Patton & Patton

[2015] FamCA 1083

FAMILY COURT OF AUSTRALIA

PATTON & PATTON [2015] FamCA 1083

FAMILY LAW – PROPERTY – INTERLOCUTORY INJUNCTION – asset preservation where the parties are engaged in substantive property settlement and spousal maintenance proceedings – where the applicant seeks that proceeds of sale of real property be held on trust – whether the applicant can demonstrate that her claim would otherwise be prejudiced – where the respondent asserts there is no prejudice if the sale proceeds were to not be held on trust – where the applicant has foreshadowed an application for partial property settlement – where such application would be prejudiced by the diminution of the proceeds of sale – where the applicant’s substantive property application would be prejudiced by the disbursement of the proceeds of sale – where there would be no prejudice for the proceeds of sale to be applied to reduce an inter-entity loan – whether such funds may be re-drawn and applied to specified uses – balance of convenience.

FAMILY LAW – PRACTICE & PROCEDURE – INJUNCTION – restraining the appointment of a further director to corporate trustee – where the injunction is refused.

Family Law Act 1975 (Cth)
Income Tax Assessment Act 1936 (Cth)

Beacham Group Ltd v Bristol LaboratoriesPty Ltd (1968) 118 CLR 618
Blue Seas Investments Pty Ltd v Mitchell & McGillivray (1999) FLC 92-856
Cardile v LED Builders Pty Ltd (1999) 198 CLR 380
Giumelli v Giumelli (1999) 196 CLR 101
Malec v J C Hutton Pty Ltd (1990) 169 CLR 638
Martinello & Martinello (1981) FLC 91-050
Mullen & De Bry (2006) FLC 93-293
Norton & Locke (2013) FLC 93-567
Sieling & Sieling (1979) FLC 90-627
Stowe & Stowe (1981) FLC 91-027
Waugh & Waugh (2000) FLC 93-052
Yunghanns & Ors v Yunghanns & Ors (1999) FLC 92-836

APPLICANT: Ms Patton

RESPONDENT: Mr Patton

FILE NUMBER: BRC 4411 of 2013

DATE DELIVERED: 4 December 2015

PLACE DELIVERED: Brisbane

PLACE HEARD: Brisbane

JUDGMENT OF: Kent J

HEARING DATE: 23 November 2015

REPRESENTATION

COUNSEL FOR THE APPLICANT: Ms McMillan QC with
Mr Cameron

SOLICITOR FOR THE APPLICANT: Butler McDermott Lawyers

COUNSEL FOR THE RESPONDENT: Mr Kirk QC

SOLICITOR FOR THE RESPONDENT: Nita Stratton-Funk & Associates

Orders

it is ordered until further order that:

1. The Husband cause the remaining net sale proceeds of sale of the property known as the B Town property in the amount of approximately $1.6 million to be paid by C Pty Ltd as trustee for the Patton Family Trust (“PFT”) to Patton Holdings Pty Ltd (“PH”) in repayment/reduction of Division 7A loans.

2. The Husband be permitted to cause re-draws of loans from PH from the above payment to be made to meet:

   (a)       payment to Mr D as vendor in respect of the purchase by PFT of           stock in the amount of approximately $230,000;

   (b)       payment to PwC for their outstanding costs in the amount of $278,598;

   (c)       payment to the Husband’s solicitors in respect of his outstanding and    future legal costs in respect of these proceedings in the amount of      $76,155.

3. The Husband be restrained and an injunction is granted restraining the Husband by himself or by his servants or agents causing or permitting any further

   
   

   re-draws from the said sum paid to PH without the express written consent of the Wife or further order of the Court.

4. The Amended Application in a Case of the Wife filed on 20 November 2015 is otherwise dismissed without prejudice to the Wife making further application for an order for partial or interim property.

5. In the event that neither party makes any application for costs in respect of this application within twenty-one (21) days of the date of these Orders, the costs of each party of and incidental to this application are reserved.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Patton & Patton has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

FAMILY COURT OF AUSTRALIA AT BRISBANE

FILE NUMBER: BRC 4411 of 2013

Ms Patton

Applicant

And

Mr Patton

Respondent

REASONS FOR JUDGMENT  

1. Mr Patton (“the husband”) and Ms Patton (“the wife”) have been engaged in substantive property settlement and spousal maintenance proceedings[1] since 2013. 

   [1] Pursuant to Part VIII of the Family Law Act 1975 (Cth) (“the Act”).

2. The proceedings follow the breakdown of the parties’ marriage and their final separation on 1 November 2012.  The husband is 53 years of age and the wife is 42 years of age.  The husband has two now adult children from a previous marriage.

3. There is dispute between the parties about the date their cohabitation commenced and the extent of their cohabitation.  The wife contends that cohabitation commenced in February 1999 but the husband disputes that.

4. The parties became engaged in 2003 and in 2005 the first of their two children was born.  The husband acknowledges that as at the birth of the first child the parties were a committed couple but did not thereafter always live together.  He contends that between 2006 and 2009 the parties maintained separate residences.

5. The parties’ first child was born in 2005 and their second child in 2007. 

6. As noted, the parties finally separated on 1 November 2012. 

7. The wife contends that the relationship and cohabitation of the parties subsisted for more than a decade.  The husband contends that cohabitation was no more than about five years, although he concedes that the wife primarily cared for the children following the birth of the first child in 2005.

8. The two children currently live with each parent in an arrangement whereby they live primarily with the wife but spend five nights per fortnight with the husband and half of all school holidays with each parent.

9. This interim application of the wife, listed for an urgent hearing at her request, arises out of the sale by C Pty Ltd, as trustee for the Patton Family Trust (“PFT”) of the property known as the B Town property, such sale having settled on 16 November 2015.

10. PFT is one of numerous entities forming part of what is conveniently referred to as the Patton Group, being various companies and trusts related to the parties or either of them.  The parties’ interests in the Patton Group form part of the property interests the subject of the substantive proceedings.

11. Whilst the wife did not, and does not, challenge the merits of the sale of the B Town property, she and the husband are in dispute as to how the remaining net sale proceeds of $1,619.196.48 ought be applied or utilised.

12. In summary, the wife seeks interlocutory injunctions in the nature of asset preservation for the funds to be retained in the trust account of the husband’s solicitors.  The essential contention of the wife is that if the funds are not preserved and are expended in the manner the husband contends for, her substantive property claim may be prejudiced. 

13. For his part, the husband proposes that in the first instance PFT pay the funds to a related entity within the Patton Group (Patton Holdings Pty Ltd) in reduction of related entity loans so as to secure some reduction of Division 7A[2] taxation and/or loan interest liabilities. 

    [2] Income Tax Assessment Act 1936 (Cth) (“ITAA”).

14. Thereafter, on the contention that he has pressing needs for funds for a number of purposes that will be discussed, the husband proposes that further loans are to be drawn down from Patton Holdings Pty Ltd to meet those purposes.  The husband contends that there is no risk of prejudice to the wife’s substantive claim.

15. By her Application in a Case filed on 16 November 2015, urgently listed to be heard on 23 November 2015 at the wife’s request, the wife sought the interlocutory injunctive relief referred to.  The husband filed material to meet that application.  The husband’s counsel, Mr Kirk of Queen’s Counsel, caused his written submissions addressing that application by the wife to be provided to the Court late on 20 November 2015, the last working day prior to the hearing date.

16. However, late on 20 November 2015 (being the Friday prior to the Monday 9.00 am hearing) the wife filed, electronically, an Amended Application in a Case seeking, as an alternative to the injunctive relief referred to pressed as the primary application, that each party receive as and by way of partial property settlement one half each of the available proceeds; with the husband to be ordered to indemnify the wife with respect to any consequent taxation or loan account liabilities.

17. At the hearing Mr Kirk of Queen’s Counsel for the husband contended that neither the husband nor counsel had been given sufficient opportunity to respond to the application for partial property settlement orders.  Mr Kirk contended that this part of the application ought be adjourned to be dealt with on another occasion, if it was sought to be pursued.

18. Common to both the initial application in a case and her amended application in a case was the wife’s application for an injunction restraining the husband’s proposed appointment of his adult daughter as a director of E Pty Ltd (“E”).  E is the trustee of the F Trust (“the F Trust”).  The dispute in this respect is in the context that the husband and his now two adult children from his first marriage contend that the F Trust is wholly for the benefit of those children and does not form part of the property interests of the parties or either of them available for adjustment in the substantive proceedings. 

19. The F Trust is assessed by the single expert valuer to have a value, as at 30 June 2014, of $4,569,015.

20. At the hearing of this application and relevant to the husband’s claimed needs for funds, there was an issue as to whether or not the husband had settled part of a dispute within what will be referred to as “the J litigation” further discussed below.  The question was whether or not the husband and/or related entities had received, or would soon receive, a payment of about $350,000. 

21. In the event, correspondence to the Court jointly authored by the respective solicitors for the parties dated 30 November 2015 (and thus received subsequent to the hearing) confirms that on 30 November 2015 the husband was to receive $363,120.76. 

Evidence

1. As a consequence of counsel for the husband objecting to privileged material being included in the wife’s affidavit filed on 23 November 2015, paragraphs 27 to 30 and Annexure “TMP 21” were expunged from that affidavit.

2. As the wife’s affidavit filed on 23 November 2015 was received late; and some issues thought not to be in contention were revealed on the hearing to be in issue; the husband was given leave to file an affidavit subsequent to the hearing on the issues so identified during the course of the hearing.  That led to the wife also filing a further affidavit. The husband’s affidavit was filed on 23 November 2015 (subsequent to the hearing) and the wife’s affidavit was filed on 25 November 2015.

3. Whilst neither party specifically read the single expert report of Mr G of I Valuers dated 4 September 2015, being an assessment of the value of the financial interests of the parties in numerous entities; the various references or cross-references to that report in the material that was relied upon made it necessary to give some consideration to the contents of some of that report in order to gain a proper understanding of those references made by the parties.[3]

   [3] See, for example, paragraphs 23 to 25 of the husband’s affidavit filed on 19 November 2015 and Annexures “BMP 1” and “BMP 5”.

Relevant law – injunctions

1. The juridical sources of power to grant an interlocutory injunction in the nature of asset preservation pending a trial of s 79 proceedings are found in ss 34(1) and 114(3) of the Act.

2. Section 34(1) relevantly provides:

   The Court has power, in relation to matters in which it has jurisdiction, to make orders of such kinds … as the Court considers appropriate.

3. Section 114(3) relevant provides:

   A court … may grant an injunction, by interlocutory order or otherwise … in any case in which it appears to the court to be just or convenient to do so and either unconditionally or upon such terms and conditions as the court considers appropriate.

4. The following principles would seem to be well settled by authority:[4]

   a)The applicant has the onus of demonstrating two central requirements, namely:

   i)That the applicant has an existing (or potential) claim to an order altering property interests under s 79 of the Act; and

   ii)An objective risk or danger that the claim may be prejudiced unless an injunction is granted;

   b)There is no “fundamental” or “threshold” question whether a scheme to defeat a judgment exists, to be answered in the affirmative on the balance of probabilities in every case before an order preserving property can be made.  In an inquiry into the risk of disposal of assets, the question of an intention or scheme is but one of a number of factors relevant to the objective risk of disposition to defeat an order;

   c)The Court is required to take into account the balance of hardship and the balance of convenience between the parties and in that context the Court will not usually restrain a party from ordinary business dealings unless there exists a substantial risk of dissipation of assets or some substantial reason justifying such a restriction;

   d)Any injunction granted ought be limited to that which is in the reasonable protection of a legal or equitable right and it is not the function of an injunction to provide an applicant with security in advance of a judgment.

   [4] Waugh & Waugh (2000) FLC 93-052 and Mullen & De Bry (2006) FLC 93-293 and the authorities cited in those cases; Cardile v LED Builders Pty Ltd (1999) 198 CLR 380; Beacham Group Ltd v Bristol LaboratoriesPty Ltd (1968) 118 CLR 618; Blue Seas Investments Pty Ltd v Mitchell & McGillivray (1999) FLC 92-856; Stowe & Stowe (1981) FLC 91-027; Yunghanns & Ors v Yunghanns & Ors (1999) FLC 92-836; Sieling & Sieling (1979) FLC 90-627; Giumelli v Giumelli (1999) 196 CLR 101; Norton & Locke (2013) FLC 93-567; and Martinello & Martinello (1981) FLC 91-050.

5. In Sieling & Sieling (supra) the Full Court observed:

   The power to grant injunctions is, of course, a discretionary power, not to be exercised lightly.  The Court must balance the hardship to each party of granting or refusing an order, and frame its order in such a way as to impose no further restriction that is necessary to achieve the protection of the applicant’s interest.  It will not lightly interfere with the rights of an owner of property on the basis of a vague or uncertain claim.

   …

6. The substantive proceedings in this case are rendered complicated by a number of features, at least some of which stand in the way of the substantive proceedings proceeding to trial as regards the Court’s capacity to identify and value the property interests of the parties or either of them, given the contingencies involved.

7. The relevant features include the following.

The Patton Group

1. Various entities (companies and discretionary trusts) comprise the Patton Group.  The husband contends (and the wife disputes) that his two now adult children from his first marriage are solely beneficially entitled to one of those trusts being the F Trust, having a value of $4,569,015.  The husband thus contends that this asset should not be included in the interests of the parties considered when final property adjustment orders are made at a final trial.  Obviously enough this is a trial issue but it is relevant to note, in determining these interim applications, that this issue of itself means that the available pool for adjustment ultimately may vary to the extent of the value of this Trust. 

J Limited (“J”)

1. In 2005 the husband floated this company on the Australian Stock Exchange.  It had then a market capitalisation of $140 million and entities related to the husband owned about 50 per cent.  The impact of the global financial crisis led to a number of entities within the Patton Group and other assets owned by the husband or entities related to the husband (including properties) being placed in receivership at the instigation of the ANZ Bank as secured creditor.  That receivership, at least in respect of some entities/assets, continues. 

ATO audit

1. The Australian Taxation Office (“ATO”) is undertaking an audit of entities within the Patton Group apparently with respect to the 2011 financial year in particular, but also involving an audit of Division 7A loans/dividends.[5]

   [5] ITAA.

2. The release of entities/remaining assets from receivership and the security held by the ANZ Bank depends upon the ATO being satisfied that there are no remaining taxation liabilities to be addressed. 

3. There is the potential for two properties known as “K” and “L”, estimated to have a total combined value of about $6 million, being released from the receivership/security held by the ANZ Bank and to thus become available in the property to be considered in the substantive proceedings.  This is, however, contingent upon the ATO audit and obviously is subject to any taxation liabilities that crystallise as a result of that audit.

4. I interpolate here that the ATO, as at August 2015, was reviewing via audit 2011 taxation returns and, aware of that, the ANZ Bank advised that it would not release its security until there is confirmation that the ATO is satisfied as to the taxation position.

J litigation

1. Until 26 March 2015 the husband was employed as the chief executive officer of J. 

2. The terms of his employment included a salary of $330,000 per annum plus performance based bonuses.

3. The husband’s employment contract with J included a restraint of

   
   

   trade/non-compete clause for nine months duration so that it seems that as at 26 December 2015 the husband will no longer be constrained by this.

4. The husband proposes to then commence consulting to the management rights industry in relation to hotels and resorts and intends to, for himself, pursue the acquisition and development of management rights in hotels and resorts.

5. The husband has received a draft Statement of Claim and representations on behalf of J to the effect that J intends to institute proceedings against the husband and various of his entities in the Queensland Supreme Court.[6]

   [6] Paragraph 39 of the husband’s affidavit filed on 19 November 2015.

6. On 21 October 2015 the husband instituted Supreme Court proceedings against J naming himself and various entities related to him as plaintiffs.  The litigation instituted by the husband relates to agreements he historically had made with J related to his employment.  In March 2012 the husband agreed with J upon an incentive scheme involving the husband taking up a 20 per cent equity stake in new investment projects that he sourced and developed for J, pursuant to which the husband was required to share 20 per cent of all acquisition costs with J, funded pursuant to a loan agreement incurring interest.  Dividends were paid in reduction of the loan.  There exists some 22 of these “80/20” projects that are the subject of the litigation instituted in the Queensland Supreme Court.

7. The husband also entered into a partnership with J in 2014 in respect of a property known as the Wrap Apartments in Melbourne.  The husband contends that there was agreed a 50/50 partnership with J whilst it appears J contends that “at best” there exists an 80/20 (in favour of J) partnership.

8. The husband expresses the hope of an outcome of his disputes with J, either by settlement or as a result of the litigation referred to, “… of between $1m and $8m if successful …”.[7]

   [7] Paragraph 46 of the husband’s affidavit filed on 19 November 2015.

9. What is not entirely clear on the evidence is the basis or bases of J’s claims against the husband. 

10. That aside, there is no evidentiary basis for this Court to conclude at this stage as to whether or not the husband’s expressed hope is matched by reality.  That is, on this hearing, Mr Kirk submitted that at this stage no formal advice on prospects or like evidence was available to be tendered as to the prospects in the subject litigation, either as to its success or, if successful, its likely outcome.

1. As earlier referred to, subsequent to the hearing of this application on 23 November 2015, the Court was advised by both parties that one aspect of the dispute in the J litigation resolved subsequent to the hearing, such that on 27 November 2015 agreement was reached between the husband and J relating to the management rights of the M Resort in respect of which J and entities related to the husband have a partnership and management agreement.  That settlement results in those entities/the husband receiving sale proceeds of $363,120.76.

2. The husband has thus far incurred legal costs of $62,810.35 with respect to the J litigation and he annexes to his affidavit an estimate of future costs to conclude the litigation to a trial.  That estimate expressly totals $845,650 and is an estimate based on there being an eight day trial of the proceedings, as an indication of their complexity.  Counsel for the husband contended during the hearing that this litigation is “hotly contested”.

3. Obviously enough, litigation such as this carries risk.  Not only is it not possible at this stage to assess the merits or likely outcome of that litigation (the pleadings have yet to close), but the reality is that allowance must be made for the prospect that the litigation is not successful and indeed results in an adverse costs outcome.

4. The husband proposes to have the available sale proceeds available to himself to be drawn down over time to meet the future costs of this litigation, as noted estimated at $845,650 to a concluded trial. 

Divisible pool – contingencies

1. Counsel for the husband’s written submissions contain:

   Whatever may be the Wife’s entitlement, the distribution of the Mt View net sale proceeds of around $1.6M will not prejudice it in any way.  There will be ample property available to satisfy her entitlement even if the entire $1.6M were to be lost.[8]

   [8] Paragraph 5.3 of the husband’s submissions.

2. That submission was advanced in support of the proposition that the wife could not establish one of the essential elements necessary to the grant of the injunctive relief she seeks, namely, that unless the injunctions she seeks are granted, there is a real risk/a real danger that her entitlement may be prejudiced.

3. The starting point in discussing any prospective entitlement or prospective range of entitlements of the wife is to observe and highlight the evident limitations in making such an assessment inherent in any interim hearing when disputed issues of fact cannot be determined.

4. In this case those disputed issues of fact apparently attend almost every aspect relevant to the s 79(4) considerations, starting with the husband’s claimed initial contribution and the parties’ dispute even as to the period or periods of cohabitation; and continuing in relation to most aspects of contribution.

5. However, in this case even greater uncertainties attend the matter by reason of the contingencies already referred to, at least some of which would need to be resolved for a trial of the substantive proceedings to legitimately proceed.

6. Assessing potential prejudice to the wife’s entitlement, and assessing the husband’s submission referred to, requires some consideration of the potential effects of these contingencies.

7. Annexure “BMP 1” to the husband’s affidavit filed on 19 November 2015 is a “balance sheet” prepared by the husband setting out what he contends to be the available assets and their worth and referring to some contingencies.  Whilst the wife disputes the balance sheet, due allowance must be made for the potential that the husband’s claim that the overall total value of net assets presently available is accurate.

8. In compiling that balance sheet the husband makes a number of adjustments to the valuation report of the single expert dated 4 September 2015, as are set out in notes to the balance sheet. 

9. Whether or not those adjustments are legitimately made is a matter for trial.  However, the adjustments contended for result in the husband’s contention that the Patton Group is to be taken to have a total net value of $1,746,509.

10. The inclusion of that amount for the Patton Group results in the husband contending that the total overall value of net non-superannuation assets is $2,523,083.

11. However, what is significant is that the adjustments made by the husband to the balance sheet do not include any adjustment with respect to the sale of the B Town property.  Taken from the valuation report the B Town property was included at a value of $1,950,000 in arriving at the ultimate figure.  Self-evidently then, within the husband’s net figure of about $2.5 million has been included the B Town property at this value.  In other words, the valuation compiled by I Valuers incorporates the B Town property (and presumably the Rabobank liabilities that in fact have been paid from the settlement proceeds).  The gross sale price actually achieved was $2.3 million.  Translating that then, a significant part of the approximate $2.5 million net non-superannuation assets that the husband contends for includes the remaining net sale proceeds currently in dispute, or at least a substantial proportion of that amount. 

12. I do not suggest I have reconciled or attempted to reconcile the valuation report, and all it includes, against the actual sale figures for the property; or the respective liabilities already discharged from the sale proceeds owing to Rabobank.  The point is that the current disputed amount of $1.6 million is substantially a component of the husband’s net asset figure referred to.

13. The husband’s figure of approximately $2.5 million obviously excludes the F Trust on the husband’s contention (and as asserted by lawyers acting for the adult children beneficiaries on their behalf) that this asset does not form part of the divisible property interests of the parties. 

14. Obviously it is not possible to reach any conclusion one way or the other about this on an interim hearing (and nothing should be inferred one way or another about this from these Reasons) but due allowance must be made for the possibility that the husband’s case in this respect may ultimately succeed.

15. The figure of approximately $2.5 million does not include the two stock properties currently in receivership.  On the evidence as it currently stands, they cannot be included given the contingencies.  That is, the outcome of the ATO taxation audit is unknown.  Whether further liabilities have to be addressed; and the quantum of any such liabilities; are complete unknowns at this stage.  The release of those properties from the ANZ Bank security is contingent upon the result of the ATO audit. 

16. Thus it is, that as matters currently stand, hopes and personal expectations aside, it cannot be assumed that these properties will ultimately form part of the divisible pool at their full value.

17. With respect to the J litigation, as matters currently stand, it cannot be assumed that this litigation will, as the husband hopes, produce a favourable outcome whether in the amounts he refers to as earlier discussed or at all.  Indeed, due allowance must be made for the prospect of there being a lack of success and potentially adverse costs consequences.

18. On such a worst case scenario something like $850,000 could be spent on litigation which does not ultimately produce a favourable outcome and lack of success in the Supreme Court usually means that costs follow the event. 

19. In these circumstances, on the present state of the evidence, a submission that even if the $1.6 million presently available were lost, that the wife’s entitlement will not be prejudiced in any way, cannot be accepted.

Resolution

1. In my judgment the husband’s complaint as to his inability to meet, in the time made available to him, the wife’s claim for a partial property order is legitimate.  Rather than “adjourning off” that part of the application, it seems to me that there is no disadvantage to the wife if that part of her present application is dismissed without prejudice.  It was advanced in the alternative to injunctive relief being granted and whilst I do not propose to grant injunctive relief to the extent sought by the wife, any interim property application needs to be considered and addressed by reference to the outcome of the application.

2. The wife will be at liberty to bring such application for an interim property order as she may seek in light of the outcome otherwise of this application and as further events unfold.

3. As to the wife’s potential entitlement or claim in the substantive proceedings, I am conscious of the competing contentions of the parties as to the wife’s entitlement expressed in percentage terms.  However, the use or reference to any particular percentage is somewhat illusory in this case given the vast potential differences in the value of the interests of the parties or either of them that may ultimately be considered by a Court.  The issue as to the F Trust alone, which can only be resolved at a trial, involves the significant value of approximately $4.5 million earlier referred to.

4. What can be observed at this stage is that on the husband’s contention as to the value of non-superannuation assets presently existing and not subject to any contingencies; which includes in substantial part the currently disputed remaining net proceeds of sale of the B Town property; any legitimate present entitlement of the wife that can be assessed; or the range of such entitlements; would be prejudiced by diminution of the value of what is currently available.  Obviously, accepting that the wife’s entitlement (or both parties’ entitlements) will ultimately be expressed in percentage terms, it obviously follows that diminution of the value of the “pool” may diminish the real value of any percentage entitlement.

5. If the ATO audit is completed without any significant taxation liabilities being assessed; and the ANZ Bank is thus satisfied that its security can be released and the two stock properties are consequently released and are available; property interests worth a combined $6 million (approximately) become available in the “pool” of property interests to be adjusted.

6. However, the ATO audit is not complete and its outcome is presently unknown.  Assessment of risk to the wife’s claim presently entails proper allowance for adverse possibilities.  Future hypothetical events, so far as risk is concerned, are not assessed on the balance of probabilities but by reference to the existence and magnitude of risk.[9]

   [9] Malec v J C Hutton Pty Ltd (1990) 169 CLR 638.

7. The possibility that the ATO assesses further taxation liabilities cannot be dismissed.  The consequent possibility that the two stock properties are adversely affected or are not released from receivership as a consequence likewise cannot be ignored.

8. If the husband’s hopes for the J litigation come to fruition something between $1 million and $8 million becomes available (subject to consequent costs outcomes).  However it is not possible, presently, to realistically or practically assess that prospect; or to assess how much in legal fees will likely have to be expended to achieve an outcome; or to dismiss the prospect that the litigation fails after substantial legal expenses have been expended with the prospect of adverse costs consequences of an adverse outcome.

9. Obviously, if either or both of the above “upsides” come to fruition, then it would be difficult to see how any legitimate claim of the wife could be jeopardised or prejudiced even by the loss or expenditure of the whole of the subject $1.6 million.  However, a retrospective view when the outcome of these contingencies is known might demonstrate the perils to the wife’s claim of that having occurred, if that outcome is negative.

10. The “upsides” referred to have not yet occurred.  The “downside” risks, as there corollary, presently exist.  The realisation of those “downside” risks would, in my judgment, mean that the disposition now of $1.6 million or a substantial part of that sum carry the likely consequences of prejudice to the wife’s claim given that her claim, or its worth, correlates to the quantum of the “divisible pool” whatever ultimately be the percentage at which it is assessed.

11. To this may be added the observation that the wife now foreshadows an application for a partial property order.  Obviously enough, that claim would be prejudiced or indeed become “moot” if there remains no available source to meet any such legitimate claim.

12. As at 30 June 2014 PFT owed $1,768,746 to Patton Holdings Pty Ltd. This amount represents a “sub-trust” loan within the meaning of Division 7A of the ITAA and arose in the 2011 financial year.

13. Under the relevant loan agreement PFT is required to pay interest at a minimum prescribed annual rate, currently about 9 per cent.

14. If the full amount of the remaining net sale proceeds is paid in the first instance to that company, there will be taxation savings referable to the period the funds are held and referable to the amount of funds retained.  Attached to the husband’s affidavit filed on 19 November 2015 is information from an accountant setting out estimates of savings if the funds are retained by the company.  This aspect is also addressed by Mr King on behalf of the wife who legitimately points out that there will only be savings of substance if the funds are retained.  However, as Mr Kirk highlighted, even if the full amount were

    
    

    re-drawn some savings can be achieved in respect of the current financial year.

15. There can be no disadvantage to either party, and potentially significant advantage to both, if the remaining funds are in the first instance paid to the company as the husband proposes. The question then is, having regard also to this benefit, how much of the funds ought be permissibly again drawn down as Division 7A loans to meet any of the requirements identified by the husband; vis-à-vis any prejudicial impact upon the wife’s claim.

Stock purchase

1. On behalf of PFT the husband had, in advance of the present dispute, contracted to purchase $230,000 worth of stock and he seeks to be able to draw down on the funds to meet the costs of this acquisition.

2. Whilst I do not think much turns on this, counsel for the husband’s submissions indicate that counsel may have proceeded on the understanding that it is these purchased stock which are to be sold in April 2016 on the husband’s plan.  However, from his evidence the husband plans stock PFT already owns, in April 2016, not the those recently purchased.  The husband refers to the stock having a present per unit value of $1,500, but the husband contends that in April 2016 he expects to achieve “well in excess of $2,000” for each unit.[10]

   [10] Paragraph 70 of the husband’s affidavit filed on 19 November 2015.

3. PFT presently has stock worth, on the husband’s evidence, about $1 million.  The addition of these purchased stock, assuming that the husband is correct when he says that they are worth 10 per cent more now than when he purchased them (giving a value to them now of approximately $250,000), means that PFT will have total stock worth about $1.25 million.

4. In the course of argument counsel for the wife acknowledged that the use of funds to purchase the stock would essentially be substituting one asset (cash) for another (stock).  In the end, I did not discern that counsel maintained that the wife’s claim could be prejudiced if funds were used in order to complete this purchase.  I find that it could not be prejudiced.

5. However, in addition to that funding the husband proposes that he be entitled to draw a further $175,000 from the fund to provide “working capital” for PFT and its operations.  PFT currently pays fees to the receivers to be able to use the two stock properties currently in receivership.

6. The expert report refers to PFT having accumulated taxation losses because of historical losses incurred in its stock trading operations.  That feature, together with the fact that PFT will hold $1.25 million worth of stock, renders it difficult to see the justification for yet further working capital in the amount proposed by the husband to be set aside or utilised in this way.

7. The calculation set out in a schedule to the husband’s affidavit in support of the need for working capital for PFT for the seven month period to 30 June 2016 indicates that an overall profit will be made.  It does so including a wage for the husband for seven months that is not commensurate with $55,000 per annum, as the husband suggests he ought receive; given that this was the amount of the wage paid to the former employee the husband suggests he will replace.  Moreover, the schedule does not seem to reflect sales of stock at a price “well in excess” of $2,000 per unit.

8. In any event, if $230,000 is now made available essentially as working capital/to fund the stock purchase, in my judgment the further allocation of $175,000 is not justifiable.  PFT ought be able to fund its operations from sales of existing stock in the interim period given that it will hold about $1.25 million worth of stock.  Given PFT’s history of trading losses, there is a risk that further capital applied to that endeavour may likewise be lost. 

9. In my judgment, the husband/PFT ought be permitted to draw down $230,000 to complete the subject stock purchase but there ought not be further drawings to provide further working capital which diminishes the available assets. 

PwC taxation audit/accounting fees

1. The husband seeks to utilise $278,598 of the subject funds by way of re-draw to meet the existing liability to PwC concerning fees incurred for the ATO audit and preparation of financial accounts.

2. It was contended on behalf of the wife that the subject entities may themselves hold funds available to be applied to this purpose.  However, even if that is so, the liability exists and must be met, and as discussed during the hearing, if the entities were to meet the whole or part of those expenses then the resources and value of such entities would be depleted by the same amount.

3. There was also some contention to the effect that an employee being paid by the husband is doing some similar work but I do not intend to purport to undertake some investigation or forensic examination of this issue.

4. In my judgment, it is legitimate that there be a re-draw of the subject sum in order to meet the PwC taxation audit/accounting fees.  It is plainly in the interests of both parties that the ATO audit be completed.

Husband’s personal taxation and legal costs

1. The husband seeks to have paid the $46,225 he presently owes in taxation.  Given that subsequent to the hearing the husband’s needs for funds were alleviated by receipt of the sum of approximately $360,000, there is no reason to suppose that the husband cannot now meet his personal taxation liability from that lump sum.

2. The husband seeks a total of $76,155 to meet presently outstanding legal costs of these proceedings together with future anticipated costs.  In seeking that, the husband recognises that as these payments will be sourced from capital they are to be notionally “added-back” when the divisible pool of assets is considered for adjustment at a final trial.  As that does not thus deplete the presently available property value there ought not be a restraint against that.

3. On that basis it seems to me reasonable that the husband retain that capacity. 

Costs of J litigation

1. The husband seeks to re-draw $62,810 in order to pay his present costs owing in respect of this litigation.  However, again in circumstances where the husband has now received the sum referred to as a product of that litigation, it seems to me that there is no reason why that capital cannot be the source for this payment.

2. Beyond that, the husband seeks to have the ongoing capacity to re-draw, as required, further funding of the J litigation.  I have earlier referred to the estimate that has been provided with respect to those very substantial costs. 

3. In my judgment, unless and until there can be some legitimate assessment of the prospects of that litigation it would not be legitimate, as regards the wife’s claim and entitlement, for the husband to both retain the remaining part of the capital sum he has recently received as well as having the unbridled capacity to draw or re-draw upon the subject funds to the extent he may choose to further fund the J litigation.  Of course resolution of one or other of the other contingencies already referred to may put things in a completely different light.

1. Appropriate disclosure in due course may well result in the parties being able to reach agreement about future expenditure upon the J litigation.  Disclosure or lack of disclosure seems to be the wife’s main complaint with respect to having to decide whether or not to support this litigation or its pursuit.

2. Any interlocutory injunction can obviously be revisited and in the event that either party incurs costs in so doing any unreasonable opposition of the other party may well result in appropriate costs orders being made.

3. In my judgment given the extent of the speculative nature of any assessment of the J litigation (for current practical reasons), at the current stage; there ought not be drawings upon the subject funds (the remaining net proceeds of the B Town property) in lieu of other sources, save for the parties reaching further agreement otherwise or, if necessary, further order of the Court.

4. With respect to all of the above items it must also be noted that the husband will soon be able to resume consultancy work in a field in which he has historically been extraordinarily successful.  As the husband refers to in paragraphs 32, 34 and 35 of his affidavit filed on 19 November 2015, he has enjoyed a successful career in the field of management rights of hotels and resorts since the 1990s culminating in the 2005 float earlier referred to, and in December this year he will be free of any restraint in pursuing consultancy or other work in that field.

5. For the reasons discussed, on the present evidence and in particular having regard to the present state of the contingencies referred to; and the “downside” risks attending them; I am satisfied that:

   a)

   The wife has an entitlement to an order under s 79 of the Act and that entitlement would be to a significant proportion of the net

   
   

   non-superannuation “pool” if that pool were in the order of that contended for by the husband;

   b)There presently exists a real risk of prejudice to the wife’s entitlement unless injunctions as to the balance of the $1.6 million sale proceeds referred to are not granted;

   c)The balance of convenience favours interlocutory injunctive relief to the extent necessary to preserve that part of the balance referred to.

Appointment of husband’s adult daughter as a director of E

1. As already noted, E is the trustee of the F Trust in respect of which there is a fundamental dispute between the parties concerning its inclusion in the property interests of the parties or either of them available for adjustment.

2. The power of appointment in respect of that Trust vests in the corporate trustee.  The husband holds all of the shares in the corporate trustee.

3. Obviously this Court can order (at either an interim or final stage of these proceedings), that the husband in his capacity as a shareholder do certain things including the removal or change of directorships in the corporate trustee.

4. Obviously enough this Court can exercise jurisdiction and power in respect of any changes the husband purports to effect in circumstances where these proceedings are on foot, and the relevant Trust is the subject of them in the sense that the wife contends that the assets of the Trust are to be treated as the property of the husband.

5. In the circumstances, the wife has not demonstrated the necessary elements for the injunctive relief she seeks with respect to this entity vis-à-vis her claim or entitlement in the substantive proceedings.

Orders

1. For the reasons discussed the focus of the orders made will be upon the remaining net proceeds of sale of the B Town property.

2. In the event that the husband chooses to apply the capital sum he has recently received, in the first instance, to repayment of Division 7A loans, the terms of the injunction to be granted will not affect that sum or its re-draw. That is, the injunction will be confined to dealing with any re-draw of the amount referable to the subject sale proceeds. That meets the balance of convenience as between both parties.

3. For these reasons orders are made in terms of the orders set out at the commencement of them.

I certify that the preceding one hundred and seventeen (117) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Kent delivered on 4 December 2015.

Associate: 

Date:  4 December 2015