Stubbs and Stubbs (No 2)

[2009] FamCA 1378

FAMILY COURT OF AUSTRALIA

STUBBS & STUBBS (NO. 2) [2009] FamCA 1378

FAMILY LAW – INTERIM PROPERTY SETTLEMENT – application in a case filed by husband – primary issue is who should be allowed to operate a particular business – dispute about who is paying business expenses and where the funds are coming from – whether wife manages business or parties employ a caretaker – held that wife be permitted to operate business with strict reporting conditions to husband – application dismissed

Family Law Act 1975 (Cth)

APPLICANT: Mr Stubbs

RESPONDENT: Ms Stubbs

FILE NUMBER: ADC 1974 of 2009

DATE DELIVERED: 23 November 2009

PLACE DELIVERED: Adelaide

PLACE HEARD: Adelaide

JUDGMENT OF: Strickland J

HEARING DATE: 23 November 2009

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr McQuade

SOLICITOR FOR THE APPLICANT: Norman Waterhouse Lawyers

COUNSEL FOR THE RESPONDENT: Mr Birchell

SOLICITOR FOR THE RESPONDENT: Adey Lawyers

Orders

1. That the husband do all such acts and sign all such documents as may be required to direct the husband’s accountant, Mr J, to pay to the wife any amount remaining in the national Australia Bank account BSB number … account number …79.

2. That forthwith the wife set up a bank account in the name of H Pty Ltd into which all income of the business is to be paid and from which account all expenses are to be paid.

3. That the husband and the wife do all such acts and sign all such documents as may be required for all fees commissions and earnings to be paid into the said account including monies currently retained by C Company.

4. That UNTIL FURTHER ORDER the husband be restrained and an injunction is granted restraining him from being involved in the day to day operation of the franchise business.

5. That on a weekly basis the wife provide to the husband copies of all documentation in relation to any income of the business and any expenses of the business together with all statements for the said bank account.

6. That there be no order as to costs.

7. That the Application in a Case filed by the husband on 9 September 2009 and the Response filed by the wife on 2 October 2009 be dismissed and removed from the active pending cases list.

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

FAMILY COURT OF AUSTRALIA AT ADELAIDE

FILE NUMBER: ADC 1974 of 2009

MR STUBBS

Applicant

And

MS STUBBS

Respondent

EX TEMPORE REASONS

1. This matter was initially before me on 13 November 2009 on the husband’s Application in a Case filed on 9 September 2009 and the wife’s Response filed on 2 October 2009.

2. The matter was adjourned to today to give the opportunity for the parties to file any further material on which they wanted to rely and to also provide more time to air the issues and receive submissions. 

3. It is a difficult matter, and the primary issue that I am asked to decide is who should be allowed to operate a particular business.  In the application of the husband there are other matters raised including, I think, spousal maintenance and that was tied in with what was to happen to the business but is not being agitated today.

4. As I understand it the parties separated in April 2009.  At that time they were the directors and shareholders of a company H Pty Ltd which held and still holds a franchise with C Company. That franchise is registered in the name of that company.

5. No-one has sought to take me back any further than April 2009 save and except in respect of one or two issues which I will mention if necessary but the difficulties have really arisen and become urgent since the separation of the parties.

6. The business is obviously a financial services business.  It is common ground that between the two parties the wife is the accredited financial planner and the only one of the two who is able to write loans and who is accredited by C Company and also all the banks through whom C Company operate.

7. The husband’s role apparently was in marketing and sales, leaving, obviously, the wife to attend to the writing of the loans, obtaining approval for them, and dealing with C Company and I assume the banks via C Company.

8. There is a dispute between the parties as to what has happened in relation to the operation of this business since April save and except that from sometime in about July or thereabouts, C Company have installed a caretaker franchise operator.  It seems also to be common ground that the reason for that was that the parties were not able to agree as to where or to whom the commissions and what is described as the trail money, should be paid, given the separation of the parties and their dispute about financial matters and I also add, dispute about parenting issues.  I do not propose to go into those latter issues.  They are not relevant per se to the issue before me.

9. Thus from about July there has been a caretaker franchise operator looking after this business and the parties have not had a direct hands-on role, although as is apparent from the affidavit material relied upon by the wife, there has been the payment of various expenses, some of which can be regarded as business expenses, some of which can be regarded as personal expenses and there is a scheduled annexed, for example, to an affidavit filed by the wife on 13 November 2009 which sets out the expenses that she says she has paid since April and they total $14,728.  That schedule concludes in October.  There has been no further information put to me, as I recall, as to anything subsequent to that.

10. The wife’s case is that she has been paying various expenses associated with the business.  She says the only way she has been able to do that is by borrowing money from her parents and using credit cards.  The husband disputes that. He says immediately after separation the wife received significant moneys from C Company and that that was the money that should have been used to meet expenses and if it has not been, he queries why not.  The husband’s case is that the wife then has received moneys and there was no need for her to borrow.  The wife says that she has not received any moneys sufficient to meet all the expenses and she has had to borrow moneys in the way that I have outlined.

11. In terms of the income of the business, ever since the caretaker franchiser operator has been put in place C Company has retained the commissions and any moneys payable to the parties and currently there is about $25,000 being held. Accordingly, there is no income coming to the parties and obviously any new work written by the caretaker franchise operator is being retained by that franchise operator as you would expect.

12. C Company have said, in effect, they are not prepared to leave in a caretaker for any longer and they have put it on the parties to decide what they want to do about this franchise.  All they want to know is who is to operate this franchise from here on in, is it the husband, is it the wife, is it the husband and the wife, is it to be through the company, or is there to be some other arrangement put in place.  They have quite clearly said that unless there can be some agreement about that or an order of the court, then they will look seriously at exercising their rights under the franchise agreement which could entail the parties losing this franchise.  That is the urgency of the application and the response that are now before me today and what I have to decide is who should be able to operate this business on an interim basis.

13. Initially in the application and the response the parties sought not only that they each be able to operate the business but also that the shares in the company, for example, be transferred and the other party resign as a director such that there is a permanent arrangement put in place.  However neither party now pursues that because of the difficulties that that would entail with the principles applicable to an interim or partial property settlement.  What I have been asked to decide is, purely on an interim basis, who should be able to operate this business, leaving intact and in place the company as the franchise owner, and both parties seek that that be achieved by an injunction being put in place restraining the other party from involving themselves in the day-to-day operation of the business.

14. Separate to that, obviously there is this money being held by C Company.  Whoever is to operate the business seeks that that money be paid to them. 

15. The husband has set out in paragraph 7 of his affidavit filed on 19 November 2009 a proposal which is somewhat different than his application.  Mr McQuade tells me that the orders that he now seeks are that in addition to the injunction that I have just referred to, the funds held by C Company should be paid to discharge current liabilities and then be split between the parties.  Then, in relation to what is described as trail income of the franchise, the husband proposes that that be used to pay ongoing business costs including the costs of retaining a loan writer which I will come to in a moment, payment of the loan that the parties have with Bankwest which secures the business and also, as I understand, the home loan and the business loan and various other business expenses and the parties have one half of the remaining balance.

16. With the position of loan writer, it is common ground that the husband is not able to write loans because he does not have the appropriate qualifications or accreditation.  Thus the only way he can take over the operation of this business is to employ a person to conduct that work.  The husband has a person in mind and an affidavit has been filed by that person, namely Mr G.  Mr G has indicated his willingness to be employed as a loan writer, however, for that to occur he has to be accredited by C Company and also, as I understand it, be approved of or accredited by the banks that C Company deal with.  Apparently, he would need to go to Sydney to obtain that accreditation and the proposal is that that happen some time in January 2010.  There is obviously a cost for that, and the husband says it is $1600.  There is then, of course, the employment of the loan writer, but as I understand it the latest proposal of the husband is that rather than employing the loan writer, there be an arrangement put in place to share the commissions received upon loans that are written. 

17. The starting point for the wife is her response filed on 2 October 2009 wherein she sought that firstly money in a bank account held by Mr J in the sum of about $800 be paid to her, and secondly that the husband do all that is necessary to ensure that C Company pays all fees, commissions and earnings to an account in her name.  She also sought, as I referred to earlier, that the husband resign as a director and transfer his shares.  That is no longer an order she seeks though and instead she seeks just the same as the husband does if he was to be able to operate this business, namely an injunction restraining the husband from being involved in the day-to-day operation of the franchise business until further order.

18. The wife is able to operate this business immediately.  She has the necessary qualifications, accreditation and experience to do so.  She does not need to employ anybody else.  She can operate it herself.  The issue in relation to her operation of the business though was that as of October 2009 she would not be available to commence running the business until February 2010.  She said in an affidavit sworn on 24 July 2009 annexed to the affidavit of the wife’s solicitor filed on 2 October 2009 that:

    “As a result of these proceedings in relation to the children, [D] and [N], and as a result of the extreme distress I have experienced as a result of the children being removed from my care, I have advised [C Company] that I require some time in order to resolve the children’s issues before I would be able to resume running the business.”

    As I say, that was still the wife’s position as at October 2009, and she saw February as being the date when she could devote her full time to running this business.

19. What the wife now says though, in her affidavit filed on 19 November 2009, is that she has reconsidered her position in relation to her availability to take over the running of the business and she wishes to commence running the business immediately rather than risk the loss of it.  She is confident that she will be able to manage the care of the children with the help of her parents and child care.  She says that pursuant to the current orders the children are in her care each alternate week.

20. However, she also goes on and says that she needs the money held by C Company to be able to operate the business.  Her proposal is that that money be paid to her as well as the $800 in the account that Mr J has.  The wife would then use that money in the operation of the business including to pay off the loans that she has taken out to meet the business and other expenses that I have referred to earlier. 

21. Perhaps just to go back a step, it is necessary to record that this franchise was purchased primarily as a result of compensation money that the husband received of some $180,000 but, as I say, the wife was the one who became accredited and obtained the qualifications and she has been the effective operator of the business in that regard ever since it was purchased with the husband taking the role I indicated earlier of sales and marketing.

22. There has also been a difficulty in the husband obtaining the qualifications and accreditation because of certain criminal convictions.  It is unclear on the documentation before me now as to whether he is still in that position, but I assume he is because he needs to employ a loan writer.  I recall in one of his affidavits he did depose to in the future he would be looking to gain accreditation and qualifications but that is certainly not in the immediate future.

23. Now, the position with this business is that neither party wants it sold.  Apparently its market value is relatively low compared to what was paid to purchase it and both parties are keen that the business be maintained and that it be part of the asset pool which is then distributed between them in their property settlement.  Thus they have a common interest in ensuring this business is retained and operates successfully.

24. The concern that the husband raises about the wife’s ability to take over the business is her change of mind in relation to whether she can work fulltime in the business.  It is said that I should be concerned about that.  I should also be concerned about what is said to be inconsistent evidence in affidavit material from the wife as to income and expenses since April and that I could have no confidence in allowing the wife to operate the business that she would do so competently and adequately such that it was able to be maintained.

25. For the wife’s part she says that she is the one who has the qualifications, and she can start operating the business immediately.  She considers that she can overcome the need to attend to her children by relying on other caregivers.  She does not need to go to the trouble of employing a loan writer, thereby saving expenses.  Historically it has been she who has been the one to operate this business and she says that she should then be allowed to continue that exercise.  There are too many unknowns involved with the husband’s proposal.  We do not know very much at all about Mr G.  We also do not know whether he will in fact be able to get the qualifications and there is also the question of the costs of that exercise.

26. One matter that did concern me that was raised in the submissions of Mr McQuade was what, in fact, happened to this business after the separation.  Mr McQuade used words such as, “the wife abandoned the business” or that she ceased operating the business, and he called upon the wife to come clean in relation to that and to state what happened and why.  Mr Birchall though has referred me to the wife’s affidavit of 2 October 2009 wherein she does set out what she says happened in this regard and in particular paragraphs 4, 5 and 6 of that affidavit where she deposes to what she says occurred in April and then April and May.  There was the husband’s behaviour and attitude, and the fact of there being no agreement about who should receive the money.  There were difficulties, she says, with the instructions given to Mr J who was the proposed intermediary, if you like, and it became impossible for her to run the business because she was not receiving the income that was needed for that purpose.  She then approached C Company saying that she could not run the business for these reasons and it was in either June or July or thereabouts when C Company then appointed a caretaker for the business.

27. In terms of the state of this matter generally, there are two aspects to it; there is a property settlement claim and there are parenting orders sought by both parties.  The matter is in the Magellan project and as such will not get a first day of trial until some time in the New Year.  The property settlement will be part of that though so the parties are looking at many months before this matter will be finalised.  Thus this issue, in terms of who operates the business, obviously is important and will set the basis for what is to happen in the next six months or so at the very least.

28. It is a difficult decision and there are issues that I have raised myself with both parties’ proposals, but I am swayed by the submissions of Mr Birchall as to the wife’s ability and her position and her history and the savings that would be made compared with the issues that surround the husband’s position and his need to look to someone else to allow him to operate this business.

29. I have a lingering concern, as I have expressed, with the wife’s position in that she has changed her mind in relation to her ability to operate this business fulltime, but she is now on oath and that is the basis on which I proceed, namely, that the wife will devote her fulltime attention to this business.  Obviously she will need to care for her children and look after them in the usual way but it is not a case of one taking over the other in the sense of devoting all her attention to the children and forgetting the business or devoting all her attention to the business and putting aside the children. A balance obviously has to be struck which has to happen in most households anyway these days with both parties usually working.

30. Allowing the wife to operate this business provides the best chance for this business to be retained and maintained and successfully so, without the added expense of a loan writer.  I have serious concerns about whether there would be sufficient income from the business to pay the loan writer and meet all the other expenses of this business to make that a viable proposition.

31. I should say, my first and preliminary thought was to not make any order and to leave the parties to sort it out themselves.  If it perhaps was not for the children’s issues the parties might be able to do that but they obviously colour this application and the parties’ relationship with each other and I reluctantly accept that it would be an inappropriate result to force the parties to work together, discuss with each other this business, to communicate with each other.  Although it would be the ideal solution, I accept that it is not a solution which has any chance of success. 

32. Reluctantly, I have to make a decision between the two parties and I have, on the evidence before me, determined that it should be the wife who should have the opportunity to run this business.  I hope that she does so successfully because I would not want to see this matter back in a couple of months with the same arguments being presented.

33. I propose to make the orders that the wife seeks, but what I will impose upon her is regular reporting to the husband.  I am told that the work of this business is such that it does not provide sufficient for monthly reporting, let alone weekly reporting and that historically it has been quarterly reporting.  Albeit that is the case, I want the wife, whether there has been any business or not, to report on a weekly basis to the husband. 

1. He needs to know what is going on, he needs to have his finger on the pulse in terms of how this is progressing so that he can quickly, heaven forbid, come back to this court if there are difficulties that arise with it and legitimate difficulties which need to be aired.  He needs to know on that regular basis what is happening with this business because he has as much interest in seeing that it succeeds as the wife does.  He has an investment in it as does the wife so this is an exercise where the wife will operate it but the husband will be fully informed of everything that happens in this business, every cent that is spent, and every cent that is received. 

2. Apart from weekly reporting, I propose to require that the wife set up an account in the company’s name into which all income of the business is paid and from which all expenses of the business are paid, and that statements are obtained in relation to that account on a weekly basis.  I know that is more than what banks usually do but this is an unusual circumstance, and I want weekly statements to be provided to the husband, together with copies of all documents such as, I am not sure in what form they come, but document evidencing the commissions paid and each invoice and account that is paid by the business.  The husband has to receive a copy of that on a weekly basis.

3. Just pausing there, in light of my order I have an application for costs on behalf of the wife.  In my view both parties came to this court with reasonable propositions, it was a difficult decision and in the end I was swayed to order that the wife be permitted to operate this business.  Thus I do not see any basis for any order for costs in those circumstances.

I certify that the preceding 36 paragraphs are a true copy of the reasons for judgment of the Honourable Justice Strickland delivered on 23 November 2009.

Associate