Jordan & Sutton

[2022] FedCFamC1F 553

Federal Circuit and Family Court of Australia

(DIVISION 1)

Jordan & Sutton [2022] FedCFamC1F 553

File number(s):	SYC 6819 of 2018
Judgment of:	HARPER J
Date of judgment:	1 August 2022
Catchwords:	FAMILY LAW – INJUNCTIONS – Preservation of property – Where husband sold interest in company with proceeds of approximately $175 million – Wife seeks preservation of funds in a bank account and injunction restraining the husband withdrawing said funds – Husband intends to use proceeds for capital raising in other companies, payment of legal fees and tax liabilities, and investment in publicly listed companies – Where wife was advised that date for completion of sale had been moved to the following day – Sale made in the ordinary course of business – Claim that injunction necessary to preserve status quo pending final hearing – Where final orders will inevitably require the husband to liquidate or transfer parts of his multiple shareholdings – Final orders will inevitably impact third party shareholder rights – Where proposed investments would likely increase parties’ asset pool at final hearing – No risk of dissipation of assets or frustration of court’s orders – Application dismissed.
Legislation:	Family Law Act 1975 (Cth) ss 79, 114
Cases cited:	Tsiang & Wu and Ors (2019) FLC 93-911; [2019] FamCAFC 128
Division:	Division 1 First Instance
Number of paragraphs:	42
Date of hearing:	29 July 2022
Place:	Sydney
Counsel for the Applicant:	Mr Newlinds SC, with Ms Hall
Solicitor for the Applicant:	Barkus Doolan Winning Family Lawyers
Counsel for the First Respondent:	Mr Cummings SC, with Mr Barnett and Mr Springthorpe
Solicitor for the First Respondent:	Pearson Emerson Family Law
The Second and Third Respondent:	No appearances required
Counsel for the Intervener:	Mr Yin

Table of Corrections
4 August 2022	At paragraph 40, the second sentence has been inserted: “Against this are the following considerations.”

ORDERS

SYC 6819 of 2018

FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)

BETWEEN:

MS JORDAN

Applicant

AND:

MR SUTTON

First Respondent

B PTY LTD
Second Respondent

D PTY LTD
Third Respondent

C PTY LTD
Intervener

order made by:	HARPER J
DATE OF ORDER:	1 August 2022

THE COURT ORDERS THAT:

1.The Application in a Proceeding filed by the Applicant Wife (“the wife”) on 27 July 2022 be dismissed.

2.Pending further order, the Respondent Husband (“the husband”) forthwith pay $72,692,745 into a separately identified interest-bearing account in the name of the husband held with the Commonwealth Bank of Australia, on the husband’s undertaking:

(a)not to withdraw, disburse or use any of the funds so deposited other than for the purpose of paying tax liabilities of him personally or of companies which he wholly owns; and

(b)to give the wife 14 days’ written notice before withdrawing money for that purpose.

3.Within 48 hours of opening the account referred to in Order 2, the husband shall notify the wife of the details of the said account, including the account number and the branch of the Commonwealth Bank of Australia at which it is held.

4.The undertaking of the husband given on 29 July 2022 be released upon the making of these orders.

5.All questions of costs of the application the subject of this judgment be reserved for further consideration at final hearing.

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 Jordan & Sutton has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

REASONS FOR JUDGMENT

Amended pursuant to r 10.14(b) of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) on 4 August 2022

HARPER J:

1. These are property adjustment proceedings between the Applicant Wife, Ms Jordan (“the wife”) and the Respondent Husband, Mr Sutton (“the husband”).

2. The proceedings were commenced in 2018 and included parenting issues, which have now been resolved.

3. The financial issues are listed for final hearing commencing on 6 February 2023 with an estimate of three weeks.

4. There is no dispute that the property pool is vast. It has been valued by a single expert, Mr E, in the region of $3.5 billion, and even though the husband does not agree with this value, he accepts the value is at least $2.7 billion. The property pool is complex and comprised of numerous parcels of real property, with a value of approximately $55 million, together with the highly valuable shareholdings of the husband in a corporate group known as F Group, of which the principal corporate entity is F Limited (“F Limited”). The husband holds, directly and indirectly, a majority shareholding in F Limited of approximately 61.3 percent. This shareholding of the husband carries, by far, the bulk of the value in the property pool. It is unnecessary for the purposes of this judgment to describe otherwise the components of the F Group, except to the extent set out in these reasons.

5. There was no dispute that the husband’s shareholding in F Limited, and therefore his ability to deal with that shareholding, is subject, directly or indirectly, to a number of third party rights and obligations through a Note Subscription Agreement dated 3 October 2019 involving a number of financiers, a Shareholders Agreement dated 2 October 2019 between F Limited and F Limited shareholders from time to time, and possibly certain lien facility agreements, although the impact of those agreements on the husband’s shareholding has not yet become clear. I will refer to these as “the third party agreements” for the purposes of this judgment.

6. On 1 July 2022, the husband’s solicitors informed the wife’s solicitors by letter that F Limited proposed to acquire the husband’s shareholding in C Pty Ltd (“C Group”), which is the holding company of the C Group. The husband holds 57 percent of shares in C Developments Pty Ltd, which is the holding company of C Group.

7. As described at paragraphs 39 and 40 of the single expert valuation report of Mr E dated 2 February 2022, the C Group

   comprises a number of Australian entities operating within the […] software industry offering products that provide services including automation of […] documents, multiple billing and payment options, and a secure cloud-based client collaboration platform.

   [C Developments Pty Ltd], the ultimate parent company of the [C Group], develops, maintains and licenses the [C Pty Ltd] […] management software product.

8. After the notification on 1 July 2022, in the ensuing flurry of correspondence, the wife sought undertakings from the husband not to disburse the proceeds of sale pending determination of the proceedings. The husband refused to provide an undertaking in those terms, on the basis that he proposed to make use of the proceeds of sale in a number of ways, shortly to be enumerated.

9. The husband’s correspondence initially specified that 29 July 2022 was the date for completion of the C Pty Ltd share acquisition. However, on 26 July 2022, the wife was informed the completion date had moved to the following day, 27 July 2022.

10. The completion of the sale of the C Pty Ltd shares took place on 27 July 2022 and the husband received $174,866,398.64 (“the proceeds”). As a result, the C Group became a wholly owned part of the F Group.

11. The husband gave evidence that he intends to use the proceeds in the following manner:

    (a)by participating in a capital raising in the amount of $40 million by G Pty Ltd (“G Pty Ltd”) which is due to close on 31 August 2022, and in which he intends to participate by paying $20,540,845.37 for shares in G Pty Ltd (“the G Pty Ltd investment ”);

    (b)by participating in a capital raising in the amount of $85 million by C Pty Ltd (“C Pty Ltd”) which is due to close on 31 August 2022, and in which he intends to participate by paying $53,033,710.52 for shares in C Pty Ltd (“the C Pty Ltd”);

    (c)by participating in a capital raising in the amount of $9 million by H Pty Ltd (“H Pty Ltd”) which is due to close on 5 August 2022, and in which he intends to participate by paying $9 million for shares in H Pty Ltd (“the H investment”);

    (d)by paying personal income tax liabilities and tax liabilities of C Investments Pty Ltd and J Pty Ltd in the amount of approximately $72,692,745 (“the tax payments”);

    (e)to pay the costs of these proceedings, including approximately $1.4 million up to the conclusion of final hearing, and the costs of an updated valuation of the husband’s company interests and at least two other expert reports to be obtained; and

    (f)by using approximately $17 million to buy shares in publicly listed companies.

12. On 27 July 2022, the wife filed an Application in a Proceeding seeking an urgent listing. The application was listed before me that day and made returnable instanter. Directions were made for the hearing of the application, which was listed at 12.00 pm on 29 July 2022. The wife filed a written undertaking as to damages, and the husband undertook not to disburse the proceeds of sale until the rising of the court on 29 July 2022. On 29 July 2022, a notation was made that the husband’s undertaking would be extended up to 4.00 pm on 2 August 2022, to enable this judgment to be delivered.

13. The wife seeks injunctive relief, pursuant to s 114 of the Family Law Act 1975 (Cth) (“the Act”) in the following terms:

    5. Pending further order, that upon receipt of any part of the monies arising from the sale of the husband's shares in [C Pty Ltd] by the husband or any agent of the husband, the husband shall do all acts and things necessary to cause the whole of such funds to be deposited in an interest-bearing account in the name of the husband held with the Commonwealth Bank of Australia or such other Australian financial institution agreed between the husband and the wife [the Account] and the husband thereafter be restrained by injunction from withdrawing any monies from the Account without the prior written consent of the wife and he shall be restrained from giving any direction or doing any act or thing to cause or permit such monies to be dealt with in any manner other than in accordance with this order.

14. The husband resists this relief.

15. Senior counsel for the wife made clear that she did not contend there was a risk of dissipation of assets. She claimed the injunctive relief was necessary to preserve the status quo and the subject matter of the litigation pending final determination.

16. The principles applicable to determine an application for an injunction to preserve the status quo are well known. The applicant must establish both an arguable case with sufficient likelihood of success to justify the preservation of the status quo, and that the balance of convenience favours the grant of the injunction, in that there is a danger or risk of dissipation of, or dealings with assets which will frustrate any judgment in favour of the applicant; see Tsiang & Wu and Ors (2019) FLC 93-911:

    20. The grant of an injunction is discretionary and the basis on which such an order is made is well established. A purpose, as in this case, is to preserve the status quo pending resolution of the controversy. An applicant must demonstrate first that there is a serious issue to be tried. While that statement has been the subject of various iterations, in essence it requires the demonstration of an arguable case or as was said in Australian Broadcasting Corporation v O’Neill (2006) 227 CLR 57 at [65], the applicant must “show a sufficient likelihood of success to justify in the circumstances the preservation of the status quo”.

    21. Next the applicant must demonstrate that the balance of convenience favours making the order sought. As part of this, the applicant must show that there is a “danger” or risk of dissipation of or dealings with assets which will frustrate any judgment in favour of the applicant.

    (Footnotes omitted)

17. The wife claims no direct interest in the proceeds. The relevant subject matter of the litigation is the wife’s right to claim orders for property adjustment under Pt VIII of the Act, particularly s 79, and the pool of assets the subject of that claim, of which the proceeds would form a part.

18. It was common ground that the wife should receive a property settlement. The husband has already paid the wife at least $12 million since the proceedings commenced as partial property settlement. The (large) area of debate concerns quantum of a final property settlement and the form it should take.

19. The most recent formulation of the wife’s claim is articulated in her Amended Initiating Application filed on 27 July 2022. The husband has not filed, and is not required to file, a Response as yet. The Amended Initiating Application sets out a number of alternatives which, in summary, include transfer of real estate to the wife, together with a cash payment, or in the alternative, a transfer in specie of a proportion of the husband’s shareholdings in F Limited and other companies to receive direct and indirect shareholdings in F Limited totalling 36.1 percent of the total F Limited shares, or some combination of these outcomes. She claims ultimately an outcome which will effect an equal division of the parties’ net property. On her case, this would result in her receiving, in very rough figures, an outcome in the order of up to $1.7 billion.

20. It is important to note that the wife’s claims to receive in specie transfers of shares carry with them a range of orders seeking to set aside numerous provisions of the third party agreements. As a consequence, the wife has also made an application for joinder to the proceedings of many third parties whose interests may be affected. Her proposals for in specie transfers to her also carry the risk of triggering “change of control” default provisions in some of the third party agreements, which could have serious financial consequences.

21. For the purposes of her application, the wife made reference to the Response filed by the husband on 11 March 2019, by which he proposed the wife should receive 20 percent of the matrimonial pool. The wife argued that even making assumptions in favour of the husband, this would result in the wife receiving no less than about $700 million, based on the single expert’s higher valuation of F Limited at $3.5 billion.

22. It was also common ground that there was no possible outcome in the proceedings which would not require the husband either to liquidate or transfer some part or parts of his multiple shareholdings in F Limited to satisfy the inevitable orders made in favour of the wife. Indeed, as pointed out, the wife’s own claims, if successful, would require this to happen. Therefore, it was obvious that on any view, the ultimate satisfaction of the wife’s claims to property adjustment would have to confront the range of hurdles created by the complex terms of the third party agreements. The wife argued that these would be substantial. This may be so, but at an interlocutory hearing it is not possible to form a clear view about the level of difficulty, or know, of course, the actual position as at the date of the future final hearing.

23. It is against this background that the wife’s claims to preservation of the subject matter of the litigation should be understood. That is, the wife argues not for some broad ranging need to preserve the asset pool, but rather, she contends simply for the preservation of the proceeds as an asset in the form of cash, as part of the overall asset pool.

24. Her argument is that this should happen in preference to allowing the husband to pay tax liabilities or reinvest part of the proceeds in further shareholdings, as he proposes. She did not contend there was any risk of her claims to property adjustment not being satisfied if her injunction was declined. Rather, her argument was limited to the contention that because the husband’s other shareholdings, especially in F Limited, were subject to the rights of or obligations to third parties, it would be more difficult for him to satisfy the ultimate orders for property adjustment in her favour. Therefore, so the argument went, if the proceeds were retained as cash, it would be easier for the husband to satisfy court orders in her favour to the extent of that cash fund. This also defined the nature of any prejudice she would suffer if her injunction was declined.

25. The different components of the husband’s proposed disbursal of the proceeds do not all raise the same considerations. It is helpful to examine them separately.

26. As noted above, the husband proposes to utilise $72,692,745 to satisfy tax liabilities. By the end of the hearing, the husband proposed that the $72,692,745 be placed into an interest bearing account by an order in the following terms:

    1.Pending further order, the husband forthwith pay $72,692,745 into an interest-bearing account in the name of the husband held with the Commonwealth Bank of Australia on the husband’s undertaking:

    a.not to withdraw or use that money other than for the purpose of paying tax liabilities of him personally or of companies which he wholly owns; and

    b.to give the wife 14 days written notice before withdrawing money for that purpose.

27. There was no dispute that $28,322,756 was a capital gains tax liability from the sale of 27,372 shares in the C Group in the financial year ended 30 June 2022, while a further $41,034,592 was a capital gains tax liability for the sale on the C Group shares on 27 July 2022, although this would not become payable until March or April 2024. The husband will also become liable for $1,221,966 in personal income tax for the year ended 30 June 2021. There was no suggestion these taxation liabilities were not real. In short, the wife’s argument was that $72,692,745 should be held as cash for her benefit, leaving the husband to pay tax from some other sources. I reject this. In my view, it is clearly prudent for the husband to retain, in a separate account, a sufficient proportion of the proceeds of the share sale to satisfy the tax liabilities engendered by that very sale. I will make an order along the lines proposed by the husband.

28. Although the wife did not agree to this order, she accepted that if the amount of $72,692,745 was quarantined and placed into a separate account, the dispute about preservation was then limited to the balance of the proceeds, about $102,173,654.

29. The proposed investment of $17 million in shares in publicly listed companies has none of the impediments associated with F Limited shares. Those shareholdings can be bought and sold in the ordinary course of share trading, and while they are not cash, such shares are a liquid form of asset which could be easily accessed for the purpose of satisfying court orders in favour of the wife. I am not persuaded the husband should be enjoined from making this proposed investment.

30. I see no reason why the husband should not utilise up to $1.4 million to pay his legal fees for this litigation. It will clearly be very expensive and complex.

31. That leaves the three capital raisings: $20,540,845.37 for the G Pty Ltd, $53,033,710.52 for the C Pty Ltd, and $9 million for the H investment, to a total of $82,574,556.

1. The wife’s submissions sought to impugn these proposed investments on the basis that the husband has not given adequate information about them or shown why they are not risky. I do not accept this argument.

2. I am satisfied that the husband made the C Group transaction in the ordinary course of business. In simple terms, the husband, with notice to the wife, has converted assets in the form of shares into an asset in the form of a cash fund, which is fungible. He has given sworn evidence about the proposed fate of these funds. He has given the wife notice of his intention, sufficient at least to allow her time to bring the application the subject of this judgment. The proceeds are owned by the husband. He is entitled to deploy them in the ordinary course of business as he sees fit, unless the court is satisfied there is a risk of dissipation or frustration of the court’s orders. He gave evidence, which I accept, that he has made past investments in the three companies as part of a broader business strategy. He argued the proposed further investments are simply a continuation of that strategy. There was undisputed evidence that since the proceedings commenced, the husband has made share investments in the same companies in the ordinary course of business without objection from the wife. Specifically, in September 2021 he invested $50 million into H Pty Ltd to purchase another company, $15.2 million into G Pty Ltd as part of a $40 million capital raising, and $33,932,786 to acquire shares in LIH as part of a $55 million capital raising.

3. The wife had notice of each of these investments and did not object. The wife argued that her earlier failure to object to these investments was based on lack of information, specifically, she did not know of the Note Subscription Agreement. Her solicitors only became aware of this agreement on 2 June 2022, and if she had known of its existence, she would have objected to the husband’s investments in September 2021. This may be so. But I note the wife knew about the Shareholders Agreement by September 2021, and the possible involvement of third party rights as impediments in respect of F Limited share transfers. In any event, I do not treat the wife’s failure to object to earlier investments as particularly important.

4. The husband argued, and I accept, that his successful track record of investing permits an inference that he may increase the value of the matrimonial pool prior to final determination.

5. The husband argued that as the principal investor, he is expected to make further investment in the three companies, which are “start-ups” in the early stages of development. For this reason, they are broadly unable to raise capital through ordinary financing channels. I accept this submission. I also accept his evidence that if he does not invest as proposed, third parties may be adversely affected and there is a real risk that the value of his earlier investments will be lost, thereby diminishing the property pool.

6. The wife further argues that in light of the value of the overall pool, she is asking for the preservation of a relatively modest amount. That may be true, but it does not assist her application. It can equally be argued that the fund’s relatively small size makes its preservation less important.

7. The wife also argued that the husband’s evidence does not show why the three companies cannot raise capital through their other shareholders. This may be true, but the wife did not make clear why the husband was obliged to do so. Even if it be assumed the companies could raise capital through other shareholders, the question is why the husband should be restrained from applying his own capital to the fund raising if he so chooses. The wife’s submission assumes that the husband was under some interlocutory obligation to retain a cash fund for her benefit, which is the same as assuming an entitlement to the relief she seeks.

8. She also argued that, inevitably, there would likely be further third party agreements which create impediments to liquidating the proposed further shareholdings in G Pty Ltd, C Pty Ltd, and H Pty Ltd if necessary to satisfy orders in her favour. This is possible, but at this stage of the proceedings, no sensible view can be formed about the possibility becoming reality, or what form it could take.

9. In summary, therefore, putting to one side the payments of tax, the wife’s argument is that she has a prima facie right to preserve about $102,173,654 as a cash fund because this will enable more ready satisfaction of her final relief. Against this are the following considerations. Firstly, on her case, $102,173,654 would form less than 10 percent of her final entitlement, as described above at [19]. Secondly, satisfaction of the overwhelming balance of her entitlement will inevitably have to confront the difficulties of liquidating a substantial proportion of the husband’s direct and indirect shareholdings in F Limited anyway. Thirdly, it has been the husband’s business acumen and decision making that has been responsible for generating the bulk of the parties’ wealth. Fourthly, the husband proposes to use $82,574,556 to make further investments which are fully disclosed and have the potential to increase the wealth available to the parties at final hearing. Fifthly, the proposed investment of $17 million in publicly listed shares is not only a liquid investment, but should be assessed against the husband’s track record of successful investments.

10. I am not persuaded the wife has demonstrated a prima facie case that the status quo in relation to the proceeds should be preserved, or that there is any material risk that the final orders of the court will be frustrated if her application is refused. On the other hand, I am persuaded there will be a real prejudice to the husband, as detailed above. I am also not persuaded the balance of convenience favours the grant of any injunctive relief as sought by the wife. Her Application in a Proceeding will be dismissed.

11. The parties formally sought costs orders in their favour in their application and response. The wife has been wholly unsuccessful, but no submissions were made about costs. I will reserve all questions of the costs of the application the subject of this judgment to the final hearing.

I certify that the preceding forty-two (42) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Harper.

Associate:

Dated:       1 August 2022