Sudetto and Sudetto

[2011] FamCA 46

FAMILY COURT OF AUSTRALIA

SUDETTO & SUDETTO [2011] FamCA 46

FAMILY LAW – PROPERTY – Interim – Litigation funding

Family Law Act 1975 (Cth)

Bing and Bing [2007] FamCA 418
Strahan and Strahan [2009] FamCAFC 166

APPLICANT: Mr Sudetto

RESPONDENT: Ms Sudetto

FILE NUMBER: MLC 6708 of 2010

DATE DELIVERED: 9 FEBRUARY 2011

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: THE HONOURABLE JUSTICE CRONIN

HEARING DATE: 7 FEBRUARY 2011

REPRESENTATION

COUNSEL FOR THE APPLICANT: MR DICKSON

SOLICITOR FOR THE APPLICANT: LANDER & ROGERS

COUNSEL FOR THE RESPONDENT: MR BARTFELD QC

SOLICITOR FOR THE RESPONDENT: MILLS OAKLEY LAWYERS

Orders

1. That the application in a case filed by the husband on 17 December 2010 is dismissed.

2. That the husband pay to the wife by way of litigation funding order, the sum of $50,000 to be used by her in and for the proceedings to cover costs and expenses such sum to be taken into account by the trial judge as is then deemed appropriate.

3. That save as to the issue of costs, the wife’s response filed 20 January 2011 is dismissed.

4. That should the wife seek any order for costs, she do so by way of written submissions to be filed by no later than 4.00pm on 28 February 2011 with such submission endorsed with a certification by the solicitor for the wife that such submission has been served upon the solicitors for the husband and the husband have until 4.00pm on 7 March 2011 to file and serve any reply and such reply shall be endorsed with a certification by the solicitors for the husband that such document has been served upon the solicitors for the wife.

5. That all outstanding final applications be listed for a first day hearing at 10.00am on 1 April 2011.

AND THE COURT NOTES

A.For the purposes of the first day hearing referred to in these orders, the parties’ attention is drawn to the notice attached to these orders.

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

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLC 6708  of 2010

MR SUDETTO

Applicant

And

MS SUDETTO

Respondent

REASONS FOR JUDGMENT

1. On 17 December 2010, the husband filed an application seeking an order that the wife sign finance documents in her capacity as a director of Sudetto Pty Ltd for the purposes of enabling the company to lease plant and equipment for a shop business.

2. By her response dated 20 January 2011, the wife sought a variety of orders.  Some of those were not pursued.  A significant dispute arose out of the wife’s opposition to the leasing of the equipment.  There was little dispute about the setting up of the business and the acquiring of the plant and equipment.  The dispute was about whether it was necessary to finance the acquisition by a commercial lease rather than from paying for it through accrued earnings or cash flow.  In the limited hearing in January 2011, the wife’s position was that there was no basis for any financing arrangement because the equipment which had then been installed, had already been paid for.

3. In addition to her opposition to the husband’s application, the wife also sought an order for litigation funding in her favour to the extent of $50,000.  The husband did not oppose that if the leasing arrangement went ahead because he anticipated there would be $100,000 cash available after the leasing arrangement was completed.

4. I read the parties’ initial affidavit material and heard submissions on 27 January 2011.  The husband’s position was that he had been dealing with the plant and equipment supplier and installer, N Group Pty Ltd and had done so over a number of years.  He pointed to the fact that the equipment had been in place since last August in premises in T but there was further equipment commitment to a warehouse in D where Sudetto Pty Ltd undertook wholesaling.

5. The husband’s evidence was, at best, incomplete.  It was simply put that the total cost of the supply of the plant and equipment was $403,000 of which the husband had paid $100,000 and consequently, sought $303,000 by way of a lease for which he had already received approval.  It was submitted that the lease would be over the plant and equipment at a cost of $403,000.  That sum would be paid to the N Group Pty Ltd who in turn would refund the $100,000 and that sum could be used for the litigation funding of the parties.

6. It was submitted by Mr Dickson of counsel for the husband that regardless of how the matter was examined, the debt position had not changed because the plant and equipment had been installed.  At the time, I found the trail of evidence and documents confusing.

7. Senior counsel for the wife began his submissions by saying that the husband’s case was all “smoke and mirrors” and that the husband did not have “clean hands”.  The wife asserted that there was nothing owing to the N Group Pty Ltd.  More importantly, he said that there was no urgency about the matter such as to justify the Registrar placing the case in the Judicial Duty List.

8. Mr Bartfeld on behalf of the wife pointed to a series of documents drawn together in a form of an aide memoir which showed that there was nothing owing to N Group Pty Ltd.

9. On the issue of the requirement that money be provided for the plant and equipment, Mr Bartfeld pointed to bank statements to show that there was liquidity of significant sums which could be used rather than a leasing arrangement. 

10. Upon the application of Mr Dickson, the proceedings were adjourned to enable the trail of documents to be completed and examined.

11. On 7 February 2011, I resumed the hearing.  I had the benefit of further submissions from both counsel together with an affidavit from Mr N who is the director of N Group Pty Ltd. 

12. I accept that there is a basis to say that a debt is owed to Mr N in relation to the plant and equipment but it is about the leasing arrangement that I have considerable disquiet.

13. The controversy arises from two main documents.  In July 2010 N Group Pty Ltd gave to the husband a quotation No 1700.  The wife had possession of that document.  It related to the supply of equipment to the T premises and purported to be for $307,400.  That document did not match a variety of invoices and various payments.  

14. In his affidavit, Mr N said that he was requested in April 2010 to provide a quotation to assist the company in financing the development.  He said the quotation was based on an estimate which was never intended to be a firm quotation.  I found that difficult to follow when he then said it was required for the purposes of financing the works because I presume that that document would be provided to the finance company.  Further, he maintained the quotation did not indicate labour costs because they were included in the supply.  Mr N went on to say that he “understood” that it was “common practice” to include the installation costs as well as the supply of equipment when pursuing finance.  There is no evidence in this case from any financier about that but I would be very surprised if a leasing arrangement was executed by way of security over property, the value of which was inflated by labour costs.  In this case however, I have no evidence provided by either party in circumstances where a broker was involved.

15. The position became more clouded when Mr N said that in November 2010, he spoke to the husband who was then with the broker.  Mr N said that the husband requested that he provide an “overall quotation” which was to include both the T development and the D factory.  Rather than prepare two quotes and, ignoring any of the problem to which I have just referred about the inflated value, Mr N conceded that he simply amended quotation 1700 by altering all of the figures to take the total value to the cost for both premises including labour. 

16. In a written submission, Mr Bartfeld QC said that the affidavit of Mr N bore close examination.  He submitted that at the conclusion of that examination, the “inescapable conclusion” was that the husband’s case was a “farrago” of lies and that it possibly represented criminal activity.  I am not in a position to judge whether the activity to which I have just referred about the inflating of the invoice amounts to criminal activity nor no doubt from a commercial point of view, whether the financier was or was not receiving the security being suggested.

17. All of this may be explained as the innocent behaviour of two small business operations.  The difficulty is that the Court ought not make an order forcing the wife as a director to sign documents which she clearly does not accept as purporting to be truthful.  To do otherwise would be forcing her to be involved in a potential conspiracy for which the blessing of the Court is sought. 

18. Mr Bartfeld QC submitted that there was nothing owing to N Group Pty Ltd. I am not convinced that that is so. Mr Dickson for the husband tendered all of the invoices from the N Group Pty Ltd which clearly show plant and equipment has been provided and installation costs have been incurred. The dilemma relates to the question of how that is to be paid. The obligation is on the husband to prove his case on the balance of probabilities. He therefore needs to establish not only that the debt is due and a matter of demand from the creditor but that the method by which it is to be paid is proper having regard to the fact that he seeks a mandatory injunction under s 114 of the Family Law Act 1975 (Cth) (“the Act”). The dilemma is the conflict between the debt being due and the method of raising the finance. The husband has had one opportunity to remove the “smoke and mirrors” as asserted by senior counsel for the wife and the careful examination of the affidavit of Mr N simply clouds the propriety of the order sought even further. Thus, despite being satisfied of the debt and even the demand for payment, I am not satisfied it is proper to make the orders sought by the husband.

19. Two other matters arose out of the proceedings.  The first related to the wife’s application for litigation funding.  It was common ground between the parties that the pool of assets is approximately $3 million.  There was no dispute that the wife should have the money presupposing it was available.  To satisfy that argument, senior counsel for the wife pointed to the bank balances.  Whilst it is superficially attractive to rely on those balances, they simply highlight the cash flow rather than the equity of the parties in the assets of the company as reflected in the shareholdings.  I reject therefore the concept that I can simply rely upon the bank statements.

20. There have been a number of authorities of the Full Court of this Court in relation to litigation funding and the importance of a level playing field as between the parties (see Strahan and Strahan [2009] FamCAFC 166). Having regard to the common ground about the pool, the basic facts of this case would suggest that the wife is entitled to something based upon the provisions of either s 80 or 117 of the Act. Ironically, the husband’s argument is that he cannot afford to pay for the plant and equipment without the leasing arrangement and hence would not be in a position to fund the wife’s litigation funding order. However as the Full Court in Bing and Bing [2007] FamCA 418 pointed out, entitlement is one thing and enforcement is another. I see no reason in this case why the wife should not be entitled to an order and it then becomes then a matter for her to enforce.

21. The second matter that the parties agree upon is that they have had a mediation and not been able to resolve anything.  Both counsel suggested that I simply set the matter down for trial.  That is superficially attractive but as I have only had a cursory examination of the interlocutory issue, I propose to list this for a first day hearing so that a careful examination can be made of exactly what is in dispute and then give the parties an opportunity to prepare themselves for trial.

22. Finally, both parties indicated that subject to the outcome of these reasons, costs applications would be pursued.  I propose to give the parties an opportunity to put their submissions in writing although I note that Mr Dickson of counsel for the husband indicated that if the husband was unsuccessful, he would not be seeking an order for costs.  I shall give the appropriate time for submissions to be made and for the matter to be determined in chambers. 

I certify that the preceding Twenty Two (22) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 9 February 2011.

Associate: 

Date:  9 February 2011