Hattton and Hatton

[2008] FamCA 499

FAMILY COURT OF AUSTRALIA

HATTON & HATTON (NO. 2) [2008] FamCA 499

FAMILY LAW – PROPERTY – Mandatory injunctions - transfer of realty – sale of property – vacate premises – withdrawal of caveats

Family Law Act 1975 (Cth)

APPLICANT: MR HATTON

RESPONDENT: MS HATTON

FILE NUMBER: SYF 2657 of 2004

DATE DELIVERED: 30 June 2008

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Loughnan JR

HEARING DATE: 30 June 2008

REPRESENTATION

COUNSEL FOR THE APPLICANT:

SOLICITOR FOR THE APPLICANT: Karras Partners Lawyers

COUNSEL FOR THE RESPONDENT:

SOLICITOR FOR THE RESPONDENT: Adrian Twigg & Company

Orders

1. Orders are made in terms of paragraphs 1, 2 and 3, as set out hereunder, of the orders sought in the Practice Direction document on behalf of the husband handed up today and marked Exhibit 1:

“1.That the Wife forthwith transfer to the Husband or as he directs, the property situate at and known as [M property], being certificate of title reference […] subject to the existing encumbrance.

2.That the Husband do all acts and things necessary to sell the property situate at and known as [M property] forthwith on the following terms and conditions namely:

2.1That the Husband do all acts and things necessary within seven (7) days from the date hereof, to instruct a solicitor or licensed conveyancer by agreement to prepare a contract and act for the sale on the said property.

2.2That the Husband list the property with an agent for sale, within seven (7) days that date hereof in the absence of agreement as to which agent that the agent be an agent nominated by the President of the Real Estate Institute of New South Wales.

2.3That the Wife vacate the said premises within 7 days from this date, leaving the premises in good order and condition having regard to its present state and condition.

2.4That the property be listed for sale by auction with an auction date within five (5) weeks of the date of these orders (or such other date as the parties may agree in writing) at a reserve price of $4 million.

2.5That the Husband then submit the said property for such auction and in such terms and conditions as the parties agree or in the absence of such terms and conditions on such terms and conditions as the auctioneer shall determine.

2.6That the time for completion of any sale in the absence of other agreement between the parties be six weeks for the date of the auction or exchange of contracts.

2.7That upon the completion of the sale the Husband do all such directions and do such acts and things as are necessary to cause the proceeds of sale to be distributed as follows:

2.7.1 to pay out agents fees, legal fees and other proper selling charges on the sale;

2.7.2  in payment out of any mortgages or borrowings secured against the property which are required to be paid out on sale by the mortgagee.

3.That the Wife forthwith provide withdrawals of caveats as follows to the Husband or his solicitors, Fraser Clancy:

3.1Withdrawal of Caveat […] over […], […], […], […], and […].”

1. That the solicitor for the husband provide to the solicitor for the wife as soon as practicable a copy of any Notice to Complete or Settlement of Claim intended to cause the settlement of a sale between the husband and AB Company in relation to service businesses.

1. That Orders 1, 2 and 3 lapse in the event that no Notice to Complete or Statement of Claim of that type issues by the husband by 4:00 pm on Friday, 10 July 2008.

1. That a signed Memorandum of Transfer and a signed Withdrawal of Caveats provided by the wife pursuant to these orders be held by the husband’s solicitor and not be released to the husband or anybody on his behalf for a period of ten (10) days for any purpose other than the settlement of the said sale.

1. That the wife vacate the M property within twenty-one (21) days from today’s date or within such other time as the parties may agree in writing.

1. Leave to either party to restore the proceedings to the list on giving 24 hours’ notice to the Court and to the other party.

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

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYF2657 of 2004

MR HATTON

Applicant

And

MS HATTON

Respondent

REASONS FOR JUDGMENT

1. This application comes in the context of proceedings under s 79A in relation to orders that were made, I think by agreement, on 31 July 2007 between two parties. 

2. The husband and wife are 41 and 43 years of age respectively.

3. They have lived together from January 2000, were married in May 2000 and they separated in either December 2005 or January 2006.  There are two children; a son J, 7 and a son L, 5.

4. The sequence of events started with orders made on 31 July 2007 for a property settlement.  As I understand it, those orders provided for the wife to receive a payment and to transfer a property at M to the husband. In August 2007 the husband purchased a service business at N.

5. The wife's application under section 79A was filed on 10 September 2007.

6. On 13 December 2007 there was an exchange of contracts between the husband and an entity called AB Company for the sale to AB Company of five service businesses at P, V, N, R and the I Company for about $9 million.  The settlement to be on 13 March 2008.

7. One of the terms of the agreement was that the husband obtain development approval for two of the businesses.  The approval was refused in January but an appeal was filed and expedited. 

8. The agreement was confirmed as still on foot by AB Company in February 2008.

9. Then, also in about February 2008, as is described in the case outline document lodged on behalf of the husband, AB Company had a rather notorious crisis in relation to funding.  I think there might have even been a trading halt on the shares of that company.

10. The development appeal was refused on 16 May 2008 but the husband and AB Company came to a renewed agreement involving a reduced price. It seems that the new agreement provided for a reduction of about $750,000 from the $9 million consideration. I am told that in relation to two of the businesses there was a revision of value downwards.  There was also a revision downwards of the rental for two properties. I do not know whether all that adds up to $750,000 but it does not matter much.

11. AB Company said that the settlement could proceed on 13 June 2008 provided the principal of that organisation approved the arrangements.  On the same day the husband communicated to the wife’s solicitors, his agreement to the setting aside of the orders pursuant to s 79A orders.  Apparently there is an interesting dispute between the parties as to whether there is a difference between what the wife has sought under section 79A and the setting aside of the orders. I do not think it matters much for the purposes of today what that means.

12. I can grant an injunction in aid of an application for substantive relief, including an application in respect of which there is a dispute about jurisdiction. In the context of proceedings under section 79A the parties now appear to be in conflict about whether the original orders should be set aside or varied. I have jurisdiction to, among other things, preserve assets for the purposes of those proceedings.

13. On 3 June 2008 AB Company wrote to the solicitor who is acting for the husband in his commercial transactions, agreeing with the terms of the revised sale agreement but stipulating that the husband needed to be ready, willing and able to complete settlement on 30 June 2008 and asserting that if he is able to do that then AB Company is not able to rescind the agreement.  The principal of AB Company approved the new agreement on Friday 27 June 2008.

14. Mr Fraser, who is the husband's commercial solicitor, says that in late 2005 the husband and others entered into two investments; a property development scheme in Queensland and a maintenance business. He says that both of those investments failed.  Bank West is the financier for the service business enterprise.  It was also the financier, I gather, for the property enterprise and following the failure of that enterprise it required the husband to rationalise his properties. As at July 2007 the properties were sold leaving a significant shortfall.  The maintenance company went into liquidation.

15. The husband was required by the bank to refinance.  Notwithstanding that there was an agreement from December last year for the husband to sell five service businesses to AB Company, in January 2008 the bank called in the debt and said that if it was not paid out within 21 days then it would enter and take its security.

16. The husband seeks orders whereby the property at M which was occupied by the wife, and which I am told on behalf of the husband, is now vacant, be transferred to him. He seeks that he be required to sell the property on certain terms and that the wife provide withdrawals of caveats on a number of properties.  His case is that those two things are conditions precedent to him being ready willing and able to complete the agreement with AB Company, whether as conditions of an agreement with AB Company or Suncorp, the proposed new financier.

17. The husband says through his solicitor today that once those agreements are consummated he has no objection to the wife restoring by caveat or otherwise some form of security in relation to any properties that he retains, to give her some comfort in relation to her claim under s 79A.

18. The wife opposes the orders.  Her case is that she has asked for a long time either directly through the husband or indirectly by subpoena or request, for documents that would enable her to make a decision as to the probity and necessity of the course that the husband proposes. It is her case that she has been frustrated at every point.  That happened in the form of objections to a subpoenas in relation to the solicitor acting on these transactions and to the application for finance made to Suncorp.  She says that she is not in a position to know that it is necessary for each of the things to be paid out that are recorded in the settlement sheet for the sale, for example.

19. I gather from the submissions made on her behalf that she believes there could have been an advance to her at the same time as she is giving up her security by way of caveats and the title of the M property, at least as an act of good faith as far as the husband's endeavours go. She is concerned that the pool of assets might be reduced to a point below which there cannot be a proper addressing of her claims under s 79 by the payment of the outgoings listed in the settlement sheet.

20. Mr Karras, on behalf of the wife, said that, "We are painted into a corner about this," and I think that is right.  Certainly I feel as though the Court is painted into a corner.  There is some evidence and it is not independently verified, to suggest that (subject to there being no capital gains tax event in relation to other assets) there might be something of the order of $3 or $4 million in the pool once this is all gone through. That once the AB Company contract and the refinance are completed and the sale of the M property is completed, there might be something like $3 or $4 million left.

21. On the other hand Mr Fraser says that the outcome could be a negative in the event that there is a forced sale.  So if the refinance is not available, AB Company can and might pull out, then Bank West enters. Mr Fraser points out and some of these things are obvious, that on a mortgagee sale there is a risk that the husband's assets will be sold at a substantially lesser valuer than they would be in the normal course. He points out that there will be a significant sum in receivership fees. In view of the number of assets involved and the number of third parties involves and there is reference to other creditors including judgment creditors in the evidence, it is expected that the fees of the receiver and other disposal costs will be of the order of hundreds of thousands of dollars.

22. In conjunction with the current state of the market this will lead to a substantial deterioration in the net asset position of the husband and it may be that the sale proceeds will be insufficient to discharge his various debts. That is what Mr Fraser says at paragraph 18(b) of his affidavit.

23. The wife cannot put anything else to me.  It is not as though she says, "Well, you do not have to worry.  If this does not go through then I have a letter from Bank West that says that they in fact will not enter," or, "I have [xyz], a fresh company, interested in buying these five businesses for $9 million."

24. It is not as though there is an alternative offered.  It could be that she is right.  It might be that in his eagerness to represent that there is a very small pool available so that the wife will receive substantially less than would have been the case under the orders of 31 July 2007, the husband has manufactured these circumstances and in fact, it will all be fine. It could be that nothing will happen tomorrow, the AB Company sale will go through in any event and the parties’ equity is not threatened.

25. The risk is too great.  It would be a disaster of considerable proportions if there is a shortfall.  Apart from anything else in terms of the Court's obligations, once the parties’ assets trip below the zero mark I have obligations to people who are not here. The secured creditors may be fine but there will be other creditors and I cannot meet my obligations to them, even to give them notice, if the number flips below zero. 

26. I concede that there is no real safeguard for the wife.  It is said in the husband's case, as I referred to above that he will co-operate in the restoration of security to replace the security she has lost. That agreement cannot be enforced. It may be that something in the payments listed in the settlement sheet is fraudulent.  There are a number of payments that have nothing to do with business matters, they include provision for the husband’s legal fees. It could well be that there are payments that do not need to be made paid and it will be hard for the wife, if not impossible, to recover those amounts for the pool. It could be that the pool will be reduced to a point that will not satisfy her claim.

27. I have explained to the husband today, not that it needed explaining I am sure, that the only remedy we have in relation to this is a remedy against him.  So that at least we are left with the enforcement rights against the husband in person even if in circumstances such as this I cannot protect the wife’s rights by orders in rem.

28. S114 says that in certain proceedings the court can grant an injunction it considers proper. That might relate to an injunction in relation to the property of a party to a marriage. The court is to make an order that is proper and not that it is necessary but there is specific reference in the section to the preservation of assets. 

29. I asked the solicitor for the wife whether there were any consequential orders she seeks that might give her some further protection in relation to the orders to be made today and there has been interplay in relation to the form of the orders.

I certify that the preceding twenty nine (29) paragraphs are a true copy of the reasons for judgment of Judicial Registrar Loughnan

Associate: 

Date:  3 July 2008