Singer and Singer and Anor

[2010] FamCA 506

FAMILY COURT OF AUSTRALIA

SINGER & SINGER AND ANOR [2010] FamCA 506

FAMILY LAW – PROPERTY – Litigation funding – Third party interests

Family Law Act 1975 (Cth)

APPLICANT: Ms Singer

RESPONDENT: Mr X Singer

2^ND RESPONDENT Mr Y Singer

FILE NUMBER: MLF 7095 of 1997

DATE DELIVERED: 23 JUNE 2010

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: THE HONOURABLE JUSTICE CRONIN

HEARING DATE: 21 JUNE 2010

REPRESENTATION

COUNSEL FOR THE APPLICANT: MR ACKMAN QC WITH MS MACMILLAN

SOLICITOR FOR THE APPLICANT: LANDER & ROGERS

COUNSEL FOR THE RESPONDENT: MS VOHRA

SOLICITOR FOR THE RESPONDENT: TAUSSIG CHERRIE & ASSOCIATES

COUNSEL FOR THE INTERVENOR: MR WOOD

SOLICITOR FOR THE INTERVENOR: MIDDLETONS

Orders

1. That if by 4.00pm on 30 July 2010, the husband has not satisfied paragraph 5 of the orders made 30 December 2009 by a payment to the solicitors for the wife together with interest pursuant to the Family Law Rules 2004 on that sum, he forthwith thereafter transfer to the wife on a trust for sale Victorian Motor Registration plates “[Plate 1]” and “[Plate 3]” and the wife forthwith thereafter, arrange for their sale.

2. That upon the settlement of the sale referred to in paragraph 1, the proceeds be applied:

   (a)first, to pay all costs, commissions and expenses of the sale;

   (b)secondly, to pay to the solicitors for the wife the sum of $320,000 together with interest pursuant to the Family Law Rules 2004 to the date of payment; and

   (c)thirdly, the balance to the husband.

3. That save as to issues of cost, the application of the wife filed 31 May 2010, the application of the husband filed 31 May 2010 and the response of the third party filed 17 June 2010 are otherwise dismissed.

4. That the further hearing of the husband’s amended application filed on 21 June 2010 be adjourned to 9.00am on 22 July 2010.

IT IS CERTIFIED:

1. That pursuant to Order 19.50 of the Family Law Rules 2004 it was reasonable to engage counsel, including senior counsel to attend.

2. That should any party desire to seek costs arising out of these orders, they do so by filing and serving written submissions by no later than 4.00pm on Friday 16 July 2010 and any reply thereto shall be filed and served by no later than 4.00pm on 30 July 2010 and any determination thereafter be made by me in chambers.

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

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLF 7095  of 1997

MS SINGER

Applicant

And

MR X SINGER

Respondent

MR Y SINGER
2^nd Respondent

REASONS FOR JUDGMENT

1. On 20 December 2009, I made orders that the husband pay or cause to be paid to the wife $320,000 by way of litigation funding and that the third party who is the husband’s brother, permit him to secure any borrowings required for the purposes of obtaining the $320,000 upon any of the assets or undertakings of the various entities with which the brother and the husband are involved.

2. These reasons relate to enforcement proceedings in which all three parties sought orders.

The wife’s application

1. On 31 May 2010, the wife filed an application seeking orders to enforce the order of 30 December 2009.  She sought that the third party lend to the husband $320,000 and that various documents be executed to secure the loan.  In addition, she sought that each of the husband and the third party sign any necessary document to ensure that on the death of either of them, the survivor would vote at a corporate meeting in favour of the appointment of a child of the deceased being appointed as a substitute director.

2. Further, in the alternative, the wife sought an order that dividends of the corporate group be declared to the extent of $250,000 and paid in favour of the husband and the third parties, to in turn, be paid to the wife to satisfy in part the 30 December 2009 order.  She sought a further order for the payment of $70,000 by way of a loan be paid by the third party to the husband using the same logic as set out above.

The husband’s position

1. On 31 May 2010, the same day as the wife lodged her application, the husband filed an application seeking an order that the third party do everything necessary to make available from the corporate group the sum of $250,000 either by way of loan or alternatively, to enable the husband to use that sum as security for borrowings to satisfy the 30 December 2009 order. 

The third party’s position

1. On 17 June 2010, the third party filed a response to the applications above.  He sought orders of a similar nature to that of the wife relating to the execution of documents to be used in the event of the death of either he or the husband and that thereafter, he would advance the sum of $320,000 to satisfy the 30 December 2009 order with various documents being executed to secure that sum. 

The various applications

1. It will be seen from the three positions above that the two main arguments related to:

   (a)ordering the husband and to the extent necessary, the third party, to do succession planning to protect the longevity of the corporate enterprise; and

   (b)the husband and the third party using $250,000 of company profit which would apparently have otherwise been used as a dividend between the two families, to be paid in part satisfaction of the litigation funding order.

2. As argument ensued and submissions were heard, two other oral applications were made.  The first was made by the wife.  Her counsel acknowledged that it was made reluctantly but it was put on the basis that if she failed in her application as I have described it above, she sought an order that the husband sell some vintage motor vehicle number plates which are highly valuable.

3. A second oral application was made by the third party.  His counsel made the application on the basis that if I was reluctant to make orders of a permanent injunctive nature, I should make interim injunctions relating to the succession planning issue until the final trial. 

4. In addition to all of those applications, the husband also sought by way of an amended application filed with leave on 21 June 2010, two other orders.  They related to the question of the third party providing copies of documents to him.  These documents had been provided by the third party pursuant to orders, to the single expert witness valuing the corporate entity.  It transpired that the application was made at the last minute and therefore the other parties had not had an opportunity to consider their positions.  In addition, it seems that the third party provided the original documents to the single expert witness and as such, there were no copies. 

5. A second written application related to the husband seeking an order that future dividends from the corporate group be paid to Baker & McKenzie solicitors to offset expenses anticipated to be about $350,000 for advice associated with what was described as “unravelling the mess”.  That too, was a last minute application.

6. In respect of the two late applications, it was common ground that all parties needed to consider their positions and I should fix a further date for some consideration of those matters should it be necessary.  By passing comment, I say that I would be surprised if there was a difficulty in respect of the first of those two issues but I can imagine there will be a number of people wanting to be heard in respect of the second issue.

Representation

1. All three parties before me were represented by lawyers. 

2. Each party had filed an affidavit.  The third party was absent overseas and he gave instructions to his son to swear an affidavit as to his position.  No-one took an exception to that course of action and I have relied on his affidavit accordingly.

3. All parties made submissions. 

The reasons behind the order of 30 December 2009

1. Although it should not matter why the orders were made, I propose to set out what I said in December because of the unusual nature of this enforcement proceeding.

2. The relevant parts of the judgment were as follows:

   3.This case has been extant for 12 years.  These interim issues hopefully will enable the matter to ultimately be finalised in the months ahead.

   …

   53.The wife sought a litigation funding order of $320,000.  No issue was taken with the quantum or for that matter the need.  The argument in this case is where the money is to come from. 

   54.The wife’s position was that there is a balance sheet of $34 million of the entities which includes real property showing figures which were conceded to be historical values.  There are also retained earnings of $5.5million.

3. In my reasons, I referred to the authority Bing and Bing (2007) FLC 93-318 about the enforcement issue being separate from the question of the entitlement to a litigation funding order. That was relevant at the time having regard to the anticipated problems of the collection of the funds notwithstanding the significant equity that the husband and the wife along with the third party had (and still have) in the corporate enterprise. I made mention of the fact that at the time it was “something like $34 million”. At the time, I said:

   The dilemma is how that fund can be accessed having regard to the various restrictions upon the liquidity within the group including that to which I have earlier referred as the negative pledge.  That however is a matter for enforcement and I see no reason why I should descend into guessing into the complications and problems associated with accessing the funds.

The parties’ evidence

The wife

1. The wife noted that in February 2010, the husband had indicated that he had made arrangement to borrow the money and secured against the assets of the corporate group.

2. On 18 February 2010, solicitors acting for the corporate group wrote to the solicitors for the husband indicating that the two banking organisations had recently given notice of default problems and therefore it was unlikely that the sort of extension of funds contemplated would be successful.

3. On 17 March 2010 the solicitors for the third party said that the third party would approach the two banks to gauge their willingness to cooperate with the additional borrowings.

4. On 20 April 2010, the solicitors for the corporate group wrote to the solicitors for the wife indicating that one bank was “non-committal” but the other expressed “real reluctance to cooperate”.  However, the solicitor then wrote that the third party was prepared to offer to lend the whole of the sum of to the husband.  That offer however, came with conditions which were ultimately rejected by the husband.

5. The wife’s evidence was that in May 2010, she became aware of a dividend of $125,000 being declared in favour of each of the husband and the third party “or entities controlled by them”.

6. The wife’s position was that she was entitled to the litigation funding and wanted the order enforced. 

The husband

1. The husband confirmed that he had put the third party on notice that he wanted to take out the loan secured over the assets of the corporate group and made arrangements to negotiate with the Commonwealth Bank which was not one of the banks referred to above.  He said the bank was not prepared to offer the finance without unencumbered real estate security.  No such security was available within the corporate group.

2. The husband said that he could see no way of borrowing from any other bank without that sort of security.

3. In May, as with the wife, the husband became aware from solicitors acting for the corporate group but also on behalf of the third party (but not their solicitors in these proceedings), a dividend had been “purportedly declared” by an “unidentified company” within the group for $250,000.  My understanding from the submissions put by all counsel is that only the husband and the third party as directors of the corporate group could have made the declaration for the dividend.  The husband said that he knew nothing about it.

4. The husband’s evidence went on to say that he advised the third party that he did not agree with the purported declaration of the dividend and wanted whatever sum had been paid out, to be refunded.  He then sought that the $250,000 be used to fulfil his obligations in accordance with the December 2009 orders. 

5. The husband then said that in February, the third party offered to advance him by way of a personal loan the necessary funds, to meet his obligations but it came with conditions which he found “offensive”.

The third party

1. The third party’s position as set out by his son was that because of the global financial crisis, the corporate group went into “technical breach” with their facilities with one of the two banks mentioned above. 

2. The third party was prepared to lend the husband the money from his own resources providing the necessary succession planning was put in place.  He pointed out that the corporate structure was under the old form requiring not less than two directors.  He said that both the husband and the third party were elderly and therefore there was a need for proper succession of directorships in the event of death or incapacity and that was important because in the event that the third party died, the husband would be the sole surviving director.  The difficulty with that was that the husband has had nothing to do with the business in any direct sense for many years.

3. Turning to the dividend issue, the third party’s position was that it had been declared according to the same approach adopted over many years.  He said that when he became aware of the objection of the husband, rather than argue about the matter, the money was put back into the account.  In relation to the use of the dividend as a whole, the son of the third party said that it would deny the third party’s entitlements.  There were a number of shareholders and beneficiaries affected by that and he complained that they should not be adversely disadvantaged because of the husband’s desire to meet his obligations under the orders. 

Enforcement generally

1. Enforcement of financial orders and obligations is set out in Chapter 20 of the Family Law Rules 2004. The order of 30 December 2009 falls within the definition of an enforceable obligation under the rules.

2. Rule 20.05 says that such an obligation to pay may be enforced by one or more of the following enforcement orders:

   (a)an order for seizure and sale of real or personal property;

   (b)an order for the attachment of earnings and debts;

   (c)an order for sequestration of property; and

   (d)an order appointing a receiver.

3. At first blush, those four avenues would seem to be the only way of enforcing an obligation to pay money.  However, the main purpose of the rules as set out in rule 1.04 is to ensure that each case is resolved in a just and timely manner at a cost to the parties and the Court that is reasonable in the circumstances of the case.

4. Rule 1.09 provides that if the court is satisfied that a legislative provision does not provide a practice or procedure or a difficulty arises in respect of practice and procedure, the court may make such orders as it considers necessary.  Further, rule 1.12 says that the rules apply unless the court orders otherwise.  The considerations in relation to dispensing with the rules are set out in rule 1.12.

5. In this case, the rules clearly provide the necessary avenue, difficult as it may be, for the enforcement of the orders of 30 December 2009.  The parties however, do not want, at this stage, to take any of those steps. 

The succession planning order

1. Counsel for the third party supported by senior counsel for the wife, said that the power to make such an order came from the injunctive power in s 114 of the Family Law Act 1975 (Cth) (“the Act”).

2. Section 114 of the Act provides that in proceedings of the kind referred to in paragraph (e) of the definition of matrimonial cause in sub-s 4(1), the court may make such order or grant such injunction as it considers proper with respect to the matter to which the proceedings relate. Paragraph (e) of the definition of matrimonial cause refers to proceedings between the parties to a marriage for an order or injunction in circumstances arising out of the marital relationship. As between the husband and the wife, I accept that these proceedings fall within that category particularly because of the fact that the order made in December 2009 was directed to the husband. I do have concerns about whether there is power to make the order that the third party enter into a reciprocal arrangement in relation to the succession planning. I doubt whether it could be said that such an order falls within the definition set out above. It is clear that if the arrangement was not reciprocal, it is pointless. It is important to also note that paragraph (f) of the matrimonial cause definition refers quite specifically to proceedings with respect to the enforcement of a decree.

3. Section 114(3) provides that when a court is exercising jurisdiction in proceedings other than those referred to in s 114(1), the court may grant an injunction in any case in which it appears to the court to be just or convenient to do so including unconditionally or otherwise.

4. Whilst s 114(3) is an aid to the enforcement of the decree, I doubt whether it could extend to the reciprocal order against the third party in relation to the succession planning issue.

5. Even if I am wrong about that, it is my view that it is not proper to make the order even though it is limited to the question of the appointment of a director of a corporate entity. There is no evidence before me as to how it would be done or who specifically would take on that position. I note that the third party, when met with the opposition of the husband, said that he had no objections to any nominee of the husband but I do not accept that the principle is as simple as that. Section 181 of the Corporations Law provides that a director must exercise their powers and discharge their duties in good faith in the best interests of the corporation and for a proper purpose. Presumably, the corporate group would not be comfortable about appointing someone whose interests was aligned simply with one of the families to protect that family rather than having their focus on the best interests of the corporation. At its highest, the husband said that he found the concept of being told how to organise his estate planning to be offensive. That may have been an overreaction having regard to the fact that the proposal related only to a substitute director but one way or the other, I have no evidence as to the expectation of this alternate director.

6. Mr Wood of counsel on behalf of the third party made the oral application for an interim order pending the final determination of the matter to overcome the problem of the death of either party.  For the reasons I have set out above, I doubt whether there is a power to make an order in respect of his client but in respect of the husband, without some evidence to show how it would work, I do not feel that it is proper for me to make the order.

7. No provision was drawn to my attention in the corporations law about what happens in the event of a death of one of the directors.  However, there are clearly provisions in relation to alternate directors.  Unfortunately, I was not provided with the constitution of the corporate group nor any of the corporate entities.  I am unaware of the requirements of any of those entities to implement such a plan.

8. In the circumstances, it seems to me inappropriate to make such an order.

The dividend

1. As I have set out above, the third party’s position was to put the dividend back.  The husband’s position was that as he knew nothing about its declaration, it was void.  No submissions were put to me that under the corporations law that is not necessarily correct.  Accordingly, I can presume that the funds have been declared as profit in the accounts but have not been paid out.

1. The order I made on 30 December 2009 was directed to the husband.  It was the husband who had to obtain the funds either from the company or secured by its resources.  The corporate group and its various entities are not parties to these proceedings and whilst there seems to be a clear agreement as to the control by the husband and the third party, I do not know whether it is the corporate group that is the legal owner of the unpaid profit or one of the individual entities.  As such, I was asked to assume that the husband and the third party could be ordered to pay out those funds because of their respective control.  Leaving aside any questions of taxation due upon the declaration of the profit in one or more of the entities or of the group itself, I have evidence from the third party’s son that there are a number of people who are entitled to share in the profits other than just the husband.  Without those persons being heard on the subject, it would not be proper for me to make the order giving the husband not only $125,000 which he would presumably normally be otherwise entitled to but also giving him a preference over other shareholders who are not only unconnected with this litigation but also not a party.  Accordingly, I decline to make that order.

The car registration number plates

1. In the course of his submissions, Mr Wood of counsel for the third party pointed to the fact that the enforcement proceedings were effectively targeted at the third party in circumstances where the wife had access to over $1 million worth of registration plates and the husband had a smaller number and presumably smaller value.  Senior counsel for the wife objected to the submission being put on the basis that it was rearguing the orders of 30 December but I accept that it was put on the basis that it affects the exercise of discretion.

2. In this case, the parties have declined to take action that might give rise to a liquidation of the corporate group.  There was no evidence before me that the husband had endeavoured to call upon his entitlements that might have had the domino effect of the corporate group calling in its assets to satisfy his shareholder entitlements.

3. As I pointed out, it is common ground that the husband’s interest in the corporate group albeit tied up, is several million dollars.  No action has been taken under corporation law to resolve the obvious impasse between the husband and the third party.  Mr Wood of counsel made clear that it is his client’s intention to buy out the husband in due course when the valuation exercise has been completed.  It is not lost on me that this litigation has been going on for 12 years and yet it is very much in the hands of the parties themselves.

4. The orders of 30 December 2009 were personal to the husband.  He has an obligation to meet.  He has chosen the course of action that he has. 

5. Senior counsel for the wife observed that his client was reluctant to pursue the sale of the number plates in the possession of the husband because of the fact that there is an apparent unwritten agreement that in due course, these will be passed on for posterity’s sake.  Despite that, the wife is in a difficult position where she cannot move forward without selling her own number plates.  I set out in the reasons for judgment in December why I thought it was appropriate to make an order for litigation funding notwithstanding she was retaining over $1 million worth of registration plates.  I do not propose to have that matter reargued. 

6. As the obligation of the husband under the orders of 30 December 2009 was a personal one, it is a matter for him to satisfy the debt. 

7. Counsel for the husband said that if I was minded to take that course of action, I should give the husband some time to think about his position and decide whether there was an alternate course of action for him.  I propose to give that time but ultimately, the matter can be resolved between the husband and the wife and the third party at any time.

8. In the circumstances, if the husband has not found an alternate way of satisfying the order for litigation funding, he is to transfer the registration plates in his possession to the wife on a trust for sale and upon their sale, after the payment of any necessary expenses, the satisfaction of the debt with interest, thereafter the balance to be paid to the husband.

I certify that the preceding Fifty Five (55) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin

Associate: 

Date:  23 June 2010