Jordan & Sutton (No 3)
[2023] FedCFamC1F 562
•29 June 2023
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Jordan & Sutton (No 3) [2023] FedCFamC1F 562
File number(s): SYC 6819 of 2018 Judgment of: ALDRIDGE J Date of judgment: 29 June 2023 Catchwords: FAMILY LAW – PROERTY – INTERIM HEARING – Where the wife seeks to restrain the husband from proceeding with a sale of shares – Where the husband’s shares form the bulk of the parties’ wealth – Where the wife submits that there would be irretrievable prejudice if the proposed shares were sold as it would not be possible for her to receive the number shares she sought on her alternative position for final relief – Where the husband provided an undertaking that notice to the wife would be given regarding the intended placement of the sale proceeds – Where the husband alleges the acquiescence of the wife in the course of the husband selling the shares and that the wife was unreasonably delayed in bringing the application – Where the wife was not delayed in bringing the application – Having regard to the lack of irretrievable prejudice and acquiescence of the wife, the husband’s undertaking remains and is sufficient relief to deal with the matters – Application dismissed. Cases cited: Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1 Division: Division 1 First Instance Number of paragraphs: 32 Date of hearing: 29 June 2023 Place: Sydney Counsel for the Applicant: Mr Sulan SC with Mr May Solicitor for the Applicant: Barkus Doolan Winning Counsel for the First, Second and Third Respondents: Mr Kearney SC Solicitor for the First, Second and Third Respondents: Pearson Emerson Lawyers The Fourth Respondent: Litigant in person (did not participate) The Fifth–Twentieth Respondents: Litigants in person (did not participate) 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 (and others named in the Schedule)
Third Respondent
ORDER MADE BY:
ALDRIDGE J
DATE OF ORDER:
29 JUNE 2023
THE COURT ORDERS THAT:
1.The Application in a Proceeding filed on 21 June 2023 is dismissed.
2.The wife pay the husband’s costs of this application fixed in the sum of $26,489.11 at the determination of the property proceedings.
NOTATION:
A.I note the written undertaking of the husband to the Court dated 9 June 2023.
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 a pseudonym has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
EX TEMPORE REASONS FOR JUDGMENT
ALDRIDGE J:
This is an Application in a Proceeding filed on 21 June 2023 by which the wife seeks to restrain the husband from proceeding with a sale of shares in a company known as F Limited.
The husband is presently the owner of 61.03 per cent of the shares, although some of the evidence suggests that it is 61.3 per cent of the shares in that company. It is agreed between the parties that the husband’s interest in F Limited forms the bulk of their wealth to be divided between them.
A single expert valued the husband’s interest in F Limited as at 31 August 2021 at $2.997 billion. The proposed sale price is around $160 per share, which if extrapolated would give an approximate value of the husband’s interest in F Limited of some $750 million, which can be seen as well below the valuation figure that was arrived at some considerable time ago.
Whilst the issue of the sale at an undervalue was raised in the affidavit in support of the application, it was not pressed as a ground for opposing the sale, rather it is put that the sale of the shares will cause an irretrievable prejudice to the wife because if the shares are sold, she will not be able to obtain the orders that she seeks at the final hearing. The final hearing is fixed for a number of weeks in June next year. I will turn to that aspect of the matter shortly.
The wife bears the onus of persuading me that she has both a prima facie case to the relief that she seeks and that on the balance of convenience it is appropriate to make the orders sought. As to the prima facie case, there is no dispute that at the final hearing there will be a substantial settlement in favour of the wife. For present purposes, it is appropriate to work on the basis that that interest will be of the order of 50 per cent of the total net assets of the parties at the time of the hearing.
The shareholding and financial structure of F Limited is somewhat complex but it is sufficient to say that the arrangements between F Limited and its financiers require the husband to retain a 40 per cent interest in F Limited and that if his shareholding falls below that value, that is an event of default. Similarly, there are shareholders agreements, whereby the other shareholders’ rights are triggered when the husband’s shareholding falls below 40 per cent.
The wife in her application for final relief as presently constituted, seeks relief in the alternative. The first is that she receive 50 per cent of the shares held by the husband in F Limited both directly and indirectly. Obviously any sale of any shares by the husband would not affect that outcome and she would receive 50 per cent of whatever shares are held at the time.
Accordingly, attention focused on Option ‘B’, which is that the husband transfer to the wife 458,724 shares, effectively she says, receiving 21.3 per cent, which would maintain the husband’s shareholding at 40 per cent and thus not triggering any of the events of default. In addition, she would receive a substantial cash payment, which is currently sought in the sum of about $700 million. No doubt that was based on the earlier valuation to which I just referred.
It is obvious that the figures identified in Option ‘B’ do not quite match up because a 21.3 per cent transfer would see the husband’s shareholding fall to just below 40 per cent, but I do not think anything of significance turns on that and obviously a small adjustment would be needed in due course.
The point of irretrievable prejudice, the wife submits, is that if the present shares proposed to be sold are in fact sold, which present 2.74 per cent of the husband’s current shareholding, it would not be possible for the wife to receive her 21.3 per cent but only receive something of the order of 18 per cent and that it cannot be assumed, or is likely that, there will not be sufficient cash resources available to the husband to make the appropriate adjusting payment.
The entitlement of the wife, on the assumptions reached for today’s purposes only, is that she will receive 50 per cent of whatever assets are held at the time with the value they had at the time of the hearing. It is impossible to speculate on what the value of those shares will be at that time.
The husband, and I shall return to this in more detail shortly, has been attempting to sell some shares since late 2022 in a sale process that has not been criticised in any way by the wife. It is apparent from his evidence that the current price on offer is the best that can currently be achieved. That means that the shares are worth over $20,000,000.
If that remains the value at the time of the hearing, the adjusting cash payment that would be required is likely to be altered only by that amount. However, as I have said, if there has been a remarkable fall in the value of the shares, there is no reason to think there might not be a similar recovery or a continuing slide. Ultimately, the question is whether the sale of the shares at the current price would irretrievably prejudice the wife’s application.
I accept that it would irretrievably prejudice her claim to get 21.3 per cent of the shares, but I do not accept that it would irretrievably prejudice her claim for 50 per cent. It might make the satisfaction of that claim somewhat difficult but that does not prevent the court, having in its armoury, sufficient powers if necessary to compel sales to achieve that outcome. That may, of course, have an adverse effect on the price of the shares itself.
Ultimately, the Court is being asked to speculate that the value of the shares at the time of the hearing next year will be such that, in a practical sense, the husband will not be able to marshal sufficient cash or other resources to make an adjusting payment. I am not prepared to speculate that that would be so.
I accept that there is some prejudice to the wife in that she may not be able to seek the precise orders that she has proposed but I do not accept that the sale would prejudice her entitlement to 50 per cent of the property available for division or whatever the appropriate division is found to be.
It is necessary now to turn to matters that were respectively put as acquiescence and delay. The same evidence essentially covers both so it is convenience to refer first to that evidence and then to the submissions that flow from it.
The material that the parties emphasised is as follows. On 14 October 2022, the husband’s lawyers wrote to the wife’s lawyers advising them that they had appointed two investment banks to lead and advise upon a secondary equity sale, effectively a sale of some of the husband’s shares. The letter anticipated that there would be a sale of approximately 5 to 10 per cent of the husband’s interest in F Limited. No objection was taken at that time to a proposed sale of 5 to 10 per cent of the husband’s shares, even though it is abundantly obvious that such a sale would have an adverse impact on the orders sought in Option ‘B’ described earlier.
For reasons it is not necessary to give, there were difficulties in the placement of the shares. On 5 June 2023, the husband’s lawyers advised that there was a more limited sale to two investment funds and a consequential sale of a smaller number of shares to shareholders who proposed to exercise their rights of pre-emption under the shareholders agreements.
The present sale was then described so at that time the wife was aware of the proposed sale of the shares at around $160 per share and that there would be an approximate sale of 3 per cent of the husband’s shareholding. That followed a letter sent on 11 May 2023, where details had been given of the unsuccessful campaign to sell 10 per cent of the total shares in F Limited.
A response to the 5 June 2023 letter was received on 7 June 2023, where it was asserted that insufficient particulars of the dissipation of the proceeds of sale had been given. A number of questions were then asked for the proposed use of these funds and the husband was asked to provide an undertaking to set aside moneys in a particular way and not to withdraw further moneys so as to increase a debt. A response was sought within 24 hours. If the undertaking was not given, the wife indicated she would file an application to restrain the husband from dealing with the sale proceeds.
On 9 June 2023, the husband, in writing via his lawyers, gave an undertaking not of the identical terms sought by the wife, but in terms that are now not criticised. Subsequently a written undertaking to the court was provided by the husband in the following terms:
I will hold the proceeds from the sale of shares in [F Limited] held by me personally and by any entity of which I am the sole director and shareholder until such time as the details of the sale are finalised and I am able to provide [the wife] 14 days’ notice in writing detailing the intended placement of funds and any relevant details of the intended investment.
(Husband’s affidavit filed on 23 June 2023, Annexure 28)
That undertaking has not been the subject of any criticism and as I have said the allegations as to the sale of the shares that are undervalue and any concern as to how they are to be spent has now fallen away.
Finally, on 21 June 2023, on the eve of the signing of the sale agreement, the wife indicated that she now in fact objected to the sale and indicated that she was filing proceedings to seek an order to stop it. It is said from these materials that the wife is unreasonably delayed in bringing the application. That is not a matter to which I ascribe significant weight, because she was only informed of the precise terms of the sale on 5 June 2023 and on 13 June 2023 made reasonable enquires as to the sale price and how it had been achieved.
More significant to my mind is that the fact that the wife was on notice from 22 October 2022 that the husband was proposing to sell up to 10 per cent of his shareholding which must have adversely affected the ability of the wife to achieve Option ‘B’ in the terms in which it is presently stated. No objection was taken to that course. It was never said at that time that the wife would object to any sale that would dilute the husband’s shareholding so that the wife could not receive 21.3 per cent of the shares at the final hearing.
That stance was only taken on 21 June 2023. It is difficult to see on the material before me what caused the change of heart. I can only infer from that evidence that from 22 October 2022 until 21 June 2023, the wife was content for the husband to proceed to sell sufficient shares even though it meant her Option ‘B’ would have an adverse effect on her ability to achieve Option ‘B’. To my mind that is a matter that speaks against the grant of the orders.
Finally, the issue of third parties was raised. The rights and interests of third parties is something that is not to be disregarded as explained in Patrick Stevedores Operations No 2 Pty Ltd v Maritime Union of Australia (1998) 195 CLR 1:
65.In applications to grant interlocutory injunctions, the court is concerned to examine and in appropriate cases to protect, pending the trial, the moving party’s right to relief against that party’s opponent. But the rights of plaintiff and defendant are not the only rights considered in determining where the balance of convenience lies. In Wood v Sutcliffe Sir Richard Kindersley V-C said:
“[W]henever a Court of Equity is asked for an injunction in cases of such a nature as this, it must have regard not only to the dry strict rights of the Plaintiff and Defendant, but also to the surrounding circumstances, to the rights or interests of other persons which may be more or less involved: it must, I say, have regard to those circumstances before it exercises its jurisdiction (which is unquestionably a strong one), of granting an injunction.”
The principle in Wood v Sutcliffe was approved by Cumming-Bruce LJ in Miller v Jackson:
“Courts of equity will not ordinarily and without special necessity interfere by injunction where the injunction will have the effect of very materially injuring the rights of third persons not before the court.”
His Lordship cited with approval a passage from Dr Spry’s Equitable Remedies. We too adopt the author’s statement:
“the interests of the public and of third persons are relevant and have more or less weight according to the other material circumstances. So it has been said that courts of equity ‘upon principle, will not ordinarily and without special necessity interfere by injunction, where the injunction will have the effect of very materially injuring the rights of third persons not before the courts’. Regard must be had ‘not only to the dry strict rights of the plaintiff and the defendant, but also the surrounding circumstances, to the rights or interests of other persons which may be more or less involved’. So it is that where the plaintiff has prima facie a right to specific relief, the court will, in accordance with these principles, weigh the disadvantage or hardship that he would suffer if relief were refused against any hardship or disadvantage that might be caused to third persons or to the public generally if relief were granted, even though these latter considerations are only rarely found to be decisive. (Conversely, detriment that might be caused to third persons or to the public generally if an injunction were refused is taken into account.)”
(Footnotes omitted)
In the present case, it is said that because investors and shareholders have agreed to take up shares, they will be disappointed if the sale does not proceed, the costs and expenses they have incurred in examining and preparing for the sale will be wasted and that there will be a risk of them dealing with the husband in the future if it is sought again to sell shares, particularly given that the wife’s lawyers informed all of the proposed purchasers of these proceedings and threatened them with proceedings against them if the sale was to proceed. Whether that was a wise course is something that might need to be determined at some other stage.
In any event, none of the proposed purchasers have yet acquired rights. I accept that they will suffer disappointments as I have just outlined, but that is the risk inherit in any commercial transaction that is not settled until the documents are signed. However giving weight to the, in my view, lack of irretrievable prejudice and the acquiescence to the wife in the course proposed by the husband until the very last minute, I am not persuaded that the orders as sought should be made.
The husband’s undertaking remains and it is in my view sufficient relief to deal with the matters. Accordingly, the application is dismissed.
I note the written undertaking of the husband to the Court dated 9 June 2023.
The wife in this application has been wholly unsuccessful and it is appropriate that she pay the husband’s cost. There will therefore be an order that the wife will pay the costs of this application to the husband fixed in the sum of $26,489.11 at the determination of the property proceedings.
I certify that the preceding thirty-two (32) numbered paragraphs are a true copy of the ex tempore Reasons for Judgment of the Honourable Justice Aldridge. Associate:
Dated: 12 July 2023
SCHEDULE OF PARTIES
SYC 6819 of 2018 Respondents
Fourth Respondent:
F LIMITED
Fifth Respondent:
F3 PTY LTD
Sixth Respondent:
F4 PTY LTD
Seventh Respondent:
O INVESTMENT FUND, ACTING IN RESPECT OF AND FOR THE ACCOUNT OF ITS SUB-FUND O LL FUND
Eighth Respondent:
K2 PTY LTD
Ninth Respondent:
K PTY LTD
Tenth Respondent:
L4 INVESTMENTS LLC
Eleventh Respondent:
L5 INVESTMENTS LLC
Twelfth Respondent:
L6 INVESTMENTS LLC
Thirteenth Respondent:
L7 INVESTMENTS LLC
Fourteenth Respondent:
L8 INVESTMENTS LLC
Fifteenth Respondent:
L9 INVESTMENTS LLC
Sixteenth Respondent:
L10 INVESTMENTS LLC
Seventeenth Respondent:
L INVESTMENTS LIMITED
Eighteenth Respondent:
L1 INVESTMENTS LLC
Nineteenth Respondent:
L2 INVESTMENTS LLC
Twentieth Respondent:
L3 INVESTMENTS LLC
0
1
0