Kendling and Kendling and Anor

[2008] FamCA 188

FAMILY COURT OF AUSTRALIA

KENDLING & KENDLING AND ANOR [2008] FamCA 188

FAMILY LAW – CONTEMPT

Family Law Act 1975 (Cth) s 112AP
Evidence Act 1975 (Cth) s 141

APPLICANT: Mrs Kendling

RESPONDENT: Mr Kendling

2^nd RESPONDENT: B Ltd

FILE NUMBER: SYF 2903 of 2003

DATE DELIVERED: 20 March 2008

PLACE DELIVERED: Sydney

PLACE HEARD: Sydney

JUDGMENT OF: Watts J

HEARING DATE: 12 March 2008

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Beaumont

SOLICITOR FOR THE APPLICANT: Michael Conley Lawyers

COUNSEL FOR THE RESPONDENTS: Mr Baran

SOLICITOR FOR THE RESPONDENTS: Dorrough Smart  Solicitors

Orders

(Orders made 12 March 2008)

IT IS NOTED THAT:

1. A prima facie case is established against the husband in relation to the contempt charge arising from the application filed on 21 December 2007.

2. A prima facie case is established against the husband in relation to the contempt charge arising from the first count contained in the application filed on 26 February 2008.

3. A prima facie case is established against the husband in relation to the contempt charge arising from the second count in the application filed on 26 February 2008.

4. A prima facie case is established against B Ltd in relation to the contempt charge arising from the application filed on 26 February 2008.

IT IS ORDERED THAT:

1. Any outstanding application filed by the wife asserting a contempt of an order or non contravention of an order by any person or company other than the application for contempt filed against the husband on 21 December 2007; the application for contempt against the husband filed on 26 February 2008 and the application for contempt against B Limited filed 26 February 2008 be withdrawn and dismissed and this includes an application for contempt filed by wife on 29 January 2008 against the husband, B Limited, LR & AH but I note the wife indicates that she intends to make an application for costs in relation to these applications. 

2. Any affidavit material the husband or B Ltd wishes to file by himself, itself or any witness in response to the prima facie cases for contempt against the husband and B Ltd, be filed and served within 7 days.

3. This matter be adjourned to 20 March 2007 at 9.30am for mention.

4. This matter be adjourned for further hearing on 25 March 2008 at 10am. 

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

FAMILY COURT OF AUSTRALIA AT SYDNEY

FILE NUMBER: SYF 2903 of 2003

Mrs Kendling

Applicant

And

Mr Kendling

Respondent

And

B Ltd

2^nd Respondent

REASONS FOR JUDGMENT

INTRODUCTION

1. The wife has filed three applications seeking that findings of contempt pursuant to s.112AP Family Law Act 1975 be made against, on three counts, the respondent husband and on one count, B Ltd, the eighth respondent in the proceedings.

2. Pursuant to applications filed by the wife on 21 December 2007 and 26 February 2008 the husband was charged with:-

   2.1.Being guilty of a contempt of this Court which involved a flagrant challenge to the authority of the Court, in that he, on or about 2 July 2007, granted to Ms Penelope Kendling, a mortgage over a portion of his shareholding in B Ltd, in deliberate breach of an order by way of injunction made by Cohen J on 29 June 2007. 

   2.2.Being guilty of contempt of this Court which involved a flagrant challenge to the authority of the Court, in that, in or about January or February 2008, he deliberately caused, or deliberately assisted in causing, B Ltd to breach order 9 of the orders made 27 September 2007, by lending and advancing to the husband a sum of money in the amount of at least $1,100,000.

   2.3.Being guilty of a contempt of this Court which involved a flagrant challenge to the authority of the Court, in that he, in or about January or February 2008, granted to BLtd, a mortgage or charge over 10 percent of his shareholding in B Ltd, in deliberate breach of order 1 of the orders made by Cohen J on 4 July 2007. 

   and B Ltd was charged with:-

   2.4.Being guilty of a contempt of this Court which involves a flagrant challenge to the authority of the Court, in that B Ltd, in or about January or February 2008, lent and advanced to the husband, a sum of money in the amount of at least $1,100,000, in deliberate breach of order 9 of the orders made on 27 September 2007. 

3. Each of the three charges against the husband was read to him and after taking advice from his Counsel he indicated that he understood each of the charges and that he denied each of the charges.

4. The husband appeared as managing director of B Ltd.  On behalf of the company he indicated that the company understood the charge against it and it denied the charge. 

5. Mr Baran of Counsel appeared on behalf of both the husband and the company and Mr Baran conceded “knowledge of order” by both the husband and the company.  That is, the hearing of the charges against the husband and the company proceeded before me on the basis that the husband and the company conceded knowledge of the Court orders made on 29 June 2007, 4 July 2007 and 27 September 2007 at the time of the alleged respective breaches and consequently the trial proceeded before me on the basis that no evidence was required to establish that the husband or the company had knowledge of the relevant orders said to be breached at the date the alleged breaches occurred. 

6. The husband conceded that there had been service upon the husband of the application filed on 21 December 2007; that there had been service upon the husband of the application filed on 26 February 2008 and that the company had been served with the application filed in respect of the company on 26 February 2008.  The husband conceded that he and the company had been served with the wife’s affidavit sworn 21 December 2007 and the wife’s affidavit sworn 25 February 2008. 

7. On 29 June 2007 Cohen J, after a defended hearing, made the following order:-

   1.That until 5.00pm on Wednesday 4 July 2007 the husband is hereby restrained by injunction from assigning, transferring, selling, encumbering by mortgage or charge or otherwise in any way dealing with or disposing of his interest or any part thereof in [B Ltd] or doing any act or thing that has the effect of diminishing the value of his interest in [B Ltd] except in the course of the ordinary day to day business of [B Ltd].

8. On 4 July 2007 Cohen J, after a defended hearing, made the following order:-

   1.That pending further or final [sic] the husband is hereby restrained from assigning, transferring, selling, encumbering by mortgage, charge or by any means dealing with or disposing of his interest or any part of his interest at law or in equity in [B Ltd] and from doing or failing to do any act, or thing or executing any document which has the effect of diminishing the value of [B Ltd] except in the course of managing the day to day business of the said company.”

9. On 27 September 2007 following a contested hearing before O’Ryan J, an order was made in the following terms:-

   9.Until further order [B Ltd] is restrained from making any loans or advances to or for the benefit of any person or persons or any other entity. 

10. The applications proceeded together. No application was made for separate trials at the commencement of the trial and, in any event, it was appropriate that the matters proceeded together. 

11. The wife relied upon two affidavits in support of the charges.  The first was sworn 20 December 2007 and filed 21 December 2007.  The second was sworn 25 February 2008 and filed 26 February 2008. 

12. Objections were successfully taken to various parts of the wife’s affidavits and other parts were not pressed.  An attempt by the wife to tender material that was only served upon the husband and the company the day before the hearing, was not successful.  The wife was cross examined and re-examined.  Some documents were tendered during the re-examination of the wife.

NATURE OF THE PROCEEDINGS

1. The wife proceeds under s.112AP of the Family Law Act (“FLA”). Each allegation made involves not only a contravention of an order of the Court but in addition a “flagrant challenge to the authority of the Court”.

2. The onus of proof must be established by the wife as prosecutor on all elements beyond reasonable doubt (Witham v Holloway (1995) 183 CLR 525; Tait and Tait (2002) FLC 93-107; Abduramanoski and Abduramanoska (2005) FLC 93-215).

3. The provisions of s.141 of the Evidence Act 1995 (Cth) apply and are in the following terms:-

   1.In a criminal proceeding, the court is not to find the case for the prosecution proved unless it is satisfied that it has been proved beyond reasonable doubt

   2.In a criminal proceeding, the court is to find the case of a defendant proved if it is satisfied that the case has been proved on the balance of probabilities.

4. The first of the two charges against the husband arising from the application for contempt filed on 26 February 2008 is a charge that the husband aided and abetted B Ltd to breach a court order. Section 112AB(1)(b)(ii) FLA defines a contravention of an order to include aiding and abetting a contravention of an order by a person who is bound by it.

FLAGRANT CHALLENGE TO THE AUTHORITY OF THE COURT

1. It is asserted that each of the contempts with which the husband has been charged constitutes a “contravention of an order under this Act and involves a flagrant challenge to the authority of the Court” within the meaning of s.112AP(1)(b) of the Family Law Act.

2. The concept of “flagrant challenge” involves conduct of an exceptional striking or repeated nature (see Ibbotson v Wincen (1994) FLC 92-496; Fauna Holdings v Mitchell (2000) FLC 93-053). The breach in question must be wilful (that is, deliberate as distinct as inadvertent) but not necessarily contumacious (English (1986) 10 Fam LR 808; Hay (1998) FLC 92-819; Mead (2006) FLC 93-267).

ALLEGED BREACH BY THE HUSBAND OF THE ORDER OF 29 JUNE 2007

1. Prior to the order being made there was between 12 June and 26 June extensive correspondence between the lawyers then representing the husband and the lawyers representing the wife about the husband wanting to sell a 10 percent parcel of his shares in B Ltd in order to raise funds to comply with the interim order for costs that had been made against the husband in these proceedings on 25 May 2007.  The correspondence discloses an opposition and alarm by the wife to the proposal by the husband to sell a 10 percent parcel of his shares in B Ltd.

2. In a letter dated 12 June 2007 the husband’s then solicitors indicated to the wife’s solicitors that the husband intended to proceed with a sale of his shares at 5pm on Friday 15 June 2007 and if the purchaser was prepared to proceed with the purchase he proposed to enter into a contract on Monday 18 June 2007.  The letter of 12 June 2007 from the husband’s solicitors also indicates that he had during May approached various financial institutions, including the National Australia Bank, Westpac Commercial Centre and Members Equity Bank, offering 5,000,000 shares (which the husband asserted were worth $5,000,000) as security for a borrowing of $1,300,000. 

3. On 14 June 2007 the wife’s solicitors replied to the husband’s solicitors seeking further information and seeking an assurance that no sale occur prior to that happening. 

4. On 15 June 2007 the husband’s solicitors replied to the wife’s solicitors attaching some further information but otherwise rejecting the complaint as to lack of information.  The final paragraph of the letter reads:-

   “Our client has instructed us to provide an undertaking on his behalf that he will not enter into a contract for sale of any of his shares in [B] Limited until your client has had an opportunity of considering the above material.  Please let us have your response urgently as the interim costs order is to be partly paid early next week.”

5. The letter of 15 June also indicates that the husband had been considering as a possible avenue of meeting his obligations under the interim costs order seeking a borrowing against the security of the shares. 

6. On 22 June 2007 the wife’s solicitors advised the husband’s solicitors that the wife did not consent to the sale of any of the husband’s shares. 

7. On 26 June the husband’s solicitors by facsimile transmission, wrote to the wife’s solicitors saying that the husband had no option but to proceed with a sale of part of his shareholding and that hopefully the sale could be completed on or before 4 July 2007

8. It was in these circumstances that the wife filed her urgent application on 28 June 2007 which came before the Court on a defended basis on 29 June 2007.

9. The wife sought injunctive orders which included an order that the husband not encumber by mortgage or charge or otherwise in any way deal with any part of his interest in B Ltd.

10. The husband was represented at Court on 29 June 2007 by senior and junior counsel in contested proceedings.  At the conclusion of those proceedings on 29 June 2007 Cohen J made orders.

11. The husband concedes that he knew that the order of 29 June 2007 had been made at the time of the alleged breach. 

12. The alleged breach of the orders is said to have occurred on or about 2 July 2007 (that is, on or about three days after the orders were made).

ALLEGED BREACH OF THE ORDER OF 29 JUNE 2007

1. It is alleged that the husband in breach of the order of 29 June 2007 and in a flagrant challenge to the authority of the Court, granted to Ms Penelope Kendling a mortgage over a proportion of the shareholding in B Ltd.

2. Annexure D to the wife’s affidavit sworn 20 December 2007 is an affidavit sworn by the husband on 13 December 2007.  At paragraph 13 of that affidavit the husband makes the following admission:-

   “On the last occasion when I had access to $1.1 million dollars to satisfy the Court Orders of 25^th May 2007, I had to do so by making a personal borrowing of those moneys from my daughter, [Ms Penelope Kendling].  Annexed hereto and marked with the letter “B” is a copy of the Loan Agreement between Ms [Penelope Kendling] and myself which incorporates those moneys paid by me to the Wife in satisfaction of those Court Orders referred to herein.  I have no further access to making further borrowings from Ms [Penelope Kendling] or from my other children.”

3. The loan agreement which the husband annexes records that Ms Penelope Kendling will make advances available to the husband as follows:-

   a.The sum of $550,000 on the date of this agreement

   b.The sum of $850,000 on or before 16 July 2007

   c.The sum of $100,000 after 16 July 2007 and upon the husband’s written request.

4. Under the loan agreement, if an event of default occurs as defined in clause 10(2), then the loan and all interest becomes immediately payable at the option of the lender and in the event the lender exercises that option “the security will become immediately enforceable”. 

5. The “security” is relevantly defined to mean the “security listed at item 7....”. 

6. The security referred to in item 7 of the loan agreement is:-

   “First mortgage over 10% of the borrower’s shareholding in [B] Limited”

7. The interest rate on the principle sum of $1,500,000 is 12 percent per annum and the term of the agreement is five years.

8. The husband confirmed in an affidavit sworn 19 February 2008 that he had given Penelope Kendling security over 10 percent of his shares in B Ltd.

THE DATE OF THE LOAN AGREEMENT

1. The gravamen of the husband’s defence to the first charge is that there is a reasonable doubt as to whether or not by 4 July 2007 the husband had given mortgage to Ms Penelope Kendling of $1,100,000. 

2. On 16 December 2007 the solicitor for the husband, Ms Megan Dorrough, swore an affidavit in which she gave the following evidence:-

   “Loan Agreement – between the Husband and [Ms Penelope Kendling]

   40.I am aware a copy of the Loan Agreement between the Husband and [Ms Penelope Kendling] was annexed to the Affidavit of the Husband, sworn on 13^th December 2007, in support of his Response to the Second Costs Application of the Wife.

   41.I am aware that His Honour, Justice O’Ryan, made Orders on Friday 14^th December 2007, which included a Direction that the further Affidavit material to be drafted in support of this current Application of the Husband was to include a disclose of the date of that Loan Agreement.

   42.In the haste of attempting to complete the Affidavit of the Husband on the afternoon of Friday 14^th December 2007, in compliance with His Honour’s further Orders on that day, I did not include a paragraph in the Husband’s Orders deposing to this required date.  This was a genuine oversight on my part.

   43.I can say that I spoke with the Husband in regard to this issue, and said to him, words to the effect: “I could not find a date on the copy of the loan Agreement that you gave me.  What date was that Agreement signed with [Penelope (Kendling)]?”  The Husband responded by saying, words to the effect: “It was 2^nd July 2007.  I’m surprised that copy doesn’t have it on it somewhere.  The original did have it on it.  I’ll have to try to get another copy of the original for you”. 

   44.I am aware that a conversation took place been [sic] Mr Richardson, SC, and Mr Baran of Counsel, outside the Court at the commencement of the adjournment period, at approximately 10.30am on Friday 14^th December 2007.  I then had a conversation with Mr Baran, as a result of his conversation with Mr Richardson.  I then heard Mr Baran say to Mr Richardson, words to the effect: “I am instructed that the date for the Loan Agreement was 2^nd July 2007”. 

3. The copy of the loan agreement which is in evidence before me is undated.  The wife gave evidence that requests had been made for the dated copy but that document has not been forthcoming from the husband. 

4. Relying upon Jones v Dunkel & Anor (1959) CLR 298, Counsel for the husband submitted that the wife’s case should be considered defective because she had failed to secure the attendance of Penelope Kendling as a witness in her case. It was put that Ms Kendling may have a dated copy of the loan agreement. It was submitted that I could infer that the failure to call Ms Kendling was because the wife assumed that her case would be weakened if she did do that. Mr Baran submits that the wife could have subpoenaed Ms Kendling and could have compelled her to give evidence. The wife gave evidence that there were reasons why the court would conclude, and I do, that Ms Kendling was not a witness who would voluntarily give evidence in the wife’s case and was a witness who is closely aligned with the husband’s cause. There have been and still are serious personal difficulties between the wife and Penelope Kendling.

5. There are at least two problems with Mr Baran’s Jones v Dunkel submission arising from:-

   43.1.The husband’s own affidavit evidence which has been relied on in other proceedings without correction, the wife had no reason to assume that the date of the agreement was going to be an issue in the proceedings.

   43.2.Exhibit B is paragraph 38 of an affidavit sworn by Ms Penelope Kendling on 17 December 2007.  In it she makes the statement: “I executed a loan agreement for $1.5 million dollars with [the husband] on 2 July 2007”. 

6. Counsel for the husband in cross examination of the wife put the following to her:

   “I just want to put something to you, madam, which I am obliged to do.  I want to put it to you that the loan agreement, which is the loan agreement referred to at page 61 of your affidavit, did not come into existence until on or about 13 July 2007.  Do you know that, or not?---I beg your pardon?

   I want to put it to you that the loan agreement referred to at page 61 of your affidavit did not come into existence until on or about 13 July 2007, do you know that or not?---I can’t confirm that.”

1. An inference can be drawn that this question was put on instructions by the husband, and that his defence will be that the mortgage was entered into after 4 July 2007. 

2. In re-examination of the wife, Counsel for the wife tendered records from Westpac Banking Corporation (Exhibit D).  Those records disclose that an amount of $550,000 was received into the husband’s business cheque account on 6 July 2007.  The amount of $500,500 was paid out of that account to the wife on 9 July 2007. 

3. I was asked to infer that on the basis of that record, the position of the husband in relation to the date of the agreement as asserted by Counsel for the husband to the wife in cross examination could not be accurate.  On a prima facie basis I conclude that that is so.

4. As set out above, the copy of the loan agreement that is in evidence asserts that the sum of $550,000 will be made available on “the date of this agreement”.  Absent other evidence that might indicate that the agreement was dated 6 July 2007 (the date that the money was deposited into the husband’s account).  There are a number of things to say about that:-

   48.1.Counsel for the husband did not make that submission.

   48.2.The wife is entitled at a prima facie level to rely upon the admissions made by Ms Dorrough in direct response to an order made by Justice O’Ryan for the disclosure of information about the date of the agreement.

   48.3.The fact that a document asserts that money is paid on the day it is dated does not necessarily mean that that is so and commercial experience would indicate that it is often not so.

   48.4.If the agreement is dated after 4 July, orders were made on 4 July in similar terms to the order made 29 June without any further time restriction being placed upon that order.  I am mindful that the wife however has not in the alternative at this time sought that the husband be charged with a breach of the order of 4 July 2007. 

CONCLUSION

1. On a prima facie basis I am satisfied that the husband knew about the orders of 29 June 2007 and that he deliberately breached them.  Having regard to the circumstances leading up to the breach and to the short period of time that elapsed after the order was made before the husband committed the breach, that the breach amounts to a flagrant challenge to the authority of the Court.  I am satisfied on a prima facie basis that the first charge against the husband is made out to the requisite standard and the husband could be lawfully convicted on the evidence as it stands. 

BREACH OF ORDERS MADE 27 SEPTEMBER 2007

1. The next series of alleged contempts, two against the husband and one against B Ltd, arise out of the same event. 

2. The husband and the company have both conceded their knowledge of the orders of 4 July 2007 and 27 September 2007 as at January and February 2008.

3. The husband in an affidavit which he swore and filed 19 February 2008 (annexure “C” to the wife’s affidavit sworn 25 February 2008) states at paragraphs 6 – 9:-

   6.I am aware that in January 2008 [T Pty Ltd] was required to complete a contract for the purchase of real estate at [F] entered into in approximately mid 2006.

   7.As I could not raise funds from any external sources to repay the money borrowed from my daughter when [T Pty Ltd] called in the loan to her, I could only meet the repayment demand by taking an advance from funds held on deposit by [B Ltd], and the [B Ltd] Director consented to this as a further interim measure, with [B Ltd] taking as security the 10% Shareholding of mine, which [Penelope Kendling] had previously held as security over those moneys borrowed.

   8.I was compelled to repay the loan from my daughter by this means because I had no other means of raising the required funds and I could not put [T Pty Ltd] at risk of losing money if it failed to complete its contract.

   9.To not make repayment when demand was made, I would also have exposed myself to a claim by [T Pty Ltd] for any losses it might sustain.

4. So, the husband’s own sworn evidence is to the effect that notwithstanding that he knew and the company knew that the company was restrained from making any loans or advances to or for the benefit of any person or persons or any other entity, the husband and the company involved themselves in arrangements whereby:-

   53.1.Moneys were lent by B Ltd to the husband.

   53.2.The amount of $1,100,000 was repaid to Penelope Kendling.

   53.3.Penelope Kendling discharged the security over the husband’s 10 percent shareholding in B Ltd.

   53.4.The husband’s 10 percent shareholding in B Ltd was offered back to B Ltd as security for the loan.

5. These breaches took place at a time when the husband had already been served with an application for contempt of the June order (See Exhibit F which is the affidavit of service of documents in relation to the charges against the husband for the first contempt.  That affidavit of service indicates that those documents were served upon the husband on 21 December 2007). 

6. I find that both charges made against the husband pursuant to the application for contempt filed on 26 February 2008 are, prima facie, made out to the requisite standard and the husband could be lawfully convicted on the evidence as it stands.

7. I find that the charge against B Limited contained in the application for contempt filed 26 February 2008 are, prima facie, made out to the requisite standard and the company could be lawfully convicted on the evidence as it stands.

I certify that the preceding fifty-six (56) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Watts

Associate: 

Date:  20 March 2008