Allbeck & Fielders (No 2)
[2024] FedCFamC1F 770
•14 November 2024
FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA
(DIVISION 1)
Allbeck & Fielders (No 2) [2024] FedCFamC1F 770
File number: PAC 4152 of 2018 Judgment of: MCNAB J Date of judgment: 14 November 2024 Catchwords: FAMILY LAW – PROPERTY – Accrued jurisdiction – Where the applicant and first respondent were in a short marriage – Where the applicant sought orders pursuant to s 79 of the Family Law Act 1975 (Cth) – Where whilst proceedings were on foot in the then Federal Circuit Court of Australia the applicant brought proceedings in the District Court seeking damages for personal injuries allegedly inflicted by the first respondent in the course of the marriage – Where the applicant was awarded damages against the first respondent in the District Court for personal injuries – Where the first respondent was unsuccessful in his appeals and owes the applicant the damages and costs – Where the applicant alleges that throughout the District Court proceedings the first respondent divested funds to the second respondent – Where the applicant seeks for the transfers of funds from the first to the second respondent be set aside pursuant to s 37A of the Conveyancing Act 1919 (NSW) – Where the first and second respondent were in a de facto relationship – Where the first and second respondent contend that the transfers were the subject of a separation agreement and loans – Orders that the transactions are set aside and payment to the applicant of the moneys owed to her by the first respondent – No orders made for property adjustment.
BANKRUPTCY – COSTS – Where during these proceedings the first respondent entered into bankruptcy by presenting a debtor’s petition in circumstances where the applicant was seeking to serve a creditor’s petition – Where on the first day the proceeding was listed for final hearing the bankruptcy was annulled by consent and orders were made for the trustee’s costs to be reserved – Determination of the trustee’s costs – Orders for the first respondent to pay the costs of the trustee – Where the parties contest the quantum of the trustee’s costs – Where failing agreement of the parties as to the quantum, orders made for determination by a report from a Registrar.
Legislation: Bankruptcy Act 1966 (Cth) ss 32, 35, 58, 109, 120, 121, 153B, 154
Family Law Act 1975 (Cth) ss 75, 79, 90SF, 90SM, 106B, 117
Conveyancing Act 1919 (NSW) ss 37A, 66G
Legal Profession Uniform Law 2014 (NSW) s 181
Cases cited: Akbar & Gandega (2023) 67 Fam LR 59
Allbeck & Fielders [2024] FedCFamC1F 769
Axess Debt Management Pty Ltd v Haykal(No 2) [2017] FCA 1186
Biltoft & Biltoft (1995) FLC 92-614
Beck v Spalla [2005] FCAFC 82
Chan v Acres [2013] NSWSC 1597
C Pty Ltd and Ors & PGW as Liquidator of S Pty Ltd (In liq) [2011] FamCAFC 231
Daymond and Anor and Daymond and Ors (Costs) [2014] FamCA 302
Emerald & Emerald (2018) FLC 93-870
Hampton & Farley and Ors (No 2) [2013] FamCA 785
Hickey & Hickey & Attorney-General for the Commonwealth of Australia (intervener) (2003) FLC 93-143
Holden v Van Houten [2012] FCA 4
Kennon & Kennon [1997] FamCA 27
Marcolongo v Chen [2011] HCA 3
Mathews v State of Queensland [2015] FCA 1488
Official Trustee in Bankruptcy v Lopatinsky (2003) FLC 93-149
Principal Strategic Options Pty Ltd, in the matter of Coshott v Coshott [2001] FCA 664
Pt Garuda Indonesia Ltd v Grellman [1992] FCA 232.
Saba v Plumb & Anor [2017] NSWSC 622
Saklani & Valder [2023] FedCFamC1A 163
Stanford v Stanford [2012] HCA 52
Trustee of the property of G Lemnos, a bankrupt & Lemnos & Anor (2009) FLC 93-394
Valder & Saklani (No 3)[2023] FedCFamC1F 98
Young v Smith [2015] NSWSC 400
Zreika v Royal [2019] FCAFC 82
Division: Division 1 First Instance Number of paragraphs: 237 Date of hearing: 12-16, 19-20 February 2024, 25 July 2024 Place: Parramatta, delivered in Melbourne. Counsel for the Applicant: Mr Simpson Solicitor for the Applicant: Penhall & Co Lawyers Counsel for the First Respondent: Ms Bromberger Solicitor for the First Respondent: Holmes Donnelly & Co Solicitors Counsel for the Second Respondent: Mr Lethbridge SC with Mr Havenstein Solicitor for the Second Respondent: James & Jaramillo Legal Pty Ltd Counsel for the Third Respondent: The Third Respondent did not appear ORDERS
PAC 4152 of 2018 FEDERAL CIRCUIT AND FAMILY COURT OF AUSTRALIA (DIVISION 1)
BETWEEN: MS ALLBECK
Applicant
AND: MR FIELDERS
First Respondent
MS KAZEM
Second Respondent
MR VORONIN (AS BANKRUPTCY TRUSTEE FOR MR FIELDERS)
Third Respondent
ORDER MADE BY:
MCNAB J
DATE OF ORDER:
14 NOVEMBER 2024
NOTATION:
In these orders the sum of the judgment debts referred to in Order 8 herein are collectively
referred to as “the judgment debts”.
THE COURT DECLARES THAT:
1.The transfers of money totalling $1,305,923.45 by the first respondent to the second respondent being:
(a)May 2021 – $366,624.40;
(b)May 2021 – $81,191;
(c)July 2021 – $620,000;
(d)September 2021 – $159,911.80; and
(e)September 2021 – $78,196.25
are void within the meaning of s 37A of the Conveyancing Act 1919 (NSW).
2.The four purported loan agreements between the first respondent as borrower and the second respondent as lender comprising the following purported loan transactions totalling $440,563.8 are each a sham transaction and are set aside:
(a)August 2021 – $300,000 (only $218,593.95 was transferred);
(b)July 2022 – $40,000;
(c)August 2022– $94,969.85; and
(d)October 2022– $87,000.
3.The second respondent holds the sum of $865,359.65, being the divested sum of $1,305,923.45 less the amount of the sham loans which were paid as the first respondent’s legal fees in the sum of $440,563.80 in the District Court Proceedings and Appeal proceedings, upon trust for the first respondent.
4.The registered second mortgage dated 2021(“the registered second mortgage”) between the first respondent as mortgagor and the second respondent as mortgagee affecting F Street, Suburb G is a sham.
5.By reasons of Declaration 2 herein that the transfers from the second respondent to the first respondent were sham transactions THE COURT DECLARES that the first respondent at all times retained and used the sum of $440,563.80 to his own benefit and not to the benefit of the second respondent.
THE COURT ORDERS THAT:
6.The applicant’s orders for an adjustment of the property interests as between her and the first respondent (as sought in her Second Amended Application for Final Orders filed on 12 December 2023) pursuant to s 79 of the Family Law Act 1975 (Cth) be dismissed.
7.The second respondent’s orders for an adjustment of the property interests as between her and the first respondent (as sought in her Further Amended Response to Initiating Application filed on 16 January 2024) pursuant to s 90SM of the Family Law Act 1975 (Cth) be dismissed.
8.Within 90 days of the date of these orders the first respondent pay to the applicant:
(a)the judgment obtained by the applicant as plaintiff against the first respondent as defendant in the District Court in 2021 in proceeding … in the sum of approximately $490,000.00 together with interest accrued thereon and continuing to accrue pursuant to s 101 of the Civil Procedure Act 2005 (NSW);
(b)the judgment for costs obtained by the applicant as plaintiff against the first respondent as defendant in the District Court in 2021 in proceeding … be forthwith paid to her as applicant creditor by the first respondent in the sum of approximately $849,000.00 together with interest accrued and continuing to accrue thereon from and after 2024 pursuant to s 101 of the Civil Procedure Act 2005 (NSW).
(c)the judgment for costs obtained by the applicant as respondent against first respondent as appellant in the Supreme Court, Court of Appeal in 2022 as amended in 2023 in proceeding … in the sum of approximately $137,000.00 together with interest accrued and continuing to accrue thereon from and after 2024 pursuant to s 101 of the Civil Procedure Act 2005 (NSW).
9.Within 60 days of the date of these orders the second respondent pay to the first respondent the sum of $865,359.65 with such sum to be held on trust by the solicitors for the first respondent and that the funds be directed:
(a)first, to pay the balance of the judgment debts owing to the applicant; and then
(b)to creditors of the first respondent; and
(c)the balance then remaining be paid to the first respondent.
10.Pending compliance with Order 9 herein, the second respondent be restrained by injunction from dealing with and/or in any way encumbering or disposing of any of her rights and entitlements in the properties located at:
(a)K Street Suburb L NSW; and
(b)M Street Suburb O NSW.
without the written consent of the parties or in the case there is no consent, the leave of this Court.
11.In the event that the second respondent fails to comply with Order 9 herein, the second respondent within 14 days of written notice of non-compliance do all acts and things and sign all documents necessary to cause K Street, Suburb L NSW (“the Suburb L property”) to be listed for sale and upon settlement of the sale of the Suburb L property the second respondent do all acts and things and sign all documents necessary to cause the proceeds of sale to be distributed in the following manner and priority:
(a)payment to discharge the ANZ Bank mortgage;
(b)payment of the real estate agent’s commission, advertising and other expenses payable upon the sale;
(c)payment of the conveyancer’s legal costs and outlays relating to the sale;
(d)payment of the usual adjustments of sale including but not limited to municipal and water rate adjustment;
(e)payment to the first respondent into a controlled monies account held by his solicitors of the amounts calculated in accordance with Order 8 as remains unpaid to the first respondent;
(f)the balance to the second respondent.
12.The registered second mortgage in favour of the second respondent be set aside and the second respondent forthwith execute and deliver to the applicant’s solicitor an executed and registerable discharge of mortgage.
13.Pending compliance with these orders, the applicant be and is restrained from enforcing or seeking to enforce orders made in her favour against the first respondent in the District and Supreme Court.
14.To give effect to these orders, the first respondent must, as soon as practicable, do all acts and things to cause the property situated at and known as F Street, Suburb G NSW, Folio ID … (“the F Street property”), to be placed on the market for sale and sold for its fair market value, which must be, unless otherwise agreed between the applicant and first respondent, no less than an amount being five percent less than $1,750,000.
15.On completion of the sale referred to in Order 14 herein, and after deducting reasonable selling costs including agent’s commission and conveyancer’s fees, and the amount due and payable to the ANZ bank, following the payment to ANZ bank, the then remaining balance must be paid to the applicant in satisfaction all amounts due to her in satisfaction of the judgment debts.
16.To enable the completion of the sale of the F Street property, and on or before the completion date, the applicant must release her charge over the F Street property granted pursuant to orders made in the District Court.
17.In the event that within (90) days from the date of these orders, the first respondent tenders to the applicant the amount of $301,317 in reduction of the judgment debt then the applicant must do all acts and things necessary to withdraw and grant discharge of the charge over the property known as H Street, Suburb J, NSW, Folio ID … (“the Suburb J property”) in her favour pursuant to orders made in the District Court.
18.In the event that after (90) days from the date of these orders, the first respondent has failed to comply with Order 7 herein, he must do all acts and things necessary to realise his interest in the Suburb J property and, and on completion of any sale of the Suburb J property, pay or cause to be paid to the applicant the net proceeds to be received by him with the payment to be made in reduction of the judgement debts.
19.Subject to the satisfaction of the charge in favour of the applicant over the property of the respondent over the property known as H Street, Suburb J, NSW, Folio ID … (“the Suburb J property”) in her favour pursuant to orders made in the District Court, the first respondent pay the third respondent’s costs, charges and expenses of the administration of the bankruptcy of the first respondent to be agreed within 14 days and if in default of agreement the quantum of the costs and expenses payable to the third respondent pursuant to this order be determined by a report of a Registrar under r 19.01 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
20.In the event any party refuses or neglects to execute any deed, document or instrument necessary to give effect to all or any of these orders, then the Registrar of the Court shall be appointed pursuant to s 106A of the Family Law Act 1975 (Cth) to execute such deed, document or instrument in the name of the said party and do all acts and things necessary to give validity and operation to the deed, document or instrument upon the Registrar being provided with verification of such refusal or failure by way of affidavit.
21.Within (21) days of the date of these orders, any application for costs made by a party be supported by a schedule detailing how the amount claimed has been calculated, and a written submission of no more than ten (10) pages setting out the reasons why the order for costs sought should be made including against whom the order should be made with the determination of costs to be determined in chambers on the papers subject to the right of any non-party having the right to be heard if orders are sought against a non-party including any legal representative and liberty to apply is reserved in that regard.
22.Other than as provided in these orders the first respondent is entitled to his Superannuation, personal property and any other property in his name.
23.Other than as provided in these orders the second respondent is entitled to her superannuation, personal property, car and any other property in her.
Note: The form of the order is subject to the entry in the Court’s records.
Note: This copy of the Court’s Reasons for judgment may be subject to review to remedy minor typographical or grammatical errors (r 10.14(b) Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth)), or to record a variation to the order pursuant to r 10.13 Federal Circuit and Family Court of Australia (Family Law) Rules 2021 (Cth).
Part XIVB of the Family Law Act 1975 (Cth) makes it an offence, except in very limited circumstances, to publish an account of proceedings that identify persons, associated persons, or witnesses involved in family law proceedings.
IT IS NOTED that publication of this judgment by this Court under the pseudonym Allbeck & Fielders has been approved pursuant to subsection 114Q(2) of the Family Law Act 1975 (Cth).
REASONS FOR JUDGMENT
MCNAB J
THE PARTIES
The applicant in this matter is Ms Allbeck aged 35 years, the first respondent is Mr Fielders aged 36 years, who was briefly married to the applicant. The first respondent was also in a de facto relationship with the second respondent, Ms Kazem, aged 37 years. The third respondent is Mr Voronin (as bankruptcy trustee for Mr Fielders).
On 12 February 2024, orders were made by consent annulling the bankruptcy of the first respondent pursuant to s 153B of the Bankruptcy Act 1966 (Cth) (“BA”) and for the trustee’s costs to be paid from the net matrimonial pool. The matter then proceeded in the absence of the trustee as a party.
MATERIALS
In their respective Outline of Cases, the parties note that they rely on the following:
The applicant relies on:
(1)Affidavit of Ms Allbeck (subject to leave of the Court) filed 23 January 2024;
(2)Consolidated Initiating Application filed 12 December 2023;
(3)Affidavit of Dr D (subject to leave of the Court) filed 4 December 2023;
(4)Affidavit of Ms Allbeck filed 1 December 2023;
(5)Applicant’s Points of Claim filed 1 December 2023;
(6)Affidavit of Gary Neville Penhall filed 27 November 2023; and
(7)Affidavit of Dr D (subject to leave of the Court) filed 24 February 2020.
The first respondent relies upon:
(1)Further Amended Response to Initiating Application filed 31 January 2024;
(2)Affidavit of Mr Fielders filed 31 January 2024;
(3)Orders of Riethmuller J made 19 December 2023;
(4)Orders of Riethmuller J made 8 December 2023;
(5)Orders of Riethmuller J made 16 November 2023; and
(6)Orders of SJR Neilson made 11 October 2023.
The second respondent relies upon:
(1)Further Amended Response filed on 16 January 2024;
(2)Reply filed 16 January 2024;
(3)Affidavit of Ms Kazem affirmed 15 January 2024;
(4)Affidavit of Ms N affirmed on 15 January 2024;
(5)Points of Defence filed 22 December 2023; and
(6)Financial Statement filed 15 December 2023.
The third respondent relies upon:
(1)Third Respondent’s Tender Bundle filed 1 February 2024; and
(2)Third respondent’s Court Book filed 30 January 2024.
BACKGROUND
Narrative of the relationship between the applicant and first respondent
The applicant and first respondent commenced a relationship in 2010 and commenced cohabitation in 2012 at a rental property located at P Street, Suburb Q. They were married in 2015. They separated in about March 2016 (noting that there is a slight dispute as to the date of separation) with divorce being finalised in 2018. Following separation, the applicant moved in with her mother, who was renting a property owned by the first respondent.
The first respondent deposes to the applicant having minimal involvement in his affairs, including financial, where he says that during their relationship he had engaged agents to assist in managing his affairs. The first respondent says that he and the applicant maintained separate finances throughout the relationship, aside from an account which was established for expenses related to their wedding. The first respondent says that he solely funded this account. It is further alleged by the second respondent that communication continued between the applicant and first respondent after separation, to the extent that they were briefly intimate.
The applicant gives evidence that she was subjected to severe family violence throughout the relationship including various forms of abuse perpetrated by the first respondent.
On 4 September 2018, the applicant filed an Application for Final Orders in the Federal Circuit Court of Australia (as it then was) seeking an alteration of property interests pursuant to s 79 of the Family Law Act 1975 (Cth) (“FLA”) between herself and the first respondent.
On 5 March 2019, there was a telephone conversation between the solicitors for the applicant and the first respondent, thereafter, the first respondent’s solicitors sent a letter to the applicant’s solicitors on 5 March 2019 detailing the terms of that conversation, including:[1]
[1] Exhibit A36.
1.You indicated that your client is considering going to the District Court on allegations of “rape and assault” with a civil claim for an abusive relationship.
2.You said you were advised by counsel to file in the District Court initially, but your client opted to file in the Family Court instead, seeking property settlement only. However, you now anticipate receiving instructions to file in the District Court shortly.
…
4.You said your client was advised by counsel that her potential “Kennon” argument would “do better” in the District Court. (We understand this to mean that your client would receive superior financial entitlements).
5.You made a without prejudice statement that Kennon is worth more in the District Court.
…
7.You said you have sent our letter of offer to counsel and are awaiting instructions.
8.You requested, in this phone call […], that our client stop sending “shit” and “rude” letters and make a proper offer.
…
Your client may take such proceedings as she is advised.
(Emphasis Added)
In 2020, almost one year later, the applicant commenced proceedings against the first respondent in the District Court (“District Court proceedings”) seeking damages for personal injury arising from various sexual assaults allegedly perpetrated by the first respondent.
The trial of the District Court proceedings commenced in 2021 and was heard over a number of days. Both parties were represented. During the course of those proceedings, the applicant claimed that the first respondent sexually assaulted her on a number of occasions between 2014 until 2016 whilst he was affected by alcohol.
The applicant alleges that during the District Court proceedings, the first respondent was divesting assets to the second respondent.
In 2021, judgment was delivered in favour of the applicant on the question of liability against the first respondent with the Court finding that these assaults occurred on a number of occasions and the applicant was awarded damages in the sum of approximately $490,000.00.
In the reasons for judgment in the District Court, the District Court judge found that the applicant was raped by the first respondent on a number of occasions.[2] The judge awarded the applicant general damages in the sum of $50,000 per act. The applicant was also awarded a separate award for aggravated damages in the sum of $50,000 and $75,000 for exemplary damages. There were also further sums awarded for out-of-pocket expenses, future treatment expenses and economic loss which were approximately $1,340.00, $51,000 and $100,000 respectively. The applicant makes no claim in this Court for any orders arising from her treatment by the first respondent and relies on the judgment debt. Counsel for the applicant specifically disavowed any reliance on Kennon & Kennon [1997] FamCA 27.
[2] Exhibit A4, at [337].
In January 2022, the first respondent filed a Notice of Intention to Appeal to the Court of Appeal.
In early February 2022, a charging order was made in the District Court over the first respondent’s properties at F Street, Suburb G, NSW(“F Street property”) and H Street, Suburb J, NSW (“Suburb J property”) to secure payment by the first respondent to the applicant of $980,091.05 which comprised the judgment sum of approximately $490,000.00 and the balance comprising of costs.
In mid-February 2022, the first respondent executed a Deed of Charge pursuant to the charging order, charging the F Street property and the Suburb J property in the sum of $980,091.05.[3]
[3]Exhibit A10
In March 2022, the first respondent appealed the primary judgment to the New South Wales Court of Appeal.
In mid-June 2022, the first respondent made an application in the District Court seeking to vary the terms of a Penal Notice attached to the charging order to fund his appeal proceedings. This was an interlocutory application by the first respondent to allow him to encumber assets so as to fund his appeal. The funding was proposed to be provided by the second respondent by way of a payment of $165,000 to be secured against the first respondent’s assets.
In late June 2022, the District Court delivered judgment dismissing the first respondent’s application to vary the terms of the Penal Notice. The first respondent was again ordered to pay the costs of the application. In his reasons for judgment, the District Court judge made findings that the first respondent had divested assets in an attempt to avoid the damages and costs awarded to the applicant in the proceedings.
In March 2023, the appeal of the substantive judgment was dismissed with costs ordered by the New South Wales Court of Appeal.
The judgment debts ordered against the first respondent in favour of the applicant that are outstanding and she is seeking to be paid are articulated in her orders sought as:[4]
athe judgment ordered in the District Court [in] 2021 in the sum of [approximately $490,000.00] together with interest accrued thereon and continuing to accrue pursuant to s. 101 Civil Procedure Act 2005;
bthe judgment for costs in the District Court ordered [in] 2021 in the sum of [approximately $849,000.00] together with interest accrued and continuing to accrue thereon from and after […] 2024 pursuant to s. 101 Civil Procedure Act 2005; and
cthe judgment for costs against the first respondent as appellant in the Supreme Court of NSW, Court of Appeal [in] 2022 as amended [in] 2023 in the sum of [approximately $137,000.00] together with interest accrued and continuing to accrue thereon from and after […] 2024 pursuant to s. 101 Civil Procedure Act 2005.
[4]Exhibit A38.
Narrative of relationship between the first and second respondent
The first and second respondent commenced an intimate relationship in 2016 and began cohabitation shortly thereafter, alternating between each other’s respective residence.
In 2018, the second respondent gave birth to their first child, R, with their second child, S, being born in 2021.
In 2020, two representatives from a professional standards body came to the home of the first and second respondents whereby they were informed that the first respondent was in breach of professional standards. The first respondent was stood down.
The second respondent deposes to the District Court proceedings placing stress on their relationship and they initially separated on 2 April 2021. There was an attempt at reconciliation before final separation occurred in mid-July 2021.
Following final separation, the second respondent moved to Region T of New South Wales, but moved back to Sydney in late 2021, enrolling the children in a day care closer to the first respondent so as to assist in facilitating time between the first respondent and their children. The children currently live with second respondent and spend time sporadically with the first respondent.
The second respondent states that during their relationship she was responsible for the day-to-day maintenance of the home and the children. It is agreed between the first and second respondent that she was significantly involved in managing his affairs, including financial. In her affidavit, the second respondent provides extensive detail of her involvement in the first respondent’s property dealings, contracts and travel. This was not the subject of challenge and it was not contested that she was heavily involved in managing the second respondent’s day to day and financial affairs whilst supporting him when he was not working.
Procedural history
In 2020, after her application had been filed in the District Court, the applicant filed an Application in a Case seeking a stay of the proceedings in the Federal Circuit Court until the resolution of the District Court proceedings.
On 27 May 2020, Judge Newbrun reserved his decision in relation to the stay application and on 1 September 2020, his Honour delivered judgment and stayed the proceedings until the conclusion of the District Court proceedings.
On 2 November 2022, the applicant filed an Amended Application for Final Orders where she sought for an alteration of property interests between herself and the first respondent pursuant to s 79 of the FLA in circumstances where judgment had been delivered in the District Court proceedings.
On 20 February 2023, Judge Newbrun made orders joining the second respondent as a party to these proceedings and ordered that the proceedings be transferred to the Federal Circuit Court and Family Court of Australia (Division 1).
In April 2023, the first respondent was served with a Bankruptcy Notice issued on behalf of the applicant in relation to the judgment debts arising from the District Court judgment and costs. On 4 May 2023, the applicant filed a creditor’s petition in the Federal Circuit and Family Court of Australia (Division 2) seeking a sequestration order against the estate of the first respondent.
In June 2023, and before the creditor’s petition was to be heard, the first respondent filed a debtor’s petition. On that same date, the third respondent, Mr Voronin, was appointed as Trustee of the Bankrupt Estate of Mr Fielders.
By orders made on 4 August 2023, the trustee in bankruptcy (with respect to the first respondent's estate) was joined as a third respondent to the proceedings. On 27 November 2023, the applicant filed an Initiating Application seeking orders annulling the first respondent's bankruptcy and sought declarations that the transfers from the first respondent to the second respondent are void by reason of s 37A of the Conveyancing Act 1919 (NSW) (“CA”) or alternatively s 106B of the FLA.
On 8 December 2023, the Court ordered that the applicant file and serve an amended Initiating Application in this proceeding including claims made in PAC6253/2023 with the files to be merged. The applicant on 1 December 2023 filed Points of Claim in PAC6253/2023 where the claim for the annulment of the bankruptcy was pleaded as was the claim that the transfers from the first respondent to the second respondent ought to be set aside pursuant to s 37A of the CA.
At the commencement of the hearing on 12 February 2024 (after the matter was stood down for negotiations at the request of the parties), the parties consented to the annulment of the bankruptcy which was granted and orders were made on 12 February 2024 to reflect such. At that time no submissions were made by any of the parties that it was necessary for the Court to give reasons for those orders to be made. Those orders also provided that the question of the trustee’s costs and who should pay them be reserved.
The applicant has framed her claims in relation to the disposition of assets by the first respondent pursuant to s 37A of the CA. No issues were raised by any party that this Court does not have the jurisdiction to entertain those claims once the Court made orders annulling the bankruptcy. To avoid any doubt, I find that the Court retains jurisdiction to deal with those claims notwithstanding that the claims have not been made at trial pursuant to s 106B of the FLA but rather pursuant to s 37A of the CA.
Despite the order annulling the bankruptcy, the Court has jurisdiction to deal with the claim brought by the applicant pursuant to s 37A of the CA as the resolution of the controversy raised by the s 37A of the CA claim is integral to the resolution of the claims made as between the parties for an adjustment of the property interested pursuant to the FLA. It is after the resolution of the s 37A of the CA claim that the assets of each of the parties can be ascertained and a pool of those assets determined. In Akbar & Gandega (2023) 67 Fam LR 593 at [29]-[30] (“Akbar”), Austin J in a judgment delivered on behalf of the Full Court stated:
29.However, when federal law, like the Act, confers original jurisdiction on a federal court in respect of a “matter” – such as the matrimonial cause concerning the adjustment of spouses’ property interests – the jurisdiction extends to authorise the determination of the whole “matter”, the entire resolution of which controversy may entail the consideration and application of both federal and State law (Valceski v Valceski at [38]).
30.Nevertheless, the authority to decide the non-federal aspects of the justiciable dispute only arises when such non-federal aspects are an integral part of the same controversy. Perhaps the best known statement collating the principles about the need for coincidence between the federal and non-federal aspects of the matter was expressed this way in Re Wakim; Ex parte McNally; Re Wakim; Ex parte Darvall; Re Brown; Ex parte Amann (1999) 198 CLR 511:
140.In Fencott it was said that ‘‘in the end, it is a matter of impression and of practical judgment whether a non-federal claim and a federal claim joined in a proceeding are within the scope of one controversy and thus within the ambit of a matter.’’ The references to ‘‘impression’’ and ‘‘practical judgment’’ cannot be understood, however, as stating a test that is to be applied. Considerations of impression and practical judgment are relevant because the question of jurisdiction usually arises before evidence is adduced and often before the pleadings are complete. Necessarily, then, the question will have to be decided on limited information. But the question is not at large. What is a single controversy ‘‘depends on what the parties have done, the relationships between or among them and the laws which attach rights or liabilities to their conduct and relationships’’. There is but a single matter if different claims arise out of ‘‘common transactions and facts’’ or ‘‘a common substratum of facts’’, notwithstanding that the facts upon which the claims depend ‘‘do not wholly coincide’’. So, too, there is but one matter where different claims are so related that the determination of one is essential to the determination of the other, as, for example, in the case of third party proceedings or where there are alternative claims for the same damage and the determination of one will either render the other otiose or necessitate its determination. Conversely, claims which are ‘‘completely disparate’’, ‘‘completely separate and distinct’’ or ‘‘distinct and unrelated’’ are not part of the same matter.
(Emphasis added and footnotes omitted in the Full Court judgment)
In Beck v Spalla [2005] FCAFC 82 at [25]-[26] the Full Court of the Federal Court of Australia stated:
25.In our view it follows that the appellants’ first submission must be rejected. Notwithstanding that at the time the proceedings were commenced the controversy between the parties had not revealed a federal matter on the pleadings (the immunity from suit arising from s 246 was at that stage an inchoate part of the controversy) once the defence was filed revealing the federal question the jurisdiction of the court was attracted and the court was obliged to hear the whole matter.
The appellants’ second submission
This submission can be disposed of shortly. It is well established that when the Federal Court has jurisdiction to determine a federal matter, it has authority to determine the whole controversy and not merely that part of it which attracted federal jurisdiction: Moorgate Tobacco Co Ltd v Philip Morris Ltd (1980) 145 CLR 457 at 472 ; 31 ALR 161 at 166–7 . It is equally well accepted that if the federal question is decided adversely, is struck out, or is found not necessary to be decided the matter does not cease to be in the jurisdiction of the court: Burgundy Royale Investments Pty Ltd v Westpac Banking Corp (1987) 18 FCR 212 ; 76 ALR 173 ; Unilan Holdings Pty Ltd v Kerin (1993) 44 FCR 481 and Morgate at CLR 476; ALR 169–70 : see generally, the article by Allsop J: “Federal Jurisdiction and the Jurisdiction of the Federal Court of Australia in 2002”, (2002) 23 Australian Bar Review 29 at 41 ff.
26.It is difficult to see why there should be any different result merely because the federal part of the matter was settled, assuming that the federal claim is not colourable. There is no suggestion in the present case that this was so. Indeed a different result would give effect to a policy of discouraging settlement and could lead to proceedings having to be terminated when part heard because the federal claim was resolved.[5]
[5] See also: Mathews v State of Queensland [2015] FCA 1488 at [161]; Emerald & Emerald (2018) FLC 93-870 at [177].
The claims made by the applicant and the second respondent for relief under the FLA are not colourable claims in the sense that it can be said that there is no jurisdictional basis for granting the relief sought pursuant to ss 79 and 90SM of the Act. The fact that no orders are made pursuant to those sections subsequent to a finding in relation to s 37A of the CA does not mean that the Court does not have jurisdiction to deal with all federal and non-federal claims.
A point of distinction between the facts in Akbar and the present case, is that the s 37A of the CA claim involve all parties and the result of the determination of that claim affects each parties interests in the federal claim.
The Voir Dire Hearing
On the first day the matter was listed for trial in this Court, the applicant submitted that an issue estoppel operated which bound the respondents to the findings made in the District Court proceedings. Following a voir dire hearing, judgment was delivered and I found that an issue estoppel arises as against the first respondent, but not the second respondent, from findings about the sexual assaults and the damages awarded by the District Court judgment in 2021. I found that no issue estoppel arises against either respondent from the reasons for District Court judgment in 2022. Reasons were delivered and those reasons are published as Allbeck & Fielders [2024] FedCFamC1F 769. By way of summary, I held that no issue estoppel arose from the 2022 judgment as:
(a)the judgement and orders were interlocutory and not final; and
(b)the second respondent was not a party to the proceedings in which the judgment and orders were made.
PROPOSALS
The applicant filed an Amended Initiating Application on 12 December 2023, but during the course of the final hearing her position had moved and opposing counsel asked to be provided with an updated minute of orders sought by the applicant. This was provided by way of an email dated 18 February 2024, now an exhibit, where the applicant seeks:[6]
[6] Exhibit A38.
1.DECLARE that transfers of money by the first respondent [Mr Fielders] to the second respondent [Ms Kazem] in the sum of $2,037,571.84 (“the divested amount”) set out in Annexure “A” to these orders is void within the meaning of s 37A Conveyancing Act 1919.
2.ORDER that the divesting of the sum of $2,037,571.84 [minus $135,000] and each of the transactions totaling that amount and described in Annexure “A” as credit transfers to [Ms Kazem] are set aside.
3.DECLARE that [Ms Kazem] holds the sum of $2,037,571.84 [minus $135,000] comprising the divested amount upon trust for [Mr Fielders].
4.[no longer sought]
5.DECLARE that each of 4 loan agreements between [Mr Fielders] as borrower and [Ms Kazem] as lender comprising the following purported loan transactions set out in Annexure “A” are each a sham transaction and are set aside:
a) […] August 2021 – [Ms Kazem] to [Mr Fielders] $300,000.00
b) […] July 2022 – [Ms Kazem] to [Mr Fielders] $40,000.00
c) […] August 2022 – [Ms Kazem] to [Mr Fielders] $94,969.85
d) […] October 2022 – [Ms Kazem] to [Mr Fielders] $87,000.00
6.DECLARE that registered second mortgage […] dated […] 2021 between [Mr Fielders] as Mortgagor and [Ms Kazem] as Mortgagee affecting [F Street] […] is a sham and is set aside.
7.ORDER that the second respondent forthwith execute and deliver to the applicant creditor’s solicitor an executed and registerable discharge of mortgage:
8.ORDER that the judgment obtained by [Ms Allbeck] as plaintiff against [Mr Fielders] as defendant in the District Court of NSW [in] 2021 in proceeding […] be forthwith paid to her as applicant creditor herein jointly and severally by the first and second respondents in the sum of [approximately $490,000.00] together with interest accrued thereon and continuing to accrue pursuant to s. 101 Civil Procedure Act 2005.
9.ORDER that the judgment for costs obtained by [Ms Allbeck] as plaintiff against [Mr Fielders] as defendant in the District Court of NSW [in] 2021 in proceeding […] be forthwith paid to her as applicant creditor herein jointly and severally by the 1st and 2nd respondents in the sum of [approximately $849,000.00] together with interest accrued and continuing to accrue thereon from and after […] 2024 pursuant to s. 101 Civil Procedure Act 2005.
10.ORDER that the judgment for costs obtained by [Ms Allbeck] as respondent against [Mr Fielders] as appellant in the Supreme Court of NSW, Court of Appeal [in] 2022 as amended [in] 2023 in proceeding […] be forthwith paid to her as applicant creditor herein jointly and severally by the first and second respondents in the sum of [approximately $137,000.00] together with interest accrued and continuing to accrue thereon from and after […] 2024 pursuant to s. 101 Civil Procedure Act 2005.
11.ORDER that the first and second respondents pay the applicant creditor’s costs of the annulment proceedings and proceedings pursuant to s. 37A Conveyancing Act 1919 on an indemnity basis as agreed or assessed.
12.ORDER that the following assets of the second respondent noted in the schedule be the subject of a freezing order limited to an amount of $1,865,000.00 pending compliance with orders 7, 8, 9 and 10 above.
Schedule
a) [K Street] [Suburb L] NSW […]
b) [M Street] [Suburb O] NSW […].
c)The offset account in the name of the 2nd respondent with account ending […]83 with Australia & New Zealand Banking Group in the sum of $477,582.00
13.ORDER that the assets noted in the Schedule to order 12 be charged with the payment of the amounts ordered in orders 8,9 and 10 above and that the applicant be authorized to lodge caveats notifying this charging order against each parcel of real estate noted in the Schedule.
14.DECLARE that the second respondent holds the first property described in the Schedule to order 12 and being the [Suburb L] property upon trust for the first respondent [Mr Fielders].
15.DECLARE that the second respondent holds the monies in her offset banking account with ANZ Bank described in the Schedule to order 12 on trust for the first respondent [Mr Fielders].
16.ORDER that the second respondent forthwith pay to the applicant creditor the sum of $477,582.00 comprising item (c) of the Schedule to order 4 in reduction of the amounts ordered in orders 1, 2 and 3.
17.ORDER that the amounts ordered for payment in orders 8, 9 and 10, and otherwise charged pursuant to these orders shall have priority over all and any orders otherwise making adjustments of property between the applicant, the first respondent and the second respondent pursuant to s. 79 Family Law Act 1975
18.ORDER that from the asset pool then determined by the Court as remaining for division between the applicant, the first respondent and the second respondent pursuant to s. 79 Family Law Act 1975 be adjusted as between the applicant and the first respondent as follows:
a) As to the applicant 20%
b) As to the first respondent 0%
c) As to the second respondent 80%
19.ORDER as between the applicant wife and respondent husband, subject to these orders, the applicant wife and the respondent husband shall each respectively retain all interest in and entitlement to:
a)All personal property now in his/her respective ownership; possession or control and for which purpose, property shall be deemed to be in the respective ownership, possession or control of a party if it is in the name of that party or in the case of superannuation, if that party is the designated member in the relevant superannuation;
b)All shares, debentures, units in unit trusts, bank, building society or credit union accounts standing in his/her sole name respectively;
c)All interest in life insurance policies and superannuation standing in his/her sole name respectively.
20.Costs.
The first and second respondents filed their Amended Responses on 31 January and 16 January 2024 respectively. On the final day of the hearing, the second respondent tendered proposed orders which were supported by the first respondent. They seek:[7]
[7] Exhibit R2-7.
1.That the amount of costs payable to [Mr Voronin], formerly bankruptcy trustee of the first Respondent Husband, be paid to him in the amount determined by the Court by those parties found to be responsible for that liability.
2.That, save and except for any amounts due to her in satisfaction of Orders made in the District Court and the Supreme Court […], after the implementation of these orders, the First Respondent Husband pay to Applicant Wife the amount of $543,024, in satisfaction of her entitlement to all amounts due to her, by either the First Respondent Husband or the Second Respondent De-Facto Wife, including entitlements (if any) pursuant to section 79 of the Family Law Act 1975.
3.That, pending the implementation of these Orders, the Applicant Wife be and is restrained from enforcing or seeking to enforce Orders made in her favour against the First Respondent Husband in the District and Supreme Courts […].
4.In order to give effect to Order 2, the First Respondent Husband must, as soon as practicable, do all acts and things to cause the property situated at and known as [F Street], […] NSW […], (“the [F Street] property”), to be placed on the market for sale and sold for its fair market value, which must be, unless otherwise agreed between the Applicant Wife and the First Respondent Husband, no less than an amount being 5% less than $1,750,000.
5.On completion of the sale referred to in Order 4, and after deduction of reasonable selling costs including agent’s commission and conveyancer’s fees, and the amount due and payable to the ANZ bank, the amount due and payable to the Second Respondent De-Facto Wife pursuant to Mortgage […] following the payment to ANZ Bank the then remaining balance must be paid to the Applicant Wife in satisfaction all amounts due to her, including the amount due pursuant to Order 2.
6.That, to enable completion of the sale of the [F Street] property, and on or before the completion date, the Applicant Wife must release her charge over the [F Street] property granted pursuant to orders made in the District Court […].
7.That in the event that, within ninety (90) days from the date of these orders, the First Respondent Husband tenders to the Applicant Wife the amount of $301,317, then the Applicant Wife must do all acts and things necessary to withdraw and grant discharge of the charge over the property in her favour pursuant to Orders made in the District Court […].
8.That in the event that after 90 days from the date of these Orders, the First Respondent Husband has failed to comply with Order 4 above, he must do all acts and things necessary to realise his interest in the premises situated at and known as [H Street], [Suburb J], NSW […], (“the [Suburb J] property”), and on completion of any sale of the [Suburb J] property, pay or cause to be paid to the Applicant Wife the net proceeds to be received by him.
9.That the Applicant Wife’s Application pursuant to section 37A of the Conveyancing Act 1919 NSW be dismissed.
10.In the event that the Court is satisfied that the Applicant Wife’s case pursuant to section 37A of the Conveyancing Act 1919 NSW is made out, then the transfer to the Second Respondent De-Facto Wife from the First Respondent Husband of an amount necessary to satisfy the Applicant Wife’s claim against the First Respondent Husband be paid by the Second Respondent De-Facto Wife to the Applicant Wife.
11.That payment of any amount due by the Second Respondent to the Applicant Wife be stayed pending the completion of Order 2, 4, 7 and/or 8.
12.That any application for costs made by a party be supported by a schedule detailing how the amount claimed has been calculated, and a written submission of no more than seven (7) pages setting out the reasons why the order for costs sought should be made.
13.That all other extant applications be dismissed.
Counsel for the applicant was invited to speak on the orders proposed by the respondents whereby counsel produced a document containing alternative orders to those proposed by the respondents, being:[8]
1.That in the event that as an alternative to order 8, the husband may pay to the wife the sum of $295,000.00 in full satisfaction of her charge secured against the property [H Street] [Suburb J] […].
2.That the applicant shall provide to the 1st respondent a discharge of the said Charge in exchange for the payment of the said monies.
3.If the applicant husband fails to realize his interest in the property known as [H Street] [Suburb J] within 3 months of the date hereof and or has not provided the sum of $295,000.00 to the wife as an alternative, then the applicant wife is at liberty to take such action as she may be advised to seek that sale of 2nd property at [H Street] [Suburb J] and for such purpose she is appointed tustee in the place and stead of the respondent husband.
4.Alternative to order 4, in order to give effect to order 2, the applicant is hereby appointed trustee for sale of the property the 1st respondent husband must, as soon as practicable, do all acts and things to cause the property situated at and known as [F Street] […] NSW […] (“the [F Street] property”) to be place on the market for sale and sold for its fair market value, which must be, unless otherwise agreed between the applicant wife and the 1st respondent husband, no less than an amount being 5% less than $1,750,000.00 or such other lower figure as may be agreed upon by the parties in writing.
[8] Exhibit A42.
A difficulty in this case is caused by a failure of the applicant to frame orders that deal in a practical way with the consequences of the findings that they wish the Court to make in relation to the impugned transactions. One of the obvious consequences of a finding, either partly or wholly in the applicant’s favour, is that unless the applicant finds a way to fund the payment of the judgement debts owed to the applicant, the Suburb J and Suburb G properties will have to be sold and the Suburb J property is not solely owned by the first respondent.
On the penultimate and final day of hearing, counsel for the applicant raised the need to join the other owners of the Suburb J property (who are relatives of the first respondent) to the proceeding, presumably to allow those parties to be heard in relation to orders sought for the sale of that property.
Notwithstanding numerous attempts to elicit the detail of the orders sought and the quantum of the applicant’s claim so that both respondents could effectively deal with the claim and the Court could consider the formulation of orders, no coherent submission was made by the applicant on those matters. At the close of evidence, the Court was advised that the applicant was considering further applications in the Supreme Court pursuant to s 66G of the CA in order to effect the sale of those properties if needs be. The Court is concerned that these parties have been involved in litigation since 2018 and the notion that a further tranche of litigation is necessary in another court is unsatisfactory. With that in mind, the orders of the Court will, to the extent possible, be made with the idea of avoiding further litigation whilst preserving the assets available to the applicant so that the judgment debts can be paid.
Given that there is a charge in favour of the applicant in respect of the sum of $980,091.05 that amount should receive priority and that is recognised in the orders proposed by all parties.
The balance of the judgment debts owed by the first respondent are unsecured and remain the responsibility of the first respondent. The orders proposed by the second respondent had the effect that the primary responsibility for payment of those sums lies with the first respondent. The second respondent proposed orders that in the event that the Court was satisfied that the applicant’s claim pursuant to s 37A of the CA was made out, then the second respondent is to pay to the applicant an amount “ necessary to satisfy the Applicant wife’s claim against the first respondent” after the first respondent has done all things necessary to realise his interest in the Suburb G and Suburb J properties and paid those proceeds to the applicant.[9] The difficulty with that proposal is that it effectively renders the second respondent a debtor of the applicant (when she is not and there is no claim made that she is and the jurisdictional basis to make such an order is not apparent).
[9] Exhibit R2-7.
The applicant sought orders that the asset pool by the Court subsequent to the payments to the applicant of the judgment debt be adjusted as follows:
(a)as to the applicant 20 per cent;
(b)as to the first respondent 0 per cent; and
(c)as to second respondent 80 per cent.
There were very limited submissions provided by the applicant whether by way of her Outline of Case, opening, during the course of the hearing or by concluding submissions as to the basis of the applicant’s claim to 20 per cent of the balance of assets that might be available after the respondent pays the secured sum and the balance of the judgment debts to the applicant.
MATTERS FOR DETERMINATION
In order to determine what orders should be made, I adopt the following process:
(1)Determine the applicant’s claims brought under s 37A of the CA;
(2)If a finding is made that funds have been fraudulently divested from the first respondent to the second respondent, then return the assets found to have been fraudulently divested into the balance sheet of the assets of the first respondent;
(3)Determine the net assets of the first respondent taking into account the secured and unsecured debts of the first respondent;
(4)There be a determination of the just and equitable division of assets as between the applicant and the first respondent and the first respondent and the second respondent;
(5)If that determination requires the second respondent to make a payment to the first respondent, then the terms of that payment and in what amount; and
(6)Consideration of the costs and expenses of the third respondent.
EVIDENCE
The witnesses
The applicant gave evidence relying on her trial affidavit and was cross examined. She gave clear evidence in the witness box regarding the matters that she was cross examined on and there was no submission made that she was not truthful or was evasive. She was plainly upset by having to be involved in further proceedings and giving evidence was difficult for her. She presented as an honest person.
The first respondent relied on his trial affidavit and was cross examined at length. He had a poor recollection of many of the details of the transactions and events that he was asked about. I got the impression that he genuinely struggles with fully appreciating the details of the transactions or the reasoning for them. His response to many questions about his reasons for several of the impugned transactions was entirely coloured by his belief that the claims brought against him in the District Court proceedings were without substance. He apparently cannot understand how the District Court came to the decision that it did and how he has come to have a liability to the applicant. I do have concerns about the truthfulness of the first respondent regarding his knowledge of the District Court proceedings and the fact that a successful claim may have had a significant effect on his and the second respondent’s financial position.
The second respondent relied on her trial affidavit and presented as an articulate and intelligent witness. Her responses in cross examination regarding the detail and reasons for the transfers of funds to her, and subsequently from her to her infant son, are heavily affected by her strongly held belief that the applicant had poor prospects both in the Family Court proceedings and the claim for personal injuries damages in the District Court. I do not accept that she was not aware of the consequences of an adverse finding in the District Court once the hearing of those proceedings commenced and certainly after the decision was reserved.
THE IMPUGNED TRANSACTIONS AND RELEVANT LAW
Section 37A of the CA provides:
1.Save as provided in this section, every alienation of property, made whether before or after the commencement of the Conveyancing (Amendment) Act 1930, with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced.
2.This section does not affect the law of bankruptcy for the time being in force.
3.This section does not extend to any estate or interest in property alienated to a purchaser in good faith not having, at the time of the alienation, notice of the intent to defraud creditors.
The applicant does not seek a declaration pursuant to s 106B of the FLA, which provides:
1In proceedings under this Act, the court may set aside or restrain the making of an instrument or disposition by or on behalf of, or by direction or in the interest of, a party, which is made or proposed to be made to defeat an existing or anticipated order in those proceedings or which, irrespective of intention, is likely to defeat any such order.
In Marcolongo v Chen [2011] HCA 3, the High Court held that when considering s 37A of the CA, all the applicant is required to establish is an intention by the transferer to hinder, delay or defeat creditors; the section does not require the intention to defraud to be the sole or predominant intention.
At [72] of Chan v Acres [2013] NSWSC 1597, Kunc J summarised the legal principles concerning the application of that section as follows:
72. The legal principles concerning the application of that section are:
1."Creditors" includes present or future, contingent or prospective creditors.
2.The existence of the requisite intent is a question of fact to be determined objectively from all the circumstances, irrespective of whether or not the person concerned appreciated the quality of their act.
3.It is easier to infer intent to defraud where the alienation is voluntary rather than for consideration.
4.An inference of intent to defraud creditors may be made in the case of subtraction of assets which, but for the alienation in question, would be available to meet the claims of present and future creditors.
5.The phrase "intent to defraud" includes an intent to delay or hinder.
6.It is sufficient to show an intent to hinder, delay or defeat creditors without also showing that the debtor wanted creditors to suffer loss or had the purpose of causing loss.
7.The intent to defraud does not have to be the sole or even predominant intent of the debtor.
8.The seriousness of the allegation of fraud is a matter which may be taken into account in determining whether the necessary intention has been proven on the balance of probabilities.
9.Section 37A may be used to undo an alienation of property effected by consent orders in Family Court property settlement proceedings.
73.The propositions in the preceding paragraph are derived from: Marcolongo v Chen [2011] HCA 3; (2011) 242 CLR 546 at [19], [20], [25]. [32], [34] and [57]; Cannane v J Cannane Pty Ltd (in liq) [1998] HCA 26; (1998) 192 CLR 557 at [12] and [92]; Kang v Kwan [2002] NSWSC 1187; (2002) 11 BPR 20,623 at [187]; s140 Evidence Act 1995 (NSW); Green v Schneller [2002] NSWSC 671; (2002) 29 FamLR 346; (2002) 11 BPR 20,935.
At [82] his Honour noted:
82.…any finding of intent to defraud creditors must be made having regard to all of the circumstances. The fact that a particular consequence may have resulted is only one such circumstance.
In Zreika v Royal [2019] FCAFC 82, the Full Court of the Federal Court of Australia summarised the relevant principles from Marcolongo at [88] as follows:
88The relevant principles in relation to the elements of s 37A of the Conveyancing Act and, in particular, the intent to defraud creditors, may be briefly stated. The High Court considered s 37A of the Conveyancing Act in Marcolongo v Chen. French CJ, Gummow, Crennan and Bell JJ referred to the history of s 37A and its predecessor, the Statute 13 Eliz. 1 c. 5. (the Elizabethan Statute). Their Honours made the point on two occasions in the course of their reasons that s 37A, like the Elizabethan Statute before it, should receive a liberal construction in effecting the purpose of suppressing fraud (at [20] and [58]). Section 37A refers to an intent to defraud creditors and means delay, hinder or [otherwise] defraud creditors as the Elizabethan Statute had provided (at [19]). Whether there is an intent to defraud creditors involves a question of fact concerning actual knowledge and is to be distinguished from the purely equitable doctrine of constructive notice or constructive knowledge (at [26]–[28]). However, it is not necessary to prove a desire to cheat or swindle those prejudiced. Furthermore, whilst it is necessary to show the existence of an intention to hinder, delay or defeat creditors, it is not necessary to show that the debtor wanted creditors to suffer a loss or that the debtor had a purpose of causing loss (at [32]). Finally, it is not necessary that the intent to defraud creditors be the sole or predominant intention (at [57]).
In Young v Smith [2015] NSWSC 400, in considering an application to set aside a transfer of property pursuant to s 37A of the CA, Sackar J observed at [37]:
37.It is not necessary, for the purposes of s 37A, that there be actual proof that the alienator had in his mind an intention to defraud creditors; the court can attribute to the alienator the requisite fraudulent intent if, from all the surrounding circumstances, it appears that the effect might be expected to be, or has in fact been, to defeat creditors.
CONSIDERATION OF THE S 37A CLAIM
The relevant transactions are set out in Exhibit A15 and are as follows:
Transaction Number Date Description DR (Ms Kazem) CR (Ms Kazem) 1 02.20 Mr Fielders to Ms Kazem – Part proceeds of the sale for U Street Suburb G by Mr Fielders $331.648.39 2 Early 21 Mr Fielders to Ms Kazem – Sale of V Street, Suburb W by Mr Fielders $366,624.40 3 05.21 Mr Fielders to Ms Kazem – Sale of V Street – Balance Deposit $81,191.00 4 07.21 Ms Kazem to Mr Fielders $200,000.00 5 07.21 Ms Kazem to Mr Fielders $199,999.80 6 07.21 Separation Agreement – Mr Fielders to Ms Kazem $620,000.00 7 07.21 Balance of transfer of $1,020,000.00 $400,000.00 8 08.21 Ms Kazem to Mr Fielders’ Lawyer $218,593.95 9 08.21 Ms Kazem to Mr Fielders $12,000.00 10 Late 21 Mr Fielders to Ms Kazem – Sale of X Street, Suburb Y by Mr Fielders $159,911.80 11 09.21 Mr Fielders to Ms Kazem – Balance Deposit on sale of X Street $78,196.25 12 07.22 Ms Kazem to Mr Fielders $40,000.00 13 08.22 Ms Kazem to Mr Fielders $94,969.85 14 10.22 Ms Kazem to Mr Fielders] $87,000.00
The transactions were calculated as:
Total DR Net Transfers Mr Fielders to Ms Kazem Balance $852,363.80 $1,185,208.04 $2,037,571.8 U Street
In relation to the first impugned transaction involving the proceeds of sale of the U Street property in 2020, the applicant points to the following circumstances as establishing an intent to defraud:
(1)The applicant commenced proceedings against the first respondent in this Court seeking a division of property between them pursuant to s 79 of the FLA on 4 September 2018; and
(2)In 2019, the first respondent was "constructively notified" that a potential claim might be made against him by the applicant for damages for sexual assault and that he “may incur an adverse judgement in damages and costs”. The constructive notice was said to have arisen as a result of a phone call being made by the applicant’s solicitor to the first respondent’s solicitor where that solicitor was told that proceedings would be issued in the District Court for personal injuries suffered by the applicant during the course of the marriage if a suitable offer of settlement was not forthcoming.
The first respondent gave evidence to the effect that he did not expect that the claim pursuant to s 79 of the FLA was of any substance nor did he believe (and continues to believe) that any claim for personal injury was of any substance.
The second respondent gave evidence relevant to the U Street transaction that:
(1)Prior to the commencement of the relationship, she had obtained tertiary qualifications;
(2)In 2018, the first and second respondent decided to move into the U Street property;
(3)She applied her salary to all household bills associated with that property, including utilities and groceries with the first respondent paying the rates; and
(4)The property was in a state of disrepair and that she funded the renovations herself and did considerable work from 2018 until 2019 (of which a non-exhaustive list is set out at [158] of the second respondent's trial affidavit).[10]
[10]Second respondent’s trial affidavit filed 15 January 2024 “SR’s Affidavit” at [156]-[158].
The second respondent gave evidence that she believed the property increased in value as a result of the renovations and there was an appraisal indicating a $230,000-$300,000 increase in 2019 with further work being performed subsequently.
She gives evidence that in early 2019 the decision was made to sell the U Street property and to buy a home in Region Z with the first respondent. Further to that decision, in 2019, she attended an auction for a parcel of land but was not successful in purchasing that property.
The property at U Street sold in 2020 for $1,015,000. From the proceeds of sale the second respondent received $331,648.49 which reflected a payment of $135,000 as the cost of renovations and the balance of $196,648, being what she said reflected the approximate increase in value of the property as a result of the renovation.
It was put to the second respondent that she was aware that proceedings in the District Court had been threatened and reference was made to correspondence which had been forwarded to the first respondent and the applicant, being the letter of 5 March 2019.[11] The second respondent gave evidence that she was aware of the threat but did not take it seriously or believe that any claim by the applicant had any substance.
[11]Exhibit A36.
At the time the property was placed on the market, there was a threat of litigation, but the claim had not been quantified and I accept the second respondent's evidence that she did not believe that the claim had substance and putting funds beyond the reach of the applicant did not feature in the decision to sell the property and for her to receive funds.
In the course of closing submissions, counsel for the applicant accepted that the transaction should not be set aside to the extent of $135,000 (being the costs of renovation estimated by the second respondent).
Having regard to the largely unchallenged evidence of the second respondent regarding the amount of work that she performed and the cost of it, I do not accept that the transfer effected in 2020 is caught by s 37A of the CA.
The evidence that the respondent was looking to buy another property in Region Z prior to the sale of the property was not challenged and this goes to explain the sale of the U Street property. This was put to the second respondent during cross-examination where she confirmed the intention to move to Region Z, albeit with the first respondent at the time:
Mr Simpson[Ms Kazem], you recall, don’t you, that you wished to move to [Region Z in] 2020. Do you recall that conversation with [Mr Fielders]?
[Ms Kazem]I actually think it was 2019.
Mr SimpsonAnd in light of that, you agree that you both wanted to buy a house together in [Region Z]?
[Ms Kazem]I wanted to buy a house in [Region Z].
Mr SimpsonYes?
[Ms Kazem]In 2019, just to be clear.
Mr SimpsonYes. Well, you said the discussion was in 2019. Was that the intention at that point in time to purchase the property together [in Region Z]?
[Ms Kazem]Yes.
Mr SimpsonNow that of course changed when you both had separated in July 2021?
[Ms Kazem]It changed a long time before that, but yes.
The second respondent’s evidence about not only the amount of work done by her but also the fact that she did that work when she was pregnant whilst receiving minimal assistance from the first respondent was not challenged. The basis on which she said that she was entitled to a share in the increase of the value of the property (as represented by the sale price) was not challenged, although the transaction, subject to the concession regarding the cost of materials, was challenged. I also accept the evidence that she made financial contribution to payment of household bill and utilities.
At the time of the transaction, it would have been reasonable to assume that the first respondent had sufficient remaining funds to meet any claim made be applicant under the FLA or in a claim for personal injuries in the District Court.
Separation Agreement
Regarding the transfers of $366,624.40 and $81,191.00 from the first to the second respondent on two dates in May 2021 respectively, the respondents contend that these transfers are the subject of a separation agreement which the parties had entered.
The second respondent says she engaged in property settlement discussions with the first respondent shortly after final separation and in mid-July 2021, they reached a settlement agreement on the following terms:[12]
(1)A cash settlement of $620,000;
(2)The second respondent to receive half of the first respondent’s superannuation;
(3)The second respondent to retain the proceeds of sale from the Suburb W property; and
(4)The second respondent to receive the proceeds of sale from the Suburb Y property.
[12] SR’s Affidavit at [218].
On the same day, the first respondent transferred to the second respondent a total of $1,020,000 in accordance with the settlement agreement, which included $400,000 alleged to have been a repayment of a loan given to the first respondent by the second respondent in 2021.
The second respondent deposes to having agreed with the first respondent in 2021 that payment from the sale of the Suburb W Property would be directed into her account and she says that transfers totalling $447,815.40 in 2021 was a reflection of this. The second respondent submits that she is entitled to these funds by way of the settlement agreement.
In 2021, when the District Court had reserved its judgment, the first respondent made transfers totalling $238,108.05 to the second respondent from the proceeds of sale of the Suburb Y property pursuant to the settlement agreement.
The existence of the agreement is not disputed, nor is it being pressed that the agreement was a sham, rather counsel for the applicant submits that the agreement was created with an intent to defraud, rendering, what is otherwise a legitimate agreement, voidable.
In relation to their discussions regarding the settlement, the second respondent stated that in 2021 the following conversation occurred:[13]
[Mr Fielders] Have whatever you think is right, I don’t care about money.
[Ms Kazem] Well I do, I have worked so hard and sacrificed so much to get us to where we are. I deserved stability. My children deserve stability.
[13] SR’s Affidavit at [217].
The second respondent says that this conversation preceded the eventual agreement being reached in mid-July 2021 which consisted of the terms set out at [84].
The second respondent gave evidence that they intended to formalise the agreement by way of a Binding Financial Agreement and obtained costs estimates from six different lawyers to organise the same, however, to conserve costs, the second respondent downloaded a template online and drafted the agreement herself before having a lawyer sign-off on it, which never occurred.
The draft Binding Financial Agreement contains the names of the respondents, but it is largely incomplete. It appears that it was downloaded/prepared in 2021.[14] The first respondent gave evidence that he had not seen the document before but had discussed with the second respondent her preparation of the document.
[14] Exhibit A35.
In relation to whether the agreement would leave adequate funds for any entitlement or property settlement adjustment as between the applicant and the first respondent, the second respondent deposed that the first and second respondents considered the following:[15]
232.1The fact that [Ms Allbeck] brought nothing of any significant value into their relationship;
232.2That [Ms Allbeck] had not consulted [Mr Fielders] in any financial agreement reached between her and her second husband;
232.3The fact that [Ms Allbeck] had married her third husband, who had considerable wealth;
232.4The lack of financial and non-financial contributions [Ms Allbeck] made in their marriage and the fact they had no children together;
232.5The considerable amount of time that had lapsed since their separation;
232.6The amount [Mr Fielders] retained being far more than what [Ms Allbeck] was seeking.
[15] SR’s Affidavit at [232].
Counsel for the applicant submitted that if the intention of the agreement was genuine, the agreement would have been well documented. Counsel for the applicant tendered bank statements containing the first payment pursuant to the agreement totalling $1,020,000 (inclusive of the $400,000 loan repayment), where the description of the transfer was “[…] SEPARATION AGREEMENT”.[16] It was submitted that this was the only contemporaneous note of the agreement which, in any case, the description attached to the transfer was a tactical manoeuvre to conceal its intention, which was to reduce the first respondent’s property pool in circumstances where $400,000 of the total amount transferred was not a part of the separation agreement, but the repayment of a loan. It was put to the first respondent that this was evidence of the narrative being reconstructed after the fact. The first respondent rejected this, stating that it was reasonable that he did not include thorough descriptions in the bank statements.
[16] Exhibit A9.
In the course of final submissions, counsel for the applicant submitted that it was a theme that the first respondent attempted to ‘tack’ onto the separation agreement as many assets as he could to defeat any claims made by the applicant in circumstances where he was aware the applicant may be awarded damages. To illustrate this, counsel stated that the Suburb W property was sold in 2021, prior to the agreement, yet it was still captured by the agreement. Further, it was put by counsel that the transfer of $1,020,000 occurred after final submissions in the District Court had commenced and the first respondent’s state of mind at the time, being a layperson, was that he was aware he may be unsuccessful. Similarly, the proceeds of sale of the Suburb Y property occurred in 2021 after the District Court reserved its decision, where counsel submitted that the first respondent’s state of mind regarding a possible ‘loss’ was relevant to the transaction. Counsel stated that objectively, the separation agreement in its entirety is unreasonable.
Counsel for the first respondent maintained that the first respondent has been consistent regarding the terms of the separation agreement and the case as pressed by the applicant requires a scheme having been concocted between the respondents since 2019 rather than the simpler explanation that they were transfers conducted in the context of a de facto relationship and in recognition of the second respondent’s financial and non-financial contributions to that relationship and the care of the children.
Counsel for the second respondent denied there ever being an intention to defraud, instead the intent was to provide the second respondent her entitlements under the FLA. It was raised with counsel what the reasoning behind the statement of the first respondent that the applicant will “get nothing” was. This was explained by counsel as the poorly expressed opinion of the first respondent that the applicant would not be successful in either the District Court or this Court, but did not indicate an intent to prevent the applicant from receiving any moneys. It was submitted that following the separation agreement, the first respondent still retained E$603,000 in his superannuation, which would have been enough to satisfy any claim brought against him (although it was not explained how his superannuation might be accessed to satisfy the claims).
Loans from the second respondent to the first respondent.
Included in the above transactions are moneys the second respondent says were loaned to the first respondent. In August 2021, the second respondent paid the first respondent’s legal fees directly to the firm, totalling $218,593.95.[17] The second respondent initially intended to transfer to the first respondent $300,000 as set out in the loan agreement,[18] but after some deliberation opted to transfer the lesser sum to the second respondent’s solicitors. In September 2021, the loan was secured by a mortgage in favour of the second respondent over the F Street property in the sum of the $300,000.[19] This is despite the $300,000 having been returned to the second respondent and the second respondent paying $218,593.95 of the first respondent’s legal fees instead of the $300,000 set out in the loan agreement.
[17] SR’s Affidavit at [258].
[18] Exhibit A14.
[19] Exhibit A13.
The second respondent asserts that she expects the first respondent to repay the loan and she will enforce the agreement if he fails to do so, however, this is contingent on the first respondent’s financial position in circumstances where the second respondent provided an undertaking to the District Court to not take steps to enforce the agreement.[20]
[20] SR’s Affidavit at [260].
In July 2022 the second respondent loaned the first respondent $40,000 to assist in funding his appeal of the District Court judgment.[21] In August and October 2022 the second respondent made further transfers of $94,969.85 and $87,000 to the first respondent, again, for the purposes of funding his appeal.[22]The loans are subject to formal loan agreements[23] but are unsecured and are not captured by the undertaking provided to the District Court.
[21] SR’s Affidavit at [263]
[22] SR’s Affidavit at [266].
[23] Exhibits A16, A17, A18.
Counsel for the applicant questioned the first respondent as to whether the second respondent has attempted to enforce the unsecured loan agreements. The first respondent gave evidence that the second respondent has neither attempted to enforce the agreements or asked for the return of the funds. It was put to the first respondent by counsel for the applicant that the second respondent has not sought the return of the funds as they belonged to him. This was denied by the first respondent.
It was submitted by counsel for the applicant that the funds loaned from the second respondent to the first respondent are “tainted funds” and a sham as they are the first respondent’s money being loaned back to him and therefore are caught by s 37A of the CA. These funds, irrespective of where the money originated, were legitimately spent on the first respondent’s legal fees in the District Court. The first respondent was not challenged on this evidence.
Findings
Each of the transactions, other than those relating to U Street property, which involved the transfer of funds from the first respondent to the second respondent are transfers that were made with the intent to defraud creditors as expressed in s 37A of the CA, that being to delay, hinder or otherwise defraud creditors.
When those transactions occurred, the first respondent was a defendant in civil proceedings in the District Court. In relation to the transactions involving the Suburb W property, they occurred shortly prior to the trial commencing. Whilst the first and second respondent have both been adamant in their evidence that they did not believe that the applicant had a strong case and that they would lose the case, it is reasonable given the coincidence of timing and the lack of consideration for the transactions that it was better to place assets out of the hands of the first respondent and into those of the second respondent so as to preserve them for the benefit of the second respondent.
In relation to the transfer from the second respondent to the first respondent of $1,020,000 in July 2021 pursuant to the separation agreement made on that same date and the subsequent transfers made between mid-July 2021 and late July 2021 from the second respondent to her infant son which totalled around $1,018,000, those transfers were made after the trial judge in the District Court proceedings had stated in open Court that: “if I do find sexual assaults occurred, as I presently am minded to do, then plainly that would result in an award of damages”.
I find that the first and second respondents were aware of that comment and its implications that it was likely that the first respondent would be ordered to pay damages and that there would likely be an order for him to pay the applicant’s costs, which after an 11-day trial would have been significant. They also would have been aware of the implications of those remarks as the first respondent had engaged legal representatives and the second respondent had a personal (as opposed to legal) interest in the proceedings in the sense that she had attended the proceedings and was aware of the case against the first respondent.
Further, the judge’s remarks were the subject of press reports which although the second respondent denied knowledge of particular articles put to her, she was aware of the press coverage as a friend had drawn such to her attention. This was put to the second respondent during cross-examination:
Mr SimpsonThank you. Now, you were quite watchful of media reports of this case as well, weren’t you, [Ms Kazem]?
[Ms Kazem]No, I wasn’t quite watchful.
Mr SimpsonSo you didn’t review on a daily basis, the reports that were taking place during the course of those proceedings?
[Ms Kazem]Absolutely not.
Mr SimpsonI want to suggest to you that you’re not being fully candid when you say that […].
[Ms Kazem]I would see media articles. I most certainly would not go looking for them.
Mr SimpsonSo what media articles have you seen, then?
[Ms Kazem]The one where I was pictured with my […] daughter […]. I saw that one, because it was forwarded to me by my friends.
Whilst the second respondent denies that she had received and read news articles during the trial of the District Court proceedings, I find that difficult to reconcile when she gave the below evidence during cross-examination:
Mr SimpsonWell, I will ask it this way: [Ms Kazem], the article that you referred to with the photo of you with your child in it, was that [in] a [certain online] publication?
[Ms Kazem]I actually told you what it was. It was [in a different publication].
At that point there was a risk of an adverse money judgement and the transactions occurred against that background. The coincidence of timing and the quantum of the transfers is strongly suggestive of the payments being made in order to put the money beyond the reach of the applicant if she was successful.
Similarly, each of the transactions involving payment from the first respondent to the second respondent from that date are caught by s 37A of the CA for the same reasons, as they were made against the background of litigation that could have exposed the first respondent to a substantial negative judgment whether for damages or costs, or both. There was no consideration given for the payments; the payments were made to a partner and then transferred in large part to an infant child.
I accept that the first and second respondent may have had good reasons for agreeing to transfer the funds whether pursuant to an agreement between them to give recognition to the second respondent’s contributions to managing the first respondent’s finances and their children’s ongoing needs. However, as the cases referred to above make plain, the intent to defraud does not have to be the sole or even predominant intention of the person making the payment. Cases involving the analogous provisions of ss 120 and 121 of the BA (noting that both the Commonwealth and State provisions trace their origins back to the Statute of Elizabeth)[24] hold that non-financial contributions to a relationship or family are not recognised as consideration for the purposes of the avoidance provision nor is past consideration recognised as consideration for the purposes of the avoidance provisions. While forbearance from suit is recognised as consideration, a property settlement other than by way of orders in this Court or a Binding Financial Agreement, does not foreclose property proceedings under the FLA and is not recognised as having commercial value for the purposes of the avoidance provisions.[25] The first and second respondents may have had a rationale for the transfers and the motivation from their point was principally to make provisions for the second respondent and the children of the relationship. However, those transfers lack consideration and are liable to be set aside if the Court is satisfied that the requirements of s 37A of the CA are otherwise satisfied.
[24]Pt Garuda Indonesia Ltd v Grellman [1992] FCA 232.
[25] Official Trustee in Bankruptcy v Lopatinsky (2003) FLC 93-149 at [101]-[109]; See also: Peter Fary, Family Law and Bankruptcy (2024, Lexis-Nexis Australia) 2.34, 6.27–6.29.
I find that the second respondent made significant contributions particularly when the first respondent was unable to work and also with the care and responsibility for the two children of the relationship.
Whilst the second respondent’s prospects for ongoing remunerative employment appear strong, it is likely that she will bear the ongoing costs of the care of the children. I accept that the payments that were made to the second respondent were made in large part for the purpose of providing for ongoing child support. The first respondent’s capacity to maintain an income of any substance is likely to diminish and his prospects for employment other than labouring or similar employment are not strong. Although he is likely to be able to support himself, it is unlikely that he will be in a position to support his children.
The assets divested from the first respondent to the second respondent should be treated as the husband’s assets and available to meet the secured and unsecured debts owed to the first respondent. That result is a consequence of the finding that the payments were made to avoid the payment of creditors.
The Court can, in appropriate cases where the justice and equity requires such, treat certain liabilities as the liability of one or other of the parties rather than taking such liabilities into account when determining the net pool available for adjustment (see: Biltoft & Biltoft (1995) FLC 92-614). The submissions of all parties in relation to the proper form of relief considered only the position of the applicant as a creditor and did not take into account other creditors including the Australian Tax Office. It also does not take into account the third respondent’s entitlement to be paid costs and expenses.
Once the sum of $865,359.65 is returned to the first respondent, the net non-superannuation asset pool as between the first and second respondents is $730,605. In circumstances where the first and second respondents have previously agreed on a split of assets which they both gave evidence reflected their genuine intention to resolve property matters before them and where no submission has been made as to what would be a just and equitable adjustment of their property in the event that the impugned transactions were set aside, the Court will not make further orders adjusting the property of the first and second respondent. It is the case that the impugned payments, which were said to be for the benefit of the parties’ children, have been effectively depleted by the conduct of the first respondent towards the applicant as found by the District Court which has resulted in a substantial damages award. Further the pool that is available for distribution once the charged debts are taken into account is very modest.
The first respondent did not make any claim by way of his further amended response filed 31 January 2024 and did not seek orders as against the second respondent other than a dismissal of any application for property orders. He reserved the right to make submissions on appropriate orders, but no submission was made in relation to any appropriate division of assets in the event orders were made pursuant to s 37A of the CA.
In the circumstances the court will not made an order pursuant to s 90SM of the FLA on the basis that it is not satisfied that such an order is just and equitable.
The orders as proposed by each of the parties are in terms which are likely to lead to ongoing supervision by the Court and repeated applications to enforce orders.
I have given consideration to orders deferring a requirement that the second respondent disgorge funds to the first respondent that are subject to the findings regarding s 37A of the CA. In view of the extent of the first respondent’s liabilities and the difficulties in realising assets owned by him with his relatives, the proper course is to require the second respondent to disgorge those funds to the extent of $865,359.65 and for those funds be directed first to pay the judgment debts owing to the applicant after the first respondent has sold his interests in the Suburb G and Suburb J properties and for the balance to be available to other unsecured creditors of the first respondent. If the second respondent defaults in payment of the sum of $865,359.65 then the Suburb L property must be sold in order to meet any deficiency in the payment of that sum.
THE COSTS, REMUNERATION AND EXPENSES OF THE THIRD RESPONDENT
By way of background, in oral submissions made in support of an application brought by the applicant to reopen the proceedings to introduce fresh evidence filed on 21 June 2024 and heard 25 July 2024, counsel for the applicant then appearing stated in relation to that the fact that the applicant was the petitioning creditor initially:
[Mr EE]Well, what was done by the first application, when she made her application, that was to agitate and get [Mr Fielders] to address the issues. We didn’t want him to go bankrupt. [47]
[47] Transcript of hearing on 25 July 2024 at p15-16 line 1
The Third Respondent’s Submissions
The third respondent is seeking the following orders:
1That the costs of the third respondent, in the first instance, be paid out of the estate of the first respondent in the priority provided for in s 109(1) of the Bankruptcy Act 1966 (Cth).
2That, to the extent that the estate of the first respondent is insufficient to meet the costs of the third respondent, that the costs of the third respondent be paid by the applicant and second respondent in such proportions that the court may determine.
Section 109(1) of the BA relevantly provides that:
1Subject to this Act, the trustee must, before applying the proceeds of the property of the bankrupt in making any other payments, apply those proceeds in the following order:
a.first, in the order prescribed by the regulations, in payment of the taxed costs of the petitioning creditor and the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee and the costs of any audit carried out under section 70 15 or 70 20 of Schedule 2;
b.second, if the bankrupt had signed an authority under section 188 before the date of the bankruptcy, in payment of:
i.the remuneration of the controlling trustee (as defined in section 187); and
ii.the costs, charges and expenses properly and reasonably incurred by the controlling trustee while the authority was in force (including any debts incurred by the controlling trustee that are provable in the bankruptcy);
The trustee’s costs and expenses in the sum of $221,598.79 are set out by the third respondent as follows:
(a)$118,583.85 in the Trustee’s fees and remuneration (inclusive of GST);
(b)$2,441.15 in disbursements (inclusive of GST);
(c)$69,998.79 in legal and counsel fees (inclusive of GST); and
(d)$30,575.00 in legal and counsel unbilled work in progress.
The third respondent submits that that trustee’s costs should be paid by the first respondent, being the “default” position provided under s 154 of the BA where the bankruptcy was annulled pursuant to s 153B of the BA activating s 154. Section 153B of the BA provides:
1If the Court is satisfied that a sequestration order ought not to have been made or, in the case of a debtor’s petition, that the petition ought not to have been presented or ought not to have been accepted by the Official Receiver, the Court may make an order annulling the bankruptcy.
2In the case of a debtor’s petition, the order may be made whether or not the bankrupt was insolvent when the petition was presented.
Section 154 of the BA provides:
1If the bankruptcy of a person (in this section called the former bankrupt) is annulled under this Division:
a.all sales and dispositions of property and payments duly made, and all acts done, by the trustee or any person acting under the authority of the trustee or the Court before the annulment are taken to have been validly made or done; and
b.the trustee may apply the property of the former bankrupt still vested in the trustee in payment of the costs, charges and expenses of the administration of the bankruptcy, including the remuneration and expenses of the trustee;
c.subject to subsections (3), (6) and (7), the remainder (if any) of the property of the former bankrupt still vested in the trustee reverts to the bankrupt.
2If the property of the former bankrupt referred to in paragraph (1)(b) is insufficient to meet the costs, charges and expenses referred to in that paragraph, the amount of the deficiency is a debt due by the former bankrupt to the trustee and is recoverable by the trustee by action against the former bankrupt in a court of competent jurisdiction.
The third respondent contends that by operation of these provisions the third respondent may apply the property of the first respondent that was still vested in him at the date of annulment, being largely the Suburb J and Suburb G properties.
In relation to the Court ordering the priority of payments, the third respondent submits that per s 32 of the BA the Court has a wide discretion which extends to ordering the priority of payments. Section 32 of the BA provides:
32The Court may, in any proceeding before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit.
Lastly, where the first respondent’s property is insufficient to meet the costs of the third respondent, the third respondent submits that the balance should be met by either the applicant or the second respondent. The third respondent points to the following circumstances that the Court should take into account with its wide discretion:
(1)the two major creditors of the first respondent are the applicant and second respondent, all of which are involved in this matter;
(2)the extent of the third respondent’s participation in this matter has been due to the conduct of the parties including the applicant and the second respondent;
(3)the applicant initially sought orders pursuant to s 79 of the FLA and, in the third respondent’s view, her claim for orders under the FLA were weak; and
(4)it was the conduct of the first and second respondent which caused the appointment of the third respondent.
The Applicant’s Submissions
The applicant submitted that:
(a)the trustee’s costs are excessive and the trustee’s administration costs should be capped at $46,064.50 and payable by the first and second respondent and the trustee’s legal costs and disbursements from and after late 2023 in the sum of $63,673.94 be disallowed and that his costs in this respect be limited to the sum of $13,878.05;
(b)that the trustee should make no claim for legal costs after late 2023 (at which point it is submitted he could have consented to the annulment of the bankruptcy without the need to incur further legal costs);
(c)the payment of the trustee’s costs does not stand in priority to the payment of the applicant to the extent that she is a secured creditor;
(d)as a secured creditor for part of the judgment debt the applicant retains the right to realise or otherwise deal with the property over which the security attaches with the result being that pursuant to s 58(5) of the BA the secured property does not vest in the trustee;
(e)that s 109 of the BA only applies to the vested estate in the trustee and that once the sum secured by the security by the deed of charge to the value of $980,091.05 over the Suburb G and Suburb J properties is realised, there is no estate vested in the trustee and that s 109 of the BA has applicability or alternatively any priority given to the trustee will only be in relation to a very small amount of the trustee’s costs and fees. In those circumstances the trustee is reliant upon s 154 of the BA to pursue the difference from the first respondent pursuant to section 154(2) of the BA; and
(f)that the applicant should bear no responsibility for the costs of the trustee and that if any parties to contribute to those costs in addition to the first respondent that the cost ought to be borne by the second respondent.
It is said that the second respondent ought to bear responsibility for part of the costs on the basis that:
(a)the second respondent provided assistance to the trustee which was either a waste of the trustee’s time or adverse to the interests of the applicant and the applicant sought to rely on to the affidavit of Mr Penhall filed 28 March 2024 in support of that submission;
(b)the second respondent opposed the annulment (the Court notes that the claim for annulment was made in [93] of the applicant’s Points of Claim and the second respondent’s Points of Defence pleaded a non-admission to that claim);
(c)the second respondent had depleted her assets in an amount sufficient to defeat the applicant’s recovery of her judgment debt (which is not a submission directed at who ought pay the trustee’s costs); and
(d)it was the second respondent’s decision to appoint an interstate trustee (a matter that was never put to the second respondent in cross examination), that she was involved in attempts to manipulate the trustee and her “denuding” herself of assets ( by which expression I understand to mean divesting herself of assets) supports a finding of a complex and deliberate fraud which should be visited by a requirement that she pay any costs awarded to the trustee and that the applicant have liberty to pursue all or any part of the second respondent’s “denuding” of assets.
The Second Respondent’s Submissions
The second respondent opposes orders that she be responsible for any quantum of the third respondent’s costs. The second respondent seeks orders pursuant to s 154 of the BA that the costs be met by the first respondent, or, in the alternative, if the Court finds it can depart from the terms of s 154, the costs be paid by the first respondent and the applicant.
The second respondents asserts that the third respondent, by virtue of the orders sought, are attempting to alter the operation of s 154 of the BA, in circumstances where that section plainly sets out that the trustee is entitled to recover their costs from any property still vested in them at the date of the annulment and, if that is insufficient, the balance is recoverable in debt from the former bankrupt. Therefore, the second respondent contends that there is no justification for an order which renders another person liable for the third respondent’s costs.
In relation to the wide discretion said by the third respondent to arise from s 32 of the BA, the second respondent submits that section is concerned with the exercise of the power to make orders for professional legal costs incurred in litigation before the Court and does not confer any jurisdiction to impose a liability for costs incurred generally in administering the bankruptcy.
The second respondent refers to the judgment of Jessop J in Holden v Van Houten [2012] FCA 4, where his Honour concluded:
13.… Once the bankruptcy had been annulled in the present case, the applicant’s rights flowed under s 154 as a matter of statutory entitlement.
The second respondent submits that this is not unfair on the third respondent where s 109 of the BA limits the repayment of costs incurred to assets in the bankrupt’s estate and if this is insufficient, it is a materialisation of the risks in accepting any appointment to act as a trustee in bankruptcy. It is put by the second respondent that the third respondent consented to the annulment with the awareness of the operation of s 154 of the BA.
In the alternative, it is submitted that if the Court finds that it has the power to make an order against the second respondent, the Court should not exercise such as there cannot be any responsibility attributed to the second respondent for the bankruptcy. To support this, the second respondent lists the following:
(1)the applicant obtained and served a Bankruptcy Notice and subsequent Creditors’ Petition which led to the bankruptcy and where the bankruptcy could be attributed to the actions of the applicant and first respondent;
(2)that attention ought to be focused on the contributions made by each of the parties to the initiation of the bankruptcy where it is agreed that it should not have occurred; and
(3)the applicant appears to have been motivated to challenge pre-bankruptcy dealings between the first and second respondents once bankruptcy had been initiated, however, that was unnecessary where action could have been taken pursuant to the FLA or the CA without serving a bankruptcy notice.
The First Respondent’s Submissions
The first respondent submitted that he accepts that he is likely to bear a large share of the costs owed to the third respondent, however, he disputes the following:
(1)In certain respects, the costs claimed by the third respondent are not reasonable; and
(2)It is appropriate for the applicant to bear a portion of third respondent’s costs.
In these circumstances, the first respondent seeks:
3. Accordingly, the orders the First Respondent seeks are that:
a.The Trustee’s costs be quantified in the sum of $200,000;
b.That the Applicant pay $70,000 of those costs;
c.That the First Respondent pay $130,000 of those costs;
d.That the Trustee’s costs be paid out second to the satisfaction (or part satisfaction) of the judgment debt arising from the District Court proceedings in favour of the Applicant.
The first respondent contends that the third respondent made errors in the calculation of their fees and the total costs of the trustee is $210,819.24. This is broken down into $106,487.79 for the family law matter and $104,331.45 for the bankruptcy matter.
In relation to the reasonableness of these costs, the first respondent submits that he is disadvantaged by the redactions contained in the annexures to the third respondent’s affidavit without reasoning. Therefore, the first respondent alleges that he prejudiced and where the trustee made errors in their evidence, the Court should adopt $200,000 as being the trustee's costs.
The first respondent states that the Court should not accept the submissions of the third respondent that s 154 of the BA enables the third respondent to deal with the formerly vested properties to meet its costs irrespective of court orders, instead the first respondent submits that the trustee’s costs should be paid after the applicant receiving the judgment debt so as to allow the trustee to recover the applicant’s portion of the costs.
The first respondent agrees with the third respondent’s submissions that the involvement of third respondent has been due in part to the conduct of the applicant where:
(1)it was unclear as to what application the applicant would be pressing at the final hearing;
(2)the applicant pursued the replacement of the trustee with Mr FF, to the point of a creditor’s meeting which the applicant did not attend and conceded that it was unlikely that a desirable outcome would have been achieved;
(3)The applicant sought to vacate the final hearing and stay these proceedings to transfer the bankruptcy proceedings to the Federal Court of Australia, despite this Court having accrued jurisdiction; and
(4)The applicant initiated the bankruptcy process.
Consideration of the Third Respondent’s costs
This Court has jurisdiction in bankruptcy in relation to any matter connected with or arising, or arising out of, the bankruptcy of the first respondent pursuant to s 35(1) of the BA.
Arising from that jurisdiction, pursuant to s 32 of the BA, the Court may, in any proceeding before it, including a proceeding dismissed for want of jurisdiction, make such orders as to costs as it thinks fit. The Court’s discretion to order costs and in what priority is wide. In considering the matter of costs, the Court is entitled to look beyond the actual conduct of the case and have regard to the circumstances out of which it arose. [48]
[48] Principal Strategic Options Pty Ltd, in the matter of Coshott v Coshott [2001] FCA 664 at [19(a)and (c)].
Section 32 of the BA refers to only to a party’s legal costs and not the fees and expenses of a trustee and that section does not empower the Court to make an order that encompasses payment of the trustee fees and expenses. [49]
[49] Axess Debt Management Pty Ltd v Haykal(No 2) [2017] FCA 1186 at [23].
Given the annulment of the first respondent’s bankruptcy I will make orders that the costs and expenses of the trustee should be paid by the first respondent in accordance with s 154(1)(b) and (2) of the BA.
In regards to the priority of payment to the trustee, I am not minded to afford the trustee priority in relation to the payment of his costs and expenses and the applicant as a secured creditor has priority and that the property of the first respondent secured by the charge does not vest in the trustee (s 58(5) of the BA).
There is force in the submission that the applicant by her solicitors has increased the legal costs of the trustee in the way that they have conducted themselves since the first respondent presented a Debtor’s Petition in June 2023. In particular I refer to the following:
(a)they were the legal representatives advising the applicant to pursue bankruptcy proceedings against the first respondent notwithstanding that they believed that the first respondent was solvent and the submissions made by counsel for the applicant before the Court on 25 July 2024 make that clear;
(b)proceedings could have been pursued pursuant to s 37A of the CA or s 106B of the FLA without attempting to bankrupt the first respondent;
(c)it was the applicant’s initiating the bankruptcy proceedings that lead to first respondent presenting a debtor’s petition;
(d)the trustee was joined to the family law proceedings and was required to respond to that application;
(e)notwithstanding that the applicant sought to bankrupt the first respondent, the applicant then sought orders in these proceedings that the bankruptcy be annulled by an Initiating Application filed 27 November 2023; and
(f)the trustee had to contend with the changing position of the applicant both in relation to her attitude to bankruptcy but also in relation to her changing position as to what she sought by way of orders pursuant to the FLA.
Further, notwithstanding the annulment of bankruptcy in February 2024, the applicant unsuccessfully sought to reopen the proceedings to introduce further evidence involving the trustee and the second respondent by an application filed 21 June 2024 which was served on the trustee and caused him to incur costs in appearing at the hearing of the application. That application was dismissed with an order for costs made which included an order for the solicitors for the applicant to show cause why an order should not be made against the legal representative of the applicant. Those costs are separate to the question of the trustee’s costs being considered here but is indicative of the approach taken by the solicitors for the applicant in the conduct of these proceedings.
Notwithstanding those matters, I will not make the order proposed by the third respondent against either the applicant or the second respondent. The terms of the order are vague and susceptible to creating further applications. The orders proposed do not contain a mechanism by which it would be determined that the third respondent’s right of recovery of costs against the first respondent had been exhausted, how notice would be provided to the applicant or the second respondent that they were liable for a portion of the costs and how any money received by the third respondent in satisfaction of the expenses and costs would be applied. This is important as s 32 of the BA does not empower the Court to make an order in relation to expenses or remuneration of the third respondent. Ultimately, it was the first respondent who caused the Debtor’s Petition to be filed. It was the scheme entered into between him and the second respondent that caused him to appear to be insolvent and the bankruptcy could have been avoided if they had agreed to undo the transactions and return the funds to the first respondent.
I am not persuaded that the second respondent has conducted herself in a manner that has increased the costs and the administration expenses of the trustee or that she has colluded with the trustee as alleged by the applicant’s solicitor. Further, I do not accept that the second respondent has deliberately depleted her assets whether in breach of court orders or otherwise in order to defeat the applicant’s claims.
The Court has been asked to consider the schedule of legal costs and the trustee’s cost of administration and then consider submissions and the affidavit evidence filed by each of the parties on the quantum of costs, who caused the costs to be incurred and the whether the costs and expenses are properly incurred.
Each party has invited me to conduct a detailed consideration of the costs and expenses that have been incurred. The applicant (by her solicitor) and the second respondent have given evidence by affidavits filed with the submissions regarding costs about the appropriateness of the costs and expenses. I am not well placed to conduct that enquiry which involves an analysis of each of the line items claimed whether as costs or expenses.
I accept the submission made by senior counsel for the second respondent that the appropriate course, in the absence of agreement between the third respondent, the applicant and the first respondent regarding the quantum of costs and expenses of the trustee is for the quantification of the proper remuneration, costs and expenses of the trustee be the subject of a report by a Registrar under r 19.01 of the Federal Circuit and Family Court of Australia (Division 2) (General Federal Law) Rules 2021 (Cth).
Costs of this proceeding
The Court has made orders for any application for costs of and incidental to the proceeding be made within 21 days and be supported by written submissions limited to 10 pages. Those submissions should include references to the costs occasioned by the voir dire proceedings and costs of the hearing on 25 July 2024 and the costs of and incidental to the proceedings generally.
Throughout the hearing of the proceeding, counsel for the applicant repeatedly stated that his client would be seeking costs on the basis that the claim before the court made pursuant to s 37A of the CA was not subject to s 117 of the FLA. Whilst the Court has not formed any concluded view on the subject, it would appear that view may be contrary to authority and in that regard I refer to C Pty Ltd and Ors & PGW as Liquidator of S Pty Ltd (In liq) [2011] FamCAFC 231; Daymond and Anor and Daymond and Ors (Costs) [2014] FamCA 302 at [27]‑[33] emphasising [32]; and Hampton & Farley and Ors (No 2) [2013] FamCA 785 at [164]-[166] where Le Poer Trench J stated:
164The decision of the Full Court of the Family Court in C Pty Ltd v S Pty Ltd is binding on trial judges. It also resolves the dilemma which is created by the words “proceedings under this Act” as the words appear in s 117 of the FLA.
165Once “a proceeding” is a “matrimonial cause”,as defined by the definition of matrimonial cause in s 4 of the FLA, then s 31 of the FLA is called into play and the proceeding falls within the original jurisdiction of the Court.
166Consequently, once the Court has determined that it is appropriate to exercise its accrued jurisdiction in relation to a proceeding which would otherwise be outside of the Court’s statutory jurisdiction, then that proceeding will invariably become a matrimonial cause, as defined by s 4 of the FLA. Thus, s 117 of the FLA becomes available to the Court should an application for costs be made relating only to the proceeding which was considered by the Court having to accrue jurisdiction to do so.
I note that the costs notice filed on behalf of the applicant made provision for an uplift in counsel’s fees as a success fee. The provisions of s 181(7)( b) of the Legal Profession Uniform Law 2014 (NSW) are to the effect that a conditional costs agreement that provides for payment of some or all of the legal costs being conditional on a successful outcome is not permitted in a proceeding under the FLA. Section 181(8) of that Act provides that a contravention of the Uniform Law relating to conditional costs agreements by a law practice is capable of constituting unsatisfactory professional conduct.
I invite counsel or solicitors drafting any submissions in relation to costs to bear these authorities and references to statute in mind when making any submission in relation to costs.
Finally, lest it be raised (as it was raised in the course of the application to reopen proceedings heard on 25 July 2024) that the applicant was deprived of an opportunity to fully put her case through submissions to the Court at the conclusion of the trial, I do not accept that for the following reasons:
(1)the trial proceeded over 7 days;
(2)one of the days allocated to the trial was taken up by negotiations which lead to orders being made by consent for the annulment of the first respondent’s bankruptcy and two days were spent hearing and dealing with the voir dire;
(3)the factual basis for the applicant’s claim regarding s 37A of the CA were effectively set out in the material that had been filed in or raised by her in the District Court;
(4)all counsel were aware and acknowledged that final submissions would be dealt with on the final day of hearing at the conclusion of the evidence;
(5)throughout the hearing the Court had urged the applicant’s counsel to be specific about what final orders would be sought at the conclusion of the hearing;
(6)the applicant’s solicitors filed a costs notice on 11 February 2024 which disclosed that the applicant’s counsel, who is junior counsel, was charging $6,050 per day and had charged for 9.5 days preparation for what was anticipated to be a four-day case; and
(7)in addition to the applicant’s counsel’s preparations over nine days at a cost of $57,475, there was an instructing solicitor in court who also had the assistance of a “senior paralegal” who was being charged to the applicant at the rate of $2,420 per day.
On the evening of 19 February 2024, the Court was advised that the applicant’s solicitor, Mr Penhall, had been hospitalised due to injury. On 20 February 2024, at the commencement of the hearing on that day, counsel for the applicant advised the Court that he was not in a position to make closing submissions due to the absence of his instructing solicitor, Mr Penhall. There was an instructing solicitor other than Mr Penhall present to assist counsel at Court, however, counsel submitted that he was unable to present submissions because Mr Penhall had been taking notes through the trial and he did not have the benefit of those notes. There was an application for an adjournment which was opposed by each of the first and second respondent.
The application for an adjournment was refused on the grounds that Counsel ought to have been in a position to make closing submissions and the Court did not accept that the absence of Mr Penhall meant that counsel was unable to make submissions particularly given that so much time had apparently been devoted to preparation and the submissions could have been formulated either as oral or written submissions over the course of the hearing and in large part during the 9.5 days of preparation.
The Court heard oral closing submissions from all counsel and the terms of orders proposed were each addressed. The Court refused an oral application by the applicant to file further written submissions. The applicant could not identify what further submissions needed to be made and the applicant had already incurred very significant costs. The Court was not prepared to make an order for further written submissions when it was not made clear why they were necessary and when an adequate opportunity had been provided to make submissions. The applicant had not been deprived of any opportunity to make submissions as a result of the unfortunate injury of Mr Penhall.
I certify that the preceding two hundred and thirty-seven (237 numbered paragraphs are a true copy of the Reasons for Judgment of the Honourable Justice McNab. Associate:
Dated: 14 November 2024
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