissipation of assets was not borne out by the evidence. He advanced what he called five “flaws” in the wife’s contentions. They were as follows –
(a)first, the wife did not allege that the husband’s execution of documentation to give effect to F Project was “unjustifiable” and proof of the unjustifiable nature of his conduct was a necessary pre-requisite to the grant of an asset preservation order that the wife seeks;
(b)in that regard, the wife made no challenge to the bona fides of the transaction, nor did she say that the proposed transaction was improper or unorthodox, nor did she challenge the propriety of the proposed borrowings into which D Pty Ltd would become immersed, nor did the wife allege that F Project involved dishonesty, nor did she allege that the entry into F Project would involve any contraventions of the husband’s statutory and equitable duties as a director of D Pty Ltd;
(c)second, the wife was (so the husband said) seeking security for a prospective judgment, hence her claim to a payment of $30,000,000;
(d)in that regard, the authorities set out above have held that asset preservation orders are not granted so as to provide security for a claim;
(e)third, according to the adversarial expert Mr N, retained by the wife, it is impossible to assess the actual value impact of the proposed acquisition on the shareholding of D Pty Ltd;
(f)in that regard, the husband contended that Mr N’s expression of impossibility of assessing actual value impact represented the reality that the wife cannot prove the necessary risk of dissipation;
(g)fourth, the evidence of Mr N should be subjected to very careful scrutiny because he ignores the evidence adduced through other witnesses that the transaction into which D Pty Ltd will enter has the benefits of acquiring assets of $14 million in value or thereabouts, acquiring a business the major customers of which include substantial Australian commercial entities, and of the benefit of revenue forecast growth of over $138 million as at 30 June 2025;
(h)in that regard, the Mr N report proceeds on the basis that D Pty Ltd shareholders enjoy a right to payment of dividends, which they do not, and Mr N’s report relies on inferences he has drawn that may at trial well be found to be matters of speculation or conjecture[24] or that he expresses opinions not legitimately open in accordance with principles in Makita (Australia) Pty Ltd v Sprowles[25]and in Dasreef Pty Ltd v Hawchar;[26]
(i)fifth, the balance of convenience favours the husband in refusing the relief sought by the wife; and
(j)in that regard, the husband relied on the lack of evidence showing a real risk of judgment frustration, the absence of assertion by the wife about the proposed transaction arising out of any impropriety or bad faith, the adverse impact of the asset preservation orders on the interests of other parties, the breadth of the orders sought especially in the way they will capture dealings undertaken in the ordinary course of business,[27] and if the orders were made and it later transpires they ought not to have been made, the quantification of damages if the wife were attached on her undertaking would be seriously difficult.
[24] As to the permissible manner in which inferences may be drawn, paragraph 9 of Brayton & Brayton [2021] FedCFamC1F 337 included a useful although not exhaustive list of the key authorities on point.
[25] (2001) 52 NSWLR 705.
[26] (2011) 243 CLR 588.
[27] In Goodridge v Beadle (2017) 57 Fam LR 425 I examined at length the legal conception of “ordinary course of business”.
The husband’s counsel addressed the application made by the wife described as being alternative, namely, her application for the husband to pay $30,000,000 into a trust account. The husband opposed the making of any such order, contending –
(a)the husband does not have access to the $30,000,000 to make that payment, as he has deposed in paragraph 130 of his affidavit sworn 12 May 2023;
(b)the order sought is in reality a mandatory injunction and the court should refrain from making such an order in circumstances where the husband has already indicated he will be unable to meet the order as he cannot pay the amount sought;
(c)the making of an order requiring the husband to pay the wife $30,000,000 now will serve no purpose as the wife already holds substantial assets in the form of real property in Suburb O (valued at approximately $5 million) and in J Town (valued at approximately $2 million) and she does not need $30,000,000 to fund her living expenses; and
(d)the court should question the purpose for which the wife seeks that order.
LEGAL PRINCIPLES ON INJUNCTIONS
Counsel for the husband relied on the well-expounded test for the grant of an interlocutory injunction in Australian Broadcasting Corporation v O’Neill.[28] Most obviously, an applicant for the injunction must show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo pending trial and that the balance of convenience favours the grant of the injunction. In applications made in the exercise of a common law right or remedy, the first inquiry is often referred to as whether a serious issue to be tried is raised by the applicant. The most recent consideration at High Court level was the 2020 decision in Smethurst v Commissioner of the Australian Federal Police [29] although in Smethurst there was no disturbance of long-established principles espoused in O’Neill.
[28] (2006) 227 CLR 57.
[29] (2020) 272 CLR 177.
So far as the specific injunction found in an asset preservation order is concerned, the general matters set out in O’Neill apply yet to those is added the requirement for the applicant to show that unless restrained, the respondent will do something that brings about an unjustified dissipation of assets.[30]
[30] Parbery v Queensland Nickel Pty Ltd (In Liq) [2018] QSC 107.
Counsel for the husband challenged the evidence given by Mr N, contending that in many pertinent particulars, Mr N purported to express opinions in respect of which he was not qualified and thereby he fell foul of the rules of evidence relating to expert evidence in such cases as Makita,[31] Dasreef[32] and Honeysett v R.[33]
[31] (2001) 52 NSWLR 705.
[32] (2011) 243 CLR 588.
[33] (2014) 253 CLR 122.
It was put on behalf of the husband that the case the wife propounds for preservation of the status quo involves a high degree of conjecture and speculation. Paraphrased, those contentions of the wife were encapsulated in the following manner –
(a)completion of F Project will create an unacceptably high risk of D Pty Ltd suffering financial losses;
(b)any such losses will create an unacceptably high risk of the D Pty Ltd share price dropping in value; and
(c)those two issues increase the risk that any just and equitable property settlement to be achieved in this litigation would be frustrated.
Counsel for the husband focused on the manner in which the wife’s case depended on the acceptance of conflicting inferences. Counsel for the husband submitted that it is far from obvious that increases in borrowings lead to the conclusions that –
(a)F Project is improvidently and unacceptably a risky deal;
(b)D Pty Ltd’s financial position will decline or its business revenue will decline or its profitability will decline; and
(c)D Pty Ltd is unable to deliver substantial and increasing annual dividends or D Pty Ltd is unable to generate profits similar to the historical profits of D Pty Ltd.
Counsel for the husband submitted that an increase in D Pty Ltd’s borrowings may very well lead to an increase in D Pty Ltd’s financial position through the acquisition of valuable income-producing assets or through the acquisition of the vendor’s customers and goodwill.
They argued that where a particular factual scenario (here, an increase in D Pty Ltd’s borrowings) gives rise to conflicting inferences of equal degrees of probability, the choice between those conflicting inferences of equal degrees of probability is a mere matter of conjecture, as I held in Brayton & Brayton.[34]
[34] [2021] FedCFamC1F 337.
Counsel for the husband argued that I should reject for being highly speculative Mr N’s assertion of there being a “significant probability of the transaction failing”. They argued that Mr N failed to explain how he arrived at that conclusion. They also said the opinion that if the acquisition fails then the ability to meet dividends at previous levels may (repeat, “may”) be compromised or completely eroded was speculative, assertive, unsupported and not helpful. They put the following propositions in their written submissions –
There is nothing illegal, improper, invalid or dishonest about the feared conduct (or the completion of [F Project]). These are valid matters of everyday commerce. In other words, the feared conduct is not unjustifiable.
The husband focused on the fact that Mr N acknowledged that Mr N’s engagement was not a valuation engagement for the purposes of APES 225. They argued that in the absence of a share valuation of D Pty Ltd was unable to assess the impact of the proposed transaction and the debt-funding model on the D Pty Ltd shares. They argued that Mr N speculated by opining that the acquisition introduced uncertainty about significant compulsory outgoings and the opinion thereby conveyed by Mr N ignored the likely enhanced revenue that the transaction offered. They emphasised that D Pty Ltd members had no right to the payment of dividends because the D Pty Ltd board determines the D Pty Ltd dividend policy from time to time, and D Pty Ltd members have no right to a given amount by way of dividend sum. Counsel for the husband argued that the wife’s professed fears or concerns grounded in some apprehension of a loss of a right to dividends was illusory. Counsel for the husband submitted that the wife’s contentions that the proposed transaction is not in the best interests of E Pty Ltd was also illusory because she gave no content to the so-called best interests considerations.
The husband urged me to dismiss each application brought by the wife.
D PTY LTD’S SUBMISSIONS
Mr Robins KC appeared for D Pty Ltd in the contested applications before me. Mr Robins provided extremely useful written submissions which incorporated a significant amount of background factual material in respect of which no need exists to rehearse it given that much of it was common ground.
D Pty Ltd has been separately represented by One of His Majesty’s Counsel on 21 April 2023 (before Alstergren CJ), before me on 8 May 2023 and on the return of the contested application on 15 May 2023. Yet the wife has chosen not to join D Pty Ltd as an affected third party for the purposes of s 90AF(2) and s 90AF(3) of the Family Law Act.
Before descending to the detail of D Pty Ltd’s substantial resistance to the wife’s applications, it is necessary to record the contentions by Mr Robins that the wife is not a director of D Pty Ltd, she is a director of E Pty Ltd and that she makes no assertion that the proposed acquisitions in F Project are in any way uncommercial or undertaken by the husband as a director of D Pty Ltd in breach of his duties under s 180 of the Corporations Act or is any way contrary to the interests of D Pty Ltd as a whole.
D Pty Ltd relied on the evidence of an expert specialist in funding and capital raising, Mr P of Q Financial Services. Mr P made an affidavit on 12 May 2023 on behalf of D Pty Ltd. In that affidavit he recorded that four major Australian banks had offered to finance D Pty Ltd’s acquisition of the target under F Project. He said that the four major banks ordinarily become involved in transactions if those transactions have the strongest of credit profiles, they involve low risk of default based on reliable forecasting, if the transactions have low leverage and if they have strong underlying asset bases, together with solid management personnel. Mr P said it was particularly noteworthy that in this transaction there was an absence of any requirement for directors’ or shareholders’ guarantees. Mr P said that in his experience banks will not knowingly lend their clients into trouble. He stated in paragraph 16 of his affidavit that in this case, the fact that all major banks have offered to support this transaction with no director or shareholder guarantees, no share pledges and little by way of other covenants is a testament to its credit quality.
Mr Robins highlighted how the report of Mr M provided a well-reasoned and clear evidence-based opinion in which Mr M made two critically important observations. The first was at paragraph 21 of his report where Mr M stated that nothing in the information provided to him suggested that the proposed transaction of the debt-funded asset purchase of the target was not in the best interests of D Pty Ltd or its shareholder as a whole. The second was at paragraph 81 of his report where Mr M made an observation about the wife’s application to impose a $4,600,000 debt ceiling on D Pty Ltd, stating that it is not appropriate to impose an artificial or arbitrary debt or liability ceiling on any company.
Mr Robins KC contrasted the opinions expressed immediately above by Mr M with the opinions expressed by Mr N. In particular, Mr Robins KC on behalf of D Pty Ltd submitted as follows –
(a)Mr N conceded his engagement was not a valuation engagement;
(b)the Mr R 16 March 2020 piece on which Mr N placed reliance appeared to be little more than a “think periodical”, bereft of sophisticated, academic or industry status;
(c)Mr N’s reliance upon a theoretical risk of management salaries increasing is devoid of evidentiary support;
(d)Mr N’s opinion about the impact of F Project on E Pty Ltd shares was high level, generic and theoretical, devoid of any solid or likely risk, or of some objectively measurable danger sufficient to characterise F Project as “dissipation” warranting the drastic remedy sought by the wife;
(e)Mr N’s opinion about the impact that F Project’s 100% asset acquisition would have on the likely dividends to be paid to E Pty Ltd was also high level, generic and theoretical, devoid of consideration about ANZ-specific covenants and of any consideration of predicted overall increases in revenue streams, those projected revenue streams being assumptions he was requested to make;
(f)Mr N’s opinions about the financial risks to E Pty Ltd if the acquisition and merger proceeds were non-responsive to the question put, it was irrelevant, it was premised on information having no parallel to the facts of this case and, at best, it was characterised as “a frolic”; and
(g)Mr N’s opinion about the impact the F Project transaction may have on E Pty Ltd potentially raising between $20 and $40 million dollars in loan funding at some future date was generic and largely irrelevant, such opinion ignoring all likely effects on D Pty Ltd as a whole and indirectly, the value of E Pty Ltd’s shares in D Pty Ltd.
Mr Robins KC submitted that Mr N’s report spoke “more of advocacy than independent expertise” with the consequence that it deserves scant weight, if any.
So far as applicable legal principles bore on the determination of this application from D Pty Ltd’s perspective, Mr Robins advanced a collection of sophisticated submissions that called for careful narration. They were as follows –
(a)as was held in Jackson v Sterling Industries Ltd,[35] a party to civil litigation is not entitled to security for a monetary claim and an application for an asset freezing order is no general exception to that principle;
[35] (1987) 162 CLR 612, 617-618.
(b)an asset freezing order should only be made to prevent an abuse of the process of the court, as was held in Jackson v Sterling Industries Pty Ltd an asset freezing order does not create additional rights as it is neither a species of anticipatory execution nor does it give a form of security for any judgment that may be awarded;
(c)as was held in National Australia Bank Ltd v Bond Brewing Holdings Ltd[36] a party to civil litigation is not entitled to injunctive relief so as to create security for damages, citing Lister & Co v Stubbs;[37]
[36] [1991] 1 VR 386, 553-554.
[37] (1890) 45 Ch D 1.
(d)since Cardile v LED Builders Pty Ltd[38]courts have been instructed to exercise considerable caution before making an asset freezing order because such an order, if lightly made, has the capacity to impair or restrict commerce because of the difficulties associated with the quantification and recovery of damages pursuant to the undertaking if it turns out that the order should not have been granted in the first place, citing the observations of Aickin J in Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd;[39]
[38] (1998) 198 CLR 380.
[39] (1981) 146 CLR 249.
(e)the decision in PT Bayan Resources v BCBC Singapore Pty Ltd[40] is a recent restatement of principle, consonant with Jackson v Sterling Industries Pty Ltd; and
[40] (2015) 258 CLR 1.
(f)the Court of Appeal of the Supreme Court of Victoria recently restated the principles associated with an asset freezing order in Yuanda Vic Pty Ltd v Façade Designs Pty Ltd (No 2)[41] in nine propositions as follows –
[41] [2021] VSCA 85 (at [31]).
(1)The purpose of granting a freezing order is to prevent the frustration or inhibition of the Court’s process by seeking to meet a danger that a prospective judgment of the Court will be wholly or partly unsatisfied. Its purpose is not to provide security in respect of a prospective judgment or order.
(2)A freezing order is to be viewed as an extraordinary interim remedy. The order is a drastic remedy which calls for a high degree of caution on the part of the Court before an order is made.
(3)An applicant for a freezing order pending appeal will be required to establish that there is a good arguable case that the appeal will succeed. This means that it can be seen from the available material that the appeal has a real prospect of success.
(4)It must be shown that there is a reasonable possibility, not necessarily more than a 50 per cent chance, that assets may be disposed of or dealt with or diminished in value if an order is not made.
(5)In the case of an order against a third party, it must be shown that there is a danger that the prospective judgment will be wholly or partly unsatisfied as a result of the third party’s ability to exercise power in respect of the relevant assets, or that a court process may be available to the applicant as a result of a prospective judgment, under which the third party may be obliged to disgorge assets or contribute to satisfying the prospective judgment.
(6)The value of the assets covered by a freezing order should not exceed the likely maximum amount of the applicant’s claim, including interest and costs.
(7)As a condition of making a freezing order it will normally be appropriate to require the applicant to give undertakings to the Court, including the usual undertaking as to damages, supported if necessary by the provision of security.
(8)The order being discretionary, other considerations including the balance of convenience may bear upon the Court’s ultimate decision, but it is not a distinct requirement that the balance of convenience favours the making of the order.
(9)The inherent jurisdiction of the Court is preserved and r 37A.05 simply addresses the minimum requirements that ordinarily need to be satisfied in an application.
D Pty Ltd placed heavy reliance upon the observations of Lady Justice Gloster with whom Lord Justice Jackson agreed in Holyoake v Candy[42] in relation to the threshold that must be satisfied in connection with a freezing order. Their Lordships held as follows –
There must be a real risk, judged objectively, that a future judgment would not be met because of unjustifiable dissipation of assets.
[42] [2018] Ch 297.
Their Lordships stated that not every risk of a judgment being unsatisfied can justify freezing order relief and that solid evidence will be required.
Mr Robins KC cited a collection of authorities[43] in support of the proposition that a mere possibility of a party using a complex corporate structure or corporate reorganisation without more does not equate to a risk of dissipation.
[43] Les Ambassadeurs Club Ltd v Albluewi [2020] EWHC 1313 (QB), Palmer v Parbery (2019) 136 ACSR 26, Daniel Herridge v Electricity Networks Corporation (No 5) [2020] WASC 145.
He submitted that the focus must be on whether solid evidence exists concerning the risk of a potential dissipation of assets sufficient to frustrate the process of the court, and not merely the risk of unprofitable trading. Mr Robins KC submitted further that a serious question to be tried must be raised, the balance of convenience must be satisfied and an adequate undertaking as to damages must be provided, as to which my decision in Holder & Holder[44] stands as authority in this court.
[44] [2020] FamCA 347 (at [65]).
In the course of his submissions on s 114 of the Family Law Act, Mr Robins advanced a bundle of contentions concerning the making of orders that adversely affect a third party’s commercial enterprise such as those of D Pty Ltd. He submitted –
(a)an injunction may be ordered consistent with settled principles and where there is a clearly established necessity for it, subject to the balance of convenience, and where a third party is potentially affected or is directly affected by the proposed injunction, the further considerations set out in s 90AF may be considered;
(b)in Ascot Investments Pty Ltd v Harper,[45] a decision prior to the commencement of s 90AF of the Family Law Act, the High Court held that something almost in the nature of a sham was required before a third party would be enjoined under s 114, and Kennon v Spry[46] was supportive of that view;
(c)in considering whether to make an order under s 114 due weight must be given to the approach set out by the High Court in Jackson v Sterling Industries Pty Ltd, Cardile v LED Builders Pty Ltd and Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3),[47] as I held in Brayton & Brayton;[48]
(d)the intersection between ss 114 and 90AF of the Family Law Act was explained by Altobelli J in Shipman & Shipman;[49]
(e)in assessing the balance of convenience, the court looks to the lesser risk of injustice flowing if the order sought is made or refused;[50] and
(f)it is important to recognise that a distinction exists between injunctions that are interim, interlocutory and permanent, as was held in Yunghanns & Yunghanns.[51]
[45] (1981) 148 CLR 337.
[46] (2008) 238 CLR 366.
[47] (1998) 195 CLR 1 (at [28]).
[48] [2021] FedCFamC1F 337 (at [31]).
[49] (2022) 64 Fam LR 75 (at [19]).
[50] Bradto Pty Ltd v State of Victoria (2006) 15 VR 65 and Brayton & Brayton [2021] FedCFamC1F 337.
[51] (1994) 24 Fam LR 400.
Mr Robins KC developed helpful submissions concerning the relevance of commercial factors in considering whether to grant or to refuse an injunction application, especially in the context of an examination of the business judgment of company directors. The starting point, Mr Robins KC said, was the observations in Carlen v Drury[52] where Lord Eldon famously held that the court does not concern itself on every occasion in the management of “every playhouse and brewhouse in the Kingdom”. Naturally, those observations are best understood as being said against a backdrop in which the strictures of directors’ duties were not as burdensome as are those set out in s 180 and following of the Corporations Act. In 1968 the plurality of the High Court in Harlowe’s Nominees Pty Ltd v Woodside (Lakes Entrance) Oil Co NL[53] held that directors in whom are vested the right and duty of deciding where the company’s interests lie and how they are to be served may be concerned with a wide array of practical considerations in their judgment, if exercised in good faith and not for irrelevant purposes, is not open to review in the courts. The Privy Council in the United Kingdom held in Howard Smith Ltd v Ampol Petroleum Ltd[54] that no merit appeal lies to courts from management decisions nor will courts of law assume to act as a kind of supervisory board over decisions within the powers of management honestly arrived at.
[52] (1812) 35 ER 61.
[53] (1968) 121 CLR 483, 493.
[54] [1974] AC 821, 832.
The business judgment rule is now enshrined in s 180(2) of the Corporations Act.
D Pty Ltd submitted that a well established reluctance exists on the part of courts to lightly review the business judgment of directors or to substitute the court’s own judgment on the merits in the absence of statutory or legal requirements to do so. D Pty Ltd contended that it followed that I should hesitate to intrude into the complex and nuanced decision making by the husband in the absence of a solid factual foundation for so doing. Plus, so D Pty Ltd submitted, on the facts of the case, the decision in question was made after the receipt of considered input from D Pty Ltd, its CFO, its legal, financial and due diligence advisors and after D Pty Ltd obtained very favourable lending terms from major banks. Mr Robins further argued that D Pty Ltd’s decision to do as D Pty Ltd has decided to do should be unimpeachable in circumstances where the decision has been made on apparently sound commercial grounds and where there is no evidence of improper motive or sham or an uncommercial basis for the decision. Mr Robins argued that those factors serve to distinguish the facts of this case from those in Brayton & Brayton. Mr Robins argued further that the wife does not contend that F Project will involve a breach of directors’ duties or of shareholders’ covenants. If anything, so he said, Mr Stamatis and Mr Rogers had “very real skin in the game” and they supported the transaction. Mr Robins argued it was highly significant that no directors’ or shareholders’ guarantees were sought.
D Pty Ltd submitted that F Project had been the subject of independent due diligence reports by S Financial Services, as Mr P deposed, and from KCL, but it also obtained advice from Q Financial Services and while considering that no one can ever say that any commercial opportunity is free from all risk, D Pty Ltd submitted that it is artificial and naïve for the wife in this case to focus on the debt that will be created and the costs that will be incurred without paying due regard to the capital increasing and revenue realities thereby likely to flow from the acquisition of the target.
D Pty Ltd advanced a collection of submissions by way of conclusions on factual issues D Pty Ltd contend. Those may be synthesised in the manner that follows –
(a)the evidence on which the wife relies fails to establish any real risk of asset dissipation sufficient to amount to frustrating the process of the court;
(b)instead, the wife propounds an analysis of unwarranted debt in the implementation of F Project;
(c)if the orders sought by the wife are made D Pty Ltd will be deprived of the opportunity of acquiring the target under the F Project transaction which will seriously prejudice not only D Pty Ltd but also E Pty Ltd, B Pty Ltd and C Pty Ltd;
(d)the commercial rationale underpinning the wife’s approach is not only difficult to understand but also counterintuitive if not plainly erroneous;
(e)conversely, the commercial rationale advanced by the husband, Mr Stamatis, Mr Rogers and Mr P for the F Project acquisition is sound, revealing a strong bona fide commercial purpose in the F Project acquisition by reason of the material enhancement of D Pty Ltd’s business and consequent value of its shares;
(f)no allegation of sham or improper conduct is alleged by the wife;
(g)the mere fact of the existence of some risk in a large transaction such as F Project is not a sufficient basis for making the orders sought by the wife;
(h)the risk of dissipation asserted by the wife is a façade for what is in reality an application for security in respect of a money payment to her in the s 79 application; and
(i)the orders the wife seeks will stultify D Pty Ltd’s prospects of pursuing the acquisition of the target and her application to impose a debt cap of $4,600,000 on D Pty Ltd will likely throttle the commercial growth of D Pty Ltd.
In relation to the balance of convenience, Mr Robins KC advanced a collection of additional factors he said needed to be taken into account. Among them were the following –
(a)it is difficult to apprehend how the wife can be accepted in her assertion that the lesser risk of injustice lies in restraining D Pty Ltd from acquiring the target in F Project or in subjecting D Pty Ltd to an artificial debt ceiling of $4,600,000;
(b)the basis of the wife’s claim in her injunction application are contested;
(c)conversely, the prejudice to D Pty Ltd and to the minority shareholding of B Pty Ltd and C Pty Ltd is manifest if F Project is stopped by the injunction the wife seeks;
(d)D Pty Ltd will, if an injunction is ordered forbidding D Pty Ltd from entering into the F Project transaction, sacrifice immediately $440,000 in sunk costs paid in due diligence advice, KCLs fees, S Financial Services fees and sums due to Q Financial Services;
(e)further, if restrained as proposed by the wife, D Pty Ltd will lose the commercial opportunity offered by F Project to the detriment of D Pty Ltd but also to its shareholders, E Pty Ltd, B Pty Ltd and C Pty Ltd;
(f)the consequences to D Pty Ltd in being enjoined must be seen through the prism of the wife’s case being weak;
(g)the wife ignores the commercial benefits to D Pty Ltd of F Project;
(h)if D Pty Ltd loses the opportunity to participate in F Project and that opportunity instead goes to one of D Pty Ltd’s competitors, that creates a commercial risk to D Pty Ltd because the benefits of F Project will be enjoyed by D Pty Ltd’s competitor to the detriment of D Pty Ltd about which Cardile v LED Builders Pty Ltd expressed significance at paragraph 52 of the judgment;
(i)adverse consequences to third parties is a highly relevant consideration and none of D Pty Ltd, B Pty Ltd and C Pty Ltd have any involvement or interest in the s 79 application in this proceeding;
(j)if F Project is enjoined in the manner sought by the wife, the significant difficulty involved in quantifying the undertaking as to damages on which D Pty Ltd would seek to attach the wife is enlivened; and
(k)if the injunction as sought by the wife were to be granted, it would operate for all intents and purposes as a permanent injunction in circumstances where D Pty Ltd did not have an opportunity of cross-examining the wife, Mr N or any other witness in the wife’s camp so as to test the evidence each offered, highlighting the need for the court to exercise considerable caution before making the restraint sought, as was warned in Jackson and Cardile, along with subsequent authorities.
That last point underscored the overall thesis advanced by Mr Robins to the effect that the lesser risk of injustice balances very heavily in refusing the orders sought by the wife.
THE POSITION OF MR STAMATIS, B PTY LTD, MR ROGERS AND C PTY LTD
Each was a respondent to the wife’s application for interlocutory relief, yet none is a party to the proceeding now before me. Written submissions were prepared on behalf of the second to fifth respondents to the applications. Before me they were represented by Mr Archibald KC. In written submissions of those respondents it was put that the wife’s application –
(a)to restrain the husband from permitting E Pty Ltd or D Pty Ltd to proceed with the F Project transaction; and
(b)to restrain the husband from permitting D Pty Ltd to enter into any transaction other than in the ordinary course of business resulting in D Pty Ltd increasing its liability above $4,600,000 or appointing any further directors or from declaring dividends to the husband or to E Pty Ltd should all be refused.
That was because the wife’s application overreached into the affairs of D Pty Ltd, a third party involving the interests of Messrs Stamatis and Rogers as well as their stakeholders, so Mr Archibald contended.
Mr Archibald’s clients also resisted the wife’s applications because the wife’s applications would impose severe prejudice to D Pty Ltd by constraining it indefinitely from responding to commercial opportunities in a dynamic marketplace.
The second to fifth respondents further opposed the wife’s application because F Project is a conventional business development transaction for the benefit of D Pty Ltd and its shareholders as a whole supported by D Pty Ltd’s director, CFO and CEO, independent advisors as well as all major banks invited to fund it.
Further, Mr Archibald argued that no justification existed to immerse the factual dispute in the existing Federal Court litigation before Anderson J into this litigation.
Mr Archibald KC arranged his client’s written submissions into three parts, the first of which related to the wife’s injunction application. It is utile to distil those submissions in the following manner –
(a)the power conferred by s 114(3) of the Family Law Act to grant an injunction is exercisable in cases in which it appears to be just or convenient to do so;
(b)in the case of an injunction affecting a third party, s 90AF(3) of the Family Law Act provides that it must be reasonably necessary or reasonably appropriate and adapted to effect an alteration of property between the parties to the marriage;
(c)general law principles governing the grant of interlocutory injunctions are applicable to the exercise of jurisdiction to grant an injunction under the Family Law Act, as was held in Blueseas Investments Proprietary Limited & Mitchell;[55]
(d)according to well settled authority[56] the applicant for an interlocutory injunction must establish first, that in the claim for final relief a serious issue to be tried is raised in the sense that if the evidence remains as it is, there is a probability that at trial the applicant will be entitled to relief, then second, that if the injunction is not granted, the applicant will suffer irreparable harm for which damages will not be an adequate remedy, and third, that the balance of convenience favours the grant of the injunction;
(e)the purpose of an interlocutory injunction is to preserve the status quo until the hearing and determination of the main claims in the proceeding;[57]
(f)the applicant for the injunction bears the onus of demonstrating an objective risk or danger that the claim may be prejudiced unless the injunction is granted;[58]
(g)an injunction should impose no further restriction than is necessary to achieve the protection of the applicant’s interests;[59]
(h)an injunction is not to provide an applicant with security in advance of judgment;[60]
(i)the purpose of the power to grant an interlocutory injunction under the Family Law Act for the preservation of property pending final orders in a property settlement proceeding is the prevention of abuse or the frustration of the process of the court;[61] and
(j)a fundamental question is whether there is any evidence of a scheme by the husband to dispose of assets to defeat any judgment.
[55] (1999) 25 Fam LR 65 (at [56]).
[56] Castlemaine Tooheys Ltd v South Australia (1986) 161 CLR 148, 153, Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 and Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57.
[57] Jones v Pacaya Rubber and Produce Co Ltd [1911] 1 KB 455, 477 and Australian Broardcasting Corporation v Lenah Game Meats Pty Ltd (2001) 208 CLR 199 (at 233).
[58] Patton & Patton [2015] FamCA 1083 and Shipman & Shipman (2022) 64 Fam LR 75 (at [43]).
[59] In the Marriage of Sieling (1979) 4 Fam LR 713.
[60] Patton & Patton [2015] FamCA 1083.
[61] Brayton & Brayton [2021] FedCFamC1F 337, Deputy Commissioner of Taxation v Kliman (2002) 29 Fam LR 301 Jackson v Sterling Industries Ltd (1987) 162 CLR 612 and Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (No 3) (1998) 195 CLR 1.
Mr Archibald KC submitted that on the facts of this case, the wife’s injunction application should be refused for five key reasons. They were –
(a)no proper ground exists to characterise F Project or any other aspect of the operations of D Pty Ltd as a scheme for dissipation by the husband to defeat execution of orders for an alteration of interests in marital property;
(b)the wife has not established that unless the injunctions she seeks are ordered she will suffer irreparable harm for which damages are not an adequate remedy;
(c)it is not appropriate for an injunction to restrain a third party from using its own assets which are not the property of the marriage or of the husband;
(d)the balance of convenience weighs overwhelmingly against any injunctions being granted having regard to the inevitable consequences for D Pty Ltd and the inadequacy of an undertaking as to damages and according to Mr Rogers in paragraph 38 of his affidavit made 12 May 2023, there is a real likelihood that any injunction granted against D Pty Ltd could cause D Pty Ltd to fail; and
(e)finally the injunction orders go beyond what is necessary or appropriate to effect an alteration of property interests as between the parties to the marriage.
In developing the first of the propositions set out immediately above, Mr Archibald submitted that the proposed dealings by D Pty Ltd pursuant to F Project or more generally are not in any way a scheme or design to interfere with the s 79 application between the wife and the husband. Mr Archibald highlighted that no evidence existed of any intention to dissipate assets on the part of the husband or on the part of Messrs Stamatis and Rogers, or D Pty Ltd. Mr Archibald submitted that the wife instead seeks relief on the basis that the dealings by D Pty Ltd for the acquisition of assets may result in the value of E Pty Ltd’s shareholding in D Pty Ltd being affected. He further submitted that changes in the value of shareholding corresponds to the activity of the relevant company and are inherent in the nature of shareholding.
Further, Mr Archibald KC submitted that a possible risk of diminution in the value of E Pty Ltd’s shareholding in D Pty Ltd does not constitute a risk of dissipation of assets so as to legitimately attract the operation of the principles concerning asset preservation orders. He said that was because –
(a)the risk of dissipation must be real and not theoretical, as was held in Palmer v Parbery[62] and on the facts of this case, Mr M had concluded that there is nothing to suggest that the proposed transaction is not in the best interests of D Pty Ltd and its shareholders as a whole; and
(b)even if it could be said that a risk of asset dissipation existed, the F Project transaction is for an ordinary and good faith business purpose which is not unjustifiable.
[62] (2019) 136 ACSR 26 (at [119]).
Mr Archibald KC submitted that D Pty Ltd is a trading entity the officers of which, quite properly, are looking for opportunities to grow and expand its business. The wife has acknowledged that over the last three years, D Pty Ltd’s operations have expanded as to scope and volume thereby causing D Pty Ltd’s revenue and profitability to increase. Mr Archibald KC submitted that the proposed acquisition by D Pty Ltd of the target presents an opportunity for further growth and should not be hobbled.
In developing submissions about the second of the propositions for the refusal of the wife’s injunction applications, Mr Archibald advanced contentions to the effect that the wife had not adduced evidence that she had or is likely to suffer irreparable harm unless the restraining orders sought are made. He said the evidence revealed the wife’s personal apprehension of D Pty Ltd’s business dealings but from a perspective that was not adequately informed. Mr Archibald submitted that the wife’s focus is on proposed funding facilities without regard to the assets and future revenue to be acquired with such funding. It was submitted that the wife’s so-called apprehension relates to the management of the business, and that management issues are squarely within the responsibilities and expertise of the director (the husband) and officers (Messrs Stamatis and Rogers) from D Pty Ltd, which the wife conceded had enhanced the growth of D Pty Ltd considerably over the past three years as the wife deposed in paragraph 20 of her affidavit made in support of her restraint applications.
In developing submissions about the third of the five reasons for the refusal of the wife’s injunction application, Mr Archibald submitted that the effect of the orders sought by the wife was to impose orders on a third party by restraining D Pty Ltd’s business operations and its ability to proceed with the F Project transaction, and the High Court in Cardile v LED Builders Pty Ltd[63] held that it is a rare case in which an asset preservation order is made against a third party. Such an order may (repeat may) be made against a third party in circumstances where –
(a)the third party holds or is using a power of disposition over or in some possession of assets of the judgment debtor or potential judgment debtor; or
(b)some process ultimately enforceable by the courts is or may be available to the judgment creditor against that actual or potential judgment debtor pursuant to which the third party may be obliged to disgorge property to help satisfy the judgment against the judgment debtor.
[63] (1999) 198 CLR 380.
Mr Archibald KC submitted that neither of those two circumstances apply to the facts of this case. He said D Pty Ltd was and remains a third party with interests independent of those of the husband and wife as well as the shareholders of B Pty Ltd and C Pty Ltd. Mr Archibald said the property of D Pty Ltd is separate from the marital asset pool and the evidence showed that the assets of the marriage were held by Hancock Family Trust, the trustee of which was E Pty Ltd.
Mr Archibald KC relied on the observations of the High Court in Ascot Investments Pty Ltd v Harper[64] in relation to the interests of third parties. Relevantly for present purposes, the High Court held that the Family Court must take the property of a party to a marriage as it finds it and the court cannot ignore the interests of third parties. Mr Archibald submitted that D Pty Ltd is not a sham or a puppet entity, it is a separate corporation with independent shareholders and its director owes statutory duties to it plus, as Mr Rogers deposed at paragraph 31 of his affidavit exhibiting MRO1, a shareholders’ deed imposes obligations on each of D Pty Ltd’s shareholders.
[64] (1981) 148 CLR 337, 354.
Mr Archibald’s clients contended that the wife’s proposed restraints reach beyond the assets of the marriage and interfered in the business affairs of D Pty Ltd. They argued that the wife was impermissibly seeking to use the injunctive relief against the interests of D Pty Ltd, Mr Stamatis and Mr Rogers as a means of obtaining security for her claim against the husband to a portion of the family interests in D Pty Ltd prior to any order she may obtain in her favour in the s 79 proceeding.
In developing submissions about the fourth of the five propositions for refusing the wife’s application for restraining orders, Mr Archibald contended that the balance of convenience weighs against the grant of any injunction. His clients relied on the decision in Perrey v Mordiesel Co Pty Ltd [65] in which it was held that hardship to a third party must be taken into account when assessing the balance of convenience and here, the prejudice to D Pty Ltd and its shareholders by any restraint ordered as sought by the wife will be significant. Further, Mr Archibald argued that a court will not ordinarily restrain a respondent to an injunction application unless a substantial risk exists of dissipation of assets. Here, the proposed restraint enjoining D Pty Ltd from participating in F Project will have the effect of preventing D Pty Ltd from proceeding with a highly advantageous commercial acquisition that is supported by its directors, its executives, all shareholders, banks and advisers and which, if the restraint sought is ordered, will result in an immense amount of wasted costs. Another aspect of the restraint sought, if ordered, would prevent D Pty Ltd from any capital raising and from using its commercial trading facilities for an indefinite period of time thereby rendering D Pty Ltd unable to respond in a dynamic commercial environment. In circumstances where D Pty Ltd has 71 employees, 49 casual employees, and an average of 164 sub-contractors each week, D Pty Ltd is a substantial commercial enterprise with annual revenue in excess of $100 million. Any undertaking as to damages, it was said, may be valueless in view of the difficulties associated with any quantification of any loss. In Cardile, Mr Archibald submitted, the plurality warned against making a Mareva injunction where difficulties attended the quantification and recovery of damages if the wife were to be attached on her undertaking. Relying on the observations in Air Express Ltd v Ansett Transport Industries (Operations) Pty Ltd [66] where the complications associated with quantifying the loss if it turned out that the restraint was wrongly ordered was addressed, Mr Archibald submitted that the balance of convenience weighed heavily against the making of the orders sought by the wife.
[65] [1976] VR 569, 576.
[66] (1981) 146 CLR 249.
As the final reason why the second to fifth respondents to this application contended that the restraints sought by the wife should be refused, Mr Archibald KC submitted that the injunctions sought by the wife are not necessary in order to give effect to the s 79 application. He submitted that the power to grant an injunction that binds a third party is limited to what is necessary or appropriate to effect an alteration of property interests between the parties to the marriage, as s 90AF(3)(a) of the Family Law Act provides. Relying on Ascot Investments Pty Ltd v Harper,[67] it was argued by Mr Archibald that the court’s power to bind a third party should not be used to deprive a third party of its property rights simply to benefit one party to the marriage. It was argued that in considering a s 79 application, there is no need to restrain D Pty Ltd from pursuing a valuable opportunity.
[67] (1981) 148 CLR 337.
THE WIFE’S PROPOSITIONS IN REPLY
In the afternoon on the second day of this application, Mr Craig KC replied to the submissions of Mr Heath KC, Mr Robins KC and Mr Archibald KC. In the interests of confining these reasons to a reasonable length, I shall condense those reply points to the following –
(a)a s 79 order altering property interests of the wife and husband was almost a foregone conclusion thereby rendering it a sterile debate about whether a serious issue to be tried exists in this case;
(b)the real arena of debate lay in whether the balance of convenience favours the making of the restraint sought and the balance of convenience favoured the wife’s position, so counsel said;
(c)it was artificial to regard D Pty Ltd as a third party, having regard to the ownership and control of it;
(d)the authorities on which the respondents relied about asset preservations were properly confined to commercial courts rather than to this court;
(e)the wife had properly invoked the power to restrain the encumbering of assets for the purposes of s 114;
(f)authority directly binding me does not require the wife to prove the existence of an entitlement to an asset preservation order but rather, she is only required to prove that she is entitled to an order preserving the status quo;
(g)the undertaking as to damages will be met; and
(h)I should see the reality of the respondents’ positions to be those of persons whose common interests wish F Project to go ahead irrespective of the diminution in value of the major asset, D Pty Ltd.
CONSIDERATION OF ALL CONTENTIONS
The first issue – the status of D Pty Ltd
One of the most important matters that call for deep focus was whether D Pty Ltd is in fact and in law a “third party” for the purposes of the s 79 application. In my view D Pty Ltd is a third party. I say that for the following reasons –
(a)its 75% shareholder is E Pty Ltd, an entity owned and controlled equally by the husband and wife;
(b)its chief executive officer and chief financial officer are Messrs Stamatis and Rogers;
(c)its minority shareholders are B Pty Ltd and C Pty Ltd;
(d)E Pty Ltd, B Pty Ltd and C Pty Ltd are bound by the provisions of a shareholders’ deed that regulates the conduct of the shareholders thereby rendering unilateral conduct by E Pty Ltd or the husband tightly checked and highly circumscribed;
(e)the husband, as D Pty Ltd’s sole director owes duties under the Corporations Act to D Pty Ltd as a whole;
(f)a proceeding is presently before the Federal Court of Australia concerning, among other things, aspects of the conduct of D Pty Ltd;
(g)D Pty Ltd has been separately represented throughout the F Project negotiations at some considerable cost, a notion inimical to D Pty Ltd being the alter ego of the husband;
(h)it cannot be said that D Pty Ltd’s shareholding and arrangements of its officers is a sham or that Messrs Stamatis and Rogers serve D Pty Ltd as puppets for the husband;
(i)as employees of D Pty Ltd, Messrs Stamatis and Rogers owe fiduciary duties to D Pty Ltd;
(j)D Pty Ltd is a substantial trading entity which employs a large number of full and part‑time employees as well as subcontractors and has generated very significant revenue over recent years; and
(k)the wife makes no allegation about breach of s 180 of the Corporations Act against the husband.
Even recognising that on the return of this urgent interlocutory application it has not been possible to plumb the depths of the factual milieu in relation to the manner in which D Pty Ltd is operated as a separate legal entity, it is sufficient for present purposes to observe that I am not persuaded that D Pty Ltd is a puppet entity or the alter ego of the husband. Having regard to the financial accommodation that four banks are willing to offer D Pty Ltd, it is reasonably open for me to conclude that each lender is satisfied about the propriety and governance of the conduct of D Pty Ltd. Put differently, had any bank been concerned about governance issues and in particular that D Pty Ltd is a mere pawn or puppet of the husband, then any such concern could have and would have been disclosed before now and most likely cross-collateralised security would have been demanded by one or more of the prospective lenders. But that is not the case here.
It must not be overlooked that the minority shareholders in D Pty Ltd enjoy a collection of rights under the Corporations Act, remedies to prevent their oppression being chief among them. Those rights are exercisable in a court of competent jurisdiction. If, for example, E Pty Ltd as a majority shareholder purported to do some act that D Pty Ltd was to carry out through its director (the husband), E Pty Ltd and C Pty Ltd have rights that may be invoked to prevent their interests as minority shareholders from being oppressed. To my mind, that bolsters my conclusion that there is no substance in the wife’s contention that D Pty Ltd is the puppet of the husband.
Once it is recognised, as it must be, that D Pty Ltd is a third party on this injunction application, that is pivotal (although not decisive) of the determination of whether to make or to refuse the orders sought by the wife.
I take the view that the injunction sought by the wife restraining the husband from permitting D Pty Ltd to enter into any transaction other than in the ordinary course of business which results in D Pty Ltd increasing its liabilities above $4,600,000 is an order that affects a third party. So is the injunction that restrains the husband from permitting D Pty Ltd from appointing any further directors to D Pty Ltd or restricting D Pty Ltd’s capacity to declare a dividend or to lend money to the husband or to E Pty Ltd, likewise the application to restrain D Pty Ltd from entering into F Project.
In my view, cautionary observations in the authorities about granting injunctions that affect third parties are applicable to the facts of this case. I address them below.
THE NATURE OF THE RESTRAINTS SOUGHT
It was common ground that s 114(3) of the Family Law Act provides a statutory source of power for a justice of this court to grant an injunction in any case in which it appears to the court to be just or convenient to do so.
The debate between the parties focused on whether the orders sought by the wife were of a character that they were no more than injunctions that preserved the status quo pending the hearing and determination of this proceeding, or whether the orders sought by the wife were in fact and in law asset preservation orders in respect of which, pursuant to a particular line of authority, certain evidentiary and legal requirements needed to be satisfied.
Mr Craig KC for the wife submitted that in the family law jurisdiction, the authorities decided in commercial courts of the State Supreme Courts and in the equity divisions of State Supreme Courts about asset preservation orders should be read and applied with considerable caution. Conversely, Mr Heath KC, Mr Robins KC and Mr Archibald KC submitted that High Court authority binding on a trial judge like me makes plain a number of immutable pronouncements on what must be established in order to obtain an asset preservation order as well as the limitations on the making of orders and that, on the facts of this case, the wife had not made out her case for an asset preservation order.
Mr Craig placed considerable store in the 1984 decision of Nygh J in In the Marriage of Aldred.[68] At a factual level the wife drew support from that decision because Nygh J made an order preventing the husband from transferring assets within various companies. In expressing his Honour’s reasons, Nygh J referred to steps taken in the months prior to the injunction application during which the husband took steps to worsen the wife’s financial position. His Honour then posed the question whether sufficient evidence was before the Court to conclude that the husband would take further steps to worsen her position. His Honour held that each case required a consideration of fact and degree. But it could not be said that any test was prescribed about the circumstances of when a restraint should be ordered. That decision was one made in the very early years of the life of the Family Court when the metes and bounds of its jurisdiction were being probed. I drew very little from the decision in that case especially as it had a fundamentally different factual setting than the facts with which this case is concerned.
[68] (1984) 9 Fam LR 539.
Mr Craig KC also relied on the decision in Yunghanns & Yunghanns,[69] a decision handed down in 1999, 24 years ago. I have previously described the reasons in that case as scholarly yet it said little to assist the determination of the issues in this case.
[69] (1999) 24 Fam LR 400.
Mr Craig also relied on the decision in In the Marriage of Waugh[70] as supporting the notion that an order preserving property is validly made under s 114. That case was decided on at least one principal consideration, namely, that little detriment existed in granting the injunction. That could scarcely be further from the position in this case. The detriment to D Pty Ltd and the other respondents by the grant of the orders sought is fundamental in this case. In any event it is difficult to discern any particular ratio from that decision. In M & DB[71] the criticism that the magistrate failed to consider balance of convenience considerations is not relevant to this case because balance of convenience considerations featured very large in this case.
[70] (2000) 27 Fam LR 63.
[71] (2006) 36 Fam LR 454.
The 1984 decision of Aldred provided a statement of principle as at that date. It was to be contrasted with a 2019 decision in Tsiang & Wu[72] in which mainstream orthodoxy of reasoning in the grant of injunctions was recorded – and in the specific context of family law – putting paid to the wife’s argument that family law jurisprudence stands separate and apart from jurisprudence of common law courts and courts of equity in relation to the grant of injunctions. Importantly, in Tsiang & Wu, the Full Court of the Family Court followed and applied (it had no choice, according to Hill v Zuda Pty Ltd)[73] decisions of principle from the High Court in such cases as Australian Broadcasting Corporation v O’Neill,[74] Australian Broadcasting Corporation v Lenah Game Meats Pty Ltd,[75] Cardile v LED Builders Pty Ltd,[76] Blueseas Investments Pty Ltd & Mitchell,[77] Castlemaine Tooheys Ltd v South Australia,[78] Palmer v Parbery[79] and Patterson v BTR Engineering (Aust) Ltd,[80] on the circumstances in which an injunction may be ordered. To my way of thinking the court in Tsiang & Wu did no more than authority demanded. Put differently, the wife’s argument that the test to be applied in the hearing for determination of her injunction application was limited to that prescribed by Aldred, M & DB and Yunghanns was incorrect and instead, the test was as the High Court prescribed in the cases I surveyed in Brayton & Brayton. One may ask rhetorically – how could it be otherwise having regard to the doctrine of precedent and the related doctrine of stare decisis. Mr Robins KC made that point. In my view he was correct.
[72] [2019] FamCAFC 128.
[73] (2022) 96 ALJR 540.
[74] (2006) 227 CLR 57.
[75] (2001) 208 CLR 199.
[76] (1999) 198 CLR 380.
[77] (1999) 25 Fam LR 65.
[78] (1986) 161 CLR 148.
[79] (2019) 136 ACSR 26.
[80] (1989) 18 NSWLR 319.
In Tsiang & Wu, the court specifically addressed the High Court’s observations in Cardile v LED Builders Pty Ltd. At no stage in the court’s reasoning did it hold that the High Court’s reasoning in Cardile was not appropriate for the Family Court. That was unsurprising.
While I accept that at intermediate appellant level in this court, there has not as yet been judicial pronouncements approving the decisions Holyoake v Candy,[81] Mobil Cerro Negro Ltd v Petroleos de Venezuela SA[82] or Daniel Herridge v Electricity Networks Corporation (No 5),[83] yet it seems to me those authorities do no more than apply the learning adumbrated in Cardile and Parbery that has the endorsement of the intermediate court of this court in Tsiang & Wu.
[81] [2018] Ch 297.
[82] [2008] 2 All ER (Comm) 1034.
[83] [2020] WASC 145.
Accordingly, the test I must apply is as prescribed by the court in Parbery v Queensland Nickel Pty Ltd (In Liq),[84] itself a subtle qualification of the test in Cardile v LED Builders Pty Ltd. Accordingly, the wife was required to show, by evidence and not mere assertion, that there is a real risk of danger of unjustified dissipation of assets such as to render any judgment wholly or partially ineffective.
[84] [2018] QSC 107.
Of course this case involves a s 79 application, not a claim in which a party obtains a judgment on a pleaded cause of action. Ordinarily, on a s 79 application the upshot is an order that, according to well-established principles, the alteration of property interests are just and equitable. It does not lead to a “judgment debt” as might a breach of contract claim in a common law court.
It should also be kept in mind that as recently as July 2022 in Pejic & Pejic (No 2),[85] an interlocutory injunction was refused, largely in reliance upon authorities that are squarely raised in this application.
[85] [2022] FedCFamC1F 513.
The wife’s counsel asserted with some force that she had demonstrated the existence of a serious issue to be tried. Mr Craig KC contended that the wife’s claim for orders under s 79 was assured and that in all likelihood she would ultimately obtain orders adjusting property interests in her favour as to 55% of the value of the divisible asset pool. No respondent seriously challenged the wife’s assertions that it is likely that it will subsequently be found to be just and equitable to make orders in accordance with s 79 of the Family Law Act in accordance with principles espoused in Stanford v Stanford.[86]
[86] (2012) 247 CLR 108.
An asset preservation order application is not confined to cases involving a risk that the person to be enjoined might spirit assets out of the court’s jurisdiction. An asset preservation order may be made where evidence exists that the person to be enjoined proposes to deal with assets in some fashion that the applicant for relief, if he, she or it succeeds, will not have his, her or its judgment satisfied. That was the rule stated by Gleeson CJ in Patterson v BTR Engineering (Aust) Ltd[87] as well as in Skyworks v 32 Drummoyne Road,[88] both of which authorities were applied by the Full Court of (what was then) the Family Court in Tsiang & Wu. Plus, the Full Court in Tsiang & Wu embraced and applied the observations of the Court of Appeal of the Supreme Court of Queensland in Palmer v Parbery.[89]
[87] (1989) 18 NSWLR 319.
[88] [2017] NSWSC 343.
[89] (2019) 136 ACSR 26.
It cannot therefore be said that the asset preservation order principles are unknown to family law nor that they are the exclusive preserve of cases in common law state commercial courts of the equity division of a Supreme Court.
It must not be overlooked that by operation of s 9 of the Federal Circuit and Family Court of Australia Act 2021 this court (Division 1) is a court of law and equity. Precisely why it was put that equitable principles associated with the grant of asset preservation were inapplicable to this court’s jurisdiction was not fully explained. I have trouble accepting that proposition.
Once it is accepted, as it must be, that the asset preservation order is a well-recognised injunction in family law jurisprudence, it follows that the learning about the evidentiary requirements of the grant or refusal of such an order follow axiomatically. For that matter, in Tsiang & Wu the decision in Palmer v Parbery was specifically adopted including McMurdo JA’s formulation of risk. To my way of thinking that adoption included the requirement for the applicant for an asset preservation order to demonstrate that there is a real danger of unjustifiable dissipation of assets, such as to render the judgment wholly or partially ineffective. That “real risk” must be shown by solid evidence and not by speculation, supposition, fear, surmise or conjecture.
Is there such solid evidence of real danger of unjustifiable dissipation of assets in this case?
In my view the answer is in the negative.
I take the view that D Pty Ltd’s participation in F Project is a rational commercial endeavour which D Pty Ltd is legitimately entering. A creditable body of expert evidence exists to support the validity and commercial wisdom of entering into F Project. Four major banks are willing to advance significant sums in support of the project.
True, a body of evidence exists, advocated mainly by Mr N, in which an array of criticisms and risks about D Pty Ltd’s entry in F Project are expressed. The respondents have expressed a variety of their own criticisms about the evidentiary providence of Mr N’s evidence, arguing that it amounts to little more than speculation and that in some respects Mr N lacks the qualifications to give the evidence he purports to give. On an urgent interlocutory application of this sort, I am unwilling to rule on the admissibility of such evidence, preferring instead to assess it by reference to the weight I place on it. Even accepting the criticisms Mr N has expressed about the commercial wisdom of D Pty Ltd’s entry into F Project, the facts remain that –
(a)major institutional lenders are willing to lend on this proposal without calling for onerous security;
(b)independent due diligence advisers have not expressed the view that D Pty Ltd should not enter into F Project;
(c)commercially, an opportunity is presented by F Project of which D Pty Ltd’s director and executive approve;
(d)the wife has not sued the husband for breach of fiduciary duty in relation to F Project;
(e)Mr M has not, in unqualified terms, condemned D Pty Ltd’s proposed entry into F Project;
(f)pursuant to the project, D Pty Ltd stands to acquire the business and undertaking of a competitor thereby enhancing D Pty Ltd’s position in the market;
(g)revenue streams to D Pty Ltd upon entry into the project are likely to be favourable; and
(h)any diminution in benefits to shareholders of D Pty Ltd (especially E Pty Ltd) once D Pty Ltd enters into F Project is far from a proven likelihood or even less a possibility.
In those circumstances I am unable to conclude by application of the test in Palmer v Parbery as adapted in Tsiang & Wu that a “real danger” exists of asset dissipation. Once the adjectival reference from Palmer v Parbery is added of “unjustifiable dissipation”, then the wife has failed to prove the requisite precursors to the grant of the order she seeks. In other words, I am not persuaded to the requisite degree that a real danger exists of unjustifiable asset dissipation such as to render any s 79 order wholly or partially ineffective.
Further considerations call for examination.
Section 180(2) of the Corporations Act cautions against a court intruding into the business judgment of directors of companies. In a transaction of the magnitude, complexity and commercially nuanced circumstances as F Project which has full support of mainstream commercial lenders, as well as extremely savvy advisers, it would be unwise of me to insinuate my opinion on matters of commerce ahead of those whose expertise lie in complex financial and commercial issues. Mr Robins KC asked me to rely on the evidence of Mr P in that regard. I accept that Mr P is well qualified in highly complex funding and capital raising transactions. He could have, but failed to, express a negative view about the prudence of D Pty Ltd entering into F Project. Similarly, Mr M has said there is nothing in the information provided to him that suggests that the transaction the wife seeks to restrain is not in the best interests of D Pty Ltd and its shareholders as a whole.
The preponderance of the evidence from persons having specialist expertise in assessing a transaction, such as the one embedded in F Project, is to the effect that it is sound. Mr N takes the opposite view. When Mr N’s report is scrutinised closely with a view to ascertaining why he concludes as he does, I was not persuaded that his opinions in support of the restraints proposed by the wife are maintainable, nor that they adequately underpin the drastic remedy of the asset preservation orders the wife seeks.
Then there is the interference with D Pty Ltd’s business the orders sought by the wife will orchestrate. If the orders sought are granted, D Pty Ltd will not be permitted to enter into F Project. That will deny D Pty Ltd the opportunity of participating in a venture that may produce valuable benefits to D Pty Ltd. Of course it cannot be said that as a matter of certainty F Project will derive the projected returns that are forecast. However, credible evidence indicates that those forecasted returns are likely to be achieved. It seems to me D Pty Ltd is entitled to proceed on the basis that the predicted returns are achievable, in which case those returns will be advantageous to D Pty Ltd.
It is well established that the courts will not assume some kind of supervisory function over board decisions made honestly (Howard Smith Ltd v Ampol Petroleum Ltd).[90] The wife is, in reality, seeking to invite me to second guess a decision made by D Pty Ltd’s management and supported by D Pty Ltd’s financiers, contrary to the statement that the court should not do that as was held in Howard Smith Ltd v Ampol Petroleum Ltd.
[90] [1974] AC 821, 832.
Mr Archibald KC submitted that it is not appropriate for a court to enjoin an entity like D Pty Ltd from using its own assets for the conduct of its own business and where those third party assets are not the property of the marriage or of the husband. In my view there is considerable merit in that contention. Aside from the fact that an asset preservation order is an order that should not be granted lightly, such an order can wreak havoc in the business of the party enjoined, as was pointed out in Cardile v LED Builders Pty Ltd. Mr Archibald submitted that the two criteria mentioned in Cardile at paragraph 57 of the plurality’s reasons do not apply here. Those are the factors that may influence a court to grant an asset preservation order against a third party, assuming the existence of other relevant criteria, namely –
(a)where the third party holds a power of disposition over assets of the judgment debtor; or
(b)where some process may be available to the judgment creditor by which a third party may be liable to disgorge property to help satisfy the judgment creditor.
Neither of those elements are present because D Pty Ltd does not possess the assets of the husband and D Pty Ltd could not disgorge its property to the husband to enable the husband to meet orders under s 79. I agree with Mr Archibald’s submission that the orders sought by the wife reach beyond the assets of the marriage and they interfere with the business of D Pty Ltd.
THE BALANCE OF CONVENIENCE
In my view, the most compelling reason why the restraints sought by the wife must be refused is that the balance of convenience does not tip in favour the wife. Applying the test prescribed by the Court of Appeal of the Supreme Court of Victoria in Bradto, the lesser risk of injustice likely to flow is where the orders sought by the wife are refused. I take the view that the hardship that the orders sought would cause to D Pty Ltd strike at the heart of D Pty Ltd’s ability to continue to compete in its industry. If D Pty Ltd is restrained from acquiring the target, D Pty Ltd will be denied the opportunity of proceeding with an advantageous commercial acquisition. If the other restraint is ordered, D Pty Ltd will be prevented from capital raising until trial. Conversely, if the restraints sought by the wife are refused, I am unable to see that irreparable harm will be caused to the wife in a s 79 application. If the restraints she seeks are refused, then D Pty Ltd proceeds to acquire the target and D Pty Ltd assumes the burden of various debt funding arrangements. But it must not be overlooked that the increased indebtedness that D Pty Ltd assumes will generate an enhanced revenue stream. The wife has sought orders described as being drastic. I do not consider she has made out her case for the making of those orders. The balance of convenience favours refusing the orders.
UNDERTAKING
While the wife freely offered an undertaking as to damages, I entertained a very real hesitation that if called upon to make good that undertaking damages could be quantified and then paid so as to restore D Pty Ltd to the position it would have been in had no restraints been ordered. In Cardile v LED Builders Pty Ltd, the plurality cautioned against the making of a Mareva injunction where there may be difficulties associated with the quantification and recovery of the damages pursuant to it. The kinds of difficulties encountered in any such quantification of damages were mentioned in Air Express v Ansett Transport Industries (Operations) Pty Ltd.[91] As Mr Archibald KC submitted it would be near impossible to quantify those damages if the wife successfully enjoined D Pty Ltd from participating in F Project. Further, no evidence exists that the wife could meet any such damages, even if they could be assessed. Having regard to the importance of the giving of an undertaking as to damages, as the price for the injunction, complications with the wife giving a valid and enforceable undertaking in this case tells against the grant of the orders she seeks. [92]
[91] (1981) 146 CLR 249.
[92] National Australia Bank Ltd v Bond Brewing Holdings Ltd [1991] 1 VR 386.
THE APPLICATION FOR PAYMENT OF $30,000,000
The wife sought an amount of $30,000,000. It was said by Mr Craig KC to be a commercial accommodation that would significantly ameliorate or mitigate the risk of the wife’s claim being substantially denuded by the risk the F Project transaction presented.[93]
[93] Transcript 15 May 2023 T 50.
On behalf of the husband, Mr Heath KC submitted that, if ordered, the provision of $30,000,000 to the wife now, in advance of the trial, conferred upon the wife a security fund.[94] Mr Heath said Cardile forbids the making of an order in those terms.
[94] Transcript 15 May 2023 T 51.
The sum of $30,000,000 was not sought as a part property order. It was sought precisely as King’s Counsel for the wife stated it, namely, as an amount to ameliorate or mitigate against the risk of the wife’s claim being denuded if F Project were entered into. Cardile in the High Court has held that a payment of the sort requested by the wife in the sum of $30,000,000 which would take effect as a security fund should not be ordered.
I take the view that the statement of principle in Cardile binds me and prevents an order being made in the manner sought by the wife for the payment to her of $30,000,000. Such a sum, if paid, would impermissibly operate as a security fund. The High Court has held that a payment with that consequence should not be ordered.
In those circumstances I refuse to make the order for the provision to the wife of the sum of $30,000,000.
Paragraphs 3, 4, 5, 6 and 7 of the wife’s amended application in a proceeding filed 5 May 2023 are dismissed.
OTHER MATTERS
In debate with the parties I decided to fix the trial as proceeding on 5 September 2023. A number of other applications need to be addressed in the intervening period. I will hear the parties on those matters. Further directions hearing is set for 21 July 2023.
FORMAL PRONOUNCEMENTS
I dismiss the application in the wife’s amended application in a proceeding in paragraphs relating to the restraints concerning D Pty Ltd entering into F Project, restraint about the $4,600,000 capital raising ceiling and the order compelling payment to the wife of $30,000,000.
The proceeding will next be before me for directions in late July 2023.
COSTS
In the family law jurisdiction, orders for costs that follow the event are not conventionally made, by reason of the provisions of s 117 of the Family Law Act. In making a costs order that departs from the more usual circumstances that each person bears his, her or its own costs, the court is required by s 117(2A) to make an order under s 117(2) only if one of the circumstances in s 117(2A) presents itself. Yet only one must be shown as was held in Fitzgerald v Fish.[95] Here, the wife failed in her restraint applications. Yet debate about costs is likely to involve many searching considerations that go beyond merely the wife’s failure on her principal applications. In those circumstances I will defer any question of costs until submissions.
[95] (2005) 33 Fam LR 123.
THE MAJOR COMPLEX FINANCIAL PROCEEDINGS LIST
As is evident from the foregoing, counsel for the wife forcefully submitted, albeit politely, that Division 1 of this court is not equivalent to a common law court despatching commercial cases nor does it equate to an equity list court. Some aspects of that submission are correct while others are not. Since the inauguration of the Major Complex Financial Proceedings List, (“MCFPL”) of Division 1 of this court, cases having a commercial aspect where the amount in issue exceeds $20 million or in which complex questions of equity, commercial or business-related issues are dealt with in that list. MCFPL judges have expertise in commercial and equity cases, as well as in family law more generally. The work of the MCFPL more closely resembles the work of the Financial Remedies Court of the Family Division of the High Court of Justice of England and Wales, in which Sir Robert Peel presides under the overall supervision of Sir Andrew McFarlane.
Key to the success of the MCFPL has been the speed at which cases in the list are heard and determined in interlocutory applications and in trials.
In this case, while the wife was ultimately unsuccessful in her interlocutory application for a restraint, she achieved an urgent hearing of that application, as well as an urgent trial in September 2023. It is unlikely that common law courts or equity lists of state courts can claim that speed of despatch of business, thereby benefiting the litigants before them.
I certify that the preceding one hundred and fifty-two numbered paragraphs are a true copy of the ex tempore reasons for judgment of the Honourable Justice Wilson. Associate:
Dated: 23 May 2023
SCHEDULE OF PARTIES
MLC 9456 of 2021 Respondents
Fourth Respondent:
MR ROGERS
Fifth Respondent:
C PTY LTD
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