|
|
[Home]
[Databases]
[WorldLII]
[Search]
[Feedback]
High Court of Australia |
ASCOT INVESTMENTS PTY. LTD. v. HARPER [1981] HCA 1; (1981) 148 CLR 337
Matrimonial Causes
High Court of Australia
Barwick C.J.(1), Gibbs(2), Stephen(3), Mason(4), Murphy(5), Aickin(6) and
Wilson(7) JJ.
CATCHWORDS
Matrimonial Causes - Family Court of Australia - Powers - Property - Security for order for maintenance and property settlement - Shares in private company held by husband - Order that one party to marriage transfer shares to other - Order that company register transfer - Restrictions upon transfer in memorandum and articles of association of company - Power of Family Court to direct company and its directors to register transfer - Family Law Act 1975 (Cth), ss. 79, 80 (d), (k), 82, 92 (3), 114 (3).
HEARING
1980, November 5; 1981, February 2. 2:2:1981DECISION
1981, February 10.
2. Clause 4 (a) of the memorandum of association of the company provided:
"The right of the members to transfer shares in the Company shall be
restricted in that the Directors of the Company may decline
to register any
transfer without assigning any reason therefor". (at p341)
3. Article 11 of the articles of association of the company is in these
terms:
"Save as herein otherwise provided and subject to the provisions of the
Act, the Company shall be entitled to treat the registered
holder of any
share as the absolute owner thereof and accordingly shall not, except as
ordered by a Court of competent jurisdiction
or as required by Statute, be
bound to recognise (even when having notice thereof) any equitable or other
claim to or interest in
such share on the part of any other person."
Article 143 (a) provides as follows:
"The right of the members to transfer shares in the Company is
restricted in that the Board may at any time in its absolute
discretion
decline to register any transfer of shares." (at p341)
4. However, before any refusal by the directors to register the transfer, the
wife sought of the Court, amongst other things, an
order that the appellant
and its directors register the transfer. At first instance, no such order was
made. But, on appeal, a Full
Court of the Family Court has ordered the company
and its directors, including the husband, to register the said transfer of the
shares. The Court did so largely on the footing of statements made by members
of this Court in Sanders v. Sanders
[1967] HCA 33; (1967) 116 CLR
366 ; Antonarkis v. Delly
(1976) 51 ALJR 21 ; and Reg. v. Dovey; Ex parte Ross [1979] HCA 14; (1979) 141 CLR 526
. The
Full Court also appears to
have founded its order in some part upon the
circumstance that the company had
intervened in the
proceedings in the Family
Court
and thus become, by reason of s. 92 of the Act, a party to those
proceedings. (at p341)
5. The appellant has appealed to this Court by its special leave against the orders of the Full Court of the Family Court. (at p341)
6. No question of constitutional validity has arisen in the appeal. The submission of the appellant is that the restriction on the registrability of the husband's shareholding imposed by the memorandum and articles of association of the appellant was inherent in the nature of his shares. The consequence is, according to the submission, that, having regard to the memorandum and articles of association, the shares did not carry any right to the registration of their transfer and that therefore the husband could not himself have compelled the registration of the transfer of the shares - nor, for that matter, could the transferee. It follows, submits the appellant, that the appellant and its directors cannot, in the circumstances, be ordered to register the transfer of the shares. (at p341)
7. It was also submitted that no additional jurisdiction accrued to the Family Court in the case by the operation of s. 92 and the intervention of the company. (at p342)
8. The submission made on behalf of the wife is that the Family Court has jurisdiction to do anything which is required to be done to make its orders against the husband fully effective. The transfer of the shares is in this submission ineffective till registration of the transfer: or at least is imperfect till that has happened. Consequently, it is said, the Family Court has jurisdiction to require the registration of the shares as a means of effectively enforcing its order for their transfer. (at p342)
9. It may at once be conceded that the Family Court may make orders which are appropriate to render effective orders made by it within its jurisdiction. Such enforcing orders must, of course, do no more than is necessary and appropriate for the enforcement of the substantive order or orders. They cannot directly affect the rights of third parties. But it is no objection to such an enforcing order that it binds or operates upon a stranger to the Family Court proceedings or that compliance with it may indirectly or consequentially effect substantive rights of the stranger. The cases to which I have already made reference and cases subsequent thereto establish so much. (at p342)
10. But it is essential first to determine the precise nature of what I have called the substantive order of the Family Court, i.e., in this case the order that the husband transfer his shareholding to his wife by way of security for the payment of the ordered maintenance. It seems to me that failure in this respect has both led the Full Court of the Family Court into error and been the basis of much of Mr. Goldberg's submissions to this Court. (at p342)
11. It will be profitable to recall what the substantive order was. An order had been made that the husband pay to his wife a sum of money by way of maintenance. That order is to be obeyed by him. There is no question as to its validity. As a means of enforcing obedience to that order and as a security for its performance, a court exercising jurisdiction under the Act had power and authority to compel the husband to execute a transfer of his property, either absolutely or by way of security, in order to satisfy, or secure the satisfaction of, the order for payment of maintenance. No question arises as to the validity of such an order. (at p342)
12. The husband's property, however, was relevantly his shareholding in the appellant. The rights which shares carry or represent are determined by the memorandum and articles of association of the company in whose capital they are held and by the general law. Those documents and the general law circumscribe the rights covered by the shares and indicate what rights the shareholder or anybody taking through or under him may exert or enforce. (at p343)
13. Clearly, as I have said, the husband could be compelled to sign a transfer of the shares: that was something he could do. In default of his doing so, the court could appoint somebody to sign the transfer for him. In this case, the court did so. The transfer so signed would be valid. The husband might be ordered to take such steps as he could lawfully take to secure the registration of the transfer. But the court could have no authority to compel the husband to do something which he could not do or compel others to do. It is clear, in my opinion, that the husband's rights as a shareholder are derived from and determined by the memorandum and articles of association of the appellant and by the applicable general law which in this case is the Companies Act 1961 (Vict.), as amended, in which State the appellant was incorporated, and as interpreted by the courts. Under that law, restrictions on transferability and on registrability are permissible. Indeed, there has been no suggestion in this case that the appellant's memorandum and articles of association in any relevant respect are invalid. Consequently, the shares in the appellant did not entitle the shareholder to compel the registration of any transfer of a share or shares which he might make. The property of the husband in the shareholding did not extend to or include a right to the registration of a transfer of his shares. Therefore, the husband, in my opinion, could not be ordered to secure the registration of the transfer, for that he could not do. I have indicated that he might be ordered to use his best endeavours to obtain that registration. Whether he could be ordered to exercise his vote as a director in favour of the registration of the transfer may be a question because of the fiduciary aspects of the office of directors, though it may be in a particular case that no interest of the company could arise. But that question need not now be resolved. I have said earlier that the husband's shareholding did not place him in control of the company. By that I mean to say that not only could his vote in a general meeting of the company not determine the result of a motion before that meeting: I mean also to indicate that the husband was not shown to be able to treat the company as his own, an alter ego. Though he was managing director, it does not follow that he could exercise the powers of that office for his own personal purposes. The word "control" in this connexion may be ambiguous. The control which is significant here would be the ability to treat the company and its affairs as his own. Control he might exercise in the interests of the company and all its shareholders would be irrelevant. If the Full Court thought there was material on which he could be said to be in control of the company in the relevant sense, their Honours were, in my opinion, in error. (at p344)
14. In my opinion, the appellant and its directors could not be ordered to do something in relation to the shareholding which the husband by dint of his shareholding could not compel the appellant or its directors to do. Nor could the court alter the nature, incidents or extent of the property which the court could command the husband to transfer. It could only require him to deal with, i.e. to transfer, what in point of property he had. To conclude otherwise would be unauthorizedly to enlarge the rights inherent in the shareholding. (at p344)
15. It is said by counsel for the wife that until registration, the transfer signed and delivered by the husband was ineffective. But this clearly is not so. The transfer was effective to create equitable rights. No doubt registration would convert the equitable title into a legal title: and the absence of a right to compel registration of a transfer reduced the ambit of the equitable interest in the shares. In truth, the transfer already signed on behalf of the husband and delivered to his wife is as effective a transfer of the property in the shares as the husband as a matter of right could make. (at p344)
16. If these fundamental considerations are borne in mind it becomes apparent that the decision of the Full Court of the Family Court is clearly insupportable as an exercise of the admitted power to render effective the order of the Family Court that the husband transfer to his wife his shareholding in the appellant. (at p344)
17. However, the order that the appellant and its directors register the transfer of the husband's shares in the appellant was sought to be justified because, by operation of s. 92, the appellant had become a party to proceedings in the Family Court. I have considerable difficulty in understanding why the joinder of the appellant as a party can in any respect add to the court's powers or authority so as to provide a basis for the order for the registration of the shares. Whatever the effect of s. 92, it is, in my opinion, quite clear that its operation cannot in this case cause any relevant accretion of jurisdiction to the Family Court. (at p344)
18. There is no need for me to discuss the decisions to which the Full Court made reference. Properly understood, they have nothing to say on the question on which this appeal turns: I have earlier indicated what they do decide; and they decide no more. Those cases are, in my opinion, quite beside the point in this case and do not in any respect justify the order which the Full Court has made. (at p344)
19. Before parting with the matter, I ought to make it clear that in deciding it I am not concerned to consider or comment upon the obduracy of the husband in relation to the order for payment of maintenance. But I can say that the circumstances of this case illustrate that the denial by the Act of the power to order imprisonment as a means of securing compliance with an order for maintenance has left the Family Court with inadequate power to deal with a recalcitrant person who is prepared to ignore or avoid his obligations. Indeed, the lack of such a power puts a premium on recalcitrance. (at p345)
20. I would allow the appeal and set aside the orders made by the Family Court against the company and its directors. (at p345)
GIBBS J. This is an appeal from the Family Court of Australia. The appellant, Ascot Investments Pty. Ltd. ("Ascot Investments"), is a private company. The respondents were formerly husband and wife, and although their marriage has been dissolved it is convenient to continue to refer to them as such. (at p345)
2. On 12 November 1976 a decree nisi for the dissolution of the marriage
between the husband and the wife was pronounced by Barber
J. in the Supreme
Court of Victoria. That decree has since become absolute. On 16 December 1976
Barber J. made further orders which,
so far as they are material, were as
follows:
1. That the husband pay to the solicitors for the wife the lump sum of
$75,000 on or before 16 January 1977 and that he pay interest
at the rate of
ten per cent quarterly upon such part of that sum as might remain unpaid after
16 January 1977.
2. That the husband pay the wife's taxed costs.from exercising any of his powers as shareholder or director in Ascot Investments.
3. That until payment of the lump sum and costs the husband be restrained
3. Before the decree nisi had been pronounced a number of orders for the payment of maintenance had been made against the husband. He had contumaciously failed to comply with them. He proved equally determined to flout the order made by Barber J. He has not paid the sum of $75,000 or interest or costs. Indeed it is said that an amount of about $200,000 is due and unpaid under various orders made against him. He did not sign a transfer to the wife of his shares in Ascot Investments, but transfers of those shares to the wife were subsequently executed by Master Jacobs in the name of the husband. However those shares remain registered in the husband's name. (at p346)
4. On 30 March 1979 the wife made application to the Family Court for a variety of orders, whose purpose was to aid in the enforcement of the order made by Barber J. on 16 December 1976. It is not necessary to mention all the relief sought by the wife, some of which has since been obtained. Some of the orders sought against the husband and the husband's servants and agents (including his bank) related to his shares in Ascot Investments, and on 2 May 1979 Ascot Investments applied for leave to intervene in the proceedings and sought the refusal of those orders sought by the wife. On 4 May 1979 Ascot Investments was granted leave to intervene. (at p346)
5. Subsequently, on 10 October 1979, the wife's application was amended to seek, amongst other relief, an order that Ascot Investments be wound up. In the alternative the wife sought an order that Ascot Investments, its servants or agents, register or do all such things as are necessary, and have signed or sign all such documents as may be required, to register the transfer from the husband to the wife of 7,000 "A" class shares in Ascot Investments. Similar orders were sought against the husband and against Douglas Adrian Graham Harper, William James Harper, and David Michael Harper, adult children of the marriage who were three of the four directors of Ascot Investments, the fourth being the husband. (at p346)
6. The application came before Frederico J. who refused to make any of the orders of the kind just mentioned, and made no order as to costs. Ascot Investments appealed to the Full Court of the Family Court against the refusal of Frederico J. to order the wife to pay the costs of that company, and the wife cross appealed, seeking orders for the registration of the shares. The Full Court dismissed the appeal but allowed the cross appeal. That Court ordered that within twenty-eight days of the wife delivering or causing to be delivered to Ascot Investments a transfer from the husband to the wife of 7,000 "A" class shares in the company in registrable form together with the relevant share certificate: (a) Ascot Investments, its servants or agents register or do all such acts and things necessary and have signed or sign all such documents as may be required to register the said transfer from the husband to the wife of 7,000 "A" class shares in Ascot Investments; (b) the husband do all such acts and things necessary and sign all such documents as may be required to register the said transfer from the husband to the wife of 7,000 "A" class shares in Ascot Investments; and (c) Douglas Adrian Graham Harper, William James Harper and David Michael Harper do all such acts and things necessary and sign all such documents as may be required to register the said transfer of 7,000 "A" class shares from the husband to the wife. (at p347)
7. The Court also ordered that the husband and Ascot Investments pay the wife's costs of the hearing before Frederico J. and of the appeal and cross appeal. (at p347)
8. Ascot Investments is a company incorporated under the laws of Victoria. Its nominal capital is 60,000 shares of one dollar each, of which 7,000 are "A" class ordinary shares, 2,000 are "B" class ordinary shares, 2,000 are "C" class ordinary shares, 2,000 are "D" class ordinary shares, 2,000 are "E" class ordinary shares, 2,000 are "F" class ordinary shares, 2,000 are "G" class ordinary shares, 2,000 are "H" class ordinary shares, and 39,000 are "I" class shares. The "I" class shares do not entitle the holders thereof to vote, but there is no difference between the voting rights attached to the shares of the other classes. In fact no "I" class shares have been issued, but the remaining 21,000 shares have been issued. The 7,000 "A" class shares are registered in the name of the husband; the "B", "C" and "D" class shares are held respectively by the three adult children who are directors, and the "E", "F", "G" and "H" class shares are held by one Margaret McGregor in trust respectively for each of the four other children of the marriage, who, when the trusts were created, were infants, but some of whom, it appears, have now come of age. (at p347)
9. Clause 4 of the memorandum of association of Ascot Investments provides as
follows:
"The Company shall be a proprietary company within the meaning of
Section 130 of the Companies Act 1928 and the following
provisions shall
have effect, viz. -
(a) The right of the members to transfer shares in the Company shall be
restricted in that the Directors of the Company may decline
to register any
transfer without assigning any reason therefor . . . . "
Article 11 of the articles of association provides as follows:
"Save as herein otherwise provided and subject to the provisions of the
Act, the Company shall be entitled to treat the registered
holder of any
share as the absolute owner thereof and accordingly shall not, except as
ordered by a Court of competent jurisdiction
or as required by Statute, be
bound to recognise (even when having notice thereof) any equitable or other
claim to or interest in
such share on the part of any other person."
Article 143 of the Articles provides as follows:
"The Company is a proprietary company and accordingly the following
provisions shall apply: -
(a) The right of the members to transfer shares in the Company is
restricted in that the Board may at any time in its absolute
discretion
decline to register any transfer of shares." (at p348)
10. Frederico J. found that Ascot Investments is "what has been described as
a family company and it is quite clear that the husband
exercises effective
control over that company." The Full Court appears to have accepted the
correctness of this finding for after
referring to it their Honours added:
"Certainly it appears in the material that the husband exercises
significant day to day control in relation to the company
and the material
also indicates that for the financial year 1977/78 $23,000 in dividends were
paid by the company to the husband
but nothing to the other shareholders."
It will be necessary later to discuss whether the finding is supportable, and
if so its significance. (at p348)
11. It does not appear to be disputed that the shares in the company constituted the husband's most substantial asset. (at p348)
12. One cannot fail to share in the sympathy which was felt by the Family Court for the wife in her difficulty in enforcing the orders which she had obtained against the husband. But the question for our decision is whether the Family Court had power to order Ascot Investments to register the transfer from the husband to the wife of the 7,000 "A" class shares. The restrictions contained in cl. 4 (a) of the memorandum and art. 143 of the articles, which satisfy the requirements of s. 15 (1) (a) of the Companies Act 1961 (Vict.), as amended, confer on the directors of the company a wide discretion to refuse to register a transfer. The directors are bound to exercise their discretion bona fide in what they consider to be in the interests of the company, and not for any collateral purpose, but subject to that qualification their discretion is absolute and uncontrolled: In re Smith & Fawcett Ltd (1942) Ch 304, at pp 306-308 ; Charles Forte Investments Ltd. v. Amanda (1964) Ch 240, at pp 252-254, 260-261 ; Australian Metropolitan Life Assurance Co. Ltd. v. Ure [1923] HCA 29; (1923) 33 CLR 199, at pp 205-206, 217-220, 223 . This rule is an application of the general principles governing the exercise by directors of their powers; those principles are discussed in Ngurli Ltd. v. McCann [1953] HCA 39; (1954) 90 CLR 425, at pp 438-440 . The cases cited establish that the onus of proving that the directors in refusing registration did not act in good faith in what they considered to be the interests of the company lies on those who challenge their decision. (at p349)
13. In the present case it was not proved that the directors of Ascot
Investments acted in bad faith or for an ulterior purpose;
indeed the
transfers of the shares have not been submitted for registration and the
directors have not been called upon to exercise
their discretion to register
or decline to register them. However, Mr. Goldberg, who appeared for the wife,
submitted that the Family
Court has power to order the company to register the
shares, and that such power is conferred by s. 80 (d), or alternatively by s.
80 (k), or in the further alternative by s. 114 (3), of the Family Law Act
1975 (Cth), as amended ("the Act"). Those sections provide
as follows:
"80. The court, in exercising its powers under this Part, may do any or
all of the following: -
. . .documents of title be produced or such other things be done as are necessary to enable an order to be carried out effectively or to provide security for the due performance of an order;
(d) order that any necessary deed or instrument be executed and that such
. . .mentioned in the preceding paragraphs of this section), which it thinks it is necessary to make to do justice . . .
(k) make any other order (whether or not of the same nature as those
14. Mr. Goldberg submitted that the Family Court in the present case was
exercising its powers under Pt VIII, particularly under
s. 79 which deals with
proceedings with respect to the property of the parties to a marriage or
either of them, and that the orders
now subject to appeal were necessary to
enable the orders made by Barber J. to be carried out effectively or to
provide security
for the due performance of those orders, or were orders which
the Full Court thought it necessary to make to do justice. Alternatively,
he
submitted, they were orders in the nature of mandatory injunctions granted in
a case in which it appeared to the Family Court
to be just or convenient to do
so. It may be accepted that the orders fall within the literal words of s. 80
and s. 114 (3), and
that they were made in aid of the jurisdiction of the
Family Court. The question that then arises is whether the powers conferred
by
those sections, wide as they admittedly are, extend to enable the Family Court
to make an order which will impose new duties on
persons who are not parties
to the marriage ("third parties"). The question arises equally under both
sections, and does not depend
on the particular words of either section. (at
p350)
15. In answering this question it is first convenient to refer to the
authorities upon which Mr. Goldberg particularly relied. In
two cases which
arose under the Matrimonial Causes Act 1959 (Cth), as amended, this Court held
that a court exercising jurisdiction
under that Act had power to grant an
injunction which affected the position of third parties, provided that the
power was exercised
in a proceeding properly brought under that Act, and that
the injunction was granted in aid of the exercise of the court's jurisdiction
in those proceedings: Sanders v. Sanders [1967] HCA 33; (1967) 116 CLR 366 ; Antonarkis v.
Delly (1976) 51 ALJR 21 . In Sanders
v. Sanders it was
held that the Supreme
Court of Norfolk
Island, in proceedings between husband and wife, had power
first to grant
an interlocutory
injunction restraining an insurance company
from paying to the husband or any person any moneys in respect of any
claim
arising out
of fire damage to the matrimonial home which
had belonged to the
husband and had been insured in his name, and
then a permanent injunction
restraining the company from paying
the money otherwise than to the wife or
her solicitor (1967) 116
CLR, at pp 368-369 . Barwick
C.J. (1967) 116 CLR, at
p 372 , speaking
of the interlocutory order, said, in a passage cited with
approval
in Antonarkis v. Delly
(1976) 51 ALJR, at p 24 , that the power
to
grant an injunction given by s. 124 of the Act of 1959 "may be
exercised to
maintain
an existing situation until the Court can
decide what should be done
upon the substantive application for maintenance,
even though
its exercise
involves third parties, and
the rights of any such party or parties in
relation to one or both of the parties
to the
matrimonial cause, or in
relation to the
property of one or both of those parties." Although this
passage referred to the
"rights"
of third parties, it was only in the most
general sense of the word that it could be said that the rights of a third
party
were affected
in that case. The Court did not order
the insurance
company to make any payment; its order went no further than to
restrain the
insurance
company from paying such moneys
as it decided to pay under the
policy, first to any person, and then to any
person other than the
wife (1967)
116 CLR, at p 378 .
In Antonarkis v. Delly the mother and stepbrother of the
husband were occupying
the matrimonial home,
which, according to the wife's
evidence, the wife had been forced to leave. The mother claimed to be the
equitable
owner of a half
share in the home and the stepbrother
claimed to be
a tenant of the mother. An order was made requiring the mother
and the
stepbrother
to vacate the matrimonial home and
requiring the mother to
withdraw a caveat lodged by her upon the title of
the premises. Before
the
appeal to this Court was heard
the mother had died, and the appeal had abated
so far as the order requiring
her to vacate the
home was concerned. It was
therefore
unnecessary to consider whether that order could be supported. In
relation
to the order directing
removal of the caveat, this Court
said (1976)
51 ALJR, at p 24 :
"Although Joske J. in fact concluded that the mother had no interest in
the subject premises, the order requiring the removal
of the caveat did not
determine that question. It went no further than was necessary to make
effectual the substantive order for
a settlement under s. 86, and did not in
any way affect any interest which the mother might have had in the subject
premises - such
an interest, if it existed, remains enforceable."
As to the position of the stepbrother, this Court said (1976) 51 ALJR, at p 24
:
"No doubt, as a general rule, the question whether a stranger to a
marriage has a leasehold interest in property of which a
party to the
marriage is the legal owner would not appropriately be determined under s.
124. However, the lease granted by the mother
to" (the stepbrother) "was
plainly a device to enable him to defeat the attempt which the wife was
making to obtain vacant possession
of the matrimonial home. Moreover, even
if the version of the facts put forward by the mother but rejected by Joske
J. were correct
. . . the mother did not have a sufficient interest in the
property to enable her to grant a lease which would be valid against the
legal owner, the husband."
It is apparent that neither of these decisions provides authority for the view
that any right or interest of a third party may be
adversely affected by an
order made in the exercise of matrimonial jurisdiction, although Antonarkis v.
Delly suggests that a court
in the exercise of that jurisdiction may treat as
null a pretended claim of right made by a third party in collusion with one
spouse
for the purpose of defeating matrimonial proceedings brought by the
other spouse. (at p351)
16. The question arose again in Reg. v. Dovey; Ex parte Ross [1979] HCA 14; (1979) 141 CLR
526 . In that case the matrimonial home
was owned by
a company which was
effectively controlled by the husband. The
Court granted an injunction
restraining the husband from
exercising
his voting rights as a shareholder
and/or as a director of the
company in favour of any proposed resolution
whereby the
matrimonial
home might be sold or encumbered. This Court held that
the order
made was within jurisdiction. I said (1979) 141 CLR,
at p 533 :
"It was said that there is no jurisdiction in the Family Court to
restrain a third party (even a family company) from dealing
with its own
property, and no jurisdiction to achieve that object by restraining a
husband, in his capacity as a director
or shareholder, from exercising his
voting power as such in a particular way. However, it is not right to say
that the order
sought by the wife and made by the learned judge in the
present case prevents the company from dealing with its own property.
The
order is not directed to the company and does not bind it. It is true that
the practical effect of the injunction will
be that there will be no sale,
but that will be because the husband, who controls the company, is
prevented from exercising
his control in such a way as to bring about a
sale, and not because the company is forbidden to do anything which those
who control
it have resolved to do. Even if the injunction did indirectly
affect the rights of the company, that would not mean that
it was beyond
power: see Sanders v. Sanders (1967) 116 CLR 367 . . . and Antonarkis v.
Delly (1976) 51 ALJR 21 . . . which,
although decisions on the Matrimonial
Causes Act 1959 (Cth.), provide a guide to the meaning of the present
Act."
The concluding sentence of this passage was unnecessary for the purposes of
the decision of that case, since it does not appear that
the rights of the
company were in any way affected by the order made against the husband.
However, the use of the word "rights",
which is taken from the two earlier
cases, was not strictly accurate. (at p352)
17. Finally reference may be made to Reg. v. Ross Jones; Ex parte Beaumont
[1979] HCA 5; (1979) 141 CLR 504 . In that case a wife
made application
to the Family Court
for orders for the appointment of a receiver of a
partnership between the
husband and the wife
and the taking
of partnership accounts. The Family Court,
by consent, formally held
that it had no jurisdiction to hear the application
and the
wife sought mandamus. This Court refused mandamus on discretionary
grounds
but all the judgments discussed the jurisdiction
of the
Family Court
to make orders of the kind sought. It is unnecessary for present
purposes
fully to consider the various expressions
of opinion in relation to that
question, but it appears from the judgments that
the majority of the Court
considered that the Family
Court, in making orders with respect to the
interests of the parties to a marriage
in partnership property could not
affect the interests
of third parties. I said (1979) 141 CLR, at p 512 : " . .
. it seems to me
that the court, in making an order under s. 79, could
affect
the beneficial interests of the partners in a particular item of partnership
property, provided that the interests of creditors
were not affected." Later I
said (29):
"I agree with the view of Jacobs J. that the Family Court cannot
dissolve a partnership with the consequences attendant
upon such a
dissolution in the way in which the Supreme Court of a State can do so;
although it could appoint a receiver
of that property of the parties to a
marriage which they, and they alone, hold as partners, it cannot appoint a
receiver of the
assets of a partnership as such; although it could order
accounts of the property of the parties to a marriage with particular
reference to an account of their property as partners, it cannot order
partnership accounts as such."
Stephen J. (1979) 141 CLR, at p 513 referred to the application for orders for
the appointment of a receiver of the partnership,
the delivery of partnership
books of account and assets and the preparation of partnership accounts, and
said: "If these prayers
for relief mean what they say, they ask the Family
Court to exercise a jurisdiction which it does not possess; my brother Aickin
has explained that want of jurisdiction." (at p353)
18. Jacobs J. said (1979) 141 CLR, at p 517 :
"The Family Court cannot appoint a receiver of the assets of a
partnership as such. However, in this case it could appoint
a receiver of
that property of the parties to a marriage which they, and they alone,
hold as partners. Likewise the Family
Court cannot order partnership
accounts as such, but it can order accounts of the property of the parties
to the marriage with
particular reference to an account of their property
as partners. So also it could order that books of account and assets
of
the parties to a marriage be handed over to a named person so that he may
act as a receiver. Whether it would see fit
to do so is a different
question, particularly as such a receiver would be in a quite different
position to a receiver appointed
by a court to wind up the affairs of a
partnership. He would have no right to determine claims against the
partnership or
anything of that kind."
Aickin J. said (1979) 141 CLR, at p 523 :
"In so far as the Family Court may have power to appoint a receiver as
part of the exercise of its powers under ss. 78 and
79, its orders can only
effect the interest of a husband or wife in the partnership and will not
extend to orders with respect to
partnership assets properly so called."
His Honour later said (1979) 141 CLR, at p 525 :
"The Family Court has been asked to appoint a receiver of the
partnership (not of the interests of the partners therein)
and to deal
with the partnership property as such. That, in my opinion, it has no
jurisdiction to do." (at p354)
19. The authorities to which I have referred establish that in some
circumstances the Family Court has power to make an order or
injunction which
is directed to a third party or which will indirectly affect the position of a
third party. They do not establish
that any such order may be made if its
effect will be to deprive a third party of an existing right or to impose on a
third party
a duty which the party would not otherwise be liable to perform.
The general words of ss. 80 and 114 must be understood in the context
of the
Act, which confers jurisdiction on the Family Court in matrimonial causes and
associated matters, and in that context it would
be unreasonable to impute to
the Parliament an intention to give power to the Family Court to extinguish
the rights, and enlarge
the obligations, of third parties, in the absence of
clear and unambiguous words. It can safely be assumed that the Parliament
intended
that the powers of the Family Court should be wide enough to prevent
either of the parties to a marriage from evading his or her
obligations to the
other party, but it does not follow that the Parliament intended that the
legitimate interests of third parties
should be subordinated to the interests
of a party to a marriage, or that the Family Court should be able to make
orders that would
operate to the detriment of third parties. There is nothing
in the words of the sections that suggests that the Family Court is intended
to have power to defeat or prejudice the rights, or nullify the powers, of
third parties, or to require them to perform duties which
they were not
previously liable to perform. It is one thing to order a party to a marriage
to do whatever is within his power to
comply with an order of the court, even
if what he does may have some effect on the position of third parties, but it
is quite another
to order third parties to do what they are not legally bound
to do. If the sections had been intended to prejudice the interests
of third
parties in this way, it would have been necessary to consider their
constitutional validity. (at p354)
20. The position is, I think, different if the alleged rights, powers or privileges of the third party are only a sham and have been brought into being, in appearance rather than reality, as a device to assist one party to evade his or her obligations under the Act. Sham transactions may always be disregarded. Similarly, if a company is completely controlled by one party to a marriage, so that in reality an order against the company is an order against the party, the fact that in form the order appears to affect the rights of the company may not necessarily invalidate it. (at p355)
21. Except in the case of shams, and companies that are mere puppets of a party to the marriage, the Family Court must take the property of a party to the marriage as it finds it. The Family Court cannot ignore the interests of third parties in the property, nor the existence of conditions or convenants that limit the rights of the party who owns it. To take two obvious examples, the Family Court could not compel a husband to asign to his wife a lease without obtaining the necessary consent of the lessor, and could not order the transfer to a wife of land owned by a husband free of mortgage, when in fact the land was mortgaged to a third party. Thus, in the present case, the Court must deal with the husband's shares in Ascot Investments as they in fact are, that is, as shares in a company whose memorandum and articles contain a restriction on transfer. (at p355)
22. In the present case the provisions of cl. 4 (a) of the memorandum of association and art. 143 (a) of the articles were of a common enough kind, and there is no evidence that they were adopted as a sham or device. (Article 11, upon which some reliance was also placed, does not appear to add much to the strength of the directors' position.) They give to the directors the discretionary power whose nature I have described. If the directors refused to register a transfer, and it were proved that they had failed to act in good faith in what they considered to be the interests of the company, there would be a remedy in the ordinary courts, but, subject to a possible qualification which I shall state, the Family Court has no jurisdiction or power to direct them as to the manner in which their discretion should be exercised. Of course, in the present case the directors have never been asked to exercise their discretion, because the transfers were never submitted to them for registration, so that on any view the proceedings, so far as they concerned the orders sought against the company and the directors, were premature. (at p355)
23. The position might have been different if it had been proved that the directors had refused to register a transfer for the sole reason that the husband had asked them not to do so. I would leave open the question whether in such a case the wife would have a remedy in the Family Court, because it seems wise in this difficult area to avoid unnecessary dicta, and to allow the courts to explore the outer limits of the powers of the Family Court step by step as cases calling for a decision arise. (at p355)
24. In the present case, since the directors did not refuse a transfer the question whether they acted at the husband's bidding obviously does not arise. But it seems to me, with all respect, that the finding that the husband exercises effective control over the company is not supported by any very cogent evidence. For all that appears, the company was formed by the husband for legitimate family purposes, the interests of the children are real interests and the powers of the directors are real powers. The husband holds only 7,000 of 21,000 issued shares, and his shares carry no special voting rights. It is true that Miss McGregor, who holds 8,000 shares as trustee, may formerly have acted at the husband's direction, but she has not spoken to him for over a year, and wishes to be replaced as trustee, so that it cannot be assumed that she would now exercise her voting power in accordance with his wishes. The husband is one of four directors, and has one of four votes at a meeting of the board. It is possible that he still holds the position of managing director (the evidence is not clear on this point) but it has not been proved that the board has exercised the power given to it by art. 107 to confer on him as managing director the power to decline to register any transfer of shares. It has not been proved that the other directors would fail to exercise their discretion properly if the husband asked them to decline to register a transfer. (at p356)
25. The orders made against Ascot Investments, and against the directors, imposed on them a duty which they did not owe under the general law, and which was inconsistent with the memorandum and articles of association which bound the husband as a shareholder in that company. They gave to the wife rights, not merely against the husband, but against third parties who were not proved to have been parties to a sham or device. The orders in my opinion went beyond the powers of the Family Court. (at p356)
26. To say this is not to cast any doubt on the power of the Family Court to make orders against the husband himself. The order that the husband do everything necessary to register the transfer of the shares was valid provided that it is understood, as it must be understood, as requiring the husband only to do everything within his power to achieve that result; he cannot be expected to perform the impossible. If it is proved that in truth he has it within his power to procure the registration of the transfer, and he does not do so, he will be in breach of the order. (at p356)
27. The provisions of s. 92 (3) of the Act, upon which Mr. Goldberg placed
some reliance, do not advance the argument put on behalf
of the wife. By s. 92
(1) it is provided that in proceedings other than proceedings for principal
relief, a person may apply for
leave to intervene in the proceedings and the
court may make an order entitling that person to intervene. Section 92 (3)
provides
as follows:
"Where a person intervenes in any proceedings by leave of the court he
shall, unless the court otherwise orders, be deemed
to be a party to the
proceedings with all the rights, duties and liabilities of a party."
It is obvious that this sub-section msut be read down; it cannot mean that any
intervener, whatever his her or its situation, is
to have all the rights and
liabilities of a party to a marriage. For example, if the Registrar-General
were to intervene in proceedings
in the Family Court (as he did in In the
Marriage of Harrison (1978) 18 ALR 689; 4 Fam LR 18; (1978) FLC 77,088 he
would not thereby
assume the liabilities of a party to the marriage, such as
the liability to maintain the wife. Section 92 (3) enables the court to
make
an order either in favour of or against an intervener if such order is one
that can properly be made as a matter of substantive
law; the sub-section
removes a possible procedural obstacle, but does not alter substantive rights
and duties. It does not give the
Family Court power to impose new duties upon,
or to annul the rights of, third parties who are interveners. If the court had
no power,
apart from s. 92 (3), to order Ascot Investments to register the
transfers, that sub-section did not confer that power on it. (at
p357)
28. Notwithstanding my sympathy for the position of the wife, I conclude that the orders made by the Full Court on the cross appeal, except that made against the husband himself, were wrongly made. (at p357)
29. I would allow the appeal. (at p357)
STEPHEN J. I would allow this appeal for the reasons appearing in the judgment of Gibbs J. (at p357)
MASON J. An essential preliminary to the making of orders against the appellant company and its three directors who are sons of the marriage, requiring them to register the transfer of the 7,000 "A" shares from the husband to the wife, was a finding that the directors had failed to properly exercise their discretion under the articles of association to approve or refuse registration. It was not even shown that the transfer was submitted to the directors for registration, let alone that, the transfer having been submitted, the directors refused to register for some extraneous reason. So much at least would need to be shown under the general law to entitle the transferee to orders of the kind sought against the company and the three directors. (at p357)
2. Assuming, without deciding, that the Family Law Act confers power on the Family Court to make orders of the kind sought at the instance of a wife who is a transferee of shares against a company and its directors in appropriate circumstances, those circumstances have not been shown to exist here. There is no need for me to add to the remarks made by Gibbs J. on this aspect of the case. (at p358)
3. No provision of the Family Law Act empowers the Family Court to make orders of the kind in question otherwise than in accordance with the settled principles of law governing the exercise by directors of a discretion to approve or refuse registration of a transfer of shares, except perhaps in the exceptional case where it is shown that the company is simply the creature of the husband and no such case was made out here. (at p358)
4. Accordingly I consider that the order made against the appellant company and that made against the three directors should not have been made. (at p358)
5. I would allow the appeal. (at p358)
MURPHY J. In the Full Court of the Family Court the present appellant contended that no order should be made against it or the directors for registration of the shares, on the ground that the transfer had not been submitted to them for registration. This point was not taken at first instance in the Family Court. The Full Court recognized the problem of prematurity, and dealt with it in a way which avoided technicality and delay. As the Full Court stated, the company and the directors were served with the application and affidavits prior to the hearing at first instance, were granted leave to intervene and the hearing "proceeded on the basis of strenuous opposition by the company to the registration of the shares". The Full Court relied on s. 97 (3) of the Family Law Act 1975 which directs that the Family Court "shall proceed without undue formality and shall endeavour to ensure that the proceedings are not protracted". They considered that to dismiss the appeal on this ground would be to do no more than require the matter to be relitigated at the first instance in the face of a certainty that the company would not register the transfer of shares. The Full Court decided that the just course was not to uphold the point, but to frame orders so that the company would have time to consider its position after the transfer was submitted to it. (at p358)
2. The order therefore directed the company to comply within twenty-eight days of the wife delivering or causing to be delivered to the company a transfer from the husband to wife of the shares in registrable form together with the relevant share certificate. In my opinion, this overcame the problem of prematurity. Even if it did not, rather than uphold this appeal on such a technicality, it would be more appropriate to rescind the special leave to appeal. Such technicalities should not be encouraged by an ultimate court when the result is to add to the expense and inconvenience of the parties. The correct attitude for an ultimate court was stated by Lord Westbury in Scott v. Bennett (1871) 5 HLC 234, at p 251 : ". . . we are all exceedingly glad when in a collection of miserable technicalities such as these which are before us here, we can see our way to something like a solid and reasonable ground of decision, and, above all, a decision which will prevent future litigation between the parties." (at p359)
3. A number of questions of substance were argued on this appeal. These included the powers of the Family Court to make such an order. As I understand it, it is accepted that the orders fall within the literal words of s. 84 and s. 114 (3) and that they were made in aid of the jurisdiction of the Family Law Act 1975. Although no question of the constitutionality of the Family Law Act 1975 was directly raised (indeed it was specifically stipulated at the hearing that no question of validity of the Act or any constitutional point was raised in the case) questions which have constitutional overtones have emerged to the effect that if the Act empowered the court to make such orders then a question of validity would arise. I find no reason for reading the sections down so as to put the orders outside the scope of their literal meaning. I am not satisfied that the sections in so authorizing the orders are beyond the constitutional powers of the Parliament, and the sections are of course, presumed to be valid. (at p359)
4. One question is whether a constitutional power to require transfer of property as incidental to marriage or divorce (and presumably bankruptcy, taxation or other powers) can be frustrated because a State law makes the property inalienable, or alienable only under certain conditions, as in this case. In general, the answer, of course, is that the State Statute or common law is subject to the federal law (see s. 109 of the Constitution). The theory emerging in this case is that federal law must end where the State law begins. (at p359)
5. In a newly dressed-up version of the doctrine of reserved powers of the States it is argued that the Parliament's legislative powers (and statutory powers such as those of the Family Court) are to be read so as not to interfere with the general law, particularly of property. (at p359)
6. If the proposition were correct, it would be very easy for persons to immunize themselves against the operation of federal law. A host of inalienable proprietary rights could be acquired - the right to be provided for lengthy periods, even for life, with meals and accommodation, transport and many other services, all beyond the reach of any bankruptcy, taxation, marriage or divorce law which could be enacted by the Federal Parliament. (at p359)
7. The rights and obligations arising out of corporate arrangements are only
a complicated example of numerous arrangements which
might be made under the
State laws, for example a contract under which property might be enjoyed but
which is inalienable except
under conditions which are not strictly within the
apparent control of the person enjoying the property. The Full Court of the
Family
Court in its judgment referred to this as an important issue
particularly in what may be described as family companies:
"It is possible for a husband to transfer the whole of his worthwhile
assets into the control of a private company or similar
body. The wife
and/or children obtain an order for maintenance or settlement of property.
The husband persistently refuses to comply.
The court then directs the
transfer to the wife of shares of the husband in the private (family)
company. The directors usually but
not necessarily including the husband
refuse to register the transfer. The orders are thus effectively thwarted.
Can the Family Court
in a proper case order the directors to register the
transfer thus effectuating the orders or is such an order beyond this
Court's
power?" (at p360)
8. The consequences of holding that it is beyond power are so disturbing that
it is conceded it cannot be applied without qualification.
Thus, if the
arrangements under which the property is inalienable or alienable only
conditionally, are a "sham" or a device designed
to frustrate an involuntary
alienation, then it seems to be conceded that there is constitutional power to
require alienation. Also,
if the person who has the power to require the
fulfillment of the conditions on alienation is the alter ego, or under the de
facto
control, of the person from whom the property is to be transferred, it
seems to be conceded that Parliament may have power to require
(or authorize
orders requiring) alienation. (at p360)
9. In my opinion, the limits of constitutional power do not depend on these features. If the power extends to require a transfer (notwithstanding unfulfilled conditions under State law) when the arrangement was created to defeat involuntary alienation, why does it not extend to when, although not created for that purpose, it is able to be used for that purpose? (at p360)
10. The Australian Parliament may make laws authorizing alienation by judicial order of property which is inalienable under State law provided there is a rational connexion between the law and a legislative power such as that with respect to marriage, divorce, bankruptcy or taxation. Equally, if property is alienable under State law only under certain conditions, Parliament may authorize alienation notwithstanding that the conditions are not fulfilled, again provided there is a rational connexion between the law and a subject matter of legislative power. Obviously problems may occur where property is not inherently alienable, but there is no problem of that kind with the shares in question. (at p361)
11. The Family Law Act contains numerous provisions in aid of the jurisdiction of the Family Court which override State property laws and interfere with the rights or privileges or duties of third parties. Thus s. 84 enables the Family Court to appoint an officer or any other person to execute any deed or other instrument, s. 84 was used in this case. The Registrar has executed a transfer in the name of the unwilling husband. Under State law, this is not a transfer. Yet the effect of s. 84 (2) is that the directors are required by s. 84 to treat the transfer as if it had been executed by the unwilling husband. This is an interference with State law, and with the "rights" of the directors under State law. Of course, as the Full Court of the Family Court recognized powers which affect third parties must be used with great discretion. (at p361)
12. However, the width of the express grant of powers in ss. 84 and 114 (3)
should not be narrowed by construction, for this would
frustrate the effective
operation of the jurisdiction. As Gibbs J. said
in Reg. v. Dovey; Ex parte
Ross [1979] HCA 14; (1979) 141
CLR 526, at p
534 :
"It is impossible to suppose that the Parliament intended that a husband
might place the matrimonial home beyond the jurisdiction
of the Family Court
simply by vesting it in a private company which he himself controls; such a
result would make it impossible for
the Family Court properly to perform its
functions in many cases".
The same applies to other forms of property. (at p361)
13. Leaving aside more general consideration it seems to be accepted that if the husband were in fact in control of the Company, the Family Court's order was justified. There are two concurrent findings that the husband was in control of the Company. Frederico J. found "Ascot Investments Pty. Ltd. is what has been described as a family company and it is quite clear that the husband exercises effective control over that company." The Full Court of the Family Court adopted this. (at p361)
14. There was ample evidence to justify the finding that the husband exercises effective control over the company. The evidence of his extensive financial dealings with the company justifies the inference that the company is his instrument. It can be inferred (particularly in the light of his evasions and refusals to answer) that he was channelling from the company to himself through another company known as Parkvale, tens of thousands of dollars which he was spending on racehorses, gambling, travelling and other pursuits. In part of his evidence he referred to a "pact" with Ascot Investments which "usually operates along the lines that when I want money I draw it from Ascot Investments. I do not have any other source of income that I can account for, and that is how it is done. Ascot Investments really is the cornerstone in these affairs for discussion, and it began, you see, Ascot Investments began by taking in its assets by a loan for me and when that was considerably in credit of course I drew from it, and I would imagine that the money that you are talking about from the distribution of Parvale sat on the loan account of Ascot Investments and like all other funds was simply drawn off by me as I wanted to. This is basically the principle by which this type of company was designed to operate. It reduced my own asset position and gave me something to live on. Except in recent times I took dividends which you have accounted for; prior to that for many many years all dividends were paid to the children. It is a matter of keeping it in proportion, a delicate operation". (at p362)
15. There was other similar material which supported the finding of control. In addition, there was the affidavit of a Miss Margaret MacGregor, who at the time of the hearing was trustee of the shares for the two young children, and had been secretary and a director of the company for many years. The husband's dealings with her also justifies inferences of his control of the company. She was engaged by the husband to assist him in relation to "his company". She became secretary on 2 December 1964 and a director on 8 June 1966. She resigned as director and secretary on 19 March 1976. During that time the arrangements were that she would abide by the husband's directions. Although she was and is trustee of some of the children's shares, under the directions of the husband she breached her duties as trustee by paying into his accounts in the company dividends in respect of the children's shares as "loans for educational purposes and the like" although there was no accounting to her about what payments were made on behalf of the children. This domination of the company secretary and director over years and until recently, justifies the inference that the company tolerated the position that her duty was to obey him rather than the company or to obey him as if he were the company, and that he was in control of the company or that it was his alter ego. (at p362)
16. The wife's affidavit, which was used without objection, stated "I believe however that my husband is in a position whereby he can fully control the company and can influence its discretion in whatever way he sees fit". She was not cross-examined on this and it was available evidence. (at p362)
17. No evidence was called by the company to rebut the evidence that the company was controlled by the husband. In the light of this evidence (although the husband denied he was in legal control) it is understandable that the company did not ask for special leave on the ground that the finding was erroneous nor take this as a ground of appeal. On the appeal the company asserted that the finding by the trial judge and the Full Court that the husband was in fact in control of the company "must be a finding of fact as to the present situation" but submitted that it was not a finding that the company was set up as a device to defeat the wife. In my opinion the finding that the husband is in control of the company was open to the Family Court, and should not be disturbed. (at p363)
18. If the Family Court is to be directed that in judging an issue of control, it must restrict itself to counting shareholdings and heads of directors, this is an open invitation to use proprietary companies as a means of defeating financial orders under the Family Law Act. (at p363)
19. The husband who is a director has openly defied the Court's orders and asserted that he was not willing to co-operate in having the shares which were in his name registered in the name of Mrs. Harper. On the whole of the evidence the inference was open that the board of directors of Ascot would not in considering any question of registration, exercise its powers bona fide for the purposes for which they were conferred and with due regard to those affected. In these circumstances the orders were justified. (at p363)
20. Imprisonment - The suggestion that this case shows the necessity for reverting to imprisonment as a means of enforcing maintenance obligations is refuted by the record, which shows that the appellant has preferred to undergo imprisonment for refusal to observe maintenance orders under the repealed Act. He has served in all more than a year for refusing to pay maintenance orders and has also preferred imprisonment for contempt under the Family Law Act rather than answer questions on his financial affairs. (at p363)
21. The appeal should be dismissed. (at p363)
AICKIN J. I have had the advantage of reading the reasons for judgment of my brother Gibbs in this appeal. I agree with those reasons and his conclusion that this appeal must be allowed. (at p363)
WILSON J. I would allow the appeal, for reasons given by Gibbs J. (at p363)
ORDER
Appeal allowed.No order as to costs.
Orders of the Full Court of the Family Court of Australia set aside and in
lieu thereof order:
"(1) Appeal dismissed.
(2) Cross appeal allowed in part.
(3) Within 28 days of the wife Maureen Florence Harper delivering or causing
to be delivered to Ascot Investments Pty. Ltd. a transfer
from the husband
Douglas Graham Harper to the wife of 7,000 "A" class shares in that company in
registrable form together with the
relevant share certificates the husband
shall do all such things necessary and sign all such documents as may be
required to register
the said transfer from the husband to the wife of 7,000
"A" class shares in Ascot Investments Pty. Ltd.
(4) That the respondent husband pay the applicant wife's costs of the hearing
before Frederico J. and of this appeal and cross appeal
and failing agreement
as to the amount of such costs within 28 days such costs shall be taxed by the
Registrar of the Family Court
at Melbourne.
(5) Liberty to either party to apply to a single judge of this Court upon 7
days notice."
AustLII:
Copyright Policy
|
Disclaimers
|
Privacy Policy
|
Feedback
URL: http://www.austlii.edu.au/au/cases/cth/HCA/1981/1.html