Tarok & Kardan (No 4)
[2024] FedCFamC1F 543
•16 August 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Tarok & Kardan (No 4) [2024] FedCFamC1F 543
File number(s): SYC 7133 of 2021 Judgment of: SCHONELL J Date of judgment: 16 August 2024 Catchwords: FAMILY LAW – PRACTICE AND PROCEDURE – Joinder – Where the husband sought to join H Bank to the proceedings – Where the wife and H Bank opposed the joinder – Where the wife submitted that if the joinder application were successful the hearing would suffer delay – Where H Bank submitted that proper notice had not been affected – Application dismissed.
FAMILY LAW – PRACTICE AND PROCEDURE – Injunction – Where the Husband sought injunctive relief subsequent to the joinder of H Bank – Where H Bank submitted that the injunctions as sought were prejudicial to H Bank and deprived them of rights under their security facility – Application dismissed.
Legislation: Family Law Act 1975 (Cth) ss 90AF, 90AK, and 114 Cases cited: Allan & Allan& Ors [2009] FamCA 553
B Pty Ltd & Ors & K & Anor (2008) FamCAFC 113
Division: Division 1 First Instance Number of paragraphs: 36 Date of last submission/s: 13 August 2024 Date of hearing: 12 August 2024 Place: Sydney Counsel for the Applicant: Mr Dura SC Solicitor for the Applicant: Somerville Legal Solicitor for the Respondent: Dorter Family Lawyers and Mediators Counsel for the Prospective Respondent: Mr Foley Solicitor for the Prospective Respondent: O Lawyers ORDERS
SYC 7133 of 2021 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MR KARDAN
ApplicantAND: MS TAROK
RespondentH BANK LTD
Prospective Respondent
ORDER MADE BY:
SCHONELL J
DATE OF ORDER:
16 AUGUST 2024
THE COURT ORDERS THAT:
1.The Application in a Proceeding filed 17 July 2024 is dismissed.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Part XIVB of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish an account of proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Tarok & Kardan has been approved pursuant to subsection 114Q(2) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
SCHONELL J:
By Application in a Proceeding filed 17 July 2024 the husband seeks orders to join to the proceedings H Bank and thereafter the making of injunctions. The application is opposed by the wife and by H Bank.
For reasons that will become apparent, the husband’s application will be dismissed.
DOCUMENTS RELIED UPON
The husband relied upon the following documents:
(1)Application in a Proceeding filed 17 July 2024;
(2)Affidavit of the husband filed 17 July 2024; and
(3)Written Submissions dated 12 August 2024.
The husband also made reference to the wife’s Third Further Amended Initiating Application, the husband’s Third Further Amended Response and tendered various documents including a single report by B Pty Ltd dated 28 September 2023 (Exhibit 3).
The wife relied upon the following documents:
(1)Response to an Application in a Proceeding filed 30 July 2024;
(2)Affidavit of the wife filed 30 July 2024;
(3)Case Outline; and
(4)Written Submissions dated 13 August 2024.
H Bank relied upon the following documents:
(1)Affidavit of Mr N filed 29 July 2024; and
(2)Case Outline.
BACKGROUND
The husband and wife are engaged in financial and parenting proceedings which are listed for final hearing for five days commencing 16 September 2024.
The parties, according to the wife, commenced cohabitation in 2005, were married in 2013 and separated on a final basis in August 2021. They were in a relationship, according to the wife, for approximately 16 years.
There are three children of the marriage who are aged 15, 12 and 7.
Their assets were recorded in a Balance Sheet prepared by the wife’s solicitor (Exhibit 4). According to that document, the wife asserts net assets of approximately $8 million. The husband’s senior counsel submits that notwithstanding the assertions in that document, the net pool of assets is approximately $7 million.
The asset pool is comprised of funds in a bank account of approximately $565,000 (after allowance is made for interim property orders), a home at Suburb P and one at Suburb L and various corporate entities.
By her Third Further Amended Initiating Application the wife seeks final orders for the transfer to her of the Suburb L property on an unencumbered basis and transfer to her of a property at Suburb P subject to an existing mortgage. The Third Further Amended Initiating Application records that the effect of these orders is a property settlement of 67% in favour of the wife.
The husband, by way of his Third Further Amended Response, seeks orders that the wife transfer to the husband her interest in the Suburb L property, the husband transfer to the wife his interest in the Suburb P property subject to the mortgage, the husband pay the wife the sum of $130,000 and the wife receive $800,000 from a controlled monies account. The Third Further Amended Response does not contain any indication as to the percentage entitlement.
That said, during submissions, the husband’s senior counsel submitted that the effect of the orders sought by the husband was to divide the parties’ assets as to 48% to the wife and the balance to the husband. In circumstances where the husband’s senior counsel submitted that the pool of assets was approximately $7 million the effect of the orders does not appear to accord with that percentage division.
During the marriage the parties conducted a number of commercial enterprises including a business trading as Q Company. In addition, the husband also conducts a number of commercial enterprises which as best as I understand operate as a business on behalf of Australia and New Zealand Banking Group Limited (“ANZ Bank”).
The husband gives evidence that in 2016 he acquired M Pty Limited financed by a loan from H Bank. He says that the loan was obtained by R Pty Ltd in its capacity as trustee for the Kardan & Tarok Family Trust. The husband and the wife are guarantors under the loan.
It would appear from the evidence that the loan has been in default since at least late 2023. In that respect, the husband gives evidence as follows:
30.On 16 July 2024, [Ms Tarok] and I received correspondence from [O Lawyers], representing [H Bank], advising that [J Company] had been appointed as receivers and managers of [M Pty Limited] to recover the debt owing under the Finance Agreement…
31. [Ms Tarok] and I received three Default Notices from the Bank as follows:
(a) 5 December 2023;
(b) 20 February 2024; and
(c) 8 May 2024.
32.After receipt of each Default Notice, I emailed [Ms Tarok] and either put forward an offer of settlement or request that she consent to transfer the title of the [Suburb L] property to me solely so that I would be able to secure a loan refinance with Westpac Limited, and in exchange I would transfer the title of the remaining jointly held property at [S Street], [Suburb P] NSW […] to [Ms Tarok] solely, and to also provide an undertaking, signed by me, confirming that [Ms Tarok] holds a 50% interest in the [Suburb L] property once the title had been transferred to me.
…
35.It is prejudicial to both [Ms Tarok] and me to permit [J Company] to be appointed as receivers, as they will undertake all necessary actions to enforce the Bank's security, which is held over the [Suburb L] property. This property is sought to be retained by both [Ms Tarok] and me in the final hearing.
36.As of today’s date, the outstanding amount payable pursuant to the Default Notice is $2,011,151.89.
37.I have engaged with [H Bank] to resolve this issue and attempt to refinance the existing facility however have not been able to do so without the [Suburb L] property being registered in my sole name. I have also enquired with Westpac to refinance the [H Bank] facility and move it to Westpac to avoid any enforcement action being taken. I have been advised by Westpac that they require the same form of security before the will consider and/or approve my request, namely that the [Suburb L] property be in my sole name and it be used as security for the facility.
38.It is my intention to retain the [Suburb L] property on a final basis and refinance the [H Bank] facility so as to ensure that I can keep trading. Should the [H Bank] proceed with their current action, it will have a detrimental impact on any ability to retain the property and/or operate my business as it will have an impact on my financial and credit history.
An affidavit sworn on behalf of H Bank records as follows:
13.On 5 December 2023, [H Bank] sent a default notice to the borrower, [R Pty Ltd], demanding payment of the outstanding amount of the Facility, then $2,046,801.31, by 2 February 2024 (Default Notice). A copy of the Default Notice was sent by [H Bank] to the Guarantors and [W Company] on 5 December 2023…
14.On 20 February 2024, [H Bank] sent a further default notice to the borrower, [R Pty Ltd], demanding payment of the outstanding amount of the Facility, then $2,011,151.89, by 30 April 2024 (Further Default Notice)…
…
18.On 16 July 2024, [H Bank] appointed [Mr T] and [Ms U] of [J Company] as receivers and managers (Receivers) of the [M Pty Limited]'[s] rights, property and undertaking (a) of whatever kind and wherever situated; and (b) whether present or after-acquired, and included the capital of [M Pty Limited] (Appointment)…
19.On 16 July 2024, [O Lawyers] sent a letter to Somerville Legal advising of the Appointment...
…
27.I am informed by the Receivers and verily believe that they have requested that the director of [M Pty Limited], [Ms V], provide the Receivers with books and records of [M Pty Limited] in compliance with [Ms V]’s obligations under the Corporations Act 2001 (Cth) (Corporations Act).
28.I am informed by the Receivers and verily believe that [Ms V] has not provided the books and records of [M Pty Limited] to the Receivers. In this respect, [O Lawyers] (acting on behalf of the Receivers) sent a letter to [Ms V] on 23 July 2024...
29.Based upon my Experience, in the event the Receivers are (directly or indirectly) prevented or hindered from realising the property of [M Pty Limited]:
(a)the Receivers will incur substantial costs in performing functions in relation to the assets of [M Pty Limited], which functions will likely be more difficult and expensive in circumstances where [Ms V] (and the Applicant) have not provided the Receivers with the books and records of [M Pty Limited];
(b)the Receivers’ appointment will be prolonged, which will result in substantially more costs which will be borne by (among others) [M Pty Limited], the Applicant and the Respondent; and
(c)the increased costs of the Receivership will prejudice [H Bank], in that it will both delay [H Bank]’s rights to enforce (and recover its debt) and increase the likelihood and amount of any shortfall under the Finance Agreement.
30.I am informed by the Receivers and verily believe that they have not yet obtained a valuation of [an asset], which (I understand) is the major asset of [M Pty Limited]. However, noting the debt and from preliminary work performed in the receivership, I understand that there is a real risk of a shortfall from the realisation of the assets of [M Pty Limited].
31. Based upon my Experience:
(a)‘churn’, where management agent agreements expire or are terminated, is a real risk in the management of a [business asset], and if it occurs it will significantly reduce the value of the [business asset];
(b)the risk of the value of the [business asset] reducing as a consequence of churn increases the longer the Receivers remain appointed and do not realise the [business asset].
32.Noting the above circumstances, based upon my Experience, the risk of there being a shortfall owing increases the longer the Receivers stay in place (without realising assets), and will very substantially increase if injunctions are ordered preventing the Receivers from realising assets, as a consequence of the costs of the receivership increasing and the value of the assets of [M Pty Limited] […] decreasing.
The husband seeks orders to the following effect:
4.That [H Bank] […] be joined as a party to the proceedings.
5.That [H Bank] do all acts and things and sign all documents necessary to instruct [J Company] to refrain from calling in, collecting and selling any secured assets that form part of the matrimonial property until judgment is delivered after the final hearing, including but not limited to:
(a)The property located at [K Street], [Suburb L] NSW […], which is held jointly by the respective parties; and
(b) [M Pty Limited] […].
6.That [H Bank] be restrained by way of injunction from further instructing [J Company] to take any action required by way of enforcement pending the determination of the final hearing.
SUBMISSIONS
The husband’s senior counsel proffered on behalf of the husband an undertaking as to damages. The husband’s senior counsel tendered a document that the husband had received from Westpac Banking Corporation (“Westpac”) demonstrating that the husband had received an offer of refinance that would see a discharge of the H Bank debt (Exhibit 2). The husband’s senior counsel submitted in circumstances where the final hearing was to take place in approximately a month’s time the Court should grant the injunction because to do otherwise would jeopardise the assets of the parties and in particular a very valuable business which the husband wished to retain as part of his overall property settlement. His senior counsel submitted that there could be no question that there would be any possibility that the debt owed to H Bank would not be paid.
The wife submitted that the husband had delayed in providing the letter of offer which she had only seen that morning. The solicitor for the wife drew the Court’s attention to the reference in the report of B Pty Ltd to the following effect:
5.My assessment results in a negative valuation of [Kardan] & [Tarok] Family Trust ([K&T] FT). the primary liability of that trust is from the loan of [H Bank] of $2,236,930 at 30 June 2022. This trust cannot repay this loan in full from the assets at the values assessed. This indicated that repayment of this loan would have to come from other sources...
The solicitor for the wife submitted that there was a risk to the hearing date if H Bank were joined to the proceedings which would possibly lengthen the final hearing such that the matter may not complete in time. The solicitor for the wife also submitted that there was an issue about whether or not the husband would ultimately be able to achieve the result he sought given the wife wished to retain the Suburb L property.
Counsel for H Bank submitted that the husband’s undertaking as to damages in circumstances where he was not a director of M Pty Limited was almost worthless and that the orders sought by the husband would still leave the receivers in place. Counsel for H Bank also submitted that notice of the application had not been given to the receivers, the company or the director of the company. He further submitted that notwithstanding that a receiver had been appointed, the director still had residual powers and was entitled and required to be given notice of the application.
Counsel for the husband submitted that there was no evidence of any realistic possibility of a refinance having been provided by the husband until the letter from Westpac. He submitted that notwithstanding the terms of that letter there was no evidence that the conditions attached to the offer were capable of being satisfied. In that respect, the first condition required a transfer of the Suburb L property to the husband was opposed by the wife and was subject ultimately to the final determination of the Court. Condition number two which sought a transfer of the Suburb P property to the wife subject to her refinancing required the consent and approval of the ANZ Bank of which there was no evidence they would agree. In relation to condition number three, there was no current evidence as to the value of the business asset. Finally, he noted that the letter of offer contained a final condition, “Any other condition that the bank sees fit based on information received on above”.
Counsel for H Bank also submitted that the injunctions as sought were prejudicial to H Bank as they deprived them of rights under their security facility. There was also a significant prejudice to the wife because the receivers would continue to charge remuneration leading to an increase in the overall debt position. He also submitted that the director of M Pty Limited has been less than co-operative, and that the duration of the injunction was open-ended. It could be an injunction that would last for months and there could be no guarantee that Westpac would ultimately agree to the conditions whilst in the meantime H Bank was deprived of its security.
Counsel for H Bank submitted that an injunction of the type sought should only be granted in the most extreme of circumstances and that if the Court intends to make the injunction, then H Bank wanted to be heard as to the scope and reach of its terms.
APPLICABLE LAW
There is no doubt that pursuant to s 90AF of the Family Law Act 1975 (Cth) (“the Act”) in proceedings under s 114 of the Act, the Court has the power to grant an injunction against a third party subject to various conditions. Section 90AF of the Act records as follows:
90AFCourt may make an order or injunction under section 114 binding a third party
(1) In proceedings under section 114, the court may:
(a)make an order restraining a person from repossessing property of a party to a marriage; or
(b)grant an injunction restraining a person from commencing legal proceedings against a party to a marriage.
(2)In proceedings under section 114, the court may make any other order, or grant any other injunction that:
(a)directs a third party to do a thing in relation to the property of a party to the marriage; or
(b)alters the rights, liabilities or property interests of a third party in relation to the marriage.
(3)The court may only make an order or grant an injunction under subsection (1) or (2) if:
(a)the making of the order, or the granting of the injunction, is reasonably necessary, or reasonably appropriate and adapted, to effect a division of property between the parties to the marriage; and
(b)if the order or injunction concerns a debt of a party to the marriage—it is not foreseeable at the time that the order is made, or the injunction granted, that to make the order or grant the injunction would result in the debt not being paid in full; and
(c)the third party has been accorded procedural fairness in relation to the making of the order or injunction; and
(d)for an injunction or order under subsection 114(1)—the court is satisfied that, in all the circumstances, it is proper to make the order or grant the injunction; and
(e)for an injunction under subsection 114(3)—the court is satisfied that, in all the circumstances, it is just or convenient to grant the injunction; and
(f)the court is satisfied that the order or injunction takes into account the matters mentioned in subsection (4).
(4) The matters are as follows:
(a)the taxation effect (if any) of the order or injunction on the parties to the marriage;
(b)the taxation effect (if any) of the order or injunction on the third party;
(c)the social security effect (if any) of the order or injunction on the parties to the marriage;
(d)the third party’s administrative costs in relation to the order or injunction;
(e)if the order or injunction concerns a debt of a party to the marriage—the capacity of a party to the marriage to repay the debt after the order is made or the injunction is granted;
Note: See paragraph (3)(b) for requirements for making the order or granting the injunction in these circumstances.
Example: The capacity of a party to the marriage to repay the debt would be affected by that party’s ability to repay the debt without undue hardship.
(f)the economic, legal or other capacity of the third party to comply with the order or injunction;
Example: The legal capacity of the third party to comply with the order or injunction could be affected by the terms of a trust deed. However, after taking the third party’s legal capacity into account, the court may make the order or grant the injunction despite the terms of the trust deed. If the court does so, the order or injunction will have effect despite those terms (see section 90AC).
(g)if, as a result of the third party being accorded procedural fairness in relation to the making of the order or the granting of the injunction, the third party raises any other matters—those matters;
Note: See paragraph (3)(c) for the requirement to accord procedural fairness to the third party.
(h) any other matter that the court considers relevant.
The Court needs to be satisfied of the mandatory conditions set out in s 90AF(3) of the Act if it is to make an order in the terms of s 90AF(2). Further no power exists under 90AF if it results in the acquisition of property on other than just terms (s90AK). In Allan & Allan& Ors [2009] FamCA 553, Watts J observed in the context of s 90AK of the Act as follows:
118.Secured commercial lenders (and more generally, related but bona fide secured lenders) stand head and shoulders above unsecured creditors. Secured creditors have interest in property. There is generally no question that these property rights have to be quarantined before determining what assets of the parties can be divided. This is to be contrasted with the rights of unsecured creditors (see Coleman J at paragraph 96-101 of Trustee of the property of G Lemnos, a bankrupt and Lemnos and Lemnos (2009) FLC 93-394; Biltoff and Biltoff (1995) FLC 93-614). Sometimes adjustments of property are made without removing all unsecured debts from the asset pool prior to dividing the asset pool between the parties. The pari passu principle as enshrined in s 108 of the Bankruptcy Act, does not apply to the division between unsecured creditors and the parties in these circumstances (see Thrackay and Ryan JJ in Lemnos at paragraph 262 - 264, 271) and the Family Law Act requires a just and equitable division of property as between spouses and unsecured creditors. No such approach is relevant to a circumstance as exists in this case where orders are sought which affect property rights of bona fide secured commercial lenders.
119.It needs to be recognised that a commercial lender who has a first mortgage has a power to sell a property without court order. That is a very important right and if it is being acquired, it has to be acquired on just terms. The mortgagee needs to be put into an equivalent position after the first mortgage on a particular property is taken away or if rights are taken away for a limited period, it would have to be done in circumstances where the mortgagee was at no risk of being disadvantaged in any way. Otherwise property rights are being taken away from the third party on other than just terms.
120.I find it is not appropriate for the mortgagee to lose their registered security and queue up behind others who are owed yet to be determined totals and aggregates after the sale of other properties at unknown times and in an unknown order, over which the mortgagee has no control in respect of the sale. I have no evidence as to whether there are any unknown unregistered mortgagees which would complicate the exercise even further.
121.The wife’s application to restrain the mortgagees from entering into possession of or selling or otherwise dealing with properties over which they have registered securities (even though it is expressed until further order) has the effect of depriving a third party of the advantages that that security gives them.
DISPOSITION
There is no issue that H Bank have been afforded procedural fairness. They appeared through solicitor and counsel. Albeit that the company has had a receiver appointed, I am satisfied that notice should have been provided to the director of M Pty Limited. As counsel for H Bank submitted, notwithstanding a receiver having been appointed, there are still residual powers to be exercised by a director.
It is also unsatisfactory, given the unchallenged evidence of the solicitor for H Bank, that the director of the company has been less than co-operative in dealing with H Bank. The husbands senior counsel seemed to submit that the company despite having an independent director was under the defacto control of the husband. It raises significant concerns about the husband’s conduct in relation to H Bank’s security interests.
The order that is sought is an injunction and I am required to be satisfied that it is just and convenient for such an injunctive order to be made in circumstances where it alters rights of the third party.
In that respect, an order interfering with the security interests of a third party is a very serious matter. Section 90AF of the Act cannot be used for the purposes of increasing the property of the parties (B Pty Ltd & Ors & K & Anor (2008) FamCAFC 113). An order that affects the rights of a security holder, as is the case here, for a significant period of time without the provision of alternate security in return has the effect of impermissibly increasing the property of the parties.
Implicit in the husband’s application is that final orders will be made that he retains the Suburb L property. There remains an unresolved whether or not it is the husband or the wife who is to retain the Suburb L property. At this stage I am not in a position to second-guess that determination. The husband’s application for finance is predicated entirely upon him retaining the Suburb L property. It is also not possible to determine with certainty the duration of the injunction as it depends upon the hearing concluding, delivery of judgment, an outcome favourable to the husband, no appeal and that Westpac will provide finance. Lastly the company has not acted bona fide in its dealings with the receiver. Taking all these matters into account I am not satisfied that the mandatory conditions in s 90AF(3) of the Act are met.
I have also had regard to the matters under s 90AF(4) of the Act. There is no submission as to the taxation effect of the injunction or in relation to social security. I am satisfied that there are ongoing costs to be incurred by H Bank in relation to the injunction given that the receiver will remain in place. I note that no security is offered by the husband as a substitute for the security that H Bank currently hold.
I also have had regard to s 90AK of the Act. As no alterative security is proffered I am not satisfied that it is just and convenient that a third-party lender, who has acted quite properly, should be placed in the position of having their ability to exercise their security affected. In doing so the rights of a third party are taken away on other than on just terms.
The husband’s Application in a Proceeding will be dismissed.
I certify that the preceding thirty-six (36) numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice Schonell. Associate:
Dated: 16 August 2024
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