NYLES & NYLES

[2010] FamCA 363

FAMILY COURT OF AUSTRALIA

NYLES & NYLES [2010] FamCA 363

FAMILY LAW – DISCOVERY – pursuant to sub-sections 198F(2) and (3) of the Corporations Act 2001 (Cth)
FAMILY LAW – PRACTICE AND PROCEDURE – Splitting the hearing of applications pursuant to sections 79A and 90K of the Family Law Act 1975

Family Law Act 1975 (Cth)
Family Law Rules 2004 (Cth)

Corporations Act 2001 (Cth)

Patching and Patching (1995) FLC 92-585

APPLICANT: Mr Nyles

RESPONDENT: Ms Nyles

FILE NUMBER: MLF 4247 of 2003

DATE DELIVERED: 11 May 2010

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Mushin J

HEARING DATE: By written submissions and further oral submissions on 25 February 2010

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr North SC

SOLICITOR FOR THE APPLICANT: James D Maplestone

COUNSEL FOR THE RESPONDENT: Dr Pannam QC with Mr Strum

SOLICITOR FOR THE RESPONDENT:	Taussig Cherrie & Associates
COUNSEL FOR THE OTHER PARTY:	Mr Strang

SOLICITOR FOR THE OTHER PARTY: Freehills

Orders

1. That pursuant to sub-sections 198F(2) and (3) of the Corporations Act 2001 (Cth), within 28 days of the expiry of the time provided by paragraph (8) hereof the wife do all things and sign all documents necessary to arrange with a relevant officer of T Group Ltd … ("the company”) to attend upon the office of the company, together with her legal representative if so required by her, for the purpose of inspection and copying of the books of the company.

2. That upon attendance in accordance with paragraph (1) hereof, the wife obtain copies of all books of the company for the period 14 August 2003 until 10 March 2004 (both inclusive) with regard to the wife’s knowledge, if any, of the company’s May 2004 “book build” and Initial Public Offering (“the IPO”) and the resultant listing on the Australian Stock Exchange on 7 May 2004.

it is declared as follows:

1. That for the avoidance of doubt the company’s books relating to its Due Diligence Committee do not constitute discoverable documents and are specifically excluded from the said attendance, inspection and production pursuant to paragraphs (1) and (2) hereof.

it is further ordered as follows:

1. That within 14 days of the completion of the said inspection and copying pursuant to paragraphs (1) and (2) hereof the wife make, file and serve an affidavit of documents specifying all discoverable documents in her then possession and or under her control as a result of the said inspection.

2. That forthwith upon the wife’s compliance with paragraph 4 hereof, she make available for inspection and copying by the husband such discoverable documents not subject to any objection to production by virtue of privilege or any other cause.

3. That the wife cause a sealed copy of these orders to be served on the relevant officer of the company as soon as practicable.

4. That the husband and the wife and each of  their legal representatives provide signed confidentiality undertakings in relation to any document inspected and  or made available in terms to be agreed between the husband and the wife and each of their legal representatives and the company, prior to receiving copies of any such document.

5. That paragraphs 1, 2, 3, 4 and 5 hereof be and are hereby stayed until the performance of the requirements of paragraph 7 hereof or order of the Court.

6. Liberty be reserved to both parties and the company to apply in relation to any aspect of the performance of these orders and generally.

7. That all questions of costs be reserved.

8. That all extant applications be and are hereby otherwise referred to the docketed Registrar for listing as follows:

   (a)in the event of any difficulty arising from the execution of these orders; and

   (b)upon completion thereof, for the making of all orders and directions as may be necessary to prepare them for trial before Justice Mushin but subject to paragraph (12) hereof.

9. That the trial referred in sub-paragraph (11)(b) hereof be only in respect of the questions of whether one or more grounds has been established by the husband for –

   (a)varying or setting aside the orders made on 10 March 2004 pursuant to s.79A of the Family Law Act 1975; and/or

   (b)setting aside the binding financial agreement between the husband and the wife dated 10 March 2004 pursuant to s.90K of the said Act –

   in accordance with the reasons for judgment delivered this day.

IT IS CERTIFIED

1. Pursuant to Rule 19.50 of the Family Law Rules 2004 this matter reasonably required the attendance of Counsel and Senior Counsel.

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

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLF 4247 of 2003

MR NYLES

Applicant

And

MS NYLES

Respondent

REASONS FOR JUDGMENT

introduction

1. On 28 October 2009 I delivered reasons for judgement ("the first reasons") and made orders ("the first orders") with regard to issues of discovery in these proceedings.  The first reasons contain a summary of the relevant background of this matter and should be read in conjunction with these reasons for judgement.

2. The first orders provided in paragraph 2 that service be affected by the wife on T Group Ltd ("the company") in order to give it the right to be heard on the husband's application pursuant to sub-sections 198F(2) and (3) of the Corporations Act 2001 (Cth) ("the legislation"), the company having advised the Court that it sought to be heard on the application.

The hearing

1. Following service in accordance with the first orders and in particular in accordance with paragraph 3 of those orders, on 7 December 2009 the company filed and served a Response to an Application in a Case together with a supporting affidavit.  I conducted a directions hearing and required the filing and service of written submissions in accordance with a prescribed timetable.  As a result, I have considered the following written submissions:

   ·    the husband filed 8 February 2010;

   ·    the wife in response filed 22 February 2010; and

   ·    the company in reply filed 25 February 2010.

2. On 25 February 2010 I heard counsel by way of oral submissions in addition to the written submissions referred to in the previous paragraph.

The present issues

The exercise of discretion pursuant to the legislation

1. There are two issues which I must determine at this stage of the proceedings.  The first of those is whether I should exercise my discretion to require the wife to exercise her rights pursuant to the legislation to obtain relevant documentation from the company for the purpose of discovery in these proceedings.  There has been no submission to suggest that I do not have that discretion.  If I exercise that discretion, I must also consider its terms.

2. It is common ground that the documentation which the company might provide to the wife pursuant to the legislation may be divided into two categories.  They are:

   ·the nature and extent of the wife's prior knowledge of a possible float of the company on the Australian Stock Exchange (if any); and

   ·any potential benefit which the wife might receive thereunder and, in particular, any consequent increase in the value of her entitlements and/or share holding. 

   I will refer to these bullet points as the first and second stages respectively.

3. I accept the submission on behalf of the company that the documentation of the first stage could be more readily provided than documentation with regard to the second stage. In particular, the issues raised by the second stage have already had, and I am sure will continue to have, a significant impact on questions of commercial confidentiality relating to the company's business.  Accordingly, questions of commercial confidentiality would be avoided, at least for the time being, if any initial exercise of discretion with regard to the legislation were to be restricted to the first stage.

Splitting the hearing

1. The second issue, which directly impacts on the first issue, is the manner in which the husband's substantive applications pursuant to sections 79A and 90K of the Family Law Act 1975 ("the Act") should be heard.  It is common ground that there are three steps to that process.  They are as follows:

   ·the establishment of one or more grounds required by the Act to establish a miscarriage of justice or fraud in accordance with the respective applications;

   ·if a ground is established, whether the discretion should be exercised to vary or set aside the original orders for alteration of property interests and/or the financial agreement between the parties; and

   ·if that discretion is to be exercised, a determination of the substantive issue of an alteration of property interests between the husband and the wife.

   I will refer to those bullet points as the first, second and third steps respectively.

2. As discussed below, the most common method of hearing applications to vary or set aside orders for alteration of property interests and/or a financial agreement is to hear all three steps described in the previous paragraph at the one time.  However, there are circumstances in which the discretion may be appropriately exercised to hear either the first, or the first two, steps and proceed to the third step in the event that the Court is satisfied that the orders should be varied and or set aside.  The process has become known as “splitting the hearing”.

Discussion

Splitting the hearing

1. The issue of splitting the hearing has been the subject of previous consideration in this matter.  On 9 November 2006 Brown J declined the wife's application to split the hearing by first determining whether a ground for varying or setting aside the orders had been made out.  That would be a determination of only the first step.  The essence of her Honour's decision was largely based on the proposition that she was unable to "make a positive finding that the parties' property circumstances are complex."

2. This matter has been conducted before me on the basis that it is appropriate to revisit that decision.  That has arisen out of the detailing of various issues which were unavailable to Brown J at the time of her consideration.  In my view, in those circumstances it is appropriate to reconsider the question.

3. One of the leading authorities on the question of splitting the hearing in these circumstances is the decision of the Full Court of this Court in Patching and Patching (1995) FLC 92-585. The Court held (p 81,797):

   In Oastler and Oastler (1993) FLC ¶92-390 the Full Court emphasized that it is generally preferable to deal with all of the steps in the one hearing. The reasons for that are obvious, namely that even if the Court concludes that there have been circumstances which amount to a miscarriage of justice it must then consider whether in all the circumstances it should exercise its discretion to vary or set aside the orders and/or make a new s. 79 order. In exercising that discretion it will have regard to, inter alia, the degree and nature of the miscarriage in question, any delay, alterations in the parties' positions in the meantime, and the extent to which, if at all, it is now appropriate to vary the original orders: McIntyre, [(1994) FLC 92-468], provides an example of this. The last of those circumstances was important in this case for reasons which will subsequently become apparent. Of course there will be cases where it is convenient to divide the procedure into several hearings; for example, where there is a discrete issue under the first and/or second step and the property circumstances of the parties are complex.

4. It is clear from Patching's case that I have a discretion in determining whether to hear the husband's substantive applications to vary or set aside the applications for alteration of property interests and the financial agreement in order of either -

   ·the first step, and if the husband is successful, followed by the second and third steps together at a second hearing;

   ·the first and second steps together, and if the husband is successful, followed by the third step at a second hearing; or

   ·all three steps in the one hearing.

5. I have decided that it is appropriate for me to determine the applications in the first step as a discrete hearing. There are several reasons for that decision. The question of whether the wife made an appropriate disclosure with regard to her knowledge of the potential for a float at the time of the making of the orders, which are the subject of the husband’s substantive application, thereby establishing one or more grounds under sections 79A and/or 90K may be isolated from all the other issues in the substantive proceedings and heard as a separate matter.

6. The issues which may be expected to be involved in determining the second step relate, at least in significant part, to the question of the valuation and potential revaluation of the company's shares.  To that extent, they more naturally fall to be considered together with step three rather than step one.

7. Valuation issues may significantly impact on the question of third-party discovery by the company, thereby raising potentially complicated and sensitive commercial issues which would be desirable to avoid, unless or until there is no choice but to confront them.

8. It was submitted on behalf of the wife and at least partially conceded on behalf of the husband that if an order directed to the wife to pursue her rights pursuant to the legislation were limited, at least at this stage, to the question of her knowledge as discussed above, the wife's task in that regard would be made considerably less controversial.  I will return to that issue below.

9. Finally in my consideration of the question of splitting the hearing, my perception is that the parties presently regard a resolution of the first step as being the fundamental issue between them.  That is also my present view.  Once that issue has been determined, in my view it would not be out of the question that the parties might resolve the overall proceedings. I do not agree with the submission to the contrary on behalf of the husband.

The exercise of the discretion pursuant to the legislation

1. I now turn to the question of whether I should require the wife to exercise her rights pursuant to the legislation by seeking relevant documentation from the company.  Were I to make an order in those terms, my task has been made somewhat simpler by my determination that I will hear only the first step of the three-step process required by the husband's substantive application.  Accordingly, such an order would only address the issue of the wife's prior knowledge of the float and not be concerned at this stage with any consequent revaluation of the company's shares and questions of the wife’s entitlements.

2. As a result of the affidavit filed on behalf of the company together with its Application in a Case and the written and oral submissions on behalf of the wife and the company, there is agreement between them with regard to my exercising my discretion in favour of requiring the wife to avail herself of her rights pursuant to the legislation.  There is also agreement with regard to the nature of the orders which I should make.  However that agreement does not extend to the husband.

3. Subject to several matters which are discussed below, I have decided to make orders pursuant to the legislation essentially in accordance with the proposals of the wife and the company but omitting any reference to the issue of valuation.  It is unnecessary for me to set those orders out here.  They are detailed at the commencement of these reasons for judgement.  I now turn to a number of matters relevant to those orders.

4. Considerable time was spent during a previous hearing in this matter with regard to the issue of whether the husband's initial interim application, as detailed in paragraph 4 of the first reasons, was oppressive, fishing and/or vexatious.  In the circumstances, while I have found it unnecessary to make a determination on that issue, in my view there is significant merit in that submission.  However, the orders which I have decided to make avoid the problems raised by that application.

5. In my view, insofar as the company is concerned, the husband's right to discovery and inspection in the substantive proceedings should properly be an issue between himself and the company.  It is an unreasonable imposition on the wife to require her to make judgements, albeit with the assistance of legal advice, on the relevance of any single document to the proceedings as between herself and the company but ultimately for the benefit of the husband's case.  That is not to suggest that such judgements are not made in most, if not all, issues of discovery in every-day litigation.  However, an order pursuant to the legislation requires the wife to make judgements as to which documents to bring into her possession from a third party for the purpose of discovery as between herself and the husband.  In my view that is a matter more properly left to third-party discovery directly between the husband and the company.

6. The orders as agreed between the wife and the company present an opportunity to overcome that fundamental problem. Upon completion of the wife's obligations pursuant to my orders, the husband will have the opportunity to make any submission with regard to the adequacy or otherwise of the discovery so provided.  Ultimately, if he seeks to assert that the discovery is less than adequate, he will be required to pursue his rights directly against the company.  That will remove the matter to the area of third-party discovery where it appropriately belongs.

7. Following from the previous paragraph, in its Application in a Case filed on 7 December 2009, the company sought a restraint against the husband from his seeking any further document from it without leave of the Court.  In my view that is an unreasonable imposition on the husband.  The husband has certain rights pursuant to law and in particular, pursuant to the Family Law Rules 2004.  I see no reason to restrict his access to his rights.

8. The company submitted that considerations of listing the company were primarily considered by its Due Diligence Committee of which the wife had never been a member.  The company submitted that because of the wife’s non-involvement in that committee, all documents relating to it should be excluded from the discovery process.  On the basis that no submission has been made either contrary to the assertion of fact or the consequential exclusion of documents, I accept that submission.

9. The company submitted that the commencement date for the provision of documents should be 14 August 2003.   The wife agreed with that submission and no submission was made to the contrary on behalf of the husband.  It was also agreed that the appropriate end date should be the date on which the final orders were made and the financial agreement was entered into. I agree with both those dates.

10. In its Application referred to above, the company also proposed that upon the wife completing the task of obtaining relevant documents, she should swear an Affidavit of Documents in what might be referred to as the usual form.  In the circumstances of this matter, in my view that is an appropriate process.

11. The company has proposed that the husband, the wife and each of their legal representatives –

    provide signed confidentiality undertakings in relation to any documents inspected and/or made available in terms to be agreed by the Company, prior to receiving copies of any such document.

    While a third party in the position of the company is already protected with regard to confidentiality, in the particular circumstances of this matter confidentiality undertakings are appropriate. I note that the parties and the company have previously been unable to agree on the form of an undertaking of confidentiality.  The orders contain a reservation of liberty to apply on that and any other issue arising from them.

1. It was initially submitted on behalf of the company that the process which it was required to undertake as a result of these orders was very time consuming and expensive.  The company sought payment of the sum of $35,000 in respect of its compliance with the orders.  However, counsel for the company ultimately conceded that the legislation did not empower me to make such an order and the application was withdrawn.  Issues of costs will be considered in the usual way.

Conclusions

1. I have decided that orders be made requiring the wife to avail herself of her rights pursuant to the legislation essentially on the terms proposed on behalf of the company and the wife.  Otherwise, I will refer all applications to the Registrar for listing, either in the event of any difficulty arising from their execution or on completion of that execution.

2. It is also appropriate to note that in the event that the husband succeeds in my determination of the first step, it will be appropriate to consider the question of discovery by the company of documentation relating to the issue of valuation.  In that event, the company would be given a further opportunity to be heard.

I certify that the preceding thirty-two (32) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Mushin

Associate: 

Date:  11 May 2010