Sutton and Lasko and Anor (No.3)

[2019] FCCA 2686

FEDERAL CIRCUIT COURT OF AUSTRALIA

SUTTON & LASKO & ANOR (No.3) [2019] FCCA 2686

Catchwords:
FAMILY LAW – Breach of an order – payments made from company accounts in breach of court order – third parties in receipt of funds – orders made to preserve assets – costs.

Legislation:

Family Law Act 1975 (Cth), ss.106B and 117(2A)(d)

Cases cited:

[citation omitted]

Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 255
In the Marriage of Kohan (1992) 16 Fam LR 245

Applicant: MR SUTTON

First Respondent: MS LASKO

Second Respondent: MS THOMPSON

First Intervener: MR FINCH

Second Intervener: F LAWYERS

Third Intervener: G LAWYERS

File Number: MLC 9211 of 2017

Judgment of: Judge McNab

Hearing date: 16 September 2019

Date of Last Submission: 16 September 2019

Delivered at: Melbourne

Delivered on: 16 September 2019

REPRESENTATION

The Applicant appearing in person

Counsel for the First Respondent: Mr Atkinson

Solicitors for the First Respondent: Berger Kordos

Counsel for the Second Respondent: Ms Colla

Solicitors for the Second Respondent: PCL Lawyers

Mr Finch, first intervener, appearing in person

Counsel for the second intervener: Mr Gurvich

Solicitors for the second intervener: F Lawyers

Counsel for the third intervener: Ms Neal

Solicitors for the third intervener: G Lawyers

ORDERS

1. The sum of $75,937.35 being the funds held by G Lawyers in a controlled monies account in the names of the parties be forthwith transferred to Berger Kordos Lawyers, the First Respondent’s solicitors with such sum to be categorized at trial.

2. Ms H forthwith transfer the sum of $15,000 being the total sum received from the Westpac account in the name of J Pty Ltd (ending #... 83) to G Lawyers with such sum to be held in a controlled monies account in the names of the parties.

3. The $15,000 presently held in trust by F Lawyers continue to be held in trust and not be disbursed until further order.

4. The Applicant Husband be hereby restrained from dealing in any way the total funds currently held in the Commonwealth Bank term deposit in the name of J Pty Ltd (account …52) in the sum of approximately $44,000, save for the purposes of rolling over that term deposit.

5. Paragraph 3 of the Orders made on 29 April 2019 (“the Account Freezing Order”) be discharged and the following orders be made in substitution:

   (a)Until further order, the Applicant Husband is hereby restrained from drawing or withdrawing funds from any bank account held in the name of the following entities without the written consent from the First Respondent:

   (i)K Pty Ltd ACN …;

   (ii)L Pty Ltd ACN …;

   (iii)M Pty Ltd ACN …;

   (iv)N Pty Ltd ACN …;

   (v)O Pty Ltd ACN …;

   (vi)Company C ACN …;

   (vii)P Pty Ltd ACN …;

   (viii)Q Pty Ltd ACN …;

   (ix)R Pty Ltd;

   (x)Company S;

   (xi)T Ltd ACN …;

   (xii)U Pty Ltd ACN …;

   (xiii)V Pty Ltd ACN …;

   (xiv)W Pty Ltd ACN …;

   (xv)X Pty Ltd ACN …;

   (xvi)Y Pty Ltd ACN …;;

   (xvii)Z Pty Ltd ACN …;

   (xviii)AA Pty Ltd ACN …;

   (xix)BB Pty Ltd ACN …;

   (xx)CC Pty Ltd ACN …;

   (xxi)DD Pty Ltd ACN …;

   (xxii)EE Pty Ltd ACN …; and

   (xxiii)FF Pty Ltd ACN ….

   (b)Until further order, the Second Respondent is hereby restrained from drawing or withdrawing from any bank account held in the name of X Pty Ltd ACN … (in liquidation) and GG Pty Ltd ACN … without prior written consent from the First Respondent.

   (c)In relation to paragraph 5(a) and (b), the relevant entities have been identified by the ACN number and the Account Freezing Order applies regardless of any name change to an entity.

6. Pursuant to section 114(3) and section 90AF(2)(a) of the Family Law Act, the financial institutions with bank accounts in the names of the entities referred to in paragraphs 4 and 5 be directed to give effect to these orders.

7. The Applicant pay the First Respondent’s costs of and incidental to the Amended Application in a Case filed 13 September 2019 and the hearing of this day on an indemnity basis and if the Applicant and First Respondent cannot agree as to the quantum of costs, the solicitors for the First Respondent shall file a schedule of costs by 4.00pm 26 September 2019 and the Applicant file any response by 4pm 3 October 2019, with the Court to determine the quantum of costs on the papers.

8. The costs of F Lawyers, G Lawyers and PCL Lawyers be reserved.

9. There be liberty to apply.

10. Certify as to advocacy.

IT IS NOTED that publication of this judgment under the pseudonym Sutton & Lasko & Ors (No.3) is approved pursuant to s.121(9)(g) of the Family Law Act 1975 (Cth).

FEDERAL CIRCUIT COURT
OF AUSTRALIA
AT MELBOURNE

MLC 9211 of 2017

MR SUTTON

Applicant

And

MS LASKO

First Respondent

MS THOMPSON

Second Respondent

REASONS FOR JUDGMENT

(DELIVERED EX-TEMPORE – REVISED FROM TRANSCRIPT)

Introduction

1. The First Respondent amended her application in a case (filed 22 August 2019) (the ‘Application in a Case’) on 13 September 2019 (the ‘Amended Application’) (collectively, the ‘Application’).

2. By that Amended Application, the First Respondent seeks orders in relation to moneys paid to various third parties from funds previously controlled by W Pty Ltd ACN … (‘W Pty Ltd’). The applicant is the sole director of W Pty Ltd, according to the corporate records before the Court.

3. On 25 March 2019, the Court made a freezing order which was by consent of the parties and provided, amongst other things, that:

   Until further order the Applicant Husband be and is hereby restrained from drawing on or withdrawing funds from any bank account held with any financial institution in the name of (save for in the ordinary course of business in relation to the entities in (b), (h), (n), (o), with the Husband to provide on a weekly basis receipts and bank transaction summaries relating to any transaction being conducted and the restraint in (o) apply to the Second Respondent in her capacity as director and shareholder):

4. The list of companies that were subject to the above order runs from A to X. The order included a company J Pty Ltd (‘J Pty Ltd’).

5. The First Respondent filed an affidavit on 22 August 2019 in support of her Application in a Case. In her affidavit, the First Respondent noted that the 25 March 2019 were subsequently discharged on 29 April 2019, but remade in in similar terms and still referenced J Pty Ltd (the ‘freezing orders’).

6. The Amended Application in a Case filed 13 September 2019 sought orders in the following terms:

   2. That all times be abridged and this application be listed urgently on 23 August 2019. That within 24 hours the Applicant Husband do all acts and things necessary and direct any relevant third party to immediately transfer into the trust account of Berger Kordas Lawyers, the First Respondent's solicitors, to be held in a controlled monies account in the names of the parties pending written agreement or further court order, all funds withdrawn from the Westpac J Pty Ltd Account ending #..83 since 25 March 2019, save for expenses withdrawn in the ordinary course of business in which transaction receipts and/or bank summaries relating to those transactions have been supplied pursuant to paragraph 3.3 of the 29 April 2019 Orders.

   3. That within 24 hours the Second Respondent do all acts and things necessary and direct any relevant third party to immediately transfer into the trust account of Berger Kordos Lawyers, the First Respondent's solicitors, to be held in a controlled monies account in the names of the parties pending written agreement or further court order, all funds received by the Second Respondent from the Westpac J Pty Ltd Account ending #..83 since 25 March 2019.

   4. That in the event that the Husband fails to direct:

   (a) F Lawyers;

   (b) HH Lawyers;

   (c) II Lawyers:

   (d) G Lawyers; and

   (e) Ms H ("the third parties")

   to return all funds received from the Westpac J Pty Ltd Account ending #...83 since 25 March 2019 ("the J Pty Ltd funds"), the third parties within 24 hours of receiving written notice from the First Respondent enclosing a copy of these Orders, do all acts and things necessary to transfer the J Pty Ltd funds into the trust account of Berger Kordos Lawyers, the First Respondent's solicitors to be held in a controlled monies account in the names of the parties pending written agreement or further court order.

   4. The Applicant Husband be restrained from dealing in any way with the total funds currently held in the Commonwealth Bank term deposit in the name of J Pty Ltd (account …52) in the sum of approximately $44,000

   6. That pursuant to section 117 of the Family Law Act the Applicant Husband do all acts and things to pay or cause to be paid to the First Respondent's solicitors the sum of $75,000.

   7. That paragraph 3 of the Orders made on 29 April 2019 ("the Account Freezing Order") be discharged and the following orders be made in substitution:

   (a) Until further order, the Applicant Husband is hereby restrained from drawing or withdrawing funds from any bank account held in the name of the following entities without the written consent from the First Respondent:

   (i) K Pty Ltd ACN …;

   (ii) L Pty Ltd ACN …;

   (iii) M Pty Ltd ACN …;

   (iv) N Pty Ltd ACN …;

   (v) O Pty Ltd ACN …;

   (vi) Company C ACN …;

   (vii) P Pty Ltd ACN …;

   (viii) Q Pty Ltd ACN …;

   (ix) R Pty Ltd;

   (x) Company S;

   (xi) T Ltd ACN …;

   (xii) U Pty Ltd ACN …;

   (xiii) V Pty Ltd ACN …;

   (xiv) W Pty Ltd ACN …;

   (xv) X Pty Ltd ACN …;

   (xvi) Y Pty Ltd ACN …;

   (xvii) Z Pty Ltd ACN …;

   (xviii) AA Pty Ltd ACN …;

   (xix) BB Pty Ltd ACN …;

   (xx) CC Pty Ltd ACN …;

   (xxi) DD Pty Ltd ACN …;

   (xxii) EE Pty Ltd ACN …; and

   (xxiii) FF Pty Ltd ACN ….

   (b) Until further order, the Second Respondent is hereby restrained from drawing or withdrawing from any bank account held in the name of X Pty Ltd.

7. At [9] of her affidavit sworn 22 August 2019, the First Respondent deposes that on 19 June 2019, the Applicant changed the name of J Pty Ltd to W Pty Ltd. The Applicant did not inform her of this name change. She deposes that W Pty Ltd is currently seeking $3 to 5 million via a capital raise. She says at [10]:

   I located the “W Pty Ltd Investment Portal” online. The Applicant Husband has also been conducting regular investment briefings online on the site. The website contains an Information Memorandum for potential investors which indicates projected gross profits of over $7.6 million by 2023.

8. She also deposes, at [11], that:

   J Pty Ltd/W Pty Ltd has a term deposit with the Commonwealth Bank with a current balance of $44,000 which is due to mature on 20 October 2019.

9. She says, at [12], that she was made aware that J Pty Ltd/W Pty Ltd had received the sum of $250,000 and that the Applicant had immediately disbursed those funds to:

   (a) G Lawyers to meet his legal expenses for these proceedings,

   (b) JJ Lawyers to meet his legal expenses for criminal law proceedings; and

   (c) the Second Respondent to meet her legal expenses for these proceedings.

   The First Respondent deposes to instructing her solicitor to write letters raising these matters with the solicitors for the Applicant and the Second Respondent.

10. At [12] through [17], the First Respondent deposes to the exchange of correspondence between solicitors in relation to the matter. At [18] she says that:

    On 19 August 2019 I was provided with a copy of a transaction listing for the J Pty Ltd Westpac Bank Statement (account ending #...83) from 9 May 2019 to 16 August 2019 which confirmed my concerns that a number of deposits and withdrawals have taken place during this period that the Applicant Husband has not disclosed and were in direct breach of the Account Freezing Order. The transaction listing confirmed that:

    a. The following large tranches of deposits had taken place:

    i. $250,000 on 30 July 2019;

    ii. $125,000 on 5 August 2019; and

    iii. $50,000 on 14 August 2019.

11. The First Respondent further deposes at [18] that the Applicant transferred:

    (i). $50,000 to G Lawyers on 30 July 2019;

    (ii). $11,000 to JJ Lawyers on 30 July 2019;

    (iii). $5,000 to Mr KK on 31 July 2019;

    (iv). $5,000 to Mr HH (who act for Company MM one of the caveators – Mr LL is the sole director) on 31 July 2019;

    (v). $15,000 to Ms H (the Applicant Husband’s Mother) on 2 August 2019;

    (vi). $20,000 to the Second Respondent on 5 August 2019;

    (vii). $30,000 to the Second Respondent on 6 August 2019;

    (viii). $50,000 to JJ Lawyers on 7 August 2019;

    (ix). $3,000 to the Second Respondent on 8 August 2019; and

    (x). $10,000 to F Lawyers (who act on behalf of the O Pty Ltd – the Applicant Husband’s father is the sole director) on 12 August 2019.

12. The First Respondent deposes to further correspondence being sent by her solicitors to the Applicant’s legal representatives foreshadowing the application that was subsequently made in respect of what was said to be a breach of the freezing orders.

13. The First Respondent is seeking orders that the Applicant pay her the sum of $75,000 as litigation funding. By her affidavit of 22 August 2019, she deposes to the fact that the moneys from W Pty Ltd had been used by the husband to pay for his legal costs. She deposes to having incurred significant legal costs in the proceeding (due to the Applicant’s conduct in the proceedings) and, additionally, the struggle to meet her and her children’s living expenses in circumstances where the Applicant does not pay child support.

14. The matter returned to Court on 23 August 2019. Orders were made on 23 August 2019 dismissing an application made by the Second Respondent pursuant to s 106B of the Family Law Act 1975 (Cth) (‘the Act’). The matter was otherwise adjourned to 16 September 2019 to determine the First Respondent’s application and setting times for the filing of affidavit material.

Hearing of 16 September 2019

1. The matter came before the Court today with the Applicant appearing in person as his solicitors had been granted leave to withdraw as solicitors on the record prior to the hearing. Mr Atkinson of Counsel appeared for the First Respondent and Ms Colla of Counsel for the Second Respondent. Initially Mr Kaintatsis appeared as a solicitor from F Lawyers and subsequently, Mr Gurvich of Counsel appeared representing that firm. Ms Neal appeared for G Lawyers.

2. The Applicant sought an adjournment of the Application which was refused on the grounds that sufficient time had been given to him to respond to the Application whether represented or not. The Applicant has had a number of legal representatives appear and then withdraw.

3. The Applicant did not file evidence. He did make submissions that the withdrawal of funds from W Pty Ltd and disbursements of those funds were made in the ordinary course of business. He did not dispute that the sums disbursed was around $466,000.

4. The First Respondent presses for orders that the moneys that are now held in a controlled account by G Lawyers be paid to the First Respondent as a part settlement. Alternatively, she seeks that the payment be characterised at trial as a means of funding the First Respondent’s litigation.

5. Ms Neal did not make any submissions in relation to the treatment of those funds but resisted any order being made in respect of the sum of around $36,000 that had been paid to that firm in respect of legal fees incurred. She resisted those orders on the basis that G Lawyers should be entitled to be heard in respect of these orders and be accorded procedural fairness. The Court will not make any orders in respect of the $36,000. The question of the source of those funds and their characterisation is a matter for final hearing.

Consideration

1. In my view, there is a prima facie case raised by the First Respondent that the Applicant has acted in breach of the orders of 29 April 2019 in disbursing funds from J Pty Ltd. Order 3.1 provides that:

   Until further order, the Applicant Husband be and is hereby restrained from drawing on or withdrawing funds from any bank account held with any financial institution in the name of the following entities, SAVE THAT nothing in this order shall prevent the Applicant Husband from withdrawing funds in the ordinary course of business from accounts held in the names of Q Pty Ltd, X Pty Ltd, L Pty Ltd and J Pty Ltd:

2. Whilst the Applicant was not representing the company, the Court allowed him to tender what purports to be minutes of a meeting of W Pty Ltd which was said to have taken place on 6 August 2019. It is said that the minutes establish that the moneys paid by that company to the Applicant were moneys paid in the ordinary course of business. It is said that the payment included the payment of wages that had accrued, I am told, from 6 September 2016 until 31 August 2019.

3. The applicant also tended a letter dated 20 August 2019 that was purportedly written by Ms NN, who purports to be the Chief Financial Officer of W Pty Ltd. That letter states (and omitting irrelevant parts):

   To my understanding and on the representations made to myself, W Pty Ltd (ABN …) owe you $466,296.82 in back salaries before PAYG tax considerations. This amount excludes any superannuation payable where applicable. This salary amount relates to the period 6 September until 31 August 2019.

   This amount may be revised on instructions of the board of directors.

4. The minutes of the meeting do not descend into any detail as to how those moneys were calculated. The notes of the board meeting of 6 August 2019 simply states:

   4.2 Outstanding’s for Mr Sutton (sic) (…) was discussed.

   4.2.1. Mr Sutton is to receive previous salary going forward, at a minimum it is to be accrued in the accounts unless requested to be drawn down on

   4.2.2. Older debts of Mr Sutton and related party loans are to be converted to share capital up to $8m, it was understood that ASIC has been updated however financials have not reflected the capital share

   4.2.3. Mr Sutton will advise if salary going forward is to be paid or converted to equity

5. I have not been directed to any part of the minutes of the Board meeting which would suggest that the Board has actually had any understanding of the quantum of the salary claimed.

6. The payment of three years’ salary in that quantum and in that manner is an extraordinary event. This is particularly so given that the Applicant told me from the bar table that investors – members of the public – had invested funds into the company from 30 July 2019. It is extraordinary for those funds to be largely disbursed to the Applicant on account of an apparently undocumented claim for 3 years unpaid salary. In my view, this is a transaction that should be investigated by the corporate regulator. Further, it is not a payment in the ordinary course of business by any definition. No wage records were produced and no payslips recording the payment and the details of it were produced.

7. Accordingly, I find for the purpose of this interlocutory order that this transaction was not in the ordinary course of business and there has been a prima facie breach of Court orders of 29 April 2019. The orders restraining the further dealing with the funds (subject to orders regarding litigation funding) are appropriate.

8. The First Respondent has established by her affidavit of 22 August 2019 that she is in financial hardship. The conduct of the Applicant throughout this litigation has put her in a position of having to make applications to preserve the matrimonial assets.

9. An order in respect of the sum of $75,937.35 presently held by G Lawyers is appropriate. On the Applicant’s submissions, the funds have come from W Pty Ltd and have been received by him. The Court will order that the sum of $75,937.35 being held by G Lawyers in a controlled monies be transferred to Berger Kordos Lawyers and for that sum to be categorized at trial. The Applicant has had access to funds to pay solicitors and the wife has demonstrated a need for funds to do same.

10. As noted earlier, the Court will not make orders in respect of the $36,000 which is the balance of moneys paid to G Lawyers as professional fees. Those moneys shall be held subject to further order.

1. The Court will reserve its position in respect of moneys that have been paid to the Second Respondent from the W Pty Ltd moneys. I have doubts about the evidence given by the Second Respondent in relation to what she claims are the moneys going through her account and the reasons for the payments to third parties, but it is not necessary to make any determination in relation to that as this is a matter for a further or final hearing.

2. There are also issues of the Second Respondent’s credit. I note the findings of the Administrative Appeals Tribunal (‘Tribunal’) in the matter of [citation omitted] where the member of the Tribunal found that the Second Respondent would be unlikely to establish at a substantive hearing that she is a fit and proper person to manage a business. I also have regard to the evidence that was given by the Second Respondent before the Tribunal.

3. I think there is a strong prima-facie case established that there has been a breach of orders by a sophisticated person with full knowledge of the purpose of the orders. The breach has been done in a way which has forced the First Respondent to bring the Application.

4. I will be referring these reasons, this order, and a copy of the minute of the board meeting which was exhibited as exhibit T1, to ASIC. I will be doing so as the conduct alleged in the matter raises issues for the protection of the public.

Costs

1. I am also of the view that the Applicant’s conduct in relation to this Application warrants an order for indemnity costs to be paid to the First Respondent. It is the Applicant’s conduct that compelled the First Respondent to make the Application. The Applicant’s conduct involves breaches of Court orders, and his misconduct has used the Court’s time and caused costs to be incurred by the First Respondent: Colgate Palmolive Co v Cussons Pty Ltd (1993) 46 FCR 255 and In the Marriage of Kohan (1992) 16 Fam LR 245. Those costs are in excess of the level of costs fixed by scale costs. The conduct of the Applicant is of an exceptional sort. The Applicant placed no evidence before the Court by any affidavit to explain his conduct notwithstanding that matters going to the claims made by the First Respondent were raised on 23 August 2019.

2. I find that the First Respondent was required to bring and prosecute the Application by reason of the failure of the Applicant to comply with interim orders of the Court: s 117(2A)(d) of the Act.

3. I also have regard to the financial circumstances of the parties where the First Respondent has given evidence of her financial hardship caused by the need to bring the application to either ascertain or preserve the matrimonial assets. The Applicant’s evidence of his financial circumstances is unsatisfactory. For instance, his financial statement of 2 May 2019 makes no reference to an entitlement to wages of $466,296.82.

I certify that the preceding thirty-six (36) paragraphs are a true copy of the reasons for judgment of Judge McNab

Associate:  

Date:  8 October 2019