BL & GY International Co Limited v Hypec Electronics Pty Limited [1999] NSWSC 447

New South Wales Supreme Court CITATION : BL & GY International Co Limited v Hypec Electronics Pty Limited [1999] NSWSC 447 CURRENT JURISDICTION : Common Law Division FILE NUMBER(S) : 12674/97 HEARING DATE(S) : 11 May 1999 - 12 May 1999 JUDGMENT DATE : 12 May 1999

PARTIES : BL & GY International Co Limited (Plaintiff / First Respondent) Colin Mead (Second Defendant / Applicant) JUDGMENT OF : Dunford J

COUNSEL : S. Galitsky (Plaintiff / First Respondent) M. Holmes QC (Second Defendant / Applicant) SOLICITORS : Ian B Mitchell, Solicitor (Plaintiff / First Respondent) Etheringtons, Solicitors (Second Defendant / Applicant) CATCHWORDS : Application for cross-vesting to Family Court; Jurisdiction of Court ACTS CITED : Juridiction of Courts (Cross-Vesting) Act 1987 DECISION : See para 34.

THE SUPREME COURT OF NEW SOUTH WALES COMMON LAW DIVISION DUNFORD J 12 MAY 1999 12674/97 - BL & GY INTERNATIONAL CO LIMITED v HYPEC ELECTRONICS PTY LIMITED & ORS JUDGMENT 1 HIS HONOUR: By a Notice of Motion filed on 24 February 1999, the second defendant, so far as is presently material, seeks the following orders: (a) An order pursuant to s 5(1) of the Jurisdiction of Courts (Cross-Vesting) Act 1987 that these proceedings be transferred to the Family Court of Australia, Sydney Registry, (b) That all moneys or other securities lodged with this Court by the plaintiff by way of security for his costs be released to the plaintiff upon its undertaking to lodge such moneys or other securities forthwith with the Registrar of the Family Court of Australia, Sydney Registry, and (c) That he be completely released from an undertaking formerly given by him, or alternatively, (d) That he be released from such undertaking to the extent of allowing him to grant equitable mortgages to the value of $340,000 over certain properties in order to fund his legal expenses of the litigation. 2 It is convenient firstly to set out some of the background. The second and third defendants, Colin Mead (the husband) and Lucy Guitar Mead (the wife) were married on 11 December 1982 and separated on 4 November 1996. The wife has two sisters, whom I shall refer to briefly as Grace and Josephine. The plaintiff is a company incorporated in Taiwan and, according to a document headed "Articles of Incorporation," in the bundle before me, the wife holds approximately forty four percent of the shares in that company and, according to clause 8, is the "sole director to carry on the business". 3 The first defendant, Hypec Electronics Pty Limited is a company which was incorporated in this State on 5 March 1985. Its shareholders are the husband and wife, who are also the current directors, but because of the disputes between them the company is deadlocked. Hypec Technology Group Pty Limited is another company with the same shareholders and directors, incorporated in July 1992, and one of the husband's allegations is that the business of Hypec Electronics Pty Limited was, without his knowledge, diverted to Hypec Technology Group Pty Limited. 4 Hypec Information Technology Services Pty Limited is another company incorporated here on 9 January 1997. The sole shareholder is the wife's sister Grace and apparently she owns the shares under different variations of her name, and holds them both in trust. The directors are such sister and also the wife's mother. 5 On 4 March 1997 the husband commenced proceedings in the Family Court of Australia, Sydney Registry, for a property settlement. On 19 September 1997 the plaintiff commenced the present proceedings. By its Statement of Claim it claims that as a result of representations fraudulently made by the husband and wife it advanced moneys to the first defendant, for use in the development of its business and for working capital, and that such advances were to be repaid to the plaintiff from the sales of goods by the first defendant to third parties. It is alleged that the loans amounted to something in excess of $4.8 million. 6 On first examination of the Statement of Claim I must say I have a number of difficulties with it and it has been submitted in addresses that it is in effect a claim for goods sold and delivered, although one wonders, if that is so, why the claim has not been pleaded as such. As a result of what are alleged to be the fraudulent mis-representations of the husband and wife, not only has the first defendant been sued for the recovery of the money but they have been sued for fraudulent mis-representation and also for negligence and for liability alleged to arise under various provisions of the Corporations Law. 7 The first defendant has filed no defence. It is, as I say, deadlocked and apparently does not currently have any assets. Judgment for the full amount of the claim, $4,884,466 has been entered against it and judgment has also been signed against the wife for damages to be assessed. The husband has filed a defence denying that he made any mis-representations to the plaintiff and denying that he is indebted to the plaintiff as a result of the transactions. 8 The Statement of Claim alleges that the representations said to be false were made to the plaintiff by the husband and wife. I have some difficulty seeing how the plaintiff could succeed on the basis of representations made by the wife to a company of which she was apparently the sole director. If the document I have referred to is inaccurate, she was certainly one of the directors and a substantial shareholder. Further and better particulars alleged mis-representations were made mainly by the husband, but he claims not to be able to speak Chinese. 9 There is also evidence that throughout the marriage the wife attended to the financial affairs of their jointly owned companies whilst the husband attended to technical matters, and there is evidence from the husband that the wife was the sole signatory on the first defendant's bank account at all relevant times. It is claimed in correspondence that a number of documents disclosed on discovery by the plaintiff in these proceedings should properly have been in possession of the first, second or third defendants, but these documents are apparently being used by the wife in the Family Court proceedings. 10 In many respects, as I say, the present proceedings can be described as unusual. In a sense - and I use those words advisedly - the wife's company (the plaintiff) alleges that as a result of fraudulent mis-representations by her (and her husband) there is a debt owing by a company of which she had effective financial control (the first defendant) to another company controlled by her (the plaintiff). 11 It has been submitted on behalf of the husband that the present proceedings are in effect an attempt to eliminate or to reduce the assets of the first defendant owned jointly by the husband and wife by diverting its funds to the plaintiff, a company owned substantially by the wife, so that there is less to divide between the husband and wife in the Family Court proceedings, and so that the wife will instead receive most or all of the assets of the first defendant as a shareholder of the plaintiff. These suggestions are denied but, having regard to the unusual nature of the proceedings, the possibility cannot be entirely excluded. 12 Even if the present proceedings are not a device of the nature I have outlined, that would be their effect and it is still necessary to resolve the issues in this case to determine what assets are available for the division between husband and wife in the Family Court. 13 There is another unusual feature about the transactions, involving husband and wife and it is this. A number of properties were apparently purchased in the name of the husband and wife during the period of the marriage. The plaintiff claims that the purchase of these properties was financed out of the moneys advanced to the first defendant, the subject of the plaintiff's claim, although in some cases they were acquired before the date of the advances alleged, and in one case before the incorporation of the first defendant. 14 In respect of some of these properties, particularly 2 Singleton Road, Laughtondale and 34 Herbert St, West Ryde, the properties were mortgaged, apparently by way of third party mortgage by the husband and wife, to the Commonwealth Bank to secure overdraft advances by that bank to Hypec Technology Group Pty Limited, but subsequently these mortgages have been assigned by the bank to the wife's sister Grace, the husband claiming this was done without his prior knowledge or consent. More recently the sister Grace has obtained possession of those properties as mortgagee. 15 It is convenient, first, to deal with the application relating to what has been referred to as the husband's undertaking. In fact, there is in force no such undertaking but there is an injunction. 16 By Notice of Motion filed in Court on 9 December last, the plaintiff sought an injunction restraining the husband from transferring, assigning, alienating, or further encumbering his interest in any specified real property other than a transfer to the wife of any part thereof as may be ordered by the Family Court of Australia pending final determination of these proceedings or the consent of the plaintiff. 17 It appears that an undertaking to that effect had been formulated and signed by the husband but not filed as it was not in the appropriate form, and on 9 December the application was made, as I say, for an injunction to that effect. An injunction was granted ex-parte by his Honour Greg James J and later that day, following the appearance of the solicitor for the husband, the injunction was extended until further order, but liberty was granted to restore the matter to the list on two days notice and a transcript of that day shows that what was envisaged was an application for variation to the effect of the form now set out in the current Notice of Motion permitting the husband to charge his interest in the property to provide for his legal fees. 18 I deal with this application first, because it seems that as this is an injunction granted by this Court it is appropriate for this Court to deal with it rather than first determine whether the matter should be transferred to the Family Court, and leave it for that Court to deal with. There is no evidence and, as far as I can see, has not been any evidence that the husband is seeking or threatening to dispose of any of his assets, except that he wishes to give equitable charges over his interest in some of the properties to pay his legal expenses both for these proceedings and the proceedings in the Family Court. 19 It has been submitted on behalf of the plaintiff that he should not use the money in this way. But that would effectively prevent him defending the case and it may be - and I am not in any position to judge - that he has a good defence to the present case and reasonable grounds for achieving a significant result in the Family Court proceedings. In my view, these matters not involving any threat to dispose of assets for an improper purpose such as to avoid being in a position to satisfy any judgment that may be recovered do not constitute grounds for a Mareva injunction. 20 No other basis has been shown for the grant of the injunction. This is not a matter where, as I understand it, the assets of the company can be traced to the directors because of any breach of fiduciary duty on their part. And, in any event, it is not the first defendant that is seeking the orders, but an outside third party. 21 I am therefore of the view that the injunction previously granted should be dissolved. 22 I turn now to consider the application for the cross-vesting. 23 The proceedings presently before the Family Court will involve an examination of the affairs of the various companies to which I have referred and a couple of other companies acquired during the course of the marriage. In those proceedings the main witnesses are likely to be the husband, the wife, the wife's sister Grace, her mother, her father, and various employees of the various companies, both past and present, together with expert accountants on both sides. 24 The Supreme Court proceedings will also involve an accounting of the business of the first defendant during the marriage and it is expected that the main witnesses will be the husband, the wife, the wife's sister Grace, the wife's sister Josephine, and the expert accountants. 25 A number of common questions will arise as to the management of the various companies, particularly as the financial management of the companies, and the signing of cheques and the making of the relevant accounting entries, was, the husband claims, all done by his wife. 26 All the above considerations demonstrate that both sets of proceedings involve a number of common issues, common witnesses and the examination and analysis of the same accounting documents. In addition the size of the assets belonging to the husband and wife and available for division between them upon dissolution of the marriage can only be ascertained after the determination of the current proceedings. 27 It was for this reason that when the Family Court proceedings were listed for hearing on 9 November 1998 and an adjournment was granted on the application of the wife, Cohen J said: "If the proceedings take place before me because they are not adjourned, the wife, the husband and the wife's sister who is the witness for the wife's family company in the Supreme Court proceedings and would be a necessary witness before me will all give evidence and I shall have to determine their credit. There is a real prospect that I might take a different view of their credit to the Supreme Court Judge who subsequently hears the matter before the Supreme Court..... In those circumstances, it is quite impracticable for me to continue this hearing. I think there is a substantial risk that I might wrongly determine the parties' assets because what I shall be trying to do is determine the outcome of the Supreme Court proceedings. Such an error would create great injustice for one of the parties." 28 On behalf of the plaintiff it has been submitted that the proceedings should not be transferred because it involves a discrete question which is preliminary to the proceedings in the Family Court and that it is simply a case of following a paper trail. 29 For the reasons I have already given, I am not satisfied that is a fair assessment of what is involved or the nature of the present case. 30 The only practical way, in my view, for the various matters to be resolved is for both sets of proceedings to be heard together. I am therefore satisfied, within the meaning of s 5(1) of the Jurisdiction of Courts (Cross-Vesting) Act 1987, that these proceedings are related to the proceedings pending in the Family Court and it is more appropriate that they be determined in the Family Court in the interests of justice so that they can be heard together and common issues arising in both sets of proceedings can be determined by the same court at the same time. 31 I therefore propose to transfer the present proceedings to the Family Court of Australia, Sydney Registry. 32 That leaves outstanding the orders sought in paragraph 3 of the Notice of Motion relating to the securities lodged in this Court by way of security for the husband's costs. 33 I am not satisfied that I should make any order about that. It seems to me that the security given will be dealt with administratively either by being transferred to the Sydney Registry of the Family Court along with the rest of the matter, or else will remain in this Court as security for the husband's costs in the Supreme Court part of the proceedings if he should be successful and an order is made in respect of his costs against the present plaintiff. 34 I therefore order that the injunction granted by this Court on 9 December 1998 be dissolved and, pursuant to s 5(1) of the Jurisdiction of Courts (Cross-Vesting) Act 1987, I order that these proceedings number 12674/97 be transferred to the Family Court of Australia, Sydney Registry. 35 In view of the fact that the plaintiff opposed the application for dissolution of the injunction and was unsuccessful in that opposition, the plaintiff should pay so much of the applicant's costs as relate solely to the application for dissolution of the injunction. The balance of the costs, being substantially the costs of the application for cross-vesting, should be costs in the cause, and I so order. 36 I grant liberty to any party to apply in respect of the security lodged, if such application should prove necessary. **********