Akston & Boyle
[2010] FamCAFC 251
•15 December 2010
Family Court Of Australia
| I LIMITED & CHESTER AND ORS | [2010] FamCAFC 251 |
| FAMILY LAW - APPEAL – PROPERTY – Appeal by a litigation funder – The effect of a consent order – Where the Federal Magistrate was in error in finding that the consent orders made between the litigation funder and the Wife embodied a binding agreement or a contractual agreement which could not be varied – Where the Federal Magistrate was in error in finding that the litigation funder would receive less than it was entitled to receive pursuant to loan agreements – Where the Federal Magistrate was in error in finding that the value of its security would be reduced – Where the Federal Magistrate failed to give adequate reasons – Where the Federal Magistrate did not have the power to vary the orders made in the Supreme Court of Queensland – Leave to appeal granted – Appeal allowed FAMILY LAW - CROSS APPEAL – Whether the Federal Magistrate erred in failing to make an adjustment in favour of the Husband in respect of a contingent liability under a guarantee of a lease of premises formerly occupied by a business owned by the Husband and Wife – Cross appeal dismissed |
| Adam P. Brown Male Fashions Pty Ltd v Phillip Morris Inc (1981) 148 CLR 170 Baines & Anor v State Bank of New South Wales (1985) 2 NSWLR 729 Blundstone v Johnson & Anor [2010] QCA 148 |
| Bankruptcy and Family Law Legislation Amendment Act 2005 (Cth) – sch 5, item 1 Family Law Act 1975 (Cth) – s 75(2), 79, s 79(4), s 79(10)(a), s 80, s 106B Family Law Amendment (De Facto Financial Matters and Other Measures) Act 2008 (Cth) – sch 1, item 44 Property Law Act 1974 (Qld) – s 3 Family Law Rules 2004 (Cth) – r 6.06 Federal Magistrates Court Rules 2001 (Cth) – r 11.03 |
| APPELLANT: | I Limited |
| FIRST RESPONDENT: | Mr Chester |
| SECOND RESPONDENT: | Ms Chester |
| INTERVENOR: | G Pty Ltd |
| FILE NUMBER: | BRC | 2696 | of | 2007 |
| APPEAL NUMBER: | NA | 16 | of | 2010 |
| DATE DELIVERED: | 15 December 2010 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Brisbane |
| JUDGMENT OF: | May, O’Ryan & Le Poer Trench JJ |
| HEARING DATE: | 3 August 2010 |
| LOWER COURT JURISDICTION: | Federal Magistrates Court |
| LOWER COURT JUDGMENT DATE: | 29 January 2010 |
| LOWER COURT MNC: | [2010] FMCAfam 68 |
Representation
| COUNSEL FOR THE APPELLANT: | Mr Hastie |
| SOLICITOR FOR THE APPELLANT: | Tucker & Cowen Solicitors |
| COUNSEL FOR THE FIRST RESPONDENT: | H A Scott-Mackenzie |
SOLICITOR FOR THE FIRST RESPONDENT: | Browns Lawyers |
| THE SECOND RESPONDENT: | Self-Represented |
| COUNSEL FOR THE INTERVENOR: | Mr Sheehy |
| SOLICITOR FOR THE INTERVENOR: | Peter Sheehy Solicitor |
Orders
I Limited be granted leave to appeal against orders 1(a) and 2 made by Federal Magistrate Baumann on 29 January 2010.
The appeal be allowed.
The amount of “$165,690.37” in order 1(a) made by Federal Magistrate Baumann on 29 January 2010 be altered by the deletion of that amount and the insertion in lieu thereof of the amount of “$71,565.82”.
The amount of $106,279.81 remain in trust pending quantification of the costs of I Limited pursuant to the order of Justice [ … ] made on [ … ] December 2009 in proceedings in the Supreme Court of Queensland between I Limited and the Wife or any other order for costs in favour of I Limited.
The amount of $106,279.81, referred to in order (4) hereof, be disbursed following such assessment to I Limited in payment of its costs so assessed up to the amount of $106,279.81.
If the costs of I Limited are assessed in a lower amount then the balance of $106,279.81, referred to in order (4) hereof, be disbursed to the Husband.
Order 2 made by Federal Magistrate Baumann on 29 January 2010 be set aside.
The cross-appeal by the Husband be dismissed.
Each party be at liberty to make an application by way of written submissions in respect of costs incurred in relation to the appeal by I Limited and the cross-appeal by the Husband by filing such submissions at the Northern Region Appeal Registry of the Family Court of Australia and serving them on the other parties within 21 days of the date hereof.
Each party have a further seven days in which to make written submissions in answer thereto by filing such submissions at the Northern Region Appeal Registry of the Family Court of Australia and serving them on the other parties.
Each party be at liberty to reply to an answer by way of written submissions by filing such reply at the Northern Region Appeal Registry of the Family Court of Australia and serving it on the other parties within a further seven days.
Each party endorse on the cover sheet of any submissions filed pursuant to orders (9), (10) and (11), the date upon which a copy of that submission was served on the other parties.
IT IS NOTED that publication of this judgment under the pseudonym I Limited & Chester and Ors is approved pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| THE FULL COURT OF THE FAMILY COURT OF AUSTRALIA AT BRISBANE |
Appeal Number: NA 16 of 2010
File Number: BRC 2696 of 2007
| I LIMITED |
Appellant/Cross-Respondent
And
| MR CHESTER |
First Respondent/First Cross-Appellant
And
| MS CHESTER |
Second Respondent/Second Cross-Appellant
And
| G Pty Ltd |
Intervenor
Reasons For Judgment
Introduction
Before us for hearing are two appeals.
The first appeal is by I Limited. I Limited is a litigation funder. The respondents to this appeal are Mr Chester (“the Husband”) and Ms Chester (“the Wife”).
I Limited is seeking to appeal against orders made by Federal Magistrate Baumann on 29 January 2010 in relation to the disbursement of funds currently held on trust, being the balance of the proceeds of sale of property H that was jointly owned by the Husband and the Wife as tenants in common in equal shares.
In the second appeal, the Husband is the appellant and I Limited is the first respondent and the Wife is the second respondent. The Husband is appealing against the refusal of Federal Magistrate Baumann on 29 January 2010 to make an order that the Husband be paid an amount of $55,544.99 from the funds that are currently held on trust.
G Pty Ltd, Accountants (“G Pty Ltd”), which was a party to the proceedings before the Federal Magistrate, did not participate in the hearing before us. G Pty Ltd was an expert in property settlement proceedings between the Husband and the Wife and completed a number of valuations. G Pty Ltd asked to be excused from the hearing of the appeal.
The Wife also did not participate in the hearing before us. By email dated 30 July 2010 the Wife wrote to the Northern Region Appeals Registrar and advised: “I am not looking to be heard. However should the matter proceed to another court following the decision in this matter, I would like the right to be heard should I receive legal advice that it would be appropriate to do so”.
The Husband and the Wife were involved in parenting and property settlement proceedings which commenced in about May 2006. Both the Husband and the Wife acquired funding from I Limited to pay their costs of the litigation. This funding involved granting I Limited a charge on the title of property H.
Section 3 of the Property Law Act 1974 (Qld) provides that a “mortgage” “includes a charge on any property for securing money or money’s worth”. The agreement to grant a mortgage is an equitable mortgage: see Williams v Turner [2009] 1 Qd R 296.
During 2007 I Limited advanced $190,000.00 to the Wife. On 27 March 2008 I Limited lodged a caveat over the Wife’s interest in property H.
On 15 February 2008 the Federal Magistrate delivered reasons for judgment in the parenting and property settlement proceedings but did not make orders.
On 29 April 2008 the Federal Magistrate made the following orders by consent:
4. That from the Wife’s share of the proceeds of sale of [property H] an amount of $238,641.00 together with further accumulated interest from the 1st April, 2008 be paid to the trust account of Peter Sheehy, Solicitor, pending resolution of any dispute between the Wife and [I Limited] in respect of monies owing to [I Limited] and the Wife.
5. That pending agreement being reached if the funds are paid to the trust account of Peter Sheehy they remain there until such time as agreement is reached or further Order is made and the interest accumulated on those funds, which are to be invested, shall be paid as agreed between the parties.
6. That from the Husband’s share of the proceeds of sale an amount of $116,636.21 together with interest accumulated from the 29th April, 2008 until settlement be paid to [I Limited], the Intervener.
7. That [I Limited], the Intervener, sign all necessary documents and do all necessary things to release caveats lodged against the title to the said property to enable settlement to proceed on or before the date of settlement.
NOTATION:
That the notice of intervention filed by [I Limited] on 4 April 2008 is construed as an application to be joined as a party to these proceedings.
The issue in the first appeal relates to the effect of orders 4, 5 and 7 above. The Husband contended that on 29 April 2008 I Limited compromised the quantum of its claim against the Wife and also its security.
On 30 April 2008 the Federal Magistrate made the following order pursuant to s 79 of the Family Law Act 1975 (Cth) (“the Act”):
1. That [property H] (“the house property”) be placed on the market for sale forthwith by private treaty with such agent or agents as may be agreed between the husband and wife or failing agreement may be determined by the Court at a price to be agreed between the husband and the wife, or failing agreement, as may be fixed by the Court.
2. That upon completion of the sale, the proceeds of sale be applied by the husband and wife as follows:
(a)Firstly to pay all costs, commissions and expenses of the sale including legal costs and disbursements in respect of the sale of the home;
(b)In satisfaction of the mortgage to the ANZ Banking Group Limited (“the said mortgage”);
(c)Payment of $214,000 to the Trustee of the [A Group Pension Scheme];
(d)Payment of $40,000 to the Barclays Select Loan Account;
(e)As to the balance, (“called the net proceeds of sale”) to be dealt with as set out in this Order.
3. Consistent with paragraph 96 of the reasons for judgment delivered in this case the nett proceeds of sale shall be added to the other items referred to, and more particularly set out in Annexure “A” to these Orders, to constitute the nett divisible pool.
4. The nett divisible pool shall be divided in the proportions of 65% to the husband and 35% to the wife but on the basis that:
(a)The wife shall be entitled to retain all [S] Equipment ($32,960);
(b)The husband shall retain, free of any claim by the wife, his interest as a beneficiary in the [A Group Pension Fund] (inclusive of the repayment to that fund of the debt of $214,000) having a deemed value of $331,977;
(c)The husband shall retain, free of any claim by the wife, his interest as a beneficiary in the National Farmers Union Pension Fund having a deemed value of $92,982;
(d)The parties shall be deemed to have had the benefit of legal expenses paid of $5,000 (for the wife) and $21,224 (for the husband);
(e)The husband shall be entitled to the full recovery of loans made to [Mr C] deemed to be $40,776
(f)The husband shall be deemed to have had the benefit of $58,000 for the nett proceeds of the Greenvale Shares.
5. The parties, by consent, shall adjust the nett proceeds of sale distributable to them under this order by the wife paying to the husband contemporaneously with the payment from the nett proceeds of sale, the following sums:-
(a)$4,084.16 being agreed mortgage arrears;
(b)$4,693.96 being an agreed adjustment.
6. After the wife vacates the said house property and pending settlement of any sale of the said house property, the parties shall contribute to mortgage payments, Body Corporate levies, local authority rates and charges and insurance in the proportions of 65% (by the husband) and 35% (by the wife).
7. The husband shall be solely responsible, and shall indemnify the wife in respect of any liability on the Bendigo Bank Visa Card Account.
8. In respect of [A Trust], the parties shall sign all such documents and do all such things (whether as officers of the Trustee [A Pty Ltd] or otherwise), so as to perfect the following transactions in accordance with the terms of the parties’ agreement and the reasons for judgment, namely:-
(a)Transfer all right and title relating to the operation of the business [S] to [S Pty Ltd] or such other entity as nominated by the wife;
(b)To Cause the salon lease to be assigned to [S Pty Ltd] or such other entity as nominated by the wife;
(c)To cause [S Pty Ltd] or such other entity as nominated by the wife to assume the liabilities of the business [S] (as identified in the books of [A Trust]) including estimated taxation liabilities (including GST);
9. Pending the perfecting of the transactions set out in Order 9 [sic], the wife shall be responsible for and shall indemnify the husband against any claims, actions or demands against the business entity known as [S].
10. As soon as practicable after the transactions in Order 9 are completed, the wife will resign any directorship of [A Pty Ltd] and otherwise transfer all her interest as a shareholder in the said company; beneficiary (if at all in the [A Trust]) or a beneficiary of any remaining loan account or beneficiary account to the husband with the interest that the husband shall thereafter control and have complete ownership of the [A Trust] and the said corporate Trustee.
11. The wife, at her sole costs, shall cause financial statements to be prepared for the [A Trust] for the period commencing 1 July 2006 until the transactions described in Order 9 are completed.
12. That unless otherwise specified in these Orders:
(a)Each party is to be solely entitled to the exclusion of the other party (including choses in action) in the possession of such party as to the date of these Orders;
(b)Each party shall be solely entitled to the credit of any monies in any bank account in their name;
(c)Each party be solely liable for and indemnify the other against any liability encumbering any item of property to which that party is entitled pursuant to these Orders;
(d)Each party will be responsible for the costs of transfer of any asset into their name including registration and transfer fees and for any tax arising as a result of that transfer;
13. That in the event that either party refuses or neglects to sign a document necessary to give effect to these orders within seven (7) days of a written request to do so, a Registrar of the Federal Magistrates Court of Australia at Brisbane be permitted to sign documents on the behalf of the defaulting party.
14. That the parties be granted liberty to apply to Federal Magistrate Baumann for any incidental machinery orders.
ANNEXURE A
[Property H] Nett proceeds of sale
[S] Equipment $32,960
[A Group Pension Fund]
(after deduction of $116,375) $331,977National Farmers Union Pension Fund $92,982
Add Backs
Ladbroke Loss/Loan to [Mr C] $40,776
Proceeds of Greenvale Shares $58,000
Legal Expenses
- husband $21,224
- wife $5000
Liabilities
Mortgage $757,000
Loan to Pension Scheme Payable $214,000
Barclay Select Loan $40,000
$1,011,000
The Federal Magistrate found that the division of assets between the Husband and the Wife should be 65 per cent to the Husband and 35 per cent to the Wife. Paragraphs 8 and 9 of the property settlement order are relevant to the Husband’s appeal.
Subsequent to the property settlement order, property H was sold and on completion of the sale there remained $877,234.07 of the proceeds of sale. I Limited contended that it should have received half of that amount in accordance with the funding agreements between I Limited and the Wife.
There was a dispute between I Limited and the Wife in relation to the amounts owed by the Wife to I Limited and in December 2009, in proceedings in the Supreme Court of Queensland between I Limited as plaintiff and the Wife as defendant (“the Supreme Court proceedings”), the following orders were made:
1. The defendant pay to the plaintiff the sum of $332,337.22 for claim and interest.
2. The defendant pay the plaintiff’s costs of and incidental to this proceeding to be assessed on an indemnity basis.
3. It is declared that the amounts in paragraphs 1 and 2 are secured pursuant to Loan Agreements executed by the defendant in favour of the plaintiff over the defendant’s one half interest in the net proceeds of sale of [property H] (“the property”) in the sum of $438,617.03 presently held in the Woods Hatcher Solicitors Trust Account.
4. Liberty to apply.
The Husband contended that there is no inconsistency between the judgment of the Supreme Court proceedings of December 2009 and the consent orders of 29 April 2008. The relevant paragraphs of the consent orders are set out in paragraph 11 of these reasons.
On 29 January 2010 the Federal Magistrate made the following orders:
THE COURT ORDERS ON A FINAL BASIS
1. That the funds held by Woods Hatcher Solicitors be distributed as follows:-
a.The sum of $165,690.37 to the husband.
b.The sum of $332,337.22 to [I Limited].
2. A declaration that the balance of $12,155.26 is the entitlement of the wife, subject to the determination of the competing claims of unsecured creditors.
THE COURT DIRECTS:
3. That any application for costs by a party to these proceedings be filed and served within 21 days.
4. That any reply to such submissions be filed within 14 days thereafter.
In summary, in December 2009 in the Supreme Court proceedings, an order was made that the Wife pay to I Limited the amount of $332,337.22 together with interest. The costs were to be assessed on an indemnity basis. Those amounts were to be secured over the Wife’s one half interest in the net proceeds of sale of property H. The Wife’s share of the sale proceeds was $438,617.03. On 29 January 2010 the Federal Magistrate made an order that the sum of $332,337.22 be paid to I Limited from the funds held on trust. In other words, pursuant to the order of the Federal Magistrate, I Limited was not entitled to recover from the funds held on trust the balance of the Wife’s share of the proceeds of sale of property H or any further interest that may accrue subsequent to 22 December 2009 on the amount of the Wife’s debt nor their costs as ordered.
The proceedings, the subject of this appeal, were a dispute between I Limited and the Husband as to who had priority over the net proceeds of sale of property H.
I Limited asserted priority pursuant to an equitable mortgage over the Wife’s interest in property H and which after completion of the sale comprised one half of the net proceeds of sale in the sum of $438,617.03. It was not controversial that an equitable mortgagee’s charge over real property also extends to the proceeds of sale.
The Husband, however, asserted a priority on the basis that the property settlement order made on 30 April 2008 finally determined the property issues between the Husband and the Wife and asserted, in relation to I Limited, that the claims by I Limited were res judicata because of the orders of 29 April 2008.
In his reasons for judgment of 29 January 2010 the Federal Magistrate at [27] described it as a “complex dispute” and at [46] as “somewhat complex and convoluted litigation”. His Honour found at [53] of those reasons that the orders of 29 April 2008 finally determined the interest of I Limited in the Wife’s “35% interest of the nett pool”.
In our view, it is an example of the difficulties that can arise when judgment is not pronounced when reasons for judgment are delivered and in the reasons there is no indication of the orders that the trial judge proposes to make and even after judgment there remain unresolved issues particularly involving the interests of third parties.
The orders sought in the notice of appeal of I Limited, if the appeal is successful, are as follows:
1. The appeal be allowed.
2. That the amount in order 1(a) be altered to $71,565.82.
3. There be inserted a new order 1(c) as follows: “That the amount of $106,279.81 remain in trust pending quantification of the costs of [I limited] pursuant to the order of Justice [ … ] made [ … ] December 2009 or any other order for costs in favour of [I Limited] and disbursed following such assessment to [I Limited] in payment of its costs so assessed up to the amount of $106,279.81 and if the costs of [I Limited] are assessed in a lower amount the balance to the husband”.
4. That order 2 be set aside.
5. The husband pay the costs of [I Limited] of an incidental to this appeal or alternatively such other costs order as the court considers appropriate. (italics in original)
The figure of $106,279.81 represents the difference between the Wife’s share of the proceeds of sale and the sum ordered to be paid to I Limited.
On 15 July 2010 an application in an appeal was filed by I Limited seeking that the transcript of the hearing before the Federal Magistrate on 29 April 2008 be included in the appeal books. The application was not opposed by the Husband.
On 22 July 2010 an application in an appeal was filed by the Husband seeking that an affidavit sworn by him that was filed on 26 October 2009 and an affidavit of Mr J that was filed on 26 October 2009 be included in the appeal books. The application was not opposed by I Limited.
The hearing of the appeals requires consideration of a great deal of material including the transcript of a hearing before the Federal Magistrate on 29 April 2008 and reasons for judgment delivered by his Honour on 15 February 2008, 16 October 2009 and 29 January 2010.
Background
The Husband was born in 1961. The Wife was born in 1967. Both the Husband and the Wife were born in the United Kingdom.
In about 1989 the Husband commenced a business, in equal partnership with another person, which principally imported and exported fresh produce. The Federal Magistrate observed at [62(b)] of his reasons of 15 February 2008 that: “During the course of the business operations, the companies used as vehicles for the business were [A Pty Ltd], [A Imports Pty Ltd] and [CA Exports Ltd]. Interests in pension funds were also commenced”.
In 1996 the Husband and the Wife commenced cohabitation. At the commencement of cohabitation the Husband had an interest in a house in England as well as his business interests. The Wife’s assets were less significant. In his reasons of 15 February 2008 the Federal Magistrate found at [100] that the Husband contended that his assets were estimated to have a value of $2,686,857.00.
The Husband and the Wife were married in February 1998 in the United Kingdom.
The Federal Magistrate observed at [62(d)] of his reasons of 15 February 2008 that the Wife worked for the business as an interpreter to assist companies’ business development which continued until before the birth of [the child G] in July 1998.
In July 1998 the child G was born. On 15 February 2008 the Federal Magistrate made orders which provided that the Husband and the Wife have shared parental responsibility for the child and the child predominantly live with the Wife and spend substantial and significant time with the Husband.
In August 2003, when the Husband and the Wife were holidaying in Australia (having decided to permanently migrate), they purchased property O. In December 2003 the Husband and the Wife migrated to Australia.
In 2003 a company called KL Pty Ltd was incorporated in the United Kingdom which the Husband said was for the purpose of borrowing funds from the A Group Pension Scheme for business investment in Australia. It was the business plan of the Husband and the Wife to fund the establishment of a business in Australia called the S Academy using imported specialist beauty therapy equipment from the United Kingdom.
The Husband contended that on 18 February 2004 the A Group Pension Fund lent ₤80,000.00 to KL Pty Ltd with further borrowings of ₤47,500.00 in March/April 2006. The Husband contended that the funds were “loaned” to him principally to enable him “to keep paying debts and to live”.
In 2004 the Husband and the Wife purchased, in joint names as tenants in common in equal shares, property H. It was a parcel of vacant land. We observe that the Husband contended that the property was purchased for $950,000.00 and the Wife contended the property was purchased for $750,000.00.
In August 2004 A Pty Ltd, as trustee for the A Trust, executed a lease for what was described as the S business premises. The premises were located at property P. It was a tenancy for a term commencing on 1 September 2004 and expiring on 31 August 2009. The commencing annual rental was $49,500.00. The Husband personally guaranteed the obligations of the Lessee. The Wife provided no personal guarantee.
In April 2005 property O was sold for $820,000.00. The Federal Magistrate observed at [62(j)] of his reasons of 15 February 2008 that a substantial part of the net proceeds of sale were used to discharge the mortgage over property H.
The Husband and the Wife separated in April 2005. At the time of separation property O was the matrimonial home and after completion of the sale of the home, the Wife remained in the home for a period of time renting it from the new owner.
The Federal Magistrate observed at [62(k)] of his reasons of 15 February 2008 that the Husband and the Wife listed property H for sale but a sale did not eventuate. In January 2006 the Husband and the Wife jointly entered into a building contract with HU Pty Ltd for $735,992.00 to construct a home on property H. The Husband and the Wife borrowed all the funds and more to pay for the costs of construction.
In early 2006 the Wife retained Ms K of K Solicitors, to act on her behalf in relation to family law proceedings.
In May 2006 family law proceedings were commenced when an application was filed on behalf of the Wife in the Family Court of Australia seeking parenting orders and also a property settlement order. The proceedings were later transferred to the Federal Magistrates Court.
In his reasons of 15 February 2008 the Federal Magistrate observed at [27] that after May 2006 “[w]hen [the Husband] was away in the United Kingdom for business [the Wife]’s home was destroyed by fire”.
On 5 July 2006 certain orders were made and in his reasons of 15 February 2008 the Federal Magistrate observed at [62(l)] that by the orders “(during the turmoil of the ‘post-fire’ period) the husband was to transfer to the wife ‘the business known as [S Academy]’, on certain conditions”. (italics in original).
On 11 October 2006 the Husband and Wife were divorced.
In January 2007 construction of the home on property H was completed. The Federal Magistrate observed at [62(k)] of his reasons of 15 February 2008 that with the assistance of orders of the Family Court made in December 2006, when the construction of the home on property H was completed, the Wife was able to exclusively occupy the home, with the Wife to meet all reasonable expenses.
In an affidavit sworn by the Wife on 15 January 2009, which was filed in the Supreme Court proceedings, she contended that in about early March 2007 her solicitor Ms K insisted that she obtain litigation funding to assist with the carriage of the family law proceedings. As we have observed, during the family law proceedings, the Husband and the Wife separately borrowed amounts from I Limited to pay costs and disbursements of the family law proceedings and, in the case of the Wife also living expenses. The Husband has now discharged his liability to I Limited and the loan facilities made available to him are not relevant to the issues in this appeal.
The Wife entered into four agreements with I Limited which provided:
Date of Agreement Maximum Amount of Credit
· 7 March 2007 $105,000.00
· 21 June 2007 $42,000.00
· 6 August 2007 $31,500.00
· 12 September 2007 $21,000.00
$199.500.00
The Wife drew down a total of $190,000.00.
In the agreements, the loan facilities are in similar terms. The parties are I Limited and the Wife. The agreements incorporate I Limited’s “Standard Terms & Conditions (Version 1)”. In the case of each loan facility, interest was payable at the rate of 16.95 per cent per annum. Interest was payable on the unpaid daily balance and accrued daily. The interest was debited to the loan amount at the end of each day until the loan was repaid.
The repayment date for the loan facilities was specified in item 11 of each of the agreements in the following terms:
The earlier to occur of
(1) 14 days after the date the Borrower (if not represented by a solicitor at the time), or a Solicitor acting for the Borrower in the Matter, receives all or any part of any Settlement Proceeds in respect of the Borrower’s claim or action in the Matter;
(2) 14 days after any other Settlement; and
(3) Demand for repayment being made by the Lender upon the Borrower.
The Borrower agrees to repay to the Lender the Loan together with Interest on or before the Repayment Date.
Each of the loan agreements describes the “Repayment Amount” in the following terms: “Not Ascertainable but calculated as being the then outstanding Loan Amount, namely, the outstanding Amount of Credit, Interest and Credit Fees and Charges.”
Items 12, 13 and 14 of each of the loan agreements provide for the granting or procuring the granting of a mortgage to secure the loan facilities. Item 12 provides, insofar as is relevant:
The Borrower will grant or procure the granting of certain mortgages (“Mortgage”) namely an irrevocable instruction, an equitable mortgagee’s caveat and first ranking registered mortgages to the Lender from the person(s) set out in Item 13 and over:
(a) the land set out in Item 14 (“the Land”); and
(b) the benefits of any insurance policy or claims in respect of such Land and/or improvements from time to time.
The “Mortgagor” in item 13 is the Wife and the land in item 14 is property H. By the terms of each agreement the Wife agreed that the mortgage “will be security for the payment of the Loan and all other moneys payable and all other obligations of the Borrower under this Credit Contract”.
In the Standard Terms and Conditions attached to each loan agreement, “Loan” is defined in clause 1.1(16) to mean “the Unpaid Daily Balance of the Loan Account owing from time to time plus any other monies owing under this Credit Contract, including Interest, Credit Fees and Charges, enforcement expenses and any other monies which become due, owing and/or payable by the borrower to the Lender under the terms of the Credit Contract”.
Clause 10.6(1) of the Standard Terms & Conditions provides for payment of enforcement costs in the following terms: “The Borrower must pay the Lender all enforcement expenses in the event of a breach of this Credit Contract being the reasonable amount reasonably incurred or expended by the Lender in the exercise of any right consequent upon any default on the part of the Borrower under the terms of this Credit Contract”.
The hearing before the Federal Magistrate of the applications for property settlement and parenting orders took place on 2 July 2007 and thereafter written submissions were filed. The last submission was dated 23 July 2007. His Honour reserved judgment.
We observe that I Limited did not participate in the hearing before the Federal Magistrate. There was no evidence that I Limited had notice of the hearing.
In an affidavit sworn by the Wife on 15 January 2009 she deposed that on 9 January 2008 she made a complaint to the Legal Services Commission about her solicitor Ms K and that by letter dated 25 February 2008, Ms K terminated her retainer.
The Wife gave evidence in her affidavit of 15 January 2009 that in about July 2007 she asked Ms K “for a bill and was told that she doesn’t provide bills until after the proceedings conclude”. The Wife also asked for a trust account statement which was never provided. The Wife also asked for verbal advice as to a trust account balance and was advised that there were no moneys in trust. The Wife contended that she continued to make written requests for accounts and trust account statements to assess how much was owed to her solicitor. By letter dated 8 February 2008, written by the Wife to SK Solicitors, the Wife said that she never disengaged the services of her lawyer and nor at any stage changed her lawyer and that she simply asked for a bill and an account for all moneys received on her behalf.
As we have observed, on 15 February 2008 the Federal Magistrate delivered reasons for judgment in the parenting and property proceedings. However, his Honour did not pronounce judgment and gave the parties time to exchange draft orders reflecting his reasons.
In relation to the property settlement applications the Federal Magistrate found at [96] of his reasons of 15 February 2008 that the net assets of the Husband and the Wife were as follows:
· Property H $2,100,000.00
· S Equipment $32,960.00
· A Group Pension Fund
(after deduction of $116,375) $331,977.00· National Farmers Union Pension Fund $92,982.00
Add Backs
· Ladbroke Loss/Loan to Mr C $40,776.00
· Proceeds of Greenvale Shares $58,000.00
· Legal Expenses
- Husband $21,224.00
- Wife$5000.00
Gross Assets $2,682,919.00
Liabilities
· Mortgage $757,000.00
· Loan to Pension Scheme Payable $214,000.00
· Barclay Select Loan $40,000.00
($1,011,000.00)
Net Pool $1,671,919.00
We observe that the Federal Magistrate made no findings in relation to any indebtedness for legal costs.
In relation to the S Day Academy the Federal Magistrate observed:
111. The [S Day Academy] was envisaged, I am certain, as the business vehicle for creating an income for the family in Australia. The business relied upon the wife’s experiences and skills as a beauty therapist and the husband’s marketing and general business talents. Equipment of a specialist nature was imported from the United Kingdom. The parties, I am satisfied, worked hard in an endeavour to make it a success. A number of factors conspired to make it unprofitable. Put simply, the business was terminally affected by the chronic lack of cohesion between the parties exacerbated by the decaying personal relationship. No wonder staff were confused. Whilst the husband, in his submissions, acknowledges the wife worked in [S] he says they “did not result in financial benefit”. That is not the test. (italics in original)
In relation to the matters in s 79(4)(a), (b) and (c) of the Act, the Federal Magistrate found:
116. I do not regard the wife’s claim that, on a contributions based assessment to trial, the wife should receive 40% gives sufficient weight to the husband’s overwhelming initial contributions and the use of those contributions as directed by the Full Court in Pierce (1998) FamCA 74. I regard as division to this stage of the analysis of 72.5%/27.5% in the husband’s favour as appropriate.
In relation to the matters in s 79(4)(d), (e) and (f) of the Act, the Federal Magistrate found:
118. Save for the factors which weigh in the husband’s favour (including the ultimate entitlements from my order for division), I would have agreed an adjustment of 20% would have been fair, as sought by the wife. Allowing for those factors I would reduce the further adjustment to the wife to 80%. This computes, on the pool to the husband paying the wife a sum of $125,000 approximately. I regard that as a proper adjustment.
We observe that the Federal Magistrate only dealt with s 79(4)(e) of the Act. We also observe that in the course of considering the matters in s 75(2), by reason of s 79(4)(e), the Federal Magistrate said at [117(f)]: “It appears, courtesy of [I Limited], each has a liability for legal expenses exceeding $100,000”.
In summary, the Federal Magistrate found that the contribution based entitlements were 72.5 per cent to the Husband and 27.5 per cent to the Wife and that having regard to the matters in s 75(2) of the Act, there be an adjustment of 7.5 per cent to the contribution based entitlement of the Wife such that the Husband had a final entitlement to 65 per cent and the Wife an entitlement to 35 per cent.
We observe that in his reasons of 15 February 2008 the Federal Magistrate did not set out what he considered the entitlement of each party should comprise or how the entitlements of each party would be achieved. All that his Honour said was:
119. Subject to receiving further submissions as to the form of order (which considering the time that has elapsed since trial is appropriate), a division of the pool as to 35% to the wife and 65% to the husband is proper on my analysis.
120. In circumstances where the wife at trial was seeking to retain the home by paying the husband the sum of $163,000, that might have been achievable. The difficulty in this case, is that the home represents almost the entirety of the liquid pool available for division (being 75% of the nett pool). On my calculations the amount the wife would have to pay the husband to retain the home would be in the order of $795,000. When this is aggregated with the current mortgage (to be refinanced) and other expenses (including legal expense), it is hard to envisage how the wife can retain the home as she seeks.
121. I will list the matter for hearing further submissions as to the form of order at a time to be agreed.
In the result no order was made on 15 February 2008 save for the matter to be adjourned to after 4 March 2008. The hearing was then adjourned to 28 March 2008 to pronounce judgment, with the parties to file any written submissions, including a draft of any agreed terms, by 19 March 2008.
As we have observed, by letter dated 25 February 2008, Ms K terminated her retainer and on 5 March 2008 she sought leave to withdraw from the proceedings. By this time the Husband was unrepresented.
On 27 March 2008 I Limited lodged a caveat over the Wife’s interest in property H.
The proceedings were before the Federal Magistrate on 28 March 2008 and a solicitor appeared for G Pty Ltd seeking leave to file an application to intervene. The parties wished to further negotiate and the proceedings were adjourned to 29 April 2008.
On 4 April 2008 I Limited filed a notice of intervention. On 4 April 2008 an affidavit was sworn on behalf of I Limited by Mr L who described himself as general counsel for I Limited.
Mr L deposed that in accordance with the terms of the agreements between I Limited and the Wife a total amount of $190,000.00 was paid by I Limited to K Solicitors being $170,000.00 towards legal costs and outlays and $20,000.00 to meet the Wife’s living expenses. Mr L deposed that as at 1 April 2008 the total amount outstanding by the Wife to I Limited was $238,641.00 inclusive of interest plus enforcement expenses. Mr L deposed that under the terms of the agreements the Wife agreed to grant or procure the granting of a first ranking registered mortgage over property H. Further, that under irrevocable instructions contained in the agreements the Wife irrevocably instructed Ms K to do various things including pay to I Limited as soon as practicable after the Wife’s solicitors received the settlement proceeds, the total amount of the loan then outstanding inclusive of interest, charges and capital as a first priority unless otherwise agreed. Mr L referred to other provisions of the agreements and said that as far as I Limited was concerned the Wife was in default under the agreement because she had terminated the retainer of K Solicitors. Mr L gave evidence about conversations which he had with the Wife and also with Ms K. Mr L deposed that the Wife informed him that she had made an official complaint to the Legal Services Commissioner regarding the matter. In passing, we note that the Wife contended that she did not terminate the services of K Solicitors.
In his affidavit of 4 April 2008 Mr L also gave evidence as to the concerns of I Limited given that property H was on the market for sale. Mr L deposed that he was concerned that the Wife was seeking to have consent orders filed which would transfer to her a large portion of superannuation as opposed to cash under the initial judgment and that this would adversely affect the ability of I Limited to recover the debt owing to it by the Wife.
Mr L attached to his affidavit a schedule setting out the following orders sought by I Limited:
1. That no final order be made finalising property matters between the husband and the wife without the consent of the Intervener.
2. That the husband and wife be restrained from entering into an Order or Terms of Settlement which would deprive the Intervener from recovering the full amount of the debt outstanding by the wife to it.
3. That the parties be restrained from entering into an Order or Terms of Settlement pursuant to which the wife were to received a superannuation split rather than payment of money or receipt of property to satisfy her entitlements.
4. That the wife pay the Interveners costs of and incidental to these proceedings.
5. That the husband and wife keep the intervener informed of all negotiations between them for the purpose of finalising the orders.
6. Such further or other order as the court may deem meet. (Appeal Book Vol 1 p 90)
The Federal Magistrate observed at [8] of his reasons of 29 January 2010 that it was “abundantly clear from the supporting affidavit of Mr [L] that the intervention related to various loan agreements and contracts” with the Wife. All proceedings were then adjourned to 29 April 2008.
It was submitted by I Limited that the view the Federal Magistrate formed as to the effect of the orders made on 29 April 2008 is central to the appeal from the orders subsequently made on 29 January 2010.
It was submitted by I Limited that it is apparent from extracts from the transcript of 29 April 2008 that the sole purpose of the application to the court on that day by I Limited was to enforce its security position and to secure the repayment to it by the Husband and the Wife of the amounts they each owed to I Limited from their respective shares of the eventual proceeds of sale of property H. It was submitted that there was no discussion about a variation of I Limited’s security as against the Wife.
We do not propose to repeat all of what was said during the hearing before the Federal Magistrate on 29 April 2008. However, we have considered the transcript and propose to refer to some parts of it. Mr Cooper appeared for I Limited and Mr Sheehy appeared for G Pty Ltd. The Husband and the Wife appeared without legal representation.
We observe that at the commencement of the hearing on 29 April 2009 the Federal Magistrate said that he “was going to stand this matter down till 11.00 because I’ve just come back from interstate last week and there’s something I have to give to the parties” (Transcript, 29 April 2008, p 1).
Mr Cooper made it clear that the application of I Limited only related to the interests of the Wife and that the material filed only referred to the Wife (Transcript, 29 April 2008, pp 1 to 2).
The following exchange took place between the Federal Magistrate, the Husband and Mr Cooper (Transcript, 29 April 2008, p 3):
[THE HUSBAND]: Well, you made the orders, your Honour, so you know exactly how you ordered the thing to be split so - - -
FEDERAL MAGISTRATE: Yes.
MR COOPER: We don't know unfortunately, your Honour. We're in the dark.
(emphasis added)
Thus, Mr Cooper made it clear that I Limited did not know what the Federal Magistrate proposed to order in the property settlement proceedings. I Limited was aware that reasons for judgment were delivered by his Honour on 15 February 2008 and this was made clear by Mr L in his affidavit of 4 April 2008.
There was then the following exchange (Transcript, 29 April 2008, p 4):
[THE HUSBAND]: That’s why I’m a bit surprised they’re trying to attach it anyway. I’ve got no objections to it being attached other than that it seems unnecessary as I've already committed to paying it and I’m certainly not disputing the debt. And secondly, just if there’s any costs involved, I don't see - hopefully that will not be laid at my door because there is no need to bring the thing. I've acknowledged the debt. I'm going to pay the debt and there’s no dispute so - - -
MR COOPER: There’s no - there won't be a question of costs with [the Husband] at all, your Honour. The debt is not disputed. It's a question of securing any moneys out of the sale proceeds.
[THE HUSBAND]: That’s your decision. I don’t feel it’s necessary, but at the end of the day that’s entirely your decision. Obviously that’s what they’re applying for, but I promised to pay the debt and I will be paying the debt once the house is sold. That’s all I have to say on that.
(emphasis added)
The Federal Magistrate then engaged in discussion with the Wife and she said that she had not been served with any of the material filed on behalf of I Limited. Mr Cooper explained that there had been difficulties in effecting service on the Wife (Transcript, 29 April 2008, pp 4 to 5).
The Wife also explained that there was a dispute with her former solicitor and that she was seeking legal advice (Transcript, 29 April 2008, pp 5 to 8). There was the following brief discussion (Transcript, 29 April 2008, p 9):
[THE WIFE]: I can see, your Honour, how much they paid but every contract that I signed clearly states “to be paid to the borrower's solicitor's trust account”. No moneys were ever paid on my behalf to any trust account, and that is clearly what I signed and I was very expressly clear about that with both my solicitor and [I Limited], and I checked every single contract to make sure that it said “into the borrower's trust account” and it has never been paid into a trust account.
FEDERAL MAGISTRATE: And you know that because that's what [Ms K] has told you or - - -
[THE WIFE]: That's what I've been told by [Ms K]'s office. That's what I have been - and that's what [Ms K]'s accounts clearly state.
FEDERAL MAGISTRATE: So you're saying in terms of the contract you had with [I Limited], you're going to suggest that they may not have complied with the terms of their contract. Is that what you're saying?
[THE WIFE]: That's certainly right, they haven't.
FEDERAL MAGISTRATE: Right. Well, of course you can appreciate - and this might be the first time Mr Cooper has heard that - - -
MR COOPER: No, I think she's said it before, your Honour, and I think [Mr L] said it was paid to the trust account.
(emphasis added)
I Limited submitted that the above exchange described the nature of the dispute between the Wife and I Limited.
The Federal Magistrate informed the Wife that he proposed to allow I Limited to provide the Wife with a copy of the documents by way of service (Transcript, 29 April 2008, p 9).
The following exchange took place between Mr Cooper and the Federal Magistrate (Transcript, 29 April 2008, p 10):
MR COOPER: Well, I think I - we've intervened in the proceedings and the order we seek is that no final order be made finalising property matters between the husband and the wife without the consent of the intervener, so that does affect him; and the husband and wife be restrained from entering into any order or terms of settlement which would deprive the intervener from covering the full amount of the debt outstanding by the wife to it, and at that time we weren't aware of the fact the husband owed money too. So if you look an extra - - -
FEDERAL MAGISTRATE: Well, now, the great comfort for everybody in this case is that until such time as the house is sold there ain't any money going to be around for anybody.
MR COOPER: I appreciate that, your Honour.
FEDERAL MAGISTRATE: As to who gets what at the end I may have to resolve but I suspect that means all these parties. And, [the Husband], there are issues which are different and not as confusing as they are between [the Wife] and the parties.
MR COOPER: That's probably correct.
(emphasis added)
I Limited submitted that what was said above was relevant as to why it intervened and the Federal Magistrates’ appreciation of a potential priority dispute that may arise, subsequently, by the final property order he was yet to make.
Thereafter the Husband said certain things that were largely irrelevant (Transcript, 29 April 2008, pp 11 to 12). There was then the following discussion (Transcript, 29 April 2008, pp 12 to 13):
MR COOPER: Your Honour, as long as we're protected. The concern that [I Limited] had when they contacted me was that with the little knowledge they had a super split could occur and they could find themselves out of funds. I don't know if that's even possible on this case. If there's been an application for a super split, I don't know anything about that. Currently they've got caveats over the title of the property. The only way they'd be at risk was - - -
FEDERAL MAGISTRATE: [I Limited] has?
MR COOPER: Yes, which would - - -
[THE HUSBAND]: The outcome it would have, it will restrict and will actually- - -
[THE WIFE]: Will restrict us.
[THE HUSBAND]: Will actually not help the sale of the property, so that's not going to help whatsoever.
FEDERAL MAGISTRATE: No.
[THE HUSBAND]: And where they got the information about super split, I'd like to know where they got it because you've got the two people here and yourself, your Honour, who have dealt with this case, and has anybody suggested that here?
FEDERAL MAGISTRATE: Yes, but they might have been uncertain about that. So it sounds like in consent - if they've got a caveat, a consent caveat by the sounds of it.
MR COOPER: No - well, yes, your Honour. Under the terms of each of the fee agreements, the loan agreements between the parties and [I Limited], they give them the right to lodge an equitable mortgagee's caveat.
FEDERAL MAGISTRATE: So why doesn't that protect them?
MR COOPER: Because the concern is [I Limited] don't know very much about the situation about these people. [Mr L]'s concern was that if a super split occurred - -
FEDERAL MAGISTRATE: Where's this - isn't this - - -
MR COOPER: Do you want to - if you made an order under which a superannuation split occurred, Mrs - - -
FEDERAL MAGISTRATE: You're saying that there is no cash around.
MR COOPER: Well, if [the Wife] then gave up her interest in the property on the basis of a super split we wouldn't have a caveatable interest any more.
FEDERAL MAGISTRATE: That's not the case.
MR COOPER: Yes, but we don't know enough about it obviously.
[THE WIFE]: That's not possible. I wouldn't be able to - - -
MR COOPER: But, your Honour, I'm happy to adjourn - for the matter to be adjourned to enable her to get legal advice provided that my client's interests aren't adversely affected.
(emphasis added)
I Limited submitted that what was said during the above exchange was relevant to the concerns it had and the effect of the caveat. Further, as to the basis for an adjournment of the hearing.
There was the following further discussion which I Limited contended was also relevant to the Federal Magistrates’ appreciation of the circumstances concerning I Limited’s security (Transcript, 29 April 2008, pp 12 to 13):
FEDERAL MAGISTRATE: But it seems to me in circumstances where the intention of the Court's order will be that each party receive a share of the proceeds of the sale of the house, that the caveat protects any claim - - -
MR SHEEHY: Correct, yes.
FEDERAL MAGISTRATE: And if there is a dispute between the person who has a caveat and the owners of the property as to on what basis the caveat is released to permit a sale, as indicated to you both and to [the Wife] for your assistance, the caveat doesn't in any way restrict you from seeking to sell the property. What will occur is if you get a contract at settlement the purchaser will want to have that caveat obviously removed. It's not like a mortgage in a sense. This is notice. So between signing it - you've not admitted there's any way to sign the contract without an order - I don't think you do Frankly, I don't care.
(emphasis added)
The solicitor for G Pty Ltd then outlined the position of his client and again there was discussion with the Husband (Transcript, 29 April 2008, p 13). The Husband was at pains to point out that there was no controversy concerning his interests, although he was affected by any delay in the sale of property H.
There was then the following exchange which I Limited submitted was also relevant to the Federal Magistrates’ appreciation of the circumstances concerning I Limited’s security (Transcript, 29 April 2008, pp 14 to 16):
FEDERAL MAGISTRATE: Well, it's not. But what I'm saying is that it seems that Mr - at this stage the position taken by both of these alleged creditors is that they need to be heard on the form of final order. Now, I've got to say that I'm not particularly interested in getting involved in determining what seems to be a party and financier almost legal cost dispute unless I have to. It involves a jurisdiction in this Court which I'd have to be satisfied I have. That can't otherwise be met by what seems to have been the innocent contractual arrangements or what flows from the fact that the caveat is in existence on the title and provides certain actual commercial protection. I hear what you say and I can give you this indication, [the Husband], is that I would not think it fair either that when you get a sale that in any way your entitlement to your share is in some way compromised when you've made other arrangements.
[THE HUSBAND]: Yes.
FEDERAL MAGISTRATE: Now, neither should [the Wife]. But [the Wife]'s position is a little difficult because there's a factual dispute between her and her lawyer and these - you know, these other people, including quantum disputes, which don't exist in your case. I couldn't agree with you more.
[THE HUSBAND]: Okay, thank you.
FEDERAL MAGISTRATE: And I can tell you that I'll make sure it doesn't happen. All right?
[THE HUSBAND]: Thank you.
FEDERAL MAGISTRATE: You've got my word.
[THE HUSBAND]: Okay, thank you.
FEDERAL MAGISTRATE: Yes, it doesn't seem fair.
[THE WIFE]: And from my point of view, your Honour, I would like the opportunity to seek further advice and take some legal action myself to make sure that - - -
FEDERAL MAGISTRATE: You need that.
[THE WIFE]: - - - I'm not losing money and that it's just going to people willy‑nilly either.
FEDERAL MAGISTRATE: Yes. No, when you are - you know, in terms of this case, I mean, you're unrepresented. That's only fair. You're entitled to that, you know. And there's a limit to what I can do to assist in that regard but I propose - having respect to time to prepare the reasons. Now, I wanted to hand to both of you the former final parenting order. I was going to stand it down to late in the day because I wanted to show you the final form of property order, but if you're able to come back conveniently later then I'm happy for you to come back later. If you can't come back conveniently later, well, then, we'll work out faxing it to you or something like that. You tell me, [the Husband]. It will be today, finish today.
[THE HUSBAND]: I'll come back conveniently - I'll come back later.
FEDERAL MAGISTRATE: Can you give me a time that suits you?
[THE HUSBAND]: Well, I'll actually make a further - I'll rearrange my arrangements now so that I'm actually going to be hanging around. I'll make sure I stay around.
FEDERAL MAGISTRATE: All right. Well - - -
[THE HUSBAND]: I just thought it would be pretty quick this morning so probably I - -
FEDERAL MAGISTRATE: No, but it's important that we try and use today usefully.
[THE HUSBAND]: Yes.
FEDERAL MAGISTRATE: What I'm minded to do is stand the matter down until a bit later in the morning. Would you be free by midday, Mr Cooper?
MR COOPER: Well, I hope so, and the situation is that I've got a trial but the other side aren't prepared and I know they're asking for an adjournment before Slack FM. I mean, I'm ready to box on but I don't think that's going to happen.
FEDERAL MAGISTRATE: Right. Well, because of the other matters I've got in my list this morning, if I ask you to come back at about 12 o'clock would that enable you to do what - the other task you've got or something?
[THE HUSBAND]: Yes, okay.
FEDERAL MAGISTRATE: [The Wife], can you manage that today?
[THE WIFE]: I'll have to.
(emphasis added)
The hearing was then adjourned at 10:08am and resumed at 11:50am. Upon resumption of the hearing the Federal Magistrate inquired “what’s been happening?” and the following exchange took place (Transcript, 29 April 2008, p 17):
MR COOPER: Well, from my perspective, your Honour, I'm hopeful of having an agreement which is now being typed out and faxed up which will provide for my client to be paid out on the settlement of the sale of the home and caveats to be released at that stage which would then remove us from the necessity of frequenting your Court again in respect of the matter, hopefully.
FEDERAL MAGISTRATE: Right, okay. And has this been discussed with - are both [the Husband and the Wife] parties to that document?
MR COOPER: Yes, but the situation in respect to [the Husband], as I understand it, he has no dispute with the money being paid to [I Limited]. In respect to [the Wife], the money is to be paid either to [I Limited] or to Peter Sheehy's trust account pending the resolution of any dispute she has with [I Limited].
(emphasis added)
I Limited submitted that what was said during the above exchange was relevant as to the nature of the agreement to be encapsulated in the consent order.
The Federal Magistrate had a discussion with the Husband and the Wife about the terms of proposed parenting orders (Transcript, 29 April 2008, p 18). Although it is not readily apparent from the transcript, it appears that his Honour provided the Husband and the Wife with a draft of the orders he proposed to make in the parenting proceedings. At one point in the discussion his Honour said: “Yes. Is there any - have you had a chance to read the document, [the Wife], the parenting document?” (Transcript, 29 April 2008, p 19). However, there was no such draft available in relation to the property proceedings.
The discussion continued (Transcript, 29 April 2008, pp 19 to 22):
FEDERAL MAGISTRATE: Yes. No, I understand that and I don't - and I take responsibility for, but I haven't signed it. It came - I came back from Adelaide late last night and I have been trying to get this order and the property order out to you today. Now, the issue is I am going to - when I finish your matter and one other matter I am going to, before I do anything else, finish the property order that I've half done. Now, I don't want to have you hanging around and I was wondering if you could both - because in a way it will be then shaped a bit by these agreements, so that I'm not in a sense likely it seems, Mr Sheehy and Mr Cooper, from your clients' perspectives in terms of your applications, you're not wishing to be heard in respect of the other substantive order which I'm then - - -
MR SHEEHY: No.
FEDERAL MAGISTRATE: Because these parties are no longer being represented but they've helped me by providing you with a very useful document, so your applications in a sense - I don't use the word "money (indistinct) in a sense that it was unfair money, but it did sort of throw a cat amongst the pigeons to a degree.
MR COOPER: Yes, that's so.
FEDERAL MAGISTRATE: Now, they've resolved those things. Now, I'll give you a couple of minutes to just read through that and then I'll be able to perfect that order and have it to you at a fax machine tomorrow, and I'm happy to allow you to appear by phone tomorrow to have your last chance to tell me anything else about that order.
[THE HUSBAND]: The parenting order you're talking about now or - - -
FEDERAL MAGISTRATE: The property part of the order.
[THE HUSBAND]: We haven't had yet - the order yet.
FEDERAL MAGISTRATE: No. As I say, I'm going to fax that to you.
[THE HUSBAND]: I see.
FEDERAL MAGISTRATE: I'm going to finish it today.
[THE HUSBAND]: Yes.
FEDERAL MAGISTRATE: I'm going fax it to you by hopefully this afternoon.
[THE HUSBAND]: Okay.
FEDERAL MAGISTRATE: Right? And then I want to give you the opportunity to be heard on that because you don't have legal representation. Now, I can do that tomorrow morning and you can appear by phone so you don't have to come back up. Okay? That means if you're at work - now, are you both available tomorrow morning?
…
FEDERAL MAGISTRATE: I'll deal with them in just - I'll deal with them together. Is that okay? Then I will know that I don't need to concern myself about those aspects in respect of the order which is nearly completed. I can get that to you by fax so that you can go back and do all your work today. 5 o'clock tonight you can take it home, you can read it. If you want to talk amongst yourselves you can do that, but I will then ring you both tomorrow at 9.30 to hear any other comments you want to make.
(emphasis added)
I Limited submitted that the above exchange is relevant to the necessity for I Limited or G Pty Ltd to be further heard in relation to the final property orders.
The hearing was adjourned at 11:58am and resumed at 12:05pm. Upon resumption of the hearing, Mr Cooper handed up a document which had been signed by the Husband and the Wife and Mr Cooper on behalf of I Limited (Transcript, 29 April 2008, p 22). There was then the following exchange (Transcript, 29 April 2008, p 23):
FEDERAL MAGISTRATE: Yes. Well, I guess the first thing I have to do though is give you leave to intervene, don't I?
MR COOPER: Leave to intervene? I don’t think I need leave to intervene your Honour.
FEDERAL MAGISTRATE: Well, you’re a creditor, aren’t you?
MR COOPER: That’s right.
There was discussion as to whether I Limited required leave to intervene given the provisions of s 79(10) of the Act and r 6.06 of the Family Law Rules 2004 (Cth) and then r 11.03 of the Federal Magistrates Court Rules 2001 (Cth) (Transcript, 29 April 2008, pp 23 & 24). The Federal Magistrate said: “I’m going to construe that as an application to be seeking to intervene. I’m going to give you both leave - I think leave is necessary - to be included as a party to the proceedings. So it’s in respect of this document. Now … sorry to go through all that technical stuff” (Transcript, 29 April 2008, p 25).
I Limited submitted that the following exchange was relevant to the mechanics of distribution of the proceeds of sale and any future dispute (Transcript, 29 April 2008, pp 25 to 26):
FEDERAL MAGISTRATE: It's probably just boring you, but I need to be satisfied myself about those things I have. I've got before me here a document that Mr Cooper has handed up that sets out both of your signatures, it sets out the terms of it. Now, is there anything about this document or what you've signed that you want me to explain to you that you don't understand or you feel you've been put under pressure to sign, anything like that?
[THE HUSBAND] My only question would be with regards to when the actual event happens, who actually handles the mechanics of the fact it comes out of my portion and it comes out of [the Wife]'s portion?
FEDERAL MAGISTRATE: Yes. Well, what would normally occur - okay, and I'll give you this advice - in the practical sense is that when you come to sell the house, when you get a contract you'll either - acting on your own behalf or you might actually think it's a good idea to get a lawyer to actually deal with the conveyance.
[THE HUSBAND]. We will with the conveyance.
FEDERAL MAGISTRATE: Okay?
[THE HUSBAND]: I agree with that, yes.
FEDERAL MAGISTRATE: Probably have the one person, and then what you would do is you would give them a copy of all these orders and make sure that they before the settlement set out how they're going to distribute the balance of the moneys.
[THE HUSBAND]: Both agreed, yes. I think that's okay.
FEDERAL MAGISTRATE: And that should be consistent with the order I'll make be consistent with these two orders that you agree to me making.
[THE HUSBAND]: Okay.
FEDERAL MAGISTRATE: And so then there should be - through your company, [the Wife], there'd an accounting of where all the money has gone and that should be - you're both good at mathematics, I know that from the history of the case and from what you've told me previously, so you'll be able to see where the money is going. There'll be, you know, discharge of mortgages, there might be some things like that, costs, and you'll see, bang, they're all going out, so as long as that's all okay. Now, if for some reason there's a dispute at that time you have liberty to come back to me and say, “Well, look, the lawyers said that's where the money is going but we don't know whether the lawyer has got it right, we have a different view,” and then I can sort that out.
(emphasis added)
The Federal Magistrate then made orders by consent and, as we have already observed, the issue in the first appeal relates to the effect of the orders. We also observe that there was no discussion before his Honour as to the jurisdiction to make the orders.
The solicitor for G Pty Ltd then handed to the Federal Magistrate a minute of consent orders signed by the solicitor, the Husband and the Wife. His Honour had a brief discussion with the Husband and the Wife and then made the following orders (Transcript, 29 April 2008, p 28 to 29):
1. That from the sale proceeds of [property H] due to [the Husband] there be paid to Peter Sheehy Trust Account the amount of $13,612 in full satisfaction of all claims that [G Pty Ltd] have against [the Husband] with no Order as to costs.
2. That from the sale proceeds of [property H] due to [the Wife] there be paid:-
(a)The amount of $28,612 in part satisfaction of the claims of [G Pty Ltd];
(b)The amount of $17,729 to Peter Sheehy Trust Account pending resolution of a dispute on the fees, such amount to be invested in an authorised bank deposit in the name of [the Wife] with the benefit of the interest to be paid to [the Wife]
3. That the issue of the dispute in Order 2(b) be adjourned for six (6) months for further mention.
The Federal Magistrate then had a brief discussion with the Husband and the Wife about the proposed property settlement order and said that it would be sent to them by facsimile transmission and “[t]hen we’ll have a chat tomorrow morning at 9.30” (Transcript, 29 April 2008, p 29). The hearing was then concluded.
On 30 April 2008 judgment was pronounced in the parenting and property settlement proceedings between the Husband and the Wife and an order was made pursuant to s 79 of the Act. On 30 April 2008, I Limited and G Pty Ltd did not appear. The Federal Magistrate observed at [14] of his reasons of 29 January 2010 that “[n]one of the orders were the subject of any appeal or application to vary until an application was filed some 14 months later on 9 July 2009” by I Limited. It will be seen shortly that the application filed on 9 July 2009 sought to vary the order made on 29 April 2008.
On 25 June 2008 the Supreme Court proceedings were commenced. I Limited sought against the Wife specific performance requiring the grant of a legal mortgage. On 2 October 2008 the Wife filed a notice of intention to defend the claim and also a defence to the claim.
On 3 November 2008, in the Supreme Court proceedings, I Limited filed an amended claim and statement of claim to include the moneys due and owing under the loan agreements. The Wife did not file an amended defence to the amended claim.
On 20 November 2008 the solicitors for I Limited obtained a copy of the orders made by the Federal Magistrate on 30 April 2008.
On 8 December 2008, in the Supreme Court proceedings, I Limited applied for summary judgment against the Wife. On 22 January 2009 the application was dismissed by Wilson J.
On 3 February 2009 the solicitors who acted for the Husband in the family law proceedings commenced proceedings against the Husband seeking an order for payment of professional costs in the District Court of Queensland.
On 13 June 2009 the Husband and the Wife entered into a contract to sell property H for a price of $1,680,000.00. We observe that in his reasons of 15 February 2008 the Federal Magistrate found that this property had a value of $2.1 million.
On 9 July 2009 an application was filed by I Limited in which it sought the following orders:
1. That paragraph 4 of the orders made by His Honour Federal Magistrate Baumann on 29 April 2008 be varied by deleting the words “an amount of $238,641.00 together with further accumulated interest from the 1st April 2008” and substituting in lieu thereof the words “an amount of $367,055.55 together with further accumulated interest from 13 July 2009 to the date of payment of $67,706.70 and the sum of $60,000 as security for costs of the action taken by [I Limited] against the Applicant Wife in Supreme Court of Queensland [ … ];
2. Alternatively, such further or other Orders as this Honourable Court deems fit.
3. An order that the Applicant Wife pay [I Limited] costs of and incidental to the Application to be agreed between the parties, or in default of agreement to be assessed.
On 8 July 2009 an affidavit was sworn on behalf of I Limited by solicitor, Mr N. Mr N deposed to the filing of a notice of intervention by I Limited on 4 April 2008 and exhibited a copy of the affidavit of Mr L. He also exhibited copies of the agreements between the Wife and I Limited and the orders made on 29 April 2008. Mr N deposed to the making of a final property settlement order and exhibited a copy of the order. He also deposed to the Supreme Court proceedings and exhibited copies of certain documents filed in those proceedings. He also exhibited a copy of the contract for sale of property H.
Mr N deposed at paragraph 10 of his affidavit that he was informed by Mr L that I Limited was not served with the application for final orders in the proceedings between the Husband and the Wife and nor was I Limited given any notice of the final orders. Mr N deposed at paragraph 12 that I Limited was never provided with a copy of the orders made by the Federal Magistrate on 30 April 2008 and that he only obtained a copy on 20 November 2008 when he caused a copy to be obtained from the court file.
Mr N deposed at paragraph 28 of his affidavit that under the orders of 29 April 2008 the amount to be paid into the trust account of Peter Sheehy, pending resolution of the dispute between I Limited and the Wife, would be approximately $296,000.00 as at 13 July 2009 including interest. Mr N said that the amount owing by the Wife to I Limited under the loan agreements would be $367,055.55 as at 13 July 2009 and that the amount ordered to be paid into the trust account of Peter Sheehy “is inadequate to satisfy the amount of the claim” of I Limited against the Wife in the Supreme Court proceedings. Mr N also deposed that interest would continue to accrue under the loan agreements and that he was informed that if the loans were not repaid then interest of $67,706.70 would accrue from 13 July 2009 to 14 July 2010. Mr N also deposed at paragraph 30 that I Limited would incur further enforcement expenses in the Supreme Court proceedings unless the matter was settled and that he estimated that I Limited would incur further enforcement expenses of approximately $60,000.00 if the matter proceeded to trial.
Mr N in his affidavit also deposed:
31. I am informed by Mr [L], and believe, that at the time of the orders made on 29 April 2009, [I Limited] did not foresee that it would take over one year to sell the Property, nor the length of time it would take before the Supreme Court proceedings are listed for trial, nor amount of enforcement expenses that will be incurred by [I Limited] in the Supreme Court Proceedings before [I Limited] obtains judgment against the Applicant Wife.
32. I believe that [I Limited] will be irreparably damaged if it succeeds in the Supreme Court Proceedings, but the Applicant Wife is permitted to deal with any of proceeds of sale of the Property. I am informed by Mr [L], and believe, that, so far as [I Limited] is aware, the Applicant Wife does not have any assets of substantial value aside from the Property the subject of this Application.
On 9 July 2009 an affidavit was sworn by the Husband in which he deposed that property H was sold under contract for $1,680,000.00. The Husband contended that the proceeds of sale should be disbursed in payment of:
· Agents costs and commissions $20,000.00
· Legal fees $6,000.00
· Rates $3,111.40
· Body Corporate fees $8,037.40
· Discharge of mortgage $765,000.00
· Payment to A Group Pension Scheme $214,000.00
· Payment to Barclays Select Loan Account $40,000.00
Total $1,056,148.80
Thus, the Husband estimated that the net proceeds of sale would be $623,851.20 ($1,680,000.00 minus $1,056,148.80 = $623,851.20).
The Husband contended at paragraph 5 of his affidavit that when the amount of $623,851.20 was added to the items identified “in the orders as comprising our asset pool, pursuant to Order 20 our total estimated asset pool is $1,206,770.20”. The Husband did not say how this amount of $1,206,770.20 was calculated. However, we observe that it comprises:
· Property H $623,851.20
· S Equipment $32,960.00
· A Group Pension Fund
(after deduction of $116,375.00) $331,977.00· National Farmers Union Pension Fund $92,982.00
· Ladbroke Loss/Loan to Mr C $40,776.00
· Proceeds of Greenvale Shares $58,000.00
· Legal Expenses of Husband $21,224.00
· Legal Expenses of Wife $5,000.00
Total $1,206,770.20
The Husband contended that his 65 per cent share of $1,206,770.20 was $784,400.63. He then contended at paragraph 7 of his affidavit that pursuant to the property settlement order from the sum of $784,400.63 various amounts had to be deducted being:
· A Group Pension Scheme $331,977.00
· NFU Pension Scheme $92,982.00
· Add back of pre paid legal fees $21,224.00
· Ladbrokes loss $40,776.00
· Proceeds of sale of Greenvale shares $58,000.00
Total $544,959.00
The Husband contended that the balance payable to him would be $239,441.63 ($784,400.63 minus $544,959.00 = $239,441.63).
The Husband contended at paragraphs 8 and 9 of his affidavit that he was to receive adjustments of $4,084.16 and $4,693.96 from the Wife’s share of the proceeds of sale and that the total cash payable to him, from the proceeds of sale was estimated to be $248,219.75.
The Husband contended at paragraphs 10 and 11 of his affidavit that additional sums should be paid to him from the Wife’s share of the proceeds of sale being a total of $11,621.94 which would make a total payable to the Husband of approximately $259,841.69, subject to adjustments for conveyancing legal costs and mortgage payout figures.
The Husband at paragraph 12 of his affidavit sought that further amounts be deducted from the Wife’s share of the proceeds of sale being $19,301.03 for unpaid GST owed by the trustee of the A Trust which operated the S Day Spa and $55,544.59 for “the arrears of rent on the premises formerly occupied by [S] which have now been abandoned by [the Wife]” being property P. The Husband deposed that pursuant to the orders of 29 April 2008 the Wife was to retain S Day Spa and pursuant to order 25 was to indemnify the Husband for and in respect of any claims, actions or demands against S. The Husband contended that for many reasons the transfer of the business from his name or that of the A Trust to the Wife had not been able to occur, however since the orders the Wife ran the business and retained the income.
On 13 July 2009 an affidavit was sworn by the Wife in which she deposed that she opposed the application by I Limited and sought that it be dismissed and that I Limited provide a release of caveat to enable settlement of the sale of property H and further that the orders of 29 April 2008 be amended to delete paragraphs 4 and 5.
On 13 July 2009 settlement of the sale of property H was completed and the net sale proceeds were $877,234.07. The Wife’s interest was one half of that amount, namely $438,617.03. The conveyancing solicitors, Messrs Woods Hatcher, held the sum of $510,182.85 in their trust account and the funds were frozen by various orders made by the Federal Magistrates Court and District Court of Queensland to which we will later refer.
On 13 July 2009 the following orders were made by the Federal Magistrate:
Upon [I Limited] giving the usual undertakings as to damages:
1. That until 4pm on Wednesday 15 July 2009 the proceeds of sale of [property H] in the state of Queensland after payment of all costs, commissions and expenses of the sale including legal costs and disbursements in respect of the sale together with such sums as shall satisfy the mortgage to the ANZ Banking Group Limited be paid to the trust account of Woods Hatcher Solicitors at Coomera and help [sic] by those solicitors upon trust for the parties including [I Limited] to [G Pty Ltd].
2. That this matter be adjourned to 9:00am on Wednesday 15 July 2009 in the Federal Magistrates Court of Australia at Brisbane.
3. That any outline of argument by either party shall be filed and served by email by 4pm on the 14 July 2009.
On 14 July 2009 a further affidavit was sworn by the Wife. We do not propose to repeat all of what is contained in this affidavit. However, we observe that the Wife contended at paragraph 3(l) that from the proceeds of sale of property H she was to receive less than $300,000.00 and that if I Limited “take their amount in the original orders” it would leave her bankrupt. The Wife also deposed that she signed agreements with I Limited to fund the costs of living expenses and legal fees during the course of the proceedings and that of the amount of $190,000.00, which she borrowed, she received only $20,000.00 and that the amount of $170,000.00 was paid to her solicitor Ms K. The Wife contended that without consultation with her or her knowledge, Ms K “took all of the money”.
The Wife contended that pursuant to the agreements with I Limited the amounts advanced were to be paid to “the borrower’s solicitor’s trust account on the borrower’s behalf”. However, the moneys were not paid to such an account and Ms K “did not have to obtain any trust account authorities in order to take it without anyone knowing”. The Wife said that the Law Society “decided to prosecute [Ms K]” and also that her “legal bill with [Ms K] has been taxed at only $90,000.00”.
In relation to the claim by the Husband with respect to the arrears of rent of property P, which he guaranteed, we observe that in her affidavit of 14 July 2009 the Wife said: “[The Husband] is already personally indemnified of this debt”.
On 15 July 2009, the Federal Magistrate made the following orders:
1. That the sum of $13,612 be paid from the Woods Hatcher trust account to Peter Sheehy Trust Account in full and final settlement of the claim made by [G Pty Ltd] against [the Husband].
2. That the sum of $165,000 be paid from the Woods Hatcher trust account, to [I Limited] in full and final settlement of the claim made by [I Limited] against [the Husband].
3. That $375,631.48 be held in the Woods Hatcher trust account on trust pending resolution of the dispute between the parties subject to the security claimed by [I Limited].
4. That the balance of the funds then remaining in the trust account of Woods Hatcher solicitors after payment of their fees of the conveyance and after collection of the balance of the deposit from the Real Estate Agent be paid to the husband or as he may direct.
5. That leave be granted to the creditors to be heard on this matter.
6. That the matter be set down for final hearing to determine the dispute between the husband and the wife identified in court today, for not more than 2 hours commencing at 10.00am on 7 August 2009 in the Federal Magistrates Court of Australia at Brisbane.
THE COURT DIRECTS:
7. That the wife file and serve any material by which she intends to reply regarding issues in dispute by 24 July 2009.
8. That the parties [I Limited] and [G Pty Ltd] have leave to be heard on the order to be made by the court regarding the dispute between the husband and wife before the order is announced.
9. That the parties shall be granted liberty to apply on 48 hours notice.
10. That the costs of today shall be reserved.
In his reasons of 29 January 2010 the Federal Magistrate observed:
20. The effect of this order made 15 July 2009 was to:-
a)Allow for payment to [G Pty Ltd] of $13,612 which the husband acknowledged he owed personally to that entity;
b)Allow for payment to [I Limited] of $165,000 “in full and final settlement of the claim made by [I Limited] against the husband”;
c)Restrained $375,631.48 pending resolution of the dispute between the parties;
d)Pay the balance to the husband.
21. The order has not been the subject of any appeal. The context of the order was that it was clear a dispute between the husband and wife still existed as to the adjustments between them under the order made 30 April 2008. Neither [I Limited] or [G Pty Ltd] sought to participate in that hearing, but the Court made it clear that they would be entitled to be heard on the final order distributing the funds available, as a matter of procedural fairness.
(italics in original)
The ultimate finding that the Federal Magistrate made was clear, namely that, in his view, I Limited compromised the quantum of its claim against the Wife and also its security. However, his Honour did not explain how he proposed to address the issue between I Limited and the Husband. Further, his Honour did not refer to any evidence other than the sequence of events and the submissions. His Honour did not identify the relevant facts and events that persuaded him that there was a binding agreement. Consideration of what his Honour said does not reveal any or any adequate reasons given by him explaining why he reached his conclusions. In the result, we are satisfied that his Honour failed to give adequate reasons.
The Federal Magistrate did not undertake a consideration of the surrounding circumstances as was done in the submissions to us or as we have outlined above. If his Honour had undertaken this task then it would have been apparent that the sum of $238,641.00 was only quantification of the Wife’s indebtedness to I Limited as at 1 April 2008 and that the terms of the orders otherwise provided for continuing interest and the need to otherwise resolve the dispute between the Wife and I Limited by further proceedings. The orders of 29 April 2008 did not include all of the items encompassed by the term “Loan” as defined in the Loan Agreements. However, there was no evidence from which it could be concluded that I Limited had agreed to forgo any costs it had incurred, and would continue to incur, in resolving the dispute with the Wife. In fact, within approximately two months the Supreme Court proceedings commenced. All of the surrounding circumstances had to be considered and when they are it is clear that the preponderance of the relevant facts and events do not support a conclusion that the orders of 29 April 2008 embodied a binding agreement. They do not support a conclusion that the orders of 29 April 2008 constituted a commercial compromise of the quantum of the entitlement of I Limited and a variation of the security of I Limited. The orders are merely a recognition of both the Wife’s liability to I Limited and the security position of I Limited.
In the circumstances of this case, when all of the surrounding circumstances, being all of the facts known to the parties, are taken into account, in our view, the Federal Magistrate was in error making a finding that the consent orders of 29 April 2008 embodied a binding agreement by which I Limited accepted that it may receive less than it was entitled to receive pursuant to the loan agreements and that the value of its security was reduced. His Honour also failed to give adequate reasons for his decision.
First Ground
We have already dealt with the issues raised by the first ground of appeal.
Second and Third Grounds
In the second ground of appeal it was contended that the Federal Magistrate erred in finding as a fact at [52] that I Limited did not wish to be heard further on the final order. In the third ground of appeal it was contended that his Honour erred and led himself into error at [52] and [53] by inferring that the reason why I Limited did not wish to be heard further on the final order, which was disputed, was the commercial reason his Honour identified. It was submitted that an equally available and more appropriate inference was the fact that neither the Husband nor the Wife sought any order as against I Limited or in respect of its security/priority.
The second and third grounds were drafted without the benefit of the transcript of the hearing on 29 April 2008 and it was submitted on behalf of I Limited that accordingly, the finding in [52] must be an inference by the Federal Magistrate based upon subsequent events, as paragraph [53] makes clear.
It was submitted by I Limited that the subsequent events record facts to the contrary. First, as the Federal Magistrate correctly identified in [12], the hearing on 30 April 2008 was to enable the final property orders to be pronounced as between the Husband and the Wife. Second, having preserved the security interest of I Limited in respect of both the Husband and the Wife by the order of 29 April 2008, no notice was given by either the Husband or the Wife of an intention to seek an order affecting the security interests of I Limited, and no order was made on 30 April 2008 or subsequently, affecting the security interests of I Limited. Third, I Limited did appear on subsequent dates when it was proposed to deal with net sale proceeds. Accordingly, the inference of the Federal Magistrate was misplaced and in error.
The Husband submitted that I Limited, on 4 April 2008, was aware that the Federal Magistrate had delivered a decision in the parenting and property settlement proceedings. On 29 April 2008 the Husband and the Wife appeared before his Honour in person and I Limited appeared by a lawyer. The 29 April 2008 consent orders were made following discussions between the parties and they signed minutes. In paragraph 85 of the written submissions of the Husband it was submitted to us that his Honour provided the Husband and the Wife with a draft of an order he proposed making in the parenting and property settlement proceedings and then adjourned the proceedings to the next day, reflected in order 1 of the 29 April 2008 consent orders. Also, I Limited did not appear on 30 April 2008. It was submitted that, in the circumstances, it was reasonably open to his Honour to infer that I Limited was content with the 29 April 2008 consent order and did not want to be heard on the final parenting and property settlement orders.
I Limited submitted in reply that it is now clear from the transcript of the hearing on 29 April 2008 that the Federal Magistrate, aware of the positions of both I Limited and G Pty Ltd, did not see a need for either to appear when the final orders were made and that is only consistent with the fact that neither party sought any order affecting either third party or their respective interests.
Contrary to the submissions made on behalf of the Husband, consideration of the transcript of the proceedings before the Federal Magistrate on 29 April 2008 discloses that on that day his Honour did not provide the Husband and the Wife with a draft of an order he proposed making in the property settlement proceedings. As we have observed, at no time did his Honour give notice of the order he proposed to make pursuant to s 79 of the Act. In his reasons of 15 February 2008 his Honour did not provide, even in a broad way, an indication of the order he proposed to make. At no time on 28 April 2008 did his Honour provide, even in a broad way, an indication of the order he proposed to make even though it is clear from the transcript that at that time his Honour had, to some extent, formulated what he proposed to do. Further, and significantly, no order was sought by either party in relation to the interest of I Limited. The interest of I Limited was an equitable interest in the one half legal interest of each of the Husband and the Wife in property H.
In those circumstances, we accept that his Honour was in error in inferring that the reason why I Limited did not wish to be further heard on the final orders was because of a commercial compromises of the value and extent of its interest.
Fourth Ground
In the fourth ground of appeal it was contended that the Federal Magistrate erred in finding at [54] that the consent order of 29 April 2008 quantified for the purposes of the property settlement proceedings between the Husband and the Wife the quantum of the I Limited debt, when those orders did not do so and expressly provided for continuing interest and further by implication provided for the costs of the dispute between I Limited and the Wife. Further, it was submitted that the finding at [54] is inconsistent with the finding at [60].
It was submitted by I Limited that in [54] the Federal Magistrate determined that the order of 29 April 2008 quantified and otherwise defined the agreed monetary limits, as between the Wife and I Limited that was to be taken into account by the court. It was submitted that it must be a reference to paragraph 4 of the order of 29 April 2008.
It was submitted by I Limited that the Federal Magistrate determined from [56] to [60] that the order of 29 April 2008 constituted a variation of I Limited’s security to limit its entitlement to $238,641.00 plus interest from 1 April 2008.
We have already dealt with the complaints in this ground and the matters put in the written submissions in support of the ground.
Fifth Ground
In the fifth ground of appeal, it was contended that the Federal Magistrate erred and led himself into error at [56] by inferring that the consent orders of 29 April 2008 were not before the Supreme Court proceedings before his Honour made his declaration when they were, and further, his Honour led himself into error in so inferring as there was no submission made to that effect by any party.
As we have observed at [56], the Federal Magistrate inferred that the judgment of the Supreme Court proceedings was made without reference to the prior agreement between the Wife and I Limited constituted by the consent orders of 29 April 2008 and at [57], referring to I Limited, referred to the equitable maxim that predicates a requirement of “clean hands” by a party who seeks relief in equity.
We first observe that the Federal Magistrate did not explain the relevance of the equitable maxim of clean hands to the circumstances of this case, nor the weight which he attached to his finding that I Limited had not disclosed in the Supreme Court proceedings the orders of 29 April 2008.
It was submitted by I Limited that there was no evidence that the orders of 29 April 2008 were not before the Supreme Court proceedings and no submission was made to that effect by any party. Accordingly, the inference of the Federal Magistrate is misplaced and in error.
The Husband submitted that it is important to bear in mind that the Husband was not a party to the Supreme Court proceedings. It was submitted that whilst the evidence of the surrounding circumstances does not disclose whether the meaning and effect of the 29 April 2008 order was agitated before the Supreme Court proceedings, it is unrealistic to suggest that evidence would not have been adduced had the meaning and effect of the order been considered and it been given a meaning other than that contended for by the Husband.
It was further submitted by the Husband that the order of the Supreme Court proceedings was not inconsistent with the 29 April 2008 order. The latter order contemplated resolution of the dispute between the Wife and I Limited. The dispute that was resolved by the Supreme Court proceedings left I Limited with a shortfall on the compromise embodied in the consent order.
It was submitted by I Limited that the Husband’s submissions assume, contrary to a literal construction of the orders of 29 April 2008, that the orders in some way limit the amount of I Limited’s security when they do not.
As we have already observed, the Federal Magistrate observed at [29] that no reasons for judgment of the Supreme Court proceedings were available and “it seems likely none were required to be delivered”. We have considered the written submissions that were filed on behalf of I Limited on 5 January 2010 in which submissions were made inter alia in relation to the effect of the judgment of the Supreme Court proceedings and also the written submissions that were then filed on behalf of the Husband on 15 January 2010. We observe that in the written submissions of the Husband it was submitted that the Husband was not a party to the Supreme Court proceedings and therefore not bound by any order or declaration made in those proceedings and that the judgment of the Supreme Court proceedings was not inconsistent with the orders of 30 April 2008.
We observe that no submissions were made on behalf of the Husband in relation to the unawareness by his Honour in the Supreme Court proceedings of the orders of 29 April 2008, nor in relation to the conduct of I Limited in those proceedings and the relevance of the equitable maxim of clean hands.
We accept the submissions made by I Limited. In our view, there was no evidence that would enable the Federal Magistrate to make any finding as to whether or not the orders of 29 April 2008 were before the Supreme Court proceedings. We are also of the view that his Honour was in error in relation to his application of the equitable maxim of clean hands.
We are also satisfied that the judgment of the Supreme Court proceedings is inconsistent with the construction of the consent orders of 29 April 2008 contended for by the Husband. The Supreme Court proceedings made a declaration that the amounts owed by the Wife to I Limited, that included the costs awarded on an indemnity basis of the Supreme Court proceedings, are secured on the net proceeds of sale of property H to the extent of $438,617.03.
Sixth Ground
In the sixth ground of appeal it was contended that the Federal Magistrate erred at law by finding at [58] that the consent order of 29 April 2008 amounted to a variation of I Limited’s security when it did not and further his Honour led himself into error in that finding as there was no submission made to that effect by any party. It was submitted by I Limited that no party made a submission to the Federal Magistrate that the order of 29 April 2008 amounted to a variation of the I Limited’s security.
The Husband submitted to us that it is to be remembered that the Husband was unrepresented and that a submission was unnecessary. It was submitted that the variation in the security is readily apparent on the face of the order and the amount of the compromise was set aside in a trust account in substitution for the security over the Wife’s interest in property H.
We have considered the transcript of the proceedings before the Federal Magistrate on 24 December 2009 and the written submissions filed by the Husband on 15 January 2010 and we are satisfied that there is merit in the complaint by I Limited.
However, in our view, it only adds to what we have already found in relation to the failure by his Honour to undertake the task that he was required to undertake in considering the construction of the orders of 29 April 2008 and his failure to give adequate reasons. As we have already found, his Honour did not adequately explain why he found that I Limited had commercially compromised its rights under the loan agreements, and its security, in circumstances where it already incurred costs of enforcement and, in the absence of a settlement with the Wife, would incur further costs in resolving the dispute with her.
Conclusion
We are persuaded that, in the circumstances of this case, the orders of 29 April 2008 merely expressed the consent of the parties and did not embody and give effect to an underlying contract between I Limited and the Wife and thus the Federal Magistrate did not have the power to, in effect, vary the orders made by the Supreme Court of Queensland. We are satisfied that his Honour was in error.
We therefore propose to grant leave to appeal and to allow the appeal. No direct submissions were made in relation to the application by I Limited for leave to appeal. However, insofar as leave may be required, we are satisfied that there was an important error of principle and also that a substantial injustice would be suffered by I Limited if leave was not granted.
As we have observed, if the appeal is successful, I Limited seeks that the amount in order 1(a) of 29 January 2010 be altered to $71,565.82 and that there be a new order 1(c) which provides that the amount of $106,279.81 remain in trust pending quantification of the costs of I Limited pursuant to the order of Daubney J pronounced on … 2009 in the Supreme Court proceedings or “any other order for costs in favour of [I Limited] and disbursed following such assessment to [I Limited] in payment of its costs so assessed up to the amount of $106,279.81 and if the costs of [I Limited] are assessed in a lower amount the balance to the husband”. I Limited also seeks that order 2 be set aside.
No submissions were made on behalf of either I Limited or the Husband in relation to the orders sought if the appeal was successful. However, we understand that the orders are sought for the following reasons.
I Limited was seeking that the amount of $438,617.03, being one half of the net proceeds of sale of property H, be available to satisfy its claims against the Wife. However, the Federal Magistrate made an order that I Limited could only receive $332,337.22. I Limited was therefore seeking a further $106,279.81 ($332,337.22 plus $106,279.81 = $438,617.03).
We assume that as at 29 January 2010 there was available an amount of $510,182.85, being the amount of $165,690.37 to be paid to the Husband in accordance with order 1(a), the amount of $332,337.22 to be paid to I Limited in accordance with order 1(b) and $12,155.26 being the amount that in accordance with order 2 was declared to be the entitlement of the Wife.
After payment of $332,337.22 to I Limited from the amount of $510,182.85 this then leaves $177,845.63 ($165,690.37 plus $12,155.26). If from the amount of $177,845.63 an amount of $106,279.81 is paid to I Limited then there is a balance of $71,565.82 ($177,845.63 minus $106,279.81). I Limited seeks that the amount in order 1(a) should be $71,565.82 in lieu of $165,690.37 and the amount of $106,279.81 remain in trust pending quantification of its costs. In the event that the balance held on trust is greater than $71,565.82 then it would be dealt with in accordance with the property settlement order.
We are of view that the orders of 29 January 2010 should not have been made as they affect I Limited and we propose to make the orders sought in the notice of appeal.
The Appeal By The Husband
Introduction
The grounds of appeal of the Husband are as follows:
1. The Federal Magistrate erred in failing to order that the sum of $55,544.99, being a debt due by the Husband in respect of the [S] business, should be paid to the Husband from the monies held in the Woods Hatcher Trust Account under the terms of paragraphs 8( c) and 9 of the final orders dated 30th April 2008.
The sum of $55,544,59 should be paid to the Husband and is provided for, pursuant to paragraph 8( c), which states: “To cause [S Pty Ltd] or such other entity as nominated by the wife to assume the liabilities of the business [S] (as identified in the books of [A Trust]) including estimated taxation liabilities (including GST)”, and also at clause 9, where it states: “Pending the perfecting of the transactions set out in Order 9, the wife shall be responsible for and shall indemnify the Husband against any claims, actions or demands against the business entity known as [S]”.
In his Reasons for Judgement handed down on 29th January 2010, attached to the orders made of the same date, Federal Magistrate Baumann ordered the sum of $19,301.03 to be paid to the Husband as part of the total sum ordered to be paid to him, detailed in clause 1a. of the order.
It will be argued that the two sums of $55,544.59 and $19,301.03 respectively, albeit owed to two separate entities, are identical in the way they were accumilated [sic] in the entity known as [S], and are therefore debts that are both pursuant to clauses 8(c) and 9 of the order of 30th April 2008.
Submissions
The Husband submitted that the Federal Magistrate found that the Husband was liable under the guarantee of the lease of property P. His Honour declined to make the adjustment sought on the ground that the liability had not “accrued or crystallised” and in so doing his Honour fell into error. It was submitted that having found that the liability existed, the Federal Magistrate should have accepted the uncontested evidence quantifying the contingent liability at $55,544.59 and made the adjustment sought, notwithstanding the uncertainty as to the time for payment.
I Limited submitted that its security over the Wife’s one half of the net sale proceeds of $438,617.03 had priority over any amount found by the Federal Magistrate to be due as between the Husband and the Wife in circumstances where no order was sought or obtained by either party concerning the security of I Limited. It was submitted that for that reason, the success or failure of the cross appeal does not impact upon the security of I Limited and ultimately its entitlement to the balance of $101,279.81, which was stayed by the Federal Magistrate pending the appeal and which is less than the costs recoverable by I Limited under its loan agreements with the Wife.
I Limited submitted that the Husband failed to establish any error on the part of the Federal Magistrate as his Honour was correct to find that the Husband had failed to establish that any liability in fact existed under the Husband’s guarantee let alone in the amount asserted.
Conclusion
A number of authorities were referred to in the written submissions of the Husband as to how, in proceedings pursuant to s 79 of the Act, a court deals with contingent liabilities. In our view, they are irrelevant to the issue.
During the hearing before us the Presiding Judge inquired of counsel for the Husband as to the relevant applications that were made before the Federal Magistrate in relation to adjustments which were not dealt with in the reasons of 15 February 2008. Counsel said that there “remained issues concerning adjustments” but could not identify the relevant applications. Counsel also said that it was not an enforcement application and this then lead to a discussion as to whether on 30 April 2008 his Honour made what, for discussion, was described as a “partial property settlement order”. Without repeating all of what was discussed, counsel then informed us that he was unable to point to anything further which would indicate how the matter came back before the Federal Magistrate in August 2009 to deal with adjustments.
The Husband was seeking that the amount of $55,544.59 be paid from the proceeds of sale of property H. The Federal Magistrate observed at [38] that in his view this obligation, if enforceable by the lessor against the Husband under the guarantee he signed, arising as it did for adjustment pursuant to the indemnity in order 9 of the final property order, was in a different category to the other adjustments already determined by his Honour. His Honour observed that any debt which the Husband was ultimately ordered to pay to the lessor was claimable by him against the Wife. In other words, it was not an adjustment that the order of 30 April 2008 provided could be satisfied from the proceeds of sale of property H and the debt can be recovered by the Husband from the Wife by enforcement of order 9.
We propose to dismiss the cross-appeal. In our view, the Husband failed to establish any error on the part of the Federal Magistrate.
I certify that the preceding two hundred and forty-six (246) paragraphs are a true copy of the reasons for judgment of the Honourable Full Court (May, O’Ryan and Le Poer Trench JJ) on 15 December 2010.
Associate:
Date:15 December 2010
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