Australian Securities and Investments Commission & Rich

[2003] FamCA 1114

[2003] FamCA 1114

FAMILY LAW ACT 1975

IN THE FAMILY COURT OF AUSTRALIA

AT   No. SY 5067 of 2002

IN THE MATTER OF:	AUSTRALIAN SECURITIES AND INVESTMENTS COMMISSION		Applicant
AND	RICH	John David	First Respondent
AND	RICH	Maxine Nicole	Second Respondent

REASONS FOR JUDGMENT

CORAM:	O’Ryan J
DATE OF HEARING:	20 December 2002
DATE OF JUDGMENT:	15 October 2003

APPEARANCES:

Mr Brereton

and

Mr Abadee

Of Senior Counsel

Of Junior Counsel (instructed by the Solicitor for the Australian Securities and Investments Commission, DX 653  SYDNEY  NSW) appeared on behalf of the Applicant.

Mr Richardson

Of Senior Counsel (instructed by Joanne Kelly, solicitor, 501/184 Forbes Street, DARLINGHURST  NSW  2010) appeared on behalf of the First Respondent.

Mr Broun

Of Queen’s Counsel (instructed by Broun Abrahams, solicitors, DX 11551  SYDNEY DOWNTOWN  NSW) appeared on behalf of the Second Respondent.

FAMILY LAW – financial agreement under s 90C Family Law Act 1975 (Cth) – whether Family Court has jurisdiction to set aside financial agreement pursuant to ss 90K(1)(b) and 90KA on the application of a third party creditor – meaning of “matrimonial cause” under s 4(1) – whether power arises from s 90K or other provisions

Application dismissed. The Family Court has no jurisdiction to deal with an application by a third party to set aside a financial agreement.

Proceedings

1. On 23 August 2002 an Application was filed by the Australian Securities and Investments Commission for an order pursuant to ss 90K(1)(b) and 90KA of the Family Law Act 1975 (Cth) setting aside a Financial Agreement entered into on 31 May 2001 by John David Rich and Maxine Nicole Rich. ASIC also seeks consequential orders.

2. On 8 October 2002 a Response objecting to jurisdiction was filed on behalf of the husband and on 20 November 2002 a Response was filed on behalf of the wife.  The husband and the wife seek that the application by ASIC be dismissed.

3. The issue before me is whether the Family Court has jurisdiction to deal with the application by ASIC.  The husband contends that there is no jurisdiction to grant the relief sought by ASIC.  The application by the wife, in substance, is an application for summary dismissal and thus, it is necessary that I be satisfied that there is an absence of a triable issue, and/or that the application is so untenable that it cannot possibly succeed.[1]

   [1] General Steel Industries Inc v Commissioner for Railways (NSW) (1964) 112 CLR 125 at 129; Dey v Victorian Railway Commissioners (1949) 78 CLR 62 at 91.

Background

1. The husband was born on 1 February 1960 and the wife was born on 30 June 1962.  The respondents were married on 6 December 1987 and are still living together.  Their marriage has not broken down.  They have three children.

2. The husband was a founding director of One.Tel Limited having been appointed as a director on 3 March 1995.  He occupied the position of joint managing director until 17 May 2001 when he resigned.

3. One.Tel Limited was the holding company of a group of companies which at all relevant times carried on a telecommunications business in Australia and other countries.

4. Between 17 May 2001 and 4 June 2001 the husband engaged in a series of acts and events for the purpose of transferring or otherwise altering the ownership of his assets or assets of his associates.  On 21 May 2001 the husband transferred his interest in a Porsche motor vehicle to the wife.  On 28 May 2001 the husband resigned as a director of Tasman Pacific Pty Limited, the mortgagee of a property at 2 Queens Avenue, Vaucluse owned by the husband and the wife as joint tenants.  This property is described in the Financial Agreement as ‘the home’.  On 28 May 2001 the husband resigned as a director of a holding company Geraval Holdings Pty Limited. 

5. On 29 May 2001 the Board of Directors of One.Tel Limited resolved to place the company into administration and on 30 May 2001 joint administrators were appointed of nine subsidiary companies.

6. On 31 May 2001 ASIC commenced an investigation of the husband pursuant to the Australian Securities and Investments Commission Act 2001 (Cth) in relation to suspected contraventions of the Corporations Law between 1 January 1999 and 31 May 2001.

7. On 31 May 2001 a property known as “Craigend” at 26 Darling Point Road, Darling Point owned by Paedove Pty Limited was listed for sale.  The husband and the wife each owned one of two issued shares and were the directors.

8. What is important is that on 31 May 2001 the husband and the wife entered into a Financial Agreement pursuant to s 90C of the Family Law Act.  By the terms of the agreement the husband assigned his interest in the Vaucluse property to the wife as a provision for maintenance and accommodation of the wife, and the children of the marriage, during cohabitation and for their security in the event of a break down of the marriage.  The husband also promised to discharge the mortgage on the title of the Vaucluse property from his share of the proceeds of sale of the Craigend property immediately upon receipt of those proceeds.  The agreement recited that there was a mortgage over the husband’s interest in the home to secure a debt of approximately $3,700,000 to Tasman Pacific Pty Limited.  The husband had resigned as a director of this company on 28 May 2002.

9. By the terms of the agreement the husband also settled upon a discretionary trust called the Steven Rich and Gayl Rich Family Trust certain rights to receive monies from Lifecell Pty Limited and requested the trustees to apply the income produced by those funds, and the capital of those funds, for the maintenance, education and advancement in life of the children.  The agreement recited that the husband had received the benefit of distributions from Lifecell Pty Limited, the trustee of the Jodee Rich Family Trust, and as a consequence of these distributions he had a substantial sum of money owed to him through his loan account with the trust.

10. The husband also promised to pay the wife $1,000 per week, indexed annually, to enable her to meet the outgoings and expenses of the home, and for the maintenance of the home, and for the provision of food and the expenses of their joint shared life together.  In order to secure this payment the husband agreed to a charge over his remaining share of the proceeds of sale of the Craigend property to secure a maximum aggregate sum of $500,000.  The husband agreed to place those funds in a secure investment to ensure that the promised maintenance is available.

11. By the terms of the agreement the husband acknowledged that the furniture, furnishings and contents, including artworks, in the home are the sole property of the wife “…having been acquired for her benefit and with the intention that they should be held to provide appropriate furnishings for the home for the wife and the children”.  The artwork is extensive and valuable.  Further, that a motor vehicle currently used and driven by the wife is her sole property “…having been acquired as a gift for her.”  Presumably this is the Porsche vehicle the husband transferred to the wife on the 21^st of May.

12. In the agreement it is recited that:

    “C     …Jodee’s financial affairs have taken a significant turn for the worse and his financial future is under a cloud.  Maxine is concerned that her professional career, as a lawyer, and public company director may be significantly compromised as a result of the adverse change in Jodee’s circumstances. 

    D      Additionally, these pressures are likely to place the marriage under stress.  Maxine has been advised that by reasons of the years of their marriage and the birth of their children, she has an inchoate claim to a settlement of property under the Family Law Act, and in view of the financial uncertainty of both Jodee and Maxine, Maxine has asked Jodee to provide financial security for her and the children.  Jodee has been advised that Maxine is entitled to security and that if Maxine and he were to separate, there would be a significant award made for the benefit and security of Maxine and the children by way of property settlement and maintenance.

    …

    L      The purpose of this agreement is to provide how, in the event of the breakdown of the marriage of Maxine and Jodee, all of the property of and financial resources of each of them at the time of this agreement or at any later time during the marriage is to be dealt with and to provide for the maintenance of Maxine during the marriage and/or should the marriage be dissolved in the event of that dissolution.”

13. The agreement provided that in the event that the husband and wife separate, and their marriage breaks down, then the wife accepts the benefits provided by the agreement in full satisfaction and discharge of all her rights under Part VIII of the Family Law Act and will make no other claim on the husband except for the provision for the indexed $1,000 per week. 

14. The agreement did not specify why the husband’s financial affairs had taken a significant turn for the worse and his financial future was under a cloud.  Nor did it specify why or in what way the wife’s professional career may be significantly compromised.

15. There are Certificates from lawyers pursuant to s 90G(1)(b) and (c) of the Family Law Act attached to the agreement.  Subject to matters of contribution, I have some difficulty understanding the legal advice recited in the agreement that the wife would be entitled to a significant award if this meant that an order would be made, in the event of proceedings, that the husband transfer some of his assets to the wife given that she already had assets of a value in excess of $13,000,000. 

16. Schedules to the Financial Agreement revealed the following assets held by the husband and the wife:

    Husband

    ·Half share in 2 Queens Avenue, Vaucluse  E$  3,000,000

    ·Half share of Craigend  E$  7,500,000

    ·Half share in a Scarab boat   E$      49,000

    ·Half share in a Riveria 4000 Boat   $     225,000

    ·Half share in bank accounts   $        1,387

    ·Shares in One Tel Limited (originally estimated at $6,666,000)     $               0

    ·Superannuation Fund   $     380,000

    ·Mortgage liability to Tasman Pacific Pty Limited   ($  3,700,000)

    ·Loan Account approximate to book value of $9,000,000             $  2,000,000

    Total$  9,455,380

    Wife

    ·Half share in 2 Queens Avenue, Vaucluse  E$  3,000,000

    ·Half share of Craigend  E$  7,500,000

    ·Half share in a Scarab boat   E$      49,000

    ·Half share in a Riveria 4000 Boat  $     225,000

    ·Half share in bank accounts   $        1,387

    ·Furniture (insured for $338,724)   $     338,724

    ·Paintings

    -       West Wind by Sidney Long

    -       Children Skating in Garage by Frank Jefferey Edson

    -       Nude by Rah Fizelle

    -       Seagull over Lavender Bay by Brett Whitely

    -       Sun at Duramana by Lloyd Rees

    -       Seagull by Van Wehngen

    -       Lily Pond at Carins by John Olsen

    (Insured value total $562,790)   $     562,790

    ·ANZ General Account # 5500 24955   ($        5,726)

    ·Porsche 911 motor vehicle 1999 – AGQ 50P   E$     150,000

    ·A Connelly Craft “Plus 1”   $     200,000

    ·Superannuation Funds:

    -       BT Funds Management Personal CO336510

    (value as at 31.12.2000)   $        7,334

    -       BT Personal Super Plan (value as at 01.02.2001)                 $      13,086

    -       First State Super (value as at 30.06.2000)   $        9,622

    -       SSAU (value as at 24.01.2001)   $        5,791

    ·St George, Account # 14560 7989   $     309,007

    ·Shares as at 31.05.2001

    -       Deakin Financial   $        5,075

    -       Telstra   $      75,000

    -       Challenger   $      20,000

    -       Emitech   $        3,399

    ·18A/3 Darling Point Road   $     650,000

    ·Interest in the Maxine Brenner Settlement Trust which

    produces approximately $45,000 per annum   E$     450,000

    Total$13,067,970

17. The assets of the wife included a Porsche motor vehicle which the husband may have transferred to the wife on 21 May 2002.  They retain joint ownership of the boats.

18. The effect of the agreement was to increase the wife’s total assets from approximately $13,000,000 to approximately $16,500,000 and to decrease the husband’s total net assets from approximately $9,455,000 to approximately $3,900,000 or expressed as a percentage of total net assets disclosed in the financial agreement belonging to the husband and the wife to leave the husband with approximately 17.3% of the total net assets.  Prior to the agreement the wife had assets of a value greater than the value of the husband’s assets and it is for this, and other reasons, that I find the legal advice recited in the agreement incredulous.

19. On 4 June 2001 the wife acquired a shelf company called Selville Pty Limited.

20. On 4 June 2001 the husband and the wife transferred their interests in the Vaucluse property to the wife.

21. On 5 June 2001 ASIC extended its investigation to include an investigation of the husband in relation to further suspected contraventions of the Corporations Law between 1 January 1999 and 29 May 2001.

22. On 12 December 2001 ASIC commenced proceedings in the Equity Division of the Supreme Court of New South Wales against, inter alia, the husband pursuant to s 1317J of the Corporations Act 2001. In these proceedings ASIC claims as against the husband, declarations pursuant to s 1317E of the Corporations Act that he contravened s 180(1) of the Corporations Act; an order pursuant to s 206C and s 206E of the Corporations Act that he be prohibited from managing a corporation for such period as the Court thinks fit and an order pursuant to s 1317H(i) of the Corporations Act that he pay compensation to One.Tel Limited, in an amount which the Court thinks fit, with interest thereon. 

23. The compensation claim is quantified in an expert report that was filed and served on the husband on 31 May 2002.  The report quantified the loss and damages caused to One.Tel Limited by reason, inter alia, of the husband’s contraventions, based on a range of different scenarios.  The report concluded that the One.Tel group incurred net liabilities and suffered a reduction in net worth of approximately the following amounts:

    (a)$93,000,000 between 28 February 2001 and 29 May 2001

    (b)$62,000,000 between 31 March 2001 and 29 May 2001.

24. The husband and the wife are defendants in the proceedings in the Supreme Court as well as Tasman Pacific Pty Limited, Geravale Holdings Pty Limited and Lifecell Pty Limited.

25. On 24 September 2001 the husband, and the three companies, gave an undertaking to the Court, without admission, until 14 December 2001 or until further order not to take, send or transfer money, securities, future contracts or other property outside Australia without first having given ASIC fourteen days notice in writing of their intention to do so.

26. On 24 September 2001 the wife gave an undertaking in the Supreme Court, without admission, that she would not take, send or transfer money, securities, future contracts or other property received by her or in which she had acquired a financial interest from the husband in satisfaction of his obligations under the financial agreement made 31 May 2001 outside Australia without first having given ASIC fourteen days notice in writing of her intention to do so.  The undertakings were extended on 14 December 2001, 11 February 2002, 11 March 2002 and 17 June 2002.  I understand that the undertakings have been continued.

27. On 24 July 2001 One.Tel Limited was placed in liquidation pursuant to s 439A of the Corporations Act.  It was described by Senior Counsel for ASIC as one of Australia’s greatest corporate collapses.

Third party interests

1. In order to put the issues in this case into perspective it is useful to look at the situation prior to the introduction in December 2000 of the concept of financial agreements.

2. Under s 79 of the Family Law Act the Court has power to make orders redistributing the property of parties to a marriage.  Such orders may be by consent or the outcome of contested proceedings.  However, the jurisdiction is limited to making orders in relation to the property of the parties or either of them.  The ability of the Court to make orders that effect the rights and interests of third parties is extremely limited.  In Ascot Investments Pty. Ltd. v. Harper and Harper[2] Gibbs J. (as he then was) said:  

   “It can safely be assumed that the Parliament intended that the powers of the Family Court should be wide enough to prevent either of the parties to a marriage from evading his or her obligations to the other party, but it does not follow that the Parliament intended that the legitimate interests of third parties should be subordinated to the interests of a party to a marriage, or that the Family Court should be able to make orders that would operate to the detriment of third parties.  There is nothing in the words of the sections that suggests that the Family Court is intended to have power to defeat or prejudice the rights, or nullify the powers, of third parties, or to require them to perform duties which they were not previously liable to perform.”

   [2] (1981) FLC 91-000 at 76,061.

3. It is sometimes necessary, as part of the determination of a property settlement application, to resolve the extent of third party rights and interests, in order to identify the property of the parties to the marriage or either of them.  A third party may claim title to some item of property, which is asserted to be the property of the parties to the marriage, or either of them.  The Court can determine the issue of whether assets are the property of the parties to the marriage and may come to the conclusion that they are the property of a third party.[3]  If the Court found that the property belonged to a third party then it could make no order in relation to that property[4].  However, if the Court found that property belonged to a party to the marriage, such a ruling would not bind a third party who would be able to bring proceedings in other courts claiming the property: Re Bailey, M.J. and Bailey, M.J. (executrix of the estate of Bailey, H.R.).[5]

   [3] Antmann and Antmann (1980) FLC 90-908 at 75,746-75,747.

   [4] This is subject to the accrued jurisdiction of the Family Court.

   [5] (1990) FLC 92-117. This is subject to Family Law Act 1975 (Cth) s 78 and participation by a third party in such proceedings.

4. The first step[6] in determining a s 79 application is to make findings as to the extent and value of the financial circumstances of the parties to the marriage and they each have an obligation to make a full and substantive unqualified disclosure of their financial circumstances and all matters relevant thereto.[7]  The first step also involves identifying, and if necessary valuing, the liabilities of the parties in order to arrive at the net property.  In Prince and Prince; General Credits Australia Limited (Intervenor); A-G for the State of Queensland (Intervening); A-G for the Commonwealth of Australia (Intervening)[8] Evatt CJ. (as she then was) said:

   “... the outcome of the wife’s application will depend upon findings made by the Court as to the parties’ assets and liabilities, their contributions and their respective financial resources, means and needs.  It would be necessary for the Court to determine so far as is possible the value of the property held by each party.  In accordance with the usual practice this would be done by deducting the value of outstanding mortgages, debts, and other liabilities (e.g. Albany and Albany (1980) FLC 90-905, p. 75,717). The Court may have to determine, as between the parties, the existence of a particular liability (Af Petersens and Af Petersens (1981) FLC 91-095).”

   [6] Hickey and Hickey and Attorney-General for the Commonwealth of Australia (Intervenor) (2003) FLC 93-143.

   [7] Oriolo v Oriolo (1985) FLC 91-653; Black and Kellner (1992) FLC 92-287 and Weir and Weir (1993) FLC 92-338.

   [8] (1984) FLC 91-501 at 79,076.

1. Ordinarily there is no issue in relation to the interests of secured creditors as the secured creditor has an interest in that part of the property of the debtor over which the security is taken.  The Court cannot make an order altering the interests in property to the extent that a secured creditor’s rights in property are affected because the property, to the extent of the security, is not the property of the parties.  This is consistent with Ascot Investments namely that the Court cannot make an order that operates to the detriment of the rights and interests of a third party. 

2. Unsecured creditors however have no right to a particular part of the debtor’s property.  The unsecured creditor has a right to sue the debtor, recover judgment and prove in bankruptcy.  However, the usual practice described in Prince, and other cases, also applies to unsecured creditors.  The Court will deduct the amounts owed to unsecured creditors in order to arrive at the net property of the parties.  In Re Bailey[9] the Full Court said that the liabilities may be secured or unsecured.  In Biltoft and Biltoft[10] the Full Court said:

   “A general practice has developed over the years that, in relation to applications pursuant to the provisions of s 79, the Court ascertains the value of the property of the parties to a marriage by deducting from the value of their assets the value of their total liabilities. In the case of encumbered assets, the value thereof is ascertained by deducting the amount of the secured liability from the gross value of the asset. See, Ascot Investments Pty Ltd v. Harper & Anor (1981) 148 CLR 337 where Gibbs J. (as he then was) pointed out at p 355 that the Court “must take the property of a party to the marriage as it finds it. The Family Court cannot ignore the interests of third parties in the property, nor the existence of conditions or covenants that limit the rights of the party who owns it”. Where the assets are not encumbered and moneys are owed by the parties or one of them to unsecured creditors, the court ascertains the value of their property by deducting from the value of their assets the value of their total liabilities, including the unsecured liabilities.”

   [9] Above, note 5, at 77,772-77,773.

   [10] (1995) FLC 92-614 at 82,124.

3. In some circumstances, as between the parties, the Court may come to the conclusion that there are sufficient uncertainties as to the liability to lead the Court to disregard it entirely or partly.  In Prince Evatt CJ. said:[11]

   “The assessment of debts and liabilities is not necessarily arrived at by a strictly mathematical or accountancy approach in all cases.  While some liabilities are charges upon the property which can be accurately assessed at a certain date, others are at large, or have not been precisely determined, e.g. tax liabilities (Kelly and Kelly (No. 2) (1981) FLC 91-108 p. 76,801). In some cases the amount of the liability can only be estimated generally (Albany (supra), p. 75,717).  The Court can make an allowance for a particular liability if appropriate to do so.  In some cases there are sufficient uncertainties as to the alleged liability to lead the Court to disregard it entirely or partly (e.g. a loan from a parent of the party not likely to be enforced; Af Petersens (supra); Quirk (1983) unreported). In other cases, the Court may take the view that because of the circumstances surrounding the incurring of the liability it ought in justice and equity to be wholly or partly disregarded in determining the appropriate order to make under sec. 79 as between the parties to the marriage. Such a result could be reached where a spouse had incurred a liability in deliberate or reckless disregard of the other party’s potential entitlement under sec. 79 (Kimber and Kimber (1981) FLC 91-085; Kowaliw and Kowaliw (1981) FLC 91-092; Antmann and Antmann (1980) FLC 90-908; Af Petersens (supra)).  Complex issues can arise in regard to liabilities to third parties (see, e.g. Pockran and Crewes; Pockran (1983) FLC 91-311).

   Of course, the Court cannot ignore the fact that there is or may be a liability; the effect is simply that it does not consider that the other spouse should be called upon to in effect “contribute” to the liability by having that spouse’s fair share in the parties’ property reduced by virtue of its existence. The effect may be that the party who has incurred the liability will be left to meet it out of whatever funds remain to that party after satisfying the property order made under sec. 79 (Af Petersens (supra)).”

   [11] Above, note 8, at 79,076-79,077.

4. This approach was affirmed by the Full Court in Biltoft.

5. Then there are contingent liabilities.  In Re Bailey the Full Court said that it “matters not whether the liabilities are actual, contingent, arising out of contract or tort”.[12]  In Rowell and Rowell; Deputy Commissioner of Taxation[13] McCall J. said that the Court has always taken into account liabilities including those which are contingent and have to be established.  In Biltoft the Full Court said:[14]

   “The Family Court has always taken into account liabilities, not only liabilities which are certain or reasonably established but even those liabilities which are contingent and which have to be established…”

   [12] Above, note 5, at 77,772.

   [13] (1989) FLC 92-026 at 77,392.

   [14] Above, note 10 at 82,125.  See also above, note 8.

6. There is then the issue of how the Court has dealt with the interests of unsecured and contingent creditors or claimants whose interests are not being considered by one or both parties to the marriage.  A great deal has been written about property rights and third party creditors and whether the usual practice of deducting liabilities has had the consequence of giving priority to unsecured creditors.[15]  In Biltoft the Full Court approved[16] the observation of Nygh J. in Af Petersens and Af Petersens[17] in relation to unsecured creditors: 

   “Nor, as has been pointed out earlier, is there anything in the decision of the High Court in Ascot Investments Pty. Ltd. v. Harper and Harper to suggest that this Court cannot make an order dividing the assets of the parties because such a division might hamper a third party in his or her chances of recovery of a debt.” 

   The Full Court went on to say:[18]

   “Thus, although there is a general rule as set out in Prince and Prince (supra) and Rowell and Rowell (supra), the rule is not absolute, is not prescribed by the statute and there are a number of well recognised exceptions to some of which we have already referred. There is no requirement that the rights of an unsecured creditor or a claim by a third party must be considered and dealt with prior to the Court making an order under s. 79, nor is there a rule of priority as between a creditor claimant and a spouse. Those rights, however, cannot be ignored. They must be recognised, taken into account and balanced against the rights of the spouse.”

   However, the Full Court also said:[19]

   “There is an obligation on both parties to disclose any significant creditors or any significant claim against either of them by a third party.  If, as a result of the order of the Court in the property proceedings, the ability of a creditor or claimant to recover his or her debt or claim is likely to be affected, notice of the Family Court proceedings must be given to that creditor or claimant.  He/she may then intervene in the Family Court proceedings and either seek a stay of those proceedings or some appropriate order which recognises his/her rights.” 

   [15] Dickey A “A Question of Priorities: Wives or Unsecured Creditors?” (1992) 6 AJFL 229; Lindenmayer T E and Doolan P A “When Bankruptcy and Family Law Collide” (1992) 8 AJFL 111; Parkinson P “Property Rights and Third Party Creditors: the Scope and Limitations of Equitable Doctrines” (1997) 11 AJFL 100; Brereton P “The Plight of the Spouse of the Insolvent Creditor in Family Law” (1990) 6 Australian Family Lawyer 23.

   [16] Above, note 10, at 82,127.

   [17] (1981) FLC 91-095 at 76,669.

   [18] Above, note 10, at 82,128.

   [19] Above, note 10, at 82,128-82,129.

7. In Re Bailey the Full Court said:[20]

   “The combination of the statement by the High Court in Ascot Investments and Harper and sec. 79A clearly indicates to us that it is not proper for the Court to proceed in a property application without due regard to liabilities of a party which are either established or in the process of being determined where the liabilities are of such magnitude as to be defeated by the order being sought in the Family Court.”

   [20] Above, note 5, at 77,774.

8. In Semmens v. Commonwealth of Australia and Collector of Customs (S.A.)[21] the Full Court said:

   “Neither the Family Law Act nor the Rules of Court require notices to be given to third parties in proceedings under sec. 79, 86 or 87. Nevertheless there are cases where the orders sought by one or both of the parties may impinge upon the legitimate rights of third parties. Whilst it would not be appropriate to require parties to such proceedings to give notice in every case to all third parties who are or may be creditors of one or both of the parties, nevertheless in particular cases the failure by the parties to do so (or the Court to direct such a course) may prejudice the rights of third parties.

   …

   Whilst we think it inappropriate, in the absence of Rules of Court to this effect, to require notices to be given to third parties in all such circumstances, it must be recognised that the failure to do so in particular cases can severely impinge upon the “legitimate interests of third parties” and may almost inevitably in many cases constitute a “miscarriage of justice” within sec. 79A. Consequently, in our view, where in a proceeding under sec. 79, 86 or 87 it appears to either of the parties that there are interests of third parties which might be adversely affected by the orders which are being sought or the terms of the agreement, justice and common sense dictate that those third parties be given notice.

   Similarly, where the Court becomes apprised of that circumstance in the course of hearing such a proceeding, that procedure would also commend itself.  

   Failure to do so in a particular case may adversely affect the interests of a third party and, in the long run, may open up the orders which have been made or the agreement which has been approved or registered to challenge sec. 79A and 87(8) or otherwise.”

   [21] (1990) FLC 92-116 at 77,767.

9. In Official Trustee in Bankruptcy v Donovan and Donovan and Stevens[22] the Full Court held that a failure by a party seeking orders affecting the property of the parties to notify “a person who might be affected” by the orders sought “will constitute a miscarriage of justice” for the purposes of s 79A of the Family Law Act.  The Full Court said[23]:

   “This court has, on numerous occasions, emphasised the obligation of full disclosure of third party interests to the Court and the responsibility of notification to third parties.  See Chemaisse and Chemaisse; Federal Commissioner of Taxation (…[(1998) FLC 91-915]), Re Chemaisse; Federal Commissioner of Taxation (Intervener) (…[(1990) FLC 92-133]), Deputy Commissioner of Taxation (WA) v Spanjich (…[(1988) FLC 19-974]); Rowell and Rowell; Deputy Federal Commissioner of Taxation (Intervener) (…[(1989) FLC 92-026]); Re Bailey and Bailey (…[(1990) FLC 92-117]), Semmens v Commonwealth of Australia and Collector of Customs (SA) (…[(1990) FLC 92-116]) and Biltoft and Biltoft (…[(1995) FLC 92-614]).

   [22] (1996) FLC 92-703.

   [23] Id, at 83,421.

10. The authorities establish that there is an obligation upon a party to property settlement proceedings and/or the Court to notify a person or entity who may be affected by an order such as a third party creditor or claimant who may have a right to intervene or to be heard in a claim made under the Family Law Act.[24]

    [24] Allesch v Maunz (2000) FLC 93-033 at 87,517 per Kirby J.

11. In summary, the law is that if there are secured or unsecured liabilities to third parties then these must be deducted from the pool of assets before an order is made pursuant to s 79 for property settlement. If as a result of the order the ability of a creditor to recover a debt is likely to be affected then the creditor must be given notice and an opportunity to be heard. So also if as a result of an order the ability of a claimant to recover a claim is likely to be affected then the claimant must be given notice and an opportunity to be heard. If there is an outstanding claim, which is unresolved, the Court may postpone the proceedings until the extent of the liabilities is determined. If however an order is made by consent or after a contested hearing and the third party creditor or claimant whose interests may be adversely affected by the order was not given notice then the third party may seek to have the order set aside.[25] 

    [25] Family Law Act 1975 (Cth) s 79A.

12. Prior to 27 December 2000 parties to a marriage could resolve financial issues by a consent order or a maintenance agreement registered under s 86 or approved under s 87 of the Family Law Act.  If as a result of an approved maintenance agreement the ability of a creditor to recover a debt, or a claimant to recover a claim, was likely to be affected then the creditor/claimant had to be given notice and an opportunity to be heard before the agreement was approved.  If the maintenance agreement was approved without such notice being given then the third party creditor or claimant whose interests may be adversely affected could seek to have the approval of the agreement revoked.[26]

    [26] Family Law Act 1975 (Cth) s 87(8).

13. In this case ASIC, as a third party claimant, is seeking to have the Financial Agreement set aside. If for example, there had been contested s 79 proceedings between Mr and Mrs Rich then ASIC would be entitled to have notice, participate in the proceedings and seek to have such proceedings adjourned until its claim against the husband was resolved. There is evidence which quantifies the loss caused to One.Tel Limited, by reason of the husband’s asserted contraventions, in the order of between $62-93 million depending upon at which point of time the damage is assessed. ASIC contends that in transferring property the husband had the intention of defrauding ASIC. In this case the husband was able to transfer significant and valuable assets to the wife without notice to ASIC or any other third party.

Settlement of disputes

1. The Family Law Act provides for parties to a marriage to formalise their consent arrangements for spousal maintenance and property settlement in two ways namely, by court order or by agreement.  Before 27 December 2000 financial agreements could not be made.  However, prior to December 2000 the parties could use two types of maintenance agreement being:

   1.Those which were in substitution for the rights of the parties to apply to the Court under Part VIII of the Family Law Act (s 87); and

   2.Those which left rights under the Act in tact (s 86).

2. The situation now is that maintenance agreements under both s 86 and s 87 cannot be made on or after 27 December 2000, although existing agreements are still valid.

3. Section 87(8) provides:

   “(8)   A court may, by order, revoke the approval of a maintenance agreement under this section if, and only if, the agreement is registered or deemed to be registered in that court and the court is satisfied that:

   (a)the approval was obtained by fraud;

   (b)the parties to the agreement desire the revocation of the approval;

   (c)the agreement is void, voidable or unenforceable; or

   (d)in the circumstances that have arisen since the agreement was approved it is impracticable for the agreement to be carried out or impracticable for a part of the agreement to be carried out.”

4. Section 87(11) provides:

   “Apart from the provision made by subsections (2), (4A), (4C), (5), (9) and (10), the validity, enforceability and effect of an approved maintenance agreement shall be determined by the court according to the principles of law and equity that are applicable in determining the validity, enforceability and effect of contracts and purported contracts, and, in proceedings of the kind referred to in subparagraph (ea)(iii) of the definition of matrimonial cause in subsection 4(1), being proceedings instituted in a court in which the approved maintenance agreement is registered or deemed to be registered, the court:

   (a)     subject to paragraph (b), has the same powers, may grant the same remedies and shall have the same regard to the rights of third parties as the High Court has, may grant and is required to have in proceedings in connection with contracts or purported contracts, being proceedings in which the High Court has original jurisdiction;

   (b)     has power to make an order for the payment, by a party to the agreement to another party to the agreement, of interest on an amount payable pursuant to the agreement, from the time when the amount became or becomes due and payable, at a rate not exceeding the rate prescribed by the Rules of the Court; and

   (c)     in addition to, or instead of, making an order or orders pursuant to paragraph (a) or (b), may order that the agreement, or a specified part of the agreement, be enforced as if it were an order of the court.”

5. There is a distinction between revocation of the approval of a s 87 agreement and revocation of the agreement itself. Revocation of approval is only possible on the grounds set out in s 87(8) and it has the consequence of allowing parties to apply for fresh orders under Part VIII subject to the time limits in s 44(3A). Revocation of an agreement does not normally entitle the parties to apply for orders under Part VIII. An agreement can revoked under ordinary legal and equitable doctrines and s 87(11) makes these applicable to maintenance agreements. Revocation of the agreement however, may sometimes provide grounds for an application for revocation of the approval of the agreement under s 87(8).[27] 

   [27] Drew and Drew (1985) FLC 91-601.

Bankruptcy

1. It is also relevant to consider the effect of the Bankruptcy Act 1966 (Cth). When a party to a marriage is declared bankrupt the trustee in bankruptcy will consider what assets comprise the bankrupt’s estate. The trustee may scrutinise earlier dispositions of property by the bankrupt spouse. The Bankruptcy Act contains a number of provisions by which the trustee in bankruptcy may seek to attack dispositions of property previously made by the bankrupt spouse.

2. Section 120 of the Bankruptcy Act deals with “undervalued transactions” and provides that a transfer of property by a future bankrupt is void as against the trustee if the transfer took place in the period beginning five years before the commencement of the bankruptcy and “the transferee gave no consideration for the transfer or gave consideration of less value than the market value of the property.” What is important is that s 120(1) does not apply to a transfer to meet all or part of a liability under a maintenance agreement or a maintenance order.

3. Section 122 of the Bankruptcy Act deals with the avoidance of preferences and renders void against the trustee in bankruptcy a transfer of property which has the effect of giving a creditor a preference, priority or advantage over other creditors, within a relevant period defined in s 122(1). However, s 122(1) does not apply to a conveyance, transfer, charge, payment or obligation of the debtor executed, made or incurred under or in pursuance of a maintenance agreement or maintenance order.

4. All assets transferred by a bankrupt during the relation back period being a period commencing with the date of the earliest act of bankruptcy in the six months prior to the presentation of the petition will automatically vest in equity in the trustee.[28] Section 123 of the Bankruptcy Act provides that subject to sections 118 to 122 nothing in the Act invalidates certain identified transactions and importantly s 123(6) provides that subject to s 121 nothing in the Act invalidates, in any case where a debtor becomes a bankrupt, a conveyance, transfer, charge, disposition, assignment, payment or obligation executed, made or incurred by the debtor before the day on which the debtor became a bankrupt under or in pursuance of a maintenance agreement or maintenance order. This provision thus affords protection against the doctrine of relation back in respect of some transactions affected by a maintenance agreement but subject to s 121 and s 122.

   [28] See ss 58 and 115 of the Bankruptcy Act 1966 (Cth) and the exceptions listed in s 116(2).

1. “Maintenance agreement” is defined in s 5 of the Bankruptcy Act to mean a maintenance agreement that has been registered in or approved by a court in Australia or:

   “(b)   a financial agreement within the meaning of that Act”

2. The result is that subject to s 121 of the Bankruptcy Act, which deals with transfers to defeat creditors, a transfer pursuant to a financial agreement will be upheld.  Thus dispositions of property pursuant to the terms of financial agreements are afforded considerable protection under the Bankruptcy Act.  Prior to December 2000 this was subject to the powers of the Family Court to set aside agreements. 

Part VIIIA of the Family Law Act

1. Part VIIIA of the Family Law Act was inserted by operation of the Family Law Amendment Act 2000 (No. 143 of 2000). It introduced the concept of binding financial agreements. It permits parties to make agreements governing the financial consequences of divorce either before they marry or during their marriage and such agreements are effective to oust the jurisdiction of the court subject to certain conditions.

2. Section 71A, which is in Part VIII of the Act, provides:

   “This Part does not apply to:

   (a)financial matters to which a financial agreement that is binding on the parties to the agreement applies; or

   (b)financial resources to which a financial agreement that is binding on the parties to the agreement applies.”

3. The term ‘financial agreement’ is defined in s 4 to mean an agreement that is a financial agreement under ss 90B, 90C or 90D. Section 71A therefor makes it clear that when a financial agreement is binding under Part VIIIA, the powers in Part VIII do not apply to financial matters or resources to which such an agreement applies.

4. Part VIIIA effectively supersedes the provisions in Part VIII relating to maintenance agreements under s 86 and s 87 of the Act. However, binding financial agreements only oust the court’s jurisdiction with respect to financial matters or resources expressly dealt with in the agreement.

5. There are three types of financial agreements.  Parties may enter a financial agreement before marriage[29] or during the marriage[30] or after dissolution of marriage.[31]

   [29] Family Law Act 1975 (Cth) s 90B.

   [30] Family Law Act 1975 (Cth) s 90C.

   [31] Family Law Act 1975 (Cth) s 90D.

6. Section 90G sets out the requirements that must be met for a financial agreement to be binding upon the parties.  All the requirements must be satisfied for the agreement to be binding.  These requirements are justified because the effect of a valid agreement is to oust the jurisdiction of the Court.[32]  However, there is no requirement of registration in the Court or approval by the Court of a financial agreement.[33] Further, I am of the view that the requirements of s 90G are not stringent. All that is required is that the agreement be signed by both parties, include a statement addressing the matters in s 90G(1)(b) and attach a certificate from a legal practitioner.

   [32] Family Law Act 1975 (Cth) s 71A.

   [33] Family Law Act 1975 (Cth) s 105(2A).

7. Section 90K deals with circumstances in which a court may set aside a financial agreement.[34]  It provides:

   [34] See Parkinson P “Setting aside financial agreements” (2001) 15 AJFL 26.

   “(1)   A court may make an order setting aside a financial agreement or a termination agreement if, and only if, the court is satisfied that:

   (a)the agreement was obtained by fraud (including non-disclosure of a material matter); or

   (b)the agreement is void, voidable or unenforceable; or

   (c)in the circumstances that have arisen since the agreement was made it is impracticable for the agreement or a part of the agreement to be carried out; or

   (d)since the making of the agreement, a material change in circumstances has occurred (being circumstances relating to the care, welfare and development of a child of the marriage) and, as a result of the change, the child or, if the applicant has caring responsibility for the child (as defined in subsection (2)), a party to the agreement will suffer hardship if the court does not set the agreement aside; or

   (e)in respect of the making of a financial agreement—a party to the agreement engaged in conduct that was, in all the circumstances, unconscionable.

   (2)     For the purposes of paragraph (1)(d), a person has caring responsibility for a child if:

   (a)the person is a parent of the child with whom the child lives; or

   (b)the person has a residence order in relation to the child; or

   (c)the person has a specific issues order in relation to the child under which the person is responsible for the child's long-term or day-to-day care, welfare and development.”

8. Section 90KA provides:

   “The question whether a financial agreement or a termination agreement is valid, enforceable or effective is to be determined by the court according to the principles of law and equity that are applicable in determining the validity, enforceability and effect of contracts and purported contracts, and, in proceedings relating to such an agreement, the court:

   (a)     subject to paragraph (b), has the same powers, may grant the same remedies and must have the same regard to the rights of third parties as the High Court has, may grant and is required to have in proceedings in connection with contracts or purported contracts, being proceedings in which the High Court has original jurisdiction; and

   (b)     has power to make an order for the payment, by a party to the agreement to another party to the agreement, of interest on an amount payable under the agreement, from the time when the amount became or becomes due and payable, at a rate not exceeding the rate prescribed by the applicable Rules of Court; and

   (c)     in addition to, or instead of, making an order or orders under paragraph (a) or (b), may order that the agreement, or a specified part of the agreement, be enforced as if it were an order of the court.”

9. Section 90K(1) sets out the grounds upon which the Court may make an order setting aside a financial agreement. Section 90KA prescribes the legal criteria to be applied for the purpose of the application of s 90K(1)(b). Is this case ASIC is relying upon s 90K(1)(b) namely that the financial agreement is void or voidable.

Part VIIIA and the rights and interests of third parties

1. I had the benefit of extensive written submissions on behalf of ASIC, the husband and the wife and it is not necessary to repeat all of what is contained in those submissions.

2. On behalf of the husband it is submitted that the statutory relief provided in s 90K and s 90KA is not available to ASIC and there is no jurisdictional standing for ASIC to pursue its application under the Act in the Family Court and thus, the application should be dismissed.

3. ASIC also seeks an order pursuant to s 37A of the Conveyancing Act 1919 (NSW) reliant upon the accrued jurisdiction of the Court. However, this claim would have no action to accrue to if there was no jurisdiction to deal with the s 90K application. It is agreed that if I find I have no jurisdiction then this application should be transferred to the Supreme Court of New South Wales.

4. The issue raised by the husband is whether or not a third party can make an application pursuant to s 90K of the Act to set aside a financial agreement in circumstances where there were no pending or completed proceedings between the husband and the wife under the Family Law Act. On behalf of the husband it is submitted that if there were no pending or completed proceedings under the Act at the time when the financial agreement was entered into then the Court has no jurisdiction to entertain an application by a third party under s 90K to set aside the agreement.

5. Financial agreements are not required to take any particular form or deal with particular matters but operate in a binding way dealing with rights to financial claims for property settlement or spousal maintenance that would otherwise arise between parties to a marriage under the Act subject to the formal requirements of s 90G having been observed and the restriction inherent in s 90F. 

6. The Family Law Act contains no prescription as to the matters which may be the subject of the contract. Financial agreements do not depend in any way on the powers under s 79. There is no express requirement that the provisions must be just and equitable. Further, in relation to a maintenance agreement under s 87 the Court had to be satisfied that “the provisions of the agreement with respect to financial matters are proper”.[35]  However, there is no such requirement in relation to financial agreements.  All that is required is that the provisions of s 90G are complied with. 

   [35] Family Law Act 1975 (Cth) s 87(3).

7. Part VIIIA does not operate to give greater or lesser force or effect to the contract except in so far as it authorises that which is legally impermissible namely, in certain circumstances, to contract outside of the operation of Part VIII of the Act. The requirement that a maintenance agreement under s 87 had to be approved by the Court, and the Court satisfied that the provisions with respect to financial matters was proper, reflected important public policy considerations because the effect of the approval was that the agreement thereafter operated in substitution of rights under the Act. This important public policy consideration is not reflected in the provisions relating to financial agreements notwithstanding the effect of s 71A.

8. It is submitted on behalf of the husband that the legislation operates only on the rights of the husband and the wife, arising from the agreement and does not operate in a way to cause the agreement to operate any differently on the rights of a third party than could a contract made between the parties outside of the Family Law Act.

9. Unlike s 87 maintenance agreements the operative effect of the financial agreement is derived from the contract, and the statutory operation of s 71A, and no order or approval of any court is required. Further, no process of registration in any court is necessary, as with s 86 agreements. Thus the creation of a formal and enforceable financial agreement under Part VIIIA does not involve the existence or maintenance of a proceeding of any kind.

10. Section 31 of the Family Law Act, which defines the original jurisdiction conferred on the Family Court, provides: 

    “(1)   Jurisdiction is conferred on the Family Court with respect to:

    (a)matters arising under this Act or under the repealed Act in respect of which matrimonial causes are instituted or continued under this Act;

    (b)matters arising under the Marriage Act 1961 in respect of which proceedings (other than proceedings under Part VII of that Act) are instituted or continued under that Act;

    (c)matters arising under a law of a Territory (other than the Northern Territory) concerning:

    (i)the adoption of children;

    (ii)[Repealed]

    (iii)[Repealed]

    (iv)the property of the parties to a marriage or either of them, being matters arising between those parties other than matters referred to in the definition of matrimonial cause in subsection 4(1); or

    (v)the rights and status of a person who is an ex-nuptial child, and the relationship of such a person to his parents; and

    (d)matters (other than matters referred to in any of the preceding paragraphs) with respect to which proceedings may be instituted in the Family Court under this Act or any other Act.

    (2)     Subject to such restrictions and conditions (if any) as are contained in the regulations or the standard Rules of Court, the jurisdiction of the Family Court may be exercised in relation to persons or things outside Australia and the Territories.”

11. The section was amended by the Family Law Amendment Act 1983 by substituting a new s 31(1). The section now expressly confers jurisdiction on the Court whereas the previous section stated what the jurisdiction was and included a power for conferring further jurisdiction by legislative action.

12. Section 31(1)(a) provides that jurisdiction is conferred on the Family Court with respect to matters arising under the Family Law Act or under the repealed Act in respect of which “matrimonial causes” are instituted or continued under the Family Law Act.

13. Section 39(1) provides that subject to Part V a “matrimonial cause” may be instituted under the Family Law Act in the Family Court. The section determines which courts can exercise jurisdiction under the Act, and jurisdictional requirements for contact with Australia, namely citizenship, domicile, residence and presence. The section builds on the definition of “matrimonial cause” set out in s 4(1) of the Act. The terms of that definition, in conjunction with the provisions of s 39, define the limits of jurisdiction under the Act. By the combined effect of ss 31(1)(a) and 39(1), jurisdiction is conferred upon the Family Court in respect of matters which are “matrimonial causes” within the definition of that expression in s 4(1).

14. Section 8(1) of the Act provides that any proceeding by way of a “matrimonial cause” must be instituted under the Family Law Act. 

15. Given that proceedings which fall within the definition of “matrimonial cause” must be instituted under the Act the definition of “matrimonial cause” is important.  Section 4(1) provides the definition.  As a Court of limited jurisdiction, before making orders the Family Court must be satisfied that it has jurisdiction to make the orders sought.  The definition of “matrimonial cause” is contained in 20 paragraphs each of which sets out a different type of matrimonial cause.  The Act, with 2 exceptions, treats all proceedings in a “matrimonial cause” as independent proceedings, which can be instituted regardless of whether proceedings for principal relief are concurrent, pending or completed.  The two exceptions are para (ca)(ii) and para (f).  Under the repealed Matrimonial Causes Act 1959 all other proceedings had to be ancillary to proceedings for principal relief.

16. Paragraph (d) of the definition of “matrimonial cause” provides jurisdiction for:

    “proceedings between the parties to a marriage for the approval by the court of a maintenance agreement or for the revocation of such an approval or for registration or a maintenance agreement.”

17. Section 4(1) also provides a definition of “maintenance agreement”.  In relation to maintenance agreements statutory approval was thus given by the Act to the making by parties of a maintenance agreement which provided that the agreement operated in relation to financial matters dealt within the agreement in substitution for any rights of the parties to the agreement under Part VIII of the Act, provided the agreement was approved by the Court.  As seen, the Court had to be satisfied that the provisions of the agreement with respect to financial matters were proper before approval was given.

18. It is submitted on behalf of the husband that the law regulating the right of spouses to make maintenance agreements with each other was referable to the Commonwealth marriage power,[36] not the divorce power.[37]  It was for this reason that the Court could deal with maintenance agreements even though there were no divorce proceedings instituted.  Proceedings between the parties to a marriage for the approval or registration of a maintenance agreement, or for the revocation of approval, are a “matrimonial cause” within paragraph (d) of s 4(1) of the Act.  Paragraph (d) is a valid exercise of the marriage power and, as such, jurisdiction in respect of maintenance agreements existed independently of jurisdiction to grant principal relief.[38] The source of power for the registration of the maintenance agreement was contained in s 86 and the source of power for the approval of a maintenance agreement was contained in s 87.

    [36] Constitution s 51(xxi).

    [37] Constitution s 51(xxii).

    [38] Russell v Russell; Farrelly v Farrelly (1976) FLC 90-039.

19. Paragraph (d) of the definition of “matrimonial cause”, or for that matter any other part of the definition, would not have supported any proceeding in relation to a financial agreement and thus the amending Act introduced paragraph (eaa) of the definition of “matrimonial cause” in s 4(1) which provides:

    “without limiting any of the preceding paragraphs, proceedings between the parties to a marriage with respect to a financial agreement made by them.”

20. Consideration of Part VIIIA demonstrates that the only proceedings that can be instituted are under s 90K. Thus the Family Court has no role to play in relation to parties entering into binding financial agreements which are a contract. However, it is the Family Court which has exclusive jurisdiction in relation to any proceedings to set aside the agreement as such proceedings are a “matrimonial cause”.

21. However, paragraph (eaa) of the definition of “matrimonial cause” provides that the proceedings be “…between the parties to a marriage”.  ASIC is not a party to the marriage and no part of the definition therefor supports a claim by ASIC.  The result is that the application by ASIC is not a “matrimonial cause”.

22. It is conceded by Senior Counsel for ASIC that it is a third party and that its’ application does not fit the description of a “matrimonial cause” since there is no proceeding between the parties to the marriage and thus the Court does not have jurisdiction under s 31(1)(a). Further, the other possible limbs of jurisdiction under s 31(1)(b) or (c) are not applicable.

23. However, ASIC relies upon s 31(1)(d) of the Family Law Act.  What is contended is that the Court has jurisdiction with respect to matters with respect to which proceedings may be instituted under the Family Law Act. It is not contended that there is “…any other Act.” It is submitted that the combination of s 31(1)(d) and other provisions of the Act establish that the Court has jurisdiction to deal with the application.

24. It is contended that this is demonstrated by Re GWW and CMW.[39]In that case the parents of a child applied for an order to permit the harvesting of bone marrow from a child which could then be donated to a maternal aunt who was suffering from leukemia.  The child had been tested and it had been ascertained that the child was a suitable donor.  The application invoked the welfare jurisdiction of the Family Court.  The proposed procedure constituted a ‘special case’ as it fell outside the scope of the parent’s power to consent on behalf of the child.  The trial Judge said:[40]

    “Section 31(1)(d) confers on the Family Court jurisdiction with respect to “matters…with respect to which proceedings may be instituted in the Family Court under this Act or any other Act”.  Section 67ZC(1) provides that “…the court also has jurisdiction to make orders relating to the welfare of the children”.  This provision is contained in Part VII of the Act.”

    [39] (1997) FLC 92-748.

    [40] Id, at 84,106.

25. The Family Law Amendment Act 1983 amended the definition of “matrimonial cause” in s 4(1) to include proceedings with respect to the welfare of a child. The amendments were intended to confer jurisdiction on the Court similar to the parens patriae jurisdiction.  The relevant paragraphs of the definition were then repealed by the Family Law Amendment Act 1987 and various provisions relating to children were gathered in Part VII of the Act. The amendments also had the aim of effecting the reference of powers from four States to the Commonwealth in relation to matters concerning ex-nuptial children. However, the vesting of the parens patriae jurisdiction by the 1983 amendments was not rescinded by the changes to the Act in 1987.  Thereafter the source of the ‘welfare’ jurisdiction was to found in s 67ZC.[41]

    [41] Secretary. Department of Health and Community Services v J.W.B and S.M.B (“Marion’s Case”) (1992) 175 CLR 218; B and B and Minister for Immigration & Multicultural & Indigenous Affairs (2003) FLC 93-141.

1. Thus it is submitted on behalf of ASIC that the jurisdiction is to be found in provisions of the Act. It is contended that s 90K contemplates that a proceeding may be instituted in “a court” to set aside a financial agreement and the Family Court is such “a court.” This is clear given paragraph (eaa) of the definition of “matrimonial cause” and s 90K.

2. It is submitted that unlike other powers of the Court (ss 78, 79, 87, 114(1)), which expressly confine the Court’s jurisdiction to a particular proceeding, for example a proceeding between parties to a marriage, s 90K contains no such express jurisdictional limitation. Further, there is no express limitation on the standing of applicants to set aside a binding financial agreement. The jurisdictional source of ss 78 and 79 is paragraph (ca) of the definition of “matrimonial cause” and it concerns “proceedings between parties to a marriage”. So also in relation to the jurisdictional source of proceedings under ss 87 and 114(1), namely paragraphs (e), (ea) and (d) of the definition of the “matrimonial cause”, the proceedings are constrained by the words “proceedings between parties to a marriage.” However, ASIC is not seeking to rely on s 31(1)(a).

3. It is submitted that the Family Court is the most appropriate court to set aside financial agreements since such agreements are a creature of the Act and it is appropriate for the Family Court to determine whether third parties may apply to set aside binding financial agreements in circumstances where those parties are prejudiced by such agreements.  I accept that there are good policy reasons why this should be the situation, inter alia, given the jurisprudence which this Court has developed and the potential for binding financial agreements to adversely effect the interests of third parties.  However, this is not an answer to the issue of jurisdiction.

4. It is submitted that although the regime prescribed in Part VIIIA differs in substantial and procedural respects to the provisions in Part VIII the Family Court has jurisdiction to set aside consent arrangements entered into between parties to a marriage at the behest of third parties under s 79, s 79A and s 87(8)(c) of the Act. This has been established in the various authorities I have referred to. However, as pointed out by Professor Parkinson the reasons advanced for setting aside orders under s 79A, and agreements under s 87(8), do not necessarily apply to financial agreements.[42]  For example, a financial agreement does not require any involvement of a court to give it validity.

   [42] Above, note 34.

5. It is submitted that the language of ss 90K and 90KA, together with extrinsic material, indicates that the Court has jurisdiction to entertain applications to set aside binding financial agreements at the suit of third parties. Firstly s 90KA expressly provides that the question whether a financial agreement is valid must be answered by the “court” having regard to the rights of third parties which should include future judgment creditors. Secondly the Explanatory Memorandum to the Act that introduced Part VIIIA indicated that s 90K was “modelled” on s 87(8)(c) and is expected to be interpreted in a similar way to s 87(8)(c). Third parties whose interests were effected by maintenance agreements were found to have standing to set aside agreements under s 87(8)(c) even in the absence of an express provision for standing. It is thus submitted that s 90K should be read in the same way so that third parties have standing to set aside financial agreements.

6. In Chemaisse and Chemaisse[43] the Full Court held[44] that it is obvious that the Family Law Act confers power to order a revocation of the approval of a maintenance agreement at the suit of a spouse and that there was no warrant for restricting the right to apply to the parties to the marriage. Further, that although s 87(9) cannot be read as a source of power allowing a third party to apply to set aside an approval, the reference to “an application by a party to an agreement or any other interested person” supports the position that a person other than a party to the agreement may be the applicant. However, the Full Court also said:[45]

   “There is authority for the proposition that a proceeding falling within the definition of para. (f) may be brought by a person other than a party to the marriage provided that the requisite relationship to other proceedings exists. The jurisdiction of the Court to entertain such a proceeding arises from sec. 39(1)…”

   [43] (1988) FLC 91-915.

   [44] Id, at 76,639-76,640.

   [45] Id, at 76,640.

7. Section 90K is similar to s 79A(1) and s 87(8). Section 90KA is similar to s 87(11). There are some differences that I need not deal with.[46] Section 87(9)(b) refers to an “application by…any other interested person”. However, s 87(9) deals with the effect of revocation of approval of an agreement and there is no equivalent or similar provision in s 90K or elsewhere in s 90.

   [46] For example Family Law Act 1975 (Cth) s 90K(1)(e).

8. Paragraph (f) of the definition of “matrimonial cause” provides that proceedings in relation to concurrent, pending or completed proceedings of a kind referred to in paragraphs (a) to (eb) are a “matrimonial cause”.  Proceedings for the approval of a maintenance agreement were a “matrimonial cause” by reason of paragraph (d) of the definition of “matrimonial cause”.  The Court thus had jurisdiction to deal with an application by a third party to revoke the approval of a maintenance agreement by reason of paragraph (f).

9. Although the express language of s 87(9) envisages that a party other than a party to an agreement may be an applicant in proceedings for the revocation of an agreement, in my opinion s 87(9) cannot be read as the source of power allowing a third party to apply to set aside an approval of a maintenance agreement.

10. There are no proceedings when parties enter into a financial agreement and it follows that paragraph (f) does not give jurisdiction to deal with the application by ASIC.  This is conceded by ASIC.  It is for this reason that it is contended by ASIC that jurisdiction is to be found in provisions of the Act. 

11. The step necessary to have a maintenance agreement operate in substitution for rights under the Act involved a “proceeding” in the Family Court seeking an order for approval pursuant to s 87(3). In this way in Chemaisse the Full Court approved the proposition that an application for revocation may be brought by a person other than a party to a marriage reliant upon the definition of matrimonial cause in paragraph (f) which catches “any other proceedings…in relation to concurrent, pending or completed proceedings of a kind referred to in any of paragraphs (a), to (eb)….”

12. ASIC cite the Explanatory Memorandum to the Act that introduced financial agreements. Paragraph 160 of the Explanatory Memorandum states that “the provision [s 90(K)(1)(b)] is modelled upon the provisions of s 87(8)(c) of the Act and the Government expects it to be interpreted in a similar way.” However, the Explanatory Memorandum does not specify for what purposes it should be read in a similar way. The Explanatory Memorandum also refers to s 90(K)(1)(b), which enables the court to set aside a financial agreement where it is void, voidable or unenforceable, as grounds which “reflect the principles of common law and equity” and more specifically the law of contract. In my view, what was said in the Explanatory Memorandum was not addressing the issue of jurisdiction.

13. It is submitted that a binding financial agreement may be void, voidable or unenforceable for the purposes of s 90K(1)(b) in accordance with principles of law and equity.[47]  It is submitted that whilst it is undoubtedly unique, a binding financial agreement is a form of contract and should be interpreted in accordance with the law of contract.  The law of contract generally recognises that an agreement may be valid as between the parties, yet void in whole or in part, as against a third party.  I accept this submission.  However, it does not follow that this Court has jurisdiction to deal with any application by a third party in relation to the financial agreement.

    [47] Family Law Act 1975 (Cth) s 90KA.

14. It is submitted that assistance may be gained from the proposition that financial agreements that are made dishonestly, in the sense of a party’s intention to defeat creditors, may constitute a fraud on the Court and reference is made to an article by Professor Parkinson[48] citing Semmens.  Professor Parkinson was dealing with two situations where fraud on a third party may be relevant.  He said that the second situation is where the Court concluded that the financial agreement was made dishonestly and as an attempt to defeat the legitimate claims of third parties.  In Semmens the trial Judge concluded that fraud within the meaning of s 79A(1)(a) had been established. In my opinion, I do not have to deal with the matters discussed by Professor Parkinson because in Semmens there was no issue of jurisdiction given that the application by the third party was to set aside an order made under s 79.

    [48] Above, note 34.

15. It is submitted that whilst it may be arguable that the most obvious or likely third parties who may wish to set aside a binding financial agreement are children to the marriage a similar principle is at work in respect of s 37A of the Conveyancing Act. That is, the freedom of contract in this context is not unfettered and is circumscribed by public policy. Public policy, in this context, supports the proposition that binding financial agreements may not be entered into where it is the intention to defeat creditors. I accept the concerns expressed in the submission. However, unlike s 87, it is not apparent on a reading of the relevant sections that there are any public policy considerations.

16. Section 67ZC is to be compared with s 90K and in my view it is clear that ASIC can gain no comfort from consideration of s 67ZC which expressly provides:

    “(1) In addition to the jurisdiction that a court has under this Part in relation to children, the court also has jurisdiction [emphasis mine] to make orders relating to the welfare of children.”

17. No express part of Part VIIIA purports to authorise the institution of a proceeding pursuant to s 90K by a third party who is affected, or claims to be affected, by, or as a consequence of the operation of a contract to which the Part applies.

18. In my view, the absence of any language in s 90K confining its operation to applications by a party to a marriage does not, upon proper construction, operate to broaden the scope of jurisdiction. In The Queen v Ross-Jones; Ex Parte Beaumont[49] Gibbs J. observed, after referring to the terms of ss 78 and 79 of the Act, that:

    “These sections are expressed to confer powers which the court may exercise if it has jurisdiction, rather than to confer or expand jurisdiction, and I do not regard them as throwing any light on the extent of the Court’s jurisdiction.  Before the powers which they grant may be exercised there must be a “matrimonial cause” within par. (ca) of the definition.”

    [49] (1979) 141 CLR 504 at 510.

19. In summary, no part of the definition of “matrimonial cause” authorises the institution of proceedings by ASIC pursuant to s 90K. Further, the power cannot arise from the terms of s 90K or any other provision of the Act. In my view, the construction contended for by ASIC is not supported by consideration of the terms of s 90K and s 90KA. If it had been intended that jurisdiction would be conferred by those provisions then it would have been a matter of simply stating it. The terms of these provisions are to be compared with s 67ZC which supports the ‘welfare’ jurisdiction.

20. Different considerations may arise if there had been concurrent, pending or completed proceedings as between the husband and the wife comprising an application by one of them pursuant to s 90K in relation to the agreement, or even for enforcement of some unexecuted provision of the agreement. Such a circumstance may give rise to jurisdiction to deal with an application by a third party because the application would be supported by paragraph (f) of the definition of “matrimonial cause”. If there were a pending or existing proceeding between the husband and the wife in relation to the agreement, then, subject to discretionary considerations, there would be a case for a third party in the position of ASIC to apply and be granted leave to intervene. However, such a course is dependent upon the existence of a presently constituted matrimonial cause.

21. If there is a right at law to prosecute against the respondents in relation to the agreement it is in another court and without recourse to any power afforded by the Family Law Act.  The fact that the agreement complies with s 90G of the Act has a consequence with respect to the statutory rights that would otherwise exist under the Act between the husband and the wife.  However, that does not elevate the agreement to having any greater status than it would otherwise have at law in relation to any third party.  Rights as between the respondents and ASIC remain to be determined according to law, including principles of equity and perhaps bankruptcy law.

Conclusion

1. I am of the view, for reasons I have given, that I have no jurisdiction to make the orders sought by ASIC pursuant to s 90K and I propose to dismiss its’ application.

2. However, it is of concern to me that the consequence of my finding is that the Family Court has no jurisdiction to deal with an application by an unsecured or contingent creditor to set aside a financial agreement in circumstances where the interests of such a third party are or may be adversely affected by the terms of the agreement. This position is contrary to that taken by the Court over a number of years in circumstances where an order was made under s 79 or an agreement approved under s 87.

3. In my view, in this case, there is prima facie evidence that the husband and the wife entered into the agreement in order to reduce the extent and value of the husband’s assets.  It is difficult to accept that it was done because there was a concern about the financial future of the wife and the children in the event of marriage breakdown given that the wife already had property of a net value in excess of $13 million.  Further, the terms of the recitals are relevant and the wife has a professional career as a lawyer and public company director.  Prima facie the evidence supports the contention by Senior Counsel for ASIC that the agreement was entered into because of a concern about claims on the husband’s property by third parties as a result of the collapse of One.Tel Limited.  It was therefor entered into to defeat the interests of third parties.

4. What is also of concern is that various commentators have stated that if there are third party creditors or a business in serious trouble or there is the prospect of bankruptcy then the parties should settle by a financial agreement.[50]  This appears to be the advice that is being given to legal practitioners, and no doubt to their clients, and in my view, in certain circumstances, it may raise ethical issues.[51]

   [50] “Financial Agreements: A Practical Overview” (2001) 15 Australian Family Lawyer 16.

   [51] Altobelli T, “A Post Legislative Review of Financial Agreements” in LexisNexis Butterworths, 11^th Annual Family Law Masterclass, (2003) (Sydney, Lexis Nexis Butterworths, 2003).

5. In my view, consideration should be given to conferring jurisdiction on this Court to deal with an application by the third party whose interests may be adversely affected by the terms of a binding financial agreement to set aside the agreement.  There are public policy reasons for why this should be so.  Thus Part VIIIA should be reviewed, at least in terms of its effect on the legitimate interests of third parties, because the Family Law Act may be made “…an instrument of harm to a third party”.[52]

   [52] Above, note 34, at 35.

Application by the wife

1. ASIC sought an order setting aside the financial agreement pursuant to ss 90K(1)(b) and 90KA of the Act and s 37A of the Conveyancing Act. The contention is that the financial agreement is voidable and for that purpose ASIC relied upon s 37A. Given my finding that I have no jurisdiction to deal with an application by ASIC pursuant to s 90K it is not necessary for me to deal with the application by the wife for summary dismissal. However, as my decision may be the subject of an appeal I shall briefly deal with the application.

2. The basis of the claim that the agreement is voidable is s 37A of the Conveyancing Act, which provides, so far as is relevant:

   “(i)    Save as provided in this section, every alienation of property, made … with intent to defraud creditors, shall be voidable at the instance of any person thereby prejudiced.

   (ii) …

   (iii)    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.”

3. It is submitted that the present application of ASIC should be dismissed on the basis that there is no cause of action available to ASIC at the present time against Mr and Mrs Rich, which would enliven s 90K. If there ever is a basis for a creditor to allege that there is a transaction to which s 37A of the Conveyancing Act applies then that creditor, whoever it may turn out to be, can bring an application.

4. It is submitted on behalf of the wife that s 37A requires that there should be a creditor and that the applicant be a person prejudiced. No cause of action will arise under s 37A until there is a creditor and until the applicant can allege prejudice. It is submitted that ASIC is not and never will become a creditor. Further, ASIC is not prejudiced because any money recovered would not be payable to ASIC.

5. If ASIC is successful in obtaining a compensation order against the husband then the compensation will be payable to the Liquidators of One.Tel Limited.  However, it is conceded that it is sufficient to satisfy the first criterion, that the husband had the intention of defrauding future creditors generally including One. Tel Limited.  In any event, ASIC is a potential judgment creditor of the husband because if it succeeds in the claims against the husband it is likely to obtain an order for costs.  I have no doubt that at the time of entering into the financial agreement the husband contemplated that there would be proceedings against him including by ASIC.

6. In the event that a compensation order and costs order is made then given the anticipated quantum of such orders I have no doubt that there is a real and substantial possibility that the husband would not be able to meet the judgment debt.

7. I am also satisfied that there may be prejudice caused to ASIC given that it will be responsible for the execution of any judgment in its favour in relation to the compensation claim.  Further, there may be prejudice if it obtained a costs order.

8. I am therefor of the opinion, that if the Family Court had jurisdiction it could not be said that the application relying upon s 37A was so untenable that it could not possibly succeed.

Orders

1. That the Application filed on 23 August 2002 on behalf of the Australian Securities and Investments Commission seeking an order setting aside the Financial Agreement dated 31 May 2002 between John David Rich and Maxine Nicole Rich be dismissed.