MERRICK & DENARD (No.2)

[2020] FCCA 2111

FEDERAL CIRCUIT COURT OF AUSTRALIA

MERRICK & DENARD (No.2) [2020] FCCA 2111

Catchwords:
FAMILY LAW – Property – interlocutory injunctions – “the fundamental question”.

Legislation:

Family Law Act 1975 (Cth), s.114

Cases cited:

In the Marriage of Waugh (2000) 158 FLR 152
Norton v Locke (2013) 284 FLR 51

Applicant: MR MERRICK

Respondent: MS DENARD

File Number: BRC 11879 of 2017

Judgment of: Judge Howard

Hearing date: 24 June 2020

Date of Last Submission: 24 June 2020

Delivered at: Brisbane

Delivered on: 24 June 2020

REPRESENTATION

Solicitors for the Applicant: N R Barbi Solicitors

Counsel for the Respondent: Mr Jordan

Solicitors for the Respondent: Barry Nilsson Lawyers

ORDERS

THE COURT ORDERS UNTIL FURTHER ORDER:

1. That by no later than 5:00pm on 26 June 2020, the Respondent will provide written authorisation for the Applicant (and her solicitor) to communicate with F Law Firm, Mr G, Mr H and the Proper Officer of J Pty Ltd in relation to all matters relating to the proposed sale of the rental business.

2. That by no later than 5:00pm on 26 June 2020, the Respondent will disclose any communication and/or correspondence, between himself (or his agent) and any person and/or organization, which relates to the sale of the rental business (including all negotiations with all prospective buyers) and this disclosure shall include, but is not limited to:

   (a)All communications regarding negotiations and/or discussions on the terms of sale;

   (b)Proposed sale price/s and details of proposed multipliers for the rental business;

   (c)Copies of draft Contracts/Agreements;

   (d)Any proposed Employment Contracts/conditions with respect to the Respondent’s ongoing involvement with the rental business post sale;

   (e)Details of the marketing and advertising that occurred with respect to seeking a buyer for the rental business;

   (f)All other documents relating to the proposed sale of the rental roll to any other entity.

3. That the time that the parties have to comply with paragraph 21 of the Orders made 21 November 2019 be and is hereby extended until 13 July 2020.

4. That costs be reserved.

5. That this matter remain adjourned for a final hearing of no more than three (3) days commencing at 10:00am on 3 August 2020 in the Federal Circuit Court of Australia at Brisbane.

IT IS NOTED that publication of this judgment under the pseudonym Merrick & Denard (No.2) is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT BRISBANE

BRC 11879 of 2017

MR MERRICK

Applicant

And

MS DENARD

Respondent

EX TEMPORE

REASONS FOR JUDGMENT

A.These reasons were delivered ex tempore on 24 June 2020 and have been settled and corrected for grammatical errors in order to convey the precise intention of the Court.

1. The matter before the Court involves de facto property proceedings.  There are also parenting issues at large between these parties.  The parties have two children.  The Court has dealt with interim parenting orders in relation to those children.  The wife in this case has filed an urgent application in a case seeking various orders, but primarily seeking an order to restrain the husband from selling an interest in a rent roll.  The rent roll is owned or controlled by the husband through a company called “K”.  The evidence from the husband is that the K Company currently controls approximately 200 properties.

2. That rent roll is being sold to a new company called “L Company”.  Another entity called “J Pty Ltd” are selling 42 properties contained in a rent roll into the new entity of “L Company”.  And the husband will maintain 50 per cent ownership of “L Company”, and two other individuals whose first names are Mr G and Mr H will retain 50 per cent of “L Company”.  And the wife has filed this application to prevent the sale of the rent roll currently owned by K Company to L Company with a settlement date of 1 July.  The wife says that the husband has not kept her informed about his plans to sell the rent roll and that he has not made disclosure.  It seems to me it’s undisputed that there has been a significant amount of conflict between these parties, both in relation to property issues and in relation to parenting issues.

3. The wife’s affidavit, which was filed on 23 June, refers to correspondence that had been received by her solicitor.  So her solicitors, Barry and Nilsson, received a letter from the husband’s solicitor, Mr Barbi, on 27 November 2019 advising that the husband would be listing the business for sale with Ms M of M Company.  He would advise of offers and when and if a contract is entered into.  It was said that the sale price would be dictated by the market, not by a valuation.  Note paragraph 44 of the wife’s affidavit where she states:-

   “44. On 27 November 2019, my solicitor received correspondence from Mr Merrick’s solicitor advising:

   (a) He will be listing the business for sale with Ms M of M Company;

   (b) He will advise of offers and when/if a contract is entered into for sale, provide copies;

   (c) The sale price will be dictated by the market and not the valuation;

   (d) The proceeds of sale will discharge all liabilities, including service contracts.”

4. That correspondence has to be put in context.  It was sent following the filing of an application in a case by the wife on 14 November 2019 whereby the wife sought an order that the husband be restrained from terminating the C Group franchise agreement, but no order was made.  And at this point in time, I can’t recall precisely when that hearing took place or what the circumstances were.  It’s said by Mr Jordan of counsel that the letter of 27 November 2019, or at least paragraph 44 of the wife’s affidavit, relates not to the sale of the rent roll but relates to the sale of that part of the business which was the sales part of the business.

5. I do note the affidavit refers merely to the sale – listing of the business for sale, and the affidavit of the wife does not differentiate or does not define what’s meant by “the business”.  And Mr Barbi’s contention on behalf of the husband is “the business” meant all of it.  And I do not appear to have been provided within this affidavit with a copy of the letter of 27 November.  In any event, the husband provided on 18 June this year information by way of correspondence from his solicitor advising that he had entered into a contract to sell the rent roll.  This rent roll, of course, forms part of the property pool.  The final hearing commences early August 2020.  As I said at the outset, the wife seeks an injunction from this Court to prevent that sale from proceeding.

6. The Court needs to, of course, have regard to the relevant section. The relevant section is section 114, subsection (3) in particular, of the Family Law Act, which grants to the Court the power to make the injunction if it appeared to the Court to be just or convenient to do so. It’s also noteworthy that the Court can make such an order unconditionally or upon such terms and conditions as the Court considers appropriate. It seems to me that if paragraph 44 of the wife’s affidavit required further explanation, it would have been incumbent upon the wife to explain the difference between what the paragraph says on the face of it, that is, that she was notified that he would be listing “the business” for sale – it would have been incumbent upon her to explain the difference between what appears to be the case of the face of that paragraph as opposed to what the wife understands or what the wife submits was the case, that is, the wife contends that letter only related to the “sales business”.

7. But last week the wife was notified that there was an intention to sell and a contract had been entered into.  And the wife came to the conclusion that she should bring this application to prevent the sale.  And she was concerned for a number of reasons.  She holds the view that the sales side of the business was – when the C Group agreement was terminated, the wife holds the view – although the Court is not yet in a position to make a finding, the wife holds the view that these were actions taken by the husband which impact upon the value of the pool and effectively reduce her position.  Now, what I would note is that apparently that franchise agreement was terminated by the husband on 6 January 2020.

8. And what I do need to take into account is the fact that there has been significant changes, certainly in the way that we are permitted to live and move about since that time because of the onset of the global pandemic.  It’s very difficult to say at this point in time what the ultimate valuation evidence would be at the final hearing in August in view of the fact that, as at today’s date, 24 June 2020, the Queensland border remains closed except for certain limited permitted reasons.  The Australian border remains closed except for certain limited permitted reasons.  And it’s only recently that there has been some easing by the State Government – (by operation of the regulations enacted pursuant to the Public Health Act Queensland) of restrictions in terms of the ability of people to meet and to gather.

9. So our way of life has been impacted significantly.  At this point in time, it’s not clear what impact it may have on the valuations in this case, whether that relates to the real estate or the superannuation or the rent rolls.  The Court, then, in the backdrop of the global pandemic, has to decide whether or not an interlocutory injunction should be granted to the wife to prevent the sale of the property.  I am particularly mindful of what the Full Court had to say in the decision in In the Marriage of Waugh (2000) 158 FLR 152. At paragraph 46, the Full Court criticised the primary judge by saying:

   “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.”

   (Underlining added)

10. So in terms of the balance of convenience, what seems to be conceded by the parties, or at least contained in a limited way in the evidence before me today, there is a property at Suburb E with nett equity of about somewhere between $290,000 and $350,000 on the two positions put forward by the lawyers for the parties today.  There’s a property at Suburb N which the wife owns with her brother.  And her equity is worth about $125,000, although I do note that’s subject to an updating valuation which is coming in.  For the present purposes, that is, today’s matter, O Accountants apparently previously, in late 2018, valued the rent roll at $1.283 million.  At that point in time, there was a particular number of properties on the rent roll.

11. I do not have before me precise evidence as to the number of properties on the rent roll at that stage.  A multiplier was used of 2.9, which seems to have been a midway point approximately between the range which was provided by O Accountants, which was, as I understand the evidence, between 2.1 and 3.3.  O Accountants settled on 2.9 for the purposes of the valuation.  And Mr Barbi wrote in late May this year stating that the opinion of his client was that the multiplier was too high, given the impact of the pandemic.

12. I accept, of course, that what was contained in Mr Barbi’s letter was not the opinion of an independent expert but the opinion of the husband, and perhaps even the opinion of Mr Barbi.  It’s not the opinion of an independent expert.  Mr Barbi’s letter of 28 May was in the context of moving the proceedings towards a trial.  In any event, the figure of 2.4 or 2.5 was proffered at that stage.  All the Court knows in terms of independent evidence is that the O Accountants position in late 2018 was to adopt a mid-range of 2.9.  But as Mr Barbi rightly points out, multipliers can be deceptive if you do not have before you the precise number of properties and the precise – I think it was called management commission.

13. That obviously makes sense.  Multipliers relate to something.  What are they multiplying?  If the rent roll is diminished for some reason, the multiplier becomes practically – or could become practically irrelevant.  The husband maintains that 100 properties – approximately 100 properties have gone from the rent roll since the time of the O Accountants valuation.  Mr Jordan, on behalf of the wife, says that the wife does not accept that and says, further, that even if it were proved that there were properties that have gone from the rent roll, it will be the wife’s intention to explore with the intent of proving, or attempting to prove that it was the husband through his actions somehow which led to a diminution in the number of properties on the rent roll.

14. This Court at this point in time is a long way from being able to make any finding in that respect, although, as Mr Jordan points out, the trial is close.  The other matters in the property pool – I’ve mentioned the property at Suburb E, the property at Suburb N, the rent roll and there is superannuation which I do not believe it’s contested that it’s approximately $150,000 for each of them in superannuation.  So the property pool is certainly not large.  Mr Jordan says that a sale at 2.5 is a sale at undervalue. 

15. I don’t think it’s possible for the Court to look at a straightforward comparison, as Mr Jordan did, between $1,283,000, being the value obtained using a multiplier of 2.9, and $1,106,047, being what’s obtained with a multiplier of 2.5.  It would be the case if I had evidence before me now that precisely the same properties are on the rent roll, but I do not.  And what I actually have is evidence from one side, namely, the husband who controls the rent roll, that 100 properties are no longer on that rent roll.  It seems to me that even if I was to take into account the fact that his evidence is some properties have left the rent roll, it doesn’t seem to me, on the evidence from the wife, to be the case that she actually disputes that some properties have left.  She may dispute the reason why they have left.

16. I don’t think it’s the sort of case that I can do a strict mathematical calculation, as urged by Mr Jordan.  When having regard to balance of convenience – I’m particularly concerned with the current situation in which businesses find themselves – individuals or residents of this State and this country find themselves.  I’m particularly concerned that for the Court to step in and prevent a commercial transaction from proceeding could possibly have consequences for the wife that she does not yet foresee.  There’s no evidence that this husband is going to personally pocket any of the money from the proposed sale.  Indeed, he’s only selling down to the extent of 25 per cent of his interest, it seems to me.  Now, one very great benefit to both the wife and the husband if this sale goes through is a reduction in the debt to P Bank – a reduction of approximately $380,000.  I know it’s said that disclosure hasn’t been kept up to date.

17. I know it’s said that he has done things in the past like terminate the C Group agreement, and that has impacted the wife, and the husband is not to be trusted, but even if all those things ended up being proved after a final hearing, at this point in time, I need to look for evidence of an intention by the husband to dispose of this asset, the rental roll, pursuant to a scheme to defeat any judgment.  And what I see is the sale of something, even if one uses the simplified version that the wife wanted the Court to use, the sale of something using a multiplier of 2.5 instead of 2.9, noting we’re in the middle of a pandemic, which I am required to take judicial notice of, and noting that what will happen with the nett sale proceeds, if I can use that term in the sense that is used regularly, is that it will be used to pay down debt in relation to P Bank.

18. The other point to note here is the Court notes that the commercial deal that has been struck by the husband is, his company, K Company, is putting in 202 properties to L Company.  The other company, J Pty Ltd, is putting in 42 properties.  I don’t know whether the husband’s share of L Company – it might be worth every bit as much as his 100 per cent shareholding in K Company. 

19. It seems to me that the issue as to whether the November 2019 letter did in fact alert the wife to the possible sale of the rent roll – frankly, at this point in time, it’s irrelevant.  Things have changed so much in the Australian economy and in the world since late 2019, that it’s actually quite irrelevant.  I accept that it would have been much better if as soon as the husband in this case knew precisely what the contract was, who the purchasers were, what the sale price was, how he come to that, it all should have been provided in a more timely way.  But at the end of the day, that’s not what I’m here to decide.  I’m here to decide whether there’s an intention by the husband to dispose of an asset pursuant to a scheme to defeat the judgment of the wife.

20. And there simply is nothing, apart from the wife’s suspicions and mistrust, some of which may be well founded.  But at this point in time, the Court can’t work on her suspicions and mistrust of the husband’s actions and intentions, but, rather, the Court has to look at what is actually occurring.  And what is actually occurring is he’s actually retaining 75 per cent of what he currently has and the debt to P Bank is being reduced, and I see no reason to think that that’s not a benefit to both this husband and this wife, especially in a situation where we are in the midst of great uncertainty in terms of the future direction of the State, the country and the economy.

21. In many cases, one would expect the Court to issue an injunction.  But in the midst of the current situation in which the country finds itself, it seems to me that I have to be very careful that there is, in fact, the type of evidence referred to in the decision in Waugh.  And I’m not satisfied that there is.  I note that in a more recent decision of Norton v Locke (2013) 284 FLR 51, the Full Court reiterated that the view in Waugh is correct.  In Norton v Locke at paragraph 67 and 68, the Court stated:-

    “67. Neither counsel referred in written or oral argument to the decision of this court in Waugh. There, this court said (in the context of a case for Mareva order in which there was no issue of the establishment of facts necessary to found jurisdiction) that the “fundamental question” when determining whether or not an interlocutory injunction restraining a party from dealing with property ought be granted is “… whether there was any evidence of any intention by the [appellant] to dispose of any assets pursuant to any scheme to defeat any judgment which the [respondent] might obtain in the substantive proceedings …” (at 76). As we have already sought to make plain, in our view the “fundamental question” identified by the Full Court in Waugh is akin to the “compelling circumstances” referred to by Wilson and Dawson JJ in Ex parte Green and, at the core of each, is the necessity to establish a real risk that the court’s function will be undermined in the absence of the interlocutory relief sought.

    68. The judgment in Waugh refers to the possibility of substantive relief in a matrimonial cause providing a context for the relevant principles to have a different emphasis than that which applies when the substantive proceedings relate to a debt. By analogy, similar considerations may be applicable when the substantive proceedings are a de facto financial cause (see, also analogously, Crone v Konig [2001] QSC 284). However, in the present case, that potential circumstance will matter little if, otherwise, the circumstances are insufficiently compelling to require an interlocutory injunction.”

    (Underlining added)

1. In terms of the question of hardship, I do not believe that the wife has made out that hardship will be suffered by her if this sale goes through.  As I’ve indicated, it seems to me that there will be a benefit to both parties by a reduction in the debt.  Mr Jordan points out that it may be the case that at a final hearing the valuer may come in with a multiplier of 3.3.  And that would have a significant impact on the size of the pool.  And I have to balance that with the evidence from the husband which indicates that he has had the rent roll for sale for some time.  And here is the offer that’s received.

2. I have to balance that with the fact that there is significant uncertainty in the country and in the economy since the time of the provision of the O Accountants report.  And not only that, the actual change in the contents of the property pool sees not only a reduction in the debt to P Bank, but it sees the husband retaining 75 per cent of what he already has.  But not only that, it seems to me that he’s retaining 75 per cent of something which is potentially worth more.  L Company, on its face, one would expect, with 250 properties is worth more than K Company as it currently stands alone.  It may be that his interest in the L Company, which obviously now has to be valued by O Accountants before the trial, it may be that that’s a beneficial outcome for these parties.

3. At the very least, I do not anticipate that it is of such moment that it would lead the Court to conclude that it’s evidence of an intention to dispose of an asset pursuant to a scheme to defeat any judgment which the wife might obtain. The wife has therefore not satisfied the Court that the “fundamental question” has been answered in the affirmative.  So the conclusion I’ve reached is that I am not going to grant the injunction that has been sought.  I do want there, though, to be orders for provision of information. 

I certify that the preceding twenty-four (24) paragraphs are a true copy of the reasons for judgment of Judge Howard

Date: 31 July 2020