2564/05 Paris King Investments Pty Ltd & 1 Ors v Michael Norman Rayhill & 2 Ors
JUDGMENT (Ex Tempore)
1 HIS HONOUR: The second plaintiff Louise Anne Karan Lewis, to whom for the sake of convenience and without disrespect I shall refer as Louise, claims to be, equally with her brother Paul Lewis, to whom I shall similarly refer as Paul, beneficially entitled to the only equity shares in the first plaintiff Paris King Investments Pty Ltd, pursuant to trusts said to have been originally established by their father John Lewis, and their mother the third defendant Colleen Anne Rayhill, to whom I shall refer as "the Wife", of which trusts it is alleged that the Wife was the trustee as a result of orders made in the Family Law Division of this court in divorce proceedings between Mr Lewis and the Wife on 13 February 1976.
2 The plaintiffs allege that, in breach of her duties as a director of Paris King and/or in breach of her duties as trustee of the trusts, the Wife, in 1980, acquired from Paris King, in her own name, and at an undervalue, that company's property at 42A Bay Street, Mosman, and that she has since applied it, or property into which it can be traced, to the acquisition in her own name of a property at Erina (which she retains), to the acquisition of a property at Kenthurst (in the name of Apinville Pty Ltd, apparently upon trust for herself and her descendents), and in a loan to the second defendant Syfurn Pty Ltd of some $800,000, upon the security of a mortgage by Syfurn to her, which remains unregistered. The plaintiffs further allege that those breaches of trust and/or fiduciary duty were aided, abetted, counselled or procured by the Wife's second husband, Michael Norman Rayhill, to whom I shall refer as "the Husband". They claim declarations that the Wife holds the Erina property and the Syfurn mortgage upon trust for one or other of them, and equitable compensation - presumably corresponding to the difference between the value which the Mosman property would have had today, and the value of such property as can be recovered and restored to the company or the trusts. If there is to be a claim made in respect of the Kenthurst property, it will presumably be necessary that Apinville in due course be joined as a party.
3 The Wife apparently generally admits the allegations which are made against her and, in 2000, she executed a deed acknowledging that she held the Bay Street property, the Erina property and the Syfurn mortgage upon trust for Paris King. The Bay Street property has since been sold. Most of the proceeds of that sale were apparently applied to the repayment of mortgage loans to Investec, but some may have found their way into the Kenthurst property.
4 The Husband and Syfurn, however, resist the plaintiffs' claims. They do so in circumstances that the Husband and Wife separated in April 2000 and, since later that year, have been engaged in proceedings in the Family Court of Australia, which can only be described as contentious and protracted, for the alteration and settlement of their property interests pursuant to Family Law Act, s 79. The Husband alleges that the plaintiffs' claim in these proceedings are brought in concert with the Wife, in order to defeat the Husband's claim for property adjustment in the Family Court proceedings.
5 Syfurn was incorporated in 1980, some three years after the Husband and the Wife married. The Husband and the Wife are its only shareholders, and the Husband is its only director. Syfurn is the owner of properties in New Canterbury Road, Dulwich Hill, and it is over at least one of those properties that Syfurn has given the Wife the unregistered mortgage to which the plaintiffs assert that they are beneficially entitled.
6 Proceedings claiming relief to the effect presently claimed were initially commenced in this court by Louise and Paul in 2000 and, in or about late 2001, were transferred to the Family Court of Australia where they were either actually, or treated as, consolidated with the s 79 proceedings in that court. Paul's claim, corresponding with Louise's claim in these proceedings, was apparently settled in the course of the proceedings in the Family Court. Louise's claim proceeded there, in conjunction with the s 79 case, until March 2005 when, on the objection of the Husband - who had initially sought to have all proceedings transferred to and heard in the Family Court - O'Ryan J held that that court had jurisdiction neither under the Corporations Act (on the basis that the breaches alleged were not of that Act, but of earlier companies legislation) nor in the accrued jurisdiction, to entertain them. Thus, in a judgment delivered on 8 March 2005, his Honour refused leave to the present plaintiffs to intervene in the proceedings in the Family Court, dismissed the application which had been filed on their behalf, held that that court had no jurisdiction to entertain the claims now sought to be agitated in this court, and, alternatively, held that even if that court had had jurisdiction, it would have been appropriate to transfer the proceedings to this court.
7 Subsequently, on 16 May 2005, O'Ryan J made orders directed to the Wife, in her capacity as a shareholder in Paris King, requiring her to do all things and execute all documents necessary on her part to procure Paris King to withdraw a caveat which it had lodged affecting Syfurn's Dulwich Hill properties, which caveat had claimed an interest under the Syfurn mortgage.
8 On 1 August 2005, Boland J in the Family Court extended time for Louise and Paris King to appeal from the orders of O'Ryan J, but refused a stay of the order to which I have just referred concerning the Paris King caveat. The appeal has since been heard by the Full Court of the Family Court, but judgment has not yet been delivered.
9 On Monday next, 3 April, there is listed for hearing before the Family Court, apparently for two days, an application by the Husband for an order permitting the Husband and Wife to borrow $600,000 each - a total of $1.2 million - on the security of the assets of Syfurn, in order to fund the costs of the Family Court proceedings. Such an order is apparently necessary because of a previous order which would otherwise prohibit resort to the assets of Syfurn for that purpose. Although, as I understand it, no firm appointment has yet been made, it is envisaged that the s 79 proceedings in the Family Court may be fixed for final hearing in or about July of this year, and may occupy some 10 days.
10 In those circumstances, the present plaintiffs claim an interlocutory injunction restraining the defendants from, in effect, alienating, encumbering or otherwise adversely dealing with the assets of Syfurn, in order to preserve those assets which they fear may otherwise be rendered insufficient to satisfy their claims in these proceedings.
11 On such an application, the primary test is whether there is a sufficiently serious question to be tried that, having regard to the balance of convenience, the grant of injunctive relief is warranted. So stating the test illustrates, first, that no question of interlocutory relief against a defendant arises unless and until it is established that there is a serious question to be tried; secondly, that once such a question is established, the balance of convenience is the determinative consideration; but, thirdly, that these two elements are not unrelated and the strength of a case for final relief may be relevant to the ultimate determination, though not invariably so [see Australian Broadcasting Commission v Lenah Game Meats Pty Ltd (2001) 208 CLR 199, 219 [18]]. Ultimately, the court is concerned to decide where the lowest risk of injustice lies, if an interlocutory injunction is granted or refused [see Kolback Securities Ltd v Epoch Mining NL (1987) 8 NSWLR 533, 536]. Insofar as the relief sought includes what is conventionally described as an asset preservation order or a Mareva order, an additional requirement is that the plaintiff establish a greater than ordinary risk of dissipation of assets to the extent that a judgment may be rendered nugatory if no injunction is granted. It is also relevant to consider whether there are any discretionary reasons for declining injunctive relief. In this case, such considerations may include delay, the course of the conduct of the proceedings in both courts to date, and questions of comity.
12 I turn first to consider whether the plaintiffs have established a seriously arguable case for final relief, first, that the Wife was trustee for Louise of the E class shares in Paris King; secondly, that in breach of her fiduciary obligations and/or in breach of that trust, the Wife purchased Bay Street from the company of which she was a director; and, thirdly, that the proceeds of Bay Street are traceable into the Syfurn mortgage.
13 The plaintiffs have been unable to produce the original or any copy of any instrument constituting the trust of the E class shares in Paris King on which Louise relies, although that constituting a trust for Paul of the D class shares is in evidence. In the proceedings in the Family Court, O'Ryan J adverted to difficulties which stood in the way of the plaintiffs proving the existence of Louise's trust. However, I do not take his Honour to have found that the plaintiffs' case was, in that respect, unarguable. The view that his Honour is not to be taken as having made such a finding, even provisionally, is reinforced by the circumstance that the strength or otherwise of the plaintiffs' case was quite immaterial to the jurisdictional questions which his Honour alone was deciding. And even if his Honour had so found, that would be is no more than a provisional finding of fact in an interlocutory application based on the evidence that was then before his Honour, and the evidence before me is not the same.
14 Before me, though there was not before O'Ryan J, is an affidavit of Ms Plotke, the solicitor who is said to have drawn the trust instruments in question and to have seen the original trustee. She believes that, according to her usual practice, she would have established separate but identitical trusts for Paul and Louise. There is also an affidavit of Ms Moffatt, who was a director of Paris King following the divorce proceedings between Mr Lewis and the Wife. Ms Moffatt in her affidavit, which is contained in one of the annexures to Louise's principal affidavit in these proceedings, says that she was told by Mr Lewis that the D and E class shares were held in trust for Louise and Paul, says that she read both deeds of trust and saw that they were the same, except that one was for Louise and the other for Paul.
15 Those affidavits support an inference that two trusts were established, one for Paul in respect of the D class shares in Paris King ("the Paul Trust"), and one for Louise in respect of the E class shares ("the Louise Trust"). That inference is reinforced by the circumstance that 20 D class shares and 20 E class shares were separately allotted to Ms Plotke. It is further reinforced by the circumstance that the orders of the Family Law Division of this court, providing for the removal of Ms Plotke as trustee and her replacement by the Wife, refer to "the children's trusts" in the plural. It is further reinforced by statements attributed by Louise to her father, Mr Lewis, during his lifetime. And it is further reinforced - although this must be treated with reservation because it postdates the separation of the Husband and the Wife - by the acknowledgements and recitals contained in the deed of acknowledgement of 8 May 2000 by the Wife, in which it is recited that the Wife was the trustee, and Paul and Louise were beneficially entitled to all shares in Paris King which were entitled to capital and dividend distributions. On that material, I am satisfied that there is a seriously arguable case that Louise was beneficially entitled to the E class and, for that matter, Paul to the D class shares, in Paris King.
16 It is not in doubt that, following the 1976 order of the Family Law Division of this court, the Wife was one of the directors of Karan Holdings Pty Ltd, as Paris King was then known. So far as I can tell, Ms Moffatt became the other director, but that is beside the point. Nor could it be in doubt that, as a director of Paris King, the Wife was Paris King's fiduciary and owed fiduciary obligations to it. Nor can there be much doubt - because it is evidenced by a registered transfer - that the Wife, on 15 November 1980, by a transfer which was subsequently registered T406279, acquired, as transferee from Karan Holdings as transferor, for a stated consideration of $30,000, the Bay Street property of Paris King. That transfer was executed by the Husband in his capacity as solicitor for the Wife as transferee, and the affixation of the common seal of Karan Holdings is attested by the Wife as director, and Ms Moffatt as secretary.
17 I have referred to the consideration as the "stated" consideration, because there is evidence, both in the recitals in the Deed of Acknowledgement, and in other statements made by the Wife that, in fact, the consideration was not paid.
18 It is well established that a person in a fiduciary position cannot buy from or sell to his or her beneficiary any property falling within the ambit of the fiduciary obligation, unless one of two conditions is satisfied. The first condition is that full value is given after the beneficiary gives a fully informed and independent consent to the transaction. The second is that the fiduciary relationship itself is constituted on terms which gives the fiduciary the right to sell or buy.
19 In Fiduciary Obligations, Professor Finn, as his Honour then was, explained (at [392]) this rule - conventionally called "the purchasing rule" - as stemming from the broad equitable rule that whenever a person - the fiduciary - is acting or has acted in a confidential position for a beneficiary in relation to specific property, any purchase by the fiduciary of that property for himself, herself or for another is voidable at the suit of the beneficiary, unless the fiduciary can show that the beneficiary was aware of and consented to the fiduciary's dealings and can prove that the transaction was fair - which involves showing that full value was given for the property, and that the fiduciary disclosed to the beneficiary any and all the information which the fiduciary had acquired concerning the value of the property and concerning the contract itself. It is implicit, if not explicit, in that explanation that the onus of proving fully informed consent falls on the fiduciary.
20 The rule applies to company directors. So much was established as long ago as Aberdeen Railway Company v Blaikie Bros (1854) 1 Macq 461 [and see George A Bond & Company Limited v Bond (1929) 30 SR(NSW) 15 (Harvey CJ in Eq)]. The effect of those cases is that a contract between a director and the company is voidable at the instance of the company, except where the director has obtained the company's fully informed consent to the transaction.
21 Although there are exceptions, the basic rule is that such informed consent must, unless the corporate constitution makes specific provision otherwise, be given by the company in general meeting and not just by the directors. This is because it is to the company in general meeting that the obligation is owed, and only the company in general meeting that can relieve from it. The exceptions include cases such as the well known decision of the High Court in Queensland Mines Ltd v Hudson (1978) 18 ALR 1, where disclosure to the board of directors was found sufficient, in circumstances where the board of directors included representatives of all the shareholders. On the other hand, George A Bond involved a governing director with plenary powers, and Harvey J does not appear to have thought that that excused the director from obtaining the consent of the company in general meeting.
22 The more common exception is where the articles make specific provision for disclosure of interests to the board of directors, but as the judgment of the Court of Appeal in Woolworths Ltd v Kelly (1991) 22 NSWLR 189 makes clear, while disclosure to the directors will suffice if the articles so authorise, it does not otherwise.
23 The defendants have not adduced evidence, at least at this stage, which goes to establishing any such fully informed consent. Nor have the defendants adduced evidence which would tend to show that the transaction was fair, in the sense that fair consideration was given.
24 There is no material before me to show that the corporate constitution of Paris King authorises disclosure only to the directors. By analogy with Queensland Mines v Hudson, in the present case, where the legal shareholders and the relevant director were identical, it might well be that the requirement for disclosure to the company in general meeting would prima facie be immaterial.
25 If the Wife were beneficially, as well as legally, absolutely entitled to the shares in Paris King, there may well have been sufficient informal consent to support the transaction. However, at least arguably, she held those shares upon trusts for others, in particular, for Louise and Paul. In those circumstances, to the extent that any breach of fiduciary duty in her capacity as a director was excused or waived by the informed consent of the legal shareholders of the company, the giving of that consent on her part was, at least arguably, a breach of her obligations as trustee of the trusts for Paul and Louise of the D and E class shares respectively. It is primarily on that basis - a breach of her obligations as trustee of the Louise Trust and the Paul Trust, in consenting to the transfer by Paris King of the Bay Street property to herself - that I would find a seriously arguable case against her.
26 If so, the Wife would have received the Bay Street property in circumstances which flowed from her breach of trust. In those circumstances, it is arguable that, regardless of whether or not she was also in breach of her fiduciary duty as a director of the company, she holds the benefits, which have accrued to her as a result of what is at least arguably a breach of trust, upon constructive trust for Louise and Paul, the beneficiaries of those trusts.
27 So far as can be distilled from such material as is before me, it seems that the Wife's position is that she took the transfer of Bay Street from Paris King on the basis and understanding, so far as she was concerned, that she would hold it upon trust for Louise and Paul upon the terms of the Louise and Paul Trusts, as if in place of Paris King. If so, then rather than the constructive trust to which I have just referred, she would hold the Bay Street property on an express or implied trust for Louise and Paul.
28 The house at Bay Street burnt down in 1988. Ultimately, as a result of an insurance claim, the Wife received about $2.3 million, of which, it seems, $800,000 was advanced to Syfurn (in circumstances to which I shall come), something in excess of $600,000 was applied to the purchase of the Erina property, and some $400,000 was applied, together with other borrowed funds, to the reconstruction of the Bay Street property.
29 The Wife says that the advance to Syfurn occurred in circumstances that, in 1991, the Husband informed the Wife that Syfurn was encountering difficulties in paying rates and land tax on its Dulwich Hill property and that, because it had made default in repayments, NRMA had called in its loan. The Husband asked the Wife if she would use some of the money received from the fire claim to refinance Syfurn's loan. In those circumstances, the Wife says, she advanced $800,000 to Syfurn.
30 The Husband executed a handwritten document dated, so it would seem, 29 May 1992, as follows:
On behalf of Syfurn Pty Ltd I, Michael Thomas Rayhill, of 24 Alexandra Street, Hunters Hill, am preparing a mortgage in favour of Colleen Brennan for $800,000, plus advances from time to time, plus interest at market rates payable when the company is able to meet such payments provided that repayments commence within three years from the date hereof.
31 Subsequently, Syfurn, under its common seal, the affixation of which appears to have been witnessed by the Husband, executed a form of mortgage to the Wife, which is signed by the Wife as mortgagee, of the land comprised in folio identifier B/108585, which is part of Syfurn's Dulwich Hill properties. Subsequently, it would seem, another similar document referring to the same land was executed by Syfurn in favour of the Wife. It is apparently dated 26 June 1992, but was stamped many years, later on 26 May 2000. The stamp is difficult to read, but it may refer to advances of $800,000; it is either $800,000 or $900,000. It will be observed that the date of stamping postdates the separation of the Husband and the Wife. The Wife subsequently endeavoured to have the mortgage registered; the Husband objected, and the objections have apparently persuaded the Registrar General that the mortgage should not at this stage be registered.
32 In an affidavit sworn in the Family Court proceedings, which has been put before me [at tab 20 of Louise's principal affidavit], the Husband says [at paragraph 10] that the $800,000 was borrowed to repay earlier mortgage debts and continue with the rebuilding of the Mosman property. In a further document, which appears to be an affidavit of the Husband of an unknown date in January 2001 [which also appears at tab 20 of the exhibits to Louise's affidavit], the Husband says that the Wife was merely repaying some of the moneys which she had received from Syfurn in the four years from the date of the fire in 1988 until the insurance settlement moneys were received in 1992. In paragraph 18 of the same affidavit, the Husband says that the handwritten letter and the Syfurn mortgage were signed under financial duress, upon the representation by the Wife that she was the sole beneficial owner of the Mosman property, and in the belief by him that such an acknowledgement between spouses was unenforceable. The Husband, the evidence discloses, is a solicitor. In the course of argument, Mr Grieve QC, who with Ms Coulton appeared for him, informed me that, so far as the Syfurn mortgage was concerned, the Husband's defence would be that no moneys were in fact advanced under it.
33 Having regard to the Wife's evidence, the documents executed by the Husband, and the diverse explanations which he has offered, I am satisfied that there is a seriously arguable case that the Wife is entitled to a mortgage substantially to the effect of the unregistered Syfurn mortgage, over the property comprised in folio identifier B/108585, which I shall call "folio B". From the apparent traceability of the proceeds of the Bay Street insurance claim into the funds advanced to Syfurn, it follows that it is seriously arguable that the Wife holds that mortgage upon trust for Paris King or, at least as to half of it, for Louise.
34 There is no direct evidence of the interest rate applicable to the Syfurn mortgage before me. If the plaintiffs' allegations be accepted, the moneys were advanced nearly 15 years ago and, in those circumstances, I would be prepared to infer that a market rate of interest would have resulted over that 15 year period in at least a doubling of the total amount of the debt. It follows that I would find that the plaintiffs have a seriously arguable case against Syfurn on the basis that either Paris King, or the Louise Trust as to 50%, is beneficially entitled to the Syfurn mortgage, securing what is now probably in the order of $1.6 million, and thus has a proprietary interest, in the nature of a security as equitable mortgagee, in Syfurn's property in folio B.
35 The plaintiffs' case against the first defendant, the Husband, is a Barnes v Addy case that he knowingly assisted the breach of trust or breach of fiduciary duty on the part of the third defendant. There is some evidence - mainly in statements attributed to the Wife, in the course of the proceedings in the Family Court, in an affidavit sworn in the Family Court proceedings, and in the Deed of Acknowledgement - that the transfer of the Bay Street property from Paris King to herself was suggested and instigated by the Husband. But it follows from what I have already said about the primary basis upon which I would find a seriously arguable case against the Wife that the true vice lay not in any breach of fiduciary duty as a director, which to a third party observer who knew her to be the sole shareholder would not have been apparently wrongful, but in the breach of the Louise and Paul Trusts.
36 The evidence does not disclose any knowledge on the part of the Husband of the existence of the Louise and Paul Trusts. If he is not shown to have had that knowledge, then it seems to me that he was entitled to think that the Wife, as the sole shareholder in Paris King, was entitled to consent to a transfer by that company to herself. The only, and very slight evidence that I could find which might have suggested knowledge on the part of the Husband of the existence, let alone the terms, of those trusts, was that in Louise's principal affidavit, in which she refers, at paragraph 37, to having found, in the course of an inspection of the Husband's premises on 11 February 2005, a bundle of Advance Bank statements, marked "Bay Street Statements", and a deposit book with Advance Bank said to be marked "Bay Street Trust June 1995". Copies of those items are depicted in a photograph at tab 9 of the exhibits to that affidavit, but while the photograph discloses a bundle of Advance Bank statements marked "Bay Street Statements," the deposit book appears to be marked only "Bay Street June 1995" and, contrary to what the affidavit suggests, does not appear to bear the word "Trust". I would not begin to infer from the circumstance that documents were found in the possession of the Husband which referred to Bay Street - in which, after all, he cohabited with the Wife for many years - knowledge of any trust such as the Louise Trust or the Paul Trust.
37 It follows that I am not prepared to find that the plaintiffs have a seriously arguable case against the Husband, because the sole basis of his liability is that of knowing assistance, and the evidence does not suggest that he knew of the existence of the relevant trusts so as to be capable of being implicated in knowingly assisting a breach of them.
38 There remains the further claim - which, in the light of that conclusion, will for present purposes only run against the Wife - for equitable compensation. The Bay Street property was sold in 2001 for a price of $4,300,000. After discharging the mortgage to Investec, a balance of something in excess of $410,000 was deposited into the Wife's solicitor's trust account. It may well be that much of that has been expended on the legal costs of the family law proceedings, but some may have found its way, as I have said, into the Kenthurst property.
39 It is not at all clear that the whole of the $4.3 million would be liable to be recouped by Paris King or the Trusts. It may well be that some of the borrowings repaid to Investec reflect borrowings the proceeds of which were applied to the reconstruction of the Bay Street property. There is certainly a suggestion, in the evidence emanating from Louise, that the Wife worked hard to repay the pre-existing mortgage and complete the rebuilding of the Bay Street property, and it may well be that at least some of what was secured on the Bay Street property at the time of its sale was properly chargeable against the beneficial interests in it.
40 But it seems clear enough that $635,000 from the proceeds of the insurance claim was applied towards the acquisition of the Erina property, and some $400,000 was ploughed back into rebuilding the Bay Street property, and ought to have been reflected in the proceeds of its sale. Those transactions took place in about 1991 or 1992. Thus it can be seen that in excess of $1 million, 15 years ago, ought to have been available for the benefit of Paris King or the Trusts, but appears to have been applied for the benefit of the Wife. Again, allowing very roughly for interest for the 15 years since then, that amount would have doubled. In short, it seems that the amount which will be available to the Trusts or Paris King as a result of any recoupment from the Syfurn mortgage will still be short, by about $2 million at least of what ought to be restored to Paris King, or half that sum to the Louise Trust.
41 The evidence suggests that the Erina property is heavily encumbered, and that there is very little equity in the Kenthurst property. In those circumstances, there must be a seriously arguable case against the Wife for equitable compensation, of at least in order of $2 million (if due to Paris King) or $1 million (if due to the Louise Trust).
42 Before I turn to other considerations, I should refer to the principal defences which have been foreshadowed: laches, and acquiescence. As I understand it, it is said that many years have elapsed since the relevant breach of trust, and it is suggested that Louise has participated in or acquiesced in the relevant breaches.
43 Louise's evidence is that she did not know of the transfer of Bay Street to the Wife until notified of it following the separation in 2000, following which she took prompt action, initially instituting proceedings for the restoration of Karan to the register as Paris King, and then commencing the substantive proceedings by the end of 2000. The defendants suggest that Louise herself benefited by receiving in excess of $1 million from borrowings said to have been raised by the Wife on the security of the Bay Street property. Louise apparently disputes this, and the evidence is too slight either way to make even a provisional finding. Suffice it to say that none of the defences are such as to remove the quality of "serious arguability" from the cases which the plaintiffs proposed.
44 I turn next, so far as it is relevant, to the risk of dissipation. As I have said, an application is listed for hearing before the Family Court on the next business day after today in which the Husband seeks an order that he be permitted, together with the Wife, to use assets of Syfurn as security for loans to be raised by the Husband and Wife to the extent of a total of $1.2 million to fund the Family Court litigation. Moreover, a caveat lodged by Paris King, which would have protected the position of the plaintiffs has, as I understand it, been removed by the Wife, albeit under protest, pursuant to the orders made by O'Ryan J. In those circumstances, it seems indisputable that there is a serious risk that assets of Syfurn will be applied, in the very near future, not for the benefit and in the interests of Syfurn, but for the separate benefit and in the interests of its shareholders, being the Husband and the Wife, to the potential prejudice of the interests of creditors of Syfurn.
45 I come, then, to the balance of convenience. If an injunction is not granted, there is, it seems to me, a very serious risk that the priority to which the Syfurn mortgage is at present arguably entitled will be lost to any subsequent mortgage which might be given to secure the borrowings sought to be authorised in the family law proceedings next week. Once that happens, it will for all practical purposes be irremediable, because the lender will no doubt take a registered security and in that way achieve priority over the Syfurn mortgage. Further, in circumstances in which the Wife's only asset of significance appears to be her shareholding in Syfurn, her capacity to meet any order for equitable compensation may well be further reduced if she is permitted effectively to reduce the value of that shareholding by causing or suffering assets of Syfurn to be dealt with in such a way that they become security for personal obligations of hers and her Husband's, which she has no other capacity to service. Both of those matters seem to me to be potentially of real and serious prejudice to the plaintiffs, should they ultimately succeed.
46 On the other hand, so far as the defendants are concerned, if an injunction is granted, their ability to fund and bring to a prompt conclusion the family law litigation will be jeopardized, and the trial and finalisation of the family law proceedings will be prejudiced.
47 In balancing those prejudices, the following considerations seem to me significant. First, in the family law proceedings, ordinarily the first step will be the identification and valuation of the property and liabilities of the parties. In the context of what I consider to be seriously arguable large claims against at least one of those parties, and in the context that their most significant property is their shareholdings in Syfurn, the existence of any liability of Syfurn to the Wife and/or the present plaintiffs will be an important consideration in valuing the divisible property, and it is very difficult to see how the family law proceedings can justly be determined before the determination of the plaintiffs' claims in the present proceedings.
48 Secondly, and closely aligned with the first reason, while ordinarily this court would be reluctant to take any step which would interfere with the due progress of proceedings in the Family Court, it has to be borne in mind that the plaintiffs have been endeavouring to prosecute the present proceedings since they instituted them in 2000 - although I note that there was a period during which Louise had indicated that she wished to pursue them only to the limited extent of supporting her mother's claim. Had the proceedings remained in this Court, they would have been determined by now. They were transferred at the Husband's instance to the Family Court, where they proceeded for some years, in the expectation that they would be resolved together with the s 79 proceedings, and it was only following the Husband's changing his position in respect of the jurisdiction of that court that they have, in effect, been sent back to this court. In those circumstances, the court is less reluctant to adopt a course which might prejudice the early resolution of the proceedings in the Family Court, because doing justice to all involved does not dictate that those proceedings should be resolved first, and it is not the plaintiffs' fault that their claim has not already been resolved.
49 Thirdly, what is proposed so far as Syfurn is concerned, is the application of its assets for what prima facie is not bona fide for the purposes and in the interests of that company, but for the separate private purposes of its directors - namely, the funding of the family law litigation - to the potential detriment of its creditors. Particularly in the context that there are significant external creditors - not just the claims of the present plaintiffs but also those claims of the existing registered mortgagee - that circumstance diminishes the significance of any prejudice which the defendants might suffer from the grant of an injunction.
50 In short, the risks of not granting injunctive relief involve irreparable harm to the position of the plaintiffs, whereas an injunction will not result in irreparable harm to the position of the defendants, although it is likely to result in the delay in resolution of the Family Court proceedings through their inability to raise funds to prosecute them. But it follows that, in my judgment, the balance of convenience significantly favours the grant rather than the withholding of injunctive relief.
51 I come then to the discretionary and miscellaneous considerations. The first is the question of delay. Mr Grieve has submitted that there has been considerable delay in making the present application, particularly in the context of the application to be heard in the Family Court on Monday, which I am informed has been set down for some months, whereas the present application was made or foreshadowed only last week. But that delay has to be seen in the light that the present proceedings were initiated, in substance, in 2000 and have been pending in one court or the other since then; that following O'Ryan J's judgment in March 2005, these proceedings were resumed in this court in April 2005; that the plaintiffs at one stage applied for judgment in default of defence in about July 2005; and that further directions were then made for the filing of affidavits in these proceedings, and still further directions were made earlier this year to prepare them for hearing, so that the defendants cannot but have been fully aware of the nature of the plaintiffs' case and the position they took throughout at least the last 12 months, and the plaintiff's have pressed these proceedings with due vigour.
52 Moreover, the course of proceedings in the Family Court is significant. There was no need for any application of the present type to be made while Paris King's caveat remained on foot, and it was only as a result of the removal of that caveat, which ultimately took place after Boland J had refused a stay in about July of last year, that it became necessary at all to contemplate injunctive relief, rather than relying on that caveat.
53 I think it is reasonable, given the pendency of the appeal from O'Ryan J's decision, which includes an appeal against the orders requiring removal of the caveat, that the plaintiffs did not immediately move this court, but waited until it became apparent that the Full Court would not have given judgment in time. It is one thing to require applicants for injunctions to move expeditiously; but this does not mean that Courts should encourage applications to be made before it is clear that they will be necessary. I am not persuaded that delay disqualifies the plaintiffs from the relief which they claim.
54 As to the course of the proceedings in both courts, I have already largely dealt with that, but given that the plaintiffs have proceeded for years on the footing that their claims would be heard in the Family Court with the section 79 claim, and that that expectation is now defeated by that court having held that it does not have jurisdiction, it seems to me that it can at least be said that it involves no unfairness to the defendants if there be some disruption to the course of proceedings in the Family Court as a result of the return of the equity proceedings to this court - especially given that the issues which will be decided in this court, which relate directly to the pool of assets available for division between the Husband and Wife, logically fall for determination first.
55 The area that has troubled me most is that of comity. That arises in two ways. First, there is the likely disruption which will be occasioned to the prosecution and determination of the proceedings in the Family Court if I grant injunctive relief. Such disruption is to be avoided if at all possible, but it is clear from the judgment of O'Ryan J that his Honour contemplated that the proceedings in this court might still be decided before the proceedings come to final hearing in the Family Court. The disruption which will be occasioned is not a consequence, at least directly, of any injunction that this court might grant, but of the financial position of the parties in that court, if they have no assets of their own to resort to other than assets which are not theirs but which are Syfurn's to which third parties, at least arguably, have a claim. The protection of the equitable rights of third parties against a company of which spouses are shareholders in circumstances in which the Family Court has declined jurisdiction does not in my opinion infringe any principle of comity. Indeed, especially where the Family Court has held that it has no jurisdiction, it would be wrong for this court to decline to act, if otherwise it were appropriate to do so, on the grounds of comity, because that would amount to denying any forum to the third parties in which they could protect their interests. It would effectively leave them without any remedy, just because one court had decided that it did not have jurisdiction.
56 The second and more direct problem of comity is order 10 made by O'Ryan J on 16 May 2005, requiring the Wife to take steps to remove the Paris King caveat, in respect of which Boland J has refused a stay. The injunctions sought in this court will have an effect practically inconsistent with that sought to be achieved by his Honour's order. An order of the type which his Honour made is plainly with Family Law Act 1975 (Cth), s 114 [R v Dovey; Ex Parte Ross (1979) 141 CLR 526; In The Marriage of Tiley (1980) 6 Fam LR 528]. As those cases, particularly R v Dovey, make clear, it is no objection to an injunction against a spouse who happens to be a company director that that injunction may affect the spouse in the performance of his or her functions as a company director. But while it is no objection to an injunction against the spouse that it may have that effect, equivalently, such an injunction does not extinguish the third parties' legal rights, even if those rights are inconsistent with what the injunction would practically require.
57 Here, the fact that the Family Court has ordered the Wife, as spouse, to use her voting power as a shareholder to cause the caveat to be removed does not detract from Paris King's claim that it is entitled to an equitable mortgage, and its entitlement to take steps to enforce it through persons other than the Wife. The Family Court having held that it does not have jurisdiction to entertain the claims of Paris King and Louise, no principle of comity is infringed by granting relief in this court at the suit of Paris King and Louise, if they make out an appropriate case for it, and notwithstanding that that would result in an outcome inconsistent with that sought to be achieved by the order made, in a different context, by the Family Court. It can be observed that the Family Court itself has always been zealous to guard the interests of third parties and to ensure that their claims are taken into account and that notice is given to them [see, for example, In the Marriage of Biltoft (1995) 126 FLR 385 and Donovan v Official Trustee in Bankruptcy (1991) 105 FLR 320.]
58 Accordingly, I have come to the conclusion that the plaintiffs have established a case for an interlocutory injunction retraining the second defendant, Syfurn, from acting in a manner inconsistent with the plaintiffs' rights under the alleged Syfurn mortgage or which would defeat the claimed priority of that mortgage. That injunction is not a Mareva injunction, but a traditional interlocutory injunction preserving, on an interlocutory basis, the rights which the plaintiffs seek to enforce on a final basis. It is in aid of a proprietary right, namely, their claimed interest as a secured creditor of Syfurn. But it is properly to be limited only to folio B, and does not extend to all of the Syfurn properties.
59 Secondly, the plaintiffs have established a case for a Mareva injunction against the third defendant restraining her from dealing with her assets in a way which would reduce her capacity to satisfy the claim against her for equitable compensation. Normally, such an injunction would involve excepting from it reasonable living expenses, costs of defending the proceedings and other reasonable expenses. As it seems that the third defendant is to file a submitting appearance in this court, there is no need to consider the cost of her defence of these proceedings. As the plaintiffs seek an injunction only in respect of her interest in Syfurn, so that her other sources of income, such as they are, and assets will be excluded, it seems to me less necessary to make provision carving out reasonable living expenses from that injunction, and more so is that the case when, as I have already mentioned, the assets of Syfurn are not her assets to be resorted to for her personal benefit in circumstances where there are third party claims against them.
60 Thirdly, I have concluded that there is no case for an injunction against the first defendant, the Husband, although the practical effect of an injunction against Syfurn and against the Wife will probably be to prevent him, too, from using assets of Syfurn to raise funds for his own personal costs (though he would remain free to use his own shareholding in Syfurn, if he can raise funds on the security of his own shares, as distinct from on the security of Syfurn's assets, for that purpose). That is not the result of finding any arguable case against him in respect of knowing assistance of the Wife's breach of trust, but a consequence of the circumstance that the assets of Syfurn are not his own, and the plaintiffs' claims are such as to justify prohibiting Syfurn from using its assets to secure separate borrowings of its shareholders for their private purposes.
61 Accordingly, upon the plaintiffs by their counsel giving to the court the usual undertaking as to damages, I order, first, that, until further order, the second defendant, Syfurn Pty Ltd, be restrained from by itself, its servants and agents alienating, encumbering, further encumbering or otherwise adversely dealing with the property comprised in folio identifier B/108585.
62 Secondly, that until further order the third defendant, Colleen Anne Rayhill, be restrained from by herself, her servants and agents doing any thing or taking any step calculated to diminish the value of her shareholding in Syfurn Pty Ltd, including, without limiting the generality of the foregoing, causing or permitting or suffering the assets of Syfurn or any of them to be paid (by way of loan or otherwise) to, or used as security for obligations of, herself or any director or shareholder of Syfurn.
63 Although I shall hear counsel on the matter, it seems to me that the appropriate costs order is that costs of the application be costs in the proceedings.
64 I reserve liberty to the first and second defendants to apply for any interlocutory variation of the above orders and, in particular, without limiting the generality of the foregoing, for an order which would permit the raising of funds for the defence of these proceedings.
65 I make the following directions: