Holt and Foy

[2007] FamCA 770

FAMILY COURT OF AUSTRALIA

HOLT & FOY [2007] FamCA 770

FAMILY LAW – PROPERTY – Application by the wife seeking orders to compel husband to execute a draft share sale agreement was refused.

Family Law Act 1975 Part VIII s 114(3)

Mullen & De Bry (2006) FLC 93-293

Waugh & Waugh (2000) FLC 93-052

APPLICANT: Ms Holt

RESPONDENT: Mr Foy

FILE NUMBER: PAF 2324 of 2004

DATE DELIVERED: 12 June 2007

PLACE DELIVERED: Parramatta

JUDGMENT OF: Coleman J

HEARING DATE: 12 June 2007

REPRESENTATION

COUNSEL FOR THE APPELLANT: Mr Campton

SOLICITOR FOR THE APPELLANT: WATTS MCCRAY

COUNSEL FOR THE RESPONDENT: Mr Gould

SOLICITOR FOR THE RESPONDENT: AITKEN MCLACHLAN THORPE

Orders

1. That the application filed 16 May 2007 be refused.

2. That the hearing of all outstanding applications between the parties be specially fixed for Monday 19 November 2007 for five days.

3. That by 5 pm on 12 October 2007 all affidavit evidence-in-chief to be exchanged, expert reports exchanged, discovery and inspection completed and requests for particulars completed.

4. By no later that 5 pm on 5 November 2007 experts to have conferred, settled and counter-signed a memorandum setting out relevant matters of agreement and disagreement and the reasons for each matter of disagreement.

5. That liberty be reserved to either party to apply by telephone on 72 hours notice for further directions in relation to the preparation of the proceedings for hearing on 19 November 2007.

6. That the respondent’s costs of the application filed on 16 May 2007 be reserved to the trial Judge.

7. That Counsel for the respondent be granted a certificate pursuant to s.10 of the Federal Proceedings (Costs) Act 1981 that in the opinion of the Court if would be appropriate for the Attorney-General to authorise a payment under that Act to him/her in respect of such part as the Attorney-General considers appropriate.

   IT IS NOTED IN CONNECTION WITH THESE ORDERS that the judgment of the Honourable Justice Coleman delivered this day will for all publication and reporting purposes be referred to as Holt & Foy.

FAMILY COURT OF AUSTRALIA AT PARRAMATTA

FILE NUMBER: PAF 2324 of 2004

MS HOLT

Applicant

And

MR FOY

Respondent

REASONS FOR JUDGMENT

1. This is an application by Ms Holt (“the wife”) seeking orders the effect of which, if made, would be to compel Mr Foy (“the husband”) to execute a draft share sale agreement between the husband as vendor, the wife as interested party, Mr D or his nominee as the purchaser and R Pty Ltd (“the corporation”). A copy of the document is exhibit A1 and is consistent with annexure G to an affidavit of the husband recently sworn in the proceedings.

2. The wife relies upon a series of affidavits sworn by her in the proceedings. The first of which, sworn in 2006 would, if accepted, establish the possibility of the wife being awarded more than the equity in the former matrimonial home of the parties in the determination of pending Pt VIII Family Law Act 1975 proceedings. The evidence suggests that any such surplus that the wife may be awarded would require the liquidation of the shareholding of the husband in the corporation in order to be realised. That is a 25 per cent shareholding. The corporation is not a listed entity. It appears to be common ground that the husband’s shareholding in the corporation is probably saleable only to existing shareholders, or interests associated with existing shareholders in the corporation.

3. For the wife to succeed it is reasonably clear, having regard to the recent decision of the Full Court in Mullen & De Bry (2006) FLC 93-293, that she must establish more than merely some convenience or, as the authorities relevant to injunctive relief say, the balance of convenience. It would no doubt be highly convenient for the wife in the proceedings to see the husband forced to enter into the draft share sale agreement in that it would convert into cash a shareholding which currently is not in cash form, has limited market appeal and is the subject of a draft sale agreement between the husband as vendor and a party who clearly has a connection with the corporation and, if not the only prospective purchaser, is, the evidence suggests, the most likely prospective purchaser.

4. It is probably, having regard to what the Full Court appears to have said in Mullen & De Bry (2006) FLC 93-293, overstating the law to require that the wife demonstrate irreparable loss or damage if the relief sought is not granted. Be that as it may, the history of negotiation of the sale of the husband’s shareholding in the corporation suggests a course of conscientious and it seems successful negotiation of an interest which it is notorious is not readily saleable. The cases relevant to valuation of minority interests in shareholdings in unlisted private corporations generally reflect that a discount applies to what would otherwise be likely to be the market value of a minority shareholding by virtue of the limited negotiability of such a shareholding.

5. In this case the evidence of the husband, which the wife’s learned counsel sensibly conceded is not able to be disputed at this time on this point, reveals that the shareholding which the husband had in the corporation derives from about 1982, about a decade prior to the husband and wife commencing cohabitation. The husband had employment in or by the corporation for about 22 years which ended in about July 2004. In paragraph 6 of his affidavit sworn last week the husband deposes to what he did in the course of his employment, and of potential significance for present purposes, alleges a role in the generation of patents and designs and what could broadly be described as matters pertaining to the intellectual property of the corporation.

6. On even such brief evidence as there is, it does not require much insight to realise that there are potentially complex issues between the husband as vendor of his shareholding and would-be purchasers of such shareholding in relation to intellectual property rights, including whose rights they in fact are, and what their value is or potentially is. The relevance of paragraph 6 becomes apparent somewhat later in this narrative.

7. The husband deposes, in paragraph 7 of the affidavit, to having been removed as a director in or about October 2004. That also assumes potential significance for present purposes, although not in isolation from the matters referred to in paragraph 6 of the affidavit.

8. In the course of a series of paragraphs of his affidavit read by counsel for the wife in her case, the husband said:

   I have been negotiating with the directors of [R Pty Ltd] for the sale of my shares since my employment was terminated in 2004.

9. The husband deposed to unofficial offers, initially of $2 million, then $4 million, and then to the receipt in January 2007 of a draft share sale agreement, a copy of which was attached (affidavit, paragraph 20 and following). The husband did not want to enter into that share agreement for reasons to which he deposed briefly in paragraph 21 of his affidavit. As he also deposes, in paragraph 22, a counteroffer was made and there followed some further draft documents to which he also deposed, in paragraph 23 and the accompanying annexure.

10. It is apparent from the evidence of the husband that there were at that time at least a number of considerations relative to the sale of his shares. The first and most obvious was the price. The second was eliminating legal action which the corporation or anyone associated with it could take against the husband. The other was what the husband could do by way of agitation of any complaints he maintains against the corporation or others associated with it.

11. A development upon which counsel for the wife placed considerable but, with respect in the Court’s view, misplaced reliance was the withdrawal from negotiations of the potential purchaser of the husband’s shareholding in circumstances where it was suggested, inferentially at least, that the husband was being unreasonable or unrealistic. Whatever the reality at the time, the husband’s stance appears to have been vindicated in that not only did the prospective purchaser return to the table but made a better offer in at least two respects relating to consideration and terms.

12. The husband deposed, and it is undoubtedly fact, that the shares were valued at $1.8 million by P Company. That is a substantially lesser figure, albeit now somewhat antiquated, than the $4.5 million which the husband has managed to extract by way of offer from the potential purchaser. The husband deposed to a further offer dated 24 May, a copy of which he attached. It should be recorded in passing that the evidence reveals a history of transparency as far as the husband’s negotiations are concerned, at least inter partes. Unlike many cases where interlocutory injunctive relief is sought, this case is not marked by a history of covert negotiations, reluctance to inform, or matters of that kind. That is not without significance, particularly given what clearly is the sensitive nature of the negotiations to realise a minority shareholding of this kind in a corporation of the kind which R Pty Ltd appears to be.

13. The husband, however, deposed in his affidavit to his rejection and reasons for doing so of the draft forwarded on 24 May 2007. With respect to him, at least the first of the matters raised by him in paragraph 32 is clearly a matter of substance, and by no means on the evidence able to be dismissed as merely a matter of form. Interestingly, and it seems consistent with the very healthy situation which the husband has by luck or skill managed to bring about, the prospective purchaser made a renewed offer on 4 June 2007. It is not without significance that, again whether it be by sheer luck or considerable skill, the husband seems to have created a very desirable negotiating environment where the purchaser is coming to him, he rejects and the purchaser, to use the colloquial, goes away and comes back with a better offer. That is what occurred on or about 4 June 2007 when annexure G to the husband’s affidavit, exhibit A1, was provided by the attorneys for the prospective purchaser.

14. The husband immediately through his attorneys caused a copy of that document to be forwarded to the attorneys for the wife. The covering letter excites the attention of counsel for the wife, and having regard to the first sentence that is perhaps unsurprising, although, with respect, when read in context the Court does not accept that the situation is as simple as counsel for the wife would have it believe to be the case. The opening paragraph of the letter from the husband’s attorneys to the wife’s attorneys of 5 June 2007 speaks for itself. It follows that counsel for the wife submits that the husband’s position today is that notwithstanding that it is his offer which the prospective purchaser wants to accept, the husband now seeks to avoid being required to do the very thing which his attorney’s letter of 5 June 2007 suggested that he wanted to have done.

15. Whether the letter was ill-advised, or whether the husband has changed his mind is not clear. What is clear is that the draft share sale agreement is that of the prospective purchaser. It bears on its face the indication that it was prepared by those representing the prospective purchaser and/or the corporation. However, the husband in his affidavit sets out why he seeks to avoid being committed to this draft share sale agreement. The Court considers his reasons for doing so are reasons of potential substance. Nothing to which the Court has been referred establishes on balance that these are delaying tactics, much less that there is some ulterior motive, and does not accept that the evidence, in particular the circumstantial evidence surrounding the history of the course of negotiations, establishes the risk of the purchaser being lost if the husband is not compelled to enter into this agreement.

16. Returning to the husband’s reasons for not wanting to commit to the current draft share sale agreement, set out in the text of the affidavit, he asserts, firstly, that he is presently obtaining specialist taxation advice with regard to the taxation implications, if any, with respect to the manner in which the money will be paid for the purchase price of his shares. No-one at the Bar table professes the expertise to even begin to guess what the reality is. This would in itself be a reason for declining, absent being forced to do so, signing the agreement.

17. The husband had previously in his affidavit referred to matters pertaining to intellectual property. He said in paragraph 32, amongst other things, that matters pertaining to restrictions on his intellectual property were very broad, may have the effect of restraining him from future activity, or work similar to that which he undertook whilst employed by the corporation, and that it was effectively an unlimited restraint upon him. That is incidental to the complaint he raised with respect to earlier agreements which purported to take away his rights, particularly arising out of what he claims was his unlawful dismissal by the corporation in 2004. Without expressing a concluded view on it, this being an interlocutory application in which the Court has not had, nor would it be appropriate to have, exhaustive debate about it or submissions in that regard, the Court is not persuaded that if signed, paragraph 4.2 of the draft share sale agreement would not remove in their entirety any rights the husband may have with respect to his termination of employment, or perhaps more significantly potentially, matters pertaining to intellectual property.

18. The law in relation to this application is not entirely clear or free of differences of interpretation. Texts such as Meagher, Gummow and Lehane’s “Equitable Remedies” in relation to what are there described as mandatory injunctions are not particularly helpful or relevant for present purposes. The cases in this Court which have excited the attention of those who report these sorts of cases appear to be somewhat limited. The case of Waugh & Waugh (2000) FLC 93-052 is a case in point. The more recent case of Mullen & De Bry (2006) FLC 93-293 is another case which deals with the topic. The Court has not been referred to, nor has it found for itself, any case involving a mandatory injunction of the present kind. If one reads the discussion of Meagher, Gummow and Lehane with respect to restorative mandatory injunctions, and has regard to the differences between the sorts of proceedings there considered and proceedings of this kind, that is perhaps unsurprising.

19. If one stands back and looks at this case and is mindful, as counsel for the wife has reminded the Court, of the terms pursuant to which the injunctive relief is sought, namely s 114(3) Family Law Act 1975 and adopts the most liberal interpretation of that section reasonably available to it, the Court is not persuaded that this application should be successful. In terms of the justice of granting the injunctive relief, the Court is not persuaded that to do so would be just. Indeed, on the evidence before it, it would be an exercise of a most unjust form. That is so is for a variety of reasons. Implicit in the submissions of counsel for the wife are that this is in effect a once in a lifetime offer which, if lost, will be forever lost.

20. There are two responses to that proposition. The first is that there is a complete absence of evidence whatsoever that if this offer is rejected it will be lost for all time. There are a number of avenues which may result from the offer not being accepted at this time. Implicit in this is the commercial reality that these parties, that is to say, the would-be vendor and the would-be purchaser, are stuck with each other unless and until they reach an accord. It may be that the husband, having taken the advice to which he refers, enters into the agreement on the basis that it either does not restrict him in the future in terms of his intellectual property rights, whatever they might be, or that his actions or potential actions against the corporation are not of such potential value as to render abandoning them a significant loss. There may be no adverse tax implications.

21. But whatever the reality, unlike a case, to take a simplistic example, where someone is contemplating buying a new car but does not do so and loses a once in a lifetime trade-in opportunity, the would-be purchaser in that situation has simply walked away. That is not the case here. The simple fact is that sooner or later in the operation of marketplace forces these parties will reach an agreement. It is inconceivable that any price which is likely to be concluded between the husband as vendor and the prospective purchaser and/or the corporation in relation to his shareholding would be such as to defeat whatever entitlement the wife may have to the interest of the husband in the corporation. It may well be that if the husband is not forced to enter into this agreement now and subsequently enters into an agreement for a lesser consideration, in the final determination of the Part VIII proceedings some notional adding back of the consideration that was available but was lost by the husband will result.

22. Conversely, whether it be at this or a higher price, despite the wife seeking to force the husband to sell on the current terms, if he is able to conclude a better agreement with respect to his shareholding, questions of special contribution would presumably be aroused in the final Part VIII determination.

23. To force the husband who has prima facie shown a persistent and it seems comparatively successful campaign to liquidate his shares to proceed at the moment may well visit a huge injustice not only upon him but upon the wife, it being clear that if contrary to the husband’s opposition, the wife prevailed in this application and the husband lost valuable rights in the future, having given an undertaking as to damages, as the wife has, that would be visited upon her. To what avail, one might ask? The answer is to no avail given that if the wife is right and the husband is wrong and this is a once in a lifetime, never to be repeated, offer and hindsight shows that to be so, there will be more than an abundance of money in the asset pool to meet whatever her entitlement might be.

24. That is probably sufficient for present purposes. The Court simply records that whether it is convenient to do so is not the test, although in this case the evidence establishes that whilst it might be convenient for the wife, such convenience is totally overshadowed by the injustice to the husband in forcing him to sign this agreement. For those brief reasons, the application is refused.

I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Coleman.

Associate:

Date:  2 August 2007