Lund & Whittall
[2024] FedCFamC1F 271
•24 April 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Lund & Whittall [2024] FedCFamC1F 271
File number(s): DNC 518 of 2022 Judgment of: BERMAN J Date of judgment: 24 April 2024 Catchwords: FAMILY LAW – PRACTICE AND PROCEDURE – Where the wife seeks to join the husband’s company and a partner pursuant to Pt 3 of the Federal Circuit and Family Court Rules of Australia (Family Law) Rules 2021 (Cth) – Where the orders sought are by way of enforcement in the event the husband is in default – Where the wife has not established a basis for joinder – Consideration of alternative remedies – Consideration of s 233 and s 461 of the Corporations Act 2001 (Cth) – Consideration of s 40 of the Law of Property Act 2000 (NT) – Application dismissed. Legislation: Corporations Act 2001 (Cth) ss 233, 461, 462
Family Law Act 1975 (Cth) Pt VIIIAA, s 90AE, 90AF
Law of Property Act s 40
Federal Circuit and Family Court of Australia (Family Law) Rules 2021 r 3.01
Cases cited: B Pty Ltd and Ors & K and Anor [2008] FLC 93-380
Catombal Investments Pty Ltd [2012] NSWSC 775
Gallieni & Gallieni [2012] FamCAFC 205
Gormley & Gormley [2023] FedCFamC1F 296
Pagliotti & Hartner (2009) 41 Fam LR 41
Trawl Industries of Australia Pty Ltd v Effem Food Pty Ltd (1992) 108 ALR 335
Wayne v Dillon [2008] 40 Fam LR 543
Division: Division 1 First Instance Number of paragraphs: 66 Date of hearing: 10 April 2024 Place: Adelaide via MS Teams Counsel for the Applicant: Ms Farmer Solicitor for the Applicant: AFL Withnalls Lawyers Counsel for the Respondent: Mr McQueen Solicitor for the Respondent: McQueens Solicitors ORDERS
DNC 518 of 2022 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS LUND
Applicant
AND: MR WHITTALL
Respondent
ORDER MADE BY:
BERMAN J
DATE OF ORDER:
24 APRIL 2024
THE COURT ORDERS THAT:
1.The Application in a Proceeding sealed 1 March 2024 is dismissed.
2.The respondent’s costs are reserved to the final hearing.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Section 121 of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under a pseudonym has been approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
Berman J
INTRODUCTION
By Amended Initiating Application sealed 5 February 2024, Ms Lund (“the applicant”) seeks orders for property settlement and division summarised as follows:-
(1)That within sixty (60) days of the date of the making of a final order, Mr Whittall (“the respondent”) transfer to the applicant his right, title and interest in the property situate at B Street, Suburb C, Region D (“the B Street property”);
(2)That until transfer of the respondent’s interest in the B Street property to the applicant, she shall have a right of sole use and occupation conditional upon her being responsible for the payment of all rates and outgoings;
(3)That on settlement, the respondent shall provide a Certificate of Title for the B Street property to the applicant free of mortgage and encumbrances; and
(4)That within sixty (60) days of the final order, the respondent shall pay to the applicant the sum of five hundred thousand dollars ($500,000) (“the settlement sum”).
By Response to Amended Initiating Application sealed 23 February 2024, the respondent seeks the following orders:-
(1)That orders be made in terms of orders 4, 5, 6, 7, 25, 27, 28, 29, 30, 31, 32 and 33 of the Amended Initiating Application;
(2)That within twenty-four (24) months of the making of the final order, the respondent, at the expense of the applicant, transfer his right, title and interest in the B Street property to the applicant; and
(3)That the respondent retain the following assets, liabilities and investments to the exclusion of the applicant;
(a)All funds standing to the respondent’s credit in E Bank account …09;
(b)All shareholdings and interests in businesses;
(c)Household contents currently held by the respondent; and
(d)All superannuation member entitlements held by the respondent in Super Fund 1.
It is acknowledged by the respondent that he consents to the transfer of his interest in the B Street property to the applicant save and except that he proposes a settlement date being twenty-four months from the date of a final order whereas the applicant seeks that the transfer take place within sixty days of a final order.
The respondent does not agree or concede that he should pay the settlement sum or any lesser amount as sought by the applicant.
The applicant seeks that in default of the respondent’s obligation to transfer his interest in the B Street property, the discharge of any mortgage encumbrance or finance liability, or payment of the settlement sum as sought, in cascading priority, F Pty Ltd in its capacity as the Registered Proprietor, shall sell by private treaty and in the absence of sale by public auction the following properties:
(a)H Street, Suburb G, Region D;
(b)2 J Street, Suburb K, Region D.
In addition, the applicant seeks that the respondent and Mr L shall sell the property situate at 1 J Street, Suburb K, Region D by private treaty but if unsold then by public auction.
Detailed ancillary orders are also sought by the applicant as to the terms and conditions of sale of one or more of the properties as may be required to satisfy the applicant’s orders for transfer of the B Street property and the payment of the settlement sum.
By Application in a Proceeding sealed 1 March 2024, the applicant seeks the following orders:-
(1)Pursuant to Rule 3.03(1)(a) and (b), F Pty Ltd be joined as a party to these proceedings and herein after be referred to as the “Second Respondent”; and
(2)Pursuant to Rule 3.03(1)(a) and (b), Mr L be joined as a party to these proceedings and herein after be referred to as the “Third Respondent”.
Orders for joinder as sought by the applicant are opposed by the respondent and by Response to Application in a Proceeding filed 18 March 2024, the respondent seeks orders for costs.
The final orders sought by the applicant in the Amended Initiating Application also seek the joinder of F Pty Ltd as the second respondent and Mr L as the third respondent.
By implication, the applicant considers that joinder of F Pty Ltd and Mr L is necessary to give practical effect to the orders sought by way of enforcement should the respondent default in his obligation to transfer his interest in the B Street property to the applicant, to provide clear title and to pay any settlement sum as ordered.
BACKGROUND
The parties commenced their relationship in 1999, cohabitated in 2009 and separated in mid-2020. There is one adult child born in 2004 and a child under the age of 18 years born in 2009.
The applicant is employed as a manager and is in receipt of modest income. The respondent is in a quasi-partnership with Mr L. They conduct their business interests via various corporate entities which hold various investment properties in and around the City M environs.
The principal asset of the parties is the B Street property. It is likely that the property has been used as collateral and cross security for the various investments undertaken by the respondent and Mr L either in their names or via their corporate entities.
It is a feature of the proceedings that there remains some uncertainty as to the nature and extent of the various encumbrances secured over the B Street property.
The applicant contends that to the best of her knowledge, there is a mortgage secured over the B Street property of approximately $420,000 in the respondent’s sole name but with the applicant as guarantor. It is possible, that the balance of the equity in the B Street property is fully encumbered by way of security for the respondent’s business loans either jointly or severally with Mr L.
The respondent does not agree with the applicant’s summary that the business interests of the respondent, Mr L, F Pty Ltd and other corporate interests are intricate.
In order to progress a better understanding of the assets and liabilities of the parties generally but also the value of the husband’s shareholding with Mr L in the various corporate entities, the parties agreed to jointly instruct Mr N as a joint single expert to prepare a valuation report of the following entities:-
(1)F Pty Ltd;
(2)O Pty Ltd;
(3)P Pty Ltd;
(4)Q Pty Ltd;
(5)R Pty Ltd;
(6)S Pty Ltd;
(7)T Group Pty Ltd;
(8)U Pty Ltd;
(9)V Pty Ltd;
(10)W Pty Ltd; and
(11)Y Pty Ltd.
Mr N prepared a valuation report dated 22 November 2023 comprising valuations of the various corporate entities together with a consideration of loan account balances as at 30 June 2022. Whilst Mr N raised a concern that a number of intra-group loan balances did not reconcile and that the group financial statements were deficient, the likely value of the respondent’s interest in the group of entities as at 30 June 2022 was $1,449,412.
Paragraph 14.15 of the report sets out the value attributed to the respondent is comprised as follows:-
Asset Value F Pty Ltd – (50% interest) $493,580 O Pty Ltd – (16.67% interest) $88,718 Loan balance due to the respondent $867,114 Total as at 30 June 2022 $1,449,412
Paragraph 11.42 of the report sets out the adjusted balance sheet for F Pty Ltd. Relevant to the current application is the inclusion of the following properties:
Asset Adjusted Balance Sheet Value Z Street, Suburb BB $2,500,000 1 J Street, Suburb K $2,200,000 2 J Street, Suburb K $2,700,000 H Street, Suburb G $640,000 AA Street, Town CC $346,716
It is apparent that Mr N made an error by including the property at 1 J Street as an asset held by F Pty Ltd. It is agreed that 1 J Street is jointly held by the respondent and Mr L as tenants in common as was conceded by Mr N in an Addendum Report dated 21 February 2024. The removal of 1 J Street from the assets of F Pty Ltd reduces the value from $987,161 to a deficiency of $1,212,839.
Mr N opines that there should not be a deficiency and as such, in order to deal with the shortfall, the value of F Pty Ltd should be reduced to zero by the respondent and Mr L each contributing one half of the deficiency by reducing their credit loan accounts each in the sum of $606,419.
A further consideration by Mr N is that the respondent and Mr L each hold one thousand of two thousand ordinary shares in F Pty Ltd and as such, the respondent cannot unilaterally affect the shares of the underlying properties.
LEGAL PRINCIPLES
Rule 3.01 of the Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth) (“the Rules”) provides as follows:-
A person whose rights may be directly affected by an issue in a proceeding, and whose participation as a party is necessary for the court to determine all issues in dispute in the proceeding, must be included as a party to the proceeding.
The rule provides that certain persons are automatically parties to the proceedings.
A “necessary party” can extend to a third party who will be bound by an order under s 90AE or s 90AF of the Family Law Act 1975 (Cth) (“the Act”). The intent of the rule is to consider whether the substantive rights of a third party would be affected by the orders sought.
In Wayne v Dillon [2008] 40 Fam LR 543 (“Wayne”), a joinder of a third party was discharged because the applicant did not particularise a cause of action and whilst a statement of claim in support of a joinder application is not required, something similar should be provided to establish that the joinder is necessary in order to bring finality to the proceedings.
Rule 3.03(2) provides that a party may add another party after a proceeding has started by amending the application or response to add the name of the party.
In B Pty Ltd and Ors & K and Anor [2008] FLC 93-380 the Full Court said as follows:-
52.We do not accept that it is proper to allow joinder of third parties merely upon the formulation of a paragraph in, or to be added to, an application, on the basis that at trial facts to support the application may be asserted and proved. Sufficient facts must be asserted to demonstrate that, if proved, the law arguably provides the relief sought.
In Trawl Industries of Australia Pty Ltd v Effem Food Pty Ltd (1992) 108 ALR 335 Gummow J said at page 347:-
53.However, as indicated above, for the law of Australia it is most suitable to focus upon the substance of the two proceedings as distinct from their form. This reflects the constitutional basis of federal jurisdiction, to which I have referred earlier in these reasons. Also, it allows for the very many controversies which now come before superior courts, federal and State, without pleadings. And even where pleadings are necessary or are ordered, the effect of the Judicature system of pleading, now in general operation in Australia, is as described by Barwick C.J.:
"(T)here is no necessity to assert or identify a legal category of action…It is sufficient in matters in the Federal Court to assert the facts on which the plaintiff or applicant party relies and to nominate the remedies which he seeks as a consequence of the occurrence of those facts."
(Philip Morris Incorporated v Adam P. Brown Male Fashions Proprietary Limited (1981) 148 CLR 457 at 473).
The above was quoted with approval by the Full Court in Pagliotti & Hartner (2009) 41 Fam LR 41.
This Court does not rely upon or require pleadings. It is permissible to gain an understanding of the nature and extent of the claim and the particulars of the claim from documents properly identified. In this regard, the substantial affidavit material and written submission documents seeks to set out the parameters of the applicant’s claim. It is not for me to determine to finality the orders sought by the applicant against the second respondent unless I am satisfied that they are so lacking in any merit that they would not be able to resist an application for summary dismissal.
In Gormley & Gormley [2023] FedCFamC1F 296, Campton J said as follows:-
33.In Hancock Family Memorial Foundation Pty Ltd v Fieldhouse [No 3] [2010] WASC 233 Le Miere J… articulated, in precise terms, why it is necessary for a party seeking to join a third party to litigation to establish an arguable case, in the following terms:
27.The applicant on a joinder application must show that there is an arguable case sufficient to resist the entry of summary judgment by the parties sought to be joined. It would be futile to order that a person be joined as a defendant if the material before the court disclosed that if the person, having been joined as a defendant, applied for summary judgment the application would succeed.
(Citations omitted)
What is being sought by the applicant is that in the event of non-compliance by the respondent, F Pty Ltd, as a second respondent, should be ordered to sell the H Street and 2 J Street properties and from the net proceeds of sale, following the payment out of liabilities, pay to the respondent an amount equivalent to all sums outstanding including interest required by him to discharge any settlement sum as ordered.
By necessary implication, if there is insufficient net proceeds available to the second respondent to provide a cash payment to the respondent, then the applicant seeks that the respondent and Mr L, as joint tenants in common of the 1 J Street property, cause it to be sold with the intention that the balance of any settlement sum ordered to be paid to the applicant will be satisfied from the proceeds of sale.
For reasons that are not explained, the applicant claims that from the making of any final order until the payment by the respondent of the settlement sum in full, F Pty Ltd shall hold their interest both H Street and 2 J Street on trust.
Similarly, the applicant seeks that Mr L shall hold his interest in J Street on trust.
There is no pleading or particulars provided in the affidavits filed in support of the application that would explain the basis upon which the applicant considers that a trust has been created and if so, the nature of the trust and for whom or what entity the beneficial interest is held.
Moreover, the applicant does not seek orders against F Pty Ltd and/or Mr L pursuant to Part VIIIAA of the Act, the Corporations Act 2001 (Cth) (“the Corporations Act”) or any legislation such as the Law of Property Act (“the Property Act”).
It is apparent that the applicant is uncertain as to the precise financial arrangements entered into by the respondent, F Pty Ltd and Mr L that may encumber the B Street property. It is likely, but not certain, that the applicant considers F Pty Ltd and Mr L need to be joined to the proceedings as second and third respondents respectively, in order to be able to give effect to the orders sought namely, that the respondent transfer his interest in the B Street property unencumbered to the applicant and that there be sufficient funds by way of default orders to pay the applicant any settlement sum as ordered.
Whilst the affidavit material filed by the applicant sets out in broad terms why the proposed second and third respondents need to be joined, it is not a contention of the applicant that neither she nor the respondent have any interest that goes beyond the respondent’s shareholding in various entities but in particular, F Pty Ltd and his interest and title as a tenant in common of the 1 J Street property. As such, it could not be seen as satisfying the following proposition by Warnick J in Wayne (supra) as follows:-
17.As seen, while neither that rule nor the relevant Family Law Rule refers to an applicant for leave to join having to establish a cause of action and supporting “case” which, taken at its highest, is arguable, that test was adopted by the parties before Morgan J and by her Honour. That approach was not attacked in the appeal in B Pty Ltd & K (supra). It is a test consistent with the references, in the passages quoted above from B Pty Ltd & K (supra), to the need for an applicant for joinder to set out the nature of the claim and the basis of it. As also seen, in Gould v Gould; Swire Investments Ltd (1993) FLC 92-434, Fogarty J particularly referred to the need for fairness to the third party. Any person joined to a proceeding ought, at that point, be able to take advice on whether the facts pleaded (if established) would lead to a successful claim. Joinder to litigation is a serious step with often significant financial consequences.
18.The word “necessary” in rule 11.01(1) must mean something more than “useful” or “expeditious”. In my view, if there are available alternative means to joinder to the substantive proceedings, of obtaining from a third person or someone already a party what is needed to allow an applicant for joinder to establish an identified “case”, joinder is unlikely to be “necessary”.
19.However, if a cause of action, recognisable at law, against a “third person” is particularised, then it is at least highly likely that joinder will be “necessary for the court to completely and finally determine all matters in dispute”. Thus, in an application such as was before the Federal Magistrate, such a question falls for consideration.
In summary, I do not consider that the applicant has established the basis for joinder and as currently drafted, I am not able to recognise an appropriate cause of action and the basis for same against the proposed second and third respondents.
It is conceded by the respondent that his one-half interest in 1 J Street and his shares in the various corporate entities but in particular, F Pty Ltd, are property of the parties although the shares may be of little or no value.
No attempt has been made to explain how the proposed orders for sale that might be made in default would actually be given effect as against F Pty Ltd and Mr L.
It must be remembered that what is being sought by the applicant are orders that may well affect the substantive rights of a third party either indirectly in respect of F Pty Ltd but directly in respect of Mr L’s interest in 1 J Street.
The Court has not been provided with the memorandum and articles of association in respect of F Pty Ltd nor any understanding of the consequences to F Pty Ltd if orders as sought by the applicant were made. At this stage, a possible outcome might result in any proceeds of sale of H Street and 2 J Street being consumed by secured liability.
In the circumstances, I propose to dismiss the Application in a Proceeding for the joinder of F Pty Ltd and Mr L.
ALTERNATIVE CONSIDERATIONS
It is possible that the provisions of s 90AE of the Act may be a relevant consideration. Section 90AE(2)(a) of the Act enables a Court to make an order that “directs a third party to do a thing in relation to the property of a party to the marriage”.
Section 90AE and Part VIIIAA generally cannot be used to enhance the property of the parties but rather as is set out in s 90AE(3)(a) of the Act:
(3) The court may only make an order under subsection (1) or (2) if:
(a)The making of the order is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage.
Simply put, orders made pursuant to s 90 of the Act are to be given effect provided that the checks and balances giving procedural fairness to a proposed third party are given.
In the current context, s 90AE may be of assistance in respect of a mortgage holder if it could be established that the encumbrance held over the B Street property is unnecessary and could be transferred to an alternate property without any diminution of the security held.
A further consideration is the potential application of ss 461 and 462 of the Corporations Act.
The jurisdiction of the Court is such that it has original jurisdiction in respect of all civil matters arising under the Corporations Act. Section 233 of the Corporations Act sets out a number of orders that can be made by the Court including, an order that the company be wound up in accordance with s 233(1)(a) of the Corporations Act.
However, s 461 of the Corporations Act also enables to the Court to wind up a company and it provides as follows:-
[general grounds where Court may order winding up of a company]
(1) The Court may order the winding up of a company if:
(a) the company has by special resolution resolved that it be wound up by the Court; or
(c)the company does not commence business within one year from its incorporation or suspends its business for a whole year; or
(d) the company has no members; or
(e) directors have acted in affairs of the company in their own interests rather than in the interests of the members as a whole, or in any other manner whatsoever that appears to be unfair or unjust to other members; or
(f) affairs of the company are being conducted in a manner that is oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or in a manner that is contrary to the interests of the members as a whole; or
(g) an act or omission, or a proposed act or omission, by or on behalf of the company, or a resolution, or a proposed resolution, of a class of members of the company, was or would be oppressive or unfairly prejudicial to, or unfairly discriminatory against, a member or members or was or would be contrary to the interests of the members as a whole; or
(h) …
(k) the Court is of opinion that it is just and equitable that the company be wound up.
Section 461(1)(k) has application in companies that could be considered as “quasi-partnerships” and if it can be shown that there is a management deadlock, a breakdown in trust and confidence between the shareholders or other circumstances arise that make the management of the company unworkable.
Conceptually, the applicant could seek the transfer of the respondent’s shares in F Pty Ltd for the purpose of bringing s 461 proceedings given that it would be unlikely the applicant and Mr L would be able to manage F Pty Ltd.
There remains uncertainty as to what would happen if the respondent’s shares were effectively transferred to the applicant on trust for the limited purpose of seeking to crystalise and ultimately extract from F Pty Ltd what might be considered as some proportion of the company assets that reflects the equitable lien or charge that a shareholder may have. Whilst initially attractive, significant uncertainty remains as to how other creditors of F Pty Ltd would consider and be prepared to readily accept a transfer of the respondent’s shares to the applicant and whether this act alone might cause the company to enter into a financial downward spiral.
Taxation issues may be raised and there would be, of necessity, a significant financial cost to the winding up of F Pty Ltd which may further exacerbate what appears to be a less than robust financial position of the company.
Before making an order pursuant to s 461(1)(k) of the Corporations Act, I need to be satisfied, amongst other things, that it would be just and equitable to make the order that might be sought namely, a winding up of the company.
Although the winding up of a solvent company is generally a remedy of last resort, in Gallieni & Gallieni [2012] FamCAFC 215 at [50], the Full Court considered whether the primary judge’s orders which provided for a company to be wound up pursuant to s 233(1)(a) of the Corporations Act or alternatively, pursuant to s 461(1) of the Corporations Act, was an appropriate remedy. The Full Court found that notwithstanding a company may be solvent that “does not exclude a winding up, but that factor is just one of many to be taken into account in exercising the discretion as to which remedy is appropriate”.
In Catombal Investments Pty Ltd [2012] NSWSC 775, Brereton J said:
20.However, the Court is not restricted in exercising its discretion to particular factual categories [Re Straw Products Pty Ltd [1942] VLR 222, 223]. And, the question whether it is just and equitable is a question of fact, in respect of which each case must depend on its own circumstances [Re Bleriot Manufacturing Aircraft Company Ltd (1916) 32 TLR 253, 255]….
I consider that if circumstances reached a point where there was a deadlock in the management of the company affairs or in a quasi-partnership arrangement the directors were unable to cooperate then, the requirement pursuant to s 461(1)(k) of the Corporations Act may be satisfied.
Whilst the application of s 461 of the Corporations Act does not require a detailed review of other possible remedies, the circumstances that arise in respect of 1 J Street may provide a more straightforward pathway.
Section 40 of the Law of Property Act provides for an application for Partition and Sale of the subject property. Again, the uncertainty as to any collateral or cross security in respect of 1 J Street may complicate or make uncertain a consideration as to whether partition of the co‑owned property would have the potential to serve as an effective default provision.
For the reasons given, I propose to dismiss the Application in a Proceeding sealed 1 March 2024.
I certify that the preceding sixty-six (66) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Berman. Associate:
Dated: 24 April 2024
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