SOLI & BEDWYNNE

[2010] FamCA 510

FAMILY COURT OF AUSTRALIA

SOLI & BEDWYNNE [2010] FamCA 510

FAMILY LAW – PROPERTY – Interim – Restraint – Valuations

Family Law Act 1975 (Cth)

APPLICANT: Ms Soli

RESPONDENT: Mr Bedwynne

FILE NUMBER: MLC 11083 of 2009

DATE DELIVERED: 23 JUNE 2010

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: THE HONOURABLE JUSTICE CRONIN

HEARING DATE: 23 JUNE 2010

REPRESENTATION

COUNSEL FOR THE APPLICANT: MR WEIL

SOLICITOR FOR THE APPLICANT: KEMPSONS LAWYERS

COUNSEL FOR THE RESPONDENT: MS COLLA

SOLICITOR FOR THE RESPONDENT: LENNON MAZZEO LAWYERS

Orders

1. That the interim application of the wife filed 17 June 2010 and the response thereto filed by the husband on 23 June 2010 are adjourned before me at 9.30am on 1 July 2010.

2. That until the return date, the husband, his servants and agents are restrained by injunction from taking any further action in relation to the contract of sale dated 15 June 2010 either as a director or in the capacity of the owner of any of interests he may have directly or indirectly in B Company Pty Ltd.

3. That the costs of this day are reserved to the return date.

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

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLC 11083  of 2009

MS SOLI

Applicant

And

MR BEDWYNNE

Respondent

REASONS FOR JUDGMENT

1. On 23 June 2010, I made an interlocutory injunction which is set out which is set out at the commencement of these reasons.  I said I would give brief reasons later.  These are those reasons.

2. The parties were married in 2006 and separated on 1 August 2009. 

3. Proceedings in this Court commenced with the filing by the husband on 10 December 2009 an application seeking imprecise orders.  He justified that imprecision on the basis of requiring discovery from the wife.  There is a certain irony in that approach.

4. On 2 February 2010, the wife filed her response to the husband’s application for final orders and sought similar orders to the husband.

5. On 2 March 2010, the parties and their solicitors attended a case assessment conference with Registrar Sikiotis.  The registrar made an order for provision of documents and for valuations to be done and otherwise adjourned the matter to a conciliation conference.  That conference was to take place on 2 June 2010.

6. By letter signed by both parties’ solicitors, the conciliation conference was later adjourned on the basis that the valuation exercise had not been completed.  The statement by the lawyers belies the complexity lurking beneath.

7. Both parties filed financial statements.  The husband filed his on 10 December 2009 and the wife on 2 February 2010.  Having heard what I have heard from counsel, it is clear that neither financial statement adequately records the financial position of the parties.

8. On 17 June 2010, the wife filed the application in a case which gives rise to these reasons.

9. The wife sought injunctions in relation to the sale, disposal or encumbering by the husband of two corporate entities L Company Pty Ltd and B Company Pty Ltd.  In the alternative however she sought that the husband be restrained from dealing with their proceeds of sale. 

10. In addition to the injunctive orders, the wife also sought that M Firm be appointed to undertake the valuation of B Company and otherwise she sought general injunctions.

11. The wife supported her application with an affidavit to which I shall refer in a moment.

12. On 23 June 2010 at the hearing, the husband filed a response to the wife’s application for interim orders seeking that the wife’s application be dismissed and that the husband and wife otherwise sell B Company Pty Ltd and the proceeds be used to pay debts.

13. The wife’s affidavit was filed on 17 June 2010.  She said that the husband sold B Company without her consent or knowledge.  She then said that he had failed to comply with orders about the valuation not to mention his disclosure obligations under the Court’s rules. 

14. The issue of the valuation may be seen as separate from the injunctive orders but the path that was followed leaves much to be desired.  After the registrar made the orders about the business valuation, correspondence ensued between the lawyers.  M Firm had agreed to undertake the valuation of the two entities to which I have referred. 

15. On 22 April 2010, the wife’s lawyers sent to the husband’s lawyers the letter of instruction to M Firm with a request that it be forwarded on to M Firm for “immediate actioning”.  To that point, there was consensus that M Firm would do the valuation.  That was clear in a letter from the husband’s lawyer to the wife’s lawyer dated 12 April 2010.

16. On 25 May 2010 with the conciliation conference looming on 2 June, the lawyer for the wife wrote to the lawyer for the husband inquiring as to the progress in obtaining the valuations.  The registrar had ordered that the parties exchange documents 14 days before the conciliation conference and that included a list of assets and liabilities.  That 14^th day had passed when the lawyer for the wife wrote to the lawyer for the husband.  It seems that the lawyer for the husband had not sent the letter on to M Firm.  That became apparent on 3 June 2010, the day after the supposed conciliation conference when the lawyer for the husband wrote to the lawyer for the wife indicating that they proposed to forward to M Firm an amended letter.  In the course of that letter, it was said that while they were awaiting updated financial documents from their client, B Company was “sold”.  According to the letter, the husband’s position was that the sale price was only sufficient to cover debt but he was happy to provide information in due course.

17. There was some significance in the fact that on 3 June 2010, the husband was saying through his lawyers that the business was sold because according to counsel for the wife, at court after the proceedings began, a contract of sale was produced which was dated 15 June 2010.

18. I accept until there is evidence to the contrary that the lawyers for the husband did not know of what was going on up until 3 June 2010.  If it was otherwise, they would have had an obligation to tell at least the lawyers for the wife.

19. The letter relating to the sale and the consequent proposed payment of debt seems to have caused the wife some concern because she said that in 2009, the husband told her that the net value of the business was $2.29 million. 

20. Little more was said by the wife in her affidavit other than the fact that the husband had taken steps without her knowledge.

21. At the hearing on 23 June 2010, the husband filed an affidavit sworn that same day.  He set out in paragraph 5 the basic corporate entity structures and in a vague way, gave a picture of who owned what shares.  Ultimately, his counsel was able to explain to me that B Company Pty Ltd was a company in which the shareholding was owned as to 50 per cent by K Pty Ltd and 50 per cent by N Pty Ltd.  In his affidavit, the husband said that K Pty Ltd owned “approximately” 50 per cent of the shares and that N Pty Ltd (which I presume is the correct spelling) owned the other “half share”.

22. It transpires that the directors of both companies are the husband and a Mr T.  Importantly, the shares in K Pty Ltd are held entirely by the wife and she is the sole director.  It is puzzling therefore that the sole director of the major shareholder would not have been made aware of a potential sale.

23. To compound the difficulty, counsel for the husband gave to counsel for the wife after the proceedings commenced, the contract of the sale of what was said to be B Company.  A cursory glance at that however showed that what was being sold was the retail arm of the company.  According to the wife, she understood B Company had both a retail and wholesale arm.

24. In her later address, counsel for the husband said that the wholesale arm was transferred to TM Pty Ltd in May 2010.  Again it is interesting that the major shareholder and a director of the major shareholder company was not made aware of that transfer.

25. According to counsel for the husband, what has been sold is the name of the company, its customer contracts, some plant and equipment, a small number of staff and what was described as the “dealer channel”.  None of these details can be gleaned from the affidavit.

26. In his affidavit, the husband said that the sale price was $4 million and that from the proceeds of sale, debts that he expected to be paid, totalled $5.38 million.  No explanation was given as to how the shortfall would be met.  No balance sheet was produced to show what the impact of the sale would be upon the corporate shell that would remain after the transfer and sale of the corporate name. 

27. The whole position as it unfolded was entirely unsatisfactory.  It was not until the affidavit of the husband was filed on 23 June and the submissions of his counsel were heard that it became apparent that the interests of Mr T may have been affected by the application sought by the wife.  I can only go on the affidavit material filed by the wife but it is abundantly clear that she was oblivious to the nature of the structure and also the sale. 

28. The husband’s position was that despite the wife saying she had no knowledge nor any consent to the sale, he told her about it in April 2010 at her home when he returned the parties’ child from a weekend visit.  He said he explained to the wife that B Company was not going well and that he would need to sell it to clear the debts it owed.  The wife disputed the extent of that conversation but in any event if it is correct, it was certainly simply indicating an intention.  Nothing further eventuated.  Importantly, the husband did not tell his lawyers about what he was doing. 

29. It is also of some significance that the husband said in his affidavit that there were two potential buyers for the business and he chose the lower of the two figures on the basis that there was some security attached to that company buying the business because it was a public company and therefore its funds were more certain.  Again, the wife was not consulted either in her capacity as a litigant in this Court or in her capacity as a director of the major shareholder of the company.  The husband’s view was that the wife would be “stressed” by all of those problems.  I reject that as an acceptable explanation. 

30. On any view, the husband’s unilateral actions are to be deplored and they give rise to every justification for the wife’s application for injunctive relief.

31. As I pointed out above, the wife initially sought orders in the alternative.  Having heard what she heard in court, she withdrew from the second part of her application to then simply seek an injunction simpliciter pending the exchange of information and the valuation which she said would enable her to make a rational decision about whether the sale should proceed.  Unfortunately, that gives rise to the real problem in this case.

32. As I discussed with counsel, the real issue is the question of the consequences of an injunction that might effectively thwart the sale.  It is clear now for the record that there is a third party whose interests may be affected by the stopping of the sale.  By the same token, there was no discussion as between the owners of the business now sold and that gives rise as to whether or not the directors acted according to their legal rights.

33. Of serious concern is the suggestion that the sale proceeds would not meet debts in excess of the sale price.  Nothing in the husband’s evidence indicated how that shortfall would be met. 

34. Counsel for the husband indicated that both counsel had spoken to the proposed valuer who had expressed the view that if a public company had purchased the business, it was probably a correct price and at arm’s length.  That belies the fact however that the purchaser would have done its due diligence in which case all of this material would have been available to give to the wife.

35. The wife also produced an email from M Firm in which they indicated that they had spoken to the accountants for B Company who said that there were privacy considerations as well as confidential documents involved and they did not have permission to release them because the other director was overseas.  Counsel for the husband distanced herself from that position as well she might.  It would have been an appalling position for the accountants to adopt in circumstances where there was a court order to which the other director of the company had been a party not to mention the fact that his wife was the major shareholder and director of the company that was the party to the sale.

36. The fact that the contract of sale has now been executed and the sale is pending, makes little difference other than it raised the question of what is proper in all of the circumstances.  I am unable to make any determination because of the fact that I do not know what the other shareholder’s position is in relation to the sale.  I do not know what the consequences would be if the sale was thwarted.  I do not know whether there are sufficient assets in the pool of assets as between the husband and the wife to meet any entitlement she might have even if the husband is solely responsible for the mess that has been created.

37. Section 114 of the Family Law Act 1975 (Cth) (“the Act”) gives rise to the jurisdiction to make orders restraining actions by parties.  It reads as follows:

    (1)      In proceedings of the kind referred to in paragraph (e) of the definition of matrimonial cause in subsection 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, including:

    (a)an injunction for the personal protection of a party to the marriage;

    (b)an injunction restraining a party to the marriage from entering or remaining in the matrimonial home or the premises in which the other party to the marriage resides, or restraining a party to the marriage from entering or remaining in a specified area, being an area in which the matrimonial home is, or the premises in which the other party to the marriage resides are, situated;

    (c)an injunction restraining a party to the marriage from entering the place of work of the other party to the marriage;

    (d)an injunction for the protection of the marital relationship;

    (e)an injunction in relation to the property of a party to the marriage; or

    (f)an injunction relating to the use or occupancy of the matrimonial home.

    (2)      In exercising its powers under subsection (1), the court may make an order relieving a party to a marriage from any obligation to perform marital services or render conjugal rights.

    …

    (3)      A court exercising jurisdiction under this Act in proceedings other than proceedings to which subsection (1) applies may grant an injunction, by interlocutory order or otherwise (including an injunction in aid of the enforcement of a decree), 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.

38. The underlying critical issue is what is proper in the circumstance.  Because I am not aware of the consequences, I propose to make the injunction only for a limited period of time to enable the wife to effectively catch up on what information she should have had but at the same time, to provide the independent interest holder to have some say in whether there ought to be some other consideration.  Unilateral action in this Court has always been criticised and this case is no different.  If the consequences of the injunctions in due course cause significant problem, the husband will need to look at his own backyard.

39. I find in the circumstances that it is appropriate to at least restrain the husband from taking any further steps that might conclude the settlement of the sale of whatever has been sold in B Company Pty Ltd pending the return date on 1 July 2010. 

40. In the meantime, the husband will need to do all within his power to get information to both the wife and to the valuer so that she can properly consider her position about the sale.  It goes without saying that the third party also needs to have an opportunity to consider its or his position and whether it or he is affected by not only the order that I am currently making but could make beyond 1 July 2010. 

41. At the conclusion of her submissions, counsel for the husband requested that if I did make any injunctive orders, the wife be required to give an undertaking as to damages.  Having regard to the evidence before me and the unilateral actions of the husband, it would not be appropriate in the circumstances to require the wife to give such an undertaking.  Traditionally courts have declined to grant an interlocutory injunction unless an undertaking to abide by subsequent orders is made if it turns out that the injunction should not have been made in the first place.  (see Smith v Day [1882] 21 ChD 421, National Australia Bank Limited v Bond Brewing Holdings Ltd (1990) 169 CLR 271). The logic behind the undertaking is that in the absence of it, a litigant who is ultimately victorious in the trial cannot recover what he would have lost by way of damages for compliance with the injunction. In this case, those matters can be adjusted at the final hearing as between the husband and the wife. Whilst an undertaking as to damages might be relevant in a situation such as where a third party is affected, it is a serious consideration. There is nowhere near sufficient evidence in this case for me to understand whether the other director to the husband is in the position of being able to seek damages in the circumstances. Accordingly an undertaking is inappropriate.

42. In the circumstances it is appropriate for the order to be made only until the return date.

43. Neither party asked me to do anything in relation to costs otherwise than to reserve them and I intend to do so.

I certify that the preceding Forth Three (43) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin

Associate: 

Date:  24 June 2010