B Pty Limited & Anor and Sykes & Anor
[2014] FamCA 451
•27 June 2014
FAMILY COURT OF AUSTRALIA
| B PTY LIMITED AND ANOR & SYKES AND ANOR | [2014] FamCA 451 |
| FAMILY LAW – PROPERTY – Where the application to set aside property orders is made by the Trustee of the bankrupt estate of the second respondent and the first applicant who has taken an assignment of the Trustee’s rights against the respondents under s 79A and s 79 of the Act and also an assignment of any fruits of such actions that the Trustee in Bankruptcy might receive – Where the first and second respondents filed an Application for Consent Orders transferring the second respondent’s interest in the matrimonial home to the first respondent – Where those consent orders were then made on July 2008 – Where the second respondent did not disclose to the court of at least two creditors with significant debts – Where the second respondent subsequently became a bankrupt – Where the court determined that there were a number of non-disclosures by the second respondent to the court – Where the court determined that the non-disclosures made by him were made deliberately and dishonestly – Where the court determined there was clearly a miscarriage of justice by reason of the fraud, suppression of evidence and false evidence of the second respondent – Where the court determined that it is appropriate to set aside the orders made 30 July 2008. |
| Family Law Act 1975 (Cth) ss 75, 75(2), 75(2)(ha), 79, 79A, 90C Family Law Rules 2004 r 10.15 |
| Australian Securities and Investments Commission v Rich (2004) 31 Fam LR 667 Charltons CJC Pty Limited v Fitzgerald [2013] NSWSC 350 In the Marriage of Biltoft (1995) 19 Fam LR 92 In the Marriage of DV v PM Morrison (1994) 18 Fam LR 519 Livesey v Jenkins All ER 119 MJ Bailey v the Estate of HR Bailey (1989) 13 Fam LR 652 |
| FIRST APPLICANT: | B Pty Limited |
| SECOND APPLICANT: | Mr Lane as Trustee of the bankupt estate of Mr Sykes |
| FIRST RESPONDENT: | Ms Sykes |
| SECOND RESPONDENT: | Mr Sykes |
| FILE NUMBER: | SYC | 1555 | of | 2012 |
| DATE DELIVERED: | 27 June 2014 |
| PLACE DELIVERED: | Sydney |
| PLACE HEARD: | Sydney |
| JUDGMENT OF: | Aldridge J |
| HEARING DATE: | 22 & 23 April 2014 |
REPRESENTATION
| COUNSEL FOR THE FIRST APPLICANT: | Mr Fernon |
| SOLICITOR FOR THE FIRST APPLICANT: | Dixon Holmes Du Pont Pty Ltd |
| COUNSEL FOR THE SECOND APPLICANT: | Mr Fernon |
| SOLICITOR FOR THE SECOND APPLICANT: | Dixon Holmes Du Pont Pty Ltd |
| COUNSEL FOR THE FIRST RESPONDENT: | Mr Steward |
| SOLICITOR FOR THE FIRST RESPONDENT: | Spinks Eagle Lawyers |
| COUNSEL FOR THE SECOND RESPONDENT: | Mr Folino-Gallo |
| SOLICITOR FOR THE SECOND RESPONDENT: | Sydney Law Practice |
Orders
That, pursuant to section 79A of the Family Law Act 1975 (Cth) the Consent Orders made on 30 July 2008 in proceedings SYC4180/2008 between the First Respondent and the Second Respondent are hereby set aside in their entirety.
That the funds being the proceeds of sale of C Street, Suburb D presently held by the solicitors for the First Respondent and the solicitor for the First Applicant be paid forthwith to the Second Applicant.
IT IS NOTED that publication of this judgment by this Court under the pseudonym B Pty Limited and Anor & Sykes and Anor has been approved by the Chief Justice pursuant to s 121(9)(g) of the Family Law Act 1975 (Cth).
| FAMILY COURT OF AUSTRALIA AT SYDNEY |
FILE NUMBER: SYC 1555 of 2012
| B Pty Limited |
First Applicant
And
| Mr Lane as Trustee of the bankrupt estate of Mr Sykes |
Second Applicant
And
| Ms Sykes |
First Respondent
And
| Mr Sykes |
Second Respondent
REASONS FOR JUDGMENT
Introduction
On 17 July 2008 the second respondent (‘the husband’), with the concurrence of the first respondent (‘the wife’), filed an Application for Consent Orders which was an order to transfer his interest in the matrimonial home to the wife. Relying on the material stated in the Application a Registrar of this Court made those orders on 30 July 2008.
The husband did not disclose to the court at least two creditors with debts of $12 870 023.38 and $228 041.37.
The husband became a bankrupt in April 2010 when he presented a debtor’s petition. The trustee of the husband’s bankrupt estate seeks to have those orders set aside asserting that they were a device intended to, or at least have the effect of, defeating or delaying the husband’s creditors.
There are in fact two applicants (‘the applicants’). The second is Mr Lane as Trustee of the bankrupt estate of the husband appointed on acceptance of the debtor’s petition. The original trustee of that bankrupt estate was replaced by the present trustee on 6 April 2011. The first applicant has taken an assignment of the Trustee’s rights against the respondents under section 79A and section 79 of the Family Law Act 1975 (Cth) (‘the Act’) and also an assignment of any fruits of such action that the Trustee in Bankruptcy might receive. It is not, and never has been, a creditor of either of the respondents.
Issues as to the standing of the first applicant to bring these proceedings were dealt with in a judgment given by me on 24 May 2013 (B Pty Limited & Sykes and Anor [2013] FamCA 359). I found that the Trustee of the bankrupt estate of the husband was an essential party and joined him as second applicant in these proceedings.
The Trustee relies upon section 79A of the Act which relevantly provides:
(1)Where, on application by a person affected by an order made by a court under section 79 in property settlement proceedings, the court is satisfied that:
(a)There has been a miscarriage of justice by reason of fraud, duress, suppression of evidence (including failure to disclose relevant information), the giving of false evidence or any other circumstance; or
…
The court may, in its discretion, vary the order or set the order aside, and, if it considers appropriate, make another order under section 79 in substitution for the order so set aside.
By reason of section 79A(5) the second applicant, the husband’s Trustee in Bankruptcy, is taken to be a person whose interests are affected by the order made under section 79.
The Application for Consent Orders
Rule 10.15 (1)(b) of the Family Law Rules 2004 (‘the Rules’) provides that, where there is no current case, a party may apply for a consent order by filing an Application for Consent Orders. This is what the parties did here.
The Application for Consent Orders is a court form that needs to be completed by all of the parties and requires each of them to swear an affidavit, contained within the application itself, verifying the application and indicating that they have read, amongst other things, sections 72, 79 and sub-section 75(2) of the Act.
At paragraph 22 of the Application for Consent Orders, which was filed by the court on 17 July 2008 and annexed to the applicant’s affidavit sworn 16 July 2013, there appears the following question:
Is there any person who may be entitled to become a party to the case under subsection 79(10) of the Act?
The answer given was ‘No’.
Section 79(10) provides that, amongst other things, a creditor of a party to the proceedings who may not be able to recover his or her debt if the orders sought by the parties were made, or a person whose interests would be affected by the making of the order is entitled to become a party to the proceedings.
The following assets and liabilities were disclosed in the Application for Consent Orders (omitting the furniture, furnishings and effects which were said to be of nominal value and to be divided equally).
Property
Husband’s Interests
Wife’s Interests
[C Street, Suburb D]
50% $900 000
50% $900 000
Mitsubishi … Motor Vehicle
$9 000
$9 000
K Pty Limited
25% E$475 000
100 Westfarmer Shares
$5 000
[E] Club Membership
$18 000
Personal Possessions
$2 000
Total:
$1 409 000
$909 000
Liabilities
Westpac Banking Corporation –
[C Street, Suburb D]
$250 000
$250 000
Mitsubishi … Motor Vehicle
$7 500
$7 500
Total:
$257 500
$257 500
TOTAL NET WORTH:
$1 151 500
$651 500
The husband also disclosed a superannuation entitlement of $11 403.
At paragraph 57 of the Application for Consent Orders under the heading ‘Proposed Division of Property’ the percentage division of the property under the proposed orders was twenty-eight per cent to the husband and seventy-two per cent to the wife.
The following was said as to financial contributions:
HUSBAND WAS BREADWINNER THROUGHOUT THE MARRIAGE AND MADE GREATER FINANCIAL CONTRIBUTIONS.
The contributions as homemaker and parent and non-financial contributions were described thus:
WIFE WAS PRIMARY HOMEMAKER AND CARER FOR THE THREE CHILDREN OF THE MARRIAGE AND MADE A GREATER CONTRIBUTION.
In answer to the question at paragraph 61:
Are there any other relevant matters or facts in relation to the division of the property (e.g. health, financial resources, income earning ability (see s.75(2) of the Family Law Act)
The husband answered ‘no’ and the wife marked the box for ‘agree’. The property orders made by the court at the request of the husband and the wife were simple. The husband was to do all acts and things necessary to transfer to the wife his right, title and interest in C Street, Suburb D (‘the Suburb D property’).
Each party was otherwise to retain and be the owner absolutely at law and equity of any asset in their possession or name.
In April 2012 the Suburb D property was sold. By arrangement with the parties presently engaged in these proceedings, half of the proceeds were paid to the wife and the other half ($634 503.95) were paid into an account in the joint names of the first respondent’s solicitor and the first applicant’s solicitor where it remains.
What Non-disclosures were made by the Husband
The applicants relied upon thirteen failures to disclose material to the court in the Application for Consent Orders.
The Debt to S Pty Ltd
In June 2005 S Pty Ltd obtained a judgment against the husband from the District Court of New South Wales in the sum of $228 041.37.
In April 2008 that creditor served a bankruptcy notice on the husband.
The Bankruptcy Notice was not satisfied by the husband.
The debt, the Bankruptcy Notice and the failure to satisfy it were not disclosed in the Application for Consent Orders.
Proceedings by F Australia Pty Ltd
In 2004 F Pty Ltd and two others commenced proceedings in the Supreme Court of New South Wales against a number of defendants including the husband. The amount claimed in the Further Amended Statement of Claim filed in July 2006 was US$4 150 000 plus interest. The husband filed a defence to the proceedings.
On 18 April 2008 the husband told his solicitor acting for him in relation to the family law issues that his advice as to his prospects of success in the New South Wales Supreme Court proceedings was that they were poor.
On 28 July 2008 the husband’s solicitor wrote to the plaintiffs’ solicitor offering to consent to judgment in the amount claimed provided that each party paid their own costs. It appears that offer was accepted because on 29 July 2008 draft short minutes of order were proffered to the husband’s solicitors. Those short minutes of order were signed by the husband and returned to the plaintiffs the following day.
By those consent orders the husband consented to judgment against him, in Australian dollars, in the sum of $12 870 023.38. Judgment was formally entered in August 2008.
The husband did not disclose the claim by F Pty Ltd as a liability or a potential liability in the Application for Consent Orders. It was not identified as a person who should be notified of the proceedings.
It is essential that there be disclosure to the court of all of the creditors of the parties seeking to have their financial affairs resolved under section 79. The reasons for this were succinctly stated by O’Ryan J in Australian Securities and Investments Commission v Rich (2004) 31 Fam LR 667 at [45]:
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. [The same applies to a person claiming to be a creditor]. 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.
(Reference omitted)
Here, clearly, F Pty Ltd was such a claimant which, at the least, should have received notice of the proceedings. S Pty Ltd was a creditor who should have received such notice.
The failure to disclose them and the indication there were no parties who should be notified of the proceedings, constituted serious non-disclosures by the husband.
Credit Card Liabilities
As at 20 June 2008 the sum of $64 060.03 was due on the husband’s Westpac Altitude Platinum card.
As at 20 August 2008 the amount due was $66 541.14. This credit card debt was not disclosed in the Application for Consent Orders, ‘NK’ was inserted at paragraph 43 requiring the husband to disclose ‘[a]mounts owing on any credit/charge cards’.
In his Statement of Affairs dated 16 April 2010 provided to his Trustee in Bankruptcy, the husband disclosed debts owing on a Citibank Platinum Visa card, a CBA Gold Mastercard, CBA Visa card and several debts pursuant to American Express cards in addition to the ANZ card.
In an email to his solicitor dealing with his family law matters sent on 5 July 2008 the husband said:
There are a number of Credit Card liabilities but do not want to bring them into this equation.
Thus, there were a number of credit card liabilities existing at the time the Application for Consent Orders was lodged but were not disclosed by the husband. Although the evidence does not enable a finding to be made as to the identities of the cards or how much was owing on each card at the date of the Consent Orders.
The husband’s email establishes that there were a number of credit cards existing at the date of the Consent Orders. The Westpac card was a significant debt. It was not disclosed. The bank was not listed as a person who should be notified of the Application.
The Full Extent of the Parties’ Bank Accounts
Against the entry at paragraph 35, in the Application for Consent Orders, requiring the parties to identify the funds in banks, building societies and credit unions or other financial institutions the husband inserted the letters ‘NK’ – presumably ‘not known’. The wife left the space blank.
As appears from the email of 5 July 2008 already referred to there was at least another account in joint names.
The wife was required to produce a number of bank account records. Some were produced. In relation to at least two accounts, bank statements from 2008 were not produced - only more recent ones. Given, however the statement numbers in each of the sets of accounts, it could be seen that both accounts existed in May and June 2008. It is thus not known what balances were held in those accounts.
In respect of the accounts produced that do cover that period the amounts contained in them are small sometimes just in excess of $1 000.
Whilst the bank accounts were clearly not disclosed there is no evidence that any amounts of significance were thereby not disclosed.
The wife’s bank Accounts and Superannuation
The wife’s superannuation entitlements and bank accounts were not disclosed. Again the amount in the bank accounts were small and her superannuation seemed to be $8 358.68 at 30 April 2008.
The non-disclosure seems not to be of significance.
The wife’s Interest in W Pty Ltd
The wife owned twenty-five per cent of the shareholding in W Pty Ltd that interest having been transferred to her by the husband on 17 September 2007.
In his instructions to his solicitors the husband said that he was the CEO of G Practice which is a healthcare practice in Sydney and that his twenty-five per cent share was in his wife’s name.
That shareholding was not disclosed. The value of the shareholding at that time is unknown.
The husband’s Interest in K Pty Ltd
In the Application for Consent Orders the husband described his interest in K Pty Ltd as being worth $475 000.
On 27 November 2008 the husband transferred those shares, shareholding to H Pty Ltd for what was, according to the ASIC records, a consideration of $2. An examination of the ASIC search for that company shows that the persons behind it have names completely different to the husband or the wife.
It was submitted by the applicants that, having sold his shares for $2, the value of that shareholding given in the Application for Consent Orders could not be correct.
In an attempt to justify the valuation given by the husband, and indeed to suggest it was too low, the wife called a valuer.
K Pty Ltd was the owner of a property in I Street, Suburb J. It was valued as being worth, at the time, $6.185 million.
That valuation does not assist the wife for two reasons. The first is that the asset owned by the husband was his shares in the company that owns the land and not the land itself. It is entirely unknown what other assets, if any, or liabilities, the company had. Evidence of the value of one of the assets of the company is not evidence on the value of its shares.
Secondly, the valuer’s evidence was based on a number of assumptions which were not established by the evidence.
Thus what is left with the position that the shares were valued at $475 000 and apparently sold for $2 a few months later. There are two likely explanations. The first is that the shares were over-valued.
The second is that there was some other arrangement in relation to the sale of the shares.
The husband did not give evidence. He could quite easily have given evidence as to the sale of the shares which would indicate that the $2 consideration recorded by ASIC was not the only consideration received for the shares or that the sale transaction was not a genuine commercial transaction.
In those circumstances the court is entitled to take a bolder course of drawing inferences than otherwise (Insurance Commissioner v Joyce (1948) 77 CLR 39 at [49], SS Pharmaceutical Co Limited v Qantas Airways Limited [1991] 1 Lloyd’s Rep 288,293, Charltons CJC Pty Limited v Fitzgerald [2013] NSWSC 350 at [2]).
Thus, on the evidence as it presently stands, the better view is that there was a non-disclosure of the true value of the K Pty Ltd shares.
This is important because the major asset retained by the husband was these shares. If they were of little value then pursuant to the Consent Orders the wife received all the matrimonial assets of value and the percentage distribution of assets given in the Application is misleading.
That the husband would continue to meet the mortgage liability for the Suburb D property
According to Part H of the application for consent orders the wife would assume the liability for the mortgage in the sum of $500 000. However, the intention clearly was that the husband would continue to pay the mortgage. He said so to his solicitor on 5 August 2008.
In a Financial Agreement entered into between the husband and the wife pursuant to section 90C of the Act dated 4 July 2008 the husband agreed to pay ‘to the wife a monthly sum equivalent to the monthly repayment payable in respect of the mortgage liability secured over the property situate at and known as [C Street, Suburb D]’.
Taken at its face that agreement accepts that the liability to pay the mortgage remains that of the wife but that the husband will pay her sufficient funds each month to meet the continuing obligations.
Taken on its own this would not seem to be a significant non-disclosure, to the extent that it is one, but there is force in the applicant’s submission that it supports the view that what has been done is a restructuring of the respondent’s affairs to avoid his creditors rather than a genuine property division.
The separation of the parties
According to the Application for Consent Orders the parties finally separated in May 2007. In recording early instructions of the husband the lawyers acting for him noted that the period of cohabitation was 1983 to 2008.
The notes later continued:
Wife and I have had difficulties for many years, no romance, you could say we are effectively separated. She knows we have problems.
The file notes of the husband’s solicitor recorded that the parties were proposing ‘to have a separation’.
The evidence indicates that the separation suggested in the Application for Consent Orders of May 2007 was contrived to give colour and the air of verisimilitude with the Application for Consent Orders suggesting that there had been a long standing separation whereas, in fact, there was not.
This finding is more readily reached because of the failure of the respondents to give evidence.
This would be unlikely, of itself, to justify setting aside of orders. It does clearly assist in determining the nature of the other non-disclosures.
Were the husband’s non-disclosures dishonest?
In April 2008 the husband consulted Pateman Legal and Corporate Services. (A handwritten entry on the firm’s registration form identifies the date of introduction as 9 April 2007 but it appears that that date might be described incorrectly– the costs disclosure letter sent to the husband and signed by Steven Pateman, the solicitor director of Pateman Legal & Corporate Services is dated 10 April 2008). Both these documents are annexed to the applicant’s affidavit sworn July 2013.
On the firm’s registration form the description of the matter was noted to be:
Dealing with debt position and possible Part X arrangement.
The work that the firm was being instructed to do was described on the form as:
[A]dvising you in relation to aspects of your financial affairs/relationships and potential arrangement under Part X of the Bankruptcy Act.
On 8 April 2008 Mr Pateman sent an email to Mr Holmes. Mr Holmes was the solicitor whose firm ultimately acted for the husband on the Application for Consent Orders. The email, which is also annexed to the applicants’ affidavit, needs to be quoted in full.
Hope you are well. It has been a while since we last spoke.
I have a potential new matter for you. As usual, it is a family law issue that is part of the greater scheme of things. If I say that I am acting for the husband and he wants to make sure his wife and consequently his kids, get as MUCH as possible out of possible consent orders, you may understand what I am getting at.
Basically this is a story of a marriage that truly has deteriorated long ago. I am sure when you meet the husband you will be convinced of that. I believe there has been a separation under the one roof. The parties wish to formalise the breaking of the union and most importantly, wish to determine a consensual split of marital property so that the wife gets as much as possible.
The problem is, the husband is facing potential bankruptcy proceedings in the future, so the consent orders need to be as unassailable as possible. So really what we’re thinking about it getting a maximum asset disposition in favour of the wife that any potential trustee in bankruptcy is going to raise objection to. There is at least one child under the age of 16 and there is a history of high level schooling. The wife has also never worked and, I presume, has a life that she is accustomed to leading. I seem to recall these as being relevant issues for supporting a larger distribution to the wife. Spousal maintenance may be a real issue here.
What I would like to do is send the husband to you to start the ball rolling for some potential consensual property settlement orders. I have stressed to the client that there must be a real and factual separation, otherwise there will be a fraud on the legislation. From a bankruptcy perspective the aim is to keep on the good side of “the disposition could not be said to have been with the intention to defraud creditors” and to avoid an application under section 79A of the Family Law Act. Looking at that section and having some limited experience in the Family Court, it would seem there is a lot of leeway allowed in order to protect the settlement. It would seem that it is all a question of justification.
Having said that I am pretty convinced the husband and wife are ready to go their own ways and there is a real desire to leave the wife and children with the best possible future. Obviously you will discuss this with him in detail.
If you are interested in these instructions please let me know by return email or phone, and I will have the client contact you. There is of course some urgency in the matter. (Emphasis added)
(As per original)
The letter clearly evidences an intention on the part of the husband to transfer as much as he can of his assets to his wife to avoid them being taken by his creditors. The limit to be put on that was simply to keep on the good side of an intention to defraud creditors and avoid an application under section 79A of the Act.
There is no reference in that letter to a just and equitable disposition of the property between the husband and the wife having regard to all of the matters contained in section 79.
On 10 April 2008 Mr Holmes replied as follows:
Thanks for this. i m in Adelaide this week at the National Family Law Conference and am happy to see your client next week. It is a difficult issue, it seems to me you and your client are alive to the issues. People frequently try (unsuccessfully – see the [Mr A] experience , when he tried to settle up with his wife, in circumstances where they were not separated, and it was intended to try to put the assets beyond the reach of creditors) to use the Family Law Act to give themselves protection to creditors. That said, the wife has a legitimate entitlement to a settlement and that is what we will have to explore.
(As per original)
The file notes from Mr Holmes which were annexed to the applicants’ affidavit were tendered without objection.
On the first page of the instruction sheet he noted the issue as ‘facing bankruptcy’. After the passage already quoted earlier in these reasons about the husband asserting that he and the wife were effectively separated, the file note continued:
I want to put a proposal to her. To protect the kids.
Children v bright.
Proposal – to have a separation.
House
- House valued at $1.8m
- Subject to $500k mge to Westpac plus cross collateral security
- FAMILY Co – I have 25%
- Property worth $3.8m
⃰ mortgage $2.5m
(As per original)
After referring to the Supreme Court proceedings and noting that the advice the husband had received as to his prospects was that they were poor the file note continued:
I have also been served with a bankruptcy notice on another matter. I am briefing Steve Pateman Expiry of that Notice is next Thursday.
The file note then continued under the heading ‘Plan’ as follows:
[The husband] to have direct settlement discussions with his wife.
A settlement may not give your wife priority over creditors but better than nothing.
Fair settlement in range up to 70%
Settlement with intent to defeat creditors will be vulnerable to be attacked by creditors.
It is abundantly clear from the above that the husband was insolvent and bankruptcy proceedings were imminent. It was also abundantly clear that the driving force behind the obtaining of the consent orders was to move as much as possible of the husband’s assets into the wife’s name so as to protect them from the reach of creditors. It is also abundantly clear that the husband was well aware of all of these things.
By 18 April 2008, at the latest, the husband knew that the likely outcome of the F Pty Ltd proceedings would be that he would fail. He had been served with a bankruptcy notice on 3 April 2008.
He consulted solicitors about the impending financial crisis on 9 April 2008.
It is impossible to see the Application for Consent Orders as anything other than his response to that crisis.
In those circumstances, by not disclosing his creditors, the receipt of the bankruptcy notice or the impending judgment in the Supreme Court the husband entirely misled the court as to his financial position and deprived the court of the opportunity of directing that notice be given to those creditors and claimants of the proposed orders.
The husband did not give evidence. There was thus no explanation as to why the non-disclosures were made.
In those circumstances I have no difficultly in concluding that the conduct of the husband was deliberately dishonest. He swore that the information contained in the Application for Consent Orders was correct and it was not. He told the court that there were no parties who could seek to be joined under section 79(10) and clearly there were. The alleged date of separation speaks of dishonesty and an air to colour the transaction as genuine.
I have no difficulty in concluding, in the absence of evidence from the husband, that the non-disclosures were made by him deliberately and dishonestly.
Did the wife also make non-disclosures?
It was submitted that the court should infer that the wife was at least aware of the bankruptcy notice and the Supreme Court proceedings in which the husband had poor prospects. This is said to arise from the following:
·The husband’s income and financial resources being obviously understated in the application having regard to his net $60 000 income from which the parties have been funding substantial school fees at two private school fees repayments of $500 000 mortgage and other living expenses.
·Failure to disclose bank account assets, interest in W Pty Ltd or any credit card facilities.
·The wife’s failure to disclose her interests in W Pty Ltd.
·There being no provision in the property orders, financial agreement or child support agreement for payment of the wife’s ordinary living expenses. The last two agreements relate only to the payment of mortgage fees and school fees.
·The wife being legally represented but taking no apparent steps to verify any information asserted by the husband.
It would be surprising if the wife did not have some knowledge of the bankruptcy notice and the Supreme Court proceedings but this is possible.
The matters relied upon by the applicants, just noted, support a proposition that the wife should have been concerned about the genuineness of the Application for Consent Orders. They do not, however, justify the drawing of an inference that the wife was aware of the bankruptcy notice and the Supreme Court proceedings.
Was there a miscarriage of justice by reason of fraud, duress, suppression of evidence (including the failure to disclose relevant information) giving false evidence or any other circumstance?
I have already found that there were a number of non-disclosures made by the husband. He clearly suppressed that evidence by failing to disclose it. That information was relevant.
I have also found that he did so dishonestly.
That is sufficient to establish that there was fraud within the meaning of s 79A(1)(a) (see Semmens v the Commonwealth of Australia (1989) 13 Fam LR 715).
Had the husband complied with his obligations the court would have been informed that, instead of there being net assets held by the parties of $1 802 500, there was, in fact, a shortfall of assets over liabilities of $11 975 237.43 (taking into account the two judgment debts) or $12 450 235.43 (if the true value of K Pty Ltd is included and the credit cards are excluded).
It follows therefore that the wife was receiving almost all of the assets and none of the liabilities save for the mortgage. Of course, the husband had agreed to continue to pay the mortgage.
Section 75(2)(ha) (which applies by reason of section 79(4)(e)) requires, on the hearing of a case under section 79, the court to take into account ‘the effect of any proposed order on the ability of a creditor of a party to recover the creditor’s debt, so far as that is relevant’.
Prior to the insertion of section 75(2)(ha) into the Act the court still took into consideration the creditors of the parties. In the marriage of AV and JE Prince (1984) 9 Fam LR 481 Evatt CJ said (omitting references to authority):
…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. The Court may have to determine, as between the parties, the existence of a particular liability.
The assessment of debts and liabilities is not necessarily arrived at by a strictly mathematical or accountancy approach in all cases. Whilst some liabilities are charges on a property which can be accurately assessed at a certain date others are at large, or have not been precisely determined, e.g. tax liabilities. In some cases the amount of a liability can only be estimated generally. 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. 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 a 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. Complex issues can arise in regard to liabilities to third parties.
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 remained with that party after satisfying the property order made under sec. 79.
In the marriage of MJ Bailey & the Estate of HR Bailey 1989 13 Fam LR 652 the Full Court said at 658:
The combination of the statement by the High Court in Ascot Investments & Harper in s 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 sought in the Family Court.
In Official Trustee in Bankruptcy v Donovan (1996) 20 Fam LR 802 the Full Court said, having referred to In the Marriage of Biltoft (1995) Fam LR 92:
The court thus concluded that there was an obligation on both parties to disclose to the court any significant creditors or any significant claim against either of them by a third party and that, in the circumstance outlined, notice of the Family Court proceedings must be given to that creditor or claimant. The Full Court did not hold, as the trial judge held, that disclosure to the court may discharge the obligation of the parties. Such a disclosure, however may discharge the obligation if thereafter, the court directed that appropriate notice of the proceedings be given to such creditor and such notice was in fact given. Here there was a clear and flagrant breach of the obligation to disclose creditors or claimants, to give them notice of the proceedings, or to inform the court of such matters so that it could take steps to ensure that the creditors or claimants were notified.
The husband by his actions deliberately deprived the court of the ability to carry out its statutory function of considering the effect of the proposed orders upon the ability of creditors to recover the creditor’s debt. Clearly the transfer of the husband’s interest in the Suburb D property to the wife clearly deprived his creditors of the opportunity to have a recourse to it. It is true that the interests of unsecured creditors do not automatically ‘trump’ the interests of the non-bankrupt spouse. As Coleman J said with the concurrence of Thackray and Ryan JJ in Trustee of the Property of G Lemnos, a bankrupt v Lemnos [2009] FamCAFC 20 at [99]:
…[T]he legislation now requires the court to balance their competing claims in the exercise of the wide discretion conferred upon the court by s 79.
That passage is entirely consistent with the earlier authorities to which I have referred.
It was submitted by the wife that it was incumbent on the applicants to satisfy the court that had the matters which had not been disclosed had in fact been disclosed to the court the wife would have received less than the orders allowed for. This is not correct.
It is true that in Barker v Barker [2007] FamCA 13 the Full Court said at [123]:
As previously discussed, in order for a claim under s 9A(1) to succeed, the court must be satisfied that a miscarriage of justice has resulted. It is not sufficient to merely to establish the existence of one or more of the stated grounds such as suppression of evidence. In Livesey v Jenkins Brandon LJ had this to say about the nexus between non-disclosure and setting an order aside:
I would end with an emphatic word of warning. It is not every failure of frank and full disclosure which would justify the court in setting aside an order of a kind concerned in this appeal. On the contrary, it will only be in cases whene the absence of full and frank disclosure has led to the court making, either in contested proceedings or by consent, an order which is substantially different from the order which it would have made if such disclosure had taken place that a case for setting aside can possibly be made good. Parties who apply to set aside orders on the ground of failure to disclose some relatively minor matter or matters, the disclosure of which would not have made any substantial difference to the order which the court would have made or approved, are likely to find their applications being summarily dismissed, with costs against them, or, if they are legally aided, against the legal aid fund.
(Reference omitted)
However their Honours continued at [124]:
But s 79A is a remedial section designed to avoid a miscarriage of justice. Where there is some intervening factor known to one party, but not the other, this may lead to a result which is unfair and unjust and can be characterised as a flaw in the judicial process by which the orders were made. There may also be circumstances in which the judicial process could be impugned by a sale after the orders were made in the absence of bad faith by either party or suppression of some relevant fact if it led to a significant miscarriage of justice.
In the marriage ofDV v PM Morrison (1994) 18 Fam LR 519, after quoting the same passage of Lord Brandon in Livesey v Jenkins All ER 119, the Full Court continued:
Rather than use as Lordship’s test of ‘the order which it would have made’, we would suggest that the test is more properly expressed as ‘the order which it might have made’. Section 79A has been described many times as a remedial section. This and the passage just quoted are sufficient to dispose of the wife’s submission.
At the time the consent orders were made there was very limited evidence before the court as to the basis for the property division sought. There was incomplete disclosure given so that the complete picture of the respondents’ assets and liabilities is not known. They did not give evidence in these proceedings as to what the true picture was in July 2008.
If information had been properly disclosed it is not known whether the creditor with the judgment debt or the creditor about to receive a judgment debt what their attitude towards the orders would have been. They may well have asserted, if there was a proper basis for doing so, that both the husband and the wife should bear the obligation of repayment of the creditor (see for example Johnson v Johnson (No.1) [1999] FamCA 369 at [20.04]-[20.07]; Lemnos Lemnos (supra) at [245]-[247]). They are likely to have challenged the orders that were made.
Since those are all imponderables it is impossible to say what order would have been made by the court. It is, however, clearly possible to say that is was likely, if not certain, that there would have been at least the consideration of the creditors claim. Had there been proper disclosure it is certain that the court would not have made the orders that it made without notice having been given to the creditor and the claimant and quite clearly after having given that notice the court might well have made a different order from the order that was sought by consent.
One, therefore, cannot say what the wife would have received on a proper consideration of the matter. To suggest that the applicants bear the burden of establishing that the wife received more than she was properly entitled overlooks these matters.
For those reasons the submission of the first respondent is rejected.
In any event, this submission, combined with the submission that ‘the husband would have had to deal with his creditors from his share of the property that was an equitable division’, is not supported by the evidence.
The only evidence before the court that would bear on those matters is the evidence contained in the Application for Consent Orders to which reference has already been made.
The parties set out their contributions. No factors under s 75(2) were raised. It is difficult to see how that meagre material justifies the orders that were made. In any event, the material, if any, that would justify the orders was in the hands of the respondents and not the applicants.
The applicants were, thus, not obliged to establish that the wife would have received less than she did upon a proper and full consideration of the matter.
I am also satisfied that the facts in this matter fall within ‘any other circumstance’ in section 79A(1)(a) (See Wilson v Wilson [1967] 10 FLR 203).
In Barker (supra) the Full Court said at [120]:
A miscarriage of justice under s 79A(1)(a) will occur if circumstances exist which ‘for some significant reason, make the order contrary to law and justice according to law as it relates to the integrity of the judicial process” (original emphasis) (Big v Suzi) above in [4.5]). (See also Suiker; Public Trustee v Gilbert). While cases such as Suiker; In the marriage of Holland (1982) 8 Fam LR 233; (1982) FLC 91-243; and In the marriage of Gebert (1990) 14 Fam LR 62; (1990) FLC 92-137 indicate that the words ‘miscarriage of justice’ should not be construed narrowly and that the phrase ‘integrity of the judicial process’ should not be taken only to refer to the hearing in court, the circumstances creating the miscarriage must nevertheless have been such to have had an influence on the outcome of the litigation”…
In the present case the non-disclosures meant that the court made the orders that it did in ignorance of the true position of the creditors of the husband and his financial affairs. It did so when it was informed on oath that there were no other parties to whom notice of the proceedings should be given.
The court was thus induced to make orders on a false basis.
Any entitlement of the creditor or claimant to be present and to be heard to protect their interests and have them taken into account before property orders were made was entirely denied.
There was clearly a miscarriage of justice by reason of the fraud, suppression of evidence and false evidence of the husband. Should there be any doubt, these matters also constitute appropriate other circumstances giving rise to a miscarriage of justice.
Whether the Orders should be set aside
Non-disclosure or suppression of evidence can take different forms. It may be non-disclosure to one of the other parties to the proceedings or non-disclosure to the court.
In this case the parties were obliged to complete an Application for Consent Orders in a form prescribed by the court. They are required to verify that application by affidavit. Thus the non-disclosure and suppression of evidence were directed towards the court. The court was used as part of a strategy to move assets from the husband to the wife to defeat creditors.
Lest there be any doubt, had this been a genuine attempt to approach the court for consent orders, without any desire to defeat the interests of creditors, then there would have been proper disclosure of those creditors and their liabilities and they would have been identified as parties to whom notice of the proceedings should have been given and notice to them would have been given.
I have found that the husband’s non-disclosure was deliberate and dishonest. It constituted a fraud upon the court.
The parties were legally advised. They swore that they had read section 79 which includes section 79(10) dealing with creditors and section 75(2) which again in part refers to creditors.
In circumstances where the court has been used as an instrument to defeat creditors, particularly having regard to the scale of the creditors in these proceedings, and as an instrument of fraud it must almost invariably follow that the orders should be set aside. The court should not continue to add its imprimatur to orders that it knows have been obtained for an improper purpose or as a result of dishonest disclosure. If the same orders are likely to be made upon a proper consideration of the matter upon full and frank disclosure so be it - they can be made after that disclosure and consideration.
That consideration is sufficient, of itself, to justify the setting aside of the orders.
It was argued by the respondents that there was either no miscarriage of justice, or that the orders should not be made setting aside the consent orders because the creditors of the bankrupt estate would not benefit from the orders. This is so, it is said, because the deed of assignment has the effect that the creditors will not receive any benefit from the orders being set aside. They will only receive the benefit of the consideration paid by the first applicant for the assignment. It is the first applicant who will receive the benefit of the proceeds of this action, if any.
For the reason just given this submission cannot stand.
Secondly, the acts of the parties had the effect of delaying the creditors and, whilst the order stood, defeating them. This occurred at the time the orders were made giving rise to a miscarriage of justice at that time.
The fact that the creditors, through the Trustee in Bankruptcy, have accepted a certain sum but have given away the opportunity otherwise to receive any fruits of these proceedings does not detract from that miscarriage of justice. Indeed, it rather points to such a miscarriage.
It is well established that a trustee in bankruptcy is obliged to administer the bankrupt estate for the benefit of the creditors. In doing so the trustee in bankruptcy is not obliged him or herself to pursue every cause of action available to them. Indeed, frequently they do not have the funds to enable them to do so. Commonly, however, trustees in bankruptcy assign for consideration causes of action that are vested in them. In doing so they obtain a sum certain for distribution amongst the creditors who are not then exposed to the vagaries of litigation or the costs thereof. It is precisely that has occurred at the present case.
The creditors have been put in such a position because of the conduct of the parties. Steps taken by them to mitigate their loss should not be held against them.
Thirdly, it would be contrary to the policy of the Act and the Bankruptcy Act which is that debtors should not be able to defeat their creditors. Accepting the respondents’ submission would mean that creditors of a bankrupt estate, or correctly the trustee of that estate, could not assign their rights under section 79 to a third party unless that third party was a creditor who would benefit from the proceedings in their capacity as a creditor. Such a restriction is unnecessary and undesirable.
At the time of this application the husband is a bankrupt. Therefore section 79A(4) (which provides that a creditor is taken to be a person whose interests are affected by the order if the creditor may not be able to recover his or her debt because the order has been made) does not apply.
Instead section 79A(5) applies and the Trustee in Bankruptcy is taken to have standing. The Trustee in Bankruptcy does not need to adduce any evidence as to whether or not they may be able to recover their debt because the order has been made.
It follows that it is not relevant that the first applicant will be the one that benefits directly from the proceedings. In any event, the creditors have benefitted from the consideration paid to the second applicant as consideration for the assignment.
As found earlier it might well be that different orders were made upon a consideration of the full facts of the matter. The setting aside of the orders does not preclude the court from then considering what is, in all of the circumstances a proper order under section 79. Indeed the Act requires the court to consider that as the next step after the order has been set aside.
Accordingly, it is appropriate to set aside the orders that were made on 30 July 2008.
Whether the Orders should be set aside in whole or in part
There was only one dispositive order in the consent orders. The applicants propose that, as an alternative to setting aside all of the orders, only that order could be set aside. To do so would, in my view, be to vary the orders as opposed to setting them aside.
In considering whether to vary the orders or to make new orders the court is obliged to take into account all of the circumstances prescribed by section 79 (including the factors prescribed by section 75(2)).
Neither the husband nor the wife gave evidence. Their present financial circumstances are not known. Whether or not there are any section 75(2) factors required to be taken into account are not known. Other than for the material described earlier contained within the application for consent orders there is no evidence as to their financial and non-financial contributions to the property of the parties or the welfare of the family.
No consideration can be undertaken as to whether it is appropriate to vary the orders in those circumstances.
For the same reason no new orders for a property settlement can be made.
It was submitted by the respondents that in order properly to consider another order under section 79 the court would require current information from the trustee as to the true position of the creditors, the true position of the bankrupt, his conduct and that of his predecessors, an investigation as to whether there are any assets of the bankrupt that are still able to be attained and evidence as to why his application is in the interests of the creditors. In the absence of such evidence, it is submitted, the application should be dismissed.
I do not see how that follows. It merely adds support to the view that another order under section 79 cannot presently be considered.
Without accepting that all, or indeed any of those matters are relevant to any particular application that might be made under section 79, this submission highlights the undesirability of proceeding to consider any order under section 79.
Conclusion
Consequently, the only order that can be made is that the orders in their entirety be set aside.
For the reasons given earlier that is an entirely proper order, in any event.
The authorities establish that generally speaking the court should deal with all of the steps under section 79A at the one hearing (see In the marriage of Patching (1995) 18 Fam LR 675).
Section 79A(1) concludes with the words ‘… and if it considers appropriate, make another order under section 79 in substitution for the order so set aside’.
In the present circumstances it is impossible to consider making an order under section 79 for the reasons that have just been given. Accordingly, this is one of the exceptional cases referred to in the authorities.
The effect of the orders thus is that the consent orders will be set aside and there will be an order for the payment of the money presently held in the bank account to the second applicant. This leaves any of the parties free to seek leave to bring an application under section 79 out of time and, if granted, to proceed with that application.
Accordingly, the orders will be set aside and there will be an order directing payment of the funds presently held to the second applicant.
I certify that the preceding one hundred and sixty one (161) paragraphs are a true copy of the reasons for judgment of the Honourable Justice Aldridge delivered on 27 June 2014.
Associate:
Date: 27 June 2014
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