Martello and Martello - [2017] FamCA 605

FAMILY COURT OF AUSTRALIA

MARTELLO & MARTELLO

[2017] FamCA 605

FAMILY LAW – PROPERTY – INJUNCTIONS – Interim – Preservation of property – Whether the Court should grant the injunctions sought by the wife against the husband to not sell or deal in any way with his interests in companies and trusts – Where the Court found that there is far greater risk of prejudice to the wife in not granting the injunctions sought by her – Where there is no urgency for the husband to sell his interests – Where the Court is satisfied that it is both just and convenient to grant the injunctions.

Family Law Act 1975 (Cth)

Blueseas Investments Pty Ltd v Mitchell and McGillivray (1999) FLC 92-856
Broxham & Broxham [2012] FamCA 775
Mullen and De Bry (2006) FLC 93-293
Waugh and Waugh (2000) FLC 93-052

APPLICANT:

Ms Martello

RESPONDENT:

Mr Martello

FILE NUMBER:

BRC

526

2016

DATE DELIVERED:

18 August 2017

PLACE DELIVERED:

Brisbane

PLACE HEARD:

Brisbane

JUDGMENT OF:

Forrest J

HEARING DATE:

24 July 2017

REPRESENTATION

COUNSEL FOR THE APPLICANT:

Ms Minnery

SOLICITOR FOR THE APPLICANT:

Small Myers Hughes

COUNSEL FOR THE RESPONDENT:

Mr S. Williams

SOLICITOR FOR THE RESPONDENT:

Barry Nilsson

Orders

That until further Order, or unless agreed between the husband and the wife in writing, the husband (whether in his personal capacity, via an agent and/or in his capacity as a director and/or shareholder and/or in his capacity as a trustee and/or appointor) be restrained by injunction from selling, disposing of, charging, encumbering, alienating, assigning or diluting or dissipating his interest(s) in the below companies and trusts:
(i) Martello Pty Ltd ACN ...;
(ii)Martello Pty Ltd ACN … atf the Martello Family Trust;
(iii)B Pty Ltd ACN …;
(iv)C Pty Ltd ACN …;
(v)D Pty Ltd ACN …;
(vi)D Pty Ltd atf the Mr Martello Family Trust;
(vii)Martello Family Group Pty Ltd ACN …;
(viii)Martello Family Group Holdings Pty Ltd ACN …;
(ix)Martello Family Group Holdings Pty Ltd atf the Martello Family Group Trust;
(x)E Pty Ltd ACN …; and
(xi)E Pty Ltd atf the E Trust.
That the husband be restrained and an injunction is hereby granted restraining the husband from doing any act or thing or omission which causes a reduction in the value of any asset in which the husband and/or the wife have an interest at law or in equity.

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 Martello & Martello 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 BRISBANE

FILE NUMBER: BRC 526 of 2016

Ms Martello

Applicant

And

Mr Martello

Respondent

REASONS FOR JUDGMENT

The wife seeks injunctions against the husband by way of interim relief in property adjustment proceedings that are before the Court.
The wife’s application in a case, in which the injunctions sought by her are set out, was filed on 19 June 2017. It was heard by me on 24 July, 2017 in a judicial duty list. She seeks the following injunctions:
1.That until further Order or unless agreed between the Husband and the Wife in writing, the Husband (whether in his personal capacity, via an agent and/or in his capacity as a director and/or shareholder and/or in his capacity as a trustee and/or appointor) be restrained by injunction from selling, disposing of, charging, encumbering, alienating, assigning or diluting or dissipating his interest(s) in the below companies and trusts:
1.1[Martello] Pty Ltd ACN …;
1.2[Martello] Pty Ltd ACN … atf the Martello Family Trust;
1.3[B] Pty Ltd ACN …;
1.4[C] Pty Ltd ACN …;
1.5[D] Pty Ltd ACN …;
1.6[D] Pty Ltd atf the [Mr Martello] Family Trust;
1.7[Martello] Family Group Pty Ltd ACN …;
1.8[Martello] Family Group Holdings Pty Ltd ACN …;
1.9[Martello] Family Group Holdings Pty Ltd atf the [Martello] Family Group Trust;
1.10[E] Pty Ltd ACN …; and
1.11[E] Pty Ltd atf the [E] Trust.
2That the Husband be restrained and an injunction is hereby granted restraining the husband from doing any act or thing or omission which causes a reduction in the value of any asset in which the husband and/or the wife have an interest at law or in equity.
The husband opposes the grant of the injunctions and seeks to have the application dismissed.

Some background

The husband and wife were married in 2003 and separated in 2015 after 11 years and 8 months of cohabitation. He is 42 years of age and she is 37 years of age. They have three children born of their marriage. Proceedings seeking property adjustment orders were commenced by the husband in this Court in 2016. Parenting orders proceedings have also since been commenced. Their marriage was dissolved by decree earlier this year.
The wife is a professional but was, by apparent agreement with the husband, engaged in parenting and home-making during the entirety of the marriage. Since separation she has again taken up employment, but in a limited, casual capacity.
The husband is a tradesman. He is one of four children from a family that has had obvious financial success and he, like his parents and siblings, has valuable interests in a number of corporate entities and trusts that comprise what is referred to as “the Martello Group”. Those interests generate income for him and he also works for the Group. He and the wife have, in addition, accumulated their own wealth over the years of their marriage.
In December 2016, Ms F, a Chartered Accountant, provided a detailed report on the value of the husband’s and wife’s interests in the Martello Group as at 30 June, 2016, pursuant to the joint instructions of the husband’s and the wife’s solicitors. Ms F opined the value of the interests held by the husband in the Martello Group as at that date to be $5,299,825 on one scenario, or $4,999,825 on another. The scenarios differed depending on the basis of valuation of one real property situated in Queensland.
In addition to the interests in the Martello Group the parties have $1,272,660 held in the trust account of the husband’s solicitors, being the balance of the net proceeds of sale of the former matrimonial home after some distributions by way of partial property adjustment have been made to each of them. They have superannuation interests and another property in Queensland worth nearly $1,000,000. In all, the wife deposes to a belief, based on acceptance of Ms F’s opinion, that their interests in property and superannuation are valued at around $8,557,000. In contrast, the husband deposes to a belief, using Ms F’s opinion as a starting point, that their interests are valued at no more than $7,913,296.
In the property adjustment proceedings, the wife seeks orders that would see her retaining 65 per cent of the parties’ property interests whilst the husband seeks orders that would see her retaining only 25 per cent of the value of their interests. Incredibly, whilst they are ostensibly close to agreeing on the value of their property interests at around the very substantial sum of $8,000,000, they are 40 per cent apart in their respective positions as to what would be a just and equitable property adjustment between them – some $3,200,000. How they could have such disparate views in respect of that is difficult to comprehend when each is represented by very experienced, specialist family law solicitors, they have had the benefit of representation by very experienced barristers who specialise in family law and they have also had an unsuccessful mediation with a former judge of this Court who would, I expect, have told them of the likely range within which a just and equitable outcome would fall. Despite that, they continue to litigate at significant expense, whilst at the same time their three young children begin to show the tell-tale signs of emotional disturbance caused by their parents’ seemingly intractable ongoing conflict.
It is clear that the husband’s interests in the Martello Group make up the largest part of the parties’ wealth. This application arises in circumstances where the husband clearly asserts disagreement with Ms F’s opinion, and the property adjustment proceedings remain apparently fiercely contested and still far from concluded. The husband now says he has “resolved to sell [his] interest in the Martello Family Group and pursue professional work opportunities independently of [his] family”. He says that he would like to start his own business as other members of his family are not interested in doing that within the existing Group business structure, but to do so, he requires working capital, creating the apparent need to sell his interests in the Martello Group right now.
Indeed, the husband has determined to sell his minority interests in the Martello Group to his parents. As part of this course, the husband instructed another accountant to value his interest in the Group “post 30 June 2016” and to determine what his parents should pay him if they were to buy out his interests. That accountant opined that his parents should pay him $1,972,977 for his interests. This is a figure arrived at after valuing the husband’s interests at $9,597,366 and then deducting an amount of $7,624,389 said to be owing by the husband to his parents. That, of course, is substantially less than the amount that Ms F opined the husband’s interests to be worth to him.
In his affidavit evidence, the husband explained his understanding of the difference in the two accountants’ opinions to be attributable to:
(a)The effect of an interim distribution of a sum of $4,272,774 from one trust to a trust of the husband’s parents subsequent to the 30 June, 2016; and
(b)The application of a 25 per cent minority and lack of marketability discount by the accountant that the husband instructed to provide the opinion.
Digressing momentarily, I observe that latter reason attracts significance as the evidence establishes that Ms F did not apply such a discount in her valuation and provided reasons for not doing so to the husband’s solicitors when asked about it by them. Those reasons included an assumption that the husband had no intention to sell his interests and an assumption that even if he did, the likely purchaser would be one of the existing interest holders. There is no evidence before me that establishes that the husband’s current expressed intention to sell his interests in the Martello Group was formed prior to the communication of those reasons, including those assumptions, to the husband’s solicitors. It appears to have arisen since Ms F expressed reliance on those assumptions.
Further, the husband deposes in his affidavit to having received accounting advice that the sum of $1,972,977 that he would receive on the proposed sale would be subject to taxation and that he would be left with approximately $1,160,000 after the incidence of that taxation.
Accordingly, as I understand his position, the husband wants to sell his interests that the single expert, Ms F, valued at around $5,000,000 just over a year ago, to his parents, whilst in the midst of high conflict property adjustment and parenting litigation with his former wife, in a transaction that could see him end up realising only $1,160,000 for them, according to the opinion of the accountant he engaged to advise him.
Indeed, just days before the hearing of this application in a case, the husband’s solicitors disclosed to the wife’s solicitors copies of very recent correspondence between the husband and his parents. On 19 July, 2017, the husband had sent a letter of offer to his parents, offering to sell them his interests in the Martello Group. For the purposes of the offer, he adopted the valuation of his 25 per cent interest in the trust that holds all the investment property at the sum of $12,590,307, which is a sum calculated by adopting Ms F’s valuation and deducting the capital distribution said to have occurred since 30 June 2016. He then offered to sell his interests to his parents at the amount of $12,590,000 with the liability said to be owed to his parents ($7,565,000) to be set off against that sum such that his parents would pay him the net sum of $5,025,000.
The husband’s parents very quickly responded through Melbourne solicitors. Their counter offer of $10,000,000 was communicated to the husband, along with some reasons as to why they were making the lower counter offer. Acknowledging the netting off of the liability said to be owed to them, the net figure of $2,435,000 was the amount of the net payment that was communicated by the parents’ solicitors as being the amount they would pay the husband.
The wife put those letters into evidence by affidavit filed on Friday, 21 July, the last working day before the hearing of this application. There is no further evidence as to what the husband’s intentions are said to be in respect of the proposed sale. However, the husband did give an oral undertaking to the Court at the hearing that he would do nothing to progress the proposed sale pending the determination of this application.

Some more relevant matters of fact

In forming her opinion of value, Ms F took into account a liability for outstanding tax, interest and penalties of approximately $17,000,000 arising after an audit of company tax returns for one of the Group’s companies for the 2011 and 2012 financial years. Taking this liability into account has resulted in a reduction in the value of the trust that holds all of the investment property by $9,744,000 because of an inter-entity guarantee provided.
The wife’s evidence reveals that an objection to the ATO’s assessment was apparently lodged and that requests were made by her solicitors to the husband’s solicitors for the disclosure of documents relating to the ATO’s audit decision and the objection early this year. Ms F said nothing in her report to suggest that she was aware of an objection or whether it had been determined. The wife sought disclosure of the documents to be able to clarify the issue, particularly with Ms F. The wife’s solicitors have not been provided with any of the documents that were requested.
As for the capital distribution of in excess of $4,000,000 that the husband referred to in his evidence as impacting on Ms F’s opinion as to the value of his interests, the wife’s evidence is that what she knows of it she learned from the reference to it in the report of the accountant retained by the husband to provide him with the valuation of his interests earlier this year. The wife asserts no other disclosure relevant to this issue has been provided by the husband. In [4.27] of the accountant’s report, he says he was instructed that at a meeting of the relevant directors in August 2016, a resolution was passed to make the capital distribution. In the husband’s affidavit he says the capital distribution was made on 18 July, 2016. The wife deposes to this inconsistency, obviously concerned by it.
The wife, in her affidavit evidence, also says she disputes the existence of the loan that the husband and his parents clearly assert results in the liability to the parents of $7,565,000. She also asserts, supported by a copy of the relevant letter, that she long ago requested disclosure of documents regarding this loan and that no such disclosure has yet been provided to her.
Counsel for the wife prepared a table of figures demonstrating the differences in the value of the husband’s interests in the Martello Group that different outcomes in respect of each of these issues would bring. Noting that the husband’s parents have offered a net amount of $2,435,000 for the husband’s interests, the figure of $8,434,203 (being the net amount that would be payable if the capital distribution and the tax debt are not taken into account) is substantially greater. Furthermore, if the disputed liability of $7,565,000 is not proven, the figure increases by that much to $15,999,203.

The Wife’s submissions

Counsel for the wife submits that these seemingly critical issues are issues upon which she is entitled to receive disclosure of relevant documents and also upon which Ms F ought to be briefed and given an opportunity to consider whether her opinion is any different from that expressed in her report. She also submits that the disputed issues of fact are issues for trial, with the determination of those factual issues being necessary to determine the value of the property of the parties or either of them that is to be made subject to property adjustment orders. She submits that permitting the sale would present the wife with a “fait accompli” on all of these issues and prematurely locks in a low base line figure that would have significant impact on her entitlements in the property proceedings. She also submits that there is no evidence of a compelling need for the husband to sell his interests in the Martello Group urgently.

The Husband’s submissions

Counsel for the husband submits that “there is no warrant, nor are the requisite elements satisfied, for the imposition of injunctive relief” for a number of reasons. He submits there is not a risk of disposal of assets as the assets will still exist, simply converted to cash – the value of which will be the same as the interests sold. He seeks to support that submission by referring to the fact that the husband has been “transparent” with the wife about his intentions. By that, counsel was seemingly referring to the fact that the husband informed the wife of his intention to sell his interests, provided her with a copy of his accountant’s opinion and disclosed to her the recent letters between him and his parents.
With respect, those submissions ignore the reality that the wife remains unable to properly consider the three factual issues that have been referred to that the husband relies upon to found the figure for which he would sell his interests in the Martello Group. That figure differs substantially from the value based on the opinion of Ms F and could differ even far more substantially from a value that might be determined should factual matters that Ms F has seemingly accepted prove incorrect. The husband’s transparency has apparently not extended to providing the wife, in a timely fashion, with copies of the documents she has requested so that she may be able to consider them and take advice about them and properly seek the single expert’s opinion having regard to them.
Counsel for the husband submits that the husband cannot legally be required to disclose the documents the wife sought earlier in the year. He refers to case law in support. He submits that the wife could have nevertheless obtained those by causing subpoenas to issue out of the Court before now. This is not an application by the wife for disclosure, so I do not consider it necessary to consider that submission any further. I consider it sufficient to observe that the critical factual matters going to the value of the husband’s interests in the Martello Group remain in dispute and that is the reason the wife is not in a position to determine whether it is truly in her interests for the husband to sell his interests to his parents on the terms presented. Telling the wife that he intends to sell his interests to his parents for a figure that he says is the right price does not reduce the prejudice to the wife caused by a sale at that price if that price proves to be millions of dollars less than the true value to him of those interests.

In this case, whilst the submission is also made for the husband that he would merely be converting his property interests to cash, that overlooks the fact that the husband deposed to wanting the cash to provide start-up capital for a new business that he wants to commence. Permitting the sale could well see the cash dissipated. In my judgment, allowing the husband to convert an asset, the value of which is in very serious dispute, to cash at a figure that he says is right but which the wife does not accept is right, does not remedy the prejudice to the wife if the price is wrong, even if all of the sale proceeds were protected by being invested in trust in the meantime. Not even orders pursuant to s 106B of the Family Law Act setting aside transactions already entered into would necessarily remedy any prejudice the wife might have suffered.
Counsel for the husband also submits that the 65 per cent division of the property of the husband and wife or either of them that the wife seeks cannot be achieved in a practical sense without a sale of the husband’s interests in the Group (or part thereof). It is to be remembered that the husband himself contends that the just and equitable determination of this property dispute would see the wife retaining property interests equal to only 25 per cent of the total. If the value of those interests is determined to be around $8,000,000, that outcome would see the wife retaining property valued at around $2,000,000. The wife has now had $475,000 paid to her that the parties have agreed is by way of ‘partial property settlement”. There is a property said to be valued at $950,000 and, after the orders that were made by consent on 24 July 2017, distributing $500,000 between the wife and the husband, there is approximately $772,000 remaining in the husband’s solicitors’ trust account. The husband also has superannuation valued at $312,000 and there are valuable motor cars.
Clearly, should the husband’s position that the wife is entitled to 25 per cent be adjudged to be the just and equitable outcome of the proceedings, there is enough property outside of the husband’s interests in the Martello Group for the wife’s entitlement to be satisfied without ordering the sale of his interests in the Group. Though, if the wife were to obtain the 65 per cent she applies for, how that might be achieved without a sale of the husband’s interests is not clear at this moment, it is far from a matter of absolute certainty that the husband will have to sell his interests in the Group, or even part of them. Further, I do not accept the submission, made for the husband, that the Court must order the sale of property in property adjustment proceedings simply because the party who might be naturally expected to retain the property expresses a lack of intention to retain it, particularly where family members of that party are the only prospective purchasers.
Counsel for the husband also submits that the husband should be allowed to sell his interests in the Group because Ms F “did not consider any discount for minority value was required”, a position the husband takes issue with, as I have already observed. It is submitted that the proposed terms of sale will be generous to the husband and the wife if Ms F is ultimately found to be wrong in respect of that. That may ultimately be correct but it could also prove to be wrong. In my judgment, it is inappropriate to determine that point on this summary basis. Allowing the husband to sell on the proposed terms would, essentially, be determining that issue, as well as the other factual issues that remain in dispute, at this point in time. I do not consider that appropriate.

What are the principles by which such an application is decided?

As the Full Court pointed out in Mullen and De Bry (2006) FLC 93-293 at [43] with reference back to its decision in Waugh and Waugh (2000) FLC 93-052, in particular [30]-[32] of that decision, the jurisdiction to grant interlocutory injunctions in this Court is a statutory jurisdiction derived from s 114(3) and/or s 34(1) of the Act. Section 34(1) gives the Court the power to make orders of such kinds as the Court considers appropriate and s 114(3) gives the Court the power to grant interlocutory injunctions in any case in which it appears to the Court to be just or convenient to do so. In that case, the Full Court went on to say at [47]:
Ultimately, each case will involve an overall assessment of a number of factors to determine the just or convenient result.
The injunctions the wife seeks are sought to preserve property that is the subject of substantive proceedings between her and the husband, with the property she is seeking to preserve pending the final determination of the proceedings making up a very substantial share of the total property interests of her and the husband. As the Full Court pointed out in the passages I have referred to in Mullen and Waugh in the previous paragraph, there may be a distinction between proceedings at law for a debt or damages in which the plaintiff seeks a “Mareva” injunction and proceedings under s 79 of the Family Law Act in which one spouse seeks an interlocutory injunction to restrain the other from dissipating assets. But, as Murphy J pointed out in Broxham & Broxham [2012] FamCA 775 at [30]–[31], the emphasis in the case law emanating from the High Court and other Courts such as the New South Wales Court of Appeal is upon the grant of the injunctive relief so as to avoid the frustration of the Court’s process, with acknowledgment that the injunctive relief should not be granted lightly.

Should the injunctive relief sought in this case be granted?

Permitting the husband to sell his interests to his parents at the price he offered to sell for, or at the price they suggested in their counter offer, involves acceptance of factual matters determining the value of his interests that the wife asserts remain in dispute. If those factual matters are not determined by agreement between the parties in the meantime, in my view, they are matters for trial. It is impossible to find with certainty at this moment that the wife would not succeed at trial on those disputed factual issues. To refuse the injunctions the wife seeks, restraining the husband from disposing of his interests, would permit the husband to sell his interests and result in the parties retaining property of significantly less value than they could potentially be determined to have at trial if the interests are retained in the meantime. Indeed, it could result in the parties retaining property of less value than the wife might otherwise be entitled to have adjusted in her favour if the factual issues now in dispute are all ultimately determined in her favour.
As was submitted for the wife, there is nothing in the evidence that persuades me that there is any urgency in the circumstances presented by the husband or that there is a pressing need for him to turn his interests in the Martello Group into cash right now. Whilst his desire or ambition to forge out on his own is not a matter to be criticised, it is a course that might best be embarked upon once finality of the current property dispute with his former wife is achieved, particularly if he needs substantial capital to commence.
In so far as prejudice to the husband is concerned, counsel for the husband submits that the failure of the wife to proffer an undertaking as to damages amounts to prejudice and is another reason why the injunctions should not be granted.
The wife’s current financial circumstances are not good. She earns little income, has limited earning capacity and, not unusually in circumstances such as these, she has little, if any, wealth owned independently of her relationship with the husband and in her control. As such, she is an easy target for a submission made on behalf of the husband that impecuniosity and failure to proffer an undertaking as to damages should tell against her in the determination of her application for injunctions.
However, as counsel for the wife correctly submitted, the Full Court of this Court has considered this issue before and observed that cases like this must be “looked at in a different light” and that it would be “unconscionable to accept a broad principle that the impecuniosity of a party in family law proceedings would be given such weight as to prevent an injunction being granted where all the other requirements for the grant of such an injunction are present”. See Blueseas Investments Pty Ltd v Mitchell and McGillivray (1999) FLC 92-856 at [57].
In this case, there is, in my judgment, far greater risk of prejudice to the wife in not granting the injunctions she seeks than to the husband if the injunctions are granted without an undertaking as to damages having been given by the wife. In this regard, I again observe that there is no apparent urgency for the proposed sale and even the husband’s parents point out to the husband that their counter-offer is less than the husband’s offer partly because of “the inconvenience of being required to urgently re-purchase [the husband’s] interests”.
After considering all of the evidence in this matter and the submissions of counsel for each party, I am satisfied that it is both just and convenient to grant the interim injunctive relief the wife seeks and I will so order.

I certify that the preceding forty (40) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Forrest delivered on 18 August 2017.

Associate:

Date: 18 August 2017