Klearchos and Klearchos and Ors
[2017] FamCA 14
•19 January 2017
FAMILY COURT OF AUSTRALIA
| KLEARCHOS & KLEARCHOS AND ORS | [2017] FamCA 14 |
| FAMILY LAW – PRACTICE AND PROCEDURE – Summary dismissal – Application by the fifth respondent for summary dismissal of the wife’s claim against the fifth respondent pursuant to s 106B(1) of the Family Law Act 1975 (Cth) – Where the fifth respondent’s case is as to the adequacy of the wife’s pleadings – Where the fifth respondent can be under no misapprehension as to the wife’s case – Where the fifth respondent has not established that the wife’s case has no reasonable likelihood of success – Where the fifth respondent has not established that the wife has no reasonable likelihood of establishing that at the relevant time a property settlement order between husband and wife was reasonably anticipated – Where there are serious factual and legal questions to be determined at trial – Application for summary dismissal dismissed. |
| FAMILY LAW – INTERLOCUTORY INJUNCTION – Application by the wife to extend an injunction affecting the fifth respondent – Where the fifth respondent was not a party to the proceedings when the injunction was made – Where the wife has established that an injunction is reasonably necessary to effect a division of property between the husband and wife – Where it is just and convenient to extend the injunction – Order made to extend the injunction to 30 days following the conclusion of the proceedings. |
| Family Law Act 1975 (Cth) ss 79, 90AF, 106B, 114(3) Family Law Rules 2004 (Cth) r 10.12, 10.14 |
| Bretton & Bondai[2013] FamCAFC 168 Burton v President of the Shire of Bairnsdale (1908) 7 CLR 76 Lindon v The Commonwealth (No 2) (1996) 136 ALR 251 M & DB (2006) FLC 93-293 Spencer v The Commonwealth(2010) 241 CLR 118 Waugh & Waugh(2000) FLC 93-052 |
| APPLICANT: | Ms Klearchos |
| RESPONDENT: | Mr Klearchos |
| SECOND RESPONDENT: | E Pty Ltd |
| THIRD RESPONDENT: | Q Pty Ltd |
| FOURTH RESPONDENT: | R Pty Ltd |
| FIFTH RESPONDENT: | H Ltd | |||||
| Mr Norton | |||||
| FILE NUMBER: | SYC | 2977 | of | 2013 | ||
| DATE DELIVERED: | 19 January 2017 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Loughnan J |
| HEARING DATE: | 15 December 2016 |
REPRESENTATION
| COUNSEL FOR THE APPLICANT WIFE: | Mr Cummings SC |
| SOLICITOR FOR THE APPLICANT: | Lander & Rogers |
COUNSEL FOR THE RESPONDENT HUSBAND: | No appearance |
| SOLICITOR FOR THE RESPONDENT HUSBAND: | No appearance |
| COUNSEL FOR THE SECOND, THIRD AND FOURTH RESPONDENTS: | Mr Kerr SC |
| SOLICITOR FOR THE SECOND, THIRD AND FOURTH RESPONDENTS: | Argyle Lawyers |
| COUNSEL FOR THE FIFTH RESPONDENT: | Mr Priestly SC |
| SOLICITOR FOR THE FIFTH RESPONDENT: | Henry Davis York |
| COUNSEL FOR THE SIXTH RESPONDENT: | No appearance |
| SOLICITOR FOR THE SIXTH RESPONDENT: | No appearance |
Orders
The Response to an Application in a Case filed by H Ltd on 6 December 2016 (including an application for summary dismissal of the wife’s application for final orders against H Ltd in the substantive proceedings) is dismissed.
The interlocutory orders of 23 June 2014, as varied on 6 December 2016, be further varied by replacing the words and figures “paragraphs 9(a) to 9(c)” in paragraph 17 of those orders with the words and figures “paragraphs 9(a) to 9(e)”.
Order 2 is made on the undertaking of the wife dated 15 December 2016.
The parties are at liberty to address the Court in relation to the wording of these orders by seeking that the matter be relisted by arrangement with the Court and each other, within 14 days or within such further time as the parties may agree.
Note: The form of the order is subject to the entry of the order in the Court’s records.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Klearchos & Klearchos & Ors has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC2977 of 2013
| Ms Klearchos |
Applicant
And
| Mr Klearchos |
Respondent
And
| E Pty Ltd |
Second Respondent
And
| Q Pty Ltd |
Third Respondent
And
| R Pty Ltd |
Fourth Respondent
And
| H Ltd |
Fifth Respondent
And
Mr Norton
Sixth Respondent
REASONS FOR JUDGMENT
The substantive proceedings mainly involve a property settlement between wife and husband. They are listed for final hearing over 10 days commencing on 20 March 2017. An earlier hearing to commence on 28 November 2016 was vacated.
These interlocutory proceedings were commenced by the fifth respondent, H Ltd (“ML”) and by the wife. By orders sought in a Response to an Application in a Case filed on 6 December 2016 ML seeks summary dismissal of the wife’s claims against it in the substantive proceedings. In the alternative, ML seeks that injunctions insofar as they affect ML, be discharged.
The wife opposes that application and by her Application in a Case also filed on 6 December 2016, she seeks the extension of an injunction affecting ML, made on 23 June 2014 and varied on 6 December 2016.
On 15 December 2016, apart from the wife and ML, the second to fourth respondents were represented by their counsel but he did not take an active part in the hearing. The husband and the sixth respondent were excused and did not appear.
At the conclusion of the hearing, save for an anticipated agreement about continuing an aspect of the injunctions made on 23 June 2014 to await the outcome of the wife’s interim application, judgment was reserved.
The Summary Dismissal Application
By orders sought in a Response to an Application in a Case filed on 6 December 2016, ML seeks summary dismissal of the wife’s claims against it in the substantive proceedings.
By her Third Further Amended Initiating Application dated 6 December 2016 the wife seeks the following orders for property settlement:[1]
[1] The paragraph numbering in the wife’s Third Further Amended Initiating Application is disjointed because of the many amendments. Here the orders sought are numbered consecutively.
1.The Court declares that [Q] holds its interest in [E] on trust for the Husband.
2.The following transactions and instruments be set aside pursuant to section 106B of the Family Law Act 1975 (Cth):
2.1.the loan agreement between [ML] and [E] dated 27 June 2011 in the sum of USD$10,000,000;
2.2.the mortgage over the land comprised in Folio 1/80710, being the property situate at and known as [F Street, Suburb G], NSW in the sum of $9,259,259, in the terms contained in Memorandum Q860000 filed with the Land Titles Office ([ML] mortgage) purportedly entered into on 27 June 2011;
2.3.The registration of the [ML] mortgage in dealing number AH839484 on 27 June 2013.
3.Within 60 days from the date of the making of these Orders and contemporaneously:
3.1.the husband pay of cause to be paid to the wife the sum of $30,000,000;
3.2.[E] and the husband do all acts and things and execute all documents necessary to transfer to the wife at the expense of the husband the whole of its right title and interest in the [Suburb G] property together with all the furniture, furnishings, artwork and household effects, and motor vehicles situated at or in the [Suburb G] property as at the date on which this Application was filed, unencumbered.
3.3.[E] and the husband do all acts and things and execute all documents necessary to transfer to the wife at the expense of the husband the whole of its right title and interest in the [Retail Arcade], unencumbered.
3.4.[E] and the husband do all acts and things and execute all documents necessary to transfer to the wife at the expense of the husband the whole of its right title and interest in the [Sydney CBD] property together with all the furniture, furnishings and artwork situated in the [Sydney CBD] property as at the date on which this Application was filed, unencumbered.
3.5.the husband do all acts and things and execute all documents necessary to transfer to the wife at the expense of the husband the whole of his interest in the [VPS] property, unencumbered.
3.6.the husband do all acts and things and sign all documents necessary to transfer or cause to be transferred to the wife the [UK] flat together with all the furniture, furnishings, artwork and household effects, and motor vehicles situated at or in the [UK] flat as at the date on which this Application was filed, unencumbered.
4.In order to give effect to Paragraphs 3.2 to 3.5 hereof:
4.1the directors of [E] do all acts and things and sign all necessary documents to transfer to the husband, at the expense of the husband all of [E’s] interest in the said properties and the husband forthwith irrevocably authorise and direct the transfer of those properties from his name into the name of the wife;
4.2in the event any property referred to in paragraph 12.1 hereof is sold by [E] prior to the delivery of judgment in these proceedings the proceeds of any such sale, net of the costs of sale, be forthwith paid to the wife;
4.3.Pursuant to s 447A of the Corporations Act 2001, the Deed of Company Arrangement dated 14 May 2014 be terminated or varied.
5.The husband pay or cause to be paid all tax including:
5.1.income tax, penalty tax, charges, interest or fines arising from assessments for taxation received by the wife up to and including the date of compliance by the husband and [E] with paragraphs 3 and 4 of these orders.
5.2capital gains tax and stamp duty assessed in relation to the transfers referred to in paragraphs 3 and 4 of these Orders, and
5.3.land tax and any other taxes assessed as payable by the wife in respect of the [Suburb G] property or the [UK] flat up to and including the conclusion of the land tax year ending after the date of compliance by the husband with paragraph 3 and 4 of these Orders;
5.4.income tax, penalty tax or fines arising from assessments for taxation (including but not limited to any assessments of group tax, payroll tax, capital gains tax or fringe benefits tax) relating to any business activity conducted by the businesses operated by the companies or any of them for the period up to and including 30 June after the date of compliance by the husband and E with paragraph 3 and 4 of these Orders;
6.Pending compliance by the husband and [E] with Paragraph 3 and 4 of these Orders:
6.l.the husband and his nominees shall if called upon to do so vote at any meetings of members and directors of the companies in favour of such resolutions as the wife may direct;
6.2.the husband is restrained by injunction from exercising his power of appointment to appoint a new trustee to any Trust;
6.3.each of the companies is restrained by injunction:
6.3.1.from selling, transferring, assigning, encumbering or alienating their shares and/or interest of any nature whatsoever in any company;
6.3.2.from doing any act or thing that may cause the assets of the companies to be disbursed, sold, transferred, assigned, further encumbered, alienated or leased in any matter (sic) whatsoever;
6.3.3.from doing any act or thing to cause the winding up of any of the companies;
6.3.4.from doing any act or thing to cause or permit any of the companies to fail to meet their liabilities as and when same fall due;
6.3.5.from selling, mortgaging, assigning, alienating or further encumbering any real property of which it is the registered proprietor;
6.3.6.from further encumbering or entering into any transaction that would further encumber any of them other than:
(a)in the ordinary course of business as properly documented in the records of the companies, and after having given the wife not less than 21 days’ notice in writing or their intention to do so;
(b)to comply with the (sic) paragraphs 3 and 4 of these Orders;
6.3.7.from doing any act or thing to prevent the wife from lodging and maintaining caveats over the interest of the husband, the companies or any of them in any real property other than to comply with paragraphs 3 and 4 of these Orders; and
6.4.the husband and the companies hold their assets on trust for the wife.
7.Within 30 days from the date of the making of these Orders, the husband deliver or cause to be delivered to the wife all her clothing, jewellery and personal possessions.
8.Other than as is specifically provided for in these Orders the husband and the wife are solely entitled to the exclusion of the other to all other property and chattels of whatsoever nature and kind in the possession of each of the husband and the wife as at the date of the making of these Orders.
…
The Law
Rule 10.12 of the Family Law Rules 2004 (Cth) (“the Rules”) provides:
Application for summary orders
A party may apply for summary orders after a response has been filed if the party claims, in relation to the application or response, that:
(a) the court has no jurisdiction;
(b) the other party has no legal capacity to apply for the orders sought;
(c) it is frivolous, vexatious or an abuse of process; or
(d) there is no reasonable likelihood of success.
Rule 10.14 provides:
What the court may order under this Part
(a) dismiss any part of the case;
(b) decide an issue;
(c) make a final order on any issue;
(d) order a hearing about an issue or fact; or
(e) with the consent of the parties, order arbitration about the case or part of the case.
Note: This list does not limit the powers of the court. The court may make orders on an application, or on its own initiative (see rule 1.10).
In the High Court decision of Lindon v The Commonwealth (No 2) (1996) 136 ALR 251 (“Lindon”) Kirby J set out the principles governing summary dismissal applications in the following terms:
14.The approach to be taken by the Court to the Commonwealth's application for summary relief is not in doubt:
1.It is a serious matter to deprive a person of access to the courts of law for it is there that the rule of law is upheld, including against Government and other powerful interests. This is why relief, whether under O 26, r 18 or in the inherent jurisdiction of the Court, is rarely and sparingly provided;
2.To secure such relief, the party seeking it must show that it is clear, on the face of the opponent's documents, that the opponent lacks a reasonable cause of action or is advancing a claim that is clearly frivolous or vexatious;
3.An opinion of the Court that a case appears weak and such that it is unlikely to succeed is not, alone, sufficient to warrant summary termination. Even a weak case is entitled to the time of a court. Experience teaches that the concentration of attention, elaborated evidence and argument and extended time for reflection will sometimes turn an apparently unpromising cause into a successful judgment;
4.Summary relief of the kind provided for by O 26, r 18, for absence of a reasonable cause of action, is not a substitute for proceeding by way of demurrer. If there is a serious legal question to be determined, it should ordinarily be determined at a trial for the proof of facts may sometimes assist the judicial mind to understand and apply the law that is invoked and to do so in circumstances more conducive to deciding a real case involving actual litigants rather than one determined on imagined or assumed facts;
5.If, notwithstanding the defects of pleadings, it appears that a party may have a reasonable cause of action which it has failed to put in proper form, a court will ordinarily allow that party to reframe its pleading. A question has arisen as to whether O 26, r 18 applies to part only of a pleading. However, it is unnecessary in this case to consider that question because the Commonwealth's attack was upon the entirety of Mr Lindon's statement of claim; and
6.The guiding principle is, as stated in O 26, r 18(2), doing what is just. If it is clear that proceedings within the concept of the pleading under scrutiny are doomed to fail, the Court should dismiss the action to protect the defendant from being further troubled, to save the plaintiff from further costs and disappointment and to relieve the Court of the burden of further wasted time which could be devoted to the determination of claims which have legal merit.
(Footnotes omitted)
In the second paragraph of the passage quoted above from Lindon, Kirby J refers to a pleading being struck out because the party filing it “lacks a reasonable cause of action”. In my view the reference in paragraph 6 of that passage to the proceedings under scrutiny being “doomed to fail” does not arise because of any confusion about the relevant test but is by way of example of the mischief at which the power of summary dismissal is aimed. Notwithstanding the latter reference, those proceedings were determined on the basis of the now repealed High Court Rules which provided at Order 26, r 18(1) and (2):
(1) The Court or a Justice may order a pleading to be struck out on the ground that it does not disclose a reasonable cause of action ...
(2) In that case, or in case of the action ... being shown by the pleadings to be frivolous or vexatious, the Court or a Justice may order the action to be stayed or dismissed, or judgment to be entered accordingly, as is just.
In my view there can be no controversy about the relevant test in the circumstances before me. As was the situation before the High Court in Lindon, ML does not need to establish that the wife’s case against it is doomed to fail. That is important because the phrases “doomed to fail” and “no reasonable likelihood of success” have different meanings. If that proposition requires support, in Bretton & Bondai[2013] FamCAFC 168 at [59], Finn and Strickland JJ with whom May J agreed on this issue, held that there is a significant difference in the meaning of the test established in the Family Law Rules 2004 (Cth) of “no reasonable likelihood of success” and the reference by Kirby J in Lindon to proceedings being “doomed to fail”. A similar finding was made in relation to the Federal Court Rules in Spencer v The Commonwealth (2010) 241 CLR 118 at page 139 – 140.
It falls to ML to establish that on the face of the wife’s documents, the wife’s case against ML has no reasonable likelihood of success or that she is advancing a claim that is clearly frivolous or vexatious.
The wife’s claim against ML is that the following instruments or dispositions should each be set aside under s 106B of the Family Law Act 1975 (Cth) (“the Act”):
(a)a loan purportedly made by ML to E on or about 27 June 2011 in the sum of US$10,000,000;
(b)a mortgage agreement purportedly made at that time securing the loan against a property at Suburb G; and
(c)the subsequent registration of that agreement against the title of that property.
As I understand the submissions made on behalf of ML, it does not assert that the wife’s claim is frivolous or vexatious. In Burton v President of the Shire of Bairnsdale(1908) 7 CLR 76, at p 92; O’Connor J said:
Primâ facie, every litigant has a right to have matters of law as well as of fact decided according to the ordinary rules of procedure, which give him full time and opportunity for the presentation of his case to the ordinary tribunals, and the inherent jurisdiction of the Court to protect its process from abuse by depriving a litigant of these rights and summarily disposing of an action as frivolous and vexatious in point of law will never be exercised unless the plaintiff's claim is so obviously untenable that it cannot possibly succeed. See Bayne v. Riggall.
(Footnote omitted)
The wife’s claim against ML is made under s 106B(1) of the Act which provides as follows:
FAMILY LAW ACT 1975 - SECT 106B
Transactions to defeat claims
(1) In proceedings under this Act, the court may set aside or restrain the making of an instrument or disposition by or on behalf of, or by direction or in the interest of, a party, which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.
….
There are substantive proceedings under the Act. In order to succeed against ML in those proceedings, the wife will need to establish that the purported loan, mortgage agreement and registration would be likely to defeat an order in her favour for property settlement.
In the substantive proceedings the wife gives evidence in support of a case for relief pursuant to s 79 of the Act. She contends that during the marriage the parties had significant wealth and that the husband retains significant wealth. She gives evidence about the fact of a marriage, the duration of the parties’ cohabitation, contributions of various sorts made by and on behalf of the parties and about matters that would be relevant to any adjustment required by the non-contribution elements of s 79(4).
Among other orders sought, the wife’s substantive property settlement application includes an order calling for a payment by the husband to her of $30,000,000.
In determining the s 79 proceedings, the Court will not be limited to the precise terms of the application of either party to the marriage but is required to decide whether it would be just and equitable to make an order changing their interests in property and if so, what order would lead to a just and equitable settlement.
Various representations are made about the contentions of the husband and the wife about their financial circumstances. Importantly, the husband has deposed that his liabilities exceed the value of his assets. The wife deposes that she has no significant net assets.
At the request of the husband, in 2011 E Pty Ltd (“E”) purchased the Suburb G property, for the wife and him. On 27 June 2011 E purportedly borrowed US$10,000,000 from ML to complete the purchase. A mortgage agreement was prepared at that time in relation to that purported borrowing and the mortgage was registered in 2013.
There is significant complaint on behalf of ML as to the adequacy of the pleading of the wife’s case. In my view that complaint is not well founded. It is the wife’s express contention that the husband exercised effective control over both E and ML at the time of the purported borrowing, one from the other and that the borrowing and the mortgage were sham transactions/instruments. ML can be under no misapprehension as to the wife’s case.
It does not appear to be disputed that E was at all relevant times, owned by Q Pty Ltd (“Q”), which in turn, was at all relevant times the trustee of the Klearchos Family Trust. The husband was a shareholder of Q until September 2012; the sole secretary of Q until June 2010; and the sole director of Q until March 2010. The husband is a beneficiary of the Klearchos Family Trust.
Learned senior counsel for ML informed the Court that at the time of the hearing, all of the shares in ML are owned by S Ltd, which is owned by S Ltd SA, which in turn, is owned by Mr MM.
The wife relies on documents that she contends, suggest that the husband was the owner of E. The wife relies on documents that she contends, reveal that the husband and others believed that he owned or influenced ultimate control over ML. There are issues about the interpretation of some of those documents and there may be issues about the admissibility of some of the documents relied on by the wife. However, for the purposes of the application for summary dismissal, those documents cannot be excluded. In the course of a trial there will be the opportunity for that evidence to be challenged or corroborated. ML has not established that the wife is left with no reasonable likelihood of establishing that the husband exercised effective control over both E and ML at the time of the purported borrowing from one to the other and that the borrowing and the mortgage were sham transactions/instruments.
If the US$10,000,000 debt is a sham, the discharge of that debt and the disbursement of the proceeds would exclude that very significant sum from what may otherwise be an identifiable matrimonial pool of assets of little, if any, significant net value. That outcome is likely to defeat the wife’s claims for property settlement or in any event is likely to defeat a property settlement order in her favour.
It will fall to the wife to establish that an order was reasonably anticipated when the purported loan and mortgage were established. E bought the Suburb G property in August 2011 and the purported loan and mortgage were dated 27 June 2011. It is the wife’s case that at that time the husband was on notice that the marriage was failing. The wife contends that in or around 2010 the husband said to her “...I will see you in the gutter”. The wife contends that she and the husband separated in 2010. The wife deposed that by late June / early July 2010 she had said to the husband “This is hopeless. I am leaving and not coming back to [Europe]. Our marriage is over. We have no future together.” The wife relies on the contents of an email dated 20 October 2010 from Mr JJ to the husband apparently prompted by an earlier conversation between them, about a breakdown or potential breakdown in the relationship between the husband and wife. Although the husband asserts that separation was in 2013, the evidence of both the husband and the wife suggests that their relationship was fractious and ambiguous over the years before and after 2010. ML has not established that those and the other matters contained in the wife’s evidence, leave the wife with no reasonable likelihood of establishing that at the relevant time, a property settlement order was reasonably anticipated.
Of course, the wife might not be able to make her case. It is her case that the formal records of ownership and control in respect of E and ML do not reflect the reality. That is the nature of allegations of or akin to, fraudulent conduct. In that sense she has a difficult case to make but as was noted in Lindon (above) at page 256, the advantages and opportunity of a trial “... will sometimes turn an apparently unpromising cause into a successful judgment”. In my view, there are serious factual and legal questions to be determined and they should be determined at a trial.
ML has not established that the wife’s case against it has no reasonable likelihood of success. The application for summary dismissal will be dismissed.
The Injunction Application
On the wife’s application, orders have been made to extend some of the injunctions granted on 23 June 2014 beyond the expiry date of 20 December 2016. For the hearing on 15 December 2016 there remained a controversy about the extension of injunctions binding E and its directors insofar as those injunctions would affect ML. After hearing from the parties on 15 December 2016, I raised with their counsel, whether there would be an agreement to extend the injunction beyond the expiry date for the purposes of accommodating a delay in the delivery of judgment on that application. Learned senior counsel for the wife and ML gave me to understand that there would be such an agreement and that they would provide to my chambers a minute of the agreed order. Otherwise, on 15 December 2016, judgment was reserved.
Unfortunately, the wife and ML were unable to agree on all of the terms of an order extending the relevant injunctions. On 22 December 2016 they communicated as much to my chambers and joined in a request that orders be made to the extent of their agreement and that the two areas of dispute between them be adjudicated by the Court, in chambers, on the basis of the representations in that communication and without further appearance on behalf of the parties. On 23 December 2016 and for reasons given that day, the following orders were made in chambers:
1.Orders are made in terms of paragraphs 1 and 2 proposed by the applicant wife in the email from the parties to the associate to Justice Loughnan sent at 4.22 pm on 22 December 2016, as set out hereunder:
1.That until the expiration of 30 days from the date of judgment in connection with all applications heard on 15 December 2016, the sixth respondent [Mr Norton] be restrained from making any payments to:
(a)[H Ltd] (referred to in the Deed of Company Arrangement dated 19 May 2014) or its nominee; or
(b)any other overseas entity or person
2.That the Orders made on 23 June 2014, as varied by paragraph 6 of the Orders made on 6 December 2016, otherwise remain in force.
2.The Court notes that those orders are made upon the wife undertaking to the Court that she will abide any order of the Court as to damages should the Court find in the future that the respondents or any of them (as the case may be) have or has sustained any damage by reason of these Orders for which she should accept responsibility.
A written undertaking by the wife in terms of the notation at paragraph 2 was tendered by her counsel on 15 December 2016 and was marked MFI 1.
Background facts
On 23 June 2014, interlocutory orders were made in these proceedings. ML was not then a party to the proceedings. The relevant orders were made on the application of the wife and with the consent of E. Relevantly, the orders and notations included the following:
THE COURT NOTES:
1.The following definitions for the purposes of these Orders:
(a)“[E]” means [E Pty Ltd] CAN … ABN …, a company incorporated in the State of Queensland and having its registered office at, [Sydney CBD], Sydney in the State of New South Wales, of which [Q Pty Ltd] CAN … is the sole shareholder.
(b)“Directors” means [Mr ZK Klearchos] and [Mr HH] acting in their capacity as Directors of [E].
…
2.That (sic) Applicant, [Ms Klearchos], provides an undertaking as to damages to [E] and the Directors.
…
Prohibition on Payment of Certain Debts
9.That subject to the proviso in note 17 of these Orders, Order that the (sic) [E] and the Directors are restrained by injunction from paying any monies whatsoever to:
(a)[DG] Ltd (referred to in the Deed of Company Administration dated 19 May 2014);
(b)[S Ltd] S.A. (referred to in the Deed of Company Administration dated 19 May 2014);
(c)[HL] Ltd (referred to in the Deed of Company Administration dated 19 May 2014);
(d)[ML] Ltd (referred to in the Deed of Company Administration dated 19 May 2014); or
(e)Any other overseas entity or person;
Before 20 December 2016 without the consent of the applicant in writing either in person or through her lawyers.
….
Notes
17.That [E] and the Directors may pay [ML] Ltd $95,000 (or may pay [E’s] Deed Administrator, [Mr Norton]) as required by the Deed of Company Administration dated 19 May 2014. Further that these orders to (sic) not affect the (sic) E’s Deed Administrator, [Mr Norton], and that he is at liberty to carry out his duties in accordance with Deed of Company Arrangement dated 19 May 2014 and in accordance with the Corporations Act (Cth) 2001.
The final trial dates in the substantive proceedings, due to commence on 28 November 2016, were vacated and as a consequence, the proceedings were adjourned to 6 December 2016 in order to deal with some consequential issues. Prior to 6 December 2016, ML was a party to the proceedings (the fifth respondent) and by orders made on that date, E’s Deed Administrator, Mr Norton, became the sixth respondent.
By her Application in a Case filed on 6 December 2016 the wife applied, among other orders, to extend the duration of the injunction contained in order 9 of the earlier orders. She relevantly sought:
...
2.That paragraph 9 of the June 2014 orders be varied to remove the words “before 20 December 2016”.
3.That Note 17 of the June 2014 orders be varied to add the words, at the conclusion of that paragraph, “other than a payment to an entity or person described at paragraphs 9(a) to 9(e) inclusive, and subject to any other order of this Honourable Court.”
That issue was in part resolved on 6 December 2016 and among other orders, the following orders were made in respect of the orders of 23 June 2014:
…
5.The proceedings are adjourned to 15 December 2016 at 10.00 am (estimated hearing time 1 day).
6. The document titled “Orders” is Exhibit B and orders are made in terms of that document, as set out hereunder:
…
2.That paragraph 9 of the June 2014 orders be varied by replacing the words “before 20 December 2016” with the words “until 30 days following the conclusion of all extant applications listed for determination in the Family Court of Australia proceedings number SYC2977 of 2013 (the restricted period)”.
3.That Note 17 of the June 2014 orders be varied to add the words, at the conclusion of that paragraph “other than a payment to an entity or person described at paragraphs 9(a) to 9(c) inclusive, and subject to any order of this Court, during the restricted period.”
4.That the operation of the June 2014 orders and the orders made on 13 June 2014 as varied otherwise continue in full force and effect until further order.
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7.The Court notes that the orders in terms of Exhibit B address the Application in a Case filed by the wife by leave today, in relation to the continuation of an injunction granted on 23 June 2014, but any residual issues arising out of that application are adjourned to 15 December 2016.
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The wording of the orders made on 6 December 2016 is different to the wording of the wife’s Application in a Case filed on that date but it is my understanding that the wife seeks and ML opposes, the extended application of paragraph 9 (and notation 17) of the June 2014 orders insofar as they would restrain payments from E to ML. By its Response to an Application in a Case filed 6 December 2016, ML sought, in the alternative to the dismissal of the substantive orders sought by the wife against it, that the injunctions insofar as they affect ML be discharged. I assume that the injunctions in question are those contained in the June 2014 orders. Although the issue was not taken up in submissions, I gather that ML also opposes the extension of the continuation of Order 9 of the injunctions made on 23 June 2014, to payments by E to “Any other overseas entity or person”.
The Law
Section 114(3) of the Act provides for interlocutory injunctions in family law proceedings as follows:
FAMILY LAW ACT 1975 - SECT 114
Injunctions
...
(3) A court exercising jurisdiction under this Act in proceedings other than proceedings to which subsection (1) applies may grant an injunction, by interlocutory order or otherwise (including an injunction in aid of the enforcement of a decree), in any case in which it appears to the court to be just or convenient to do so and either unconditionally or upon such terms and conditions as the court considers appropriate.
In M & DB (2006) FLC 93-293 (“M & DB”) the Full Court discussed the approach to interlocutory injunctions in property settlement proceedings. In particular it discussed the earlier Full Court decision of Waugh & Waugh(2000) FLC 93-052 (“Waugh”) on the topic. At paragraph 46 of that decision the Full Court said:
46.Whilst his Honour certainly seems to have considered issues of balance of convenience and hardship between the parties, it seems to us, with respect, that he did not give consideration to the fundamental question whether there was any evidence of any intention by the husband to dispose of any assets pursuant to any scheme to defeat any judgment which the wife might obtain in the substantive proceedings, or whether he merely wished to continue to trade, as he always had done, prior to and since the separation of the parties.
In M & DB the Court emphasised that the reference in Waugh to there being a fundamental question for the trial judge was not and could not have been intended by the earlier Court to require that the trial judge find on the balance of probabilities, as a matter fundamental to success, that there was a scheme to defeat any judgment which the applicant might obtain in the substantive proceedings. In M & DB the Full Court purported to explain what was meant in the earlier decision in the following terms:
44. ...
Significantly, in our view, all that was said in Waugh in paragraph 46 was that the trial Judge did not consider “...the fundamental question whether there was any evidence of any intention by the husband to dispose of any assets pursuant to any scheme to defeat any judgment.”
Their Honours did not say that the trial Judge had to find on the balance of probabilities, as a matter fundamental to success, that there was such a scheme.
Put another way, all that the Court said in Waugh was that the trial Judge had taken a fundamentally flawed approach and ought have addressed the question of whether there was any evidence of intention, as part of an enquiry into the risk of disposal of assets to defeat judgment.We acknowledge that the words emphasised were not included in the statement in paragraph 46 in Waugh. But for the reasons we have already given, and which follow, we do not think that the Court there meant what was said in paragraph 46 to be a complete statement of the test, but rather as descriptive of the error made in that case by the trial Judge.
And later:
Conclusion in respect of this proposed ground
46. Finally, we think it helpful to recognise that the essential power being exercised in this case is simply described in s 114(3).
“A court...may grant an injunction...in any case in which it is just or convenient to do so...”
47. Ultimately, each case will involve an overall assessment of a number of factors to determine the just or convenient result. Not all cases with the same identity of factors will necessarily produce the same result because of varying weight individually and comparatively.
48. We perceive that a real, though perhaps subtle, difference exists between, on the one hand, establishing on the balance of probabilities a risk or danger of a disposal of property intended to defeat an order and, on the other hand, proving to the civil standard and as an independent issue that a scheme to defeat an order exists.
49.In some cases, the possibility (based on some evidence) of an intention or scheme may, with other factors, be sufficient to establish the probability of an objective risk of disposal with intent to defeat an order.
50. It follows that we do not say that, in addressing the question of whether there is a risk of disposal of assets to defeat an order, it is unnecessary to enquire whether there is any evidence of an intention, plan or scheme to dispose of assets. But in an enquiry into the risk of disposal, the question of intention or scheme is but one of a number of factors relevant to the objective risk of disposition to defeat an order.
51. Moreover, while ultimately a particular factor may overwhelm others, it is generally unwise to commence with a rigid focus on finding, to a particular standard of proof, one or more of a number of factors relevant only at a discretionary level and subsidiary to the ultimate question.”
(original emphasis)
Therefore the requirement for granting an injunction is that it be just and convenient to do so. Such an injunction may be granted conditionally or unconditionally, as the court considers appropriate.
By way of guidance only, the following matters have been found to be of assistance in deciding whether to grant an injunction in the style of a Mareva[2] order:
·the applicant must identify an arguable case for the judgment, in aid of which the injunction is sought;
·the applicant must demonstrate by evidence, and not mere assertion, that a refusal to grant the order creates a real risk that judgment in the applicant’s favour would remain unsatisfied because of concealment or dissipation of assets; or put another way, an objective risk of disposal must be established;
·such an order can represent a drastic remedy and therefore should not to be granted lightly and requires close scrutiny of the available evidence; and
·the imposition on those bound or affected by such an order should be to the minimum extent necessary.
[2] See Mareva Compania Naviera SA v International Bulkcarriers SA ("The Mareva ") [1975] 2 Lloyd's Rep 509.
Unlike the situations in Waugh or M & DB the disputed injunction sought in these proceedings is sought against third parties – E and its directors and through them, E’s Deed Administrator, Mr Norton. Part VIIIAA of the Act makes provision for orders and injunctions against third parties. Section 90AF provides as follows:
FAMILY LAW ACT 1975 - SECT 90AF
Court may make an order or injunction under section 114 binding a third party
(1) In proceedings under section 114, the court may:
(a) make an order restraining a person from repossessing property of a party to a marriage; or
(b) grant an injunction restraining a person from commencing legal proceedings against a party to a marriage.
(2) In proceedings under section 114, the court may make any other order, or grant any other injunction that:
(a) directs a third party to do a thing in relation to the property of a party to the marriage; or
(b) alters the rights, liabilities or property interests of a third party in relation to the marriage.
(3) The court may only make an order or grant an injunction under subsection (1) or (2) if:
(a) the making of the order, or the granting of the injunction, is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage; and
(b) if the order or injunction concerns a debt of a party to the marriage--it is not foreseeable at the time that the order is made, or the injunction granted, that to make the order or grant the injunction would result in the debt not being paid in full; and
(c) the third party has been accorded procedural fairness in relation to the making of the order or injunction; and
(d) for an injunction or order under subsection 114(1)--the court is satisfied that, in all the circumstances, it is proper to make the order or grant the injunction; and
(e) for an injunction under subsection 114(3)--the court is satisfied that, in all the circumstances, it is just or convenient to grant the injunction; and
(f) the court is satisfied that the order or injunction takes into account the matters mentioned in subsection (4).
(4) The matters are as follows:
(a) the taxation effect (if any) of the order or injunction on the parties to the marriage;
(b) the taxation effect (if any) of the order or injunction on the third party;
(c) the social security effect (if any) of the order or injunction on the parties to the marriage;
(d) the third party's administrative costs in relation to the order or injunction;
(e) if the order or injunction concerns a debt of a party to the marriage--the capacity of a party to the marriage to repay the debt after the order is made or the injunction is granted;
Note: See paragraph (3)(b) for requirements for making the order or granting the injunction in these circumstances.
Example: The capacity of a party to the marriage to repay the debt would be affected by that party's ability to repay the debt without undue hardship.
(f) the economic, legal or other capacity of the third party to comply with the order or injunction;
Example: The legal capacity of the third party to comply with the order or injunction could be affected by the terms of a trust deed. However, after taking the third party's legal capacity into account, the court may make the order or grant the injunction despite the terms of the trust deed. If the court does so, the order or injunction will have effect despite those terms (see section 90AC).
(g) if, as a result of the third party being accorded procedural fairness in relation to the making of the order or the granting of the injunction, the third party raises any other matters--those matters;
Note: See paragraph (3)(c) for the requirement to accord procedural fairness to the third party.
(h) any other matter that the court considers relevant.
Dealing with the matters from ss 90AF(3) and (4) to the extent they are apparently relevant to these proceedings:
In my view, the wife has made out a case that the injunction is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage. She contends that without the injunction, assets within the jurisdiction may be removed from the jurisdiction and that may make it difficult for the Court to make effective orders for settlement of property between husband and wife. The bare facts suggest that there could be great significance for the substantive proceedings in the retention of assets within the jurisdiction. In this context “jurisdiction” refers to the Commonwealth of Australia. This Court can make orders in relation to assets outside Australia. However, those orders would almost invariably be limited to orders in personam and in any event, in respect of parties who live outside Australia, the making of readily enforceable orders can be more complicated than is the case in respect of Australian residents.
The orders have already been made and have been in place since 23 June 2014. They have been consented to by the third party company bound by the injunction and in recent times, without opposition from E’s Deed Administrator, Mr Norton. Until recently there has been no application to vacate this particular injunction.
As to s 90AF(4)(e), there is no contention that the injunction concerns a debt of a party to the marriage. For example, as I understand their cases, the husband contends that the debt belongs to E and the wife contends that there is no debt at all.
Not only have E and its directors been accorded procedural fairness in relation to the making of the injunction, they consented to it. E’s Deed Administrator, Mr Norton is now a party to the proceedings and does not oppose the making of the order.
There is no indication of a taxation effect on the husband, the wife or E, of extending the injunction. There is no indication of a social security effect on the husband or the wife of extending the injunction. There is no evidence of administrative costs for E in relation to the injunction. Nothing is raised by the third parties as to their economic, legal or other capacities to comply with the injunction. Nothing else is raised by the third parties who would be restrained.
I turn to the critical question as to whether the Court can be satisfied that, in all the circumstances, it is just or convenient to grant the injunction. Importantly that squarely raises the interests of ML.
ML claims a debt of the order of $16 million against E. It has the security of a mortgage against the Suburb G property, which has a value of the order of $10 million. That will leave something of the order of $6 million or more to be recovered from E.
Directly at issue is the value of two remaining significant assets of E, being a shopping venue known in the substantive proceedings as the retail arcade at Town QQ and an office in Sydney CBD, Sydney. They are properties affected by a Deed of Company Arrangement originally entered into on 19 May 2014. Under the structure of the deed those properties are to be sold. If those properties are sold, the net proceeds would go to the deed fund administered by Mr Norton and would be available to be disbursed to E’s creditors, including ML.
Although senior counsel for ML did not concede it, I understood that it is possible that not all of E’s creditors will be fully paid out. I was told, without complaint, that neither of the Town QQ or Sydney CBD properties has been sold or is under contract for sale. If the properties are not sold prior to the conclusion of the substantive proceedings then there may be no detriment to ML by the extension of the injunction. Without knowing when and if the properties or either of them will be sold, the extent of the potential shortfall in E’s administration and the share of that shortfall to be ultimately borne by ML, it is not possible to estimate the potential loss to ML that might arise as a result of continuing the injunction. As was submitted on behalf of the wife, there is no evidence about the financial circumstances of ML. That said, I accept that there would be prejudice to ML if it is denied as timely payment of a legitimate debt as it is able to achieve.
Of course, if it transpires that the loans made to E by ML were sham transactions, there will be no legitimate detriment to ML.
ML was not a party to the proceedings when the injunction was put in place on 23 June 2014. It has not consented to the injunction and in my view cannot be said to have subsequently acquiesced to it.
I asked the parties during submissions whether there was scope for the needs of both the wife and ML to be addressed on an interim basis. I had in mind that those parties might agree that ML would retain within Australia any funds paid to it by E’s Deed Administrator, to abide the outcome of the proceedings now listed for hearing in March 2017. It was disappointing that the proposal was not taken up because, on the face of it, it would seem to protect the wife and at least ameliorate the potential loss of ML. I accept that it may be unfair to criticise the parties because I am not to know their circumstances beyond the evidence before me nor what instructions and advice have been given. That said, there was an opportunity to address those matters and it was not done.
ML is a legal entity in its own right and there is evidence to the effect that it is ultimately owned by Mr MM. As a separate entity ML is not to be conflated with Mr MM nor for that matter, without probative evidence, with the husband. There is the potential for the extension sought by the wife to the June 2014 injunction to cause financial harm to ML. The wife has a case to argue that would make relevant to her achieving enforceable orders for a just and equitable property settlement, the retention within Australia of the value of certain assets. In each instance the potential harm cannot be quantified. If the wife’s case is made out, there is the potential for very significant harm to be done to her if the injunction is not left in place. If that case is not made out, there is the potential for harm of unknown significance to ML. The wife has provided an undertaking as to damages but on her own case, and certainly on the case of the husband, she may ultimately have difficulty in meeting an obligation to pay damages. Because the Town QQ and Sydney CBD properties have not been sold, even if the injunction is continued and the wife is unable to make out her s 106B case, there may be no damage caused to ML by the continuation of the injunction. In my view, balancing those matters favours the extension of the injunction.
In those circumstances, it is just and convenient to extend the injunction as sought on behalf of the wife.
As to the wording of the order sought by the wife, her counsel suggested[3] that the terms to be agreed for the extension of the injunctions to await judgment on the hearing conducted on 15 December 2016, would probably become the template for the ongoing preservation injunction. There was no agreement and that issue was not taken up again during the hearing or since. In those circumstances, without an agreement or ML having an opportunity to be heard, I am reluctant to contemplate an order going beyond the terms formally sought by the wife in her Application. That said, the bare removal of the expiry date would, in the absence of another order, mean that the interim injunction remained in force only until final orders were made in the substantive proceedings. The advantage of the device used in the interim orders made on 6 December 2016 and those made on 23 December 2016, that is, “until 30 days following” … judgment in the final or interim proceedings as the case may be, is that it covers the period within which an appeal would normally be lodged and potentially avoids an unnecessary interlocutory issue. Although it sought only seven days, for the purposes of the orders ultimately made on 23 December 2016, ML too, proposed that the interim extension of the June 2014 restraint affecting ML, continue for a period after the interim judgment.
[3] From line 36 of page 76 of the transcript
I will adopt the generally agreed approach but will use 30 days to better match the appeal period. Therefore I will leave in place the variation to paragraph 9 of the June 2014 orders made in relation to other entities on 6 December 2016 whereby the order was expressed to extend: “until 30 days following the conclusion of all extant applications listed for determination in the Family Court of Australia proceedings number SYC2977 of 2013 (the restricted period)”.
The parties are at liberty to address the Court in relation to the wording (rather than the import) of these orders by seeking that the matter be relisted by arrangement with the Court and each other, within 14 days or within such further time as the parties may agree.
I certify that the preceding sixty-three (63) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Loughnan delivered on 19 January 2017.
Associate:
Date: 19 January 2017
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