Jordan & Sutton (No 4)
[2023] FedCFamC1F 656
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Jordan & Sutton (No 4) [2023] FedCFamC1F 656
File number(s): SYC 6819 of 2018 Judgment of: HARPER J Date of judgment: 9 August 2023 Catchwords: FAMILY LAW – PRACTICE AND PROCEDURE – Where primary proceedings concern property adjustment between husband and wife – Where there are a number of third parties who have been joined to the proceedings – Wife seeks leave to file a Further Amended Initiating Application – Where the current Amended Initiating Application includes complex claims expressed as Alternatives A and B – Wife seeks to include an Alternative C to be pressed only if Alternatives A and B fail – Where Alternative C seeks an adjournment of the proceedings until 31 March 2023 pursuant to s 79(5) of the Family Law Act 1975 (Cth) and injunctive orders preventing the entry into further financing agreements – Where the respondents opposed leave to amend on the basis that it was ultra vires and thus doomed to fail and it would cause immediate prejudice to the respondents who are third parties to the marriage – Where the objectives of the overarching purpose are best served by allowing the amendment – Court not persuaded of immediate prejudice to the respondents arising from allowing the amendment – Where allowing the amendment would enable the Court and the parties to better understand the scope of the issues – Amendment allowed – Costs reserved. Legislation: Family Law Act 1975 (Cth) Pts VIII, VIIIAA, ss 79(5), 79(6)
Federal Circuit and Family Court of Australia Act2021(Cth) ss 67(1), 67(3), 67(4)
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) rr 1.04, 2.50
Cases cited: Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175; [2009] HCA 27
Blue & Blue [2008] FamCA 787
Grace v Grace (1998) FLC 92-792
HMT & FHL [2006] 197 FLR 335; [2006] FamCA 2006
Jordan & Sutton [2022] FedCFamC1F 553
Jordan & Sutton (No 2) [2022] FedCFamC1F 850
McGraw‑Hill Financial Inc v Clurname Pty Ltd (2017) 123 ACSR 467; [2017] FCAFC 211
Page v McKensey [2004] NSWCA 437
Tian & Fong [2010] FamCAFC 255
Division: Division 1 First Instance Number of paragraphs: 33 Date of hearing: 25 May 2023 Place: Sydney Counsel for the Applicant: Mr Richardson SC with Mr Gray Solicitor for the Applicant: Barkus Doolan Winning Counsel for the First Respondent: Mr Henry SC with Mr Roberts Solicitor for the First Respondent: Pearson Emerson Family Lawyers Counsel for the Fourth Respondent: Mr Giles SC with Mr Thomson Solicitor for the Fourth Respondent: Clayton Utz Counsel for the Fifth to Twentieth Respondents: Mr Dick SC with Mr Ford Solicitor for the Fifth to Twentieth Respondents: Herbert Smith Freehills 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:
HARPER J
DATE OF ORDER:
9 AUGUST 2023
THE COURT ORDERS THAT:
1.The Applicant Wife be granted leave to file and serve the Further Amended Initiating Application served under cover of letter dated 2 February 2023.
2.Costs of the application the subject of this judgment be reserved.
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
HARPER J:
These are property adjustment proceedings under Part VIII of the Family Law Act 1975 (Cth) (“the Act”) between the parties to the marriage, the applicant wife Ms Jordan (“wife”) and the first respondent husband Mr Sutton (“husband”). There are a number of third parties who have been joined to the proceedings, of relevance to this judgment include the fourth respondent, F Limited and the fifth to twentieth respondents, set out in the schedule to this judgment.
A number of judgments have already been delivered in these proceedings which set out relevant background matters (See Jordan & Sutton [2022] FedCFamC1F 553; Jordan & Sutton (No 2) [2022] FedCFamC1F 850 (“Jordan (No 2)”). These do not need detailed repetition for the purposes of this judgment which concerns the wife’s application filed on 8 February 2023 seeking leave to file a Further Amended Initiating Application. However, I adopt those reasons for the purposes of this judgment.
The wife’s claims are presently articulated in her Amended Initiating Application filed 27 July 2022 as Alternatives A and B. These are described in more detail in Jordan (No 2) at [16] and [17], but in broad terms seek some combination of a transfer to her of real property assets or a proportion of the husband’s shares in specie held in several corporations which lie at the heart of a highly complex structure of trusts and companies known as F Group, of which the principal corporate entity is F Limited. These alternatives are formulated using broad definitions of “Non-Corporate Group Assets” and “Corporate Group Assets”. The wife’s relief includes proposed orders pursuant to the provisions of Pt VIIIAA of the Act altering or modifying the terms of Shareholder Agreements, to which the parties are numerous third parties to the marriage, including other shareholder investors and financiers.
There was no dispute that the involvement of the husband as a shareholder and executive in the F Group is viewed by investors and financiers as central to the value and success of its business operations. The husband presently holds a controlling interest, either in F Limited or through subsidiaries, of about 61.3 per cent. There is a high probability that either Alternative A or B, if the Court made such orders, would result in the husband’s shareholding interest falling, in broad terms, below 40 per cent.
As explained in the earlier judgments the complex structure of companies and trusts is financed by equally complex multi-million dollar financing arrangements with multiple parties across the globe.
The proceedings are presently listed for final hearing to commence on 24 June 2024 for a period of five weeks. This follows an earlier listing for final hearing in February 2023 which was vacated upon the joint application of the parties.
The proposed amendment, if allowed, will introduce “Alternative C” into the wife’s claims for relief.
For the purposes of this judgment it is important to record that the proposed amendment would be pressed only if Alternatives A and B fail. The preamble to Alternative C is in the following terms “[t]he orders set out in Alternative C are sought only in the event that orders sought in each of Alternative A and Alternative B are refused”.
The actual orders sought in Alternative C are in the following terms:
a) the proceedings to be adjourned pursuant to s 79(5) of the Family Law Act 1975 (“the Act”) to a date appointed by the Court on or shortly after 31 March 2030; and
b) pending further hearing of the proceedings:
i. orders restraining the Husband and Fourth Respondent (“[F Limited]”) from entering into finance and shareholding agreements; and
ii. orders for payments to be made by the Husband to the Wife.
The importance of the date 31 March 2030 is that it is the date upon which a range of financing instruments mature.
The respondents resist leave to file the proposed amended pleading. Although the respective senior counsel of the respondents made separate submissions, each joined with the arguments of the others.
The power to amend is found in r 2.50 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) (“the Rules”). These Rules were made under Chapter 3 of the Federal Circuit and Family Court of Australia Act 2021(“FCFCOA Act”). Rule 2.50 relevantly states:
(1)A party who has filed an application or response may amend the application or response:
(a) for an Initiating Application (Family Law):
(i)at any time before the procedural hearing at which the proceeding is allocated a date or dates for trial; or
(ii)at a later time, with the consent of the other parties or by order;
(b) for an Application in a Proceeding:
(i)at or before the first court date; or
(ii)at any later time, with the consent of the other parties or by order; and
(c)for all other applications at any time, with the consent of the other parties or by order.
There was no dispute that, at this stage of proceedings, the wife requires leave to amend.
I accept that courts have long been astute to deny an amendment that is doomed to fail (See, eg, Page v McKensey [2004] NSWCA 437 at [92]). In addition, in Aon Risk Services Australia Ltd v Australian National University (2009) 239 CLR 175 at [94] (“Aon”) the majority pointed out that a party does not have a right to amend and case management principles taking account of the position of other parties and the need to do justice to all litigants may apply to confirm refusal of an amendment.
Since the decision in Aon, the FCFCOA Act has come into force. The Rules are “family law practice and procedure provisions” as defined in s 67(4) of the FCFCOA Act. Section 67(3) requires the Court in applying or interpreting family law practice and procedure provisions to act in a way that best promotes the “overarching purpose”. The overarching purpose and its objectives are set out in s 67(1) and (2) of the FCFCOA Act:
(1) The overarching purpose of the family law practice and procedure provisions is to facilitate the just resolution of disputes:
(a) according to law; and
(b) as quickly, inexpensively and efficiently as possible.
Note 1: See also paragraphs 5(a) and (b).
Note 2:The Federal Circuit and Family Court of Australia (Division 1) must give effect to principles in the Family Law Act 1975 when exercising jurisdiction in relation to proceedings under that Act.
(2) Without limiting subsection (1), the overarching purpose includes the following objectives:
(a) the just determination of all proceedings before the Federal Circuit and Family Court of Australia (Division 1);
(b) the efficient use of the judicial and administrative resources available for the purposes of the Court;
(c) the efficient disposal of the Court’s overall caseload;
(d) the disposal of all proceedings in a timely manner;
(e) the resolution of disputes at a cost that is proportionate to the importance and complexity of the matters in dispute.
The overarching purpose is expressly confirmed in r 1.04 of the Rules “to facilitate the just resolution of disputes according to law and as quickly, inexpensively and efficiently as possible”. The Court must clearly therefore apply r 2.50 of the Rules in a manner consistent with the overarching purpose (See, eg, McGraw‑Hill Financial Inc v Clurname Pty Ltd (2017) 123 ACSR 467).
The respondents opposed leave for several reasons. The first was derived from the decision in Grace v Grace (1998) FLC 92-792 (“Grace”) in which the Full Court said of s 79(5) of the Act at 84,889:
The term “adjournment” connotes that the hearing has commenced or is due to commence within a relatively short time. Accordingly, the property identified as forming the basis of the hearing when commenced before adjournment would usually remain the subject matter for orders. Yet, clearly, the purpose of s 79(5) is to not give rise to an expectation among the parties or the Court that they are concerned with the property available for distribution at the time of the s 79(5) application. Rather, the purpose of an order under s 79(5) is to defer the step of ascertaining the property pool for distribution to a defined future point in time.
Based upon this construction of the subsection, it was argued that Alternative C on its face proposes an order which could never be made because it would be ultra vires and doomed to fail. It would be beyond power because Alternative C is predicated on the failure of Alternatives A and B, and it is inherent in the determination of those alternatives, so the argument goes, that the Court must have already ascertained the property pool. Consequently, Alternative C goes well beyond the settled purpose of ascertaining the property pool.
Grace has been cited and followed many times. In HMT & FHL [2006] 197 FLR 335 at [131], Watts J, citing Grace, commented that the purpose of s 79(5) and s 79(6) of the Act:
was to allow a trial judge at a final hearing to adjourn proceedings in circumstances where a final order could not be made. The most common examples was where superannuation or an inheritance … had not yet vested in one of the parties.
In Tian & Fong [2010] FamCAFC 255 O’Ryan J adopted the statement of the Full Court in Grace at 449 that “the purpose of an order under s 79(5) of the Act is to defer the step of ascertaining the property pool for distribution to a defined future point in time”.
In Blue & Blue [2008] FamCA 787 at [6], O’Reilly J explained how the Full Court in Grace distinguished the difference between an exercise of the discretion in s 79(5) of the Act and a procedural adjournment of proceedings:
The Full Court distinguished between procedural adjournment which connotes that the hearing has commenced or is due to commence in a relatively short time and the power under s 79(5) stating that in context it is better described as deferral because an order under s 79(5) has the effect of deferring the step of ascertaining the property pool for distribution to a defined future point in time so that as such an order goes to the core subject matter of the determination to be made under s 79 thus conferring a substantive not just procedural quality to its consequences.
The second reason put forward to deny the amendment was said to be based in the likely immediate prejudice this would cause to at least some of the respondents who are third parties to the marriage.
There was no dispute that, among the protections for financiers of the F Group in their debt financing instruments, are covenants which specify that an event of default would be a fall in the husband’s shareholding below 40 per cent. Such a fall in the husband’s shareholding or the consequences of such an event of default could result in damage to the overall value of the businesses being financed, causing prejudice to both minority shareholders and financiers. I accept for the purpose of the argument that either Alternative A or B could bring about such an outcome.
In short, the respondents claim that the very fact of the existence of Alternative C, if allowed as a proposal to be considered at final hearing, especially because of the injunctive relief claimed as part of Alternative C, preventing fresh financing agreements, creates a present level of risk which detracts from the value of the F Group entities to which finance has been provided. The respondents say that they have provided the only evidence in this regard and it should be accepted. It was put that the proposed injunction restraining the entry into further finance and shareholding agreements, if inserted into the wife’s initiating process by way of the amendment, would constitute a “stalking horse” prejudicing the respondents for the balance of the duration of the proceedings, because it would create a level of uncertainty and risk that the structure of the existing financing agreements or viable replacements could not be renegotiated.
The evidence in support of these contentions can be summarised as follows. Mr BQ who is a partner in the Private Credit group at the Sydney office of O Investments, a substantial financier of F Group. He gave evidence that the finance provided to the F Group involves very large positions totalling $680,000,000. He stated that when finance arrangements of such magnitude mature, the borrower typically requires a refinance with new lenders or a renegotiated finance package because lump sum repayment is beyond their capacity. Hence fresh agreements must be negotiated. He claimed any fresh financier would in the ordinary course require change of control covenants in the same or similar terms as those which are currently in place. His evidence focussed on the injunctive relief which forms part of Alternative C. He claimed, and I accept, that “restrictions of this type could limit [F Group’s] ability to manage its relationships with shareholders in response to its economic circumstances, and this would be destructive of the value of” O Investments’ investment (Mr BQ’s affidavit filed 14 April 2023, paragraph 17). In other words, if the injunction sought was ordered, it could materially diminish the ability of F Limited and subsidiaries to obtain further finance, and the value of its businesses.
Mr BR, who is a senior member of the Asia Private Credit team in Australia and New Zealand which sits within Asset and Wealth Management at the K Group, gave evidence on behalf of the eighth to twentieth respondents. His evidence was to the same effect, namely, if the orders in Alternative C were made, he doubted the F Group would be able to refinance its debts because of diminishment in the value of its businesses. He pointed out that a failure to meet repayments covenants at or before maturity of financing instruments would be an event of default. He concluded by saying:
Given the considerations I outline above, in my view, granting Alternative C and pushing determination of the proceedings until after the Maturity Date of the Amended [Note Subscription Agreement] (with restrictions on [F Group] in the meantime) still prejudices the [K Group] Entities given the inevitable uncertainty that was not accounted for when [certain financing entities] entered into the Amended [Note Subscription Agreement] and the [K Group] Equity Holders entered into the Shareholders Agreement.
(Mr BR’s affidavit filed 14 April 2023, paragraph 21)
I do not accept the respondents’ submissions.
The arguments based upon Grace are not convincing. The present state of the authorities, in my view, does not lead to the conclusion that the only circumstances in which the discretion in s 79(5) of the Act could be enlivened is prior to a final ascertainment of the property pool. Such a restricted reading of Grace sits in some tension with the wording of the subsection. The discretion in s 79(5) of the Act is enlivened if the Court is satisfied “there is likely to be a significant change in the financial circumstances of the parties to the marriage or either of them and that, having regard to the time when that change is likely to take place, it is reasonable to adjourn the proceedings”. It seems to me that one possibility in property adjustment proceedings is that the Court could make factual findings which could settle a given property pool at a final hearing and the results of this process itself may demonstrate that it is “reasonable” in light of all the evidence to adjourn the proceedings at that point in time. Alternatives A and B may relevantly fail for this reason, that is, because the Court is unable to reach a final view about the appropriate orders to make. I express no concluded view about such a possibility. I simply note it is conceivable, which means I cannot conclude Alternative C is bound to fail.
Beyond this, it was conceded by the respondents that the wife could make an application pursuant to s 79(5) of the Act during the trial. It was also conceded that if the Alternative C was formulated to be unconnected with and not predicated upon the failure of the Alternatives A and B, the Grace argument would have little force. In those circumstances, if the exercise of the discretion in s 79(5) of the Act is properly understood as a substantive deferral of ascertaining the property pool, it is appropriate to bring this possibility forward in a concrete expression by way of formally amending the initiating process, rather than let it drift on the periphery of the proceedings as an unformed possibility for the future.
It can also be seen that the evidence of the respondents does not persuasively demonstrate the immediate prejudice they claim by reason of allowing the proposed amendment. Rather, their evidence looks to the potential consequences of making the orders proposed in Alternative C at final hearing. These consequences may provide good reason why such orders should not ultimately be made. But they do not constitute persuasive reasons to deny the amendment now.
In my view, the objectives of the overarching purpose will best be achieved by allowing the amendment. There may be many good reasons ultimately why none the orders proposed in Alternative C should be made, including prejudice to third parties to the marriage. There is no doubt that the ways the wife wishes to put her case through Alternatives A, B or C, will compel the Court, in the process of exercising its discretion, to weigh the claims of the spouse parties to property adjustment between themselves, in light of the conventional jurisprudence about contributions and any other relevant matters, against the rights and entitlements of third parties to the marriage. This may involve a difficult assessment of the extent to which the claims of the wife, arising out of her marriage to the husband and pursuant to provisions of the Act, can compete with the substantial commercial interests of third parties arising from their relationships with the husband and corporations which he controls. However, these are potential issues and problems which must await a final hearing. They do not militate against allowing the amendment.
If the amendment is allowed, the Court and the parties will be in a better position to understand the scope of all the issues to be agitated at trial. This will promote more effective case management in my view, and promote the overarching purpose, in particular its objectives to achieve a just determination and disposal of all proceedings before the Court between these parties, the efficient use of the judicial and administrative resources, and the efficient disposal of the Court’s overall caseload.
Accordingly I will make the orders set out at the commencement of these reasons.
I certify that the preceding thirty-three (33) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Harper. Associate:
Dated: [9 August 2023
SCHEDULE OF PARTIES
SYC 6819 of 2018 Respondents
Fourth Respondent:
F LIMITED
Fifth Respondent:
F3 PTY LTD, SOLELY IN ITS CAPACITY AS AGENT UNDER THE NOTE SUBSCRIPTION AGREEMENT ORIGINALLY DATED 3 OCTOBER 2019, AS AMENDED (the NSA)
Sixth Respondent:
F4 PTY LTD, SOLELY IN ITS CAPACITY AS SECURITY TRUSTEE UNDER THE NSA
Seventh Respondent:
O INVESTMENT FUND, ACTING IN RESPECT OF AND FOR THE ACCOUNT OF ITS SUB-FUND O LLC 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
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