Sutton and Sutton

[2017] FamCA 141

FAMILY COURT OF AUSTRALIA

SUTTON & SUTTON [2017] FamCA 141

FAMILY LAW – INJUNCTIONS – where company is in Country C – where wife is director – where husband wants wife removed for failing to comply with regulatory requirements – where wife denied default – where final hearing is pending – application refused.

Family Law Act 1975 (Cth)

Davis v Davis (1976) FLC 90,062
G v J (Ouster order) (1993) FLR 1008
Scholte and Scholte [2002] FamCA 69
Sieling v Sieling (1979) FLC 90,627

APPLICANT: Ms Sutton

RESPONDENT: Mr Sutton

FILE NUMBER: MLC 9165 of 2015

DATE DELIVERED: 10 March 2017

PLACE DELIVERED: Melbourne

PLACE HEARD: Melbourne

JUDGMENT OF: Cronin J

HEARING DATE: 8 March 2017

REPRESENTATION

COUNSEL FOR THE APPLICANT: Mr Brown QC

SOLICITOR FOR THE APPLICANT: Counsel Family Lawyers

COUNSEL FOR THE RESPONDENT: Mr Geddes QC

SOLICITOR FOR THE RESPONDENT: Blackwood Family Lawyers

Orders

1. That paragraphs 17-19 of the husband’s amended response filed 4 January 2017 are adjourned to the trial judge for determination.

2. That paragraph 15(c)-(f) of the amended response seeking interim orders filed 4 January 2017 are dismissed.

3. That the interim orders sought by the wife in her further initiating application filed 1 March 2017 (save for the orders made by consent on 8 March 2017) are dismissed.

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 for each party.

Note: The form of the order is subject to the entry of the order in the Court’s records.

IT IS NOTED that publication of this judgment by this Court under the pseudonym Sutton & Sutton has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).

Note: This copy of the Court’s Reasons for Judgment may be subject to review to remedy minor typographical or grammatical errors (r 17.02A(b) of the Family Law Rules 2004 (Cth)), or to record a variation to the order pursuant to r 17.02 Family Law Rules 2004 (Cth).

FAMILY COURT OF AUSTRALIA AT MELBOURNE

FILE NUMBER: MLC 9165  of 2015

Ms Sutton

Applicant

And

Mr Sutton

Respondent

REASONS FOR JUDGMENT

1. These are interlocutory proceedings between Ms Sutton (“the wife”) and Mr Sutton (“the husband”).  As a result of hearing the interlocutory application on 8 March 2017, the substantive property proceedings between the parties were set down for final hearing in April 2017. 

2. The immediate dispute revolves around the control of a corporate entity described in these reasons as B.  It is unnecessary to describe it more other than to say it is based in Country C.  It was “established” in 2004 and owns two real properties both of which are in Country C.

3. B appears to have two shareholders.  One shareholder holds 95 per cent and is a corporation registered in the British Virgin Islands.  Those shares are however said to be held as to 55 per cent on the husband’s behalf and 45 per cent on the wife’s behalf by two other corporate entities.  The remaining balance of 5 per cent direct shareholding in B is held by the wife.

4. In terms of governance, the husband is described as “the Commissioner” and the wife is described as “the Director”. 

5. It is unnecessary for me to say more about these entities other than that there are interrelated issues concerning the corporation in the British Virgin Islands and B.  That does not affect the determination here.

6. It was said by senior counsel for the husband that overall, the parties have assets of about $9million, $3million of which is in Australia.

7. Thus, whilst there may be a variety of interwoven structures here, the description provided by the parties would suggest that each has a roughly one half share of the equity in the B. 

8. On 9 October 2015, various mutual injunctive orders were made about the alteration or disposal of any of the B assets or its control.  Central to the husband’s case is the fact that if orders are made as he seeks, those injunctions would need to be discharged.  From the wife’s perspective, notwithstanding the matters to which I turn in a moment, her position is that there is no need to take any immediate action primarily because the court is now setting the matter down for final hearing and that that hearing is only two months away.

9. These parties began the proceedings in 2015 and have been to court a number of times.  In December 2015, orders were made for an extension of the October injunctions, discovery and various matters associated with valuation.  The matter came back before the registrar in May 2016 and little appeared to have advanced. 

10. In January 2017, Thornton J held a directions hearing ostensibly to set the matter down for trial but instead, made orders for the adjournment of the interlocutory issues then outstanding and that the parties file affidavit material.  Each party was late in filing that material but no issue has been taken nor has it been suggested there is any prejudice to either party as a consequence.  It is to that material that I turn in determining the issue about which the parties could not find a resolution.

11. The wife filed an amended application on 1 March 2017.  Relevantly, she sought an order that within 14 days of the final orders being made (that is some time after April 2017) the parties sign whatever documents may be required to engage D Accountants at their joint expense to advise in relation to taxation and other liabilities arising from the transfer of one of the two properties in Country C out of B to a new company established by her.  She went on to seek orders that the parties at their joint expense engage D Accountants to advise (presumably them) how the transfer to this new company would be effected.  The suite of orders thereafter sought that the parties effect a transfer of one of the two properties and thereupon, the wife effect her resignation and removal from B.  She then sought that after those and other steps associated with property settlement generally, the husband retain B and indemnify her in respect of liabilities.

12. In the husband’s amended response filed 4 January 2017 (obviously to an earlier version of the wife’s initiating application), he sought that each of the parties sign whatever was necessary to remove the wife as a director and appoint him (or his nominee) in his stead. 

13. An examination of those respective positions would indicate that as at 1 March 2017 (seven days prior to this hearing) the wife was conceding that the husband was to retain the corporate entity even if that step was not to take effect immediately.  Her articulated position in that document indicated only a desire to obtain legal ownership of one of the properties of B.

14. Notwithstanding the very recent nature of that pleading, senior counsel for the wife indicated that on the very day the parties were before the court, the wife had received advice from her expert that problems would arise for the wife in a business sense in the future if she opted out of B.  As senior counsel for the wife put it, this problem went well beyond the issue about the company that concerned the husband because the wife might not be able to operate a business (presumably at all) and that would have a significant impact on her financial future.

15. Thus, notwithstanding her pleaded position, there was a risk of her capacity to conduct a business in Country C being impaired and the anticipated new entity might not be able to hold assets that she wanted to retain.

16. The husband’s position was that the orders should be made because the actions of the wife had put the status of B in jeopardy and the conduct of the wife had to come to an end.  It was submitted by senior counsel for the husband that there was no prejudice to the wife.  The transfer was not said to alter the value of the assets but there was a problem by virtue of the wife’s default in compliance with corporate regulatory requirements in Country C. 

17. Confining the issue to its simplest form, what is being argued amounts to an assertion of prejudice to the possible future financial circumstances of the wife if she is removed as a director of B.  It must be immediately said that there was no evidence provided about this prejudice and understandably so, as the advice was said to have only been received that day.  Despite that, each party chose to proceed with the application. 

18. When I inquired of senior counsel for the wife whether he was seeking an adjournment, he indicated that his position was that his client opposed the making of the orders sought by the husband on the basis that there was no need for them with the final hearing so close.  In addition, he confirmed that the wife resiled from her written position of 1 March 2017 but it remains unclear just exactly what her position will be in proposed orders.  It also remains unclear what this future prejudice is to the wife either to her legal position in Country C if the transfer occurs, or as to any specific prejudice to her by the virtue of the husband holding the control that he seeks.

19. The evidence relied upon by the husband was filed on 1 February 2017.  He observed that in the amended application filed by the wife in December 2016 (as distinct from the one filed in March 2017) she had sought that he retain B.  It remained unclear why, if there was such an agreement, it had not been implemented other than, as now appears, the wife does not want to implement any transfer until D Accountants do their audit.  It remains unclear why that is so critical.

20. The husband went on to say that the wife was responsible for and had failed to fulfil compliance requirements in Country C of B.  He knew there was a problem with those obligations and had sought the wife’s agreement to rectify whatever the problem was.  He observed that agreement had not been reached and the current situation was “unworkable”.  That heightens the court’s curiosity if up until that point in time, there seemed to be agreement that at some point, he would become at least the controller if not the “owner” of B.

21. The husband observed that in October 2015 orders were made by consent that the wife was to provide him with copies of documents lodged in Country C and there was to be a postponement of the extra-ordinary general meeting of shareholders.  He said that the wife issued what he described as “the invalid circular resolution of shareholders” purporting to remove him as the Commissioner of B.  This seems to have been what triggered the application now to remove the wife.

22. What then followed was correspondence in July 2016 in which the parties argued about the appointment of a company agent or some form of accountant.  That was said to be necessary to manage administrative and regulatory matters because B had no employees.  He observed that the Country C tax return for 31 December 2015 was due on 30 April 2016 and this impasse about an accountant had not resolved its filing.  According to the husband, the wife appointed someone but she declined to indicate who that was.  The husband pointed to a letter from the wife’s solicitors which indicated that she had complied with all the obligations in relation to B’s tax returns and would provide copies as soon as they were lodged.  Not much appeared to then happen. 

23. The husband’s evidence was that he remained concerned that B had still not lodged its tax return nor had it lodged the investment activity reports with the Country C foreign investment board.  He observed that if the wife had complied with her obligations, she had failed or refuse to keep him informed and provide him with copies of documents.  A copy of the letter dated 16 June 2016 from the husband’s lawyers to the wife’s lawyers was exhibited to the husband’s affidavit.

24. The wife had access to the husband’s affidavit and responded on 1 March 2017.  She said that the “purported concerns about the company are without foundation”.  She said the assertions of the husband were not correct.  The basis of that assertion seems to have been that the company has had no significant developments in the last 18 months and by inference therefore, there was no necessity to file the documents that were of concern to the husband.

25. The wife went on to say that the husband was seeking “interim unilateral control” of more than one half of the known “net assets of the marriage” which were located outside Australia “and therefore the jurisdiction of this court”.  It is hard to understand what that assertion means as any orders of the court would be in personam.  It was not clear why the husband having interim unilateral control would make any difference.  I take into account that this affidavit was sworn only a few days ago and that some expert advice has apparently altered the wife’s position but that does not explain what she meant about her concern as to the husband having the control.  It does not explain what she meant by him having control of more than half of the known net assets when in reality, he would simply be the director responsible for the governance of the corporate entity.

26. The wife then said that the husband’s “continued intention of deadlocking the operation of B generally” had placed her in breach of her director’s duties and removed her ability to legally enter or remain in Country C because he had obstructed the renewal of her work permit.

27. Thus far, there are a number of assertions.  I am not in a position to make any finding and in my view, it is not necessary that I should do so.  The evidence presented by the wife is, at best, vague on why the husband having control would prejudice her.  The problem is more confusing when it is now said that the person who has given expert advice has indicated there is a significant impact on the wife’s future financial position in Country C.  The extent of that advice remains unknown to me.

28. The wife’s evidence went on to say that foreign investment was permitted in Country C in selected industry sectors which are periodically revised by the Country C government.  She asserted, and it was not denied by the husband, the director of a company such as B had to hold an Country C tax number and work permit.

29. As I earlier observed, it is unclear how the husband is said to have prevented the wife from obtaining a renewal of her work permit and the husband was not in a position to file any responding material because apart from normally being in Country C, he had only seen the wife’s affidavit shortly prior to the hearing.  In that sense, the late filing by the wife of her affidavit contributed to the problem.

30. Finally, at paragraph 84 of her affidavit, the wife said that B was compliant within Country C law.  She said that she was conscious of the fact that the husband was asserting there were incomplete reporting obligations but she retorted that she had not been made aware of any advice or information that that was correct from any specific source.  She went on to say that if the matter was the subject of orders of the court for joint instruction to the relevant authority, she would be prepared to do whatever was necessary.

31. In analysing the dispute, I have focussed on the question of control on the assumption that there is no suggestion by either party of consequential loss of value in either the entity or its assets.  It is troubling that the wife has resiled from her recently filed position putting senior counsel in a position where all he could do was rely upon an assertion that an expert had said there would be financial consequences that would somehow prejudice the wife’s future.  There is clearly a vacuum in the evidence. 

32. It is also difficult in circumstances where findings cannot be made on the critical question relied upon by the husband that the wife’s inactivity as a director may create problems from the regulatory authority without there being any objective evidence to corroborate that assertion.  Significantly, there is no evidence drawn to my attention to indicate the financial cost to either the parties or the husband if the regulatory authorities did take some action. 

33. The power of the court to make the orders sought by the husband was not disputed.  It lies in s 114 of the Act.  The basis upon which the court may make such an order lies in it being satisfied that it is proper with respect to the matter to which the proceedings relate.  The various matters set out in s 114(1)(a)-(f) are not the only matters that the court can take into account in determining whether to grant an injunction in proceedings that fit within paragraph (e) of the definition of matrimonial cause in s 4 of the Act. 

34. Doing the best I can in interpreting the evidence that I have endeavoured to set out above, the order proposed by the husband is one which could be described as an injunction in relation to the property of the parties the purpose of which is to protect an asset said to be at risk.  But the dilemma lies in assessing how great the risk is and what the consequences would be if the regulatory authorities, that so concerned the husband, stepped in.

35. In any proceedings relating to an injunction, the court should always look at interference of a minimal nature once it is satisfied that it is necessary to make the order.  The authorities have pointed out that the criteria for the exercise of the power are simply that the court may make such order as it thinks proper (see Davis v Davis (1976) FLC 90,062). Having said that however, the exercise of the power is one which is discretionary and must not be exercised lightly (Sieling v Sieling (1979) FLC 90,627). In Scholte and Scholte [2002] FamCA 69 the Full Court endorsed the sentiments expressed in G v J (Ouster order) (1993) FLR 1008 (which obviously relates to the removal from a home), as a drastic order. Unlike being ousted from a home, the position here, if the husband’s position is accepted, is to protect the asset because the wife is said to be recalcitrant in relation to her obligations to the Country C authorities. The unusual feature is the common position until this hearing was that the husband was to retain the entity over which the wife had the control. Albeit the evidence is unsatisfactory, that now seems to have changed and although senior counsel for the wife did not use the expression that was used in Scholte about it being a drastic order, he certainly submitted that the wife’s future financial circumstances may be impaired and there was no need for the order to be made immediately. 

36. When all of those matters are considered, the balance of convenience favours making no order to alter the control on the basis that there is at least an assertion of a financial impact upon the wife if the order is made whilst only a concern about a potential regulatory problem if the order is not made in favour of the husband.  This is clearly a balancing act where the evidence does not assist the court much at all and in the circumstances, I could not find it is proper to make the order sought.

37. The husband also indicated though senior counsel that there were still live issues in relation to discovery.  Those are clearly articulated in not only the application but also the husband’s evidence.  Both practitioners indicated that the parties wanted the matter listed for trial and acknowledged that they could get ready in the very short timeframe.  But that short timeframe means not only do the parties have to file their evidence but also comply with all discovery obligations.  Discovery is not an optional issue and the parties need to be cautious that having been warned that discovery has not been satisfied, the focus should be on Rule 13.14 which provides that if a party does not disclose a document as required by the rules, they must not offer that document at trial, may be guilty of contempt for not disclosing the document and may be ordered to pay costs.  Accordingly, I propose to leave the issue of discovery, it being unclear as to exactly what is still outstanding, but give the parties liberty to apply on short notice in the event that discovery is an issue about which there is dissatisfaction but which is critical for the completion of the evidentiary process for trial. 

1. Accordingly, I make the orders set out at the commencement of these reasons.

I certify that the preceding Thirty Eight (38) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Cronin delivered on 10 March 2017.

Associate

Date:  10 March 2017