in the following terms:
1. That on the basis that an application for a stay of [the mortgage proceeding] has been fixed for hearing on Monday, 13 September 2010 before Justice Brereton, then order (1) as sought in the wife's amended application in a case … be and is hereby dismissed.
9 The wife's motion for a stay came on for hearing before me on 13 September 2010. At the outset of the hearing, the wife sought leave to amend her motion by adding a claim for an order, pursuant to (NSW) Jurisdiction of Courts (Cross-Vesting) Act 1987, s 5(1), that the proceeding in this court be transferred to the Family Court of Australia, with the intent that it be heard with the matrimonial proceeding. As counsel for the wife had had no notice of that application and was not in a position to adduce evidence pertinent to the factors which would inform the exercise of the discretion to make such an order, I declined leave to amend at that stage, but indicated that if the application for a stay failed, it might then be necessary in any event to consider the question of transfer.
10 The claim for a stay was originally advanced on the misconceived basis that it was likely that there would be some application made in the Family Court under Family Law Act, s 90AE, to vary the amount of the husband's indebtedness to Elias. As it is clear that one circumstance in which a court exercising jurisdiction under the Family Law Act will not make an order s 90AE is if it is foreseeable that the result of the order would be that the debt would not be paid in full [s 90AE(3)(b)], there is no prospect that such an order would have been made. As only the husband and not the wife was indebted to Elias, there would be no occasion for making an order adjusting the respective responsibilities of the parties for the indebtedness: the whole responsibility was already the husband's alone, at law. In the course of argument, however, it emerged that, although not yet formulated, what the wife really ultimately sought was, pursuant to Family Law Act, s 106B, to set aside the mortgages (and possibly also the shareholders agreement) as transactions which had the effect of defeating an anticipated order; and/or an order pursuant to s 90AF(1)(b) restraining Elias from prosecuting this proceeding, at least until the matrimonial proceeding could be heard and determined. In the course of argument on 13 September, counsel for the wife ultimately embraced the suggestion that this court might have cross-vested jurisdiction to make an order under s 90AF.
11 In the event, counsel for Elias legitimately pointed out that she was now confronted by an application under s 90AF which had not previously been invoked, a foreshadowed application for transfer to the Family Court, and - underlying both - a potential s 106B application to set aside the mortgages, which amounted to a radically different position from that which appeared on the face of the motion, namely simply a claim for a stay - presumably, pursuant to (NSW) Civil Procedure Act 2005, s 67. In those circumstances, the motion was adjourned to 30 September, part-heard, in order to afford an opportunity for both parties to give further consideration to those issues.
12 On 21 September 2010, the wife amended her response in the matrimonial proceeding to claim orders setting aside, pursuant to Family Law Act, s 106B, the Shareholders Agreement and the mortgages of Frederick Street and Auld Street (but, for some unexplained reason, not Victoria Avenue). If successful, the wife's s 106B application would be a complete answer to Elias' claim, because it would result in the setting aside of the very securities which Elias, in the present proceeding in this court, seeks to enforce. The wife's amended response joined Elias as, in effect, a cross-respondent in the matrimonial proceeding - as Elias' interest would obviously be affected if its mortgages were set aside. She also added a claim, pursuant to (NSW) Contracts Review Act 1980, for an order setting aside the Shareholders Agreement, but as she was not a party to that contract she has no standing to claim relief under that Act, so that claim must be doomed to fail.
13 In my view, however, it cannot be said, on the albeit limited material presently available to this court, that the s 106B applications are without prospects of success. In short, the husband and the wife had separated in September 2007. Some 17 months later, in February 2009, before there had been any financial settlement between them, the husband alone entered into a transaction by which $300,000 was paid, not to him (which might have benefited the matrimonial estate), but to Obic, a third party (albeit one in which he had some interest); yet he personally incurred the liability to repay that sum, with interest at the very high rate of 5% per month capitalised monthly, and secured that liability on his interest in the three properties, thus burdening the matrimonial estate. According to his financial statement in the matrimonial proceeding, he has total assets of $2,146,500 and liabilities of $2,116,000, leaving a surplus of only $30,500; and even that assumes that his debt to Elias is $300,000 only (overlooking the impost of interest).
14 A reasonable disponor in the position of the husband, knowing that he and wife had separated but that there had not yet been a financial settlement, would have anticipated that there might well be an order for matrimonial property adjustment. It is well established that a transaction that brings about a material diminution in the pool of matrimonial property available for division can qualify as one that is likely to defeat an anticipated order, for the purposes of s 106B: see In the Marriage of Gould; Swire Investments Ltd (1993) 115 FLR 371; (1993) 17 Fam LR 156; (1993) FLC ¶92-434; Halabi & Artillaga (1993) 17 Fam LR 675]. In the context of the available pool here, a reduction of $300,000 (now, with interest, $518,000) could plainly have that effect. On the material presently available it cannot be said that a reasonable disponor in the husband's position would not have anticipated that an adjustive property order might be made which would be defeated if he caused or permitted the pool to be diminished by $300,000 or more.
15 Section 106B(3) provides that the court must have regard to the interests of, and make, any order proper for the protection of a bona fide purchaser or other person interested. The test of bona fides is whether the purchaser at the time of the disposition was aware, or should have been aware by making due inquiry, that the disposition would be likely to defeat the claim [In the Marriage of Heath (No 2) (1984) 9 Fam LR 642, 647; In the Marriage of D & D (1984) 10 Fam LR 73]. John Elias, the solicitor who was a director and secretary of Elias at the time of the shareholders agreement and mortgages in February 2009, and a shareholder, was involved in the negotiations with Mr Chidiac at the time, knew that the wife was a joint tenant with Mr Chidiac of Frederick Street and Auld Street, was aware that the husband and wife were separated, and was nonetheless content for Elias to take a mortgage from the husband alone. While the issue will no doubt be clarified in due course by further evidence, whether in this court or in the Family Court, it cannot be said in those circumstances to be unarguable that Elias, at least through John Elias, was sufficiently on notice as not to be a "bona fide purchaser" entitled to the protection afforded by s 106B(3).
16 On the resumed hearing of the wife's stay motion on 30 September, the wife pressed her application, primarily for a transfer order, and - alternatively and somewhat equivocally - for a "stay", or an injunction pursuant to Family Law Act, s 90AF(1)(b).
17 Family Law Act, s 90AF(1)(b), makes specific provision for a court having jurisdiction under the Family Law Act to grant an injunction restraining a person from commencing a legal proceeding against a party to a marriage, subject to the conditions referred to in s 90AF(3). This power to restrain a third party from commencing a proceeding extends to restraining one from continuing a proceeding already commenced [Christie v Christie (2007) 37 Fam LR 181]. Whether or not s 90AF "covers the field" when it comes to staying a proceeding by third parties against spouses in the context of a pending matrimonial proceeding, it provides clear legislative guidance in this field. In my opinion, for the reasons explained in Young v Lalic [2006] NSWSC 18; 197 FLR 27, [32]-[50] - namely that this court is cross-vested with all the jurisdiction of the Family Court of Australia in matrimonial causes - this court has jurisdiction under Family Law Act, s 90AF(1)(b).
18 However, in my view, s 106B having been invoked, it is not necessary for the wife to resort to s 90AF. Long before the introduction of s 90AF, s 114(3) already conferred power on courts exercising jurisdiction under the Family Law Act to grant interlocutory injunctions in any case in which it appeared to the court just or convenient to do so, in aid of its jurisdiction. An order restraining a third party respondent to a s 106B application, pending determination of that application, from further dealing with property the subject of an impugned disposition, or from exercising powers pursuant to the impugned transaction, would plainly be within s 114(3). The significance of this is that in my view the wife's claim for a "stay" - or effectively an interlocutory injunction restraining Elias from prosecuting the proceeding in this court - does not have to surmount the conditions contained in s 90AF(3).
19 On the wife's application for an injunction or stay, the relevant considerations are (1) whether the wife has a sufficiently seriously arguable case for final relief, and (2) whether the balance of justice and prejudice favours the grant rather than the withholding of an injunction or stay.
20 For the reasons already advanced, I am satisfied that the wife has a seriously arguable claim for s 106B relief.
21 As to the balance of justice and prejudice, if a stay or injunction is not granted, then the possibilities are, first, that Elias will obtain summary judgment, and enforce its remedies, with the consequence that the wife's s 106B claim would be wholly defeated; or secondly, that Elias might be permitted to obtain judgment and exercise its remedies but not appropriate the proceeds until after determination of s 106B case; or thirdly, that the wife might be given leave to amend her defence to propound the s 106B claim in this court. The first course would entirely defeat the wife's s 106B claim without it having been heard; that would be a serious prejudice to her. The second course has the disadvantage that the s 106B case would then necessarily involve not just an attack on the disposition, but also on an order of this court in which the disposition had subsequently merged, and it is by no mean clear that s 106B would extend so far. Moreover, it would have the difficulty that sale of the former matrimonial home would have defeated the wife's claim in the matrimonial proceeding that the husband's interest in it be transferred to her. Again, there would be significant prejudice to the wife. The third course would avoid those difficulties, but (unless the whole of the matrimonial proceeding were transferred to this court) would mean that the s 106B application would be dealt with separately from the s 79 application. While such a course is not unprecedented, it is usually undesirable, because there is likely to be a significant overlap between the evidence adduced on the s 106B application and that in the s 79 proceeding, and because the discretion to make an order under s 106B is usually informed by whether the applicant's entitlement can be satisfied without resort to the property the subject of the impugned transaction.
22 If a stay or injunction is granted, the potential prejudice to Elias is that the husband's assets will be still further eroded by interest, which will not be recoverable because his liabilities will soon, if they do not already, exceed his assets. Indeed, there is a suggestion that the husband has already been served with a bankruptcy notice by another third party creditor. There is no doubt that there is a significant risk that Elias will not recover its interest, particularly having regard to the high interest rate, and that is a significant risk of prejudice to Elias.
23 Because of this, the court sought the usual undertaking as to damages from the wife. However, she declined to give that undertaking, apparently because she was (perhaps understandably) not prepared to expose herself to the interest rate under the impugned securities. I have been greatly troubled by the wife's refusal to give an undertaking as to damages. It is the almost invariable price for an interlocutory injunction. But the court has power, although very rarely exercised, to dispense with it in an appropriate case. Is this such a case? One can easily understand the wife being reluctant to expose herself to a compound interest rate of 5% per month, which may well be the practical effect of giving the undertaking. A further relevant consideration in this respect is the timing of Elias' application. The debt it seeks to enforce became due in or about May 2009. Elias did nothing about it for a year, apparently content to "earn" its lucrative interest. Only after the wife had filed her response in the matrimonial proceeding did Elias chose to act. In this way, it has itself contributed in no small measure to the risk that further interest will not be recoverable.
24 If the undertaking as to damages had been proffered, the balance of convenience might have favoured a stay. Absent an undertaking as to damages, the position is finely balanced. But given the conclusion that the wife's s 106B claim is seriously arguable, and the matters to which I have referred as mitigating the significance of her declining to give the usual undertaking, it would be unreasonable that she not be permitted to advance her s 106B case before determination of Elias' application. This means that, at the least, she should be permitted to bring that case as a defensive cross-claim in the mortgage proceeding, to be determined before the mortgage proceeding renders it futile.
25 On the basis, as I have concluded, that the wife should be permitted to advance her s 106B case before determination of Elias' mortgage proceeding renders it futile, there appeared to be three possible courses of action. The first was to stay the mortgage proceeding, allowing the Family Court to resolve the matrimonial proceeding (including the s 106B application) first. The second was to refuse a stay, allow the wife to amend her defence and bring a cross claim to raise s 106B in the mortgage proceeding in the Supreme Court, and deal with all the mortgage issues in this court; that might but would not necessarily result in the whole of the matrimonial proceeding being transferred by the Family Court to this court. The third course was to transfer this proceeding to the Family Court, thus allowing all the proceedings to be dealt with in that court.
26 The wife's primary contention became not so much that the mortgage proceeding should be stayed, but that it should be transferred to the Family Court, to be heard with the matrimonial proceeding. However, it also emerged that Elias had filed, in the Family Court, an interlocutory application for an order transferring the matrimonial proceeding to this court, which - while a matter for the Family Court - raised starkly the competing possibility that the matrimonial proceeding might be transferred to be heard in this court with the mortgage proceeding, as an alternative to the transfer of the mortgage proceeding to the Family Court.
27 Of the three potential courses identified above, the first - staying the mortgage proceeding pending determination of the matrimonial proceeding - seemed to offer no benefit: Elias would have had to be involved in the proceeding in the Family Court as a respondent to the s 106B application, and only when it was completed could it then prosecute its mortgage proceeding in this court. There seemed therefore little advantage in the first course, except perhaps that it would leave the mortgage proceeding in a court which unquestionably had jurisdiction and was the natural forum to deal with it. The real issue was whether the mortgage proceeding should be transferred to the Family Court.
28 In determining whether or not a transfer order can and should be made, a threshold consideration is whether the proposed transferee court would have jurisdiction to hear the mortgage proceeding if transferred. If the Family Court did not have jurisdiction to hear and determine Elias' mortgage proceeding, it would be pointless and wrong to transfer it. Indeed, if it were seriously arguable that the Family Court did not have jurisdiction, it would be inappropriate to transfer the proceeding, since this court undoubtedly has jurisdiction (and, as explained in Young v Lalic, also has jurisdiction to hear the matrimonial proceeding if it were transferred to this court), and the parties ought not be required to run the risk that a disputable question of jurisdiction might ultimately be resolved adversely.
29 A proceeding between a creditor and one of the parties to a marriage for judicial sale pursuant to an equitable mortgage, and incidentally to it for s 66G relief, is not a "matrimonial cause" falling within the Family Court's ordinary jurisdiction. It would fall within that court's jurisdiction only if it could be brought within the accrued jurisdiction, which will be the case if, in the context of a matrimonial cause in respect of which that court has jurisdiction, it forms part of a single justiciable controversy, the existence of which "depends on what the parties have done, the relationships between or among them and the laws which attach rights or liabilities to their conduct and relationships"; however, "in the end, it is a matter of impression and of practical judgment whether a non-federal claim and a federal claim joined in a proceeding are within the scope of one controversy and thus within the ambit of a matter" [Fencott v Muller (1983) 152 CLR 570, 608]. The usual distinguishing feature of a single justiciable controversy is the existence of a common substratum of fact, but there can be a single controversy even though the facts from which the various claims arise "do not wholly coincide" [Fencott v Muller, 607] - for example, where there could be conflicting findings on common issues if proceedings were tried in different courts [Re Wakim; Ex parte McNally (1999) 198 CLR 511, [141]], or where there is a single claim for damages against multiple defendants and recovery of judgment against one will diminish the amount that may be recovered from the others, and notwithstanding that they are sued in different proceedings and that the facts giving rise to the claims against each are very different [Re Wakim, [75]-[76], [147]].
30 In the matrimonial proceeding between the husband and the wife, a fundamental issue is the nature, extent and value of the property of the parties to the marriage, including their liabilities. Before deciding what adjustive property orders it should make, the court must identify and value the property of the parties available for division; this includes the liabilities. It must therefore determine whether the husband is indebted to Elias, for how much, and whether the liability is secured or unsecured. Moreover, the wife now having instituted the s 106B application in the Family Court, the court hearing that application will be required to decide whether the share sale agreement and mortgage should be set aside. That is, in effect, the opposite of enforcing it, as Elias seeks: setting aside the mortgage, and enforcing it, would be inconsistent results.
31 These matters reveal, in my opinion, a common substratum of fact underlying the matrimonial proceeding and the mortgage proceeding. In addition, there is a fundamental inter-relationship between the relief sought in the s 106B claim, and the relief sought in the mortgage proceeding: grant of the first would deny the second, and vice versa. In my view, therefore, the mortgage proceeding and the matrimonial proceeding (which includes the s 106B application), comprise a single justiciable controversy, so that the Family Court would have accrued jurisdiction to hear and determine Elias' claim and to grant the relief Elias seeks [cf Valceski v Valceski (2007) 70 NSWLR 36, [60]-[65]].
32 Once it is determined that both courts would have jurisdiction, the next consideration is which is the "more appropriate court". The evidence does not establish any significant factor of convenience, such as the location of parties or witnesses, the expedition of any hearing, or the like, favouring one court or the other. It was suggested that, the matrimonial proceeding having been judicially managed in the Family Court, it would be inappropriate for it now to be transferred to the Supreme Court, but there is no substance in this: if the matrimonial proceeding were transferred to this court, this court would simply take up where the Family Court left off.
33 The natural forum for Elias' mortgage proceeding, for relief under Conveyancing Act, s 66G and judicial sale, is this court. The natural forum for the s 106B application, and for the matrimonial proceeding generally, is the Family Court of Australia - although, as already explained, it could be brought and dealt with in this court. It should also be mentioned that there is some prospect of further third parties becoming involved in the matrimonial proceeding, since there appears to be an assertion that a property held by a company controlled by the husband is beneficially owned by third parties; if so, the natural forum for any such claim would be this court, but it too would apparently fall within the accrued jurisdiction of the Family Court.
34 However, the dispute with Elias - and any dispute with any other third party claimant - is a subset of one larger justiciable controversy: the over-arching controversy is the matrimonial proceeding; the other disputes with third parties are aspects of that larger controversy. In such circumstances, as was pointed in Valceski (at [78], [85]), the Family Court is the more appropriate forum, since it is the natural forum for the larger or over-arching controversy. That view is reinforced, as was also the case in Valceski (at [78], [85]), by the circumstance that the third party creditors have acted in the context and on the occasion of the matrimonial proceeding. Elias took no action from May 2009 until July 2010, and did so only after the wife's response in the matrimonial proceeding had been filed.
35 The disadvantages of retaining the proceeding in this court, with a view to the Family Court transferring the matrimonial proceeding to be heard with them in this court, appeared to be, first, that it could not be assumed that the Family Court would indeed transfer the matrimonial proceeding to this court, and if it did not do so, the proceedings would be bifurcated, which is undesirable for reasons already explained; secondly, that this would leave the parties to contest a further transfer application in the Family Court in any event; and, thirdly, that if it were transferred, it would be heard in a court other than its natural forum - although this court is perfectly capable of dealing with it, nonetheless.
36 The disadvantages of the third course appeared to be, first, that there might be an argument in the Family Court as to whether that court had accrued jurisdiction to deal with Elias' mortgage claim; and, secondly, that that proceeding would be heard in a court other than the natural forum for it - although one that was perfectly capable of dealing with it.
37 In addition, Elias argued that such a course would mean that it would have to proceed separately against Mr Sayhoun, who is the co-owner, with a company controlled by the husband, of a fourth property. Until recently, Elias had not taken any step to sue Mr Sayhoun, but it now seeks leave to amend to do so, and to enforce its rights in respect of that property, but against Mr Sayhoun's interest only. I am inclined to accept that such a proceeding would not have a sufficient common substratum of fact to fall within the Family Court's accrued jurisdiction. However, there seems no prejudice of significance to Elias in having to proceed separately on that claim, especially given that it has been willing up to this point not to join Mr Sayhoun in the instant proceeding at all.
38 The balance between the second and third courses was a fine one. As at 9 November 2010, when this judgment was practically completed, several factors inclined me to the view that, tempting as it was to invite the Family Court to transfer the matrimonial proceeding to be dealt with by this court, nonetheless having regard to the interests of justice, it was more appropriate that this proceeding be determined by the Family Court. First, the desirability of ensuring that all issues being determined by the one court so as to avoid any risk of inconsistent findings and multiple proceedings is a significant matter, and a decision to that effect would have avoided the need for a further, potentially contested, transfer application in the Family Court, the outcome of which could not have been assumed. Secondly, the Family Court was the natural forum for the overwhelmingly greater part of the single justiciable controversy - the over-arching matrimonial property issue, of which the other disputes are but subsets. Thirdly, there is the policy, referred to in Valceski, that creditors of parties to a marriage who use the occasion of their separation and consequent matrimonial litigation to enforce their own rights, cannot complain if they become caught up in the maelstrom of the breakdown of the marriage, including any associated matrimonial property litigation. Fourthly, while I would not have contemplated transfer to the Family Court if I thought there were doubt as to the accrued jurisdiction of the Family Court to deal with Elias' mortgage claim, not only do my above reasons explain why it has that jurisdiction, but also no argument was developed before me as to why it would not. I think, therefore, that the jurisdictional issue is clear.
39 However, on 10 November 2010, the debate was rendered otiose: Collier J in the Family Court made an order transferring the matrimonial proceeding to this court. Such an order is conclusive, and not subject to appeal [(CTH) Jurisdiction of Courts (Cross-Vesting) Act 1987, s 13(a)]. The effect of his Honour's order is that the first of the factors referred to in the preceding paragraph no longer obtains. It would be entirely inappropriate now to transfer the mortgage proceeding to the Family Court, since the related matrimonial proceeding has now been transferred to this court. Comity dictates that it would be entirely inappropriate - even if, which I doubt, it were possible - to transfer all the proceedings back to the Family Court. The decision of the Family Court resolves the issue, and all the proceedings must be heard and determined in this court.
40 It follows that the wife's motion must be dismissed. However, as it was essentially a matter of necessary case management, was reasonably brought, and indeed but for the earlier order of the Family Court would very likely have succeeded, costs of the motion should be costs in the proceedings.
41 My orders are:
1. Order that the second defendant's motion filed 12 August 2010 be dismissed.